Latest / Bloomberg Intelligence / Debt ETFs Could Grow to $2 Trillion: BlackRock’s Tucker

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Debt ETFs Could Grow to $2 Trillion: BlackRock’s Tucker · 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 Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
• 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. I'm
• 0:31
  Speaker 1: so pleased to have our next guest, someone who I've
• 0:33
  Speaker 1: been speaking with for years, but who now has a beard,
• 0:36
  Speaker 1: so it's completely different. Matt Tucker, head of I Shares
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  Speaker 1: America's fixed income strategy at black Rock, the first portfolio
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  Speaker 1: manager for a fixed income et F How much the
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  Speaker 1: world has changed since then? Right? Quite a bit? Good morning, Lisa. Yeah,
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  Speaker 1: you know. The joke I make is that I was
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  Speaker 1: the first PM on the first fixed income e t
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  Speaker 1: f B. At the time, nobody cared. Right now, Well,
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  Speaker 1: but one day I want to ask you about, especially
• 1:01
  Speaker 1: as the total a U m asset center management and
• 1:04
  Speaker 1: fixed in comm e TF swells to eight hundred billion dollars,
• 1:08
  Speaker 1: where do we go from here? Are we sort of
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  Speaker 1: past peak growth for this industry given the fact that
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  Speaker 1: rates are rising, or do you see this a total
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  Speaker 1: significantly increasing over the next few years, you know. A
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  Speaker 1: For me, I think the joke is that we're still
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  Speaker 1: in the early innings. Right. If you look at the
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  Speaker 1: market so global fixed in com ets, as you said,
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  Speaker 1: it's over eight hundred billion. The fixed income market is
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  Speaker 1: over a hundred trillion dollars, So less than one percent
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  Speaker 1: of all the bonds and kind of bond exposures in
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  Speaker 1: the world are in ETFs, but so many of them
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  Speaker 1: aren't even that liquid. So how much is sort of
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  Speaker 1: ETF a bowl? I think a lot more, um, So
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  Speaker 1: give us some projections. So I think in the next
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  Speaker 1: five years you could see this will easily cross a
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  Speaker 1: trillion and probably approached two trillion globally for fixed in
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  Speaker 1: com ETFs. And we're still growing at pretty healthy fift
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  Speaker 1: year growth rates um. Things like So, I think I
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  Speaker 1: have to look at a couple different trends. So one
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  Speaker 1: is you're just seeing more adoption of e t f
• 1:58
  Speaker 1: s as a way to invest in fixt income markets. Right,
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  Speaker 1: they do a lot of things that you can do.
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  Speaker 1: The one you can do the ETF you can't do
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  Speaker 1: with the mutual fund or a bond, right, But at
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  Speaker 1: the same time, you do have kind of these shorter
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  Speaker 1: term periods where you have like rising rates that might
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  Speaker 1: cause some pullback and fixed income, but that doesn't diminish
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  Speaker 1: the overall trend, right, I mean, go back to thirteen,
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  Speaker 1: the fan went, he had the taper tantrum. Rates went up,
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  Speaker 1: people pulled money out of fixed income ETFs. Money came out,
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  Speaker 1: but they went back in in fourteen, fifteen, sixteen, seventeen.
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  Speaker 1: So you're gonna have these short term pullbacks, but long term,
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  Speaker 1: I mean, the trend is still. I think you're gonna
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  Speaker 1: still see adoption because there's still so many investors discovering
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  Speaker 1: bond ETFs. So where's the biggest opportunity, where's the biggest
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  Speaker 1: growth could come from? So I think the biggest growth
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  Speaker 1: is this move towards model portfolios that's happening in the
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  Speaker 1: wealth space, right, so so many wealth managers smart smart data,
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  Speaker 1: well not even a smart data. So to put that aside,
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  Speaker 1: I'll I think there is a growth area. But if
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  Speaker 1: you put that aside and just say kind of bread
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  Speaker 1: and butter, how investors invest today is changing. So it
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  Speaker 1: used to be that a portfolio manager, say it a
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  Speaker 1: say called a financial advisor would go buy a couple
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  Speaker 1: active funds and say, Okay, that's my bond allocation. Now
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  Speaker 1: they're saying, you know what, I can use e t
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  Speaker 1: F to actually build my own exposure at the client level,
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  Speaker 1: so every individual investor can have a customized fixed income portfolio.
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  Speaker 1: That trend is still growing. I think it'll be a
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  Speaker 1: ton more adoption of body tfs around that trend alright, So,
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  Speaker 1: certainly there has been a lot of growth in government bonds.
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  Speaker 1: Certainly there's been quite a bit of growth in corporate bonds.
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  Speaker 1: But when it comes to the risk of your debt
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  Speaker 1: high your bondy ts, for example, the assets have kind
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  Speaker 1: of stagnated. It seems like recently there's been sort of
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  Speaker 1: a leveling off, and even as volumes increase in institutions
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  Speaker 1: use it more, it kind of has seems to have
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  Speaker 1: reach a saturation point. Do you think that that's the case.
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  Speaker 1: Do you think that they're sort of done growing. I'm
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  Speaker 1: much sure they're done growing forever. I think at this
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  Speaker 1: part of the cycle. Though, if you kind of look
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  Speaker 1: at who's using them right now, you have a lot
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  Speaker 1: of institutions, as you mentioned, using high O dtfs, the
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  Speaker 1: liquidity is very strong. Um there, there's kind of enough
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  Speaker 1: float out there to kind of support the liquidity that's
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  Speaker 1: out there. I think if you had a period where
• 3:52
  Speaker 1: investors started to allocate more to HIE out as an
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  Speaker 1: asset class, you'd see it grow. But honestly, where spreads
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  Speaker 1: are right now and we are in the cycle, you're
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  Speaker 1: just not seeing a lot of investor to and an
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  Speaker 1: appetite for high yield um. Different part of the cycle
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  Speaker 1: that changes, I think they grow, but I think at
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  Speaker 1: this point it's hard to imagine it would grow, right
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  Speaker 1: just like you're not seeing growth in highled mutual funds
• 4:09
  Speaker 1: or other HILD vehicles. So, Matt, what do you think
• 4:11
  Speaker 1: of bitcoin ETFs? We don't have any yet. I mean
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  Speaker 1: bitcoin has got a hold of the problem and that
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  Speaker 1: no one's quite sure if it's a security or not, right,
• 4:19
  Speaker 1: and so kind of tell you to fine. If it's
• 4:21
  Speaker 1: a security, it's hard to actually put it into something
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  Speaker 1: else which is a security. So I think the regulators
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  Speaker 1: have a lot of work to to kind of figure
• 4:26
  Speaker 1: that out and figure out how to legally treat bitcoin.
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  Speaker 1: But once you actually have it established, the rules are established, sure,
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  Speaker 1: I can see making its way to do an E
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  Speaker 1: T F as long as it was eligible. Well, just
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  Speaker 1: talking about that, I'm wondering with some of the derivatives
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  Speaker 1: that have been used in e t F. Some'm thinking
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  Speaker 1: of an E t F complex that has credit default
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  Speaker 1: swaps as the backing. It's just sort of a derivative
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  Speaker 1: of a derivative. Does that start to get you nervous
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  Speaker 1: or you know, with the right parameters and the right holdings,
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  Speaker 1: it's fine. I think as long as you structure and
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  Speaker 1: manage the risks appropriately, it can be fine. Right, so
• 4:56
  Speaker 1: as you can imagine AID and all these things. I
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  Speaker 1: think there are actually in the market credit fault swap
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  Speaker 1: you know, back t tps. But as long as those
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  Speaker 1: are fully collateralized, there's not a lot of leverage, I
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  Speaker 1: think it can work. I think if you started getting
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  Speaker 1: into layers of leverage, I think that's the lesson of
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  Speaker 1: ten years ago, right, that's when you start to create
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  Speaker 1: these structures that can unwind quickly in a crisis, but
• 5:15
  Speaker 1: fully collateralized, fully back whether you hold a bond or
• 5:17
  Speaker 1: a derivative, it shouldn't matter much. Actually, are there bad
• 5:20
  Speaker 1: actors in the E t F world that are doing
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  Speaker 1: things that you think are imprudent? That's always a tough question. Um,
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  Speaker 1: I like to I like to make your life difficult.
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  Speaker 1: I think there are more and more actors in this space.
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  Speaker 1: Right so I sit in a seat to your point
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  Speaker 1: where I've been doing this for more than sixteen years now,
• 5:35
  Speaker 1: right so I take kind of a long lens on
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  Speaker 1: this where I think there are very good providers who
• 5:39
  Speaker 1: put out very good products where they understand their risks
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  Speaker 1: and how to list them, like black Rock for example.
• 5:45
  Speaker 1: Not to make this commercial, but yeah, so I feel
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  Speaker 1: like when we've been doing this so long, we understand
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  Speaker 1: this and understand how to do it. As you get
• 5:50
  Speaker 1: new players market, you can't name names, but but I
• 5:52
  Speaker 1: think you could firms that don't really understand the underlying
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  Speaker 1: don't understand how to create funds. I think there's risks
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  Speaker 1: like any industry, right you get more players in But
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  Speaker 1: but what kind of reputational risk is there to you
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  Speaker 1: and to your firm given the fact that there are
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  Speaker 1: more players, some with less perhaps prudent standards. Um, I
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  Speaker 1: am something that we definitely think about and talk about,
• 6:14
  Speaker 1: right this This idea that if there was a bad
• 6:17
  Speaker 1: actor who made some big mistake, there could be some
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  Speaker 1: taint the e t F industry. That's kind of a
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  Speaker 1: tail risk that every industry has, right, But I think
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  Speaker 1: that the forces pushing the growth of ETFs are strong
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  Speaker 1: enough that the industry would weather any such event. I'm
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  Speaker 1: not really concerned about as a long term risk, but
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  Speaker 1: as a short term pullback or cause for concern, or
• 6:34
  Speaker 1: an area where you might have to educate more. Yeah,
• 6:36
  Speaker 1: I mean there could be something. If you look at
• 6:37
  Speaker 1: leverage inverse funds classic example, right, they've gone through some
• 6:40
  Speaker 1: periods that they've had a lot of scrutiny from regulators
• 6:42
  Speaker 1: from investors, and when that's happened, we've gone out and
• 6:45
  Speaker 1: done a lot of education to help people understand, like,
• 6:47
  Speaker 1: these are what these securities are, this is how they operate.
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  Speaker 1: These are risk you should worry about. And as long
• 6:52
  Speaker 1: as we keep doing that in educating the market, I
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  Speaker 1: think we're fine. Matt Tucker, so good to see you,
• 6:57
  Speaker 1: like the beard. Thank you. Matt Tucker is the head
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  Speaker 1: of I Shares America's for fixed income strategy at black Rock.
• 7:03
  Speaker 1: He was the first portfolio manager for a fixed income
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  Speaker 1: et F. He said people didn't really care back then
• 7:10
  Speaker 1: nearly two decades ago, but people certainly care today. When
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  Speaker 1: there is eight hundred billion dollars in fixed income et fs,
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  Speaker 1: and definitely this is an increasing area where people are
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  Speaker 1: seeing both liquidity and an ability to invest in debt
• 7:24
  Speaker 1: at relatively low fees. All focused today on marijuana, in
• 7:39
  Speaker 1: particular Till Right, the Canadian cannabis company that has searched
• 7:43
  Speaker 1: four hundred percent in just months and is now more
• 7:47
  Speaker 1: valuable than American Air, Clorox and CBS. So who's hearing coaching?
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  Speaker 1: Perhaps it's Sam Massuchi. He joins us now. He's founder
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  Speaker 1: and chief executive officer of e t F Managers Group
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  Speaker 1: in Summit, New Jersey. Sam, thank you so much for
• 8:01
  Speaker 1: being with us. You have an exchange traded fund that
• 8:05
  Speaker 1: invests in marijuana companies. How has it benefited from the
• 8:10
  Speaker 1: recent popularity of all things marijuana. Well, the fund, which
• 8:14
  Speaker 1: was launched by the way at the end of December
• 8:17
  Speaker 1: last year with seven million, is now over six million
• 8:21
  Speaker 1: in assets. We had a thirty million in UH you
• 8:25
  Speaker 1: know since August. UM it's had a record high yesterday
• 8:29
  Speaker 1: and we're up mid August. So all of this positive news,
• 8:34
  Speaker 1: whether it's related to UH til ray, the recent canopy
• 8:38
  Speaker 1: growth transaction, UM, you know, growing global acceptance of marijuana
• 8:45
  Speaker 1: is really helping the funds and investors in the funds.
• 8:47
  Speaker 1: How concerned are you about deploying that cash because there's
• 8:51
  Speaker 1: sort of a limited number of candidates here to receive it,
• 8:54
  Speaker 1: certainly in the public market. Yeah, I mean currently the
• 8:58
  Speaker 1: fund has thirty four hold things across the globe. UM.
• 9:02
  Speaker 1: The number of opportunities and target companies I think will
• 9:05
  Speaker 1: continue to grow as again there's more regulatory certainty around
• 9:10
  Speaker 1: the space and more companies UH start to enter. So
• 9:15
  Speaker 1: I think the universe of stocks is just going to
• 9:17
  Speaker 1: keep growing. I mean, how do you define a marijuana
• 9:19
  Speaker 1: marijuana stock when a company like Coca Cola is thinking
• 9:23
  Speaker 1: about creating a drink that uses one of the ingredients
• 9:26
  Speaker 1: in cannabis to provide certain benefits or effects, and when
• 9:32
  Speaker 1: the big tobacco companies are behind the scenes trying to
• 9:35
  Speaker 1: lobby for legalization and create throw networks. So what we
• 9:39
  Speaker 1: do is we UM And by the way, this is
• 9:41
  Speaker 1: an index based fund. The index is produced by Prime
• 9:44
  Speaker 1: Indexes and we manage the portfolio to mass the index.
• 9:48
  Speaker 1: But the index is actually split up between pure marijuana
• 9:52
  Speaker 1: plays as well as companies that are becoming very involved.
• 9:56
  Speaker 1: But it's not their core business. I think Scott's Miracle
• 9:59
  Speaker 1: could grow, which is one of our holdings, is a
• 10:01
  Speaker 1: good example of that. Philip Morris is another. So it
• 10:05
  Speaker 1: is unique in that it is a pure play. It
• 10:07
  Speaker 1: does offer access to companies that are not UM only
• 10:11
  Speaker 1: in the cannabis space, as I said, in like a
• 10:13
  Speaker 1: Scots or a uh you know, some of these other
• 10:17
  Speaker 1: funds Philip Mars. But it does offer this kind of
• 10:20
  Speaker 1: access that benefits from the growth in this space, investor
• 10:23
  Speaker 1: demand and certainty around regulations. So, Sam, you are the
• 10:28
  Speaker 1: first cannabis et F in the US. Are you seeing
• 10:31
  Speaker 1: a lot of other E t F providers follow on
• 10:34
  Speaker 1: and try to get in the game as well recently? Um,
• 10:38
  Speaker 1: I'm not. I mean we're the only pure play in
• 10:40
  Speaker 1: the US. UM, there is a pure play in Canada. UM.
• 10:43
  Speaker 1: We have the benefit of having first mover advantage as
• 10:48
  Speaker 1: of all of our funds, our first mover UM and
• 10:50
  Speaker 1: so this is a very first mover driven business E
• 10:55
  Speaker 1: t F thematic ets in particular. So it's not to
• 10:58
  Speaker 1: say that others might not get in all, but you know,
• 11:01
  Speaker 1: we have that space. How concerned aregue that this is
• 11:03
  Speaker 1: just a passing fad? That this sort of is a
• 11:05
  Speaker 1: rolling ball of money that will roll out of the
• 11:08
  Speaker 1: cannabis space as we get more certainty around regulations and
• 11:12
  Speaker 1: get a clear sense of the winners and losers here. Um,
• 11:15
  Speaker 1: I don't think it is. I think it is an
• 11:17
  Speaker 1: industry and really within its infancy and again around the globe,
• 11:21
  Speaker 1: people are learning more about the medicinal properties. It's being
• 11:26
  Speaker 1: used for things like the treatment of children's epileptic seizures,
• 11:29
  Speaker 1: chrone disease, It's weaning people off of opioids. So certainly
• 11:33
  Speaker 1: the medicinal side of it will continue to grow as
• 11:36
  Speaker 1: we better understand the science and the benefits. One thing
• 11:38
  Speaker 1: I don't understand, though, is that's not where the real
• 11:40
  Speaker 1: growth opportunity comes from, right, I mean the real growth
• 11:43
  Speaker 1: here could be from recreational use, where it puts the
• 11:46
  Speaker 1: cannabis industry on par with the alcohol industry or the
• 11:51
  Speaker 1: tobacco industry. Correct. Well, well, I I don't know that
• 11:54
  Speaker 1: I agree with that. I think there's there There are
• 11:56
  Speaker 1: is two pronged growth, which is a benefit to investing
• 11:59
  Speaker 1: in this space. Sure, there is a recreational side. There's
• 12:03
  Speaker 1: less acceptance of recreational certainly within the US and globally
• 12:06
  Speaker 1: than medicinal, but there were very large companies doing some
• 12:10
  Speaker 1: tremendous work in the medicinal space, all benefiting from marijuana,
• 12:15
  Speaker 1: particularly the CBD components of the cannabis plant. So now
• 12:19
  Speaker 1: I think you're gonna see a lot of growth both
• 12:21
  Speaker 1: in both sections, which benefits the fund either way. Sam,
• 12:25
  Speaker 1: who are the investors that you're seeing put money into
• 12:27
  Speaker 1: your fund for the most partment, institutions, individuals, all of
• 12:31
  Speaker 1: the above. I mean we literally have hundreds of thousands
• 12:34
  Speaker 1: of investors in the fund. The ticker, by the way,
• 12:37
  Speaker 1: is m j UM. It's a stock that that you
• 12:40
  Speaker 1: know today. It's a you know, it's a forty four
• 12:42
  Speaker 1: dollar and thirty cent stock. So I think what it's
• 12:45
  Speaker 1: benefiting from is a lot of people wanted to invest
• 12:48
  Speaker 1: in this space, but they wanted to get away from
• 12:51
  Speaker 1: single stock risk. When you buy a portfolio of thirty
• 12:55
  Speaker 1: four thirty six stocks, it's giving you access to the theme,
• 13:00
  Speaker 1: but they're not having to do the research to pick
• 13:02
  Speaker 1: the right horse. This is a fund that does that
• 13:05
  Speaker 1: for you. Thank you so much for joining us. Really
• 13:08
  Speaker 1: a good time for for mj for your fund, UH
• 13:11
  Speaker 1: in a really compelling time as we watched the shift
• 13:14
  Speaker 1: from illegal to select legality and potentially beyond. Sama Succi,
• 13:19
  Speaker 1: founder and chief executive officer of et F Managers Group
• 13:22
  Speaker 1: in Summit, New Jersey. MJ invests in a range of
• 13:26
  Speaker 1: cannabis focused companies, UH, and it's just interesting to see
• 13:30
  Speaker 1: just how much these stocks have absolutely skyrocketed this year.
• 13:35
  Speaker 1: M J up nearly thirty seven percent year to date.
• 13:39
  Speaker 1: Till Ray, of course, is rocketing past some of the
• 13:42
  Speaker 1: hundred year old companies that are mainstays in the broader
• 13:45
  Speaker 1: US equity in disease. We have the chief ex oecative
• 14:00
  Speaker 1: officer of Auto Nation who started as a mechanic at
• 14:04
  Speaker 1: a mar Cities Benz dealership and has risen through the
• 14:08
  Speaker 1: ranks steadily to become the CEO, and he joins us
• 14:11
  Speaker 1: here in our eleven three studios as well, of course
• 14:14
  Speaker 1: as Craig Trudel, us Auto's team leader based in New York.
• 14:17
  Speaker 1: Here for us at Bloomberg News, Mike, thank you so
• 14:21
  Speaker 1: much for being with us. Mike Jackson, UH, executive Chairman
• 14:25
  Speaker 1: of Auto Nation. The announcement today that you are going
• 14:28
  Speaker 1: to retire as CEO and help find the next leader,
• 14:33
  Speaker 1: was this decession hard for you? To do now. I've
• 14:36
  Speaker 1: been thinking about it for us some years. Uh. The
• 14:41
  Speaker 1: company is in a great position, so there's a good
• 14:44
  Speaker 1: window for a transition. And next year I'll be seventy
• 14:49
  Speaker 1: years old and we'll have been CEO then for twenty years,
• 14:54
  Speaker 1: always sort of like breaking the rule of ninety and
• 14:58
  Speaker 1: so I think it's uh uh the right moment to
• 15:01
  Speaker 1: uh kick off a transition to an exciting new CEO
• 15:06
  Speaker 1: and UM the boards taking responsibility for the recruitment and
• 15:12
  Speaker 1: selection of the next CEO. I'm sure it will be
• 15:16
  Speaker 1: an outstanding, exciting, vibrant UH leader to join Auto Nation.
• 15:21
  Speaker 1: And my contract has been extended uh through as executive chairman.
• 15:27
  Speaker 1: So I'm excited myself to start an exciting new chapter
• 15:31
  Speaker 1: with the company. So, Mike, before we get into all
• 15:34
  Speaker 1: of the succession planning, I'm just wondering going forward, you know,
• 15:38
  Speaker 1: is the used car sales business going forward going to
• 15:42
  Speaker 1: look very different from the one that you grew up in. Well,
• 15:45
  Speaker 1: there's no question that's very different, and we've had a
• 15:48
  Speaker 1: part in changing it. We've branded the company Auto Nation
• 15:53
  Speaker 1: uh coast to coast, and we moved to one price
• 15:56
  Speaker 1: in all our pre owned operations across the comp ay
• 16:00
  Speaker 1: and our customers absolutely love it. It's how they want
• 16:05
  Speaker 1: to buy cars. It's and and our associates love eliminating
• 16:11
  Speaker 1: all the negotiation and haggle and be able to do
• 16:14
  Speaker 1: it much quicker. So if I look at our second
• 16:16
  Speaker 1: quarter for pre owned, uh, we're in that wonderful quadrant
• 16:19
  Speaker 1: where we have higher volumes at higher gross margins. Yeah, Greig,
• 16:24
  Speaker 1: come on in here. Yeah. And it's hard to talk
• 16:26
  Speaker 1: about all the change on the used car side without
• 16:29
  Speaker 1: talking as well about all of the changes on I'm sorry,
• 16:33
  Speaker 1: I'm the used car side without changes on the new side. Uh.
• 16:36
  Speaker 1: And maybe the biggest story in that respect for some
• 16:39
  Speaker 1: years now has been Tesla for a lot of people,
• 16:43
  Speaker 1: and this idea that can the the automaker sort of
• 16:47
  Speaker 1: circumvent the franchise model that we've come to know in
• 16:50
  Speaker 1: the US. How is that going for Tesla at this point?
• 16:53
  Speaker 1: In your view? Well, how how's it going for Tesla? Period?
• 16:56
  Speaker 1: I mean I have to you have to tip your hat.
• 16:59
  Speaker 1: The is is good for a luxury all electric vehicle,
• 17:05
  Speaker 1: and they were there first, and they've built a brand
• 17:08
  Speaker 1: that almost as a cult following They've never been able
• 17:12
  Speaker 1: to make money doing that. And their capital structure is
• 17:17
  Speaker 1: absolutely scary. Uh So the sustainability and viability is very
• 17:23
  Speaker 1: much open to question. Now. As far as their distribution model,
• 17:27
  Speaker 1: it's not what I would have chosen, but this is America.
• 17:31
  Speaker 1: I believe in free enterprise. If that's how they want
• 17:33
  Speaker 1: to do it, fine, I would observe that the rest
• 17:39
  Speaker 1: of us have electric vehicles coming in big numbers over
• 17:43
  Speaker 1: the next several years. Um Audi just launched its Etron
• 17:47
  Speaker 1: yesterday in San Francisco. It's absolutely sensational. So these are
• 17:52
  Speaker 1: very compelling electric vehicles and for the first time, on
• 17:56
  Speaker 1: top of everything else, Tesla is going to have real
• 17:59
  Speaker 1: company Titian and Elon Musk said that he was in
• 18:03
  Speaker 1: production hell last year. He recently said he's in deliveries hell.
• 18:07
  Speaker 1: Is that a hell that could have been avoided had
• 18:09
  Speaker 1: he not sort of snubbed his nose at the franchise dealer.
• 18:12
  Speaker 1: Greg I said this years ago. I said it for
• 18:15
  Speaker 1: a boutique model. What he's doing is fine. As soon
• 18:19
  Speaker 1: as he wants to do value, it's going to be
• 18:21
  Speaker 1: an issue. Well, here we are. We're now at the issue.
• 18:25
  Speaker 1: It is hell and um you know, all you have
• 18:29
  Speaker 1: to do is see these Model three sitting all over California.
• 18:32
  Speaker 1: And yeah, so, Mike, I do want to get your
• 18:36
  Speaker 1: your thoughts. The automation shares are down quite a bit
• 18:39
  Speaker 1: this year, but down about and there's been a lot
• 18:41
  Speaker 1: of concern raised about how we've reached peak autos and
• 18:45
  Speaker 1: we've turned to the corner and we're starting to see
• 18:47
  Speaker 1: some wobbly sales. What's your view there and do you
• 18:50
  Speaker 1: think that it's going to be a rocky road forward
• 18:52
  Speaker 1: for the entire auto industry? Well, I was always very
• 18:55
  Speaker 1: frank that I think I said it coming out of
• 18:58
  Speaker 1: the Auto show in something like that, that uh, auto
• 19:05
  Speaker 1: new vehicle sales are not going to climb forever, uh,
• 19:07
  Speaker 1: and that they're going to level off somewhere in the
• 19:09
  Speaker 1: high sixteen million units. And that's exactly what's happened. There's
• 19:14
  Speaker 1: been a very major shift though towards trucks, which I
• 19:19
  Speaker 1: think is permanent. In a month of August, the mix
• 19:22
  Speaker 1: was as vehicles to find his truck. Do you think
• 19:25
  Speaker 1: it's permanent? I think it's permanent, even with the concerns
• 19:28
  Speaker 1: about at some point we're gonna talk about gas consumption again,
• 19:32
  Speaker 1: now we're not, because alright, then, let me tell you
• 19:35
  Speaker 1: why it's permanent. Uh So, First, it's what the consumer wants.
• 19:39
  Speaker 1: They love the high seating position, they love the utility,
• 19:43
  Speaker 1: and they love the panache that comes with the design.
• 19:45
  Speaker 1: Step two, the fuel economy of these vehicles compared to
• 19:49
  Speaker 1: ten years ago, has doubled. We have small SUVs that
• 19:53
  Speaker 1: are as more fuel efficient than a sitan. It's absolutely amazing.
• 19:57
  Speaker 1: We have pickup trucks that get thirty miles to a
• 20:00
  Speaker 1: gown on the highway. So, and then you combine the
• 20:04
  Speaker 1: fact that gasoline prices are very reasonable of adjusted for inflation,
• 20:09
  Speaker 1: just under three dollars a gallon, and America is producing
• 20:12
  Speaker 1: its own petroleum. Again, We're up to ten million barrels
• 20:14
  Speaker 1: a day with fracking and it's sustainable. So what's going
• 20:19
  Speaker 1: to happen to get the American consumer out of this rucket?
• 20:22
  Speaker 1: Would take five six seven dollars a gallon gasoline to
• 20:25
  Speaker 1: to to push them back into Sedan's. I don't see
• 20:28
  Speaker 1: it happening. So that means um overall, Yeah, uh, it's
• 20:35
  Speaker 1: leveled off, but at a very nice place. All right, Craig,
• 20:38
  Speaker 1: just real quick here, I'd love to get your perspective.
• 20:40
  Speaker 1: Do you ever see a world two people you talk
• 20:42
  Speaker 1: to see a world in which the ride sharing industry
• 20:45
  Speaker 1: overtakes the car ownership industry. Is that going to upset
• 20:48
  Speaker 1: the model here? I think it's really hard to see
• 20:50
  Speaker 1: that in most of America. And I think one of
• 20:53
  Speaker 1: the things that Mike I've heard Mike talk about is
• 20:56
  Speaker 1: is that being really a model that is applicable and
• 21:00
  Speaker 1: useful in the cities, but so much of America, so
• 21:03
  Speaker 1: much so much of the American car buyers are the
• 21:05
  Speaker 1: folks in rural areas where Lift and Uber and the
• 21:09
  Speaker 1: like just have not scaled and are going to have
• 21:11
  Speaker 1: some real trouble, uh, scaling in any meaningful way. And
• 21:15
  Speaker 1: we've seen these companies make a lot of noise and
• 21:17
  Speaker 1: cities and and maybe pick off some buyers on the
• 21:19
  Speaker 1: margin here and there. But uh, you know, we're quite
• 21:23
  Speaker 1: a few years into these companies being around and we're
• 21:25
  Speaker 1: still selling you know, sixteen seven million. Look at who
• 21:28
  Speaker 1: they who They're disrupting taxis, buses, subways, rental cars. So
• 21:34
  Speaker 1: so the shared market is being disrupted by a shared business, yes,
• 21:39
  Speaker 1: and it really hasn't touched the personally used market. Unfortunately,
• 21:42
  Speaker 1: we have to leave it there. Thank you so much
• 21:44
  Speaker 1: for being here. Congratulations on an amazing tenure, uh rising
• 21:48
  Speaker 1: from being a mechanic to the CEO. Mike Jackson, executive
• 21:51
  Speaker 1: chairman of Automation, also chair at the Atlanta Fed. He
• 21:55
  Speaker 1: joins us here in the Leventhreeo Studios. Also our thanks
• 21:57
  Speaker 1: to Craig Trudell, us Auto's team leader for Bloomberg News
• 22:01
  Speaker 1: in New York. I want to talk about housing. There's
• 22:14
  Speaker 1: been a lot of questioning about how strong the US
• 22:17
  Speaker 1: housing market really is. An underlying that angst really is
• 22:21
  Speaker 1: the affordability question. Can Americans afford to own homes? Can
• 22:26
  Speaker 1: they afford the American dream? And joining us down to
• 22:29
  Speaker 1: talk about that is Danielle Hale, chief economist for Realtor
• 22:32
  Speaker 1: dot com. Danielle, thank you so much for being here.
• 22:35
  Speaker 1: Definitely some conflicting data this morning. We saw that US
• 22:38
  Speaker 1: housing starts rose more than forecasts, but permits slumped, suggesting
• 22:42
  Speaker 1: perhaps a little bit of a struggle there. I'm wondering
• 22:45
  Speaker 1: how much of this story is the ability for people
• 22:49
  Speaker 1: to actually buy homes right now? Yeah, I think that's
• 22:53
  Speaker 1: a great point, lisas so, housing starts were up, but
• 22:56
  Speaker 1: if you dig down and look at the data, single
• 22:58
  Speaker 1: family starts eat out just a really minor gain. Most
• 23:02
  Speaker 1: of the game came from a huge jump and multi
• 23:04
  Speaker 1: family starts. And when we think about the owner occupied
• 23:07
  Speaker 1: housing market, it's single family starts that lead to homes
• 23:10
  Speaker 1: that people can buy. Most of the multi family construction
• 23:12
  Speaker 1: that is built is built for rent UM. So this
• 23:15
  Speaker 1: really isn't helping people who are in the market to
• 23:17
  Speaker 1: buy a home. It's probably good news for renters. They
• 23:20
  Speaker 1: might see some relief and rent increases on the horizon,
• 23:22
  Speaker 1: but not so much on the on the home ownership side.
• 23:25
  Speaker 1: So can you talk a little bit about affordability because
• 23:28
  Speaker 1: a news story study that you guys put out showed
• 23:30
  Speaker 1: the only forty one of the US can actually afford
• 23:33
  Speaker 1: to own a home. How does that compare to the past. Yeah,
• 23:38
  Speaker 1: So what we're looking at in that study is the
• 23:41
  Speaker 1: media income family. So the media income family in counties
• 23:44
  Speaker 1: where forty one percent of the nation's population lives can't
• 23:47
  Speaker 1: afford to buy the median home listing price UM, and
• 23:50
  Speaker 1: so things are less affordable now than they have been
• 23:53
  Speaker 1: from most of the last seven or eight years UM.
• 23:57
  Speaker 1: But we're sort of back in line with what a
• 24:00
  Speaker 1: longer term picture of affordability is. So in the last
• 24:03
  Speaker 1: seven or eight years, mortgage rs have been incredibly low.
• 24:05
  Speaker 1: After the housing crisis, prices were low and have since
• 24:09
  Speaker 1: recovered um And so that created a huge opportunity for
• 24:12
  Speaker 1: people to get into the housing market. UM and we're
• 24:15
  Speaker 1: starting to see that that window is closing, at least
• 24:18
  Speaker 1: as far as you know, great opportunities. That doesn't mean
• 24:21
  Speaker 1: there aren't opportunities. Things are just less affordable now than
• 24:24
  Speaker 1: they have been in the recent past. I'm wondering what
• 24:27
  Speaker 1: this does with respect to the dynamic and the rental market.
• 24:30
  Speaker 1: We've seen a lot of money being raised for funds
• 24:33
  Speaker 1: managed by the likes of ox if or Blackstone to
• 24:36
  Speaker 1: buy up rental properties. How much does this sort of
• 24:40
  Speaker 1: create a puzzle or present possibly a challenge to the
• 24:44
  Speaker 1: costs that people end up paying if people are forced
• 24:47
  Speaker 1: into renting more than owning. In other words, can you
• 24:49
  Speaker 1: just give a sense of what the benefits are on
• 24:52
  Speaker 1: both sides here? Yeah, So if you're renting, you have flexibility,
• 24:56
  Speaker 1: um in the sense that if you need to move,
• 24:59
  Speaker 1: you can do so relatively easily. You're not responsible for
• 25:02
  Speaker 1: any of the property maintenance, and you don't take any
• 25:05
  Speaker 1: of the risks of anything breaking that falls on your landlord.
• 25:08
  Speaker 1: So it's great for younger households, and in fact we
• 25:11
  Speaker 1: see younger households are much more likely to rent than
• 25:14
  Speaker 1: to own. But for older households that are more established,
• 25:17
  Speaker 1: maybe you have kids in the picture, um it's nice
• 25:20
  Speaker 1: to have that stability. Um So, you don't get the flexibility,
• 25:23
  Speaker 1: but you get the benefit of stability. You get to
• 25:25
  Speaker 1: be in the same place, you get to call the
• 25:28
  Speaker 1: shots and make decisions, so you're not facing the question
• 25:31
  Speaker 1: of what is going to happen to my rent every year.
• 25:33
  Speaker 1: You get to pay a fixed monthly payment if you've
• 25:36
  Speaker 1: taken out a thirty year fixed rate mortgage, which is
• 25:39
  Speaker 1: by far the most common type of mortgage. Um So
• 25:41
  Speaker 1: there are a lot of benefits. And when you're a homeowner,
• 25:43
  Speaker 1: you're paying down your mortgage every month, and so you're
• 25:45
  Speaker 1: building up equity through that forced savings plan of making
• 25:49
  Speaker 1: payments on your mortgage. So it's a great way for
• 25:51
  Speaker 1: homeowners to accumulate wealth. And in fact, if you look
• 25:54
  Speaker 1: at the data, homeowners tend to have thirty to forty
• 25:57
  Speaker 1: times greater net worth and renters. A large part of
• 26:00
  Speaker 1: that is because of the value they've built up in
• 26:01
  Speaker 1: their homes. What do you think of the theory that's
• 26:03
  Speaker 1: been postulated that when the baby boomers get old, retired
• 26:08
  Speaker 1: downsize their homes, there's going to be a flood of
• 26:12
  Speaker 1: houses that are put up from market valuations are going
• 26:14
  Speaker 1: to crash. Have you heard this theory? I have heard
• 26:17
  Speaker 1: this theory, um quite a bit. I think that, um,
• 26:22
  Speaker 1: you know, the baby boomers own a lot of real
• 26:24
  Speaker 1: estate right now, and they're such a huge generation that
• 26:26
  Speaker 1: they have big impacts on the macro economy. I think that, um,
• 26:32
  Speaker 1: you know, baby boomers are living longer, They're healthier than
• 26:34
  Speaker 1: previous generations, so they're staying in their homes longer. I
• 26:37
  Speaker 1: don't think we're going to see a sudden exodus out
• 26:41
  Speaker 1: of their homes because I don't think they're moving to
• 26:45
  Speaker 1: assisted living type facilities as much as previous generations, and
• 26:48
  Speaker 1: they're certainly not moving as early to those types of facilities.
• 26:51
  Speaker 1: So I think they're going to stay in their homes
• 26:53
  Speaker 1: for a little longer. And I think that's going to
• 26:55
  Speaker 1: be good because it's going to spread out that wave,
• 26:57
  Speaker 1: so it's not going to be like a huge surge.
• 26:59
  Speaker 1: I think it will be a gradual increase and that
• 27:02
  Speaker 1: will help the market better adjust to absorb it, and
• 27:04
  Speaker 1: especially as millennials age into those years where they're forming
• 27:09
  Speaker 1: households having kids, I think that will help absorb some
• 27:12
  Speaker 1: of those homes that are out in the suburb. Danielle,
• 27:15
  Speaker 1: just twenty seconds here. Where do you think we are
• 27:17
  Speaker 1: in the housing cycle right now? I think prices are high.
• 27:21
  Speaker 1: I think sales are struggling because affordability is challenging. But
• 27:24
  Speaker 1: for households who are looking again, and I still think
• 27:27
  Speaker 1: there's opportunity in the housing market. Thank you so much
• 27:29
  Speaker 1: for being with us, Danielle Hale, chief economists for Realtor
• 27:33
  Speaker 1: dot com. And definitely, uh, quite a staggering number that
• 27:36
  Speaker 1: only the US can actually afford to own a home.
• 27:39
  Speaker 1: But great perspective there that this is not uncommon historically,
• 27:43
  Speaker 1: that this sort of is uh the historic average in
• 27:47
  Speaker 1: terms of what people could afford. Definitely also telling though,
• 27:50
  Speaker 1: as a number of big institutional firms plow into the
• 27:54
  Speaker 1: rental ownership business try and capitalize on this trend. Thanks
• 28:02
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 28:04
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 28:08
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 28:12
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa
• 28:15
  Speaker 1: Abramo wits one before the podcast, you can always catch
• 28:18
  Speaker 1: us worldwide on Bloomberg Radio