November 12, 2024 • 22 mins
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Bloomberg News Economics Writer Shawn Donnan discusses how the implementation of tariffs by the Trump administration may be calibrated to avoid harming US businesses and the economy, but the details are still unclear. Pagaya CEO Gal Krubiner talks about solving the problem of consumers getting credit. And we Drive to the Close with Paul Christopher, Head of Global Investment Strategy at Wells Fargo Investment Institute.
Hosts: Tim Stenovec and Katie Greifeld. Producer: Paul Brennan.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg BusinessWeek
Inside from the reporters and editors who bring you America's
most trusted business magazine, plus global business, finance and tech news.
The Bloomberg Business Week Podcast with Carol Messer and Tim
(00:23):
Stenebek from Bloomberg Radio.
Speaker 2 (00:27):
He's dubbed himself tariff man, tariff, tariff, tariff. I am
a tariff man.
Speaker 3 (00:32):
To me.
Speaker 1 (00:33):
The most beautiful word in the dictionary is tariff. Build
your plant in the United States and you don't have
any tariffs.
Speaker 2 (00:39):
That is, of course President elect Donald Trump. On the
campaign trail, he's pledged to impose extra large tariffs on
imports from China and medium sized ones for the rest
of the world. If he had his way, the US
would hark back to a nineteenth century Gilded Age model
of small government funded largely by tariffs instead of income taxes,
in which American barons of industry think about the people.
(01:00):
Like Elon Musk during that time, built vast well thanks
to protectionism and the privilege of limited competition. That rollout,
though may be dramatic and bumpy. Sean Don and his
Bloomberg New Senior economics writer. He writes about what a
tariff rollout could look like for Business Week. Check it
out at Bloomberg dot com and also on the Bloomberg terminal.
He joins us from our Washington, DC bureau. So, Sean,
(01:22):
if we go back to the first Trump administration, what
can we learn about how Trump could roll out tariffs
when it comes when he gets an office on January twentieth.
Speaker 4 (01:32):
Yeah, so, I think the first thing we learned from
the first Trump administration is that yes, he does deliver
on his promises, and yes there will be tariffs, but
it's all the details that matter. And to get to
those details, you're going to go through a period of
chaotic policy making where you're going to see have some
pretty heated debates between his advisors who often come from
(01:52):
pretty different philosophical camps. And we are starting to see,
we're less than a week out from the election, or
just a week out from the election, a similar dynamic
start to materialize.
Speaker 3 (02:04):
We'll talk to us two about the people that Trump
is surrounding himself with. He by his own description, is
tariff man, but he's also appointing and considering people who
seem to share his views. You think about Robert Lighthouser Lightheiser,
for example, potentially returning to his post.
Speaker 4 (02:21):
Right, So if Trump is tariff man, then his ideological
advisor is Robert Litthheiser.
Speaker 3 (02:26):
Right.
Speaker 4 (02:27):
He is the guy who actually has the plan to
deliver tariffs. He is a trade lawyer with decades in
the business, decades of being a contrarian in Washington and
acting as a protectionist, calling for a rebalancing of US
tariffs with the world and for a crackdown on China.
He's written a whole book in the last four years
(02:47):
laying out a plan for how to tackle China and
take on trade policy. And he's you're kind of true believer.
But the kind of dynamic we're watching very carefully now
is where he actually ends up in Trump's cabinet, or
if he ends up in the cabinet at all, or
if he ends up in a kind of advisory role
that may have less power inside the White House, and
(03:10):
who else ends up in the cabinet. One of the
things we saw in the first Trump administration was a
Wall Street guy in the Treasury in Stephn Minouchin, who
pushed back against a lot of the tariff policy and
the protectionist ideas that were being pushed by people like
Robert Leitheiser. That's one of the reasons Robert Leitheiser has
(03:32):
spent the last few months quietly trying to position himself
to move into a post like the Treasury or the
Commerce Department, which may have more power than the old
US Trade Representative's office, which he inhabited during the first
Trump administration.
Speaker 2 (03:51):
Sean, what's pretty incredible. We're already starting to see companies
make announcements about potential price increases as a result of tariff's.
One of the most read stories on the Bloomberg terminal
this afternoon is about Stanley Blackendecker. They make craftsmen into
walt tools. They're considering raising prices in response to higher
tariffs that they expect to be imposed by President elect
Donald Trump's administration. The company's CEO actually said in a
(04:14):
call last month, it's unlikely that they're going to move
a lot back to the US because it's not cost
effective to do so, and there are questions about whether
we even have the labor to actually do that in
this country. The idea with some of these tariffs would
be to move production back to the United States, but
as we're seeing now that's not necessarily feasible for a
lot of these companies.
Speaker 4 (04:34):
Yeah, and Stanley Black and Decker in that call, the
CEO was saying that they started drafting a plan in
the spring for Trump victory and possible tariffs, and they're
not alone among companies to do that. We know that
a lot of CEOs and businesses around the world, not
just here in the United States, have been planning for
this for months now, and also have had a lot
(04:56):
of practice through the first Trump and mist also the
pandemic and all the supply chain realignment that happened there
the Biden administration and the push to kind of repatriate
big production in semiconductors and electric vehicles, and the whole
industrial policy push to encourage that. CEOs businesses today are
(05:20):
very good at dealing with these things, and they've been
kind of flexing those muscles for a while, and so
they're in a different position than they were before twenty
sixteen when Donald Trump was first elected. And there is
a very real argument that the Stanley blackendecor seed is
presenting there. In terms of the availability of labor, We've
just had a couple of years. We're one of the
(05:40):
big complaints from businesses is they don't have the workers
to staff the factories that they're building and so on.
And that's not going to change suddenly if Donald Trump
moves into the White House, and especially not if he
starts cracking down on immigration and deporting people.
Speaker 3 (05:55):
Right, well, let's talk a little bit more about that,
because Tim I don't know if you know, but I
am kershow called Open Interest nine to eleven am daily
on Bloomberg Television, and Matt Miller has, to his credit,
been obsessed with this question what happens to the labor
market and what happens to inflation if we do see
those types of mass deportations. Sean, what have you found
(06:16):
in your research and your reporting so far?
Speaker 4 (06:19):
Yeah, So, Look, there's a lot of agreement among economists
that tariffs add to costs for consumers and so that
that will feed into inflation. And there's a lot of
agreement from economists that if you start deporting people and
reducing the number of people moving into the country and
the labor force, that you're going to exacerbate some of
(06:42):
the demographic challenges that the United States already has with
all the baby boomers who are moving out of the workforce,
and so on over the next few years. I think
of the world today in one of the framings I
think is the world is now engaging in the people wars.
Speaker 5 (06:57):
Right.
Speaker 4 (06:58):
Population is one of the great economic forces and one
of the great economic advantages that the United States has
had for many, many many years as a place that
attracts immigrants. If you look at China now, it's got
a declining population, It's got an aging population. Japan for
years has been dealing with an aging population, Germany's dealing
(07:18):
with an aging population, and so on. Within the United States,
the places that are growing fasts are the places that
are gaining population. The places that are in real trouble
economically are those aging counties that just can't hang on
to people. And when investors are looking to put a
new factory into place, the first question they ask is
where are the people? Where are my workers going to be? So,
(07:41):
you know, all of these things coexist and they kind
of collide, and that means we're going to see potentially
more inflation. We're also going to see more strain in
the labor market, and overall, perhaps a big hit to
American competitiveness in the world.
Speaker 2 (07:57):
Sean, thanks so much for joining us. Really appreciate taking
the time This afternoon, Everybody check out Sean's story. It's
at Bloomberg dot com slash BusinessWeek. You can also read
it on the Bloomberg terminal, all about the way that
Donald Trump potentially will roll out tariffs come January when
he does take office for a second time.
Speaker 1 (08:16):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm Eastern. Listen
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or watch US live on YouTube.
Speaker 2 (08:29):
Well, Baguya Technology shares are taking a turn lower today.
They were down at one point as much as forty percent.
This after the company's third quarter network volume missed the
average analyst estimates. Paguy is a fintech company that takes
loans that lenders rejected, analyzes them using AI. It then
consolidates them to sell to institutional investors. It counts Visa, Ally, Sofi,
(08:50):
Us Bank, Klarna among its different partners. We've got with
us gaul Krubiner, the company CEO. He joins us here
in the Bloomberg BusinessWeek Studio. I want to talk a
little bit about your view because you have a great
idea of what the health of the consumer is, the economy,
what things are looking like. But before that I got
to talk about we were Bloomberg. I want to talk
about the stock price you guys reported earlier today. What's
(09:12):
going on with the stock today? Do you think investors
are missing the big picture?
Speaker 5 (09:16):
Definitely, So thank you very much for having me today.
I think the stock price is a different conversation as
the stock price valied in and a little bit because
of what you've just described, maybe took a shakeout. But
the really interesting pieces were the businesses and the fundamentals
and from that prospective, Pagay ahead a record record revenues
and even record network volume and maybe just to drill
(09:38):
down for one second of what the company does. So
think about it that we are using an AI to
help different lendos as the one you just described, Ali
Bank so far and many others US Bank to help
them serve their consumers. So so far we have helped
these different organizations to provide loans to over two million customers,
(09:59):
customers that, as you mentioned, would have otherwise been declined.
So think about the fact that we helped two million
Americans get a twenty four billion dollars of additional loans
that otherwise would not be able to get it through
their banks. And all of that with the power of
AI and machine learning that is driving all of that.
Speaker 3 (10:20):
Just ask a simple question, how many of those loans
go bad?
Speaker 1 (10:23):
Though?
Speaker 3 (10:23):
How much risk do you take on?
Speaker 5 (10:25):
So the reality is that these type of boroels are
actually good boroels. They are paying and paying well. So
you think about something in the ranges of four to
eight percent of an annual loss. And in today's situation
of the financial situation in the US, if you don't
have a perfect FICO, you don't get a loan. The
(10:45):
regulatory environment that exists on the banks is making it
very hard for them to provide loans to very good
consumers that would otherwise pay back. And that's where Pagaya
comes in, helping the banks to provide these credit to
their customers which they sow needing in these days.
Speaker 2 (11:04):
What are the rates on those loans?
Speaker 5 (11:06):
So usually the rates could vary from a twelve percent
and up until twenty the way to think about it,
it's usually two to five percent lower than credit card rates.
So usually people that are taking personal loans are actually
refining or reducing the rates when they are moving from
the very high credit cards into a personal loan, which
is much more predictable and steady, into they know what
they are paying over the monthly mails.
Speaker 2 (11:28):
So then who provides the capital to fund those loans?
Speaker 5 (11:30):
That's exactly the interesting point. So have you heard about
private credit?
Speaker 6 (11:34):
We talked a lot about so much, right talk, So think.
Speaker 5 (11:37):
About Pagaya as the intelconnect between the balance sheets of
the private credit into the distribution channels of the banks.
So many of the consumers that are coming to the
banks and cannot get loan because of the regulatory pressure
that were just discussed about, these loans could fight home
in the growing, emerging, booming private credits. We have over
(12:00):
one hundred and twenty different investors that we are feeding
to provide home for these loans, which they are happy
to get access to massive amounts of loans in scale
that are as good as bank loans, but the regulatory
capital of the bank is not allowing them to do that.
So we are the efficancy of this booming type of
(12:22):
private credit, which is a new form of capital, and
the need of banks to clear their balance sheet even more.
Speaker 6 (12:30):
That's really interesting.
Speaker 3 (12:31):
No, you go ahead.
Speaker 2 (12:32):
I was going to ask. In an environment where investors
think rates will go lower, the bond market might not
agree with that. Right now, how does that private credit
equation change?
Speaker 5 (12:41):
So the private credit equation is actually becoming bigger and better.
So the reality is that they are looking to find
more ways to lock rates and to invest massive amounts
of capital. So the actually the interest rate going down,
while very good for the consumers because now they have
a better relief on the ability to pay their debt,
(13:02):
is actually being driven by very big amounts of private
credit that are being injected into the system to help
these consumers find the ability to find us their debt.
Speaker 2 (13:13):
All right, God, we're gonna have to leave it there.
Speaker 5 (13:16):
Thank you so much.
Speaker 2 (13:16):
Paul Krubiner, he is the CEO of Pagaya, joining us
here in the Bloomberg Business Week Studio.
Speaker 1 (13:25):
You're listening to the Bloomberg Business Week Podcast. Listen live
each weekday starting at two pm Eastern on Apple car
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(13:47):
a journal.
Speaker 4 (13:49):
Now about you let me drive? Oh no, no, no, no, honey,
please Gravelsten, I want to drive.
Speaker 6 (13:57):
It's a good question.
Speaker 1 (14:04):
This is the drive to the globe on Bloomberg Radio.
Speaker 2 (14:12):
Well, well, well look at that.
Speaker 1 (14:13):
Wow, what do you see?
Speaker 3 (14:14):
It's almost four o'clock.
Speaker 2 (14:16):
That's crazy. Yeah, you've been here all day.
Speaker 3 (14:18):
I know. Well, I live here in the Bloomberg building.
I don't actually leave, you know, I just row out
a little.
Speaker 2 (14:24):
You got everything we need?
Speaker 3 (14:25):
Yeah, food, we don't have showers, but who needs that?
Speaker 2 (14:28):
Who needs that?
Speaker 4 (14:30):
Hey?
Speaker 2 (14:30):
We don't. Yeah. Let's see what Paul christopher has to
say about this rally run up and that breather. You
keep talking about the pause that we're seeing.
Speaker 5 (14:40):
The pause.
Speaker 2 (14:40):
Paul Christopher's head of Global Investment Strategy at the Wells
Fargo Investment Institute. He joins us from Saint Louis, a
collective sigh emerging from the markets today. Finally a little
bit of a pause in the rally that we've seen
post election. Paul, how are you thinking about this?
Speaker 6 (14:57):
Yeah, truly a couple of days of pause. Very well,
come rest, but and we'll have to see what happens
with that. CPI number tomorrow. A bad number could give
the market a bad jolt. We'll have to see about that.
But you know, the real thing to keep in mind
here is that the trends since the election day are
really trends that go back to the early part of
October when Trump started to take momentum, and even back
(15:19):
earlier than that, to the middle of September. Once we
started to get a sense that the economy was stronger
than what we thought the market had thought in early August.
Then the market started to move okay, higher, yields more
of a soft landing, maybe no landing, So yields go up,
right turn, premium goes up, Equity start to march higher,
Cycnicals get the rotation bid, especially financials, and you get
(15:43):
a little bit of a breather from tech. And so
that's kind of the same thing as that Trump rally
that started in early October. So it just accelerated a
set of trends that were already in place. When you
start thinking about, well, okay, tariffs, that's going to raise inflation,
so yields need to go higher, check that box. They
were already going higher. Inflation makes the dollars stronger. Sorry,
(16:06):
tyrorists make the dollars stronger, check another box that was
already going higher. And then finally the idea that you'd
have tax cuts and deregulation and stock investors just love that.
So again another coincidence. And so this rally that we've
seen here the last week, we should see in a
little bit longer term context that could continue for a while,
(16:26):
but maybe not at the same pace we've seen last week.
Speaker 3 (16:29):
Well, Paul, layeron to the corporate fundamentals picture, because you
think about third quarter earnings, it's still earning season. But
of the companies that have reported so far, it looks
like seventy five percent or thereabout have beat their earnings estimates,
and that is bang in line with the average from
the past ten years or so. It's below the average
of the past one year five year look back. And
(16:52):
in this market, I mean, prior to this big Trump
rally that we saw, of course, it just felt like
average wasn't good enough. So when you think about the
long term and you think about the earnings power, does
that spell further gains.
Speaker 6 (17:05):
We think it does, but maybe not quite right away.
That's why we do get a little bit nervous about
the run up in the last week or so, and
I mentioned that in terms of the CPI report tomorrow,
you'd only really need some sort of fundamental disruptor here
for people to start taking profits. But in terms of earnings, yeah,
seventy five percent, that's about the longer term average. But
notice that the guidance was a little bit more negative,
(17:28):
and earnings growth is slowing, and that's entirely consistent with
an economy that's slower this year than it was last year.
Now the question is where's that bottom. We think it
bottoms in the fourth quarter, and then with the benefit
of FED raid cuts, starts to improve with the economy
in twenty twenty five. So we're looking for stronger earnings
next year. Again, a point I made a moment ago.
(17:49):
The trends we've seen since mid September are we think,
solid trends, but they've just accelerated a little bit much here.
So look for a pullback and then maybe some good
buying opportunities when that pullback finally arrives.
Speaker 3 (18:01):
Talk to us too about the interaction between the bond
market and the stock market. It feels like the bond
market has just been the epicenter of volatility over the
past week, over the past couple months as well, that
hasn't slowed down the stock market, but we're starting to
approach some of these levels out the curve where people's
it starts to raise some alarm bells. According to some
(18:24):
of the investors that I've been speaking to, how are
you thinking about the rise in long duration treasury yields?
Speaker 6 (18:30):
So we kind of look at the components, like the
inflation piece of the long term yield, and then what
we call the term premium, which would be the portion
of the yield that the investor requires in order to
be compensated for staying in bonds instead of going over
to a more attractive looking stock market. And that term
premium is what's been rising lately. That's kind of a
(18:52):
good sign. That's what you'd expect to see in an
economy that's bottoming out, where people aren't worried about recession
anymore but seeing recovery. So now bond investors demand a
little bit more term premium. They want to say, hey,
stocks are going to do well, you're gonna have to
pay me more borrow or whoever you are, for me
to lend you your money for ten years in this
bond and we think that's not necessarily an unhealthy sign. Now,
(19:14):
if we were to see a strong inflation report tomorrow
or in the next couple of months, or if we
were to start to get a sense that the deficits
under the new administration in Congress will be very much higher,
then that could pose more of a problem for stocks.
But that's a little bit down the road.
Speaker 2 (19:31):
What's the signal that the bond market is sending about
what it thinks the Trump administration is going to do?
Speaker 6 (19:36):
Now hard to tell the You know, as I said earlier,
if you see the bond yield rising and the tariff
story remains intact and the dollar is accelerating at the
same time, that would be those two facts there. A
stronger dollar and higher bond yields would be consistent with
tariffs and inflation, except that the bond yield really isn't
(19:57):
being driven by inflation. It's being driven by fundamentally a
term premium that's consistent with a reinversion of the yield curve,
a de inversion of the yield curve, you might say,
where long term rates rise because the economy is strengthening
and equities are expected to be stronger. So there's kind
of a sense in which investors could be could find
(20:17):
it difficult to disentangle bond yields rising. Yeah, that could
mean inflation, or could mean tariffs, or or it could
just mean a health economy coming up. And so these
two trends running in parallel right now will have to
wait to see how they sort of separate themselves out.
Typically they do after an election. Right the weeks after
an election can sometimes bring trends that are very short
(20:40):
lived and don't last for very long. So again our
advice to investors here is is to treat what's going
on in markets right now is a bit of a reaction,
not a true fundamental rotation, and stick with stick with
the plan that we established in August, looking for cyclicals
on pullbacks, looking for small caps on pullbacks, and really
playing for recovery next year.
Speaker 3 (21:01):
And Paul, just really quickly here. We only have about
thirty seconds left with you. But if you did start
to see some of those buying opportunities open up, what
are the sectors, what are the industries where you would
be looking to catch the knife there?
Speaker 6 (21:14):
Yeah, definitely cyclical. So we've liked industrials for a while now.
Energy financials have been a big player lately. They get
the benefit of deregulatory expectations plus a stronger economy. Financials
throw in there too, and we like comm services communications
services here as an alternative way to play tech.
Speaker 2 (21:34):
All right, we're gonna have to leave it there, but
thanks so much for joining us. Paul, really do appreciate it.
Paul Christopher, head of Global Investment Strategy at the Wells
Fargo Investment Institute, joining us this afternoon from Saint Louis.
Speaker 1 (21:47):
This is the Bloomberg Business Week Podcast, Apple, Spotify, and
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Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg BusinessWeek
Inside from the reporters and editors who bring you America's
most trusted business magazine, plus global business, finance and tech news.
The Bloomberg Business Week Podcast with Carol Messer and Tim
(00:23):
Stenebek from Bloomberg Radio.
Speaker 2 (00:27):
He's dubbed himself tariff man, tariff, tariff, tariff. I am
a tariff man.
Speaker 3 (00:32):
To me.
Speaker 1 (00:33):
The most beautiful word in the dictionary is tariff. Build
your plant in the United States and you don't have
any tariffs.
Speaker 2 (00:39):
That is, of course President elect Donald Trump. On the
campaign trail, he's pledged to impose extra large tariffs on
imports from China and medium sized ones for the rest
of the world. If he had his way, the US
would hark back to a nineteenth century Gilded Age model
of small government funded largely by tariffs instead of income taxes,
in which American barons of industry think about the people.
(01:00):
Like Elon Musk during that time, built vast well thanks
to protectionism and the privilege of limited competition. That rollout,
though may be dramatic and bumpy. Sean Don and his
Bloomberg New Senior economics writer. He writes about what a
tariff rollout could look like for Business Week. Check it
out at Bloomberg dot com and also on the Bloomberg terminal.
He joins us from our Washington, DC bureau. So, Sean,
(01:22):
if we go back to the first Trump administration, what
can we learn about how Trump could roll out tariffs
when it comes when he gets an office on January twentieth.
Speaker 4 (01:32):
Yeah, so, I think the first thing we learned from
the first Trump administration is that yes, he does deliver
on his promises, and yes there will be tariffs, but
it's all the details that matter. And to get to
those details, you're going to go through a period of
chaotic policy making where you're going to see have some
pretty heated debates between his advisors who often come from
(01:52):
pretty different philosophical camps. And we are starting to see,
we're less than a week out from the election, or
just a week out from the election, a similar dynamic
start to materialize.
Speaker 3 (02:04):
We'll talk to us two about the people that Trump
is surrounding himself with. He by his own description, is
tariff man, but he's also appointing and considering people who
seem to share his views. You think about Robert Lighthouser Lightheiser,
for example, potentially returning to his post.
Speaker 4 (02:21):
Right, So if Trump is tariff man, then his ideological
advisor is Robert Litthheiser.
Speaker 3 (02:26):
Right.
Speaker 4 (02:27):
He is the guy who actually has the plan to
deliver tariffs. He is a trade lawyer with decades in
the business, decades of being a contrarian in Washington and
acting as a protectionist, calling for a rebalancing of US
tariffs with the world and for a crackdown on China.
He's written a whole book in the last four years
(02:47):
laying out a plan for how to tackle China and
take on trade policy. And he's you're kind of true believer.
But the kind of dynamic we're watching very carefully now
is where he actually ends up in Trump's cabinet, or
if he ends up in the cabinet at all, or
if he ends up in a kind of advisory role
that may have less power inside the White House, and
(03:10):
who else ends up in the cabinet. One of the
things we saw in the first Trump administration was a
Wall Street guy in the Treasury in Stephn Minouchin, who
pushed back against a lot of the tariff policy and
the protectionist ideas that were being pushed by people like
Robert Leitheiser. That's one of the reasons Robert Leitheiser has
(03:32):
spent the last few months quietly trying to position himself
to move into a post like the Treasury or the
Commerce Department, which may have more power than the old
US Trade Representative's office, which he inhabited during the first
Trump administration.
Speaker 2 (03:51):
Sean, what's pretty incredible. We're already starting to see companies
make announcements about potential price increases as a result of tariff's.
One of the most read stories on the Bloomberg terminal
this afternoon is about Stanley Blackendecker. They make craftsmen into
walt tools. They're considering raising prices in response to higher
tariffs that they expect to be imposed by President elect
Donald Trump's administration. The company's CEO actually said in a
(04:14):
call last month, it's unlikely that they're going to move
a lot back to the US because it's not cost
effective to do so, and there are questions about whether
we even have the labor to actually do that in
this country. The idea with some of these tariffs would
be to move production back to the United States, but
as we're seeing now that's not necessarily feasible for a
lot of these companies.
Speaker 4 (04:34):
Yeah, and Stanley Black and Decker in that call, the
CEO was saying that they started drafting a plan in
the spring for Trump victory and possible tariffs, and they're
not alone among companies to do that. We know that
a lot of CEOs and businesses around the world, not
just here in the United States, have been planning for
this for months now, and also have had a lot
(04:56):
of practice through the first Trump and mist also the
pandemic and all the supply chain realignment that happened there
the Biden administration and the push to kind of repatriate
big production in semiconductors and electric vehicles, and the whole
industrial policy push to encourage that. CEOs businesses today are
(05:20):
very good at dealing with these things, and they've been
kind of flexing those muscles for a while, and so
they're in a different position than they were before twenty
sixteen when Donald Trump was first elected. And there is
a very real argument that the Stanley blackendecor seed is
presenting there. In terms of the availability of labor, We've
just had a couple of years. We're one of the
(05:40):
big complaints from businesses is they don't have the workers
to staff the factories that they're building and so on.
And that's not going to change suddenly if Donald Trump
moves into the White House, and especially not if he
starts cracking down on immigration and deporting people.
Speaker 3 (05:55):
Right, well, let's talk a little bit more about that,
because Tim I don't know if you know, but I
am kershow called Open Interest nine to eleven am daily
on Bloomberg Television, and Matt Miller has, to his credit,
been obsessed with this question what happens to the labor
market and what happens to inflation if we do see
those types of mass deportations. Sean, what have you found
(06:16):
in your research and your reporting so far?
Speaker 4 (06:19):
Yeah, So, Look, there's a lot of agreement among economists
that tariffs add to costs for consumers and so that
that will feed into inflation. And there's a lot of
agreement from economists that if you start deporting people and
reducing the number of people moving into the country and
the labor force, that you're going to exacerbate some of
(06:42):
the demographic challenges that the United States already has with
all the baby boomers who are moving out of the workforce,
and so on over the next few years. I think
of the world today in one of the framings I
think is the world is now engaging in the people wars.
Speaker 5 (06:57):
Right.
Speaker 4 (06:58):
Population is one of the great economic forces and one
of the great economic advantages that the United States has
had for many, many many years as a place that
attracts immigrants. If you look at China now, it's got
a declining population, It's got an aging population. Japan for
years has been dealing with an aging population, Germany's dealing
(07:18):
with an aging population, and so on. Within the United States,
the places that are growing fasts are the places that
are gaining population. The places that are in real trouble
economically are those aging counties that just can't hang on
to people. And when investors are looking to put a
new factory into place, the first question they ask is
where are the people? Where are my workers going to be? So,
(07:41):
you know, all of these things coexist and they kind
of collide, and that means we're going to see potentially
more inflation. We're also going to see more strain in
the labor market, and overall, perhaps a big hit to
American competitiveness in the world.
Speaker 2 (07:57):
Sean, thanks so much for joining us. Really appreciate taking
the time This afternoon, Everybody check out Sean's story. It's
at Bloomberg dot com slash BusinessWeek. You can also read
it on the Bloomberg terminal, all about the way that
Donald Trump potentially will roll out tariffs come January when
he does take office for a second time.
Speaker 1 (08:16):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from two to five pm Eastern. Listen
on Applecarplay and and Broud Auto with a Bloomberg Business app,
or watch US live on YouTube.
Speaker 2 (08:29):
Well, Baguya Technology shares are taking a turn lower today.
They were down at one point as much as forty percent.
This after the company's third quarter network volume missed the
average analyst estimates. Paguy is a fintech company that takes
loans that lenders rejected, analyzes them using AI. It then
consolidates them to sell to institutional investors. It counts Visa, Ally, Sofi,
(08:50):
Us Bank, Klarna among its different partners. We've got with
us gaul Krubiner, the company CEO. He joins us here
in the Bloomberg BusinessWeek Studio. I want to talk a
little bit about your view because you have a great
idea of what the health of the consumer is, the economy,
what things are looking like. But before that I got
to talk about we were Bloomberg. I want to talk
about the stock price you guys reported earlier today. What's
(09:12):
going on with the stock today? Do you think investors
are missing the big picture?
Speaker 5 (09:16):
Definitely, So thank you very much for having me today.
I think the stock price is a different conversation as
the stock price valied in and a little bit because
of what you've just described, maybe took a shakeout. But
the really interesting pieces were the businesses and the fundamentals
and from that prospective, Pagay ahead a record record revenues
and even record network volume and maybe just to drill
(09:38):
down for one second of what the company does. So
think about it that we are using an AI to
help different lendos as the one you just described, Ali
Bank so far and many others US Bank to help
them serve their consumers. So so far we have helped
these different organizations to provide loans to over two million customers,
(09:59):
customers that, as you mentioned, would have otherwise been declined.
So think about the fact that we helped two million
Americans get a twenty four billion dollars of additional loans
that otherwise would not be able to get it through
their banks. And all of that with the power of
AI and machine learning that is driving all of that.
Speaker 3 (10:20):
Just ask a simple question, how many of those loans
go bad?
Speaker 1 (10:23):
Though?
Speaker 3 (10:23):
How much risk do you take on?
Speaker 5 (10:25):
So the reality is that these type of boroels are
actually good boroels. They are paying and paying well. So
you think about something in the ranges of four to
eight percent of an annual loss. And in today's situation
of the financial situation in the US, if you don't
have a perfect FICO, you don't get a loan. The
(10:45):
regulatory environment that exists on the banks is making it
very hard for them to provide loans to very good
consumers that would otherwise pay back. And that's where Pagaya
comes in, helping the banks to provide these credit to
their customers which they sow needing in these days.
Speaker 2 (11:04):
What are the rates on those loans?
Speaker 5 (11:06):
So usually the rates could vary from a twelve percent
and up until twenty the way to think about it,
it's usually two to five percent lower than credit card rates.
So usually people that are taking personal loans are actually
refining or reducing the rates when they are moving from
the very high credit cards into a personal loan, which
is much more predictable and steady, into they know what
they are paying over the monthly mails.
Speaker 2 (11:28):
So then who provides the capital to fund those loans?
Speaker 5 (11:30):
That's exactly the interesting point. So have you heard about
private credit?
Speaker 6 (11:34):
We talked a lot about so much, right talk, So think.
Speaker 5 (11:37):
About Pagaya as the intelconnect between the balance sheets of
the private credit into the distribution channels of the banks.
So many of the consumers that are coming to the
banks and cannot get loan because of the regulatory pressure
that were just discussed about, these loans could fight home
in the growing, emerging, booming private credits. We have over
(12:00):
one hundred and twenty different investors that we are feeding
to provide home for these loans, which they are happy
to get access to massive amounts of loans in scale
that are as good as bank loans, but the regulatory
capital of the bank is not allowing them to do that.
So we are the efficancy of this booming type of
(12:22):
private credit, which is a new form of capital, and
the need of banks to clear their balance sheet even more.
Speaker 6 (12:30):
That's really interesting.
Speaker 3 (12:31):
No, you go ahead.
Speaker 2 (12:32):
I was going to ask. In an environment where investors
think rates will go lower, the bond market might not
agree with that. Right now, how does that private credit
equation change?
Speaker 5 (12:41):
So the private credit equation is actually becoming bigger and better.
So the reality is that they are looking to find
more ways to lock rates and to invest massive amounts
of capital. So the actually the interest rate going down,
while very good for the consumers because now they have
a better relief on the ability to pay their debt,
(13:02):
is actually being driven by very big amounts of private
credit that are being injected into the system to help
these consumers find the ability to find us their debt.
Speaker 2 (13:13):
All right, God, we're gonna have to leave it there.
Speaker 5 (13:16):
Thank you so much.
Speaker 2 (13:16):
Paul Krubiner, he is the CEO of Pagaya, joining us
here in the Bloomberg Business Week Studio.
Speaker 1 (13:25):
You're listening to the Bloomberg Business Week Podcast. Listen live
each weekday starting at two pm Eastern on Apple car
Play and Android Auto with the Bloomberg Business You can
also listen live on Amazon Alexa from our flagship New
York station, Just Say Alexa Play Bloomberg eleven thirty am
(13:47):
a journal.
Speaker 4 (13:49):
Now about you let me drive? Oh no, no, no, no, honey,
please Gravelsten, I want to drive.
Speaker 6 (13:57):
It's a good question.
Speaker 1 (14:04):
This is the drive to the globe on Bloomberg Radio.
Speaker 2 (14:12):
Well, well, well look at that.
Speaker 1 (14:13):
Wow, what do you see?
Speaker 3 (14:14):
It's almost four o'clock.
Speaker 2 (14:16):
That's crazy. Yeah, you've been here all day.
Speaker 3 (14:18):
I know. Well, I live here in the Bloomberg building.
I don't actually leave, you know, I just row out
a little.
Speaker 2 (14:24):
You got everything we need?
Speaker 3 (14:25):
Yeah, food, we don't have showers, but who needs that?
Speaker 2 (14:28):
Who needs that?
Speaker 4 (14:30):
Hey?
Speaker 2 (14:30):
We don't. Yeah. Let's see what Paul christopher has to
say about this rally run up and that breather. You
keep talking about the pause that we're seeing.
Speaker 5 (14:40):
The pause.
Speaker 2 (14:40):
Paul Christopher's head of Global Investment Strategy at the Wells
Fargo Investment Institute. He joins us from Saint Louis, a
collective sigh emerging from the markets today. Finally a little
bit of a pause in the rally that we've seen
post election. Paul, how are you thinking about this?
Speaker 6 (14:57):
Yeah, truly a couple of days of pause. Very well,
come rest, but and we'll have to see what happens
with that. CPI number tomorrow. A bad number could give
the market a bad jolt. We'll have to see about that.
But you know, the real thing to keep in mind
here is that the trends since the election day are
really trends that go back to the early part of
October when Trump started to take momentum, and even back
(15:19):
earlier than that, to the middle of September. Once we
started to get a sense that the economy was stronger
than what we thought the market had thought in early August.
Then the market started to move okay, higher, yields more
of a soft landing, maybe no landing, So yields go up,
right turn, premium goes up, Equity start to march higher,
Cycnicals get the rotation bid, especially financials, and you get
(15:43):
a little bit of a breather from tech. And so
that's kind of the same thing as that Trump rally
that started in early October. So it just accelerated a
set of trends that were already in place. When you
start thinking about, well, okay, tariffs, that's going to raise inflation,
so yields need to go higher, check that box. They
were already going higher. Inflation makes the dollars stronger. Sorry,
(16:06):
tyrorists make the dollars stronger, check another box that was
already going higher. And then finally the idea that you'd
have tax cuts and deregulation and stock investors just love that.
So again another coincidence. And so this rally that we've
seen here the last week, we should see in a
little bit longer term context that could continue for a while,
(16:26):
but maybe not at the same pace we've seen last week.
Speaker 3 (16:29):
Well, Paul, layeron to the corporate fundamentals picture, because you
think about third quarter earnings, it's still earning season. But
of the companies that have reported so far, it looks
like seventy five percent or thereabout have beat their earnings estimates,
and that is bang in line with the average from
the past ten years or so. It's below the average
of the past one year five year look back. And
(16:52):
in this market, I mean, prior to this big Trump
rally that we saw, of course, it just felt like
average wasn't good enough. So when you think about the
long term and you think about the earnings power, does
that spell further gains.
Speaker 6 (17:05):
We think it does, but maybe not quite right away.
That's why we do get a little bit nervous about
the run up in the last week or so, and
I mentioned that in terms of the CPI report tomorrow,
you'd only really need some sort of fundamental disruptor here
for people to start taking profits. But in terms of earnings, yeah,
seventy five percent, that's about the longer term average. But
notice that the guidance was a little bit more negative,
(17:28):
and earnings growth is slowing, and that's entirely consistent with
an economy that's slower this year than it was last year.
Now the question is where's that bottom. We think it
bottoms in the fourth quarter, and then with the benefit
of FED raid cuts, starts to improve with the economy
in twenty twenty five. So we're looking for stronger earnings
next year. Again, a point I made a moment ago.
(17:49):
The trends we've seen since mid September are we think,
solid trends, but they've just accelerated a little bit much here.
So look for a pullback and then maybe some good
buying opportunities when that pullback finally arrives.
Speaker 3 (18:01):
Talk to us too about the interaction between the bond
market and the stock market. It feels like the bond
market has just been the epicenter of volatility over the
past week, over the past couple months as well, that
hasn't slowed down the stock market, but we're starting to
approach some of these levels out the curve where people's
it starts to raise some alarm bells. According to some
(18:24):
of the investors that I've been speaking to, how are
you thinking about the rise in long duration treasury yields?
Speaker 6 (18:30):
So we kind of look at the components, like the
inflation piece of the long term yield, and then what
we call the term premium, which would be the portion
of the yield that the investor requires in order to
be compensated for staying in bonds instead of going over
to a more attractive looking stock market. And that term
premium is what's been rising lately. That's kind of a
(18:52):
good sign. That's what you'd expect to see in an
economy that's bottoming out, where people aren't worried about recession
anymore but seeing recovery. So now bond investors demand a
little bit more term premium. They want to say, hey,
stocks are going to do well, you're gonna have to
pay me more borrow or whoever you are, for me
to lend you your money for ten years in this
bond and we think that's not necessarily an unhealthy sign. Now,
(19:14):
if we were to see a strong inflation report tomorrow
or in the next couple of months, or if we
were to start to get a sense that the deficits
under the new administration in Congress will be very much higher,
then that could pose more of a problem for stocks.
But that's a little bit down the road.
Speaker 2 (19:31):
What's the signal that the bond market is sending about
what it thinks the Trump administration is going to do?
Speaker 6 (19:36):
Now hard to tell the You know, as I said earlier,
if you see the bond yield rising and the tariff
story remains intact and the dollar is accelerating at the
same time, that would be those two facts there. A
stronger dollar and higher bond yields would be consistent with
tariffs and inflation, except that the bond yield really isn't
(19:57):
being driven by inflation. It's being driven by fundamentally a
term premium that's consistent with a reinversion of the yield curve,
a de inversion of the yield curve, you might say,
where long term rates rise because the economy is strengthening
and equities are expected to be stronger. So there's kind
of a sense in which investors could be could find
(20:17):
it difficult to disentangle bond yields rising. Yeah, that could
mean inflation, or could mean tariffs, or or it could
just mean a health economy coming up. And so these
two trends running in parallel right now will have to
wait to see how they sort of separate themselves out.
Typically they do after an election. Right the weeks after
an election can sometimes bring trends that are very short
(20:40):
lived and don't last for very long. So again our
advice to investors here is is to treat what's going
on in markets right now is a bit of a reaction,
not a true fundamental rotation, and stick with stick with
the plan that we established in August, looking for cyclicals
on pullbacks, looking for small caps on pullbacks, and really
playing for recovery next year.
Speaker 3 (21:01):
And Paul, just really quickly here. We only have about
thirty seconds left with you. But if you did start
to see some of those buying opportunities open up, what
are the sectors, what are the industries where you would
be looking to catch the knife there?
Speaker 6 (21:14):
Yeah, definitely cyclical. So we've liked industrials for a while now.
Energy financials have been a big player lately. They get
the benefit of deregulatory expectations plus a stronger economy. Financials
throw in there too, and we like comm services communications
services here as an alternative way to play tech.
Speaker 2 (21:34):
All right, we're gonna have to leave it there, but
thanks so much for joining us. Paul, really do appreciate it.
Paul Christopher, head of Global Investment Strategy at the Wells
Fargo Investment Institute, joining us this afternoon from Saint Louis.
Speaker 1 (21:47):
This is the Bloomberg Business Week Podcast, Apple, Spotify, and
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afternoons from two to five pm Eastern Bloomberg dot com,
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can also watch us live every weekday on YouTube and
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Carol Massar
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