Bitcoin Boom Looks Increasingly Perilous to Cumberland's Kotok

Cumberland Advisors, co authored. He's based in Sarah Soda. He is uh in California today and David, always a pleasure to hear your voice, Um, and wonder if you could maybe just explain how Adventures in Muni Land might actually apply to Adventures in Bitcoin? Could that be a serial? Do you think maybe? Is that your second volume coming up? I'm thinking Tim, Thank you very much, Happy holidays to you.

I'm thinking about writing that one, but we don't have enough experience yet in bitcoin we will, I suspect before this is over. So what do you mean by that before this is over? You're implying something here. Well, I'm in the camp that says something that can be created infinitely with mathematical formulas and that is subject to hacking,

and the experiences we're seeing is not a value. And so cryptocurrency that isn't backed by anything other than hope or an algorithm which can be repeated a hundred times and already is is not something I would invest in. Now there's another group. I just saw a forecast today that said next year Bitcoin I'll hit eighteen thousand. Well, price fantasy ratios have been around for a while, maybe this is a new one. Well, David, you know you

did in a story published yesterday by Bloomberg News. Clients bring up bitcoin all the time. You said, they think it's cool. It has the newness, which is attractive to some people, though others would say newness is a risk they don't want to take. When clients bring up bitcoin

with you, what do you say? I say, if you want to speculate in this remarkable evolution that has a couple of years of history, and that's all do so, knowing you might make a lot of money in a gamble and you might lose it all in managed accounts. We don't touch it. We don't touch any of the ets funds or other organization old structures which are coming

quickly to the market trying to reach them. I would distinguish between lisa mathematically backed cryptocurrency, which by the way, can work as a transaction medium, but it has no store of value that we're used to, and dollar back cryptocurrency or gold back cryptocurrency, which is catching on and is growing rapidly. It's actually growing more rapidly than the

mathematical backed cryptocurrency. And there's a reason. There's a lot of players in the world who would like to use a transactional medium and not have a record and not have it go through a banking system. Unfortunately, they're the kinds of folks that threaten the United States and others who are engaged in more transparent commercial activity. Alright, so, David, I'm glad you you held back there on your opinion about the cryptocurrencies. Is there is there something underneath this

though that says why they are popular? What is it that has lent this air of sort of almost inevitable ability about the emergence of these kinds of currencies. Why do you think people are so attracted to them? Now, Well, you've got human behavior, We've seen it before. There's this

wonderful new movie out. I don't know how popular it is, toolip Fever with Judy Dench, and it attempts to replicate the tool of Bubble of centuries ago, and it shows how momentum drives up prices and it shows what happens after the fact when they collapse. Are we having one of those? Maybe? Are we having? And am I wrong? And that could be a legitimate change in reserve currencies, where we're going to use algorithms to drive value instead of gold or silver fiat currencies that we know, I

would say, in due time will find out. I'm on the side that five thousand years of history with gold is a little stronger than five years of history with a bit Clinton. I think you know, underlying a certain only some of the enthusiasm is the fact that investors want returns that are getting harder to get uh in traditional asset classes, and so bitcoin kind of represents something that seems more limitless than say, bonds that are constrained by very low yields or stocks that are constrained by

very high valuations. Do you present ever alternatives to these investors that might be interested in bitcoin? That might be higher yielding, and if so, what are they Well, sure we do, Lisa, but you know you've you have reported on interest rates and bonds for years. I've watched you and you are in a period of time, and you know,

because I've heard your report on it. We are in a decade long period of interest rates which are extraordinarily low, driven by central bank policies with both you and Tim have reported on many times which are exceptional and that distorts behave year over time. Do you think about it? Any professional in the financial services industry who's under forty has never experienced a climate other than interest rates which are rooted in the zero interest rate policy. They've read

about it in books, but they've never experienced it. So behaviors are entirely different, and that will not last forever. In my opinion, what do I know? I'm an old goat, So how do you know? Well, we're not going to go come on, happy nays to yourself. We love speaking with you. That's that's your new marketing slogan, right, David Kotak, the old goat? Well, David, can you tell us? Uh? Having said all this, what do you think is gonna

happen with interest rates. Do you think we're going to get four increases next year, as Goldman Sachs has put out to their investors, I do not. I'm watching things in the credit markets, credit card delinquency slightly rising, real estate mortgage structures in growing trouble, twice as many vacancies in the commercial space area as new construction. Questions about mortgages. I mean, we're seeing elements warning signs, yellow lights that things aren't just so perfect, and we also see a

flat yielder. We don't know how to how to interpret it because of the distortion of the European Central Bank negative interest rate policy, so we don't have the usual metrics. I think we are in slow growth. You heard yelling on her sort of exit remarks say, I'm not so sure we're gonna have a big inflation. Maybe we got to go more slowly here. And now we have a

whole new fit. We're gonna have an entirely new federal reserve within a year that has no experience with ten years ago, a credit crisis and all that sort of thing. So we're in huge unchartered waters. Is great to go to work every day. I feel like I spent the last fifty years my life getting ready to be in business at a time like this. David Kotak, thank you so much for joining us, and have a wonderful, wonderful Thanksgiving thinking about bitcoin and the era of low rates.

David Kotak, Chairman and Chief executive officer of Cumberland Advisors, also the co author of the book Adventures in Muniland. When Mark Dunklely arrived at Hawaiian Airlines, the airline depended almost entirely on traffic from the United States mainland and among Hawaii's islands. Well as chief executive, he has managed

to grab a large share of the international business. International travel now accounts for about a fourth of the airline's revenue, flights to such destinations as Japan, China, South Korea, Australia and New Zealand. But Mark Dunckly has his own destination and he is departing from Hawaiian Holdings, the parent company of Hawaian Airlines. He joins us now, Mark Duncley, thanks for being with us. Maybe you could tell us a little bit about why are you moving on and what

do you believe your legacy will be at the airline. Well, then, first all, it's great to talk to you again, as it always is. Um. Yeah, you know, I've had the great good fortune to run this business for fifteen years, and at the same time, you know, I've been a long way away from from family. You can probably tell them that being in Hawaiian, being British and having family on the East Coast makes some of you know, keeping touch with family a little bit difficult. So it seemed

like the right time to to make that move. In terms of the legacy of our business. I think it really just sort of demonstrates that a small carrier with a real focus on the customer can compete and win UH in a in a market of very big airlines. In the story that we had on Bloomberg News in the past few weeks, it noted how a number of the big airlines United Continental, UH and Southwest Airlines have expanded service or said that they were going to from

the mainland to Hawaii. You have said at the time, had I known about this additional competition at the time I started discussing my plans with the board of directors, I would have stayed on. Can you explain that? Yeah? Absolutely, I mean, you know, one of the reasons why you get into the airline business and management capacities because you like to fight. And uh, you know, we've had a lot of competitive entry in our market during the period

of time when we've grown and developed ourselves. We've always been able to beat back the competition, um in And so, uh you know, I see no reason why this next episode is going to be any different. And I would very much liked to have been in the saddle to to take the fight to the to the additional capacity. So Mark, let's say you were staying on, how would you wage this fight? Well, I think we've got the winning combination. To begin with, Hawaiian Airlines understands the Hawaii

traveler better than any other airline does. Um We've during the period, you know, with each successive year, our rate of you know, that margin by which we understand our customer better has actually increased. Were in better competitive relative competitive shape today than we were, uh you know, four or five years ago when we had another bout of competitive entry. Um. So I think it's it's more about you know, leaving all of the the advantages that we

currently have. I don't think it's about finding a new formula I think our formula wins today. Mark just a little bit on the competition because a little more rather because we know, so okay, Southwest United there Lisa said they're upping their their schedules, but not from the West Coast, and I think that might be Can you just give a little bit of color there, because the West Coast also has to do with your ability to maintain margins

and I'm wondering if you could speak to that issue. Yeah, you know, with the exception of flying as far east as New York, which we which we fly, as you well know, most of our services come off the West Coast. Um. Again that's that that's a market we know very well. Most of the people UM coming off the West Coast are flying on NonStop flights, are not making connections. Uh.

And they're the they're the uh. They're the sort of customers who are most easily uh sort of directly marketed to UM when you compare it to people in the middle of the country who have to make connections. So UM, when we go head to head off the West Coast, as I say, we win an indeed, uh, if you look at where we are now, we we have a double digit revenue advantage over our competitors off the West coast. All right, that's all right, So we got the West

coast challenge and strength. Tell us about the aircraft. Because you're taking the new A three one Neo from air Bus that's got twenty five fewer seats than the smallest planes that you fly today on that West coast route, and then you're also doing a reconfiguration of the A three thirty, you're gonna have sixteen fewer seats which might be able to offer that premium seating, and then it offsets the other carrier's growth because it pulls a capacity

out of the market. Yeah. Well, we took the first of our eighteen eight three one Neo aircraft into our fleet just a couple of weeks ago. We're getting it ready for service early in the new year. We're very excited about this aircraft type. Um, you know, all airplanes are, I mean, both manufacturers built terrific airplanes and they're all optimized for certain kind of distances and certain market sizes.

It so happens aucle mile flight and the size nine seats of the Neo makes it absolutely the best airplane for the mission. And we think that is UH an absolute competitive advantage of Visa the competitors flying other narrow bodies. With respect to our wide body fleet, we're just completing UH the introduction of life flat seats on all of our wide body aircraft and we're seeing a phenomenal uptake

of of demand for those. It's and you know, we always understood that would be important in the international marketplace. I think what's been surprising and encouraging is to see just how important it's become to the domestic marketplace as well. Mark Duckerley, thank you so much for joining us, and best of luck in the next chapter. Mark Dunkerley was among the longest tenure chief executive officers in the airline industry.

He is current president chief executive officer of Hawaiian Holdings, which is based in Honolulu, but he has said that he will retire in March and be replaced by the airline's chief commercial officer, Pete Ingram. This is after quite a long tenure at the airline company. It seems like I don't know him. Would you leave Honolulu? I guess

I wouldn't know. I've never lived there, but it seems like a beautiful place to be Goldman Sachs has made a big push into consumer lending via its Marcus online lending system after starting it up in recent years, we are now getting some data about what their lone loss expectations are, as well as who they are lending to and with us. Is Dacan Campbell, a financial reporter for

Bloomberg News, to talk a little bit about what we're seeing. Dacon, you wrote this fantastic story looking at how Goldman says that they're expecting loan losses that are lower than what others in the industry would expect. Can you just sort of lay out what you're talking about here? Yes, And it's important to note that they actually didn't go as far as you suggest they went. They didn't tell us that the four percent losses that they disclosed in this

recent slide. They didn't say, those are going to be losses for our portfolio. They said, hey, analysts and investors, these are losses for a hypothetical industry portfolio, for a business built at scale. Now, many analysts looked at that and said, Okay, these are the losses that Goldman is assuming for their own business. But it's it's important to

note that they didn't actually come out and be all right. So, so you got some pushback they basically from the story saying that Goldman wasn't saying that this was their projections, but that you know, they put this out as a hypothetical and people are saying they're hypothetical is too low. Nevertheless,

it's a benchmark. It's a benchmark, and it's a fascinating benchmark at a time when Goldman Sachs is trying to recreate its identity and is trying to plow more into an industry that has been dominated by both credit card lenders and peer to peer online lenders. Uh, can you talk a little bit just about how ambitious Goldman Sacks has been and why this is such a lucrative area

for banks. Sure, so, Uh, Goldman would like to A couple of months ago, they told us they'd like to originate thirteen billion in loans over the next three years off of this platform. They started at thirteen months ago, So they're ramping up very quickly. They've done two billion already, so uh, they they'll need to do another eleven or

twelve billion. Uh. These are largely debt consolidation loans, so they're going out to people who've got credit card debt and offering them this money at a slightly lower interest rate to retire that debt. As we all know, because of the credit card debt that we may or may not have ourselves, those have high interest rates, and so Goldman thinks that that they can get in UH at a slightly lower interest rate but still high UH. This would be very lucrative for them. I mean they they

told us that the net interest margin. I don't want to get too jargon e, but it's UH. Banks now have net interest margins of two or three percent for their entire business. Goldman thinks they can get in net interest margin of ten per cent on this business. Okay, just let me get a couple of details in here. The maximum amount you can actually borrow on the markets platform is thirty thou dollars. Correct. They make a big deal of saying that there is no fee associated with it,

also that there is no pre payment penalty. First question. Pre payment penalties are usually designed to make sure that those who lend the money are given the feeling that they will get this stream of interest payments continuously for the life of the loan. What happens to those investors or in the back of the situation, what happens to

those loans when they get prepaid? Good question. So one competitive advantage that Goldman thinks they have is they're putting all of these loans on their balance sheet, so they're not selling any two investors. So in a pre payment, if anyone takes the hit, they take the hit. Yes, and they will take the money that's prepaid early, turn right around and lend it out again. Okay, the second thing, it says that you cannot use these loans for any

kind of remideration of student loan debt. Is that correct? I believe so, and I believe that's a regulation. I'm not exactly sure, but uh, they don't want you to be doing that, all right. So this is really as you just said, this is to try to consolidate your loans and it's unsecured. This is this is this is a large what a lot of the online lending marketplaces have done, right, and this is lending club prosper It's

largely the same product. It's it's directly in competition with credit cards basically to try to get them a a lower rate, although still at we're not talking low rate here, but It is fascinating to me. The first of all, that Marcus is also plowing into non prime borrowers, which is kind of interesting, uh in and of itself. Also, how did Goldman Sachs do this, Because if they're lending it, and they're putting the loans in their books, this comes at a time when all the other banks are actually

reducing their consumer loans. Yes, and that's that was one large part of our story, is that they're getting into this business at a point when credit losses are lower than they've almost ever been. So you're getting into a business when credit losses are expected to go up. We've had an eight year economic expansion. You've got to expect that to come to an end at some point. If you are doing the yourselves, you would not want to get into a business at this point in the cycle.

It's almost the worst point to get into the business. Now. What Goldman will tell you, and they've said this publicly, is hey, we're getting this. We're building this for the long haul, and doesn't really matter when we get into it, because we'll take early losses and then a few years down the line it'll be fine. This is you know, multi year so take that for what you will, all right, and thank you very much. They Can Campbell is our

financial reporter for Bloomberg News. You can follow him on Twitter at Daycan Campbell, and I urge you to read his story about Goldman Sachs and Marcus by Goldman Sax. The online lending platforms Uber has disclosed that it paid hackers a hundred thousand dollars in an effort to conceal a data breach that affects fifty seven million accounts. But this happened one year ago, So why are we only

learning about it now? Here to help us understand the issue and its consequences, is Shira Ovid are Bloomberg Gadfly columnist when it comes to everything technological? Sure, So maybe just lay out some of the details as we know them and what you believe the fallout will be right. So, our colleague Eric Newcomer reported yesterday that Uber's board did an investigation and discovered that there had been this data

breach in October of last year. So, as you said, more than a year ago that affected personal information on fifty seven million Uber writers and also hundreds of thousands of US Uber drivers, and the company didn't disclose it UM and instead paid hackers a hundred thousand dollars to basically delete or say they would delete the personal information. And that was kind of the end of it. It was, you know, basically a cover up before we get to

the sort of ethic of not disclosing it. And the fact that the New York Attorney General is now looking into this and this could potentially add to the Uber's legal woes. A hundred thousand dollars is nothing for what these hackers charge, and it makes me wander, first of all, whether this was sufficient. Second of all, what kind of hack was this? Uh? And and third, you know, is this uh? Is there more to this than perhaps they're

letting on? Yeah? These are all good questions. So I will say that generally Uber has been regarded as having a kind of robust security team. This is not a company like Equifax, are previous giant cyber hack victim that seemed fairly incompetent about keeping user data secure. Although the irony of this Uber hack was that it happened at the same time that Uber was trying to repair relations with the Federal Trade Commission over previous misrepresentations of the

um security of Uber driver and writer information. So it's sort of ironic that it was kind of being hacked at the same time it was trying to repair relations over previous breaches. Can you say this is a hack

and be hacked? Because isn't Uber the company that was cited as being uh sort of the poster child for using nefarious methodology in order to not only gain insight into their competitors, to game the system of their competitors, to flood the competitors system with bogus requests, and also, as I recall, to manipulate the data that was accessible to regulators in different municipalities. Yes, among the kind of very long list of Uber's troubles over the years is

all of those things. In spied on writers um using kind of an internal view of where people were going. It used its data, manipulated its data to kind of make sure that regulators who were trying to correct down an Uber couldn't get rides and investigate your further. Yes, all of those Okay, So if all right now, if Uber says they're an asset light company, therefore they're not a transport company, they're a technology company, what special sauce

does Uber now claim to have. That makes them distinctive because if their technology is hackable, and clearly it is, and they don't know how to disclose it. If they're not a technology they know, they just decided not so I mean, but to be fair, I mean, you know, I haven't heard from their you know, their side. But if that's the case, so what is this special magic that they have? What what that demands a seventy billion

dollar valuation? That is a fair question. Although will say that the information that was attacked was not Uber's algorithm, which is a sophisticated way of kind of matching writer and uh just everybody's license for you know, the driver's licenses and personal uh credit cards. Right, they breached a database of some personal information, although Uber said that it

doesn't include things like credit cards. Although you know, if you're if you're a driver and includes your license plate number, you might have serious concerns about your that information leaking out. My issue is, I mean, look, hacks are going to happen. Everyone who we have on this show whose in cybersecurity says it's not a matter of if another hack will occur, but when so, you know, you can't necessarily say, well, Uber is going to go under now because they were hacked.

I mean, this is part of the course. Uh. The question is the fact that they did not disclose this information, and this raises some serious questions about the current CEO, Kasar Shahi, what he knew, when he knew it, and you know, how will his response determine the success of this company. I think that's exactly right. The stunner here to me is not so much the hack, although now repeated breaches of personal information on Uber that is serious

and worrying. But you're right, it's the fact that they didn't disclose this until for a year and and honestly, based on some of the reporting I've seen today, they might not have ever disclosed it except that Uber is currently negotiating to sell billions of dollars in stock to soft Bank, and the board believed that this was material information that people who might sell shares to soft Bank might want to know about, so we might not have never known, And and the the techniques they used to

kind of cover this up raise more and more questions about both the current and the former leadership at UPER, which is why my column um yesterday was basically about, you know, we need to know what. Travis Kallinik, the CEO who got kind of pushed out over the summer, What did he know about the cyber attack and the cover up and why didn't he disclose it? Did he

tell the board? Did he tell the incoming CEO? Um, There's just so many unanswered questions about his role in this breach and his continued role of the company going forward. Sure over Day, thank you so much for joining us. As always, sure Oviday Bloomberg gad Fly columnists covering all things tech. Her columns are great. You should read them at Ni gad Fly on the Bloomberg or Bloomberg dot com slash goad Fly on the web. Thanks for listening

to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.