Expectations around the Fed have Waxed and Waned : Marvin Loh

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. And you know, we are broadcasting from Orlando at the Highatt Regency at the b n Y Melon Pershing's Insight eighteen and one of the insights who want to get a little bit more of has to do with the world's currency and fixed income markets, and here to help us is an Matthias Global rates and foreign currency strategist for Vanguard and so nice to have you with us. Thank

you for being here. Um. You know, one of the things I was looking at was the value of the euro down six for sense since it's January. End of January, uh, strength of we're now one seventeen. With today's comments from the European Central Bank about going ahead with their less accommodative of posture, do you think that the dollar is going to remain strong? Well, it's interesting the currencies have not been behaving the way you would often have expected

them to behave. They're kind of like the the pre teens of of the world at the moment. In terms of markets. Um, you know, there's a pretty giant interest rate differential between the US and Europe UM. And you would think that that would just strive, continued strengthen the dollar. That's the sort of traditional thing that you learn in school.

But you had the euros strengthening pretty strongly at the beginning part of the year, mostly on economic expectations about economic growth, this global synchronized growth in Europe, and that really started to fade. Um. And now now the story is away from economic growth and back to interest rate differentials looking forward. Yeah, so we're going to try to figure them out, just as we try to figure out

preteen children. I do want to get your sense though, today we did hear from the c B officials saying they might talk about talking about talking about reducing their bond purchasing at their June meeting. Um, And we were talking ahead of this segment. Is this basically just giving

the finger to Italy? Well, Um, it definitely part of the vocal nature of the talking about the talking about you know, coming out with it right now probably has a little bit of something to do with Italy, especially as they've been pairing their purchases of Italian debt exactly exactly. I think what the c B is trying to say is, hey, you know, this is our party and you're welcome to it, but if you're gonna leave, it is not going to

be easy for you. They're really trying to avoid the moral hazard situation with Italy and trying to kind of show them a future without the CBS backstop. So I do think there's part of it that is around that. But we've thought for a long time that, you know, in term of timing a fall more specific commentary, more specific plan in the fall of this year around around getting out of the KIWI or easing the qui um that they would have to start communicating in the summer.

You know, I do want to just note that that indeed you did see Italian yields increase more than German boon yields in response to this ECB meeting. The idea here being but as ECB pairs its purchases the peripheral regions, particularly Italy, which seems to be at higher risk would suffer more as a result of the pull back. So

I think that's interesting. Then, well, I just want to know, is this such a situation in which the ECB is cutting off its nose despite its face because you can stick to rules for the sake of sticking to rules, But when you have a potential crisis, why wait for it to be a real crisis such as Italy which the new government has pledged to spend a lot of money to lower taxes while they still have a huge

government deficit. Why would the ECB do that? Sure? Well, I think the reality is we are economics team at Vanguard has done some work on the structure of Italian debt, and they have a very low interest rate on that debt.

I mean they've issued most of it in these super low interest rate conditions, so so really their interest cost of quite low on their existing debt, Plus the maturity is really quite long, so they would have to blow their budget deficit really up in order to create a situation where the actual interest um payment on the debt becomes extremely punitive to them. So they're in a weird way.

They're in a good situation to have this kind of populist environment going on in Italy right now, because the reality of it is it it's going to take a lot before it really starts to hurt. You know, I'm struck by the fact that we still have more than seven trillion dollars of negative yielding debt out there in the world, even as the FED continues to pull back from a stimulus and the ECB talks about talking about

talking about withdrawing from its quantitative easing program. Do you think that we are going to see this volume of yielding debt persists or you think we're going to see it slowly whittled down as the tape ring goes on.

You know that that is the need to move away from this massive bulk of negative yielding debt is something that is driving the more programmatic nature of the European Central Bank that they know, just like the FED new that they had to get away from the zero bound um you know, zero in the US, it's like negative

in Euros, So it's the same understood thing. But um central banks feel like they have to get away from this sort of you know, magnet of super low rates, and they're gonna do it every chance they can until they get to some neutral level. But I'm struck by the idea of can the European economy withstand the shock of that? Well, that's a big question. Earlier in the year it looked like it definitely could you know, the

economic numbers were looking good, growth was looking good. Um. We view this current situation a little bit more like a soft patch and not a complete derailment of the train. Um. But but that's a big question, which is why I do you find it interesting that the ECB has decided to make noise right now about talking about talking about talking guy. We have listened a minute left. I just want to get real quick tenure treasure yields. Do you

think that they're going lower or higher? They definitely seem like they want to go lower. Um. You know, every opportunity we have, the market seems more sensitive to bad news and a and a rally or lower yields UM, and and less sensitive to a big sell off for higher yields. And Matthias, thank you so much for being with us. Come back. It's wonderful to be here with you.

And Matthias Global rates and foreign currency strategies to for Vanguard talking about the world of interest rates, especially as the ECB talks about talks about talking about possibly talking about reducing it's bond purchase. It sounds so good when they do it in German, French and Italian. We're broadcasting live from b N Y Melon Pershing's Inside eighteen, Orlando, Florida. I'm Pim Fox along with Lisa Ramoitz. Our next guest is at the forefront of the digital revolution when it

comes to the financial services industry. Ram Nagapon is the chief information officer at b N Y Melon Pershing and he joins us now, rom thank you very much for being with us, and thank you for having us here at the conference. Thank you for having me as well. One of the things I do when I come down in the morning here is I take a look at all of the different boots and all of the different presentations.

And in addition to the hockey table and the foosball table, what I've noticed is an increase in the amount of digital offerings. Whether it is just flat panels that are being used, but more often it is about the technology that registered reps or people in the industry are being offered. And I'm wondering what is the biggest issue for you. Right now, we can go into things like softwares of services,

but what is the biggest focus for you? The biggest focus is our customer wants the best experience in consuming our services. So this technology, the innovation and technology and all these new tools and other innovations is going to help us deliver that experiences. Right, That's the key and our challenges how do we get that best experience to you?

Because we are financial services and we are getting compared not with our competition and finance services, but with companies like Apple, Google, Amazon and those So you know, we're all getting about taking these technology innovations that are coming out UM and applying it to wealth management and delivering the best experience. So how much is this just making the interface nicer? It's not just the interface, right, Interfaces

that's a misconsumption. People think experiences of our interface know and experience is about UM. For example, you know, I want to tell your password is one of the biggest challenges of people, telling my god, it is so frustrating. You've got forty million passwords from every single difference. Look at it. I'm going to give you a biometric face idea and finger idea. You know fingerprint, that is an experience. It is an interface. It starts with an interface, but

experience is more in depth. It starts from experience. You know how you interact to efficiency, you do things a lot faster than you know, just having a nice interface to end you don't look at one click purchase. Is that an interface or is an experience? The ability of the customer to now have access to all of their information is well known. But where that information lives. Does it live in the cloud, does it live at b n Y melon pershing? Where does it live? And what

does the cloud movement mean for your business? Yet? So you are touching a very important topic about data, how you keep it and where you keep it and how secure you keep it. Right now, cloud it's getting more secure because people understand. You know, if you put in a cloud, somebody can come and take it. But no, it is getting secured. So I think it is all about who is the custodian that keeps the data more secure so that the privacy information get doesn't get easily tampered.

So if you ask me, different people keep the data. But there are regulations and other things that you need to keep data safe that somebody else doesn't compromise it, take it and do something wrong. So data point of view, it's a very biggest challenge in this industry is to make sure that the data is secure and kept intact. Okay, data security is kind of a fuzzy concept because it's

one thing for somebody to steal with malicious purposes. It's another for somebody to use somebody's financial data to better market things to them, which could be a huge financial bond. Whoever can sell such data, I'm wondering, you know what sort of the overall regulation on that front. Well, we need to get a client consent even to give it

to someone. Even from marketing, you cannot just give your clients data that you're comment Well, but what about you know, overall data, maybe not on a specific person, but sort of trends in in in their financial information. There's a lot of regulations around data on how you need to keep, how do you need, how you keep store it, how do you share it? All of them do exist, but as you know, in the industry, there's a lot more happening around the data and the use. I don't want

to name all the companies. Everybody knows that um so there's a lot more you're gonna if you're gonna see around this data. Um see my view as a technologist, you've got to desensitize the data, meaning value of the data when somebody takes it should not be too much. What I meant, if you have a credit card, you cannot just charge. You need something else on top of a curdit card that somebody doesn't misuse it. Things like that. That's where this biometrics and all other technology innovation is

going to help us change. It's a slow change, but people are getting to it. Just imagine you come and go into a country and you stand in the turn style and it lets you go in. See that is a you know, biometrics, everything works and to make your experience better a lot of technology and your kid you don't have to worry about keeping the password really really tight because they need your biometrics along with the password

to let you in. Tell us about robot advising companies like Betterment Wealth Front, all of them have some form of sig FIG. That's from schwab a Merritrade. What what's your view on robot advisors and how they have progressed in the years since we've spoken to you, meaning this is a topic that has been widely discussed orable but for the last two years. Right. It started as if the technology is going to replace the adviser. My view

is it's not going to. So the technology is going to augment our healthy advisor to do a better job. Even the companies you mentioned. It started as if I'm just gonna ask your ten questions, give you a portfolio, and your job is over as an advisor. No. Now they are getting into hybrid models where they're going to kind of put in people at the right time to give you a technology and the hybrid so that which

costs more, which costs more? Yes, Um, So the space of robot advice is actually moving from a technology only solution into a hybrid or a digitally enabled advisor type solution.

It's so interesting because this is actually echoing what Bank of America's chief Operations and Technology officers said yesterday at a conference at Bloomberg headquarters, where she said, you know that there's been a lot of fear that your job is going to get replaced by automation, but it's really used to augment sort of those human qualities that are

really prized. What are those human qualities that are most important now for an adviser, it's understanding the relationship and the entire not just the account or the car and whole the account holder, but do know a lot more your entire life events. It's not just to give you a portfolio and make sure that a tone is Thereay, do you know what color you like? Yes? Yes, There's a lot of things you got to know when you

go through your life events. People getting mad with people having a child, people sending it to the college, retirement. You have to know. The holistic technology will help. It's not going to replace. Thank you so much for being with us. We really love having you on Roum knock up In. He is chief information Officer at B and Y Melon Perishing. Definitely. Fintech is transforming a lot of industries. Five years ago, Robert advisory firms were the hot thing.

Now everyone is a robo advisor in the investment management space pretty much. Simon Roy joins is now President chief executive officer of gem step invest goos robo advisor. He joins us here at the B n Y Melan Inside conference in Orlando, Florida. Simon, it seems like everyone says they're using, uh, you know, whether it is streamlined data aggregators or other technology to help them be a better advisor. Uh. Doesn't this mean that almost everyone is sort of leading

toward robo advisory? Yeah, Lisa, I think if everyone is a robot, part of the reason is we're all millennials now, all right, so give us a sense what what's what is it a robo advisory? And just sort of you know, how much competition is there in this space and how is it defined within a world of technology. The way I look at it is, given we're all millennials, we're all becoming very adept at using technology smartphones and and

and other other such technology. Um, the key is how do we make advice more accessible to the massive Americans who don't currently have access? And so we welcome firms leaning into robo and digital advice as we call it, uh, And we think there's a long runway for advisory firms for banks, create a unions, insurance companies to make it easy for clients existing and prospects to sign up for advice. And so part of what Jim SIP does is make it a drop dead five ten minute process to go

from an initial context to a client. All right, so as you say this, I have to wonder how many people are open to receiving financial advice and can understand it. I think about my nine year old son will sometimes say to me, Mom, I was listening to you on radio. Why can't you just speak English? You know, because it's it's hard to understand if you're not deeply in the world. Absolutely, so, at the end of the day, individuals invests to achieve

their goals secure retirement, kids. You know, you're nine old son going to college. You saved for it for a goal. But but but you have to start Maybe we need to talk offline, but you should start saving now if

you haven't, because it's just look crazy. God no, But but the key is at the end of the day, we're looking to help clients meet their financial and ultimately life goals, and so in simple terms, we provide technology to banks, created unions, and other financial institutions to help their clients identify the goals that are important to them. Your kids college and go through a simple questionnaire asking about how old is your son, when would you expect them to go to college? How much do you have

saved to date? Sorry about that one and then and then what you can do in working with the firm to have a better chance of actually reaching that goal. And in simple terms, that is what digital or like as we like to say by OIC advice is about how do we help individual how do we help our clients help their investors meet their financial goals. Now, I just want to see if this is accurate that GEM

step you don't automate the portfolio management. I mean that's a distinction, right, and because when you think of robot advisor, you think, okay, you plugged on a bunch of information and it gives you this model portfolio and then it

just sort of adjust. But the idea is, I think what GEM step you tell us is that if you want to be if you're a registered rep of you're managing money or at a bank or pench whatever it is, and you want to be an active investor, passive investor, you want e t s, want mutual funds, you can do all of that using the GEM step platform. So the GYM step platform is an open investment platform, meaning we don't prescribe to our client firms what their strategy

should be. We help them bring their value proposition to the full for their clients, so plane speak. If they want to have an all E T F set of portfolios, we can support that. If they want to have mutual funds or individual securities, we can support that as well. And so we we provide them with the choice to bring their value proposition to bear. The investment side is only one piece of the value proposition, right. The other side is I have a question, how do I raise

my hand? How do I get help? And so our belief is that full you know, full Robo maybe serves a small portion of the market. At the end of the day, this is personal finance. You want to be able to reach out and get advice. And so the second part of the value proposition is often what form of access do I have and level of access do I have to an individual advisor or a call center or someone in the branch, so that if I have questions,

I know there's someone to talk to. And I may not need it all the time, but when I do raise my hand, I want to know there's someone there. And so whether it's an open platform point Esmonds and supporting that bionic advice, you know, we provide that as a service. You know, we have less in a minute left. But I'm wondering, do you think that more people are

financially literate today than they used to be. I think there's been an education process of you know, over the last two decades that have made them a little bit more a little bit more educated when it comes to certain aspects of investment. But I really think that literacy is going to be increasing over the next ten twenty years as this digital technology makes advice and planning goals

more accessible to individuals. And I think what what what we'll see is by using services such as gemstep and being able to see the impact of saving more, they'll learn what it means to actually, you know, achieve their goals on the financial side. So I'm optimistic it will increase. And he's also going to make us all younger because we're all millennials. Thank you very much. Simon Roy is the president and the chief executive of invest Goos gems Step.

We are broadcasting from b n Y Melon's inside in Orlando, Florida, and that one of the topics today is the European Central Bank, the chief economists signaling that the bank's first formal round of talks on when to stop buying bonds is imminent. Here to tell us more about this and what it means for your investments is Marvin Low, Managing Director, senior global market strategist for b n Y Melon. Marvin, A pleasure to have you with us, and thank you

for being with us here at this conference. So what do you make of these comments from the European Central Bank? You know, I guess, um, everyone's certainly UH is worried about it because it does represent a turning point to one of the largest amounts of liquid that has been put into the financial systems in the history of the world. But ultimately, you know, it shouldn't be a surprise. It's you know, they need to make some an announcement by September.

Um data has been okay, you know, firming from kind of where we were last year. But I guess just the fact that it's stark and in front of us now people are are someone concerned about it. You know.

One thing that I'm struck with is investor positioning right now, because you do have a generally hawkish tone coming out of the central banks UH, and people had been flooding into short term debt, which sensibly would suffer if rates rose substantially on the short end, I was done seeing a couple of really big flows out of short term

exchange traded funds. There was about a billion dollars pulled from uh I share a short term Higle bondy TF in the past week, and there was another billion dollars overnight from SHY the one of three year Treasury e t F run by black Rock. Does this mean anything

to you? You know, certainly the expectations around and a lot a lot of that is um you know, a FED story, if you will, but expectations around the FED with regard to how aggressive they could get or couldn't get, as Waxton Wayne recently, um, you know, particularly around uh some of the geopolitical aspects that push yields lower, if

you will. But you know, the data that has come out recently, you know, affirms that the FEDS on the right path in terms of you know, talking about another two and I guess the market is gravitating whether or not there's a three. UH for Marvin, if the European Central Bank just to go back there for a second, does curtail their purchases, were like, I think that what they do about two point nine trillion something like that dollars. UM.

Don't you think that's gonna tank European stocks? Well, you know, I mean it's a known known UM. You know, the world has you know, certainly been perfect. But wait, wait, wait wait, we knew that. For example, we knew that with the US Federal Reserve, and then you had that nice, huge sell off in US stocks on the twenty of January. I mean, it was like a cliff. I think that.

I think that just at you know, looking at volatility kind of in this world where liquidity has played as big of a role, you know, certainly UM is going to create those drifts. And we've got market structure which is very unique from what it was before the crisis. And you know, um, nobody really knows what all of these e t f s, what all of this um UH algorithmic trading is ultimately going to do once the

central banks are out of there. But while we had the downdraft, valuations ultimately did come back, and you know, asset values are starting to settle around UM differentials that make a bit more sense. You know, we talked about Italy and kind of the blow out in Italy, but should Italy trade as tight to buns. Probably not. You know, Germany and Italy are very very different economies and they

should have that differential within those numbers. Well, and then you're talking about differentials and talk about the differential between US and German yields, right, because that's also blown out and should that be as wide as it is? Um No, I don't think so. I think I think that there's going to be a convergence around this, particularly as we get more into this ECB discussion, where you know, they

will stop buying bonds at the end of this year. Um. Draggy term ends late in twenty nineteen, so we'll see if he takes the route that Yelling did in terms of, you know, getting a little bit more to the middle rather than being as as devilish as he has been during his entire uh tenure. But um, you know, they are slowly going down that path the way the Fed

slowly went down that path. So you think that the gap in the yields are going to shrink because German boon yields are gonna rise faster even then US yields going forward, And and some of that's a reversal from what we saw this year, just the U S yields have gapped out so much more, and we UM can conceivably have a conversation about end the FED might be forced to pull back a little bit from its more

aggressive stance that it's that's out there. You know, I find it difficult to see them doing another seven or eight rate hikes during the cycle, to be honest with you, any thoughts on trade wars and what increases in tariffs would do to all of the projections for corporate earnings, you know, uh, most most certainly it's going to be a UM pick and choose kind of environment in terms

of which companies are are better off than not. You know, I don't I can't offer a whole lot of insight into UM, you know, the more other than the more obvious types of industries that that are that are hurt, you know, auto outo manufacturers, et cetera. UM. The fact that we really have had a lot of rhetoric but not a lot of action, I think is a constructive view that the market is ultimately taking. You know what,

we'll we'll we'll see what we'll see what happens. Okay, But UM, just taking a look at what has already happened. If you look at stocks in your stocks in Asia, they're flat or down for the year. And it's not as if you've made a lot of money in the SMP five this year either you're up maybe three three and a quarter percent. So I mean, that's not a ringing endorsement, you know what, UM. I mean, there's certainly something.

There's certainly some negatives to it, no doubt, U U S stocks themselves are not screaming by by by any means. You know, they're holding their own, which kind of given where valuations have been, is pretty good given all of the tail once. I mean, there's there's volatility that's been created by certainly the geopolitical aspects that are going on in the world, and there are and there's volatility based on the fact that the central banks are UM, you know,

starting to move towards a more neutral position. UM. At some point this year, we'll probably be talking about shrinking balance sheets across the G four, which will be the first time. And you know that's since certainly all of us have been coming to insight. So what's the one question that everyone asks you, all your clients and traders. You know, I think UM, I think there are still and you kind of see it whenever we get, um,

a little bit of a calm in the world. And it's not as if there's not headlines today, but you see yields gapping out, and I think that there is concern about a four percent um four percent ten year. You know, do some of those prognosis is hold any weight. I'm in the camp that we might have seen the highs of the year, or you know, close to the highs of the year, if you will. Um, I think things get a little bit more murky and cloudier later in the year, particularly if we start talking about an

e c P that's pulling things back. UM. So you know, everyone is looking at yields, which is great for a fixed income guy. Yeah, Marvin Love, thank you so much for joining us here. Marvin Lowe is managing director and senior Global market strategist for the n Why melon joining us here at Inside in Orlando, Florida. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever

podcast by form 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