How Avis-Waymo and Hertz-Apple Partnerships Affect Driverless Future

driver lists car fleets. And I thought this was fascinating. So let's bring in chrys Chrysler minivans. Maybe they'll even put another badge on at Alphabet and their way Mo autonomous driving division. Yeah, I want to I want to get more context in this because it seems like a pretty big significant development. I want to bring in Allen Baum, principal at UM and associates, as well as our own a non street Astavan senior semiconductor and hardware analysts at

Bloomberg Intelligence, and I want to start with you UM. Yesterday, what was so significant that two agreements were reported? We had Avis coming up with something with Weymo to possibly manage their driver list a fleet, and then Apple and Hurts appear to be discussing some kind of similar partnership. Why now and what what really are these partnerships? Look, at the end of the day, these are complicated electro

mechanical machines. I think that technology companies have figured out that they need to be um partnering with somebody who has substantial experience in the vehicle department. So as much as driver list technical that would be a good thing. That would be a good thing because they take space. You need to do some maintenance maintenance, whether it's an electric vehicle fleet or a fuel injection vehicle. You need regular checkups on everything from tires to fluid levels to

batteries for example. And you just can't automate the whole thing, just like you do with the server farm or a phone so much to the annoyance of people in the technology industry significantly, so you can't. You can't put it in the cloud and forget about it. So so this is that part of that. This is a messy part of the hardware that needs to be taken care of. Well, Ellen, I want to bring you in here are Hurts and Eva's equipped to really manage a fleet like this. This

isn't exactly their business. Well, they're not going to be managing the technology. They actually made pretty clear that the WEYMO will be responsible for making sure about the hardware and the software of the autonomous vehicle uh is functional. But it's also about distribution. Uh you know the idea. There's been a lot of surveys about how people view this, how the general public views it, and it's generally pretty negative. And the obvious reason is people don't know what they

don't know. Um and so you know, this sounds pretty creepy that your car driving your driving itself, and uh so that there's a concern about that. With distribution, as people start to to experience it, then perhaps their their views will become more positive. And so that's what this

is about. And this is also a very good I think for the electric vehicle industry because what it it, uh, it's it's an example of is when you talk about a HURTS and an AVIS being involved, the cost of the service, of of providing the services critical and so to the extent that electric vehicles are going to be cheaper to run, I'm not really talking about cheaper to buy, but cheaper to run than that's critical for these these opportunities. And so we see the players that are good at this,

that are good at running fleets getting more involved. So is this as much a recognition that the business model of rental car companies such as Budget and Avis, Budget and Hurts Global, that their business model aligns financially with the ownership and maintenance portion of these vehicles future Because it's about scale, as you said on them, absolutely see economic scale and technology is sort of the foundation of which large technology shifts occur. Right, So to Mr Brown's point,

it's a great distribution channel. They know how to run and operate cars, and they know how to run and operate cars cheaply so and appreciate the value of those cars the benefit of their shareholders exactly. And this allows technology to proliferate through their fleet better, faster, more effectively.

That's point number one. The point number two is if you look at drivertive technology enhancements, one of the things that we have written about extensively is this notion of collecting data from UH many many, many number of points. This is one industry which needs a large amount of vehicles flying on the road to gather information. Who better do it from rather than than doing it one by one by one on an ownership basis renting of cars. Well,

and this raises a question. This raises my next question, Alan, I want to direct this at you. The significance of this is it that we're getting closer to the reality of a self driving fleet that will actually get implemented in urban areas or elsewhere. I mean, are we really see are we at the precipice of a sort of see change in transportation. I'm a little uh cautious on that. Uh, you know, will this work in Manhattan? Will this work

in San Francisco? Yes? Um, but of course it has to compete with the existing system well well, but beyond beyond but sorry, Alan, but beyond just will it work? I mean, is it going to be experimented with at this point? Is that the Is that the significance or not? You want to take that? Yeah, I think that. I don't know if it's Manhattan or San Francisco urban areas as much as it's going to I think start with

UM large fleets of trucks. It's going to start with closed, compartmentalized, UM sort of gated communities if you may, whether it's

a campus network, whether it's universities. One of the things that we've said is university campuses may be ideal for an experimentation with that, and particularly on the West Coast, large urban or suburban corporate campuses would be ideal for such a fleet where, um, you could experiment with the vehicles, you could experiment with buses, you could experiment with cars. But at the end of the day, you also need urban data. You also need data from different parts that

you need rural data. You need data from all of these different parts. And I think that I'm not so sure. I agree with with Mr round in that I don't know if it's to come sooner or later. But I think that this is we're going to try multiple different things. I think the experimentation with the rental car companies is a great idea. I think that we might start with the universities, corporate campuses, etcetera. We have to experiment in order to collect this data to make this feasible. Alan

bound you have a response. The development process is growing at at an amazing rate. I mean literally, it's two or three items a week, um and yesterday two items in one day where there are all these collections of major players, both in the technology and the auto space and now in distribution. Um, so we're seeing dramatic opportunities. Obviously, not everything is gonna work, and that's what the system

is finding. I just saw a video of Tesla's new autopilot where it was for about a twenty minute space of where it did and did not work. But of course in restless case, they're getting one a non to saying that data. They get the data, whether you're using autopilot or not, and that data is critical to the

development of the technology. And of course we've also got the regulatory issue, which is actually being discussed in Washington today, where the auto companies and the technology companies are saying, we really don't want fifty states having different different policies about this, Thanks very much. We gotta leave it there, we gotta run Alan bound Principal Bauman associates on trin of US and Bloomberg Intelligence. Just type b I go

on the Bloomberg for more. Well, I am a little bit perhaps confused about one issue in the exchange traded fund universe that only one all right, fairy fam but this has been the fastest growing aspect of the asset management industry, and it is now an increasingly actively managed industry because you have the passive e t F which account for the majority of the ass under management, but there is the fastest growing component that is smart beta. To understand how actively managed e t f s fit

into this this universe it's known for being passive. I want to bring in Tom Hoops, executive vice president, a head of business development. Uh like Mason, really glad to have you here, Thank you so much, thanks for having so. Can you explain where actively managed e t f s fit in to a universe that has gained popularity for being passive and cheap. Yeah. Sure. I think it starts with thinking about the e t F as a vehicle

as opposed to an investment strategy and separating that. I think the industry and the media often we get it wrong. We think about e t f s and market cap passive as being synonymous and true, most of the volume that's been in e t f s today has been in market cap passive. But ultimately the e t F

is just a delivery vehicle for an investment strategy. Yes, although part of the beauty of the e t F is its transparency, which doesn't always work with an actively managed fund, particularly in less liquid areas right um, as well as it's ease of transaction. So it's sort of uh is supposed to be a proxy for a broad market that you can just easily access, right it doesn't have to be a proxy for a broad market. I

do think that the ease of access is important. I think transparency has been an issue and that is is a potentially a roadblock to broader adoption of delivering active strategies UM in an e t F. But it also has lower overall operating expenses and gives clients a better tax outcome. So as a rapper, it's it's in many ways a better mouse trap than the forty Act mutual fund.

And so you know, for clients and advisors and gatekeepers that want to access active strategies, which they still do in large numbers, having it in a more efficient, lower US tax friendly rapper we think just makes sense. Does this also have to do with the way that the financial industry has evolved in the sense that if you are a great money manager, you can go out and create your own mutual fund and then people will want to invest based on your ability to produce the returns

or the risk profile that they want. On the other hand, with an exchange traded fund, it seems to be the vehicle that is run by the larger financial institution based upon a desire obviously to market the investment, but also to take advantage of whatever the strengths are of your financial institution. Yes, so so him. Our Our strategy, like Mason, has been to increase client choice in both investment strategies

and in products and vehicles. And so getting the right investment strategy in front of a client or in a client's portfolio is most important if they want to access that strategy through a mutual fund, through separately managed account, through an et F, through collective fund, through use it's fund, its R That's that's all fine. We want to be able to offer them that choice. Which asset classes are most uh conducive to active management management in ETF wrapper?

I mean, what are you looking at to sort of expanding sure, sure so so So Back to the transparency issue is, as you know, the E t F vehicle

UM as it stands today does require UM daily transparency. UM. We're certainly fine with daily transparency with clients or the second largest SMA provider UM in the in the US, and that means we provide, of course a daily transparency to our clients, but with an e t F, it's daily transparency to the market and market makers, and that can of time put your IP at risk for front running UM and and other things that could be detrimental

to the client. That is less of an issue in fixed income, and that's why you've seen to date the largest active ETFs have been in the fixed income space. It's harder to front run and get ahead of of of fixed income securities and fixed income portfolios. On the equity side, though, that is where I think the market is looking for some type of technology or solution to deal with the transparency issue so that we can deliver actively manage equity strategies UM in the advantages of the

E t F vehicle. Let's talk, if you can, about some of the results from a recent survey. This is the fifth annual survey. I believe that you've uh that your reference and it has to do with the attitudes of investors, and I thought it was very interesting that your your expectations for certain levels of return are almost determined by your age and what you do. Yeah, I

think I think them. There were a lot of interesting results or eye opening results when it came to investor expectations versus versus reality, and it did vary some by generation, varied some by whether one was was employed currently or retired. At the end of the day, though there is still a pretty sizeable gap between investors think they're gonna earn, particularly in in income oriented investments, versus where we think the world is now and where it will be going forward. Well,

it just said that the numbers fully retired. If you're fully retired, you're looking at overall average rate of return of six point two percent, which is a lot more realistic than the nine percent that people who are employed are sting. They're more uh, they're okay with investing in safer assets that they can get a more predictable returns. They might just be also de risking, right, or maybe they just have everything they need. I'm sure the more

realistic they're older too. We we have seen again it's persisted now for a few years in the survey, a large allocation to cash um across all generations in the range. Wow, all right, that's something to watch and thank you very much for being with us. Tom Hoops is executive vice president and head of business development leg Mason based in Baltimore. Well, we've all been adding up our cable and our mobile phone bills here in the studio, and the number is

not pleasant. Here to help us understand it and the possible combination between Sprint and Charter and Comcast as Bloomberg Intelligence his own Josh Yatsko wits he is a media and cable analyst, and Matthew Cantererman he is a telecom services as well as equipment analysts, and they join us

in our studios. Gentlemen, thanks for being here. I'm not gonna make you reveal your cable bills or you know how much it costs for your mobile service, but we were informally talking and realizing, my goodness, we're supporting you know, at least three behemoth organizations. I want you to talk about some of them, Sprint, Comcast and Charter. H Matthew, maybe you want to start off by describing what do

you think is going on here? Sure says say Sprint for a while as underinvested in its network, they've been concentrated aim by very high leverage, low free cash flow, so they're looking for ways to finance network investments UM to catch up to their rivals A, T and T, Verizon and Tea Mobile has been the most aggressive recently.

UM an equity investment from the cable companies who Josh can speak to about their desire to get into wireless and offer quadruple play bundles to reduce their turn You know, it suits all parties. It helps Sprint get cash to accelerate their capex, and it helps the cable companies, you know, get good, cheap access to the wireless airways that they

need to to lease to to offer those services. So, Josh, let's bring you in how how beneficial is it for Comcast and Charter Because theoretically, as Matt saying, you know, it does sound like there is some kind of benefit. And yet when you look at the share prices of both Comcast and Charter both down. Sprint though, is up because investors are loving the idea of a possible bailout or extra cash. Yeah, so Charter and Comcast have actually

been having wireless ambitions for a while. Right now they have a deal with Verizon and MV and O deal where they can utilize the services. MBNO, you've gotta help us m vyn O. It's basically a way for them to utilize Verizon services without owning the network. So they're

using it as a wholesale agreement. UM. So with Sprint, they could look into multiple options, one of which is doing another mv and O type agreement with Sprint, maybe getting better deal terms, or actually going out and buying Sprint. We tend to think that an MBNO is more likely that Comcast and Trotter are going at this little slow We want to test the waters and also maybe help Sprint, as Matt said, Jack some cash and see where the network goes. Just real quick, how much money is at stake?

I mean these MVNO is, these these agreements to use the wireless network that Sprint has. How much would a Comcast or try to pay for that? The deal terms are not disclosed. I don't know if um Matt hasn't anything. But you saw what Comcast is charging its customers, and it's utils utilizing its WiFi network which has sixteen million hot spots, so they can offload a lot of that data traffic onto the why find network. We do still overall costs from the NBN oh, and actually get a

positive return on that. Matthew, I want to know about Sprint. I mean, do they need this deal? I mean they need the cash, don't they. It seems like Massa needs a deal because he's been trying to sell Sprint for a while now. He's talked to Team Mobile, Joy, to Telecom, the cable companies, He's talking to everybody. He talked to Charlie Ergan shopping it around. He's shopping it around. Is

that the is that? Does that make sense? I mean, is that you know it's sort of you're shopping something around that must make it difficult to gain any kind of leverage in any kind of It does. But but you know, he put a lot of money into it and it didn't work out the way he wanted. You know, Sprint's been unable to leverage the vast spectrum massets they have for all the reasons I said before. Um, you know, that's the value he saw and they've been unable to

monetize that for him. So he's looking at ways to to monetize his investment that he made in the company a few years ago. Being the head of soft Bank which on Sprint right exactly, sorry, and so UM, you know what what he would you know, by shopping around.

He's trying to find the best deal. And you know, aside from just getting cash, I think one of the key assets the cable companies have is the deep fiber and collaxial cable networks and in the neighborhoods if you think about, you know, particularly in the suburbs and the in the rural areas where they are the only provider or one of two providers of those services deep into the neighborhoods. Um, you know, Sprint can just stick up

small cells on top of those and you know, very cheaply. UM, you know, expand the quality and the coverage of its network and really become competitive with the likes of Horizon, A, T and T and T Mobile. I want to ask about whether this is anti competitive or would this trip any anti competitive wires. Josh, it shouldn't because wireless UM, the wireless services that Sprint offers are complimentary more to

the wireline services that UM, Comcast and Trotter offer. It's not taking away competitor in that space, unless you argue that the wireless services could actually compete head to head with UM the wireline services woul we don't actually see

in the market yet. You know, you've potentially seen that with five G on on the last mile UM, with wireless companies coming in and using back haul and a five G basis, But this is years out potentially, Matthew, what is your thought and maybe just reference Verizon and its files product because that is trying to do the

triple play bundle. So triple plays are very popular in the US, but we haven't taken the step like a lot of the internet, home phone, and and TV services UM, but we haven't taken the step to quadruple plays, which bundle mobile services and they're like a lot of European countries have. I think one of the issues is the

geographic constraints. We don't have national fixed line providers. Comcast isn't national, Charter isn't national, Files isn't national, whereas in France or the Netherlands, much smaller countries it's easier to have a national footprint UM and so you know, the geographic constraints really make it difficult to offer those quad play services on a national basis, which is why it's really never taken off thank you so much for joining us.

Matthew Kanterman, Telecom and video game analyst for Bloomberg Intelligence. Also our thanks to Joshua yatsquits Uh Telecom, Cable and Media analyst for Bloomberg Intelligence. Uh. I just have to wonder, you know, Sprint, it's been on the table for a while and it's been looking for some kind of bailout. It's interesting that two big cable companies are coming to it at the same time. You never know. Well, in Europe we actually have had quite a big move in

government bond yield. You can see two year German yields rising to their highest level in about a year, albeit still negative half percentage points, so not not terribly high. Let's just say I still haven't gotten it's all relative. But I want to bring in Simon Ballard who has a better sense on all of this and can give us some perspective on why we're seeing this move and why we're hearing about ECB tapering. Simon Ballard is a global it Strategies for bloom Brock News in London. Simon,

why did e CBS Mario drags speech today? Well, Mario drag speech at the ECB Forum has addressed the tapering issue, which has been on many people's lips and in certainly in their minds for for many months now. The the asset purchased program, the quantity of easing program that the ECB has gone through over the last couple of years, comes to a tentative end or schedule end at the

end of this year UM. And so the question now really is how will the market react when the support mechanism is tapered, is taken away, be it through asset purchases being reduced. And you've seen that this morning. We've had Missie of Dragg suggesting that all being well, the the nascent recovery in Europe will allow them to taper or at least to sort of scale back accommodation between now and the end of the year or certainly the early part of two thousand eighteen. And that's why we've

seen this, this this rising government yours. As you say, we're still deeply negative. We've still got major issues over here to consider, um. But it is a move in the right direction as far as Mr Drug is concerned. And it's certainly moving the euro today against the dollar one eight one right now, that's a gain of eight tens of a percent. You know, I gotta ask you. You know, the European Central Bank seems to be an equal opportunity lender. In other words, they'll buy on most

any Euro Area investment grade non financial debt. I mean it includes US debt, Swiss debt right as well as all of this other They've added what billion euro billion the corporate bond purchase program. The corporate purchas program, which has been running since June of last year, has been accumulating bonds probably about one and a half to two billion a week. So as you say, just to just shy of the hundred billion mark. Now, um, yes, the restrict parameters for the for the bonds that they can

buy its investment grade, they have to be euro domiciled. Um. But you know there are U s issuers that have a European base whose bonds have also found their way into the CBS portfolio. And it's had a dramatic effect

on spreads over the course of the last year. While we've seen sort of ebbs and flows and some modest widening through to mid two thousand and sixteen, there really has been a consistent, consistent tightening across the credit spectrum, not only through the bonds that the ECB has been buying, but I'd point out perhaps many in US has been crowded out further down the quality curve, further down the credit curve, unable to buy the bonds because of the

CBS reduced liquidity in those sectors. So we've seen the dramatic apt forms, even if we can't really quantify exactly what the ECB has done. You know, Simon, I think it's so interesting the market response to Mario drugs speech, because first it was rather ambiguous. It wasn't like it came out and said we're planning to discuss tapering and two months and then get it done by the end

of the year. I mean, it was very ambiguous and you could kind of read into it what you wanted, but it seemed to hint at some kind of normalization. That's number one, But number two, the response has been

pretty significant in US markets too. We saw the thirty year yelled in the US rise the most in almost two months, and it makes me think the ECB is absolutely the central bank that's in control right now of global bond markets, which you agree, well, I think there's sort of there's a very very solid link between all global central banks, and more importantly, the rhetoric between the central banks um and the fact that the ECB is even hinting at, albeit with as many caveats as you'd

like to offer, um, that they would like to move to a tapering sort of position later this year is positive really for for the global economy because to a certain extent, the ECB, the eurozonees economy has been a drag on the US has been a drag on sort of the global growth picture. So if that starts to improve, then we can start to take a more positive spinum

to a sentiment within the US as well. Simon, is it possible that the European Central Bank, and of course we don't know what the Federal Reserve is going to do specifically with its own balance sheet, but the central banks have gone out to buy the best and have therefore crowded everybody else in to buy the junk, when it really should have been the other way around, because now you have a situation where they don't know what to do with this. They could sell it into the market,

but what would that displace? You'd sell your junk, and by this investment grade that they were selling back. Absolutely. I mean that's the big questions to you know, when you start tapering. And we discussed this about the Bank of England, who's whose corporate bond purchase program ended ending

earlier this year. Um, it's what they do with the portfolio, whether they manage, whether they actually look to sell the bonds that they've accumulated over the last couple of years, which I think would be disastrous for the market, and and and and send spread significantly wider as they start

to liquidate their holdings. They can they could extend the program, of course, you know that we're talking about tapering, but if anything happens between now and the end of the year, some surprise shock on a macro oil commodity related aspect, then you know there's the possibility that they extend or they run rate of seven billion, right, seven billion euros absolutely, if they if if the if the needs there, then thank you very much. Well I'm sure he'll be, he'll be.

They've given us, they've they've they spent so much time and energy getting to the position now of bringing down funding courts for trying to and you could you could argue that the funding mechanism wasn't broken for European corporates before they started this, But nevertheless, funny cost have come down so dramatically over the course of the last year that they're certainly not going to do anything to jeopardize the position that they've got themselves into now by tightening

too early. But at the same time, they are keen to move back to a normalization starts just as the Federal Reserve is in the United States. Real quick, simon, is Mario track you just responding to German pressure to get rid of this acid purchasing program. I think at the end of the day, he's paying lip service to to to Chancellor Merkel. Yes, and they've been one of the the one of the big argues against against QUI in its current form for for many months now. So

you know, it is politics. It is it is trying to massage the political relationships across the across the divide, the divide within the Eurozone, should I say, But at the same time, I think he is he's he's he needs to recognize that. You know, the efforts of the ECB have been positive over the last over the last year, and so I want to thank you very much. Simon Ballard, global credit strategist for Bloomberg, joining us from London, and we didn't even get to talk about Brexit. Next time.

Next time. That's uh, Simon Ballard joining us really great, great stuff. Read more about it at Bloomberg dot com. 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 abramoids one before the podcast. You can always catch us worldwide on Bloomberg Radio