SEC Commissioner Crenshaw: We Need To Close Insider Trading Loopholes

you know, insider trading was a big thing. It was all over the headlines, names like Ivan Bowski, Dennis Lavine, movies like Wall Street. Um, apparently it is still a thing. Our next guest is focused on a Caroline Crunchhaw. She's a commissioner at the Securities and Exchange Commission based in Washington, d c Uh. She's out with a Bloomberg opinion Colm entitled Insider trading Loophole's need to be Closed. Caroline, thanks

so much for joining us here. We'd love to get your thoughts on kind of where you think the state of insider trading and enforcement of insider trading rules art right now? Yeah, good morning, it's great to be here. Before I start, I do have to say quickly that the views I expressed today are my own and do not necessarily reflect the views of the commission uh, my, the staff, or my fellow commissioners. UM. But as to your your question, you know, I think, um, you know,

insiders something insider trading is something we always take seriously. UM. But UM right, you know, recent evidence suggests that some of the rules designed uh to make sure that corporating executives who always have insider information or material non public information, UM you know sometimes uh, they they also are paid in stock uh and and and to ensure that they are not uh you know, trading their stocks while they have insider information. The SEC established about twenty years ago

a rule called B five one. And this rule UH basically puts in place a schedule, fixed schedule for them to make trades so that they're not trading on insider information. But it makes sense, right because they get a lot of these UM men and women get a huge portion of their pay in stock. So in order to live the life of a respectable chief executive, you've got to you've got to sell the stock occasionally to pay for

your stuff. UM. But I guess the problem you found is that they set up these schedules commissioner to sell the stock UM, and then they can cancel the sale or delay the sale UH to to better position themselves around an event that they know is coming up. That's

exactly right. UM. The recent academic evidence UH some by my co author Daniel Taylor out of Wharton Business School UM has shown that there are there are lots of red flags with these plans UM, and that they can be modified, they can be canceled, and that could allow executives to time trades and thus perhaps to be trading on insider information ahead of other investors are the rest of the market. So, Carol, I excuse a sense of the state of insider trading today, how prevalent is it.

UM has the SEC and other regulators, UM maybe learn some things from back from those the nineteen eighties that I that I referenced. You know, I think, UM, it's always something we are looking at. UM. You know, I think, UM, there's always going to be insider trading. There's always going to be UM. You know, folks who are inclined to break the rules. That's why we have an enforcement program. UM. They're actively looking at this. But I think UM, to

to the degree. Um, we want to modernize the rules and and help put stricter parameters in place. Uh. These ten five one plans are an area that I think we can really look to modernize and provide much clearer rules of the road. UH that will help lead to um, uh perhaps level more level playing field and promote fair and efficient markets, which is you know what the SEC

is is always thinking about. Have you ever heard anybody like on a stakeout or something, a blue horse shoe loves Annicott steel all the time, Because that's a tip off. I'm just telling you no, seriously, Um, Caroline, do you worry on the other side at all, on the short side, because that's been brought up a lot in well the court of public opinion and in front of Congress as well.

Short sellers have been attacked, and um, maybe there have been implications that maybe they even banned together to bring companies down. Well, obviously, in the wake of the activity area in January, we're we're looking at that behavior. We're we're looking at the consequences, We're looking at what happened there, and I think that's something we we are closely looking at again to make sure that to the degree we need changes in the market, the degree we need to

modernize our rules. UM that we're doing so. You know, again, it's the the SEC's mission to promote fair, orderly efficient markets, and I want to make sure we're preventing a two tiered market, one where insiders can train and one where everyone else can trade. And I think this is another area that we can look at along with some of the changes perhaps that we're looking at after the January activity to again to promote this fair and efficient market.

So what's the political support or pressure or environment for toughening up potentially insider trading rules. UM. Caroline just gives a sense of kind of what's what what's the mood within Washington. You know, I think we always want to make sure the markets are fair and efficient. UM. You know,

there is a Preferrara Commission that's that's looking at this. UM. I think there's always there's always interest in making sure that we have the tools we need UH to to ensure that the markets are level and that the playing fields are as they should be for both the market

participants and investors. You know, in the last couple of days, we've been talking a lot about UM efficiency improvements that could be wrought out of the I R s. For example, UM, people have been telling us if you give for every extra dollar you give them, they could go out and collect five more. Do you feel the same is true with funding at the SEC you had more funding, could you bust more inside traders? I think our enforcement division could always do more. Our whole agency could always do

more with more funding. We do have limited resources, UH, and that results in you know, often trying to decide what cases over time or are going to be the most effective, had the most market impact. UM. But we're always out there, We're always making sure that UM, we're we're using those limited resources to the degree we can UH to bring inside or trading cases, to bring fraud cases, to bring UM the cases that will help ensure UM

that the investors and the markets are protected appropriately. Currently, what about politicians who engage in trading maybe a head of legislation or after receiving classified information that seemed to have been a thing before the the pandemic really hitting and the market crash. Is that a big issue? You know, it's certainly it's certainly gotten a lot of attention. UM. I I know there was some investigations. Uh you know that that that we're being talked about in the news.

I think to the re individuals are trading with information that the rest of the investors, so the rest of the market doesn't have, uh, there there's always going to be questions around that and whether that's promoting market confidence effectively, UM,

and whether that's going to lead to problems. So I think that's something that that we are always looking at, UM, and that that everyone should always be looking at to make sure that you know, individuals with insider information or trading at the same time as everybody else and with this information as everybody else. Commissioner, thanks so much for

joining us. Really fascinating column at say, Caroline Crenshaw wrote with Daniel Taylor, a great piece and I recommend if anybody, um, will anybody with access to the Bloomberg go ahead and

search Caroline Crenshaw and you'll find it. I did not uh know about what seems like a pretty simple loophole, and Paul I think it's um it's the kind of thing that well, this is what these people are doing, this is what they're they're up there for, right, They're gonna put a stop to this so that markets can be more efficient for everybody else, including you and me. So Caroline Crenshaw, thanks very much for your time and your service. This is Bloomberg going a busy, busy week

in terms of economic data. We had retail sales manufacturing data today, We've got market moving news tomorrow with potentially with the Fit and what j Powe will say. What a great time it is then to speak to our next guest, Constance Hunter. She's a chief economist at KPMG. She joins us Constant, thanks so much for your time here. Let's start with some of the economic data points we got today. Retail sales UH and manufacturing activity came in

below expectations. A lot of folks are just saying, hey, it's an aberration. We had a really bad weather across much of the country in February. Is that your calls? Well, yeah, I mean there's there's two things as far as the retail sales um impacting the noise. So the first, of course is so whether as you mentioned, and the second is the yo yo effect of stimulus checks that got

spent in January. So of course the January month over month was up seven point six and we just saw a pull back from that on a month over a month basis for February down three percent, and of course the weather didn't help that UM. But when we look at the year over year, February still up six point three percent for retail sales and then for manufacturing. Of course,

it was very impacted by the weather. And it's always good to look at these data on a three month moving average just to get a better sense of the trend when you have some noisy factors like weather and stimulus checks in there. First of all, I want to say hello, Constance, Matt Miller here. It's been a long time, but I want you to know that Paul and I were invited to Camp Ko talk, so we may see

you next year. That would be fabulous. I hope you come, you come fishing, and I hope we're all you know it mass free. Do you believed we're all going to be vaccinated? Yeah? Yeah, I I we hope so too. Me and Paul are lined up for the astros Nika shot. So just as a public service announcement, we'll take it. UM. I wanted to ask you about UM inflation. Of course, it's the hottest debate right now and A listener earlier

in the program wrote a great question to me. He says, where does the ten year ago if we see a minor Rosenberg or Tepper scenario i e. Short lived inflation, the short sharp shock as uh, that then comes down as all the Street research maybe has it wrong. What do you think about that? So basically the idea is that we would have a short sharp shock due to base effects, I assume, and then basically saying the Street

is wrong. We're not gonna We're not gonna get anywhere close to the two percent of that is forecasting, or even the slightly above two percent. But the inflation year over year starts to fall once we get past that shock. Is that's my question? Yeah, exactly, And I mean Scott Miner told us a couple of weeks ago he thinks in this scenario the tenure could go negative. It's obviously an outlier call. But um, I was reading some research from an economist last year who said, get ready for

the Great Depression. Now we didn't have that. I was thinking to myself this morning yet, right, I mean, maybe it could go, maybe it could all go. I don't know a nice way of saying what I was going to say, but maybe you could go all go bad. It could all go yes, it could. I would never want to rule out the possibility we have a shock or a black Swan event. Or let's look at some of these mutated effects from the virus. Look at Italy

has reshut itself down. This this virus, as I said in the beginning, is very pernicious, and it just continues to prove to be more and more pernicious. So certainly we could have additional adverse economic shocks that would would push us to lower consumption, which would push us to lower inflation. But let's think about what causes inflation or deflation, right, There's a too factors. There's overall the demand level, it's

the most important um. And then what influences the demand level the level of employment wages um uh and in this case income. Right, so we're seeing income to household that's not from wages, it's from government uh, supplemental income. But it's still income that's going to influence demand. And so it's hard for me to see that scenario playing out given the current course of events. But given a shock, if we were to have a severe negative shock on

top of what we've just experienced. Yeah, maybe we could go negative on the tenure, wouldn't be my base call, all right, Constance, So given that backdrop, what do you expect to hear from that Chairman J Pale tomorrow? So I expect him to talk a lot about sort of what are the transitory factors and how do they look through that? And the real question is going to be how clearly does one communicator does he communicate this very

technical information to the market. Now, there's a good swath of the market that's already very well read in on that, but he's communicating to the market participants and the public at large, and so he needs to communicate that, yes, we're going to see an increase in demand, that yes, we're going to have some supply bottlenecks that push up prices for goods. That yes, on the year of a year print, we're going to see higher inflation numbers through the summer, but that as we get more and more

people vaccinated, those supply bottlenecks will dissipate. We're not at production I'm sorry, we're not at industrial production levels that would suggest we're out of room to add production once people are vaccinated. So he needs to explain very clearly why the said believes this is transitory. All right, Constance, next time I see you, hopefully we have fishing rods. Well, actually, now that I think about now, I'm back in the US hours now, so I hope I can get you

booked back on my television program. So i'll see you before that. Good, I'm gonna have a producer call you. I'll see you, um then very soon via satellite. But next time, me and Paul Cy will be wearing vests with flies all over the podcast. And don't forget, we have to ship cases of wine up there, so we'll be fishing with with wine or beer or the beverage of your choice. Yeah, well, I'll be drinking wine or beer while you guys are fishing. Is probably how it

really is gonna work out. Constance Hunter is the chief economist at KPMG. Let me bring in John Butler right now. He's a senior telecom analyst for Bloomberg Intelligence, and John um five G has been I guess the idea has long been there, but we've now heard uh, a swathe of people, a swath, a swath, a swath of people.

We've heard a slew of people UH talk about getting into it um, including Mark Andy from UH UM, what's Tom Barrick's shop called that Marcolin Colony Capital Um this is he says, where you're going to see the infrastructure build out in five g Do you agree, John? Yes? In fact, I'll go as far as to say this, Matt, I would liken it to what the world looked like after iPhone versus what it looked like before the iPhone

was introduced. I think it's going to have that kind of powerful change, But I don't think it's going to happen in one year. It's going to take time. And you know, we're in literally like the first inning of the rollout here. You know, the carriers have sort of set foundational coverage in the US, but that foundational coverage doesn't have the kind of spectrum you need to really offer five G s full feature set or full potential, if you will. So fast forward two years, three years.

I think we're going to see profound changes. I'm getting that, you know what I gotta tell you. I gotta tell you, John, I was so when I first started working as a young squid here at Bloomberg News in Frankfurt. My job was to cover the U MTS auctions, so I was, you know, covering these three G auctions at a time when three G was like the great pie in the sky, and it took me a while to realize what the result of three G was. It really was iPhone. That's

what made iPhone possible. And then they jumped, of course to forge you with their next model. But uh, that was a massive shift, a tectonic shift, as Tom would say, well it was. I mean what three G gave us texting and limited web access, four G gave us full web access in the pump up our ham plus streaming video. Five G for the consumer, for you and me, is going to provide even a higher speed four K video,

interactive gaming, augmented reality ultimately. But I think the bigger changes are going to be on the enterprise side for businesses, because literally five G can replace a lot of wires in your life. So when I was talking to A T and T the other day and they said, you know, we're doing tests in hospitals because hospitals have wires everywhere.

Doctors need to have patient information on the move, and um, so they're putting five G in a private network in these hospitals where you can literally cut the cord onto everything. So there in lies the biggest potential I think for five G in that enterprise sector. And that's great news for the carriers because a lot of those services are

very high margins. Hey, John, I see, you know, just in the last couple of days the big carrier's Verizon T mobile tapping the bond markets for more billions of dollars. Here what are they raising the money for? What are they using it for? So you know, I'll start with this. The c band auction was way more expensive for the carriers than anyone anticipated. That's the bad news. I think the good news is that Spectrum can be used not only for five G, but six G and seven G.

I mean, those licenses have long lives to them. I think of them almost as a life lease, and so it's gonna be very costly up front. I think even they were surprised at how much they had to spend.

So in the end you're seeing them raise a lot of debt to meet those payments, which are all due this month, and then over time the hope is with some of them to pay off debt with obviously excess free cash flow, but also some assets sales in the case of a T and T, and there're sort of instituting the shrink to grow strategy, and so I think they can monetize some of the assets that don't make sense, like a T in T Latin America, the Brio satellite

business in Latin America, and who knows, maybe even Turner eventually. I've been thinking that might be. That was that was the harder. It just dawned on me. It just dawned on me that when uh, you know, when Deutsche Telecom bought Voice Dream, I flew out to Seattle with Ron Summer and he threw the first pitch out of the Mariners game. Paul, were you there? Were we both there? I don't think so. I didn't know if you were in on the deal, because this is you're a wheelhouse, right. Yeah.

We did a bunch of deals there, and John's kind of the the expert on on the kind of how Telecom has evolved and kind of what is our our future here with five G So John is it? You know, if I were an investor, I mean, can I gauge out who might be a winner and a loser here? If I want to play five G, because that's what I hear a lot from all the tech and telecom FOLKUS is all that five G? How do I play it?

As an investor? So I always look for leadership, right, and I'd look for leadership and growth in what really traditionally has been a non growth sector. But if you look back over the past ten years, T Mobile has done great, right, and they were the growth name in the segment, but Verizon was the one that really dominated in terms of being the early mover and orgy and then leading over the next ten years, and their reward

was higher margins than the other carriers. I think T Mobile is now in that position right now on both fronts. They're going to continue to outgrow a T and T and Verizon, and I think their margins are going to expand over time as they get the technology rolled out.

Interesting as always big tech telecom jump, but others seeing telecom analysts for Bloomberg Intelligence, we appreciate that we're gonna talk about f X, which already was, you know, one of the biggest markets in the world and absolutely fascinating, but it could be set to get even better. At least that's what Our next guest, says Vincent Delire joins

US global macro strategists for stone X. Vincent. UM, you know, Ray Dalio was out overnight talking about UM, the dollar and how he wants to stay away from assets connected to that as all the stimulus goes into the economy and taxes are ready to get raised. And he was even talking about countries limiting capital movements. What do you think,

M well, UM, it's it's possible. I think at the end of the day, we go back to UM what's called the impossible trinity that any UM, if you have the free capital movements, UH, you have to either target the exchange rate UH or the interest rate in a country. UH. And it seems to me that UM, as we have a on the global pandemic. UM, no central bank in the world is able or willing to let go of its interest rate to accept the move in interest rates that would be viewed as as harmful to the economy.

So there's only two consequences from that. UM. The one that I expect, I we tolerate a much higher level of currency volatility because we cannot use movements in the interest rate to cush and that currency volatility or the one that rate values suggesting, which is eventually imposing capital controls, which may indeed be possible, but I would expect I

would expect that to come later. The first thing that I expect to see is what I call the global macro disorder, the global monetory disorder, where you see a lot more currency volity to your new regime, very much like the seventies, where you see huge wins in currency alatility because central banks have to focus on their domestic constituencies instead of trying to provide stability to global economy.

All right, So, Vincent, when I start on Wall Street, the every firm I worked at the a whole floor dedicated to trading currencies, talk to me about the liquidity in the global f FX markets here, Um, is it enough to deal with what you call great monetary to disorder or is that also a concern on the biggest pair currency pairs? For sure? I mean it is, you know,

the most liquid market in the world open um. So no, I don't think there's I mean maybe on the you know, kind of a smaller emerging current market currencies, of course, big flows will impact the market. But on the bigger one, um, No, it will be. It will be very exciting. I think as m as we see traditional assets are now being priced beyond perfection, right, I mean you you you have

to expect negative returns on equities. Uh, you know you're gonna get negative returns on at least you know, intriguents of bombs that have a negative return, negative yield. So the world of currency, which is effectively there was some game. Uh you know, if one goes of, the other goes down, actually becomes the most exciting gaming town. So I expect more liqually and more expitement. I think that's over the next decade the big fortunes will be made in the

currency market. I mean, you can think of the year of you know, sorrows and drugn Miller as as coming back. Yeah, except for now they're gonna be out there buying n f t s of people art works. You know. The massive fortunes that are sort of being wasted on the internet seemed to be coming from crypto. What's your view of the digital currencies? Uh, this is a hard one and it's a hard question, Vincent, but it's one that you know, everyone's got to contend with this question. Now,

even people who don't want to talk about it. From Jamie Diamond to Howard Marks, they have to embrace this question. I mean, obviously there's an element of it that's a that's the bubble um. One thing that UM, it seems clear to me is that the more the sector grow was the bigger threat it becomes for UM governments. Really.

I mean, if you give people the ability to transact outside the banking sector without supervision, uh, you're really um taking shipping up an essential element of sovereignty like that, you know, the ability of governments to issue currency and money to transaction UM. And I think the next battle here is going to be between governments and crypto because I don't think really governments can function uh if um and I mean I'm not making a more case here.

I have a lot of sympathy for for what crypto is trying to do, but I don't think that governments are willing to let that happened. I mean it was a cool experiment. I think at the beginning it grew in kind of a dark hole. Regulators were not paying attention. The technology was exciting it. But now it's getting so big that I think you'll see a lot more a lot more government interventions, and that could be maybe the what ultimate see and still what what is very interesting

and and and and beautiful experiments? Vincent, about thirty seconds left as the world reopens here, what's the trade that makes the most sense to you? Um, well, a lot, I like to say, a lot of cash and very few good ideas. So most of the reopen trades that cleek in the US I think have been played and overplayed. I mean you'll get the wrestle wrest of two thousand small gap value, all that stuff that has rallied so much,

that is corpus teamage shoes left. Uh. The only place is where you could find one of the Jews I think is the maybe Europe, and I like that time. I like Latin American currencies. You see a huge disconnect between the performance of Latin American currencies and the performance of their their main exports. I mean the Brazilian realbus is the old prices and based ovices copper um and and over time. These are commodity economies, so it's very

unlikely that divergence remains, so I would expect these two trampthon. Hey, Vincent, thank you so much as always for joining us Vincent Ward, global macro strategists for stone X. They're based in San Francisco, UH talking to us about the global FX markets of global currency markets, suggesting maybe e M particularly Latin America, might be some places to find value. Thanks for listening

to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on false Sweeney I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio