Silicon Valley Is Listening To Your Intimate Moments0-

is listening to your most intimate moments. But then we found out that Austin's fiancee's name is Alexa, and so he is the unicorn that has an Alexa and has that horrible dissonance between your soon to be wife's name and and the device. How do you function? It's difficult? Um, You know that I would say that oftentimes it's unclear who I'm talking to, the speaker or my soon topee wife, but the speaker often thinks I'm talking to it or her. But that actually gets to the heart of the story.

In this week's issue of the Street, if you don't might be pivoting there, uh in that there's accidental triggers that happen all the time. If you have a device like an Amazon Echo or a Google Home or an Apple HomePod, or use Siri um and these recordings are submitted to these companies servers and from there, what you might not know is they're actually sometimes transcribed by a vast network of human listeners to help improve speech recognition on these services. This is one of the big privacy

issues that really we're we're covering in the story. In addition to the relationship with my So, what are some examples of some of the content I guess our conversation that's been picked up and transcribed by these humans? Absolutely, I mean, you know, one of the fascinating things. We spoke to dozens of contractors everywhere from Ireland to India who work on these these programs or have worked on them for Apple and Google and Amazon, and it's really

fascinating and also quite alarming. Some of them described instances where they often heard recordings of children sharing personal information like phone numbers or street addresses. They overheard couples engaging in sexual activity, They heard very of information is happening

in your your kitchen and bedroom. And I'd say overall, they just felt incredibly uncomfortable doing this type of audio transcription, so much so that they compared it to something out of y On one hand, I get it, you know, you don't want someone hearing some things that you might say at home or do at home. On the other hand, does anyone care? I mean in terms of if someone you know in another country or across the sea is listening to someone that they don't know do something that

is inherent to animals, then why why does it matter? Well? I think that's the stance that the tech companies really took when they set up these systems, which is really interesting, um that they basically spent the last couple of years being very heavily scrutinized for having privacy issues and collecting more data. And this is sort of the next level of that data collection. This is voice or audio or

sonic surveillance in a lot of ways. Uh, And that audio was being rerouted to again these data associates who are transcribing this material. And the big question is not just whether or that's that's ethical, but whether or not they properly disclosed it to their customers. You might not think it was that significant of an issue, or perhaps you don't share that many intimate things if you're talking

to these devices. I know you mentioned you guys use these devices that your your houses too, But the larger question is whether even customers knew this was happening. And I think that's a really significant privacy issue. So so, what are kind of some of the legal ramifications here. Do I have an expectation to privacy that extends to these devices and I'm guessing that might be different different

parts of the world. Yeah, I mean, technically you did agree to opt into these services, or at least we're automatically optimated when you you sign up for let's say, at your Apple iPhone. You know, there's those broad terms and conditions, which again I'm sure very few people read. But somewhere in those they did disclose that Apple could use the audio that you submit and collect the recordings in order to quote, you know, improve or enhance series

speech recognition. But they didn't explicitly say that humans might be listening to this. I think the assumption that was robots were doing the vast majority of these uh, you know, requests, and that's what tech companies say that a lot of these requests are handled without human input, but they really should have disclosed that humans were the ones. That we're

doing a lot of this work as well. You know, millions of recordings per year they're transcribing um and so they've updated their terms and conditions to reflect that, which is sort of a major disclaimer now that they hadn't done that before and perhaps should have. So let's talk about what you're gonna do about your soon to be wife's name. How is that? How are you going to deal with that? You know, I mean, so far we've I would say, Amazon is getting better with associate disassociated fance.

It's not going to change her name. I guess one of them will have to, but yeah, no, we will say there there is an option for the Amazon Echo to change it to respond to Amazon or Echo. For some reason, we haven't done that, And I would say that sort of captures the broad approached privacy issues that

that tech companies. But I would say that that's really what a lot of you know, there's a few research study recently that found that about six of UH user surveyed had very major you know serious privacy concerns about these devices. At the same time, about a quarter of Americans have them in their homes, so there is that scuge disparity. And and that's exactly that gets the heart of it right, is that people, if they're worried about it, they do have an option of not buying it and

not installing it in their home. So there's sort of a question when does it become something more, When is it an invasion that goes beyond just you know, you can vote with your feet or with your money basically, and and to that same extent, you know, what is the threshold for companies to collect this data is that, hey, we can collect it so long as we're improving it for our services or could one day we use it for targeted advertising or researcher We talked to just reminded

us how much information we disclose in these recordings. If a baby is crying in the background of a recording, they could just they could technically refer that infer that you have a family. If you ask a lot of questions about football, they think you're a fan of the NFL. So you can see how these could build behavior profiles for you in the Future. Austin Carr, thank you so

much for joining us. Fascinating story. Austin to the technology Order for Bloomberg News, joining us on Bloomberg Interactive Broker Studio. Austin story is featured in the upcoming issue of Bloomberg Business Week magazine. You can read it now on the Bloomberg and at Bloomberg dot com. Full disclosure, I am not that great at programming these things. My ten year old son programmed by Alexa to call him lord, and so now I have to hear that all the time.

The chance you've been transcribers the FED meets today, most likely it will be boring. That is certainly what they hope, but it does study tone going in when it comes to trying to figure out what credit returns will look like. Jell would we'd joining us now to talk about that Head of fixed income in senior portfolio manager at BEMO Global Asset Management, overseeing two hundred and sixty billion dollars.

She's normally based in Miami, but she wanted to see what snow looked like, so she came up here to our Interactive broker studios. Janelle, I want to start with excuse me the outlook for when it comes to credit. Investment grade debt is poised for its best annual return since two thousand and nine. How much further can it

go up? Over fourteen percent this year? I think it's somewhat remarkable when we look at the total returns um we are still very constructive on credit, even with valuations where they're at going into two thousand and twenty, and a lot of this comes back to the positioning the FED accommodation, what we've seen out of earnings, and some of the opportunities that exist within some of the specific quality buckets. It's interesting here you're still constructive on investment

grade debt. A lot of folks that we talked to are saying, boy, we're so far into this economic cycle. You know, might be too late, we might start seeing some concerns about credit quality or something along those lines. What's kind of the foundation for your view going to

you are a couple of different things. I think one of the things is this year there's been a lot of concern about triple bs in particular, but as we look at the ratio of grades versus downgrades in and out of high yield, it's actually five to one, so

we've actually seen credit quality moving higher. And the other thing is, I think earning surprised flat overall for the year, but fairly resilient considering some of the pressures um and then with the expectation for earnings growth of ten percent next year, even if we see that moderate, it should be overall supportive of credit quality. So the emphasis is on investment grade over high yield, you say, and yet

spreads are pretty tight. The extra yel that investors earn over benchmark rates is about the lowest since last March and more than a year. Uh. And we're also looking at sort of a questionable outlook in terms of how much further the Fed will cut. What's going to be driving the returns spread compression or benchmark rates going lower. So I think a little bit of both. Anger outlook is that rates are really fairly range bound in here, so it's largely going to come from the carry of

credit as well as some additional tightening. I think what gets overlooked when we think about overall, what's the what's the option of just that spread of the index of a hundred, is really that dispersion that takes place within investment grade. And it's interesting if you move the seven notches from a triple A credit to a high triple B, you pick up less than you move to go from a high triple B to a low triple B credit.

And so low triple B credit at one eighty double the yield of the ten year treasury, there's some interesting opportunities that have been overlooked for US though. This is about allocating within and not just to credit quality, and we do acknowledge where we are in the cycle. So Janelle Um, your title is global asset management ahead of global asset management globally. How are you guys thinking about allocation of your capital into Yeah, I think we are UM.

We we still continue to favor the US in terms of the resilience of the overall economy UM in terms of valuations. When we go back to that, there are some interesting opportunities as we move down to the lower quality spectrum and especially an emerging market debt. Considering our rate outlook going forward, we like a flexible approach. We think you shouldn't all become completely incorporates UM, and we think that you've got to go again allocating within and

not just two specific quality buckets. There was a survey that Bloomberg did of global investors that found that the consensus is that emerging market assets will outperform developing market developed market ones next year. Do you agree? So? I think part of this is just the carry where you're starting from. So you're starting from a yield that's significantly higher, and so you have that perpetual income component that supports it. So if risk stays flat, there's still an opportunity there.

This is so interesting, Paul. It's sort of this idea that as long as there's nothing major that happens in the macroeconomic backdrop, which seems to be the consensus right now, it's just a carry game. So anything that gives you a dividend or anything that gives you interest, uh, is going to be pretty good. Yeah, And that kind of suggests, you know, kind of the mid single digit kind of return environment. So let's say it is FED day, Janelle, Let's get your thoughts on what you expect to hear

from the FED and from Chairman Pal today. What is your expectations so as far the move today, as far as policy consistent with consensus, we don't expect any change in terms of rates. I think the part of policy they'll be focused on is really the forward guidance, and we'll see that both in the dots as well as

the communication. I think what we're looking for is an update in terms of economic projections and also what happens if we look at the floor of the dots currently, it's really where policy is, and so how do those converge over time and how do they still keep the optionality to be able to act in an additional way of required. What do you see so far in terms of twenty predictions by some of your competitors that you

think is totally wrong? Um, I think, just uh, well, we we've seen the recession um piece come down a lot um, you know, Honestly, I think that there's going to be a tremendous recovery in some of the deepest segments of high yield. I think that's one of the pieces of the market that's really surprised, and we actually see it in both emerging market debt and high yield

this year. So Triple Cees returned five percent, investment grade corporates fourteen high yield as a whole bull digits and so there's definitely been pockets that have been left out as we've kind of gotten later in the cycle and we've seen this fallout, and so I think this is interesting. Am I hearing that you think that the shale patch will recover, that the energy idea is a good one to take that risk. My hearing that we think there

are select there are select opportunities. Energy has been under tremendous pressure this year and that's definitely contributed to both I G and and high yield returns, But there are opportunities. Joe Woodward, thank you so much for joining us. We appreciate you're making a check up from Sunny Miami here to New York. Janelle Woodward is ahead of fixed income and senior portfolio manager for BEMO Global Asset Management. Think about two dred and sixty billion dollars under management joining

us here in our Bloomberg and Director Brooker studio. So people are all looking to to try to figure out what is the outlook for benchmark rates, but also uh for business outlook, which is actually deteriorated over the year despite ongoing confidence among consumers. Joining us now Frank Sarantino, chief executive officer of Connect One Bank and Frank I want to start there. Since you do extend so many loans to businesses and commercial lenders, what has this sentiment

been like over the past few months. So, good morning and thanks for having me again. And yet I think, you know, our clients are actually a little have a little bit of trepidation about, you know, what's going on in the marketplace. And so they have this sense that the economy is doing well, interest rates are low, the environment is good. Um, but there's this just sense, this wall of worry that everyone seems to be climbing today.

And you know, I'm not sure it's it should be that way, but it certainly is impacting decisions going forward about expansion and capital and deployment of capital and whatnot. So your customers, you're borrowing customers are small and midsized businesses in the metro New York area. UM, So are they concerned about big issues like global trade? Or is it just that maybe the labor market is so tight I can't find people to build my stuff for going

my stores. But so, you know, it's fascinating. I've actually written about this and and I talk about it a lot. I tell people stop reading the news, you know, like focus on what's really going on? And no, but no. But you know, when you start thinking about all all the all that's in the news, all that you get from Twitter, all that you get you know, from various sources. Um, you know, people start worrying more than I think they

need to. And then when they look at their actual environment and where they're functioning, uh, they see a lot of strength. And actually, one of the issues you just raised was what was this concept of being able to hire to fill all the positions you have? That is the number one concern we have today is that people can't fill all the positions they have opened today? And is it a salary issue? In other words, if they just jack up the prices, they would be able to

find the talent. So for a while, I think it was that, and I think we are seeing some wage inflation coming into the marketplace, which would be a good thing. Um, But today, I don't care what you pay, you can't it's it's becoming difficult to hire, to hire to fill positions. And I believe this fact is accurate. I think it's we're at the highest level of people voluntarily leaving jobs. So that's a good sign for the economy. But there's a dark side to that. We can't fill all the

open positions. So so what are some of the areas of borrowers that are maybe active right now or maybe even some that are kind of pulling back a little bit. So, you know, I think for our manufacturers and people that are in service businesses, UM, they've got basically a green light ahead of them. There's a lot going on in the economy. There's a lot of efficiencies. Technology is really changing the face of business today in a positive way.

And those are good things, and those are creating really great jobs in the economy. Um, you know, in the in the construction and real estate trades. You know, certainly here in the New York metro market and that's where Connect one Bank is located. Uh, there's been some there's been some headwinds, whether it's the rent you know, the rent regulation that came into into place in New York City. Uh, the the length of time it takes to get something

approved from his zoning perspective. You know, these things are are dampeners on the economy. We need more housing, we need places for people to live. Uh, there is definitely a shortage of that. The replacement of new homes in the United States is at near and all time low. Uh. So there's a lot of pent up demand for product, but there's a lot of policies that are that are

that are hindering that. I'm so glad that Frank Sorrentino is here today because we can talk about the intersection of these theoretical aspects of the market, like the yield curve, and talk about the tangibles of how that actually affects the bottom line when you're extending loans to these businesses, to the commercial real estate developers and lenders. I'm just trying to understand and your profit margins and how much uh you know, I change in the yield curve affects that.

What's that been like? So for us, it's been a challenge. Uh certainly for the last year or two. Uh the yield curve is definitely tightened. It's gotten close to inverted, if not slightly inverted. UM low interest rates on the long end, actually you're good for the economy, right. We we see that UM people are investing in capital intensive businesses, whether that's real estate or others because of low interest rates.

So you gotta hand it to the Fed they've almost in my opinion, flawlessly manage the economy over the last number of years. UM. I think they might have gotten a little ahead of themselves with short term rates earlier in the year, where they were raising maybe a little bit too quickly, and but again, let's hand it to them, they reverse course and have brought rates probably about where

they should be. And we're seeing a neutral stance today, and I think everyone expects we're going to see a neutral stance going forward from here for the foreseeable future. Frank word, you know, ten plus years into this economic cycle, and I know some UH investors when they look at the credit markets, had a little concerned about credit quality. And when you look at your portfolio, how's the credit

quality right now trending? So when you look across excuse me, the entire industry, you know, we've we've probably never seen a better stretch of time relative to credit quality for all financial institutions. UH. As I look out, I don't see a whole lot that's going to change that. Short term again, interest rates are low, liquidity is there, people

can refinance. UM, jobs are strong and getting stronger. Wages are on the increase, So really you know, most of the factors that sort of put negative pressure on credit quality just aren't there right now. So where are you looking to expand? Well, connect one UM since its inception has been pretty much a New York metro market bank. UM. You know, parts of northern New Jersey, all around New York City. We believe this is the greatest market in the country. And this is exactly where we want to be.

But as far as size and scale, is there an advantage to being mid sized or smaller or or do you see an advantage of getting bigger? So I would tell you today that size, in my opinion, does matter. I know that's cliche, but UM today the biggest thing and this is not just for banking, this is probably for all businesses. Technology is no longer something that's a wow thing anymore. It is part of what your business

needs to be. And the more money you can invest in technology, the more efficient you can get, I think, the better you can be in your and whatever your business is. And that holds true for connect One Bank and so size and I want to spend more of our revenue on technology. Yeah, And that's kind of one of the things we hear about quickly when we see when we whenever we hear at bank buying another bank, they say, we gotta get bigger, got to get scale

because this technology spend is so great. So how does a small, smaller bank deal with that technology investment requirement? We have to get bigger, as you you know, as I'm sure you've seen. We we completed an acquisition UH in January of two thousand nineteen. We're about to close on one UH in January. UH so we've grown probably

between those two thirty five in size. And part of that rationale is taking out costs, and not taking out costs to save money, but taking out costs to reinvest it in in better technology, more efficient ways of doing business.

Frank Sarrantino, thank you so much for joining us. Frank as the chief executive officer of Connect One Bank symbol on the NASDACS c n o B based on Englewood Cliffs, New Jersey, but joining us here in our Bloomberg Interactive or broker Student little preview, we welcome our next guest, Marvin Low. Marvin is a senior global macro strategist for State Street, that little firm up in Boston. Marvin, thanks

so much for joining US. I think the consensus here is for a relatively benign FED UH decision and press conference today. What are your thoughts? Yeah, you know, I think I think that UM, the Fed has pretty clearly signaled that, UM, you know, they've done what they wanted to do this year. The markets are being cooperative. Uh. You know, we've got inflation that's firming if anything, from today's data. So I think they're happy to start the holiday season a little bit earlier and kind of make

this a quiet meeting. It will be boring, right, you know what, UM. I think from the rate and monetary policy perspective, UM, the consensus is pretty accurate. There's really no reason for them to signal UM that they're ready

to either cut or raise at this point. But you know, there's still the funding issues that are out there UM and looking a little further which you know, sometimes the market doesn't whether or not they still think, UM, you know, hikes are going to be possible, and whether or not if we look longer term, if you will that UM, the terminal rate is still going to be as high as UM the last set of dots indicated. So talking about boring, UM, I mean, yes, we're gonna get some

interesting things. But but but you know, for the for the most part, it's going to be set as quo probably that's what everyone's expecting and UM going to it seems like increasingly the forecasts that we're hearing are pretty humdrum too. Nothing's going to really change in the macro backdrop. Things will be fine, good enough, maybe decelerating, and returns will be lower than they were this year, but not terrible, not amazing. Do you agree? You know what it's it's

it's hard to argue with that at this point. UM, you know, I do think that there still is risk that UM economic activity UM, you know, really shows its age, and you know, certainly the risk is still to the downside. But in terms of what we're seeing now and how the FED is going to position it later this afternoon, I think they're just gonna grab ahold of that and

you know, say they're ready. Um, you know, we've got more of an asymmetric curve where uh, you know, cuts are more likely and everyone you know, from a risk taking perspective, be somewhat happy with that. UM, Marvin, you mentioned they might make some commentary about the short term repo funding market what do you expect they could say or should say, you know what, UM, it's certainly a

point of UM contention. Certainly maybe a degree of confusion in terms of just how stressed a year end and really more important beyond year end UM, the whole short end funding market is beyond that. I don't think the FED really fully appreciates UM what maybe some of the more tail risk type discussions are out there. So I think they'll say that they are on top of the situation, that the operations that they have will continue to run UM as we kind of get through year end UM

and once again they stand ready at the switch. I think if UM, you believe that there are you know, some more longer term issues, we're gonna need regulation, We're gonna need things like standing repo, and we actually might need UM an acceleration of their bond buying to kind of get us out of some of these funding issues. But UM, I don't think that they want to show

that degree of fear in a couple hours. And do you think that that type of scenario where there is some sort of funding pressure could materialize in a way that affects risk markets going into your end UM It's not my base case, because I really haven't seen anything that appears that stressed at the moment. But certainly what we learned in September is that it can come around fairly quickly. UM. And you know, just kind of thinking back, you know, ten years ago, if you will, um, how

quickly or ten plus years ago, how quickly? UM it candid terry risk markets, It certainly is a risk there, particularly given um how rich a lot of asset values are at the at the moment. So Marvin, when I think State Street, I think big global macro kind of house up there in Boston. What is your view as you think about globally in terms of allocation of capital? So um. You know, one of one of the trends that we've seen over the course of the year is

just how um high cash levels have gotten. So um. You know, the discussion around the rally, if you will, whether it's been on the credit side of things or equity side of things, being someone under owned. The flip side of that is that cash levels are pretty high.

So you know, we're we are looking for um if the risk environment remains supportive, those cash levels potentially moving off the sidelines and it winds up being um, you know, slightly greater allocation towards the fixed income and the equity component, which has come down since the beginning of the year.

Do you do you really think that coming off the sidelines is an accurate way to to talk about I've heard so much controversy about the idea of cash on the sidelines, with some people saying that that's a fiction and that you know that it's not just held in buckets of cash, that it's held in maybe treasuries or you know, fixed income which have gotten which has gotten so much, uh by way of influences here, what's your view on that? Yeah, so so you know, UM, I

have a fairly narrow definition of cash. It certainly is more on the money markets side of things, and kind of the shape of the curve and kind of um, you know, how flat the um the short end part of the curve I think kind of plays into this reboat discussion and plays into the fact that returns aren't that bad in the bill market. Um, it does require some steepening of kind of that short end of the

curve I think to pull money off the sidelines. You know, cash is a decent asset class, but you know, as we kind of just look at where returns are going to be going forward, I think that, you know, people do need to consider what the appropriate degree of risk is UM in order to generate those returns that they need to retire and everything else that goes along with it.

This is actually really interesting in other words, to flatter the curve, the more quote cash there will be on the sidelines because you don't get anything for for taking that extra risk. Is that basically the idea? Yeah? Yeah, absolutely, you know, whether it's duration risk or um, you know, the risk in the market. UM. You know, kind of looking at the short end of the curve again, whether it's money market you know, again kind of playing into

that reboat discussion. UM yeah, you know, certainly keeping it short, you're not giving up that much. So Marvin, just quickly, do I take on more risk in I've had a pretty good year in nineteen Do I go emerging markets, leverage loans, things like that? UM? I I do like the emerging markets. UM. You know, I think that what we've seen is the lack of FX folatility, which kind

of supports the emerging markets. UM. The inflation kind of profile around the e M has certainly changed in terms of not being that um uh demonstrative to to some of your returns. So so the E M complex is something that I like. Leverage loans um and and I've spoken to Lesa about this. You know, certainly a lot is a little bit more of a challenge, particularly giving covenants, particularly given how aggressive some of um those loans have become. Um that that I say a bit more on the sidelines.

Marvin low thank you so much for being with us. Marvin Lowe is global macro Strategists at State Street and H. He joins a number of strategists actually talking about leverage loans next year. UBS is Matthew Mish coming out this morning and saying that he expects a decline of one

to two cent next year for leveraged loans. Yeah, you think about you know, ten plus years into this economic cycle, you think start thinking about credit quality, and if you're going to see credit issues, that will be certainly one of the markets where you may see it first. Yeah, although you have seen such an underperformance already among certain loans, you have to wonder whether perhaps that's already reached a bottom. We shall see. Thanks for listening to the Bloomberg P

and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at Lisa Abram woids One. Before the podcast, you can always catch us worldwide on Bloomberg Radio