Western Union's Looking at Digital Currency, But Not Ready Yet

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Lisa, you know, if you want to send billions of dollars around the world as a corporation, there are banking systems and relationships that are already set up to do that and to do that compliantly and efficiently. But let's say you want to just move two hundred dollars around the world. The gentleman who we have next is our guest, knows

all about that business. His name is Ogilan Almeida. He is the president of Global Money Transfer at Western Union. Thank you very much for being here, Thank you for having me. Maybe just to explain to people, first of all, was I accurate in describing a little bit about the business, And maybe you can build that out as a little story about describing some particular money flow that exists in the world that people may not know about. I think

it was perfect that that's exactly what we do. I mean, we make it viable to sound smaller amounts of money across the globe today operating two hundred countries, sixteen thousand corridors, a hundred thirty currencies and it's amazing. Corridors. Maybe just explain how you use that term. YEA corridors is when you talk about one country to another countries. For example, US to Bangladesh is one corridor. Bangladesh to US is another corridor. So it is the origin and the destiny

of the money. Uh. And it's amazing to see those flows. And we have corridors like um Way to Paxtan to India, um In Toronto, corridors in Africa. But the beauty of the business is not only about the money flow, but it's about the people flow because we can track people

flow around the globe based on the dynamics of the corridors. Well, given that we've heard so much protectionist rhetoric recently from a number of different governments and attempts to restrict immigration, have you seen that in your flows and is that something that is somewhat of a headwind for the business. Yes, we we uh we're pretty for we have been oparating for the last six five years, so in those years we have seen countries interblocks, countries living blocks. More protection

is less protection list. We know that there is a relation about growth and protectionism, so countries get more protectionists when there's no growth and and living That has been also very very useful for us, so we can in some way hedge the risks. So for example, if there is an issue in certain corridor, we still have the other hundred fifty nine point nine thousand corridors to to explore, so it's always like a trade off. Thank today we

don't see the world more protectionalist than before. We see pockets of protectionists, but overall it's not one sweeping movement across all of the different channels. But talking about moving money from one place to another in a secure channel really raises the question of bitcoin and ethereum and some of these digital currencies that have been started in order to transfer money easily no matter where you are in the world. How has that affected what Western Union? Does?

We know? We are we are we are the market leaders in retail, the market leaders in digital around the globe, but they're very humble we look into those startups as as learning for us, and we're very close a lot of them at this point. For example, you think about bitcoin is just not regulated and this still has lots of risks related to that. So we are falling and seeing, um,

what's happening behind that. On the other side, blockchain, which is the technology behind that, that's a tremendou success and it's working very well and going to other industries so forth. So we have being a lot of attention all those things, and that we we we we pay attention on the startups, we pay attention on the new stuff that is coming along, and we have always the option of copying with our

scale or buying. So how do you respond to those people who want to understand the pricing model that you have because the consumative consumer business has been under intense competition. Yeah, I think that that's that's a great point that the prices is really dictated by the market today. Right. We have been gaining market share in the last years, which chose me that our value equation is working well. But

you're gonna see very different prices around the globe. For example, in corridors that are more competitive, you're gonna see very low price incuraters that are not the competitive the price is higher. So it's all about competition. I want to go back to something that you said that you would consider buying some of these competitors. Is that on Western Union's radar to possibly purchase one of these digital currencies.

We're always open, we are always I'm not digital currencies that any any play or any new chnology that comes, like a your own net for example, any any any kind of different technology that comes. I think our net is not a new technology by itself, but if we feel like there's something new that is easier to buy than just to create what kind of thing? What kind

of thing today? To have you to tell the truth, there is nothing very clear how or rather that it's going to be very new that we cannot um copy and paste. So for example, five years ago or ten years ago, we're very we're not that strong on digital. And then we start to see the movement of the industry, the move of the consumer. Before you continue, I'm trying to understand, does that mean that you actually were just taking money cash and shipping it across the seas. No,

it was that wasn't what you're talking about. What are you talking about when you say that? Just thank you for that. We we separate the business in two parts. One is originated by cash, so when you enter a location of us and put the cash over there and then the money it is digital, but it is originating cash. And there is another part that is originally directly from

an account. So you enter our wood dot com site or our app and you send money directly from your account debit card, credit card or Apple pay for example, so you can send that. So digital, I'm talking about origination in digital. That origination digito was not really a real factor ten years ago. Then everything started five years ago. Our business was in Bryonic on that then we start learning around the globe and today we are the market

leaders after five years, growing more than the industry. So we have not seen yet something very new enough for us in the market, so we would acquire. At this point, I think that we don't see any any disruption, an important disruption. Thank you so much for joining us. Truly a fascinating business and marketing. Gilon all made a president

of Global money Transfer at Western Union. He's based in an airplane, but I guess technically in Miami We've been hearing a lot about the very hot housing market in the US over the past few years, and yet construction workers still are not building enough homes to say demand. Construction starts for new homes have declined for three straight months and permits were at a one year low in May. UH. This raises a lot of questions, and who better to

answer them other than Logan Moda Shapi. He's senior loan officer at a MC lending group and he comes to us UH now from Irvine, California. Logan, can you give this a sense of what this sort of restraint is all about with respect to housing starts and does it point to even higher prices going forward? Well, first, I disagree with the thesis that the housing market is very hot and strong, and I would UH focus on new

home sales. You know, the reason why housing starts hasn't hit the fifty year moving average at one point five million is that if you look at new home sales you adjusted to population using a six month moving average, it's below five of the last six recessions. So why would the builders build more single family homes when monthly supply for them is higher in this cycle than in the previous cycle. So it makes sense to me why

the builders aren't building because the demand isn't there. And if you look at existing home sales today, it came in at five point six two million, you know, but still uh, if you look at mortgage demand, it's still back to level. So there's there's nothing that warrants a strong hot housing market if you base it on mortgage demount on cash buyers. Yet the cash buyers are very strong, even even this year's but there's nothing out there in the new home sales data or the mortgage application data

to warrant a a very strong housing cycle. Alright. So having said that, maybe you can extrapolate and connect that with perhaps some other bits of conventional wisdom that you think are not necessarily accurate. Well, number one, we don't have the demographics in the cycle to have a strong housing market. We're very young still. Uh. Second, there is no tight lending out there. Uh. Letting standards are very liberal. It's just that housing affordability is not as good as

it appears. The the the the economists run a model that basically assumes everybody has down and because interest rates are two percent lower in this cycle than the previous cycle. It alleviates that affordability, but still bigger homes, bigger mortgage payments,

bigger down payments. It's very hard, especially for young buyers to have even three and a half to five percent down, especially in coastal cities, to have that kind of a marketplace where they would be pushing up demand and then you know, move up buyers would actually you know, be able to go up because I think move up buyers are are the area that needs to be focused on. It's very difficult for them to move up because they

had they don't have enough selling equity yet. And this is why you see sales numbers where it's at right now, and again why the builders are not building U homes

as much as some people think they should. You know, logan as you speak and thinking about some of the buildings that I have seen coming up in a variety of places across Manhattan and Brooklyn and the Bronx, and I think about how different some of the large metropolitan areas are from other places in the United States, And I'm wondering, have you ever seen a housing market in the US as bifurcated as the one that we're seeing today. No,

and it goes straight into the inequality issue. The inequality issue in this country is really between home owners and renters. It's not so much of the one percent versus. To be a homeowner, you really have to be the strong educated middle class. And you see that in the wage data. You know, since the nine college educated Americans are really making much more money than those who never went to college,

and that gap. Those are your homeowners. And this is why the builders are always building for them, because if you look at it, new homes, new home construction is bigger and bigger and bigger homes. That's not going to help housing affordability by building bigger and bigger homes, but they're making a market really for that strong educated middle class. And for the rest you don't even have. You know, all the rental units are in theory luxury units. They're

not even building cheap, affordable rental units. So there's your inequality right there. It's basically the rich versus the poor,

and it's basically homeowners versus renters. Now, Logan a mc Lending has been sort of checking on mortgage mortgage industry in California since not what right, Okay, and I'm wondering if you could then describe now from an investor's point of view, what are some of the best investments in the worst investments when it comes to listening to experts tell you about real estate, Well, right now, rental UH,

rent inflation is cool and off. We've we've built a lot of rental units over the last few years, and we're almost at the point to where dem graphics are gonna be favored for ownership in a few years. So you see rent inflation cooling up. So if you're looking to, you know, pay up for a rental unit, be mindful of that um because unit sales are so low for new homes. You know, the entire builder index could still have legs in a few years out there because unit

sales are still low. So it depends on what you want to pay for the builders out there. But again, the housing cycle should be better in a few years. But if you believe in this hot housing market or that there's some over investment thesis in housing, you know, you're you're you're laying a trap for you know, uh, for sales to come down. And I just I can't see a very major barish thesis for housing because it

isn't very strong. It's still very low. Mortgage demand per the mortgage purchase application data is still at levels and two thousand seventeen has been one of the weakest years year over year in terms of mortgage demand growth, but still old cycle high demand, just not quite there with any unit sale growth for new homes or existing homes. I want to thank you very much. Logan Mata Shami. He is a senior loan officer a MC Lending group in Irvine, California. You can follow him on Twitter at

Logan Mota Shami. Well, we want to learn a little bit more about a big change in the ms c I Global Index because China is now part of the club. And here to tell us about it is Brendan Hearn. He is the chief investment officer at Crane Shares. Brendan, how important is this? What what are some of the specific ramifications? Well, the ultimately means there's gonna be a

lot more China in investors portfolios in the years to come. Uh, the supertanker doesn't turn on a dime, So that's yesterday's and now sent with just the orders coming down from from the captain to start turning that wheel. But but China is going to grow from about of m s c I emerging markets to well over in the years to come. You know, one thing that I don't understand,

Brendan is the construction of indexes. People think that they are investing in passive funds, and yet it's a very active decision to decide whether or not to bring Chinese domestic shares into the index and how much to include as well. I mean, what do you draw from this process and whether people are actually getting exposure in proportion

to the actual shares outstanding. Now, it's it's a great question list because I think in general we talked about the growth of passive investment vehicles and next funds and ETFs on a daily basis, there's very little examination of the index methodologies that dictate how those trillions are actually invested. So in the case of m s c I, their Global Investible Market Indices methodology. G It's about a hundred and seventy two pages long and I'm probably the only

person who's actually read it. Um So, so I think there you know you you you can do your homework and understand the thought process that drives some of these changes. But it is true. There is there is a human element and a lot in the case of m s c I is the will and desire of their clients as well as the ability to implement. And that's what really sparked the change was the great work to Hong Kong stock Exchanges done in implementing the Connect Trading program. Well, Brendon,

will this inclusion improve the China A share investment rules? Well, I think it's certainly. We got to this point of starting to including M s c I definition of Shanghai and sins and names because of the openness of the Chinese regulators UH to abide by some of the UH rules that MSc had asked for, as well as the implementation of this Connect Trading program, which provides a much greater level of acts us versus the historical quota program.

So so so we have this great trajectory and great projection of continued access as well as in further adapting to institutional standards globally. Brendan people estimate that this change in the M s c I indexes will funnel hundreds of billions of dollars into Chinese shares that wouldn't have otherwise gone UH do you expect this to lift the valuations or does it sort of highlight the interconnectedness of the financial system that could become a problem should there

be a hard landing in China. Well, that's a good question. I mean I think I think ultimately yes, I mean, hundreds of billions of dollars are going to go into uh the securities that that we hold today at Crane shares um kind of self serving and highly behy us. But you know that that will take time. This isn't gonna happen overnight. It's going to take many, many years. It could take between five and ten years for the

full inclusion of msdis definition of Shanghai and Shenzen Um. Ultimately, you know that probably will have a benefit in potentially raising the markets there. That's but but certainly the world is interconnected today, and uh this market has been very low correlated because it's been ring fence from from globalized funflows, and that that will change in the years to come. Well,

you know, it's interesting. Part of our reporting from China includes comments from the company called Spring Air and Spring Airlines. This is a budget carrier in China, and says the decision to be included in the ms c I UH index. UH is both an incentive and pressure, and it talks about how it will now increase transparency and boost corporate governance.

That's got to be a good thing. Oh, I think without question, this puts a very high onus UM index funds and exchange traded funds will mechanically by the securities within the m s c I China a International UH into which are k B A is benchmark too. At the same time, active managers are going to be evaluating picking amongst those two twenty names that will be added next next year. So so I think I think it

is a good thing. The market will institutionalized, just as the market as institutionalized here over the last several decades. So that's I think it is a net net positive for both China as well as investors globally. Brendon to hear and thank you so much for joining us. It's always terrific to speak with you. Brendon to her and his chief investment officer of Crane Funds Advisors, the investment manager for Crane shares Et f S, which is based

in New York. This is a tremendous change with China's domestic shares being accepted into the m s c I Index for Emerging Markets in particular, and you know, Pim, I've got to wonder how much this will lead to selling of other securities that are already in the index that are going to be taken out in order to make room for China uh, and and whether there's enough incoming flows to emerging markets stock funds that will offset that definite. That's why I like you, because you always

find the there's and the losers. Yeah, I mean there's gonna be there's gonna be some kind of shakeout perhaps or perhaps this flood of CASHU will continue. Well this year, we've heard a lot of angst about whether we've seen a bubble in tech stocks, But our next guest says, not only is there not a bubble, but frankly, tech stocks are cheap. David Kodla joins US now. He chief executive officer and chief investment strategist at Mainstay Capital Management,

with about two billion dollars under management in Grand Blanc, Michigan. David, how can you say that many tech shares are actually cheap? Well, I don't know if I want to qualify it as cheap as much as I think they're not overly expensive, and and and our messages is poor investors to stay with tech stocks, don't be shaken out. This past week or so, we saw weakness in in tech names, not

based on fundamentals, just a correction in price. They've come a long way, uh this year, but when we look at the evaluations, we hear a lot of people talking about the prices being the highest ever higher than in two thousand, But valuations are really still quite low. Trailing earnings for the tech sector in two thousand at the peak, we're at seventy times earnings. Now we're only about twenty three and a half times earnings, a little bit richer than the S and P five hundred, but this is

where the growth is. This is where we see secular growth. We're not dependent on cyclical forces. So we think it's important that investors stay with the tech names. All right, we'll give us some of those names. Explain the thesis and the strategy and what you came up with. Well, we all we all know the fang stocks that have been talked about so much, and those are the big Facebook, Amazon's,

the big half, the leaders. We do own them all okay, and you're not selling and we're not selling, all right,

we're not helling, so you know. And also, uh, you know, through you can own that through xl K to E t F, you can own the triple queues which give you a lot of the big calf names, which you can also own an open end fund like to row Price Technology to ro Priced Global Technology, which is a global fund, so it has some of the tech names abroad like Ali, Baba, ten Cent, which have lower valuations

and further to run. So in a in a in a global fund like that, you get some of the lower valuations where uh, we know that the valuations of the U S tech names have have run up, but we think that you stay with that sector. What would you have to see to make your second guess that and actually start selling your tech shares. I think that right now, when we look at the overall market, really what we would be more concerned about is a broader

stock market correction. We had the so called Trump trade earlier this year, or the reflation trade that's kind of gone by the wayside. Uh. We think that large cap growth is the place to be right now, and what would change our outlook would really be concerned about the stock market in general, but what could actually do that? I mean, right now, we've seen political instability around the world, We've seen geopolitical conflict. We've seen questions about how quickly

the US can grow. The FED is seems dead set on hiking interest rates. What what more do we need for there to be a sell off? Our biggest concern is the FED and the rate at which they hike rates. Um, we've had three quarter point rate hikes in the last seven months or the last six months, and that's not a quick pace by historical standards, even though it seems like a quicker pace than we've had the past several years. Obviously, the concern is is that they raised fast enough or

high enough in the of economic data. And then economic data when we look at inflation peaked in February and inflation has come down, wage or jobs growth is slowing. The hard economic data is not pointing to the need for higher rates, and we're seeing the FED we think rays for structural reasons rather than based on economic data. They've basically signaled that if they do that too fast, too far, too fast, we get what we call a FED event, which creates a market event or even worse.

We've seen the yield curves, whether it's to two to ten, two to thirty five to thirties flattening, and the closer we get to flattening or an inversion, we have the risk of recession. Well, I was going to say that that is exactly so what you were describing earlier when we were speaking with Jerome Schneider, But he didn't think that we were heading towards recession. He thought that you're going to just see is that the FED is trying to normalize as quickly as possible. Uh, and you are

seeing that flattening as a result. Indeed, you know, maybe if you could just focus then on all right, we buy this scenario. There are no shocks to this system that at least haven't been discussed at least right now. Right. I mean, you're talking about the FED. We know that that could go cross on. But the thing that really sent sent the market down, and you know it was, was the Lehman Brothers bankruptcy, the you know, the unknown unknown for giving that, do you think stocks can go

much higher this year? I think stocks will continue you go higher. We still see upside of the stock market through year and and into next year. We have strong earnings earnings growth UH through the last earning season, looking at six and a half percent earnings growth for the next quarter, strong earnings growth through and as long as those earnings come through, we think the stock market goes higher. We have room to run, even though valuations are a

little bit stretched. The political events in Washington, d C. We saw a sell off for one day in the market recover UM. There's always the risk of a black Swan event, a geopolitical event, outside event that impacts the market for a day, a week, a month, But when we look at underlying fundamentals, we're still bullish on stocks. You know, David, when I speak with investment managers, one of the most consensus trades is Europe by Europe stocks. Are you on that train? We are on that training

of our kets. We like Europe and emerging markets. UH, specifically Europe and emerging markets. Europe we like because they're they're not as far along in this cycle as we are UM, but we're seeing earnings growth come through. So we have lower valuations in Europe than we have in the US with earnings growth coming through. So we like Europe specifically an h F we like that not for the faint of heart f EU, which invests in UH the europe Stock fifty, which has done you know, very

well this year. In emerging markets, we have a CAPE ratio of about fourteen cyclically adjusted price to earnings ratio versus thirty for the S and P five hundred. Here in the US, specifically, we like India within emerging markets. At EATF we like their skin s C I N get skin in the game. Interesting combination. Thank you very much for joining us. David Kudla is the chief executive

and the chief investment strategist for Mainstay Capital Management. He's got more than two billion under management based in Grand Blank, Michigan, and he can be followed on Twitter at David Underscore k U d L a very interesting technology select sector of course, the x l K and then the tro Price Global Technology p r G t X is the symbol. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at full Podcasts,

SoundCloud or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one before the podcast. You can always catch us worldwide on Bloomberg Radio