WEBVTT - China's Savings Surplus Must Find a Home, Bannister Says 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg P L Podcast on iTunes, 0:00:20.840 --> 0:00:29.000 SoundCloud and at Bloomberg dot com. For all of us here, 0:00:29.440 --> 0:00:32.120 I just want to figure out how to introduce Barry Banister, 0:00:32.240 --> 0:00:36.240 chief equity strategist that as step Nicholas. You know, Barry, 0:00:36.440 --> 0:00:41.120 when I mentioned earlier to Tom Keene that you were 0:00:41.159 --> 0:00:44.040 coming on the program, he kind of lit up a 0:00:44.040 --> 0:00:47.240 little bit. A little bit, he lit up a little bit. Yeah, 0:00:47.360 --> 0:00:49.199 I think that kind of he that was that was 0:00:49.280 --> 0:00:52.239 something that rang a bell with him. So I'm wondering, 0:00:52.760 --> 0:00:55.960 how long have you been doing this. I've been a 0:00:56.040 --> 0:00:58.760 strategist for about seven years, and then prior to that, 0:00:58.840 --> 0:01:02.040 for about three years, I was a analyst in the 0:01:02.080 --> 0:01:05.120 equity side, sell side as well as by side. So 0:01:05.200 --> 0:01:09.280 you've seen the cycles come and go yeah, quite a few. Yeah, 0:01:09.680 --> 0:01:13.520 And I use the word cycle specifically be and I 0:01:13.880 --> 0:01:15.600 think you know why. And I'm wondering if you would 0:01:15.640 --> 0:01:19.120 just describe where we are in the cycles that you 0:01:19.160 --> 0:01:22.919 pay attention to. Yeah, one of the things that we've 0:01:23.080 --> 0:01:26.800 differed on from from the earliest days is that the 0:01:26.840 --> 0:01:30.959 Fed really began hiking in May, when what's called the 0:01:30.959 --> 0:01:35.919 Atlanta Fed Shadow Fed funds rate bottomed at minus three uh. 0:01:36.040 --> 0:01:39.480 It's a complex calculation based on options pricing models, but 0:01:39.520 --> 0:01:42.040 what it really describes is the effect of q E 0:01:42.240 --> 0:01:45.760 rate suppression, forward guidance twist, and other things the Fed did. 0:01:46.400 --> 0:01:49.480 So we've been in a tightening cycle for several years, 0:01:50.200 --> 0:01:53.240 and I do think that at about a two interest 0:01:53.320 --> 0:01:55.720 rate on Fed funds, we will reach a point where 0:01:55.720 --> 0:01:58.200 it's just too much, but that's not going to happen 0:01:58.400 --> 0:02:00.760 in the next six to nine. So I think the 0:02:00.800 --> 0:02:05.120 market looks pretty good to the spring of eighteen. Well 0:02:05.200 --> 0:02:07.240 until the spring of eighteen. What do you do. Just 0:02:07.240 --> 0:02:09.680 stay where you are right now. We've been a big 0:02:10.040 --> 0:02:14.280 positive bull on the reflation trade, more so last year 0:02:14.400 --> 0:02:17.000 on energy. I was three months early on that, and 0:02:17.040 --> 0:02:20.519 then un financials again I was three months early. We've 0:02:20.520 --> 0:02:25.040 had a few soft months since the election, approximately mid December, 0:02:25.480 --> 0:02:27.760 as the Fiscal House is trying to get an order 0:02:27.840 --> 0:02:30.560 and it is very difficult. This is not an administration 0:02:30.600 --> 0:02:33.000 that thought it would win, so there was no government 0:02:33.000 --> 0:02:35.840 in waiting, and so things are in a bit of disarray. 0:02:35.880 --> 0:02:38.840 But I think things will get better. And with the 0:02:38.919 --> 0:02:41.880 clarity on that, the FEDS clarity that they've been giving 0:02:42.040 --> 0:02:45.959 some growth abroad, I think things look good for another 0:02:46.120 --> 0:02:50.040 move up in the reflation trade and that would include energy. 0:02:50.240 --> 0:02:56.480 Would that include financials? It is primarily financials, obviously banks. 0:02:56.960 --> 0:03:01.240 It's also the capital spending side of technology, a little 0:03:01.280 --> 0:03:05.840 different than the social media side. It's also that includes software, 0:03:05.880 --> 0:03:09.280 semis and things like that, continuing or resuming the run 0:03:09.320 --> 0:03:13.680 that they've had. It also includes industrial and some basic materials. 0:03:13.680 --> 0:03:15.440 Although we have to be careful not to assume that 0:03:15.440 --> 0:03:19.600 the Chinese are going to employ a fixed investment model forever. Uh, 0:03:19.639 --> 0:03:21.680 they have to reduce that as a share of GDP. 0:03:22.200 --> 0:03:24.959 But generally, yes, it's a more pro cyclical, more pro 0:03:25.080 --> 0:03:28.280 global growth bet and I think it looks pretty good 0:03:28.400 --> 0:03:33.760 into the spring of eighteen. So for the SMP right now, 0:03:34.760 --> 0:03:37.960 if you've participated and you're looking at it on an 0:03:37.960 --> 0:03:41.640 annual basis, although I mean every it really makes no sense, 0:03:41.680 --> 0:03:46.280 but uh, you're five percent, what would you do Yeah. 0:03:46.320 --> 0:03:49.280 One of the things about low interest rates is it 0:03:49.320 --> 0:03:51.480 can be two things. One, you can have a low 0:03:51.600 --> 0:03:55.080 rate because you're fearful of deflation. So what you have 0:03:55.240 --> 0:03:57.600 is a very low real rate and a very low 0:03:57.640 --> 0:04:01.400 inflation rate, and that's not necessarily good. It does help 0:04:01.440 --> 0:04:04.840 your multiples, your PE multiples, because you're discounting the cash 0:04:04.840 --> 0:04:07.480 flows at a low interest rate. But when you switch 0:04:07.520 --> 0:04:11.000 you over psychologically from fear of deflation to a little 0:04:11.000 --> 0:04:14.480 more confidence in reflation, it's almost like a light goes 0:04:14.560 --> 0:04:18.039 on and you get the positive benefit of a super normal, 0:04:18.440 --> 0:04:22.960 very low interest rate. Uh and as a result, you 0:04:23.040 --> 0:04:25.720 get a very very high PE ratio. So we do 0:04:25.839 --> 0:04:30.800 think that the dollar traily twelve month SMP earnings can 0:04:30.800 --> 0:04:34.240 be discounted at a twenty multiple, which is a inverse 0:04:34.240 --> 0:04:37.840 of a five mid grade corporate B double A yield, 0:04:38.000 --> 0:04:42.800 and that puts you are So that's our target this year. Well, 0:04:42.839 --> 0:04:44.840 all right, we're gonna we could write We're going to 0:04:44.920 --> 0:04:46.560 write that down and then we'll be able to see 0:04:46.560 --> 0:04:48.880 how that, you know, turns out for the for the 0:04:48.920 --> 0:04:52.080 rest of the year. But Barry, you know, as I 0:04:52.160 --> 0:04:56.160 look over your notes and also receive emails from people 0:04:56.200 --> 0:04:58.440 who have followed your career in and listen to you 0:04:58.800 --> 0:05:01.920 over the time. Uh. They go back to let's say 0:05:02.200 --> 0:05:07.239 the post nine eleven UH world, and you wrote about 0:05:07.279 --> 0:05:11.800 that what all the way back from two thousand and two. Mm. Yeah, 0:05:11.800 --> 0:05:14.080 in two thousand one and two thousand I've been writing 0:05:14.120 --> 0:05:17.960 about a a rotation into hard assets, which would be 0:05:18.120 --> 0:05:21.599 commodities and to an extent real estate and gold and 0:05:21.640 --> 0:05:26.159 things like that, UM and away from financial assets in 0:05:26.279 --> 0:05:29.280 terms of relative strength, and the commodity cycle two thousand 0:05:29.480 --> 0:05:32.000 two roughly to two thousand fifteen. Oil as you know, 0:05:32.080 --> 0:05:34.640 rolled over in the OPEC price war and the FED 0:05:34.720 --> 0:05:37.720 somewhat premature attempt to exit and raise rates when the 0:05:37.760 --> 0:05:40.120 rest of the world was going to negative rates, so 0:05:40.200 --> 0:05:42.800 that tended to crash the price of oil, as we 0:05:42.839 --> 0:05:45.640 saw in So the commodity cycle was two thousand two 0:05:45.640 --> 0:05:49.400 to two thousand and fifteen, we played that. UM. The 0:05:49.440 --> 0:05:53.240 cycle now though, is most of a post debt deflation 0:05:53.440 --> 0:05:56.159 and a global rebalancing and de leveraging. It gets into 0:05:56.240 --> 0:06:01.080 very complicated global, cross border macroeconomics. And so I'm spending 0:06:01.080 --> 0:06:03.560 most of my time now Pam, trying to be more 0:06:03.640 --> 0:06:08.760 knowledgeable of macroeconomics and uh that occupies probably my time. 0:06:08.920 --> 0:06:11.919 So so from that perspective, maybe you can share some 0:06:12.080 --> 0:06:17.800 of your more recent uh understandings. Yeah, yeah, Well, I mean, 0:06:17.839 --> 0:06:20.039 one of the things that's going on is the Chinese 0:06:20.080 --> 0:06:24.840 savings surplus, which still exists, has to find a home. 0:06:24.880 --> 0:06:27.719 It has to go someplace. If it stays domestic, it 0:06:27.760 --> 0:06:31.520 inflates bubbles, drives credit growth. If it's exported, it bids 0:06:31.600 --> 0:06:35.640 up housing prices in Brooklyn, and uh and Vancouver and 0:06:35.680 --> 0:06:39.920 elsewhere and Toronto, you name it, uh and uh. So 0:06:39.960 --> 0:06:42.719 what we're seeing now is a push in this administration, 0:06:42.839 --> 0:06:45.280 which is I wouldn't classify it as mercantilist, but I 0:06:45.279 --> 0:06:48.240 would say that they're unwilling to have eat The surplus 0:06:48.320 --> 0:06:50.719 is the trade surpluses of every other country in the world. 0:06:51.040 --> 0:06:53.920 So we're seeing a change in the global monetary order. 0:06:53.960 --> 0:06:56.200 This is a very big deal. It's on the scale 0:06:56.240 --> 0:06:59.719 of what happened in nineteen forties with the Breton Woods Agreement, 0:07:00.080 --> 0:07:02.080 and the US is no longer willing to be the 0:07:02.160 --> 0:07:06.080 dumping ground for the exports of all the other surplus countries, 0:07:06.120 --> 0:07:09.520 from Germany to Mexico to China. And as a result, 0:07:09.520 --> 0:07:11.760 there's a political change of foot and I think that 0:07:11.800 --> 0:07:14.040 will gel over the next several years and we'll see 0:07:14.080 --> 0:07:19.280 more of a balancing of savings investment in each country domestically, uh, 0:07:19.320 --> 0:07:22.200 and that will reduce this role of trade. And we 0:07:22.240 --> 0:07:24.320 have to figure out what all this means. That's a 0:07:24.400 --> 0:07:29.960 very powerful statement. Well, the US had, I guess, decided 0:07:30.560 --> 0:07:34.520 to uh, you know, to allow first it happened in 0:07:34.560 --> 0:07:37.320 Europe after World War two, Martial Plan and so on, 0:07:37.440 --> 0:07:40.880 that the US would be a source of of of 0:07:40.960 --> 0:07:43.400 demand for their outputs so that they could modernize and 0:07:43.440 --> 0:07:47.080 develop into capitalist democracies. Um. But then they did that 0:07:47.160 --> 0:07:49.280 in Asia with some of the tigers, as you recall, 0:07:49.320 --> 0:07:51.200 and I recall because we've been around a while, in 0:07:51.240 --> 0:07:55.080 the ninety nineties the tiger economies. UM. Before that, it 0:07:55.160 --> 0:07:58.840 was the Japanese and and of course the Koreans and Taiwanese. 0:07:59.240 --> 0:08:02.400 But what's happening now is China, which is simply too big, 0:08:02.440 --> 0:08:05.800 has tried to follow that model and it's been very disruptive. 0:08:06.000 --> 0:08:08.800 China is no longer a currency manipulator. China was a 0:08:09.040 --> 0:08:11.640 manipulator two thousand and two thousand seven when they built 0:08:11.720 --> 0:08:15.320 up their reserve position. So we gotta we gotta leave 0:08:15.320 --> 0:08:17.280 it there, but I look forward to having you in 0:08:17.320 --> 0:08:23.080 the future anytime. Barry Banister, chief equity strategists stifle financial 0:08:23.320 --> 0:08:40.040 based in Baltimore, Maryland, Medicare and doctors. There are many 0:08:40.080 --> 0:08:45.400 surveys that have produced results indicating that doctors are foregoing 0:08:45.679 --> 0:08:49.120 entry into Medicare they no longer feel that it would 0:08:49.120 --> 0:08:52.880 make financial sense. Joining us now is Dr Chris Chen. 0:08:52.920 --> 0:08:55.920 He is the chief executive of Chen med and they 0:08:55.920 --> 0:09:00.000 are a physician led primary care facility and he joined 0:09:00.160 --> 0:09:02.800 just now on the phone. Thanks very much for being 0:09:02.800 --> 0:09:06.400 with us a Dr Chen, Maybe you could just explain 0:09:06.720 --> 0:09:12.760 the role that Medicare and the reimbursement practice of Medicare 0:09:13.320 --> 0:09:16.079 works a little bit and so that we can understand 0:09:16.200 --> 0:09:18.920 how the doctor fits in and some of the ways 0:09:19.000 --> 0:09:26.320 in which you are challenging conventional notions. Hi, pim yep Um. 0:09:26.360 --> 0:09:31.760 So you know, our practice primarily relies on Medicare advantage UM, 0:09:31.840 --> 0:09:36.679 which is a subsegment of the overall Medicare UM population. 0:09:37.640 --> 0:09:40.960 And what that means is is that there's a premium 0:09:41.000 --> 0:09:44.760 that goes from Medicare over to a health plan um. 0:09:44.800 --> 0:09:46.720 The way that we're able to work with these health 0:09:46.760 --> 0:09:49.719 plans is that the health plan will then give us 0:09:49.760 --> 0:09:53.800 a fixed amount of dollars to manage a patient, and 0:09:53.880 --> 0:09:57.560 that really allows us to create really flexible and unique 0:09:57.559 --> 0:10:01.520 and innovative models of care that can substantially improve the 0:10:01.559 --> 0:10:06.079 outcomes of patients. What kind of pushback has there been 0:10:06.160 --> 0:10:12.360 inside the doctor community if any well, you know, any 0:10:12.440 --> 0:10:17.000 kind of change, um, can be difficult. Today in the 0:10:17.080 --> 0:10:21.000 Medicare there's the Medicare fee for service world. Um. You know, 0:10:21.080 --> 0:10:23.959 doctors are paid for you know, for volume, They're paid 0:10:23.960 --> 0:10:28.440 for transactions. The more patients to see, the better you do. 0:10:29.280 --> 0:10:32.880 In our model, which is primarily based in Medicare advantaged, Um, 0:10:32.920 --> 0:10:36.400 we've created what is a value based care full risk 0:10:36.520 --> 0:10:38.679 arrangement with health plans? What is that? What is it? 0:10:39.080 --> 0:10:41.480 Because I just I want to understand where this came from, right, 0:10:41.520 --> 0:10:44.559 because this is all has to do, I believe, with 0:10:44.679 --> 0:10:47.880 the rules from the Medicare Access and the and the 0:10:47.960 --> 0:10:51.160 chip re Or Authorization Act, because that really was kind 0:10:51.200 --> 0:10:56.920 of something that changed the way doctors got paid, right right. 0:10:57.000 --> 0:11:00.240 So um, you know there there's something called the care 0:11:00.240 --> 0:11:03.400 advantage um, which is the private which is the private system, 0:11:03.400 --> 0:11:06.840 as you said, would in which you the Medicare recipient 0:11:06.920 --> 0:11:10.560 can have the premiums go to this private company Medicare advantage. 0:11:11.440 --> 0:11:14.880 That's correct, and so there are many Medicare advantage health 0:11:14.880 --> 0:11:19.640 plans out there, and essentially the premium dollar goes over 0:11:19.640 --> 0:11:21.880 to these health plans, and these health plans have to 0:11:21.880 --> 0:11:24.960 figure out how to improve the outcomes of patients and 0:11:25.120 --> 0:11:27.960 ultimately reduce costs so that way they have some margin 0:11:28.080 --> 0:11:30.960 left over, right, And so what a lot of these 0:11:31.000 --> 0:11:33.760 health plans have done is they've gone out to physicians 0:11:34.120 --> 0:11:38.720 UM and physician organizations like ours to create novel innovative 0:11:38.760 --> 0:11:44.199 models that can ultimately improve that the outcomes of these 0:11:44.200 --> 0:11:47.840 patients and subsequently reduce the cost so that way there 0:11:47.840 --> 0:11:51.559 can be an opportunity to create margin on that patient population. 0:11:52.040 --> 0:11:56.000 What is different about the way you would structure your 0:11:56.040 --> 0:12:00.640 business having all of this information, Uh, if you had 0:12:00.679 --> 0:12:04.680 a kind of clean slate. So you know, that's exactly 0:12:04.760 --> 0:12:07.200 what Chen meant. Did you know we noticed that UM 0:12:07.440 --> 0:12:12.000 about five of any given population within Medicare advantage accounts 0:12:12.000 --> 0:12:15.800 for about fifty and seventy of costs. And so what 0:12:15.880 --> 0:12:18.319 we notice is this population tends to be load of 0:12:18.400 --> 0:12:22.240 moderate incomes, seniors with multiple chronic conditions. And so what 0:12:22.360 --> 0:12:25.760 chen Mets sought to do was deliver you know, you 0:12:25.760 --> 0:12:31.240 know these load of modernit incomes seniors, concierge level care um. 0:12:31.240 --> 0:12:32.959 This is the kind of care that usually is only 0:12:33.000 --> 0:12:36.360 available to you know, CEOs and executives at large companies. 0:12:36.880 --> 0:12:39.480 And and we are able to provide this level of 0:12:39.480 --> 0:12:42.880 concierge care at no additional costs of the patient. So, 0:12:42.920 --> 0:12:45.880 if you're a chen Met patient, what we're able to 0:12:45.880 --> 0:12:49.439 deliver them is instead of the average doctor taking care 0:12:49.440 --> 0:12:53.240 of twenty three patients, our doctors only take care of 0:12:53.240 --> 0:12:56.760 for it in fifty. Instead of a doctor only spending 0:12:56.800 --> 0:13:01.240 about thirteen to sixteen minutes a year with a FaceTime 0:13:01.280 --> 0:13:03.720 with a patient, our doctors have been about a hundred 0:13:03.760 --> 0:13:09.000 and sixty eight minutes. Well, the way we do give 0:13:09.040 --> 0:13:11.840 us you reveal and pull back the curtain a little 0:13:11.840 --> 0:13:15.840 bit absolutely, So, you know, by increasing access to care, 0:13:15.880 --> 0:13:19.560 by providing this really high touch, concert level care that 0:13:19.600 --> 0:13:23.720 includes transportation, medications on site, specialists on site, and this 0:13:23.800 --> 0:13:25.880 high touch level of care, what we're able to do 0:13:26.320 --> 0:13:31.079 is significantly reduced the hospitalization rate. Today we published that 0:13:31.160 --> 0:13:34.280 we can reduce hospitalizations by thirty eight percent and so 0:13:34.360 --> 0:13:38.240 what happens is when you can reduce hospitalizations, you substantially 0:13:38.240 --> 0:13:42.240 reduce costs. What would be an example, So give us 0:13:42.240 --> 0:13:45.079 a patient example being you know and you know, paint 0:13:45.120 --> 0:13:47.680 the picture for us wonderful. So I have a patient 0:13:47.720 --> 0:13:52.280 of mine. Um, his name is, let's call him Mr F. 0:13:53.160 --> 0:13:55.640 Mr F came to me. He had been going to 0:13:55.679 --> 0:13:57.920 the hospital about five times a year because he has 0:13:58.040 --> 0:14:02.559 end stage heart failure. Okay, it's heart doesn't pump well anymore. Um, 0:14:03.480 --> 0:14:05.520 it's it's weak and he keeps showing up in the 0:14:05.559 --> 0:14:09.240 emergency room. Now, what I know is this is a 0:14:09.240 --> 0:14:12.079 patient that you know in general and a normal traditional 0:14:12.200 --> 0:14:15.199 fee for service Medicare environment will be seen for thirteen 0:14:15.240 --> 0:14:18.920 to sixteen minutes a year of FaceTime. What I have 0:14:18.960 --> 0:14:21.240 done is I see him and I will see him 0:14:21.320 --> 0:14:25.680 every single week if necessary. And so initially when I 0:14:25.720 --> 0:14:28.320 met him, he was actually in hospice. He was ready 0:14:28.360 --> 0:14:31.440 to call it quits. And when I and you know, 0:14:31.480 --> 0:14:34.840 after seeing him every single week, after providing him door 0:14:34.880 --> 0:14:39.440 to doctor transportation, after giving his medications on site, after 0:14:40.000 --> 0:14:43.880 having multiple conferences and coordinating his care with his other specialists, 0:14:45.200 --> 0:14:48.400 I took him from being admitted five times a year, 0:14:48.480 --> 0:14:53.000 of which each admission costs twenty tho dollars. Now he 0:14:53.040 --> 0:14:56.200 has not been admitted in over four years, and he's 0:14:56.200 --> 0:14:59.400 out of hospice, and so how do you but then 0:14:59.760 --> 0:15:05.640 but there and not but but and you are who 0:15:05.680 --> 0:15:09.120 pays you, how could you forward to do this? Right? 0:15:09.160 --> 0:15:11.920 So this is perfect. So if a patient comes to us, right, 0:15:12.560 --> 0:15:16.080 if they because we are actually taking the premium dollar, 0:15:16.360 --> 0:15:21.640 the a Medicare advantage health plan will offload the a 0:15:21.760 --> 0:15:23.840 percentage of the premium. So fix the amount of money 0:15:23.840 --> 0:15:26.840 to us, right, And so therefore the patient ends up 0:15:26.840 --> 0:15:30.640 in the hospital like like Mr F five times, okay, 0:15:30.800 --> 0:15:33.200 and it's twenty knowledge every time they go to the hospital. 0:15:33.600 --> 0:15:36.400 I pay for that. But the beautiful thing is if 0:15:36.440 --> 0:15:41.760 I'm able to significantly reduce his catastrophic hospitalization rates, then 0:15:42.520 --> 0:15:44.800 well I'm going to bet for benefit from that. And 0:15:44.840 --> 0:15:47.040 so what we found is this is a scenario in 0:15:47.120 --> 0:15:49.960 which if I can figure out a way to substantially 0:15:50.000 --> 0:15:55.040 reduce the most costly admissions for our patients, patients win 0:15:55.840 --> 0:15:58.560 because they're not getting sick. But also we win because 0:15:58.600 --> 0:16:01.360 now we actually don't have to you know what what 0:16:01.440 --> 0:16:03.160 that patient would have cost it would have been you know, 0:16:03.200 --> 0:16:06.600 five times at an admission hundred thousand dollars a year 0:16:06.600 --> 0:16:09.520 instead of that, you know, perhaps that patient actually hasn't 0:16:09.560 --> 0:16:13.000 accrued any major catastrophic costs, so we actually are able 0:16:13.000 --> 0:16:16.000 to make money. And what unique about chen Med is 0:16:16.000 --> 0:16:18.520 that we're not not only can we do this in 0:16:18.960 --> 0:16:21.400 what we started, which was in South Florida, but we've 0:16:21.400 --> 0:16:25.640 been able to replicate this exact model across multiple practices 0:16:27.160 --> 0:16:30.880 in nine U S geographies. So you know, what we've 0:16:30.880 --> 0:16:34.600 discovered is this model of care is actually scalable and 0:16:34.720 --> 0:16:36.840 we then surrounded well, we'll have to check in with 0:16:36.880 --> 0:16:40.080 you and find out the future of chen Med is 0:16:40.120 --> 0:16:50.880 the chief executive Dr. Chris chen We want to take 0:16:50.920 --> 0:16:53.760 a moment to let you know about something new from Bloomberg. 0:16:53.960 --> 0:16:57.280 Starting right now, you can use our iOS app or 0:16:57.360 --> 0:17:01.000 our new Google Chrome extension to scan any news story 0:17:01.080 --> 0:17:05.080 on any website, instantly revealing relevant news and market data 0:17:05.119 --> 0:17:08.879 from Bloomberg and other sources related to companies and people 0:17:08.960 --> 0:17:12.119 you're reading about. So no matter where you're reading the news, 0:17:12.160 --> 0:17:14.480 you can bring the power of Bloomberg's news and data 0:17:14.520 --> 0:17:17.920 with you. It's pretty amazing. Download our io s app 0:17:18.080 --> 0:17:20.480 or search for the Bloomberg extension on the Chrome Store 0:17:20.520 --> 0:17:23.399 to try it out. Learn more at Bloomberg dot com 0:17:23.680 --> 0:17:34.520 slash lens. Let's take a look at Canada. Canada because 0:17:34.560 --> 0:17:36.920 they are are neighbor to the north, but also because 0:17:36.960 --> 0:17:40.600 President Donald Trump in a speech was promising to find 0:17:40.640 --> 0:17:44.320 a solution to a trade dispute with Canada that well 0:17:44.480 --> 0:17:47.760 has left many dairy farmers in Wisconsin and New York 0:17:47.800 --> 0:17:52.320 without a market for their product. So, um, let's find 0:17:52.320 --> 0:17:56.800 out more from Joe Light. He is our financial regulation reporter, 0:17:57.200 --> 0:18:01.160 and this is not necessarily a out regulation. I wanted 0:18:01.240 --> 0:18:04.880 to just bring in the Canada issue because, uh, when 0:18:04.880 --> 0:18:08.119 we talk about home building, Uh, it's interesting how the 0:18:08.160 --> 0:18:11.359 world gets connected very quickly, and I'm wondering, Joe, if 0:18:11.440 --> 0:18:13.400 you can just kind of describe what what is all 0:18:13.480 --> 0:18:17.879 going on here and maybe just bring in current events. Yeah. Sure, 0:18:17.920 --> 0:18:21.560 So the um, as you mentioned, Trump talked to the 0:18:21.680 --> 0:18:25.200 dairy community yesterday, and I've been doing some reporting on 0:18:26.000 --> 0:18:29.440 Canada's imports of softwood lumber to the United States and 0:18:29.480 --> 0:18:32.760 it's kind of a great example of how even for 0:18:32.880 --> 0:18:35.399 you know, kind of the most basic of commodities, like 0:18:35.480 --> 0:18:38.639 would you have all sorts of different lobbying groups and 0:18:38.680 --> 0:18:41.760 interest groups on both sides of the border. Um with 0:18:41.800 --> 0:18:44.680 thousands of jobs at stake, uh, you know, fighting each 0:18:44.680 --> 0:18:46.760 other for a share of the US market. So in 0:18:46.760 --> 0:18:48.600 the case of lumber, you know, this is a dispute 0:18:48.600 --> 0:18:52.800 that's been going on for more than three decades. Canada 0:18:52.880 --> 0:18:55.800 imports about five billion dollars of lumber into the U 0:18:55.920 --> 0:18:58.600 s that's in that's in US dollars, and as a 0:18:58.640 --> 0:19:01.679 trade dispute that maybe not many people in the United 0:19:01.680 --> 0:19:03.920 States have heard of, but it means hundreds of thousands 0:19:03.960 --> 0:19:07.360 of jobs in certain communities, communities in Oregon, communities in 0:19:07.440 --> 0:19:14.680 British Columbia. Yeah. So so the so basically Canada subsidizes 0:19:14.840 --> 0:19:18.199 is lumber industry. Most of the timberland and Canada is 0:19:18.240 --> 0:19:21.520 owned by provincial governments. They charge a fee to timber 0:19:21.560 --> 0:19:25.160 producers to cut the trees down and as a result, 0:19:25.359 --> 0:19:28.760 um US companies say that Canadian producers are able to 0:19:28.880 --> 0:19:31.800 sell their lumber in the United States at depress prices, 0:19:32.119 --> 0:19:36.000 which which they say costs American American jobs, cost lumber 0:19:36.000 --> 0:19:39.720 companies profits. And so as soon as next week, the 0:19:39.800 --> 0:19:45.000 US government might be imposing huge tariffs on Canadian lumber imports, 0:19:45.040 --> 0:19:47.400 and the threat of that has driven lumber prices up 0:19:47.880 --> 0:19:51.520 by by more than twenty since since the election. And 0:19:51.680 --> 0:19:54.399 part of that's because you know, Trump has talked very 0:19:54.440 --> 0:19:57.960 tough on trade with Canada and UH, and you know, 0:19:58.000 --> 0:20:01.480 American producers and Canadian producers, the lumber market is expecting 0:20:01.480 --> 0:20:03.679 those tariffs to you know, and a new deal to 0:20:03.720 --> 0:20:07.679 come in UH pretty tough. So tell us about the 0:20:07.720 --> 0:20:12.080 price a lumber right now and what are the implications 0:20:12.119 --> 0:20:16.959 for businesses for the lumber companies. So the price of lumber, 0:20:17.040 --> 0:20:21.320 it's it's gone up two since UH. That's as of 0:20:21.400 --> 0:20:26.560 the close yesterday, since the UH, since the election. And 0:20:26.680 --> 0:20:30.560 for UH for a typical US home, the home builders 0:20:30.560 --> 0:20:33.960 say that's added about three thousand dollars to the UH 0:20:34.080 --> 0:20:36.560 to to the cost of a home. So so you 0:20:36.600 --> 0:20:38.080 kind of have two sides here in the US. You 0:20:38.080 --> 0:20:39.760 have the people who buy the lumber and the people 0:20:39.760 --> 0:20:41.600 who sell the lumber. The people who buy the lumber 0:20:41.640 --> 0:20:45.479 they want to keep these lumber imports cheap, so so 0:20:45.560 --> 0:20:48.520 they they don't want to see the the US UH 0:20:48.880 --> 0:20:52.240 impose these UH impose these tariffs. The people who sell 0:20:52.400 --> 0:20:56.040 sell the lumber, you know, big timber companies like wire Houser, 0:20:56.080 --> 0:20:59.760 which actually has some UH they've they've got some for 0:21:00.080 --> 0:21:01.880 in Canada as well as the US, but most mostly 0:21:01.880 --> 0:21:05.920 in the US. UH. Local lumber companies and in places 0:21:05.960 --> 0:21:10.520 like how wide is the gap between Canadian lumber and 0:21:10.760 --> 0:21:15.040 the US lumber. So, so the tariffs that they're that 0:21:15.080 --> 0:21:17.880 they're hoping to so the lumber market, it's a it's 0:21:17.920 --> 0:21:21.560 a Canadian lumber in US lumber is competing with each other. Right, 0:21:21.960 --> 0:21:24.480 So the you know, because it's traded right, I mean, yeah, 0:21:24.840 --> 0:21:28.919 traded right, it's up three three points six today, right, 0:21:28.960 --> 0:21:30.560 And but I've been looking, I'm going back all the 0:21:30.560 --> 0:21:33.239 way to May of of last year, and you're right, 0:21:33.280 --> 0:21:36.800 it's up. The prices up more than right, and and 0:21:36.800 --> 0:21:40.000 and so the Canadian Canadian US lumber is always competing, 0:21:40.040 --> 0:21:43.000 so they're selling for about the same price. The difference 0:21:43.040 --> 0:21:46.200 here is that the cost of lumber, of producing lumber 0:21:46.200 --> 0:21:48.879 in Canada, U S companies say, is much lower. So 0:21:48.920 --> 0:21:53.120 the tariffs that UM we're the US is inspected expected 0:21:53.160 --> 0:21:56.520 to impose as soon as next week or starting next week, 0:21:56.720 --> 0:22:01.040 could run a run between thirty and according to some analysts, 0:22:01.080 --> 0:22:03.840 and the impact of that would be to make US 0:22:03.920 --> 0:22:06.840 companies much more competitive, at least in their eyes, and 0:22:06.840 --> 0:22:09.800 to make Canadian companies much less competitive, which could result 0:22:09.800 --> 0:22:13.159 in you know, mills closing in Canada, perhaps mills opening 0:22:13.160 --> 0:22:15.720 in the US, and the US market share of the 0:22:15.840 --> 0:22:20.080 lumber market rising. So that would benefit companies obviously that 0:22:20.160 --> 0:22:23.440 have these operations in the United States. That's right, Yeah, 0:22:23.440 --> 0:22:25.199 it say so so that this is all This is 0:22:25.200 --> 0:22:28.480 all about the US market share versus the versus the 0:22:28.520 --> 0:22:31.199 Canadian market share. For for the lumber producers, for the 0:22:31.240 --> 0:22:34.840 home builders. You know, they're so frustrated by the UH 0:22:35.000 --> 0:22:37.760 quickly rising costs of lumber that you know, they're already 0:22:37.760 --> 0:22:40.440 looking for sources of supply elsewhere. They send a trade 0:22:40.440 --> 0:22:44.880 delegation to Chile in September. They've been talking to governments 0:22:44.880 --> 0:22:48.639 and producers in Sweden and Brazil, you know, basically anybody 0:22:48.640 --> 0:22:51.240 who grows trees because they want to keep What about 0:22:51.240 --> 0:22:55.920 alternatives to lumber for home builders, and you know that's uh. 0:22:56.119 --> 0:22:58.639 I I think we're they're going to be framing homes 0:22:58.680 --> 0:23:02.040 with with soft lumber for UH for quite a while. 0:23:02.040 --> 0:23:05.640 I don't think they're gonna try to reinvent the reinvent 0:23:05.680 --> 0:23:07.840 the home building process. And I mean obviously, but not 0:23:07.920 --> 0:23:12.920 you know, in other places, in other places around the world. Um, 0:23:13.119 --> 0:23:17.359 they use other you know, materials to to do build 0:23:17.440 --> 0:23:20.320 large scale housing. Yeah. And and you know one of 0:23:20.320 --> 0:23:24.919 the points that the timber producers make is that that 0:23:25.080 --> 0:23:28.280 lumber you know, they say, is it's not it's not 0:23:28.400 --> 0:23:30.240 the bulk of a cost of a home. You know, 0:23:30.320 --> 0:23:33.040 the bulk of a cost of a home comes in, uh, 0:23:33.080 --> 0:23:36.560 you know, labor costs and other materials, land costs, and 0:23:36.560 --> 0:23:41.119 and so they they're um, uh, the lumber lobby United 0:23:41.119 --> 0:23:43.320 States says, they're you know, at least somewhat you know, 0:23:43.400 --> 0:23:47.320 mystified that the home builders are fighting so hard against 0:23:47.800 --> 0:23:51.479 against these tariffs. But you know, all already homebuilders are 0:23:51.480 --> 0:23:55.119 competing against um, against existing homes with the new homes, 0:23:55.400 --> 0:23:57.879 and so it's it's difficult for them to pass the 0:23:57.920 --> 0:24:01.280 costs nder buyer. So this this rise in LUMBERCASI, it's 0:24:01.320 --> 0:24:04.000