WEBVTT - MTA Homing In On Near-Term $33 Billion Upgrade Plan (Podcast) 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg P and L 0:00:20.840 --> 0:00:31.160 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Joining 0:00:31.240 --> 0:00:33.800 us now to tell us about municipal finance and green 0:00:34.000 --> 0:00:37.240 finance is Pat McCoy, Finance director for the New York 0:00:37.320 --> 0:00:42.440 Metropolitan Transportation Authority. He directs the issuance of over three 0:00:42.720 --> 0:00:46.920 billion dollars in municipal bonds annually. Pat McCoy, thank you 0:00:47.000 --> 0:00:49.199 very much for being with us. Thanks for having me. Now. 0:00:49.200 --> 0:00:52.800 You're responsible for the m t a's thirty four billion 0:00:52.880 --> 0:00:57.160 dollar debt portfolio. How much of that would you like 0:00:57.400 --> 0:01:02.480 to see go into green on the initiatives? Sure well. 0:01:02.520 --> 0:01:05.640 Our our dead outstanding is actually closer to forty billion now, 0:01:05.840 --> 0:01:10.000 so UM, look, we everything we do to move people 0:01:10.040 --> 0:01:13.280 around this city on electrified rail, be it the subways 0:01:13.400 --> 0:01:17.280 or commuter rails, is inherently green, and we've worked with 0:01:17.319 --> 0:01:20.680 the Climate Bonds Initiative to UM to issue bonds that 0:01:20.840 --> 0:01:24.920 labeled green, and as we continue to roll out our 0:01:25.319 --> 0:01:27.800 funding of our capital program through the issuance of bonds, 0:01:28.160 --> 0:01:31.559 I would expect that all of our transportation revenue bond 0:01:31.640 --> 0:01:35.640 or dedicated tax fund bond issues will be green. Pat 0:01:35.680 --> 0:01:38.080 do you ride the subway? I do? I do. I 0:01:38.080 --> 0:01:41.000 I commute from Terrytown in Westchester, so I take Metro 0:01:41.120 --> 0:01:43.400 north to Grand Central and then I take the lex 0:01:43.440 --> 0:01:45.600 line down here to our office at too Broadway. What 0:01:45.720 --> 0:01:49.480 project would you most like to see done next? Well, 0:01:49.520 --> 0:01:52.680 you know, we have such a wide variety of projects 0:01:52.680 --> 0:01:56.600 that we're looking to fund. Clearly the most critical our 0:01:57.080 --> 0:02:00.000 you know, signalization and our subways to improve service there 0:02:00.040 --> 0:02:03.400 and to enable us to put more trains on the 0:02:03.480 --> 0:02:07.400 rails and move people around faster. That's a big project. 0:02:07.440 --> 0:02:10.640 It's not funded, and we're aggressively looking to put that 0:02:10.680 --> 0:02:14.600 program together and find funding. How much it cost. The 0:02:14.760 --> 0:02:17.399 estimates are in the in the many billions. We don't 0:02:17.440 --> 0:02:20.000 have a firm estimate at this point, but it will 0:02:20.040 --> 0:02:23.000 be a very expensive project. Now, you have a lot 0:02:23.040 --> 0:02:27.560 of experience dealing with the financing of a variety of projects, 0:02:28.040 --> 0:02:30.600 not only in your role is at the m T. A. 0:02:31.000 --> 0:02:35.240 But also in previous roles, what can you tell people 0:02:35.240 --> 0:02:39.400 who might be skeptical about green bond initiatives why you 0:02:39.480 --> 0:02:42.919 believe they work, and maybe explain a little bit about 0:02:42.919 --> 0:02:47.760 the attractiveness to the marketplace. Sure, you know, the green 0:02:47.800 --> 0:02:50.680 bond space, in our view is a natural fit to 0:02:50.800 --> 0:02:53.120 what the m t A is all about. As I said, 0:02:53.760 --> 0:02:57.680 but according to the Climate Bonds Initiative Low Low Carbon 0:02:57.720 --> 0:03:02.000 Transport criteria, everything we do to move people on rails 0:03:02.320 --> 0:03:06.400 is green. That's that in and of itself is important. 0:03:06.440 --> 0:03:08.720 And I think the MTA needs to get recognition in 0:03:08.800 --> 0:03:14.560 the market for doing, for undertaking activity that is inherently green. 0:03:14.639 --> 0:03:18.040 But what does that mean when you say green? Good 0:03:18.200 --> 0:03:22.320 good good question. So we estimate that um, every trip 0:03:22.400 --> 0:03:27.600 on public transportation saves or avoids about ten pounds of 0:03:27.680 --> 0:03:31.600 greenhouse gases going into the atmosphere. No, on an annualized basis, 0:03:31.639 --> 0:03:34.840 that's about a nineteen million metric ton number, because the 0:03:34.880 --> 0:03:38.720 alternative is taking some kind of fossil fuel based transport exactly. 0:03:38.840 --> 0:03:42.040 So the alternative of people riding around in cars typically 0:03:42.040 --> 0:03:46.160 one person, one car, UM, so we avoid nineteen million 0:03:46.200 --> 0:03:49.040 metric tons going into the atmosphere every year, we spend 0:03:49.040 --> 0:03:51.640 about two million metric tons to provide the service that 0:03:51.680 --> 0:03:54.840 we do, so the net benefit of seventeen million metric 0:03:54.880 --> 0:03:58.600 tons avoided is inherently good for our region, for our state, 0:03:58.640 --> 0:04:00.600 and for the for the economy. When you said that 0:04:00.640 --> 0:04:03.800 the total debt load right now is forty billion dollars, UH, 0:04:03.920 --> 0:04:06.960 I imagine it would climb considerably if all the projects 0:04:06.960 --> 0:04:09.880 you would like to see done actually get okayed. In 0:04:09.960 --> 0:04:13.120 the sign off, we had Richard Ravage, the former Lieutenant 0:04:13.160 --> 0:04:15.480 Governor of New York, on our program a couple of 0:04:15.520 --> 0:04:18.039 months ago, and he said, you know, the MTA hasn't 0:04:18.080 --> 0:04:21.520 conducted a thorough study of even what would be required 0:04:21.560 --> 0:04:25.279 to fix the subways and exactly what the costs would be. 0:04:25.600 --> 0:04:29.280 Is that accurate? Well, you know, like, I have a 0:04:29.320 --> 0:04:31.120 lot of respect for Dick. He's a friend, and I 0:04:31.160 --> 0:04:37.280 think he is a wonderful UM UH spokesperson for infrastructure generally. UM. 0:04:37.440 --> 0:04:40.080 What I'll say is that we're in the throes of 0:04:40.080 --> 0:04:42.359 working on what we call our twenty year Needs Assessment, 0:04:42.360 --> 0:04:47.240 which essentially UH mandates that all of our agencies, Transit Authority, 0:04:47.279 --> 0:04:51.680 the railroads, bridges and tunnels undertake a really thorough top 0:04:51.720 --> 0:04:55.279 to bottom review of all of our infrastructure needs. That 0:04:55.320 --> 0:04:58.480 will inform how we put together our next capital program, 0:04:58.480 --> 0:05:01.919 and that will be the capital program will be a 0:05:01.920 --> 0:05:05.640 five year capital program. Our current program the fifteen to 0:05:05.760 --> 0:05:10.320 nineteen period is thirty three point five billion. So, you know, 0:05:10.360 --> 0:05:12.360 I don't want to say Dick's off base on this. 0:05:12.480 --> 0:05:14.279 What I would say is that, you know, we're we're 0:05:14.279 --> 0:05:16.640 coming up with a new twenty year needs assessment that's 0:05:16.640 --> 0:05:20.000 going to really lay out what those critical priorities are 0:05:20.040 --> 0:05:23.080 for the coming capital investment cycle. How much of that 0:05:23.279 --> 0:05:26.080 three billion dollars or so would be financed through the 0:05:26.120 --> 0:05:30.520 bond market versus through state or city funding. Sure, so, 0:05:31.000 --> 0:05:34.479 bonds are an important funding uh component to the capital programs, 0:05:34.520 --> 0:05:38.159 but not the only thing. We rely on. The cornerstone 0:05:38.200 --> 0:05:41.240 of our capital investment cycle is the federal government through 0:05:41.279 --> 0:05:44.440 participation in the fifty three oh seven and the fifty 0:05:44.440 --> 0:05:48.200 three oh nine, the formula programs, the new starts programs, 0:05:48.360 --> 0:05:51.120 you know, for example for Second Avenue subway, and then 0:05:51.160 --> 0:05:52.919 of course the state and the city kick in. So 0:05:53.040 --> 0:05:58.120 bonds have typically been in that um what about a third. 0:05:58.360 --> 0:06:01.120 It varies, you know, it varies by program, by by 0:06:01.160 --> 0:06:03.880 revenue sources the state can identify for us to lever. 0:06:04.320 --> 0:06:06.360 But it will be an important piece of the picture, 0:06:06.720 --> 0:06:09.240 all right. Which which train line is going to get 0:06:09.320 --> 0:06:12.440 renovated next? That hasn't been announced. I wish I could 0:06:12.480 --> 0:06:14.680 tell you. I don't know what you're looking at it 0:06:15.680 --> 0:06:18.040 hundred and sixteen Station of the Sea. I think that 0:06:18.040 --> 0:06:21.880 that's next. I'm very excited about that. Fat mcoy, Fat 0:06:21.920 --> 0:06:24.960 McCoy find insurrector for the New York Metropolitan Transportation Authority. 0:06:25.080 --> 0:06:29.400 I sent a plaque. Yeah, that was you know, in 0:06:30.240 --> 0:06:32.640 a lot of public venues, you know, like benches in 0:06:32.720 --> 0:06:34.960 Central Park, you know, you can get someone to sponsor 0:06:35.120 --> 0:06:37.960 train station. It's true, It's true. I've I've spent a 0:06:38.000 --> 0:06:40.120 lot of my life in train stations. Pat McCoy, thank 0:06:40.160 --> 0:06:42.560 you again for joining us. Pleasure to be here. Thank you. 0:06:53.440 --> 0:06:55.520 We are here. We are very lucky to say with 0:06:55.600 --> 0:06:58.760 the chief executive and the chairman of Build America Mutual, 0:06:58.880 --> 0:07:02.599 Sean McCarthy and Bob cochrane um. And you know, it's interesting. 0:07:02.720 --> 0:07:06.120 We've seen a number of stories about unprecedented outflows from 0:07:06.120 --> 0:07:09.520 a few municipal bond funds. We've seen rates rise just 0:07:09.600 --> 0:07:12.840 across the board is as benchmarks rise, and certainly that's 0:07:12.880 --> 0:07:15.240 the same story for municipal bonds. And I want to 0:07:15.240 --> 0:07:18.640 start with Sean, what does this mean for municipalities that 0:07:18.680 --> 0:07:21.800 are hoping to finance infrastructure projects or anything else three 0:07:21.960 --> 0:07:25.040 music bi bond market? How are they dealing with or 0:07:25.280 --> 0:07:28.880 planning around the increasing rates we've seen. So it's interesting 0:07:28.960 --> 0:07:32.200 to UM two points. The first is that interest rates 0:07:32.200 --> 0:07:34.920 are rising because the economy is strong UM. And one 0:07:34.960 --> 0:07:37.680 thing to look at is what is the revenue strength 0:07:37.800 --> 0:07:40.280 or stream that state and local governments have right now? 0:07:40.280 --> 0:07:42.400 And if we look at that over the past year, 0:07:43.320 --> 0:07:47.560 it's increased by six point seven So the capacity for 0:07:48.040 --> 0:07:52.520 municipalities to actually issue debt for new money UM has 0:07:52.560 --> 0:07:55.280 increased the last year. Because it's really interesting that you 0:07:55.280 --> 0:07:57.480 say that, I'm just thinking to myself, is it even 0:07:57.520 --> 0:07:59.920 across the board or there's certain areas that have actually 0:08:00.040 --> 0:08:02.440 in their tax revenues increased dramatically. Well, other places have 0:08:02.520 --> 0:08:05.400 seen them DECLIMBA. Generally, it's increased in some places quite 0:08:05.400 --> 0:08:08.240 a bit more UM so that as the economy has increased, 0:08:08.280 --> 0:08:11.560 interest rates have gone up, and generally that capacity for 0:08:11.680 --> 0:08:13.880 state and local governments has increased. So if you look 0:08:13.920 --> 0:08:16.960 at it this year. Actually, UM, there's been a fourteen 0:08:17.040 --> 0:08:20.760 percent increase in a spending by state and local governments 0:08:20.840 --> 0:08:24.880 on infrastructure. So that's a total of two hundred and 0:08:24.920 --> 0:08:28.400 ninety three billion dollars in construction, and that would be 0:08:28.480 --> 0:08:31.560 an increase of thirty six billion dollars, so it's not insignificant. 0:08:32.240 --> 0:08:34.480 Bob Cochrane, I'm wondering if you could just step back 0:08:34.520 --> 0:08:37.640 for a second and describe why you and Sean decided 0:08:37.720 --> 0:08:40.640 to start this firm. You both worked at f S 0:08:40.679 --> 0:08:45.439 A that was acquired by Assured. What makes Build America 0:08:45.600 --> 0:08:50.080 BAM different not only in its ownership structure, but in 0:08:50.120 --> 0:08:53.559 the kinds of municipal debt that it underwrites that it 0:08:53.600 --> 0:08:57.040 guarantees rather right, So Sean and I got together. We 0:08:57.080 --> 0:09:00.800 had we've been together as business partners for over thirty 0:09:00.880 --> 0:09:06.760 years UM, even prior to f s A right build 0:09:07.160 --> 0:09:09.400 in three days and builds up at for a while. 0:09:10.120 --> 0:09:12.920 Uh So we had a lot of experience in the industry, 0:09:13.080 --> 0:09:15.160 have a love of the industry and a lot of 0:09:15.200 --> 0:09:17.520 the people that work in it. UM. We took a 0:09:17.600 --> 0:09:20.000 couple of years off and as you know, through the 0:09:20.000 --> 0:09:24.040 financial crisis, most of the companies didn't make it. We 0:09:24.120 --> 0:09:26.840 tried to assess what we thought were the causes and 0:09:26.920 --> 0:09:31.320 results of that, and UH, could we build a better company, 0:09:31.400 --> 0:09:34.720 a better business model that would address what we thought 0:09:34.800 --> 0:09:38.640 were the problems that led to UH, some of the 0:09:38.640 --> 0:09:42.720 failures in two thousand and eight nine and Build American 0:09:42.800 --> 0:09:46.040 Mutual was a result of that collaboration. We spent almost 0:09:46.040 --> 0:09:49.560 two years um sort of working through that plan and 0:09:49.640 --> 0:09:53.320 raising the capital to start the company, and UH, it's 0:09:53.360 --> 0:09:56.520 a BAM as a mutual insurance company, I think probably 0:09:56.520 --> 0:09:59.520 the first one created in New York and at least 0:09:59.559 --> 0:10:03.280 forty ye fifty years. And the reason we did that 0:10:04.400 --> 0:10:08.040 so that the issuers, the public entities that use insurance 0:10:08.080 --> 0:10:12.040 would essentially be our shareholders are members. And the reason 0:10:12.080 --> 0:10:16.760 for that is we're not driven by high returns on equity. 0:10:16.880 --> 0:10:20.920 Were driven by high accumulation of capital and the safety 0:10:20.960 --> 0:10:25.480 of the bonds that we ensure for investors. So Sean, 0:10:25.559 --> 0:10:28.439 given that, and given that it's been a really benevolent 0:10:28.480 --> 0:10:33.200 backdrop to issue debt over the past eight years ten years, 0:10:33.920 --> 0:10:37.080 why is there this impression that a lot of local 0:10:37.120 --> 0:10:41.280 and state municipalities have declined to issue debt to pay 0:10:41.360 --> 0:10:44.000 for big infrastructure projects. Why are we hearing this push 0:10:44.080 --> 0:10:48.000 about the need for a cold rebuilding of American infrastructure. Well, 0:10:48.800 --> 0:10:52.000 it's a good question. UM. First and foremost, remember that 0:10:52.000 --> 0:10:55.960 state and local governments represent nine of the financing for 0:10:56.120 --> 0:10:59.040 infrastructure in the nation. So when people think has the 0:10:59.080 --> 0:11:02.199 federal government passed to bill that's going to UH finance 0:11:02.280 --> 0:11:05.400 state and local governments infrastructure in the country, it's really 0:11:05.440 --> 0:11:08.400 state local governments that are doing that. They are the 0:11:08.480 --> 0:11:12.800 really the engine behind infrastructure finance. UH. The thing I 0:11:12.840 --> 0:11:15.679 mentioned before is directly related to that, and that is 0:11:15.720 --> 0:11:20.920 the fact that UM municipalities, their revenue UH strength has 0:11:20.920 --> 0:11:24.520 been increasing since the recession. That happens gradually as tax 0:11:24.559 --> 0:11:29.479 bases grow, real estate values increase, and that enables municipalities 0:11:29.480 --> 0:11:33.160 to then commit to new projects when when things are 0:11:33.200 --> 0:11:35.760 in a recession, they actually are trying to claw back 0:11:35.800 --> 0:11:37.840 and make sure that they keep themselves in in a 0:11:37.880 --> 0:11:41.760 fiscally sound position. So it's interesting for UM for for 0:11:41.880 --> 0:11:44.480 BAM because as a mutual insurance company, we do a 0:11:44.559 --> 0:11:46.680 number of things that are unique. One is that we 0:11:46.720 --> 0:11:50.720 provide credit profiles, a financial description of each credit that 0:11:50.760 --> 0:11:53.120 we do. We updated every year. It's available for free 0:11:53.120 --> 0:11:56.480 on our website, and part of the logical outgrowth of 0:11:56.520 --> 0:11:59.800 that is our green Star program. So the speaker before 0:11:59.880 --> 0:12:03.480 us UH, Andrew Wyley, was talking about um UH green bonds. 0:12:04.080 --> 0:12:08.760 What we have recently launched is an examination within the 0:12:08.800 --> 0:12:13.360 credit analysis we already do on each credit about the 0:12:13.360 --> 0:12:17.480 credits that we analyze will qualify as green bonds into 0:12:17.520 --> 0:12:20.120 the market. So we think that over UM the near 0:12:20.200 --> 0:12:25.880 and long term will be help the market understand and 0:12:25.960 --> 0:12:29.000 expand the green bond initiative, which really comes down to 0:12:29.960 --> 0:12:36.920 environmental and climate appropriate bonds, water treatment, water purification, UH, 0:12:38.080 --> 0:12:41.720 renewable energy exactly, and all those things I think pair 0:12:41.920 --> 0:12:45.000 up very well with what UM BAM does you know 0:12:45.160 --> 0:12:48.800 right now, we've been in writing business for six years. UH. 0:12:48.880 --> 0:12:52.640 That's UH comprises fifty three billion dollars worth of municipal 0:12:52.679 --> 0:12:57.480 bonds for six thousand, five hundred different issuers. So when 0:12:57.520 --> 0:12:59.600 you said what's different about what we do, one of 0:12:59.600 --> 0:13:01.480 the things that different is we are looking at sort 0:13:01.520 --> 0:13:06.680 of core municipal finance, so general obligation bonds, revenue bonds 0:13:06.760 --> 0:13:10.480 from taxes. It's really straight down the middle of the 0:13:10.480 --> 0:13:14.080 fairway in terms of what is classically municipal finance. And 0:13:14.120 --> 0:13:16.959 for the investing market that's important because they can look 0:13:17.000 --> 0:13:20.320 at us as ultimate transparency, look at every credit on 0:13:20.360 --> 0:13:23.160 our website, look at the financial strength of our double 0:13:23.200 --> 0:13:25.840 A from Standard and pores, and look at our commitment 0:13:25.880 --> 0:13:32.480 as being the only muni only municipal guaranteur. So if 0:13:32.480 --> 0:13:34.360 you think about it in those terms, what happened in 0:13:34.360 --> 0:13:37.720 the crisis, There wasn't municipal bonds that defaulted in mass 0:13:38.240 --> 0:13:40.640 there was other things that happened. And BAM's committed to 0:13:40.679 --> 0:13:44.120 the fact that we only do municipal finance and the 0:13:44.400 --> 0:13:47.480 core of that business is state and local governments. There 0:13:47.520 --> 0:13:52.440 the engine behind the growth and rehabilitation of infrastructure in 0:13:52.480 --> 0:13:54.400 the market. And finally, if you just think about what's 0:13:54.440 --> 0:13:57.679 the demand. You know, the American Society of Civil Engineers 0:13:57.920 --> 0:14:03.400 has projected a two hundred billion dollar need for additional 0:14:03.480 --> 0:14:06.880 financing over the next ten years in infrastructure. And just 0:14:06.920 --> 0:14:09.240 real quickly, in thirty seconds, do you think that that's 0:14:09.240 --> 0:14:10.959 going to be difficult to finance given the fact that 0:14:11.040 --> 0:14:14.120 rates are rising up more and potentially the credit cycle 0:14:14.120 --> 0:14:17.440 could could turn. Well. First of all, Sean, that's two 0:14:17.480 --> 0:14:21.600 hundred billion a year. More so two trillion over the 0:14:21.640 --> 0:14:25.800 next ten years that we have to increase UM. Interest 0:14:25.880 --> 0:14:29.040 rates are definitely a factor, because if we're gonna achieve 0:14:29.160 --> 0:14:31.640 that kind of funding rate over and above what the 0:14:31.720 --> 0:14:35.000 municipal market is already achieving, which is about two d 0:14:35.160 --> 0:14:39.040 and fifty billion a year in new money financing, UM, 0:14:39.240 --> 0:14:41.080 that's those bonds. I've got to It's got to be 0:14:41.120 --> 0:14:44.440 financed with some sort of long term debt, municipal bonds 0:14:44.640 --> 0:14:47.280 or and it's got to be paid back over time 0:14:47.360 --> 0:14:50.880 with the revenue stream. Thanks very much, gentleman. Bob cochrane, Chairman, 0:14:51.080 --> 0:14:56.640 Build America Mutual, Sean McCarthy, chief executive Officer, Build America Mutual. 0:15:06.880 --> 0:15:09.440 We are focusing today on Caterpillar, which has been a 0:15:09.520 --> 0:15:13.280 bell weather of global growth, and today that bell weather 0:15:13.440 --> 0:15:15.960 is not signaling something positive joining us now as Brooks 0:15:15.960 --> 0:15:19.680 Sutherland Bloombroock Opinion industrials columnists and brook I'm just wondering. 0:15:19.720 --> 0:15:22.960 I mean, Caterpillar didn't boost its outlook for the year, 0:15:23.040 --> 0:15:26.440 which analysts had expected, but was it really so bad 0:15:26.720 --> 0:15:30.720 this report or our investors simply looking for the negative 0:15:30.800 --> 0:15:33.600 right now because they're feeling a skittish and are looking 0:15:33.680 --> 0:15:36.720 to take profits right now. I think it's a little 0:15:36.760 --> 0:15:38.760 bit of both. I mean, I think what's really key 0:15:38.800 --> 0:15:40.560 to keep in mind here is that nobody's saying that 0:15:40.640 --> 0:15:42.680 growth is all of a sudden going to stop and 0:15:42.720 --> 0:15:45.560 we're going to start to see sales decline at these 0:15:45.600 --> 0:15:49.040 industrial companies. It's all about where the momentum is heading. 0:15:49.440 --> 0:15:53.280 And I think what Caterpillars report indicated is that the 0:15:53.360 --> 0:15:56.480 sales momentum is slowing, so you're not You're still going 0:15:56.520 --> 0:15:58.920 to see growth, but you're probably not going to see 0:15:58.920 --> 0:16:00.720 it at the rates that we I've been seeing. A 0:16:00.760 --> 0:16:03.720 part of that is just lapping tougher comparisons, but there's 0:16:03.760 --> 0:16:06.200 also questions about how demand is going to hold up 0:16:06.200 --> 0:16:08.840 in some of these markets. And as Caterpillar pushes through 0:16:09.040 --> 0:16:12.640 price increases to offset some of these rising raw material 0:16:12.760 --> 0:16:16.400 costs amid the trade war, you know, could that ultimately 0:16:16.440 --> 0:16:19.640 affect demand and sort of accelerate the grows slowdown that 0:16:19.720 --> 0:16:21.840 we're already seeing naturally as we get later in the 0:16:21.840 --> 0:16:25.480 economic cycle. Brooke, if you happen to be a company 0:16:25.520 --> 0:16:28.960 that is buying or leasing a Caterpillar, let's say, off 0:16:29.080 --> 0:16:33.160 highway truck, you know, in the mining industry, or construction business. 0:16:33.800 --> 0:16:37.280 Those items, they're like three and a half million dollars 0:16:37.320 --> 0:16:41.840 just for the one time purchase. If you're financing it, 0:16:42.080 --> 0:16:44.960 things are going to get more expensive. If you're buying 0:16:44.960 --> 0:16:49.280 it raw material inputs are making it more expensive. What 0:16:49.400 --> 0:16:51.840 has happened in three months? How come we didn't hear 0:16:51.840 --> 0:16:55.160 this three months ago in the last earnings report? You know, 0:16:55.240 --> 0:16:58.640 I think we did. I think this price cost headwind 0:16:58.720 --> 0:17:01.360 has been a matter of debate for the bulk of 0:17:01.400 --> 0:17:04.040 this year. Is you know, people sort of digest the tariffs, 0:17:04.080 --> 0:17:07.280 and especially as the tariff actions have escalated, I think 0:17:07.280 --> 0:17:09.919 the big question is how companies are going to be 0:17:09.960 --> 0:17:12.080 handling this. And you make a good point that you know, 0:17:12.119 --> 0:17:15.760 if Caterpillar raises its prices, those customers are also seeing 0:17:16.320 --> 0:17:19.440 rising costs on their end, so their ability to absorb 0:17:19.560 --> 0:17:22.040 those price increases as really gets to the heart of 0:17:22.040 --> 0:17:24.520 what the issue is here is are they willing to 0:17:24.520 --> 0:17:28.080 tolerate that and continue buying equipment or do they just 0:17:28.359 --> 0:17:30.760 you know, decide to hold off on some of these 0:17:30.800 --> 0:17:34.760 replacement purchases or especially new equipment purchases. Do we get 0:17:34.760 --> 0:17:37.960 a sense of which industries were the most positive for 0:17:38.119 --> 0:17:40.399 Caterpillar and which were the most negative. In other words, 0:17:40.440 --> 0:17:43.160 are there sectors of their business that are doing better 0:17:43.440 --> 0:17:47.080 or worse? Uh? Yeah. And so they also reported their 0:17:47.440 --> 0:17:51.000 September sales on Monday night, and that's on a three 0:17:51.000 --> 0:17:53.119 month rolling average basis. And what you saw there was 0:17:53.160 --> 0:17:57.600 a slight slowdown in construction equipment sales growth um, and 0:17:57.640 --> 0:18:00.960 that was offset by you know, pretty strong momentum in 0:18:01.040 --> 0:18:03.920 its mining segment, which makes sense because mining is coming 0:18:03.920 --> 0:18:07.400 back from a pretty severe downturn. But you are seeing 0:18:07.440 --> 0:18:09.600 a little bit of that weakness and construction and sort 0:18:09.640 --> 0:18:12.280 of you couple that with a lot of the negative 0:18:12.280 --> 0:18:14.880 sentiment that we've been hearing for home builder stocks and 0:18:14.960 --> 0:18:17.760 for you know, construction in general. And I think that 0:18:18.240 --> 0:18:20.520 is definitely something that investors are picking up on today. 0:18:20.800 --> 0:18:22.800 And that's actually a really interesting point I was going 0:18:22.840 --> 0:18:24.440 to go to that. I mean, does this signal something 0:18:24.480 --> 0:18:26.919 broader about the slowdown in the in the home building 0:18:26.960 --> 0:18:29.679 sector and just sort of in general about some of 0:18:29.720 --> 0:18:33.440 the the industries that have reported the recovery so far 0:18:33.840 --> 0:18:36.199 really slowing down and perhaps an even more meaningful way 0:18:36.200 --> 0:18:39.160 than people have realized. I think, you know, a lot 0:18:39.160 --> 0:18:41.399 of what you're seeing is sort of coming up on 0:18:41.440 --> 0:18:43.320 the peak in the cycle, and that affects companies in 0:18:43.359 --> 0:18:46.200 different ways. So three M also reported today and its 0:18:46.200 --> 0:18:48.840 stock is getting crushed, and a lot of the slowdown 0:18:48.840 --> 0:18:54.080 that it saw is in these shorter cycle markets, so automotive, electronics, 0:18:54.200 --> 0:18:57.840 UM healthcare as well, and some of those have had 0:18:58.280 --> 0:19:00.840 stronger momentum for a longer stretch of time. And I 0:19:00.840 --> 0:19:04.640 would also put UM residential construction, home building in that 0:19:04.680 --> 0:19:07.480 they've they've been on this recovery track for a longer period, 0:19:07.520 --> 0:19:09.600 and so it makes sense that we might be nearing 0:19:09.640 --> 0:19:13.480 the peak of that versus some of these longer cycle businesses, 0:19:13.480 --> 0:19:15.920 like I think of United Technologies, which is also about 0:19:15.920 --> 0:19:18.600 today and it's aerospace business. I mean, it takes those 0:19:18.720 --> 0:19:21.040 orders very far in advance. You don't just show up 0:19:21.040 --> 0:19:25.040 at United Technologies and buy a jet engine. So those backlogs, 0:19:25.080 --> 0:19:28.280 those order rates should help United Technologies and companies in 0:19:28.280 --> 0:19:32.240 those later cycle businesses maintain momentum through twenty nineteen. But 0:19:32.280 --> 0:19:34.600 as you sort of look at these dynamics, I think 0:19:34.640 --> 0:19:36.640 you can read into some of the trends we're seeing 0:19:36.680 --> 0:19:38.960 at the shorter cycle companies that that we might be 0:19:39.000 --> 0:19:42.400 nearer a turning point than Uh, than not. I want 0:19:42.400 --> 0:19:44.080 to thank you very much for being with us. A 0:19:44.119 --> 0:19:47.159 brook Southerland, of course expert in all things having to 0:19:47.200 --> 0:19:50.879 do with mergers, acquisitions and just general corporate go ahead. 0:19:51.359 --> 0:19:53.880 Something really strange because s Brooke is talking about home 0:19:53.920 --> 0:19:56.840 builders and how there has been this slowdown. Told Brothers, 0:19:56.960 --> 0:19:59.000 one of the biggest home builders. Their shares are up 0:19:59.000 --> 0:20:01.560 today nearly two per sense, so go figure. There actually 0:20:01.640 --> 0:20:04.080 is some strength today and home builders, even though there 0:20:04.160 --> 0:20:07.800 is a generally negative sentiment and frankly homebuilder stocks, as 0:20:07.880 --> 0:20:10.240 Dave Wilson has pointed out in his chart of the day, 0:20:11.240 --> 0:20:14.080 actually a editor bear markets. So perhaps some people are 0:20:14.119 --> 0:20:28.560 seeing some opportunities. President Donald Trump is set to meet 0:20:28.640 --> 0:20:31.800 with the Chinese President Jijing Ping at the Group of 0:20:31.800 --> 0:20:34.920 Twenty Nations summit in Buenosaurus. The topic, of course, is 0:20:34.920 --> 0:20:39.159 going to be trade disputes and the uh. The information 0:20:39.200 --> 0:20:42.959 comes from the White House Economic Advisor Larry Cudlow, and 0:20:43.000 --> 0:20:44.880 here to tell us more about the dispute and whether 0:20:44.920 --> 0:20:49.320 it presents some opportunities is John Authors of Bloomberg Opinion. 0:20:49.680 --> 0:20:53.520 John welcome as always and as the senior markets editor 0:20:53.600 --> 0:20:57.080 for Bloomberg. I wonder if you could just describe emerging markets. 0:20:57.119 --> 0:21:00.600 Does China still count as an emerging market? Yes, I 0:21:00.600 --> 0:21:03.600 mean to something extent. There's still an argument about whether 0:21:03.640 --> 0:21:06.200 it's even as far as emerging, given that it still 0:21:06.240 --> 0:21:09.520 doesn't open its markets as freely to to the outside 0:21:09.520 --> 0:21:12.320 world as it should. That's why we've had the annual 0:21:12.560 --> 0:21:15.840 excitement over whether ms c I is going to, you know, 0:21:15.880 --> 0:21:19.760 the the index group that largely controls the description of 0:21:19.800 --> 0:21:22.520 emerging markets, whether MSc AND is going to be including 0:21:22.560 --> 0:21:25.600 a Chinese A shares in its index. But it doesn't 0:21:25.640 --> 0:21:29.719 really matter terribly which measure of China you take at 0:21:29.760 --> 0:21:32.879 the moment there, they're all down quite badly over the 0:21:32.960 --> 0:21:36.040 last six months. Yeah. John. First of all, I want 0:21:36.040 --> 0:21:38.680 to just welcome you to Bloomberg because you spend nearly 0:21:38.720 --> 0:21:42.199 three years at the financial time a variety of positions, 0:21:42.520 --> 0:21:45.000 and it is a coup for us that you joined us. 0:21:45.040 --> 0:21:49.560 So I just want to say congratulations. Um John, I 0:21:49.760 --> 0:21:51.199 want to just take a step back and look at 0:21:51.200 --> 0:21:53.399 the broader cell off today in markets, and on a 0:21:53.440 --> 0:21:56.720 certain level it's almost comforting, and I'll tell you why, 0:21:56.800 --> 0:22:01.600 because you're not seeing bonds and stocks all off in tandem. 0:22:01.640 --> 0:22:04.320 So I'm wondering from your perspective, do you think that 0:22:04.400 --> 0:22:08.479 this is actually um somewhat more predictable, that basically this 0:22:08.560 --> 0:22:10.879 is the market more broadly saying to the photo reserve, 0:22:11.080 --> 0:22:14.320 slow down. Growth is going to slow going forward. Higher 0:22:14.320 --> 0:22:18.000 input costs are going to weigh on companies, and things 0:22:18.040 --> 0:22:20.280 are just going to take a breather for a minute. 0:22:20.280 --> 0:22:23.720 I mean, is that the interpretation here, that's one interpretation 0:22:23.760 --> 0:22:26.680 of it, certainly, you know, not not necessarily an unreasonable one. 0:22:27.480 --> 0:22:32.160 Another way of looking at it, which would be relatively healthy, 0:22:33.000 --> 0:22:35.119 although it would suggest that the President might have been 0:22:35.160 --> 0:22:37.800 a little unwise to make the stock market such a 0:22:37.800 --> 0:22:40.560 measure of his success is that we might finally be 0:22:40.600 --> 0:22:45.040 getting to the long awaited point when Main Streets gains 0:22:45.320 --> 0:22:49.920 somewhat at the expense of Wall Street that you're seeing, uh, 0:22:49.960 --> 0:22:51.919 You know, a number of the companies that have disappointed 0:22:51.920 --> 0:22:55.400 and endings have cited the problems of rising costs, including 0:22:55.480 --> 0:22:58.720 labor costs. Obviously, that's good news for the very many, 0:22:58.920 --> 0:23:02.520 very frustrated people here in the US who have suffered 0:23:02.560 --> 0:23:06.119 sluggish wage growth for a long time. Similarly, as the 0:23:06.119 --> 0:23:10.520