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Speaker 1: Global business news twenty four hours a day. If Bloomberg

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Speaker 1: dot Com the radio plus mobile acts and on your radio.

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Speaker 1: This is a Bloomberg Business flag from Bloomberg World Headquarters.

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Speaker 1: I'm Charlie Phillott with you. Have thirteen minutes to go

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Speaker 1: ahead of the close the tal the SMP, nestack all

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Speaker 1: advancing right now. We've got the SMP up ten to

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Speaker 1: two thousand fifty a gain of five tenths of one percent,

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Speaker 1: a rally in technology shares underway, Applied materials the catalyst

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Speaker 1: there it is up thirteen point nine percent. Down Industrial

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Speaker 1: is up fifty one points to gain a point three percent,

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Speaker 1: Nastack up fifty three also a gain of one point

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Speaker 1: one percent. Just an update now on that shooting at

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Speaker 1: the White House complex. The U. S. Park Police reporting

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Speaker 1: a shooting on a road inside the complex. One person

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Speaker 1: transported to a hospital with critical injuries. President Obama playing golf,

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Speaker 1: not at the White House, which was placed on lockdown

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Speaker 1: by the Secret Service. I'm Charlie Paddle. That's a Bloomberg

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Speaker 1: Business flash. Thank you very much, ch Charlie Pellets. Time

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Speaker 1: now for the E t F Report. It is brought

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Speaker 1: to you by Van Eck vector's et F s expect

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Speaker 1: more from your muni's target tax exempt income by maturity

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Speaker 1: and credit quality, all with low cost ETFs. Visit vanek

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Speaker 1: dot com slash muni Vanek access the opportunities. Let's go

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Speaker 1: to Katherine Calgary for the e t F Report. The

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Speaker 1: prospect of higher interest rates is taking center stage again

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Speaker 1: and it's no surprise that e t s it focus

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Speaker 1: on dividend paying stocks have pulled back a bit. One

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Speaker 1: of those is the Alpsector Dividend Dogs, a t F

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Speaker 1: taker S d O G or S dog. It has

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Speaker 1: one point one billion dollars in assets, and although it's

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Speaker 1: fallen about three in the past month, it's gained eight

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Speaker 1: point eight percent since it started the year. Mike Aigan's

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Speaker 1: portfolio manager and senior vice president Adoups says they locate

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Speaker 1: potentially undervalued high dividend paying stocks and each of the

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Speaker 1: S and P five hundred ten industry groups. To actually

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Speaker 1: get five of the five highest fielding companies in each

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Speaker 1: of the ten sectors of the market, you get an

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Speaker 1: equally weighted portfolio, so two percent per company and ten

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Speaker 1: percent per sector. And our structure from a characteristics perspective

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Speaker 1: is very similar to our competitors in the sense that

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Speaker 1: you get a very nice dividend yield, you get cheaper companies,

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Speaker 1: so a deep value play on the market. The e

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Speaker 1: t F has a twelvemonth dividend yield of three point

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Speaker 1: three percent and an expense ratio of forty basis points.

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Speaker 1: ALPS offers two other e t f s based on

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Speaker 1: the same strategy. One focuses on international stocks, the other

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Speaker 1: on emerging markets. And that's your Bloomberg ETF report. I'm

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Speaker 1: Katherine Cowdery. You're listening to taking Stock with pimp Box

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Speaker 1: and Kathleen Hayes on Bloomberg Radio, taking stock of the

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Speaker 1: stock market, the bond market and more. We really want

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Speaker 1: to focus in particular on the municipal bond market. After

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Speaker 1: the White House and the House of Representatives hammered out

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Speaker 1: a deal to help Puerto Rico restructure its debt. Joining

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Speaker 1: us now from Sara Sota, Florida is David Kotak. David

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Speaker 1: ko Talk is chairman and chief investment officer at Cumberland Advisors. So, David,

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Speaker 1: you are a very interesting note to your clients and

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Speaker 1: friends and followers this morning, raising a question of what

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Speaker 1: the deal hammered out means for bondholders. You're afraid maybe

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Speaker 1: bond holders are gonna get the short into the stick. Why, well,

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Speaker 1: I'm I'm worried that in the negotiation, the pension promise

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Speaker 1: gets a higher claim in a restructor e van the

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Speaker 1: bond holder. And if this is set and developed and

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Speaker 1: settled in a traditional bankruptcy format, there'll be a judge

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Speaker 1: as a referee. The judge will look at all the

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Speaker 1: competing claims and achieve a settlement. There is not enough

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Speaker 1: money here in Puerto Rico to pay everybody, Kathleen, somebody's

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Speaker 1: gonna come up short. The question is between impeding claims,

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Speaker 1: who's it gonna be? And what I worry in this

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Speaker 1: legislation is ways which empower the pension promise to get

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Speaker 1: ahead of the bond promise. That's the concern. David Kotok,

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Speaker 1: do you own any Puerto Rican COMMUNI debt? Yes, we do.

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Speaker 1: What are you going to do with it? Why? The

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Speaker 1: only Puerto Rico debt that we own is insured by

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Speaker 1: one of two bond insurers. The rest of them we

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Speaker 1: won't own, and has particular structure and clauses that give

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Speaker 1: us sufficient comfort. So We're not worried about getting paid

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Speaker 1: on the particular bonds we own PIM, but we are

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Speaker 1: worried about an impact on the entire municipal bond market

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Speaker 1: if the status of claims of bonds gets subordinated. Two

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Speaker 1: pension claims that did not happen into Troy, there was

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Speaker 1: a settlement that did not happen in other bankruptcy format settlements.

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Speaker 1: But this is a different structure and it may open

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Speaker 1: that box. So you know this, This to me just

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Speaker 1: reminds me it's a bit of the financial crisis, right.

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Speaker 1: Uh there was when when there were some restructurings of

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Speaker 1: various kinds of bonds and derivative contracts, and uh, some

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Speaker 1: a lot of consternation in some instances to live when

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Speaker 1: it came to banks that the bond holders we're not

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Speaker 1: going to get built out. Now a lot of them did.

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Speaker 1: But what does this mean? Are you saying that if

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Speaker 1: we do for this one island nation territory, if we

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Speaker 1: help them restructure, they're dead and support those pensions that

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Speaker 1: people are going to say that could happen in Los

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Speaker 1: Angeles or New York. Really, it depends if the structure

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Speaker 1: is under supervision in a referee proceeding like upon a

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Speaker 1: bankruptcy proceeding, and there's an administer of body that has

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Speaker 1: oversight over the island of Puerto Rico, and therefore the

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Speaker 1: politicians do not have the ability to alter the mechanism.

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Speaker 1: Then you have a discipline on the politicians. The politicians

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Speaker 1: who created the mess, made the pharmises on pensions, didn't

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Speaker 1: fund them. They're not in office anymore. They've absconded with

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Speaker 1: whatever benefits they got. The same stories taking place in

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Speaker 1: jurisdictions like Chicago school systems and elsewhere in the country.

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Speaker 1: And so the idea here is do you open the

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Speaker 1: door a notch and put the promised pension benefit which

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Speaker 1: cannot be paid there's not enough money to pay it

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Speaker 1: ahead of a bondholder. We have some retired teachers in

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Speaker 1: Chicago that are making four times in a pension benefit

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Speaker 1: they made when they were employed as a teacher, and

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Speaker 1: in Puerto Rico you have a totally unfunded planned system

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Speaker 1: with no ability to make the payment. Well, having said that,

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Speaker 1: that sounds like a large political time bomb waiting to

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Speaker 1: go off, right, David, I great pim. It's a large

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Speaker 1: political time bomb and it is building in Illinois that

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Speaker 1: is the weakest graded of the fifty states. The same

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Speaker 1: thing is occurring, although not as severe, in New Jersey.

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Speaker 1: When you don't fund the pension system and you tell

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Speaker 1: everybody they're going to get a pension, how do you

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Speaker 1: pay it? And that's part of what the Puerto Rico

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Speaker 1: problem is about. Forty four billion is unpaid promises for

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Speaker 1: pension benefits. Seventy billion is bonded debt of all types.

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Speaker 1: And some of that debt can be resolved and settled,

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Speaker 1: like the electric utility or the highway. The means to

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Speaker 1: settle them are there. The worst the worst person to

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Speaker 1: tea company business two not pay the electric bill is

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Speaker 1: the government of Puerto Rico, and that's why the electric

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Speaker 1: utility is behind in its cash flows, because it's customer.

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Speaker 1: The government doesn't pay for electricity. Well, so then I

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Speaker 1: guess you aside with some of the Republicans in Congress

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Speaker 1: who have signaled that they are concerned about the deal

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Speaker 1: that was hammered out and may not support it. No, I,

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Speaker 1: First of all, we have a House action. This is

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Speaker 1: the second attempt. The first attempt didn't succeed in the House.

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Speaker 1: It looks like this is a House action. It will

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Speaker 1: have to be bipartisan support to get it past. The

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Speaker 1: White House, of course wants something done. Now, it'll go

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Speaker 1: to the Senate. There will be a conference compromise bill.

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Speaker 1: We don't know what it will look like. You've got

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Speaker 1: competing interest since we typically do. The issue though, is

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Speaker 1: will the settlement process allow a judicial type proceeding and

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Speaker 1: impartial independent board and keep the politicians away from the money.

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Speaker 1: That is the cutting edge of the issue. And a

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Speaker 1: politician has constituents who receive a pension payment, the politicians

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Speaker 1: gonna make whatever they can for that pensioner and say,

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Speaker 1: the Botto holders are rich, we don't have to pay them,

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Speaker 1: even if the Botto holders the one that lent the

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Speaker 1: money to build the school or the highway. Well, David,

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Speaker 1: you raise a number of points that are not going

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Speaker 1: to be resolved immediately. This sounds like something that the

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Speaker 1: lawyers are going to end up making a lot of

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Speaker 1: money on. How are there other ways right now? I mean,

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Speaker 1: you look at the municipal market, where where's the best value? Well,

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Speaker 1: there are lots of very good values in the market.

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Speaker 1: It's three point seven trillion deep. It's got ninety thousand

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Speaker 1: issue worth and many many municipal bonds or of high

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Speaker 1: credit quality and pay great states like Utah or Virginia,

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Speaker 1: UH school bonds like a l university revenue bonds the

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Speaker 1: New Jersey turn even though it's in New Jersey, it's

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Speaker 1: a good credit quick final question on E T s

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Speaker 1: and stocks? Is there one in particular, any kind that

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Speaker 1: you like right now? I still like utilities because of

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Speaker 1: the yield. X l U is the utility basket. I'm overweight,

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Speaker 1: have been for several years and loved the position. Anything else.

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Speaker 1: You're asking me to segue from pension bonds and Puerto

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Speaker 1: Rico to E T F s and I can give

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Speaker 1: you other names. I would be careful of the energy sector.

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Speaker 1: Here we sold, We now are underweight. We think your

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Speaker 1: price around fifty bucks is topping, and we don't know

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Speaker 1: if we get another down draft once the sector clears.

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Speaker 1: I want to thank you very much for spending time

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Speaker 1: with us. David Kotok is the chairman and the chief

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Speaker 1: investment officer at Cumberland Advisors, talking about the Spider Utility

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Speaker 1: select E t F X l U. We take a

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Speaker 1: dude to the close. Next