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Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.

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Speaker 1: Along with my co host Lisa Brahma wits each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. We are so lucky to have

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Speaker 1: it with us today in our Bloomberg Interactive Broker Studios.

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Speaker 1: Course Schultz, President and chief executive officer of Teva Pharmaceutical.

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Speaker 1: It is the manufacturer of about one inten drugs that

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Speaker 1: people in the United States takes. So this is a

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Speaker 1: very very important company to the US drug industry. Uh,

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Speaker 1: Mr Schultz, thank you so much for being here today.

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Speaker 1: Tava shares are being punished for a forecast that came

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Speaker 1: in under Wall Street estimates. You have said that this

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Speaker 1: is going to be a trough yere for just going

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Speaker 1: forward for the company. What gives you confidence that this

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Speaker 1: really is the bottom? It's an ulto. The dynamics of

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Speaker 1: our revenues. We have a dynamic where we have had

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Speaker 1: a very successful product in multiple scleroses called kopecs on.

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Speaker 1: This product has now got a generic competition since a

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Speaker 1: bit more than a year, so we have declining revenues

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Speaker 1: of this product, and it was a multi building dollar product,

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Speaker 1: so it's declining. At the same time, we've successfully launched

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Speaker 1: new and exciting products product call Ostato for Huntingson's disease

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Speaker 1: and charge of dyskinesia where you have movement disorders. And

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Speaker 1: we've just launched a Jovi which is a fantastic new

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Speaker 1: product that can help people suffering from chronic migraine to

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Speaker 1: reduce their migraine days without average or for some people,

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Speaker 1: reduction in migraine. These new products will of course be

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Speaker 1: driving increased revenues. So you could say it's really the

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Speaker 1: mathematics of the slope of the decline of kopecs and

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Speaker 1: versus the growth of a Stato and a Jovi, and

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Speaker 1: there it's just pretty obviously if you look at the

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Speaker 1: numbers that there's a bigger drag from kopecs and downwards

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Speaker 1: this year, then this's growth from the two new products,

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Speaker 1: but next year the drag from compax and goes down.

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Speaker 1: It's like a mathematical thing you lose like every year,

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Speaker 1: but the absolute number, of course gets lessened less so

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Speaker 1: so that's really why. So talk about the core generic

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Speaker 1: business for tever been in a decline for the industry.

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Speaker 1: What is your sense of the decline, the secular decline, Uh,

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Speaker 1: that the market should be discounting in the core generic business,

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Speaker 1: and whether that differs for you. Yeah, so that's a

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Speaker 1: great question. The market has over the last I would

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Speaker 1: say five years, probably half, so the total value of

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Speaker 1: the U. S. Generic market has gone to half. This

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Speaker 1: is not because of volume. Volume is increasing. More than

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Speaker 1: nine out of tin products being taken in the US

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Speaker 1: every day are generics, so the volume has been increasing,

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Speaker 1: but the pricing has been coming down. Now. When I

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Speaker 1: joined a bit more than a year ago, was quite

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Speaker 1: clear to me that the U. S. Generic business was

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Speaker 1: in what I would call a death spiral of decreasing prices.

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Speaker 1: If you're in a situation like that, then the market

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Speaker 1: leader needs to take action and explain to the customers

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Speaker 1: that you cannot just take prices down below manufacturing costs.

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Speaker 1: You cannot sustain a business where you're losing money. So

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Speaker 1: I went out a bit more than a year ago

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Speaker 1: explain to the marketplace, and to our customers that we

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Speaker 1: have roughly ten percent of our products here in the US,

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Speaker 1: where we sell billions of products every year that are

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Speaker 1: losing money, and this is not a sustainable strategy for

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Speaker 1: any business. This is really interesting, especially at a time

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Speaker 1: when both parties in Washington, d C. Would like to

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Speaker 1: see drug prices reduced further. How much pressure are you

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Speaker 1: getting from them and how realistic is it to you

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Speaker 1: that we will see some sort of general reduction in

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Speaker 1: pricing market wide. Yeah, of course, here we really have

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Speaker 1: to remember the enormous differences in pricing in pharmaceuticals. So

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Speaker 1: if you take an innovative bio pharmaceutical product, it might

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Speaker 1: cost something like two, three or four thousand dollars a month.

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Speaker 1: If you take a typical generic it might cost three

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Speaker 1: four cents a day. So I mean, it's a it's

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Speaker 1: a phenomenal difference in pricing that you have and the

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Speaker 1: prices we see on generics. If we say the problem

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Speaker 1: might be that the price of a tablet, a generic

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Speaker 1: tablet a day, let's say generic Liberto, it drops from

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Speaker 1: being you know, twenty cents to being eighteen cents, and

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Speaker 1: all of a sudden it's not economical to manufacture it anymore.

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Speaker 1: Same thing goes for things like anti effectives and so on,

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Speaker 1: and it's very important to have steady supplies for the patients.

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Speaker 1: It's very important to have high quality of all these

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Speaker 1: very cheap medications. So I would say the pricing discussion

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Speaker 1: going on in the US right now politically is not

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Speaker 1: really about the generic pricing that that's so cheap actually

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Speaker 1: so there, It's more about quality and sustainable supplies to

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Speaker 1: the safety of patients. So what we did. What we

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Speaker 1: did was we said, Okay, we want to be the

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Speaker 1: world's best supply in terms of sustainability of supply and quality,

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Speaker 1: and it's not sustainable if we start manufacturing and selling

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Speaker 1: below the man effectsoring cost. We had a good debate

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Speaker 1: with our customers. We went out of some products, some products,

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Speaker 1: we had a price adjustment. But the most important thing,

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Speaker 1: getting back to your initial question, was that this helps

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Speaker 1: stabilize the whole business because we're the market leader. So

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Speaker 1: what we see now is a situation where the total

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Speaker 1: value of generics has stabilized. That does not mean that

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Speaker 1: the individual product does not have an increasing price as

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Speaker 1: you see more competitions. It just means that the new

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Speaker 1: products that go off patent where we get generics into

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Speaker 1: the market. The new generics coming in offset the decline

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Speaker 1: on price on the older ones, so that the total

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Speaker 1: value of the market you could say, is stable. And

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Speaker 1: that's a big change. So Mr short quickly in third

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Speaker 1: thirty seconds, what is the future of TAVA in terms

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Speaker 1: of products? Is it branded products, is a biosimilars or

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Speaker 1: is it still trying to be first to market with

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Speaker 1: the generics. It's a combination of being leader in generics,

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Speaker 1: including first two markets where we are the best in

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Speaker 1: the world, and at the same time becoming a leader

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Speaker 1: in biopharmaceuticals. And when I say biopharmaceuticals, it's a combination

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Speaker 1: of innovative new biopharmaceuticals in areas where we have expertise

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Speaker 1: such as pain, c and this, neurology, respiratory, and at

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Speaker 1: the same time using this skill base to make biosimilar

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Speaker 1: products in the areas we know about. So we believe,

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Speaker 1: with our unique, very broad skill base in upscaling, development,

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Speaker 1: clinical testing, launch of products, that we have a very

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Speaker 1: strong future. Mr core Schultz, thank you so very much

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Speaker 1: for joining us in studio today. Core Schultz is the

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Speaker 1: president and chief executive officer of Tava Pharmaceuticals. He joins

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Speaker 1: us here in our Bloomberg eleven three or studios. Thank

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Speaker 1: you so much. Really interesting and important point when we

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Speaker 1: talk about drug pricing and lowering the cost, the question

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Speaker 1: of how do you also foster a healthy generics market

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Speaker 1: at a time when an increasing number of the population

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Speaker 1: does rely on this market, at a time when it's

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Speaker 1: the other drugs where the emphasis really needs to be.

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Speaker 1: I mean, it's sort of shows the complication of this

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Speaker 1: debate us and it's just one of the many layers

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Speaker 1: of healthcare that in this country we continue to debate

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Speaker 1: day in and day out. So we're very happy to

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Speaker 1: have Mr Schultz here with us. Well, we have some

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Speaker 1: good news coming out of Puerto Rico. Looks like Puerto

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Speaker 1: Rico's record bankruptcy advanced this week when a federal drudge

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Speaker 1: approved a plan to restructure more than seventeen billion dollars

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Speaker 1: in sales tax bonds, the biggest step yet in the

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Speaker 1: island's almost two year effort to slash its massive debt

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Speaker 1: and exit court protection. To help us dive into the

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Speaker 1: details here, we were joined in our Bloomberg eleven three

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Speaker 1: oh Studios by Matt Rodrig, Managing director at Miller buck Fire,

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Speaker 1: a steeple company. Matt, thanks so much for joining us.

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Speaker 1: This seems like a very good deal for the senior

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Speaker 1: bond holders. How good was it, thanks Paul uh toft

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Speaker 1: question before we dive into the detail, it's just taking

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Speaker 1: a step back. This is the largest municipal bankruptcy exit

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Speaker 1: ever uh seventeen point six billion dollars, larger than the

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Speaker 1: City of Detroit. There are actually two bankruptcies. There was

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Speaker 1: the Commonwealth of Puerto Rico bankruptcy and the Cofina bankruptcy.

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Speaker 1: This resolves the Cofina credit and really sets the stage

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Speaker 1: for the Commonwealth to go forward and restructure its debt.

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Speaker 1: To be clear, Cofina being bonds that are backed by

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Speaker 1: sales tax and revenues that the government gets rather than

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Speaker 1: just general obligation bonds. Right exactly exactly. Cofeine is backed

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Speaker 1: by the sales and use tax uh. And in terms

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Speaker 1: of the recoveries, you know, seniors, including a crude interest,

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Speaker 1: got ninety five cents in the dollar, and subordinate Cofina

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Speaker 1: has got fifty eight cents in the dollar. And you know,

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Speaker 1: taking a look at everything that's happened. Uh. You know,

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Speaker 1: all the economic challenges that Puerto Rico has had, all

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Speaker 1: of the fiscal challenges once in a hundred year hurricane.

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Speaker 1: For the senior bond holders to receive ninety five cents,

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Speaker 1: I think it really speaks to the strength of having

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Speaker 1: good bonds, senior bonds backed by a solid collateral stream.

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Speaker 1: Uh and cents. People. People are generally happy. There was

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Speaker 1: ninety nine point five percent approval of the bankruptcy plan

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Speaker 1: for the seniors, So this has got to be a

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Speaker 1: huge victory for you. You are the lead financial advisor

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Speaker 1: for senior Cofina bond holders, right, Uh. And this was

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Speaker 1: the largest organized group, and we know it's been like

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Speaker 1: hurting cats when it comes to Puerto Rico, seventy four

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Speaker 1: billion dollars of debt and trying to get the different

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Speaker 1: parties kind of teamed up on the same side. I'm

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Speaker 1: just wondering going forward, how involved are some of the

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Speaker 1: investors who you represent going to stay in Puerto Rico

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Speaker 1: and how many are going to cash out and say

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Speaker 1: I'm never doing that again. Yeah, it's been like hurting

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Speaker 1: cats on a roller coaster. In fact, it's really fun.

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Speaker 1: You've had a great couple of years. Yeah, you know.

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Speaker 1: I mean between the premise A law which was passed UH,

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Speaker 1: then the bankruptcy, the Hurricane UH deals coming together falling apart,

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Speaker 1: It's been quite a ride. Look, I think investors are

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Speaker 1: are very pleased with the Cofina deal I mentioned and

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Speaker 1: a half percent voting in favor. I think they're LPs

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Speaker 1: UH to the investors in their funds should be even

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Speaker 1: happier because they've got a very good outcome, and this

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Speaker 1: is very good for the people of Puerto Rico. This

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Speaker 1: settlement turns over forty of the dedicated sales tax that

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Speaker 1: was previously going to Cofina to the Commonwealth of Puerto Rico.

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Speaker 1: That represents seventeen billion dollars over the next forty years.

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Speaker 1: A lot of people disagree with that, though. There has

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Speaker 1: been pushed back within Puerto Rico saying that this is

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Speaker 1: going to hamper the government's ability to rebuild going forward,

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Speaker 1: just because it does take half of the sales tax

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Speaker 1: revenues and put them in the hands of the creditors.

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Speaker 1: What gives you confidence that that's not the case. Puerto

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Speaker 1: Rico needs to reaccess capital markets, and this deal sets

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Speaker 1: Puerto Rico up to do that. So even though it's

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Speaker 1: taking some tax revenue and using it to pay bond holders, Uh,

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Speaker 1: it really sets Puerto Rico up to reaccess capital markets

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Speaker 1: and to raise money. There's twelve billion dollars of new

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Speaker 1: debt that was issued yesterday in connection with the the

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Speaker 1: closing of the bankruptcy transaction, and there's a basket of

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Speaker 1: seven billion dollars of additional debt that can be issued

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Speaker 1: right away. Uh. And that may very well be currency

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Speaker 1: to resolve the Commonwealth bankruptcy. It could also be used

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Speaker 1: to raise capital to do other things on the island. So, Matt,

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Speaker 1: and I'm sure you spent a lot of time on

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Speaker 1: the island of Puerto Rico the last several years working

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Speaker 1: on this transaction. How is the Puerto Rican economy right now? Yeah,

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Speaker 1: it's actually doing really well right now. Uh. And a

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Speaker 1: lot of people are surprised to hear that because, you know,

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Speaker 1: they saw pictures of all the challenges after the hurricane,

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Speaker 1: and no doubt it's been a challenging situation with the hurricane.

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Speaker 1: But right now on the ground in Puerto Rico, there's

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Speaker 1: a lot of private insurance money that's coming in. There's

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Speaker 1: a lot of federal money that's coming in to rebuild

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Speaker 1: and reconstruct the island, and there's more work than people

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Speaker 1: can do. So previously there is twelve percent unemployment in

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Speaker 1: Puerto Rico. Now it's down to seven percent. UH. There's

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Speaker 1: an enormous amount of economic activity going on UH and

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Speaker 1: the central government is actually running a surplus for the

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Speaker 1: first time in many years. So I guess that one

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Speaker 1: question I have is how much of this is reliant

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Speaker 1: on the federal government continuing to release some of the

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Speaker 1: funding that it's promised to Puerto Rico, and how much

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Speaker 1: of this is just sort of organic growth. So Puerto

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Speaker 1: Rico is a US territory and it benefits from FEMA

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Speaker 1: just like any US state, and so if there were

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Speaker 1: a hurricane anywhere in the mainland US, FEMA would come

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Speaker 1: in and help rebuild and reconstruct. And that's what's happening

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Speaker 1: in Puerto Rico. UH. It is an important part of

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Speaker 1: the process. Puerto Rico's infrastructure prior to this was very challenged,

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Speaker 1: and one of the goals with the reconstruction is to

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Speaker 1: build that infrastructure back and to build it better, right,

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Speaker 1: And so it's it's a critical part of the process. Uh.

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Speaker 1: And you know that's happening at the same time that

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Speaker 1: the Permissa Oversight Board is implementing reforms. Uh. This permissa

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Speaker 1: process that Congress set up is working. Uh. And you know,

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Speaker 1: the two processes are playing out in tandem, and the

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Speaker 1: island's doing very well right now. So what are the

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Speaker 1: next steps for Puerto Rico and the bankrups emerging from

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Speaker 1: from bankruptcy? The senior Cafina bond holders seemed to be

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Speaker 1: that issues addressed. What's what are next steps? Yes, so

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Speaker 1: Cofina has done seventeen point six billion dollars restructured. I

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Speaker 1: think there's gonna be thank you, like I don't have

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Speaker 1: to touch that again. Thank you. There's gonna be a

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Speaker 1: large focus in on restructuring the commonwealth that part of

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Speaker 1: the government is still in bankruptcy. Uh, and that's going

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Speaker 1: to be the next area of focus. Are you going

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Speaker 1: to stay involved at all? Personally? We'll see. I mean,

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Speaker 1: my current assignment is done, but we have a lot

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Speaker 1: of relationships and we've been involved for a long time.

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Speaker 1: So do you think that the deal that Puerto Rico

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Speaker 1: struck with Cofina is going to make it more difficult

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Speaker 1: for them to strike a deal with the general obbligation

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Speaker 1: bond holders. I actually think it's gonna make it easier.

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Speaker 1: So I mentioned there's a seven billion dollar basket of

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Speaker 1: Cofina that can be used issue subordinate debt right away.

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Speaker 1: I think that may be currency that could be used

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Speaker 1: in the GEO restructuring. There's also clarity on what Cofina

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Speaker 1: is going forward. It has UH like absolute ownership of

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Speaker 1: a portion of the dedicated sales tax. There's no question

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Speaker 1: or doubt that Cofina owns that tax. It's been adjudicated

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Speaker 1: by the Title three Bankruptcy Court UH and bond holders

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Speaker 1: have a statutory lean that runs in favor of those

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Speaker 1: sales taxes. It's settled the question now, and I think

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Speaker 1: with that question being settled, it really sets the stage

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Speaker 1: to restructure the GEO debt. So, Matt, you've spent a

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Speaker 1: lot of time on Puerto Rico, and what if you

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Speaker 1: were to guess is the government's three to five year

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Speaker 1: plan to kind of really shore up the financial situation

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Speaker 1: so that they can have access to capital, they can rebuild,

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Speaker 1: they can grow. What's kind of the current thinking. So

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Speaker 1: the reconstruction effort from the hurricane is still ongoing, and

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Speaker 1: that's actually gonna take up to a decade. A lot

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Speaker 1: of people don't realize how long it takes to really

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Speaker 1: deploy the capital and to rebuild after one of these

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Speaker 1: major events. Even now, New Jersey is just winding down

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Speaker 1: its rebuilding effort from Hurricane Sandy. UH. It took Louisiana

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Speaker 1: a long time to recover from its hurricanes UH, and

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Speaker 1: so that reconstruction effort is going to go on for

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Speaker 1: a long time. Also, the Promise Oversight Board is in

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Speaker 1: the process of implementing reforms. There's still work to be done,

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Speaker 1: but I think they can really set up Puerto Rico

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Speaker 1: to thrive over the next several decades. All right, well,

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Speaker 1: I guess that I'm going to have to go down

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Speaker 1: and do some on the ground investigation and on the

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Speaker 1: beach to make sure that it really is getting up

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Speaker 1: to speed. Matt Roderick, thank you so much for being

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Speaker 1: with us. Matt Rodgerig managing director of Miller buck Fire,

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Speaker 1: which is a default company. He was the lead financial

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Speaker 1: adviser and negotiator for the senior coffin and bondholders. That's

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Speaker 1: sinking in your in your stomach right now. That is

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Speaker 1: the feeling of April fifteen, rolling around tax season and

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Speaker 1: the question is will your taxes be higher or lower

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Speaker 1: this year? Joining us to let us know and do

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Speaker 1: our taxes on air, Joe Perry, tax leader at Marcom

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Speaker 1: uh joining us here in our Bloomberg Interactive Broker Studios. Joe,

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Speaker 1: So happy to have you. Thank you for having me.

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Speaker 1: We've heard so many reports about tax rebates being lower,

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Speaker 1: about people's individual taxes being higher in the wake of

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Speaker 1: the tax changes that President Trump has made. What's the

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Speaker 1: truth here, Well, it really depends on your circumstances. I

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Speaker 1: think in many cases people will be surprised, mostly to

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Speaker 1: the downside. Um. What I realized is people forget that

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Speaker 1: the withholdings that they had on their wages actually increase

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Speaker 1: their take home pay. And when you ask them, do

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Speaker 1: you remember how much it increased? They forget. But now

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Speaker 1: when they're getting a refund and the refunds less, they

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Speaker 1: don't couple it too. So really it really depends. Um.

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Speaker 1: You know, this year was the first year that they

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Speaker 1: estimated what the withholding was gonna be, and that's difficult.

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Speaker 1: All these years you knew what your income was, you

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Speaker 1: could adjust the Form W four that has the withholding,

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Speaker 1: so you could write set that so at the end

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Speaker 1: of the year if you wanted the refund. Many people

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Speaker 1: use a refund is a way of savings. That would

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Speaker 1: be fine, But the issue is is that with the

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Speaker 1: new law, you could have two taxpayers that make the

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Speaker 1: same amount of money and one could get a ten

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Speaker 1: thousand dollar refund and one could owe ten thousands. So

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Speaker 1: it really is this Barrett in where it is. So

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Speaker 1: planning is important, So Joe planning is important. But for

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Speaker 1: all of our listeners in the tri state New York area,

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Speaker 1: the high taxed Tri state New York area, one of

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Speaker 1: the big changes with the new tax legislation was the

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Speaker 1: inability or the reduction, I guess the the inability to

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Speaker 1: deduct local and state taxes. How has that impacted UM

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Speaker 1: tax receipts for various entities, Well, it's been reported by

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Speaker 1: UH public officials that the revenues have been down to

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Speaker 1: to the extent of UH two billion dollars. And I

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Speaker 1: think part of it, it's being portrayed that part of

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Speaker 1: it is because high wealthy people are leaving the state.

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Speaker 1: You know, in our client base, UH, we're a very

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Speaker 1: large firm and long Island largest firm and Long Island

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Speaker 1: firm in New York City. We don't see in our

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Speaker 1: client base. Many of our clients came to us and

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Speaker 1: wanted to know the consequences of doing so. But people

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Speaker 1: don't leave because of taxes. It's more about family, their jobs.

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Speaker 1: So what what we more see is that, you know,

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Speaker 1: it's really three factors. One, revenues are down because if

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Speaker 1: you look at the Wall Street right, they had a

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Speaker 1: rocky road last year. They didn't make as much money

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Speaker 1: as they did, so people that worked on Wall Street

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Speaker 1: actually made less wages and therefore had less withholding. We

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Speaker 1: saw that when we did projections. Second is there was

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Speaker 1: a double dip in bonuses in two thousand seventeen. Companies

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Speaker 1: decided to pay what they would normally pay a bonus

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Speaker 1: in eighteen. They paid it in seventeen. Why they wanted

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Speaker 1: to take advantage of the higher rate. There was a

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Speaker 1: higher rate that you get the deduction thirty five verses

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Speaker 1: twenty one. So and the other big factor is many

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Speaker 1: people used to you know, and we advised our clients

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Speaker 1: to actually pay their estimated payment fourth quarter in December

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Speaker 1: so you would be able to get a deduction. It's

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Speaker 1: actually doing January now with the lack of deduction, it's

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Speaker 1: only limited to ten thousand dollars and that's state local

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Speaker 1: income taxes in real estate. So once you get past

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Speaker 1: that threshold, and many of our clients are passed that,

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Speaker 1: which is real estate taxes alone, um, then you want

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Speaker 1: to defer that. So and and the idea is, you know,

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Speaker 1: there's talk has been reported. I think the Governor of

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Speaker 1: New York is going to meet with uh, the President Trump,

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Speaker 1: and he's going to make the pitch to repeal that.

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Speaker 1: The problem is there's about a sixty billion dollar gap

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Speaker 1: each year in terms of filling filling the gap of revenue.

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Speaker 1: So it's gonna be a hard sell. You need another

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Speaker 1: revenue generator. Um. So we'll have to see what happens

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Speaker 1: in that regard. So, the I R S came out

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Speaker 1: with a report that refunds were down by about eight

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Speaker 1: percent this year as a result of some of the

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Speaker 1: tax changes. The Treasury Department seemed to refute that on Twitter.

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Speaker 1: What's the reality here? Yeah, I think there's really two

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Speaker 1: reasons why. One is the I R S got a

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Speaker 1: late start. I think I think that's important, uh, because

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Speaker 1: because of the government shut down to some degree. I

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Speaker 1: think also with the changes in the law and um

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Speaker 1: the I R S is not funded that well, it

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Speaker 1: really created a problem and we're still looking for guidance. Well,

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Speaker 1: and I wonder if something else you were talking about

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Speaker 1: with companies estimating or trying to estimate how much money

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Speaker 1: to withhold, have they gotten it wrong to the downside?

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Speaker 1: In other words, have they been withholding on average less

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Speaker 1: than they should based on all of the changes. It

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Speaker 1: depends on your expectations, right that people want money during

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Speaker 1: the year because you need the cash. They wouldn't get

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Speaker 1: it wrong if they withheld, but if to the extent

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Speaker 1: that they owe more at the end of the year,

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Speaker 1: and I think more people are owing or getting less

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Speaker 1: of a refund, So I I think that that is true.

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Speaker 1: But then how do you balance it with the fact

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Speaker 1: that there's less revenues that are coming in and down

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Speaker 1: eight percent. So I think it's gonna work its way

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Speaker 1: out as we progress. You know, many many of our clients.

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Speaker 1: There's so many unknowns in the law. It's amazing. One

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Speaker 1: of the statistics is with the last uh Act, the

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Speaker 1: six Act that was major, it took twelve years to

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Speaker 1: get all of the information, so you understood what the

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Speaker 1: law men. You know, we're getting rules that are sent

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Speaker 1: to us two hundred pages and we have to digest

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Speaker 1: that and understand that. So it's really complicated. So we're

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Speaker 1: we're actually advising our clients to extend their tax returns

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Speaker 1: so that way, as more information comes out, we're able

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Speaker 1: to make the right judgments for them with them. So

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Speaker 1: what percentage of the average individual Fireler actually makes the

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Speaker 1: April fifteenth deadliner? And how many people just blow past

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Speaker 1: it or maybe seek an extension, And there any trends there? Yeah, yeah,

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Speaker 1: there is the large majority like to get the return

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Speaker 1: done by April fifteen. Most of the time they like

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Speaker 1: to file it by April fourteenth or fifteenth. They like

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Speaker 1: to wait last minute. Who wants to deal with taxes, um,

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Speaker 1: But there are demographics, especially if you're invested in financial

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Speaker 1: you have a big portfolio, generally you do have to

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Speaker 1: wait until after April fifteen. Is your sense that in

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Speaker 1: general taxes have gone down for each individual, they just

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Speaker 1: might not be realizing it based on the way that

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Speaker 1: the withholdings work in the rebates. Well, it's it's an

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Speaker 1: interesting question. If I had to guess I would say,

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Speaker 1: you know, generally speaking, and again everybody is different. If

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Speaker 1: you you've made under two hundred thousand and you have kids,

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Speaker 1: you probably are going to do better. If you're between

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Speaker 1: two hundred and four hundred, you're probably depends on your

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Speaker 1: real estate taxes before and state taxes. UM, You're you're

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Speaker 1: probably just about right um. And then anything beyond that

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Speaker 1: you're probably paying more in taxes. UM. I know we

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Speaker 1: did some calculations for some of the public officials, uh.

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Speaker 1: And when we did those calculations, we had their last

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Speaker 1: year return, which was public UM, and then what we

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Speaker 1: did was project the benefit. Most of them did have

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00:22:47,840 --> 00:22:51,040
Speaker 1: an average of eight to ten thousand dollars of a

432
00:22:51,200 --> 00:22:53,879
Speaker 1: less in tax and there are income was around the

433
00:22:53,920 --> 00:22:57,600
Speaker 1: two hundred to three hundred thousand dollar Mark, Joe Perry,

434
00:22:57,600 --> 00:23:00,000
Speaker 1: thank you so much. As we approach April fift maybe

435
00:23:00,280 --> 00:23:03,920
Speaker 1: be speaking to before ap um Joe Perry, tax leader

436
00:23:04,000 --> 00:23:06,760
Speaker 1: Markham just kind of giving us a sense, Lisa, I

437
00:23:06,760 --> 00:23:09,359
Speaker 1: think of kind of all the changes that have taken place, um,

438
00:23:09,400 --> 00:23:11,640
Speaker 1: you know, with the taxic with the presidents Trump's tack

439
00:23:11,680 --> 00:23:13,399
Speaker 1: tax COD. I think individuals are trying to get a

440
00:23:13,440 --> 00:23:16,200
Speaker 1: sense of you know, what it means for them going,

441
00:23:16,240 --> 00:23:17,879
Speaker 1: how much money they have? How much money? I mean,

442
00:23:17,880 --> 00:23:19,800
Speaker 1: am I getting money back? Am I? How much more

443
00:23:19,800 --> 00:23:21,560
Speaker 1: am I going to pay? Um? I think it's a

444
00:23:21,600 --> 00:23:40,640
Speaker 1: lot of uncertainty, but we'll see. So well, it looks

445
00:23:40,640 --> 00:23:43,679
Speaker 1: like geopolitical uncertainties that have whips all the markets over

446
00:23:43,720 --> 00:23:46,360
Speaker 1: the past couple of months are beginning to come into focus.

447
00:23:46,640 --> 00:23:48,959
Speaker 1: To help us peel back that onion, let's bring in

448
00:23:49,280 --> 00:23:51,760
Speaker 1: Hugh Johnson Hugh as a chairman and chief investment officer

449
00:23:51,800 --> 00:23:54,920
Speaker 1: of Hugh Johnson Advisers, based in Albany, New York. Hugh,

450
00:23:54,960 --> 00:23:57,560
Speaker 1: thanks so much for joining us. Let's start with China.

451
00:23:57,600 --> 00:24:00,439
Speaker 1: The U. S Trade delegation is in Beijing. Looks like

452
00:24:00,480 --> 00:24:03,560
Speaker 1: some progress is being made. Um. What are your thoughts

453
00:24:03,640 --> 00:24:07,080
Speaker 1: on the latest in China? Well, I think it's U Paul.

454
00:24:07,600 --> 00:24:09,200
Speaker 1: I think right at the top of the list is

455
00:24:09,280 --> 00:24:11,239
Speaker 1: you have to recognize, and I think we all do

456
00:24:11,320 --> 00:24:15,719
Speaker 1: recognize that both China and the US are really trump

457
00:24:16,040 --> 00:24:18,359
Speaker 1: have a lot to lose if there's a breakdown or

458
00:24:18,359 --> 00:24:21,239
Speaker 1: a failure of these negotiations. First of all, China, as

459
00:24:21,280 --> 00:24:23,280
Speaker 1: you know, the economy is under a lot of pressure.

460
00:24:23,960 --> 00:24:28,560
Speaker 1: They export five billion dollars uh billion dollars to the

461
00:24:28,640 --> 00:24:31,879
Speaker 1: US each year. That's an important part of their economy.

462
00:24:31,920 --> 00:24:34,280
Speaker 1: They can't afford to lose that, they can't afford to

463
00:24:34,280 --> 00:24:36,800
Speaker 1: have that even diminished. So they have a lot to

464
00:24:36,800 --> 00:24:39,000
Speaker 1: see success. And of course in the case of Trump,

465
00:24:39,000 --> 00:24:41,760
Speaker 1: he wants to see China import a great deal more.

466
00:24:41,840 --> 00:24:44,719
Speaker 1: At the top of the list is agricultural products, soybeans.

467
00:24:44,760 --> 00:24:47,280
Speaker 1: You hear about that all the time, and to him,

468
00:24:47,280 --> 00:24:50,200
Speaker 1: of course, that's important, and trying to secure the vote

469
00:24:50,200 --> 00:24:54,679
Speaker 1: of the farmers as we look at so you know,

470
00:24:54,840 --> 00:24:56,560
Speaker 1: both have a lot to lose. I think that's the

471
00:24:56,600 --> 00:24:58,400
Speaker 1: reason to feel there's going to be success. And that's

472
00:24:58,440 --> 00:25:00,439
Speaker 1: also the reason why I think Trump is willing to

473
00:25:00,880 --> 00:25:03,680
Speaker 1: have a postponement of that March first deadline. So I

474
00:25:03,720 --> 00:25:06,040
Speaker 1: think we're looking at the end of March in the

475
00:25:06,200 --> 00:25:07,920
Speaker 1: in the US may not get all of it once,

476
00:25:08,000 --> 00:25:09,880
Speaker 1: but it will certainly get some sort of a deal

477
00:25:09,960 --> 00:25:12,199
Speaker 1: by the end of March, or at least in the

478
00:25:12,200 --> 00:25:14,480
Speaker 1: near future. So I think those are going along. Those

479
00:25:14,640 --> 00:25:17,359
Speaker 1: those talks are really don't concern me. They're going along

480
00:25:17,480 --> 00:25:20,159
Speaker 1: quite well, and I think the markets reflect that. You

481
00:25:20,480 --> 00:25:23,040
Speaker 1: as an investor, how much do you focus on macro

482
00:25:23,119 --> 00:25:25,520
Speaker 1: events like trade talks that are on again, off again,

483
00:25:25,600 --> 00:25:30,200
Speaker 1: on again, who knows again, versus just the specific corporate

484
00:25:30,840 --> 00:25:33,440
Speaker 1: reports that we're getting out and and just other sort

485
00:25:33,440 --> 00:25:36,879
Speaker 1: of very idiosyncratic issues. It's a great question, Lisa, and

486
00:25:36,920 --> 00:25:39,000
Speaker 1: I think the answer to that question is, I don't

487
00:25:39,040 --> 00:25:42,439
Speaker 1: focus on the macro sort of the political geopolitical stuff

488
00:25:42,840 --> 00:25:45,560
Speaker 1: unless it's going to have an impact, a significant impact

489
00:25:45,560 --> 00:25:47,920
Speaker 1: that I can measure on the U S economy and

490
00:25:47,960 --> 00:25:50,159
Speaker 1: earnings on the one hand, and of course on fellow

491
00:25:50,160 --> 00:25:52,320
Speaker 1: reserve policy or interest rates on the other hand. But

492
00:25:52,480 --> 00:25:55,760
Speaker 1: things that really matter to me and trying to decide

493
00:25:55,760 --> 00:25:57,960
Speaker 1: whether I should be positive or negative on the stock

494
00:25:58,000 --> 00:26:01,119
Speaker 1: market are really interest rates on the one side, and

495
00:26:01,119 --> 00:26:04,359
Speaker 1: and earnings on the other side. And quite frankly, I

496
00:26:04,720 --> 00:26:07,680
Speaker 1: look at this stuff. I take it seriously, but I'm

497
00:26:07,720 --> 00:26:10,640
Speaker 1: only worried or concerned about it or integrated and when

498
00:26:10,680 --> 00:26:12,840
Speaker 1: I when I can quantify the impact it's going to

499
00:26:12,960 --> 00:26:15,760
Speaker 1: have on what really matters, and what really matters are

500
00:26:15,800 --> 00:26:18,439
Speaker 1: earnings and interest rates. Well here let's let's go to

501
00:26:18,480 --> 00:26:20,080
Speaker 1: that issue. On the interest rates. It looks like the

502
00:26:20,200 --> 00:26:23,760
Speaker 1: FED is on the sideline, so perhaps investors are maybe

503
00:26:23,800 --> 00:26:26,240
Speaker 1: taking a closer look at earnings were about three quarters

504
00:26:26,280 --> 00:26:28,199
Speaker 1: of the way through the fourth quarter earning season. What

505
00:26:28,400 --> 00:26:30,960
Speaker 1: have you taken out of this earning season to either

506
00:26:31,000 --> 00:26:33,880
Speaker 1: make you more or less constructive on the equity markets. Well, well,

507
00:26:33,920 --> 00:26:35,639
Speaker 1: I think you've got to take two things out. Is.

508
00:26:35,680 --> 00:26:38,199
Speaker 1: First of all, the earnings the earning season was pretty good.

509
00:26:38,240 --> 00:26:42,040
Speaker 1: I mean, the company's beating expectations. That parts good. But

510
00:26:42,160 --> 00:26:44,560
Speaker 1: the forward guidance, as you know, is not very good.

511
00:26:44,560 --> 00:26:48,600
Speaker 1: In this result of that, both for two thousand two twenty,

512
00:26:48,640 --> 00:26:50,680
Speaker 1: I've been bringing down estimates for the S and P

513
00:26:50,880 --> 00:26:54,119
Speaker 1: five and I do that just about every day as

514
00:26:54,160 --> 00:26:57,480
Speaker 1: I see a new forward guidance, So earnings estimates are

515
00:26:57,520 --> 00:27:00,199
Speaker 1: coming down. The second thing is, of course, as you know,

516
00:27:00,240 --> 00:27:02,320
Speaker 1: on the other side of the equation, the interest rate

517
00:27:02,359 --> 00:27:04,720
Speaker 1: side of the equation, everybody's expecting the federal reserves to

518
00:27:04,840 --> 00:27:07,480
Speaker 1: kind of hold. I expect, along with a lot of

519
00:27:07,520 --> 00:27:09,840
Speaker 1: other folks, that they're going to raise interest rates at

520
00:27:09,920 --> 00:27:12,320
Speaker 1: least one time in two thousand nineteen. I have that

521
00:27:12,400 --> 00:27:15,640
Speaker 1: at midyear, so we've got an improved outlook for interest rates.

522
00:27:15,640 --> 00:27:17,760
Speaker 1: They'll be going up, but not as much. And we

523
00:27:17,880 --> 00:27:21,680
Speaker 1: have let's say it does somewhat deteriorating outlook for earnings.

524
00:27:21,720 --> 00:27:25,240
Speaker 1: The growth rate of earnings in two thousand are gonna

525
00:27:25,280 --> 00:27:27,760
Speaker 1: be a little bit softer than we had thought. You

526
00:27:27,880 --> 00:27:30,160
Speaker 1: put those two things together and you say we've got

527
00:27:30,240 --> 00:27:33,800
Speaker 1: some We're okay. Now. The configuration is okay now. I

528
00:27:33,840 --> 00:27:36,640
Speaker 1: think when it gets a little bit problematic is when

529
00:27:36,680 --> 00:27:38,639
Speaker 1: interest rates get to a little bit higher level and

530
00:27:38,680 --> 00:27:40,840
Speaker 1: then we get to set the first quarter of two

531
00:27:40,880 --> 00:27:43,879
Speaker 1: thousand twenty, then I think the stock market is not

532
00:27:43,920 --> 00:27:46,040
Speaker 1: going to have enough in the way of earnings to

533
00:27:46,200 --> 00:27:49,560
Speaker 1: offset the rise that we're gonna see, even though modest

534
00:27:49,680 --> 00:27:51,879
Speaker 1: in interest rates. So in the meantime, you paint a

535
00:27:51,920 --> 00:27:54,400
Speaker 1: pretty constructive picture of the US economy, and as such,

536
00:27:54,480 --> 00:27:56,680
Speaker 1: some of the stocks that you seem to be favoring

537
00:27:57,000 --> 00:28:01,000
Speaker 1: are in the consumer staples industries as well as a

538
00:28:01,160 --> 00:28:05,480
Speaker 1: healthcare so somewhat conservative but also relying on steady growth

539
00:28:05,480 --> 00:28:08,000
Speaker 1: in the economy. So which names you're looking at in particular, Yeah,

540
00:28:08,040 --> 00:28:10,840
Speaker 1: that's a great that's more another good question, Lisa, To

541
00:28:10,840 --> 00:28:14,240
Speaker 1: be honest with you, we're looking at kind of consumer staples,

542
00:28:14,240 --> 00:28:18,560
Speaker 1: healthcare stocks, and the communications services society of the ledger.

543
00:28:18,920 --> 00:28:21,240
Speaker 1: And the reason we're looking at that so carefully is

544
00:28:21,280 --> 00:28:23,399
Speaker 1: because of something I just mentioned, and that is that

545
00:28:23,800 --> 00:28:26,360
Speaker 1: it's clear that the economy is slowing in the process

546
00:28:26,400 --> 00:28:29,280
Speaker 1: at two thousand nineteen, and in the process also earning slowing.

547
00:28:29,640 --> 00:28:31,520
Speaker 1: So you try to find companies that are going to

548
00:28:31,560 --> 00:28:34,760
Speaker 1: give ushow some somewhat reliable growth rates and earnings. In

549
00:28:34,800 --> 00:28:37,480
Speaker 1: the in the consumer staples area, I would I would

550
00:28:37,520 --> 00:28:40,320
Speaker 1: suggest everybody take a look at Walmart, UH, in the

551
00:28:40,480 --> 00:28:42,720
Speaker 1: in the in the health care area, there's a there's

552
00:28:42,760 --> 00:28:45,760
Speaker 1: an awful lot of companies in the health care area.

553
00:28:46,040 --> 00:28:51,160
Speaker 1: And in the consumer community. And the communications services area, UH,

554
00:28:51,240 --> 00:28:53,520
Speaker 1: take a look at the e t F, which represents

555
00:28:53,520 --> 00:28:56,520
Speaker 1: the communication services. There's a lot of volatile companies in

556
00:28:56,560 --> 00:29:01,080
Speaker 1: communication services, Facebook being an example. And in order to try,

557
00:29:01,280 --> 00:29:03,240
Speaker 1: I think you have to get diversification. You have to

558
00:29:03,240 --> 00:29:06,760
Speaker 1: have representation communications services. But the best way to do

559
00:29:06,840 --> 00:29:09,160
Speaker 1: that is to buy the exchange traded funds. So those

560
00:29:09,640 --> 00:29:13,120
Speaker 1: those are three areas where I would take a very

561
00:29:13,200 --> 00:29:15,240
Speaker 1: very hard look and I think you can. I think

562
00:29:15,280 --> 00:29:17,400
Speaker 1: you can buy those now in a in a positive

563
00:29:17,440 --> 00:29:20,240
Speaker 1: equity market environment. Hugh Johnson, thank you so much for

564
00:29:20,280 --> 00:29:23,080
Speaker 1: being with us. Hugh Johnson is chairman and Chief Investment

565
00:29:23,120 --> 00:29:27,400
Speaker 1: Officer of Hugh Johnson Advisers in Albany, New York. Thanks

566
00:29:27,440 --> 00:29:29,640
Speaker 1: for listening to the Bloomberg P and L podcast. You

567
00:29:29,640 --> 00:29:32,320
Speaker 1: can subscribe and listen to interviews at Apple Podcasts or

568
00:29:32,320 --> 00:29:35,320
Speaker 1: whatever podcast platform you prefer. On Paul Sweeney, I'm on

569
00:29:35,360 --> 00:29:38,040
Speaker 1: Twitter at pt Sweeney. I'm Lisa bram Woyit's I'm on

570
00:29:38,040 --> 00:29:40,960
Speaker 1: Twitter at Lisa bram Wits one before the podcast. You

571
00:29:40,960 --> 00:29:43,480
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio