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Speaker 1: Brought you by Bank of America Mary Lynch. Investing in

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Speaker 1: local communities, economies and a sustainable future. That's the power

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Speaker 1: of global connections, Mary Lynch, Pierce Fenner, and Smith Incorporated

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Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and

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Speaker 1: of course on the Bloomberg Neil Data with us now

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Speaker 1: head of US Economics at Renaissance Mac are kind enough

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Speaker 1: to join us here in our Bloomberg eleven three oh

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Speaker 1: studios on this blustery daily. Let me ask you about

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Speaker 1: what happened a couple of weeks back, he said, the

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Speaker 1: f o m C Membori sent to aggressive signal about

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Speaker 1: a rate hike at this meeting. What now that we're

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Speaker 1: two weeks hence, what do you think caused that? What

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Speaker 1: caused the about phase, that change in in tenor that

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Speaker 1: change in attitude for members of the FMC oh I

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Speaker 1: think you left have them because I don't really have

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Speaker 1: a good sense. Um you know, I think this is

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Speaker 1: a FED high, a hike that the FED basically sought out. UM.

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Speaker 1: And I think the question we have to ask ourselves is,

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Speaker 1: you know, had they not job on the markets over

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Speaker 1: the last couple of weeks, um, would the markets have

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Speaker 1: been priced, um for a rate hike in March after

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Speaker 1: that jobs number. I think probably yes, Um, But that's

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Speaker 1: not a guarantee, so you know, it wasn't as if

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Speaker 1: the market wasn't treating the meeting in March as a

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Speaker 1: live meeting. I mean, I think if you went right

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Speaker 1: immediately before the Dudley interview, I think the markets were

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Speaker 1: priced about for a rate hike in March. And Um, yeah,

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Speaker 1: I mean I think I think it's interesting that they

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Speaker 1: that they sort of squawk leads odds higher. I think

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Speaker 1: ultimately what's happening is that their outlook is becoming stronger. Uh.

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Speaker 1: And that I think is a function of the financial

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Speaker 1: conditions easing that we've seen over the last several months,

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Speaker 1: particularly since the election, and at the same time we've

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Speaker 1: seen corporate earnings accelerate, so it's possible that they may

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Speaker 1: have misread the economic outlook to date. I mean, this

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Speaker 1: is a easing of financial conditions alongside a stronger economy,

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Speaker 1: and even after they hiked in December, monetary conditions generally eased. UM.

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Speaker 1: So I think they're basically moving from you know, two

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Speaker 1: hikes with you know, the risk of three to three

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Speaker 1: hikes with the risk of four and whether um and

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Speaker 1: so if they want to potentially move four times, it

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Speaker 1: makes sense to go in to go in March. It's

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Speaker 1: just a feed that needs to hike at this meeting.

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Speaker 1: Feed it once to hike at this meeting. Well, I

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Speaker 1: think if you've needed to, if you're if you're waiting

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Speaker 1: until you need to, then you've waited too long. UM.

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Speaker 1: I think going early gives them the option of going

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Speaker 1: more gradually later. Um. And you know, I think they could.

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Speaker 1: You know, it's all about benefits and costs at every meeting.

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Speaker 1: And uh, you know what do we know? We know

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Speaker 1: that you know, wage growth is picking up modestly. Um.

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Speaker 1: We know that UM inflation is picking up, Core inflations

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Speaker 1: rising modestly. Um. You know, if you look at private

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Speaker 1: domestic demand, it's quite healthy. Um. So again I mean, UM,

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Speaker 1: I think the issue is why that why March and

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Speaker 1: not June? Um? You know, they could they could have

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Speaker 1: they could have gone in June, and sort of it

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Speaker 1: would have been fine. I think. Also help me here

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Speaker 1: with within the Fed Derby and all that, with what

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Speaker 1: happens because they raise rates. The vice chairman of the

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Speaker 1: FED was ultra accommodative. I'm going to argue that that

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Speaker 1: that professor Fisher invented that phrase. He told me a

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Speaker 1: few weeks ago, were now accommodative. I was suggested with

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Speaker 1: one or even to rate increases. We're still a comminative,

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Speaker 1: are we? I mean I think so is anyone really

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Speaker 1: changing their forecast because the or their behavior? Yeah, because

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Speaker 1: the Fed's pulling forward to hike from June into March.

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Speaker 1: I don't think if rates go up, do I sell?

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Speaker 1: Do I sell everything in by bonds? I mean that,

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Speaker 1: you know, in terms of market behavior, I wouldn't because

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Speaker 1: I think the underlying economy strengthening, and that means you

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Speaker 1: should continue to short the front end of the of

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Speaker 1: the market, of the treasury market. I would also say that,

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Speaker 1: you know, one of the interesting wrinkles this time around

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Speaker 1: is that we may not get a sort of Greenspan

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Speaker 1: conundrum as the FED is hiking in a more normalized fashion,

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Speaker 1: because the term premium on on fixed income securities starting

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Speaker 1: at a muscle level. And this is really important. Let's

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Speaker 1: revisit this right now. If we are measured in our

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Speaker 1: rate hikes now, it is different than when Chairman Greenspan

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Speaker 1: was measured, I believe. So, I mean when when the

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Speaker 1: FED was hiking UM in two thousand and four, as

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Speaker 1: they were hiking, term premium on on bonds was was declining,

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Speaker 1: and that created a much swifter flattening of the yield

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Speaker 1: curve UH than we would have anticipated UM. So you

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Speaker 1: didn't get that back up in longer term interest rates

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Speaker 1: that you would have expected with the FED raising rates,

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Speaker 1: you know, from one percent to five and a quarter UM.

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Speaker 1: You know, this time around, the FED is you know,

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Speaker 1: arguably on the front edge of a more normalized tightening cycle.

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Speaker 1: So this isn't like sixteen. And yet the term premium

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Speaker 1: on bonds is starting at a very low base and

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Speaker 1: so with only room for upside, particularly with the global

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Speaker 1: economy healing and with global central banks losing their appetite

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Speaker 1: to go more aggressive with respect to policy. So I

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Speaker 1: think if you put those two things together, it may

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Speaker 1: argue that as the FED is raising rates on short

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Speaker 1: term at the short term UM you may see that

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Speaker 1: translate into longer term rates um at a more normal

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Speaker 1: in a normal, more normal fashion, which means the flattening

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Speaker 1: of the yield curve that you see when you get

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Speaker 1: a fed tightening, maybe a lot more drawn out this time. Yeah,

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Speaker 1: spell that out for me a little bit more. Here

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Speaker 1: is we try to pin down the definition of normal

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Speaker 1: in the context of normal hiking cycle or normal tightenings,

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Speaker 1: Like why is the yield cerre gonna look? Why is

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Speaker 1: that flattening going to happen differently? Well, I think it's

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Speaker 1: gonna happen differently because the term premium is rising. Remember,

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Speaker 1: so most most of the time, we tend to think

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Speaker 1: that longer term interest rates are essentially expectations of future

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Speaker 1: short term interest rates. Um. But you know, for example,

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Speaker 1: he didn't really see that, right. You saw the two

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Speaker 1: year yield continue to rise, but the ten year yield

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Speaker 1: actually came down. Why did it come down? Well, primarily

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Speaker 1: because the global economy was very crummy, and also because

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Speaker 1: central banks overseas were easing, and that draw flows into

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Speaker 1: US treasuries given that sort of safe haven um asset. Now, um,

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Speaker 1: you know, when I say the feed is tightening in

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Speaker 1: a more normal fashion. I don't mean the fet is

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Speaker 1: going eight times a year, but um, I think they

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Speaker 1: can probably, I mean we can't expect maybe that they'll

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Speaker 1: go more predictably, you know, maybe every other meeting, but

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Speaker 1: you know, I mean certainly more times than one, right

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Speaker 1: and so um. And this is also happening with the

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Speaker 1: global economy improving. So you get the FED raising short

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Speaker 1: term rates, you get the term premium rising on longer

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Speaker 1: term rates, and so um, all else equel. That means

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Speaker 1: that the curve is deeper than it otherwise would have been.

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Speaker 1: You know, you mentioned earlier. It is something we haven't

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Speaker 1: talked about this morning. Again, thanks for coming. In investment,

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Speaker 1: there's just an assumption that at some point it's gonna

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Speaker 1: it's gonna return, but has it, Well, it's just starting

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Speaker 1: to now. Um. I think it's an important for your

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Speaker 1: listeners to know that a lot of the weakness and

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Speaker 1: investment in the US started in the middle of when

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Speaker 1: we had these big market moves that really defined the

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Speaker 1: last eighteen months. I mean, the widening out of corporate

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Speaker 1: bond market spreads, um, the rise in the dollar, the

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Speaker 1: decline in commodity price. But do you the confidence the

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Speaker 1: Trump bump that we see at n F I mean

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Speaker 1: the new confidence out there within the new political regime.

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Speaker 1: Has that gone over to where Fortune five companies are

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Speaker 1: actually going to spend more money? I don't see evidence

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Speaker 1: something wrong, Yes, I think so. I mean, if you

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Speaker 1: look at if you look if you if you if

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Speaker 1: you look at something like core capital goods orders, which

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Speaker 1: is I know, an indicator that you follow. I mean those, uh,

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Speaker 1: you know, core shipments are up, um, you know, modestly

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Speaker 1: over the last three to six months. Core orders are

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Speaker 1: up even more. And so that that spread tells you

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Speaker 1: that business investment is likely to accelerate over the next

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Speaker 1: couple of a couple of months, at least through the

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Speaker 1: end of the first half of this year. Obviously, business

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Speaker 1: confidence is moving up. And I think what's important is

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Speaker 1: that remember what drives investment. Most economists think that it's

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Speaker 1: an accelerator effect. Basically, you think growth picks up and

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Speaker 1: then you tend to invest more now and so um,

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Speaker 1: I think what's really been lacking is that we've had

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Speaker 1: a lack of a global accelerator because the global economy

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Speaker 1: has been very weak. Of course, now the global economy

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Speaker 1: is starting to grow above trend for the first time

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Speaker 1: and as long as we can remember. And I think

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Speaker 1: that's going to drive some stronger investment domestically. And as

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Speaker 1: I say, I mean I was I mentioned financial conditions.

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Speaker 1: Financial conditions have been easing, So the fact that commodity

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Speaker 1: prices have picked up, the fact that real term real

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Speaker 1: interest rates remain low, the fact that equity prices have accelerated. Um.

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Speaker 1: All of these things, what they lag have a positive

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Speaker 1: influence on on on on capital spending. So um um.

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Speaker 1: We know that corporate profits are accelerating. Um. Again, that's

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Speaker 1: good news for capital spending. So I think seventeen is

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Speaker 1: going to be a year where you see growth kind

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Speaker 1: of broaden out away from the consumer uh and two businesses.

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Speaker 1: Let me naively opine on the n f I being

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Speaker 1: I'll have John Tucker jump in here as well. But

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Speaker 1: it seems like month after month we get this, we

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Speaker 1: get this confirmation of optimism and enthusiasm from small businesses. Um,

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Speaker 1: Yet we don't see a lot of capex. Man, What's

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Speaker 1: what's the utility of this survey? What's it telling us?

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Speaker 1: And how long is that optimism gonna persist? Ething Neil Well,

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Speaker 1: I mean, I think clearly if small businesses are this

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Speaker 1: opt mystic, Um, the elected representatives in Washington will have

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Speaker 1: to work very difficult to meet those expectations. Um. Um,

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Speaker 1: they'll have to work very hard to meet those expectations.

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Speaker 1: In terms of the utility of the survey itself, I mean,

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Speaker 1: it's something that we pay attention to. Um. You know,

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Speaker 1: it has a reasonably strong correlation with GDP UM, but

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Speaker 1: of course they're both cyclically correlated variables. I think what's

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Speaker 1: interesting is that, Um, if you run the numbers, the

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Speaker 1: n f i B tends to over predict GDP growth

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Speaker 1: when Republicans and are in the White House, and tends

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Speaker 1: to under predict when Democrats are in the White USh.

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Speaker 1: So it's interesting. For example, if you just look at

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Speaker 1: a long term chart, UM, the n f i B

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Speaker 1: was actually higher in the mid two thousand's than it

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Speaker 1: was in the nineties. Does anyone honestly think that the

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Speaker 1: mid two thousands or a stronger period for economic growth

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Speaker 1: in the late ninety nineties. So UM, it's important. I mean,

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Speaker 1: it's not useless information, but it's also important to keep

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Speaker 1: in the back of your mind what the n f

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Speaker 1: i B does. So it's not qualitative. So the job

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Speaker 1: openings component reached its highest level since December two thousand,

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Speaker 1: but more owners reported difficulty finding qualified workers. So it's

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Speaker 1: time to opponent you up. Well, it's interesting. I mean,

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Speaker 1: in in the same report you also saw compensation plans

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Speaker 1: and actually, you know, go down right so honestly, so

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Speaker 1: you know, I mean, you're not going to get it

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Speaker 1: lining up every every single time in the way you'd expect.

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Speaker 1: Neil Danta, thank you so much for coming into his

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Speaker 1: snow shovel on your way out the door. Do something

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Speaker 1: out of election? Did you have it doing, David, I'm

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Speaker 1: gonna have you bringing er steam guest, other than to

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Speaker 1: say when he is out on Twitter, those on the

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Speaker 1: right and those on the left stop, it's just that simple.

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Speaker 1: Dandy Slavitt. He was a FOREM administrator of Medicare and Medica.

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Speaker 1: It joins us. Now, let's talk about the CBO report

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Speaker 1: we got yesterday. You've you've gone through it. I'm sure

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Speaker 1: what stands out to you. We we have the note

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Speaker 1: about the deficit, we have the note about how many

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Speaker 1: people would be covered or not covered. Give us give

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Speaker 1: us the most important points as you see them. Sure, no, thanks, guys,

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Speaker 1: I think the most important perspective is this is really

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Speaker 1: drives home that it's bad news for many many Americans. So,

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Speaker 1: as you mentioned, four million people are expected to lose

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Speaker 1: coverage over the decade, including fourteen million beginning just next year. Uh.

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Speaker 1: I think. Secondly, there's a twenty cut to the Medicaid program,

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Speaker 1: which I think, uh it may even be more significant. Uh.

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Speaker 1: Third is that Medicaid will will change how it works,

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Speaker 1: and not only will the program be cut, but it

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Speaker 1: will be capped um and then finally people's affordability will

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Speaker 1: go down, the cost of insurance will go up, their

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Speaker 1: tax credits will go down, the ductor bowls will go up.

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Speaker 1: Those are all the kind of critical protecting Andy and

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Speaker 1: David wants to get into the Washington walked them. I

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Speaker 1: want to stop for a moment and suggest, with your

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Speaker 1: experience out of pen and out of Harvard with a

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Speaker 1: Mayo clinic, with your working in healthcare, you've actually worked

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Speaker 1: in the trenches of making our healthcare industry more efficient,

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Speaker 1: less costly. As a percentage g d P, can you

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Speaker 1: maintain that hope whichever way this legislation goes well. You know,

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Speaker 1: health care is one of those sectors that I think

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Speaker 1: is uh frustrating to many and how difficult it is

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Speaker 1: to change. You know, we've seen so many industries that

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Speaker 1: do you all talk about technology communications sort of transformed

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Speaker 1: before our eyes, and health care is very very hard

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Speaker 1: to make progress. And over the last seven years, we've

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Speaker 1: had more people in the system, we've had lower cost growth,

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Speaker 1: and we've had higher quality than we've seen in the

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Speaker 1: decades before. I think a lot of that progress was

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Speaker 1: due to the catalyst of the a c A, but

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Speaker 1: it was really due to issues suggest working people around

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Speaker 1: communities who were really trying to work and take advantage

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Speaker 1: of that change. So I think a setback, to say

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Speaker 1: the least, would be if all these people lost coverage,

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Speaker 1: and the hospitals and the country that we're getting paid

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Speaker 1: for these folks, Uh, we're now seeing higher uncompensated care.

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Speaker 1: I think that'd be a real challenge. You know, we

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Speaker 1: talked to you, We talked to Dr Toby Cosgrove at

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Speaker 1: the Cleveland Clinic. We talked to a lot of clinicians

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Speaker 1: and people in public health. Where is innovation and health

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Speaker 1: care going to come from? Does the government have the

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Speaker 1: ability to catalyze more innovation or better health care? You

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Speaker 1: look at what's happening here. You see squabbling over who

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Speaker 1: has a seat at the table, who isn't at the table?

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Speaker 1: Are you giving up any faith that the government has

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Speaker 1: an ability to do something here? You know? I think

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Speaker 1: government's best role in innovation is to set in motion

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Speaker 1: a set of a objectives and sort of get out

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Speaker 1: of the way and not over regulate. I think the

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Speaker 1: idea behind letting states and uh, local communities and hospitals

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Speaker 1: drive innovation in the private sector and be supported by

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Speaker 1: the public sector is the model that we've seen work best. Uh.

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Speaker 1: You know, the place where we need innovation and healthcare

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Speaker 1: is actually not where we sometimes get it. Where we

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Speaker 1: need it is and taking care of the really sickest

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Speaker 1: of people, the poorest people. Those are the people that

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Speaker 1: drive out costs the most um so well while they

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Speaker 1: all the next fit bit. This is the place where

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Speaker 1: we need to help help me with what happens when

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Speaker 1: we get to the Senate. You've worked with Widen of Minnesota,

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Speaker 1: your Minnesota, but any slavin help help me here with

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Speaker 1: what Republicans do. What do you presume will change in

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Speaker 1: the discourse? Is we migrate from an enthusiastic house over

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Speaker 1: to a more circumspect Senate. That that's a great question,

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Speaker 1: and I think one of the things we're learning this

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Speaker 1: morning is the House maybe even less enthusiastics int the

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Speaker 1: CBO report came out, but you're certainly your point is

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Speaker 1: certainly correct. If it does get to the Senate, there

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Speaker 1: are a number of senators and the people that would

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Speaker 1: particularly focus on are the people from states like Pennsylvania,

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Speaker 1: in Ohio and Louisiana that have one thing in common.

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Speaker 1: Their governors and their states have expanded medicaid. They've taken

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Speaker 1: advantage of the Medicaid expansion under the c A, they

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Speaker 1: have the most to lose, and they would be asked

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Speaker 1: to take a vote really against the interest of their state.

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Speaker 1: That's going to be a different dial Here, help me

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Speaker 1: with the math. Last night, because David Gura read fourteen articles,

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Speaker 1: I only read three. But help me here with the math.

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Speaker 1: We're gonna save three hundred jillion dollars if we do this.

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Speaker 1: But are we saving three hundred jillion dollars because we're

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Speaker 1: just transferring the expense over to Rob Portman in Ohisle.

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Speaker 1: That's a great, great way to look at it. So

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Speaker 1: here's how here's how I look at the numbers. Big picture,

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Speaker 1: there's about an eight hundred billion dollar tax cut, about

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Speaker 1: a three hundred billion dollar deficit. Savings have to come

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Speaker 1: from somewhere. Where does it come. It comes from cutting

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Speaker 1: healthcare by one point two trillion dollars. So when you

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Speaker 1: cut that one point to trillion, you're right to ask,

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Speaker 1: did that just disappear? Do we never spend that money,

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Speaker 1: or does that get shifted over to states and individuals?

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Speaker 1: And the reality is it doesn't bring costs down, It

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Speaker 1: doesn't make people less sick, it doesn't make people need

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Speaker 1: to use the system any any less. It just puts

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Speaker 1: the burden back onto them. And I think we all

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Speaker 1: remember back in two thousands or some of us remember

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Speaker 1: back in two thousand nine, when we had record bankruptcies,

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Speaker 1: when we had record back that when we had over

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Speaker 1: a trillion dollars and an uncompensated additional care and we

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Speaker 1: all paid for it in our premiums. So I tend

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Speaker 1: to think you're right, we pay for it one way

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Speaker 1: or the other. Eddie Slavitt, What are the biggest deficits

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Speaker 1: of the Affordable Care Act right now? And when you

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Speaker 1: look at this legislation being proposed by some Congressional Republicans

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Speaker 1: doesn't do anything to help change that, to improve that. Well,

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Speaker 1: I think the biggest concern is that we need, uh

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Speaker 1: we need to increase the affordable ability of health care

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Speaker 1: for people in the middle class people above for intred

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Speaker 1: per send a poverty level. So roughly the people who

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Speaker 1: buy individual insurance products on the exchanges get a subsidy,

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Speaker 1: and that means that that when premiums go up, they're

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Speaker 1: really protected. But for the other twenty uh there really

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Speaker 1: needs to be a set of solutions in place. Unfortunately,

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Speaker 1: those solutions would come in the form of higher tax

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Speaker 1: credits and reinsurance. And what the bill has and it

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Speaker 1: is lower tax credit, it does have something interesting that

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Speaker 1: I think is positive, which is it has a fund

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Speaker 1: being an innovation fund if you will, for states that

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Speaker 1: that will help them control costs. I think that's a positive.

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Speaker 1: I think that could be part of a solution. But

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Speaker 1: taking down people's tax credits, particularly people who are low income,

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Speaker 1: and particularly people five sixty four that is going what

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Speaker 1: would be would send people off of the insurance and

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Speaker 1: and really hurt it. Who's going to be defending the

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Speaker 1: Affordable Care Act from your Democratic Party? I talked to

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Speaker 1: Governor j In's Lee of Washington. He said, the governors

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Speaker 1: need to play a bigger role here. Do you agree

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Speaker 1: or are we going to see a House democrats step up,

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Speaker 1: Senate democrats step up? Yeah? You know, I actually would

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Speaker 1: frame a little bit different and say that, you know,

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Speaker 1: defending the Affordable Care Act or any piece of legislation, UH,

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Speaker 1: isn't really, at least from my view, where we will.

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Speaker 1: We got to be focused, and we gotta be focused

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Speaker 1: on saying we've made a lot of gains in progress.

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Speaker 1: We've we've been shared a lot more people, and we've

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Speaker 1: done it with high quality benefits, and we're protecting millions

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Speaker 1: of people from pre existing conditions. Let's just make progress.

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Speaker 1: I don't think we should care what we call it.

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Speaker 1: I don't think there should be any pride of authorship.

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Speaker 1: But if a plan comes forward, whether it's from a

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Speaker 1: Democrat or Republican, that helps reduce the an incurred rate

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Speaker 1: further with high quality coverage, we all ought to saluted

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Speaker 1: any Thank you so much Any Slavin with his work

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Speaker 1: with President Obama and of course with the centers from Medicare. Now,

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Speaker 1: I really can't say enough about his not only his writing,

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Speaker 1: but his ability to bring in all the different sources,

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Speaker 1: particularly Andy Slavitt out on Twitter. Brought you by Bank

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Speaker 1: of America. Mary Lynch dedicated to bringing our clients insights

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Speaker 1: and solutions to meet the challenges of a transforming world.

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Speaker 1: That's the power of global connections. Mary Lynch, Pierce Federin

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Speaker 1: Smith Incorporated, Member s I p C. Bob Behavior, the

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Speaker 1: founder of Proficio Capital Partners. We're gonna talk about private

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Speaker 1: equity this morning. Broadly speaking, here, Bob, what are we

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Speaker 1: seeing in the private equity space right now? What's the

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Speaker 1: what's the appetite for right now? Well, good morning, Uh,

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Speaker 1: the this one should be a no brainer. And we

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Speaker 1: and then we've done some research. But if you if

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Speaker 1: you look at the long term record of private equity,

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Speaker 1: it's um it's stellar to five year record. These are

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Speaker 1: numbers publicly available from Cambridge Associates. Uh. They've had about

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Speaker 1: a thirteen plus percent compound rate of return. UH. And

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Speaker 1: there are a lot of funds seeking funds now in

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Speaker 1: the private equity sector. Big, big funds are being formed

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Speaker 1: for I can only imagine that with the conversation in

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Speaker 1: Washington about more public private partnerships for infrastructure improvements, that's

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Speaker 1: got to be good news for the industry as a whole.

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Speaker 1: There a lot of people there who must be anxiously

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Speaker 1: awaiting more detail, more progress on that. I'm sure they are.

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Speaker 1: There are also been some whispers about removing the deductibility

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Speaker 1: of interest, which would not help on this type of investment.

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Speaker 1: So there plenty across currents as we as we know

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Speaker 1: coming out of Washington. When you when you look at

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Speaker 1: that Cambridge Associates study, however, return has been here recently. Well,

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Speaker 1: you know, the interesting thing about private equity is you

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Speaker 1: make your decision and you have what we call a

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Speaker 1: vintage here, and so you buy that. Then generally speaking,

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Speaker 1: the private equity funds and deploy your assets over the

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Speaker 1: next couple of years, and you look back after about

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Speaker 1: ten when it kind of winds up, and that's your vintage.

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Speaker 1: And so when we explored the Cambridge Associates data, we found, oh, yeah,

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Speaker 1: the long term numbers are spectacular, but there were a

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Speaker 1: couple of periods where you had bad vintages where you

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Speaker 1: didn't really want to get in and and that's that's

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Speaker 1: kind of the story, I think, where those couple of

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Speaker 1: periods related to the frenzy to pour a lot of

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Speaker 1: money after private equity space. Yeah, it's hard to know exactly.

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Speaker 1: We Uh, we found that there were two periods where

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Speaker 1: there were two things in common. One you paid kind

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Speaker 1: of very high valuations in the marketplace and interest rates

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Speaker 1: were rising. And those two periods roughly two thousand five

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Speaker 1: and seven, we'll all remember what those mean, ended up

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Speaker 1: being much poorer vintages because you bought expensive assets and

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Speaker 1: you had rising interest rates. Bob, and the time that

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Speaker 1: we've got left help us here with uh, interesting securities, convertibles, etcetera.

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Speaker 1: In a rising interest rate environment, is is the FED

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Speaker 1: your friend right now in convertible bonds as your friend

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Speaker 1: is the FED your friend now in preferreds? They are

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Speaker 1: if you have things that are um obviously floating rate.

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Speaker 1: So there we we do like a lot of bonds

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Speaker 1: which are floating rate. There a whole bunch that are

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Speaker 1: issued by banks. Uh they're fixed to float bonds. Some

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Speaker 1: of them are starting to float. And in those cases

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Speaker 1: you get there's lots of different securities out there, but

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Speaker 1: you can get securities that are essentially investment grade and

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Speaker 1: pay you three to four hundred over live or as

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Speaker 1: library goes up, you're doing better. Beobhavor thinks so much

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Speaker 1: too short this morning. We've got some weather issues as

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Speaker 1: well with Proficio Bobhavior. Of course, I kind of get fidelity.

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Speaker 1: It has been too long, David Gurris since I've spoken

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Speaker 1: with Ambassador Froman. Michael Froman, with a distinguished academic pedigreed,

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Speaker 1: traveled the world with more frequent flyer miles than anyone

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Speaker 1: but John Kerry trying to do trade. One of his

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00:24:25,880 --> 00:24:28,400
Speaker 1: travels brought him to a stage in New York where

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00:24:28,400 --> 00:24:32,280
Speaker 1: he and I had a very constructive chat. In the

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Speaker 1: middle of the chat, we were interrupted by protesters right

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00:24:36,520 --> 00:24:40,239
Speaker 1: in our face. Ambassador Froman is used to this. He

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Speaker 1: didn't panic. I'll be honest, Ambassador, my heart leapt about

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Speaker 1: two inches because I've never had, you know, in bad

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Speaker 1: people in my face protesting trade at three ft away,

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00:24:50,880 --> 00:24:54,960
Speaker 1: I mean like a hockey crease away. Did did did

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00:24:55,000 --> 00:24:58,080
Speaker 1: they win? I mean, with all that's going on in

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00:24:58,119 --> 00:25:02,040
Speaker 1: the last two years, Ambassador, did the protesters to t

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Speaker 1: p P, to the Transatlantic Effort, to the work of

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00:25:05,640 --> 00:25:09,520
Speaker 1: George boor SR, to the Atlantic charterback to World War Two?

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00:25:09,800 --> 00:25:14,040
Speaker 1: Did those protesters win? That's a very good question. Tom

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00:25:14,240 --> 00:25:17,160
Speaker 1: Look I don't think they won, per se. I think

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00:25:17,200 --> 00:25:22,680
Speaker 1: what really happened is the Trump phenomenon, because even while

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00:25:22,880 --> 00:25:28,879
Speaker 1: we were facing protests and opposition from traditional sources in Congress,

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00:25:29,000 --> 00:25:31,240
Speaker 1: there was still a lot of support for t p

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00:25:31,240 --> 00:25:35,199
Speaker 1: P and for the overall trade agenda uh and and

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00:25:35,240 --> 00:25:40,720
Speaker 1: but there was concern as as candidate Trump was talking

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Speaker 1: about the anti trade and anti globalization efforts, that mainstream

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00:25:45,320 --> 00:25:49,280
Speaker 1: Republicans felt as though that their politics were changing back home.

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00:25:49,359 --> 00:25:52,480
Speaker 1: And that was different than the protests that you experienced

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Speaker 1: during that forum in New York, which I remember well,

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00:25:55,480 --> 00:25:59,879
Speaker 1: which was more of the traditional labor, anti globalization so

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00:26:00,080 --> 00:26:03,000
Speaker 1: right of things as opposed to within the Republican Party,

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00:26:03,520 --> 00:26:07,000
Speaker 1: a weakness of their traditional support for free trade. Where

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00:26:07,000 --> 00:26:09,240
Speaker 1: do we go from here? There's a meeting that that's

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00:26:09,240 --> 00:26:11,359
Speaker 1: scheduled to be underway very soon with the twelve countries

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00:26:11,359 --> 00:26:13,040
Speaker 1: that were part of the t p P plus China

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00:26:13,280 --> 00:26:16,080
Speaker 1: and South Korea. China saying I've seen reported this is

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00:26:16,119 --> 00:26:18,280
Speaker 1: not a meeting about the TPP It's a broader meeting

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Speaker 1: about trade. But now that the U s has withdrawn

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Speaker 1: from that deal that you worked so hard on crafting

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00:26:23,119 --> 00:26:25,399
Speaker 1: and trying to get through, Congress. What are the what

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00:26:25,440 --> 00:26:28,760
Speaker 1: are the next steps as you see them? Well, I

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00:26:28,800 --> 00:26:31,600
Speaker 1: think this meeting in Chile is actually gonna be quite interesting, because,

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00:26:31,640 --> 00:26:34,120
Speaker 1: as you say, it's a TPP countries plus China plus

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00:26:34,160 --> 00:26:37,159
Speaker 1: a couple of other countries, and a number of the

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00:26:37,160 --> 00:26:40,240
Speaker 1: CPP countries would like to move ahead with TPP with

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00:26:40,400 --> 00:26:42,760
Speaker 1: or without the United States, with the hope that at

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00:26:42,800 --> 00:26:46,920
Speaker 1: some point in the United States might might join. But

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00:26:47,040 --> 00:26:48,920
Speaker 1: I think they're not going to wait for that. And

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00:26:49,000 --> 00:26:51,760
Speaker 1: what we're hearing about at this meeting in Chile is

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00:26:51,840 --> 00:26:55,680
Speaker 1: that countries will be talking to China about joining our step,

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00:26:55,800 --> 00:26:58,800
Speaker 1: which is the Regional Comprehensive Economic Partnership, a sort of

480
00:26:58,880 --> 00:27:02,880
Speaker 1: China's equivalent of t EP, or about expanding their bilateral

481
00:27:02,880 --> 00:27:06,280
Speaker 1: ties with with China. Canada's announced that it's going to

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00:27:06,320 --> 00:27:09,080
Speaker 1: begin the process of thinking about an ft A free

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00:27:09,080 --> 00:27:12,240
Speaker 1: trade agreement with China. Peru has said before that if

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00:27:12,280 --> 00:27:15,560
Speaker 1: TPP doesn't move forward, it's going to have to engage

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00:27:15,640 --> 00:27:18,600
Speaker 1: with China. And the irony of this, of course, isn't

486
00:27:18,640 --> 00:27:21,040
Speaker 1: it is a President Trump, who ran very much on

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00:27:21,080 --> 00:27:25,000
Speaker 1: a need to be tough with China policy, has taken

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00:27:25,000 --> 00:27:28,640
Speaker 1: a number of steps, including announcing the withdrawal from TPP

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00:27:29,040 --> 00:27:32,760
Speaker 1: that has given China a big strategic and economic win,

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00:27:32,960 --> 00:27:35,440
Speaker 1: including in our backyard, and I think we're going to

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00:27:35,480 --> 00:27:37,800
Speaker 1: see that play out in real time at that meeting

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00:27:37,840 --> 00:27:40,800
Speaker 1: in Chile. We're not sending a senior official because we

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00:27:40,800 --> 00:27:44,800
Speaker 1: don't have a fully staffed compliment in Washington, will be

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00:27:44,800 --> 00:27:48,800
Speaker 1: sending our local ambassador in Santiago UM while other countries

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00:27:48,840 --> 00:27:50,840
Speaker 1: will be sending their trade ministers, and we'll be talking

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00:27:50,840 --> 00:27:53,439
Speaker 1: about what to do in the absence of the United

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00:27:53,480 --> 00:27:57,720
Speaker 1: States UH in the Asia Pacific to further their trade relations,

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00:27:58,040 --> 00:27:59,880
Speaker 1: and that will come at the expense of our businesses.

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00:28:00,080 --> 00:28:02,480
Speaker 1: That leads me to my next question, which is we

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00:28:02,480 --> 00:28:04,719
Speaker 1: don't have Robert Lighthouser confirmed. We do have a date

501
00:28:04,760 --> 00:28:07,680
Speaker 1: for for his hearing. Set now on Capitol Hill, you've

502
00:28:07,680 --> 00:28:09,919
Speaker 1: got Wilbur Ross the comedy sector taking a lead on

503
00:28:09,960 --> 00:28:13,120
Speaker 1: trade issues, Peter Navara speaking out on trade as well.

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00:28:13,840 --> 00:28:15,720
Speaker 1: How much of a of a of a problem is it,

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00:28:15,760 --> 00:28:17,560
Speaker 1: as you see it, that we don't have one single

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00:28:17,600 --> 00:28:20,479
Speaker 1: person handling this In other words, UH, defend the position

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00:28:20,520 --> 00:28:22,600
Speaker 1: that you had in the previous administration. How important is

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00:28:22,600 --> 00:28:24,719
Speaker 1: it to have a US trade representative who is charged

509
00:28:24,720 --> 00:28:30,080
Speaker 1: with overseeing trade entirely well, like trade policy by definition

510
00:28:30,160 --> 00:28:32,760
Speaker 1: has always been done on an inter agency basis a

511
00:28:32,760 --> 00:28:35,080
Speaker 1: lot of different agencies, and of course the White House

512
00:28:35,119 --> 00:28:37,639
Speaker 1: has a strong interest in trade. Um. I think it

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00:28:37,760 --> 00:28:41,920
Speaker 1: is helpful, and every administration organizes their trade policy function

514
00:28:42,120 --> 00:28:45,520
Speaker 1: somewhat differently. I think it is helpful for there to

515
00:28:45,600 --> 00:28:48,920
Speaker 1: be a clear sense of who is speaking on trade

516
00:28:49,000 --> 00:28:52,280
Speaker 1: for the administration. We certainly have that in the Obama administration.

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00:28:52,320 --> 00:28:55,400
Speaker 1: I think it worked to our advantage and it avoided

518
00:28:55,520 --> 00:28:58,520
Speaker 1: forum shopping and countries running around trying to find weaknesses

519
00:28:58,560 --> 00:29:01,040
Speaker 1: in the in the in the position. But you know,

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00:29:01,080 --> 00:29:03,080
Speaker 1: I think we also have to give this administration some

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00:29:03,800 --> 00:29:06,040
Speaker 1: time and space to get their act together, to get

522
00:29:06,040 --> 00:29:08,800
Speaker 1: people in place, to do the policy process that they

523
00:29:08,840 --> 00:29:11,320
Speaker 1: need to do around new issues and to figure out

524
00:29:11,400 --> 00:29:14,560
Speaker 1: how they're going to execute on them. And it's it's

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00:29:14,560 --> 00:29:18,440
Speaker 1: still fairly early in the administration, although certainly most administrations

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00:29:18,480 --> 00:29:21,160
Speaker 1: are further along than they are at this point. What

527
00:29:21,360 --> 00:29:26,240
Speaker 1: is the prescription for those within the Republican Party to

528
00:29:26,360 --> 00:29:30,560
Speaker 1: get us back to some form of dialogue on multilateral relations?

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00:29:30,720 --> 00:29:34,800
Speaker 1: Is it just patients and weight? You know, I think

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00:29:34,920 --> 00:29:40,200
Speaker 1: I think it's underscoring and and and exploring what issues

531
00:29:40,280 --> 00:29:44,000
Speaker 1: really cannot be done other than through those mechanisms. You

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00:29:44,120 --> 00:29:47,000
Speaker 1: take an issue like digital the digital economy. One thing

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00:29:47,000 --> 00:29:49,280
Speaker 1: we did in the Trans Spacific Partnership is negotiate a

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00:29:49,320 --> 00:29:53,480
Speaker 1: series of rules that would help to find the digital

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00:29:53,480 --> 00:29:56,080
Speaker 1: economy in a way that that was very much reflecting

536
00:29:56,160 --> 00:30:00,720
Speaker 1: US interests and US values. You can't really build a

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00:30:00,800 --> 00:30:04,280
Speaker 1: global digital economy on a bilateral basis. You need as

538
00:30:04,280 --> 00:30:07,120
Speaker 1: many countries. For a company's perspective, they need to know

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00:30:07,760 --> 00:30:11,480
Speaker 1: can their business model rely on the free flow of

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00:30:11,560 --> 00:30:15,600
Speaker 1: data across borders? Can they put their servers where they

541
00:30:15,640 --> 00:30:17,280
Speaker 1: want to put them, where it makes business sense to

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00:30:17,320 --> 00:30:19,200
Speaker 1: do so. Can they store the data where it makes

543
00:30:19,200 --> 00:30:22,440
Speaker 1: sense to do that? And this isn't just internet companies.

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00:30:22,560 --> 00:30:25,560
Speaker 1: Every manufacturing company is now a data company to one

545
00:30:25,560 --> 00:30:29,000
Speaker 1: degree or another. And and you can't really do that

546
00:30:29,040 --> 00:30:32,120
Speaker 1: by just having agreements with one country at a time.

547
00:30:32,240 --> 00:30:34,720
Speaker 1: You really need to establish a set of rules of

548
00:30:34,760 --> 00:30:37,480
Speaker 1: the road for the system for our companies to be

549
00:30:37,560 --> 00:30:40,680
Speaker 1: able to do that reliably. Ambassador, thank you so much.

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00:30:40,720 --> 00:30:45,880
Speaker 1: Michael Frohman, the seventeen US trade representatives for the nation

551
00:30:45,920 --> 00:30:57,160
Speaker 1: of course, working with President Obama. Thanks for listening to

552
00:30:57,200 --> 00:31:03,280
Speaker 1: the Bloomberg Surveillance Podcast. Subscribe and listen to interviews on iTunes, SoundCloud,

553
00:31:03,680 --> 00:31:07,959
Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter

554
00:31:08,040 --> 00:31:11,840
Speaker 1: at Tom Keene. David Gura is at David Gura. Before

555
00:31:11,840 --> 00:31:16,200
Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio,

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00:31:28,680 --> 00:31:32,200
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557
00:31:32,280 --> 00:31:36,200
Speaker 1: bringing our clients insights and solutions to meet the challenges

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00:31:36,320 --> 00:31:40,040
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