WEBVTT - We are starting to see the fruit of regulatory easing: Terrazas 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.319 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, 0:00:32.360 --> 0:00:36.760 today we got housing starts data that was kind of mixed. Frankly, 0:00:36.840 --> 0:00:40.159 we saw an increase in the number of housing starts 0:00:40.520 --> 0:00:43.640 UH to housing starts the fast pace in about decade, 0:00:43.920 --> 0:00:47.919 but the number of applications for permits declined. Joining us 0:00:47.920 --> 0:00:50.720 now to talk about the state of the US housing 0:00:50.800 --> 0:00:54.480 market is Aaron Terrazas. He is a Zillo Xenior Senior 0:00:54.520 --> 0:00:58.000 Economist Zillo Senior Economists. UM, thank you so much for 0:00:58.080 --> 0:01:01.800 being here. Aaron, So, whoops your take on this sort 0:01:01.840 --> 0:01:04.080 of mixed data. You're right, it was a mixed report, 0:01:04.120 --> 0:01:06.440 but I think there was good news and that we 0:01:06.520 --> 0:01:09.840 are seeing a single family starts steadily rebound. There there 0:01:09.840 --> 0:01:11.880 nowhere near what we would expect at this point in 0:01:11.880 --> 0:01:14.920 the business cycle. Multi family starts have actually been a 0:01:15.000 --> 0:01:19.200 bright spot. Um. Those apartments five plus unit buildings UM. 0:01:19.400 --> 0:01:21.399 They dropped a little bit in twenty seventeen, but have 0:01:21.680 --> 0:01:26.280 been up over the past year unexpectedly, still strong. What 0:01:26.400 --> 0:01:28.800 accounts for that strength up seven and a half percent? 0:01:29.120 --> 0:01:31.120 That's right, you know, I think there's a couple of 0:01:31.120 --> 0:01:35.399 factors driving that strength UM. First, as rent affordability really 0:01:35.400 --> 0:01:38.640 began to deteriorate two or three years ago, UH cities, 0:01:38.680 --> 0:01:42.360 particularly high press high price cities, began to invest in 0:01:42.440 --> 0:01:46.040 easing the regulatory process UM, and now to three years later, 0:01:46.080 --> 0:01:48.840 we're starting to see the fruit of that kind of 0:01:48.880 --> 0:01:52.520 regulatory easing. Really, although I thought that the big gains 0:01:52.520 --> 0:01:55.480 were really in the Midwest and some cities where perhaps 0:01:55.520 --> 0:01:57.440 that wasn't as much of an issue. You're right, So 0:01:57.440 --> 0:01:59.400 so the Midwest has seen the most recent month and 0:01:59.440 --> 0:02:01.400 month gains, but you're looking over the past year, kind 0:02:01.400 --> 0:02:04.440 of the West and the Northeast have still seen strong 0:02:04.520 --> 0:02:08.040 multifamily starts. Have you seen any effects because of the 0:02:08.160 --> 0:02:12.120 rise and lumber prices, tariffs on imported lumber from Canada, 0:02:12.200 --> 0:02:15.040 for example, You're right. In the single family space, the 0:02:15.240 --> 0:02:19.480 single family construction in particular, tariffs and and kind of 0:02:19.480 --> 0:02:22.600 recent trade actions have increased costs for builders. I heard 0:02:22.639 --> 0:02:25.359 an estimate of about nine thousand dollars at home, right, 0:02:25.440 --> 0:02:27.560 so that's kind of in line my estimates attend to 0:02:27.560 --> 0:02:31.040 fifteen tho dollars for your median new home. UM. That adds, 0:02:31.360 --> 0:02:33.679 but it's important remember it's not just softwood. Softwood is 0:02:33.720 --> 0:02:37.600 the biggest particular component that's been tariffed, but things like cedar, 0:02:37.600 --> 0:02:41.840 shingles um have also kind of received teriffs. UM, Things 0:02:41.880 --> 0:02:44.800 like aluminum and and still are about three percent of 0:02:45.000 --> 0:02:47.400 the diciplical costs of your single family home, not too 0:02:47.440 --> 0:02:50.200 much of consumer appliances like washing machines and dishwashers. So, 0:02:50.280 --> 0:02:51.840 you know, just to pick up on on that that 0:02:51.919 --> 0:02:55.040 important point. The cost of the actual materials has been increasing, 0:02:55.080 --> 0:02:57.359 but so have the costs of the labor because there's 0:02:57.400 --> 0:03:00.440 been a real shortage there. How much has that contributed 0:03:00.480 --> 0:03:03.400 to an increase in home prices as well? You're right 0:03:03.480 --> 0:03:05.840 number two of the rising cost the headwinds and builders 0:03:05.840 --> 0:03:09.880 are facing. Residential construction wages are up five percent over 0:03:09.880 --> 0:03:12.120 the past year compared to a liver two percent for 0:03:12.200 --> 0:03:14.959 overall wages. We're seeing double the pace of wage growth 0:03:15.000 --> 0:03:17.880 in in kind of for those residential construction workers. That's 0:03:17.919 --> 0:03:19.760 a clear sign of any that that builders are facing 0:03:19.800 --> 0:03:23.760 labor shortages. So at what point will these increased costs 0:03:23.840 --> 0:03:27.239 materially slow housing starts. I'm not sure they're gonna they're 0:03:27.280 --> 0:03:29.720 slow housing starts. What they are doing is they're pushing 0:03:29.919 --> 0:03:32.680 up UM, the price point that that builders are targeting. 0:03:32.919 --> 0:03:35.440 So you know, we are seeing that that median price 0:03:35.480 --> 0:03:40.120 point of new construction rise UM and UM and you know, 0:03:40.200 --> 0:03:41.640 and kind of a little bit of is that is 0:03:41.680 --> 0:03:43.880 what we're not seeing I said before at this point 0:03:43.880 --> 0:03:46.520 in the business cycle, we should be seeing more housing starts. Okay, 0:03:46.520 --> 0:03:48.960 this is what confuses me. The biggest earth of housing 0:03:49.120 --> 0:03:52.280 right now is sort of smaller starter homes. It's the 0:03:52.320 --> 0:03:55.360 affordable homes that people want to buy. If you have 0:03:55.520 --> 0:03:58.920 builders basically having a disincentive to go out and buy 0:03:58.960 --> 0:04:02.160 and and create these homes, you know, is there enough 0:04:02.160 --> 0:04:03.880 of a market at the high end, first of all, 0:04:03.920 --> 0:04:06.920 to absorb what the builders want to build and can 0:04:06.960 --> 0:04:09.480 they afford to build what is actually needed? I think 0:04:09.520 --> 0:04:11.880 builders builders have that that same concern that that's one 0:04:11.880 --> 0:04:14.280 of the reasons there the remaining cautious If you look 0:04:14.320 --> 0:04:18.040 at UM new home sales, about a third of new 0:04:18.080 --> 0:04:21.920 homes are sold before they even started. That's up from 0:04:22.000 --> 0:04:25.880 historically about means builders are offloading this risk that they're 0:04:25.920 --> 0:04:28.479 carrying UM rather than wait for a couple of months 0:04:28.480 --> 0:04:31.799 of appreciation while construction finishes. I think kind of builders 0:04:31.800 --> 0:04:34.560 today are do have that scars of what happened a 0:04:34.560 --> 0:04:37.479 decade ago and are being conservative UM, not wanting to 0:04:37.480 --> 0:04:40.719 overbuild UM. They know there's demand at that more affordable 0:04:40.760 --> 0:04:43.240 price point. The math doesn't work out for them there 0:04:43.720 --> 0:04:47.320 new home sales. Just to get more color on that topic, 0:04:47.520 --> 0:04:50.880 what's your outlook? So our outlook new home sales data 0:04:50.920 --> 0:04:54.640 will release next week. Are our forecast suggests? I think 0:04:54.640 --> 0:04:57.280 a small decline. You know there is some month to 0:04:57.320 --> 0:04:59.800 month volatility in that series. I think the more important 0:04:59.800 --> 0:05:02.520 point that I'm looking at um next week next week's 0:05:02.560 --> 0:05:05.919 data is that that medium price point. Last month in 0:05:06.000 --> 0:05:08.440 the provisional April data, we saw a big drop in 0:05:08.440 --> 0:05:10.480 that medium price point. I think that's gonna be revised upward. 0:05:10.839 --> 0:05:12.600 One thing that really struck me there was a story 0:05:12.600 --> 0:05:15.560 on the Bloomberg Today looking at a Harvard study that 0:05:15.680 --> 0:05:18.640 found that US homes are a lot cheaper than they look. 0:05:18.680 --> 0:05:22.400 And they looked at an inflation adjusted basis, The monthly 0:05:22.520 --> 0:05:24.920 payments that people are making now in their homes are 0:05:24.960 --> 0:05:28.600 actually blow what they would be in seven This is 0:05:28.640 --> 0:05:32.920 all thanks to low interest rates. So you know how 0:05:33.000 --> 0:05:36.680 much does that factor into people's equations right now? Lock 0:05:36.760 --> 0:05:39.000 in the low interest rates while they are where they are, 0:05:39.080 --> 0:05:41.480 and that will actually mean a cheaper home now, even 0:05:41.480 --> 0:05:44.640 if prices are pretty high. Nation Wide, home affordability looks 0:05:44.640 --> 0:05:46.920 great right now. You know it's it's in the low twenties. 0:05:47.080 --> 0:05:50.680 Your your your your typical mortgaged income ratio. So much 0:05:50.680 --> 0:05:53.200 of that is driven by interest rates. As interest rates rise, 0:05:53.279 --> 0:05:55.520 that's gonna kind of push that in abruptard. But you know, 0:05:55.560 --> 0:05:58.359 if you look at that historical average share of income 0:05:58.400 --> 0:06:01.239 that goes to a mortgage, that's that's assuming an average 0:06:01.240 --> 0:06:04.120 historical mortgage rate of eight percent. I'm not sure that 0:06:04.160 --> 0:06:06.320 mortgage rates are going to get up to eight percent, 0:06:06.400 --> 0:06:09.599 even at their highest point the cycle. Just to go 0:06:09.680 --> 0:06:13.599 back to this idea of rent affordability, looking at specific 0:06:13.720 --> 0:06:19.000 cities where it is affordable to rent, Pittsburgh number one. St. Louis, 0:06:19.160 --> 0:06:23.479 number two, Oklahoma City, followed by Raleigh, Birmingham, and so on. 0:06:24.240 --> 0:06:26.159 What do you see in terms of any trends for 0:06:26.200 --> 0:06:28.800 big cities. Yeah, so so. Rent affordability is almost the 0:06:28.800 --> 0:06:31.599 opposite of the mortgage affordability story. It is at historic 0:06:31.680 --> 0:06:34.760 highs um particularly in in those high priced cities. In 0:06:34.760 --> 0:06:36.919 a place like San Francisco, l A. People are spending 0:06:37.040 --> 0:06:40.159 kind of almost fifty of their income on rent. That's 0:06:40.160 --> 0:06:43.200 at the median for a bottom a bottom third renter, 0:06:43.480 --> 0:06:47.080 kind of renting a bottom foot house. It's it's which 0:06:47.120 --> 0:06:49.040 is just just not realistic, But you're right. Kind of 0:06:49.080 --> 0:06:52.360 there are kind of those more affordable cities, um where 0:06:52.360 --> 0:06:55.400 there has been more supply and you know, more importantly 0:06:55.520 --> 0:06:57.919 kind of less demanding that rental market because it is 0:06:57.920 --> 0:07:01.239 still affordable to buy in places like like Lahoma City. Um, 0:07:01.279 --> 0:07:03.360 you know, people in those markets tend to buy as 0:07:03.360 --> 0:07:05.560 soon as they can. Thanks very much for being with us. 0:07:05.920 --> 0:07:10.600 Aaron Rossis, he is the senior economist for ZELLO, talking 0:07:10.640 --> 0:07:29.920 about new housing starts and the housing market. China is 0:07:29.920 --> 0:07:33.480 planning to act quote forcefully on Trump's two hundred billion 0:07:33.520 --> 0:07:38.520 dollar tariff threat. President Trump's administration is drawing up a 0:07:38.640 --> 0:07:42.880 list of perhaps new tariffs to impose on China to 0:07:43.160 --> 0:07:46.000 retaliate for the retaliation to the retaliation to the retaliation. 0:07:46.200 --> 0:07:48.040 Here we are in this cycle, and here to explain 0:07:48.080 --> 0:07:50.360 to us how to strip out what we should be 0:07:50.360 --> 0:07:53.920 paying attention to from the noise. Patrick Chauvinik Chavannic. He 0:07:54.000 --> 0:07:58.440 is chief strategist of Silver Silver Crust Asset Management. Patrick, 0:07:59.240 --> 0:08:01.960 you know, when you talk to a lot of traders, 0:08:02.000 --> 0:08:05.480 they say, there's a lot of noise, there's a lot 0:08:05.680 --> 0:08:11.680 of threats, but the actual economic impact so far is 0:08:12.040 --> 0:08:16.920 fairly minimal. At what point should people take up their 0:08:17.000 --> 0:08:19.600 their pens and say, wait a seconds, something here is 0:08:20.040 --> 0:08:24.840 vastly different. So there is a steady march from words 0:08:25.320 --> 0:08:28.160 to actions, and we are starting to see more and 0:08:28.240 --> 0:08:32.600 more of these words translated into actions. Um, it's incremental, 0:08:33.160 --> 0:08:37.240 You're right, Um, but UH, you know, I look at it. 0:08:37.320 --> 0:08:40.520 There there two sets of effects. There's the short term 0:08:40.559 --> 0:08:44.839 effects UM that may affect uh this market cycle or 0:08:45.559 --> 0:08:48.880 how stocks perform in the near future, and that is 0:08:49.160 --> 0:08:55.120 UH the potential impact of of inflationary shock from more 0:08:55.200 --> 0:08:59.000 expensive inputs like from steel. UH. And then also the 0:08:59.080 --> 0:09:04.560 retaliatory impacts measures that are meant to target specific companies 0:09:04.679 --> 0:09:07.320 or specific industries in the United States and hit their earnings. 0:09:07.520 --> 0:09:10.280 But there's also a longer term impact, which is the 0:09:10.360 --> 0:09:13.640 erosion and the undermining of these trade rules, which, however 0:09:13.760 --> 0:09:16.880 imperfect that they may be, have created a lot of opportunity, 0:09:16.960 --> 0:09:19.760 not just for American companies but from for companies around 0:09:19.800 --> 0:09:22.160 the world. And you know, there's something going on right 0:09:22.200 --> 0:09:24.880 now at w t O where the United States is 0:09:25.280 --> 0:09:30.440 refusing to allow new judges to take up their roles 0:09:30.800 --> 0:09:32.920 at w t O, and very soon we're gonna get 0:09:32.960 --> 0:09:35.439 down to where there's only three judges, which is the 0:09:35.520 --> 0:09:38.679 minimum required um to have any kind of ruling, and 0:09:38.760 --> 0:09:40.480 then we'll go to two and they won't be able 0:09:40.520 --> 0:09:43.560 to rule on anything. So you have countries like Canada 0:09:44.200 --> 0:09:46.640 or your European Union who say, well, we don't like 0:09:47.080 --> 0:09:48.400 what the U s is doing, we're gonna take it 0:09:48.480 --> 0:09:50.839 to w t OH. If they can't take it to 0:09:51.000 --> 0:09:53.640 w t O because the US is blocking that, they're 0:09:53.640 --> 0:09:59.160 going to be adopting more unilateral actions. And this what 0:09:59.520 --> 0:10:01.640 we're seeing here is a situation where the temperature just 0:10:01.760 --> 0:10:05.840 keeps rising and rising and rising, and the actual economic 0:10:05.880 --> 0:10:10.480 impacts start to accumulate. Patrick. Let's say you get a 0:10:10.559 --> 0:10:13.160 call from a client and they say, look, you know 0:10:13.320 --> 0:10:20.240 you taught at a university in Beijing, shin Khua University. Also, 0:10:20.880 --> 0:10:24.880 you've worked in private equity. You worked for John Bayner 0:10:25.040 --> 0:10:30.400 because you've got a political acumen there, and you also 0:10:31.360 --> 0:10:35.440 have worked in public policy. Where do we put our 0:10:35.480 --> 0:10:38.199 money today? How can we take advantage of people following 0:10:38.320 --> 0:10:41.680 headlines going in one direction? Maybe that's a head fake. 0:10:41.800 --> 0:10:44.599 Let's assume that that's how we see it. Where do 0:10:44.679 --> 0:10:48.080 you put your money? If you bet that the demographics 0:10:48.120 --> 0:10:52.679 of emerging markets, particularly in Asia can be your friend. Okay, well, 0:10:52.800 --> 0:10:55.599 you raise a bigger question about sort of globally, you 0:10:55.640 --> 0:10:57.319 know where growth is going to come from. Let me 0:10:57.520 --> 0:11:00.679 let me answer the immediate question that that people are 0:11:00.720 --> 0:11:05.439 asking me about about all this kind of trade headlines. 0:11:06.440 --> 0:11:08.360 And the thing that I've been saying is, look, there 0:11:08.400 --> 0:11:12.240 are there We're already seeing in markets, um a disparity 0:11:12.280 --> 0:11:16.240 and performance between the smaller caps and more technology focus 0:11:16.320 --> 0:11:20.199 firms which are not exposed to uh these sort of 0:11:20.240 --> 0:11:24.800 trade disputes, and the larger caps. Many people ask me, 0:11:24.880 --> 0:11:27.640 they say, when is when are these trade issues going 0:11:27.720 --> 0:11:30.160 to start affecting the markets? I'd say they've affected the 0:11:30.200 --> 0:11:34.520 markets throughout the year. We've had excellent economic numbers. Um, 0:11:35.240 --> 0:11:37.440 we had a great earning season. In the first quarter, 0:11:38.240 --> 0:11:42.920 we had six in May we had retail sales were 0:11:42.960 --> 0:11:46.559 up six percent year on year. And and in the 0:11:46.640 --> 0:11:49.520 face of all this though, we've got flat markets, particularly 0:11:49.640 --> 0:11:52.040 in large caps. So you're making the argument of small 0:11:52.080 --> 0:11:54.840 caps versus large caps, and the small caps have outperformed 0:11:54.920 --> 0:11:58.040 by more than twice the large caps. The question is, 0:11:58.120 --> 0:12:02.240 and a lot of people will argue this is uh messy, 0:12:02.559 --> 0:12:05.800 a messy analogy, and that you know, small caps will 0:12:05.800 --> 0:12:09.360 eventually feel the brunt of any economic downdraft that the 0:12:10.080 --> 0:12:13.800 large caps are reflecting. Yes, so, so there are the 0:12:13.840 --> 0:12:17.400 broader concerns that you know, if we have inflationary pressure rising, 0:12:17.520 --> 0:12:20.559 if we have retaliation that doesn't just target a few 0:12:20.640 --> 0:12:23.960 companies that actually has a broader economic impact, everyone's going 0:12:24.000 --> 0:12:26.880 to feel that. But for the moment, right there is 0:12:27.000 --> 0:12:30.120 that disparity between We can't ignore the good economic news. 0:12:30.160 --> 0:12:33.000 I mean, I'm as alarmed at the headlines and the 0:12:33.040 --> 0:12:36.559 potential impact that they might have as anyone else, But 0:12:37.400 --> 0:12:41.120 I also look at numbers that the market on a 0:12:41.200 --> 0:12:43.599 bad day like this tends to ignore, which is that 0:12:44.280 --> 0:12:47.959 retail sales up six per year on year expectations of 0:12:48.080 --> 0:12:50.959 three to anywhere from three to five GDP growth in 0:12:51.000 --> 0:12:54.079 the second quarter, and you can't ignore that either. So 0:12:54.400 --> 0:12:55.959 where are you going to pick up? Where are you 0:12:56.000 --> 0:12:58.760 going to maximize your exposure to that good news and 0:12:58.920 --> 0:13:02.120 minimize your exposure your to those potential risks. So you're 0:13:02.160 --> 0:13:05.400 buying small caps on a day like today, Uh? I 0:13:05.480 --> 0:13:08.559 would I mean, we manage whole portfolios. So what I 0:13:08.600 --> 0:13:11.160 would say is you want to have that in mind 0:13:11.240 --> 0:13:14.439 when you're thinking about your asset allocation. All right, I 0:13:14.480 --> 0:13:16.400 do want to get a sense of your take on 0:13:16.600 --> 0:13:19.280 China strategy here, giving your intimate knowledge with the Chinese 0:13:19.320 --> 0:13:22.200 government and how they approach things, it seems as if 0:13:22.320 --> 0:13:26.960 there is a very deliberate targeting of areas that voted 0:13:27.000 --> 0:13:30.839 for President Trump. This is the sort of farm belt, uh, 0:13:31.040 --> 0:13:33.640 and sort of the steel country. This is where you're 0:13:33.640 --> 0:13:37.600 seeing the tariffs. Put first, Does this matter to markets 0:13:37.880 --> 0:13:40.160 or in other words, this definitely has sort of political 0:13:40.240 --> 0:13:43.400 overtones with respect to what the midterm elections might look like. 0:13:43.559 --> 0:13:46.840 If China is effective, does it? Do you care from 0:13:46.880 --> 0:13:50.800 a market perspective? Sure, because you know it's it's not 0:13:51.000 --> 0:13:52.800 a stock market, it's a market of stocks, and so 0:13:52.920 --> 0:13:58.240 you want to be aware that these retaliatory measures are 0:13:58.240 --> 0:14:00.959 going to be targeted at specific company some specific industries. 0:14:00.960 --> 0:14:03.240 And it's not just China, by the way, uh it 0:14:03.400 --> 0:14:07.680 is also the EU, Canada, Mexico. They're all crafting their 0:14:07.840 --> 0:14:12.160 retaliatory strategies to try to maximize the political lever. So, 0:14:12.559 --> 0:14:16.920 for instance, Mexico is putting a big tariff on cheese 0:14:17.120 --> 0:14:20.640 exports from the United States, about four million dollars worth. 0:14:20.920 --> 0:14:24.720 So if you're an investor, you have to, you know, 0:14:24.880 --> 0:14:28.160 go bullow this. We're not passive investors, were active investors, 0:14:28.240 --> 0:14:30.960 So we're not looking at the index. We're not just 0:14:31.080 --> 0:14:33.600 looking at how the market overall is doing. We want 0:14:33.600 --> 0:14:36.480 to go and look at specific companies, specific industries and 0:14:36.600 --> 0:14:40.320 what their exposure is to these kinds of risks. Give 0:14:40.360 --> 0:14:42.600 you twenty seconds, if you could get on a plane 0:14:42.640 --> 0:14:45.520 and go anywhere to go investigate a potential investment in 0:14:45.600 --> 0:14:49.560 an emerging economy, where would it be? I go everywhere 0:14:49.640 --> 0:14:53.560 all the time. I just got you get to go 0:14:53.720 --> 0:14:57.160 once in Europe, Eastern Europe. Most most interesting me. That 0:14:57.200 --> 0:15:00.400 doesn't mean that I'm bullish on it. I just it's 0:15:00.920 --> 0:15:03.920 I'm most curious about it all right, Well done, thanks 0:15:04.000 --> 0:15:06.960 very much for being with us. UH. Patrick Chavannic. He 0:15:07.200 --> 0:15:11.640 is managing Director, Chief a Strategist of Silvercrest Asset Management 0:15:11.880 --> 0:15:16.680 and you can follow him on Twitter at p R Shelvanic. 0:15:16.800 --> 0:15:36.840 That's h O V A n EC Right now. I 0:15:36.920 --> 0:15:39.960 am very excited that we have David Carrington with us. 0:15:40.000 --> 0:15:43.480 He is Jefferson County Commissioner UH and he joins us 0:15:43.520 --> 0:15:46.520 here in our eleven three oh studios. David, I want 0:15:46.560 --> 0:15:50.320 to start with a little trip down memory lane. Jefferson 0:15:50.440 --> 0:15:53.440 County is known in the bond world for its two 0:15:53.520 --> 0:15:55.880 thousand and eleven bankruptcy, one of the biggest in the 0:15:55.920 --> 0:16:00.200 minicipal bond markets history in the US. I'm wonder rink 0:16:00.280 --> 0:16:03.480 today as we see some of the struggles with Illinois 0:16:03.760 --> 0:16:07.880 and Connecticut, would you recommend that they go down the 0:16:07.960 --> 0:16:12.640 same path that Jefferson County ultimately had to pursue. Well, 0:16:12.720 --> 0:16:15.560 it's surely a last resort. It's not something that you 0:16:15.680 --> 0:16:19.600 want to do flippantly. UM. I continue to say that 0:16:20.120 --> 0:16:22.560 after a year in negotiations, we had three gallons of 0:16:22.600 --> 0:16:24.600 water and a one gallon bucket, and it didn't look 0:16:24.640 --> 0:16:26.360 like we were going to go a larger bucket, and 0:16:26.840 --> 0:16:30.000 we couldn't reduce the water, so we had to do it. UM. 0:16:30.280 --> 0:16:35.880 The financial situation was one that was apparently unsolvable. With 0:16:36.080 --> 0:16:42.240 that said, before I municipality entertains Chapter nine bankruptcy, they 0:16:42.320 --> 0:16:45.920 have to first seriously try to negotiate their way out. 0:16:46.600 --> 0:16:49.040 They need to recognize it's very costly. In our case, 0:16:49.080 --> 0:16:52.200 it was a million dollars a month. We were projecting 0:16:52.240 --> 0:16:55.040 thirty six to forty eight months. It actually we were 0:16:55.080 --> 0:16:58.360 able to exit in twenty five months. You have to 0:16:58.400 --> 0:17:01.920 be sure that the elected officials have the political will 0:17:02.120 --> 0:17:04.560 to make the decisions that have to be made in 0:17:04.760 --> 0:17:09.840 order to restructure UM the organization, and so UM I 0:17:09.960 --> 0:17:13.320 would not recommend a community do this unless they have 0:17:14.000 --> 0:17:18.280 an elected UH a group of commissioners or counselors or 0:17:19.520 --> 0:17:23.280 senators that are willing to take the political heat. I 0:17:23.400 --> 0:17:27.040 was told UH that if I UH file for Chapter 0:17:27.200 --> 0:17:30.920 nine bankruptcy, my political career would be toast. And my 0:17:31.040 --> 0:17:34.680 answer to that was, I didn't run to get re elected. 0:17:34.800 --> 0:17:37.480 I ran to fix the problem. So you almost have 0:17:37.640 --> 0:17:40.560 to have a mindset that this is UH something that 0:17:40.720 --> 0:17:42.960 you don't want to do, but you have to do 0:17:43.040 --> 0:17:46.879 in order to make the community sustainable going forward, and 0:17:47.000 --> 0:17:50.040 just a quickly side of recap. In Jefferson County, Alabama, 0:17:50.160 --> 0:17:53.440 this goes back to there was a consent decree having 0:17:53.520 --> 0:17:56.680 to do with the city sewer systems. They needed to 0:17:56.760 --> 0:18:01.120 finance the revamp of the sewer system. They issued. Then 0:18:01.200 --> 0:18:05.200 it got really bad and there were lawsuits and several 0:18:05.280 --> 0:18:08.520 people went to jail, and it was none of which 0:18:08.600 --> 0:18:10.879 you are associated. And that's that's true. The day I 0:18:10.960 --> 0:18:14.760 walked in the office was November the tenth of two ten. 0:18:14.880 --> 0:18:17.520 We had three point two billion of sewer deet in default. 0:18:18.119 --> 0:18:20.320 We had a sewer receiver appointed by the court, so 0:18:20.320 --> 0:18:22.480 that was gonna double rates and then double them again 0:18:22.800 --> 0:18:26.040 or g that was in default. Our audits were three 0:18:26.119 --> 0:18:29.359 years past due. We had an indigent care hospital losing 0:18:29.440 --> 0:18:31.680 ten to fifteen million dollars a year, a county home 0:18:31.760 --> 0:18:34.240 losing two to three million dollars a year. So to 0:18:34.359 --> 0:18:36.600 say it was a mass is sort of an understatement. 0:18:36.960 --> 0:18:39.399 And uh then on our twenty second day in office, 0:18:40.119 --> 0:18:43.399 a circuit court judge ruled that a tax that had 0:18:43.480 --> 0:18:46.320 been passed for the county's general fund was passed illegally 0:18:46.359 --> 0:18:49.920 by the state legislature, and we lost twenty of our revenue. 0:18:50.200 --> 0:18:52.960 So that was our twenty second day. And then on 0:18:53.040 --> 0:18:55.159 the last day of our first year in office, we 0:18:55.240 --> 0:18:58.719 followed what was at the time the largest municipal bankruptcy 0:18:58.760 --> 0:19:02.479 in US history. A year or two later, Detroit rallied 0:19:02.560 --> 0:19:05.280 and surpassed us. And I've always been thankful for Detroit 0:19:05.440 --> 0:19:09.600 for doing that. I'm sure that UH Detroit says you're welcome. 0:19:09.880 --> 0:19:11.720 I want to switch gears a little bit because fast 0:19:11.720 --> 0:19:15.879 forwards today and Birmingham is actually attracting some businesses from 0:19:15.960 --> 0:19:20.040 places like New York and UH, New Jersey and Connecticut 0:19:20.080 --> 0:19:23.520 and higher tax states. Um, to what degree have you 0:19:23.680 --> 0:19:26.280 seen these businesses come? And UH, you know, are you 0:19:26.320 --> 0:19:31.520 seeing it accelerate? Yes? Uh in the last seventeen months, 0:19:32.400 --> 0:19:37.199 uh one to three, four or five, six, seven, eight nine, Well, 0:19:37.240 --> 0:19:42.600 there's been eleven companies relocate into our community. And of 0:19:42.720 --> 0:19:45.560 course the states doing well too, with the recent announcement 0:19:46.000 --> 0:19:49.159 of Toyota in the Huntsville area. We have Airbus in 0:19:49.240 --> 0:19:52.320 the last several years in Mobile, UH the Birmingham metro 0:19:52.560 --> 0:19:57.480 area actually, in a recent Forbes report, UH has pays 0:19:57.520 --> 0:20:00.560 the highest salaries in the guide states. Well might shock 0:20:00.680 --> 0:20:03.080 people in New York, but when you combine our salary 0:20:03.160 --> 0:20:05.760 plus our cost of a living, the dollar buys a 0:20:05.840 --> 0:20:09.040 lot more in Alabama. And so we're a low tax 0:20:09.160 --> 0:20:13.520 state with a high work ethic, and we have not 0:20:14.200 --> 0:20:17.320 suffered as we were suggested with the bankruptcy. We now 0:20:17.440 --> 0:20:20.760 have investment grade ratings on our GEO debt UH, and 0:20:20.880 --> 0:20:23.240 we were told that would never happen. We just refunded 0:20:23.320 --> 0:20:27.200 some debt in the last week last month at two 0:20:27.280 --> 0:20:32.920 point five saving the citizens fourteen million dollars. And we 0:20:33.240 --> 0:20:36.760 have redeployed that capital because we have a thousand fewer 0:20:36.800 --> 0:20:39.159 employees today than the day I walked into the office, 0:20:39.560 --> 0:20:42.440 so our expense structure is a lot lower. We've allocated 0:20:42.480 --> 0:20:45.320 twenty five million dollars a year for infrastructure so we 0:20:45.400 --> 0:20:48.760 can attract it, eighteen million dollars a year more for 0:20:48.880 --> 0:20:51.639 our public schools, and ten million dollars a year UH 0:20:51.760 --> 0:20:55.240 for economic development. So on top of tax in centers 0:20:55.320 --> 0:20:58.359 which most people used to recruit businesses, we also have 0:20:58.960 --> 0:21:03.119 a bundle of catsh that we can invest. We just 0:21:03.480 --> 0:21:08.879 UH opened a truck manufacturer. It's a custom truck UH 0:21:09.160 --> 0:21:13.040 seven fifty jobs and we needed about a million and 0:21:13.080 --> 0:21:15.960 a half dollars for some infrastructure work. So instead of 0:21:16.040 --> 0:21:19.560 borrowing the money, we now have a pool of assets 0:21:19.680 --> 0:21:22.160 that we can use to do that. Like I said, 0:21:22.160 --> 0:21:24.000 it's ten million dollars a year. It's a twenty five 0:21:24.359 --> 0:21:26.840 twenty five year attack. So we've got a quarter of 0:21:26.920 --> 0:21:29.920 a billion dollars to recruit and when we need a 0:21:30.040 --> 0:21:34.439 little bit more, be it for a road or a bridge, 0:21:34.480 --> 0:21:36.480 we can do that. Thank you very much for being 0:21:36.520 --> 0:21:39.240 with us. Looking forward to having you again on the program. 0:21:39.400 --> 0:21:43.760 Very interesting topics and thanks for your participation. David Carrington, 0:21:44.040 --> 0:22:04.360 Commissioner of Jefferson County, Alabama. Rebates and drug Pricing. Here 0:22:04.400 --> 0:22:07.040 to tell us more about the industry is Michael Ray. 0:22:07.119 --> 0:22:10.760 He is the chief executive officer of our X Savings Solutions. 0:22:11.119 --> 0:22:13.639 They're based in Overland Park, Kansas, but he joins us 0:22:13.640 --> 0:22:16.280 here in our eleven three OHD studios. Michael, always a pleasure, 0:22:16.320 --> 0:22:18.680 thanks for being here. Explained to people that may not 0:22:18.800 --> 0:22:22.000 be familiar with the use of rebates when it comes 0:22:22.080 --> 0:22:26.520 to purchasing drugs and how it has changed. Yeah, so 0:22:27.160 --> 0:22:31.160 rebates kind of think of them like a kickback of sorts. 0:22:31.280 --> 0:22:33.720 You pay a hundred dollars for the drug. Uh, the 0:22:34.400 --> 0:22:37.399 negotiated price might be eighty uh, and there might be 0:22:37.480 --> 0:22:40.520 a twenty twenty rebate on top of it, so that 0:22:40.680 --> 0:22:44.600 the actual total costs in that scenario is is sixty dollars. 0:22:44.680 --> 0:22:47.680 It's kind of this, uh, like I said, kickback of 0:22:47.760 --> 0:22:50.880 sorts that that goes back to a pair. Why does 0:22:50.960 --> 0:22:54.520 this exist? That's a great question. We live in a 0:22:54.640 --> 0:22:57.600 very complicated world when it comes to drug pricing, and 0:22:57.840 --> 0:23:01.680 the mechanics of how money moves has gotten more complex 0:23:01.760 --> 0:23:06.240 over time. It originally, uh, you know, was a way 0:23:06.320 --> 0:23:10.680 to give an additional discount to the payer, but what's 0:23:10.680 --> 0:23:14.680 happened is it's been manipulated over time and profits have 0:23:14.960 --> 0:23:19.239 have gone up extraordinarily for certain folks in the supply chain. Well, 0:23:19.320 --> 0:23:21.919 we certainly, Uh. One of the reasons why we've been 0:23:21.960 --> 0:23:25.160 paying closer and closer attention to this is because it's 0:23:25.160 --> 0:23:28.440 become a political issue. And then the administration has said 0:23:28.480 --> 0:23:31.240 we're going to reduce drug prices, and in response, some 0:23:31.359 --> 0:23:35.159