1 00:00:02,240 --> 00:00:05,640 Speaker 1: Global business news twenty four hours a day at Bloomberg 2 00:00:05,680 --> 00:00:08,760 Speaker 1: dot com, the Radio plus mobile app, and on your radio. 3 00:00:09,039 --> 00:00:13,280 Speaker 1: This is a Bloomberg Business Flash and I'm Karen Moscow. 4 00:00:13,320 --> 00:00:16,440 Speaker 1: This updates brought to you by National Realty Returns one 5 00:00:16,480 --> 00:00:18,520 Speaker 1: in cash and rented real estate. Find them at n 6 00:00:18,640 --> 00:00:22,120 Speaker 1: r I a dot net. Heus stalks are little change 7 00:00:22,120 --> 00:00:24,360 Speaker 1: as Apple's first sales drop in more than a decade 8 00:00:24,360 --> 00:00:27,920 Speaker 1: stopped investors sentiment about corporate earnings before a policy update 9 00:00:27,960 --> 00:00:30,680 Speaker 1: by the Federal Reserve, who checked the markets every fifteen 10 00:00:30,680 --> 00:00:33,400 Speaker 1: minutes throughout the trading day. On Bloomberg, the S and 11 00:00:33,479 --> 00:00:35,960 Speaker 1: P five hundred down one point to twenty ninety down. 12 00:00:36,000 --> 00:00:38,280 Speaker 1: Jones Industrial average down a tenth of upper cent or 13 00:00:38,280 --> 00:00:41,560 Speaker 1: twenty one points, to seventeen thousand, nine hundred sixty eight. 14 00:00:41,720 --> 00:00:44,520 Speaker 1: The nastacts down six tenths percent or thirty one points, 15 00:00:44,520 --> 00:00:47,519 Speaker 1: to forty eight fifties seven ten. Your treasury up nine 16 00:00:47,520 --> 00:00:49,920 Speaker 1: thirty seconds. The yield one point eight nine percent yield 17 00:00:49,960 --> 00:00:52,360 Speaker 1: on the two year point eight four percent NI make 18 00:00:52,400 --> 00:00:54,560 Speaker 1: scrud oil up two percent or eighty eight cents, to 19 00:00:54,640 --> 00:00:57,640 Speaker 1: forty ninety two. A barrel comic schoold is up three 20 00:00:57,640 --> 00:00:59,760 Speaker 1: tens per cent, or four dollars ten cents at twelve 21 00:00:59,760 --> 00:01:03,360 Speaker 1: forty seven fifty announced the euro and dollar thirteen nineteen, 22 00:01:03,400 --> 00:01:06,840 Speaker 1: the yen one eleven point one six. Apple shares down 23 00:01:07,080 --> 00:01:10,600 Speaker 1: seven point three percent there at nineties six dollars seventy sets. 24 00:01:11,040 --> 00:01:14,080 Speaker 1: Boston Scientific is the best performer in the SNP five 25 00:01:14,160 --> 00:01:16,039 Speaker 1: hundred this morning. It is up eight and a half 26 00:01:16,080 --> 00:01:19,080 Speaker 1: percent after first quarter profit beat analysts estimates, and it 27 00:01:19,200 --> 00:01:22,319 Speaker 1: raised its forecast for the year. And Yahoo reached a 28 00:01:22,319 --> 00:01:25,920 Speaker 1: settlement with activist investors Starboard Value to name four new 29 00:01:25,959 --> 00:01:30,080 Speaker 1: independent directors to the board, averting a proxy war. It's 30 00:01:30,240 --> 00:01:33,120 Speaker 1: little changed at thirty seven dollars ten cents a share, 31 00:01:33,319 --> 00:01:36,880 Speaker 1: and that's a Bloomberg business flash. Mike and Francine, Okay, 32 00:01:37,000 --> 00:01:40,520 Speaker 1: ma Asco, thank you very much. Well, the first of 33 00:01:40,640 --> 00:01:43,720 Speaker 1: May is coming up, and that is roughly when Puerto 34 00:01:43,800 --> 00:01:47,680 Speaker 1: Rico has another large debt payment due and there is 35 00:01:47,720 --> 00:01:50,120 Speaker 1: a big question about whether or not they're going to 36 00:01:50,200 --> 00:01:53,600 Speaker 1: be able to make the payment. John Miller is Co 37 00:01:53,720 --> 00:01:56,400 Speaker 1: had a fixed income for nou vene. He joins us 38 00:01:56,400 --> 00:01:59,600 Speaker 1: now here in the studio, and I guess the straight 39 00:01:59,600 --> 00:02:03,559 Speaker 1: out question is does Puerto Rico default. They've been looking 40 00:02:03,600 --> 00:02:07,000 Speaker 1: for help from the federal government and they haven't got sure. 41 00:02:07,640 --> 00:02:10,640 Speaker 1: It looks likely to us that most of those payments 42 00:02:10,639 --> 00:02:14,240 Speaker 1: will be missed on May one, and that highlights what 43 00:02:14,280 --> 00:02:16,080 Speaker 1: we think is going to be a period of higher 44 00:02:16,160 --> 00:02:18,840 Speaker 1: volatility for Puerto Rican bonds coming up over the summer. 45 00:02:19,240 --> 00:02:21,760 Speaker 1: It also highlights the need, we think for a more 46 00:02:21,840 --> 00:02:25,840 Speaker 1: comprehensive approach, ideally driven by the U. S Government in 47 00:02:25,880 --> 00:02:28,320 Speaker 1: the US Congress, rather than what's going on now, which 48 00:02:28,360 --> 00:02:32,560 Speaker 1: is more haphazard and locally driven. Well, if that happens, 49 00:02:32,880 --> 00:02:36,560 Speaker 1: what does that mean? Uh? I mean there many things 50 00:02:36,560 --> 00:02:38,400 Speaker 1: that can happen, and I have to confess I'm not 51 00:02:38,520 --> 00:02:41,720 Speaker 1: completely familiar with the way these bonds are structure. Do 52 00:02:41,760 --> 00:02:45,160 Speaker 1: they have a cure period and can they make the 53 00:02:45,240 --> 00:02:48,800 Speaker 1: payments within that period? Does it spill over into other 54 00:02:48,919 --> 00:02:54,079 Speaker 1: parts of the muni market. Well, most bonds have thirty days, uh, 55 00:02:54,400 --> 00:02:57,519 Speaker 1: thirty days to cure a technical default. I don't think 56 00:02:57,560 --> 00:02:59,799 Speaker 1: that's really the issue here, because the issue here is 57 00:03:00,120 --> 00:03:02,920 Speaker 1: of liquidity. Just thirty days from now, they probably have 58 00:03:03,000 --> 00:03:05,200 Speaker 1: less cash than they do today, So thirty days from 59 00:03:05,200 --> 00:03:08,960 Speaker 1: now it would be worse. The spillover effects though appear 60 00:03:09,040 --> 00:03:12,880 Speaker 1: to be very moderate uh and less and less over 61 00:03:12,919 --> 00:03:15,480 Speaker 1: the last two and a half years, as this crisis 62 00:03:15,560 --> 00:03:22,640 Speaker 1: has been unfolding. Already, reportedly, based on US Treasury Department comments, 63 00:03:22,680 --> 00:03:24,480 Speaker 1: over a third of the Puerto Rican debt or is 64 00:03:24,520 --> 00:03:28,280 Speaker 1: now owned by distress debt hedge funds. Less than fifty 65 00:03:28,800 --> 00:03:31,680 Speaker 1: of muni funds have any Puerto Rican debt at this 66 00:03:31,720 --> 00:03:36,280 Speaker 1: point in time. And the muni market continues to increase liquidity, 67 00:03:36,320 --> 00:03:41,320 Speaker 1: increase inflows, increased performance in general and uh and so 68 00:03:41,400 --> 00:03:44,560 Speaker 1: this is a situation that's been sort of fragmented off 69 00:03:44,600 --> 00:03:47,160 Speaker 1: from the broader muni market. Will we not see a 70 00:03:47,200 --> 00:03:51,720 Speaker 1: stampede of lawsuits from jilted creditors, Well, that's a distinct possibility. 71 00:03:51,760 --> 00:03:55,920 Speaker 1: That's part of the purpose of the House legislation coming 72 00:03:55,920 --> 00:04:00,360 Speaker 1: out of the Natural Resources Committee bill is a day 73 00:04:00,440 --> 00:04:05,000 Speaker 1: of litigation is a component of that bill. The what's 74 00:04:05,040 --> 00:04:08,080 Speaker 1: happening now is that the governor has the right to 75 00:04:08,160 --> 00:04:10,560 Speaker 1: not pay debt service based on their own local debt 76 00:04:10,560 --> 00:04:14,000 Speaker 1: service mortor, and legislation hasn't exercised that right yet, but 77 00:04:14,080 --> 00:04:16,440 Speaker 1: may need to exercise it on May first. That probably 78 00:04:16,480 --> 00:04:20,760 Speaker 1: would trigger a flood of litigation, particularly on July first. 79 00:04:20,839 --> 00:04:23,800 Speaker 1: If for if one point for one point five billion 80 00:04:23,800 --> 00:04:26,520 Speaker 1: of GEO debt service payments were missed on July one, 81 00:04:26,720 --> 00:04:29,920 Speaker 1: that would that would trigger litigation. We've already seen some 82 00:04:30,360 --> 00:04:35,080 Speaker 1: lawsuits filed against the Government Development Bank, so that absolutely 83 00:04:35,080 --> 00:04:37,440 Speaker 1: that risk could grow. So, John, what's this is a 84 00:04:37,440 --> 00:04:41,480 Speaker 1: bigger picture. Here is what that's Once this eventually gets resolved, 85 00:04:41,520 --> 00:04:45,120 Speaker 1: with all the lawsuits and all the creditors involved, the 86 00:04:45,200 --> 00:04:49,839 Speaker 1: US needs to reevaluate the political status of Puerto Rico. Well, 87 00:04:49,880 --> 00:04:53,120 Speaker 1: I think that the US needs to get involved sooner 88 00:04:53,600 --> 00:04:57,800 Speaker 1: and uh, and they they are involved. Nothing has uh, 89 00:04:57,839 --> 00:05:02,320 Speaker 1: nothing has become law yet, but Congresses is working hard 90 00:05:02,360 --> 00:05:06,640 Speaker 1: on a bill that would do several things. One most importantly, 91 00:05:07,200 --> 00:05:10,640 Speaker 1: create a financial control Board, which would do the due 92 00:05:10,640 --> 00:05:15,640 Speaker 1: diligence necessary the auditing UH to really better understand what 93 00:05:15,680 --> 00:05:19,240 Speaker 1: the debt service capability of the commonwealth is, how much 94 00:05:19,279 --> 00:05:21,440 Speaker 1: debt they could carry. I think how much debt they 95 00:05:21,440 --> 00:05:25,760 Speaker 1: could carry is shrinking as we speak, because the ex 96 00:05:25,839 --> 00:05:29,039 Speaker 1: migration of the most employable segments of the population is 97 00:05:29,080 --> 00:05:31,200 Speaker 1: accelerating and it's up to about two and a half 98 00:05:31,200 --> 00:05:35,520 Speaker 1: percent in the last twelve months. Uh. So getting Congress 99 00:05:35,560 --> 00:05:40,360 Speaker 1: involved stay of litigation due diligence, financial Control board on 100 00:05:40,600 --> 00:05:44,239 Speaker 1: a sustainable fiscal plan. These are all I think, better 101 00:05:44,279 --> 00:05:48,240 Speaker 1: scenarios than just a flood of litigation which could take 102 00:05:48,279 --> 00:05:51,200 Speaker 1: a decade to sort out. You look at the case 103 00:05:51,240 --> 00:05:55,840 Speaker 1: of Argentina and there were the holdout hedge funds that 104 00:05:56,440 --> 00:05:59,159 Speaker 1: did go to court and in the long run got 105 00:05:59,200 --> 00:06:04,119 Speaker 1: the country to pay. What's the likelihood that, um, these 106 00:06:04,279 --> 00:06:08,159 Speaker 1: the vulture funds that have been buying in are just 107 00:06:08,200 --> 00:06:10,159 Speaker 1: going to hold out and try to block any kind 108 00:06:10,160 --> 00:06:16,520 Speaker 1: of restructuring until they get fully coveted. Well, there's no 109 00:06:16,600 --> 00:06:19,000 Speaker 1: question that they that they are and will continue to 110 00:06:19,040 --> 00:06:22,279 Speaker 1: try and block any type of sort of orderly restructuring. 111 00:06:23,080 --> 00:06:26,600 Speaker 1: Most of the most of the commitments are being made 112 00:06:26,680 --> 00:06:29,720 Speaker 1: in the general Obligation debt with the idea that if 113 00:06:29,800 --> 00:06:33,200 Speaker 1: those bonds are treated better than some of their repayment 114 00:06:33,400 --> 00:06:36,320 Speaker 1: or potentially a higher repayment on g O bonds would 115 00:06:36,360 --> 00:06:39,680 Speaker 1: come at the expense of everything else. Everything else being 116 00:06:39,720 --> 00:06:43,080 Speaker 1: things like Cofinea bonds or GDB bonds that could be 117 00:06:43,160 --> 00:06:46,279 Speaker 1: forced lower. So there's only there's only a certain amount 118 00:06:46,360 --> 00:06:50,000 Speaker 1: of debt service capability that the commonwealth economy can support. 119 00:06:50,680 --> 00:06:54,640 Speaker 1: So They're one route is essentially slug it out among 120 00:06:54,760 --> 00:06:58,000 Speaker 1: various inter creditor groups in terms of in terms of 121 00:06:58,000 --> 00:07:00,720 Speaker 1: who has priority and who can reduce the recovery rate 122 00:07:00,720 --> 00:07:03,880 Speaker 1: on somebody else to increase your own recovery rate. That's 123 00:07:03,880 --> 00:07:06,520 Speaker 1: that's the actually the current path. I think that has 124 00:07:06,600 --> 00:07:09,960 Speaker 1: collateral damage on the economy itself. I think that has 125 00:07:10,000 --> 00:07:13,520 Speaker 1: collateral damage on health and human services within Puerto Rico, 126 00:07:13,560 --> 00:07:18,600 Speaker 1: among other things. Or or put this, uh put a 127 00:07:18,640 --> 00:07:20,960 Speaker 1: stay of litigation in place, and put this under the 128 00:07:20,960 --> 00:07:25,320 Speaker 1: control of a of an independent and unbiased board that 129 00:07:25,360 --> 00:07:28,920 Speaker 1: had that would be drawn up from lists of individuals 130 00:07:28,960 --> 00:07:31,640 Speaker 1: selected by the House and Senate and and in selected 131 00:07:31,640 --> 00:07:35,080 Speaker 1: by the President United States. Can the Congress actually, can 132 00:07:35,280 --> 00:07:41,280 Speaker 1: US Congress intervene if Puerto Rico stor renders its fiscal sovereignty, Well, 133 00:07:41,320 --> 00:07:47,440 Speaker 1: the US Congress can intervene based on its own constitutional authority. 134 00:07:47,560 --> 00:07:50,080 Speaker 1: Uh So, now they would prefer that that would be 135 00:07:50,160 --> 00:07:52,960 Speaker 1: done in a way that in a way that the 136 00:07:53,000 --> 00:07:55,600 Speaker 1: government of Puerto Rico itself is comfortable with the way 137 00:07:55,640 --> 00:07:58,680 Speaker 1: in which the this board is structured. In other words, 138 00:07:59,120 --> 00:08:02,240 Speaker 1: uh In other words, back and forth could be could 139 00:08:02,280 --> 00:08:05,680 Speaker 1: be had between fiscal policies that the Puerto Rican government 140 00:08:05,720 --> 00:08:08,480 Speaker 1: would be comfortable with, as well as the fiscal policies 141 00:08:08,520 --> 00:08:12,280 Speaker 1: that this hypothetical new control board is recommending. UH So 142 00:08:12,400 --> 00:08:15,680 Speaker 1: some sort of partnership there the devils in the details 143 00:08:15,680 --> 00:08:18,720 Speaker 1: in terms of how to exactly right that up, but 144 00:08:18,960 --> 00:08:23,840 Speaker 1: both uh both of those key constituencies would have would 145 00:08:23,840 --> 00:08:26,480 Speaker 1: have a voice. John Miller from New Ving, thank you 146 00:08:26,560 --> 00:08:30,040 Speaker 1: very much. He's co ahead of fixed Income and a 147 00:08:30,360 --> 00:08:32,920 Speaker 1: deadline coming up this weekend for Puerto Rico. Will see 148 00:08:32,960 --> 00:08:35,920 Speaker 1: what happens, and then it's a definitely story, friend, that's 149 00:08:36,600 --> 00:08:40,040 Speaker 1: not going away. We also have a couple of stories 150 00:08:40,080 --> 00:08:43,439 Speaker 1: that aren't going away. Central banks that are meeting. We 151 00:08:43,480 --> 00:08:46,440 Speaker 1: have the Federal Reserve this afternoon here in the US 152 00:08:46,520 --> 00:08:49,960 Speaker 1: tonight for you UH in London, and then the Bank 153 00:08:50,000 --> 00:08:54,680 Speaker 1: of Japan. They don't put a time on their release, friends, 154 00:08:54,720 --> 00:08:56,760 Speaker 1: so you you might have to stay up all night 155 00:08:56,880 --> 00:08:59,520 Speaker 1: to see what happens there. That's exciting, or we could 156 00:08:59,559 --> 00:09:01,680 Speaker 1: just wake up tomorrow morning and look at yen. Although 157 00:09:02,360 --> 00:09:04,880 Speaker 1: although it is cheating and it's probably not related to 158 00:09:04,880 --> 00:09:07,280 Speaker 1: what Governor Krota is trying to do, we've seen that 159 00:09:07,320 --> 00:09:09,760 Speaker 1: in the past where the governor tries to surprise the 160 00:09:09,760 --> 00:09:13,640 Speaker 1: markets and then the undersize. So actually, I'll rise anyway. Well, 161 00:09:13,679 --> 00:09:15,560 Speaker 1: it would be good for us in terms of the 162 00:09:15,600 --> 00:09:18,160 Speaker 1: good story if they do, as Mickey Levi was telling 163 00:09:18,240 --> 00:09:20,880 Speaker 1: us earlier this morning, if they do something big. I 164 00:09:20,920 --> 00:09:24,120 Speaker 1: don't know what the odds are of that, but they're 165 00:09:24,160 --> 00:09:29,240 Speaker 1: expected to at least do something unlike the American Central Bank. Yeah. Although, 166 00:09:29,280 --> 00:09:31,559 Speaker 1: you know, I thought one of our most important interviews 167 00:09:31,559 --> 00:09:34,160 Speaker 1: of the day, Mike was when we spoke to Jane 168 00:09:34,160 --> 00:09:36,439 Speaker 1: Follio of Rabble Bank, and she was saying, the Fed 169 00:09:36,559 --> 00:09:39,080 Speaker 1: has been so duvish that even if you get a 170 00:09:39,120 --> 00:09:42,000 Speaker 1: little bit of a hawkish stance, that would be doing 171 00:09:42,040 --> 00:09:45,120 Speaker 1: a little something. So if you're to position yourself, you're 172 00:09:45,160 --> 00:09:48,200 Speaker 1: probably on the easier side of the trade. That way, 173 00:09:48,360 --> 00:09:50,600 Speaker 1: we should make a little bit here. The Fed meets 174 00:09:50,640 --> 00:09:55,160 Speaker 1: the Bank of Japan needs the end tomorrow weaker or stronger. 175 00:09:55,160 --> 00:09:57,280 Speaker 1: What do you think, Oh, my gosh, we're putting money 176 00:09:57,280 --> 00:10:01,679 Speaker 1: on this. I go stronger. Oh that's fine, then, so 177 00:10:01,760 --> 00:10:08,199 Speaker 1: you want it weaker, you think it'll be stronger. I'm 178 00:10:08,240 --> 00:10:11,320 Speaker 1: not sure. I actually think that Governor Kuroda has been 179 00:10:11,360 --> 00:10:14,040 Speaker 1: doing quite a lot. He's not been pre announcing, right, 180 00:10:14,080 --> 00:10:15,719 Speaker 1: so when you look at the FED, when you look 181 00:10:15,720 --> 00:10:18,400 Speaker 1: at the ECB, they've really been trying to pre warn markets. 182 00:10:18,440 --> 00:10:22,559 Speaker 1: Governor Kroda has really deliberately surprised the markets, and despite that, 183 00:10:22,600 --> 00:10:25,760 Speaker 1: you see a much stronger when again since he announced 184 00:10:25,800 --> 00:10:27,800 Speaker 1: negative rate. So I really don't know how much you 185 00:10:27,840 --> 00:10:30,480 Speaker 1: would throw at it unless we get helicopter money, but 186 00:10:30,600 --> 00:10:33,760 Speaker 1: that may be too soon to drive yan lower. Well, 187 00:10:33,800 --> 00:10:35,520 Speaker 1: that will be fun to see you that does come. 188 00:10:35,559 --> 00:10:38,600 Speaker 1: Overnight you can listen to Bloomberg First Word Asia for 189 00:10:38,640 --> 00:10:41,440 Speaker 1: all the details from the Bank of Japan decision, and 190 00:10:41,720 --> 00:10:44,640 Speaker 1: of course this afternoon you can listen to Bloomberg Radio 191 00:10:44,640 --> 00:10:47,920 Speaker 1: two pm, Wall Street Time seven pm in London for 192 00:10:48,080 --> 00:10:52,440 Speaker 1: full coverage of the FED decision. Myself, along with Scarlett 193 00:10:52,440 --> 00:10:55,480 Speaker 1: fou and Joe Weisenhale will bring you the details and 194 00:10:55,600 --> 00:10:59,120 Speaker 1: the reaction. I thank to Francie Lakwa in London today. 195 00:10:59,120 --> 00:11:02,400 Speaker 1: W u n is our producer and our global technical 196 00:11:02,400 --> 00:11:05,680 Speaker 1: director is ken Fall You. We'll see you back here 197 00:11:05,720 --> 00:11:13,079 Speaker 1: tomorrow on Bloomberg Surveillance. This is Bloomberg Radio Worldwide.