1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,560 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg P M L 6 00:00:20,840 --> 00:00:32,040 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com, Amazon 7 00:00:32,120 --> 00:00:35,040 Speaker 1: dot Com, Berkshire Hathaway, and JP Morgan Chase. They say 8 00:00:35,080 --> 00:00:37,520 Speaker 1: that they're going to collaborate on a way to offer 9 00:00:37,680 --> 00:00:41,599 Speaker 1: healthcare services to their US employees. Here to tell us 10 00:00:41,640 --> 00:00:45,560 Speaker 1: more is Max Nisson, our Bloomberg Gadfly calumnists. He covers 11 00:00:45,600 --> 00:00:48,680 Speaker 1: all things related to healthcare. Max, thanks very much for 12 00:00:48,840 --> 00:00:51,199 Speaker 1: coming in. We spoke earlier in the morning. What if 13 00:00:51,240 --> 00:00:55,320 Speaker 1: you learned by investigating whatever details they have released about 14 00:00:55,360 --> 00:00:58,800 Speaker 1: this collaboration. So the thing about it is that there 15 00:00:58,840 --> 00:01:01,760 Speaker 1: are so few details that you can sort of read 16 00:01:02,160 --> 00:01:04,399 Speaker 1: the release and and the potential for the future of 17 00:01:04,400 --> 00:01:08,160 Speaker 1: this endeavor really anyway you want. Um. If you're an 18 00:01:08,160 --> 00:01:10,640 Speaker 1: optimist or you're just intrigued by the idea, you can 19 00:01:10,680 --> 00:01:13,320 Speaker 1: see it as the potential for these companies to kind 20 00:01:13,360 --> 00:01:16,760 Speaker 1: of pioneer a new model of employer healthcare where they 21 00:01:16,800 --> 00:01:19,800 Speaker 1: eventually are running their health coverage on their own and 22 00:01:19,800 --> 00:01:23,640 Speaker 1: can potentially export that model to other companies. If you're 23 00:01:23,640 --> 00:01:26,160 Speaker 1: a skeptic, on the other hand, um, you see this 24 00:01:26,240 --> 00:01:29,399 Speaker 1: as a kind of just a pr play um given 25 00:01:29,440 --> 00:01:32,400 Speaker 1: added luster by the names involved, and you know, you 26 00:01:32,440 --> 00:01:35,480 Speaker 1: point out the fact that technology is more often referred 27 00:01:35,520 --> 00:01:38,520 Speaker 1: to as a healthcare savior than um actually you know, 28 00:01:38,560 --> 00:01:40,640 Speaker 1: being able to deliver it. And the fact that this 29 00:01:40,680 --> 00:01:42,720 Speaker 1: isn't the first time that a consortium of companies has 30 00:01:42,760 --> 00:01:45,520 Speaker 1: gotten together to try to bring down healthcare costs. Well, okay, 31 00:01:45,600 --> 00:01:48,600 Speaker 1: let's let me just play devil advocate here, because none 32 00:01:48,640 --> 00:01:51,520 Speaker 1: of these companies are healthcare companies. None of them have 33 00:01:51,600 --> 00:01:57,680 Speaker 1: ever run healthcare companies. What makes them think that they 34 00:01:57,720 --> 00:02:01,760 Speaker 1: can do it better than the companies and the organizations 35 00:02:01,840 --> 00:02:04,880 Speaker 1: that have devoted their entire lives to this. It's not 36 00:02:04,960 --> 00:02:09,120 Speaker 1: as if anyone goes out to create a bad or 37 00:02:09,240 --> 00:02:13,560 Speaker 1: imperfect health care system. So I think they definitely acknowledge 38 00:02:13,560 --> 00:02:15,360 Speaker 1: this in their press release that you know, we we 39 00:02:15,360 --> 00:02:17,720 Speaker 1: don't know much about this, but they also point to 40 00:02:17,760 --> 00:02:20,840 Speaker 1: the fact that perhaps it needs kind of an untested 41 00:02:20,880 --> 00:02:23,919 Speaker 1: skeptic one that's kind of less involved in sort of 42 00:02:23,919 --> 00:02:28,000 Speaker 1: the labyrinthine weirdness of the U S health care system. 43 00:02:28,040 --> 00:02:29,920 Speaker 1: But that's going to be the really difficult thing to 44 00:02:30,160 --> 00:02:32,280 Speaker 1: for them. I think what they point to as their 45 00:02:32,320 --> 00:02:35,320 Speaker 1: potential advantage is the fact that they're looking to take 46 00:02:35,400 --> 00:02:38,800 Speaker 1: kind of the profit motivation UM out of some particular 47 00:02:38,840 --> 00:02:41,280 Speaker 1: parts of the health care system. You know, with insurers 48 00:02:41,280 --> 00:02:43,519 Speaker 1: and and PBM is really any middlemen in the health 49 00:02:43,520 --> 00:02:46,920 Speaker 1: care system, You've got this sort of competing dual mandate 50 00:02:47,360 --> 00:02:49,920 Speaker 1: where your your job is to bring down you know, 51 00:02:49,919 --> 00:02:54,560 Speaker 1: deliver healthcare as inexpensively and efficiently as possible, but you 52 00:02:54,600 --> 00:02:57,480 Speaker 1: also with the highest quality exactly, but you also have 53 00:02:57,560 --> 00:03:01,000 Speaker 1: a profit motivation. You're trying to you know, generate a 54 00:03:01,040 --> 00:03:04,040 Speaker 1: return for your shareholders. So you see the kind of 55 00:03:04,080 --> 00:03:07,520 Speaker 1: conflict not all the time where you know, PBMs they 56 00:03:07,560 --> 00:03:10,400 Speaker 1: do a lot to bring down healthcare costs, but also 57 00:03:10,520 --> 00:03:13,880 Speaker 1: since they benefit when you know, they negotiate a higher 58 00:03:13,880 --> 00:03:16,800 Speaker 1: rebate on an expensive drug, they have sort of this 59 00:03:16,880 --> 00:03:20,519 Speaker 1: perverse effect where they push the list price of medicines up, 60 00:03:21,160 --> 00:03:23,120 Speaker 1: and um, you know, while most people don't pay the 61 00:03:23,160 --> 00:03:25,880 Speaker 1: list price, it does severely impact the subset of the 62 00:03:25,880 --> 00:03:29,920 Speaker 1: population and and does create a lot of problems. So potentially, 63 00:03:30,000 --> 00:03:34,080 Speaker 1: by you know, taking that little profit margin out, um, 64 00:03:34,160 --> 00:03:37,200 Speaker 1: they'll potentially be able to deliver at a lower cost 65 00:03:37,280 --> 00:03:40,880 Speaker 1: over time. Okay, but doesn't that mean that someone else 66 00:03:41,000 --> 00:03:43,800 Speaker 1: is going to have to pick up the tab for 67 00:03:44,240 --> 00:03:48,040 Speaker 1: that lack of profit? Oh? Absolutely, I mean they're they're 68 00:03:48,080 --> 00:03:51,080 Speaker 1: going to be Whenever you introduce new players or or 69 00:03:51,160 --> 00:03:54,200 Speaker 1: take out one perverse effect, you're gonna introduce another one. 70 00:03:54,600 --> 00:03:56,640 Speaker 1: You know. In this case, one that immediately comes to 71 00:03:56,680 --> 00:03:58,920 Speaker 1: mind is the fact that, you know, the reason that 72 00:03:59,000 --> 00:04:01,560 Speaker 1: self ensured employ lars kind of work the way they do, 73 00:04:02,000 --> 00:04:04,720 Speaker 1: UM with the health insurer administrating the plan, even if 74 00:04:04,760 --> 00:04:08,000 Speaker 1: they're you know, the ones actually funding the insurance. Um. 75 00:04:08,000 --> 00:04:11,080 Speaker 1: It's so when someone gets a claim denied, they look 76 00:04:11,160 --> 00:04:14,120 Speaker 1: to the insurer. They don't look at their employer. But um, 77 00:04:14,200 --> 00:04:17,160 Speaker 1: if you can think about, you know, the reaction, um, 78 00:04:17,200 --> 00:04:19,440 Speaker 1: even if it's just their own employees, when they know 79 00:04:19,680 --> 00:04:23,840 Speaker 1: that it's their employer denying a service, denying a drug. 80 00:04:23,920 --> 00:04:26,440 Speaker 1: Because at the end of the day, you know, really 81 00:04:26,520 --> 00:04:29,000 Speaker 1: the only way in a lot of ways, unless you 82 00:04:29,080 --> 00:04:32,000 Speaker 1: make a lot of systemic changes to control healthcare costs 83 00:04:32,520 --> 00:04:35,800 Speaker 1: in the nearer long term is to limit choice. If 84 00:04:35,800 --> 00:04:39,039 Speaker 1: people get whatever care they want, whenever they want, you 85 00:04:39,080 --> 00:04:42,480 Speaker 1: get very expensive care. And the fact that there's a 86 00:04:42,480 --> 00:04:44,200 Speaker 1: lot of choice in the US healthcare system and a 87 00:04:44,200 --> 00:04:46,560 Speaker 1: lot of variation in terms of how it gets paid 88 00:04:46,560 --> 00:04:48,680 Speaker 1: for it by whom it's what makes it so expensive. 89 00:04:48,760 --> 00:04:52,359 Speaker 1: So does anybody bring up the term socialized medicine anymore? 90 00:04:53,240 --> 00:04:56,520 Speaker 1: I mean now? And then I think I saw a 91 00:04:56,560 --> 00:04:58,799 Speaker 1: couple of people referring to Warren buff in the past, 92 00:04:58,920 --> 00:05:02,839 Speaker 1: is said single payer insurance is perhaps the best model 93 00:05:02,839 --> 00:05:05,560 Speaker 1: in the long run. Um, this is definitely not that. 94 00:05:05,800 --> 00:05:10,800 Speaker 1: If anything, it kind of reinforces the kind of current dichotomy. Well, 95 00:05:10,839 --> 00:05:13,000 Speaker 1: that's why I asked that, because on the one hand, 96 00:05:13,000 --> 00:05:15,640 Speaker 1: you would think that, all right, if you were saying 97 00:05:15,640 --> 00:05:18,920 Speaker 1: that what you want is high quality healthcare out of 98 00:05:19,120 --> 00:05:22,479 Speaker 1: what they would consider to be a fair or reasonable price, 99 00:05:22,960 --> 00:05:27,839 Speaker 1: everybody that participates in the delivery of that healthcare needs 100 00:05:27,880 --> 00:05:32,560 Speaker 1: to be paid. And no matter how transparent or how 101 00:05:32,640 --> 00:05:36,920 Speaker 1: much technology you throw at the situation, I have a 102 00:05:36,920 --> 00:05:41,000 Speaker 1: hard time understanding exactly what kind of competition is going 103 00:05:41,080 --> 00:05:44,400 Speaker 1: to drive these prices down other than a heavy handed 104 00:05:44,880 --> 00:05:47,560 Speaker 1: corporate entity that says, look, we have over a million 105 00:05:47,600 --> 00:05:50,640 Speaker 1: insured people, you better give us the best price. I mean, 106 00:05:50,680 --> 00:05:53,240 Speaker 1: that's really the question. Um. At the end of the day, 107 00:05:53,240 --> 00:05:56,039 Speaker 1: it comes down to negotiating power a lot of the time, 108 00:05:56,320 --> 00:05:59,159 Speaker 1: which is why you've seen so much consolidation basically everywhere 109 00:05:59,160 --> 00:06:01,400 Speaker 1: in the healthcare sector. You know, one point two million 110 00:06:01,480 --> 00:06:03,720 Speaker 1: is a lot of people, and I think you can 111 00:06:03,760 --> 00:06:05,680 Speaker 1: add some weight behind the fact that you know there 112 00:06:05,680 --> 00:06:08,400 Speaker 1: also be some families that will be insured, and just 113 00:06:08,480 --> 00:06:12,320 Speaker 1: the pure financial might of these companies. But United Health 114 00:06:12,400 --> 00:06:15,320 Speaker 1: just its employer arm you know, we're not even gonna 115 00:06:15,320 --> 00:06:18,720 Speaker 1: get into Medicare and Medicaid that's insurance or administers the 116 00:06:18,760 --> 00:06:22,360 Speaker 1: insurance of somewhere around thirty million people. So you're you're 117 00:06:22,400 --> 00:06:25,400 Speaker 1: not you're not competitive on the negotiating side with them. 118 00:06:26,040 --> 00:06:28,279 Speaker 1: The question is whether if you kind of take out 119 00:06:28,320 --> 00:06:31,240 Speaker 1: their profit margin, maybe you don't have to quite get 120 00:06:31,600 --> 00:06:34,000 Speaker 1: as good of a price to still have an outcome 121 00:06:34,040 --> 00:06:37,800 Speaker 1: that's potentially superior. But that's a that's a pretty slim margin, 122 00:06:37,880 --> 00:06:41,320 Speaker 1: and that's a big difference in negotiating powers. So um, 123 00:06:41,520 --> 00:06:43,640 Speaker 1: it's going to be a challenge to for them to 124 00:06:43,680 --> 00:06:46,200 Speaker 1: get prices downe in a significant way. If again, they 125 00:06:46,200 --> 00:06:49,640 Speaker 1: are going the route of actually managing health care plans 126 00:06:49,680 --> 00:06:52,680 Speaker 1: is opposed to, you know, tinkering around the edges with technology, 127 00:06:52,800 --> 00:06:54,640 Speaker 1: which might really be the case. We don't actually know, 128 00:06:55,160 --> 00:06:57,000 Speaker 1: given you know, on one hand you of this very 129 00:06:57,000 --> 00:07:00,080 Speaker 1: grandiose statement, but very little on what actually they're gonna do. 130 00:07:00,360 --> 00:07:03,400 Speaker 1: All right, Let's say that Warren Buffett calls Max Nisson 131 00:07:03,560 --> 00:07:07,800 Speaker 1: later today and says, Max, I'd be curious what would 132 00:07:07,800 --> 00:07:12,600 Speaker 1: you recommend to begin? What should we do when we 133 00:07:12,640 --> 00:07:15,000 Speaker 1: deliver healthcare to our employees? What would be one of 134 00:07:15,040 --> 00:07:21,200 Speaker 1: the things that you would recommend. I think the first 135 00:07:21,200 --> 00:07:23,400 Speaker 1: thing you have to look at is the places where 136 00:07:24,040 --> 00:07:27,720 Speaker 1: the most health the most healthcare spending is done. Um. 137 00:07:27,760 --> 00:07:29,680 Speaker 1: You know, people like to point at drugs a lot 138 00:07:29,720 --> 00:07:31,000 Speaker 1: of the time, but at the end of the day, 139 00:07:31,000 --> 00:07:34,280 Speaker 1: even though they are very expensive, it's less than of 140 00:07:34,320 --> 00:07:37,400 Speaker 1: healthcare expenditure. So the place to start, I think is 141 00:07:37,440 --> 00:07:41,440 Speaker 1: definitely on the point on care and um, just starting 142 00:07:41,480 --> 00:07:44,000 Speaker 1: to look at what are people spending the most care 143 00:07:44,000 --> 00:07:47,040 Speaker 1: out and how do we direct people to lower cost entities? 144 00:07:47,520 --> 00:07:50,160 Speaker 1: And that that's not easy again because people hate being 145 00:07:50,320 --> 00:07:53,960 Speaker 1: pushed into healthcare decisions. By figuring out how to get 146 00:07:53,960 --> 00:07:57,520 Speaker 1: people you know, invest more in preventative care, in attempting 147 00:07:57,560 --> 00:08:00,560 Speaker 1: to avoid at least really like a cute event inventions 148 00:08:00,640 --> 00:08:04,520 Speaker 1: and hospitalizations, UM by getting ahead of time. And and 149 00:08:04,640 --> 00:08:06,840 Speaker 1: this might actually be easier for them because this is 150 00:08:06,880 --> 00:08:09,920 Speaker 1: going to be generally relative to the entire you know, 151 00:08:10,000 --> 00:08:13,040 Speaker 1: spectrum of the U. S population, pretty healthy people. These 152 00:08:13,040 --> 00:08:16,720 Speaker 1: are people that are in generally like pretty good jobs, 153 00:08:16,760 --> 00:08:21,280 Speaker 1: working for excellent corporations. UM. On the younger side. You know, 154 00:08:21,320 --> 00:08:24,960 Speaker 1: you don't have Medicare and medicaiding here, so UM, just 155 00:08:24,960 --> 00:08:27,840 Speaker 1: trying to figure out the subset of those less healthy people. 156 00:08:28,000 --> 00:08:30,560 Speaker 1: You know, people with chronic conditions. Target those first. But 157 00:08:30,800 --> 00:08:34,280 Speaker 1: you know that's that's that's not a unique prescription. But 158 00:08:35,200 --> 00:08:37,199 Speaker 1: maybe your voice add your voice to it. Maybe warm 159 00:08:37,240 --> 00:08:39,640 Speaker 1: Buffett will call. If he does, I know you're gonna 160 00:08:39,720 --> 00:08:43,280 Speaker 1: let us know. Thanks very much. Max Neeson is our 161 00:08:43,320 --> 00:09:00,240 Speaker 1: Bloomberg gad Fly columnist for all things healthcare. You want 162 00:09:00,240 --> 00:09:02,480 Speaker 1: to visit now with Robert Lawrence. He is the Albert 163 00:09:02,520 --> 00:09:07,360 Speaker 1: Williams Professor of International Trade and Investment at Harvard Kennedy School. 164 00:09:08,080 --> 00:09:11,400 Speaker 1: Professor Lawrence, thanks very much for being with us. You're welcome. 165 00:09:11,840 --> 00:09:14,280 Speaker 1: Can you start off just going to a little bit 166 00:09:14,280 --> 00:09:18,400 Speaker 1: of a history for US about frozen chicken and the 167 00:09:18,480 --> 00:09:23,000 Speaker 1: Subaru bratt and I think you know why I'm combining 168 00:09:23,040 --> 00:09:27,680 Speaker 1: both of those. I'm actually not sure why. Well, Okay, 169 00:09:28,080 --> 00:09:30,280 Speaker 1: this goes back to something you were talking about having 170 00:09:30,280 --> 00:09:33,280 Speaker 1: to do with trade, and back in nineteen sixty to 171 00:09:33,480 --> 00:09:37,560 Speaker 1: the European Common Market, bard access to US frozen chicken 172 00:09:37,600 --> 00:09:41,640 Speaker 1: imports at the same time. Okay, go for it. Yeah, 173 00:09:41,679 --> 00:09:44,680 Speaker 1: I didn't realize they were frozen, to be honest, Okay, 174 00:09:44,760 --> 00:09:48,800 Speaker 1: they are frozen. You know, Europe formed a common market, 175 00:09:49,559 --> 00:09:54,000 Speaker 1: and when they did, they raised tariffs on American chicken. 176 00:09:55,200 --> 00:09:57,720 Speaker 1: And as a result of that, the United States was 177 00:09:57,880 --> 00:10:03,679 Speaker 1: entitled to retaliate and uh raise some tariffs on the Europeans. 178 00:10:03,800 --> 00:10:06,840 Speaker 1: And we looked around and we thought, well, where could 179 00:10:06,840 --> 00:10:11,320 Speaker 1: we find a European product that would be vulnerable, And 180 00:10:11,640 --> 00:10:16,080 Speaker 1: we actually raised tariffs on the Combi, the Volkswagen buses 181 00:10:16,559 --> 00:10:19,880 Speaker 1: that were being sold in the US. But in fact, 182 00:10:19,960 --> 00:10:23,120 Speaker 1: when we raised those tariffs, we did it for all 183 00:10:23,200 --> 00:10:27,880 Speaker 1: countries we were entitled to, and on all trucks. So 184 00:10:27,960 --> 00:10:33,360 Speaker 1: in effect, the United States is protected. The United States 185 00:10:33,360 --> 00:10:37,640 Speaker 1: economy has a tariffs on all trucks that are imported 186 00:10:37,640 --> 00:10:41,480 Speaker 1: into the US. That compares with the two point five 187 00:10:41,559 --> 00:10:45,800 Speaker 1: percent tariff that we have on finished automobiles. So the 188 00:10:45,880 --> 00:10:49,640 Speaker 1: result is even to this day, as a result of 189 00:10:49,679 --> 00:10:53,640 Speaker 1: that Chicken Wall, the US has very high tariffs and 190 00:10:53,800 --> 00:10:57,400 Speaker 1: high protection on trucks, and there are very sensitive issue 191 00:10:57,400 --> 00:10:59,960 Speaker 1: as you could imagine in any of our trade negotiating 192 00:11:00,000 --> 00:11:03,480 Speaker 1: as indeed, and the reason I brought up the Subaru 193 00:11:03,600 --> 00:11:07,680 Speaker 1: bratt is because in order to sort of rebrand it 194 00:11:07,760 --> 00:11:11,720 Speaker 1: as an open air passenger car, they put two rear 195 00:11:11,880 --> 00:11:16,920 Speaker 1: facing seats in the bed of the actual pick up, right, 196 00:11:17,080 --> 00:11:20,000 Speaker 1: because you want to be classified as a car rather 197 00:11:20,040 --> 00:11:23,480 Speaker 1: than a truck. You're an important all right, now we 198 00:11:23,520 --> 00:11:27,280 Speaker 1: can Can we tie this to the ongoing renegotiation of 199 00:11:27,400 --> 00:11:31,680 Speaker 1: NAFTA having to do with automobiles, trucks and the amount 200 00:11:31,720 --> 00:11:36,640 Speaker 1: of content that comes from the United States in these vehicles. Yes, absolutely, 201 00:11:36,760 --> 00:11:40,480 Speaker 1: you see, um, the intention of the administration is to 202 00:11:40,559 --> 00:11:44,840 Speaker 1: try to get more production in the United States, and 203 00:11:45,320 --> 00:11:48,839 Speaker 1: actually one way they're going to try to do that 204 00:11:49,559 --> 00:11:55,080 Speaker 1: is to insist that UH products have more North American 205 00:11:55,160 --> 00:11:58,320 Speaker 1: and more US content in them in order to qualify 206 00:11:58,520 --> 00:12:01,760 Speaker 1: for the tariff reduction that you get through the North 207 00:12:01,800 --> 00:12:07,560 Speaker 1: America Free Trade Agreement. Now, when it comes to automobiles, UH, 208 00:12:07,800 --> 00:12:10,199 Speaker 1: since the tariff is only two and a half percent, 209 00:12:10,720 --> 00:12:14,079 Speaker 1: the administration doesn't really have much leverage over the foreign 210 00:12:14,080 --> 00:12:19,840 Speaker 1: countries over Mexico or Canada, because at worst, UH, those 211 00:12:19,960 --> 00:12:23,280 Speaker 1: UH product producers will simply pay this two and a 212 00:12:23,320 --> 00:12:27,800 Speaker 1: half percent tariff if they can't meet the local content productions. 213 00:12:27,840 --> 00:12:30,800 Speaker 1: But when it comes to trucks, since the tariff rate 214 00:12:30,880 --> 00:12:36,840 Speaker 1: is well, there is a huge incentive to qualify for 215 00:12:37,040 --> 00:12:40,240 Speaker 1: the NAFTA reduction. And that's where I think the the 216 00:12:40,320 --> 00:12:45,040 Speaker 1: administration has some more negotiating leverage. So if you were 217 00:12:45,040 --> 00:12:49,360 Speaker 1: advising the administration and you have worked in previous administrations, 218 00:12:49,400 --> 00:12:54,520 Speaker 1: what would you be telling Robert Lightheiser are offering as advice. Well, 219 00:12:55,120 --> 00:12:58,320 Speaker 1: you see, I don't think UM, that this is a 220 00:12:58,360 --> 00:13:03,240 Speaker 1: great idea in the first place, because UM putting a, 221 00:13:04,400 --> 00:13:09,400 Speaker 1: we we have very integrated supply chains between ourselves and Mexico, 222 00:13:10,360 --> 00:13:15,800 Speaker 1: and if in fact we do UH disrupt those supply chains, 223 00:13:15,920 --> 00:13:19,199 Speaker 1: a lot of the products that are produced trucks and 224 00:13:19,280 --> 00:13:23,760 Speaker 1: cars in the US have Mexican content. UH. If there 225 00:13:23,840 --> 00:13:28,319 Speaker 1: is now a much more restrictive policy, it's going to 226 00:13:28,440 --> 00:13:31,800 Speaker 1: raise the cost of production, and I think could damage 227 00:13:32,160 --> 00:13:35,200 Speaker 1: employment in the auto industry and truck industry in the 228 00:13:35,320 --> 00:13:39,280 Speaker 1: US as well as in Mexico. So I think we 229 00:13:39,720 --> 00:13:43,240 Speaker 1: I think the NaSTA, the NaSTA had adjustment costs that 230 00:13:43,360 --> 00:13:46,320 Speaker 1: we've gone through those, and now I think to to 231 00:13:46,440 --> 00:13:51,000 Speaker 1: reopen this whole question of the content of automobiles, uh 232 00:13:51,200 --> 00:13:54,400 Speaker 1: is going to be so disruptive for the supply chains 233 00:13:54,400 --> 00:13:56,480 Speaker 1: that in fact it's not going to help the people 234 00:13:57,120 --> 00:14:00,560 Speaker 1: that the administration claims it's trying to help. Well, is 235 00:14:00,559 --> 00:14:03,160 Speaker 1: there a way for them to walk back from this 236 00:14:03,240 --> 00:14:07,880 Speaker 1: position without seeming to let's say, given to the Canadians 237 00:14:07,880 --> 00:14:15,600 Speaker 1: and the Mexicans, Well, uh, you know they I do think. Um, 238 00:14:15,880 --> 00:14:17,760 Speaker 1: there are a lot of issues and NAFTA is a 239 00:14:17,840 --> 00:14:22,720 Speaker 1: very complex agreement, and and everybody, both the Canadians and 240 00:14:22,800 --> 00:14:28,600 Speaker 1: the Mexicans agreed that say things like digital trade, internet trade, 241 00:14:29,880 --> 00:14:33,680 Speaker 1: other kinds of issues can should be introduced into a 242 00:14:33,720 --> 00:14:38,440 Speaker 1: modern trade agreement. There's also a general consensus that the 243 00:14:38,520 --> 00:14:44,320 Speaker 1: labor and environmental provisions in the trade agreements, of which 244 00:14:44,360 --> 00:14:47,640 Speaker 1: were only side agreements in the NAFTA, could be included. 245 00:14:48,080 --> 00:14:50,160 Speaker 1: So it's quite possible to come up with a big 246 00:14:50,200 --> 00:14:54,840 Speaker 1: package and to say you've renegotiated the NAFTA. So in 247 00:14:54,880 --> 00:14:57,000 Speaker 1: my view, that would be one way you could in 248 00:14:57,040 --> 00:15:02,000 Speaker 1: a sense walk it back. So, Lawrence A, You've written 249 00:15:02,280 --> 00:15:06,600 Speaker 1: quite extensively about international trade and globalization. What do you 250 00:15:06,600 --> 00:15:09,800 Speaker 1: say to critics of globalization? Has it gone too far? 251 00:15:10,080 --> 00:15:14,240 Speaker 1: And is there a way to in a sense fix 252 00:15:14,280 --> 00:15:20,240 Speaker 1: it without tearing it down? Well, I think the globalization 253 00:15:20,320 --> 00:15:24,840 Speaker 1: on balance has been beneficial, but it has caused disruption 254 00:15:25,120 --> 00:15:29,800 Speaker 1: and there are people and firms and others who have lost. 255 00:15:30,560 --> 00:15:35,440 Speaker 1: So I think we need both to sustain it because 256 00:15:35,480 --> 00:15:38,080 Speaker 1: I think we get benefits from it, and many others 257 00:15:38,120 --> 00:15:41,000 Speaker 1: around the world have been lifted from poverty as a result. 258 00:15:41,760 --> 00:15:44,560 Speaker 1: But we also need to improve the policies that we 259 00:15:44,640 --> 00:15:47,720 Speaker 1: have to help those who are who have been dislocated 260 00:15:47,880 --> 00:15:51,000 Speaker 1: and who whoo who have lost their jobs. I don't 261 00:15:51,040 --> 00:15:54,040 Speaker 1: think in the US we've done a very good job 262 00:15:54,280 --> 00:15:59,520 Speaker 1: in in helping displaced workers uh and in retraining them, 263 00:16:00,000 --> 00:16:02,840 Speaker 1: and I think that's what needs to be emphasized rather 264 00:16:02,880 --> 00:16:06,040 Speaker 1: than erecting new trade barriers. Give you about ten seconds. 265 00:16:06,120 --> 00:16:08,520 Speaker 1: Is there anything specific you would like to hear from 266 00:16:08,520 --> 00:16:13,400 Speaker 1: President Trump in Tonight's State of the Union message. Well, 267 00:16:14,400 --> 00:16:17,680 Speaker 1: I think he started along the right track link at 268 00:16:17,720 --> 00:16:23,040 Speaker 1: Davos UH and I'd like to see him continue to 269 00:16:22,120 --> 00:16:26,320 Speaker 1: U to recognize the value of a trading system based 270 00:16:26,360 --> 00:16:30,080 Speaker 1: on rules that are negotiated with all of our trading partners. 271 00:16:30,520 --> 00:16:33,480 Speaker 1: Thank you very much for being with us. Professor Robert Lawrence, 272 00:16:33,520 --> 00:16:37,520 Speaker 1: Professor of International Trade and Investment at the JFK School 273 00:16:37,600 --> 00:16:41,200 Speaker 1: of Government at Harvard University in Boston, home to Bloomberg 274 00:16:41,200 --> 00:16:45,080 Speaker 1: one oh six one Boston, Newburyport, and in Metro West 275 00:16:45,160 --> 00:16:48,760 Speaker 1: and the South Shore, and we welcome all of our listeners. 276 00:17:02,880 --> 00:17:07,040 Speaker 1: His mission is to help you see better using American 277 00:17:07,119 --> 00:17:10,080 Speaker 1: made products. Scott Shapiro is the chief executive and the 278 00:17:10,080 --> 00:17:14,440 Speaker 1: co founder of State Optical. They are based in Vernon Hills, Illinois. 279 00:17:14,480 --> 00:17:17,000 Speaker 1: That's just outside Chicago. But Scott joins us in our 280 00:17:17,040 --> 00:17:20,399 Speaker 1: eleven three oh studios here in New York. Scott, thanks 281 00:17:20,400 --> 00:17:23,679 Speaker 1: for being here. Tell us about State Optical. Why did 282 00:17:23,800 --> 00:17:28,240 Speaker 1: you create this luxury eyeware manufacturing business and what makes 283 00:17:28,280 --> 00:17:31,879 Speaker 1: it distinctive? So thanks for having me. Um. You know, 284 00:17:32,080 --> 00:17:35,400 Speaker 1: my family has been in eyewear for forty years now. Um, 285 00:17:35,440 --> 00:17:39,040 Speaker 1: just like everybody else, importing frames from overseas a matter 286 00:17:39,080 --> 00:17:42,359 Speaker 1: of fact, they're their companies called Europe Eyewear because when 287 00:17:42,400 --> 00:17:45,840 Speaker 1: they started the company in nineteen all frames were imported 288 00:17:45,880 --> 00:17:49,840 Speaker 1: from Europe. That's what they did. Um. You know, we 289 00:17:49,920 --> 00:17:53,320 Speaker 1: started this project about five years ago because we felt 290 00:17:53,359 --> 00:17:57,040 Speaker 1: like we needed a differentiator in the marketplace. Of course, 291 00:17:57,119 --> 00:17:58,639 Speaker 1: there's a lot of pride to making things in the 292 00:17:58,680 --> 00:18:01,480 Speaker 1: United States. Were really proud that we have fifty craftsmen 293 00:18:01,560 --> 00:18:05,640 Speaker 1: in our factory today that are producing eye wear. Wouldn't 294 00:18:05,680 --> 00:18:08,600 Speaker 1: be wouldn't have those jobs if we were outsourcing that overseas. 295 00:18:09,280 --> 00:18:12,760 Speaker 1: But really, you know, from a storytelling perspective, we felt 296 00:18:12,800 --> 00:18:17,800 Speaker 1: like consumers had a real distrust with eye wear, a 297 00:18:17,840 --> 00:18:21,800 Speaker 1: lot of cynicism about their eyewear, partially because of so 298 00:18:21,880 --> 00:18:27,000 Speaker 1: much licensing, partially because there's huge conglomerate corporations that that 299 00:18:27,080 --> 00:18:29,400 Speaker 1: take up a lot of space in the eye wear industry, 300 00:18:29,600 --> 00:18:31,760 Speaker 1: and so we wanted to connect people with the way 301 00:18:31,880 --> 00:18:34,960 Speaker 1: the craft of eyewear, the the way that their frames 302 00:18:34,960 --> 00:18:38,040 Speaker 1: are actually made. Well, just to give you the perspective, right, 303 00:18:38,080 --> 00:18:40,760 Speaker 1: and I'm sure you know about this, but Selore, which 304 00:18:40,840 --> 00:18:44,760 Speaker 1: is a French based company, announced the well the combination 305 00:18:44,800 --> 00:18:47,800 Speaker 1: to takeover of Look, so Atica. Uh. And that was 306 00:18:47,840 --> 00:18:52,040 Speaker 1: a fifteen point six billion euro deal that was back 307 00:18:52,040 --> 00:18:56,040 Speaker 1: in January of last year. Uh. The acquisition is still pending, 308 00:18:56,080 --> 00:18:59,120 Speaker 1: looks like it might go through. But they're the pound 309 00:18:59,160 --> 00:19:01,800 Speaker 1: gorilla in the end ustry, aren't they? Oh? Yeah, so uh. 310 00:19:01,880 --> 00:19:04,240 Speaker 1: And I'll tell you it's funny because I run into 311 00:19:04,240 --> 00:19:06,560 Speaker 1: people all the time who know I work in the 312 00:19:06,600 --> 00:19:09,720 Speaker 1: eyewear industry, and their first question is always, Hey, do 313 00:19:09,760 --> 00:19:12,439 Speaker 1: you work for that company that owns everything in the 314 00:19:12,480 --> 00:19:16,320 Speaker 1: eyewear industry? Of course that's a uh, that's an exaggeration. 315 00:19:16,359 --> 00:19:18,840 Speaker 1: They don't own everything in the in the eyework industry. 316 00:19:18,840 --> 00:19:21,440 Speaker 1: There's lots of small companies like ours who are making 317 00:19:21,440 --> 00:19:23,520 Speaker 1: our own way. But that's really what our brand is 318 00:19:23,560 --> 00:19:25,720 Speaker 1: all about. By making it here in the United States, 319 00:19:26,000 --> 00:19:28,320 Speaker 1: we can kind of cut through all the bs and 320 00:19:28,359 --> 00:19:31,080 Speaker 1: really show people what they're paying for, what the what 321 00:19:31,119 --> 00:19:33,640 Speaker 1: our brand is about, and how we make it. Okay, So, 322 00:19:33,720 --> 00:19:36,480 Speaker 1: if if I sign up and you can sign up 323 00:19:36,520 --> 00:19:39,680 Speaker 1: for a factory tour, if I were to show up 324 00:19:39,720 --> 00:19:44,040 Speaker 1: at your factory, what would I see just outside of Chicago? Yeah? 325 00:19:44,080 --> 00:19:46,480 Speaker 1: Great questions. So, and we do encourage you phim or 326 00:19:46,520 --> 00:19:48,720 Speaker 1: any of your listeners to come and and see that, 327 00:19:49,200 --> 00:19:52,280 Speaker 1: uh that process. First of all, most people don't realize 328 00:19:52,400 --> 00:19:54,600 Speaker 1: in our factory it takes about seventy steps to make 329 00:19:54,640 --> 00:19:57,600 Speaker 1: one pair of ascetate frames. So it's a very in 330 00:19:57,640 --> 00:20:01,680 Speaker 1: depth process. And most importantly, of those seventy steps, about 331 00:20:01,720 --> 00:20:04,439 Speaker 1: fifty of those have to be done by hand. So 332 00:20:04,600 --> 00:20:06,840 Speaker 1: that's why it's so rare for eye wear to be 333 00:20:06,840 --> 00:20:09,600 Speaker 1: made in the United States because hand labor is very 334 00:20:09,600 --> 00:20:11,840 Speaker 1: expensive here in the US, and we don't have the 335 00:20:11,920 --> 00:20:15,359 Speaker 1: skilled labored labor force to easily hire and get to 336 00:20:15,400 --> 00:20:19,200 Speaker 1: work doing that job. Each frame takes about two weeks 337 00:20:19,359 --> 00:20:23,399 Speaker 1: to completely uh be finished, So there's a lot that 338 00:20:23,440 --> 00:20:26,679 Speaker 1: goes into making high quality eyewear. And I think most 339 00:20:27,040 --> 00:20:30,760 Speaker 1: consumers are under the impression today that pay your pair 340 00:20:30,800 --> 00:20:33,040 Speaker 1: of glasses a pair of glasses, that maybe there's some 341 00:20:33,119 --> 00:20:36,280 Speaker 1: machine in China that spits these things out two hundred 342 00:20:36,320 --> 00:20:39,160 Speaker 1: at a time. But when they come into our facility, 343 00:20:39,200 --> 00:20:41,280 Speaker 1: they see that the handwork that goes into it, they 344 00:20:41,320 --> 00:20:44,400 Speaker 1: see the detail that goes into the frames, and it's 345 00:20:44,400 --> 00:20:47,960 Speaker 1: a totally different experience. And it's not only just manufacturing 346 00:20:47,960 --> 00:20:49,920 Speaker 1: in the units that you do have to source some 347 00:20:50,000 --> 00:20:54,720 Speaker 1: products over some pieces overseas, but it's all put together here, correct. 348 00:20:54,760 --> 00:20:57,760 Speaker 1: So unfortunately, you know, one of the things that people 349 00:20:57,800 --> 00:20:59,960 Speaker 1: don't talk about when they talk about bringing manufacturing job 350 00:21:00,119 --> 00:21:02,320 Speaker 1: back to the United States is how difficult it is 351 00:21:02,320 --> 00:21:04,280 Speaker 1: because there's no infrastructure to make things here in the 352 00:21:04,320 --> 00:21:06,480 Speaker 1: United States. We don't have a skilled labor force, we 353 00:21:06,520 --> 00:21:08,600 Speaker 1: don't have the machinery here in the United States, and 354 00:21:08,640 --> 00:21:11,560 Speaker 1: we don't have the raw materials. So um, the metal 355 00:21:11,600 --> 00:21:14,640 Speaker 1: part of the hinge and the acetate itself, the raw 356 00:21:14,800 --> 00:21:18,480 Speaker 1: plastic we have to import um. But everything else, all 357 00:21:18,560 --> 00:21:20,840 Speaker 1: those seventy plus steps are all done in our in 358 00:21:20,840 --> 00:21:25,560 Speaker 1: our factory. Okay. So if this is a assembly as 359 00:21:25,600 --> 00:21:29,040 Speaker 1: well as a design business, it is what kind of 360 00:21:29,080 --> 00:21:32,840 Speaker 1: price points are we talking about? So our frames retail 361 00:21:32,960 --> 00:21:38,240 Speaker 1: for somewhere between uh three hundred fifty to four UM, 362 00:21:38,320 --> 00:21:41,840 Speaker 1: which is not inexpensive, certainly, uh it's but it's sort 363 00:21:41,840 --> 00:21:44,480 Speaker 1: of like at the entry level of the luxury eyewear world. 364 00:21:44,480 --> 00:21:46,679 Speaker 1: It's it's not completely out of the question when you 365 00:21:46,680 --> 00:21:48,159 Speaker 1: talk about what you see when you walk into an 366 00:21:48,160 --> 00:21:53,400 Speaker 1: independent office, what what level of sophistication do you need 367 00:21:53,440 --> 00:21:55,679 Speaker 1: to really get good lenses? Because it's one thing to 368 00:21:55,720 --> 00:21:59,720 Speaker 1: talk about the frames which actually look through the lenses. Yeah. 369 00:22:00,040 --> 00:22:03,639 Speaker 1: Also to be perfectly honest with you. Unlike and Lexotica, 370 00:22:04,280 --> 00:22:06,800 Speaker 1: our company is devoted just to making the frames. So 371 00:22:06,840 --> 00:22:09,800 Speaker 1: when you when if you go into an independent optometrist, 372 00:22:09,880 --> 00:22:12,360 Speaker 1: for instance, you see our product, you can buy our 373 00:22:12,359 --> 00:22:15,600 Speaker 1: product from that optometrist and then he takes care of 374 00:22:16,000 --> 00:22:18,159 Speaker 1: sourcing the lenses from a different company. Yeah, but you 375 00:22:18,200 --> 00:22:20,160 Speaker 1: want to make sure that it's the same quality as 376 00:22:20,160 --> 00:22:22,480 Speaker 1: the lens as the frames that you're buying. Good point. 377 00:22:22,600 --> 00:22:25,080 Speaker 1: That's why we sell our frames almost exclusively through those 378 00:22:25,119 --> 00:22:29,400 Speaker 1: independent optometrists. So we're in about eleven hundred uh independent 379 00:22:29,440 --> 00:22:32,000 Speaker 1: offices across the country and and we work only with 380 00:22:32,040 --> 00:22:35,200 Speaker 1: optometrists that and opticians that use the best lenses. What's 381 00:22:35,240 --> 00:22:39,800 Speaker 1: the biggest challenge for State Optical right now? Wow? So, 382 00:22:40,320 --> 00:22:43,760 Speaker 1: like any startup, getting our story out there is what 383 00:22:43,800 --> 00:22:45,919 Speaker 1: we focus on. Number one. Now, you know, we have 384 00:22:45,960 --> 00:22:47,800 Speaker 1: to be able to make a quality product and we 385 00:22:47,840 --> 00:22:50,200 Speaker 1: have to be able to justify the price point. So 386 00:22:50,560 --> 00:22:53,520 Speaker 1: we can't just say to the average consumer, hey, you're 387 00:22:53,520 --> 00:22:56,040 Speaker 1: gonna pay an extra hundred dollars or so just because 388 00:22:56,080 --> 00:22:58,240 Speaker 1: the frames are made in the United States. No, we 389 00:22:58,320 --> 00:23:01,440 Speaker 1: have to make a product that's as good, if not 390 00:23:01,520 --> 00:23:04,439 Speaker 1: better than what's made in Italy or France that's priced 391 00:23:04,440 --> 00:23:07,280 Speaker 1: at the same price. So that's always a continuing challenge. 392 00:23:07,320 --> 00:23:10,919 Speaker 1: I think we've mostly met that now. Our challenges to 393 00:23:11,000 --> 00:23:13,520 Speaker 1: get our story out there, to get people who care 394 00:23:13,920 --> 00:23:16,480 Speaker 1: to hear the story, well, thanks very much. They can 395 00:23:16,640 --> 00:23:19,080 Speaker 1: hear it, of course on a podcast P and L 396 00:23:19,160 --> 00:23:21,880 Speaker 1: podcast for Bloomberg, but they can also check it out 397 00:23:21,920 --> 00:23:24,760 Speaker 1: at the factory of State Optical just outside of Chicago. 398 00:23:24,880 --> 00:23:27,919 Speaker 1: Thanks very much. Scott Shapiro, he's the chief executive and 399 00:23:27,920 --> 00:23:44,320 Speaker 1: the co founder of State Optical. We consult our own expert, 400 00:23:44,320 --> 00:23:47,199 Speaker 1: Ira Jersey. He is chief US interest rate Strategist for 401 00:23:47,280 --> 00:23:50,800 Speaker 1: Bloomberg Intelligence. And I I gotta pose a question. I 402 00:23:50,840 --> 00:23:53,240 Speaker 1: don't know whether you have the answer, but is the 403 00:23:53,320 --> 00:23:57,000 Speaker 1: United States really a worse bet in terms of its 404 00:23:57,040 --> 00:24:01,600 Speaker 1: sovereign debt compared the countries like France, Italy and Spain. 405 00:24:02,080 --> 00:24:06,480 Speaker 1: How does this make any sense? You're talking about the 406 00:24:06,520 --> 00:24:11,000 Speaker 1: yield differentials between them, right, Yeah, for the US tenure 407 00:24:11,440 --> 00:24:16,119 Speaker 1: and in France zero point five two percent in Italy 408 00:24:16,200 --> 00:24:18,919 Speaker 1: and one point four in Spain. Well, one of the 409 00:24:18,920 --> 00:24:20,840 Speaker 1: big things that I think we always have to realize, 410 00:24:20,880 --> 00:24:22,840 Speaker 1: you know we always look at these big yield differentials, 411 00:24:22,920 --> 00:24:24,639 Speaker 1: is that you have to look at what is the 412 00:24:24,680 --> 00:24:28,040 Speaker 1: funding cost in that currency. So the funding cost in 413 00:24:28,080 --> 00:24:30,679 Speaker 1: the US is say the FED Funds rate or something 414 00:24:30,760 --> 00:24:33,720 Speaker 1: similar to that, and you're talking about one point one 415 00:24:34,240 --> 00:24:37,520 Speaker 1: for that in the US, whereas in Europe that's a 416 00:24:37,560 --> 00:24:41,880 Speaker 1: negative number and you know, negative negative fifty basis points 417 00:24:41,920 --> 00:24:44,280 Speaker 1: or so. So when you look at when you look 418 00:24:44,280 --> 00:24:47,280 Speaker 1: at that difference, that difference is to two percent right there. 419 00:24:47,680 --> 00:24:49,879 Speaker 1: So if you look at France versus the US, you 420 00:24:49,880 --> 00:24:52,160 Speaker 1: can say, okay, maybe the US is you know, twenty 421 00:24:52,200 --> 00:24:56,400 Speaker 1: basis point cheap and um to to UH to France 422 00:24:56,400 --> 00:24:59,360 Speaker 1: based on based on that, but you know that's there's 423 00:24:59,400 --> 00:25:02,040 Speaker 1: some noise in a too um and and not not 424 00:25:02,080 --> 00:25:06,120 Speaker 1: only that, but you know we always say, hey, let's um, 425 00:25:06,200 --> 00:25:08,240 Speaker 1: let's look at these yield differentials. And if you're a 426 00:25:08,280 --> 00:25:11,560 Speaker 1: European investor, you've gotta love the US because because we're 427 00:25:11,600 --> 00:25:15,040 Speaker 1: two basis points higher. But then you're taking massive foreign 428 00:25:15,040 --> 00:25:17,560 Speaker 1: exchange risk. And as you can see just what's going 429 00:25:17,640 --> 00:25:20,040 Speaker 1: on with the dollar recently. Um, you know, the dollar 430 00:25:20,119 --> 00:25:22,399 Speaker 1: can move several percent in just a month. Are you 431 00:25:22,440 --> 00:25:24,879 Speaker 1: willing to take that amount of volatility, and if you 432 00:25:24,960 --> 00:25:27,360 Speaker 1: hedge all of that out, the yields are almost exactly 433 00:25:27,400 --> 00:25:30,040 Speaker 1: the same if you if you do all of the 434 00:25:30,080 --> 00:25:32,840 Speaker 1: assets swapping that you need to do to um UM 435 00:25:33,000 --> 00:25:35,560 Speaker 1: to make those equal. Alright, So, well, that is that 436 00:25:35,680 --> 00:25:39,120 Speaker 1: likely to remain is that is that is that sort 437 00:25:39,119 --> 00:25:43,199 Speaker 1: of coordination or that the comparison is that likely to 438 00:25:43,240 --> 00:25:46,119 Speaker 1: remain true as interest rates rise in the United States 439 00:25:46,119 --> 00:25:47,720 Speaker 1: and we've got to sell off at the long end 440 00:25:47,800 --> 00:25:51,000 Speaker 1: right now? Yeah, I I do, I do think that 441 00:25:51,000 --> 00:25:54,640 Speaker 1: that will that that will persist at least for for um, 442 00:25:54,880 --> 00:25:57,440 Speaker 1: at least for the next couple of couple of quarters. Um. 443 00:25:57,440 --> 00:25:59,520 Speaker 1: You know whether or not that persistent the next year. 444 00:26:00,040 --> 00:26:02,520 Speaker 1: You know that there's a lot of flow related data 445 00:26:02,560 --> 00:26:04,879 Speaker 1: that that matters. And you know what happens with trade 446 00:26:04,920 --> 00:26:07,959 Speaker 1: and does the Federal reserve um keep up, does the 447 00:26:08,040 --> 00:26:11,920 Speaker 1: ECB end up reducing its asset purchases again, which might 448 00:26:12,000 --> 00:26:15,560 Speaker 1: have some flow effects of in Europe or maybe back 449 00:26:15,600 --> 00:26:18,639 Speaker 1: into Europe if if they start to yield start to 450 00:26:18,680 --> 00:26:21,240 Speaker 1: go up a lot there. So there's a lot that 451 00:26:21,280 --> 00:26:23,240 Speaker 1: goes into that, and you know, I'm not sure, I'm 452 00:26:23,240 --> 00:26:26,399 Speaker 1: prepared to make a call on on what's going on 453 00:26:26,440 --> 00:26:29,320 Speaker 1: in Europe, just because there is a lot of uncertainty 454 00:26:29,359 --> 00:26:32,000 Speaker 1: about what the ECB's plan ultimately will be over the 455 00:26:32,000 --> 00:26:36,200 Speaker 1: next eighteen months with their own quantitative using purchases. Okay, 456 00:26:36,240 --> 00:26:41,520 Speaker 1: so let's focus then on the United States and the 457 00:26:41,640 --> 00:26:47,639 Speaker 1: availability of bonds funds. You've got all you can eat, right, Yeah, Well, 458 00:26:47,760 --> 00:26:50,720 Speaker 1: well that's that's true insofar is there's a lot of 459 00:26:50,720 --> 00:26:53,040 Speaker 1: corporate debt that's been issued, although not all of that 460 00:26:53,080 --> 00:26:55,280 Speaker 1: has been in the long end. One of the things 461 00:26:55,280 --> 00:26:57,520 Speaker 1: that that I think is interesting, there's this idea that 462 00:26:57,600 --> 00:27:01,840 Speaker 1: because um the equity markets performed the fixed income markets 463 00:27:02,080 --> 00:27:05,360 Speaker 1: so much over the last year or two, that you're 464 00:27:05,400 --> 00:27:08,640 Speaker 1: going to have a lot of people reallocating by selling 465 00:27:08,680 --> 00:27:12,120 Speaker 1: equities and then buying fixed income assets. And it's not 466 00:27:12,240 --> 00:27:14,600 Speaker 1: in the in the private pension land. That's not obvious 467 00:27:14,640 --> 00:27:17,960 Speaker 1: to me, primarily because you have a lot of investors 468 00:27:18,000 --> 00:27:22,320 Speaker 1: who care about what they're expected return is based on 469 00:27:22,359 --> 00:27:25,760 Speaker 1: their asset allocation, and you don't. You haven't had the 470 00:27:25,840 --> 00:27:30,160 Speaker 1: funded status and the amount of money that um uh, 471 00:27:30,200 --> 00:27:33,080 Speaker 1: the amount of assets that these companies have based on 472 00:27:33,160 --> 00:27:35,639 Speaker 1: the compared to their reliabilities that hasn't gone up so 473 00:27:35,720 --> 00:27:37,879 Speaker 1: much even with the equity market going up, And the 474 00:27:37,920 --> 00:27:41,040 Speaker 1: reason for that is they continued low interest rate environment, 475 00:27:41,080 --> 00:27:43,679 Speaker 1: particularly for corporate bonds, and the way that they have 476 00:27:43,840 --> 00:27:47,359 Speaker 1: to discount their liabilities. So what that means is until 477 00:27:47,400 --> 00:27:49,919 Speaker 1: you wind up getting a significant increase in the funded 478 00:27:49,960 --> 00:27:52,600 Speaker 1: status of these pension plans, they won't be doing any 479 00:27:52,600 --> 00:27:55,800 Speaker 1: of that reallocation. Are likely to stay heavily invested in 480 00:27:55,840 --> 00:27:58,359 Speaker 1: equity markets. Okay, but is that the right thing for 481 00:27:58,400 --> 00:28:01,240 Speaker 1: them to do well on a risk on a risk 482 00:28:01,280 --> 00:28:05,320 Speaker 1: adjusted basis. Would you rather be in US fixed income where, um, 483 00:28:05,400 --> 00:28:08,120 Speaker 1: you know, you might have returns of near zero, say 484 00:28:08,200 --> 00:28:11,120 Speaker 1: for the whole market over the next year or two 485 00:28:11,160 --> 00:28:14,200 Speaker 1: as they said hikes and you have modestly higher interest rates. 486 00:28:14,400 --> 00:28:16,960 Speaker 1: Or would you rather be an the equity market where 487 00:28:17,000 --> 00:28:20,399 Speaker 1: maybe valuations might seem stretched to some but where a 488 00:28:20,480 --> 00:28:24,480 Speaker 1: growing economy should should also help. Uh, it should also 489 00:28:24,480 --> 00:28:27,440 Speaker 1: help the underlying revenue sources of those companies. So what's 490 00:28:27,480 --> 00:28:31,560 Speaker 1: the move to support job preservation? I don't mean jobs, 491 00:28:31,600 --> 00:28:33,720 Speaker 1: I don't mean jobs in the economy. I mean jobs. 492 00:28:33,720 --> 00:28:35,560 Speaker 1: Are the people who have to hatch all the money 493 00:28:35,560 --> 00:28:38,360 Speaker 1: and meet these pension obligations. Sure, well that well, that's 494 00:28:38,360 --> 00:28:41,320 Speaker 1: your your risk limits, right. But if if you're um, 495 00:28:41,360 --> 00:28:43,480 Speaker 1: you know, managing risk is obviously going to be the 496 00:28:43,760 --> 00:28:45,400 Speaker 1: hard thing to do, I think for a lot of 497 00:28:45,440 --> 00:28:48,320 Speaker 1: these managers, because it's not obvious what the safe haven 498 00:28:48,400 --> 00:28:50,600 Speaker 1: is and you can't just put you know, a large 499 00:28:50,680 --> 00:28:54,080 Speaker 1: chunk of your assets in cash um making you know, 500 00:28:54,200 --> 00:28:56,320 Speaker 1: one and a half percent, you need to be in 501 00:28:56,320 --> 00:28:58,280 Speaker 1: in something that's going to have the potential to do 502 00:28:58,400 --> 00:28:59,880 Speaker 1: some much better than that. I think that's one of 503 00:28:59,880 --> 00:29:02,440 Speaker 1: the reasons why over the last several years you've seen 504 00:29:02,480 --> 00:29:05,920 Speaker 1: moves by some managers into hedge funds and even private 505 00:29:05,920 --> 00:29:09,560 Speaker 1: equity somewhere where it's not necessarily as correlated the returns 506 00:29:09,600 --> 00:29:12,520 Speaker 1: are necessarily as correlated to equities or fixed income markets. 507 00:29:12,840 --> 00:29:15,840 Speaker 1: I'm just gonna give you about ten seconds here, Janet 508 00:29:15,880 --> 00:29:18,800 Speaker 1: Yellen presiding over her final meeting as Federal Reserve Chief. 509 00:29:19,080 --> 00:29:21,760 Speaker 1: You expect anything tomorrow. I do expect them to be 510 00:29:21,800 --> 00:29:23,640 Speaker 1: a little bit more hawkish than they were at the 511 00:29:23,640 --> 00:29:26,760 Speaker 1: December meeting. UM, but no no hike. March is probably 512 00:29:26,880 --> 00:29:29,000 Speaker 1: a mom We're gonna get the hike, Thank you very much. 513 00:29:29,040 --> 00:29:34,280 Speaker 1: Ira Jersey or Chief US interest rate strategist for Bloomberg Intelligence. 514 00:29:35,400 --> 00:29:37,960 Speaker 1: Thanks for listening to the Bloomberg P and L podcast. 515 00:29:38,280 --> 00:29:42,200 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 516 00:29:42,320 --> 00:29:45,760 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 517 00:29:45,800 --> 00:29:49,360 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa 518 00:29:49,400 --> 00:29:52,520 Speaker 1: abramowits one before the podcast. You can always catch us 519 00:29:52,560 --> 00:30:01,840 Speaker 1: worldwide on Bloomberg Radio