WEBVTT - Infrastructure is Useful But Doesn't Change Economy, Dwane Says 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg P L Podcast on iTunes, 0:00:20.840 --> 0:00:29.280 SoundCloud and at Bloomberg dot com. I'm gonna talk with 0:00:29.320 --> 0:00:32.160 someone who has to listen quite a bit to the 0:00:32.240 --> 0:00:36.400 investment officers around the world, Neil Dwayne, global strategist for 0:00:36.440 --> 0:00:41.120 Alian's Global Investors. Also he in addition to talking with 0:00:41.200 --> 0:00:44.240 all of the asset managers around the world for Alians, 0:00:44.280 --> 0:00:47.239 he also manages one point five billion euros in in 0:00:47.320 --> 0:00:50.479 several funds. Neil, I am so glad you could join us. 0:00:50.680 --> 0:00:53.360 I want to start with the idea that we're hearing 0:00:53.400 --> 0:00:56.640 about all of this political warfare going on in the 0:00:56.720 --> 0:00:59.600 United States, We're hearing about Brexit, We're hearing about what's 0:00:59.600 --> 0:01:03.320 going on the French elections. At what point do you 0:01:03.480 --> 0:01:06.760 care when it comes to managing money. Well, firstly, thank 0:01:06.760 --> 0:01:08.720 you for the invitation to be here. I think when 0:01:08.760 --> 0:01:11.959 one's managing clients money, one has to invest rather than 0:01:11.959 --> 0:01:14.680 what I would call trade. If you try to respond 0:01:14.680 --> 0:01:17.000 to every headline or every tweet, I think you would 0:01:17.040 --> 0:01:21.319 simply destroy the alpha that your clients are are going 0:01:21.319 --> 0:01:24.520 to receive. But that's that's an important point. So what's 0:01:24.560 --> 0:01:27.680 an investment and what's a trade? What's an investment you like? 0:01:27.840 --> 0:01:30.000 And what's a trade that my people are going into. 0:01:30.000 --> 0:01:32.720 That's that's not sustainable for you? Okay, well, well, just 0:01:33.319 --> 0:01:35.399 for me, investing is like a rolling three of you. 0:01:35.520 --> 0:01:37.960 I'm genuinely trying to get the benefits of companies that 0:01:38.000 --> 0:01:42.080 are compounding their returns and generating the investments. So a trade, 0:01:42.120 --> 0:01:45.039 I like his energy. We think from the risks in 0:01:45.080 --> 0:01:47.680 the Middle East through to the low oil price that 0:01:47.760 --> 0:01:51.160 there's a supply demand imbalance which we think will work 0:01:51.200 --> 0:01:54.800 to energy grinding higher from here. Therefore, because of the 0:01:54.880 --> 0:01:57.400 risks in the of the geopolitics, I like the big 0:01:58.120 --> 0:02:02.080 UK or US high dividend stocks yielding seven percent you're 0:02:02.080 --> 0:02:04.440 getting paid to run with them. I think that's a 0:02:04.560 --> 0:02:06.960 that's a trade, but also an investment on a two 0:02:06.960 --> 0:02:10.240 to three year horizon. Whereas something I'm may be more 0:02:10.280 --> 0:02:13.360 concerned about is the growth in China last year was phenomenal. 0:02:13.400 --> 0:02:17.320 They went back to the old school fiscal stimulus. Unlike 0:02:17.320 --> 0:02:20.079 President Trump, who may spend a trillion dollars on infrastructure 0:02:20.080 --> 0:02:22.280 over ten years, we estimate they spent a trillion dollars 0:02:22.320 --> 0:02:26.480 last year on their infrastructure. So commodities have boomed. We 0:02:26.560 --> 0:02:30.480 think that's a misalignment of the recognition of the underlying 0:02:30.840 --> 0:02:34.000 strength of the economy. It's also a misalignment of how 0:02:34.080 --> 0:02:38.480 much stimulus Trump may deliver. The US consumes four percent 0:02:38.680 --> 0:02:42.959 of global copper, China consumes seventy so even if Trump 0:02:43.000 --> 0:02:45.880 really gets stuck in over the next ten years, it's 0:02:45.919 --> 0:02:48.800 not going to matter to global copper demand. So we 0:02:48.840 --> 0:02:51.160 think maybe the miners have traveled too far, and therefore 0:02:51.200 --> 0:02:53.800 we would trade out of them. If you, if you 0:02:53.840 --> 0:02:57.440 own them, trade out of the miners right now and 0:02:57.520 --> 0:03:00.959 wait for another entry point. I would say the cycle 0:03:01.000 --> 0:03:04.640 hasn't finished. China's China's um. You know, rebalancing is going 0:03:04.680 --> 0:03:07.960 to change, and until you see serious infrastructure spending in 0:03:08.040 --> 0:03:10.919 countries like India and Indonesia, we don't see the underlying 0:03:10.960 --> 0:03:15.160 demand for for some of these classic commodities. Right. But 0:03:15.360 --> 0:03:17.840 do you said you were your energy sector that did 0:03:17.880 --> 0:03:20.359 you did you were bullish on the energy sector. Why 0:03:20.440 --> 0:03:24.800 why that's like disconnect energy versus commodities. Well, because everyone 0:03:24.880 --> 0:03:27.720 needs you, particularly given the success in in China, and 0:03:27.760 --> 0:03:30.239 also everyone owns a car. The Americans have all traded 0:03:30.320 --> 0:03:33.120 up to larger cars rather than smaller cars. So the 0:03:33.200 --> 0:03:35.400 underlying demand for energy is still going to be there. 0:03:35.440 --> 0:03:38.040 It's very resilient. About ninety eight million barons of Alliday. 0:03:38.160 --> 0:03:41.480 You know, Neil, as you said, President Trump is expecting 0:03:41.560 --> 0:03:44.280 to spend about a trillion dollars on infrastructure in the 0:03:44.320 --> 0:03:46.480 US over the next ten years. There is so much 0:03:46.520 --> 0:03:49.800 focus on fiscal stimulus and infrastructure spending. How do you 0:03:49.840 --> 0:03:52.320 as an investor get in on that. Well, the first 0:03:52.320 --> 0:03:54.400 thing I would say is infrastructure spending takes a very 0:03:54.480 --> 0:03:57.960 very long time. Um So even if as we discover 0:03:58.040 --> 0:04:01.400 with the the the baron like Obama stimulus in two 0:04:01.400 --> 0:04:03.680 thousand and eight. He spent a trillion dollars, but most 0:04:03.680 --> 0:04:05.280 of it went to the States and they put it 0:04:05.320 --> 0:04:07.920 in their health in their pension funds. So in the 0:04:08.000 --> 0:04:11.200 end there weren't many roads or railways built. So we 0:04:11.240 --> 0:04:14.000 think it's a very long term, long tail investment, and 0:04:14.040 --> 0:04:17.159 it works better in emerging markets than in developed markets. 0:04:17.200 --> 0:04:20.440 We think the payback in developed markets is very slow. 0:04:20.480 --> 0:04:22.800 Can you imagine if you built a faster road to JFK, 0:04:23.200 --> 0:04:25.479 you'd have to shut the roads to JFK first to 0:04:25.520 --> 0:04:28.560 build the new road. So the disruption in developed markets 0:04:28.600 --> 0:04:31.120 of infrastructure is quite high, Whereas if you don't have 0:04:31.160 --> 0:04:33.120 a road in Vietnam and you build a road, you 0:04:33.160 --> 0:04:36.120 immediately get the efficiencies of the spending. So we think 0:04:36.440 --> 0:04:40.040 infrastructure is useful, but it's it doesn't step change the 0:04:40.080 --> 0:04:42.680 growth rate of the underlying economy. But is there a 0:04:42.760 --> 0:04:46.120 way that you can invest in companies that will benefit 0:04:46.240 --> 0:04:49.000 from the spending programs by investing in those you know, 0:04:49.080 --> 0:04:53.640 infrastructure plans somehow or is that sort of too esoteric? Well, 0:04:53.680 --> 0:04:55.760 I think at the company level, I think the markets 0:04:55.760 --> 0:04:58.000 have already run on the basis that the trillion dollars 0:04:58.000 --> 0:05:00.440 is about to be spent. So we think that that 0:05:00.640 --> 0:05:02.880 you know that the expectations in the markets are way 0:05:02.920 --> 0:05:06.560 ahead of where the actual spending is going to come from. 0:05:06.600 --> 0:05:10.400 So I would say from a strategic long term institutional 0:05:10.440 --> 0:05:14.240 client investor, accessing the stable cash flows of many of 0:05:14.279 --> 0:05:16.520 the rose rails or ports that you can do inside 0:05:16.560 --> 0:05:19.520 infrastructure debt type structures makes a lot of sense as 0:05:19.520 --> 0:05:22.640 a way of generating a stable but relatively high yield 0:05:22.680 --> 0:05:25.760 six or seven percent return, but it's not. I think 0:05:25.800 --> 0:05:28.719 we underestimate because America or the UK are built. We 0:05:28.800 --> 0:05:32.800 underestimate how disruptive big infrastructure projects are, and the fact 0:05:32.839 --> 0:05:34.400 that it takes a long time before you earn the 0:05:34.400 --> 0:05:38.400 returns right well now and also very interesting, a long 0:05:38.480 --> 0:05:42.880 time before you get to realize the political glory for 0:05:43.000 --> 0:05:45.039 having done so. Thank you very much, sir, and Neil 0:05:45.080 --> 0:06:01.080 Dwayne is a global strategist for Alliance Global Investors are 0:06:01.200 --> 0:06:02.960 here to help us get a little smarter when it 0:06:02.960 --> 0:06:05.680 comes to the automobile industry. Is John Lippert. Here's our 0:06:05.800 --> 0:06:09.800 automotive reporter for Bloomberg News. He joins us from our 0:06:09.880 --> 0:06:13.400 Chicago bureau and you can follow him on Twitter at 0:06:13.680 --> 0:06:17.080 John M. Lippert with two piece. All right, John with 0:06:17.120 --> 0:06:21.039 two piece. Let's get some business out of the way. 0:06:21.080 --> 0:06:25.760 In terms of the January report for automobile sales, I 0:06:25.800 --> 0:06:28.640 was just racking them up here, some better, some worse. 0:06:28.800 --> 0:06:33.000 But you're over your results. No one is is defying 0:06:33.000 --> 0:06:37.320 any major trends. Correct. Well, that's right. There'll there'll be 0:06:37.400 --> 0:06:40.440 some softening of the overall market, but not not anything 0:06:40.480 --> 0:06:43.880 like a disaster. So so what we're saying is we're 0:06:43.880 --> 0:06:48.039 looking at a seventeen point three million annual i's selling 0:06:48.080 --> 0:06:51.000 where and that will be down from seventeen point nine 0:06:51.480 --> 0:06:54.120 a year ago. So all the auto companies are saying, Look, 0:06:54.120 --> 0:06:57.479 if there's gonna be cooling off, that's a cooling off 0:06:57.520 --> 0:07:00.400 we can live with. Yeah, And we got actually some 0:07:00.720 --> 0:07:04.160 results from ALI Financial yesterday that seems to suggest that 0:07:04.200 --> 0:07:06.479 even though there is sort of a plateau ng in 0:07:06.560 --> 0:07:10.440 the auto industry, at least with respect to auto loans, 0:07:10.880 --> 0:07:14.080 that the that the credit quality isn't deteriorating as quickly 0:07:14.080 --> 0:07:19.440 as some had feared. Well that's right, and UM, and 0:07:19.480 --> 0:07:22.360 now we're all trying to figure out sort of you know, 0:07:22.440 --> 0:07:26.400 the Trump you know, UM enthusiasm, just how deep root 0:07:26.520 --> 0:07:31.680 it is. So UM December was an absolute blowout for 0:07:31.880 --> 0:07:35.880 UM for the auto industry eighteen point four million, and 0:07:35.920 --> 0:07:37.840 so now and a lot of that was just sort 0:07:37.880 --> 0:07:42.800 of a year end um uh closeouts. But but but now, 0:07:43.000 --> 0:07:44.720 I mean there is going to be some softening and 0:07:44.800 --> 0:07:48.480 so among the many factors are gonna be looking at. 0:07:48.560 --> 0:07:53.080 But yes, and centives are creeping up. Yes, inventories are 0:07:53.080 --> 0:07:55.960 creeping up, but none of its disasters. And as you say, 0:07:56.320 --> 0:07:58.360 you know the credit quality that we're all you know, 0:07:58.440 --> 0:08:00.560 sub prime loans, I mean, they're creeping up, but they're 0:08:00.600 --> 0:08:04.400 not soaring at least so far. And then you know, 0:08:04.720 --> 0:08:08.600 in terms of just January, you know, um uh Toto 0:08:08.680 --> 0:08:14.360 is down, FIA, Christier down, but then Honda's up five 0:08:14.360 --> 0:08:17.200 point nine, Nissands up six. So it is a little 0:08:17.200 --> 0:08:19.680 bit of a mixed bag. But but so far that 0:08:19.880 --> 0:08:22.840 you know, the markets holding up pretty well. Which companies 0:08:22.840 --> 0:08:25.200 stand to benefit the most from some of the trade policies, 0:08:25.240 --> 0:08:27.960 at least from what we can glean from them from 0:08:27.960 --> 0:08:32.640 President Trump's administration. Well, just taking the border tax UM 0:08:32.800 --> 0:08:36.000 and these are all sort of crude measures because we're 0:08:36.920 --> 0:08:38.720 we're all trying to figure out what the border tax, 0:08:38.960 --> 0:08:40.959 you know, in what form it will actually emerge on 0:08:41.040 --> 0:08:45.559 the Congress. But if you just take the question of UM, 0:08:45.679 --> 0:08:50.400 what companies have what percent of um U s sales 0:08:50.440 --> 0:08:55.440 that they're importing, there are some clearer differences. So um 0:08:55.640 --> 0:09:02.080 of forward UM only imports ford, you know, of what 0:09:02.120 --> 0:09:05.160 they sell UH in the United States is built in 0:09:05.200 --> 0:09:08.440 the United States, and and some companies like you know, 0:09:08.520 --> 0:09:11.280 Masda's you know, just to take one example, has zero. 0:09:11.800 --> 0:09:14.240 So obviously the you know four and four it is 0:09:14.240 --> 0:09:17.640 actually saying, we think we can live with this, you know, 0:09:17.679 --> 0:09:19.960 with the border tax as we understand it so far. 0:09:20.720 --> 0:09:25.200 And and then the import companies like Masda are saying this, 0:09:25.200 --> 0:09:28.680 this is a terrible idea. And and sort of in 0:09:28.720 --> 0:09:31.320 the middle of there, there's Toyota. I mean, Toyota is 0:09:31.320 --> 0:09:36.040 coming out pretty strong, and he's saying, even the American 0:09:36.120 --> 0:09:39.360 made camera that has the most US content in any car, actually, 0:09:39.920 --> 0:09:43.640 uh that the border tax will drive the cost of 0:09:43.720 --> 0:09:46.360 that car up by a thousand hours. And and they're 0:09:46.400 --> 0:09:50.840 saying that, Uh, Toyota is saying, um, you know, consumers 0:09:50.880 --> 0:09:53.319 are just not going to accept that, and that that 0:09:53.440 --> 0:09:57.160 will hurt sales and hurt employment. So there's gonna be 0:09:57.240 --> 0:10:00.240 there's gonna be a big fight about what exact actually 0:10:00.320 --> 0:10:01.959 all this is going to mean as as it goes 0:10:02.000 --> 0:10:05.280 through the Congress. Can you give us a perspective about 0:10:05.440 --> 0:10:10.440 Ford and the relationship that may have been forged between 0:10:10.800 --> 0:10:14.520 Mark Fields, the chief executive, and the members of the 0:10:14.559 --> 0:10:19.559 Trump administration. Well, I mean Ford, I mean, as as 0:10:19.600 --> 0:10:22.600 I say, Ford is saying more than any of the 0:10:22.600 --> 0:10:25.000 other automakers that we can live with this border tax. 0:10:25.559 --> 0:10:32.960 There there vocal about saying um um um. We Ford 0:10:33.080 --> 0:10:36.560 need relief from the the fuel economy and the mission 0:10:36.559 --> 0:10:40.760 start that's at Barack Obama put in place, and um 0:10:40.840 --> 0:10:43.000 Donald Trump has said he's going to do all that. 0:10:43.600 --> 0:10:46.600 So that you know one thing about the border tax, 0:10:46.960 --> 0:10:49.880 um um. And we can argue if it's going to 0:10:50.040 --> 0:10:53.480 increase the price of cars and our people gonna um 0:10:53.679 --> 0:10:57.440 accept that. But there's no question from from Berkley's analyst 0:10:57.480 --> 0:11:01.600 Brian Johnson. And another is that the border tax will 0:11:01.640 --> 0:11:05.280 on the margin, creating the center to put more factories 0:11:05.320 --> 0:11:07.559 in the United States as opposed to also were in NAPTA. 0:11:08.240 --> 0:11:12.240 So um um. Mark Fields is saying that that the 0:11:12.360 --> 0:11:17.760 overall business climate that they think will evolve under President 0:11:17.760 --> 0:11:20.319 Trump is something that's going to be good for Ford. 0:11:20.360 --> 0:11:22.680 I mean, they're they're they're pretty aggressive and saying that. 0:11:23.040 --> 0:11:25.040 John Leppert, thank you so much for joining us automated 0:11:25.080 --> 0:11:28.880 writer for Bloomberg talking about auto sales and what effect 0:11:29.000 --> 0:11:44.240 the border tax may have on auto companies. Now we're 0:11:44.280 --> 0:11:46.920 going to get a chance to look at what the 0:11:47.000 --> 0:11:50.920 trade policies might look like and how an investor really 0:11:51.160 --> 0:11:53.560 deals with that. I want to bring in Scott Clement's 0:11:53.640 --> 0:11:58.040 chief investment strategist at Brown Brothers Harriman's private wealth management, 0:11:58.240 --> 0:12:00.960 and Scott, you know, we've talked a lot about some 0:12:01.080 --> 0:12:05.320 of the policies. We haven't really solidified anything as of yet. 0:12:05.360 --> 0:12:08.080 It's unclear what could get through Congress, what the actual 0:12:08.080 --> 0:12:12.120 proposals will be. Scott, Are you advising clients to change 0:12:12.160 --> 0:12:17.360 their allocations at this point based on what we know? No, 0:12:17.559 --> 0:12:20.840 we haven't changed any allocations, partially because we're very long 0:12:20.920 --> 0:12:24.920 term investors, partially because there's no real clarity on what 0:12:25.000 --> 0:12:27.480 policies are likely to unfold. There's certainly been a lot 0:12:27.520 --> 0:12:30.880 of suggestions, a lot of threats steven Um, but at 0:12:30.880 --> 0:12:33.640 this stage, until we see something more concrete unfold, it's 0:12:33.720 --> 0:12:35.840 very difficult to analyze and respond to it in a 0:12:35.880 --> 0:12:41.080 responsible way. Well, Scott, given that context, let's say this continues, 0:12:41.559 --> 0:12:44.440 Let's say that this is part and parcel for daily 0:12:44.480 --> 0:12:48.880 operation of the government. What would you be counseling people 0:12:48.920 --> 0:12:54.520 to do? Um Well. Within the equity market, we remain 0:12:54.800 --> 0:12:57.520 positioned as we always have in pretty long equities for 0:12:57.559 --> 0:13:00.240 the time being, we welcome the resurgence in corporate warnings. 0:13:00.320 --> 0:13:03.200 That's the fuel for the equity market. We're watching with 0:13:03.320 --> 0:13:05.520 great interest the rise in interest rates, and I think 0:13:05.600 --> 0:13:08.560 at some point over the course of this year, as 0:13:08.600 --> 0:13:11.120 the labor market continues to improve, and we got some 0:13:11.200 --> 0:13:14.480 good data from a DP just this morning, interest rates 0:13:14.480 --> 0:13:17.000 will continue to rise. That will give investors in fixed 0:13:17.040 --> 0:13:20.240 income a chance to go back into the intermediate even 0:13:20.280 --> 0:13:22.640 longer into the yield curve. We're not there yet, but 0:13:22.720 --> 0:13:24.960 that tradeoff of risk in return is beginning to get 0:13:25.000 --> 0:13:26.920 a little bit more appealing. Let me just mention that 0:13:27.000 --> 0:13:32.000 a DP numbers were two two thousand, the estimate was 0:13:32.080 --> 0:13:34.760 for a hundred and sixty thousand. Well, but Scott, so 0:13:34.800 --> 0:13:37.480 what's the level at which you would say that that 0:13:37.520 --> 0:13:42.960 you would recommend investors get back into fixed income. You know, 0:13:43.000 --> 0:13:45.520 it's more of a process, Lisa than it is an event. 0:13:45.679 --> 0:13:48.680 That The algorithm that we're using is as long as 0:13:48.720 --> 0:13:50.920 you can earn a rate of return in traditional fixed 0:13:50.960 --> 0:13:54.280 income that is higher than inflation. If you're talking about 0:13:54.320 --> 0:13:58.000 taxable bonds higher than whatever fees you pay for a 0:13:58.200 --> 0:14:01.160 muni bond fund or whatever, then the risk trade off 0:14:01.280 --> 0:14:04.160 becomes a lot more interesting. You know, there's another moving 0:14:04.280 --> 0:14:07.800 part there. Sorry, I was just gonna say so. In 0:14:07.800 --> 0:14:10.760 other words, with a ten year treasury yield heading north 0:14:10.880 --> 0:14:15.240 of two point five, we're getting there. We're getting here. 0:14:15.240 --> 0:14:17.800 It's heading that way very quickly, very quickly. The other 0:14:17.840 --> 0:14:20.840 interesting moving part to watch is that there have been 0:14:20.920 --> 0:14:25.080 hints as part of the Trump tax proposals and also 0:14:25.120 --> 0:14:29.160 the health tax proposals, that would limit the deductibility of 0:14:29.280 --> 0:14:33.560 municipal income, which for higher tax bracket clients, would have 0:14:33.640 --> 0:14:36.720 an implication for the appeal of those assets. And again, 0:14:36.720 --> 0:14:38.680 it's one of those many things on which there are 0:14:38.680 --> 0:14:41.800 no details yet, So we're playing it safe and waiting 0:14:41.960 --> 0:14:45.280 watching seeing how this unfolds, because that could certainly change 0:14:45.680 --> 0:14:49.640 the relative appeal of tax all wands versus municipal bonds, 0:14:49.800 --> 0:14:52.760 even for investors in a higher income tax brackets. Do 0:14:52.800 --> 0:14:55.440 you think that money outside the United States will flow 0:14:55.520 --> 0:14:58.520 into the US in the form of investments or in 0:14:58.640 --> 0:15:02.960 terms of maybe just any buying up debt. I think 0:15:02.960 --> 0:15:05.520 we're seeing that already. Uh. You know, if you think 0:15:05.560 --> 0:15:10.640 about the the central banks worldwide, the United States of 0:15:10.640 --> 0:15:14.280 America is the only one it's actively trying to raise 0:15:14.600 --> 0:15:17.960 interest rates. That has implications for currency strength, That has 0:15:18.000 --> 0:15:20.840 implications for return on fixed incomes. So yes, I expect 0:15:20.840 --> 0:15:24.240 the flows of funds into the United States to continue. Scott, 0:15:24.280 --> 0:15:27.880 At what point will yields rise so high in the 0:15:28.000 --> 0:15:34.320 US that it will endanger the stock rally? I think 0:15:34.320 --> 0:15:37.080 we're a long way from that. The risk out there 0:15:37.280 --> 0:15:40.960 is that the labor market improves so rapidly that wages 0:15:41.120 --> 0:15:44.560 begin to accelerate rapidly. We're not there yet. This is 0:15:44.560 --> 0:15:47.640 not a forecast. It's a risk, and the FED feels 0:15:47.680 --> 0:15:51.480 like they have to accelerate their own response to that. 0:15:52.240 --> 0:15:55.360 If the FED, for example, were to raise interest rates 0:15:55.400 --> 0:15:57.760 four or five times this year instead of the three 0:15:57.840 --> 0:16:00.800 that the market is expecting, that that would spook the 0:16:00.800 --> 0:16:03.080 equity market. That would send the signal that maybe the 0:16:03.120 --> 0:16:05.840 Fed's a little bit more worried about inflation, which hasn't 0:16:05.840 --> 0:16:08.440 been a concern for a decade now. Uh, then the 0:16:08.480 --> 0:16:10.640 market is I don't expect that to unfold, but it's 0:16:10.640 --> 0:16:13.160 certainly a risk that we're keeping an eye on. Talking 0:16:13.200 --> 0:16:16.040 about the FED, we're going to hear from them today 0:16:16.040 --> 0:16:18.840 at the end of their two day meeting, and I'm 0:16:18.840 --> 0:16:21.920 wondering how much you're looking for guidance with respect to 0:16:22.080 --> 0:16:26.200 what process they'll follow to unwind their four point five 0:16:26.240 --> 0:16:29.040 trillion dollar balance sheet, or if they'll start to do 0:16:29.080 --> 0:16:32.680 that in the near future. I think if it is 0:16:32.720 --> 0:16:34.360 the right word, because I don't think they have any 0:16:34.360 --> 0:16:37.080 intent of doing so. There's nothing that requires them to 0:16:37.160 --> 0:16:40.040 do so. I think the FED would rather restore more 0:16:40.080 --> 0:16:43.600 normal monetary policy through the old fashioned tool of raising 0:16:43.640 --> 0:16:46.800 the FED funds rate interest rates and leave the balance 0:16:46.840 --> 0:16:49.240 sheet where it is at, as you said, roughly four 0:16:49.280 --> 0:16:52.360 and a half trillion dollars. There's something very important that 0:16:52.400 --> 0:16:54.960 happened in two thousand and eight. The FED for the 0:16:54.960 --> 0:16:59.720 first time has the ability to pay interest on bank reserves. 0:16:59.720 --> 0:17:02.280 Hell at the FED. That's a tool they did not 0:17:02.400 --> 0:17:06.800 have beforehand. So if they are concerned that commercial bank 0:17:06.920 --> 0:17:10.240 lending might become inflationary, they have the ability to raise 0:17:10.359 --> 0:17:13.720 interest rates on reserve and therefore restrain some of that lending. 0:17:14.040 --> 0:17:16.720 It's a tool they've never used, but it's a tool 0:17:16.720 --> 0:17:19.480 that would enable them to leave the balance sheet to 0:17:19.560 --> 0:17:22.200 four and a half trillion dollars without having to actively 0:17:22.280 --> 0:17:26.160 wind it back down. Tell us more about tax reform 0:17:26.560 --> 0:17:31.680 in addition to your comments about income earned from municipal bonds. 0:17:31.960 --> 0:17:38.000 Tell us more about tax reform and some implications. One 0:17:38.080 --> 0:17:40.240 of the other things pen that we're watching very closely, 0:17:40.400 --> 0:17:42.200 and again it's part of the Trump proposal, part of 0:17:42.240 --> 0:17:46.480 the House proposal. The details are are sketchy still, but 0:17:46.560 --> 0:17:50.000 one of the proposals would limit the ability of corporations 0:17:50.119 --> 0:17:55.879 to deduct interest on corporate debt issuance. That might have 0:17:56.040 --> 0:18:01.080 the implication of lowering the desirability for rations to issue debt. 0:18:02.000 --> 0:18:04.920 It might restrain the supply of corporate debt, and anytime 0:18:04.920 --> 0:18:08.639 the supply is restrained, that has implications for for the 0:18:08.680 --> 0:18:11.000 ability of investors to earn a better rate of return 0:18:11.240 --> 0:18:13.679 on corporate debt. So we're watching. There's a lot of 0:18:13.680 --> 0:18:17.359 moving parts that that we're watching very closely. Corporate tax reform, 0:18:17.400 --> 0:18:20.359 on which there's been no progress whatsoever, does have a 0:18:20.400 --> 0:18:23.200 real ability to affect the equity market for the better, 0:18:23.240 --> 0:18:27.280 particularly repatriation tax, lowering the corporate statutory rate. These would 0:18:27.280 --> 0:18:30.800 all be very beneficial for the equity market. Thanks very 0:18:30.840 --> 0:18:33.760 much for joining us. Scott Clemmens is the chief investment 0:18:33.800 --> 0:18:39.160 strategist at Brown Brothers Harriman's private wealth management division. Giving 0:18:39.240 --> 0:18:41.920 us a look into what or what you should not 0:18:42.080 --> 0:18:57.040 be doing. Maybe just do nothing for a while. A 0:18:57.280 --> 0:19:01.120 change at the Supreme Court, that's its future. And here 0:19:01.160 --> 0:19:04.280 to help us understand what might happen is Kimberly Robinson 0:19:04.440 --> 0:19:08.360 Supreme Court Reward for Bloomberg b n A. Kimberly, thank 0:19:08.400 --> 0:19:10.639 you for being with us. Tell us. Who is the 0:19:10.680 --> 0:19:15.199 Supreme Court nominee? Neil Gorsich, Well Neil Gorfis is a 0:19:15.240 --> 0:19:18.159 long time federal Hellic Court judge who sits on the 0:19:18.200 --> 0:19:21.640 tenth Circuit. He sits at Denver. He's pretty young, at 0:19:21.760 --> 0:19:24.120 forty nine years old. He could make a big impact 0:19:24.440 --> 0:19:26.919 um for a very long time to come. Um. You 0:19:26.920 --> 0:19:30.320 know when cent uh, when the Senate is going to 0:19:30.359 --> 0:19:33.119 consider his nomination. UM, they're going to be able to 0:19:33.200 --> 0:19:36.200 check off a lot of the qualifications that we typically 0:19:36.240 --> 0:19:39.120 think of with modern day justices. You know, he has 0:19:39.160 --> 0:19:43.080 an Ivy League pedigree. He worked for the prestigious law firm, 0:19:43.600 --> 0:19:45.919 he had did a s in the d O J 0:19:46.560 --> 0:19:49.560 and he even clerked on the Supreme Court. UM, so 0:19:49.600 --> 0:19:53.640 he's he's got kind of the traditional um qualifications that 0:19:53.920 --> 0:19:59.160 you would mean. He has also a pretty strong conservative background. UM. 0:19:59.240 --> 0:20:02.280 Which should get him support UM from Senate Republicans. But 0:20:02.359 --> 0:20:06.000 he also something that UH Senate Democrats might like as well. 0:20:06.160 --> 0:20:10.359 And UM that's that he's pushed back on the deference 0:20:10.640 --> 0:20:14.720 that courts give to administrative agencies. That's something that could 0:20:14.760 --> 0:20:19.520 look attractive to Senate Democrats UM in the Donald Trump era. Well, Kimberly, 0:20:19.560 --> 0:20:22.680 we've already heard from some Democratic representatives saying that they're 0:20:22.720 --> 0:20:26.560 going to vote against him. What measures could they take 0:20:26.960 --> 0:20:30.600 to do that or is his nomination all but guaranteed 0:20:30.600 --> 0:20:34.879 at this point. I do think that UH judge is 0:20:34.960 --> 0:20:37.760 likely to get nominated, but there are some tools that 0:20:38.119 --> 0:20:42.040 Senate Democrats could use. UM. Although Senate Denemocrats did get 0:20:42.119 --> 0:20:44.960 rid of the silibuster for lower court nominees, they kept 0:20:45.000 --> 0:20:48.200 it in place for the Supreme Court and so they 0:20:48.240 --> 0:20:52.359 still could use the silibuster, and indeed, some Democrats have 0:20:52.440 --> 0:20:55.439 said that they planned to do that. The danger in 0:20:55.480 --> 0:21:00.720 that is that Republicans could UH go nuclear themselves, as 0:21:00.760 --> 0:21:04.720 it's called, and eliminate the filer buster UM for Supreme 0:21:04.760 --> 0:21:08.600 Court nominees UM, something that really hasn't been thought of, 0:21:09.000 --> 0:21:12.520 UM in in the history of these confirmation hearings. First 0:21:12.680 --> 0:21:15.480 for Supreme Court justices. I wonder if you could just 0:21:15.480 --> 0:21:18.560 speak a little bit about Utah Senator or In Hatch 0:21:18.640 --> 0:21:22.960 and his role UM. You know, I I don't really 0:21:22.960 --> 0:21:25.359 know a lot about what his role will be UM 0:21:25.440 --> 0:21:28.679 in this confirmation process. Sorry, I can't really speak to that. 0:21:29.240 --> 0:21:30.880 Can you then give us a little bit of an 0:21:30.920 --> 0:21:34.440 idea of what's next for Neil Gorsage. Well, what will 0:21:34.480 --> 0:21:36.159 be next is that he'll need to fill up some 0:21:36.680 --> 0:21:40.720 paperwork that's been tripping out some of uh Donald Trump's 0:21:40.720 --> 0:21:45.400 other nominees. But uh, pretty it is pretty straightforward for judges. Uh, 0:21:45.400 --> 0:21:48.800 it's paperwork that he's already done to be confirmed. And 0:21:48.840 --> 0:21:52.159 then we'll go through, uh likely in a couple of months, 0:21:52.160 --> 0:21:55.919 some confirmation hearings where we're likely to hear questions about 0:21:56.119 --> 0:22:02.040 abortion and immigration, um and the lid is freedom. Well, Kimberly, 0:22:02.240 --> 0:22:06.639 how much is the controversy over Neil Gorsich uh specific 0:22:06.760 --> 0:22:10.600 to him and his views? And how much is residual 0:22:10.760 --> 0:22:15.560 anger by the Democrats that Merritt Garland, Obama's nominee was 0:22:15.840 --> 0:22:19.200 not confirmed. Well, I do think there's still a lot 0:22:19.280 --> 0:22:23.320 of UM Democrats who are really smarting over the fact that, 0:22:23.720 --> 0:22:27.800 you know, Senate Republicans didn't give President nominee uh even 0:22:27.840 --> 0:22:30.840 a hearing. UH. And so I do think that there's 0:22:30.920 --> 0:22:35.960 some initial sense that Senate Democrats might try to block 0:22:36.080 --> 0:22:39.160 this nomination as sort of a payback. UM. But if 0:22:39.160 --> 0:22:41.320 Senate Democrats are playing the long game, they'll need to 0:22:41.359 --> 0:22:45.720 consider that the election looks pretty tough for Senate Democrats. 0:22:45.760 --> 0:22:47.720 There are a lot of Democrats who are going to 0:22:47.840 --> 0:22:51.520 be going up in elections in states that Trump won, 0:22:51.640 --> 0:22:54.920 and so UM, it may be that the Senate Democrats 0:22:54.920 --> 0:22:57.440 may be in the minority for a while. UM. And 0:22:57.760 --> 0:23:01.480 you know, risking a filibuster and risking that that silibuster 0:23:01.560 --> 0:23:05.359 could be eliminated could be something that puts some a 0:23:05.480 --> 0:23:08.280 Democrats kind of on the back burner when it comes to, 0:23:09.080 --> 0:23:14.640 at least in the near future. UM. Supreme Court nominees. Now, 0:23:14.680 --> 0:23:18.119 the Supreme Court, of course, rules on a variety of topics. 0:23:18.359 --> 0:23:22.320 Is there any understanding as to where Judge Gorsuch would 0:23:22.480 --> 0:23:27.640 reside UH in business cases or in cases involving regulation 0:23:27.760 --> 0:23:31.320 and the government. Well, there has been some indication in 0:23:31.359 --> 0:23:35.080 those areas. UM. As far as business regulation, UM, we've 0:23:35.080 --> 0:23:38.000