1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. 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 --> 00:00:31,960 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. It 7 00:00:32,080 --> 00:00:35,640 Speaker 1: is my pleasure and honor to introduce Larry Summers, Distinguished 8 00:00:35,640 --> 00:00:39,680 Speaker 1: Professor at Harvard, former president of Harvard, former Treasury Secretary 9 00:00:40,000 --> 00:00:45,920 Speaker 1: under President Clinton, and top economic advisor to President Obama. Larry, you, 10 00:00:46,040 --> 00:00:50,159 Speaker 1: in your comments that you just made you said that banks, 11 00:00:50,360 --> 00:00:52,400 Speaker 1: despite all the capital that they have raised, or not 12 00:00:52,440 --> 00:00:57,319 Speaker 1: necessarily better capitalized or better protected from a downturn. Does 13 00:00:57,360 --> 00:00:59,640 Speaker 1: that mean that we are as vulnerable now to a 14 00:00:59,640 --> 00:01:01,920 Speaker 1: financial crisis as we were in two thousand and eight. 15 00:01:02,760 --> 00:01:04,760 Speaker 1: I wouldn't go quite that far, at least, so we 16 00:01:05,000 --> 00:01:08,200 Speaker 1: we've done a whole set of things. Banks are much 17 00:01:08,200 --> 00:01:12,399 Speaker 1: more liquid, uh than they were in two thousand and eight. 18 00:01:12,760 --> 00:01:16,200 Speaker 1: They've surely learned some lessons about the management of their 19 00:01:16,240 --> 00:01:19,640 Speaker 1: activities from what has taken place in two thousand and eight. 20 00:01:20,080 --> 00:01:23,400 Speaker 1: But the idea that we're on a new plateau of capital, 21 00:01:23,959 --> 00:01:28,119 Speaker 1: which has been embraced by the regulatory community to an 22 00:01:28,120 --> 00:01:31,240 Speaker 1: extent that surprised me very greatly when I looked at 23 00:01:31,240 --> 00:01:34,520 Speaker 1: it doesn't really show up in market data, so you 24 00:01:34,560 --> 00:01:37,080 Speaker 1: don't see it if you look at the value of 25 00:01:37,200 --> 00:01:41,240 Speaker 1: their common stock relative to the value of their assets. 26 00:01:41,880 --> 00:01:46,200 Speaker 1: If a business becomes much less levered, what you expect 27 00:01:46,360 --> 00:01:49,040 Speaker 1: is that it's going to become much less volatible. And 28 00:01:49,080 --> 00:01:53,240 Speaker 1: there isn't really much evidence for that UH in the 29 00:01:53,320 --> 00:01:58,840 Speaker 1: pattern of UH bank stock prices, And so I am 30 00:01:59,440 --> 00:02:06,240 Speaker 1: relative to stock prices of other of other firms, and 31 00:02:06,440 --> 00:02:11,680 Speaker 1: so I am concerned that we may not be in 32 00:02:11,760 --> 00:02:15,680 Speaker 1: as strong a position as UH we think we are. 33 00:02:15,720 --> 00:02:18,519 Speaker 1: I don't think that's an imminent threat right now, but 34 00:02:19,800 --> 00:02:22,600 Speaker 1: we've not seen the last recession in the United States, 35 00:02:22,600 --> 00:02:26,639 Speaker 1: We've not seen the last period of excess, and I'm 36 00:02:26,680 --> 00:02:29,320 Speaker 1: not certain that our system is quite as robust as 37 00:02:29,320 --> 00:02:32,680 Speaker 1: many people suppose. You also said that you are skeptical 38 00:02:32,800 --> 00:02:34,600 Speaker 1: of the idea that the Vulcal rule has been a 39 00:02:34,680 --> 00:02:38,720 Speaker 1: net benefit to financial stability, So should it be repealed? 40 00:02:39,560 --> 00:02:41,280 Speaker 1: I think it's certainly. We certainly need to take a 41 00:02:41,400 --> 00:02:47,080 Speaker 1: very hard. Uh hard, look at what the consequence, what 42 00:02:47,200 --> 00:02:50,800 Speaker 1: the consequences have been, you know, in some ways, Uh, 43 00:02:50,960 --> 00:02:53,600 Speaker 1: it may already have happened. I'm not sure institutions that 44 00:02:53,639 --> 00:02:57,640 Speaker 1: abandoned businesses are going to go back to those businesses. Uh, 45 00:02:57,760 --> 00:03:01,520 Speaker 1: no matter, no matter what by it does seem to 46 00:03:01,560 --> 00:03:06,560 Speaker 1: me that an idea that had I had a certain 47 00:03:06,800 --> 00:03:12,880 Speaker 1: argument in favor of it um doesn't look to have 48 00:03:13,080 --> 00:03:18,480 Speaker 1: been the contributor to financial stability. Uh that uh that 49 00:03:18,639 --> 00:03:22,639 Speaker 1: many hoped. There isn't really any evidence even in all 50 00:03:22,639 --> 00:03:27,919 Speaker 1: the retrospective since that proprietary trading was an important contributor 51 00:03:28,360 --> 00:03:32,480 Speaker 1: to the crisis. And I think that anything that removes 52 00:03:33,080 --> 00:03:40,080 Speaker 1: a viable business line, anything that involves very large compliance costs, 53 00:03:40,720 --> 00:03:45,280 Speaker 1: and anything that adds to illiquidity and markets is at 54 00:03:45,400 --> 00:03:50,640 Speaker 1: least not is at least having some adverse effects on 55 00:03:50,760 --> 00:03:53,840 Speaker 1: financial stability, and one would have to ask what the 56 00:03:53,920 --> 00:03:57,720 Speaker 1: offsetting benefits were. So do you think that if more 57 00:03:57,840 --> 00:04:01,080 Speaker 1: regulations were rolled back that it could actually increased financial 58 00:04:01,120 --> 00:04:05,280 Speaker 1: stability by increasing profitability of banks? I think. I think 59 00:04:05,320 --> 00:04:08,880 Speaker 1: the great mistake is to have a debate that's all 60 00:04:08,920 --> 00:04:14,520 Speaker 1: about more regulation versus less regulation, instead of better regulation, 61 00:04:14,760 --> 00:04:21,800 Speaker 1: versus worse regulation. And I think that UH more regulation 62 00:04:22,000 --> 00:04:26,400 Speaker 1: on the shadow banking system, more regulation to make sure 63 00:04:26,560 --> 00:04:32,479 Speaker 1: that UH banks are responsive to dynamic changes in their 64 00:04:32,520 --> 00:04:36,800 Speaker 1: capital position UH is very much appropriate. But I think 65 00:04:36,839 --> 00:04:42,800 Speaker 1: it is appropriate to review the huge compliance burdens that 66 00:04:42,880 --> 00:04:47,120 Speaker 1: have been placed on many institutions to see whether those 67 00:04:47,160 --> 00:04:50,640 Speaker 1: compliance burdens are really necessary. And yes, I think you 68 00:04:50,760 --> 00:04:54,200 Speaker 1: caught a key pointly so, which is that a bank's 69 00:04:54,240 --> 00:04:59,160 Speaker 1: expectation of future profitability offers secures to security to those 70 00:04:59,200 --> 00:05:04,240 Speaker 1: who lend it uns and if you undermine that future profitability, 71 00:05:04,400 --> 00:05:08,520 Speaker 1: you are undermining banks borrowing, and that in turn is 72 00:05:08,800 --> 00:05:12,160 Speaker 1: raising questions about financial stability. Another point that you raised 73 00:05:12,360 --> 00:05:15,560 Speaker 1: was the importance of regulators in the next downturn to 74 00:05:15,760 --> 00:05:20,520 Speaker 1: be very open and to respond incredibly proactively to the 75 00:05:20,600 --> 00:05:23,719 Speaker 1: first science of a problem. UM. You also recently wrote 76 00:05:23,760 --> 00:05:27,400 Speaker 1: a column in The Washington Post talking about Secretary Treasury 77 00:05:27,440 --> 00:05:30,919 Speaker 1: Secretary Stephen manution how he has compromised his credibility with 78 00:05:30,960 --> 00:05:34,599 Speaker 1: some of his recent comments. Do you believe that his 79 00:05:35,160 --> 00:05:38,279 Speaker 1: if he continues down this path, that this could compromise, 80 00:05:38,440 --> 00:05:41,440 Speaker 1: for example, the Treasury's ability to fight it downturn or 81 00:05:41,600 --> 00:05:45,400 Speaker 1: or or other policies being think the Treasury secretary's credibility 82 00:05:45,480 --> 00:05:49,760 Speaker 1: is a crucial asset in any time of economic crisis, 83 00:05:50,360 --> 00:05:55,800 Speaker 1: and I think that plutent Treasury secretaries are very conscious 84 00:05:55,960 --> 00:06:04,000 Speaker 1: of preserving that credibility. Deserving that credibility means being seen 85 00:06:04,760 --> 00:06:10,240 Speaker 1: as a person who says what he is analytically true, 86 00:06:10,920 --> 00:06:15,600 Speaker 1: rather than says what is politically convenient or expedient. And 87 00:06:15,640 --> 00:06:17,839 Speaker 1: I think some of the statements that have been made 88 00:06:18,480 --> 00:06:25,080 Speaker 1: outside of the financial regulatory area, particularly in the tax area, 89 00:06:25,920 --> 00:06:31,920 Speaker 1: are hard to understand except through the prism of political expediency. 90 00:06:34,040 --> 00:06:39,280 Speaker 1: The claims that UH tax cuts will raise revenue are 91 00:06:39,360 --> 00:06:44,560 Speaker 1: I think ludicrous. The claims that the currently proposed tax 92 00:06:44,600 --> 00:06:50,159 Speaker 1: cuts will benefit substantially the middle class relative to the 93 00:06:50,200 --> 00:06:55,000 Speaker 1: wealthy are I think indefensible. And I don't think it 94 00:06:55,080 --> 00:07:00,479 Speaker 1: serves us well UM for policies to be advocated in 95 00:07:01,000 --> 00:07:05,880 Speaker 1: UH those kinds of terms. As former Treasury secretary, do 96 00:07:05,920 --> 00:07:07,760 Speaker 1: you think that the idea of a fifty year one 97 00:07:07,839 --> 00:07:11,120 Speaker 1: hundred year bond is is potentially I think it's something 98 00:07:11,120 --> 00:07:17,360 Speaker 1: that deserves study if it is linked to UM commitments 99 00:07:17,480 --> 00:07:22,720 Speaker 1: to long term investments, and if we can commit to 100 00:07:22,840 --> 00:07:30,560 Speaker 1: issuing long term debt to finance high return long term investments, 101 00:07:31,160 --> 00:07:35,080 Speaker 1: then I think it's something that can be very that 102 00:07:35,200 --> 00:07:40,400 Speaker 1: can be very attractive. UH. If it's a standalone independent 103 00:07:41,200 --> 00:07:46,800 Speaker 1: of UH making long term investments, then I think the 104 00:07:46,840 --> 00:07:51,360 Speaker 1: case is less clear, and it depends upon what the 105 00:07:51,400 --> 00:07:55,160 Speaker 1: appetite for those financial instruments is and at what yield 106 00:07:56,200 --> 00:07:58,880 Speaker 1: the Treasury will be able to sell them. In a 107 00:07:58,920 --> 00:08:02,120 Speaker 1: recent column that you wrote for The Financial Times, you 108 00:08:02,160 --> 00:08:04,960 Speaker 1: were talking about how the FED, if the FED overdes 109 00:08:05,000 --> 00:08:07,760 Speaker 1: it now, they will have little room to respond in 110 00:08:07,800 --> 00:08:11,400 Speaker 1: another financial downturn. How likely do you think it is 111 00:08:11,600 --> 00:08:13,760 Speaker 1: for them to overdo it, and sort of what would 112 00:08:13,760 --> 00:08:18,000 Speaker 1: you determine to be overdoing it at this point. Yeah, 113 00:08:18,000 --> 00:08:20,360 Speaker 1: that's a judgment that you have to make on an 114 00:08:20,360 --> 00:08:24,960 Speaker 1: ongoing UH basis. I would just say that I think 115 00:08:25,000 --> 00:08:30,480 Speaker 1: the risks of a the risks of a recession UH 116 00:08:30,600 --> 00:08:33,600 Speaker 1: seemed to me or a downturn seemed to me to 117 00:08:33,679 --> 00:08:39,040 Speaker 1: be far more serious than the risks of developing substantially 118 00:08:39,080 --> 00:08:43,240 Speaker 1: excessive inflation as we did in the nineties seventies, and 119 00:08:43,280 --> 00:08:46,679 Speaker 1: so I think the FED needs to be very cautious 120 00:08:47,200 --> 00:08:51,920 Speaker 1: about rate hikes, and I think the FED is has 121 00:08:51,960 --> 00:08:56,120 Speaker 1: tried to be very cautious about at a rate about 122 00:08:56,200 --> 00:09:00,520 Speaker 1: rate hikes. The tendency has been for the D to 123 00:09:01,960 --> 00:09:06,320 Speaker 1: um expect that over time it will be able to 124 00:09:06,360 --> 00:09:10,200 Speaker 1: engage in more red hiking rate hiking than in fact 125 00:09:10,720 --> 00:09:13,240 Speaker 1: it has been able to. And so I think the 126 00:09:13,240 --> 00:09:17,640 Speaker 1: FED has acted UH prudently in general, but it has 127 00:09:17,760 --> 00:09:23,920 Speaker 1: sometimes been a bit over optimistic about how much rate 128 00:09:23,960 --> 00:09:27,000 Speaker 1: increasing it will be able to do. UH in a 129 00:09:27,040 --> 00:09:29,240 Speaker 1: prudent way. What do you think the terminal level is 130 00:09:29,720 --> 00:09:31,800 Speaker 1: for how high they can go in this particular cyclone, 131 00:09:32,080 --> 00:09:35,199 Speaker 1: I think the neutral real rate is substantially reduced from 132 00:09:35,200 --> 00:09:38,320 Speaker 1: where it was, and so the old idea of four 133 00:09:39,720 --> 00:09:43,840 Speaker 1: seems pretty unlikely to make. But just where it will end, uh, 134 00:09:44,400 --> 00:09:46,640 Speaker 1: I'll wait. I'll wait for some more cards to be 135 00:09:46,720 --> 00:09:49,920 Speaker 1: turned over before making that prediction. One thing that I've 136 00:09:49,920 --> 00:09:52,640 Speaker 1: heard at this conference is people are talking about how 137 00:09:52,679 --> 00:09:58,320 Speaker 1: they are more concerned that benchmark borrowing costs decline rather 138 00:09:58,360 --> 00:10:02,360 Speaker 1: than rise, that the idea of yields falling could be 139 00:10:02,520 --> 00:10:06,080 Speaker 1: more of a threat to financial stability than rising. Would 140 00:10:06,120 --> 00:10:11,319 Speaker 1: you agree, I'm not sure. I think it depends on 141 00:10:11,640 --> 00:10:14,720 Speaker 1: you know, clearly, if you're a pension fund and returns 142 00:10:14,880 --> 00:10:17,880 Speaker 1: rise and there aren't increases and asset prices that can 143 00:10:17,920 --> 00:10:21,240 Speaker 1: be returns decline, and there aren't increases and asset prices 144 00:10:21,280 --> 00:10:25,880 Speaker 1: that can be adverse. UH for you. On the other hand, UH, 145 00:10:25,960 --> 00:10:30,640 Speaker 1: obviously lower rates are in many respects good for borrowers. 146 00:10:30,880 --> 00:10:34,400 Speaker 1: I think on balance, I would tend to think that 147 00:10:34,480 --> 00:10:37,800 Speaker 1: more liquidity and lower rates tends, at least in a 148 00:10:37,840 --> 00:10:42,160 Speaker 1: short run sense, to be favorable for financial stability. I 149 00:10:42,200 --> 00:10:46,080 Speaker 1: obviously would recognize the concerns that over the longer term, 150 00:10:46,160 --> 00:10:50,680 Speaker 1: if they lead to unsustainable asset price inflation or lead 151 00:10:50,720 --> 00:10:53,880 Speaker 1: to the creation of bubbles, that could be problematic. And 152 00:10:53,880 --> 00:10:55,800 Speaker 1: and lastly, I just would love to get your thoughts 153 00:10:55,880 --> 00:10:58,280 Speaker 1: on how big of a risk we are right now 154 00:10:58,760 --> 00:11:03,760 Speaker 1: of another recession than your term, Lisa, I don't. I 155 00:11:03,800 --> 00:11:09,720 Speaker 1: think that I don't see the roots of a near 156 00:11:09,880 --> 00:11:13,360 Speaker 1: term recession in any of the current data flow. On 157 00:11:13,400 --> 00:11:17,600 Speaker 1: the other hand, I'm very much aware that you look 158 00:11:17,600 --> 00:11:21,080 Speaker 1: at the current you look at history, and people never 159 00:11:21,200 --> 00:11:26,040 Speaker 1: predict recessions a year in advance, and so something things 160 00:11:26,080 --> 00:11:28,800 Speaker 1: have a way of coming up. I think the right 161 00:11:28,840 --> 00:11:31,160 Speaker 1: reading of the data is that the odds are about 162 00:11:31,200 --> 00:11:34,120 Speaker 1: twenty percent a year that if the economy has not 163 00:11:34,200 --> 00:11:37,480 Speaker 1: yet gone into recession, that it will go into recession 164 00:11:37,600 --> 00:11:40,680 Speaker 1: in the next year, and that would seem to me 165 00:11:40,720 --> 00:11:43,400 Speaker 1: to be a reasonable estimate right now. Thank you so much, 166 00:11:43,400 --> 00:11:45,640 Speaker 1: Professor Summers, Thank you so much for joining us. Thank you. 167 00:11:45,920 --> 00:11:49,400 Speaker 1: Larry Summer is a distinguished professor at Harvard, former president 168 00:11:49,440 --> 00:11:54,160 Speaker 1: of Harvard, former Treasury secretary under President Clinton, and top 169 00:11:54,200 --> 00:12:04,880 Speaker 1: economic advisor to President Obama. We want to take a 170 00:12:04,920 --> 00:12:07,680 Speaker 1: moment to let you know about something new from Bloomberg. 171 00:12:07,880 --> 00:12:10,920 Speaker 1: Starting right now, you can use our io s app 172 00:12:11,120 --> 00:12:14,600 Speaker 1: or our new Google Chrome extension to scan any news 173 00:12:14,640 --> 00:12:18,679 Speaker 1: story on any website, instantly revealing relevant news and market 174 00:12:18,760 --> 00:12:22,360 Speaker 1: data from Bloomberg and other sources related to companies and 175 00:12:22,480 --> 00:12:25,640 Speaker 1: people you're reading about. So no matter where you're reading 176 00:12:25,640 --> 00:12:27,920 Speaker 1: the news, you can bring the power of Bloomberg's news 177 00:12:27,920 --> 00:12:31,160 Speaker 1: and data with you. It's pretty amazing. Download our Io 178 00:12:31,400 --> 00:12:33,800 Speaker 1: s app or search for the Bloomberg extension on the 179 00:12:33,840 --> 00:12:36,760 Speaker 1: Chrome Store to try it out. Learn more at Bloomberg 180 00:12:36,800 --> 00:12:47,440 Speaker 1: dot com slash lens Well. This morning, a Pacific investment 181 00:12:47,480 --> 00:12:50,480 Speaker 1: management co PIMCO came out and said that it expected 182 00:12:50,640 --> 00:12:54,280 Speaker 1: ten year treasury yields to climb to three over the 183 00:12:54,400 --> 00:12:57,000 Speaker 1: medium term. I am curious to find out whether our 184 00:12:57,040 --> 00:13:00,720 Speaker 1: next guest agrees. Matthew Freund. He is co chief investment 185 00:13:00,720 --> 00:13:04,239 Speaker 1: Officer and head of fixed income Strategies at Calamus Investments, 186 00:13:04,280 --> 00:13:08,080 Speaker 1: overseeing eighteen point three billion dollars UH. The company is 187 00:13:08,080 --> 00:13:12,400 Speaker 1: based in Naperville, Illinois, and Matt joins us now by phone. Matt, 188 00:13:12,480 --> 00:13:14,840 Speaker 1: thank you so much for joining us. I wanted to 189 00:13:14,880 --> 00:13:18,680 Speaker 1: start really with treasuries and the idea that Pimco is seeing, 190 00:13:19,280 --> 00:13:22,840 Speaker 1: the idea of ten years going to three UH in 191 00:13:22,880 --> 00:13:26,520 Speaker 1: the medium term. Would you agree? Yeah? I think I would. 192 00:13:26,640 --> 00:13:30,520 Speaker 1: So when you think about treasuries and where they're going 193 00:13:31,200 --> 00:13:36,240 Speaker 1: UM in the short run, treasuries are really influenced I 194 00:13:36,240 --> 00:13:40,600 Speaker 1: I think by UH the Federal Central Bank policy, meaning 195 00:13:40,640 --> 00:13:42,440 Speaker 1: what what's the Fed going to do? The feed has 196 00:13:42,520 --> 00:13:45,200 Speaker 1: told us that they're raising rates, but very very slowly. 197 00:13:45,920 --> 00:13:48,160 Speaker 1: The wild card is what they're doing with the balance 198 00:13:48,200 --> 00:13:52,520 Speaker 1: sheet and whether they decide to aggressively reduce the size 199 00:13:52,640 --> 00:13:55,880 Speaker 1: of their balance sheet. That's great, but it's put on 200 00:13:55,920 --> 00:14:00,040 Speaker 1: a position of an economy which is actually looking a 201 00:14:00,080 --> 00:14:02,760 Speaker 1: lot like last year. So we had a week Q one. 202 00:14:02,840 --> 00:14:06,160 Speaker 1: It was whether it was seasonal factors, but there's always 203 00:14:06,240 --> 00:14:11,640 Speaker 1: weather or seasonal factors. Earnings look good, jobs look pretty strong, 204 00:14:11,720 --> 00:14:14,760 Speaker 1: but really they're acting very late cycle. So when you 205 00:14:14,760 --> 00:14:17,800 Speaker 1: put it all together, I think that the economy is 206 00:14:18,000 --> 00:14:21,680 Speaker 1: gradually getting better, that rates are gradually increasing, and that's 207 00:14:21,720 --> 00:14:25,200 Speaker 1: actually priced into the forward curves now. But I don't 208 00:14:25,240 --> 00:14:27,760 Speaker 1: think we've seen the low and rates, and I don't 209 00:14:27,800 --> 00:14:29,920 Speaker 1: think we're going to see the low and rates until 210 00:14:29,960 --> 00:14:33,760 Speaker 1: we get through the next recession. Fortunately that's not coming 211 00:14:33,840 --> 00:14:36,160 Speaker 1: up right away. Hold on a second, because this, this 212 00:14:36,280 --> 00:14:38,280 Speaker 1: to me, is a really compelling point. In other words, 213 00:14:38,320 --> 00:14:42,440 Speaker 1: you think that ten year yields could potentially go much lower, Yeah, 214 00:14:42,480 --> 00:14:45,880 Speaker 1: I do so. Again in the short run, uh, this 215 00:14:46,000 --> 00:14:48,480 Speaker 1: year is shaping up to look a lot like last year. 216 00:14:48,640 --> 00:14:51,920 Speaker 1: It's not a recession, but there's no escape velocity either, 217 00:14:52,400 --> 00:14:55,800 Speaker 1: And in that environment, the idea that rates grind higher 218 00:14:56,240 --> 00:14:59,840 Speaker 1: makes a lot of sense very short term. Longer term, 219 00:15:00,800 --> 00:15:04,280 Speaker 1: we have an outlawed recessions just because rates were lower. 220 00:15:04,320 --> 00:15:07,720 Speaker 1: We have a new administration, and when the next recession hits, 221 00:15:07,840 --> 00:15:10,600 Speaker 1: I think we're going to quickly grab the tools that 222 00:15:11,320 --> 00:15:13,600 Speaker 1: worked in the past, and I think we're going to 223 00:15:13,680 --> 00:15:17,640 Speaker 1: see rates come a lot lower. The good news though, Uh, 224 00:15:17,640 --> 00:15:21,320 Speaker 1: you know, the recession doesn't appear to be on the horizon. Uh, 225 00:15:21,440 --> 00:15:25,280 Speaker 1: certainly over the next nine to twelve months. Well, just 226 00:15:25,320 --> 00:15:27,440 Speaker 1: to give a number to that, where do you think 227 00:15:28,280 --> 00:15:31,240 Speaker 1: rates could go? I think no, I think I think. 228 00:15:31,280 --> 00:15:33,680 Speaker 1: I think the idea that forward curves now have rate 229 00:15:33,760 --> 00:15:37,600 Speaker 1: tenure rates staying under three percent for the next year 230 00:15:37,800 --> 00:15:40,600 Speaker 1: or two, and that feels about right. The risk to 231 00:15:40,680 --> 00:15:43,080 Speaker 1: the long end of the curve is not the FED 232 00:15:43,160 --> 00:15:47,080 Speaker 1: moving too fast. It's that the FED moves too slowly. 233 00:15:47,240 --> 00:15:50,240 Speaker 1: So if the FED were to aggressively raise rates in 234 00:15:50,280 --> 00:15:53,320 Speaker 1: the short end, I think you'd see the long end 235 00:15:53,320 --> 00:15:55,640 Speaker 1: of the curve be very well behaved. You would see 236 00:15:55,640 --> 00:15:59,040 Speaker 1: a flattening in the yield curve. So I I think 237 00:15:59,160 --> 00:16:01,880 Speaker 1: that the base case has to be that rates are 238 00:16:01,960 --> 00:16:05,040 Speaker 1: gradually getting higher, not in a big rush, and very 239 00:16:05,160 --> 00:16:08,320 Speaker 1: very slowly. But again, we're keeping an eye out. We're 240 00:16:08,360 --> 00:16:11,040 Speaker 1: watching some things in the economy that worry us, things 241 00:16:11,120 --> 00:16:16,800 Speaker 1: like increased delinquencies, uh, poor real earnings weekly real earnings 242 00:16:16,800 --> 00:16:20,360 Speaker 1: have actually been poor, and and some some troubling numbers 243 00:16:20,400 --> 00:16:23,200 Speaker 1: with tax receipts. So we think the economy is fine 244 00:16:23,280 --> 00:16:26,720 Speaker 1: for a while. We think that the direct natural direction 245 00:16:26,760 --> 00:16:29,400 Speaker 1: of rates would be to trend a little higher. But 246 00:16:29,480 --> 00:16:31,320 Speaker 1: again we're not out of the woods, and when that 247 00:16:31,400 --> 00:16:36,080 Speaker 1: next recession comes, expect rates to retest their loves. So, uh, 248 00:16:36,280 --> 00:16:38,280 Speaker 1: I want to pick up on something that you said 249 00:16:38,400 --> 00:16:44,040 Speaker 1: about increasing consumer delinquencies. We've seen rising credit card charge offs, 250 00:16:44,280 --> 00:16:47,600 Speaker 1: rising auto loan delinquencies. At what point do you care 251 00:16:47,680 --> 00:16:50,200 Speaker 1: from a systemic point of view, what point do you say, 252 00:16:50,480 --> 00:16:53,400 Speaker 1: you know, this means that the consumer is weakening from 253 00:16:53,400 --> 00:16:56,320 Speaker 1: a credit perspective more than is being currently priced into 254 00:16:56,360 --> 00:16:59,600 Speaker 1: the market. Yeah, that is a fantastic question. So when 255 00:16:59,600 --> 00:17:03,640 Speaker 1: you look get delinquencies, they are trending up a little bit, 256 00:17:03,960 --> 00:17:07,520 Speaker 1: but they're trending up from very low level, certainly levels 257 00:17:07,560 --> 00:17:12,760 Speaker 1: that uh bottomed dramatically post what we saw in oh 258 00:17:12,880 --> 00:17:15,880 Speaker 1: eight oh nine, But it feels like we're at an 259 00:17:15,880 --> 00:17:21,119 Speaker 1: inflection point. So again, delinquencies are still very low, but 260 00:17:21,240 --> 00:17:23,960 Speaker 1: the rate of change in those delinquencies is going in 261 00:17:24,000 --> 00:17:27,960 Speaker 1: the wrong direction. And that's what interest rates. As as 262 00:17:28,000 --> 00:17:31,280 Speaker 1: we started talking being very very low, we're interest rates 263 00:17:31,320 --> 00:17:35,600 Speaker 1: to go up unexpectedly, certainly higher. That's in my forecaster 264 00:17:35,760 --> 00:17:40,919 Speaker 1: pimco's forecasts. Consumers are going to be um stressed. But 265 00:17:40,960 --> 00:17:43,320 Speaker 1: the most important thing that I'm looking at is and 266 00:17:43,359 --> 00:17:46,199 Speaker 1: again I don't have to answer, it's a it's a question, 267 00:17:46,280 --> 00:17:50,199 Speaker 1: it's a dilemma for the market. Real weekly earnings have 268 00:17:50,440 --> 00:17:54,960 Speaker 1: been negative, they're they're right around zero now. And typically 269 00:17:55,160 --> 00:17:58,920 Speaker 1: when you're after when you're real wages, meaning after inflation, 270 00:17:59,000 --> 00:18:04,400 Speaker 1: wages are really being crimped, you start to um miss 271 00:18:04,480 --> 00:18:08,320 Speaker 1: your payments. We're seeing that, and then that generally is 272 00:18:08,359 --> 00:18:11,800 Speaker 1: an early sign of weakness in the consumer sector, which 273 00:18:11,840 --> 00:18:16,760 Speaker 1: is the majority of GDP so or or production activity 274 00:18:16,760 --> 00:18:19,280 Speaker 1: here in the United States. So it is an early 275 00:18:19,359 --> 00:18:22,640 Speaker 1: warning sign and it's one we're watching very carefully. So 276 00:18:22,760 --> 00:18:25,000 Speaker 1: as an investor, how do you take this information and 277 00:18:25,080 --> 00:18:26,960 Speaker 1: how do you apply it to what you decide to 278 00:18:26,960 --> 00:18:29,560 Speaker 1: buy or not? You know, that's a great question too. 279 00:18:29,600 --> 00:18:33,320 Speaker 1: So I think diversification is really important in this market. 280 00:18:33,680 --> 00:18:35,879 Speaker 1: And what I've come to find out is that most 281 00:18:36,000 --> 00:18:39,280 Speaker 1: investors don't want to be diversified. I mean, they say 282 00:18:39,280 --> 00:18:41,720 Speaker 1: they do, but when you talk to them, they want 283 00:18:41,760 --> 00:18:44,000 Speaker 1: half their portfolio to go up ten percent and the 284 00:18:44,040 --> 00:18:46,240 Speaker 1: other half to go up twenty And that's not the 285 00:18:46,240 --> 00:18:50,639 Speaker 1: way diversification works. Diversification is where you have assets that 286 00:18:50,720 --> 00:18:55,040 Speaker 1: will do well in different environment. So with that right 287 00:18:55,080 --> 00:18:59,119 Speaker 1: now here at Calamos, we do think um that the 288 00:18:59,240 --> 00:19:03,160 Speaker 1: risk markets have more to run. But again we we 289 00:19:03,160 --> 00:19:07,080 Speaker 1: we like international markets, we like emerging markets. We think 290 00:19:07,119 --> 00:19:11,080 Speaker 1: fixed income, even with our expectation that rates will gradually 291 00:19:11,760 --> 00:19:14,960 Speaker 1: go higher, has a place it will do well. Should 292 00:19:15,000 --> 00:19:18,920 Speaker 1: the economy we can unexpectedly it will provide more income 293 00:19:19,560 --> 00:19:22,119 Speaker 1: and within the fixed income market, and I like to 294 00:19:22,160 --> 00:19:25,720 Speaker 1: remind people it's it's it's not one bond market, it's 295 00:19:25,720 --> 00:19:29,000 Speaker 1: a market of bonds. We do think that high yield 296 00:19:29,119 --> 00:19:32,239 Speaker 1: still has some attractive risk returns. I know people are 297 00:19:32,280 --> 00:19:36,720 Speaker 1: pulling back on risk and we are certainly being more cautious. 298 00:19:36,760 --> 00:19:39,400 Speaker 1: But when you think about high yield, it's always got 299 00:19:39,480 --> 00:19:42,640 Speaker 1: something wrong with it. That's by definition. That's why it's 300 00:19:42,400 --> 00:19:45,160 Speaker 1: it's high yield. And we do think there are select 301 00:19:45,240 --> 00:19:49,480 Speaker 1: areas there that we find attractive. Where so again it's 302 00:19:49,600 --> 00:19:53,400 Speaker 1: it's not something i'd recommend your listeners going to. We're 303 00:19:53,440 --> 00:19:57,120 Speaker 1: spending an awful lot of time in retail. So retail 304 00:19:57,359 --> 00:20:00,879 Speaker 1: is a horrible place um to be From the headlines, 305 00:20:01,000 --> 00:20:04,679 Speaker 1: I mean, there's all sorts of stresses, but when there 306 00:20:04,720 --> 00:20:07,840 Speaker 1: are these sorts of stresses in that space when there 307 00:20:07,880 --> 00:20:10,960 Speaker 1: are more sellers, we often find that people are throwing 308 00:20:11,520 --> 00:20:15,480 Speaker 1: um good companies out with bad and even in companies 309 00:20:15,520 --> 00:20:18,760 Speaker 1: that are a little bit um stressed, they're throwing good 310 00:20:18,840 --> 00:20:22,280 Speaker 1: securities out with the bad. And so we're doing a 311 00:20:22,280 --> 00:20:25,560 Speaker 1: lot of work there. Uh, just nibbling at the moment. 312 00:20:25,640 --> 00:20:28,160 Speaker 1: It's it's not a dramatic change in what we do, 313 00:20:28,200 --> 00:20:30,520 Speaker 1: but that's got is very interested. And then the other 314 00:20:30,560 --> 00:20:33,639 Speaker 1: one is specialty pharma. So we had some interesting news 315 00:20:33,680 --> 00:20:36,919 Speaker 1: from Valiant and Endo today. Um, you know, this is 316 00:20:36,920 --> 00:20:40,000 Speaker 1: the sector that we've been interested in for a long time. Again, 317 00:20:40,200 --> 00:20:44,400 Speaker 1: it's been out, it's been out of favor, negative headlines, 318 00:20:44,520 --> 00:20:47,439 Speaker 1: but we often find the best valuations in areas that 319 00:20:47,520 --> 00:20:50,880 Speaker 1: people don't like. Matt, thank you so much for joining us. 320 00:20:50,880 --> 00:20:54,200 Speaker 1: Really fascinating. Matt Freund co, Chief investment Officer and head 321 00:20:54,200 --> 00:20:58,720 Speaker 1: of fixed income Strategies at Collamos Investments in Naperville, Illinois. 322 00:20:59,000 --> 00:21:03,119 Speaker 1: The company overseas about eighteen point three billion dollars and 323 00:21:03,240 --> 00:21:06,480 Speaker 1: Lisa Abram boys here at the twenty second Annual Financial 324 00:21:06,600 --> 00:21:22,880 Speaker 1: Conference at Amelia Island, Florida. This is Blueberk. I am 325 00:21:22,920 --> 00:21:26,320 Speaker 1: honored to bring in Alicia Garcia Ro Did I pronounce 326 00:21:26,320 --> 00:21:30,520 Speaker 1: that correctly? She is a cheap economist for the Asia 327 00:21:30,560 --> 00:21:34,000 Speaker 1: Pacific Region at NA, Texas and a longtime economist who 328 00:21:34,000 --> 00:21:36,840 Speaker 1: has advised UH with everything from the I m F 329 00:21:36,960 --> 00:21:42,960 Speaker 1: to other authorities to really gauge financial stability across the world. Alicia, 330 00:21:43,119 --> 00:21:45,439 Speaker 1: you know you have a viewpoint on the one area 331 00:21:45,480 --> 00:21:49,080 Speaker 1: that most people have the most questions about, which is China. 332 00:21:49,520 --> 00:21:51,879 Speaker 1: Do you think that the concerns about a hard landing 333 00:21:51,920 --> 00:21:57,480 Speaker 1: are overblown? Yeah, in tramps of economic activity they are, 334 00:21:57,600 --> 00:22:00,600 Speaker 1: at least for this year, but in trimps of financial 335 00:22:00,640 --> 00:22:05,560 Speaker 1: stability they aren't. I think Chinese indeed undergoing major shot 336 00:22:05,600 --> 00:22:09,400 Speaker 1: waves in terms of financial instability. And that's not so 337 00:22:09,480 --> 00:22:12,280 Speaker 1: much about the stock market of what we saw in 338 00:22:12,280 --> 00:22:16,480 Speaker 1: two thousand fifteen is actually about banks. And that's a 339 00:22:16,680 --> 00:22:21,960 Speaker 1: massive endeavor because today Chinese banks are actually larger than 340 00:22:22,040 --> 00:22:25,000 Speaker 1: European banks. So we're talking about thirty five trillion US 341 00:22:25,080 --> 00:22:28,800 Speaker 1: dollar in bank assets in China. It's a major in 342 00:22:28,960 --> 00:22:32,239 Speaker 1: dava for any financial regulator to deal with. Well. Um 343 00:22:32,440 --> 00:22:35,120 Speaker 1: one paper that is going to be presented here today 344 00:22:35,320 --> 00:22:38,360 Speaker 1: is going to talk about how sort of the unconsidered 345 00:22:38,400 --> 00:22:43,760 Speaker 1: consequence of China's actions to prevent a crash is that 346 00:22:43,800 --> 00:22:47,040 Speaker 1: there will just be much slower growth in China over 347 00:22:47,080 --> 00:22:51,240 Speaker 1: the longer term. Do you currently feel like that slower 348 00:22:51,280 --> 00:22:53,600 Speaker 1: growth in China, which has been an engine of growth 349 00:22:53,640 --> 00:22:57,160 Speaker 1: for the world, is currently being priced into markets, particularly 350 00:22:57,200 --> 00:23:02,800 Speaker 1: emerging markets. Certainly not. It isn't priced him because China 351 00:23:03,240 --> 00:23:08,400 Speaker 1: once again as engineered physical simulus package. We're still talking 352 00:23:08,440 --> 00:23:11,199 Speaker 1: about it. It It doesn't it physical Stimus package as if 353 00:23:11,200 --> 00:23:14,200 Speaker 1: they weren't any new package. But if you look at 354 00:23:14,280 --> 00:23:17,720 Speaker 1: fiscal data in China, it is quite obvious that we 355 00:23:17,800 --> 00:23:21,480 Speaker 1: call the augmented fiscal deficits. Unfortunately don't have a consolidate deficits, 356 00:23:21,480 --> 00:23:23,399 Speaker 1: so we need to come up with the numbers that 357 00:23:23,400 --> 00:23:26,720 Speaker 1: are not very accurate. But it's hovering around tempers and 358 00:23:26,760 --> 00:23:29,639 Speaker 1: of GDP. So if and that has been the case 359 00:23:30,119 --> 00:23:32,520 Speaker 1: since two doesn't tend. So you know, once they finished 360 00:23:32,520 --> 00:23:37,960 Speaker 1: that fis Custimus package, they've actually only go on going 361 00:23:38,000 --> 00:23:41,199 Speaker 1: on on the same path. And that means that that 362 00:23:41,320 --> 00:23:45,080 Speaker 1: growth that we see today is pretty fictissues. So yes, 363 00:23:45,160 --> 00:23:48,679 Speaker 1: we're not contemplating lower growth down the road, and I 364 00:23:48,720 --> 00:23:51,720 Speaker 1: think that's due to come. So what do you think 365 00:23:51,960 --> 00:23:55,439 Speaker 1: is the appropriate growth rate in China to price in 366 00:23:56,160 --> 00:23:59,520 Speaker 1: say two years, three years, four years down the road. Well, 367 00:23:59,560 --> 00:24:02,880 Speaker 1: it's not enormously low, so so you know, I don't 368 00:24:02,880 --> 00:24:04,760 Speaker 1: want to go all the way to the you know, 369 00:24:04,800 --> 00:24:07,960 Speaker 1: to the catastrophically, but it's currently about sicks for about 370 00:24:08,000 --> 00:24:10,680 Speaker 1: four percent to answer your question, and this is all 371 00:24:10,720 --> 00:24:14,119 Speaker 1: based on you know, potential growth. What is happening with 372 00:24:14,240 --> 00:24:19,320 Speaker 1: aging labor productivity coming down? Return on assets below two percent? 373 00:24:19,560 --> 00:24:22,639 Speaker 1: That's basically where you get it from. And and we 374 00:24:22,760 --> 00:24:26,360 Speaker 1: are pricing it quite a lot of total factor productivity 375 00:24:26,440 --> 00:24:29,119 Speaker 1: out of innovation, which is indeed there. So that's not 376 00:24:29,160 --> 00:24:33,120 Speaker 1: the problem. The problem is that that massive capital dis 377 00:24:33,200 --> 00:24:39,720 Speaker 1: location in terms of banks, you know, basically allocating capital 378 00:24:39,760 --> 00:24:44,640 Speaker 1: in the wrong sectors through massive government intervention to do so, 379 00:24:45,840 --> 00:24:49,439 Speaker 1: is just lowering down massively the return on assets. So 380 00:24:49,480 --> 00:24:52,760 Speaker 1: what would that do to the real to the countries 381 00:24:53,320 --> 00:24:55,679 Speaker 1: in that region that the countries that depend most on 382 00:24:55,760 --> 00:24:58,720 Speaker 1: China's growth, what would that do to their economies if 383 00:24:58,840 --> 00:25:00,960 Speaker 1: say China does go down to a four percent rate 384 00:25:01,000 --> 00:25:04,560 Speaker 1: from an ultimated six percent rate. Actually, that in a 385 00:25:04,560 --> 00:25:06,600 Speaker 1: way has already happened in two husand and fifteen early 386 00:25:06,800 --> 00:25:12,439 Speaker 1: thousand sixteen, because the actual real growth rate in China, 387 00:25:12,640 --> 00:25:16,080 Speaker 1: especially what was you know, the old economy, was probably 388 00:25:16,280 --> 00:25:20,879 Speaker 1: even lower, and that all the economy, what was the 389 00:25:20,920 --> 00:25:25,639 Speaker 1: one that was driving commodity imports into China, let alone 390 00:25:25,800 --> 00:25:28,199 Speaker 1: also parts and components from the rest of China. So 391 00:25:28,320 --> 00:25:29,960 Speaker 1: I think they've already gone through that. And if you 392 00:25:29,960 --> 00:25:32,320 Speaker 1: look at the resilience, it was quite impressive. The reason 393 00:25:32,400 --> 00:25:35,760 Speaker 1: being that if you look at as An as a 394 00:25:35,760 --> 00:25:39,840 Speaker 1: grouping point, they're actually much less leverage than China. They're 395 00:25:39,840 --> 00:25:43,119 Speaker 1: actually more resilient in a way to China's chock that 396 00:25:43,160 --> 00:25:46,120 Speaker 1: we actually China China shock that we actually think they are. 397 00:25:46,640 --> 00:25:48,960 Speaker 1: So I'm not too worried actually about the rest of origin. 398 00:25:49,000 --> 00:25:51,720 Speaker 1: I'm worried about China though with the worst case scenario 399 00:25:52,119 --> 00:25:57,920 Speaker 1: in thirty seconds um, I don't expect the crisis anytime soon. 400 00:25:58,000 --> 00:26:01,000 Speaker 1: I think they have enough instru ment still today to 401 00:26:01,080 --> 00:26:06,000 Speaker 1: deal with that. But this will only worsen their potential 402 00:26:06,040 --> 00:26:09,280 Speaker 1: growth they it will only lower that potential growth and 403 00:26:09,359 --> 00:26:14,440 Speaker 1: just mentioned in the future because of that massive misallocation 404 00:26:14,480 --> 00:26:17,359 Speaker 1: of of capital that is still going on. Thank you 405 00:26:17,400 --> 00:26:22,000 Speaker 1: so much for joining us. Truly a fascinating discussion. Alicia Garciarero. 406 00:26:22,240 --> 00:26:25,720 Speaker 1: She is chief Economist for the Asia Pacific Region at 407 00:26:25,920 --> 00:26:28,960 Speaker 1: n Texas and also a long time advisor to the 408 00:26:29,000 --> 00:26:31,520 Speaker 1: I m f H, and she starts as an advisor 409 00:26:31,560 --> 00:26:34,240 Speaker 1: to the research arm of the Hong Kong Monetary Authority 410 00:26:34,720 --> 00:26:37,080 Speaker 1: as well as others. Someone who has a very clear 411 00:26:37,160 --> 00:26:40,199 Speaker 1: view on what the challenges are currently facing China and 412 00:26:40,240 --> 00:26:42,400 Speaker 1: what the solutions are and just to sort of repeats, 413 00:26:42,400 --> 00:26:44,480 Speaker 1: I find this a really fascinating point. The more that 414 00:26:44,600 --> 00:26:47,280 Speaker 1: China has to do now, the more it's going to 415 00:26:47,359 --> 00:26:50,040 Speaker 1: slow their longer term growth and potentially be a threat 416 00:26:50,280 --> 00:27:05,600 Speaker 1: on that level. There are reports that health insurers are 417 00:27:05,640 --> 00:27:09,080 Speaker 1: asking for sharp increases in the cost of their Obamacare 418 00:27:09,160 --> 00:27:12,359 Speaker 1: plans this year. Why well, they blame instability in the 419 00:27:12,440 --> 00:27:17,240 Speaker 1: laws coverage markets that's been compounded compounded by the Trump administration. 420 00:27:17,280 --> 00:27:19,199 Speaker 1: To make sense of this, I want to bring in 421 00:27:19,240 --> 00:27:23,199 Speaker 1: Max Nson, a Bloomberg Gadfly columnist, and Max joins us 422 00:27:23,200 --> 00:27:26,199 Speaker 1: from the Bloomberg eleven three oh studio in New York. Max, 423 00:27:26,480 --> 00:27:29,440 Speaker 1: what's your take on this, because so far three companies 424 00:27:29,920 --> 00:27:34,080 Speaker 1: have reported their insurance premiums for the Obamacare plans that 425 00:27:34,119 --> 00:27:38,040 Speaker 1: they have and the costs are up more than twenty Yeah, 426 00:27:38,200 --> 00:27:41,160 Speaker 1: I have to say it's not especially surprising that this 427 00:27:41,240 --> 00:27:45,040 Speaker 1: is happening. UH companies are having to price their insurance 428 00:27:45,080 --> 00:27:48,399 Speaker 1: plans for next year really having no idea what the 429 00:27:48,440 --> 00:27:50,840 Speaker 1: market is going to look like next year. There are 430 00:27:50,840 --> 00:27:54,639 Speaker 1: a couple kind of primary areas of uncertainty. The first 431 00:27:54,680 --> 00:27:58,720 Speaker 1: is whether the mandate that people buy insurance is going 432 00:27:58,760 --> 00:28:01,199 Speaker 1: to be enforced next year heavily or you know, with 433 00:28:01,280 --> 00:28:05,240 Speaker 1: any kind of urgency by the Trump administration, or even 434 00:28:05,280 --> 00:28:08,080 Speaker 1: if it will actually be in place if the a 435 00:28:08,359 --> 00:28:11,800 Speaker 1: c A becomes law. So that means that people on 436 00:28:11,880 --> 00:28:15,639 Speaker 1: these markets might face a less healthy marketplace enough to 437 00:28:15,640 --> 00:28:19,919 Speaker 1: pay more more healthcare costs because people healthy people aren't 438 00:28:19,920 --> 00:28:23,680 Speaker 1: compelled by that financial penalty to buy insurance. Well, so 439 00:28:23,840 --> 00:28:27,760 Speaker 1: the just let's put the increase in Obamacare premiums in 440 00:28:27,800 --> 00:28:31,040 Speaker 1: the three states that have posted rate so far, how 441 00:28:31,040 --> 00:28:36,000 Speaker 1: does that compared to previous UH premium rate increases in 442 00:28:36,040 --> 00:28:39,520 Speaker 1: previous years, because they've been subtly increasing, haven't they. Yeah, 443 00:28:40,280 --> 00:28:43,800 Speaker 1: you know, things vary so much state by state and 444 00:28:44,120 --> 00:28:46,480 Speaker 1: year by year that it's hard to kind of have 445 00:28:46,520 --> 00:28:50,680 Speaker 1: a consistent comparison. But they're they're pretty similar to it, 446 00:28:50,920 --> 00:28:54,120 Speaker 1: and actually somewhat less than what we've seen in some 447 00:28:54,160 --> 00:28:56,880 Speaker 1: of the states with shake care markets. But um, I 448 00:28:56,920 --> 00:28:59,640 Speaker 1: think the fact that we're seeing this again after kind 449 00:28:59,640 --> 00:29:03,320 Speaker 1: of you know, consecutive years of price increases just kind 450 00:29:03,360 --> 00:29:07,000 Speaker 1: of goes to show how how concerned insures are about 451 00:29:07,240 --> 00:29:09,440 Speaker 1: what the market might look like next year. You know, 452 00:29:09,480 --> 00:29:12,440 Speaker 1: on top of the mandate, you also have the fact 453 00:29:12,440 --> 00:29:15,960 Speaker 1: that the administration might choose not to fund, uh. You know, 454 00:29:16,040 --> 00:29:20,000 Speaker 1: these payments or subsidies that help low income people pay 455 00:29:20,080 --> 00:29:22,240 Speaker 1: for out of pocket the art of pocket portion of 456 00:29:22,240 --> 00:29:25,320 Speaker 1: their costs, which helps them kind of maintain insurance and 457 00:29:25,320 --> 00:29:28,880 Speaker 1: actually get healthcare. So are actually these insurance companies when 458 00:29:28,920 --> 00:29:33,240 Speaker 1: they put out their their estimates for what the plans 459 00:29:33,360 --> 00:29:37,080 Speaker 1: will cost, uh, do they give some kind of statement 460 00:29:37,200 --> 00:29:40,720 Speaker 1: about what they hope to see in Washington? Um? I mean, 461 00:29:40,720 --> 00:29:45,080 Speaker 1: I think they're sending a signal that, you know, they 462 00:29:45,160 --> 00:29:48,080 Speaker 1: can't really price it at the level they might otherwise 463 00:29:48,440 --> 00:29:50,960 Speaker 1: they have to kind of plan for the worst case scenario. 464 00:29:51,360 --> 00:29:53,720 Speaker 1: If you price your plan too low and have high 465 00:29:53,800 --> 00:29:58,800 Speaker 1: medical costs or kind of an unexpectedly um risky set 466 00:29:58,840 --> 00:30:02,160 Speaker 1: of of people that you ensure, then you end up 467 00:30:02,200 --> 00:30:04,880 Speaker 1: losing money and then that that's something they're out to avoid. 468 00:30:05,000 --> 00:30:07,360 Speaker 1: So they're kind of planning for the worst, and I 469 00:30:07,400 --> 00:30:09,840 Speaker 1: think with the way that they're setting premiums there, they're 470 00:30:09,840 --> 00:30:13,800 Speaker 1: suggesting that the worst could be pretty bad. Indeed, Um, well, 471 00:30:13,840 --> 00:30:15,640 Speaker 1: we thought that the worst could be pretty bad, indeed 472 00:30:15,640 --> 00:30:17,200 Speaker 1: from for Valiant. I know that you and I have 473 00:30:17,240 --> 00:30:21,840 Speaker 1: spoken extensively about your views on Valiant, and yet Valiance 474 00:30:21,920 --> 00:30:24,320 Speaker 1: shares are up more than as I know, I just 475 00:30:24,360 --> 00:30:26,240 Speaker 1: completely changed the topic, but I feel like we would 476 00:30:26,240 --> 00:30:27,680 Speaker 1: be amiss if we didn't talk about this, and I 477 00:30:27,720 --> 00:30:30,720 Speaker 1: know you cover the issue closely. So do you think 478 00:30:30,760 --> 00:30:32,880 Speaker 1: that this pop the Valiant and seeing is is sort 479 00:30:32,880 --> 00:30:36,160 Speaker 1: of more wishful thinking than reality, or has Valiance prospects 480 00:30:36,200 --> 00:30:41,520 Speaker 1: actually materially changed. I absolutely think it's once again wishful 481 00:30:41,560 --> 00:30:46,040 Speaker 1: thinking by any kind of conventional measure. Valiant actually had 482 00:30:46,160 --> 00:30:51,000 Speaker 1: a pretty dreadful quarter, missed both earnings and revenue estimates. 483 00:30:51,680 --> 00:30:56,120 Speaker 1: The company's sales continue to deteriorate pretty aggressively, and within 484 00:30:56,200 --> 00:30:58,760 Speaker 1: that sales decline, there are a bunch of troubling trends 485 00:30:58,800 --> 00:31:02,320 Speaker 1: for some really important du things for the company. But 486 00:31:02,520 --> 00:31:04,840 Speaker 1: investors kind of seized on what they wanted to see 487 00:31:04,840 --> 00:31:07,520 Speaker 1: and in that case, uh, it was a fifty million 488 00:31:07,520 --> 00:31:12,600 Speaker 1: dollar increase in the companies adjusted and I mean adjusted Ebitdakians. 489 00:31:13,120 --> 00:31:16,040 Speaker 1: So um. You know, with the with the company that 490 00:31:16,160 --> 00:31:19,800 Speaker 1: it's bettered as this, people will kind of take what 491 00:31:19,840 --> 00:31:22,760 Speaker 1: they want. And in this case, because the company for 492 00:31:22,800 --> 00:31:25,920 Speaker 1: once didn't cut its estimates, uh, they saw it as 493 00:31:25,920 --> 00:31:28,600 Speaker 1: a big positive. Well then they also sort of suggest 494 00:31:28,640 --> 00:31:29,880 Speaker 1: that they were going to have some kind of capital 495 00:31:29,960 --> 00:31:32,680 Speaker 1: raise and they talked about selling a number of their 496 00:31:32,680 --> 00:31:36,440 Speaker 1: businesses as they've been doing. Um, and they projected higher 497 00:31:36,440 --> 00:31:39,920 Speaker 1: a full year forecast. So this also could be potentially positive. 498 00:31:39,920 --> 00:31:43,680 Speaker 1: Now yeah, I mean it's it's more of the same 499 00:31:44,120 --> 00:31:46,720 Speaker 1: rhetoric from valiant Um. You know, we're going to have 500 00:31:46,800 --> 00:31:50,600 Speaker 1: more asset sales, we're gonna turn the business around, etcetera, etcetera. 501 00:31:50,640 --> 00:31:53,720 Speaker 1: But it really, for the most part, has failed to materialize. 502 00:31:53,960 --> 00:31:56,160 Speaker 1: I wanted just to switch and quickly get Allergan in 503 00:31:56,240 --> 00:31:59,360 Speaker 1: because they also reported earnings just now for the first quarter, 504 00:31:59,640 --> 00:32:03,880 Speaker 1: and they reported earnings that were better than estimates, and 505 00:32:03,880 --> 00:32:06,040 Speaker 1: it also is seeing a boost. What do you make 506 00:32:06,080 --> 00:32:09,520 Speaker 1: of that? Um? So all again, you know it's it's 507 00:32:09,600 --> 00:32:12,480 Speaker 1: kind of the anti Valiant in the sense that you know, 508 00:32:12,520 --> 00:32:15,320 Speaker 1: they're able to because of you know, their relatively healthier 509 00:32:15,320 --> 00:32:18,440 Speaker 1: balance sheet, continue to make deals that are kind of 510 00:32:18,480 --> 00:32:20,840 Speaker 1: a creative in the near term, and you're seeing that 511 00:32:20,960 --> 00:32:24,600 Speaker 1: with these earnings. So they boosted their their guidance for 512 00:32:24,680 --> 00:32:27,120 Speaker 1: the year in part because they acquired Celtic, which is 513 00:32:27,200 --> 00:32:30,400 Speaker 1: a UM kind of a company that provides a technique 514 00:32:30,440 --> 00:32:33,800 Speaker 1: that produces fat on the body UM. And then Botox 515 00:32:33,840 --> 00:32:36,880 Speaker 1: continues to do really well, so um, you know, on 516 00:32:36,880 --> 00:32:39,080 Speaker 1: one hand, it's it's a nice quarter. They're seeing the 517 00:32:39,120 --> 00:32:42,880 Speaker 1: benefit acquisitions, but they're also not quite seeing kind of 518 00:32:42,880 --> 00:32:45,920 Speaker 1: a plan for trans transition of the company from being 519 00:32:46,400 --> 00:32:49,720 Speaker 1: really narrowly focused on aesthetics, um, you know, things to 520 00:32:49,720 --> 00:32:53,120 Speaker 1: approve the appearance, towards a more conventional pharmacutical company. It's 521 00:32:53,160 --> 00:32:57,360 Speaker 1: still the aesthetic stuff that's really driving results. So we'll 522 00:32:57,520 --> 00:33:00,320 Speaker 1: see if that transition continues. And perhaps that's the reason 523 00:33:00,360 --> 00:33:02,800 Speaker 1: why the shares really are not really doing much of anything. 524 00:33:02,840 --> 00:33:05,920 Speaker 1: So even though Valiant might have a worse outlook according 525 00:33:05,960 --> 00:33:08,680 Speaker 1: to you Max Uh, it shares her up more just 526 00:33:08,760 --> 00:33:12,600 Speaker 1: on a mirror hope, whereas Allargan is seeing nothing after 527 00:33:12,640 --> 00:33:16,480 Speaker 1: reporting it another round of pretty solid earnings. Maxis and 528 00:33:16,520 --> 00:33:18,440 Speaker 1: thank you so much for joining us. Max Neison is 529 00:33:18,480 --> 00:33:22,760 Speaker 1: a Bloomberg goad Fly columnist covering healthcare as well as 530 00:33:22,800 --> 00:33:25,560 Speaker 1: the pharmaceutical industry, and he comes to us from our 531 00:33:25,600 --> 00:33:32,920 Speaker 1: Bloomberg eleven three oh studio in New York. Thanks for 532 00:33:33,000 --> 00:33:35,640 Speaker 1: listening to the Bloomberg P and L podcast. You can 533 00:33:35,680 --> 00:33:39,480 Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or 534 00:33:39,520 --> 00:33:43,040 Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on 535 00:33:43,040 --> 00:33:47,440 Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa abramoids one. 536 00:33:47,640 --> 00:33:50,320 Speaker 1: Before the podcast, you can always catch us worldwide on 537 00:33:50,400 --> 00:33:51,240 Speaker 1: Bloomberg Radio.