1 00:00:02,520 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:13,840 --> 00:00:17,920 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:22,000 Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App. 4 00:00:22,360 --> 00:00:25,680 Speaker 1: Listen on demand wherever you get your podcasts, or watch 5 00:00:25,760 --> 00:00:26,960 Speaker 1: us live on YouTube. 6 00:00:27,000 --> 00:00:28,840 Speaker 2: Where we go with some of these trade policy issues, 7 00:00:28,880 --> 00:00:31,920 Speaker 2: and it's certainly been an issue for investors. Financial markets 8 00:00:32,000 --> 00:00:34,560 Speaker 2: broadly defined, including fixing on markets. 9 00:00:34,600 --> 00:00:35,560 Speaker 3: Let's talk about that now. 10 00:00:35,760 --> 00:00:39,159 Speaker 2: Karen Manna, investment director, fixed income, Federated Hermes. 11 00:00:39,560 --> 00:00:44,120 Speaker 3: It's Burg, Pennsylvania, the Pride. She's a graduate Penn State. 12 00:00:44,240 --> 00:00:45,080 Speaker 4: It's the university. 13 00:00:45,120 --> 00:00:47,560 Speaker 3: I'm a monster fan of Penn State. My son graduated 14 00:00:47,800 --> 00:00:50,040 Speaker 3: from there at great school. Karen, thanks so much for 15 00:00:50,120 --> 00:00:50,800 Speaker 3: joining us here. 16 00:00:50,880 --> 00:00:53,559 Speaker 2: What do you tell your clients these days when they 17 00:00:53,600 --> 00:00:55,960 Speaker 2: seem you are getting whip saled every day by news 18 00:00:55,960 --> 00:00:59,360 Speaker 2: events as opposed to maybe some fundamentals of the bonds. 19 00:00:59,000 --> 00:00:59,480 Speaker 3: They do own. 20 00:01:00,320 --> 00:01:02,160 Speaker 5: Good morning, and thank you for having me. It's a 21 00:01:02,440 --> 00:01:05,280 Speaker 5: real pleasure to be here in studio with you. So 22 00:01:05,680 --> 00:01:12,160 Speaker 5: uncertainty is deeply uncomfortable, and treasury markets have been misbehaving, 23 00:01:12,240 --> 00:01:15,640 Speaker 5: perhaps swinging in a volatile way, which is not what's 24 00:01:15,720 --> 00:01:20,880 Speaker 5: desired by fixed income investors at all. So we say, 25 00:01:21,440 --> 00:01:25,600 Speaker 5: realize that the uncertainty will be resolved when those in 26 00:01:25,640 --> 00:01:30,120 Speaker 5: the administration resolve it. But position in a way that 27 00:01:30,280 --> 00:01:35,160 Speaker 5: highlights a couple of things. First and foremost liquid instruments. 28 00:01:35,920 --> 00:01:38,600 Speaker 5: Be cognizant of your liquidity so that you can be 29 00:01:38,760 --> 00:01:44,479 Speaker 5: nimble and position yourself appropriately when we're not doing scenario analysis, 30 00:01:44,520 --> 00:01:47,720 Speaker 5: but we have actual facts to deal with. Stay up 31 00:01:47,760 --> 00:01:51,440 Speaker 5: in quality, and for newer money, we like the idea 32 00:01:51,560 --> 00:01:55,520 Speaker 5: of shorter duration one to three years. Pick your flavor there. 33 00:01:55,920 --> 00:02:00,040 Speaker 5: Multisector gives the portfolio manager a little more opportunity to 34 00:02:00,040 --> 00:02:03,960 Speaker 5: to add value to your portfolio. But so basically, stay short, 35 00:02:04,160 --> 00:02:06,320 Speaker 5: stay high quality, stand liquid instruments. 36 00:02:06,440 --> 00:02:08,320 Speaker 4: Well, Karen, I mean you're the investment director of Fixing. 37 00:02:08,360 --> 00:02:10,400 Speaker 4: Come confederator Hermes, and I have to ask you this, 38 00:02:10,800 --> 00:02:14,000 Speaker 4: how much time are you spending looking at the foreign 39 00:02:14,040 --> 00:02:17,120 Speaker 4: exchange markets? The broad dollar index is down three percent 40 00:02:17,160 --> 00:02:19,200 Speaker 4: year to date. I mean, forget about it. I mean 41 00:02:19,200 --> 00:02:22,480 Speaker 4: it's non dollar denominated debt, like my emerging market local 42 00:02:22,480 --> 00:02:24,360 Speaker 4: currency debt, which is leading the way up five percent 43 00:02:24,400 --> 00:02:27,120 Speaker 4: year today. Talk to us about the role emerging markets 44 00:02:27,200 --> 00:02:29,880 Speaker 4: or for that matter, non dollar denominated develop market that 45 00:02:30,040 --> 00:02:32,160 Speaker 4: plays in a broad fixing come portfolio. 46 00:02:32,680 --> 00:02:35,040 Speaker 5: It most definitely has a role in a role now 47 00:02:35,080 --> 00:02:39,840 Speaker 5: that is worth consideration. EM markets have withstood the tests 48 00:02:39,880 --> 00:02:43,280 Speaker 5: of inflation and all the shifts over the past couple 49 00:02:43,280 --> 00:02:46,680 Speaker 5: of years, and we saw dramatic tightening and spreads last 50 00:02:46,760 --> 00:02:49,520 Speaker 5: year that we were able to take advantage of, and 51 00:02:49,560 --> 00:02:52,320 Speaker 5: then we and our portfolios move back to a more 52 00:02:52,360 --> 00:02:56,600 Speaker 5: neutral stance. But within EM what you've highlighted is that 53 00:02:56,680 --> 00:02:59,640 Speaker 5: you have different ways to invest in the markets. The 54 00:02:59,720 --> 00:03:03,919 Speaker 5: current and see the sovereign debt, the local currency, corporate debt, 55 00:03:04,200 --> 00:03:07,160 Speaker 5: and that gives the portfolio manager some latitude. So it's 56 00:03:07,160 --> 00:03:10,600 Speaker 5: an area that we like. But you also highlight the 57 00:03:10,639 --> 00:03:14,200 Speaker 5: shift to international and what does that mean for US 58 00:03:14,320 --> 00:03:19,320 Speaker 5: dollar domestic based fixed income. That's a different landscape, playing field, 59 00:03:19,400 --> 00:03:21,280 Speaker 5: whatever you want to call it, than we've had for 60 00:03:21,320 --> 00:03:22,560 Speaker 5: a very long time. 61 00:03:23,280 --> 00:03:26,120 Speaker 2: I'm looking at the IG function on the Bloomberg terminal, 62 00:03:26,120 --> 00:03:29,280 Speaker 2: the Bloomberg Index browser. The best performance in fixed income 63 00:03:29,320 --> 00:03:32,040 Speaker 2: in the US has been US mortgage backed securities. 64 00:03:32,080 --> 00:03:33,040 Speaker 3: Talk to us about that market. 65 00:03:33,080 --> 00:03:36,040 Speaker 5: How you guys view that we are overweight to mortgage 66 00:03:36,040 --> 00:03:39,040 Speaker 5: backed securities. We see that as a strong positive, and 67 00:03:39,080 --> 00:03:41,760 Speaker 5: we've been there for a very long while. You have 68 00:03:41,800 --> 00:03:45,120 Speaker 5: a situation with mortgage backed securities where you had two 69 00:03:45,280 --> 00:03:49,640 Speaker 5: of the largest buyer step back, creating a technical opportunity, 70 00:03:49,880 --> 00:03:52,000 Speaker 5: and that was the FED as they've paired back their 71 00:03:52,040 --> 00:03:55,480 Speaker 5: balance sheet, and then the US banks. So mortgage backed 72 00:03:55,480 --> 00:03:58,760 Speaker 5: security is the second largest market in fixed income behind 73 00:03:58,840 --> 00:04:02,120 Speaker 5: US treasuries, buying opportunity for US and one that we 74 00:04:02,200 --> 00:04:04,160 Speaker 5: think will persist for a while longer. 75 00:04:04,360 --> 00:04:06,840 Speaker 4: And Karen, does that extend I mean residential mbs. We're 76 00:04:06,840 --> 00:04:09,280 Speaker 4: talking not CMBs. But let's talk about abs. Let's talk 77 00:04:09,280 --> 00:04:12,320 Speaker 4: about some of these other more complicated securitized asset classes. 78 00:04:12,600 --> 00:04:14,240 Speaker 4: A lot of them are short duration. I mean, what 79 00:04:14,280 --> 00:04:15,680 Speaker 4: are your thoughts there? I mean, where do you think 80 00:04:15,680 --> 00:04:17,760 Speaker 4: we should position along the curve? And does that kind 81 00:04:17,800 --> 00:04:20,479 Speaker 4: of filter through into your you know, your willingness to 82 00:04:20,520 --> 00:04:23,480 Speaker 4: want to invest in, say, asset backs versus mortgages. 83 00:04:24,400 --> 00:04:27,760 Speaker 5: In our shorter duration strategies and approaches, we are using 84 00:04:27,839 --> 00:04:31,560 Speaker 5: asset backed securities to a great extent. Our asset back 85 00:04:31,640 --> 00:04:34,119 Speaker 5: team that is also in charge of those short duration 86 00:04:34,240 --> 00:04:37,320 Speaker 5: portfolios has an affinity for those types of instruments and 87 00:04:37,360 --> 00:04:39,920 Speaker 5: sees value at the short end. As you point out, 88 00:04:39,960 --> 00:04:43,640 Speaker 5: they are short duration, not long term maturity. They offer 89 00:04:43,760 --> 00:04:48,560 Speaker 5: more value than similarly rated corporate bonds. So an attractive 90 00:04:48,600 --> 00:04:52,200 Speaker 5: space for the markets, but one that has simply grown 91 00:04:52,760 --> 00:04:55,240 Speaker 5: right when we came from the depths of the financial 92 00:04:55,400 --> 00:04:59,320 Speaker 5: crisis and then to their most recent conference in Las Vegas. 93 00:05:00,279 --> 00:05:03,720 Speaker 5: Huge interest in that segment of the market because of 94 00:05:03,760 --> 00:05:05,520 Speaker 5: the yield that can be created. 95 00:05:05,920 --> 00:05:08,279 Speaker 4: Yeah, it's not just student loans, credit card receivables, and 96 00:05:08,320 --> 00:05:10,560 Speaker 4: I want a loane floor plans anymore, I guess right. 97 00:05:10,560 --> 00:05:12,800 Speaker 4: And that's in that spectrum. What other sort of non 98 00:05:12,800 --> 00:05:16,960 Speaker 4: traditional asset classes, subsectors of that abs world are you 99 00:05:17,040 --> 00:05:17,520 Speaker 4: investing in. 100 00:05:18,440 --> 00:05:20,760 Speaker 5: We tend to stick to the more defensive elements, what 101 00:05:20,839 --> 00:05:23,679 Speaker 5: you might call the plane vanilla areas of that market, 102 00:05:23,839 --> 00:05:27,000 Speaker 5: the more receivables, but we're watching with interest what goes 103 00:05:27,040 --> 00:05:31,520 Speaker 5: on with that market. We have other areas within alternatives 104 00:05:31,520 --> 00:05:34,920 Speaker 5: that are short duration and floating that we employ in 105 00:05:34,960 --> 00:05:37,600 Speaker 5: our portfolios, and that's namely trade finance. 106 00:05:38,440 --> 00:05:41,960 Speaker 2: So we like municipal bonds on the show, actually it's 107 00:05:42,040 --> 00:05:44,880 Speaker 2: municipal bond Friday. We have sponsors segment later this morning. 108 00:05:45,040 --> 00:05:46,880 Speaker 2: I'm just about me the municipal segment. 109 00:05:47,080 --> 00:05:49,240 Speaker 5: Well, municipals are always near and dear to my heart. 110 00:05:49,279 --> 00:05:51,799 Speaker 5: It's where I started in the industry as an analyst 111 00:05:52,080 --> 00:05:54,560 Speaker 5: public power and electric utilities from my bread and butter 112 00:05:54,600 --> 00:05:59,880 Speaker 5: for many, many years. But muni's offer nice stability for portfolios. 113 00:06:00,360 --> 00:06:03,640 Speaker 5: The credit quality is very, very solid. We've seen a 114 00:06:03,720 --> 00:06:06,120 Speaker 5: walk back and spreads a little bit this year, some 115 00:06:06,279 --> 00:06:09,839 Speaker 5: dislocation in the market because we've seen a tremendous amount 116 00:06:09,880 --> 00:06:10,279 Speaker 5: of supply. 117 00:06:10,800 --> 00:06:11,480 Speaker 3: Year to date. 118 00:06:11,640 --> 00:06:14,880 Speaker 5: MUNI supply through early March is up twenty four percent, 119 00:06:15,200 --> 00:06:18,200 Speaker 5: So you're seeing issuers trying to position get out in 120 00:06:18,240 --> 00:06:20,960 Speaker 5: front of a couple of things, right, move early rather 121 00:06:21,040 --> 00:06:23,960 Speaker 5: than later. But the credit quality is there, and I 122 00:06:24,000 --> 00:06:28,880 Speaker 5: think right now investors are seeking that income protection because 123 00:06:28,880 --> 00:06:32,000 Speaker 5: it's fairly simple. You're getting more income in your portfolio 124 00:06:32,279 --> 00:06:35,160 Speaker 5: and you want to protect it to the greatest extent possible. 125 00:06:35,279 --> 00:06:36,960 Speaker 4: Well, Paul, you know, Karen makes a great point. A 126 00:06:36,960 --> 00:06:38,600 Speaker 4: lot of that MUNI supply here to date has been 127 00:06:38,680 --> 00:06:41,000 Speaker 4: universities in colleges. So the tax change with the law, 128 00:06:41,080 --> 00:06:43,240 Speaker 4: you know, legal changes that are happening Columbia with the 129 00:06:43,279 --> 00:06:45,800 Speaker 4: new with the Trump administration, is driving a lot of 130 00:06:45,800 --> 00:06:48,520 Speaker 4: these universities to tap the municipal bond market here, and 131 00:06:48,560 --> 00:06:50,520 Speaker 4: you know my question and we should be asking Rima Sarafi, 132 00:06:50,560 --> 00:06:52,440 Speaker 4: this is the bevice share of TAXI KPMG in a minute, 133 00:06:52,560 --> 00:06:55,200 Speaker 4: is how much of that? I mean, you know, is 134 00:06:55,240 --> 00:06:57,360 Speaker 4: really do you want to own in your portfolio? I mean, 135 00:06:57,440 --> 00:06:59,760 Speaker 4: you know, we mentioned abs, we talk about student loans, 136 00:06:59,760 --> 00:07:01,560 Speaker 4: we can talk about all of that. I mean, just 137 00:07:01,560 --> 00:07:03,320 Speaker 4: how much exposure do we want to have to that 138 00:07:03,400 --> 00:07:06,000 Speaker 4: element to that end of the market here, Karen. 139 00:07:06,400 --> 00:07:11,120 Speaker 5: Well, specifically muni's tax exempt investing for universities. That's an 140 00:07:11,160 --> 00:07:14,720 Speaker 5: area where you could see some credit issues, even setting 141 00:07:14,720 --> 00:07:18,160 Speaker 5: aside tax policy. We all know that there's fewer people 142 00:07:18,200 --> 00:07:21,840 Speaker 5: going to university simply because of age wave and challenges 143 00:07:22,040 --> 00:07:25,720 Speaker 5: and cost. So we have a number of universities that likely, 144 00:07:26,080 --> 00:07:29,080 Speaker 5: even if you look through the sector to just the 145 00:07:29,200 --> 00:07:34,200 Speaker 5: underlying financial statements, wouldn't pass credit muster because of how 146 00:07:34,240 --> 00:07:37,400 Speaker 5: they're positioned. So that's an area where we do have 147 00:07:37,760 --> 00:07:41,480 Speaker 5: less exposure or would be underweight in our munior tax 148 00:07:41,480 --> 00:07:42,640 Speaker 5: exempt portfolios. 149 00:07:42,960 --> 00:07:44,800 Speaker 2: Karen, thank you so much for joining us. Really appreciate 150 00:07:44,840 --> 00:07:46,800 Speaker 2: you coming in Thanking on a Friday. Get a double 151 00:07:46,840 --> 00:07:48,200 Speaker 2: gold stret Friday. 152 00:07:48,320 --> 00:07:49,120 Speaker 3: I'm looking around here. 153 00:07:49,960 --> 00:07:53,679 Speaker 2: I mean Karen Manna, Investment Director, Fixed in Come Federator Hermes. 154 00:07:54,040 --> 00:07:57,920 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 155 00:07:57,960 --> 00:08:01,000 Speaker 1: starting at seven am Eastern on Apple Corplay and Android 156 00:08:01,000 --> 00:08:04,000 Speaker 1: Auto with the Bloomberg Business App. You can also listen 157 00:08:04,120 --> 00:08:07,360 Speaker 1: live on Amazon Alexa from our flagship New York station. 158 00:08:07,920 --> 00:08:10,600 Speaker 1: Just say Alexa Play Bloomberg eleven thirty. 159 00:08:10,920 --> 00:08:12,800 Speaker 2: Let's talk taxes because I don't know what's happening when 160 00:08:12,840 --> 00:08:14,640 Speaker 2: tax has come out of this administration, and I think 161 00:08:14,640 --> 00:08:17,240 Speaker 2: a lot of investors are also a little bit uncertain 162 00:08:17,240 --> 00:08:20,680 Speaker 2: about the tax situation and the strategies of this administration. 163 00:08:20,720 --> 00:08:24,400 Speaker 2: I think the expectations were for a positive scenario, but 164 00:08:24,440 --> 00:08:25,080 Speaker 2: we're just not sure. 165 00:08:25,320 --> 00:08:27,679 Speaker 3: Rama Sarafi. She gets paid to think about this stuff. 166 00:08:27,680 --> 00:08:32,120 Speaker 2: She's the vice chair head of Tax at KPMG Raimber. 167 00:08:32,160 --> 00:08:34,720 Speaker 2: What are you telling your clients about how the tax 168 00:08:35,240 --> 00:08:39,760 Speaker 2: structure in the United States is likely to evolve over 169 00:08:39,800 --> 00:08:41,319 Speaker 2: the next one two, three years. 170 00:08:42,640 --> 00:08:45,319 Speaker 6: Well, thanks for having me today. It's a pleasure. So 171 00:08:45,800 --> 00:08:48,520 Speaker 6: it's a really busy and exciting time to be in 172 00:08:48,600 --> 00:08:53,160 Speaker 6: tax and KPMG is looking at what we call the 173 00:08:53,200 --> 00:08:56,280 Speaker 6: tax policy trifecta. Right now, there are three things happening 174 00:08:56,360 --> 00:09:00,439 Speaker 6: at once. One is the twenty twenty five to cliff, 175 00:09:00,440 --> 00:09:02,400 Speaker 6: which is set to expire at the end of this year. 176 00:09:02,840 --> 00:09:05,560 Speaker 6: The second is Goal will reform, and the third is 177 00:09:05,600 --> 00:09:09,040 Speaker 6: any other regulations that are changing on the horizon, including 178 00:09:09,440 --> 00:09:13,560 Speaker 6: the impact of President Trump's tariffs. So our clients are 179 00:09:13,559 --> 00:09:15,840 Speaker 6: looking at the confluence of all three of those things, 180 00:09:15,880 --> 00:09:18,959 Speaker 6: which are huge disruptors to their business, so. 181 00:09:18,960 --> 00:09:20,480 Speaker 4: Tough to us. I mean, what are you hearing from 182 00:09:20,520 --> 00:09:22,240 Speaker 4: your clients here, Rima, I mean, what is like the 183 00:09:22,320 --> 00:09:24,679 Speaker 4: number one issue? Is it the tariffs? Is it potential 184 00:09:24,679 --> 00:09:27,000 Speaker 4: tax changes from the Trump administration? What do you getting 185 00:09:27,040 --> 00:09:29,160 Speaker 4: queried on most We're. 186 00:09:29,000 --> 00:09:31,040 Speaker 6: Getting queried on all of the above, and that's what 187 00:09:31,200 --> 00:09:35,520 Speaker 6: that's what's super interesting and exciting right now because they're 188 00:09:35,559 --> 00:09:39,480 Speaker 6: all happening at once. So because it's multi dimensional, we 189 00:09:39,559 --> 00:09:42,840 Speaker 6: need to model. Our clients need to model scenarios for 190 00:09:42,960 --> 00:09:45,160 Speaker 6: both the short, medium, and long term. And that's what 191 00:09:45,320 --> 00:09:48,880 Speaker 6: our platform, Digital Gateway has. It has the ability to 192 00:09:48,920 --> 00:09:52,160 Speaker 6: take data and put it in one location and be 193 00:09:52,200 --> 00:09:54,960 Speaker 6: able to model those scenarios at one time and be 194 00:09:55,000 --> 00:09:58,600 Speaker 6: able to pivot based on as you know, the daily 195 00:09:58,720 --> 00:10:02,560 Speaker 6: changes that are happening in the market and with regulatory change. 196 00:10:02,600 --> 00:10:04,839 Speaker 6: So our clients are basically talking to us about all 197 00:10:04,880 --> 00:10:07,600 Speaker 6: of those things, depending on their facts and circumstances. 198 00:10:09,480 --> 00:10:13,760 Speaker 2: So how do you think this tax cut discussion, this 199 00:10:13,880 --> 00:10:15,280 Speaker 2: negotiation in Congress will go. 200 00:10:15,320 --> 00:10:17,679 Speaker 3: It's my understanding that it's they can't. 201 00:10:17,520 --> 00:10:20,640 Speaker 2: Do anything until they pass a budget here, So I'm 202 00:10:20,679 --> 00:10:21,760 Speaker 2: not sure how this is going to play out. 203 00:10:21,800 --> 00:10:23,160 Speaker 3: What do you advise in your clients? 204 00:10:24,760 --> 00:10:27,040 Speaker 6: You're absolutely right, No one's sure how this is going 205 00:10:27,080 --> 00:10:29,840 Speaker 6: to play out. Right, The hardest part of passing this 206 00:10:29,920 --> 00:10:33,120 Speaker 6: bill still lies ahead. We need both chambers of Congress 207 00:10:33,360 --> 00:10:36,040 Speaker 6: to agree on the provisions of the bill, and that's 208 00:10:36,040 --> 00:10:39,480 Speaker 6: the hardest part. So lies ahead, we don't know, and 209 00:10:39,520 --> 00:10:42,760 Speaker 6: that creates even more uncertainty. And one of the things 210 00:10:42,800 --> 00:10:45,800 Speaker 6: we're advising our clients, among many things, is to not 211 00:10:45,960 --> 00:10:48,760 Speaker 6: wait and see. Our clients really need to get after 212 00:10:48,840 --> 00:10:51,359 Speaker 6: this now and be able to model out the scenarios 213 00:10:51,559 --> 00:10:54,640 Speaker 6: because once legislation starts to become clearer, things are going 214 00:10:54,720 --> 00:10:57,679 Speaker 6: to move really fast and companies are going to need 215 00:10:57,720 --> 00:11:01,000 Speaker 6: to be able to react to a bill. So while 216 00:11:01,520 --> 00:11:03,319 Speaker 6: it's not going to be it's not certain when it 217 00:11:03,360 --> 00:11:06,880 Speaker 6: will happen. It probably will, it's just the hardest part 218 00:11:06,920 --> 00:11:07,480 Speaker 6: lies ahead. 219 00:11:08,120 --> 00:11:10,920 Speaker 4: Rama, all my wealthy friends up in New Canaan and Greenwich, 220 00:11:10,920 --> 00:11:14,200 Speaker 4: Connecticut are worried. They're HEDGEPHND managers, they're private equity managers, 221 00:11:14,240 --> 00:11:16,120 Speaker 4: They're worried about the carried interest here. I mean, talk 222 00:11:16,120 --> 00:11:17,600 Speaker 4: to us a little bit about your thoughts there. What 223 00:11:17,600 --> 00:11:19,000 Speaker 4: are you advising clients on that end? 224 00:11:20,480 --> 00:11:23,680 Speaker 6: Yeah, So again, there's so many dimensions to this that 225 00:11:23,760 --> 00:11:26,280 Speaker 6: have yet to be seen. And like I said, the 226 00:11:26,280 --> 00:11:30,079 Speaker 6: big picture here is that companies need to and individuals 227 00:11:30,120 --> 00:11:32,080 Speaker 6: really need to look at the impact of all the 228 00:11:32,120 --> 00:11:35,880 Speaker 6: dimensions of the changes, and really time will tell what 229 00:11:36,080 --> 00:11:39,760 Speaker 6: all the various specific questions are that individuals and companies 230 00:11:39,880 --> 00:11:42,600 Speaker 6: have related to any impending bills. 231 00:11:43,800 --> 00:11:45,199 Speaker 3: RIMA outside of the US. 232 00:11:45,559 --> 00:11:48,319 Speaker 2: What are kind of the key issues that you guys 233 00:11:48,559 --> 00:11:51,239 Speaker 2: are facing here for your global clients. 234 00:11:52,080 --> 00:11:55,480 Speaker 6: So our global clients are facing into that second prong 235 00:11:55,520 --> 00:11:58,400 Speaker 6: of the tax policy trifecta that I talked about global reform, 236 00:11:58,440 --> 00:12:02,000 Speaker 6: which the impact of Pillar two among other things. So, BEPS, 237 00:12:02,000 --> 00:12:04,719 Speaker 6: I'm sure you've heard about it, and so what are 238 00:12:04,760 --> 00:12:09,040 Speaker 6: the impacts outside the US even though the Trump administration 239 00:12:09,440 --> 00:12:11,920 Speaker 6: has indicated that it's not going to be amenable to 240 00:12:12,440 --> 00:12:16,080 Speaker 6: bep's Pillar two. Companies that operate outside the US still 241 00:12:16,120 --> 00:12:18,640 Speaker 6: need to comply with Pillar two regulations that are in 242 00:12:18,720 --> 00:12:21,559 Speaker 6: place in the countries in which they operate. So we're 243 00:12:21,600 --> 00:12:25,320 Speaker 6: advising our clients on their global footprint and looking at 244 00:12:25,360 --> 00:12:29,200 Speaker 6: what tax planning or what operational changes they need to 245 00:12:29,240 --> 00:12:31,840 Speaker 6: make in light of that uncertainty as well. 246 00:12:32,360 --> 00:12:34,800 Speaker 4: RIMA, I know KPMG is the first of the Big 247 00:12:34,840 --> 00:12:37,640 Speaker 4: Four to be licensed to practice law here in the US. 248 00:12:37,679 --> 00:12:39,280 Speaker 4: What's the motivation before behind that? 249 00:12:40,480 --> 00:12:43,240 Speaker 6: Yeah, So KPMG is really proud to be the first 250 00:12:43,240 --> 00:12:47,080 Speaker 6: of the Big four KPMG Law US to provide what 251 00:12:47,240 --> 00:12:50,480 Speaker 6: is really an increasing need in the legal market space today, 252 00:12:50,520 --> 00:12:56,640 Speaker 6: which is providing process driven, technology enabled services for our clients. 253 00:12:57,280 --> 00:13:00,840 Speaker 6: And that is a real growing need. The volume of transactions, 254 00:13:00,880 --> 00:13:03,520 Speaker 6: the volume of contracts that need to be managed, the 255 00:13:03,559 --> 00:13:06,160 Speaker 6: ability to put that on one technology platform, which I 256 00:13:06,200 --> 00:13:09,280 Speaker 6: talked about our Digital Gateway platform is really important in 257 00:13:09,320 --> 00:13:12,240 Speaker 6: the marketplace and being validated by our clients. So that's 258 00:13:12,240 --> 00:13:15,000 Speaker 6: what we are going to do, and we're already getting 259 00:13:15,720 --> 00:13:18,680 Speaker 6: tremendous receptivity in the market in that for that need. 260 00:13:19,120 --> 00:13:20,600 Speaker 3: Riema, thank you so much for joining us. 261 00:13:20,640 --> 00:13:24,479 Speaker 2: Rima Sarafi, Vice Chair for the tax practice at KPMG. 262 00:13:25,160 --> 00:13:27,920 Speaker 2: KPMG Big Four. I remember when they're a Big eight, 263 00:13:28,160 --> 00:13:29,800 Speaker 2: Oh my god. Yeah, and then the Big six and 264 00:13:29,800 --> 00:13:31,640 Speaker 2: now we're down to the Big four. 265 00:13:37,640 --> 00:13:41,200 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 266 00:13:41,280 --> 00:13:44,320 Speaker 1: weekday afternoons from seven to ten a m Eastern Listen 267 00:13:44,360 --> 00:13:47,920 Speaker 1: on Applecarplay and Android Auto with the Bloomberg Business app, 268 00:13:48,120 --> 00:13:49,840 Speaker 1: or watch US live on YouTube. 269 00:13:50,160 --> 00:13:53,920 Speaker 2: Let's talk about the you know, global supply chains in 270 00:13:53,960 --> 00:13:58,160 Speaker 2: a world of rising tariffs. What does it mean for 271 00:13:58,559 --> 00:14:01,040 Speaker 2: trade here in this part of the world and around 272 00:14:01,080 --> 00:14:03,640 Speaker 2: the world. Alyssa Rusnov joints is. She's the CEO of 273 00:14:03,840 --> 00:14:06,040 Speaker 2: l Tex. She joints us here in our Bloomberg Interactive 274 00:14:06,040 --> 00:14:08,880 Speaker 2: Broker Studio, which gets her double stars because it's our 275 00:14:08,880 --> 00:14:10,120 Speaker 2: Friday being in our studio. 276 00:14:10,240 --> 00:14:11,880 Speaker 3: We Liza, thank you so much for joining us. 277 00:14:12,240 --> 00:14:15,920 Speaker 2: What are you telling your clients about tariffs and what 278 00:14:16,040 --> 00:14:20,120 Speaker 2: the ultimate impact will be on trade between the US, Canada, 279 00:14:20,320 --> 00:14:23,800 Speaker 2: US and Mexico, the North American in general? What are 280 00:14:23,800 --> 00:14:25,120 Speaker 2: you telling your clients these days? 281 00:14:25,400 --> 00:14:28,960 Speaker 7: Yeah, so pleasure to be here. There is a lot 282 00:14:29,000 --> 00:14:32,520 Speaker 7: of volatility obviously in the markets. But I'm finance and trade, 283 00:14:32,560 --> 00:14:34,440 Speaker 7: so there's a lot of crosswater trade that I've seen 284 00:14:34,840 --> 00:14:37,400 Speaker 7: on my side, whether it's Mexico, Canada, or other parts 285 00:14:37,440 --> 00:14:40,000 Speaker 7: of the world. And obviously there is a lot of 286 00:14:40,040 --> 00:14:43,480 Speaker 7: uncertainty happening and a lot of suppliers, small suppliers in 287 00:14:43,520 --> 00:14:48,920 Speaker 7: Mexico and Canada, bigger corporations and specific sectors that are 288 00:14:48,920 --> 00:14:51,840 Speaker 7: really impacted by it. So I financed a lot of 289 00:14:52,880 --> 00:14:58,720 Speaker 7: industry related to cars, car parts, energy, commodities like coffee, 290 00:14:58,800 --> 00:15:01,760 Speaker 7: which I'm a big com consumer off obviously being in 291 00:15:01,800 --> 00:15:04,360 Speaker 7: New York from New Yorker, So there's certain a lot 292 00:15:04,400 --> 00:15:08,360 Speaker 7: of volatility in that sense. Meaning if you look in 293 00:15:08,400 --> 00:15:11,320 Speaker 7: for example, at the car parts or just car export 294 00:15:11,360 --> 00:15:15,520 Speaker 7: slashing port trade, that's a crazy amount of operational volume 295 00:15:15,720 --> 00:15:18,240 Speaker 7: because it's not just you know, a car is being 296 00:15:18,360 --> 00:15:20,840 Speaker 7: let's say manufactured and Mexico just goes into the US 297 00:15:20,880 --> 00:15:22,640 Speaker 7: and you can just put a tariff on it. The 298 00:15:22,720 --> 00:15:25,760 Speaker 7: reality is the car parts go back and forth maybe three, 299 00:15:25,800 --> 00:15:29,160 Speaker 7: four or five six times. That's absolutely right. Uh, there's 300 00:15:29,320 --> 00:15:33,600 Speaker 7: a lot of operational logistics there because apparently shipping is 301 00:15:33,640 --> 00:15:38,080 Speaker 7: actually quite cheaper than manufacturing in certain in certain regions. 302 00:15:38,440 --> 00:15:42,640 Speaker 7: So reciprocal tariffs do not necessarily make sense even from 303 00:15:42,680 --> 00:15:46,000 Speaker 7: an operational standpoint. It's just really really hard to do. 304 00:15:46,360 --> 00:15:52,480 Speaker 7: And unfortunately trade is not necessarily digitized, so operationally you 305 00:15:52,560 --> 00:15:55,000 Speaker 7: have to have tremendous amount of staff on the US 306 00:15:55,520 --> 00:15:58,960 Speaker 7: border or Mexican border, Canadian border to really be able 307 00:15:59,000 --> 00:16:00,880 Speaker 7: to do all that. And then if you will look 308 00:16:00,880 --> 00:16:05,040 Speaker 7: into the car sector, if for example, we will impose 309 00:16:05,040 --> 00:16:08,520 Speaker 7: fifteen to twenty percent tariff on Canada in Mexico, our 310 00:16:08,560 --> 00:16:11,000 Speaker 7: car price will probably go up by you know, four 311 00:16:11,040 --> 00:16:14,120 Speaker 7: to eight k, right, So that's that's a lot that 312 00:16:14,200 --> 00:16:18,240 Speaker 7: goes on the US consumer obviously, So and that impacts 313 00:16:18,240 --> 00:16:20,400 Speaker 7: a lot of other jobs, not just the consumer. That 314 00:16:20,600 --> 00:16:25,360 Speaker 7: obviously is an inflationary matrix, but it also affects a 315 00:16:25,400 --> 00:16:27,560 Speaker 7: lot of jobs because we have, you know, a few 316 00:16:27,640 --> 00:16:31,520 Speaker 7: large sports in the world, whether it's New York, New Jersey, California, Pennsilana, 317 00:16:31,520 --> 00:16:32,000 Speaker 7: et cetera. 318 00:16:32,760 --> 00:16:35,560 Speaker 4: Alyssa I love and Paul I love trade finance as 319 00:16:35,600 --> 00:16:37,880 Speaker 4: a strategy. It's been around for so long. It's been 320 00:16:37,880 --> 00:16:40,520 Speaker 4: a cash cow, I mean from my historically speaking, And 321 00:16:41,200 --> 00:16:43,480 Speaker 4: please listen, you know, correct me if I'm wrong, high 322 00:16:43,480 --> 00:16:46,640 Speaker 4: single digit, low double digit, you know, very smooth, you know, 323 00:16:46,680 --> 00:16:50,400 Speaker 4: returns over time. Can we as an investor still expect 324 00:16:50,520 --> 00:16:53,520 Speaker 4: those same type of returns? I mean, I love asset 325 00:16:53,520 --> 00:16:56,360 Speaker 4: classes that are complex and structured where you can engineer performance. 326 00:16:56,600 --> 00:16:58,280 Speaker 4: Is that still the case in trade finance? 327 00:16:58,760 --> 00:17:01,480 Speaker 7: That's absolutely right, Not just you, but my investors like 328 00:17:01,520 --> 00:17:05,320 Speaker 7: that a lot. So I've been financing for over a 329 00:17:05,359 --> 00:17:09,000 Speaker 7: decade now. It's very true. It's a very liquid market. 330 00:17:09,040 --> 00:17:12,360 Speaker 7: There's a lot of volume, there's a lot of various 331 00:17:12,440 --> 00:17:16,280 Speaker 7: types of supply chains and gaps where financing is needed, 332 00:17:16,280 --> 00:17:18,840 Speaker 7: whether it's on the supplier side or on the customer side, 333 00:17:18,840 --> 00:17:21,840 Speaker 7: which is called recivle financing of factoring. So there are 334 00:17:21,880 --> 00:17:26,000 Speaker 7: different structures you can create to actually finance a trade. 335 00:17:26,080 --> 00:17:28,760 Speaker 7: And there's a lot of crossboader trading obviously, because you know, 336 00:17:28,880 --> 00:17:32,760 Speaker 7: we we still live in the globalized economy, globalized world, 337 00:17:32,800 --> 00:17:35,040 Speaker 7: so everything that we're seeing in front of us right 338 00:17:35,119 --> 00:17:38,840 Speaker 7: now probably is coming from other countries in certain supply 339 00:17:38,960 --> 00:17:44,480 Speaker 7: chain factors of it, but in terms of volume of it. 340 00:17:45,040 --> 00:17:48,320 Speaker 7: If the tariffs do occur, and you know, they are imposed, 341 00:17:48,760 --> 00:17:51,520 Speaker 7: so I would expect the volume to go down, and 342 00:17:51,560 --> 00:17:53,960 Speaker 7: we've had it last year, right, Sometimes we just have 343 00:17:54,000 --> 00:17:56,160 Speaker 7: to go back in history and we can look at 344 00:17:56,480 --> 00:18:00,760 Speaker 7: a smooth Holly Act or law in nineteen thirty and 345 00:18:00,880 --> 00:18:03,359 Speaker 7: the global trade back then went down by you know, 346 00:18:03,440 --> 00:18:06,800 Speaker 7: sixty plus percent, right, So it impacts you know, the 347 00:18:06,920 --> 00:18:12,560 Speaker 7: US economy, it impacts the global economy. And I guess 348 00:18:12,560 --> 00:18:17,880 Speaker 7: investors are very still interested in the in the trade finance. 349 00:18:18,240 --> 00:18:19,800 Speaker 7: But we're just going to turn about the. 350 00:18:19,840 --> 00:18:22,840 Speaker 3: Volume of it. And just thirty seconds left, April second, 351 00:18:22,920 --> 00:18:23,760 Speaker 3: is at a big date for you. 352 00:18:24,720 --> 00:18:27,600 Speaker 7: Yes, I'm having a lot of coffee that's kind of 353 00:18:27,640 --> 00:18:28,800 Speaker 7: from brazila Columbia. 354 00:18:28,960 --> 00:18:29,720 Speaker 4: Okay, I mean. 355 00:18:29,960 --> 00:18:32,399 Speaker 2: Right, and so so the tariffs. Alissa Rusinov, thank you 356 00:18:32,440 --> 00:18:35,040 Speaker 2: so much for joining us. Alyssa is the CEO of 357 00:18:35,200 --> 00:18:37,879 Speaker 2: l Tech, talking about trade finance in a world where 358 00:18:38,160 --> 00:18:40,840 Speaker 2: trade is you know, coming under some pressure with all 359 00:18:40,840 --> 00:18:43,359 Speaker 2: the new potential policies coming out of this White House. 360 00:18:43,480 --> 00:18:47,320 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 361 00:18:47,359 --> 00:18:50,400 Speaker 1: starting at seven am Eastern on Apple Corplay and Android 362 00:18:50,400 --> 00:18:53,439 Speaker 1: Auto with the Bloomberg Business app. You can also listen 363 00:18:53,520 --> 00:18:56,760 Speaker 1: live on Amazon Alexa from our flagship New York station. 364 00:18:57,320 --> 00:18:59,960 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 365 00:19:00,359 --> 00:19:02,640 Speaker 2: Lots of new slow coming out of Washington, DC. Let's 366 00:19:02,640 --> 00:19:05,879 Speaker 2: get right to it. Jennifer Lawless, politics professor at the 367 00:19:06,600 --> 00:19:10,159 Speaker 2: University of Virginia, who I will note are not in 368 00:19:10,200 --> 00:19:14,200 Speaker 2: the men's tournament. It's just brutal. Jennifer, Thanks so much 369 00:19:14,200 --> 00:19:16,440 Speaker 2: for joining us here. There's lots of ways to go here. 370 00:19:16,520 --> 00:19:19,879 Speaker 2: Let's just talk with a topic. We're just asking Margaret 371 00:19:19,880 --> 00:19:22,920 Speaker 2: Brendan and the CBS about reports that Elon Musk is 372 00:19:22,960 --> 00:19:26,879 Speaker 2: getting briefed about China at the Pentagon today. What do 373 00:19:26,920 --> 00:19:28,919 Speaker 2: you make of this story? What are the risks, what 374 00:19:28,960 --> 00:19:31,000 Speaker 2: are the opportunities, what do you make of it? 375 00:19:32,560 --> 00:19:35,680 Speaker 8: Well, good morning. The entire thing is quite stunning. 376 00:19:36,160 --> 00:19:38,679 Speaker 9: It's unheard of for somebody who's not part of the 377 00:19:38,720 --> 00:19:41,840 Speaker 9: administration or not a member of Congress to receive this 378 00:19:41,960 --> 00:19:44,880 Speaker 9: kind of briefing, despite the fact that he has received 379 00:19:45,160 --> 00:19:46,680 Speaker 9: several types of clearance. 380 00:19:47,600 --> 00:19:49,520 Speaker 8: The speed with which this briefing is. 381 00:19:49,440 --> 00:19:53,080 Speaker 9: Taking place, given that this information was only recently shared 382 00:19:53,119 --> 00:19:56,320 Speaker 9: with other members of the administration, is also somewhat stunning, 383 00:19:56,640 --> 00:20:00,280 Speaker 9: and it just demonstrates the access and proximity that Elon 384 00:20:00,359 --> 00:20:03,000 Speaker 9: Musk has to Donald Trump, and the fact that he 385 00:20:03,119 --> 00:20:06,159 Speaker 9: has a finger in everything, not only domestic policy and 386 00:20:06,200 --> 00:20:09,440 Speaker 9: the economy and DOGE, but also in national security concerns. 387 00:20:09,640 --> 00:20:11,680 Speaker 2: All Right, we have to note, certainly that President Trump 388 00:20:11,720 --> 00:20:14,160 Speaker 2: has denied these reports. So we'll see how this news 389 00:20:14,160 --> 00:20:16,880 Speaker 2: story plays out throughout the day. Another big thing coming 390 00:20:16,920 --> 00:20:20,720 Speaker 2: out of the Washington DC is an executive order to 391 00:20:20,880 --> 00:20:23,960 Speaker 2: end the Department of Education. I wasn't sure that was 392 00:20:24,480 --> 00:20:26,679 Speaker 2: a thing, but apparently it is. How is this going 393 00:20:26,760 --> 00:20:27,480 Speaker 2: to play out? 394 00:20:28,520 --> 00:20:32,040 Speaker 9: Well, the executive order begins dismantling the Department of Education. 395 00:20:32,160 --> 00:20:34,280 Speaker 9: You actually need an Act of Congress to get rid 396 00:20:34,280 --> 00:20:37,800 Speaker 9: of an agency, but there are already members of the 397 00:20:37,840 --> 00:20:39,240 Speaker 9: House and the Senate who have. 398 00:20:39,240 --> 00:20:42,280 Speaker 8: Introduced legislation to do just that. So what Donald. 399 00:20:42,000 --> 00:20:44,680 Speaker 9: Trump did with the executive order was make it clear 400 00:20:44,800 --> 00:20:47,680 Speaker 9: that he was serious about dismantling the department, and he 401 00:20:47,800 --> 00:20:50,439 Speaker 9: signaled to members of Congress that they should move forward. 402 00:20:50,520 --> 00:20:51,080 Speaker 8: And they are. 403 00:20:51,480 --> 00:20:54,600 Speaker 9: And this too is quite stunning for a variety of reasons. 404 00:20:55,119 --> 00:20:58,040 Speaker 9: We knew that he planned to move student loans outside 405 00:20:58,040 --> 00:21:01,040 Speaker 9: of the Department of Education, but the department does far 406 00:21:01,119 --> 00:21:04,479 Speaker 9: more than administer student loans. When we think about education 407 00:21:04,640 --> 00:21:08,440 Speaker 9: funding standards and testing, school lunches and those kinds of programs, 408 00:21:08,760 --> 00:21:11,960 Speaker 9: access for students who have learning disabilities, all of that 409 00:21:12,040 --> 00:21:14,640 Speaker 9: is now extensibly going to get returned to the States. 410 00:21:14,760 --> 00:21:17,960 Speaker 9: And that means why variation across the board, no real 411 00:21:18,000 --> 00:21:20,840 Speaker 9: federal standards, and the extent to which you receive a 412 00:21:20,880 --> 00:21:24,080 Speaker 9: decent public school education is now going to be contingent 413 00:21:24,160 --> 00:21:25,920 Speaker 9: more than ever on where you happen to live. 414 00:21:26,280 --> 00:21:27,720 Speaker 4: And we see a lot of universities here in the 415 00:21:27,840 --> 00:21:30,359 Speaker 4: US turning to the public markets to raise money. As 416 00:21:30,400 --> 00:21:32,359 Speaker 4: I guess, you know, a war test and you know 417 00:21:32,440 --> 00:21:34,359 Speaker 4: against all this, you know, talk to us a little 418 00:21:34,359 --> 00:21:36,919 Speaker 4: bit more. I mean, what is the economic impact of 419 00:21:36,960 --> 00:21:39,240 Speaker 4: all this nonsense with the Department of Education. 420 00:21:40,880 --> 00:21:41,960 Speaker 8: It's pretty substantial. 421 00:21:42,000 --> 00:21:44,920 Speaker 9: I mean, partially it will have to do with public 422 00:21:44,960 --> 00:21:46,520 Speaker 9: schools K through twelve, which is what I was just 423 00:21:46,600 --> 00:21:50,120 Speaker 9: talking about. But universities and colleges across the country are 424 00:21:50,160 --> 00:21:53,679 Speaker 9: also playing a major role. If their funding is linked 425 00:21:53,720 --> 00:21:57,440 Speaker 9: to this administration or what Donald Trump's priorities and preferences are, 426 00:21:57,640 --> 00:22:00,840 Speaker 9: They're in a very precarious position. We've seen, for example, 427 00:22:00,960 --> 00:22:04,840 Speaker 9: the more than four hundred million dollars cut to Columbia University. 428 00:22:04,920 --> 00:22:05,840 Speaker 8: A couple of days. 429 00:22:05,680 --> 00:22:08,960 Speaker 9: Ago, pen received notification that it was going to be 430 00:22:08,960 --> 00:22:11,200 Speaker 9: losing one hundred and seventy five million because of its 431 00:22:11,240 --> 00:22:15,280 Speaker 9: transgender athlete policy. So universities and colleges across the nation 432 00:22:15,760 --> 00:22:18,800 Speaker 9: now have an incentive to do two things. First, raise 433 00:22:18,880 --> 00:22:21,840 Speaker 9: alternative sources of funds that they can continue to exist 434 00:22:21,880 --> 00:22:25,480 Speaker 9: if they're targeted, but also, to the extent possible, comply 435 00:22:25,600 --> 00:22:27,720 Speaker 9: with what Donald Trump is asking for because they were 436 00:22:27,800 --> 00:22:29,480 Speaker 9: lies so heavily on federal funds. 437 00:22:30,119 --> 00:22:32,560 Speaker 4: We know that student loans were postponed under the Biden 438 00:22:32,600 --> 00:22:35,480 Speaker 4: administration during the period of COVID. Talk to us about 439 00:22:35,560 --> 00:22:38,120 Speaker 4: that front. Do we expect, you know, students or former 440 00:22:38,160 --> 00:22:40,399 Speaker 4: students to begin paying back their loans anytime soon and 441 00:22:41,080 --> 00:22:42,080 Speaker 4: is there any news on that. 442 00:22:43,520 --> 00:22:46,760 Speaker 9: The tricky part about that is that the administration has 443 00:22:46,760 --> 00:22:49,520 Speaker 9: said that they obviously want people to pay them back immediately, 444 00:22:49,640 --> 00:22:53,920 Speaker 9: that they don't support the delays that the Biden administration implemented. 445 00:22:54,160 --> 00:22:55,720 Speaker 8: The problem, though, is that. 446 00:22:55,880 --> 00:22:59,640 Speaker 9: They've gutted the people who are the ones monitoring this 447 00:22:59,840 --> 00:23:03,000 Speaker 9: and the people who can actually share with students the 448 00:23:03,000 --> 00:23:05,080 Speaker 9: amount that they owe and how they should go about 449 00:23:05,119 --> 00:23:07,720 Speaker 9: paying this back, and so they seem to be at 450 00:23:07,760 --> 00:23:10,679 Speaker 9: cross purposes with themselves. We'll see what happens, but the 451 00:23:10,840 --> 00:23:13,560 Speaker 9: latest reports that I've seen suggests that neither the Department 452 00:23:13,600 --> 00:23:17,240 Speaker 9: of the Treasury nor Commerce want to absorb responsibility for 453 00:23:17,320 --> 00:23:18,040 Speaker 9: student loans. 454 00:23:18,640 --> 00:23:20,360 Speaker 2: Jennifer, I love to talk to you about the politics 455 00:23:20,359 --> 00:23:23,920 Speaker 2: of the Democratic Party here. You think about the White House, 456 00:23:23,960 --> 00:23:27,040 Speaker 2: you think about both Houses of Congress. Republicans obviously won 457 00:23:27,119 --> 00:23:31,479 Speaker 2: all three, but by very very narrow margins. Yet the 458 00:23:31,520 --> 00:23:37,240 Speaker 2: Democratic Party has been essentially invisible over the since President 459 00:23:37,280 --> 00:23:39,240 Speaker 2: Trump was inaugurated. 460 00:23:39,480 --> 00:23:40,840 Speaker 3: He takes all the air out of the room. 461 00:23:40,880 --> 00:23:43,639 Speaker 2: Are you surprised that Democrats haven't stood up to this 462 00:23:43,680 --> 00:23:45,879 Speaker 2: president more forcefully? 463 00:23:46,440 --> 00:23:46,719 Speaker 3: I am. 464 00:23:46,920 --> 00:23:50,080 Speaker 9: I would say that Democratic attorneys general across the country 465 00:23:50,119 --> 00:23:55,040 Speaker 9: have been doing an insanely high level amount of work 466 00:23:55,119 --> 00:23:58,080 Speaker 9: to push back through the courts. So I think that 467 00:23:58,200 --> 00:24:02,480 Speaker 9: the Democratic attorneys general across the country have really risen 468 00:24:02,520 --> 00:24:06,119 Speaker 9: to the occasion. When it comes to elected members in Washington, 469 00:24:06,680 --> 00:24:10,399 Speaker 9: it's somewhat puzzling, And we saw last week, based on 470 00:24:10,440 --> 00:24:12,960 Speaker 9: what Chuck Schumer did, that the party is not entirely 471 00:24:13,000 --> 00:24:16,080 Speaker 9: on the same page either. I think some Democrats thought 472 00:24:16,119 --> 00:24:18,639 Speaker 9: that the wind would eventually come out of the Trump sales, 473 00:24:18,640 --> 00:24:20,840 Speaker 9: and they assumed that it would be sooner rather than later, 474 00:24:21,080 --> 00:24:22,600 Speaker 9: so they just kind of wanted to sit around and 475 00:24:22,640 --> 00:24:23,520 Speaker 9: wait for that to happen. 476 00:24:23,600 --> 00:24:24,400 Speaker 8: It hasn't happened. 477 00:24:24,960 --> 00:24:28,280 Speaker 9: Others think that they should just compromise because Trump is 478 00:24:28,280 --> 00:24:30,160 Speaker 9: going to get what he wants anyway, and so maybe 479 00:24:30,160 --> 00:24:33,280 Speaker 9: the Democrats can extract something. And still others think that 480 00:24:33,359 --> 00:24:36,639 Speaker 9: because there's unified control in Washington, the Democrats have a 481 00:24:36,680 --> 00:24:39,000 Speaker 9: responsibility to put up a unified front and try to 482 00:24:39,040 --> 00:24:42,720 Speaker 9: block everything and then blame Republicans for any unpopular outcome. 483 00:24:43,240 --> 00:24:46,199 Speaker 9: And unfortunately for the Democratic Party, they're not all on 484 00:24:46,240 --> 00:24:48,240 Speaker 9: the same page and they're all just kind of flailing. 485 00:24:48,560 --> 00:24:50,400 Speaker 3: All right. Very good, Jennifer Lawlis, thank you so much. 486 00:24:50,400 --> 00:24:51,000 Speaker 3: We appreciate that. 487 00:24:51,080 --> 00:24:55,240 Speaker 2: Jennifer lawis Politics professor at the University of Virginia, Lovely 488 00:24:55,960 --> 00:25:01,680 Speaker 2: Charlottesville of Virginia. 489 00:25:02,960 --> 00:25:06,880 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 490 00:25:06,920 --> 00:25:10,320 Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto 491 00:25:10,359 --> 00:25:13,159 Speaker 1: with the Bloomberg Business app. You can also watch us 492 00:25:13,240 --> 00:25:17,120 Speaker 1: live every weekday on YouTube and always on the Bloomberg Terminal. 493 00:25:17,240 --> 00:25:18,000 Speaker 3: Kathy Hepworth. 494 00:25:18,080 --> 00:25:21,040 Speaker 2: She is a portfolio manager for PGM Fixed Income, not 495 00:25:21,080 --> 00:25:23,640 Speaker 2: just pGEM Fixed Income, but the head of the pgm's 496 00:25:23,680 --> 00:25:28,959 Speaker 2: Fixed Income's Merging Markets Debt team. I just don't know 497 00:25:28,960 --> 00:25:31,160 Speaker 2: how this happened, Kathy. Thank you so much for joining 498 00:25:31,200 --> 00:25:34,400 Speaker 2: us here in our studio. Really appreciate it. Emerging markets, 499 00:25:35,400 --> 00:25:39,200 Speaker 2: with gew political tensions, with global tariff issues. How is 500 00:25:39,240 --> 00:25:42,000 Speaker 2: your market kind of performing these days? 501 00:25:42,200 --> 00:25:44,880 Speaker 10: Well, the interesting thing is, so far this year from 502 00:25:44,880 --> 00:25:48,040 Speaker 10: a total return perspective, when we look at credit, we 503 00:25:48,080 --> 00:25:50,640 Speaker 10: look at FX, and we look at local rates, it 504 00:25:50,640 --> 00:25:55,760 Speaker 10: has very positive total return numbers and outperforming other investment 505 00:25:55,800 --> 00:25:58,760 Speaker 10: grade and even US high yield market segments. And there 506 00:25:58,760 --> 00:26:01,160 Speaker 10: are reasons for that. Some of that is the attractiveness 507 00:26:01,160 --> 00:26:03,840 Speaker 10: of the carry in what's deemed to be a still 508 00:26:04,160 --> 00:26:06,440 Speaker 10: okay world, big question mark there though. 509 00:26:06,600 --> 00:26:10,359 Speaker 4: Yeah, no, I mean, Kathy's not doing our acid class justice. 510 00:26:10,400 --> 00:26:11,960 Speaker 4: I just have to say it is the best performing 511 00:26:12,000 --> 00:26:14,320 Speaker 4: acid class here today and that there's a good reason 512 00:26:14,320 --> 00:26:16,320 Speaker 4: for that. The reason in my mind is the FX, right, 513 00:26:16,359 --> 00:26:17,919 Speaker 4: I mean, this is an FX story. This is the 514 00:26:17,960 --> 00:26:21,160 Speaker 4: Euro versus the dollar and spillover effects not just into 515 00:26:21,200 --> 00:26:24,960 Speaker 4: the broader EM but more specifically the Eastern European segment 516 00:26:25,000 --> 00:26:27,440 Speaker 4: of the market. Talked to us a little bit about Poland, Hungry, 517 00:26:27,560 --> 00:26:31,040 Speaker 4: check the CE four Romania. I mean, our investors really 518 00:26:31,080 --> 00:26:34,480 Speaker 4: finally in fixed income putting their money to work there locally, Well, 519 00:26:34,520 --> 00:26:35,200 Speaker 4: a couple. 520 00:26:34,920 --> 00:26:37,840 Speaker 10: Of things there. There have been decent portfolio flows and 521 00:26:37,960 --> 00:26:40,840 Speaker 10: FDI flows into some of those countries, Hungary in particular, 522 00:26:41,080 --> 00:26:44,240 Speaker 10: even Romania. But I think what we saw out of 523 00:26:44,359 --> 00:26:47,560 Speaker 10: the EU over the past couple of weeks really is 524 00:26:47,720 --> 00:26:50,160 Speaker 10: a c change, and I think that that can help 525 00:26:50,240 --> 00:26:53,240 Speaker 10: anchor some of those countries in the region. Of course, 526 00:26:53,320 --> 00:26:55,080 Speaker 10: you know, in the context of a trade war, some 527 00:26:55,160 --> 00:26:58,920 Speaker 10: of those economies are quite open economies and they are vulnerable. 528 00:26:58,960 --> 00:27:02,200 Speaker 10: So you have to balance those different risks as trade offs, 529 00:27:02,200 --> 00:27:03,840 Speaker 10: if you will, as to how those countries might be 530 00:27:03,880 --> 00:27:06,760 Speaker 10: impacted by a trade war versus are they going to 531 00:27:06,800 --> 00:27:07,879 Speaker 10: get flows otherwise? 532 00:27:07,960 --> 00:27:10,480 Speaker 4: Right, Well, I mean the periphery there. I mean, the 533 00:27:10,520 --> 00:27:13,920 Speaker 4: EU represents paul seventy five percent of all exports out 534 00:27:13,920 --> 00:27:15,639 Speaker 4: of Czech Hungary, pol And. That that's so sort of 535 00:27:15,640 --> 00:27:17,840 Speaker 4: Eastern European periphery. So you know, you can see how 536 00:27:17,880 --> 00:27:19,360 Speaker 4: it's kind of tracking there. But you know, the one 537 00:27:19,359 --> 00:27:21,439 Speaker 4: market which really caught my eye this week. It's the 538 00:27:21,440 --> 00:27:24,679 Speaker 4: only country in the planet that's actually hiking rates in 539 00:27:24,680 --> 00:27:26,320 Speaker 4: the face of what we're seeing here, and that's Brazil. 540 00:27:26,560 --> 00:27:29,080 Speaker 4: They just hike rates by another one hundred basis. I mean, 541 00:27:29,080 --> 00:27:31,400 Speaker 4: we'res the policy rate fourteen and a quartercaty. I mean, 542 00:27:31,560 --> 00:27:34,720 Speaker 4: talk to about Latin America about carrying in some of 543 00:27:34,760 --> 00:27:37,080 Speaker 4: these sort of high yielding emerging markets. 544 00:27:36,760 --> 00:27:39,600 Speaker 10: And that's exactly what's driving those those high returns, is 545 00:27:39,640 --> 00:27:42,640 Speaker 10: it's carry So Brazil is doing the right thing right 546 00:27:42,680 --> 00:27:46,560 Speaker 10: in the face of uncertainty and credibility as it pertains 547 00:27:46,600 --> 00:27:50,000 Speaker 10: to fiscal policy. Actually even more so than inflation in Brazil, 548 00:27:50,119 --> 00:27:52,600 Speaker 10: they're hiking rates, you know, to to try to anchor 549 00:27:52,640 --> 00:27:57,800 Speaker 10: expectations there, and that's why it's so attractive, I think, 550 00:27:57,840 --> 00:28:01,119 Speaker 10: to be investing in the currency some of the local 551 00:28:01,160 --> 00:28:06,040 Speaker 10: bonds as well. When you think about the vulnerability of 552 00:28:06,040 --> 00:28:09,080 Speaker 10: Brazil to a global trade wark, it's really low when 553 00:28:09,119 --> 00:28:12,000 Speaker 10: you compare it to say a Mexico, right which clearly 554 00:28:12,040 --> 00:28:15,200 Speaker 10: has much more direct trade links with the US. I'm 555 00:28:15,200 --> 00:28:17,080 Speaker 10: not saying, you know, it's going to all end badly 556 00:28:17,119 --> 00:28:19,440 Speaker 10: for Mexico, because I think Mexico has some leverage for 557 00:28:19,600 --> 00:28:23,600 Speaker 10: Brazil is somewhat differentiated in that regard, so I think 558 00:28:23,760 --> 00:28:26,719 Speaker 10: those investors in the currency are also looking at from 559 00:28:26,800 --> 00:28:29,000 Speaker 10: that perspective as well, from the fundamental perspective. 560 00:28:29,080 --> 00:28:31,240 Speaker 4: O Kathy, I know you've been busy this week focused 561 00:28:31,240 --> 00:28:33,639 Speaker 4: on Turkey. Probably talk to us a little bit about 562 00:28:33,640 --> 00:28:35,760 Speaker 4: what's going on on the ground in Turkey. 563 00:28:35,840 --> 00:28:39,320 Speaker 10: It's all about confidence and credibility and the market getting 564 00:28:39,360 --> 00:28:41,840 Speaker 10: ahead of the fact that, oh my god, are we 565 00:28:41,880 --> 00:28:44,640 Speaker 10: going to get back to that period before the recent 566 00:28:44,720 --> 00:28:47,920 Speaker 10: change in policy where maybe you're going to see dollarization 567 00:28:48,040 --> 00:28:51,360 Speaker 10: again in the local Turkish economy. And that's what all 568 00:28:51,400 --> 00:28:54,040 Speaker 10: those levered investors that I think it's probably close to 569 00:28:54,120 --> 00:28:57,960 Speaker 10: twenty billion that we've seen outflow from the currency markets 570 00:28:57,960 --> 00:28:59,600 Speaker 10: in the local bond market so far this week. We 571 00:28:59,640 --> 00:29:02,640 Speaker 10: won't know the numbers until next week. It's is that 572 00:29:02,680 --> 00:29:05,440 Speaker 10: going to put pressure on the locals who perhaps are 573 00:29:05,520 --> 00:29:07,880 Speaker 10: going to be less comfortable owning the Turkish lire. 574 00:29:08,440 --> 00:29:09,400 Speaker 3: I think the fact that the. 575 00:29:09,360 --> 00:29:11,920 Speaker 10: Turkish Central Bank, you know, hiked the overnight rate this 576 00:29:11,960 --> 00:29:14,160 Speaker 10: week was a very good thing, a good measure. 577 00:29:14,360 --> 00:29:17,800 Speaker 2: Kathy Hepworth Portfolio Mager PGM Fixed Income. Kathy, you mentioned 578 00:29:17,920 --> 00:29:21,200 Speaker 2: Mexico that it's you don't think it's terribly for the 579 00:29:21,240 --> 00:29:24,080 Speaker 2: met Well, I could see a scenario where it could 580 00:29:24,120 --> 00:29:24,880 Speaker 2: end terribly for them. 581 00:29:24,880 --> 00:29:26,400 Speaker 3: How do you guys think about Mexico. 582 00:29:27,240 --> 00:29:32,160 Speaker 10: Mexico has leveraged in that the economy between Mexico and 583 00:29:32,200 --> 00:29:34,200 Speaker 10: the US is so integrated, right particularly in the auto 584 00:29:34,200 --> 00:29:36,240 Speaker 10: sector and some of the electronic sectors, that it's really 585 00:29:36,320 --> 00:29:40,360 Speaker 10: not in the US's best interest to impose maximum teriffs 586 00:29:40,400 --> 00:29:43,959 Speaker 10: on Mexico. So I think in that regard, Mexico has 587 00:29:44,040 --> 00:29:45,760 Speaker 10: leverage because it's kind of a negative impact on the 588 00:29:45,840 --> 00:29:48,000 Speaker 10: US economy, and I don't think that that's what the 589 00:29:48,080 --> 00:29:52,640 Speaker 10: US policymakers actually want to happen, and there are there 590 00:29:52,680 --> 00:29:55,280 Speaker 10: is credibility with their institutions. The Central Bank there, we 591 00:29:55,280 --> 00:29:58,520 Speaker 10: think is going to continue to cut rates and that 592 00:29:58,600 --> 00:30:00,920 Speaker 10: will help put a floor on growth. But of course, 593 00:30:00,960 --> 00:30:06,160 Speaker 10: in a really worst case scenario, USMCA is sort of disregarded, 594 00:30:06,360 --> 00:30:09,640 Speaker 10: then of course Mexico can enter recession. 595 00:30:10,160 --> 00:30:13,280 Speaker 4: Kathy, all eyes are always on the US, even in 596 00:30:13,360 --> 00:30:15,120 Speaker 4: emerging markets. And you know, I just want to ask 597 00:30:15,200 --> 00:30:16,880 Speaker 4: you, you know, when you're you know, in the war room 598 00:30:16,920 --> 00:30:19,440 Speaker 4: with Greg Peters and Tom Pricelli and the US guys 599 00:30:19,480 --> 00:30:22,400 Speaker 4: over at PGIUM, what are they thinking right now? I mean, 600 00:30:22,440 --> 00:30:24,360 Speaker 4: I think the market, oh, as US front ends are 601 00:30:24,360 --> 00:30:26,200 Speaker 4: pricing in two and a half cuts through your end, 602 00:30:26,280 --> 00:30:28,400 Speaker 4: you know, I think it's backloaded. But still, I mean 603 00:30:28,440 --> 00:30:30,600 Speaker 4: that's it's quite a lot compared to where we just were. 604 00:30:30,880 --> 00:30:32,880 Speaker 4: I'm wondering where do you think rates go from here? 605 00:30:33,440 --> 00:30:37,720 Speaker 10: Yeah, so caution, caution, caution, right, and tail risks have 606 00:30:37,800 --> 00:30:41,720 Speaker 10: definitely gotten fatter. So and we do think the risk 607 00:30:41,760 --> 00:30:45,160 Speaker 10: of recession has risen. It's not a base case. It 608 00:30:45,240 --> 00:30:48,160 Speaker 10: makes perfect sense to have two or three cuts priced in. 609 00:30:49,040 --> 00:30:50,840 Speaker 10: Is that a FED put? It's not clear to me 610 00:30:50,920 --> 00:30:52,400 Speaker 10: that's a FED put. I still think you need to 611 00:30:52,400 --> 00:30:55,080 Speaker 10: be cautious in the overall amount of risk that you're taking. 612 00:30:55,640 --> 00:30:59,160 Speaker 10: But as an active manager, you know clearly that presents 613 00:30:59,160 --> 00:31:02,520 Speaker 10: opportunities under and overweights, and EM is the great asset 614 00:31:02,600 --> 00:31:04,440 Speaker 10: class to do that right, because there are countries who 615 00:31:04,480 --> 00:31:07,920 Speaker 10: are less vulnerable than other countries, and the countries who 616 00:31:07,960 --> 00:31:11,040 Speaker 10: would be hurt less than those most vulnerable. 617 00:31:11,160 --> 00:31:12,600 Speaker 4: Kathy, I can't let you leave with that asking me 618 00:31:12,640 --> 00:31:15,000 Speaker 4: about China. I mean, look at the MSCI. I know 619 00:31:15,120 --> 00:31:16,760 Speaker 4: you're not in it. We're not equity people here. I 620 00:31:16,800 --> 00:31:19,040 Speaker 4: know that, Kathy, you out to remind me, but you know, 621 00:31:19,160 --> 00:31:21,640 Speaker 4: I mean the MSCAI China is up like thirty percent. 622 00:31:22,000 --> 00:31:24,640 Speaker 4: I think Bob is up something like seventy percent. Is 623 00:31:24,680 --> 00:31:27,480 Speaker 4: that just you know, is that just a trade or 624 00:31:27,560 --> 00:31:30,000 Speaker 4: is there any longevity to that? Is there anything structural 625 00:31:30,000 --> 00:31:32,000 Speaker 4: fundamental that an investor can get behind there? 626 00:31:32,280 --> 00:31:35,120 Speaker 10: I do think there's something fundamental happening in China, and 627 00:31:35,160 --> 00:31:36,720 Speaker 10: I think that we heard it a few weeks ago, 628 00:31:37,480 --> 00:31:40,480 Speaker 10: and I think they are now ready to focus on 629 00:31:40,520 --> 00:31:43,880 Speaker 10: the consumer, to deal properly with the problems in the 630 00:31:43,880 --> 00:31:48,160 Speaker 10: property sector, and they very well behaved. I think visa 631 00:31:48,240 --> 00:31:52,040 Speaker 10: the the Trump administration so far, and there's more yet 632 00:31:52,080 --> 00:31:54,040 Speaker 10: to come. Right, we haven't seen the full extent of 633 00:31:54,080 --> 00:31:56,960 Speaker 10: what's going to happen with China, but I think that 634 00:31:57,080 --> 00:31:59,240 Speaker 10: China is much better prepared this time than they weren't 635 00:31:59,280 --> 00:31:59,840 Speaker 10: Trump one point. 636 00:31:59,880 --> 00:32:03,800 Speaker 4: Now, last question for me. There are only a very small, 637 00:32:03,880 --> 00:32:06,920 Speaker 4: small handful of currencies that are actually down relative to 638 00:32:06,960 --> 00:32:10,040 Speaker 4: the dollar this year. India and Indonesia are two of them. 639 00:32:10,200 --> 00:32:11,720 Speaker 4: The rupee and the rupee. Talk to us a little 640 00:32:11,720 --> 00:32:15,640 Speaker 4: bit about Southeast Asia. I mean, how should investors approach 641 00:32:15,720 --> 00:32:16,479 Speaker 4: that region. 642 00:32:16,920 --> 00:32:20,120 Speaker 10: Yeah, so clearly from a currency perspective, I think they're 643 00:32:20,160 --> 00:32:22,960 Speaker 10: a little bit less attractive. From a local rape perspective, 644 00:32:22,960 --> 00:32:24,880 Speaker 10: it's more attractive because of deflation. I do think they're 645 00:32:24,880 --> 00:32:27,320 Speaker 10: going to be cutting rates. Indonesia is a bit of 646 00:32:27,320 --> 00:32:30,360 Speaker 10: a change right because the mark is concerned about the 647 00:32:30,480 --> 00:32:34,600 Speaker 10: Minister of Finance potentially leaving and the new president having 648 00:32:34,600 --> 00:32:38,480 Speaker 10: some policy changes. I think in India was in part 649 00:32:38,520 --> 00:32:41,080 Speaker 10: because what happened in the fourth quarter, and they used 650 00:32:41,120 --> 00:32:44,920 Speaker 10: reserve too, So I'm much more constructive on India than 651 00:32:44,920 --> 00:32:45,880 Speaker 10: I am on Indonesia. 652 00:32:46,120 --> 00:32:48,480 Speaker 3: That was a masterclass folks in emerging markets. 653 00:32:48,520 --> 00:32:52,480 Speaker 2: Damien Sasa or Kathy Hepworth, Portfolio Manager, PGIM Fixed Income. 654 00:32:52,800 --> 00:32:57,600 Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify, 655 00:32:57,760 --> 00:33:01,520 Speaker 1: and anywhere else you get your podcasts. Listen live each 656 00:33:01,560 --> 00:33:05,400 Speaker 1: weekday seven to ten am Eastern on Bloomberg dot Com, 657 00:33:05,520 --> 00:33:09,360 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business App. 658 00:33:09,640 --> 00:33:12,760 Speaker 1: You can also watch us live every weekday on YouTube 659 00:33:13,040 --> 00:33:15,080 Speaker 1: and always on the Bloomberg terminal