WEBVTT - GOP Needs a Return to Wishes of the Common Man, Olsen Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.400 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. President 0:00:32.520 --> 0:00:36.680 Ronald Reagan is often upheld as the conservative gold standard, 0:00:36.760 --> 0:00:40.440 the Republican president that led the Golden era for a 0:00:40.479 --> 0:00:44.360 lot of Republicans. And Henry Olsen was so compelled by 0:00:44.560 --> 0:00:46.520 Ronald Reagan that he wrote a book about him. Henry 0:00:46.560 --> 0:00:48.919 Wilson joins us now. He's author and senior fellow at 0:00:48.920 --> 0:00:52.400 Ethics and Public Policy Center in Washington, d C. It's 0:00:52.400 --> 0:00:55.440 the Center to the right leading group, and he joins 0:00:55.520 --> 0:00:57.880 us right now in our Bloomberger eleven three oh studios. 0:00:57.920 --> 0:01:01.480 He just released his book, The Working Class Republican Ronald 0:01:01.480 --> 0:01:05.320 Reagan and the Return of Blue Collar Conservatism. And in 0:01:05.360 --> 0:01:09.320 the book you highlight some of his democratic roots, some 0:01:09.480 --> 0:01:13.440 of his admiration for FDR, who has thought of as 0:01:13.440 --> 0:01:16.360 a very liberal president. What were you trying to accomplish 0:01:16.400 --> 0:01:19.080 with the book. What I wanted to accomplish was two things. 0:01:19.120 --> 0:01:21.319 One is to show who the real Ronald Reagan was. 0:01:21.400 --> 0:01:24.679 He's somebody who never left his admiration of FDR behind. 0:01:24.760 --> 0:01:28.440 In fact, many of his most famous lines were unattributed 0:01:28.480 --> 0:01:33.200 but direct paraphrases of FDR. For example, the night clothes 0:01:33.280 --> 0:01:35.720 in the debate, where he said, are you better off 0:01:35.760 --> 0:01:37.680 than you were four years ago? Was a direct rip 0:01:37.680 --> 0:01:41.600 off of FDR's fifth Fireside chap. But more than historical, 0:01:41.680 --> 0:01:44.600 what I wanted to show was that that attitude, that 0:01:44.680 --> 0:01:49.400 combination of traditional conservatism of freedom and conservation of liberalism, 0:01:49.440 --> 0:01:51.840 of giving people a hand up in American life, is 0:01:51.840 --> 0:01:54.400 what Reagan was all about, and that was the secret sauce. 0:01:54.640 --> 0:01:56.600 That's what let him win, that's what let him set 0:01:56.640 --> 0:02:00.000 the agenda, and that today's Democrats and Republicans have separate 0:02:00.200 --> 0:02:04.320 it into partisan squabbling brothers, neither of whom understand what 0:02:04.360 --> 0:02:08.200 Americans want, which is the continuation, not the repudiation of 0:02:08.240 --> 0:02:12.119 Franklin Roosevelt. So you wrote this book when President Obama 0:02:12.680 --> 0:02:14.880 was in charge, right, I mean, it comes out now, 0:02:14.919 --> 0:02:17.880 but I imagine this was written during a period pre 0:02:18.280 --> 0:02:22.040 any reality of President Donald Trump. How does that change 0:02:22.040 --> 0:02:24.880 the equation for you. It doesn't actually change the equation 0:02:24.919 --> 0:02:27.080 that much. And it doesn't because, oddly enough, for what 0:02:27.240 --> 0:02:30.880 Trump did was tapped into the Reagan Democrat. Trump is 0:02:30.880 --> 0:02:33.760 the first person since Reagan to carry the five Midwestern 0:02:33.800 --> 0:02:37.399 states that are dominated by blue collar whites, the traditional 0:02:37.400 --> 0:02:41.720 Reagan Democrat Iowa, Michigan, Ohio, Pennsylvania, and Wisconsin. And he 0:02:41.760 --> 0:02:44.359 did it by focusing on their concerns. He came out 0:02:44.400 --> 0:02:46.919 and he said, I understand you're struggling. I'm going to 0:02:47.040 --> 0:02:48.760 put you at the center of my agenda. I'm not 0:02:48.800 --> 0:02:52.040 going to touch, unlike those other Republicans social Security and medicare. 0:02:52.320 --> 0:02:54.760 I'm going to deal with getting your jobs back. And 0:02:54.800 --> 0:02:57.400 that was a modern version of what FDR did in 0:02:57.400 --> 0:02:59.800 the Great Depression, saying you cared more about these people 0:02:59.800 --> 0:03:02.520 than about financiers on Wall Street, and a modern version 0:03:02.560 --> 0:03:06.080 of what Reagan did. He was focusing on the blue 0:03:06.080 --> 0:03:09.679 collar white, but blue collar voters generally, but particularly the 0:03:09.680 --> 0:03:12.200 blue collar white, and he won their support in degree 0:03:12.240 --> 0:03:15.120 that hasn't been seen at all since the degree that 0:03:15.160 --> 0:03:18.160 they backed Reagan in the nineteen eighties. So are the 0:03:18.240 --> 0:03:21.919 measures that we have seen out of the President Trump administration. 0:03:22.720 --> 0:03:28.280 Have they been coherent with what President Reagan would have done. No. Uh. 0:03:28.520 --> 0:03:32.520 Trump campaign more coherently than he's governed so far. A 0:03:32.560 --> 0:03:35.240 lot of the things that he talked about that would 0:03:35.280 --> 0:03:37.840 have appealed to these voters are falling by the wayside. 0:03:37.920 --> 0:03:40.840 I think that the debate over the healthcare replacement bill 0:03:40.880 --> 0:03:42.840 is a perfect example of that. That he said he 0:03:42.840 --> 0:03:45.640 wouldn't cut Medicaid, but in fact the bill cutts Medicaid. 0:03:45.920 --> 0:03:47.880 He said people wouldn't lose their health insurance and to 0:03:47.960 --> 0:03:50.520 be cheaper. In fact, there's a great risk that people 0:03:50.520 --> 0:03:52.840 will lose their health insurance. He's become more of the 0:03:52.880 --> 0:03:57.680 traditional Goldwater right, anti state Republican in office than he 0:03:57.760 --> 0:04:00.440 campaigned as, and that's a huge problem for him. What 0:04:00.440 --> 0:04:03.680 would Ronald Reagan do with the GOP healthcare plan? I 0:04:03.680 --> 0:04:06.600 think Reagan would want to cover as many people as possible, 0:04:06.600 --> 0:04:11.120 but remove as many regulations as possible. Reagan said throughout 0:04:11.160 --> 0:04:15.000 his career that he believed that nobody in America should 0:04:15.000 --> 0:04:17.920 go without medical care because of a lack of funds. 0:04:18.279 --> 0:04:21.120 He supported that when he was a conservative in the 0:04:21.160 --> 0:04:23.800 nineteen sixty one. He supported it when he was a governor. 0:04:23.839 --> 0:04:27.200 He's tried to expand various medical programs as governor and 0:04:27.279 --> 0:04:29.960 as president. So I think that Reagan would try and 0:04:30.120 --> 0:04:32.359 cover as many people as he could, but do it 0:04:32.680 --> 0:04:35.640 more efficiently through the private sector than through a mandated 0:04:35.680 --> 0:04:38.560 benefit structure, which is what Obamacare was. In the introduction, 0:04:38.600 --> 0:04:41.600 you talked about how you grew up in California as 0:04:41.760 --> 0:04:45.560 a staunch Republican and how you volunteered for GOP causes, 0:04:45.600 --> 0:04:50.080 and you really looked up to President Reagan as an 0:04:50.160 --> 0:04:53.200 archetype of a good leader. I'm wondering, do you still 0:04:53.240 --> 0:04:56.440 identify as Republican. I do, but I identify as a 0:04:56.480 --> 0:04:59.560 Reagan Republican. Uh. And what I've come to do is 0:04:59.640 --> 0:05:03.800 under Dan my idol better and consequently become even more 0:05:03.800 --> 0:05:05.960 devoted to what he believed than I was when I 0:05:06.000 --> 0:05:10.359 misunderstood him. It's harder, though, today, to be a staunch 0:05:10.440 --> 0:05:14.320 Republican when you see um the sort of mistakes, when 0:05:14.320 --> 0:05:17.920 you see the sort of oftentimes disregard for the wishes 0:05:17.960 --> 0:05:20.599 of the common man that too many in our party exact. 0:05:20.839 --> 0:05:23.120 And I'd like to see a return to what worked 0:05:23.279 --> 0:05:26.359 and what Americans want, which is a Republican party that 0:05:26.480 --> 0:05:29.640 focuses on love of the average person rather than love 0:05:29.680 --> 0:05:32.880 of an abstract ideal or love of the pursuit of wealth. 0:05:33.160 --> 0:05:37.159 You know, President Reagan oversaw the US during a time 0:05:37.279 --> 0:05:42.480 of remarkable economic growth. Uh. He oversaw inflation to decline 0:05:42.680 --> 0:05:46.240 while growth accelerated. It was considered a golden economic era. 0:05:46.320 --> 0:05:49.040 But there is a lot of discussion and frankly dissent 0:05:49.160 --> 0:05:51.600 about whether the sort of voodoo economics, that trickle down 0:05:51.640 --> 0:05:54.880 economics that he espoused was responsible for that, or whether 0:05:54.920 --> 0:05:58.560 that was something else altogether. Where do you fall on that, Well, 0:05:58.600 --> 0:06:02.039 I think one Reagan never espouse trickle down economics. What 0:06:02.120 --> 0:06:05.200 Reagan did actually was criticized that he always spoke of 0:06:05.200 --> 0:06:08.200 a humane economy. He spoke about the American worker, not 0:06:08.320 --> 0:06:12.000 the entrepreneurs, the foundation of the American economy. In fact, 0:06:12.240 --> 0:06:15.600 when his first budget director had a revealing interview in 0:06:16.400 --> 0:06:19.520 one and said that Reagan's tax plan was actually trickled 0:06:19.560 --> 0:06:22.400 down in disguised, Reagan criticized him for it, and, as 0:06:22.400 --> 0:06:25.440 they said, took him to the woodshed. What Reagan believed 0:06:25.920 --> 0:06:30.159 was that incentives worked for everybody, and that people from 0:06:30.200 --> 0:06:34.559 all spectrums of the economics Ladder contributed to economic growth. 0:06:34.800 --> 0:06:37.039 I think a lot of what Reagan did helped increase 0:06:37.120 --> 0:06:40.080 the economy. I think lowering tax rates on everybody. Today 0:06:40.400 --> 0:06:43.440 we've got a top tax rate of on the richest people. 0:06:43.440 --> 0:06:45.680 We used to have a top tax rate of forty 0:06:45.720 --> 0:06:49.000 people on the middle class. Before Reagan got into office, 0:06:49.279 --> 0:06:51.600 tax rates were so much higher. He brought them down, 0:06:51.640 --> 0:06:55.200 encouraged everybody to work more, and deregulation opened up new 0:06:55.240 --> 0:06:58.400 industries that were unimaginable. For Reagan, I think he was 0:06:58.560 --> 0:07:01.680 very much responsible for the economic boom that occurred on 0:07:01.720 --> 0:07:08.239 his watch. Proportion of Congressman, of senators and representatives UH 0:07:08.600 --> 0:07:14.240 currently adhered to Reagan Republicanism. In your view, I think 0:07:14.320 --> 0:07:18.080 more in practice than in theory that what they've been 0:07:18.400 --> 0:07:22.760 there's a number of people who are remain unreconciled to 0:07:23.480 --> 0:07:28.200 UH the New Deal, remain not unreconciled to a mixed economy. 0:07:28.240 --> 0:07:29.640 And these are like the people you find and the 0:07:29.640 --> 0:07:32.840 Freedom Caucus that Rand paul ted Cruz. But I think 0:07:32.880 --> 0:07:35.400 a lot more Republicans are there where Reagan was, but 0:07:35.400 --> 0:07:37.160 they just don't have a language for it. They've been 0:07:37.200 --> 0:07:39.960 told that they have to talk in terms of freedom 0:07:40.000 --> 0:07:43.440 and opportunity. And entrepreneurship and trickle down um. And so 0:07:43.480 --> 0:07:45.520 they don't pursue the sort of policies that in their 0:07:45.560 --> 0:07:47.640 heart they might want to pursue, but they don't really 0:07:47.880 --> 0:07:50.280 have a grounding for going forward. And that's what I'm 0:07:50.280 --> 0:07:52.000 trying to do in this book. I could talk with 0:07:52.040 --> 0:07:54.920 you for another hour, particularly about the trickle down point, 0:07:54.920 --> 0:07:57.200 which is uh an issue that I would love to 0:07:57.280 --> 0:07:59.240 understand a little bit better, because it's sort of a 0:07:59.360 --> 0:08:03.280 narrow distinction there between high tax you know, lowering taxes 0:08:03.400 --> 0:08:06.160 and expecting it to go into economic growth versus trickle 0:08:06.240 --> 0:08:09.080 down what you label it. But unfortunately we have to 0:08:09.120 --> 0:08:11.200 leave it there. Thank you so much for joining us. Thanks. 0:08:11.840 --> 0:08:14.840 Henry Olson is an author and senior Fellow at the 0:08:14.840 --> 0:08:18.000 Ethics and Public Policy Center based in Washington, d C. 0:08:18.280 --> 0:08:21.440 His new book, The Working Class Republican Ronald Reagan and 0:08:21.440 --> 0:08:24.840 the Return of Blue Collar Conservatism is out now and 0:08:24.840 --> 0:08:28.800 it's a fascinating look at one of the Republican heroes 0:08:29.200 --> 0:08:43.760 in American history. Well, last week I read a survey 0:08:44.240 --> 0:08:48.000 that was somewhat alarming income investors. According to the survey, 0:08:48.040 --> 0:08:50.840 so he can overall average rate of return and expect 0:08:50.920 --> 0:08:54.400 a rate of return of eight point six percent on 0:08:54.559 --> 0:08:58.199 averages is, according to a leg Mason survey, that is 0:08:58.280 --> 0:09:00.360 higher than may have been able to get rely and 0:09:00.480 --> 0:09:03.000 is higher than many money managers can imagine that they 0:09:03.000 --> 0:09:06.640 could possibly achieve at a time when average high bond 0:09:06.679 --> 0:09:10.560 heels are five point seven percent compared with an average 0:09:10.559 --> 0:09:13.280 of more than eight percent over the past decade. Michael 0:09:13.280 --> 0:09:16.640 Buchanan joins US now. He is deputy Chief Investment Officer 0:09:16.679 --> 0:09:19.880 of Western Asset Management Company, which is an independent affiliate 0:09:19.920 --> 0:09:22.520 of Like Mason UH and it oversees four hundred and 0:09:22.559 --> 0:09:25.040 thirty three billion dollars. Michael, thank you so much for 0:09:25.080 --> 0:09:28.880 joining US. Um have you ever seen such a big 0:09:28.960 --> 0:09:34.000 gap in investor expectations versus reality? Well, I can't tell 0:09:34.000 --> 0:09:37.320 you that we've actually gone out and measured that gap 0:09:37.720 --> 0:09:40.800 on a regular basis, but um, you know, I would 0:09:40.800 --> 0:09:46.640 say that intuitively, it definitely feels today that, um, that 0:09:46.760 --> 0:09:50.280 gap is certainly large. And is it, you know, as 0:09:50.360 --> 0:09:53.240 large as it's ever been. Not really sure, but it's 0:09:53.280 --> 0:09:57.640 it's certainly up there in terms of magnitude. Well, here's 0:09:57.679 --> 0:10:02.640 why it seems somewhat concerning. If investors want more than 0:10:02.760 --> 0:10:06.360 eight percent returns, there will be some money managers who say, look, 0:10:06.440 --> 0:10:08.319 I can do that for you. I can lever up 0:10:08.360 --> 0:10:11.439 something uh that's fairly risky at a time of high 0:10:11.520 --> 0:10:15.319 valuations and ostensibly rising yields uh, and you could you 0:10:15.320 --> 0:10:17.000 could win big. You could also lose big, but you 0:10:17.000 --> 0:10:20.439 could win big. Do you see that happening? Um? There? 0:10:20.480 --> 0:10:22.320 You know, there's always that risk, and I think it's 0:10:22.360 --> 0:10:25.360 a good point. I mean, there aren't too many opportunities 0:10:25.360 --> 0:10:28.280 out there where you can even get close to that 0:10:28.400 --> 0:10:30.600 type of return. So I think at leasta, you're right, 0:10:30.640 --> 0:10:34.079 the only way you really can get there is with leverage. 0:10:34.280 --> 0:10:36.400 And you know, our view is, you know, you don't 0:10:36.400 --> 0:10:40.280 necessarily have to solve for that. Just because investors expect 0:10:40.360 --> 0:10:43.120 that type of return doesn't mean we actually have to 0:10:43.160 --> 0:10:45.840 go and try to reach for that. But we what 0:10:45.960 --> 0:10:47.959 we do want to do is make sure that we're 0:10:48.040 --> 0:10:51.719 utilizing all different parts of the fixed income market to 0:10:52.640 --> 0:10:55.280 minimize that gap in a in a thoughtful way, in 0:10:55.320 --> 0:10:57.960 a in a good, risk controlled way. Do you think 0:10:57.960 --> 0:11:02.880 that because investors have expectation, they will be more aggressive 0:11:03.040 --> 0:11:06.439 and it will fuel gains in areas that some people 0:11:06.440 --> 0:11:11.400 think are already perhaps stretched, like high yield. Yeah, I think, 0:11:11.559 --> 0:11:14.160 you know, to some extent um, we we're seeing a 0:11:14.200 --> 0:11:16.320 little bit of that, but I think we're we're far 0:11:16.559 --> 0:11:20.240 from a point where I would call valuations and a 0:11:20.320 --> 0:11:23.400 lot of these traditional fixed income markets, whether it's high 0:11:23.480 --> 0:11:28.120 yield or structured products or emerging markets, I don't feel 0:11:28.240 --> 0:11:32.400 like we're at a point where valuations are are stretched. Certainly, 0:11:33.160 --> 0:11:38.600 all the Central Bank accommodation has caused investors to uh 0:11:38.800 --> 0:11:41.080 reach a little bit in terms of risk, but I 0:11:41.120 --> 0:11:44.120 still think when you go back to two thousand and 0:11:44.160 --> 0:11:47.840 eight in the crisis, that was so damaging that it 0:11:47.920 --> 0:11:53.760 really did damage risk profiles, investors spirits. So it's just 0:11:53.840 --> 0:11:58.000 taking longer than it normally would to have those investors 0:11:58.080 --> 0:12:01.760 take that or take on that risk seeking behavior that 0:12:01.880 --> 0:12:05.120 you know ultimately will and does get them into trouble. So, 0:12:05.240 --> 0:12:09.719 given this gap in expectations and reality, how have you 0:12:10.080 --> 0:12:14.240 kind of rejiggered your recommendations as for how people should 0:12:14.240 --> 0:12:19.479 allocate specifically within fixed income. Well, we definitely are encouraging 0:12:19.520 --> 0:12:23.240 and have been encouraging our clients to emphasize the the 0:12:23.360 --> 0:12:27.240 income oriented sectors, the so called spread sectors, and those 0:12:27.280 --> 0:12:31.480 are like I just mentioned, um and no particular order, 0:12:31.559 --> 0:12:36.520 corporate credit UM, specifically high yield UH and bank loans UH, 0:12:36.520 --> 0:12:41.640 select emerging markets, structured products, whether it's UH non agency 0:12:41.720 --> 0:12:46.960 mortgages or UH CMBs UH. So there's a lot of 0:12:47.000 --> 0:12:50.080 areas within fixed income. And one of the things that 0:12:50.160 --> 0:12:52.480 we're seeing and we think this makes a lot of sense, 0:12:53.320 --> 0:12:57.040 is when our clients give us the the allowance to 0:12:57.320 --> 0:13:00.959 make dynamic allocations to these sectors. In other words, it's 0:13:01.000 --> 0:13:05.360 not a dedicated allocation, but they say on opportunity, UM, 0:13:05.360 --> 0:13:08.560 we're gonna let you allocate to the various sectors and 0:13:08.600 --> 0:13:11.880 really kind of take advantage of the best risk adjusted 0:13:11.920 --> 0:13:16.840 returns within those sectors. So you don't see it sounds 0:13:16.880 --> 0:13:21.360 like UM irresponsible investing by fellow money managers, let's say, 0:13:21.640 --> 0:13:24.440 using a lot of leverage or kind of creating a 0:13:24.520 --> 0:13:28.600 riskier environment for some of these already UH somewhat riskier 0:13:28.600 --> 0:13:31.920 asset classes. You know, I really don't, And people will 0:13:32.000 --> 0:13:34.840 will talk about high yield in that capacity or that 0:13:34.960 --> 0:13:38.800 regard UH. The amount of triple c issuance UH is 0:13:38.840 --> 0:13:42.400 still relatively low. A lot of the more aggressive structures 0:13:42.400 --> 0:13:45.800 that you typically see when a cycle is getting ready 0:13:45.800 --> 0:13:48.400 to turn, these are you know, kind of deferred interest 0:13:48.480 --> 0:13:51.480 mechanisms like paying kind bonds. We're really not seeing a 0:13:51.480 --> 0:13:54.280 lot of that. We're still seeing a lot of investor 0:13:54.880 --> 0:13:58.920 discipline in terms of the high yield market. And I 0:13:59.000 --> 0:14:02.480 always say right now that it's it's it's a lot 0:14:02.559 --> 0:14:06.640 easier for a company to uh bring a you know, 0:14:06.760 --> 0:14:08.599 double be kind of the call it a four and 0:14:08.679 --> 0:14:11.640 a quarter four and a half percent yield deal. You 0:14:11.640 --> 0:14:14.679 can sell a lot more of that than a triple 0:14:14.720 --> 0:14:17.320 ce deal with a double digit coupon. Because I think 0:14:17.360 --> 0:14:20.160 investors are still you know again they're they're they're they're 0:14:20.160 --> 0:14:24.240 still very cautious. So embedded in your outlook seems to 0:14:24.280 --> 0:14:27.400 be an assumption that we will not have a recession 0:14:27.640 --> 0:14:31.880 in the next twelve months, perhaps eighteen months. Is that correct, Yeah, 0:14:31.920 --> 0:14:35.320 that's definitely our view. We think that, um, the economy 0:14:35.520 --> 0:14:39.600 is you know, sort of a slow growth, but positive growth, 0:14:39.640 --> 0:14:44.640 an environment that necessitates continued accommodation, even as the FED 0:14:44.760 --> 0:14:49.680 is removing accommodation. UM. But we don't see those headwinds 0:14:49.720 --> 0:14:52.840 that UM really give us a lot of cause or 0:14:52.880 --> 0:14:56.560 concern for a recession, certainly in the near term. What's 0:14:56.560 --> 0:14:58.280 the biggest risk, I mean, is there anything that you're 0:14:58.280 --> 0:15:01.560 looking at right now that could change that you yeahs 0:15:01.680 --> 0:15:05.480 as portfolio managers, you're always trying to think about, you know, 0:15:05.520 --> 0:15:08.960 the risk that that can you know, really damage your 0:15:09.000 --> 0:15:11.800 your main view. Um, you know, I think China is 0:15:11.920 --> 0:15:15.880 one that um it kind of comes and goes and uh, 0:15:15.920 --> 0:15:18.200 you know there there is clearly you know when you 0:15:18.200 --> 0:15:21.200 think of China, it is a big growth engine for 0:15:21.240 --> 0:15:24.640 the global economy. We all know there are some latent 0:15:24.760 --> 0:15:29.560 risks there and um, if if if China were too 0:15:30.800 --> 0:15:33.000 you know, underwhelm if if you saw a little bit 0:15:33.080 --> 0:15:35.280 of a hiccup there, if you saw some of those 0:15:35.400 --> 0:15:39.080 risks and in corporate credits start to manifest themselves into 0:15:39.080 --> 0:15:42.520 more volatility or slow slower global growth, you know, those 0:15:42.560 --> 0:15:48.320 could all derail the momentum of the very fragile recovery. 0:15:48.840 --> 0:15:51.840 But right now things look copasetic. Thank you so much 0:15:51.920 --> 0:15:54.720 for joining fortuning me. This is really a fascinating issue. 0:15:54.760 --> 0:15:58.760 In this gap between investor expectations and the reality is 0:15:58.800 --> 0:16:01.840 something definitely to keep an eye on. Mike Buchanan, He's 0:16:01.840 --> 0:16:07.600 deputy Chief investment Officer of Western Asset Management in Pasadena, California. 0:16:07.640 --> 0:16:11.320 I believe overseeing four d and thirty three billion dollars. 0:16:23.800 --> 0:16:27.040 Let's talk taxes. This has been the big issue for markets. 0:16:27.080 --> 0:16:30.040 Everyone has been waiting to hear how much President Trump 0:16:30.160 --> 0:16:32.760 will cut taxes. And I should say also Paul Ryan 0:16:33.200 --> 0:16:35.920 Uh in the House, Linley Browning joined us now she's 0:16:35.920 --> 0:16:39.480 a tax reporter for Bloomberg News coming to us from Fairfield, Connecticut. 0:16:39.520 --> 0:16:42.640 And Linley, before we get into the details of what 0:16:42.840 --> 0:16:46.200 some people are expecting from the tax proposal, I would 0:16:46.240 --> 0:16:48.280 love to get a sense from you. What do we 0:16:48.440 --> 0:16:53.040 have that's concrete about this proposal other than that brief, 0:16:53.840 --> 0:16:57.720 lesson two hundred word description from President Trump a while back. 0:16:57.760 --> 0:16:59.960 Do we have something more concrete to base assumptions on 0:17:00.000 --> 0:17:03.240 at this point? Well, we have, as for example, trumps 0:17:03.560 --> 0:17:06.400 uh tax for potogos. No, we don't have anything more concrete. 0:17:06.440 --> 0:17:09.840 We have his uh roughly two hundred word bullet plan 0:17:09.960 --> 0:17:14.119 proposal in which he reiterated his previous calls for the 0:17:14.160 --> 0:17:16.920 corporate rate and in fact the rate for all types 0:17:16.960 --> 0:17:22.399 of businesses be cut to fift So, but do we 0:17:22.480 --> 0:17:25.280 have are there any bills that have come out of 0:17:25.359 --> 0:17:27.800 the House or the Senate that sort of map out 0:17:27.800 --> 0:17:31.080 a little bit more concretely what they're looking to do. No, 0:17:31.280 --> 0:17:35.360 we have nothing on the level of bills for legislative language. 0:17:35.440 --> 0:17:40.440 Everything right now is on the level of arbitrs and 0:17:40.520 --> 0:17:43.560 concepts and seeing you know what can be done in 0:17:43.560 --> 0:17:46.960 the name of quote unquote tax reform. UH. Senator House 0:17:46.960 --> 0:17:50.480 Speaker Paul Ryan, of course has put forth UH and 0:17:50.960 --> 0:17:56.280 his proposed rate of but it's not clear that that 0:17:57.000 --> 0:18:02.160 UH could be afforded given opposition to other measures he's 0:18:02.200 --> 0:18:05.359 proposed that would help pay for that rate cut. So 0:18:05.560 --> 0:18:09.440 arbitraging out the different scenarios, experts that you have spoken 0:18:09.480 --> 0:18:12.800 to came up with this twenty percent figure, which is 0:18:13.200 --> 0:18:16.760 far higher than the fift tax rate that some Republicans 0:18:16.760 --> 0:18:19.200 have called for. With respect to the corporate tax rate 0:18:19.200 --> 0:18:22.520 being lowered. UH, A lot of experts say twenty eight 0:18:22.520 --> 0:18:25.640 percent is much more realistic. Can you talk a little 0:18:25.640 --> 0:18:30.199 about that. The reason percent roughly is more realistic is 0:18:30.280 --> 0:18:36.320 because it's a rate that, under rules of budget funding 0:18:36.400 --> 0:18:41.160 and deficits, could be wrangled to quote unquote pay for itself. 0:18:41.200 --> 0:18:45.040 The idea is that if you want permanent tax reform, 0:18:45.440 --> 0:18:50.080 are not just temporary rate cut UH. Those UH, any 0:18:50.200 --> 0:18:53.879 rate reduction in the corporate rate has to not increase 0:18:54.119 --> 0:18:58.199 the UH budget deficit over a period of a decade. 0:18:58.240 --> 0:19:01.080 So the question is how do you how do you 0:19:01.200 --> 0:19:03.800 fund what? What are the pay fors for a rate cut? 0:19:03.880 --> 0:19:08.280 And right now the things that the House repos because 0:19:08.280 --> 0:19:12.040 they propose aren't really going anywhere. The border adjustment tax 0:19:12.280 --> 0:19:16.560 and the elimination of the net interstroduction, those collectively would 0:19:16.640 --> 0:19:19.119 raise about two point two trillion over a decade. That 0:19:19.160 --> 0:19:22.919 would more UH than Ox said a rate cut to. 0:19:24.240 --> 0:19:28.800 Trump has no proposals to pay for a rate cut 0:19:28.840 --> 0:19:32.760 to He's been arguing that, well, you don't really need 0:19:32.800 --> 0:19:34.360 to pay for is You're going to get into these 0:19:34.400 --> 0:19:37.400 economic growth and that's going to sort of pay for installed. 0:19:37.960 --> 0:19:40.159 So in other words, a lot of the Republicans in 0:19:40.240 --> 0:19:42.479 the Senate and the House don't buy that argument. They 0:19:42.480 --> 0:19:44.280 want to they want to balance budget. They're not going 0:19:44.320 --> 0:19:47.800 to just go for cutting the taxes first and hoping 0:19:47.840 --> 0:19:50.280 that that growth will offset it in the future. They 0:19:50.320 --> 0:19:54.000 may not. They may, in fact, UH do away with 0:19:54.160 --> 0:19:57.960 the idea that UH tax cuts cannot increase the Federals 0:19:57.960 --> 0:20:00.800 epicits over a ten year windo, and in fact they 0:20:00.880 --> 0:20:04.600 may seek to extend that window to twenty years or 0:20:04.680 --> 0:20:08.399 thirty years. It's completely unknown right now. How much does 0:20:08.400 --> 0:20:13.000 the healthcare bill wag into this. You know, it's for 0:20:13.200 --> 0:20:15.720 both sides have said we want to get healthcare done 0:20:15.720 --> 0:20:18.399 before we get tax reform done. They both tames have 0:20:18.480 --> 0:20:22.240 made that very clear. And the takeaway on the street 0:20:22.359 --> 0:20:25.000 right now is that if you can't get healthcare done, 0:20:25.080 --> 0:20:27.520 how are you going to get tax reform done? Uh. 0:20:27.760 --> 0:20:33.320 The latter is a much thornier, uh and bigger problem. 0:20:33.400 --> 0:20:35.679 So in other words, it kind of dampens the hopes 0:20:36.240 --> 0:20:40.040 for certainly a fifteent tax rate, which probably also factors 0:20:40.040 --> 0:20:42.119 into why people are are kind of settling on the 0:20:43.040 --> 0:20:47.119 as sort of more likely scenario possibly too. Yes, that 0:20:47.200 --> 0:20:49.880 is correct. Thank you so much for joining me. Linley Browning, 0:20:49.920 --> 0:20:53.679 tax reporter for Bloomberg News, coming to us from Fairfield, Connecticut. 0:20:53.680 --> 0:20:57.480 And rarely have I heard a time when taxes were 0:20:57.480 --> 0:21:01.159 such at the forefront of markets. And this has been absolutely, 0:21:01.560 --> 0:21:05.520 uh the biggest driver in some people's estimation of some 0:21:05.600 --> 0:21:08.159 of the stock games and the Trump bump, The expectation 0:21:08.320 --> 0:21:24.720 that tax cuts will bolster corporate growth green on the 0:21:24.760 --> 0:21:27.520 screen across the board, across major U s and dissease 0:21:27.560 --> 0:21:30.919 as well as overseas. Dave Wilson joins me now. Dave 0:21:30.960 --> 0:21:33.800 Wilson is Bloomberg Stocks editor, columnist and blogger and m 0:21:34.040 --> 0:21:36.480 live go on the Bloomberg. You should check it out. 0:21:36.720 --> 0:21:40.520 It's wonderful and comprehensive. Dave. What is driving today's games? 0:21:41.560 --> 0:21:45.320 It's a hard one to kind of pin on much 0:21:45.359 --> 0:21:47.840 of anything, to be honest, other than the market that's 0:21:47.840 --> 0:21:52.120 gotten momentum. You see the financial stocks leading the way 0:21:52.200 --> 0:21:56.720 within the S and P, and certainly that's a group 0:21:56.800 --> 0:21:58.919 that has been through the ring or a bit lately 0:21:59.040 --> 0:22:02.720 with on yields coming down, and of course that means 0:22:02.760 --> 0:22:05.439 that they banks don't stand to earn as much on 0:22:05.480 --> 0:22:09.280 their loans and investments. That being the case, yet pretty 0:22:09.359 --> 0:22:12.800 much every financial stock in the SMP five hundreds higher today, 0:22:12.840 --> 0:22:15.359 So that's certainly a group kind of front and center 0:22:15.400 --> 0:22:19.560 helping things along. Beyond that, I mean, we've kind of 0:22:19.560 --> 0:22:22.040 gotten to the point, you know, week left in the quarter, 0:22:22.560 --> 0:22:25.240 where there's not a whole lot of company news to 0:22:25.320 --> 0:22:27.600 really focus on. So it's maybe just the idea that 0:22:27.840 --> 0:22:30.560 in market in motion stays in motion. As well as 0:22:30.600 --> 0:22:33.760 anything else with financials, there is an interesting dynamic which 0:22:33.800 --> 0:22:35.280 took hold over the weekend. And I want to bring 0:22:35.280 --> 0:22:38.080 in Leonel laurent Uh to join us and sort of 0:22:38.080 --> 0:22:40.679 give us some perspective on what happened in Italy. Leonel 0:22:40.760 --> 0:22:44.119 is a columnist covering finance and markets for Bloomberg gadfline 0:22:44.160 --> 0:22:46.720 comes to us from London. So Leon know, there was 0:22:46.920 --> 0:22:50.960 this uh bailout basically orchestrated by Italy, and nineteen billion 0:22:51.000 --> 0:22:53.880 dollar bailout, the biggest ever for Italy to bail out 0:22:53.880 --> 0:22:57.399 to troubled banks, and the market is cheering. I thought 0:22:57.440 --> 0:23:00.560 that after what happened in the ECB rules and the 0:23:01.520 --> 0:23:03.960 some of the provisions, that there couldn't be a bailout 0:23:03.960 --> 0:23:06.560 like this. How does this? How is this kosher? Yeah? 0:23:06.600 --> 0:23:09.800 I think you've been paying attention maybe too closely, and 0:23:09.880 --> 0:23:12.360 forgotten that actually this is a very political story. I mean, 0:23:12.400 --> 0:23:16.000 Italy is simply a very big economy. If you're going 0:23:16.080 --> 0:23:17.560 to bend the rules for a country, it might as 0:23:17.600 --> 0:23:20.119 well be a big one. And I think that, you know, 0:23:20.280 --> 0:23:22.600 we we shouldn't forget that. The fact this is a 0:23:22.640 --> 0:23:25.159 record is because Italy has actually been been quite a 0:23:25.200 --> 0:23:28.520 good uh you know child in terms of the of 0:23:28.560 --> 0:23:30.960 the crisis. It didn't, It didn't have as bad a 0:23:31.000 --> 0:23:33.720 crisis some of the other countries. But essentially what you're 0:23:33.720 --> 0:23:36.119 seeing here is a is a bailout that basically, you know, 0:23:36.160 --> 0:23:40.080