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Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg P M L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Take

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Speaker 1: the tissues out of the Kleenex box for the finale

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Speaker 1: of the Sprint and T Mobile Wedding series. It seems

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Speaker 1: as though, uh they have proposed to each other and

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Speaker 1: said I do. The question now, though, is regulators. Will

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Speaker 1: they step in and put the kabash on this match

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Speaker 1: made in heaven? I don't know if I would call

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Speaker 1: it that. John Butler joys as Nasty and your telecom

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Speaker 1: services and equip with analyst for Bloomberg Intelligence. John, uh So,

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Speaker 1: how likely do you think it is is that this

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Speaker 1: deal goes through? You know, I our regulatory analysts are

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Speaker 1: saying it's unlikely to get approved. Yes, And their argument

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Speaker 1: is the d o J looks at the h h

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Speaker 1: I index in English. What they look at is the

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Speaker 1: aggregation of share of the combined company. So if you

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Speaker 1: look at Sprint and T Mobile combined, they're going to

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Speaker 1: be larger than a T and T in terms of

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Speaker 1: subscriber count, a little bit smaller than Verizon, but they're

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Speaker 1: instantly overnight going to be on par with their size.

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Speaker 1: And you know, so we'll go from a market of

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Speaker 1: four carriers, two big ones, two smaller ones, to suddenly

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Speaker 1: a market of three large carriers, and the question for

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Speaker 1: them becomes, you know, is this going to help or

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Speaker 1: her consumers? And with T Mobile having been the disruptor

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Speaker 1: over the past five years, it's hard to argue that

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Speaker 1: that's been bad for consumers. It's put a lot of

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Speaker 1: pressure on wireless pricing. But from our standpoint as consumers,

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Speaker 1: we're paying a lot less for wireless, thanks in part

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Speaker 1: to T Mobile. So when it comes to approving a

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Speaker 1: deal like this, if they're looking at it from that standpoint,

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Speaker 1: it's tough to approve UM. I think the flip side.

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Speaker 1: The other argument that I would put forward is, pardon me.

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Speaker 1: If you look forward three to five years, we're now

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Speaker 1: carriers are now investing in these new five gene networks.

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Speaker 1: Pardon me, And you need really deep pockets to do

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Speaker 1: that to get where you need to be with a

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Speaker 1: true nationwide five gen network, And I think T Mobile

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Speaker 1: and Sprint really need to look at combining resources to

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Speaker 1: get where they need to be to make that kind

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Speaker 1: of investment and truly make it on par with a

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Speaker 1: T and T and Verizon. So the question I think

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Speaker 1: for the regulators is where do you want to be

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Speaker 1: in three to five years. Do you want to be

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Speaker 1: sitting there with a duopoli with having a T and

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Speaker 1: T and Verizon uh the only two carriers that can

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Speaker 1: make that kind of investment, but maybe have lower wireless

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Speaker 1: prices for consumers. Or the flip side is do you

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Speaker 1: want to give Sprint and uh T Mobile a shot

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Speaker 1: at at getting the kind of scale they need to

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Speaker 1: make that investment in five G and then three to

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Speaker 1: five years down the line have a three horse race

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Speaker 1: instead of two. You mentioned h h I herfindal Hershman index.

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Speaker 1: This is an index that measures market concentration. According to

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Speaker 1: the current subscriber numbers, A T and T would end

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Speaker 1: up being number three if there was a combination of

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Speaker 1: Sprint and T Mobile, correct, because not not a distant

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Speaker 1: three to be correct, I mean we're like nine million.

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Speaker 1: The combined operation would be a hundred million and Verizon

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Speaker 1: has a hundred and sixteen somewhere around there, so all

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Speaker 1: very closely aligned on subscriber counts Uh, the deal for

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Speaker 1: combination T Mobile Sprint? Who is this deal good for?

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Speaker 1: Is it good from Marshioshi San because he's now seeding

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Speaker 1: control if the deal goes through, Well, it's good for

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Speaker 1: him because Sprint has not exactly been in winning investment

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Speaker 1: for him. And I don't remember his entry point, but

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Speaker 1: he's been looking to get he's been looking to monetize

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Speaker 1: Sprint for a long long time, and this to me,

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Speaker 1: from his perspective, I think this is a good solution

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Speaker 1: because the resulting carrier would be would gain scale overnight.

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Speaker 1: And frankly, that's what's killing Sprint. They don't have any

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Speaker 1: they don't have scale in a scale business. Okay, so

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Speaker 1: let's go back to the regulatory questions. It is very

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Speaker 1: quickly Sprint. What happens to this company if this murder

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Speaker 1: does not go through? You know, Sprint either gets taken

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Speaker 1: out by calm Cast or one of the cable operators,

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Speaker 1: or frankly, they continue to suffer. I mean, I don't

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Speaker 1: know what is the what is like the rubber meet

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Speaker 1: the road where they cannot keep going. Well, I don't

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Speaker 1: know the answer to that, but I do know the

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Speaker 1: strategy X getting taken out. If the deal gets kabash,

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Speaker 1: they're going to have to build their way out of

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Speaker 1: the problems. So it's going to take a lot of

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Speaker 1: money on the part of my muss massa son at

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Speaker 1: soft Bank, and on the part of Sprint to really

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Speaker 1: upgrade all these I would start with the major markets

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Speaker 1: if I were Sprint New York, l A, Boston, But

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Speaker 1: they already have about fifty billion dollars of debt right

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Speaker 1: this is this is a difficult situation. They're in deep.

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Speaker 1: They're in deep. So for them, there's I look at

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Speaker 1: it from Sprint's perspective and think there's no way out.

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Speaker 1: You know, they really need to combine with someone else

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Speaker 1: to gain scale and gain the financial resources to make

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Speaker 1: this leap from where we are to day with four

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Speaker 1: G to five G. Because networks evolved, right, it wasn't

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Speaker 1: that long ago that we were at three G, which

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Speaker 1: supported voice and email, and then we went to four G,

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Speaker 1: which supported voice, email and web browsing and video. Now

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Speaker 1: five G is going to support all that and also

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Speaker 1: this concept of connected devices. So, John Butler, thank you

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Speaker 1: keeping us connected, our senior telecom services and equipment analysts

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Speaker 1: for Bloomberg Intelligence. You can follow John Butler on Twitter.

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Speaker 1: I suggest you do so at John Underscore Butler five.

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Speaker 1: That's John Underscore Butler. In this mega murger Monday, Marathon

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Speaker 1: Petroleum agreed to buy a rival oil refiner and Eavor

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Speaker 1: for twenty three point three billion dollars. This tie up

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Speaker 1: could create the largest independent fuelmaker in the US and

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Speaker 1: over shares up more than fiftcent. Marathon's down about five percent.

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Speaker 1: Here to talk about how this rearranges the oil landscape

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Speaker 1: in the United States is Andy Lipow, president of Lipow

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Speaker 1: Oil Associates in Houston. Andy, thank you so much for

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Speaker 1: being with us. So you know how big of a

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Speaker 1: deal is this deal? Well, this is a very big

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Speaker 1: deal given that the combined Marathon and Endeavor entity will

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Speaker 1: now control about of the nation's refining capacity, and their

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Speaker 1: footprint is going to be geographically widespread across the entire nation. Indeed,

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Speaker 1: maybe just tell people about the difference between upstream and

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Speaker 1: downstream operations. Because what Marathon branded gasoline they currently sell

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Speaker 1: it in about twenty states. It's got that Speedway unit.

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Speaker 1: That's the second largest convenience store chain, and it's also

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Speaker 1: got a massed and limited partnership with about eleven thousand

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Speaker 1: miles of crude oil and light product pipelines. Sure. Well,

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Speaker 1: when we think about upstream operations, we're really thinking about

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Speaker 1: getting crude oil and natural gas out of the ground.

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Speaker 1: And once that crude oil and natural gases out of

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Speaker 1: the ground, we think about the midstream operations, which is

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Speaker 1: getting it to the refinery. After the refinery, which we

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Speaker 1: consider as downstream operations, the gasoline and diesel is sold

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Speaker 1: through the retail outlets and ultimately to the consumer. So

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Speaker 1: in this particular case, as you mentioned, Marathon has about

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Speaker 1: Speedway stores and about fifty six hundred Marathon branded locations

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Speaker 1: throughout the eastern part of the US. Meanwhile, Endeavor US

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Speaker 1: as a whole variety of branded stations. People may not

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Speaker 1: realize they're selling under the Mobile Shell, Arco and Exxon

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Speaker 1: flags in the West coast. So I'm trying to understand

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Speaker 1: who loses the most from this tie up. Well, I

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Speaker 1: think a lot of the consumer advocates are going to

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Speaker 1: be saying that given Marathon's control of fifteen percent of

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Speaker 1: the refining capacity in the nation, that the consumer could

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Speaker 1: ultimately be uh the loser by paying higher retail gasoline prices.

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Speaker 1: Do you agree with that an assessment? I don't think so,

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Speaker 1: because it's still Marathon and two Sorrow have to compete

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Speaker 1: in a variety of markets. Uh, the price of gasoline

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Speaker 1: is set on a very competitive basis. The market looks

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Speaker 1: at the future's prices as well as the wholesale prices,

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Speaker 1: whether it's in New York or Houston or Los Angeles.

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Speaker 1: We're of course faced with importing gasoline into the East

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Speaker 1: Coast while exporting it off the Gulf Coast. So the

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Speaker 1: US is quite intertwined with the rest of the oil market. Andy,

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Speaker 1: can you put some margin numbers together for so that

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Speaker 1: we understand which aspects of the actual stream upstream to downstream,

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Speaker 1: what the most profitable parts of that entire chain. Well,

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Speaker 1: I haven't looked particularly as a Marathon or Endeavor's numbers,

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Speaker 1: but on the refining side, refining margins continue to improve

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Speaker 1: here in two thousand and eighteen, and I think one

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Speaker 1: reason that Marathon was looking at this acquisition because going

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Speaker 1: ahead in twenty there's actually new environmental regulations that are

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Speaker 1: going to impact on the refining margin actually to the

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Speaker 1: upside on the retail side. Retail is very very competitive.

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Speaker 1: The store owner operators really want very competitive gas lean

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Speaker 1: to get the consumer inside the store to buy the

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Speaker 1: variety of higher margin goods. So I'm trying to understand

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Speaker 1: whether this deal could have happened if we did see

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Speaker 1: oil prices continue to decline. In other words, has the

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Speaker 1: stability and oil prices are basically allowed this to happen. Well,

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Speaker 1: I think so, and not only at the fact that

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Speaker 1: oil prices are lower than we saw a couple of

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Speaker 1: years ago has made it easier because neither Marathon nor

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Speaker 1: Endeavor have much exposure to the price of getting crude

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Speaker 1: oil and natural gas out of the ground. Viase companies

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Speaker 1: are really not production companies in the sense of Exxon

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Speaker 1: Shell or BP, so they are really focused on refining

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Speaker 1: margin and what aspect of the of the energy complex.

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Speaker 1: Do you think people are not paying attention to enough

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Speaker 1: and that they can still make money? Well, I think,

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Speaker 1: of course this is going to get people's focused on refining.

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Speaker 1: And in addition, whether other smaller refining companies in the

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Speaker 1: US such as Holly Frontier or c v Our Energy

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Speaker 1: are likely to be gobbled up by a bigger competitor.

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Speaker 1: In addition, now I think the industry is going to

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Speaker 1: look at PBF Energy, Philip sixty six Valero to see

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Speaker 1: if they're gonna participate in further consolidation. And just as

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Speaker 1: far as production goes, what's your estimate for a shell

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Speaker 1: production going forward? Do you think that it's going to

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Speaker 1: keep ramping up or do you think that that the

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Speaker 1: price supply demand dynamic is gonna keep things in check. Well,

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Speaker 1: given that w t I prices are at sixty eight

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Speaker 1: dollars and I actually expect them to rise during the

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Speaker 1: course of this year as World War demand continues to improve,

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Speaker 1: I expect that shell production is going to continue to rise.

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Speaker 1: Believe in Texas we're right at about three point one

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Speaker 1: million barrels a day out of the Permian Basin. The

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Speaker 1: market expects that to continue to grow. The biggest impediment

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Speaker 1: actually to shale production is the fact that all the

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Speaker 1: pipelines leaving the Permian Basin to get that material to

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Speaker 1: the Texas Gulf Coast are full and there's really no

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Speaker 1: significant relief in sight from that front until the second

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Speaker 1: half of two thousand nineteen. I want to thank you

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Speaker 1: very much for being with us. Uh Andy Lippo of

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Speaker 1: Lippo oil O seates. Should we expect an increase in

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Speaker 1: interest rates in June? Let's find out from Jim Vogel,

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Speaker 1: interest rate strategist for FT and Financial joining us from Memphis. Jim,

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Speaker 1: always a pleasure tell us about your outlook for interest

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Speaker 1: rates and how that would affect the value of the

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Speaker 1: US dollar versus our trading partners. Good morning. Well, we

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Speaker 1: certainly do look for a FED increase at the June meeting,

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Speaker 1: and then of course the bond market and the currency

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Speaker 1: markets will be very interested in what they have to

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Speaker 1: say on Wednesday. All right, So, right now we have

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Speaker 1: a growing number of people who are thinking, ha, the

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Speaker 1: Fed may have ammunition to go four times this year.

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Speaker 1: We got the PC data out showing that their preferred

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Speaker 1: target for inflation has hit that two percent magical mark.

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Speaker 1: Do you agree four times this year and if so,

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Speaker 1: what are the implications? Well, certainly the market agrees um

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Speaker 1: the Fed was out talking will before the blackout period,

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Speaker 1: and the market is pretty much priced in that fourth

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Speaker 1: rate hike to to fifty either in December or January,

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Speaker 1: which is ultimately the same thing we think there's the

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Speaker 1: chance that the Fed stays cautious and pauses and only

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Speaker 1: does free rate hikes this year. Well, Jim, I wonder

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Speaker 1: if you could expand a little bit about the value

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Speaker 1: of the US dollar. The dollar has shown strength against

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Speaker 1: all major currencies, where at one versus the Euro, the pounds,

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Speaker 1: sterling slipping to one thirty seven, also got Japanese yen

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Speaker 1: at one oh nine. Do you believe that the dollar

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Speaker 1: will continue to strengthen if indeed the trajectory of interest

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Speaker 1: rates is as you describe it, yes, because we're going

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Speaker 1: to have the dollar continue to go up for about

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Speaker 1: the next six weeks or so. The uh, the assumption

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Speaker 1: coming into this year was that Europe in particular would

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Speaker 1: move ahead quite quickly and need rate increase is particularly

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Speaker 1: in the UK UH this coming month, and now with

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Speaker 1: the first quarter numbers in hand in Europe, it doesn't

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Speaker 1: look like that's going to happen. So one thing that

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Speaker 1: I'm struggling with is if the FED raises rates four times,

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Speaker 1: if the dollar strengthens, I'm trying to understand the next

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Speaker 1: steps next year because we are seeing the yield curve

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Speaker 1: flatten and uh, you know, yes, inflation is getting up there,

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Speaker 1: but it's hard to see how that could be sustained.

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Speaker 1: So what are you thinking on the longer end of

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Speaker 1: the curve? Where do you see you know, ten and

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Speaker 1: thirty year yields going by the end of this year.

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Speaker 1: There's room for a good a bit more increase because

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Speaker 1: if the FED does increase four times, uh, that would

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Speaker 1: imply a certain hawkish approach all the way out to

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Speaker 1: In other words, they have got to increase now so

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Speaker 1: that they don't have to increase out further. So when

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Speaker 1: we get to to fifty on FED funds, you will

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Speaker 1: see threes perhaps go up to three and a quarter

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Speaker 1: three and three eights for a while until people can

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Speaker 1: determine that the FED is sort of um done with

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Speaker 1: it's it's ultra hawkas view that it has to move now.

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Speaker 1: So do you agree with all of the traders who

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Speaker 1: have boosted barrish bets on US government debt to the

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Speaker 1: highest levels on record. Let's see FTC data. I mean,

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Speaker 1: are they going to be in the money? Uh? No?

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Speaker 1: Because that was based No, because that was based on

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Speaker 1: momentum from mid April when the FED was talking what

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Speaker 1: it was going to do in June. Now that we're

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Speaker 1: at the main meeting this week with a preview of

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Speaker 1: what they will do in June. Those traders are going

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Speaker 1: to have to reassess that the speed with which that

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Speaker 1: the ten year accelerates past three. Jim, can I turn

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Speaker 1: your attention now to what's going on in Europe and

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Speaker 1: the European Central Bank? Do you believe that European economies

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Speaker 1: can sustain a rising rate environment? Well, it is a

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Speaker 1: matter of belief whether that's the case, because we've had

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Speaker 1: rates are low for three to four years now, and

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Speaker 1: the short answer is no. The it's going to be

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Speaker 1: extraordinarily difficult because as soon as they start right raising rates,

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Speaker 1: the euro is going to not be at one twenty,

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Speaker 1: It's going to be at one thirty five or one forty,

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Speaker 1: and that's going to hurt exports again. So Europe needs

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Speaker 1: UH to move well into the second half of two

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Speaker 1: thousand and nineteen to get the kind of growth momentum

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Speaker 1: that can withstand higher currency values. Well. But so in

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Speaker 1: the meantime, as the e c B stands pad there

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Speaker 1: was data just out today UH saying the European Central

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Speaker 1: Bank held one hundred and fifty one euros. Of course,

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Speaker 1: a billion euros excuse me, of corporate bonds as of April,

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Speaker 1: and I'm just wondering how much is this what's driving

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Speaker 1: US step markets right now, sending European investors over to

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Speaker 1: the US credit markets because they can't find anything to

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Speaker 1: buy in Europe. So far, that has not really happened.

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Speaker 1: I mean, we grew on the government well know, so

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Speaker 1: far on the government side, we've had a good bit

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Speaker 1: of um, we've had widening adjusted for inflation expectations, so

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Speaker 1: we're not seeing that migration from Europe into the US

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Speaker 1: just yet. What you did see earlier in the year

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Speaker 1: was US corporations issuing a euro to take advantage of

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Speaker 1: that stronger dollar. So you've got to look both also

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Speaker 1: at supply, which right now people will think continue to

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Speaker 1: grow in Europe to take advantage of that growing ECB position.

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Speaker 1: As far as the supply of treasuries is available in

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Speaker 1: the United States, what do you project for the tenure,

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Speaker 1: for example, And you think that that too, that three

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Speaker 1: level is as critical as many have described. No, it's

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Speaker 1: not quite critical because right now we're what we've watched

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Speaker 1: more closely is the fact that real interest rates on

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Speaker 1: ten years right now are near or at psychle highs,

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Speaker 1: and with that in place, it's far more important to

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Speaker 1: watch what inflation expectations do over the next two months

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Speaker 1: than to necessarily want treasury supply announcement either this week

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Speaker 1: or in August with regards to whether we stay above

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Speaker 1: three Wait, So I want to make sure I understand

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Speaker 1: this because this is important and it kind of goes

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Speaker 1: to the crux of a debate that a lot of

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Speaker 1: people have been having. What's driving treasure yields right now?

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Speaker 1: Is it the fact that the US government is having

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Speaker 1: record auctions of government of debt week after week, or

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Speaker 1: is it the prospect of higher inflation. You're saying it's inflation,

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Speaker 1: and yet if you look at break even contracts, you're

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Speaker 1: not seeing inflation being priced in. So can you just

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Speaker 1: sort of go into a little bit more detail. What

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Speaker 1: gives you the confidence that really it's inflation expectations driving

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Speaker 1: treasury yields? Well, we're we're looking at CPI derivatives, which

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Speaker 1: are generally more sensitive than the break even contracts, and

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Speaker 1: we saw a big increase in inflation expectations in that measure.

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Speaker 1: Once the FED started talking very confidently about the inflation

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Speaker 1: going above their two percent target a couple of weeks ago,

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Speaker 1: so roughly ten basis points out of the fifteen. Was

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Speaker 1: that increase in inflation expectations out there at the long end,

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Speaker 1: some of the break even contracts get a little distorted

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Speaker 1: because of the introduction to the new five year tips.

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Speaker 1: Interesting and so the other thing, if it is inflation,

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Speaker 1: how much is connected to higher oil prices, and how

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Speaker 1: much is there an expectation that people are going to

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Speaker 1: get paid more and there's gonna be this virtual cycle

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Speaker 1: of growth. About half of it is the idea that

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Speaker 1: inflation is naturally going to grow because the overall economy

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Speaker 1: around the world is going to improve. Some of that

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Speaker 1: is in wages, some of that is in natural resources.

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Speaker 1: But so far we've resisted the idea that higher oil

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Speaker 1: necessarily translates into higher longer term inflation, simply because some

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Speaker 1: of the oil cost pressures have been related to supply

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Speaker 1: and eruptions and geopolitical tensions. Jim v goal always a

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Speaker 1: pleasure hearing your insights. Thank you so much for joining us.

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Speaker 1: Jim Vogel, interest rate strategist at FTN Financial, one of

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Speaker 1: the most accurate interest rate strategists out there. Definitely someone

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Speaker 1: to listen to the deadline is quickly approaching for the

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Speaker 1: US to decide who gets excluded from tariffs on steel

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Speaker 1: an aluminum, but trade wars and concerns of that are

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Speaker 1: heating up. Here. To talk about the effect on US

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Speaker 1: infrastructure as well as that globally, is Walter Kemsi's economist

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Speaker 1: and chief strategist for US Ports, Airports, and Global Infrastructure

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Speaker 1: at Jones lang Less sal in Chicago. He also is

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Speaker 1: on a committee that advises the Secretary of Commerce in

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Speaker 1: the US that focuses on supply chain competitiveness. Walter, thank

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Speaker 1: you so much for being with us. I want to

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Speaker 1: start with this conc upt right now that what we're

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Speaker 1: seeing with trade could potentially harm our supply chain and

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Speaker 1: could potentially lead to lower economic growth as the US

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Speaker 1: takes on an increasingly isolationist stance. What's your position on that. Well, Basically,

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Speaker 1: we've spent the last fifty sixty years trying to globalized production,

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Speaker 1: and I think by looking across the supply chains of

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Speaker 1: many industries, we've clearly globalized production and that helped create

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Speaker 1: a big global middle class. You know, at this point

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Speaker 1: somewhere is between three and four billion people. But the

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Speaker 1: US isn't getting access to that. So a big push

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Speaker 1: behind these these trade negotiations is the globalized consumption a

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Speaker 1: line with the globalization of production. All right, so what

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Speaker 1: do you recommend based on your experience of these negotiations,

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Speaker 1: what do you recommend reset the thinking or the psychology

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Speaker 1: behind this, because it sounds as if it's going to

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Speaker 1: have to be a lot of give and take, preferably

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Speaker 1: a lot of give at least a part of the

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Speaker 1: United States on the part of our our foreign trading partners. Well,

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Speaker 1: let's break this into three parts. The first is the

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Speaker 1: trade negotiators on the other side of the table. They

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Speaker 1: realize that having the world's biggest economy running a trade

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Speaker 1: deficit bigger than the GDP of the bottom fifty countries

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Speaker 1: in the planet is not sustainable. Eventually this ends very badly,

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Speaker 1: and but they need ammunition to go home and tell

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Speaker 1: their constituents that things are going to change. So I

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Speaker 1: think a lot of what we're seeing in the negotiations

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Speaker 1: in the in the verbiage that's being used, is messages

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Speaker 1: that the other negotiators can take home. But what I

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Speaker 1: think this means to us as two things. One is um,

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Speaker 1: we're not prepared for the big wave of exports that

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Speaker 1: could come out of this. The US has some industries

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Speaker 1: where it has a comparative and a competitive advantage. They

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Speaker 1: are little sny meat and the big risk from all

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Speaker 1: of this could be that we get the trade agreements

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Speaker 1: we want the US sectors agriculture, capital, goods, energy, they

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Speaker 1: get access to the world markets, and we don't have

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Speaker 1: the infrastructure to support it. Okay, I want to I

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Speaker 1: want you to elaberate that, but I want to just

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Speaker 1: go back a little bit because it seems like you're

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Speaker 1: talking about China most of all when you say we

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Speaker 1: can't get access to that middle class. Is that correct? Yes,

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Speaker 1: mostly China. So it's mostly China. And yet we're angering

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Speaker 1: right now a lot of European allies saying that this

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Speaker 1: is not acceptable, that this is like the US holding

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Speaker 1: a gun to our head when we're talking about aluminium

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Speaker 1: steel tariffs and a lot of companies are basically paying

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Speaker 1: these tariffs and hoping that the US will reimburse them

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Speaker 1: once they change their mind. I'm just wondering, do you

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Speaker 1: think that this is the best way we could be

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Speaker 1: going about trying to open up a trade in China? Well,

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Speaker 1: The previous attempt was to go via the TPP, which

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Speaker 1: was addressing issues such as corruption and intellectual property theft

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Speaker 1: and things of that nature. But it's very slow going.

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Speaker 1: It goes through the World Trade Organization's legal system, and

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Speaker 1: as we've seen just between the interactions of big air

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Speaker 1: planemakers that sometimes a case can take seven to fourteen

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Speaker 1: years to get resolved. So if you want a little

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Speaker 1: faster action, and quite frankly, I think the US needs

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Speaker 1: a lot faster action. Um, you ditched the nice approach

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Speaker 1: and you put your hands in the guns and start shooting.

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Speaker 1: Let's follow up on what you described about the infrastructure

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Speaker 1: in the United States. In order to meet the potential

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Speaker 1: success that we would see in trade agreements. What needs

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Speaker 1: to happen there. Well, let's start with the waterways. I mean,

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Speaker 1: we built the Mississippi Waterway system, which goes from you know, um,

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Speaker 1: North Dakota, Minnesota, down the Missouri River. You've got the

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Speaker 1: Ohio the Chicago rivers that feed into the Mississippi and

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Speaker 1: then out to the Gulf. It's a it's an engineering marvel.

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Speaker 1: This thing was a great resource, but we had to

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Speaker 1: harness it with locks and dams and bridges, and all

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Speaker 1: these things were built, some of most of it way

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Speaker 1: back during the Great Depression, and that's well over seventy

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Speaker 1: five years ago. And infrastructure has is the line for

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Speaker 1: fifty years. You might eat another twenty five years out

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Speaker 1: of it, but once it's done, you've got to replace it.

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Speaker 1: Just like the bridges here in New York. So um

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Speaker 1: that carries the bulk of our agriculture are chemicals or

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Speaker 1: petrochemicals or energy products. They all go up and down

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00:26:16,560 --> 00:26:21,440
Speaker 1: that river, and that river is um becoming a bottleneck. Well,

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00:26:21,480 --> 00:26:24,400
Speaker 1: we had heard when President Trump was campaigning and soon

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00:26:24,440 --> 00:26:27,640
Speaker 1: after he was elected about an infrastructure spending plan. We've

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00:26:27,640 --> 00:26:31,040
Speaker 1: heard less about it, and there are pretty a few details.

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Speaker 1: Can you give us a sense of what you know

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00:26:33,280 --> 00:26:35,520
Speaker 1: about it and whether it will be sufficient to at

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00:26:35,600 --> 00:26:37,800
Speaker 1: least begin some of these projects that are crucial to

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00:26:37,840 --> 00:26:40,639
Speaker 1: the to the nation. I think the concept is good,

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00:26:40,960 --> 00:26:43,960
Speaker 1: but I think it's a little too focused on on

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00:26:44,359 --> 00:26:49,359
Speaker 1: public private partnerships. There are many other means of financing infrastructure.

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00:26:49,640 --> 00:26:52,440
Speaker 1: If you look at Europe before the during the Mastricht

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00:26:52,440 --> 00:26:55,920
Speaker 1: Treaty period when France, Germany and Italy all of them

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00:26:55,920 --> 00:26:58,440
Speaker 1: try to converge into the euro Some of them had

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00:26:58,440 --> 00:27:01,000
Speaker 1: a very high debt to GDP A show. One of

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00:27:01,040 --> 00:27:03,200
Speaker 1: the things they did was they had a fire sale

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00:27:03,200 --> 00:27:06,399
Speaker 1: on public infrastructure, all those telecom i p o s,

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00:27:06,680 --> 00:27:10,440
Speaker 1: auto Strata in Italy, Vienna, flu Coffin, you know, in

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00:27:10,800 --> 00:27:14,280
Speaker 1: the Vienna airport. Um I wasn't I was living in

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00:27:14,320 --> 00:27:16,359
Speaker 1: Europe at the time, and you know, part of that

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00:27:16,440 --> 00:27:19,520
Speaker 1: big wave of privatizations. So we have a lot of

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Speaker 1: infrastructure that generates cash that could be I p oed

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00:27:23,080 --> 00:27:26,119
Speaker 1: and in a certain sense it might attract more public

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00:27:26,160 --> 00:27:29,680
Speaker 1: support rather than less. To focus on the river, the

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00:27:29,720 --> 00:27:33,280
Speaker 1: Mississippi River, is there one thing that you would recommend

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Speaker 1: that you would like to get across to listeners and

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00:27:35,720 --> 00:27:39,199
Speaker 1: to lawmakers and to those in private industry, something that

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00:27:39,280 --> 00:27:43,120
Speaker 1: could have an actual UH timeline so that it isn't

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00:27:43,160 --> 00:27:45,160
Speaker 1: just a theory, it's something that can actually be put

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00:27:45,160 --> 00:27:49,159
Speaker 1: in place. The word is sunset. We would like to

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00:27:49,240 --> 00:27:52,439
Speaker 1: charge user fees. Users are willing to pay a fee

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00:27:52,560 --> 00:27:55,359
Speaker 1: provided the fee is going towards what it's supposed to,

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00:27:55,640 --> 00:27:57,719
Speaker 1: but once you've built it and you've paid for it,

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00:27:57,840 --> 00:28:00,119
Speaker 1: the fee should go away. And the problem with a

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00:28:00,160 --> 00:28:03,600
Speaker 1: lot of our infrastructure fees and proposals. Is that they're

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00:28:03,640 --> 00:28:07,520
Speaker 1: oriented towards you know, staying on you know, infinitum. And

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00:28:08,200 --> 00:28:12,040
Speaker 1: if you agree to sunset this, maybe we use bond covenants,

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00:28:12,320 --> 00:28:15,480
Speaker 1: but you shut it down, eliminate the payments to day

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00:28:15,520 --> 00:28:17,960
Speaker 1: it's complete. I think you get a lot of support

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00:28:18,040 --> 00:28:22,400
Speaker 1: from US manufacturers and retailers. And is there a time

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Speaker 1: frame in your mind? I mean, when does this have

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00:28:24,320 --> 00:28:28,600
Speaker 1: to happen before something terrible happens to the Mississippi River. Yeah. Absolutely,

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Speaker 1: We've already had a few incidents where and if you

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Speaker 1: if you look at the Army Corps, who's in charge

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00:28:33,840 --> 00:28:37,520
Speaker 1: of maintaining the Mississippi Waterway ever since the turn of

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00:28:37,560 --> 00:28:41,000
Speaker 1: the century, so almost eighteen years now. Every year the

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00:28:41,120 --> 00:28:44,840
Speaker 1: Army Corps budget is cut and if you add that

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00:28:44,960 --> 00:28:47,080
Speaker 1: up over eighteen years. What they're trying to do now

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00:28:47,200 --> 00:28:49,680
Speaker 1: is keep as many fingers as they can in the

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00:28:49,720 --> 00:28:52,400
Speaker 1: holes in the dike. But there's there're more holes than

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00:28:52,440 --> 00:28:55,480
Speaker 1: there are fingers. Look at the Great Lakes, the ports

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00:28:55,560 --> 00:28:59,080
Speaker 1: haven't been dredged. The We're looking at eighteen million cubic

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Speaker 1: yards of dredg maintenance that should have been done. It's

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Speaker 1: a backlog. You look at the Mississippi. We've got locks

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00:29:05,600 --> 00:29:08,880
Speaker 1: that don't work. Um, that's time to fund these guys.

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Speaker 1: Thank you very much, Walter kempsie's economist, Chief strategist, US Sports, Airports,

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Speaker 1: Global Infrastructure Group for Jones lang Las. Thanks for listening

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00:29:21,440 --> 00:29:24,320
Speaker 1: to the Bloomberg P and L podcast. You can subscribe

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00:29:24,320 --> 00:29:27,920
Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever

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00:29:27,960 --> 00:29:31,479
Speaker 1: podcast platform you prefer. I'm Pim Fox. I'm on Twitter

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00:29:31,760 --> 00:29:35,280
Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's

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00:29:35,320 --> 00:29:38,360
Speaker 1: one before the podcast. You can always catch us worldwide

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00:29:38,360 --> 00:29:39,320
Speaker 1: on Bloomberg Radio