WEBVTT - Dislocation In Credit Spreads Poses Risk For Market: Booth 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor, find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:20.120 at Bloomberg dot com. Just to give you a sense, 0:00:20.120 --> 0:00:22.520 we are seeing a bit of those gains being paired, 0:00:22.560 --> 0:00:25.400 with all the three main indexes up about seven tenths 0:00:25.400 --> 0:00:29.960 of a percent. Heading into we see a consensus forming 0:00:30.000 --> 0:00:33.640 that the fundamental economy, we'll be fine, We'll be strong, 0:00:33.760 --> 0:00:35.920 We'll we'll continue to chug along, and we'll allow you 0:00:35.960 --> 0:00:38.440 to clip coupons. Perhaps not deliver the same kinds of 0:00:38.440 --> 0:00:42.159 returns we saw in twenty nineteen, but really the question 0:00:42.320 --> 0:00:45.280 is what could go wrong? And Daniel D. Martino Booth 0:00:45.360 --> 0:00:47.800 is joining us now here in our interactive broker studio. 0:00:47.800 --> 0:00:51.120 She's chief executive officer and chief strategist for Quill Intelligence, LLC, 0:00:51.560 --> 0:00:54.120 form advisor to the Dallas Federal Reserve, as well as 0:00:54.160 --> 0:00:57.480 a Bloomberg opinion contributor. UH So, Danielle, what are you 0:00:57.560 --> 0:01:01.160 seeing when it comes to the fundamental economy and signs 0:01:01.200 --> 0:01:03.480 that the consensus is right that we're just going to 0:01:03.680 --> 0:01:06.680 chug along through Well, I think if you, if you 0:01:06.800 --> 0:01:11.040 study the headlines, everything looks really really good on the surface. Um. 0:01:11.080 --> 0:01:13.479 But having worked at the FED for as long as 0:01:13.520 --> 0:01:17.480 I did, we pay very close attention we I know 0:01:17.560 --> 0:01:19.679 Powell pays close that he won't say it in public, 0:01:19.880 --> 0:01:23.200 but he pays close attention to revisions to data. And 0:01:23.240 --> 0:01:26.200 what we've seen so far through July with the preliminary 0:01:26.280 --> 0:01:28.680 data is that we've had fifteen consecutive months of downward 0:01:28.680 --> 0:01:31.880 revisions again through July. But every time we get three 0:01:31.920 --> 0:01:34.360 months of data out, we tend to see another three 0:01:34.360 --> 0:01:36.800 months of rolling downward revisions. And the Bureau of Labor 0:01:36.840 --> 0:01:39.160 Statistics will will tell you that they have a very 0:01:39.160 --> 0:01:42.840 hard time adjusting at economic inflection points. And that's why 0:01:42.920 --> 0:01:45.600 at QUILL we've decided to try and look in the 0:01:45.640 --> 0:01:49.480 weeds at other types of indicators to tell us, hey, 0:01:49.520 --> 0:01:51.440 if non farm perils is the most lagging of all 0:01:51.480 --> 0:01:55.320 economic indicators, what can we look at this real time? All? Right? So, 0:01:55.680 --> 0:01:57.400 when we think about the economy, I think most people 0:01:57.400 --> 0:02:00.400 are just falling back on the fact that the consumers strong. 0:02:00.640 --> 0:02:03.600 They look at the employment numbers. How do you think 0:02:03.640 --> 0:02:07.919 about the employment numbers? At QUILL, So we try every 0:02:07.920 --> 0:02:11.200 week to track two things in the jobless claims data, 0:02:11.240 --> 0:02:14.040 because it's very timely comes out on a weekly basis. Um, 0:02:14.080 --> 0:02:17.000 we follow the number of states in the country, uh 0:02:17.080 --> 0:02:19.560 that have rising jobless claims. So we're looking at the 0:02:19.560 --> 0:02:23.040 breadth um how far across the nation or not um 0:02:23.120 --> 0:02:26.520 jobless claims are rising and uh so far we're seeing 0:02:26.760 --> 0:02:30.240 about fifty, so over fifty of the states have rising 0:02:30.280 --> 0:02:33.760 initial jobless claims. And then we also study very closely 0:02:33.800 --> 0:02:37.359 continuing claims, knowing that just because you apply for unemployment 0:02:37.400 --> 0:02:39.560 insurance does not mean that you receive it. If you 0:02:39.600 --> 0:02:43.079 look at not seasonally adjusted continuing jobless claims, you're actually 0:02:43.120 --> 0:02:46.080 looking at hard weekly data on the number of Americans 0:02:46.240 --> 0:02:50.560 currently collecting unemployment insurance. We we know Thanksgiving was a 0:02:50.680 --> 0:02:54.400 very noisy um contributor to the data, so we've adjusted 0:02:54.440 --> 0:02:56.240 it on a fifty three week year over year basis, 0:02:56.400 --> 0:02:59.200 and what we found was ten consecutive weeks of rising 0:02:59.200 --> 0:03:02.359 continuing this claims in this country. That's a red flag 0:03:02.400 --> 0:03:05.800 to me. All right, so what does that mean? Translate that, Well, 0:03:05.840 --> 0:03:09.400 what we're seeing is an increasing trend of what the 0:03:09.480 --> 0:03:13.520 CFO Duke survey said yesterday that fifty percent of CFOs 0:03:13.560 --> 0:03:16.440 are in a cost cutting mode. A cost cutting mode 0:03:16.480 --> 0:03:18.840 is a polite way of saying we're trimming head count. 0:03:19.240 --> 0:03:22.239 It's not, again, something we're seeing in the non farm 0:03:22.240 --> 0:03:25.000 payalle unemployment data, but it's definitely something that is being 0:03:25.000 --> 0:03:27.919 picked up in the weekly data. And actually to that point, 0:03:28.000 --> 0:03:31.800 we did get jobless claims today that rose to two 0:03:31.880 --> 0:03:35.640 hundred thousand versus the estimate of two thousand. So, Paul, 0:03:35.680 --> 0:03:38.360 we are seeing that exactly. Well, yes, but I have 0:03:38.400 --> 0:03:40.200 a really hard time with these two weeks. I mean 0:03:40.240 --> 0:03:41.960 you kind of have to kind of have to marry 0:03:41.960 --> 0:03:43.840 the two of them because thanks getting again is so 0:03:43.920 --> 0:03:46.560 noisy that you can't really trust this big number either. 0:03:46.880 --> 0:03:50.440 All Right. So, given that we may be seeing, maybe 0:03:50.440 --> 0:03:52.480 from some of your data, a little bit slowing on 0:03:52.520 --> 0:03:55.080 the consumer side with the employment, what do you do 0:03:55.160 --> 0:03:56.720 on the on your kind of when you think about 0:03:56.720 --> 0:04:02.360 the credit markets where you're allocating so um, you know it. Obviously, 0:04:02.400 --> 0:04:06.400 I live on Twitter and the the mantra on Twitter 0:04:06.600 --> 0:04:09.560 is it's only energy. Uh So I got so tired 0:04:09.600 --> 0:04:11.600 of hearing that I kind of dug in the weeds. 0:04:11.920 --> 0:04:13.800 And if you look at the Triple C universe, which 0:04:13.800 --> 0:04:16.400 has refused to come in and this has been you know, 0:04:16.440 --> 0:04:19.320 they're like, it's just an aberration, it's just energy. So 0:04:19.880 --> 0:04:23.920 they're the Triple C universe is trading. So that's over 0:04:24.000 --> 0:04:26.279 half of the Triple C universe is trading. It less 0:04:26.279 --> 0:04:30.200 than nine cents on the dollar. So of that universe 0:04:31.920 --> 0:04:36.200 is energy? What's the other so other stuff like not energy. 0:04:36.680 --> 0:04:38.839 We've seen a lot of retails. We've seen retail, We've 0:04:38.880 --> 0:04:42.279 seen some some some tensions in communications. Um, we've seen 0:04:42.360 --> 0:04:46.960 some chemical downgrades so cyclical, but also retail as well. 0:04:47.000 --> 0:04:49.360 What does this mean that we're going to see something 0:04:49.480 --> 0:04:53.719 broader in or does this just mean frankly that there 0:04:53.760 --> 0:04:57.039 is discretion and markets and people have been disciplined during 0:04:57.080 --> 0:05:00.440 this rally. Well, so you would want for an vests 0:05:00.480 --> 0:05:03.240 to be discerning and looking at companies that might, oh, 0:05:03.279 --> 0:05:06.160 I don't know, go from Triple C to as for applebys, 0:05:06.160 --> 0:05:08.839 for boy c'es, for cats, for default, So you would 0:05:08.839 --> 0:05:12.039 want for them to be discerning and and for dog 0:05:12.360 --> 0:05:14.839 but at the same time, you can't just look at 0:05:14.880 --> 0:05:17.359 the data and say it's just an energy thing, because 0:05:17.360 --> 0:05:20.160 it's so much broader than that. That being said, I'm 0:05:20.160 --> 0:05:22.000 going to talk out of the other side of my mouth. 0:05:23.480 --> 0:05:25.680 The entire Triple C universe, a undred and seventy one 0:05:25.680 --> 0:05:28.880 billion dollars worth of debt, is only fifteen percent energy. 0:05:28.960 --> 0:05:32.000 So we're definitely seeing a you know, twice the percentage 0:05:32.279 --> 0:05:36.159 in terms of deeply distressed paper being in the energy sector. 0:05:36.240 --> 0:05:38.719 And from everything that we know from the eleven billion 0:05:38.720 --> 0:05:43.120 dollars Chevron right down yesterday, there's still a lot of 0:05:43.360 --> 0:05:46.479 bad things going on in the shale complex. And you 0:05:46.520 --> 0:05:49.000 know old melent of my buddy over Bank America, Meryl, 0:05:49.040 --> 0:05:51.480 you know, he's been in high yield forever. He anticipates 0:05:51.480 --> 0:05:56.240 that by the end of given the seven percent trailing 0:05:56.279 --> 0:05:58.560 twelve month default rate and energy, that we will be 0:05:58.720 --> 0:06:02.080 back up at when he's sixteen double digit default rates 0:06:02.320 --> 0:06:06.320 or broadly defined, Are you seeing heightened credit quality issues 0:06:06.400 --> 0:06:08.320 in the marketplace? If not, do you think we might 0:06:08.320 --> 0:06:12.159 see them? I think that I think that after the 0:06:12.200 --> 0:06:15.640 turn of the year, after after portfolio managers have finished 0:06:15.640 --> 0:06:18.080 all their window addressing that we are either going to 0:06:18.080 --> 0:06:21.440 see double bees uh, double bee spreads rise in other 0:06:21.560 --> 0:06:24.400 in other words, credit stress spreading, or we're gonna see 0:06:24.400 --> 0:06:26.840 triple cs spreads come down. It's got to be one 0:06:26.839 --> 0:06:28.599 of the other, because we've never had a dislocation of 0:06:28.640 --> 0:06:31.599 this persistence and and and and length in time. What 0:06:31.680 --> 0:06:35.440 about loans, We've seen, for example, one prediction I believe 0:06:35.560 --> 0:06:39.600 out of ubs that leverage loans will return a negative 0:06:39.960 --> 0:06:42.360 return next year, Felt declined, lunch two per cent. Do 0:06:42.360 --> 0:06:45.760 you agree? Uh? But yes. One of my favorite credit 0:06:45.839 --> 0:06:49.640 rating high yield analysts will remain unnamed, basically said, look, Danielle, 0:06:49.839 --> 0:06:51.039 if you really want to go to the quick and 0:06:51.040 --> 0:06:52.720 dirty on this, if you can access the high yeld 0:06:52.760 --> 0:06:54.880 bond market, go to the leverage loan market. They'll they'll 0:06:54.920 --> 0:06:57.479 loan your money. So everything I'm saying about triple c's 0:06:57.640 --> 0:07:00.080 you need to downgrade further if you're talking about the 0:07:00.160 --> 0:07:02.480 leverage loan market. And we've and Molly Smith has done 0:07:02.520 --> 0:07:06.360 a fabulous job reporting on this, we've definitely seen more 0:07:06.400 --> 0:07:09.320 than just a few instances of leverage loans blowing up. 0:07:09.360 --> 0:07:11.440 And when they blow up, because there's no covenants assigned 0:07:11.440 --> 0:07:14.240 to them, they gap down very quickly, So I think 0:07:14.240 --> 0:07:16.920 that's going to affect recovery rates um in the next 0:07:16.920 --> 0:07:20.000 credit downturn. Daniel D. Martino Booth, thank you so much 0:07:20.040 --> 0:07:22.400 for joining us. We really appreciate it. Daniel's CEO and 0:07:22.400 --> 0:07:25.600 director of intelligence for Quill Intelligence UH and also a 0:07:25.640 --> 0:07:29.000 former advisor of the Dallas Federal Reserve. Any Bloomberg opinion columns, 0:07:29.040 --> 0:07:30.800 you can read all of her work, and that of 0:07:30.840 --> 0:07:34.000 all the Bloomberg opinion on Bloomberg dot com, slash Opinion 0:07:34.080 --> 0:07:36.120 or on the terminal O P I n GO. I 0:07:36.160 --> 0:07:39.200 will say it raises an interesting question because it sort 0:07:39.200 --> 0:07:42.240 of raises a challenge to the consensus heading into and 0:07:42.240 --> 0:07:45.320 this was sort of my takeaway is that we have 0:07:45.560 --> 0:07:50.320 this belief in stability, despite the political risk, despite the 0:07:50.360 --> 0:07:53.160 fact that we have a number of headwinds to growth, 0:07:53.560 --> 0:07:58.360 and if that gets upended, that upends the vast consensus 0:07:58.440 --> 0:08:00.760 across Wall Street. And there are some warning signs that 0:08:00.800 --> 0:08:03.440 there is not necessarily the strength to sort of keep 0:08:03.520 --> 0:08:06.480 chugging through some of the uncertainty that could come up. Yeah, 0:08:06.680 --> 0:08:09.760 absolutely right, And Daniel kind of calling out the labor market, 0:08:09.760 --> 0:08:11.840 you should be again the print that we just had 0:08:11.880 --> 0:08:14.200 this week on the labor market front was very strong, 0:08:14.240 --> 0:08:17.080 and the market took that very in a bullish light, 0:08:17.160 --> 0:08:20.160 and certainly the Fed did saying that the economy is 0:08:20.200 --> 0:08:37.920 generally in very good shape. This is Bloomberg. I think 0:08:37.920 --> 0:08:39.800 this is going to be my favorite game to play, 0:08:40.120 --> 0:08:43.959 heading into your end, which is, let's name the consensus 0:08:44.080 --> 0:08:46.840 and then decide whether or not we think it is 0:08:47.040 --> 0:08:50.240 likely or not. Very red Holds joining us here to 0:08:50.280 --> 0:08:52.080 play the game with us. Do do do do? Do Do? 0:08:52.080 --> 0:08:55.480 Do do? We should have like a soundtrack for alright. 0:08:55.559 --> 0:08:58.000 Very red Holts, Bloomberg opinion columnist and host of Masters 0:08:58.000 --> 0:09:01.800 and Business on Bloomberg Radio, also founder of Redhol's Wealth Management, 0:09:01.840 --> 0:09:05.240 joining us here in our interactive Broker Studios first consensus, 0:09:05.559 --> 0:09:08.280 the economic fundamentals will stay strong and it will be 0:09:08.320 --> 0:09:13.360 a coupon clipping year. So we have the industrial sector 0:09:13.440 --> 0:09:16.679 in a recession already, and admittedly that's a much smaller 0:09:16.720 --> 0:09:19.560 part of the economy than it used to be. Um 0:09:20.040 --> 0:09:24.120 I hate the phrase uncertainty. I think it's a completely misused, 0:09:24.800 --> 0:09:28.680 but you do have company executives saying we don't know 0:09:28.720 --> 0:09:30.680 how the trade and tariff war is gonna be resolved. 0:09:30.720 --> 0:09:33.079 We don't know where our supply chain is going to 0:09:33.160 --> 0:09:38.080 be hit next, and that causes a slowdown in all 0:09:38.120 --> 0:09:41.599 sorts of capital investment, from from trucks and rails to 0:09:41.920 --> 0:09:45.400 new plants and ships. And it's a self inflicted wound. 0:09:45.400 --> 0:09:47.800 And as long as this just continues to as long 0:09:47.840 --> 0:09:50.920 as Lucy keeps pulling the football away and Charlie Brown 0:09:51.040 --> 0:09:53.520 keeps being a soccker for it, two feet forward, two 0:09:53.559 --> 0:09:56.400 feet backwards, we've made no forward progress with that. So, 0:09:56.760 --> 0:09:59.599 you know, an okay year, maybe two to and a 0:09:59.679 --> 0:10:02.160 quarter g g d P. Maybe towards the end of 0:10:02.160 --> 0:10:04.880 the year, things start to soften. Hard to tell much 0:10:04.960 --> 0:10:06.920 more than a quarter or two out. So this is 0:10:06.960 --> 0:10:09.240 in other words, yes, he agrees with the consensus. Is 0:10:09.280 --> 0:10:11.600 that is that the consensus? I honestly don't know. Yeah, 0:10:12.440 --> 0:10:15.880 all right, another call here. The short term fed repo 0:10:16.080 --> 0:10:18.959 market could in fact be a big problem for the markets. 0:10:19.080 --> 0:10:22.080 You know, that's the silliest thing I hear everybody is is, 0:10:22.520 --> 0:10:24.360 you know, the old line is to a man who's 0:10:24.400 --> 0:10:26.760 only tool is a hammer, everything looks like a nail. 0:10:27.160 --> 0:10:30.120 To the people who missed the financial crisis in oh 0:10:30.160 --> 0:10:32.439 seven or eight or nine, and now they have a 0:10:32.440 --> 0:10:36.240 little PTSD and they're just fearful of the next crisis. 0:10:36.760 --> 0:10:41.240 They're scared of their own shadow. Everything they see is 0:10:41.280 --> 0:10:42.880 the next book, you man, that's going to cause the 0:10:42.920 --> 0:10:46.600 next market to get slashed and half and so everything 0:10:46.679 --> 0:10:51.240 becomes We had a liquidity price crisis during the during 0:10:51.280 --> 0:10:53.320 the O eight or nine period, so now everything else 0:10:53.400 --> 0:10:56.440 is going to lead to a liquidity crisis. I first 0:10:56.440 --> 0:10:58.960 of all, I don't imagine the FED would tolerate more 0:10:59.000 --> 0:11:01.520 than a little bit of a problem. And you saw 0:11:01.559 --> 0:11:04.440 their last response when things got gummed up. This is 0:11:04.480 --> 0:11:09.720 a problem with the plumbing, not a systemic problem. Admittedly 0:11:10.920 --> 0:11:13.080 was a plumbing problem that spun out of the out 0:11:13.080 --> 0:11:15.920 of control. But this just doesn't look or smell like, 0:11:16.600 --> 0:11:19.240 you know, an O eight o nine disaster. We should 0:11:19.240 --> 0:11:23.320 have like a noise for rejected. It's rejected, all right. 0:11:23.440 --> 0:11:25.360 The television show that does that already, I don't know 0:11:25.360 --> 0:11:28.720 if it's ratings. Well. I want to get to the 0:11:28.760 --> 0:11:32.760 next issue, which is developing markets versus developed markets. Developing 0:11:32.800 --> 0:11:36.839 markets have that people expect them to perform better pretty 0:11:36.920 --> 0:11:40.800 much across as a classes next year versus developed ones. Well, 0:11:40.920 --> 0:11:44.439 E M is having a fantastic two day run. This 0:11:44.480 --> 0:11:46.520 is the best two day run we've seen in emerging 0:11:46.559 --> 0:11:51.160 markets in a long time. The gap on valuations between 0:11:51.160 --> 0:11:53.280 the US and the rest of the world, the US 0:11:53.320 --> 0:11:57.600 and and UM, e M or we won't even talk 0:11:57.640 --> 0:12:01.520 about frontier markets is as large as it's ever been. 0:12:02.120 --> 0:12:05.960 And if you believe in mean reversion, you would say 0:12:06.600 --> 0:12:09.679 lighten up on the US by emerging market. However, you 0:12:09.720 --> 0:12:11.440 could have said the same thing every year for the 0:12:11.480 --> 0:12:14.600 past five years, and you would have been wrong. And 0:12:15.200 --> 0:12:18.240 full disclosure, I've been wrong about this for a couple 0:12:18.240 --> 0:12:21.920 of years. My only caveat is I've said I will 0:12:21.960 --> 0:12:24.200 look like an idiot for two or three years and 0:12:24.240 --> 0:12:26.600 then look like a genius. So now we're in year 0:12:26.640 --> 0:12:30.600 two of looking like an idiot recommending e M. Who 0:12:30.640 --> 0:12:33.080 knows how much longer I could go. We're starting to 0:12:33.160 --> 0:12:36.199 see signs that the rest of the world is catching 0:12:36.280 --> 0:12:39.479 up to the U. S okay, so that's with consensus. 0:12:39.840 --> 0:12:43.160 I think so well. I was early wrong early, and 0:12:43.280 --> 0:12:46.520 and as all traders know, early equals wrong. UM. But 0:12:46.679 --> 0:12:49.440 I'm you know, I'm doubling down. My cognitive dissonance doesn't 0:12:49.440 --> 0:12:52.559 see anything separate from what I've been seeing. The US 0:12:52.720 --> 0:12:55.600 is fully valued I won't even say richly value. The 0:12:55.600 --> 0:12:57.520 rest of the world is pretty cheap. If you want 0:12:57.520 --> 0:12:59.600 to buy value, you look out side of the US. 0:12:59.640 --> 0:13:03.439 If you want by momentum straight to the sp FED 0:13:03.520 --> 0:13:08.920 is gonna do nothing in so I don't buy. So 0:13:08.960 --> 0:13:14.360 here's the consensus. The consensus is quantitative tightening and rising 0:13:14.440 --> 0:13:17.600 interest rates throttled back the economy and that's what caused 0:13:17.600 --> 0:13:22.800 the Q drop. And I think that's utter nonsense. It 0:13:22.960 --> 0:13:27.120 is a classic after the fact explanation that nobody said, Oh, 0:13:27.160 --> 0:13:29.240 by the way, we're too tight and we're gonna see 0:13:29.240 --> 0:13:32.719 a big drop. The president, Um, well he's he's been 0:13:32.720 --> 0:13:35.679 saying that since the day he gets worn in um 0:13:35.760 --> 0:13:38.520 after saying Janet Yellen should be ashamed of our low 0:13:38.600 --> 0:13:41.920 rates previously. So I don't believe that we're too tight. 0:13:42.240 --> 0:13:46.680 We are still very close to emergency footing. Um. I'm 0:13:46.720 --> 0:13:48.920 not a big fan of higher rates, but I do 0:13:49.040 --> 0:13:52.840 like the idea of the FED normalizing rates, normalizing their 0:13:52.880 --> 0:13:55.880 balance sheets. I've been saying this for I don't know 0:13:56.040 --> 0:13:58.800 seven years. Now it's time for the FED to stop 0:13:58.800 --> 0:14:04.319 their extraordinary acommodation, which effectively has the result of driving 0:14:05.400 --> 0:14:08.240 asset prices higher and not a whole lot more. No, 0:14:08.320 --> 0:14:10.199 one is not buying a house, not buying a car, 0:14:10.400 --> 0:14:13.600 not buying building a plan because rates fed fund rates 0:14:13.640 --> 0:14:15.720 would go up to three or three and a half percent. 0:14:16.120 --> 0:14:18.120 Borry Dholts, thanks so much for joining us and playing 0:14:18.120 --> 0:14:20.680 our game with us. Bloomberg Opinion columns and host of 0:14:20.800 --> 0:14:23.800 Masters in Business that's on Bloomberg Radio. He's also a 0:14:23.800 --> 0:14:26.040 founder of Ridholts Wealth Management. Joining us here in our 0:14:26.040 --> 0:14:30.800 Bloomberg Interactive Broker's studio. Consensus throw down, consensus, throw it 0:14:30.840 --> 0:14:33.160 down like a bit. We'll take that to Anthony from Sparta, 0:14:33.200 --> 0:14:51.400 see what he thinks. So we'll see. A couple of 0:14:51.480 --> 0:14:54.120 days ago, the House passed the U s m c 0:14:54.360 --> 0:14:58.080 A bill Mexico Canada, the US that trade build the 0:14:58.120 --> 0:15:00.600 new NAFTA if you will. The question is now, when 0:15:00.800 --> 0:15:04.400 will the Senate approve it? As well? To get some details, 0:15:04.440 --> 0:15:07.280 we welcome Shannon O'Neil. She's a Senior Fellow for Latin 0:15:07.280 --> 0:15:10.120 American Studies at the Council on Foreign Relations and also 0:15:10.120 --> 0:15:13.040 a Bloomberg Opinion calumnist. Shannon, thanks so much for joining us. 0:15:13.200 --> 0:15:15.720 I guess there's some conflicting signals from Senator to Mitch 0:15:15.800 --> 0:15:19.360 McConnell about whether this UMS m c A bill can 0:15:19.400 --> 0:15:22.640 get ratified in the Senate this year or is it 0:15:22.640 --> 0:15:25.560 gonna be pushed into next year. What are your thoughts, Well, 0:15:25.600 --> 0:15:27.920 he has said that he wants to wait until after 0:15:28.120 --> 0:15:31.680 impeachment proceedings go far, which would be in the new year. 0:15:31.720 --> 0:15:34.320 And also he hasn't been personally a big fan of 0:15:34.360 --> 0:15:37.280 the changes to the to NAFTA, the new NAPTA called 0:15:37.280 --> 0:15:39.360 the U S m c A UM but whether it 0:15:39.760 --> 0:15:42.000 will probably push them too next year. But I would 0:15:42.240 --> 0:15:45.440 highly doubtful that the Republicans would turn down this bill, 0:15:45.560 --> 0:15:48.600 especially since the Democrats and the Trump administration have finally 0:15:48.600 --> 0:15:51.800 gotten to a guess, Shannon, let's talk about the winners 0:15:51.840 --> 0:15:54.120 and the losers from this steal. Can you give us 0:15:54.120 --> 0:15:56.920 a sense of what we've learned so far as people 0:15:56.920 --> 0:16:00.920 pass through the details. Well, I think there are political 0:16:00.960 --> 0:16:04.440 winners on both side Trump administration had he Trump during 0:16:04.480 --> 0:16:06.920 his campaign said he was going to renegotiate NAFTA, and 0:16:07.080 --> 0:16:10.440 lo and behold, he has renegotiated NAFTA. On the same time, 0:16:10.480 --> 0:16:13.080 the Democrats have wins there. They said that they would 0:16:13.080 --> 0:16:15.080 fix the bill that they weren't on board with what 0:16:15.160 --> 0:16:19.080 had originally negotiated, and they got, particularly in Mexico but 0:16:19.120 --> 0:16:22.040 also Canada to move on something so they can go 0:16:22.120 --> 0:16:24.080 back and say they have a win on labor issues 0:16:24.120 --> 0:16:27.200 and environmental issues and the like. UM. As we look 0:16:27.240 --> 0:16:29.480 at the U S economy, you know, I think American 0:16:29.520 --> 0:16:34.200 companies in general, there's there's some wins there. Definitely Internet companies, 0:16:34.280 --> 0:16:37.720 Amazon dot Com there are wins. They're both because you'll 0:16:37.760 --> 0:16:40.200 see more e commerce going to the other countries. You 0:16:40.240 --> 0:16:43.000 have the U taxes of what they called diminimus, the 0:16:43.040 --> 0:16:45.440 amount of money you are allowed to send duty free 0:16:45.480 --> 0:16:48.600 has increased in both Canada and Mexico. And also the 0:16:48.640 --> 0:16:51.720 internet and tech companies fought back some changes that were 0:16:52.280 --> 0:16:56.360 suggested by Democrats to uh to UM increase sort of 0:16:56.400 --> 0:16:59.360 their obligations in terms of responsibility about what goes back 0:16:59.360 --> 0:17:03.080 and forth US the borders. So internet side are winners 0:17:03.520 --> 0:17:07.720 the losers. Actually, the biggest loser was the pharmaceutical industry. UM. 0:17:07.880 --> 0:17:10.040 Things that they had wanted in U S. M c 0:17:10.160 --> 0:17:11.959 A that had been in the first round got stripped 0:17:11.960 --> 0:17:13.439 out in the second round. So I think they came 0:17:13.480 --> 0:17:15.920 out the biggest losers this time around. And what looks 0:17:15.920 --> 0:17:19.040 like we'll pass through the US House and Senate Shannon. 0:17:19.119 --> 0:17:21.680 Some critics are suggesting that this is you know, much 0:17:21.720 --> 0:17:24.000 ado about nothing, that the new NAPTA is not a 0:17:24.040 --> 0:17:28.240 whole lot different from the existing NAFTA, and all we've 0:17:28.240 --> 0:17:30.399 done has taken a year here to kind of you know, 0:17:30.760 --> 0:17:34.399 banning about and get political and but nothing really changed. 0:17:34.840 --> 0:17:39.800 Is that parity think? So there are some updates in 0:17:39.800 --> 0:17:42.119 this in this version of it. And you NAFTA was 0:17:42.160 --> 0:17:45.080 passed back in the world was a really different place 0:17:45.119 --> 0:17:48.879 back then. So this version has different regulations for e 0:17:49.000 --> 0:17:52.440 commerce and and digital flows of information that wasn't even 0:17:52.480 --> 0:17:55.400 on the horizon really back in, so that is new. 0:17:55.960 --> 0:17:59.840 We see updates in intellectual property right, some other types 0:17:59.880 --> 0:18:02.639 of things that most of which were frankly included in 0:18:02.680 --> 0:18:05.399 the t PP, the Transpacific Partnership, which was a big 0:18:05.560 --> 0:18:08.720 Obama administration initiative with the countries in Asia as well 0:18:08.760 --> 0:18:11.399 as Latin America. UM so some of that stuff is 0:18:11.440 --> 0:18:14.480 new to NAFTA. Uh. Some of the things that just 0:18:14.600 --> 0:18:17.359 came in this latest version sort of round three in 0:18:17.480 --> 0:18:21.840 terms of labor oversight and enforcement and some environmental issues. 0:18:22.240 --> 0:18:25.199 Those are a step up from the first NAFTA, so 0:18:25.240 --> 0:18:28.200 I think there are changes there, but overall, what all 0:18:28.240 --> 0:18:31.119 of this negotiation has done is kept the agreement between 0:18:31.119 --> 0:18:34.359 the three countries, the United States, Canada, and Mexico to 0:18:34.640 --> 0:18:37.560 continue trading and working with each other. When we heard 0:18:37.880 --> 0:18:41.359 the press conference announcing this deal and that all parties 0:18:41.400 --> 0:18:44.000 were going to be signing onto it, UH, there was 0:18:44.119 --> 0:18:48.000 discussion about some heated phone calls with screaming on both 0:18:48.160 --> 0:18:52.160 ends of negotiators, particularly with US and Mexico. I'm wondering, 0:18:52.440 --> 0:18:57.480 after these negotiations are basically done and dusted, what's the 0:18:57.520 --> 0:19:02.160 relationship going to be like between the US and Mexic go. Well, 0:19:02.200 --> 0:19:04.720 when I've talked with people who have negotiated trade agreements 0:19:04.720 --> 0:19:07.400 with all sorts of countries, it's there's always a few 0:19:07.440 --> 0:19:10.200 moments where heated debate happen. So so I think the 0:19:10.240 --> 0:19:13.840 screaming was not totally out of the UH the ordinary 0:19:13.840 --> 0:19:16.720 when people get to this. But as we look, especially 0:19:16.760 --> 0:19:20.159 at US Mexico relations, the trade issues have now been 0:19:20.200 --> 0:19:22.320 taken off the table, and I think those in Mexico 0:19:22.359 --> 0:19:25.199 are breathing a huge sigh of relief. Companies that operate 0:19:25.240 --> 0:19:26.840 on both sides of the border at least now they 0:19:26.840 --> 0:19:28.959 know what the rules are going to be going forward. 0:19:29.400 --> 0:19:32.000 But we have other issues on the agenda with Mexico 0:19:32.119 --> 0:19:35.240 and the United States, and the two biggest ones are migration, 0:19:35.760 --> 0:19:38.760 not just Mexicans coming north, but particularly Central Americans that 0:19:38.800 --> 0:19:41.640 have been coming through Mexico and coming to the United 0:19:41.640 --> 0:19:44.960 States seeking asylum from violence and other problems in their countries. 0:19:45.280 --> 0:19:48.600 And the other issue is security. Mexico has seen a 0:19:48.680 --> 0:19:52.080 huge increase in homicides and other violence, and we've seen 0:19:52.080 --> 0:19:55.120 a couple of high profile cases involving U S citizens 0:19:55.119 --> 0:19:57.840 where they have been murdered, and so there are tensions 0:19:57.880 --> 0:20:01.000 there between the countries. That will be the next big 0:20:01.040 --> 0:20:03.560 issues on the agenda for the two of them. Shannon, So, 0:20:03.640 --> 0:20:07.840 both the White House and Congress, particularly Democratics, Democrats and 0:20:07.840 --> 0:20:11.240 Congress taking credit for this deal, saying it's a good 0:20:11.240 --> 0:20:14.840 deal for America. How did the Canadians and Mexicans view 0:20:14.920 --> 0:20:19.240 Did they view it as a good deal for them? 0:20:19.280 --> 0:20:21.560 You know, a deal is a good deal for them. 0:20:21.600 --> 0:20:24.119 So I think both countries were playing a bit defense 0:20:24.200 --> 0:20:27.879 to make sure that NAFTA stayed together, the three countries 0:20:27.920 --> 0:20:30.920 stayed together in a trading block. There are some things 0:20:30.920 --> 0:20:32.640 in this that are good for both of those countries, 0:20:32.680 --> 0:20:34.480 and and a lot of these updates to the old 0:20:34.560 --> 0:20:37.680 NAFTA will be good for all three countries and their economies. 0:20:38.000 --> 0:20:40.680 The Canadians actually in the latest round came out ahead 0:20:40.800 --> 0:20:43.000 some of the things that they had not wanted to 0:20:43.040 --> 0:20:45.879 do that they've given as a concession, particularly some of 0:20:45.920 --> 0:20:49.040 the pharmaceutical issues that got stripped out. The Canadians one 0:20:49.119 --> 0:20:50.600 on that because they had not wanted it in the 0:20:50.640 --> 0:20:54.159 first place. But overall, I think this is a small 0:20:54.280 --> 0:20:57.760 update is brings some new stuff into the overall mix. Uh. 0:20:57.840 --> 0:21:00.439 It has some wins and loses in particular sectors that 0:21:00.440 --> 0:21:03.200 we've talked about, But overall, what it does is keep 0:21:03.280 --> 0:21:05.520 masked in from Mexico and Canada. That is what they 0:21:05.520 --> 0:21:08.080 wanted in the first place. Shannon, just real quick here, 0:21:08.080 --> 0:21:10.720 I'm wondering what your outlook is just in general on Mexico. 0:21:10.760 --> 0:21:13.000 I know Mexican assets have had kind of a rocky year. 0:21:13.480 --> 0:21:18.080 Uh so far, what are you looking for? Well, Mexico 0:21:18.160 --> 0:21:21.520 has seen a huge decrease in investment, be foreign direct 0:21:21.560 --> 0:21:25.280