WEBVTT - Extremely Low Odds For Infrastructure Bill Becoming Law: Dean 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg P M L 0:00:20.840 --> 0:00:33.599 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. President 0:00:33.640 --> 0:00:37.680 Donald Trump's a fiscal budget proposal calls for one point 0:00:37.760 --> 0:00:41.200 seven trillion dollars in cuts to mandatory spending and receipts 0:00:41.520 --> 0:00:45.000 and a two percent yearly reduction in non defense discretionary 0:00:45.040 --> 0:00:50.159 budget after twenty nine, but it also includes spending for infrastructure. 0:00:50.200 --> 0:00:52.440 Here to tell us more about the plan is Nathan Dean, 0:00:52.479 --> 0:00:57.160 our senior analyst Financial Services Policy for Bloomberg Intelligence, and 0:00:57.240 --> 0:01:01.240 you can follow Nathan on Twitter at Nathan Dean d C. 0:01:01.880 --> 0:01:04.280 All Right, Nathan Dean d C. Tell us about this 0:01:04.400 --> 0:01:08.360 infrastructure proposal and what we should take away from it. So, 0:01:08.400 --> 0:01:09.959 the first thing you can take away from it is 0:01:10.000 --> 0:01:12.679 that the odds of this actually going into law extremely low. 0:01:12.920 --> 0:01:16.520 It's two billion in federal spending. That two billion would 0:01:16.520 --> 0:01:19.480 then entice the one point three trillion and spending that 0:01:19.600 --> 0:01:22.400 one point three trillion would come from local and state municipalities, 0:01:22.440 --> 0:01:25.000 would also come from the private sector. Uh, it's a 0:01:25.000 --> 0:01:27.399 five fifty five page plan. You know, this is a 0:01:27.400 --> 0:01:29.160 little bit more detailed than what we saw from the 0:01:29.200 --> 0:01:31.039 tax reform plan that came up from the White House, 0:01:31.400 --> 0:01:33.720 which is about eight or nine pages. Now it has 0:01:33.760 --> 0:01:35.360 to go to Congress to actually come up with a 0:01:35.360 --> 0:01:37.760 piece of legislation, and like I just said, during an 0:01:37.760 --> 0:01:40.080 election year, this is probably not the best time for 0:01:40.120 --> 0:01:42.080 this plan to come out. The odds of it actually 0:01:42.120 --> 0:01:45.560 passing are quite low. But that said, do we learn 0:01:45.600 --> 0:01:48.880 anything from this as far as what President Trump's approach 0:01:48.920 --> 0:01:53.240 will be to infrastructure spending of perhaps not something that 0:01:53.240 --> 0:01:56.240 will get implemented or even passed any time this year, 0:01:56.280 --> 0:01:59.480 but even even beyond well, you know, it's really a 0:01:59.520 --> 0:02:02.480 fundamental disagreement between the Republicans and the Democrats of who's 0:02:02.520 --> 0:02:04.800 going to pay for the infrastructure. So, you know, this 0:02:04.880 --> 0:02:07.800 plan is fairly it's a new idea. It's you know, 0:02:07.880 --> 0:02:10.720 let's actually dial back the frill spending and let's get 0:02:10.880 --> 0:02:14.600 public private partnerships and state and local municipalities put that up. 0:02:14.960 --> 0:02:17.920 Now that that's the problem because these P three's, they 0:02:17.960 --> 0:02:22.200 only account for about three percent of total infrastructure spend, 0:02:22.440 --> 0:02:24.840 and in its entirety, P three have only done about 0:02:24.880 --> 0:02:27.800 thirty billion dollars worth of spend. Uh, you know where 0:02:27.840 --> 0:02:29.639 this is something where they want one point three trillion 0:02:29.680 --> 0:02:31.639 to come out. The Democrats on the other side are 0:02:31.639 --> 0:02:34.880 saying this is extremely too low. And so I think 0:02:34.919 --> 0:02:37.160 the problem for this plan is that even if you 0:02:37.240 --> 0:02:39.120 were to get the sixty votes to go, you know, 0:02:39.160 --> 0:02:41.520 and pass this thing, because you can't use reconciliation. It's 0:02:41.520 --> 0:02:43.640 got to be a bipartisan measure. Even if you are 0:02:43.720 --> 0:02:46.480 to get that sixty sixty votes, then you need the 0:02:46.520 --> 0:02:49.000 state and local municipalities to pay for it or come 0:02:49.080 --> 0:02:51.200 up with their own user fees. So if you're sitting 0:02:51.200 --> 0:02:53.000 in New York, for example, and you're wondering whether or 0:02:53.040 --> 0:02:54.920 not this tunnel between New York and New Jersey are 0:02:54.919 --> 0:02:56.600 gonna come, well, then it's gonna be up to New 0:02:56.680 --> 0:02:58.640 York and New Jersey to decide, well, are we going 0:02:58.720 --> 0:03:00.520 to charge a fifteen dollar toll every time you go 0:03:00.560 --> 0:03:03.359 through that tunnel, etcetera. Okay, another thing that we are 0:03:03.440 --> 0:03:06.880 learning is that President Trump is going to call for 0:03:07.000 --> 0:03:11.000 one point seven trillion dollars in cuts to mandatory spending 0:03:11.120 --> 0:03:15.919 and receipt um. This he will be announcing later today 0:03:16.000 --> 0:03:19.919 as part of his fiscal year nineteen budget proposal. How 0:03:20.000 --> 0:03:23.040 realistic is that a one point seven trillion dollars and 0:03:23.160 --> 0:03:25.440 cuts and where are they likely to come? So the 0:03:25.760 --> 0:03:29.799 President President Trump's budget essentially is just something that we 0:03:30.040 --> 0:03:32.480 what we tell our our clients is don't pay attention 0:03:32.520 --> 0:03:35.240 to the big numbers, pay attention to the specifics the 0:03:35.280 --> 0:03:37.200 plan that they put out last week and they agreed 0:03:37.240 --> 0:03:40.880 to essentially set the budget. This thing is pretty much irrelevant. However, 0:03:41.400 --> 0:03:44.800 you know, there are specific things in there for specific industry. 0:03:44.880 --> 0:03:47.320 So if you're in the healthcare sector, for example, look 0:03:47.360 --> 0:03:50.200 at what they say specifically to the FDA for example. 0:03:50.520 --> 0:03:52.880 And then what we'll see is is that there there's 0:03:52.880 --> 0:03:55.560 a couple more must pass pieces of legislation coming up 0:03:55.600 --> 0:03:57.680 between now and the end of the year. Maybe you know, 0:03:57.720 --> 0:04:00.520 the Federal Aviation Administration has to be re author in March. 0:04:00.920 --> 0:04:05.080 That's the time where specific sectors could be inserted. So, uh, 0:04:05.120 --> 0:04:08.040 you know, avoid the high level noise goes specifically to 0:04:08.080 --> 0:04:10.200 the industries that you care about, and then look for 0:04:10.240 --> 0:04:12.119 those opportunities for the rest of the year. That's where 0:04:12.160 --> 0:04:14.760 some of that stuff may be inserted. Nathan, What are 0:04:14.760 --> 0:04:18.279 private activity bonds and how do they play into this conversation? 0:04:18.640 --> 0:04:21.679 So this is something that the Trump administration has pushed forth. 0:04:21.720 --> 0:04:24.080 It's a new way of financing. Uh. It's something that 0:04:24.160 --> 0:04:27.600 hasn't been really tested on this grant of a scale. UH. 0:04:27.640 --> 0:04:29.680 And so you know, that's one of the other hardships 0:04:29.680 --> 0:04:32.240 that's really coming up with this plan is that you know, 0:04:32.240 --> 0:04:33.960 they're coming up with a lot of new ideas and 0:04:33.960 --> 0:04:35.320 they're trying to say, this is where we want to 0:04:35.320 --> 0:04:38.200 take infrastructure. And I think everybody agrees that, you know, 0:04:38.240 --> 0:04:40.520 we need about five you know, billions and billions and 0:04:40.880 --> 0:04:44.120 billions of dollars of new infrastructure spending. The problem is 0:04:44.160 --> 0:04:46.600 how do you go forth and pay for these Republicans 0:04:46.600 --> 0:04:49.799 are trying you know, private activity bonds, they're trying local 0:04:49.800 --> 0:04:52.120 and state municipalities to try and get to pay for it. 0:04:52.320 --> 0:04:54.360 The Democrats just want the federal government to do it. 0:04:54.480 --> 0:04:57.320 So again, it's it's not like they're not coming up 0:04:57.320 --> 0:05:00.240 with good idea or new ideas. It's just the two 0:05:00.520 --> 0:05:02.400 teens done that, not the year to do it. What 0:05:02.480 --> 0:05:05.280 about the highway the federal highway tax you know for 0:05:05.320 --> 0:05:08.640 the Highway Trust Fund. Isn't that right? About eighteen cents 0:05:08.680 --> 0:05:13.160 a gallon right now hasn't really changed, No, and that's correct. 0:05:13.160 --> 0:05:14.640 And you know, this is something that the you know, 0:05:14.680 --> 0:05:16.840 the gas tax is something that the US Chamber has 0:05:16.880 --> 0:05:19.520 actually pushed and said, let's let's increase this. And you know, 0:05:19.560 --> 0:05:21.960 if the US Chamber is pushing that, let's go forth 0:05:22.000 --> 0:05:24.200 and do you know that that's something that's actually they're 0:05:24.200 --> 0:05:26.440 gonna give some political coverage to the Republicans pushing this. 0:05:27.000 --> 0:05:29.680 You know, one thing that we were Bloomberg Intelligence we've 0:05:29.720 --> 0:05:31.440 looked at in terms of the gas tax is that 0:05:31.480 --> 0:05:35.719 it really doesn't change behavior, uh in auto drivers. So 0:05:35.760 --> 0:05:38.880 if you're investing in auto companies, for example, twenty five 0:05:38.960 --> 0:05:41.440 or thirty cent gas tax isn't really going to change 0:05:41.720 --> 0:05:46.159 consumer behavior. It's the optics of putting in a tax, uh. 0:05:46.160 --> 0:05:48.599 When you know, we've just been lauding all these tax 0:05:48.600 --> 0:05:50.839 cuts and tax reform and so forth in the era 0:05:50.920 --> 0:05:54.080 of an election or an election year, the putting an 0:05:54.080 --> 0:05:58.160 additional gas tax on consumers is probably not good politics. So, 0:05:58.520 --> 0:06:00.520 you know, we don't think the gas tax is actually 0:06:00.560 --> 0:06:03.200 something to be too concerned about. Uh, you know, even 0:06:03.240 --> 0:06:04.640 if it were to go through, I don't think we 0:06:04.680 --> 0:06:07.640 would see much impact on uh, you know, position on 0:06:07.720 --> 0:06:11.799 the auto companies. How much unity is there right now 0:06:11.839 --> 0:06:15.080 among Republicans as they try to push this through and 0:06:15.120 --> 0:06:18.200 as we look at the details of the proposal where 0:06:18.240 --> 0:06:20.760 there might be actually some really intel So I don't 0:06:20.800 --> 0:06:22.520 think there's a lot of unity right now. I mean 0:06:22.560 --> 0:06:25.000 you'll hear it publicly. You know, everybody wants to say, yet, 0:06:25.040 --> 0:06:27.680 we need to do infrastructure spending. But you know, they've 0:06:27.720 --> 0:06:30.440 just passed tax reform, they've just passed a budget deal. 0:06:30.880 --> 0:06:32.960 You know, if you're on the Republican side and you're 0:06:33.120 --> 0:06:35.360 a deficit hawk, you know, there's not a lot of 0:06:35.400 --> 0:06:38.040 good standing for you right now. But uh, you have 0:06:38.080 --> 0:06:39.880 to go into an election year and you have to 0:06:39.920 --> 0:06:43.640 say that within ten years our deficit is going to be, 0:06:43.800 --> 0:06:46.919 you know, well above the twenty trillion dollars that it 0:06:47.040 --> 0:06:49.359 is right now, and so, uh, you know, there is 0:06:49.360 --> 0:06:52.040 some unity on the public side, but when they privately talk, 0:06:52.160 --> 0:06:54.320 I don't I don't think there is there. I think 0:06:54.360 --> 0:06:56.640 a lot of the Republicans, especially in the Senate and 0:06:56.720 --> 0:06:59.560 those who are running for reelection right now, we'll just say, 0:06:59.600 --> 0:07:01.120 you know what, this is a great plan, Thank you, 0:07:01.200 --> 0:07:03.920 White House. We're gonna take it. We're gonna review it. Uh, 0:07:03.920 --> 0:07:05.880 we're gonna spend the next two to three months talking 0:07:05.880 --> 0:07:08.080 about it, and then come summer, let's just move off 0:07:08.120 --> 0:07:10.600 and actually deal with the elections. So is there anything 0:07:10.600 --> 0:07:13.080 that we should take away from this that would actually 0:07:13.160 --> 0:07:16.640 be put into uh into place. I mean, maybe some 0:07:16.720 --> 0:07:21.000 kind of proposal that would actually gain some kind of agreement. Well, 0:07:21.040 --> 0:07:23.800 you know, again, I would just go back to the specifics. 0:07:23.800 --> 0:07:25.920 And you know, this fifty five page plan came out, 0:07:25.960 --> 0:07:27.760 and you know there's a lot of money in here 0:07:27.800 --> 0:07:31.960 for rural infrastructure projects. Uh. So that's something that I 0:07:32.040 --> 0:07:34.000 think that you know, both sides of the aisle would 0:07:34.000 --> 0:07:36.800 agree on. Uh. You know, infrastructure growth is going to 0:07:36.840 --> 0:07:39.920 be positive for two thousand eighteen. That's what we estimate anyway. Uh. 0:07:39.960 --> 0:07:41.880 You know, I don't think that this bill or this 0:07:41.960 --> 0:07:44.800 plan is going to enhance that all that much. Uh. 0:07:44.840 --> 0:07:46.679 You know, again, you need sixty votes in the Senate. 0:07:46.720 --> 0:07:49.040 I don't think they're gonna get it. Uh. And so 0:07:49.160 --> 0:07:51.720 I think what I would just say is is that 0:07:51.760 --> 0:07:54.240 you know, is This is just the first step of 0:07:54.240 --> 0:07:57.640 the negotiation, and that if the administration decides that they 0:07:57.640 --> 0:08:00.600 want to try and do infrastructure again in ten this 0:08:00.680 --> 0:08:02.920 is something that they can start working with and maybe 0:08:02.920 --> 0:08:05.200 dial it down. So that's not one point five trillion. 0:08:05.600 --> 0:08:09.680 But you know, again, I just say stay tuned. Nathan Dean, 0:08:09.680 --> 0:08:12.280 thank you so much for joining us. Nathan Dean, senior 0:08:12.320 --> 0:08:17.000 analyst for Financial services policy for Bloomberg Intelligence, coming to 0:08:17.120 --> 0:08:33.600 us from our Bloomberg studios in Washington, d C. I 0:08:33.640 --> 0:08:36.640 want to bring in Jason Shanker. He is the president 0:08:36.679 --> 0:08:39.400 and the founder of Prestige Economics. He is also a 0:08:39.440 --> 0:08:44.040 Bloomberg prophet. Bloomberg Profits are professionals offering actionable insights on 0:08:44.320 --> 0:08:47.960 markets and the economy as well as monetary policy. He's 0:08:48.000 --> 0:08:53.040 based in Austin, Texas. Jason, the topic is commodities. What 0:08:53.240 --> 0:08:59.440 is the best commodity to invest in? Now, well, there 0:08:59.480 --> 0:09:03.040 are a number are different commodities that I think offer 0:09:03.160 --> 0:09:07.000 opportunities to leverage what's going on in the global economy. 0:09:07.080 --> 0:09:10.800 We don't normally, we don't offer explicit investment advice, but 0:09:11.240 --> 0:09:13.280 you know, I'd say that if we're looking at what's 0:09:13.320 --> 0:09:16.479 going on in the global economy. I think that um 0:09:16.600 --> 0:09:20.520 China offers big insights into what will happen with aluminum 0:09:20.600 --> 0:09:24.120 with oil. Just this morning Opex monthly oil report was out. 0:09:24.760 --> 0:09:28.200 China is expected to see even greater oil demand growth 0:09:28.240 --> 0:09:30.599 than last year the global economy. Those I m F 0:09:30.760 --> 0:09:34.480 numbers really convey that industrial metals and oil prices are 0:09:34.520 --> 0:09:37.440 like to see some upward pressure. And that's despite the 0:09:37.480 --> 0:09:41.920 fact that there's potential for capacity to come online, especially 0:09:41.960 --> 0:09:44.560 for say oil with with shale. But a lot of 0:09:44.559 --> 0:09:47.400 this will hinge on what happens with the outlook for 0:09:47.440 --> 0:09:50.320 the global economy, the outlook for the dollar, and I 0:09:50.360 --> 0:09:53.880 think US inflation will remain the biggest question as to 0:09:54.840 --> 0:09:58.679 how much upside there really is for monty prices. You know, Jason, 0:09:58.760 --> 0:10:00.560 I want to I want to home in on oil 0:10:00.720 --> 0:10:03.520 because last week we had the worst week for crude 0:10:04.000 --> 0:10:07.760 I believe since twenty sixteen and two years, and today 0:10:07.800 --> 0:10:09.839 we are seeing a little bit of a bounds. But 0:10:09.920 --> 0:10:11.640 you know, you were talking about the good numbers that 0:10:11.640 --> 0:10:14.440 we're getting out of China. It's surprising, it's not more 0:10:14.640 --> 0:10:18.640 if people really believed that there was significant further upside 0:10:18.640 --> 0:10:20.760 for oil. So you know, how far could we go 0:10:20.880 --> 0:10:24.560 right now, we're underneath sixty dollars of barrel? Where do 0:10:24.600 --> 0:10:29.040 you see crewde ending the year? Well, for the year's 0:10:29.120 --> 0:10:31.280 average price, you know we see w t I between 0:10:31.320 --> 0:10:33.480 sixty and sixty five. But you know we're going to 0:10:33.600 --> 0:10:35.680 have a really hot driving season this year. You know, 0:10:35.720 --> 0:10:40.160 the job markets that's been since two thousands, two thousand one, 0:10:40.920 --> 0:10:44.520 we've seen. Uh. Now with the tax cuts, people are 0:10:44.520 --> 0:10:48.000 gonna have more disposable income. You're gonna see this be 0:10:48.080 --> 0:10:52.600 a very big, rocking driving season. And that means that 0:10:52.679 --> 0:10:56.280 gasoline demand in the US is going to be very strong, 0:10:56.400 --> 0:11:00.560 and that drives global oil prices. So once we get 0:11:00.600 --> 0:11:02.880 to the latter part here of Q one and we 0:11:02.880 --> 0:11:05.400 go into Q two and we see the ramp up 0:11:05.480 --> 0:11:07.800 for the US driving season, there's going to be a 0:11:07.840 --> 0:11:10.480 lot of demand for refineries for crude oil, and that 0:11:10.480 --> 0:11:13.360 could some prices higher. We could see spikes to seventy, 0:11:13.400 --> 0:11:16.199 We could see spikes above that. I wouldn't expect those 0:11:16.240 --> 0:11:19.320 to be sustained prices because the shale drillers are going 0:11:19.360 --> 0:11:23.840 to see those spikes as opportunities to lock in production 0:11:23.840 --> 0:11:25.720 at a certain price level. But I think you're gonna 0:11:25.760 --> 0:11:28.160 see most of the price action for the year being 0:11:28.240 --> 0:11:31.320 the six sixty five range for w t I and 0:11:31.720 --> 0:11:34.439 a few dollars higher for brents. So but one of 0:11:34.520 --> 0:11:37.320 the question though with oil, how much is uh sort 0:11:37.320 --> 0:11:39.920 of the direction of prices they're dependent on the dollar, 0:11:39.960 --> 0:11:42.600 because we are seeing a bit of a rebound today 0:11:42.640 --> 0:11:46.840 in prices, although not recouping even the losses on Friday. Uh, 0:11:46.880 --> 0:11:49.640 And of course the dollar is weakening a little bit, 0:11:49.679 --> 0:11:51.880 and this has sort of been a move in tandem. 0:11:51.960 --> 0:11:55.040 So how much do you sort of judge that? Well, 0:11:55.120 --> 0:11:56.920 that's more of a long term thing, you know, we've 0:11:56.960 --> 0:11:59.640 looked at these dollar crude price dynamics. That's more of 0:11:59.679 --> 0:12:02.520 a long term uh. You know, over a multi year 0:12:02.559 --> 0:12:05.080 period or over a single year period, you can see 0:12:05.080 --> 0:12:08.600 that there's an inverse correlation. What's more important is the 0:12:08.640 --> 0:12:11.560 expectation of how stable is growth. And that's why I 0:12:11.559 --> 0:12:13.840 say US inflation is gonna be really important right now. 0:12:14.080 --> 0:12:16.679 That's CPI report on Wednesday is going to be critical 0:12:16.760 --> 0:12:19.720 for what happens to the dollar, what happens to equities, 0:12:19.760 --> 0:12:23.600 what happens to oil, what happens to metals, Because the 0:12:23.640 --> 0:12:26.960 sell offs we've seen not just in oil, but in equities, 0:12:27.800 --> 0:12:29.959 the rebound in the green back and the rise in 0:12:30.040 --> 0:12:33.360 bond yields that was all triggered by the wage inflation 0:12:33.440 --> 0:12:37.400 in the February second release of that January jobs report 0:12:37.480 --> 0:12:39.960 that was two point nine percent year over year. And 0:12:40.000 --> 0:12:42.080 so I think you're gonna see folks looking for this 0:12:42.200 --> 0:12:44.800 to be you know, kind of a modest CPI report 0:12:44.880 --> 0:12:48.000 and and that would you know, potentially send oil prices, 0:12:48.040 --> 0:12:51.000 medals prices, equities back up on yields, and the dollar 0:12:51.080 --> 0:12:54.560 back down. But against that backdrop, if you get a 0:12:54.600 --> 0:12:58.600 surprise of more inflation, uh, then you know that that 0:12:58.679 --> 0:13:01.400 party is over and you see these things take another hit. 0:13:01.760 --> 0:13:04.679 So I think that's the biggest economic data point to watch, 0:13:04.880 --> 0:13:07.760 and that's going to impact what happens to prices right 0:13:07.840 --> 0:13:10.720 for a couple of weeks because you've got um Now, 0:13:10.760 --> 0:13:12.520 then the eyes will be on the next FED meeting 0:13:12.520 --> 0:13:14.600 where we expect the rate high can we have been 0:13:14.640 --> 0:13:17.640 for a number of months? Jason just quickly, does that 0:13:17.679 --> 0:13:21.920 mean that it would be a good investment refining companies 0:13:21.920 --> 0:13:26.800 oil refineries like Marathon patrol it Well, you know we 0:13:26.840 --> 0:13:29.840 don't comment on specific company names. You know, it'll depends 0:13:29.840 --> 0:13:31.640 what they called the crack spreads, and crack spread is 0:13:31.679 --> 0:13:34.880 a profit margin between product and crewde prices. UM. You know, 0:13:34.920 --> 0:13:38.280 if you were to see the demand for those products 0:13:38.320 --> 0:13:40.760 be high and crew prices below, then that should make 0:13:40.960 --> 0:13:45.240 the profit margins for refineries UH quite high. Especially if 0:13:45.280 --> 0:13:48.040 we see that that that demand that driving season be 0:13:48.080 --> 0:13:51.080 as strong as we expect to. Refineries are likely as 0:13:51.080 --> 0:13:54.960 an industry to do well going into the driving season. 0:13:55.160 --> 0:13:58.000 Jason Shanker, thank you so much for joining us. Jason Shanker, 0:13:58.080 --> 0:14:02.120 president and founder of Prestige Economics. He also is a 0:14:02.160 --> 0:14:07.160 Bloomberg Profit writing columns on everything from commodities to equities. 0:14:07.200 --> 0:14:23.440 Thank you so much for being with us. For e 0:14:23.600 --> 0:14:26.520 t F that has been largely a one way road 0:14:26.640 --> 0:14:30.520 over the past few years with investors pouring money into 0:14:30.840 --> 0:14:34.120 these funds. Last week there was a change with exchange 0:14:34.120 --> 0:14:38.000 traded funds seeing thirty one billion dollars in withdrawals. You 0:14:38.120 --> 0:14:40.600 to talk about the industry, Karen Shnoony. She has a 0:14:40.640 --> 0:14:44.720 fixed income strategist for black Rock based in San Francisco. UH, 0:14:44.800 --> 0:14:47.880 And Karen, before we get into a study that black 0:14:47.960 --> 0:14:50.960 Rock conducted about E t F investing, I want to 0:14:50.960 --> 0:14:53.040 get your take on last week because we did see 0:14:53.120 --> 0:14:57.240 some very big withdrawals across the board from some corporate 0:14:57.240 --> 0:15:00.680 debt fixed income ETFs, but really from the big broad 0:15:01.040 --> 0:15:04.880 US equity e t s. Is this a signal of 0:15:04.920 --> 0:15:08.600 something broader? And are are you concerned about it? No, 0:15:08.720 --> 0:15:11.080 we're not concerned. What we tend to see whenever we 0:15:11.160 --> 0:15:14.200 have these market sell offics is ets really step in 0:15:14.280 --> 0:15:17.400 and help the capital markets because they provide pricing transparency 0:15:17.840 --> 0:15:19.560 and they allow a lot of investors to be able 0:15:19.560 --> 0:15:21.920 to get in an out of asset classes very easily. 0:15:23.080 --> 0:15:25.520 Having said that, maybe you could just step back and 0:15:25.560 --> 0:15:28.800 tell us about this survey for a moment and what 0:15:28.920 --> 0:15:33.800 you learned that may be surprising to some investors. Absolutely, so, 0:15:33.960 --> 0:15:36.880 black Rock conducted an e t F Pulse survey, and 0:15:36.960 --> 0:15:40.280 this talks to both investors who are users of ets 0:15:40.280 --> 0:15:42.600 and non users of ets to really help them help 0:15:42.680 --> 0:15:45.240 us understand what's driving their behavior and how they think 0:15:45.280 --> 0:15:48.000 about ets. So there were some pretty interesting trends that 0:15:48.080 --> 0:15:50.640 came out of this year's surveys. About one in three 0:15:50.640 --> 0:15:53.280 investors right now is using e t s and they're 0:15:53.360 --> 0:15:56.160 using them in a variety of different nasset classes, not 0:15:56.240 --> 0:15:58.240 only that we've noticed that the holding period for e 0:15:58.320 --> 0:16:01.360 t s has really increased. So it was only about 0:16:01.400 --> 0:16:04.040 five years was the average holding period. That's increased to 0:16:04.080 --> 0:16:08.000 five point seven years, and we're seeing that over of 0:16:08.040 --> 0:16:10.880 investors plan on keeping their et F holdings over eleven years. 0:16:11.240 --> 0:16:13.440 So we're releasing that these are low cost investments that 0:16:13.440 --> 0:16:16.840 are really driving the core of investors portfolios UM. But 0:16:16.920 --> 0:16:18.800 one of the other interesting things that we noticed was 0:16:19.000 --> 0:16:21.240 the boomers, the baby Boomers actually had some of the 0:16:21.280 --> 0:16:25.040 lowest usage of ETS, even below the silver's Gen X 0:16:25.040 --> 0:16:28.680 and millennials in terms of their portfolio adoption. Karen, what's 0:16:28.720 --> 0:16:34.560 the breakdown with respect to institutional use versus retail use? 0:16:35.760 --> 0:16:37.880 So at least I would say it depends on the fund. 0:16:38.080 --> 0:16:40.160 What we've noticed this with some of the larger, most 0:16:40.200 --> 0:16:42.920 liquid funds, we are seeing more institutional adoption. It can 0:16:42.920 --> 0:16:46.520 be as high as sixty seventy UM, but we're noticing 0:16:46.520 --> 0:16:49.040 with some of the smaller, newer funds or more niche exposures, 0:16:49.080 --> 0:16:52.400 it still is primarily dominated by retail. But in general, 0:16:52.480 --> 0:16:55.360 we're seeing more pension plans, insurance companies, either other other 0:16:55.400 --> 0:16:58.080 asset managers using ETS as a way to get exposure 0:16:58.080 --> 0:17:01.520 to different asset classes to give any reason for why 0:17:01.560 --> 0:17:05.560 they are opting for exchange traded funds, Yes, I think 0:17:05.600 --> 0:17:07.480 some of the biggest reasons that we're seeing is that 0:17:07.520 --> 0:17:09.280 people are starting to use them more as a long 0:17:09.400 --> 0:17:12.640 term holding. And we're also seeing that some people are 0:17:12.680 --> 0:17:15.679 migrating away from using actively managed mutual funds, and I 0:17:15.680 --> 0:17:19.360 think the flows um helped demonstrate that narrative as well. 0:17:19.400 --> 0:17:20.840 Just as we've seen a lot of money coming out 0:17:20.840 --> 0:17:24.400 of especially active stock funds in favor of more index products. 0:17:24.920 --> 0:17:28.880 So with respect to pensions, uh, and say perhaps even 0:17:28.920 --> 0:17:32.879 insurance companies, which funds do they tend to gravitate toward? 0:17:33.080 --> 0:17:35.040 And what what are et f s replacing? Is it 0:17:35.080 --> 0:17:38.359 managed to counts exactly what you're saying. Uh. Some of 0:17:38.359 --> 0:17:41.040 it is individual bonds, so they might be especially on 0:17:41.040 --> 0:17:43.720 the fixed income side. We might see pension plans and 0:17:43.720 --> 0:17:47.720 insurance companies. They've they've been very big buyers of individual securities. 0:17:48.080 --> 0:17:51.000 They're also looking for creative ways to build liquidity into 0:17:51.000 --> 0:17:53.320 their portfolios so they can be more nimble as well. 0:17:53.720 --> 0:17:55.639 So we're seeing go ahead, so know that, just to 0:17:55.640 --> 0:17:57.680 make sure that I understand this. In other words, Uh, 0:17:57.800 --> 0:18:00.800 they might own specific bonds which is not E t 0:18:01.040 --> 0:18:03.600 F s U, and they would go after and uh 0:18:04.080 --> 0:18:07.840 look at specific securities that they analyze, but they would 0:18:07.880 --> 0:18:10.800 then have basically E t F exposure that they could 0:18:10.840 --> 0:18:13.560 sell if they wanted to change their positioning. On a 0:18:13.560 --> 0:18:17.240 broad level, that's right. Our our flagship investment grade corporate 0:18:17.280 --> 0:18:19.800 bond fund l q D is being held by quite 0:18:19.840 --> 0:18:23.080 a bit of insurance companies and pension plans because they 0:18:23.080 --> 0:18:25.000 know that they can get that exposure to corporate bonds 0:18:25.000 --> 0:18:27.719 that they're looking for in a much more diversified liquid 0:18:27.720 --> 0:18:30.879 way than they compare that with maybe other securities that 0:18:30.920 --> 0:18:33.560 are higher and book yield that they wanted to buy 0:18:33.880 --> 0:18:35.680 um and then they can do the look through and 0:18:36.080 --> 0:18:38.880 DTF to see how much exposure they have to individual issuers. 0:18:39.560 --> 0:18:44.480 When you mentioned the sort of relative popularity of exchange 0:18:44.480 --> 0:18:48.800 traded funds between millennials and other age cohorts, could it 0:18:48.920 --> 0:18:52.359 be possible that, you know, millennials, they may be invest 0:18:52.400 --> 0:18:54.399 through there for oh one K plans and many for 0:18:54.560 --> 0:18:56.919 oh one case don't include e t F s as 0:18:56.960 --> 0:19:00.200 an option. You're right, A lot of foreign k as, 0:19:00.240 --> 0:19:02.600 a lot of retirement plans don't currently have very much 0:19:02.600 --> 0:19:05.800 at F usage, but we found that the millennials indicated 0:19:05.840 --> 0:19:08.320 that about forty of them do own E t F 0:19:09.000 --> 0:19:12.280 and the current allocations about eighteen percent. So we're seeing 0:19:12.280 --> 0:19:15.680 that especially with robo advisors. UM it's a very popular 0:19:15.720 --> 0:19:18.439 way for millennials to invest because they can literally use 0:19:18.480 --> 0:19:20.520 an app on their phone to do it. So we're 0:19:20.520 --> 0:19:22.199 finding that that's one of the ways that a lot 0:19:22.240 --> 0:19:24.920 of monials get started with investing, and those robo advisors 0:19:24.920 --> 0:19:27.560 are using a lot of ets. Just real quick, Karen, 0:19:27.600 --> 0:19:30.560 I'm wondering from your perspective, how much can people read 0:19:30.680 --> 0:19:34.840 into flows as being significant with respect to a broad market. 0:19:34.840 --> 0:19:36.760 I'm I'm thinking about l QT, which you were talking 0:19:36.760 --> 0:19:40.400 about just then, with insurance companies and pensions. It saw 0:19:40.440 --> 0:19:43.240 about two billion dollars about outflows over the past week. 0:19:43.760 --> 0:19:47.359 Is that significant? I think it's just an indication that 0:19:47.440 --> 0:19:50.760 a lot of investors are either a thinking that credit 0:19:50.800 --> 0:19:53.120 spreads are very tight and maybe they want to lighten 0:19:53.200 --> 0:19:55.120 up some of their corporate credit. Maybe they might want 0:19:55.119 --> 0:19:57.320 to go to either risk your securities, like we've seen 0:19:57.320 --> 0:19:59.119 a lot of them flows into emerging market debt. The 0:19:59.200 --> 0:20:02.040 last few weeks, we've seen some people using the price 0:20:02.119 --> 0:20:04.680 dislocation in the equity markets as a as a buying 0:20:04.720 --> 0:20:07.399 opportunity to go back into equities. So I think you 0:20:07.440 --> 0:20:09.520 can look at thet F flows and understand that they're 0:20:09.520 --> 0:20:13.080 indicative of broader sentiment on an asset class. Thanks very 0:20:13.160 --> 0:20:15.560 much for being with us. Karen Shinnoni is fixed income 0:20:15.640 --> 0:20:19.640 strategist for black Rock, joining us from San Francisco, giving 0:20:19.720 --> 0:20:22.840 us details about the results of their latest black Rock 0:20:23.000 --> 0:20:40.359 e t F Pulse survey, Luxury travel in Asia. What 0:20:40.560 --> 0:20:43.760 makes it luxurious? Let's find out more from deep pac Ory. 0:20:43.880 --> 0:20:47.800 He is the chief executive of Lebua Hotels and Resorts. 0:20:47.800 --> 0:20:51.040 They are based in Bangkok, and Deepak joins us here 0:20:51.080 --> 0:20:53.040 in our eleven three oh studios. Thank you very much 0:20:53.080 --> 0:20:55.000 for being here. Thank you very much. All right now 0:20:55.000 --> 0:20:57.040 you're going to have to do all the pronunciations here 0:20:57.080 --> 0:21:00.320