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Speaker 1: order your first custom shirt today. Welcome to the Bloomberg

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Speaker 1: P and L Podcast. I'm pim Fox. Along with my

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Speaker 1: co host Lisa Abramowitz. Each day we bring you the

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Speaker 1: most important, noteworthy, and useful interviews for you and your money,

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Speaker 1: whether at the grocery store or the trading floor. Find

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Speaker 1: the Bloomberg P and L Podcast on iTunes, SoundCloud and

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Speaker 1: at Bloomberg dot com. President Trump just now, in his comments,

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Speaker 1: reiterated his statement that he has said many times before

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Speaker 1: that the best thing politically for Republicans to do would

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Speaker 1: be just to allow Obamacare to fail because it will

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Speaker 1: be a disaster with us to get a little bit

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Speaker 1: more insight into what potentially are the problems and what

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Speaker 1: the disaster may have looked like. Is Susan divorce. She's

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Speaker 1: CEO of Premiere, which advises healthcare systems across the country

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Speaker 1: and has a really good vantage point to look across

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Speaker 1: the US healthcare system Susan, We're so glad to have

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Speaker 1: you today. So just to weigh in on that point,

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Speaker 1: what are the main problems that President Trump is probably

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Speaker 1: talking about when he calls Obamacare disaster that it would

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Speaker 1: evolve into one should the Republicans not do anything to it.

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Speaker 1: Thanks so much, Lisa. I think what he's talking about

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Speaker 1: is that healthcare and Obamacare, the Affordable Care Act, it's

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Speaker 1: very costly, it limits choice in some ways for patients,

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Speaker 1: and it's very complicated. And I think that he um.

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Speaker 1: I think he believes that uh, consumers being more engaged

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Speaker 1: in their health care and having a more free market

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Speaker 1: competitive system will be more effective for consumers. But that

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Speaker 1: doesn't sound like it is aaster. Where's the disaster part,

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Speaker 1: you know? I think the disaster part is really um

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Speaker 1: probably embedded in just the overall total cost. The benefit

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Speaker 1: plan design is pretty rich, the subsidies to Medicaid are

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Speaker 1: pretty high, and so I think what he worries about

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Speaker 1: is the impact to businesses, the impact to taxpayers for

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Speaker 1: the cost of healthcare. Can we just step back for

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Speaker 1: just a second, because I noted that Brad Wilson was introduced.

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Speaker 1: He is the head of a Blue Cross Blue Shield

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Speaker 1: in North Carolina. Which is where a premier is headquartered.

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Speaker 1: So you've got an ally or at least a colleague

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Speaker 1: speaking with the president. Is healthcare a national issue or

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Speaker 1: is it a state issue? Healthcare is actually delivered locally.

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Speaker 1: It's even smaller than state or national because these health

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Speaker 1: care systems in communities are there forever serving those populations,

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Speaker 1: whether there's any payment or exchanges or Medicaid subsidy um.

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Speaker 1: But I would say that the Trump administration would like

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Speaker 1: for it to be a more state based system. And

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Speaker 1: part of the changes that we believe are coming are

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Speaker 1: really around how do you empower the states to take

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Speaker 1: more control of Medicaid? So talk a little bit about that,

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Speaker 1: I mean, how would you? So? I think the plan

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Speaker 1: is that if you could change the level of subsidy

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Speaker 1: and in some ways have a fixed amount a cap

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Speaker 1: or a block grant and give it to the states,

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Speaker 1: you would then give the states the flexibility to decide

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Speaker 1: how best to take care of their Medicaid populations. But

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Speaker 1: how does that jibe with this idea of allowing UH

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Speaker 1: people are participate in a government sponsored health plan to

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Speaker 1: go across state lines? I mean, how does that? How

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Speaker 1: does that play into that whole discussion makes it harder.

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Speaker 1: I mean what I call it fifty shades a healthcare

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Speaker 1: I mean you will have fifty different programs, fifty different

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Speaker 1: measurement systems. If you're a provider, you're a doctor, or

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Speaker 1: you're a health care system, and especially if you're a

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Speaker 1: multi state health care system, you will have multiple different

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Speaker 1: programs trying to essentially accomplish the same things. Well, let's

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Speaker 1: just follow on with that topic, because it seems as

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Speaker 1: though with the introduction of technology, greater information sharing and

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Speaker 1: the ability of people to be mobile. Right, if you

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Speaker 1: want an operation and you know that the best result

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Speaker 1: can be garnered from a hospital in Texas, and you

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Speaker 1: happen to live in Illinois, um that should be or

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Speaker 1: that maybe an option for you? Is there a better

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Speaker 1: way to deliver healthcare on this scale and take advantage

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Speaker 1: of the the cost savings. If only that worked, it

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Speaker 1: would be a much better way. The problem is we

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Speaker 1: have to lift this iron curtain on data because there

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Speaker 1: are so many limitations in the portability of data across

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Speaker 1: multiple information information systems. It just doesn't work today. And

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Speaker 1: that's not even a health care issue, not even a

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Speaker 1: health care issue. So how would you do that? What

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Speaker 1: what do you think if you would like to see

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Speaker 1: new legislation introduced in Congress? We need legislation introduced. There's

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Speaker 1: already been some legislation introduced along with the twenty one

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Speaker 1: Cures Act Century Cures Act, which really requires standards for healthcare.

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Speaker 1: I mean, every other industry has had standards for transmitting information,

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Speaker 1: privacy standards, security standards, reporting standards. We don't have it yet.

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Speaker 1: You know. Ultimately, this whole debate about Obamacare comes down

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Speaker 1: to cost, right, I mean that's the that's the essential

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Speaker 1: issue here. Is there a way to meaningfully reduce costs

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Speaker 1: at a time when the US population is aging dramatically? Yeah?

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Speaker 1: So at Premier we spend every day figuring out how

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Speaker 1: do we improve quality and safety and lower the cost

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Speaker 1: of healthcare. The demographics are are driving the cost up.

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Speaker 1: The lack of coordination, coordination and the fragmentation of care

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Speaker 1: is driving cost up. The inability to exchange this information

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Speaker 1: is driving cost up, and cost are growing at one

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Speaker 1: to two percent faster rate than the GDP. That is

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Speaker 1: not going to work, right, But is there a way

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Speaker 1: to let's say, you did, uh, you know, streamline the

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Speaker 1: data bullet I mean, like but I'm just trying to

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Speaker 1: figure out. I mean, if we sort of follow a

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Speaker 1: certain prescription with streamlining of the data, with you know,

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Speaker 1: maybe I don't know if you would advocate for government

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Speaker 1: negotiation for prices, you know, pharmaceutical prices or not. I mean,

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Speaker 1: that's a very touchy subject um. But are there ways

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Speaker 1: to bring it down or is this just an inevitable

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Speaker 1: inevitability of an aging population. Lots of ways to bring

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Speaker 1: it down. And at Premiere where we we we process

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Speaker 1: fifty billion dollars of supply chain spend by creating competitive

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Speaker 1: friction between suppliers to drive the cost down. We work

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Speaker 1: with healthcare systems to you know, reduce infections, reduce readmissions,

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Speaker 1: lower the length of stay in a hospital. We have

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Speaker 1: just three and fifty hospitals that have been working together

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Speaker 1: on this for several years. They alone have saved fifteen

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Speaker 1: billion dollars. So there are lots of ways to do it.

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Speaker 1: But you have to coordinate the care, you have to

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Speaker 1: have anders for reporting, you have to enable providers to

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Speaker 1: actually work together. Remove a bunch of the regulations and barriers,

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Speaker 1: which I do think the Trump administration is intent on doing. Well.

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Speaker 1: We see a system in which will actually be able

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Speaker 1: to know how much the healthcare costs. And I don't

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Speaker 1: mean on a larger level, you know, billions, but in

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Speaker 1: terms of an individual, a patient actually being able to

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Speaker 1: know at the very least how much a procedure costs. Yeah.

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Speaker 1: I think that part of the push for the Trump

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Speaker 1: administration and the Republicans is to get consumers engaged. So

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Speaker 1: if you have health care savings accounts, you start to

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Speaker 1: get transparency. Consumers start to demand transparency to the to

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Speaker 1: the price of procedures and to the things that are

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Speaker 1: being used and get involved in those decisions. So I

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Speaker 1: think it's going to take a while, but I think

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Speaker 1: that is definitely where the Republicans want to go. One

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Speaker 1: thing that President Trump mentioned was Tom Price, Dr. Price,

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Speaker 1: Head of Health and Human Services. What can doctors do

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Speaker 1: in this context? And is that also a challenge because

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Speaker 1: you have the American Medical Association still is a state

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Speaker 1: based program, right and you know many have said that

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Speaker 1: of the cost of health care comes from the doctor's pen,

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Speaker 1: so they really are the place where a lot of

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Speaker 1: decisions are being made. We actually think this whole repeal

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Speaker 1: and replace will take two to three years. It will

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Speaker 1: have three steps. The first is the repeal with reconciliation,

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Speaker 1: The second is dr Price. He has a lot of

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Speaker 1: regulatory flexibility, and the third will be several incremental bills

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Speaker 1: to replace it over time. Have you been in touch

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Speaker 1: with representatives who are drafting the new version of Obamacare?

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Speaker 1: We have. We have a big Washington based UM office

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Speaker 1: and we routinely meet with a lot of the Republicans

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Speaker 1: and a lot of them. Do you get a sense

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Speaker 1: of how cohesive the Republicans are when it comes to

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Speaker 1: a new proposal. There's a lot of discussion and debate,

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Speaker 1: and it's what makes us at Premier think this is

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Speaker 1: going to take time and it's going to be an

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Speaker 1: incremental bills that they can build support for. What's the

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Speaker 1: most controversial aspect. The most controversial aspect I think at

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Speaker 1: this point is that you have Medicaid expansion for ten

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Speaker 1: million people and the benefit plan design is rich and

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Speaker 1: the subsidy is rich, and how how do you pull

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Speaker 1: that back? How do you change that and how do

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Speaker 1: you get um some cost containment into that system? I

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Speaker 1: think is a big challenge and the people who have

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Speaker 1: expanded Medicaid have a hard time, you know, reducing it

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Speaker 1: or taking it away the people who haven't expanded Medicaid

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Speaker 1: can't maybe afford to expand Medicaid. So I think that's

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Speaker 1: probably the toughest part of this. Well, it's interesting because

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Speaker 1: that it ties back to Lisa's first question having to

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Speaker 1: do with block grants and money flowing to the states.

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Speaker 1: What's the implication for Medicaid in that context. So, Brad Wilson,

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Speaker 1: you mentioned from North Carolina NA. In North Carolina, they're

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Speaker 1: taking two approaches. One is a managed care insurance approach.

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Speaker 1: The other is a provider led healthcare system lead approach.

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Speaker 1: If you give states a flat rate, a capt amount,

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Speaker 1: a block grant, there's all kinds of flexibility for those

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Speaker 1: states to figure out how to coordinate that care. And

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Speaker 1: so I think that is that that is the method

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Speaker 1: that they will use to try to contain costs and

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Speaker 1: get predictability to that line item. At the same time,

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Speaker 1: some of this stuff has to be done at the

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Speaker 1: federal level. Well, this is the problem with fifty different

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Speaker 1: programs for Medicaid. If you had fifty different programs from Medicare,

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Speaker 1: I mean actually managing that if you're a doctor, or

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Speaker 1: you're a hospital, or you're a health system, it's it's

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Speaker 1: it's totally unmanageable. So I do think we need federal standards,

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Speaker 1: federal framework. We need to make sure that patients are protected,

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Speaker 1: transparency is their costs are predictable and managed, and so

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Speaker 1: I think it is a combination of federal and state programs. Well,

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Speaker 1: thank you very much for coming in and spending time

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Speaker 1: with us and educating us all. Susan Davore is the

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Speaker 1: chief exam ecorative of Premier the symbol p i NC

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Speaker 1: based in Charlotte, North Carolina. Thank you very much. I

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Speaker 1: know this is going to be a topic that we're

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Speaker 1: going to keep calling on your expertise in the future. Well,

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Speaker 1: let's get more on what Warren Buffett said in his

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Speaker 1: annual letter to shareholders on Saturday with Noah Bloyer. He

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Speaker 1: is a Bloomberg reporter covering Berkshire Hathaway covering this letter

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Speaker 1: and subsequent commentary from Warren Buffett. Noah, what was your

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Speaker 1: biggest takeaway from this letter? I think the biggest thing

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Speaker 1: that that Buffett commented on here was just a tremendous

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Speaker 1: amount of money that has been wasted on active management.

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Speaker 1: Uh he he estimated conservatively that money managers, have you

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Speaker 1: enough a hundred billion dollars over the last ten years

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Speaker 1: on on fees that really didn't deliver returns um to

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Speaker 1: beat the market. So that was that was far and

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Speaker 1: away his his his big takeaway from this one. So

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Speaker 1: it doesn't warm Buffet have a one million dollar bet

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Speaker 1: he will give one million dollars to charity if he

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Speaker 1: can beat hedge fund managers by investing in a passive

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Speaker 1: SMP five hundred index this year. Yeah, it's it's it's

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Speaker 1: a ten year bet and it's coming to an end.

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Speaker 1: He bet that. Uh, like you said, an m P

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Speaker 1: five tracker from Vanguard could could beat um a basket

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Speaker 1: of hedge funds, it was actually several funds of funds um,

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Speaker 1: and nine years into that bet, he's way ahead. It

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Speaker 1: ends on December thirty one, and he basically declared in

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Speaker 1: early victory. Now explain what warm Buffets position is on

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Speaker 1: people who can actually outpace the market when it comes

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Speaker 1: to returns. So, yeah, that's a great question. He did.

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Speaker 1: He did throw that crowded bone. He said it's not

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Speaker 1: impossible to do that. Obviously, Buffett himself as an example,

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Speaker 1: and and he thinks that he can keep doing that.

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Speaker 1: At Berkshire he's not buying index funds for Berkshire. What um.

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Speaker 1: What he did say though, is that it's incredibly difficult

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Speaker 1: to identify people who can outperform over the long haul

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Speaker 1: early on in their careers, because if you don't do

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Speaker 1: it early in their careers, it's you're you're often going

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Speaker 1: to miss out on that incredible performance that that those

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Speaker 1: managers are going to have. You know, I found it compelling,

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Speaker 1: aside from the passive and active debate that is quite

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Speaker 1: heated and topical. At the moment, I thought that Warren

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Speaker 1: Buffett's optimism was somewhat surprising because Warren Buffett was a

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Speaker 1: longtime supporter of Hillary Clinton, and he made no mention

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Speaker 1: of President Trump. And he said that children born in

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Speaker 1: America today have the brightest future ever and considered continued

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Speaker 1: to reiterate his faith in the economy that even if

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Speaker 1: there are hiccups, that it will keep chugging along. What

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Speaker 1: did you make of this? Well, actually, I thought that

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Speaker 1: those passages were quite consistent with what he's what he said, um,

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Speaker 1: and you know, he's he has expressed optimism about the

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Speaker 1: prospects or business in America for a long long time.

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Speaker 1: And you can go back to his letters, He's he's

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Speaker 1: obviously been an incredible beneficiary of it um but but

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Speaker 1: but so have lots of other people. And I think

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Speaker 1: his point there really was to tell people that business

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Speaker 1: will do fine in America. We have a good economic

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Speaker 1: system and it doesn't matter who's in the OPA office.

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Speaker 1: You are right to point out that he was a

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Speaker 1: big bactor of Hillary Clinton and policy wise lined up

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Speaker 1: with her a lot more. But I think what Buffett

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Speaker 1: was trying to do in this letter is remind people

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Speaker 1: that over the history of America, business has done just fine.

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Speaker 1: Our capitalist system has worked very, very well, and and

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Speaker 1: and he was reminding people that they shouldn't get too

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Speaker 1: wrapped up maybe the doom and gloom of the moment.

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Speaker 1: He also spoke, uh, sort of eloquently about his his

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Speaker 1: vision for his position in the future, right, I mean,

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Speaker 1: he said that, you know, he's ready to go. He

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Speaker 1: doesn't foresee retirement anytime soon, although he did say something

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Speaker 1: that's you know, it's difficult to identify the things that

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Speaker 1: he's going to be interested in, but he's always ready

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Speaker 1: to take advantage of opportunities, right right, right, Yeah, I

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Speaker 1: mean it's it's kind of incredible at eighty six. He just,

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Speaker 1: I mean just this morning, said he increased his Apple steak.

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Speaker 1: It's now north of eighteen billion dollars. I mean, this

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Speaker 1: is the guy whose clipped that he still uses the

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Speaker 1: flip phone. Um so, uh yeah. I mean, there was

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Speaker 1: nothing in the letter that suggested he's ready to hang

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Speaker 1: up his police and you know, quite to the contrary,

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Speaker 1: he Berkshire keeps evolving and he keeps thinking about ways

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Speaker 1: to expand and grow the business over time. Let's talk

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Speaker 1: about Apple. This morning, Warren Buffett said that he continued

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Speaker 1: to buy Apple shares at at a rapid clip, and

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Speaker 1: that it is now I believe, his second biggest holding.

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Speaker 1: What do you make it? I mean, what I make

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Speaker 1: of that is I think what we wrote last year

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Speaker 1: when when the stake was first disclosed, is that Apple.

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Speaker 1: You know, Buffett has long had this aversion to tech companies,

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Speaker 1: but they're not looking at Apple as a tech company.

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Speaker 1: They're looking at it more as a consumer products company.

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Speaker 1: And if you think about Apple from the advantage, it

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Speaker 1: really does start to check some of the boxes that

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Speaker 1: that Buffett cares about. The iPhone, you know, he said

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Speaker 1: this morning is just this incredibly sticky product. And when

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Speaker 1: you have an ecosystem of apps and all the stuff

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Speaker 1: that Apple is is providing in terms of the cloud, Um,

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Speaker 1: people are just reluctant to change devices or switched to

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Speaker 1: a different ecosystem. So, um, I think I think that

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Speaker 1: played in more than uh, his you know, past reservation

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Speaker 1: about being able to guess where technology is going. No,

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Speaker 1: he also spoke about furniture. Maybe you want to sit

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Speaker 1: on something while you're using your Apple product, and that

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Speaker 1: is a good connection to taxes. He spoke a little

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Speaker 1: bit about that as well. Yeah, I mean I think

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Speaker 1: I think he was cautioning people. Um, you know, there's

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Speaker 1: been a lot of talk about the border adjustment and

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Speaker 1: what's going to happen with respect to tax reform, and

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Speaker 1: I think he threw some cold water on the idea

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Speaker 1: that we were going to have this major, major overhaul.

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Speaker 1: Um in part because um uh there's uh, there's some

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Speaker 1: political realities and um, well economic realities too, right, because

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Speaker 1: he's got furniture stores. He says, it's seventy of what

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Speaker 1: you see is important, and then if you have to

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Speaker 1: pay an import tax on it, they're just going to

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Speaker 1: pass it along to two consumers. Yeah, that's that's that's

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Speaker 1: exactly what he said. And um, uh, we're gonna have

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Speaker 1: to see over the course of this year if he's right. Um,

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Speaker 1: I want to ask about bonds. He was pretty naked

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Speaker 1: have about treasuries and he did reduce proportion of government

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Speaker 1: bond holdings in his portfolio. How how well has he

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Speaker 1: timed the bond market? You know, I think I think

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Speaker 1: the more important thing to look at there is just

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Speaker 1: the Buffett has had this ban um towards stocks, towards

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Speaker 1: wayne to own productive assets for a long time. And uh,

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Speaker 1: it's even though the bond portfolio has been shrinking, He's

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Speaker 1: got a lot of other investments that are bond Like.

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Speaker 1: If you look at the amount of money that Berkshire

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Speaker 1: has poured into the utility industry, for example, I mean

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Speaker 1: the balance sheet of these electric uh power companies that

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Speaker 1: they own. These are regulated utilities that kick off pretty

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Speaker 1: dependable returns um and in certain ways they serve as

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Speaker 1: a bond block investment on Berkshire's balance sheets. So I

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Speaker 1: don't think the discussion is really about whether Buffet time

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Speaker 1: the market right or wrong. He just he just has

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Speaker 1: a fullosophy about investing in productive assets and wanting to

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Speaker 1: be an owner of companies, and I think that's reflected

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Speaker 1: in Berkshire portfolio. Burlington Northern Santa Fe spoke in the

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Speaker 1: letter about the industrials and the infrastructure in the United States.

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Speaker 1: To give us your take, Yeah, b NSF had a

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Speaker 1: had a tougher year last year, and I think Buffett

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Speaker 1: laid that out pretty clearly. A big challenge with the

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Speaker 1: NSF is that, uh, it's a major one of the

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Speaker 1: major things that hauls this coal and we've seen a

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Speaker 1: shift in the US away from power plants using as

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Speaker 1: much coal. We have more natural gas electric generation now,

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Speaker 1: so that's hurt the railroad. UM. Also some of the

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Speaker 1: business they were getting from, you know, providing uh materials

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Speaker 1: and hauling oil away from from our onshore production in

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Speaker 1: the US, that that business has declined. UM. But overall,

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Speaker 1: you know, Buffett reiterated that he's committed to spending lots

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Speaker 1: of capital to make sure the railroad, uh you know,

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Speaker 1: they upgrade their tracks and have um you are spending

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Speaker 1: the kind of capital that that that they need to

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Speaker 1: make that a world class uh company. He also said

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Speaker 1: he did I'm saying a parton go ahead. Well, I

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Speaker 1: thought that He also talked about spending money. He doesn't

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Speaker 1: mind spending big money for fees if he gets a

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Speaker 1: good deal. Yeah, yeah, you know that was that was

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Speaker 1: Buffett sort of typical advertisement that he sticks in the

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Speaker 1: annual letter. He wants to wants to buy businesses he's

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Speaker 1: he has said that Berkshire is a sprawling conglomerate that

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Speaker 1: wants to sprawl ever further. So that was that to me,

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Speaker 1: was an advertisement telling, you know, investment bankers who have

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Speaker 1: ideas about businesses Berkshire might want to buy a you know,

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Speaker 1: coming off on his door. Thanks very much, Noah bou Hire.

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Speaker 1: made Smarter. I want to bring in Brendan Brown, chief

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Speaker 1: economist and head of economic research at Mitsubishi u f

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Speaker 1: J Securities. UH Brennan, you wrote about how the US

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Speaker 1: can win currency wars, and I want to get to that,

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Speaker 1: but I want to start with something else that we're

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Speaker 1: talking about earlier in the program, about how the bond

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Speaker 1: market right now is is sending a veto to the

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Speaker 1: FED as far as hiking rates in March, and I

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Speaker 1: wanted to ask you, do you agree that the FED

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Speaker 1: would accept the bond markets guidance as absolute It would

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Speaker 1: only would only high rates if the bond market was

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Speaker 1: absolutely pricing it. Do you agree with that? I don't

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Speaker 1: agree with that at all. I think the bond market

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Speaker 1: at the moment is entranced by the FED, as are

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Speaker 1: many other markets. Um. If you look at for general

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Speaker 1: way markets behaving been behaving in recent week, stock market up,

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Speaker 1: gold market up, credit credit spreads down, you've got a

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Speaker 1: general vibrant asset price inflation going here. And that's dominated

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Speaker 1: I think by a perception of FED is being pretty easy.

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Speaker 1: If not the easing policy, you have to go back

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Speaker 1: to an observation of Milton Friedman. But you can't you

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Speaker 1: can't measure the stance of monetary policy by looking at

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Speaker 1: interest rates at a time when growth is accelerating everywhere

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Speaker 1: around the world. If rates in the US only go

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Speaker 1: up twenty five basis points once a year, the US

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Speaker 1: is actually expanding monetary policy at a at a more

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Speaker 1: rapid rate than ever before. Well, does that bode well

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Speaker 1: for our future economic performance and the future asset prices? No,

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Speaker 1: because I think what we're seeing in the US is

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Speaker 1: classic to many other asset price inflation cycles we've seen

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Speaker 1: in the US. But you get to a fairly late stage,

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Speaker 1: like in early two thousand and sixteen, where the asset

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Speaker 1: markets look very shaky. The FED comes in and does

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Speaker 1: the greenspan poot or a strong pood or a yell

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Speaker 1: and put whatever you want to call it um six

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Speaker 1: months down the road. If it works, the whole global

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Speaker 1: economy begins to pick up, asset markets begin to look frothy,

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Speaker 1: And I think that's where we are now. But we

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Speaker 1: know from previous history that that sort of late cycle

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Speaker 1: doesn't normally end up well. Well. Okay, So given the

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Speaker 1: fact that we're in a sort of later cycle in

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Speaker 1: the credit in the credit markets, you have an unpredictable

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Speaker 1: president in the United States. You know, you have a

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Speaker 1: federal reserve that may or may not hike three times

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Speaker 1: or more this year. How do you then go from

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Speaker 1: that to pricing in the path of the US dollar. Well,

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Speaker 1: the US dollar is dominated by first of all, perceptions

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Speaker 1: of relative strength around the world, the US economy versus

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Speaker 1: everyone else, plus perceptions about the extraordinary policies being followed

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Speaker 1: in Europe and Japan. So at the moment, the dollar

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Speaker 1: is sort of looking a bit weakish, especially against the yend,

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Speaker 1: because of the perception that Janet Yellen is going very

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Speaker 1: slow in rate rises and may not raise rates at

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Speaker 1: all in April we were on March. We don't know, um,

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Speaker 1: but if if, if that perception changes, then the dollar

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Speaker 1: will change with that. What's the biggest miscalculation that you've experienced,

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Speaker 1: let's say over the last twelve months. Now, that's something

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Speaker 1: you thought was going to happen with that wasn't going

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Speaker 1: to happen, and it came back to the face. Well,

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Speaker 1: that's put it this way. When the Fed exercised the

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Speaker 1: yell and put last and effectively backed away from any

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Speaker 1: rate rises, Um, could one be sure that was going

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Speaker 1: to work? But it was going to bring a rebound

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Speaker 1: in markets and an acceleration in economic recovery. I certainly

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Speaker 1: had that as a scenario, But if I go back

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Speaker 1: and look at my work last spring, I was probably

432
00:25:18,320 --> 00:25:23,720
Speaker 1: giving that scenario thirty or forty probability as against. So, yeah,

433
00:25:23,880 --> 00:25:28,480
Speaker 1: what's your highest conviction forecast right now? My highest conviction

434
00:25:28,560 --> 00:25:32,280
Speaker 1: forecast is that we're going to see continue to see

435
00:25:32,440 --> 00:25:37,840
Speaker 1: quite a strong growth momentum around the world for several quarters, um.

436
00:25:37,880 --> 00:25:43,480
Speaker 1: But but within six quarters to two years, I think,

437
00:25:43,520 --> 00:25:47,159
Speaker 1: like all previous late cycle monetary inflations, this is going

438
00:25:47,200 --> 00:25:49,679
Speaker 1: to end up badly, gonna end up badly. Well, is

439
00:25:49,680 --> 00:25:53,920
Speaker 1: there anything, Is there any way to protect oneself? Well,

440
00:25:54,119 --> 00:25:56,000
Speaker 1: I think I think for the way to protect oneself

441
00:25:56,080 --> 00:25:59,400
Speaker 1: against these outcomes of the obvious ones m long positions

442
00:25:59,440 --> 00:26:06,359
Speaker 1: and got positions in long treasury bonds, positions and equities. Um.

443
00:26:07,040 --> 00:26:10,800
Speaker 1: But as you as as we know, Arthur Miller famously said,

444
00:26:10,840 --> 00:26:13,160
Speaker 1: but if it's Wednesday in the market and enough people

445
00:26:13,160 --> 00:26:15,320
Speaker 1: think it's thirsty, then it's thirsty. But of course, after

446
00:26:15,320 --> 00:26:18,720
Speaker 1: a hundred Wednesdays, people may begin to realize it's not thirsty.

447
00:26:19,119 --> 00:26:20,960
Speaker 1: I want to thank you very much for joining us

448
00:26:21,200 --> 00:26:25,439
Speaker 1: Brendan Brown on This Monday, chief economist and head of

449
00:26:25,520 --> 00:26:42,840
Speaker 1: economic research at the Mitsubishi u f J Securities. Last week,

450
00:26:42,880 --> 00:26:47,280
Speaker 1: Bloomberg's Michael McKee sat down exclusively with Mexico's economy minister

451
00:26:47,760 --> 00:26:52,720
Speaker 1: uh and he found out some interesting, interesting tidbits about

452
00:26:52,840 --> 00:26:56,160
Speaker 1: Mexico's approach to negotiating trade with the U. S. Let's

453
00:26:56,200 --> 00:26:59,240
Speaker 1: take a listen. You'll never an engage in a knew

454
00:26:59,320 --> 00:27:02,480
Speaker 1: that look with the with the idea in your mind

455
00:27:02,800 --> 00:27:04,879
Speaker 1: to go into a trade war that will be a

456
00:27:04,960 --> 00:27:09,480
Speaker 1: loose proposition proposition for both nations. You rather engage in

457
00:27:09,520 --> 00:27:13,440
Speaker 1: a very propositive view trying to move forward an agreement

458
00:27:13,480 --> 00:27:18,560
Speaker 1: that will benefit Canada, the US and Mexico. We hear

459
00:27:18,640 --> 00:27:22,439
Speaker 1: a lot about whether or not Mexico is going to

460
00:27:22,480 --> 00:27:25,520
Speaker 1: talk with the US, but we're getting maybe perhaps a

461
00:27:25,520 --> 00:27:29,560
Speaker 1: clear sense of what lines are being drawn. To get

462
00:27:29,680 --> 00:27:32,160
Speaker 1: more of a sense of that is Eric Martin, economy

463
00:27:32,160 --> 00:27:36,040
Speaker 1: reporter for Bloomberg in Mexico City. So Eric, what was

464
00:27:36,080 --> 00:27:41,200
Speaker 1: the big takeaway for you from this interview? The big

465
00:27:41,200 --> 00:27:47,760
Speaker 1: takeaway is that Mexico is absolutely and unequivocally unwilling to

466
00:27:47,800 --> 00:27:52,560
Speaker 1: accept tariffs being added to NAFTA, The idea is that

467
00:27:52,640 --> 00:27:54,800
Speaker 1: this is a free trade agreement, and so if you

468
00:27:54,800 --> 00:27:57,440
Speaker 1: start talking about trade which is in some way limited

469
00:27:57,800 --> 00:28:00,760
Speaker 1: by definition, it stops becoming a free trade agreement. In

470
00:28:00,800 --> 00:28:04,840
Speaker 1: Mexico has been very firm on that stance, and they've

471
00:28:04,880 --> 00:28:08,640
Speaker 1: reiterated in various ways, but perhaps never as forcefully as

472
00:28:08,640 --> 00:28:12,199
Speaker 1: Minister Guaharda last Friday. Can you talk to the issue

473
00:28:12,240 --> 00:28:15,680
Speaker 1: of whether this really is a trade agreement that needs

474
00:28:15,720 --> 00:28:19,399
Speaker 1: to be updated. Let's put the political rhetoric to the side,

475
00:28:19,440 --> 00:28:22,640
Speaker 1: but are there some things that need to be renegotiated

476
00:28:22,680 --> 00:28:24,919
Speaker 1: given the fact that this is a treaty that was

477
00:28:24,960 --> 00:28:29,800
Speaker 1: completed before the iPhone was released. Kim, certainly that is

478
00:28:30,160 --> 00:28:32,840
Speaker 1: a point of view that's popular even among the people

479
00:28:32,920 --> 00:28:37,360
Speaker 1: who wrote NAFTA negotiated it more than twenty years ago.

480
00:28:37,640 --> 00:28:39,920
Speaker 1: I spoke in January with Carla Hills, who was the

481
00:28:40,000 --> 00:28:44,040
Speaker 1: U S trade negotiator, and she compared it to a

482
00:28:44,040 --> 00:28:49,160
Speaker 1: house that needs some remodeling and repainting, but that when

483
00:28:49,200 --> 00:28:51,800
Speaker 1: you have an old house that still serves, you don't

484
00:28:51,840 --> 00:28:54,440
Speaker 1: knock down the house. That was a metaphor that she used,

485
00:28:54,440 --> 00:28:57,440
Speaker 1: and with NAFTA, it was before the iPhone. There was

486
00:28:57,480 --> 00:29:01,240
Speaker 1: no e commerce, No Amazon, Uh, there was very little

487
00:29:01,280 --> 00:29:04,760
Speaker 1: done in terms of intellectual property protections. Then Mexico had

488
00:29:05,000 --> 00:29:09,320
Speaker 1: enshrined in its constitution a prohibition on foreign in private

489
00:29:09,360 --> 00:29:14,920
Speaker 1: companies being involved in oil exploration and production. Here, so

490
00:29:15,200 --> 00:29:17,680
Speaker 1: all of those areas are areas that Mexico has said

491
00:29:18,080 --> 00:29:21,040
Speaker 1: should be incorporated into an AFTAH. The law has since

492
00:29:21,040 --> 00:29:26,080
Speaker 1: been changed to welcome that kind of foreign investment in

493
00:29:26,120 --> 00:29:28,760
Speaker 1: the oil and energy industry. And so those are some

494
00:29:28,840 --> 00:29:31,760
Speaker 1: of the areas where Mexico has said, yes, definitely, twenty

495
00:29:31,800 --> 00:29:34,440
Speaker 1: three years in, we should be updating, we should be modernizing.

496
00:29:34,640 --> 00:29:38,120
Speaker 1: What we don't want to do is adopt any rules

497
00:29:38,120 --> 00:29:41,280
Speaker 1: in any tariffs that would take a step backwards and

498
00:29:41,280 --> 00:29:44,560
Speaker 1: would interrupt supply chains, would put an end to some

499
00:29:44,640 --> 00:29:47,800
Speaker 1: of his integration that has been so key to the

500
00:29:47,880 --> 00:29:52,440
Speaker 1: increase in trade between the two countries. Right, well, Eric,

501
00:29:52,840 --> 00:29:54,800
Speaker 1: then let's look at it from the US point of view.

502
00:29:54,840 --> 00:29:58,120
Speaker 1: If Mexico will not negotiate any deal that even talks

503
00:29:58,160 --> 00:30:01,480
Speaker 1: about tariffs, will the U US negotiate a deal that

504
00:30:01,840 --> 00:30:06,360
Speaker 1: does not include tariffs? You know, that's a question that

505
00:30:06,400 --> 00:30:10,040
Speaker 1: everyone is asking. Steve Manuchin was out last week saying

506
00:30:10,120 --> 00:30:14,280
Speaker 1: that the US is interested in a scenario or in

507
00:30:14,280 --> 00:30:17,480
Speaker 1: a solution that would be a win win situation for

508
00:30:17,840 --> 00:30:21,160
Speaker 1: Mexico and the US. And UH, you know, a lot

509
00:30:21,240 --> 00:30:26,280
Speaker 1: of Trump's kind of emissaries and deputies have been making

510
00:30:26,720 --> 00:30:30,160
Speaker 1: positive statements about NAFTA and about working with the US.

511
00:30:30,160 --> 00:30:32,400
Speaker 1: But then you have in the beginning of January, Trump

512
00:30:32,680 --> 00:30:36,200
Speaker 1: tweeting about General motors and Toyota imports to the US,

513
00:30:36,320 --> 00:30:40,520
Speaker 1: threatening a tariff which not only would violate NAFTA, but

514
00:30:40,560 --> 00:30:43,240
Speaker 1: would also violate the norms of the w t O.

515
00:30:43,720 --> 00:30:47,200
Speaker 1: And so for Mexico, Uh, the real nightmare scenario is

516
00:30:47,240 --> 00:30:50,680
Speaker 1: not Trump leaving NAFTA. The minister said, that's something Mexico

517
00:30:50,760 --> 00:30:54,000
Speaker 1: can essentially live with. Uh, it's the concern that Trump

518
00:30:54,040 --> 00:30:57,160
Speaker 1: would leave the w t O or adopt policies to

519
00:30:57,280 --> 00:30:59,520
Speaker 1: violate the w t O. But in that case, it's

520
00:30:59,560 --> 00:31:02,440
Speaker 1: a concern and a problem not only for Mexico but

521
00:31:02,600 --> 00:31:06,640
Speaker 1: for the entire world and the multilateral trading system. If

522
00:31:06,680 --> 00:31:10,800
Speaker 1: the United States seeks to amend or change the World

523
00:31:10,800 --> 00:31:16,680
Speaker 1: Trade Organization's relationship with the countries trade and tariff laws,

524
00:31:16,720 --> 00:31:22,400
Speaker 1: what's likely to trans transpire. There would be any number

525
00:31:22,400 --> 00:31:27,000
Speaker 1: of legal challenges. Countries could adopt reciprocal measures that mirror

526
00:31:27,080 --> 00:31:31,680
Speaker 1: U S terroiffs and quotas. Really is a spiral, a

527
00:31:31,720 --> 00:31:35,200
Speaker 1: death spiral for globalization as we know it, and it

528
00:31:35,200 --> 00:31:40,120
Speaker 1: would cause all kinds of distortions and issues in terms

529
00:31:40,120 --> 00:31:42,920
Speaker 1: of international trade. I mean, that's what really every endalyst

530
00:31:42,960 --> 00:31:45,880
Speaker 1: who we speak to tells us. Now, I want to

531
00:31:45,920 --> 00:31:48,360
Speaker 1: thank you very much for joining us. Eric Martin is

532
00:31:48,360 --> 00:31:52,960
Speaker 1: our economy reporter for Bloomberg News in Mexico City, giving

533
00:31:53,040 --> 00:31:56,840
Speaker 1: us an update on any revamp or a change or

534
00:31:56,920 --> 00:32:07,400
Speaker 1: renegotiation to the North American Free Trade Agreement. Thanks for

535
00:32:07,480 --> 00:32:10,120
Speaker 1: listening to the Bloomberg P and L podcast. You can

536
00:32:10,160 --> 00:32:14,560
Speaker 1: subscribe and listen to interviews at iTunes, SoundCloud, or whatever

537
00:32:14,880 --> 00:32:18,360
Speaker 1: podcast platform you prefer. I'm pim Fox. I'm out there

538
00:32:18,400 --> 00:32:21,440
Speaker 1: on Twitter at pim Fox. I'm out there on Twitter

539
00:32:21,560 --> 00:32:24,520
Speaker 1: at Lisa Abramo. It's one before the podcast. You can

540
00:32:24,520 --> 00:32:35,800
Speaker 1: always catch us worldwide on Bloomberg Radio. P and L

541
00:32:35,920 --> 00:32:37,880
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