WEBVTT - Argentina Is Biggest Risk Facing Emerging Market Credit 0:00:05.800 --> 0:00:08.320 Welcome to the Bloomberg p m L Podcast. I'm Pim 0:00:08.400 --> 0:00:11.440 Fox along with my co host Lisa Bramowitz. Each day 0:00:11.440 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.520 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:27.400 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. 0:00:27.440 --> 0:00:29.639 All of the world leaders who are participating in the 0:00:29.680 --> 0:00:33.200 G twenty summit have arrived. They are gathering on stage 0:00:33.200 --> 0:00:36.240 in Boetos, Artis, And you know, it's interesting because we're 0:00:36.240 --> 0:00:41.520 so focused on Jping meeting with Donald Trump, but there's 0:00:41.560 --> 0:00:44.080 a lot of other things going on, including the fact 0:00:44.120 --> 0:00:47.200 that the US Canada Mexico did just sign their new 0:00:47.240 --> 0:00:50.160 trade deal and meanwhile Mexico is about to get its 0:00:50.200 --> 0:00:53.279 new president joining US now. Damien Sassaur, who heads up 0:00:53.520 --> 0:00:57.960 things Fixed income Emerging Markets research for Bloomberg Intelligence, Damian, 0:00:58.040 --> 0:01:00.400 thank you so much for being with us. I want 0:01:00.400 --> 0:01:03.400 to start with this agreement that was just signed and 0:01:03.480 --> 0:01:06.560 talk about its effect on Mexico, in particular Mexico. What 0:01:06.600 --> 0:01:10.560 are the hottest vets in emerging markets? Credit Land, which 0:01:10.560 --> 0:01:13.319 has failed again and again and has been struggling. So 0:01:13.600 --> 0:01:15.480 can you just give us a sense are they losing 0:01:15.520 --> 0:01:17.560 out here? Is it? Are they Is it putting Mexico 0:01:17.600 --> 0:01:21.199 to an even worse position even with everything else going 0:01:21.240 --> 0:01:26.240 on politically? Well, it's interesting because um, you know, Mexico 0:01:26.360 --> 0:01:27.880 is just taking it on the chin right and the 0:01:27.920 --> 0:01:30.200 pass at some of the weakest levels we've seen in 0:01:30.280 --> 0:01:32.880 some time. And and and we happen like Mexico at 0:01:32.920 --> 0:01:35.200 these levels. But you know, there are some real issues, 0:01:35.360 --> 0:01:38.600 I mean, more domestic than related to trade at this point. 0:01:38.640 --> 0:01:41.120 I think that's really kind of you know, resonating in 0:01:41.120 --> 0:01:43.360 the eyes and the minds of creditors here in the US. 0:01:43.440 --> 0:01:45.280 And and they have more to do with you know, 0:01:45.640 --> 0:01:49.680 issues such as um fees being charged by banks on 0:01:49.680 --> 0:01:52.840 on households and on depositors, on pemm X, on the 0:01:52.840 --> 0:01:55.560 airport which was recently voted down. I mean, these are 0:01:55.560 --> 0:01:58.720 all issues that have quite frankly, a much bigger impact 0:01:58.760 --> 0:02:03.400 on asset valuations than than the trade agreement at this point, Damian, 0:02:03.720 --> 0:02:08.400 Does the security situation in Mexico also have an effect 0:02:08.440 --> 0:02:15.360 on how investors interpret the potential for investment returns? Absolutely, absolutely, Tim, 0:02:15.360 --> 0:02:18.640 I think sentiment is largely been driven by um, you know, 0:02:18.760 --> 0:02:21.240 much of the really the headlines coming out of the 0:02:21.240 --> 0:02:23.960 White House here in the US, right, and so you know, well, 0:02:24.040 --> 0:02:26.320 well you can't really kind of hang your hat on it. Yes, 0:02:26.400 --> 0:02:28.640 there's no question that sentiment has been impacted by that 0:02:28.840 --> 0:02:31.680 and UM and security is an issue, right because I 0:02:31.680 --> 0:02:33.760 think Amos on the record is saying he does not 0:02:33.960 --> 0:02:35.760 support a wall and he's not going to fund it. 0:02:36.919 --> 0:02:39.720 I can imagine. One other aspect of the G twenty meeting, 0:02:39.720 --> 0:02:41.920 which I find really interesting is that it is being 0:02:41.960 --> 0:02:46.480 held in Buenos Aires in Argentina. Argentina, of course, has 0:02:46.520 --> 0:02:49.880 had a very difficult period of time, uh, you know, 0:02:50.360 --> 0:02:53.840 after having gone back to capital markets after a long absence, 0:02:54.440 --> 0:02:59.720 showing that it still is in financial straits. Interestingly, though, 0:02:59.760 --> 0:03:03.840 the Argentinean currency has actually been doing phenomenally over the 0:03:03.880 --> 0:03:06.399 past month. What's going on? Well, I think that's more 0:03:06.520 --> 0:03:08.200 that's more technical on the heels of the I m 0:03:08.280 --> 0:03:10.520 F deal. But let me be very clear about this, Lisa, 0:03:10.919 --> 0:03:13.840 Argentina and specifically the elections in the second half of 0:03:14.160 --> 0:03:19.040 next year are the number one UH exogenous risk facing 0:03:19.160 --> 0:03:24.200 emerging market creditors in Okay. I mean, if we have 0:03:24.240 --> 0:03:27.480 a return to I'm not suggesting, you know, Kushner is 0:03:27.520 --> 0:03:29.840 going to be reelected, but not Paris or something along 0:03:29.840 --> 0:03:32.720 those lines, um, which is very probable. I mean, I 0:03:32.720 --> 0:03:35.800 think the the market, they're going to perceive that as 0:03:36.440 --> 0:03:39.480 really a very negative thing. And and to the austerity 0:03:39.520 --> 0:03:43.040 measures that that that racing Marcorea has passed, and and 0:03:43.040 --> 0:03:45.880 and and supports and and and that would be really 0:03:45.960 --> 0:03:49.240 really bad for for Argentina and for its creditors, of 0:03:49.280 --> 0:03:51.640 which there is no shortage, given the fact that Argentina, 0:03:51.720 --> 0:03:54.160 despite the sell off, is still one of the biggest 0:03:54.200 --> 0:03:56.960 overweights in emerging market portfolios today. Well, I want to 0:03:56.960 --> 0:03:58.440 pick up on something you said. You said that is 0:03:58.480 --> 0:04:03.040 the the biggest argenous risk facing emerging markets creditors, even 0:04:03.040 --> 0:04:07.360 more than China. Um. Yes, And I'll tell you why. 0:04:07.520 --> 0:04:11.280 Because China is an investment grade uh issuer. You know, so, 0:04:11.280 --> 0:04:13.200 so spreads are not so wide, and the risk of 0:04:13.280 --> 0:04:16.240 Chinese of credit spreads in China really blowing out given 0:04:16.240 --> 0:04:19.760 the size of that economy is nowhere near that of 0:04:20.120 --> 0:04:23.800 you know, high yield speculative single B rated Argentina and 0:04:23.800 --> 0:04:28.080 and and Argentina's impact on EM portfolios is I mean 0:04:28.160 --> 0:04:29.960 it's amazing. I mean, despite the fact that China, I 0:04:29.960 --> 0:04:33.440 mean is fiftent of of e M dollar debt, Argentina 0:04:33.480 --> 0:04:36.120 is not far behind it. Argentina has issued a lot 0:04:36.440 --> 0:04:38.680 of US dollar debt in the past three years, and 0:04:38.720 --> 0:04:42.680 so yes, we believe that that has more potential than 0:04:42.760 --> 0:04:45.640 China to move the needle. Now, that's that's a direct impact. 0:04:45.720 --> 0:04:49.320 In terms of an indirect impact, clearly, weakness in China 0:04:49.360 --> 0:04:52.200 and slower growth in China has a knock on effect 0:04:52.320 --> 0:04:55.560 to the broader emerging markets. Right. So so from that perspective, 0:04:55.600 --> 0:04:58.040 I hear you. But but in terms of a direct impact, 0:04:58.440 --> 0:04:59.880 all lives are gonna be on that election. As we 0:05:00.000 --> 0:05:03.400 at into Damian, I was under the impression that a 0:05:03.480 --> 0:05:07.120 stronger US dollar would actually be better for emerging markets 0:05:07.120 --> 0:05:11.760 because it would make their commodities more competitive and their 0:05:11.800 --> 0:05:16.640 products and services more competitive. Is that off the table? Well, 0:05:16.680 --> 0:05:18.560 you know, you know you're hitting on a nerve. I mean, 0:05:18.560 --> 0:05:20.800 we wrote that exactly to that point. This week. We 0:05:20.839 --> 0:05:24.400 did a deep dive just yesterday on corporate credit fundamentals 0:05:24.440 --> 0:05:26.880 in emerging markets, and it's amazing what we found. We 0:05:27.000 --> 0:05:31.360 found that those um, those companies who basically have um 0:05:31.839 --> 0:05:35.800 basically large US dollar denominated inputs have really seen their 0:05:35.800 --> 0:05:38.680 credit fundamentals week and here in twenty team, which makes sense, right, 0:05:38.720 --> 0:05:41.560 because they have to spend more money on whatever it is, 0:05:41.600 --> 0:05:44.960 the the whatever input inputs they need to manufacture, whatever 0:05:44.960 --> 0:05:47.160 it is they're manufacturing, or or whatever the case may be. 0:05:48.080 --> 0:05:51.039 As we get into if we see the dollar begin 0:05:51.160 --> 0:05:54.200 to weaken, we should see those those companies, the fundamentals 0:05:54.279 --> 0:05:57.400 underlying those companies term more supportive. On the flip side, 0:05:58.560 --> 0:06:02.520 commodity producers who's whose output is denominated in dollars have 0:06:02.640 --> 0:06:05.880 done extraordinarily well and from a fundamental perspective look as 0:06:05.920 --> 0:06:08.320 good as they have in sometime. And that's including all 0:06:08.360 --> 0:06:10.800 the large quasi sovereign oil producers and and and some 0:06:10.839 --> 0:06:14.359 of the larger industrial metal producers. Thanks very much for 0:06:14.440 --> 0:06:18.680 being with us. Damien sassaur is our chief Emerging markets 0:06:18.800 --> 0:06:23.120 credits strategist for Bloomberg Intelligence. This comes on a day 0:06:23.279 --> 0:06:28.120 when the G twenty meeting opens in Argentina. It's coming 0:06:28.160 --> 0:06:31.360 after the family photo shoot with all the leaders lining 0:06:31.440 --> 0:06:35.520 up at the G twenty meeting. You're listening to Bloomberg Markets. 0:06:35.520 --> 0:06:40.960 I'm pim Fox along with Lisa Abramowitz. Can we talk 0:06:41.040 --> 0:06:45.440 a lot about how the fang stocks are the Facebook, Amazon, Netflix, 0:06:46.080 --> 0:06:51.520 Google have such dominance over the entire stock market. Increasingly, 0:06:51.560 --> 0:06:55.040 these big companies are having a dominance over everything and 0:06:55.120 --> 0:06:57.440 joining us now as someone who really talks about the 0:06:57.480 --> 0:07:00.160 consequences of that. Jonathan Tepper, I'm very pleased to say, 0:07:00.240 --> 0:07:03.599 is joining us now, founder of Variant Perception in London. 0:07:03.760 --> 0:07:06.000 He also he's in San Francisco today. He's also a 0:07:06.000 --> 0:07:09.200 Bloomberg opinion columnist and author of a new book, The 0:07:09.279 --> 0:07:13.680 Myth of Capitalism, Monopolies and the Death of Competition. Jonathan, 0:07:13.720 --> 0:07:16.840 thank you so much for joining us. You highlight in 0:07:16.840 --> 0:07:19.640 a recent column, which is an excerpt of your book, UH, 0:07:19.680 --> 0:07:22.880 that the US is startup culture is fading and that 0:07:22.960 --> 0:07:27.400 this is a big problem. Why So, what's interesting is 0:07:27.440 --> 0:07:30.640 over the last twenty years we've seen a rise in 0:07:30.640 --> 0:07:33.760 industrial concentration across the board, and that means that there 0:07:33.760 --> 0:07:37.640 are fewer and fewer players UH in particular industries. And 0:07:37.680 --> 0:07:41.040 it's not just the things, it's actually economy wide um. 0:07:41.120 --> 0:07:43.560 And so if you look at the twenty twenty years ago, 0:07:43.840 --> 0:07:46.920 we had twice as many public stocks. So there's been 0:07:46.920 --> 0:07:49.760 a collapse in listings in the stock market. Um, we've 0:07:49.800 --> 0:07:54.440 also seen essentially a collapse in startups, you know, even 0:07:54.480 --> 0:08:00.000 including non public companies. So every year companies die or 0:08:00.080 --> 0:08:04.320 exit markets. And when you have a collapse in startups, obviously, 0:08:04.520 --> 0:08:07.120 you know, if this were happening with the population in 0:08:07.120 --> 0:08:10.000 the US would be deeply alarmed and would be uh 0:08:10.280 --> 0:08:14.120 dire for the future. But that's what's happening effectively in business. 0:08:14.200 --> 0:08:16.600 And so what's happening is that there are a few 0:08:16.800 --> 0:08:19.960 much bigger companies that now dominate a lot of industries. 0:08:20.280 --> 0:08:23.440 The book The Myth of Capitalism touches on the fangs, 0:08:23.520 --> 0:08:26.640 but this is actually happening in many other industries as well, 0:08:26.680 --> 0:08:29.200 and so it's a broad based trend in in the U. 0:08:29.240 --> 0:08:34.160 S economy. What is your theory for why this is happening? 0:08:35.320 --> 0:08:37.680 So that the main reason is that in UH it 0:08:37.679 --> 0:08:42.000 goes back to two when Reagan changed the merger guidelines 0:08:42.080 --> 0:08:46.600 the Department of Justice in the FTC and basically mergers 0:08:46.600 --> 0:08:51.000 were given green light. And you know, when every single 0:08:51.200 --> 0:08:54.400 stock market boom that we've had has created a merger wave. 0:08:54.520 --> 0:08:58.120 So we're now sitting here chatting in and we're essentially 0:08:58.200 --> 0:09:00.240 four merger waves in and if you think about it, 0:09:00.360 --> 0:09:02.640 like the Sweet sixteen or the World Cup, you know, 0:09:02.640 --> 0:09:04.679 you start with sixteen players, get down to eight and 0:09:04.760 --> 0:09:07.240 to four and the two and so what happened is 0:09:07.280 --> 0:09:11.640 we've just had, you know, um, competitor after competitor being eliminated. 0:09:11.640 --> 0:09:13.760 And so you know, something like the US beer market, 0:09:13.800 --> 0:09:17.280 now two companies control the beer Americans drink, and that's 0:09:17.320 --> 0:09:23.640 totally contrary to the antitrust laws like the UM Sherman Act, 0:09:23.960 --> 0:09:27.280 Clayton Act, and so essentially it's this wave of mergers 0:09:27.280 --> 0:09:31.400 and eliminating competition. Jonathan, there's an argument that the larger 0:09:31.440 --> 0:09:33.720 that a company is, the more efficient they can be, 0:09:33.880 --> 0:09:36.920 and they can actually offer lower prices to the consumer, 0:09:37.000 --> 0:09:40.120 which is a net win. Why is it a problem 0:09:40.200 --> 0:09:43.800 for there to be so much more concentration at the top. Sure, 0:09:43.920 --> 0:09:47.680 so that's the argument that's offered UM And certainly when 0:09:47.920 --> 0:09:51.439 mergers are about to go through, they hire K Street 0:09:51.480 --> 0:09:54.680 law firms and then economists for hire generally trials, Rivers, 0:09:54.720 --> 0:09:57.800 Associate and comes lex con But the evidence is overwhelming 0:09:57.920 --> 0:10:00.440 that reducing the number of players actually it leads to 0:10:00.440 --> 0:10:03.800 price increases. So uh, you know, it's it's like New 0:10:03.880 --> 0:10:06.120 Year's resolutions. Companies, you know, say that they're gonna get 0:10:06.160 --> 0:10:08.199 these synergies and they're gonna pass on to consumers, and 0:10:08.240 --> 0:10:10.480 as soon as the food shows up, they uh, you know, 0:10:10.720 --> 0:10:13.600 decided to break the New year resolution. And the book 0:10:13.640 --> 0:10:16.000 goes into sort of dozens of studies where that's the case. 0:10:16.480 --> 0:10:19.880 And so unfortunately, I think that the FDC and dj 0:10:20.080 --> 0:10:24.959 OR do nothing institutions and essentially broadly captured by um, 0:10:25.120 --> 0:10:27.640 the revolving door, and so there's there's no real challenge 0:10:27.679 --> 0:10:30.640 to mergers, and you just end up with higher prices. 0:10:30.640 --> 0:10:32.720 The more concentrated the industry in the US generally the 0:10:32.760 --> 0:10:37.120 more the higher the price. So alright, so Johnny, that's 0:10:37.120 --> 0:10:42.040 the case. What's the recipe for changing this? Certainly so 0:10:42.080 --> 0:10:44.880 that the simply analyzing the problem would be terribly helpful. Um. 0:10:44.920 --> 0:10:47.760 The last chapter in the book and has some of 0:10:47.800 --> 0:10:52.160 these proposals, but basically the sort of short answer is 0:10:52.240 --> 0:10:57.280 one prevent further concentration, meaning that we shouldn't allow mergers 0:10:57.320 --> 0:11:01.520 that reduce competition materially. Um and uh, there's research pointing 0:11:01.520 --> 0:11:03.680 out that when you get blow six players, prices tend 0:11:03.720 --> 0:11:06.280 to go up. And so I would say that you know, 0:11:06.280 --> 0:11:08.959 if an industry is blow six players, let them compete, 0:11:08.960 --> 0:11:10.880 don't let them merge. UM. I would also say that 0:11:10.920 --> 0:11:13.160 we have to break up the previous mergers that have 0:11:13.800 --> 0:11:17.200 reduced competition. UM. The world didn't end when standard oil 0:11:17.280 --> 0:11:18.840 was broken up for a T and T, and the 0:11:18.840 --> 0:11:21.040 world won't end when we break up the current to 0:11:21.160 --> 0:11:24.640 the monopolies. UH. And then the other aspect I think 0:11:24.640 --> 0:11:27.640 it's very important is that regulation tends to act as 0:11:27.640 --> 0:11:30.120 a very strong barrier to entry, and unfortunately, what we 0:11:30.160 --> 0:11:32.680 have in the United States right now is uh, not 0:11:33.320 --> 0:11:35.800 too much or too little regulation, but regulations essentially that 0:11:35.840 --> 0:11:38.600 serves the interests of companies that want to keep out competitors. 0:11:38.600 --> 0:11:42.360 So we definitely need better, more principal space regulation that 0:11:42.440 --> 0:11:46.200 has competition and new entrants as its key objective. I 0:11:46.240 --> 0:11:48.640 have to wonder what kind of responses you've gotten so 0:11:48.720 --> 0:11:51.040 far to this, because it seems like there are a 0:11:51.080 --> 0:11:54.320 number of people talking about this now and and probably 0:11:54.440 --> 0:11:59.480 more than say, ten years ago. Is that a correct statement? Absolutely, 0:11:59.559 --> 0:12:02.800 and I think that this has really started basically UM 0:12:03.040 --> 0:12:07.200 at least entering the public consciousness probably about two years ago. UM. 0:12:07.240 --> 0:12:09.560 I think that it unsurprisingly it was sort of at 0:12:09.600 --> 0:12:11.959 the end essentially of the of of a fourth merger 0:12:12.000 --> 0:12:16.000 wave was a peak, and in mergers for for the US, 0:12:16.120 --> 0:12:20.360 twenty seventeen and eighteen broadly globally have been peaks. Um. 0:12:20.400 --> 0:12:22.320 But but clearly people are now realizing that there's just 0:12:22.320 --> 0:12:27.320 a lot less competition. The reaction has been overwhelmingwhelmingly positive. Um. 0:12:27.400 --> 0:12:29.400 You know, the people who have endorsed the book and 0:12:29.679 --> 0:12:32.400 uh so praised the message of the book been Nobel 0:12:32.440 --> 0:12:36.000 Prize winners like Ranks deton my expense, uh and then 0:12:36.280 --> 0:12:38.680 the economists like Kenneth Rugoff and historians let you know 0:12:38.760 --> 0:12:40.920 first and so I think this is a very big 0:12:41.440 --> 0:12:45.280 subject um and uh when I talk to people, you 0:12:45.280 --> 0:12:47.680 know at book events or you know, just sitting at 0:12:47.679 --> 0:12:51.040 the airport randomly chatting with people, Um, everyone recognizes their 0:12:51.040 --> 0:12:54.040 own industry as having less competition, you know, sitting next 0:12:54.040 --> 0:12:58.080 to someone who works in hospitals of US hospital markets 0:12:58.080 --> 0:13:01.839 are highly concentrated, so it resonates in people's lives. I 0:13:01.880 --> 0:13:03.600 have to one because we also had Tim wu On 0:13:03.640 --> 0:13:06.720 the Columbia Professor recently, who is talking about a similar 0:13:07.360 --> 0:13:10.640 type of idea. What kind of hope do you have 0:13:11.120 --> 0:13:16.400 that the current political establishment could potentially enact some measure 0:13:16.920 --> 0:13:20.240 that would be appropriate here in your opinion. So I 0:13:20.280 --> 0:13:22.559 think that the tide is changing. And I did some 0:13:23.040 --> 0:13:24.959 book events in in d C. And got to meet 0:13:25.000 --> 0:13:27.480 quite a lot of people on the hill, and very 0:13:27.480 --> 0:13:30.200 definitely senators want to do something about this. You know, 0:13:30.280 --> 0:13:34.359 you have Warren Warner Grey book or club schar and others, 0:13:34.480 --> 0:13:38.560 and even the Republicans who often have been perhaps more 0:13:38.600 --> 0:13:41.439 friendly to big business than not, are realizing that actually, 0:13:41.480 --> 0:13:44.040 if you care about competition and you care about free markets, 0:13:44.080 --> 0:13:47.600 and you know you're pro capitalism, what you should want 0:13:47.800 --> 0:13:50.600 is to have reduce industrial concentration to have more competition. 0:13:50.640 --> 0:13:55.040 So I think this is becoming essentially a bipartisan issue, um, 0:13:55.120 --> 0:13:57.360 and I certainly do hope that we'll get some change. 0:13:58.080 --> 0:14:00.520 Thanks very much for being with us. Jonathan Temper is 0:14:00.559 --> 0:14:03.920 the founder of Variant Perception. He is also a Bloomberg 0:14:04.000 --> 0:14:09.080 opinion columnist, and his latest book is entitled The Myth 0:14:09.240 --> 0:14:18.720 of Capitalism, Monopolies and the Death of Competition. Just yesterday, 0:14:18.800 --> 0:14:24.000 the California Public Utilities Commission met in order to try 0:14:24.040 --> 0:14:29.000 to figure out what is next for the top utility 0:14:29.160 --> 0:14:31.840 in the state of California. That is pg NY, and 0:14:31.880 --> 0:14:34.840 here to tell us more is Mark Chettiac of Bloomberg News. 0:14:34.840 --> 0:14:38.280 You can follow Mark on Twitter at Mark Chettiac. That 0:14:38.760 --> 0:14:42.280 H E. D I A K. Mark. Just give us 0:14:42.280 --> 0:14:45.680 a little background as to why P and G is 0:14:45.840 --> 0:14:53.240 in the focus of regulators related to the recent wildfires. Hi, Yes, 0:14:53.320 --> 0:14:56.240 thanks for having me on. I appreciate it. Um So 0:14:56.400 --> 0:15:02.320 Penny is California's largest utility. UH It's been operating in 0:15:02.360 --> 0:15:04.840 California for more than a hundred years, but it has 0:15:05.200 --> 0:15:09.040 um within the last ten to fifteen years quite a 0:15:09.160 --> 0:15:12.880 checkered past in the state. Um it's responsible. It was 0:15:12.960 --> 0:15:17.320 responsible for a natural gas pipeline explosion in a San 0:15:17.320 --> 0:15:21.920 Francisco suburb that killed eight people and level the neighborhood. 0:15:22.680 --> 0:15:27.480 It's power lines are have been identified as starting many 0:15:27.480 --> 0:15:31.840 of last year's deadly Wine Country fires in northern California. 0:15:31.960 --> 0:15:35.800 Last year, and just recently, investigators are looking at its 0:15:35.840 --> 0:15:39.600 power lines for starting the camp Fire, which is now 0:15:39.640 --> 0:15:43.880 considered the most destructive and deadliest fire in California's history. 0:15:44.640 --> 0:15:49.200 So UM, as you mentioned yesterday, California's top energy regulator 0:15:49.560 --> 0:15:54.080 um is opening open these questioning basically whether or not 0:15:54.800 --> 0:15:59.400 the company actually has the safety culture and structure in 0:15:59.480 --> 0:16:04.120 place to UM to deliver safe and reliable electricity in 0:16:04.120 --> 0:16:07.280 the state. Yeah, I mean, I guess that this raises 0:16:07.280 --> 0:16:09.040 a lot of questions, right, I mean, is this just 0:16:09.080 --> 0:16:11.920 sort of a cost of doing business for any utility 0:16:12.160 --> 0:16:15.600 or is this some kind of rampant negligence that's endemic 0:16:15.760 --> 0:16:18.680 at the utility. And then there's a question too, what 0:16:18.720 --> 0:16:20.360 are you gonna do put them out of business? Who's 0:16:20.360 --> 0:16:22.560 going to take over? So how are people sort of 0:16:22.560 --> 0:16:26.080 addressing both of those questions? Yeah, that's a great point. 0:16:26.240 --> 0:16:28.800 And uh Michael Picker, who is the president of the 0:16:28.840 --> 0:16:32.680 California Public Utilities Commission, kind of he basically spoke to 0:16:32.760 --> 0:16:36.680 that specifically. What he said yesterday is um. He noted, 0:16:36.760 --> 0:16:39.120 this is, you know, utility that people depend on for 0:16:39.280 --> 0:16:42.760 reliable electricity, so you can't just put them out of business. 0:16:42.800 --> 0:16:48.200 He he talked about, you know, fixing or changing PGNIE 0:16:48.280 --> 0:16:52.200 is a kind to trying to fix an aircraft in flight. UM. 0:16:52.440 --> 0:16:54.480 He said, you know, we don't want to crash the plane, 0:16:54.880 --> 0:16:57.119 so we have to be very careful and very deliberative 0:16:57.160 --> 0:17:00.560 about how we do this. What is the potential liability 0:17:01.040 --> 0:17:06.600 for PGEN or has that not even been figured out? Well, Um, 0:17:06.760 --> 0:17:10.160 first of all, let me make it clear that they 0:17:10.200 --> 0:17:13.240 haven't determined the cause of this year's camp fire. So 0:17:13.600 --> 0:17:16.520 p power lines are are being looked at, but no 0:17:16.720 --> 0:17:20.400 final determination has been made. If the company has found liable, 0:17:20.480 --> 0:17:23.960 analysts think UM it could be around fifteen billion dollars 0:17:24.400 --> 0:17:28.360 that surpasses PGNs market cap. Right now, PI is also 0:17:28.400 --> 0:17:31.000 looking at about fifteen billion dollars or more of liability 0:17:31.000 --> 0:17:34.320 from last year's fire. So that's about thirty billion dollars 0:17:34.359 --> 0:17:39.960 and liabilities that far exceeds the company's market capitalization. So 0:17:40.280 --> 0:17:43.600 what's happening now is UM State officials are looking at 0:17:43.600 --> 0:17:48.679 ways in which UM they can potentially help the utility 0:17:48.680 --> 0:17:52.359 pay off these massive liabilities. They don't really want the 0:17:52.400 --> 0:17:55.560 company to go bankrupt. UM that's kind of a worst 0:17:55.600 --> 0:18:00.840 case scenario, But they also don't want the public very 0:18:00.920 --> 0:18:05.360 much doesn't want the utility to get off scot free either. Well, yeah, 0:18:05.400 --> 0:18:08.120 I mean there are chances of quote no bailout. As 0:18:08.160 --> 0:18:11.080 you as you wrote in your latest story. I have 0:18:11.240 --> 0:18:14.240 to wonder at this point, can they break the company up, 0:18:14.359 --> 0:18:18.520 can they try to can the state try to give 0:18:18.600 --> 0:18:21.399 some kind of advantage to competing utilities to try to 0:18:21.440 --> 0:18:23.840 gain share. I mean, what are sort of some of 0:18:23.880 --> 0:18:28.920 the ways that they could, uh that they could solve this. Yeah, 0:18:29.000 --> 0:18:32.159 that's a great question, um, and I think every you know, 0:18:32.320 --> 0:18:34.560 state officials are really taking a hard look at this. 0:18:35.119 --> 0:18:38.720 Some of the options being considered. One the top energy regulator, 0:18:38.800 --> 0:18:43.040 Michael Picker, said there could be changes at the company's board. 0:18:43.240 --> 0:18:45.400 There's some board members who have been with the company 0:18:45.400 --> 0:18:48.360 for quite some quite a long time, so you could 0:18:48.400 --> 0:18:52.119 see something like that. You could the company has an 0:18:52.200 --> 0:18:56.439 electric distribution service and also a natural gas distribution service. 0:18:56.480 --> 0:18:59.439 You could see them breaking up those two pieces of 0:18:59.440 --> 0:19:02.640 the company. You could even see them breaking up GENI 0:19:02.720 --> 0:19:05.480 into smaller sort of regional division. So there are a 0:19:05.960 --> 0:19:09.679 number of potential options. Nothing has been suggested, there are 0:19:09.920 --> 0:19:13.480 there have been no firm suggestions at this point. Mark Tettiak, 0:19:13.480 --> 0:19:15.320 thank you so much for being with us. Mark Tettiac 0:19:15.359 --> 0:19:18.160 as an energy reporter for Bloomberg News coming to us 0:19:18.160 --> 0:19:22.120 from San Francisco. Really interesting to think about too Big 0:19:22.160 --> 0:19:25.000 to Fail in the context of utilities, especially when you 0:19:25.080 --> 0:19:28.720 do have him a pattern frankly here with p Gennie, 0:19:28.720 --> 0:19:31.639 although of course it does have to be established what 0:19:31.840 --> 0:19:35.280 their role was in the campfires. But but really, uh, 0:19:35.560 --> 0:19:37.679 potentially this could be a real big problem for California. 0:19:38.000 --> 0:19:40.959 Well it could be. Yes. Pg US market cap right 0:19:41.000 --> 0:19:42.960 now is just a little bit more than thirteen and 0:19:43.040 --> 0:19:46.080 a half billion dollars and it has dropped by more 0:19:46.119 --> 0:19:48.920 than forty percent this year. Yeah, it's been a really 0:19:49.000 --> 0:19:52.040 rough year for them, and frankly, uh for all Californians 0:19:52.040 --> 0:19:53.760 who are thinking, what are we gonna do with them? 0:19:53.800 --> 0:19:58.359 And we don't want to bail him out. Joining us 0:19:58.400 --> 0:20:01.479 here in our Bloomberg Interactor Ochre Studio is Joe Maisak, 0:20:01.680 --> 0:20:05.280 editor for the Bloomberg Grief for municipal markets. Joe Maisak, 0:20:05.480 --> 0:20:09.240 let's begin with General Motors and the announcement this week 0:20:09.280 --> 0:20:12.919 that they will be exiting a variety of locations. They 0:20:12.960 --> 0:20:15.119 are shuttering a total of five plants, one of them 0:20:15.160 --> 0:20:18.520 going to be in Canada. What effect is this going 0:20:18.560 --> 0:20:22.000 to have on municipal finances? Well, you know, whenever you 0:20:22.400 --> 0:20:26.200 and something, most of these plants are in the they're 0:20:26.200 --> 0:20:32.000 in the Upper Midwest, Ohio and Michigan. Uh, of course 0:20:32.720 --> 0:20:38.480 one in Canada. You know, there is a an outsize 0:20:38.600 --> 0:20:45.320 effect in some of these small communities, uh where you 0:20:45.359 --> 0:20:51.560 know these particularly Amanda Albright did a story this week 0:20:51.560 --> 0:20:56.159 about Lordstown, Ohio. Small town has a factory in it 0:20:56.240 --> 0:20:58.359 that GM wants to shut and that is going to 0:20:58.400 --> 0:21:05.040 have an outsize impact because the village there's thirty people 0:21:06.080 --> 0:21:10.840 and uh, you know, it's just as this has a 0:21:10.920 --> 0:21:13.920 knockout effect. You know when you say, here, we're closing 0:21:13.960 --> 0:21:17.720 down and we're getting rid of you know, several hundred people, 0:21:17.760 --> 0:21:21.080 several thousand people. There are stores that are gonna have 0:21:21.320 --> 0:21:24.880 there's gonna be an impact there, and the housing markets 0:21:24.920 --> 0:21:27.959 is going to be impacted. Schools, So yeah, this is 0:21:28.080 --> 0:21:31.280 it's it's tough when when you have a company coming 0:21:31.320 --> 0:21:33.639 and say we're going to close down, and of course, 0:21:34.200 --> 0:21:38.119 you know, maybe some of it is uh, you know, 0:21:38.160 --> 0:21:41.080 a bargaining chip. We said we're shutting down six firms 0:21:41.359 --> 0:21:44.160 or were started shutting down six factories, and you really 0:21:44.760 --> 0:21:47.720 have to shut down maybe one. Well, just according to 0:21:47.800 --> 0:21:52.359 this story, if you look at the total employment in 0:21:53.000 --> 0:21:56.600 just as this example Lordstown, you're talking about five percent 0:21:56.680 --> 0:22:00.360 of the total county employment. How do you take up 0:22:00.440 --> 0:22:04.040 something like that. It's very difficult, especially because in these 0:22:04.080 --> 0:22:09.000 Upper Midwest communities, you don't have a lot of uh, 0:22:09.280 --> 0:22:11.440 it's it's not the same as in the South, where 0:22:11.440 --> 0:22:15.199 you have a lot of factories that are uh, you know, 0:22:15.760 --> 0:22:18.200 going to be moving in or want to move in. 0:22:18.680 --> 0:22:22.560 So when you have one of these long time UM 0:22:22.800 --> 0:22:26.800 employers decide that, well, let's say see you, it's very 0:22:26.840 --> 0:22:29.000 difficult to make that up. And this has been really 0:22:29.040 --> 0:22:31.800 the story of a lot of the rust Belt, the 0:22:31.800 --> 0:22:33.520 so called rust belt, right. I mean, this is sort 0:22:33.520 --> 0:22:35.919 of we're watching it in real time sort of as 0:22:35.960 --> 0:22:37.880 it plays out near the end of this whole thing, 0:22:38.000 --> 0:22:39.919 or maybe we're in the middle. I don't know, but 0:22:40.000 --> 0:22:43.080 it's really interesting to think about how that affects municipalities. 0:22:43.280 --> 0:22:47.080 On a brighter note though, for municipalities right now, uh, 0:22:47.160 --> 0:22:50.880 there was a bond rally that was inclusive of municipal 0:22:50.920 --> 0:22:54.080 bonds after j. Powell of the Fed spoke, people seem 0:22:54.119 --> 0:22:57.399 to want to come back to the debt because it 0:22:57.440 --> 0:23:00.119 seems like the Fed's not gonna hike rates as quickly. 0:23:00.600 --> 0:23:03.360 How sustainable is the rally that we saw the sort 0:23:03.359 --> 0:23:06.720 of knee jerk money into the record flow into Black 0:23:06.840 --> 0:23:09.480 roxy t f MEUNI, Bonny TF and sort of the 0:23:09.640 --> 0:23:14.240 the initial jolt there. Well, it's funny the thing we 0:23:14.320 --> 0:23:19.400