1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg P and L 6 00:00:20,840 --> 00:00:32,880 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Bank 7 00:00:32,920 --> 00:00:37,040 Speaker 1: of Japan Governor Haruhiko Kuroda said that he's going to 8 00:00:37,159 --> 00:00:39,720 Speaker 1: let a key interest rate increase by a tenth of 9 00:00:39,720 --> 00:00:43,680 Speaker 1: a percentage point, but otherwise he's sticking to the bank's 10 00:00:43,760 --> 00:00:48,559 Speaker 1: ultra easy monetary policy that seems to defy a global 11 00:00:48,600 --> 00:00:51,080 Speaker 1: trend toward tightening. Here to tell us about this is 12 00:00:51,159 --> 00:00:54,320 Speaker 1: Jeff Usher. He has had of research for Japan Insider. 13 00:00:54,320 --> 00:00:58,480 Speaker 1: They're based in Jeffersonville, New York. Jeff Usher, thanks very 14 00:00:58,560 --> 00:01:01,640 Speaker 1: much for being with us. Tell us about this move 15 00:01:01,880 --> 00:01:04,080 Speaker 1: or non move by the Bank of Japan. What does 16 00:01:04,120 --> 00:01:07,280 Speaker 1: it mean? Well, I think what it really means is 17 00:01:07,600 --> 00:01:11,800 Speaker 1: we're going to have what they call quantitative and qualitative 18 00:01:11,800 --> 00:01:17,440 Speaker 1: easing forever um. The key point that was in today's 19 00:01:17,480 --> 00:01:20,560 Speaker 1: meeting was that the Bank of Japan is going to 20 00:01:20,640 --> 00:01:24,640 Speaker 1: be unable to meet its two percent inflation target at 21 00:01:24,760 --> 00:01:28,840 Speaker 1: least until the end of March of and probably even 22 00:01:28,920 --> 00:01:33,559 Speaker 1: further so. Because we've had such easy money for so long, 23 00:01:33,959 --> 00:01:37,440 Speaker 1: it's putting pressure on Japanese banks and it's also affecting 24 00:01:37,520 --> 00:01:41,840 Speaker 1: the Japanese government bond market. And so what they did 25 00:01:41,920 --> 00:01:45,240 Speaker 1: today is essentially apply a few tweaks to allow them 26 00:01:45,280 --> 00:01:49,320 Speaker 1: to keep q QUO E in place for at least 27 00:01:49,320 --> 00:01:52,440 Speaker 1: another three years. Jeff, I'd love to talk about the 28 00:01:52,520 --> 00:01:55,480 Speaker 1: Japanese economy because by a lot of measures, it's doing 29 00:01:55,800 --> 00:01:57,680 Speaker 1: really well. I mean, the job market is the best 30 00:01:57,720 --> 00:02:01,440 Speaker 1: in this nineteen four There do appear to be some 31 00:02:01,760 --> 00:02:04,400 Speaker 1: very small shoots of inflation. So what's the Bank of 32 00:02:04,440 --> 00:02:08,360 Speaker 1: Japan waiting for here? Well, um, I think they're just 33 00:02:08,480 --> 00:02:12,160 Speaker 1: waiting for, um, you know, the overall inflation to to 34 00:02:12,200 --> 00:02:14,839 Speaker 1: get up towards two percent. I mean, my personal view 35 00:02:14,880 --> 00:02:19,320 Speaker 1: is that two percent is actually unrealistic target. Uh that 36 00:02:19,440 --> 00:02:21,440 Speaker 1: you know, if you look at a chart of inflation 37 00:02:21,520 --> 00:02:24,440 Speaker 1: going back thirty years, the only time they've hit that 38 00:02:24,800 --> 00:02:28,160 Speaker 1: is when you've had a consumption tax increase, and that's 39 00:02:28,200 --> 00:02:31,680 Speaker 1: not really the kind of inflation that you want. So uh, 40 00:02:31,720 --> 00:02:34,000 Speaker 1: you know, the job market is great. We're getting a 41 00:02:34,080 --> 00:02:37,799 Speaker 1: lot of older workers, post retirement workers, a lot more 42 00:02:37,840 --> 00:02:42,359 Speaker 1: women entering the workforce, but wages are not rising as 43 00:02:42,400 --> 00:02:45,359 Speaker 1: quickly as you'd expect because most of the new people 44 00:02:45,400 --> 00:02:48,480 Speaker 1: coming into the workforce actually get paid less than the 45 00:02:48,520 --> 00:02:52,720 Speaker 1: full time workers. Jeff, you were the first non Japanese 46 00:02:52,760 --> 00:02:55,680 Speaker 1: individual to work on the floor of the Tokyo Stock 47 00:02:55,720 --> 00:03:00,840 Speaker 1: Exchange back in correct, Yes, when you had a floor. Okay, 48 00:03:00,919 --> 00:03:07,000 Speaker 1: can you explain to people how the Japanese economy is 49 00:03:07,440 --> 00:03:11,400 Speaker 1: different then let's say the economy in the United States 50 00:03:11,480 --> 00:03:17,960 Speaker 1: and its relationship to let's say you are Japanese government debt. Okay, 51 00:03:18,480 --> 00:03:22,040 Speaker 1: people are very worried about Japanese government debt, and I 52 00:03:22,080 --> 00:03:25,000 Speaker 1: think that, um, you know, one of the issues here 53 00:03:25,600 --> 00:03:29,760 Speaker 1: is that, unlike the US, most Japanese government debt is 54 00:03:29,800 --> 00:03:33,760 Speaker 1: owned owned, excuse me, by Japanese and so you don't 55 00:03:33,760 --> 00:03:38,840 Speaker 1: really have to worry about capital flight. Uh. The in fact, 56 00:03:39,040 --> 00:03:42,800 Speaker 1: there's a real shortage of long term debt right now 57 00:03:43,160 --> 00:03:46,360 Speaker 1: because again the Japanese economy has been very wealthy for 58 00:03:46,400 --> 00:03:51,000 Speaker 1: a very long time. And UH, insurance companies, UH, the 59 00:03:51,080 --> 00:03:53,600 Speaker 1: g p i F, which is the government pension fund, 60 00:03:54,240 --> 00:03:57,200 Speaker 1: all of these big investors really don't have a lot 61 00:03:57,240 --> 00:04:01,880 Speaker 1: of places to put yen to work in the domestic market, 62 00:04:02,440 --> 00:04:04,720 Speaker 1: so um, you know, I think as far as the 63 00:04:04,760 --> 00:04:09,920 Speaker 1: economy goes, it's a very diversified economy, much different say 64 00:04:10,680 --> 00:04:15,080 Speaker 1: the Chinese market or other emerging markets, and in many 65 00:04:15,120 --> 00:04:18,360 Speaker 1: ways people might be surprised to hear that it's similar 66 00:04:18,400 --> 00:04:22,799 Speaker 1: to the US, and that Japan's dependence on exports is 67 00:04:23,320 --> 00:04:25,960 Speaker 1: about the same as the United States. It's only about 68 00:04:26,560 --> 00:04:30,000 Speaker 1: seventeen or eighteen vent of GDP where it's ay a 69 00:04:30,000 --> 00:04:33,960 Speaker 1: country like Germany relies on about on exports for about 70 00:04:33,720 --> 00:04:37,320 Speaker 1: forty of their GDP. The reason why people have been 71 00:04:37,320 --> 00:04:40,839 Speaker 1: watching Japan so closely recently, I mean not not to 72 00:04:40,880 --> 00:04:43,200 Speaker 1: mention that it's one of the major economies of the world, 73 00:04:43,480 --> 00:04:46,359 Speaker 1: but also because it was clear that the Bank of 74 00:04:46,440 --> 00:04:51,400 Speaker 1: Japan's moves are having a pretty significant impact on global 75 00:04:51,440 --> 00:04:54,240 Speaker 1: bond yields. I mean, even the sort of suspicion that 76 00:04:54,279 --> 00:04:56,920 Speaker 1: they might make some sort of policy tweak. Last night, 77 00:04:57,320 --> 00:05:00,240 Speaker 1: UH sent longer term yields in the US U in 78 00:05:00,279 --> 00:05:03,680 Speaker 1: Germany higher. That has obviously reversed as they show that 79 00:05:03,720 --> 00:05:06,520 Speaker 1: they were not willing to make those tweaks. Um, the 80 00:05:06,560 --> 00:05:10,440 Speaker 1: idea that you're saying q E forever to me indicates 81 00:05:10,720 --> 00:05:15,000 Speaker 1: that will be a consistent and ongoing pressure on yields globally. 82 00:05:15,520 --> 00:05:18,960 Speaker 1: Uh do you see it that way? Yeah? Absolutely, There's 83 00:05:19,120 --> 00:05:23,960 Speaker 1: there's no doubt about. Um. Japanese investors are being forced 84 00:05:24,000 --> 00:05:27,240 Speaker 1: to put more of their money overseas, and in a sense, 85 00:05:27,560 --> 00:05:30,920 Speaker 1: it makes it a very easy trade because, uh, if 86 00:05:30,960 --> 00:05:32,520 Speaker 1: you know that the b o J is going to 87 00:05:32,600 --> 00:05:35,400 Speaker 1: be keeping interest rates pretty much where they are for 88 00:05:35,440 --> 00:05:39,000 Speaker 1: at least the next three years, but let's say yields 89 00:05:39,000 --> 00:05:43,200 Speaker 1: in the US or Germany are rising, Um, you know, 90 00:05:43,279 --> 00:05:47,080 Speaker 1: you're just gonna get wider spreads between Japan and uh, 91 00:05:47,160 --> 00:05:49,200 Speaker 1: you know, the US and Europe, and that's going to 92 00:05:49,279 --> 00:05:55,000 Speaker 1: attract more Japanese outflows to these markets. And Uh again, 93 00:05:55,000 --> 00:05:58,839 Speaker 1: as those spreads widen, it becomes much more profitable for 94 00:05:58,920 --> 00:06:03,000 Speaker 1: Japanese investors hedge their currency as well, So that makes 95 00:06:03,000 --> 00:06:05,280 Speaker 1: it even easier for them to to put more money 96 00:06:05,320 --> 00:06:08,839 Speaker 1: let's say into ten your treasury, Jeff, does this based 97 00:06:08,839 --> 00:06:11,400 Speaker 1: on your analysis, do you see the Japanese end weakening 98 00:06:11,480 --> 00:06:16,320 Speaker 1: against the U. S. Dollar? Um? Just marginally. I actually 99 00:06:16,360 --> 00:06:18,880 Speaker 1: think the dollar again is pretty much stuck in a 100 00:06:18,960 --> 00:06:22,320 Speaker 1: trading range. Um, I think that you know, we're kind 101 00:06:22,320 --> 00:06:24,600 Speaker 1: of trading between one oh seven at the low end 102 00:06:24,640 --> 00:06:29,160 Speaker 1: and one thirteen at the upper end. And uh, honestly, 103 00:06:29,160 --> 00:06:32,120 Speaker 1: if you look at how the Japanese economy operates, if 104 00:06:32,160 --> 00:06:36,040 Speaker 1: the end gets a whole lot weaker than say one fifteen, 105 00:06:36,520 --> 00:06:39,680 Speaker 1: it's actually bad for the domestic economy because don't forget, 106 00:06:40,000 --> 00:06:43,400 Speaker 1: Japan imports all of its food, all of its energy, 107 00:06:43,880 --> 00:06:47,160 Speaker 1: and so um. You know, once once you start raising 108 00:06:47,200 --> 00:06:51,840 Speaker 1: those import prices, you leave less money available for discretionary 109 00:06:51,880 --> 00:06:56,920 Speaker 1: purchases like say, refrigerators, and that keeps the economies, uh 110 00:06:57,320 --> 00:07:00,320 Speaker 1: consumption weak. Jeff Fusher, thank you so much for being 111 00:07:00,320 --> 00:07:03,719 Speaker 1: with us. Jeff Usher, head of research at Japan Insider, 112 00:07:04,080 --> 00:07:08,080 Speaker 1: talking about that b o J decision that we got overnight, 113 00:07:08,320 --> 00:07:12,040 Speaker 1: definitely causing a reversal of some of the yield curve widening. 114 00:07:12,080 --> 00:07:31,480 Speaker 1: Now you're getting flattening once again. Apple reports its results 115 00:07:31,520 --> 00:07:33,680 Speaker 1: after the close of trading today, and here to help 116 00:07:33,760 --> 00:07:36,640 Speaker 1: us understand what to expect is our own John Butler. 117 00:07:36,680 --> 00:07:41,200 Speaker 1: He's our senior telecom services and equipment analysts for Bloomberg Intelligence. 118 00:07:41,400 --> 00:07:44,640 Speaker 1: Please follow John on Twitter as we all do at 119 00:07:44,760 --> 00:07:50,800 Speaker 1: John Underscore Butler twenty five all right, John Underscore Butler 120 00:07:51,920 --> 00:07:55,280 Speaker 1: revenue annual revenue for Apple in the neighborhood of two 121 00:07:55,320 --> 00:07:59,800 Speaker 1: hundred and fifty billion dollars. What are you going to 122 00:07:59,880 --> 00:08:03,400 Speaker 1: be looking for when Apple reports results after the close? 123 00:08:04,200 --> 00:08:08,000 Speaker 1: I am looking at services, which includes the App Store, 124 00:08:08,200 --> 00:08:11,920 Speaker 1: and I'm looking at the other products category which includes 125 00:08:12,040 --> 00:08:16,920 Speaker 1: air pods and HomePod and Apple Watch, and together those 126 00:08:16,960 --> 00:08:22,360 Speaker 1: two divisions are really driving future growth at Apple. Right 127 00:08:22,400 --> 00:08:24,080 Speaker 1: if you look at the current quarter, we're in a 128 00:08:24,200 --> 00:08:28,040 Speaker 1: very good iPhone cycle. Right now, people expect iPhone revenue 129 00:08:28,080 --> 00:08:31,680 Speaker 1: to be up fifteen percent year on year, same with 130 00:08:31,760 --> 00:08:35,760 Speaker 1: the total growth at Apple. We should get top lene 131 00:08:35,800 --> 00:08:38,840 Speaker 1: growth in that same range. But as you look down 132 00:08:38,880 --> 00:08:41,800 Speaker 1: the road, this is a company and transition from a 133 00:08:41,920 --> 00:08:46,200 Speaker 1: hardware centric model to a much more balanced model of 134 00:08:46,280 --> 00:08:50,280 Speaker 1: hardware and software sales services. So that's the important thing 135 00:08:50,360 --> 00:08:52,480 Speaker 1: right now is to show is for Apple to show 136 00:08:52,520 --> 00:08:57,040 Speaker 1: people that it is successfully diverse fating away from the iPhone. Yes, 137 00:08:57,160 --> 00:09:01,400 Speaker 1: because all iPhone sales are close to all iPhone sales 138 00:09:01,440 --> 00:09:05,000 Speaker 1: now are coming from existing users who are upgrading to 139 00:09:06,000 --> 00:09:10,240 Speaker 1: new phones, better phones. So it's driving decent sales. But 140 00:09:10,360 --> 00:09:13,960 Speaker 1: what you really want is to leverage that platform to 141 00:09:14,120 --> 00:09:18,040 Speaker 1: sell services and to sell your other products that work 142 00:09:18,120 --> 00:09:21,160 Speaker 1: well now with the iPhone all right now, you know, 143 00:09:21,320 --> 00:09:24,720 Speaker 1: in the interest of trying to find an expert to 144 00:09:25,160 --> 00:09:27,400 Speaker 1: sort of really put the questions to you, because we 145 00:09:27,480 --> 00:09:29,760 Speaker 1: know that, you know, we are a little older in 146 00:09:29,800 --> 00:09:33,520 Speaker 1: the demographic for the iPhone and the Apple products. We 147 00:09:33,640 --> 00:09:37,760 Speaker 1: have a guest here in the studio, Zeke Abramowitz, who 148 00:09:38,200 --> 00:09:42,080 Speaker 1: is nine years old. And you know, it's always good 149 00:09:42,080 --> 00:09:46,199 Speaker 1: to go right to the to the customer when when 150 00:09:47,640 --> 00:09:51,120 Speaker 1: the yeah, well yeah, mother pays the bills, parents pay 151 00:09:51,200 --> 00:09:53,120 Speaker 1: the bills. But Zeke, I know you have a question 152 00:09:53,160 --> 00:09:55,800 Speaker 1: for John Butler because you are an Apple efficient now 153 00:09:55,840 --> 00:09:58,280 Speaker 1: to go ahead and ask John a question why are 154 00:09:58,360 --> 00:10:03,640 Speaker 1: so many people buying? But you know it, it's what 155 00:10:03,760 --> 00:10:06,120 Speaker 1: I was just talking about a moment ago, which is 156 00:10:06,240 --> 00:10:10,880 Speaker 1: the software and the services matter most now. And so 157 00:10:11,000 --> 00:10:13,920 Speaker 1: people love playing games on their phones. So if you 158 00:10:13,960 --> 00:10:16,600 Speaker 1: take a look around the train at night, everyone has 159 00:10:16,640 --> 00:10:19,800 Speaker 1: a game up on their phone and that's paying for 160 00:10:19,840 --> 00:10:25,000 Speaker 1: those games. And do an Apple do Apple customers pay 161 00:10:25,080 --> 00:10:30,360 Speaker 1: for games versus Android users. I'm not a gamer, so 162 00:10:30,720 --> 00:10:33,160 Speaker 1: I'm gonna say apps in general. I mean, because I 163 00:10:33,200 --> 00:10:36,840 Speaker 1: think there's that note that Apple users they're more willing 164 00:10:36,880 --> 00:10:41,360 Speaker 1: to actually spend money. Yes, so, so people are spending 165 00:10:41,440 --> 00:10:44,840 Speaker 1: up and a third of App store sales are games, 166 00:10:45,559 --> 00:10:48,680 Speaker 1: believe it or not. And the App store is growing 167 00:10:48,840 --> 00:10:51,720 Speaker 1: over thirty percent a year, or it seems so, because 168 00:10:51,760 --> 00:10:54,680 Speaker 1: if you look at services as a whole, it's growing 169 00:10:54,760 --> 00:11:00,280 Speaker 1: well over thirty. So. Um. Back to the question Sun, 170 00:11:00,480 --> 00:11:03,560 Speaker 1: why do people are people buying games on the iPhone? 171 00:11:03,600 --> 00:11:07,160 Speaker 1: The answer is yes, and it really is driving growth 172 00:11:07,160 --> 00:11:10,720 Speaker 1: at Apple. I guess you know, it's sort of interesting. 173 00:11:11,200 --> 00:11:13,679 Speaker 1: I was reading a story and frankly, this was something 174 00:11:13,720 --> 00:11:16,160 Speaker 1: that Zeke and I were talking about this morning, that 175 00:11:16,200 --> 00:11:19,480 Speaker 1: there were some reports that Fortnite that the popularity has 176 00:11:19,520 --> 00:11:23,880 Speaker 1: actually helped Apple. And the question is, when you have 177 00:11:24,040 --> 00:11:28,160 Speaker 1: a free game like that, how does it translate to 178 00:11:28,280 --> 00:11:31,200 Speaker 1: money for Apple? How does Apple profit from these games? 179 00:11:31,800 --> 00:11:34,920 Speaker 1: That's a great question. I'm not quite sure, except to 180 00:11:34,960 --> 00:11:38,760 Speaker 1: say you make in game purchases of sort of added 181 00:11:38,840 --> 00:11:41,760 Speaker 1: items for your character in the game, So Fortnite is 182 00:11:41,840 --> 00:11:46,240 Speaker 1: actually generating a lot of revenue as people buy these 183 00:11:46,280 --> 00:11:49,840 Speaker 1: sort of ancillary shields and swords and all this stuff. 184 00:11:50,400 --> 00:11:54,199 Speaker 1: And I have to believe. Given Apple's model of charging 185 00:11:55,440 --> 00:12:00,920 Speaker 1: roughly for all app store sales app sales, they're probably 186 00:12:00,960 --> 00:12:03,880 Speaker 1: making a portion of that, so that may help them. 187 00:12:04,000 --> 00:12:06,520 Speaker 1: What's the breakdown right now? What are you looking for 188 00:12:06,600 --> 00:12:10,360 Speaker 1: in terms of services versus iPhone sales with respect to 189 00:12:10,440 --> 00:12:14,199 Speaker 1: the sheriff revenue for Apple? So I I'll go back 190 00:12:14,240 --> 00:12:17,320 Speaker 1: to that thought of I look at services and other 191 00:12:17,360 --> 00:12:20,400 Speaker 1: products together because the other products are all the new 192 00:12:20,480 --> 00:12:24,160 Speaker 1: products including air pods and home pod and so forth, 193 00:12:24,720 --> 00:12:28,920 Speaker 1: and together with services, they're over of revenue where they 194 00:12:28,920 --> 00:12:33,560 Speaker 1: were last quarter, they were close to total sales, that's 195 00:12:33,679 --> 00:12:38,760 Speaker 1: versus the iPhone at over sixty of sales. But over 196 00:12:38,840 --> 00:12:42,040 Speaker 1: time you'll see that mixed shift. And that's very important 197 00:12:42,120 --> 00:12:46,600 Speaker 1: because those services and other products are more profitable than 198 00:12:46,679 --> 00:12:49,800 Speaker 1: the iPhone and so it will boost not only the 199 00:12:49,840 --> 00:12:52,560 Speaker 1: top line and help to boid growth on the top line, 200 00:12:52,600 --> 00:12:55,360 Speaker 1: but it's going to fuel bottom line growth. So that 201 00:12:55,520 --> 00:12:59,800 Speaker 1: is a key factor. And I noticed the street is 202 00:13:00,000 --> 00:13:02,360 Speaker 1: focused on it more and more every quarter. You can 203 00:13:02,400 --> 00:13:04,760 Speaker 1: just hear it in the Q and a Zeke has 204 00:13:04,800 --> 00:13:09,240 Speaker 1: another question, John, are money people buying the Apple Watch. Yes, 205 00:13:09,320 --> 00:13:11,800 Speaker 1: the Apple Watch is doing quite well. I don't have 206 00:13:11,840 --> 00:13:14,040 Speaker 1: the numbers in front of me. But I think it's 207 00:13:14,080 --> 00:13:16,400 Speaker 1: fair to say that has been a real hit product 208 00:13:16,440 --> 00:13:19,200 Speaker 1: for them, and it's here to stay for a while. 209 00:13:19,520 --> 00:13:21,600 Speaker 1: It's hurt a lot of the watch companies, hasn't it. 210 00:13:22,480 --> 00:13:25,000 Speaker 1: I'm not sure on that. It's in a different category. 211 00:13:25,040 --> 00:13:27,560 Speaker 1: It probably has hurt Fitbit and some of the sport 212 00:13:27,640 --> 00:13:33,600 Speaker 1: and fitness watches. Um do you think, yes, Okay, that 213 00:13:34,080 --> 00:13:37,559 Speaker 1: a given. But just to connect that with the facial 214 00:13:38,280 --> 00:13:41,160 Speaker 1: I D recognition that is coming with all of the 215 00:13:41,200 --> 00:13:45,559 Speaker 1: new Apple iPhones, combine that with the watch, can we 216 00:13:45,720 --> 00:13:51,960 Speaker 1: see personalized medical information coming to a digital assistant near us? 217 00:13:52,120 --> 00:13:55,120 Speaker 1: I actually would love to see that. And health and 218 00:13:55,200 --> 00:13:59,480 Speaker 1: fitness is a big silo that Apple is is very 219 00:13:59,559 --> 00:14:03,120 Speaker 1: focused stun they haven't made as much headway as as 220 00:14:03,160 --> 00:14:05,280 Speaker 1: you would think. I mean, I look at the world 221 00:14:05,280 --> 00:14:10,200 Speaker 1: of healthcare and how you could really leverage that iPhone 222 00:14:10,200 --> 00:14:13,000 Speaker 1: and watch combination to take advantage of that and grow 223 00:14:13,080 --> 00:14:16,120 Speaker 1: your business there. So stay tuned. I think there's more 224 00:14:16,160 --> 00:14:18,319 Speaker 1: to come on that front. Well. It should be interesting 225 00:14:18,320 --> 00:14:20,480 Speaker 1: to see whether Apple can give people a sense of 226 00:14:20,560 --> 00:14:23,160 Speaker 1: confidence that big tech in the US is here to stay, 227 00:14:23,160 --> 00:14:26,720 Speaker 1: because certainly people worry about that, So this is going 228 00:14:26,760 --> 00:14:29,480 Speaker 1: to be the moment of truth upon us at four 229 00:14:29,520 --> 00:14:32,160 Speaker 1: thirty pm Eastern time today. I think the stuff that 230 00:14:32,200 --> 00:14:36,520 Speaker 1: ailed Facebook and Google is not in Apple's wheelhouse, so 231 00:14:36,560 --> 00:14:39,680 Speaker 1: they may be safe there. But we'll see, we will see. 232 00:14:39,880 --> 00:14:42,080 Speaker 1: John Butler, thank you so much as always for being 233 00:14:42,120 --> 00:14:44,920 Speaker 1: with us. John Butler, Senior Telecom Service as an equipment 234 00:14:44,960 --> 00:15:05,920 Speaker 1: analyst for Bloomberg Intelligence. The leverage loan market is the 235 00:15:06,040 --> 00:15:09,320 Speaker 1: sister asset class to the US junk bond market, but 236 00:15:09,360 --> 00:15:12,640 Speaker 1: it has grown so quickly that it is now eclipsed 237 00:15:12,920 --> 00:15:15,920 Speaker 1: the bond market, and a lot of people are wondering 238 00:15:16,040 --> 00:15:18,720 Speaker 1: has it gone too far too fast? Here to talk 239 00:15:18,760 --> 00:15:21,480 Speaker 1: about that. Jim Schafer Co. Had a public fixed income 240 00:15:21,480 --> 00:15:25,160 Speaker 1: and deputy chief investment officer at a gun USA asset 241 00:15:25,240 --> 00:15:29,200 Speaker 1: management in managing over a hundred billion dollars. He comes 242 00:15:29,200 --> 00:15:33,120 Speaker 1: to us from Chicago. Jim, A lot of focus is 243 00:15:33,240 --> 00:15:37,320 Speaker 1: on the collateralized loan obligation part of this world. Just 244 00:15:37,400 --> 00:15:40,760 Speaker 1: before we get into talking about about this issue, what 245 00:15:41,000 --> 00:15:45,000 Speaker 1: is a collateralized loan obligation? Well, it's a structured vehicle. 246 00:15:45,000 --> 00:15:47,240 Speaker 1: At first off, thanks for having me. It's a structured 247 00:15:47,360 --> 00:15:49,880 Speaker 1: vehicle where the collateral is loans, and you have a 248 00:15:49,920 --> 00:15:54,240 Speaker 1: capital structure that's tronched and the investors in vast where 249 00:15:54,240 --> 00:15:55,720 Speaker 1: they wanted on the triple A is the double A 250 00:15:55,760 --> 00:15:57,240 Speaker 1: all the way down to the equity component of the 251 00:15:57,240 --> 00:16:00,920 Speaker 1: capital structure. It's just the tronched vehicle where the loans 252 00:16:00,920 --> 00:16:03,200 Speaker 1: are the collateral and there's a series of investors and 253 00:16:03,320 --> 00:16:06,000 Speaker 1: you as a manager by loans and they as the investors, 254 00:16:06,000 --> 00:16:07,840 Speaker 1: get to return profile depending where they are in the 255 00:16:07,840 --> 00:16:13,400 Speaker 1: capital structure. And as far as the actual loans are concerned, 256 00:16:13,520 --> 00:16:19,520 Speaker 1: how did they differ significantly from bonds, shorter life, shorter maturities. Yeah, 257 00:16:19,560 --> 00:16:21,880 Speaker 1: I mean they're number when they're not securities first off, 258 00:16:21,920 --> 00:16:24,280 Speaker 1: so their their governance provisions are a little bit different. 259 00:16:24,280 --> 00:16:26,800 Speaker 1: But generally speaking, they don't have call protection and they're 260 00:16:26,800 --> 00:16:30,040 Speaker 1: generally floating rate obligations so they reacht on libor and 261 00:16:30,040 --> 00:16:31,960 Speaker 1: then they can be refinanced at any time. And those 262 00:16:32,000 --> 00:16:36,680 Speaker 1: are the two fundamental key aspect that the markets focuses on. Okay, 263 00:16:36,760 --> 00:16:40,400 Speaker 1: so sort of fast forwarding to today, we've seen record 264 00:16:40,520 --> 00:16:43,720 Speaker 1: issue ince in recent years in the leveraged loans space, 265 00:16:43,760 --> 00:16:47,720 Speaker 1: with the market uh surpassing a trillion dollars and a 266 00:16:47,760 --> 00:16:50,560 Speaker 1: lot of it's been driven by these clos that basically 267 00:16:50,600 --> 00:16:57,240 Speaker 1: packaged loans into bonds. Is this market getting frauthy right now? Well, 268 00:16:57,360 --> 00:16:59,320 Speaker 1: let's let's step back for a minute. I mean, the 269 00:16:59,320 --> 00:17:02,000 Speaker 1: demand makes ends because you've got a floating rate obligation 270 00:17:02,040 --> 00:17:04,200 Speaker 1: and you've got a potential for a rising rate environment, 271 00:17:04,200 --> 00:17:06,440 Speaker 1: and you have a strong fundamentals and so the strong 272 00:17:06,440 --> 00:17:09,720 Speaker 1: fundamental picture makes the fault environment remain low, and that 273 00:17:09,800 --> 00:17:12,840 Speaker 1: gets Barrow comfortable that they're gonna invest in lower quality 274 00:17:12,880 --> 00:17:15,040 Speaker 1: credits like high heel bonds or leverage loans. And you've 275 00:17:15,040 --> 00:17:17,160 Speaker 1: got a floating rate component that can protect you against 276 00:17:17,200 --> 00:17:20,160 Speaker 1: writing rates. So the demand makes sense. Is the market 277 00:17:20,240 --> 00:17:22,520 Speaker 1: getting sloppy? Well, what you see as you move later 278 00:17:22,520 --> 00:17:25,679 Speaker 1: on any business cycle and you see a supply demand 279 00:17:25,680 --> 00:17:27,320 Speaker 1: and bounce. So we see a lot of demand for 280 00:17:27,359 --> 00:17:30,040 Speaker 1: this sloating right asset class and that because of that, 281 00:17:30,119 --> 00:17:32,640 Speaker 1: Barrows can take advantage of that, they can take advantage 282 00:17:32,640 --> 00:17:35,639 Speaker 1: of because they can get better pricing, better covenants and 283 00:17:35,640 --> 00:17:37,600 Speaker 1: really push the envelope if you will, on that those 284 00:17:37,600 --> 00:17:40,600 Speaker 1: two elements. And so does it get sloppy, Well, it 285 00:17:40,600 --> 00:17:44,360 Speaker 1: gets more aggressive and you lose covenant protections you loose, 286 00:17:44,440 --> 00:17:47,040 Speaker 1: you get a lot of really you know, really aggressive pricing, 287 00:17:47,119 --> 00:17:50,200 Speaker 1: so you're the riff to the downsid becomes slightly higher. 288 00:17:50,240 --> 00:17:51,919 Speaker 1: And if you do see a market turn, and we 289 00:17:51,960 --> 00:17:54,680 Speaker 1: don't look at we're comfortable with fundamentals. We don't think 290 00:17:54,680 --> 00:17:56,760 Speaker 1: the market's gonna We don't see defaults taking up in 291 00:17:56,800 --> 00:17:59,680 Speaker 1: the near term. But when it does, the types of 292 00:17:59,720 --> 00:18:02,040 Speaker 1: trans fashions get that get done later in a cycle 293 00:18:02,119 --> 00:18:04,199 Speaker 1: in more of an aggressive form are the ones that 294 00:18:04,240 --> 00:18:06,760 Speaker 1: caused some concerns. So you could see you could be 295 00:18:06,760 --> 00:18:10,080 Speaker 1: sowing the seeds of a more more of the next 296 00:18:10,080 --> 00:18:12,239 Speaker 1: wave of default in the market. Ten tends to get 297 00:18:12,240 --> 00:18:15,560 Speaker 1: a little bit sloppy as it gets later in the cycle. So, Jim, 298 00:18:15,680 --> 00:18:19,199 Speaker 1: there was an article on the Bloomberg yesterday talking about 299 00:18:19,320 --> 00:18:23,200 Speaker 1: how there does seem to be an increasing amount of caution. 300 00:18:23,240 --> 00:18:25,320 Speaker 1: I guess you would say on the part of some 301 00:18:25,400 --> 00:18:29,480 Speaker 1: banks certainly releasing reports that note some of the issues 302 00:18:29,520 --> 00:18:32,000 Speaker 1: with the leverage loan market, are you also seeing it 303 00:18:32,040 --> 00:18:35,919 Speaker 1: in terms of their supplying you with credit lines for 304 00:18:36,359 --> 00:18:39,800 Speaker 1: leverage loan investments or warehousing housing loans? What are you 305 00:18:39,840 --> 00:18:42,280 Speaker 1: seeing on that front? Yeah, so what we saw, you know, 306 00:18:42,359 --> 00:18:46,800 Speaker 1: we saw tremendous UH demand for collateralized loans and a 307 00:18:46,840 --> 00:18:50,720 Speaker 1: willingness from providers in the capital structure to be very 308 00:18:50,720 --> 00:18:53,359 Speaker 1: active participants. There's been you know, the CLO demand is 309 00:18:53,400 --> 00:18:56,200 Speaker 1: an extremely strong for what I mentioned slower and apsid 310 00:18:56,280 --> 00:18:59,919 Speaker 1: strong fundamentals. Uh and and so you'd expect that as 311 00:19:00,040 --> 00:19:02,800 Speaker 1: we went to do our next CELLO, we saw in 312 00:19:02,840 --> 00:19:05,560 Speaker 1: the warehouse facilities where you ramp up you buy loans 313 00:19:05,600 --> 00:19:08,359 Speaker 1: to ramp up for the next issuance of a CLO, 314 00:19:08,480 --> 00:19:10,000 Speaker 1: we saw a little bit of a pause from a 315 00:19:10,000 --> 00:19:11,760 Speaker 1: few of the providers. And I don't know if that's 316 00:19:11,920 --> 00:19:15,000 Speaker 1: a function of the aggressiveness of the structures or just 317 00:19:15,400 --> 00:19:19,199 Speaker 1: there's been such a strong amount of issuance in the 318 00:19:19,240 --> 00:19:21,040 Speaker 1: first part of the early for the last year, they're 319 00:19:21,080 --> 00:19:22,800 Speaker 1: just standing back and take a little bit of pause 320 00:19:22,840 --> 00:19:25,040 Speaker 1: to say, okay, let's let's take a look at this market. 321 00:19:25,119 --> 00:19:27,480 Speaker 1: But generally speaking, a little bit of pause is what 322 00:19:27,520 --> 00:19:30,320 Speaker 1: we saw. So you're seeing a little bit more caution 323 00:19:30,480 --> 00:19:33,520 Speaker 1: on behalf of banks that that would have to pay 324 00:19:33,560 --> 00:19:36,320 Speaker 1: more money to hold onto assets that become riskier. In 325 00:19:36,320 --> 00:19:38,440 Speaker 1: other words, UH, there does seem to be a little 326 00:19:38,480 --> 00:19:41,600 Speaker 1: bit more risk aversion or hard. I don't know if 327 00:19:41,600 --> 00:19:42,800 Speaker 1: that's the right I don't know if that's the right 328 00:19:42,800 --> 00:19:44,520 Speaker 1: way to look at it. Actually, I'd say what we 329 00:19:44,560 --> 00:19:48,240 Speaker 1: saw is in those who provide warehouses, so warehouse facilities, 330 00:19:48,280 --> 00:19:50,680 Speaker 1: when you're ramping up the CLO, there's a period of 331 00:19:50,720 --> 00:19:53,000 Speaker 1: time you need to aggregate a number of loans that 332 00:19:53,040 --> 00:19:54,800 Speaker 1: you get the scale you need them to issue the 333 00:19:54,840 --> 00:19:57,880 Speaker 1: CELLO in the warehouse facilities. And there's still demand, there's 334 00:19:57,880 --> 00:20:00,320 Speaker 1: still interest in warehouse it just was not as much 335 00:20:00,320 --> 00:20:03,040 Speaker 1: as we had seen the last twelve months previously. So 336 00:20:03,760 --> 00:20:05,960 Speaker 1: those providers a warehouse this is a light or ramp 337 00:20:06,040 --> 00:20:08,280 Speaker 1: up and put loans that you can then issue to PELO, 338 00:20:08,800 --> 00:20:10,639 Speaker 1: there were just as not as many people interested in 339 00:20:10,680 --> 00:20:13,240 Speaker 1: doing that piece of that piece of the of the puzzle, 340 00:20:13,400 --> 00:20:17,280 Speaker 1: if you will. So these warehouse providers they don't have 341 00:20:17,480 --> 00:20:21,160 Speaker 1: the inventory that they previously had. Is that accurate? Well, 342 00:20:21,400 --> 00:20:23,359 Speaker 1: I wouldn't use the inventory of loans. We're in the 343 00:20:23,359 --> 00:20:26,160 Speaker 1: market as the manager buying the loans and putting them 344 00:20:26,200 --> 00:20:29,800 Speaker 1: in the warehouse facility. They're the ones backstopping, if you will, 345 00:20:29,800 --> 00:20:32,560 Speaker 1: taking the first lost piece or back stopping or providing 346 00:20:32,560 --> 00:20:35,399 Speaker 1: the capital to support the warehouse they're the ones that 347 00:20:35,480 --> 00:20:36,879 Speaker 1: took a little bit of a pause. So that's not 348 00:20:36,920 --> 00:20:39,760 Speaker 1: that there's not you know, actually the supplying the loan 349 00:20:39,840 --> 00:20:43,040 Speaker 1: market picked up a little bit recently and again that 350 00:20:43,160 --> 00:20:45,240 Speaker 1: so that supplied the man in balance we saw for 351 00:20:45,320 --> 00:20:47,399 Speaker 1: the twelve months previously where you had a lot of 352 00:20:47,440 --> 00:20:50,600 Speaker 1: demand from the clo marketplace and really the mutual fund 353 00:20:50,640 --> 00:20:54,720 Speaker 1: marketplace and okay, supply decent supplying the low mark grade 354 00:20:54,760 --> 00:20:57,199 Speaker 1: that's applied to man and bounce the gay borrowers a 355 00:20:57,200 --> 00:20:59,520 Speaker 1: lot of you know, the abilty to really you know, 356 00:20:59,600 --> 00:21:03,119 Speaker 1: drive lower pricing and better covenant protections or more beneficial 357 00:21:03,119 --> 00:21:06,200 Speaker 1: covenant protections to them. That changed a little bit because 358 00:21:06,560 --> 00:21:09,320 Speaker 1: now if the warehouse providers pause a little bit, it 359 00:21:09,400 --> 00:21:11,720 Speaker 1: kind of goes the other way, whether there's slightly less 360 00:21:11,760 --> 00:21:14,119 Speaker 1: of ability to do more cellos and thus that strong 361 00:21:14,160 --> 00:21:17,520 Speaker 1: technical support we've seen in loans slows a little bit, 362 00:21:17,880 --> 00:21:19,240 Speaker 1: and you've had a lot of you know, a lot 363 00:21:19,240 --> 00:21:21,800 Speaker 1: of loans come in at prices that are priced very aggressively. 364 00:21:22,359 --> 00:21:24,400 Speaker 1: If demand falls is a little bit, you can see 365 00:21:24,440 --> 00:21:26,760 Speaker 1: those prey those loans back up a little bit. For 366 00:21:26,840 --> 00:21:28,479 Speaker 1: this the last thing I saved that is from our 367 00:21:28,600 --> 00:21:31,760 Speaker 1: perspective that would be kind of welcome. We wouldn't mind 368 00:21:31,760 --> 00:21:34,280 Speaker 1: seeing loans back up, but we're still pretty comfortable fundamentally 369 00:21:34,600 --> 00:21:38,280 Speaker 1: with the loan market and the underlying borrowers. But pricing 370 00:21:38,320 --> 00:21:40,480 Speaker 1: has gotten you get to aggressively. You see that supply 371 00:21:40,520 --> 00:21:43,520 Speaker 1: demand and balance. So Jim, I'd love to broaden out here. 372 00:21:43,600 --> 00:21:46,200 Speaker 1: I'd sort of put loans in the perspective of the 373 00:21:46,280 --> 00:21:49,560 Speaker 1: fixed income spectrum. What are you seeing that you really 374 00:21:49,600 --> 00:21:52,200 Speaker 1: like right now? And where do you see the least 375 00:21:52,200 --> 00:21:57,080 Speaker 1: attractive investments within fixed income? That's interesting question. I mean, 376 00:21:57,080 --> 00:21:59,520 Speaker 1: I think the fixed income marketplace because where it kind 377 00:21:59,520 --> 00:22:02,480 Speaker 1: of depends in your outlook for rates. Um. You know, 378 00:22:02,520 --> 00:22:04,400 Speaker 1: we actually have become a little more comforted high yel 379 00:22:04,440 --> 00:22:07,000 Speaker 1: bonds right now. We've seen a kind of a you know, 380 00:22:07,040 --> 00:22:09,280 Speaker 1: we are our told of return expectation for high heel 381 00:22:09,280 --> 00:22:11,439 Speaker 1: bonds in the first of this year was you know, 382 00:22:11,520 --> 00:22:13,600 Speaker 1: three quarter five percent. We saw kind of a flat 383 00:22:13,680 --> 00:22:15,680 Speaker 1: first half of the year, a lot of it driven 384 00:22:15,720 --> 00:22:17,600 Speaker 1: to the big the big move in rates, the big 385 00:22:17,640 --> 00:22:19,520 Speaker 1: jump in the ten uere had. It got people a 386 00:22:19,520 --> 00:22:21,680 Speaker 1: little bit concerned about how the velocity of the rate move. 387 00:22:21,960 --> 00:22:24,240 Speaker 1: But as that's leveled out a little bit. We now 388 00:22:24,440 --> 00:22:26,800 Speaker 1: see that the high yiel aft because the faults remain low, 389 00:22:26,800 --> 00:22:29,320 Speaker 1: fundamentals remain strong. We think that could be an interesting 390 00:22:29,359 --> 00:22:31,480 Speaker 1: asset class the back half of the year. We don't 391 00:22:31,480 --> 00:22:34,760 Speaker 1: mind the leverage loan asset class as well. It's it's 392 00:22:34,800 --> 00:22:37,320 Speaker 1: been on a very consistent return had on this year. 393 00:22:37,320 --> 00:22:38,920 Speaker 1: We thought it was going to be a fortified percent 394 00:22:38,960 --> 00:22:41,679 Speaker 1: toldal return year with and it really we saw that 395 00:22:41,720 --> 00:22:43,119 Speaker 1: the first half of the year was up you know, 396 00:22:43,160 --> 00:22:45,119 Speaker 1: two and a half odd percent, and we kind of 397 00:22:45,160 --> 00:22:47,879 Speaker 1: expect that to continue. So we although we really like 398 00:22:48,000 --> 00:22:49,840 Speaker 1: loans to start a little more balanced there, but like 399 00:22:49,920 --> 00:22:52,480 Speaker 1: high yield, we like some of the structured asset classes. 400 00:22:52,640 --> 00:22:55,040 Speaker 1: You know, we were a the egan is a is 401 00:22:55,080 --> 00:22:57,760 Speaker 1: across the six income spectrum. We've got a deep focused 402 00:22:57,800 --> 00:23:00,840 Speaker 1: on research across boat not only UM, not only credit, 403 00:23:00,880 --> 00:23:03,280 Speaker 1: but AFRA structured asset classes. So we like the structured 404 00:23:03,320 --> 00:23:06,280 Speaker 1: asset classes a lot. Think there's some value there. We've 405 00:23:06,280 --> 00:23:08,520 Speaker 1: got to leave it there. Jim Schaeffer, thank you very 406 00:23:08,600 --> 00:23:11,040 Speaker 1: much for being with us CO Head of Public Fixed Income, 407 00:23:11,440 --> 00:23:16,520 Speaker 1: Deputy Chief Investment Officer for Agon USA Asset Management, helping 408 00:23:16,520 --> 00:23:35,240 Speaker 1: to manage over three hundred billion dollars worldwide. President Trump's 409 00:23:35,240 --> 00:23:39,120 Speaker 1: administration is considering going around Congress and granting a one 410 00:23:39,200 --> 00:23:43,639 Speaker 1: hundred billion dollar tax cut, mainly to the wealthiest individuals 411 00:23:43,680 --> 00:23:45,360 Speaker 1: in the United States. This according to a New York 412 00:23:45,359 --> 00:23:48,359 Speaker 1: Times report. We want to find out more, so we're 413 00:23:48,400 --> 00:23:50,920 Speaker 1: going to turn to Andrew Mayeta. He's global trade and 414 00:23:50,960 --> 00:23:53,600 Speaker 1: economy reporter for Bloomberg News, as well as Andrew Silverman, 415 00:23:53,880 --> 00:23:58,439 Speaker 1: government analyst for Bloomberg Intelligence. Andrew Mayeta, thank you so 416 00:23:58,520 --> 00:24:02,439 Speaker 1: much for joining us from d C. What is this 417 00:24:02,520 --> 00:24:05,320 Speaker 1: that we're talking about here? Yeah, So the Time spoke 418 00:24:05,400 --> 00:24:09,600 Speaker 1: to Secretary Manution at the G twenty and he indicated 419 00:24:09,760 --> 00:24:14,119 Speaker 1: that the Treasury Department is looking at potentially allowing people 420 00:24:14,200 --> 00:24:19,480 Speaker 1: to account for inflation in calculating capital gains taxes. I mean, 421 00:24:19,480 --> 00:24:21,960 Speaker 1: what does that mean in plain English? What it means 422 00:24:21,960 --> 00:24:25,480 Speaker 1: in plain English is if I bought a hundred dollars 423 00:24:25,520 --> 00:24:29,360 Speaker 1: worth of stock, say five years ago, if I can 424 00:24:29,440 --> 00:24:33,040 Speaker 1: account for inflation, uh, it might actually be worth a 425 00:24:33,119 --> 00:24:36,919 Speaker 1: hundred and fifty in present terms. And that means that 426 00:24:37,000 --> 00:24:40,440 Speaker 1: the taxit that I take is going to be lower. 427 00:24:40,720 --> 00:24:44,359 Speaker 1: So that's what that's what they're considering. Andrew Silverman, just 428 00:24:44,800 --> 00:24:47,480 Speaker 1: follow up with this affect both short term and long 429 00:24:47,600 --> 00:24:51,639 Speaker 1: term capital gains. Lately, just on long term couple of 430 00:24:51,840 --> 00:24:54,760 Speaker 1: short term coupital gains are tanks of the ordinary income taks. Right, So, 431 00:24:55,000 --> 00:24:57,760 Speaker 1: Andrew Silverman, can you give us a sense of whether 432 00:24:57,800 --> 00:25:00,399 Speaker 1: this has been tried before and what the pros cons 433 00:25:00,400 --> 00:25:03,359 Speaker 1: are for this? Well, so this has been suggested before. 434 00:25:03,440 --> 00:25:06,159 Speaker 1: President H. W. Bush thought about doing this in nine 435 00:25:07,320 --> 00:25:10,240 Speaker 1: There was a memorandum that was written by a few 436 00:25:10,320 --> 00:25:14,760 Speaker 1: lawyers in Washington and Sean Pittman are now Pillsbury, went 437 00:25:14,800 --> 00:25:19,760 Speaker 1: through UM and they suggested that Uh it was it 438 00:25:19,800 --> 00:25:24,159 Speaker 1: was perfectly legal. UM and the president UM consider this, UH, 439 00:25:24,400 --> 00:25:26,800 Speaker 1: talk to Treasury about it. They actually decided against it. 440 00:25:27,320 --> 00:25:29,919 Speaker 1: But when Bob Dole ran for president nine six, he 441 00:25:30,080 --> 00:25:32,600 Speaker 1: said that he wanted to do this by FIAT and 442 00:25:33,040 --> 00:25:36,360 Speaker 1: those lawyers who are the memorandum in in UM UH 443 00:25:36,400 --> 00:25:40,640 Speaker 1: in nineteen UH eighty nine, then reissued it in in twelve 444 00:25:40,800 --> 00:25:42,640 Speaker 1: UM saying that they still supported the idea and thought 445 00:25:42,680 --> 00:25:46,920 Speaker 1: it was perfectly legal. Andrew Mayda just to run down 446 00:25:46,960 --> 00:25:50,520 Speaker 1: the capital gains tax structure right now. It has to 447 00:25:50,600 --> 00:25:55,240 Speaker 1: do with where you fall in terms of your income, right, Uh, 448 00:25:55,280 --> 00:25:57,160 Speaker 1: if you make let's say, I think over a hundred 449 00:25:57,200 --> 00:26:00,000 Speaker 1: and what what four hundred and twenty five thousand dollars 450 00:26:00,080 --> 00:26:03,760 Speaker 1: year as a single taxpayer, you're going to pay long term, 451 00:26:03,840 --> 00:26:06,520 Speaker 1: long term capital gains. Is that accurate? Well, I'm not 452 00:26:06,600 --> 00:26:08,760 Speaker 1: a tax expert, so I'm going to pass on that, 453 00:26:09,800 --> 00:26:12,280 Speaker 1: but I will say, I mean, there's no question that 454 00:26:12,400 --> 00:26:16,919 Speaker 1: this is going to primarily benefit the wealthy. And you know, 455 00:26:17,240 --> 00:26:19,359 Speaker 1: you have to remember the context of this. This is 456 00:26:19,400 --> 00:26:23,199 Speaker 1: coming months before mid term elections. If you look at 457 00:26:23,200 --> 00:26:26,720 Speaker 1: a tax plan that is going to potentially have more 458 00:26:26,760 --> 00:26:33,000 Speaker 1: appeal to voters. Chairman Kevin Brady, the Republican chairman of 459 00:26:33,040 --> 00:26:36,920 Speaker 1: the Tax the House Ways and Means Committee, came out 460 00:26:36,920 --> 00:26:38,720 Speaker 1: with a plan that, to me, I think sounds a 461 00:26:38,720 --> 00:26:42,040 Speaker 1: little bit more palatable to the electorate. He said. He proposed, 462 00:26:42,040 --> 00:26:46,679 Speaker 1: for example, just making permanent the tax cuts that the 463 00:26:46,720 --> 00:26:50,320 Speaker 1: Republican Party passed earlier this year. So that seems to 464 00:26:50,359 --> 00:26:52,840 Speaker 1: me like a little bit more of a vote winner 465 00:26:52,880 --> 00:26:55,160 Speaker 1: than than this hype of tax which is which will 466 00:26:55,160 --> 00:26:57,960 Speaker 1: primarily benefit the wealthy. Yeah, that's exactly what I was 467 00:26:57,960 --> 00:27:00,159 Speaker 1: gonna say. I don't really understand how this appeal is 468 00:27:00,200 --> 00:27:02,840 Speaker 1: to sort of the populous movement that President Trump kind 469 00:27:02,840 --> 00:27:07,520 Speaker 1: of is known for. Aiming at Andrew Silverman, I guess 470 00:27:07,560 --> 00:27:11,560 Speaker 1: I'm struggling to understand what's the economic benefit that that 471 00:27:11,640 --> 00:27:16,040 Speaker 1: they argue is achieved by this tax cut. Well, I 472 00:27:16,080 --> 00:27:19,040 Speaker 1: think that you can spend it a number of different ways. 473 00:27:19,080 --> 00:27:21,160 Speaker 1: But you know, you can say it's a it's um 474 00:27:22,040 --> 00:27:24,080 Speaker 1: to the wealthy, and certainly a lot of all the 475 00:27:24,080 --> 00:27:26,760 Speaker 1: people are investors and would benefit from this, but it's 476 00:27:26,800 --> 00:27:29,120 Speaker 1: also a benefit to for win ks and pension funds, 477 00:27:29,160 --> 00:27:31,480 Speaker 1: and that helps all of us. So it's not necessarily 478 00:27:31,520 --> 00:27:33,760 Speaker 1: something that just helps the wealthy, and it really helps 479 00:27:33,800 --> 00:27:37,439 Speaker 1: everybody that's an investor. It hurts the government collect Andrewmata, 480 00:27:37,480 --> 00:27:39,960 Speaker 1: can you jump on in here. I mean, what's the 481 00:27:40,040 --> 00:27:42,720 Speaker 1: economic sort of throw down on this. Is there some 482 00:27:42,800 --> 00:27:44,960 Speaker 1: kind of consensus on whether this is helpful or hurtful 483 00:27:45,000 --> 00:27:47,879 Speaker 1: for the economy, this kind of policy, Well, it's a 484 00:27:47,920 --> 00:27:50,560 Speaker 1: it's a good question. I mean, you know, in the 485 00:27:50,600 --> 00:27:55,119 Speaker 1: New York Times article, I read that somebody who's justifying 486 00:27:55,200 --> 00:27:57,919 Speaker 1: this any idea that you know, people will be buying 487 00:27:57,960 --> 00:28:02,640 Speaker 1: and selling more assets. But generally speaking, when economists look 488 00:28:02,680 --> 00:28:04,800 Speaker 1: at the biggest bang for the buck, they're looking at 489 00:28:04,880 --> 00:28:10,400 Speaker 1: measures that actually increase income or increase consumption. Uh. So, 490 00:28:10,520 --> 00:28:13,320 Speaker 1: you know, all of those things being equal, you're probably 491 00:28:13,320 --> 00:28:15,280 Speaker 1: going to get more of a bank for the buck 492 00:28:15,359 --> 00:28:18,240 Speaker 1: by doing something that benefits, you know, the lower class 493 00:28:18,280 --> 00:28:22,359 Speaker 1: of the middle class, people who have less disposable income. So, UM, 494 00:28:22,640 --> 00:28:24,360 Speaker 1: I don't know, I guess the jury the jury would 495 00:28:24,400 --> 00:28:27,440 Speaker 1: still be out on exactly what which type of approach 496 00:28:27,440 --> 00:28:31,840 Speaker 1: would would generate more of an economic boost. Andrew Silverman 497 00:28:31,920 --> 00:28:34,440 Speaker 1: just quickly, Uh, you said four oh one ks and 498 00:28:34,560 --> 00:28:38,120 Speaker 1: iras would be uh favorably treated. Why is that because 499 00:28:38,120 --> 00:28:39,800 Speaker 1: when you withdraw the money from them, it will be 500 00:28:39,800 --> 00:28:42,760 Speaker 1: at a lower tax rate. Well, they're investors, they're large investors, 501 00:28:43,200 --> 00:28:45,400 Speaker 1: but they don't have any tax consequences, right, I mean, 502 00:28:45,400 --> 00:28:49,440 Speaker 1: it's all tax deferred, but their investors do when they 503 00:28:49,480 --> 00:28:51,840 Speaker 1: take the money out. You mean, that's right, exactly, Okay, 504 00:28:52,280 --> 00:28:53,840 Speaker 1: all right, So when you withdraw let's say from the 505 00:28:53,840 --> 00:28:55,840 Speaker 1: four oh one K or you end up with drawing 506 00:28:55,880 --> 00:28:58,440 Speaker 1: from the RA, you take the minimum distribution whatever it is, 507 00:28:58,920 --> 00:29:02,680 Speaker 1: then you would end up being less because the actual 508 00:29:02,720 --> 00:29:05,960 Speaker 1: investment would be index to inflation as a result of 509 00:29:06,000 --> 00:29:09,800 Speaker 1: this potential change. That's exactly right, so so um uh 510 00:29:10,000 --> 00:29:12,680 Speaker 1: like like Andrew was saying, if you invest a hundred 511 00:29:12,720 --> 00:29:15,000 Speaker 1: dollars thirty years ago and it goes up to a 512 00:29:15,080 --> 00:29:19,320 Speaker 1: hundred and ten dollars, um uh and uh you know 513 00:29:19,320 --> 00:29:21,400 Speaker 1: if you have gains, you know, a hundred and ten 514 00:29:21,440 --> 00:29:24,680 Speaker 1: dollars um you have no um, no capital gains tax 515 00:29:24,680 --> 00:29:27,200 Speaker 1: of you indexit to inflation. Well done, all right, thanks 516 00:29:27,280 --> 00:29:30,240 Speaker 1: very much for explaining this, gentleman. Andrew Silverman our government 517 00:29:30,280 --> 00:29:34,800 Speaker 1: analysts for Bloomberg Intelligence. And Andrew Mayeta are global Trade 518 00:29:34,880 --> 00:29:38,760 Speaker 1: and Economy reporter for Bloomberg News, joining us from our 519 00:29:38,960 --> 00:29:46,640 Speaker 1: Washington bureau. Thanks for listening to the Bloomberg P and 520 00:29:46,720 --> 00:29:49,760 Speaker 1: L podcast. You can subscribe and listen to interviews at 521 00:29:49,800 --> 00:29:54,280 Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm 522 00:29:54,280 --> 00:29:57,720 Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on 523 00:29:57,760 --> 00:30:01,200 Speaker 1: Twitter at Lisa abramowits one before the podcast. You can 524 00:30:01,240 --> 00:30:03,600 Speaker 1: always catch us worldwide on Bloomberg Radio.