1 00:00:04,760 --> 00:00:08,080 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 2 00:00:08,119 --> 00:00:11,200 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,280 --> 00:00:14,480 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:14,520 --> 00:00:16,880 Speaker 1: you and your money, whether at the grocery store or 5 00:00:16,920 --> 00:00:20,680 Speaker 1: the trading floor. Find the Bloomberg P L Podcast on iTunes, 6 00:00:20,840 --> 00:00:28,800 Speaker 1: SoundCloud and at Bloomberg dot com. The rally going on 7 00:00:28,840 --> 00:00:32,680 Speaker 1: in the bond market today, the thirty year treasury up 8 00:00:33,600 --> 00:00:37,159 Speaker 1: thirty seconds. Why are they buying and will they continue 9 00:00:37,200 --> 00:00:39,800 Speaker 1: to buy? Let's ask Bob Eisenbis. He is the vice 10 00:00:39,880 --> 00:00:44,320 Speaker 1: chairman and chief monetary economist for Cumberland Advisers, and he 11 00:00:44,600 --> 00:00:48,559 Speaker 1: joins us from Sarasota, Florida. Bob Eisenbis, thanks very much 12 00:00:48,560 --> 00:00:51,800 Speaker 1: for being with us. Let's jump right into it. Give 13 00:00:51,880 --> 00:00:55,320 Speaker 1: us your analysis of what you believe will happen tomorrow 14 00:00:55,520 --> 00:01:00,440 Speaker 1: and what the questions will focus on following the decision 15 00:01:00,480 --> 00:01:02,840 Speaker 1: by the f MC, Because Janet Yelling, chair, the FED 16 00:01:03,160 --> 00:01:06,639 Speaker 1: is holding a press conference which we will carry live. Sure, 17 00:01:07,640 --> 00:01:12,080 Speaker 1: I think given the sort of parade of f MC 18 00:01:12,360 --> 00:01:17,160 Speaker 1: participants that began about February two, or they're abouts with 19 00:01:17,400 --> 00:01:23,720 Speaker 1: Governor Paul, we've seen a pretty remarkable parade of people's 20 00:01:23,760 --> 00:01:26,120 Speaker 1: suggesting that they're going to be a rate hike tomorrow. 21 00:01:26,200 --> 00:01:29,560 Speaker 1: So I think and markets believe this. They priced in 22 00:01:29,680 --> 00:01:35,000 Speaker 1: essentially probability that there will be a basis point rate increase, 23 00:01:35,000 --> 00:01:37,680 Speaker 1: and so I think that's what we're going to see. 24 00:01:38,400 --> 00:01:42,440 Speaker 1: The interesting thing is that that will be a rate 25 00:01:42,520 --> 00:01:48,920 Speaker 1: increase following the one in December, and the December GDP number, 26 00:01:48,960 --> 00:01:51,480 Speaker 1: which is the most current one that will be available, 27 00:01:52,160 --> 00:01:56,559 Speaker 1: essentially was baked in the cake before the December meeting. 28 00:01:56,680 --> 00:02:02,919 Speaker 1: So the decision is really not based on GDP for 29 00:02:03,000 --> 00:02:05,840 Speaker 1: the first quarter of this year or anything else. It's 30 00:02:05,840 --> 00:02:10,520 Speaker 1: really hinges on the employment and inflation situation. And I 31 00:02:10,560 --> 00:02:13,760 Speaker 1: think they will declare victory as far as their objectives 32 00:02:13,760 --> 00:02:17,160 Speaker 1: are concerned, and that will be their rationale. Bob, you know, 33 00:02:17,200 --> 00:02:20,440 Speaker 1: we've had a number of analysts come on and say 34 00:02:20,480 --> 00:02:24,360 Speaker 1: that the market is inadequately pricing in inflation and the 35 00:02:24,400 --> 00:02:28,720 Speaker 1: possibility of the Federal Reserve unwinding their balance sheet unwinding 36 00:02:28,760 --> 00:02:32,640 Speaker 1: their balance sheet, or the Treasury Department potentially selling fifty 37 00:02:32,760 --> 00:02:35,079 Speaker 1: or one hundred year debt. In other words, thirty year 38 00:02:35,080 --> 00:02:38,000 Speaker 1: body yields are too low. According to a lot of analysts. 39 00:02:38,120 --> 00:02:42,600 Speaker 1: Do you agree, and if so, where should they be? Well, 40 00:02:42,639 --> 00:02:47,240 Speaker 1: I mean, clearly we are in a disequluminium situation. So 41 00:02:47,800 --> 00:02:51,560 Speaker 1: if the FED were to return policy to normal, we'd 42 00:02:51,600 --> 00:02:56,320 Speaker 1: be looking at eel curve that would be higher than 43 00:02:56,880 --> 00:02:58,840 Speaker 1: where it is. But I don't think it would be 44 00:02:58,880 --> 00:03:03,320 Speaker 1: too too much higher, simply because our normalization would take 45 00:03:03,360 --> 00:03:05,839 Speaker 1: place in the context of a world in which other 46 00:03:05,880 --> 00:03:10,120 Speaker 1: central banks are still pumping liquidity into the marketplace, which 47 00:03:11,000 --> 00:03:15,400 Speaker 1: I believe while it would contribute to while the FEDS 48 00:03:15,440 --> 00:03:17,840 Speaker 1: moves would contribute to a more of a movement on 49 00:03:17,919 --> 00:03:20,919 Speaker 1: the short end, I think you'd see a longer end 50 00:03:20,960 --> 00:03:25,920 Speaker 1: that would be um uh flatter than might be the 51 00:03:25,960 --> 00:03:30,320 Speaker 1: other circumstances. If you think the economy can grow at 52 00:03:30,400 --> 00:03:33,400 Speaker 1: something on the order of the rate of productivity growth 53 00:03:33,400 --> 00:03:36,920 Speaker 1: plus the rate of growth growth and population, you're looking 54 00:03:36,960 --> 00:03:39,080 Speaker 1: at something like two and a half percent, And if 55 00:03:39,080 --> 00:03:42,640 Speaker 1: you put two inflation on top of that, you're looking 56 00:03:42,680 --> 00:03:45,080 Speaker 1: at somewhere between four and four and a half percent. 57 00:03:46,000 --> 00:03:50,160 Speaker 1: So what are you advising your clients to do. Well, 58 00:03:50,600 --> 00:03:53,800 Speaker 1: We're pretty cautious at this point because there's still a 59 00:03:53,840 --> 00:03:56,360 Speaker 1: lot of uncertainty. We're not sure about what's going to 60 00:03:56,480 --> 00:04:00,160 Speaker 1: happen as far as fiscal stimulus and how this will 61 00:04:00,200 --> 00:04:04,960 Speaker 1: all happen. I think when the Fed means gradually, they 62 00:04:05,120 --> 00:04:07,760 Speaker 1: mean gradual, and it's going to take them somewhere. I 63 00:04:07,760 --> 00:04:15,440 Speaker 1: don't see them rushing to make multiple policy moves the 64 00:04:15,440 --> 00:04:17,839 Speaker 1: way some of the people are pricing in And I think, 65 00:04:18,000 --> 00:04:21,000 Speaker 1: is this a five or ten year program? Well, it's 66 00:04:21,000 --> 00:04:23,080 Speaker 1: going to take a while to run the balance sheet 67 00:04:23,120 --> 00:04:27,760 Speaker 1: off and the I just don't see them selling assets because, um, 68 00:04:27,800 --> 00:04:29,880 Speaker 1: in order to do so, they would have to sell 69 00:04:30,520 --> 00:04:35,200 Speaker 1: mortgage assets. Really, because you're looking at an equilibrium FED 70 00:04:35,320 --> 00:04:39,520 Speaker 1: balance sheet somewhere around one point four trillion or thereabouts 71 00:04:39,640 --> 00:04:43,200 Speaker 1: to keep, which would be consistent with past history of 72 00:04:43,360 --> 00:04:50,560 Speaker 1: keeping the deposit to the currency to GDP ratio relatively constant. 73 00:04:50,640 --> 00:04:53,840 Speaker 1: The economy has grown enough that that's sort of an 74 00:04:53,880 --> 00:04:59,040 Speaker 1: equilibrium level. And uh, the only way they can get 75 00:04:59,080 --> 00:05:02,920 Speaker 1: there is all emmently by winding down the mortgage securities. 76 00:05:02,960 --> 00:05:06,000 Speaker 1: Otherwise the treasure you'll all run off. So it's gonna 77 00:05:06,000 --> 00:05:08,280 Speaker 1: be an interesting kind of thing. But I don't see 78 00:05:08,279 --> 00:05:11,919 Speaker 1: them selling assets off the balance sheet if they possibly 79 00:05:11,960 --> 00:05:15,479 Speaker 1: can avoid it, right, Well, Um, you know Bobby mentioned 80 00:05:15,520 --> 00:05:18,240 Speaker 1: earlier that a lot of what happens will depend on 81 00:05:18,279 --> 00:05:21,559 Speaker 1: some of the stimulus efforts around the world. And earlier today, 82 00:05:21,560 --> 00:05:25,760 Speaker 1: about an hour ago, Wolfgang Scheibel, who is Germans Germany 83 00:05:25,760 --> 00:05:29,360 Speaker 1: as Finance Minister, was speaking to v K you lobby 84 00:05:29,440 --> 00:05:32,799 Speaker 1: in Berlin and he said interest rates are too low. 85 00:05:33,000 --> 00:05:36,480 Speaker 1: He's but he acknowledged the adjusting to a rising rate 86 00:05:36,520 --> 00:05:38,960 Speaker 1: environment will be challenging. But this sort of builds on 87 00:05:39,040 --> 00:05:42,239 Speaker 1: this feeling that even in Europe benchmark rates are going 88 00:05:42,279 --> 00:05:44,960 Speaker 1: to rise. I mean, how much do you think they 89 00:05:44,960 --> 00:05:48,720 Speaker 1: will rise? What will the effect be here in the US? Well, 90 00:05:50,080 --> 00:05:53,600 Speaker 1: first of all, if the if the FED raises rates 91 00:05:54,120 --> 00:05:57,920 Speaker 1: right now, they have negative infrastrates in Europe. So if 92 00:05:57,920 --> 00:06:01,920 Speaker 1: you're a foreign if you're a bank, UH, and your 93 00:06:02,000 --> 00:06:06,640 Speaker 1: choice is either paying seventy basis points thereabouts to one 94 00:06:06,680 --> 00:06:11,279 Speaker 1: of the regional central banks or getting one to one 95 00:06:11,279 --> 00:06:14,800 Speaker 1: and a quarter percent here in the United States, that's 96 00:06:14,839 --> 00:06:18,400 Speaker 1: a pretty significant arbitrage show. A slight movement in rates 97 00:06:18,440 --> 00:06:22,320 Speaker 1: and UH Europe is not going to really damage that 98 00:06:22,440 --> 00:06:27,279 Speaker 1: arbitrage opportunity. And people don't really realize it's something on 99 00:06:27,360 --> 00:06:31,880 Speaker 1: the order of of the excess reserves held at the 100 00:06:31,880 --> 00:06:35,640 Speaker 1: FED are now in the sense owned by foreign institutions 101 00:06:35,680 --> 00:06:43,240 Speaker 1: their domestic US domestic affiliates, and those reserves count towards 102 00:06:43,279 --> 00:06:47,800 Speaker 1: the basle liquidity coverage ratio. So movements in Europe, at 103 00:06:47,839 --> 00:06:50,120 Speaker 1: least on the short term, aren't going to affect us 104 00:06:50,200 --> 00:06:54,080 Speaker 1: much at all, particularly when you've got this arbitrage sitting there. 105 00:06:54,360 --> 00:06:56,400 Speaker 1: Thank you so much for your thoughts. Bob ice and Bis, 106 00:06:56,640 --> 00:07:00,720 Speaker 1: vice chairman and chief monetary economist at Cumberland Adviser, is 107 00:07:00,760 --> 00:07:03,320 Speaker 1: coming to us from sarah Sota, Florida, where the weather 108 00:07:03,480 --> 00:07:06,119 Speaker 1: is much better than it is in New York City. 109 00:07:06,120 --> 00:07:20,200 Speaker 1: In our Bloomberg eleven three oh studio, a new estimate 110 00:07:20,280 --> 00:07:23,520 Speaker 1: shows that fourteen million Americans could lose health coverage by 111 00:07:23,600 --> 00:07:28,080 Speaker 1: next year under the gop Obamacare proposal, leaving House Republicans 112 00:07:28,080 --> 00:07:30,880 Speaker 1: in a bind with a dire picture of the bill's 113 00:07:30,880 --> 00:07:36,320 Speaker 1: effects heading into the eighteen congressional elections. Here to tell 114 00:07:36,400 --> 00:07:39,680 Speaker 1: us more is Anna Edney, healthcare reporter for Bloomberg News, 115 00:07:39,760 --> 00:07:42,600 Speaker 1: joining us from Washington, and thank you very much for 116 00:07:42,640 --> 00:07:44,640 Speaker 1: being with us. I want to start off with perhaps 117 00:07:44,680 --> 00:07:46,920 Speaker 1: a strange question and ask you if you can tell 118 00:07:47,000 --> 00:07:50,880 Speaker 1: us who is Keith Hall and why do you, why 119 00:07:50,960 --> 00:07:53,800 Speaker 1: might he feel that he is between a rock and 120 00:07:53,880 --> 00:07:58,840 Speaker 1: a hard place. Surett, Keith hall is the Congressional Budget 121 00:07:58,880 --> 00:08:03,480 Speaker 1: Office Director, and he, you know, has taken well, his 122 00:08:03,640 --> 00:08:06,080 Speaker 1: office really has taken a lot of heat in the 123 00:08:06,200 --> 00:08:10,600 Speaker 1: last you know, a few weeks because the Republicans and um, 124 00:08:10,640 --> 00:08:15,000 Speaker 1: the President have wanted to sort of prepare people for 125 00:08:15,240 --> 00:08:20,000 Speaker 1: a score from that office on this health legislation that 126 00:08:20,280 --> 00:08:23,640 Speaker 1: isn't it doesn't look that great, particularly um for how 127 00:08:23,640 --> 00:08:28,280 Speaker 1: many people will be uninsured under Republicans plan to replace Obamacare. 128 00:08:28,680 --> 00:08:31,520 Speaker 1: So Keith Hall, Um, you know, has sort of had 129 00:08:31,560 --> 00:08:34,200 Speaker 1: to take the take that criticism and and sort of 130 00:08:34,240 --> 00:08:36,640 Speaker 1: deal with the fact that, you know, Republicans and the 131 00:08:36,640 --> 00:08:40,959 Speaker 1: administration are basically saying that CBO isn't good at its job, 132 00:08:41,080 --> 00:08:44,560 Speaker 1: even though it was Republicans who actually put him in 133 00:08:44,679 --> 00:08:47,760 Speaker 1: charge of this office in the first place. In well, 134 00:08:47,760 --> 00:08:50,080 Speaker 1: hold on the first let's let's just talk about some 135 00:08:50,120 --> 00:08:51,920 Speaker 1: of the things that it found. It found that about 136 00:08:51,920 --> 00:08:55,280 Speaker 1: twenty five million Americans would lose coverage under the plan 137 00:08:55,400 --> 00:08:58,319 Speaker 1: that basically would reduce taxes for wealthier people, it would 138 00:08:58,360 --> 00:09:01,880 Speaker 1: increase the premium that people would have to pay UH 139 00:09:02,000 --> 00:09:06,760 Speaker 1: typically would fall to UH less well off Americans. UH. 140 00:09:06,960 --> 00:09:09,640 Speaker 1: And so you know, it raises the question, you know, yes, 141 00:09:09,720 --> 00:09:13,920 Speaker 1: it does make the proposed replacement for Obamacare, UH look 142 00:09:14,040 --> 00:09:16,800 Speaker 1: not so great for a lot of people. And you know, 143 00:09:16,880 --> 00:09:20,160 Speaker 1: Mick Mulvaney, the Office of Management and Budget Director UH, 144 00:09:20,360 --> 00:09:23,120 Speaker 1: came out today saying I don't believe the facts are correct. 145 00:09:23,120 --> 00:09:26,160 Speaker 1: He said this on MSNBC's Morning Joe. When asked for 146 00:09:26,200 --> 00:09:28,480 Speaker 1: his take on the CBO report, he said, I'm not 147 00:09:28,520 --> 00:09:30,920 Speaker 1: just saying that because it looks bad for my political position. 148 00:09:30,960 --> 00:09:32,840 Speaker 1: I'm saying that based upon a track record of the 149 00:09:32,880 --> 00:09:36,680 Speaker 1: CBO being wrong before, we believe the CBO. CBO is 150 00:09:36,720 --> 00:09:39,000 Speaker 1: wrong now. And at first, let's talk about the track 151 00:09:39,040 --> 00:09:43,120 Speaker 1: record of CBO. Has it always been wrong? Certainly when 152 00:09:43,120 --> 00:09:47,560 Speaker 1: it came to Obamacare. When the CBO was assessing uh 153 00:09:47,600 --> 00:09:50,040 Speaker 1: that when it was you know, in legislative form in 154 00:09:50,120 --> 00:09:52,800 Speaker 1: two thousand nine and in two thousands ten, it made 155 00:09:52,840 --> 00:09:56,800 Speaker 1: some predictions that were off it. UM, CBO predicted very 156 00:09:56,880 --> 00:10:00,160 Speaker 1: high numbers, for um, the number of people who it's 157 00:10:00,240 --> 00:10:04,400 Speaker 1: sign up for Obamacare plans through the marketplaces that the 158 00:10:04,480 --> 00:10:08,240 Speaker 1: law created, and those didn't come to fruition. And that's 159 00:10:08,240 --> 00:10:10,880 Speaker 1: where a lot of people are focusing right now. One 160 00:10:10,880 --> 00:10:14,200 Speaker 1: interesting thing I noticed in the CBO report that came 161 00:10:14,200 --> 00:10:17,280 Speaker 1: out yesterday is that CBO tried to address this a 162 00:10:17,320 --> 00:10:19,920 Speaker 1: little bit and said, yeah, we um, you know, underestimated 163 00:10:19,960 --> 00:10:24,280 Speaker 1: some stuff. We overestimated some stuff before, but we're learning 164 00:10:24,360 --> 00:10:26,680 Speaker 1: from those each time we go and we really try 165 00:10:26,760 --> 00:10:30,400 Speaker 1: to take those lessons into account when we assessed this 166 00:10:30,520 --> 00:10:35,400 Speaker 1: piece of legislation. The current Health and Human Services Secretary 167 00:10:35,600 --> 00:10:40,760 Speaker 1: Tom Price, I believe, said that this about Keith Hall 168 00:10:40,800 --> 00:10:43,240 Speaker 1: and started harp on this, but I thought it was interesting. 169 00:10:43,840 --> 00:10:47,080 Speaker 1: He has previously said that his vast understanding of economic 170 00:10:47,120 --> 00:10:51,040 Speaker 1: and labor policy will be invaluable to the work of CBO, 171 00:10:51,160 --> 00:10:53,800 Speaker 1: and the important role will continue to play as Congress 172 00:10:53,800 --> 00:10:56,560 Speaker 1: seeks to an act policies that support a healthy and 173 00:10:56,559 --> 00:11:01,360 Speaker 1: growing economy. This is the current How and Human Services 174 00:11:01,400 --> 00:11:06,920 Speaker 1: Secretary Tom Price. Why would he change his mind so directly? 175 00:11:08,400 --> 00:11:10,800 Speaker 1: I think that's a great question. And you know, the 176 00:11:12,040 --> 00:11:17,120 Speaker 1: situation that has changes. You know now that Republicans also 177 00:11:17,200 --> 00:11:20,600 Speaker 1: have the White House and are able to craft their 178 00:11:20,640 --> 00:11:25,040 Speaker 1: own legislation. You know, sometimes it's it's very hard to 179 00:11:25,080 --> 00:11:28,800 Speaker 1: take what CBO is telling you, and and they they 180 00:11:28,840 --> 00:11:31,240 Speaker 1: want to be able to get this through. They want 181 00:11:31,280 --> 00:11:35,160 Speaker 1: to get it done in the House at least UM 182 00:11:35,240 --> 00:11:38,280 Speaker 1: before members go on Easter recess, which is just a 183 00:11:38,320 --> 00:11:42,120 Speaker 1: couple of weeks away. And so, you know, for Tom 184 00:11:42,160 --> 00:11:44,920 Speaker 1: Price to sort of change his tune on on the 185 00:11:44,960 --> 00:11:48,959 Speaker 1: CBO UM would make sense for what they're trying to 186 00:11:49,000 --> 00:11:53,280 Speaker 1: accomplish now versus what the landscape was in And the 187 00:11:53,320 --> 00:11:57,800 Speaker 1: CBO is an independent group, it's bipartisan. Is there any 188 00:11:58,000 --> 00:12:02,760 Speaker 1: other agency, any other group that has the known kind 189 00:12:02,760 --> 00:12:07,960 Speaker 1: of bipartisan appeal to give an additional independent review of 190 00:12:08,040 --> 00:12:13,440 Speaker 1: the Republican healthcare plan. Well, we're sort of looking out 191 00:12:13,440 --> 00:12:17,760 Speaker 1: for that UM. Tom Price had mentioned that there would 192 00:12:17,800 --> 00:12:22,079 Speaker 1: be other groups that we're looking to assess this UM 193 00:12:22,240 --> 00:12:25,160 Speaker 1: and that might have different numbers than what CBO came 194 00:12:25,240 --> 00:12:28,960 Speaker 1: up with. They haven't released those, but there are you know, 195 00:12:29,000 --> 00:12:34,600 Speaker 1: other CBO directors who worked under previous Republican administrations, UM 196 00:12:34,760 --> 00:12:39,000 Speaker 1: take Douglas whole teak in for example, who might be 197 00:12:39,080 --> 00:12:43,720 Speaker 1: able to make assessments for them that would you know, 198 00:12:43,960 --> 00:12:47,800 Speaker 1: work differently. And CBO has their own way of estimating 199 00:12:47,840 --> 00:12:51,080 Speaker 1: these things, and not every economist agrees with it, So 200 00:12:51,120 --> 00:12:54,000 Speaker 1: there could be other groups that would do this differently. 201 00:12:54,960 --> 00:12:57,480 Speaker 1: Anna Ednie, thank you so much for joining us. Anna Edney, 202 00:12:57,679 --> 00:13:01,520 Speaker 1: healthcare reporter for Bloomberg News, coming to us from Washington, 203 00:13:01,600 --> 00:13:06,520 Speaker 1: d C. Talking about the latest GOP proposal to replace 204 00:13:06,600 --> 00:13:12,959 Speaker 1: Obamacare and the Congressional Budget Offices report saying that fourteen 205 00:13:12,960 --> 00:13:16,679 Speaker 1: million Americans could lose healthcare coverage by next year and 206 00:13:17,000 --> 00:13:21,800 Speaker 1: UH four million people would lose it by six bringing 207 00:13:21,840 --> 00:13:38,240 Speaker 1: the US uninsured rate to a record. Puerto Rico UH, 208 00:13:38,520 --> 00:13:42,880 Speaker 1: the Fiscal Oversight Board that was instated for Puerto Rico 209 00:13:42,960 --> 00:13:46,120 Speaker 1: as it grapples with seventy billion dollars of debt, approved 210 00:13:46,280 --> 00:13:49,680 Speaker 1: Governor Ricardo Rosselo's plan for pulling the island out of 211 00:13:49,720 --> 00:13:53,760 Speaker 1: a fiscal crisis. The only problem is bond holders might 212 00:13:53,760 --> 00:13:56,640 Speaker 1: have to take bigger haircuts than they have been pricing in. 213 00:13:56,840 --> 00:13:58,559 Speaker 1: To give us more perspective, I want to bring in 214 00:13:58,679 --> 00:14:02,320 Speaker 1: Daniel Solander. He's lead to portfolio manager of municipal bonds 215 00:14:02,400 --> 00:14:06,800 Speaker 1: for Lord Abbott in Jersey City, New Jersey, which oversees 216 00:14:06,800 --> 00:14:10,000 Speaker 1: about seventeen billion dollars in acids. Daniel, thank you so 217 00:14:10,080 --> 00:14:13,280 Speaker 1: much for joining us. What was your take on this 218 00:14:13,320 --> 00:14:16,360 Speaker 1: plan that was approved by the Fiscal Board. Well, first, 219 00:14:16,400 --> 00:14:19,280 Speaker 1: thank you for having me. Um. You know, the take 220 00:14:19,360 --> 00:14:21,760 Speaker 1: at this point is that it's it's a real accomplishment 221 00:14:21,840 --> 00:14:24,600 Speaker 1: that they've agreed to anything. At this point, it seemed 222 00:14:25,000 --> 00:14:26,920 Speaker 1: like it was going down to the end there where 223 00:14:26,960 --> 00:14:29,160 Speaker 1: the governor and the Cisco board we're not going to 224 00:14:29,240 --> 00:14:31,480 Speaker 1: come to agreement on the plan. So I think it's 225 00:14:31,480 --> 00:14:34,160 Speaker 1: a big positive they actually came to agreement. I agree 226 00:14:34,200 --> 00:14:36,280 Speaker 1: on the revenue of the expenses and a plan going 227 00:14:36,320 --> 00:14:39,360 Speaker 1: forward for for a bondholder of perspective, the numbers are 228 00:14:39,400 --> 00:14:42,040 Speaker 1: a little bit lower than they were before, so there's 229 00:14:42,080 --> 00:14:45,240 Speaker 1: still a lot of uncertainty going forward because there's other 230 00:14:45,280 --> 00:14:48,000 Speaker 1: revenues that could come in that aren't part of the plan, 231 00:14:48,560 --> 00:14:50,440 Speaker 1: and there's a lot of ways of structure bonds that 232 00:14:51,160 --> 00:14:52,880 Speaker 1: it can be more creative and still need a lot 233 00:14:52,880 --> 00:14:55,600 Speaker 1: of negotiations. So it's good they came to agreement. Bill 234 00:14:55,680 --> 00:14:58,080 Speaker 1: still a long way to go before they have agreem 235 00:14:58,080 --> 00:15:01,120 Speaker 1: with bondholders. Could you just go were some of the 236 00:15:01,240 --> 00:15:06,360 Speaker 1: major portions of the agreement because it includes furloughs as 237 00:15:06,440 --> 00:15:11,720 Speaker 1: well as well public corporations and parties and legislator and 238 00:15:11,800 --> 00:15:14,560 Speaker 1: judicial areas as supposed to also cut back and they 239 00:15:14,600 --> 00:15:16,920 Speaker 1: still have a problem with the budget because the Ernst 240 00:15:16,960 --> 00:15:20,800 Speaker 1: and Young reports says that they exceeded their budgeted expenditures 241 00:15:20,840 --> 00:15:23,680 Speaker 1: by between three hundred and sixty million and eight hundred 242 00:15:23,680 --> 00:15:26,160 Speaker 1: and ten million. Maybe you can also tell us why 243 00:15:26,240 --> 00:15:30,000 Speaker 1: is it such a divergence, Well, the government there is 244 00:15:30,000 --> 00:15:32,120 Speaker 1: for a long time, there's been a lot of difficulty 245 00:15:32,200 --> 00:15:35,640 Speaker 1: getting good financials and gained understanding and they has been 246 00:15:35,680 --> 00:15:37,560 Speaker 1: they've been way way behind their audit, so a lot 247 00:15:37,600 --> 00:15:40,160 Speaker 1: has not been clear. Uh, there are kind of a 248 00:15:40,200 --> 00:15:42,880 Speaker 1: few things at the end. They were on the expense side, 249 00:15:43,000 --> 00:15:45,240 Speaker 1: they didn't need to cut expenses more than the governor 250 00:15:45,280 --> 00:15:47,920 Speaker 1: originally wanted to the fiscal boards, that a lot more 251 00:15:47,920 --> 00:15:50,080 Speaker 1: needed to be done in order to go forward. A 252 00:15:50,080 --> 00:15:52,000 Speaker 1: lot more needs to be done the expense side to 253 00:15:52,040 --> 00:15:55,080 Speaker 1: reduce the size of the government. And on the revenue side, 254 00:15:55,400 --> 00:15:57,560 Speaker 1: there were issues with some of the forecast being maybe 255 00:15:57,560 --> 00:15:59,960 Speaker 1: a little too optimistic in terms of what kind of 256 00:16:00,160 --> 00:16:03,040 Speaker 1: news they could get in different opinions on economic growth. 257 00:16:03,480 --> 00:16:05,040 Speaker 1: So those were kind of some of the things that 258 00:16:05,080 --> 00:16:08,000 Speaker 1: had to come together at the end. And yes, there're 259 00:16:08,040 --> 00:16:11,400 Speaker 1: the other there were some things the governor didn't want 260 00:16:11,440 --> 00:16:14,000 Speaker 1: to do, such as furloughs, and they have a whole 261 00:16:14,080 --> 00:16:18,280 Speaker 1: Christmas bonus system. And there are some agreements now that um, 262 00:16:18,360 --> 00:16:20,480 Speaker 1: if the governor can come up with other revenues, he 263 00:16:20,520 --> 00:16:22,800 Speaker 1: doesn't have to cut as much. But right now he 264 00:16:23,040 --> 00:16:24,880 Speaker 1: has to cut some of the things he didn't want 265 00:16:24,880 --> 00:16:26,800 Speaker 1: to cut for the for the people working for the 266 00:16:26,800 --> 00:16:30,440 Speaker 1: government that that originally he hadn't planned. Daniel, how big 267 00:16:30,560 --> 00:16:34,880 Speaker 1: is the portfolio of Puerto Rico debt that you oversee? Uh, well, 268 00:16:35,240 --> 00:16:37,400 Speaker 1: we have a high yield fund in our one of 269 00:16:37,440 --> 00:16:40,360 Speaker 1: our portfolios. So we have more than a hundred million 270 00:16:40,400 --> 00:16:43,960 Speaker 1: dollars of Puerto Rico bonds in our portfolio and um, 271 00:16:44,040 --> 00:16:46,640 Speaker 1: but you know it's a little small percentage, but it's 272 00:16:46,680 --> 00:16:49,760 Speaker 1: it's interesting part of the high yield market because in 273 00:16:49,880 --> 00:16:53,800 Speaker 1: municipals fears back. Remember Puerto Rico's investment grade, they dropped 274 00:16:53,800 --> 00:16:55,440 Speaker 1: to the high yield market became a big part of 275 00:16:55,480 --> 00:16:58,040 Speaker 1: the market. UM. So they're decent part of the portfolio. 276 00:16:58,120 --> 00:17:00,920 Speaker 1: But also there there's job the gate sins, their sales 277 00:17:00,920 --> 00:17:04,359 Speaker 1: tax bonds, are actor constewer bonds, their power storry about 278 00:17:04,359 --> 00:17:06,240 Speaker 1: the whole bunch of different sources of revenue, so they're 279 00:17:06,280 --> 00:17:09,399 Speaker 1: not just one credit are you Are you under water? 280 00:17:10,840 --> 00:17:14,040 Speaker 1: What's surprising is the Puertorico bonds have actually some of 281 00:17:14,040 --> 00:17:17,240 Speaker 1: the bonds have performed pretty well. Last year within the 282 00:17:17,240 --> 00:17:20,439 Speaker 1: menisal bond market, the Puerto Rico index was the highest 283 00:17:20,440 --> 00:17:23,960 Speaker 1: performing index. So kind of what happened after things really 284 00:17:24,080 --> 00:17:26,639 Speaker 1: we're going bad a few years ago, bonds really dropped 285 00:17:26,640 --> 00:17:30,440 Speaker 1: the distress prices and they rebounded a lot now coming 286 00:17:30,440 --> 00:17:33,040 Speaker 1: in the last year or so, so some ownings are 287 00:17:32,680 --> 00:17:35,840 Speaker 1: again the summer and losses they were kind of all 288 00:17:35,840 --> 00:17:38,760 Speaker 1: over the place. But you know, there are still some 289 00:17:38,920 --> 00:17:41,400 Speaker 1: of losses, definitely because when they brought the last deal 290 00:17:41,520 --> 00:17:44,320 Speaker 1: proprice their way down from the last deal. Daniel, is 291 00:17:44,320 --> 00:17:47,600 Speaker 1: there anything about the recent proposal that would encourage you 292 00:17:47,640 --> 00:17:51,720 Speaker 1: to go and buy more right now? It's it's it's. 293 00:17:52,080 --> 00:17:54,199 Speaker 1: I guess it's hard to I can't really speak exactly 294 00:17:54,200 --> 00:17:55,639 Speaker 1: what we're gonna on the trading side, but you know, 295 00:17:55,640 --> 00:17:57,399 Speaker 1: it's it's it's not right now, there's a lot more 296 00:17:57,440 --> 00:18:00,679 Speaker 1: details for a bondholder to be positive. Because the numbers 297 00:18:00,680 --> 00:18:02,800 Speaker 1: did come out a little bit lower than expected for 298 00:18:02,800 --> 00:18:05,960 Speaker 1: bond holders. In the secondary market, bonds were traded down 299 00:18:05,960 --> 00:18:08,760 Speaker 1: in the last day or so and there's still a 300 00:18:08,760 --> 00:18:12,160 Speaker 1: lot of our disagreements among different crediting classes, whether it's 301 00:18:12,200 --> 00:18:14,680 Speaker 1: sales tax and general obligation. But so right now is 302 00:18:14,680 --> 00:18:17,320 Speaker 1: a lot of It's tough to really get very optimistic 303 00:18:17,320 --> 00:18:19,400 Speaker 1: at this point. But the only positive enemy you could 304 00:18:19,400 --> 00:18:21,760 Speaker 1: get is there is progress. Now they have physical plan, 305 00:18:21,840 --> 00:18:24,600 Speaker 1: maybe they can negotiate more seriously. Thanks very much for 306 00:18:24,640 --> 00:18:27,800 Speaker 1: being with us. Daniel Solander is lead portfolio manager of 307 00:18:27,880 --> 00:18:31,080 Speaker 1: municipal bonds with Lord Abbott. They're based in Jersey City, 308 00:18:31,160 --> 00:18:47,840 Speaker 1: New Jersey. They manage over seventeen billion dollars under management. Well, 309 00:18:47,960 --> 00:18:51,080 Speaker 1: the Trump administration has a plan that would slash corporate 310 00:18:51,119 --> 00:18:53,840 Speaker 1: tax rates and that could free up more than ten 311 00:18:53,880 --> 00:18:58,360 Speaker 1: billion dollars a year for US oil explorers. Let's find 312 00:18:58,359 --> 00:19:01,000 Speaker 1: out more from Rob Barnett. He is our senior energy 313 00:19:01,080 --> 00:19:05,399 Speaker 1: policy analyst for Bloomberg Intelligence. Robert's always a pleasure give 314 00:19:05,480 --> 00:19:08,760 Speaker 1: us the information and the likelihood that this will actually 315 00:19:08,800 --> 00:19:13,720 Speaker 1: come to fruition. Thanks Pim. That's right. There are numerous 316 00:19:13,840 --> 00:19:18,800 Speaker 1: Republican tax proposals out there that aimed to lower the 317 00:19:19,200 --> 00:19:22,879 Speaker 1: tax rate paid by corporations here in the United States, 318 00:19:22,880 --> 00:19:27,160 Speaker 1: and so the current top marginal rates about thirty and 319 00:19:27,800 --> 00:19:31,119 Speaker 1: Trump's proposal is to take it as low as fifteen percent. 320 00:19:31,600 --> 00:19:34,679 Speaker 1: There's a House Republican Land backed by Paul Ryan, that 321 00:19:34,720 --> 00:19:39,199 Speaker 1: would take it down to And this has a big 322 00:19:39,520 --> 00:19:44,119 Speaker 1: impact potentially on US oil and gas producers. If you 323 00:19:44,160 --> 00:19:48,960 Speaker 1: look at the companies in Bloomberg Intelligences North American Independent 324 00:19:49,080 --> 00:19:52,600 Speaker 1: E n P peer groups, so basically the domestic oil 325 00:19:52,640 --> 00:19:56,080 Speaker 1: and gas producers, they could see up to a ten 326 00:19:56,240 --> 00:19:59,480 Speaker 1: billion dollar cut in their aggregate tax bill if you 327 00:19:59,520 --> 00:20:04,080 Speaker 1: really were to go from that kind of thirty range 328 00:20:04,200 --> 00:20:07,480 Speaker 1: down to range at least according to our analysis. So 329 00:20:07,560 --> 00:20:12,359 Speaker 1: that's names like Conco, Phillips, Pioneer, Natural Resources, Devon, companies 330 00:20:12,400 --> 00:20:15,960 Speaker 1: like that that have a strong domestic presence here in 331 00:20:15,960 --> 00:20:18,840 Speaker 1: the United States. Is all of this money going to 332 00:20:19,359 --> 00:20:24,960 Speaker 1: basically UH sponsor more production and cause oil prices to 333 00:20:25,000 --> 00:20:27,359 Speaker 1: go lower? In other words, is this what's behind the 334 00:20:27,400 --> 00:20:30,480 Speaker 1: oil price drops that we're seeing today? We know daily 335 00:20:30,560 --> 00:20:34,160 Speaker 1: volatility in the oil prices influenced by so many things. 336 00:20:34,240 --> 00:20:38,119 Speaker 1: I wouldn't try to pin any near term movements in 337 00:20:38,160 --> 00:20:42,520 Speaker 1: the oil price on on sort of big broad tax discussions, 338 00:20:42,520 --> 00:20:46,159 Speaker 1: But I think your intuition is right. If you reduce 339 00:20:46,720 --> 00:20:52,520 Speaker 1: the tax cost for US oil and gas producers. You 340 00:20:52,520 --> 00:20:56,920 Speaker 1: you potentially make it more attractive to produce oil and 341 00:20:56,960 --> 00:21:00,919 Speaker 1: gas here in the US, and you potentially could see, 342 00:21:01,320 --> 00:21:05,200 Speaker 1: in our view, especially some of the large integrated companies 343 00:21:05,240 --> 00:21:07,560 Speaker 1: taking more interest in the US because this could make 344 00:21:08,080 --> 00:21:11,639 Speaker 1: producing oil and gas here in the US more attractive 345 00:21:11,760 --> 00:21:14,520 Speaker 1: relative to other parts of the world if we truly 346 00:21:14,560 --> 00:21:17,760 Speaker 1: do lower the tax costs that some of these companies 347 00:21:18,000 --> 00:21:20,720 Speaker 1: have to pay. Now, you know Harold Ham who was 348 00:21:20,760 --> 00:21:24,320 Speaker 1: the chairman and the chief executive of Continental Resources, he 349 00:21:24,600 --> 00:21:28,439 Speaker 1: said at a meeting it was the I h S 350 00:21:28,760 --> 00:21:32,520 Speaker 1: Market meeting for Sarah week Uh, He's he's the billionaire 351 00:21:32,560 --> 00:21:35,480 Speaker 1: Sheryl oilman. He said that the US industry could kill 352 00:21:35,560 --> 00:21:39,119 Speaker 1: the oil market if it embarks on another spending binge, 353 00:21:39,200 --> 00:21:43,199 Speaker 1: and he said US production could go pretty high. Is 354 00:21:43,240 --> 00:21:48,000 Speaker 1: that possible? Well, I certainly think that a number of 355 00:21:48,040 --> 00:21:53,480 Speaker 1: policy factors may influence whether that outcome actually happens. And 356 00:21:53,520 --> 00:21:57,960 Speaker 1: so a lot of the tax discussion or policy discussion 357 00:21:57,960 --> 00:22:01,640 Speaker 1: around energy really comes down to the details. So when 358 00:22:01,640 --> 00:22:05,119 Speaker 1: you look at the broad tap discussion, they're talking about 359 00:22:05,119 --> 00:22:09,200 Speaker 1: taking that top rate and lowering it again to fifteen. 360 00:22:10,160 --> 00:22:13,240 Speaker 1: But in exchange for that, there is also a strong 361 00:22:13,560 --> 00:22:17,359 Speaker 1: chance that the energy industry would lose a lot of 362 00:22:17,400 --> 00:22:21,480 Speaker 1: its favored tax deduction. So that's the UH the ability 363 00:22:21,520 --> 00:22:26,040 Speaker 1: to expense intangible drilling costs, the manufacturer's tax deduction, all 364 00:22:26,119 --> 00:22:29,560 Speaker 1: kinds of things like that potentially go away in this world. 365 00:22:30,119 --> 00:22:32,560 Speaker 1: The other thing to keep an eye on is that 366 00:22:32,760 --> 00:22:37,680 Speaker 1: there's also discussion around tax and increasing UH taxes at 367 00:22:37,680 --> 00:22:41,560 Speaker 1: the borders, this border adjustment tax. That's not necessarily good 368 00:22:41,600 --> 00:22:44,399 Speaker 1: news for the industry. So it could be a wash 369 00:22:44,840 --> 00:22:47,480 Speaker 1: if we sort of lower corporate rates but then add 370 00:22:47,520 --> 00:22:50,119 Speaker 1: a border adjustment tax. So it's a lot is going 371 00:22:50,160 --> 00:22:54,719 Speaker 1: to depend on the details of the tax discussion. UH overalls, 372 00:22:54,840 --> 00:22:58,760 Speaker 1: lower corporate rates tend to be viewed favorably by most 373 00:22:59,359 --> 00:23:02,960 Speaker 1: big bisness is. But the devil will be in the 374 00:23:03,000 --> 00:23:05,840 Speaker 1: details on what happens with these deductions or what happens 375 00:23:05,840 --> 00:23:09,520 Speaker 1: with border taxes as part of that overall framework. Let's 376 00:23:09,520 --> 00:23:12,840 Speaker 1: say the tax cuts do draw in more interest from 377 00:23:12,840 --> 00:23:17,000 Speaker 1: integrated companies UH and ramp up or cause some smaller 378 00:23:17,000 --> 00:23:19,919 Speaker 1: shell drillers to ramp up production. How many new jobs 379 00:23:19,920 --> 00:23:23,919 Speaker 1: could that create. Well, I think a lot of this 380 00:23:24,040 --> 00:23:28,639 Speaker 1: discussion is centered around bringing jobs back to the the 381 00:23:28,760 --> 00:23:32,440 Speaker 1: US and over the last couple of years, Uh, there's 382 00:23:32,440 --> 00:23:35,639 Speaker 1: been a big pullback in jobs in the oil patch, 383 00:23:36,200 --> 00:23:39,359 Speaker 1: mainly driven by the decline in prices that we've seen, 384 00:23:39,440 --> 00:23:43,119 Speaker 1: but you know, uh over the over a multi year period. 385 00:23:43,200 --> 00:23:47,479 Speaker 1: So you know, as a whole, the industry employs hundreds 386 00:23:47,520 --> 00:23:49,919 Speaker 1: of thousands of people. So if if you were to 387 00:23:50,520 --> 00:23:54,720 Speaker 1: to ramp production, uh, it may scale somewhat literally, although 388 00:23:54,720 --> 00:24:00,480 Speaker 1: I keep in mind that because of the pullback in prices, 389 00:24:01,000 --> 00:24:04,199 Speaker 1: the oil and gas companies and the service providers have 390 00:24:04,320 --> 00:24:07,879 Speaker 1: gotten more efficient with how they spend money. So the 391 00:24:07,960 --> 00:24:11,040 Speaker 1: day rates uh for drilling rigs things like that have 392 00:24:11,080 --> 00:24:14,040 Speaker 1: actually come down, and that's mainly because they've gotten more 393 00:24:14,080 --> 00:24:17,320 Speaker 1: focused on personnel and other issues and trying to manage costs. 394 00:24:17,760 --> 00:24:21,600 Speaker 1: So if you see a rise in production, uh, it 395 00:24:21,680 --> 00:24:24,160 Speaker 1: may be done in a more efficient way that doesn't 396 00:24:24,160 --> 00:24:28,119 Speaker 1: doesn't quite have as much labor associated with it. Again, 397 00:24:28,480 --> 00:24:31,560 Speaker 1: that's uh, that'll be seen in the marketplace if these 398 00:24:31,560 --> 00:24:35,479 Speaker 1: things actually happen. But I wouldn't you know, I wouldn't 399 00:24:35,520 --> 00:24:37,119 Speaker 1: pend too much on this. You know, the oil and 400 00:24:37,160 --> 00:24:40,360 Speaker 1: gas sector is an important employer in the overall economy, 401 00:24:40,400 --> 00:24:43,680 Speaker 1: but it's by no means the largest. I just asked 402 00:24:43,680 --> 00:24:46,240 Speaker 1: you a quick question, Rob Barnett, give you a fifteen seconds, 403 00:24:46,280 --> 00:24:48,879 Speaker 1: tell me the state of the liquefied natural gas market 404 00:24:49,000 --> 00:24:53,640 Speaker 1: llenergy and exports absolutely well. Uh, you know, we haven't 405 00:24:53,680 --> 00:24:56,720 Speaker 1: seen a whole lot of action there under the Trump administration, 406 00:24:56,880 --> 00:25:01,640 Speaker 1: but by and large the administration has indicated they're going 407 00:25:01,640 --> 00:25:04,200 Speaker 1: to be pro l en G export and we'd expect 408 00:25:04,280 --> 00:25:07,440 Speaker 1: them to sort of continue to push to see US 409 00:25:07,480 --> 00:25:10,600 Speaker 1: increase its exports there. Rob Burnett, thank you so much 410 00:25:10,640 --> 00:25:14,800 Speaker 1: for joining us. Really informative and important stuff. As always, 411 00:25:15,040 --> 00:25:18,080 Speaker 1: Rob Burnett is our senior energy policy analyst at Bloomberg 412 00:25:18,119 --> 00:25:22,160 Speaker 1: Intelligence based in New York, talking all about the potential 413 00:25:22,160 --> 00:25:32,080 Speaker 1: tax cuts for the oil and gas industry. Thanks for 414 00:25:32,160 --> 00:25:34,760 Speaker 1: listening to the Bloomberg P and L podcast. You can 415 00:25:34,800 --> 00:25:39,240 Speaker 1: subscribe and listen to interviews at iTunes, SoundCloud, or whatever 416 00:25:39,520 --> 00:25:43,040 Speaker 1: podcast platform you prefer. I'm pim Fox. I'm out there 417 00:25:43,040 --> 00:25:46,080 Speaker 1: on Twitter at pim Fox. I'm out there on Twitter 418 00:25:46,200 --> 00:25:49,159 Speaker 1: at Lisa Abramo. It's one before the podcast. You can 419 00:25:49,200 --> 00:25:51,680 Speaker 1: always catch us worldwide on Bloomberg Radio.