WEBVTT - Eisenbeis Doesn't Expect Fed to Sell Off Mortgage Assets 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg P L Podcast on iTunes, 0:00:20.840 --> 0:00:28.800 SoundCloud and at Bloomberg dot com. The rally going on 0:00:28.840 --> 0:00:32.680 in the bond market today, the thirty year treasury up 0:00:33.600 --> 0:00:37.159 thirty seconds. Why are they buying and will they continue 0:00:37.200 --> 0:00:39.800 to buy? Let's ask Bob Eisenbis. He is the vice 0:00:39.880 --> 0:00:44.320 chairman and chief monetary economist for Cumberland Advisers, and he 0:00:44.600 --> 0:00:48.559 joins us from Sarasota, Florida. Bob Eisenbis, thanks very much 0:00:48.560 --> 0:00:51.800 for being with us. Let's jump right into it. Give 0:00:51.880 --> 0:00:55.320 us your analysis of what you believe will happen tomorrow 0:00:55.520 --> 0:01:00.440 and what the questions will focus on following the decision 0:01:00.480 --> 0:01:02.840 by the f MC, Because Janet Yelling, chair, the FED 0:01:03.160 --> 0:01:06.639 is holding a press conference which we will carry live. Sure, 0:01:07.640 --> 0:01:12.080 I think given the sort of parade of f MC 0:01:12.360 --> 0:01:17.160 participants that began about February two, or they're abouts with 0:01:17.400 --> 0:01:23.720 Governor Paul, we've seen a pretty remarkable parade of people's 0:01:23.760 --> 0:01:26.120 suggesting that they're going to be a rate hike tomorrow. 0:01:26.200 --> 0:01:29.560 So I think and markets believe this. They priced in 0:01:29.680 --> 0:01:35.000 essentially probability that there will be a basis point rate increase, 0:01:35.000 --> 0:01:37.680 and so I think that's what we're going to see. 0:01:38.400 --> 0:01:42.440 The interesting thing is that that will be a rate 0:01:42.520 --> 0:01:48.920 increase following the one in December, and the December GDP number, 0:01:48.960 --> 0:01:51.480 which is the most current one that will be available, 0:01:52.160 --> 0:01:56.559 essentially was baked in the cake before the December meeting. 0:01:56.680 --> 0:02:02.919 So the decision is really not based on GDP for 0:02:03.000 --> 0:02:05.840 the first quarter of this year or anything else. It's 0:02:05.840 --> 0:02:10.520 really hinges on the employment and inflation situation. And I 0:02:10.560 --> 0:02:13.760 think they will declare victory as far as their objectives 0:02:13.760 --> 0:02:17.160 are concerned, and that will be their rationale. Bob, you know, 0:02:17.200 --> 0:02:20.440 we've had a number of analysts come on and say 0:02:20.480 --> 0:02:24.360 that the market is inadequately pricing in inflation and the 0:02:24.400 --> 0:02:28.720 possibility of the Federal Reserve unwinding their balance sheet unwinding 0:02:28.760 --> 0:02:32.640 their balance sheet, or the Treasury Department potentially selling fifty 0:02:32.760 --> 0:02:35.079 or one hundred year debt. In other words, thirty year 0:02:35.080 --> 0:02:38.000 body yields are too low. According to a lot of analysts. 0:02:38.120 --> 0:02:42.600 Do you agree, and if so, where should they be? Well, 0:02:42.639 --> 0:02:47.240 I mean, clearly we are in a disequluminium situation. So 0:02:47.800 --> 0:02:51.560 if the FED were to return policy to normal, we'd 0:02:51.600 --> 0:02:56.320 be looking at eel curve that would be higher than 0:02:56.880 --> 0:02:58.840 where it is. But I don't think it would be 0:02:58.880 --> 0:03:03.320 too too much higher, simply because our normalization would take 0:03:03.360 --> 0:03:05.839 place in the context of a world in which other 0:03:05.880 --> 0:03:10.120 central banks are still pumping liquidity into the marketplace, which 0:03:11.000 --> 0:03:15.400 I believe while it would contribute to while the FEDS 0:03:15.440 --> 0:03:17.840 moves would contribute to a more of a movement on 0:03:17.919 --> 0:03:20.919 the short end, I think you'd see a longer end 0:03:20.960 --> 0:03:25.920 that would be um uh flatter than might be the 0:03:25.960 --> 0:03:30.320 other circumstances. If you think the economy can grow at 0:03:30.400 --> 0:03:33.400 something on the order of the rate of productivity growth 0:03:33.400 --> 0:03:36.920 plus the rate of growth growth and population, you're looking 0:03:36.960 --> 0:03:39.080 at something like two and a half percent, And if 0:03:39.080 --> 0:03:42.640 you put two inflation on top of that, you're looking 0:03:42.680 --> 0:03:45.080 at somewhere between four and four and a half percent. 0:03:46.000 --> 0:03:50.160 So what are you advising your clients to do. Well, 0:03:50.600 --> 0:03:53.800 We're pretty cautious at this point because there's still a 0:03:53.840 --> 0:03:56.360 lot of uncertainty. We're not sure about what's going to 0:03:56.480 --> 0:04:00.160 happen as far as fiscal stimulus and how this will 0:04:00.200 --> 0:04:04.960 all happen. I think when the Fed means gradually, they 0:04:05.120 --> 0:04:07.760 mean gradual, and it's going to take them somewhere. I 0:04:07.760 --> 0:04:15.440 don't see them rushing to make multiple policy moves the 0:04:15.440 --> 0:04:17.839 way some of the people are pricing in And I think, 0:04:18.000 --> 0:04:21.000 is this a five or ten year program? Well, it's 0:04:21.000 --> 0:04:23.080 going to take a while to run the balance sheet 0:04:23.120 --> 0:04:27.760 off and the I just don't see them selling assets because, um, 0:04:27.800 --> 0:04:29.880 in order to do so, they would have to sell 0:04:30.520 --> 0:04:35.200 mortgage assets. Really, because you're looking at an equilibrium FED 0:04:35.320 --> 0:04:39.520 balance sheet somewhere around one point four trillion or thereabouts 0:04:39.640 --> 0:04:43.200 to keep, which would be consistent with past history of 0:04:43.360 --> 0:04:50.560 keeping the deposit to the currency to GDP ratio relatively constant. 0:04:50.640 --> 0:04:53.840 The economy has grown enough that that's sort of an 0:04:53.880 --> 0:04:59.040 equilibrium level. And uh, the only way they can get 0:04:59.080 --> 0:05:02.920 there is all emmently by winding down the mortgage securities. 0:05:02.960 --> 0:05:06.000 Otherwise the treasure you'll all run off. So it's gonna 0:05:06.000 --> 0:05:08.280 be an interesting kind of thing. But I don't see 0:05:08.279 --> 0:05:11.919 them selling assets off the balance sheet if they possibly 0:05:11.960 --> 0:05:15.479 can avoid it, right, Well, Um, you know Bobby mentioned 0:05:15.520 --> 0:05:18.240 earlier that a lot of what happens will depend on 0:05:18.279 --> 0:05:21.559 some of the stimulus efforts around the world. And earlier today, 0:05:21.560 --> 0:05:25.760 about an hour ago, Wolfgang Scheibel, who is Germans Germany 0:05:25.760 --> 0:05:29.360 as Finance Minister, was speaking to v K you lobby 0:05:29.440 --> 0:05:32.799 in Berlin and he said interest rates are too low. 0:05:33.000 --> 0:05:36.480 He's but he acknowledged the adjusting to a rising rate 0:05:36.520 --> 0:05:38.960 environment will be challenging. But this sort of builds on 0:05:39.040 --> 0:05:42.239 this feeling that even in Europe benchmark rates are going 0:05:42.279 --> 0:05:44.960 to rise. I mean, how much do you think they 0:05:44.960 --> 0:05:48.720 will rise? What will the effect be here in the US? Well, 0:05:50.080 --> 0:05:53.600 first of all, if the if the FED raises rates 0:05:54.120 --> 0:05:57.920 right now, they have negative infrastrates in Europe. So if 0:05:57.920 --> 0:06:01.920 you're a foreign if you're a bank, UH, and your 0:06:02.000 --> 0:06:06.640 choice is either paying seventy basis points thereabouts to one 0:06:06.680 --> 0:06:11.279 of the regional central banks or getting one to one 0:06:11.279 --> 0:06:14.800 and a quarter percent here in the United States, that's 0:06:14.839 --> 0:06:18.400 a pretty significant arbitrage show. A slight movement in rates 0:06:18.440 --> 0:06:22.320 and UH Europe is not going to really damage that 0:06:22.440 --> 0:06:27.279 arbitrage opportunity. And people don't really realize it's something on 0:06:27.360 --> 0:06:31.880 the order of of the excess reserves held at the 0:06:31.880 --> 0:06:35.640 FED are now in the sense owned by foreign institutions 0:06:35.680 --> 0:06:43.240 their domestic US domestic affiliates, and those reserves count towards 0:06:43.279 --> 0:06:47.800 the basle liquidity coverage ratio. So movements in Europe, at 0:06:47.839 --> 0:06:50.120 least on the short term, aren't going to affect us 0:06:50.200 --> 0:06:54.080 much at all, particularly when you've got this arbitrage sitting there. 0:06:54.360 --> 0:06:56.400 Thank you so much for your thoughts. Bob ice and Bis, 0:06:56.640 --> 0:07:00.720 vice chairman and chief monetary economist at Cumberland Adviser, is 0:07:00.760 --> 0:07:03.320 coming to us from sarah Sota, Florida, where the weather 0:07:03.480 --> 0:07:06.119 is much better than it is in New York City. 0:07:06.120 --> 0:07:20.200 In our Bloomberg eleven three oh studio, a new estimate 0:07:20.280 --> 0:07:23.520 shows that fourteen million Americans could lose health coverage by 0:07:23.600 --> 0:07:28.080 next year under the gop Obamacare proposal, leaving House Republicans 0:07:28.080 --> 0:07:30.880 in a bind with a dire picture of the bill's 0:07:30.880 --> 0:07:36.320 effects heading into the eighteen congressional elections. Here to tell 0:07:36.400 --> 0:07:39.680 us more is Anna Edney, healthcare reporter for Bloomberg News, 0:07:39.760 --> 0:07:42.600 joining us from Washington, and thank you very much for 0:07:42.640 --> 0:07:44.640 being with us. I want to start off with perhaps 0:07:44.680 --> 0:07:46.920 a strange question and ask you if you can tell 0:07:47.000 --> 0:07:50.880 us who is Keith Hall and why do you, why 0:07:50.960 --> 0:07:53.800 might he feel that he is between a rock and 0:07:53.880 --> 0:07:58.840 a hard place. Surett, Keith hall is the Congressional Budget 0:07:58.880 --> 0:08:03.480 Office Director, and he, you know, has taken well, his 0:08:03.640 --> 0:08:06.080 office really has taken a lot of heat in the 0:08:06.200 --> 0:08:10.600 last you know, a few weeks because the Republicans and um, 0:08:10.640 --> 0:08:15.000 the President have wanted to sort of prepare people for 0:08:15.240 --> 0:08:20.000 a score from that office on this health legislation that 0:08:20.280 --> 0:08:23.640 isn't it doesn't look that great, particularly um for how 0:08:23.640 --> 0:08:28.280 many people will be uninsured under Republicans plan to replace Obamacare. 0:08:28.680 --> 0:08:31.520 So Keith Hall, Um, you know, has sort of had 0:08:31.560 --> 0:08:34.200 to take the take that criticism and and sort of 0:08:34.240 --> 0:08:36.640 deal with the fact that, you know, Republicans and the 0:08:36.640 --> 0:08:40.959 administration are basically saying that CBO isn't good at its job, 0:08:41.080 --> 0:08:44.560 even though it was Republicans who actually put him in 0:08:44.679 --> 0:08:47.760 charge of this office in the first place. In well, 0:08:47.760 --> 0:08:50.080 hold on the first let's let's just talk about some 0:08:50.120 --> 0:08:51.920 of the things that it found. It found that about 0:08:51.920 --> 0:08:55.280 twenty five million Americans would lose coverage under the plan 0:08:55.400 --> 0:08:58.319 that basically would reduce taxes for wealthier people, it would 0:08:58.360 --> 0:09:01.880 increase the premium that people would have to pay UH 0:09:02.000 --> 0:09:06.760 typically would fall to UH less well off Americans. UH. 0:09:06.960 --> 0:09:09.640 And so you know, it raises the question, you know, yes, 0:09:09.720 --> 0:09:13.920 it does make the proposed replacement for Obamacare, UH look 0:09:14.040 --> 0:09:16.800 not so great for a lot of people. And you know, 0:09:16.880 --> 0:09:20.160 Mick Mulvaney, the Office of Management and Budget Director UH, 0:09:20.360 --> 0:09:23.120 came out today saying I don't believe the facts are correct. 0:09:23.120 --> 0:09:26.160 He said this on MSNBC's Morning Joe. When asked for 0:09:26.200 --> 0:09:28.480 his take on the CBO report, he said, I'm not 0:09:28.520 --> 0:09:30.920 just saying that because it looks bad for my political position. 0:09:30.960 --> 0:09:32.840 I'm saying that based upon a track record of the 0:09:32.880 --> 0:09:36.680 CBO being wrong before, we believe the CBO. CBO is 0:09:36.720 --> 0:09:39.000 wrong now. And at first, let's talk about the track 0:09:39.040 --> 0:09:43.120 record of CBO. Has it always been wrong? Certainly when 0:09:43.120 --> 0:09:47.560 it came to Obamacare. When the CBO was assessing uh 0:09:47.600 --> 0:09:50.040 that when it was you know, in legislative form in 0:09:50.120 --> 0:09:52.800 two thousand nine and in two thousands ten, it made 0:09:52.840 --> 0:09:56.800 some predictions that were off it. UM, CBO predicted very 0:09:56.880 --> 0:10:00.160 high numbers, for um, the number of people who it's 0:10:00.240 --> 0:10:04.400 sign up for Obamacare plans through the marketplaces that the 0:10:04.480 --> 0:10:08.240 law created, and those didn't come to fruition. And that's 0:10:08.240 --> 0:10:10.880 where a lot of people are focusing right now. One 0:10:10.880 --> 0:10:14.200 interesting thing I noticed in the CBO report that came 0:10:14.200 --> 0:10:17.280 out yesterday is that CBO tried to address this a 0:10:17.320 --> 0:10:19.920 little bit and said, yeah, we um, you know, underestimated 0:10:19.960 --> 0:10:24.280 some stuff. We overestimated some stuff before, but we're learning 0:10:24.360 --> 0:10:26.680 from those each time we go and we really try 0:10:26.760 --> 0:10:30.400 to take those lessons into account when we assessed this 0:10:30.520 --> 0:10:35.400 piece of legislation. The current Health and Human Services Secretary 0:10:35.600 --> 0:10:40.760 Tom Price, I believe, said that this about Keith Hall 0:10:40.800 --> 0:10:43.240 and started harp on this, but I thought it was interesting. 0:10:43.840 --> 0:10:47.080 He has previously said that his vast understanding of economic 0:10:47.120 --> 0:10:51.040 and labor policy will be invaluable to the work of CBO, 0:10:51.160 --> 0:10:53.800 and the important role will continue to play as Congress 0:10:53.800 --> 0:10:56.560 seeks to an act policies that support a healthy and 0:10:56.559 --> 0:11:01.360 growing economy. This is the current How and Human Services 0:11:01.400 --> 0:11:06.920 Secretary Tom Price. Why would he change his mind so directly? 0:11:08.400 --> 0:11:10.800 I think that's a great question. And you know, the 0:11:12.040 --> 0:11:17.120 situation that has changes. You know now that Republicans also 0:11:17.200 --> 0:11:20.600 have the White House and are able to craft their 0:11:20.640 --> 0:11:25.040 own legislation. You know, sometimes it's it's very hard to 0:11:25.080 --> 0:11:28.800 take what CBO is telling you, and and they they 0:11:28.840 --> 0:11:31.240 want to be able to get this through. They want 0:11:31.280 --> 0:11:35.160 to get it done in the House at least UM 0:11:35.240 --> 0:11:38.280 before members go on Easter recess, which is just a 0:11:38.320 --> 0:11:42.120 couple of weeks away. And so, you know, for Tom 0:11:42.160 --> 0:11:44.920 Price to sort of change his tune on on the 0:11:44.960 --> 0:11:48.959 CBO UM would make sense for what they're trying to 0:11:49.000 --> 0:11:53.280 accomplish now versus what the landscape was in And the 0:11:53.320 --> 0:11:57.800 CBO is an independent group, it's bipartisan. Is there any 0:11:58.000 --> 0:12:02.760 other agency, any other group that has the known kind 0:12:02.760 --> 0:12:07.960 of bipartisan appeal to give an additional independent review of 0:12:08.040 --> 0:12:13.440 the Republican healthcare plan. Well, we're sort of looking out 0:12:13.440 --> 0:12:17.760 for that UM. Tom Price had mentioned that there would 0:12:17.800 --> 0:12:22.079 be other groups that we're looking to assess this UM 0:12:22.240 --> 0:12:25.160 and that might have different numbers than what CBO came 0:12:25.240 --> 0:12:28.960 up with. They haven't released those, but there are you know, 0:12:29.000 --> 0:12:34.600 other CBO directors who worked under previous Republican administrations, UM 0:12:34.760 --> 0:12:39.000 take Douglas whole teak in for example, who might be 0:12:39.080 --> 0:12:43.720 able to make assessments for them that would you know, 0:12:43.960 --> 0:12:47.800 work differently. And CBO has their own way of estimating 0:12:47.840 --> 0:12:51.080 these things, and not every economist agrees with it, So 0:12:51.120 --> 0:12:54.000 there could be other groups that would do this differently. 0:12:54.960 --> 0:12:57.480 Anna Ednie, thank you so much for joining us. Anna Edney, 0:12:57.679 --> 0:13:01.520 healthcare reporter for Bloomberg News, coming to us from Washington, 0:13:01.600 --> 0:13:06.520 d C. Talking about the latest GOP proposal to replace 0:13:06.600 --> 0:13:12.959 Obamacare and the Congressional Budget Offices report saying that fourteen 0:13:12.960 --> 0:13:16.679 million Americans could lose healthcare coverage by next year and 0:13:17.000 --> 0:13:21.800 UH four million people would lose it by six bringing 0:13:21.840 --> 0:13:38.240 the US uninsured rate to a record. Puerto Rico UH, 0:13:38.520 --> 0:13:42.880 the Fiscal Oversight Board that was instated for Puerto Rico 0:13:42.960 --> 0:13:46.120 as it grapples with seventy billion dollars of debt, approved 0:13:46.280 --> 0:13:49.680 Governor Ricardo Rosselo's plan for pulling the island out of 0:13:49.720 --> 0:13:53.760 a fiscal crisis. The only problem is bond holders might 0:13:53.760 --> 0:13:56.640 have to take bigger haircuts than they have been pricing in. 0:13:56.840 --> 0:13:58.559 To give us more perspective, I want to bring in 0:13:58.679 --> 0:14:02.320 Daniel Solander. He's lead to portfolio manager of municipal bonds 0:14:02.400 --> 0:14:06.800 for Lord Abbott in Jersey City, New Jersey, which oversees 0:14:06.800 --> 0:14:10.000 about seventeen billion dollars in acids. Daniel, thank you so 0:14:10.080 --> 0:14:13.280 much for joining us. What was your take on this 0:14:13.320 --> 0:14:16.360 plan that was approved by the Fiscal Board. Well, first, 0:14:16.400 --> 0:14:19.280 thank you for having me. Um. You know, the take 0:14:19.360 --> 0:14:21.760 at this point is that it's it's a real accomplishment 0:14:21.840 --> 0:14:24.600 that they've agreed to anything. At this point, it seemed 0:14:25.000 --> 0:14:26.920 like it was going down to the end there where 0:14:26.960 --> 0:14:29.160 the governor and the Cisco board we're not going to 0:14:29.240 --> 0:14:31.480 come to agreement on the plan. So I think it's 0:14:31.480 --> 0:14:34.160 a big positive they actually came to agreement. I agree 0:14:34.200 --> 0:14:36.280 on the revenue of the expenses and a plan going 0:14:36.320 --> 0:14:39.360 forward for for a bondholder of perspective, the numbers are 0:14:39.400 --> 0:14:42.040 a little bit lower than they were before, so there's 0:14:42.080 --> 0:14:45.240 still a lot of uncertainty going forward because there's other 0:14:45.280 --> 0:14:48.000 revenues that could come in that aren't part of the plan, 0:14:48.560 --> 0:14:50.440 and there's a lot of ways of structure bonds that 0:14:51.160 --> 0:14:52.880 it can be more creative and still need a lot 0:14:52.880 --> 0:14:55.600 of negotiations. So it's good they came to agreement. Bill 0:14:55.680 --> 0:14:58.080 still a long way to go before they have agreem 0:14:58.080 --> 0:15:01.120 with bondholders. Could you just go were some of the 0:15:01.240 --> 0:15:06.360 major portions of the agreement because it includes furloughs as 0:15:06.440 --> 0:15:11.720 well as well public corporations and parties and legislator and 0:15:11.800 --> 0:15:14.560 judicial areas as supposed to also cut back and they 0:15:14.600 --> 0:15:16.920 still have a problem with the budget because the Ernst 0:15:16.960 --> 0:15:20.800 and Young reports says that they exceeded their budgeted expenditures 0:15:20.840 --> 0:15:23.680 by between three hundred and sixty million and eight hundred 0:15:23.680 --> 0:15:26.160 and ten million. Maybe you can also tell us why 0:15:26.240 --> 0:15:30.000 is it such a divergence, Well, the government there is 0:15:30.000 --> 0:15:32.120 for a long time, there's been a lot of difficulty 0:15:32.200 --> 0:15:35.640 getting good financials and gained understanding and they has been 0:15:35.680 --> 0:15:37.560 they've been way way behind their audit, so a lot 0:15:37.600 --> 0:15:40.160 has not been clear. Uh, there are kind of a 0:15:40.200 --> 0:15:42.880 few things at the end. They were on the expense side, 0:15:43.000 --> 0:15:45.240 they didn't need to cut expenses more than the governor 0:15:45.280 --> 0:15:47.920 originally wanted to the fiscal boards, that a lot more 0:15:47.920 --> 0:15:50.080 needed to be done in order to go forward. A 0:15:50.080 --> 0:15:52.000 lot more needs to be done the expense side to 0:15:52.040 --> 0:15:55.080 reduce the size of the government. And on the revenue side, 0:15:55.400 --> 0:15:57.560 there were issues with some of the forecast being maybe 0:15:57.560 --> 0:15:59.960 a little too optimistic in terms of what kind of 0:16:00.160 --> 0:16:03.040 news they could get in different opinions on economic growth. 0:16:03.480 --> 0:16:05.040 So those were kind of some of the things that 0:16:05.080 --> 0:16:08.000 had to come together at the end. And yes, there're 0:16:08.040 --> 0:16:11.400 the other there were some things the governor didn't want 0:16:11.440 --> 0:16:14.000 to do, such as furloughs, and they have a whole 0:16:14.080 --> 0:16:18.280 Christmas bonus system. And there are some agreements now that um, 0:16:18.360 --> 0:16:20.480 if the governor can come up with other revenues, he 0:16:20.520 --> 0:16:22.800 doesn't have to cut as much. But right now he 0:16:23.040 --> 0:16:24.880 has to cut some of the things he didn't want 0:16:24.880 --> 0:16:26.800 to cut for the for the people working for the 0:16:26.800 --> 0:16:30.440 government that that originally he hadn't planned. Daniel, how big 0:16:30.560 --> 0:16:34.880 is the portfolio of Puerto Rico debt that you oversee? Uh, well, 0:16:35.240 --> 0:16:37.400 we have a high yield fund in our one of 0:16:37.440 --> 0:16:40.360 our portfolios. So we have more than a hundred million 0:16:40.400 --> 0:16:43.960 dollars of Puerto Rico bonds in our portfolio and um, 0:16:44.040 --> 0:16:46.640 but you know it's a little small percentage, but it's 0:16:46.680 --> 0:16:49.760 it's interesting part of the high yield market because in 0:16:49.880 --> 0:16:53.800 municipals fears back. Remember Puerto Rico's investment grade, they dropped 0:16:53.800 --> 0:16:55.440 to the high yield market became a big part of 0:16:55.480 --> 0:16:58.040 the market. UM. So they're decent part of the portfolio. 0:16:58.120 --> 0:17:00.920 But also there there's job the gate sins, their sales 0:17:00.920 --> 0:17:04.359 tax bonds, are actor constewer bonds, their power storry about 0:17:04.359 --> 0:17:06.240 the whole bunch of different sources of revenue, so they're 0:17:06.280 --> 0:17:09.399 not just one credit are you Are you under water? 0:17:10.840 --> 0:17:14.040 What's surprising is the Puertorico bonds have actually some of 0:17:14.040 --> 0:17:17.240 the bonds have performed pretty well. Last year within the 0:17:17.240 --> 0:17:20.439 menisal bond market, the Puerto Rico index was the highest 0:17:20.440 --> 0:17:23.960 performing index. So kind of what happened after things really 0:17:24.080 --> 0:17:26.639 we're going bad a few years ago, bonds really dropped 0:17:26.640 --> 0:17:30.440 the distress prices and they rebounded a lot now coming 0:17:30.440 --> 0:17:33.040 in the last year or so, so some ownings are 0:17:32.680 --> 0:17:35.840 again the summer and losses they were kind of all 0:17:35.840 --> 0:17:38.760 over the place. But you know, there are still some 0:17:38.920 --> 0:17:41.400 of losses, definitely because when they brought the last deal 0:17:41.520 --> 0:17:44.320 proprice their way down from the last deal. Daniel, is 0:17:44.320 --> 0:17:47.600 there anything about the recent proposal that would encourage you 0:17:47.640 --> 0:17:51.720 to go and buy more right now? It's it's it's. 0:17:52.080 --> 0:17:54.199 I guess it's hard to I can't really speak exactly 0:17:54.200 --> 0:17:55.639 what we're gonna on the trading side, but you know, 0:17:55.640 --> 0:17:57.399 it's it's it's not right now, there's a lot more 0:17:57.440 --> 0:18:00.679 details for a bondholder to be positive. Because the numbers 0:18:00.680 --> 0:18:02.800 did come out a little bit lower than expected for 0:18:02.800 --> 0:18:05.960 bond holders. In the secondary market, bonds were traded down 0:18:05.960 --> 0:18:08.760 in the last day or so and there's still a 0:18:08.760 --> 0:18:12.160 lot of our disagreements among different crediting classes, whether it's 0:18:12.200 --> 0:18:14.680 sales tax and general obligation. But so right now is 0:18:14.680 --> 0:18:17.320 a lot of It's tough to really get very optimistic 0:18:17.320 --> 0:18:19.400 at this point. But the only positive enemy you could 0:18:19.400 --> 0:18:21.760 get is there is progress. Now they have physical plan, 0:18:21.840 --> 0:18:24.600 maybe they can negotiate more seriously. Thanks very much for 0:18:24.640 --> 0:18:27.800 being with us. Daniel Solander is lead portfolio manager of 0:18:27.880 --> 0:18:31.080 municipal bonds with Lord Abbott. They're based in Jersey City, 0:18:31.160 --> 0:18:47.840 New Jersey. They manage over seventeen billion dollars under management. Well, 0:18:47.960 --> 0:18:51.080 the Trump administration has a plan that would slash corporate 0:18:51.119 --> 0:18:53.840 tax rates and that could free up more than ten 0:18:53.880 --> 0:18:58.360 billion dollars a year for US oil explorers. Let's find 0:18:58.359 --> 0:19:01.000 out more from Rob Barnett. He is our senior energy 0:19:01.080 --> 0:19:05.399 policy analyst for Bloomberg Intelligence. Robert's always a pleasure give 0:19:05.480 --> 0:19:08.760 us the information and the likelihood that this will actually 0:19:08.800 --> 0:19:13.720 come to fruition. Thanks Pim. That's right. There are numerous 0:19:13.840 --> 0:19:18.800 Republican tax proposals out there that aimed to lower the 0:19:19.200 --> 0:19:22.879 tax rate paid by corporations here in the United States, 0:19:22.880 --> 0:19:27.160 and so the current top marginal rates about thirty and 0:19:27.800 --> 0:19:31.119 Trump's proposal is to take it as low as fifteen percent. 0:19:31.600 --> 0:19:34.679 There's a House Republican Land backed by Paul Ryan, that 0:19:34.720 --> 0:19:39.199 would take it down to And this has a big 0:19:39.520 --> 0:19:44.119 impact potentially on US oil and gas producers. If you 0:19:44.160 --> 0:19:48.960 look at the companies in Bloomberg Intelligences North American Independent 0:19:49.080 --> 0:19:52.600 E n P peer groups, so basically the domestic oil 0:19:52.640 --> 0:19:56.080 and gas producers, they could see up to a ten 0:19:56.240 --> 0:19:59.480 billion dollar cut in their aggregate tax bill if you 0:19:59.520 --> 0:20:04.080 really were to go from that kind of thirty range 0:20:04.200 --> 0:20:07.480 down to range at least according to our analysis. So 0:20:07.560 --> 0:20:12.359 that's names like Conco, Phillips, Pioneer, Natural Resources, Devon, companies 0:20:12.400 --> 0:20:15.960 like that that have a strong domestic presence here in 0:20:15.960 --> 0:20:18.840 the United States. Is all of this money going to 0:20:19.359 --> 0:20:24.960 basically UH sponsor more production and cause oil prices to 0:20:25.000 --> 0:20:27.359 go lower? In other words, is this what's behind the 0:20:27.400 --> 0:20:30.480 oil price drops that we're seeing today? We know daily 0:20:30.560 --> 0:20:34.160 volatility in the oil prices influenced by so many things. 0:20:34.240 --> 0:20:38.119 I wouldn't try to pin any near term movements in 0:20:38.160 --> 0:20:42.520 the oil price on on sort of big broad tax discussions, 0:20:42.520 --> 0:20:46.159 But I think your intuition is right. If you reduce 0:20:46.720 --> 0:20:52.520 the tax cost for US oil and gas producers. You 0:20:52.520 --> 0:20:56.920 you potentially make it more attractive to produce oil and 0:20:56.960 --> 0:21:00.919 gas here in the US, and you potentially could see, 0:21:01.320 --> 0:21:05.200 in our view, especially some of the large integrated companies 0:21:05.240 --> 0:21:07.560 taking more interest in the US because this could make 0:21:08.080 --> 0:21:11.639 producing oil and gas here in the US more attractive 0:21:11.760 --> 0:21:14.520 relative to other parts of the world if we truly 0:21:14.560 --> 0:21:17.760 do lower the tax costs that some of these companies 0:21:18.000 --> 0:21:20.720 have to pay. Now, you know Harold Ham who was 0:21:20.760 --> 0:21:24.320 the chairman and the chief executive of Continental Resources, he 0:21:24.600 --> 0:21:28.439 said at a meeting it was the I h S 0:21:28.760 --> 0:21:32.520 Market meeting for Sarah week Uh, He's he's the billionaire 0:21:32.560 --> 0:21:35.480 Sheryl oilman. He said that the US industry could kill 0:21:35.560 --> 0:21:39.119 the oil market if it embarks on another spending binge, 0:21:39.200 --> 0:21:43.199 and he said US production could go pretty high. Is 0:21:43.240 --> 0:21:48.000 that possible? Well, I certainly think that a number of 0:21:48.040 --> 0:21:53.480 policy factors may influence whether that outcome actually happens. And 0:21:53.520 --> 0:21:57.960 so a lot of the tax discussion or policy discussion 0:21:57.960 --> 0:22:01.640 around energy really comes down to the details. So when 0:22:01.640 --> 0:22:05.119 you look at the broad tap discussion, they're talking about 0:22:05.119 --> 0:22:09.200 taking that top rate and lowering it again to fifteen. 0:22:10.160 --> 0:22:13.240 But in exchange for that, there is also a strong 0:22:13.560 --> 0:22:17.359 chance that the energy industry would lose a lot of 0:22:17.400 --> 0:22:21.480 its favored tax deduction. So that's the UH the ability 0:22:21.520 --> 0:22:26.040 to expense intangible drilling costs, the manufacturer's tax deduction, all 0:22:26.119 --> 0:22:29.560 kinds of things like that potentially go away in this world. 0:22:30.119 --> 0:22:32.560 The other thing to keep an eye on is that 0:22:32.760 --> 0:22:37.680 there's also discussion around tax and increasing UH taxes at 0:22:37.680 --> 0:22:41.560 the borders, this border adjustment tax. That's not necessarily good 0:22:41.600 --> 0:22:44.399 news for the industry. So it could be a wash 0:22:44.840 --> 0:22:47.480 if we sort of lower corporate rates but then add 0:22:47.520 --> 0:22:50.119 a border adjustment tax. So it's a lot is going 0:22:50.160 --> 0:22:54.719 to depend on the details of the tax discussion. UH overalls, 0:22:54.840 --> 0:22:58.760 lower corporate rates tend to be viewed favorably by most 0:22:59.359 --> 0:23:02.960 big bisness is. But the devil will be in the 0:23:03.000 --> 0:23:05.840 details on what happens with these deductions or what happens 0:23:05.840 --> 0:23:09.520 with border taxes as part of that overall framework. Let's 0:23:09.520 --> 0:23:12.840 say the tax cuts do draw in more interest from 0:23:12.840 --> 0:23:17.000 integrated companies UH and ramp up or cause some smaller 0:23:17.000 --> 0:23:19.919 shell drillers to ramp up production. How many new jobs 0:23:19.920 --> 0:23:23.919 could that create. Well, I think a lot of this 0:23:24.040 --> 0:23:28.639 discussion is centered around bringing jobs back to the the 0:23:28.760 --> 0:23:32.440 US and over the last couple of years, Uh, there's 0:23:32.440 --> 0:23:35.639 been a big pullback in jobs in the oil patch, 0:23:36.200 --> 0:23:39.359 mainly driven by the decline in prices that we've seen, 0:23:39.440 --> 0:23:43.119 but you know, uh over the over a multi year period. 0:23:43.200 --> 0:23:47.479 So you know, as a whole, the industry employs hundreds 0:23:47.520 --> 0:23:49.919 of thousands of people. So if if you were to 0:23:50.520 --> 0:23:54.720 to ramp production, uh, it may scale somewhat literally, although 0:23:54.720 --> 0:24:00.480 I keep in mind that because of the pullback in prices, 0:24:01.000 --> 0:24:04.199 the oil and gas companies and the service providers have 0:24:04.320 --> 0:24:07.879 gotten more efficient with how they spend money. So the 0:24:07.960 --> 0:24:11.040 day rates uh for drilling rigs things like that have 0:24:11.080 --> 0:24:14.040 actually come down, and that's mainly because they've gotten more 0:24:14.080 --> 0:24:17.320 focused on personnel and other issues and trying to manage costs. 0:24:17.760 --> 0:24:21.600 So if you see a rise in production, uh, it 0:24:21.680 --> 0:24:24.160 may be done in a more efficient way that doesn't 0:24:24.160 --> 0:24:28.119 doesn't quite have as much labor associated with it. Again, 0:24:28.480 --> 0:24:31.560 that's uh, that'll be seen in the marketplace if these 0:24:31.560 --> 0:24:35.479 things actually happen. But I wouldn't you know, I wouldn't 0:24:35.520 --> 0:24:37.119 pend too much on this. You know, the oil and 0:24:37.160 --> 0:24:40.360 gas sector is an important employer in the overall economy, 0:24:40.400 --> 0:24:43.680