1
00:00:00,800 --> 00:00:04,040
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

2
00:00:04,040 --> 00:00:06,920
Speaker 1: my co host Matt Miller. Every business day, we bring

3
00:00:06,960 --> 00:00:11,520
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

4
00:00:11,520 --> 00:00:15,600
Speaker 1: with essential market moving news on the Bloomberg Markets Podcast,

5
00:00:15,600 --> 00:00:18,439
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

6
00:00:18,480 --> 00:00:22,320
Speaker 1: at Bloomberg dot com slash podcast supply chain. It's been

7
00:00:22,320 --> 00:00:24,200
Speaker 1: one of our favorite topics to talk about during in

8
00:00:24,239 --> 00:00:28,040
Speaker 1: the last several years. Boy, it got ugly there towards

9
00:00:28,040 --> 00:00:31,200
Speaker 1: the beginning of the pandemic um, but now it seems

10
00:00:31,200 --> 00:00:34,120
Speaker 1: to be getting better. And we talked to Jeans Siroca.

11
00:00:34,360 --> 00:00:35,839
Speaker 1: He's the CEO of the Port of l A. He

12
00:00:35,880 --> 00:00:38,080
Speaker 1: always gives us a good sense of what's going on

13
00:00:38,120 --> 00:00:40,519
Speaker 1: there because the Port of l A is huge and

14
00:00:40,720 --> 00:00:43,440
Speaker 1: particularly coming from that Asia trade. Gene, thanks so much

15
00:00:43,440 --> 00:00:45,800
Speaker 1: for joining us here. Um, give us a sense of

16
00:00:45,840 --> 00:00:48,440
Speaker 1: how that things are at your port, how many ships

17
00:00:48,440 --> 00:00:53,040
Speaker 1: are waiting in harbor, how's the port itself, the railroads,

18
00:00:53,080 --> 00:00:55,320
Speaker 1: the trucks, what's your dashboard looked like, how's it all

19
00:00:55,360 --> 00:00:59,840
Speaker 1: playing out? Good morning, Paul, and that the backlog is

20
00:01:00,000 --> 00:01:04,120
Speaker 1: it's in Los Angeles effectively left us back in August.

21
00:01:04,319 --> 00:01:07,440
Speaker 1: We all left five of the first seven months of

22
00:01:07,480 --> 00:01:10,480
Speaker 1: the year going box for box with that all top number.

23
00:01:10,480 --> 00:01:13,920
Speaker 1: In two thousand one, we had the peak season come

24
00:01:14,000 --> 00:01:16,320
Speaker 1: in early June and July. We're are best on record

25
00:01:16,360 --> 00:01:20,280
Speaker 1: in a hundred and fifteen years. Then the next porter

26
00:01:20,360 --> 00:01:23,040
Speaker 1: has got a little bit nervous ongoing dock workers in

27
00:01:23,080 --> 00:01:26,160
Speaker 1: negotiations and shift the cargo to the east into Gulf Coast.

28
00:01:26,280 --> 00:01:31,039
Speaker 1: We've got about late capacity today. So so what does

29
00:01:32,120 --> 00:01:34,960
Speaker 1: shipping look like right now? I mean, we're getting into

30
00:01:35,000 --> 00:01:38,560
Speaker 1: the holiday season, right the pandemics over for the western world.

31
00:01:38,920 --> 00:01:42,959
Speaker 1: Are we seeing um, you know, peak traffic right now?

32
00:01:44,000 --> 00:01:48,400
Speaker 1: Are you expecting to get busy this month? No, I

33
00:01:48,400 --> 00:01:52,640
Speaker 1: don't think. Again, a little bit earlier that that traditional

34
00:01:52,680 --> 00:01:55,840
Speaker 1: import and export manager didn't want to get into the

35
00:01:55,920 --> 00:01:59,800
Speaker 1: teeth of supply chain and port congestion all over again

36
00:01:59,840 --> 00:02:01,360
Speaker 1: for the third year in a row. They were a

37
00:02:01,400 --> 00:02:05,280
Speaker 1: little conservative, hedged Brock cargo in early to pad those

38
00:02:05,320 --> 00:02:08,320
Speaker 1: transit times, to make sure indoor states were realized and

39
00:02:08,800 --> 00:02:11,320
Speaker 1: make sure they stayed away from any potential labor disruption

40
00:02:11,360 --> 00:02:14,840
Speaker 1: which was not going to happen. Both the employers Association

41
00:02:15,040 --> 00:02:17,840
Speaker 1: and the dock Workers Union put out two joint media

42
00:02:17,919 --> 00:02:21,799
Speaker 1: releases simply stated they won't strike and they won't walk

43
00:02:21,840 --> 00:02:25,120
Speaker 1: out labor. Yet that's been tough to convince the American

44
00:02:25,160 --> 00:02:28,639
Speaker 1: cargo owner. Hey, Jean, we're hearing reports really over the

45
00:02:28,720 --> 00:02:32,560
Speaker 1: last several days that finally Japan. I mean, I'm sorry,

46
00:02:32,639 --> 00:02:35,480
Speaker 1: China maybe reopening here. I've maybe in response to some

47
00:02:35,520 --> 00:02:38,360
Speaker 1: of the protests, but if China is really going to reopen,

48
00:02:38,400 --> 00:02:41,280
Speaker 1: how do you guys kind of you know, get ready

49
00:02:41,360 --> 00:02:42,720
Speaker 1: for that, because that my sense will be there a

50
00:02:42,720 --> 00:02:46,600
Speaker 1: lot more sailings and coming out of China. Maybe possibly,

51
00:02:46,639 --> 00:02:50,440
Speaker 1: But we never saw the precipitous drop that some observers

52
00:02:50,480 --> 00:02:53,480
Speaker 1: called for, even with the third and fifth waves of

53
00:02:53,520 --> 00:02:57,520
Speaker 1: COVID variants or the shutdowns that really clamped down on

54
00:02:57,639 --> 00:03:01,440
Speaker 1: my old hometown of Shanghai. Full were months on end

55
00:03:01,760 --> 00:03:05,560
Speaker 1: the central government and ports, specifically the Young Shan Deep

56
00:03:05,560 --> 00:03:09,519
Speaker 1: Seaport in Shanghai, prioritize their long haul cargo. That meant

57
00:03:09,600 --> 00:03:12,839
Speaker 1: that our goods were gonna come in unabated. We saw

58
00:03:12,840 --> 00:03:14,520
Speaker 1: a little bit of a dip, a little pick up,

59
00:03:14,639 --> 00:03:18,200
Speaker 1: and obviously there were examples of what the lockdown meant

60
00:03:18,280 --> 00:03:22,640
Speaker 1: a subassembly, manufacturing and transportation, but no real impact. I

61
00:03:22,639 --> 00:03:25,720
Speaker 1: don't expect a crush of cargo coming our way either

62
00:03:26,080 --> 00:03:30,480
Speaker 1: because of this reopening. No. Yeah. In fact, Bloomberg Business

63
00:03:30,560 --> 00:03:33,760
Speaker 1: we put out a story and they have indicators for

64
00:03:35,040 --> 00:03:37,840
Speaker 1: each port at the port of l a Um, Singapore,

65
00:03:37,960 --> 00:03:44,160
Speaker 1: Hong Kong. All blow normal right now, which is strange,

66
00:03:44,440 --> 00:03:48,080
Speaker 1: I guess with unless you consider the fact that everybody

67
00:03:48,160 --> 00:03:51,240
Speaker 1: is looking towards a recession and there's a war um

68
00:03:51,720 --> 00:03:56,320
Speaker 1: waging in Eastern Europe. Do you expect a pick up

69
00:03:56,480 --> 00:03:59,720
Speaker 1: in three um? Do you think we need the war

70
00:03:59,800 --> 00:04:03,720
Speaker 1: to and what's the story there? Well, there's a lot

71
00:04:03,880 --> 00:04:07,040
Speaker 1: that's got to be fixed overall. Again in the supply chain,

72
00:04:07,080 --> 00:04:10,920
Speaker 1: every day something happens that gives us pause or creates

73
00:04:11,320 --> 00:04:13,800
Speaker 1: an ability for us to pivot and move forward. I

74
00:04:13,880 --> 00:04:16,240
Speaker 1: read the article this morning coming off of the supply

75
00:04:16,360 --> 00:04:20,200
Speaker 1: lines email that I get every day. Realistically speaking, what

76
00:04:20,279 --> 00:04:23,000
Speaker 1: we see right now is that you had in the US,

77
00:04:23,080 --> 00:04:26,040
Speaker 1: you had a lot of inventory and it was mismatched

78
00:04:26,080 --> 00:04:30,080
Speaker 1: with us as consumers. Folks started buying just in case,

79
00:04:30,160 --> 00:04:34,080
Speaker 1: no longer just in time. The warehouses in southern California,

80
00:04:34,400 --> 00:04:37,000
Speaker 1: of which we boast two billion square feet are still

81
00:04:37,040 --> 00:04:40,560
Speaker 1: filled to the gills. So this time of holiday season,

82
00:04:40,960 --> 00:04:44,120
Speaker 1: trying to push out all of that excess inventory, in

83
00:04:44,240 --> 00:04:47,520
Speaker 1: many cases at discounted levels and have a reset at

84
00:04:47,520 --> 00:04:50,440
Speaker 1: the beginning of the year for a more normal omni

85
00:04:50,560 --> 00:04:54,200
Speaker 1: channel distribution and proturement network. Seems to be what we're

86
00:04:54,200 --> 00:04:57,359
Speaker 1: looking at right now. But again, folks are wringing their hands.

87
00:04:57,480 --> 00:05:00,480
Speaker 1: Is it recession? Interest rates going up? With said due

88
00:05:00,560 --> 00:05:03,640
Speaker 1: next There's a lot on our plate in that economic equation.

89
00:05:03,960 --> 00:05:07,120
Speaker 1: All right, Jean, good stuff. As always, we always appreciate

90
00:05:07,120 --> 00:05:10,120
Speaker 1: getting your thoughts here. Jean Stroka. He is the CEO

91
00:05:10,360 --> 00:05:12,479
Speaker 1: of the Port of Los Angeles, giving a sense of

92
00:05:12,600 --> 00:05:16,159
Speaker 1: kind of how things are going on supply chain route

93
00:05:16,160 --> 00:05:18,280
Speaker 1: as we We've been talking to Jean all throughout this pandemic.

94
00:05:21,360 --> 00:05:25,720
Speaker 1: We're all in on reading the billboard for Bild American

95
00:05:25,880 --> 00:05:28,320
Speaker 1: Mutual and we're down there at their headquarters with with

96
00:05:28,360 --> 00:05:32,520
Speaker 1: the CEO, John McCarthy here the CEO and Sean. Before

97
00:05:32,520 --> 00:05:33,480
Speaker 1: we get into it, I just want to tell you

98
00:05:33,480 --> 00:05:36,000
Speaker 1: a little story about Paul, my co host here. So

99
00:05:36,240 --> 00:05:40,279
Speaker 1: he started in UH financial Services on Wall Street like

100
00:05:40,320 --> 00:05:44,240
Speaker 1: the day after Black Friday in right great timing. And

101
00:05:45,160 --> 00:05:48,320
Speaker 1: he's of the generation that wanted, you know, big paychecks

102
00:05:48,360 --> 00:05:52,719
Speaker 1: and worked, uh you know, wake until sleep to get them. Um,

103
00:05:52,800 --> 00:05:55,479
Speaker 1: no other life besides Wall Street and earning money. I

104
00:05:55,480 --> 00:05:57,640
Speaker 1: asked somebody did with this first bonus because I figured

105
00:05:57,640 --> 00:05:59,720
Speaker 1: most people like take their first bonus and go buy

106
00:05:59,720 --> 00:06:04,280
Speaker 1: a roll lex or something. He bought Muni's very smart, exactly.

107
00:06:04,320 --> 00:06:06,400
Speaker 1: Clipping coupons is what he does on the weekends. He

108
00:06:06,480 --> 00:06:09,400
Speaker 1: just sits by the pool and clips his coupons eggs

109
00:06:09,400 --> 00:06:12,679
Speaker 1: and it's been it's been a good ride. Build American Mutual, Sean,

110
00:06:13,120 --> 00:06:14,840
Speaker 1: thanks so much for having us down here and your

111
00:06:14,880 --> 00:06:17,400
Speaker 1: lovely offices down here in tour the Liberty Street. What

112
00:06:17,440 --> 00:06:19,800
Speaker 1: do you guys do it? Build American Mutual? So we

113
00:06:19,880 --> 00:06:23,400
Speaker 1: are municipal bond ensure. We're double A rated by standing

114
00:06:23,440 --> 00:06:27,000
Speaker 1: in ports, and we guarantee, so you ensure municipal bond issuers.

115
00:06:27,040 --> 00:06:28,760
Speaker 1: We don't you think of it this way. It's a

116
00:06:28,800 --> 00:06:31,120
Speaker 1: little like if you have a child who's gone to

117
00:06:31,160 --> 00:06:33,760
Speaker 1: college takes out a student loan. You want him to

118
00:06:33,800 --> 00:06:35,200
Speaker 1: get a job, you want him to pay it back,

119
00:06:35,240 --> 00:06:37,279
Speaker 1: but if he doesn't, you're on the hook because you've

120
00:06:37,279 --> 00:06:40,840
Speaker 1: co signed the loan. Think, Okay, what what we're doing

121
00:06:40,880 --> 00:06:42,920
Speaker 1: is we're guaranteeing to make sure that timely payment of

122
00:06:42,960 --> 00:06:45,880
Speaker 1: principle and interest when due. For the investors, well, I

123
00:06:45,920 --> 00:06:47,359
Speaker 1: know where my guys sleep at night, so if they

124
00:06:47,400 --> 00:06:49,720
Speaker 1: don't pay anywhere to find him talk to us about

125
00:06:49,720 --> 00:06:52,839
Speaker 1: the municipal bond market. Um, just today, it's been such

126
00:06:52,839 --> 00:06:56,320
Speaker 1: a rough year for fixed income, double digit declines across

127
00:06:56,320 --> 00:06:58,920
Speaker 1: the entire fixed income space. Talks about the musical bond market.

128
00:06:59,000 --> 00:07:02,400
Speaker 1: So I think right now it's a tale of two markets. Uh.

129
00:07:02,440 --> 00:07:06,240
Speaker 1: This year, there was a hundred um uh billion dollars

130
00:07:06,240 --> 00:07:08,360
Speaker 1: of outflows from the municipal market in the first part

131
00:07:08,400 --> 00:07:11,960
Speaker 1: of the year, and that's really a transition from very

132
00:07:12,000 --> 00:07:14,200
Speaker 1: low interest rates of last year in the beginning of

133
00:07:14,200 --> 00:07:16,800
Speaker 1: this year to hire interest rates now. And so what

134
00:07:16,880 --> 00:07:20,040
Speaker 1: we're seeing at this moment as a re entry of

135
00:07:20,280 --> 00:07:23,360
Speaker 1: municipal investors back into the market. And I have to think,

136
00:07:23,360 --> 00:07:26,880
Speaker 1: what does the municipal market do. It finances eighty percent

137
00:07:27,120 --> 00:07:30,760
Speaker 1: of essential infrastructure. So when you think about infrastructure, it's

138
00:07:30,920 --> 00:07:33,440
Speaker 1: state and local governments that are financing that. There are

139
00:07:33,640 --> 00:07:37,320
Speaker 1: right now four trillion dollars of municipal bonds that are outstanding,

140
00:07:37,760 --> 00:07:39,760
Speaker 1: and and and of that, if you just try to

141
00:07:39,800 --> 00:07:43,320
Speaker 1: put a sense for whom who buy? Who are the

142
00:07:43,360 --> 00:07:47,280
Speaker 1: issuers there? They are state and local governments. They're fifty

143
00:07:47,320 --> 00:07:51,200
Speaker 1: thousand individual issuers state and local governments, which means that

144
00:07:51,240 --> 00:07:54,720
Speaker 1: there are you know, about five times the total number

145
00:07:54,720 --> 00:07:56,680
Speaker 1: of different issuers than there are in the New York

146
00:07:56,720 --> 00:07:59,080
Speaker 1: Stock Exchange in the NASTAC put together. So it's a

147
00:07:59,200 --> 00:08:02,600
Speaker 1: huge mark it but it's also one that is traditionally

148
00:08:02,760 --> 00:08:07,360
Speaker 1: very staid. Right. Um, towns and cities are gonna always

149
00:08:07,400 --> 00:08:11,440
Speaker 1: have financing needs, They constantly need to issue debt um

150
00:08:11,520 --> 00:08:14,360
Speaker 1: and they rarely default. And then when you step in

151
00:08:14,480 --> 00:08:17,560
Speaker 1: and ensure their bonds, investors can be sure they're not

152
00:08:17,720 --> 00:08:20,560
Speaker 1: going to default or if they do, you know you'll

153
00:08:20,560 --> 00:08:23,480
Speaker 1: catch them fall. So um, that's a hunder percent, right,

154
00:08:23,520 --> 00:08:26,600
Speaker 1: I mean, really, what we're focused on is, uh two things.

155
00:08:26,960 --> 00:08:35,160
Speaker 1: Essential public purpose is state and local governments issuing for hospitals, bridges, tunnels, roads, um,

156
00:08:35,280 --> 00:08:39,840
Speaker 1: and and that they don't default often. But what we're

157
00:08:39,880 --> 00:08:44,120
Speaker 1: doing is three things, credit default protection, greater liquidity for

158
00:08:44,120 --> 00:08:47,960
Speaker 1: those municipal bonds, and greater price protection. So those bonds

159
00:08:48,000 --> 00:08:50,560
Speaker 1: traded a more stable level. But what I'm getting at

160
00:08:50,600 --> 00:08:53,160
Speaker 1: those there's typically not so much volatility. This has been

161
00:08:53,200 --> 00:08:55,920
Speaker 1: a very odd year for muni's, right, has been for

162
00:08:55,920 --> 00:08:58,560
Speaker 1: the whole market, But traditionally muni's trade a little bit

163
00:08:58,600 --> 00:09:03,640
Speaker 1: differently than definitely corporate debt and even treasuries. That's correct, UH,

164
00:09:03,679 --> 00:09:05,680
Speaker 1: and that's really because if you think about who are

165
00:09:05,720 --> 00:09:09,280
Speaker 1: the buyers of municipal bonds, it's households. It's mutual funds

166
00:09:09,360 --> 00:09:13,600
Speaker 1: that represent households. So it's people who are buying UH

167
00:09:13,760 --> 00:09:18,880
Speaker 1: bonds that have a long UH maturity, and so they're

168
00:09:18,920 --> 00:09:22,200
Speaker 1: doing that for their portfolios for greater stability and and

169
00:09:22,280 --> 00:09:25,880
Speaker 1: less volatility than other potential investments like equities. So during

170
00:09:25,880 --> 00:09:29,079
Speaker 1: this pandemic, we've seen coming out of Watchington a big

171
00:09:29,120 --> 00:09:31,560
Speaker 1: infrastructure bill, and I'm guessing a lot of that's got

172
00:09:31,600 --> 00:09:33,520
Speaker 1: to be financed in the municipal bond market. Have you

173
00:09:33,559 --> 00:09:36,920
Speaker 1: started to see activity tied with that at all or

174
00:09:36,920 --> 00:09:39,079
Speaker 1: is that something still to come. So I think the

175
00:09:39,280 --> 00:09:43,760
Speaker 1: past at one point one trillion dollar package, but the

176
00:09:43,760 --> 00:09:46,240
Speaker 1: bipartisan bill, and I think what's going to happen in

177
00:09:46,280 --> 00:09:49,640
Speaker 1: the municipal bond market is a lot of those programs

178
00:09:49,720 --> 00:09:52,040
Speaker 1: are match funded. So if you think about if you're

179
00:09:52,040 --> 00:09:55,600
Speaker 1: gonna borrow to repair your roads and it's repaired just

180
00:09:55,640 --> 00:09:57,400
Speaker 1: as much as build new things. If you think about

181
00:09:57,400 --> 00:10:01,920
Speaker 1: really what's going on UM from New York City, well,

182
00:10:02,000 --> 00:10:05,800
Speaker 1: they's an opportunity. Yeah, So if you think about how

183
00:10:05,880 --> 00:10:11,480
Speaker 1: much UH gets to be invested UM, the federal program

184
00:10:11,520 --> 00:10:13,959
Speaker 1: is a matched fund program, so that if you want

185
00:10:13,960 --> 00:10:16,320
Speaker 1: to borrow fifty million dollars from that program, you're gonna

186
00:10:16,360 --> 00:10:19,040
Speaker 1: issue fifty million dollars worth of municipal bonds in order

187
00:10:19,080 --> 00:10:22,800
Speaker 1: to make that project a reality. And so right now

188
00:10:23,080 --> 00:10:26,200
Speaker 1: that money has been approved, it's now just starting to

189
00:10:26,320 --> 00:10:29,280
Speaker 1: roll out into the market. And so my our estimation

190
00:10:29,280 --> 00:10:32,720
Speaker 1: would be that that that activity will really take hold

191
00:10:33,040 --> 00:10:34,959
Speaker 1: in the next couple of years. But this means so

192
00:10:35,160 --> 00:10:38,000
Speaker 1: I have always thought or or this year, you know

193
00:10:38,040 --> 00:10:40,720
Speaker 1: now that these municipalities are so cash rich, maybe they

194
00:10:40,720 --> 00:10:42,880
Speaker 1: don't need to issue as many bonds. But you're saying

195
00:10:42,920 --> 00:10:47,040
Speaker 1: that a lot of that money came with issuance UH concurrent.

196
00:10:47,400 --> 00:10:49,720
Speaker 1: So think about it this way. What's happened this year,

197
00:10:49,760 --> 00:10:53,920
Speaker 1: particularly for for volume is UH. It's about three hundred

198
00:10:53,960 --> 00:10:59,200
Speaker 1: and sixty billion dollars volume of issuance this year, Um,

199
00:10:59,240 --> 00:11:04,400
Speaker 1: they're virtual. No refinancings, so normally about the market or refinancings.

200
00:11:04,440 --> 00:11:07,480
Speaker 1: As interest rates have gone up, refinancings have gone down.

201
00:11:08,040 --> 00:11:11,240
Speaker 1: But the important thing to remember is that essential projects

202
00:11:11,240 --> 00:11:15,199
Speaker 1: still have to be built, Existing facilities have to be repaired,

203
00:11:15,520 --> 00:11:19,080
Speaker 1: and so the market has a steady issuance going forward,

204
00:11:19,120 --> 00:11:20,720
Speaker 1: and we project that that's going to be the same

205
00:11:20,960 --> 00:11:23,640
Speaker 1: for the next you know, five ten years. As a

206
00:11:23,679 --> 00:11:27,040
Speaker 1: former banker, I've always told companies, you know, borrow when

207
00:11:27,080 --> 00:11:29,079
Speaker 1: you can, raise capital when you can, and not when

208
00:11:29,120 --> 00:11:31,240
Speaker 1: you need it. But it's not necessarily the case in

209
00:11:31,360 --> 00:11:34,480
Speaker 1: municipal bond space. There they don't market time. It's is

210
00:11:34,480 --> 00:11:37,440
Speaker 1: my understanding. They raise money when they need it, correct,

211
00:11:37,480 --> 00:11:39,520
Speaker 1: you know, So as you look at can you do

212
00:11:39,559 --> 00:11:41,559
Speaker 1: you have the municipality saying I'm going to issue in

213
00:11:42,640 --> 00:11:45,600
Speaker 1: three for a bridge that we're building. Did they did

214
00:11:45,600 --> 00:11:47,920
Speaker 1: they give you that kind of visibility or is it

215
00:11:48,080 --> 00:11:50,800
Speaker 1: there's a long term process in order to come to

216
00:11:50,840 --> 00:11:53,720
Speaker 1: the market for for new for large new projects. So

217
00:11:53,760 --> 00:11:56,360
Speaker 1: if you think about any town, a town in Connecticut,

218
00:11:56,400 --> 00:11:58,959
Speaker 1: a town in Nevada, when they decided they're going to

219
00:11:59,000 --> 00:12:00,760
Speaker 1: build a new town hall or they're gonna put in

220
00:12:00,800 --> 00:12:03,800
Speaker 1: new sidewalks. They go through a planning process, they go

221
00:12:03,840 --> 00:12:07,080
Speaker 1: through the approval process. Remember these things are paid from

222
00:12:08,200 --> 00:12:10,960
Speaker 1: taxes at a local level, so they go through an

223
00:12:11,000 --> 00:12:13,640
Speaker 1: approval process, they design what they're going to build, and

224
00:12:13,720 --> 00:12:17,240
Speaker 1: then they issue the bonds. In most circumstances, municipalities have

225
00:12:17,280 --> 00:12:20,720
Speaker 1: a financial advisor that represents them and putting the transaction together,

226
00:12:21,040 --> 00:12:23,880
Speaker 1: and then they hire an underwriter UM, you know, like

227
00:12:23,960 --> 00:12:27,840
Speaker 1: City Bank or or Bank of America to uh, you know,

228
00:12:28,040 --> 00:12:30,760
Speaker 1: bring those bonds to market and sell them to investors.

229
00:12:30,760 --> 00:12:33,560
Speaker 1: So if you're ensuring an issue, do you guys have

230
00:12:33,600 --> 00:12:37,640
Speaker 1: to perform credit analysis yourself to decide how much your

231
00:12:37,720 --> 00:12:42,120
Speaker 1: charge for that? Absolutely. The vast majority of the people

232
00:12:42,160 --> 00:12:45,120
Speaker 1: you see here are our credit analysts, and so we

233
00:12:45,160 --> 00:12:48,840
Speaker 1: spend all of our time, our credit committee needs every year,

234
00:12:49,440 --> 00:12:56,320
Speaker 1: every day think about what's happening. So what we're doing

235
00:12:56,440 --> 00:12:58,920
Speaker 1: is UM making a credit decision to guarantee the bond.

236
00:12:58,920 --> 00:13:01,120
Speaker 1: And I think about it this way. Our kind of

237
00:13:01,160 --> 00:13:04,760
Speaker 1: insurance is unique because we don't you know, there is

238
00:13:04,800 --> 00:13:07,960
Speaker 1: no waiver. We pay first and then mitigate later so

239
00:13:08,000 --> 00:13:10,520
Speaker 1: that the investor knows they're going to get their payment

240
00:13:10,960 --> 00:13:13,439
Speaker 1: when when they expected to get it, and that's fundamentally

241
00:13:13,440 --> 00:13:16,520
Speaker 1: important to what we do. So our process of not

242
00:13:16,600 --> 00:13:19,400
Speaker 1: only underwriting the transactions when they come to market, but

243
00:13:19,600 --> 00:13:23,600
Speaker 1: surveiling them UH is an important part. So we we

244
00:13:23,679 --> 00:13:28,720
Speaker 1: watch those municipal bond issues um until they mature. And

245
00:13:28,760 --> 00:13:31,280
Speaker 1: that's something that the investors can take comfort in and frankly,

246
00:13:31,559 --> 00:13:33,959
Speaker 1: the issuers take comfort in. Historically, have you guys done

247
00:13:34,000 --> 00:13:37,520
Speaker 1: in terms of losses or just risk from these questions?

248
00:13:37,559 --> 00:13:40,160
Speaker 1: So we've been in business eleven years. I've been in

249
00:13:40,160 --> 00:13:42,200
Speaker 1: in the bonding trans business for a very very long time.

250
00:13:42,760 --> 00:13:46,760
Speaker 1: We have issued a hundred and fifteen billion dollars worth

251
00:13:46,760 --> 00:13:50,560
Speaker 1: the transactions. We've had no default. I'll take that. So

252
00:13:50,600 --> 00:13:53,160
Speaker 1: that's some good credit analysts around here. I'm surrounded by

253
00:13:53,200 --> 00:13:56,640
Speaker 1: these sharp credit analyst guys. Good stuff, all right, Sean,

254
00:13:56,679 --> 00:13:59,480
Speaker 1: thanks so much for having us here. Sean McCarthy, he's

255
00:13:59,640 --> 00:14:02,480
Speaker 1: build American Mutual, he's a chief executive officer. We never

256
00:14:02,520 --> 00:14:04,160
Speaker 1: got to ask about work from home. We gotta talk

257
00:14:04,160 --> 00:14:06,079
Speaker 1: to him during the break because I gotta know if

258
00:14:06,120 --> 00:14:08,360
Speaker 1: all these guys came in today just because we're here

259
00:14:08,440 --> 00:14:10,880
Speaker 1: just to see us to three days a week everybody's

260
00:14:10,880 --> 00:14:13,400
Speaker 1: in the office. That's kind of where we're rotated around.

261
00:14:13,880 --> 00:14:15,760
Speaker 1: And that's the thing. And the one final thing I

262
00:14:15,840 --> 00:14:18,640
Speaker 1: just mentioned is that we're a mutual. So the people

263
00:14:18,679 --> 00:14:21,080
Speaker 1: who are are stakeholders and own the company are the

264
00:14:21,120 --> 00:14:24,480
Speaker 1: five thousand municipalities that have taken our insurance. Okay, that's important,

265
00:14:24,480 --> 00:14:27,160
Speaker 1: that's important. All right, good stuff, all right, Sean McCarthy,

266
00:14:27,200 --> 00:14:31,360
Speaker 1: great stuff. Built American Mutual Chief a bacont of officer. Bam,

267
00:14:31,560 --> 00:14:36,880
Speaker 1: there you go, thanks for being here. Let's talk about

268
00:14:37,280 --> 00:14:41,360
Speaker 1: municipal finance financing big cities, and boy, there's not too

269
00:14:41,360 --> 00:14:44,200
Speaker 1: many bigger than the City of Chicago. Jenny Kwang Bennett

270
00:14:44,480 --> 00:14:47,080
Speaker 1: joins us. She's a chief finance officer for the City

271
00:14:47,120 --> 00:14:49,640
Speaker 1: of Chicago. Jenny, thanks so much for joining us here

272
00:14:49,720 --> 00:14:52,320
Speaker 1: at the Build American Mutual Offices. Talk to us about

273
00:14:52,360 --> 00:14:56,480
Speaker 1: the financial situation, the financial health, the financial um, you know,

274
00:14:56,600 --> 00:14:58,840
Speaker 1: outlook for the city of Chicago. Great city, one of

275
00:14:58,840 --> 00:15:01,840
Speaker 1: the America's great cities. Talked to us about Chicago. Sure, absolutely,

276
00:15:01,840 --> 00:15:03,840
Speaker 1: and thank you for having me. Always happy to talk

277
00:15:03,880 --> 00:15:06,840
Speaker 1: about the city of Chicago and its financial turnaround. Um,

278
00:15:06,880 --> 00:15:08,560
Speaker 1: you don't have to take my word for it. Although

279
00:15:08,560 --> 00:15:11,000
Speaker 1: I will speak to some of the financial improvements at

280
00:15:11,040 --> 00:15:13,680
Speaker 1: the city, but very importantly, the City of Chicago has

281
00:15:13,760 --> 00:15:17,280
Speaker 1: achieved ten rating upgrades across various credits at the City

282
00:15:17,320 --> 00:15:22,000
Speaker 1: of Chicago plus two outlook upgrades UM too Positive over

283
00:15:22,040 --> 00:15:25,240
Speaker 1: the last four months, and it's a demonstration of the

284
00:15:25,240 --> 00:15:28,000
Speaker 1: financial turnaround that the city is in right now. The

285
00:15:28,120 --> 00:15:33,320
Speaker 1: upgrades have spanned the city's GEO STSC credit UM, the

286
00:15:33,480 --> 00:15:37,840
Speaker 1: Airport credit, the water and Sewer credits UH, the o'hared

287
00:15:37,840 --> 00:15:40,280
Speaker 1: midway credits, and all of that for the first time

288
00:15:40,360 --> 00:15:43,520
Speaker 1: in six to twelve UM. It's a lot of financial

289
00:15:43,600 --> 00:15:46,640
Speaker 1: improvement at the city. In particular, the corporate fund credit

290
00:15:47,040 --> 00:15:50,400
Speaker 1: UM has seen structural balance now UM for the first

291
00:15:50,400 --> 00:15:54,720
Speaker 1: time in decades. We have climbed a pension ramp that

292
00:15:54,840 --> 00:15:58,240
Speaker 1: has included one point eight billion dollars and increased UH

293
00:15:58,280 --> 00:16:02,040
Speaker 1: pension funding over the last three years. And very importantly,

294
00:16:02,520 --> 00:16:04,600
Speaker 1: we have found a way to do all of that

295
00:16:04,680 --> 00:16:07,240
Speaker 1: in the midst of a pandemic. And so it's a

296
00:16:07,320 --> 00:16:10,480
Speaker 1: very important turnaround for the city in terms of all

297
00:16:10,520 --> 00:16:13,120
Speaker 1: of the financial metrics that rating analysts follow on a

298
00:16:13,120 --> 00:16:16,480
Speaker 1: regular basis. UM. Very importantly, we've also climbed our debt ramp,

299
00:16:16,560 --> 00:16:19,240
Speaker 1: which allows us to advertize somewhere between three hundreds of

300
00:16:19,280 --> 00:16:22,360
Speaker 1: four hundred million dollars in principle a year. UM. That's

301
00:16:22,360 --> 00:16:25,200
Speaker 1: reduced our overall debt burden by three quarters of a

302
00:16:25,240 --> 00:16:28,200
Speaker 1: billion dollars UM over the last three years. And by

303
00:16:28,200 --> 00:16:30,480
Speaker 1: way of perspective, the City of Chicago has twenty six

304
00:16:30,520 --> 00:16:33,400
Speaker 1: billion dollars of debt outstanding. UM. In general, we are

305
00:16:33,480 --> 00:16:35,360
Speaker 1: one of the top ten issues and municipal debt in

306
00:16:35,360 --> 00:16:37,760
Speaker 1: the market. And so UM, it's a there's a There

307
00:16:37,760 --> 00:16:40,480
Speaker 1: are a lot of financial metric improvements that have occurred

308
00:16:40,640 --> 00:16:44,200
Speaker 1: over the last three years, in particular during Mayor Lightfoots administration, UM,

309
00:16:44,200 --> 00:16:46,400
Speaker 1: but also over the course of decades for the City

310
00:16:46,440 --> 00:16:48,880
Speaker 1: of Chicago that has led to this moment where UM,

311
00:16:48,920 --> 00:16:52,120
Speaker 1: we're getting recognition across the board by the rating agencies.

312
00:16:52,160 --> 00:16:55,840
Speaker 1: So no more junk UH debt for the City of Chicago,

313
00:16:56,120 --> 00:16:59,560
Speaker 1: and you've found ways to make an impact socially right

314
00:16:59,600 --> 00:17:02,880
Speaker 1: in term of your debt issuance. Yes, absolutely, um, So

315
00:17:02,920 --> 00:17:05,800
Speaker 1: to your point, Moody's has upgraded us to investment grade,

316
00:17:05,840 --> 00:17:08,000
Speaker 1: and so now the City of Chicago is investment grade

317
00:17:08,000 --> 00:17:10,800
Speaker 1: across all of its credits UM. In addition to that,

318
00:17:10,880 --> 00:17:12,840
Speaker 1: because of the fact that we climbed our debt ramp

319
00:17:12,840 --> 00:17:15,240
Speaker 1: and because of the fact that we've climbed our pension ramp,

320
00:17:15,560 --> 00:17:18,879
Speaker 1: cleared our deferred liabilities, were now able to make historic

321
00:17:18,960 --> 00:17:21,680
Speaker 1: investments in the City of Chicago. UM. There are three

322
00:17:21,720 --> 00:17:24,440
Speaker 1: main investment plans. There's the Chicago Recovery Plan, which is

323
00:17:24,480 --> 00:17:27,400
Speaker 1: one point two billion dollars making some of the most

324
00:17:27,440 --> 00:17:30,520
Speaker 1: historic progressive investments in the city, including the Vacant Law

325
00:17:30,600 --> 00:17:35,200
Speaker 1: Investment Program UM, Affordable Housing, Fleet Decarbonization UM, so on,

326
00:17:35,240 --> 00:17:38,240
Speaker 1: and so forth. There's the Invest Southwest Program, which makes

327
00:17:38,280 --> 00:17:41,119
Speaker 1: two billion dollars of economic development investments in South and

328
00:17:41,119 --> 00:17:44,199
Speaker 1: West Side neighborhoods, largely low income neighborhoods in Chicago. And

329
00:17:44,200 --> 00:17:46,960
Speaker 1: then there's a Chicago Works Program, which is our deferred

330
00:17:47,320 --> 00:17:52,760
Speaker 1: capital maintenance program, streets lighting, UM, typical infrastructure investment. All

331
00:17:52,760 --> 00:17:55,840
Speaker 1: told that six billion dollars of investments that we're making

332
00:17:56,080 --> 00:17:59,359
Speaker 1: and UH. Within that, we've selected a number of projects

333
00:17:59,400 --> 00:18:02,320
Speaker 1: that will make up our inaugural Social Impact Bond issuance,

334
00:18:02,359 --> 00:18:05,080
Speaker 1: which will be coming UM in the next month or so.

335
00:18:05,080 --> 00:18:07,600
Speaker 1: So in the last several years, we've seen some big

336
00:18:07,640 --> 00:18:13,840
Speaker 1: corporate UM residents of Chicago leaves Citadel Boeing talk to

337
00:18:13,880 --> 00:18:16,280
Speaker 1: us about the challenges you as a city have in

338
00:18:16,359 --> 00:18:20,760
Speaker 1: kind of trying to attract and retain UH corporate residents.

339
00:18:20,840 --> 00:18:24,480
Speaker 1: You know, big, big, big companies. Sure, so I would

340
00:18:24,520 --> 00:18:27,440
Speaker 1: offer that UM, although you know we UM, you know

341
00:18:27,480 --> 00:18:29,320
Speaker 1: are stating by the loss of those firms that you

342
00:18:29,359 --> 00:18:32,719
Speaker 1: mentioned in particular UM, the number of jobs impacted our

343
00:18:32,920 --> 00:18:35,240
Speaker 1: very smallest compared to the total number of jobs that

344
00:18:35,320 --> 00:18:37,879
Speaker 1: we've increased over the course of the last few years,

345
00:18:37,880 --> 00:18:40,040
Speaker 1: in particular in the midst of the pandemic. So the

346
00:18:40,040 --> 00:18:42,000
Speaker 1: city of Chicago has seen a hundred and seventy one

347
00:18:42,000 --> 00:18:45,919
Speaker 1: pro Chicago decisions, which we define as headquarters UM or

348
00:18:45,920 --> 00:18:48,960
Speaker 1: corporate relocations that increase their presence in the city of Chicago,

349
00:18:49,359 --> 00:18:52,920
Speaker 1: and that's created around twenty thousand new jobs and which

350
00:18:52,960 --> 00:18:56,679
Speaker 1: then themselves creates another thirty thousand jobs. Some notable recent

351
00:18:57,240 --> 00:19:00,639
Speaker 1: editions includes Google, who has UM add at a new

352
00:19:00,800 --> 00:19:03,400
Speaker 1: UM facility to their existing facility in the west Loop

353
00:19:03,680 --> 00:19:06,440
Speaker 1: that will generate thousands of new jobs for the city.

354
00:19:06,920 --> 00:19:09,639
Speaker 1: Uh kellon UM has announced that they're moving their largest

355
00:19:09,640 --> 00:19:11,760
Speaker 1: division to the city of Chicago, which is their snack

356
00:19:11,800 --> 00:19:14,800
Speaker 1: division around the about eleven billion dollars of revenue and

357
00:19:14,800 --> 00:19:17,240
Speaker 1: then um in addition to that, we also had Kimberly

358
00:19:17,280 --> 00:19:20,800
Speaker 1: Clark make a major corporate relocation as well as UMU

359
00:19:21,160 --> 00:19:23,840
Speaker 1: as as well as Discover, who put their largest call

360
00:19:23,920 --> 00:19:25,920
Speaker 1: center in one of our South Side neighborhoods. Which it

361
00:19:26,000 --> 00:19:29,399
Speaker 1: like working with Illinois because I'm assuming, uh, some of

362
00:19:29,400 --> 00:19:32,639
Speaker 1: the Leavers had concerns about the state more than the

363
00:19:32,680 --> 00:19:35,800
Speaker 1: city of Chicago. Um So, the city of Chicago is

364
00:19:36,080 --> 00:19:39,040
Speaker 1: the largest economic engine within the state of Illinois, and

365
00:19:39,119 --> 00:19:41,639
Speaker 1: we provide a lot of a lot of revenue to

366
00:19:41,680 --> 00:19:44,360
Speaker 1: the state. UM. We did just pass the casino as well,

367
00:19:44,400 --> 00:19:47,440
Speaker 1: which will generate significant value to the state and to

368
00:19:47,520 --> 00:19:50,320
Speaker 1: the city somewhere around five billion dollars in total. Um So,

369
00:19:50,400 --> 00:19:52,240
Speaker 1: there are a lot of ways that we contribute to

370
00:19:52,280 --> 00:19:54,760
Speaker 1: the state. UM. You know, we also spent a lot

371
00:19:54,800 --> 00:19:57,120
Speaker 1: of way. There's going to be a casino in Chicago. Yes,

372
00:19:57,160 --> 00:19:59,400
Speaker 1: there's a new casino in Chicago. It's been authorized. It's

373
00:19:59,440 --> 00:20:01,480
Speaker 1: roundly about a hundred million dollars a year in revenue

374
00:20:01,520 --> 00:20:05,159
Speaker 1: to the city. Um uh. And then another um you know, uh,

375
00:20:05,280 --> 00:20:07,040
Speaker 1: two hundred million or so in revenue to the state

376
00:20:07,040 --> 00:20:10,359
Speaker 1: of Illinois. Talk to us about the crime situation in

377
00:20:10,480 --> 00:20:13,960
Speaker 1: Chicago and how what kind of headwinds that presents to

378
00:20:14,720 --> 00:20:17,399
Speaker 1: the city and kind of what's the administration's planned to

379
00:20:18,080 --> 00:20:20,679
Speaker 1: try to address that. We have, you know, similarsus here

380
00:20:20,680 --> 00:20:22,359
Speaker 1: in New York City, but Chicago seems to get a

381
00:20:22,359 --> 00:20:25,240
Speaker 1: lot of attention. UM So what we're experiencing in terms

382
00:20:25,320 --> 00:20:28,520
Speaker 1: of public safety trends is not dissimilar from what a

383
00:20:28,520 --> 00:20:31,200
Speaker 1: lot of other urban areas face. Um you know. We

384
00:20:31,440 --> 00:20:33,280
Speaker 1: know in the city of Chicago that there has been

385
00:20:33,359 --> 00:20:38,199
Speaker 1: historic segregation, UM and disinvestment in largely low income neighborhoods.

386
00:20:38,280 --> 00:20:42,040
Speaker 1: And so that's why one of the um UH investments

387
00:20:42,080 --> 00:20:45,120
Speaker 1: that we started out with, even before the investment investment

388
00:20:45,119 --> 00:20:47,920
Speaker 1: plans I just mentioned, um you know, was about making

389
00:20:47,960 --> 00:20:51,160
Speaker 1: deeper investments in South and West side neighborhoods in order

390
00:20:51,200 --> 00:20:54,439
Speaker 1: to try to write some of those historic wrongs. What

391
00:20:54,560 --> 00:20:56,720
Speaker 1: that means by way of public safety is that we're

392
00:20:56,760 --> 00:21:00,399
Speaker 1: making the investments that create wrap around services that addresses

393
00:21:00,440 --> 00:21:03,119
Speaker 1: the root causes of violence. So rather than taking a

394
00:21:03,160 --> 00:21:06,080
Speaker 1: policing approach which we know will have immediate impact but

395
00:21:06,160 --> 00:21:09,920
Speaker 1: ultimately won't create transformative change for those neighborhoods. We're taking

396
00:21:09,960 --> 00:21:13,520
Speaker 1: that broader citywide, whole of government approach. What's that? What

397
00:21:13,640 --> 00:21:16,760
Speaker 1: that's resulted in in the top fifting communities that have

398
00:21:16,920 --> 00:21:19,840
Speaker 1: over of the crime in the city of Chicago, Dave

399
00:21:19,840 --> 00:21:23,240
Speaker 1: Steen somewhere between a thirty and fifty percent reduction in crime,

400
00:21:23,320 --> 00:21:26,159
Speaker 1: in particular by way of homicides and shootings, And so

401
00:21:26,200 --> 00:21:28,600
Speaker 1: we know the approach is working. UM. You know, we

402
00:21:28,640 --> 00:21:32,080
Speaker 1: are also working on ramping up recruiting efforts for the

403
00:21:32,240 --> 00:21:35,000
Speaker 1: police department. In the most recent budget we passed, there

404
00:21:35,040 --> 00:21:37,960
Speaker 1: was a hundred million dollars of additional public safety investments

405
00:21:38,000 --> 00:21:41,199
Speaker 1: for UM the police department. In particular. UM there are

406
00:21:41,240 --> 00:21:44,080
Speaker 1: new cell phones being provided to all patrol officers, who

407
00:21:44,119 --> 00:21:46,560
Speaker 1: will then UM have a more efficient way of being

408
00:21:46,560 --> 00:21:49,240
Speaker 1: able to receive calls and understand where calls of service

409
00:21:49,280 --> 00:21:51,600
Speaker 1: have been, file reports in the field. And so a

410
00:21:51,600 --> 00:21:54,320
Speaker 1: lot of investment is being made into in terms of

411
00:21:54,359 --> 00:21:57,120
Speaker 1: both UM direct public safety investments as well as whole

412
00:21:57,200 --> 00:22:00,840
Speaker 1: government investments to help support the public safety in Chicago.

413
00:22:01,000 --> 00:22:03,600
Speaker 1: So I think it's interesting that you're not just in numbers, CFO,

414
00:22:03,840 --> 00:22:07,959
Speaker 1: You're invested in making a difference socially the public schools

415
00:22:07,960 --> 00:22:10,880
Speaker 1: for the cf OF was the CFO of the public schools.

416
00:22:11,040 --> 00:22:13,600
Speaker 1: I think one of the most interesting things about municipal

417
00:22:13,640 --> 00:22:16,680
Speaker 1: finance in general is that what we do is ultimately

418
00:22:16,680 --> 00:22:19,080
Speaker 1: not just about the numbers, but how the math and

419
00:22:19,119 --> 00:22:22,560
Speaker 1: the money ultimately creates investments. UM. I said this in

420
00:22:22,600 --> 00:22:25,880
Speaker 1: a recent speech, where ultimately what we do by way

421
00:22:25,920 --> 00:22:29,000
Speaker 1: of financial stability is so important because it pays for

422
00:22:29,040 --> 00:22:31,480
Speaker 1: the investments that we make. And so the point I

423
00:22:31,560 --> 00:22:33,720
Speaker 1: made earlier about the fact that we've paid down three

424
00:22:33,760 --> 00:22:35,640
Speaker 1: quarters of a billion dollars in debt and are now

425
00:22:35,680 --> 00:22:37,440
Speaker 1: paying down our debt to the tune of three to

426
00:22:37,520 --> 00:22:40,119
Speaker 1: four hundred million a year, those are now investments that

427
00:22:40,160 --> 00:22:42,920
Speaker 1: we can make through the through the various investment programs

428
00:22:42,920 --> 00:22:45,480
Speaker 1: at total about eight billion dollars, we are making some

429
00:22:45,560 --> 00:22:48,120
Speaker 1: of the most historic investments in the City of Chicago

430
00:22:48,480 --> 00:22:51,040
Speaker 1: without increasing our debt burden. And that's because of the

431
00:22:51,080 --> 00:22:53,440
Speaker 1: fact that we have financial stability and a way to

432
00:22:53,480 --> 00:22:55,640
Speaker 1: pay for these investments. Because he knows, by the way,

433
00:22:55,640 --> 00:22:59,760
Speaker 1: I have long been away of raising money UM for municipalities.

434
00:23:00,359 --> 00:23:03,000
Speaker 1: Now there's weed, and I wonder what you think about that,

435
00:23:03,040 --> 00:23:05,960
Speaker 1: because it's legal in Illinois, right, and you must be

436
00:23:06,040 --> 00:23:10,879
Speaker 1: able to generate significant revenue. Um. Does that some of

437
00:23:10,920 --> 00:23:12,560
Speaker 1: that go to Chicago or is it all to the state?

438
00:23:12,560 --> 00:23:14,399
Speaker 1: How's that work? So the majority of the money does

439
00:23:14,440 --> 00:23:16,639
Speaker 1: go to the state. We do see some of that money,

440
00:23:16,840 --> 00:23:19,840
Speaker 1: uh come to us for public safety. The amount isn't large,

441
00:23:19,880 --> 00:23:22,520
Speaker 1: but we do receive some portion of money, UM by

442
00:23:22,560 --> 00:23:24,800
Speaker 1: way of casinos. Um. You know, it is going to

443
00:23:24,880 --> 00:23:27,600
Speaker 1: generate significant revenue for our police and fire pension funds.

444
00:23:27,800 --> 00:23:30,240
Speaker 1: But in addition to that, it's already happening. Um, it's

445
00:23:30,240 --> 00:23:32,399
Speaker 1: all going to Indiana at this point. And so the

446
00:23:32,440 --> 00:23:36,200
Speaker 1: Chicago casino we expect will Repaytriot approximately a hundred ninety

447
00:23:36,240 --> 00:23:39,240
Speaker 1: million dollars of gaming activity back to the city UM,

448
00:23:39,280 --> 00:23:42,639
Speaker 1: which ultimately allows us to pay for Illinois essential services

449
00:23:42,480 --> 00:23:44,800
Speaker 1: as opposed to essential services in other states. All right,

450
00:23:44,840 --> 00:23:47,600
Speaker 1: great stuff, Jenny Wonk Bennett, chief Financial Officer for the

451
00:23:47,600 --> 00:23:50,440
Speaker 1: City of Chicago, joining us. Live here at our Build

452
00:23:50,440 --> 00:23:57,000
Speaker 1: America Mutual Headquarters. Maybe we are back in the Build

453
00:23:57,000 --> 00:24:01,840
Speaker 1: American Mutual Headquarters in lovely Lower Manhattan. I've been I

454
00:24:01,920 --> 00:24:03,240
Speaker 1: spent a lot of my career down here. There's some

455
00:24:03,280 --> 00:24:05,880
Speaker 1: good folks down here. We're talking municipal bonds. We're talking

456
00:24:06,000 --> 00:24:09,040
Speaker 1: muic bond market. We've got some pros here at the table,

457
00:24:09,119 --> 00:24:12,360
Speaker 1: literally at the round table. Glenn McGowan, he's coheaded municipal

458
00:24:12,440 --> 00:24:16,320
Speaker 1: Underwriting at RBC Capital Markets and kind of dank head

459
00:24:16,359 --> 00:24:19,840
Speaker 1: of municipal trading at City. Uh. They're here. They're all

460
00:24:19,920 --> 00:24:22,280
Speaker 1: in on this municipal bond market. Guys, thanks so much

461
00:24:22,320 --> 00:24:24,400
Speaker 1: for joining us. Really appreciate it. Glenn. Let's just start

462
00:24:24,400 --> 00:24:29,080
Speaker 1: with you, Um, what are municipalities doing? Are they? Are

463
00:24:29,119 --> 00:24:31,399
Speaker 1: they active this year? I mean, there's been such a

464
00:24:31,440 --> 00:24:34,520
Speaker 1: brutal year in the fixed income markets. But what have

465
00:24:34,600 --> 00:24:37,600
Speaker 1: your clients been telling you about maybe their appetite for

466
00:24:37,640 --> 00:24:40,520
Speaker 1: getting into this market. Yeah, sure, Paul, good, good question.

467
00:24:40,520 --> 00:24:42,280
Speaker 1: I would say that, you know, in general, it's been

468
00:24:42,320 --> 00:24:44,560
Speaker 1: a very light year in terms of supply. You know,

469
00:24:44,600 --> 00:24:47,280
Speaker 1: we're coming off of the lightest month of November since

470
00:24:47,359 --> 00:24:50,160
Speaker 1: n and you're to date issuance right now right around

471
00:24:50,200 --> 00:24:53,000
Speaker 1: three hundred and sixty billion, that's down about eighteen percent

472
00:24:53,080 --> 00:24:55,520
Speaker 1: year over year. And I think, you know, for a

473
00:24:55,520 --> 00:24:59,040
Speaker 1: good chunk of this year, governmental issuers were indicating that

474
00:24:59,400 --> 00:25:01,520
Speaker 1: tax or ce were strong and a fair amount of

475
00:25:01,520 --> 00:25:04,359
Speaker 1: federal aid was still sitting on their balance sheets, and

476
00:25:04,440 --> 00:25:08,640
Speaker 1: so the need to access the capital markets was was reduced.

477
00:25:09,160 --> 00:25:11,440
Speaker 1: And I think you have some other sectors that have

478
00:25:11,480 --> 00:25:15,000
Speaker 1: been accessing capital and in different formats. A lot of

479
00:25:15,040 --> 00:25:17,840
Speaker 1: healthcare issseurs have been resorting more to private placements. And

480
00:25:17,920 --> 00:25:19,840
Speaker 1: so the net effect of that, and when you think

481
00:25:19,880 --> 00:25:22,520
Speaker 1: about the increase in interest rates over the course of

482
00:25:22,560 --> 00:25:25,440
Speaker 1: this year, you know, you've had less taxable refunding activity.

483
00:25:25,440 --> 00:25:27,919
Speaker 1: The net result of all that is a significantly lower

484
00:25:28,400 --> 00:25:30,840
Speaker 1: pace of issuance over the course of this year. So,

485
00:25:30,880 --> 00:25:32,960
Speaker 1: as I mentioned about three hundred and sixty billion of

486
00:25:32,960 --> 00:25:35,960
Speaker 1: total issuance, what's interesting is if you net out about

487
00:25:36,000 --> 00:25:39,159
Speaker 1: twenty one and a half billion of private placements, you know,

488
00:25:39,160 --> 00:25:41,520
Speaker 1: you're looking at about three hundred and thirty nine billion

489
00:25:41,560 --> 00:25:44,520
Speaker 1: of publicly issued municipal bonds so far this year. Was

490
00:25:44,560 --> 00:25:48,440
Speaker 1: that compared to you know, the the pace of privates

491
00:25:48,520 --> 00:25:50,680
Speaker 1: is fairly consistent with last year. I think it was

492
00:25:50,720 --> 00:25:52,960
Speaker 1: about twenty two billion or some. I mean overall, what

493
00:25:53,000 --> 00:25:58,000
Speaker 1: were you seeing in one or if we saw three

494
00:25:58,080 --> 00:26:01,080
Speaker 1: sixty this year, is that a lot or a little? Yeah,

495
00:26:01,080 --> 00:26:03,360
Speaker 1: it's it's it's a little. We were in the kind

496
00:26:03,359 --> 00:26:05,720
Speaker 1: of mid fours in the last two years for sure,

497
00:26:06,200 --> 00:26:08,159
Speaker 1: And so as we project ahead to next year, you know,

498
00:26:08,240 --> 00:26:11,200
Speaker 1: with this interest rate environment being I think fairly consistent,

499
00:26:11,240 --> 00:26:13,719
Speaker 1: and you can certainly build a case that as the

500
00:26:13,920 --> 00:26:17,400
Speaker 1: Fed eventually wraps up its tightening process in the first

501
00:26:17,440 --> 00:26:20,399
Speaker 1: quarter and the first quarter of next year, UM, you know,

502
00:26:20,520 --> 00:26:23,000
Speaker 1: and and with economic growth expected to start to move

503
00:26:23,000 --> 00:26:26,440
Speaker 1: into some sort of a recession, that you could you know,

504
00:26:26,480 --> 00:26:29,000
Speaker 1: you could make a case pretty easily for marginally lower

505
00:26:29,080 --> 00:26:31,080
Speaker 1: rates by the end of next year. But we're anticipating

506
00:26:31,080 --> 00:26:33,760
Speaker 1: a pretty consistent pace of issuance as we move into

507
00:26:33,760 --> 00:26:36,840
Speaker 1: next year. So a little scarcity there. You run Glenn

508
00:26:36,920 --> 00:26:40,280
Speaker 1: Underwriting at RBC, having you run Muni Trading at City,

509
00:26:40,720 --> 00:26:44,359
Speaker 1: what does that scarcity mean for your business? Thanks for

510
00:26:44,359 --> 00:26:48,200
Speaker 1: having me a great question. Uh, you know, the primary

511
00:26:48,240 --> 00:26:51,680
Speaker 1: supply being lower has certainly I think helped to mitigate

512
00:26:51,720 --> 00:26:55,680
Speaker 1: some of the challenges we've seen in the market this year. UM.

513
00:26:55,880 --> 00:26:59,879
Speaker 1: The main uh headwind for us really has been the

514
00:27:00,080 --> 00:27:03,199
Speaker 1: mutual fund outflows that have really been UM consistent throughout

515
00:27:03,200 --> 00:27:05,480
Speaker 1: the course of the year. We're going on. UM. I

516
00:27:05,480 --> 00:27:09,120
Speaker 1: think it was forty four weeks of consecutive outflows out

517
00:27:09,160 --> 00:27:12,520
Speaker 1: of mutual funds UM, which UM you know has certainly

518
00:27:12,760 --> 00:27:15,679
Speaker 1: uh provided a head wind. UM. So the fact that

519
00:27:15,680 --> 00:27:17,879
Speaker 1: there hasn't been a huge primary acclendar to kind of

520
00:27:17,920 --> 00:27:19,960
Speaker 1: compete with the selling that mutual funds have had to

521
00:27:19,960 --> 00:27:22,680
Speaker 1: do UM has helped the secondary function probably a little

522
00:27:22,720 --> 00:27:25,240
Speaker 1: more smoothly. Why are those outflows happening? Is it tax

523
00:27:25,320 --> 00:27:29,399
Speaker 1: loss harvesting or are people converting to E T F

524
00:27:29,520 --> 00:27:33,119
Speaker 1: s U great question. I think you probably have to

525
00:27:33,160 --> 00:27:35,920
Speaker 1: dimension a little bit beginning of the year versus now.

526
00:27:36,000 --> 00:27:39,960
Speaker 1: I think initially, uh, you know, January, February, March April,

527
00:27:40,560 --> 00:27:45,640
Speaker 1: I think it was driven largely by uh, inflationary concerns.

528
00:27:45,720 --> 00:27:48,639
Speaker 1: I think UM a FED that was hawkish than it

529
00:27:48,640 --> 00:27:50,159
Speaker 1: had been in quite some time. You know, you had

530
00:27:50,240 --> 00:27:55,520
Speaker 1: Chairman Pale throughout one saying that inflation was transitory. UH.

531
00:27:55,600 --> 00:27:58,080
Speaker 1: It was pretty clear early in two that was not

532
00:27:58,119 --> 00:28:00,280
Speaker 1: the case, and he really dialed up the hawkish DRICK.

533
00:28:00,840 --> 00:28:02,800
Speaker 1: So I think earlier in the year it was a

534
00:28:02,840 --> 00:28:06,720
Speaker 1: function of fear more than anything just rising rates. UM.

535
00:28:06,760 --> 00:28:09,080
Speaker 1: I think as we've transitioned later in the year, I

536
00:28:09,119 --> 00:28:12,040
Speaker 1: think you're probably seeing more of that tax laws selling, UH,

537
00:28:12,080 --> 00:28:14,119
Speaker 1: some of that money is probably going into e t

538
00:28:14,240 --> 00:28:15,920
Speaker 1: f s as you mentioned, I think some of that's

539
00:28:15,960 --> 00:28:19,800
Speaker 1: probably also going into direct retail. You just buying municipal

540
00:28:19,800 --> 00:28:22,560
Speaker 1: bonds direct off the screens because you know those those

541
00:28:22,560 --> 00:28:25,359
Speaker 1: securities are offering significantly more yield than they've offered him

542
00:28:25,400 --> 00:28:27,920
Speaker 1: quite some time, especially on the longer end of the curve. Hey, Glenn,

543
00:28:27,920 --> 00:28:31,280
Speaker 1: tell me about the underrating side of the business. Do

544
00:28:31,359 --> 00:28:33,879
Speaker 1: your bankers sit at there in their offices and pick

545
00:28:33,960 --> 00:28:36,159
Speaker 1: up the phone when a municipality says I need to

546
00:28:36,160 --> 00:28:39,760
Speaker 1: build a bridge, or are you guys out there pitching business.

547
00:28:39,760 --> 00:28:41,920
Speaker 1: Do you go to, like, I don't know, the city

548
00:28:41,920 --> 00:28:43,719
Speaker 1: of Camden, New Jersey and say, boy, you guys need

549
00:28:43,760 --> 00:28:46,000
Speaker 1: to pay of your roads. Here's a bond. So I

550
00:28:46,040 --> 00:28:49,280
Speaker 1: would say that most of the bankers that that we know,

551
00:28:49,360 --> 00:28:50,959
Speaker 1: and most of the bankers that the large firms are

552
00:28:50,960 --> 00:28:53,440
Speaker 1: out pitching constantly, and it's it's not really just about

553
00:28:53,480 --> 00:28:55,560
Speaker 1: trying to find the next deal, but trying to be

554
00:28:55,560 --> 00:28:58,760
Speaker 1: thoughtful about, you know, their client subjectives. In the context

555
00:28:58,800 --> 00:29:01,480
Speaker 1: of the capital markets, where can you finance infrastructure? Where

556
00:29:01,480 --> 00:29:03,480
Speaker 1: can you build out a hospital project? You know, how

557
00:29:03,480 --> 00:29:07,240
Speaker 1: can you manage your your obligations to the public and

558
00:29:07,280 --> 00:29:09,480
Speaker 1: provide the goods and services that are necessary in the

559
00:29:09,480 --> 00:29:11,680
Speaker 1: context of the market. And so you know, most of

560
00:29:11,720 --> 00:29:14,920
Speaker 1: the bankers that we work with are are constantly you know,

561
00:29:15,040 --> 00:29:18,040
Speaker 1: out coming up with ideas, pitching those ideas to clients

562
00:29:18,080 --> 00:29:20,680
Speaker 1: and their advisors. Uh. You know, but I think there's

563
00:29:20,680 --> 00:29:22,600
Speaker 1: a certain subset of the issue where base right now

564
00:29:22,640 --> 00:29:24,720
Speaker 1: that just doesn't have as much need for capital. Now

565
00:29:24,760 --> 00:29:26,920
Speaker 1: that could change as we head into a rocky economic

566
00:29:27,000 --> 00:29:29,720
Speaker 1: environment next year. Um, you know, And I think you

567
00:29:29,760 --> 00:29:32,520
Speaker 1: can also make a case that with gridlock in Washington,

568
00:29:32,640 --> 00:29:35,240
Speaker 1: d C. Split control of Congress, you know, we're probably

569
00:29:35,240 --> 00:29:36,880
Speaker 1: not going to get much help out of the federal

570
00:29:36,920 --> 00:29:39,600
Speaker 1: government in terms of financing infrastructure. So that could be

571
00:29:39,640 --> 00:29:42,760
Speaker 1: another area that may be you know, shouldered by state

572
00:29:42,760 --> 00:29:45,520
Speaker 1: and local governments in terms of needing to Kevin, I'm

573
00:29:45,560 --> 00:29:49,800
Speaker 1: a big trader of municipal bonds. I've got a huge portfolio.

574
00:29:49,920 --> 00:29:53,840
Speaker 1: I need to unload some city of Cherry Hill bonds.

575
00:29:53,880 --> 00:29:57,120
Speaker 1: I come in to your trading desk. What kind of

576
00:29:57,120 --> 00:29:58,800
Speaker 1: market you can make for me? You get liquidity to

577
00:29:58,880 --> 00:30:02,160
Speaker 1: really step up and get my trade done? Oh yeah, absolutely,

578
00:30:02,160 --> 00:30:04,680
Speaker 1: it's this Cherry Holl New Jersey, Yeah, Jersey, So yes,

579
00:30:04,760 --> 00:30:08,000
Speaker 1: absolutely for Cherryhill. Uh yeah, we um, we take a

580
00:30:08,000 --> 00:30:11,040
Speaker 1: lot of risks in the municipal space. Are balance she

581
00:30:11,200 --> 00:30:14,040
Speaker 1: you know, generally speaking, UM runs well in excessive a

582
00:30:14,040 --> 00:30:17,640
Speaker 1: billion bonds. So um, we're active on a daily basis, UM,

583
00:30:17,680 --> 00:30:20,720
Speaker 1: whether it's the kind of microlot space ten twenty pound

584
00:30:20,760 --> 00:30:24,200
Speaker 1: pieces all the way up to block size tens twenties

585
00:30:24,240 --> 00:30:28,240
Speaker 1: and uh you know, so we are. We're in the market,

586
00:30:28,680 --> 00:30:32,280
Speaker 1: we're active and um, you know it's been it's been

587
00:30:32,360 --> 00:30:35,760
Speaker 1: a fun year to trade. Frankly, volatility makes things a

588
00:30:35,760 --> 00:30:38,440
Speaker 1: lot more interesting. Yeah. Absolutely, So what's next year look like?

589
00:30:38,480 --> 00:30:43,320
Speaker 1: I mean, after the ridiculously terrifying screens that we had

590
00:30:43,360 --> 00:30:45,160
Speaker 1: to look at all year, you know, I end go

591
00:30:45,240 --> 00:30:47,600
Speaker 1: on the Bloomberg shows, the massive losses all the way

592
00:30:47,640 --> 00:30:52,680
Speaker 1: across fixed income, UM, is next year better? I think so? Personally.

593
00:30:52,720 --> 00:30:54,760
Speaker 1: I mean, you know, when you look at the muni market,

594
00:30:55,120 --> 00:30:58,960
Speaker 1: it's actually been been pretty stable overall since about May

595
00:30:59,000 --> 00:31:01,840
Speaker 1: of next year. UM, So the first four months or

596
00:31:01,880 --> 00:31:04,760
Speaker 1: so it was really um where the vast majority of

597
00:31:04,800 --> 00:31:07,040
Speaker 1: the pain took place, and and the meaning market the

598
00:31:07,080 --> 00:31:09,040
Speaker 1: one thing it's it's pretty good at, is it can

599
00:31:09,080 --> 00:31:13,200
Speaker 1: adjust pretty violently to get to valuations at which people

600
00:31:13,240 --> 00:31:14,880
Speaker 1: are going to step in to buy it. And and

601
00:31:14,920 --> 00:31:17,120
Speaker 1: that's really what I would say happen in April May

602
00:31:17,120 --> 00:31:19,760
Speaker 1: as we got to yield levels where you know, you

603
00:31:19,800 --> 00:31:22,680
Speaker 1: could buy longer dated paper twenty to thirty year final

604
00:31:22,720 --> 00:31:26,840
Speaker 1: maturity usually ten year calls double ayer better rated, uh

605
00:31:26,880 --> 00:31:28,960
Speaker 1: anywhere from a four to four and a half yield,

606
00:31:29,000 --> 00:31:31,520
Speaker 1: which you know, if you're in a high tech state

607
00:31:31,640 --> 00:31:34,600
Speaker 1: like New York in a high tax bracket, you know

608
00:31:34,600 --> 00:31:37,760
Speaker 1: you'd be talking about taxable equivalent yields of eight to

609
00:31:37,840 --> 00:31:42,200
Speaker 1: nine percent even in lower tax states and uh you know,

610
00:31:42,600 --> 00:31:44,880
Speaker 1: um lower tax brackets that you're still talking five and

611
00:31:44,880 --> 00:31:46,520
Speaker 1: a half to seven and a half percent on a

612
00:31:46,560 --> 00:31:49,640
Speaker 1: taxable equivalent basis for super high quality assets. You know,

613
00:31:49,680 --> 00:31:52,760
Speaker 1: that's a pretty compelling return for for retail investor. Football

614
00:31:52,840 --> 00:31:55,640
Speaker 1: your ball, your bond still getting called uh no, not

615
00:31:55,720 --> 00:31:58,000
Speaker 1: as much, but they were getting because this summer you

616
00:31:58,000 --> 00:31:59,960
Speaker 1: were like crying about it every day. I mean, you know,

617
00:32:00,160 --> 00:32:01,520
Speaker 1: and then I got to go to the block desk

618
00:32:01,600 --> 00:32:03,600
Speaker 1: at city. I'm not going to the retail desk to

619
00:32:03,640 --> 00:32:06,800
Speaker 1: move my moon. Um so Glenn Infrastructure Act. It was

620
00:32:06,840 --> 00:32:09,720
Speaker 1: like a jillion and one dollars. How do you guys

621
00:32:09,720 --> 00:32:11,720
Speaker 1: think about that as a strategy for the next couple

622
00:32:11,760 --> 00:32:14,640
Speaker 1: of years in terms of talking to your clients, Presumably

623
00:32:14,640 --> 00:32:17,600
Speaker 1: they're gonna be having opportunities to fund maybe more projects

624
00:32:17,600 --> 00:32:20,880
Speaker 1: than they thought. Yeah, I think the burden of financing

625
00:32:21,080 --> 00:32:23,719
Speaker 1: public infrastructures, as I mentioned before, we're gonna be shouldered

626
00:32:23,720 --> 00:32:26,840
Speaker 1: more and more by our issuer base. I have been

627
00:32:26,880 --> 00:32:29,240
Speaker 1: a little bit underwhelmed by some of the provisions in

628
00:32:29,280 --> 00:32:32,080
Speaker 1: the various legislation that's passed in terms of what it's

629
00:32:32,120 --> 00:32:34,800
Speaker 1: done for the municipal bond market. Simple things that could

630
00:32:34,840 --> 00:32:37,640
Speaker 1: have provided relief valves for our issue where base tax

631
00:32:37,640 --> 00:32:40,600
Speaker 1: exempt advance for fundings that never really happened. Uh, you know,

632
00:32:40,640 --> 00:32:43,360
Speaker 1: a reintroduction of the BABS like program never really happened.

633
00:32:43,680 --> 00:32:45,480
Speaker 1: And so I think the burden is going to continue

634
00:32:45,480 --> 00:32:47,520
Speaker 1: to be shoulder by our issue where Base. I think

635
00:32:47,560 --> 00:32:50,360
Speaker 1: that could you know, lead some to conclude that maybe

636
00:32:50,360 --> 00:32:52,560
Speaker 1: you see an uptick and issuance, but are our thought

637
00:32:52,640 --> 00:32:56,640
Speaker 1: for next year is kind of a stable billion dollar

638
00:32:56,760 --> 00:32:59,240
Speaker 1: type of total supply type environment. It's hard to see

639
00:32:59,240 --> 00:33:02,400
Speaker 1: in this economic environment, in this rate environment that dramatically changing,

640
00:33:02,400 --> 00:33:04,320
Speaker 1: at least in our view. How do you work with BAM.

641
00:33:04,400 --> 00:33:07,800
Speaker 1: By the way, when you're talking to an issuer, um,

642
00:33:07,800 --> 00:33:11,520
Speaker 1: how do you partner up with the two of them? Sure,

643
00:33:11,640 --> 00:33:14,760
Speaker 1: so you know, BAM provides credit enhancement for our issue

644
00:33:14,760 --> 00:33:18,520
Speaker 1: where base and so the net result there is issuers

645
00:33:18,760 --> 00:33:21,920
Speaker 1: purchasing insurance in the new issue market to buy down

646
00:33:21,960 --> 00:33:24,680
Speaker 1: a lower yield. We also use it in the secondary

647
00:33:24,720 --> 00:33:27,640
Speaker 1: market sometimes we have investors that want to ensure a bond,

648
00:33:28,280 --> 00:33:32,360
Speaker 1: whether it's for a portfolio defense strategy or for a

649
00:33:32,400 --> 00:33:35,680
Speaker 1: for you know, for more tactical trading strategy. So we're

650
00:33:35,760 --> 00:33:38,560
Speaker 1: frequent counterparts with BAM and the new issue market. In

651
00:33:38,560 --> 00:33:40,760
Speaker 1: the secondary market, it's all about trying to find value

652
00:33:40,800 --> 00:33:43,480
Speaker 1: for credit enhancement and we've been pretty active in that regard.

653
00:33:43,720 --> 00:33:45,800
Speaker 1: All right, folks, thanks so much for joining us here.

654
00:33:45,800 --> 00:33:48,239
Speaker 1: We had Glenn McGowan, co head of Municipal Underwriting an

655
00:33:48,360 --> 00:33:51,920
Speaker 1: RBC Capital Markets, and Kevin Dankworth. He's had a municipal

656
00:33:52,040 --> 00:33:58,120
Speaker 1: trading at City. Has to be just a joy of

657
00:33:58,160 --> 00:34:00,480
Speaker 1: a day for you. I mean, we're doing nothing but

658
00:34:00,680 --> 00:34:04,320
Speaker 1: municipal bonds, no cars, you know, none of that crypto

659
00:34:04,440 --> 00:34:07,760
Speaker 1: stuff we're talking munsiccible bonds. But it's honestly, it's heaven

660
00:34:07,800 --> 00:34:09,920
Speaker 1: for you, isn't it It is? It's great. All goes

661
00:34:09,960 --> 00:34:12,960
Speaker 1: home and he just swims in the pool full municipal bonds.

662
00:34:13,000 --> 00:34:14,719
Speaker 1: He's been building it up ever since he was a

663
00:34:14,719 --> 00:34:17,600
Speaker 1: little kid. The first thing he asked for for Christmas.

664
00:34:17,960 --> 00:34:19,839
Speaker 1: I wanted a red Rider BB gun and Paul wanted

665
00:34:20,320 --> 00:34:22,759
Speaker 1: municipal bonds and the coupons that I can clip. Eric

666
00:34:22,800 --> 00:34:26,640
Speaker 1: Kazaski joins his He's senior US missible strategist. He's here

667
00:34:26,640 --> 00:34:30,799
Speaker 1: at Bloomberg Intelligence. Chris Spergotti Managing Director and Senior VP

668
00:34:30,880 --> 00:34:33,560
Speaker 1: of Municipal Investments at Valley National Bank. These guys are

669
00:34:33,640 --> 00:34:36,600
Speaker 1: live here at the Build American Mutual headquarters here in

670
00:34:36,640 --> 00:34:39,919
Speaker 1: Lower Manhattan. Eric, thanks which and uh, you know, Chris,

671
00:34:39,920 --> 00:34:42,520
Speaker 1: thanks so much for joining us here. Eric, man, you

672
00:34:42,560 --> 00:34:45,600
Speaker 1: guys have had a brutal year in municipals. Maybe not

673
00:34:45,719 --> 00:34:48,520
Speaker 1: as bad as some other spots and fixed income, but

674
00:34:48,600 --> 00:34:51,040
Speaker 1: assuming clients actually pick up the phone when you call,

675
00:34:51,719 --> 00:34:54,680
Speaker 1: what are they saying about three? Well, I think they're

676
00:34:54,680 --> 00:34:57,239
Speaker 1: excited based on the last thirty forty five days, right,

677
00:34:57,280 --> 00:34:59,279
Speaker 1: We've had four and a half five percent returns. But

678
00:34:59,320 --> 00:35:01,799
Speaker 1: I think the real spot high old Muni's almost six

679
00:35:01,840 --> 00:35:03,839
Speaker 1: and a half returns over the last thirty five days,

680
00:35:04,160 --> 00:35:06,960
Speaker 1: pretty good start to head into three and there's a

681
00:35:07,000 --> 00:35:09,480
Speaker 1: little bit of runway there for a positive performance. How

682
00:35:09,480 --> 00:35:13,040
Speaker 1: does high yield munies work? Are they still backed by

683
00:35:13,080 --> 00:35:16,400
Speaker 1: Build America Mutual? Because I feel safe in case you

684
00:35:16,400 --> 00:35:18,600
Speaker 1: should feel safe. But I think that there are probably

685
00:35:18,680 --> 00:35:21,040
Speaker 1: things that maybe like some of the insurance companies really

686
00:35:21,040 --> 00:35:22,480
Speaker 1: don't want to touch because there's a lot of hair

687
00:35:22,520 --> 00:35:24,640
Speaker 1: on some of these deals. Look take American Dreams Mall,

688
00:35:24,680 --> 00:35:27,359
Speaker 1: for instance, right tapping into the reserves once again. At

689
00:35:27,400 --> 00:35:28,840
Speaker 1: some point they're going to run out of reserves to

690
00:35:28,920 --> 00:35:31,400
Speaker 1: tap right, But that means more risk, more spread for

691
00:35:31,440 --> 00:35:33,080
Speaker 1: investors who are willing to sort of wait in there.

692
00:35:33,200 --> 00:35:35,640
Speaker 1: I've still never been there. Our next remote we have

693
00:35:35,760 --> 00:35:39,360
Speaker 1: to go to the American dream Mall. When when you

694
00:35:39,400 --> 00:35:43,680
Speaker 1: look at um A bond and and issuance, what do

695
00:35:43,760 --> 00:35:46,719
Speaker 1: you guys look for, Like, what's your criteria? Typically? I

696
00:35:46,719 --> 00:35:49,520
Speaker 1: mean generally what we're doing is sticking to the higher

697
00:35:49,560 --> 00:35:51,600
Speaker 1: investment great stuff. For most of the things that we do,

698
00:35:51,680 --> 00:35:53,640
Speaker 1: we're looking for something that's liquid enough that we can

699
00:35:53,640 --> 00:35:56,200
Speaker 1: turn around and get some velocity in terms of selling

700
00:35:56,200 --> 00:35:58,920
Speaker 1: it and trading and generating a little bit of revenue

701
00:35:58,960 --> 00:36:01,160
Speaker 1: in the short term as well. It ultimately comes down

702
00:36:01,200 --> 00:36:04,080
Speaker 1: to quality qualities. Job one. You know, keep it liquid,

703
00:36:04,160 --> 00:36:05,960
Speaker 1: keep it something people will be willing to put their

704
00:36:05,960 --> 00:36:08,960
Speaker 1: money into and feel safe about. Um. If we kind

705
00:36:09,000 --> 00:36:11,520
Speaker 1: of step out into the uncomfortable land of high yield,

706
00:36:11,560 --> 00:36:13,640
Speaker 1: sometimes it gets a little sketch here and it's a

707
00:36:13,680 --> 00:36:15,719
Speaker 1: little bit of a different trade, which is fine. You

708
00:36:15,800 --> 00:36:17,200
Speaker 1: just got to kind of be aware of that and

709
00:36:17,239 --> 00:36:19,680
Speaker 1: know what you're doing. So you're at Valley National Bank,

710
00:36:20,000 --> 00:36:22,600
Speaker 1: Lovely Wayne, New Jersey. Do you fight missial bonds like

711
00:36:22,760 --> 00:36:25,840
Speaker 1: all over the country or yes, yes, your National National.

712
00:36:25,920 --> 00:36:27,560
Speaker 1: We don't care where. We just happen to be located

713
00:36:27,560 --> 00:36:29,480
Speaker 1: in Jersey. Okay. So, and when you look at a

714
00:36:29,520 --> 00:36:31,239
Speaker 1: bond out there, I mean does that have to have

715
00:36:31,280 --> 00:36:33,400
Speaker 1: a certain rating, does that have to have a certain

716
00:36:33,440 --> 00:36:37,200
Speaker 1: criteria or I mean it's something they're insured. Yeah, it

717
00:36:37,280 --> 00:36:40,600
Speaker 1: helps definitely. Like like when when I look at a company,

718
00:36:40,640 --> 00:36:42,560
Speaker 1: if I want to do business with it, I I

719
00:36:42,600 --> 00:36:44,799
Speaker 1: spent a lot of time with management, for example, But

720
00:36:45,160 --> 00:36:47,640
Speaker 1: you don't necessarily do that with bond. You just kind

721
00:36:47,640 --> 00:36:50,560
Speaker 1: of look at the ratings some financials. Rings. You look

722
00:36:50,560 --> 00:36:52,399
Speaker 1: at some financials, you want to do a little deep

723
00:36:52,440 --> 00:36:55,239
Speaker 1: dive and understand where the revenues are coming from. Is

724
00:36:55,239 --> 00:36:58,120
Speaker 1: it a geo what is the what is the collection

725
00:36:58,120 --> 00:36:59,960
Speaker 1: has been on a geo debt with regard to tax

726
00:37:00,120 --> 00:37:03,120
Speaker 1: is uh in the past two year period. For argument's sake,

727
00:37:03,120 --> 00:37:05,040
Speaker 1: it's looking at the sales tax revenue. How do those

728
00:37:05,080 --> 00:37:07,880
Speaker 1: sales Texas collections look? You know, you kind of look

729
00:37:07,960 --> 00:37:10,319
Speaker 1: through and read through debt coverage ratios, kind of some

730
00:37:10,400 --> 00:37:11,960
Speaker 1: of the boring stuff that's lessening. I mean, we just

731
00:37:12,000 --> 00:37:14,920
Speaker 1: talked to Jenny Wong Bennett. She's the CFO for the

732
00:37:14,960 --> 00:37:19,160
Speaker 1: City of Chicago, and previously you would have been like, okay, Um,

733
00:37:19,200 --> 00:37:21,760
Speaker 1: Illinois like the most corrupt state in the entire country,

734
00:37:22,320 --> 00:37:24,680
Speaker 1: even giving New Jersey a run for its money, right,

735
00:37:24,840 --> 00:37:28,200
Speaker 1: and um, all of these businesses are just moving out

736
00:37:28,239 --> 00:37:31,279
Speaker 1: like gangbusters going down to Florida, are going um to

737
00:37:31,360 --> 00:37:34,560
Speaker 1: other states? Who who who? I moved out? Bowing and yeah,

738
00:37:34,560 --> 00:37:37,759
Speaker 1: but a bunch of moving back in. So yeah, and

739
00:37:37,840 --> 00:37:40,160
Speaker 1: now it's starting to look good, at least from what

740
00:37:40,239 --> 00:37:43,479
Speaker 1: we hear uh from Jenny. Um, they're just climbing back

741
00:37:43,560 --> 00:37:46,439
Speaker 1: up the ladder. They don't have any junk anymore. So

742
00:37:46,640 --> 00:37:49,360
Speaker 1: do you like Chicago? I like it for a trade.

743
00:37:49,360 --> 00:37:50,919
Speaker 1: I don't like it for a longer term. I'm still

744
00:37:50,920 --> 00:37:53,839
Speaker 1: worried about the pension situation there. There there pensions. They've

745
00:37:53,840 --> 00:37:56,239
Speaker 1: they've righted that ship. There's some challenges down the road

746
00:37:56,239 --> 00:37:58,440
Speaker 1: they can still occur. Um. I think they weathered this

747
00:37:58,520 --> 00:38:00,880
Speaker 1: tour very well with getting money through COVID from the

748
00:38:00,880 --> 00:38:04,840
Speaker 1: federal government. Um. But that train is gonna stop arriving

749
00:38:04,840 --> 00:38:06,560
Speaker 1: at the station and they've got to make sure that

750
00:38:06,600 --> 00:38:08,120
Speaker 1: they got their ducks in a row. Isn't that this

751
00:38:08,160 --> 00:38:11,319
Speaker 1: case with every major city? Don't all gigantic cities have

752
00:38:11,520 --> 00:38:15,239
Speaker 1: huge pension of the underfunded pension obligations. Look, and we're

753
00:38:15,280 --> 00:38:17,640
Speaker 1: just seeing this right outside of Philadelphia. City of Chester, right,

754
00:38:17,640 --> 00:38:20,200
Speaker 1: they just declared bankruptcy because of their pensions. But I

755
00:38:20,200 --> 00:38:22,880
Speaker 1: think that's sort of more the not the norm. You know,

756
00:38:22,960 --> 00:38:25,040
Speaker 1: Chris is a little worried about Chicago. I'm less worried.

757
00:38:25,280 --> 00:38:26,520
Speaker 1: I think they're going to figure out a way to

758
00:38:26,560 --> 00:38:28,239
Speaker 1: keep kicking that can down the road, and it's gonna

759
00:38:28,239 --> 00:38:29,919
Speaker 1: be something we're still gonna be talking about thirty years

760
00:38:29,920 --> 00:38:35,040
Speaker 1: from now Chicago. It's Illinois. Eric, we had a big

761
00:38:35,080 --> 00:38:38,320
Speaker 1: infrastructure plan not too long ago, like a gazillion dollars.

762
00:38:38,360 --> 00:38:40,880
Speaker 1: I think is the cf a term. How does the

763
00:38:40,960 --> 00:38:43,920
Speaker 1: unicipal bond market the investors that you talked to, how

764
00:38:43,960 --> 00:38:45,720
Speaker 1: did they think about that? That? Is there a play

765
00:38:45,760 --> 00:38:47,640
Speaker 1: there's or a trade there. I think there's a lot

766
00:38:47,719 --> 00:38:50,319
Speaker 1: less refinancing, a lot less refinancing. And I was gonna say,

767
00:38:50,320 --> 00:38:52,440
Speaker 1: it's all rates driven, right, doesn't matter like how much

768
00:38:52,480 --> 00:38:55,040
Speaker 1: infrastructure money is floating around. Right, If the markets aren't

769
00:38:55,040 --> 00:38:57,919
Speaker 1: cooperative and rates aren't cooperative at the time to jump

770
00:38:57,920 --> 00:39:00,000
Speaker 1: into the market, those plans are going to get put off.

771
00:39:00,000 --> 00:39:02,280
Speaker 1: Fun that's sort of a cooking, you know, taking time

772
00:39:02,600 --> 00:39:04,640
Speaker 1: for the federal government subsidies to sort of flow through

773
00:39:04,640 --> 00:39:06,399
Speaker 1: to the cities. But we're not seeing that right now.

774
00:39:07,400 --> 00:39:10,080
Speaker 1: So you know, as I think about the municipal bond market,

775
00:39:10,120 --> 00:39:13,319
Speaker 1: I mean it's I think it's a pretty consistent market,

776
00:39:13,320 --> 00:39:16,960
Speaker 1: lower risk. But then you taught me about this taxable

777
00:39:17,040 --> 00:39:19,600
Speaker 1: high yield market. How do you invet you invest in

778
00:39:19,640 --> 00:39:21,400
Speaker 1: a taxable high old market. Not so much in the

779
00:39:21,440 --> 00:39:23,520
Speaker 1: high yield. We were generally in the higher grade in

780
00:39:23,600 --> 00:39:26,440
Speaker 1: terms of taxable market. It's it's an up and coming market.

781
00:39:26,480 --> 00:39:28,480
Speaker 1: I mean, it's really kind of expanded. It's gotten much

782
00:39:28,480 --> 00:39:30,680
Speaker 1: bigger in the past several years. We had appeared in

783
00:39:30,680 --> 00:39:33,560
Speaker 1: two thousand and ten where the Build American program really

784
00:39:33,600 --> 00:39:35,839
Speaker 1: kind of brought a lot of attention to it and

785
00:39:35,840 --> 00:39:38,200
Speaker 1: that was really kind of cool and really exciting to

786
00:39:38,239 --> 00:39:39,959
Speaker 1: kind of get involved with, and a lot of people

787
00:39:40,120 --> 00:39:41,920
Speaker 1: kind of benefited from that. And now we're seeing the

788
00:39:41,960 --> 00:39:44,399
Speaker 1: follow on effects of way down the road that it's

789
00:39:44,400 --> 00:39:46,920
Speaker 1: actually a market people are starting to pay more attention to.

790
00:39:47,040 --> 00:39:48,960
Speaker 1: But Eric really still has to sell you on it,

791
00:39:49,160 --> 00:39:53,879
Speaker 1: like Chicago. Oh yeah, So Eric, what's what's kind of

792
00:39:54,239 --> 00:39:56,719
Speaker 1: as you I know, you have Bloomberg intelligence. You guys

793
00:39:56,719 --> 00:40:03,040
Speaker 1: are all either having written or are eating outlooks. What's

794
00:40:03,239 --> 00:40:05,560
Speaker 1: some of the key takeaways from your outlook? I think

795
00:40:05,640 --> 00:40:07,839
Speaker 1: that you know, Muni's are done sort of getting beaten

796
00:40:07,840 --> 00:40:09,560
Speaker 1: into the ground for the time being. And I know

797
00:40:09,600 --> 00:40:11,920
Speaker 1: that's probably not the most technical of c f A terms,

798
00:40:11,960 --> 00:40:13,880
Speaker 1: but uh, you know, like you said, it's been a

799
00:40:13,880 --> 00:40:17,000
Speaker 1: brutal ten months eleven months, and I think the tide

800
00:40:17,040 --> 00:40:19,200
Speaker 1: is really getting ready to turn here. We're constructive on

801
00:40:19,239 --> 00:40:21,080
Speaker 1: credit state and local governments. They have a lot of

802
00:40:21,080 --> 00:40:23,600
Speaker 1: money in their coffers still, uh, and tax questions are

803
00:40:23,600 --> 00:40:25,840
Speaker 1: still strong, you know, whether the economy tips into a

804
00:40:25,880 --> 00:40:28,040
Speaker 1: recession or not. I really think that's sort of beyond

805
00:40:28,040 --> 00:40:30,799
Speaker 1: the point because they have the ability to raise taxes, right,

806
00:40:30,840 --> 00:40:34,239
Speaker 1: So unless you're you know, in dire dire straits financially,

807
00:40:35,040 --> 00:40:37,200
Speaker 1: I understand it's unpopular, but they can still do it,

808
00:40:37,320 --> 00:40:41,560
Speaker 1: right yeah? Yeah? Um, So what matters more than where

809
00:40:41,560 --> 00:40:43,919
Speaker 1: the economy goes or what the Fed does in terms

810
00:40:43,920 --> 00:40:45,920
Speaker 1: of rates? I think rates right now because we're a

811
00:40:45,920 --> 00:40:48,200
Speaker 1: supplying demander of the market, and if you're keeping supply

812
00:40:48,280 --> 00:40:50,320
Speaker 1: on the sidelines right, you're you're going to impact the

813
00:40:50,360 --> 00:40:51,920
Speaker 1: mini market in a big way and we saw that

814
00:40:51,960 --> 00:40:53,759
Speaker 1: this year. So Eric, what do you expect then? I mean,

815
00:40:53,840 --> 00:40:56,960
Speaker 1: we're talking about a higher terminal rate every week? Um,

816
00:40:57,360 --> 00:40:59,319
Speaker 1: I think right now the markets pricing in like five

817
00:40:59,360 --> 00:41:01,719
Speaker 1: and a quarter. What what are you looking at? Well?

818
00:41:01,760 --> 00:41:04,719
Speaker 1: I mean I think our rate strategist is around five percent, um,

819
00:41:04,760 --> 00:41:06,920
Speaker 1: you know, as far as terminal rate projection. But I

820
00:41:07,160 --> 00:41:08,920
Speaker 1: think the bigger issue is if we keep seeing these

821
00:41:08,920 --> 00:41:11,200
Speaker 1: strong economic prints come out, it's just going to prolong

822
00:41:11,239 --> 00:41:14,120
Speaker 1: the pain for rates going into next year. So, Chris,

823
00:41:14,120 --> 00:41:17,160
Speaker 1: for you and your team at the Valley National Bank,

824
00:41:17,920 --> 00:41:20,120
Speaker 1: what are some of the opportunities for for you guys?

825
00:41:20,120 --> 00:41:22,200
Speaker 1: Where do you think you might have some places to

826
00:41:22,239 --> 00:41:24,080
Speaker 1: put some money to work? You know, I think one

827
00:41:24,080 --> 00:41:25,680
Speaker 1: of the things that we've started to look at lately

828
00:41:25,760 --> 00:41:27,640
Speaker 1: is kind of coming down the curve a little bit. Honestly,

829
00:41:27,680 --> 00:41:30,239
Speaker 1: it's not it's not super exciting. It's not the most

830
00:41:30,520 --> 00:41:32,680
Speaker 1: biggest way to get bang for the buck. But these

831
00:41:32,719 --> 00:41:35,440
Speaker 1: short call bonds to two to five year type of

832
00:41:35,440 --> 00:41:38,120
Speaker 1: call structure for a ten year UH final maturity, you

833
00:41:38,120 --> 00:41:39,840
Speaker 1: can get a lot of added value over where you

834
00:41:39,840 --> 00:41:42,120
Speaker 1: can get for a tern bond with two to three

835
00:41:42,160 --> 00:41:44,279
Speaker 1: years to maturity. So you really can kind of beat

836
00:41:44,320 --> 00:41:45,719
Speaker 1: it up and get a lot of performance out of

837
00:41:45,760 --> 00:41:48,800
Speaker 1: it that way without risk. And it's like, again, people

838
00:41:48,840 --> 00:41:51,319
Speaker 1: don't look immunities because they want a safe product. It's like,

839
00:41:51,360 --> 00:41:54,920
Speaker 1: here's the way to get added benefit, added exposure, added participation,

840
00:41:55,040 --> 00:41:57,640
Speaker 1: and added yield without a ton of extra risk. It's

841
00:41:57,680 --> 00:41:58,960
Speaker 1: a it's kind of an easy way to do it,

842
00:41:59,040 --> 00:42:02,160
Speaker 1: all right, good stuff of Spagotti. He's managing director, Senior

843
00:42:02,280 --> 00:42:06,400
Speaker 1: vice president Municipal investments with Valley National Bank in Lovely Wayne,

844
00:42:06,480 --> 00:42:10,640
Speaker 1: New Jersey. Eric Kazaski, senior US municipal strategist with Bloomberg Intelligence,

845
00:42:10,719 --> 00:42:13,960
Speaker 1: in like equally lovely Princeton, New Jersey. So these guys

846
00:42:13,960 --> 00:42:16,839
Speaker 1: are got New Jersey. Uh covered right at home here? Yeah,

847
00:42:16,840 --> 00:42:22,280
Speaker 1: absolutely New Jersey boys kind of bringing it together. Thanks

848
00:42:22,280 --> 00:42:25,759
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe

849
00:42:25,800 --> 00:42:29,520
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast

850
00:42:29,560 --> 00:42:33,080
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at

851
00:42:33,120 --> 00:42:36,760
Speaker 1: Matt Miller, three pt on Fall Sweeney. I'm on Twitter

852
00:42:36,800 --> 00:42:39,600
Speaker 1: at pt Sweeney before the podcast. You can always catch

853
00:42:39,719 --> 00:42:41,239
Speaker 1: us worldwide at Bloomberg Radio