1 00:00:00,240 --> 00:00:04,040 Speaker 1: Runch you by Bank of America Mary Lynch. With virtual reality, 2 00:00:04,320 --> 00:00:09,719 Speaker 1: virtually everything will change. Discover opportunities in a transforming world 3 00:00:10,119 --> 00:00:14,440 Speaker 1: be of a, mL dot Com, slash VR, Mary Lynch, 4 00:00:14,520 --> 00:00:29,240 Speaker 1: Pierced Fenner, and Smith Incorporated. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:29,280 --> 00:00:32,760 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:32,840 --> 00:00:37,640 Speaker 1: insight from the best of economics, finance, investment, and international relations. 7 00:00:38,120 --> 00:00:43,640 Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, 8 00:00:43,640 --> 00:00:52,360 Speaker 1: and of course on the Bloomberg Good morning everyone on economics, finance, investment, 9 00:00:52,880 --> 00:00:56,040 Speaker 1: on international relations, on politics. Boy, are we doing that 10 00:00:56,120 --> 00:00:59,040 Speaker 1: with spades over the last uh number of ones. David 11 00:00:59,040 --> 00:01:03,880 Speaker 1: gurn Tom Keme Amberg Surveillance worldwide. David, you can bring 12 00:01:03,880 --> 00:01:06,679 Speaker 1: in that. Terry Haynes. Somebody's been quicker. We are now 13 00:01:06,760 --> 00:01:11,160 Speaker 1: going to commit policy. We're going to commit policy and legislation. 14 00:01:11,319 --> 00:01:14,039 Speaker 1: Go somebody who has impressed me with his optimism about 15 00:01:14,080 --> 00:01:17,520 Speaker 1: their being policy progress over these months. One Terry Haynes. 16 00:01:17,600 --> 00:01:19,520 Speaker 1: He has the senior political strategy that ever Core I 17 00:01:19,640 --> 00:01:22,960 Speaker 1: s I in our Bloomberg studios in Washington, d C. 18 00:01:23,560 --> 00:01:26,640 Speaker 1: Terry uh in the heart Senate Office Building today at 19 00:01:26,680 --> 00:01:29,160 Speaker 1: ten o'clock at Wall Street time, Jared Kusher will sit 20 00:01:29,200 --> 00:01:31,399 Speaker 1: down in front of the Senators the Senate Select Committee 21 00:01:31,600 --> 00:01:33,960 Speaker 1: on Intelligence. Is it a hearing? Is an interview? What 22 00:01:34,000 --> 00:01:35,839 Speaker 1: are you calling it? And what are we likely to learn? 23 00:01:36,600 --> 00:01:38,480 Speaker 1: What are they likely to learn? We'll learn something different, 24 00:01:38,520 --> 00:01:39,960 Speaker 1: I suppose from what trickles that. But what are they 25 00:01:40,000 --> 00:01:42,920 Speaker 1: likely to learn from Jared Kushner this morning? Good morning, David, 26 00:01:43,000 --> 00:01:48,040 Speaker 1: Good morning time. I'll call it a hinterview, interview. I 27 00:01:48,160 --> 00:01:52,120 Speaker 1: probably need we probably need to develop a new term. 28 00:01:52,440 --> 00:01:55,080 Speaker 1: I you know, I didn't. I'd imagine it's a it's 29 00:01:55,120 --> 00:01:58,000 Speaker 1: more of an interview than anything else. But uh, you know, 30 00:01:58,200 --> 00:02:00,680 Speaker 1: under I think people who need to understand that the 31 00:02:00,720 --> 00:02:07,160 Speaker 1: Congressional investigators are are coordinating with the Special counsel as well. 32 00:02:07,240 --> 00:02:10,320 Speaker 1: And so that's a that that that's an indication that 33 00:02:11,960 --> 00:02:15,240 Speaker 1: both of the seriousness of what's happening today as well 34 00:02:15,280 --> 00:02:19,440 Speaker 1: as the idea that, uh, they're not getting half baked testimony. 35 00:02:19,480 --> 00:02:22,800 Speaker 1: They're getting actually what Mr Kushner's story is. So he's 36 00:02:22,919 --> 00:02:25,800 Speaker 1: released details of that this morning, so people can decide 37 00:02:25,840 --> 00:02:28,600 Speaker 1: for themselves what that means. But uh, yeah, but clearly 38 00:02:28,680 --> 00:02:31,840 Speaker 1: this is gonna be. As we pointed out last Thursday, 39 00:02:31,880 --> 00:02:35,679 Speaker 1: this Uh, Mr Kushner's interview, the interview with Mr Manafort 40 00:02:35,680 --> 00:02:37,400 Speaker 1: and others are gonna be the next shoes to drop 41 00:02:37,440 --> 00:02:39,760 Speaker 1: here and we'll see what We'll see what transpires when 42 00:02:39,800 --> 00:02:42,920 Speaker 1: you look at all of these investigations, the interviews, the interviews, 43 00:02:42,960 --> 00:02:46,000 Speaker 1: the hearing, is all of that. Is it Muellers that 44 00:02:46,040 --> 00:02:48,440 Speaker 1: takes precedents here? In other words, is what's happening before 45 00:02:48,480 --> 00:02:51,520 Speaker 1: the Senate selecting committees? Is it somehow less important than 46 00:02:51,560 --> 00:02:53,720 Speaker 1: what Mr Mueller is doing just because of the latitude 47 00:02:53,760 --> 00:02:56,639 Speaker 1: he has. It's a really smart question. I wouldn't say 48 00:02:56,639 --> 00:03:00,640 Speaker 1: it's less important. Uh. The Congressional investigators concern reach their 49 00:03:00,639 --> 00:03:05,520 Speaker 1: own conclusions distinct from the special counsels. UH, but they're 50 00:03:05,520 --> 00:03:08,799 Speaker 1: both important and UH, and they're important for Mr Kushner 51 00:03:08,840 --> 00:03:12,079 Speaker 1: among others since Mr kushner story has to stay consistent 52 00:03:12,120 --> 00:03:15,840 Speaker 1: between the two. Terry was an exceptionally strong weekend for 53 00:03:15,919 --> 00:03:19,839 Speaker 1: smart writing really across all different opinions on all that's 54 00:03:19,880 --> 00:03:22,840 Speaker 1: going on. I thought Jennifer Rubin at the Washington Post 55 00:03:22,880 --> 00:03:26,359 Speaker 1: took the trophy. This presidency can't be saved. It's all 56 00:03:26,440 --> 00:03:30,160 Speaker 1: downhill from here, and she's she's folks, she's a conservative blogger. 57 00:03:30,200 --> 00:03:32,560 Speaker 1: I mean, she's preaching to the converted, if you will, 58 00:03:33,080 --> 00:03:36,840 Speaker 1: and she marches through Terry. The five what ifs of 59 00:03:36,920 --> 00:03:41,280 Speaker 1: all this fall to row in Washington. Where does policy 60 00:03:41,520 --> 00:03:45,360 Speaker 1: fit into that? Can the world of Terry Haynes exist 61 00:03:46,040 --> 00:03:50,120 Speaker 1: given any of the five outcomes? Miss reuben approaches on 62 00:03:50,240 --> 00:03:52,680 Speaker 1: Muller and Russia and all the rest of it? Oh sure, 63 00:03:52,760 --> 00:03:56,320 Speaker 1: my My world will will continue unabated, in part because 64 00:03:56,600 --> 00:04:00,520 Speaker 1: politics and policy are are intertwined. And and you know 65 00:04:00,560 --> 00:04:04,640 Speaker 1: we cover both so and h interpret them both from markets. 66 00:04:04,640 --> 00:04:08,440 Speaker 1: But you know the bottom line here, Tom is that, uh, 67 00:04:08,680 --> 00:04:14,800 Speaker 1: the Russia probe, the Special Council investigation, the congressional investigations 68 00:04:14,800 --> 00:04:18,360 Speaker 1: are all distractions. And uh, two things I would say 69 00:04:18,360 --> 00:04:21,839 Speaker 1: about that. One is their distractions that so that tends 70 00:04:21,839 --> 00:04:25,799 Speaker 1: to sap energy from a policy, uh perspective. The second 71 00:04:25,839 --> 00:04:27,600 Speaker 1: thing I would say, and then the more positive for 72 00:04:27,720 --> 00:04:30,200 Speaker 1: market So that I would say is, of course, the 73 00:04:30,200 --> 00:04:33,400 Speaker 1: president's senior advisors on the things markets care most about, 74 00:04:33,440 --> 00:04:36,680 Speaker 1: particularly tax reform, is unaffected by all this. Number one. 75 00:04:37,120 --> 00:04:41,360 Speaker 1: Number two, Uh, I would urge folks to think of 76 00:04:41,600 --> 00:04:46,159 Speaker 1: Washington not as completely Trump centric it is. It is 77 00:04:46,240 --> 00:04:49,560 Speaker 1: very important for congressional Republicans. They've always thought so uh 78 00:04:49,600 --> 00:04:52,760 Speaker 1: to actually deliver on agenda items, and they want to 79 00:04:52,760 --> 00:04:55,320 Speaker 1: deliver on economic growth, and that means tax reform more 80 00:04:55,360 --> 00:04:57,599 Speaker 1: than anything else, and that will also continue. Okay, just 81 00:04:57,640 --> 00:05:01,480 Speaker 1: take David Gourd, take one of Jennifer Rubens scenarios lesson 82 00:05:01,800 --> 00:05:04,560 Speaker 1: and I just picking one, Folks, This isn't a political statement. 83 00:05:04,880 --> 00:05:08,880 Speaker 1: Congress must protect Mr Mueller and preserve the possibility that 84 00:05:09,040 --> 00:05:13,560 Speaker 1: Mr Trump may be forced to resign. Terry, that's gotta 85 00:05:13,600 --> 00:05:18,039 Speaker 1: be a distraction to the Republican congressman from the ex 86 00:05:19,000 --> 00:05:23,920 Speaker 1: Congressional District of Kansas. It's not no, no, I'm saying 87 00:05:23,960 --> 00:05:25,920 Speaker 1: it is a distraction, But I'm saying at the same 88 00:05:25,960 --> 00:05:31,960 Speaker 1: time that, uh, that hypothetical Republican congressman has his or 89 00:05:32,000 --> 00:05:35,240 Speaker 1: her own motivations for wanting to to to try to 90 00:05:35,279 --> 00:05:39,479 Speaker 1: get something done legislatively, and that that's important and that 91 00:05:39,520 --> 00:05:42,159 Speaker 1: they'll continue to do that. To me, the biggest problem 92 00:05:42,800 --> 00:05:45,400 Speaker 1: with Republicans today, I mean, Trump is certainly a distraction, 93 00:05:45,440 --> 00:05:48,640 Speaker 1: and that's a big problem. The biggest problem among congressional 94 00:05:48,720 --> 00:05:51,520 Speaker 1: Republicans is that they can't yet agree on how to 95 00:05:51,600 --> 00:05:54,160 Speaker 1: execute on an agenda. They can't that they're so far 96 00:05:54,240 --> 00:05:57,599 Speaker 1: not agreeing on on the Affordable Care Act. Uh. And 97 00:05:57,640 --> 00:06:00,160 Speaker 1: there's also some evidence of rifts on tax reform them 98 00:06:00,200 --> 00:06:03,360 Speaker 1: as well. And and those are also distractions. You say 99 00:06:03,360 --> 00:06:05,200 Speaker 1: that Washington isn't Trump centric, and I wonder if the 100 00:06:05,440 --> 00:06:07,560 Speaker 1: president understands that. I look at some of these tweets 101 00:06:07,560 --> 00:06:09,440 Speaker 1: over the weekend, including the ones says it's very sad 102 00:06:09,440 --> 00:06:12,000 Speaker 1: that Republicans, even some that were carried over the line 103 00:06:12,000 --> 00:06:14,080 Speaker 1: on my back, do very little to protect their president. 104 00:06:14,360 --> 00:06:17,000 Speaker 1: Another one, if repugnant Republicans don't repeal and replace the 105 00:06:17,040 --> 00:06:19,920 Speaker 1: disastrous Obamacare, the repercussions will be far greater than any 106 00:06:19,960 --> 00:06:24,200 Speaker 1: of them understand. He makes it very difficult, suffice to say, 107 00:06:24,240 --> 00:06:26,080 Speaker 1: for them to go about their business exclusive of him. 108 00:06:26,080 --> 00:06:28,640 Speaker 1: It seems, oh sure. And Uh. I don't mean to 109 00:06:28,720 --> 00:06:33,720 Speaker 1: suggest that the uh, that the Congressional Republican calculus exists 110 00:06:33,760 --> 00:06:35,800 Speaker 1: free of whatever is going on with the President at 111 00:06:35,839 --> 00:06:38,320 Speaker 1: any given time. All I mean to suggest is that 112 00:06:38,640 --> 00:06:41,240 Speaker 1: they've got their own reasons for for wanting to come 113 00:06:41,279 --> 00:06:43,559 Speaker 1: together on policy and execute. You know, they've been telling 114 00:06:43,560 --> 00:06:47,279 Speaker 1: people for seven years. Uh, give us the keys to 115 00:06:47,360 --> 00:06:49,480 Speaker 1: the car, and uh, and we'll drive it and these 116 00:06:49,480 --> 00:06:51,520 Speaker 1: are the things that will do well. Now they have 117 00:06:51,600 --> 00:06:53,760 Speaker 1: the keys to the car, and they don't have complete 118 00:06:53,760 --> 00:06:57,239 Speaker 1: control over a Washington agenda, but the thanks to budget policy, 119 00:06:57,279 --> 00:07:00,200 Speaker 1: they've got some budget process. They've got some very good 120 00:07:00,240 --> 00:07:03,880 Speaker 1: opportunity to actually deliver on tax reform, and they think, 121 00:07:03,920 --> 00:07:06,120 Speaker 1: for their own reasons, that's something they need to do. 122 00:07:06,360 --> 00:07:09,040 Speaker 1: All right. So we had a House Budget Committee hearing 123 00:07:09,160 --> 00:07:11,880 Speaker 1: at last week, a vote on the fiscal ye two 124 00:07:12,120 --> 00:07:14,760 Speaker 1: eighteen budget. What happens next? How much of that was 125 00:07:15,120 --> 00:07:17,840 Speaker 1: Can you see the sign of progress? Well, it is 126 00:07:17,880 --> 00:07:21,320 Speaker 1: small progress, but I think uh, and I think ultimately, 127 00:07:21,360 --> 00:07:23,400 Speaker 1: I mean, we've said this to markets that we think 128 00:07:23,440 --> 00:07:27,800 Speaker 1: the fiscal budget is about likely to pass. But I 129 00:07:27,800 --> 00:07:31,520 Speaker 1: think people should understand that the budget that came out 130 00:07:31,560 --> 00:07:33,520 Speaker 1: of the House Budget Committee last week is not going 131 00:07:33,560 --> 00:07:36,440 Speaker 1: to be that budget. I don't think there is appetite 132 00:07:36,480 --> 00:07:42,080 Speaker 1: among Republicans generally, both the moderates in the House, which 133 00:07:42,120 --> 00:07:47,520 Speaker 1: outnumber the fiscal conservatives, or the Senate for for large cuts. 134 00:07:47,560 --> 00:07:49,960 Speaker 1: What what I continue to think we're likely to see 135 00:07:50,000 --> 00:07:52,960 Speaker 1: here is a budget that does what the last four 136 00:07:53,000 --> 00:07:57,680 Speaker 1: fiscal year budgets did, which is essentially flat stable budgets 137 00:07:58,080 --> 00:08:00,680 Speaker 1: that that makes small increases in both defense and non 138 00:08:00,680 --> 00:08:04,080 Speaker 1: defense spending. And I think that succeeds in no small 139 00:08:04,120 --> 00:08:07,960 Speaker 1: park because they have to actually pass a budget in 140 00:08:08,080 --> 00:08:10,640 Speaker 1: order to instruct committees to do tax reform and be 141 00:08:10,680 --> 00:08:14,000 Speaker 1: able to do tax reform under budget process. Sorry to 142 00:08:14,000 --> 00:08:16,640 Speaker 1: get on processing here, but that's important. That's important for 143 00:08:16,640 --> 00:08:19,320 Speaker 1: the scenarios. Is there is there a process called to 144 00:08:19,400 --> 00:08:24,240 Speaker 1: sac as well, Liken Alexander somewhere you go down process lane, 145 00:08:24,240 --> 00:08:27,400 Speaker 1: and well, the process lane, you know, the cul de sac. 146 00:08:28,560 --> 00:08:31,320 Speaker 1: The cul de sac is a is something that that 147 00:08:31,440 --> 00:08:33,679 Speaker 1: exists not independent of space and time, but as a 148 00:08:33,760 --> 00:08:38,600 Speaker 1: virtual constructor. And uh and right now, the you know, 149 00:08:38,640 --> 00:08:41,880 Speaker 1: the cul de sac exists on the Affordable Care Act 150 00:08:42,160 --> 00:08:46,000 Speaker 1: in in Senate Majority Leader McConnell's office. It's okay, David 151 00:08:46,040 --> 00:08:49,720 Speaker 1: Gura's political science education and Cornell was a virtual construct 152 00:08:50,280 --> 00:08:53,440 Speaker 1: So Terry, thank you so much for sub sanity. It 153 00:08:53,520 --> 00:08:56,920 Speaker 1: was a pleasure there David to talk policy. How strange, 154 00:08:57,200 --> 00:08:59,400 Speaker 1: how strange, and we're killing where this folks. I really 155 00:08:59,400 --> 00:09:00,920 Speaker 1: want to make clear. We get a lot of mail, 156 00:09:01,360 --> 00:09:04,880 Speaker 1: we get huge pro Trump time you're a jerk. Emails. 157 00:09:04,920 --> 00:09:06,959 Speaker 1: We get all that stuff. I get the death threats, 158 00:09:06,960 --> 00:09:09,440 Speaker 1: and you know it, Co goes to me. David Gurry 159 00:09:09,480 --> 00:09:14,200 Speaker 1: gets a love note. But but we're acutely aware of 160 00:09:14,400 --> 00:09:20,719 Speaker 1: everyone's feeling that Bloomberg surveillance should be economics, investment, finance 161 00:09:20,800 --> 00:09:24,160 Speaker 1: and all that. And yet here we are subsumed with 162 00:09:24,320 --> 00:09:27,080 Speaker 1: his politics that we have to touch it. We're trying 163 00:09:27,080 --> 00:09:29,560 Speaker 1: to thread that needle. We try to strike that balance 164 00:09:29,600 --> 00:09:32,280 Speaker 1: and uh, you know, bring you the news as it breaks. 165 00:09:32,960 --> 00:09:37,400 Speaker 1: You mentioned the tweets, abandon your children. Look at the 166 00:09:37,800 --> 00:09:40,080 Speaker 1: f tweets this week. They're now enough to criticize me 167 00:09:40,120 --> 00:09:43,760 Speaker 1: for Jenny, get off the phone. No, they're probably giving 168 00:09:43,800 --> 00:09:46,160 Speaker 1: your feedback on the tweets today it was over the 169 00:09:46,200 --> 00:10:00,520 Speaker 1: swamp of the Seward. We'll go back to that. But David, 170 00:10:00,559 --> 00:10:03,080 Speaker 1: we have a we have a disruptive guest. He's stealing 171 00:10:03,120 --> 00:10:06,760 Speaker 1: from clay Christians in Harvard. Mr Cohen is just erupting 172 00:10:06,800 --> 00:10:10,640 Speaker 1: with Warren Russell over at bar Clay's. Michael Cohen the 173 00:10:10,640 --> 00:10:12,760 Speaker 1: head of energy research at Barkley's. Let's start with this 174 00:10:13,200 --> 00:10:16,720 Speaker 1: news of the day, the OPEC meeting taking place in St. Petersburg, uh, 175 00:10:16,760 --> 00:10:18,560 Speaker 1: and just to set the table for us, what are 176 00:10:18,600 --> 00:10:21,000 Speaker 1: what are OPEC members going to be debating discussing here 177 00:10:21,040 --> 00:10:25,200 Speaker 1: Over the course of the meeting dinner, there were already 178 00:10:25,200 --> 00:10:30,880 Speaker 1: images on Twitter of a breakfast, a very lucrative, luxurious 179 00:10:30,920 --> 00:10:35,800 Speaker 1: breakfast in St. Petersburg. So for for their purposes, they're 180 00:10:35,880 --> 00:10:39,559 Speaker 1: trying to ensure that the market has clarity about their 181 00:10:39,559 --> 00:10:43,439 Speaker 1: production levels for the remainder of this deal. And unfortunately, 182 00:10:43,520 --> 00:10:47,520 Speaker 1: outside of the eleven opaque countries and the ten fifteen 183 00:10:47,520 --> 00:10:51,080 Speaker 1: other countries outside of OPEC, they can't really do anything 184 00:10:51,120 --> 00:10:54,120 Speaker 1: about the other producers in the world, namely the U 185 00:10:54,200 --> 00:10:59,880 Speaker 1: s tight oil producers and also Libya and Nigeria. And 186 00:11:00,320 --> 00:11:02,920 Speaker 1: it's unlikely that Libya and Nigeria are going to accept 187 00:11:03,040 --> 00:11:08,640 Speaker 1: a production level anywhere below their current levels. They've been, 188 00:11:09,160 --> 00:11:13,040 Speaker 1: you know, subject to violence, sabotage, a long long history 189 00:11:13,160 --> 00:11:17,600 Speaker 1: of of less than ideal production levels, so it's unlikely 190 00:11:17,640 --> 00:11:21,720 Speaker 1: they're going to accept anything. You have a gorgeous power 191 00:11:21,840 --> 00:11:24,480 Speaker 1: point map which we were not going to send it out, folks, 192 00:11:24,559 --> 00:11:27,480 Speaker 1: We protect the copyright of our guests. It's a Barclay's 193 00:11:27,520 --> 00:11:32,240 Speaker 1: Helma Croft Michael Cohen map of production in Libya. The 194 00:11:32,320 --> 00:11:37,120 Speaker 1: minutia in detail on this puppy in scenic Wadden wad 195 00:11:37,200 --> 00:11:41,520 Speaker 1: donbon w Don Libya. The minutia of your map is 196 00:11:41,600 --> 00:11:44,840 Speaker 1: jaw dropping. Do you have a clue what the oil 197 00:11:44,880 --> 00:11:49,720 Speaker 1: production of Libya is? So? Um, for all intents and 198 00:11:49,720 --> 00:11:53,240 Speaker 1: purposes for that that map, I wanna, Um, you're gonna 199 00:11:53,280 --> 00:11:59,439 Speaker 1: blame Halima no no with RBC is a wonderful analyst. Um. 200 00:11:59,480 --> 00:12:02,360 Speaker 1: But we we want to just attribute that chart and 201 00:12:02,480 --> 00:12:07,120 Speaker 1: that map two platts um, and also to the petroleum economists. 202 00:12:07,440 --> 00:12:09,640 Speaker 1: Those are the sources, the sources for that. But I 203 00:12:09,720 --> 00:12:12,840 Speaker 1: just I do want to clarify, Um. The point of 204 00:12:12,880 --> 00:12:15,760 Speaker 1: that map is just to to understand that there are 205 00:12:15,800 --> 00:12:19,920 Speaker 1: two different parts of Libya. There's the part um in 206 00:12:19,960 --> 00:12:22,720 Speaker 1: the west, part in the East, and each is subject 207 00:12:22,720 --> 00:12:26,400 Speaker 1: to their own set of challenges to bring it down 208 00:12:26,400 --> 00:12:29,920 Speaker 1: to to a final point. Um. We can only know 209 00:12:30,080 --> 00:12:33,760 Speaker 1: what export levels are. We can't understand what actual production 210 00:12:33,880 --> 00:12:37,839 Speaker 1: is at this point. Most estimates peg Libyan production between 211 00:12:37,920 --> 00:12:41,160 Speaker 1: nine thousand barrels a day and a million barrels a day. 212 00:12:41,480 --> 00:12:45,800 Speaker 1: That likelihood is that they'll see some improvement of about 213 00:12:45,840 --> 00:12:48,400 Speaker 1: a hundred thousand barrels a day in the next month 214 00:12:48,520 --> 00:12:50,719 Speaker 1: or two. But we don't think that that level is 215 00:12:50,760 --> 00:12:55,360 Speaker 1: going to be sustainable. And you know that's the problem 216 00:12:55,400 --> 00:12:58,040 Speaker 1: with this, and we can't blame OPEC for not giving 217 00:12:58,160 --> 00:13:00,559 Speaker 1: a longer level of certainty just because as there's so 218 00:13:00,640 --> 00:13:05,040 Speaker 1: much lack of clarity about Libya and Nigerian production levels. 219 00:13:05,200 --> 00:13:08,920 Speaker 1: I had to make a surveillance correction. Is Mr Cohen 220 00:13:09,240 --> 00:13:12,960 Speaker 1: gracefully corrected me because I didn't have my eyeglasses on. 221 00:13:13,400 --> 00:13:16,000 Speaker 1: David Gurrow, which is correcting my ability to read the 222 00:13:16,040 --> 00:13:19,720 Speaker 1: notes and Ms ms Croft, of course is with OURBC 223 00:13:20,120 --> 00:13:23,319 Speaker 1: capital market. I almost introduced Michael as a personal attorney 224 00:13:23,559 --> 00:13:29,760 Speaker 1: to the President United States. Please, So this is what happens, folks. 225 00:13:29,840 --> 00:13:31,840 Speaker 1: When I love how the Boston Glove journalists Twitter page. 226 00:13:31,880 --> 00:13:34,400 Speaker 1: I think that's not yet exactly. I need to put 227 00:13:34,400 --> 00:13:37,599 Speaker 1: that online. This is this is, folks, what happens on 228 00:13:37,720 --> 00:13:39,920 Speaker 1: a Monday in July when you don't do your show 229 00:13:40,000 --> 00:13:42,480 Speaker 1: and your class. There you go, Michael, let me just 230 00:13:42,520 --> 00:13:44,800 Speaker 1: ask you about the cell that Mohamed Brookindo is making 231 00:13:44,840 --> 00:13:47,280 Speaker 1: here the Secretary General of OPEC. We talked about the 232 00:13:47,679 --> 00:13:50,120 Speaker 1: non open participants. We're making things difficult for OPEC. How 233 00:13:50,200 --> 00:13:52,839 Speaker 1: much cohesion or unanimity is there among the members of 234 00:13:52,960 --> 00:13:55,760 Speaker 1: OPEC right now, how much eagerness is there to be 235 00:13:55,920 --> 00:13:58,240 Speaker 1: party to this deal. So I think that the most 236 00:13:58,280 --> 00:14:01,160 Speaker 1: important point you have to understand with uh their adherence 237 00:14:01,200 --> 00:14:03,640 Speaker 1: to the deal and their willingness to go the long 238 00:14:03,679 --> 00:14:06,600 Speaker 1: haul with all of this is to understand the paradigm 239 00:14:06,640 --> 00:14:09,000 Speaker 1: before this deal went into place, in the paradigm that 240 00:14:09,040 --> 00:14:12,160 Speaker 1: we're in now. So the paradigm before you're we were 241 00:14:12,160 --> 00:14:17,120 Speaker 1: in this place before November was one where prices move 242 00:14:17,200 --> 00:14:20,560 Speaker 1: based on market fundamentals purely, and there was a lack 243 00:14:20,640 --> 00:14:24,160 Speaker 1: of understanding about where Saudi Arabian output would be, and 244 00:14:24,240 --> 00:14:29,840 Speaker 1: the strategy was basically maximize revenue. Uh sorry, the strategy 245 00:14:29,880 --> 00:14:33,040 Speaker 1: then was was basically maximize market share, whereas the strategy 246 00:14:33,120 --> 00:14:37,240 Speaker 1: now is maximize revenue. And so the important thing to 247 00:14:37,320 --> 00:14:40,680 Speaker 1: understand is that when you're Russia and your Saudi Arabia 248 00:14:40,720 --> 00:14:43,120 Speaker 1: and you're looking at the prospect of going back to 249 00:14:43,160 --> 00:14:47,680 Speaker 1: that paradigm before November, prices could be thirty, they could 250 00:14:47,720 --> 00:14:49,840 Speaker 1: be forty, they could be sixty, no one would know, 251 00:14:49,880 --> 00:14:51,720 Speaker 1: and they could be that way for a month or 252 00:14:51,760 --> 00:14:55,720 Speaker 1: two months there. And so what's keeping all of these 253 00:14:55,960 --> 00:14:59,360 Speaker 1: producers at the table right now is to understand that 254 00:14:59,480 --> 00:15:03,120 Speaker 1: if they back to that that there could be social tensions, 255 00:15:03,280 --> 00:15:07,600 Speaker 1: There could be a threat to um the broader you know, 256 00:15:07,720 --> 00:15:11,520 Speaker 1: country level stability if that were the case, and they 257 00:15:11,560 --> 00:15:14,800 Speaker 1: don't want that environment at this point we have we've 258 00:15:14,800 --> 00:15:16,680 Speaker 1: done a couple of years and you alluded to this 259 00:15:17,080 --> 00:15:20,760 Speaker 1: to an interview we did earlier, where these meetings are 260 00:15:20,840 --> 00:15:25,120 Speaker 1: finessing the message to a pro like you. Are there 261 00:15:25,240 --> 00:15:29,080 Speaker 1: substance in a given Vienna or St. Petersburg meeting or 262 00:15:29,160 --> 00:15:31,680 Speaker 1: is it essentially like a G twenty photo op I mean, 263 00:15:31,720 --> 00:15:34,680 Speaker 1: which is in some cases yes, it's nothing more than 264 00:15:34,680 --> 00:15:37,800 Speaker 1: a photo of but the joint the Joint Technical Committee, 265 00:15:37,840 --> 00:15:41,960 Speaker 1: the Monitoring Committee, and thus the ministerial meeting that happens 266 00:15:41,960 --> 00:15:45,200 Speaker 1: every six months, there is a substance that comes out 267 00:15:45,240 --> 00:15:48,560 Speaker 1: of it. It may just be you know, tiny, And 268 00:15:48,880 --> 00:15:50,640 Speaker 1: I think the point is that when I look at 269 00:15:50,640 --> 00:15:53,920 Speaker 1: my balances, and we do this at a very detailed 270 00:15:53,920 --> 00:15:55,880 Speaker 1: country level, when I look at my balances and I 271 00:15:55,920 --> 00:15:59,320 Speaker 1: take into account what Opek is saying, I do get 272 00:15:59,440 --> 00:16:02,600 Speaker 1: draws in inventories for the remainder of this year, and 273 00:16:02,640 --> 00:16:06,600 Speaker 1: that is incremental because I'm not assuming that Saudi Arabia 274 00:16:06,640 --> 00:16:08,960 Speaker 1: is producing it ten and a half million barrels a day, 275 00:16:09,120 --> 00:16:12,320 Speaker 1: or that OPEC production is basically much higher than it is, 276 00:16:12,920 --> 00:16:16,880 Speaker 1: So that is important. You mentioned Saudi Arabia moment ago, 277 00:16:16,880 --> 00:16:18,920 Speaker 1: and we talk about palace intrigue here in the context 278 00:16:18,920 --> 00:16:20,640 Speaker 1: of the White House. There's an incredible piece in New 279 00:16:20,680 --> 00:16:23,240 Speaker 1: York Times of days ago details about how this succession 280 00:16:23,280 --> 00:16:27,600 Speaker 1: actually unfolded in Rion. What does the change of the 281 00:16:27,600 --> 00:16:31,160 Speaker 1: reconfiguration of that royal family's leadership hierarchies say to you 282 00:16:31,280 --> 00:16:34,200 Speaker 1: about oil prices in other ways, we draw any conclusions 283 00:16:34,480 --> 00:16:37,800 Speaker 1: about where oil is headed or Saudi Arabia's attitude toward 284 00:16:37,800 --> 00:16:39,600 Speaker 1: oil from what we saw there in Saudi Arabbia over 285 00:16:39,600 --> 00:16:42,640 Speaker 1: these last few weeks. So you know, obviously this is 286 00:16:42,680 --> 00:16:48,160 Speaker 1: an extremely sensitive subject um for Saudi Arabia and for analysts. 287 00:16:48,440 --> 00:16:51,400 Speaker 1: Um and I think that the important thing to understand 288 00:16:51,480 --> 00:16:54,680 Speaker 1: here is that the Saudis are always going to do 289 00:16:54,720 --> 00:16:58,120 Speaker 1: what is in their best interests for their own national security, 290 00:16:58,520 --> 00:17:02,840 Speaker 1: that essentially first, and there will be occasions where national 291 00:17:02,880 --> 00:17:07,880 Speaker 1: security concerns are sacrificed for economic concerns. But in this environment, 292 00:17:07,960 --> 00:17:10,520 Speaker 1: with the war and Yemen, going on, war in Syria 293 00:17:10,640 --> 00:17:16,679 Speaker 1: going on with the concerns about the Eastern Province, the 294 00:17:16,720 --> 00:17:21,720 Speaker 1: Saudis are likely to prioritize national security concerns over anything else. 295 00:17:21,920 --> 00:17:25,879 Speaker 1: So that means ensuring that the reforms involved in Vision 296 00:17:25,880 --> 00:17:30,080 Speaker 1: twenty are put into place, that Mohammed bin Salman is 297 00:17:30,119 --> 00:17:33,560 Speaker 1: comfortable in his place of authority, and that they're not 298 00:17:33,720 --> 00:17:37,960 Speaker 1: threats to that because basically, what you have to understand 299 00:17:38,000 --> 00:17:40,960 Speaker 1: is that King Salmon could pass away at any point 300 00:17:41,000 --> 00:17:45,240 Speaker 1: in time, and so Mohammed bin Salman does not as 301 00:17:45,280 --> 00:17:48,679 Speaker 1: the Crown Prince, does not want to be um in 302 00:17:48,720 --> 00:17:52,080 Speaker 1: a place where his authority is questioned or where the 303 00:17:52,119 --> 00:17:55,399 Speaker 1: country is is in a state of unrest. This is 304 00:17:55,440 --> 00:18:00,280 Speaker 1: a joy. Michael Cohen writes incredibly detailed report. It's on 305 00:18:00,440 --> 00:18:04,879 Speaker 1: hydrocarbons for the Barclays Bank and and I want to 306 00:18:04,920 --> 00:18:07,920 Speaker 1: go to sort of a media frenz a Mr Musk 307 00:18:07,960 --> 00:18:10,679 Speaker 1: has been in the news on Tesla and all this. 308 00:18:11,680 --> 00:18:17,080 Speaker 1: Does electrical cars move the Barclays Michael Cohen needle or 309 00:18:17,160 --> 00:18:23,760 Speaker 1: is it completely overwhelmed by the use of coal in China? Um. 310 00:18:23,800 --> 00:18:27,800 Speaker 1: So that's a very good question. I think the comparison 311 00:18:27,880 --> 00:18:33,240 Speaker 1: between coal and China and electric vehicles thought about largely 312 00:18:33,280 --> 00:18:39,040 Speaker 1: from an energy perspective. It's more definitely coal um and 313 00:18:39,080 --> 00:18:42,800 Speaker 1: definitely more so having an impact in the medium term 314 00:18:43,080 --> 00:18:45,639 Speaker 1: than electric vehicles. What we did in in some of 315 00:18:45,680 --> 00:18:49,440 Speaker 1: our recent workers tried to evaluate in a very aggressive 316 00:18:49,600 --> 00:18:52,959 Speaker 1: electric vehicle penetration scenario. What I mean by that is 317 00:18:53,280 --> 00:18:57,520 Speaker 1: where we see adoption go much more, much more quickly 318 00:18:57,560 --> 00:19:02,760 Speaker 1: than what the optimists like the let's say the Bloomberg 319 00:19:02,760 --> 00:19:06,280 Speaker 1: New Energy Finance type of exponential pattern. So what happens 320 00:19:06,280 --> 00:19:08,760 Speaker 1: if that? Besides Mr Musk makes a lot of money 321 00:19:08,800 --> 00:19:13,040 Speaker 1: Exactly in that scenario, we see a change in demand 322 00:19:13,200 --> 00:19:16,800 Speaker 1: of minus two hundred thousand barrels a day. Now, how 323 00:19:16,840 --> 00:19:20,040 Speaker 1: big is the oil market. The oil market is roughly 324 00:19:21,240 --> 00:19:23,720 Speaker 1: growing to a hundred and five million barrels a day 325 00:19:23,720 --> 00:19:29,360 Speaker 1: by so the idea that we could curb demand growth 326 00:19:29,840 --> 00:19:33,000 Speaker 1: by two hundred thousand barrels a day to us is 327 00:19:33,040 --> 00:19:37,320 Speaker 1: not nearly as important in the transport sector as what 328 00:19:37,720 --> 00:19:41,240 Speaker 1: fuel efficiency might mean. So fuel efficiency you could actually 329 00:19:41,320 --> 00:19:46,440 Speaker 1: be three or four times the size of the electritrictical impact. 330 00:19:46,520 --> 00:19:48,880 Speaker 1: And so that's what we worry about in the medium term. 331 00:19:49,040 --> 00:19:51,800 Speaker 1: We don't say it's not an issue. We just have 332 00:19:51,880 --> 00:19:56,880 Speaker 1: to understand that first of all, transport sector personal vehicle 333 00:19:57,160 --> 00:20:00,879 Speaker 1: consumption is roughly twenty five million barrels day. Of that 334 00:20:01,000 --> 00:20:03,679 Speaker 1: hundred million barrels a day, the rest of that oil 335 00:20:03,720 --> 00:20:06,639 Speaker 1: demand is either for pet cam heavy for ag culture 336 00:20:06,680 --> 00:20:11,040 Speaker 1: or whatever culture whatever. So the the important thing to 337 00:20:11,119 --> 00:20:14,480 Speaker 1: understand is that the quantity we're really talking about changing 338 00:20:15,000 --> 00:20:17,720 Speaker 1: with electric vehicles is really only about twenty five to 339 00:20:17,800 --> 00:20:19,800 Speaker 1: thirty million barrels a day. Tell me about the coal 340 00:20:19,920 --> 00:20:22,080 Speaker 1: dynamic and now it folds into your world of hydro 341 00:20:22,119 --> 00:20:25,359 Speaker 1: carbons and full disclosure folks. Michael Bloomberg principal owner of 342 00:20:25,359 --> 00:20:28,760 Speaker 1: Bloomberg LP and of course this radio station. Mr Bloomberg 343 00:20:28,840 --> 00:20:33,040 Speaker 1: is very involved in the Beyond Coal initiative and that 344 00:20:33,560 --> 00:20:37,280 Speaker 1: does a grizzled pro like you writing these detailed reports. 345 00:20:37,560 --> 00:20:43,080 Speaker 1: Do you care about coal elasticities in China? Well, what's 346 00:20:43,119 --> 00:20:45,679 Speaker 1: important to understand for China is that there has to 347 00:20:45,720 --> 00:20:50,320 Speaker 1: be a price signal that is appropriately in the same 348 00:20:50,400 --> 00:20:53,680 Speaker 1: vein as what the price signal is for coal. So 349 00:20:53,880 --> 00:20:57,320 Speaker 1: for coal and for natural gas, prices have to prices 350 00:20:57,320 --> 00:21:00,359 Speaker 1: will allow a certain amount of natural gas to take 351 00:21:00,600 --> 00:21:03,320 Speaker 1: over from coal, but at the end of the day, 352 00:21:03,600 --> 00:21:07,680 Speaker 1: while the government policy remains unclear. In the medium term, 353 00:21:07,720 --> 00:21:10,320 Speaker 1: it's not likely that we're going to see that full 354 00:21:10,560 --> 00:21:15,600 Speaker 1: transparency of pricing for those two primary commodities in China's 355 00:21:15,800 --> 00:21:19,919 Speaker 1: electric sector. So they remain committed, but at this you know, 356 00:21:19,960 --> 00:21:23,880 Speaker 1: in terms of reducing their overall carbon intensity as part 357 00:21:23,920 --> 00:21:27,439 Speaker 1: of their their Paris commitment. But at the end of 358 00:21:27,440 --> 00:21:31,320 Speaker 1: the day, demand continues to grow, and the cheapest source 359 00:21:31,400 --> 00:21:35,000 Speaker 1: for that, as well as the source that satisfies the 360 00:21:35,000 --> 00:21:38,760 Speaker 1: state owned enterprises within the country is going to be coal. 361 00:21:39,080 --> 00:21:41,040 Speaker 1: And so what we've seen over the course of the 362 00:21:41,119 --> 00:21:44,760 Speaker 1: last year is more and more lergy important to China 363 00:21:44,880 --> 00:21:48,120 Speaker 1: that have started offset. But we're talking about a major, 364 00:21:48,359 --> 00:21:52,040 Speaker 1: major source of incremental demand for power over the next 365 00:21:52,080 --> 00:21:54,919 Speaker 1: couple of years. And of course, if China takes a 366 00:21:55,000 --> 00:21:59,359 Speaker 1: very aggressive stance on broadening electric vehicles over the course 367 00:21:59,400 --> 00:22:02,400 Speaker 1: of the next and twenty years, then much of that 368 00:22:02,640 --> 00:22:05,480 Speaker 1: baseload power is going to have to be met by 369 00:22:05,520 --> 00:22:08,879 Speaker 1: both coal and natural gas. So it's not going away quickly. 370 00:22:08,960 --> 00:22:10,680 Speaker 1: We have about thirty seconds left of what the state 371 00:22:10,720 --> 00:22:13,240 Speaker 1: of American production is at this point. I've got colleagues 372 00:22:13,240 --> 00:22:15,240 Speaker 1: here who watched the Baker Hughes rig count like it's 373 00:22:15,240 --> 00:22:18,600 Speaker 1: the weather. When you look at where it stands right now, 374 00:22:18,920 --> 00:22:21,160 Speaker 1: how does it look to you? How does American production look? 375 00:22:21,720 --> 00:22:24,240 Speaker 1: So when you think about the weekly indicator that we 376 00:22:24,280 --> 00:22:27,280 Speaker 1: get from Baker Hughes, these are the rig count right 377 00:22:27,359 --> 00:22:31,639 Speaker 1: that the drilling activity leads to completion activity, which leads 378 00:22:31,680 --> 00:22:36,600 Speaker 1: to production levels. So even though rig count is flatlining here, 379 00:22:36,760 --> 00:22:40,080 Speaker 1: what's important understands that the productivity of each and every 380 00:22:40,080 --> 00:22:42,880 Speaker 1: one of those rigs is much much greater now than 381 00:22:42,960 --> 00:22:45,920 Speaker 1: it was in the past. I've heard some people say, well, 382 00:22:45,920 --> 00:22:48,800 Speaker 1: it's like we're all drilling with ferraris and at some 383 00:22:48,920 --> 00:22:51,440 Speaker 1: point in in ten years, sorry not in ten years, 384 00:22:51,440 --> 00:22:53,800 Speaker 1: but in ten months, we may be drilling with a 385 00:22:54,320 --> 00:22:57,960 Speaker 1: Pinto or you know, a much lower, lower quality rig. 386 00:22:58,200 --> 00:23:01,520 Speaker 1: And so there is the expectation that those drilling efficiencies 387 00:23:01,560 --> 00:23:04,719 Speaker 1: may fall away. But what the other thing to just 388 00:23:04,920 --> 00:23:09,320 Speaker 1: really quickly say is that the drilling cost out of 389 00:23:09,400 --> 00:23:13,720 Speaker 1: drilling in completion cost is only about of the overall 390 00:23:14,119 --> 00:23:17,120 Speaker 1: cost of completing and getting product. Michael, thank you so much, 391 00:23:17,160 --> 00:23:19,760 Speaker 1: Michael Cole. We've already had requests for his research. No, 392 00:23:19,960 --> 00:23:23,840 Speaker 1: we copyright of I guess I'm sorry, that's the original 393 00:23:23,880 --> 00:23:27,880 Speaker 1: surveillance bargain with the street. Call up Barclays to learn 394 00:23:27,920 --> 00:23:31,000 Speaker 1: more from Mr Cohen worldwide coast to coast. This is 395 00:23:31,040 --> 00:23:41,959 Speaker 1: Bloomberg runt you by Bank of America Mary Lynch. With 396 00:23:42,080 --> 00:23:47,480 Speaker 1: virtual reality, virtually everything will change. Discover opportunities in a 397 00:23:47,560 --> 00:23:51,960 Speaker 1: transforming world, be of a mL dot com slash VR, 398 00:23:52,840 --> 00:24:02,080 Speaker 1: Mary Lynch, Pierced Fenner and Smith Incorporated. Peter is with us, 399 00:24:02,160 --> 00:24:05,119 Speaker 1: joining us on our phone line. Peter is also always 400 00:24:05,160 --> 00:24:08,080 Speaker 1: important to speak to with black rockets. We try to 401 00:24:08,119 --> 00:24:11,960 Speaker 1: take advantage of tax free bonds. Peter, let me go 402 00:24:11,960 --> 00:24:15,000 Speaker 1: go to question one on one, what is the value 403 00:24:15,200 --> 00:24:19,080 Speaker 1: of Muni's right now? Good morning Tom. The answer to 404 00:24:19,160 --> 00:24:21,760 Speaker 1: that is it's a little expensive, but you have to 405 00:24:21,760 --> 00:24:24,040 Speaker 1: think about the bigger back drop of interest rates. So 406 00:24:24,200 --> 00:24:27,199 Speaker 1: just to set the table, the return so far this 407 00:24:27,280 --> 00:24:30,080 Speaker 1: year is measured by a generic INDEXSS up about four 408 00:24:30,080 --> 00:24:32,879 Speaker 1: point six percent. So that's pretty good. And if we 409 00:24:32,880 --> 00:24:34,400 Speaker 1: were to take that through the rest of the year, 410 00:24:34,400 --> 00:24:37,240 Speaker 1: obviously that would be a pretty robust year for fixed 411 00:24:37,240 --> 00:24:39,680 Speaker 1: income for a fixed income ass a class. But we 412 00:24:39,720 --> 00:24:42,240 Speaker 1: don't think that's necessarily going to be the case. I 413 00:24:42,240 --> 00:24:46,080 Speaker 1: think interest rates have surprised. On the downside, the technicals, 414 00:24:46,119 --> 00:24:49,160 Speaker 1: immunities supply demand have been very good. So what that's 415 00:24:49,200 --> 00:24:51,800 Speaker 1: led to is a lot of demand money coming into 416 00:24:51,800 --> 00:24:54,719 Speaker 1: the A class and as a result that valuation question 417 00:24:54,800 --> 00:24:58,280 Speaker 1: that you asked about, we're a bit expensive, particularly on 418 00:24:58,320 --> 00:25:00,760 Speaker 1: the front end. So it really gets back to what's 419 00:25:00,760 --> 00:25:03,120 Speaker 1: your view on longer term interest rates? What is the 420 00:25:03,160 --> 00:25:06,880 Speaker 1: cut between general obligation what I'm gonna call full faith 421 00:25:06,920 --> 00:25:11,399 Speaker 1: and credit taxable the taxation of the whatever entity is 422 00:25:11,480 --> 00:25:16,040 Speaker 1: fully available to the bond holders versus revenue bonds. Which 423 00:25:16,080 --> 00:25:18,800 Speaker 1: which is the Where is the value now between g 424 00:25:19,040 --> 00:25:23,520 Speaker 1: os and revenues? I think that's an important question for 425 00:25:23,600 --> 00:25:27,840 Speaker 1: investors to ask because this idea of general obligation bonds 426 00:25:27,880 --> 00:25:31,120 Speaker 1: certainly was first challenge to some degree in the bankruptcy 427 00:25:31,160 --> 00:25:34,159 Speaker 1: of Detroit, and now we see playing out some of 428 00:25:34,160 --> 00:25:39,439 Speaker 1: the pension issues Illinois, New Jersey, Pennsylvania, Connecticut, etcetera. And 429 00:25:39,480 --> 00:25:43,639 Speaker 1: it's leading some to question about the long term efficacy, 430 00:25:43,680 --> 00:25:45,960 Speaker 1: if you will, of general obligation bonds. Now I'm not 431 00:25:46,000 --> 00:25:48,600 Speaker 1: saying they're going into default, but I think there's a 432 00:25:48,600 --> 00:25:51,720 Speaker 1: better identifiable revenue stream if you buy a toll road 433 00:25:51,760 --> 00:25:54,720 Speaker 1: for instance, you know that people's tolls are going to 434 00:25:54,760 --> 00:25:56,840 Speaker 1: go help pay back the debt service, and with g 435 00:25:57,040 --> 00:26:00,280 Speaker 1: o is basically what you have to have is is UH. 436 00:26:00,800 --> 00:26:03,480 Speaker 1: In many cases in appropriation, you have to money set 437 00:26:03,480 --> 00:26:06,280 Speaker 1: aside to pay that debt service. And with all these 438 00:26:06,280 --> 00:26:10,760 Speaker 1: competing interests around pensions and providing services and then repayment 439 00:26:10,800 --> 00:26:13,240 Speaker 1: of debt, it becomes a little bit more in question. 440 00:26:13,359 --> 00:26:15,720 Speaker 1: So in terms of value risk reward, we like the 441 00:26:15,760 --> 00:26:19,760 Speaker 1: revenue sector, particularly migrating down to the A rated spectrum. 442 00:26:19,840 --> 00:26:21,919 Speaker 1: We're here twenty four days into a new fiscal year, 443 00:26:21,920 --> 00:26:24,000 Speaker 1: as you point out, for for forty six states, and 444 00:26:24,359 --> 00:26:26,439 Speaker 1: a lot of these states had trouble getting the budget 445 00:26:26,960 --> 00:26:29,120 Speaker 1: through passing a budget on time. How does that play 446 00:26:29,160 --> 00:26:32,280 Speaker 1: out in the muni market that that political difficulty in 447 00:26:32,320 --> 00:26:35,439 Speaker 1: a number of these states, You would think that that 448 00:26:35,480 --> 00:26:38,760 Speaker 1: it would play out more in terms of credit spreads 449 00:26:38,760 --> 00:26:41,680 Speaker 1: and valuations around some of these names you're write ten 450 00:26:41,760 --> 00:26:45,000 Speaker 1: states actually relate in passing budgets, and it shows you 451 00:26:45,119 --> 00:26:49,159 Speaker 1: some of the difficulty as revenues remain, they're positive, but 452 00:26:49,400 --> 00:26:54,159 Speaker 1: somewhat benign in the context of historically rising revenues, so 453 00:26:54,359 --> 00:26:57,040 Speaker 1: more difficult. And also this pension issue I talk about 454 00:26:57,160 --> 00:26:59,960 Speaker 1: is crowding that out. The obligations of states to pay 455 00:27:00,080 --> 00:27:03,760 Speaker 1: that is rising, so it's making getting budget, passing a 456 00:27:03,800 --> 00:27:06,119 Speaker 1: budget on time more difficult, but it hasn't had a 457 00:27:06,200 --> 00:27:09,120 Speaker 1: big impact. It did to some degree effect the state 458 00:27:09,160 --> 00:27:12,040 Speaker 1: of Illinois. I think that was probably a bit on 459 00:27:12,080 --> 00:27:14,679 Speaker 1: the extreme side, but since they're passing their budget, those 460 00:27:14,680 --> 00:27:17,560 Speaker 1: spreads have actually tightened back down a bit as well, 461 00:27:17,840 --> 00:27:20,320 Speaker 1: So not as much of an impact as you think. 462 00:27:20,359 --> 00:27:23,280 Speaker 1: And one difference I'll point out is that states constitutionally 463 00:27:23,680 --> 00:27:25,800 Speaker 1: have to pass the budget on time, as opposed to 464 00:27:25,840 --> 00:27:28,600 Speaker 1: the sederal government, which which doesn't. So I think that 465 00:27:28,640 --> 00:27:32,359 Speaker 1: there's some degree of reticence on the market knowing that 466 00:27:32,440 --> 00:27:34,760 Speaker 1: these budgets can be late, and ultimately it's not going 467 00:27:34,800 --> 00:27:37,560 Speaker 1: to have a really large impact. Big A turning point 468 00:27:37,600 --> 00:27:40,120 Speaker 1: was what we saw happen in in Illinois, the threat 469 00:27:40,160 --> 00:27:43,159 Speaker 1: of a downgrade, the back and forth there was. It 470 00:27:43,280 --> 00:27:47,399 Speaker 1: was that something from which other states learned. It's pretty 471 00:27:47,400 --> 00:27:49,359 Speaker 1: interesting if you go back to the early two thousand 472 00:27:49,359 --> 00:27:52,359 Speaker 1: you look at California, they had a similar, not quite 473 00:27:52,359 --> 00:27:56,560 Speaker 1: as dire, but similar situation where their rating was under pressure. 474 00:27:56,600 --> 00:27:58,640 Speaker 1: A lot of that was around the failure to pass 475 00:27:58,680 --> 00:28:01,720 Speaker 1: a budget, and I think some degree there is the 476 00:28:01,800 --> 00:28:04,200 Speaker 1: threat of a very low rating in the case of 477 00:28:04,240 --> 00:28:08,440 Speaker 1: Illinois below investment grade that raises your borrowing costs significantly, 478 00:28:08,480 --> 00:28:11,640 Speaker 1: not just incrementally, And I think to some degree that 479 00:28:11,880 --> 00:28:14,400 Speaker 1: lawmakers do do pay attention to that, and I think 480 00:28:14,440 --> 00:28:17,520 Speaker 1: that other states are also learning from that example. We 481 00:28:17,560 --> 00:28:21,320 Speaker 1: want to have you back and dive into this, but quickly, uh, Peter, 482 00:28:21,560 --> 00:28:27,240 Speaker 1: is Illinois isolated or are there other Illinois out there? 483 00:28:28,800 --> 00:28:31,720 Speaker 1: The states I mentioned before continue to have pension problems. 484 00:28:31,720 --> 00:28:34,200 Speaker 1: When you look over the next five to ten years, 485 00:28:34,760 --> 00:28:37,040 Speaker 1: the amount of their budget that they have to set 486 00:28:37,080 --> 00:28:41,360 Speaker 1: aside to pay this pension problem grows dramatically, and states 487 00:28:41,400 --> 00:28:45,560 Speaker 1: like New Jersey, states like Connecticut, Pennsylvania, Kentucky, etcetera. They 488 00:28:45,600 --> 00:28:49,040 Speaker 1: all have a similar problem and they haven't really addressed 489 00:28:49,080 --> 00:28:51,880 Speaker 1: how they're going to prep for that longer term. So, yes, 490 00:28:51,920 --> 00:28:54,880 Speaker 1: there are some there are some similarities out there. We're 491 00:28:54,920 --> 00:28:56,840 Speaker 1: gonna come back, Peter Hayes with this with black Rock 492 00:28:56,920 --> 00:28:59,560 Speaker 1: to talk about univounds. I know David Gurr has got 493 00:28:59,560 --> 00:29:03,400 Speaker 1: a hold bunch of questions and taking advantage of that 494 00:29:03,520 --> 00:29:06,600 Speaker 1: coupon that comes for poll tax free as well. But 495 00:29:06,680 --> 00:29:09,720 Speaker 1: David Green Tom Keen with a good conversation with Peter Hayes. 496 00:29:10,400 --> 00:29:12,880 Speaker 1: He's a black rock on a topic we don't spend 497 00:29:12,960 --> 00:29:17,880 Speaker 1: enough time on, which is text free bonds and text 498 00:29:18,000 --> 00:29:22,840 Speaker 1: advantage bonds. I guess as well, Peter help me with airports. 499 00:29:22,920 --> 00:29:26,280 Speaker 1: Right now, Laguardi is doing I think two tranches of 500 00:29:26,360 --> 00:29:30,600 Speaker 1: public private construction. Every other airport in the East Coast 501 00:29:30,600 --> 00:29:33,680 Speaker 1: seems to be being dug up and rebuilt. Is that 502 00:29:33,800 --> 00:29:36,640 Speaker 1: an ample opportunity for you or do you run from 503 00:29:36,680 --> 00:29:42,080 Speaker 1: private public uh enterprises as fast as you can now? 504 00:29:42,120 --> 00:29:44,760 Speaker 1: I think private when you think about the need for 505 00:29:44,800 --> 00:29:47,280 Speaker 1: infrastructure in this country. I think in order to get 506 00:29:47,320 --> 00:29:49,880 Speaker 1: everything done, there's gonna have to be an element of 507 00:29:50,160 --> 00:29:53,720 Speaker 1: public private partnership that will take place. The Gothels Bridge 508 00:29:53,760 --> 00:29:57,040 Speaker 1: is another example locally where we're seeing that. So I 509 00:29:57,080 --> 00:29:59,400 Speaker 1: think there there is an opportunity, and you have to 510 00:29:59,440 --> 00:30:02,040 Speaker 1: think about is it the design, is it build, does 511 00:30:02,080 --> 00:30:06,400 Speaker 1: it operate? What elements are there's the private entity being involved, 512 00:30:06,400 --> 00:30:09,000 Speaker 1: but in many cases the design and build there is 513 00:30:09,080 --> 00:30:12,960 Speaker 1: some some greater efficiencies in that, and then they're lending 514 00:30:12,960 --> 00:30:15,800 Speaker 1: obviously doing the financing in the public market. The municipal 515 00:30:15,800 --> 00:30:19,320 Speaker 1: market where we do see opportunities, and some of these airports, 516 00:30:19,320 --> 00:30:22,720 Speaker 1: particularly the larger we like to call them origination and destination, 517 00:30:23,040 --> 00:30:26,200 Speaker 1: where people a large hubs for some of these larger 518 00:30:26,240 --> 00:30:29,520 Speaker 1: airlines we think are going to continue to grow. So 519 00:30:29,640 --> 00:30:33,840 Speaker 1: you mentioned La Guardia, obviously Newark, There's Chicago, San Francisco. 520 00:30:34,000 --> 00:30:35,520 Speaker 1: So those are some of the names that we like, 521 00:30:35,600 --> 00:30:38,200 Speaker 1: and I think we'll continue to see some pretty robust 522 00:30:38,240 --> 00:30:41,200 Speaker 1: infrastructure spending out of some of those entities. How have 523 00:30:41,240 --> 00:30:44,240 Speaker 1: you processed what's spend the conversation in Washington, I'll be 524 00:30:44,320 --> 00:30:45,640 Speaker 1: the one that's been taking place, I guess on the 525 00:30:45,640 --> 00:30:48,680 Speaker 1: sidelines too over these last few months, about more physical spending, 526 00:30:48,720 --> 00:30:51,920 Speaker 1: about an infrastructure spending package, about this one trillion dollars 527 00:30:51,960 --> 00:30:54,760 Speaker 1: the president would like to see go towards infrastructure. As 528 00:30:54,760 --> 00:30:57,480 Speaker 1: you as you plot a chorus forward, how do you 529 00:30:57,480 --> 00:31:01,320 Speaker 1: process what's being said about that in Washington? The coming 530 00:31:01,320 --> 00:31:04,640 Speaker 1: out of the election, the rhetoric was all this infrastructure 531 00:31:04,680 --> 00:31:07,920 Speaker 1: spending would lead to more issuance excuse me in our 532 00:31:07,960 --> 00:31:10,960 Speaker 1: market and would ultimately be be negative. The market would 533 00:31:11,000 --> 00:31:13,280 Speaker 1: have to adjust higher and yields to absorb all this. 534 00:31:13,680 --> 00:31:15,600 Speaker 1: But we've taken a step back from that and realize 535 00:31:15,640 --> 00:31:17,600 Speaker 1: that's not going to be the picture. Plus, we see 536 00:31:17,720 --> 00:31:22,360 Speaker 1: the gridlock that's occurring around healthcare, tax reform, and infrastructure, 537 00:31:22,400 --> 00:31:25,840 Speaker 1: so we're certainly a lot less concerned about that going forward. 538 00:31:25,880 --> 00:31:28,400 Speaker 1: And I think there's an important element is there's a 539 00:31:28,440 --> 00:31:32,760 Speaker 1: greater realization in Washington among lawmakers that the municipal market 540 00:31:32,840 --> 00:31:37,480 Speaker 1: actually is a low cost, fairly efficient way for issuers 541 00:31:37,520 --> 00:31:40,720 Speaker 1: to finance infrastructure projects. And I think there's been sort 542 00:31:40,760 --> 00:31:43,600 Speaker 1: of a acknowledgement of as well that they want to 543 00:31:43,680 --> 00:31:45,600 Speaker 1: keep a lot of that at the state and local level. 544 00:31:45,680 --> 00:31:47,560 Speaker 1: So I think the municipal market is going to continue 545 00:31:47,560 --> 00:31:49,400 Speaker 1: to be an important element. But we're not going to 546 00:31:49,480 --> 00:31:51,160 Speaker 1: see a big sell off because there's going to be 547 00:31:51,200 --> 00:31:53,640 Speaker 1: a trillion dollars all of the stunts borrowing in our market. 548 00:31:53,680 --> 00:31:55,440 Speaker 1: It's not going to be the case. Peter, I want 549 00:31:55,440 --> 00:31:58,280 Speaker 1: to watch through Immuni one on one on premium bonds. 550 00:31:58,280 --> 00:32:00,880 Speaker 1: These are bonds, folks first above a hunt it in part. 551 00:32:00,920 --> 00:32:03,320 Speaker 1: I'm looking at a Denver piece of twelve years at 552 00:32:03,360 --> 00:32:06,920 Speaker 1: the coupons five and a quarter percent. I guess federal 553 00:32:06,960 --> 00:32:09,680 Speaker 1: tax free. And if you're in Colorado, maybe it's double text. 554 00:32:09,880 --> 00:32:12,840 Speaker 1: I don't know. This puppy was trading two years ago 555 00:32:13,480 --> 00:32:17,719 Speaker 1: in a one sixteen a massive premium. The premium has 556 00:32:17,720 --> 00:32:20,720 Speaker 1: gone one sixteen down to one oh nine. Excuse me, 557 00:32:20,760 --> 00:32:25,600 Speaker 1: the price has gone one sixteen down to one oh nine. Um, 558 00:32:26,000 --> 00:32:28,920 Speaker 1: do you want to buy premium bonds? Do? I mean? 559 00:32:29,000 --> 00:32:32,160 Speaker 1: Dan Fuss at Lomas Sales was legendary for buying discount 560 00:32:32,400 --> 00:32:35,760 Speaker 1: stuff trading in sixty seventy eight. Does black Rock go 561 00:32:35,880 --> 00:32:38,040 Speaker 1: in the world of premium bonds? Do you want to 562 00:32:38,040 --> 00:32:42,640 Speaker 1: be there? We'll go premium will go discount. It's partially 563 00:32:42,920 --> 00:32:45,800 Speaker 1: of view on on interest rates, so that typically the 564 00:32:45,840 --> 00:32:48,760 Speaker 1: time you want to buy discount bonds is either they 565 00:32:48,800 --> 00:32:51,440 Speaker 1: go to a discount because there's been a big credit event. 566 00:32:51,520 --> 00:32:53,000 Speaker 1: So you can think about what happened with some of 567 00:32:53,000 --> 00:32:54,880 Speaker 1: the Puerto Rico bands and that may or may not 568 00:32:54,920 --> 00:32:57,400 Speaker 1: be an opportunity, or do you think it's just rates 569 00:32:57,400 --> 00:33:00,280 Speaker 1: are going to drop dramatically. That's usually when interest h 570 00:33:00,480 --> 00:33:04,400 Speaker 1: discount bonds outperformed. That's not the case of the ten 571 00:33:04,480 --> 00:33:06,200 Speaker 1: year hard to believe interest rates is going to go 572 00:33:06,280 --> 00:33:09,840 Speaker 1: significantly lower and what happens with premium bonds. Yes, it's 573 00:33:09,880 --> 00:33:13,240 Speaker 1: a big premium price dollar price to pay, but they 574 00:33:13,280 --> 00:33:15,920 Speaker 1: also act somewhat the sense of when interest rates rise 575 00:33:15,960 --> 00:33:18,920 Speaker 1: a bit, So there is a value in owning premium 576 00:33:18,920 --> 00:33:21,400 Speaker 1: and cushion bonds, and we do actually buy those and 577 00:33:21,480 --> 00:33:25,080 Speaker 1: purchase that structure I mentioned airports. Let me ask you 578 00:33:25,120 --> 00:33:27,800 Speaker 1: just about other areas of opportunity are there? Are there 579 00:33:27,880 --> 00:33:31,400 Speaker 1: areas of opportunity right now in education or universities offering 580 00:33:31,400 --> 00:33:34,040 Speaker 1: a lot our hospitals where else through opportunity right now? 581 00:33:34,080 --> 00:33:36,880 Speaker 1: When it comes to Muni's, hospitals are an area that 582 00:33:36,920 --> 00:33:39,600 Speaker 1: we liked for a long time. It's been the picture 583 00:33:39,760 --> 00:33:43,200 Speaker 1: going forward is a little modeled given the uncertainty around 584 00:33:43,280 --> 00:33:46,440 Speaker 1: what will happen with a c A, because there's implications 585 00:33:46,480 --> 00:33:50,040 Speaker 1: obviously for Medicare and Medicaid and the amount of aid 586 00:33:50,120 --> 00:33:53,200 Speaker 1: that funding that hospital states will get and then pass 587 00:33:53,280 --> 00:33:56,239 Speaker 1: on to hospitals, et cetera, the amount of uninsured. So 588 00:33:56,280 --> 00:33:58,719 Speaker 1: there's some question in the hospital sector, but still from 589 00:33:58,760 --> 00:34:01,160 Speaker 1: a risk reward, a lot of value in hospitals. We 590 00:34:01,200 --> 00:34:03,720 Speaker 1: tend to like the bigger systems as opposed to the 591 00:34:03,800 --> 00:34:09,160 Speaker 1: single standalone. Another area you mentioned education differentiation there between 592 00:34:09,400 --> 00:34:13,640 Speaker 1: large public institutions which continue to see high enrollments, high demand, 593 00:34:13,800 --> 00:34:17,280 Speaker 1: and better funding from states versus some of the smaller 594 00:34:17,320 --> 00:34:20,040 Speaker 1: privates which are straining their budgets are being strained. In 595 00:34:20,040 --> 00:34:23,040 Speaker 1: some cases demand is is down, so there's some good 596 00:34:23,280 --> 00:34:25,560 Speaker 1: value there as well, but particularly in the public center. 597 00:34:25,800 --> 00:34:28,960 Speaker 1: One final question, where's the yield hog occurring right now? 598 00:34:28,960 --> 00:34:31,640 Speaker 1: Where you shake your head? Where are people being greedy 599 00:34:31,640 --> 00:34:35,000 Speaker 1: and they're running into That's actually a really good question 600 00:34:35,000 --> 00:34:38,240 Speaker 1: because we're having that discussion here. A lot of money 601 00:34:38,280 --> 00:34:41,040 Speaker 1: going into particularly to high yield. You see this not 602 00:34:41,120 --> 00:34:44,200 Speaker 1: only in the municipal market, but other fixed income areas 603 00:34:44,200 --> 00:34:47,160 Speaker 1: as well. With yields low, people are stretching for yield. 604 00:34:47,160 --> 00:34:49,720 Speaker 1: They're taking a little more duration risk moving out the curve. 605 00:34:49,760 --> 00:34:51,640 Speaker 1: Which we're comfortable with that because we don't think rates 606 00:34:51,680 --> 00:34:54,359 Speaker 1: are going dramatically higher. But a lot of the new 607 00:34:54,440 --> 00:34:56,960 Speaker 1: high yield deals that are coming to market are structurally 608 00:34:57,040 --> 00:35:00,000 Speaker 1: fairly weak, and they remind me a bit of pre 609 00:35:00,080 --> 00:35:02,560 Speaker 1: Rice is two thousand files at two thousand seven. So 610 00:35:02,600 --> 00:35:04,920 Speaker 1: that's an area where I have some concerns. I wouldn't 611 00:35:04,960 --> 00:35:07,439 Speaker 1: say today, but we're thinking about it over the next 612 00:35:07,440 --> 00:35:10,680 Speaker 1: several months. Okay, Peter Hayes, thank you. So much, great update, greatly. 613 00:35:12,000 --> 00:35:14,080 Speaker 1: I love doing this, David. We just you know, we 614 00:35:14,840 --> 00:35:18,279 Speaker 1: don't do this enough. UNI bonds really reaches coast to 615 00:35:18,320 --> 00:35:21,759 Speaker 1: coast and there's some intersting stories. Yeah, and a great boy, 616 00:35:21,800 --> 00:35:24,840 Speaker 1: Peter Hayes, great voice on that. Thanks again for joining 617 00:35:24,880 --> 00:35:26,919 Speaker 1: us here, right, we don't do enough. You get five 618 00:35:27,080 --> 00:35:30,640 Speaker 1: percent federal text free, John Tucker that in New Jersey, 619 00:35:31,080 --> 00:35:34,040 Speaker 1: if you were fibal text free, you know, which is 620 00:35:34,080 --> 00:35:38,719 Speaker 1: like four, then they'd yeah, exactly when you know I 621 00:35:38,840 --> 00:35:42,920 Speaker 1: can't have that. I mean, the text equivalent yield on 622 00:35:42,960 --> 00:35:45,480 Speaker 1: a five percent coupon in New Jersey ought to be 623 00:35:45,480 --> 00:35:51,239 Speaker 1: like eleven percent. You know. Sadly you're not too far 624 00:35:51,280 --> 00:35:55,200 Speaker 1: off the mark, unfortunately, And I guess anyways, when we 625 00:35:55,280 --> 00:35:57,839 Speaker 1: get a huge response when Mr Hayes and other bright 626 00:35:57,920 --> 00:36:01,320 Speaker 1: lights of municipal bonds around and we thank you listening 627 00:36:01,800 --> 00:36:14,200 Speaker 1: as well. Thanks for listening to the Bloomberg Surveillance Podcast. 628 00:36:14,640 --> 00:36:19,880 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 629 00:36:19,960 --> 00:36:24,280 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom Keene. 630 00:36:24,360 --> 00:36:28,719 Speaker 1: David Gura is at David Gura. Before the podcast, you 631 00:36:28,760 --> 00:36:43,560 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio Runch You 632 00:36:43,640 --> 00:36:47,719 Speaker 1: by Bank of America Mary Lynch. With virtual reality, virtually 633 00:36:47,880 --> 00:36:53,200 Speaker 1: everything will change. Discover opportunities in a transforming world. VI 634 00:36:53,239 --> 00:36:57,760 Speaker 1: of a mL dot Com slash VR, Mary Lynch, Pierced 635 00:36:57,800 --> 00:36:59,760 Speaker 1: Fenner and Smith Incorporated,