1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,560 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg P M L 6 00:00:20,840 --> 00:00:27,360 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The 7 00:00:27,440 --> 00:00:31,400 Speaker 1: devastation and destruction from Hurricane Florence may leave three million 8 00:00:31,520 --> 00:00:35,199 Speaker 1: homes and businesses without power. Here to tell us more 9 00:00:35,240 --> 00:00:39,320 Speaker 1: about the situation. It's is Kit Contllege, our senior industrials 10 00:00:39,320 --> 00:00:43,279 Speaker 1: and utilities analysts for Bloomberg Intelligence. He joins us here 11 00:00:43,280 --> 00:00:45,920 Speaker 1: in our eleven three oh studios. Kit is always a 12 00:00:45,960 --> 00:00:47,839 Speaker 1: pleasure to have you here. Give us an update on 13 00:00:47,920 --> 00:00:51,279 Speaker 1: what you know about the utilities response to the hurricane 14 00:00:51,520 --> 00:00:56,560 Speaker 1: well him. The utilities gear up obviously days ahead of time, 15 00:00:57,160 --> 00:01:01,160 Speaker 1: and in recent years, in response to criticism in the past, 16 00:01:01,520 --> 00:01:05,920 Speaker 1: they've kind of, if you will, over prepared for these situations. 17 00:01:05,920 --> 00:01:11,039 Speaker 1: They call in thousands of backup linemen from other utilities 18 00:01:11,080 --> 00:01:14,920 Speaker 1: around the country, so they should be well prepared. Obviously, 19 00:01:15,000 --> 00:01:17,240 Speaker 1: once the lights start going out. Now I think they're 20 00:01:17,319 --> 00:01:20,720 Speaker 1: up to about half a million outages now, and we'll 21 00:01:20,760 --> 00:01:24,679 Speaker 1: see how rapidly that goes. Uh. Everybody expects there to 22 00:01:24,720 --> 00:01:28,040 Speaker 1: be outages, then the utilities tend to get measured on 23 00:01:28,080 --> 00:01:32,000 Speaker 1: obviously the safety of their operations and also on how 24 00:01:32,080 --> 00:01:35,039 Speaker 1: quickly they turn people back on. So one thing that 25 00:01:35,080 --> 00:01:38,440 Speaker 1: I'm wondering is just in general, are utilities that are 26 00:01:38,480 --> 00:01:42,399 Speaker 1: relatively close to the coast prepared for more storms like this, 27 00:01:42,600 --> 00:01:44,600 Speaker 1: given the fact that it is expected that we will 28 00:01:44,600 --> 00:01:49,520 Speaker 1: see more of them, right, Lisa, While they uh, you know, 29 00:01:49,640 --> 00:01:53,240 Speaker 1: they tell you they are so uh, it's the proof 30 00:01:53,360 --> 00:01:56,680 Speaker 1: is always in in what they do. I think I 31 00:01:56,720 --> 00:02:01,240 Speaker 1: think it's fair to say that certainly after Ukushima in Japan, 32 00:02:01,400 --> 00:02:06,520 Speaker 1: they got very focused on making sure that the truly 33 00:02:06,560 --> 00:02:11,960 Speaker 1: critical infrastructure, the nuclear plants in particular, uh is safeguarded 34 00:02:12,040 --> 00:02:16,079 Speaker 1: from uh, you know, anything they can think of in 35 00:02:16,240 --> 00:02:22,080 Speaker 1: terms of really outside of normal conditions. Uh. But look, 36 00:02:22,120 --> 00:02:24,359 Speaker 1: it's a long coastline. There's a lot of stuff that 37 00:02:24,440 --> 00:02:27,120 Speaker 1: can go wrong, and I think we just have to 38 00:02:27,160 --> 00:02:30,240 Speaker 1: see each time are they prepared or are they not prepared. 39 00:02:31,000 --> 00:02:34,720 Speaker 1: Talk a little bit about the responsibility that utilities bear 40 00:02:35,639 --> 00:02:41,760 Speaker 1: during natural disasters, but also when it comes to disasters 41 00:02:41,800 --> 00:02:44,760 Speaker 1: and catastrophes such as the one that is at least 42 00:02:44,760 --> 00:02:48,480 Speaker 1: currently being experienced in Massachusetts and Lawrence and and over 43 00:02:48,560 --> 00:02:53,000 Speaker 1: north and over with gas seemingly gas explosions. What is 44 00:02:53,040 --> 00:02:56,240 Speaker 1: about the liability issues that's important to know? Right well? 45 00:02:57,280 --> 00:03:01,040 Speaker 1: The the usual rule that investors think about and that 46 00:03:01,200 --> 00:03:05,240 Speaker 1: utility managers think about is that, uh, they're there are 47 00:03:05,400 --> 00:03:10,600 Speaker 1: natural disasters that you can't of course prevent, uh, but 48 00:03:10,880 --> 00:03:13,639 Speaker 1: you can do something about and you're judged on how 49 00:03:13,680 --> 00:03:17,520 Speaker 1: well you respond to them. Like a hurricane. Uh, when 50 00:03:17,800 --> 00:03:21,560 Speaker 1: a gas pipe explodes that you're operating that's never supposed 51 00:03:21,600 --> 00:03:25,480 Speaker 1: to happen, clearly, so immediately, I mean that stock of 52 00:03:25,520 --> 00:03:29,240 Speaker 1: the company that owns that nice sources down ten or 53 00:03:29,280 --> 00:03:33,880 Speaker 1: eleven percent today. Uh. And and naturally people are concerned, 54 00:03:34,240 --> 00:03:38,160 Speaker 1: as they should be, and the local population is concerned 55 00:03:38,200 --> 00:03:40,440 Speaker 1: about how bad the pipes are in the ground. You know, 56 00:03:40,520 --> 00:03:43,320 Speaker 1: one thing that I'm struck by just with natural disasters, 57 00:03:43,320 --> 00:03:46,280 Speaker 1: I mean, obviously and an explosion that shouldn't have happened 58 00:03:46,360 --> 00:03:50,080 Speaker 1: that caused death is a whole situation unto itself. But 59 00:03:50,120 --> 00:03:52,400 Speaker 1: one thing that I'm struck by is even when there's 60 00:03:52,400 --> 00:03:55,560 Speaker 1: a strong windstorm you often hear of people losing power 61 00:03:55,640 --> 00:04:00,800 Speaker 1: off in thousands, especially with congested area is like the 62 00:04:00,840 --> 00:04:03,600 Speaker 1: Tri State area right around New York City. I'm just wondering, 63 00:04:03,720 --> 00:04:06,960 Speaker 1: I mean, what is the move going forward going to 64 00:04:07,080 --> 00:04:11,960 Speaker 1: be to try to ensure longer access to electricity? I mean, 65 00:04:11,960 --> 00:04:15,400 Speaker 1: it seems like it should be better that you know, 66 00:04:15,520 --> 00:04:20,520 Speaker 1: that's a that's a great question, because there are solutions 67 00:04:20,600 --> 00:04:24,520 Speaker 1: to it. Unfortunately, they're very expensive. Every time there's a 68 00:04:24,600 --> 00:04:29,279 Speaker 1: hurricane in Florida, for example, Uh, somebody suggests, let's bury 69 00:04:29,400 --> 00:04:33,159 Speaker 1: all the power lines. Well, you know that, Well, it 70 00:04:33,200 --> 00:04:35,320 Speaker 1: would work if you wanted to spend ten or twenty 71 00:04:35,320 --> 00:04:39,880 Speaker 1: billion dollars. And but it's also, as we know, uh, 72 00:04:39,920 --> 00:04:42,680 Speaker 1: pretty high water table in Florida, So how well the 73 00:04:43,240 --> 00:04:47,320 Speaker 1: wires would survive for how long you know, is another issue. 74 00:04:47,360 --> 00:04:49,760 Speaker 1: So I think it's fair to say that there's a 75 00:04:49,800 --> 00:04:53,640 Speaker 1: trade off there, right, I mean, the society as a 76 00:04:53,640 --> 00:04:58,200 Speaker 1: whole has decided that some outages sometime are worth it 77 00:04:58,320 --> 00:05:03,479 Speaker 1: because the alternative of making it completely uh you know, 78 00:05:03,560 --> 00:05:08,440 Speaker 1: bulletproof to to operate under any conditions is just too expensive. 79 00:05:09,800 --> 00:05:13,159 Speaker 1: You have systems like the nuclear plants communicating with each other, 80 00:05:13,720 --> 00:05:18,040 Speaker 1: or military uses then there are situations where not just 81 00:05:18,080 --> 00:05:22,000 Speaker 1: electricity but any other communications or energy, etcetera, are are 82 00:05:22,120 --> 00:05:26,120 Speaker 1: very hardened. Uh, but that's an very expensive way to go, 83 00:05:26,480 --> 00:05:30,240 Speaker 1: and maybe more than people want to pay. I don't know. 84 00:05:30,279 --> 00:05:32,839 Speaker 1: Every time I hear about the thousands of people who 85 00:05:33,120 --> 00:05:35,400 Speaker 1: lose their power when there's like a little bit of wind, 86 00:05:35,920 --> 00:05:38,400 Speaker 1: my my in laws have a situation. I heard about 87 00:05:38,400 --> 00:05:40,560 Speaker 1: it for weeks. Anyway, Cottee, thank you so much for 88 00:05:40,600 --> 00:05:43,840 Speaker 1: being with us Kit Conteledge Senior Industrials and utilities analyzed 89 00:05:43,960 --> 00:05:46,960 Speaker 1: for Bloomberg Intelligence. I'm sure you'll be filling us in 90 00:05:47,080 --> 00:05:49,719 Speaker 1: as we assess the damage. It will be important to 91 00:05:49,800 --> 00:05:52,599 Speaker 1: track although at a certain point you have to wonder. 92 00:05:52,760 --> 00:05:55,400 Speaker 1: Right now, really our thoughts are with people whose homes 93 00:05:55,400 --> 00:05:58,200 Speaker 1: are getting flooded and who are uh, you know, potentially 94 00:05:58,400 --> 00:06:00,520 Speaker 1: going to be losing a lot of things. Is a 95 00:06:00,640 --> 00:06:03,360 Speaker 1: devastating storm with the storm surge that is, and all 96 00:06:03,360 --> 00:06:05,600 Speaker 1: the people who are stranded. We're thinking of you and 97 00:06:05,760 --> 00:06:08,080 Speaker 1: hoping that you are safe as well. Maybe you know 98 00:06:08,160 --> 00:06:12,520 Speaker 1: travelers and someone that are hopefully safe and out of 99 00:06:12,560 --> 00:06:14,720 Speaker 1: harm's way. Yeah, and in shelters. I saw a lot 100 00:06:14,720 --> 00:06:17,440 Speaker 1: of people in schools and things with their children. It's 101 00:06:17,640 --> 00:06:20,880 Speaker 1: very disruptive and I'm sure alarming, so our thoughts are 102 00:06:21,040 --> 00:06:27,120 Speaker 1: with them. Emerging markets has been a big question mark 103 00:06:27,160 --> 00:06:30,200 Speaker 1: over the past few weeks, a huge fall as Turkeys 104 00:06:30,480 --> 00:06:33,880 Speaker 1: financial crisis or i should say currency crisis got underway, 105 00:06:33,920 --> 00:06:36,719 Speaker 1: and Argentina seemed to be heading towards a similar direction 106 00:06:37,000 --> 00:06:39,200 Speaker 1: than a pause. And over the past two days we've 107 00:06:39,240 --> 00:06:41,120 Speaker 1: seen a little bit of a rebound today a little 108 00:06:41,120 --> 00:06:43,840 Speaker 1: bit flat. Joining us now to find out whether this 109 00:06:43,920 --> 00:06:47,920 Speaker 1: is a time to buy developing markets assets or time 110 00:06:47,960 --> 00:06:50,040 Speaker 1: to sell. As Michael Brandon's chief of US was tragist 111 00:06:50,360 --> 00:06:55,279 Speaker 1: of each how private bank it is Latin America's biggest bank. Correct, 112 00:06:55,480 --> 00:06:57,839 Speaker 1: that is correct? All right? Thank you so much for 113 00:06:57,880 --> 00:07:00,040 Speaker 1: being with us. You've been covering emerging markets for a 114 00:07:00,040 --> 00:07:03,400 Speaker 1: long time, and credit in particular, and I'm wondering as 115 00:07:03,440 --> 00:07:07,080 Speaker 1: we view developed the developing world right now, are we 116 00:07:07,120 --> 00:07:10,200 Speaker 1: looking at the beginnings of a protracted sell off as 117 00:07:10,240 --> 00:07:13,680 Speaker 1: a fed raisers rates or is this what we've seen 118 00:07:13,720 --> 00:07:16,000 Speaker 1: in the past few months, a hiccup that is a 119 00:07:16,040 --> 00:07:18,760 Speaker 1: buying opportunity. Well, I mean, and first of all, thanks 120 00:07:18,880 --> 00:07:21,160 Speaker 1: thank you for having me here. It's it's real pleasure 121 00:07:21,240 --> 00:07:24,920 Speaker 1: to be back the current I would say the current 122 00:07:24,960 --> 00:07:29,200 Speaker 1: window of opportunity is still representative of more stress to come. 123 00:07:30,240 --> 00:07:33,320 Speaker 1: I think a more tractive window is opening up. So 124 00:07:33,440 --> 00:07:36,520 Speaker 1: I I am constructive about e M. I would say 125 00:07:36,520 --> 00:07:38,520 Speaker 1: in the medium term, but in the very short term, 126 00:07:38,760 --> 00:07:43,160 Speaker 1: while we're encouraged by what happened to Turkey yesterday, by 127 00:07:43,240 --> 00:07:46,440 Speaker 1: the surprise hike from Russia today, uh we think that 128 00:07:46,480 --> 00:07:51,280 Speaker 1: there is a willingness for emerging market countries to address 129 00:07:51,960 --> 00:07:55,480 Speaker 1: inflation concerns and the volatility and their currencies. It may 130 00:07:55,520 --> 00:07:58,640 Speaker 1: be just a little early, um to start adding back 131 00:07:58,640 --> 00:08:02,840 Speaker 1: into exposures. Looking at the performance of the Brazilian real, 132 00:08:03,640 --> 00:08:08,119 Speaker 1: the chart seems to indicate that things are not getting better, 133 00:08:08,240 --> 00:08:11,640 Speaker 1: that the value of the currency will continue to deteriorate 134 00:08:11,680 --> 00:08:15,720 Speaker 1: against the US dollar. What's your call, Well, I mean, 135 00:08:16,320 --> 00:08:20,520 Speaker 1: what's happening with the real h is representative also of 136 00:08:20,720 --> 00:08:23,480 Speaker 1: we have we have presidential elections coming next month, which 137 00:08:23,560 --> 00:08:27,640 Speaker 1: is very uncertain, and then the volatility happening more broadly 138 00:08:27,680 --> 00:08:31,120 Speaker 1: in currency market. So our view is that we should 139 00:08:31,200 --> 00:08:34,640 Speaker 1: see the real top out here. Uh. We we think 140 00:08:34,679 --> 00:08:37,000 Speaker 1: that we're our target is still for about a three 141 00:08:37,040 --> 00:08:39,240 Speaker 1: point nine against the dollar, which would be a little 142 00:08:39,280 --> 00:08:41,800 Speaker 1: stronger than where it is right now. What we need 143 00:08:41,880 --> 00:08:48,960 Speaker 1: to see, though, beyond the domestic geopolitical uncertainties, we need 144 00:08:49,040 --> 00:08:53,040 Speaker 1: to see less currency volatility more broadly, maybe a softening 145 00:08:53,080 --> 00:08:56,599 Speaker 1: the US dollar, maybe a little lower in US trade tensions. 146 00:08:56,640 --> 00:09:00,839 Speaker 1: But the fundamentals in Brazil are still quite sound. I'm 147 00:09:00,880 --> 00:09:04,480 Speaker 1: struggling with something that you said, which is that you 148 00:09:04,559 --> 00:09:07,360 Speaker 1: do see more pain ahead for emerging markets. There's some 149 00:09:07,360 --> 00:09:11,840 Speaker 1: positive steps being taken, but there is more downside here. 150 00:09:12,040 --> 00:09:15,000 Speaker 1: How do you, as a portfolio manager and a portfolio 151 00:09:15,080 --> 00:09:18,480 Speaker 1: constructor with a huge focus on e M, how do 152 00:09:18,520 --> 00:09:21,320 Speaker 1: you invest? Then? Well, what you do is you look 153 00:09:21,360 --> 00:09:24,160 Speaker 1: for the brighter spots, You try to be more selective 154 00:09:24,240 --> 00:09:27,840 Speaker 1: about your exposures. You manage your currency risk to the 155 00:09:27,880 --> 00:09:30,160 Speaker 1: best extent you can. So how do you do that? Well, 156 00:09:30,240 --> 00:09:32,400 Speaker 1: you do that. Let's say you look at hard currency 157 00:09:32,520 --> 00:09:36,480 Speaker 1: versus local currency UH debt uh, and we look at 158 00:09:36,520 --> 00:09:42,480 Speaker 1: opportunities let's say in in Russia or Colombia, probably more 159 00:09:43,200 --> 00:09:49,120 Speaker 1: uh sustainably positive than places like Turkey Argentina. So you're 160 00:09:49,120 --> 00:09:53,600 Speaker 1: out of Turkey and Argentina. Turkey and Argentina, well, Argentina, UH. 161 00:09:53,720 --> 00:09:56,760 Speaker 1: We you know, we we think that the I m 162 00:09:56,880 --> 00:10:01,000 Speaker 1: F package, there's been talk of getting that expedited act um. 163 00:10:01,040 --> 00:10:03,680 Speaker 1: We were more positive there than in Turkey, where I 164 00:10:03,720 --> 00:10:07,400 Speaker 1: think the political risk is really different from what President 165 00:10:07,480 --> 00:10:11,840 Speaker 1: Mockery has presents to the Argentine Republic. But again, the 166 00:10:11,920 --> 00:10:15,240 Speaker 1: pain near term is going to be difficult, so we diversify. 167 00:10:15,360 --> 00:10:18,440 Speaker 1: We look at diversifying that risk into the developed markets 168 00:10:18,840 --> 00:10:22,200 Speaker 1: and in hard currency debt. Where do you find the 169 00:10:22,240 --> 00:10:26,640 Speaker 1: biggest challenge to liquidity Right now, the biggest challenge of 170 00:10:26,679 --> 00:10:30,560 Speaker 1: liquidity is in well in e M broadly, we're seeing 171 00:10:30,679 --> 00:10:33,600 Speaker 1: flows come out and and part of this is this 172 00:10:33,679 --> 00:10:36,000 Speaker 1: is challenging because what does that mean? The bid and 173 00:10:36,200 --> 00:10:39,040 Speaker 1: ask spread gets wider and wider. That's right, So the 174 00:10:39,080 --> 00:10:43,400 Speaker 1: bid aspread has widened, the level of trading has diminished, 175 00:10:43,920 --> 00:10:46,280 Speaker 1: and what that does also it has an impact and 176 00:10:46,320 --> 00:10:49,600 Speaker 1: the ability to generate new supply. So one of the 177 00:10:49,840 --> 00:10:52,240 Speaker 1: one of the problems in the technical side of the 178 00:10:52,280 --> 00:10:55,320 Speaker 1: market going forward is that on on on the corporate 179 00:10:55,400 --> 00:10:57,360 Speaker 1: or in the credit side of e M, we have 180 00:10:57,440 --> 00:10:59,840 Speaker 1: a calendar of supply that's supposed to come up, but 181 00:11:00,000 --> 00:11:02,720 Speaker 1: at the same time you have investors pulling back because 182 00:11:02,720 --> 00:11:06,839 Speaker 1: of the volatility we discussed, and that is uh affecting 183 00:11:06,920 --> 00:11:09,960 Speaker 1: price discovery. Right, So when markets that are less liquid, 184 00:11:10,280 --> 00:11:13,320 Speaker 1: you need this price discovery, You need new issuance to 185 00:11:13,400 --> 00:11:16,840 Speaker 1: demonstrate that there are prices that you can buy and 186 00:11:16,840 --> 00:11:19,080 Speaker 1: sell at. You know, it's interesting that you say you 187 00:11:19,080 --> 00:11:23,839 Speaker 1: would diversify more toward developed markets. In certain cases, that 188 00:11:23,880 --> 00:11:26,560 Speaker 1: seems to be actually the opposite of what some people 189 00:11:26,600 --> 00:11:28,960 Speaker 1: are saying. And for example, Jeffrey Gunlock of Double Line 190 00:11:29,000 --> 00:11:31,680 Speaker 1: Capital when he said he actually thinks that the US 191 00:11:31,760 --> 00:11:36,080 Speaker 1: markets could underperform after an incredible outperformance and suggests moving 192 00:11:36,120 --> 00:11:40,040 Speaker 1: to more global exposure. I'm just wondering, um, how do 193 00:11:40,080 --> 00:11:43,200 Speaker 1: you sort of defend against your position, and especially considering 194 00:11:43,200 --> 00:11:45,360 Speaker 1: the fact that a lot of people are saying the 195 00:11:45,440 --> 00:11:48,719 Speaker 1: US markets have gone so far so fast, diverged from 196 00:11:48,720 --> 00:11:50,760 Speaker 1: the rest of the world and it can't continue. Well, 197 00:11:51,200 --> 00:11:54,120 Speaker 1: you know, if if we're talking about I mean, there's 198 00:11:54,120 --> 00:11:56,599 Speaker 1: equities and there's fixed incomeing out to speak briefly in 199 00:11:56,640 --> 00:11:59,320 Speaker 1: the equity side, and and you know, we've been positive 200 00:11:59,360 --> 00:12:01,839 Speaker 1: on the US equity mark, and we talked about equity 201 00:12:02,160 --> 00:12:05,560 Speaker 1: US equities and Japanese equities, and on the US equity mark, 202 00:12:05,679 --> 00:12:07,280 Speaker 1: is interesting. I have to give a shout out to 203 00:12:07,320 --> 00:12:09,760 Speaker 1: a former colleague of mine, Tobias left of It. You 204 00:12:09,800 --> 00:12:12,240 Speaker 1: did some great work on this when he talked about 205 00:12:12,320 --> 00:12:14,400 Speaker 1: there are a lot of clients right now or investors 206 00:12:14,400 --> 00:12:16,679 Speaker 1: are talking about the Schillar cape and they're saying, oh, 207 00:12:16,720 --> 00:12:20,040 Speaker 1: it's very expensive and it looks like valuations, why would 208 00:12:20,080 --> 00:12:22,440 Speaker 1: you even buy the US market here? Now? Again, a 209 00:12:22,559 --> 00:12:25,640 Speaker 1: pullback is plausible, There's there's no doubt about it. But 210 00:12:25,679 --> 00:12:29,160 Speaker 1: Tobias had made the point in a recent report that said, 211 00:12:29,400 --> 00:12:32,199 Speaker 1: you know he's there. He doesn't integrate in this measure 212 00:12:32,320 --> 00:12:34,520 Speaker 1: a cost of capital. And if you look at cost 213 00:12:34,559 --> 00:12:38,120 Speaker 1: of capital and CAPE and you integrate that, valuations are full, 214 00:12:38,520 --> 00:12:41,640 Speaker 1: but they're not necessarily rich. So I think there is 215 00:12:42,440 --> 00:12:44,640 Speaker 1: the way you do it is you manage expectations. You 216 00:12:44,760 --> 00:12:47,520 Speaker 1: don't expect the kinds of returns that we've had in 217 00:12:47,559 --> 00:12:51,600 Speaker 1: the past uh to go forward, but you manage that 218 00:12:51,679 --> 00:12:54,199 Speaker 1: also on a risk adjusted basis, we would expect there 219 00:12:54,200 --> 00:12:56,480 Speaker 1: to be less volatility, you said CAPE, and you've got 220 00:12:56,480 --> 00:13:01,360 Speaker 1: to just explain the cyclically adjusted of PE ratio, which 221 00:13:01,400 --> 00:13:04,880 Speaker 1: which tries to normalize this over time. Um, I'm not 222 00:13:04,920 --> 00:13:08,400 Speaker 1: going to go for technical explanation him as you know, 223 00:13:08,520 --> 00:13:12,600 Speaker 1: you're going after my vulnerable spot here, which is which 224 00:13:12,640 --> 00:13:15,360 Speaker 1: is I'm a bond guy at heart. But I'll get 225 00:13:15,360 --> 00:13:18,680 Speaker 1: your definition by email. No, I just just wanted to 226 00:13:18,800 --> 00:13:22,960 Speaker 1: set out the parameters Robert from Yale, this is his 227 00:13:22,960 --> 00:13:28,520 Speaker 1: his benchmark that everyone follows. Do you perceive that there's 228 00:13:28,559 --> 00:13:33,439 Speaker 1: going to be any intermediary risk? And I go to 229 00:13:33,559 --> 00:13:37,719 Speaker 1: this issue of liquidity again, because it is not just 230 00:13:37,840 --> 00:13:42,280 Speaker 1: the actual instrument or asset that can be at risk. 231 00:13:42,720 --> 00:13:49,040 Speaker 1: It's sometimes the middleman, the traders in between. They might 232 00:13:49,080 --> 00:13:53,040 Speaker 1: not have the liquidity in order to withstand any rapid movement. Well, 233 00:13:53,400 --> 00:13:55,440 Speaker 1: it's a good point. And it's a good point because 234 00:13:55,440 --> 00:13:57,880 Speaker 1: as we know since Basil three and Dodd Frank and 235 00:13:58,400 --> 00:14:01,800 Speaker 1: Vocal rule that the primary dealers in the US and 236 00:14:01,840 --> 00:14:06,199 Speaker 1: financial institutions elsewhere have less ability to absorb or buffer 237 00:14:06,600 --> 00:14:10,400 Speaker 1: these transitions and volatility because their trading desk can take 238 00:14:10,440 --> 00:14:12,880 Speaker 1: this on and they have to hold higher quality capital 239 00:14:12,920 --> 00:14:15,480 Speaker 1: against their risk. It's a very good point because at 240 00:14:15,520 --> 00:14:17,920 Speaker 1: this time we have the Federal Reserve, which of course 241 00:14:18,240 --> 00:14:21,520 Speaker 1: it's balance sheet is starting to shrink. UH Bank of 242 00:14:21,600 --> 00:14:24,320 Speaker 1: Japan maybe ten or twenty years ago in our lifetime. 243 00:14:24,360 --> 00:14:26,960 Speaker 1: I don't know, but certainly ECB had just announced that 244 00:14:26,960 --> 00:14:31,200 Speaker 1: they're going to cut their UH purchases in half UH 245 00:14:31,240 --> 00:14:33,160 Speaker 1: and go to zero at the end of the year. 246 00:14:33,480 --> 00:14:36,280 Speaker 1: So this is going to be a challenging UM. So 247 00:14:36,320 --> 00:14:38,480 Speaker 1: we are looking at it. Thanks very much for being 248 00:14:38,520 --> 00:14:42,120 Speaker 1: with us. Always a pleasure. Michael Brandis, Chief investment strategist 249 00:14:42,480 --> 00:14:50,840 Speaker 1: E TAU Private Bank. This is Bloomberg. The Treasury Department 250 00:14:51,120 --> 00:14:55,120 Speaker 1: has weighed in on a potential for tax reform two 251 00:14:55,160 --> 00:15:00,160 Speaker 1: point oh For example, Treasury Secretary Stephen Manuchin has said 252 00:15:00,200 --> 00:15:03,160 Speaker 1: that the Department may be able to make a big 253 00:15:03,240 --> 00:15:09,040 Speaker 1: capital gains tax change without congressional approval. Here tell us 254 00:15:09,040 --> 00:15:12,920 Speaker 1: more as Chris Mackie. He is the founder of Solution Nomics. Chris, 255 00:15:12,920 --> 00:15:15,680 Speaker 1: always a pleasure. Thanks for being with us. Tell us 256 00:15:15,720 --> 00:15:19,160 Speaker 1: what you know about this potential change to the tax 257 00:15:19,280 --> 00:15:23,800 Speaker 1: code and what you believe it will mean for the country. Well, 258 00:15:23,840 --> 00:15:25,600 Speaker 1: good morning, it's great to be with you. Thanks for 259 00:15:25,640 --> 00:15:30,000 Speaker 1: having me. So what we're talking about here is, when 260 00:15:30,040 --> 00:15:32,160 Speaker 1: you cut through all the details in the minutia, we're 261 00:15:32,200 --> 00:15:36,120 Speaker 1: talking about a reduction, a further reduction in corporate tax rates. 262 00:15:36,880 --> 00:15:40,320 Speaker 1: Now we've already seen a significant reduction in corporate tax rates, 263 00:15:40,320 --> 00:15:45,000 Speaker 1: and unfortunately, UH the results have not been as advertiser 264 00:15:45,080 --> 00:15:48,920 Speaker 1: as expected. So the idea of further cutting corporate tax 265 00:15:49,080 --> 00:15:53,040 Speaker 1: rates in the hope that what hasn't happened, namely, UM 266 00:15:53,360 --> 00:16:00,480 Speaker 1: a greater improvement across the board without significant increases and deficits. UM, 267 00:16:00,560 --> 00:16:02,840 Speaker 1: that just doesn't make any sense. If they really wanted 268 00:16:02,880 --> 00:16:05,560 Speaker 1: to do a tax reform, they would have the greatest 269 00:16:05,600 --> 00:16:09,840 Speaker 1: economic impact, then focus more on the consumer, and specifically 270 00:16:09,920 --> 00:16:12,520 Speaker 1: the middle income and lower consumer, because they're the ones 271 00:16:12,520 --> 00:16:14,560 Speaker 1: that are going to go out and spend, which will 272 00:16:14,600 --> 00:16:18,160 Speaker 1: then cause companies to hire even more. So I'd love 273 00:16:18,200 --> 00:16:21,480 Speaker 1: to get your perspective on what Kevin Hasset, who is 274 00:16:21,480 --> 00:16:25,640 Speaker 1: an economic advisor to President Trump, would he put out 275 00:16:25,680 --> 00:16:27,720 Speaker 1: there earlier in the week where he was talking about 276 00:16:27,720 --> 00:16:30,080 Speaker 1: the economic boom. I think it was late last week 277 00:16:30,640 --> 00:16:34,000 Speaker 1: that the tax cuts have caused for the United States 278 00:16:34,080 --> 00:16:37,360 Speaker 1: and how really President Trump's tenure has marked a turning 279 00:16:37,400 --> 00:16:41,840 Speaker 1: point for the economy. Do you think that that that 280 00:16:41,920 --> 00:16:44,240 Speaker 1: you wouldn't get more of a boon if you did 281 00:16:44,240 --> 00:16:48,280 Speaker 1: it more permanently. What I think is that there's a 282 00:16:48,280 --> 00:16:51,440 Speaker 1: big difference between what's you know the rhetoric and the reality. 283 00:16:51,520 --> 00:16:53,560 Speaker 1: Let let me just give you a quick stat here. 284 00:16:54,160 --> 00:16:56,640 Speaker 1: So we've been hearing a lot of talk about greater 285 00:16:56,880 --> 00:16:59,720 Speaker 1: wage growth, but we're really talking about is the illusion 286 00:16:59,800 --> 00:17:03,480 Speaker 1: of greater wage growth, because real wage growth, that is 287 00:17:03,600 --> 00:17:06,680 Speaker 1: wage growth when you count for inflation, is actually down 288 00:17:06,880 --> 00:17:10,280 Speaker 1: since the tax bill was passed. Just this recent August, 289 00:17:11,080 --> 00:17:13,800 Speaker 1: wage games were up two point nine percent, which sounds 290 00:17:13,840 --> 00:17:16,960 Speaker 1: good and sounds better. However, inflation is up two point 291 00:17:17,000 --> 00:17:21,240 Speaker 1: seven so the consumer actually got point two increase in 292 00:17:21,280 --> 00:17:25,639 Speaker 1: real wages versus August of last year before the tax cuts, 293 00:17:26,119 --> 00:17:28,960 Speaker 1: wages were up two point six percent, but inflation was 294 00:17:29,000 --> 00:17:31,160 Speaker 1: only two percent, so they actually got a point six 295 00:17:31,160 --> 00:17:35,720 Speaker 1: percent increase. So we're not even getting what was hoped for. 296 00:17:36,280 --> 00:17:39,960 Speaker 1: And in addition to that, we're gonna pile on more 297 00:17:40,119 --> 00:17:43,280 Speaker 1: debt for the consumers. So no, I don't think that 298 00:17:43,400 --> 00:17:46,000 Speaker 1: actually is the best way to go. But we've got 299 00:17:46,040 --> 00:17:49,800 Speaker 1: is the equivalent of a sugar high financed by death sits. 300 00:17:49,920 --> 00:17:52,680 Speaker 1: It's it's unsustainable, and it's not even as good as 301 00:17:52,760 --> 00:17:57,120 Speaker 1: the rhetoric. Chris. The one trillion dollars of additional debt 302 00:17:57,240 --> 00:18:01,480 Speaker 1: that was taken on, did that equal anything. When it 303 00:18:01,560 --> 00:18:05,000 Speaker 1: comes to wages per week. I understand you've written about 304 00:18:05,040 --> 00:18:08,199 Speaker 1: this in the past, and it looks as though it 305 00:18:08,280 --> 00:18:11,720 Speaker 1: was an increase of maybe twenty five cents an hour. 306 00:18:11,880 --> 00:18:15,920 Speaker 1: That's what it translated into. I'm so glad you brought 307 00:18:15,920 --> 00:18:18,320 Speaker 1: that up. So actually, if you look at the increase 308 00:18:18,320 --> 00:18:22,359 Speaker 1: from July to August, we're talking a whopping dime ten 309 00:18:22,440 --> 00:18:26,040 Speaker 1: cents um. Now that's not gonna pay for college. But 310 00:18:26,119 --> 00:18:30,359 Speaker 1: here's what's even more concerning. If you look at the 311 00:18:30,480 --> 00:18:35,840 Speaker 1: increase in wages after tax cuts for the eight month 312 00:18:35,920 --> 00:18:39,880 Speaker 1: period from the end of sev to August, they grew 313 00:18:39,960 --> 00:18:44,200 Speaker 1: fifty two cents an hour. But the eight months prior 314 00:18:44,240 --> 00:18:46,560 Speaker 1: to the passage and the tax bill there and he 315 00:18:46,640 --> 00:18:50,080 Speaker 1: grew forty seven cents an hour. So the actual real 316 00:18:50,280 --> 00:18:54,359 Speaker 1: increase in wage growth after we took on that additional 317 00:18:54,400 --> 00:18:56,800 Speaker 1: trillion dollars and what they're talking about being even more 318 00:18:57,240 --> 00:19:00,960 Speaker 1: was a nickel. So no, there's not a lot of 319 00:19:01,000 --> 00:19:03,480 Speaker 1: bang for the book, and we're just adding more and 320 00:19:03,560 --> 00:19:06,400 Speaker 1: more debt, and specifically more and more debt on the consumer, 321 00:19:07,040 --> 00:19:10,000 Speaker 1: which eventually is going to catch up to them and 322 00:19:10,000 --> 00:19:13,000 Speaker 1: they're not going to be very happy about what about 323 00:19:13,000 --> 00:19:17,280 Speaker 1: the effect on business investment. So on business investment, that's 324 00:19:17,359 --> 00:19:20,840 Speaker 1: very interesting. Everybody likes to tout the increase in business investment, 325 00:19:20,920 --> 00:19:23,760 Speaker 1: but I haven't checked the most recent revisions. But the 326 00:19:23,880 --> 00:19:26,879 Speaker 1: last time I checked this, the rate of increase in 327 00:19:26,920 --> 00:19:31,480 Speaker 1: business investment is actually down. So yes, business investment is increasing, 328 00:19:31,840 --> 00:19:34,960 Speaker 1: but it was increasing before the tax cuts. It's just 329 00:19:35,080 --> 00:19:38,199 Speaker 1: now it's increasing at a lower rate than before the 330 00:19:38,240 --> 00:19:41,120 Speaker 1: tax cuts. You know, Chris, I'd love your opinion. Since 331 00:19:41,160 --> 00:19:43,840 Speaker 1: you do contribute to the Fed's Beige Book and have 332 00:19:43,880 --> 00:19:46,920 Speaker 1: a consulted with the Federal Reserves, you have an intimate 333 00:19:46,960 --> 00:19:51,199 Speaker 1: knowledge of policies on a range of different fronts, as 334 00:19:51,200 --> 00:19:54,960 Speaker 1: well as from a range of different ideologies. I'm just wondering, 335 00:19:55,000 --> 00:19:58,240 Speaker 1: you know, Elizabeth Warren coming out the Senator saying today 336 00:19:58,520 --> 00:20:00,720 Speaker 1: that she thinks the big banks should be broken up, 337 00:20:00,760 --> 00:20:03,280 Speaker 1: you have calls for more regulation on the democratic side. 338 00:20:03,480 --> 00:20:06,320 Speaker 1: I mean, do you think that that's the way to go? 339 00:20:06,680 --> 00:20:08,720 Speaker 1: I mean, do you think that do you? Do you 340 00:20:08,800 --> 00:20:12,000 Speaker 1: do you kind of agree with the basis of having 341 00:20:12,200 --> 00:20:15,080 Speaker 1: a fewer government interventions and and sort of cutting the 342 00:20:15,119 --> 00:20:17,600 Speaker 1: taxes if possible, if you could also cut spending, or 343 00:20:17,800 --> 00:20:21,600 Speaker 1: do you just disagree fundamentally with with with sort of 344 00:20:21,680 --> 00:20:26,119 Speaker 1: in general, cutting taxes in orders for growth. No, I 345 00:20:26,160 --> 00:20:29,200 Speaker 1: don't disagree with cutting taxes. What I disagree with is 346 00:20:29,240 --> 00:20:35,000 Speaker 1: cutting taxes without any connection to um actual wage growth 347 00:20:35,080 --> 00:20:36,679 Speaker 1: or employment growth. So, if you really want to do 348 00:20:36,720 --> 00:20:40,160 Speaker 1: tax reform two point notes, it's just very logical. You say, 349 00:20:40,200 --> 00:20:44,120 Speaker 1: companies that increase hiring in the companies that increase wages, 350 00:20:44,600 --> 00:20:47,440 Speaker 1: they get the biggest tax cuts. What we did instead 351 00:20:47,600 --> 00:20:50,399 Speaker 1: was we had a home based tax policy. We cut 352 00:20:50,480 --> 00:20:53,840 Speaker 1: taxes for all corporations across the board and hoped they 353 00:20:53,840 --> 00:20:56,280 Speaker 1: would create more jobs and hoped they would increase wages. 354 00:20:56,320 --> 00:20:59,480 Speaker 1: Now some did, but a fair number didn't, but they 355 00:20:59,520 --> 00:21:01,800 Speaker 1: got the same tax break. So if you wanted to 356 00:21:01,840 --> 00:21:05,600 Speaker 1: get a better r a better return on investment, tie 357 00:21:05,640 --> 00:21:09,600 Speaker 1: each company's tax rate to each company's rate of employment 358 00:21:09,600 --> 00:21:12,240 Speaker 1: growth and wage growth. That's how you get the best 359 00:21:12,320 --> 00:21:16,680 Speaker 1: bang for the buck for the American citizen. Chris, could 360 00:21:16,720 --> 00:21:20,560 Speaker 1: you just do about thirty seconds or so on trade policy, 361 00:21:20,600 --> 00:21:23,760 Speaker 1: because I know you've been active in following the trade 362 00:21:23,800 --> 00:21:27,760 Speaker 1: negotiations between the United States and China, but also trade 363 00:21:27,800 --> 00:21:32,000 Speaker 1: negotiations between the United States and the European Union. Certainly, 364 00:21:32,119 --> 00:21:35,000 Speaker 1: boy whish we had more time for that one. But 365 00:21:35,080 --> 00:21:38,040 Speaker 1: here here's the summary. Look Um, something needed to be 366 00:21:38,080 --> 00:21:41,560 Speaker 1: done about trade policy. The tariffs are unequal. We're getting 367 00:21:41,640 --> 00:21:44,879 Speaker 1: the bad end of the deal. We should at least 368 00:21:44,880 --> 00:21:49,160 Speaker 1: have reciprocal terms. My concern with what's currently being done 369 00:21:49,280 --> 00:21:54,480 Speaker 1: is it's being done two suddenly. Corporations need time to 370 00:21:54,560 --> 00:21:58,520 Speaker 1: be able to adjust the logistics supply chains. So I 371 00:21:58,520 --> 00:22:00,679 Speaker 1: agree that something needs to be done, agree that we 372 00:22:00,760 --> 00:22:03,240 Speaker 1: need to level the playing field, but he needs to 373 00:22:03,280 --> 00:22:06,919 Speaker 1: be done more gradually so the corporations can adjust on 374 00:22:06,960 --> 00:22:10,040 Speaker 1: their supply chains. Chris Mackie, thank you so much for 375 00:22:10,080 --> 00:22:12,919 Speaker 1: being with us. Really a pleasure. Chris Mackie founder of 376 00:22:13,119 --> 00:22:17,360 Speaker 1: Solution Omics in New York. He has been checking out 377 00:22:17,359 --> 00:22:20,720 Speaker 1: the economy in the US for decades and advising the 378 00:22:20,760 --> 00:22:27,080 Speaker 1: FED as well as their Beige Book. Here's a question 379 00:22:27,359 --> 00:22:31,280 Speaker 1: we hear about some companies heading into the cannabis sector. 380 00:22:31,640 --> 00:22:35,800 Speaker 1: They tend to be alcohol companies and not tobacco ones. 381 00:22:36,119 --> 00:22:40,040 Speaker 1: What gives here? Why wouldn't tobacco be the national participant here? 382 00:22:40,119 --> 00:22:42,280 Speaker 1: Joining us now as Tara la Chapelle, A column is 383 00:22:42,359 --> 00:22:45,639 Speaker 1: covering deals and all of the consumer aspects of our 384 00:22:45,680 --> 00:22:49,000 Speaker 1: world and for Bloomberg Opinion as well as Christine Oram. 385 00:22:49,200 --> 00:22:52,080 Speaker 1: She is a news reporter coming to us from Toronto 386 00:22:52,359 --> 00:22:55,800 Speaker 1: for Bloomberg. Christine, let's start with you, what do we 387 00:22:55,880 --> 00:22:58,639 Speaker 1: know so far about how much tobacco has tried to 388 00:22:58,720 --> 00:23:02,920 Speaker 1: get into my irjuana and just how much that contrasts 389 00:23:02,920 --> 00:23:05,960 Speaker 1: with alcohol's interest. Well, we haven't seen a lot of 390 00:23:06,000 --> 00:23:09,520 Speaker 1: interest from the tobacco industry so far, and you're absolutely right. 391 00:23:09,560 --> 00:23:13,640 Speaker 1: Compared to UM the investments and indications of interest from 392 00:23:13,640 --> 00:23:18,199 Speaker 1: the alcohol industry, tobacco is virtually non existent. Um. We 393 00:23:18,240 --> 00:23:21,840 Speaker 1: had one very small investment from a company from Imperial Brands, 394 00:23:21,840 --> 00:23:25,800 Speaker 1: the British company in a very small, closely held company 395 00:23:25,840 --> 00:23:29,680 Speaker 1: called at Oxford Cannabinoid Technologies, so small that they didn't 396 00:23:29,680 --> 00:23:33,280 Speaker 1: actually even give a value of that investment. And Alliance 397 00:23:33,359 --> 00:23:36,960 Speaker 1: One also has a stake in a Canadian cannabis producer. 398 00:23:37,040 --> 00:23:39,080 Speaker 1: But other than that, there hasn't been a lot of interest, 399 00:23:39,280 --> 00:23:42,520 Speaker 1: especially from the major players in the tobacco industry. Okay, 400 00:23:42,600 --> 00:23:46,040 Speaker 1: So Tara, come on in here, and from a strategic standpoint, 401 00:23:46,160 --> 00:23:48,440 Speaker 1: why wouldn't the Philip Morris is Morris is the world 402 00:23:48,800 --> 00:23:52,120 Speaker 1: flock to the cannabis industry, right it seems like such 403 00:23:52,119 --> 00:23:54,880 Speaker 1: a natural fit. Um. I think there's probably a couple 404 00:23:54,920 --> 00:23:57,080 Speaker 1: of things going on. It could be that behind the 405 00:23:57,119 --> 00:23:59,359 Speaker 1: scenes they are working on this. We know in the 406 00:23:59,400 --> 00:24:02,280 Speaker 1: past ye iss ago that they started to um, and 407 00:24:02,320 --> 00:24:05,680 Speaker 1: I think maybe they're waiting for federal legalization before they 408 00:24:05,680 --> 00:24:07,840 Speaker 1: really make a big move. And they've also got a 409 00:24:07,920 --> 00:24:09,560 Speaker 1: lot of other things on their plate right now. You know, 410 00:24:09,600 --> 00:24:12,240 Speaker 1: they've been trying to get into vapors, which is probably 411 00:24:12,280 --> 00:24:15,560 Speaker 1: cannibalizing a little bit of their cigarette sales. So I 412 00:24:15,600 --> 00:24:17,960 Speaker 1: think you know they're dealing with that right now, but 413 00:24:18,000 --> 00:24:19,760 Speaker 1: you know, it could be that they're throwing force and 414 00:24:20,040 --> 00:24:22,200 Speaker 1: labbying efforts behind the scenes that we don't know about. 415 00:24:22,520 --> 00:24:24,119 Speaker 1: And I mean, that would make a lot of sense 416 00:24:24,160 --> 00:24:28,960 Speaker 1: to Tara. The Food and Drug Administration has already targeted 417 00:24:29,400 --> 00:24:33,920 Speaker 1: vaping right there, alarmed by the increase in use among teenagers, 418 00:24:34,520 --> 00:24:37,640 Speaker 1: and they've declared that teenage use of electronic cigarettes has 419 00:24:37,680 --> 00:24:42,280 Speaker 1: reached what they describe as an epidemic proportion. Is that 420 00:24:42,480 --> 00:24:45,600 Speaker 1: also one of the reasons why you believe that tobacco 421 00:24:45,720 --> 00:24:49,119 Speaker 1: companies are going slow It could be I mean, that's 422 00:24:49,119 --> 00:24:52,520 Speaker 1: been a pro and con for them really, because on 423 00:24:52,560 --> 00:24:55,240 Speaker 1: the one hand, the FDA is going after the amount 424 00:24:55,240 --> 00:24:58,119 Speaker 1: of nicotine in these products because that obviously makes it 425 00:24:58,240 --> 00:25:00,720 Speaker 1: very addictive and they want to reduce that, which hurts 426 00:25:00,760 --> 00:25:04,280 Speaker 1: the major tobacco companies. On the other hand, going after 427 00:25:04,600 --> 00:25:08,240 Speaker 1: the flavors in products that jewel Cells, which is a 428 00:25:08,359 --> 00:25:11,640 Speaker 1: new upstart competitor for them, and a really big competitor 429 00:25:11,640 --> 00:25:13,680 Speaker 1: that's done a lot of marketing, a lot of advertising. 430 00:25:14,080 --> 00:25:16,480 Speaker 1: I mean, that could be a boon for the big 431 00:25:16,520 --> 00:25:19,200 Speaker 1: tobacco companies if they could get this other competitors sort 432 00:25:19,200 --> 00:25:21,320 Speaker 1: of keep them away a little bit off their turf. 433 00:25:21,480 --> 00:25:24,520 Speaker 1: Christine comes in here because you know, what Terras says 434 00:25:24,600 --> 00:25:27,280 Speaker 1: is really compelling that maybe the big tobacco companies are 435 00:25:27,320 --> 00:25:31,560 Speaker 1: working on the cannabis industry behind the scenes. Suggests that 436 00:25:31,600 --> 00:25:33,760 Speaker 1: they would want to do it in house. It would 437 00:25:33,800 --> 00:25:36,040 Speaker 1: be homegrown. If you will, Christine, can you give us 438 00:25:36,040 --> 00:25:38,760 Speaker 1: a sense of what kind of competition that would pose 439 00:25:38,800 --> 00:25:42,120 Speaker 1: to the existing cannabis companies given how well their stocks 440 00:25:42,119 --> 00:25:44,440 Speaker 1: have doing. I mean, I'm thinking of till right, which 441 00:25:44,480 --> 00:25:47,640 Speaker 1: is up six percent since it's I p O. Yes, 442 00:25:47,680 --> 00:25:50,160 Speaker 1: they've seen some some ridiculous stock moves in the space, 443 00:25:50,200 --> 00:25:52,320 Speaker 1: and that you know that what really generated those moves 444 00:25:52,359 --> 00:25:55,280 Speaker 1: with canopies deal with Constellation brands, which is of course 445 00:25:55,280 --> 00:25:58,920 Speaker 1: the company behind Corona Beer, Robert Mundabby Wine, many other 446 00:25:59,000 --> 00:26:00,720 Speaker 1: brands that were familiar with us, and that has sent 447 00:26:00,760 --> 00:26:03,040 Speaker 1: stock storing. So that was because of the alcohol involved 448 00:26:03,040 --> 00:26:05,680 Speaker 1: into the space. Of course, if if a major tobacco 449 00:26:05,760 --> 00:26:09,080 Speaker 1: company got into cannabis decided to start doing its own 450 00:26:09,119 --> 00:26:12,359 Speaker 1: work without partnering with an existing company, that would pose 451 00:26:12,400 --> 00:26:15,359 Speaker 1: a potentially a pretty big threat because they have a 452 00:26:15,359 --> 00:26:20,320 Speaker 1: lot of resources and and frankly cash behind them. However, 453 00:26:20,520 --> 00:26:23,000 Speaker 1: there's also the issue of reputation that you have to 454 00:26:23,040 --> 00:26:25,600 Speaker 1: take into account, and this goes both ways. I was 455 00:26:25,640 --> 00:26:29,480 Speaker 1: talking to an analyst recently who looks at both tobacco 456 00:26:29,560 --> 00:26:32,080 Speaker 1: and cannabis, and he was saying, you know, he's gotten 457 00:26:32,080 --> 00:26:33,919 Speaker 1: the sense that a lot of tobacco companies have been 458 00:26:33,960 --> 00:26:36,800 Speaker 1: wary about getting into the cannabis space because they're worried 459 00:26:36,840 --> 00:26:39,040 Speaker 1: about the damage it could do to their reputation, which 460 00:26:39,080 --> 00:26:41,200 Speaker 1: is sort of ironic because I don't think the tobacco 461 00:26:41,240 --> 00:26:44,159 Speaker 1: companies have much of a reputation to protect. On the 462 00:26:44,200 --> 00:26:46,440 Speaker 1: other hand, you could see from a cannabis company perspective. 463 00:26:46,720 --> 00:26:49,600 Speaker 1: They're trying to put forward right now, this sort of holistic, 464 00:26:49,720 --> 00:26:52,000 Speaker 1: healthy view that cannabis is good for you, it has 465 00:26:52,080 --> 00:26:55,399 Speaker 1: medical properties and so on. By having a tobacco player 466 00:26:55,480 --> 00:26:58,199 Speaker 1: in the industry, a lot of those companies may not 467 00:26:58,240 --> 00:27:00,280 Speaker 1: want to partner with a tobacco company because it could 468 00:27:00,280 --> 00:27:04,760 Speaker 1: actually potentially damage their brand as well. Christine just could 469 00:27:04,760 --> 00:27:08,840 Speaker 1: to expand a little bit on how Canada is legalizing 470 00:27:09,080 --> 00:27:13,560 Speaker 1: the recreational use of marijuana and who's controlling and running 471 00:27:13,840 --> 00:27:18,679 Speaker 1: that aspect of the business. So yes, legal legalization will 472 00:27:18,720 --> 00:27:21,679 Speaker 1: happen on October seventeen, which will open recreational use to 473 00:27:21,840 --> 00:27:25,000 Speaker 1: all adults across the country Canada. Canada will be just 474 00:27:25,080 --> 00:27:28,840 Speaker 1: the second country in the world after Uruguay to legalize 475 00:27:28,840 --> 00:27:32,159 Speaker 1: on a countrywide basis. UH. This is very much a 476 00:27:32,200 --> 00:27:36,080 Speaker 1: government initiative. Our Prime Minister Justin Trudeau stated about five 477 00:27:36,160 --> 00:27:38,399 Speaker 1: years ago that he was in favor of legalization and 478 00:27:38,480 --> 00:27:40,720 Speaker 1: made that a priority as soon as he was elected 479 00:27:41,080 --> 00:27:43,560 Speaker 1: UH in twenty fifteen. So this has been underway for 480 00:27:43,560 --> 00:27:47,360 Speaker 1: a while. UH. But it's also generated a huge private 481 00:27:47,359 --> 00:27:50,000 Speaker 1: industry here. We have over a hundred and twenty companies 482 00:27:50,200 --> 00:27:52,600 Speaker 1: that are probably traded in Canada, including a lot of 483 00:27:52,640 --> 00:27:56,240 Speaker 1: companies with US operations because currently those American companies can't 484 00:27:56,280 --> 00:27:58,960 Speaker 1: list on US stock exchanges, and so a lot of 485 00:27:59,000 --> 00:28:02,919 Speaker 1: Canadian investment in her stock exchanges companies, uh, you know, 486 00:28:03,359 --> 00:28:07,080 Speaker 1: and sillary businesses have arisen around this industry in Canada, 487 00:28:07,080 --> 00:28:09,560 Speaker 1: at least for the time being, has established itself as 488 00:28:09,560 --> 00:28:11,560 Speaker 1: a global leader. I think the question is, you know, 489 00:28:11,600 --> 00:28:14,920 Speaker 1: if and when the US does legalize on a national level, 490 00:28:14,920 --> 00:28:18,399 Speaker 1: on a federal level, whether Canada can maintain that leadership position, 491 00:28:18,480 --> 00:28:21,000 Speaker 1: because of course the American market is so much bigger well, 492 00:28:21,040 --> 00:28:23,400 Speaker 1: and tera that raises a question of what the barriers 493 00:28:23,440 --> 00:28:26,120 Speaker 1: to entry are and if tobacco is going to get in, 494 00:28:26,400 --> 00:28:28,760 Speaker 1: do they have an advantage because of the distribution networks 495 00:28:29,000 --> 00:28:31,040 Speaker 1: or are they at a disadvantage because they're coming to 496 00:28:31,119 --> 00:28:33,080 Speaker 1: it late in the game. I think, no matter what, 497 00:28:33,160 --> 00:28:36,080 Speaker 1: they'll always have a big advantage just given their experience, 498 00:28:36,160 --> 00:28:39,520 Speaker 1: you know, coming over regulatory hurdles, working with the government. 499 00:28:39,520 --> 00:28:42,760 Speaker 1: I mean, I think it would be unwise underestimate big 500 00:28:42,800 --> 00:28:45,440 Speaker 1: tobacco's power in the market. On the other hand, I 501 00:28:45,440 --> 00:28:47,800 Speaker 1: think it makes so much sense that companies like Constellation 502 00:28:47,960 --> 00:28:51,720 Speaker 1: are looking ahead and seeing you know, sales of liquor 503 00:28:51,800 --> 00:28:53,480 Speaker 1: and beer and wine. I mean that's it's a tough 504 00:28:53,560 --> 00:28:56,440 Speaker 1: market and it's not growing as quickly as it used to. 505 00:28:56,520 --> 00:28:58,120 Speaker 1: It makes a lot of sense to start looking at 506 00:28:58,160 --> 00:29:00,320 Speaker 1: this and while you know, I'm sure that they have 507 00:29:00,360 --> 00:29:03,160 Speaker 1: an eye toward the US market, which is huge there, 508 00:29:03,400 --> 00:29:05,400 Speaker 1: it makes sense to start in Canada and get a 509 00:29:05,400 --> 00:29:07,560 Speaker 1: foothold there, and I think these early movers are getting 510 00:29:07,560 --> 00:29:10,720 Speaker 1: rewarded for it by the investors. Now, I want to 511 00:29:10,720 --> 00:29:13,040 Speaker 1: thank you both very much for joining us and enlightening 512 00:29:13,120 --> 00:29:19,040 Speaker 1: us about this issue. Bloomberg's Christine ram Area, Canada Cannabis reporter, 513 00:29:19,080 --> 00:29:22,560 Speaker 1: and of course October seventeenth, as she mentioned, the moment 514 00:29:22,600 --> 00:29:26,360 Speaker 1: when it will become legal in Canada for recreational marijuana 515 00:29:26,480 --> 00:29:29,560 Speaker 1: and our thanks also to Tara la Chapelle, Bloomberg cover 516 00:29:30,160 --> 00:29:34,400 Speaker 1: columnists covering all sorts of deals and the media, telecommunications 517 00:29:34,400 --> 00:29:38,920 Speaker 1: Berkshire Hathaway for example, and now of course cannabis. Thanks 518 00:29:38,920 --> 00:29:41,520 Speaker 1: for listening to the Bloomberg P and L podcast. You 519 00:29:41,560 --> 00:29:45,360 Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 520 00:29:45,480 --> 00:29:48,920 Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm 521 00:29:48,960 --> 00:29:53,000 Speaker 1: on Twitter, at pim Fox. I'm on Twitter at Lisa Abramo. 522 00:29:53,080 --> 00:29:55,680 Speaker 1: It's one before the podcast. You can always catch us 523 00:29:55,720 --> 00:30:04,280 Speaker 1: worldwide on Bloomberg Radio to Bo