WEBVTT - Consumers May Balk At Paying For Outage-Proof Utilities 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.560 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg P M L 0:00:20.840 --> 0:00:27.360 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The 0:00:27.440 --> 0:00:31.400 devastation and destruction from Hurricane Florence may leave three million 0:00:31.520 --> 0:00:35.199 homes and businesses without power. Here to tell us more 0:00:35.240 --> 0:00:39.320 about the situation. It's is Kit Contllege, our senior industrials 0:00:39.320 --> 0:00:43.279 and utilities analysts for Bloomberg Intelligence. He joins us here 0:00:43.280 --> 0:00:45.920 in our eleven three oh studios. Kit is always a 0:00:45.960 --> 0:00:47.839 pleasure to have you here. Give us an update on 0:00:47.920 --> 0:00:51.279 what you know about the utilities response to the hurricane 0:00:51.520 --> 0:00:56.560 well him. The utilities gear up obviously days ahead of time, 0:00:57.160 --> 0:01:01.160 and in recent years, in response to criticism in the past, 0:01:01.520 --> 0:01:05.920 they've kind of, if you will, over prepared for these situations. 0:01:05.920 --> 0:01:11.039 They call in thousands of backup linemen from other utilities 0:01:11.080 --> 0:01:14.920 around the country, so they should be well prepared. Obviously, 0:01:15.000 --> 0:01:17.240 once the lights start going out. Now I think they're 0:01:17.319 --> 0:01:20.720 up to about half a million outages now, and we'll 0:01:20.760 --> 0:01:24.679 see how rapidly that goes. Uh. Everybody expects there to 0:01:24.720 --> 0:01:28.040 be outages, then the utilities tend to get measured on 0:01:28.080 --> 0:01:32.000 obviously the safety of their operations and also on how 0:01:32.080 --> 0:01:35.039 quickly they turn people back on. So one thing that 0:01:35.080 --> 0:01:38.440 I'm wondering is just in general, are utilities that are 0:01:38.480 --> 0:01:42.399 relatively close to the coast prepared for more storms like this, 0:01:42.600 --> 0:01:44.600 given the fact that it is expected that we will 0:01:44.600 --> 0:01:49.520 see more of them, right, Lisa, While they uh, you know, 0:01:49.640 --> 0:01:53.240 they tell you they are so uh, it's the proof 0:01:53.360 --> 0:01:56.680 is always in in what they do. I think I 0:01:56.720 --> 0:02:01.240 think it's fair to say that certainly after Ukushima in Japan, 0:02:01.400 --> 0:02:06.520 they got very focused on making sure that the truly 0:02:06.560 --> 0:02:11.960 critical infrastructure, the nuclear plants in particular, uh is safeguarded 0:02:12.040 --> 0:02:16.079 from uh, you know, anything they can think of in 0:02:16.240 --> 0:02:22.080 terms of really outside of normal conditions. Uh. But look, 0:02:22.120 --> 0:02:24.359 it's a long coastline. There's a lot of stuff that 0:02:24.440 --> 0:02:27.120 can go wrong, and I think we just have to 0:02:27.160 --> 0:02:30.240 see each time are they prepared or are they not prepared. 0:02:31.000 --> 0:02:34.720 Talk a little bit about the responsibility that utilities bear 0:02:35.639 --> 0:02:41.760 during natural disasters, but also when it comes to disasters 0:02:41.800 --> 0:02:44.760 and catastrophes such as the one that is at least 0:02:44.760 --> 0:02:48.480 currently being experienced in Massachusetts and Lawrence and and over 0:02:48.560 --> 0:02:53.000 north and over with gas seemingly gas explosions. What is 0:02:53.040 --> 0:02:56.240 about the liability issues that's important to know? Right well? 0:02:57.280 --> 0:03:01.040 The the usual rule that investors think about and that 0:03:01.200 --> 0:03:05.240 utility managers think about is that, uh, they're there are 0:03:05.400 --> 0:03:10.600 natural disasters that you can't of course prevent, uh, but 0:03:10.880 --> 0:03:13.639 you can do something about and you're judged on how 0:03:13.680 --> 0:03:17.520 well you respond to them. Like a hurricane. Uh, when 0:03:17.800 --> 0:03:21.560 a gas pipe explodes that you're operating that's never supposed 0:03:21.600 --> 0:03:25.480 to happen, clearly, so immediately, I mean that stock of 0:03:25.520 --> 0:03:29.240 the company that owns that nice sources down ten or 0:03:29.280 --> 0:03:33.880 eleven percent today. Uh. And and naturally people are concerned, 0:03:34.240 --> 0:03:38.160 as they should be, and the local population is concerned 0:03:38.200 --> 0:03:40.440 about how bad the pipes are in the ground. You know, 0:03:40.520 --> 0:03:43.320 one thing that I'm struck by just with natural disasters, 0:03:43.320 --> 0:03:46.280 I mean, obviously and an explosion that shouldn't have happened 0:03:46.360 --> 0:03:50.080 that caused death is a whole situation unto itself. But 0:03:50.120 --> 0:03:52.400 one thing that I'm struck by is even when there's 0:03:52.400 --> 0:03:55.560 a strong windstorm you often hear of people losing power 0:03:55.640 --> 0:04:00.800 off in thousands, especially with congested area is like the 0:04:00.840 --> 0:04:03.600 Tri State area right around New York City. I'm just wondering, 0:04:03.720 --> 0:04:06.960 I mean, what is the move going forward going to 0:04:07.080 --> 0:04:11.960 be to try to ensure longer access to electricity? I mean, 0:04:11.960 --> 0:04:15.400 it seems like it should be better that you know, 0:04:15.520 --> 0:04:20.520 that's a that's a great question, because there are solutions 0:04:20.600 --> 0:04:24.520 to it. Unfortunately, they're very expensive. Every time there's a 0:04:24.600 --> 0:04:29.279 hurricane in Florida, for example, Uh, somebody suggests, let's bury 0:04:29.400 --> 0:04:33.159 all the power lines. Well, you know that, Well, it 0:04:33.200 --> 0:04:35.320 would work if you wanted to spend ten or twenty 0:04:35.320 --> 0:04:39.880 billion dollars. And but it's also, as we know, uh, 0:04:39.920 --> 0:04:42.680 pretty high water table in Florida, So how well the 0:04:43.240 --> 0:04:47.320 wires would survive for how long you know, is another issue. 0:04:47.360 --> 0:04:49.760 So I think it's fair to say that there's a 0:04:49.800 --> 0:04:53.640 trade off there, right, I mean, the society as a 0:04:53.640 --> 0:04:58.200 whole has decided that some outages sometime are worth it 0:04:58.320 --> 0:05:03.479 because the alternative of making it completely uh you know, 0:05:03.560 --> 0:05:08.440 bulletproof to to operate under any conditions is just too expensive. 0:05:09.800 --> 0:05:13.159 You have systems like the nuclear plants communicating with each other, 0:05:13.720 --> 0:05:18.040 or military uses then there are situations where not just 0:05:18.080 --> 0:05:22.000 electricity but any other communications or energy, etcetera, are are 0:05:22.120 --> 0:05:26.120 very hardened. Uh, but that's an very expensive way to go, 0:05:26.480 --> 0:05:30.240 and maybe more than people want to pay. I don't know. 0:05:30.279 --> 0:05:32.839 Every time I hear about the thousands of people who 0:05:33.120 --> 0:05:35.400 lose their power when there's like a little bit of wind, 0:05:35.920 --> 0:05:38.400 my my in laws have a situation. I heard about 0:05:38.400 --> 0:05:40.560 it for weeks. Anyway, Cottee, thank you so much for 0:05:40.600 --> 0:05:43.840 being with us Kit Conteledge Senior Industrials and utilities analyzed 0:05:43.960 --> 0:05:46.960 for Bloomberg Intelligence. I'm sure you'll be filling us in 0:05:47.080 --> 0:05:49.719 as we assess the damage. It will be important to 0:05:49.800 --> 0:05:52.599 track although at a certain point you have to wonder. 0:05:52.760 --> 0:05:55.400 Right now, really our thoughts are with people whose homes 0:05:55.400 --> 0:05:58.200 are getting flooded and who are uh, you know, potentially 0:05:58.400 --> 0:06:00.520 going to be losing a lot of things. Is a 0:06:00.640 --> 0:06:03.360 devastating storm with the storm surge that is, and all 0:06:03.360 --> 0:06:05.600 the people who are stranded. We're thinking of you and 0:06:05.760 --> 0:06:08.080 hoping that you are safe as well. Maybe you know 0:06:08.160 --> 0:06:12.520 travelers and someone that are hopefully safe and out of 0:06:12.560 --> 0:06:14.720 harm's way. Yeah, and in shelters. I saw a lot 0:06:14.720 --> 0:06:17.440 of people in schools and things with their children. It's 0:06:17.640 --> 0:06:20.880 very disruptive and I'm sure alarming, so our thoughts are 0:06:21.040 --> 0:06:27.120 with them. Emerging markets has been a big question mark 0:06:27.160 --> 0:06:30.200 over the past few weeks, a huge fall as Turkeys 0:06:30.480 --> 0:06:33.880 financial crisis or i should say currency crisis got underway, 0:06:33.920 --> 0:06:36.719 and Argentina seemed to be heading towards a similar direction 0:06:37.000 --> 0:06:39.200 than a pause. And over the past two days we've 0:06:39.240 --> 0:06:41.120 seen a little bit of a rebound today a little 0:06:41.120 --> 0:06:43.840 bit flat. Joining us now to find out whether this 0:06:43.920 --> 0:06:47.920 is a time to buy developing markets assets or time 0:06:47.960 --> 0:06:50.040 to sell. As Michael Brandon's chief of US was tragist 0:06:50.360 --> 0:06:55.279 of each how private bank it is Latin America's biggest bank. Correct, 0:06:55.480 --> 0:06:57.839 that is correct? All right? Thank you so much for 0:06:57.880 --> 0:07:00.040 being with us. You've been covering emerging markets for a 0:07:00.040 --> 0:07:03.400 long time, and credit in particular, and I'm wondering as 0:07:03.440 --> 0:07:07.080 we view developed the developing world right now, are we 0:07:07.120 --> 0:07:10.200 looking at the beginnings of a protracted sell off as 0:07:10.240 --> 0:07:13.680 a fed raisers rates or is this what we've seen 0:07:13.720 --> 0:07:16.000 in the past few months, a hiccup that is a 0:07:16.040 --> 0:07:18.760 buying opportunity. Well, I mean, and first of all, thanks 0:07:18.880 --> 0:07:21.160 thank you for having me here. It's it's real pleasure 0:07:21.240 --> 0:07:24.920 to be back the current I would say the current 0:07:24.960 --> 0:07:29.200 window of opportunity is still representative of more stress to come. 0:07:30.240 --> 0:07:33.320 I think a more tractive window is opening up. So 0:07:33.440 --> 0:07:36.520 I I am constructive about e M. I would say 0:07:36.520 --> 0:07:38.520 in the medium term, but in the very short term, 0:07:38.760 --> 0:07:43.160 while we're encouraged by what happened to Turkey yesterday, by 0:07:43.240 --> 0:07:46.440 the surprise hike from Russia today, uh we think that 0:07:46.480 --> 0:07:51.280 there is a willingness for emerging market countries to address 0:07:51.960 --> 0:07:55.480 inflation concerns and the volatility and their currencies. It may 0:07:55.520 --> 0:07:58.640 be just a little early, um to start adding back 0:07:58.640 --> 0:08:02.840 into exposures. Looking at the performance of the Brazilian real, 0:08:03.640 --> 0:08:08.119 the chart seems to indicate that things are not getting better, 0:08:08.240 --> 0:08:11.640 that the value of the currency will continue to deteriorate 0:08:11.680 --> 0:08:15.720 against the US dollar. What's your call, Well, I mean, 0:08:16.320 --> 0:08:20.520 what's happening with the real h is representative also of 0:08:20.720 --> 0:08:23.480 we have we have presidential elections coming next month, which 0:08:23.560 --> 0:08:27.640 is very uncertain, and then the volatility happening more broadly 0:08:27.680 --> 0:08:31.120 in currency market. So our view is that we should 0:08:31.200 --> 0:08:34.640 see the real top out here. Uh. We we think 0:08:34.679 --> 0:08:37.000 that we're our target is still for about a three 0:08:37.040 --> 0:08:39.240 point nine against the dollar, which would be a little 0:08:39.280 --> 0:08:41.800 stronger than where it is right now. What we need 0:08:41.880 --> 0:08:48.960 to see, though, beyond the domestic geopolitical uncertainties, we need 0:08:49.040 --> 0:08:53.040 to see less currency volatility more broadly, maybe a softening 0:08:53.080 --> 0:08:56.599 the US dollar, maybe a little lower in US trade tensions. 0:08:56.640 --> 0:09:00.839 But the fundamentals in Brazil are still quite sound. I'm 0:09:00.880 --> 0:09:04.480 struggling with something that you said, which is that you 0:09:04.559 --> 0:09:07.360 do see more pain ahead for emerging markets. There's some 0:09:07.360 --> 0:09:11.840 positive steps being taken, but there is more downside here. 0:09:12.040 --> 0:09:15.000 How do you, as a portfolio manager and a portfolio 0:09:15.080 --> 0:09:18.480 constructor with a huge focus on e M, how do 0:09:18.520 --> 0:09:21.320 you invest? Then? Well, what you do is you look 0:09:21.360 --> 0:09:24.160 for the brighter spots, You try to be more selective 0:09:24.240 --> 0:09:27.840 about your exposures. You manage your currency risk to the 0:09:27.880 --> 0:09:30.160 best extent you can. So how do you do that? Well, 0:09:30.240 --> 0:09:32.400 you do that. Let's say you look at hard currency 0:09:32.520 --> 0:09:36.480 versus local currency UH debt uh, and we look at 0:09:36.520 --> 0:09:42.480 opportunities let's say in in Russia or Colombia, probably more 0:09:43.200 --> 0:09:49.120 uh sustainably positive than places like Turkey Argentina. So you're 0:09:49.120 --> 0:09:53.600 out of Turkey and Argentina. Turkey and Argentina, well, Argentina, UH. 0:09:53.720 --> 0:09:56.760 We you know, we we think that the I m 0:09:56.880 --> 0:10:01.000 F package, there's been talk of getting that expedited act um. 0:10:01.040 --> 0:10:03.680 We were more positive there than in Turkey, where I 0:10:03.720 --> 0:10:07.400 think the political risk is really different from what President 0:10:07.480 --> 0:10:11.840 Mockery has presents to the Argentine Republic. But again, the 0:10:11.920 --> 0:10:15.240 pain near term is going to be difficult, so we diversify. 0:10:15.360 --> 0:10:18.440 We look at diversifying that risk into the developed markets 0:10:18.840 --> 0:10:22.200 and in hard currency debt. Where do you find the 0:10:22.240 --> 0:10:26.640 biggest challenge to liquidity Right now, the biggest challenge of 0:10:26.679 --> 0:10:30.560 liquidity is in well in e M broadly, we're seeing 0:10:30.679 --> 0:10:33.600 flows come out and and part of this is this 0:10:33.679 --> 0:10:36.000 is challenging because what does that mean? The bid and 0:10:36.200 --> 0:10:39.040 ask spread gets wider and wider. That's right, So the 0:10:39.080 --> 0:10:43.400 bid aspread has widened, the level of trading has diminished, 0:10:43.920 --> 0:10:46.280 and what that does also it has an impact and 0:10:46.320 --> 0:10:49.600 the ability to generate new supply. So one of the 0:10:49.840 --> 0:10:52.240 one of the problems in the technical side of the 0:10:52.280 --> 0:10:55.320 market going forward is that on on on the corporate 0:10:55.400 --> 0:10:57.360 or in the credit side of e M, we have 0:10:57.440 --> 0:10:59.840 a calendar of supply that's supposed to come up, but 0:11:00.000 --> 0:11:02.720 at the same time you have investors pulling back because 0:11:02.720 --> 0:11:06.839 of the volatility we discussed, and that is uh affecting 0:11:06.920 --> 0:11:09.960 price discovery. Right, So when markets that are less liquid, 0:11:10.280 --> 0:11:13.320 you need this price discovery, You need new issuance to 0:11:13.400 --> 0:11:16.840 demonstrate that there are prices that you can buy and 0:11:16.840 --> 0:11:19.080 sell at. You know, it's interesting that you say you 0:11:19.080 --> 0:11:23.839 would diversify more toward developed markets. In certain cases, that 0:11:23.880 --> 0:11:26.560 seems to be actually the opposite of what some people 0:11:26.600 --> 0:11:28.960 are saying. And for example, Jeffrey Gunlock of Double Line 0:11:29.000 --> 0:11:31.680 Capital when he said he actually thinks that the US 0:11:31.760 --> 0:11:36.080 markets could underperform after an incredible outperformance and suggests moving 0:11:36.120 --> 0:11:40.040 to more global exposure. I'm just wondering, um, how do 0:11:40.080 --> 0:11:43.200 you sort of defend against your position, and especially considering 0:11:43.200 --> 0:11:45.360 the fact that a lot of people are saying the 0:11:45.440 --> 0:11:48.719 US markets have gone so far so fast, diverged from 0:11:48.720 --> 0:11:50.760 the rest of the world and it can't continue. Well, 0:11:51.200 --> 0:11:54.120 you know, if if we're talking about I mean, there's 0:11:54.120 --> 0:11:56.599 equities and there's fixed incomeing out to speak briefly in 0:11:56.640 --> 0:11:59.320 the equity side, and and you know, we've been positive 0:11:59.360 --> 0:12:01.839 on the US equity mark, and we talked about equity 0:12:02.160 --> 0:12:05.560 US equities and Japanese equities, and on the US equity mark, 0:12:05.679 --> 0:12:07.280 is interesting. I have to give a shout out to 0:12:07.320 --> 0:12:09.760 a former colleague of mine, Tobias left of It. You 0:12:09.800 --> 0:12:12.240 did some great work on this when he talked about 0:12:12.320 --> 0:12:14.400 there are a lot of clients right now or investors 0:12:14.400 --> 0:12:16.679 are talking about the Schillar cape and they're saying, oh, 0:12:16.720 --> 0:12:20.040 it's very expensive and it looks like valuations, why would 0:12:20.080 --> 0:12:22.440 you even buy the US market here? Now? Again, a 0:12:22.559 --> 0:12:25.640 pullback is plausible, There's there's no doubt about it. But 0:12:25.679 --> 0:12:29.160 Tobias had made the point in a recent report that said, 0:12:29.400 --> 0:12:32.199 you know he's there. He doesn't integrate in this measure 0:12:32.320 --> 0:12:34.520 a cost of capital. And if you look at cost 0:12:34.559 --> 0:12:38.120 of capital and CAPE and you integrate that, valuations are full, 0:12:38.520 --> 0:12:41.640 but they're not necessarily rich. So I think there is 0:12:42.440 --> 0:12:44.640 the way you do it is you manage expectations. You 0:12:44.760 --> 0:12:47.520 don't expect the kinds of returns that we've had in 0:12:47.559 --> 0:12:51.600 the past uh to go forward, but you manage that 0:12:51.679 --> 0:12:54.199 also on a risk adjusted basis, we would expect there 0:12:54.200 --> 0:12:56.480 to be less volatility, you said CAPE, and you've got 0:12:56.480 --> 0:13:01.360 to just explain the cyclically adjusted of PE ratio, which 0:13:01.400 --> 0:13:04.880 which tries to normalize this over time. Um, I'm not 0:13:04.920 --> 0:13:08.400 going to go for technical explanation him as you know, 0:13:08.520 --> 0:13:12.600 you're going after my vulnerable spot here, which is which 0:13:12.640 --> 0:13:15.360 is I'm a bond guy at heart. But I'll get 0:13:15.360 --> 0:13:18.680 your definition by email. No, I just just wanted to 0:13:18.800 --> 0:13:22.960 set out the parameters Robert from Yale, this is his 0:13:22.960 --> 0:13:28.520 his benchmark that everyone follows. Do you perceive that there's 0:13:28.559 --> 0:13:33.439 going to be any intermediary risk? And I go to 0:13:33.559 --> 0:13:37.719 this issue of liquidity again, because it is not just 0:13:37.840 --> 0:13:42.280 the actual instrument or asset that can be at risk. 0:13:42.720 --> 0:13:49.040 It's sometimes the middleman, the traders in between. They might 0:13:49.080 --> 0:13:53.040 not have the liquidity in order to withstand any rapid movement. Well, 0:13:53.400 --> 0:13:55.440 it's a good point. And it's a good point because 0:13:55.440 --> 0:13:57.880 as we know since Basil three and Dodd Frank and 0:13:58.400 --> 0:14:01.800 Vocal rule that the primary dealers in the US and 0:14:01.840 --> 0:14:06.199 financial institutions elsewhere have less ability to absorb or buffer 0:14:06.600 --> 0:14:10.400 these transitions and volatility because their trading desk can take 0:14:10.440 --> 0:14:12.880 this on and they have to hold higher quality capital 0:14:12.920 --> 0:14:15.480 against their risk. It's a very good point because at 0:14:15.520 --> 0:14:17.920 this time we have the Federal Reserve, which of course 0:14:18.240 --> 0:14:21.520 it's balance sheet is starting to shrink. UH Bank of 0:14:21.600 --> 0:14:24.320 Japan maybe ten or twenty years ago in our lifetime. 0:14:24.360 --> 0:14:26.960 I don't know, but certainly ECB had just announced that 0:14:26.960 --> 0:14:31.200 they're going to cut their UH purchases in half UH 0:14:31.240 --> 0:14:33.160 and go to zero at the end of the year. 0:14:33.480 --> 0:14:36.280 So this is going to be a challenging UM. So 0:14:36.320 --> 0:14:38.480 we are looking at it. Thanks very much for being 0:14:38.520 --> 0:14:42.120 with us. Always a pleasure. Michael Brandis, Chief investment strategist 0:14:42.480 --> 0:14:50.840 E TAU Private Bank. This is Bloomberg. The Treasury Department 0:14:51.120 --> 0:14:55.120 has weighed in on a potential for tax reform two 0:14:55.160 --> 0:15:00.160 point oh For example, Treasury Secretary Stephen Manuchin has said 0:15:00.200 --> 0:15:03.160 that the Department may be able to make a big 0:15:03.240 --> 0:15:09.040 capital gains tax change without congressional approval. Here tell us 0:15:09.040 --> 0:15:12.920 more as Chris Mackie. He is the founder of Solution Nomics. Chris, 0:15:12.920 --> 0:15:15.680 always a pleasure. Thanks for being with us. Tell us 0:15:15.720 --> 0:15:19.160 what you know about this potential change to the tax 0:15:19.280 --> 0:15:23.800 code and what you believe it will mean for the country. Well, 0:15:23.840 --> 0:15:25.600 good morning, it's great to be with you. Thanks for 0:15:25.640 --> 0:15:30.000 having me. So what we're talking about here is, when 0:15:30.040 --> 0:15:32.160 you cut through all the details in the minutia, we're 0:15:32.200 --> 0:15:36.120 talking about a reduction, a further reduction in corporate tax rates. 0:15:36.880 --> 0:15:40.320 Now we've already seen a significant reduction in corporate tax rates, 0:15:40.320 --> 0:15:45.000 and unfortunately, UH the results have not been as advertiser 0:15:45.080 --> 0:15:48.920 as expected. So the idea of further cutting corporate tax 0:15:49.080 --> 0:15:53.040 rates in the hope that what hasn't happened, namely, UM 0:15:53.360 --> 0:16:00.480 a greater improvement across the board without significant increases and deficits. UM, 0:16:00.560 --> 0:16:02.840 that just doesn't make any sense. If they really wanted 0:16:02.880 --> 0:16:05.560 to do a tax reform, they would have the greatest 0:16:05.600 --> 0:16:09.840 economic impact, then focus more on the consumer, and specifically 0:16:09.920 --> 0:16:12.520 the middle income and lower consumer, because they're the ones 0:16:12.520 --> 0:16:14.560 that are going to go out and spend, which will 0:16:14.600 --> 0:16:18.160 then cause companies to hire even more. So I'd love 0:16:18.200 --> 0:16:21.480 to get your perspective on what Kevin Hasset, who is 0:16:21.480 --> 0:16:25.640 an economic advisor to President Trump, would he put out 0:16:25.680 --> 0:16:27.720 there earlier in the week where he was talking about 0:16:27.720 --> 0:16:30.080 the economic boom. I think it was late last week 0:16:30.640 --> 0:16:34.000 that the tax cuts have caused for the United States 0:16:34.080 --> 0:16:37.360 and how really President Trump's tenure has marked a turning 0:16:37.400 --> 0:16:41.840 point for the economy. Do you think that that that 0:16:41.920 --> 0:16:44.240 you wouldn't get more of a boon if you did 0:16:44.240 --> 0:16:48.280 it more permanently. What I think is that there's a 0:16:48.280 --> 0:16:51.440 big difference between what's you know the rhetoric and the reality. 0:16:51.520 --> 0:16:53.560 Let let me just give you a quick stat here. 0:16:54.160 --> 0:16:56.640 So we've been hearing a lot of talk about greater 0:16:56.880 --> 0:16:59.720 wage growth, but we're really talking about is the illusion 0:16:59.800 --> 0:17:03.480 of greater wage growth, because real wage growth, that is 0:17:03.600 --> 0:17:06.680 wage growth when you count for inflation, is actually down 0:17:06.880 --> 0:17:10.280 since the tax bill was passed. Just this recent August, 0:17:11.080 --> 0:17:13.800 wage games were up two point nine percent, which sounds 0:17:13.840 --> 0:17:16.960 good and sounds better. However, inflation is up two point 0:17:17.000 --> 0:17:21.240 seven so the consumer actually got point two increase in 0:17:21.280 --> 0:17:25.639 real wages versus August of last year before the tax cuts, 0:17:26.119 --> 0:17:28.960 wages were up two point six percent, but inflation was 0:17:29.000 --> 0:17:31.160 only two percent, so they actually got a point six 0:17:31.160 --> 0:17:35.720 percent increase. So we're not even getting what was hoped for. 0:17:36.280 --> 0:17:39.960 And in addition to that, we're gonna pile on more 0:17:40.119 --> 0:17:43.280 debt for the consumers. So no, I don't think that 0:17:43.400 --> 0:17:46.000 actually is the best way to go. But we've got 0:17:46.040 --> 0:17:49.800 is the equivalent of a sugar high financed by death sits. 0:17:49.920 --> 0:17:52.680 It's it's unsustainable, and it's not even as good as 0:17:52.760 --> 0:17:57.120 the rhetoric. Chris. The one trillion dollars of additional debt 0:17:57.240 --> 0:18:01.480 that was taken on, did that equal anything. When it 0:18:01.560 --> 0:18:05.000 comes to wages per week. I understand you've written about 0:18:05.040 --> 0:18:08.199 this in the past, and it looks as though it 0:18:08.280 --> 0:18:11.720 was an increase of maybe twenty five cents an hour. 0:18:11.880 --> 0:18:15.920 That's what it translated into. I'm so glad you brought 0:18:15.920 --> 0:18:18.320 that up. So actually, if you look at the increase 0:18:18.320 --> 0:18:22.359 from July to August, we're talking a whopping dime ten 0:18:22.440 --> 0:18:26.040 cents um. Now that's not gonna pay for college. But 0:18:26.119 --> 0:18:30.359 here's what's even more concerning. If you look at the 0:18:30.480 --> 0:18:35.840 increase in wages after tax cuts for the eight month 0:18:35.920 --> 0:18:39.880 period from the end of sev to August, they grew 0:18:39.960 --> 0:18:44.200 fifty two cents an hour. But the eight months prior 0:18:44.240 --> 0:18:46.560 to the passage and the tax bill there and he 0:18:46.640 --> 0:18:50.080 grew forty seven cents an hour. So the actual real 0:18:50.280 --> 0:18:54.359 increase in wage growth after we took on that additional 0:18:54.400 --> 0:18:56.800 trillion dollars and what they're talking about being even more 0:18:57.240 --> 0:19:00.960 was a nickel. So no, there's not a lot of 0:19:01.000 --> 0:19:03.480 bang for the book, and we're just adding more and 0:19:03.560 --> 0:19:06.400 more debt, and specifically more and more debt on the consumer, 0:19:07.040 --> 0:19:10.000 which eventually is going to catch up to them and 0:19:10.000 --> 0:19:13.000 they're not going to be very happy about what about 0:19:13.000 --> 0:19:17.280 the effect on business investment. So on business investment, that's 0:19:17.359 --> 0:19:20.840 very interesting. Everybody likes to tout the increase in business investment, 0:19:20.920 --> 0:19:23.760 but I haven't checked the most recent revisions. But the 0:19:23.880 --> 0:19:26.879 last time I checked this, the rate of increase in 0:19:26.920 --> 0:19:31.480 business investment is actually down. So yes, business investment is increasing, 0:19:31.840 --> 0:19:34.960 but it was increasing before the tax cuts. It's just 0:19:35.080 --> 0:19:38.199 now it's increasing at a lower rate than before the 0:19:38.240 --> 0:19:41.120 tax cuts. You know, Chris, I'd love your opinion. Since 0:19:41.160 --> 0:19:43.840 you do contribute to the Fed's Beige Book and have 0:19:43.880 --> 0:19:46.920 a consulted with the Federal Reserves, you have an intimate 0:19:46.960 --> 0:19:51.199 knowledge of policies on a range of different fronts, as 0:19:51.200 --> 0:19:54.960 well as from a range of different ideologies. I'm just wondering, 0:19:55.000 --> 0:19:58.240 you know, Elizabeth Warren coming out the Senator saying today 0:19:58.520 --> 0:20:00.720 that she thinks the big banks should be broken up, 0:20:00.760 --> 0:20:03.280 you have calls for more regulation on the democratic side. 0:20:03.480 --> 0:20:06.320 I mean, do you think that that's the way to go? 0:20:06.680 --> 0:20:08.720 I mean, do you think that do you? Do you 0:20:08.800 --> 0:20:12.000 do you kind of agree with the basis of having 0:20:12.200 --> 0:20:15.080 a fewer government interventions and and sort of cutting the 0:20:15.119 --> 0:20:17.600 taxes if possible, if you could also cut spending, or 0:20:17.800 --> 0:20:21.600 do you just disagree fundamentally with with with sort of 0:20:21.680 --> 0:20:26.119 in general, cutting taxes in orders for growth. No, I 0:20:26.160 --> 0:20:29.200 don't disagree with cutting taxes. What I disagree with is 0:20:29.240 --> 0:20:35.000 cutting taxes without any connection to um actual wage growth 0:20:35.080 --> 0:20:36.679 or employment growth. So, if you really want to do 0:20:36.720 --> 0:20:40.160 tax reform two point notes, it's just very logical. You say, 0:20:40.200 --> 0:20:44.120 companies that increase hiring in the companies that increase wages, 0:20:44.600 --> 0:20:47.440 they get the biggest tax cuts. What we did instead 0:20:47.600 --> 0:20:50.399 was we had a home based tax policy. We cut 0:20:50.480 --> 0:20:53.840 taxes for all corporations across the board and hoped they 0:20:53.840 --> 0:20:56.280 would create more jobs and hoped they would increase wages. 0:20:56.320 --> 0:20:59.480 Now some did, but a fair number didn't, but they 0:20:59.520 --> 0:21:01.800 got the same tax break. So if you wanted to 0:21:01.840 --> 0:21:05.600 get a better r a better return on investment, tie 0:21:05.640 --> 0:21:09.600 each company's tax rate to each company's rate of employment 0:21:09.600 --> 0:21:12.240 growth and wage growth. That's how you get the best 0:21:12.320 --> 0:21:16.680 bang for the buck for the American citizen. Chris, could 0:21:16.720 --> 0:21:20.560 you just do about thirty seconds or so on trade policy, 0:21:20.600 --> 0:21:23.760 because I know you've been active in following the trade 0:21:23.800 --> 0:21:27.760 negotiations between the United States and China, but also trade 0:21:27.800 --> 0:21:32.000 negotiations between the United States and the European Union. Certainly, 0:21:32.119 --> 0:21:35.000 boy whish we had more time for that one. But 0:21:35.080 --> 0:21:38.040 here here's the summary. Look Um, something needed to be 0:21:38.080 --> 0:21:41.560 done about trade policy. The tariffs are unequal. We're getting 0:21:41.640 --> 0:21:44.879 the bad end of the deal. We should at least 0:21:44.880 --> 0:21:49.160 have reciprocal terms. My concern with what's currently being done 0:21:49.280 --> 0:21:54.480 is it's being done two suddenly. Corporations need time to 0:21:54.560 --> 0:21:58.520 be able to adjust the logistics supply chains. So I 0:21:58.520 --> 0:22:00.679 agree that something needs to be done, agree that we 0:22:00.760 --> 0:22:03.240 need to level the playing field, but he needs to 0:22:03.280 --> 0:22:06.919 be done more gradually so the corporations can adjust on 0:22:06.960 --> 0:22:10.040 their supply chains. Chris Mackie, thank you so much for 0:22:10.080 --> 0:22:12.919 being with us. Really a pleasure. Chris Mackie founder of 0:22:13.119 --> 0:22:17.360 Solution Omics in New York. He has been checking out 0:22:17.359 --> 0:22:20.720 the economy in the US for decades and advising the 0:22:20.760 --> 0:22:27.080 FED as well as their Beige Book. Here's a question 0:22:27.359 --> 0:22:31.280 we hear about some companies heading into the cannabis sector. 0:22:31.640 --> 0:22:35.800 They tend to be alcohol companies and not tobacco ones. 0:22:36.119 --> 0:22:40.040 What gives here? Why wouldn't tobacco be the national participant here? 0:22:40.119 --> 0:22:42.280 Joining us now as Tara la Chapelle, A column is 0:22:42.359 --> 0:22:45.639 covering deals and all of the consumer aspects of our 0:22:45.680 --> 0:22:49.000 world and for Bloomberg Opinion as well as Christine Oram. 0:22:49.200 --> 0:22:52.080 She is a news reporter coming to us from Toronto 0:22:52.359 --> 0:22:55.800 for Bloomberg. Christine, let's start with you, what do we 0:22:55.880 --> 0:22:58.639 know so far about how much tobacco has tried to 0:22:58.720 --> 0:23:02.920 get into my irjuana and just how much that contrasts 0:23:02.920 --> 0:23:05.960 with alcohol's interest. Well, we haven't seen a lot of 0:23:06.000 --> 0:23:09.520 interest from the tobacco industry so far, and you're absolutely right. 0:23:09.560 --> 0:23:13.640 Compared to UM the investments and indications of interest from 0:23:13.640 --> 0:23:18.199 the alcohol industry, tobacco is virtually non existent. Um. We 0:23:18.240 --> 0:23:21.840 had one very small investment from a company from Imperial Brands, 0:23:21.840 --> 0:23:25.800 the British company in a very small, closely held company 0:23:25.840 --> 0:23:29.680 called at Oxford Cannabinoid Technologies, so small that they didn't 0:23:29.680 --> 0:23:33.280 actually even give a value of that investment. And Alliance 0:23:33.359 --> 0:23:36.960 One also has a stake in a Canadian cannabis producer. 0:23:37.040 --> 0:23:39.080 But other than that, there hasn't been a lot of interest, 0:23:39.280 --> 0:23:42.520 especially from the major players in the tobacco industry. Okay, 0:23:42.600 --> 0:23:46.040 So Tara, come on in here, and from a strategic standpoint, 0:23:46.160 --> 0:23:48.440