Speaker 1: Welcome to the Bloomberg pm L podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find the Bloomberg p L podcast on iTunes,
Speaker 1: SoundCloud and at Bloomberg dot com. A lot of people
Speaker 1: right now in Congress are coming to the realization, uh
Speaker 1: that it's going to take some time before Republicans can
Speaker 1: fully implement repeal of Obamacare. Not only is it going
Speaker 1: to take a while, but it will actually be incredibly complicated.
Speaker 1: But there are some steps that the new Republican lead
Speaker 1: administration can take in order to limit Obamacare. UH. For
Speaker 1: a look at what those maybe, I want to bring
Speaker 1: in Zachary Tracer of Bloomberg News who covers healthcare sector. Zach,
Speaker 1: what are some of the measures that Republican aids are
Speaker 1: talking about doing right when President Elect Trump assumes office.
Speaker 1: That's right. So folks in d CRE are starting to
Speaker 1: realize that it's going to take a while to repeal Obamacare,
Speaker 1: and they're looking at what ways they can use regulations
Speaker 1: uh or or changing regulations to sort of chip away
Speaker 1: at the Affordable Care Act over the next few months
Speaker 1: and a few years. So one big target of that
Speaker 1: push has been, uh, the benefits under the c A,
Speaker 1: so figuring out ways to limit some of what's covered
Speaker 1: in ways that might bring down the cost of plans
Speaker 1: or get rid of things that some on the right
Speaker 1: really don't like, things like contraceptive coverage, for instance. Is
Speaker 1: that great? What about the idea of repealing it but
Speaker 1: not repealing it. You repeal it in name because it's
Speaker 1: a politically expedient thing to do, but on the other hand,
Speaker 1: you kind of leave in place many of the exchanges.
Speaker 1: Because I understand that more than six million people have
Speaker 1: signed up for obam Care policies through the federal exchanges,
Speaker 1: and that's four thousand more than had selected policies a
Speaker 1: year ago. But your parton six point four million people,
Speaker 1: that's a record, that's right. So we're seeing sign ups
Speaker 1: proceed pretty much at pace. I think right after the
Speaker 1: election of Donald Trump, there was some worry that maybe
Speaker 1: people wouldn't sign up, you know, given all the rhetoric
Speaker 1: about this law is going away, we're going to repeal it.
Speaker 1: But it turns out that so far, sign ups are
Speaker 1: on pace, and the government has said they think thirteen
Speaker 1: point eight million people will ultimately sign up by the
Speaker 1: deadline at the end of January. So if some of
Speaker 1: these benefits are cut, would it lower costs for the
Speaker 1: actual people who are getting the insurance plans or would
Speaker 1: it lower the cost just for the government. You know,
Speaker 1: that's a really good question. So they talk about cutting
Speaker 1: these benefits in part as a way to limit costs.
Speaker 1: So if you take coverage out of waait cost to
Speaker 1: the government, well, it's it's it's both. So that the
Speaker 1: government pays for a big piece of of the a
Speaker 1: C plans, I give subsidies to individuals with low incomes
Speaker 1: the individual man date, that's right, So individuals do have
Speaker 1: to buy health insurance under the law, um and and
Speaker 1: the government gives them subsidies to help them do that.
Speaker 1: So what cutting these benefits would do theoretically is maybe
Speaker 1: lower the cost of this health insurance. The big open
Speaker 1: question is what do you cut? And we should be
Speaker 1: really clear about this because these essential benefits are things
Speaker 1: like hospitalization. There are things like your doctor's visits, labs,
Speaker 1: pregnancy and maternity care, um you know, emergency services. So
Speaker 1: these are You know, the question is, as one person
Speaker 1: put it to us, you know, where's the fluff? What
Speaker 1: are Republicans really going to cut? And that remains to
Speaker 1: be seen. What's um, Let's say they do make some
Speaker 1: of these cuts, even the ones that are more politically
Speaker 1: fraught like contraception. Um, what are the chances that a
Speaker 1: Republican administration might maintain some incarnation of Obamacare once it
Speaker 1: has been sort of neutrog in certain ways? So what
Speaker 1: we're hearing right now is it looks like, very broadly speaking,
Speaker 1: there's gonna be an immediate push to do a repeal
Speaker 1: of Obamacare and delay big pieces of that for several
Speaker 1: years to give lawmakers time to come up with a replacement.
Speaker 1: So you could see Obamacare persist, either in full or
Speaker 1: in some sort of limited form for at least two years,
Speaker 1: maybe three or even four years. Some have said, as
Speaker 1: as lawmakers work to figure out what's next, what about
Speaker 1: the ratios that exist for premiums? Because I understand that
Speaker 1: if you use the ratio that currently exists, this is
Speaker 1: a regulation. This is not something that you can just
Speaker 1: you know, quickly get get away with. And aren't they
Speaker 1: going to try to avoid any kind of filipbuster. I
Speaker 1: mean that would ultimately maybe die in in the in
Speaker 1: the Senate. Right. So a big reason that Republicans want
Speaker 1: to repeal the law using what's called reconciliation, using the
Speaker 1: budget process instead of um, you know, full Senate vote,
Speaker 1: is they only need fifty one votes that lets them
Speaker 1: avoid a filibuster. So, you know, with with a pretty
Speaker 1: split Senate, UM, it'll be tough to figure out how
Speaker 1: to replace this law in a way that you can
Speaker 1: get to sixty votes. Thank you very much for coming
Speaker 1: in and spending time with us. Zachary Tracer is our
Speaker 1: healthcare reporter for Bloomberg, giving us some insight into the
Speaker 1: Obamacare Affordable Care Act and what it's likely to look
Speaker 1: like under President elector Donald Trump. And uh, it's going
Speaker 1: to be in Congress. It's going to be pretty complicated
Speaker 1: to unravel this thing, and so it's gonna be interesting
Speaker 1: to see how they chip away at it. That's why
Speaker 1: you have to follow Zachary on Twitter at z Tracer
Speaker 1: t R A C E R. Thanks very much. All right.
Speaker 1: Here to tell us a little bit more about where
Speaker 1: to put our money is David Kotak. He is the
Speaker 1: chairman of the chief investment officer at Cumberland Advisors, David
Speaker 1: ko Talk. How are you, sir? I'm terrific, and I
Speaker 1: think we should have an index that samples New York
Speaker 1: City's finest cheesecake. I'm willing to volunteer terrific, terrific conversation.
Speaker 1: All right, well you while while you track cheesecake, I'm
Speaker 1: interested in tracking investments. Where do you want to start?
Speaker 1: You want to do bonds first? Tell us whether this
Speaker 1: bond sell off means it's time to buy or should
Speaker 1: you stay away. I'm looking at the tenure right now
Speaker 1: at two fifty three and the thirty year at the
Speaker 1: three ten. We're getting a little bit of a bit
Speaker 1: on both of them. Um, We in our shop are
Speaker 1: not buyers of treasury intermediate or long. Here we think
Speaker 1: there is more likely a little higher rate sometime next year,
Speaker 1: possibly evento a three on the tenure. We are buyers
Speaker 1: of high grade tax freeze. When high grade tax free
Speaker 1: sold off, they sold off twice as viciously as the
Speaker 1: taxable treasury bond. They went from eighty five of the
Speaker 1: treasury yield to currently a hundred and thirty percent of
Speaker 1: the treasury yield. I don't care what Donald Trump does
Speaker 1: with the tax code, it's highly unlikely it's going to
Speaker 1: be completely repealed. So four percent high grade tax free
Speaker 1: is in the market today, even as the Treasury backed
Speaker 1: up fifty basis points long Muni's over a hundred and
Speaker 1: there a bargain. Yeah, you know, this has been u
Speaker 1: an ongoing kind of question out there. Are muni's oversold.
Speaker 1: Municipal bonds sold off dramatically after the President elect Trump
Speaker 1: won the US election because there was this idea that
Speaker 1: lower taxes, particularly for wealthier people, would reduce the appeal
Speaker 1: for these tax free municipal bonds. Talking about municipal bonds,
Speaker 1: I want to talk about Puerto Rico. I know, David
Speaker 1: that you have a strategy that focuses specifically on Puerto
Speaker 1: Rican bonds, and we got news, uh that that Perto
Speaker 1: Rico is now facing a budget shortfall of sixty seven
Speaker 1: point five billion dollars over the next decade. That's almost
Speaker 1: ten billion dollars more than previously projected by the islands
Speaker 1: governor um At this point, would you be a buyer
Speaker 1: of Puerto Rican bonds or do you think that this
Speaker 1: is just sort of just a quagmire that is not
Speaker 1: worth it. Oh, it's a terrible quagmire, Lisa. We we
Speaker 1: believe in that the only bonds that we will own
Speaker 1: in Puerto Rico are very specific ensured bonds and those
Speaker 1: that have internal credit structures that have to be researched.
Speaker 1: There's seventy billion in debt, as you know, outstanding in
Speaker 1: Puerto Rico, and we go through every insurance contract, every
Speaker 1: bond indenture, and every cross collateral claim. That's the only
Speaker 1: way to participate in Puerto Rico debt. And if you
Speaker 1: don't dig deep into the weeds, it's better to avoid it.
Speaker 1: If you'd have the resources, then there's opportunity. We have
Speaker 1: some Puerto Rico bonds which have three and four layers
Speaker 1: of credit enhancement in addition to the claim on a
Speaker 1: Puerto Rico agency. But you've really got to do the
Speaker 1: detail work to do it. The politics of the island
Speaker 1: have to change. And whether it's sixty billion or seventy
Speaker 1: billion forward budget deficits, the notion is it's big and
Speaker 1: it requires political change, and it will be imposed on
Speaker 1: them by the board that will now run Puerto Rico's
Speaker 1: finances instead of the local government. David can I just
Speaker 1: take you to Muni bonds just complete that. I want
Speaker 1: to understand a little bit more. What kind of maturity
Speaker 1: are you talking about? Because I'm looking at a tenure
Speaker 1: in California two point seven one, tenure in New York
Speaker 1: two point four seven. Are those the kinds of bonds
Speaker 1: that you're talking about? Well, those bonds, those bonds are
Speaker 1: competing virtually at parody with yield on the treasuries. But
Speaker 1: if you go long, were on the curve all the
Speaker 1: way out to thirty. That's what I want to I
Speaker 1: want to go thirty for California three point six three,
Speaker 1: New York three point four. I would go thirty years
Speaker 1: in Muniland today when the yield is higher than the
Speaker 1: taxable treasury. Absolutely. I think if you take a Californian
Speaker 1: at a maximum new tax Brackett three whatever it's going
Speaker 1: to be plus California taxes, you gross up to a
Speaker 1: return that is very appealing for a high grade credit.
Speaker 1: How concerned, David are you about the looming pension crisis,
Speaker 1: or at least that's what many people believe. We have
Speaker 1: California's biggest pension, actually the biggest public pension in the US.
Speaker 1: Helpers saying this week are basically that it was probably
Speaker 1: going to lower it's assumed rate of return over the
Speaker 1: next a few decades to seven from seven point five percent.
Speaker 1: A lot of people think that this still is an
Speaker 1: unrealistic target. As a result, California will probably have to
Speaker 1: add to two billion dollars per year to this fund.
Speaker 1: Aren't you concerned about this? Of course I am. It's
Speaker 1: the unfunded liabilities of SATAN, local governments and others are
Speaker 1: are huge. California, which was at one point a triple
Speaker 1: B credit, has taken steps to improve its financing and
Speaker 1: a realistic reduction of the earnings assumption to bring it
Speaker 1: in line with markets is another positive step, and added
Speaker 1: funding is another positive step. The worst state is Illinois.
Speaker 1: New Jerseys not far behind. Other states which have difficulties
Speaker 1: include Connecticut, Kentucky, Louisiana. We have states and gradations in
Speaker 1: our shop, and there are states like Illinois general obligation debt.
Speaker 1: We will not own it for a client. Closed and
Speaker 1: bond funds. Are they attractive? Maybe, but you've got to
Speaker 1: look at what's inside. As we both know, PIM, what's
Speaker 1: in the fund? The details are you know, the devil's
Speaker 1: in the details always always is stocks. Ah, Now we
Speaker 1: have the major question. Every dollar cut in the thirty
Speaker 1: corporate tax rate equates to about the dollar dollar and
Speaker 1: a quarter permanent shift of additional earnings in the SNP
Speaker 1: five hundred index. If that rate is going to go
Speaker 1: from thirty five to twenty or twenty five, and you're
Speaker 1: going to permanently add ten, twelve or fifteen dollars year
Speaker 1: after year to SMP five hundred earnings, then you have
Speaker 1: to say, I need to reconsider the valuation of the
Speaker 1: stock market. What the details will be in that tax
Speaker 1: code change is another devil that hasn't been revealed, all right,
Speaker 1: and we got right now price earnings ratio for the
Speaker 1: SMP five twenty one with dividen deal of about two.
Speaker 1: So I guess that would change all of that as well.
Speaker 1: David co Tech, I'm so glad you could join us.
Speaker 1: It was the tweet that sent alarms all over the
Speaker 1: Twitter sphere and potentially beyond. President elect Donald Trump yesterday
Speaker 1: tweeted that the United States must greatly strengthened and expand
Speaker 1: it's nuclear capability until such time as the world comes
Speaker 1: to its senses regarding nukes. That prompted many people to
Speaker 1: have some catastrophic responses, including the circulation of a nuke
Speaker 1: map where you could figure out how you would be
Speaker 1: affected by a nuclear problem. I want to bring in
Speaker 1: for some perspective and some real talk, George Ferguson, senior
Speaker 1: Aerospace and Defense analyst for Bloomberg Intelligence. Um, George, what
Speaker 1: did you make of of sort of President elect Trump's
Speaker 1: insinuation that the US would be rebuilding its nuclear stop stockpile?
Speaker 1: Uh so, good morning. So I think that a lot
Speaker 1: of this work was probably going to get done anyways
Speaker 1: under um, under potential president Hillary Clinton to you know,
Speaker 1: there's a number of you know, we have a triad,
Speaker 1: we have way have blistic missiles, nuclear missiles on ships, airplanes,
Speaker 1: and ground based and a number of the triad are
Speaker 1: worn out, i'd say, having been built a lot of
Speaker 1: it in the Reagan era, and I think we had
Speaker 1: to upgrade it anyways. The ships are the submarines to
Speaker 1: the I think the most prominent of that spend. There's
Speaker 1: been some discussion about revamping those submarines, and so I
Speaker 1: think frankly that Hillary Clinton would have done the same thing.
Speaker 1: And so I don't really get the sense that a
Speaker 1: president elect Trump is going to go further than sort
Speaker 1: of the way the current um that deter stockpile looks.
Speaker 1: But I think he was just reinforcing the idea that
Speaker 1: he is going to spend money on that on those programs. George,
Speaker 1: let's turn on attention now to another defense program. This
Speaker 1: is the Joint Strike fighter, the F thirty five, and
Speaker 1: the request, or at least the mention on Twitter by
Speaker 1: President elect Donald Trump two put together or at least
Speaker 1: to have Boeing put together a competing bid for a
Speaker 1: competing aircraft to update the F eighteen. Can you explain
Speaker 1: what this is all about. Yeah, I think he's looking
Speaker 1: for opportunities to to foster more competition. I think he
Speaker 1: I think he is committed to spending defense money, and
Speaker 1: I think he'll probably spend more defense money than President
Speaker 1: Obama did just just because of the question other challenges
Speaker 1: inside the defense budget. Um. But I think he wants
Speaker 1: more bank for his buck. To use the old expression
Speaker 1: which it gives applete fits here, and so I think
Speaker 1: he really wants to find a way to foster more competition.
Speaker 1: We've gotten to the point now where we only have
Speaker 1: a handful of defense primes. They get a bit specialized
Speaker 1: in what they do, and we're not getting as much
Speaker 1: competition as we had back in the days of it.
Speaker 1: But je, let's just stay specifically about this, this particular program,
Speaker 1: because I mean, the total defense budget is like six
Speaker 1: d and twenty two billion dollars that was this year, right,
Speaker 1: It's forty of the global total is spent by the
Speaker 1: United States, Right, So six billion go into defense this program,
Speaker 1: the F thirty five Joint Strike Fighter. It's the only
Speaker 1: plane I understand that the Marine Corps flies. Uh, the
Speaker 1: Air Force doesn't even fly. The U is not interested
Speaker 1: in flying the F A teen. So why would you
Speaker 1: come out and say you want a proposal to update
Speaker 1: the F A teen when two of the three branches
Speaker 1: of service don't even use it well, And that's what
Speaker 1: I'm saying. I think there's a bit of um posturing
Speaker 1: going on here. I don't think the F A team
Speaker 1: could be upgraded, changed, altered to perform the mission, you know,
Speaker 1: an Air Force strike fighter mission or the Marine Corps
Speaker 1: vertical lift mission. Right. The Marine Corps uses the vertical
Speaker 1: lift harriers. So I think he's trying to get a
Speaker 1: wedge in here to try to find a way to
Speaker 1: drive down costs. But Lockheed right now is the only
Speaker 1: game in town when it comes to fifth generation fighters,
Speaker 1: and that's a challenge. George. I'm wondering the people who
Speaker 1: you're talking to, how concerned are they that President elect
Speaker 1: Trump is taking some of these issues, which are a
Speaker 1: matter of national security to Twitter. Uh you know, Uh,
Speaker 1: it's definitely interesting days. I don't think anybody's terribly disturbed
Speaker 1: by it, but it's definitely interesting days. It seems like
Speaker 1: public posturing. Well, but I mean the reason being that,
Speaker 1: you know, yesterday's Twitter post about nuclear weapons certainly had
Speaker 1: a pretty big reaction globally, and there were concerns that
Speaker 1: we're going to be restarting the Cold War. Uh. You know,
Speaker 1: I'm just wondering. And it's certainly helped the stocks of
Speaker 1: some uranium companies, right I mean, for example, I was
Speaker 1: looking at Uranium Resources. It was up thirty one percent
Speaker 1: after this tweet. Yeah, I mean, I guess the challenge
Speaker 1: here too is we still live in a world where Russia.
Speaker 1: Russia has nuclear weapons. Other countries around the world have
Speaker 1: nucular weapons, so we're definitely not going to abandon them.
Speaker 1: Whether it belonged on Twitter. Um, you know, that's a
Speaker 1: different debate. But again, I think we thought that the
Speaker 1: money is gonna get spent anyways, It's a function how
Speaker 1: much that's it's honestly, Um, I really appreciate the perspective, George,
Speaker 1: because I think it's important to have a sort of
Speaker 1: realistic look at what is going on, you know, whether
Speaker 1: this really does indicate a restarting of the nuclear arms
Speaker 1: race or whether this is just simply a chest pounding
Speaker 1: exercise for something that we would have already done. Yeah,
Speaker 1: that was my take. Well, I mean, and also it
Speaker 1: brings into question the whole issue of whether our allies
Speaker 1: are going to continue to buy the F thirty five
Speaker 1: joint strike fighter, right. I mean, Canada has already delayed
Speaker 1: what they say they were going to buy it. Now
Speaker 1: the new prime minister they're saying maybe not. They're going
Speaker 1: to upgrade the F A team, and we know that
Speaker 1: other countries like Israel, they're already taking deliver at the
Speaker 1: F thirty five and that's a major defense project. Thanks
Speaker 1: very much, George Ferguson. He is senior Aerospace and Defense
Speaker 1: analyst for Bloomberg Intelligence. One of the big stories of
Speaker 1: the year, in my opinion, has been the tremendous increase
Speaker 1: in libor rates in the US. In other words, the
Speaker 1: rate the banks charge each other to borrow dollars has
Speaker 1: risen to the highest level since two thousand and nine.
Speaker 1: This is largely due to money market reform, and this
Speaker 1: same brand of money market reform maybe coming to Europe.
Speaker 1: I want to bring in Henley Smith, senior vice president
Speaker 1: at Vanderbilt Avenue Asset Management in Greenwich, Connecticut. He's here
Speaker 1: with us in our Bloomberg eleven three oh studio, Henley, Uh,
Speaker 1: let us tell us, first of all, just give us
Speaker 1: an update. How is the money market reform implementation going?
Speaker 1: And do you expect librrates to continue to climb from
Speaker 1: here as a result of them? Well, first, thanks for
Speaker 1: having me in. Uh. Yeah, the implementation went fairly smoothly,
Speaker 1: no hiccup, says we could see. But I think that
Speaker 1: trade is still unfolding and will continue to unfold because
Speaker 1: we haven't had any of these funds test those new rules.
Speaker 1: But I will say in that library thing that obviously
Speaker 1: since November eight, the trade has definitely gone from fear
Speaker 1: to greed, and we're seeing that being reflected in the
Speaker 1: in in the library rates have they pushed up to
Speaker 1: one percent this week, and I think that's something we
Speaker 1: talked about last time I was here. We expect expected
Speaker 1: that and we continue to expect to see that move
Speaker 1: and I think that's a big reason for that is
Speaker 1: because of you've seen a massive movement out of some
Speaker 1: of these prime money market funds which they invest in
Speaker 1: commercial paper and other types of instruments that are based
Speaker 1: on library and so the demand for those instruments has
Speaker 1: really dried up, and that's what one of the reasons
Speaker 1: why library rates are pushing up very high. And the
Speaker 1: Justice review, if we can some of the most important
Speaker 1: aspects of this money market reform. Prime institutional money market funds,
Speaker 1: those that are investing in short term corporate debt, is
Speaker 1: just to described as well as institutional municipal money market funds.
Speaker 1: They have to allow the value of their shares to
Speaker 1: fluctuate to reflect the current market price. Right, absolutely right.
Speaker 1: I don't think that that's a problem. I think that
Speaker 1: that sheds more transparency on the fact that these are
Speaker 1: investment accounts, not savings accounts, which I think a lot
Speaker 1: of investors, retail in particular, thought that they were you know,
Speaker 1: safe liquid all those things, which they are, but they
Speaker 1: are investment portfolios. But your money can actually be locked
Speaker 1: up if there is a big move in volatility. Perhaps
Speaker 1: that's correct. The SEC will require some of these funds,
Speaker 1: the prime funds and missible funds that we've talked about,
Speaker 1: to actually gate or uh stop redemptions for the matter
Speaker 1: of thirty days, and that could be a tremendous amount
Speaker 1: of problems. So you're seeing a lot of corporate treasurers
Speaker 1: who typically invest in these prime money market funds move out.
Speaker 1: So you've had a massive movement out of prime money
Speaker 1: market funds into US government only money market funds. And
Speaker 1: as I said, I think that that trade is still
Speaker 1: going to unfold over the next year if any of
Speaker 1: these funds do get any kind of liquidity stress. How
Speaker 1: these rules will actually play out, you know, so the
Speaker 1: US rules have been largely implemented. Whether the effects will
Speaker 1: continue to be seen and you're saying they probably will,
Speaker 1: but it will be it sounds like orderly, uh much
Speaker 1: to the its difference. Uh, there was a there was
Speaker 1: a fear that it could be somewhat disorderly. Uh. That said,
Speaker 1: the European Union is about to impose their own set
Speaker 1: of money market reform rules and it might be somewhat
Speaker 1: just eruptive. What rate are you looking at for those
Speaker 1: new rules to affect? And you know, how do investors
Speaker 1: trade around that? Well? Again, yeah, I think those those
Speaker 1: rules similar to the US will come into play over
Speaker 1: the next year two. Um, it will be interesting because
Speaker 1: you have an EU that's in flux, uh, you know,
Speaker 1: with the Italian bank in the headlines this week being
Speaker 1: rescued by the Italian government. Um, you know, how are
Speaker 1: the basically I have a lot of prospects less clients
Speaker 1: that are very concerned about European money market funds because
Speaker 1: a lot of them invest in financial instruments, financial commercial paper, CDs,
Speaker 1: those types of things. So as those rules get implemented, Uh,
Speaker 1: and if we still have some concerns about the banking
Speaker 1: system in the EU, I think there could be some
Speaker 1: real hiccups here. So yeah, we'll continue to look at
Speaker 1: LIEB or I. My guess is that will have a
Speaker 1: similar type of of of movement out of these funds
Speaker 1: that are affected, and that could create some dislocations, which
Speaker 1: I think, you know, for investors like myself, it's not
Speaker 1: such a bad thing. It's an anomaly that I can
Speaker 1: take advantage of. How would you do that? Explain? How
Speaker 1: would you do that? Right now? We've got two whales.
Speaker 1: I mean, we do that through separately managed accounts, and
Speaker 1: we've also have a private cash management trust that we've
Speaker 1: set up for investors that is actually stepping into the
Speaker 1: vacuum that's been created. So what do you buy? Can
Speaker 1: you give us an example of something that is unpopular
Speaker 1: that you've seen these outflows that you might be able
Speaker 1: to take advantage of because two things, you know, commercial
Speaker 1: paper being one, because US government funds can't invest in
Speaker 1: commercial paper obviously, so that that's created a dislocation or
Speaker 1: an anomaly that you've seen. The spreads between the risk
Speaker 1: free curve and the and lieboor spread spread wide too.
Speaker 1: Its broadest level we've seen it. And let's just say
Speaker 1: so commercial paper is sort of the short term loans
Speaker 1: that companies take out and used to rely upon for
Speaker 1: just their liquidity needs and was very popular and has
Speaker 1: shrunk substantially as a market as a demand has demand
Speaker 1: is shrunk, So you've seen those rates move up. Uh,
Speaker 1: those investors that invest primarily money market funds prime you
Speaker 1: are not in that market now, so that gives investors
Speaker 1: like myself a real opportunity to move into that market,
Speaker 1: either through separately managed accounts or private cash management, trust
Speaker 1: that we can take advantage of those yields without all
Speaker 1: the restrictions that the redemption rules are are now presenting
Speaker 1: to the investors. And with respects of Europe. Uh So,
Speaker 1: earlier this month the Council of the European Union approved
Speaker 1: rules and locally domiciled money market funds. They'll impose stricter
Speaker 1: liquidity requirements, limit redemptions, among other measures. And only I
Speaker 1: was struck by your talking about the fact that there
Speaker 1: are European financial instruments in these money market funds. Um,
Speaker 1: what kind of dislocation could we see in this market? Uh,
Speaker 1: not only as these new rules come on board, but
Speaker 1: also as potentially banking issues increase in that region. Well,
Speaker 1: the two things you have to look at of just
Speaker 1: absolute yields as they spread versus a risk free curve
Speaker 1: the U S treasuries as an example, and the bid
Speaker 1: between the where you can buy and where you can
Speaker 1: sell to the bid mass because those wide now there
Speaker 1: could be some problems and that's just an expression of
Speaker 1: liquidity and One of the things in the real paradox
Speaker 1: of these rules is you've got liquidity money markets and
Speaker 1: it's all of a sudden it's locked up for thirty
Speaker 1: days or whatever um. That creates a real concern for
Speaker 1: a lot of investors. So I could see the similar
Speaker 1: type of thing happening, and with the banking system being
Speaker 1: a little bit more influx in Europe. Now remember again
Speaker 1: a little well, are you buying? Are you buying? European
Speaker 1: money markets are staying now, We're staying domestic right now.
Speaker 1: We want to see how these rules on unfold before
Speaker 1: we step into that market again. I think we'll just
Speaker 1: we'll be focused on the prime space, but we have
Speaker 1: to remember as well. Uh you know, last I saw
Speaker 1: twelve trillion dollars of sovereign debt is negative still, so
Speaker 1: how that plays into this whole equation is going to
Speaker 1: be very interesting as these rules get get phased in.
Speaker 1: Thanks very much, Henley Smith of to Build Avenue Asset Management.
Speaker 1: They're based in Greenwich, Connecticut. Thanks for listening to the
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Speaker 1: I'm pim Fox. I'm out there on Twitter at pim Fox.
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