WEBVTT - P&L: GOP Is Pushing Trump to Cut Obamacare Benefits 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg pm L podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.640 the trading floor. Find the Bloomberg p L podcast on iTunes, 0:00:20.840 --> 0:00:29.360 SoundCloud and at Bloomberg dot com. A lot of people 0:00:29.520 --> 0:00:32.640 right now in Congress are coming to the realization, uh 0:00:32.800 --> 0:00:36.040 that it's going to take some time before Republicans can 0:00:36.080 --> 0:00:40.680 fully implement repeal of Obamacare. Not only is it going 0:00:40.720 --> 0:00:43.760 to take a while, but it will actually be incredibly complicated. 0:00:44.440 --> 0:00:48.520 But there are some steps that the new Republican lead 0:00:48.960 --> 0:00:53.760 administration can take in order to limit Obamacare. UH. For 0:00:53.800 --> 0:00:55.360 a look at what those maybe, I want to bring 0:00:55.400 --> 0:00:59.720 in Zachary Tracer of Bloomberg News who covers healthcare sector. Zach, 0:01:00.080 --> 0:01:03.000 what are some of the measures that Republican aids are 0:01:03.040 --> 0:01:07.559 talking about doing right when President Elect Trump assumes office. 0:01:08.040 --> 0:01:11.000 That's right. So folks in d CRE are starting to 0:01:11.040 --> 0:01:14.400 realize that it's going to take a while to repeal Obamacare, 0:01:14.400 --> 0:01:16.640 and they're looking at what ways they can use regulations 0:01:17.160 --> 0:01:20.319 uh or or changing regulations to sort of chip away 0:01:20.480 --> 0:01:24.240 at the Affordable Care Act over the next few months 0:01:24.280 --> 0:01:26.800 and a few years. So one big target of that 0:01:26.880 --> 0:01:30.160 push has been, uh, the benefits under the c A, 0:01:30.319 --> 0:01:33.959 so figuring out ways to limit some of what's covered 0:01:34.000 --> 0:01:36.119 in ways that might bring down the cost of plans 0:01:36.280 --> 0:01:39.440 or get rid of things that some on the right 0:01:39.480 --> 0:01:43.200 really don't like, things like contraceptive coverage, for instance. Is 0:01:43.200 --> 0:01:45.000 that great? What about the idea of repealing it but 0:01:45.120 --> 0:01:47.840 not repealing it. You repeal it in name because it's 0:01:47.840 --> 0:01:50.920 a politically expedient thing to do, but on the other hand, 0:01:50.960 --> 0:01:54.040 you kind of leave in place many of the exchanges. 0:01:54.120 --> 0:01:58.160 Because I understand that more than six million people have 0:01:58.400 --> 0:02:02.960 signed up for obam Care policies through the federal exchanges, 0:02:03.480 --> 0:02:06.440 and that's four thousand more than had selected policies a 0:02:06.520 --> 0:02:09.160 year ago. But your parton six point four million people, 0:02:09.160 --> 0:02:12.200 that's a record, that's right. So we're seeing sign ups 0:02:12.240 --> 0:02:15.000 proceed pretty much at pace. I think right after the 0:02:15.040 --> 0:02:17.080 election of Donald Trump, there was some worry that maybe 0:02:17.120 --> 0:02:19.080 people wouldn't sign up, you know, given all the rhetoric 0:02:19.120 --> 0:02:21.240 about this law is going away, we're going to repeal it. 0:02:21.280 --> 0:02:23.760 But it turns out that so far, sign ups are 0:02:23.760 --> 0:02:26.560 on pace, and the government has said they think thirteen 0:02:27.080 --> 0:02:29.880 point eight million people will ultimately sign up by the 0:02:29.919 --> 0:02:32.400 deadline at the end of January. So if some of 0:02:32.440 --> 0:02:36.600 these benefits are cut, would it lower costs for the 0:02:36.680 --> 0:02:39.880 actual people who are getting the insurance plans or would 0:02:39.880 --> 0:02:42.079 it lower the cost just for the government. You know, 0:02:42.160 --> 0:02:44.440 that's a really good question. So they talk about cutting 0:02:44.440 --> 0:02:47.680 these benefits in part as a way to limit costs. 0:02:47.680 --> 0:02:50.640 So if you take coverage out of waait cost to 0:02:50.680 --> 0:02:53.240 the government, well, it's it's it's both. So that the 0:02:53.280 --> 0:02:56.040 government pays for a big piece of of the a 0:02:56.200 --> 0:02:59.120 C plans, I give subsidies to individuals with low incomes 0:02:59.160 --> 0:03:02.320 the individual man date, that's right, So individuals do have 0:03:02.400 --> 0:03:05.160 to buy health insurance under the law, um and and 0:03:05.160 --> 0:03:07.440 the government gives them subsidies to help them do that. 0:03:07.840 --> 0:03:12.639 So what cutting these benefits would do theoretically is maybe 0:03:13.000 --> 0:03:15.680 lower the cost of this health insurance. The big open 0:03:15.760 --> 0:03:19.000 question is what do you cut? And we should be 0:03:19.040 --> 0:03:21.960 really clear about this because these essential benefits are things 0:03:21.960 --> 0:03:25.880 like hospitalization. There are things like your doctor's visits, labs, 0:03:26.600 --> 0:03:30.400 pregnancy and maternity care, um you know, emergency services. So 0:03:30.440 --> 0:03:33.280 these are You know, the question is, as one person 0:03:33.360 --> 0:03:35.000 put it to us, you know, where's the fluff? What 0:03:35.120 --> 0:03:38.280 are Republicans really going to cut? And that remains to 0:03:38.320 --> 0:03:41.440 be seen. What's um, Let's say they do make some 0:03:41.520 --> 0:03:43.680 of these cuts, even the ones that are more politically 0:03:43.720 --> 0:03:49.440 fraught like contraception. Um, what are the chances that a 0:03:49.480 --> 0:03:56.200 Republican administration might maintain some incarnation of Obamacare once it 0:03:56.280 --> 0:03:59.040 has been sort of neutrog in certain ways? So what 0:03:59.080 --> 0:04:01.880 we're hearing right now is it looks like, very broadly speaking, 0:04:02.520 --> 0:04:05.640 there's gonna be an immediate push to do a repeal 0:04:05.640 --> 0:04:09.360 of Obamacare and delay big pieces of that for several 0:04:09.440 --> 0:04:12.320 years to give lawmakers time to come up with a replacement. 0:04:12.360 --> 0:04:16.560 So you could see Obamacare persist, either in full or 0:04:16.560 --> 0:04:20.000 in some sort of limited form for at least two years, 0:04:20.040 --> 0:04:22.920 maybe three or even four years. Some have said, as 0:04:23.000 --> 0:04:26.960 as lawmakers work to figure out what's next, what about 0:04:27.000 --> 0:04:29.880 the ratios that exist for premiums? Because I understand that 0:04:29.920 --> 0:04:32.840 if you use the ratio that currently exists, this is 0:04:32.880 --> 0:04:36.600 a regulation. This is not something that you can just 0:04:36.760 --> 0:04:39.400 you know, quickly get get away with. And aren't they 0:04:39.400 --> 0:04:41.520 going to try to avoid any kind of filipbuster. I 0:04:41.560 --> 0:04:44.880 mean that would ultimately maybe die in in the in 0:04:44.960 --> 0:04:47.880 the Senate. Right. So a big reason that Republicans want 0:04:47.880 --> 0:04:52.320 to repeal the law using what's called reconciliation, using the 0:04:52.320 --> 0:04:56.160 budget process instead of um, you know, full Senate vote, 0:04:56.200 --> 0:04:57.760 is they only need fifty one votes that lets them 0:04:57.800 --> 0:05:00.920 avoid a filibuster. So, you know, with with a pretty 0:05:01.279 --> 0:05:04.520 split Senate, UM, it'll be tough to figure out how 0:05:04.600 --> 0:05:06.480 to replace this law in a way that you can 0:05:06.480 --> 0:05:09.360 get to sixty votes. Thank you very much for coming 0:05:09.400 --> 0:05:12.000 in and spending time with us. Zachary Tracer is our 0:05:12.040 --> 0:05:16.440 healthcare reporter for Bloomberg, giving us some insight into the 0:05:16.560 --> 0:05:19.479 Obamacare Affordable Care Act and what it's likely to look 0:05:19.520 --> 0:05:23.600 like under President elector Donald Trump. And uh, it's going 0:05:23.640 --> 0:05:25.800 to be in Congress. It's going to be pretty complicated 0:05:25.880 --> 0:05:28.640 to unravel this thing, and so it's gonna be interesting 0:05:28.640 --> 0:05:30.200 to see how they chip away at it. That's why 0:05:30.200 --> 0:05:35.080 you have to follow Zachary on Twitter at z Tracer 0:05:35.160 --> 0:05:50.320 t R A C E R. Thanks very much. All right. 0:05:50.320 --> 0:05:51.960 Here to tell us a little bit more about where 0:05:51.960 --> 0:05:54.640 to put our money is David Kotak. He is the 0:05:54.720 --> 0:05:58.599 chairman of the chief investment officer at Cumberland Advisors, David 0:05:58.680 --> 0:06:01.520 ko Talk. How are you, sir? I'm terrific, and I 0:06:01.560 --> 0:06:05.400 think we should have an index that samples New York 0:06:05.600 --> 0:06:11.720 City's finest cheesecake. I'm willing to volunteer terrific, terrific conversation. 0:06:11.920 --> 0:06:15.440 All right, well you while while you track cheesecake, I'm 0:06:15.480 --> 0:06:18.840 interested in tracking investments. Where do you want to start? 0:06:18.880 --> 0:06:21.000 You want to do bonds first? Tell us whether this 0:06:21.120 --> 0:06:23.919 bond sell off means it's time to buy or should 0:06:23.960 --> 0:06:25.920 you stay away. I'm looking at the tenure right now 0:06:25.920 --> 0:06:28.880 at two fifty three and the thirty year at the 0:06:28.960 --> 0:06:30.640 three ten. We're getting a little bit of a bit 0:06:30.760 --> 0:06:34.320 on both of them. Um, We in our shop are 0:06:34.360 --> 0:06:40.160 not buyers of treasury intermediate or long. Here we think 0:06:40.200 --> 0:06:45.960 there is more likely a little higher rate sometime next year, 0:06:46.160 --> 0:06:50.880 possibly evento a three on the tenure. We are buyers 0:06:50.920 --> 0:06:55.400 of high grade tax freeze. When high grade tax free 0:06:55.440 --> 0:07:00.520 sold off, they sold off twice as viciously as the 0:07:00.600 --> 0:07:04.800 taxable treasury bond. They went from eighty five of the 0:07:04.800 --> 0:07:09.000 treasury yield to currently a hundred and thirty percent of 0:07:09.040 --> 0:07:12.240 the treasury yield. I don't care what Donald Trump does 0:07:12.280 --> 0:07:15.240 with the tax code, it's highly unlikely it's going to 0:07:15.320 --> 0:07:20.400 be completely repealed. So four percent high grade tax free 0:07:20.400 --> 0:07:24.400 is in the market today, even as the Treasury backed 0:07:24.480 --> 0:07:28.440 up fifty basis points long Muni's over a hundred and 0:07:28.480 --> 0:07:30.680 there a bargain. Yeah, you know, this has been u 0:07:30.800 --> 0:07:34.640 an ongoing kind of question out there. Are muni's oversold. 0:07:34.800 --> 0:07:38.440 Municipal bonds sold off dramatically after the President elect Trump 0:07:38.800 --> 0:07:42.720 won the US election because there was this idea that 0:07:43.160 --> 0:07:47.760 lower taxes, particularly for wealthier people, would reduce the appeal 0:07:47.880 --> 0:07:51.640 for these tax free municipal bonds. Talking about municipal bonds, 0:07:51.720 --> 0:07:54.040 I want to talk about Puerto Rico. I know, David 0:07:54.080 --> 0:07:57.000 that you have a strategy that focuses specifically on Puerto 0:07:57.040 --> 0:08:00.160 Rican bonds, and we got news, uh that that Perto 0:08:00.240 --> 0:08:02.800 Rico is now facing a budget shortfall of sixty seven 0:08:02.800 --> 0:08:05.560 point five billion dollars over the next decade. That's almost 0:08:05.600 --> 0:08:09.080 ten billion dollars more than previously projected by the islands 0:08:09.120 --> 0:08:12.680 governor um At this point, would you be a buyer 0:08:12.680 --> 0:08:14.480 of Puerto Rican bonds or do you think that this 0:08:14.560 --> 0:08:18.240 is just sort of just a quagmire that is not 0:08:18.360 --> 0:08:22.280 worth it. Oh, it's a terrible quagmire, Lisa. We we 0:08:22.560 --> 0:08:25.520 believe in that the only bonds that we will own 0:08:25.600 --> 0:08:31.920 in Puerto Rico are very specific ensured bonds and those 0:08:32.040 --> 0:08:36.800 that have internal credit structures that have to be researched. 0:08:36.880 --> 0:08:39.680 There's seventy billion in debt, as you know, outstanding in 0:08:39.720 --> 0:08:42.960 Puerto Rico, and we go through every insurance contract, every 0:08:42.960 --> 0:08:48.240 bond indenture, and every cross collateral claim. That's the only 0:08:48.320 --> 0:08:51.959 way to participate in Puerto Rico debt. And if you 0:08:52.080 --> 0:08:56.000 don't dig deep into the weeds, it's better to avoid it. 0:08:56.120 --> 0:09:00.440 If you'd have the resources, then there's opportunity. We have 0:09:00.520 --> 0:09:03.440 some Puerto Rico bonds which have three and four layers 0:09:04.200 --> 0:09:08.400 of credit enhancement in addition to the claim on a 0:09:08.440 --> 0:09:11.360 Puerto Rico agency. But you've really got to do the 0:09:11.480 --> 0:09:15.960 detail work to do it. The politics of the island 0:09:16.160 --> 0:09:20.160 have to change. And whether it's sixty billion or seventy 0:09:20.240 --> 0:09:25.520 billion forward budget deficits, the notion is it's big and 0:09:25.600 --> 0:09:29.800 it requires political change, and it will be imposed on 0:09:29.880 --> 0:09:34.560 them by the board that will now run Puerto Rico's 0:09:34.640 --> 0:09:37.760 finances instead of the local government. David can I just 0:09:37.800 --> 0:09:41.160 take you to Muni bonds just complete that. I want 0:09:41.200 --> 0:09:43.280 to understand a little bit more. What kind of maturity 0:09:43.280 --> 0:09:45.400 are you talking about? Because I'm looking at a tenure 0:09:45.400 --> 0:09:48.760 in California two point seven one, tenure in New York 0:09:48.760 --> 0:09:51.800 two point four seven. Are those the kinds of bonds 0:09:51.800 --> 0:09:54.719 that you're talking about? Well, those bonds, those bonds are 0:09:54.840 --> 0:09:59.120 competing virtually at parody with yield on the treasuries. But 0:09:59.160 --> 0:10:01.480 if you go long, were on the curve all the 0:10:01.520 --> 0:10:04.000 way out to thirty. That's what I want to I 0:10:04.040 --> 0:10:06.559 want to go thirty for California three point six three, 0:10:06.640 --> 0:10:09.920 New York three point four. I would go thirty years 0:10:10.160 --> 0:10:14.520 in Muniland today when the yield is higher than the 0:10:14.640 --> 0:10:19.760 taxable treasury. Absolutely. I think if you take a Californian 0:10:19.840 --> 0:10:24.400 at a maximum new tax Brackett three whatever it's going 0:10:24.440 --> 0:10:28.600 to be plus California taxes, you gross up to a 0:10:28.720 --> 0:10:31.640 return that is very appealing for a high grade credit. 0:10:32.120 --> 0:10:36.800 How concerned, David are you about the looming pension crisis, 0:10:36.880 --> 0:10:38.520 or at least that's what many people believe. We have 0:10:38.880 --> 0:10:43.199 California's biggest pension, actually the biggest public pension in the US. 0:10:43.320 --> 0:10:47.720 Helpers saying this week are basically that it was probably 0:10:47.720 --> 0:10:50.080 going to lower it's assumed rate of return over the 0:10:50.120 --> 0:10:53.440 next a few decades to seven from seven point five percent. 0:10:53.480 --> 0:10:55.679 A lot of people think that this still is an 0:10:55.760 --> 0:10:58.960 unrealistic target. As a result, California will probably have to 0:10:59.280 --> 0:11:04.000 add to two billion dollars per year to this fund. 0:11:05.240 --> 0:11:09.479 Aren't you concerned about this? Of course I am. It's 0:11:09.520 --> 0:11:16.160 the unfunded liabilities of SATAN, local governments and others are 0:11:16.200 --> 0:11:21.000 are huge. California, which was at one point a triple 0:11:21.120 --> 0:11:25.640 B credit, has taken steps to improve its financing and 0:11:26.040 --> 0:11:31.240 a realistic reduction of the earnings assumption to bring it 0:11:31.280 --> 0:11:35.240 in line with markets is another positive step, and added 0:11:35.320 --> 0:11:40.360 funding is another positive step. The worst state is Illinois. 0:11:40.720 --> 0:11:45.120 New Jerseys not far behind. Other states which have difficulties 0:11:45.160 --> 0:11:50.800 include Connecticut, Kentucky, Louisiana. We have states and gradations in 0:11:50.880 --> 0:11:54.200 our shop, and there are states like Illinois general obligation debt. 0:11:54.200 --> 0:11:57.480 We will not own it for a client. Closed and 0:11:57.640 --> 0:12:01.280 bond funds. Are they attractive? Maybe, but you've got to 0:12:01.320 --> 0:12:05.160 look at what's inside. As we both know, PIM, what's 0:12:05.280 --> 0:12:08.400 in the fund? The details are you know, the devil's 0:12:08.400 --> 0:12:14.040 in the details always always is stocks. Ah, Now we 0:12:14.160 --> 0:12:18.800 have the major question. Every dollar cut in the thirty 0:12:20.400 --> 0:12:24.360 corporate tax rate equates to about the dollar dollar and 0:12:24.400 --> 0:12:29.200 a quarter permanent shift of additional earnings in the SNP 0:12:29.400 --> 0:12:32.280 five hundred index. If that rate is going to go 0:12:32.360 --> 0:12:36.040 from thirty five to twenty or twenty five, and you're 0:12:36.040 --> 0:12:39.719 going to permanently add ten, twelve or fifteen dollars year 0:12:39.760 --> 0:12:44.040 after year to SMP five hundred earnings, then you have 0:12:44.160 --> 0:12:47.520 to say, I need to reconsider the valuation of the 0:12:47.600 --> 0:12:51.360 stock market. What the details will be in that tax 0:12:51.440 --> 0:12:55.560 code change is another devil that hasn't been revealed, all right, 0:12:55.559 --> 0:12:58.040 and we got right now price earnings ratio for the 0:12:58.160 --> 0:13:01.600 SMP five twenty one with dividen deal of about two. 0:13:02.120 --> 0:13:04.400 So I guess that would change all of that as well. 0:13:04.880 --> 0:13:07.280 David co Tech, I'm so glad you could join us. 0:13:18.600 --> 0:13:22.000 It was the tweet that sent alarms all over the 0:13:22.040 --> 0:13:26.720 Twitter sphere and potentially beyond. President elect Donald Trump yesterday 0:13:26.720 --> 0:13:30.319 tweeted that the United States must greatly strengthened and expand 0:13:30.800 --> 0:13:34.400 it's nuclear capability until such time as the world comes 0:13:34.400 --> 0:13:38.440 to its senses regarding nukes. That prompted many people to 0:13:38.640 --> 0:13:43.680 have some catastrophic responses, including the circulation of a nuke 0:13:43.800 --> 0:13:45.960 map where you could figure out how you would be 0:13:46.000 --> 0:13:48.040 affected by a nuclear problem. I want to bring in 0:13:48.080 --> 0:13:51.640 for some perspective and some real talk, George Ferguson, senior 0:13:51.679 --> 0:13:57.000 Aerospace and Defense analyst for Bloomberg Intelligence. Um, George, what 0:13:57.040 --> 0:13:59.920 did you make of of sort of President elect Trump's 0:14:00.440 --> 0:14:05.040 insinuation that the US would be rebuilding its nuclear stop stockpile? 0:14:05.960 --> 0:14:10.480 Uh so, good morning. So I think that a lot 0:14:10.520 --> 0:14:13.760 of this work was probably going to get done anyways 0:14:13.960 --> 0:14:18.480 under um, under potential president Hillary Clinton to you know, 0:14:18.960 --> 0:14:21.360 there's a number of you know, we have a triad, 0:14:21.440 --> 0:14:26.359 we have way have blistic missiles, nuclear missiles on ships, airplanes, 0:14:26.520 --> 0:14:31.080 and ground based and a number of the triad are 0:14:31.080 --> 0:14:33.560 worn out, i'd say, having been built a lot of 0:14:33.560 --> 0:14:36.000 it in the Reagan era, and I think we had 0:14:36.000 --> 0:14:38.760 to upgrade it anyways. The ships are the submarines to 0:14:38.840 --> 0:14:42.520 the I think the most prominent of that spend. There's 0:14:42.560 --> 0:14:48.160 been some discussion about revamping those submarines, and so I 0:14:48.200 --> 0:14:51.040 think frankly that Hillary Clinton would have done the same thing. 0:14:51.560 --> 0:14:53.760 And so I don't really get the sense that a 0:14:53.800 --> 0:14:56.960 president elect Trump is going to go further than sort 0:14:56.960 --> 0:15:01.160 of the way the current um that deter stockpile looks. 0:15:01.320 --> 0:15:03.160 But I think he was just reinforcing the idea that 0:15:03.160 --> 0:15:07.320 he is going to spend money on that on those programs. George, 0:15:07.360 --> 0:15:10.880 let's turn on attention now to another defense program. This 0:15:10.960 --> 0:15:13.960 is the Joint Strike fighter, the F thirty five, and 0:15:14.000 --> 0:15:16.880 the request, or at least the mention on Twitter by 0:15:16.960 --> 0:15:21.400 President elect Donald Trump two put together or at least 0:15:21.440 --> 0:15:25.720 to have Boeing put together a competing bid for a 0:15:25.840 --> 0:15:30.720 competing aircraft to update the F eighteen. Can you explain 0:15:31.000 --> 0:15:34.760 what this is all about. Yeah, I think he's looking 0:15:34.840 --> 0:15:39.600 for opportunities to to foster more competition. I think he 0:15:40.280 --> 0:15:43.280 I think he is committed to spending defense money, and 0:15:43.280 --> 0:15:47.000 I think he'll probably spend more defense money than President 0:15:47.040 --> 0:15:50.640 Obama did just just because of the question other challenges 0:15:50.680 --> 0:15:53.640 inside the defense budget. Um. But I think he wants 0:15:53.840 --> 0:15:56.320 more bank for his buck. To use the old expression 0:15:56.320 --> 0:15:59.280 which it gives applete fits here, and so I think 0:15:59.280 --> 0:16:03.080 he really wants to find a way to foster more competition. 0:16:03.080 --> 0:16:05.480 We've gotten to the point now where we only have 0:16:05.680 --> 0:16:09.520 a handful of defense primes. They get a bit specialized 0:16:09.560 --> 0:16:11.920 in what they do, and we're not getting as much 0:16:11.920 --> 0:16:14.760 competition as we had back in the days of it. 0:16:15.400 --> 0:16:19.400 But je, let's just stay specifically about this, this particular program, 0:16:19.400 --> 0:16:21.560 because I mean, the total defense budget is like six 0:16:21.760 --> 0:16:25.760 d and twenty two billion dollars that was this year, right, 0:16:26.240 --> 0:16:30.120 It's forty of the global total is spent by the 0:16:30.200 --> 0:16:35.920 United States, Right, So six billion go into defense this program, 0:16:35.960 --> 0:16:39.160 the F thirty five Joint Strike Fighter. It's the only 0:16:39.240 --> 0:16:43.240 plane I understand that the Marine Corps flies. Uh, the 0:16:43.280 --> 0:16:46.480 Air Force doesn't even fly. The U is not interested 0:16:46.480 --> 0:16:49.440 in flying the F A teen. So why would you 0:16:49.480 --> 0:16:52.960 come out and say you want a proposal to update 0:16:53.080 --> 0:16:55.680 the F A teen when two of the three branches 0:16:55.720 --> 0:16:58.200 of service don't even use it well, And that's what 0:16:58.240 --> 0:17:01.480 I'm saying. I think there's a bit of um posturing 0:17:01.520 --> 0:17:03.800 going on here. I don't think the F A team 0:17:03.880 --> 0:17:09.399 could be upgraded, changed, altered to perform the mission, you know, 0:17:09.440 --> 0:17:13.760 an Air Force strike fighter mission or the Marine Corps 0:17:13.880 --> 0:17:16.640 vertical lift mission. Right. The Marine Corps uses the vertical 0:17:16.720 --> 0:17:19.119 lift harriers. So I think he's trying to get a 0:17:19.119 --> 0:17:20.480 wedge in here to try to find a way to 0:17:20.560 --> 0:17:23.800 drive down costs. But Lockheed right now is the only 0:17:23.840 --> 0:17:26.919 game in town when it comes to fifth generation fighters, 0:17:26.920 --> 0:17:30.680 and that's a challenge. George. I'm wondering the people who 0:17:30.680 --> 0:17:34.760 you're talking to, how concerned are they that President elect 0:17:34.840 --> 0:17:38.239 Trump is taking some of these issues, which are a 0:17:38.280 --> 0:17:44.639 matter of national security to Twitter. Uh you know, Uh, 0:17:44.680 --> 0:17:51.440 it's definitely interesting days. I don't think anybody's terribly disturbed 0:17:51.440 --> 0:17:53.879 by it, but it's definitely interesting days. It seems like 0:17:53.880 --> 0:17:56.400 public posturing. Well, but I mean the reason being that, 0:17:56.520 --> 0:18:00.760 you know, yesterday's Twitter post about nuclear weapons certainly had 0:18:00.800 --> 0:18:04.119 a pretty big reaction globally, and there were concerns that 0:18:04.160 --> 0:18:07.040 we're going to be restarting the Cold War. Uh. You know, 0:18:07.720 --> 0:18:09.840 I'm just wondering. And it's certainly helped the stocks of 0:18:09.880 --> 0:18:13.320 some uranium companies, right I mean, for example, I was 0:18:13.320 --> 0:18:16.800 looking at Uranium Resources. It was up thirty one percent 0:18:17.000 --> 0:18:21.000 after this tweet. Yeah, I mean, I guess the challenge 0:18:21.000 --> 0:18:23.760 here too is we still live in a world where Russia. 0:18:24.119 --> 0:18:26.679 Russia has nuclear weapons. Other countries around the world have 0:18:26.760 --> 0:18:29.960 nucular weapons, so we're definitely not going to abandon them. 0:18:30.040 --> 0:18:33.240 Whether it belonged on Twitter. Um, you know, that's a 0:18:33.280 --> 0:18:35.760 different debate. But again, I think we thought that the 0:18:35.760 --> 0:18:39.080 money is gonna get spent anyways, It's a function how 0:18:39.160 --> 0:18:43.359 much that's it's honestly, Um, I really appreciate the perspective, George, 0:18:43.359 --> 0:18:45.480 because I think it's important to have a sort of 0:18:45.480 --> 0:18:48.520 realistic look at what is going on, you know, whether 0:18:48.560 --> 0:18:51.920 this really does indicate a restarting of the nuclear arms 0:18:52.000 --> 0:18:55.160 race or whether this is just simply a chest pounding 0:18:55.240 --> 0:18:59.120 exercise for something that we would have already done. Yeah, 0:19:00.520 --> 0:19:03.240 that was my take. Well, I mean, and also it 0:19:03.560 --> 0:19:06.879 brings into question the whole issue of whether our allies 0:19:06.960 --> 0:19:08.960 are going to continue to buy the F thirty five 0:19:09.040 --> 0:19:11.720 joint strike fighter, right. I mean, Canada has already delayed 0:19:11.920 --> 0:19:13.680 what they say they were going to buy it. Now 0:19:14.000 --> 0:19:17.000 the new prime minister they're saying maybe not. They're going 0:19:17.040 --> 0:19:20.199 to upgrade the F A team, and we know that 0:19:20.240 --> 0:19:22.520 other countries like Israel, they're already taking deliver at the 0:19:22.560 --> 0:19:25.800 F thirty five and that's a major defense project. Thanks 0:19:25.880 --> 0:19:28.800 very much, George Ferguson. He is senior Aerospace and Defense 0:19:28.800 --> 0:19:44.719 analyst for Bloomberg Intelligence. One of the big stories of 0:19:44.760 --> 0:19:49.240 the year, in my opinion, has been the tremendous increase 0:19:49.400 --> 0:19:52.200 in libor rates in the US. In other words, the 0:19:53.359 --> 0:19:57.600 rate the banks charge each other to borrow dollars has 0:19:57.720 --> 0:20:00.440 risen to the highest level since two thousand and nine. 0:20:00.840 --> 0:20:04.399 This is largely due to money market reform, and this 0:20:04.600 --> 0:20:07.560 same brand of money market reform maybe coming to Europe. 0:20:07.600 --> 0:20:09.720 I want to bring in Henley Smith, senior vice president 0:20:09.960 --> 0:20:13.479 at Vanderbilt Avenue Asset Management in Greenwich, Connecticut. He's here 0:20:13.480 --> 0:20:17.119 with us in our Bloomberg eleven three oh studio, Henley, Uh, 0:20:17.440 --> 0:20:19.919 let us tell us, first of all, just give us 0:20:19.960 --> 0:20:22.639 an update. How is the money market reform implementation going? 0:20:23.080 --> 0:20:25.840 And do you expect librrates to continue to climb from 0:20:25.840 --> 0:20:28.040 here as a result of them? Well, first, thanks for 0:20:28.080 --> 0:20:31.640 having me in. Uh. Yeah, the implementation went fairly smoothly, 0:20:31.720 --> 0:20:33.600 no hiccup, says we could see. But I think that 0:20:33.640 --> 0:20:36.320 trade is still unfolding and will continue to unfold because 0:20:36.880 --> 0:20:40.760 we haven't had any of these funds test those new rules. 0:20:40.920 --> 0:20:43.639 But I will say in that library thing that obviously 0:20:43.840 --> 0:20:47.720 since November eight, the trade has definitely gone from fear 0:20:47.760 --> 0:20:50.800 to greed, and we're seeing that being reflected in the 0:20:50.920 --> 0:20:53.439 in in the library rates have they pushed up to 0:20:53.720 --> 0:20:55.760 one percent this week, and I think that's something we 0:20:55.800 --> 0:20:58.800 talked about last time I was here. We expect expected 0:20:58.840 --> 0:21:00.720 that and we continue to expect to see that move 0:21:00.760 --> 0:21:03.359 and I think that's a big reason for that is 0:21:03.400 --> 0:21:06.240 because of you've seen a massive movement out of some 0:21:06.359 --> 0:21:08.960 of these prime money market funds which they invest in 0:21:08.960 --> 0:21:11.520 commercial paper and other types of instruments that are based 0:21:11.520 --> 0:21:14.680 on library and so the demand for those instruments has 0:21:14.760 --> 0:21:17.200 really dried up, and that's what one of the reasons 0:21:17.200 --> 0:21:19.639 why library rates are pushing up very high. And the 0:21:19.840 --> 0:21:22.720 Justice review, if we can some of the most important 0:21:22.760 --> 0:21:27.399 aspects of this money market reform. Prime institutional money market funds, 0:21:27.400 --> 0:21:30.960 those that are investing in short term corporate debt, is 0:21:31.040 --> 0:21:35.440 just to described as well as institutional municipal money market funds. 0:21:35.480 --> 0:21:38.280 They have to allow the value of their shares to 0:21:38.480 --> 0:21:41.920 fluctuate to reflect the current market price. Right, absolutely right. 0:21:41.960 --> 0:21:43.840 I don't think that that's a problem. I think that 0:21:43.840 --> 0:21:46.359 that sheds more transparency on the fact that these are 0:21:46.400 --> 0:21:49.440 investment accounts, not savings accounts, which I think a lot 0:21:49.480 --> 0:21:53.359 of investors, retail in particular, thought that they were you know, 0:21:53.480 --> 0:21:56.000 safe liquid all those things, which they are, but they 0:21:56.000 --> 0:21:59.159 are investment portfolios. But your money can actually be locked 0:21:59.240 --> 0:22:01.959 up if there is a big move in volatility. Perhaps 0:22:02.000 --> 0:22:05.720 that's correct. The SEC will require some of these funds, 0:22:05.720 --> 0:22:07.879 the prime funds and missible funds that we've talked about, 0:22:08.240 --> 0:22:12.600 to actually gate or uh stop redemptions for the matter 0:22:12.600 --> 0:22:15.880 of thirty days, and that could be a tremendous amount 0:22:15.960 --> 0:22:19.040 of problems. So you're seeing a lot of corporate treasurers 0:22:19.080 --> 0:22:21.960 who typically invest in these prime money market funds move out. 0:22:22.320 --> 0:22:24.800 So you've had a massive movement out of prime money 0:22:24.800 --> 0:22:28.440 market funds into US government only money market funds. And 0:22:28.680 --> 0:22:30.240 as I said, I think that that trade is still 0:22:30.240 --> 0:22:33.080 going to unfold over the next year if any of 0:22:33.119 --> 0:22:35.520 these funds do get any kind of liquidity stress. How 0:22:35.520 --> 0:22:37.919 these rules will actually play out, you know, so the 0:22:38.040 --> 0:22:41.160 US rules have been largely implemented. Whether the effects will 0:22:41.160 --> 0:22:43.360 continue to be seen and you're saying they probably will, 0:22:43.400 --> 0:22:45.840 but it will be it sounds like orderly, uh much 0:22:45.880 --> 0:22:48.560 to the its difference. Uh, there was a there was 0:22:48.600 --> 0:22:51.840 a fear that it could be somewhat disorderly. Uh. That said, 0:22:51.840 --> 0:22:55.000 the European Union is about to impose their own set 0:22:55.040 --> 0:22:59.760 of money market reform rules and it might be somewhat 0:22:59.760 --> 0:23:04.240 just eruptive. What rate are you looking at for those 0:23:04.320 --> 0:23:08.280 new rules to affect? And you know, how do investors 0:23:08.280 --> 0:23:10.840 trade around that? Well? Again, yeah, I think those those 0:23:10.920 --> 0:23:13.159 rules similar to the US will come into play over 0:23:13.200 --> 0:23:16.200 the next year two. Um, it will be interesting because 0:23:16.200 --> 0:23:18.679 you have an EU that's in flux, uh, you know, 0:23:18.760 --> 0:23:21.960 with the Italian bank in the headlines this week being 0:23:22.000 --> 0:23:24.440 rescued by the Italian government. Um, you know, how are 0:23:24.480 --> 0:23:28.000 the basically I have a lot of prospects less clients 0:23:28.000 --> 0:23:30.800 that are very concerned about European money market funds because 0:23:31.200 --> 0:23:36.120 a lot of them invest in financial instruments, financial commercial paper, CDs, 0:23:36.200 --> 0:23:40.720 those types of things. So as those rules get implemented, Uh, 0:23:40.760 --> 0:23:43.960 and if we still have some concerns about the banking 0:23:44.280 --> 0:23:47.479 system in the EU, I think there could be some 0:23:47.560 --> 0:23:50.159 real hiccups here. So yeah, we'll continue to look at 0:23:50.200 --> 0:23:52.399 LIEB or I. My guess is that will have a 0:23:52.520 --> 0:23:55.919