WEBVTT - Former CIA Acting Director Forecasts Global Risks (Correct) 0:00:04.760 --> 0:00:07.720 Welcome to the Bloomberg P and L Podcast. I'm Pim 0:00:07.800 --> 0:00:11.080 Fox along with my co host Lisa Abramowitz. Each day 0:00:11.119 --> 0:00:14.360 we bring you the most important, noteworthy, and useful interviews 0:00:14.400 --> 0:00:16.280 for you and your money, whether you're at the grocery 0:00:16.320 --> 0:00:19.360 store or the trading floor. Find the Bloomberg P L 0:00:19.480 --> 0:00:28.440 Podcast on iTunes, SoundCloud and at Bloomberg dot com. We 0:00:28.520 --> 0:00:32.120 have this nice Spring two thousand seventeen forecast from Jack Devine, 0:00:32.159 --> 0:00:34.440 who's founding partner and president of the ark And Group. 0:00:34.720 --> 0:00:38.360 It's a very uplifting forecast. I was reading it this 0:00:38.400 --> 0:00:40.560 morning and learned about things like the fact that North 0:00:40.600 --> 0:00:44.280 Korea has already over twenty nuclear weapons and its arsenal 0:00:44.720 --> 0:00:48.800 and can fairly quickly may develop a ballistic missile capability 0:00:48.840 --> 0:00:52.199 to deliver these weapons against our allies, including perhaps US 0:00:52.200 --> 0:00:55.320 in the United States. Um. Jack Divine is here with 0:00:55.400 --> 0:00:57.480 us to talk about this of lifting forecast, and you're 0:00:57.480 --> 0:01:00.960 talking about the biggest risks ahead for the US economy. 0:01:02.080 --> 0:01:04.960 Let's start with North Korea. How big of a threat 0:01:05.080 --> 0:01:08.200 is this to the US? Well, I think you have 0:01:08.880 --> 0:01:14.360 a rare mix here. You have a um arguably mentally 0:01:15.080 --> 0:01:21.039 uh um disturbed president of a country or chairman of 0:01:21.080 --> 0:01:25.400 the country, which which country? Talking North Korea, there's several, 0:01:25.480 --> 0:01:28.920 there's several out there, but they have a nuclear weapon, 0:01:28.959 --> 0:01:31.320 which I think puts them in a special category. You know, 0:01:31.560 --> 0:01:36.000 we've been fairly successful in the West preventing the proliferation 0:01:36.160 --> 0:01:39.240 of nuclear weapons. I remember Jack Kennedy thought we'd have 0:01:39.280 --> 0:01:44.080 a hundred and sixty countries with nuclear weapons. The Brazilians, 0:01:44.120 --> 0:01:48.080 the Argentinees, of South Africans all started nuclear programs and 0:01:48.120 --> 0:01:51.640 then we were able to work it back with two exceptions, 0:01:51.680 --> 0:01:59.480 Pakistan and Umu India. So new North Korea, unstable country 0:02:00.080 --> 0:02:05.960 by anyone's definition and largely unpredictable, now has nuclear weapons 0:02:05.960 --> 0:02:10.440 and has ballistic missiles. And the question is will they 0:02:10.480 --> 0:02:12.320 be able to develop the range in the next few 0:02:12.400 --> 0:02:15.800 years to reach certainly the western part of the United States, 0:02:15.840 --> 0:02:19.560 And I think most experts would say certainly they'll be producing. 0:02:20.200 --> 0:02:22.600 The latest estimate I saw it was something like eight 0:02:22.680 --> 0:02:28.119 to ten nuclear weapons a year going forward. Um India, 0:02:28.440 --> 0:02:33.240 and again these are rough estimates, they're not it's not intelligence, 0:02:33.320 --> 0:02:36.560 but India probably is a hundred and sixty and Pakistan 0:02:36.600 --> 0:02:39.040 has a hundred and sixty. But if you start adding 0:02:39.200 --> 0:02:42.320 eight year to twenty, it doesn't take long to become 0:02:42.320 --> 0:02:45.320 a significant nuclear power in the region. Well, and you 0:02:45.320 --> 0:02:50.600 were talking about Iran also heading towards a similar path, Jack, 0:02:50.680 --> 0:02:53.280 your former acting director of the c i A. And 0:02:53.360 --> 0:02:58.000 so you have a long history in being presented with 0:02:58.160 --> 0:03:03.000 severe and potentially catastrophic risks. Where we are right now 0:03:03.080 --> 0:03:06.519 looking at the potential risks ahead. Do you feel more 0:03:06.560 --> 0:03:08.960 worried than you have in the past or is this 0:03:09.040 --> 0:03:11.880 on par with the normal risks that you saw as 0:03:12.040 --> 0:03:15.600 the head of the CIA. I think when the Russians 0:03:15.680 --> 0:03:19.639 developed nuclear weapons in the post war period, uh, there 0:03:19.720 --> 0:03:22.160 was a great deal concerned about whether we were going 0:03:22.200 --> 0:03:26.560 to go into a confrontation, but it settled down fairly quickly, 0:03:26.600 --> 0:03:31.200 with the exception of um, the Cuban Missile crisis, where 0:03:31.280 --> 0:03:34.240 we actually had nuclear weapons in Cuba, which we didn't 0:03:34.280 --> 0:03:39.040 realize until the nineties that they had some nuclear capability 0:03:39.080 --> 0:03:42.440 back then. The Russians did that close to us, but 0:03:42.600 --> 0:03:46.440 in the larger scheme of things, we had mutual destruction, 0:03:46.920 --> 0:03:50.880 and the Russians, whatever we may think of them, I think, 0:03:50.920 --> 0:03:54.520 behaved in irrational and fairly predictably behavior as we did. 0:03:54.880 --> 0:03:59.040 So the risks while they existed, UH, I don't think 0:03:59.080 --> 0:04:01.880 most people lived and the fear that they did temporarily 0:04:01.920 --> 0:04:03.840 and to say the early fifties. As far as a 0:04:03.920 --> 0:04:09.000 nuclear confrontation, the unpredictability of the North Korea now has 0:04:09.080 --> 0:04:14.279 a U is as a new a new situation for US. 0:04:14.400 --> 0:04:17.000 And I think the possibility that they could use a 0:04:17.080 --> 0:04:21.360 nuclear weapon. We can't count on the mutual destruction formula 0:04:21.920 --> 0:04:25.279 to stop the North Koreans from using a nuclear weapon. 0:04:25.920 --> 0:04:28.560 So how does trade fit into this? Right? Because it 0:04:28.600 --> 0:04:33.400 does in the sense that US relationship with China and 0:04:33.680 --> 0:04:38.200 with South Korean other UH countries in the region. I mean, 0:04:38.240 --> 0:04:43.800 it wouldn't that play into how this threat is dealt with? Well, 0:04:43.800 --> 0:04:46.840 I think sanctions haven't worked. I think in terms of 0:04:46.920 --> 0:04:50.640 stopping them. I mean, clearly they're going forward. They've tried 0:04:50.720 --> 0:04:54.600 to induce the North Koreans to be more positive at 0:04:54.600 --> 0:04:58.360 the table. You know, we withdrew nuclear weapons unilatterly from 0:04:58.400 --> 0:05:02.600 South Korea ninety one. The South Koreans, with our encouragement 0:05:02.680 --> 0:05:07.120 or support, build a industrial city if you will in 0:05:07.200 --> 0:05:13.240 North Korea. The Chinese, We've talked to them often. Countries 0:05:13.279 --> 0:05:16.800 have sanctions in place. None of it seems to be 0:05:17.040 --> 0:05:21.520 touring the the North, the North Koreans. I know a 0:05:21.560 --> 0:05:26.080 lot of experts in Washington and government officials, and uh, 0:05:26.360 --> 0:05:28.839 I've read enough about it that many people are counting 0:05:28.839 --> 0:05:32.280 on the Chinese to fix the problem, that somehow they 0:05:32.360 --> 0:05:36.599 have you know, real access and could could muscle the 0:05:36.640 --> 0:05:41.680 North Koreans. I would encourage folks not to be overly 0:05:41.760 --> 0:05:45.040 confident that that's going to happen. The Chinese have their 0:05:45.040 --> 0:05:51.520 own reasons why North Korea, why Korea remains should remain 0:05:51.560 --> 0:05:55.720 divided from their perspective, and uh, I think we're going 0:05:55.720 --> 0:06:00.120 to expend a lot of energy jaw boning with the Chinese, 0:06:00.320 --> 0:06:02.760 and it probably is not going to make much difference. 0:06:02.800 --> 0:06:05.800 And we'll probably be back at the the radio station 0:06:05.880 --> 0:06:09.760 talking next year about the North Koreans having greater missile 0:06:09.839 --> 0:06:14.039 capability and having the thirty to forty nuclear weapons. So 0:06:14.520 --> 0:06:18.720 I'm not optimistic about it. Well, one thing that that 0:06:18.760 --> 0:06:23.000 you did sort of dismiss was this idea that Russia 0:06:23.320 --> 0:06:25.800 was in some way conspiring with the current leadership and 0:06:25.839 --> 0:06:29.880 could lead to something very substantial. Is this is this 0:06:30.000 --> 0:06:33.600 something that is a clear and present risk in your opinion, 0:06:34.000 --> 0:06:37.320 in any way to the United States. I'm sorry, we're 0:06:37.320 --> 0:06:40.080 talking with Russia. Yeah, with Russia with respect to it's 0:06:40.080 --> 0:06:47.119 sort of Yeah. What I said in the forecast, and 0:06:47.160 --> 0:06:54.400 I'm standing by it, is that the allegation that Trump's 0:06:54.480 --> 0:07:00.760 campaign or he was monitored for political reasons will turn 0:07:00.760 --> 0:07:05.000 out to be a goose egge, as will the development 0:07:05.040 --> 0:07:09.840 of information that shows conlusion between the campaign, not an individual, 0:07:09.920 --> 0:07:15.360 but the Trump campaign and the Russians to defeat Hillary Clinton. 0:07:15.560 --> 0:07:17.600 I think at the end, you know, we're gonna have 0:07:17.880 --> 0:07:22.120 a lot, a lot of smoke, little fire. Uh, there 0:07:22.160 --> 0:07:25.520 will be no prosecutions, in my opinion, there will be 0:07:25.560 --> 0:07:29.840 no actions taken against the Russians because of it. Um, 0:07:30.120 --> 0:07:32.960 it will be very difficult to understand why we're going 0:07:33.000 --> 0:07:35.600 to spend the next year doing this, and most Americans 0:07:35.640 --> 0:07:38.080 are going to scratch their head. But I do want 0:07:38.080 --> 0:07:41.800 to say the Russian hacking into the system is a 0:07:41.840 --> 0:07:45.760 big issue, but it's not the one that everyone's getting 0:07:46.520 --> 0:07:50.720 fixated about as it relates to the election itself. Uh. 0:07:50.760 --> 0:07:52.920 You know, we used to have what they called Moscow rules, 0:07:52.960 --> 0:07:56.520 where the we had the capability of doing lots of things, 0:07:56.760 --> 0:08:00.400 uh nefarious things to them and vice versa. We could, 0:08:00.560 --> 0:08:04.040 for example, counterfeit each other's money, and we didn't do that. 0:08:06.160 --> 0:08:07.960 Jack Devine, thank you so much for joining us. It 0:08:08.000 --> 0:08:10.200 was really a pleasure speaking with you. Jack Devine, former 0:08:10.240 --> 0:08:13.400 acting Director of the CIA CIA and founding partner and 0:08:13.720 --> 0:08:17.120 president of Security for the Arkin Group, talking about his 0:08:17.160 --> 0:08:33.160 Spring two thousand seventeen forecast of risks. Is it time 0:08:33.240 --> 0:08:35.439 to take risk or is it time to take chips 0:08:35.600 --> 0:08:39.240 off the table? Carlistet has some perspective on this, as 0:08:39.280 --> 0:08:43.440 senior portfolio manager at Western Asset Management, managing seventeen billion 0:08:43.520 --> 0:08:46.439 dollars more than that in his Western Asset Core Plus 0:08:46.640 --> 0:08:48.640 bond fund. He joins us in our Bloomberg eleven three 0:08:48.679 --> 0:08:51.680 oh studio. Carl, thank you so much for being here. 0:08:51.800 --> 0:08:53.840 I want to start with emerging markets because this has 0:08:53.880 --> 0:08:57.320 been one area that has been surprisingly immune to any 0:08:57.440 --> 0:09:01.400 weakness or hiccups in riskier assets. This year, UH so far, 0:09:01.559 --> 0:09:06.200 dollarge denominated US UH dollargennominated marging markets debt has performed 0:09:06.320 --> 0:09:08.319 twice as much as US junk bunds. Do you think 0:09:08.320 --> 0:09:11.480 that this is a signed to sell or or something else. Well, 0:09:11.559 --> 0:09:13.840 first of all, you have to remember that emerging markets 0:09:13.880 --> 0:09:16.360 did horribly in two thousand, fifteen and sixteen. So some 0:09:16.480 --> 0:09:19.959 of this is just frankly a catchup. I personally in 0:09:20.000 --> 0:09:22.600 Western nasset things that emerging markets still has more room 0:09:22.679 --> 0:09:25.600 to run. Uh. Certainly not priced at the huge discounts 0:09:25.640 --> 0:09:27.720 they were a year ago. But if you do your 0:09:27.760 --> 0:09:33.320 country selection correctly, we like Latin Brazil, Argentina, Indonesia, India. 0:09:33.880 --> 0:09:36.160 We still think there's some outsized returns to come from 0:09:36.240 --> 0:09:40.559 emerging market debt. Yesterday on Bloomberg Television, Ed Hyman of 0:09:40.880 --> 0:09:43.520 ever Core Partners came on and said that China is 0:09:43.559 --> 0:09:45.520 a mess and at some point it's going to blow up. 0:09:45.679 --> 0:09:48.240 They have a ton of debt which is unsustainable. So 0:09:48.600 --> 0:09:50.800 you know, China is one of the biggest developing markets 0:09:51.000 --> 0:09:53.160 and if it were to blow up, it would be 0:09:53.240 --> 0:09:56.439 potentially catastrophic for marging markets. How concerned are you about this? Well, 0:09:56.520 --> 0:09:57.839 you you have to nail on the head if your 0:09:57.920 --> 0:10:00.360 your view of emerging market must come m a view 0:10:00.400 --> 0:10:03.599 on China. For example, Brazil, over half their exports go 0:10:03.679 --> 0:10:04.959 to China, so you have to have a view on 0:10:05.040 --> 0:10:07.600 China first before you make your view of emerging markets. 0:10:07.920 --> 0:10:09.960 Our views that it's not a black hole. Sure, there 0:10:10.000 --> 0:10:13.120 are problems here and there, but it's still growing at 0:10:13.160 --> 0:10:15.959 six six and a half percent. Uh, And put that 0:10:16.040 --> 0:10:18.199 in perspective, China is twice as big as it was 0:10:18.280 --> 0:10:21.400 ten years ago. So six percent today is twelve percent 0:10:21.559 --> 0:10:24.760 ten years ago. China adds the g d P of 0:10:24.840 --> 0:10:27.679 the Netherlands to the world every year, but it does 0:10:27.720 --> 0:10:30.120 that with credit. And isn't that concerning that they're sort 0:10:30.160 --> 0:10:31.960 of expanding their leverage by so much. I mean, that's 0:10:31.960 --> 0:10:34.960 sort of I guess at Hyman's point, right, Well, well, 0:10:35.880 --> 0:10:38.400 China is in a very enviable position unlike the rest 0:10:38.440 --> 0:10:40.600 of the developed world. They have a rate structure above zero, 0:10:41.040 --> 0:10:43.319 and they have a fiscal surplus. So as they have 0:10:43.440 --> 0:10:46.319 fits and starts, they are changing their economy from a 0:10:46.400 --> 0:10:50.240 more export related to more of a Western consumption economy. 0:10:50.360 --> 0:10:53.080 That's not a straight line. You're gonna get hiccups along 0:10:53.120 --> 0:10:57.680 the road. They have these two tools that we don't have. Alright, 0:10:57.840 --> 0:11:01.000 So you think that developing markets still have room to go, 0:11:01.120 --> 0:11:03.559 that China, you know, potentially might see some growing pains, 0:11:03.600 --> 0:11:06.840 but in general is rather benign. No. I mean, I mean, 0:11:06.960 --> 0:11:10.840 we're not without concern, but the red lights aren't flashing Okay, 0:11:11.120 --> 0:11:15.319 So moving away from developing markets, just generally, do you 0:11:15.440 --> 0:11:17.960 feel like we are in a sort of benign phase 0:11:18.240 --> 0:11:21.280 in the credit cycle in the US and that US 0:11:21.320 --> 0:11:23.840 HIG yield bonds can chug along, investment grade bonds can 0:11:23.920 --> 0:11:26.640 kind of meander in some kind of range, or do 0:11:26.720 --> 0:11:29.640 you think that we could be in for some hiccups. Well, 0:11:29.679 --> 0:11:31.520 this is the big question. Everyone wants to know. Where 0:11:31.559 --> 0:11:33.400 are we in the credit cycle? Where are we in 0:11:33.480 --> 0:11:36.360 the business cycle. We western trying to take a step 0:11:36.440 --> 0:11:38.920 back and look at each industry specifically and look at 0:11:38.960 --> 0:11:42.199 where they fall in that circle. Take energy, for example, 0:11:42.320 --> 0:11:45.360 they just had their recession, right, everything they do is 0:11:45.400 --> 0:11:48.000 to improve the balance sheet, you know, become more credit worthy. 0:11:48.280 --> 0:11:52.480 Banking banking, big banks aren't buying back their stocks, special dividends, 0:11:52.559 --> 0:11:55.360 reckless m and A. They're just coming out of their recession. 0:11:55.400 --> 0:11:56.920 But then you go around the circle and you get 0:11:57.000 --> 0:12:02.680 industries like telecommunications, pharma, hospitals that are releveraging the balance sheet. 0:12:02.679 --> 0:12:05.880 There are some scary signs. So we don't pigeonhole the 0:12:06.080 --> 0:12:08.760 entire corporate market at one spot on this circle, but 0:12:08.880 --> 0:12:12.040 really try to pick individual industries. So what is a 0:12:12.200 --> 0:12:15.719 pigeon told as being a particularly bad area right now, Well, 0:12:15.800 --> 0:12:18.839 I I do think that telecommunications is in a is 0:12:18.840 --> 0:12:21.600 in a bad spot for the bondholder, releveraging the balance sheets, 0:12:21.640 --> 0:12:23.960 some m and a activity that may or not be useful. 0:12:24.280 --> 0:12:26.120 So you're talking like a T N T, even a 0:12:26.240 --> 0:12:28.960 T and T verizing we're definitely short those names, all right, 0:12:29.040 --> 0:12:31.320 and uh, what about in the real tail side? Are 0:12:31.360 --> 0:12:34.560 you sorry to do? It may finally be the point 0:12:34.600 --> 0:12:36.400 where you may want to think about it. Um Our, 0:12:36.480 --> 0:12:38.960 our high yield analyist has a saying, uh, they are 0:12:39.160 --> 0:12:42.000 burning the furniture to save the store. So you know, 0:12:42.120 --> 0:12:44.600 you have a high yield company selling anything that has 0:12:44.679 --> 0:12:48.599 any value whatsoever, and what's left not a lot. But 0:12:48.760 --> 0:12:50.800 you have to remember that the market has figured this out. 0:12:50.880 --> 0:12:52.439 So if you look at the high yield index, it 0:12:52.520 --> 0:12:55.959 yields about five and three quarters the energy subcomponent, which 0:12:56.000 --> 0:12:59.160 gets most of the publicity for being you know, higher yielding, 0:12:59.200 --> 0:13:03.480 six and three quarter. The high yield retail index yields 0:13:03.480 --> 0:13:06.640 almost nine. So at some point we're gonna have some 0:13:06.760 --> 0:13:09.520 value here. So we're actually starting to look at high 0:13:09.559 --> 0:13:12.959 yield retail, all right. So you're you're confident that perhaps 0:13:13.000 --> 0:13:14.520 burning the furniture will be the right way to go 0:13:15.080 --> 0:13:17.839 to create value. What about cast allocations? Have you been 0:13:18.160 --> 0:13:21.720 decreasing them and trying to deploy cash given the somewhat 0:13:21.800 --> 0:13:25.480 benign at least economic backdround. Well, what we are what 0:13:25.600 --> 0:13:27.240 I refer to as a value manager, So you have 0:13:27.320 --> 0:13:30.000 to have a fundamental view on the company or their 0:13:30.080 --> 0:13:32.800 interest rate structure, but you also have to be cognizant 0:13:32.840 --> 0:13:35.240 of where the markets pricing that. Security retail is a 0:13:35.280 --> 0:13:37.160 good example of that. I mean, the markets figured out 0:13:37.200 --> 0:13:40.120 that it's it's risking today. Uh, corporate bonds have had 0:13:40.120 --> 0:13:42.720 an amazing run. Both hig yield investment grade spreads are 0:13:42.800 --> 0:13:45.440 much tighter than they were six months twelve months ago. 0:13:45.760 --> 0:13:48.319 Our view of the world is relatively benign. But being 0:13:48.360 --> 0:13:51.760 a value manager, we can't like corporate bonds as much 0:13:51.800 --> 0:13:54.000 today as we like them six months and twelve months ago. 0:13:54.280 --> 0:13:57.120 So our client portfolios have been gradually de risking into 0:13:57.240 --> 0:14:00.080 this bowl marketing credit. So real quick, how much as 0:14:00.160 --> 0:14:02.000 cash increased as a as a percentage of you, Well, 0:14:02.400 --> 0:14:05.120 we don't keep cash that's been redeployed in other areas. 0:14:05.160 --> 0:14:08.280 Structured product being one of our favorites. All right, Carl 0:14:08.600 --> 0:14:10.560 set thank you so much for joining us. Really terrific 0:14:10.640 --> 0:14:13.400 to speak with you. Carl Etet his senior portfolio management 0:14:13.640 --> 0:14:17.240 manager at Western Asset Management. He manages the more than 0:14:17.320 --> 0:14:21.120 seventeen billion dollar Western Asset Core Plus Bond Fund, and 0:14:21.200 --> 0:14:23.800 he is with us here in our Bloomberg eleven three 0:14:23.840 --> 0:14:40.680 oh studio. But right now, let's check in with former 0:14:40.800 --> 0:14:45.000 US Congressman Rick Lazio. He's senior vice president at Alliance Group, 0:14:45.520 --> 0:14:48.960 and uh, former Congressman Lazio has had a great deal 0:14:49.040 --> 0:14:53.600 of experience with congressional note negotiations, including those over taxes. 0:14:54.160 --> 0:14:57.080 So Mr Lazio, I'd love to get your opinion just 0:14:57.360 --> 0:15:00.320 from the outset of what the biggest challenge will be 0:15:00.560 --> 0:15:04.800 for President Trump to push through any tax deal. Well, 0:15:05.560 --> 0:15:08.240 thank you, Lisa. I made. The first thing, of course, 0:15:08.880 --> 0:15:12.960 is that comprehensive tax reform at its most basic level 0:15:13.080 --> 0:15:15.960 is extremely difficult. That's why it only happens once in 0:15:16.000 --> 0:15:19.960 a generation. The last major comprehensive tax reform was signed 0:15:20.000 --> 0:15:23.200 into law by President Reagan in six or thirty odd 0:15:23.280 --> 0:15:27.720 years ago. And and why is that? It's because comprehensive 0:15:27.800 --> 0:15:31.720 tax reform has winners and losers, and the losers tend 0:15:31.800 --> 0:15:35.520 to fight harder for the things that they already have 0:15:35.840 --> 0:15:38.960 that they risk losing than the people that have the 0:15:39.080 --> 0:15:44.640 potential to win. I wasn't I'm trying to wrap my 0:15:44.640 --> 0:15:46.120 head around what some of those ideas could be. So, 0:15:46.200 --> 0:15:48.400 can you give us an example of something that uh, 0:15:48.800 --> 0:15:51.080 certain constituents wouldn't want to lose, that would be up 0:15:51.120 --> 0:15:53.000 for grabs, that would be something that they would fight 0:15:53.080 --> 0:15:57.280 hard for sure, The mortgage interest deduction, for example, where 0:15:57.320 --> 0:16:00.280 the realtors and home builders and where they have got 0:16:00.360 --> 0:16:04.880 sort of institutional support in every congressional district in the nation. 0:16:05.680 --> 0:16:09.920 One of the reasons why Paul Ryan and other Republicans 0:16:10.120 --> 0:16:13.320 want to have a bill to the President before the 0:16:13.440 --> 0:16:17.160 August congressional recesses. They don't want members to go home 0:16:17.840 --> 0:16:22.320 and get their brains brains beaten out politically at town 0:16:22.400 --> 0:16:26.080 hall meetings m because of these Washington groups that have 0:16:26.240 --> 0:16:29.360 organized well and are pushing back. They'd rather have the 0:16:29.440 --> 0:16:33.200 vote have taken place, that it's in the past, and 0:16:33.360 --> 0:16:35.600 that they may be some grumbling afterwards, but it doesn't 0:16:35.680 --> 0:16:39.040 create nervousness or weak knees on the part of members 0:16:39.120 --> 0:16:42.120 that they're going to count on for the vote. So, um, 0:16:42.600 --> 0:16:49.520 that's an example of a potential loser in this, meaning 0:16:49.680 --> 0:16:53.119 that that fewer people may be able to take advantage 0:16:53.960 --> 0:16:57.880 of the mortgage interest deduction if it is capped then 0:16:58.480 --> 0:17:02.080 then exists right now. Okay, So that's that's That's clearly 0:17:02.160 --> 0:17:05.439 one reason. The second reason, of course, is that that, uh, 0:17:05.920 --> 0:17:10.520 that Donald Trump has a different and small smaller political 0:17:10.600 --> 0:17:15.600 base than most past presidents. And then you know, most recently, 0:17:15.640 --> 0:17:19.880 of course, the defeat of the Republican healthcare bill, um 0:17:21.359 --> 0:17:25.520 creates even more risk now for tax reform. So expand 0:17:25.560 --> 0:17:27.639 on that, I mean, how much of a how much 0:17:27.760 --> 0:17:30.320 damage was done by the failure for the GOP to 0:17:30.359 --> 0:17:34.119 get a healthcare bill brought to the floor for a vote? 0:17:34.600 --> 0:17:37.359 Is this going to be potentially as damaging as some 0:17:37.520 --> 0:17:39.720 are making it out to be. Yeah, there's a fair 0:17:39.720 --> 0:17:42.720 amount of damage across the board here. Uh, there's there's 0:17:42.840 --> 0:17:46.719 damage in terms of the president's credibility as somebody who 0:17:46.760 --> 0:17:49.840 has positioned himself as somebody that would take on Washington 0:17:50.800 --> 0:17:54.200 get things done that can do president and and change 0:17:54.240 --> 0:17:57.000 his status quot Number one, that's in question. So he 0:17:57.080 --> 0:18:01.040 has lost some political capital very le on in his term. 0:18:01.760 --> 0:18:05.640 Number two, the Republicans in general, both on Capitol Hill 0:18:05.840 --> 0:18:09.040 and with respect to the President, have lost momentum. This 0:18:09.200 --> 0:18:12.160 soda sense that you build on things, UH, you build 0:18:12.240 --> 0:18:15.879 on wins, and that people members that you count on 0:18:16.119 --> 0:18:20.479 lock in UH more tightly when when you have had 0:18:20.560 --> 0:18:22.320 a past win and they expect you to win again 0:18:22.359 --> 0:18:24.960 and you want to be part of that. And number three, 0:18:25.320 --> 0:18:28.760 on the technical part of this, UH, the fact is 0:18:28.960 --> 0:18:33.120 that the that the Republican healthcare bill would have reduced 0:18:33.160 --> 0:18:37.040 the budget baseline for tax reform by about a trillion 0:18:37.119 --> 0:18:41.320 dollars over ten years, which means that now Republicans have 0:18:41.480 --> 0:18:46.720 to find a trillion dollars more in offsets, meaning to 0:18:46.920 --> 0:18:52.879 close loopholes, reduced deductions, credits, and other preferences, um if 0:18:52.920 --> 0:18:55.760 they want to want their reduction and tax rates to 0:18:55.880 --> 0:19:00.040 be budget neutral. So that puts all kinds of of 0:19:00.160 --> 0:19:03.480 things in play. And compounding this, of course, is that 0:19:03.600 --> 0:19:06.040 there is some question, particularly over on the seventh side 0:19:06.080 --> 0:19:12.359 about UH the border adjustment tax concept, which is another 0:19:12.440 --> 0:19:15.240 trillion dollars over ten years, that if that falls out, 0:19:15.680 --> 0:19:19.640 so all that together it creates a lot more headwind 0:19:19.720 --> 0:19:22.199 for tax reform. There are some people and I think 0:19:22.240 --> 0:19:25.159 this is a fair comment that that the failure of 0:19:25.520 --> 0:19:29.920 the repeal of Obamacare puts more pressure on Republicans, including 0:19:30.040 --> 0:19:34.520 very conservative Republicans, to come through for tax reform. Um, 0:19:35.000 --> 0:19:37.879 but I'm not sure that all sets the negativity that 0:19:38.040 --> 0:19:41.639 I just described. Yeah, it's interesting the idea that because 0:19:41.720 --> 0:19:43.760 there wasn't a replacement for Obamacare, they're gonna have to 0:19:43.960 --> 0:19:45.800 basically budget for it or account for it in their 0:19:45.880 --> 0:19:48.880 tax plan. Um. Is there any issue with tax reform 0:19:49.440 --> 0:19:54.280 that is that has bipartisan support that they could start with. Yeah, 0:19:54.320 --> 0:19:56.879 it's if if they, If they, you know, you definitely 0:19:57.000 --> 0:20:01.000 want to regain momentum by by building some wind taxes. Uh, 0:20:01.520 --> 0:20:04.480 this is a tough area to to build momentum within 0:20:04.720 --> 0:20:09.639 because you want to use this reconciliation process. Democrats now 0:20:09.800 --> 0:20:12.840 feel emboldened and are less likely, I think, to come 0:20:12.880 --> 0:20:15.680 across right now and help Republicans bail them out of 0:20:15.680 --> 0:20:18.399 the whole that they've dug themselves into. There are some 0:20:18.560 --> 0:20:21.520 things like the medical device tax, for example, on healthcare, 0:20:21.680 --> 0:20:25.359 whether there was there was democratic support, there is going 0:20:25.400 --> 0:20:29.560 to be democratic support for lowering rates. Uh. My guests 0:20:29.560 --> 0:20:33.520 would be for lowering rates for uh, middle income and 0:20:33.840 --> 0:20:38.560 lower income Americans. Um, there will be some support, my 0:20:38.720 --> 0:20:43.960 guests would be for some adjustment in terms of the 0:20:44.800 --> 0:20:49.040 the extra territorial taxes, the trapping capital overseas. I mean, 0:20:49.119 --> 0:20:53.280 even the Senate democratically to Chuck Schumer with Republicans Senter 0:20:53.480 --> 0:20:56.760 a Portman have been have been talking last year and 0:20:57.840 --> 0:21:02.160 uh and are probably in basic policy agreement about where, 0:21:02.440 --> 0:21:04.160 you know, how we address that issue. So there are 0:21:04.520 --> 0:21:09.840 component pieces, both on the individual side and corporate side. Unfortunately, 0:21:10.400 --> 0:21:11.760 I hate to do this, we have to, we have 0:21:11.840 --> 0:21:14.440 to leave it there. Former US Congressman Rick Lazio, senior 0:21:14.560 --> 0:21:18.320 vice president at Alliance Group, talking about tax reform in Congress. 0:21:30.640 --> 0:21:33.119 Katherine Greenfield is here with us. She's healthcare reporter for 0:21:33.240 --> 0:21:35.920 Bloomberg and Katherine, you wrote a story that I thought 0:21:35.960 --> 0:21:40.399 was fascinating about the challenges that go way beyond what 0:21:40.640 --> 0:21:44.239 the government's healthcare plan will be for these hospitals. Can 0:21:44.280 --> 0:21:46.520 you give us just a sense of what some of 0:21:46.600 --> 0:21:50.160 these issues are that are plaguing these, uh, these hospitals. Sure, 0:21:50.280 --> 0:21:53.960 so thanks for having me, um so, yeah, definitely. The 0:21:54.040 --> 0:21:58.240 general sense after the GOP bill was pulled on Friday 0:21:58.359 --> 0:22:01.879 was that hospital stodge to bullet but um, you know, 0:22:02.000 --> 0:22:05.960 issues with Obamacare are still out there for hospitals, UM, 0:22:06.280 --> 0:22:11.359 and maybe investors are realizing that. So, for example, you know, 0:22:11.400 --> 0:22:14.280 you still have the nineteen states that didn't expand Medicaid 0:22:14.680 --> 0:22:17.280 under the a C A UM who are really struggling 0:22:17.720 --> 0:22:21.640 with their uncompensated care costs. UM. You know, you still 0:22:21.720 --> 0:22:27.320 have millions of people uninsured. And uh, most hospital chains 0:22:27.480 --> 0:22:32.439 are projecting flatt admissions growth for this year, which definitely 0:22:32.440 --> 0:22:35.840 won't help. Yeah, well, I mean zooming back. Healthcare is 0:22:35.880 --> 0:22:38.080 a fascinating area because people say, we don't want to 0:22:38.080 --> 0:22:40.520 lose our hospitals, and yet hospital beds are less and 0:22:40.600 --> 0:22:43.760 less occupied as people get more transactions done at doctor's 0:22:43.840 --> 0:22:47.800 offices and outpatient centers. You had some amazing statistics here 0:22:48.160 --> 0:22:51.280 in your story, but more than two U S county 0:22:51.359 --> 0:22:54.600 still have uninsured rates at or above That is even 0:22:54.720 --> 0:22:58.359 with Obamacare. National bed occupancy rates that's how full the 0:22:58.400 --> 0:23:02.040 hospitals are on average any given day are about so 0:23:02.200 --> 0:23:05.200 less than half of their beds are filled on any 0:23:05.280 --> 0:23:07.480 given day. That's kind of amazing. UM. And we're gonna 0:23:07.480 --> 0:23:10.040 be speaking later in the program with a Bloomberg intelligence 0:23:10.080 --> 0:23:13.720 analyst talking about how people think that real estate that 0:23:13.800 --> 0:23:17.360 that retail real estate is the biggest hit this year, 0:23:17.440 --> 0:23:20.719 it's actually hospital related real estate because these hospitals are 0:23:20.720 --> 0:23:23.080 at risk of going out of business, Dave. Within the 0:23:23.200 --> 0:23:26.760 hospital sector, has there been a big laggard or is 0:23:26.800 --> 0:23:29.639 there someone who people watch to get a sense of 0:23:29.880 --> 0:23:32.679 how this entire industry is going well? I mean, clearly, 0:23:32.760 --> 0:23:35.480 if you're talking about the hospital stocks, h c A 0:23:35.800 --> 0:23:38.639 being the biggest company in the industry represents your your 0:23:38.720 --> 0:23:42.080 bell weather, and yesterday was one of the best performers 0:23:42.119 --> 0:23:45.600 in the s the best. Today it's the second worst. 0:23:45.720 --> 0:23:48.080 So you know, it goes to show you things do 0:23:48.359 --> 0:23:50.720 have a way of kind of swinging back and forth. 0:23:50.800 --> 0:23:53.119 I mean, especially after a big day like what we 0:23:53.200 --> 0:23:56.840 saw yesterday. You know, beyond that, I mean, it really 0:23:56.920 --> 0:24:01.000 does become an issue of do you see the concerns 0:24:01.040 --> 0:24:04.000 that are facing the companies that actually are involved in 0:24:04.080 --> 0:24:07.320 this business play out in terms of the real estate 0:24:07.400 --> 0:24:10.640 investment trust that are involved as well. I mean, we've 0:24:10.680 --> 0:24:13.720 certainly seen that happening retailing, with the issues of department 0:24:13.800 --> 0:24:16.320 store chains and so on having a carry over to 0:24:16.400 --> 0:24:19.359 the retail roads. So you know, it's a matter of 0:24:19.440 --> 0:24:22.880