WEBVTT - Markets Await Tariff Announcement on Liberation Day 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.240 us live on YouTube. 0:00:27.520 --> 0:00:32.519 University Martin Feldstein the original support of Kenneth Rogoff, Benjamin 0:00:32.560 --> 0:00:36.720 Friedman and others. And it devolves down to their freshman class, 0:00:36.760 --> 0:00:42.720 which is legendary worldwide X ten economic ten. Recently, Greg 0:00:42.800 --> 0:00:46.240 manq the force there and he gave the baton off 0:00:46.280 --> 0:00:50.120 to Jason Furman in the recent years. Mister Furman has 0:00:50.200 --> 0:00:54.760 public policy perspective, typically from a Democratic view, but I'd 0:00:54.840 --> 0:00:57.880 call him on the edge of bipartisan. And he joins 0:00:57.960 --> 0:01:01.520 us now from Harvard. Going to redo your essay, Jason. 0:01:01.560 --> 0:01:03.560 It's a clinic in the New York Times here over 0:01:03.600 --> 0:01:06.319 the weekend. I'm going to get right down to the 0:01:06.480 --> 0:01:11.120 single argument here mister Trump has returned to again and 0:01:11.160 --> 0:01:16.399 again is that other countries are taking advantage of the 0:01:16.560 --> 0:01:24.200 United States. Is the Trump grievance deserved? Absolutely not. 0:01:24.760 --> 0:01:26.640 I mean that essay I had in the New York 0:01:26.640 --> 0:01:29.200 Times was just what I teach in my class to 0:01:29.240 --> 0:01:31.160 my introduction, so it felt like it. 0:01:31.200 --> 0:01:31.959 I felt like that. 0:01:32.200 --> 0:01:35.360 Yeah, And it's the same lesson I got from Marty 0:01:35.400 --> 0:01:40.959 Feldstein when I took the class decades ago. Trade deficits 0:01:41.000 --> 0:01:45.600 are not inherently bad. Imports are a wonderful thing. Trade 0:01:45.640 --> 0:01:50.280 deficits don't happen because of differential tariffs in different countries, 0:01:50.920 --> 0:01:55.440 and changing tariffs doesn't sell trade deficits. Every step of 0:01:55.520 --> 0:01:59.960 the reasoning underlying today's announcement is just completely at all 0:02:00.560 --> 0:02:03.040 with the most basic economics. 0:02:02.480 --> 0:02:06.200 Within this, Professor Furman, his professor Hassett is trying to 0:02:06.240 --> 0:02:09.880 help out the Trump administration. Kevin Hascid with a PhD 0:02:10.000 --> 0:02:13.800 from a Philadelphia school named Pennsylvania. And there's others best 0:02:13.800 --> 0:02:17.280 and the Treasury Secretary. From where you sit, Jason Furman, 0:02:17.639 --> 0:02:19.840 how alone is President Trump? 0:02:21.360 --> 0:02:23.680 You know, I don't know exactly what's going on inside 0:02:23.680 --> 0:02:26.440 the White House, but I know you have the cent 0:02:26.520 --> 0:02:29.639 a year ago basically saying tariffs are a bad thing, 0:02:29.720 --> 0:02:32.560 a loaded gun pointed at the head of the US economy. 0:02:33.200 --> 0:02:36.440 I know Kevin has historically been a free trader. I 0:02:36.480 --> 0:02:40.160 hope they're trying to pull things in a less bad direction. 0:02:40.840 --> 0:02:44.160 But you know, when your opening gambit is twenty percent 0:02:44.240 --> 0:02:47.000 across the board tariffs, you can move in a less 0:02:47.040 --> 0:02:50.400 bad direction and still have things be pretty. 0:02:50.080 --> 0:02:53.480 Bad, Jason, as I understand it, as I understand the 0:02:53.520 --> 0:02:57.359 administration's perspective, they simply cite the fact that the US 0:02:57.440 --> 0:03:01.680 pays a weighted average tariff of two to three times 0:03:01.720 --> 0:03:03.959 the rate that we charge most of the rest of 0:03:04.000 --> 0:03:06.359 the world, and they want that to be leveled up. 0:03:07.240 --> 0:03:10.440 Is that kind of their argument, and if so, that 0:03:10.600 --> 0:03:15.959 seems fair level playing field? Is that a sound economic argument? 0:03:17.120 --> 0:03:19.400 First of all, those other countries are often hurting themselves 0:03:19.400 --> 0:03:21.760 with their teriffs. You look at these Latin American countries 0:03:21.760 --> 0:03:24.520 that have had high tariffs. That wasn't a smart strategy 0:03:24.520 --> 0:03:26.639 to take advantage of the United States. That was a 0:03:26.720 --> 0:03:31.440 dumb strategy to stunt their economic growth. But let's do 0:03:31.560 --> 0:03:34.080 some of the numbers. Let's say you do want reciprocation. 0:03:34.639 --> 0:03:37.440 We have tariffs against most rich countries of around one 0:03:37.480 --> 0:03:40.760 or two percent. Most rich countries have tariffs against US 0:03:40.920 --> 0:03:43.200 of about one or two percent. So we don't need 0:03:43.360 --> 0:03:46.200 any new tariffs against rich countries. Who don't need any 0:03:46.280 --> 0:03:48.839 new tariffs against counta in Mexico. Then when it comes 0:03:48.880 --> 0:03:51.120 to China and India, if we want to even them up, 0:03:51.360 --> 0:03:53.240 we would need to raise ours by two or three 0:03:53.320 --> 0:03:58.640 percentage points, not anything like the ten twenty that we're 0:03:58.680 --> 0:04:00.920 hearing about in today's announcement. 0:04:01.680 --> 0:04:04.560 All right, so that's the math. What are some of 0:04:04.560 --> 0:04:08.720 the potential unintended consequences here? People will say two that 0:04:08.840 --> 0:04:12.240 I can think of one as slower growth. Number two 0:04:12.320 --> 0:04:14.680 is higher inflation. Are those valid? 0:04:16.279 --> 0:04:16.919 Absolutely? 0:04:17.040 --> 0:04:21.680 I think every Wall Street forecaster has downgraded their forecast 0:04:21.720 --> 0:04:25.200 for growth and upgraded their forecast for inflation. The FED 0:04:25.279 --> 0:04:27.440 did the same thing, although the FED wasn't one hundred 0:04:27.480 --> 0:04:30.640 percent explicit about what drove their changes. It's hard to 0:04:30.680 --> 0:04:34.039 imagine there was anything else that was going on there. 0:04:34.440 --> 0:04:36.400 But to that list of two, I'd add a longer 0:04:36.480 --> 0:04:40.039 term one, which is geopolitics. The United States is a 0:04:40.080 --> 0:04:43.320 big important country. It is not infinitely big. It is 0:04:43.400 --> 0:04:47.240 not infinitely important. China is also a really, really big 0:04:47.279 --> 0:04:50.719 player in the world. The only way we can confront 0:04:50.800 --> 0:04:54.280 China is by doing it together with allies, and if 0:04:54.279 --> 0:04:57.479 we alienate our allies. There's a lot more countries that 0:04:57.560 --> 0:05:00.200 trade more with China than with the United States. We're 0:05:00.200 --> 0:05:03.920 just going to push that further and help realign global 0:05:04.080 --> 0:05:10.000 geopolitics away from the US alliance and towards a Chinese entent. 0:05:10.240 --> 0:05:14.520 And your morning community this morning across Canada, across Mexico, 0:05:14.720 --> 0:05:18.120 in America, Jason Furman with US of Harvard University, we 0:05:18.160 --> 0:05:21.320 said good morning on Android auto Applecar played the new 0:05:21.360 --> 0:05:24.520 Digital Experience, and of course to all of you on YouTube, 0:05:24.560 --> 0:05:27.960 subscribe to Bloomberg Podcast, and I'll get out the Firman 0:05:28.040 --> 0:05:31.560 New York Times essay here in a bit, Jason, I 0:05:31.640 --> 0:05:33.839 want to go to the driver of this, and I 0:05:33.880 --> 0:05:36.479 want to start with Lightheiser, who grew up in the 0:05:36.520 --> 0:05:40.919 crucible of northeastern Ohio, where as a kid he saw 0:05:41.120 --> 0:05:46.920 American steel industrial might disappear. And then we've got Navarro 0:05:47.440 --> 0:05:52.200 of LA of Irvine with his own take here to 0:05:52.320 --> 0:05:55.560 move us away from free trade. The heart of this 0:05:55.600 --> 0:05:59.120 is the Matthew teach, which is a j curve in economics. 0:05:59.120 --> 0:06:01.800 There's going to be short term pain, but out there, 0:06:01.800 --> 0:06:04.839 I sound like a Linda Ronstadt song out there somewhere, 0:06:05.440 --> 0:06:09.000 Jason Furman, there's going to be a better American trade policy. 0:06:09.480 --> 0:06:13.320 What do they get wrong about the midterm and long 0:06:13.400 --> 0:06:16.960 term benefit of what is clearly perceived to be short 0:06:17.080 --> 0:06:19.279 term pain. Right. 0:06:19.360 --> 0:06:21.800 I mean, the thing that a lot of people don't 0:06:21.880 --> 0:06:25.240 understand is when you put a tariff on imports, you're 0:06:25.279 --> 0:06:28.560 effectively putting a tariff on exports too. And that could 0:06:28.560 --> 0:06:32.000 happen because other countries retaliate with their own tariffs. It 0:06:32.000 --> 0:06:36.320 could happen because your tariffs lead to an exchange rate appreciation, 0:06:36.440 --> 0:06:40.000 which make it harder for you to export. What do 0:06:40.080 --> 0:06:41.719 we export in I'd state so well, A lot of 0:06:41.760 --> 0:06:45.440 that is really terrific manufacturing that's made here in America 0:06:45.839 --> 0:06:48.839 sold around the world, and we're going to have less 0:06:49.440 --> 0:06:52.120 of all of that. I don't see this as a 0:06:52.160 --> 0:06:54.880 pro manufacturing plan. You we're going to raise the cost 0:06:54.920 --> 0:06:56.560 of inputs to me, Yeah. 0:06:56.560 --> 0:07:00.560 Does Jason Furman have a strong dollar week dollar outcome 0:07:00.880 --> 0:07:03.680 out of this? Let's go Robert Mundel right now, Jason 0:07:03.720 --> 0:07:05.000 Furman with the dollar. 0:07:05.920 --> 0:07:09.279 I'm with a strong dollar. But you know, we're going 0:07:09.320 --> 0:07:11.000 to see what the announcement is today and how it 0:07:11.040 --> 0:07:14.240 compares the expectations. Also depends a lot on the FED. 0:07:14.320 --> 0:07:16.400 I think the FED is going to be and should be, 0:07:16.480 --> 0:07:19.800 reluctant to cut rates when inflation if it goes above 0:07:19.840 --> 0:07:23.400 three percent. Sure they can say their models say it's transitory, 0:07:23.720 --> 0:07:25.880 but they're going to be pretty nervous and they should 0:07:25.960 --> 0:07:29.720 be to act on that belief, especially with inflation expectations 0:07:29.720 --> 0:07:31.800 so elevated more opeds. 0:07:32.000 --> 0:07:35.120 There are people I know, Jason sending your OpEd to 0:07:35.160 --> 0:07:39.440 their children saying you shut up and read it. Jason Furman, 0:07:39.520 --> 0:07:41.800 thank you so much for Harvard this morning. 0:07:42.360 --> 0:07:46.280 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:07:46.320 --> 0:07:49.600 starting at seven am Eastern on Applecarplay and Android Auto 0:07:49.720 --> 0:07:52.680 with the Bloomberg Business app. You can also listen live 0:07:52.760 --> 0:07:56.360 on Amazon Alexa from our flagship New York station, Just 0:07:56.400 --> 0:07:58.880 say Alexa Play Bloomberg eleven thirty. 0:07:59.080 --> 0:08:02.520 It's giving us day after day. Is Henrietta Trees and 0:08:02.520 --> 0:08:06.840 the politics of the moment. Henrietta. The marketing idea here 0:08:06.960 --> 0:08:11.560 is liberation Day. Will Republicans be liberated today? 0:08:12.760 --> 0:08:15.800 It's amazing. I'm actually about to send an email out 0:08:15.840 --> 0:08:19.680 with a quote from Senator Hoven which is effectively saying, 0:08:20.400 --> 0:08:24.920 let's hope we'll see there is an expectation or understanding 0:08:24.960 --> 0:08:28.280 that free trade doesn't work. It's a novel position for 0:08:28.320 --> 0:08:31.880 the Republican conference, and you know, we have one hundred 0:08:31.880 --> 0:08:34.640 and fifty years worth of data on tariffs to suggest 0:08:34.679 --> 0:08:37.400 they pretty clearly do not. As Jason Farman points out, 0:08:37.400 --> 0:08:40.000 that countries with high tariffs shoot themselves in the foot 0:08:40.040 --> 0:08:42.680 with high tariffs. So that is the course that the 0:08:42.679 --> 0:08:45.640 president is determined to take. What we'll hear about later today. 0:08:46.640 --> 0:08:51.320 Are you surprised that, Henriette, we haven't seen any really 0:08:51.559 --> 0:08:55.800 strategic or coordinated kind of pushback along the lines of 0:08:56.040 --> 0:08:59.760 Professor Furman from members of Congress just simply laying out 0:09:00.200 --> 0:09:02.880 the simple economics here of how tarrifs worked. 0:09:03.920 --> 0:09:06.640 I'm shocked. I feel like it should be so easy 0:09:06.679 --> 0:09:09.760 to message around. You know, the easiest example is you've 0:09:09.760 --> 0:09:13.000 had twenty five percent tariffs on aluminum. What is your 0:09:13.000 --> 0:09:15.600 beer can made out of aluminum? You know, it should 0:09:15.600 --> 0:09:17.920 be a really easy messaging point. All your back to 0:09:17.960 --> 0:09:23.079 school items, your backpacks, umbrellas, rain boots, baseball gloves, all 0:09:23.120 --> 0:09:26.520 of it. Tireff died at twenty percent already, if not 0:09:26.720 --> 0:09:28.760 already in the Section three oh one tariffs that are 0:09:28.760 --> 0:09:31.400 on at twenty five percent, So I think the messaging 0:09:31.400 --> 0:09:35.360 should be much easier. I do think that what Trump 0:09:35.400 --> 0:09:37.760 has done President Trump has done is he's split the 0:09:37.880 --> 0:09:42.960 Democratic Party that necessarily wasn't pro free trade a couple 0:09:43.000 --> 0:09:45.960 of years ago, and he's moved the Republicans into a 0:09:45.960 --> 0:09:49.679 more progressive place or populous place where they maybe are 0:09:49.720 --> 0:09:52.480 no longer free trade pro free trade either. And you've 0:09:52.960 --> 0:09:56.880 kind of bifurcated all of DC, not along party lines, 0:09:56.920 --> 0:10:00.000 but along sort of allegiances. And then you know, maybe 0:10:00.080 --> 0:10:04.439 stale or outdated views from either parties left and right camps. 0:10:05.480 --> 0:10:08.760 So what is the next How do you expect the Democrats, 0:10:08.800 --> 0:10:11.280 if at all, and or the Republicans, if at all, 0:10:11.360 --> 0:10:13.360 to respond to what we may hear, what we're going 0:10:13.400 --> 0:10:15.160 to hear at four o'clock today, Will there be will 0:10:15.200 --> 0:10:17.559 tomorrow will be a day of lots of sound bites 0:10:17.600 --> 0:10:18.760 coming out of both parties. 0:10:19.679 --> 0:10:22.200 I expect so. And in fact, we'll have a vote 0:10:22.240 --> 0:10:24.719 that they'll be able to talk about later today. The 0:10:26.160 --> 0:10:29.480 negative for President Trump on the AIPA tariff's worth regards 0:10:29.480 --> 0:10:32.640 to Canada is that there is some congressional oversight here. 0:10:32.679 --> 0:10:35.440 So the Senators have put a joint resolution on the 0:10:35.440 --> 0:10:38.880 floor condemning the President's decision to label Canada our closest 0:10:38.920 --> 0:10:42.640 ally as an international economic emergency that needs to be 0:10:42.679 --> 0:10:45.679 retaliated against with tariffs. So they're going to put that 0:10:45.720 --> 0:10:48.440 bill on the floor today. And I understand at least 0:10:48.480 --> 0:10:51.320 four Senators and I know as many as at least 0:10:51.400 --> 0:10:54.240 ten want to vote with the Democrats on this, and 0:10:54.280 --> 0:10:57.400 that would include Rand Paul of Kentucky, Mitch McConnell of Kentucky. 0:10:57.600 --> 0:11:00.720 We've seen, you know, bourbon from Kentucky and tariff see 0:11:00.760 --> 0:11:03.600 talking point, and a couple of others who are going 0:11:03.600 --> 0:11:06.600 to side with Democrats to pass this resolution later on. 0:11:06.720 --> 0:11:08.640 The benefit for President Trump is that the House will 0:11:08.679 --> 0:11:12.040 not take up this legislation impasset or that's his expectation, 0:11:12.240 --> 0:11:14.560 and so it won't do anything, but it will give 0:11:14.600 --> 0:11:17.040 Democrats at least an opportunity to get members on the record. 0:11:17.320 --> 0:11:20.679 And now, folks a delicate question in case Senator Grassley's 0:11:20.720 --> 0:11:24.040 watching this, and Senator Grassley's old enough to remember David Ricardo, 0:11:24.280 --> 0:11:26.840 he was probably on the boat with Churchill and Roosevelt 0:11:27.040 --> 0:11:30.520 at the Atlantic Charter, Henrietta. Tre's what we're going to 0:11:30.600 --> 0:11:34.560 get here is some form of liberation announcement, and in 0:11:34.600 --> 0:11:37.839 the announcement or as Paul mentioned one day, two days later, 0:11:38.360 --> 0:11:41.320 we're going to get a battle out for American farmers 0:11:41.679 --> 0:11:45.320 off of Canadian fertilizer and six other things you understand 0:11:45.400 --> 0:11:48.920 that I don't get is the check from President Trump 0:11:48.960 --> 0:11:52.959 to the farmers Republicans. Is it going to somebody eighty 0:11:53.040 --> 0:11:57.240 seven miles west of Des Moines helping Senator Grassley or 0:11:57.280 --> 0:11:58.880 is it going to corporate America. 0:12:00.600 --> 0:12:02.559 It's going to be a combination of both. It's through 0:12:02.600 --> 0:12:06.240 a very technical program at USDA. The benefit here is 0:12:06.240 --> 0:12:10.160 that this is a well trodden road. The USDA Secretary 0:12:10.240 --> 0:12:13.520 under Trump's first term deployed this exact same strategy three 0:12:13.559 --> 0:12:17.160 times to whether the trade war with China. But the 0:12:17.240 --> 0:12:20.880 real beneficiary here is Brazil. As you were talking about before, 0:12:20.960 --> 0:12:24.360 they have new rose to hoe on soybeans and all 0:12:24.440 --> 0:12:27.760 kinds of trade with China. Argentina's in the same boat, 0:12:27.960 --> 0:12:30.440 and that's what farmers are going to lose permanently on 0:12:30.480 --> 0:12:32.360 a go forward basis. So you can bail out the 0:12:32.400 --> 0:12:36.079 farmers now, but you're losing market share and eventually that's 0:12:36.160 --> 0:12:38.120 going to be something that the United States cannot bail 0:12:38.200 --> 0:12:38.840 farmers out of. 0:12:39.679 --> 0:12:42.679 Henriette, what did you make of yesterday's political action? The 0:12:43.000 --> 0:12:46.839 two races down in Florida and the Supreme Court race. 0:12:48.080 --> 0:12:48.839 What did you make of that? 0:12:49.040 --> 0:12:52.800 I think the biggest tell is on average, Democrats have 0:12:52.880 --> 0:12:57.080 been winning special elections by nine or ten points, and 0:12:57.160 --> 0:12:59.640 they exceeded that by almost double in some of those 0:12:59.679 --> 0:13:03.000 races last night. And the margin of victory for Republicans 0:13:03.040 --> 0:13:05.800 in Florida six in Florida's first district was an equal 0:13:05.840 --> 0:13:09.400 fifteen percentage points. And that's down from a plus thirty 0:13:09.400 --> 0:13:13.920 and plus forty position place for Republicans during the November election. 0:13:14.120 --> 0:13:17.400 So just in five or six months, the hemorrhage support. 0:13:17.520 --> 0:13:20.360 It's pretty normal for Democrats to be highly engaged in 0:13:20.400 --> 0:13:23.560 these special elections, but this puts as many as sixty 0:13:23.840 --> 0:13:27.280 House Republican seats in play for the Democratic Party, according 0:13:27.320 --> 0:13:29.840 to the lead Jeffries going into the twenty twenty sixth 0:13:29.840 --> 0:13:30.400 mid terms. 0:13:30.440 --> 0:13:32.880 Just because of radio clarity, they're in the quality of 0:13:32.920 --> 0:13:38.000 our microphones. Sixty six zero District zero. 0:13:39.040 --> 0:13:41.920 Yeah. And you know, to put this in perspective, when 0:13:42.160 --> 0:13:47.040 we had President Trump's first term and the twenty eighteen midterms, 0:13:47.280 --> 0:13:50.120 Democrats were able to pick up forty one seats, and 0:13:50.480 --> 0:13:53.720 in Obama's first term in the twenty ten mid terms, 0:13:53.840 --> 0:13:57.240 Republicans picked up sixty three, so it's it's a very 0:13:57.600 --> 0:14:00.240 appropriate number to have in mind, somewhere between four in 0:14:00.320 --> 0:14:01.000 sixty seats. 0:14:01.200 --> 0:14:04.240 She amazes me. She's a machine every time. It's amazing. 0:14:04.280 --> 0:14:12.600 I'm here a trace Fada partners. Thank you, Thank you. 0:14:12.600 --> 0:14:16.200 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:14:16.280 --> 0:14:19.800 weekday afternoons from seven to ten am Eastern. Listen on Apple, 0:14:19.840 --> 0:14:23.160 Karplay and Android Otto with the Bloomberg Business app, or 0:14:23.320 --> 0:14:25.400 watch us live on YouTube right. 0:14:25.320 --> 0:14:28.120 Overnew This is like an audible like we did the 0:14:28.160 --> 0:14:31.400 Wisconsin and the Florida elections. Today on a day of trade, 0:14:31.480 --> 0:14:34.840 We're gonna go trade free with Nisha Patel with Paramatic 0:14:35.000 --> 0:14:40.600 hugely popular when she comes on municipal bonds. Okay, David 0:14:40.640 --> 0:14:43.160 Gerr and Janet Lauren. Janet will be with us later. Girl. 0:14:44.000 --> 0:14:44.880 Do we have GUR today? 0:14:45.080 --> 0:14:48.040 I hope we maybe do. Maybe we're talking to those people. 0:14:47.800 --> 0:14:52.000 We're talking to us people. They were in Princeton yesterday. Yes, Harvard, Princeton, 0:14:52.000 --> 0:14:55.520 Columbia and forty eight other Flavor schools are having trouble 0:14:55.520 --> 0:14:58.960 with the federal government of out their budgets. You can't 0:14:59.000 --> 0:15:01.960 buy a Harvard UNI bond. They're all sold to alumni. 0:15:02.640 --> 0:15:06.280 What are they doing when these headlines are there? So 0:15:06.480 --> 0:15:10.080 college education bonds price down, yield. 0:15:09.960 --> 0:15:15.520 Up, not necessarily. You have to remember private schools like Harvard, 0:15:15.680 --> 0:15:19.840 like Princeton, from a balance sheet perspective, are incredibly strong. 0:15:20.080 --> 0:15:23.360 So these are some issuers and deals that will go 0:15:23.600 --> 0:15:27.520 very quickly to some in state issuers. But from a 0:15:27.600 --> 0:15:31.920 quality perspective, you know, generally speaking, you don't see any 0:15:31.960 --> 0:15:34.760 kind of spread widening. Now, the one topic you did 0:15:35.120 --> 0:15:40.280 bring up, impact of maybe any federal aid reduction to 0:15:40.680 --> 0:15:45.360 any municipal issuers. I think that starts affecting more states, 0:15:45.600 --> 0:15:48.200 more local credits. Right, So if you think about states, 0:15:49.080 --> 0:15:51.960 you look at the Medicaid aid that they're receiving on 0:15:52.000 --> 0:15:55.200 an annual basis, Each state is going to have to 0:15:55.240 --> 0:15:57.560 handle this differently, right, depending on the severity of the 0:15:57.600 --> 0:16:01.400 cuts how that impacts each state. But again my main 0:16:01.440 --> 0:16:04.040 point here will be this is no different than any 0:16:04.040 --> 0:16:07.040 state managing their budgets during any sort of an economic 0:16:07.240 --> 0:16:10.480 you know, let's say slow down. Every state has to 0:16:11.000 --> 0:16:13.760 reconcile their budgets. You come up with costs, you come 0:16:13.840 --> 0:16:17.720 up with remny raising measures. But from a credit perspective, 0:16:17.720 --> 0:16:19.200 this is what we're all trying to parse through. 0:16:19.840 --> 0:16:23.320 So, Nisha, I know, one of the interesting issues and 0:16:23.400 --> 0:16:26.240 challenges potentially for the mean US with bond market is 0:16:26.240 --> 0:16:30.360 with the tax legislation and the tax deductibility of interest. 0:16:30.440 --> 0:16:31.360 Where do we stand there? 0:16:31.520 --> 0:16:36.080 Yes, yes, So the administration obviously is a daunting task 0:16:36.960 --> 0:16:39.400 to come up with, roughly let's say fourtullion dollars a 0:16:39.480 --> 0:16:42.720 counteract to the tax cut extension which you're looking to do. 0:16:42.880 --> 0:16:46.000 So the tax exemption of munis has been put on 0:16:46.040 --> 0:16:48.480 the table. This is something that has come up historically before, 0:16:48.600 --> 0:16:54.440 during Prison Obama's administration in twenty fourteen during a budget reform. 0:16:54.880 --> 0:16:57.000 I'm going to simply put it as we put a 0:16:57.040 --> 0:17:00.480 low risk on this happening to where the tax exemption 0:17:00.680 --> 0:17:05.520 of municipal bonds is taken away entirely, and in that 0:17:05.560 --> 0:17:07.199 for that matter, for a majority of the market, we 0:17:07.280 --> 0:17:10.639 just don't see that happening. Why you look at what 0:17:10.840 --> 0:17:14.399 the actual revenue would come from that, let's call it 0:17:14.440 --> 0:17:16.920 twenty five billion a year, two hundred and fifty over 0:17:16.960 --> 0:17:21.000 the next ten years. How do all the infrastructure projects 0:17:21.240 --> 0:17:23.680 get funded in our country right, seventy five to eighty 0:17:23.680 --> 0:17:26.320 percent is through the municipal bond market. Every state, every 0:17:26.359 --> 0:17:30.199 local municipality, building schools, fixing bridges, it's all through the 0:17:30.240 --> 0:17:34.080 MENI market. You would be tripling the cost of financing 0:17:34.080 --> 0:17:35.840 these types of projects if you were to do that 0:17:36.160 --> 0:17:40.040 at a time when this administration is backing right infrastructure 0:17:40.040 --> 0:17:43.920 type projects economic expansion. So this counter acts I think, 0:17:44.000 --> 0:17:48.119 just from a high level perspective that so, I do 0:17:48.160 --> 0:17:51.960 think you could see more noise around this, especially in 0:17:52.000 --> 0:17:53.840 a market like Munis. You know, we have seen some 0:17:53.920 --> 0:17:57.080 weakness in Munis that has been more supply driven in 0:17:57.240 --> 0:17:59.480 market dynamics. But I think this is starting to create 0:17:59.480 --> 0:18:01.320 a little bit more noise. But we put low risk 0:18:01.400 --> 0:18:02.080 on this. 0:18:01.840 --> 0:18:06.199 Is parametric funded the municipal bonds that allowed for the 0:18:06.240 --> 0:18:09.400 paving of fifty ninth Street Park Avenue. 0:18:10.080 --> 0:18:11.040 It's quite possible. 0:18:11.240 --> 0:18:12.080 It was impossible. 0:18:13.400 --> 0:18:15.959 See, don't we need more roads to be paved? 0:18:16.359 --> 0:18:19.560 No, we can't increase the Bentley And it's like I 0:18:20.520 --> 0:18:23.400 need an suv to get through the potholes. Yes, all 0:18:23.440 --> 0:18:26.439 of a sudden, the Bentley was smooth today. Tell me 0:18:26.600 --> 0:18:30.000 about duration. What's the retail trap? Now? Is it to 0:18:30.040 --> 0:18:33.000 buy two short munis or should I be looking at 0:18:33.040 --> 0:18:36.159 what perpetuity or twenty or well, listen, this is. 0:18:36.160 --> 0:18:40.240 A great question. We've seen a pretty tremendous underperformance in 0:18:40.280 --> 0:18:44.680 the municipal bond market. You look at your Broad Bloomberg 0:18:44.720 --> 0:18:48.159 Treasury INEX Corporate indext Q one anywhere up from two 0:18:48.200 --> 0:18:50.760 and a half to three percent. Munis are maybe up 0:18:50.760 --> 0:18:53.560 about seventy five business points. Why, we've seen a lot 0:18:53.600 --> 0:18:56.280 of issuance in the market. This has been the second 0:18:56.480 --> 0:19:01.720 largest quarter in issuance since two thousand and seve Just 0:19:01.760 --> 0:19:05.040 an incredible amount of money and issuance coming to the market. 0:19:05.119 --> 0:19:06.880 A lot of this is a function of issuers wanted 0:19:06.880 --> 0:19:09.120 to get ahead of any volatility that may be coming 0:19:09.160 --> 0:19:13.000 about later this year, just necessary infrastructure projects. So my 0:19:13.080 --> 0:19:16.200 short answer to you is the curve is incredibly steeper. 0:19:17.480 --> 0:19:19.280 You're two to twenty year and the unique curve is 0:19:19.320 --> 0:19:22.320 about one hundred and thirty basis points. You are getting 0:19:22.359 --> 0:19:25.680 paid to extend out in terms of duration right now, 0:19:25.800 --> 0:19:28.960 most municipal bond investors, retail investors are a little scared 0:19:28.960 --> 0:19:31.439 to add duration. This is when you want to be 0:19:31.480 --> 0:19:34.200 looking at that part of the curve. So look at 0:19:34.280 --> 0:19:37.320 you know, ten plus years, particularly fifteen to twenty years, 0:19:37.400 --> 0:19:40.680 you're locking in tax equivalent yields of anywhere from seven 0:19:40.720 --> 0:19:46.360 to eight percent. Think about that, right for high piastics, Yes, large, 0:19:46.920 --> 0:19:49.200 So this I think we're seeing as a pretty tremendous 0:19:49.200 --> 0:19:50.200 buying opportunity. 0:19:50.520 --> 0:19:53.440 Are funds flowing like that? Are funds coming into the 0:19:53.520 --> 0:19:54.480 musicipal bond market? 0:19:54.760 --> 0:19:57.879 That's a great question. So supply has been very high. 0:19:57.920 --> 0:20:01.880 On the demand side. We have been seeing outflows out 0:20:01.880 --> 0:20:04.440 of the municipal bond market and even ets we're seeing 0:20:04.440 --> 0:20:06.960 outflows now this week. We're starting to see that turn. 0:20:07.680 --> 0:20:10.119 But we know in this market when things turn and 0:20:10.200 --> 0:20:12.080 come back in the other direction, they can come in 0:20:12.119 --> 0:20:14.760 a flood. This is when you want to you know, 0:20:14.960 --> 0:20:17.000 at least leg in and start locking in these heels. 0:20:17.000 --> 0:20:19.800 Before you could see heels compressed, were going to count My. 0:20:19.720 --> 0:20:21.960 Response when you're on and let me go back to 0:20:21.960 --> 0:20:23.720 a question I've asked you before, but I think it 0:20:23.760 --> 0:20:27.480 needs to be revisited. Can our listeners and viewers on YouTube, 0:20:27.960 --> 0:20:33.040 can they acquire individual bonds or are they locked out 0:20:33.080 --> 0:20:36.080 by Fidelity, black Rock, Pimco and the rest. 0:20:37.400 --> 0:20:40.200 It depends on how you're accessing these bonds or brokerage, 0:20:40.440 --> 0:20:42.720 you know, platforms that allow you to do this, we 0:20:42.760 --> 0:20:46.760 would advocate, Look, professional management is probably the better route 0:20:46.800 --> 0:20:48.359 to go, right for all the reasons that we talked 0:20:48.359 --> 0:20:53.600 about better positioning credit management. So Tom, I'm still waiting 0:20:53.640 --> 0:20:55.200 for you to open up your account with us, but. 0:20:58.680 --> 0:21:02.320 I'm looking at the TWU wishes it's out somewhere. Yes, 0:21:02.600 --> 0:21:05.480 help me with how many beeps you pick up by 0:21:05.520 --> 0:21:09.000 dealing with adults like you versus sitting on the phone 0:21:09.040 --> 0:21:12.480 trying to get I'll take fifty or I'll take ten 0:21:12.560 --> 0:21:17.080 of the the mateo education, geo of you know whatever. 0:21:17.480 --> 0:21:20.960 Right off the bat, there could be you know, two 0:21:21.040 --> 0:21:24.879 to three percent savings on just the execution two hundred 0:21:24.880 --> 0:21:28.439 beeps on that individual whole, not two hundred beeps a 0:21:28.480 --> 0:21:30.399 two percent of price. So let's say in a ten 0:21:30.480 --> 0:21:33.840 year bond, roughly twenty thirty basis points at least. But 0:21:33.960 --> 0:21:37.600 that's just on the execution, right, Because we're buying as 0:21:37.680 --> 0:21:41.640 professional institutional buyers, we're accessing new issue deals which as 0:21:41.680 --> 0:21:43.679 an individual on the other side, you simply would not 0:21:43.720 --> 0:21:45.240 have access to. You you can only buy it in the 0:21:45.280 --> 0:21:48.359 secondary market exactly. So there's a markup associated with that 0:21:49.119 --> 0:21:51.800 credit management? What is that worth in this environment? I 0:21:51.800 --> 0:21:54.320 would say that is worth a considerable amount. 0:21:54.520 --> 0:21:56.639 What's the pick up on new issues? We've got to 0:21:56.680 --> 0:21:58.920 go here, but what's the basis point pick up? I'm 0:21:58.920 --> 0:22:00.960 buying a new issue for something out there. 0:22:01.119 --> 0:22:03.840 So right now in the ten to fifteen year part 0:22:03.880 --> 0:22:05.840 of the curve, you could easily pick up anywhere from 0:22:05.840 --> 0:22:09.480 twenty to forty basis points depending on just because right 0:22:09.560 --> 0:22:11.760 now you're seeing a lot of issuance. Things are getting 0:22:11.760 --> 0:22:13.320 a little sloppy, as I like to call it. 0:22:13.440 --> 0:22:14.360 Are you taking this is. 0:22:14.359 --> 0:22:17.840 When you want a professional manager to be accessing the 0:22:17.880 --> 0:22:20.560 new issue market. So parametric is a way to do it. 0:22:20.640 --> 0:22:24.040