WEBVTT - 'Dumbstruck' by Trump on Puerto Rico 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.280 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We're 0:00:32.280 --> 0:00:35.040 talking earlier about the jobs report came out today, highly 0:00:35.080 --> 0:00:38.919 distorted data, thirty three thousand jobs lost, but better than 0:00:38.960 --> 0:00:42.559 expected wage gains, So a kind of convoluted picture. You've got. 0:00:42.640 --> 0:00:45.400 Trader has taken the better information out of that and 0:00:45.440 --> 0:00:48.680 trading on that. Meanwhile, you have Jonathan Pharaoh of Bloomberg 0:00:48.720 --> 0:00:51.919 Television saying this is just confirmation bias that traders are 0:00:51.960 --> 0:00:54.080 trading off of. Here to weigh in on that and 0:00:54.120 --> 0:00:59.040 perhaps confirm that or perhaps debate that, Constance Hunter, chief 0:00:59.080 --> 0:01:02.880 economist at KP joining US. Now, Constance, do you think 0:01:02.920 --> 0:01:05.680 that it's totally ridiculous to try to trade around number 0:01:05.720 --> 0:01:10.440 that is so hard to decipher given the hurricane disruption? Well, 0:01:10.480 --> 0:01:12.240 I think that depends on how good you are trading, 0:01:13.280 --> 0:01:16.120 So for some people it might be worth it. While others, 0:01:16.200 --> 0:01:19.440 it might not be um. Certainly for a retail investor 0:01:19.760 --> 0:01:25.080 trading around this number is ridiculous. And and there's there's 0:01:25.080 --> 0:01:27.120 looking through the long term data, and I think I 0:01:27.160 --> 0:01:29.240 think what we're seeing here is not just the traders 0:01:29.240 --> 0:01:31.320 of trading on the wage games, but they're trading they're 0:01:31.319 --> 0:01:34.000 looking through this long term data. So if we look at, 0:01:34.480 --> 0:01:37.679 for example, comparing this to one of our last major 0:01:37.720 --> 0:01:43.520 her train hurricanes, Katrina. In Katrina, one point five percent 0:01:43.760 --> 0:01:45.880 of the workforce said they were either not at work 0:01:46.040 --> 0:01:48.080 or at work part time, but they usually work full time. 0:01:48.160 --> 0:01:51.360 Due to the hurricane, and with the combination of IRMA 0:01:51.400 --> 0:01:54.880 and Harvey, that number jumped to almost three percent of 0:01:54.880 --> 0:01:57.640 the workforce. So that is a lot of lost jobs. 0:01:57.880 --> 0:02:00.400 But you can also see that it's temporary, right that 0:02:00.440 --> 0:02:01.880 these people are going to come back to work. The 0:02:01.920 --> 0:02:04.760 biggest sector that lost jobs was leisure and hospitality a 0:02:04.880 --> 0:02:09.239 hundred and eleven thousand workers. And obviously those institutes, those 0:02:09.320 --> 0:02:12.320 establishments were closed, they're going to reopen, those people are 0:02:12.320 --> 0:02:14.320 going to go back to work. So if you look forward, 0:02:14.400 --> 0:02:17.320 you can see that the momentum in the economy is 0:02:17.320 --> 0:02:19.840 still there. What I tweeted out earlier this morning is 0:02:19.840 --> 0:02:23.200 the streak is broken, but the economy is not. I 0:02:23.200 --> 0:02:25.600 thought that was a great headline. By the way, Constance, 0:02:25.639 --> 0:02:29.519 I thought, yeah, once in a while there was really 0:02:29.720 --> 0:02:32.280 a commend you because it really captures exactly, you know, 0:02:32.360 --> 0:02:36.240 the perspective that you're offering. And in that context, I'm 0:02:36.240 --> 0:02:40.560 wondering if you can offer your thoughts that these one 0:02:40.600 --> 0:02:44.000 off events that are no longer seemingly one off, whether 0:02:44.040 --> 0:02:50.400 they are natural disasters, uh, like hurricanes or um you 0:02:50.520 --> 0:02:54.960 had of course, uh, I think back to Fukushima in Japan. 0:02:55.360 --> 0:02:59.120 You have these events which you know, you always hear 0:02:59.120 --> 0:03:01.800 those debates about whether they're more frequent or less frequent. 0:03:02.280 --> 0:03:04.480 But to put that aside, the fact that they exist 0:03:04.520 --> 0:03:08.320 on a semi regular basis, does that mean that you 0:03:08.360 --> 0:03:11.040 need to adjust your focus when when you're thinking about 0:03:11.080 --> 0:03:16.840 where to put your money? Well, I think certainly there's uh, 0:03:16.880 --> 0:03:19.079 there's a there's a perception that they're more frequent in 0:03:19.120 --> 0:03:22.079 the data would suggest that with the warmer water temperatures, 0:03:22.280 --> 0:03:26.000 they're going to continue to be more frequent. But in 0:03:26.080 --> 0:03:29.360 thinking about the economy overall, what you have to think 0:03:29.400 --> 0:03:32.120 about is is the economy strong enough to withstand the 0:03:32.200 --> 0:03:35.680 shock that such an event would prevent but would cause. 0:03:35.800 --> 0:03:38.240 Rather I'm sorry, or I was going to say, or 0:03:38.320 --> 0:03:41.040 big enough. I didn't want to give it any characterization, 0:03:41.080 --> 0:03:43.320 just that the U. S. Economy is so big and 0:03:43.320 --> 0:03:46.440 the country is so big that it can it accommodates 0:03:46.480 --> 0:03:50.080 these large shocks. Yes, it can. If we're if we're 0:03:50.120 --> 0:03:51.560 in a period of strong growth, if we're in a 0:03:51.600 --> 0:03:53.480 period of wheat growth, it could have a it could 0:03:53.520 --> 0:03:55.640 have a greater effect. And understand, we haven't seen the 0:03:55.640 --> 0:03:58.200 full effect of the hurricane, so you know, our estimate 0:03:58.280 --> 0:04:01.320 is that it could shave zero point eight two off 0:04:01.320 --> 0:04:04.200 of GDP in the third quarter, and a lot of 0:04:04.200 --> 0:04:06.440 that is going to be from this lost income that 0:04:06.480 --> 0:04:08.360 we've had UM, and a lot of it's going to 0:04:08.440 --> 0:04:10.400 be from the fact that a lot of these people 0:04:10.440 --> 0:04:13.240 that were hit, certainly in in Harvey, we're not in 0:04:13.320 --> 0:04:16.880 flood zones, so they were not appropriately insured. Uh So 0:04:17.080 --> 0:04:18.760 it is going to take a bite out of GDP. 0:04:19.600 --> 0:04:23.000 But um, overall, I think the economy is strong enough 0:04:23.040 --> 0:04:25.600 to withstand it. The big question mark is if you 0:04:25.640 --> 0:04:28.960 look at the pressure point in the economy in terms 0:04:28.960 --> 0:04:32.279 of employment, it really isn't that construction sector so we've 0:04:32.279 --> 0:04:35.120 seen wages grow up in that sector, we see scarcy 0:04:35.120 --> 0:04:38.039 of workers in that sector. And if people are deployed 0:04:38.240 --> 0:04:41.520 down into UH, Florida and Texas to take care of 0:04:41.520 --> 0:04:44.239 this rebuilding, it's going to put pressure on the rest 0:04:44.240 --> 0:04:47.400 of the economy and that sector throughout the entire economy, 0:04:47.400 --> 0:04:50.080 and you could see ripple effects that that do impact 0:04:50.120 --> 0:04:52.920 the entire economy. So constant, we're probably going to get 0:04:52.960 --> 0:04:58.279 this muddy data from the hurricane for another couple of months, uh, 0:04:58.360 --> 0:05:02.640 at the least. Frankly, I'm just wondering, from your perspective, 0:05:02.760 --> 0:05:05.360 what are you looking to in the meantime to already 0:05:05.360 --> 0:05:10.240 get a better read on the true economic progress being made. Well, 0:05:10.320 --> 0:05:12.920 let's let's just take this job report in general, right, 0:05:12.960 --> 0:05:15.360 So you have the household survey, where you saw big 0:05:15.360 --> 0:05:18.159 improvements in the labor force participation rate, you saw the 0:05:18.200 --> 0:05:22.560 unemployment down to four point um. You can look at 0:05:22.600 --> 0:05:25.080 a lot of real time data, so you you can 0:05:25.080 --> 0:05:27.919 look geographically around the rest of the country, not just 0:05:28.080 --> 0:05:30.800 in in Florida and Texas. But if you look at 0:05:30.839 --> 0:05:33.039 the rest of the economy and look at some of 0:05:33.320 --> 0:05:35.800 the regional data, you're able to see the strength of 0:05:35.839 --> 0:05:41.200 the economy overall constants. Earlier today, Martin Feldstein, who is 0:05:41.440 --> 0:05:44.280 President Emeritus at the National Bureau of Economic Research, he 0:05:44.360 --> 0:05:47.080 was speaking on Bloomberg Television and one thing that really 0:05:47.120 --> 0:05:49.480 just struck me was he said that the US needs 0:05:49.480 --> 0:05:54.040 a corporate tax overhaul. He said they need this overhaul 0:05:54.240 --> 0:05:58.000 and that it is crucial if the US that increases 0:05:58.040 --> 0:06:00.279 and that we have to bring our practice is in 0:06:00.360 --> 0:06:03.960 line with other industrialized countries. Do you agree with that 0:06:04.080 --> 0:06:08.640 and do you think it will happen? Uh? Well, um, So, 0:06:08.839 --> 0:06:11.240 Martin Balstein has been giving a series of talks. He 0:06:11.400 --> 0:06:13.280 um he gave a tract at the National Association for 0:06:13.320 --> 0:06:17.560 Business Economics last week in Cleveland which address this. And so, 0:06:17.960 --> 0:06:20.080 just to put in perspective, he's looking at a at 0:06:20.080 --> 0:06:23.279 a headline rate of about um is what he thinks 0:06:23.360 --> 0:06:26.240 is realistic and and of course keeps in mind the 0:06:26.279 --> 0:06:28.560 fact that we don't want to increase debt levels or 0:06:28.640 --> 0:06:31.920 increase our our budget deficits substantially, but we do want 0:06:31.920 --> 0:06:34.800 to bring our tax um policies more in line with 0:06:34.839 --> 0:06:36.760 the rest of the world. I have a little bit 0:06:36.800 --> 0:06:40.520 of a disagreement though on the worldwide income taxation. I 0:06:40.520 --> 0:06:42.160 think we should have a holiday. I think we should 0:06:42.440 --> 0:06:45.000 get that money back on shore. But we are also 0:06:45.040 --> 0:06:47.400 the only country in the world that is the reserve currency, 0:06:47.760 --> 0:06:50.479 and that is a privilege that costs money. Um it 0:06:50.600 --> 0:06:53.119 is a benefit to all US companies. They are able 0:06:53.160 --> 0:06:58.160 to transact in dollars, means they're they're exposure to currency 0:06:58.279 --> 0:07:03.240 risk is much more limited than other other countries companies, 0:07:03.640 --> 0:07:06.200 and and and this costs money. It costs money to 0:07:07.120 --> 0:07:10.880 maintain a military that that um it works all over 0:07:10.920 --> 0:07:14.080 the world and and guards the trade of those goods. 0:07:14.440 --> 0:07:16.920 And so I think something like a three or five 0:07:16.960 --> 0:07:20.520 percent permanent tax on offshore income would be reasonable. And 0:07:20.520 --> 0:07:22.120 there are a lot of other countries that do this. 0:07:22.200 --> 0:07:24.640 They give a much lower tax rate the money earned 0:07:24.640 --> 0:07:28.080 off shore. UM. So that that would I think would 0:07:28.120 --> 0:07:31.040 be one disagreement between me and Marty Felstine. But but 0:07:31.160 --> 0:07:34.880 he he is right that our code has become overly complex. 0:07:34.920 --> 0:07:38.840 It's overly comtelex for individuals, it's overly complex for firms, 0:07:38.920 --> 0:07:41.880 and so simplifying it would certainly free of resources to 0:07:41.920 --> 0:07:44.400 be used for other things of the economy. Yeah, I 0:07:44.440 --> 0:07:46.960 just want to just make a quick note that US 0:07:47.000 --> 0:07:49.680 Treasury yields are actually coming in, and there's a bit 0:07:49.680 --> 0:07:52.840 of a rally in treasuries, and one trade or noted 0:07:52.880 --> 0:07:56.120 that it's because of new reports coming out that UH Pyongyang, 0:07:56.360 --> 0:07:59.680 North Korea is preparing to test a missile capable of 0:07:59.680 --> 0:08:02.280 reach in the U. S. Coast. That is according to 0:08:02.600 --> 0:08:05.000 a Russian lawmaker, and so this is what people are 0:08:05.000 --> 0:08:09.440 attributing into. So well, we will certainly keep keep abreast 0:08:09.440 --> 0:08:12.560 to that and bring up any news headlines that are 0:08:12.600 --> 0:08:14.560 related to that. Of course, I want to thank you 0:08:14.640 --> 0:08:18.760 very much. Constance Hunter is the chief US economist at KPMG, 0:08:19.320 --> 0:08:21.680 giving us her views about the jobs report and the 0:08:21.720 --> 0:08:37.520 potential for any kind of corporate tax reform. Right now, 0:08:37.520 --> 0:08:40.120 I want to turn our attention to markets. We saw 0:08:40.480 --> 0:08:45.760 a real sort of gain in treasuries, yields come down 0:08:45.960 --> 0:08:49.360 after news was reported that a Russian lawmaker says that 0:08:49.400 --> 0:08:52.960 North Korea may test long range missiles that could potentially 0:08:53.040 --> 0:08:56.080 hit the West coast of the United States. The stock 0:08:56.120 --> 0:09:00.520 market unphased. Really nothing can shake this market. Really talk 0:09:00.559 --> 0:09:02.760 about that. I want to bring in Ernesto Ramo's head 0:09:02.760 --> 0:09:06.440 of Equities for BEMO Global Asset Management, portfolio manager of 0:09:06.480 --> 0:09:09.600 the BEMO Low Volatility Equity Fund, which trades under the 0:09:09.600 --> 0:09:13.800 ticker m l V e x um Ernesto. I'm struck 0:09:13.880 --> 0:09:17.520 by the fact that you're seeing a longer lasting effect 0:09:17.920 --> 0:09:21.560 from these sort of nuclear scares in the bond market 0:09:21.840 --> 0:09:25.360 then in stocks, and and in stocks just shrug everything off. 0:09:25.440 --> 0:09:27.800 What do you make of that? Well, that's one of 0:09:27.800 --> 0:09:30.840 the things that I've been personally surprised about how much 0:09:30.920 --> 0:09:35.560 the stock market has ignored the potential for geopolitical risks 0:09:35.600 --> 0:09:39.800 and conflagation. But what's driving the market is earnings to 0:09:39.840 --> 0:09:41.520 be to be honest with you, if you look at 0:09:41.520 --> 0:09:45.439 the SMP five under the earnings growth that consensus estimates 0:09:45.440 --> 0:09:49.240 for next year is strong double digits closer and for 0:09:49.320 --> 0:09:52.640 the following twelve months is another ten percent. So that 0:09:52.720 --> 0:09:56.640 kind of earnings growth, if it comes down to t 0:09:56.880 --> 0:10:00.240 to fruition, will continue to drive the market higher. Now, 0:10:00.240 --> 0:10:02.360 of course, if you actually get some kind of a 0:10:03.000 --> 0:10:08.160 war with North Korea, um that that that that scenario 0:10:08.280 --> 0:10:11.240 will will definitely not happen and and you're gonna get 0:10:11.280 --> 0:10:14.520 some some serious retrashment in the market. And that's why 0:10:14.880 --> 0:10:17.520 the Low Futility Fund would be a good way to 0:10:17.559 --> 0:10:21.120 stay exposed to the market, but with a fair amount 0:10:21.120 --> 0:10:24.240 of downside protection because that's the way we've designed it 0:10:24.559 --> 0:10:28.240 to to behave ter national Can you use the stock 0:10:28.320 --> 0:10:32.480 the company aligned technology as an example of the kind 0:10:32.600 --> 0:10:36.160 of company and investment that you look for for your fund. 0:10:36.160 --> 0:10:42.680 They make the Invisiligne UH dental product. Sure Invisiligne it's 0:10:42.720 --> 0:10:47.760 actually the as you said, They make the the the 0:10:47.880 --> 0:10:51.600 seamless braces without without wires, and the two things are 0:10:51.679 --> 0:10:54.640 driving their growth. Number One, they're starting to penetrate the 0:10:54.679 --> 0:10:57.760 team market. They had previously been focused on the adult 0:10:57.800 --> 0:11:00.839 market because adults on one wires in their mouth to show. 0:11:00.920 --> 0:11:05.280 But now UH teenagers are also becoming very very self 0:11:05.320 --> 0:11:08.720 conscious and aware that that the this technology can help 0:11:08.720 --> 0:11:12.959 them stay less less visible in terms of their braces, 0:11:13.000 --> 0:11:16.520 and they're embracing that. That's in the US, they're also 0:11:16.559 --> 0:11:20.559 beginning to tap into overseas markets. And as you are 0:11:20.600 --> 0:11:23.559 aware of you travel around the world, you are aware 0:11:23.640 --> 0:11:26.880 the United States has the best teeth in the world 0:11:27.440 --> 0:11:31.640 and everybody else not so much. So there's a huge 0:11:31.679 --> 0:11:35.680 market outside the US for better looking smiles, and that's 0:11:35.679 --> 0:11:39.360 what investil Ligne is starting to tap into and deriving 0:11:39.400 --> 0:11:42.040 a lot of growth from that, ernesto, is it possible 0:11:42.080 --> 0:11:46.640 to create a low volatility fund without using derivatives? Sure, 0:11:47.120 --> 0:11:50.400 we just focus on h First of all, there's two 0:11:50.400 --> 0:11:52.480 parts of our process. First of all, selecting the stocks 0:11:52.480 --> 0:11:56.480 and they're combining them in a way to reduce the risk. 0:11:56.920 --> 0:12:00.120 And UH we what we do is we have a 0:12:00.120 --> 0:12:02.280 lot of data and a lot of computing power to 0:12:02.520 --> 0:12:05.360 at our disposal. We look at the risk in five 0:12:05.400 --> 0:12:08.719 different ways and we're able to rank the stocks from 0:12:08.760 --> 0:12:11.800 highest to lowest risk and then also from highest to 0:12:11.920 --> 0:12:15.400 lowest in terms of a return potential. And what we 0:12:15.480 --> 0:12:18.920 do is we seek a good combination of very low 0:12:19.040 --> 0:12:22.680 risk stocks with attractive return potential. And that's what we 0:12:22.720 --> 0:12:28.840 deliver in a very well calculated and balanced UH portfolio, 0:12:28.840 --> 0:12:31.120 which is is what our fun turns at the end 0:12:31.160 --> 0:12:33.040 of the day to be. I'm sorry to just keep 0:12:33.080 --> 0:12:35.440 you in the weeds about invisile line, because I'm always 0:12:35.440 --> 0:12:39.600 interested in how much something costs, right, and so you're 0:12:39.640 --> 0:12:43.440 willing currently to pay fifteen billion for a company that 0:12:43.520 --> 0:12:47.680 does a billion two of sales and has net of 0:12:47.760 --> 0:12:51.840 about two hundred and forty million. That works for you. 0:12:51.920 --> 0:12:53.760 That math works for you. How fast they have to 0:12:53.760 --> 0:12:56.920 grow to justify that. So yeah, so our scoring system, 0:12:57.120 --> 0:13:00.080 I know it trades out about fifty times next your 0:13:00.200 --> 0:13:03.040 learnings and that it seems very expensive. But our scoring 0:13:03.160 --> 0:13:07.360 system for for return potential has three parts fundamentals, valuation, 0:13:07.440 --> 0:13:10.720 and sentiment. And they scored not so well in valuation, 0:13:10.800 --> 0:13:14.200 in fact, rather poorly, but well enough in terms of 0:13:14.200 --> 0:13:17.920 fundamentals and the sentiment part that the overall score is 0:13:17.920 --> 0:13:20.600 still attractive enough to make the grade in our fund. 0:13:20.800 --> 0:13:24.120 And we're very very disciplined about not trying to second 0:13:24.120 --> 0:13:27.240 guess our our scoring system and and and we will 0:13:27.280 --> 0:13:29.760 stick to that because that's how we've achieved that kind 0:13:29.800 --> 0:13:33.240 of performance that we've delivered so far. Well, we want 0:13:33.240 --> 0:13:35.600 to appreciate you coming in and shedding light on this. Uh, 0:13:35.920 --> 0:13:39.160 this is an interesting fund. M l uh c i 0:13:39.559 --> 0:13:42.040 X is the symbol for the fund. Thanks very much 0:13:42.080 --> 0:13:45.240 for being here. That is the BEMO Large Cap Growth Fund. 0:13:45.320 --> 0:13:48.520 And I want to thank Ernesto for being here. He 0:13:48.960 --> 0:13:52.840 always great pleasure. Ernesta Ramos. He is the manager of 0:13:52.840 --> 0:13:56.160 the funding co manager as well, okay co manager as well. 0:13:56.240 --> 0:13:59.880 He's the head of Equities at b MO Global Asset Management. 0:14:13.440 --> 0:14:15.920 We want to learn more about municipal bonds and that 0:14:15.920 --> 0:14:18.440 means we need to learn more about Puerto Rico. And 0:14:18.520 --> 0:14:20.680 joining us, of course, is Joe Maiasac. He is the 0:14:20.800 --> 0:14:24.560 editor in charge of our Muni Brief product, and Joe, 0:14:24.640 --> 0:14:26.760 I want to just read you the quote that from 0:14:26.800 --> 0:14:31.080 President Trump when he was in uh, Puerto Rico recently. 0:14:31.160 --> 0:14:33.520 He said, they owe a lot of money to your 0:14:33.560 --> 0:14:36.440 friends on Wall Street. We're going to have to wipe 0:14:36.480 --> 0:14:38.200 that out. That's going to have to be you know, 0:14:38.320 --> 0:14:40.640 you're gonna have to say goodbye to that. I don't 0:14:40.640 --> 0:14:43.480 know if it's Goldman Sachs, but whoever it is, you 0:14:43.560 --> 0:14:48.760 can wave goodbye to that. What was your reaction when 0:14:48.760 --> 0:14:51.240 you heard that? And then tell us is there a 0:14:51.280 --> 0:14:54.040 basis for using any of that in order to make 0:14:54.080 --> 0:14:56.520 the situation and the lives of the people in Puerto 0:14:56.640 --> 0:15:03.000 Rico better? Well, when I h I missed the first 0:15:03.040 --> 0:15:06.480 go round of that, and about three am, when I 0:15:06.520 --> 0:15:11.120 was looking to put together the brief, I saw that 0:15:11.680 --> 0:15:19.040 comment and I was dumb struck. I just said, this 0:15:19.120 --> 0:15:22.880 is historic. I've never heard of president sort of take 0:15:22.920 --> 0:15:26.520 out the whole entire municipal bond market, which is as 0:15:26.560 --> 0:15:30.360 you know, uh, sort of based on law, the rule 0:15:30.400 --> 0:15:36.680 of law. Um, would it make the people's lives on 0:15:36.920 --> 0:15:40.960 Puerto Rico would have improved there a lot. I you know, 0:15:41.760 --> 0:15:45.160 if you somehow thought that the president ruling by FIAT 0:15:45.520 --> 0:15:47.360 and taking away all the debt, I don't know who 0:15:47.360 --> 0:15:50.320 would lend to them? Well, okay, So, so stepping aside 0:15:50.360 --> 0:15:53.840 to sort of improbability and the unprecedented nature of the 0:15:53.960 --> 0:15:56.920 suggestion that President Trump threw out there, let's talk about 0:15:56.920 --> 0:16:00.560 the reaction right. Bond prices plunged on Puerto Eco's dept, 0:16:00.560 --> 0:16:03.880 particularly the general Obligation bond that matures in, which is 0:16:03.920 --> 0:16:06.800 sort of their benchmark issue. Uh, there is a big 0:16:06.880 --> 0:16:11.240 question as to why, given the fact that pretty universally 0:16:11.360 --> 0:16:15.400 it's totally understood that President Trump is does not necessarily 0:16:15.440 --> 0:16:17.920 have the power to throw out this debt, or does 0:16:17.920 --> 0:16:21.640 he have the inclination to do so. The administration walked 0:16:21.640 --> 0:16:26.600 back his comments subsequently, and yet prices are still depressed 0:16:26.640 --> 0:16:29.480 from where they were, and I'm wondering what we can 0:16:29.520 --> 0:16:31.760 make of this. Does this mean that all of a sudden, 0:16:31.840 --> 0:16:36.480 in some ways the bond market is actually getting more 0:16:36.520 --> 0:16:39.800 realistic with respect to what recoveries are going to be 0:16:39.960 --> 0:16:43.080 like with the Puerto Rico debt negotiations. All right, see 0:16:43.120 --> 0:16:46.560 now you've you've put your finger right on it. Um. 0:16:46.600 --> 0:16:51.600 You know, bonds trade thirty sixty or ninety above. Everything 0:16:51.720 --> 0:16:56.640 is fine, sixty, bonds are getting into stress. Thirty that's 0:16:56.680 --> 0:16:59.280 sort of the salvage value. People are speculating at the 0:16:59.280 --> 0:17:02.760 salvage level. And at forty four cents on the dollar, 0:17:02.920 --> 0:17:06.800 which was the the day previous, I guess was Tuesday, 0:17:06.840 --> 0:17:09.520 at forty four cents on the dollar, Puerto Rico was 0:17:09.560 --> 0:17:13.280 probably still too expensive. Those bonds had not dropped enough. 0:17:14.080 --> 0:17:17.080 Uh So perhaps that you know, perhaps it was the 0:17:17.160 --> 0:17:23.560 Trump comments. Perhaps it was also final realization that well, 0:17:23.600 --> 0:17:26.520 there's a lot of damage in Puerto Rico, and there's 0:17:26.560 --> 0:17:29.760 a lot of devastation, and people are leaving the island. 0:17:30.640 --> 0:17:33.280 And finally, you know, there was that break and it 0:17:33.320 --> 0:17:35.280 was a funny. It was not funny, it was it 0:17:35.359 --> 0:17:38.919 was a very interesting thing to watch because the thirty 0:17:38.920 --> 0:17:43.119 and a quarter price was uh that was you know, 0:17:43.160 --> 0:17:45.720 on a four hundred and seventy five dollar block of 0:17:45.800 --> 0:17:48.840 bonds tossed out at nine sixteen in the morning. You're 0:17:48.880 --> 0:17:51.280 talking about the low point that we saw in these 0:17:51.320 --> 0:17:53.760 general obligation bonds, which is one slice of the seventy 0:17:53.800 --> 0:17:55.920 four billion dollars of deat the Puerto Rico has, right, 0:17:56.800 --> 0:18:00.520 So thirty and a quarter some dealer throughout that, you know, 0:18:00.880 --> 0:18:04.240 and and the owners what kind of what kind of volume? Um, 0:18:04.280 --> 0:18:07.159 this was a four hundred and seventy five thousand dollar block. 0:18:07.600 --> 0:18:12.400 So that low price was was printed at nine sixteen 0:18:12.440 --> 0:18:14.320 in the morning. So a lot of the coverage you 0:18:14.400 --> 0:18:19.160 saw made you think that there was this horrific uh, 0:18:19.200 --> 0:18:21.000 you know, people are rushing for the gates, but the 0:18:21.040 --> 0:18:23.119 volumes were high. By the end of the day, I 0:18:23.280 --> 0:18:26.719 was about eighty five million dollars traded, which was a 0:18:26.840 --> 0:18:30.000 very large amount for that bond. Haven't seen that much 0:18:30.119 --> 0:18:33.240 volume in the eights and two thousand thirty five in 0:18:33.680 --> 0:18:37.240 you know, certainly weeks and weeks, probably months, um. But 0:18:37.520 --> 0:18:40.760 what really happened was that there wasn't this rush for 0:18:40.800 --> 0:18:43.840 the gates at the end. In fact, there were twice 0:18:43.840 --> 0:18:48.639 as many buyers as sellers of these bonds, and the 0:18:48.680 --> 0:18:53.200 prices started climbing, you know, after that thirty and a quarter. Basically, 0:18:53.280 --> 0:18:55.480 you know, they banged around a little bit, but it 0:18:55.560 --> 0:18:58.399 was very orderly and uh, you know, by the end 0:18:58.400 --> 0:18:59.919 of the day, I think we were up, but you know, 0:19:00.000 --> 0:19:02.400 around thirty nine cents. So what does that tell you? 0:19:04.840 --> 0:19:10.399 I really do not know why someone is buying Puerto 0:19:10.480 --> 0:19:13.560 Rico geos at this point, and yet they were buying 0:19:13.760 --> 0:19:17.840 and in all various sizes. Well, but somebody could argue 0:19:17.880 --> 0:19:22.000 that if the US federal government does give money to 0:19:22.160 --> 0:19:25.720 Puerto Rico to help restore its structure and keep people there, uh, 0:19:25.960 --> 0:19:28.399 that this will actually be a net benefit for the island. 0:19:28.400 --> 0:19:30.240 Down the road, there's still those clinging to the hope. 0:19:30.400 --> 0:19:36.119 What's the rebuttal to that. Well, the island did say 0:19:36.200 --> 0:19:39.960 the debt was not payable and entered into the Promisa 0:19:40.440 --> 0:19:45.720 and Title three bankruptcy, and they the island, you know, 0:19:45.880 --> 0:19:51.120 says we need some relief here, and uh, there will 0:19:51.119 --> 0:19:55.359 be negotiation. What are you gonna get? Obviously, the people 0:19:55.400 --> 0:19:59.080 who are buying at thirty three and thirty four and 0:19:59.160 --> 0:20:02.119 thirty eight cents are are betting on a higher recovery value, 0:20:02.160 --> 0:20:06.720 maybe fifty cents, maybe sixty cents. Who knows, um, but 0:20:06.880 --> 0:20:10.919 it's it's difficult to imagine. Uh, you know, for the 0:20:10.960 --> 0:20:14.000 longest time, the hedge fund guys were saying geo's at 0:20:14.000 --> 0:20:17.880 par and they really believed it. Well, not anymore, Joe 0:20:17.920 --> 0:20:19.600 Mi Sac, thank you so much for joining us. It's 0:20:19.600 --> 0:20:24.920 always a pleasure. Thanks for listening to the Bloomberg P 0:20:25.040 --> 0:20:28.000 and L podcast. You can subscribe and listen to interviews 0:20:28.040 --> 0:20:32.080 at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 0:20:32.520 --> 0:20:36.080 I'm Pim Fox. I'm on Twitter at pim Fox. I'm 0:20:36.119 --> 0:20:39.400 on Twitter at Lisa Abramo wits one. Before the podcast, 0:20:39.440 --> 0:20:42.040 you can always catch us worldwide on Bloomberg Radio.