WEBVTT - China's Recovery Lacks Consumer Demand: China Beige Book 0:00:01.400 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.240 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:09.240 we bring you interviews from CEOs, A, market pros, and 0:00:09.400 --> 0:00:12.799 Bloomberg experts, along with essential market moving news kind of 0:00:12.800 --> 0:00:16.320 Bloomberg Markets Podcast on Apple podcast or wherever you listen 0:00:16.360 --> 0:00:20.439 to podcasts, and on Bloomberg dot com. So there's a 0:00:20.440 --> 0:00:23.560 lot of trepidation about what would happened with China GDP data, 0:00:23.600 --> 0:00:26.960 of course, China being one of the test cases for 0:00:27.000 --> 0:00:29.280 what happens to an economy when it's going through COVID. 0:00:29.720 --> 0:00:32.280 So we got the third quarter GDP data over the 0:00:32.280 --> 0:00:34.640 weekend and year over year it was up four point 0:00:34.720 --> 0:00:38.320 nine percent, which was quite the miss from what economists 0:00:38.320 --> 0:00:40.240 were looking for, which was how ive and a half percent. 0:00:40.560 --> 0:00:42.760 It was, however, better than the previous quarter three point 0:00:42.840 --> 0:00:45.400 two percent. But really with China, you have to take 0:00:45.440 --> 0:00:47.320 a step back and talk to somebody who knows how 0:00:47.360 --> 0:00:49.560 all of this is put together, and no one better 0:00:49.720 --> 0:00:53.280 to do that than Leland Miller, China Beige Book International founder. 0:00:53.600 --> 0:00:56.760 So Leland four point nine percent doesn't sound like a 0:00:56.800 --> 0:00:59.160 bad rate of growth for an economy that's been hit 0:00:59.320 --> 0:01:03.560 extremely ours by this coronavirus. Explained to us why this 0:01:03.640 --> 0:01:06.920 is a shocker, Well, you know, this is a really 0:01:07.000 --> 0:01:10.040 important number, but it's a really important number for political 0:01:10.040 --> 0:01:13.720 reasons more than economic reasons. So you have China saying 0:01:13.760 --> 0:01:16.320 to the world, look at our response, look at how 0:01:16.360 --> 0:01:18.440 well we've done. We're back to year on year growth. 0:01:18.600 --> 0:01:20.920 And look at everybody else they haven't done done as well. 0:01:21.280 --> 0:01:23.200 You know, we're someone to look up to. Now the 0:01:23.240 --> 0:01:25.480 difference between four point nine and five point five. I 0:01:25.600 --> 0:01:28.480 understand that the street is is agitating over over the 0:01:28.520 --> 0:01:31.320 mis here, but this number is very realistic to start with. 0:01:31.800 --> 0:01:34.039 You know, if you look down at what our data 0:01:34.080 --> 0:01:36.640 are showing, you're not You're still not seeing that year 0:01:36.720 --> 0:01:41.080 and year improvement. You're seeing tremendous month on month, quarter 0:01:41.080 --> 0:01:43.920 and quarter improvement. Things are certainly getting better, but it's 0:01:44.000 --> 0:01:45.640 very important for them to have a year and year 0:01:45.760 --> 0:01:49.320 number uh and and improve improvement and uh and So 0:01:49.360 --> 0:01:52.080 that's what they're that's what they're currently announcing, right and 0:01:52.080 --> 0:01:55.000 now we also got retail sales. For example, you're over 0:01:55.040 --> 0:01:59.920 Europe three point but still you know, down seven in 0:02:00.040 --> 0:02:03.360 September in terms of year, today's year over years so 0:02:03.400 --> 0:02:06.240 a lot of mixed data. So give us your impression 0:02:06.240 --> 0:02:08.440 of how the Chinese economy is doing. So as you say, 0:02:08.720 --> 0:02:11.120 you know, all the data is pretty managed. But at 0:02:11.160 --> 0:02:15.040 the same time China does seem to be growing. Is 0:02:15.040 --> 0:02:17.640 that the case consumers do seem to be spending. China 0:02:17.720 --> 0:02:20.840 does seem to be getting over the hit from the coronavirus. Sure, 0:02:21.320 --> 0:02:23.640 things are getting better, you know, it's still a supply 0:02:23.919 --> 0:02:26.200 side recovery. If you look at what's happening on the 0:02:26.240 --> 0:02:29.440 output side that has been with driving GDP. You know, 0:02:29.480 --> 0:02:33.040 there was a better September figure for for for retail sales. 0:02:33.080 --> 0:02:36.200 But if you look at retail sales UH from the 0:02:36.240 --> 0:02:37.679 beginning of the year to now and compare it to 0:02:37.800 --> 0:02:40.040 last year, it's it is like you said, down over seven. 0:02:40.639 --> 0:02:43.520 So this is not a consumption driven economy. This is 0:02:43.520 --> 0:02:47.200 not a demand recovery. This is the Chinese government deciding 0:02:47.240 --> 0:02:48.840 that they need to get their numbers up, and so 0:02:48.880 --> 0:02:52.520 they're making factories work harder and produce more stuff. There's 0:02:52.560 --> 0:02:54.560 something to be said for getting the growth number up 0:02:54.600 --> 0:02:56.640 to some degree, but I think the idea that people 0:02:56.639 --> 0:02:59.639 are really worried about whether this is four percent or 0:02:59.680 --> 0:03:03.119 three per center five percent. It's not a terribly healthy recovery. 0:03:03.360 --> 0:03:06.280 It's just a much more healthy, dynamic and recovery than 0:03:06.320 --> 0:03:08.680 we're seeing in the rest of the world. So Leland's 0:03:08.720 --> 0:03:11.600 how much of that sort of unhealthiness that you're talking 0:03:11.600 --> 0:03:14.720 about is related to coronavirus and how much was coming anyway, 0:03:14.720 --> 0:03:17.119 because it was always a question mark about how much 0:03:17.160 --> 0:03:20.200 the trade war had impact to China's economy and just 0:03:20.240 --> 0:03:23.200 the flow of goods and services between China and the US. 0:03:24.560 --> 0:03:27.360 Right Well, I think what what the coronavirus did is 0:03:27.360 --> 0:03:30.520 it put China in a box uh and forced it 0:03:30.560 --> 0:03:34.840 to use tools like property like heavy infrastructure stimulus to 0:03:34.840 --> 0:03:37.520 get the growth number back up, which was something that 0:03:37.560 --> 0:03:39.720 it didn't want to do and it hadn't been doing 0:03:39.720 --> 0:03:42.000 for the past several years. When you look at our 0:03:42.080 --> 0:03:44.800 data and you look at official data, you see that 0:03:45.000 --> 0:03:49.640 since seen when they were very worried about growth metrics 0:03:49.680 --> 0:03:51.960 in the run up to the Party Congress, things that 0:03:52.080 --> 0:03:55.440 actually slowed down over time, and yet the government did 0:03:55.480 --> 0:03:58.440 not go back to this let's juice, let's build bridges 0:03:58.440 --> 0:04:01.640 to nowhere, Let's let's build all these infrastructure developments. No 0:04:01.680 --> 0:04:04.120 one wants to be in they had basically pushed away 0:04:04.160 --> 0:04:07.000 from that because they are legitimately worried about debt. What 0:04:07.080 --> 0:04:09.040 I think coronavirus did is pushed them into such a 0:04:09.040 --> 0:04:10.880 corner that they said, look, we're gonna have to do, 0:04:10.920 --> 0:04:12.320 We're gonna have to do and we're gonna have this 0:04:12.360 --> 0:04:15.640 growth number up. So it is unhealthy levels of debt 0:04:15.680 --> 0:04:18.920 that are building us up. It's he's the same dynamic 0:04:19.000 --> 0:04:20.400 scene and much of the rest of the world, but 0:04:20.440 --> 0:04:23.240 you know, China has a much bigger problem this historically. So, uh, 0:04:23.440 --> 0:04:25.479 there is a recovery, that's good, but yes, the way 0:04:25.480 --> 0:04:28.920 we're getting there is not healthy at all. You have 0:04:29.080 --> 0:04:32.280 said the China made some major colandestine changes to its 0:04:32.279 --> 0:04:36.359 economic data reporting over the weekend. What were these clandestine changes? 0:04:36.400 --> 0:04:39.240 It all sounds very token dagger. Yeah, we've been we've 0:04:39.240 --> 0:04:42.040 been having a field day on on our Twitter feed, uh, 0:04:42.200 --> 0:04:44.960 talking about this. But look, you know, if you look 0:04:44.960 --> 0:04:47.360 at fixed asset investment, which is the proxy that the 0:04:47.440 --> 0:04:51.520 Chinese used for for for investment, you see that, uh, 0:04:51.640 --> 0:04:56.000 in twenty there was a number for the first three quarters, 0:04:56.160 --> 0:04:57.840 and then you see a number for the first three 0:04:57.920 --> 0:05:02.599 quarters of the number in nine was three trillion yuan 0:05:02.920 --> 0:05:05.960 higher than in but when the when Beijing put out 0:05:06.000 --> 0:05:08.600 their data last night, they said that things were up 0:05:08.640 --> 0:05:12.040 eight percent, So we were parsing through the how was 0:05:12.120 --> 0:05:14.400 this a typo? Why would they possibly do it? What 0:05:14.440 --> 0:05:17.640 we found is that essentially the Chinese government has reserved 0:05:17.640 --> 0:05:21.159 the right to no longer report figures regularly. What they're 0:05:21.160 --> 0:05:23.920 gonna do is they're going to rejigger the figures as 0:05:23.960 --> 0:05:26.839 new inputs come in. But they're not gonna announce what 0:05:26.880 --> 0:05:29.160 those new inputs are. They're not going to announce what 0:05:29.160 --> 0:05:32.240 the changing metrics are. They're not gonna announce what the 0:05:32.240 --> 0:05:34.840 components of this sort of index their building is. They're 0:05:34.880 --> 0:05:39.240 simply going to report a number and that number will 0:05:39.279 --> 0:05:42.800 be new based on the needed changes every year. So 0:05:42.800 --> 0:05:45.560 you're gonna have, you know, you have basically three trillion 0:05:45.640 --> 0:05:49.400 yuan they made go away in their fixed asset investment data. 0:05:49.720 --> 0:05:52.159 To report a year on your increase, it doesn't make 0:05:52.200 --> 0:05:54.960 any sense at all, but they've reserved the right to 0:05:55.000 --> 0:05:58.000 do this. Going forward, Leland, what will you be looking 0:05:58.000 --> 0:05:59.840 for next out of China? In order to give us 0:05:59.880 --> 0:06:02.520 an indication of you know, not just the health of 0:06:02.520 --> 0:06:04.719 the Chinese economy, but what that would mean for the 0:06:04.720 --> 0:06:08.039 health of the US economy at this point. Well, you know, 0:06:08.120 --> 0:06:10.360 I think on the Chinese side, you've got to look 0:06:10.400 --> 0:06:13.000 at the retail and how it's recovering over time, and 0:06:13.040 --> 0:06:15.280 not just not just for for one or two months. 0:06:15.760 --> 0:06:18.279 But look, China's recovery is going to be based on 0:06:18.320 --> 0:06:19.880 what happens in the rest of the world. If the 0:06:19.920 --> 0:06:22.760 rest of the world does not get coronavirus contained, we 0:06:23.200 --> 0:06:26.400 dipped down into a second wave. That China's data are 0:06:26.400 --> 0:06:28.720 going to be hurt. Its recovery is going to be 0:06:28.839 --> 0:06:30.440 hurt because it's not divorced from the rest of the 0:06:30.480 --> 0:06:33.720 world no matter what's doing back home. Leland, thank you 0:06:33.839 --> 0:06:36.479 so much, as always love to get you on because 0:06:37.160 --> 0:06:39.920 you do all of your research as well, and you 0:06:39.920 --> 0:06:43.720 know you you gather the data just like many economists do. 0:06:43.920 --> 0:06:46.680 But on the ground, Leland mill or China Beige Book 0:06:49.400 --> 0:06:52.520 Duncan donuts. Remember like to make the claim that America 0:06:52.640 --> 0:06:54.840 runs on Duncan, and I'm sure it was true a 0:06:54.880 --> 0:06:56.840 lot of the time. Well, here is the man who 0:06:56.920 --> 0:07:00.279 Duncan run on. Robert Olsenberg is the former CEO of 0:07:00.320 --> 0:07:02.560 what is now Duncan Brand's used to be dunkn Donuts 0:07:02.560 --> 0:07:05.840 and author of Around the Corner to Around the World, 0:07:05.960 --> 0:07:10.320 A Dozen Lessons I learned running Duncan Donuts. Robert looking 0:07:10.320 --> 0:07:13.400 at Duncan Donuts, now, how does it resemble the company 0:07:13.440 --> 0:07:17.480 you first took over? Were very different? But I when 0:07:17.480 --> 0:07:20.760 I joined the company as CEO is twenty five years old, 0:07:20.760 --> 0:07:23.560 a cocky kid, freshwood and n b A. And we 0:07:23.720 --> 0:07:25.880 had something on the order of a hundred stores. I 0:07:25.880 --> 0:07:28.280 think now today we have something on the order nearing 0:07:28.320 --> 0:07:33.600 twelve thousand in forty one countries. It's been transformational, pretty phenomenal. Well, 0:07:33.640 --> 0:07:36.160 a good leader is needed in order to scale that 0:07:36.320 --> 0:07:40.960 kind of business, particularly you know, something that you could 0:07:41.000 --> 0:07:43.559 call a generic enough business. I mean, I know Duncan 0:07:43.600 --> 0:07:45.800 Donuts are very very different from other types of donuts 0:07:45.840 --> 0:07:47.880 out there, but there are a lot of donat chains. 0:07:48.280 --> 0:07:50.800 So how did you do that? What kind of leadership 0:07:50.840 --> 0:07:53.360 skills does it take to scale a business like that? 0:07:55.160 --> 0:07:59.680 A great team, a clear strategy. When we got it right, 0:08:00.280 --> 0:08:03.440 we were very successful. When I got it wrong, we 0:08:03.520 --> 0:08:06.920 suffered the consequences. Luckily, in the thirty five years we 0:08:07.000 --> 0:08:10.040 got more years right than we did get wrong. Uh, 0:08:10.040 --> 0:08:13.720 and a great product and that commitment I think basically 0:08:14.240 --> 0:08:18.360 to do and to create a set of services and 0:08:18.400 --> 0:08:21.360 goods better than the competition, and that was always kept 0:08:21.400 --> 0:08:26.120 us agile and kept us creative and growing and changing. 0:08:26.480 --> 0:08:30.800 As the time change, consumers and competition are constantly changing, 0:08:30.800 --> 0:08:33.320 and companies have to change as well. But those are 0:08:33.360 --> 0:08:37.360 the ingredients I think that made for superior performance for us. Obviously, 0:08:37.520 --> 0:08:40.280 it's a different set of challenges every year, every month, 0:08:40.320 --> 0:08:43.720 every day in business, right, but a pandemic is something 0:08:43.760 --> 0:08:46.520 that doesn't come along too often. If you were running 0:08:46.640 --> 0:08:51.000 Duncan now and you saw what was happening all sorts 0:08:51.040 --> 0:08:53.960 of restaurant owners not being able to save their businesses, 0:08:54.280 --> 0:08:57.400 you know, big businesses depending on PPP funds in order 0:08:57.440 --> 0:09:01.560 to to continue, what would you do? I mean, how 0:09:01.559 --> 0:09:05.280 do you survive something that's just completely all encompassing like that. 0:09:06.240 --> 0:09:10.120 I never had to face anything quite like an worldwide pandemic, 0:09:10.160 --> 0:09:14.959 but did have to face certain cataclysmucker existential threats the 0:09:15.080 --> 0:09:18.920 very survival of the business. I think. Uh. I'd comment 0:09:19.040 --> 0:09:21.360 that the pandemic as I see it, and its impact 0:09:21.400 --> 0:09:23.640 on the restaurant industry, really is a tale of two 0:09:23.679 --> 0:09:26.679 different stories. On the one hand, the first story is 0:09:26.760 --> 0:09:30.760 kind of devastating. It. Basically, the National Restaurant Association says 0:09:30.800 --> 0:09:34.560 that they expect something on the order of fift all 0:09:34.640 --> 0:09:39.559 restaurants open, and six fifty restaurants may be permanently closed 0:09:39.840 --> 0:09:42.640 when the dust clears. That's painful. There may be a 0:09:42.679 --> 0:09:45.800 million and a half or more people out of work. 0:09:46.120 --> 0:09:49.520 That's also disastrous and painful. On the other hand, the 0:09:49.559 --> 0:09:52.480 second tale is a lot more optimistic. Those firms that 0:09:52.559 --> 0:09:55.520 invested early, which is one of the elements of facing 0:09:55.520 --> 0:09:58.760 a crisis of pre preparation, that invested in convenience and 0:09:58.800 --> 0:10:02.880 delivering on all plat forms. However, consumers wanted to access 0:10:02.960 --> 0:10:09.679 the product drive through windows, home delivery, online ordering, understanding 0:10:09.720 --> 0:10:14.560 the application of the social network that exists in social media. 0:10:14.920 --> 0:10:18.679 Those companies that invested, in my view, will not only 0:10:18.800 --> 0:10:22.080 survive the pandemic, but will thrive. Companies like Duncan that 0:10:22.120 --> 0:10:26.959 have invested and those kinds of um new developments, pre 0:10:27.080 --> 0:10:32.520 preparing continually looking to delight their customers better than the competition, 0:10:32.840 --> 0:10:35.600 will be the ones on the other side. Unfortunately, it's 0:10:35.600 --> 0:10:37.880 going to be some pain left by the independence and 0:10:37.920 --> 0:10:40.400 a lot of people out of work. Hopefully, those chains 0:10:40.440 --> 0:10:42.640 that survive will be able to absorb those, but it 0:10:42.760 --> 0:10:46.400 only will be over time. Fore warrant is were armed. 0:10:47.000 --> 0:10:50.960 These days, there's a lot of quote unquote business heroes 0:10:51.160 --> 0:10:54.880 in Silicon Valley that you know, people look to some 0:10:55.040 --> 0:10:59.640 unlikely characters for inspiration. Who inspires you in management these days? 0:10:59.720 --> 0:11:03.640 Robert Well, he's no longer actively engaged in the management 0:11:03.640 --> 0:11:07.640 of his business. He now runs a major philanthropic activity. 0:11:07.679 --> 0:11:11.360 But the person I'm most inspired by Bill and Melinda Gates. 0:11:11.440 --> 0:11:16.200 I find them to be extraordinary citizens, extraordinary people, and 0:11:16.240 --> 0:11:19.920 I marvel at their brilliance and at their commitment to mankind. 0:11:20.800 --> 0:11:23.760 And all those CEOs that are currently in the CEO 0:11:23.920 --> 0:11:28.080 chair and in the boardroom chair, who do you admire? Well, 0:11:29.040 --> 0:11:32.520 admire the people that I'm closest to and the ones 0:11:32.559 --> 0:11:34.400 that I had the privilege of being able to serve 0:11:34.440 --> 0:11:36.440 with day in and day out. So I was on 0:11:36.480 --> 0:11:39.040 the board of Sonic, and I find Cliff Hudson, who 0:11:39.160 --> 0:11:42.320 was a longtime twenty years CEO of Sonic Restaurants, an 0:11:42.360 --> 0:11:48.640 outstanding leader. I also found Um Goodness. His name escaves 0:11:48.679 --> 0:11:51.839 me for the moment. How Patrick Doyle from Dominoes was 0:11:51.880 --> 0:11:55.839 an extraordinary leader and ranked among the best leaders by 0:11:55.880 --> 0:12:02.880 CEO magazine for years. Both both of them were extraordinary leaders, agile, kind, smart, 0:12:03.240 --> 0:12:06.160 and just thoughtful people. Robert, I'll have to ask you 0:12:06.200 --> 0:12:10.079 about what your thoughts are as we approach the election, 0:12:10.280 --> 0:12:14.199 and you know, very very divided country. Um, you know, 0:12:14.280 --> 0:12:18.800 many issues plaguing the country, and it just seems to 0:12:18.840 --> 0:12:22.800 be sometimes just difficult to even talk about it because 0:12:23.000 --> 0:12:26.760 you know, finding middle ground or finding sort of anybody 0:12:26.760 --> 0:12:29.760 willing to engage is just a little bit difficult. Well, 0:12:29.880 --> 0:12:32.920 what's the first priority that the next president, whether it's 0:12:33.000 --> 0:12:36.719 Donald Trump or a Biden administration, what's what should be 0:12:36.760 --> 0:12:42.360 the first priority in running this country? Thoughtful planning and 0:12:42.720 --> 0:12:44.960 setting a moral tone for the country and bring us 0:12:45.000 --> 0:12:47.920 back together. I think that our country can only take 0:12:47.960 --> 0:12:50.200 so much chaos at any one point in time. So 0:12:50.240 --> 0:12:52.280 a good leader has to be very clear and crisp 0:12:52.320 --> 0:12:55.160 about both the strategy, what the country wants to be, 0:12:55.280 --> 0:12:58.000 what it wants to have, and the four or five 0:12:58.040 --> 0:13:00.480 specific leavers that are most important for all in order 0:13:00.520 --> 0:13:03.160 to be able to bridge scarce resources. So whether it's 0:13:03.200 --> 0:13:06.560 a company of family or a country, and that's a 0:13:06.679 --> 0:13:10.640 critical element. And the second element is to thround yourself 0:13:10.640 --> 0:13:13.439 for the best people, complementary set of skills that will 0:13:13.480 --> 0:13:15.920 help you accomplish that, and then you have to communicate 0:13:16.040 --> 0:13:19.120 all the constituencies to mobilize them behind it. That works 0:13:19.120 --> 0:13:21.200 on a company, and it works on a country, and 0:13:21.240 --> 0:13:23.920 we need a leader who's got those abilities. And you know, 0:13:23.960 --> 0:13:26.439 it certainly sounds pretty easy when you say it, Roberts. 0:13:26.480 --> 0:13:28.600 So I hope that whoever starts to run the country 0:13:28.600 --> 0:13:31.080 next reads your book. It's just out and it's a 0:13:31.080 --> 0:13:34.360 fantastic read. It's called Around the Corner to Around the World. 0:13:34.440 --> 0:13:38.520 A dozen lessons I learned running Duncan Donuts and you 0:13:38.520 --> 0:13:40.720 can have a donut with every lesson there for for 0:13:40.800 --> 0:13:44.200 your dozen lessons. Robert Rosen very former CEO of Duncan 0:13:44.280 --> 0:13:47.160 Brands and of course Duncan Donuts as it was. Then, 0:13:47.360 --> 0:13:51.600 thank you for joining us. Just a wonderful conversation. Let's 0:13:51.600 --> 0:13:54.040 bring in our J Gallo. He's senior portfolio manage your 0:13:54.040 --> 0:13:57.400 head of the Municipal Bond group and delighted to have 0:13:57.520 --> 0:14:00.400 him are J. I have to ask you how much 0:14:00.520 --> 0:14:03.600 time have you given to the competing tax bands? Um. 0:14:04.400 --> 0:14:08.679 You know, obviously we're looking at more of a likelihood 0:14:08.679 --> 0:14:10.400 that there's going to be a President Biden and the 0:14:10.400 --> 0:14:13.520 Biden administration at the moment. But it's not fully you know, 0:14:14.200 --> 0:14:16.880 for sure, but he's definitely ahead by a long shot. 0:14:16.880 --> 0:14:19.080 And some of the polls and you have to have 0:14:19.120 --> 0:14:21.080 done a little bit of work on it, what have 0:14:21.120 --> 0:14:25.680 you decided, Well that the tax plans of the two 0:14:25.720 --> 0:14:29.640 candidates are are vastly different. Um. You know, I don't 0:14:30.800 --> 0:14:33.360 I agree with you that though that the polls make 0:14:33.440 --> 0:14:37.600 it pretty likely that President Biden is coming as opposed 0:14:37.640 --> 0:14:41.280 to being vice President Biden, And I would just suggest 0:14:41.320 --> 0:14:43.120 that it's just not based in the cake yet. I 0:14:43.120 --> 0:14:44.800 think that this election is going to be closer than 0:14:44.800 --> 0:14:47.320 a lot of the polls suggest. Remember it does come 0:14:47.320 --> 0:14:50.000 down to state by state, and I think there are 0:14:50.040 --> 0:14:54.040 a number of toss up states where President Trump UM 0:14:54.280 --> 0:14:56.480 may have some of his voters being under sampled and 0:14:56.520 --> 0:14:58.960 not showing up in the traditional polls. I know that's 0:14:59.280 --> 0:15:01.520 somewhat of a of a partisan view, but I'm just 0:15:01.560 --> 0:15:05.520 saying objectively, that's what happened in We saw a lot 0:15:05.640 --> 0:15:08.600 of Trump support that was not accurately assessed by the 0:15:08.640 --> 0:15:12.360 polls leading up to it, and the shy Trump supporter too. Well. 0:15:12.480 --> 0:15:14.240 Given that, then on the fact that your head of 0:15:14.280 --> 0:15:17.040 the ministal bond group, are there states for your sort 0:15:17.040 --> 0:15:20.200 of you know, making making that better or loading up 0:15:20.200 --> 0:15:22.960 the boat a little bit, well, I would say this. 0:15:23.200 --> 0:15:25.280 I would say I think that the greatest impact on 0:15:25.440 --> 0:15:29.600 muni's from the election outcome would be in the event 0:15:29.640 --> 0:15:34.000 of a blue blue wave. So Biden wins Capitol hialth, House, 0:15:34.040 --> 0:15:37.680 Senate are completely in Democratic hands. That would open the 0:15:37.720 --> 0:15:41.000 door for UH for an increase back to thirty nine 0:15:41.040 --> 0:15:43.000 point six for the top marginal tax rate, which is 0:15:43.000 --> 0:15:46.240 where I was before the Trump tax cuts. I would 0:15:46.280 --> 0:15:48.560 also impose a minimum thirty nine point six on all 0:15:48.600 --> 0:15:50.880 investment income for people who make more than a million 0:15:50.920 --> 0:15:57.040 dollars UH. That on average would increase demand for municipal bonds. Also, 0:15:57.160 --> 0:16:00.640 banks who shed munis in droves after their corporate tax 0:16:00.720 --> 0:16:03.600 rate went to from thirty five, they would be facing 0:16:03.600 --> 0:16:07.720 a tax right under the Biden tax plan. Also Polish communis, 0:16:07.880 --> 0:16:10.680 so I think munis would would fare relatively well compared 0:16:10.720 --> 0:16:14.360 to other fixed income in a blue wave undeniably UM 0:16:14.400 --> 0:16:17.520 And you'd also probably get a bigger stimulus plan. So 0:16:17.560 --> 0:16:20.280 the bigger stimulus plan will help all state and local governments. 0:16:20.440 --> 0:16:23.680 Which ones would move the most, the cheapest ones? Uh? 0:16:23.720 --> 0:16:25.520 You know? So so states of like New Jersey in 0:16:25.560 --> 0:16:29.120 Illinois where spreads are wide, you think their bonds might 0:16:29.160 --> 0:16:31.960 actually fare pretty well in a relative sense in a 0:16:32.000 --> 0:16:35.040 Biden victory. So it does seem like there's at least, 0:16:35.080 --> 0:16:38.040 you know, some kind of chance of a nice little 0:16:38.160 --> 0:16:40.560 pay day here. How are you hedging for that? Even 0:16:40.560 --> 0:16:42.320 if you don't believe that that's what's going to happen, 0:16:42.480 --> 0:16:45.480 or you're you know, you're more you're more than convinced 0:16:45.520 --> 0:16:49.360 either way, there must be some hedging trades that you've 0:16:49.360 --> 0:16:52.720 been putting on. You know. I think that markets are 0:16:52.720 --> 0:16:56.400 pretty bad with binary risks. Um, you know, zero one 0:16:56.440 --> 0:16:59.640 outcome is just not easy to perfectly price in and 0:16:59.800 --> 0:17:03.240 being of the election. Uh So in terms of just 0:17:03.640 --> 0:17:07.160 adding duration or reducing duration, or adding munis or reducing communis, 0:17:07.600 --> 0:17:09.680 uh you know, you you you need to have a 0:17:09.720 --> 0:17:12.160 little more confidence than than fifty fifty. So it makes 0:17:12.160 --> 0:17:15.439 it tough. Since I think the chances of this election 0:17:15.480 --> 0:17:18.919 being indeterminate come election day and maybe in fact being contested, 0:17:19.240 --> 0:17:21.440 I think that's greater than the markets are currently pricing. 0:17:21.720 --> 0:17:24.760 So if you're really going to try to hedge, you know, 0:17:24.800 --> 0:17:26.720 to your question, I think you would need to go 0:17:26.800 --> 0:17:30.200 into options markets. Okay, there's not a lot of options 0:17:30.200 --> 0:17:36.880 on munis, makes it really challenging. I think, uh, one 0:17:36.920 --> 0:17:40.359 important fact here, if we have a contested election, market 0:17:40.800 --> 0:17:44.480 risk access don't like it, treasure gilds probably go down. Ultimately, 0:17:44.880 --> 0:17:48.640 regardless of outcome, that event will fade and we will 0:17:48.680 --> 0:17:51.600 know who the winner is. Biden would be probably more 0:17:51.640 --> 0:17:55.200 bullish for munis. Trump would be somewhat less bullish formmunities. 0:17:55.240 --> 0:17:57.800 But on average, we're no matter what happens, we're going 0:17:57.840 --> 0:18:00.440 to get a stimulus plan. The question of sizing in 0:18:00.560 --> 0:18:03.160 time is still open. In fact, we're still talking about 0:18:03.160 --> 0:18:04.720 it before the election. I just doubt that that's going 0:18:04.760 --> 0:18:08.040 to happen. And how much states and local governments get 0:18:08.040 --> 0:18:12.800 as well, of course, absolutely extraordinarily different. Um r J. 0:18:13.000 --> 0:18:15.919 How are you trading the coronavirus in the various states? 0:18:15.960 --> 0:18:18.720 Obviously Wisconsin is just in trouble right now. We had 0:18:19.280 --> 0:18:22.159 Icago's marriage coming out and saying that you know, she 0:18:22.240 --> 0:18:25.800 wants to avoid lockdowns, but it's getting to that tipping 0:18:25.800 --> 0:18:30.160 point and she absolutely will if necessary. Are you doing 0:18:30.200 --> 0:18:33.080 any kind of municipal or you know, trades related to 0:18:33.119 --> 0:18:36.439 the coronavirus across the States. Well, the coronavirus has had 0:18:36.440 --> 0:18:40.480 a huge impact on municipal fixed income across states, locals 0:18:40.600 --> 0:18:44.560 and revenue bond sector. I would say we, as our 0:18:44.600 --> 0:18:48.440 investment group, our MUNI effort, we have been pretty cautious 0:18:48.480 --> 0:18:52.360 on g os UM for the one primary reason gios 0:18:52.400 --> 0:18:55.879 didn't blow out that much relative to the overall triple 0:18:55.960 --> 0:18:59.440 A MUNI scale during the onset of the COVID crisis. Meanwhile, 0:18:59.520 --> 0:19:04.280 revenue on like airports bonds backed by hotel taxes areas 0:19:04.320 --> 0:19:08.600 that were very heavily impacted by the COVID shock due 0:19:08.640 --> 0:19:11.560 to travel plummeting for example. That's where we've looked for 0:19:11.600 --> 0:19:14.560 opportunities because that's where the risk premiums blew out and 0:19:14.600 --> 0:19:18.640 bonds became very cheap. As far as the o's are concerned, UM, 0:19:18.720 --> 0:19:22.080 we haven't been playing coronavirus regionally all that much. We 0:19:22.200 --> 0:19:25.440 have been playing the coronavirus recovery in our in our 0:19:25.480 --> 0:19:29.120 revenue bond sectors. So we've added to airports for example. 0:19:29.680 --> 0:19:32.880 We've also we have some overweight positions in senior care 0:19:32.920 --> 0:19:35.240 living centers which have been heavily impacted by this. But 0:19:35.280 --> 0:19:37.359 there's a lot of good survivors in there, and if 0:19:37.400 --> 0:19:39.320 we can pick them, we get a nice wind. So 0:19:39.600 --> 0:19:42.879 I think every MUNI investor worth worth their salt is 0:19:42.880 --> 0:19:45.840 spending a lot of time on coronavirus, not only geographically, 0:19:46.119 --> 0:19:48.400 but from a sector standpoint. And on the latter we've 0:19:48.400 --> 0:19:51.960 been much more active than playing the geographies. So interesting, 0:19:52.040 --> 0:19:54.600 Or j thank you for that insight into how your 0:19:54.600 --> 0:19:57.600 portfolio managers are looking at all of this. Or Gallo 0:19:57.720 --> 0:19:59.960 is senior portfolio manager and head of the Municipal Bomb. 0:20:00.040 --> 0:20:03.560 The group manages almost twelve billion dollars, but the whole 0:20:04.160 --> 0:20:08.040 UH company has nearly six billion dollars in assets under management, 0:20:08.080 --> 0:20:10.120 so a loss to a lot to look through there, 0:20:10.160 --> 0:20:12.520 But then there's a lot of municipal bonds out there 0:20:12.560 --> 0:20:17.840 as well. It's time now to talk deals. It has 0:20:17.880 --> 0:20:20.600 been quite the year in many many different ways. Let's 0:20:20.600 --> 0:20:24.360 bring in Rob Brown, CEO of Lincoln International. So, Rob, 0:20:24.400 --> 0:20:26.560 we've had so many deals this year. I mean today 0:20:26.600 --> 0:20:29.520 obviously there's an early ten billion dollar old stock deal 0:20:29.560 --> 0:20:33.480 in the shale field, but talk to us generally about 0:20:33.520 --> 0:20:38.440 the appetite for companies getting together this year. Well, the 0:20:38.560 --> 0:20:43.520 appetite right now is incredibly strong. Um. We obviously went 0:20:43.520 --> 0:20:46.360 through a period earlier this year when the economy shut 0:20:46.440 --> 0:20:49.720 down and you saw a huge fall off in deals, 0:20:49.840 --> 0:20:54.240 And what we've seen coming out of that is companies 0:20:54.280 --> 0:20:56.760 that have a good COVID story to tell, meaning they 0:20:56.800 --> 0:21:01.440 either performed well during the economic slowdown or they've bounced 0:21:01.440 --> 0:21:04.240 back or their viewed as a sector that is going 0:21:04.320 --> 0:21:09.280 to maybe even more favorable post COVID. Those companies are 0:21:09.320 --> 0:21:12.679 out for sale. And what we're seeing is as investors, 0:21:12.720 --> 0:21:17.960 both strategic and financial, are aggressively putting money into those businesses, 0:21:18.160 --> 0:21:22.320 and in many cases, we're seeing valuations of those businesses 0:21:22.520 --> 0:21:25.399 at the same or even better than pre COVID levels. 0:21:26.119 --> 0:21:28.960 So that's an interesting, you know, part of the discussion 0:21:29.160 --> 0:21:33.159 for me. Why are prices holding up? I mean, you know, 0:21:33.240 --> 0:21:36.480 prices for almost everything are you know, are not holding 0:21:36.520 --> 0:21:39.040 up the way they were pre COVID. And and and 0:21:39.119 --> 0:21:42.520 yet it seems that for companies there isn't that much 0:21:42.640 --> 0:21:46.040