1 00:00:04,760 --> 00:00:07,720 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim 2 00:00:07,800 --> 00:00:11,080 Speaker 1: Fox along with my co host Lisa Abramowitz. Each day 3 00:00:11,119 --> 00:00:14,360 Speaker 1: we bring you the most important, noteworthy, and useful interviews 4 00:00:14,400 --> 00:00:16,280 Speaker 1: for you and your money, whether you at the grocery 5 00:00:16,320 --> 00:00:19,360 Speaker 1: store or the trading floor. Find the Bloomberg pm L 6 00:00:19,480 --> 00:00:28,680 Speaker 1: podcast on iTunes, SoundCloud and at Bloomberg dot com. Now, 7 00:00:28,680 --> 00:00:31,920 Speaker 1: I want to bring in Lynna Franco Director of Economic 8 00:00:32,000 --> 00:00:35,640 Speaker 1: Indicators of the Conference Board, taking a look at the 9 00:00:35,760 --> 00:00:40,360 Speaker 1: latest reading which is very positive. US consumer confidence increased 10 00:00:40,360 --> 00:00:42,720 Speaker 1: in November from a month earlier to the highest level 11 00:00:43,040 --> 00:00:47,320 Speaker 1: since July two thousand and seven. Lynn, this seems to 12 00:00:47,400 --> 00:00:51,400 Speaker 1: be a screamingly good sign. Is there anything I'm missing here? 13 00:00:52,000 --> 00:00:54,880 Speaker 1: Not at all. I mean, we've had a good rise 14 00:00:54,920 --> 00:00:58,320 Speaker 1: and consumer confidence. It's pretty much across the board. Consumers 15 00:00:58,320 --> 00:01:01,520 Speaker 1: are telling us that current conditions have strengthened even more. 16 00:01:01,640 --> 00:01:03,160 Speaker 1: And coming on the heels of a good g d 17 00:01:03,240 --> 00:01:06,000 Speaker 1: P report this morning, I think that's welcome news and 18 00:01:06,160 --> 00:01:08,760 Speaker 1: expectations are that we're going to continue along this path. 19 00:01:09,280 --> 00:01:11,560 Speaker 1: Can you explain what the details are, because in looking 20 00:01:11,600 --> 00:01:15,360 Speaker 1: at the GDP report that three two third quarter print, 21 00:01:15,680 --> 00:01:18,640 Speaker 1: it seems as though, consumer spending is what's driving that 22 00:01:18,760 --> 00:01:24,280 Speaker 1: move higher. Absolutely, it is consumer spending that's driving the economy, 23 00:01:24,360 --> 00:01:27,600 Speaker 1: and based on these confidence report that we have today, 24 00:01:27,640 --> 00:01:29,360 Speaker 1: it looks like it's going to be the consumer that 25 00:01:29,400 --> 00:01:32,120 Speaker 1: continues to drive the economy, especially when we take a 26 00:01:32,120 --> 00:01:34,440 Speaker 1: look at the particular at the income question that we had. 27 00:01:34,480 --> 00:01:36,280 Speaker 1: We had some rather good news there which I think 28 00:01:36,319 --> 00:01:38,800 Speaker 1: is going to support spending and we've seen signs of 29 00:01:38,800 --> 00:01:41,400 Speaker 1: that already with the holiday numbers coming in. You know, Lynn, 30 00:01:41,480 --> 00:01:43,479 Speaker 1: one thing that I've been watching is the City Group's 31 00:01:43,800 --> 00:01:48,320 Speaker 1: Economic Surprise Index, which has surged recently to the highest 32 00:01:48,400 --> 00:01:51,320 Speaker 1: levels in well in a couple of months, which is 33 00:01:51,440 --> 00:01:54,560 Speaker 1: still significant to me because there has been um a 34 00:01:54,640 --> 00:01:57,400 Speaker 1: feeling that, you know, the economy will grow but as 35 00:01:57,440 --> 00:02:00,160 Speaker 1: slower pace. But the data is coming in better than 36 00:02:00,240 --> 00:02:05,320 Speaker 1: people are expecting. What are all of those economists missing, UM, 37 00:02:05,360 --> 00:02:08,040 Speaker 1: I'm not sure that we're missing very much. I think 38 00:02:08,280 --> 00:02:10,960 Speaker 1: we're all just happy to see that the consumer remains 39 00:02:11,080 --> 00:02:15,360 Speaker 1: rather resilient, UM. And I think we also expect growth 40 00:02:15,360 --> 00:02:17,839 Speaker 1: to continue along this path, which I think is very 41 00:02:17,840 --> 00:02:20,280 Speaker 1: welcome news. UM. And you know, when we take a 42 00:02:20,280 --> 00:02:23,080 Speaker 1: look at these figures that we got in today, it's 43 00:02:23,680 --> 00:02:25,919 Speaker 1: it's more of more good news, and I think it's 44 00:02:25,919 --> 00:02:28,000 Speaker 1: going to spell you know, good news for for fourth 45 00:02:28,080 --> 00:02:31,480 Speaker 1: quarter growth, holiday sales, and for the economy as we 46 00:02:31,520 --> 00:02:34,360 Speaker 1: head into you know. Then, one of the other reports 47 00:02:34,360 --> 00:02:36,720 Speaker 1: we got today had to do with home prices, and 48 00:02:36,760 --> 00:02:40,000 Speaker 1: we're taking a look at the SNP Case Schiller core 49 00:02:40,040 --> 00:02:44,359 Speaker 1: Logic National Index prices for US for homes in twenty 50 00:02:44,440 --> 00:02:49,360 Speaker 1: US cities climbing five point one in September. I'm just 51 00:02:49,400 --> 00:02:54,000 Speaker 1: wondering how that works with increases in mortgage rates. We've 52 00:02:54,040 --> 00:02:56,839 Speaker 1: seen interest rates move just a little bit higher, they're 53 00:02:56,880 --> 00:02:59,840 Speaker 1: still at historical lows, but how is that consistent with 54 00:03:00,200 --> 00:03:03,240 Speaker 1: the higher cost of money. Well, what we're seeing there 55 00:03:03,280 --> 00:03:06,960 Speaker 1: obviously is you know that sort of impedes first time 56 00:03:07,000 --> 00:03:10,000 Speaker 1: buyers or lower income folks from sort of stepping into 57 00:03:10,040 --> 00:03:13,680 Speaker 1: the housing market. On the flip side, the price appreciation 58 00:03:14,040 --> 00:03:17,239 Speaker 1: helps consumers wealth. So I think we're seeing sort of 59 00:03:17,280 --> 00:03:20,320 Speaker 1: a dual effect here where not only have home prices 60 00:03:20,360 --> 00:03:23,120 Speaker 1: gone up, we're seeing stock prices going up, and we're 61 00:03:23,120 --> 00:03:25,839 Speaker 1: seeing earnings in terms of what people are taking home 62 00:03:25,880 --> 00:03:28,639 Speaker 1: going up. So I think across those fronts that's why 63 00:03:28,680 --> 00:03:32,360 Speaker 1: we're seeing in our income question a more optimistic consumer um. 64 00:03:32,400 --> 00:03:35,840 Speaker 1: We also got GDP numbers that the U S economy 65 00:03:36,120 --> 00:03:40,440 Speaker 1: expanded more than previously reported last quarter due to more 66 00:03:40,480 --> 00:03:44,360 Speaker 1: household spending. So, you know, does it seem like there 67 00:03:44,360 --> 00:03:47,960 Speaker 1: has been enough momentum that's been gathering steam for long 68 00:03:48,080 --> 00:03:50,640 Speaker 1: enough that that we can see these sort of upward 69 00:03:50,680 --> 00:03:53,360 Speaker 1: surprises for a while and that the consumer will really 70 00:03:53,400 --> 00:03:56,720 Speaker 1: support uh faster growth in the US. Well, I think 71 00:03:56,760 --> 00:04:00,160 Speaker 1: what we expect to see as consumers supporting growth, not 72 00:04:00,240 --> 00:04:03,400 Speaker 1: necessarily much stronger growth. So we're not anticipating growth of 73 00:04:03,440 --> 00:04:05,840 Speaker 1: you know, three and a half percent or four percent, 74 00:04:05,920 --> 00:04:09,040 Speaker 1: but we are going to at least anticipate that the 75 00:04:09,080 --> 00:04:13,240 Speaker 1: consumer will continue to drive the economy as far as 76 00:04:13,920 --> 00:04:16,920 Speaker 1: the future, because that's what you're you know, as an economist, 77 00:04:16,920 --> 00:04:18,680 Speaker 1: we always want you to get that. At Crystal Ball, 78 00:04:18,720 --> 00:04:21,760 Speaker 1: at what what does the report today tell us about 79 00:04:22,080 --> 00:04:24,600 Speaker 1: the rest of the quarter? I think it tells us 80 00:04:24,600 --> 00:04:27,279 Speaker 1: that it's going to be a consumer driven quarter. We're 81 00:04:27,279 --> 00:04:29,880 Speaker 1: seeing consumers telling us that the momentum that we've been 82 00:04:29,920 --> 00:04:32,719 Speaker 1: seeing building up is continuing into the fourth quarter. And 83 00:04:32,720 --> 00:04:35,480 Speaker 1: this is shopping, this is retail or is this spending 84 00:04:35,560 --> 00:04:38,159 Speaker 1: on a variety of items, a variety of items, but 85 00:04:38,200 --> 00:04:41,280 Speaker 1: I think in terms of spending, it's a very favorable 86 00:04:41,320 --> 00:04:44,159 Speaker 1: outlook that we're seeing coming out of today's report. Happy 87 00:04:44,240 --> 00:04:47,560 Speaker 1: Black Friday, Lynn Franco, Director of Economic Indicators at the 88 00:04:47,560 --> 00:04:50,200 Speaker 1: conference board taking a look at some of the positive 89 00:04:50,200 --> 00:04:52,800 Speaker 1: indications that we've been getting. And it's not just Black Friday, 90 00:04:52,839 --> 00:04:55,160 Speaker 1: I mean Cyber Monday. My colleagues reported that more than 91 00:04:55,279 --> 00:04:59,000 Speaker 1: one billion dollars of sales in one day. We're made 92 00:04:59,360 --> 00:05:14,080 Speaker 1: on mobile click, click and buy. All right, now, let's 93 00:05:14,120 --> 00:05:17,080 Speaker 1: talk about oil. We've got an expert, and Marie Horden 94 00:05:17,400 --> 00:05:21,599 Speaker 1: is live in Vienna for a Bloomberg executive producer and Marie, 95 00:05:21,640 --> 00:05:24,640 Speaker 1: what can you tell us about OPEC Russia and the 96 00:05:24,680 --> 00:05:29,839 Speaker 1: conflict that exists inside this oil exporting consortium. Over the 97 00:05:29,920 --> 00:05:32,640 Speaker 1: last hour or two, actually Bloomberg had an amazing scoop 98 00:05:32,640 --> 00:05:35,320 Speaker 1: and we learned that Saudi Arabia said to be ready 99 00:05:35,360 --> 00:05:37,599 Speaker 1: to walk out of all talks to subject doing a 100 00:05:37,680 --> 00:05:41,000 Speaker 1: deal without any compromise by Iran and a rock, So 101 00:05:41,040 --> 00:05:44,040 Speaker 1: they're really taking a hard line here. Meanwhile, the Iranian 102 00:05:44,080 --> 00:05:47,040 Speaker 1: oil minister arrived in the last hour as well. Um 103 00:05:47,200 --> 00:05:50,120 Speaker 1: he is saying that they will not cut production. You know, 104 00:05:50,160 --> 00:05:53,760 Speaker 1: this verbally came from his mouth earlier this morning um uh, 105 00:05:55,160 --> 00:05:58,839 Speaker 1: late in New York time. Um He the Oil Ministry 106 00:05:58,839 --> 00:06:01,360 Speaker 1: of Iran tweeted that they will not have a cap 107 00:06:01,480 --> 00:06:03,760 Speaker 1: and then before he came to Vienny spoke on STATV 108 00:06:03,920 --> 00:06:06,440 Speaker 1: saying it's the will of the people to continue pumping, 109 00:06:06,440 --> 00:06:08,920 Speaker 1: to go back to pre sanctioned level um And then 110 00:06:09,000 --> 00:06:11,400 Speaker 1: when he arrived here he is not budging. They say 111 00:06:11,440 --> 00:06:13,600 Speaker 1: they will not co production, and the Saudi say without them, 112 00:06:13,640 --> 00:06:15,880 Speaker 1: they're not doing a deal. So it's looking to be 113 00:06:16,000 --> 00:06:19,120 Speaker 1: quite a sticking point here. Um. One analyst described it 114 00:06:19,160 --> 00:06:22,200 Speaker 1: as a Greek tragedy, but he said maybe sometime for 115 00:06:22,279 --> 00:06:24,440 Speaker 1: happy ending. But they are really coming down to the wire. 116 00:06:24,920 --> 00:06:26,920 Speaker 1: Is there any chance that if they do not come 117 00:06:26,920 --> 00:06:28,560 Speaker 1: to a resolution, that there is another time in the 118 00:06:28,560 --> 00:06:30,440 Speaker 1: near future where they can come together and try to 119 00:06:30,800 --> 00:06:34,000 Speaker 1: resolve some of the differences. Well, if you if you 120 00:06:34,040 --> 00:06:37,520 Speaker 1: look at the past year in terms of an unusual 121 00:06:37,640 --> 00:06:40,920 Speaker 1: opec here in April this happened where talks collapsed in 122 00:06:40,960 --> 00:06:42,320 Speaker 1: Dohan and then it took them in the four or 123 00:06:42,320 --> 00:06:46,040 Speaker 1: five six months UH to reach an agreement. Is talks 124 00:06:46,120 --> 00:06:49,040 Speaker 1: collapse here. Anything can happen. They can decide to meet 125 00:06:49,080 --> 00:06:52,320 Speaker 1: next week, but likely what would happened is um, they'll 126 00:06:52,320 --> 00:06:55,160 Speaker 1: see where oil prices landed. We see what some analysts 127 00:06:55,200 --> 00:06:58,200 Speaker 1: are saying in the twenties in January. Uh, you better 128 00:06:58,240 --> 00:07:00,160 Speaker 1: believe o pack is definitely gonna start talking up in 129 00:07:00,240 --> 00:07:02,000 Speaker 1: each other to try to get the price back up. 130 00:07:02,279 --> 00:07:05,920 Speaker 1: And Marie just quickly. Iran and Saudi Arabia are they 131 00:07:05,960 --> 00:07:09,000 Speaker 1: at odds over this politically or is this because Iran 132 00:07:09,080 --> 00:07:13,400 Speaker 1: just needs the money? Well, no, for the Iranians, it 133 00:07:13,480 --> 00:07:17,640 Speaker 1: is definitely political. They've said for years they've had sanctioned 134 00:07:18,040 --> 00:07:20,560 Speaker 1: and Saudi has been able to pump. You know, for 135 00:07:20,760 --> 00:07:23,000 Speaker 1: Saudi for the last past two years, it's been about 136 00:07:23,000 --> 00:07:26,160 Speaker 1: market share, pump that will as much as they can. Um. 137 00:07:26,240 --> 00:07:29,520 Speaker 1: So this is political baggage. I mean what also, what 138 00:07:29,560 --> 00:07:32,800 Speaker 1: we're hearing is being discussed is about seven percent of 139 00:07:32,840 --> 00:07:36,360 Speaker 1: oil that the Saudis wants, that Theorians wanted Staudi don't. 140 00:07:36,400 --> 00:07:39,080 Speaker 1: So the rain Thereans want to cut about want to 141 00:07:39,120 --> 00:07:41,680 Speaker 1: pump at four million bartars a day. Socialities are said 142 00:07:41,720 --> 00:07:44,720 Speaker 1: to offer something like three point seven in change. So 143 00:07:44,760 --> 00:07:47,120 Speaker 1: if you think about it, it's not a ton of barrel, 144 00:07:47,200 --> 00:07:49,480 Speaker 1: but they are literally fighting over every barrel of oil 145 00:07:49,840 --> 00:07:53,200 Speaker 1: and this really comes down to politics. And Marie Hordern 146 00:07:53,600 --> 00:07:57,200 Speaker 1: live in Vienna talking about OPEC talks. UH, and Marie 147 00:07:57,240 --> 00:08:00,320 Speaker 1: Hordern of Bloomberg News, thank you so much for being 148 00:08:00,440 --> 00:08:03,520 Speaker 1: with us for a look at what the full implications 149 00:08:03,600 --> 00:08:07,440 Speaker 1: are of this opaque discussion. I want to go to 150 00:08:08,000 --> 00:08:11,720 Speaker 1: Rich Pontillo, senior director at NASDAC specializing in utility oil 151 00:08:11,760 --> 00:08:15,120 Speaker 1: and gas sectors. Rich, how big of a casualty would 152 00:08:15,160 --> 00:08:18,280 Speaker 1: it be for not for OPEC if they were not 153 00:08:18,440 --> 00:08:22,480 Speaker 1: to come to resolution here? Yeah, like morning Lisa and him, 154 00:08:23,080 --> 00:08:27,600 Speaker 1: I think it would be fairly significant, given what's your 155 00:08:27,600 --> 00:08:30,480 Speaker 1: inspired over the last few months. UH. If you go 156 00:08:30,560 --> 00:08:35,560 Speaker 1: back to September, OPEC members held informal meetings in LG 157 00:08:35,640 --> 00:08:39,480 Speaker 1: years and the outcome there was that they were able 158 00:08:39,520 --> 00:08:42,120 Speaker 1: to draw a consensus that they would agree at least 159 00:08:42,880 --> 00:08:46,960 Speaker 1: on a production on a on a production cap. So 160 00:08:47,160 --> 00:08:51,120 Speaker 1: I think that would certainly contradict directly, UH, in terms 161 00:08:51,120 --> 00:08:53,880 Speaker 1: of if they if they cannot reach a resolution tomorrow, 162 00:08:54,559 --> 00:08:59,319 Speaker 1: I think it will only further cement almost the end 163 00:08:59,400 --> 00:09:02,640 Speaker 1: of any knee meaningful influence that OPEC has going forward. 164 00:09:02,679 --> 00:09:06,000 Speaker 1: On the global oil markets again, given its lack of 165 00:09:06,040 --> 00:09:12,199 Speaker 1: ability to coalesceer consensus again, particularly especially after after the 166 00:09:12,760 --> 00:09:17,120 Speaker 1: the the informal agreement that was reached in late September. Well, 167 00:09:17,120 --> 00:09:19,439 Speaker 1: we're seeing the price of oil decline. It's down nearly 168 00:09:19,480 --> 00:09:25,040 Speaker 1: four percent right now. Rich the combination of politics and 169 00:09:25,320 --> 00:09:27,040 Speaker 1: crude oil. How does that play out in the in 170 00:09:27,080 --> 00:09:29,440 Speaker 1: the United States? I was looking at a Golden Sacks 171 00:09:29,440 --> 00:09:32,560 Speaker 1: report today saying that they say prices to be moderately 172 00:09:32,640 --> 00:09:36,160 Speaker 1: higher next year. They talk about the structural shift uh 173 00:09:36,360 --> 00:09:39,000 Speaker 1: in the cost curve of oil? What does that? What 174 00:09:39,040 --> 00:09:42,160 Speaker 1: does that mean? How did they get to that conclusion? Yeah, 175 00:09:42,240 --> 00:09:45,680 Speaker 1: it's a good point them And actually, uh myself, I 176 00:09:45,559 --> 00:09:48,240 Speaker 1: was reading that Golden Sacks note and just a a 177 00:09:48,400 --> 00:09:52,840 Speaker 1: side note that that report cited there's implied volatility in 178 00:09:52,840 --> 00:09:56,520 Speaker 1: the near term options market of a roughly six dollar 179 00:09:56,640 --> 00:10:00,680 Speaker 1: price swing in either direction on Brent oil futures UH 180 00:10:00,720 --> 00:10:03,760 Speaker 1: in response to tomorrow's meetings. So basically there is a 181 00:10:03,800 --> 00:10:06,960 Speaker 1: lot hinging on this decision tomorrow UH, and we're going 182 00:10:07,000 --> 00:10:11,959 Speaker 1: to see a very violent binary effect once that outcome 183 00:10:12,040 --> 00:10:15,439 Speaker 1: has made public. UM In terms of next year, again, 184 00:10:15,520 --> 00:10:18,600 Speaker 1: I I think they're obviously trying to cover both sides 185 00:10:18,640 --> 00:10:22,560 Speaker 1: of any potential decision. Um, if you look at what 186 00:10:22,760 --> 00:10:25,800 Speaker 1: has transpired in the US over the last twelve to 187 00:10:25,880 --> 00:10:32,679 Speaker 1: twenty four months, you've seen domestic producers become much more 188 00:10:32,200 --> 00:10:33,840 Speaker 1: put here. I'm sorry, we're gonna have to cut it. 189 00:10:33,880 --> 00:10:36,840 Speaker 1: Their senior advisory solutions at NASDAC. Thank you so much 190 00:10:36,840 --> 00:10:51,079 Speaker 1: for joining us. This is Bloomberg, all right. Joining us 191 00:10:51,080 --> 00:10:54,520 Speaker 1: now is Chris Aileman. He is the manager chief investment 192 00:10:54,520 --> 00:10:57,600 Speaker 1: officer of calstar as, the nation's a second largest public 193 00:10:57,640 --> 00:11:00,200 Speaker 1: pension fund assets totaling about a hundred and nine d 194 00:11:00,320 --> 00:11:04,560 Speaker 1: two billion dollars as of the end of October. Their 195 00:11:04,600 --> 00:11:08,120 Speaker 1: investment philosophy long term patient capital buying, a long term 196 00:11:08,200 --> 00:11:12,760 Speaker 1: net cash flows and capital gain potential at a reasonable price. 197 00:11:12,840 --> 00:11:14,880 Speaker 1: Chris Saleman, thank you for being with us. It's always 198 00:11:14,880 --> 00:11:17,360 Speaker 1: a pleasure of my favorite radio show. Well, we love 199 00:11:17,400 --> 00:11:22,360 Speaker 1: having you, and thank you. Reason. I love reasonable price. 200 00:11:22,559 --> 00:11:26,600 Speaker 1: I always love it when reasonable and reasonable is intuitive 201 00:11:26,679 --> 00:11:32,040 Speaker 1: but also analytical. How do you determine reasonable price? Um? 202 00:11:32,080 --> 00:11:34,080 Speaker 1: You have to look at historical norms, and you really 203 00:11:34,080 --> 00:11:37,120 Speaker 1: have to focus in on things like price earnings ratios 204 00:11:37,240 --> 00:11:40,040 Speaker 1: or cap rates in real estate and look at the 205 00:11:40,080 --> 00:11:42,600 Speaker 1: price you're paying relative to where it's been saved the 206 00:11:42,640 --> 00:11:44,480 Speaker 1: last thirty years, and I think that gives you a 207 00:11:44,520 --> 00:11:47,120 Speaker 1: guide of whether you're paying up for something or whether 208 00:11:47,200 --> 00:11:50,280 Speaker 1: it's reasonably priced. You're not going to find investments at 209 00:11:50,280 --> 00:11:52,520 Speaker 1: a bargain. Very often people hate them if they're at 210 00:11:52,520 --> 00:11:54,720 Speaker 1: a bargain. So but a lot of it is what 211 00:11:54,800 --> 00:11:57,720 Speaker 1: you guys are just talking about. It's psychology, um, and 212 00:11:57,960 --> 00:12:01,360 Speaker 1: understanding how investors think they tend to chase markets and 213 00:12:01,440 --> 00:12:04,640 Speaker 1: run them up to extremes um. Chris. I wanted to 214 00:12:04,679 --> 00:12:06,800 Speaker 1: ask you there was a story that I was reading 215 00:12:06,880 --> 00:12:09,880 Speaker 1: last night about Cowper is the biggest public US pension 216 00:12:10,320 --> 00:12:12,720 Speaker 1: in the country with almost three billion dollars of assets, 217 00:12:12,720 --> 00:12:16,120 Speaker 1: and how they're actively debating whether or not to substantially 218 00:12:16,200 --> 00:12:20,040 Speaker 1: lower their assumed rate of return going forward from about 219 00:12:20,200 --> 00:12:22,240 Speaker 1: seven percent or a little more than seven percent to 220 00:12:22,320 --> 00:12:24,480 Speaker 1: six percent, which is a which is a massive move 221 00:12:25,080 --> 00:12:27,760 Speaker 1: uh in in in pension land. Can you talk a 222 00:12:27,760 --> 00:12:31,440 Speaker 1: little bit about what your current assumed rate of return 223 00:12:31,640 --> 00:12:34,520 Speaker 1: is and what's appropriate over the next three decades or so. 224 00:12:35,080 --> 00:12:37,800 Speaker 1: Ours is seven and a half UM, and what you're 225 00:12:37,840 --> 00:12:41,880 Speaker 1: seeing across the country is pension plans, reevaluating that they're 226 00:12:41,880 --> 00:12:46,640 Speaker 1: getting pressure from their actuaries, their investment consultants to reassess 227 00:12:46,720 --> 00:12:49,079 Speaker 1: what they think is as you said, over a thirty 228 00:12:49,160 --> 00:12:51,040 Speaker 1: year time period. So it's not just going to be 229 00:12:51,040 --> 00:12:53,120 Speaker 1: the one year return or even the five year return. 230 00:12:53,520 --> 00:12:55,319 Speaker 1: And when I asked people to step back and say, well, 231 00:12:55,320 --> 00:12:57,400 Speaker 1: wait a minute, what's a realistic return over the next 232 00:12:57,440 --> 00:13:01,120 Speaker 1: thirty years, that's where you come into somewhere in the seven. 233 00:13:01,200 --> 00:13:02,959 Speaker 1: We used to say it was as much as eight. 234 00:13:03,400 --> 00:13:07,120 Speaker 1: But demographically the US is maturing, and so you're gonna 235 00:13:07,120 --> 00:13:09,480 Speaker 1: expect a little bit less growth out of it. But 236 00:13:09,520 --> 00:13:12,439 Speaker 1: it's been a very active debate. Certainly cal Pers has 237 00:13:12,480 --> 00:13:16,160 Speaker 1: been the most vocal about it. Our board is evaluating 238 00:13:16,200 --> 00:13:18,840 Speaker 1: that all the time. It's a constant debate. But again, 239 00:13:18,880 --> 00:13:21,680 Speaker 1: since it's a thirty year number, you're not going to 240 00:13:22,240 --> 00:13:24,360 Speaker 1: change it overnight. You're going to really just try and 241 00:13:24,400 --> 00:13:27,600 Speaker 1: look at what's historically happened. Let's talk about what the 242 00:13:27,640 --> 00:13:30,800 Speaker 1: consequences would be for lowering the assumed rate of return 243 00:13:31,080 --> 00:13:35,520 Speaker 1: that much. How much more would taxpayers, uh, you know, workers, 244 00:13:35,760 --> 00:13:38,360 Speaker 1: how much more would they have to contribute to these plans? Well, 245 00:13:38,400 --> 00:13:40,680 Speaker 1: you hit on the head. There are only two inputs 246 00:13:40,679 --> 00:13:43,920 Speaker 1: to retirement plan, the contributions, and that goes whether it's 247 00:13:43,960 --> 00:13:46,839 Speaker 1: a defined benefit plan in a public setting or your 248 00:13:46,880 --> 00:13:49,679 Speaker 1: own four oh one K. The two inputs are your 249 00:13:49,720 --> 00:13:52,400 Speaker 1: contribution rate and your investment return. So you want a 250 00:13:52,440 --> 00:13:55,680 Speaker 1: reasonable investment return, and that's what you're trying to decide, 251 00:13:55,720 --> 00:13:57,800 Speaker 1: is fact to that question of what's reasonable to assume 252 00:13:57,840 --> 00:14:00,160 Speaker 1: for the next thirty years. The minute you lower or 253 00:14:00,160 --> 00:14:03,600 Speaker 1: that assumption, it definitely goes to the contribution rates. And 254 00:14:03,600 --> 00:14:07,040 Speaker 1: in many cases that's the employer first, but then also 255 00:14:07,160 --> 00:14:09,920 Speaker 1: in some cases the employee, and that's what it's always 256 00:14:09,920 --> 00:14:13,480 Speaker 1: a big debate, But for for California, by and large, 257 00:14:13,480 --> 00:14:16,000 Speaker 1: it's going to mostly hit the employer on that side 258 00:14:16,040 --> 00:14:18,400 Speaker 1: of it. I'm glad you used the word debate, but 259 00:14:18,440 --> 00:14:20,640 Speaker 1: I'm going to just shift it a little bit, because 260 00:14:20,680 --> 00:14:23,560 Speaker 1: there is a lack of debate when it comes to 261 00:14:23,720 --> 00:14:27,200 Speaker 1: ideas that people do not like. For example, let's say 262 00:14:27,240 --> 00:14:29,800 Speaker 1: you have a fund manager who happens to sit on 263 00:14:29,840 --> 00:14:32,800 Speaker 1: the board of an institute that has a position that 264 00:14:32,960 --> 00:14:36,800 Speaker 1: is contrary to let's say a union leader whose members 265 00:14:37,040 --> 00:14:43,080 Speaker 1: are also your customers, your clients. Is this intolerance that 266 00:14:43,160 --> 00:14:46,920 Speaker 1: seems to infect not only the political discourse but also 267 00:14:46,960 --> 00:14:49,600 Speaker 1: the social discourse. Finding ideas that you only agree with. 268 00:14:50,560 --> 00:14:53,680 Speaker 1: Is that something you think is here to stay or 269 00:14:53,880 --> 00:14:57,400 Speaker 1: as a manager, a steward of capital? Uh? Do you 270 00:14:57,440 --> 00:15:01,280 Speaker 1: find it that is just making things ridiculous sleep difficult? 271 00:15:01,320 --> 00:15:03,640 Speaker 1: I mean, you're hiring people to make you money, not 272 00:15:04,000 --> 00:15:07,600 Speaker 1: to give them your political views. Exactly. Our job is 273 00:15:07,640 --> 00:15:10,920 Speaker 1: to find the best money managers we can. Uh. And 274 00:15:10,960 --> 00:15:13,680 Speaker 1: I've often said I don't care whether I like a 275 00:15:13,720 --> 00:15:17,080 Speaker 1: money manager or dislike them. I don't care whether they're 276 00:15:17,320 --> 00:15:20,480 Speaker 1: they're male or female, whether they're purple, they're green, they're 277 00:15:20,480 --> 00:15:22,960 Speaker 1: from Mars. They just have to make us money, and 278 00:15:23,000 --> 00:15:25,360 Speaker 1: that's what we want to focus on. But you're right, 279 00:15:25,480 --> 00:15:28,160 Speaker 1: what's happened in our country and obviously around the world 280 00:15:28,360 --> 00:15:32,160 Speaker 1: is society has gotten more fragmented, and therefore everything is 281 00:15:33,040 --> 00:15:35,440 Speaker 1: more critical. There are fewer people in the middle. So 282 00:15:35,480 --> 00:15:38,880 Speaker 1: there has been a big, big debate and a big 283 00:15:38,920 --> 00:15:42,320 Speaker 1: discussion with us about factoring those kinds of considerations in 284 00:15:42,400 --> 00:15:44,640 Speaker 1: when we hire money managers of not just whether they 285 00:15:44,680 --> 00:15:47,280 Speaker 1: make us money and what's their philosophy, but what are 286 00:15:47,280 --> 00:15:49,560 Speaker 1: they doing, what's the culture of the firm, what is 287 00:15:49,600 --> 00:15:52,520 Speaker 1: the firm doing, what are the principles doing? And that's 288 00:15:52,520 --> 00:15:54,800 Speaker 1: something that we're really trying to figure out. Okay, how 289 00:15:54,800 --> 00:15:58,120 Speaker 1: do we factor that in? Frankly, my biggest concern has 290 00:15:58,160 --> 00:16:01,280 Speaker 1: been less that, but more sustainable investing. Are they thinking 291 00:16:01,360 --> 00:16:04,120 Speaker 1: long term and their investment philosophy. Are they thinking long 292 00:16:04,200 --> 00:16:07,400 Speaker 1: term personally? Because I want them to incorporate things like 293 00:16:07,480 --> 00:16:11,240 Speaker 1: sustainability into their decision model, not just what are they 294 00:16:11,240 --> 00:16:14,600 Speaker 1: doing politically this year or next. They've got to do 295 00:16:14,640 --> 00:16:17,520 Speaker 1: what's right for their clients. Were the source of their capital, 296 00:16:17,600 --> 00:16:19,920 Speaker 1: so you have to pay attention to that. And that's 297 00:16:19,920 --> 00:16:21,600 Speaker 1: the best way I can describe it is they have 298 00:16:21,680 --> 00:16:25,040 Speaker 1: to be at least aware of whether their actions are 299 00:16:25,120 --> 00:16:28,560 Speaker 1: helping their clients or making their life miserable. Money managers 300 00:16:28,560 --> 00:16:30,880 Speaker 1: don't want to get a phone call from me saying 301 00:16:31,080 --> 00:16:33,880 Speaker 1: you are giving me a headache and here's the problem, 302 00:16:34,040 --> 00:16:35,640 Speaker 1: right that you've got a letter or you've got an 303 00:16:35,680 --> 00:16:38,360 Speaker 1: email from someone a union leader. Perhaps it says I 304 00:16:38,360 --> 00:16:40,720 Speaker 1: don't like this money manager that you hired because they 305 00:16:40,760 --> 00:16:42,800 Speaker 1: sit on the board of something that I disagree with. 306 00:16:43,200 --> 00:16:46,480 Speaker 1: Correct and and what they'd rather. They don't want that 307 00:16:46,480 --> 00:16:48,280 Speaker 1: phone call at all. For me. But what they'd rather 308 00:16:48,400 --> 00:16:51,720 Speaker 1: know is I'm unhappy with their investment performance rather than 309 00:16:51,760 --> 00:16:53,920 Speaker 1: and And the problem is you're getting into First Amendment 310 00:16:54,000 --> 00:16:57,840 Speaker 1: rights their own individual activities. UM, how far do we 311 00:16:57,880 --> 00:17:00,440 Speaker 1: go before we question, you know, my act? So I 312 00:17:00,520 --> 00:17:02,000 Speaker 1: like to ride my bike? Is that a good thing 313 00:17:02,080 --> 00:17:04,439 Speaker 1: or a bad thing? Good thing? I objectively say that 314 00:17:04,520 --> 00:17:05,920 Speaker 1: it's a good thing for you to ride a bike 315 00:17:06,080 --> 00:17:07,840 Speaker 1: as a fellow bike rider. UM. I want to talk 316 00:17:07,880 --> 00:17:10,520 Speaker 1: a little bit about when you're talking about money managers, 317 00:17:10,520 --> 00:17:13,600 Speaker 1: a shift away from hedge funds um and even among 318 00:17:13,680 --> 00:17:18,000 Speaker 1: some pensions to more index strategies. Have you also seen 319 00:17:18,000 --> 00:17:21,640 Speaker 1: a sort of similar shift among your own funds. We've 320 00:17:21,680 --> 00:17:24,760 Speaker 1: been long index funds and overweight index funds for almost 321 00:17:24,800 --> 00:17:28,840 Speaker 1: thirty years, so we very much, we very much believe 322 00:17:28,880 --> 00:17:31,840 Speaker 1: in in index funds and have doubted the value of 323 00:17:31,840 --> 00:17:34,040 Speaker 1: active management. And I think when you look back at 324 00:17:34,240 --> 00:17:36,840 Speaker 1: two thousand and sixteen, you'll say it was a year 325 00:17:36,840 --> 00:17:39,800 Speaker 1: where the equity market traded in a channel. It should 326 00:17:39,840 --> 00:17:42,959 Speaker 1: have helped active managers. They should have been able to outperform, 327 00:17:43,040 --> 00:17:47,200 Speaker 1: Yet they won't. And to me, that's just another year 328 00:17:47,240 --> 00:17:51,280 Speaker 1: of compounding evidence that active management is really losing its 329 00:17:51,280 --> 00:17:54,119 Speaker 1: ability to operate. And I think investors really have to 330 00:17:54,200 --> 00:17:56,680 Speaker 1: question the price that they're paying, because that's where it 331 00:17:56,720 --> 00:17:59,600 Speaker 1: gets killed. The price is so high in active management. 332 00:17:59,720 --> 00:18:02,280 Speaker 1: They've got a question. It's not worth the money people, 333 00:18:02,440 --> 00:18:05,879 Speaker 1: It's not worth the cost of active management. People should 334 00:18:05,880 --> 00:18:21,480 Speaker 1: make their retirement plans in passive investments. Kathleen Sebelius is 335 00:18:21,520 --> 00:18:25,200 Speaker 1: the former head of Health and Human Services, former governor 336 00:18:25,320 --> 00:18:29,439 Speaker 1: of Kansas joining US now. Governor Sebelius, thank you very 337 00:18:29,520 --> 00:18:31,960 Speaker 1: much for being with us. Glad to be with you 338 00:18:32,080 --> 00:18:34,520 Speaker 1: him now. Just wondering if you could give us your 339 00:18:35,040 --> 00:18:39,399 Speaker 1: impression and your thoughts on the selection of Tom Price 340 00:18:39,920 --> 00:18:42,560 Speaker 1: as the new head of the Department of Health and 341 00:18:42,640 --> 00:18:46,199 Speaker 1: Human Services by President elector Donald Trump. He is a 342 00:18:46,320 --> 00:18:53,160 Speaker 1: representative Republican representative from Georgia. Well, I had the opportunity 343 00:18:53,320 --> 00:18:58,600 Speaker 1: to work with Dr Price Um during my tenure as Secretary. 344 00:18:58,760 --> 00:19:02,840 Speaker 1: He served the Ways and Means Committee, which has a 345 00:19:02,880 --> 00:19:06,080 Speaker 1: lot of jurisdiction over JHS. So I would start by 346 00:19:06,080 --> 00:19:09,800 Speaker 1: saying he um he is a health care provider, and 347 00:19:09,840 --> 00:19:12,000 Speaker 1: I think that's helpful in the Department of Health and 348 00:19:12,080 --> 00:19:16,800 Speaker 1: Human Services to have that broad personal background. He also 349 00:19:17,800 --> 00:19:21,920 Speaker 1: Um has served on a key committee with j g 350 00:19:22,000 --> 00:19:26,320 Speaker 1: S jurisdictions. So he will come to the post assuming 351 00:19:26,440 --> 00:19:32,760 Speaker 1: he's confirmed, with again an array of experience that that 352 00:19:32,840 --> 00:19:36,399 Speaker 1: will be very helpful. I think JHS has a huge 353 00:19:36,440 --> 00:19:42,040 Speaker 1: footprint UM covering everything from you know ni H kind 354 00:19:42,040 --> 00:19:47,040 Speaker 1: of gold standard on research throughout the world, CDC with 355 00:19:47,119 --> 00:19:52,960 Speaker 1: Public Health which is in Georgia. Dr Prices home area UM, 356 00:19:53,080 --> 00:19:56,400 Speaker 1: you know CMS that covers almost one out of every 357 00:19:56,440 --> 00:20:01,240 Speaker 1: three Americans is involved in Medicare or Medicaid. So there's 358 00:20:00,920 --> 00:20:09,080 Speaker 1: a very substantial UH base of the leven operating agencies, 359 00:20:09,119 --> 00:20:11,080 Speaker 1: and I think it's really helpful to have someone who 360 00:20:11,119 --> 00:20:14,160 Speaker 1: has familiarity with a lot of the programs. Right. Dr 361 00:20:14,240 --> 00:20:18,200 Speaker 1: Price is an orthopedic surgeon from Georgia. It's just mentioned 362 00:20:18,280 --> 00:20:22,160 Speaker 1: UM and he's also been a vocal critic of the 363 00:20:22,200 --> 00:20:25,800 Speaker 1: Affordable Care Act or Obama Care UM and was working 364 00:20:25,840 --> 00:20:30,600 Speaker 1: to UH disabled parts of it. Based on your experience 365 00:20:30,600 --> 00:20:33,960 Speaker 1: working with him, Governor Sapilius, what's your sense on what 366 00:20:34,160 --> 00:20:37,879 Speaker 1: aspects of the Affordable Care Act he's most critical of 367 00:20:38,000 --> 00:20:42,680 Speaker 1: and will try to disable first? Well, I think you'll 368 00:20:42,680 --> 00:20:46,960 Speaker 1: have to let um congresson Price speak for himself in 369 00:20:47,000 --> 00:20:54,360 Speaker 1: that regard. I do UM know that everyone, including Dr Price, 370 00:20:55,240 --> 00:21:02,600 Speaker 1: has been UM skeptical of the calls of health insurance 371 00:21:02,640 --> 00:21:06,720 Speaker 1: provided in the marketplace. And you know, frankly, I think 372 00:21:06,800 --> 00:21:10,840 Speaker 1: it would be wonderful if UH there is a plan 373 00:21:11,000 --> 00:21:16,280 Speaker 1: to fully ensure the individuals the twenty million people who 374 00:21:16,320 --> 00:21:22,240 Speaker 1: now have insurance through various programs and UM and UM 375 00:21:22,359 --> 00:21:25,440 Speaker 1: lower the costs. I think that would be a widely 376 00:21:26,600 --> 00:21:32,240 Speaker 1: applauded move. UM. I do know that he has not 377 00:21:32,480 --> 00:21:38,280 Speaker 1: voiced as much enthusiasm over the pre existing condition limitation, 378 00:21:38,600 --> 00:21:42,119 Speaker 1: making sure insurance companies actually don't lock out our price 379 00:21:42,160 --> 00:21:45,320 Speaker 1: out people with some kind of pre existing condition. In fact, 380 00:21:45,359 --> 00:21:50,280 Speaker 1: he has in the past supported high risk pools as 381 00:21:50,320 --> 00:21:55,360 Speaker 1: an alternative, and I think that is potentially very very 382 00:21:55,440 --> 00:22:00,000 Speaker 1: dangerous for a lot of Americans who have serious health conditions, 383 00:22:00,040 --> 00:22:03,560 Speaker 1: because a high risk pool, by its very nature, is 384 00:22:03,600 --> 00:22:09,080 Speaker 1: not insurance coverage and is bound to be hugely expensive. 385 00:22:09,280 --> 00:22:13,440 Speaker 1: So I think UM around the goal that everyone deserves 386 00:22:13,440 --> 00:22:16,960 Speaker 1: a right to health insurance, everyone should have access to 387 00:22:17,960 --> 00:22:20,400 Speaker 1: best care at the lowest possible cost, I think there'll 388 00:22:20,440 --> 00:22:24,320 Speaker 1: be a lot of bipartisan support for ideas he may 389 00:22:24,359 --> 00:22:27,400 Speaker 1: bring to the table. Governor I wonder if you could 390 00:22:27,400 --> 00:22:30,160 Speaker 1: speak a little bit about your future plans. Your two 391 00:22:30,200 --> 00:22:34,159 Speaker 1: time governor of the state of Kansas, obviously serving in 392 00:22:34,320 --> 00:22:38,360 Speaker 1: the Obama administration, but also you were the former chair 393 00:22:38,400 --> 00:22:41,880 Speaker 1: of the Democratic Governors Association. Do you have any plans 394 00:22:41,920 --> 00:22:47,520 Speaker 1: to participate in actively participate in the ongoing efforts of 395 00:22:47,560 --> 00:22:52,080 Speaker 1: the Democrat Party to make their voice heard. Well. I 396 00:22:52,119 --> 00:22:58,040 Speaker 1: certainly will be engaged and involved with individuals and groups 397 00:22:58,119 --> 00:23:05,320 Speaker 1: who are eager to UM save the health program that 398 00:23:05,440 --> 00:23:08,960 Speaker 1: has made such a difference in twenty million people's lives. 399 00:23:09,160 --> 00:23:12,680 Speaker 1: Does it have to look exactly the same now? UM? 400 00:23:12,720 --> 00:23:15,240 Speaker 1: But you'll continue to speak out on issues like pro choice, 401 00:23:15,280 --> 00:23:19,120 Speaker 1: which you're a big advocate of. Absolutely, I think women's 402 00:23:19,119 --> 00:23:24,360 Speaker 1: health and women's choices and UM making sure that Americans 403 00:23:24,400 --> 00:23:26,960 Speaker 1: don't go back to the point where insurance companies get 404 00:23:26,960 --> 00:23:29,920 Speaker 1: to pick and choose who gets coverage and who doesn't. 405 00:23:30,720 --> 00:23:34,000 Speaker 1: UH is progress that I would hate to see unraveled. 406 00:23:34,080 --> 00:23:37,400 Speaker 1: And I think that there is a lot of support 407 00:23:37,560 --> 00:23:41,960 Speaker 1: for UM making sure that we don't return to the 408 00:23:42,080 --> 00:23:46,440 Speaker 1: days where only people who could be medically underwritten by 409 00:23:46,440 --> 00:23:51,480 Speaker 1: insurance companies and allowed into a insurance plan if they 410 00:23:51,520 --> 00:23:55,560 Speaker 1: bought individual coverage would be covered. So yes, I feel 411 00:23:55,680 --> 00:23:59,840 Speaker 1: very strongly we've made huge progress in women's health, which 412 00:24:00,040 --> 00:24:04,600 Speaker 1: HUCH progress and individuals health who didn't have affordable coverage 413 00:24:04,600 --> 00:24:07,000 Speaker 1: in their workplace, and I will very much continue to 414 00:24:07,080 --> 00:24:09,399 Speaker 1: be engaged and involved in those efforts. I want to 415 00:24:09,440 --> 00:24:11,320 Speaker 1: thank you very much for spending time with us. Kathy 416 00:24:11,359 --> 00:24:14,480 Speaker 1: and Sibelius is a former two term governor of the 417 00:24:14,520 --> 00:24:17,399 Speaker 1: state of Kansas and former Cabinet Secretary of Health and 418 00:24:17,480 --> 00:24:25,879 Speaker 1: Human Services. Thanks for listening to the Bloomberg P and 419 00:24:26,000 --> 00:24:30,800 Speaker 1: L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, 420 00:24:31,000 --> 00:24:35,200 Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm 421 00:24:35,240 --> 00:24:38,160 Speaker 1: out there on Twitter at pim Fox. I'm out there 422 00:24:38,160 --> 00:24:41,480 Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast. 423 00:24:41,520 --> 00:24:44,200 Speaker 1: You can always catch us worldwide on Bloomberg Radio.