Latest / Bloomberg Intelligence / Math Doesn't Add Up on Trump's Infrastructure Plan, Sen Says

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Math Doesn't Add Up on Trump's Infrastructure Plan, Sen Says · Bloomberg Intelligence

• 0:04
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:14
  Speaker 1: you and your money, whether at the grocery store or
• 0:16
  Speaker 1: the trading floor. Find the Bloomberg pm L podcast on iTunes,
• 0:20
  Speaker 1: SoundCloud and at Bloomberg dot com. President Trump has proposed
• 0:30
  Speaker 1: a one trillion dollar infrastructure spending plan. Under this plan,
• 0:35
  Speaker 1: the US would spend about a hundred billion dollars each year.
• 0:38
  Speaker 1: Uh And Connor Sen, portfolio manager for New River Investments
• 0:43
  Speaker 1: in Atlanta, and a Bloomberg View columnist, pointed out that
• 0:48
  Speaker 1: such incredible spending would require five hundred and seventy thousand
• 0:52
  Speaker 1: additional construction workers. I want to bring in Connor. Now, Connor,
• 0:56
  Speaker 1: I thought your column was fascinating and it raised the
• 0:58
  Speaker 1: question can we find five hundred and seventy thousand new
• 1:03
  Speaker 1: construction workers in this currently tight labor market. Probably not
• 1:07
  Speaker 1: five million thousand that you'd want to hire, so you
• 1:10
  Speaker 1: can always find people off the five lines. I've never
• 1:12
  Speaker 1: worked on construction before, but if you paid me enough,
• 1:14
  Speaker 1: I suppose I could give it a shot. For preparing
• 1:18
  Speaker 1: for a career in construction exactly So, it's it's not
• 1:22
  Speaker 1: the kind of thing that you're likely to be able
• 1:23
  Speaker 1: to ramp up in a you know, in the short
• 1:26
  Speaker 1: term open long term, you could get there, but it's
• 1:27
  Speaker 1: not the kind of thing that could happen you're one
• 1:29
  Speaker 1: or two. So companies and investors that are looking to
• 1:33
  Speaker 1: reap the rewards of this infrastructure spending plan should perhaps
• 1:37
  Speaker 1: wait a while to celebrate, exactly So, if you're a company,
• 1:41
  Speaker 1: if you're a construction firm, perhaps you could do a
• 1:44
  Speaker 1: limited amount of production at a in In that way
• 1:47
  Speaker 1: you can keep your costom line. But if you're really
• 1:49
  Speaker 1: trying to ramp up to get the lion share of
• 1:52
  Speaker 1: something like this, you probably have to pay way more
• 1:55
  Speaker 1: than you get back from the government. So the reason
• 1:58
  Speaker 1: why I found this column so intra staying was because
• 2:00
  Speaker 1: a lot of people say, you know, they questioned the
• 2:03
  Speaker 1: idea of this infrastructure plan based on budget issues that
• 2:06
  Speaker 1: can the US pay for it? Is there the ability
• 2:08
  Speaker 1: to do it without raising taxes or increasing the deficit substantially?
• 2:11
  Speaker 1: You're saying from a fundamental perspective, it cannot be implemented,
• 2:15
  Speaker 1: at least not in the near term, is this being
• 2:18
  Speaker 1: priced in anywhere in markets that are currently bidding up
• 2:22
  Speaker 1: the you know, infrastructure and the and the industrial stocks
• 2:26
  Speaker 1: and bonds. Well, one of the questions that investors have
• 2:30
  Speaker 1: right now is what exactly is being pricedman, because you
• 2:33
  Speaker 1: have you do have underlying strong economic fundamental you seeing
• 2:37
  Speaker 1: you know, about a year ago, that's when the industrial
• 2:39
  Speaker 1: and energy cycle was botted me out, that started to recover,
• 2:42
  Speaker 1: and then in that sector inventories which have been drawn
• 2:45
  Speaker 1: down or then being built up to have this kind
• 2:48
  Speaker 1: of lagged demand from just how much industrial demand has fallen,
• 2:52
  Speaker 1: and so that is being pricedon's markets. And then on
• 2:56
  Speaker 1: the policy side, we just don't know yet because it's
• 2:58
  Speaker 1: only been a few months what exactly of people pising
• 3:00
  Speaker 1: in Is it you know, the views on policy, or
• 3:03
  Speaker 1: is it just this underlying economic situation. Connor, you mentioned
• 3:06
  Speaker 1: that there is an economic cycle that we all try
• 3:10
  Speaker 1: to pay attention to, and the last one that we
• 3:13
  Speaker 1: saw big growth for construction employment was between You also
• 3:20
  Speaker 1: write that we are later in this economic cycle. What
• 3:23
  Speaker 1: takes place later typically what happens sort of in the
• 3:28
  Speaker 1: cycles that early on after a session you have reduced
• 3:31
  Speaker 1: production and there's a lot of slack resources in the economy,
• 3:35
  Speaker 1: they can be put back to work. And so after
• 3:37
  Speaker 1: the set cut interest rates and there's potentially ciscal stimulus,
• 3:40
  Speaker 1: you have conditions that are right for strong early cycle growth.
• 3:44
  Speaker 1: And so we didn't see that in housing coming out
• 3:45
  Speaker 1: of the huge housing bubble, but we did see that
• 3:47
  Speaker 1: in the end of the sector and just sort of
• 3:50
  Speaker 1: a dead cat bounce and manufacturing, and so we saw
• 3:53
  Speaker 1: that growth early on and then sort of in the
• 3:55
  Speaker 1: middle of the cycle, like you said two thousand thirteen,
• 3:57
  Speaker 1: two fifteen, you had apartment growth, you did have some
• 4:00
  Speaker 1: energy growth, and at that point, I said, was still
• 4:03
  Speaker 1: very easy on the monetary side. What tends to happen
• 4:06
  Speaker 1: later in the cycle is as resource flat diminishes, cost
• 4:11
  Speaker 1: go up, the stead starts becoming more aggressive on hiking
• 4:14
  Speaker 1: interest rates, and that's when you tend to get into
• 4:16
  Speaker 1: problems with overproduction and tighter money. So Connor, at this
• 4:20
  Speaker 1: point in the cycle, can we get a sort of
• 4:25
  Speaker 1: ramp up in construction workers, especially at a time when
• 4:28
  Speaker 1: immigration is being constrained, Yeah, exactly. So the only way
• 4:32
  Speaker 1: to really make this work over the near term would
• 4:34
  Speaker 1: be a big change for more immigration. And it seems
• 4:36
  Speaker 1: like at least on below end for immigration or going
• 4:39
  Speaker 1: the other direction. And so the question is just I
• 4:42
  Speaker 1: think our two choices are either more production at much
• 4:45
  Speaker 1: higher prices or kind of constrained production at lower prices,
• 4:49
  Speaker 1: and either situation is really great. So Connor, given your
• 4:53
  Speaker 1: role as a portfolio manager at New River Investments, have
• 4:56
  Speaker 1: you started to back away from certain securities that have
• 5:01
  Speaker 1: gotten bit up in anticipation of this infrastructure spending. But
• 5:05
  Speaker 1: I mean, going back to your original point where people
• 5:07
  Speaker 1: are trying to understand what actually is being priced into
• 5:11
  Speaker 1: the market. Do you think that the market has gone
• 5:13
  Speaker 1: too far with pricing in too much? That seems implausible
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  Speaker 1: at this point, and specifically, where are you looking? I do,
• 5:19
  Speaker 1: because our viue is that if we do get more production,
• 5:23
  Speaker 1: it's going to be at sort of prices and profit
• 5:25
  Speaker 1: margins that are not very compelling for companies. And so
• 5:28
  Speaker 1: our view is that there isn't that much resource black
• 5:30
  Speaker 1: left in economy, especially with immigration policy being where it is,
• 5:34
  Speaker 1: so it's just not going to be a great environment
• 5:36
  Speaker 1: for companies and profit margins. It might be a great
• 5:38
  Speaker 1: environment for workers and wages. Thence the question is what's
• 5:41
  Speaker 1: the best way to take advantage of that. So for
• 5:44
  Speaker 1: that making, the answer is more real estate or kind
• 5:46
  Speaker 1: of just to discussion our consumer spending, but not kind
• 5:51
  Speaker 1: of business fixed investment and and things that are potentially
• 5:54
  Speaker 1: will suffer on the profit Martin side as as interest
• 5:57
  Speaker 1: rates go up and labor gets more expensive. So which
• 6:00
  Speaker 1: companies do you think are overbid at this point? I
• 6:02
  Speaker 1: think anything related to infrastructure in general. Um, you know,
• 6:06
  Speaker 1: you sort of see what's happened to prices over the
• 6:08
  Speaker 1: past year. A company like United Rentals, which is very
• 6:11
  Speaker 1: highly lettered and sort of at the bottom of the
• 6:14
  Speaker 1: industrial cycle. Early last year the stock went down to
• 6:16
  Speaker 1: I think forty five dollars to share. Today it's more
• 6:18
  Speaker 1: like a hundred hundred thirty d and thirty five. I
• 6:22
  Speaker 1: think it's just one of these things where it's a
• 6:23
  Speaker 1: combination of more optimism on policy and then sort of
• 6:27
  Speaker 1: more momentum traders who would just look at charts and
• 6:29
  Speaker 1: prices see how much it's gone up, and they're trying
• 6:31
  Speaker 1: to ride that trend. But it's just tough to see
• 6:33
  Speaker 1: how this is going to work out profitably for companies
• 6:35
  Speaker 1: with the next two or three years. Would it make
• 6:37
  Speaker 1: more sense to build more homes rather than spend time
• 6:41
  Speaker 1: arguing over roads, buildings, tunnels and repairing the highways, because
• 6:45
  Speaker 1: that's not something you just may wave a magic wand
• 6:48
  Speaker 1: and it happens. Yeah, I think you want to try
• 6:51
  Speaker 1: to do both. The issue is just it's a lot
• 6:53
  Speaker 1: easier to sort of get the house and stuff done
• 6:55
  Speaker 1: in a reasonable way. Infrastructure is notoriously slow, with memory
• 7:00
  Speaker 1: review and policymakers and architects and planners and just there's
• 7:04
  Speaker 1: so many different touch points and potential pain points as
• 7:07
  Speaker 1: resources get tight, and so there's just no way to
• 7:09
  Speaker 1: throw a lot of money at it and get good,
• 7:11
  Speaker 1: good value in the short term, no value in the
• 7:15
  Speaker 1: short term. Well, in that case, I guess maybe people
• 7:19
  Speaker 1: will take some profits on on those positions. Just finally,
• 7:22
  Speaker 1: to to connor, you know, we keep hearing that infrastructure
• 7:25
  Speaker 1: spending will then lead to higher and more sustained economic growth.
• 7:30
  Speaker 1: Is there any evidence to support that. There's there's sort
• 7:34
  Speaker 1: of hazy long term fundamental growth. It just it's sort
• 7:37
  Speaker 1: of like whether you have just better policy or or
• 7:39
  Speaker 1: more younger hard to measure, given how the economic cycles
• 7:45
  Speaker 1: more bobble than that sort of production increase. One more
• 7:48
  Speaker 1: thing I wanted to point out is something that other
• 7:50
  Speaker 1: people aren't talking about, is that, let's say we found
• 7:52
  Speaker 1: these five thousand construction workers and maybe a million more
• 7:55
  Speaker 1: support staff, what happens after ten years, because then you
• 7:58
  Speaker 1: have a million and a half workers that immediately get
• 8:00
  Speaker 1: run out of work and create this technical assessment right away.
• 8:04
  Speaker 1: The back end of this is also problematic. Thanks very much.
• 8:07
  Speaker 1: Connor Sen is a Bloomberg View columnist and portfolio manager
• 8:10
  Speaker 1: for New River Investments. They're based in Atlanta, and to
• 8:27
  Speaker 1: learn more about what he is doing with other people's
• 8:30
  Speaker 1: money and his own, I want to bring in David Coudla.
• 8:32
  Speaker 1: He is the founder and the chief executive of and
• 8:35
  Speaker 1: he's also the chief investment strategist. I beg your pardon
• 8:37
  Speaker 1: of mainstay Capital Management helps to manage more than two
• 8:41
  Speaker 1: billion dollars of customer assets. David, thank you very much
• 8:44
  Speaker 1: for being with us. Good morning, him, Good morning. You've
• 8:47
  Speaker 1: got a lot of hats to where they're I'm curious
• 8:49
  Speaker 1: if you can tell me whether you're selling anything into
• 8:52
  Speaker 1: this rally. Well, what we have been selling going back
• 8:57
  Speaker 1: into the fourth quarter is our interest rate sensitive bond positions.
• 9:01
  Speaker 1: We've been largely void of interest rate sensitive bond That's
• 9:04
  Speaker 1: probably the most important warning I can give to investors,
• 9:07
  Speaker 1: although once I can interest rate sensitive bonds in other words,
• 9:09
  Speaker 1: bonds invests the vast majority. Well, is it is it
• 9:13
  Speaker 1: just treasuries? Is it an investment grade bonds? Are you
• 9:16
  Speaker 1: also including in that high old bonds emerging markets? Good?
• 9:21
  Speaker 1: Good question and an important distinction. We we've still been
• 9:25
  Speaker 1: in high old bonds emerging market debt, and as Pimp said,
• 9:28
  Speaker 1: floating rate income we think is a is a great
• 9:30
  Speaker 1: opportunity in a rising interest rate environment. Our concern is
• 9:35
  Speaker 1: with yes, specifically treasuries and high grade corporates, those very
• 9:40
  Speaker 1: safe investments for credit risk and default risk, but our
• 9:43
  Speaker 1: interest rate sensitive and actually uh, you know, face negative
• 9:48
  Speaker 1: returns looking at the time of horizon since last year
• 9:51
  Speaker 1: you might be considering over several months and going forward.
• 9:54
  Speaker 1: We just we've we've had uh caution there and continue
• 9:57
  Speaker 1: to have that caution with fiscal policy, tax policy, and
• 10:01
  Speaker 1: monetary policy all pointing towards even higher rates. So, David,
• 10:05
  Speaker 1: people have been talking about a bond market sell off
• 10:07
  Speaker 1: for years, and people have been expecting inflation to pick up.
• 10:10
  Speaker 1: Now the FED is expected, I believe now the chance
• 10:14
  Speaker 1: of a March FED rate hike is nine or something
• 10:18
  Speaker 1: looking at FED funds future, but the yield curve is flattening.
• 10:22
  Speaker 1: In other words, people are expecting growth too slow. What
• 10:25
  Speaker 1: gives you confidence that growth and inflation are going to
• 10:27
  Speaker 1: pick up enough to justify a really truly significant bond
• 10:31
  Speaker 1: sell off this time around? Great question, And there have
• 10:34
  Speaker 1: been so many people that have been forecasting the rising rates,
• 10:38
  Speaker 1: have been shorting bonds going back five years. The difference
• 10:42
  Speaker 1: now is the feed is finally raising rates, and you know,
• 10:46
  Speaker 1: we we ended Keewey started raising rates a little over
• 10:48
  Speaker 1: a year ago, raised in December. We think we'll get
• 10:51
  Speaker 1: at least two rate hikes this year, so we know
• 10:53
  Speaker 1: the short end of the curve is going up. We
• 10:55
  Speaker 1: couple that with President Trump being elected and as I
• 11:00
  Speaker 1: spoke of the reflationary those three things, reflationary policies for
• 11:04
  Speaker 1: the economy, and we're seeing better economic data, so you know,
• 11:07
  Speaker 1: we've we've got a recently, I want to use the
• 11:11
  Speaker 1: word strong economy. Economy that's doing okay, and we think
• 11:14
  Speaker 1: it's going to continue to do well. It's still expanding,
• 11:17
  Speaker 1: and monetary both monetary and fiscal policy pointing towards higher rates.
• 11:22
  Speaker 1: That is a change, you know, largely from what we
• 11:25
  Speaker 1: had over the past let's say four years until until
• 11:28
  Speaker 1: six or seven months ago. So you're not taking any
• 11:32
  Speaker 1: of these signals about how wonderful everything is compared to
• 11:36
  Speaker 1: let's say July of two thousand one, or compare it
• 11:39
  Speaker 1: to two thousand seven. You don't buy that there's a
• 11:44
  Speaker 1: little bit of irrational exuberance out there. I think there's
• 11:47
  Speaker 1: certainly a little bit when we see the DAL rise.
• 11:51
  Speaker 1: For I tell you the sp up six and a
• 11:54
  Speaker 1: half percent. So if you're telling me that we are
• 11:57
  Speaker 1: in March and it's up six and a half more
• 11:59
  Speaker 1: than six and a half per sent what kind of
• 12:01
  Speaker 1: risk are you taking on if you want an extra
• 12:03
  Speaker 1: four for the rest of the year. That's right there.
• 12:05
  Speaker 1: There is there, there's some exuberants. I mean, I think
• 12:08
  Speaker 1: it's I think it's even fair to say that maybe
• 12:10
  Speaker 1: we're starting to approach that u fork stage in the
• 12:13
  Speaker 1: stock market cycle. But we don't see what we don't see.
• 12:17
  Speaker 1: We don't see a recession on the horizon. Remember a
• 12:20
  Speaker 1: year ago, all the analysts, all the market pundits calling
• 12:24
  Speaker 1: talking about recession here or around the globe, talking about
• 12:28
  Speaker 1: inflation here around the globe. That's that's gone. We're now
• 12:31
  Speaker 1: looking at inflation on the rise. We're looking at uh
• 12:35
  Speaker 1: still you know, growth and emic growth, but still growth
• 12:38
  Speaker 1: that we expect to improve at least some and so
• 12:41
  Speaker 1: that's good for stocks. You know, we're positive on stocks
• 12:44
  Speaker 1: and that environment. But look him and Lesta, a correction
• 12:47
  Speaker 1: of of ten or even we can get that at
• 12:50
  Speaker 1: any time. David, what have the call has been like
• 12:53
  Speaker 1: from your clients? What are the biggest concerns at this point? Uh.
• 12:58
  Speaker 1: The the interesting thing is is, you know, we have
• 13:03
  Speaker 1: always in an environment like this, we have those clients
• 13:05
  Speaker 1: that are excited, I want to get more aggressive. We
• 13:09
  Speaker 1: have clients who are concerned with how far the markets
• 13:12
  Speaker 1: come and want to get more conservative. What's interesting is is, uh,
• 13:17
  Speaker 1: and we were talking about this just this week, is
• 13:19
  Speaker 1: how that tends to fall down party lines. Those people
• 13:22
  Speaker 1: that may have voted for Trump believe in Trump, what
• 13:26
  Speaker 1: he's going to do for the economy, believe this continues
• 13:29
  Speaker 1: and gets even better. Uh. Those that have been cautious
• 13:33
  Speaker 1: and have concerns about Trump have only become more cautious.
• 13:37
  Speaker 1: Is the market has gone higher. So it's very interesting
• 13:40
  Speaker 1: how politics and political persuasion has entered into Investor Sentiment
• 13:46
  Speaker 1: Individual Investor Sentiment. David Coola, thank you so much for
• 13:49
  Speaker 1: joining us. Always a pleasure. David coula chief executive officer
• 13:52
  Speaker 1: and chief investment strategist of Mainstay Capital Management with about
• 13:56
  Speaker 1: two billion dollars under management. All right, we want to
• 14:11
  Speaker 1: get smarter about one particular company right now, which is
• 14:14
  Speaker 1: Roche Holdings. Uh, the a d R as the American
• 14:17
  Speaker 1: Depository receipts are trading higher by more than six and
• 14:20
  Speaker 1: a half percent right now here to tell us? Why?
• 14:24
  Speaker 1: Is Max Neeson here is our Gadfly columnist. He covers biotech, pharmaceuticals,
• 14:28
  Speaker 1: and healthcare. He can be followed on Twitter at Max
• 14:32
  Speaker 1: Neeson Max Neeson. So tell us what is up with
• 14:35
  Speaker 1: this new breast cancer drug and Roche Holdings. So this
• 14:39
  Speaker 1: was a really closely watched trial for the company. The
• 14:42
  Speaker 1: drugs called Projetta, and the company was sessing whether this
• 14:45
  Speaker 1: drug added on to its existing drug hercepting helped more
• 14:49
  Speaker 1: women survive or made it less likely that their breast
• 14:52
  Speaker 1: cancer would come back. Um, so this was a really
• 14:54
  Speaker 1: difficult trial for them to have success in because hercepting
• 14:58
  Speaker 1: works really really well already, and you kind of see
• 15:01
  Speaker 1: that reflected in the share price boost. This is a
• 15:03
  Speaker 1: really big company to move six percent or seven percent
• 15:06
  Speaker 1: market cap move like fourteen billion, so really good news
• 15:09
  Speaker 1: for the company. Well, so could you walk us through
• 15:12
  Speaker 1: first of all, what this drug, how much it helps
• 15:15
  Speaker 1: extend people's lives or you know, just whether it improves
• 15:18
  Speaker 1: their quality of life, extends their life. Uh, and also
• 15:21
  Speaker 1: how much more it would cost for the patient I'm
• 15:24
  Speaker 1: talking about, so that that's always the question with cancer drugs.
• 15:27
  Speaker 1: Often you see where even really expensive cancer drugs cannot
• 15:31
  Speaker 1: only a couple of months. But the really good news
• 15:33
  Speaker 1: here is when combined with surgery and and her sept
• 15:36
  Speaker 1: in um, women actually have a really good chance of
• 15:39
  Speaker 1: surviving in the long run. We don't know the precise
• 15:42
  Speaker 1: benefit that this adds on top of her sceptin but um,
• 15:46
  Speaker 1: the fact that the trial succeeded suggests that it's really significant.
• 15:49
  Speaker 1: So it's something like already, um, you know, four out
• 15:52
  Speaker 1: of five women see a really good result and this
• 15:54
  Speaker 1: could even add on top of that. And is this
• 15:56
  Speaker 1: late stage breast cancer or is this throughout the differ
• 16:00
  Speaker 1: front stages. This is early stage when you when you
• 16:03
  Speaker 1: catch it pretty early, you kind of have really good results,
• 16:05
  Speaker 1: but I believe the drug is being tested in later
• 16:08
  Speaker 1: stages as well. What kind of market are we talking about,
• 16:12
  Speaker 1: It depends on who you ask, but I've seen a
• 16:14
  Speaker 1: peak sales estimate of about five point five billion, and
• 16:17
  Speaker 1: that that's really significant for Roche, which is seeing its
• 16:20
  Speaker 1: three biggest drugs of asking her up in and I'll
• 16:24
  Speaker 1: starting to see biosimilar competition over the next few years.
• 16:27
  Speaker 1: Those stories are expected to sell twenty billion this year.
• 16:29
  Speaker 1: So having something that kind of props up one of
• 16:32
  Speaker 1: those franchises adds some more sales is really significant for
• 16:36
  Speaker 1: the company. Okay, biosimilar that's generic. Basically you're you're going
• 16:39
  Speaker 1: to have some of these really lucrative drugs become eligible
• 16:43
  Speaker 1: for generic rip offs that can then take away profits
• 16:46
  Speaker 1: corrected a sort of lower cost margins. That's sort of
• 16:48
  Speaker 1: the idea, right, Yeah, So it's it's slightly trickier with
• 16:51
  Speaker 1: these drugs. It's it's like a bit more complicated of
• 16:53
  Speaker 1: a process to get a biosimilar proper regular generic, So
• 16:57
  Speaker 1: the sales drop off is likely to be slower, but
• 17:00
  Speaker 1: just the sales still are going to drop pretty significantly
• 17:02
  Speaker 1: in the next five years. So that brings me back
• 17:04
  Speaker 1: to the price. Do we have a sense of how
• 17:06
  Speaker 1: much this could cost this new drug that they that
• 17:09
  Speaker 1: they passed the test. It'll probably add some you know,
• 17:12
  Speaker 1: an additional maybe ten dollars to the monthly list priced
• 17:15
  Speaker 1: cost of treating a patient, although we don't know for
• 17:17
  Speaker 1: sure until we see the actual combo on the market.
• 17:21
  Speaker 1: And the other thing that makes us an advantage that
• 17:23
  Speaker 1: when you have a BYR solar similar competitor, Roach can
• 17:26
  Speaker 1: offer this too drug package, perhaps at a discount, so
• 17:29
  Speaker 1: it might also protect sales of their older drug I
• 17:32
  Speaker 1: which you know, the boo boost for the company. Can
• 17:34
  Speaker 1: you give me up an up to date version of
• 17:36
  Speaker 1: what's going on at Valiant Pharmaceuticals and what Joe Papa
• 17:39
  Speaker 1: is up to, because I mean the stock is up
• 17:41
  Speaker 1: about three and a quarter percent today, but I mean
• 17:43
  Speaker 1: this is a fourteen dollar stock that well, it wasn't
• 17:46
  Speaker 1: always a fourteen dollar stock, and a lot of people
• 17:48
  Speaker 1: are feeling the pain. I mean as of a couple
• 17:51
  Speaker 1: of days ago, it was something like an eighteen dollar stocks. Yeah,
• 17:55
  Speaker 1: it's had a pretty rough couple of days go back,
• 17:57
  Speaker 1: a couple of go back just a year or so
• 17:59
  Speaker 1: in March and we're talking and you know, at least
• 18:03
  Speaker 1: that it's been it's been pretty incredible. Um, what's happened?
• 18:06
  Speaker 1: More recently? They reported fourth quarter earnings and it was
• 18:10
  Speaker 1: the same sort of kind of grim news that that
• 18:12
  Speaker 1: we've come to be used to for Valiant. Uh, some
• 18:15
  Speaker 1: of like a five million dollar loss. Um, what was
• 18:18
  Speaker 1: this thing about SALEX, SALEX Pharmaceuticals. It was some report
• 18:21
  Speaker 1: that was not really accurate. Yeah, So someone I think
• 18:25
  Speaker 1: took a look at the ten k so an sec
• 18:28
  Speaker 1: investigation really to SALEX and kind of you know, pumped
• 18:31
  Speaker 1: out a tweet. Maybe, but this is something that the
• 18:33
  Speaker 1: company's is already disclosed and is close to settling. They've
• 18:38
  Speaker 1: already said some cash side But but I think it
• 18:40
  Speaker 1: does highlight, you know, beyond the fact that the results
• 18:43
  Speaker 1: were disappointing, the debt still looms in an increasingly terrifying way,
• 18:47
  Speaker 1: that the company is the subject that beyond SALEX fairly
• 18:51
  Speaker 1: digging array of lawsuits and investigations that might eat into
• 18:55
  Speaker 1: its pretty minimal pile of cash. That's it, just a
• 18:58
  Speaker 1: monumental pile of debt, monumental pile of investigations. I mean,
• 19:04
  Speaker 1: you know, Max Deeson Love talking to you as always.
• 19:07
  Speaker 1: He's a Gadfly columnist covering biotech, pharma, and healthcare of
• 19:11
  Speaker 1: Bloomberg News. You can find gad Flight columns on the
• 19:14
  Speaker 1: terminal at NI gad Fly or on the Bloomberg website.
• 19:31
  Speaker 1: President Trump has pledged to cut the e p a's budget.
• 19:36
  Speaker 1: Environmental Protection Agency's budget by twenty five percent. That is
• 19:41
  Speaker 1: part of President Trump's overall budget for the US, and
• 19:44
  Speaker 1: we're gonna dig a little bit into what this might
• 19:47
  Speaker 1: mean for specific programs within the e p A. I
• 19:50
  Speaker 1: want to bring in Rob Barnett, senior energy policy analyst
• 19:53
  Speaker 1: with Bloomberg Intelligence. Rob which areas of the e p
• 19:58
  Speaker 1: A are likely to get cut most under President Trump's proposal. Well,
• 20:04
  Speaker 1: I would keep in mind that it's just a proposal
• 20:07
  Speaker 1: at this point, but we certainly expect that whether the
• 20:12
  Speaker 1: budget truly gets cut or not, which is ultimately a
• 20:15
  Speaker 1: matter for Congress to decide, that the Environmental Protection Agency
• 20:20
  Speaker 1: is going to do a whole lot less rulemaking under
• 20:25
  Speaker 1: President Trump than it did under former President Barack Obama.
• 20:29
  Speaker 1: So this includes everything from greenhouse gas regulations UH to
• 20:36
  Speaker 1: potentially even conventional pollutant regulations. So we expect a big
• 20:41
  Speaker 1: slowdown in terms of agency process under the leadership of
• 20:47
  Speaker 1: Scott Pruitt. Whether or not we have these budget cuts
• 20:51
  Speaker 1: or not rob the the e p A is an
• 20:55
  Speaker 1: eight billion dollar budget agency. It has fifteen thousand employees.
• 21:02
  Speaker 1: Who is a Scott Pruitt give us an idea of
• 21:04
  Speaker 1: his backers and his background. Well, he's the former Attorney
• 21:09
  Speaker 1: general from Oklahoma, and he has had a pretty anti
• 21:14
  Speaker 1: e p A stance from his prior perch. He's one
• 21:17
  Speaker 1: of these attorney generals that sued the e p A
• 21:22
  Speaker 1: numerous times under former President Barack Obama to try to
• 21:27
  Speaker 1: block regulations. And so we see a very fundamental shift
• 21:33
  Speaker 1: from how President Barack Obama viewed the e p A
• 21:39
  Speaker 1: versus how we expected to be viewed under President Trump
• 21:43
  Speaker 1: and Scott Pruett. Their goal is to really slow put
• 21:47
  Speaker 1: the brakes on anything related to greenhouse gases. So the
• 21:52
  Speaker 1: first and foremost that means they're going to try to
• 21:55
  Speaker 1: tackle this regulation called the Clean Power Plan and actually
• 22:00
  Speaker 1: take it off the books. Now that process could take
• 22:03
  Speaker 1: a few years, but instead of taking the staff for
• 22:06
  Speaker 1: the agency and having them craft new regulations, they're probably
• 22:10
  Speaker 1: going to use the staff to actually kind of put
• 22:12
  Speaker 1: the brakes on, putts on existing regulations, and try and
• 22:16
  Speaker 1: walk them back a little bit. So it's a really
• 22:19
  Speaker 1: different type of agency and their Donald Trump. So given that, Rob,
• 22:23
  Speaker 1: are we already starting to see a lot of departures
• 22:26
  Speaker 1: from the e p A of long standing members of
• 22:28
  Speaker 1: the agency, potentially even career employees leaving. You know, there
• 22:35
  Speaker 1: have there are always departures of professional staff when you
• 22:39
  Speaker 1: have a new administration come in. By and large, the
• 22:43
  Speaker 1: rank and file of e p A probably isn't going
• 22:47
  Speaker 1: to be necessarily departing just because you've got a new administration.
• 22:54
  Speaker 1: You know, these these career staff folks work typically through
• 22:59
  Speaker 1: republic him and democratic administrations. The nature of their work
• 23:04
  Speaker 1: changes though, So while we won't expect as much rulemaking
• 23:09
  Speaker 1: related to greenhouse gases, there probably will still be enforcement
• 23:14
  Speaker 1: of most standard e p A protection So things like
• 23:18
  Speaker 1: mercury ozone, sulfur, those things aren't going away no matter
• 23:23
  Speaker 1: who's in the White House. And then going back to
• 23:25
  Speaker 1: the budget you were saying you started the conversation, Rob
• 23:28
  Speaker 1: saying that these are just proposals. How much political will
• 23:32
  Speaker 1: is there in Congress to pass the budget as is
• 23:35
  Speaker 1: with respect to the cut in the e PAS budget.
• 23:40
  Speaker 1: I think there is very little likelihood that Congress will
• 23:46
  Speaker 1: simply take up President Trump's proposal and pass it as
• 23:50
  Speaker 1: it is. That's just not how Congress works. While I
• 23:54
  Speaker 1: wouldn't expect Congress to pass a budget that gives a
• 23:59
  Speaker 1: big boost and spending to e p A, something like
• 24:02
  Speaker 1: a cut like that like President Trump has proposed is
• 24:07
  Speaker 1: very unlikely. There will be defenders of the e p
• 24:11
  Speaker 1: A in Congress who will seek to assure that the
• 24:14
  Speaker 1: agency isn't dismantled under President Trump. And there will probably
• 24:19
  Speaker 1: even be some Republican members of Congress who would not
• 24:22
  Speaker 1: want to see the agency completely undone. So very low
• 24:27
  Speaker 1: chance of this kind of cut on this order of
• 24:29
  Speaker 1: magnitude occurring. Robbie. Also, we're talking about Scott Pruitt and
• 24:33
  Speaker 1: how he was not really for the e p A
• 24:36
  Speaker 1: before he became head of the agency. How much autonomy
• 24:39
  Speaker 1: does he have with respect to rolling back some of
• 24:43
  Speaker 1: the mandates that the e p A took on under
• 24:45
  Speaker 1: President Obama. Former President Obama. Well, you know, he has
• 24:51
  Speaker 1: a shared vision with President Trump in terms of the
• 24:55
  Speaker 1: kind of changes that they want to make to the agency.
• 24:58
  Speaker 1: So there's no surprise eyes that Scott Pruett and President
• 25:04
  Speaker 1: Trump want to roll back regulations. They campaigned on that,
• 25:08
  Speaker 1: so they're going to try to achieve it. The problem is,
• 25:11
  Speaker 1: in some sense for them, is that there's a lot
• 25:13
  Speaker 1: of process to doing that. Just because you became the
• 25:16
  Speaker 1: president and just because he had a new head of
• 25:19
  Speaker 1: ep A doesn't mean you get a blank check, very
• 25:23
  Speaker 1: very strong procedural steps that Scott Prue it's going to
• 25:28
  Speaker 1: have to take to achieve his goals. In every step
• 25:33
  Speaker 1: along the way, there will be legal challenges. So no
• 25:37
  Speaker 1: matter what he hopes to achieve, he's gonna essentially need
• 25:41
  Speaker 1: confirmation of rolling back rules from the d C. Circuit
• 25:45
  Speaker 1: Court of Appeals or potentially even the Supreme Court. All
• 25:49
  Speaker 1: of these things will be heavily heavily litigated, So nothing
• 25:53
  Speaker 1: is don't expect any quick win, all right, Well we won't,
• 25:57
  Speaker 1: but we're going to expect you to keep us up
• 25:59
  Speaker 1: to date. Rob Barnet at senior energy policy analyst, Bloomberg Intelligence.
• 26:09
  Speaker 1: Thanks for listening to the Bloomberg pien L podcast. You
• 26:12
  Speaker 1: can subscribe and listen to interviews at iTunes, SoundCloud, or
• 26:16
  Speaker 1: whatever podcast platform you prefer. I'm Pim Fox. I'm out
• 26:20
  Speaker 1: there on Twitter at pim Fox. I'm out there on
• 26:23
  Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You
• 26:26
  Speaker 1: can always catch us worldwide on Bloomberg Radio