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PineBridge Sees Worsening Value in CCC, BBB Rated Bonds · Bloomberg Intelligence

• 0:05
  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
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg P and L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The
• 0:32
  Speaker 1: leveraged finance industry here to tell us more about it
• 0:35
  Speaker 1: is Stephen Oh. He is the global head of Credit
• 0:38
  Speaker 1: and fixed Income and co head of Leveraged Finance for
• 0:41
  Speaker 1: pine Bridge Investments, helping to manage more than ninety billion dollars.
• 0:46
  Speaker 1: He is based in Los Angeles. Stephen Oh, thank you
• 0:49
  Speaker 1: very much for being with us. Do you see more
• 0:52
  Speaker 1: potential for distressed and leverage loans in the marketplace currently? Well,
• 0:59
  Speaker 1: we've been in a ironment where there has been very
• 1:02
  Speaker 1: strong fundamentals and earnings growth, therefore reasonably low default rates.
• 1:08
  Speaker 1: While distress will be increasing in the future, there currently
• 1:13
  Speaker 1: isn't enough excesses to create material problems. Where we see
• 1:18
  Speaker 1: the distress forming is not broad based but much more
• 1:21
  Speaker 1: idiosyncratic in nature. All right, I'd love to take a
• 1:25
  Speaker 1: look at where we're coming from in the year and
• 1:27
  Speaker 1: where we're heading. I know you just put out your
• 1:29
  Speaker 1: mid year outlook for fixed income, and I'm struck by
• 1:34
  Speaker 1: the huge outperformers in the first half, at least in
• 1:37
  Speaker 1: the US, the worst rated companies did the best. The
• 1:42
  Speaker 1: riskiest securities outperformed. I'm just wondering how long do you
• 1:46
  Speaker 1: think that can continue. Well, we're we're in an environment
• 1:50
  Speaker 1: where a combination of risk seeking, desire to stretch for yield,
• 1:54
  Speaker 1: combined with a benign fundamental near term environment. And so
• 1:58
  Speaker 1: in that environment, we've had really two components out performing,
• 2:01
  Speaker 1: and one you noted, which was the highest risk component
• 2:04
  Speaker 1: within the leverage finance space. But the other element of
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  Speaker 1: that is asset classes that have less interest rate sensitivity,
• 2:12
  Speaker 1: because so far, year to day, most of the differentials
• 2:16
  Speaker 1: and fixed income performance has really been around interest rate
• 2:19
  Speaker 1: risk as opposed to credit spread fears, with the exception
• 2:23
  Speaker 1: of the emerging markets Arena. Well, Stephen, and maybe you
• 2:26
  Speaker 1: could just offer a little bit more detailed. Is it
• 2:28
  Speaker 1: the desire for yield that drives the price up or
• 2:32
  Speaker 1: is it actually the increased performance of the asset, the
• 2:36
  Speaker 1: underlying asset the company for example, it's a combination of
• 2:40
  Speaker 1: both that's taking place right now, and so in that
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  Speaker 1: environment in the short term, yes, the macro GDP growth
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  Speaker 1: is very good. We're in a benign environment of very
• 2:52
  Speaker 1: low default race within the leverage finance space. Earnings are
• 2:55
  Speaker 1: broadly improving, so there is an element of justification for
• 3:00
  Speaker 1: or credit improvement, particularly the area that has perhaps the
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  Speaker 1: highest yield, which fits investor appetype. But the way we
• 3:08
  Speaker 1: like to think about it is this is the type
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  Speaker 1: of environment where portfolio should be getting more defensive because
• 3:15
  Speaker 1: when we think about what we're getting paid in terms
• 3:19
  Speaker 1: of incremental units of risk. While triple cs and the
• 3:23
  Speaker 1: highest risk component maybe outperforming right now, we don't believe
• 3:27
  Speaker 1: that you're getting paid adequately for a large component of
• 3:30
  Speaker 1: that arena, and we never have present insights into exactly
• 3:35
  Speaker 1: when is going to be the top or one is
• 3:36
  Speaker 1: going to be the bottom. But as we recognize the
• 3:39
  Speaker 1: fact that we're not getting paid adequately for some element
• 3:42
  Speaker 1: of risk, the prudent manner and approach is to reduce
• 3:45
  Speaker 1: the risk in your portfolio, not to take more risk.
• 3:48
  Speaker 1: As we're seeing more people doing Stephen, have you witnessed
• 3:52
  Speaker 1: either at Pine Bridge or in your colleagues and competitors
• 3:57
  Speaker 1: of business the increase sort of build up of cash
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  Speaker 1: in order to anticipate that potential opportunity. We're not we
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  Speaker 1: haven't particularly seen that at this point. I think right
• 4:11
  Speaker 1: now cash is being fully invested uh in most asset
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  Speaker 1: classes because in the market environment where performance is about
• 4:20
  Speaker 1: generating current income and current yield, and cash acts as
• 4:24
  Speaker 1: a dragon that arena. But having said that, as what
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  Speaker 1: you get paid in cash has increased in recent months,
• 4:33
  Speaker 1: being in cash and having the liquidity flexibility is I
• 4:37
  Speaker 1: think a relatively prudent approach for portfolios and looking to
• 4:42
  Speaker 1: increase cash or alternatively what we like to call cash
• 4:46
  Speaker 1: plus substitute, so high quality generally floating rate assets where
• 4:51
  Speaker 1: you're getting paid a premium above cash. But feel comfortable
• 4:55
  Speaker 1: us sitting in for now, what's the most dangerous spot
• 4:57
  Speaker 1: in the fixed income market right now, heading into your end,
• 5:01
  Speaker 1: the most dangerous spot our areas that we believe are
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  Speaker 1: tied to developed market sovereign Yolk curve and so less
• 5:09
  Speaker 1: so on the U S side, because the US and
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  Speaker 1: the FED has already been engaged in a long process
• 5:16
  Speaker 1: of normalization. But as we look at you know, Europe
• 5:20
  Speaker 1: as we look at Japan and as we see the
• 5:22
  Speaker 1: shifting in their approach UH and as they hit an
• 5:26
  Speaker 1: inflection point in their monetary policy, that really is set
• 5:30
  Speaker 1: up to cause downward volatility for the next eighteen months.
• 5:35
  Speaker 1: So that's interesting, especially because other people are pinpointing, perhaps
• 5:39
  Speaker 1: concerned that they have with either leveraged loans which have
• 5:42
  Speaker 1: been expanding very quickly and have had much more aggressive structures,
• 5:46
  Speaker 1: as well as on the investment grade side, with triple
• 5:48
  Speaker 1: B rated bonds with the lowest cheer of investment grade.
• 5:52
  Speaker 1: You're saying, again, that's not where the real risk lies.
• 5:55
  Speaker 1: It's really in sovereign rates and developed markets. Is that?
• 5:58
  Speaker 1: Is that what I'm hearing From a broad based standpoint,
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  Speaker 1: That's correct, But you actually hit upon something that's very important,
• 6:04
  Speaker 1: because risk is not solely about asset classes, but within
• 6:08
  Speaker 1: asset classes overall. And just as I noted the fact
• 6:12
  Speaker 1: that we believe that we're in an environment right now,
• 6:14
  Speaker 1: we're on the leverage loan or the HIO bond side,
• 6:17
  Speaker 1: triple C risk is not being adequately compensated on the
• 6:20
  Speaker 1: investment great credit side. Triple B s are entering that
• 6:23
  Speaker 1: territory as well, and I think The dilemma that most
• 6:26
  Speaker 1: portfolio managers face is as they look into the future,
• 6:30
  Speaker 1: the next six to twelve months looked fairly benign for
• 6:33
  Speaker 1: continuing to take that risk. So it's about timing of
• 6:36
  Speaker 1: when does one feel comfortable reducing that exposure, And it's
• 6:40
  Speaker 1: always the ongoing issue of short term performance versus long term.
• 6:45
  Speaker 1: Well do you believe that this is something that professionals
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  Speaker 1: are selling down as a result of this condition? Uh,
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  Speaker 1: we're not seeing a broad base, but we are taking
• 6:55
  Speaker 1: the approach and have always taken the approach of a
• 6:58
  Speaker 1: contrarian mindset that it when risk appetite is extremely strong,
• 7:03
  Speaker 1: the right approaches to become more defensive and similarly the
• 7:07
  Speaker 1: time to buy and reach for more risk. And there's
• 7:09
  Speaker 1: a lot of fear in the marketplace, uh right now,
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  Speaker 1: And so you know, I think we're in an environment
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  Speaker 1: where we're starting to as an analogy, you know, we're
• 7:18
  Speaker 1: heading into the baseball playoff push, but now is not
• 7:21
  Speaker 1: the time to swing for home runs. It's really more
• 7:23
  Speaker 1: about timely singles by taking opportunist to advantage of technical
• 7:28
  Speaker 1: driven deviations, and it's really more about shoring up your
• 7:31
  Speaker 1: defenses right now when it looks like everything is going smoothly, Stephen,
• 7:35
  Speaker 1: just a mountain twenty seconds. You also are favoring emerging markets,
• 7:39
  Speaker 1: especially in Asia heading into year end. Is that correct?
• 7:42
  Speaker 1: We favor asset class as an area where you're getting
• 7:46
  Speaker 1: incremental only paid for complexities, whether in the form of
• 7:50
  Speaker 1: structure like clos or bank loans, or in geographic complexity
• 7:55
  Speaker 1: and emerging markets overall. And so yes, we like the
• 7:58
  Speaker 1: fundamental outlook of We think that a component of the
• 8:02
  Speaker 1: sell off that's occurred this year is more technical driven.
• 8:05
  Speaker 1: But you have to be very targeted in your purse
• 8:07
  Speaker 1: to e M and within Asia Asia, it's really more
• 8:10
  Speaker 1: about a corporate story, not a sovereign story the e M. Steven, Oh,
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  Speaker 1: thank you so much for being with us. That was great.
• 8:15
  Speaker 1: Steven though, Global head of Credit and fixed Income at
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  Speaker 1: pine Bridge Investments. Pine Bridge menages ninety point five billion
• 8:23
  Speaker 1: dollars globally. Right now it is that special time of
• 8:38
  Speaker 1: day we take a look at small and mid cap stocks.
• 8:40
  Speaker 1: They are turning up, but not as much as the
• 8:43
  Speaker 1: larger cap piers. Your communists bloggard, I'm left go on
• 8:48
  Speaker 1: the bloomberg, not at all. In fact, the rust of
• 8:50
  Speaker 1: two thousand is actually lowered by a tenth of at
• 8:54
  Speaker 1: the moment it was higher, just like stocks are bouncing around.
• 8:59
  Speaker 1: What can I mean? You've got the S and P
• 9:02
  Speaker 1: five hundred up a quarter of percents just in the
• 9:04
  Speaker 1: last few minutes or so that the Russell has taken
• 9:07
  Speaker 1: a leg down here. Of course, you're not talking about
• 9:09
  Speaker 1: much movement from yesterday's close in either direction. That said,
• 9:13
  Speaker 1: since we're down, let's talk about the stock with the
• 9:15
  Speaker 1: biggest decline. De Bold nick Storff. The ticker on that
• 9:18
  Speaker 1: one is DBD, the maker of automated telemachines, has tumbled
• 9:22
  Speaker 1: thirty three and a half percent. De Bald had an
• 9:26
  Speaker 1: unexpected second quarter loss, cut annual forecast, and said it's
• 9:30
  Speaker 1: asking banks to ease loan terms. You've got New Linked
• 9:35
  Speaker 1: Genetics ticker n l n K down twenty percent. The
• 9:39
  Speaker 1: drug developer reported second quarter revenue the trout estimates and
• 9:42
  Speaker 1: said it's cutting thirty percent of its staff. Also is
• 9:46
  Speaker 1: its chief financial officer will be leaving in a few months.
• 9:49
  Speaker 1: Biggest gain in the Russell belongs to what Constainer Store Group,
• 9:53
  Speaker 1: whose ticker is TCS. It's up almost the thirty nine
• 9:56
  Speaker 1: percent fiscal first quarter results at the reds Ollers showed
• 10:00
  Speaker 1: a narrower loss and higher revenue than analysts expected based
• 10:04
  Speaker 1: on Bloomberg survey and Pandora Media tick her p one
• 10:08
  Speaker 1: letter up eighteen percent. The internet radio company posts a
• 10:12
  Speaker 1: smaller loss and higher sales for the second quarter than
• 10:15
  Speaker 1: analysts predicted. Thank you very much, David Wilson, Bloomberg stocks
• 10:19
  Speaker 1: comust remember to send him an email at d Wilson
• 10:21
  Speaker 1: at Bloomberg dot net, sign up for his daily free
• 10:24
  Speaker 1: email newsletter, and also you'll get his chart of the
• 10:27
  Speaker 1: day featuring Apple and its share buy backs. D Wilson,
• 10:32
  Speaker 1: Bloomberg dot net. Return our attention now to CBS and
• 10:36
  Speaker 1: it's chief executive, Less Moonvest. The Los Angeles District Attorney's
• 10:41
  Speaker 1: Offers said it would not prosecute Mr Moonvest for alleged
• 10:45
  Speaker 1: sexual crimes because too much time has elapsed to pursue
• 10:49
  Speaker 1: incidents from the nineteen eighties. Here to tell us about
• 10:53
  Speaker 1: CBS and potential risks for the company's Brian Weezer. He
• 10:56
  Speaker 1: is the senior research analyst for Pivotal Research Group. Brian,
• 11:01
  Speaker 1: what's the outlook for CBS with Less Moonvest? Well, the
• 11:06
  Speaker 1: question is that is it with or without even though
• 11:10
  Speaker 1: it is um clearly indicating he intends to stay. Um.
• 11:15
  Speaker 1: I mean it's uh, it's hard to fathom that he
• 11:19
  Speaker 1: can continue to do so for very long. UM. You know,
• 11:24
  Speaker 1: you have two issues. One is that although really this
• 11:27
  Speaker 1: is as much now a board issue as anything, uh,
• 11:31
  Speaker 1: it is studying that the board and this day and
• 11:34
  Speaker 1: age would not have investigated uh previously, given that reports
• 11:40
  Speaker 1: are rumors of this were out there months ago, the board,
• 11:44
  Speaker 1: as a sort of press reports of indicated wasn't aware
• 11:48
  Speaker 1: of reports for this months ago. On top of the
• 11:52
  Speaker 1: CBS news issues that were widely reported in the way
• 11:55
  Speaker 1: to the Charlie Rose episode, shall we say, uh, and
• 12:00
  Speaker 1: that they didn't act suggests strongly that you have a
• 12:04
  Speaker 1: board that was in, for lack of better word, management's pocket. Uh.
• 12:08
  Speaker 1: That's a problem. Then when you look at what's going
• 12:11
  Speaker 1: on with Viacom and the murder potential, where one of
• 12:14
  Speaker 1: the concerns is that you have a board CBS who
• 12:17
  Speaker 1: is really acting primarily in the CEO's interests, not in
• 12:20
  Speaker 1: shareholders interests. They're going to go to Viacom at some point.
• 12:25
  Speaker 1: This is just delaying it. Well, but you bring up
• 12:27
  Speaker 1: a lot of good points there I mean also the
• 12:30
  Speaker 1: fact that the board is coming out and saying that
• 12:31
  Speaker 1: they're hiring outside council to investigate the issue. They're doing
• 12:35
  Speaker 1: that now after the news before it came out. Why
• 12:37
  Speaker 1: didn't they do that, uh, you know, six months ago
• 12:40
  Speaker 1: or however long ago when they first found out. But
• 12:42
  Speaker 1: Brian translate all of this and concern about the board
• 12:46
  Speaker 1: into what a shareholder ought to be doing, or what
• 12:49
  Speaker 1: somebody who's looking at the decline and CBS shares ought
• 12:52
  Speaker 1: to be thinking. Is this a buying opportunity or does
• 12:54
  Speaker 1: this indicate that there are a lot of problems that
• 12:57
  Speaker 1: really maybe haven't even been flushed out yet. You know,
• 13:00
  Speaker 1: A joke that uh, CBS is board has managed to
• 13:03
  Speaker 1: make Viacom's board look good, which is a very difficult task. Um. Unfortunately,
• 13:09
  Speaker 1: that is the outcome here. Whereas prior to all, the
• 13:12
  Speaker 1: CBS had a chance to kind of well, they had
• 13:15
  Speaker 1: a fighting chance at independence, a fighting chance at persuading
• 13:18
  Speaker 1: investors to fight as hard as possible to keep CBS
• 13:21
  Speaker 1: independence so that it could be sold on to someone
• 13:23
  Speaker 1: else for a higher price than what Viacom might pay.
• 13:27
  Speaker 1: And now here we are, Viacom will be We'll have
• 13:30
  Speaker 1: the upperhand in any negotiation. Um, you have to assume
• 13:34
  Speaker 1: the combination happened and not unfavorable terms to CBS. Of course,
• 13:38
  Speaker 1: it's impossible to know what those terms will be, what
• 13:40
  Speaker 1: the combinations, what the ratios will be for any sure
• 13:43
  Speaker 1: exchanges or anything else like that. But it will happen,
• 13:47
  Speaker 1: and so I wouldn't It's hard to call the buying
• 13:49
  Speaker 1: opportunity of a hold rating on the stock. Brian. What
• 13:52
  Speaker 1: are the jewels in the CBS business? Is it the
• 13:58
  Speaker 1: television network and the TV studo? Yeah, I mean, certainly
• 14:03
  Speaker 1: they they've been in power, although it does so many
• 14:06
  Speaker 1: questions are are are are opened up by movies if
• 14:10
  Speaker 1: he is in fact eventually removed um, because you know,
• 14:14
  Speaker 1: he singularly was involved in most of their businesses, I
• 14:18
  Speaker 1: mean Simon and Schust the part that he was least
• 14:20
  Speaker 1: involved with, and of course is probably the least important. Um.
• 14:23
  Speaker 1: Show Time has developed in its own right, um and
• 14:26
  Speaker 1: is doing well and you know, has relatively a significant
• 14:30
  Speaker 1: degree of autonomy. But of course, the flagship broadcast network
• 14:33
  Speaker 1: is you know, the kind of where the the flywheel moves,
• 14:38
  Speaker 1: Um for the whole business. It's it's certainly they're all
• 14:40
  Speaker 1: access business, which is one of the more promising and
• 14:43
  Speaker 1: issues for streaming service from you know, a traditional broadcaster UM.
• 14:49
  Speaker 1: Obviously that they've been successful in driving retransmission consent, blade
• 14:52
  Speaker 1: revenues UM and recapturing economics from their local broadcast affiliates UM,
• 14:58
  Speaker 1: but primarily because of the success it had at the
• 15:01
  Speaker 1: broadcast network level. So you know, that's all without movies,
• 15:06
  Speaker 1: it's it's not clear that it would be as successful.
• 15:08
  Speaker 1: Brian Weezer, thank you so much for joining us and
• 15:11
  Speaker 1: for your insights. Brian Weezer is senior research analyst for
• 15:14
  Speaker 1: Pivotal Research Group. And right now I'm looking at these
• 15:17
  Speaker 1: shares of Viacom down about three quarters of a percent
• 15:20
  Speaker 1: and CBS shares down about a half a percent. It's
• 15:23
  Speaker 1: been a rocky period, though, rocky couple of days for
• 15:25
  Speaker 1: both shares, although Viacom has come out the better of
• 15:29
  Speaker 1: the two by far, in particular from Friday last week,
• 15:32
  Speaker 1: when Viacom shares were up about four and a half
• 15:35
  Speaker 1: percent and CBS down more than six percent. What do
• 15:56
  Speaker 1: Puerto Rican municipal bonds as well as tobacco settlements and
• 16:00
  Speaker 1: bonds tied to a New Jersey Mega mall have in common.
• 16:03
  Speaker 1: Here to tell us is Matt Winkler. He is columnist
• 16:06
  Speaker 1: and for Bloomberg Opinion. It's also editor in chief emeritus
• 16:09
  Speaker 1: of Bloomberg News. And you can follow Matt Winkler on
• 16:12
  Speaker 1: Twitter at Matthew Underscore Winkler. Alright, Matt Winkler, what do
• 16:18
  Speaker 1: these three assets have in common? Uh? They depend on
• 16:24
  Speaker 1: a booming economy and ours is just a year away
• 16:29
  Speaker 1: from perhaps surpassing the longest expansion in our time, UM,
• 16:33
  Speaker 1: and that was back in the nineties. And uh, there's
• 16:37
  Speaker 1: every indication that the economy can at least match that
• 16:41
  Speaker 1: record and keep going. And UH, the reason why these
• 16:47
  Speaker 1: very risky, high yield investments are doing as well as
• 16:50
  Speaker 1: they are is typically investors want the greatest yield wherever
• 16:55
  Speaker 1: they can get them, and when times are good, which
• 16:58
  Speaker 1: they are right now. Uh, the so called risk on
• 17:03
  Speaker 1: trade is very attractive, especially UM in the debt market
• 17:07
  Speaker 1: where you have some of these issues with coupons of
• 17:10
  Speaker 1: six plus and that is a very very attractive UM
• 17:15
  Speaker 1: bond h to say the least, when we've had interest
• 17:18
  Speaker 1: rates as low as they've been for ten years now.
• 17:22
  Speaker 1: So that's what they have in common. And UH, so
• 17:25
  Speaker 1: far so good, so far, so good. You highlight some
• 17:29
  Speaker 1: really important statistics here in this column. For one, UH,
• 17:33
  Speaker 1: the sales tax bonds in Puerto Rico, which has been
• 17:35
  Speaker 1: decimated by Hurricane Maria, has yet to fully rebuild. Those
• 17:40
  Speaker 1: have doubled in price. UH. You talk about how junk
• 17:43
  Speaker 1: graded municipal debt has gained more than four percent so
• 17:46
  Speaker 1: far this year. Well, investors who went to top rated
• 17:49
  Speaker 1: corporate debt in the US debt of the likes of
• 17:51
  Speaker 1: Apple and Amazon, you would have lost money. UM where
• 17:57
  Speaker 1: where just sort of the tipping point comes where we
• 18:00
  Speaker 1: will have to face the reality of perhaps a not
• 18:03
  Speaker 1: yet built New Jersey mega mall that they are supposedly
• 18:07
  Speaker 1: going to be financing and then paid back so LESA.
• 18:10
  Speaker 1: The dichotomy is that when you're in a normal economic cycle,
• 18:15
  Speaker 1: like presumably the one we're in, when the Fed UH
• 18:19
  Speaker 1: is very excited about the expansion, so excited that it
• 18:24
  Speaker 1: has announced several times that's going to raise interest rates,
• 18:28
  Speaker 1: all the investment grade debt behaves as you would expect
• 18:32
  Speaker 1: it to. It retreats because higher interest re means that
• 18:37
  Speaker 1: at some point, UH, the economy has to UH slow
• 18:41
  Speaker 1: down for the highest yielding investments. However, in the debt market,
• 18:48
  Speaker 1: it goes its own way until the music stops, and
• 18:51
  Speaker 1: it's very sudden. But it's kind of like, for example,
• 18:54
  Speaker 1: two thousand six. Uh, if we look back now, we
• 18:57
  Speaker 1: should have been pretty concerned, um, because it was just
• 19:01
  Speaker 1: two years from the worst or meanest recession since the
• 19:05
  Speaker 1: Great Depression. But in two thousand six, everybody was partying.
• 19:09
  Speaker 1: Highest yielding investments were sought after around the world. It
• 19:13
  Speaker 1: was a little bit different then because we were making
• 19:16
  Speaker 1: those investments as trip away so it was a bit
• 19:19
  Speaker 1: of a um, uh, misleading and can and con actually
• 19:24
  Speaker 1: to the world. But here we are today. We have
• 19:26
  Speaker 1: very legitimate high yield investments. They are rated or not
• 19:31
  Speaker 1: rated at all. They're rated low and um, they're not
• 19:34
  Speaker 1: going to follow the behavior patterns of the of what
• 19:37
  Speaker 1: the Fed does the way conventional investment grade debt does,
• 19:42
  Speaker 1: and investors for their part, are gonna say, look, as
• 19:45
  Speaker 1: long as things are going well, um, getting the compound
• 19:50
  Speaker 1: interest from the high yielding investment is a far better
• 19:55
  Speaker 1: return total return, even if it's at a discount on
• 19:59
  Speaker 1: the dollar. And so that's why you've had some of
• 20:00
  Speaker 1: these bankrupt issues. To say the least appreciate as they have,
• 20:05
  Speaker 1: because as long as they're paying something, people want them,
• 20:09
  Speaker 1: so then there This really raises an important question, especially
• 20:11
  Speaker 1: as you raise the rating agency issue, the rating a
• 20:15
  Speaker 1: rating company issue from leading up to the prior crisis.
• 20:19
  Speaker 1: Do investors recognize the risks that they're taking the specific
• 20:24
  Speaker 1: issues of these different municipalities or are they investing through
• 20:30
  Speaker 1: index funds that don't necessarily delineate or do the fundamental
• 20:33
  Speaker 1: research that would unearth the problems and figure out what
• 20:35
  Speaker 1: the correct compensation ought to be for investors. So, Uh,
• 20:39
  Speaker 1: most of the performances actively managed, so it's not an algorithm. UM.
• 20:45
  Speaker 1: And since you mentioned the context of ratings, you know,
• 20:51
  Speaker 1: ratings themselves have been essentially contrary indicators. UM. When rating
• 20:58
  Speaker 1: companies downgrade in sen grade debt, particularly sovereign debt. Uh,
• 21:03
  Speaker 1: it's been a buying opportunity and you've seen that over
• 21:05
  Speaker 1: and over again. So the reality probably is that the
• 21:08
  Speaker 1: investors who are buying these high risk communities or muni
• 21:11
  Speaker 1: junk aren't really paying any attention to the credit rating. Uh,
• 21:15
  Speaker 1: it doesn't mean anything to them. What they're looking at
• 21:18
  Speaker 1: is something more fundamental, which is what are these borrowers
• 21:22
  Speaker 1: able to pay right now, Um, what is the return
• 21:26
  Speaker 1: I likely will get for the preeseeable future? And is
• 21:30
  Speaker 1: that reward much greater than the risk that the world's
• 21:35
  Speaker 1: going to come to an end tomorrow? And the way
• 21:38
  Speaker 1: they see it is the world's not going to come
• 21:39
  Speaker 1: to an end tomorrow or the day after or the
• 21:41
  Speaker 1: day after. Therefore, this is very attractive and it's a
• 21:44
  Speaker 1: very rational decision. Um. So that's the mindset. And so far,
• 21:49
  Speaker 1: as I said, so good until it ends. Well. This
• 21:53
  Speaker 1: is in about thirty sex and I was wondering, is
• 21:55
  Speaker 1: it possible that things are really not as good as
• 21:58
  Speaker 1: many have scribe because state and local pension plans they
• 22:03
  Speaker 1: have less than three quarters of the money that they
• 22:05
  Speaker 1: need in order to meet their promised payouts. Is it
• 22:07
  Speaker 1: possible that things are really not good under the surface.
• 22:10
  Speaker 1: It's possible, Um. Bloomberg News uh just published a piece
• 22:16
  Speaker 1: that said, uh, you know, the faults by municipal issuers
• 22:21
  Speaker 1: is relatively low this year. I think only three I
• 22:23
  Speaker 1: think I've mentioned so far this year. So that's another
• 22:25
  Speaker 1: indication that in a booming economy, the big and small
• 22:31
  Speaker 1: state and local governments have tax revenue that is more
• 22:35
  Speaker 1: than adequate to cover their expenses. Matt Winkler, thank you
• 22:40
  Speaker 1: so much for being with us. Matt Winkler is a
• 22:42
  Speaker 1: columnist for Bloomberg Opinion, also editor in chief Emeritus of
• 22:46
  Speaker 1: Bloomberg News. Our next guest has been a long time
• 23:04
  Speaker 1: proponent of free trade and the importance that it brings
• 23:08
  Speaker 1: two economies and how much it has helped the American economy.
• 23:12
  Speaker 1: Dr Adam Posen, President of the Peterson Institute for International
• 23:16
  Speaker 1: Economics in Washington, d C. Dr Posen, I'm so glad
• 23:20
  Speaker 1: that you could join us today. UM, I want to
• 23:22
  Speaker 1: start with a question of who's in your camp now.
• 23:26
  Speaker 1: Republicans traditionally were the party of free trade. Where do
• 23:30
  Speaker 1: we go when the populism of that party flips that
• 23:34
  Speaker 1: narrative on its head. Thank you very much for having
• 23:36
  Speaker 1: me on Bloomberg Markets today and to talk about this
• 23:39
  Speaker 1: issue in in in terms of flipping. Yeah, there's there's
• 23:44
  Speaker 1: various times in American history where the parties have had
• 23:47
  Speaker 1: different roles on trade. There were periods where the Republicans
• 23:51
  Speaker 1: were anti trade and the Democrats were not, or we
• 23:54
  Speaker 1: pro free trade. One can think of Cordell Hull, FRANKL. Delo,
• 23:58
  Speaker 1: Roosevelt Secretary of State and Anclendela Roosevelt and um then
• 24:03
  Speaker 1: President Truman pushing the idea that trade deals with Europe,
• 24:07
  Speaker 1: with Japan, with the major economies were necessary for peace
• 24:11
  Speaker 1: and security, UM as well as the economic benefits. So
• 24:16
  Speaker 1: when you look today, however, it is hard in the
• 24:19
  Speaker 1: Congress to find anybody who's really pushy it. There's a
• 24:22
  Speaker 1: handful of some older Republican senators who are standing by
• 24:26
  Speaker 1: their principles on free trade, and there's a handful of
• 24:29
  Speaker 1: moderate Democrats. UM. But I think that's kind of misrepresents
• 24:33
  Speaker 1: the situation. I promised not to go on too long,
• 24:36
  Speaker 1: but two points. First, there are a lot of people
• 24:39
  Speaker 1: in the Congress who may or may not be have
• 24:42
  Speaker 1: free trade out of conviction, but it can be convinced
• 24:44
  Speaker 1: on national security or a job safety grounds, and for
• 24:49
  Speaker 1: whom being anti trade isn't as much of a priority
• 24:51
  Speaker 1: as it is safe for President Trump. And the second
• 24:54
  Speaker 1: thing is, if you look at the polling data, and
• 24:56
  Speaker 1: we're going to be hosting a release from the Pew
• 24:59
  Speaker 1: Research Group on these polling in September, all the recent
• 25:03
  Speaker 1: polling data suggests there is a growing pro trade, pro
• 25:07
  Speaker 1: globalization feeling among younger people of all parties in the US,
• 25:11
  Speaker 1: and so that's where we have to hope the allies
• 25:14
  Speaker 1: come from for everybody's good. Dr Polston, It's been written
• 25:19
  Speaker 1: that low cost airfares in Europe have done more for
• 25:22
  Speaker 1: the integration of Europe than all of the political moves
• 25:25
  Speaker 1: on the part of the various countries in the European Union.
• 25:28
  Speaker 1: Do you believe that internationalization and globalization can be stopped?
• 25:35
  Speaker 1: I think internationalization and globalization for the world as a
• 25:38
  Speaker 1: whole can't be stopped, but it can be halted, temporarily,
• 25:44
  Speaker 1: reversed and limited. Um. So, getting out of the vague
• 25:48
  Speaker 1: into the specific, you're absolutely right, Pim. What matters in
• 25:51
  Speaker 1: some ways, both for politics and economics is how international
• 25:55
  Speaker 1: integration affects people's day to day lives. Do they meet
• 25:58
  Speaker 1: people from other countries? Do they value goods and services
• 26:01
  Speaker 1: from other countries? Do they look at those people as
• 26:04
  Speaker 1: allies and friends? Do they interact in a business sense
• 26:07
  Speaker 1: and see the opportunities? And if the US pulls out
• 26:11
  Speaker 1: and pulls back from leading and supporting an open world economy,
• 26:15
  Speaker 1: which the US has done for seventy years, then there
• 26:19
  Speaker 1: will be a lot more small countries and emerging markets
• 26:23
  Speaker 1: who will get bullied either by the US or by
• 26:26
  Speaker 1: China or by Russia, and their associations will be less.
• 26:31
  Speaker 1: But at the same time, the economic advantages are so
• 26:34
  Speaker 1: overwhelming that it's like, you know, trying to plug the dike,
• 26:39
  Speaker 1: something else will get through. And so this is why
• 26:41
  Speaker 1: I wrote in Foreign Affairs a few months ago, as
• 26:43
  Speaker 1: much as I dislike what the Trump administration is doing
• 26:46
  Speaker 1: on trade, that what they're doing is probably going to
• 26:50
  Speaker 1: be more harmful. Through other channels, Trade and the rest
• 26:52
  Speaker 1: of the world will continue. So Dr Posen, I want
• 26:56
  Speaker 1: to note that you also sit on a panel of
• 26:59
  Speaker 1: economic advice the United States Congressional Budget Office, and with
• 27:03
  Speaker 1: that perspective and that interaction with the current administration, I'd
• 27:07
  Speaker 1: love to get your view on how many people within
• 27:09
  Speaker 1: the administration are proponents of free trade and UH and
• 27:14
  Speaker 1: how conflicted it really is there or whether the message
• 27:17
  Speaker 1: is pretty consistent UH consistently for tariffs across the board.
• 27:22
  Speaker 1: My sense is the message is consistent across the board.
• 27:24
  Speaker 1: There are one or two people I know who serve
• 27:27
  Speaker 1: in various capacities in the administration who I believe are
• 27:32
  Speaker 1: trying to fight internally. But look, the President has chosen
• 27:36
  Speaker 1: to make this a priority. I've said for two years
• 27:39
  Speaker 1: when when he was the nominee, that this is a
• 27:42
  Speaker 1: sincere conviction of his and other people have now documented
• 27:44
  Speaker 1: he's been saying the same things on trade with great
• 27:46
  Speaker 1: fervor for thirty years. He hasn't. It's one of the
• 27:49
  Speaker 1: few things he hasn't changed his mind or flip flopped
• 27:51
  Speaker 1: on in his thirty years of interfering in public life.
• 27:55
  Speaker 1: So you know, UM, I shouldn't say interfering intervening inublic life. Um,
• 28:01
  Speaker 1: so I think it's not worth be it people betting
• 28:04
  Speaker 1: in markets or journalists getting into Oh does there somebody
• 28:08
  Speaker 1: in the White House who secretly cares deeply? This is
• 28:10
  Speaker 1: like the nonsense about Colin Powell and Iraq fifteen years ago. Um.
• 28:16
  Speaker 1: In the end, the President has a priority on being
• 28:19
  Speaker 1: anti trade, anti globalization, against US interests, and that dominates
• 28:23
  Speaker 1: he is. The people who fit his role his view
• 28:27
  Speaker 1: on that are the ones who advance just to push
• 28:30
  Speaker 1: back for a second doctor post. I mean the President
• 28:32
  Speaker 1: said that he is for fair trade. Yeah, yeah, you know,
• 28:37
  Speaker 1: it's it's but his definition of fair trade doesn't make
• 28:40
  Speaker 1: any sense. Um. Fair trade is about the idea that you,
• 28:47
  Speaker 1: the people have the choice, and uh that you don't
• 28:51
  Speaker 1: get ridiculous cheating in the sense of substandard goods and
• 28:56
  Speaker 1: services or huge government subsidies. There is a that of
• 29:01
  Speaker 1: goods and services, notably in steel and aluminum, where China
• 29:05
  Speaker 1: has huge subsidies and probably is cheating. But you know,
• 29:11
  Speaker 1: it's actually a very small piece of the world economy.
• 29:14
  Speaker 1: It's worth fighting about. But you know, think of it
• 29:17
  Speaker 1: in football terms, right, Um, there's a difference between oh
• 29:22
  Speaker 1: my god, somebody tackled low and you call a penalty
• 29:25
  Speaker 1: and they should suffer the penalty, versus oh my god,
• 29:28
  Speaker 1: these guys have like destroyed the playing field. It's unsafe
• 29:31
  Speaker 1: and taking my team off the field. Trump when he
• 29:34
  Speaker 1: says his definition of fair trade is to claim everything
• 29:38
  Speaker 1: is due to an uneven playing field with unsafe surf,
• 29:42
  Speaker 1: hazardous surfaces, and that's just wrong. It's just you got
• 29:46
  Speaker 1: a team to play. You're playing. It's a team to
• 29:47
  Speaker 1: plays a little dirty and you want to make sure
• 29:49
  Speaker 1: the ref makes most of the calls and that you
• 29:51
  Speaker 1: you you play the game and you beat him. Anyway,
• 29:54
  Speaker 1: Just twenty seconds here a doctor pose in I want
• 29:56
  Speaker 1: to just go back to what you said about how
• 29:58
  Speaker 1: younger people are increasingly for free trade. Just how significant
• 30:02
  Speaker 1: is that wave. I don't know politically, I'm frankly not
• 30:06
  Speaker 1: a political scientist. I don't know how to assess how
• 30:09
  Speaker 1: influential will be. But poll after poll, especially from credible
• 30:13
  Speaker 1: places like pube but other mainstream posters, shows that there
• 30:18
  Speaker 1: is actually majority support for trade now if you ask
• 30:20
  Speaker 1: the question um, and that it's increasingly correlated with age,
• 30:25
  Speaker 1: meaning the younger you are, the more in favor you are.
• 30:28
  Speaker 1: And so, you know, this is one of those things where, yeah,
• 30:32
  Speaker 1: there are certain individuals whose communities feel they were hurt
• 30:35
  Speaker 1: by trade, and probably they were hurt by some combination
• 30:39
  Speaker 1: of technology, trade and cultural change they didn't want to
• 30:43
  Speaker 1: face UM. But you know that's not most of the
• 30:47
  Speaker 1: people in the US. You've gotta leave it there. Thank
• 30:50
  Speaker 1: you very much, Dr Adam pose And he is the
• 30:52
  Speaker 1: president of the Peterson Institute for International Economics. Thanks for
• 30:59
  Speaker 1: Liz ening to the Bloomberg P and L podcast. You
• 31:02
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 31:06
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 31:09
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 31:13
  Speaker 1: It's one before the podcast. You can always catch us
• 31:16
  Speaker 1: worldwide on Bloomberg Radio