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Economy Is Strong But Beware Of Auto Tariffs: BNY's Levine: · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg PENL Podcast. I'm Paul Sweeney. You,
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Speaker 1: Learn more at marks pannet dot com slash tax. Also today,
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Speaker 1: Alex's International Women's Day. We're celebrating with an all female
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Speaker 1: cast during the show. I know I am the outline,
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Speaker 1: the random guy. Thank you for allowing me to be here,
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Speaker 1: to ruin the whole set up here. But obviously a
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Speaker 1: big day today, Job's Day, the twenty thousand job print
0:55
Speaker 1: really taking the market by surprise. Let's dig into that
0:57
Speaker 1: a little bit, along with some other macro issu you is.
1:00
Speaker 1: We're fortunate to have Alicia Levine with us. Alicia is
1:02
Speaker 1: a chief market strategist at b n y Melon Investment Management.
1:06
Speaker 1: She joins us here in a Bloomberg Interactive broker studio. Alicia, welcome,
1:09
Speaker 1: thanks for coming here. Hi, good morning. Wow. Uh twenty
1:12
Speaker 1: thousand dollar number job number not much impact in a
1:17
Speaker 1: bond market, but certainly equity markets seemed a little rattled.
1:19
Speaker 1: What do you make of it? I think it was
1:21
Speaker 1: a noisy month, and it's the month coming after coming
1:24
Speaker 1: after the shutdown. I don't really take too much stock
1:27
Speaker 1: in one month data, but the interesting thing about the
1:30
Speaker 1: job market is that you can actually get a rapid turn.
1:32
Speaker 1: So if you have to see a second month like this,
1:34
Speaker 1: then I'd start to worry. I'd like to point out
1:37
Speaker 1: one thing, which is the labor participation rate, which has
1:40
Speaker 1: risen half a percentage point over the last twelve months.
1:43
Speaker 1: This is phenomenal, and since it's International Women's Day, I
1:47
Speaker 1: just want to point out that it's driven by women
1:49
Speaker 1: in the US getting back into the labor force. We
1:52
Speaker 1: have higher wages, we have better jobs, we have such
1:54
Speaker 1: a wonderful job market out there. I think it's terrific
1:58
Speaker 1: that women are getting back into the labor force and
2:00
Speaker 1: we should celebrate that today. I'd like to see the
2:02
Speaker 1: wage though, on those jobs that they're getting into, which, well,
2:05
Speaker 1: that's an interesting thing. I'll tell you this about different story.
2:08
Speaker 1: So the wage number is actually pretty optimistic because you know,
2:12
Speaker 1: we saw it was up four tenths for the month,
2:14
Speaker 1: and then you're over the year three and three point
2:17
Speaker 1: four percent, which is the best it's been in many,
2:20
Speaker 1: many years. The interesting thing about where the wage gains
2:23
Speaker 1: are is really at the bottom quintile of the earning spectrum,
2:27
Speaker 1: and the bottom quintile of the earning spend spectrum. Spends
2:31
Speaker 1: its earnings. They don't say they spend because they have
2:34
Speaker 1: needs that needs to be met. So this is actually terrific,
2:37
Speaker 1: and I'm not i suspect that wages are going up
2:40
Speaker 1: everywhere and so women re entering the workforce should be
2:43
Speaker 1: beneficiaries of that. So is your sense that, okay, so
2:46
Speaker 1: we had generally a good jobs market, Let's take this
2:48
Speaker 1: is a little bit of a one off. Here is
2:50
Speaker 1: your sense that the economy is still generally looking at
2:53
Speaker 1: a two two and a half percent type of range,
2:56
Speaker 1: and your your recession risk is a little bit off
2:58
Speaker 1: the table. At this point, our scition risk is definitely
3:01
Speaker 1: off the table. The economy does look like it's generating
3:04
Speaker 1: two to two and a half percent. I'll say this
3:06
Speaker 1: about the first quarter. This looks like to be the
3:08
Speaker 1: kitchen sink first quarter. All the bad news is coming
3:11
Speaker 1: out in the first quarter, first quarter g d P print.
3:14
Speaker 1: So we have bad weather, we have the effects of
3:16
Speaker 1: the shutdown. We also have the effects of the equity
3:20
Speaker 1: sell off in the fourth quarter of last year, which
3:22
Speaker 1: I'm sure dampened animal spirits a little bit in the
3:25
Speaker 1: following quarter. So this is our kitchen sync quarter. It's
3:29
Speaker 1: coming in somewhere between one to one and a half percent,
3:32
Speaker 1: which means the rest of the year really has to
3:33
Speaker 1: make up for that to get to your two to
3:35
Speaker 1: two and a half percent growth rate. We think the
3:37
Speaker 1: economy is pretty strong. So the interesting thing to me
3:40
Speaker 1: is the market reaction today. So we saw hardly any
3:43
Speaker 1: move in the bond market, a teeny bit in the dollar,
3:45
Speaker 1: but the equity downturn feels sticky, and so that leads
3:49
Speaker 1: me to wonder if it's not about the jobs market
3:51
Speaker 1: at all, Like how much of the market action do
3:53
Speaker 1: you feel like, is the e c B like coming
3:55
Speaker 1: out guns a blazing yesterday and then the worries about
3:58
Speaker 1: China trade data over night versus a US. So I
4:02
Speaker 1: don't think the jobs data is what's rattling the market.
4:05
Speaker 1: And if you think about the total market since the
4:08
Speaker 1: beginning of two thousand and nineteen, the bond market was
4:12
Speaker 1: telling you a very different story than from what the
4:15
Speaker 1: equity market has been telling you. And it's interesting because
4:17
Speaker 1: as an equity person, I like to say, well, the
4:19
Speaker 1: bond markets always right, and the bond mark was telling
4:23
Speaker 1: you that there just is no lift in the inflation
4:27
Speaker 1: or a larger bump to growth globally. I think the
4:31
Speaker 1: reason that the markets sold up so much on Mario
4:33
Speaker 1: drags comments yesterday is that Draggy and the ECB has
4:39
Speaker 1: always seemed to be behind the data curve, so responding
4:44
Speaker 1: to terrible data and the fact that he seemed that
4:47
Speaker 1: he came in before the terrible data actually happened, there
4:51
Speaker 1: was some question about whether he knew more than he
4:53
Speaker 1: really really was saying. And perhaps it's worse than we think.
4:57
Speaker 1: And I'll give you one scenario where really could be
5:00
Speaker 1: worse than we think, and that is nobody is talking
5:02
Speaker 1: about those three oh one tariffs on German automobiles. However,
5:07
Speaker 1: it was quick smy, what is that tariff and how
5:09
Speaker 1: important is it? So the thing about the three ones,
5:12
Speaker 1: the two three two tariffs which were the steel tariffs,
5:14
Speaker 1: and the three oh one tariffs, which were the auto tariffs,
5:17
Speaker 1: are tariffs that are completely controlled by the administration, so
5:20
Speaker 1: Congress has no say in it, and this is an
5:23
Speaker 1: area where the administration can really drive policy. So they
5:27
Speaker 1: had a study about whether or not the tariffs, whether
5:30
Speaker 1: there have been fair trade practices, and whether there's some
5:34
Speaker 1: national security issue at stake should the administration put tariffs
5:38
Speaker 1: on European automobiles. So the report came out at the
5:41
Speaker 1: end of February, but it was held close to the vest.
5:44
Speaker 1: The law is it must be released within ninety days.
5:47
Speaker 1: That ninety days is mid to end of May. So
5:50
Speaker 1: I believe that the administration feels that it's implementation of
5:54
Speaker 1: tariffs has been very successful in renegotiating trade deals, and
5:59
Speaker 1: that's why I think we're going to see tariffs on
6:01
Speaker 1: German automobiles. Now that's going to kill the German economy
6:05
Speaker 1: and the European economy. So to that point, Bloomberg Economics
6:08
Speaker 1: at auto tariff on European cars puts thirty billion dollars
6:11
Speaker 1: of European GDP at risk. Wow, that's a number, that's
6:14
Speaker 1: a big number. Alicia Levin, thank you so much for
6:16
Speaker 1: joining us. Alicia is a chief market strategist for b
6:19
Speaker 1: n y Melon Investment Management. She joined us live here
6:21
Speaker 1: in the Bloomberg Interactive Broker studio. Coming up, we're gonna
6:24
Speaker 1: pivot and take a look at the energy markets. See
6:26
Speaker 1: what's happening in Venezuela, Saudi Aramco. Lots of to do
6:30
Speaker 1: on the energy space as well. It's not just about jobs.
6:34
Speaker 1: Energy is also critical here going forward. This is Bloomberg. Well,
6:41
Speaker 1: the equity markets aren't the only ones that have experienced
6:43
Speaker 1: extraordinary volatility over the last let's say three or four months.
6:47
Speaker 1: The global oil market also has been quite volatile. When
6:50
Speaker 1: you take a look at the Brent crude for example,
6:52
Speaker 1: it's the good news is it's up about from its
6:55
Speaker 1: December lows, but the bad news is it's still down
6:57
Speaker 1: about from its October high. So trying to get a
7:01
Speaker 1: sense of where the next move might be for global oil.
7:04
Speaker 1: Let's welcome our next guest, Dr ellen Wald. Dr Wald
7:07
Speaker 1: is the president of Transversal Consulting. She has also the
7:10
Speaker 1: non resident Senior Fellow at the Atlantic Council's Global Energy Centator,
7:14
Speaker 1: and she's also a contributor to Bloomberg Opinion. Dr Wald welcome, um.
7:19
Speaker 1: I wondered if, given the volatility we have seen in
7:22
Speaker 1: global oil over the last several months, what is your
7:25
Speaker 1: outlook for oil for the remainder of the year. You know,
7:28
Speaker 1: I think that right now we're kind of in a
7:31
Speaker 1: bit of a holding pattern, waiting to see what happens,
7:34
Speaker 1: particularly as we head into April and May, and then
7:38
Speaker 1: also into the summer driving season in the US. A
7:41
Speaker 1: lot right now in terms of where oil is gonna
7:44
Speaker 1: end up depends on political moves, particularly by the White House.
7:49
Speaker 1: The oil sanctions on Venezuela came as kind of a surprise,
7:52
Speaker 1: and now we're we need to see what's going to
7:54
Speaker 1: happen in May with the Iran sanctions. That could potentially
7:58
Speaker 1: remove another million barrels a day from the market. So
8:03
Speaker 1: if the President decides that they want to zero out
8:06
Speaker 1: iranney and oil exports, then that could have a significant
8:11
Speaker 1: um that could actually provide a significant lift on oil prices,
8:15
Speaker 1: But if they decide not to do that, then it's
8:19
Speaker 1: entirely possible that we could see oil prices trending lower.
8:22
Speaker 1: Then on the other side of the equation, we've got demand,
8:25
Speaker 1: and we've seen from opaque, from the E I A,
8:28
Speaker 1: from the i A, all of them have been cutting
8:32
Speaker 1: their forecasts for demand growth as we go forward into
8:37
Speaker 1: and into so right now though, we're really waiting to
8:41
Speaker 1: see whether that actually does pan out. And I think
8:44
Speaker 1: that the summer driving season and gasoline demand and jet
8:48
Speaker 1: fuel demand as well are going to be important indicators
8:51
Speaker 1: for where we're heading in the second half of and
8:55
Speaker 1: into So if you sort of weigh the Venezuela sanctions
8:59
Speaker 1: in IRANNIE sanctions and looking ahead to the waivers and stuff, literally,
9:02
Speaker 1: what's the oil price that President Trumps makes his decision at, Well,
9:07
Speaker 1: that's that's a really good question. He certainly seems to
9:10
Speaker 1: get kind of antsy when oil prices head upwards. UM
9:14
Speaker 1: I would say maybe in the in the sixteed dollar
9:17
Speaker 1: they all range for w T I and seventy dollar
9:20
Speaker 1: barrel range for Brent. But I do also think that
9:23
Speaker 1: his decision really depends more on gasoline prices and were
9:27
Speaker 1: we generally see higher gasoline prices in the summer. We
9:30
Speaker 1: produce a slightly more expensive blend of gasoline that we use,
9:34
Speaker 1: And I'm not sure the President is necessarily going to
9:36
Speaker 1: take those variations into account, but he definitely gets gets
9:41
Speaker 1: anxious when prices get, you know, above that that marker.
9:45
Speaker 1: And so I do think that. And it also depends
9:48
Speaker 1: on how long these Venezuela sanctions continue. For I think
9:51
Speaker 1: that the calculus probably was that they would be done
9:55
Speaker 1: by now. And this problem in Venezuela is really becoming
10:00
Speaker 1: or of a long term rather than a short term issue.
10:02
Speaker 1: And I wouldn't be surprised if we see even greater
10:05
Speaker 1: crackdowns on the financial institutions that India and China are
10:11
Speaker 1: using to facilitate purchases of Venezuelan oil, and that could
10:14
Speaker 1: also play a role and could possibly drive up oil
10:17
Speaker 1: prices higher as well. So, how what's it like doing
10:22
Speaker 1: business right now in Venezuela, Because when you ask the companies,
10:25
Speaker 1: the standard line is like, we will make sure to
10:28
Speaker 1: cooperate with any kind of sanctions that come through, and
10:30
Speaker 1: we're talking to the U. S. Government like that's what
10:32
Speaker 1: you're going to hear, right what's the reality. The reality
10:36
Speaker 1: is that things are a lot more complicated, and a
10:38
Speaker 1: lot of it does also depend on the personal relationships
10:41
Speaker 1: between you know, Venezuela, between the manual government and some
10:45
Speaker 1: of these companies up, particularly the Russian ones and the
10:48
Speaker 1: Chinese ones that have lent Venezuela a lot of money.
10:52
Speaker 1: Their concern here is that is not just buying oil,
10:55
Speaker 1: and China isn't just invested in a situation as a
10:59
Speaker 1: source of petroleum. They've also lent a great deal of
11:02
Speaker 1: money to Venezuela and they want, uh, they want to
11:05
Speaker 1: get that money back, and they want to get the
11:07
Speaker 1: interest payments on that. So they're going to be doing
11:09
Speaker 1: everything they can to make sure that that's facilitated. So
11:14
Speaker 1: Dr Wild, I know you're also the author of a
11:16
Speaker 1: book entitled Saudi Inc. Which kind of looks at the
11:19
Speaker 1: whole Saudi a Ramco issue and the family and so
11:22
Speaker 1: on and so forth. So I need to ask my
11:24
Speaker 1: Ramco I p O question, which question when is it
11:28
Speaker 1: going to happen? Is it going to happen? When is
11:30
Speaker 1: it going to happen? And kind of what are the
11:31
Speaker 1: drivers here? You know, that's a really great question, especially
11:35
Speaker 1: because we just saw the other day that a Saudi
11:39
Speaker 1: oil minister again made a statement saying the i p
11:42
Speaker 1: O is going to happen in another two years. And
11:46
Speaker 1: right now they're still facilitating or they're still going about
11:50
Speaker 1: their acquisition of the petrochemical giant Sabboc, which is really
11:55
Speaker 1: pushed off any kind of IPO move for for quite
11:58
Speaker 1: some time. And I do think that the ip O
12:00
Speaker 1: schedule definitely depends on this this acquisition right now. I
12:06
Speaker 1: think what's going into the calculus are can they get
12:09
Speaker 1: the valuation that they want and they may not be
12:12
Speaker 1: able to do that unless the company grows some more,
12:15
Speaker 1: and so I wouldn't be surprised if that two year
12:18
Speaker 1: timetable could become three or four years, depending on how
12:24
Speaker 1: how fast they can grow. Another calculus here is um
12:29
Speaker 1: what's going on between the Saudi government and the Saudi
12:33
Speaker 1: Oil Ministry and a Ramco, and the Saudi government is
12:37
Speaker 1: looking to basically kind of cash in on this i
12:40
Speaker 1: p O to fund their public investment fund there their
12:44
Speaker 1: sovereign wealth fund, and right now they don't have the
12:47
Speaker 1: amount of money that they're looking for by buying Sabboc
12:51
Speaker 1: from the p I S. However, the sovereign well fund
12:55
Speaker 1: will get more money, and so they may be more
12:58
Speaker 1: satisfied and willing to UM hold off on the I
13:01
Speaker 1: p O. I feel as the Saudia's always say conditions
13:05
Speaker 1: are optimal. Well, you know, talk about that for a second.
13:07
Speaker 1: Because ip week Saudi Ramco a CEO. He seemed pretty upset.
13:12
Speaker 1: He was definitely like, investors don't buy our industry. They're
13:14
Speaker 1: writing us off for dead, and that's not true. There's
13:16
Speaker 1: going to be a supply gap. To me, that sounds
13:18
Speaker 1: like a CEO that wasn't able to market in IPO. Yeah,
13:22
Speaker 1: they definitely ran into some issues marketing the I p
13:26
Speaker 1: O and marketing the company. But I do think a
13:28
Speaker 1: lot of that has to do with UM a lot
13:30
Speaker 1: of misunderstandings that are perpetuated about a Ramco and particularly
13:34
Speaker 1: about Saudi Arabia's oil and it's oil reserves, And so
13:39
Speaker 1: I can understand his frustration there. There's a lot of
13:42
Speaker 1: misinformation out there. Dr ellen Wall, thank you so much
13:45
Speaker 1: for joining us. Dr Wald as a President of Transversal Consulting,
13:49
Speaker 1: nonresident Senior Fellow at the Atlantic Council's Global Energy Center
13:52
Speaker 1: and also contributor to Bloomberg opinions. So what is your
13:55
Speaker 1: sense of this, IPO, Alex, does this happen in our lifetime?
13:59
Speaker 1: Maybe in our lifetime? I don't know. I'm gonna Sarah
14:00
Speaker 1: week next week, I'm talking to twelve Energy CEO, so
14:03
Speaker 1: I'll let you know. I'll get back to you on Wednesday.
14:05
Speaker 1: I'm just I'm just speaking for all the energy investment
14:07
Speaker 1: bankers out there who are waiting for what was going
14:09
Speaker 1: to be a monster pay day for them, and they
14:12
Speaker 1: still hope. So taking a look at West Texas Intermediate
14:14
Speaker 1: crewed right here, fifty five dollars down a little bit,
14:16
Speaker 1: got about two and a half percent today. This is Bloomberg.
14:23
Speaker 1: Just crossing the Bloomberg terminal right now is news that
14:27
Speaker 1: x Fox executive Bill Shine resigning from the White House
14:31
Speaker 1: out according to uh Sarah Huggaby Sanders. Uh so, that
14:35
Speaker 1: is a relatively short tenure for Mr Shin, as he
14:38
Speaker 1: came to the White House from the news corporation Century Fox.
14:42
Speaker 1: So just crossing the headlines right now. But thinking about
14:45
Speaker 1: the jobs data, clearly not well received by the equity markets.
14:48
Speaker 1: Continue to be a little bit weak there, but absolutely
14:50
Speaker 1: a complete yawner from the fixed income markets. I'm looking
14:54
Speaker 1: at the ten year Treasury literally unchanged on my Bloomberg
14:57
Speaker 1: screen yielding two point six four percent. So to help
14:59
Speaker 1: us kind to dig into, uh, the bond market, all
15:02
Speaker 1: things fixed income, we welcome back our friend Kathleen Gaffney.
15:05
Speaker 1: Cathlene is co director of Diversified Fixed Income and EAT
15:08
Speaker 1: and Vancy. Vance has over four billion dollars under management,
15:11
Speaker 1: about eighty billion dollars of which is in fixed income.
15:14
Speaker 1: Cathlene is based in Boston, but she joins us today
15:15
Speaker 1: in our Bloomberg eleven three oh studios in New York.
15:18
Speaker 1: I feel like you're here as often here as you
15:20
Speaker 1: are in in the Boston. I'm sure you've got lots
15:23
Speaker 1: of travels. So what did you make, Kathleen coming out
15:26
Speaker 1: of this job? Number obviously a kind of a strange number,
15:28
Speaker 1: But what's your takeaway? Yeah, it definitely was a strange
15:31
Speaker 1: number and not something that I would extrapolate. Although clearly
15:35
Speaker 1: the market, especially equities, are thinking more about lower growth. Uh,
15:40
Speaker 1: that's the pattern that we've heard in Europe as well.
15:43
Speaker 1: But it was interesting that wages are increasing and I've
15:47
Speaker 1: got my eyes on what's going on with inflation, and
15:51
Speaker 1: that's what I think bond investors need to be wary of.
15:54
Speaker 1: Was that was the inflation number? Okay, we're not We're
15:57
Speaker 1: not going too fast, are we. No, we're not going
15:59
Speaker 1: fast enough. But just just the increase in wages. Uh,
16:04
Speaker 1: we know that we've got a tight labor market, so
16:06
Speaker 1: that's going to be some sort of pressure. And there
16:09
Speaker 1: is stimulus out there with the Fed on pause. Uh,
16:14
Speaker 1: that's still accommodative policy. And China is also providing stimulus.
16:19
Speaker 1: So I wouldn't read too much into one one data point.
16:24
Speaker 1: Does the tenure at two point six and the tenure
16:28
Speaker 1: bunule at six basis points? Do those two numbers make
16:30
Speaker 1: sense to you? They make sense in a world where
16:35
Speaker 1: their inflation is going to remain low for a very
16:38
Speaker 1: long time. But we're hearing and it'll be interesting to
16:41
Speaker 1: hear what Powell has to say. But the Fed is
16:44
Speaker 1: starting to think about how anchored investors expectations are, and
16:49
Speaker 1: that it seems that it is very hard to get
16:53
Speaker 1: anyone to believe that there could be momentum higher, which
16:56
Speaker 1: means they are likely to start using the average inflation
17:01
Speaker 1: target and let it go a little bit higher. And
17:04
Speaker 1: wages moving up is one piece of that we just
17:08
Speaker 1: have moved up. And I was gonna say that they
17:10
Speaker 1: have moved up here, they've moved up in Europe as well, Paul,
17:13
Speaker 1: in fact, like if you're gonna look at green shoots
17:15
Speaker 1: like that's one of them, even, dare I say in Europe?
17:19
Speaker 1: So Kathleen, that's you know. On the European issue, we
17:22
Speaker 1: had some very dour commentary coming out of marriage draw
17:26
Speaker 1: yesterday in the ECB kind of what what is your
17:28
Speaker 1: takeaway from what you heard yesterday out of Europe? How
17:31
Speaker 1: concerned are you? I I'm somewhat concerned. UH, and and
17:36
Speaker 1: Europe is definitely UH really slow to react, and that
17:41
Speaker 1: and the ability to get more growth is hampering UH policy,
17:47
Speaker 1: and so they're in a really tough place. UM. But
17:51
Speaker 1: I do think that much of that is due to
17:54
Speaker 1: the uncertainty around the globe UH due to Brexit and
17:58
Speaker 1: also due ton tarns about China. Germany. UH exports a
18:04
Speaker 1: lot to China, and so I think they feel that.
18:08
Speaker 1: I do think that the uncertainty is going to be
18:11
Speaker 1: resolved with the U S. China relations, and I think
18:16
Speaker 1: with the China stimulus that's coming, I think that's positive,
18:20
Speaker 1: but it probably isn't something that we're going to see
18:23
Speaker 1: until later this year. So for now we're really stuck
18:27
Speaker 1: in the pause mode and limbo mode until we see
18:32
Speaker 1: more positive economic data. But the market keeps flipping from
18:35
Speaker 1: one side to the other without making a whole lot
18:38
Speaker 1: of progress. Um, focusing on inflation and letting it run
18:44
Speaker 1: will impact the dollar, and a lower dollar helps to
18:47
Speaker 1: get growth going. So here's what I just really struggle
18:51
Speaker 1: to understand is that growth isn't horrible, Like we're not
18:55
Speaker 1: going to recession right yet. I'm gonna point against six
18:57
Speaker 1: basis points for the German tenure BUNO. But then you
19:00
Speaker 1: go into the fact we might have a China trade
19:02
Speaker 1: deal for example, The dat is not terrible. The markets
19:04
Speaker 1: pricing in like rate cuts this year from the fed
19:08
Speaker 1: ecb rate hike is now out until like now the
19:11
Speaker 1: back half of in terms of the markets telling you
19:14
Speaker 1: so to me, anything is going to be better than
19:17
Speaker 1: what the markets are thinking. Yes, So aren't we going
19:19
Speaker 1: to have to have some kind of showdown here where
19:21
Speaker 1: the markets have to play catch up and then there's
19:23
Speaker 1: gonna be some volatility or some unwind like is that
19:25
Speaker 1: a thing we're going to have to focus on? Yes,
19:27
Speaker 1: but I just don't know when it's going to happen.
19:30
Speaker 1: It feels like it's not going to happen til later
19:32
Speaker 1: this year. But that is exactly what I would want
19:35
Speaker 1: to be prepared for. That's the biggest that's the biggest risk.
19:39
Speaker 1: And the FED really does want to get rates up,
19:42
Speaker 1: but they just don't have the ability to move. So
19:45
Speaker 1: a weaker dollar is a great way to solve that
19:48
Speaker 1: equation because they don't have to lower and they can
19:52
Speaker 1: take their time raising. Yeah, at we're looking at the dollar.
19:56
Speaker 1: I've been talking to folks on I just don't see
19:58
Speaker 1: what against which currency it will depreciate. I mean it's
20:01
Speaker 1: just you know, you look around the world. I mean
20:03
Speaker 1: it's just the dollar, you know. I just you don't
20:05
Speaker 1: see it. You have, you know, the weakness obviously in
20:07
Speaker 1: Europe that we heard about. Yes, we have China. We're
20:09
Speaker 1: not really sure where they are. UM. So it's interesting,
20:12
Speaker 1: but I think as a US economy, UM. We've had
20:15
Speaker 1: a couple of guests on today. One was kind of
20:16
Speaker 1: calling for a recession in one was saying, no any
20:20
Speaker 1: sense of kind of where you think that's going to
20:21
Speaker 1: play out. I do think that the fundamentals are are
20:25
Speaker 1: good enough that we're not close to a point where
20:28
Speaker 1: we're going to be at recession. UM. Leverage has been
20:32
Speaker 1: picking up, but it's still relatively modest. Uh So, I
20:36
Speaker 1: think a recession is much further out. It is more
20:39
Speaker 1: the volatility that as expectations UM start to get lifted,
20:45
Speaker 1: you'll you'll see the volatility in the credit markets because
20:51
Speaker 1: they've been pulled higher in price, lower in yield because
20:55
Speaker 1: of that appetite for yield. When we're stuck in uh
21:00
Speaker 1: to pause and and limbo. What is your strongest conviction
21:05
Speaker 1: trade right now? Uh e M currency. So to Paul's question,
21:10
Speaker 1: I think that's what the dollar will be weaker against
21:13
Speaker 1: is China. You are seeing the U want move up there.
21:17
Speaker 1: All signals are that they want stability and consumption. Interesting. Kathleen,
21:23
Speaker 1: thank you so much for joining us. There's always a
21:25
Speaker 1: lot to talk about, particularly after on a on a
21:27
Speaker 1: jobs Friday. Kathleen Gaffney Kathie's co director of diversified fixed
21:31
Speaker 1: income at Eaton Advance. Uh they managed over four un
21:33
Speaker 1: billion dollars and she joins us here in our Bloomberg
21:35
Speaker 1: eleven three OH studios. Thank you so much. Alex, thank
21:37
Speaker 1: you for joining sitting in today Jeff fun on Radio.
21:40
Speaker 1: It was a pleasure. Yeah, I do. I get to
21:42
Speaker 1: just you do all the heavy lifting. I just hang
21:44
Speaker 1: out here and talk. I mean, it's awesome. It's my
21:46
Speaker 1: husband's nightmare exactly. Alex has founded up to sit in
21:49
Speaker 1: for Lisa Abrahmo Witz. Coming up on Bloomberg Radio is politics, Policy,
21:54
Speaker 1: Power and Law with June Grasso. June, what are you
21:56
Speaker 1: looking at today? Well, we're gonna have a live interview
21:58
Speaker 1: with Nancy Pelosi. I've course, we're gonna look at the
22:00
Speaker 1: manifort sentencing and the jobs numbers. Excellent, excellent. Looking here
22:05
Speaker 1: at the market. Still down a little bit today on
22:07
Speaker 1: the equity markets, but generally very strong. I'm Paul Sweeney
22:10
Speaker 1: and along with my sit in co host Alex Steele,
22:13
Speaker 1: this is Bloomberg Now on Bloomberg Markets. US focus on
22:20
Speaker 1: Munis is brought to you by Build America Mutual BAM
22:23
Speaker 1: Green Star Bonds finance projects that protect and restore the
22:26
Speaker 1: environment with more renewable energy and efficient transportation and buildings.
22:30
Speaker 1: Visit build America dot com, slash Green Star, BAM Building America. Well,
22:36
Speaker 1: there is a growing i'll call it chatter within Congress
22:39
Speaker 1: to repeal the ten thousand dollar cap on deductions for
22:42
Speaker 1: state and local taxes or salt. To use a vernacular
22:46
Speaker 1: to get an update on this and all things muni,
22:48
Speaker 1: let's welcome once again Amanda Albright. Amanda is the a
22:51
Speaker 1: municipal bond reporter for Bloomberg News. She joins us here
22:54
Speaker 1: in our Bloomberg Interactive Brooker Studio Amanda, Welcome again. UM.
22:58
Speaker 1: Is there any chance that this issue with the state
23:02
Speaker 1: local taxes can get any movement in Congress? So as
23:05
Speaker 1: that story outlines UM by Joe Light, it doesn't look
23:08
Speaker 1: like that there will be any traction made on that proposal.
23:11
Speaker 1: Both Republicans and Democrats have their own reasons for not
23:15
Speaker 1: supporting the um you know, change to that, and for
23:19
Speaker 1: muni investors, UM, they might be looking at all the
23:21
Speaker 1: cash coming in and saying, well, maybe we don't mind
23:24
Speaker 1: the cap on salt deductions because it's led to just
23:27
Speaker 1: tremendous demand for municipal bonds as people you know seek
23:30
Speaker 1: out tax heavens UM. And so that's something that's really
23:33
Speaker 1: propped up performance this year for the muni market. Have
23:36
Speaker 1: you noticed after sort of a couple of years of
23:38
Speaker 1: dealing with this UM the difference in say state, it's
23:41
Speaker 1: like Connecticut, because I gotta tell you, like so many
23:43
Speaker 1: guys in the industry that I talked to are like, yeah, yeah, yeah,
23:46
Speaker 1: I live in Connecticut and they really don't. Their residents
23:48
Speaker 1: in Florida, but like they actually live in Connecticut. Right. So,
23:51
Speaker 1: we talked to a financial advisor UM this week about
23:54
Speaker 1: just the salt driven demand for munis and she was
23:56
Speaker 1: saying that UM, she is definitely hearing from more clients
23:59
Speaker 1: who were worried about taxes and just that's becoming more
24:02
Speaker 1: part of the calculus for them. She was basically saying
24:05
Speaker 1: that no one that she works with ever retires to
24:07
Speaker 1: New Jersey. They're retiring from New Jersey and leaving UM.
24:10
Speaker 1: And she basically says she has clients from all over
24:13
Speaker 1: the US UM that have previously lived in New Jersey
24:16
Speaker 1: and maybe taxes weren't the only reason why they left,
24:18
Speaker 1: but it certainly wasn't something that kept them there. Interesting.
24:21
Speaker 1: Well interesting as a resident of New Jersey, this is
24:24
Speaker 1: near and dear to my heart. But another issue is
24:27
Speaker 1: entering for the state of New Jersey's New Jersey Governor
24:29
Speaker 1: Phil Murphy, who will be on Bloomberg Radio and Television
24:32
Speaker 1: today in the four o'clock hour. We should mention, but
24:35
Speaker 1: he released the state budgets at thirty eight point six
24:38
Speaker 1: billion dollar budget. In there on the revenue line was
24:42
Speaker 1: taxes supposedly going to come from cannabis legalized weed, uh,
24:47
Speaker 1: something along the order of three hundred or three and
24:49
Speaker 1: fifty million dollars. But they're actually coming in much less.
24:51
Speaker 1: What's going on there? Right? So Murphy's budget UM only
24:54
Speaker 1: estimated that it could raise sixty million from cannabis taxes,
24:57
Speaker 1: which haven't been legalized yet, I should add, UM, So
25:00
Speaker 1: before he was estimating that this could be something that
25:03
Speaker 1: could raise three hundred million dollars a year. UM. But
25:05
Speaker 1: now it's kind of, you know, a reality check for
25:07
Speaker 1: New Jersey and other states. UM. New York is also
25:10
Speaker 1: talking about legalizing marijuana UM, which you know is a
25:13
Speaker 1: competitor to any legalized UM marijuana in New Jersey. UM.
25:17
Speaker 1: There's also this issue of the black market and people
25:20
Speaker 1: who already were getting their marijuana from one source, and
25:23
Speaker 1: will they actually go and pay taxes on a source
25:26
Speaker 1: that they weren't you know, previously paying taxes on. It
25:29
Speaker 1: just highlights to me kind of the desperate measures that
25:31
Speaker 1: some states are kind of grappling at. So it's not
25:33
Speaker 1: only you know, taxing pot. I'm gonna say, pot. Is
25:36
Speaker 1: that Okay? Am I doing myself? Okay? Um okay, we
25:40
Speaker 1: see so um. Then but then it's also the proposal
25:42
Speaker 1: in New York right that if you have a condo
25:44
Speaker 1: and you don't live there and you rent it, that
25:45
Speaker 1: then you gotta get taxed on that. I mean, like,
25:47
Speaker 1: are these investors like these kind of proposals when it
25:50
Speaker 1: comes to the mini market. That's a great point. And
25:51
Speaker 1: I think, um, I would put marijuana taxes up there
25:54
Speaker 1: with like cigarette taxes and gasoline taxes as being these
25:57
Speaker 1: kind of imperfect revenue sources um various reasons. So cigarette taxes, um,
26:02
Speaker 1: the more that you tax cigarettes, the more consumption decline.
26:04
Speaker 1: So that's kind of an imperfect revenue source. But it's
26:07
Speaker 1: one that states, especially UM states where there's a lot
26:09
Speaker 1: of anti tax sentiment, well they view those as easy
26:12
Speaker 1: to raise because it's a it's a syntax. Um. And
26:15
Speaker 1: then with gas taxes, you know, there's a lot of
26:17
Speaker 1: talk about electric vehicles, hybrid cars. You know, how reliable
26:21
Speaker 1: is gas tax money going to be in thirty years,
26:23
Speaker 1: which is kind of the time brand that states are
26:24
Speaker 1: working with. So I think for marijuana taxes, it has
26:27
Speaker 1: its own sort of issues. Um, but it is something
26:30
Speaker 1: that you know, like we saw with the m t
26:31
Speaker 1: A last week. Um, it's an easy, you know tax
26:34
Speaker 1: that lawmakers can propose. It's easier to you know, float
26:37
Speaker 1: that than it is to say I'm going to raise
26:39
Speaker 1: your income taxes by one percent or so. But some
26:41
Speaker 1: other states I'm thinking Colorado and some others that have
26:44
Speaker 1: had legalized marijuana, they had similar tax shortfall issues or
26:49
Speaker 1: they're doing a little bit better. So it's more of
26:51
Speaker 1: like a nice to have for a state like Colorado,
26:54
Speaker 1: which is you know, a really strong credit. There's like
26:56
Speaker 1: tons of people moving in. Um, this is not something
26:58
Speaker 1: that we're seeing any state kind of build their their
27:01
Speaker 1: budget around. It's still a very small percentage of their
27:04
Speaker 1: overall general fund. Um. You know, they're working with billions
27:07
Speaker 1: of dollars and you know, marijuana tacks money right now
27:10
Speaker 1: just isn't enough to kind of make or break a
27:12
Speaker 1: state credit. Uh. What is the most popular moon mini
27:16
Speaker 1: market right now as an investment? Yeah, UM, I would
27:20
Speaker 1: probably say New York and California. Are up there. Um,
27:23
Speaker 1: maybe even more of an extent New York because the
27:26
Speaker 1: spreads on the state's debt have just tightened so dramatically.
27:29
Speaker 1: Um during this season of salt demand and all that. Yeah,
27:32
Speaker 1: let's say that supply or demand issue. It's a little
27:34
Speaker 1: bit of both. So there is really really strong demand,
27:37
Speaker 1: but um, supply is not yet you know, outweighing the
27:41
Speaker 1: amount of reinvestment money that we're seeing coming in. We're
27:43
Speaker 1: also seeing lots of cash new cash coming into muni
27:46
Speaker 1: mutual funds and um, even Muni e t F this
27:49
Speaker 1: week they attracted um, you know money. UM. So it
27:52
Speaker 1: is a supply and demand dynamic, and I think people
27:55
Speaker 1: are kind of worried about what happens if the demand
27:57
Speaker 1: runs out, but no one is actually calling for that
27:59
Speaker 1: to happen. They think this salt dynamic is only gonna
28:02
Speaker 1: get worse after people, you know, finished doing their taxes. Yeah, exactly,
28:06
Speaker 1: tax season. Here we go, Amanda write me this bond
28:09
Speaker 1: reporter for Bloomberg News. Thanks for listening to the Bloomberg
28:13
Speaker 1: P and L podcast. You can subscribe and listen to
28:15
Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
28:20
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
28:24
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
28:27
Speaker 1: You can always catch us worldwide on Bloomberg Radio