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Unlikely For Sprint And T-Mobile Deal To Get Approved: Butler · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
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  Speaker 1: the tissues out of the Kleenex box for the finale
• 0:36
  Speaker 1: of the Sprint and T Mobile Wedding series. It seems
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  Speaker 1: as though, uh they have proposed to each other and
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  Speaker 1: said I do. The question now, though, is regulators. Will
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  Speaker 1: they step in and put the kabash on this match
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  Speaker 1: made in heaven? I don't know if I would call
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  Speaker 1: it that. John Butler joys as Nasty and your telecom
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  Speaker 1: services and equip with analyst for Bloomberg Intelligence. John, uh So,
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  Speaker 1: how likely do you think it is is that this
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  Speaker 1: deal goes through? You know, I our regulatory analysts are
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  Speaker 1: saying it's unlikely to get approved. Yes, And their argument
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  Speaker 1: is the d o J looks at the h h
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  Speaker 1: I index in English. What they look at is the
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  Speaker 1: aggregation of share of the combined company. So if you
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  Speaker 1: look at Sprint and T Mobile combined, they're going to
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  Speaker 1: be larger than a T and T in terms of
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  Speaker 1: subscriber count, a little bit smaller than Verizon, but they're
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  Speaker 1: instantly overnight going to be on par with their size.
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  Speaker 1: And you know, so we'll go from a market of
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  Speaker 1: four carriers, two big ones, two smaller ones, to suddenly
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  Speaker 1: a market of three large carriers, and the question for
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  Speaker 1: them becomes, you know, is this going to help or
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  Speaker 1: her consumers? And with T Mobile having been the disruptor
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  Speaker 1: over the past five years, it's hard to argue that
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  Speaker 1: that's been bad for consumers. It's put a lot of
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  Speaker 1: pressure on wireless pricing. But from our standpoint as consumers,
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  Speaker 1: we're paying a lot less for wireless, thanks in part
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  Speaker 1: to T Mobile. So when it comes to approving a
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  Speaker 1: deal like this, if they're looking at it from that standpoint,
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  Speaker 1: it's tough to approve UM. I think the flip side.
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  Speaker 1: The other argument that I would put forward is, pardon me.
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  Speaker 1: If you look forward three to five years, we're now
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  Speaker 1: carriers are now investing in these new five gene networks.
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  Speaker 1: Pardon me, And you need really deep pockets to do
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  Speaker 1: that to get where you need to be with a
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  Speaker 1: true nationwide five gen network, And I think T Mobile
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  Speaker 1: and Sprint really need to look at combining resources to
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  Speaker 1: get where they need to be to make that kind
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  Speaker 1: of investment and truly make it on par with a
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  Speaker 1: T and T and Verizon. So the question I think
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  Speaker 1: for the regulators is where do you want to be
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  Speaker 1: in three to five years. Do you want to be
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  Speaker 1: sitting there with a duopoli with having a T and
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  Speaker 1: T and Verizon uh the only two carriers that can
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  Speaker 1: make that kind of investment, but maybe have lower wireless
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  Speaker 1: prices for consumers. Or the flip side is do you
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  Speaker 1: want to give Sprint and uh T Mobile a shot
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  Speaker 1: at at getting the kind of scale they need to
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  Speaker 1: make that investment in five G and then three to
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  Speaker 1: five years down the line have a three horse race
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  Speaker 1: instead of two. You mentioned h h I herfindal Hershman index.
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  Speaker 1: This is an index that measures market concentration. According to
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  Speaker 1: the current subscriber numbers, A T and T would end
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  Speaker 1: up being number three if there was a combination of
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  Speaker 1: Sprint and T Mobile, correct, because not not a distant
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  Speaker 1: three to be correct, I mean we're like nine million.
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  Speaker 1: The combined operation would be a hundred million and Verizon
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  Speaker 1: has a hundred and sixteen somewhere around there, so all
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  Speaker 1: very closely aligned on subscriber counts Uh, the deal for
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  Speaker 1: combination T Mobile Sprint? Who is this deal good for?
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  Speaker 1: Is it good from Marshioshi San because he's now seeding
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  Speaker 1: control if the deal goes through, Well, it's good for
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  Speaker 1: him because Sprint has not exactly been in winning investment
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  Speaker 1: for him. And I don't remember his entry point, but
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  Speaker 1: he's been looking to get he's been looking to monetize
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  Speaker 1: Sprint for a long long time, and this to me,
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  Speaker 1: from his perspective, I think this is a good solution
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  Speaker 1: because the resulting carrier would be would gain scale overnight.
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  Speaker 1: And frankly, that's what's killing Sprint. They don't have any
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  Speaker 1: they don't have scale in a scale business. Okay, so
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  Speaker 1: let's go back to the regulatory questions. It is very
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  Speaker 1: quickly Sprint. What happens to this company if this murder
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  Speaker 1: does not go through? You know, Sprint either gets taken
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  Speaker 1: out by calm Cast or one of the cable operators,
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  Speaker 1: or frankly, they continue to suffer. I mean, I don't
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  Speaker 1: know what is the what is like the rubber meet
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  Speaker 1: the road where they cannot keep going. Well, I don't
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  Speaker 1: know the answer to that, but I do know the
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  Speaker 1: strategy X getting taken out. If the deal gets kabash,
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  Speaker 1: they're going to have to build their way out of
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  Speaker 1: the problems. So it's going to take a lot of
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  Speaker 1: money on the part of my muss massa son at
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  Speaker 1: soft Bank, and on the part of Sprint to really
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  Speaker 1: upgrade all these I would start with the major markets
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  Speaker 1: if I were Sprint New York, l A, Boston, But
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  Speaker 1: they already have about fifty billion dollars of debt right
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  Speaker 1: this is this is a difficult situation. They're in deep.
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  Speaker 1: They're in deep. So for them, there's I look at
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  Speaker 1: it from Sprint's perspective and think there's no way out.
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  Speaker 1: You know, they really need to combine with someone else
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  Speaker 1: to gain scale and gain the financial resources to make
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  Speaker 1: this leap from where we are to day with four
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  Speaker 1: G to five G. Because networks evolved, right, it wasn't
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  Speaker 1: that long ago that we were at three G, which
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  Speaker 1: supported voice and email, and then we went to four G,
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  Speaker 1: which supported voice, email and web browsing and video. Now
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  Speaker 1: five G is going to support all that and also
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  Speaker 1: this concept of connected devices. So, John Butler, thank you
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  Speaker 1: keeping us connected, our senior telecom services and equipment analysts
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  Speaker 1: for Bloomberg Intelligence. You can follow John Butler on Twitter.
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  Speaker 1: I suggest you do so at John Underscore Butler five.
• 6:37
  Speaker 1: That's John Underscore Butler. In this mega murger Monday, Marathon
• 6:56
  Speaker 1: Petroleum agreed to buy a rival oil refiner and Eavor
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  Speaker 1: for twenty three point three billion dollars. This tie up
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  Speaker 1: could create the largest independent fuelmaker in the US and
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  Speaker 1: over shares up more than fiftcent. Marathon's down about five percent.
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  Speaker 1: Here to talk about how this rearranges the oil landscape
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  Speaker 1: in the United States is Andy Lipow, president of Lipow
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  Speaker 1: Oil Associates in Houston. Andy, thank you so much for
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  Speaker 1: being with us. So you know how big of a
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  Speaker 1: deal is this deal? Well, this is a very big
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  Speaker 1: deal given that the combined Marathon and Endeavor entity will
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  Speaker 1: now control about of the nation's refining capacity, and their
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  Speaker 1: footprint is going to be geographically widespread across the entire nation. Indeed,
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  Speaker 1: maybe just tell people about the difference between upstream and
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  Speaker 1: downstream operations. Because what Marathon branded gasoline they currently sell
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  Speaker 1: it in about twenty states. It's got that Speedway unit.
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  Speaker 1: That's the second largest convenience store chain, and it's also
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  Speaker 1: got a massed and limited partnership with about eleven thousand
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  Speaker 1: miles of crude oil and light product pipelines. Sure. Well,
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  Speaker 1: when we think about upstream operations, we're really thinking about
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  Speaker 1: getting crude oil and natural gas out of the ground.
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  Speaker 1: And once that crude oil and natural gases out of
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  Speaker 1: the ground, we think about the midstream operations, which is
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  Speaker 1: getting it to the refinery. After the refinery, which we
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  Speaker 1: consider as downstream operations, the gasoline and diesel is sold
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  Speaker 1: through the retail outlets and ultimately to the consumer. So
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  Speaker 1: in this particular case, as you mentioned, Marathon has about
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  Speaker 1: Speedway stores and about fifty six hundred Marathon branded locations
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  Speaker 1: throughout the eastern part of the US. Meanwhile, Endeavor US
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  Speaker 1: as a whole variety of branded stations. People may not
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  Speaker 1: realize they're selling under the Mobile Shell, Arco and Exxon
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  Speaker 1: flags in the West coast. So I'm trying to understand
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  Speaker 1: who loses the most from this tie up. Well, I
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  Speaker 1: think a lot of the consumer advocates are going to
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  Speaker 1: be saying that given Marathon's control of fifteen percent of
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  Speaker 1: the refining capacity in the nation, that the consumer could
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  Speaker 1: ultimately be uh the loser by paying higher retail gasoline prices.
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  Speaker 1: Do you agree with that an assessment? I don't think so,
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  Speaker 1: because it's still Marathon and two Sorrow have to compete
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  Speaker 1: in a variety of markets. Uh, the price of gasoline
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  Speaker 1: is set on a very competitive basis. The market looks
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  Speaker 1: at the future's prices as well as the wholesale prices,
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  Speaker 1: whether it's in New York or Houston or Los Angeles.
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  Speaker 1: We're of course faced with importing gasoline into the East
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  Speaker 1: Coast while exporting it off the Gulf Coast. So the
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  Speaker 1: US is quite intertwined with the rest of the oil market. Andy,
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  Speaker 1: can you put some margin numbers together for so that
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  Speaker 1: we understand which aspects of the actual stream upstream to downstream,
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  Speaker 1: what the most profitable parts of that entire chain. Well,
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  Speaker 1: I haven't looked particularly as a Marathon or Endeavor's numbers,
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  Speaker 1: but on the refining side, refining margins continue to improve
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  Speaker 1: here in two thousand and eighteen, and I think one
• 10:15
  Speaker 1: reason that Marathon was looking at this acquisition because going
• 10:19
  Speaker 1: ahead in twenty there's actually new environmental regulations that are
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  Speaker 1: going to impact on the refining margin actually to the
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  Speaker 1: upside on the retail side. Retail is very very competitive.
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  Speaker 1: The store owner operators really want very competitive gas lean
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  Speaker 1: to get the consumer inside the store to buy the
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  Speaker 1: variety of higher margin goods. So I'm trying to understand
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  Speaker 1: whether this deal could have happened if we did see
• 10:51
  Speaker 1: oil prices continue to decline. In other words, has the
• 10:54
  Speaker 1: stability and oil prices are basically allowed this to happen. Well,
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  Speaker 1: I think so, and not only at the fact that
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  Speaker 1: oil prices are lower than we saw a couple of
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  Speaker 1: years ago has made it easier because neither Marathon nor
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  Speaker 1: Endeavor have much exposure to the price of getting crude
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  Speaker 1: oil and natural gas out of the ground. Viase companies
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  Speaker 1: are really not production companies in the sense of Exxon
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  Speaker 1: Shell or BP, so they are really focused on refining
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  Speaker 1: margin and what aspect of the of the energy complex.
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  Speaker 1: Do you think people are not paying attention to enough
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  Speaker 1: and that they can still make money? Well, I think,
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  Speaker 1: of course this is going to get people's focused on refining.
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  Speaker 1: And in addition, whether other smaller refining companies in the
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  Speaker 1: US such as Holly Frontier or c v Our Energy
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  Speaker 1: are likely to be gobbled up by a bigger competitor.
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  Speaker 1: In addition, now I think the industry is going to
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  Speaker 1: look at PBF Energy, Philip sixty six Valero to see
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  Speaker 1: if they're gonna participate in further consolidation. And just as
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  Speaker 1: far as production goes, what's your estimate for a shell
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  Speaker 1: production going forward? Do you think that it's going to
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  Speaker 1: keep ramping up or do you think that that the
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  Speaker 1: price supply demand dynamic is gonna keep things in check. Well,
• 12:16
  Speaker 1: given that w t I prices are at sixty eight
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  Speaker 1: dollars and I actually expect them to rise during the
• 12:22
  Speaker 1: course of this year as World War demand continues to improve,
• 12:26
  Speaker 1: I expect that shell production is going to continue to rise.
• 12:29
  Speaker 1: Believe in Texas we're right at about three point one
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  Speaker 1: million barrels a day out of the Permian Basin. The
• 12:36
  Speaker 1: market expects that to continue to grow. The biggest impediment
• 12:40
  Speaker 1: actually to shale production is the fact that all the
• 12:43
  Speaker 1: pipelines leaving the Permian Basin to get that material to
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  Speaker 1: the Texas Gulf Coast are full and there's really no
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  Speaker 1: significant relief in sight from that front until the second
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  Speaker 1: half of two thousand nineteen. I want to thank you
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  Speaker 1: very much for being with us. Uh Andy Lippo of
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  Speaker 1: Lippo oil O seates. Should we expect an increase in
• 13:17
  Speaker 1: interest rates in June? Let's find out from Jim Vogel,
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  Speaker 1: interest rate strategist for FT and Financial joining us from Memphis. Jim,
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  Speaker 1: always a pleasure tell us about your outlook for interest
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  Speaker 1: rates and how that would affect the value of the
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  Speaker 1: US dollar versus our trading partners. Good morning. Well, we
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  Speaker 1: certainly do look for a FED increase at the June meeting,
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  Speaker 1: and then of course the bond market and the currency
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  Speaker 1: markets will be very interested in what they have to
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  Speaker 1: say on Wednesday. All right, So, right now we have
• 13:45
  Speaker 1: a growing number of people who are thinking, ha, the
• 13:48
  Speaker 1: Fed may have ammunition to go four times this year.
• 13:51
  Speaker 1: We got the PC data out showing that their preferred
• 13:54
  Speaker 1: target for inflation has hit that two percent magical mark.
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  Speaker 1: Do you agree four times this year and if so,
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  Speaker 1: what are the implications? Well, certainly the market agrees um
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  Speaker 1: the Fed was out talking will before the blackout period,
• 14:09
  Speaker 1: and the market is pretty much priced in that fourth
• 14:12
  Speaker 1: rate hike to to fifty either in December or January,
• 14:15
  Speaker 1: which is ultimately the same thing we think there's the
• 14:19
  Speaker 1: chance that the Fed stays cautious and pauses and only
• 14:22
  Speaker 1: does free rate hikes this year. Well, Jim, I wonder
• 14:25
  Speaker 1: if you could expand a little bit about the value
• 14:27
  Speaker 1: of the US dollar. The dollar has shown strength against
• 14:30
  Speaker 1: all major currencies, where at one versus the Euro, the pounds,
• 14:33
  Speaker 1: sterling slipping to one thirty seven, also got Japanese yen
• 14:36
  Speaker 1: at one oh nine. Do you believe that the dollar
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  Speaker 1: will continue to strengthen if indeed the trajectory of interest
• 14:43
  Speaker 1: rates is as you describe it, yes, because we're going
• 14:47
  Speaker 1: to have the dollar continue to go up for about
• 14:49
  Speaker 1: the next six weeks or so. The uh, the assumption
• 14:53
  Speaker 1: coming into this year was that Europe in particular would
• 14:57
  Speaker 1: move ahead quite quickly and need rate increase is particularly
• 15:00
  Speaker 1: in the UK UH this coming month, and now with
• 15:04
  Speaker 1: the first quarter numbers in hand in Europe, it doesn't
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  Speaker 1: look like that's going to happen. So one thing that
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  Speaker 1: I'm struggling with is if the FED raises rates four times,
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  Speaker 1: if the dollar strengthens, I'm trying to understand the next
• 15:19
  Speaker 1: steps next year because we are seeing the yield curve
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  Speaker 1: flatten and uh, you know, yes, inflation is getting up there,
• 15:25
  Speaker 1: but it's hard to see how that could be sustained.
• 15:28
  Speaker 1: So what are you thinking on the longer end of
• 15:30
  Speaker 1: the curve? Where do you see you know, ten and
• 15:32
  Speaker 1: thirty year yields going by the end of this year.
• 15:35
  Speaker 1: There's room for a good a bit more increase because
• 15:38
  Speaker 1: if the FED does increase four times, uh, that would
• 15:41
  Speaker 1: imply a certain hawkish approach all the way out to
• 15:45
  Speaker 1: In other words, they have got to increase now so
• 15:48
  Speaker 1: that they don't have to increase out further. So when
• 15:52
  Speaker 1: we get to to fifty on FED funds, you will
• 15:55
  Speaker 1: see threes perhaps go up to three and a quarter
• 15:58
  Speaker 1: three and three eights for a while until people can
• 16:01
  Speaker 1: determine that the FED is sort of um done with
• 16:05
  Speaker 1: it's it's ultra hawkas view that it has to move now.
• 16:09
  Speaker 1: So do you agree with all of the traders who
• 16:12
  Speaker 1: have boosted barrish bets on US government debt to the
• 16:16
  Speaker 1: highest levels on record. Let's see FTC data. I mean,
• 16:19
  Speaker 1: are they going to be in the money? Uh? No?
• 16:23
  Speaker 1: Because that was based No, because that was based on
• 16:26
  Speaker 1: momentum from mid April when the FED was talking what
• 16:29
  Speaker 1: it was going to do in June. Now that we're
• 16:32
  Speaker 1: at the main meeting this week with a preview of
• 16:35
  Speaker 1: what they will do in June. Those traders are going
• 16:37
  Speaker 1: to have to reassess that the speed with which that
• 16:42
  Speaker 1: the ten year accelerates past three. Jim, can I turn
• 16:46
  Speaker 1: your attention now to what's going on in Europe and
• 16:48
  Speaker 1: the European Central Bank? Do you believe that European economies
• 16:51
  Speaker 1: can sustain a rising rate environment? Well, it is a
• 16:56
  Speaker 1: matter of belief whether that's the case, because we've had
• 16:59
  Speaker 1: rates are low for three to four years now, and
• 17:03
  Speaker 1: the short answer is no. The it's going to be
• 17:07
  Speaker 1: extraordinarily difficult because as soon as they start right raising rates,
• 17:10
  Speaker 1: the euro is going to not be at one twenty,
• 17:13
  Speaker 1: It's going to be at one thirty five or one forty,
• 17:16
  Speaker 1: and that's going to hurt exports again. So Europe needs
• 17:20
  Speaker 1: UH to move well into the second half of two
• 17:23
  Speaker 1: thousand and nineteen to get the kind of growth momentum
• 17:27
  Speaker 1: that can withstand higher currency values. Well. But so in
• 17:31
  Speaker 1: the meantime, as the e c B stands pad there
• 17:34
  Speaker 1: was data just out today UH saying the European Central
• 17:37
  Speaker 1: Bank held one hundred and fifty one euros. Of course,
• 17:40
  Speaker 1: a billion euros excuse me, of corporate bonds as of April,
• 17:44
  Speaker 1: and I'm just wondering how much is this what's driving
• 17:48
  Speaker 1: US step markets right now, sending European investors over to
• 17:52
  Speaker 1: the US credit markets because they can't find anything to
• 17:55
  Speaker 1: buy in Europe. So far, that has not really happened.
• 18:00
  Speaker 1: I mean, we grew on the government well know, so
• 18:02
  Speaker 1: far on the government side, we've had a good bit
• 18:07
  Speaker 1: of um, we've had widening adjusted for inflation expectations, so
• 18:12
  Speaker 1: we're not seeing that migration from Europe into the US
• 18:16
  Speaker 1: just yet. What you did see earlier in the year
• 18:19
  Speaker 1: was US corporations issuing a euro to take advantage of
• 18:22
  Speaker 1: that stronger dollar. So you've got to look both also
• 18:25
  Speaker 1: at supply, which right now people will think continue to
• 18:28
  Speaker 1: grow in Europe to take advantage of that growing ECB position.
• 18:33
  Speaker 1: As far as the supply of treasuries is available in
• 18:37
  Speaker 1: the United States, what do you project for the tenure,
• 18:40
  Speaker 1: for example, And you think that that too, that three
• 18:43
  Speaker 1: level is as critical as many have described. No, it's
• 18:47
  Speaker 1: not quite critical because right now we're what we've watched
• 18:51
  Speaker 1: more closely is the fact that real interest rates on
• 18:54
  Speaker 1: ten years right now are near or at psychle highs,
• 18:57
  Speaker 1: and with that in place, it's far more important to
• 19:01
  Speaker 1: watch what inflation expectations do over the next two months
• 19:04
  Speaker 1: than to necessarily want treasury supply announcement either this week
• 19:09
  Speaker 1: or in August with regards to whether we stay above
• 19:12
  Speaker 1: three Wait, So I want to make sure I understand
• 19:14
  Speaker 1: this because this is important and it kind of goes
• 19:16
  Speaker 1: to the crux of a debate that a lot of
• 19:18
  Speaker 1: people have been having. What's driving treasure yields right now?
• 19:21
  Speaker 1: Is it the fact that the US government is having
• 19:23
  Speaker 1: record auctions of government of debt week after week, or
• 19:27
  Speaker 1: is it the prospect of higher inflation. You're saying it's inflation,
• 19:32
  Speaker 1: and yet if you look at break even contracts, you're
• 19:34
  Speaker 1: not seeing inflation being priced in. So can you just
• 19:37
  Speaker 1: sort of go into a little bit more detail. What
• 19:39
  Speaker 1: gives you the confidence that really it's inflation expectations driving
• 19:42
  Speaker 1: treasury yields? Well, we're we're looking at CPI derivatives, which
• 19:48
  Speaker 1: are generally more sensitive than the break even contracts, and
• 19:52
  Speaker 1: we saw a big increase in inflation expectations in that measure.
• 19:56
  Speaker 1: Once the FED started talking very confidently about the inflation
• 20:00
  Speaker 1: going above their two percent target a couple of weeks ago,
• 20:04
  Speaker 1: so roughly ten basis points out of the fifteen. Was
• 20:08
  Speaker 1: that increase in inflation expectations out there at the long end,
• 20:11
  Speaker 1: some of the break even contracts get a little distorted
• 20:14
  Speaker 1: because of the introduction to the new five year tips.
• 20:16
  Speaker 1: Interesting and so the other thing, if it is inflation,
• 20:19
  Speaker 1: how much is connected to higher oil prices, and how
• 20:21
  Speaker 1: much is there an expectation that people are going to
• 20:23
  Speaker 1: get paid more and there's gonna be this virtual cycle
• 20:25
  Speaker 1: of growth. About half of it is the idea that
• 20:33
  Speaker 1: inflation is naturally going to grow because the overall economy
• 20:37
  Speaker 1: around the world is going to improve. Some of that
• 20:39
  Speaker 1: is in wages, some of that is in natural resources.
• 20:43
  Speaker 1: But so far we've resisted the idea that higher oil
• 20:46
  Speaker 1: necessarily translates into higher longer term inflation, simply because some
• 20:52
  Speaker 1: of the oil cost pressures have been related to supply
• 20:56
  Speaker 1: and eruptions and geopolitical tensions. Jim v goal always a
• 21:00
  Speaker 1: pleasure hearing your insights. Thank you so much for joining us.
• 21:03
  Speaker 1: Jim Vogel, interest rate strategist at FTN Financial, one of
• 21:07
  Speaker 1: the most accurate interest rate strategists out there. Definitely someone
• 21:10
  Speaker 1: to listen to the deadline is quickly approaching for the
• 21:26
  Speaker 1: US to decide who gets excluded from tariffs on steel
• 21:31
  Speaker 1: an aluminum, but trade wars and concerns of that are
• 21:34
  Speaker 1: heating up. Here. To talk about the effect on US
• 21:37
  Speaker 1: infrastructure as well as that globally, is Walter Kemsi's economist
• 21:41
  Speaker 1: and chief strategist for US Ports, Airports, and Global Infrastructure
• 21:45
  Speaker 1: at Jones lang Less sal in Chicago. He also is
• 21:48
  Speaker 1: on a committee that advises the Secretary of Commerce in
• 21:51
  Speaker 1: the US that focuses on supply chain competitiveness. Walter, thank
• 21:56
  Speaker 1: you so much for being with us. I want to
• 21:58
  Speaker 1: start with this conc upt right now that what we're
• 22:01
  Speaker 1: seeing with trade could potentially harm our supply chain and
• 22:05
  Speaker 1: could potentially lead to lower economic growth as the US
• 22:09
  Speaker 1: takes on an increasingly isolationist stance. What's your position on that. Well, Basically,
• 22:14
  Speaker 1: we've spent the last fifty sixty years trying to globalized production,
• 22:18
  Speaker 1: and I think by looking across the supply chains of
• 22:20
  Speaker 1: many industries, we've clearly globalized production and that helped create
• 22:25
  Speaker 1: a big global middle class. You know, at this point
• 22:27
  Speaker 1: somewhere is between three and four billion people. But the
• 22:31
  Speaker 1: US isn't getting access to that. So a big push
• 22:34
  Speaker 1: behind these these trade negotiations is the globalized consumption a
• 22:38
  Speaker 1: line with the globalization of production. All right, so what
• 22:42
  Speaker 1: do you recommend based on your experience of these negotiations,
• 22:46
  Speaker 1: what do you recommend reset the thinking or the psychology
• 22:52
  Speaker 1: behind this, because it sounds as if it's going to
• 22:55
  Speaker 1: have to be a lot of give and take, preferably
• 22:59
  Speaker 1: a lot of give at least a part of the
• 23:01
  Speaker 1: United States on the part of our our foreign trading partners. Well,
• 23:06
  Speaker 1: let's break this into three parts. The first is the
• 23:09
  Speaker 1: trade negotiators on the other side of the table. They
• 23:12
  Speaker 1: realize that having the world's biggest economy running a trade
• 23:16
  Speaker 1: deficit bigger than the GDP of the bottom fifty countries
• 23:20
  Speaker 1: in the planet is not sustainable. Eventually this ends very badly,
• 23:25
  Speaker 1: and but they need ammunition to go home and tell
• 23:27
  Speaker 1: their constituents that things are going to change. So I
• 23:31
  Speaker 1: think a lot of what we're seeing in the negotiations
• 23:33
  Speaker 1: in the in the verbiage that's being used, is messages
• 23:37
  Speaker 1: that the other negotiators can take home. But what I
• 23:41
  Speaker 1: think this means to us as two things. One is um,
• 23:44
  Speaker 1: we're not prepared for the big wave of exports that
• 23:47
  Speaker 1: could come out of this. The US has some industries
• 23:49
  Speaker 1: where it has a comparative and a competitive advantage. They
• 23:53
  Speaker 1: are little sny meat and the big risk from all
• 23:56
  Speaker 1: of this could be that we get the trade agreements
• 23:59
  Speaker 1: we want the US sectors agriculture, capital, goods, energy, they
• 24:04
  Speaker 1: get access to the world markets, and we don't have
• 24:06
  Speaker 1: the infrastructure to support it. Okay, I want to I
• 24:09
  Speaker 1: want you to elaberate that, but I want to just
• 24:11
  Speaker 1: go back a little bit because it seems like you're
• 24:13
  Speaker 1: talking about China most of all when you say we
• 24:15
  Speaker 1: can't get access to that middle class. Is that correct? Yes,
• 24:18
  Speaker 1: mostly China. So it's mostly China. And yet we're angering
• 24:21
  Speaker 1: right now a lot of European allies saying that this
• 24:24
  Speaker 1: is not acceptable, that this is like the US holding
• 24:27
  Speaker 1: a gun to our head when we're talking about aluminium
• 24:29
  Speaker 1: steel tariffs and a lot of companies are basically paying
• 24:32
  Speaker 1: these tariffs and hoping that the US will reimburse them
• 24:35
  Speaker 1: once they change their mind. I'm just wondering, do you
• 24:37
  Speaker 1: think that this is the best way we could be
• 24:39
  Speaker 1: going about trying to open up a trade in China? Well,
• 24:42
  Speaker 1: The previous attempt was to go via the TPP, which
• 24:46
  Speaker 1: was addressing issues such as corruption and intellectual property theft
• 24:50
  Speaker 1: and things of that nature. But it's very slow going.
• 24:53
  Speaker 1: It goes through the World Trade Organization's legal system, and
• 24:57
  Speaker 1: as we've seen just between the interactions of big air
• 25:00
  Speaker 1: planemakers that sometimes a case can take seven to fourteen
• 25:03
  Speaker 1: years to get resolved. So if you want a little
• 25:06
  Speaker 1: faster action, and quite frankly, I think the US needs
• 25:09
  Speaker 1: a lot faster action. Um, you ditched the nice approach
• 25:13
  Speaker 1: and you put your hands in the guns and start shooting.
• 25:16
  Speaker 1: Let's follow up on what you described about the infrastructure
• 25:20
  Speaker 1: in the United States. In order to meet the potential
• 25:23
  Speaker 1: success that we would see in trade agreements. What needs
• 25:27
  Speaker 1: to happen there. Well, let's start with the waterways. I mean,
• 25:30
  Speaker 1: we built the Mississippi Waterway system, which goes from you know, um,
• 25:35
  Speaker 1: North Dakota, Minnesota, down the Missouri River. You've got the
• 25:38
  Speaker 1: Ohio the Chicago rivers that feed into the Mississippi and
• 25:42
  Speaker 1: then out to the Gulf. It's a it's an engineering marvel.
• 25:45
  Speaker 1: This thing was a great resource, but we had to
• 25:47
  Speaker 1: harness it with locks and dams and bridges, and all
• 25:50
  Speaker 1: these things were built, some of most of it way
• 25:52
  Speaker 1: back during the Great Depression, and that's well over seventy
• 25:56
  Speaker 1: five years ago. And infrastructure has is the line for
• 26:00
  Speaker 1: fifty years. You might eat another twenty five years out
• 26:03
  Speaker 1: of it, but once it's done, you've got to replace it.
• 26:05
  Speaker 1: Just like the bridges here in New York. So um
• 26:09
  Speaker 1: that carries the bulk of our agriculture are chemicals or
• 26:12
  Speaker 1: petrochemicals or energy products. They all go up and down
• 26:16
  Speaker 1: that river, and that river is um becoming a bottleneck. Well,
• 26:21
  Speaker 1: we had heard when President Trump was campaigning and soon
• 26:24
  Speaker 1: after he was elected about an infrastructure spending plan. We've
• 26:27
  Speaker 1: heard less about it, and there are pretty a few details.
• 26:31
  Speaker 1: Can you give us a sense of what you know
• 26:33
  Speaker 1: about it and whether it will be sufficient to at
• 26:35
  Speaker 1: least begin some of these projects that are crucial to
• 26:37
  Speaker 1: the to the nation. I think the concept is good,
• 26:40
  Speaker 1: but I think it's a little too focused on on
• 26:44
  Speaker 1: public private partnerships. There are many other means of financing infrastructure.
• 26:49
  Speaker 1: If you look at Europe before the during the Mastricht
• 26:52
  Speaker 1: Treaty period when France, Germany and Italy all of them
• 26:55
  Speaker 1: try to converge into the euro Some of them had
• 26:58
  Speaker 1: a very high debt to GDP A show. One of
• 27:01
  Speaker 1: the things they did was they had a fire sale
• 27:03
  Speaker 1: on public infrastructure, all those telecom i p o s,
• 27:06
  Speaker 1: auto Strata in Italy, Vienna, flu Coffin, you know, in
• 27:10
  Speaker 1: the Vienna airport. Um I wasn't I was living in
• 27:14
  Speaker 1: Europe at the time, and you know, part of that
• 27:16
  Speaker 1: big wave of privatizations. So we have a lot of
• 27:19
  Speaker 1: infrastructure that generates cash that could be I p oed
• 27:23
  Speaker 1: and in a certain sense it might attract more public
• 27:26
  Speaker 1: support rather than less. To focus on the river, the
• 27:29
  Speaker 1: Mississippi River, is there one thing that you would recommend
• 27:33
  Speaker 1: that you would like to get across to listeners and
• 27:35
  Speaker 1: to lawmakers and to those in private industry, something that
• 27:39
  Speaker 1: could have an actual UH timeline so that it isn't
• 27:43
  Speaker 1: just a theory, it's something that can actually be put
• 27:45
  Speaker 1: in place. The word is sunset. We would like to
• 27:49
  Speaker 1: charge user fees. Users are willing to pay a fee
• 27:52
  Speaker 1: provided the fee is going towards what it's supposed to,
• 27:55
  Speaker 1: but once you've built it and you've paid for it,
• 27:57
  Speaker 1: the fee should go away. And the problem with a
• 28:00
  Speaker 1: lot of our infrastructure fees and proposals. Is that they're
• 28:03
  Speaker 1: oriented towards you know, staying on you know, infinitum. And
• 28:08
  Speaker 1: if you agree to sunset this, maybe we use bond covenants,
• 28:12
  Speaker 1: but you shut it down, eliminate the payments to day
• 28:15
  Speaker 1: it's complete. I think you get a lot of support
• 28:18
  Speaker 1: from US manufacturers and retailers. And is there a time
• 28:22
  Speaker 1: frame in your mind? I mean, when does this have
• 28:24
  Speaker 1: to happen before something terrible happens to the Mississippi River. Yeah. Absolutely,
• 28:28
  Speaker 1: We've already had a few incidents where and if you
• 28:31
  Speaker 1: if you look at the Army Corps, who's in charge
• 28:33
  Speaker 1: of maintaining the Mississippi Waterway ever since the turn of
• 28:37
  Speaker 1: the century, so almost eighteen years now. Every year the
• 28:41
  Speaker 1: Army Corps budget is cut and if you add that
• 28:44
  Speaker 1: up over eighteen years. What they're trying to do now
• 28:47
  Speaker 1: is keep as many fingers as they can in the
• 28:49
  Speaker 1: holes in the dike. But there's there're more holes than
• 28:52
  Speaker 1: there are fingers. Look at the Great Lakes, the ports
• 28:55
  Speaker 1: haven't been dredged. The We're looking at eighteen million cubic
• 28:59
  Speaker 1: yards of dredg maintenance that should have been done. It's
• 29:02
  Speaker 1: a backlog. You look at the Mississippi. We've got locks
• 29:05
  Speaker 1: that don't work. Um, that's time to fund these guys.
• 29:09
  Speaker 1: Thank you very much, Walter kempsie's economist, Chief strategist, US Sports, Airports,
• 29:13
  Speaker 1: Global Infrastructure Group for Jones lang Las. Thanks for listening
• 29:21
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 29:24
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 29:27
  Speaker 1: podcast platform you prefer. I'm Pim Fox. I'm on Twitter
• 29:31
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
• 29:35
  Speaker 1: one before the podcast. You can always catch us worldwide
• 29:38
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