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Expectations For Airlines As Earnings Take Off · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. Well, we had American
0:22
Speaker 1: airlines report numbers today, smaller than expected loss uh. Cautiously
0:27
Speaker 1: optimistic about a continued recovery, UH, particularly in domestic That's
0:31
Speaker 1: a little bit better than what we heard from Delta
0:33
Speaker 1: Airlines and United, and I think offered maybe a little
0:35
Speaker 1: bit more caution here about the rebound in the airline business.
0:39
Speaker 1: Let's dig a little bit deeper in the airline business.
0:42
Speaker 1: We welcome Frank Homes, CEO and Chief Investment Officer of
0:45
Speaker 1: US Global Investors. Uh. Frank, I know you have a
0:48
Speaker 1: lot of experience with all things aviation aeronautics. You've got
0:52
Speaker 1: your E T F J E T S, E T
0:55
Speaker 1: F SO a lot of experience there, Frank, What are
0:57
Speaker 1: you taking away here from what we've heard from some
0:59
Speaker 1: of the big US airlines. Well, talking to you in
1:03
Speaker 1: New York is the Jets et f It's not the
1:05
Speaker 1: Jets football team, that's right, And uh, I think the
1:10
Speaker 1: big part is what happened last year in March the
1:13
Speaker 1: t s A started publishing daily and you get on Bloomberg.
1:17
Speaker 1: Is a nice functionality of how many people the t
1:20
Speaker 1: s A clear and prior to COVID it was two
1:23
Speaker 1: point seven million people a day. Two million people a
1:27
Speaker 1: day were just domestic travel. Seven hundred thousand were inbound
1:31
Speaker 1: from Europe, Asia and Latin America. That number fell down
1:35
Speaker 1: to in April mid April last year down to less
1:38
Speaker 1: than ninety people a day. Now what we've seen is
1:43
Speaker 1: a huge surge over a million, three million, four a
1:47
Speaker 1: day now flying and and as that daily published, the
1:51
Speaker 1: longer stays up of that number, the faster the airlines
1:55
Speaker 1: can get to break even. The business traveler is not
1:59
Speaker 1: going to come in great numbers until the until most
2:03
Speaker 1: of the population is vaccinated. So the triangulation do you
2:07
Speaker 1: want to take a look at it is what is
2:09
Speaker 1: the penetration of of the population being vaccinated. Creed's got
2:14
Speaker 1: confidence for travel. The first big movement has been tourists
2:18
Speaker 1: can wait. The airlines have reinvented where they fly to,
2:22
Speaker 1: like San Antonio to Miami and I'm based in San Antonio.
2:25
Speaker 1: Used to be NonStop every morning American airlines, it's not
2:28
Speaker 1: doing it southwest to Fort Lauderdale. You're seeing all this
2:33
Speaker 1: reconfiguration of taking people from north to south, and the
2:37
Speaker 1: airlines have been able to move people for tourism. That
2:40
Speaker 1: business traveler is going to wait and probably what I
2:43
Speaker 1: think is until about six people have had their second
2:47
Speaker 1: needle uh for the vaccine process, that conference will then
2:52
Speaker 1: see it. I mean, I love that you brought up
2:54
Speaker 1: the business travel. Correct me if I'm wrong, But we
2:56
Speaker 1: think that the business travel is a higher profitable, better
2:59
Speaker 1: margin and traveler than the leisure traveler going on vacation.
3:04
Speaker 1: What does that mean then for the composition of the
3:06
Speaker 1: margin mix of the profitability for these airlines they're looking
3:10
Speaker 1: to get back to being profitable. It explodes, you know,
3:15
Speaker 1: it's it's massive. And the other big part that the
3:17
Speaker 1: real big wind will be Europe when Europe finally gets
3:21
Speaker 1: his act together and getting more people vaccinated and travel
3:24
Speaker 1: opens up over there. Because jess As is a global
3:27
Speaker 1: airlines index um that recalibrates every quarter and picking those
3:33
Speaker 1: with the strongest financial stocks. So I think that the
3:36
Speaker 1: big opportunities will be business travels. More people vaccinate here
3:41
Speaker 1: and Europe opens up this summer. UH, this will busial
3:44
Speaker 1: fast track the profitability of the airlines from both business
3:48
Speaker 1: travel and international travel. The tickets are much more profitable
3:53
Speaker 1: across the pond travel Franks or is there still a
3:58
Speaker 1: risk for some of these carriers here. Um, you know,
4:02
Speaker 1: they really can't have stained profitability without um, their international travel,
4:08
Speaker 1: without their business travel. And again we're seeing some pandemic numbers,
4:12
Speaker 1: most notably today out of India that are just really
4:14
Speaker 1: going the wrong way. Um. Is there still that cloud
4:17
Speaker 1: hanging over whether these companies can survive, particularly those with
4:21
Speaker 1: you know, UH more leverage balance sheets. Well, it's a
4:26
Speaker 1: great question. But I think what we've seen is the
4:28
Speaker 1: capital markets have been so fluid UH and in raising
4:33
Speaker 1: capital it's been inexpensive, and there's new mechanisms from UH
4:38
Speaker 1: and at the market mechanism a t M, they call
4:40
Speaker 1: it ability to raise capital. We've seen price discovery explode
4:45
Speaker 1: in the past year with all the robin Hood investors
4:48
Speaker 1: that coming in, and and that liquidity attracts other bigger
4:54
Speaker 1: fund managers and institutions. So I think the system is
4:58
Speaker 1: a Washwood capital and I don't think it's it's it's
5:03
Speaker 1: easy to see how fast facts are exploding. Uh And
5:07
Speaker 1: and the capital markets are to be very exciting for investors.
5:11
Speaker 1: And I think we're going to continue to see more
5:13
Speaker 1: capital formation by these airlines be able to tap those
5:16
Speaker 1: complo markets. Curveball here, we're going to go from jets
5:20
Speaker 1: into bitcoin. What the heck are your clients asking you
5:23
Speaker 1: about bitcoin and the shake out below fifty? Well, you know,
5:29
Speaker 1: I launched the first public company to mind cryptocurrencies. It's
5:32
Speaker 1: called high Blockchain Technology, and uh it minds e theorum
5:37
Speaker 1: and bitcoin. I think that the bitcoin is going through,
5:41
Speaker 1: uh it's it's sort of normal, big correction. I think
5:45
Speaker 1: it's temporary. You're seeing more and more adoption PayPal venmo.
5:50
Speaker 1: People can go on and buy a fraction of bitcoin.
5:52
Speaker 1: They don't have to worry about fifty five thousand dollars spending.
5:55
Speaker 1: They can buy five thousand dollars. Uh And And and
5:59
Speaker 1: as you get more and more people adopting to this,
6:02
Speaker 1: now thirty five million going to forty million, they call wallets.
6:06
Speaker 1: Uh And, you have a limited supply Metcalf's law suggests
6:11
Speaker 1: if it goes to a hundred thousand, So I've always
6:13
Speaker 1: advocated a two percent waiting in that asset class is
6:17
Speaker 1: an alternative asset class. You can do it through the
6:20
Speaker 1: cryptical mining companies, or you could do it directly. You
6:23
Speaker 1: can't buy stocks on your Bend Moore account, and you
6:26
Speaker 1: can't buy on PayPal, but you can buy bitcoin and
6:30
Speaker 1: and that is a very important long term adoption. Frank Holmes, CEO,
6:36
Speaker 1: Chief investment officer for US Global Investors, thank you so
6:39
Speaker 1: much for joining us today getting the report Paul on
6:43
Speaker 1: jets airlines and bitcoin as coin base it ees a
6:47
Speaker 1: three hundred level at a three oh six. Yeah, I know.
6:49
Speaker 1: It's it's interesting the volatility in bitcoin, which is a
6:51
Speaker 1: big driver of coin base, is with us and this
6:54
Speaker 1: Franco suggesting maybe that's just a regular form of a
6:58
Speaker 1: correction in that currency. So we'll more coming up. This
7:01
Speaker 1: is Bloomberg, all right. We got the leading economic indicator
7:08
Speaker 1: data point for the month of March came in at
7:10
Speaker 1: uh where did it come in at one point three
7:13
Speaker 1: uh percent? Um? You know better than a one percent? Look,
7:16
Speaker 1: so we had the the actual economic indicator increased one
7:20
Speaker 1: point three percent came in and one eleven point six
7:22
Speaker 1: that's pretty good. That follows a one zero point one
7:24
Speaker 1: percent decrease in February. So pretty strong numbers coming out
7:28
Speaker 1: of the month of month of March for the U
7:30
Speaker 1: S economy. Let's dig down a little bit deeper. We
7:33
Speaker 1: will do that with Ottoman Oldrum, Senior Director Economics and
7:36
Speaker 1: Global Research Chair at the Conference Board. So Aduman, thanks
7:40
Speaker 1: so much for joining us. Once again, pretty good numbers
7:42
Speaker 1: in March. Is that just kind of a catch up
7:43
Speaker 1: from what was a tough winter month in February. Good morning, Paul,
7:49
Speaker 1: great to be here. Uh, yeah, the Leading Indicators had
7:53
Speaker 1: quite a positive report this morning. Um if February was
7:58
Speaker 1: slightly uh negative, revised down a little bit. So it
8:03
Speaker 1: was a rough sort of winter months in the beginning
8:06
Speaker 1: of the year. So part of this is catch up,
8:09
Speaker 1: but it really is also the continuation of the positive
8:13
Speaker 1: momentum that the leading index had been building since you know,
8:19
Speaker 1: say the middle of last year. You know, with the
8:21
Speaker 1: reopening of the economy, um and more good news is
8:26
Speaker 1: kind of feeding into the economy and the leading indicators
8:30
Speaker 1: looking ahead. Now. I think what really stood out to
8:33
Speaker 1: me is that all ten components are contributedly contributing positively.
8:39
Speaker 1: What are those ten components? What are you seeing that
8:41
Speaker 1: is really leading this recovery? Yes, so that is very
8:46
Speaker 1: good news. Indeed, so all ten components are contributing positively.
8:51
Speaker 1: There are really kind of five areas that are grouped
8:55
Speaker 1: together in this leading index. Uh and uh so those
8:58
Speaker 1: are you know, labor mark, hits, manufacturing, consumers outlook, construction,
9:04
Speaker 1: and financial indicators, and all areas are flashing very positive. Um.
9:10
Speaker 1: So you in the program, you mentioned unemployment insurance claims.
9:15
Speaker 1: That is one of the components. Uh, and it is
9:17
Speaker 1: continuing to drop uh and feeding into those positive contributions.
9:22
Speaker 1: The good sign from labor markets and that really is
9:26
Speaker 1: kind of the beginning of a virtuous cycle that feeds
9:30
Speaker 1: on itself, right, and that's manufacturing orders are rising, Supply
9:35
Speaker 1: managers are very positive about the outlook. Consumers outlook is
9:40
Speaker 1: also become much more positive about the expectations. Uh and
9:45
Speaker 1: we would expect that to translate into more spending. Housing
9:49
Speaker 1: permits are increasing after the bad winter months. There's a
9:54
Speaker 1: pick up there. Um. And financial indicators are also feeding
9:58
Speaker 1: positively in the into the leading index. Autuman. You know
10:02
Speaker 1: it's kind of a weird paradox in the labor market.
10:04
Speaker 1: You know. What's we still have so many people unemployed,
10:06
Speaker 1: much higher than we would like, certainly economists would like.
10:10
Speaker 1: Yet what we hear from employers across the board as
10:12
Speaker 1: they're having a very difficult time filling positions, particularly on
10:16
Speaker 1: the lower end, and they often cite the fact that
10:19
Speaker 1: it's tough to compete against some of the government fiscal
10:21
Speaker 1: stimulus in terms of UH enhanced unemployment. How's that factoring
10:26
Speaker 1: into the economy? Is that a risk at all to
10:29
Speaker 1: kind of the reopening of this economy? So it is
10:34
Speaker 1: one of the potential risks as the economy kind of
10:38
Speaker 1: builds more momentum. UH. There is UH has been a
10:42
Speaker 1: lot of labor market disruption and UH. You know, it's
10:46
Speaker 1: not just in the macro top level numbers, but when
10:50
Speaker 1: you look at the detail of the different sectors that
10:52
Speaker 1: laid off workers, there's a lot of UH variety across
10:57
Speaker 1: different sectors. You know, some continued along UH and some
11:03
Speaker 1: really shed a lot of workers, which they're now trying
11:06
Speaker 1: to you know, higher back UH. And that sort of
11:10
Speaker 1: kind of perpetuates the disruptions that we've been seeing and
11:13
Speaker 1: that could the difficulty of finding and hiring workers could
11:18
Speaker 1: lead to you know, wage pressures uh in different sectors
11:22
Speaker 1: differentially and create even more disruptions in a way, kind
11:28
Speaker 1: of trying to move workers from one sector to another.
11:31
Speaker 1: It's not that easy and you'd have to pay them
11:33
Speaker 1: even higher and uh, and that difficulty in hiring could continue.
11:39
Speaker 1: And um, you know, my colleagues at the Conference Board
11:43
Speaker 1: have already started talking about labor shortages, you know, coming back.
11:47
Speaker 1: This is not something that we saw over the last year,
11:51
Speaker 1: and they may, indeed, you know, come back earlier than
11:54
Speaker 1: we might have expected. Yeah, it's a really interesting dynamic
11:57
Speaker 1: to what is an improving labor market. Au amount Uzel Drum,
12:00
Speaker 1: thank you so much for joining us. Automan is a
12:03
Speaker 1: director of Economic Research and Global Research Chair at the
12:06
Speaker 1: Conference Board. Again, the March leading Economic indicator came in
12:10
Speaker 1: with a growth rate of one point three percent. The
12:12
Speaker 1: consensus was one percent, so better than expected and his
12:15
Speaker 1: Ottoman was mentioning kind of across the board improvements, a
12:19
Speaker 1: little bit of catch up from the week winter months,
12:21
Speaker 1: but certainly a strong number. You know, Taylor, back in
12:26
Speaker 1: the day, I used to work at Credit Swiss or
12:27
Speaker 1: what was then known as Credit Swiss first Boston, so
12:30
Speaker 1: I tend to follow the company and for newsflow to
12:33
Speaker 1: see what's the latest there, and the boy, they've been
12:36
Speaker 1: in the news but for all the wrong reasons. Let's
12:39
Speaker 1: get the latest on Credit Swiss. We go to our
12:42
Speaker 1: ACE Banks analyst from Bloomberg Intelligence. That would be Alison Williams.
12:47
Speaker 1: She's been with Bloomberg Intelligence covering the banks. It's the
12:50
Speaker 1: beginning of Bloomberg Intelligence about twelve years ago. Before that,
12:52
Speaker 1: she was at Morgan Stanley Investment Management investing in a
12:56
Speaker 1: lot of these big banks. Allison, thanks so much for
12:58
Speaker 1: joining us here. Boy, it just seems like Credit Swisch
13:02
Speaker 1: just goes from minefield to mindfield and they just step
13:05
Speaker 1: on these minds all the time. Give us the latest
13:08
Speaker 1: on what's going on there and how they're trying to
13:09
Speaker 1: kind of get past it. I guess I think that
13:13
Speaker 1: the latest today UM a couple of key things. First
13:16
Speaker 1: of all, um, they did a convertible offering raising two
13:19
Speaker 1: billion of capital. I think that's I think that's a
13:23
Speaker 1: good step towards risk management, right because even though they
13:27
Speaker 1: had the capital to absorb the loss. I think this
13:29
Speaker 1: will help to study the ship it'll stop UM questions
13:33
Speaker 1: swirling around the positions, especially since we know that there's
13:36
Speaker 1: another UM arts charge related coming in next quarter. We
13:41
Speaker 1: know that there's probably a regulatory and legal fallout to come. UM.
13:46
Speaker 1: So granted it is dilutive to shareholders, but UM, but
13:51
Speaker 1: I think that UM it's it's smart from a risk
13:55
Speaker 1: management perspective. And then much of the other changes are
14:00
Speaker 1: exactly what you'd expect. They're going to be pulling back
14:02
Speaker 1: within the prime brokerage unit UM, cutting that business by
14:06
Speaker 1: about a third. They're going to be UM pulling which
14:08
Speaker 1: will result in you know, paring down at the investment
14:11
Speaker 1: bank balance sheet UM by about ten percent. UM. There's
14:16
Speaker 1: obviously been changes in management for the prime brokerage unit.
14:20
Speaker 1: The Preston Bank had the chief risk officer. Again UM,
14:23
Speaker 1: these are all things you'd expect. They continue to do
14:26
Speaker 1: a review UM and they continue to make progress UM
14:30
Speaker 1: in the asset management business related to some of the
14:32
Speaker 1: green Filly issues. You know, Allison, big picture, it's interesting
14:35
Speaker 1: the timing. I'm in a class right now called managing
14:38
Speaker 1: financial risk. We're learning how to calculate var and expected shortfall.
14:43
Speaker 1: Where were the var where were the risk parameters? Of
14:47
Speaker 1: credit suites that allowed this to happen. So UM. I
14:52
Speaker 1: think the most important lesson on var which hopefully you're
14:55
Speaker 1: also learning, is that it's a flawed measure and it's
14:58
Speaker 1: backwards looking. So bar is going to look, you know,
15:02
Speaker 1: um pretty ugly for Credit Sweee going forward. Although the
15:05
Speaker 1: interesting thing is that you know they this this generally
15:09
Speaker 1: would be considered a contra revenue item because but because
15:12
Speaker 1: of the size of the item um, they booked it
15:14
Speaker 1: as a charge and as a provision, so outside of
15:17
Speaker 1: their unit you know, in contrast to Morgan Stanley that
15:20
Speaker 1: absorbed it um within their revenue um. You know this
15:25
Speaker 1: The second part of it is, you know, tier point
15:28
Speaker 1: risk management and in these divisions, you know, there's there's
15:32
Speaker 1: generally all different types of tools by product, by client,
15:35
Speaker 1: by size of the exposure. And I think it's the
15:37
Speaker 1: size of the exposure versus the size of the unit
15:41
Speaker 1: um that that really UM was outsized because if you
15:46
Speaker 1: think about you know, Credit Sweee probably makes about a
15:49
Speaker 1: billion dollars a year for the last couple of years
15:52
Speaker 1: from prime BROKERA. It's it's our estimate that a five
15:55
Speaker 1: billion dollar UM loss on this client. You know, Morgan Stanley,
16:00
Speaker 1: um you know, is probably at least double that. They've
16:03
Speaker 1: made forty billion over the last ten years and they
16:06
Speaker 1: had a one million dollar loss, and and they're they're
16:09
Speaker 1: much bigger in the business and than Credit Suite. So
16:13
Speaker 1: it signals that perhaps, you know that this bank was
16:16
Speaker 1: taking outside risks. The question is, you know, were they
16:19
Speaker 1: were they taking outside risks in terms of the you
16:23
Speaker 1: know that just the exposure to this client, just trying
16:25
Speaker 1: to get bigger in the business. And then obviously there's
16:29
Speaker 1: um as I'm sure you know and has been um
16:32
Speaker 1: well discussed. There were specific issues the family office, the
16:35
Speaker 1: lack of transparency, etcetera, um that were sort of unique
16:40
Speaker 1: to the situation. Alison. You know, again, I've got a
16:43
Speaker 1: lot of history with this firm and and it just
16:45
Speaker 1: seems like there's there's always some big, big control issues,
16:48
Speaker 1: some big bad trades, big bad investments, charges all over
16:52
Speaker 1: the place. When did when does the board get held responsible?
16:56
Speaker 1: I mean, blowing out your investment banking chief and your
16:58
Speaker 1: chief risk officer. Okay, I get it, but what does
17:02
Speaker 1: the board take some responsibility here? Because it just seems
17:04
Speaker 1: systematic almost to this firm. Well, you know, one of
17:08
Speaker 1: the reasons why Credit Sweez was able to offset this
17:12
Speaker 1: loss was reduction and compensation. And you know one of
17:16
Speaker 1: the things that the bank did um when they had
17:19
Speaker 1: sort of flagged the initial or when I guess they
17:23
Speaker 1: first sized the four point four billion franc four point
17:26
Speaker 1: seven billion charge um turned out to be more, but
17:30
Speaker 1: they you know, went back and adjusted um, you know,
17:34
Speaker 1: executive compensation um for the years prior. And that's and
17:38
Speaker 1: that's something also that that's I guess relatively new to
17:41
Speaker 1: the industry, but you know, clawing back um compensation when
17:46
Speaker 1: when things like this happen. Yeah, interesting, just extraordinary to
17:50
Speaker 1: watch this happen. And again that two billion dollar convert
17:52
Speaker 1: offering um perhaps strengthen off that balance sheet. Allison Williams,
17:56
Speaker 1: thanks so much for joining us. Always appreciate getting your
17:58
Speaker 1: perspective on these global investment banks. Allison leads our banks
18:03
Speaker 1: coverage for Bloomberg Intelligence, the research arm of Bloomberg, and
18:08
Speaker 1: Boy Taylor just seems they can't get out of their
18:10
Speaker 1: own way. Sometimes I just need her to do my
18:12
Speaker 1: bar homework, Paul, That's the only thing I need exactly. Yeah,
18:16
Speaker 1: I mean she's had a lot of experience again, you know,
18:18
Speaker 1: investing in these banks. She knows all the management teams,
18:21
Speaker 1: she knows all the strategies, she knows where all the
18:23
Speaker 1: bodies are are buried in when you're looking at Credit
18:26
Speaker 1: Swiss again, just so many things to be wary of
18:30
Speaker 1: if you are investing in that company. But we'll have
18:32
Speaker 1: to see how it plays out. This is Bloomberg time
18:38
Speaker 1: for Bloomberg Opinion. Today we have Carl Smith. He's Bloomberg
18:42
Speaker 1: Opinion columnist for Bloomberg Opinion. He's kind of fascinating column
18:44
Speaker 1: here entitled repealing salt cap would be wrong move for Democrats.
18:49
Speaker 1: And then someone lives in the Metro New York area,
18:51
Speaker 1: one of those high tax areas that cap on the
18:54
Speaker 1: state and local taxes. Really hit home when you have
18:57
Speaker 1: followed the taxes, and uh, it's not just the Metro
19:00
Speaker 1: newerk areas, other high tax areas Taylor where that was
19:03
Speaker 1: a big issue. Paul. It's the only thing municipal bond
19:06
Speaker 1: investors care about right now. That's the only reason we're
19:08
Speaker 1: doing this story. They knew I was going to be
19:10
Speaker 1: on radio. They pushed Matt Miller out. No one in
19:12
Speaker 1: Berlin even knows what this is. Municipal bond investors only
19:16
Speaker 1: care about the salt repeal if it gets repealed or not.
19:20
Speaker 1: That cap deduction, Paul, I know it's big, it's big.
19:23
Speaker 1: It's something I bring up all the type. Carl, thanks
19:24
Speaker 1: so much for joining us here. I'd like to see
19:27
Speaker 1: the saltcap repealed. Why should Democrats not pursue that? Well,
19:32
Speaker 1: so it's understandable why a lot of people in you know, Mentro,
19:35
Speaker 1: New York and California high cost areas, UM took a
19:38
Speaker 1: big bite on that. But if we look at so
19:41
Speaker 1: the economics of the repeal, UM, it's it's pretty it's
19:45
Speaker 1: pretty regressive. So I think there's been some analysis that
19:48
Speaker 1: like on net, it's more regressive than the tax cuts
19:52
Speaker 1: and Jobs Acts work. That is, more of the benefits
19:54
Speaker 1: from salt cap repeal would go to UM top five
19:58
Speaker 1: per st of owners, top one sin of earners then
20:01
Speaker 1: went to that group during the TCJ altogether. So it's
20:06
Speaker 1: it's unusual for Democrats. And then it's a little bit
20:09
Speaker 1: more skewed towards UM higher earners and even sort of
20:13
Speaker 1: Republican tax policies. UM. So that's why I think it's
20:16
Speaker 1: kind of a kind of a bad fit for you know,
20:19
Speaker 1: where Democrats at least say their priorities are. UM. It
20:23
Speaker 1: also does take revenue, and we're in a we're in
20:25
Speaker 1: a place now where you know, the government has spent
20:28
Speaker 1: a lot of money, much of that was borrowed UM.
20:30
Speaker 1: The President Joe Biden, has indicated that he doesn't want
20:33
Speaker 1: to continue that, that he wants to fund most of
20:35
Speaker 1: the new initiatives, and so that's gonna take revenue. So
20:38
Speaker 1: if you want to do the big things on infrastructure,
20:40
Speaker 1: that's gonna take revenue. Saltcaps, so it takes away from that.
20:44
Speaker 1: I mean, few of those things can be done, and
20:46
Speaker 1: so it's kind of a policy that just doesn't fit
20:49
Speaker 1: with where the Democrats want to go and what they
20:52
Speaker 1: say their priorities are. I also think that it's it's
20:54
Speaker 1: not really popular with UM a lot of Republicans either,
20:57
Speaker 1: so it's kind of a loser on that side as well.
20:59
Speaker 1: I love that you bring up the fight between Democrats
21:01
Speaker 1: and Republicans, but then really and maybe more importantly, the
21:04
Speaker 1: fight within the Democratic Party. I mean, you think of
21:06
Speaker 1: the ao c s who say, no way, this is
21:09
Speaker 1: a loophole for the rich, and then you have maybe
21:11
Speaker 1: more moderates you're thinking the chuck humor saying we really
21:14
Speaker 1: need this to be included this repeal if we're going
21:16
Speaker 1: to get through this broader tax plan. What are the
21:19
Speaker 1: conversations within the Democratic Party about how they're going to
21:23
Speaker 1: get this done or not? Is this all just cultural politics? Yes?
21:28
Speaker 1: So I think that one of the one of the
21:29
Speaker 1: things that's made that's really complicated is that UM during
21:32
Speaker 1: tc J A, Republicans are looking for ways to fund
21:36
Speaker 1: the corporate tax cut UH, and something that economists really
21:40
Speaker 1: have pushed for a long time is capping or get
21:42
Speaker 1: rid of getting rid of the state and local tax
21:44
Speaker 1: deduction UM. We think that it's it basically subsidizes UH
21:50
Speaker 1: states that have high levels of taxation, and there's no
21:53
Speaker 1: particular reason to do that or increasing efficiency. But anyway,
21:56
Speaker 1: so the Republicans went towards that, but they had this
21:59
Speaker 1: problem and that it's a tax increase. So how do
22:02
Speaker 1: they justify this tax increase? And some of the some
22:06
Speaker 1: of the President Trump's allies got on the idea that
22:09
Speaker 1: we'll call it the blue state tax increase. Wool emphasize
22:12
Speaker 1: that only like blue states are gonna pay. And in particular,
22:15
Speaker 1: they didn't get rid of the whole thing, They only
22:17
Speaker 1: captain it ten because that would sort of like maximize
22:21
Speaker 1: damage the blue states while leaving some wealthy people in
22:25
Speaker 1: a red states still able to deduct into that limit.
22:28
Speaker 1: Yeah really big, Yeah, yeah, Carl, So that that kind
22:32
Speaker 1: of goes to where I wanted to go. You know,
22:33
Speaker 1: a lot of folks that are supporting the repealing the
22:36
Speaker 1: soft cap said, hey, this was just a political uh
22:39
Speaker 1: dig by President Trump against those areas of the country
22:43
Speaker 1: that did not support them in the election. It had
22:45
Speaker 1: nothing to do with fair taxation or economics. It was
22:48
Speaker 1: simply all political. As a result, it deserves to be repealed.
22:53
Speaker 1: So it's become kind of, I guess, more of a
22:55
Speaker 1: political issue than an economic issue. If anything else, is
22:57
Speaker 1: that how it's being played out in Washington. That is
23:01
Speaker 1: a big part of it. And I mean, I think
23:02
Speaker 1: that's what's making that's just making the split among Democrats harder.
23:05
Speaker 1: I mean, um, I think among even sort of Republican
23:09
Speaker 1: wanks and Democratic wanks are kind of like both against
23:13
Speaker 1: the salt deduction. But when Trump's people came out and
23:16
Speaker 1: made it a cultural issue, that made it hard for
23:19
Speaker 1: Democrats to be in favor of captain salt, especially Democrats
23:23
Speaker 1: whose own constituents, we're going to get hit. But and
23:25
Speaker 1: so you know, it's it's a live issue now, precisely
23:28
Speaker 1: because Trump made it a cultural issue. Carl, I'm throwing
23:32
Speaker 1: you a curveball here, but we know you're smart enough
23:34
Speaker 1: to handle it. I've been studying a lot of the
23:36
Speaker 1: state local government budgets. I think of New York, which
23:39
Speaker 1: after those tax increases, you're looking at fifty tax rate
23:43
Speaker 1: on some of the top earners, higher than California, and
23:46
Speaker 1: a lot of those budget assumptions, I think Cuomo's assumes
23:51
Speaker 1: that the salt repeal indeed will go through. Are we
23:54
Speaker 1: getting into trouble when we're building budgets on a state
23:58
Speaker 1: level that's based on something that's going to happen at
24:00
Speaker 1: the federal level that well, we're not quite sure that
24:03
Speaker 1: that's even going to happen, right, And I mean, I mean,
24:07
Speaker 1: I mean, so obviously that's not wise. I mean, we're
24:09
Speaker 1: not wise from a budgetary standpoint. Um. It puts more
24:12
Speaker 1: pressure on representatives in New York since he's already said,
24:15
Speaker 1: we'll look, you know, we're committed to this. We've already
24:17
Speaker 1: committed this. We're expecting you to come through. And so
24:20
Speaker 1: it makes sense. It's a political move, but obviously, um,
24:22
Speaker 1: you know, it's a poor budgetary move and only makes
24:25
Speaker 1: things riskier for the state going forward because I don't
24:29
Speaker 1: think that the salt cap is probably gonna get repealed.
24:32
Speaker 1: So um, I mean, it'll be a big fight, but
24:34
Speaker 1: I don't think ultimately the it will be repealed. What's
24:39
Speaker 1: the sense of timing here, Carl, about you know, when
24:41
Speaker 1: we're gonna get some resolution here? You know, I'm I'm
24:45
Speaker 1: not clear on that because, uh, you know, so far,
24:48
Speaker 1: the President has said that he's he's not particularly interested
24:51
Speaker 1: in doing it. I know that's the position of the
24:54
Speaker 1: economists at the White House. Um, but Schumer seems to
24:57
Speaker 1: be digging in on it. Pelosi need soon as you're
25:00
Speaker 1: thinking in on it, and so um, it's really like
25:03
Speaker 1: a live ball, right. I mean, I would expect, given
25:06
Speaker 1: the wings are that the President will ultimately get his
25:08
Speaker 1: way on this if he sticks to what the economists
25:11
Speaker 1: are telling him. But because it has so much support
25:14
Speaker 1: them on the Democratic leadership, it's hard to say when
25:18
Speaker 1: things will really like be resolved. All right, Carl, thank
25:21
Speaker 1: you so much for joining us. We appreciate that. Carl
25:23
Speaker 1: Smith from Bloomberg Opinion. You can reach all you can
25:26
Speaker 1: read all of Carl's work and that of our good
25:29
Speaker 1: folks at Bloomberg Opinion at Bloomberg dot Com slash Opinion.
25:32
Speaker 1: Lots of great work there as well as I love
25:35
Speaker 1: these debates in the afternoon when I'm on TV, we
25:38
Speaker 1: debate about if there's inflation or not. I think there is.
25:40
Speaker 1: Romane thinks that there's no inflation. I'm going to now
25:43
Speaker 1: start debating you on salt. Is it a tax loophole?
25:46
Speaker 1: Is it not? I love it. Yeah, I don't know.
25:49
Speaker 1: I don't know, but it's it's certainly hit folks in
25:51
Speaker 1: the metro New York area, I think pretty hard. Um
25:55
Speaker 1: and um, you know, it's one of the incentives for
25:57
Speaker 1: living in this part of the country as you can
25:59
Speaker 1: get some tax really on your state and local taxes
26:01
Speaker 1: which you can be very high in certain you know,
26:04
Speaker 1: jurisdictions around the country. And I guess what made it
26:07
Speaker 1: even worse is that it was just a political gain
26:09
Speaker 1: their political football and and you know a lot of
26:12
Speaker 1: folks ended up paying the price just based upon where
26:15
Speaker 1: they live. But we'll certainly have more on that. That
26:17
Speaker 1: will be certainly a story that Bloomberg news will be
26:20
Speaker 1: following going forward, so we'll have more coming up. This
26:24
Speaker 1: is Bloomberg Markets. Thanks for listening to the Bloomberg Markets podcast.
26:29
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
26:32
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
26:36
Speaker 1: on Twitter at Matt Miller. On Ball Sweeney, I'm on
26:40
Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
26:43
Speaker 1: catch us worldwide at Bloomberg Radio