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The Death Bell Is Tolling For Small Private Colleges · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul Swinge. You
• 0:05
  Speaker 1: along with my co host Lisa Brahma Waits. Each day
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  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: you and your money, whether at the grocery store or
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  Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Well, small colleges in the United
• 0:22
  Speaker 1: States are really facing a tough time. Dwindling enrollment is
• 0:25
  Speaker 1: really putting a pressure on the finances, and now it's
• 0:28
  Speaker 1: actually spilling over into the credit markets. To get the latest,
• 0:31
  Speaker 1: we welcome Amanda Albright, municipal bond reporter for Bloomberg News.
• 0:34
  Speaker 1: She joins us here on a Bloomberg Interactive broker studio. So, Amanda,
• 0:37
  Speaker 1: really interesting story on the Bloomberg terminal today. Give us
• 0:41
  Speaker 1: a sense of what is happening with some of these
• 0:44
  Speaker 1: smaller private colleges and how it's impacting the credit markets. Yeah,
• 0:49
  Speaker 1: so in the muni market. Um, the troubles of small
• 0:51
  Speaker 1: private colleges have kind of been talked about for years, UM,
• 0:54
  Speaker 1: but lately we're really seeing that kind of come to
• 0:56
  Speaker 1: a head. Um, there is a bankruptcy by the College
• 0:58
  Speaker 1: of New Rochelle Um that a lot of people were
• 1:01
  Speaker 1: watching just to kind of see how the recoveries would fare. Um.
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  Speaker 1: You know, it's still kind of not for for certain yet,
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  Speaker 1: but it doesn't look too good for bond holders, even
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  Speaker 1: though the college was sitting on some really valuable real estate. Aman,
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  Speaker 1: can you just set this scene for us why private
• 1:15
  Speaker 1: colleges are struggling so much right now? Sure, so there's
• 1:18
  Speaker 1: a lot of different factors going on, but I think
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  Speaker 1: enrollment and demographics are what people point to. So basically,
• 1:24
  Speaker 1: the number of high school graduates is kind of in
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  Speaker 1: this flatlining mode UM, and there are forecasts that you know,
• 1:30
  Speaker 1: after that, UM, it will actually start declining. So in
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  Speaker 1: regions in the Northeast and the Midwest where there are
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  Speaker 1: a lot of um, small liberal arts liberal arts schools,
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  Speaker 1: um that bills have to start competing for students, and
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  Speaker 1: that could actually cause more enrollment. This isn't just a
• 1:44
  Speaker 1: this is not just a demographics issue. This is also
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  Speaker 1: a people realizing that paying you know, two hundred thousand
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  Speaker 1: dollars for four years in college doesn't always pay off
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  Speaker 1: and ends up leedingly like leaving you with a ton
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  Speaker 1: of debt. I mean, isn't that a big part of
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  Speaker 1: it too? And people just choosing not to do it? Absolutely.
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  Speaker 1: I think a lot of students. You know, there's a
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  Speaker 1: lot of headlines about the student loan debt crisis that
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  Speaker 1: we're in UM, and you know, people are kind of
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  Speaker 1: rethinking the value of a small private school UM. And
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  Speaker 1: you know, the other part of it is that, you know,
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  Speaker 1: these small colleges, in order to kind of have the
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  Speaker 1: really nice liberal arts environment, you have to spend a
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  Speaker 1: lot to give that, you know, small classroom sizes, stuff
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  Speaker 1: like that. So expenses are really becoming a problem for
• 2:23
  Speaker 1: these institutions too. So how typical is it for a
• 2:26
  Speaker 1: U S college or university to actually tap the bond market?
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  Speaker 1: Is that part of most you know, colleges, university's capital structure,
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  Speaker 1: balance sheet. It's incredibly common. And I think that's what's
• 2:36
  Speaker 1: so interesting about this is, you know, a decade ago,
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  Speaker 1: maybe it would be unthinkable that we would be in
• 2:40
  Speaker 1: the situation that we're in because you know, the number
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  Speaker 1: of high school graduates was increasing so much. UM, so
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  Speaker 1: private colleges, you know, took on debt for dorms, athletic buildings, classrooms, um.
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  Speaker 1: And now you know they're kind of dealing with these
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  Speaker 1: emptier dorm rooms, emptier classrooms and so um, it's kind
• 2:56
  Speaker 1: of coming back to bite them. How much is this
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  Speaker 1: because of immigration or how much US colleges are attracting
• 3:03
  Speaker 1: foreign students. That's definitely part of it. And I think
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  Speaker 1: that's something that's affecting even public institutions, even really elite colleges.
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  Speaker 1: That's something that is really really interesting to keep an
• 3:13
  Speaker 1: eye on, you know, the next few years because you know,
• 3:15
  Speaker 1: ratings companies. Have you even been talking about, you know,
• 3:18
  Speaker 1: the the immigration issue and just kind of how international
• 3:21
  Speaker 1: students are being deterred. What's the So the New Rochelle
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  Speaker 1: they filed for bankruptcy. Okay, so do we have any
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  Speaker 1: senses or any history as to the kind of recovery
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  Speaker 1: rates that you typically get in these types of bankruptcies. Yeah,
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  Speaker 1: So the College of New Rochelle bonds, Um, they're trading
• 3:36
  Speaker 1: around forty cents on the dollar. Um. There was a
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  Speaker 1: bankruptcy by Dowling College in Long Island, UM, and bond
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  Speaker 1: holders recovered an average of about seventeen percent. So that
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  Speaker 1: kind of gives you an idea UM. You know, these
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  Speaker 1: situations there's not a ton of debt at play. But
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  Speaker 1: you know, when you have a seventeen hundred private colleges
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  Speaker 1: in the US, and you know a lot of them
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  Speaker 1: took on bonds, that's something that I think is very
• 4:00
  Speaker 1: concerning to bond holders. Are there any estimates how many
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  Speaker 1: of these colleges will have to merge or close entirely? Uh,
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  Speaker 1: just sort of make this make sense in terms of
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  Speaker 1: how many colleges there are. It's it's been interesting because
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  Speaker 1: there's been forecasts all over the place about closures and
• 4:15
  Speaker 1: mergers UM. And what's interesting is that in both cases
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  Speaker 1: there are impediments to both. So for closures, alums will
• 4:22
  Speaker 1: often step in and do fundraising so that can that
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  Speaker 1: has prevented some closures from actually happening. And that's why
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  Speaker 1: closures are still so rare, is that, you know, it's
• 4:30
  Speaker 1: really painful for colleges to close. And when it comes
• 4:32
  Speaker 1: to mergers UM, you know, it's kind of like a
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  Speaker 1: company merger, only there's even more emotions at play because
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  Speaker 1: you know, you have alums who are worried about, you know,
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  Speaker 1: losing the identity of their school. UM. You also have
• 4:42
  Speaker 1: the financials of colleges. You know, can to colleges make
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  Speaker 1: it work if both of them are dealing with the same,
• 4:47
  Speaker 1: you know, poor financial outlook. So that's kind of why
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  Speaker 1: both are very rare. But everyone is kind of saying,
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  Speaker 1: you know that they expected to continue and increase. Amanda
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  Speaker 1: al right, thank you so much, really interesting story. Amanda
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  Speaker 1: al Right. Munismal bona reporter for Bloomberg News. It is
• 5:16
  Speaker 1: a historic day in Washington, d C. Is the House
• 5:19
  Speaker 1: debates uh the Trump impeachment guidelines currently and is poised
• 5:25
  Speaker 1: for a vote on the impeachment proceedings. A lot of
• 5:29
  Speaker 1: people are perhaps shrugging this off as feeling sort of inevitable,
• 5:33
  Speaker 1: but here with us, I'm so pleased to say. Who
• 5:35
  Speaker 1: has the historical reference of twenty years in public service,
• 5:40
  Speaker 1: including working in all three branches of the federal government
• 5:43
  Speaker 1: is Chris Lew, Senior fellow at the University of Virginia
• 5:45
  Speaker 1: Miller Center, which studies the presidency. He's also a former
• 5:48
  Speaker 1: senior White House aid to President Obama. Chris, so good
• 5:53
  Speaker 1: to have you. Can you paint today in a historic
• 5:56
  Speaker 1: sort of picture to understand the importance even if people
• 6:00
  Speaker 1: sort of shrug it off, as somewhat inevitable it will
• 6:02
  Speaker 1: be passed by the House and shot down by the Senate. Yeah. No,
• 6:06
  Speaker 1: I mean it's exactly right. Whether you think this is
• 6:08
  Speaker 1: a good idea or not a good idea, it's a
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  Speaker 1: historic moment. Uh. The President Trump is set to be
• 6:12
  Speaker 1: only the third president ever impeached. There was a fourth,
• 6:16
  Speaker 1: Richard Nixon, who didn't quite even make it to this
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  Speaker 1: point before he resigned. And so, you know what what
• 6:22
  Speaker 1: is being discussed today, and inevitably, how the Senate trial goes,
• 6:26
  Speaker 1: we'll we'll be setting guardrails for future presidencies and good
• 6:29
  Speaker 1: or a bad way. And so look, um, you know, politics,
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  Speaker 1: Um is what this is all about. I mean, I
• 6:35
  Speaker 1: don't mean that in a bad way, but we always
• 6:37
  Speaker 1: think about this in political terms. But this is a
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  Speaker 1: really historical thing that will be studied for many years
• 6:42
  Speaker 1: after this. So Chris, let's fast forward a little bit.
• 6:45
  Speaker 1: Let's I'm kind of making the assumption that the House
• 6:47
  Speaker 1: will vote to impeach today. We get to the Senate
• 6:49
  Speaker 1: and it appears like the Republicans are the leaded leadership.
• 6:54
  Speaker 1: Mitch McConnell, Lindsay Graham and so on are coordinating with
• 6:58
  Speaker 1: the White House and and maybe not going to call
• 7:00
  Speaker 1: any witnesses. How right common or unusual is that? Well, look,
• 7:05
  Speaker 1: I don't think the coordination is uncommon. I think the
• 7:10
  Speaker 1: you know, openly bragging about the coordination, which is what
• 7:13
  Speaker 1: the Mitch McConnell is saying, as well as Lindsey Graham saying, look,
• 7:17
  Speaker 1: I'm not even gonna try to be fair. Um. You
• 7:19
  Speaker 1: know a lot of people have analogized the senators to jurors.
• 7:23
  Speaker 1: They're kind of like jurors, but they're kind of like
• 7:25
  Speaker 1: judges as well. And I think what you've seen in
• 7:27
  Speaker 1: previous impeachments um is at least senators kind of at
• 7:31
  Speaker 1: least saying, uh, you know, we're going to try to
• 7:33
  Speaker 1: objectively look at the facts. And I think what's less
• 7:36
  Speaker 1: clear here is how that senator trial is going to
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  Speaker 1: go down, because ultimately it's it's up to a majority
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  Speaker 1: of senators as to whether they want to call additional
• 7:43
  Speaker 1: witnesses or simply rest on the record that was developed
• 7:47
  Speaker 1: in the House. So, given what you were talking about,
• 7:50
  Speaker 1: that this impeachment proceeding will set guardrails in a way
• 7:54
  Speaker 1: and guidelines for future presidencies, what are you watching in
• 7:58
  Speaker 1: terms of the developments today and future ones that are
• 8:00
  Speaker 1: expected in the Senate that will give us a sense
• 8:03
  Speaker 1: of how this is going. Well. You know, it is interesting.
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  Speaker 1: The most recent example we have is obviously the Clinton impeachment,
• 8:11
  Speaker 1: which dealt with both perjury and obstruction of justice, and
• 8:14
  Speaker 1: so a majority of the House impeach President Clinton on that. Again,
• 8:18
  Speaker 1: it was largely a partisan vote. So if that's sort
• 8:20
  Speaker 1: of the floor of what qualifies as an impeachable offense. Uh,
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  Speaker 1: And then you go back to the Watergate impeachment, where
• 8:27
  Speaker 1: again it was abuse of abuse of process, abuse of power,
• 8:31
  Speaker 1: I'm sorry, obstruction of justice, obstruction of Congress. That was
• 8:33
  Speaker 1: sort of at a different level. You know, you probably
• 8:36
  Speaker 1: put the Trump impeachment probably closer to Watergate than to Clinton.
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  Speaker 1: But the fact that, um, you know, many of the
• 8:45
  Speaker 1: same people who voted for the Clinton impeachment will now
• 8:47
  Speaker 1: vote against the Trump impeachment does leave you sort of
• 8:50
  Speaker 1: scratching your head as to how you can rationalize these
• 8:53
  Speaker 1: things intellectually. So, Chris, there's been some reporting that, you know,
• 8:57
  Speaker 1: behind closed doors, many Republicans say, you know, we're not
• 9:00
  Speaker 1: really supportive at President Trump, his administration, many of his
• 9:04
  Speaker 1: policies but you know, we're you know, we've got to
• 9:07
  Speaker 1: support him here. Are you surprised that we haven't had
• 9:09
  Speaker 1: any Republicans? Are any meaningful number of Republicans come out
• 9:13
  Speaker 1: against Trump? And will we see it in maybe today's
• 9:15
  Speaker 1: vote or in the Senate? Well, it is sort of interesting.
• 9:18
  Speaker 1: I mean, I think we will expect to see, uh today,
• 9:22
  Speaker 1: essentially three members of Congress break from their parties. UM.
• 9:26
  Speaker 1: Justin Amash, formerly a Republican, has already switched to an independent.
• 9:30
  Speaker 1: Jeff Andrew, a Democrat, will vote against impeachment and then
• 9:33
  Speaker 1: leave his party. So essentially of the three people who
• 9:36
  Speaker 1: will vote against impeachment to have had to leave their party. Uh.
• 9:38
  Speaker 1: Contrast that with Clinton, there was probably you know, a
• 9:41
  Speaker 1: half dozen to a dozen members on either side who
• 9:44
  Speaker 1: sort of flipped votes. And I think in large measure
• 9:47
  Speaker 1: reflects the partisanship um that we have in this country
• 9:50
  Speaker 1: right now. Um. You know, people famously remember the Watergate
• 9:54
  Speaker 1: moment when UM, both House and Senate Republican leaders went
• 9:57
  Speaker 1: to Richard Nixon and said, look, we we don't um,
• 10:01
  Speaker 1: we can't condone your behavior. We don't have the support
• 10:03
  Speaker 1: if you don't resign, we're going to impeach you you know,
• 10:06
  Speaker 1: that was forty five years ago. You can't really imagine
• 10:08
  Speaker 1: that kind of a conduct or by by Republican leaders
• 10:12
  Speaker 1: in this current climate. I'm trying to understand that. You know,
• 10:15
  Speaker 1: it's really important that you mentioned that this is a
• 10:17
  Speaker 1: really partisan issue and as part of the reason why, Uh,
• 10:21
  Speaker 1: sort of there's this image being painted that there's an
• 10:23
  Speaker 1: apathy about the proceedings is just sort of political theater.
• 10:27
  Speaker 1: But can you sort of paint this also in terms
• 10:31
  Speaker 1: of how unusual it is or is this common? I mean,
• 10:34
  Speaker 1: was the Nixon impeachment also viewed as very much of
• 10:38
  Speaker 1: just a partisan issue? Yeah, And you know, there's a
• 10:41
  Speaker 1: couple of ways to look at it. What is based
• 10:42
  Speaker 1: on public opinion polls, you know right now, you know,
• 10:45
  Speaker 1: it's depending on which poll you look at. About forty
• 10:48
  Speaker 1: six to fifty percent of the American public believes that
• 10:51
  Speaker 1: President Trump should be impeached. That's significantly higher than any
• 10:55
  Speaker 1: that than what was the case in Clinton, where um
• 10:58
  Speaker 1: support frompeachment early across and really in the Nixon impeachment
• 11:04
  Speaker 1: it only crossed that mark at the very end, about
• 11:07
  Speaker 1: the month before he finally resigned. Uh, The support for
• 11:09
  Speaker 1: impeachment cross, so you know, and and I think in
• 11:13
  Speaker 1: some measure reflects that these charges against President Trump are
• 11:16
  Speaker 1: easy to understand and people can sort of make their
• 11:19
  Speaker 1: assessment one way or another whether it's improper. But I
• 11:22
  Speaker 1: think it also reflects the partisan nature of our country
• 11:25
  Speaker 1: right now. We are a fifty fifty country. And what's
• 11:28
  Speaker 1: unfortunate here is that this is a historic moment. This
• 11:30
  Speaker 1: is one of the most solemn responsibilities that a member
• 11:33
  Speaker 1: of Congress can undergo, and for many of these members
• 11:36
  Speaker 1: of Congress, this will be the most consequential vote that
• 11:39
  Speaker 1: they will take in Congress. And yet everything is sort
• 11:41
  Speaker 1: of being seen through a partisan political lens instead of
• 11:45
  Speaker 1: an impartial examination of the facts and law, which is
• 11:49
  Speaker 1: I don't expect to see much of that on the
• 11:51
  Speaker 1: House floor today. I'm hoping when we get to the
• 11:52
  Speaker 1: Senate we're able to do a little bit of that. Hey, Chris,
• 11:55
  Speaker 1: thanks so much for joining us. We really appreciate your
• 11:57
  Speaker 1: insight here into what is again as you suggest it
• 12:00
  Speaker 1: and characterizes a historic day. Chris lewis a senior fellow
• 12:03
  Speaker 1: at the University of Virginia Miller Center, which studies the presidency.
• 12:06
  Speaker 1: He's also a former senior White House aide to President
• 12:09
  Speaker 1: of AMAS. So interesting getting Chris is well informed comments
• 12:13
  Speaker 1: about the process, about the likelihood of how this will
• 12:16
  Speaker 1: proceed as we make the vote today through UH the
• 12:19
  Speaker 1: House and then we get to the Senate. So we
• 12:22
  Speaker 1: will have all of that for you. Coming up. FedEx
• 12:40
  Speaker 1: shares not having a particularly boring day, but not having
• 12:43
  Speaker 1: a good day by any means. Shares down more than
• 12:45
  Speaker 1: ten percent after giving guidance that was absolutely slaughtered by
• 12:50
  Speaker 1: Wall Street analysts. Joining us out to talk about what
• 12:53
  Speaker 1: actually went wrong here, as Satisha Jindal, he's president of
• 12:56
  Speaker 1: s J Consulting. Satisha, I just want to start with
• 13:00
  Speaker 1: at the sort of elephant in the room. How much
• 13:02
  Speaker 1: does this stem from Amazon dot Com telling some of
• 13:05
  Speaker 1: its third party businesses and clients that they cannot ship
• 13:09
  Speaker 1: with that ax practically none? Okay, great, I'm glad that
• 13:16
  Speaker 1: we've established that. So what was the main driver here?
• 13:19
  Speaker 1: The main drivers that are two structural issues taking place
• 13:24
  Speaker 1: and in both the express business domestically in the US
• 13:29
  Speaker 1: and in the ground business, which are the two major
• 13:32
  Speaker 1: drivers of revenue and profitability for the company. And in
• 13:36
  Speaker 1: the express business, the market has been declining practically it's
• 13:42
  Speaker 1: flat over last fourteen years because not too many people
• 13:46
  Speaker 1: are shipping packages across the country. They don't need express,
• 13:50
  Speaker 1: so they've got, in my view, too many aircraft. They
• 13:54
  Speaker 1: could bring more of them down and as a reference
• 13:57
  Speaker 1: to UPS, handles as many parcels in express network as
• 14:02
  Speaker 1: fed X while doing it with fewer aircraft because they
• 14:06
  Speaker 1: have integrated network. And during the same last fifteen years,
• 14:10
  Speaker 1: why express volume has been practically flat one percent increased,
• 14:14
  Speaker 1: grounds increased, and yet fed X is not adjusted structurally
• 14:21
  Speaker 1: to handling it in that manner? What what? Why are
• 14:26
  Speaker 1: they not you know, making that change. When I think of,
• 14:29
  Speaker 1: you know, moving packages around, I think of fed X.
• 14:31
  Speaker 1: I mean they kind of created this whole industry, this
• 14:34
  Speaker 1: whole business. What are they missing here? Why? You're correct,
• 14:38
  Speaker 1: they created the express industry, and absolutely fred Smith is
• 14:42
  Speaker 1: a legend and art industry, but that was for the
• 14:46
  Speaker 1: express service that started for two years ago. The parcel
• 14:50
  Speaker 1: and the industry for express documents also is absolutely degrees
• 14:56
  Speaker 1: turned around over these years. Now everything is moving a
• 14:59
  Speaker 1: short distance and in ground and then it is not
• 15:03
  Speaker 1: business to business. The business to consumer is growing at
• 15:07
  Speaker 1: two or three times the rate of business to business
• 15:10
  Speaker 1: and they failed to recognize the changes driven by e
• 15:15
  Speaker 1: commerce that was resulting lower yal due to lighter weight
• 15:20
  Speaker 1: and short of zones, and they don't comment about being
• 15:23
  Speaker 1: attention to it until March of this is you make
• 15:28
  Speaker 1: a really important point, which is perhaps they should be
• 15:31
  Speaker 1: reducing assets and reducing investment rather than increasing it. Am
• 15:35
  Speaker 1: I reading that correctly? Because it comes at a time
• 15:37
  Speaker 1: of them increasing investment across the whole host of different areas.
• 15:41
  Speaker 1: You are absolutely spot on. You should be a financial
• 15:44
  Speaker 1: analyst because they talk about I mean, they talk about
• 15:50
  Speaker 1: having a capex of five pot nine billion dollars in
• 15:53
  Speaker 1: this fiscal leer, next fiscal leer and the one after that,
• 15:57
  Speaker 1: and they're buying a lot of aircraft. They should be
• 16:00
  Speaker 1: rinking their capacs. They should not be buying new aircraft.
• 16:03
  Speaker 1: Existing aircraft don't have to be retired because they don't
• 16:06
  Speaker 1: need so many aircraft, and they could retire them and
• 16:09
  Speaker 1: put it on the ground and do it at the
• 16:12
  Speaker 1: lower cost and invest in the ground network. And here's
• 16:16
  Speaker 1: another thing that has been overlooked. The ground business quartered
• 16:21
  Speaker 1: over quarter compared to last year, increased revenue by hundred
• 16:25
  Speaker 1: and seventy three million, but the purchase. Transportation cost went
• 16:30
  Speaker 1: up by two salary and wages went up by eighty,
• 16:35
  Speaker 1: so they went up by three millions in costs to
• 16:38
  Speaker 1: get extra hundred and seventy million revenue. That that is
• 16:41
  Speaker 1: a structural issue that will get corrected, but it won't
• 16:45
  Speaker 1: happen in one quarter. It will be at least three
• 16:49
  Speaker 1: quarters to a year before they get that. But they
• 16:52
  Speaker 1: needed to do it real quickly. Was that a good
• 16:55
  Speaker 1: move to kind of severe business with Amazon? It just
• 16:58
  Speaker 1: seems odd to me. My view is that it's they
• 17:04
  Speaker 1: should have been able to make money handling the business,
• 17:07
  Speaker 1: and if they chose not to, it should have never
• 17:10
  Speaker 1: become an element to be shared in the public, should
• 17:14
  Speaker 1: have never gotten any ink in the media, and now
• 17:19
  Speaker 1: they did that. So Amazon did what they did last
• 17:22
  Speaker 1: couple of days, and it will be back and forth
• 17:26
  Speaker 1: and that isn't healthy for either party. Satista Jindel, thank
• 17:31
  Speaker 1: you so much for joining us. Satista Ganel, as the
• 17:33
  Speaker 1: president of s J Consulting, joining us here to talk
• 17:36
  Speaker 1: about fed X again. The stock down about ten on
• 17:40
  Speaker 1: weaker than expected guidance going forward, setting weaker global trade
• 17:44
  Speaker 1: and also probably some of the issues with Amazon dot
• 17:47
  Speaker 1: Com walking away from that business. All right, let's take
• 18:04
  Speaker 1: stock of nineteen s and p up about seven investment
• 18:08
  Speaker 1: grade bonds up about fourteen percent. Even municipal bonds had
• 18:13
  Speaker 1: a stellar year, up over seven percent. Let's talk about
• 18:15
  Speaker 1: the municipal bond market. We welcome Jeff Berger, senior portfolio
• 18:18
  Speaker 1: manager for US municipal bond Strategies at Melon Investments based
• 18:22
  Speaker 1: on Boston, but joining us here in our Bloomberg Bloomberg
• 18:26
  Speaker 1: Interactive Broker studio. So, Jeff, give us a sense about
• 18:29
  Speaker 1: the muni performance in nineteen What drove it? Thanks for
• 18:34
  Speaker 1: having me. The performance in municipals really across the curve
• 18:37
  Speaker 1: was stellar in two thousand nineteen, and precisely to answer
• 18:40
  Speaker 1: your question what drove it? If you look at technical
• 18:43
  Speaker 1: fundamental evaluation factors in our market, the one that really
• 18:47
  Speaker 1: stands out our technical factors technical factors meaning really supply
• 18:50
  Speaker 1: and demand in our market. And the demand really was
• 18:54
  Speaker 1: unprecedented in two thousand nineteen, particularly from US retail investors.
• 19:00
  Speaker 1: In fact, the highest on records since really records of
• 19:04
  Speaker 1: municipal mutual fund inflows began in In no year have
• 19:08
  Speaker 1: we seen more interest in the SASSA class than we
• 19:10
  Speaker 1: saw in two thousand nineteen, so technical factors drove the gains.
• 19:14
  Speaker 1: I'm wondering about the potential risks because I tend to
• 19:16
  Speaker 1: be a kill joy, but also because we were just
• 19:19
  Speaker 1: talking to Amanda all Right from Bloomberg News about the
• 19:21
  Speaker 1: fact that private colleges are are going to be devaulting
• 19:24
  Speaker 1: on their debt. Do you view this market as riskier
• 19:28
  Speaker 1: or do you view it as a place to just
• 19:30
  Speaker 1: keep on plowing in because the technicals are going to
• 19:33
  Speaker 1: continue being good. Yes. Now that's that's a really on
• 19:35
  Speaker 1: point question, the sense that anytime you see a market
• 19:38
  Speaker 1: with the type of stellar demand that you've seen in
• 19:41
  Speaker 1: two thousand nineteen, I think as prudent investment managers like
• 19:44
  Speaker 1: we are at Melon, looking at what's driven this, you
• 19:47
  Speaker 1: always have to ask the question what could go wrong?
• 19:49
  Speaker 1: What could change? And and it's really a probabilistic type analysis.
• 19:54
  Speaker 1: And so if you look at the of what could
• 19:56
  Speaker 1: change and what's the probability of that changing, I would
• 19:59
  Speaker 1: say the probably ability of it is low, and what
• 20:01
  Speaker 1: that change could be would be a reversal of of
• 20:04
  Speaker 1: all these flows. It's really, in my opinion and our
• 20:07
  Speaker 1: the team's opinion, not not so much a credit issue
• 20:09
  Speaker 1: per se, it's whether the retail demand for this asset
• 20:12
  Speaker 1: class were to change for for any number of reasons.
• 20:16
  Speaker 1: We don't think those reasons are in place right now.
• 20:18
  Speaker 1: Um again, really looking at what's driven that retail inflow
• 20:22
  Speaker 1: in our market, it has a lot to do with
• 20:24
  Speaker 1: the Tax Cutting Job Act. It has to do with
• 20:26
  Speaker 1: the fact that state and local taxes being kept at
• 20:29
  Speaker 1: ten thousand dollars as the maximum you could deduct from
• 20:32
  Speaker 1: your federal tax liability. About it has driven a lot
• 20:37
  Speaker 1: of people in and so it's our opinion that that
• 20:42
  Speaker 1: that demand and the reason for that demand is not
• 20:44
  Speaker 1: likely to abate anytime soon. So an election year, how
• 20:48
  Speaker 1: do you be there's gonna be a lot of talk
• 20:49
  Speaker 1: about tax policy and lots of other things. How do
• 20:52
  Speaker 1: you mean this will is typically perform in a in
• 20:54
  Speaker 1: an election year. Sure, So, when we think about elections
• 20:57
  Speaker 1: in the impact on the municipal bond market, there are
• 21:00
  Speaker 1: a number of factors that we consider. The first is, well,
• 21:03
  Speaker 1: typically uh, come come elections season, A number of ballots
• 21:07
  Speaker 1: on on the referendum or initiative process to say do
• 21:10
  Speaker 1: we want to issue more debt as a local community.
• 21:12
  Speaker 1: So we're gonna be paying attention to how much debt
• 21:15
  Speaker 1: is on the ballot and how much of it gets
• 21:17
  Speaker 1: approved this November. By and large, though, this market is
• 21:21
  Speaker 1: well capable of absorbing more supplies, so that in terms
• 21:25
  Speaker 1: of hierarchies not the number one concern. What we also
• 21:28
  Speaker 1: are paying attention to are the implications from tax policy,
• 21:31
  Speaker 1: whether it's the re election of the president or a
• 21:33
  Speaker 1: Democrat coming into power. Under both scenarios where of the
• 21:37
  Speaker 1: mindset currently that the tax policy You've seen Donald Trump's
• 21:40
  Speaker 1: tax policy with a salt cap, and most of the
• 21:43
  Speaker 1: Democrats are proposing some uh tax policy change, meaning tax increase.
• 21:48
  Speaker 1: Both of those generally are good for for the market.
• 21:51
  Speaker 1: And the final piece we're paying attention to is whether
• 21:53
  Speaker 1: there's an increased probability of a federal infrastructure bill um
• 21:57
  Speaker 1: post election. There's arguments that you really, you really think
• 22:00
  Speaker 1: there's any chance of that post election, we're talking talking
• 22:05
  Speaker 1: next year, We're gonna be doing infrastructure next year. Well,
• 22:09
  Speaker 1: we certainly desperately need it, so it's maybe it's aspirational
• 22:14
  Speaker 1: in the sense that as infrastructure bell Yes, is that
• 22:18
  Speaker 1: the gateway tunnel right across the literally And is it
• 22:21
  Speaker 1: like you love your pet project. I just blew through
• 22:26
  Speaker 1: LaGuardia this morning, and that's great. What's going on there?
• 22:28
  Speaker 1: I mean, is it? Though? With the cabs it's ridiculous.
• 22:32
  Speaker 1: So I took Uber so I did not have to deal.
• 22:34
  Speaker 1: I'm learning so we evolve as as consumers, and I've
• 22:37
  Speaker 1: learned that the taxi line can be a little long.
• 22:40
  Speaker 1: All right. One question, I just quickly to wrap it
• 22:43
  Speaker 1: up here. What about foreign investment. We've seen an increase there.
• 22:45
  Speaker 1: What are you expecting on that front? Absolutely? I think
• 22:47
  Speaker 1: foreign investors is probably one of the most underreported stories
• 22:50
  Speaker 1: in our market in the sense that what you're seeing
• 22:54
  Speaker 1: across the globe is a demand for this asset class
• 22:57
  Speaker 1: driven by just low sovereign yields across the world, with
• 23:00
  Speaker 1: a third of the world at sub zero rates, You're
• 23:03
  Speaker 1: seeing new buyers into this asset class. And what gets
• 23:06
  Speaker 1: us most excited is global investors really for the first
• 23:10
  Speaker 1: time are recognizing the under appreciation, the under value of
• 23:13
  Speaker 1: this market. That the opportunities and municipals are being recognized
• 23:17
  Speaker 1: across the globe, and you're seeing that now a tremendous
• 23:20
  Speaker 1: flow from both Europe and Asia. All Right, and before
• 23:23
  Speaker 1: we let you go, Jeff, what project? What's your number
• 23:25
  Speaker 1: one infrastructure pet project that you would push for? What
• 23:28
  Speaker 1: I would push for? Oh gosh, So I'm a Boston person,
• 23:31
  Speaker 1: so I'm gonna root you already had the big dig. Yeah,
• 23:33
  Speaker 1: but you know, I'm also green, and so I think
• 23:36
  Speaker 1: let's let's move away from the big dig and let's
• 23:39
  Speaker 1: really work on public transportation. I think our T M
• 23:42
  Speaker 1: B T A in Boston can could be improved. Jeff Burger,
• 23:45
  Speaker 1: who is green? Jeff Burger, Senior Profolio Manager for US
• 23:48
  Speaker 1: Municipal Bond Strategies at Melon Investments, based in Boston. Thank
• 23:51
  Speaker 1: you so much for being here. Thanks for listening to
• 23:53
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 23:55
  Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
• 23:58
  Speaker 1: you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
• 24:02
  Speaker 1: I'm Lisa Abram Wohits. I'm on Twitter at Lisa Abram
• 24:04
  Speaker 1: Whits One. Before the podcast, you can always catch us worldwide.
• 24:07
  Speaker 1: I'm Bloomberg Radio