Latest / Bloomberg Intelligence / Cumberland's Burgess on Puerto Rico Defaulting on Debt (Audio)

Transcript

Cumberland's Burgess on Puerto Rico Defaulting on Debt (Audio) · Bloomberg Intelligence

• 0:04
  Speaker 1: Broadcasting live to New York, Bloomberg eleventh to Washington, d C.
• 0:08
  Speaker 1: Bloomberg to Boston, Bloomberg twelve, Hundreix to San Francisco, Bloomberg
• 0:14
  Speaker 1: nine to the Country Julius Exam General one nineteen and
• 0:18
  Speaker 1: around the globe the Bloomberg Radio plus Appen Bloomberg dot Com.
• 0:22
  Speaker 1: This is taking stock for the first time ever. Puerto
• 0:26
  Speaker 1: Rico is getting ready to default on its constitutionally guaranteed
• 0:30
  Speaker 1: debt one billion dollars in payments due on a total
• 0:35
  Speaker 1: of about thirteen billion dollars. We're gonna find out what
• 0:39
  Speaker 1: this means for investors, what it means for elected officials
• 0:43
  Speaker 1: in Puerto Rico and the US, and what it means
• 0:46
  Speaker 1: for the market. We're going to be speaking with Seawan
• 0:48
  Speaker 1: Burgess from Cumberland Advisors. I'm Kathleen Hayes, my co host,
• 0:53
  Speaker 1: Pim Fox is on vacation. And then we're gonna be
• 0:56
  Speaker 1: speaking to a formal legal advisor to former UK Prentis
• 1:00
  Speaker 1: Prime Minister David Cameron. Actually I shouldn't say former, he
• 1:03
  Speaker 1: hasn't stepped down yet, but he's on his way. We're
• 1:06
  Speaker 1: going to talk about navigating the post regulatory landscape and
• 1:09
  Speaker 1: also what's next for Mr Cameron. Now let's get to
• 1:13
  Speaker 1: Catherine Cowdery. She is in the Bloomberg newsroom with a
• 1:16
  Speaker 1: Bloomberg Business flash. Thank you, Kathleen Will. Consumer focused companies
• 1:19
  Speaker 1: are fueling modest games on Wall Street. The SMP five
• 1:22
  Speaker 1: funded is up for a fourth day in a soundtrack
• 1:24
  Speaker 1: for its biggest four day rally in nine months. Their
• 1:27
  Speaker 1: speculation at central banks will like to limit the falloff
• 1:30
  Speaker 1: from the UK's vote to leave the European Union. John Man,
• 1:33
  Speaker 1: late chief equity strategis at Wells Fargo Funds Management, says
• 1:36
  Speaker 1: investors are still assessing the impact of the Brexit vote
• 1:41
  Speaker 1: exactly what form this is going to take, but it's
• 1:43
  Speaker 1: very premature to get very negative or very positive on it.
• 1:46
  Speaker 1: I think what happens is, uh, the the governments, the
• 1:49
  Speaker 1: politicians sort of feel their way along the edge. Market
• 1:52
  Speaker 1: provides ample guidance as to what we like and what
• 1:55
  Speaker 1: we don't like. We check the markets every fifteen minutes
• 1:57
  Speaker 1: throughout the training day. Down Dustrial laborage is eighteen points
• 2:00
  Speaker 1: a tenth of a percent trading at seventeen thousand, nine
• 2:03
  Speaker 1: hundred forty seven. SMP five founded up nearly three points
• 2:06
  Speaker 1: an eighth of a percent at twenty one oh one,
• 2:09
  Speaker 1: and Astact is hired by fourteen point three tenths of
• 2:11
  Speaker 1: a percent, trading at forty eight fifty seven. West Texas
• 2:14
  Speaker 1: Intermediate crude oil up seventy cents a barrel one point
• 2:17
  Speaker 1: four percent at forty nine oh one. Spot gold is
• 2:20
  Speaker 1: up eighteen dollars seventy cents announced at thirteen thirty nine
• 2:23
  Speaker 1: thirty and a tenure treasury is up seven thirty seconds
• 2:25
  Speaker 1: with the yield of one point four four percent. Among
• 2:28
  Speaker 1: today's top business stories, Harley Davidson shares are rallying. They
• 2:32
  Speaker 1: are currently up thirteen and a half percent, trading at
• 2:34
  Speaker 1: fifty one dollar forty five cents. There's speculation that KKR
• 2:38
  Speaker 1: is preparing a bid for Harley Davidson of sixty five
• 2:41
  Speaker 1: dollars a share. And now let's get an update to
• 2:43
  Speaker 1: some of the other stories are following. Thank you Catherine
• 2:45
  Speaker 1: from the Bloomberg News room. I'm sharing on. Attorney General
• 2:49
  Speaker 1: Loretta Lynch says she will follow the recommendations of her
• 2:52
  Speaker 1: prosecutors and FBI investigators about whether to bring charges after
• 2:56
  Speaker 1: their investigation into Hillary Clinton's personal email server. Concludes. The
• 3:01
  Speaker 1: decision comes after news of a private meeting between Lynch
• 3:04
  Speaker 1: and former President Bill Clinton raised concern amongst some in
• 3:08
  Speaker 1: Washington about perceptions of the impropriety. Lynch discussed why she
• 3:12
  Speaker 1: isn't recusing herself completely. Well, recuse me with me that
• 3:15
  Speaker 1: I wouldn't even be brief on what the findings were
• 3:18
  Speaker 1: or what the actions going forward would be. Um And
• 3:21
  Speaker 1: while I don't have a role in those findings and
• 3:24
  Speaker 1: coming up with those findings, are making those recommendations as
• 3:27
  Speaker 1: to how to go forward, I'll be briefed on it,
• 3:29
  Speaker 1: and I will be accept accepting their recommendations. Lynch says
• 3:33
  Speaker 1: the questions concerning her meeting with Clinton are fair. The
• 3:36
  Speaker 1: FBI is marking the twentieth anniversary of the terrorists bombing
• 3:39
  Speaker 1: of the Kobar Towers since Saudi Arabia. The attack killed
• 3:43
  Speaker 1: nineteen U S. Air Force personnel. At a ceremony today,
• 3:46
  Speaker 1: FBI Director of James Comey spoke to the families of
• 3:49
  Speaker 1: those who died that day. I am so sorry for
• 3:52
  Speaker 1: your loss. The older I get, the more I've come
• 3:55
  Speaker 1: to believe the closure is a myth, the notion that
• 3:59
  Speaker 1: the whole in your heart heels is nonsense. It feels,
• 4:02
  Speaker 1: as the General said, I'm sure to you like it
• 4:04
  Speaker 1: was yesterday. The remembrance included a brief laying ceremony. Assemblyman
• 4:09
  Speaker 1: Keith Ryant has considered to state Senator Adriano Espaillanti in
• 4:13
  Speaker 1: the Democratic primary. He takes over the Harlem seat held
• 4:16
  Speaker 1: by Congressman Charlie Wrangell. Global News twenty four hours a
• 4:19
  Speaker 1: D eight powered by more than twenty six hundred journalists
• 4:22
  Speaker 1: and analysts more than a hundred and twenty countries from
• 4:25
  Speaker 1: the Bloomberg News room. I'm Sherry Anne, this is Bloomberg, Catherine,
• 4:31
  Speaker 1: thank you, and now let's get a quick update of
• 4:32
  Speaker 1: those benchmarks. Down Industrial leverages up twelve points at seventeen thousand,
• 4:36
  Speaker 1: ninety two, smp F I founded up two points one,
• 4:40
  Speaker 1: naszac Hire by thirteen at forty eight fifty five. And
• 4:44
  Speaker 1: that's a Bloomberg Business flash. This is taking stock with
• 4:49
  Speaker 1: Kathleen Hayes and Pim Fox on Bloomberg Radio. A debt
• 4:52
  Speaker 1: default in slow motion. For months, Puerto Rico has been
• 4:56
  Speaker 1: negotiating with creditors. It's been lobbying the US Congress and
• 5:02
  Speaker 1: the White House to do something to help it avoid default.
• 5:05
  Speaker 1: Help it restructure thirteen billion dollars worth of debt, and
• 5:09
  Speaker 1: actually not all of that debt, but certainly key parts
• 5:12
  Speaker 1: of it. And here we are today, Puerto Rico is
• 5:15
  Speaker 1: ready to default on about one billion dollars worth of
• 5:17
  Speaker 1: its general obligation bonds. Those are bonds that the Constitution
• 5:21
  Speaker 1: said must be paid before other items. That's why they
• 5:24
  Speaker 1: are in the passing such an ironclad guarantee to investors.
• 5:28
  Speaker 1: But if it's a choice between keeping kids in school,
• 5:31
  Speaker 1: keeping government hospitals open, uh, the President has helped in
• 5:35
  Speaker 1: the Congress now to help Puerto Rico take this step
• 5:38
  Speaker 1: that will keep it in flow it while it resolves
• 5:39
  Speaker 1: its debt problem. At least that's the hope. Let's talk
• 5:43
  Speaker 1: now to someone who's been following us very closely, Shawn
• 5:45
  Speaker 1: Burge's portfolio manager and analysts for fixed income at Cumberland Advisors,
• 5:50
  Speaker 1: joining us from Sara Sota. So, Sean, this is quite
• 5:52
  Speaker 1: a day for Puerto Rico. Yeah, I love Kathleen, So
• 5:56
  Speaker 1: it's quite a day. A little bit of been following
• 5:59
  Speaker 1: poor to go over the last you know, however long,
• 6:02
  Speaker 1: it's it's been a big day in a big week.
• 6:04
  Speaker 1: So it's uh, if you're looking at about UM a
• 6:08
  Speaker 1: billion of two billion in debt service due today actually
• 6:11
  Speaker 1: getting paid with the General Obligation UM debt getting shafted
• 6:17
  Speaker 1: for the most part. So it's a bad day if
• 6:19
  Speaker 1: you own uninsured commonwealth debt. What is in the plan
• 6:26
  Speaker 1: now that has been agreed on in Washington for Puerto
• 6:29
  Speaker 1: Rico to move ahead? What must they do? What can
• 6:32
  Speaker 1: they do? What kind of help are they going to get?
• 6:35
  Speaker 1: We know just from the outline of Premissa, which ended
• 6:38
  Speaker 1: up passing the House and the Senate and being signed
• 6:41
  Speaker 1: off by the President, and you know, very much uh
• 6:45
  Speaker 1: bipartisan support across the board, which was actually kind of
• 6:49
  Speaker 1: a rarity to see nowadays in politics. Um, that was
• 6:53
  Speaker 1: kind of reassuring to see that the federal government here
• 6:55
  Speaker 1: is now going to step in and really provide some
• 6:59
  Speaker 1: clarity and some erection for the commonwealth, because it seemed like,
• 7:03
  Speaker 1: you know, they were just kind of and a boat
• 7:05
  Speaker 1: afloat with no means to do anything. And what Promiser
• 7:09
  Speaker 1: really does is that establishes a seven member control board
• 7:13
  Speaker 1: which will oversee their budget and they're spending and allow
• 7:16
  Speaker 1: them the ability to restructure some of their debt. And
• 7:19
  Speaker 1: that's really where what is key and this it gives
• 7:22
  Speaker 1: them um the ability to look at their debt and
• 7:24
  Speaker 1: to be able to pay you know, hopefully what they
• 7:27
  Speaker 1: can afford to, and you'll see cuts across the board,
• 7:29
  Speaker 1: but it should hopefully put them in a better position
• 7:32
  Speaker 1: going forward. And that's why you know, we're pretty optimistic
• 7:35
  Speaker 1: to see this. Well, I'm glad to hear that you're optimistic,
• 7:40
  Speaker 1: because I still in a nutshell when I think of
• 7:43
  Speaker 1: three and a half million people with thirteen billion dollars
• 7:46
  Speaker 1: with a debt, I think, how in the world did
• 7:48
  Speaker 1: investors ever keep buying bonds from Puerto Rico seeing how
• 7:52
  Speaker 1: this was piling up on and what was basically a
• 7:55
  Speaker 1: poor country that was already in bad shape. I mean,
• 7:57
  Speaker 1: where's your optimism? Where it's what's what's doing rating it?
• 8:00
  Speaker 1: That's it's a very valid point because when you look
• 8:03
  Speaker 1: at it, about half the islands below the poppy line,
• 8:05
  Speaker 1: and you know, investors for decades and and the island
• 8:08
  Speaker 1: itself is at fault as well, because what you know,
• 8:11
  Speaker 1: what they didn't do with that money was really look
• 8:13
  Speaker 1: at improving their infrastructure, their you know, accounting techniques, or
• 8:16
  Speaker 1: they're really any of their internal mechanisms. They just kept borrowing,
• 8:20
  Speaker 1: and investors for decades just kept wanting the money. You know,
• 8:23
  Speaker 1: it's triple tax exempt, kept putting the funds and and
• 8:26
  Speaker 1: everywhere else, and it offered higher yields and typically what
• 8:28
  Speaker 1: you can find. So, you know, investors just or kind
• 8:33
  Speaker 1: of you know, let's fault here as well. Well. I
• 8:35
  Speaker 1: guess maybe they thought that government would step in as
• 8:37
  Speaker 1: it has. But of course, as you point out, the
• 8:39
  Speaker 1: owners of the general obligation bonds are not getting paid up.
• 8:42
  Speaker 1: A question from a listener who's a financial advisor and
• 8:44
  Speaker 1: advises his clients to buy various kinds of bonds. Is
• 8:47
  Speaker 1: it true that these bonds are held by hedge funds,
• 8:51
  Speaker 1: in which some are related to New York City teacher
• 8:54
  Speaker 1: pension funds. Uh, well, we know Puerto Rico has held
• 8:57
  Speaker 1: really across the board. Um A large person then is
• 9:00
  Speaker 1: actually held by island residents and and on island banks,
• 9:03
  Speaker 1: large percentages are held by mutual funds. I mean, you
• 9:06
  Speaker 1: can find Puerto Rico to really places that you really
• 9:09
  Speaker 1: wouldn't think you could. For instance, you know not that
• 9:12
  Speaker 1: not a pull any fund under the mud, but Rochester
• 9:14
  Speaker 1: is fund. Uh, Rochester Fund actually held a large percentage
• 9:18
  Speaker 1: of Puerto Rico and it for a long time and
• 9:21
  Speaker 1: it's really once it really all this came to light
• 9:23
  Speaker 1: with Puertoco, really people start to take a look. But
• 9:25
  Speaker 1: you can find Puerto Rico and you know all kinds
• 9:28
  Speaker 1: of well places and portfolios. So for investors, uh they
• 9:34
  Speaker 1: you're are you do you would you say to people
• 9:36
  Speaker 1: be aware of the general obligation bonds you buy now? Uh,
• 9:40
  Speaker 1: don't buy Puerto Rico. Are there some deals now in
• 9:42
  Speaker 1: Puerto Rico because they hit bottom and people have hope
• 9:44
  Speaker 1: this will be resolved? What are you what are you
• 9:46
  Speaker 1: buying for your clients? What do you advising clients at Cumberland. Yeah,
• 9:49
  Speaker 1: our our stance has always been to avoid uninsured general
• 9:54
  Speaker 1: uninsured Puerto Rico dead, just because there was so much
• 9:56
  Speaker 1: murderiness and there still is. Um promissa you know, really
• 10:02
  Speaker 1: clear up the situation. It just provides the map forward.
• 10:05
  Speaker 1: So we still have to see where we're structurings end up,
• 10:07
  Speaker 1: what kind of haircuts certain credits get. So in our
• 10:11
  Speaker 1: view and what we do at Cumberland is we focus
• 10:13
  Speaker 1: on the opportunities and insured Puerto Rico debt, Puerto Rican debt,
• 10:18
  Speaker 1: so We've always maintained that I'm insured that is really
• 10:21
  Speaker 1: carries a high um degree of risk with it, so
• 10:25
  Speaker 1: we've avoided that area of the market and really focus
• 10:29
  Speaker 1: more on the insurers and the opportunities in there. So
• 10:33
  Speaker 1: that's where our work was really concentrated. Well, thank you
• 10:36
  Speaker 1: so much, Sean. It's a complicated situation, but definitely a landmark,
• 10:41
  Speaker 1: I guess, a milestone for Puerto Rico. Well look forward
• 10:44
  Speaker 1: to having you back as the next phase of Puerto
• 10:47
  Speaker 1: Rico's debt saga, that's the word saga continues. I'm Kathleen
• 10:53
  Speaker 1: Hayes taking sock and this is Bloomberg. This Hampton's Commuter
• 11:01
  Speaker 1: Minute is brought to you by Landrover. When towers seem
• 11:03
  Speaker 1: like trees and roads become rivers, the Rangrover of Oak
• 11:06
  Speaker 1: is there to guide you through the twist and turns
• 11:07
  Speaker 1: of the urban jungle. Visit your tri state area Landrover
• 11:10
  Speaker 1: retailer for special offers. Land Over, Above and Beyond