Latest / Bloomberg Intelligence / Macri Frittered Away His Time To Make Reforms: Rhodes (Podcast)

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Macri Frittered Away His Time To Make Reforms: Rhodes (Podcast) · 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 wits each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money. Whether at the grocery store or
0:12
Speaker 1: the trading floor, find a Bloomberg penl podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Well, global trade and global finance
0:24
Speaker 1: continue to be in the headlines and continue to impact
0:27
Speaker 1: financial markets. To get the latest on some of the
0:30
Speaker 1: key global issues, we turn once again to Bill Rhodes.
0:32
Speaker 1: Bill as President CEO of William R. Rhodes Global Advisors.
0:35
Speaker 1: He's also author of the book Banker to the World,
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Speaker 1: Leadership Lessons from the front Lines of Global Global Finance.
0:42
Speaker 1: Bill joins us live here in the Bloomberg and Ractor
0:44
Speaker 1: Broker Studio. So Bill, let's turn our attention to Latin America.
0:48
Speaker 1: Argentina in the news. This you know, kind of blew
0:52
Speaker 1: up yesterday with yields on government bonds rising to the
0:54
Speaker 1: highest level since the country was last in the fall
0:57
Speaker 1: stocks and the pay so we're in free fall. What's
1:00
Speaker 1: the latest from Argentina? Length. The problem in in Argentina,
1:04
Speaker 1: as we were discussing in the break, is that when
1:07
Speaker 1: Macari came in, everyone had great expectations. I actually did
1:11
Speaker 1: a piece for Bloomberg the first week he was in office.
1:14
Speaker 1: What happened, though, is he fritted away his time. So
1:16
Speaker 1: instead of implementing tough economic reforms up front, like Fernando
1:21
Speaker 1: and Rick Carloso did with the Real Plan and Uh,
1:24
Speaker 1: Belsarovitch did UH with Poland when Poland broke away from
1:28
Speaker 1: the Soviet Union. He fritted it away and he called
1:32
Speaker 1: it gradualismo, the Spanish term for do it gradually. UH.
1:36
Speaker 1: And the reason he did that was because he thought
1:39
Speaker 1: it would help him politically. But if you don't take
1:41
Speaker 1: the tough measures up front, it blows up in your face. UH.
1:44
Speaker 1: And last year when I was there, they had just
1:47
Speaker 1: they were just firing ahead of the Central Bank, blaming
1:50
Speaker 1: him for it. Uh. They put in the Minister of
1:54
Speaker 1: Finance UH, and he lasted two or three months Caputo,
1:57
Speaker 1: and then he resigned or was fired because they did
2:02
Speaker 1: not want to take the tough steps. Now the I
2:04
Speaker 1: m F has got their next out there, just like
2:07
Speaker 1: they did on Greece, because they've given him the largest
2:09
Speaker 1: program efforts over fifty billion dollars, and they can't be
2:13
Speaker 1: very happy now because inflation is over fifty the country's
2:17
Speaker 1: deep into recession. Elections are in October and all of
2:21
Speaker 1: the polls show believe it or not. Uh. Christina Kirshner,
2:24
Speaker 1: who people thought would be in jail by now, says
2:27
Speaker 1: she's gonna run, and she's running ahead of Macari. And
2:30
Speaker 1: and now he slapped on price controls and having restarted
2:34
Speaker 1: that country more than anybody else in history five times.
2:37
Speaker 1: Every time they get into price controls, it doesn't work. Uh.
2:42
Speaker 1: And you remember you had a bad ending of Alfonsin,
2:44
Speaker 1: you had a bad ending of day lar Ua. The
2:46
Speaker 1: press in Argentina is full of that. I hope it
2:49
Speaker 1: doesn't happen because I think Macari has the right intentions,
2:52
Speaker 1: but uh, time may have run out, and so he's
2:55
Speaker 1: got to use the rest of his time to implement
2:58
Speaker 1: these reforms, and maybe too late. So I remember all
3:01
Speaker 1: the way back, maybe two years ago, when Argentina was
3:04
Speaker 1: selling hundred year bonds and investors were piling in and
3:08
Speaker 1: the biggest institutions were saying Argentina is a recovery story.
3:13
Speaker 1: Never mind the fact that it's defaulted five some odd
3:15
Speaker 1: times in the past hundred years. Here we are the
3:18
Speaker 1: chances of potential to faull to being priced into the
3:21
Speaker 1: market of Argentinian debt over six currently up from a
3:25
Speaker 1: year ago. In your perspective, what are the chances that
3:29
Speaker 1: we see yet another Argentinian default? Well, I certainly hope
3:34
Speaker 1: we will not, but there's still time to take some
3:37
Speaker 1: of these tough measures. But it's not like putting on
3:39
Speaker 1: price controls. And the economic team down there was very
3:44
Speaker 1: slow to recognize the problems, and those who did recognize it,
3:48
Speaker 1: unfortunately Mauricio got rid of UH. And so it's like
3:52
Speaker 1: my father taught me when I was a young man, said, Bill,
3:55
Speaker 1: the road to Hell is paved with good intentions, and
3:57
Speaker 1: Macary has all the good intentions, but if you don't
4:00
Speaker 1: take the proper steps, you could have more problems. And
4:02
Speaker 1: so the markets are now fixated on Argentina. How people
4:07
Speaker 1: people would have bought a hundred year bonds? And when
4:10
Speaker 1: you asked me that earlier, UH in the break, I said,
4:12
Speaker 1: because there's too much liquidity. UH still slashing around with
4:16
Speaker 1: with all UH, the emphasis on central banks providing liquidity,
4:20
Speaker 1: the reach ree yield and people are desperate for that,
4:23
Speaker 1: so they went into all sorts of things, including those bonds. Uh.
4:27
Speaker 1: But you know it's not just Argentina. Let's take a
4:29
Speaker 1: look at what's going on in Turkey. Look at the
4:31
Speaker 1: inflation rate in Turkey. They're in recession. UH. And I
4:36
Speaker 1: don't see the economic reforms happening there. So I think
4:38
Speaker 1: there's a lot of problems the emerging markets. Korea just
4:40
Speaker 1: came out uh and surprised people with their negative growth. Uh.
4:45
Speaker 1: There's a lot of weakness in Asia. Europe is very weak. Uh.
4:49
Speaker 1: When you look at Germany, the industrial figures, you look
4:52
Speaker 1: at Italy uh, and of course brexits unsettled. So the
4:55
Speaker 1: one part of the world which is booming for the
4:59
Speaker 1: moment is US, the US, But you know, we can't
5:04
Speaker 1: be the locomotive for the rest of the world forever.
5:06
Speaker 1: How about going back to Latin America Venezuela. What's your
5:09
Speaker 1: current view there? That was is such a difficult situation.
5:12
Speaker 1: What's your current view there? Well, I lived there thirteen years,
5:15
Speaker 1: my daughter was born there, so I have a very
5:17
Speaker 1: strong feeling for what's going on there. The three things
5:21
Speaker 1: have got to happen to turn that country around. First
5:23
Speaker 1: has to be some sort of political change that uh,
5:27
Speaker 1: that the Trump administration thought would happen a month ago,
5:30
Speaker 1: six weeks ago. They were too optimistic when they put
5:33
Speaker 1: on sanctions. So far, the sanctions haven't worked very well. Um.
5:38
Speaker 1: So that is one point. And of course Maduro is
5:41
Speaker 1: being backed up not only by the Cubans but also
5:44
Speaker 1: by the Russians. The Chinese, I think, are more realistic.
5:48
Speaker 1: They will deal with who's ever in because they have
5:49
Speaker 1: too much of an investment there. Uh. And I think
5:53
Speaker 1: the second point, which is what disturbs me so much
5:55
Speaker 1: and I'm spending a lot of time on, is to
5:57
Speaker 1: try and help on the humanitarian situation. Here's a country.
6:00
Speaker 1: When I lived there, which is the wealthiest country in
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Speaker 1: Latin America, had the best medical system. Malaria didn't exist,
6:06
Speaker 1: it had been stamped out years before. Now you have
6:08
Speaker 1: a malaria outbreaking parts of the country. Uh. You have
6:12
Speaker 1: uh what the u N says a three and a
6:14
Speaker 1: half million out of third thirty million population refugees, but
6:18
Speaker 1: it's more like four or four and a half million,
6:20
Speaker 1: and it's growing all the time because there's no plasma
6:23
Speaker 1: in the hospitals. Uh, there's no antibiotics in the in
6:26
Speaker 1: the hospitals, people are dying. Uh. And you see some
6:29
Speaker 1: of these people that go across the border to Brazil
6:33
Speaker 1: uh in Roraima state, or go across the go across
6:38
Speaker 1: to Columbia or elsewhere, and it's tragic because the malnutrition.
6:43
Speaker 1: I just talked to a friend of mine from Argentina
6:45
Speaker 1: before the show, and here Argentina, so far away from Venezuela,
6:49
Speaker 1: they already have five hundred thousand refugees there. I'll be
6:53
Speaker 1: going down and talking with the President of Ecuador about, uh,
6:58
Speaker 1: what can be done with the Venezuelan refugees in Ecuador.
7:01
Speaker 1: So I'm working with a very well trained, experienced epidemologist
7:05
Speaker 1: who's a standout person in this field, to see if
7:08
Speaker 1: we can do something. Uh. We're talking to the American
7:11
Speaker 1: Development Bank to see if we can do something for
7:13
Speaker 1: the refugees outside. But what's really needed in the country.
7:17
Speaker 1: They've got to allow in aid, humanitarian aid, and they
7:21
Speaker 1: now say they'll allow in some Red Cross aide, but
7:23
Speaker 1: really not clear. And of course the last thing before
7:26
Speaker 1: you asked me is what's going to happen with the
7:28
Speaker 1: economy and the debt, Because this is going to be
7:30
Speaker 1: the mother of all debt restructions. We've never seen it
7:33
Speaker 1: quite like it, because you have paids of the oil
7:36
Speaker 1: company has all this money out as well as a
7:38
Speaker 1: sovereign and they're tied together. And the Russians have half
7:41
Speaker 1: of Sitko, the oil refiner and the West coast. So
7:45
Speaker 1: this is a country that I think is a disaster
7:49
Speaker 1: case and the question is what's the outcome going to be.
7:52
Speaker 1: Bill Rhodes, thank you so much. You're involved in so
7:55
Speaker 1: many incredible things and have been throughout your life. Bill Rhodes,
7:57
Speaker 1: President and CEO of William R. Rhodes Global Advisor, is
8:00
Speaker 1: author of Banker to the World, Leadership Lessons from the
8:02
Speaker 1: front Lines of Global Finance and when you talk about
8:04
Speaker 1: all of the concern for humanitarian issues. Bill Rhodes also
8:09
Speaker 1: just established the new Road Center for Globlastoma at New
8:13
Speaker 1: York Presbyterian Hospital. His wife passed away from glioblastoma, which
8:17
Speaker 1: is actually the fastest growing at cancer, particularly among younger people.
8:23
Speaker 1: So if you want to check out more, just google
8:25
Speaker 1: the Roads Center for gleob Blastoma. Intel reports after the
8:44
Speaker 1: close today on a Shrinivasan uh covers all things on
8:48
Speaker 1: the tech chip side for us. He's a senior semiconductor
8:50
Speaker 1: and hardware analyst for Bloomberg Intelligence. He joins us here
8:53
Speaker 1: in a Bloomberg Interactor broker studio. So on it and
8:55
Speaker 1: get a big rally in chip stocks. What's driving it?
9:00
Speaker 1: Semi Connectors are certainly the tip of the speer. We
9:02
Speaker 1: tend to be or the chip stocks tend to be
9:05
Speaker 1: incredibly forward looking, and they are prognosticating an incredible, incredible
9:09
Speaker 1: second half. Now, if you listen to what t I
9:14
Speaker 1: said on the call, that is likely slower to materialize,
9:19
Speaker 1: potentially lower in magnitude. But if you look at Skienix,
9:23
Speaker 1: which reported earnings last night, They're optimism is actually magnifying.
9:29
Speaker 1: So they're starting to see strength potentially as early a
9:32
Speaker 1: second to second quarter and in the second half. My
9:36
Speaker 1: problem with the chip rally that we have seen so
9:39
Speaker 1: far from December to day is the magnitude of the
9:43
Speaker 1: rally and how quickly it's come by. Right, So if
9:47
Speaker 1: you look at the earnings per share growth for the
9:49
Speaker 1: next two months in the socks um the Philadelphia Semi
9:52
Speaker 1: Connector Index, it's projected to be about seven percent um.
9:57
Speaker 1: And if you look at the price earning stratio of
9:59
Speaker 1: that same index over the using the EPs of the
10:03
Speaker 1: denominator there, it's eighteen times my my problem. And when
10:08
Speaker 1: you break down the components of that right, So, if
10:10
Speaker 1: you look at in Video, for example, which has had
10:13
Speaker 1: some um structural issues in the last three months, earnings
10:18
Speaker 1: for twenty nineteen or its fiscal twenty twenty have come down.
10:23
Speaker 1: If you look at m D one of the better ones,
10:26
Speaker 1: it's earnings have only gone up eight percent. If you
10:29
Speaker 1: look at n XP three three month earnings for down
10:33
Speaker 1: eleven percent. So you've had a whole host of these
10:35
Speaker 1: companies where the shares have rallied dramatically, so thirty at least,
10:41
Speaker 1: and the earnings for caunty or nineteen has gone down
10:44
Speaker 1: somewhere in the vicinity of five to so. So this
10:48
Speaker 1: is exactly this is fascinating, fantastic numbers to put to this. Basically,
10:52
Speaker 1: the performance is not matching the optimism. So what could
10:56
Speaker 1: the chips sector be looking at? Fundamentals better catch up.
11:00
Speaker 1: That's the bottom line. Fundamental is better catch up, and
11:03
Speaker 1: if they don't, we're going to see some adjustment. It's
11:08
Speaker 1: sort of you know, blow the blow the bottom out
11:10
Speaker 1: from under them and just watch them, watch them fall
11:12
Speaker 1: or I mean, the big part that has been missing
11:15
Speaker 1: in semiconductor demand is one is the handset cycle is
11:19
Speaker 1: waning a little bit. We all know that the magnitude
11:21
Speaker 1: of the handset cycle weakness is something to be considered
11:25
Speaker 1: in the second half. Offsetting this is the impending strength
11:29
Speaker 1: from Amazon, Google, Facebook, Microsoft, where the CEO went to
11:34
Speaker 1: my alma mater engineering school. But that's a separate issue. Um,
11:39
Speaker 1: So this cloud company's server strength, that these cloud companies
11:44
Speaker 1: server strength is the has been the missing piece of
11:47
Speaker 1: the demand puzzle. Everybody's expecting that to come back in
11:50
Speaker 1: the second half. It's a substantial portion of CPU consumption,
11:55
Speaker 1: memory consumption, um, solid state drive consumption. It better come back,
11:59
Speaker 1: and better come back in space, right, So, Dave, I
12:01
Speaker 1: think what I'm hearing from on it is maybe these
12:03
Speaker 1: semiconductor stocks may have gotten a little bit ahead of themselves,
12:06
Speaker 1: but the tech earnings so far have been pretty darn good.
12:08
Speaker 1: Well they have, and you have an interesting contrast within
12:12
Speaker 1: the group today. I mean, I mentioned Zylenks, the way
12:15
Speaker 1: the shares are taken a beating. On the other hand,
12:18
Speaker 1: you had numbers out late yesterday from LAMB Research which
12:21
Speaker 1: is in the chip equipment business. They went over well,
12:25
Speaker 1: the stocks up almost six percent. It's going back and
12:27
Speaker 1: forth with Facebook for the biggest game on the day
12:30
Speaker 1: in the S and P five hundreds. So you know,
12:32
Speaker 1: it's an interesting kind of contrast that's showing up within
12:35
Speaker 1: the group on and on twenty seconds here, we didn't
12:38
Speaker 1: really hit on Intel. How important is Intel with respect
12:41
Speaker 1: of their earnings? You know, Intel's is a little bit
12:44
Speaker 1: of a sleeper here between Intel, aim Ding and Video.
12:47
Speaker 1: We like all three companies, but for completely different reasons.
12:50
Speaker 1: I think Intel expectations are relatively low. Um we actually
12:54
Speaker 1: think they could really do well with PCs and the
12:57
Speaker 1: data center in the second half of the year. And
12:59
Speaker 1: on Street of Us and Senior Analystic covering the semi
13:01
Speaker 1: conductors in tech hardware space for Bloomberg Intelligence, Staviles and
13:05
Speaker 1: Bloomberg Stox editor joining us all here in our Bloomberg
13:08
Speaker 1: eleven three oh studios. The question is in how good
13:27
Speaker 1: were Tesla's reported earnings yesterday? It was how terrible were they?
13:31
Speaker 1: And to answer that question is David Coodlag CEO and
13:34
Speaker 1: Chief Investment strategistic Mainstake Capital Management, overseeing about two and
13:38
Speaker 1: a half billion dollars from Michigan. David, thank you so
13:41
Speaker 1: much for being with us. Tesla reported earnings that were
13:44
Speaker 1: below already very low expectations and talked about raising capital
13:50
Speaker 1: even after Ellen Musk has said that he wouldn't need
13:52
Speaker 1: to raise capital. Shares down two point and that's it.
13:56
Speaker 1: What was your take on these earnings, Poles? Yeah, I
14:01
Speaker 1: was surprised even at at how big a loss it
14:04
Speaker 1: was going to be. We had consensus estiments at about
14:06
Speaker 1: sixty nine cents a share for share, and uh facts
14:11
Speaker 1: that had a little bit of a dollar. But when
14:14
Speaker 1: it came in, it, uh, here's three dollars per share loss,
14:17
Speaker 1: even more than we thought it would be. Worse than
14:19
Speaker 1: consensus estimates. It was really a miserable quarter all the
14:22
Speaker 1: way around. When you consider the news we got on
14:25
Speaker 1: deliveries earlier in the um, earlier in the month, and
14:30
Speaker 1: now what we thought would would adversely impact earnings. Uh
14:35
Speaker 1: we this is this is definitely a very bad quarter
14:38
Speaker 1: for Tesla. So, David, it seems like Elon Musk is
14:42
Speaker 1: kind of on the earnings call opened the door just
14:44
Speaker 1: a bit as it relates to an equity capital raise.
14:48
Speaker 1: What do you think is the outlook that does this
14:50
Speaker 1: company need to raise money? How much did they need
14:52
Speaker 1: to raise when did they need to raise it? Well,
14:55
Speaker 1: they do need to uh to raise capital. And they
14:57
Speaker 1: talk about having about two point two billion cash on hand,
15:01
Speaker 1: but if you take away customer deposits, that falls below
15:04
Speaker 1: a billion and a half dollars. Uh, they are burning cash.
15:07
Speaker 1: You know, they went from cash generation in the latter
15:11
Speaker 1: half of the year, the latter part of the year
15:14
Speaker 1: back to a burn rate near a billion dollars in
15:17
Speaker 1: this first quarter. And uh, you know, they thought they
15:20
Speaker 1: would have cash coming in from uh this you know,
15:24
Speaker 1: increasing sales of the Model three along with the stained
15:26
Speaker 1: sales of models and Model X. That hasn't happened. He's
15:30
Speaker 1: calling for uh eighty or nine to a hundred thousand
15:35
Speaker 1: deliveries in the next quarter. I think he's dreaming when
15:40
Speaker 1: you look at what the deliveries were in the first quarter.
15:43
Speaker 1: So the cash isn't going to come from sales. They're
15:46
Speaker 1: going to have to raise cash. It's an inevitability. So
15:49
Speaker 1: here's my question. One analyst and I have over what
15:53
Speaker 1: Bush said that Tesla's quarter was a top debacle, one
15:57
Speaker 1: of the top debacles ever seen in its two twenty
16:00
Speaker 1: years covering tech stocks on the street. I'm just wondering,
16:04
Speaker 1: given how scathing people have been in their assessment of
16:07
Speaker 1: these quarterly reports, why are the shares down only two?
16:12
Speaker 1: Um there? I mean there are some there's a following
16:16
Speaker 1: for Tesla that I think some real believers in the stock.
16:21
Speaker 1: There is a you know, we've seen this floor around
16:25
Speaker 1: that two from a technician standpoint, quintuple bottom, whatever it
16:32
Speaker 1: may be. Uh, we've seen of Florence Florence stock price
16:37
Speaker 1: around this level. But you know that was uh in
16:42
Speaker 1: after market trading yesterday. Today we're seeing the shares down
16:45
Speaker 1: a little bit further. You know, we also didn't see
16:47
Speaker 1: the shares change much on Tesla autonomy day earlier this week,
16:53
Speaker 1: our share price change much. So I think we've got
16:55
Speaker 1: some things unfold here. He did come out, you know,
16:58
Speaker 1: in the earnings call with some guidance that was very positive.
17:02
Speaker 1: And remember how this goes, and this is how we
17:05
Speaker 1: play the stock. You know, when whether we're whether we're
17:10
Speaker 1: buying puts or outright shorting the stock and then covering later,
17:13
Speaker 1: Elon can bid up the stock on these claims and
17:17
Speaker 1: these promises of what he's gonna do he made some
17:20
Speaker 1: bold claims in this earnings announcement about that all the
17:25
Speaker 1: hardware is on the cars today for full autonomy, uh
17:29
Speaker 1: in a year from now, but for level five autonomy.
17:32
Speaker 1: He's made bold claims about the deliveries that they're going
17:35
Speaker 1: to make for the remainder of the year. UH, that
17:38
Speaker 1: they're going to be a small loss in Q two
17:41
Speaker 1: and then profitable in Q three and Q four. I
17:44
Speaker 1: don't think they'll have a profitable quarter this year, but
17:46
Speaker 1: if you believe the claims that he's making, there's hope.
17:50
Speaker 1: You know, there's hope in the in the stock price,
17:52
Speaker 1: and it is trading near its low. So there are
17:54
Speaker 1: those that think it it might have a chance to
17:56
Speaker 1: rally from here, uh, if not right away, later in
17:59
Speaker 1: the year, so they Let's switch gears a little bit
18:02
Speaker 1: to Ford Motor Company. The reporting coming up, and I
18:05
Speaker 1: know you've mentioned in the past, I think this first
18:07
Speaker 1: quarter announcement and guidance are arguably the most important in
18:10
Speaker 1: the past five years. Why is that, Well, you know,
18:14
Speaker 1: let's compare and contrast. Now we switched to you know,
18:17
Speaker 1: a company that's really doing a lot of UH has
18:20
Speaker 1: had a very good first quarter. UH. You know, Ford
18:23
Speaker 1: has their their suv and truck sales really did the
18:28
Speaker 1: best among their competition when you look at Toyota, GM, Ford, Uh,
18:32
Speaker 1: they really trounce the competition in terms of those sales,
18:36
Speaker 1: which are the high margin vehicles. The other thing that
18:39
Speaker 1: that Ford suffered from over the past year really since
18:42
Speaker 1: Jim Hackett has been there in leadership position, is is
18:46
Speaker 1: that messaging, that communication, that articulation of the vision of
18:51
Speaker 1: you know, there was the restructuring plan there, multibillion dollar
18:53
Speaker 1: restructuring plan. What is the detail. We've seen some of
18:56
Speaker 1: that more recently with what they're doing globally, what they're
18:59
Speaker 1: doing domestically, also their vision for Auto two point out
19:04
Speaker 1: or what we call the future of mobility. And you
19:06
Speaker 1: know we now know the flat Rock plant where they're
19:09
Speaker 1: investing eight hundred million for autonomous vehicles, and the hiring
19:12
Speaker 1: of Tim Stone as the CFO, who comes from the
19:16
Speaker 1: digital community, that signed that they're moving to a new
19:19
Speaker 1: age company. There's just a lot of things, you know,
19:22
Speaker 1: very good performance and what we refer to as the
19:24
Speaker 1: legacy business trucks and SUVs that the high margin vehicles.
19:30
Speaker 1: They're the best stock performance among the Detroit three. If
19:34
Speaker 1: you will in the first quarter in and beating the
19:37
Speaker 1: S and P five hundreds performance as good as it was.
19:40
Speaker 1: And then you look at the detail we want to
19:43
Speaker 1: see on their restructuring plan and the detail on the
19:47
Speaker 1: future mobility that's coming together. We're seeing what we want
19:50
Speaker 1: to see. Wall Street investors seeing what they want to
19:52
Speaker 1: see out of Board. Now. If they maintain the momentum,
19:56
Speaker 1: it's gonna be a very good year for Ford in
19:57
Speaker 1: a in a real turnaround compared to kind of a
20:00
Speaker 1: tough and past couple of years. Got it, David Couldla
20:04
Speaker 1: thank you so much for joining us. David's the CEO
20:06
Speaker 1: and chief investment strategists for Mainstay Capital, joining us on
20:09
Speaker 1: the phone from Michigan. Well, right now, traders are pricing
20:27
Speaker 1: in the high increasing likelihood of a FED rate cut
20:31
Speaker 1: in the near future, perhaps even later this year. And
20:34
Speaker 1: as they do so, our Bloomberg opinion called noists are
20:37
Speaker 1: trying to figure out what the FED should do in
20:40
Speaker 1: the next downturn because they don't really have that much ammunition.
20:44
Speaker 1: One proposal by municipal bonds, and that comes from Brian Chapatta,
20:48
Speaker 1: who is a Bloomberg Opinion calumnists. So, Brian, why was
20:51
Speaker 1: that the solution that you see is something that is
20:55
Speaker 1: potentially attractive for the Federal Reserve. Yeah, so, I guess
20:58
Speaker 1: I got a lot of feedback on this. So at
21:00
Speaker 1: first of all, the caveat is that if it's another
21:03
Speaker 1: recession and the and the FED uses all of its
21:07
Speaker 1: ammunition as it has in the past, it's done the
21:09
Speaker 1: rate cuts, it's done the typical kiwi and there's still issues,
21:13
Speaker 1: what do you do? And my idea was turned to
21:16
Speaker 1: the muni market, because you know, states don't have the
21:19
Speaker 1: ability to print money. You know, they have to implement
21:23
Speaker 1: austerity measures during recessions, and that can really slow down
21:27
Speaker 1: economic growth. You don't fund infrastructure, you miss payroll, you
21:32
Speaker 1: underfund your pensions. Those are all really bad things that
21:34
Speaker 1: affect main street. And so potentially using the FED as
21:39
Speaker 1: a tool to extend a lifeline to these states, give
21:42
Speaker 1: them a little influx of cash that they'll eventually pay
21:44
Speaker 1: back when times are better, could be a reasonable way
21:48
Speaker 1: to jump start the economy, uh, during a recession. So historically,
21:51
Speaker 1: just give us some history here, the federal government generally
21:54
Speaker 1: has not done this. Correct. Yeah, well, that's part of
21:57
Speaker 1: the problem is that the Federal Reserve Act prohibits purchasing
22:00
Speaker 1: communies that are longer than six months, so they could
22:03
Speaker 1: in theory do some real short term uh purchases immunis.
22:07
Speaker 1: But if you wanted to actually do something that would
22:09
Speaker 1: be a little bit more sustainable and do a little
22:11
Speaker 1: bit more than just you know, a really brief thing,
22:14
Speaker 1: they'd have to unbend the Federal reserve at This would
22:17
Speaker 1: be somewhat challenging though also from a who's your favorite
22:21
Speaker 1: child kind of point of view, right, I mean it
22:22
Speaker 1: basically ahead of the decide which municipal bonds to buy,
22:25
Speaker 1: which projects to finance. Given the fact that there are
22:27
Speaker 1: thousands of que SIPs, this is a very a using
22:29
Speaker 1: credit market, uh, you know a lot of small issuances,
22:33
Speaker 1: and you basically have an active portfolio manager buying munis
22:37
Speaker 1: at the federal reserve. Yeah. Well, my idea was sort of,
22:39
Speaker 1: you know, keep it at the state level. And as
22:41
Speaker 1: far as precedent goes, you do have the European Central
22:44
Speaker 1: Bank going out and purchasing debt of various sovereign countries
22:49
Speaker 1: within everything and anything, yeah, right within it, with it
22:51
Speaker 1: within its purview. So I mean there is precedent for
22:55
Speaker 1: you know, effectively you know, setting ah, you know, a
22:57
Speaker 1: standard and going out and doing it across variety of
23:01
Speaker 1: credit ratings, uh and sort of credit worthiness. So uh,
23:05
Speaker 1: that was the idea. And obviously, um, you know, the
23:07
Speaker 1: muni markets on fire right now, so there's no reason
23:10
Speaker 1: to to do it yet. But this is again sort
23:13
Speaker 1: of talking about hypothetical down the road if we face
23:16
Speaker 1: some sort of uh, you know, problematic recession that that
23:20
Speaker 1: typical Kiwi buying treasuries won't get us out of. So
23:22
Speaker 1: is there any support in Washington or the other any
23:26
Speaker 1: folks in Washington or at the FED thinking about this
23:28
Speaker 1: kind of move? You know, you hear about this every
23:31
Speaker 1: once in a while, because I did go back and
23:33
Speaker 1: see if this was proposed before, if I was, if
23:35
Speaker 1: I was the very first person, and sure enough, you know,
23:37
Speaker 1: you go back to you know, things like that. You know,
23:40
Speaker 1: there was the Build America bonds program, which was more
23:42
Speaker 1: of a of a federal stimulus um. But I think
23:46
Speaker 1: the question is sort of is there a political appetite?
23:48
Speaker 1: You know, the joke about Infrastructure Week is that you
23:52
Speaker 1: know it never comes because there's never this push to
23:54
Speaker 1: actually fund infrastructure, even though presumably it's a bipartisan issue,
23:58
Speaker 1: so uh means to be seen exactly what the appetite
24:01
Speaker 1: is in Washington. You mentioned real quick that muni's were
24:05
Speaker 1: on fire. We have seen record inflows into many funds. Why.
24:09
Speaker 1: I mean, I think it's pretty clear that right now
24:12
Speaker 1: the cap on state and local tax deductions is really
24:15
Speaker 1: making people realize that if you want to lower your
24:18
Speaker 1: state income tax rate, there's a really easy way to
24:21
Speaker 1: do it, and it's buying muni bonds within your state. Uh.
24:23
Speaker 1: This has always been an option to everyone, but before
24:27
Speaker 1: if you had a large state and local tax bill,
24:29
Speaker 1: you could deduct it obviously from your your federal taxes,
24:32
Speaker 1: which means that you know, it wasn't so onerous, um,
24:36
Speaker 1: but now you're effectively, uh, you know, getting getting penalized
24:40
Speaker 1: for that. And so munis are an easy way to
24:42
Speaker 1: to reap some income. And I mean the rates are
24:44
Speaker 1: so low, especially relative to treasuries on munis, it's it's
24:47
Speaker 1: a real question of how long this can keep going on.
24:50
Speaker 1: And but so far, so good, right, very good. Branch
24:53
Speaker 1: of Petta from Debt Markets Commas for Bloomberg Opinion. He
24:56
Speaker 1: joins us here in Bloomberg. Gonnactor Broker Studio Brian Thanks
24:59
Speaker 1: so much for that not whole idea. Thanks for listening
25:01
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
25:03
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Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
25:10
Speaker 1: I'm Lisa abram Woyit's I'm on Twitter at Lisa abram
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