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Is the Health-Care Bill Dead on Arrival? · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim
0:08
Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
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Speaker 1: we bring you the most important, noteworthy, and useful interviews
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0:30
Speaker 1: I know that this one person has been following the
0:33
Speaker 1: healthcare negotiations so closely that it's affecting his health. Max
0:37
Speaker 1: Neeson is here in the Bloomberg eleven three oh studio
0:40
Speaker 1: with us. Max Neison is a Bloomberg Gadfly columnist covering healthcare,
0:45
Speaker 1: and he really has been following not only what we
0:49
Speaker 1: can expect from this healthcare bill, but some of the
0:53
Speaker 1: political machinations that went into arriving at this. So first, uh, Max,
0:58
Speaker 1: I want to start with a line that you wrote
1:00
Speaker 1: in in your column yesterday, where you are talking about
1:05
Speaker 1: how the entire medical establishment opposes the bill on moral
1:09
Speaker 1: and financial grounds. As a result, is this completely dead
1:12
Speaker 1: on arrival? And it does? Is it even a waste
1:14
Speaker 1: of time for us to focus on it? I think
1:17
Speaker 1: in its current form it's definitely dead on arrival in
1:20
Speaker 1: the Senate, and they've basically said as much. Rather than
1:24
Speaker 1: taking up the House version of the bill, um, you know,
1:27
Speaker 1: which would be something of an endorsement or at least
1:29
Speaker 1: a sign that they they think it's something they can
1:32
Speaker 1: pass or could potentially come law, they're gonna go ahead
1:34
Speaker 1: and start from scratching and write their own version of
1:38
Speaker 1: the legislation. And it's likely to be substantially different on
1:42
Speaker 1: a number of points than that what we saw past
1:43
Speaker 1: in the House. Max, can you just uh, just just
1:47
Speaker 1: backtracked just for a second, because I want to understand
1:49
Speaker 1: this idea that the a c A, the Affordable Care Act.
1:53
Speaker 1: We've heard a lot of criticism about it. What would
1:56
Speaker 1: save that or what would improve it? I'm just curious
1:59
Speaker 1: to see if what we've got is not great, what
2:02
Speaker 1: would we need to make it slightly better? Um. I mean,
2:06
Speaker 1: some of it would would require a time machine. But
2:09
Speaker 1: but as for what can be done now, a good
2:12
Speaker 1: start would be to keep funding and for the administration
2:16
Speaker 1: to commit to keep funding some cost sharing payments to
2:20
Speaker 1: insures and to low income people that help both insurers
2:24
Speaker 1: deal with unexpected losses and help lower income people actually
2:28
Speaker 1: afford um what are now some rising premiums. These were
2:31
Speaker 1: things that we're built into the law and help make
2:33
Speaker 1: it sustainable, but the fact that they've been kind of
2:36
Speaker 1: yanked around has made it very difficult for insures to
2:39
Speaker 1: stick around, and that kind of creates a bad cycle
2:42
Speaker 1: within individual markets like in Iowa right now. So, Max,
2:45
Speaker 1: one thing that you said earlier, you were talking about
2:48
Speaker 1: how the Senates not just sort of taking on the
2:51
Speaker 1: House bill in its own form and starting a fresh
2:55
Speaker 1: is kind of a pretty pretty big slam down, frankly
2:58
Speaker 1: of the House plan by say, and we're not even
3:00
Speaker 1: gonna endorse it by taking it at all? Um, what
3:03
Speaker 1: changes do you expect the Senate to make? How will
3:06
Speaker 1: the bill differ in the form that the Senate puts
3:09
Speaker 1: it out versus the House? So, Um, I think the
3:13
Speaker 1: first thing that they're gonna want to wait to see
3:15
Speaker 1: is the Congressional Budget Office score of this bill, which
3:18
Speaker 1: will give them a sense of where we are. The
3:21
Speaker 1: fact that the House didn't wait for that was pretty unusual.
3:24
Speaker 1: When does that come out, We we don't know, probably
3:27
Speaker 1: probably and probably next week. So we we don't know
3:30
Speaker 1: how much the House version of the bill will cost um,
3:33
Speaker 1: how much, how many people we left uninsured, how much
3:36
Speaker 1: it will affect Medicaid, how it will affect the overall
3:38
Speaker 1: insurance market. Those are all still unknown. So that's the
3:41
Speaker 1: place they're going to start with what needs to be fixed.
3:43
Speaker 1: But in terms of the kind of specific points that
3:46
Speaker 1: I think a new Senate bill will adjust or or
3:49
Speaker 1: kind of differ from the House bill, and it's going
3:51
Speaker 1: to be the degree of cuts to Medicaid and the
3:54
Speaker 1: degree of protection for those with pre existing conditions, both
3:58
Speaker 1: of which were cut substantially by the h c A. Well,
4:01
Speaker 1: you know, as Lisa introduced this idea that no one
4:04
Speaker 1: in the medical or healthcare community was consulted or participated
4:10
Speaker 1: in the creation of what passed the House yesterday. Is
4:13
Speaker 1: that accurate? Um, I imagined that, you know, people made calls.
4:17
Speaker 1: But considering the speed at which this bill was put
4:20
Speaker 1: together in a matter of weeks, as opposed to the
4:23
Speaker 1: more than a year than the Affordable Care up with hearings, consultations,
4:27
Speaker 1: multiple scoring, this kind of you know, got put together
4:30
Speaker 1: quickly then modified quickly. I don't think there was all
4:33
Speaker 1: that much input. And you can see that from the
4:35
Speaker 1: fact that, um, you know, several organizations of doctors hospitals, Um,
4:40
Speaker 1: you know, disease focused organizations. I'll kind of object to
4:44
Speaker 1: this bill. Well, that's why I wanted to go next,
4:46
Speaker 1: which is, uh, what do you think is going to
4:48
Speaker 1: happen to hospitals if this bill were to prevail, it
4:53
Speaker 1: would be uh, something of a blood bath, particularly for
4:58
Speaker 1: hospitals in more rural areas and in areas that have
5:01
Speaker 1: a lot of Medicaid beneficiaries. What would be likely to
5:05
Speaker 1: happen is that they would have a lot of people
5:06
Speaker 1: that would lose insurance coverage and it would be back
5:09
Speaker 1: to kind of the bad old days of having to
5:11
Speaker 1: provide a lot more financial assistance and uncompensated care. Well
5:16
Speaker 1: then why then, why not? Do you know what would
5:17
Speaker 1: take a page out of President Donald Trump's playbook, which
5:20
Speaker 1: at one point I believe he threatened to let Obamacare
5:24
Speaker 1: the A c A continue and fail. At least that's
5:26
Speaker 1: what he I believe said. Well, why not let the
5:29
Speaker 1: Democrats say, Okay, you want this bill, let it go,
5:33
Speaker 1: and then you'll end up with these hospitals that are
5:34
Speaker 1: closing and people that realize that the bill is not
5:37
Speaker 1: so great. Um, you know, I think it's just a
5:40
Speaker 1: question of what you're viewpoint of what is appropriate or
5:44
Speaker 1: in a policy or kind of moral standpoint, you need
5:47
Speaker 1: a lot of Democrats, you know, a lot of a
5:50
Speaker 1: lot of democrats, you understand my point. In other words,
5:53
Speaker 1: if this is the bill at the House Republicans want,
5:55
Speaker 1: then give it to them. And then okay, then you say,
5:58
Speaker 1: all right, these are the result. You know they already though,
6:01
Speaker 1: this is a different kind of story. So you can't,
6:04
Speaker 1: in good conscience if you think it's truly bad, can you,
6:08
Speaker 1: in good conscience let this kind of thing go? Yeah?
6:11
Speaker 1: And and it kind of and they already have. You know,
6:14
Speaker 1: these House members voted for the bill, so they get
6:16
Speaker 1: to run ads and go back to their constituents with
6:19
Speaker 1: the fact that they voted to take away potentially your
6:22
Speaker 1: health care um that of your family. Do you have
6:24
Speaker 1: a pre existing condition? You know, look at look at
6:26
Speaker 1: what just happened. So they already have that benefit. And
6:30
Speaker 1: we'll still, I think we want to fight against this
6:32
Speaker 1: actually becoming a law. Well, of course, this is going
6:35
Speaker 1: to be a conversation and a topic that is going
6:38
Speaker 1: to continue to keep on giving because, of course, as
6:40
Speaker 1: you just said, max Um, the Senate is pledging to
6:43
Speaker 1: write its own version of the bill. Thank you very much,
6:46
Speaker 1: Max and Neeson Bloomberg gad Fly columns when it comes
6:49
Speaker 1: to healthcare, pharmaceuticals, and just about everything that's important, much appreciated.
7:05
Speaker 1: As we were talking about earlier unemployment, the unemployment rate
7:09
Speaker 1: in the US felt the lowest levels since May two
7:12
Speaker 1: thousand and seven, according to numbers that came out this morning. Uh.
7:16
Speaker 1: This just shows that the job market continues to recover
7:19
Speaker 1: after the worst financial crisis, UH, since the Great Recession.
7:23
Speaker 1: I want to bring in John Cochrane, Senior Fellow at
7:25
Speaker 1: the Hoover Institution at Stanford University in California. John, you're
7:30
Speaker 1: going to be attending a monetary policy conference, the Structural
7:34
Speaker 1: Foundations of Monetary Policy. UH, that is ongoing right now,
7:38
Speaker 1: and I want to sort of get your take on
7:41
Speaker 1: whether this good Jobs report validates the feds unconventional methods
7:46
Speaker 1: of stimulating the economy after the two thousand and eight crisis. Ah. Well,
7:51
Speaker 1: there's a good question of because they're despite um. Certainly,
7:56
Speaker 1: I think pretty much everyone agrees that said a great
7:58
Speaker 1: job in two thousand eight of not screwing up in
8:01
Speaker 1: the way that they really did in the Great depression,
8:03
Speaker 1: and ben Burneki said we learned that lesson, we won't
8:05
Speaker 1: do it again, and they did. Now is is the
8:07
Speaker 1: resulting period of quiet due to it's it's big actions
8:13
Speaker 1: or or do we just naturally recover from the recession?
8:16
Speaker 1: That's the open question. That's why we have conferences to
8:18
Speaker 1: debate things like this. Well, all right, so which side
8:22
Speaker 1: are you going to come down on and what do
8:24
Speaker 1: you expect your your opponent or the contrary opinion to be. Oh,
8:29
Speaker 1: we don't, we don't have opponents, We have polite discussion.
8:33
Speaker 1: My own view is that the Kiwi operation didn't do
8:36
Speaker 1: a whole lot um. It perhaps signaled to markets that
8:40
Speaker 1: the interest rates are gonna be low for a long
8:41
Speaker 1: time and that was useful. But then contrarywise, that means
8:44
Speaker 1: that QUI isn't doing a whole lot of harm and
8:47
Speaker 1: that you don't need to be in a big rush
8:48
Speaker 1: to wind down the balance sheet. That's one of the
8:51
Speaker 1: big items on discussion at our conference is the big
8:55
Speaker 1: balance sheet, lots of reserves. Is it causing too much stimulus?
8:58
Speaker 1: Is it a problem to the said need to unwin
9:00
Speaker 1: ended quickly or is it just kind of sitting out
9:02
Speaker 1: there and not causing any particular problems and kind of
9:04
Speaker 1: nice to keep the economy very liquid. John, in your conversations,
9:08
Speaker 1: how important is wage growth? Well, wage growth is what
9:14
Speaker 1: we're here for. Um, all right. Then you're here for
9:17
Speaker 1: our raises, all right, So so tell us about why
9:19
Speaker 1: we're not seeing more of them. We're here for real
9:22
Speaker 1: wage growth. Um, we we want Uh, you know, just
9:26
Speaker 1: inflationary wage growth doesn't do anybody any good. But higher productivity,
9:30
Speaker 1: higher real wages, greater prosperity, and a job market that
9:34
Speaker 1: isn't just unemployment. Unemployment is people are looking for jobs,
9:37
Speaker 1: but there's still a big problem of people out there
9:39
Speaker 1: who aren't even looking anymore. The labor force participation rate
9:43
Speaker 1: is still low, the economy is growing much slower than
9:46
Speaker 1: it should be by at least my view, and and
9:49
Speaker 1: uh uh just about everyone else. The question is whether
9:52
Speaker 1: that has to do with money or not. In the
9:54
Speaker 1: long run, money can money can boost you a little
9:58
Speaker 1: bit for an afternoon, but there's no substitute it for
10:00
Speaker 1: a diet and exercise if you want long run growth.
10:02
Speaker 1: So is diet an exercise in this case some kind
10:05
Speaker 1: of fiscal stimulus or is it something else? And you
10:07
Speaker 1: talk about you know, we're here for you know, wage growth.
10:11
Speaker 1: That's that's the reason we're here. By that view, this
10:14
Speaker 1: Job's report wasn't that great. Um, well, we're here for
10:18
Speaker 1: a solid, long run real wage growth which in the end,
10:22
Speaker 1: uh and and more people working at those higher wages.
10:25
Speaker 1: In the end, that has to come from productivity growth. Um.
10:28
Speaker 1: You can fiscal stimulus, monetary stimulus, these things can help
10:32
Speaker 1: to get you out of a recession. But the foundations
10:34
Speaker 1: of long run growth they have to come from greater productivity,
10:38
Speaker 1: which in the end is tax reform, regulatory reform, more innovation,
10:42
Speaker 1: more businesses, more competition, all that great stuff that the
10:46
Speaker 1: Fed um, bless their hearts. Um, that's not their job.
10:49
Speaker 1: I'm gonna give you a softball, John, Why are so
10:53
Speaker 1: many people either not working, not studying for work, or
10:57
Speaker 1: even bothering to look for work? Maybe you can reference
11:01
Speaker 1: Nicholas ever stats column and commentary. Uh sorry, I didn't
11:07
Speaker 1: happen to read that one of this has to do
11:08
Speaker 1: with that he describes it. Well, you're on your blog
11:10
Speaker 1: you say that one of the answers to why people
11:13
Speaker 1: are not looking for work, not studying for work is
11:15
Speaker 1: the opioid epidemic. And that according to Alan Krueger, about
11:21
Speaker 1: seven million working age men are taking opioids pain killers. Yeah.
11:29
Speaker 1: Is Unfortunately, it's not a softball. It's not something that
11:32
Speaker 1: there's one big stimulus that will solve the problem. There's
11:35
Speaker 1: a lot of Middle America that is right taking open
11:38
Speaker 1: pain killers. Um, stuck in some ways in communities that
11:42
Speaker 1: aren't working. They might have bought a house that now
11:45
Speaker 1: is underwater. They can't move to where the better jobs are.
11:47
Speaker 1: They might be stuck in some government programs, which though
11:50
Speaker 1: those help them when they're in trouble, now uh, they
11:54
Speaker 1: if they get a job, they lose all the benefits,
11:55
Speaker 1: so um, they don't want to. That makes it much
11:58
Speaker 1: harder for them to move, get some training, get a job,
12:00
Speaker 1: move out. America is not as dynamic as it used
12:03
Speaker 1: to be. It used to be when things are in trouble,
12:05
Speaker 1: you get up, you move, you do something else. And
12:07
Speaker 1: that's just much harder these days for a lot of
12:10
Speaker 1: structural reasons, some of them having to do with government
12:12
Speaker 1: programs and some of them having to do with lots
12:14
Speaker 1: of big messages. Yeah, well, not monetary policy, but but
12:17
Speaker 1: so John, a lot of the issues that you're talking
12:19
Speaker 1: about that really are the next frontier for any recovery
12:22
Speaker 1: in the US are not things, as you said, bless
12:25
Speaker 1: the FEDS hards, not things that they can solve. So
12:28
Speaker 1: at a conference like the one that you're currently at,
12:31
Speaker 1: which you're talking about the structural foundations of monetary policy,
12:34
Speaker 1: I mean people basically just saying at this point, there's
12:38
Speaker 1: nothing left for them to do well. I think that's important. Um,
12:43
Speaker 1: you know, the FED would like to help, and there's
12:46
Speaker 1: a big temptation for an institution uh this large, to
12:50
Speaker 1: take on jobs that it's ill suited for, So repeating
12:53
Speaker 1: that message is important. I think a lot of what
12:55
Speaker 1: the discussion for monetary policy is is, Look, it's it's
12:58
Speaker 1: late summer, and late summer, winter comes. There will be
13:03
Speaker 1: another recession sometime soon or sometime later, who knows when
13:07
Speaker 1: it will come. There will be another crisis, something will
13:09
Speaker 1: blow up, And I think a lot of what's what
13:12
Speaker 1: the important thinking is is for the Fed's job, which
13:15
Speaker 1: is demand not supply, which is stimulus, which is fighting recessions,
13:19
Speaker 1: fighting crises. Uh, get get your powder dry, get ready
13:22
Speaker 1: to think about how were you gonna where the next
13:24
Speaker 1: one is coming from, and how you're going to solve
13:26
Speaker 1: that one. Speak if you can about corporate tax cuts
13:29
Speaker 1: that have been proposed by the administration and whether that
13:31
Speaker 1: will lead to an increase in wages for workers. Oh um, well,
13:38
Speaker 1: we'll see what comes out of there. Um, it should
13:42
Speaker 1: in the end, or better prices for consumers. We got
13:46
Speaker 1: to remember, every cent of corporate taxes does not paid
13:49
Speaker 1: by corporations. It's paid from higher prices to the you
13:52
Speaker 1: and I pay, or lower wages from workers. Um, some
13:56
Speaker 1: argument for lower profits, but in the end, profits go
13:59
Speaker 1: overseas if they don't got what they want. So all
14:01
Speaker 1: that money will eventually mean are either wages for workers
14:05
Speaker 1: or or lower prices for consumers. That's that's great stuff.
14:09
Speaker 1: I would hope they would also attack the complexity of
14:12
Speaker 1: the tax code and a lot of tax accountants and
14:14
Speaker 1: lawyers and lobbyists can go drive for uber and do
14:16
Speaker 1: something productive. How confident are you that the current administration
14:21
Speaker 1: can come up with a plan that will end up
14:23
Speaker 1: helping productivity to increase. Oh gosh, that don't ask me
14:27
Speaker 1: political questions. I'm economist, all right, Fine, I know it's
14:32
Speaker 1: much more fun and I have my opinions like anyone else.
14:35
Speaker 1: But let's let's stick the things I know something about.
14:37
Speaker 1: All right, I want to thank you very much for
14:39
Speaker 1: joining us. He's are you still the Grumpy Economist? Uh?
14:43
Speaker 1: That's my official title. As you may have noticed, that
14:45
Speaker 1: is not my personality. Yea, exactly, well unless we ask
14:50
Speaker 1: about politics, in which case, there there you show your
14:52
Speaker 1: your grumpy colors, no humility. All right, I encourage everyone
14:57
Speaker 1: to check out your blog, The Grumpy Economist. Thanks very much.
15:00
Speaker 1: John Cochrane is a senior fellow at the Hoover Institution,
15:03
Speaker 1: giving us his take on jobs and the economy. We
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Speaker 1: it out. Learn more at Bloomberg dot com. Slash lens
15:56
Speaker 1: I am so excited to bring in the next guest
15:58
Speaker 1: because he now works at Boberg Intelligence. I were Jersey
16:02
Speaker 1: interest rate strategist and long time contact of mine. I'm
16:06
Speaker 1: so excited to have you. Uh he uh is coming
16:09
Speaker 1: to us on the phone from Princeton. You know. I
16:13
Speaker 1: want to touch base with you on a somewhat contrarian
16:16
Speaker 1: take that you unfailed today. Uh in some Bloomberg Intelligence
16:20
Speaker 1: where you were saying, look, everyone's expecting the Fed to
16:23
Speaker 1: start unwinding the balance sheet, but it might not have
16:27
Speaker 1: the effect on yields that people think. Can you explain that? Yeah?
16:30
Speaker 1: So so I think the conventionalism would tell you that
16:33
Speaker 1: when there's more supply of treasuries that um and and
16:37
Speaker 1: effectively with the Fed Reserve running off its balance sheet, Uh,
16:40
Speaker 1: that's what you're going to get UM is additional supply
16:43
Speaker 1: of treasuries. Normally, when that happens, people would say, oh, well,
16:46
Speaker 1: that means that treasury yields have to go higher, the
16:48
Speaker 1: price of bonds has to move lower, just because there's
16:51
Speaker 1: there's more supply into the market. But it's not obvious
16:54
Speaker 1: to me that that's what will happen, because it really
16:56
Speaker 1: all depends not on what the Fed does, but what
16:58
Speaker 1: the Treasury Department does. So how do they actually put
17:02
Speaker 1: those extra bonds back in the market, because they'll have
17:04
Speaker 1: to issue more bonds as these old bonds at the
17:07
Speaker 1: Federal Reserve holds matures and um. And the Federal Reserve
17:11
Speaker 1: has quite a lot of room in the front end
17:12
Speaker 1: in order to increase issues, so they can issue very
17:15
Speaker 1: short term tea bills. They can issue two year notes
17:17
Speaker 1: and three year notes and and those things don't have
17:20
Speaker 1: a lot of interest rate risks. So therefore the yields
17:23
Speaker 1: don't have to necessarily move higher just because the Fed
17:25
Speaker 1: lets its balance sheets start to run off. Well, I
17:27
Speaker 1: just want to get you to continue that thought ire
17:29
Speaker 1: about running off the balance sheet, because you also write
17:31
Speaker 1: that the Federal Reserve could run off its treasury holdings
17:34
Speaker 1: pretty quickly. In what do you mean by that? Well, well,
17:37
Speaker 1: that's something interesting. So when the Federal Reserve was doing
17:39
Speaker 1: all of its buying five five to ten years ago,
17:43
Speaker 1: um or you know, now it's hard to believe that
17:44
Speaker 1: it's been almost ten years since they started a quantitative easing,
17:47
Speaker 1: but you know, we're all getting older. Um. The fact
17:51
Speaker 1: is that two thousand eighteen is actually the most bonds
17:54
Speaker 1: that mature on their balance sheet next year, UM and
17:57
Speaker 1: that starts to tape slow down in UM. So the
18:02
Speaker 1: four hundred about four dred billion dollars runs off its portfolio.
18:07
Speaker 1: And if you recall, the Federal Reserve was was buying
18:10
Speaker 1: bonds on the order of fifteen billion dollars a month.
18:14
Speaker 1: So actually next year you could have more bonds run
18:17
Speaker 1: off its balance sheet than when they actually started to
18:20
Speaker 1: buy the bonds in their large scale asset purchases. So
18:23
Speaker 1: this would be the large scale asset run off I guess,
18:26
Speaker 1: and that would have well and just sort of walk
18:29
Speaker 1: us through with the effect of that is if they're
18:30
Speaker 1: not going to reinvest those proceeds, I mean, I'm just thinking,
18:35
Speaker 1: um allowed, I mean, as you said, it depends on
18:37
Speaker 1: whether the Treasury is going to replenish them. Although the
18:41
Speaker 1: baseline scenario that everyone seems to have is that the
18:44
Speaker 1: Treasury is going to be forced to increase longer term
18:47
Speaker 1: issuance in short order. Well, they're going to definitely need
18:51
Speaker 1: to increase um longer term issuance over time, primarily because
18:55
Speaker 1: the deficits are going to be moving higher. UM. So,
18:59
Speaker 1: imagine in a world today where the Federal Reserve hadn't
19:02
Speaker 1: done quantitative using now grant that the economic environment might
19:05
Speaker 1: be significantly different. But if if the Federal Reserve didn't
19:08
Speaker 1: own these and other investors would where would yields be?
19:12
Speaker 1: Um if they didn't believe it or not, you know,
19:15
Speaker 1: my opinion is that it probably wouldn't be significantly higher
19:18
Speaker 1: than than where yields are right now. Um So, So
19:21
Speaker 1: the thing is the fact that the Fed owns these
19:23
Speaker 1: instead of other people certainly has an impact. But um
19:26
Speaker 1: but what they own are very short term securities right now.
19:29
Speaker 1: Right these are all maturities that mature within the next
19:32
Speaker 1: eighteen eighteen months to two years, right so five almost
19:35
Speaker 1: five billion of them mature in the next couple of years.
19:38
Speaker 1: If the Federals, if if the Treasury Department then decides
19:41
Speaker 1: to issue these in in T bills and in two
19:44
Speaker 1: year notes, it's not going to change the amount of
19:46
Speaker 1: interest rate risk that's in the world today. It will
19:48
Speaker 1: be the exact same amount of interest rate risk that's
19:50
Speaker 1: in the world today now. If they do go out,
19:52
Speaker 1: and the Treasury Department has been talking about this and
19:54
Speaker 1: in fact, and Wednesday's um refunding statement they mentioned this um,
19:59
Speaker 1: and and they seem keen on wanting to do this.
20:02
Speaker 1: They might issue a fifty year bond and potentially increase
20:05
Speaker 1: other maturities, but not necessarily because of the said more
20:09
Speaker 1: because of the fact that you have a lot of
20:11
Speaker 1: baby boomers retiring and deficits are going to be higher
20:14
Speaker 1: over the next several years. Just um on any kind
20:17
Speaker 1: of base case scenario for for for the federal deficit.
20:20
Speaker 1: I'm glad you mentioned the deficit. How come that is
20:23
Speaker 1: not a dominant theme when it comes to appropriations in
20:28
Speaker 1: Washington or even thoughts about interest rates. Yeah, well, that's
20:31
Speaker 1: a good question. I think, you know, folks in Washington
20:34
Speaker 1: now maybe you're trying to think of, you know, house
20:36
Speaker 1: ways to stimulate the economy. I mean, the economy is
20:39
Speaker 1: not growing at a at a terrible pace, is just
20:41
Speaker 1: not growing at this fast space that we got used
20:43
Speaker 1: to in the eighties and nineties. So I think at
20:46
Speaker 1: this point, um, you know, they want some stimulative activities,
20:50
Speaker 1: and in order to do that, you kind of need
20:51
Speaker 1: to run some deficits. It just from a pure deficit standpoint,
20:56
Speaker 1: it's probably not the greatest time to be thinking about
20:59
Speaker 1: stimulative ativities when you're going to get UM. You know,
21:02
Speaker 1: like I mentioned, you're gonna have much higher UM costs
21:05
Speaker 1: for things like Social Security and medicare just because of UM,
21:09
Speaker 1: because of demographics, and that's going to swell the deficits anyway. Now,
21:13
Speaker 1: now these low interest rates, the Treasury Department can issue
21:16
Speaker 1: a lot of bonds. There's still a lot of demand
21:18
Speaker 1: for treasuries because there's a lot of risks going on
21:20
Speaker 1: around the world. Um, but there probably is some tipping
21:23
Speaker 1: points somewhere. I don't think it's going to be in
21:25
Speaker 1: the next couple of years, but um, but there probably
21:28
Speaker 1: is a tipping point where you know, those bond vigilantees
21:31
Speaker 1: that have been you know, hanging out in caves somewhere
21:33
Speaker 1: are going to start coming out and selling bonds and droves. Yeah,
21:36
Speaker 1: those caves they really have. I think they've all retired
21:40
Speaker 1: at this point. They're pretty hot real estate, you know.
21:43
Speaker 1: I'm I'm wondering. I've seen this one idea floated. Why
21:46
Speaker 1: is the Treasury considering selling fifty year or one year
21:49
Speaker 1: treasuries when they could just sell a whole bunch more
21:52
Speaker 1: of thirty years. Well, Well they can, and I think
21:54
Speaker 1: that's that's the argument because one of the things and
21:57
Speaker 1: I put out a note on this on Wednesday that
21:59
Speaker 1: you can find on the Bloomer terminal is the um
22:03
Speaker 1: is the fact that there's not a lot more risk
22:05
Speaker 1: in the thirty year than there is in the fifty year.
22:07
Speaker 1: I think that the idea of the fifty year would
22:09
Speaker 1: be to to basically um to issue bonds that are
22:12
Speaker 1: longer than most retirees will will live, quite frankly, and
22:16
Speaker 1: basically get over the social security humps that's really coming
22:19
Speaker 1: over the next over the next several years. But in
22:22
Speaker 1: terms of interest rate exposure and in terms of pricing
22:24
Speaker 1: of these of these bonds, it creates a different point
22:28
Speaker 1: on the curve. But but you're absolutely right least it
22:30
Speaker 1: doesn't have a lot more risk. And in fact, the
22:32
Speaker 1: amount of interest rate risk from ten years to thirty
22:35
Speaker 1: years more than doubles. But from thirty to fifty years,
22:39
Speaker 1: and this is again a little counterintuitive and very this
22:41
Speaker 1: has to do with bond math, but the risk only
22:43
Speaker 1: goes up by about twenty instead of like I said,
22:47
Speaker 1: for the prior twenty years, So so you're not adding
22:50
Speaker 1: a lot of risk. So that's one reason why the
22:53
Speaker 1: Treasury Borrowing Advisory Committee these are dealers and investors and
22:57
Speaker 1: both by side sell side hedge funds um. This is
23:00
Speaker 1: one of the reasons why they're skeptical if there will
23:02
Speaker 1: be consistent demands for the fifty year bond um. But
23:06
Speaker 1: at the same time, it seems like the Trosury Department
23:08
Speaker 1: seems pretty keen on on, you know, testing it out
23:11
Speaker 1: and trying to issue some of these. Thank you very much.
23:13
Speaker 1: I read Jersey is interest rate strategist for Bloomberg talking
23:17
Speaker 1: about the outlook of course for interest rates. Thanks very much. Well,
23:32
Speaker 1: let's find out what the feeling is in Puerto Rico.
23:34
Speaker 1: Right now. We have Joe my Sack. He is our
23:36
Speaker 1: expert our editor for Bloomberg breefs Municipal Market. Joe, maybe
23:41
Speaker 1: just give us an update what has happened so far
23:43
Speaker 1: this week in Puerto Rico. Title three him. Title three
23:49
Speaker 1: sort of a version of bankruptcy that was set up
23:52
Speaker 1: just for the Commonwealth and now the creditors are going
23:57
Speaker 1: to have to slug it out. Right now, this is
23:59
Speaker 1: UH using Title three to restructure geos, but they are
24:04
Speaker 1: all general obligations general obligation bonds and they're also going
24:07
Speaker 1: to file a Title three to restructure the Cofina bonds,
24:13
Speaker 1: which are the sales tax backed bonds. You know, there's
24:16
Speaker 1: a there's a lot of emotion tied to this issue,
24:18
Speaker 1: both on the side of people living in Puerto Rico,
24:21
Speaker 1: but also some of the creditors and UH particular, I'm
24:24
Speaker 1: looking at the bond insures who are on the hook
24:27
Speaker 1: to compensate investors for any losses on the bonds should
24:31
Speaker 1: Puerto Rico write down the principle, UH substantially and sure
24:36
Speaker 1: enough assured guarantee. One of those insurs today had earnings. UH.
24:39
Speaker 1: They actually reported better than expected earnings since their shares
24:42
Speaker 1: are up more than five percent. But the CEO said
24:46
Speaker 1: on a call with investors that they wanted an adult
24:49
Speaker 1: in the room to resolve Puerto Rico debt issues, which
24:51
Speaker 1: it didn't get with either the oversight Board or the governor.
24:55
Speaker 1: That the fiscal plan that the oversight board came up
24:58
Speaker 1: with is a quote insult. Title three is quote in
25:01
Speaker 1: no one's best interest. It will only mean long and
25:03
Speaker 1: costly litigation. So you know, Joe, given this backdrop, can
25:07
Speaker 1: you give a sense that observe the mood of the
25:10
Speaker 1: people who you speak with our bond investors girding for
25:12
Speaker 1: much steeper losses than are already baked in. I think
25:16
Speaker 1: a lot of bond investors who are who are still
25:20
Speaker 1: creditors at this point because you know, let's face it,
25:23
Speaker 1: in the broader community market that I really care, um,
25:26
Speaker 1: but in the but the creditors, sure, they're very Uh,
25:31
Speaker 1: they're sort of stunned at this point. A lot of
25:35
Speaker 1: them are still in denial. I mean at assure. Dominic
25:40
Speaker 1: Is uh has always been a blunt speaker, Joe. One
25:44
Speaker 1: of the things that's coming up in June, June eleven
25:47
Speaker 1: is a plebiscite. It's a vote, and the people in
25:50
Speaker 1: Puerto Rica are going to be able to vote on
25:52
Speaker 1: their political status. Not the last time back in two
25:55
Speaker 1: thousand and twelve, they rejected continuing as a territory. And
26:01
Speaker 1: I believe it was something like six would vote or
26:06
Speaker 1: had voted in that plebiscite for statehood. The fact that
26:09
Speaker 1: Puerto Rico really is controlled by the federal government. Is
26:12
Speaker 1: it likely that this vote will change anything? Uh? Well,
26:17
Speaker 1: certainly not with the debt. And uh, you know, if
26:20
Speaker 1: I had to bet, I'd say they're probably gonna vote
26:22
Speaker 1: for the status quo. Really, even though you have this
26:26
Speaker 1: decline in the economic fortunes of the territory, because I mean,
26:30
Speaker 1: commonwealth doesn't really mean anything in the I mean it
26:32
Speaker 1: doesn't have any legal status, right, I mean, this is
26:34
Speaker 1: a territory and as a result, it's really run overseen
26:38
Speaker 1: by the Congress. I think they they you know, it
26:43
Speaker 1: strikes the balance between independence and UH and the requirements
26:47
Speaker 1: of statehood. So I just you know, that's my bet
26:51
Speaker 1: that they'll just go for the status quo. You know,
26:53
Speaker 1: there's been a lot of discussion about who's next. Does
26:56
Speaker 1: it said a bad precedent for say, the Virgin Isla,
27:00
Speaker 1: which is another territory of the US and has been
27:03
Speaker 1: building dead and has been facing some of the similar
27:06
Speaker 1: issues that have ravaged Puerto Rico. So we were talking offline,
27:11
Speaker 1: Joe that the Virgin Islands has about two billion dollars
27:13
Speaker 1: of debt compared to seventy four billion dollars at Puerto Rico.
27:16
Speaker 1: So this is not exactly an apple to apples comparison.
27:19
Speaker 1: But could the Virgin Islands end up taking a similar
27:22
Speaker 1: route to Puerto Rico? Oh? Sure? And again because it's
27:26
Speaker 1: you know, sort of how do you put it, an
27:29
Speaker 1: impoverished Caribbean. Many nation, I guess or state. Uh, and
27:35
Speaker 1: you know, the things that are in operation in Puerto
27:38
Speaker 1: Rico are sort of an operation in the Virgin Islands,
27:40
Speaker 1: but in a very very smaller way. Well, do you
27:43
Speaker 1: think that there is a precedent that's set for say, bondholders, uh,
27:47
Speaker 1: for Illinois or New Jersey or other ravage states that
27:52
Speaker 1: might not fall into the same title three provision? Contagion
27:55
Speaker 1: that's what you're talking. Yes, I'm talking contagion. Are we
27:57
Speaker 1: going to see contagion? I don't see contagion just because uh,
28:00
Speaker 1: these uh states that you mentioned really have to have
28:06
Speaker 1: regular access to the bond market, and there's still a
28:08
Speaker 1: lot of things they could do. On the other hand,
28:11
Speaker 1: just doesn't excuse the fact that they have a lot
28:15
Speaker 1: of difficulties. You know, when you say New Jersey and Illinois,
28:19
Speaker 1: Chicago public schools, these are places with very uh you know,
28:23
Speaker 1: they have a lot of distress there. But certainly I
28:25
Speaker 1: don't see any contagion spreading to states. The states have
28:28
Speaker 1: a lot of power, and they have have a lot
28:31
Speaker 1: of taxing power in particular. Well, then, having said that,
28:34
Speaker 1: I'm wondering, why wouldn't Puerto Rico become a state I mean,
28:38
Speaker 1: right now, it doesn't seem to be working in its
28:40
Speaker 1: present situation of being a territory. Why not change the
28:43
Speaker 1: status and fix this? Um? I think right now you're
28:47
Speaker 1: you're sort of at the end of the line, and
28:51
Speaker 1: that right now, this is probably how it's gonna work
28:55
Speaker 1: going forward. Attaining statehood wouldn't change anything for them right now.
29:02
Speaker 1: Just when you were talking earlier, real quick, can you
29:04
Speaker 1: give us a sense of who the creditors really are
29:06
Speaker 1: at this point? I mean, have the mutual funds and
29:08
Speaker 1: the mom and pop investors pretty much all gone away? Well? Yeah, because, uh,
29:15
Speaker 1: you know, Puerto Rico was downgraded several years ago, so
29:18
Speaker 1: the mom and the typical mom and pop investor that
29:21
Speaker 1: is off island. On the island, there are still small
29:24
Speaker 1: investors who owned Puerto Rico paper, but uh, you know,
29:29
Speaker 1: right now you have big hedge funds, you still have
29:32
Speaker 1: you know, some big mutual funds. Um. So it's really
29:36
Speaker 1: it's it's an institutional thing right now. There's still some
29:40
Speaker 1: individuals who are in Puerto Rico paper, sure, but for
29:43
Speaker 1: the most part it is institution versus Puerto Rico. Joe Meazac,
29:46
Speaker 1: editor for Bloomberg Brief focusing on the municipal market. Thank
29:50
Speaker 1: you so much for joining us. Truly a pleasure to
29:52
Speaker 1: speak with you. Thanks for listening to the Bloomberg P
29:58
Speaker 1: and L podcast. You can subscue. I've been listen to
30:00
Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
30:05
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
30:09
Speaker 1: on Twitter at Lisa Abramo wits one Before the podcast.
30:12
Speaker 1: You can always catch us worldwide on Bloomberg Radio.