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US Consumer Confidence Falls · Bloomberg Intelligence

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  Speaker 2: Taking a look here at the consumer confidence number, Paul,
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  Speaker 2: that you just referenced. It unexpectedly fell in January to
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  Speaker 2: a four month low, and the reason the labor market
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  Speaker 2: and the outlook for the broader economy. So let's go
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  Speaker 2: and get more on this right now with Stephanie Gushard,
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  Speaker 2: a senior economist at the Conference Board. Can you walk
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  Speaker 2: us through this lack of confidence, Stephanie.
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  Speaker 3: So, I wouldn't call it a lack of confidence. Through
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  Speaker 3: our index declined for the second consecutive months. However, if
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  Speaker 3: you look at it for the past two years, it's
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  Speaker 3: been stuck in this narrow range and it's not breaking
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  Speaker 3: three no on the upside, no on the downside. So indeed,
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  Speaker 3: this month there was a decline, but it's more like
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  Speaker 3: a correction from the very strong index we saw in
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  Speaker 3: October and November. So the it's just to us, it's
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  Speaker 3: just a correction, and it's driven by consumers assessments of
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  Speaker 3: the present situation, which has been downgraded slightly.
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  Speaker 4: What's historically for this measurement, Stephane, what's kind of the
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  Speaker 4: key drivers for consumer sentiment here? What's really been kind
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  Speaker 4: of pushing this over the last year or two.
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  Speaker 3: I think it's really the label market. So for the
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  Speaker 3: past two years, consumers have been very happy with the
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  Speaker 3: current situation and the label market. I mean, we all
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  Speaker 3: know employment has been relatively low. There are plenty of jobs,
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  Speaker 3: a bit less than just after the pandemic, but still
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  Speaker 3: plenty of jobs available. So consumers are happy about the
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  Speaker 3: present situation. They are worried about the future because they
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  Speaker 3: all know that good things don't last forever. So it's
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  Speaker 3: you have this tool driver, happy about the current labor market,
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  Speaker 3: worried about where it's going. And this has been really
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  Speaker 3: driving our index for the past two years.
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  Speaker 5: All right, Stephanie, we appreciate that. Thank you very much.
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  Speaker 2: Stephanie Gisha joining us from the conference board.
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  Speaker 5: Thank you.
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  Speaker 6: Let's get back to the municipal market.
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  Speaker 4: We are at BAM Mutual offices down in the Lowermanhad
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  Speaker 4: Build American Mutual talking about the.
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  Speaker 6: Municipal bond industry.
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  Speaker 4: Tom Dojoy of municipal markets analytics, municipal bond market, it's
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  Speaker 4: an active market. Talk to us about twenty twenty four
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  Speaker 4: in terms of new issue once, Tom and kind of
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  Speaker 4: what you guys think about twenty twenty five.
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  Speaker 7: Well, there was record issuance, as you point out in
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  Speaker 7: twenty twenty four, tremendous access to the market. We think
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  Speaker 7: there's going to be continued high issuance going forward. We
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  Speaker 7: actually think that in the next ten years that we'll
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  Speaker 7: see municipal issuance reach a trillion a year versus five
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  Speaker 7: hundred billion last year.
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  Speaker 5: WHOA, And the buyers are all there.
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  Speaker 7: Yes, and it's predominantly individuals through fond ETFs and in
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  Speaker 7: direct purchases.
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  Speaker 4: Some of the Trump administration, President Trump himself is saying
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  Speaker 4: that perhaps as it relates to infrastructure spending, maybe even
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  Speaker 4: disaster relief spending, that some of the spending should be
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  Speaker 4: more at the state.
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  Speaker 6: Local level versus the federal level. How does your market
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  Speaker 6: think about that.
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  Speaker 7: I couldn't agree more with that perspective. In fact, a
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  Speaker 7: year ago, almost to the day I spoke testified before
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  Speaker 7: the Senate Budget Committee and made those points Senator Brown
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  Speaker 7: from Indiana who is now governor in Indiana.
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  Speaker 8: I'm champion that.
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  Speaker 7: I think that the states and local governments have the
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  Speaker 7: capacity deck capacity.
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  Speaker 8: To take on.
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  Speaker 7: Again more, can take on more, and it's right for
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  Speaker 7: them to have that local oversight for the disaster relief.
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  Speaker 7: So I think it's it's a really it's a win win.
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  Speaker 7: I think that we have more control at the state
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  Speaker 7: and local level the federal government. It takes some of
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  Speaker 7: that responsibility off their books. So I think it's a
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  Speaker 7: real opportunity actually for the municipal industry of what Trump
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  Speaker 7: was saying in Project twenty twenty five for regarding FEMA.
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  Speaker 2: What are the issues out of DC or headlines out
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  Speaker 2: of DC. Are you guys in the meuni market monitoring
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  Speaker 2: this year?
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  Speaker 7: Well, the municipal market is kind of a fear based
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  Speaker 7: market because everybody's looking at the exemption drives everything and so.
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  Speaker 5: There's a great thing like that might go away and therefore.
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  Speaker 7: Exactly exactly, and so that everyone thinks, oh my god.
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  Speaker 7: You know, I'm a mutual one manager. You'll be talking
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  Speaker 7: to some later today and they go, my god, if
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  Speaker 7: it's not a taxic that market, well, what do we
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  Speaker 7: do with our business? I I think, and who knows
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  Speaker 7: how to handicap that? I mean, the market's been around
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  Speaker 7: for one hundred plus years. I think load default rates
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  Speaker 7: because this retail dominated. I always remember back in two
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  Speaker 7: thousand and eight that Barney Frank during the financial crisis
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  Speaker 7: said the problem was the disconnect between the borrower and
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  Speaker 7: the lender. And I think that's what the municipal market
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  Speaker 7: actually has, is that close connection because of the exemption.
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  Speaker 7: So there's some limitations the exemption presents, but it also
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  Speaker 7: creates that better oversight and as a result, load default
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  Speaker 7: rates and a very attractive investment states municipalities.
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  Speaker 4: I've been totally missed with mold market. They issued the
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  Speaker 4: money when they need it, not when maybe it's smartest
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  Speaker 4: to raise it, like when rates are low. They if
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  Speaker 4: they have to build a bridger or something like that road,
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  Speaker 4: that's when they issue the bond.
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  Speaker 6: Is that still kind of how it works.
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  Speaker 7: I think you're right. I mean, it's not a very
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  Speaker 7: forward looking market. But to your point, the federal government
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  Speaker 7: also doesn't often borrow when rates are low too, right,
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  Speaker 7: So it's not just the state and locals. So I
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  Speaker 7: think what I'd like to see, certainly in wake of
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  Speaker 7: Los Angeles and the wildfires and the hurricanes in North
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  Speaker 7: Carolina we all know about, is that we could have
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  Speaker 7: more climate adaptation type of projects, so better infrastructure for
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  Speaker 7: flood control, water and sewer management of wildfires. These types
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  Speaker 7: of things I think are opportunities for the municipal industry
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  Speaker 7: to really step forward and start pushing some.
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  Speaker 8: Of these projects.
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  Speaker 2: Done that down for me for a second, So does
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  Speaker 2: that mean that then you would issue bonds that would
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  Speaker 2: be tax exempt, that then you'd use that for disaster prevention?
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  Speaker 9: Well?
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  Speaker 7: Sure, because well in that so let's say we have
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  Speaker 7: we know the storms, rainstorms are, we see more rain,
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  Speaker 7: they're more frequent, and they're overwhelming existing infrastructure. So really
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  Speaker 7: what I'm saying is listing to the forward looking is
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  Speaker 7: being more attentive to upgrading antiquated infrastructure that we know,
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  Speaker 7: you know, the lead pipes and all this type of
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  Speaker 7: thing that are around.
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  Speaker 8: But I'm very.
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  Speaker 7: Interested in the flood and the water and sewer aspect,
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  Speaker 7: cause I think that impacts not only impacts economies, it's
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  Speaker 7: important also on utilities to upgrade those. We've seen those
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  Speaker 7: with the wildfires right the sparks and whether it's Hawaii
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  Speaker 7: or California. So I think that's the opportunity for the
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  Speaker 7: industry to say this is the way to upgrade infrastructure
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  Speaker 7: and now to reduce the potential future costs of the
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  Speaker 7: federal government through FEMA.
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  Speaker 4: You what are some of the sectors that you think
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  Speaker 4: will be active issuers in the coming year two or three.
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  Speaker 8: Well, as I just mentioned again, I come back our
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  Speaker 8: drum beat.
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  Speaker 4: Here, how about education, because I'm not sure that used
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  Speaker 4: to be I felt like a good active area, but
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  Speaker 4: I'm not sure anymore.
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  Speaker 7: Well, everyone likes to build schools, right, They're politically attractive
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  Speaker 7: and it's always about the children, right, So we always
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  Speaker 7: so everyone likes to do those, and it's a high
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  Speaker 7: percentage of municipal issuance is tied to schools, secondary and
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  Speaker 7: elementary and all that. So I think you'll see continue
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  Speaker 7: that again, coming back to a theme that I think
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  Speaker 7: is really focus is you know, changing weather, increased heat,
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  Speaker 7: You've got to improve HVAC systems in these schools in
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  Speaker 7: Arizona and all this, and so that's another area of financing.
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  Speaker 7: You know, there were there was in Montana, there was
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  Speaker 7: financing for airplanes to fight wildfires.
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  Speaker 8: Yeah, you know, and so the airplane deal.
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  Speaker 6: Yeah interesting, Yeah, we saw them in l A certainly.
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  Speaker 9: Yeah.
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  Speaker 8: Absolutely.
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  Speaker 2: What about salt deductions, like we're like super into looking
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  Speaker 2: at those obviously living in Jersey and New York. How
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  Speaker 2: does that influence or change or impact the muni.
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  Speaker 7: Market, Frank, muni market not so much, okay, really, I
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  Speaker 7: mean it's it's more of our it's more of our
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  Speaker 7: personal interests.
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  Speaker 8: Right, here's a mine of having that.
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  Speaker 2: So so no changes in terms of the demand for
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  Speaker 2: municipal bonds or okay.
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  Speaker 8: I mean, it's just it's on it's on the margin
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  Speaker 8: type of a thing.
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  Speaker 6: See musical bonds. I'm telling you, it's a thing. I'm
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  Speaker 6: a big fan in musical bond market.
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  Speaker 8: I think they're great. It's fine.
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  Speaker 7: It's a lot of gray area, so it makes it
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  Speaker 7: interesting as well. Right, it's a political or emotional city.
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  Speaker 7: Get to gets out of the municipal bond underwriting business.
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  Speaker 7: Great strategy.
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  Speaker 6: Yeah City, it's going to be kidding me.
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  Speaker 8: What a mistake, right, huge stake terrible.
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  Speaker 4: Tom Doe, founder and CEO of Municipal Market Analytics, join
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  Speaker 4: us here talking about the municipal bond market. It is
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  Speaker 4: a big market, active market, deep market, and Build American
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  Speaker 4: Mutual plays a big role in now because they ensure
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  Speaker 4: a lot of municipal bonds, which gives investors at IT
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  Speaker 4: security and things like that, So we keep an eye
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  Speaker 4: on that.
• 9:30
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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• 9:40
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• 9:45
  Speaker 4: Alex Steele, Paul Sweeney, We are live from the Build
• 9:47
  Speaker 4: American Mutual BAM Mutual. They're down located in Lower Manhattan
• 9:52
  Speaker 4: with their offices today talking about the municipal bond market,
• 9:54
  Speaker 4: which we like to do from time to time. For
• 9:56
  Speaker 4: those of us that live in a high tech state
• 9:59
  Speaker 4: like New Jersey, for example, the triple tax rebaby equivalent
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  Speaker 4: yield is very very attractive. Peter Drew joins us head
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  Speaker 4: of Muni Research for JP Morgan, Hey, Peter.
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  Speaker 6: One of the big issues there's a lot of.
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  Speaker 4: Talk about tax reform out there, is there ever discussion
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  Speaker 4: about addressing or eliminating or adjusting the tax efficiency of
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  Speaker 4: municipal bonds.
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  Speaker 10: First of all, thank you very much for having me here.
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  Speaker 10: In terms of in the municipal mom market. Naturally, there
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  Speaker 10: is a significant amount of discussion around the potential elimination
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  Speaker 10: of the federal tax exemption for interest rate income on
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  Speaker 10: municipal bonds. Right this as the task for Congress is
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  Speaker 10: to come up with the roughly four point six trillion
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  Speaker 10: dollar bill for the extension of TCJA. Therefore, I guess
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  Speaker 10: the alarm in the market started when we received a
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  Speaker 10: very extensive list from the House Ways and Means Committee,
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  Speaker 10: which included about well over one hundred pay fores for
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  Speaker 10: a potential pay force for that extension of TCJA. On
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  Speaker 10: that list were some far flung items like the elimination
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  Speaker 10: of the mortgage deduction for homeowners, which are pretty far flung, right.
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  Speaker 10: The other which we thought was, you know, sort of remote,
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  Speaker 10: is the elimination of the exemption for federal taxes for
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  Speaker 10: state and local taxes on your federal tax forms. Right
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  Speaker 10: along with those was the elimination of the exemption for
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  Speaker 10: tax exempt interest for state and local bonds, as well
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  Speaker 10: as the elimination of the tax exemption federal tax exemption
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  Speaker 10: for private activity bonds and a large catchual for all municipals.
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  Speaker 10: So naturally the market concerned. Historically when this has come up,
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  Speaker 10: and it has come up regularly in pay fors for
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  Speaker 10: different administration's priorities, these have gotten washed out of later
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  Speaker 10: drafts of the bill. And naturally this isn't in a
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  Speaker 10: draft of the bill, right, this was merely a laundry
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  Speaker 10: list of potential pay fors for the extension of.
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  Speaker 2: Tc Either way, you guys have to be gaming out
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  Speaker 2: a little bit, right, So, like what would happen to
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  Speaker 2: issuance if the tax exemption part went away?
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  Speaker 10: So our view is if the tax exemption went away,
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  Speaker 10: it would only be on a prospective basis. So there
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  Speaker 10: and as we've seen in the nineteen eighty six Tax Act,
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  Speaker 10: and oh, by the way, as recently as twenty seventeen
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  Speaker 10: when TCJA limited the tax exemption on tax exempt advanced
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  Speaker 10: for funding of tax exempt debt recall, in that bill,
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  Speaker 10: initially they had the elimination of all private activity bonds. Right,
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  Speaker 10: private activity bonds account for about twenty five percent of
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  Speaker 10: the municipal bond market, which might also be in played
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  Speaker 10: in terms of discussion this time around. But in our view,
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  Speaker 10: what we'll likely see is just, you know, potentially, like
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  Speaker 10: we saw in twenty seventeen, a little nipping at the
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  Speaker 10: heels of the exemption. So let's say, a mordinalization of
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  Speaker 10: the exemption for municipals going forward, potentially on some sectors
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  Speaker 10: like higher education or potentially in healthcare, or possibly within
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  Speaker 10: some portion of the private activity bond space. So our view,
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  Speaker 10: as you see lesser potentially, you know, lesser tax exempt
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  Speaker 10: issuance on a go forward basis, again has nothing to
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  Speaker 10: do with bonds that are already issued, already held by
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  Speaker 10: investors in the market importantly, right, and that ultimately it
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  Speaker 10: drives scarcity value in the securities that are currently outstanding
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  Speaker 10: in the market. Folks buy MUTY bonds for two reasons
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  Speaker 10: safety surity of capital, right, get your money back, and
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  Speaker 10: then two tax exempt interesting income about the only game
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  Speaker 10: in town for taxes. Interest income supply demand supply goes down,
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  Speaker 10: the man remains the same.
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  Speaker 9: Prices go up.
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  Speaker 6: Interesting.
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  Speaker 4: So one of those drivers we were mentioning was the
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  Speaker 4: tax interest. What's the is the expectation in your market
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  Speaker 4: that this will remain a vibrant market going forward, because
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  Speaker 4: again there are some concerns there. Are you seeing any
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  Speaker 4: minisipiltis rush to get into the market, maybe sensing that
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  Speaker 4: maybe this exemption may be at risk.
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  Speaker 10: That's an excellent point here Toofore we have not seen
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  Speaker 10: that you might anticipate that just in terms of gaming out.
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  Speaker 9: The probabilities here.
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  Speaker 10: Even if you expect a wholesale limitation or larger limitation
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  Speaker 10: on the tax exemption going forward to be sort of
• 14:46
  Speaker 10: marginle you would likely out of prudence potentially you want
• 14:51
  Speaker 10: to get some of that istion wins in pull it
• 14:53
  Speaker 10: forward before the actual legislation is passed. Right last year,
• 14:57
  Speaker 10: we certainly think we saw some additionally issue once as
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  Speaker 10: a pull forward before the election. It would make sense
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  Speaker 10: now as these sort of milestones are being hit or
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  Speaker 10: some of the concerns on the market are being hit. Right,
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  Speaker 10: we know that tax exemption is on the list now
• 15:14
  Speaker 10: at least under consideration, So it might be proven for
• 15:18
  Speaker 10: some issuers to pull their issuance needs forward to take
• 15:21
  Speaker 10: advantage of the tax exemption while it still exists.
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  Speaker 5: Okay, interesting, I'm curious.
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  Speaker 2: We were talking earlier with a guest about the natural
• 15:28
  Speaker 2: disasters and the role that the mini market can play
• 15:31
  Speaker 2: in that. What kind of questions are you getting from
• 15:32
  Speaker 2: your clients about to the wildfires in La.
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  Speaker 10: Well, first of all, that it's a tremendous human tragedy.
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  Speaker 10: It's hard to run into somebody in California from the
• 15:44
  Speaker 10: state that doesn't at least know someone who's been impacted.
• 15:46
  Speaker 10: So in terms of the questions that we're getting is
• 15:50
  Speaker 10: naturally from a credit perspective, what might be impacted in
• 15:53
  Speaker 10: the space.
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  Speaker 9: Sort of two sides, right.
• 15:57
  Speaker 10: One is that historically, when we've looked at sort of
• 16:01
  Speaker 10: these natural disasters in retrospect, there is very little long
• 16:06
  Speaker 10: lasting impact from a credit, a sustained credit impact on
• 16:09
  Speaker 10: the error after the rebuild. Now that's historically, Certainly, these
• 16:15
  Speaker 10: these LA fires are on a scale that we haven't
• 16:18
  Speaker 10: seen before. Right, most recent estimates and short lourses of
• 16:23
  Speaker 10: thirty billion, almost three x the largest fire that we've
• 16:26
  Speaker 10: seen in California from an insured loss perspective. So today,
• 16:32
  Speaker 10: for example, we saw rating agencies put on notice several
• 16:36
  Speaker 10: credits within the space, including the city, the City of
• 16:40
  Speaker 10: la and you know, basically a large number of utilities
• 16:45
  Speaker 10: that do service the area with potential liability depending upon
• 16:51
  Speaker 10: how you know, the causes of the fire are determined
• 16:55
  Speaker 10: over longer periods of time. So you know, have said
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  Speaker 10: that there has been very little, very few defaults in
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  Speaker 10: the market, limited defaults.
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  Speaker 6: In Peter, thank you so much for joining us. Really appreciateive.
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  Speaker 4: Peter de he's head of municipal Research at JP Morgan
• 17:13
  Speaker 4: joining us on site here at BAM Mutual in Lower Manhattan.
• 17:17
  Speaker 4: As we talked about the municipal bond market here, a
• 17:20
  Speaker 4: large market, but again there are some issues out there.
• 17:24
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 17:28
  Speaker 1: weekdays at ten am Eastern on Applecarcklay and Android Auto
• 17:31
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• 17:34
  Speaker 1: get your podcasts, or watch us live on YouTube.
• 17:38
  Speaker 6: Go back to the municipal market.
• 17:39
  Speaker 4: We're joined by Laura Whitstruck, Chief Municipal Analytical Officer SMP
• 17:43
  Speaker 4: globeal're rating. She joins us here on site at Filled
• 17:45
  Speaker 4: America Mutual North. Thanks so much for joining us here
• 17:48
  Speaker 4: assigning ratings. Talk to us about the credit quality that
• 17:51
  Speaker 4: you see out there in the municipal boonb market. I
• 17:53
  Speaker 4: can't remember the last time we had a Puerto Rico
• 17:55
  Speaker 4: in Illinois. What's going on on there? It seems pretty good.
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  Speaker 11: Yeah, thanks for having me.
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  Speaker 12: And I would say that, you know, generally, in twenty
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  Speaker 12: twenty five, I like to say that the municipal sector
• 18:09
  Speaker 12: is cautiously stable. A lot of state and local governments
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  Speaker 12: are coming into twenty twenty five still sort of riding
• 18:16
  Speaker 12: some high liquidity and reserve levels based on the COVID
• 18:20
  Speaker 12: relief based still yeah, you know, they had to commit
• 18:24
  Speaker 12: it all by the end of last year, but they
• 18:26
  Speaker 12: had to they have to spend it all by the
• 18:28
  Speaker 12: end of twenty twenty six, so they still have some
• 18:30
  Speaker 12: in their coffers generally, and I think also just the
• 18:33
  Speaker 12: economy has been pretty good and that helps state and
• 18:36
  Speaker 12: local governments and other entities that we rate in terms
• 18:39
  Speaker 12: of the demand that they see for their services.
• 18:43
  Speaker 2: When it comes to something we've been talking about the
• 18:45
  Speaker 2: last hour and a half or so, are the impact
• 18:47
  Speaker 2: of natural disasters and the LA wildfires, Like how do
• 18:50
  Speaker 2: you deal with ratings and natural disasters like that?
• 18:54
  Speaker 12: So we bake risk into our ratings, as you might
• 18:58
  Speaker 12: imagine as credit analysts, and that.
• 19:01
  Speaker 5: Probably wasn't on anyone's BINGO card.
• 19:03
  Speaker 12: So we in California, particularly in the utilities sector, watching
• 19:07
  Speaker 12: wildfires from a credit risk perspective because of the fact
• 19:11
  Speaker 12: that the state has inverse condemnation, which means utilities, even
• 19:14
  Speaker 12: if they are not negligent, can be.
• 19:17
  Speaker 13: Liable for sparking a wildfire if any of their equipment
• 19:20
  Speaker 13: is involved. That's right, cause, yep, absolutely so. Actually, LADWP,
• 19:26
  Speaker 13: we lowered from double A to double A minus a
• 19:29
  Speaker 13: few years ago because they choose as a decision not
• 19:34
  Speaker 13: to de energize their lines relative to wildfires.
• 19:37
  Speaker 12: And that's fine for them to do that. It's different
• 19:40
  Speaker 12: than some of their peers in California who do do that.
• 19:44
  Speaker 12: But because of that, they decide that because they're based
• 19:47
  Speaker 12: in an urban area, they don't want to shut off
• 19:49
  Speaker 12: their traffic lights. They think that the risk trade off
• 19:52
  Speaker 12: between the wildfire and human costs are are not are
• 19:56
  Speaker 12: not equal, So we lowered their ratings that I think.
• 20:00
  Speaker 12: I think part of that is the inverse condemnation, but
• 20:02
  Speaker 12: also it's just the fact that utilities are particularly susceptible
• 20:07
  Speaker 12: to infrastructure damage during a severe weather event, whether it
• 20:11
  Speaker 12: be a wildfire, a hurricane, flooding. So it's all been
• 20:15
  Speaker 12: baked into our ratings. The actions that we took on LADWP,
• 20:20
  Speaker 12: we're partly reflecting a recalibration of that risk as wildfires
• 20:25
  Speaker 12: have come into more urban areas versus where they historically
• 20:29
  Speaker 12: have occurred in rural communities.
• 20:31
  Speaker 4: I guess in response to the LA fires, President Trump
• 20:34
  Speaker 4: I think is voiced some displeasure with FEMA and even
• 20:37
  Speaker 4: suggesting maybe some of the disaster relief responsibilities at the
• 20:40
  Speaker 4: federal level FEMA be put down at the state.
• 20:42
  Speaker 6: And local level. Some people think that's a good idea.
• 20:46
  Speaker 4: My question is simpecifically, can states and local municipalties afford
• 20:49
  Speaker 4: that kind of stuff.
• 20:51
  Speaker 12: Well, we've historically said that FEMA is an important credit
• 20:56
  Speaker 12: support for state and local governments. These disasters are increasing
• 21:00
  Speaker 12: frequency and increasing in cost, and absent federal aid, you know,
• 21:06
  Speaker 12: that would be a significant pressure for them, and absorbing
• 21:10
  Speaker 12: all of the costs is just probably a little unsustainable
• 21:14
  Speaker 12: at the current rating levels. I think what we are
• 21:17
  Speaker 12: watching for is what he actually decides to do.
• 21:20
  Speaker 11: Does he still.
• 21:21
  Speaker 12: Decide to maintain the federal aid and shift it to
• 21:24
  Speaker 12: a block grant for states and then states are responsible
• 21:27
  Speaker 12: for allocating it, or you know, does disaster relief go
• 21:31
  Speaker 12: away entirely. Those are two very different dynamics that we
• 21:34
  Speaker 12: have to monitor in terms of how I relate.
• 21:36
  Speaker 2: What are the different options then for those two scenarios,
• 21:40
  Speaker 2: how would that how would each impact the mini market?
• 21:43
  Speaker 12: So I think if even a lower level of disaster
• 21:47
  Speaker 12: relief for state and local governments, right now, they typically
• 21:51
  Speaker 12: get somewhere between seventy and ninety percent of the costs
• 21:54
  Speaker 12: reimbursed from the federal government. If that goes to twenty percent,
• 22:00
  Speaker 12: that's something that we'd have to consider. If that goes
• 22:04
  Speaker 12: to zero, that's a whole nother decision on our part
• 22:08
  Speaker 12: to determine what the liquidity and reserves of state and
• 22:11
  Speaker 12: local governments and entities that we rate need to maintain
• 22:14
  Speaker 12: as a buffer against these types of disasters.
• 22:17
  Speaker 11: Now, if it.
• 22:18
  Speaker 12: Just shifts from FEMA being the allocator and the distributor
• 22:22
  Speaker 12: of funds to states in terms of a block grant,
• 22:26
  Speaker 12: that probably could be even like a non concern for us.
• 22:30
  Speaker 11: If you will, all.
• 22:31
  Speaker 4: Right, as a credit rating agency, you get paid to worry.
• 22:35
  Speaker 4: We get paid to worry Aside from natural disasters, which
• 22:38
  Speaker 4: can be an overwhelming topic. What are more of some
• 22:41
  Speaker 4: pedestrian things that concern you?
• 22:44
  Speaker 12: Well, you know, I think generally we look at long
• 22:47
  Speaker 12: term liabilities, right, so pensions and how state and local
• 22:51
  Speaker 12: governments and other entities that we rate manage their pension systems.
• 22:54
  Speaker 12: Typically it's managed at the state level. What does that mean?
• 22:57
  Speaker 12: We are increasingly seeing more people retire, so how do
• 23:01
  Speaker 12: those costs get baked into the budget? States in particular
• 23:04
  Speaker 12: are a safety net for Medicaid, and that's something that
• 23:07
  Speaker 12: President Trump has also spoken about in terms of modifying
• 23:10
  Speaker 12: that plan. States get a lot of money to support
• 23:13
  Speaker 12: people that are vulnerable and need to be in those programs.
• 23:17
  Speaker 12: How could that change the way states function and what
• 23:20
  Speaker 12: they need to allocate resources to. I think we also
• 23:23
  Speaker 12: watch labor productivity and labor workforce dynamics. I think one
• 23:29
  Speaker 12: of the things that we noted after the election is
• 23:31
  Speaker 12: that immigration has been good for our workforce in the US.
• 23:36
  Speaker 12: It has really lowered the cost and the tightness of
• 23:39
  Speaker 12: the labor market. That has turned into high increases in
• 23:44
  Speaker 12: salaries and personal costs for state and local governments and
• 23:47
  Speaker 12: entities that we rate.
• 23:48
  Speaker 11: So a major change in border security.
• 23:50
  Speaker 12: Could tighten that labor market right back up, and that
• 23:53
  Speaker 12: could put additional cost pressures back onto these entities that
• 23:57
  Speaker 12: we rate.
• 23:57
  Speaker 2: I mean, on the flip side, does it actually take
• 23:59
  Speaker 2: away some of the state aid though?
• 24:01
  Speaker 11: Also so it.
• 24:02
  Speaker 12: Could definitely be a bit of a boost. Right, So
• 24:05
  Speaker 12: New York City in particular with asylum seekers, had to
• 24:08
  Speaker 12: absorb a significant billions of dollars in additional costs to
• 24:12
  Speaker 12: help those individuals as they come into this come into
• 24:15
  Speaker 12: the city. That could definitely be a bit of a
• 24:18
  Speaker 12: relief valve for them if.
• 24:20
  Speaker 11: That were to change.
• 24:22
  Speaker 12: I think too, you know, there could be some cost
• 24:25
  Speaker 12: savings relative to medicaid, relative to other social services that
• 24:31
  Speaker 12: they need to participate in to you know, come survive
• 24:35
  Speaker 12: once they get to the US. So that definitely there
• 24:38
  Speaker 12: could be some offsetting improvements in cost savings relative to
• 24:41
  Speaker 12: credit quality.
• 24:42
  Speaker 4: Maybe you can explain to me how life works in Florida. Yeah, okay,
• 24:46
  Speaker 4: Texas no state taxes? How do they build schools and
• 24:52
  Speaker 4: roads and things like that? Because my my state that
• 24:55
  Speaker 4: my you know, property taxes are really high.
• 24:58
  Speaker 12: Yeah, you know, Jery, I mean I own a five
• 25:00
  Speaker 12: hundred and fifty square foot condo, and my property taxes
• 25:03
  Speaker 12: are ten thousand dollars in New York City.
• 25:05
  Speaker 11: So I hear you on that.
• 25:08
  Speaker 12: What happens in states that don't have an income tax,
• 25:12
  Speaker 12: typically they securitize other forms of revenue. So they securitize
• 25:16
  Speaker 12: gas taxes, they securitize sales taxes, they securitize property taxes,
• 25:21
  Speaker 12: which is typically the way most state and local governments
• 25:24
  Speaker 12: secure the debt obligations that they have outstanding is through
• 25:27
  Speaker 12: property taxes. So yeah, you're right, those taxes are high,
• 25:31
  Speaker 12: and some of it will go to paying off debt
• 25:34
  Speaker 12: obligations for the entities that we rate.
• 25:36
  Speaker 5: You don't feel good about that?
• 25:37
  Speaker 6: Yeah, why do I have to pay these high taxes?
• 25:41
  Speaker 6: Everybody's moving to Florida to escape taxes.
• 25:43
  Speaker 5: It's true. No one likes paying the taxes exactly.
• 25:45
  Speaker 11: Yes, Well, what are.
• 25:46
  Speaker 2: Some other key things that are that you guys are
• 25:48
  Speaker 2: talking about right now, like on the desk?
• 25:50
  Speaker 12: Yeah, so I think you know, we're definitely watching federal policy.
• 25:54
  Speaker 12: We're definitely watching how aspects of affordability cut across all
• 26:00
  Speaker 12: all of our sectors. So you know, I was the
• 26:03
  Speaker 12: housing sector lead before I was the chief analytical officer,
• 26:05
  Speaker 12: and we were watching, you know, the lack of housing
• 26:09
  Speaker 12: inventory and how that was affecting the entities that we rate,
• 26:13
  Speaker 12: like state housing finance agencies and social housing providers, public
• 26:17
  Speaker 12: housing authorities, how they're navigating that particular aspect, but it's
• 26:21
  Speaker 12: playing out everywhere. So water utilities and public power utilities,
• 26:26
  Speaker 12: some of which.
• 26:27
  Speaker 11: Operate in La County. We've been watching how.
• 26:31
  Speaker 12: They're raising rates to not only pay for deferred maintenance
• 26:35
  Speaker 12: but also for investment for adaptation to wildfires and other
• 26:38
  Speaker 12: severe weather events. Some have been a little bit lax
• 26:42
  Speaker 12: in doing that because it's been expensive to live in
• 26:45
  Speaker 12: America right We've had an inflationary environment.
• 26:48
  Speaker 11: We've had you know, higher.
• 26:51
  Speaker 12: Cost associated with food, We've had a higher cost associated
• 26:54
  Speaker 12: with utilities. Insurance premiums are going up for property and
• 26:58
  Speaker 12: casualty insurance. So all of those things are weighing on
• 27:01
  Speaker 12: management teams and they're looking at how they can dampen
• 27:05
  Speaker 12: those costs as much as possible. So affordability is something
• 27:08
  Speaker 12: that we're really watching. We're also watching, you know, just demographics. Generally,
• 27:14
  Speaker 12: our higher education sector has been plagued a little bit.
• 27:17
  Speaker 12: Some institutions have had enrollment trends that are declining, which
• 27:22
  Speaker 12: is a big input to our credit analysis because it
• 27:25
  Speaker 12: generates money for public and private private higher education institutions.
• 27:30
  Speaker 11: When those trends decline.
• 27:32
  Speaker 12: They have to figure out how to create.
• 27:34
  Speaker 11: Revenue other than through tuition and fees.
• 27:37
  Speaker 12: So demographics, the aging aspect of America, people leaving the workforce, people,
• 27:43
  Speaker 12: you know, lower demographic trends of people coming into education providers.
• 27:49
  Speaker 12: You know, all of that is something that can be
• 27:51
  Speaker 12: kind of a disruption to credit quality.
• 27:54
  Speaker 6: Just got about a minute left.
• 27:56
  Speaker 4: To what extent are you concerned about the tax exemption
• 27:59
  Speaker 4: of municipal that and perhaps losing that or having that
• 28:01
  Speaker 4: be limited.
• 28:03
  Speaker 12: I think it really goes back to the question of affordability.
• 28:06
  Speaker 12: So for us, you know, we don't advocate for policies.
• 28:09
  Speaker 12: We only sort of evaluate how the policies play out
• 28:11
  Speaker 12: when we know the details of them. So initially, you know,
• 28:15
  Speaker 12: whether entities issue tax exempt debt or taxable debt really
• 28:19
  Speaker 12: comes down to the costs of their capital and how
• 28:22
  Speaker 12: that gets baked into property taxes, sales taxes, other types
• 28:26
  Speaker 12: of allocations of resources that state and local governments need
• 28:29
  Speaker 12: to be making towards people, towards pension and OPEP obligations
• 28:33
  Speaker 12: towards disaster recovery. So if state and local governments, through
• 28:39
  Speaker 12: losing the tax exemption have to pay higher debt service
• 28:42
  Speaker 12: costs because they're issuing taxable debt, that is really just
• 28:46
  Speaker 12: going to sort of funnel down to that affordability question
• 28:49
  Speaker 12: and probably result in long term increases potentially to property
• 28:54
  Speaker 12: taxes and other taxes that secure debt service obligations.
• 28:57
  Speaker 5: Norah, thanks so much, Really appreciate it. Learned so much.
• 28:59
  Speaker 2: Nor would Struck, Chief Municipal Analytical Officer over at SMP Global.
• 29:04
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 29:08
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• 29:11
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• 29:15
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• 29:19
  Speaker 2: Let's go to more on the meuni market because we're
• 29:20
  Speaker 2: right here in Lawer Manhattan for BAYM Mutual. We're going
• 29:23
  Speaker 2: to dissect all areas of the meuni market. Joining us
• 29:25
  Speaker 2: now here on set is Mark Paris, head of Municipal
• 29:27
  Speaker 2: Bonds over at Investco.
• 29:30
  Speaker 14: Mark.
• 29:30
  Speaker 5: Good to see you, thanks for.
• 29:31
  Speaker 9: Being here, see you, thank you for having me.
• 29:33
  Speaker 2: Let's pretend like I don't invest in muni's, and somebody
• 29:36
  Speaker 2: has been telling me for a while to invest in munis,
• 29:38
  Speaker 2: And then I come to you and I say, hey,
• 29:39
  Speaker 2: what should I invest it in muni's?
• 29:41
  Speaker 5: What do you tell me?
• 29:42
  Speaker 14: So I think that the best part about the meuni
• 29:44
  Speaker 14: market is it's not what you make, it's what you keep.
• 29:46
  Speaker 14: And so the tax exemption is really key to investors.
• 29:50
  Speaker 14: And I think that the basic concept is that school districts, hospitals,
• 29:55
  Speaker 14: toll roads, they get to invest at a lower interest
• 29:57
  Speaker 14: rate because what they pay is tax exemp and the
• 30:00
  Speaker 14: investor can gross it up. So my advice to investors
• 30:03
  Speaker 14: is you want to have a diversity in your portfolio,
• 30:06
  Speaker 14: whether you create that or a manager creates that. You
• 30:09
  Speaker 14: want to have a knowledge of what you own. You know,
• 30:13
  Speaker 14: my kids always joke with me when we go to
• 30:14
  Speaker 14: a town. They say, oh, Dad, I know you own
• 30:16
  Speaker 14: the hospital, you own the toll road. You know, you
• 30:18
  Speaker 14: know you want to know what you do. Well, they're
• 30:22
  Speaker 14: older now, but but the the the idea is that
• 30:25
  Speaker 14: these are things that you can see, touch, feel, drive on.
• 30:28
  Speaker 9: Uh and they're good projects.
• 30:29
  Speaker 14: And as you heard, normal In order to talk about
• 30:31
  Speaker 14: the credit quality of the UNI market. It's a fun
• 30:34
  Speaker 14: place to invest in, it's a tax exempt place, uh
• 30:37
  Speaker 14: to invest in. And then if you get into lower credits,
• 30:40
  Speaker 14: then you're going to want a professional money manager to
• 30:42
  Speaker 14: help you out if you, you know, want to go
• 30:44
  Speaker 14: out longer on the curve or or things things like that.
• 30:47
  Speaker 14: But I would say diversity is important, and I would
• 30:50
  Speaker 14: say that these are the things of essential services that
• 30:52
  Speaker 14: we live and breathe every day.
• 30:53
  Speaker 6: What are some of the sectors that you guys like
• 30:56
  Speaker 6: these days?
• 30:57
  Speaker 14: So I think transportation is really a key sector in
• 31:00
  Speaker 14: this country, whether that's a train line in Florida or airports.
• 31:04
  Speaker 14: You know, I always have people come into the city
• 31:07
  Speaker 14: to visit me and they come through Laguardi and they say, Wow,
• 31:09
  Speaker 14: that place looks so different.
• 31:11
  Speaker 9: Now, well we just redid it.
• 31:14
  Speaker 5: Yeah, but that was long time coming.
• 31:16
  Speaker 14: But okay, that was that was a long time coming.
• 31:17
  Speaker 14: But now JFK is going through the same process. And
• 31:20
  Speaker 14: they had bonds. So airport bonds a great origination and
• 31:24
  Speaker 14: departure fees, the the you know, concessions that go on
• 31:28
  Speaker 14: at the airport. We see that that transportation part of
• 31:31
  Speaker 14: the economy is always sort of you know, humming here
• 31:34
  Speaker 14: in the United States. So that's been a good part
• 31:37
  Speaker 14: of what we do. You know, we also like toll roads.
• 31:40
  Speaker 14: We also like water and sewer. You know, we like
• 31:42
  Speaker 14: to say, you wake up in the morning, you turn
• 31:44
  Speaker 14: the lights on, we own the power company, you go
• 31:45
  Speaker 14: to brush your teeth, we own the water company. You
• 31:47
  Speaker 14: get in your car and go to work. We owned
• 31:49
  Speaker 14: the probably the toll road that you go on. So
• 31:52
  Speaker 14: you know, we like essential service revenue bonds. But we'll
• 31:55
  Speaker 14: also buy some university, some hospitals. But that's where you
• 31:57
  Speaker 14: want to do a little bit more credit work.
• 31:59
  Speaker 5: Okay.
• 32:00
  Speaker 2: So I was gonna say, where are the riskier parts
• 32:02
  Speaker 2: in the muni market? I mean clearly, like what you're saying,
• 32:04
  Speaker 2: the infrastructure, tolls, water like that feels like the safety
• 32:07
  Speaker 2: bet in the meuni market from what you're saying, Am
• 32:09
  Speaker 2: I right in that?
• 32:09
  Speaker 5: And then where's the.
• 32:10
  Speaker 9: Risk of you bet?
• 32:10
  Speaker 8: Yeah?
• 32:11
  Speaker 9: Absolutely.
• 32:11
  Speaker 14: Look, I think you have to look at smaller universities
• 32:14
  Speaker 14: these days, universities that are private that have smaller enrollment,
• 32:18
  Speaker 14: smaller endowment, that are kind of changing their standards to
• 32:21
  Speaker 14: get people in, and that may have too big of
• 32:24
  Speaker 14: a debt load.
• 32:25
  Speaker 9: It's the same thing as in the corporate market.
• 32:27
  Speaker 14: You know, it's a matter of how much leverage a
• 32:29
  Speaker 14: borrower takes on. The hospital sector has been interesting to
• 32:33
  Speaker 14: us because some of them have spent some of their
• 32:35
  Speaker 14: COVID money a little too quickly. But then again, you
• 32:38
  Speaker 14: have hospitals that are doing elective surgeries, hospitals that are
• 32:41
  Speaker 14: in the birthing business that are doing just fine. So
• 32:45
  Speaker 14: you know, credit work is really important, not just to
• 32:48
  Speaker 14: say I don't like that sector or there's bad news
• 32:50
  Speaker 14: in that sector, but what are the actual individual credits
• 32:53
  Speaker 14: that are going on. We are a finite market. Once
• 32:55
  Speaker 14: an issue comes to market, it's going to trade for
• 32:57
  Speaker 14: a while, then it's probably going to disappear. So it's
• 32:59
  Speaker 14: really import and to do individual credit work on some
• 33:02
  Speaker 14: of the different aspects of of some of the some
• 33:05
  Speaker 14: of the lower credits.
• 33:07
  Speaker 4: As an institutional investor in this market, how do you
• 33:09
  Speaker 4: rate the risk of that tax ability losing some of
• 33:12
  Speaker 4: the tax efficiency of this market, whether it's some change
• 33:14
  Speaker 4: in tax laws or anything like that.
• 33:16
  Speaker 14: So I think it's a headline that we have to watch,
• 33:18
  Speaker 14: but I think the headline is good going to outweigh
• 33:21
  Speaker 14: the actual changes that happen. I think there may be
• 33:24
  Speaker 14: some tweaks, you know. I know that the House was
• 33:27
  Speaker 14: Spens committee put it on their list, but it was
• 33:29
  Speaker 14: kind of down the list, and if you look at
• 33:31
  Speaker 14: what they had adjusted for the cost, that was somewhere
• 33:35
  Speaker 14: in between the savings. I think Nora was very on
• 33:39
  Speaker 14: top of things in her answer, where you know, she
• 33:41
  Speaker 14: talked about the fact that other things will go up
• 33:43
  Speaker 14: if that happens. It's it's a difficult thing to do too,
• 33:46
  Speaker 14: because what do you do with the existing bonds. You
• 33:48
  Speaker 14: probably have to grandfather the existing bonds. You cause a
• 33:51
  Speaker 14: bifurcated market. We saw this before in the meunium market,
• 33:54
  Speaker 14: mostly after the global financial crisis, and what we found
• 33:57
  Speaker 14: was there was a really good grassroots effort of school
• 34:00
  Speaker 14: districts and hospitals and universities to say, hey.
• 34:03
  Speaker 9: We don't want to borrow at the higher rates. It's
• 34:05
  Speaker 9: not a good idea.
• 34:06
  Speaker 14: So obviously in this administration, we're gonna have to wait
• 34:09
  Speaker 14: and see how things, you know, kind of play out.
• 34:11
  Speaker 14: But I'm not one of those, you know folks that's
• 34:13
  Speaker 14: that's in a panic over it. I think there's going
• 34:16
  Speaker 14: to be a lot more headlines about it, but I
• 34:17
  Speaker 14: just don't see a higher probability.
• 34:19
  Speaker 2: Of it knowing very little about how the mini market works,
• 34:22
  Speaker 2: like do where do issuers usually issue along the curve,
• 34:25
  Speaker 2: and like where is the best value?
• 34:27
  Speaker 14: So it's interesting that we used to just see long
• 34:30
  Speaker 14: paper thirty year bullets or thirty year ten year calls
• 34:33
  Speaker 14: was really a standard thing to do in the muni market. Separately,
• 34:37
  Speaker 14: managed accounts have become such a big part of investors
• 34:40
  Speaker 14: portfolios of the products that we offer in the muni business,
• 34:44
  Speaker 14: and so there is a lot of issuance zero to
• 34:46
  Speaker 14: ten years, five to fifteen years.
• 34:49
  Speaker 9: We actually like sort of the twenty year part of
• 34:51
  Speaker 9: the curve.
• 34:51
  Speaker 14: We think that, you know, the meunia curve does have
• 34:54
  Speaker 14: its steepest curve in the fixed income market, and that's
• 34:56
  Speaker 14: because investors want more yield for longer periods of time
• 35:00
  Speaker 14: that they go out, just like they want more yield
• 35:02
  Speaker 14: in more credit risks that they take. But the twenty
• 35:05
  Speaker 14: twenty to twenty two year part of the curve to
• 35:07
  Speaker 14: us looks really attractive both on a percentage to treasury
• 35:10
  Speaker 14: basis and where you get, you know, the most bang
• 35:13
  Speaker 14: for your buck while not going all the way out
• 35:15
  Speaker 14: on the curve.
• 35:15
  Speaker 4: All right, thirty seconds are you guys active buyers of
• 35:18
  Speaker 4: new issues?
• 35:19
  Speaker 9: Yeah.
• 35:19
  Speaker 14: Absolutely, I'd say sometimes it's fifty to fifty, sometimes it's
• 35:22
  Speaker 14: sixty forty. You know, we do a great job of
• 35:24
  Speaker 14: negotiating with the underwriters and making sure that the issuer
• 35:28
  Speaker 14: understands what our concerns are, whether that be getting a
• 35:30
  Speaker 14: mortgage or a debt service reserve fund, and then we
• 35:33
  Speaker 14: help structure the deals, what type of coupond we want.
• 35:36
  Speaker 9: What type of call they want. So there's a lot
• 35:38
  Speaker 9: of talking for us.
• 35:39
  Speaker 6: You just don't pick up the phone and take my
• 35:40
  Speaker 6: sales pic.
• 35:41
  Speaker 9: No, we don't. We don't.
• 35:43
  Speaker 2: Interesting, that's cool, So Mark, thanks love really so much.
• 35:45
  Speaker 2: Great Core hereis head of me to Simble bonds. You
• 35:47
  Speaker 2: were definitely welcome back. He's joining us IV Invesco. Right
• 35:49
  Speaker 2: here at BAM Mutual.
• 35:53
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 35:56
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 36:00
  Speaker 1: with the Bluemberg Business app. Listen on demand wherever you
• 36:03
  Speaker 1: get your podcasts, or watch us live on YouTube.
• 36:07
  Speaker 4: Alex Deeal Paul Sweeney, we are live and the offices
• 36:11
  Speaker 4: of BAM Mutual build American Mutual to down here in
• 36:13
  Speaker 4: Lower Manhattan.
• 36:14
  Speaker 6: I call it the World Financial Center. I think they
• 36:16
  Speaker 6: now call it Brookfield Place. That's what the kids are
• 36:18
  Speaker 6: calling it. I don't know.
• 36:19
  Speaker 4: We're with the leader of Build American Mutual, Bad Mutual,
• 36:23
  Speaker 4: Sean McCarthy band Mutual CEO, Sean.
• 36:26
  Speaker 6: We've been here coming many many years.
• 36:28
  Speaker 4: Last year, I think in twenty twenty four, there was
• 36:31
  Speaker 4: five hundred billion dollars of new issuance in municipal bomb
• 36:34
  Speaker 4: Mark at a record A.
• 36:36
  Speaker 9: What drove that?
• 36:37
  Speaker 6: And B what are your expectations for twenty five?
• 36:40
  Speaker 8: So first, thanks for being here.
• 36:42
  Speaker 15: It's a really great tradition and we really enjoy being
• 36:46
  Speaker 15: the host.
• 36:48
  Speaker 8: So last year was a record year at five.
• 36:50
  Speaker 15: Hundred and seven billion, and I think the big driver there,
• 36:54
  Speaker 15: interestingly was new issuance for infrastructure projects. Okay, so tventy
• 37:00
  Speaker 15: five percent three hundred and thirty five million dollars three
• 37:02
  Speaker 15: hundred and thirty five billion dollars worth of paper that
• 37:06
  Speaker 15: came was for new schools, bridges, tunnels, roads, hospitals, So
• 37:12
  Speaker 15: really essential public purpose of infrastructure, and I think that's
• 37:17
  Speaker 15: going to continue. If we look at as an early indicator,
• 37:23
  Speaker 15: the number of referendums that were approved in California alone,
• 37:25
  Speaker 15: there were fifty billion dollars worth of school bonds.
• 37:28
  Speaker 8: That were approved.
• 37:29
  Speaker 15: Nationwide, there were one hundred billion dollars worth of new
• 37:32
  Speaker 15: projects that were approved. So we can see that there's
• 37:35
  Speaker 15: going to be a huge demand for projects that have
• 37:39
  Speaker 15: been deferred and sometimes in some cases over ten years.
• 37:42
  Speaker 2: Oh what about demand just newards of the older the
• 37:45
  Speaker 2: population gets, the more that tax free incentive might be
• 37:49
  Speaker 2: more interesting to people, like what are you guys are
• 37:52
  Speaker 2: noticing on demand?
• 37:53
  Speaker 15: So you know, for us we focused, we're at BAM.
• 37:57
  Speaker 15: We only guarantee municipal bonds and so I think the
• 38:00
  Speaker 15: real demand as you've put it, both for separately managed
• 38:05
  Speaker 15: accounts or for direct retail or the big funds are
• 38:09
  Speaker 15: are there is a value proposition that was described earlier.
• 38:14
  Speaker 15: In essence, people want more to take home. And so
• 38:17
  Speaker 15: the taxes tax e sumption on the bonds serves two
• 38:21
  Speaker 15: real core purposes. First, it lowers the cost to build
• 38:25
  Speaker 15: these essential infrastructure projects.
• 38:28
  Speaker 8: That's critical. The second thing is it provides.
• 38:30
  Speaker 15: A tax advantage so that actually investors can feel like
• 38:34
  Speaker 15: they're part of building America.
• 38:37
  Speaker 4: What percentage of new issuance gets your insurance from build
• 38:40
  Speaker 4: American mutual and is it a need thing, I need
• 38:44
  Speaker 4: your insurance to make it a lower rate.
• 38:46
  Speaker 15: So no. So basically what bond insurance does is we're
• 38:52
  Speaker 15: double a rated company from standard ports and so essentially
• 38:57
  Speaker 15: we put our guarantee on a municipality's debt to lower
• 39:03
  Speaker 15: the cost of borrowing. So think about it. Is you
• 39:06
  Speaker 15: co signing your kids student loan. So if you think
• 39:10
  Speaker 15: about it in those terms, you want them to get
• 39:12
  Speaker 15: a job and you want them to pay back their
• 39:14
  Speaker 15: student loan. But if they don't, you're paid. So we
• 39:17
  Speaker 15: act in that role. We are guaranteeing timely payment of
• 39:20
  Speaker 15: principle and interest when doe on the bonds. And so
• 39:23
  Speaker 15: that does two things that it makes investors comfortable that
• 39:27
  Speaker 15: they have liquidity, a higher rating, and it lowers the
• 39:30
  Speaker 15: cost of borrowing for all.
• 39:31
  Speaker 9: Of these things that widely used.
• 39:34
  Speaker 15: So if we think about the overall market for utilization,
• 39:38
  Speaker 15: I'd say it's around eight about eight ten percent of
• 39:40
  Speaker 15: the overall market. But the important thing to think about
• 39:43
  Speaker 15: is that bonds that are rated double air better don't
• 39:46
  Speaker 15: use bund insurance because they have a strong rating on
• 39:48
  Speaker 15: their own. And there's a certain class of bonds that
• 39:50
  Speaker 15: are you know, lower rated then would be acceptable for
• 39:54
  Speaker 15: the industry, and then there are certain sectors that aren't guaranteed.
• 39:59
  Speaker 2: So we've been coming here for seven nine years, right
• 40:02
  Speaker 2: something like that. What's the biggest change that you've noticed,
• 40:05
  Speaker 2: like in the last decade in terms of what we cover,
• 40:09
  Speaker 2: what you cover the zeke and the zeikeeist of the
• 40:11
  Speaker 2: Meuni market.
• 40:12
  Speaker 15: So I think the Meunia market's changed quite a bit
• 40:16
  Speaker 15: in the last decade, and it's had a lot of
• 40:19
  Speaker 15: events that it's really addressed handily. So if you think about,
• 40:23
  Speaker 15: for example, COVID, I mean it feels like COVID was
• 40:26
  Speaker 15: ancient history, but think about that, people stayed at home,
• 40:29
  Speaker 15: so bridges, tunnels, airports, toll roads just what their utilization
• 40:35
  Speaker 15: was dropped precipitously, and so the market was stood then
• 40:41
  Speaker 15: there were really, in essence, very few defaults on those transactions.
• 40:46
  Speaker 8: And so what you see happening in.
• 40:47
  Speaker 15: The market overall is this I think pent up demand
• 40:51
  Speaker 15: for new projects. I think a lot of people because
• 40:55
  Speaker 15: of COVID and because of you know, federal moneys that
• 40:58
  Speaker 15: were given to them that have now sort of burned off.
• 41:01
  Speaker 15: You can see this pent up demand to come with
• 41:05
  Speaker 15: your new project at this point and come into the market.
• 41:08
  Speaker 4: One of the themes that I think we just observed
• 41:09
  Speaker 4: today is kind of the natural disasters and what role
• 41:13
  Speaker 4: How will that impact the municipal bond market From your perspective,
• 41:17
  Speaker 4: how do you think that's going to play out? Because
• 41:18
  Speaker 4: it seems to be a thing.
• 41:20
  Speaker 15: It's a real issue, yep. So think about what BAM does.
• 41:24
  Speaker 15: We spend ninety nine percent of our time looking at
• 41:27
  Speaker 15: things that happen not very frequently. One of the things
• 41:30
  Speaker 15: we focus on are natural disasters. So if you think
• 41:34
  Speaker 15: about hurricanes, floods, earthquake risk, and right now wildfires. These
• 41:43
  Speaker 15: are all things that we incorporate into our underwriting process.
• 41:47
  Speaker 15: We evaluate them and it affects what we guarantee based
• 41:52
  Speaker 15: upon what we think that particular risk is. So we
• 41:54
  Speaker 15: turn deals down if we find that they're in an
• 41:56
  Speaker 15: area that's more prone to exposure to these particular kinds
• 42:01
  Speaker 15: of natural disasters. And we use a lot of analytical
• 42:04
  Speaker 15: tools that are available and something that we've developed ourselves
• 42:08
  Speaker 15: to measure what that severity is. So if you look
• 42:11
  Speaker 15: at Los Angeles, for example, I mean, if you're looking
• 42:15
  Speaker 15: at credits that are county wide or citywide. In Los Angeles,
• 42:19
  Speaker 15: it's a really big area, you know, the kind is
• 42:22
  Speaker 15: one hundred square miles, and so even though there's been
• 42:26
  Speaker 15: a couple of terrible fires there, the overall you know,
• 42:31
  Speaker 15: stability of the of the county and the city are
• 42:34
  Speaker 15: still quite strong, and they'll have the ability to sort
• 42:38
  Speaker 15: of address this and overcome it.
• 42:40
  Speaker 2: I can see that that being a very quickly evolving
• 42:43
  Speaker 2: changing topic, that must be very difficult to assess.
• 42:46
  Speaker 15: I think that's that is true. But remember the way
• 42:49
  Speaker 15: we look at credit risks. We are guaranteeing the bonds
• 42:54
  Speaker 15: till the last payment is made. So if you have
• 42:55
  Speaker 15: thirty year bonds, the way we look at credit risk
• 42:59
  Speaker 15: is not this sort of shorter cycle we're looking for
• 43:02
  Speaker 15: in One of the great strengths of municipal finance is
• 43:05
  Speaker 15: that the issuers and ourselves and the market it's in
• 43:09
  Speaker 15: itself are aligned, so that you know, the city of
• 43:13
  Speaker 15: Pittsburgh or the City of New York, or school districts
• 43:17
  Speaker 15: in local school districts all want to pay, you know,
• 43:21
  Speaker 15: fund their transactions with municipal bonds because it lowers their costs,
• 43:25
  Speaker 15: but they want to pay them back. So that's an
• 43:28
  Speaker 15: important thing that you know, in other kinds of corporate credits,
• 43:32
  Speaker 15: sometimes those interests get misaligned.
• 43:34
  Speaker 4: Interesting, all right, Sean, thank you so much for taking
• 43:36
  Speaker 4: some time here. Sean McCarthy, he's the CEO boss around here.
• 43:39
  Speaker 4: We appreciate him having us every year. He's Sean McCarthy's CEO.
• 43:42
  Speaker 4: BAM Mutual we will be.
• 43:45
  Speaker 6: We love coming in.
• 43:45
  Speaker 4: You're talking about the municipal bond market, of so many
• 43:47
  Speaker 4: assets and facets to that market, so we always appreciate
• 43:51
  Speaker 4: coming down.
• 43:52
  Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
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• 44:00
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