Latest / Bloomberg Intelligence / China Isn't Ready to Make Concessions on Trade, Magnus Says

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China Isn't Ready to Make Concessions on Trade, Magnus Says · Bloomberg Intelligence

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  Speaker 1: P and L Podcast. I'm Pim Fox. Along with my
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  Speaker 1: co host Lisa Abramowitz. Each day we bring you the
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  Speaker 1: whether at the grocery store or the trading floor. Find
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  Speaker 1: the Bloomberg P and L Podcast on iTunes, SoundCloud and
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  Speaker 1: at Bloomberg dot com. It appears that China and the
• 0:44
  Speaker 1: US have moved one step away from the edge of
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  Speaker 1: a potentially vitriolic trade war. But can they avoid it completely?
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  Speaker 1: I want to bring in George Magnus, a Bloomberg View
• 0:55
  Speaker 1: contributor an associate at Oxford University's China Center. He's also
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  Speaker 1: the former chief International Economist at U b S. George,
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  Speaker 1: I want to get your take first. We know that
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  Speaker 1: President Trump and President Jinping had a constructive conversation, or
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  Speaker 1: that's how it was presented, and that President Trump reaffirmed
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  Speaker 1: the US is take or assumption of a one China policy.
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  Speaker 1: How important was this and how likely is it that
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  Speaker 1: negotiations will continue in a constructive way towards some kind
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  Speaker 1: of trade deal. Well, high, Lisa, I mean, I think
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  Speaker 1: the first part of your question actually is easy. The
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  Speaker 1: second part of actually is not so easy. Um. So, Um,
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  Speaker 1: it's um. It's a shame that it should come to
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  Speaker 1: situation that we have now where something that's been established
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  Speaker 1: policy in international relations for the last forty years should
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  Speaker 1: certainly be regarded as you know, the United States making
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  Speaker 1: a concession to China over the One China policy because
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  Speaker 1: it has been obviously part of the policy structure for
• 2:02
  Speaker 1: for an awfully long time. Um. And I think you know,
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  Speaker 1: by general agreement, Actually I thought the I think that
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  Speaker 1: people thought that when when the president we have to
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  Speaker 1: refer which president President Trump highlighted or emphasized, you know,
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  Speaker 1: that the One China policy might be in play as
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  Speaker 1: a as a tool or as a piece of leverage
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  Speaker 1: in trade negotiations. I mean, I think the general opinion
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  Speaker 1: about that was whoa, you know, this is actually something
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  Speaker 1: which is this is a red line for China, And
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  Speaker 1: there was no there would be no conference room in
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  Speaker 1: the world where China's delegation would stay if that issue
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  Speaker 1: was ever brought up in discussion. So in a way,
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  Speaker 1: we should I guess we should be you know, acknowledged
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  Speaker 1: that this kind of lowers the temperature, because if there
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  Speaker 1: was anything that was guaranteed to get fij Ping and
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  Speaker 1: the Chinese leadership, you know, banging their drums at home,
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  Speaker 1: it would be what they would have seen as a
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  Speaker 1: provocation by the United States over over Taiwan. So that's good.
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  Speaker 1: Does it actually portend good relations and you know, satisfactory
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  Speaker 1: outcome to trade negotiations? I don't know. I don't think
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  Speaker 1: it would all necessarily because I think that the United
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  Speaker 1: States probably has a pretty you know, long and detailed
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  Speaker 1: shopping list about what the kind of concessions that it
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  Speaker 1: wants the Chinese to make. I'm not sure they're ready
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  Speaker 1: to make those concessions, to be honest. George Magnus, You well,
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  Speaker 1: I just want you to tell people what is a
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  Speaker 1: Minsky moment and when is the next one? Yeah, Well,
• 3:43
  Speaker 1: Minsky momentum. So we talked or some of us talked
• 3:46
  Speaker 1: a little bit about one in two thousand and six,
• 3:49
  Speaker 1: two thousand and seven, and really the Minsky moment is
• 3:53
  Speaker 1: kind of it's a it's a kind of a colloquial expression.
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  Speaker 1: I don't think the economists the American economy time and
• 4:00
  Speaker 1: Minsky ever used it himself about himself, but he basically
• 4:05
  Speaker 1: taught us in the eighties or you know, spoken wrote
• 4:09
  Speaker 1: in thees about what happens when leverage in the financial
• 4:13
  Speaker 1: system builds up to such an extent that the you know,
• 4:18
  Speaker 1: the capitalist system itself becomes inherently unstable and it just
• 4:22
  Speaker 1: needs kind of a catalyst like falling asset prices or
• 4:25
  Speaker 1: house prices was the particular case in point in two
• 4:28
  Speaker 1: thousand and seven, and the whole edifice of credit comes
• 4:33
  Speaker 1: crashing down, as we saw. So the Minsky moment really
• 4:37
  Speaker 1: is the point at which the system of leverage in
• 4:41
  Speaker 1: finance becomes so dangerous that it's prone to collapse when
• 4:47
  Speaker 1: the collateral, which could be commodity is it could be
• 4:50
  Speaker 1: you know, house prices or whatever it's it's when when
• 4:53
  Speaker 1: that happens. And so we saw that in in full display,
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  Speaker 1: of course, in in the financial crisis of two thou
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  Speaker 1: an eighth. Well, so then the logical question is, I mean,
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  Speaker 1: China obviously has boosted its leverage tremendously and apparently in
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  Speaker 1: an accelerating clip. At what point does it reach its
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  Speaker 1: Minsky moment? You have asked the sixty four million dollar question,
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  Speaker 1: which deserves an honest answer. I'm not sure. Well, I'll
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  Speaker 1: give you an honest answer. I'm not sure whether how
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  Speaker 1: accurate it is, But anyway, my my feeling is that
• 5:22
  Speaker 1: although a lot of people kind of save quite loosely
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  Speaker 1: and correctly, my view that China cannot carry on accumulating
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  Speaker 1: debt the way it is um It's very important, I think,
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  Speaker 1: to distinguish between what's happening to the loans to the
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  Speaker 1: assets of the banking system and the liabilities which fund
• 5:43
  Speaker 1: those assets. So, because China has a state owned banking system,
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  Speaker 1: it's very unlikely in my view, that they will have
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  Speaker 1: a Lehman's moment, a Lehman Brothers moment where a major
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  Speaker 1: bank will go bust. Major banks will not be allowed
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  Speaker 1: to go bust. So in a way, because of state
• 6:00
  Speaker 1: ownership for the banking system and because of the regulatory environment,
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  Speaker 1: the Chinese authorities can can do what we used to
• 6:08
  Speaker 1: call extend and pretend they can. They can basically push
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  Speaker 1: out the moment at which bad loans have to be
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  Speaker 1: accounted for and paid for for a considerable period of time.
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  Speaker 1: What they can't do is really improve the funding of
• 6:24
  Speaker 1: the loans. So one of the things that for example,
• 6:27
  Speaker 1: even the International Monetary Fund brought out in one of
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  Speaker 1: its financial stability reports last year was how the funding
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  Speaker 1: of loans in China has increased by about a factor
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  Speaker 1: of six over the last five or six years, and
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  Speaker 1: this makes the system really unstable. We've got to leave
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  Speaker 1: it there. George Magnus, thank you very much, Associate Oxford
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  Speaker 1: University's China Center. It was an opinion that rocked the world.
• 7:06
  Speaker 1: A lot of people were waiting to see what a
• 7:08
  Speaker 1: federal court would say. A federal appeals court in response
• 7:12
  Speaker 1: to President Trump's travel band what they said was they
• 7:15
  Speaker 1: unanimously refused to reinstate it. President Trump has responded with
• 7:21
  Speaker 1: a tweet, all caps see you in court. To get
• 7:24
  Speaker 1: a sense of what the main implications of this ruling are,
• 7:27
  Speaker 1: I want to bring in June Grasso, who is a
• 7:29
  Speaker 1: legal expert and host of Bloomberg Law on Bloomberg Radio,
• 7:33
  Speaker 1: which airs weekdays at four thirty pm Eastern. She is
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  Speaker 1: here with us in our studio eleven thirty Studio. So, June,
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  Speaker 1: what is your biggest takeaway from this ruling? This was
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  Speaker 1: sort of a showdown over the president's power and the
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  Speaker 1: judiciary's power and the independence of the judiciary. I mean,
• 7:51
  Speaker 1: we know that President Trump has been saying over and
• 7:53
  Speaker 1: over again that I am the final word when it
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  Speaker 1: comes to immigration, on the final word when it comes
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  Speaker 1: to national curity. And they brought that to the court.
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  Speaker 1: They said, you can't even review this, and the Court said, oh,
• 8:05
  Speaker 1: yes we can, and oh yes we did, and they
• 8:08
  Speaker 1: said it's beyond question that the federal judiciary has the
• 8:12
  Speaker 1: authority to adjudicate constitutional challenges. And something they did that's
• 8:17
  Speaker 1: perhaps subtle and um, it was sort of like a
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  Speaker 1: note to Justice Kennedy because what they he's you might
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  Speaker 1: be the swing vote if this ever goes to the
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  Speaker 1: Supreme Court. And what they did was they quoted and
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  Speaker 1: they cited one of his decisions which said that that
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  Speaker 1: the judiciary has the right to review these kinds of
• 8:38
  Speaker 1: presidential orders. So when Trump said we'll see you in court,
• 8:41
  Speaker 1: though I didn't get that, he's been in court and
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  Speaker 1: we'll be in court probably for the rest of his presidence.
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  Speaker 1: Can you dig into the actual ruling, the actual decision,
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  Speaker 1: and uh, tell us about what these judges said, specifically
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  Speaker 1: about exactly your point, which is their power over exact power? Well,
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  Speaker 1: they said that, of course the president has power in
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  Speaker 1: that area. It's just that we can review that when
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  Speaker 1: there are constitutional concerns at stake. In other words, his
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  Speaker 1: power is not absolute. This is the United States of America,
• 9:16
  Speaker 1: though they didn't put it that way, and the courts
• 9:19
  Speaker 1: are the ones that interpret the law. So in this case.
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  Speaker 1: He also they made certain allegations, they said, this is
• 9:26
  Speaker 1: of the utmost it's national security interests, but they never
• 9:30
  Speaker 1: gave any evidence to the court of that. In fact,
• 9:33
  Speaker 1: at the hearing, the Justice Department lawyer was said, I'm
• 9:38
  Speaker 1: sort of I think I'm not convincing the court of this.
• 9:41
  Speaker 1: And this has come about so fast, and one of
• 9:44
  Speaker 1: the judges, the one appointed by Barack Obama, said to him, well,
• 9:48
  Speaker 1: why are you here at this point? Then maybe you
• 9:51
  Speaker 1: should be waiting and get your act together, basically is
• 9:53
  Speaker 1: what she was saying, because they were not prepared for
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  Speaker 1: this where the states had all the evidence of the
• 9:58
  Speaker 1: irreparable harm to to their citizens and the companies in
• 10:03
  Speaker 1: their states. So basically the court was it was, and
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  Speaker 1: also you know it was it was unanimous, and it
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  Speaker 1: was a procurium opinion, which means that no judge signed
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  Speaker 1: it as having written it, so no judge could be
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  Speaker 1: attacked as having said, oh, this was written by the
• 10:19
  Speaker 1: liberal Obama pointee or the liberal Jimmy Carter appointee. It
• 10:23
  Speaker 1: was written by we don't know who, but all three
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  Speaker 1: joined in it. What should uh, you know, one of
• 10:31
  Speaker 1: the what should executives people who are running companies take
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  Speaker 1: away from this court decision because they have to operate
• 10:38
  Speaker 1: in an environment over which they do not have control? Well,
• 10:43
  Speaker 1: this court decision only now it goes back to the
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  Speaker 1: federal judge, and there are decisions all around the country.
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  Speaker 1: In fact, there's another there's a court hearing in Virginia today.
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  Speaker 1: So I mean, is it a definitive answer to what
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  Speaker 1: I mean? It's part of a larger strategy? In other words,
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  Speaker 1: what for example, Neil Gorsuch is before the Senate. So
• 11:04
  Speaker 1: there's there's got to be a strategy, you know, and
• 11:06
  Speaker 1: and you know, anyone who's ever read the President's book
• 11:10
  Speaker 1: The Art of the Deal, you know you come away
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  Speaker 1: there's a strategy, and you know, you test all points.
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  Speaker 1: So I'm wondering if in your mind you see this
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  Speaker 1: as part of a larger strategy. Well, I think that
• 11:20
  Speaker 1: this particular order was done hastily. As we've heard about.
• 11:24
  Speaker 1: It wasn't written well. They if they take the judges,
• 11:29
  Speaker 1: you know, everyone who has been talking about this, and
• 11:32
  Speaker 1: also what the court actually said in in the hearing
• 11:36
  Speaker 1: when they wanted them to step back and why don't
• 11:39
  Speaker 1: you just you know, limit this order so that it's
• 11:43
  Speaker 1: all right? And they said, that's your job. They have
• 11:46
  Speaker 1: this was so hastily done, I can't believe that it
• 11:48
  Speaker 1: was part of a strategy. They may start to strategize now,
• 11:52
  Speaker 1: and they may start to strategize so that they take
• 11:54
  Speaker 1: the right case up to the Supreme Court. This is
• 11:56
  Speaker 1: not the case that they should put before the Supreme Court,
• 11:59
  Speaker 1: but I don't think the Court would take this case
• 12:01
  Speaker 1: anyway because it's too soon. One thing that I find
• 12:04
  Speaker 1: interesting is the is the scuffle between Neil Gorcerge, the
• 12:07
  Speaker 1: Supreme Court nominee uh and President Trump, where evidently uh
• 12:12
  Speaker 1: Gorciche told senators that he was dismayed and disheartened by
• 12:17
  Speaker 1: some of the rhetoric that he's heard from the President,
• 12:19
  Speaker 1: with respect to the judiciary system. Do you think that
• 12:22
  Speaker 1: Gorsuch's response to Trump puts him in a better position
• 12:26
  Speaker 1: to get confirmed? First of all? And second of all,
• 12:29
  Speaker 1: does it sort of raise a question about whether President
• 12:32
  Speaker 1: Trump will reneg his nomination. First of all, it does
• 12:36
  Speaker 1: put him in a better position as far as the
• 12:38
  Speaker 1: public is concerned. But Democrats have said, and I thought
• 12:43
  Speaker 1: this as soon as this came out, These were in
• 12:45
  Speaker 1: there were in meetings, and he didn't say it out
• 12:48
  Speaker 1: loud to to the public. He was setting up view
• 12:54
  Speaker 1: of himself as being independent, knowing that those questions are
• 12:58
  Speaker 1: going to come for him and he gets to his
• 13:01
  Speaker 1: confirmation hearings. And Democrats have said that it was even
• 13:05
  Speaker 1: possibly a suggestion from the White House that this that
• 13:09
  Speaker 1: this happened, because here he's setting himself up as I
• 13:12
  Speaker 1: am independent from the president. Uh. There are a lot
• 13:16
  Speaker 1: of articles on this, and in fact, someone a spokesman
• 13:19
  Speaker 1: from the Democratic National Committee came out and said this yesterday,
• 13:23
  Speaker 1: so was Chuck Schumer. Well, but then you've got President
• 13:26
  Speaker 1: Trump saying that his words were twisted, that that wasn't
• 13:28
  Speaker 1: really his meanings. So is this coming from someone other
• 13:31
  Speaker 1: than President Trump's Yes, they're they're saying that Trump wasn't
• 13:35
  Speaker 1: necessarily in on it, but there is a strategy here.
• 13:38
  Speaker 1: There's a strategy, and he has not said this out
• 13:41
  Speaker 1: loud to the public. Also, if you think about what
• 13:45
  Speaker 1: Trump tweeted his he had more criticism for the senator
• 13:49
  Speaker 1: from Connecticut and his past record, you know, where he
• 13:52
  Speaker 1: had hadn't told the truth about being in Vietnam. He
• 13:56
  Speaker 1: had more criticism of him than he really did about
• 13:58
  Speaker 1: what the judge said. He never said anything specifically bad
• 14:02
  Speaker 1: about Gorsa, So, you know, it's it's so it's so
• 14:07
  Speaker 1: typical of the way politicians and UH members who are
• 14:12
  Speaker 1: coming up, you know, judiciary people who are coming up
• 14:15
  Speaker 1: set up things before the hearings because they want to
• 14:18
  Speaker 1: have the people in the right frame of mind. Maybe
• 14:20
  Speaker 1: those Democrats who were thinking, well, we shouldn't really filibuster
• 14:24
  Speaker 1: this are saying, well, well, as judges, seems like he's independent,
• 14:28
  Speaker 1: and that's going to be huge. That's going to be
• 14:30
  Speaker 1: one of the biggest it might overtake everything else at
• 14:33
  Speaker 1: the hearing. So it's very smart, it's very political, and
• 14:38
  Speaker 1: a lot of people, I'm not the only one, A
• 14:41
  Speaker 1: lot of people are saying that it was a tactic.
• 14:44
  Speaker 1: Thank you very much. June Grass are are legal expert
• 14:47
  Speaker 1: and host of Bloomberg Law on Bloomberg Radio weekdays for
• 14:51
  Speaker 1: thirty Wall Street Time. P and L is brought to
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• 15:44
  Speaker 1: lot about some potentially troubling issues on the horizon, potentially
• 15:48
  Speaker 1: the biggest sovereign default ever in history, potential slowdown in China,
• 15:54
  Speaker 1: and yet markets are unphased. Art Hogan, chief market strategist
• 15:58
  Speaker 1: at Wonderlick Capital Markets, is with us. Are you know?
• 16:01
  Speaker 1: We've talked with a number of strategists in the past
• 16:03
  Speaker 1: few weeks who are calling for some kind of correction
• 16:06
  Speaker 1: in US stocks given a lot of the uncertainties in
• 16:10
  Speaker 1: the backdrop, do you agree, No, it's interesting. It's it's
• 16:13
  Speaker 1: easy to call for a pull back when we've had
• 16:15
  Speaker 1: such a significant move in a short period of time. Right, So,
• 16:18
  Speaker 1: when you think about the quick nine percent move that
• 16:21
  Speaker 1: we had post election, that's moved intoto a bit of
• 16:23
  Speaker 1: a sideways move in the last six weeks, and then
• 16:25
  Speaker 1: except for and including the last couple of days, we've
• 16:28
  Speaker 1: been in a very tight range where we're breaking out
• 16:31
  Speaker 1: the new highs and now on the on the promise
• 16:33
  Speaker 1: of some information on tax reform and tax cuts, which
• 16:37
  Speaker 1: is part of the initial post election move higher, with
• 16:41
  Speaker 1: the backdrop of improving fundamentals. But I think that when
• 16:45
  Speaker 1: we come to the realization that a lot of this
• 16:47
  Speaker 1: takes time and there's going to be some bargaining, and
• 16:49
  Speaker 1: that most likely getting tax reform done will be this
• 16:54
  Speaker 1: year's business to be implemented for eighteen, we may well
• 16:56
  Speaker 1: have getten ahead of ourselves. Another good news here is
• 16:59
  Speaker 1: I think the fund medals have improved. The fourth quarter
• 17:01
  Speaker 1: earnings were certainly better than the third, and the and
• 17:03
  Speaker 1: UH and guidance has certainly been better. On balance for
• 17:07
  Speaker 1: the first quarter of next year and for the balance
• 17:09
  Speaker 1: of next year, so we're not going through that pattern
• 17:11
  Speaker 1: of lack of earnings and guidance coming down significantly. So
• 17:15
  Speaker 1: on a multiple basis, we're looking better. Economic data have improved,
• 17:18
  Speaker 1: and I think that's probably good. But I think part
• 17:20
  Speaker 1: of what's price into this market may take a while,
• 17:23
  Speaker 1: a good longer than is anticipated into our priced in
• 17:27
  Speaker 1: right now. So I can see where some caution probably
• 17:29
  Speaker 1: is a good idea. Well, I'm wondering if you could
• 17:31
  Speaker 1: explain the kind of balance that goes on between let's say,
• 17:35
  Speaker 1: a stock growing into its pe or maybe having investors
• 17:40
  Speaker 1: more willing to pay up for that same dollar of earnings.
• 17:44
  Speaker 1: Dependent's a great question. I think one of the things
• 17:46
  Speaker 1: that we, you know, it was always very difficult to ascertain,
• 17:49
  Speaker 1: is what the appropriate multiple is, especially in in a
• 17:52
  Speaker 1: in a world where we have you know, I mean,
• 17:55
  Speaker 1: it almost doesn't matter right now. I mean, you've got
• 17:57
  Speaker 1: the price earnings ratio of the SMP five hundred and
• 17:59
  Speaker 1: more than twenty one. But let's put all that and
• 18:01
  Speaker 1: put all that aside. It's what I'm looking for is
• 18:04
  Speaker 1: your you you know, you you take the pulse of
• 18:06
  Speaker 1: the of the street and of investors. What are they
• 18:08
  Speaker 1: coming back to you with, what are some of the parameters? Well,
• 18:11
  Speaker 1: I can tell you this. I think that the investors
• 18:13
  Speaker 1: want to know what's going to work in seventeen If
• 18:15
  Speaker 1: we get any of the three legs of the stool,
• 18:18
  Speaker 1: that might be pro growth, right, if we get any
• 18:19
  Speaker 1: kind of tax cuts, if we get any kind infrastructure spending,
• 18:21
  Speaker 1: if we get any d reg and I think that
• 18:24
  Speaker 1: all of those things probably come to fruition in some shape.
• 18:26
  Speaker 1: And I think the investors want to know what they
• 18:28
  Speaker 1: should be out of. You know, what is no longer
• 18:31
  Speaker 1: the appropriate give it? They tell us, Well, I can
• 18:33
  Speaker 1: say at them, I think you want to be out
• 18:34
  Speaker 1: of dividen darlings. I think we're gonna be in a
• 18:36
  Speaker 1: rising interestrate environment. Right, So you know that's pretty straightforward.
• 18:39
  Speaker 1: You know, that's the reads, it's the utilities, It's a
• 18:41
  Speaker 1: staple to a certain extent and to a lesser extent
• 18:43
  Speaker 1: the tel cups. I think you want to be in
• 18:45
  Speaker 1: financials than you know, with the full stuff. I think
• 18:47
  Speaker 1: that you know, they touch all three of those legs
• 18:49
  Speaker 1: of that stool. And I certainly think that the infrastructure
• 18:52
  Speaker 1: plays or the industrials are also going to be positive.
• 18:55
  Speaker 1: Now all of this you know is contingent on getting
• 18:57
  Speaker 1: some of that done in the town. I got that
• 18:59
  Speaker 1: it's three legs. It was stool. But you can't, you know,
• 19:01
  Speaker 1: you've got to You got at least have a plan
• 19:02
  Speaker 1: before you can build a stool. Absolutely do and I
• 19:05
  Speaker 1: think that that's but you also have to remember what
• 19:07
  Speaker 1: to avoid. Right, what's been the most popular trade of
• 19:10
  Speaker 1: the last three years, tim, And it's been that It's
• 19:11
  Speaker 1: been the pricer I guess, right, So I think that
• 19:14
  Speaker 1: needs to continue to on wine. You have to understand
• 19:16
  Speaker 1: what you hold and why you do so getting more specific,
• 19:19
  Speaker 1: all right, which which company is in specific do you
• 19:21
  Speaker 1: expect to underperform in the next six months? We companies
• 19:25
  Speaker 1: have specifics. I will certainly tell you that the entire
• 19:27
  Speaker 1: utility complex, which is still trading in a multiple that's
• 19:30
  Speaker 1: three multiple turns higher than its averages, is probably to
• 19:33
  Speaker 1: be avoided. Right. I think that if you look at
• 19:36
  Speaker 1: on balance, the real estate investment trust World, which has
• 19:39
  Speaker 1: gotten a great deal of sponsorship over the last three years,
• 19:41
  Speaker 1: at all the winest invader amount that should be avoided.
• 19:44
  Speaker 1: Unless you know you can see a bargain. If you
• 19:46
  Speaker 1: can buy something at S A V, you're probably still
• 19:49
  Speaker 1: in a good place there. Away from that, anything that's
• 19:51
  Speaker 1: closer to over cent of it's n a V is
• 19:53
  Speaker 1: overpriced right now. In the real world, I think in
• 19:55
  Speaker 1: staples the same thing is true. We have multiples there
• 19:57
  Speaker 1: that are three or four multiple turns higher. So when
• 19:59
  Speaker 1: you've pink there was a reason to buy David and
• 20:01
  Speaker 1: Darlings in a low registrate environment. If interest rates are
• 20:03
  Speaker 1: going up, and we believe they are this year, that's
• 20:05
  Speaker 1: that's another sector to avoid. What can you play. I
• 20:08
  Speaker 1: think financials across the board are going to do well.
• 20:11
  Speaker 1: They just got back through the two thousand and seven levels,
• 20:13
  Speaker 1: the only sector and the sp prefitor they had not
• 20:15
  Speaker 1: done that, and I think there's a lot of runway
• 20:17
  Speaker 1: in front of them. And when you think about the regulation,
• 20:19
  Speaker 1: that's one thing. Rising industrates is another. Right, you know,
• 20:21
  Speaker 1: I've got to say, uh, this is something a lot
• 20:24
  Speaker 1: of people have been talking about. The yield curve should
• 20:26
  Speaker 1: steep in, bond yields should rise, and yet you have
• 20:29
  Speaker 1: a number of prominent investors, not least of which is
• 20:31
  Speaker 1: Black Rocks Larry Fink coming out and saying the more
• 20:34
  Speaker 1: likely move for ten year treasury yields is down from here, uh,
• 20:39
  Speaker 1: potentially below two percent, and the sort of whole reflation
• 20:42
  Speaker 1: trade is really being questions. So how do you how
• 20:45
  Speaker 1: do you pair that with the idea of continuing to
• 20:47
  Speaker 1: buid on financials now? And I could completely understand. He
• 20:50
  Speaker 1: also said in the same interview that he thought there's
• 20:52
  Speaker 1: likely a chance that he goes to four percent, then
• 20:54
  Speaker 1: it he goes to two percent, he's leaning towards the
• 20:56
  Speaker 1: two percent first. I think it's that it's that it's
• 20:59
  Speaker 1: a framework of timing. Can you can we hit both right?
• 21:02
  Speaker 1: Can we go to two percent before we get to
• 21:04
  Speaker 1: four percent? Absolutely? But I think most likely you're going
• 21:07
  Speaker 1: to see interest rates higher, not lower, than they are
• 21:09
  Speaker 1: at the end of this year, and therefore you should
• 21:11
  Speaker 1: probably invest towards that end. Is that then, in technical terms, Aret,
• 21:15
  Speaker 1: that's called the alley oop, isn't it? Well? Certainly, I
• 21:19
  Speaker 1: mean if you think interest rates are going up, right,
• 21:21
  Speaker 1: you know, quite candidly, if you think interest rates at
• 21:23
  Speaker 1: the end of this year will be higher than where
• 21:25
  Speaker 1: they are now, or we're going to be at a
• 21:26
  Speaker 1: two and a half or two point four field and
• 21:28
  Speaker 1: a tager are going to be closer to three percent,
• 21:30
  Speaker 1: I think we're gonna be closer to three percent and
• 21:32
  Speaker 1: something north of that. Non bank financials as well as banks,
• 21:36
  Speaker 1: non bank financials as well as banks. I think the
• 21:38
  Speaker 1: you know, the entirety of the of the you know,
• 21:40
  Speaker 1: I think the UH. I think the regional banks would
• 21:42
  Speaker 1: still look very very attractive. I certainly think that the
• 21:45
  Speaker 1: UM the money center banks look attractive and and and
• 21:48
  Speaker 1: fairly and fairly valued here with a lot of runay
• 21:50
  Speaker 1: in front of them. And I certainly think that you know,
• 21:52
  Speaker 1: the you know what what I wouldn't do is necessarily
• 21:55
  Speaker 1: broaden that out to a basket of both domestic and
• 21:57
  Speaker 1: international banks, because we certainly have a lot of dead
• 21:59
  Speaker 1: issues and a lot of European banks haven't gone through
• 22:02
  Speaker 1: quite the rig. Interest you in any shares of Banca
• 22:05
  Speaker 1: Monte di Paski? I think that's a great question. But
• 22:09
  Speaker 1: you know you're gonna interest me in uh swamp land
• 22:12
  Speaker 1: of Florida before I might divelo on that real quick?
• 22:14
  Speaker 1: Are how concerned are you about Marine le Pen winning
• 22:18
  Speaker 1: the presidency in France and UH potentially royaling markets in Europe. Yeah,
• 22:24
  Speaker 1: that's gonna be the first of what might be several elections.
• 22:26
  Speaker 1: We're gonna have to keep a close eye. I certainly
• 22:29
  Speaker 1: think that trying to predict who's going to win an
• 22:31
  Speaker 1: election in the last twelve buts has been a fools game.
• 22:34
  Speaker 1: So I think that we should be concerned regardless of
• 22:37
  Speaker 1: what poles look like, and that the knock on effect
• 22:40
  Speaker 1: if you've lost um, Great Britain, if there's a if
• 22:43
  Speaker 1: there's a there's you know, we all thought there was
• 22:45
  Speaker 1: no chance there was gonna be a Brexit. You know
• 22:47
  Speaker 1: that if you if you want to come up with
• 22:50
  Speaker 1: a narrative that the Eurozone could unravel, throw France into
• 22:54
  Speaker 1: the mix, and I think you get on a slippery slope.
• 22:55
  Speaker 1: So it's gonna be something we're gonna pay a whole
• 22:57
  Speaker 1: lot more attention to than we are right now. You're
• 22:58
  Speaker 1: gonna be very busy and April and May May seven,
• 23:01
  Speaker 1: I believe, is that last vote for the French presidency.
• 23:04
  Speaker 1: Thanks very much, Art Hogan. He is the chief market
• 23:06
  Speaker 1: strategist at Wonderlock Markets. We do have a new head
• 23:23
  Speaker 1: of Human Health and Human Services, Tom Price, who was
• 23:27
  Speaker 1: confirmed to the position by Congress, and I want to
• 23:30
  Speaker 1: bring in Brian Rye, senior healthcare policy analyst for Bloomberg Intelligence,
• 23:34
  Speaker 1: to talk about what his initial steps might be to revoke, repeal,
• 23:39
  Speaker 1: amend Obamacare or the a c A measure. So first, Brian,
• 23:46
  Speaker 1: what is his take on how to change the current
• 23:50
  Speaker 1: Obamacare regime. Yeah, well, you know, I think from his standpoint.
• 23:53
  Speaker 1: You know, recall that Tom prices by training an orthopedic surgeon,
• 23:57
  Speaker 1: so he views a lot of the healthcare questions through
• 23:59
  Speaker 1: the ends of a doctor, and doctors really don't like
• 24:01
  Speaker 1: being told what to do by the federal government. They
• 24:03
  Speaker 1: don't like a lot of the orders um involving health
• 24:07
  Speaker 1: I t and trying to upgrade their systems and taking
• 24:09
  Speaker 1: time away from seeing dealing with patients. So I think
• 24:12
  Speaker 1: what he would like to do from his standpoint as
• 24:15
  Speaker 1: heading HHS has maybe slow down a roll back some
• 24:18
  Speaker 1: of the things that CMS under h h S under
• 24:21
  Speaker 1: President Obama I have been trying to do, in other words,
• 24:24
  Speaker 1: dictating a lot of across the board, a new ways
• 24:27
  Speaker 1: to pay for hip replacements, cardiac care, whatever. So he
• 24:31
  Speaker 1: may see him trying to do that, But I think
• 24:33
  Speaker 1: longer term he's going to be a very eager and
• 24:34
  Speaker 1: willing partner with Republican leaders in Congress as they try
• 24:39
  Speaker 1: and finally coalesced around some some strategy to both repeal
• 24:43
  Speaker 1: and replace key provisions of the A C. A. Brian,
• 24:46
  Speaker 1: is there any way for you to describe the pattern
• 24:49
  Speaker 1: of horse trading that might go on, because of course
• 24:52
  Speaker 1: you have an industry now that has multiple players. You
• 24:57
  Speaker 1: have just the death of these two big mergers for
• 25:01
  Speaker 1: Anthem and Signa, as well as the Humanity and so on,
• 25:07
  Speaker 1: so you know, you you end up with a with
• 25:09
  Speaker 1: a lot of players who you know not necessarily have
• 25:12
  Speaker 1: the same direct interest, but you know, the enemy of
• 25:16
  Speaker 1: my friend, that kind of thing. No, it's a good point,
• 25:19
  Speaker 1: and you know certainly he's not entering an easy, easy
• 25:21
  Speaker 1: position or an easy job at this time. And I
• 25:23
  Speaker 1: think part of that has been illustrated by how difficult
• 25:26
  Speaker 1: it's been for Republicans to coalesce around the strategy that
• 25:29
  Speaker 1: they campaigned on very vehemently for for five six years.
• 25:32
  Speaker 1: Um you know, uh in repealing and replacing the A C. A.
• 25:36
  Speaker 1: I think a lot of the things that Price would
• 25:38
  Speaker 1: want to push for is number one, no matter what
• 25:40
  Speaker 1: the replacement plan is, you have to have a stable exchange,
• 25:43
  Speaker 1: a stable environment for insurers. And that was one problem
• 25:47
  Speaker 1: legitimately under the A C. As you had united at
• 25:50
  Speaker 1: a humanity all pulling out because the risk pools are
• 25:53
  Speaker 1: so poor. So I think you would see him look
• 25:55
  Speaker 1: to push for something insure friendly, UH modifications, maybe let
• 25:59
  Speaker 1: them charge or increase the difference between what they can
• 26:02
  Speaker 1: charge their oldest sickest patients and their youngest healthiest patients
• 26:05
  Speaker 1: as a way to try and drive down those premiums
• 26:07
  Speaker 1: for the younger, healthier people that, unfortunately for the exchanges
• 26:10
  Speaker 1: have been staying out so far, but they need those
• 26:12
  Speaker 1: in there to improve the risk pool and make them
• 26:14
  Speaker 1: frankly just doable for the insurers. Brian Uh, I'm not
• 26:18
  Speaker 1: sure how much this is relevant to Tom Price's position,
• 26:22
  Speaker 1: but it seems like he comes in with potentially less
• 26:26
  Speaker 1: political capital than others have had in his position. His nomination,
• 26:30
  Speaker 1: his confirmation rather was highly contentious. Does this matter, you know?
• 26:35
  Speaker 1: Or nearly it might? I would argue that in this
• 26:39
  Speaker 1: current environment, I'm not sure it does, because he's certainly
• 26:41
  Speaker 1: not the only one. Now if he had been singled
• 26:43
  Speaker 1: out as someone and all the other nominees were, we're
• 26:46
  Speaker 1: sailing through. But as we've seen with the education confirmation
• 26:49
  Speaker 1: and the Attorney general, I mean, this is sort of
• 26:52
  Speaker 1: how things are going right now, So I don't think
• 26:55
  Speaker 1: that he's going to be singled out. And again he's
• 26:57
  Speaker 1: got Republicans leading both chamber, both the House and the
• 27:01
  Speaker 1: Senate and Congress. Uh, And so I think he's got
• 27:03
  Speaker 1: the full and unequivocal support frankly right now the people
• 27:07
  Speaker 1: who are leading those efforts. Well, and how much will
• 27:10
  Speaker 1: the changes to Obamacare be led by him versus how
• 27:12
  Speaker 1: much will they be led by members of Congress. Well,
• 27:15
  Speaker 1: you know that that's right right now. You know he's
• 27:17
  Speaker 1: he's changing his his cap because he had authored an
• 27:19
  Speaker 1: Obamacare replacement bill while a member of Congress a couple
• 27:22
  Speaker 1: of years ago. Um, he will be I'm sure be
• 27:25
  Speaker 1: you know, providing his input in those things. But no,
• 27:27
  Speaker 1: he's part of the executive branch now, and so his
• 27:29
  Speaker 1: role I think is going to be more turning inward
• 27:32
  Speaker 1: within HHS, within CMS, within the f d A, saying
• 27:35
  Speaker 1: what what can I direct the folks that I now, um,
• 27:38
  Speaker 1: you know control uh to do too, in the words
• 27:42
  Speaker 1: of Trump's own um executive order a month ago, to
• 27:45
  Speaker 1: ease the regulatory burdens um you know, imposed by the
• 27:48
  Speaker 1: A C. A. So I think I'll be looking to
• 27:49
  Speaker 1: see what things he can do from that standpoint, while Congress,
• 27:53
  Speaker 1: you know, goes through the process of deliberating what they're
• 27:55
  Speaker 1: going to do. But certainly once Congress does decide on that,
• 27:58
  Speaker 1: I think he will be again a very willing an
• 28:00
  Speaker 1: eager partner to help them implement that. I want to
• 28:02
  Speaker 1: squeeze as much as I can out of you, Brian.
• 28:04
  Speaker 1: Medical device makers tell us about them. We'll give you
• 28:07
  Speaker 1: about thirty seconds or so. Well, if you know device
• 28:10
  Speaker 1: makers right now, they have two main concerns UM with
• 28:12
  Speaker 1: the A C. A. First, they have a there's a
• 28:14
  Speaker 1: two point three percent exercise tax on all medical devices.
• 28:17
  Speaker 1: Now there's actually a moretorium on those tax on that
• 28:20
  Speaker 1: tax that ends at the end of seen. Uh, so
• 28:23
  Speaker 1: the clock is taking either as part of an Obamacare
• 28:25
  Speaker 1: repill effort or a standalone effort. There were going to
• 28:28
  Speaker 1: be pushing hard this year to UM to essentially either
• 28:32
  Speaker 1: extend that moretorium or repeal that tax outright. And the
• 28:34
  Speaker 1: second thing is the Medical Device User Feact has to
• 28:37
  Speaker 1: be reauthorized every five years, and guess what this is
• 28:40
  Speaker 1: a year that year that it has to be reauthorized.
• 28:42
  Speaker 1: So there's gonna be a must pass bill for both
• 28:44
  Speaker 1: devices and Drugs to reauthorize the FDA to extract user
• 28:48
  Speaker 1: fees from them. They'll be watching that closely as well.
• 28:51
  Speaker 1: You did it, well done. Thank you very much. Brian Wright,
• 28:54
  Speaker 1: senior healthcare policy analyst for Bloomberg Intelligence for its government's team,
• 29:00
  Speaker 1: based of course in Washington, d C. Thanks for listening
• 29:09
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 29:12
  Speaker 1: and listen to interviews at iTunes, SoundCloud, or whatever podcast
• 29:16
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• 29:19
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• 29:23
  Speaker 1: Lisa Abramo. It's one before the podcast. You can always
• 29:26
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