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Teva's Future Lies In Branded Drugs As Generics Sink (Podcast) · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma wits each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. We are so lucky to have
• 0:22
  Speaker 1: it with us today in our Bloomberg Interactive Broker Studios.
• 0:25
  Speaker 1: Course Schultz, President and chief executive officer of Teva Pharmaceutical.
• 0:30
  Speaker 1: It is the manufacturer of about one inten drugs that
• 0:34
  Speaker 1: people in the United States takes. So this is a
• 0:36
  Speaker 1: very very important company to the US drug industry. Uh,
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  Speaker 1: Mr Schultz, thank you so much for being here today.
• 0:43
  Speaker 1: Tava shares are being punished for a forecast that came
• 0:47
  Speaker 1: in under Wall Street estimates. You have said that this
• 0:50
  Speaker 1: is going to be a trough yere for just going
• 0:53
  Speaker 1: forward for the company. What gives you confidence that this
• 0:57
  Speaker 1: really is the bottom? It's an ulto. The dynamics of
• 1:01
  Speaker 1: our revenues. We have a dynamic where we have had
• 1:04
  Speaker 1: a very successful product in multiple scleroses called kopecs on.
• 1:08
  Speaker 1: This product has now got a generic competition since a
• 1:11
  Speaker 1: bit more than a year, so we have declining revenues
• 1:14
  Speaker 1: of this product, and it was a multi building dollar product,
• 1:18
  Speaker 1: so it's declining. At the same time, we've successfully launched
• 1:22
  Speaker 1: new and exciting products product call Ostato for Huntingson's disease
• 1:26
  Speaker 1: and charge of dyskinesia where you have movement disorders. And
• 1:30
  Speaker 1: we've just launched a Jovi which is a fantastic new
• 1:32
  Speaker 1: product that can help people suffering from chronic migraine to
• 1:37
  Speaker 1: reduce their migraine days without average or for some people,
• 1:42
  Speaker 1: reduction in migraine. These new products will of course be
• 1:45
  Speaker 1: driving increased revenues. So you could say it's really the
• 1:48
  Speaker 1: mathematics of the slope of the decline of kopecs and
• 1:51
  Speaker 1: versus the growth of a Stato and a Jovi, and
• 1:54
  Speaker 1: there it's just pretty obviously if you look at the
• 1:56
  Speaker 1: numbers that there's a bigger drag from kopecs and downwards
• 2:00
  Speaker 1: this year, then this's growth from the two new products,
• 2:02
  Speaker 1: but next year the drag from compax and goes down.
• 2:05
  Speaker 1: It's like a mathematical thing you lose like every year,
• 2:09
  Speaker 1: but the absolute number, of course gets lessened less so
• 2:12
  Speaker 1: so that's really why. So talk about the core generic
• 2:15
  Speaker 1: business for tever been in a decline for the industry.
• 2:19
  Speaker 1: What is your sense of the decline, the secular decline, Uh,
• 2:23
  Speaker 1: that the market should be discounting in the core generic business,
• 2:26
  Speaker 1: and whether that differs for you. Yeah, so that's a
• 2:28
  Speaker 1: great question. The market has over the last I would
• 2:31
  Speaker 1: say five years, probably half, so the total value of
• 2:35
  Speaker 1: the U. S. Generic market has gone to half. This
• 2:38
  Speaker 1: is not because of volume. Volume is increasing. More than
• 2:41
  Speaker 1: nine out of tin products being taken in the US
• 2:43
  Speaker 1: every day are generics, so the volume has been increasing,
• 2:46
  Speaker 1: but the pricing has been coming down. Now. When I
• 2:48
  Speaker 1: joined a bit more than a year ago, was quite
• 2:51
  Speaker 1: clear to me that the U. S. Generic business was
• 2:54
  Speaker 1: in what I would call a death spiral of decreasing prices.
• 2:58
  Speaker 1: If you're in a situation like that, then the market
• 3:00
  Speaker 1: leader needs to take action and explain to the customers
• 3:04
  Speaker 1: that you cannot just take prices down below manufacturing costs.
• 3:07
  Speaker 1: You cannot sustain a business where you're losing money. So
• 3:10
  Speaker 1: I went out a bit more than a year ago
• 3:13
  Speaker 1: explain to the marketplace, and to our customers that we
• 3:16
  Speaker 1: have roughly ten percent of our products here in the US,
• 3:18
  Speaker 1: where we sell billions of products every year that are
• 3:21
  Speaker 1: losing money, and this is not a sustainable strategy for
• 3:24
  Speaker 1: any business. This is really interesting, especially at a time
• 3:28
  Speaker 1: when both parties in Washington, d C. Would like to
• 3:31
  Speaker 1: see drug prices reduced further. How much pressure are you
• 3:34
  Speaker 1: getting from them and how realistic is it to you
• 3:38
  Speaker 1: that we will see some sort of general reduction in
• 3:42
  Speaker 1: pricing market wide. Yeah, of course, here we really have
• 3:44
  Speaker 1: to remember the enormous differences in pricing in pharmaceuticals. So
• 3:49
  Speaker 1: if you take an innovative bio pharmaceutical product, it might
• 3:53
  Speaker 1: cost something like two, three or four thousand dollars a month.
• 3:57
  Speaker 1: If you take a typical generic it might cost three
• 4:00
  Speaker 1: four cents a day. So I mean, it's a it's
• 4:03
  Speaker 1: a phenomenal difference in pricing that you have and the
• 4:06
  Speaker 1: prices we see on generics. If we say the problem
• 4:09
  Speaker 1: might be that the price of a tablet, a generic
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  Speaker 1: tablet a day, let's say generic Liberto, it drops from
• 4:15
  Speaker 1: being you know, twenty cents to being eighteen cents, and
• 4:18
  Speaker 1: all of a sudden it's not economical to manufacture it anymore.
• 4:21
  Speaker 1: Same thing goes for things like anti effectives and so on,
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  Speaker 1: and it's very important to have steady supplies for the patients.
• 4:29
  Speaker 1: It's very important to have high quality of all these
• 4:31
  Speaker 1: very cheap medications. So I would say the pricing discussion
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  Speaker 1: going on in the US right now politically is not
• 4:37
  Speaker 1: really about the generic pricing that that's so cheap actually
• 4:42
  Speaker 1: so there, It's more about quality and sustainable supplies to
• 4:46
  Speaker 1: the safety of patients. So what we did. What we
• 4:49
  Speaker 1: did was we said, Okay, we want to be the
• 4:51
  Speaker 1: world's best supply in terms of sustainability of supply and quality,
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  Speaker 1: and it's not sustainable if we start manufacturing and selling
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  Speaker 1: below the man effectsoring cost. We had a good debate
• 5:02
  Speaker 1: with our customers. We went out of some products, some products,
• 5:05
  Speaker 1: we had a price adjustment. But the most important thing,
• 5:08
  Speaker 1: getting back to your initial question, was that this helps
• 5:11
  Speaker 1: stabilize the whole business because we're the market leader. So
• 5:14
  Speaker 1: what we see now is a situation where the total
• 5:17
  Speaker 1: value of generics has stabilized. That does not mean that
• 5:22
  Speaker 1: the individual product does not have an increasing price as
• 5:25
  Speaker 1: you see more competitions. It just means that the new
• 5:28
  Speaker 1: products that go off patent where we get generics into
• 5:31
  Speaker 1: the market. The new generics coming in offset the decline
• 5:35
  Speaker 1: on price on the older ones, so that the total
• 5:37
  Speaker 1: value of the market you could say, is stable. And
• 5:40
  Speaker 1: that's a big change. So Mr short quickly in third
• 5:43
  Speaker 1: thirty seconds, what is the future of TAVA in terms
• 5:46
  Speaker 1: of products? Is it branded products, is a biosimilars or
• 5:49
  Speaker 1: is it still trying to be first to market with
• 5:50
  Speaker 1: the generics. It's a combination of being leader in generics,
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  Speaker 1: including first two markets where we are the best in
• 5:57
  Speaker 1: the world, and at the same time becoming a leader
• 6:00
  Speaker 1: in biopharmaceuticals. And when I say biopharmaceuticals, it's a combination
• 6:05
  Speaker 1: of innovative new biopharmaceuticals in areas where we have expertise
• 6:10
  Speaker 1: such as pain, c and this, neurology, respiratory, and at
• 6:14
  Speaker 1: the same time using this skill base to make biosimilar
• 6:17
  Speaker 1: products in the areas we know about. So we believe,
• 6:20
  Speaker 1: with our unique, very broad skill base in upscaling, development,
• 6:25
  Speaker 1: clinical testing, launch of products, that we have a very
• 6:28
  Speaker 1: strong future. Mr core Schultz, thank you so very much
• 6:31
  Speaker 1: for joining us in studio today. Core Schultz is the
• 6:34
  Speaker 1: president and chief executive officer of Tava Pharmaceuticals. He joins
• 6:37
  Speaker 1: us here in our Bloomberg eleven three or studios. Thank
• 6:39
  Speaker 1: you so much. Really interesting and important point when we
• 6:42
  Speaker 1: talk about drug pricing and lowering the cost, the question
• 6:45
  Speaker 1: of how do you also foster a healthy generics market
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  Speaker 1: at a time when an increasing number of the population
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  Speaker 1: does rely on this market, at a time when it's
• 6:54
  Speaker 1: the other drugs where the emphasis really needs to be.
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  Speaker 1: I mean, it's sort of shows the complication of this
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  Speaker 1: debate us and it's just one of the many layers
• 7:01
  Speaker 1: of healthcare that in this country we continue to debate
• 7:04
  Speaker 1: day in and day out. So we're very happy to
• 7:06
  Speaker 1: have Mr Schultz here with us. Well, we have some
• 7:23
  Speaker 1: good news coming out of Puerto Rico. Looks like Puerto
• 7:25
  Speaker 1: Rico's record bankruptcy advanced this week when a federal drudge
• 7:28
  Speaker 1: approved a plan to restructure more than seventeen billion dollars
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  Speaker 1: in sales tax bonds, the biggest step yet in the
• 7:34
  Speaker 1: island's almost two year effort to slash its massive debt
• 7:37
  Speaker 1: and exit court protection. To help us dive into the
• 7:40
  Speaker 1: details here, we were joined in our Bloomberg eleven three
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  Speaker 1: oh Studios by Matt Rodrig, Managing director at Miller buck Fire,
• 7:47
  Speaker 1: a steeple company. Matt, thanks so much for joining us.
• 7:50
  Speaker 1: This seems like a very good deal for the senior
• 7:53
  Speaker 1: bond holders. How good was it, thanks Paul uh toft
• 7:57
  Speaker 1: question before we dive into the detail, it's just taking
• 8:00
  Speaker 1: a step back. This is the largest municipal bankruptcy exit
• 8:03
  Speaker 1: ever uh seventeen point six billion dollars, larger than the
• 8:06
  Speaker 1: City of Detroit. There are actually two bankruptcies. There was
• 8:08
  Speaker 1: the Commonwealth of Puerto Rico bankruptcy and the Cofina bankruptcy.
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  Speaker 1: This resolves the Cofina credit and really sets the stage
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  Speaker 1: for the Commonwealth to go forward and restructure its debt.
• 8:18
  Speaker 1: To be clear, Cofina being bonds that are backed by
• 8:21
  Speaker 1: sales tax and revenues that the government gets rather than
• 8:24
  Speaker 1: just general obligation bonds. Right exactly exactly. Cofeine is backed
• 8:28
  Speaker 1: by the sales and use tax uh. And in terms
• 8:31
  Speaker 1: of the recoveries, you know, seniors, including a crude interest,
• 8:33
  Speaker 1: got ninety five cents in the dollar, and subordinate Cofina
• 8:36
  Speaker 1: has got fifty eight cents in the dollar. And you know,
• 8:39
  Speaker 1: taking a look at everything that's happened. Uh. You know,
• 8:41
  Speaker 1: all the economic challenges that Puerto Rico has had, all
• 8:44
  Speaker 1: of the fiscal challenges once in a hundred year hurricane.
• 8:48
  Speaker 1: For the senior bond holders to receive ninety five cents,
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  Speaker 1: I think it really speaks to the strength of having
• 8:53
  Speaker 1: good bonds, senior bonds backed by a solid collateral stream.
• 8:57
  Speaker 1: Uh and cents. People. People are generally happy. There was
• 9:01
  Speaker 1: ninety nine point five percent approval of the bankruptcy plan
• 9:04
  Speaker 1: for the seniors, So this has got to be a
• 9:06
  Speaker 1: huge victory for you. You are the lead financial advisor
• 9:09
  Speaker 1: for senior Cofina bond holders, right, Uh. And this was
• 9:13
  Speaker 1: the largest organized group, and we know it's been like
• 9:15
  Speaker 1: hurting cats when it comes to Puerto Rico, seventy four
• 9:18
  Speaker 1: billion dollars of debt and trying to get the different
• 9:20
  Speaker 1: parties kind of teamed up on the same side. I'm
• 9:23
  Speaker 1: just wondering going forward, how involved are some of the
• 9:28
  Speaker 1: investors who you represent going to stay in Puerto Rico
• 9:31
  Speaker 1: and how many are going to cash out and say
• 9:33
  Speaker 1: I'm never doing that again. Yeah, it's been like hurting
• 9:37
  Speaker 1: cats on a roller coaster. In fact, it's really fun.
• 9:40
  Speaker 1: You've had a great couple of years. Yeah, you know.
• 9:43
  Speaker 1: I mean between the premise A law which was passed UH,
• 9:46
  Speaker 1: then the bankruptcy, the Hurricane UH deals coming together falling apart,
• 9:50
  Speaker 1: It's been quite a ride. Look, I think investors are
• 9:53
  Speaker 1: are very pleased with the Cofina deal I mentioned and
• 9:56
  Speaker 1: a half percent voting in favor. I think they're LPs
• 9:59
  Speaker 1: UH to the investors in their funds should be even
• 10:01
  Speaker 1: happier because they've got a very good outcome, and this
• 10:04
  Speaker 1: is very good for the people of Puerto Rico. This
• 10:06
  Speaker 1: settlement turns over forty of the dedicated sales tax that
• 10:10
  Speaker 1: was previously going to Cofina to the Commonwealth of Puerto Rico.
• 10:13
  Speaker 1: That represents seventeen billion dollars over the next forty years.
• 10:17
  Speaker 1: A lot of people disagree with that, though. There has
• 10:19
  Speaker 1: been pushed back within Puerto Rico saying that this is
• 10:21
  Speaker 1: going to hamper the government's ability to rebuild going forward,
• 10:25
  Speaker 1: just because it does take half of the sales tax
• 10:27
  Speaker 1: revenues and put them in the hands of the creditors.
• 10:31
  Speaker 1: What gives you confidence that that's not the case. Puerto
• 10:34
  Speaker 1: Rico needs to reaccess capital markets, and this deal sets
• 10:38
  Speaker 1: Puerto Rico up to do that. So even though it's
• 10:41
  Speaker 1: taking some tax revenue and using it to pay bond holders, Uh,
• 10:44
  Speaker 1: it really sets Puerto Rico up to reaccess capital markets
• 10:47
  Speaker 1: and to raise money. There's twelve billion dollars of new
• 10:50
  Speaker 1: debt that was issued yesterday in connection with the the
• 10:53
  Speaker 1: closing of the bankruptcy transaction, and there's a basket of
• 10:56
  Speaker 1: seven billion dollars of additional debt that can be issued
• 11:00
  Speaker 1: right away. Uh. And that may very well be currency
• 11:02
  Speaker 1: to resolve the Commonwealth bankruptcy. It could also be used
• 11:05
  Speaker 1: to raise capital to do other things on the island. So, Matt,
• 11:09
  Speaker 1: and I'm sure you spent a lot of time on
• 11:10
  Speaker 1: the island of Puerto Rico the last several years working
• 11:12
  Speaker 1: on this transaction. How is the Puerto Rican economy right now? Yeah,
• 11:17
  Speaker 1: it's actually doing really well right now. Uh. And a
• 11:20
  Speaker 1: lot of people are surprised to hear that because, you know,
• 11:22
  Speaker 1: they saw pictures of all the challenges after the hurricane,
• 11:25
  Speaker 1: and no doubt it's been a challenging situation with the hurricane.
• 11:29
  Speaker 1: But right now on the ground in Puerto Rico, there's
• 11:31
  Speaker 1: a lot of private insurance money that's coming in. There's
• 11:33
  Speaker 1: a lot of federal money that's coming in to rebuild
• 11:36
  Speaker 1: and reconstruct the island, and there's more work than people
• 11:38
  Speaker 1: can do. So previously there is twelve percent unemployment in
• 11:41
  Speaker 1: Puerto Rico. Now it's down to seven percent. UH. There's
• 11:44
  Speaker 1: an enormous amount of economic activity going on UH and
• 11:47
  Speaker 1: the central government is actually running a surplus for the
• 11:49
  Speaker 1: first time in many years. So I guess that one
• 11:52
  Speaker 1: question I have is how much of this is reliant
• 11:55
  Speaker 1: on the federal government continuing to release some of the
• 11:58
  Speaker 1: funding that it's promised to Puerto Rico, and how much
• 12:01
  Speaker 1: of this is just sort of organic growth. So Puerto
• 12:04
  Speaker 1: Rico is a US territory and it benefits from FEMA
• 12:07
  Speaker 1: just like any US state, and so if there were
• 12:10
  Speaker 1: a hurricane anywhere in the mainland US, FEMA would come
• 12:12
  Speaker 1: in and help rebuild and reconstruct. And that's what's happening
• 12:15
  Speaker 1: in Puerto Rico. UH. It is an important part of
• 12:18
  Speaker 1: the process. Puerto Rico's infrastructure prior to this was very challenged,
• 12:22
  Speaker 1: and one of the goals with the reconstruction is to
• 12:24
  Speaker 1: build that infrastructure back and to build it better, right,
• 12:27
  Speaker 1: And so it's it's a critical part of the process. Uh.
• 12:30
  Speaker 1: And you know that's happening at the same time that
• 12:33
  Speaker 1: the Permissa Oversight Board is implementing reforms. Uh. This permissa
• 12:36
  Speaker 1: process that Congress set up is working. Uh. And you know,
• 12:40
  Speaker 1: the two processes are playing out in tandem, and the
• 12:42
  Speaker 1: island's doing very well right now. So what are the
• 12:44
  Speaker 1: next steps for Puerto Rico and the bankrups emerging from
• 12:48
  Speaker 1: from bankruptcy? The senior Cafina bond holders seemed to be
• 12:51
  Speaker 1: that issues addressed. What's what are next steps? Yes, so
• 12:53
  Speaker 1: Cofina has done seventeen point six billion dollars restructured. I
• 12:57
  Speaker 1: think there's gonna be thank you, like I don't have
• 12:59
  Speaker 1: to touch that again. Thank you. There's gonna be a
• 13:02
  Speaker 1: large focus in on restructuring the commonwealth that part of
• 13:07
  Speaker 1: the government is still in bankruptcy. Uh, and that's going
• 13:10
  Speaker 1: to be the next area of focus. Are you going
• 13:12
  Speaker 1: to stay involved at all? Personally? We'll see. I mean,
• 13:15
  Speaker 1: my current assignment is done, but we have a lot
• 13:17
  Speaker 1: of relationships and we've been involved for a long time.
• 13:20
  Speaker 1: So do you think that the deal that Puerto Rico
• 13:22
  Speaker 1: struck with Cofina is going to make it more difficult
• 13:26
  Speaker 1: for them to strike a deal with the general obbligation
• 13:28
  Speaker 1: bond holders. I actually think it's gonna make it easier.
• 13:31
  Speaker 1: So I mentioned there's a seven billion dollar basket of
• 13:35
  Speaker 1: Cofina that can be used issue subordinate debt right away.
• 13:38
  Speaker 1: I think that may be currency that could be used
• 13:40
  Speaker 1: in the GEO restructuring. There's also clarity on what Cofina
• 13:44
  Speaker 1: is going forward. It has UH like absolute ownership of
• 13:47
  Speaker 1: a portion of the dedicated sales tax. There's no question
• 13:51
  Speaker 1: or doubt that Cofina owns that tax. It's been adjudicated
• 13:53
  Speaker 1: by the Title three Bankruptcy Court UH and bond holders
• 13:57
  Speaker 1: have a statutory lean that runs in favor of those
• 13:59
  Speaker 1: sales taxes. It's settled the question now, and I think
• 14:02
  Speaker 1: with that question being settled, it really sets the stage
• 14:05
  Speaker 1: to restructure the GEO debt. So, Matt, you've spent a
• 14:08
  Speaker 1: lot of time on Puerto Rico, and what if you
• 14:10
  Speaker 1: were to guess is the government's three to five year
• 14:12
  Speaker 1: plan to kind of really shore up the financial situation
• 14:15
  Speaker 1: so that they can have access to capital, they can rebuild,
• 14:18
  Speaker 1: they can grow. What's kind of the current thinking. So
• 14:21
  Speaker 1: the reconstruction effort from the hurricane is still ongoing, and
• 14:24
  Speaker 1: that's actually gonna take up to a decade. A lot
• 14:26
  Speaker 1: of people don't realize how long it takes to really
• 14:29
  Speaker 1: deploy the capital and to rebuild after one of these
• 14:33
  Speaker 1: major events. Even now, New Jersey is just winding down
• 14:36
  Speaker 1: its rebuilding effort from Hurricane Sandy. UH. It took Louisiana
• 14:39
  Speaker 1: a long time to recover from its hurricanes UH, and
• 14:42
  Speaker 1: so that reconstruction effort is going to go on for
• 14:44
  Speaker 1: a long time. Also, the Promise Oversight Board is in
• 14:48
  Speaker 1: the process of implementing reforms. There's still work to be done,
• 14:52
  Speaker 1: but I think they can really set up Puerto Rico
• 14:53
  Speaker 1: to thrive over the next several decades. All right, well,
• 14:56
  Speaker 1: I guess that I'm going to have to go down
• 14:58
  Speaker 1: and do some on the ground investigation and on the
• 15:00
  Speaker 1: beach to make sure that it really is getting up
• 15:04
  Speaker 1: to speed. Matt Roderick, thank you so much for being
• 15:06
  Speaker 1: with us. Matt Rodgerig managing director of Miller buck Fire,
• 15:09
  Speaker 1: which is a default company. He was the lead financial
• 15:12
  Speaker 1: adviser and negotiator for the senior coffin and bondholders. That's
• 15:31
  Speaker 1: sinking in your in your stomach right now. That is
• 15:34
  Speaker 1: the feeling of April fifteen, rolling around tax season and
• 15:38
  Speaker 1: the question is will your taxes be higher or lower
• 15:42
  Speaker 1: this year? Joining us to let us know and do
• 15:44
  Speaker 1: our taxes on air, Joe Perry, tax leader at Marcom
• 15:47
  Speaker 1: uh joining us here in our Bloomberg Interactive Broker Studios. Joe,
• 15:50
  Speaker 1: So happy to have you. Thank you for having me.
• 15:53
  Speaker 1: We've heard so many reports about tax rebates being lower,
• 15:56
  Speaker 1: about people's individual taxes being higher in the wake of
• 16:00
  Speaker 1: the tax changes that President Trump has made. What's the
• 16:03
  Speaker 1: truth here, Well, it really depends on your circumstances. I
• 16:07
  Speaker 1: think in many cases people will be surprised, mostly to
• 16:10
  Speaker 1: the downside. Um. What I realized is people forget that
• 16:14
  Speaker 1: the withholdings that they had on their wages actually increase
• 16:17
  Speaker 1: their take home pay. And when you ask them, do
• 16:20
  Speaker 1: you remember how much it increased? They forget. But now
• 16:23
  Speaker 1: when they're getting a refund and the refunds less, they
• 16:26
  Speaker 1: don't couple it too. So really it really depends. Um.
• 16:30
  Speaker 1: You know, this year was the first year that they
• 16:33
  Speaker 1: estimated what the withholding was gonna be, and that's difficult.
• 16:36
  Speaker 1: All these years you knew what your income was, you
• 16:39
  Speaker 1: could adjust the Form W four that has the withholding,
• 16:42
  Speaker 1: so you could write set that so at the end
• 16:45
  Speaker 1: of the year if you wanted the refund. Many people
• 16:47
  Speaker 1: use a refund is a way of savings. That would
• 16:49
  Speaker 1: be fine, But the issue is is that with the
• 16:52
  Speaker 1: new law, you could have two taxpayers that make the
• 16:54
  Speaker 1: same amount of money and one could get a ten
• 16:56
  Speaker 1: thousand dollar refund and one could owe ten thousands. So
• 16:59
  Speaker 1: it really is this Barrett in where it is. So
• 17:02
  Speaker 1: planning is important, So Joe planning is important. But for
• 17:05
  Speaker 1: all of our listeners in the tri state New York area,
• 17:07
  Speaker 1: the high taxed Tri state New York area, one of
• 17:10
  Speaker 1: the big changes with the new tax legislation was the
• 17:13
  Speaker 1: inability or the reduction, I guess the the inability to
• 17:16
  Speaker 1: deduct local and state taxes. How has that impacted UM
• 17:20
  Speaker 1: tax receipts for various entities, Well, it's been reported by
• 17:25
  Speaker 1: UH public officials that the revenues have been down to
• 17:29
  Speaker 1: to the extent of UH two billion dollars. And I
• 17:33
  Speaker 1: think part of it, it's being portrayed that part of
• 17:36
  Speaker 1: it is because high wealthy people are leaving the state.
• 17:40
  Speaker 1: You know, in our client base, UH, we're a very
• 17:44
  Speaker 1: large firm and long Island largest firm and Long Island
• 17:47
  Speaker 1: firm in New York City. We don't see in our
• 17:49
  Speaker 1: client base. Many of our clients came to us and
• 17:51
  Speaker 1: wanted to know the consequences of doing so. But people
• 17:54
  Speaker 1: don't leave because of taxes. It's more about family, their jobs.
• 17:58
  Speaker 1: So what what we more see is that, you know,
• 18:02
  Speaker 1: it's really three factors. One, revenues are down because if
• 18:05
  Speaker 1: you look at the Wall Street right, they had a
• 18:07
  Speaker 1: rocky road last year. They didn't make as much money
• 18:09
  Speaker 1: as they did, so people that worked on Wall Street
• 18:12
  Speaker 1: actually made less wages and therefore had less withholding. We
• 18:15
  Speaker 1: saw that when we did projections. Second is there was
• 18:18
  Speaker 1: a double dip in bonuses in two thousand seventeen. Companies
• 18:23
  Speaker 1: decided to pay what they would normally pay a bonus
• 18:25
  Speaker 1: in eighteen. They paid it in seventeen. Why they wanted
• 18:29
  Speaker 1: to take advantage of the higher rate. There was a
• 18:31
  Speaker 1: higher rate that you get the deduction thirty five verses
• 18:34
  Speaker 1: twenty one. So and the other big factor is many
• 18:37
  Speaker 1: people used to you know, and we advised our clients
• 18:40
  Speaker 1: to actually pay their estimated payment fourth quarter in December
• 18:45
  Speaker 1: so you would be able to get a deduction. It's
• 18:47
  Speaker 1: actually doing January now with the lack of deduction, it's
• 18:50
  Speaker 1: only limited to ten thousand dollars and that's state local
• 18:54
  Speaker 1: income taxes in real estate. So once you get past
• 18:56
  Speaker 1: that threshold, and many of our clients are passed that,
• 18:59
  Speaker 1: which is real estate taxes alone, um, then you want
• 19:02
  Speaker 1: to defer that. So and and the idea is, you know,
• 19:05
  Speaker 1: there's talk has been reported. I think the Governor of
• 19:10
  Speaker 1: New York is going to meet with uh, the President Trump,
• 19:13
  Speaker 1: and he's going to make the pitch to repeal that.
• 19:16
  Speaker 1: The problem is there's about a sixty billion dollar gap
• 19:21
  Speaker 1: each year in terms of filling filling the gap of revenue.
• 19:25
  Speaker 1: So it's gonna be a hard sell. You need another
• 19:27
  Speaker 1: revenue generator. Um. So we'll have to see what happens
• 19:31
  Speaker 1: in that regard. So, the I R S came out
• 19:34
  Speaker 1: with a report that refunds were down by about eight
• 19:37
  Speaker 1: percent this year as a result of some of the
• 19:40
  Speaker 1: tax changes. The Treasury Department seemed to refute that on Twitter.
• 19:45
  Speaker 1: What's the reality here? Yeah, I think there's really two
• 19:47
  Speaker 1: reasons why. One is the I R S got a
• 19:50
  Speaker 1: late start. I think I think that's important, uh, because
• 19:54
  Speaker 1: because of the government shut down to some degree. I
• 19:57
  Speaker 1: think also with the changes in the law and um
• 20:01
  Speaker 1: the I R S is not funded that well, it
• 20:03
  Speaker 1: really created a problem and we're still looking for guidance. Well,
• 20:07
  Speaker 1: and I wonder if something else you were talking about
• 20:09
  Speaker 1: with companies estimating or trying to estimate how much money
• 20:14
  Speaker 1: to withhold, have they gotten it wrong to the downside?
• 20:17
  Speaker 1: In other words, have they been withholding on average less
• 20:20
  Speaker 1: than they should based on all of the changes. It
• 20:24
  Speaker 1: depends on your expectations, right that people want money during
• 20:27
  Speaker 1: the year because you need the cash. They wouldn't get
• 20:30
  Speaker 1: it wrong if they withheld, but if to the extent
• 20:33
  Speaker 1: that they owe more at the end of the year,
• 20:34
  Speaker 1: and I think more people are owing or getting less
• 20:37
  Speaker 1: of a refund, So I I think that that is true.
• 20:40
  Speaker 1: But then how do you balance it with the fact
• 20:42
  Speaker 1: that there's less revenues that are coming in and down
• 20:45
  Speaker 1: eight percent. So I think it's gonna work its way
• 20:47
  Speaker 1: out as we progress. You know, many many of our clients.
• 20:52
  Speaker 1: There's so many unknowns in the law. It's amazing. One
• 20:55
  Speaker 1: of the statistics is with the last uh Act, the
• 20:58
  Speaker 1: six Act that was major, it took twelve years to
• 21:02
  Speaker 1: get all of the information, so you understood what the
• 21:05
  Speaker 1: law men. You know, we're getting rules that are sent
• 21:08
  Speaker 1: to us two hundred pages and we have to digest
• 21:10
  Speaker 1: that and understand that. So it's really complicated. So we're
• 21:14
  Speaker 1: we're actually advising our clients to extend their tax returns
• 21:17
  Speaker 1: so that way, as more information comes out, we're able
• 21:21
  Speaker 1: to make the right judgments for them with them. So
• 21:23
  Speaker 1: what percentage of the average individual Fireler actually makes the
• 21:27
  Speaker 1: April fifteenth deadliner? And how many people just blow past
• 21:30
  Speaker 1: it or maybe seek an extension, And there any trends there? Yeah, yeah,
• 21:34
  Speaker 1: there is the large majority like to get the return
• 21:36
  Speaker 1: done by April fifteen. Most of the time they like
• 21:39
  Speaker 1: to file it by April fourteenth or fifteenth. They like
• 21:41
  Speaker 1: to wait last minute. Who wants to deal with taxes, um,
• 21:45
  Speaker 1: But there are demographics, especially if you're invested in financial
• 21:50
  Speaker 1: you have a big portfolio, generally you do have to
• 21:53
  Speaker 1: wait until after April fifteen. Is your sense that in
• 21:56
  Speaker 1: general taxes have gone down for each individual, they just
• 22:00
  Speaker 1: might not be realizing it based on the way that
• 22:02
  Speaker 1: the withholdings work in the rebates. Well, it's it's an
• 22:05
  Speaker 1: interesting question. If I had to guess I would say,
• 22:09
  Speaker 1: you know, generally speaking, and again everybody is different. If
• 22:12
  Speaker 1: you you've made under two hundred thousand and you have kids,
• 22:16
  Speaker 1: you probably are going to do better. If you're between
• 22:18
  Speaker 1: two hundred and four hundred, you're probably depends on your
• 22:23
  Speaker 1: real estate taxes before and state taxes. UM, You're you're
• 22:27
  Speaker 1: probably just about right um. And then anything beyond that
• 22:31
  Speaker 1: you're probably paying more in taxes. UM. I know we
• 22:34
  Speaker 1: did some calculations for some of the public officials, uh.
• 22:38
  Speaker 1: And when we did those calculations, we had their last
• 22:41
  Speaker 1: year return, which was public UM, and then what we
• 22:44
  Speaker 1: did was project the benefit. Most of them did have
• 22:47
  Speaker 1: an average of eight to ten thousand dollars of a
• 22:51
  Speaker 1: less in tax and there are income was around the
• 22:53
  Speaker 1: two hundred to three hundred thousand dollar Mark, Joe Perry,
• 22:57
  Speaker 1: thank you so much. As we approach April fift maybe
• 23:00
  Speaker 1: be speaking to before ap um Joe Perry, tax leader
• 23:04
  Speaker 1: Markham just kind of giving us a sense, Lisa, I
• 23:06
  Speaker 1: think of kind of all the changes that have taken place, um,
• 23:09
  Speaker 1: you know, with the taxic with the presidents Trump's tack
• 23:11
  Speaker 1: tax COD. I think individuals are trying to get a
• 23:13
  Speaker 1: sense of you know, what it means for them going,
• 23:16
  Speaker 1: how much money they have? How much money? I mean,
• 23:17
  Speaker 1: am I getting money back? Am I? How much more
• 23:19
  Speaker 1: am I going to pay? Um? I think it's a
• 23:21
  Speaker 1: lot of uncertainty, but we'll see. So well, it looks
• 23:40
  Speaker 1: like geopolitical uncertainties that have whips all the markets over
• 23:43
  Speaker 1: the past couple of months are beginning to come into focus.
• 23:46
  Speaker 1: To help us peel back that onion, let's bring in
• 23:49
  Speaker 1: Hugh Johnson Hugh as a chairman and chief investment officer
• 23:51
  Speaker 1: of Hugh Johnson Advisers, based in Albany, New York. Hugh,
• 23:54
  Speaker 1: thanks so much for joining us. Let's start with China.
• 23:57
  Speaker 1: The U. S Trade delegation is in Beijing. Looks like
• 24:00
  Speaker 1: some progress is being made. Um. What are your thoughts
• 24:03
  Speaker 1: on the latest in China? Well, I think it's U Paul.
• 24:07
  Speaker 1: I think right at the top of the list is
• 24:09
  Speaker 1: you have to recognize, and I think we all do
• 24:11
  Speaker 1: recognize that both China and the US are really trump
• 24:16
  Speaker 1: have a lot to lose if there's a breakdown or
• 24:18
  Speaker 1: a failure of these negotiations. First of all, China, as
• 24:21
  Speaker 1: you know, the economy is under a lot of pressure.
• 24:23
  Speaker 1: They export five billion dollars uh billion dollars to the
• 24:28
  Speaker 1: US each year. That's an important part of their economy.
• 24:31
  Speaker 1: They can't afford to lose that, they can't afford to
• 24:34
  Speaker 1: have that even diminished. So they have a lot to
• 24:36
  Speaker 1: see success. And of course in the case of Trump,
• 24:39
  Speaker 1: he wants to see China import a great deal more.
• 24:41
  Speaker 1: At the top of the list is agricultural products, soybeans.
• 24:44
  Speaker 1: You hear about that all the time, and to him,
• 24:47
  Speaker 1: of course, that's important, and trying to secure the vote
• 24:50
  Speaker 1: of the farmers as we look at so you know,
• 24:54
  Speaker 1: both have a lot to lose. I think that's the
• 24:56
  Speaker 1: reason to feel there's going to be success. And that's
• 24:58
  Speaker 1: also the reason why I think Trump is willing to
• 25:00
  Speaker 1: have a postponement of that March first deadline. So I
• 25:03
  Speaker 1: think we're looking at the end of March in the
• 25:06
  Speaker 1: in the US may not get all of it once,
• 25:08
  Speaker 1: but it will certainly get some sort of a deal
• 25:09
  Speaker 1: by the end of March, or at least in the
• 25:12
  Speaker 1: near future. So I think those are going along. Those
• 25:14
  Speaker 1: those talks are really don't concern me. They're going along
• 25:17
  Speaker 1: quite well, and I think the markets reflect that. You
• 25:20
  Speaker 1: as an investor, how much do you focus on macro
• 25:23
  Speaker 1: events like trade talks that are on again, off again,
• 25:25
  Speaker 1: on again, who knows again, versus just the specific corporate
• 25:30
  Speaker 1: reports that we're getting out and and just other sort
• 25:33
  Speaker 1: of very idiosyncratic issues. It's a great question, Lisa, and
• 25:36
  Speaker 1: I think the answer to that question is, I don't
• 25:39
  Speaker 1: focus on the macro sort of the political geopolitical stuff
• 25:42
  Speaker 1: unless it's going to have an impact, a significant impact
• 25:45
  Speaker 1: that I can measure on the U S economy and
• 25:47
  Speaker 1: earnings on the one hand, and of course on fellow
• 25:50
  Speaker 1: reserve policy or interest rates on the other hand. But
• 25:52
  Speaker 1: things that really matter to me and trying to decide
• 25:55
  Speaker 1: whether I should be positive or negative on the stock
• 25:58
  Speaker 1: market are really interest rates on the one side, and
• 26:01
  Speaker 1: and earnings on the other side. And quite frankly, I
• 26:04
  Speaker 1: look at this stuff. I take it seriously, but I'm
• 26:07
  Speaker 1: only worried or concerned about it or integrated and when
• 26:10
  Speaker 1: I when I can quantify the impact it's going to
• 26:12
  Speaker 1: have on what really matters, and what really matters are
• 26:15
  Speaker 1: earnings and interest rates. Well here let's let's go to
• 26:18
  Speaker 1: that issue. On the interest rates. It looks like the
• 26:20
  Speaker 1: FED is on the sideline, so perhaps investors are maybe
• 26:23
  Speaker 1: taking a closer look at earnings were about three quarters
• 26:26
  Speaker 1: of the way through the fourth quarter earning season. What
• 26:28
  Speaker 1: have you taken out of this earning season to either
• 26:31
  Speaker 1: make you more or less constructive on the equity markets. Well, well,
• 26:33
  Speaker 1: I think you've got to take two things out. Is.
• 26:35
  Speaker 1: First of all, the earnings the earning season was pretty good.
• 26:38
  Speaker 1: I mean, the company's beating expectations. That parts good. But
• 26:42
  Speaker 1: the forward guidance, as you know, is not very good.
• 26:44
  Speaker 1: In this result of that, both for two thousand two twenty,
• 26:48
  Speaker 1: I've been bringing down estimates for the S and P
• 26:50
  Speaker 1: five and I do that just about every day as
• 26:54
  Speaker 1: I see a new forward guidance, So earnings estimates are
• 26:57
  Speaker 1: coming down. The second thing is, of course, as you know,
• 27:00
  Speaker 1: on the other side of the equation, the interest rate
• 27:02
  Speaker 1: side of the equation, everybody's expecting the federal reserves to
• 27:04
  Speaker 1: kind of hold. I expect, along with a lot of
• 27:07
  Speaker 1: other folks, that they're going to raise interest rates at
• 27:09
  Speaker 1: least one time in two thousand nineteen. I have that
• 27:12
  Speaker 1: at midyear, so we've got an improved outlook for interest rates.
• 27:15
  Speaker 1: They'll be going up, but not as much. And we
• 27:17
  Speaker 1: have let's say it does somewhat deteriorating outlook for earnings.
• 27:21
  Speaker 1: The growth rate of earnings in two thousand are gonna
• 27:25
  Speaker 1: be a little bit softer than we had thought. You
• 27:27
  Speaker 1: put those two things together and you say we've got
• 27:30
  Speaker 1: some We're okay. Now. The configuration is okay now. I
• 27:33
  Speaker 1: think when it gets a little bit problematic is when
• 27:36
  Speaker 1: interest rates get to a little bit higher level and
• 27:38
  Speaker 1: then we get to set the first quarter of two
• 27:40
  Speaker 1: thousand twenty, then I think the stock market is not
• 27:43
  Speaker 1: going to have enough in the way of earnings to
• 27:46
  Speaker 1: offset the rise that we're gonna see, even though modest
• 27:49
  Speaker 1: in interest rates. So in the meantime, you paint a
• 27:51
  Speaker 1: pretty constructive picture of the US economy, and as such,
• 27:54
  Speaker 1: some of the stocks that you seem to be favoring
• 27:57
  Speaker 1: are in the consumer staples industries as well as a
• 28:01
  Speaker 1: healthcare so somewhat conservative but also relying on steady growth
• 28:05
  Speaker 1: in the economy. So which names you're looking at in particular, Yeah,
• 28:08
  Speaker 1: that's a great that's more another good question, Lisa, To
• 28:10
  Speaker 1: be honest with you, we're looking at kind of consumer staples,
• 28:14
  Speaker 1: healthcare stocks, and the communications services society of the ledger.
• 28:18
  Speaker 1: And the reason we're looking at that so carefully is
• 28:21
  Speaker 1: because of something I just mentioned, and that is that
• 28:23
  Speaker 1: it's clear that the economy is slowing in the process
• 28:26
  Speaker 1: at two thousand nineteen, and in the process also earning slowing.
• 28:29
  Speaker 1: So you try to find companies that are going to
• 28:31
  Speaker 1: give ushow some somewhat reliable growth rates and earnings. In
• 28:34
  Speaker 1: the in the consumer staples area, I would I would
• 28:37
  Speaker 1: suggest everybody take a look at Walmart, UH, in the
• 28:40
  Speaker 1: in the in the health care area, there's a there's
• 28:42
  Speaker 1: an awful lot of companies in the health care area.
• 28:46
  Speaker 1: And in the consumer community. And the communications services area, UH,
• 28:51
  Speaker 1: take a look at the e t F, which represents
• 28:53
  Speaker 1: the communication services. There's a lot of volatile companies in
• 28:56
  Speaker 1: communication services, Facebook being an example. And in order to try,
• 29:01
  Speaker 1: I think you have to get diversification. You have to
• 29:03
  Speaker 1: have representation communications services. But the best way to do
• 29:06
  Speaker 1: that is to buy the exchange traded funds. So those
• 29:09
  Speaker 1: those are three areas where I would take a very
• 29:13
  Speaker 1: very hard look and I think you can. I think
• 29:15
  Speaker 1: you can buy those now in a in a positive
• 29:17
  Speaker 1: equity market environment. Hugh Johnson, thank you so much for
• 29:20
  Speaker 1: being with us. Hugh Johnson is chairman and Chief Investment
• 29:23
  Speaker 1: Officer of Hugh Johnson Advisers in Albany, New York. Thanks
• 29:27
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 29:29
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
• 29:32
  Speaker 1: whatever podcast platform you prefer. On Paul Sweeney, I'm on
• 29:35
  Speaker 1: Twitter at pt Sweeney. I'm Lisa bram Woyit's I'm on
• 29:38
  Speaker 1: Twitter at Lisa bram Wits one before the podcast. You
• 29:40
  Speaker 1: can always catch us worldwide. I'm Bloomberg Radio