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BOJ Allows Japan To Keep QE In Place For Another Three Years · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg P and L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Bank
• 0:32
  Speaker 1: of Japan Governor Haruhiko Kuroda said that he's going to
• 0:37
  Speaker 1: let a key interest rate increase by a tenth of
• 0:39
  Speaker 1: a percentage point, but otherwise he's sticking to the bank's
• 0:43
  Speaker 1: ultra easy monetary policy that seems to defy a global
• 0:48
  Speaker 1: trend toward tightening. Here to tell us about this is
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  Speaker 1: Jeff Usher. He has had of research for Japan Insider.
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  Speaker 1: They're based in Jeffersonville, New York. Jeff Usher, thanks very
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  Speaker 1: much for being with us. Tell us about this move
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  Speaker 1: or non move by the Bank of Japan. What does
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  Speaker 1: it mean? Well, I think what it really means is
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  Speaker 1: we're going to have what they call quantitative and qualitative
• 1:11
  Speaker 1: easing forever um. The key point that was in today's
• 1:17
  Speaker 1: meeting was that the Bank of Japan is going to
• 1:20
  Speaker 1: be unable to meet its two percent inflation target at
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  Speaker 1: least until the end of March of and probably even
• 1:28
  Speaker 1: further so. Because we've had such easy money for so long,
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  Speaker 1: it's putting pressure on Japanese banks and it's also affecting
• 1:37
  Speaker 1: the Japanese government bond market. And so what they did
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  Speaker 1: today is essentially apply a few tweaks to allow them
• 1:45
  Speaker 1: to keep q QUO E in place for at least
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  Speaker 1: another three years. Jeff, I'd love to talk about the
• 1:52
  Speaker 1: Japanese economy because by a lot of measures, it's doing
• 1:55
  Speaker 1: really well. I mean, the job market is the best
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  Speaker 1: in this nineteen four There do appear to be some
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  Speaker 1: very small shoots of inflation. So what's the Bank of
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  Speaker 1: Japan waiting for here? Well, um, I think they're just
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  Speaker 1: waiting for, um, you know, the overall inflation to to
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  Speaker 1: get up towards two percent. I mean, my personal view
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  Speaker 1: is that two percent is actually unrealistic target. Uh that
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  Speaker 1: you know, if you look at a chart of inflation
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  Speaker 1: going back thirty years, the only time they've hit that
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  Speaker 1: is when you've had a consumption tax increase, and that's
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  Speaker 1: not really the kind of inflation that you want. So uh,
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  Speaker 1: you know, the job market is great. We're getting a
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  Speaker 1: lot of older workers, post retirement workers, a lot more
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  Speaker 1: women entering the workforce, but wages are not rising as
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  Speaker 1: quickly as you'd expect because most of the new people
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  Speaker 1: coming into the workforce actually get paid less than the
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  Speaker 1: full time workers. Jeff, you were the first non Japanese
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  Speaker 1: individual to work on the floor of the Tokyo Stock
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  Speaker 1: Exchange back in correct, Yes, when you had a floor. Okay,
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  Speaker 1: can you explain to people how the Japanese economy is
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  Speaker 1: different then let's say the economy in the United States
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  Speaker 1: and its relationship to let's say you are Japanese government debt. Okay,
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  Speaker 1: people are very worried about Japanese government debt, and I
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  Speaker 1: think that, um, you know, one of the issues here
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  Speaker 1: is that, unlike the US, most Japanese government debt is
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  Speaker 1: owned owned, excuse me, by Japanese and so you don't
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  Speaker 1: really have to worry about capital flight. Uh. The in fact,
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  Speaker 1: there's a real shortage of long term debt right now
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  Speaker 1: because again the Japanese economy has been very wealthy for
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  Speaker 1: a very long time. And UH, insurance companies, UH, the
• 3:51
  Speaker 1: g p i F, which is the government pension fund,
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  Speaker 1: all of these big investors really don't have a lot
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  Speaker 1: of places to put yen to work in the domestic market,
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  Speaker 1: so um, you know, I think as far as the
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  Speaker 1: economy goes, it's a very diversified economy, much different say
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  Speaker 1: the Chinese market or other emerging markets, and in many
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  Speaker 1: ways people might be surprised to hear that it's similar
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  Speaker 1: to the US, and that Japan's dependence on exports is
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  Speaker 1: about the same as the United States. It's only about
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  Speaker 1: seventeen or eighteen vent of GDP where it's ay a
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  Speaker 1: country like Germany relies on about on exports for about
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  Speaker 1: forty of their GDP. The reason why people have been
• 4:37
  Speaker 1: watching Japan so closely recently, I mean not not to
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  Speaker 1: mention that it's one of the major economies of the world,
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  Speaker 1: but also because it was clear that the Bank of
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  Speaker 1: Japan's moves are having a pretty significant impact on global
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  Speaker 1: bond yields. I mean, even the sort of suspicion that
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  Speaker 1: they might make some sort of policy tweak. Last night,
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  Speaker 1: UH sent longer term yields in the US U in
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  Speaker 1: Germany higher. That has obviously reversed as they show that
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  Speaker 1: they were not willing to make those tweaks. Um, the
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  Speaker 1: idea that you're saying q E forever to me indicates
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  Speaker 1: that will be a consistent and ongoing pressure on yields globally.
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  Speaker 1: Uh do you see it that way? Yeah? Absolutely, There's
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  Speaker 1: there's no doubt about. Um. Japanese investors are being forced
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  Speaker 1: to put more of their money overseas, and in a sense,
• 5:27
  Speaker 1: it makes it a very easy trade because, uh, if
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  Speaker 1: you know that the b o J is going to
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  Speaker 1: be keeping interest rates pretty much where they are for
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  Speaker 1: at least the next three years, but let's say yields
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  Speaker 1: in the US or Germany are rising, Um, you know,
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  Speaker 1: you're just gonna get wider spreads between Japan and uh,
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  Speaker 1: you know, the US and Europe, and that's going to
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  Speaker 1: attract more Japanese outflows to these markets. And Uh again,
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  Speaker 1: as those spreads widen, it becomes much more profitable for
• 5:58
  Speaker 1: Japanese investors hedge their currency as well, So that makes
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  Speaker 1: it even easier for them to to put more money
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  Speaker 1: let's say into ten your treasury, Jeff, does this based
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  Speaker 1: on your analysis, do you see the Japanese end weakening
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  Speaker 1: against the U. S. Dollar? Um? Just marginally. I actually
• 6:16
  Speaker 1: think the dollar again is pretty much stuck in a
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  Speaker 1: trading range. Um, I think that you know, we're kind
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  Speaker 1: of trading between one oh seven at the low end
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  Speaker 1: and one thirteen at the upper end. And uh, honestly,
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  Speaker 1: if you look at how the Japanese economy operates, if
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  Speaker 1: the end gets a whole lot weaker than say one fifteen,
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  Speaker 1: it's actually bad for the domestic economy because don't forget,
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  Speaker 1: Japan imports all of its food, all of its energy,
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  Speaker 1: and so um. You know, once once you start raising
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  Speaker 1: those import prices, you leave less money available for discretionary
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  Speaker 1: purchases like say, refrigerators, and that keeps the economies, uh
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  Speaker 1: consumption weak. Jeff Fusher, thank you so much for being
• 7:00
  Speaker 1: with us. Jeff Usher, head of research at Japan Insider,
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  Speaker 1: talking about that b o J decision that we got overnight,
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  Speaker 1: definitely causing a reversal of some of the yield curve widening.
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  Speaker 1: Now you're getting flattening once again. Apple reports its results
• 7:31
  Speaker 1: after the close of trading today, and here to help
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  Speaker 1: us understand what to expect is our own John Butler.
• 7:36
  Speaker 1: He's our senior telecom services and equipment analysts for Bloomberg Intelligence.
• 7:41
  Speaker 1: Please follow John on Twitter as we all do at
• 7:44
  Speaker 1: John Underscore Butler twenty five all right, John Underscore Butler
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  Speaker 1: revenue annual revenue for Apple in the neighborhood of two
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  Speaker 1: hundred and fifty billion dollars. What are you going to
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  Speaker 1: be looking for when Apple reports results after the close?
• 8:04
  Speaker 1: I am looking at services, which includes the App Store,
• 8:08
  Speaker 1: and I'm looking at the other products category which includes
• 8:12
  Speaker 1: air pods and HomePod and Apple Watch, and together those
• 8:16
  Speaker 1: two divisions are really driving future growth at Apple. Right
• 8:22
  Speaker 1: if you look at the current quarter, we're in a
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  Speaker 1: very good iPhone cycle. Right now, people expect iPhone revenue
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  Speaker 1: to be up fifteen percent year on year, same with
• 8:31
  Speaker 1: the total growth at Apple. We should get top lene
• 8:35
  Speaker 1: growth in that same range. But as you look down
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  Speaker 1: the road, this is a company and transition from a
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  Speaker 1: hardware centric model to a much more balanced model of
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  Speaker 1: hardware and software sales services. So that's the important thing
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  Speaker 1: right now is to show is for Apple to show
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  Speaker 1: people that it is successfully diverse fating away from the iPhone. Yes,
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  Speaker 1: because all iPhone sales are close to all iPhone sales
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  Speaker 1: now are coming from existing users who are upgrading to
• 9:06
  Speaker 1: new phones, better phones. So it's driving decent sales. But
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  Speaker 1: what you really want is to leverage that platform to
• 9:14
  Speaker 1: sell services and to sell your other products that work
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  Speaker 1: well now with the iPhone all right now, you know,
• 9:21
  Speaker 1: in the interest of trying to find an expert to
• 9:25
  Speaker 1: sort of really put the questions to you, because we
• 9:27
  Speaker 1: know that, you know, we are a little older in
• 9:29
  Speaker 1: the demographic for the iPhone and the Apple products. We
• 9:33
  Speaker 1: have a guest here in the studio, Zeke Abramowitz, who
• 9:38
  Speaker 1: is nine years old. And you know, it's always good
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  Speaker 1: to go right to the to the customer when when
• 9:47
  Speaker 1: the yeah, well yeah, mother pays the bills, parents pay
• 9:51
  Speaker 1: the bills. But Zeke, I know you have a question
• 9:53
  Speaker 1: for John Butler because you are an Apple efficient now
• 9:55
  Speaker 1: to go ahead and ask John a question why are
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  Speaker 1: so many people buying? But you know it, it's what
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  Speaker 1: I was just talking about a moment ago, which is
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  Speaker 1: the software and the services matter most now. And so
• 10:11
  Speaker 1: people love playing games on their phones. So if you
• 10:13
  Speaker 1: take a look around the train at night, everyone has
• 10:16
  Speaker 1: a game up on their phone and that's paying for
• 10:19
  Speaker 1: those games. And do an Apple do Apple customers pay
• 10:25
  Speaker 1: for games versus Android users. I'm not a gamer, so
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  Speaker 1: I'm gonna say apps in general. I mean, because I
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  Speaker 1: think there's that note that Apple users they're more willing
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  Speaker 1: to actually spend money. Yes, so, so people are spending
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  Speaker 1: up and a third of App store sales are games,
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  Speaker 1: believe it or not. And the App store is growing
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  Speaker 1: over thirty percent a year, or it seems so, because
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  Speaker 1: if you look at services as a whole, it's growing
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  Speaker 1: well over thirty. So. Um. Back to the question Sun,
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  Speaker 1: why do people are people buying games on the iPhone?
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  Speaker 1: The answer is yes, and it really is driving growth
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  Speaker 1: at Apple. I guess you know, it's sort of interesting.
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  Speaker 1: I was reading a story and frankly, this was something
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  Speaker 1: that Zeke and I were talking about this morning, that
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  Speaker 1: there were some reports that Fortnite that the popularity has
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  Speaker 1: actually helped Apple. And the question is, when you have
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  Speaker 1: a free game like that, how does it translate to
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  Speaker 1: money for Apple? How does Apple profit from these games?
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  Speaker 1: That's a great question. I'm not quite sure, except to
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  Speaker 1: say you make in game purchases of sort of added
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  Speaker 1: items for your character in the game, So Fortnite is
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  Speaker 1: actually generating a lot of revenue as people buy these
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  Speaker 1: sort of ancillary shields and swords and all this stuff.
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  Speaker 1: And I have to believe. Given Apple's model of charging
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  Speaker 1: roughly for all app store sales app sales, they're probably
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  Speaker 1: making a portion of that, so that may help them.
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  Speaker 1: What's the breakdown right now? What are you looking for
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  Speaker 1: in terms of services versus iPhone sales with respect to
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  Speaker 1: the sheriff revenue for Apple? So I I'll go back
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  Speaker 1: to that thought of I look at services and other
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  Speaker 1: products together because the other products are all the new
• 12:20
  Speaker 1: products including air pods and home pod and so forth,
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  Speaker 1: and together with services, they're over of revenue where they
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  Speaker 1: were last quarter, they were close to total sales, that's
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  Speaker 1: versus the iPhone at over sixty of sales. But over
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  Speaker 1: time you'll see that mixed shift. And that's very important
• 12:42
  Speaker 1: because those services and other products are more profitable than
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  Speaker 1: the iPhone and so it will boost not only the
• 12:49
  Speaker 1: top line and help to boid growth on the top line,
• 12:52
  Speaker 1: but it's going to fuel bottom line growth. So that
• 12:55
  Speaker 1: is a key factor. And I noticed the street is
• 13:00
  Speaker 1: focused on it more and more every quarter. You can
• 13:02
  Speaker 1: just hear it in the Q and a Zeke has
• 13:04
  Speaker 1: another question, John, are money people buying the Apple Watch. Yes,
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  Speaker 1: the Apple Watch is doing quite well. I don't have
• 13:11
  Speaker 1: the numbers in front of me. But I think it's
• 13:14
  Speaker 1: fair to say that has been a real hit product
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  Speaker 1: for them, and it's here to stay for a while.
• 13:19
  Speaker 1: It's hurt a lot of the watch companies, hasn't it.
• 13:22
  Speaker 1: I'm not sure on that. It's in a different category.
• 13:25
  Speaker 1: It probably has hurt Fitbit and some of the sport
• 13:27
  Speaker 1: and fitness watches. Um do you think, yes, Okay, that
• 13:34
  Speaker 1: a given. But just to connect that with the facial
• 13:38
  Speaker 1: I D recognition that is coming with all of the
• 13:41
  Speaker 1: new Apple iPhones, combine that with the watch, can we
• 13:45
  Speaker 1: see personalized medical information coming to a digital assistant near us?
• 13:52
  Speaker 1: I actually would love to see that. And health and
• 13:55
  Speaker 1: fitness is a big silo that Apple is is very
• 13:59
  Speaker 1: focused stun they haven't made as much headway as as
• 14:03
  Speaker 1: you would think. I mean, I look at the world
• 14:05
  Speaker 1: of healthcare and how you could really leverage that iPhone
• 14:10
  Speaker 1: and watch combination to take advantage of that and grow
• 14:13
  Speaker 1: your business there. So stay tuned. I think there's more
• 14:16
  Speaker 1: to come on that front. Well. It should be interesting
• 14:18
  Speaker 1: to see whether Apple can give people a sense of
• 14:20
  Speaker 1: confidence that big tech in the US is here to stay,
• 14:23
  Speaker 1: because certainly people worry about that, So this is going
• 14:26
  Speaker 1: to be the moment of truth upon us at four
• 14:29
  Speaker 1: thirty pm Eastern time today. I think the stuff that
• 14:32
  Speaker 1: ailed Facebook and Google is not in Apple's wheelhouse, so
• 14:36
  Speaker 1: they may be safe there. But we'll see, we will see.
• 14:39
  Speaker 1: John Butler, thank you so much as always for being
• 14:42
  Speaker 1: with us. John Butler, Senior Telecom Service as an equipment
• 14:44
  Speaker 1: analyst for Bloomberg Intelligence. The leverage loan market is the
• 15:06
  Speaker 1: sister asset class to the US junk bond market, but
• 15:09
  Speaker 1: it has grown so quickly that it is now eclipsed
• 15:12
  Speaker 1: the bond market, and a lot of people are wondering
• 15:16
  Speaker 1: has it gone too far too fast? Here to talk
• 15:18
  Speaker 1: about that. Jim Schafer Co. Had a public fixed income
• 15:21
  Speaker 1: and deputy chief investment officer at a gun USA asset
• 15:25
  Speaker 1: management in managing over a hundred billion dollars. He comes
• 15:29
  Speaker 1: to us from Chicago. Jim, A lot of focus is
• 15:33
  Speaker 1: on the collateralized loan obligation part of this world. Just
• 15:37
  Speaker 1: before we get into talking about about this issue, what
• 15:41
  Speaker 1: is a collateralized loan obligation? Well, it's a structured vehicle.
• 15:45
  Speaker 1: At first off, thanks for having me. It's a structured
• 15:47
  Speaker 1: vehicle where the collateral is loans, and you have a
• 15:49
  Speaker 1: capital structure that's tronched and the investors in vast where
• 15:54
  Speaker 1: they wanted on the triple A is the double A
• 15:55
  Speaker 1: all the way down to the equity component of the
• 15:57
  Speaker 1: capital structure. It's just the tronched vehicle where the loans
• 16:00
  Speaker 1: are the collateral and there's a series of investors and
• 16:03
  Speaker 1: you as a manager by loans and they as the investors,
• 16:06
  Speaker 1: get to return profile depending where they are in the
• 16:07
  Speaker 1: capital structure. And as far as the actual loans are concerned,
• 16:13
  Speaker 1: how did they differ significantly from bonds, shorter life, shorter maturities. Yeah,
• 16:19
  Speaker 1: I mean they're number when they're not securities first off,
• 16:21
  Speaker 1: so their their governance provisions are a little bit different.
• 16:24
  Speaker 1: But generally speaking, they don't have call protection and they're
• 16:26
  Speaker 1: generally floating rate obligations so they reacht on libor and
• 16:30
  Speaker 1: then they can be refinanced at any time. And those
• 16:32
  Speaker 1: are the two fundamental key aspect that the markets focuses on. Okay,
• 16:36
  Speaker 1: so sort of fast forwarding to today, we've seen record
• 16:40
  Speaker 1: issue ince in recent years in the leveraged loans space,
• 16:43
  Speaker 1: with the market uh surpassing a trillion dollars and a
• 16:47
  Speaker 1: lot of it's been driven by these clos that basically
• 16:50
  Speaker 1: packaged loans into bonds. Is this market getting frauthy right now? Well,
• 16:57
  Speaker 1: let's let's step back for a minute. I mean, the
• 16:59
  Speaker 1: demand makes ends because you've got a floating rate obligation
• 17:02
  Speaker 1: and you've got a potential for a rising rate environment,
• 17:04
  Speaker 1: and you have a strong fundamentals and so the strong
• 17:06
  Speaker 1: fundamental picture makes the fault environment remain low, and that
• 17:09
  Speaker 1: gets Barrow comfortable that they're gonna invest in lower quality
• 17:12
  Speaker 1: credits like high heel bonds or leverage loans. And you've
• 17:15
  Speaker 1: got a floating rate component that can protect you against
• 17:17
  Speaker 1: writing rates. So the demand makes sense. Is the market
• 17:20
  Speaker 1: getting sloppy? Well, what you see as you move later
• 17:22
  Speaker 1: on any business cycle and you see a supply demand
• 17:25
  Speaker 1: and bounce. So we see a lot of demand for
• 17:27
  Speaker 1: this sloating right asset class and that because of that,
• 17:30
  Speaker 1: Barrows can take advantage of that, they can take advantage
• 17:32
  Speaker 1: of because they can get better pricing, better covenants and
• 17:35
  Speaker 1: really push the envelope if you will, on that those
• 17:37
  Speaker 1: two elements. And so does it get sloppy, Well, it
• 17:40
  Speaker 1: gets more aggressive and you lose covenant protections you loose,
• 17:44
  Speaker 1: you get a lot of really you know, really aggressive pricing,
• 17:47
  Speaker 1: so you're the riff to the downsid becomes slightly higher.
• 17:50
  Speaker 1: And if you do see a market turn, and we
• 17:51
  Speaker 1: don't look at we're comfortable with fundamentals. We don't think
• 17:54
  Speaker 1: the market's gonna We don't see defaults taking up in
• 17:56
  Speaker 1: the near term. But when it does, the types of
• 17:59
  Speaker 1: trans fashions get that get done later in a cycle
• 18:02
  Speaker 1: in more of an aggressive form are the ones that
• 18:04
  Speaker 1: caused some concerns. So you could see you could be
• 18:06
  Speaker 1: sowing the seeds of a more more of the next
• 18:10
  Speaker 1: wave of default in the market. Ten tends to get
• 18:12
  Speaker 1: a little bit sloppy as it gets later in the cycle. So, Jim,
• 18:15
  Speaker 1: there was an article on the Bloomberg yesterday talking about
• 18:19
  Speaker 1: how there does seem to be an increasing amount of caution.
• 18:23
  Speaker 1: I guess you would say on the part of some
• 18:25
  Speaker 1: banks certainly releasing reports that note some of the issues
• 18:29
  Speaker 1: with the leverage loan market, are you also seeing it
• 18:32
  Speaker 1: in terms of their supplying you with credit lines for
• 18:36
  Speaker 1: leverage loan investments or warehousing housing loans? What are you
• 18:39
  Speaker 1: seeing on that front? Yeah, so what we saw, you know,
• 18:42
  Speaker 1: we saw tremendous UH demand for collateralized loans and a
• 18:46
  Speaker 1: willingness from providers in the capital structure to be very
• 18:50
  Speaker 1: active participants. There's been you know, the CLO demand is
• 18:53
  Speaker 1: an extremely strong for what I mentioned slower and apsid
• 18:56
  Speaker 1: strong fundamentals. Uh and and so you'd expect that as
• 19:00
  Speaker 1: we went to do our next CELLO, we saw in
• 19:02
  Speaker 1: the warehouse facilities where you ramp up you buy loans
• 19:05
  Speaker 1: to ramp up for the next issuance of a CLO,
• 19:08
  Speaker 1: we saw a little bit of a pause from a
• 19:10
  Speaker 1: few of the providers. And I don't know if that's
• 19:11
  Speaker 1: a function of the aggressiveness of the structures or just
• 19:15
  Speaker 1: there's been such a strong amount of issuance in the
• 19:19
  Speaker 1: first part of the early for the last year, they're
• 19:21
  Speaker 1: just standing back and take a little bit of pause
• 19:22
  Speaker 1: to say, okay, let's let's take a look at this market.
• 19:25
  Speaker 1: But generally speaking, a little bit of pause is what
• 19:27
  Speaker 1: we saw. So you're seeing a little bit more caution
• 19:30
  Speaker 1: on behalf of banks that that would have to pay
• 19:33
  Speaker 1: more money to hold onto assets that become riskier. In
• 19:36
  Speaker 1: other words, UH, there does seem to be a little
• 19:38
  Speaker 1: bit more risk aversion or hard. I don't know if
• 19:41
  Speaker 1: that's the right I don't know if that's the right
• 19:42
  Speaker 1: way to look at it. Actually, I'd say what we
• 19:44
  Speaker 1: saw is in those who provide warehouses, so warehouse facilities,
• 19:48
  Speaker 1: when you're ramping up the CLO, there's a period of
• 19:50
  Speaker 1: time you need to aggregate a number of loans that
• 19:53
  Speaker 1: you get the scale you need them to issue the
• 19:54
  Speaker 1: CELLO in the warehouse facilities. And there's still demand, there's
• 19:57
  Speaker 1: still interest in warehouse it just was not as much
• 20:00
  Speaker 1: as we had seen the last twelve months previously. So
• 20:03
  Speaker 1: those providers a warehouse this is a light or ramp
• 20:06
  Speaker 1: up and put loans that you can then issue to PELO,
• 20:08
  Speaker 1: there were just as not as many people interested in
• 20:10
  Speaker 1: doing that piece of that piece of the of the puzzle,
• 20:13
  Speaker 1: if you will. So these warehouse providers they don't have
• 20:17
  Speaker 1: the inventory that they previously had. Is that accurate? Well,
• 20:21
  Speaker 1: I wouldn't use the inventory of loans. We're in the
• 20:23
  Speaker 1: market as the manager buying the loans and putting them
• 20:26
  Speaker 1: in the warehouse facility. They're the ones backstopping, if you will,
• 20:29
  Speaker 1: taking the first lost piece or back stopping or providing
• 20:32
  Speaker 1: the capital to support the warehouse they're the ones that
• 20:35
  Speaker 1: took a little bit of a pause. So that's not
• 20:36
  Speaker 1: that there's not you know, actually the supplying the loan
• 20:39
  Speaker 1: market picked up a little bit recently and again that
• 20:43
  Speaker 1: so that supplied the man in balance we saw for
• 20:45
  Speaker 1: the twelve months previously where you had a lot of
• 20:47
  Speaker 1: demand from the clo marketplace and really the mutual fund
• 20:50
  Speaker 1: marketplace and okay, supply decent supplying the low mark grade
• 20:54
  Speaker 1: that's applied to man and bounce the gay borrowers a
• 20:57
  Speaker 1: lot of you know, the abilty to really you know,
• 20:59
  Speaker 1: drive lower pricing and better covenant protections or more beneficial
• 21:03
  Speaker 1: covenant protections to them. That changed a little bit because
• 21:06
  Speaker 1: now if the warehouse providers pause a little bit, it
• 21:09
  Speaker 1: kind of goes the other way, whether there's slightly less
• 21:11
  Speaker 1: of ability to do more cellos and thus that strong
• 21:14
  Speaker 1: technical support we've seen in loans slows a little bit,
• 21:17
  Speaker 1: and you've had a lot of you know, a lot
• 21:19
  Speaker 1: of loans come in at prices that are priced very aggressively.
• 21:22
  Speaker 1: If demand falls is a little bit, you can see
• 21:24
  Speaker 1: those prey those loans back up a little bit. For
• 21:26
  Speaker 1: this the last thing I saved that is from our
• 21:28
  Speaker 1: perspective that would be kind of welcome. We wouldn't mind
• 21:31
  Speaker 1: seeing loans back up, but we're still pretty comfortable fundamentally
• 21:34
  Speaker 1: with the loan market and the underlying borrowers. But pricing
• 21:38
  Speaker 1: has gotten you get to aggressively. You see that supply
• 21:40
  Speaker 1: demand and balance. So Jim, I'd love to broaden out here.
• 21:43
  Speaker 1: I'd sort of put loans in the perspective of the
• 21:46
  Speaker 1: fixed income spectrum. What are you seeing that you really
• 21:49
  Speaker 1: like right now? And where do you see the least
• 21:52
  Speaker 1: attractive investments within fixed income? That's interesting question. I mean,
• 21:57
  Speaker 1: I think the fixed income marketplace because where it kind
• 21:59
  Speaker 1: of depends in your outlook for rates. Um. You know,
• 22:02
  Speaker 1: we actually have become a little more comforted high yel
• 22:04
  Speaker 1: bonds right now. We've seen a kind of a you know,
• 22:07
  Speaker 1: we are our told of return expectation for high heel
• 22:09
  Speaker 1: bonds in the first of this year was you know,
• 22:11
  Speaker 1: three quarter five percent. We saw kind of a flat
• 22:13
  Speaker 1: first half of the year, a lot of it driven
• 22:15
  Speaker 1: to the big the big move in rates, the big
• 22:17
  Speaker 1: jump in the ten uere had. It got people a
• 22:19
  Speaker 1: little bit concerned about how the velocity of the rate move.
• 22:21
  Speaker 1: But as that's leveled out a little bit. We now
• 22:24
  Speaker 1: see that the high yiel aft because the faults remain low,
• 22:26
  Speaker 1: fundamentals remain strong. We think that could be an interesting
• 22:29
  Speaker 1: asset class the back half of the year. We don't
• 22:31
  Speaker 1: mind the leverage loan asset class as well. It's it's
• 22:34
  Speaker 1: been on a very consistent return had on this year.
• 22:37
  Speaker 1: We thought it was going to be a fortified percent
• 22:38
  Speaker 1: toldal return year with and it really we saw that
• 22:41
  Speaker 1: the first half of the year was up you know,
• 22:43
  Speaker 1: two and a half odd percent, and we kind of
• 22:45
  Speaker 1: expect that to continue. So we although we really like
• 22:48
  Speaker 1: loans to start a little more balanced there, but like
• 22:49
  Speaker 1: high yield, we like some of the structured asset classes.
• 22:52
  Speaker 1: You know, we were a the egan is a is
• 22:55
  Speaker 1: across the six income spectrum. We've got a deep focused
• 22:57
  Speaker 1: on research across boat not only UM, not only credit,
• 23:00
  Speaker 1: but AFRA structured asset classes. So we like the structured
• 23:03
  Speaker 1: asset classes a lot. Think there's some value there. We've
• 23:06
  Speaker 1: got to leave it there. Jim Schaeffer, thank you very
• 23:08
  Speaker 1: much for being with us CO Head of Public Fixed Income,
• 23:11
  Speaker 1: Deputy Chief Investment Officer for Agon USA Asset Management, helping
• 23:16
  Speaker 1: to manage over three hundred billion dollars worldwide. President Trump's
• 23:35
  Speaker 1: administration is considering going around Congress and granting a one
• 23:39
  Speaker 1: hundred billion dollar tax cut, mainly to the wealthiest individuals
• 23:43
  Speaker 1: in the United States. This according to a New York
• 23:45
  Speaker 1: Times report. We want to find out more, so we're
• 23:48
  Speaker 1: going to turn to Andrew Mayeta. He's global trade and
• 23:50
  Speaker 1: economy reporter for Bloomberg News, as well as Andrew Silverman,
• 23:53
  Speaker 1: government analyst for Bloomberg Intelligence. Andrew Mayeta, thank you so
• 23:58
  Speaker 1: much for joining us from d C. What is this
• 24:02
  Speaker 1: that we're talking about here? Yeah, So the Time spoke
• 24:05
  Speaker 1: to Secretary Manution at the G twenty and he indicated
• 24:09
  Speaker 1: that the Treasury Department is looking at potentially allowing people
• 24:14
  Speaker 1: to account for inflation in calculating capital gains taxes. I mean,
• 24:19
  Speaker 1: what does that mean in plain English? What it means
• 24:21
  Speaker 1: in plain English is if I bought a hundred dollars
• 24:25
  Speaker 1: worth of stock, say five years ago, if I can
• 24:29
  Speaker 1: account for inflation, uh, it might actually be worth a
• 24:33
  Speaker 1: hundred and fifty in present terms. And that means that
• 24:37
  Speaker 1: the taxit that I take is going to be lower.
• 24:40
  Speaker 1: So that's what that's what they're considering. Andrew Silverman, just
• 24:44
  Speaker 1: follow up with this affect both short term and long
• 24:47
  Speaker 1: term capital gains. Lately, just on long term couple of
• 24:51
  Speaker 1: short term coupital gains are tanks of the ordinary income taks. Right, So,
• 24:55
  Speaker 1: Andrew Silverman, can you give us a sense of whether
• 24:57
  Speaker 1: this has been tried before and what the pros cons
• 25:00
  Speaker 1: are for this? Well, so this has been suggested before.
• 25:03
  Speaker 1: President H. W. Bush thought about doing this in nine
• 25:07
  Speaker 1: There was a memorandum that was written by a few
• 25:10
  Speaker 1: lawyers in Washington and Sean Pittman are now Pillsbury, went
• 25:14
  Speaker 1: through UM and they suggested that Uh it was it
• 25:19
  Speaker 1: was perfectly legal. UM and the president UM consider this, UH,
• 25:24
  Speaker 1: talk to Treasury about it. They actually decided against it.
• 25:27
  Speaker 1: But when Bob Dole ran for president nine six, he
• 25:30
  Speaker 1: said that he wanted to do this by FIAT and
• 25:33
  Speaker 1: those lawyers who are the memorandum in in UM UH
• 25:36
  Speaker 1: in nineteen UH eighty nine, then reissued it in in twelve
• 25:40
  Speaker 1: UM saying that they still supported the idea and thought
• 25:42
  Speaker 1: it was perfectly legal. Andrew Mayda just to run down
• 25:46
  Speaker 1: the capital gains tax structure right now. It has to
• 25:50
  Speaker 1: do with where you fall in terms of your income, right, Uh,
• 25:55
  Speaker 1: if you make let's say, I think over a hundred
• 25:57
  Speaker 1: and what what four hundred and twenty five thousand dollars
• 26:00
  Speaker 1: year as a single taxpayer, you're going to pay long term,
• 26:03
  Speaker 1: long term capital gains. Is that accurate? Well, I'm not
• 26:06
  Speaker 1: a tax expert, so I'm going to pass on that,
• 26:09
  Speaker 1: but I will say, I mean, there's no question that
• 26:12
  Speaker 1: this is going to primarily benefit the wealthy. And you know,
• 26:17
  Speaker 1: you have to remember the context of this. This is
• 26:19
  Speaker 1: coming months before mid term elections. If you look at
• 26:23
  Speaker 1: a tax plan that is going to potentially have more
• 26:26
  Speaker 1: appeal to voters. Chairman Kevin Brady, the Republican chairman of
• 26:33
  Speaker 1: the Tax the House Ways and Means Committee, came out
• 26:36
  Speaker 1: with a plan that, to me, I think sounds a
• 26:38
  Speaker 1: little bit more palatable to the electorate. He said. He proposed,
• 26:42
  Speaker 1: for example, just making permanent the tax cuts that the
• 26:46
  Speaker 1: Republican Party passed earlier this year. So that seems to
• 26:50
  Speaker 1: me like a little bit more of a vote winner
• 26:52
  Speaker 1: than than this hype of tax which is which will
• 26:55
  Speaker 1: primarily benefit the wealthy. Yeah, that's exactly what I was
• 26:57
  Speaker 1: gonna say. I don't really understand how this appeal is
• 27:00
  Speaker 1: to sort of the populous movement that President Trump kind
• 27:02
  Speaker 1: of is known for. Aiming at Andrew Silverman, I guess
• 27:07
  Speaker 1: I'm struggling to understand what's the economic benefit that that
• 27:11
  Speaker 1: they argue is achieved by this tax cut. Well, I
• 27:16
  Speaker 1: think that you can spend it a number of different ways.
• 27:19
  Speaker 1: But you know, you can say it's a it's um
• 27:22
  Speaker 1: to the wealthy, and certainly a lot of all the
• 27:24
  Speaker 1: people are investors and would benefit from this, but it's
• 27:26
  Speaker 1: also a benefit to for win ks and pension funds,
• 27:29
  Speaker 1: and that helps all of us. So it's not necessarily
• 27:31
  Speaker 1: something that just helps the wealthy, and it really helps
• 27:33
  Speaker 1: everybody that's an investor. It hurts the government collect Andrewmata,
• 27:37
  Speaker 1: can you jump on in here. I mean, what's the
• 27:40
  Speaker 1: economic sort of throw down on this. Is there some
• 27:42
  Speaker 1: kind of consensus on whether this is helpful or hurtful
• 27:45
  Speaker 1: for the economy, this kind of policy, Well, it's a
• 27:47
  Speaker 1: it's a good question. I mean, you know, in the
• 27:50
  Speaker 1: New York Times article, I read that somebody who's justifying
• 27:55
  Speaker 1: this any idea that you know, people will be buying
• 27:57
  Speaker 1: and selling more assets. But generally speaking, when economists look
• 28:02
  Speaker 1: at the biggest bang for the buck, they're looking at
• 28:04
  Speaker 1: measures that actually increase income or increase consumption. Uh. So,
• 28:10
  Speaker 1: you know, all of those things being equal, you're probably
• 28:13
  Speaker 1: going to get more of a bank for the buck
• 28:15
  Speaker 1: by doing something that benefits, you know, the lower class
• 28:18
  Speaker 1: of the middle class, people who have less disposable income. So, UM,
• 28:22
  Speaker 1: I don't know, I guess the jury the jury would
• 28:24
  Speaker 1: still be out on exactly what which type of approach
• 28:27
  Speaker 1: would would generate more of an economic boost. Andrew Silverman
• 28:31
  Speaker 1: just quickly, Uh, you said four oh one ks and
• 28:34
  Speaker 1: iras would be uh favorably treated. Why is that because
• 28:38
  Speaker 1: when you withdraw the money from them, it will be
• 28:39
  Speaker 1: at a lower tax rate. Well, they're investors, they're large investors,
• 28:43
  Speaker 1: but they don't have any tax consequences, right, I mean,
• 28:45
  Speaker 1: it's all tax deferred, but their investors do when they
• 28:49
  Speaker 1: take the money out. You mean, that's right, exactly, Okay,
• 28:52
  Speaker 1: all right, So when you withdraw let's say from the
• 28:53
  Speaker 1: four oh one K or you end up with drawing
• 28:55
  Speaker 1: from the RA, you take the minimum distribution whatever it is,
• 28:58
  Speaker 1: then you would end up being less because the actual
• 29:02
  Speaker 1: investment would be index to inflation as a result of
• 29:06
  Speaker 1: this potential change. That's exactly right, so so um uh
• 29:10
  Speaker 1: like like Andrew was saying, if you invest a hundred
• 29:12
  Speaker 1: dollars thirty years ago and it goes up to a
• 29:15
  Speaker 1: hundred and ten dollars, um uh and uh you know
• 29:19
  Speaker 1: if you have gains, you know, a hundred and ten
• 29:21
  Speaker 1: dollars um you have no um, no capital gains tax
• 29:24
  Speaker 1: of you indexit to inflation. Well done, all right, thanks
• 29:27
  Speaker 1: very much for explaining this, gentleman. Andrew Silverman our government
• 29:30
  Speaker 1: analysts for Bloomberg Intelligence. And Andrew Mayeta are global Trade
• 29:34
  Speaker 1: and Economy reporter for Bloomberg News, joining us from our
• 29:38
  Speaker 1: Washington bureau. Thanks for listening to the Bloomberg P and
• 29:46
  Speaker 1: L podcast. You can subscribe and listen to interviews at
• 29:49
  Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm
• 29:54
  Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on
• 29:57
  Speaker 1: Twitter at Lisa abramowits one before the podcast. You can
• 30:01
  Speaker 1: always catch us worldwide on Bloomberg Radio.