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Eisenbeis Doesn't Expect Fed to Sell Off Mortgage Assets · Bloomberg Intelligence

• 0:04
  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 at the grocery store or
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  Speaker 1: the trading floor. Find the Bloomberg P L Podcast on iTunes,
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  Speaker 1: SoundCloud and at Bloomberg dot com. The rally going on
• 0:28
  Speaker 1: in the bond market today, the thirty year treasury up
• 0:33
  Speaker 1: thirty seconds. Why are they buying and will they continue
• 0:37
  Speaker 1: to buy? Let's ask Bob Eisenbis. He is the vice
• 0:39
  Speaker 1: chairman and chief monetary economist for Cumberland Advisers, and he
• 0:44
  Speaker 1: joins us from Sarasota, Florida. Bob Eisenbis, thanks very much
• 0:48
  Speaker 1: for being with us. Let's jump right into it. Give
• 0:51
  Speaker 1: us your analysis of what you believe will happen tomorrow
• 0:55
  Speaker 1: and what the questions will focus on following the decision
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  Speaker 1: by the f MC, Because Janet Yelling, chair, the FED
• 1:03
  Speaker 1: is holding a press conference which we will carry live. Sure,
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  Speaker 1: I think given the sort of parade of f MC
• 1:12
  Speaker 1: participants that began about February two, or they're abouts with
• 1:17
  Speaker 1: Governor Paul, we've seen a pretty remarkable parade of people's
• 1:23
  Speaker 1: suggesting that they're going to be a rate hike tomorrow.
• 1:26
  Speaker 1: So I think and markets believe this. They priced in
• 1:29
  Speaker 1: essentially probability that there will be a basis point rate increase,
• 1:35
  Speaker 1: and so I think that's what we're going to see.
• 1:38
  Speaker 1: The interesting thing is that that will be a rate
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  Speaker 1: increase following the one in December, and the December GDP number,
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  Speaker 1: which is the most current one that will be available,
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  Speaker 1: essentially was baked in the cake before the December meeting.
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  Speaker 1: So the decision is really not based on GDP for
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  Speaker 1: the first quarter of this year or anything else. It's
• 2:05
  Speaker 1: really hinges on the employment and inflation situation. And I
• 2:10
  Speaker 1: think they will declare victory as far as their objectives
• 2:13
  Speaker 1: are concerned, and that will be their rationale. Bob, you know,
• 2:17
  Speaker 1: we've had a number of analysts come on and say
• 2:20
  Speaker 1: that the market is inadequately pricing in inflation and the
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  Speaker 1: possibility of the Federal Reserve unwinding their balance sheet unwinding
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  Speaker 1: their balance sheet, or the Treasury Department potentially selling fifty
• 2:32
  Speaker 1: or one hundred year debt. In other words, thirty year
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  Speaker 1: body yields are too low. According to a lot of analysts.
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  Speaker 1: Do you agree, and if so, where should they be? Well,
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  Speaker 1: I mean, clearly we are in a disequluminium situation. So
• 2:47
  Speaker 1: if the FED were to return policy to normal, we'd
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  Speaker 1: be looking at eel curve that would be higher than
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  Speaker 1: where it is. But I don't think it would be
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  Speaker 1: too too much higher, simply because our normalization would take
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  Speaker 1: place in the context of a world in which other
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  Speaker 1: central banks are still pumping liquidity into the marketplace, which
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  Speaker 1: I believe while it would contribute to while the FEDS
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  Speaker 1: moves would contribute to a more of a movement on
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  Speaker 1: the short end, I think you'd see a longer end
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  Speaker 1: that would be um uh flatter than might be the
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  Speaker 1: other circumstances. If you think the economy can grow at
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  Speaker 1: something on the order of the rate of productivity growth
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  Speaker 1: plus the rate of growth growth and population, you're looking
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  Speaker 1: at something like two and a half percent, And if
• 3:39
  Speaker 1: you put two inflation on top of that, you're looking
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  Speaker 1: at somewhere between four and four and a half percent.
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  Speaker 1: So what are you advising your clients to do. Well,
• 3:50
  Speaker 1: We're pretty cautious at this point because there's still a
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  Speaker 1: lot of uncertainty. We're not sure about what's going to
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  Speaker 1: happen as far as fiscal stimulus and how this will
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  Speaker 1: all happen. I think when the Fed means gradually, they
• 4:05
  Speaker 1: mean gradual, and it's going to take them somewhere. I
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  Speaker 1: don't see them rushing to make multiple policy moves the
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  Speaker 1: way some of the people are pricing in And I think,
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  Speaker 1: is this a five or ten year program? Well, it's
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  Speaker 1: going to take a while to run the balance sheet
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  Speaker 1: off and the I just don't see them selling assets because, um,
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  Speaker 1: in order to do so, they would have to sell
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  Speaker 1: mortgage assets. Really, because you're looking at an equilibrium FED
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  Speaker 1: balance sheet somewhere around one point four trillion or thereabouts
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  Speaker 1: to keep, which would be consistent with past history of
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  Speaker 1: keeping the deposit to the currency to GDP ratio relatively constant.
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  Speaker 1: The economy has grown enough that that's sort of an
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  Speaker 1: equilibrium level. And uh, the only way they can get
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  Speaker 1: there is all emmently by winding down the mortgage securities.
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  Speaker 1: Otherwise the treasure you'll all run off. So it's gonna
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  Speaker 1: be an interesting kind of thing. But I don't see
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  Speaker 1: them selling assets off the balance sheet if they possibly
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  Speaker 1: can avoid it, right, Well, Um, you know Bobby mentioned
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  Speaker 1: earlier that a lot of what happens will depend on
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  Speaker 1: some of the stimulus efforts around the world. And earlier today,
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  Speaker 1: about an hour ago, Wolfgang Scheibel, who is Germans Germany
• 5:25
  Speaker 1: as Finance Minister, was speaking to v K you lobby
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  Speaker 1: in Berlin and he said interest rates are too low.
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  Speaker 1: He's but he acknowledged the adjusting to a rising rate
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  Speaker 1: environment will be challenging. But this sort of builds on
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  Speaker 1: this feeling that even in Europe benchmark rates are going
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  Speaker 1: to rise. I mean, how much do you think they
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  Speaker 1: will rise? What will the effect be here in the US? Well,
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  Speaker 1: first of all, if the if the FED raises rates
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  Speaker 1: right now, they have negative infrastrates in Europe. So if
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  Speaker 1: you're a foreign if you're a bank, UH, and your
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  Speaker 1: choice is either paying seventy basis points thereabouts to one
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  Speaker 1: of the regional central banks or getting one to one
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  Speaker 1: and a quarter percent here in the United States, that's
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  Speaker 1: a pretty significant arbitrage show. A slight movement in rates
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  Speaker 1: and UH Europe is not going to really damage that
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  Speaker 1: arbitrage opportunity. And people don't really realize it's something on
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  Speaker 1: the order of of the excess reserves held at the
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  Speaker 1: FED are now in the sense owned by foreign institutions
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  Speaker 1: their domestic US domestic affiliates, and those reserves count towards
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  Speaker 1: the basle liquidity coverage ratio. So movements in Europe, at
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  Speaker 1: least on the short term, aren't going to affect us
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  Speaker 1: much at all, particularly when you've got this arbitrage sitting there.
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  Speaker 1: Thank you so much for your thoughts. Bob ice and Bis,
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  Speaker 1: vice chairman and chief monetary economist at Cumberland Adviser, is
• 7:00
  Speaker 1: coming to us from sarah Sota, Florida, where the weather
• 7:03
  Speaker 1: is much better than it is in New York City.
• 7:06
  Speaker 1: In our Bloomberg eleven three oh studio, a new estimate
• 7:20
  Speaker 1: shows that fourteen million Americans could lose health coverage by
• 7:23
  Speaker 1: next year under the gop Obamacare proposal, leaving House Republicans
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  Speaker 1: in a bind with a dire picture of the bill's
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  Speaker 1: effects heading into the eighteen congressional elections. Here to tell
• 7:36
  Speaker 1: us more is Anna Edney, healthcare reporter for Bloomberg News,
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  Speaker 1: joining us from Washington, and thank you very much for
• 7:42
  Speaker 1: being with us. I want to start off with perhaps
• 7:44
  Speaker 1: a strange question and ask you if you can tell
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  Speaker 1: us who is Keith Hall and why do you, why
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  Speaker 1: might he feel that he is between a rock and
• 7:53
  Speaker 1: a hard place. Surett, Keith hall is the Congressional Budget
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  Speaker 1: Office Director, and he, you know, has taken well, his
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  Speaker 1: office really has taken a lot of heat in the
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  Speaker 1: last you know, a few weeks because the Republicans and um,
• 8:10
  Speaker 1: the President have wanted to sort of prepare people for
• 8:15
  Speaker 1: a score from that office on this health legislation that
• 8:20
  Speaker 1: isn't it doesn't look that great, particularly um for how
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  Speaker 1: many people will be uninsured under Republicans plan to replace Obamacare.
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  Speaker 1: So Keith Hall, Um, you know, has sort of had
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  Speaker 1: to take the take that criticism and and sort of
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  Speaker 1: deal with the fact that, you know, Republicans and the
• 8:36
  Speaker 1: administration are basically saying that CBO isn't good at its job,
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  Speaker 1: even though it was Republicans who actually put him in
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  Speaker 1: charge of this office in the first place. In well,
• 8:47
  Speaker 1: hold on the first let's let's just talk about some
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  Speaker 1: of the things that it found. It found that about
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  Speaker 1: twenty five million Americans would lose coverage under the plan
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  Speaker 1: that basically would reduce taxes for wealthier people, it would
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  Speaker 1: increase the premium that people would have to pay UH
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  Speaker 1: typically would fall to UH less well off Americans. UH.
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  Speaker 1: And so you know, it raises the question, you know, yes,
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  Speaker 1: it does make the proposed replacement for Obamacare, UH look
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  Speaker 1: not so great for a lot of people. And you know,
• 9:16
  Speaker 1: Mick Mulvaney, the Office of Management and Budget Director UH,
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  Speaker 1: came out today saying I don't believe the facts are correct.
• 9:23
  Speaker 1: He said this on MSNBC's Morning Joe. When asked for
• 9:26
  Speaker 1: his take on the CBO report, he said, I'm not
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  Speaker 1: just saying that because it looks bad for my political position.
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  Speaker 1: I'm saying that based upon a track record of the
• 9:32
  Speaker 1: CBO being wrong before, we believe the CBO. CBO is
• 9:36
  Speaker 1: wrong now. And at first, let's talk about the track
• 9:39
  Speaker 1: record of CBO. Has it always been wrong? Certainly when
• 9:43
  Speaker 1: it came to Obamacare. When the CBO was assessing uh
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  Speaker 1: that when it was you know, in legislative form in
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  Speaker 1: two thousand nine and in two thousands ten, it made
• 9:52
  Speaker 1: some predictions that were off it. UM, CBO predicted very
• 9:56
  Speaker 1: high numbers, for um, the number of people who it's
• 10:00
  Speaker 1: sign up for Obamacare plans through the marketplaces that the
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  Speaker 1: law created, and those didn't come to fruition. And that's
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  Speaker 1: where a lot of people are focusing right now. One
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  Speaker 1: interesting thing I noticed in the CBO report that came
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  Speaker 1: out yesterday is that CBO tried to address this a
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  Speaker 1: little bit and said, yeah, we um, you know, underestimated
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  Speaker 1: some stuff. We overestimated some stuff before, but we're learning
• 10:24
  Speaker 1: from those each time we go and we really try
• 10:26
  Speaker 1: to take those lessons into account when we assessed this
• 10:30
  Speaker 1: piece of legislation. The current Health and Human Services Secretary
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  Speaker 1: Tom Price, I believe, said that this about Keith Hall
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  Speaker 1: and started harp on this, but I thought it was interesting.
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  Speaker 1: He has previously said that his vast understanding of economic
• 10:47
  Speaker 1: and labor policy will be invaluable to the work of CBO,
• 10:51
  Speaker 1: and the important role will continue to play as Congress
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  Speaker 1: seeks to an act policies that support a healthy and
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  Speaker 1: growing economy. This is the current How and Human Services
• 11:01
  Speaker 1: Secretary Tom Price. Why would he change his mind so directly?
• 11:08
  Speaker 1: I think that's a great question. And you know, the
• 11:12
  Speaker 1: situation that has changes. You know now that Republicans also
• 11:17
  Speaker 1: have the White House and are able to craft their
• 11:20
  Speaker 1: own legislation. You know, sometimes it's it's very hard to
• 11:25
  Speaker 1: take what CBO is telling you, and and they they
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  Speaker 1: want to be able to get this through. They want
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  Speaker 1: to get it done in the House at least UM
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  Speaker 1: before members go on Easter recess, which is just a
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  Speaker 1: couple of weeks away. And so, you know, for Tom
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  Speaker 1: Price to sort of change his tune on on the
• 11:44
  Speaker 1: CBO UM would make sense for what they're trying to
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  Speaker 1: accomplish now versus what the landscape was in And the
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  Speaker 1: CBO is an independent group, it's bipartisan. Is there any
• 11:58
  Speaker 1: other agency, any other group that has the known kind
• 12:02
  Speaker 1: of bipartisan appeal to give an additional independent review of
• 12:08
  Speaker 1: the Republican healthcare plan. Well, we're sort of looking out
• 12:13
  Speaker 1: for that UM. Tom Price had mentioned that there would
• 12:17
  Speaker 1: be other groups that we're looking to assess this UM
• 12:22
  Speaker 1: and that might have different numbers than what CBO came
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  Speaker 1: up with. They haven't released those, but there are you know,
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  Speaker 1: other CBO directors who worked under previous Republican administrations, UM
• 12:34
  Speaker 1: take Douglas whole teak in for example, who might be
• 12:39
  Speaker 1: able to make assessments for them that would you know,
• 12:43
  Speaker 1: work differently. And CBO has their own way of estimating
• 12:47
  Speaker 1: these things, and not every economist agrees with it, So
• 12:51
  Speaker 1: there could be other groups that would do this differently.
• 12:54
  Speaker 1: Anna Ednie, thank you so much for joining us. Anna Edney,
• 12:57
  Speaker 1: healthcare reporter for Bloomberg News, coming to us from Washington,
• 13:01
  Speaker 1: d C. Talking about the latest GOP proposal to replace
• 13:06
  Speaker 1: Obamacare and the Congressional Budget Offices report saying that fourteen
• 13:12
  Speaker 1: million Americans could lose healthcare coverage by next year and
• 13:17
  Speaker 1: UH four million people would lose it by six bringing
• 13:21
  Speaker 1: the US uninsured rate to a record. Puerto Rico UH,
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  Speaker 1: the Fiscal Oversight Board that was instated for Puerto Rico
• 13:42
  Speaker 1: as it grapples with seventy billion dollars of debt, approved
• 13:46
  Speaker 1: Governor Ricardo Rosselo's plan for pulling the island out of
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  Speaker 1: a fiscal crisis. The only problem is bond holders might
• 13:53
  Speaker 1: have to take bigger haircuts than they have been pricing in.
• 13:56
  Speaker 1: To give us more perspective, I want to bring in
• 13:58
  Speaker 1: Daniel Solander. He's lead to portfolio manager of municipal bonds
• 14:02
  Speaker 1: for Lord Abbott in Jersey City, New Jersey, which oversees
• 14:06
  Speaker 1: about seventeen billion dollars in acids. Daniel, thank you so
• 14:10
  Speaker 1: much for joining us. What was your take on this
• 14:13
  Speaker 1: plan that was approved by the Fiscal Board. Well, first,
• 14:16
  Speaker 1: thank you for having me. Um. You know, the take
• 14:19
  Speaker 1: at this point is that it's it's a real accomplishment
• 14:21
  Speaker 1: that they've agreed to anything. At this point, it seemed
• 14:25
  Speaker 1: like it was going down to the end there where
• 14:26
  Speaker 1: the governor and the Cisco board we're not going to
• 14:29
  Speaker 1: come to agreement on the plan. So I think it's
• 14:31
  Speaker 1: a big positive they actually came to agreement. I agree
• 14:34
  Speaker 1: on the revenue of the expenses and a plan going
• 14:36
  Speaker 1: forward for for a bondholder of perspective, the numbers are
• 14:39
  Speaker 1: a little bit lower than they were before, so there's
• 14:42
  Speaker 1: still a lot of uncertainty going forward because there's other
• 14:45
  Speaker 1: revenues that could come in that aren't part of the plan,
• 14:48
  Speaker 1: and there's a lot of ways of structure bonds that
• 14:51
  Speaker 1: it can be more creative and still need a lot
• 14:52
  Speaker 1: of negotiations. So it's good they came to agreement. Bill
• 14:55
  Speaker 1: still a long way to go before they have agreem
• 14:58
  Speaker 1: with bondholders. Could you just go were some of the
• 15:01
  Speaker 1: major portions of the agreement because it includes furloughs as
• 15:06
  Speaker 1: well as well public corporations and parties and legislator and
• 15:11
  Speaker 1: judicial areas as supposed to also cut back and they
• 15:14
  Speaker 1: still have a problem with the budget because the Ernst
• 15:16
  Speaker 1: and Young reports says that they exceeded their budgeted expenditures
• 15:20
  Speaker 1: by between three hundred and sixty million and eight hundred
• 15:23
  Speaker 1: and ten million. Maybe you can also tell us why
• 15:26
  Speaker 1: is it such a divergence, Well, the government there is
• 15:30
  Speaker 1: for a long time, there's been a lot of difficulty
• 15:32
  Speaker 1: getting good financials and gained understanding and they has been
• 15:35
  Speaker 1: they've been way way behind their audit, so a lot
• 15:37
  Speaker 1: has not been clear. Uh, there are kind of a
• 15:40
  Speaker 1: few things at the end. They were on the expense side,
• 15:43
  Speaker 1: they didn't need to cut expenses more than the governor
• 15:45
  Speaker 1: originally wanted to the fiscal boards, that a lot more
• 15:47
  Speaker 1: needed to be done in order to go forward. A
• 15:50
  Speaker 1: lot more needs to be done the expense side to
• 15:52
  Speaker 1: reduce the size of the government. And on the revenue side,
• 15:55
  Speaker 1: there were issues with some of the forecast being maybe
• 15:57
  Speaker 1: a little too optimistic in terms of what kind of
• 16:00
  Speaker 1: news they could get in different opinions on economic growth.
• 16:03
  Speaker 1: So those were kind of some of the things that
• 16:05
  Speaker 1: had to come together at the end. And yes, there're
• 16:08
  Speaker 1: the other there were some things the governor didn't want
• 16:11
  Speaker 1: to do, such as furloughs, and they have a whole
• 16:14
  Speaker 1: Christmas bonus system. And there are some agreements now that um,
• 16:18
  Speaker 1: if the governor can come up with other revenues, he
• 16:20
  Speaker 1: doesn't have to cut as much. But right now he
• 16:23
  Speaker 1: has to cut some of the things he didn't want
• 16:24
  Speaker 1: to cut for the for the people working for the
• 16:26
  Speaker 1: government that that originally he hadn't planned. Daniel, how big
• 16:30
  Speaker 1: is the portfolio of Puerto Rico debt that you oversee? Uh, well,
• 16:35
  Speaker 1: we have a high yield fund in our one of
• 16:37
  Speaker 1: our portfolios. So we have more than a hundred million
• 16:40
  Speaker 1: dollars of Puerto Rico bonds in our portfolio and um,
• 16:44
  Speaker 1: but you know it's a little small percentage, but it's
• 16:46
  Speaker 1: it's interesting part of the high yield market because in
• 16:49
  Speaker 1: municipals fears back. Remember Puerto Rico's investment grade, they dropped
• 16:53
  Speaker 1: to the high yield market became a big part of
• 16:55
  Speaker 1: the market. UM. So they're decent part of the portfolio.
• 16:58
  Speaker 1: But also there there's job the gate sins, their sales
• 17:00
  Speaker 1: tax bonds, are actor constewer bonds, their power storry about
• 17:04
  Speaker 1: the whole bunch of different sources of revenue, so they're
• 17:06
  Speaker 1: not just one credit are you Are you under water?
• 17:10
  Speaker 1: What's surprising is the Puertorico bonds have actually some of
• 17:14
  Speaker 1: the bonds have performed pretty well. Last year within the
• 17:17
  Speaker 1: menisal bond market, the Puerto Rico index was the highest
• 17:20
  Speaker 1: performing index. So kind of what happened after things really
• 17:24
  Speaker 1: we're going bad a few years ago, bonds really dropped
• 17:26
  Speaker 1: the distress prices and they rebounded a lot now coming
• 17:30
  Speaker 1: in the last year or so, so some ownings are
• 17:32
  Speaker 1: again the summer and losses they were kind of all
• 17:35
  Speaker 1: over the place. But you know, there are still some
• 17:38
  Speaker 1: of losses, definitely because when they brought the last deal
• 17:41
  Speaker 1: proprice their way down from the last deal. Daniel, is
• 17:44
  Speaker 1: there anything about the recent proposal that would encourage you
• 17:47
  Speaker 1: to go and buy more right now? It's it's it's.
• 17:52
  Speaker 1: I guess it's hard to I can't really speak exactly
• 17:54
  Speaker 1: what we're gonna on the trading side, but you know,
• 17:55
  Speaker 1: it's it's it's not right now, there's a lot more
• 17:57
  Speaker 1: details for a bondholder to be positive. Because the numbers
• 18:00
  Speaker 1: did come out a little bit lower than expected for
• 18:02
  Speaker 1: bond holders. In the secondary market, bonds were traded down
• 18:05
  Speaker 1: in the last day or so and there's still a
• 18:08
  Speaker 1: lot of our disagreements among different crediting classes, whether it's
• 18:12
  Speaker 1: sales tax and general obligation. But so right now is
• 18:14
  Speaker 1: a lot of It's tough to really get very optimistic
• 18:17
  Speaker 1: at this point. But the only positive enemy you could
• 18:19
  Speaker 1: get is there is progress. Now they have physical plan,
• 18:21
  Speaker 1: maybe they can negotiate more seriously. Thanks very much for
• 18:24
  Speaker 1: being with us. Daniel Solander is lead portfolio manager of
• 18:27
  Speaker 1: municipal bonds with Lord Abbott. They're based in Jersey City,
• 18:31
  Speaker 1: New Jersey. They manage over seventeen billion dollars under management. Well,
• 18:47
  Speaker 1: the Trump administration has a plan that would slash corporate
• 18:51
  Speaker 1: tax rates and that could free up more than ten
• 18:53
  Speaker 1: billion dollars a year for US oil explorers. Let's find
• 18:58
  Speaker 1: out more from Rob Barnett. He is our senior energy
• 19:01
  Speaker 1: policy analyst for Bloomberg Intelligence. Robert's always a pleasure give
• 19:05
  Speaker 1: us the information and the likelihood that this will actually
• 19:08
  Speaker 1: come to fruition. Thanks Pim. That's right. There are numerous
• 19:13
  Speaker 1: Republican tax proposals out there that aimed to lower the
• 19:19
  Speaker 1: tax rate paid by corporations here in the United States,
• 19:22
  Speaker 1: and so the current top marginal rates about thirty and
• 19:27
  Speaker 1: Trump's proposal is to take it as low as fifteen percent.
• 19:31
  Speaker 1: There's a House Republican Land backed by Paul Ryan, that
• 19:34
  Speaker 1: would take it down to And this has a big
• 19:39
  Speaker 1: impact potentially on US oil and gas producers. If you
• 19:44
  Speaker 1: look at the companies in Bloomberg Intelligences North American Independent
• 19:49
  Speaker 1: E n P peer groups, so basically the domestic oil
• 19:52
  Speaker 1: and gas producers, they could see up to a ten
• 19:56
  Speaker 1: billion dollar cut in their aggregate tax bill if you
• 19:59
  Speaker 1: really were to go from that kind of thirty range
• 20:04
  Speaker 1: down to range at least according to our analysis. So
• 20:07
  Speaker 1: that's names like Conco, Phillips, Pioneer, Natural Resources, Devon, companies
• 20:12
  Speaker 1: like that that have a strong domestic presence here in
• 20:15
  Speaker 1: the United States. Is all of this money going to
• 20:19
  Speaker 1: basically UH sponsor more production and cause oil prices to
• 20:25
  Speaker 1: go lower? In other words, is this what's behind the
• 20:27
  Speaker 1: oil price drops that we're seeing today? We know daily
• 20:30
  Speaker 1: volatility in the oil prices influenced by so many things.
• 20:34
  Speaker 1: I wouldn't try to pin any near term movements in
• 20:38
  Speaker 1: the oil price on on sort of big broad tax discussions,
• 20:42
  Speaker 1: But I think your intuition is right. If you reduce
• 20:46
  Speaker 1: the tax cost for US oil and gas producers. You
• 20:52
  Speaker 1: you potentially make it more attractive to produce oil and
• 20:56
  Speaker 1: gas here in the US, and you potentially could see,
• 21:01
  Speaker 1: in our view, especially some of the large integrated companies
• 21:05
  Speaker 1: taking more interest in the US because this could make
• 21:08
  Speaker 1: producing oil and gas here in the US more attractive
• 21:11
  Speaker 1: relative to other parts of the world if we truly
• 21:14
  Speaker 1: do lower the tax costs that some of these companies
• 21:18
  Speaker 1: have to pay. Now, you know Harold Ham who was
• 21:20
  Speaker 1: the chairman and the chief executive of Continental Resources, he
• 21:24
  Speaker 1: said at a meeting it was the I h S
• 21:28
  Speaker 1: Market meeting for Sarah week Uh, He's he's the billionaire
• 21:32
  Speaker 1: Sheryl oilman. He said that the US industry could kill
• 21:35
  Speaker 1: the oil market if it embarks on another spending binge,
• 21:39
  Speaker 1: and he said US production could go pretty high. Is
• 21:43
  Speaker 1: that possible? Well, I certainly think that a number of
• 21:48
  Speaker 1: policy factors may influence whether that outcome actually happens. And
• 21:53
  Speaker 1: so a lot of the tax discussion or policy discussion
• 21:57
  Speaker 1: around energy really comes down to the details. So when
• 22:01
  Speaker 1: you look at the broad tap discussion, they're talking about
• 22:05
  Speaker 1: taking that top rate and lowering it again to fifteen.
• 22:10
  Speaker 1: But in exchange for that, there is also a strong
• 22:13
  Speaker 1: chance that the energy industry would lose a lot of
• 22:17
  Speaker 1: its favored tax deduction. So that's the UH the ability
• 22:21
  Speaker 1: to expense intangible drilling costs, the manufacturer's tax deduction, all
• 22:26
  Speaker 1: kinds of things like that potentially go away in this world.
• 22:30
  Speaker 1: The other thing to keep an eye on is that
• 22:32
  Speaker 1: there's also discussion around tax and increasing UH taxes at
• 22:37
  Speaker 1: the borders, this border adjustment tax. That's not necessarily good
• 22:41
  Speaker 1: news for the industry. So it could be a wash
• 22:44
  Speaker 1: if we sort of lower corporate rates but then add
• 22:47
  Speaker 1: a border adjustment tax. So it's a lot is going
• 22:50
  Speaker 1: to depend on the details of the tax discussion. UH overalls,
• 22:54
  Speaker 1: lower corporate rates tend to be viewed favorably by most
• 22:59
  Speaker 1: big bisness is. But the devil will be in the
• 23:03
  Speaker 1: details on what happens with these deductions or what happens
• 23:05
  Speaker 1: with border taxes as part of that overall framework. Let's
• 23:09
  Speaker 1: say the tax cuts do draw in more interest from
• 23:12
  Speaker 1: integrated companies UH and ramp up or cause some smaller
• 23:17
  Speaker 1: shell drillers to ramp up production. How many new jobs
• 23:19
  Speaker 1: could that create. Well, I think a lot of this
• 23:24
  Speaker 1: discussion is centered around bringing jobs back to the the
• 23:28
  Speaker 1: US and over the last couple of years, Uh, there's
• 23:32
  Speaker 1: been a big pullback in jobs in the oil patch,
• 23:36
  Speaker 1: mainly driven by the decline in prices that we've seen,
• 23:39
  Speaker 1: but you know, uh over the over a multi year period.
• 23:43
  Speaker 1: So you know, as a whole, the industry employs hundreds
• 23:47
  Speaker 1: of thousands of people. So if if you were to
• 23:50
  Speaker 1: to ramp production, uh, it may scale somewhat literally, although
• 23:54
  Speaker 1: I keep in mind that because of the pullback in prices,
• 24:01
  Speaker 1: the oil and gas companies and the service providers have
• 24:04
  Speaker 1: gotten more efficient with how they spend money. So the
• 24:07
  Speaker 1: day rates uh for drilling rigs things like that have
• 24:11
  Speaker 1: actually come down, and that's mainly because they've gotten more
• 24:14
  Speaker 1: focused on personnel and other issues and trying to manage costs.
• 24:17
  Speaker 1: So if you see a rise in production, uh, it
• 24:21
  Speaker 1: may be done in a more efficient way that doesn't
• 24:24
  Speaker 1: doesn't quite have as much labor associated with it. Again,
• 24:28
  Speaker 1: that's uh, that'll be seen in the marketplace if these
• 24:31
  Speaker 1: things actually happen. But I wouldn't you know, I wouldn't
• 24:35
  Speaker 1: pend too much on this. You know, the oil and
• 24:37
  Speaker 1: gas sector is an important employer in the overall economy,
• 24:40
  Speaker 1: but it's by no means the largest. I just asked
• 24:43
  Speaker 1: you a quick question, Rob Barnett, give you a fifteen seconds,
• 24:46
  Speaker 1: tell me the state of the liquefied natural gas market
• 24:49
  Speaker 1: llenergy and exports absolutely well. Uh, you know, we haven't
• 24:53
  Speaker 1: seen a whole lot of action there under the Trump administration,
• 24:56
  Speaker 1: but by and large the administration has indicated they're going
• 25:01
  Speaker 1: to be pro l en G export and we'd expect
• 25:04
  Speaker 1: them to sort of continue to push to see US
• 25:07
  Speaker 1: increase its exports there. Rob Burnett, thank you so much
• 25:10
  Speaker 1: for joining us. Really informative and important stuff. As always,
• 25:15
  Speaker 1: Rob Burnett is our senior energy policy analyst at Bloomberg
• 25:18
  Speaker 1: Intelligence based in New York, talking all about the potential
• 25:22
  Speaker 1: tax cuts for the oil and gas industry. Thanks for
• 25:32
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 25:34
  Speaker 1: subscribe and listen to interviews at iTunes, SoundCloud, or whatever
• 25:39
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm out there
• 25:43
  Speaker 1: on Twitter at pim Fox. I'm out there on Twitter
• 25:46
  Speaker 1: at Lisa Abramo. It's one before the podcast. You can
• 25:49
  Speaker 1: always catch us worldwide on Bloomberg Radio.