Latest / Bloomberg Intelligence / Trump's Immigration Stance Hurts US Economy: Cato's Bier (Podcast)

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Trump's Immigration Stance Hurts US Economy: Cato's Bier (Podcast) · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m 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
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. This
• 0:33
  Speaker 1: is a day twenty one of the partial government shutdown.
• 0:37
  Speaker 1: This shutdown began days before Christmas over a standoff between
• 0:42
  Speaker 1: President Donald Trump and congressional Democrats over funding for the
• 0:47
  Speaker 1: President's long promised border wall. Here to help us understand
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  Speaker 1: the issue is David Beer. He is an immigration policy
• 0:54
  Speaker 1: analyst for the Cato Institute in Washington, d C. David Beer,
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  Speaker 1: thank you for being with us as an immigration policy analysts.
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  Speaker 1: Could we just go through some of the issues that
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  Speaker 1: the President has cited as the need for this border wall.
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  Speaker 1: Let's begin with drug smuggling. What are the facts. Well,
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  Speaker 1: the fact is that about nine of all of the
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  Speaker 1: hard drugs you're talking about, cocaine, methamphetamine, heroin, and fentanyl
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  Speaker 1: are trafficked through ports of entry. So they're carried in luggage,
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  Speaker 1: they're sent through the mail, they're brought on airplanes. They
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  Speaker 1: are not uh smuggled between ports of entry where a
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  Speaker 1: border wall would go. Um. Really, the only drug that
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  Speaker 1: is primarily smuggled between ports of entry is marijuana, and
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  Speaker 1: marijuana smuggling has declined about eight percent since the legalization
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  Speaker 1: of marijuana in several states starting in so UM demand
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  Speaker 1: is now being done legally domestically in the United States
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  Speaker 1: rather than from Mexico. And so the need for a
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  Speaker 1: border wall between ports of entry to stop drugs smuggling
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  Speaker 1: just doesn't add up. You're gonna spend billions upon billions
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  Speaker 1: of dollars for this project when most of the drugs
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  Speaker 1: and most of the hard drugs are coming through the
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  Speaker 1: ports of entry where they're understaffed and um, you know,
• 2:29
  Speaker 1: need more support than they have right now. David, what
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  Speaker 1: do you think the President Trump actually wants. I think
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  Speaker 1: he wants a border wall. No, I mean in terms
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  Speaker 1: of immigration policy, Uh, you know, in terms of legal immigration.
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  Speaker 1: I think he's been quite clear that he wants a
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  Speaker 1: lot less of it. Um, whether you're talking about refugees,
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  Speaker 1: asylum seekers, people reuniting with their family members, uh. Really,
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  Speaker 1: the only people, he says that he wants are so
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  Speaker 1: called merit by immigrants. But every plan that he supports
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  Speaker 1: UH to move our system in that direction doesn't actually
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  Speaker 1: increase UH merit based immigration hardly at all, while cutting
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  Speaker 1: legal immigration dramatically. Do you think that that is the
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  Speaker 1: correct policy for the US economy and for and for security? Oh?
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  Speaker 1: Absolutely not. On the security side, UH, the constraints on
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  Speaker 1: legal immigration actually drive illegal immigration. If we were admitting
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  Speaker 1: people at ports of entry, if we were issuing pieces
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  Speaker 1: in their home countries, they wouldn't be showing up in caravans,
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  Speaker 1: they wouldn't be crossing the border illegally. We would be
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  Speaker 1: able to do background checks, we'd be able to do
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  Speaker 1: medical checks. People would be coming safely legally, UM through
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  Speaker 1: a process where we can vet them. Would be a
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  Speaker 1: far better situation than the one that we have now.
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  Speaker 1: From an economic perspective, we're seeing you know, the President
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  Speaker 1: spragging every day about how great the economy is, how
• 4:03
  Speaker 1: we're growing jobs, how unemployments a record lows. And if
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  Speaker 1: you look at UH, you know our visa you know,
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  Speaker 1: one of the visa programs that is available for non
• 4:14
  Speaker 1: for seasonal guest workers in non agricultural industries. We have
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  Speaker 1: a cap on that and uh, basically in one day
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  Speaker 1: that cap was filled and there were three times more
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  Speaker 1: UM jobs demanded than slots available for that. So the
• 4:31
  Speaker 1: demand is there. These are people, these are companies willing
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  Speaker 1: to do recruitment of US workers, spend thousands of dollars
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  Speaker 1: to go through the legal immigration process, but because of
• 4:43
  Speaker 1: these outdated caps um, you know, they're not able to
• 4:47
  Speaker 1: fill those positions through the legal immigration system. David, if
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  Speaker 1: you were asked to testify before Congress and asked whether
• 4:54
  Speaker 1: there is a security crisis on the southern border of
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  Speaker 1: the United States, how would you respond? I would say there's,
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  Speaker 1: by no measure, a security crisis at our southern border.
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  Speaker 1: If you look at in fiscal year eighteen, the number
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  Speaker 1: of apprehensions for each border patrol agent, which is the
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  Speaker 1: best measure of illegal immigration that you could have, each
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  Speaker 1: border agent was apprehending just one person every two weeks.
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  Speaker 1: So for the vast majority of the time, border patrol
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  Speaker 1: agents are not bringing people into their custody, which is
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  Speaker 1: a sign that we do have the situation under control.
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  Speaker 1: Maybe we need to shift resources around. The second fact
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  Speaker 1: that you need to consider is that half of the
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  Speaker 1: people that they are bringing into their custody, are simply
• 5:45
  Speaker 1: turning themselves in their asylum seekers. They actually are seeking
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  Speaker 1: agents out to say, please bring me into your custody.
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  Speaker 1: I want to get part of the legal system. I
• 5:54
  Speaker 1: want to go through the process. And so the idea
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  Speaker 1: that we're just seeing this huge which influx the people
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  Speaker 1: trying to sneak into our country to commit crimes in
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  Speaker 1: this in this country, it's just absolutely untrue. If you
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  Speaker 1: look at border patrol figures on the number of criminals
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  Speaker 1: that they actually apprehend crossing the border illegally, you just
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  Speaker 1: have less than a thousand of the more than four
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  Speaker 1: thousand people that they apprehended in had violent criminal convictions
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  Speaker 1: or histories. Now that's a thousand too many, but we're
• 6:32
  Speaker 1: apprehending them. And if we could focus on them and
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  Speaker 1: not on the people who are just trying to reunite
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  Speaker 1: with their families or seek economic opportunity or seek safety
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  Speaker 1: from uh you know, violent threats in their home countries,
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  Speaker 1: that would be a better situation for everyone from a
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  Speaker 1: security perspective. So, David, you work for the Kido Institute,
• 6:52
  Speaker 1: which was founded by Charles Coke and funded by the
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  Speaker 1: Koch Brothers. Uh it has sort of sort of known
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  Speaker 1: as speaking with, among others, Republican representatives, and I'm wondering
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  Speaker 1: how receptive they are to what you're saying. Well, I
• 7:07
  Speaker 1: think there's a growing understanding that the economy is growing
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  Speaker 1: in such a way that you absolutely need an outlet
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  Speaker 1: um for companies to hire people legally. Um. You know,
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  Speaker 1: if you look at the partisanship that dominates this town,
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  Speaker 1: it's going to be difficult to get the reforms that
• 7:27
  Speaker 1: are needed simply because we have a partisan impass about
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  Speaker 1: this border wall, and it's really um holding up everything
• 7:35
  Speaker 1: else in terms of immigration reforms. So UM, I do
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  Speaker 1: think a substantial portion of the Republican Party still is
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  Speaker 1: in the camp of we need to have legal immigration.
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  Speaker 1: We need to fulfill this demand in a legal way,
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  Speaker 1: deal with the people who are here illegally for many
• 7:52
  Speaker 1: years in in a reasonable manner. Um. But I do
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  Speaker 1: also think and recognize that there's a significant part of
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  Speaker 1: the Republican Party that's not in that camp, and they
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  Speaker 1: just want fewer legal immigrants and illegal immigrants. They just
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  Speaker 1: want fewer people from foreign countries. Uh, in our country.
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  Speaker 1: We got to leave it there. But thank you very
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  Speaker 1: much for being with us. David Beer, immigration policy analyst
• 8:17
  Speaker 1: for Cato Institute based in Washington, d C. On day
• 8:23
  Speaker 1: one of the partial federal government shutdown over funding for
• 8:28
  Speaker 1: a border wall, the request by President Donald Trump, it
• 8:48
  Speaker 1: is risk on again in a credit markets, flows in,
• 8:53
  Speaker 1: yields down, borrowers coming back to the market. Joining us
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  Speaker 1: here in our Bloomberg Interactive Broker Studios is Tom Adam,
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  Speaker 1: chief investment officer and founding partner of f p A.
• 9:03
  Speaker 1: He manages more than six billion dollars for the firm,
• 9:06
  Speaker 1: which is based in Los Angeles. Tom, thank you so
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  Speaker 1: much for being here. Are you feeling risk on right now?
• 9:11
  Speaker 1: Are you feeling like it's time to go out there
• 9:13
  Speaker 1: and dive back into the credit markets? The answer would
• 9:16
  Speaker 1: be would be no. I mean, when you think about
• 9:18
  Speaker 1: just as an example, look at investment grade corporates where
• 9:22
  Speaker 1: you've got roughly half of them now our triple B.
• 9:25
  Speaker 1: And if you look at the so to EBA down number,
• 9:28
  Speaker 1: you look at it to debt and look at that ratio,
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  Speaker 1: you realize it's as high as it was in two
• 9:33
  Speaker 1: thousand and eight, and it's as high as it was
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  Speaker 1: in two thousand Both of those, you know, the heights
• 9:37
  Speaker 1: of a recession. So you think about that and go,
• 9:41
  Speaker 1: do I think the economy is going to go into
• 9:43
  Speaker 1: a recession or just slow down in some fashion over
• 9:46
  Speaker 1: the next several years. Not an unreasonable expectations. You're already
• 9:51
  Speaker 1: highly levered. You also have to think about the fact
• 9:54
  Speaker 1: that they're gonna need to refinance some of the debt.
• 9:56
  Speaker 1: What if they need to refinance it at a higher level,
• 9:58
  Speaker 1: may not be able to do it as well in
• 10:00
  Speaker 1: a in a lower cash flow environment. So we don't
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  Speaker 1: see value now. If I compare December, it was extremely overvalued.
• 10:09
  Speaker 1: Now it's just overvalued. Talk if you can about the
• 10:14
  Speaker 1: idea that debt growing faster than g d P, and
• 10:19
  Speaker 1: we could even connect that to what happens in a household.
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  Speaker 1: Excuse me, for example, if you are taking on debts
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  Speaker 1: in a household at a greater pace than your income
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  Speaker 1: is accelerating, everybody knows that's not a winning recipe. Why
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  Speaker 1: does that exist when it comes to investments? It's to
• 10:40
  Speaker 1: our view and within the non sovereign state, the non
• 10:44
  Speaker 1: sovereign world, on government world, it's not a sustainable and
• 10:47
  Speaker 1: we've seen periods of the past where this occurred and
• 10:50
  Speaker 1: the end result was You mentioned the household, and you
• 10:53
  Speaker 1: think back to the oh six through oh A period,
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  Speaker 1: the household had had to go through a rather cathartic
• 11:00
  Speaker 1: reevaluation of their balance sheet, right, debt off, get into
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  Speaker 1: all sorts of a you know, to get themselves cleaned
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  Speaker 1: up again. You think back to two thousand period of
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  Speaker 1: time corporate America did. When you think about the Corporate
• 11:13
  Speaker 1: American problems that went on there, that's Enron and World
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  Speaker 1: common in tycho. So it is not a sustainable from
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  Speaker 1: a from a corporate standpoint. You can say the same
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  Speaker 1: thing about government. It's just much harder to figure out
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  Speaker 1: how long, yeah, ones it stopped. But when does it
• 11:32
  Speaker 1: stop for the corporate borrower? It will stop for the
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  Speaker 1: corporate borrow or when you think about them today, they're
• 11:38
  Speaker 1: able to support the debt today because their interest cost
• 11:43
  Speaker 1: is low, their leverage is high. But looking forward, if
• 11:47
  Speaker 1: you start to raise rates for them to refinance, that
• 11:51
  Speaker 1: benefit goes away. They still got too much debt. There's
• 11:55
  Speaker 1: a chart that we use, we've used with clients that
• 11:57
  Speaker 1: shows implied um you know, ratings. So you just take
• 12:02
  Speaker 1: like S and P or Moody's and they say half
• 12:04
  Speaker 1: of it is triple bright. Well if you just base
• 12:07
  Speaker 1: that analysis off of the leverage component, not the interest
• 12:12
  Speaker 1: coverage component, just a leverage component, instead of half of
• 12:15
  Speaker 1: them being triple B, only about thirty or triple B,
• 12:19
  Speaker 1: Well that's nice. The problem is the fifteen percent become
• 12:23
  Speaker 1: double B and single B they go they go to
• 12:25
  Speaker 1: the right, which is a way of telling you that, look,
• 12:28
  Speaker 1: this is not sustainable. If you rate you know they
• 12:30
  Speaker 1: are unable to get that debt down, You're going to
• 12:32
  Speaker 1: have to do some some sort of restructuring. So there's
• 12:35
  Speaker 1: a question of long term versus short term because in
• 12:37
  Speaker 1: the long term, everything that you're saying makes sense. In
• 12:40
  Speaker 1: the short term, people don't see necessarily a recession. So
• 12:42
  Speaker 1: what are you buying now? How do you determine, you know,
• 12:45
  Speaker 1: how to balance the short term and long term. So
• 12:48
  Speaker 1: we look at the world for a corporate bond investment,
• 12:51
  Speaker 1: whether it's a high yield or a bank loan or
• 12:53
  Speaker 1: investment grad you think in terms of three to five years,
• 12:57
  Speaker 1: and so we look at that and go, this doesn't
• 12:59
  Speaker 1: look attractive from evaluation standpoint, Let's not commit our capital there. Conversely,
• 13:05
  Speaker 1: if I think of high quality bonds, things that are
• 13:07
  Speaker 1: single A rated and higher, we really comfortable you're gonna
• 13:10
  Speaker 1: get paid back. You realize that over the last couple
• 13:12
  Speaker 1: of years is the Fed sort of systematically raised the
• 13:15
  Speaker 1: Fed funds rate from bases points to the two and
• 13:17
  Speaker 1: a half. I took a two year treasury that was
• 13:20
  Speaker 1: twenty five basis points in its peak was what two
• 13:23
  Speaker 1: eight fifties now, and I took a three year treasury
• 13:26
  Speaker 1: and almost got it to three percent. You look at
• 13:28
  Speaker 1: those high quality return rates and you go, wait a minute,
• 13:31
  Speaker 1: that's higher than inflation. I don't have to worry about
• 13:34
  Speaker 1: the credit problems. I can go by that high quality
• 13:37
  Speaker 1: security that's a three year or four year or maybe
• 13:40
  Speaker 1: a two year and get a reasonable return in this environment.
• 13:43
  Speaker 1: So what's how how much has the balance shifted in
• 13:45
  Speaker 1: your portfolio treasuries to credit. So if we had this
• 13:50
  Speaker 1: conversation in two thousand and fifteen and sixteen, I was
• 13:53
  Speaker 1: a roughly and things that were tripled being below it's
• 13:57
  Speaker 1: at seven today. We had that conversation, then I would
• 14:00
  Speaker 1: have said I have zero in treasuries. Then those three
• 14:03
  Speaker 1: and five year treasuries make up about five percent of
• 14:05
  Speaker 1: the portfolio. But I've got other high quality investments that
• 14:08
  Speaker 1: are in that same three four year maturity range because
• 14:12
  Speaker 1: they made sense force from so the risk return trade
• 14:16
  Speaker 1: off you were looking at. Investors spend a lot of
• 14:19
  Speaker 1: time comparing their results to those of other investors. Do
• 14:23
  Speaker 1: you believe that benchmarking leads to poor decisions? And should
• 14:27
  Speaker 1: people benchmark against something such as inflation rather what they should,
• 14:33
  Speaker 1: could or would have invested in? In hindsight, our view
• 14:37
  Speaker 1: is is much worth what what are you trying to
• 14:40
  Speaker 1: accomplish with the capital you've deployed? And our particular strategy
• 14:44
  Speaker 1: is very um capital preservation oriented. So if I think
• 14:49
  Speaker 1: about it in those terms, I go, Okay, what do
• 14:51
  Speaker 1: I need? What should I be doing in capital preservation? Well,
• 14:54
  Speaker 1: the first thing, I should have an absolute positive return
• 14:56
  Speaker 1: in our strategy, it's a twelve month horizon for that.
• 15:00
  Speaker 1: But I also need to at least get inflation to
• 15:02
  Speaker 1: protect its buying power, and should try to get something
• 15:06
  Speaker 1: that maybe a hunter basis points over inflation. The interesting
• 15:09
  Speaker 1: thing is when you start to look at the investment
• 15:11
  Speaker 1: world that way, I'm indifferent to what the benchmark is.
• 15:16
  Speaker 1: I just look at what could my own that helps
• 15:19
  Speaker 1: me accomplish those two objectives and just strictly look for
• 15:23
  Speaker 1: securities that might do that. It one narrows the number
• 15:26
  Speaker 1: of securities to look at down a lot, and you
• 15:28
  Speaker 1: realize many things in the bond market just to us
• 15:32
  Speaker 1: don't make sense because they don't help us accomplish our objective.
• 15:35
  Speaker 1: I think investors should go much more away from benchmarks
• 15:38
  Speaker 1: and comparing myself to somebody else and going what is
• 15:42
  Speaker 1: my objective of this capital? What am I trying to accomplish?
• 15:47
  Speaker 1: Thank you for helping us understand this and giving us
• 15:50
  Speaker 1: a different perspective. I appreciate you having on this morning. Well,
• 15:54
  Speaker 1: we didn't even mention your former radio career. No, they
• 15:57
  Speaker 1: didn't help prepare you for investing. No. Interestingly, it helped
• 16:03
  Speaker 1: me with presentation skills and trying to explain things to
• 16:06
  Speaker 1: large audiences as small audiences. And that's probably and it
• 16:09
  Speaker 1: was a heck of a lot of fun when I
• 16:10
  Speaker 1: did it. Thanks very much, it's been fun having you on.
• 16:12
  Speaker 1: Tom Attabury is the chief investment officer and founding a
• 16:16
  Speaker 1: partner of f p A, and of course he helps
• 16:20
  Speaker 1: to manage over six billion dollars based in Los Angeles,
• 16:23
  Speaker 1: and they recently launched the f p A Flexible Income
• 16:28
  Speaker 1: fun first Pacific. The government shutdown is entering its twenty
• 16:49
  Speaker 1: first day without a resolution insight. The question becomes, at
• 16:53
  Speaker 1: what point does this gridlock imperil the US? Is triple
• 16:57
  Speaker 1: A rating joining US now James McCormack, Global head of
• 17:01
  Speaker 1: Sovereign Debt at Fitch Ratings, raining US from London, James,
• 17:04
  Speaker 1: thank you so much for being with US. Fitch Ratings
• 17:06
  Speaker 1: has sounded a bit of an alarm, saying that if
• 17:08
  Speaker 1: this government shutdown does drag on much longer, it will
• 17:12
  Speaker 1: consider a downgrade to the top rating that the US
• 17:15
  Speaker 1: currently in. Choice. Please explain, Yeah, that's yeah, that's right.
• 17:19
  Speaker 1: I guess there's a couple of things that really come
• 17:22
  Speaker 1: into focus really the longer this goes on. One is
• 17:26
  Speaker 1: consistent with a note we put out last week. We said,
• 17:29
  Speaker 1: you know, if this foreshadows are more they pronounced destabilization
• 17:33
  Speaker 1: and policymaking that would include the standoff over the debt limit,
• 17:37
  Speaker 1: which is really much more important than than the shutdown,
• 17:41
  Speaker 1: then I think we'd have to be quite concerned about that.
• 17:44
  Speaker 1: And and the second sort of parallel track we're thinking
• 17:47
  Speaker 1: about is that the policy making framework matters so much
• 17:51
  Speaker 1: in the US because there are some pretty big fiscal
• 17:53
  Speaker 1: policy challenges ahead in addition to the dead limits. So
• 17:56
  Speaker 1: the fiscal deterioration that's under way with sits in the
• 18:00
  Speaker 1: order of five and a half to six percent in
• 18:02
  Speaker 1: the debt level, where it is without at a round
• 18:05
  Speaker 1: a percent the way we measure it without a resolution
• 18:08
  Speaker 1: insight kind of sets the fiscal trajectory of the US
• 18:11
  Speaker 1: on a slightly different path than what we would see
• 18:13
  Speaker 1: in another trip away, So we do have to think
• 18:15
  Speaker 1: about it in those contexts. Well, Chairman Power drum Power
• 18:20
  Speaker 1: of the Federal Reserve said at the Economic Club meeting
• 18:24
  Speaker 1: that he's concerned about the level of the US debt
• 18:27
  Speaker 1: and that it is something that they have really no
• 18:31
  Speaker 1: power over. As a result, what do you think will
• 18:36
  Speaker 1: it take to get lawmakers to focus on it. Well,
• 18:40
  Speaker 1: that's a very good question, because lawmakers have not been
• 18:42
  Speaker 1: focused on it for some time. This is a debt
• 18:44
  Speaker 1: burden that has been creeping higher. Congress has not yet
• 18:49
  Speaker 1: taken on the issues that need to be resolved. And
• 18:52
  Speaker 1: the primary issue why the deficit continues to grow in
• 18:55
  Speaker 1: addition to the tax cut tax cuts that we've just
• 18:58
  Speaker 1: seen is really on amanded Tory spending side, and that
• 19:01
  Speaker 1: is going to be a very difficulty issue for for
• 19:04
  Speaker 1: politicians to to embrace, but at some point down the
• 19:08
  Speaker 1: line that does need to be addressed. If you look
• 19:11
  Speaker 1: at Congressional Budget Office projections over the next ten years,
• 19:14
  Speaker 1: it's very clear that there are two items, two items
• 19:18
  Speaker 1: on the spending side where things need to be things
• 19:22
  Speaker 1: need to be addressed. One is on the mandatory spending
• 19:24
  Speaker 1: and the other is really interest burden. So both of
• 19:27
  Speaker 1: those things arising very quickly to the interest burden, can't
• 19:30
  Speaker 1: do much about that unless the debt comes down. But
• 19:33
  Speaker 1: mandatory spending something can be done about that, but it's
• 19:36
  Speaker 1: very very difficult politically to get agreement on that. So James,
• 19:40
  Speaker 1: is there sort of a deadline for which the US
• 19:42
  Speaker 1: has to come for come to a resolution for you
• 19:45
  Speaker 1: to stop taking a look at the triple A rating?
• 19:46
  Speaker 1: In other words, how long does this have to go
• 19:49
  Speaker 1: on before you really do consider stripping the US of
• 19:51
  Speaker 1: the top rating. Yeah, it's not so much about the shutdown.
• 19:55
  Speaker 1: It's really more about the debt ceiling. And as you
• 19:57
  Speaker 1: may you may know, the dead ceiling comes back into
• 20:00
  Speaker 1: force at the beginning of March, and then the Treasury
• 20:02
  Speaker 1: begins to use what it calls extraordinary measures at that point,
• 20:05
  Speaker 1: so there's probably a couple of months before that really
• 20:08
  Speaker 1: begins to bite. When we last put took any rating
• 20:12
  Speaker 1: action on the US, it was to put it on
• 20:13
  Speaker 1: Rating Watch negative, and that was back in when the
• 20:17
  Speaker 1: when the period during which those extraordinary measures operate was
• 20:21
  Speaker 1: coming to an end um and there was no resolution
• 20:25
  Speaker 1: in sight. We were within forty eight hours of the
• 20:27
  Speaker 1: so called X date um, and I think we would
• 20:31
  Speaker 1: need to be in a position similar to that before
• 20:33
  Speaker 1: we thought about rating actions, So sometime down the road.
• 20:36
  Speaker 1: One thing that I don't understand though, If these situations
• 20:39
  Speaker 1: keep arising and it does not appear that gridlock is
• 20:42
  Speaker 1: going to ease anytime soon in Washington, why not down
• 20:45
  Speaker 1: grade the US? Now? Yeah? I mean we kind of
• 20:50
  Speaker 1: down this road before, but not quite as pronounced. And
• 20:53
  Speaker 1: that's why we're that's why we're talking about it now,
• 20:55
  Speaker 1: because we want to make sure that, you know, market
• 20:58
  Speaker 1: participants in other vers understand our position. If we were
• 21:02
  Speaker 1: to take a rating action on the US, we want
• 21:04
  Speaker 1: that to be as well flagged as possible um, And
• 21:07
  Speaker 1: so we are speaking about it now because it's an
• 21:10
  Speaker 1: issue that we think the markets should be made aware of,
• 21:13
  Speaker 1: but we're not in a position to suggest that this
• 21:15
  Speaker 1: is definitively going to happen. So there's still plenty of
• 21:18
  Speaker 1: time for Congress and the White House to act to
• 21:23
  Speaker 1: resolve both feed the shutdown and then subsequently to to
• 21:27
  Speaker 1: address the dead limit UM. And if that happens, as
• 21:30
  Speaker 1: it has in the past, then the triple A rating
• 21:33
  Speaker 1: is is probably sound. James. If you believe that a
• 21:37
  Speaker 1: recession is coming in, would that change any of your ratings?
• 21:44
  Speaker 1: I don't think so. I mean the rating is supposed
• 21:45
  Speaker 1: to be resilient through an economic cycle. We don't see
• 21:48
  Speaker 1: a recession. In fact, in we don't see a recession
• 21:51
  Speaker 1: in either. We certainly see slowing growth um, particularly as
• 21:57
  Speaker 1: the fiscal stimulus begins to fade in twenty nine scene,
• 22:00
  Speaker 1: and we will have weaker growth towards the end of
• 22:02
  Speaker 1: the year. We see growth only in the around two
• 22:07
  Speaker 1: in this year we see it at sort of two
• 22:08
  Speaker 1: point six percent, So definitely a slowing of growth, but
• 22:12
  Speaker 1: not a recession. And I don't think we would be
• 22:14
  Speaker 1: wanting to suggest that the US rating was under under
• 22:18
  Speaker 1: any kind of threat from from a normal economic cycle,
• 22:20
  Speaker 1: including one that was inclusive every recession all right, well
• 22:24
  Speaker 1: we're gonna leave it there, but thanks very much for
• 22:26
  Speaker 1: being with us. James McCormack is a global head of
• 22:29
  Speaker 1: a Global sovereigns and supernational at Fitch Ratings, speaking about
• 22:34
  Speaker 1: the US sovereign debt rating at a time when there's
• 22:37
  Speaker 1: a bit of buying in the treasury market right now,
• 22:55
  Speaker 1: and Heuser Busch in Bev considering an initial public offering
• 22:59
  Speaker 1: of its a Asian operations. Here to tell us more
• 23:02
  Speaker 1: is a Francois sn of Elle. He is the senior
• 23:04
  Speaker 1: beverage analyst at Rabo Bank Francois. Thank you very much
• 23:08
  Speaker 1: for being with us. Why is Anaheuser Busch in Bev
• 23:13
  Speaker 1: looking to split off this Asian business? Good afternoon, and
• 23:19
  Speaker 1: thank you for having me on the show. And I
• 23:22
  Speaker 1: think that a good question would be like is the
• 23:23
  Speaker 1: company in trouble? And that depends online from whose perspective
• 23:27
  Speaker 1: you are looking at this. I think if you look
• 23:30
  Speaker 1: from the shareholders perspective, they've had a very rough time
• 23:33
  Speaker 1: since October two thousand sixteen until now, the share process
• 23:37
  Speaker 1: roughly halfd and recently also the dividend has been cut,
• 23:40
  Speaker 1: so it's all of the large shareholders have had a
• 23:43
  Speaker 1: tough time and probably are not that happy with the
• 23:46
  Speaker 1: way things are going. I think if you're a bondholder, however,
• 23:49
  Speaker 1: you're like quite okay. I think the cash loow pattern
• 23:52
  Speaker 1: of the company is good. And also if you look
• 23:54
  Speaker 1: at your operations, I would say that the company is
• 23:57
  Speaker 1: not a disaster, but more like a disappointment in recent years.
• 24:00
  Speaker 1: In recent months, I've been really struggling with a series
• 24:03
  Speaker 1: of Anheuser, Bush and BOV moves. This week, they sold
• 24:06
  Speaker 1: fifteen and a half billion dollars of debt, pushing out
• 24:09
  Speaker 1: the maturities a bit, but they tendered for less than
• 24:13
  Speaker 1: they borrowed, their increasing their overall debt load. With this,
• 24:17
  Speaker 1: they're paying higher rates than they did last year when
• 24:19
  Speaker 1: they borrowed, and now they're trying to perhaps do an
• 24:24
  Speaker 1: I p O maybe to use some of that cash
• 24:25
  Speaker 1: to pay down their debt. Can you understand what the
• 24:28
  Speaker 1: overarching strategy here of the company is. I think probably
• 24:33
  Speaker 1: it's like a little bit preparing for for unexpected things.
• 24:37
  Speaker 1: I think the company is it's already like quite conservatively financed,
• 24:41
  Speaker 1: but and doubtfully the debt levels are quite at a
• 24:45
  Speaker 1: high level, and I think the company has seen like
• 24:49
  Speaker 1: heat wins in the United States where beer sales are
• 24:52
  Speaker 1: slowing and they're losing market here to craft beer and
• 24:55
  Speaker 1: and two imports. I think also, like in some of
• 24:58
  Speaker 1: the emerging markets, it had like a currency impact, So
• 25:02
  Speaker 1: I think that they're probably looking at like how to
• 25:06
  Speaker 1: make their financing like more bulletproof in case like there's
• 25:09
  Speaker 1: more headwind to come. Do you think that it's going
• 25:12
  Speaker 1: to be a popular initial public offering if it takes place,
• 25:14
  Speaker 1: will investors one a piece of it? I think if
• 25:18
  Speaker 1: you look at like the operations of a b Nbath
• 25:20
  Speaker 1: across the world, I think they're definitely like Asia Pacific
• 25:23
  Speaker 1: has been like an area where they've been very strong.
• 25:27
  Speaker 1: If we look at those operations, about three quarters of
• 25:30
  Speaker 1: it would be in China. And although China was like
• 25:34
  Speaker 1: a decade ago, a market where there was a lot
• 25:36
  Speaker 1: of volume but very little value or profit to be achieved,
• 25:40
  Speaker 1: that has really changed and a b Nbath has been
• 25:43
  Speaker 1: like the driving force in premiumization in the Chinese market.
• 25:47
  Speaker 1: And one of the interesting things that we found was
• 25:50
  Speaker 1: that if you look, for example, at the Budweiser sales,
• 25:53
  Speaker 1: you see that in two thousand seventeen, China overtook the
• 25:57
  Speaker 1: US as the largest market for Budweiser volume, so the
• 26:00
  Speaker 1: company has been doing really well there. I think one
• 26:03
  Speaker 1: question would be like can they continue to do so?
• 26:06
  Speaker 1: And we think that for the near term they can,
• 26:08
  Speaker 1: so it probably will be quite popular PIM. That's so ironic,
• 26:12
  Speaker 1: isn't it that Budweiser, which has been the sort of
• 26:15
  Speaker 1: quintessential American beer, is now having greater success in China
• 26:19
  Speaker 1: at a time when US and China are locked in
• 26:21
  Speaker 1: a lot of tight negotiations. Friends, why I'd love to
• 26:24
  Speaker 1: get your opinion on the credit rating Van Heuser Bush
• 26:27
  Speaker 1: and Beev because they were downgraded at the end of
• 26:30
  Speaker 1: last year because of their high debtload and their lack
• 26:34
  Speaker 1: of progress in addressing it. Do you think that immunizing
• 26:38
  Speaker 1: their balance sheet the way that they have is an
• 26:40
  Speaker 1: indication that they won't care if they're down graded to junk.
• 26:44
  Speaker 1: I find it's very difficult. So we've got like other
• 26:46
  Speaker 1: experts within Rabble Bank who who are better position to
• 26:49
  Speaker 1: talk about that. So I like to passle that question
• 26:52
  Speaker 1: if I may. It's not really my my expertise at
• 26:54
  Speaker 1: totally fine. I'm wondering going forward, where will the big
• 26:57
  Speaker 1: growth driver be for the company. I think what's really
• 27:01
  Speaker 1: interesting is to look at Africa, and I think that
• 27:05
  Speaker 1: in recent months it has been a little bit like
• 27:07
  Speaker 1: under under amplified by by the markets. I think if
• 27:12
  Speaker 1: we look at Africa, per capita consumption is still incredibly low.
• 27:17
  Speaker 1: We see that about three quarters of consumption of beer
• 27:19
  Speaker 1: in Africa is like home brewed, and we also see
• 27:23
  Speaker 1: that population grows with three percent per year a b
• 27:26
  Speaker 1: n beth Obviously it's like very strong in the continent
• 27:29
  Speaker 1: of the sab Miller acquisition. So I think they will
• 27:32
  Speaker 1: benefit there from like volume growth, but also from like
• 27:36
  Speaker 1: people who can afford like a little bit better beer
• 27:38
  Speaker 1: spend a bit more. So Africa I think would be
• 27:41
  Speaker 1: really interesting for like the mid to longer term for
• 27:44
  Speaker 1: the company. And it just quickly give you about thirty seconds.
• 27:47
  Speaker 1: The distribution network that Anaheuser Busch in Bev have is
• 27:51
  Speaker 1: global and pretty good. Is there an opportunity for them
• 27:54
  Speaker 1: to sell other products in addition to beer? I definitely
• 27:59
  Speaker 1: think so. I mean actually more like a strong distribution
• 28:02
  Speaker 1: platform with brands rather than the other way around. And
• 28:05
  Speaker 1: there has been a lot of speculation whether a BI
• 28:08
  Speaker 1: should get together with like a soft drink company and
• 28:11
  Speaker 1: if that's the case, you obviously want a strong share
• 28:14
  Speaker 1: price and today's move would make a little sense. Prince
• 28:17
  Speaker 1: Francoise so Neville, thank you so much for being with us.
• 28:20
  Speaker 1: Francois son Neville is senior beverage analyst at robber Bank International,
• 28:23
  Speaker 1: coming to US from London. Anheuser Busch is definitely trying
• 28:28
  Speaker 1: to offend off some of the headwinds that it faced
• 28:31
  Speaker 1: over the past twelve months. It has had a pretty
• 28:34
  Speaker 1: rough time of it. Today, though, we are seeing a
• 28:37
  Speaker 1: little pop in their shares a about three point three
• 28:39
  Speaker 1: percent on the news that they are planning to spin
• 28:41
  Speaker 1: off their Asian operations and initial public offering. Thanks for
• 28:47
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 28:50
  Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or
• 28:54
  Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on
• 28:58
  Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 29:01
  Speaker 1: It's one before the podcast. You can always catch us
• 29:04
  Speaker 1: worldwide on Bloomberg Radio.