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Supply Chain, Markets, and Muni Bonds (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news on the Bloomberg Markets Podcast,
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast supply chain. It's been
• 0:22
  Speaker 1: one of our favorite topics to talk about during in
• 0:24
  Speaker 1: the last several years. Boy, it got ugly there towards
• 0:28
  Speaker 1: the beginning of the pandemic um, but now it seems
• 0:31
  Speaker 1: to be getting better. And we talked to Jeans Siroca.
• 0:34
  Speaker 1: He's the CEO of the Port of l A. He
• 0:35
  Speaker 1: always gives us a good sense of what's going on
• 0:38
  Speaker 1: there because the Port of l A is huge and
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  Speaker 1: particularly coming from that Asia trade. Gene, thanks so much
• 0:43
  Speaker 1: for joining us here. Um, give us a sense of
• 0:45
  Speaker 1: how that things are at your port, how many ships
• 0:48
  Speaker 1: are waiting in harbor, how's the port itself, the railroads,
• 0:53
  Speaker 1: the trucks, what's your dashboard looked like, how's it all
• 0:55
  Speaker 1: playing out? Good morning, Paul, and that the backlog is
• 1:00
  Speaker 1: it's in Los Angeles effectively left us back in August.
• 1:04
  Speaker 1: We all left five of the first seven months of
• 1:07
  Speaker 1: the year going box for box with that all top number.
• 1:10
  Speaker 1: In two thousand one, we had the peak season come
• 1:14
  Speaker 1: in early June and July. We're are best on record
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  Speaker 1: in a hundred and fifteen years. Then the next porter
• 1:20
  Speaker 1: has got a little bit nervous ongoing dock workers in
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  Speaker 1: negotiations and shift the cargo to the east into Gulf Coast.
• 1:26
  Speaker 1: We've got about late capacity today. So so what does
• 1:32
  Speaker 1: shipping look like right now? I mean, we're getting into
• 1:35
  Speaker 1: the holiday season, right the pandemics over for the western world.
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  Speaker 1: Are we seeing um, you know, peak traffic right now?
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  Speaker 1: Are you expecting to get busy this month? No, I
• 1:48
  Speaker 1: don't think. Again, a little bit earlier that that traditional
• 1:52
  Speaker 1: import and export manager didn't want to get into the
• 1:55
  Speaker 1: teeth of supply chain and port congestion all over again
• 1:59
  Speaker 1: for the third year in a row. They were a
• 2:01
  Speaker 1: little conservative, hedged Brock cargo in early to pad those
• 2:05
  Speaker 1: transit times, to make sure indoor states were realized and
• 2:08
  Speaker 1: make sure they stayed away from any potential labor disruption
• 2:11
  Speaker 1: which was not going to happen. Both the employers Association
• 2:15
  Speaker 1: and the dock Workers Union put out two joint media
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  Speaker 1: releases simply stated they won't strike and they won't walk
• 2:21
  Speaker 1: out labor. Yet that's been tough to convince the American
• 2:25
  Speaker 1: cargo owner. Hey, Jean, we're hearing reports really over the
• 2:28
  Speaker 1: last several days that finally Japan. I mean, I'm sorry,
• 2:32
  Speaker 1: China maybe reopening here. I've maybe in response to some
• 2:35
  Speaker 1: of the protests, but if China is really going to reopen,
• 2:38
  Speaker 1: how do you guys kind of you know, get ready
• 2:41
  Speaker 1: for that, because that my sense will be there a
• 2:42
  Speaker 1: lot more sailings and coming out of China. Maybe possibly,
• 2:46
  Speaker 1: But we never saw the precipitous drop that some observers
• 2:50
  Speaker 1: called for, even with the third and fifth waves of
• 2:53
  Speaker 1: COVID variants or the shutdowns that really clamped down on
• 2:57
  Speaker 1: my old hometown of Shanghai. Full were months on end
• 3:01
  Speaker 1: the central government and ports, specifically the Young Shan Deep
• 3:05
  Speaker 1: Seaport in Shanghai, prioritize their long haul cargo. That meant
• 3:09
  Speaker 1: that our goods were gonna come in unabated. We saw
• 3:12
  Speaker 1: a little bit of a dip, a little pick up,
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  Speaker 1: and obviously there were examples of what the lockdown meant
• 3:18
  Speaker 1: a subassembly, manufacturing and transportation, but no real impact. I
• 3:22
  Speaker 1: don't expect a crush of cargo coming our way either
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  Speaker 1: because of this reopening. No. Yeah. In fact, Bloomberg Business
• 3:30
  Speaker 1: we put out a story and they have indicators for
• 3:35
  Speaker 1: each port at the port of l a Um, Singapore,
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  Speaker 1: Hong Kong. All blow normal right now, which is strange,
• 3:44
  Speaker 1: I guess with unless you consider the fact that everybody
• 3:48
  Speaker 1: is looking towards a recession and there's a war um
• 3:51
  Speaker 1: waging in Eastern Europe. Do you expect a pick up
• 3:56
  Speaker 1: in three um? Do you think we need the war
• 3:59
  Speaker 1: to and what's the story there? Well, there's a lot
• 4:03
  Speaker 1: that's got to be fixed overall. Again in the supply chain,
• 4:07
  Speaker 1: every day something happens that gives us pause or creates
• 4:11
  Speaker 1: an ability for us to pivot and move forward. I
• 4:13
  Speaker 1: read the article this morning coming off of the supply
• 4:16
  Speaker 1: lines email that I get every day. Realistically speaking, what
• 4:20
  Speaker 1: we see right now is that you had in the US,
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  Speaker 1: you had a lot of inventory and it was mismatched
• 4:26
  Speaker 1: with us as consumers. Folks started buying just in case,
• 4:30
  Speaker 1: no longer just in time. The warehouses in southern California,
• 4:34
  Speaker 1: of which we boast two billion square feet are still
• 4:37
  Speaker 1: filled to the gills. So this time of holiday season,
• 4:40
  Speaker 1: trying to push out all of that excess inventory, in
• 4:44
  Speaker 1: many cases at discounted levels and have a reset at
• 4:47
  Speaker 1: the beginning of the year for a more normal omni
• 4:50
  Speaker 1: channel distribution and proturement network. Seems to be what we're
• 4:54
  Speaker 1: looking at right now. But again, folks are wringing their hands.
• 4:57
  Speaker 1: Is it recession? Interest rates going up? With said due
• 5:00
  Speaker 1: next There's a lot on our plate in that economic equation.
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  Speaker 1: All right, Jean, good stuff. As always, we always appreciate
• 5:07
  Speaker 1: getting your thoughts here. Jean Stroka. He is the CEO
• 5:10
  Speaker 1: of the Port of Los Angeles, giving a sense of
• 5:12
  Speaker 1: kind of how things are going on supply chain route
• 5:16
  Speaker 1: as we We've been talking to Jean all throughout this pandemic.
• 5:21
  Speaker 1: We're all in on reading the billboard for Bild American
• 5:25
  Speaker 1: Mutual and we're down there at their headquarters with with
• 5:28
  Speaker 1: the CEO, John McCarthy here the CEO and Sean. Before
• 5:32
  Speaker 1: we get into it, I just want to tell you
• 5:33
  Speaker 1: a little story about Paul, my co host here. So
• 5:36
  Speaker 1: he started in UH financial Services on Wall Street like
• 5:40
  Speaker 1: the day after Black Friday in right great timing. And
• 5:45
  Speaker 1: he's of the generation that wanted, you know, big paychecks
• 5:48
  Speaker 1: and worked, uh you know, wake until sleep to get them. Um,
• 5:52
  Speaker 1: no other life besides Wall Street and earning money. I
• 5:55
  Speaker 1: asked somebody did with this first bonus because I figured
• 5:57
  Speaker 1: most people like take their first bonus and go buy
• 5:59
  Speaker 1: a roll lex or something. He bought Muni's very smart, exactly.
• 6:04
  Speaker 1: Clipping coupons is what he does on the weekends. He
• 6:06
  Speaker 1: just sits by the pool and clips his coupons eggs
• 6:09
  Speaker 1: and it's been it's been a good ride. Build American Mutual, Sean,
• 6:13
  Speaker 1: thanks so much for having us down here and your
• 6:14
  Speaker 1: lovely offices down here in tour the Liberty Street. What
• 6:17
  Speaker 1: do you guys do it? Build American Mutual? So we
• 6:19
  Speaker 1: are municipal bond ensure. We're double A rated by standing
• 6:23
  Speaker 1: in ports, and we guarantee, so you ensure municipal bond issuers.
• 6:27
  Speaker 1: We don't you think of it this way. It's a
• 6:28
  Speaker 1: little like if you have a child who's gone to
• 6:31
  Speaker 1: college takes out a student loan. You want him to
• 6:33
  Speaker 1: get a job, you want him to pay it back,
• 6:35
  Speaker 1: but if he doesn't, you're on the hook because you've
• 6:37
  Speaker 1: co signed the loan. Think, Okay, what what we're doing
• 6:40
  Speaker 1: is we're guaranteeing to make sure that timely payment of
• 6:42
  Speaker 1: principle and interest when due. For the investors, well, I
• 6:45
  Speaker 1: know where my guys sleep at night, so if they
• 6:47
  Speaker 1: don't pay anywhere to find him talk to us about
• 6:49
  Speaker 1: the municipal bond market. Um, just today, it's been such
• 6:52
  Speaker 1: a rough year for fixed income, double digit declines across
• 6:56
  Speaker 1: the entire fixed income space. Talks about the musical bond market.
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  Speaker 1: So I think right now it's a tale of two markets. Uh.
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  Speaker 1: This year, there was a hundred um uh billion dollars
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  Speaker 1: of outflows from the municipal market in the first part
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  Speaker 1: of the year, and that's really a transition from very
• 7:12
  Speaker 1: low interest rates of last year in the beginning of
• 7:14
  Speaker 1: this year to hire interest rates now. And so what
• 7:16
  Speaker 1: we're seeing at this moment as a re entry of
• 7:20
  Speaker 1: municipal investors back into the market. And I have to think,
• 7:23
  Speaker 1: what does the municipal market do. It finances eighty percent
• 7:27
  Speaker 1: of essential infrastructure. So when you think about infrastructure, it's
• 7:30
  Speaker 1: state and local governments that are financing that. There are
• 7:33
  Speaker 1: right now four trillion dollars of municipal bonds that are outstanding,
• 7:37
  Speaker 1: and and and of that, if you just try to
• 7:39
  Speaker 1: put a sense for whom who buy? Who are the
• 7:43
  Speaker 1: issuers there? They are state and local governments. They're fifty
• 7:47
  Speaker 1: thousand individual issuers state and local governments, which means that
• 7:51
  Speaker 1: there are you know, about five times the total number
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  Speaker 1: of different issuers than there are in the New York
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  Speaker 1: Stock Exchange in the NASTAC put together. So it's a
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  Speaker 1: huge mark it but it's also one that is traditionally
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  Speaker 1: very staid. Right. Um, towns and cities are gonna always
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  Speaker 1: have financing needs, They constantly need to issue debt um
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  Speaker 1: and they rarely default. And then when you step in
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  Speaker 1: and ensure their bonds, investors can be sure they're not
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  Speaker 1: going to default or if they do, you know you'll
• 8:20
  Speaker 1: catch them fall. So um, that's a hunder percent, right,
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  Speaker 1: I mean, really, what we're focused on is, uh two things.
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  Speaker 1: Essential public purpose is state and local governments issuing for hospitals, bridges, tunnels, roads, um,
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  Speaker 1: and and that they don't default often. But what we're
• 8:39
  Speaker 1: doing is three things, credit default protection, greater liquidity for
• 8:44
  Speaker 1: those municipal bonds, and greater price protection. So those bonds
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  Speaker 1: traded a more stable level. But what I'm getting at
• 8:50
  Speaker 1: those there's typically not so much volatility. This has been
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  Speaker 1: a very odd year for muni's, right, has been for
• 8:55
  Speaker 1: the whole market, But traditionally muni's trade a little bit
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  Speaker 1: differently than definitely corporate debt and even treasuries. That's correct, UH,
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  Speaker 1: and that's really because if you think about who are
• 9:05
  Speaker 1: the buyers of municipal bonds, it's households. It's mutual funds
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  Speaker 1: that represent households. So it's people who are buying UH
• 9:13
  Speaker 1: bonds that have a long UH maturity, and so they're
• 9:18
  Speaker 1: doing that for their portfolios for greater stability and and
• 9:22
  Speaker 1: less volatility than other potential investments like equities. So during
• 9:25
  Speaker 1: this pandemic, we've seen coming out of Watchington a big
• 9:29
  Speaker 1: infrastructure bill, and I'm guessing a lot of that's got
• 9:31
  Speaker 1: to be financed in the municipal bond market. Have you
• 9:33
  Speaker 1: started to see activity tied with that at all or
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  Speaker 1: is that something still to come. So I think the
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  Speaker 1: past at one point one trillion dollar package, but the
• 9:43
  Speaker 1: bipartisan bill, and I think what's going to happen in
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  Speaker 1: the municipal bond market is a lot of those programs
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  Speaker 1: are match funded. So if you think about if you're
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  Speaker 1: gonna borrow to repair your roads and it's repaired just
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  Speaker 1: as much as build new things. If you think about
• 9:57
  Speaker 1: really what's going on UM from New York City, well,
• 10:02
  Speaker 1: they's an opportunity. Yeah, So if you think about how
• 10:05
  Speaker 1: much UH gets to be invested UM, the federal program
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  Speaker 1: is a matched fund program, so that if you want
• 10:13
  Speaker 1: to borrow fifty million dollars from that program, you're gonna
• 10:16
  Speaker 1: issue fifty million dollars worth of municipal bonds in order
• 10:19
  Speaker 1: to make that project a reality. And so right now
• 10:23
  Speaker 1: that money has been approved, it's now just starting to
• 10:26
  Speaker 1: roll out into the market. And so my our estimation
• 10:29
  Speaker 1: would be that that that activity will really take hold
• 10:33
  Speaker 1: in the next couple of years. But this means so
• 10:35
  Speaker 1: I have always thought or or this year, you know
• 10:38
  Speaker 1: now that these municipalities are so cash rich, maybe they
• 10:40
  Speaker 1: don't need to issue as many bonds. But you're saying
• 10:42
  Speaker 1: that a lot of that money came with issuance UH concurrent.
• 10:47
  Speaker 1: So think about it this way. What's happened this year,
• 10:49
  Speaker 1: particularly for for volume is UH. It's about three hundred
• 10:53
  Speaker 1: and sixty billion dollars volume of issuance this year, Um,
• 10:59
  Speaker 1: they're virtual. No refinancings, so normally about the market or refinancings.
• 11:04
  Speaker 1: As interest rates have gone up, refinancings have gone down.
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  Speaker 1: But the important thing to remember is that essential projects
• 11:11
  Speaker 1: still have to be built, Existing facilities have to be repaired,
• 11:15
  Speaker 1: and so the market has a steady issuance going forward,
• 11:19
  Speaker 1: and we project that that's going to be the same
• 11:20
  Speaker 1: for the next you know, five ten years. As a
• 11:23
  Speaker 1: former banker, I've always told companies, you know, borrow when
• 11:27
  Speaker 1: you can, raise capital when you can, and not when
• 11:29
  Speaker 1: you need it. But it's not necessarily the case in
• 11:31
  Speaker 1: municipal bond space. There they don't market time. It's is
• 11:34
  Speaker 1: my understanding. They raise money when they need it, correct,
• 11:37
  Speaker 1: you know, So as you look at can you do
• 11:39
  Speaker 1: you have the municipality saying I'm going to issue in
• 11:42
  Speaker 1: three for a bridge that we're building. Did they did
• 11:45
  Speaker 1: they give you that kind of visibility or is it
• 11:48
  Speaker 1: there's a long term process in order to come to
• 11:50
  Speaker 1: the market for for new for large new projects. So
• 11:53
  Speaker 1: if you think about any town, a town in Connecticut,
• 11:56
  Speaker 1: a town in Nevada, when they decided they're going to
• 11:59
  Speaker 1: build a new town hall or they're gonna put in
• 12:00
  Speaker 1: new sidewalks. They go through a planning process, they go
• 12:03
  Speaker 1: through the approval process. Remember these things are paid from
• 12:08
  Speaker 1: taxes at a local level, so they go through an
• 12:11
  Speaker 1: approval process, they design what they're going to build, and
• 12:13
  Speaker 1: then they issue the bonds. In most circumstances, municipalities have
• 12:17
  Speaker 1: a financial advisor that represents them and putting the transaction together,
• 12:21
  Speaker 1: and then they hire an underwriter UM, you know, like
• 12:23
  Speaker 1: City Bank or or Bank of America to uh, you know,
• 12:28
  Speaker 1: bring those bonds to market and sell them to investors.
• 12:30
  Speaker 1: So if you're ensuring an issue, do you guys have
• 12:33
  Speaker 1: to perform credit analysis yourself to decide how much your
• 12:37
  Speaker 1: charge for that? Absolutely. The vast majority of the people
• 12:42
  Speaker 1: you see here are our credit analysts, and so we
• 12:45
  Speaker 1: spend all of our time, our credit committee needs every year,
• 12:49
  Speaker 1: every day think about what's happening. So what we're doing
• 12:56
  Speaker 1: is UM making a credit decision to guarantee the bond.
• 12:58
  Speaker 1: And I think about it this way. Our kind of
• 13:01
  Speaker 1: insurance is unique because we don't you know, there is
• 13:04
  Speaker 1: no waiver. We pay first and then mitigate later so
• 13:08
  Speaker 1: that the investor knows they're going to get their payment
• 13:10
  Speaker 1: when when they expected to get it, and that's fundamentally
• 13:13
  Speaker 1: important to what we do. So our process of not
• 13:16
  Speaker 1: only underwriting the transactions when they come to market, but
• 13:19
  Speaker 1: surveiling them UH is an important part. So we we
• 13:23
  Speaker 1: watch those municipal bond issues um until they mature. And
• 13:28
  Speaker 1: that's something that the investors can take comfort in and frankly,
• 13:31
  Speaker 1: the issuers take comfort in. Historically, have you guys done
• 13:34
  Speaker 1: in terms of losses or just risk from these questions?
• 13:37
  Speaker 1: So we've been in business eleven years. I've been in
• 13:40
  Speaker 1: in the bonding trans business for a very very long time.
• 13:42
  Speaker 1: We have issued a hundred and fifteen billion dollars worth
• 13:46
  Speaker 1: the transactions. We've had no default. I'll take that. So
• 13:50
  Speaker 1: that's some good credit analysts around here. I'm surrounded by
• 13:53
  Speaker 1: these sharp credit analyst guys. Good stuff, all right, Sean,
• 13:56
  Speaker 1: thanks so much for having us here. Sean McCarthy, he's
• 13:59
  Speaker 1: build American Mutual, he's a chief executive officer. We never
• 14:02
  Speaker 1: got to ask about work from home. We gotta talk
• 14:04
  Speaker 1: to him during the break because I gotta know if
• 14:06
  Speaker 1: all these guys came in today just because we're here
• 14:08
  Speaker 1: just to see us to three days a week everybody's
• 14:10
  Speaker 1: in the office. That's kind of where we're rotated around.
• 14:13
  Speaker 1: And that's the thing. And the one final thing I
• 14:15
  Speaker 1: just mentioned is that we're a mutual. So the people
• 14:18
  Speaker 1: who are are stakeholders and own the company are the
• 14:21
  Speaker 1: five thousand municipalities that have taken our insurance. Okay, that's important,
• 14:24
  Speaker 1: that's important. All right, good stuff, all right, Sean McCarthy,
• 14:27
  Speaker 1: great stuff. Built American Mutual Chief a bacont of officer. Bam,
• 14:31
  Speaker 1: there you go, thanks for being here. Let's talk about
• 14:37
  Speaker 1: municipal finance financing big cities, and boy, there's not too
• 14:41
  Speaker 1: many bigger than the City of Chicago. Jenny Kwang Bennett
• 14:44
  Speaker 1: joins us. She's a chief finance officer for the City
• 14:47
  Speaker 1: of Chicago. Jenny, thanks so much for joining us here
• 14:49
  Speaker 1: at the Build American Mutual Offices. Talk to us about
• 14:52
  Speaker 1: the financial situation, the financial health, the financial um, you know,
• 14:56
  Speaker 1: outlook for the city of Chicago. Great city, one of
• 14:58
  Speaker 1: the America's great cities. Talked to us about Chicago. Sure, absolutely,
• 15:01
  Speaker 1: and thank you for having me. Always happy to talk
• 15:03
  Speaker 1: about the city of Chicago and its financial turnaround. Um,
• 15:06
  Speaker 1: you don't have to take my word for it. Although
• 15:08
  Speaker 1: I will speak to some of the financial improvements at
• 15:11
  Speaker 1: the city, but very importantly, the City of Chicago has
• 15:13
  Speaker 1: achieved ten rating upgrades across various credits at the City
• 15:17
  Speaker 1: of Chicago plus two outlook upgrades UM too Positive over
• 15:22
  Speaker 1: the last four months, and it's a demonstration of the
• 15:25
  Speaker 1: financial turnaround that the city is in right now. The
• 15:28
  Speaker 1: upgrades have spanned the city's GEO STSC credit UM, the
• 15:33
  Speaker 1: Airport credit, the water and Sewer credits UH, the o'hared
• 15:37
  Speaker 1: midway credits, and all of that for the first time
• 15:40
  Speaker 1: in six to twelve UM. It's a lot of financial
• 15:43
  Speaker 1: improvement at the city. In particular, the corporate fund credit
• 15:47
  Speaker 1: UM has seen structural balance now UM for the first
• 15:50
  Speaker 1: time in decades. We have climbed a pension ramp that
• 15:54
  Speaker 1: has included one point eight billion dollars and increased UH
• 15:58
  Speaker 1: pension funding over the last three years. And very importantly,
• 16:02
  Speaker 1: we have found a way to do all of that
• 16:04
  Speaker 1: in the midst of a pandemic. And so it's a
• 16:07
  Speaker 1: very important turnaround for the city in terms of all
• 16:10
  Speaker 1: of the financial metrics that rating analysts follow on a
• 16:13
  Speaker 1: regular basis. UM. Very importantly, we've also climbed our debt ramp,
• 16:16
  Speaker 1: which allows us to advertize somewhere between three hundreds of
• 16:19
  Speaker 1: four hundred million dollars in principle a year. UM. That's
• 16:22
  Speaker 1: reduced our overall debt burden by three quarters of a
• 16:25
  Speaker 1: billion dollars UM over the last three years. And by
• 16:28
  Speaker 1: way of perspective, the City of Chicago has twenty six
• 16:30
  Speaker 1: billion dollars of debt outstanding. UM. In general, we are
• 16:33
  Speaker 1: one of the top ten issues and municipal debt in
• 16:35
  Speaker 1: the market. And so UM, it's a there's a There
• 16:37
  Speaker 1: are a lot of financial metric improvements that have occurred
• 16:40
  Speaker 1: over the last three years, in particular during Mayor Lightfoots administration, UM,
• 16:44
  Speaker 1: but also over the course of decades for the City
• 16:46
  Speaker 1: of Chicago that has led to this moment where UM,
• 16:48
  Speaker 1: we're getting recognition across the board by the rating agencies.
• 16:52
  Speaker 1: So no more junk UH debt for the City of Chicago,
• 16:56
  Speaker 1: and you've found ways to make an impact socially right
• 16:59
  Speaker 1: in term of your debt issuance. Yes, absolutely, um, So
• 17:02
  Speaker 1: to your point, Moody's has upgraded us to investment grade,
• 17:05
  Speaker 1: and so now the City of Chicago is investment grade
• 17:08
  Speaker 1: across all of its credits UM. In addition to that,
• 17:10
  Speaker 1: because of the fact that we climbed our debt ramp
• 17:12
  Speaker 1: and because of the fact that we've climbed our pension ramp,
• 17:15
  Speaker 1: cleared our deferred liabilities, were now able to make historic
• 17:18
  Speaker 1: investments in the City of Chicago. UM. There are three
• 17:21
  Speaker 1: main investment plans. There's the Chicago Recovery Plan, which is
• 17:24
  Speaker 1: one point two billion dollars making some of the most
• 17:27
  Speaker 1: historic progressive investments in the city, including the Vacant Law
• 17:30
  Speaker 1: Investment Program UM, Affordable Housing, Fleet Decarbonization UM, so on,
• 17:35
  Speaker 1: and so forth. There's the Invest Southwest Program, which makes
• 17:38
  Speaker 1: two billion dollars of economic development investments in South and
• 17:41
  Speaker 1: West Side neighborhoods, largely low income neighborhoods in Chicago. And
• 17:44
  Speaker 1: then there's a Chicago Works Program, which is our deferred
• 17:47
  Speaker 1: capital maintenance program, streets lighting, UM, typical infrastructure investment. All
• 17:52
  Speaker 1: told that six billion dollars of investments that we're making
• 17:56
  Speaker 1: and UH. Within that, we've selected a number of projects
• 17:59
  Speaker 1: that will make up our inaugural Social Impact Bond issuance,
• 18:02
  Speaker 1: which will be coming UM in the next month or so.
• 18:05
  Speaker 1: So in the last several years, we've seen some big
• 18:07
  Speaker 1: corporate UM residents of Chicago leaves Citadel Boeing talk to
• 18:13
  Speaker 1: us about the challenges you as a city have in
• 18:16
  Speaker 1: kind of trying to attract and retain UH corporate residents.
• 18:20
  Speaker 1: You know, big, big, big companies. Sure, so I would
• 18:24
  Speaker 1: offer that UM, although you know we UM, you know
• 18:27
  Speaker 1: are stating by the loss of those firms that you
• 18:29
  Speaker 1: mentioned in particular UM, the number of jobs impacted our
• 18:32
  Speaker 1: very smallest compared to the total number of jobs that
• 18:35
  Speaker 1: we've increased over the course of the last few years,
• 18:37
  Speaker 1: in particular in the midst of the pandemic. So the
• 18:40
  Speaker 1: city of Chicago has seen a hundred and seventy one
• 18:42
  Speaker 1: pro Chicago decisions, which we define as headquarters UM or
• 18:45
  Speaker 1: corporate relocations that increase their presence in the city of Chicago,
• 18:49
  Speaker 1: and that's created around twenty thousand new jobs and which
• 18:52
  Speaker 1: then themselves creates another thirty thousand jobs. Some notable recent
• 18:57
  Speaker 1: editions includes Google, who has UM add at a new
• 19:00
  Speaker 1: UM facility to their existing facility in the west Loop
• 19:03
  Speaker 1: that will generate thousands of new jobs for the city.
• 19:06
  Speaker 1: Uh kellon UM has announced that they're moving their largest
• 19:09
  Speaker 1: division to the city of Chicago, which is their snack
• 19:11
  Speaker 1: division around the about eleven billion dollars of revenue and
• 19:14
  Speaker 1: then um in addition to that, we also had Kimberly
• 19:17
  Speaker 1: Clark make a major corporate relocation as well as UMU
• 19:21
  Speaker 1: as as well as Discover, who put their largest call
• 19:23
  Speaker 1: center in one of our South Side neighborhoods. Which it
• 19:26
  Speaker 1: like working with Illinois because I'm assuming, uh, some of
• 19:29
  Speaker 1: the Leavers had concerns about the state more than the
• 19:32
  Speaker 1: city of Chicago. Um So, the city of Chicago is
• 19:36
  Speaker 1: the largest economic engine within the state of Illinois, and
• 19:39
  Speaker 1: we provide a lot of a lot of revenue to
• 19:41
  Speaker 1: the state. UM. We did just pass the casino as well,
• 19:44
  Speaker 1: which will generate significant value to the state and to
• 19:47
  Speaker 1: the city somewhere around five billion dollars in total. Um So,
• 19:50
  Speaker 1: there are a lot of ways that we contribute to
• 19:52
  Speaker 1: the state. UM. You know, we also spent a lot
• 19:54
  Speaker 1: of way. There's going to be a casino in Chicago. Yes,
• 19:57
  Speaker 1: there's a new casino in Chicago. It's been authorized. It's
• 19:59
  Speaker 1: roundly about a hundred million dollars a year in revenue
• 20:01
  Speaker 1: to the city. Um uh. And then another um you know, uh,
• 20:05
  Speaker 1: two hundred million or so in revenue to the state
• 20:07
  Speaker 1: of Illinois. Talk to us about the crime situation in
• 20:10
  Speaker 1: Chicago and how what kind of headwinds that presents to
• 20:14
  Speaker 1: the city and kind of what's the administration's planned to
• 20:18
  Speaker 1: try to address that. We have, you know, similarsus here
• 20:20
  Speaker 1: in New York City, but Chicago seems to get a
• 20:22
  Speaker 1: lot of attention. UM So what we're experiencing in terms
• 20:25
  Speaker 1: of public safety trends is not dissimilar from what a
• 20:28
  Speaker 1: lot of other urban areas face. Um you know. We
• 20:31
  Speaker 1: know in the city of Chicago that there has been
• 20:33
  Speaker 1: historic segregation, UM and disinvestment in largely low income neighborhoods.
• 20:38
  Speaker 1: And so that's why one of the um UH investments
• 20:42
  Speaker 1: that we started out with, even before the investment investment
• 20:45
  Speaker 1: plans I just mentioned, um you know, was about making
• 20:47
  Speaker 1: deeper investments in South and West side neighborhoods in order
• 20:51
  Speaker 1: to try to write some of those historic wrongs. What
• 20:54
  Speaker 1: that means by way of public safety is that we're
• 20:56
  Speaker 1: making the investments that create wrap around services that addresses
• 21:00
  Speaker 1: the root causes of violence. So rather than taking a
• 21:03
  Speaker 1: policing approach which we know will have immediate impact but
• 21:06
  Speaker 1: ultimately won't create transformative change for those neighborhoods. We're taking
• 21:09
  Speaker 1: that broader citywide, whole of government approach. What's that? What
• 21:13
  Speaker 1: that's resulted in in the top fifting communities that have
• 21:16
  Speaker 1: over of the crime in the city of Chicago, Dave
• 21:19
  Speaker 1: Steen somewhere between a thirty and fifty percent reduction in crime,
• 21:23
  Speaker 1: in particular by way of homicides and shootings, And so
• 21:26
  Speaker 1: we know the approach is working. UM. You know, we
• 21:28
  Speaker 1: are also working on ramping up recruiting efforts for the
• 21:32
  Speaker 1: police department. In the most recent budget we passed, there
• 21:35
  Speaker 1: was a hundred million dollars of additional public safety investments
• 21:38
  Speaker 1: for UM the police department. In particular. UM there are
• 21:41
  Speaker 1: new cell phones being provided to all patrol officers, who
• 21:44
  Speaker 1: will then UM have a more efficient way of being
• 21:46
  Speaker 1: able to receive calls and understand where calls of service
• 21:49
  Speaker 1: have been, file reports in the field. And so a
• 21:51
  Speaker 1: lot of investment is being made into in terms of
• 21:54
  Speaker 1: both UM direct public safety investments as well as whole
• 21:57
  Speaker 1: government investments to help support the public safety in Chicago.
• 22:01
  Speaker 1: So I think it's interesting that you're not just in numbers, CFO,
• 22:03
  Speaker 1: You're invested in making a difference socially the public schools
• 22:07
  Speaker 1: for the cf OF was the CFO of the public schools.
• 22:11
  Speaker 1: I think one of the most interesting things about municipal
• 22:13
  Speaker 1: finance in general is that what we do is ultimately
• 22:16
  Speaker 1: not just about the numbers, but how the math and
• 22:19
  Speaker 1: the money ultimately creates investments. UM. I said this in
• 22:22
  Speaker 1: a recent speech, where ultimately what we do by way
• 22:25
  Speaker 1: of financial stability is so important because it pays for
• 22:29
  Speaker 1: the investments that we make. And so the point I
• 22:31
  Speaker 1: made earlier about the fact that we've paid down three
• 22:33
  Speaker 1: quarters of a billion dollars in debt and are now
• 22:35
  Speaker 1: paying down our debt to the tune of three to
• 22:37
  Speaker 1: four hundred million a year, those are now investments that
• 22:40
  Speaker 1: we can make through the through the various investment programs
• 22:42
  Speaker 1: at total about eight billion dollars, we are making some
• 22:45
  Speaker 1: of the most historic investments in the City of Chicago
• 22:48
  Speaker 1: without increasing our debt burden. And that's because of the
• 22:51
  Speaker 1: fact that we have financial stability and a way to
• 22:53
  Speaker 1: pay for these investments. Because he knows, by the way,
• 22:55
  Speaker 1: I have long been away of raising money UM for municipalities.
• 23:00
  Speaker 1: Now there's weed, and I wonder what you think about that,
• 23:03
  Speaker 1: because it's legal in Illinois, right, and you must be
• 23:06
  Speaker 1: able to generate significant revenue. Um. Does that some of
• 23:10
  Speaker 1: that go to Chicago or is it all to the state?
• 23:12
  Speaker 1: How's that work? So the majority of the money does
• 23:14
  Speaker 1: go to the state. We do see some of that money,
• 23:16
  Speaker 1: uh come to us for public safety. The amount isn't large,
• 23:19
  Speaker 1: but we do receive some portion of money, UM by
• 23:22
  Speaker 1: way of casinos. Um. You know, it is going to
• 23:24
  Speaker 1: generate significant revenue for our police and fire pension funds.
• 23:27
  Speaker 1: But in addition to that, it's already happening. Um, it's
• 23:30
  Speaker 1: all going to Indiana at this point. And so the
• 23:32
  Speaker 1: Chicago casino we expect will Repaytriot approximately a hundred ninety
• 23:36
  Speaker 1: million dollars of gaming activity back to the city UM,
• 23:39
  Speaker 1: which ultimately allows us to pay for Illinois essential services
• 23:42
  Speaker 1: as opposed to essential services in other states. All right,
• 23:44
  Speaker 1: great stuff, Jenny Wonk Bennett, chief Financial Officer for the
• 23:47
  Speaker 1: City of Chicago, joining us. Live here at our Build
• 23:50
  Speaker 1: America Mutual Headquarters. Maybe we are back in the Build
• 23:57
  Speaker 1: American Mutual Headquarters in lovely Lower Manhattan. I've been I
• 24:01
  Speaker 1: spent a lot of my career down here. There's some
• 24:03
  Speaker 1: good folks down here. We're talking municipal bonds. We're talking
• 24:06
  Speaker 1: muic bond market. We've got some pros here at the table,
• 24:09
  Speaker 1: literally at the round table. Glenn McGowan, he's coheaded municipal
• 24:12
  Speaker 1: Underwriting at RBC Capital Markets and kind of dank head
• 24:16
  Speaker 1: of municipal trading at City. Uh. They're here. They're all
• 24:19
  Speaker 1: in on this municipal bond market. Guys, thanks so much
• 24:22
  Speaker 1: for joining us. Really appreciate it. Glenn. Let's just start
• 24:24
  Speaker 1: with you, Um, what are municipalities doing? Are they? Are
• 24:29
  Speaker 1: they active this year? I mean, there's been such a
• 24:31
  Speaker 1: brutal year in the fixed income markets. But what have
• 24:34
  Speaker 1: your clients been telling you about maybe their appetite for
• 24:37
  Speaker 1: getting into this market. Yeah, sure, Paul, good, good question.
• 24:40
  Speaker 1: I would say that, you know, in general, it's been
• 24:42
  Speaker 1: a very light year in terms of supply. You know,
• 24:44
  Speaker 1: we're coming off of the lightest month of November since
• 24:47
  Speaker 1: n and you're to date issuance right now right around
• 24:50
  Speaker 1: three hundred and sixty billion, that's down about eighteen percent
• 24:53
  Speaker 1: year over year. And I think, you know, for a
• 24:55
  Speaker 1: good chunk of this year, governmental issuers were indicating that
• 24:59
  Speaker 1: tax or ce were strong and a fair amount of
• 25:01
  Speaker 1: federal aid was still sitting on their balance sheets, and
• 25:04
  Speaker 1: so the need to access the capital markets was was reduced.
• 25:09
  Speaker 1: And I think you have some other sectors that have
• 25:11
  Speaker 1: been accessing capital and in different formats. A lot of
• 25:15
  Speaker 1: healthcare issseurs have been resorting more to private placements. And
• 25:17
  Speaker 1: so the net effect of that, and when you think
• 25:19
  Speaker 1: about the increase in interest rates over the course of
• 25:22
  Speaker 1: this year, you know, you've had less taxable refunding activity.
• 25:25
  Speaker 1: The net result of all that is a significantly lower
• 25:28
  Speaker 1: pace of issuance over the course of this year. So,
• 25:30
  Speaker 1: as I mentioned about three hundred and sixty billion of
• 25:32
  Speaker 1: total issuance, what's interesting is if you net out about
• 25:36
  Speaker 1: twenty one and a half billion of private placements, you know,
• 25:39
  Speaker 1: you're looking at about three hundred and thirty nine billion
• 25:41
  Speaker 1: of publicly issued municipal bonds so far this year. Was
• 25:44
  Speaker 1: that compared to you know, the the pace of privates
• 25:48
  Speaker 1: is fairly consistent with last year. I think it was
• 25:50
  Speaker 1: about twenty two billion or some. I mean overall, what
• 25:53
  Speaker 1: were you seeing in one or if we saw three
• 25:58
  Speaker 1: sixty this year, is that a lot or a little? Yeah,
• 26:01
  Speaker 1: it's it's it's a little. We were in the kind
• 26:03
  Speaker 1: of mid fours in the last two years for sure,
• 26:06
  Speaker 1: And so as we project ahead to next year, you know,
• 26:08
  Speaker 1: with this interest rate environment being I think fairly consistent,
• 26:11
  Speaker 1: and you can certainly build a case that as the
• 26:13
  Speaker 1: Fed eventually wraps up its tightening process in the first
• 26:17
  Speaker 1: quarter and the first quarter of next year, UM, you know,
• 26:20
  Speaker 1: and and with economic growth expected to start to move
• 26:23
  Speaker 1: into some sort of a recession, that you could you know,
• 26:26
  Speaker 1: you could make a case pretty easily for marginally lower
• 26:29
  Speaker 1: rates by the end of next year. But we're anticipating
• 26:31
  Speaker 1: a pretty consistent pace of issuance as we move into
• 26:33
  Speaker 1: next year. So a little scarcity there. You run Glenn
• 26:36
  Speaker 1: Underwriting at RBC, having you run Muni Trading at City,
• 26:40
  Speaker 1: what does that scarcity mean for your business? Thanks for
• 26:44
  Speaker 1: having me a great question. Uh, you know, the primary
• 26:48
  Speaker 1: supply being lower has certainly I think helped to mitigate
• 26:51
  Speaker 1: some of the challenges we've seen in the market this year. UM.
• 26:55
  Speaker 1: The main uh headwind for us really has been the
• 27:00
  Speaker 1: mutual fund outflows that have really been UM consistent throughout
• 27:03
  Speaker 1: the course of the year. We're going on. UM. I
• 27:05
  Speaker 1: think it was forty four weeks of consecutive outflows out
• 27:09
  Speaker 1: of mutual funds UM, which UM you know has certainly
• 27:12
  Speaker 1: uh provided a head wind. UM. So the fact that
• 27:15
  Speaker 1: there hasn't been a huge primary acclendar to kind of
• 27:17
  Speaker 1: compete with the selling that mutual funds have had to
• 27:19
  Speaker 1: do UM has helped the secondary function probably a little
• 27:22
  Speaker 1: more smoothly. Why are those outflows happening? Is it tax
• 27:25
  Speaker 1: loss harvesting or are people converting to E T F
• 27:29
  Speaker 1: s U great question. I think you probably have to
• 27:33
  Speaker 1: dimension a little bit beginning of the year versus now.
• 27:36
  Speaker 1: I think initially, uh, you know, January, February, March April,
• 27:40
  Speaker 1: I think it was driven largely by uh, inflationary concerns.
• 27:45
  Speaker 1: I think UM a FED that was hawkish than it
• 27:48
  Speaker 1: had been in quite some time. You know, you had
• 27:50
  Speaker 1: Chairman Pale throughout one saying that inflation was transitory. UH.
• 27:55
  Speaker 1: It was pretty clear early in two that was not
• 27:58
  Speaker 1: the case, and he really dialed up the hawkish DRICK.
• 28:00
  Speaker 1: So I think earlier in the year it was a
• 28:02
  Speaker 1: function of fear more than anything just rising rates. UM.
• 28:06
  Speaker 1: I think as we've transitioned later in the year, I
• 28:09
  Speaker 1: think you're probably seeing more of that tax laws selling, UH,
• 28:12
  Speaker 1: some of that money is probably going into e t
• 28:14
  Speaker 1: f s as you mentioned, I think some of that's
• 28:15
  Speaker 1: probably also going into direct retail. You just buying municipal
• 28:19
  Speaker 1: bonds direct off the screens because you know those those
• 28:22
  Speaker 1: securities are offering significantly more yield than they've offered him
• 28:25
  Speaker 1: quite some time, especially on the longer end of the curve. Hey, Glenn,
• 28:27
  Speaker 1: tell me about the underrating side of the business. Do
• 28:31
  Speaker 1: your bankers sit at there in their offices and pick
• 28:33
  Speaker 1: up the phone when a municipality says I need to
• 28:36
  Speaker 1: build a bridge, or are you guys out there pitching business.
• 28:39
  Speaker 1: Do you go to, like, I don't know, the city
• 28:41
  Speaker 1: of Camden, New Jersey and say, boy, you guys need
• 28:43
  Speaker 1: to pay of your roads. Here's a bond. So I
• 28:46
  Speaker 1: would say that most of the bankers that that we know,
• 28:49
  Speaker 1: and most of the bankers that the large firms are
• 28:50
  Speaker 1: out pitching constantly, and it's it's not really just about
• 28:53
  Speaker 1: trying to find the next deal, but trying to be
• 28:55
  Speaker 1: thoughtful about, you know, their client subjectives. In the context
• 28:58
  Speaker 1: of the capital markets, where can you finance infrastructure? Where
• 29:01
  Speaker 1: can you build out a hospital project? You know, how
• 29:03
  Speaker 1: can you manage your your obligations to the public and
• 29:07
  Speaker 1: provide the goods and services that are necessary in the
• 29:09
  Speaker 1: context of the market. And so you know, most of
• 29:11
  Speaker 1: the bankers that we work with are are constantly you know,
• 29:15
  Speaker 1: out coming up with ideas, pitching those ideas to clients
• 29:18
  Speaker 1: and their advisors. Uh. You know, but I think there's
• 29:20
  Speaker 1: a certain subset of the issue where base right now
• 29:22
  Speaker 1: that just doesn't have as much need for capital. Now
• 29:24
  Speaker 1: that could change as we head into a rocky economic
• 29:27
  Speaker 1: environment next year. Um, you know, And I think you
• 29:29
  Speaker 1: can also make a case that with gridlock in Washington,
• 29:32
  Speaker 1: d C. Split control of Congress, you know, we're probably
• 29:35
  Speaker 1: not going to get much help out of the federal
• 29:36
  Speaker 1: government in terms of financing infrastructure. So that could be
• 29:39
  Speaker 1: another area that may be you know, shouldered by state
• 29:42
  Speaker 1: and local governments in terms of needing to Kevin, I'm
• 29:45
  Speaker 1: a big trader of municipal bonds. I've got a huge portfolio.
• 29:49
  Speaker 1: I need to unload some city of Cherry Hill bonds.
• 29:53
  Speaker 1: I come in to your trading desk. What kind of
• 29:57
  Speaker 1: market you can make for me? You get liquidity to
• 29:58
  Speaker 1: really step up and get my trade done? Oh yeah, absolutely,
• 30:02
  Speaker 1: it's this Cherry Holl New Jersey, Yeah, Jersey, So yes,
• 30:04
  Speaker 1: absolutely for Cherryhill. Uh yeah, we um, we take a
• 30:08
  Speaker 1: lot of risks in the municipal space. Are balance she
• 30:11
  Speaker 1: you know, generally speaking, UM runs well in excessive a
• 30:14
  Speaker 1: billion bonds. So um, we're active on a daily basis, UM,
• 30:17
  Speaker 1: whether it's the kind of microlot space ten twenty pound
• 30:20
  Speaker 1: pieces all the way up to block size tens twenties
• 30:24
  Speaker 1: and uh you know, so we are. We're in the market,
• 30:28
  Speaker 1: we're active and um, you know it's been it's been
• 30:32
  Speaker 1: a fun year to trade. Frankly, volatility makes things a
• 30:35
  Speaker 1: lot more interesting. Yeah. Absolutely, So what's next year look like?
• 30:38
  Speaker 1: I mean, after the ridiculously terrifying screens that we had
• 30:43
  Speaker 1: to look at all year, you know, I end go
• 30:45
  Speaker 1: on the Bloomberg shows, the massive losses all the way
• 30:47
  Speaker 1: across fixed income, UM, is next year better? I think so? Personally.
• 30:52
  Speaker 1: I mean, you know, when you look at the muni market,
• 30:55
  Speaker 1: it's actually been been pretty stable overall since about May
• 30:59
  Speaker 1: of next year. UM, So the first four months or
• 31:01
  Speaker 1: so it was really um where the vast majority of
• 31:04
  Speaker 1: the pain took place, and and the meaning market the
• 31:07
  Speaker 1: one thing it's it's pretty good at, is it can
• 31:09
  Speaker 1: adjust pretty violently to get to valuations at which people
• 31:13
  Speaker 1: are going to step in to buy it. And and
• 31:14
  Speaker 1: that's really what I would say happen in April May
• 31:17
  Speaker 1: as we got to yield levels where you know, you
• 31:19
  Speaker 1: could buy longer dated paper twenty to thirty year final
• 31:22
  Speaker 1: maturity usually ten year calls double ayer better rated, uh
• 31:26
  Speaker 1: anywhere from a four to four and a half yield,
• 31:29
  Speaker 1: which you know, if you're in a high tech state
• 31:31
  Speaker 1: like New York in a high tax bracket, you know
• 31:34
  Speaker 1: you'd be talking about taxable equivalent yields of eight to
• 31:37
  Speaker 1: nine percent even in lower tax states and uh you know,
• 31:42
  Speaker 1: um lower tax brackets that you're still talking five and
• 31:44
  Speaker 1: a half to seven and a half percent on a
• 31:46
  Speaker 1: taxable equivalent basis for super high quality assets. You know,
• 31:49
  Speaker 1: that's a pretty compelling return for for retail investor. Football
• 31:52
  Speaker 1: your ball, your bond still getting called uh no, not
• 31:55
  Speaker 1: as much, but they were getting because this summer you
• 31:58
  Speaker 1: were like crying about it every day. I mean, you know,
• 32:00
  Speaker 1: and then I got to go to the block desk
• 32:01
  Speaker 1: at city. I'm not going to the retail desk to
• 32:03
  Speaker 1: move my moon. Um so Glenn Infrastructure Act. It was
• 32:06
  Speaker 1: like a jillion and one dollars. How do you guys
• 32:09
  Speaker 1: think about that as a strategy for the next couple
• 32:11
  Speaker 1: of years in terms of talking to your clients, Presumably
• 32:14
  Speaker 1: they're gonna be having opportunities to fund maybe more projects
• 32:17
  Speaker 1: than they thought. Yeah, I think the burden of financing
• 32:21
  Speaker 1: public infrastructures, as I mentioned before, we're gonna be shouldered
• 32:23
  Speaker 1: more and more by our issuer base. I have been
• 32:26
  Speaker 1: a little bit underwhelmed by some of the provisions in
• 32:29
  Speaker 1: the various legislation that's passed in terms of what it's
• 32:32
  Speaker 1: done for the municipal bond market. Simple things that could
• 32:34
  Speaker 1: have provided relief valves for our issue where base tax
• 32:37
  Speaker 1: exempt advance for fundings that never really happened. Uh, you know,
• 32:40
  Speaker 1: a reintroduction of the BABS like program never really happened.
• 32:43
  Speaker 1: And so I think the burden is going to continue
• 32:45
  Speaker 1: to be shoulder by our issue where Base. I think
• 32:47
  Speaker 1: that could you know, lead some to conclude that maybe
• 32:50
  Speaker 1: you see an uptick and issuance, but are our thought
• 32:52
  Speaker 1: for next year is kind of a stable billion dollar
• 32:56
  Speaker 1: type of total supply type environment. It's hard to see
• 32:59
  Speaker 1: in this economic environment, in this rate environment that dramatically changing,
• 33:02
  Speaker 1: at least in our view. How do you work with BAM.
• 33:04
  Speaker 1: By the way, when you're talking to an issuer, um,
• 33:07
  Speaker 1: how do you partner up with the two of them? Sure,
• 33:11
  Speaker 1: so you know, BAM provides credit enhancement for our issue
• 33:14
  Speaker 1: where base and so the net result there is issuers
• 33:18
  Speaker 1: purchasing insurance in the new issue market to buy down
• 33:21
  Speaker 1: a lower yield. We also use it in the secondary
• 33:24
  Speaker 1: market sometimes we have investors that want to ensure a bond,
• 33:28
  Speaker 1: whether it's for a portfolio defense strategy or for a
• 33:32
  Speaker 1: for you know, for more tactical trading strategy. So we're
• 33:35
  Speaker 1: frequent counterparts with BAM and the new issue market. In
• 33:38
  Speaker 1: the secondary market, it's all about trying to find value
• 33:40
  Speaker 1: for credit enhancement and we've been pretty active in that regard.
• 33:43
  Speaker 1: All right, folks, thanks so much for joining us here.
• 33:45
  Speaker 1: We had Glenn McGowan, co head of Municipal Underwriting an
• 33:48
  Speaker 1: RBC Capital Markets, and Kevin Dankworth. He's had a municipal
• 33:52
  Speaker 1: trading at City. Has to be just a joy of
• 33:58
  Speaker 1: a day for you. I mean, we're doing nothing but
• 34:00
  Speaker 1: municipal bonds, no cars, you know, none of that crypto
• 34:04
  Speaker 1: stuff we're talking munsiccible bonds. But it's honestly, it's heaven
• 34:07
  Speaker 1: for you, isn't it It is? It's great. All goes
• 34:09
  Speaker 1: home and he just swims in the pool full municipal bonds.
• 34:13
  Speaker 1: He's been building it up ever since he was a
• 34:14
  Speaker 1: little kid. The first thing he asked for for Christmas.
• 34:17
  Speaker 1: I wanted a red Rider BB gun and Paul wanted
• 34:20
  Speaker 1: municipal bonds and the coupons that I can clip. Eric
• 34:22
  Speaker 1: Kazaski joins his He's senior US missible strategist. He's here
• 34:26
  Speaker 1: at Bloomberg Intelligence. Chris Spergotti Managing Director and Senior VP
• 34:30
  Speaker 1: of Municipal Investments at Valley National Bank. These guys are
• 34:33
  Speaker 1: live here at the Build American Mutual headquarters here in
• 34:36
  Speaker 1: Lower Manhattan. Eric, thanks which and uh, you know, Chris,
• 34:39
  Speaker 1: thanks so much for joining us here. Eric, man, you
• 34:42
  Speaker 1: guys have had a brutal year in municipals. Maybe not
• 34:45
  Speaker 1: as bad as some other spots and fixed income, but
• 34:48
  Speaker 1: assuming clients actually pick up the phone when you call,
• 34:51
  Speaker 1: what are they saying about three? Well, I think they're
• 34:54
  Speaker 1: excited based on the last thirty forty five days, right,
• 34:57
  Speaker 1: We've had four and a half five percent returns. But
• 34:59
  Speaker 1: I think the real spot high old Muni's almost six
• 35:01
  Speaker 1: and a half returns over the last thirty five days,
• 35:04
  Speaker 1: pretty good start to head into three and there's a
• 35:07
  Speaker 1: little bit of runway there for a positive performance. How
• 35:09
  Speaker 1: does high yield munies work? Are they still backed by
• 35:13
  Speaker 1: Build America Mutual? Because I feel safe in case you
• 35:16
  Speaker 1: should feel safe. But I think that there are probably
• 35:18
  Speaker 1: things that maybe like some of the insurance companies really
• 35:21
  Speaker 1: don't want to touch because there's a lot of hair
• 35:22
  Speaker 1: on some of these deals. Look take American Dreams Mall,
• 35:24
  Speaker 1: for instance, right tapping into the reserves once again. At
• 35:27
  Speaker 1: some point they're going to run out of reserves to
• 35:28
  Speaker 1: tap right, But that means more risk, more spread for
• 35:31
  Speaker 1: investors who are willing to sort of wait in there.
• 35:33
  Speaker 1: I've still never been there. Our next remote we have
• 35:35
  Speaker 1: to go to the American dream Mall. When when you
• 35:39
  Speaker 1: look at um A bond and and issuance, what do
• 35:43
  Speaker 1: you guys look for, Like, what's your criteria? Typically? I
• 35:46
  Speaker 1: mean generally what we're doing is sticking to the higher
• 35:49
  Speaker 1: investment great stuff. For most of the things that we do,
• 35:51
  Speaker 1: we're looking for something that's liquid enough that we can
• 35:53
  Speaker 1: turn around and get some velocity in terms of selling
• 35:56
  Speaker 1: it and trading and generating a little bit of revenue
• 35:58
  Speaker 1: in the short term as well. It ultimately comes down
• 36:01
  Speaker 1: to quality qualities. Job one. You know, keep it liquid,
• 36:04
  Speaker 1: keep it something people will be willing to put their
• 36:05
  Speaker 1: money into and feel safe about. Um. If we kind
• 36:09
  Speaker 1: of step out into the uncomfortable land of high yield,
• 36:11
  Speaker 1: sometimes it gets a little sketch here and it's a
• 36:13
  Speaker 1: little bit of a different trade, which is fine. You
• 36:15
  Speaker 1: just got to kind of be aware of that and
• 36:17
  Speaker 1: know what you're doing. So you're at Valley National Bank,
• 36:20
  Speaker 1: Lovely Wayne, New Jersey. Do you fight missial bonds like
• 36:22
  Speaker 1: all over the country or yes, yes, your National National.
• 36:25
  Speaker 1: We don't care where. We just happen to be located
• 36:27
  Speaker 1: in Jersey. Okay. So, and when you look at a
• 36:29
  Speaker 1: bond out there, I mean does that have to have
• 36:31
  Speaker 1: a certain rating, does that have to have a certain
• 36:33
  Speaker 1: criteria or I mean it's something they're insured. Yeah, it
• 36:37
  Speaker 1: helps definitely. Like like when when I look at a company,
• 36:40
  Speaker 1: if I want to do business with it, I I
• 36:42
  Speaker 1: spent a lot of time with management, for example, But
• 36:45
  Speaker 1: you don't necessarily do that with bond. You just kind
• 36:47
  Speaker 1: of look at the ratings some financials. Rings. You look
• 36:50
  Speaker 1: at some financials, you want to do a little deep
• 36:52
  Speaker 1: dive and understand where the revenues are coming from. Is
• 36:55
  Speaker 1: it a geo what is the what is the collection
• 36:58
  Speaker 1: has been on a geo debt with regard to tax
• 37:00
  Speaker 1: is uh in the past two year period. For argument's sake,
• 37:03
  Speaker 1: it's looking at the sales tax revenue. How do those
• 37:05
  Speaker 1: sales Texas collections look? You know, you kind of look
• 37:07
  Speaker 1: through and read through debt coverage ratios, kind of some
• 37:10
  Speaker 1: of the boring stuff that's lessening. I mean, we just
• 37:12
  Speaker 1: talked to Jenny Wong Bennett. She's the CFO for the
• 37:14
  Speaker 1: City of Chicago, and previously you would have been like, okay, Um,
• 37:19
  Speaker 1: Illinois like the most corrupt state in the entire country,
• 37:22
  Speaker 1: even giving New Jersey a run for its money, right,
• 37:24
  Speaker 1: and um, all of these businesses are just moving out
• 37:28
  Speaker 1: like gangbusters going down to Florida, are going um to
• 37:31
  Speaker 1: other states? Who who who? I moved out? Bowing and yeah,
• 37:34
  Speaker 1: but a bunch of moving back in. So yeah, and
• 37:37
  Speaker 1: now it's starting to look good, at least from what
• 37:40
  Speaker 1: we hear uh from Jenny. Um, they're just climbing back
• 37:43
  Speaker 1: up the ladder. They don't have any junk anymore. So
• 37:46
  Speaker 1: do you like Chicago? I like it for a trade.
• 37:49
  Speaker 1: I don't like it for a longer term. I'm still
• 37:50
  Speaker 1: worried about the pension situation there. There there pensions. They've
• 37:53
  Speaker 1: they've righted that ship. There's some challenges down the road
• 37:56
  Speaker 1: they can still occur. Um. I think they weathered this
• 37:58
  Speaker 1: tour very well with getting money through COVID from the
• 38:00
  Speaker 1: federal government. Um. But that train is gonna stop arriving
• 38:04
  Speaker 1: at the station and they've got to make sure that
• 38:06
  Speaker 1: they got their ducks in a row. Isn't that this
• 38:08
  Speaker 1: case with every major city? Don't all gigantic cities have
• 38:11
  Speaker 1: huge pension of the underfunded pension obligations. Look, and we're
• 38:15
  Speaker 1: just seeing this right outside of Philadelphia. City of Chester, right,
• 38:17
  Speaker 1: they just declared bankruptcy because of their pensions. But I
• 38:20
  Speaker 1: think that's sort of more the not the norm. You know,
• 38:22
  Speaker 1: Chris is a little worried about Chicago. I'm less worried.
• 38:25
  Speaker 1: I think they're going to figure out a way to
• 38:26
  Speaker 1: keep kicking that can down the road, and it's gonna
• 38:28
  Speaker 1: be something we're still gonna be talking about thirty years
• 38:29
  Speaker 1: from now Chicago. It's Illinois. Eric, we had a big
• 38:35
  Speaker 1: infrastructure plan not too long ago, like a gazillion dollars.
• 38:38
  Speaker 1: I think is the cf a term. How does the
• 38:40
  Speaker 1: unicipal bond market the investors that you talked to, how
• 38:43
  Speaker 1: did they think about that? That? Is there a play
• 38:45
  Speaker 1: there's or a trade there. I think there's a lot
• 38:47
  Speaker 1: less refinancing, a lot less refinancing. And I was gonna say,
• 38:50
  Speaker 1: it's all rates driven, right, doesn't matter like how much
• 38:52
  Speaker 1: infrastructure money is floating around. Right, If the markets aren't
• 38:55
  Speaker 1: cooperative and rates aren't cooperative at the time to jump
• 38:57
  Speaker 1: into the market, those plans are going to get put off.
• 39:00
  Speaker 1: Fun that's sort of a cooking, you know, taking time
• 39:02
  Speaker 1: for the federal government subsidies to sort of flow through
• 39:04
  Speaker 1: to the cities. But we're not seeing that right now.
• 39:07
  Speaker 1: So you know, as I think about the municipal bond market,
• 39:10
  Speaker 1: I mean it's I think it's a pretty consistent market,
• 39:13
  Speaker 1: lower risk. But then you taught me about this taxable
• 39:17
  Speaker 1: high yield market. How do you invet you invest in
• 39:19
  Speaker 1: a taxable high old market. Not so much in the
• 39:21
  Speaker 1: high yield. We were generally in the higher grade in
• 39:23
  Speaker 1: terms of taxable market. It's it's an up and coming market.
• 39:26
  Speaker 1: I mean, it's really kind of expanded. It's gotten much
• 39:28
  Speaker 1: bigger in the past several years. We had appeared in
• 39:30
  Speaker 1: two thousand and ten where the Build American program really
• 39:33
  Speaker 1: kind of brought a lot of attention to it and
• 39:35
  Speaker 1: that was really kind of cool and really exciting to
• 39:38
  Speaker 1: kind of get involved with, and a lot of people
• 39:40
  Speaker 1: kind of benefited from that. And now we're seeing the
• 39:41
  Speaker 1: follow on effects of way down the road that it's
• 39:44
  Speaker 1: actually a market people are starting to pay more attention to.
• 39:47
  Speaker 1: But Eric really still has to sell you on it,
• 39:49
  Speaker 1: like Chicago. Oh yeah, So Eric, what's what's kind of
• 39:54
  Speaker 1: as you I know, you have Bloomberg intelligence. You guys
• 39:56
  Speaker 1: are all either having written or are eating outlooks. What's
• 40:03
  Speaker 1: some of the key takeaways from your outlook? I think
• 40:05
  Speaker 1: that you know, Muni's are done sort of getting beaten
• 40:07
  Speaker 1: into the ground for the time being. And I know
• 40:09
  Speaker 1: that's probably not the most technical of c f A terms,
• 40:11
  Speaker 1: but uh, you know, like you said, it's been a
• 40:13
  Speaker 1: brutal ten months eleven months, and I think the tide
• 40:17
  Speaker 1: is really getting ready to turn here. We're constructive on
• 40:19
  Speaker 1: credit state and local governments. They have a lot of
• 40:21
  Speaker 1: money in their coffers still, uh, and tax questions are
• 40:23
  Speaker 1: still strong, you know, whether the economy tips into a
• 40:25
  Speaker 1: recession or not. I really think that's sort of beyond
• 40:28
  Speaker 1: the point because they have the ability to raise taxes, right,
• 40:30
  Speaker 1: So unless you're you know, in dire dire straits financially,
• 40:35
  Speaker 1: I understand it's unpopular, but they can still do it,
• 40:37
  Speaker 1: right yeah? Yeah? Um, So what matters more than where
• 40:41
  Speaker 1: the economy goes or what the Fed does in terms
• 40:43
  Speaker 1: of rates? I think rates right now because we're a
• 40:45
  Speaker 1: supplying demander of the market, and if you're keeping supply
• 40:48
  Speaker 1: on the sidelines right, you're you're going to impact the
• 40:50
  Speaker 1: mini market in a big way and we saw that
• 40:51
  Speaker 1: this year. So Eric, what do you expect then? I mean,
• 40:53
  Speaker 1: we're talking about a higher terminal rate every week? Um,
• 40:57
  Speaker 1: I think right now the markets pricing in like five
• 40:59
  Speaker 1: and a quarter. What what are you looking at? Well?
• 41:01
  Speaker 1: I mean I think our rate strategist is around five percent, um,
• 41:04
  Speaker 1: you know, as far as terminal rate projection. But I
• 41:07
  Speaker 1: think the bigger issue is if we keep seeing these
• 41:08
  Speaker 1: strong economic prints come out, it's just going to prolong
• 41:11
  Speaker 1: the pain for rates going into next year. So, Chris,
• 41:14
  Speaker 1: for you and your team at the Valley National Bank,
• 41:17
  Speaker 1: what are some of the opportunities for for you guys?
• 41:20
  Speaker 1: Where do you think you might have some places to
• 41:22
  Speaker 1: put some money to work? You know, I think one
• 41:24
  Speaker 1: of the things that we've started to look at lately
• 41:25
  Speaker 1: is kind of coming down the curve a little bit. Honestly,
• 41:27
  Speaker 1: it's not it's not super exciting. It's not the most
• 41:30
  Speaker 1: biggest way to get bang for the buck. But these
• 41:32
  Speaker 1: short call bonds to two to five year type of
• 41:35
  Speaker 1: call structure for a ten year UH final maturity, you
• 41:38
  Speaker 1: can get a lot of added value over where you
• 41:39
  Speaker 1: can get for a tern bond with two to three
• 41:42
  Speaker 1: years to maturity. So you really can kind of beat
• 41:44
  Speaker 1: it up and get a lot of performance out of
• 41:45
  Speaker 1: it that way without risk. And it's like, again, people
• 41:48
  Speaker 1: don't look immunities because they want a safe product. It's like,
• 41:51
  Speaker 1: here's the way to get added benefit, added exposure, added participation,
• 41:55
  Speaker 1: and added yield without a ton of extra risk. It's
• 41:57
  Speaker 1: a it's kind of an easy way to do it,
• 41:59
  Speaker 1: all right, good stuff of Spagotti. He's managing director, Senior
• 42:02
  Speaker 1: vice president Municipal investments with Valley National Bank in Lovely Wayne,
• 42:06
  Speaker 1: New Jersey. Eric Kazaski, senior US municipal strategist with Bloomberg Intelligence,
• 42:10
  Speaker 1: in like equally lovely Princeton, New Jersey. So these guys
• 42:13
  Speaker 1: are got New Jersey. Uh covered right at home here? Yeah,
• 42:16
  Speaker 1: absolutely New Jersey boys kind of bringing it together. Thanks
• 42:22
  Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
• 42:25
  Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast
• 42:29
  Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
• 42:33
  Speaker 1: Matt Miller, three pt on Fall Sweeney. I'm on Twitter
• 42:36
  Speaker 1: at pt Sweeney before the podcast. You can always catch
• 42:39
  Speaker 1: us worldwide at Bloomberg Radio