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China Mostly Views Trump's Latest Salvo As Empty Rhetoric · Bloomberg Intelligence

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  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you.
• 0:05
  Speaker 1: Along with my co host Lisa Brahmas. Each day we
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  Speaker 1: bring you the most noteworthy and useful interviews for you
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  Speaker 1: and your money. Whether at the grocery store or the
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  Speaker 1: trading floor. Find a Bloomberg Penl podcast on Apple podcast
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  Speaker 1: or wherever you listen to podcasts, as well as at
• 0:18
  Speaker 1: Bloomberg dot com. Contentions just keep rising between the US
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  Speaker 1: and China. The latest the US is moving to curtail
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  Speaker 1: Huahwei Technologies chips supply. This is part of what's been
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  Speaker 1: driving down semiconductors shares. But this just builds on a
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  Speaker 1: whole host of rhetoric coming out of Washington as well
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  Speaker 1: as Beijing back and forth, raising the question what's the
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  Speaker 1: end game? Here? Are we entering a new Cold War?
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  Speaker 1: Leland Miller joining US now chief executive officer of China
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  Speaker 1: beige Book International. Leland, what do you make of this
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  Speaker 1: back and forth in the latest move against Huahwei. Well,
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  Speaker 1: I think the move itself is quite misunderstood, and for
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  Speaker 1: good reason. I mean, almost nobody can figure out what's happening.
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  Speaker 1: But I think the best way to look at it
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  Speaker 1: is the United States has extraordinary leverage over the Taiwan
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  Speaker 1: semi conductor because it provides inputs that are important for production,
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  Speaker 1: and it is the largest UH purchaser of of semi conductors,
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  Speaker 1: and so it's extraordinarily important UH customer. And what the
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  Speaker 1: United States government has said it will do, starting supposedly
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  Speaker 1: today is require any UH any relationships with Huawei to
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  Speaker 1: get a license. So in order you can't just sell
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  Speaker 1: them to Huawei, if you're using US technology in your
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  Speaker 1: in your product, you have to actually apply for a
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  Speaker 1: license with the Department of Commerce. Now, if this is
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  Speaker 1: held to that standard and they don't grant the license,
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  Speaker 1: then this is an enormously powerful mood. If they do
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  Speaker 1: grant the licenses, then this is an empty moot. So
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  Speaker 1: it's less about what this has done and how it's
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  Speaker 1: how they're going to treat this in the future. And
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  Speaker 1: I think that's why this has led to an extraordinary
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  Speaker 1: amount of confusion. So Leland, how does China view I
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  Speaker 1: guess we'll call them renewed trade tensions here? What's kind
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  Speaker 1: of their perspective? Do you think? I think that they're
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  Speaker 1: looking at them on several several different levels. Now you
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  Speaker 1: have some things that are happening. Uh, you know, the
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  Speaker 1: Phase one trade deal is in real trouble. It's it'll
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  Speaker 1: be toast by this by September. I think I think
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  Speaker 1: we were were at the very end of the trade
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  Speaker 1: deal talk. On the other hand, you have some very big,
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  Speaker 1: very aggressive moves being talked about, like abrogating US debt obligations,
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  Speaker 1: ripping away sovereign immunities from the Chinese. These aren't serious moves,
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  Speaker 1: but if they move, you know, if the White House
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  Speaker 1: moved in this direction, that there would be severe repercussions.
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  Speaker 1: And then there's certain things where they're just trying to
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  Speaker 1: digest these moves piece by piece. What's happening to Huawei,
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  Speaker 1: what's happening with the government pension fund cutting off flows
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  Speaker 1: to China. So there's so much going on that I
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  Speaker 1: think that the Chinese government is forced to look at
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  Speaker 1: this as what's important, what can we live with and
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  Speaker 1: what is an absolute deal breaker in the relationship where
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  Speaker 1: we're gonna start having real serious retribution. What's the end goal?
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  Speaker 1: I mean, I'm just extrapolating forward. Is there a red line?
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  Speaker 1: And then once we cross that, we move to Phase X,
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  Speaker 1: where why happens is there something like that that you're
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  Speaker 1: sort of foreseeing, not yet, because everybody understands it's so
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  Speaker 1: much of what's going on in the U. S side
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  Speaker 1: is about the election. So President Trump realizes that there
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  Speaker 1: are domestic difficulties with COVID and and the state of
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  Speaker 1: the economy right now, and the safest the platform is
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  Speaker 1: it to go tough, tough, tough on China. So the
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  Speaker 1: Chinese understand that what they want to see is how
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  Speaker 1: much of this is going to be more than a
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  Speaker 1: couple of months, how much of this is actually a
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  Speaker 1: game changer in the relationship. If Phase one is suspended
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  Speaker 1: by September, which is our expectation, then that doesn't mean
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  Speaker 1: they can't pick it up in January. If if President
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  Speaker 1: Trump's reelected, that's not going to ruffle the waters too much.
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  Speaker 1: Although you get some loud talk if you ever saw
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  Speaker 1: serious movement towards ripping sovereign immunity away from from from
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  Speaker 1: Beijing for for COVID related lawsuits, I mean that would
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  Speaker 1: that would that would create financial warfare on a scale
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  Speaker 1: we've never seen. So they're just taking their time to
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  Speaker 1: understand if they get most of this is empty rhetoric
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  Speaker 1: and they're just trying to make sure that they don't
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  Speaker 1: overreact as as this stuff just played out before the election.
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  Speaker 1: How is President Trump's relationship with presidency of China. I
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  Speaker 1: mean President Trump has touted it as very strong and
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  Speaker 1: a you know, really strong relationship. But how how would
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  Speaker 1: you engage that right now? How important is it to
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  Speaker 1: have a good relationship? I mean they're best friend. Uh look, look,
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  Speaker 1: if if President Trump is being nice to China, I
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  Speaker 1: think they get along quite well. If he's not, then
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  Speaker 1: and you know, the relationships allergic. You know, for she
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  Speaker 1: it's it's the same same for Trump. So you know,
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  Speaker 1: it's an extent that they can get on the phone
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  Speaker 1: and they do have a some semblance of a personal
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  Speaker 1: relationship to diffuse tensions if they want to pull that
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  Speaker 1: escape patch. I think there's something to that. But look,
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  Speaker 1: this is just politics. It's domestic politics right now, where
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  Speaker 1: the party tries to uh, you know, confuse people about
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  Speaker 1: their initial reaction to to COVID and and claim that
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  Speaker 1: they've been doing a good job all around that the
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  Speaker 1: admitt austration in the United States has the same sort
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  Speaker 1: of issue. How can we distract from COVID and go
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  Speaker 1: tough on the Chinese. So a lot of this again
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  Speaker 1: politics empty writer, We still need to see what it's
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  Speaker 1: going to be durable past the election, regardless of whose president.
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  Speaker 1: When you talk about Jim Ping, I wonder how much
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  Speaker 1: his power is being challenged, especially given the data that
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  Speaker 1: we got overnight. Yes, we got factory output surging more
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  Speaker 1: than people expected in China, but the services data real bleak,
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  Speaker 1: not coming back that quickly. What do you foresee economically
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  Speaker 1: for the China for the foreseeable future? Yeah, I mean
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  Speaker 1: that that doesn't surprise us at all that the Chinese
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  Speaker 1: want to turn these factories on and start cranking things out.
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  Speaker 1: The problem is their order books are collapsing because there's
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  Speaker 1: not a lot of strength. And domestic economy it's recovering,
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  Speaker 1: but but at a slow pace. And you know, the
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  Speaker 1: external environments falling apart because of the slowdowns. Are the
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  Speaker 1: shutdowns in your US and Europe and elsewhere. So there's
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  Speaker 1: a lot of problems. You know, this is what we
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  Speaker 1: saw on our April survey. We've got our we've got
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  Speaker 1: our new May flash YETA coming out and you know
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  Speaker 1: about a two weeks Uh, these are the dynamics that
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  Speaker 1: we've seen too, and it is putting she under severe pressure.
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  Speaker 1: It's one of the reasons why China sort of you
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  Speaker 1: turn from this, let's go out and be global leaders
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  Speaker 1: and and really just backtracked to convincing their domestic population
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  Speaker 1: that everyone's getting up on China and you have to
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  Speaker 1: defend the party. And this is why she's support and
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  Speaker 1: the party's support is relatively high at home. But why
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  Speaker 1: everyone around the world right now is mad at China,
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  Speaker 1: uh for for very aggressive diplomatic behavior. Leland, thanks so
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  Speaker 1: much for joining us. We always appreciate your perspective and
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  Speaker 1: all things China. Leland Miller, chief executive Officer of China
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  Speaker 1: Beije Book International. At least it's uh, you know, it's
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  Speaker 1: really interesting. I always appreciate Lenian's perspective here suggesting here
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  Speaker 1: that a lot of this is just rhetoric from I
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  Speaker 1: guess both sides that it certainly it relates to the U.
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  Speaker 1: S side as it relates to a presidential election coming up,
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  Speaker 1: and here's a topic that has proven to be very
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  Speaker 1: beneficial to President Trump and his base at a time
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  Speaker 1: when there's a lot of grim news out there relates
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  Speaker 1: to the economy and then the pandemic, the interesting thing
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  Speaker 1: I think is that the Democrats and Democratic candidate Joe
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  Speaker 1: Biden is also taking a very hard line. I mean,
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  Speaker 1: it's bipartisan, this anger towards China. My question is, at
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  Speaker 1: what point does the rhetoric go to a place where
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  Speaker 1: it cannot return? Right? I mean, at what point do
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  Speaker 1: we cross some line where we do enter some sort
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  Speaker 1: of escalating spiral to both of Jim Ping and Donald
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  Speaker 1: Trump have a hard time backing down from Yeah, exactly right.
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  Speaker 1: We will certainly be paying close attention to that. You know,
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  Speaker 1: we've seen just in a past couple of days, some
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  Speaker 1: really brutal data as it relates to the consumer, whether
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  Speaker 1: it's a jobless claims yesterday or retail sales today. And
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  Speaker 1: the question is what does that mean for the real
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  Speaker 1: estate market here? I mean, if consumers are out of jobs,
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  Speaker 1: if they're really word, they're not spending, what are they
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  Speaker 1: doing in terms of real estate? That get some good answers,
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  Speaker 1: We welcome Jonathan Millard, President and chief executive officer of
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  Speaker 1: Miller Samuel based in New York City. Jonathan, thanks so
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  Speaker 1: much for winning is here interest rates you know at
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  Speaker 1: or near all time loads, that's generally really good for
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  Speaker 1: the real estate market give us a sense of how
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  Speaker 1: consumers are behaving here as it leads to real estate. Well,
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  Speaker 1: you know, so much about what happens in the real
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  Speaker 1: estate market is pragmatic. In the context of real estate
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  Speaker 1: agents and brokers can't show properties yet, uh, and virtual
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  Speaker 1: is certainly uh you know out there, and you know,
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  Speaker 1: you know, people are doing zoo calls and and all
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  Speaker 1: that sort of thing. The problem is that most people
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  Speaker 1: aren't going to pull the trigger, so to speak, on
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  Speaker 1: a home purchase if they can't physically see it. A
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  Speaker 1: lot of the contracts that we're seeing now have linkage
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  Speaker 1: to sort of pre COVID periods or somebody had looked
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  Speaker 1: at a property and then you know, lost interest and
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  Speaker 1: now they're coming back. Um. Alternatively, on the rental market,
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  Speaker 1: we're also seeing a sharp drop in new leasing activity
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  Speaker 1: as most of the transactions where rents are being negotiated
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  Speaker 1: lower occurring on the renewal side and not public facing.
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  Speaker 1: So we're really in a moment where there's just not
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  Speaker 1: a lot of data, um, you know, at the moment.
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  Speaker 1: I think that will change pretty quickly as shelter and
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  Speaker 1: place rolls start to ease and we're starting to hear
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  Speaker 1: about areas outside of the major metropolitan areas and the
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  Speaker 1: coasts picking up traction quickly, even site unseen people trying
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  Speaker 1: to just buy houses that are outside of the most
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  Speaker 1: densely populated areas. Does that give you a hint about
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  Speaker 1: a possible exodus from New York City, San Francisco or
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  Speaker 1: some of these other areas that have been harder hit. Well,
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  Speaker 1: you know, we're already seeing uh, you know, an outbound
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  Speaker 1: migration at least in inquiries, but the initial wave is
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  Speaker 1: more is predominantly rental inquiries, you know, as urban dwellers
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  Speaker 1: are sort of testing the waters for you know, suburban life.
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  Speaker 1: We've actually seen this before this right after not eleven
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  Speaker 1: and within two to three years that outbound migration reversed.
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  Speaker 1: Um also too, I have a high competence level in
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  Speaker 1: the ability of human beings to forget the recent past
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  Speaker 1: and uh and so uh so I'm totally in agreement
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  Speaker 1: that we are going to and are already seeing this
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  Speaker 1: suburban or even second home uh search. But I'm not
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  Speaker 1: confident about being a permanent structural change in the way
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  Speaker 1: people view cities. Jonathan. There is a question, though, is
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  Speaker 1: this time different given the remote work type situation. The
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  Speaker 1: idea that working from home is gaining traction in a
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  Speaker 1: way that it never has before. Does that change the equation?
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  Speaker 1: I think it helps expand the time frame of the
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  Speaker 1: suburban uh you know, the move to suburban but commute times.
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  Speaker 1: You know. I think it's a little premature to declare
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  Speaker 1: that people are going to be buying houses, uh, the mainstream,
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  Speaker 1: not on the margin because they don't have to go
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  Speaker 1: into the office. I don't right now when you talk
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  Speaker 1: to Corporate America and they're talking about expanding, um, you know,
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  Speaker 1: they're thinking on going you know, we're having remote workers.
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  Speaker 1: You have to remember that many of these companies are
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  Speaker 1: hemorrhaging right now, and they're anxious and desperate for cost
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  Speaker 1: saving measures. And so I don't know if that mindset
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  Speaker 1: is going to remain in place two or three years
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  Speaker 1: from now, but it certainly helps expand the time frame
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  Speaker 1: that you know this potentially can happen. So, Jonathan, Yes,
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  Speaker 1: we look to the other side of this pandemic, and
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  Speaker 1: let's assume there is a vaccine out there in some
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  Speaker 1: reasonable period of time. How do you expect and given
• 11:44
  Speaker 1: where rates are and a lot of people expect rates
• 11:46
  Speaker 1: to be lower for longer, even before the pandemic. How
• 11:49
  Speaker 1: do you expect the US kind of real estate market
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  Speaker 1: to play out? Well, what we're already seeing in markets
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  Speaker 1: that have UH allowed the showing of real estate by
• 12:02
  Speaker 1: the brokerage community, we're already seeing a real uptick is
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  Speaker 1: still far below normal, but we're seeing a rapid UH
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  Speaker 1: increase in pending sales. Now, it's not clear whether this
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  Speaker 1: is a function of just a release of pent up
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  Speaker 1: demand over the last couple of months, or this is
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  Speaker 1: just a market racing to get back to normal. Um.
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  Speaker 1: You know, we certainly have extensive job loss, and you
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  Speaker 1: know that weighs heavy on how this looks a post
• 12:31
  Speaker 1: post crisis. But at least from what I'm seeing in
• 12:34
  Speaker 1: other areas of the country, I'm encouraged by the sort
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  Speaker 1: of return to transactional type activity. UM, and I think
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  Speaker 1: that bodes well for New York as well. I just
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  Speaker 1: think it's we're going to be sort of late to
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  Speaker 1: the party on that, given the extent of the crisis
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  Speaker 1: in our region. Jonathan Miller, thank you so much. It
• 12:59
  Speaker 1: is full to have you on. It's really wonderful perspective
• 13:03
  Speaker 1: from your decades of experience Jonathan Miller of Miller and Samuel,
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  Speaker 1: just really highlighting the nuance here as we look to
• 13:11
  Speaker 1: a post pandemic world of real estate. It was possibly
• 13:18
  Speaker 1: the most intriguing column that I read this week by
• 13:22
  Speaker 1: Andrea's Cloth of Bloomberg opinion, Your kids may never return
• 13:26
  Speaker 1: to normal schooling, And honestly, it was a fascinating column.
• 13:30
  Speaker 1: Andrea's Cloth he's a member of Bloomberg's editorial board. He
• 13:33
  Speaker 1: also was previously editor in chief of Handel's Blood Global
• 13:36
  Speaker 1: and a writer for The Economist. Andrea's this sucked me in.
• 13:39
  Speaker 1: As the mother of two children who are homeschooling via
• 13:42
  Speaker 1: computer at home, including a son who is learning coding
• 13:45
  Speaker 1: from an eighteen year old in Singapore. I've learned who
• 13:49
  Speaker 1: he had found because he enjoyed his codes. I'm just
• 13:51
  Speaker 1: wondering what's the future here of education? Well, the future, hey,
• 13:57
  Speaker 1: that's that's your mouthful. But the future is, as I
• 14:01
  Speaker 1: said in the column, it could be very dark or
• 14:05
  Speaker 1: it could be rather brighter so and and unfortunately could
• 14:08
  Speaker 1: be both at the same time for different of us.
• 14:10
  Speaker 1: Because that the worst thing about these school closures or
• 14:15
  Speaker 1: these partial openings, because for instance, I'm in Berlin I
• 14:19
  Speaker 1: have three kids. They've started going back to school this here,
• 14:22
  Speaker 1: but that just means staggered shifts. They're not you know,
• 14:26
  Speaker 1: it's not binary, and they're not totally open. We will
• 14:28
  Speaker 1: probably have very little time in physical schools for a
• 14:33
  Speaker 1: long time, maybe years. And so the downside is in
• 14:37
  Speaker 1: this age of inequality, some kids, some families, digital divide,
• 14:41
  Speaker 1: and everything will get left behind. But in this column,
• 14:45
  Speaker 1: I wanted to focus on what I think caught your attention,
• 14:47
  Speaker 1: which was the positive side, provided that teachers and unions,
• 14:53
  Speaker 1: teacher unions and school boards and so forth see this
• 14:57
  Speaker 1: as an opportunity and say what can we do different?
• 15:00
  Speaker 1: And lee And that brought me to concepts in my
• 15:02
  Speaker 1: conversation that I had well was something called blended or
• 15:08
  Speaker 1: flipped classrooms, you know, and we would we would have
• 15:11
  Speaker 1: to go into that a little bit, all right, So
• 15:13
  Speaker 1: let's let's do go into that. What's kind of a
• 15:16
  Speaker 1: flip classroom? I'm sensing it's a little bit of a
• 15:19
  Speaker 1: mix of physical and virtual. Yes, And nobody, just to
• 15:23
  Speaker 1: be clear, is is ever talking about getting rid of
• 15:26
  Speaker 1: human connections. In fact, the goal here is to make
• 15:30
  Speaker 1: human connections stronger and better, and both the physical even
• 15:34
  Speaker 1: if we have less time in a physical classroom with
• 15:36
  Speaker 1: the teacher, we want to make that better. And also
• 15:39
  Speaker 1: the in person the classroom or one on one on
• 15:42
  Speaker 1: zoom for instance. So it's not about replacing anybody, it's
• 15:46
  Speaker 1: just about making them better. So what we want to
• 15:48
  Speaker 1: do is to use tools online tools. And I happen
• 15:54
  Speaker 1: to talk to Salcan for this column because I myself
• 15:57
  Speaker 1: when my kids used kind Academy. But there's a out
• 16:00
  Speaker 1: of these edge tech tools. So for instance, something like
• 16:03
  Speaker 1: or let me get tell you what for the past
• 16:05
  Speaker 1: two hundred years since the industrial in the since the
• 16:08
  Speaker 1: industrial Revolution, you had a teacher at the front and
• 16:11
  Speaker 1: a blackboard. And the innovation is that that's not a
• 16:14
  Speaker 1: white board and he lectures to a passive class, sends
• 16:17
  Speaker 1: the kids home their filt a worksheet. A lot of
• 16:20
  Speaker 1: them have no clue what they're doing. They go back
• 16:22
  Speaker 1: to class, they keep going anyway, even though some kids
• 16:25
  Speaker 1: are left behind, and at the end they take a
• 16:27
  Speaker 1: standardized test. Okay, so that's not ideal. So what we
• 16:31
  Speaker 1: want to do now is why not flip this so
• 16:34
  Speaker 1: you watch the lectures at home. That's pretty active. You posit,
• 16:38
  Speaker 1: you rewinded, you comment on it the way the kids do.
• 16:42
  Speaker 1: And then you do some online exercises to drill it,
• 16:45
  Speaker 1: and the teacher has already logged on and looking at
• 16:48
  Speaker 1: who's stuck where, And then you go to class and
• 16:53
  Speaker 1: now class is not the lecture, but now class is
• 16:56
  Speaker 1: a one on one or small group social are active
• 17:01
  Speaker 1: uh session where where the teacher cook post, where you
• 17:04
  Speaker 1: where this student is, not where the class should be.
• 17:07
  Speaker 1: Where where this student is and the other helps him
• 17:10
  Speaker 1: in with a problem or extends the knowledge if he's
• 17:12
  Speaker 1: doing well. And that's the that's flipping it or blending
• 17:16
  Speaker 1: the online and the offline. Andrea is just real quick here.
• 17:19
  Speaker 1: I'm wondering how parental involvement kind of gets amplified here
• 17:24
  Speaker 1: in terms of the divide between people who are involved
• 17:27
  Speaker 1: versus those who aren't. I think hugely there's no way
• 17:32
  Speaker 1: around this um because it's a social problem. But I,
• 17:36
  Speaker 1: my wife and I we have three kids, were incredibly involved.
• 17:39
  Speaker 1: That's what led me to talk to Salcohn because I've
• 17:41
  Speaker 1: been doing this for years and sadly many many other
• 17:45
  Speaker 1: parents are not, not because necessarily they're bad parents, but
• 17:48
  Speaker 1: because they're they're they're at working, or they don't have WiFi,
• 17:51
  Speaker 1: and we have these problems. So the downside and I
• 17:54
  Speaker 1: and this was the topic of my previous column, The
• 17:57
  Speaker 1: dark side is. This was the bright side before that
• 17:59
  Speaker 1: I wrote the dark The dark side is, as a
• 18:01
  Speaker 1: result of this pandemic and the school closures, we will
• 18:05
  Speaker 1: have dramatically more inequality, not just now but for years
• 18:10
  Speaker 1: to come. As these kids go to college or in
• 18:13
  Speaker 1: fact don't college, will go less to college and then
• 18:16
  Speaker 1: are more unemployed and make less. This will exacerbate inequality.
• 18:21
  Speaker 1: There's no way around that. Andreas. Thank you so much
• 18:25
  Speaker 1: for joining us, and really appreciate your columns. Really thought provoking,
• 18:28
  Speaker 1: particularly for those of us who do have some school
• 18:31
  Speaker 1: age children and are kind of kind of weighing these issues.
• 18:34
  Speaker 1: Here Andrea's Kluth, columnists for Bloomberg Opinion, joining us on
• 18:37
  Speaker 1: the phone from Berlin. You know, I can't imagine, Lisa.
• 18:42
  Speaker 1: I mean, you've got the two young ones kind of
• 18:44
  Speaker 1: doing this for an extended period of time, even beyond
• 18:47
  Speaker 1: what we've done this year. Yeah. Well, I think that
• 18:49
  Speaker 1: we're going to get used to that idea because I
• 18:51
  Speaker 1: don't know when they're going back. I gotta say, after
• 18:53
  Speaker 1: listening uh to Anthony Fauci. He said, you know, who
• 18:57
  Speaker 1: knows September might be premature, exactly waiting for the vaccine.
• 19:06
  Speaker 1: If you ask somebody what's the outlook for our municipal
• 19:09
  Speaker 1: finances right now, they might say not great, Bob, not
• 19:13
  Speaker 1: so great. Right now we are facing a huge deficit
• 19:16
  Speaker 1: in cities across the country. And joining us now with
• 19:19
  Speaker 1: a comprehensive look is Kathleen McNamara, senior municipal bond strategist
• 19:23
  Speaker 1: at US Wealth Management, which put out a report highlighting
• 19:27
  Speaker 1: just how bleak the situation is. Kathleen, can you start
• 19:31
  Speaker 1: with just an overview, a historical perspective of how bleak
• 19:35
  Speaker 1: this is relative to previous difficult times the U. S economy? Ah? Sure, Um,
• 19:41
  Speaker 1: I mean in our report, you know, we we do
• 19:43
  Speaker 1: talk about the fact that this, you know, COVID nineteen
• 19:46
  Speaker 1: is really what we look at as an exogenous shock
• 19:49
  Speaker 1: to the system. Um. You know, certainly we've been through
• 19:52
  Speaker 1: crises before, the financial crisis just ten years ago, but
• 19:55
  Speaker 1: that was really triggered by you know, um, a banking crisis,
• 20:00
  Speaker 1: and in this scenario, the banks actually were in a
• 20:03
  Speaker 1: strong position going into this crisis. Um. So here we're
• 20:07
  Speaker 1: dealing with something we haven't dealt with before. We're dealing
• 20:09
  Speaker 1: with a health crisis M which has turned into a
• 20:12
  Speaker 1: financial crisis, which in turn is weighing on almost every
• 20:17
  Speaker 1: area of the municipal bond market. And we do go through, UM,
• 20:21
  Speaker 1: all of the different sectors in the muni market and
• 20:25
  Speaker 1: what we see going forward. So, Kathy, what are some
• 20:28
  Speaker 1: of the sectors that are kind of most at risk here?
• 20:30
  Speaker 1: I know the pain is pretty broad based, pretty deep,
• 20:34
  Speaker 1: but what are some of the sectors that kind of
• 20:35
  Speaker 1: jumped out of you. Yeah, the sectors that we talked
• 20:39
  Speaker 1: about in the report that jumped out to us as
• 20:41
  Speaker 1: UM going to experience the most stress is the private
• 20:44
  Speaker 1: higher ed sector UM, as well as the health care
• 20:47
  Speaker 1: sector UM. You know, by contrast, UM, you know, states,
• 20:52
  Speaker 1: I know there's a lot of UM, you know, negative
• 20:55
  Speaker 1: headlines with respect to states, UM, but we do think
• 20:59
  Speaker 1: that UM, you know, states are going to benefit from
• 21:02
  Speaker 1: this you know, municipal liquidity facility that the FED has established,
• 21:06
  Speaker 1: and we also believe that you know, states have more flexibility, UM,
• 21:10
  Speaker 1: you know, to manage their finances through the crisis. UM.
• 21:14
  Speaker 1: So it's really the you know, the higher education UM
• 21:16
  Speaker 1: sector that we do have UM the most concern about,
• 21:20
  Speaker 1: you know, in that in that sector. You know, we
• 21:22
  Speaker 1: believe that we're going to see some you know, substantial
• 21:25
  Speaker 1: NEIA term student enrollment pressures. Um, we're going to see
• 21:30
  Speaker 1: some decline in investment portfolios, you know, as well as
• 21:34
  Speaker 1: you know the role of technology. I mean, what we're
• 21:36
  Speaker 1: seeing now is that, um, some of these you know
• 21:39
  Speaker 1: universities have shifted to online classes and that has meaningful
• 21:43
  Speaker 1: implications for the sector. You know. Of course, you know,
• 21:47
  Speaker 1: there's the institutions with large endowments and strong brands. We
• 21:50
  Speaker 1: think those will be resilient and easily adapt to the
• 21:53
  Speaker 1: changes and retain their market position. But by contrast, you know,
• 21:57
  Speaker 1: some of the smaller liberal arts college is that already
• 22:01
  Speaker 1: faced demographic and financial challenges. We do think that, um,
• 22:05
  Speaker 1: you know, the impact from COVID nineteen is going to
• 22:07
  Speaker 1: be meaningful. We are expecting some sort of financial bailout
• 22:11
  Speaker 1: or perhaps that's the wrong word, rescue financing from the
• 22:14
  Speaker 1: federal government to states municipalities. But they've made it very
• 22:17
  Speaker 1: clear that they don't want to backstop governments that have
• 22:20
  Speaker 1: been irresponsible with their finances heading into this, and that
• 22:23
  Speaker 1: really speaks to pension under funding which has gotten dramatically worse.
• 22:28
  Speaker 1: What's the consequence there for the situation that the pensions
• 22:31
  Speaker 1: are in, given the fact that I can't really foresee
• 22:35
  Speaker 1: how some of them are going to meet their upcoming
• 22:37
  Speaker 1: obligations without a traumatic shift in the market. Ah, yeah,
• 22:42
  Speaker 1: I mean, pensions obviously, you know, are an issue, you know,
• 22:45
  Speaker 1: for some of the states and local governments, not all.
• 22:48
  Speaker 1: And actually in our report we do UM rank all
• 22:52
  Speaker 1: fifty states UM in terms of their pension funding metrics.
• 22:55
  Speaker 1: So we always want everybody to know that. Yeah, I mean,
• 22:58
  Speaker 1: the states that our experience the most stressed, you know,
• 23:02
  Speaker 1: are in the headlines, but it's not every single state
• 23:05
  Speaker 1: UM with that, you know, what, what can they do?
• 23:07
  Speaker 1: I mean, you know, we are hopeful that there will
• 23:10
  Speaker 1: be some more UM aid coming to state and local governments.
• 23:13
  Speaker 1: I mean, the House is expected to pass a bill
• 23:15
  Speaker 1: today that will include another trillion dollars in aid to
• 23:19
  Speaker 1: state and local governments. Of course, you know, I don't
• 23:21
  Speaker 1: think that that full amount is going to gain approval
• 23:24
  Speaker 1: in the Senate. UM. But on the bright side, it
• 23:26
  Speaker 1: is a starting point for negotiations. And the other thing is,
• 23:29
  Speaker 1: you know, the fact that the you know, the FED
• 23:31
  Speaker 1: has established the municipal Liquidity facility. I mean, this is
• 23:35
  Speaker 1: something different than what we saw during the financial crisis.
• 23:38
  Speaker 1: So I think it's showing that the FEND is willing
• 23:40
  Speaker 1: to do, you know, whatever it takes to hate to
• 23:43
  Speaker 1: help these state and local governments. UM, you know, move along.
• 23:47
  Speaker 1: I mean on the flip side of what you mentioned
• 23:50
  Speaker 1: is is you know there's no appetite to bail out
• 23:53
  Speaker 1: certain states that UM have not been managing their pension
• 23:57
  Speaker 1: issue through through the years. UM know that that's really
• 24:01
  Speaker 1: the sticking point. It becomes becomes quite political. Kathleen, thanks
• 24:05
  Speaker 1: so much for joining us. We appreciate your perspective on
• 24:08
  Speaker 1: the municipal bond market. Kathleen mcnamar's senior municipal bond strategist
• 24:12
  Speaker 1: for UBS Global Wealth Management. And at least it's can
• 24:15
  Speaker 1: be really interesting to see the political um kind of
• 24:18
  Speaker 1: mechanations here over the next several days and maybe weeks
• 24:21
  Speaker 1: between the Democrats and Republicans as it relates to this
• 24:24
  Speaker 1: new fiscal stimulus plan. The prior fiscal stimulus plans were
• 24:27
  Speaker 1: generally bipartisan passed fairly quickly. This one appears to be
• 24:30
  Speaker 1: a little bit more contentious, and I think it does
• 24:32
  Speaker 1: go in part, as Kathleen was suggesting to, you know,
• 24:36
  Speaker 1: funds for state and local municipalities. Yeah, this is the
• 24:39
  Speaker 1: House Speaker Nancy Pelosi bill. It's a three trillion dollar bill.
• 24:43
  Speaker 1: Mitch McConnell, the Senate leader, Majority leader, has said it's
• 24:46
  Speaker 1: dead on arrival, so it's not going to pass the
• 24:48
  Speaker 1: Senate in its full form. But he is going to
• 24:50
  Speaker 1: take cues to some degree from j Powell and Steve Mnuch,
• 24:53
  Speaker 1: who are testifying together in front of the Senate Banking
• 24:55
  Speaker 1: Committee next week on Tuesday. Very curious to hear what
• 24:58
  Speaker 1: they have to say. Yeah, and when you think about
• 25:01
  Speaker 1: some of the data points we've seen this weeklies in
• 25:03
  Speaker 1: terms of the jobs claims and then the retail sales today,
• 25:05
  Speaker 1: there's certainly enough economic data out there to prod both houses,
• 25:09
  Speaker 1: both sides, to move forward with some fiscal steelers, because
• 25:12
  Speaker 1: there is real pain out there in the US economy.
• 25:17
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 25:20
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
• 25:22
  Speaker 1: or whatever podcast platform you prefer. On Paul Sweeney, I'm
• 25:25
  Speaker 1: on Twitter at pt Sweeney. I'm Lisa Abramloy it's I'm
• 25:28
  Speaker 1: on Twitter at Lisa Abramoit's one before the podcast. You
• 25:31
  Speaker 1: can always catch us worldwide. I'm Bloomberg Radio