Extremely Low Odds For Infrastructure Bill Becoming Law: Dean

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. President Donald Trump's a fiscal budget proposal calls for one point seven trillion dollars in cuts to mandatory spending and receipts and a two percent yearly reduction in non defense discretionary budget after twenty nine, but it also includes spending for infrastructure.

Here to tell us more about the plan is Nathan Dean, our senior analyst Financial Services Policy for Bloomberg Intelligence, and you can follow Nathan on Twitter at Nathan Dean d C. All Right, Nathan Dean d C. Tell us about this infrastructure proposal and what we should take away from it. So, the first thing you can take away from it is that the odds of this actually going into law extremely low.

It's two billion in federal spending. That two billion would then entice the one point three trillion and spending that one point three trillion would come from local and state municipalities, would also come from the private sector. Uh, it's a five fifty five page plan. You know, this is a little bit more detailed than what we saw from the tax reform plan that came up from the White House,

which is about eight or nine pages. Now it has to go to Congress to actually come up with a piece of legislation, and like I just said, during an election year, this is probably not the best time for this plan to come out. The odds of it actually

passing are quite low. But that said, do we learn anything from this as far as what President Trump's approach will be to infrastructure spending of perhaps not something that will get implemented or even passed any time this year, but even even beyond well, you know, it's really a fundamental disagreement between the Republicans and the Democrats of who's going to pay for the infrastructure. So, you know, this

plan is fairly it's a new idea. It's you know, let's actually dial back the frill spending and let's get public private partnerships and state and local municipalities put that up. Now that that's the problem because these P three's, they only account for about three percent of total infrastructure spend, and in its entirety, P three have only done about thirty billion dollars worth of spend. Uh, you know where this is something where they want one point three trillion

to come out. The Democrats on the other side are saying this is extremely too low. And so I think the problem for this plan is that even if you were to get the sixty votes to go, you know, and pass this thing, because you can't use reconciliation. It's got to be a bipartisan measure. Even if you are to get that sixty sixty votes, then you need the state and local municipalities to pay for it or come

up with their own user fees. So if you're sitting in New York, for example, and you're wondering whether or not this tunnel between New York and New Jersey are gonna come, well, then it's gonna be up to New York and New Jersey to decide, well, are we going to charge a fifteen dollar toll every time you go through that tunnel, etcetera. Okay, another thing that we are learning is that President Trump is going to call for one point seven trillion dollars in cuts to mandatory spending

and receipt um. This he will be announcing later today as part of his fiscal year nineteen budget proposal. How realistic is that a one point seven trillion dollars and cuts and where are they likely to come? So the President President Trump's budget essentially is just something that we what we tell our our clients is don't pay attention to the big numbers, pay attention to the specifics the plan that they put out last week and they agreed

to essentially set the budget. This thing is pretty much irrelevant. However, you know, there are specific things in there for specific industry. So if you're in the healthcare sector, for example, look at what they say specifically to the FDA for example. And then what we'll see is is that there there's a couple more must pass pieces of legislation coming up between now and the end of the year. Maybe you know, the Federal Aviation Administration has to be re author in March.

That's the time where specific sectors could be inserted. So, uh, you know, avoid the high level noise goes specifically to the industries that you care about, and then look for those opportunities for the rest of the year. That's where some of that stuff may be inserted. Nathan, What are private activity bonds and how do they play into this conversation? So this is something that the Trump administration has pushed forth. It's a new way of financing. Uh. It's something that

hasn't been really tested on this grant of a scale. UH. And so you know, that's one of the other hardships that's really coming up with this plan is that you know, they're coming up with a lot of new ideas and they're trying to say, this is where we want to take infrastructure. And I think everybody agrees that, you know, we need about five you know, billions and billions and

billions of dollars of new infrastructure spending. The problem is how do you go forth and pay for these Republicans are trying you know, private activity bonds, they're trying local and state municipalities to try and get to pay for it. The Democrats just want the federal government to do it. So again, it's it's not like they're not coming up with good idea or new ideas. It's just the two teens done that, not the year to do it. What about the highway the federal highway tax you know for

the Highway Trust Fund. Isn't that right? About eighteen cents a gallon right now hasn't really changed, No, and that's correct. And you know, this is something that the you know, the gas tax is something that the US Chamber has actually pushed and said, let's let's increase this. And you know, if the US Chamber is pushing that, let's go forth and do you know that that's something that's actually they're gonna give some political coverage to the Republicans pushing this.

You know, one thing that we were Bloomberg Intelligence we've looked at in terms of the gas tax is that it really doesn't change behavior, uh in auto drivers. So if you're investing in auto companies, for example, twenty five or thirty cent gas tax isn't really going to change consumer behavior. It's the optics of putting in a tax, uh. When you know, we've just been lauding all these tax cuts and tax reform and so forth in the era of an election or an election year, the putting an

additional gas tax on consumers is probably not good politics. So, you know, we don't think the gas tax is actually something to be too concerned about. Uh, you know, even if it were to go through, I don't think we would see much impact on uh, you know, position on the auto companies. How much unity is there right now among Republicans as they try to push this through and as we look at the details of the proposal where there might be actually some really intel So I don't

think there's a lot of unity right now. I mean you'll hear it publicly. You know, everybody wants to say, yet, we need to do infrastructure spending. But you know, they've just passed tax reform, they've just passed a budget deal. You know, if you're on the Republican side and you're a deficit hawk, you know, there's not a lot of

good standing for you right now. But uh, you have to go into an election year and you have to say that within ten years our deficit is going to be, you know, well above the twenty trillion dollars that it is right now, and so, uh, you know, there is some unity on the public side, but when they privately talk,

I don't I don't think there is there. I think a lot of the Republicans, especially in the Senate and those who are running for reelection right now, we'll just say, you know what, this is a great plan, Thank you, White House. We're gonna take it. We're gonna review it. Uh, we're gonna spend the next two to three months talking about it, and then come summer, let's just move off and actually deal with the elections. So is there anything that we should take away from this that would actually

be put into uh into place. I mean, maybe some kind of proposal that would actually gain some kind of agreement. Well, you know, again, I would just go back to the specifics. And you know, this fifty five page plan came out, and you know there's a lot of money in here for rural infrastructure projects. Uh. So that's something that I think that you know, both sides of the aisle would agree on. Uh. You know, infrastructure growth is going to

be positive for two thousand eighteen. That's what we estimate anyway. Uh. You know, I don't think that this bill or this plan is going to enhance that all that much. Uh. You know, again, you need sixty votes in the Senate.

I don't think they're gonna get it. Uh. And so I think what I would just say is is that you know, is This is just the first step of the negotiation, and that if the administration decides that they want to try and do infrastructure again in ten this is something that they can start working with and maybe dial it down. So that's not one point five trillion. But you know, again, I just say stay tuned. Nathan Dean,

thank you so much for joining us. Nathan Dean, senior analyst for Financial services policy for Bloomberg Intelligence, coming to us from our Bloomberg studios in Washington, d C. I want to bring in Jason Shanker. He is the president and the founder of Prestige Economics. He is also a Bloomberg prophet. Bloomberg Profits are professionals offering actionable insights on markets and the economy as well as monetary policy. He's based in Austin, Texas. Jason, the topic is commodities. What

is the best commodity to invest in? Now, well, there are a number are different commodities that I think offer opportunities to leverage what's going on in the global economy. We don't normally, we don't offer explicit investment advice, but you know, I'd say that if we're looking at what's going on in the global economy. I think that um China offers big insights into what will happen with aluminum with oil. Just this morning Opex monthly oil report was out.

China is expected to see even greater oil demand growth than last year the global economy. Those I m F numbers really convey that industrial metals and oil prices are like to see some upward pressure. And that's despite the fact that there's potential for capacity to come online, especially for say oil with with shale. But a lot of this will hinge on what happens with the outlook for the global economy, the outlook for the dollar, and I think US inflation will remain the biggest question as to

how much upside there really is for monty prices. You know, Jason, I want to I want to home in on oil because last week we had the worst week for crude I believe since twenty sixteen and two years, and today we are seeing a little bit of a bounds. But you know, you were talking about the good numbers that we're getting out of China. It's surprising, it's not more if people really believed that there was significant further upside for oil. So you know, how far could we go

right now, we're underneath sixty dollars of barrel? Where do you see crewde ending the year? Well, for the year's average price, you know we see w t I between sixty and sixty five. But you know we're going to have a really hot driving season this year. You know, the job markets that's been since two thousands, two thousand one, we've seen. Uh. Now with the tax cuts, people are gonna have more disposable income. You're gonna see this be

a very big, rocking driving season. And that means that gasoline demand in the US is going to be very strong, and that drives global oil prices. So once we get to the latter part here of Q one and we go into Q two and we see the ramp up for the US driving season, there's going to be a lot of demand for refineries for crude oil, and that could some prices higher. We could see spikes to seventy,

We could see spikes above that. I wouldn't expect those to be sustained prices because the shale drillers are going to see those spikes as opportunities to lock in production at a certain price level. But I think you're gonna see most of the price action for the year being the six sixty five range for w t I and

a few dollars higher for brents. So but one of the question though with oil, how much is uh sort of the direction of prices they're dependent on the dollar, because we are seeing a bit of a rebound today in prices, although not recouping even the losses on Friday. Uh, And of course the dollar is weakening a little bit, and this has sort of been a move in tandem. So how much do you sort of judge that? Well, that's more of a long term thing, you know, we've

looked at these dollar crude price dynamics. That's more of a long term uh. You know, over a multi year period or over a single year period, you can see that there's an inverse correlation. What's more important is the expectation of how stable is growth. And that's why I say US inflation is gonna be really important right now.

That's CPI report on Wednesday is going to be critical for what happens to the dollar, what happens to equities, what happens to oil, what happens to metals, Because the sell offs we've seen not just in oil, but in equities, the rebound in the green back and the rise in bond yields that was all triggered by the wage inflation in the February second release of that January jobs report

that was two point nine percent year over year. And so I think you're gonna see folks looking for this to be you know, kind of a modest CPI report and and that would you know, potentially send oil prices, medals prices, equities back up on yields, and the dollar back down. But against that backdrop, if you get a surprise of more inflation, uh, then you know that that party is over and you see these things take another hit.

So I think that's the biggest economic data point to watch, and that's going to impact what happens to prices right for a couple of weeks because you've got um Now, then the eyes will be on the next FED meeting where we expect the rate high can we have been for a number of months? Jason just quickly, does that mean that it would be a good investment refining companies oil refineries like Marathon patrol it Well, you know we

don't comment on specific company names. You know, it'll depends what they called the crack spreads, and crack spread is a profit margin between product and crewde prices. UM. You know, if you were to see the demand for those products be high and crew prices below, then that should make the profit margins for refineries UH quite high. Especially if we see that that that demand that driving season be

as strong as we expect to. Refineries are likely as an industry to do well going into the driving season. Jason Shanker, thank you so much for joining us. Jason Shanker, president and founder of Prestige Economics. He also is a Bloomberg Profit writing columns on everything from commodities to equities. Thank you so much for being with us. For e t F that has been largely a one way road over the past few years with investors pouring money into

these funds. Last week there was a change with exchange traded funds seeing thirty one billion dollars in withdrawals. You to talk about the industry, Karen Shnoony. She has a

fixed income strategist for black Rock based in San Francisco. UH, And Karen, before we get into a study that black Rock conducted about E t F investing, I want to get your take on last week because we did see some very big withdrawals across the board from some corporate debt fixed income ETFs, but really from the big broad US equity e t s. Is this a signal of something broader? And are are you concerned about it? No,

we're not concerned. What we tend to see whenever we have these market sell offics is ets really step in and help the capital markets because they provide pricing transparency and they allow a lot of investors to be able to get in an out of asset classes very easily. Having said that, maybe you could just step back and tell us about this survey for a moment and what

you learned that may be surprising to some investors. Absolutely, so, black Rock conducted an e t F Pulse survey, and this talks to both investors who are users of ets and non users of ets to really help them help us understand what's driving their behavior and how they think about ets. So there were some pretty interesting trends that

came out of this year's surveys. About one in three investors right now is using e t s and they're using them in a variety of different nasset classes, not only that we've noticed that the holding period for e t s has really increased. So it was only about five years was the average holding period. That's increased to five point seven years, and we're seeing that over of investors plan on keeping their et F holdings over eleven years. So we're releasing that these are low cost investments that

are really driving the core of investors portfolios UM. But one of the other interesting things that we noticed was the boomers, the baby Boomers actually had some of the lowest usage of ETS, even below the silver's Gen X and millennials in terms of their portfolio adoption. Karen, what's the breakdown with respect to institutional use versus retail use? So at least I would say it depends on the fund. What we've noticed this with some of the larger, most

liquid funds, we are seeing more institutional adoption. It can be as high as sixty seventy UM, but we're noticing with some of the smaller, newer funds or more niche exposures,

it still is primarily dominated by retail. But in general, we're seeing more pension plans, insurance companies, either other other asset managers using ETS as a way to get exposure to different asset classes to give any reason for why they are opting for exchange traded funds, Yes, I think some of the biggest reasons that we're seeing is that people are starting to use them more as a long

term holding. And we're also seeing that some people are migrating away from using actively managed mutual funds, and I think the flows um helped demonstrate that narrative as well. Just as we've seen a lot of money coming out of especially active stock funds in favor of more index products. So with respect to pensions, uh, and say perhaps even insurance companies, which funds do they tend to gravitate toward? And what what are et f s replacing? Is it

managed to counts exactly what you're saying. Uh. Some of it is individual bonds, so they might be especially on the fixed income side. We might see pension plans and insurance companies. They've they've been very big buyers of individual securities. They're also looking for creative ways to build liquidity into their portfolios so they can be more nimble as well. So we're seeing go ahead, so know that, just to

make sure that I understand this. In other words, Uh, they might own specific bonds which is not E t F s U, and they would go after and uh look at specific securities that they analyze, but they would then have basically E t F exposure that they could sell if they wanted to change their positioning. On a

broad level, that's right. Our our flagship investment grade corporate bond fund l q D is being held by quite a bit of insurance companies and pension plans because they know that they can get that exposure to corporate bonds that they're looking for in a much more diversified liquid way than they compare that with maybe other securities that are higher and book yield that they wanted to buy um and then they can do the look through and

DTF to see how much exposure they have to individual issuers. When you mentioned the sort of relative popularity of exchange traded funds between millennials and other age cohorts, could it be possible that, you know, millennials, they may be invest through there for oh one K plans and many for oh one case don't include e t F s as

an option. You're right, A lot of foreign k as, a lot of retirement plans don't currently have very much at F usage, but we found that the millennials indicated that about forty of them do own E t F and the current allocations about eighteen percent. So we're seeing that especially with robo advisors. UM it's a very popular way for millennials to invest because they can literally use

an app on their phone to do it. So we're finding that that's one of the ways that a lot of monials get started with investing, and those robo advisors are using a lot of ets. Just real quick, Karen, I'm wondering from your perspective, how much can people read into flows as being significant with respect to a broad market. I'm I'm thinking about l QT, which you were talking about just then, with insurance companies and pensions. It saw about two billion dollars about outflows over the past week.

Is that significant? I think it's just an indication that a lot of investors are either a thinking that credit spreads are very tight and maybe they want to lighten up some of their corporate credit. Maybe they might want to go to either risk your securities, like we've seen a lot of them flows into emerging market debt. The last few weeks, we've seen some people using the price dislocation in the equity markets as a as a buying

opportunity to go back into equities. So I think you can look at thet F flows and understand that they're indicative of broader sentiment on an asset class. Thanks very much for being with us. Karen Shinnoni is fixed income strategist for black Rock, joining us from San Francisco, giving us details about the results of their latest black Rock e t F Pulse survey, Luxury travel in Asia. What makes it luxurious? Let's find out more from deep pac Ory.

He is the chief executive of Lebua Hotels and Resorts. They are based in Bangkok, and Deepak joins us here in our eleven three oh studios. Thank you very much for being here. Thank you very much. All right now you're going to have to do all the pronunciations here because this is a new world for many of us. And maybe you could just describe your background and how

you came to be employee number one. I came to Bangkok for honeymoon and we went to Bangkok and my wife said, you know what, I love this city and I'm not going back. And I said, okay. Then we stay there and then this was building after the financial crisis seven years lying vacant and no interior designer wanted to design that. We came to us. We went to Hong Kong, London, uh and we ended up hiding an

office designer to design our first restaurant. And actually, the the reason we are quite known in luxury today is ours is the inverted moderate. Meaning most of the hotel companies in the world start with the hotels and then go to the restaurants. We started with the restaurant, building

a luxury and then came with the hotel. I want to talk to you about where tourists come from that visit your your hotels, because you know, there was this story on the Bloomberg yesterday that I thought was really interesting talking about how China is emerging as one of the biggest provide are of tourists around the world. Frankly, okay, I'm not flattering Bloomberg listeners, but still in the world, the number one luxury spending comes from the United States

of America. Okay, so when I say number one luxury spending, China is a blip meaning they have to put a tick mark. So the population is huge they've got a lot of money, they will go shop. They have take that box, then they will continue. But in US, when it comes to luxury, it's become a not a luxury, but it's become a style. And in Asia, if we have to pick up any countries, Japan, because after World War Two, Japan became very financially independent and they started

spending on luxury like that. So China is more of a mass tourism than luxury. Is there a difference in how you cater to different clients depending on where they're from. I mean, they sort of demand different things, so we cannot cater to different clients. If I will be telling that we cater to different clients with the different needs, I'll be telling a lie. So we have a model that this is what we all king at in our

clients and we put filters. Our filters are menu prizing, the dress codes, the design of the restaurants, and that's how people come to us. Uh. You know, when I asked you about your background, there's more than just a honeymoon in in Bangkok, because you have experience working for the Kampinski German kamp Pinsky brands as well as TAJ International. Was that what allowed you to gain the credibility to raise the money in order to build out the hotel business.

That I met the promoters in Thailand, so they were high promoters. Just the credibility came neither from Kapinsky nor from that, but came from Carlson. I I did work for Region Brand for some period of time. That was brought by Carlson at that point of time, So that's where the credibility came. But actually the credibility came to us. Anybody could have done that project at that point in

time because nobody wanted to touch it. We ended up hiding office as anato designer restaurant, and today it is the hottest restaurant. You know, there's a saying you can visit Rome and not visit Vatican, but when you visit Bangkok you have to visit Laboa otherwise it's a said, So anybody could have done that. And this is the Dome. This is the Dome, and this became sort of an icon right in the city. It became an icon. See when we opened Dome in ther two thousand three, Hiroco,

there was no rooftop restaurant in New York today. You tell me sitting here. How many rooftop places are there? So we started a trend. We started a trend. Just to give an example, we have a champagne bar which is eighteen square meter. Only eighteen square meter one particular champagne is sold more than whole Singapore, including duty free Singapore. I'm talking about city, so so you can imagine what kind of clientele what And it's a corporate b city,

developing city. So the luxury market group by about five last year. I'm wondering, what's the sort of price point for say a night in a hotel or for an entree. Uh that is sort of enough that you can survive and thrive. That won't okay? So I say, are depends on what kind of restaurants. So if if we go to our two Michigan Star restaurant, which is Mezzaluna, it's a set coast, so that sets you per person, including

some beverages not all in some and the room. I think the cheapest room rate in the world comes from Bangkok. It's because of supply and demand, and though the supply is huge, thirty five million tourists ended up in near two thousand seventeen. It is the second year. That is the largest tourist in bound tourism in any city in the world million. So it's sort of because it's cheaper though because there are more because of the experience. So see when we talk about luxury prices a nonrelative, it's

the experience. You know, when a customers start looking at the right side of the menu, he's not looking at the luxury, he's just looking at the price. So it can be cheap, it can be expensive, it doesn't matter. It's an experience. Thank you so much for being here.

Thank you, Lisa. Thank you Ari, chief executive officer of Leboa Hotels and Resorts based in Bangkok, Thailand, and the luxury travel market is certainly huge and growing rapidly and definitely a trend to watch as it does contribute so much to the economy. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm

on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio