Time to Keep Reducing Risk, Particularly EM, Some Stocks: Tchir

as well as the retail sales number. Uh. Here to kind of have us shape our idea of how to view these two numbers is Peter Sheer, head of macro strategy at Academy Securities based in Connecticut. Peter, thank you so much for joining us. So Uh, the initial response was to sell stocks, sell bonds, gold Who knows? People just wringing their hands. What don't you ache of this?

I mean, was this a good report given the CPI accelerating fast more than people expected, or was it a bad report given the retail sales coming in in an underwhelming way. I think it is a bad report. Um. I think this retail sales is very problematic, and when I look back at some of the recent data we had, I think it was the Richmond said, the New York said, a lot of the regional feds have missed on their reports. I look at the city Economic Surprise Index that's been

turning down. So the one thing that helps this market through all this volatility is this real belief that the fundamentals are okay. I'm wondering if this is going to call it some of that into question. So Pete, what's the trade? I think you continue to sell risk. We bounced off that low on Friday. We have an opportunity to take off some risks. I think you want to be careful here. It's still very volatile, it's still very

uncertain what's going on. And if there is anything that starts to show weakness in the economy or some of the trade negotiations start turning bad, I think there's just some more downside and going back to those glows. Okay, So what risk do you sell? Do you sell riskier credit in the US? Do you sell emerging markets? Do you sell stocks? I think you saw a little bit

of stocks here. I think emerging markets. I would not be selling high yield here, although people are selling that again today, only because I think that has become a very crowded short position. For some reason, people in the credit markets state high yield. If you're a macro player, you hate high yield. Everyone's kind of stixated on high yield as a short, and it's very costly to short

that right now. So I think there's better opportunities, So I'd be probably shorting some em and more likely even some US equities of here. So with emerging markets, how should people be trying to either go short UH emerging

markets or should they just sell? Because I was looking this morning at UH spreads, extra yield over benchmarks on high yield bonds in the US versus high old bonds and emerging markets, and right now you're getting no premium whatsoever for going into emerging markets high yield bonds or US high old bonds. How do people play that? I think you could take a look at something like e m B, which is a emerging market bond ets. It's not going to quite capture what you're looking at there,

but I think close enough. And I think that's what people are going to start doing, is they're gonna look at high heels and say, wow, my high heeld bonds are down three points or four points and my e M bonds only down one point, Maybe I should sell those. So I think that is a relative value transformation that tends to occur. So, Peter, why you're not fixing it on the consumer Price Index? It's been so volatile. They have told us, you know, time and time again to

focus on PC. Anyways, it's one number and of anything. If I really want to fixate on this, you start getting nervous that we're seeing from signs of stagflation. Right, we're finally creating inflation without the underlying growth. Maybe there that needs to be Again, it's premature to look at it like that, but I think we're gonna start testing this whole economic fundamental is great theory in the next week or so in terms of data. So what does this do for the FED? I mean, right now the

market is pricing chance of a March rate hike. Does this mean that they have more ammunition to increase rates faster because of some inflationary pressure, or does that mean that they're going to hold back because there's sort of a questionable dynamic underlying the growth story. My view is that they will hike in March. I think that's still on the table, and you know the CPI lets them do that, but I think they will give us some cautionary tales that they want to watch what's going on

with the consumer. You know, this is now not just this month number is bad, but they revised down last month. You've seen an uptick and credit card delinquencies. You've also seen all these bizarre stories. To me, I in mind of people not being allowed to buy bitcoin on their credit cards, which cause into questions who is buying bitcoin on credit cards? So I think they're going to be cautious and say, hey, we've risen rates a lot, let's see what this does to the consumer. Pete, what about

stag inflation? What would have to happen for you to make that a headline for you? I think we need to really believe that inflation is here, and I just questioned that. And we're starting to see, you know, things like oil rolled over a little bit, so a lot of the inflationary pressures that were there. I think we'll go down. We will see maybe there are going to be all these way chikes related to tax reform and

that could help and really drive some pressure. But right now we're just seeing more one time bonuses rather than big wage increases and there's no inflation number that would get you to change your mind. Yeah, I think it's discontinues in its persistent. I would become concerned then that we really created inflation, and hopefully, if we've created that,

these bad retail sales numbers will be an anomaly. So I guess I'm looking for probably another month or so that starts confirming or at least the sneaking suspicion that inflation has increased while growth is flowing. All right, well, we're gonna check in with you then. Of course. Peter Cheer is the head of macro strategy at Academy Securities. He's based in Connecticut, giving this giving us his thoughts about inflation, but also really sparing uh no effort when

he looks at those retail sales numbers. The future of infrastructure in the United States calls for experts to give us their thoughts, advice, and their experience. Walter Kempsis is economist and chief strategist for U Sports, Airports and Global Infrastructure Group of j A L. That's Jones lang Lassalle and they're based in Chicago. Walter, thank you very much

for being here. Maybe just tell people a little bit about your background and that you are currently advising the U s Department of Commerce their Advisory Committee on Supply Chain Competitiveness, as well as the Department of Transportations Task Force on Infrastructure Valuation. Maybe just give us a little bit of a hint of your background and how you're applying that to the President's effort to improve the infrastructure

quality in the United States. Thank you. I'm a former investment banker who got pulled into a marine engineering firm Mofitta Nickel to help the financial community as they were trying to initially invest in infrastructure about twelve fifteen years ago. UH. That role eventually morphed into planning the infrastructure, and I've worked with the number of port authorities around the country in strategic development plans, making sure they had the capacity

in advance of the freight coming in. And as a result of that work, um I was asked to join the Department of Commerce uh Advisory Committee on Supply Chain Competitiveness, which is comprised of port authorities, railroads are big importers and big exporters, as well as a few, uh you know,

advisory experts like myself. So Walter. Since you talk with US ports and airports and other infrastructure groups, what's their outlook and how much money is going to get unleashed by some sort of infrastructure spending program and what can we glean from the budget the President Trump put out earlier this week that most people said it was dead on arrival. Is there anything any details that we can hang on to? Okay, I mean, just if you're just

looking at the ports sector. On the water side of the ports, uh, the American Association Port Authorities estimates about sixty six billion dollars, you know, to raise bridges, to drudge channels, to strengthen key walls, and buy bigger equipment to handle the bigger ships. The what they don't have an estimate for is on the land side, because you know, as the volumes have grown in this country, the economy, the population, the number of of paved miles have not

kept pace. And in the major ports cities we see a lot of congestion, such as in Los Angeles Long Beach as well as New York. Uh. You can add other cities to that, but that's the part where the estimated cost doesn't exist. But I would put that number at twice what we need for the for the waterside um. In terms of the plan itself, I think people need to understand that this is not supposed to be an Eisenhower interstate program. We've already built our interstate. We've built

the core infrastructure. But this is supposed to be a means to repair and upgrade all of our infrastructure, including transportation, energy, and the water supply. You know. And ever since the Eisenhower era, responsibility has shifted the states and local governments, uh, you know, to not only direct the infrastructure investments, but also as a means to reduce the incentives to use free federal money and I say free in quotes, but free federal money to generate jobs building roads to nowhere.

So the whole idea here is to target about two billion dollars as seed capital, which, along with other actions such as a shock clock on on permit approval time, will make it a lot easier for private capital to

invest um. The other part of the program also includes loosening the federal loan programs such as TIFFIA, WI, A RIFF and the other you know alphabet soup of programs that exist that currently um, you know, our structure to help somebody, you know, do the upfront capital expenditures but be able to wait a number of years before generating

the revenue necessary for debt repayment. The problem with these programs is they've been extremely stingy, and loans generally don't get approved, So there is an effort to loosen that, uh, in order to unleash the federal support that's available already. Walter, is there a project that you could use as a showcase, and I mean you as collectively of the industry that could be used as a showcase in order to demonstrate both the politicians and to the electorate that these programs

can work. That then would foster even greater incentive and desire to accomplish these things, because it seems as though we don't have a specific objective and that makes it even more challenging. Yeah, I completely agree with you. Um you know where one of the things that the program falls short on is to tie all of this this effort into some kind of national economic objective. And the simplest one, and this relates to the efforts for free

trade agreement renegotiations, is to support exports. Most of our infrastructure investment in the last twenty thirty years has gone towards the import side of the trade flows. And when you look at it, you know, volume wise, the US trade deficit is practically zero. But we import high value per Ton goods and we export low value per Ton goods. So on a dollar basis, we run a very large trade deficit, averaging half a trillion a year for the

last you know, five ten years. So the money would naturally be attracted to where there is a high value per Ton, there's more pricing power and earned there's more return available. If we tied the infrastructure program to something like supporting exports, uh, then I think things would work a little bit better. And part of the problem is that as jobs have left the US, jobs in the export oriented industries haven't taken up the slack in the

labor markets. So if we do renegotiate the trade agreements and opener markets to US exports, we will need to invest in infrastructure to support that. So just to be really clear, what is that spending that needs to support exports? Yeah? Um, the first off, it would be on the Mississippi Waterway. Most of that was built in the nineties. Uh, you know, during the great depression. That infrastructure is now uh seventy

five years or older. The Soybean Transportation Coalition has done to report a couple of them now and they've pointed out that roughly three fourths of our Mississippi Waterway infrastructures over seventy five years of age. And the way it works with the dams and the locks is that they're built with the fifty year life cycle, and every twenty five years you inspected and try to retrofit it a little bit and get another twenty five years out of it.

But when you hit seventy five years, that's it. You're done. You need to replace it, just like we're doing with the bridges in New York. You know, perhaps a little late, but yeah, that Mississippi Waterway infrastructure when it breaks down. When a lock breaks down, miles of barges back up on either side because they can't traverse the step in the river, and oftentimes we have two three D print apart because it just doesn't exist anymore. Walter Kemsies, thank

you so much for your insights. We'll have to have you back. Walter Kemsie's economist and chief strategist for US Ports Airports and Global Infrastructure Group at j L L. Jones Langless Sality, Chicago, joining us by phone the shares of Marriott International. They're hired by a little bit more than one percent right now. The company will report results

after the close of trading today. Based in Bethesda, Maryland, home to Bloomberg and one oh five point seven FM HD two and here to tell us about the company and more in the hospitality industry is Mike Belisario, equity analyst at Baird. Mike, what can you tell us about Marriott and the I guess it's the years since they acquired the Star Wars brand. What are they going to post in terms of savings and asset sales? Good morning,

things for having me UM. I think you're going to hear a lot from Marriott that we heard from Hyatt, from Tuney, from Hilton this morning. Really strong fourth quarter guidance for that is pretty much in line with UM. The results that they posted for fully, I mean specifically for Marriott, it's been fifteen sixteen months since they've closed the transaction. Investors are really focused on the synergies. A lot of those have been realized assets sales here or there,

that's important. A lot of the heavy lifting has been done. I think the thing people are really focused on is all the extra benefit that Marriott being bigger, having more negotiating power can pass to its owners, especially in a tough operating environment like today. So, Mike, I'm wondering just about the tourism industry in general. We had heard reports, given some of the talk of the current presidential administration about UH foreigners and immigrants and all of that, that

it had would have a dampening effect on tourism. Did we see any of that from Hilton's results? We did, and we've seen that broadly in the data. Inbound international travel to the US was down a bit. In Hilton this morning thinks it's inbound travel was down about four percent, But that only makes up call it, you know, five

ish percent of their total business. You know. Some of that is the you know, the political backlash if if you're someone overseas and you might not want to come to the US because you don't like what you're hearing, that's possible. Some of it is also the US dollar. It just was more expensive throughout seventeen to come to the US. Flip side too, we don't talk about it enough.

Is the domestic traveler, the US traveler not going on vacation to Florida or southern California, But because it's so cheap to go to Europe or Japan, for example, more US citizens going abroad too. So that's also an impact in the numbers that people don't talk a lot about. But yes, there there was an impact in seventeen. We're

still seeing it on the inbound international travel side. So of the big hospitality companies which are most exposed to that trend of domestic tourists from the US is going international and not as many inbound tourists in the US. Actually, the biggest beneficiary come on a percentage basis, would be Highatt because a larger percentage of their portfolio is overseas Hilton,

Marriott and high Att. Hilton is the most domestic focused. Um. The way to think about it too is where where do people come to the US To go to New York, They go to San Francisco, Los Angeles. So anyone that has urban market gateway market exposure, if you're an owner of hotels in those markets, which a lot of the

reeds are, those companies are also disproportionately impacted. But you know, Marriott's brand, Hilton's brand in the US overseas, if you can capture that same traveler that was maybe going to travel to the Marriott in Orlando, but they're going to the Marriott in Prague, that's kind of a win win for Marriott in its eyes. So does this mean that Mike that expansion for these growth markets in Asia and Europe,

would that be key to achieving some of these profit targets. Absolutely, Roughly half of the big brand's pipelines is outside of the United States. We can't zoom out these big global hotel companies. They're very focused in the US and in North America. There's a lot of white space still uh in Europe, in Asia, Pacific and even in Africa, so a lot of the growth is coming from there. You're

just also working off a smaller base. But yeah, that's that's where they're focusing a lot of their efforts to kind of capture both of the inbound and outbound travel, but particularly from China. We've actually seen the dollar week in this year a little bit. Does that matter or in the scheme of things, is it such a minimal weakening that it's not going to change the trend that we saw in it matters that actually came up on Hilton's conference call. It's hard to tell on a week

to week, month to month basis. I think over rolling twelve month periods it's important. Um And on the margin, it does cause people to either say yes or no, I want to go to the U S or yes or no, I want to go to London instead of Japan, for example. Um And there's also a lag to booking. If you're a leisure traveler, you're more price sensitive and you're sometimes booking three to six months out. So if there is a weakening or strengthening of the dollar, you're

not necessarily going to see it now. It might not be until June or July or August, for example, when we actually see the impact of what happened to the dollar today. Mike Belisario, thank you so much for joining us. Really interesting insights. Mike Belisario is senior equity research analyst

at Baird, coming to us from Chicago. The New York Fed put out a report this week taking a look at consumer debt, and it showed that student loan outstanding have totaled one point for trillion dollars, and delinquencies could be up to twenty two percent if you take out instances of students who are not required to make payments because they're still in schooled UH and still in school, unemployed,

or for other reasons. Joining us now is Marshall Steinbaum, research director and fellow at the Roosevelt Institute in Washington, d C. Marshall, thank you so much for joining us. This is a really important topic. I'm just wondering. You did a report looking at the macroeconomic implications of this rising pile of student debt. What what are the implications? I mean they could be quite significant, considering that this is uh now a one point four trillion dollar pile

of debt. The effect on the macro economy of canceling all the outstanding student debt and what we found is that it would have a moderate stimulative effect on overall output. I think the numbers of a v six billion to a hundred billion dollars a year approximately given the two models that we used, um that it would reduce the unemployment rate and increase the total rate of people being employed.

And the main effect is because essentially the debt is burdening the balance sheets of households, especially young households, and if they didn't have to make those payments, they would spend the money on other things, and that would increase aggregate demand. Where would the money come from in order

to pay off this debt? That's a good question. Currently the federal government is the lender for about the debt, and what we modeled is essentially then for canceling it, so just writing it off, and then the other ten percent the federal government would assume making payments to the private lenders on behalf of students um. So overall, both of those two things would increase the federal deficit um and and the federal debt outstanding um while relieving debt

from individual households. And the whole macroeconomic UH mechanism that's going on in the in the forecast of the effects is that that transfer of the debt from households to the government is h macroeconomically beneficial. Okay, But if the government is going to be the one to put the bill, doesn't that really mean that the taxpayer is the one to foot the bill. Well, we've been running up dead

and deficits for a long time. Now UM, and the tax share of total output is I think at its lowest ever UM and our lowest in a very long time, and uh low for the state of the business cycle where we currently are. Normally, you'd expect the federal government to be collecting the most in taxes when the economy is doing relatively well. UM. So I think you know, whether there's this tight connection between the federal government assuming debt and collecting taxes to pay that debt. I think

that's an open question at macroeconomics. I'm trying to figure out. So your report found that there would be this modest stimulative effect if the student debt were canceled of up to one hundred and eight billion dollars per year. Does that change over time? I mean, is it? How do you quantify the economic effect of student debt on a generation of people who might be delaying home purchases or having children, or taking jobs that that are risk here

but might have more potential. That's a great question, and we don't really do that in the paper. That is specifically look at questions of like home ownership or small business formation, or what jobs do people take as a result of having debt? UM The macroeconomic models that that we used to make those sort of big statements about how large the the economy would be don't really get

into that level of detail. But I think it's crucially important to understand what effect student debt is actually having on the economy. Uh. It's certainly true that now we have essentially a whole generation of workers who had who felt that they had to take on some level of student debt to get access to the labor market, much

more so than was the case previously. And I think that given that the labor market has not been performing terribly well, that wages are stagnant, they feel that that debt is a burden rather than a an opening to to social mobility and to better jobs. Well, how much of this is an indictment, frankly on what individuals are paying for. In other words, some of the schools that aren't necessarily setting up students for jobs that are lucrative

enough to make this debt seem relatively insignificant. I think the overall explanation for why we have a student debt crisis in this country has to do with things that aren't really about higher education, Although certainly part of the

story is there UM. I think what happened was that we had a theory that the labor market was suffering from a skills gap, and that the solution to that skills gap was to make sure that people had the education they needed for today's jobs, and ultimately, because that education would end up paying for itself in the form of higher wages, we got comfortable as a sort of policy priority of shifting the responsibility of paying for that education from UH state governments in the form of support

for public higher education to individuals using the federal student loan program. And what we've found, I think, is that that diagnosis of a skills gap was not correct, So people ended up paying for these degrees that were supposed to be the route to higher earnings, and it turned

out that that really wasn't why wages were stagnating. The issue is not a skills gap, but rather UH trends in the economy that have to do with the power of employers and UM the ability of employers to essentially credentialize the labor markets are to demand a higher UH level of credentials and thus a higher level of debt to go along with any given job who has financially benefited from these student loans, I don't. I don't mean the students in trying to sort of connect it with

a future employment. But who's benefited financially and why don't they then if the government or someone decides that this is something that we should not be supporting, why not have them assume the burden of this financial problem. I mean that's a very good question. Uh. I think so aside, you know, the federal government is the lender, so in

a direct sense, they have benefited financially. I mean, this is I think a policy that the federal government decided to undertake that they wanted more people to get degrees, and so they were willing to extend loans on what for the private sector would be considered pretty generous terms, UM, in exchange for having more people get higher education. I think beyond that, UM, you have a lot of institutions that have benefited a great deal from what I would

consider credentialization spiral. So they're able to sell degrees to people who wouldn't previously have needed those degrees in order to get access to the jobs they want. UM. I think you know that that. I think people tend to point to the for profit higher education providers as being especially kind of culpable in that sense, but I think it doesn't just extend to them. Um. And then the other piece of this is that the federal government, you know,

really doesn't manage this large loan portfolio by itself. It has a servicers. When the federal government took over responsibility as as the lender, that is, stopped guaranteeing private loans and started becoming being the lender itself for newly originated loans, the financial institutions that had been the lenders before became servicers.

And then there there are some other um bodies that that service these loans, and they have an incentive to essentially extend payment as long as possible UM and not necessarily to uh inform borrowers what their best options are about how to for instance, UH available public service loan

forgiveness and other other income based repayment. So so it's another word's almost like a credit card situation where you know, you uh sort of demonize the people for getting into debt, but you encourage them to be able to take out more debt by offering them all kinds of incentives to

do so. Yeah, and I think that is an apt point because we have this sort of uh glow of higher education associated with student loans, and that's let people get the financial institutions and other stakeholders get away with UM tactics that I think there has been greater scrutiny of when the when the question is credit card loans or home mortgages. I mean we had sort of the scrutiny that arose in the financial crisis to other forms of other parts of the credit market that I think

student debt has largely avoided. So which age group is most burdened by this one point for trillion dollar Well, it's certainly younger workers are most burdened by it. UM. You can see the enorm skyrocketing percentage of workers in the forty age cohort that have student loans relative to what that cohort would have had in earlier eras UM or I should say what that age group would have had in earlier ears. I should also say that a lot of families go into interes generational debt. UM there

you know, federal programs that explicitly encouraged that. And then I think it's just natural that UM parents and grandparents and and other family members want to contribute to their children, UM, getting educated and getting access to the labor market and too good jobs. UM. And so there's a good report from the Federal Reserve Community Affairs Division that comes out every year that sort of goes into that the story of student debt extending beyond the student and the debt

or themselves. Marshall, have you seen any change from employers of not demanding sort of an increasing credentials No, the opposite. I think it's it's it's going on and on. I think, you know, employers know that they can, um, they can get more credential workers for essentially the same or lower wages as they did in the past. And just briefly, have people conflated this current kind of student debt explosion with what we're g I loans and no other words

saying they're kind of the same things. I beg your pardon, you know what we're going to go to. I want to thank you very much for joining us, Marshall Steinbaum, Research Director fellow, Roosevelt Institute in Washington, d C. 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.

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