You Can't Issue Debt Forever: State Street's Loh

Brahmowitz today, don't leave your powder dry. That was the takeaway from the market from New York Fed President John Williams speaking yesterday, and then things got really confusing. The New York Fed walks it back. President Trump tweets at the Fed's gotta stop with crazy quantitative tightening. Care to help us make sense of it all? As Marvin Low, global macro strategist First State Street, what did you literally make of the last like ten hours from Fed talk?

You know what I think, Um, we can get a sense of how challenged the communication processes for the FED. That's the main thing. Um, They're they're cutting, They're cutting twenty at least. UM. I think there's a moderate um reason to think that it might be a little bit more.

But really the that they put it out there and they didn't realize that it was going to have that big give an impact on the market and need to walk it back just shows that the communication process that they've had since the beginning of the year late last year is still an issue. So Marvin, again, as U Alex was mentioning, President Trump is out with a number of tweets this morning about the FED about their next actions.

Just give us a sense, how do you think the FED deals with all this noise noise coming from the President as it relates to their policy making. You know, I mean Chairman Powell, you know, ultimately laid it out when he went in front of when he went in front of Congress. Um. You know, they can't ignore it, but ultimately they have a mandate they report to Congress, and I think that they do go back and lean upon that. Having said that, the amount of pressure that

Chairman Powell must be facing is intense. So UM, I wouldn't say that they can completely ignore it, but you know, they do have, um the side of their mandate um to help them guide through that process. I'm also really interested in the interplay between the FED and the e c B s were like officially and then unofficially. I feel like it's who can get to the bottom first, who can be more dubish, How can they influence their currency the most? What kind of pressure is my own

joggy going to feel on Thursday? Yeah, so you know, he's he's certainly um looking towards how he wants his legacy. But that's what he is, and we're all jealous of him for that. Um. I think the FED, you know, certainly has more room to move in this process. That's something that the market has been focused on, and the ECB will be happy to wait for the FED to make its first move and then all the other central banks are gonna, you know, have the all clear to

kind of move in the same direction. So more of an at State Street. We're talking about Europe here, but as State Street as you think globally, you know, we think about the economies in Europe being you know, slowing, dramatically, weaking, even Germany's showing signs of weakness. How are you guys thinking about allocating assets to Europe in general? Yeah, I mean, you know, it's part of the asset allocation process. No, doubt. Um. You know, it's a global world. You need a certain

amount of assets with in there. Um. I think it's a function of how you want to move around the benchmarks and the European challenges are out there, whether it's from a growth perspective, whether it's from their banking system, whether it's from the fact that the ECB just doesn't have as many bullets. Ultimately, if we are going towards this um more looser type of environment, and you know, do you really want to put an excess amount of your allocation there? And it's it's hard to see wanting

to um overweight it more than your benchmarks. So when it comes to the bondom market, I mean, do you feel like we've topped out, that we're at the peak of where bond prices can be in Europe? Um? Well, um, we're certainly getting there. UM. I think that the e c B has already signaled that it's willing to go further into negative yields, even um if it does cause more problems for the banking system, But it can't go that much further. Um. You know, the Fed's certainly has

much more room if we need to go there. I wouldn't say that yields here can't go lower, but certainly kind of the relative movement between US yields and really the rest of the development market yields is a different type of profile. So, Marvin, bringing it back to this side of the pond, we're having starting to have some more discussions or more heated discussions about the debt ceiling. How do you think that plays out over the next

couple of weeks. I guess it's kind of the time frameer. Yeah, Um, you know, it's certainly it's certainly good that they're talking about it now. Um. I however, and probably a bit skeptical that they can get anything done. So um, you know, I would think that we're going to talk about September again, and we'll talk about all of the measures that might try and get something done before Congress leaves for the summer vacation. You think the odds they're pretty low, you

know what. Um, the fact that they're talking about it is positive. I'm just skeptical based on based on how our government has kind of functioned. Um, if it does get done, it's great. There would be a lot of short term issuance because the checking account of the U S Government has been drawn down as we've been in this debt ceiling, but it winds up being more of a short term kind of market type of issue. I

don't think it's ultimately disruptive. So when is markets actually gonna care about the debt ceil um or or just the amount of debt that like we're going to have to issue to pay off deficit. Oh yeah, the two different stories there. Certainly, UM the market. The market will care UM if we get to September again and we have all these dire warnings that they're not gonna be able to pay their debt and the rating agencies get involved, UM, I don't expect UM any you know, they'll they'll come

to they'll come to an agreement. UM. In terms of longer term with yields where they are now, UM, I think investors are willing to look past the fact that we're going to have these record amounts of debt UM. I'm not a m MT advocate, but at this point there is demand for treasure yields and we've certainly seen that UM as we kind of pushed towards these lower levels. Where is the m MT argument or discussion these days?

Is it's I haven't heard about it recently. We have to define it, like are we at the place that we don't have to define it anymore? Because it's like that acculate modern monetary theory. Basically, it says what and what does it say? And where are we with it? You know, effectively says that UM, governments can issue as much as they and we don't really have to worry about it, and you can run big deficits and finance whatever you want, and there's always gonna be a buyer

fort um. You know. Certainly the increase in debts that we've seen over the last couple of years makes one believe that that might be true. But you Q, you candid shoot debt forever. UM. You do crowd out, you do create an environment where zombie companies are allowed to go on longer. There are costs to the economy. UM. When we get to the point UM where productivity growth and overall growth is is gets to a new normal and people worry about it, the amount of debt is

going to be part of that discussion. Yeah, I'm just not buying it. I'm I'm in that camp that's just not buying it. But we'll see Marvin low global macro strategist State Street based in Boston, but joining us on our Bloomberg Interactive Brooker Studio, talking all things FED in all things economics. Of course, the FED meets at the end of July. Markets certainly looking for at least a

twenty five basis point cut. This is Bloomberg. Well consumers worldwide continued debate energy sources, including fossil fuels, nuclear and sustainable sources such as wind and sun I think at the latest insight on how nuclear power fits in We turn to Seth Gray, President and CEO of Liebridge Corporation based in Rest in Virginia. Seth thanks, thanks so much for joining us. Just wonder if you could give us an update on kind of the status of nuclear power

in the US right now. Well, Lucile, your power has been kind of flat, hasn't been growing, hasn't been falling much, has been producing about twenty percent of the nation's electricity for some time, and now we're coming to something of an inflection point. Are we going to keep renewing the licenses of the old plants? Will we build more of those? Are are we going to move forward to newer technologies for few tools that could really upgrade those older reactors

and deploy newer, more advanced technologies. And we have plants in this country out of four hundred fifty in the world. China and Russia are moving aggressively to take the lead around the world, and the US is now taking some very serious steps in Congress, in the administration, and in the companies to make sure that the US competes and does very well in those international markets which feed through

supply chains to manufacturing all across America. So we definitely had the Trump administration, UH in some ways want to backstop colon nuclear because they want a reliable source of energy that sort of stays in storage versus a solar and wind um is that legitimate argument, like do we really need to backstop nuclear or should we just let market forces kind of work their way through the system. Well, it's a very legitimate argument to give value you to it.

What you can do at a coal plant for a period of months, and you could do it a nuclear plant for a period of many years is have enough fuel on the site to run that plant twenty four seven. So nuclear reactors can run twenty four seven even if trucks or trains can't deliver any fuel to the plant. Of course, the renewables can't run when the sun isn't shining, the wind isn't blowing, and need to be backed up by natural gas, which UM relies on gas flowing through

the pipelines that could be cut off. So for unquestionable electricity deliver seven, you really do need nuclear and or coal. Nuclear for for a much longer period could provide it, just as it powers our submarines for years. They could stay underwater or aircraft carriers because they have nuclear reactors. You know, try that with wind power. So so I think it's a legitimate argument to give value to reliability

of electric grid with nuclear power. So, Seth, you mentioned so newer technologies that need to come into the nuclear power play. UM gives a sense of what some of those technologies are maybe kind of where your company fits in, right. So light Bridge is developing a new nuclear fuel that will work in the existing reactors and new ones. The project just recently received its first US Department of Energy grant to support the project and help take it forward.

Our fuel technology is going to make the existing reactors much more economical by increasing the power that comes out of the plants, running the plants even longer between refuelings, dramatically improved the safety, running about a thousand degrees celsius about six degrees fahrenheit cooler than the fuel and current reactors, and also dramatically enhanced proliferation resistance so that nothing could ever be used in a weapons program. And also part

of the future of nuclear is these smaller reactors. The lead there is a company called New Scale, and we're starting to work with New Scale to bring our fuel to their smaller reactors, which I think will really be the lead in the next generation of nuclear reactors deployed here and around the world. And a big part of that is obviously a cost. Can you walk me through, like how much it costs to say, build a new plant, maintain your current plant, and then build the modular fleet.

Basically yeah, yeah, well, basically, the the costs of building plants are very expensive when they're first of a kind, and then after you build about six or nine of them, you're at what some people call nth of a kind. You know what they're going to cost going forward. So one of the plants that was designed in the US by the company that's now Westinghouse and is being deployed around the world. The Koreans are working with Westinghouse deploying

in Abu Dhabi makes megalots of electricity. That's a ton of power. Cost about five billion dollars to build. That's a pretty solid number. You could you could build those kind of reactors or other similar ones for about five billion dollars on what you'd call levelized cost of electricity out over the cost of the plant, that is cheaper than um. Then Cole that that that works very well over time. It's obviously a very big upfront cost, but then your fuel cat costs for sixty years or even

eighty years are are very low. Seth You mentioned earlier kind of the some of the new technologies that could ensure or heighten non proliferation of some of this nuclear technology. And we've got some obviously some issues with Iran right now. Give us a sense of just kind of the global deployment and the safety around deploying a nuclear technologies globally. Yeah, So first on Iran, they've suspended some of their obligations under the new Clear Deal there enriching uranium a little

bit higher than they're supposed to. They're making a little bit more of it than they're supposed to. They could easily step back and go back under those limits. They're trying to get European countries to help them work around US sanctions, which I think are being very effective on Iran. So that's not really too great a warrior on Iran yet. I think it's more of a negotiation dance of them

with Europeans. Nuclear reactors deployed by major companies under safe licensing regimes like the US Nuclear Regulatory Commission are the safest way of generating power in the world. Nobody has ever died from radiation from anything in the reactor in the history of the US power and nuclear power industry. Even at Fukushima, as great an industrial disaster as that was, nobody died from anything nuclear. People died from an earthquake, people died from a tsunami, but actually not from anything

in the reactor. So it's um. It's a very safe technology and um in terms of proliferation. The way it's handled under the International Atomic Energy Agency oversight is very well done, and with light bridges fuel it will be even much more non proliferative understood, Seth, great, thank you so much for joining us. Set as President CEO of light Bridge Corporation, based in Reston, Virginia, bridgeting as we think about how different technologies deployed globally. Well, Boeing is

back in the news. The company plans to report a four point nine billion dollar accounting charge related to its beleaguered seven thirty seven Max jetliner, and the company also said that the plane would return to service in the fourth quarter, easing fears that that's timetable could slip into next year. To think a little deeper, we welcome our next guest, George Ferguson. George is a senior analysts covering aerospace, defense, and the airlines for Bloomberg Intelligence. He joins us on

the phone from Bloomberg Intelligence headquarters in Princeton, New Jersey. George, thanks so much for joining us. The stocks up about, you know, three point seven percent on the news years like a shareholders like this. Yeah, I think I think you're right, Paul. I think it starts to put a a a cuff or a back limit on when we think we see this airplane back in service, and it gives investors a number that they can they can look at for what the cost is going to be. I mean,

I think that they're probably being conservative. And the date the airplane re enter service, I think Boeing doesn't want that date to slip and at least the date that they've provided, So my guess is they're probably fairly confident the airplane gets back in service. That's in line I think with expectations that were in the marketplace for late three Q early for for Q entry to service. The cost of the airplane being out of service was a

little bit higher than we expected at Bloomberg Intelligence. Um, you know, I think the Bowing probably again put a conservative number together here, so it's probably bigger than even they expected. And they detail that they it's not going to be all cash, so it's not gonna be all

four point nine billion in dollars. There'll be other types of concessions they offer our customers that are will be over an extended period of time, and so I think now investors have a little more clarity around that, and that's part of what you're seeing today. I feel so skeptical. I gotta be honest with you. I feel like my it's like, what do I want to win the lottery. It's kind of the same thing. But let's pretend let's pretend that this is correct, Bowing's estimates are correct. Things

get fixed in the fourth quarter. What's not accounted for in the numbers, as in litigation or compensation for airlines, et cetera. Yeah, so, I mean, as I read it, it looks like the compensation for victims it wasn't in that. And you know, we think that's a pretty knowable number. It's uh, you know, we think there's maybe a billion and a half worth of potential cost of victims um.

But you know, and and that kind of that kind of litigation can drag on for years, and it's it's a discussion about what the value of of people are, which is a bit of a macab discussion. But I don't think that there's I don't think there's a lot more that's uh, that's overhanging because of this this grounding, unless the grounding gets extended. So George, let's talk about the seven max itself. Um, do you expect this the next time you go to London Air Show of the

Paris Airshow? Do you think Boeing is going to have success in the years ahead selling this aircraft. I do. We've seen key customers that have come out supporting the airplane. Um. I think the I A G Letter of intent at Paris was was huge um and and the you know p but like Willie Walsh, the I A G CEO and UH and Ryan air CEO of come out and endorse the airplane. That's a strong endorsement. UM So I think that uh, this is this has definitely been a

difficult period for Boeing. But once they get this airplane back in the air, provided they have no other problems that I think, Look, they've really poured over this airplane. Now. My guess is um that that this will fade within you know, six months or so. What's going to be the hold up? Is it going to be getting past regulators compliance? Is it going to be the actual fix itself? Um So, I don't think. I think the bigger challenge

here will be to sell it to global regulators. And I think that the I A g Um sale was part of that was part of that fix, and I think it will be they'll look for airlines in the different regions to apply pressure to regulators to at least review the airplane so that it can re enter service. Um, I think i AG probably got a pretty good price, and so they'll be incentive to go to the European regulator and say, hey, take a look to the airplane, tell us what they've got to do to re ender service.

I really think that the FAA has poured over this airplane now because they don't want their credibility, um, you know, further damaged. And so I think given the intensity of the f A is probably put into the into the review, I think Boeing out to be in in good shape to get it get it flying in the US and in Europe pretty quickly thereafter, because I think the Europeans also they don't want to separate this regulatory regime that has sort of relied on each other's, you know, each

different jurisdictions regulator. I think everybody in the aviation industry doesn't want to break that regime where you can rely on regulators in the different regions, and so I think the Europeans, without a real strong reason not to take the airplane back, will will resist your delay. George Ferguson, thank you so much. George has a senior aerospace, defense and airlines analyst for Bloomberg Intelligence joining us on the phone from Princeton, New Jerse, Z, will you get on

the seven. We're literally going to ask you that question. The answer for me is yes, without I think so. But like I think I could take a moment, I don't think I take my kid on it interesting. I just feel like, you know, by the ton of thing gets in the air, it's gonna be the safest plane in the air given what has had to deal with. Let's head over now to Nathan Hagen Studios in Washington, d C. To get a check on world and national headlines.

At Nathan Focus on Munis is brought to you by Build America Mutual BAM Green Star Bonds finance projects that protect and restore the environment with more renewable energy and efficient transportation and buildings. Visit build America dot com slash green Star, BAM Building America. When we talk municipal bonds, I love to talk about the Puerto Rican market. It continues to make news. Looks like Puerto Rico is seeking to restructure about twenty seven billion dollars of obligations tied

to the central government and its mean utility. UH to get the latest, we welcome a good friend Joe my Sack Joe as editor for Bloomberg Bloomberg Brief for Bloomberg News. He joins us here in our Bloomberg Interactive Brokers studio. Joe, what is the latest on this ever or never ending saga of the Puerto Rican debt situation? Riots in the streets this week? It was riots the you know, the restructuring we'll go on at some point. Uh, but right now the population is restive. It's the only way to

describe it. And what are they protesting? They are protesting almost nine hundred pages of chats that the governor was having with his various aids and you know, sometimes pretty salty stuff and uh and and in general protesting you know, the incompa. It's of government on the island for years and corruption. So you know, eventually it just blew up. So who knows whether the governor will be able to

survive it. However, the restructuring goes on, and of course this being the muni market, prices of Puerto Rico bonds were unchanged. Well, I was gonna say so, I said for Lisa, I don't know what two months ago on a Friday, and Joe, you were here and we literally had the exact same conversation, So like, what's what's a time frame that he's looking at me? Funny when I say that certainly, um, you know the the we're going

to have resolution of this certainly this year. So I would you know, what is that another four or five months? I know the the oversight board is going to put their plan on the table, uh in about him, you know, within the next several weeks. And there's also fifty billion dollars or so that the government owns or owes for retirees and things like that, So I don't I mean, this is far from over as it relates to the

overall finances of Puerto Rico. This you're you're talking about just some of these bonds that have been in default, right, just the bonds, the the fifty billion dollar figure you site is uh, you know what's owed to retirees and Puerto ricoes into a good job with its pension fund which is now at zero. So I know that Paul loves Puerto Rico and he knows that I love pg and E. So I want to talk about what's happening with PGNY their bonds sort of where California is and

trying to restructure their dad have a liability fund. You know, California past legislation to UH set up a fund for the utilities to take advantage of in case there are more raging wildfires and you know they have UH you know, rather than having utilities go broke, UH, they would be

able to tap this fund. Um. But the legislation also contains some uh impediments or it's it's not as perfect as it might be to allow municipalities to buy parts of the utilities, and especially p GEN San Francisco wanted to buy part of it, and they said, hey, you have to go back in and tweak this law for US California. And it looks like the lawmakers there are constructive on this. They say that might go back in and do this. Alex have ever been to the consumer

electronics show in Las Vegas? Oh? I have have youtten written the mono rail from the convention center to your hotel. I don't remember. It was a long time ago when I was miserable. Yes, that's for you exactly. This famed monorail, which not that many people use, is the problem. That's the problem for their monorail they had a little problem with their municipal debt, didn't they? Joe, Oh wow, what a story. This is obviously the story of the week. Response.

Um Mono Rail sold six d fifty million dollars in bonds in two thousand and two. It was to acquire the system and expanded, which they did and in uh they chapter reserve funds out of the words went into

default and in they they went to bankruptcy. Twelve they emerged from bankruptcy after wiping out nine percent of the bond holders principle, so they wound up owing thirteen million dollars and this week they paid off that thirteen million dollars, which means they're ready to come back for the innicipal market. Can you believe it? Alex, believe me. If you had been on the monorail, you would have been cheered up because it's nice on the motto else I don't know.

I had literally just flown in from Paris and then too New York to Vegas, like I don't know what time it was, but um, what's the demand going to be like? And what is the FED have to kind of say about it? Oh? Man? But you know what, what is a lot of angry people who uh say this is insane. This is a perfect example of how frall the of the municipal market is. And uh in other words, there'll be lots of demand. Well, I don't know, I mean haven't been at ce s. The cab lines

are like forever. The monoreel is a good option. Why does no one use it? I don't know. It's it's it's a car culture. You know, it's a car culture. Well, see, now this is part of the the the plan or the the the mono rail would definitely like to extend to the airport, but the cab industry is dead set against it. So uh, you know, we'll see where the where this expansion plan goes and if they're ever able

to at tap the market again. But there is a small deal on the Bloomberg calendar for the deal for the deal, Okay, we'll see Joe Mesac, Bloomberg editor in for the Bloomberg Brief for the Municipal Markets covering all things Muni's forest, joining us here in our Bloomberg Interactive Broker Studio. I don't know, I'm going to stick with

the mono rail. I mean some sense, you're making good sense of it, especially during CS because literally that the lines for the calves at the hotel and they're just for every they need that well, I think they just like a slay you need. It's not something in Davos. So we'll see, but we'll see if they can. In fact, if Las Vegas Monroe can come back to the market, will be on that story. This is Bloomberg. Thanks for

listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on Twitter at Lisa A. Bram Woit's one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.