NAFTA Decision will be Market Moving, Haines Says

he joins us here in our studio. Chris Rupki, great to have you here. So what kind of economy? What kind of economy is? Is the president going to be? Uh? What kind of economy do we have? While the president speaks no, it was interesting. I remember during the campaign, five percent unemployment was phony. He wouldn't be getting people

into the stadiums if unemployment was really five percent. But now the president's crowing about how well the economy is doing with unemployment rate at four point one and saying, but what do you say, it's good? Yeah, it's it's full employment. It's like, why did we do uh, tax cuts and Jobs Act? I mean, we've never seen another administration in history probably do fiscal stimulus tax cuts unless we're in a recession. Why are we getting tax cuts?

By the way, I haven't seen my time. I think it's coming at the end of this week, so I'll take a look at it. You should be I'm excited, you'd be excited a little bit more in the envelope. Well, every time you hear about a company releasing its results, they say that there's a little bit more in the envelope. Is that not for someone at my level? That's exactly right?

So can you can you sort of opine about that, because you know, you can spend all a talking about whether they're going to do a dividend increase or share buy back, or maybe they'll pay their workers a little Well, we've kind of seen this before, right, What did companies do when they get the money? They usually reward their shareholders dividends, share buy backs. But yeah, they've been doing

some good. Pr been giving out some thousand dollar bonuses to thousands of their employees, if not the upper levels of management. So it's good. I mean, I can't say it's it's not good in terms of money wherever it comes from. If money circulates in the economy. We're going to get some kind of growth. We can't say no. It's just that usually Washington with a twenty trillion dollar national debt, they would be doing this sort of deficit spending. It is deficit spending, right, It's not as if we

don't have the money. But we're going to print it, right, isn't that Well, they're going to issue bonds. That's sort of like printing. It's like, why, why now, why are we English? I just don't I don't quite get it. Alright, So alright, head time I want to jump into we get some breaking news. Here's the headline within the press release. I love this hungry tape. Hungry Tapeworm was such a good band. They'd play Grand Funk Railroad like no one.

The ballooning costs of healthcare act as a hungry tapeworm on the American economy. There's the headline from Amazon, Berkshire, haths Away and J See we did that in stereo. We do that, Pim and I can do that anyways. It's it's a really interesting headline talking about rip up the script. Amazon, Berkshire, Hathaway, JP Morgan going to form a healthcare company to go after the hungry taper Chris Rupki, how much is healthcare is a percent of our jullion

dollar economy? Is it six or is it actually more? Well, I mean more, and I don't have that at my fingertips, but it is interesting the FEDS PC inflation core PC inflation. A huge weight of that is healthcare. It's like, so you mean to tell me financially, yeah, not even psy of your budget, of the nation's budget ex. Food and energy.

After that is healthcare, and then it's ginormous pim Fox A key paragraph here with Todd Coombs, Uh, Marvel Selivanberg Told and Beth Galletti of Amazon, the three major officers, a headquarters location and key operational details will be communicated to take on the hungry tapeworm. The hungry tapeworm, Well, they say that they're going to provide US employees and

their families was simplified, high quality, transparent healthcare. The thing I would note, though, is that there is no healthcare company in this transpriate no no. And Richard Truman mentions the United Healthcare Trading Lower Office. To summarize, folks, because we went into it a little bit quickly. You're trying to get the news to Amazon. Berkshire Hathaway and JP Morgan Chase to partner on US employee healthcare. The sub beheading is goal is to improve US employee satisfaction while

reducing costs. I mean, that's the spin. They want their employees to be happier with their coverage. But it's a it's are we talk about the president and a private initiative today? You wonder if you'll mention this in the State of the Onion. Very good, Chris Rupki. Uh, this kind of announcement, while interesting and perhaps will hurt, will

help a lot of people. To the point about the current healthcare system, Uh, do you see any way to rein in the entitlement programs in any way that would be meaningful without cutting the quality of the care or the quality of the service delivered. It's going to be difficult, and I resent your use. Resent your use of the word entitlement. When I was a young man in my thirties, I could talk about those benefits being entitlements for some people.

But now as I can see those entitlements or something that I will be entitled, so I would say these are very important expecture. No, but that goes to the absolute societal tension. The late oh they Reinhart at Princeton really address this. What's interesting about this Chris to the President's speech tonight on infrastructure. Here's private enterprise basically saying enough, yeah, but they gotta make money off it. Reducing overall costs

is called making money to Mr Diamond, I'm not sure that. Yeah, it sounds a little suspect, doesn't it. I mean, it's a nice idea, but it's kind of like infrastructure spending you know that's going to be h have dependent on private money? Is It's like, well, what what sort of private money is going to come in to do infrastructure? How are you? How does the business get paid? How do investors get paid? Mr? It's not easy, Mr Bezos

picking avocados for whole foods. Quote. The health care system is complex, and we enter into this challenge open eyed about the degree of difficulty. That's not the usual spin. Pim Uh, Well, I hope he's got both eyes open, because it is a complex system and one that many people depend on. Chris to that point, though, about the programs and the ability of this society to pay for them, Uh, taxes, we cut taxes. That means it's less money to spend

on these kinds of things. I don't understand the How does that not offer a contradiction? Yeah, well there's a it is a contradiction. You know, how do how do you pay for these moneys? I mean, I mean, how do you pay for these programs? Uh? You know. I think the current leadership in Washington, you know, has felt that we need less Washington, we need less federal government services. But I don't know, the next crew that comes in

might want to do something else. The reason I want to focus on healthcare is because of the demographic bulge of the baby boom generations could be very expiring and so the cost is going to go up. And then I recently was at a conference and heard one theory about why we have such sluggish growth and low unemployee low inflation. It's because as the baby boomers age, right, you have an economy is they're pulling out of there. Uh, They're they're exiting the job market. Can I can I

make a surveillance correction? Go ahead? It's so important. I M know, Mr Bezos, Mr Diamond, and Mr Buffett go to the hungry tapeworm. That is our medical system. Daniel Anger to the rescue. It was late. Tape rooms don't make you hungry, that's the research. Not that I've ever had a tapewroom. You had a tapeworm? M not going I've not. I've not had a tapeworm. But they can cause a vitamin B twelve deficiency in some patients. But

they just they don't make you hungry. You just are not interested in you know, maybe he would have saved that, Chris. You know, Chris ROPI, thank you so much, greatly appreciated this morning. Some terrific respective across television in radios. One, let's go to healthcare. Why don't you bring in our good guest here who's expert on hungry tapework, Max Neeson. Let's not go with tape rooms. It's too early in

the morning everywhere, and some places it's too early for dinner. Um, JP Morgan, Berkshire, Hathaway and Amazon say they're going to get together and help their employees. They're going to provide better, less expensive healthcare. What's your reaction? So my initial reaction was this was not the Amazon for a into healthcare that that has been expected. You know for about a year now, which was something like a more aggressive for

it into mail order pharmaceuticals from pseudo benefit managers. What they're doing is I think even more interesting. UM they're potentially going to run along with these two other companies, UM their own health plans entirely from plays and since they're not just doing this informally, they're creating a company that suggests if they figure out how to do this well and given the people involved that that's a decent bet, um they might try to bring it to other employers.

Is it Kaiser Permante from forty years ago, where you know the heritage out West? They did it different out West with Kaiser. I think ultimately, you know, if if you they have grand ambitions, and I think if they're going to take this kind of step that they probably do that's something of the model that they're going to look to emulate. UM, you know, doing things starting from a different point of view, with a different set of priorities,

not attempting to to make a profit. UM. As they kind of highlighted repeatedly in their press release, UM that being the great frustration that so much in American healthcare is not geared at bringing cost down, but for um, you know, eating out a profit margin for every single

person along the way ensures PBMs providers. Any chance that this is going to present the conflict of interest with what their real businesses are, I don't think so, at least that at the start, considering that they're you know, initially focusing just on their own employees and on other employers. Um, you know, at the end of the day, they're they're just attempting to to keep costs down from the employees.

It will be more interesting when they bring it to other companies or if they try to get into providers. And we know that everybody with Jeff Bezos is cut and chiseled. Maybe I can't say that a Mruture half away and JP Morgan. But is this the beginning of companies saying enough is enough. We're gonna essentially self insures. All we're talking about here, they're gonna self ensure where you begin to separate healthy employed America away from unhealthy,

lesser or unemployed America. I mean that that's already a

reality in our health care system. If you work at a large complayer, your your health care is subsidized to an extent that that nobody really realizes unless you later end up unemployer on the individual market, where um, the burden falls much more a question and you pay much more out of pocket, You pay higher prices because you don't have the benefit of that enormous employer tax exclusion for healthcare benefits and the power you know, all of

that negotiating power aggregated in the form and not just your employer, but you know everyone who they participate in the PBM or or bigger insure with. What the what are some of the competitive challenges to putting together something like this, um, I mean, they're gonna have to basically learn how to operate, you know, however much they're gonna do. You know, they might still contract with an insure man for parts of of the business, like self insured companies

currently do. But every piece that they're going to pick up on their own and run on their own, they're gonna have to learn how to do from the start, and you know, they put the challenge on themselves to figure out how to do it better with more technology. Max I'm begging Max needs of course, folks. With Bloomberg gut Fly, he writes these terrific chart paragraph charts stories.

Are you go to write about this today? I'm I've already started really really looking forward to this already brought also brought in his his medicine kit to help you get over the plague. So he cares it's a plague. It's like a thirteenth century Thix. Seriously. Fortunately you're in the surveillance cone of silence, so you're hermetically sealed away from me. Is that why I'm hermetically so you see the car. I thought Max and I were together. No,

Max is gonna get the play. But an interesting concept, right, It's it's absolutely fascinating up particularly the notion and this is probably the thing I'm gonna focus on um that this is kind of a pilot among themselves to figure out can we make a company out of this for other people? Max, Thank you so much. Terry Haynes is ever Cores I s E. Senior political strategist. He's the

head of political analysis and a managing director. He is also experienced in the ways of Washington, d C. Former Chief Council Staff director of the U. S. House Committee on Financial Services and Senior Council on US House Energy and Commerce Committee, and a variety of other government positions. Terry, good to have you with us here on Bloomberg. What are you going to be listening for from the President

Donald Trump's State of the Union message? Good to be here, Pim, and thank you the well I'm going to be you know, the President essentially is going to divide this each into three parts. Uh, and I think everybody knows what the what those three parts will be, so I won't spend long on them. First will be the I think the

first year achievements. You know they uh, we all dip into the Trump Show on a daily basis, but this is an opportunity to to provide the best of a framing device for the president in his first year in office. So I think they'll do that. They'll run through a bunch of priorities. Infrastructure, of course, is going to get hammered in quite a bit. I expect him to talk about trade, housing, finance, a bunch of other things, and

finally a national security focus. The two things I'm going to listen to with particularly closely, one I think will be housing finance. Uh. I expect Secretary Manution to testify this morning on the Hill that he remains interested now in finance it's not a secret that he is. But at the same time, renewed commitment to trying to get something done UH from the administration UH will will be important for markets, and I can leave whatever signals on

trade the President wants to send. I've always said the trades one of the three big unknowns UH this year, certainly trade policy as the top that. And the question really is UH. You know, we got a positive read out of NAFTA yesterday out of the end of the

Montreal round from from U. S. T. R. Lightheiser. UH. The question is does the President continue that kind of pro pro business, pro market approach that he first talked about in Davos last week and was underscored by Lightheiser, or does he go back to a more saber rattling If I don't like it, I'll get rid of its sort of approach where it comes to NAFTA, and that

will be market moving as well. Terry, based on your experience to whom is the President really going to be speaking tonight, Well, but my experience is that the President uses this speech to speak directly to the American people. It's it's the largest audience that the president will have all year. Uh, non la, there's some disaster of course that that requires. But UH, presidents always look at this opportunity as one where they get to actually talk to

the American people. They get to characterize their own presidency directly, UH, and they get to lay out their priorities directly, so that they can you know, not only frame you know, what it is, how it is uh that they want to move forward, but also you know, frankly in political terms, uh,

put the opposition on the back foot too. Well, That's where I was going with this, because of course, this the first president that really uses the social media world of Twitter and a variety of other mechanisms to speak directly to his constituents and indeed to the country in

the world. Sure, and he gets to use but he gets to use the the cameras in the more conventional media here to uh to to do something other than uh other then kind of you know, the message at the moment, and actually gets to frame his own presidency and uh and have people to try to understand exactly what he's up to as president beyond beyond the Twitter of the day and uh. And that's I think that's particularly important for this president Frankly, all right, what would

you like to hear about regarding housing finance? What I'd like to I don't have the luxury I'll tell you what I'd like to hear. What I think is, uh, what I'll be interested in is whether or not that makes the speech Frankly, Uh that it has been a as I say, by priority of Secretary minutions for some time. He first talked about his desire to want to do something on housing finance before he was even Treasury secretary,

after he was nominated. But the end of and every time he talks about this, the markets blip in a positive way, housing stocks a rise. And I'd like to see, frankly, is whether there's a commitment from the President himself to invest political capital in this, because if that's the case, then you might get something. What what what's your read on Fannie Mae and Freddie mac My My read generally is that you know, we've got a situation where, uh

the enterprises have been in conservatorship for a decade. Uh, it's uh, it's time to take a serious look at whether to get them out or not to the previous administration's policy was that we'll get them out one Congress tells us to get them out, but not before then.

And uh. And what needs to happen fundamentally is, UH is there needs to be an understanding and some kind of coming together in Congress and you know, with the President and Secretary Munition as well, UH, to talk about what housing finance is going to look like going forward. I mean, are we gonna get are we gonna if we're gonna get greater participation from financial institutions? What does

that look like? Uh? There is some policy difference between Democrats and Republicans and whether there should be whether the g SC structure should still be maintained. Uh, that's compromisable in my view. But what you're you know, the fundamental issue is going to be whether or not we're going to get more capital into the housing market or not.

And uh, and whether we're gonna get a greater focus on housing finance because our view has always been here has always been that the current state of affairs has been a negative for the housing market and a negative for the markets generally. Based on your understanding of Secretary Minutions background, what does he bring that special to the conversation and debate about housing finance. I think two things. One,

he's actually he's actually been in the markets. He actually understands the markets on the first firsthand the basis, and I think that's important. We have not had, Uh, it's been a while since we've had a Treasury secretary that that that that had that kind of direct knowledge. I mean, certainly i'd give I'd give Secretary Geithner and Secretary Paulson both both marks for that, but it's been a little while. Secretary Louse certainly didn't have that that sort of fundamental background.

Number one. Number two, he brings a he brings a commitment to it and what you need fundamentally on this issue. And I think this was proved in the last time anybody tried to do something like this. Um, you need commitment from the highest levels of the government and the executive branch, particularly to try to uh trying to knock heads together in the Congress and get something done here, and that hasn't existed for a while. And Secretary Munition

would like to do this. He's been clear about it. Uh. And now that now that he's used some political capital on tax reform, uh, he appears to be interested in doing it again. So we'll see where he goes, and we'll see if the President agrees and wants to say something about it in the speech. We'll be listening and we'll also be looking for your reaction to it as well. Thank you very much. Terry Haynes is Evercore i SES senior political strategist. He's the head of political analysis and

a managing director. Our guest is Emily Rowland, head of Capital markets research at John Hancock Investments. Joining us from Boston, home to Bloomberg one oh six one Boston, Newburyport and thirteen thirty in Metro West and the South Shore. Emily, thank you very much for being with us. Complacency and volatility. I'm wondering if you could describe your thinking about both of those as they affect investors. You know, when I think about our outlook heading into I would say it

was probably a bit more optimistic than consensus. We really felt that Pact reform and earnings growth were likely under appreciated catalysts that would drive markets higher, and really looking at the extraordinary returns that we've seen so far this year, markets are up seven percent in one of the best starts to a year in recent history, and in our view,

would be pretty difficult to keep up this pace. We really think it's it's highly likely that we'll see some sort of pull back in the cards, some increased volatility as we continue into and we think investors really probably aren't prepared for this. Just looking back last year, the maximum draw down we saw in the SMP five hundred was three percent. That means that even if you chose the worst day to invest in, the mostly losses three percent.

Now that hadn't happened since and the average is about four. So we think we're going to get back to those averages and investors might be caught off guard when volatility really does start to pick up. Here. Well, what should investors do in order to heads or prepare for this

increased volatility that you say we're going to get. Well, we think it's important for investors to simply revisit their risk tolerances make sure that they're investing in a way that aligns with their longer term goals, because if you think about it, you know, the investors psychology is sort of pointing to this environment where we're kind of moving into and maybe not quite yet excessive optimism, but we're sort of moving into I would call it sort of

the excitement phase now, and we're really starting to see that evidence with the flow data. If you look at the first couple of weeks of from a flow into global equity standpoint, we're seeing about four times the flows into equities that we saw this time last year. So we're seeing investors get excited and potentially the sort of the wrong time in the market. So we're suggesting that they really kind of take a look at their long term plan. Okay, So having sort of said that, is

there anything specific that you would offer. Is it to rebalance the portfolio based on the performance of the constituent parts, Is it actually maybe taking a profit? I mean, as you mentioned, SMP five has a gain right now of almost seven percent for the year, the Nasdaq is up more than eight percent. Market timing is not necessarily a

a shore fire away to financial success. But having said that, you don't get you don't go broke taking a profit, right you know, So we certainly believe that rebalancing is a good thing to you at all times. But don't get me wrong, I'm calling for a pullback in the markets, But actually our view is quite positive. More broadly, you know, thinking about our longer term outlook twelve to eighteen months to synchronized global growth story really is a powerful one.

Earnings growth remains supportive. We're seeing significant upgrades in terms of the earnings outlook for next year. You know, when I look at the numbers at the beginning of this year, is about eleven percent outlook for earnings growth next year and that's been bumped up the sixteen percent on the

back of tax reform and other positive momentum here. So as long as we continue to see inflation remains somewhat subdued, which which we think is our real base case here, we think that this cycle can continue and that there are opportunities for risk assets heading into It's just important to remember that we are going to experience more normal levels of volatility. Okay, having said that, then where do you look for this relative value you? Is it outside

the United States? Is it in specific industry groups or specific asset classes? Yeah? Sure, Um, we are positive on both US and non US equities today. Um, there is a good valuation opportunity looking overseas. Typically, the US trades to UH non US equities at about an eight percent premium, and that's actually about twenty four percent today, So comparing US versus non US from evaluation standpoint, we think that there's an opportunity overseas. We also are suggesting that investors

consider international small cap equities. Not only do they have a historical performance advantage over their large cap piers, but the earnings outlook for small cap equities overseas is actually

outpacing the outlook for international small cap equities. And really the idea here is that those domestically oriented companies overseas, those smaller companies are really going to be the itative beneficiaries of this strong synchronized global growth we're seeing particularly picking up overseas alright, but international small cap won't that

be effected if the US dollar continues to weaken. Yeah, we're seeing a continued a weakening of the US a dollar here, which will be an advantage to US investors that are investing overseas. And again, the strengthening euro, if you think about investing overseas, will have a put some pressure on those large European multinational firms. But again, those domestically oriented companies will be more insulated from that dynamic.

Give you ten seconds to tell us what investment would you absolutely positively stay away from Yeah, I mean certainly, I think you know, U. S. Treasuries. We're starting to see a pretty meaningful backup in yields here. We've been negative on you know, corporate a government debt for quite some time. Here, there's simply better opportunities in this reflationary environment to invest equities over fixed income. Thank you very

much for being with us. Emily Rowland is the head of capital markets Research at John Hancock Investments and joining us from Boston. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.