Brought you by Bank of America, Mary Lynch. Investing in local communities, economies and a sustainable future. That's the power of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated Member s I p C. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with David Gura. Daily we bring you insight from the best in economics, finance, investment and international relations.
Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg Carl Weinberg joins us now chief economist at High Frequency Economics, and Carl, I read your notes regularly and with great interest, and you wrote in a recent one here every country in this edition of of Your Globe a lout look boils down to a discussion of yield curve prospects. This is the overarching theme here. Absolutely absolutely. I mean, we have quantitative easing
issues in Europe. The ECB is out of sovereign bonds to buy. That's a problem. Uh. Negative bond yields are unnatural and without the support of ECB buying are I don't think they can persist. In the UK, we have everywhere we have rising inflation concerns, although they really aren't. Inflation figures out there at the core that suggested an
inflation problem, the markets perceiving it as such. And of course we have the FED on the move, and the correlations between long term bond yields abroad and what happens to US treasury markets is close to a pent so steepening yeld curbs everywhere out there, and the world doesn't need this right now except maybe here in the United States. We'll talk about the FED here in just a minute. I want to ask you what you heard from Mario
Draggy last week. I remember a few meetings back, the conversation really centered on scarcity, what what the e c B was going to buy? How is that conversation shifted? Mario is so slippery in his In his comments this week, he talked about, you know, continued, continued bond purchases, you know, forever, and that's certainly possible, but he nowhere in his statement that he used the word sovereign bond or public sector purchase program. And the reality is they're out of public
sector bonds to buy. They're now buying at the short end. In Germany because there aren't enough long bonds for them to buy as they step away, as they taper their public sector purchasing program. As far as I'm concerned, quantitative easing is dead alright because Bind Corporates is not QUI. It changes the price of a single security, but not the whole YO curve. Good morning everyone, Carl Weinberg with me, and there David gur in Washington. What a day David
to be in Washington. Had no idea the scoring was keeping creeping up on us. Carl, I I look at all that's going on. There still has to be a measurement of g d P. What is your colleague, Jim say about the run rate of US g d P as we go to this big Fed decision and then on from there. You know, Tom, we have the very very near term, the current quarter which is certainly shaping up to be disappointing, but we have a medium term growth running at about two and a quarter up to
two and three percent according to Jim Mosullivan's forecast. High Frequency, you know, is looking at what the Trump administration has promised, and we're a little bit more skeptical than the market that we're going to get everything that has been in the president's rhetoric. So Jim's added a half a percent to GDP growth in the second half of this year to account for something getting in there in terms of
infrastructure and so forth. But so far, and let me say that this way, probably like many members of the f O m C, there's no hard basis to change the forecast for GDP based on what we've seen out of the Trump administration so far. We'll see if we get all the principles in place here. Because of the snow for that for that two day meeting, maybe it'll
have to be done telephonically. But Carl, let me ask you about something I read in the Times this morning, Benjum and apple Bomb writing about the potential here for a collision between the FED share and the President when it comes to UH growth, when it comes to what the FED is intending to do. What are we going to see an impact if indeed they are on this slow motion track for collision. Yeah, I think you've You've
really hit the nail on the head, David. We're looking at a FED that has its mandate, and its mandate is full employment and price stability, and as certainly Stanley Fisher, FED vice chairman has said numerous times where we are right now, we're just about at that point at nearly four and a half percent unemployment and two and a half percent price increases, that we've achieved our objectives. The Fed has achieved its objectives. The President wants to see
more growth, wants to see lower unemployment. And that's that's a conflict. And I think that it's going to be certainly one of those you know, foot on the accelerator, foot on the brake kind of challenges. To see where we were when they raise rates Wednesday. Nothing happens, right, it's when when when do you presume it begins to actually have an effect where higher FED funds yelling rates dampen the growth of the growth if you will. Yeah, well,
monetary policy takes a while to work. We know that. And just in the traditional textbook sort of thing, you know, monetary policy could take a year or eighteen months to affect the economy, but it will affect the financial market sooner. And this is you know what we're all sitting on the edges of our seat waiting to see. You know that the stock market and could look at this, and the bond market could look at this and say, gee, this is really bad. The feed is hiking rates. You
know that's going to cause a recession. Or they could look at them at this and say, well, the FET is hiking rates because the economy is good and we should be stronger. And I have no way of predicting how the market's going to go for this, but financial conditions are where you'll see the first impact of FED policy, not necessarily in real investment activity. Any chance they go by more than a quarter point here, well, it's not in our thinking, and we haven't gotten anything to suggest
that they're talking in those terms. But you know, anything is possible. We're an unexplored territory. At the unemployment rate where it is right now, pushing rapidly towards that four and a half percent floor that everybody thinks is where the bottom has to be, and showing no sign of stopping. Look at the strong labor market. Anything is possible. But
it's not an hour thinking. Help us get out front of the event of the week, which is a scoring if you will, the Trump Care whatever you wanna call it, and also the event of the week, which is David Gurrow talking with Alice Rivlin, how does it. How does Carl Weinberg use the Congressional Budget Office day to day, Well,
not very much in this particular instance. You know, they're going to be one of many pieces of input into a legislative process that only has part of its feet on the floor with economics on the same floor as economic fundamentals. So at the end of the day, what the CBO comes up with is going to be political. They are going to be other points of view. Um So, I think it's just one more piece into the conversation factory in just sort of what this legislation would mean
for the US economy. If we were to see Obamacare removing something new put in what effect would that have on the US economy? Well, David, you raised the ten squin jillion dollar question, which is what's going to be put in place on it simply pulling it out In the legislation that's currently in front of us, there are
a number of unknown unknowns. I know you're gonna be talking later about long term sustainability and social security and medicare There are media tax consequences because taxes on high ink tax tax taxes imposed on high income individuals the upper end of the income distribution will be eliminated as part of that, and that not only has an impact on the economy and on the fiscal budget, but also on the overall view of the fiscal hawks within the Republican Party who will want to see at some point
these reductions and taxation paid for. So there are just a lot of really great areas and where this conversation goes from here, regardless of what CBO says this week, Well, let's to talk about here Krol Weinberg high frequency economics with us as well, David gurn Washington. David, what are you doing down there? I mean you have you have vice chair Revative well I adore and folks founded the CBO with a lot of courage. Yeah, I mean, I just a great opportunity to talk to you about that
and about the FED as well. And I'm gonna be talking with Michael Hayden, the former director of the CIA as well today. And uh, you know, we're looking ahead to this visit tomorrow that scheduled at least chancel Arangla Merkel is supposed to be here. If all goes according
to plan, I'll be outside the White House. They're anchoring our coverage of her visit, but of course with the snow, will see what happens, you know, if indeed she'll get here, and if the news conference that they've scheduled with her and present actually happens. I just saw twelve to twenty four inches, Rob Carol and giving some dates here, but a lot of different inches. I believe David gur Reagan
gets forty eight inches. Yeah, that's called a vechan exactly, it's a hockey goals now it just drops within six gates of American airlines. Carl, you want to comment on this, Tom, The reason they invented weather forecasting was to make economic forecasters look speed ice. Rob Caroline is the best, and we'll have reports to Mr Caroline our lack of a stereo weather guy through the morning, Carl Weinberg, Where this
with high frequency economics? Greg Villiers just published as no moments ago and he goes to the gridlock in Washington. How can we have gridlock in Washington if I have a Republican Senate, a Republican House, and a Republican president. Wait, look way, look gridlock? Did you like that? David like that? At e c alright? The you know, I'm not a political analyst, But you don't have to be a political analyst to see that the Republican Party is really several
parties right now, with several different specific groups. The fiscal Hawks, the Tea Party gang have their point of view, the Conservatives have their point of view, and then there are sub blends of each of the others um and they're not united behind the President, who seems to be yet another ilk of Republicans. So having all the different control of all the different houses is no issurance of success
right now. And I think that's best illustrated on the health care debate, where we have a real question marks as to how to move forward and what we're supposed to be accomplishing. Carl, I think what Greg Value is getting at is that the markets were very enthusiastic after the election. They thought there was a high chance that some thing was many things we're gonna get done and get done quickly. It seems like there's been a bit of a reevaluation here, so less from the political perspective
or from the market's perspective. Have you seen that happen? But we haven't seen it yet, David, But my colleague Jim O'Sullivan, Chief US economists that High Frequency Economics hasn't really budged his forecast very much for the economy since the election day. We've he's added half a percent to GDP growth in the second half of this year on the view that something's going to get done on the fiscal side, But overall his view of the economy remains
the same. The economy is strong, it was going to remain strong with or without the Trump agenda, and it's not going to move that much in the near term. But then if what we're going to get here, and Frankie it's more than just a domestic question, is a drop in the new confidence. Part of this is the animal spirits of confidence, of belief in what we've got. Is what we're really going to see here is a
decline and that buoyancy since November eight. Absolutely, Tom, that's the way that Jim sees the UH see this working out the resolution between consumer confidence and business confidence that's so high and economic indicators that are substantially lower than that. At the end of the day, we think the confidence indicators work their way back down towards the reality that the economy is delivering and not the other way around. How about buoyancy in oil prices. What are you and
Jim seeing when it comes to energy prices. We had that DA we report last week on stockpiles, crewed stockpiles that record highs. You see that changing pretty pretty brave David talking about buoyancy as as prices are actually sinking as more as we speak. I've been expecting oil prices to go back down to fifty range for some time now. The inventories are so high. You've got the sixty six days of inventories in the O E C D countries
and normal is about fifty four. So that's twelve days or half a billion barrels of oil sitting around and waiting to be dumped on the market. You have tidle oil producers coming back on. There's no way prices can go anyway but down, and that's been our outlook. It's a problem the emerging world that produces this. It's a problem for Opeque, it's a problem for Russia. Something to think about, David and Tom. As interest rates go up,
the ability to finance these inventories go down. So one of our background views has been that as interest rates go up, we're going to see liquidation of these inventories and even more downward pressure arm prices. We need to very quickly here turn to something more important. Are you gonna put chains on your car as you moved north from New York City? I am up in Rhinebeck, New York Way north of the city. We're expecting two ft of snow and I've got a four wheel drive vehicle
that goes to anything. Did you lose three fingers on your left hand freezing? When you know years ago there's always one piece of one rear tire chain that doesn't work. You need to get out a blowtorch. I haven't. I haven't had that experience. I haven't had chain since I lived in Italy and I had to get my off Romeo sportster into the Alps. Is a Southern Is a Southern boy ever enjoyed chain, slush and salt? David on this. I have never applied chains to a vehicle, but I've
seen them in action. Very good. We have chains coming up, folks. We're gonna get a real What are you gonna get carl up north? More than two feet? They're saying two feet at least up where I am. That's what the local forecasters are saying, and of course in the mountains, it's probably gott to be more than that. Right at the front of the cat Skills Storm Surveillance Center here for us, we'll have much where Rob carroll and will
give us some perspective. And this is what Rob does best, is these nor easters for those of you globally nor easters, and I'm not gonna employ to the weather guy here, but they have a life of their own. In any forecasts are always with a big asterisk, like maybe we sort of know what's gonna go on. But Rob Carollin will give us perspective through today and whenever the snow st gonna get some milk and bread, Tom, you're gonna run out. Oh yeah, we've already done that. We've stuck.
We're down at Whole Foods. Everybody's stuck in twa water, milk, eggs, twelve cane bed in the cal David in the produced down at Columbus Circle with the kill It was this big hole with the killer people that taken the Colchip's yeah, Colin of the twins, he's stuck up at fourteen bags of kil Chip. It's a storm coming. We'll have more for your Bloomberg Radio Worldwide Time Keenan New York, David Guru at the one FM News Bureau in Washington, and
you have a special guest, David. Yeah. The backdrop from my visit here, obviously is the ongoing debate on Capitol Hill about the new healthcare legislation, and we await eagerly the report from the CBO, the score from the CBO, to see what that organization has to say about that piece of legislation might be. Again, its joints me here in the studio. She's the president of the Committee for Responsible Federal Budget. Great to have you here, mine. Let
me just start. We'll talk about death sits all that in just a sect. But what's the role of the CBO as you see it? You've heard the commentary about it in recent weeks, some members the administration calling its integrity into into questions. How do you regard the CBO, how do you use the CBO? And how novel is this? How different is it to hear its integrity called into question?
So the CBO plays an incredibly important role, I believe because in a in a town, and in an environment where things have become more and more partisan, more and more political, and they're we're seeing kind of the ongoing under mining of impartial institutions. To me, the Congressional Budget Office is the one that I hold up as this is an institution that is not political, that is analytical,
and the scores that it puts out. Of course they're not perfect because they are doing major projections of major economic and policy pieces of legislation, but they are unbiased in their work, which is so important and critical at a time when you have a hard time trusting the two parties take on something and you really just want
to know what the numbers are. So I would say CBO is one of I think the most important players in keeping us honest and not political, and I've been really disappointed, I have to say, and what I think is a strategy of undermining their credibility. Instead of saying we want numbers that are going to add up, or if they give us a score that says this cost more than we're supposed to, how do we go back
and improve the legislation. So I hope um that the politics of undermining CBO will stop as quickly as possible. Last week we had Gary Cohen, the head of the NBC, speaking he said that we care about the deficit, we care about revenue that from the administration. Do you take him at face value? Have you seen evidence of that here in these first six weeks of this administration. Well, it's hard to see the evidence because the policies haven't come out yet. Um. What I'm looking at is who's
saying what an administration? And I was very encouraged by Director Cohen's remarks about how they don't want to make the deficit worse over the next ten years. Um, and let me just set the stage on that the deficit is going to be made much worse than the next ten years. If we do nothing, we're on track to borrow nine trillion dollar over the next ten years. So I interpreted his point of saying we're not going to
make that worse. I'd like to nudge them in a different direction, which is we're actually going to make that better. But I thought his remarks are very encouraging, particularly because we've heard about a lot of policies that could and would worsen the fiscal situation, whether it's healthcare if they do get a bad score and proceed without worrying about that, or tax or form if it were to lose revenue or infrastructure if it wouldn't be very expensive and not
paid for. So I thought he'd put an important marker down and was really pleased to see those cards. Help me with the text credits. I mean, folks, I don't want to get into the weeds on this debate, but basically they want to shift the tax credits, and there's an uproar that they're of minimal value to our truly poor and needy people. My help us with your analysis of tax credits. So what we're doing is we're switching the way that we're creating the subsidies within our healthcare program.
And there's always going to be subsidies, because for instance, the young are going to subsidize the old, the rich are going to subsidize the poor. The question is to what ex sent those will be true and what structure
we're using. This new replacement plan is going to be dependent on tax credits, and there was a big fight whether those tax credits should be refundable and whether they should be refundable meaning that you would get them even if you didn't pay income taxes, and advanceable meaning you would get them in advance and they ended up creating a plan that would include those, so those would help people who are above the qualifying lines from Medicaid, but
on the much poorer side of the spectrum. There's been a lot of pushback from the Conservatives, in particular because they see that as a new form of entitlement spending. And one of their purposes to repeal Obamacare in the first place was they didn't like the entitlement nature of it. They wanted to change that, so they're unhappy with those refundable tax credits. This we could get what's called the skinny budget. We had a broad overview from the White
House of what it wants. It's a budget to be a couple of weeks back. Of course, the headline figure there was that fifty four billion dollars in additional defense spending. The administrations say they'd offset that with cuts to other programs. How difficult is that going to be? You listen to the President speak to the Joint Session of Congress. He talked about doing away with the sequester. Is if it could be done so easily by waiving a wand how hard is that going to be? Uh? And what do
you make there? Over the desire to increase the defense budget rather than uh, you know, cutting other programs. So the first point about the skinny budget is it's going to be really, really really skinny. Um emaciated in some ways because normally when a new president comes in, they do do a much smaller budget because they haven't had time. Director Mulvaney hasn't been in place to put together a
full budget. But this one is only going to look at the discretionary portion of the budget defense and domestic discretionary, nothing on revenue, nothing on entitlements, and it may only be for one year, so it really doesn't meet the full picture of the budget. In terms of the priorities we're hearing about this budget, the increase in defense will be paid for for cuts and domestic discretionary. What I
applaud them for is that they're paying for it. If you want to do more of something, how are you going to pay for it? That's very important. Now many people disagree with the priorities, and I think they are
legitimate disagreements on both side. I leave it to the security experts whether we need more or less in defense, but I do think they will bump into some real problems even from their own party on the Appropriators when they're making this big cuts and domestic discretionary and if they make them, the key will be will they stick. Will Appropriators and Congress actually go along with it in
a in a sustained way. I have a chart I'm working on that I'm going to put out here in a moment and I'll refine it for tomorrow and ms McGinnis. It's a basic chart that says the Republicans spend more. It goes back to seventies something and it shows Reagan advent, Bush Senior advent, Bush Junior advent and Trump advent And do you just presume the Republican presidents end up spending work and adding to our debt. That's a great question. I would like to see your chart. It seems plausible
in recent years. Basically, there's so many things that are going on, but that the myth that Republicans want to cut spending and by the way, that Democrats want to raise taxes doesn't usually end up playing out, particularly when there's one party government. So the real cuts and spending would be in entitlements, and so far, it doesn't seem
like we're in tracked to see any of that. So spending is going to grow under this Republican House, Senate, and White House unless some dramatic things happen, even if they go forward and do what they're talking about, cutting a lot out of domestic discretionary because unless you do something to control healthcare costs and deal with our retirement challenges, spending is on track to grow significantly and in fact dramatically. So we are on track that both spending and taxes
will be well above their historical averages. That's like that trend is likely to stay in place. UM. So what I have seen is a lot of talk about spending ends up being symbolic. It ends up being about the small things like earmarks, because people are really unwilling to tackle the biggest areas of spending, healthcare and retirement the limited time we have left. Let me return something that you said at the top. You said you're looking at
the people within the administration driving this. Mick mulvanny is the head of the Office of Management and Budget. How does he work with compliment um Gary Cohen saying, in other words, is mckmulveny markedly radically different than other people in this administration? We're driving economic policy, and how does the administration then get those guys to work together. So
that's that's a good question. Mick mulvaney is certainly somebody who I've been listening to very closely, because starting in his testimony, he actually was the person who most emphasized one the fiscal challenges the country faces and to a really a realistic take on it, because we've been hearing a lot of promises about both tackling the debt and a lot of policies that would make the debt worse. So that's why I thought Gary Cohen's comments were very
important on tax reform, but mixed. McK mulvaney has gone farther and reminded the administration he's going to be the person who says no, a tough but really important job because everybody wants to give political giveaways, and he's going to remind them entitlement reform is the center of this and they cannot run away from it if they're serious about dealing with the debt. I'm so glad you brought up giveaways. How many giveaways Northwestern going to do against
Vanderbilt coming up here? My helping here, this is all brand new for the Purple, isn't it. Yeah? Yeah, as a Northwestern alum, this is a whole new experience for us. Okay, well, the good news for you is Mr Gurr has been through this like eight thousand consecutive times being from the North. Well, we'll get you, we'll get you involved. I have Northwestern beating Vanderbilt. I only did that for our esteem. Guest, thank you so much for great perspective, David gurin Washington.
I'm Tom Keenan, New York. This is Bloomberg, brought you by Bank of America, Mary Lynch, dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the power of global connections. Mary Lynch, Pierce, Feeder and Smith in Corporate Rated member s I p C. Bringing our wonderful guests. I mean, it's it's just such a pleasure to talk to smart people. David that actually
wants darkened the door of the evil CBO exactly. Douglas, while taken online, former chief Economists of the President's Council of Economic Advisors from a director of the Congressional Budget Office. Great to have you here as we await this score from the CBO on the American Healthcare Act and help us out. First all, we talk about the CBO score and I think we don't know what we're talking about. I can admit we don't know what we're talking about. What is it? What is the CBO score? What are
we gonna get from the CBO. The Senior CBO's primary job is to estimate the impact on the federal budget of any legislation that the Congress is considering. So what you'll get from the CBO is, if you pass the American Healthcare Act, what happens to revenue flows into the treasury? What happens to spending flows out of the treasury year
by year for the next ten years. Uh. The main purpose of that scores to make sure that the bill satisfy I've the requirements of the quote Reconciliation Instruction, which is that it saves two billion dollars over the next ten years. That won't be the focus of the attention. That's actually what the score is. It's the supplementary information on coverage and premiums that CBO made release along with it. Because I think most people are gonna look at I want to go back to something that Tom said a
moment ago. He said, he was surprised by how quickly this is happening. The CBO does amazingly detailed work on a very quick a timetable. We only got this legislation a couple of weeks back, and as you say, we're gonna get some great detail as soon as today. Um CBO has been working with the staff on energy, commerce and ways and means in this case for quite sometimes, uh, the staff will typically produce some rough sketch of what they'd like to do. CBO say, okay, look sort of
like this, We need some details here or there. So they've probably had, without exaggeration, ten fifteen iterations leading up to this, which is the actually first official score. Help us here, Dr Holdzeken with the nefarious Ford House office building. It is this concrete fortress. It looks like you know, nether East German, Germany, and it's not connected to the capitol. You are in a discreet difference. What do they do on the fourth floor at the Florida Office Building? What
is in the kool aid at the dreaded CBO. So you should know that the Ford Building is a former FBI fingerprints what we knew this. It has all the ambience one would expect. How that, um, and uh, what's in the kool aid? There is simply a desire to understand the research literature that's necessary to score bill in this case, how insurance markets work, what do we know about the providers who are going to work onto those contracts,
and to you know, antistate Congress's needs. So it's really a very academic research or in an institution that is, you know, physically somewhat separate from the capital. You know, I want to get from you a sense of how unorthodox all that we've seen is we've seen this legislation pushed through committee with out the CBO score. We've heard a lot of rhetoric about the CBO's impartiality, questioning that impartiality. How different is this that we're seeing and how worried
about it are you? But I think this is business as usual to be honest, I'm not a bit worried about it. Um. If you work at CBO, as I did, you get criticized all the time from many different quarters. Um, you know you're simply not going to be able to please everybody all the time, and you shouldn't and so these these issues arise as a matter of course. Um, it's also true that often bills go through the markup,
they went through without a CBO score. The only bill that really matters is the bill that comes out of the Budget Committee. That's the first complete bill, the one that will go to the floor of the House for a vote. That's when you need to know what the CBO score is. So, from a business point of either, right on track. You were the head of the CBO when those tax cuts in two thousand three were passed
by the Congress. Here we are looking at tax reform, and I wonder what this approach to healthcare tells you about what this Congress's approach to to tax reform is going to be. I think we've seen the use of reconciliation that that guarantees Democrats aren't going to play. It's gonna be done entirely with Republican votes. Uh. This is way harder than taxt re form. Healthcare is simply much more divisive, both within the parties and across the parties.
And I expect this build to pass the House and the pass Senate, but it's going to be a long, hard process. Tax the form will look a lot easier by comparison. Hey, look at um the plugins here in the upshot today. Kevin Quayley with a terrific upshot today of how broad the estimates are. The gues estimates of Trump Care goop Care holds he can care whatever you want to, whatever you want to call it. I mean, how many plug ins are involved here? Can we actually
get a decent guestimate? I'll give you a flavor of just how hard this is. An important part of the bill is fifteen billion in two thousand eight ten dollion every year thereafter two the states for a fund that can be used to stay lies insurance markets in any state. What will the states do with that money? Will they accept the federal default reinsurance program or will they create their own? Will they give folks additional money for cash
to cover out of pocket expenses? How CBO expects that money to be spent has an enormous impact on the premiums that will prevail in those markets. So that has the enormous impacts on the coverage numbers that they expect. And it's literally unknowable. I mean they've called the states, they've talked to the governor's associations. They've done what they can, but that's a really hard thing to estimate. Doug. Last question here, I'm in Washington, the first time I've been
back since that President Trump was was inaugurated. I wonder I want to get your sense of how much this place has changed. We're facing a dead ceiling deadline, a continuing resolution set to expire. The same old obstacles seem to be here in Washington. Has the process changed at all over the last three or four months. I think this is the big test of whether the process has changed.
Can the Republicans who now control the House to sending an the White House collectively governed effectively, Can they pass legislation with the help of a president who's gonna, you know, twist arms when he needs to and get things done, or will we end up with more stalemates. I know this is a very important moment for for the Republicans who are going to run into thousand eighteen on their compliments, on their accomplishments as a governing party. Well, this is
the first half, Doctor holds. He can thank you so much, greatly appreciate. He's a former director of the Congressional Budget office David Gura in Washington today in our Bloomberg ninety nine one Studios Tom Keene in New York. It's pledg would be joined by Greg Valley, a chief Global strategy
Horizon Investments. Here he sounds the clarion this morning. In his note, he says to enormously controversial issues Obamacare replacement and a radical new budget promise to throw Washington into gridlock, further jeopardizing chances for tax reform this year. So we're looking at legislative grid suck in the snow related gridlock at tomorrow, Greg, Great to have you here. How bad is it going to be? Do you think? How's this
ship and sunny? I talk to people about this healthcare bill, and and I have difficulty finding those who very fulsibly supported. It has its backwards in how Speaker Paul Ryan. But where's the rest of the support going to come from? Yeah? Like Trump said, who knew it was going to be this complicated? Right? Good to see you, A good morning. I think this is going to take a long long time to iron out. I don't rule out the House and Paul Ryan getting a deal by mid April, but
the Senate would never go along with this. You know, maybe the goal is just to get a bill to conference and two different bills and you could iron out a deal then, but we're talking summer before we get an Obamacare replacement. If then, So, the point I've been making lately is that when you combine this with all the fights about to come on the budget, we're talking about a tax reform bill that probably won't make it this year with this Obamacare replacement. Help me with the
realism here. We're waiting for this score from the CBO. There's been a lot of political pushback because they went to committee without getting that at that score. Is the rush to get this through misguided? Uh? You know they're they're still saying they could get something by April. You're saying it could be well into the into the summer. Why not why not just go get that CBO score before doing all of that? Well, how is this for an irony day? Eight years ago we had the exact
same scenario with Barack Obama squandering his political capital. You know, we hope and change all this stuff, and we had a meltdown on health reforum. So here eight years later, it's as if no one has learned a lesson the scoring today or tomorrow is going to be bad or could it be really bad? It's going to make the case for Ryan's bill even tougher to make. How was the scoring. We've gotten scories from Brookings, We've gotten scories
from SMP Global as well. Is this going to be the same thing but with the impromoter of of this, of this non part as an entity or is it going to give us more detail than those scores have given us? Probably more detail. And I think they're pretty kosher. I think the the CBO, Yeah, they're they're they're pretty uh, pretty reliable in my opinion that the big part of the story that's going to blow up and already has
is Medicaid. You've got a lot of moderate Republicans like Rob Portman of Ohio, who were saying, no way in the world are we going to pass a bill than guts Medicaid. You know, I'm a mere mortal Gregg and like you that have a complete wire tap into every permutation of this. I've read my obligatory fourteen articles and I went right to what you just mentioned, which this is about Medicaid and Senators. I am thunderstruck by the focus on the President and the House in minimal discussion
of Senate realities. What are those Senate realities. Well, just as you said, Tom, and good morning to you, I think that the Medicaid cuts are a non starter. These are not negotiable with people like Rob Portman, and I'd say maybe as many as a dozen Republicans are saying we will go along with this bill. So it's it's in big trouble even if it makes it through the House in the next few weeks. You know, let's let's
go through the math again. I believe there's a hundred senators something in the vicinity of that they have exactly two votes to play with. And like I'm planned parenthood, it's X number of senators on Medicate, it's y number
of senators. Forget about Ran Paul. But on each of these issues, there's a certain number of Senators who just will say no. Right Well, unless they can be persuaded by the great dealmaker, Donald Trump, who feels that he can inject himself into this and somehow get a compromise. It's not out of the question that you could get some softening on the Medicaid stuff that could satisfy people like Rob Portman. But right now, if there were a vote today, it would lose in the Senate by at
least a dozen votes. We were talking with that Douglas will Taken, formerly of the CBO a little while ago, and he said that a repeal or replacement of the Affordable Care Act is gonna be way harder than than tax reform you mentioned eight years ago. I remember all the political capital that was spent by the Democrats to get that legislation through. Now you see Republicans kind of repeating that, putting a lot of chips on the table here to get a repeal or replacement done. Was that
a mistake? Should they have gone with tax reform first? What's the calculus here that they used to come up with the order of operations here in Washington. Well, let's go back just for a second day eight years ago. Even Chuck Schumer has said the Obama white House miscalculated by going to healthcare first. And again I think we're seeing a repeat now. I would go for the tax cuts that would be I think easier at this point,
but they won't. And even if we get Obamacare resolved, the budget stories you guys will all report on for the rest of this week are really dramatic, huge cuts, draconian cuts, and once again, the problem won't be Democrats. The problem will be Republicans who will say these cuts are too harsh. You mentioned the budget, We get the skinny budget. I love the term. Later this week, what color is going to be in there that wasn't in the overview a few weeks back. What more detail are
you expecting we'll get from the White House? Well, I think the drop in federal employees. It was a big story in the Washington Post this morning talking about the huge cut in federal employees having an impact on the DC area real estate. Things like that. I'm sure the country won't be particularly sympathetic to Washington, d C. But the other part of the story is the enormity of the defense increases. I personally think that's going to happen, and I tell all of my clients if there's one
pure investment play in Washington, it's the defense stunks. Do you assume, Greg that our debt to GDP just rises and rises? I mean, is the is the synthesis of many of these what ifs. I understand there's huge variables, but do you just assume it's like Reagan or Bush one or Bush two, that up up we go in debt to GDP. Well, the good news, Tom, is that the bond market, I think can tolerate the current levels where you know, on an annual basis, the deficit around
three percentage GDP. That's acceptable. But as we get towards the end of this decade and then things as we all get older than we spend more money, things could get really sour in a hurry for the bond market. So we've got a year or two of grace before the deficit becomes a big, big problem. Where are the deficit hawks? We talked with Mike McGinnis this morning. She's she's a leader of that of that pack. Are they present in watching right now? How big a part of
the conversation are they? Well, they're articulate and they can make a lot of noise, but in terms of actually getting something done. The counter argument is the Treasury ten year bond yield. It's crept up a little, it's probably uh two point five eight or something like that, but that's still a very low yield for a bond. So you'd have to see the bond market really freak out and we haven't seen it yet, David, what's a skinny budget?
No one's ever presented. John Tucker if I've ever been presented with a skinny budget, rather than get a trainer, said I'd like to get my wife one. There you go. What is the skinny budget, David? Skinny budget, I gather is just a bit more detail than what in April. Greg will get more detail stills. Yeah, And by the way, guys, there's two other big budget stories. On Wednesday we hit the death Sailing. It's gonna be months before they get that resolved. And then on April the government runs out
of money. This continuing Resolution, which you know it's it's wonky, but you've got big issues hanging over the White House. Let's do this, Greg Villier, where this is a rise that we're gonna come back because Greg Villier is focused on gridlock. Republican Republican Republican gridlock. Greg Villier in Washington with our David guru, and you know it's really timely, David. You have Mr Villier with us because he's from New
Hampshire and he remembers the Great Snow of seventeen. Bloomberg meteorologist Rob Caroline's descended Cotton mathered gave us a report in it over six of snow, over five or six days, Turkeys died, DearS died, dear diet I should say English the great snow of seventeen seventeen. Len's perspective, David snowball in the hands of an angry God, I think was the sermon to thank you very much. Greg valuate with me here in our Blueberg studios. Greg, help us understand
what we're seeing. We're seeing what's happening on Capitol Hill with with healthcare. What does that tell us about how the tax reform debate is going to play out? Well, first of all, I'm going to be in New Hampshire this evening, so it should be an interesting twenty four hours of snow. Well, the debate on the Hill is really important for the financial markets to this extent. If they can't get this stuff done Obamacare budget, what does that say for the good stuff? The good stuff being
tax reform, infrastructure. Most everyone had assumed a g d P impact of all this stuff by winter of next year. That g d P impact maybe delay aid by a fair amount. You mentioned April before we went to to break how big a forcing mechanism is that date. You'd like to think that it would impose some discipline, but it will not. Will April will come and go, just like this Wednesday will come and go. In the death ceiling, they'll do extensions. They'll extend the government for another two
or three months. The death ceiling probably won't be dealt with with finality until midsummer. You've written about the sausage making and how it's taking far longer than the President and many investors thought it would. When you talk to clients when you go on the road, what do they say, What do they ask you about the timetable here in Washington? And and you know, is it fair to say that a lot of investors got this wrong, they were overly optimistic. Well,
two things investors say a lot. Number one is, let's talk about the details on the tax bill. Do we have this border adjustability? Do we have limits on deductions? Lots of really big topics have still not been resolved number one. Number two, I'm astonished by how many clients I see conservatives who say, I wish this guy stop tweeting. It's not adult. That doesn't sound presidential. You get that from almost everybody to be fair to please just stop it,
you know, yep, exactly and up my children? Was dad? Greg? Help me here? Within your note this morning, you mentioned the word gridlock. Gridlock assumes that Tip O'Neill will ride to the rescue when I have a cordial conversation with the gipper. Uh, is there any tone of compromise between good parties of the House, the Senate, in the White House. Well, first and foremost time, there will be no help from
Democrats zero. Okay, I get that. And secondly, you had have to assume that Trump will inject himself and may be able to get some things done. But you almost have an impossible task with the so called Freedom Caucus, which will not want to raise the debt ceiling, has their own idea on taxes, on healthcare. They will not agree with Ryan I and I sort of feel sorry for He's in the same bind that Bayner was in, and that bind that Bayner was in eventually cost him
his job. What's the dumb question of the day, I'm allowed to do that, David Snowstorm coming. What's the difference between the Freedom Caucus and the Tea Party? Not much? I'd say they're pretty much analogous. They both don't want to spend money. They don't want to spend money on infrastructure. They consider this health reform plan like Obamacare light. They're
very angry about it. And then you've got to go on the other side of the hill and look at all these moderate senators who roll their eyes and say, we're not going to go along with the Freedom Caucus. You float the idea of bifurcating tax reform, doing corporate tax reform and personal tax reform separately. What's the advantage to doing that? And if you look at sort of how slowly things are progressing, does that stand to slow things down even more if you've got two different things
that these lawmakers are working on. Well, I know it's being debated intensely within the Trump administration, and I got this from a very good source. Uh, they're a uses and minuses. I think they want to show more signs of momentum. They're not showing a lot of momentum right now, and I think the markets need to see that things are moving. So if you do cut it in half, you probably could get the business stuff done by by fall.
Well said, but to your point on Grid Luck is there any tone or demeanor or body language to quote unquote cut in half? I would think, if anything, the President would lead on that. I mean, he's the ultimate cut in half guy. Well what about everybody else? Well, let's see what minutation does. There are a couple of other big, big players from government sacks who I think can uh urge the president to do things that the markets would like to see. But right now it's all
hands on deck on Obamacare. And to go back to what we talked about at the very beginning, this is eerily similar to eight years ago when a new president squandered his political capital on healthcare. Let me ask you travel a ton you're going up to do him? Sure, as you say, what are you hearing from people about the state of the economy? Clients? You're talking to people that you meet when you're on the road. We got the job's number last week, two thousand, A nice number.
What are people saying to you as you travel? The one thing, guys that strikes me when I see business leaders and I asked them, what's your biggest problem? Is that Obamacare? No? Is it regulations? No, lack of skilled labor. They say that over and over again. All around the country. There's a fear that they were running out of skilled labor, that the labor market is really tight. And what comes next wage pressure and higher higher interest rates. If you
raise the wage, they come out of the woodwork. Right. Is that where we're heading? Yes, And I think that's why Yellen is going to move this week. I think she has to worry Tom that she's way behind the curve. Very quickly here, Great, before we let you go, We've got this fifth meeting schedule for Tuesday as they help us with the weather state of play here in Washington. If if things get bad, if there's a government chet to what happens to that meeting? Is it done telephonically? Yeah?
They They have had a a precedent of having meetings by conference call it for an emergency high hiker cut, so they can they can do that. The one thing obviously we gotta watch is the statement. I think she'll make it clear we've got a few more moose to come this year. Greg RELLI great to speak with. Great to see you here in d C. My pleasure Value, chief Global strategis at Horizon Investments. In Tom, We're missing
you down here. I'm gonna be stuck here. I understand that that like it's gonna snow like twenty inches, but within four gates with Reagan of American Airlines, it snows a hockey goal. I can't wait for they push all the snow to the shuttle gates. That's right, they just pile it up. Greg. I hope you find you know. I hope it's not like the Blizzard of s I vaguely recall at the RI as well. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio, brought you by Bank of America Mary Lynch, dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the power of global connections. Mary Lynch, Pierce, Fenner and Smith Incorporated, Member s I p C.