May 21, 2025 • 20 mins
Watch Alix and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Intelligence hosted by Paul Sweeney and Alix Steel
Today’s Podcast Features are:
-Garrett Watson, Director of Policy Analysis at the Tax Foundation, discusses President Trump’s economic bill. House Speaker Mike Johnson said Republicans have reached an agreement to increase the state and local tax deduction to $40,000.
-Karen Manna, Investment Director and Portfolio Manager at Federated Hermes, discusses her outlook for the markets. Stocks rebounding in some of the world’s largest technology companies pushed stocks away from session lows, though concerns about the US fiscal footing still lurked in the background - driving bonds and the dollar down.
-Mike McGlone, Bloomberg Intelligence Senior Commodity Strategist, discusses commodities. Bitcoin hit an all-time high after the advancement of stablecoin legislation in the US stoked hopes of regulatory clarity under President Donald Trump. Oil prices rose after a CNN report suggested Israel is preparing for a potential strike on Iranian nuclear facilities.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news, and Android auto with
the Bloomberg Business App. Listen on demand wherever you get
your podcasts, or watch us live on YouTube.
Speaker 2 (00:16):
Flex Deal Paul Sweeney live here in our Bloomberg Director
Brokers Studio streaming live on YouTube as well. To check
us out there. Hey, let's have some fun, kids, Let's
talk tax policy. Gary Wilson, director of Policy analysis at
the Tax Foundation. He's zooming in from Fadeville, Arkansas. All right,
here's one of my lasting images from the early days
of the lockdown in COVID is the people down in
(00:38):
the Ozarks on the lakes, partying their brains out, Like none.
Speaker 3 (00:42):
Of this social distancing stuff.
Speaker 2 (00:45):
You can't tell those people not to have a good
time in the summer done in the Ozarks. They're out
there to have a good time. And that's where our
next guest is, Hey, Garrett, talk to us about what's
happening down in DC. I mean, it seems like this
saw tax thing, which is really important to metro New York.
I'm not so sure about Faydeville, Arkansas, but it's really
important for us here.
Speaker 3 (01:02):
That seems to be a real sticking point isn't that's right.
Speaker 4 (01:07):
The leadership in the House is trying to get together
the final votes and what is a very narrow margin
in that chamber amongst Republicans. And the big sticking point
right now is the fate of the state local tax deduction. Currently,
it's capped at ten thousand dollars. You can write off
your state local tax payments against your federal taxes spent
that way since twenty eighteen and expires at the end
(01:27):
of the year with the rest of the twenty seventeen
tax law. But there's been a lot of intense negotiation
about where to put that cap, going anywhere from making
the current cap, making it permanent, extending it, or making
it more generous upwards of we're now hearing a forty
thousand dollars cap, maybe putting in income limits. The big
sticking point is they haven't come to a compromise design
that everyone can agree on that fits with the revenue
(01:50):
needs for the rest of the package and the salt
folks can live with to deliver to their constituents back
at home.
Speaker 5 (01:56):
What do you think realistically winds up getting done? Since
everyone loves to also hate cell caps, so at.
Speaker 4 (02:04):
This point it seems like it's just a matter of
give and take on the exact numbers here. It seems
like there will be definitely an increase in the cap,
but a continuation of a cap, be it thirty thousand
or forty thousand or something north of there. It does
look like leadership wants to have some sort of additional
income limit that.
Speaker 3 (02:19):
Would be new.
Speaker 4 (02:20):
So if you are very high earning, say north of
five hundred thousand dollars, there may be additional limits that
are new there that could also limit the benefit of
this expansion. The other thing that's sort of fun under
the radar is there is some partial new limits for
those folks who are working around the caps using their
businesses through pass through firms. That's been a common tactic,
(02:41):
and this bill would partially remove that for certain types
of business income. So that's another thing for folks to
watch out for if they're planning what this might do
for their tax bill in the coming years.
Speaker 2 (02:52):
Hey, Garrett, when prisident Trump's on the campaign trailer, who's
talking about eliminating or lowering limiting the taxes on tips,
for example, overtime, that kind of stuff that works well
on a campaign trail.
Speaker 3 (03:02):
Is that something that can get done in this package.
Speaker 4 (03:06):
So there are several sort of I would say trial
balloons here that are temporary over the next four years
that would deliver on a deduction for tipped income, for
overtime income. There's a special four thousand dollars deduction for
seniors in here, and even a deduction for a car
loan interest for those payments for folks who are itemizing
and non itemizing alike, so you don't have to itemize
(03:27):
to get it. The big headline there is those are
fairly open ended deductions for most taxpayers who are not
very high earners, but they do expire at the end
of the in the next four years, and so that
will line up with potentially another debate about whether or
not those are extended. Only to think about that is, well,
have to see if they're popular, right, if people find
them helpful. There's of course also the revenue costs. They
(03:49):
add up to a few hundred billion over ten so
they would need to figure out how to extend those
moving forward. What that means is there may be another
tax fight the end of Trump's term heading out of
twenty twenty nine.
Speaker 3 (03:59):
If it goes forward, that.
Speaker 5 (04:00):
As an energy person, I'm obviously really interested in what
happens with the tax cuts in the Inflation Reduction Act.
What do you think and then the credit phase outs? Basically,
do you think that those stick where they are right
now or does it get more severe for some of
the alternative energy players.
Speaker 1 (04:17):
Yeah.
Speaker 4 (04:18):
For the IRA credits, it's really been a balancing act,
both at the committee level and amongst leadership, right to
try to balance the concerns of members who are more
sympathetic to those credits, amongst Republicans who may have a
lot of projects in their districts worried about the disruption
if they're phased out too aggressively, and other folks who
are worried about the fiscal cost of these credits and
want to see them phased out in a more aggressive timetable.
(04:41):
And so right now we're seeing in the current package
a phase out over the next five years through the
early twenty thirties for projects that have not been underway
at that point, but there's been a negotiation right now
to move that up as soon as twenty twenty seven.
I think that will be the question is to what
extent do folks who are more on the sympathetic side.
(05:02):
Are they okay with that right? Will that be too
disruptive for projects that are currently being penciled out within
their districts? And of course, the other thing looming over
the IRA credits. I think that's we're saying is even
if it does pass the House, the Senate may have
very different ambitions on this. That's sure of the general package,
but specifically with the IRA credits, we may see something
very different, much less aggressive in there, but that comes
(05:24):
with its own trade off in terms of the revenue cost.
It will bring in five hundred billion over ten years
according to the Joint Committee, and in additional revenue to
offset other parts of the tax cuts, so they don't
have a lot of wiggle room there. But we'll see
if the Senate has different ideas.
Speaker 2 (05:37):
Hey, Garrett, i spent my whole career on Wall Street,
so I'm all about making money minimizing taxes. But even
I have to admit the favorable tax treatment that carried
interest receives is just extraordinary. Can you give us how
that came about? And is there any pressure to change that?
Because it's kind of tough to see some of these
private equity guys, you know, with effective tax rates in
(05:59):
the single digits are the low teens, when everybody else
is paying forty to fifty percent.
Speaker 4 (06:04):
Yeah, carried interest has come up time and time again
in all these major tax battles. Of course, we had
a small change on carried interest treatment in twenty seventeen,
basically lengthening the amount of time it was required to
hold a position to qualify for that carried interest, which
is subject to the lower qualified capital Gains and dividends
rate upwards of twenty or twenty three point eight percent.
(06:25):
And there have been efforts to try to tax that
income as ordinary income. Right with that, of course, I
think two things. One, it isn't a major revenue raiser
either way. So if you were to tax at ordinary rates,
it only raises maybe about twenty billion over ten, which
is a lot of money, but in the big picture,
is not a lot when you're talking about trillions. So
the major sort of policy debate is on, as you're
(06:45):
hinting at, right, the fairness question of what is the
appropriate tax treatment of that type of income.
Speaker 3 (06:50):
On the one hand, if it's just.
Speaker 4 (06:52):
Basically like wages, right, like labor income, that would be
an argument in favor of taxing and ordinary rates. Folks
who are more defensive of the current treatment would say
it's more like capital gains income. It's more like investment income,
and we don't want to penalize that kind of investment
in the US.
Speaker 3 (07:08):
But the big.
Speaker 4 (07:09):
Trend, as you mentioned earlier, is it's been an uphill
battle to make that treatment stick.
Speaker 3 (07:14):
We did see the.
Speaker 4 (07:15):
President express some interest in that change earlier, but that's
been dropped out of the package, along with other things
like raising the top rate on higher earners.
Speaker 3 (07:23):
These are also issues.
Speaker 4 (07:24):
That could come back back up again in the Senate
potentially if they're looking at how to make the revenue
numbers work.
Speaker 6 (07:29):
YEP, sounds super easy, not at all complicated.
Speaker 5 (07:31):
Garrett, Thanks a lot, Garrett Watson, Director of Policy Analysts
Analysis at the Tax Foundation. We appreciate that in the
latest news that it looks like a speaker at Mike
Johnson and Security an agreement on a forty thousand dollars
assault cap increase. We of course keep you updated on
all the latest.
Speaker 1 (07:47):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on Applecarclay and Android Auto
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Speaker 5 (08:01):
Alex Steeler, paulus, when you've done, Tucker.
Speaker 6 (08:03):
This is from BRIC Intelligence Radio.
Speaker 5 (08:06):
Karen Manna is investment director and portfolio manager at feted Hermes,
and she joins us, now take us out of the
blind spot conversation. So when I'm looking at the thirty
year yield five percent, what is the correct term premium
premia for the bomb market right now?
Speaker 7 (08:24):
Good morning Alex, Good morning Paul, Thanks for having me
on again.
Speaker 3 (08:28):
Isn't that really the.
Speaker 7 (08:29):
Question of this era, the return of term premium and
what should what level should we lend out to the
US government, particularly in tens and thirties. I think the
answer is far higher and steeper than we had grown
accustomed to in the decade after the Great Financial Crisis.
So setting that level is what the market is attuned
(08:52):
to this week as we swing to the ring of teriff,
sorry not tariff policy, but move on to extension of
current tax policy, and how do we get there and
get agreement on that? So same some resistance to directly
answer your question around this five ish mark, but do
the headlines steer us north of there, it's possible.
Speaker 2 (09:14):
So I mean, is it fair to look at a
two year at four percent, at thirty year at five percent?
Nice round numbers. One hundred basis points of premium there
give us just some historic context.
Speaker 8 (09:24):
Is that a lot?
Speaker 2 (09:25):
Not a lot?
Speaker 7 (09:27):
It's getting steeper, Paul. I typically would look at FED
funds to ten in my research in evaluating that, and
you would usually see that on average over the period
very long period of closer to one hundred and fifty
basis points. We've been teetering around that level and pulling back,
but one hundred and fifty basis points is about there
(09:51):
bed funds to the ten year, so a little bit
of room to go perhaps usually that metric, But that's
something that we've been talking an awful lot about here
at our shop. We do invest, and we have a
separate allocation or positioning around that yield curve, and we
have re entered a steepener and have been slowly wading
(10:14):
into that trade in a diversified way, looking at twos
and tens and fives and thirties to try to capture
that movement in momentum in the market. Interestingly enough, that
steepening had faded around late January and into February, but
it seems to be back here with a renewed spirit
and perhaps some energy around it. So what we ultimately
(10:36):
could see happen is as the economy slows and if
the data cooperates again, it's that tension between the hard
data published on jobs reports and inflation and all of
those sentiment surveys and indicators. They're moving in different directions.
One is staying pretty firm or reasonable, while the other
shows continued angst. But what we could see ultimately happen
(11:00):
the two year goes down, but the ten and the
thirty year don't cooperate and they continue to either hold
near current levels or actually push up slately higher.
Speaker 5 (11:10):
What should the relationship be between your yield thesis and
the equity market?
Speaker 7 (11:18):
Well, that gets tricky too, and not to always talk
my fixed income book, but it's who I am, But
I think you do start to struggle with financing growth
equities as the tenure eclipses four seventy five approaches five,
and if there's any sort of attitude or feel that
the tenure could stay elevated above that five percent mark,
(11:41):
I think you could see equities roll over for that
financing cost reason, and then folks take a different look
at fixed income more apportion to the income because when
you're yield exceeds your duration, you do have some protection
from volatile around interest rates. So it's bringing that conversation
(12:03):
and fixed income back to the income component, but also
recognizing that the tenure is largely the broad strokes base
or funding costs for many elements of not just private
finance or the public markets that we watch, but also
public markets aka ammunis.
Speaker 2 (12:22):
Credit munimunis. Let's talk about the muni market because we
do love the meuni market. See no, it's not Friday,
we'll talk munis. How do you what's the exposure you
want to have in the municipal bond market.
Speaker 7 (12:35):
Well, of course that's up to the individual, their financial advisor,
their portfolio needs. But if your need that tax advantage
to investing, I would be using it to the full
extent that's reasonable within your portfolio construct. Communis here are
priced attractively. The credit quality is attractive, its sound, nothing
(12:55):
is without its risk, and there are definitely corners of
the muni market that are more attractive than others. Active
managers have feeled back those exposures. They're always assessing credit risk,
They're always looking at valuation within the construct of risk
and exposure and managing those and trimming and adding as appropriate.
But we're very bullish on the media market right now,
(13:18):
particularly you had to trade off because of headline risk
surrounding perhaps you know, feeding the budget by eliminating the
tax exemption that has faded somewhat but created I think
a real buying opportunity.
Speaker 5 (13:32):
All right, Karen, thanks lot, We really appreciate it. Karen
mana investment director and portfolio manager at Federated Hermes.
Speaker 1 (13:39):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Apple Coarclay, and Android
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Speaker 5 (13:54):
So I can't believe what just happened. I know, I'm
sitting in the radio studio and in walks and Mike mcgloone,
think Miami Mike. Anyway, Miami Mike mcgloone.
Speaker 3 (14:03):
So we to see a.
Speaker 2 (14:04):
Season as he kind of follows like when the snowbirds
go home, he feels the need to kind of come
back a little bit.
Speaker 3 (14:10):
I think it's just a little bit of that genetics show.
Speaker 6 (14:12):
I see. Are they told him to comfort it?
Speaker 8 (14:13):
Yes? Yeah?
Speaker 5 (14:14):
Or that a junior or Michael McGlone is Boomergan Intelligence
Senior commodity strategist. It's so great to see you in person.
Bitcoin hitting a round the record. Is Bitcoin moving like
gold as like a protection against what we're seeing in
the bond market.
Speaker 6 (14:28):
Is that we're seeing right now.
Speaker 9 (14:29):
I think that's part of it. It's this year, it's unique.
It's actually following gold because we know gold made a
new high a few months ago and bitcoin's catching up today.
And all the crypto people say, oh, Bitcoin's going to outperform.
But I think the key risk for bitcoin is I
like to put him in the same category because they
basically are just the ones much more speculative and excessive
(14:50):
like bitcoin, and the other one's a store value. But
it's set ratio the ounces of gold per one bitcoin
about thirty three right now. That's the same as twenty twenty.
So this rock is outperforming this hot performing crypto asset,
which is I am a bit concerned about.
Speaker 8 (15:06):
The key thing is so I like to point out big.
Speaker 9 (15:08):
Coin will do fine, and it'll do fine versus gold
as long as the stock market's going up. And we
proved in Q one that if the stock market's going down,
bitcoins one of the first things people sell.
Speaker 2 (15:18):
So all right, let's go to gold here, because I'm
going to just front run Alex a little bit here.
I mean, I don't like what I'm hearing out of Israel,
out of a Ran. Potentially there's be some more stuff
going on over there.
Speaker 3 (15:32):
Will not higher.
Speaker 9 (15:33):
Yes, Well, here's the problem with oil. Last year's low
is sixty five. It's looking up at that level. It's
a bear market, yep. And just the latest data from
even you know, we have access to supply increasing inventories.
The driving season is just getting started. This weekend, you
had gasoline demands somewhat declining. The whole picture for crude
oil is bad. It needs some kind of supply shock
(15:55):
to really get it to go.
Speaker 2 (15:56):
Higher, and a supply shock of the dudes in you know,
the basins and the fracking rock.
Speaker 9 (16:01):
Every all over the place. The US has put not
a lot of oil exactly. Finally, Paul, you're heading towards
the low price cure. We're hearing stories now the declining
potential production from the Permian is, which is way you
know in alk space. The key thing is it's taking
low prices. That's what it ticularly takes, and those the
big spike in prices. We got to the peak in
(16:22):
two twenty twenty two just brought on that access supply.
Speaker 8 (16:25):
Now we're getting to that scale.
Speaker 9 (16:26):
But typically you have to get below the US cost
of production, which is between fifteen and fifty five dollars
a barrow to really shut that off in curtail, and
that's what we've done for the last twenty years.
Speaker 8 (16:35):
It's around forty dollars of barrow. So I stick with
that call.
Speaker 9 (16:38):
And the key thing for crudeil right now is it's
the macro increasing demand and excess supply out of the
US and decreasing demand from China, and it's the US
stock market has to stay point. If we just roll
over a little bit, that takes crude oil down the
forty bis.
Speaker 5 (16:52):
Which brings me to the question that John Tucker smartly
asked with WTI at sixty two. But then the energy
stocks getting hammered, and I realized it's just.
Speaker 6 (16:59):
Propose because a lot of that says Phillip sixty six.
Speaker 5 (17:02):
I'm wondering why that discrepancy and if it's if it's
just lack of confidence in sixty two.
Speaker 8 (17:07):
Oil, Yeah, I think that's what it is.
Speaker 9 (17:09):
Well, the good news is we're starting to refill the
spr strategic Patolarum music.
Speaker 6 (17:12):
So there's some kind of support.
Speaker 8 (17:14):
Yes, in the market that's happen.
Speaker 3 (17:18):
Buy and who do they buy from?
Speaker 9 (17:20):
But that's also a good better question for people digging
in the market closer than I do.
Speaker 6 (17:23):
Do youmever whoever they want? I mean, it depends on
what they need.
Speaker 3 (17:26):
To fill the US government.
Speaker 2 (17:28):
I call up Exon and say I want to buy
some of your oil that's sitting there in the.
Speaker 5 (17:33):
I mean, it just also depends what oil you want.
So if you want like heavier oil, which is what
a lot of the refiners here use, you can't really
call up anyone from the US, You're going to have
to call overseas operations. That could still be a chep
runner Exxon, but it needs that the oil needs.
Speaker 9 (17:49):
But when you talk about producers, a key thing I
look at is the future's curve, and it's very flat.
Means that these producers have been selling out on the
future's curve. For years it's called normal backwardation, and right
now it's flat across the curve around sixty, which is
pretty rare. I think they're they're hoping for some kind
of reasons, some kind of spike so they can sell
forward and add to their production. And right now, just
(18:09):
every time we get these little bounces, you see the furve,
the curve come back a little bit, you see more
selling out in the curve.
Speaker 2 (18:15):
So it's May twenty first you're in Miami. Do you
notice people going back north? You can get the reservation.
Maybe you couldn't get in the restaurant before.
Speaker 9 (18:25):
Yeah, well it's as soon as the tulips start popping
up in New York, they're out of there.
Speaker 8 (18:28):
In Easter weekend, it's a big weekend.
Speaker 2 (18:30):
Is that the one?
Speaker 9 (18:31):
Whit did?
Speaker 8 (18:31):
They come down?
Speaker 9 (18:33):
Typically by November Christmas typically they're coming down.
Speaker 8 (18:36):
Yeah, definitely by December.
Speaker 3 (18:37):
And then it's just madhouse.
Speaker 8 (18:40):
It's madhouse. But I don't really.
Speaker 9 (18:42):
My wife and I never have a problem getting reservations
because we go early.
Speaker 8 (18:45):
You know, I usually early there.
Speaker 7 (18:47):
It is.
Speaker 3 (18:47):
I usually in bed by eight or nine because everybody
else in Florida go to bed.
Speaker 9 (18:50):
Well, guess when they're down there, they stay late, you know,
usually it's a later crowd.
Speaker 2 (18:54):
All right, So the Miami still awesome, right, but it's
a power of the tacks.
Speaker 8 (18:59):
You can't stop it. Zero tax, zero tex.
Speaker 3 (19:01):
Is it still considered? Are they still trying to attract.
Speaker 2 (19:05):
Bitcoin and crypto because we've been talking about that as
much as we used to crypto in general.
Speaker 9 (19:09):
There is definitely something that that's the key thing we
have to open Today bigcoins made a record high. The
thing that I've really noticed is that money goes to
places where I don't live, right, more than you know,
a common commoner.
Speaker 8 (19:26):
Yep. Yeah, But it's just the thing. It's it's a
flow from all wealth is coming there. And the key
thing here's a quick like I like to end with.
Speaker 9 (19:33):
They say Miami's the money laundering capital of South America?
Speaker 8 (19:36):
Well, what is New York for the whole world?
Speaker 2 (19:38):
Right?
Speaker 5 (19:38):
It hurts Mike Hurts mil in Studio Bloomberg Intelligence of
Commodity Strategy Senior Commodity Strategies.
Speaker 1 (19:47):
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Speaker 2 (00:16):
Flex Deal Paul Sweeney live here in our Bloomberg Director
Brokers Studio streaming live on YouTube as well. To check
us out there. Hey, let's have some fun, kids, Let's
talk tax policy. Gary Wilson, director of Policy analysis at
the Tax Foundation. He's zooming in from Fadeville, Arkansas. All right,
here's one of my lasting images from the early days
of the lockdown in COVID is the people down in
(00:38):
the Ozarks on the lakes, partying their brains out, Like none.
Speaker 3 (00:42):
Of this social distancing stuff.
Speaker 2 (00:45):
You can't tell those people not to have a good
time in the summer done in the Ozarks. They're out
there to have a good time. And that's where our
next guest is, Hey, Garrett, talk to us about what's
happening down in DC. I mean, it seems like this
saw tax thing, which is really important to metro New York.
I'm not so sure about Faydeville, Arkansas, but it's really
important for us here.
Speaker 3 (01:02):
That seems to be a real sticking point isn't that's right.
Speaker 4 (01:07):
The leadership in the House is trying to get together
the final votes and what is a very narrow margin
in that chamber amongst Republicans. And the big sticking point
right now is the fate of the state local tax deduction. Currently,
it's capped at ten thousand dollars. You can write off
your state local tax payments against your federal taxes spent
that way since twenty eighteen and expires at the end
(01:27):
of the year with the rest of the twenty seventeen
tax law. But there's been a lot of intense negotiation
about where to put that cap, going anywhere from making
the current cap, making it permanent, extending it, or making
it more generous upwards of we're now hearing a forty
thousand dollars cap, maybe putting in income limits. The big
sticking point is they haven't come to a compromise design
that everyone can agree on that fits with the revenue
(01:50):
needs for the rest of the package and the salt
folks can live with to deliver to their constituents back
at home.
Speaker 5 (01:56):
What do you think realistically winds up getting done? Since
everyone loves to also hate cell caps, so at.
Speaker 4 (02:04):
This point it seems like it's just a matter of
give and take on the exact numbers here. It seems
like there will be definitely an increase in the cap,
but a continuation of a cap, be it thirty thousand
or forty thousand or something north of there. It does
look like leadership wants to have some sort of additional
income limit that.
Speaker 3 (02:19):
Would be new.
Speaker 4 (02:20):
So if you are very high earning, say north of
five hundred thousand dollars, there may be additional limits that
are new there that could also limit the benefit of
this expansion. The other thing that's sort of fun under
the radar is there is some partial new limits for
those folks who are working around the caps using their
businesses through pass through firms. That's been a common tactic,
(02:41):
and this bill would partially remove that for certain types
of business income. So that's another thing for folks to
watch out for if they're planning what this might do
for their tax bill in the coming years.
Speaker 2 (02:52):
Hey, Garrett, when prisident Trump's on the campaign trailer, who's
talking about eliminating or lowering limiting the taxes on tips,
for example, overtime, that kind of stuff that works well
on a campaign trail.
Speaker 3 (03:02):
Is that something that can get done in this package.
Speaker 4 (03:06):
So there are several sort of I would say trial
balloons here that are temporary over the next four years
that would deliver on a deduction for tipped income, for
overtime income. There's a special four thousand dollars deduction for
seniors in here, and even a deduction for a car
loan interest for those payments for folks who are itemizing
and non itemizing alike, so you don't have to itemize
(03:27):
to get it. The big headline there is those are
fairly open ended deductions for most taxpayers who are not
very high earners, but they do expire at the end
of the in the next four years, and so that
will line up with potentially another debate about whether or
not those are extended. Only to think about that is, well,
have to see if they're popular, right, if people find
them helpful. There's of course also the revenue costs. They
(03:49):
add up to a few hundred billion over ten so
they would need to figure out how to extend those
moving forward. What that means is there may be another
tax fight the end of Trump's term heading out of
twenty twenty nine.
Speaker 3 (03:59):
If it goes forward, that.
Speaker 5 (04:00):
As an energy person, I'm obviously really interested in what
happens with the tax cuts in the Inflation Reduction Act.
What do you think and then the credit phase outs? Basically,
do you think that those stick where they are right
now or does it get more severe for some of
the alternative energy players.
Speaker 1 (04:17):
Yeah.
Speaker 4 (04:18):
For the IRA credits, it's really been a balancing act,
both at the committee level and amongst leadership, right to
try to balance the concerns of members who are more
sympathetic to those credits, amongst Republicans who may have a
lot of projects in their districts worried about the disruption
if they're phased out too aggressively, and other folks who
are worried about the fiscal cost of these credits and
want to see them phased out in a more aggressive timetable.
(04:41):
And so right now we're seeing in the current package
a phase out over the next five years through the
early twenty thirties for projects that have not been underway
at that point, but there's been a negotiation right now
to move that up as soon as twenty twenty seven.
I think that will be the question is to what
extent do folks who are more on the sympathetic side.
(05:02):
Are they okay with that right? Will that be too
disruptive for projects that are currently being penciled out within
their districts? And of course, the other thing looming over
the IRA credits. I think that's we're saying is even
if it does pass the House, the Senate may have
very different ambitions on this. That's sure of the general package,
but specifically with the IRA credits, we may see something
very different, much less aggressive in there, but that comes
(05:24):
with its own trade off in terms of the revenue cost.
It will bring in five hundred billion over ten years
according to the Joint Committee, and in additional revenue to
offset other parts of the tax cuts, so they don't
have a lot of wiggle room there. But we'll see
if the Senate has different ideas.
Speaker 2 (05:37):
Hey, Garrett, i spent my whole career on Wall Street,
so I'm all about making money minimizing taxes. But even
I have to admit the favorable tax treatment that carried
interest receives is just extraordinary. Can you give us how
that came about? And is there any pressure to change that?
Because it's kind of tough to see some of these
private equity guys, you know, with effective tax rates in
(05:59):
the single digits are the low teens, when everybody else
is paying forty to fifty percent.
Speaker 4 (06:04):
Yeah, carried interest has come up time and time again
in all these major tax battles. Of course, we had
a small change on carried interest treatment in twenty seventeen,
basically lengthening the amount of time it was required to
hold a position to qualify for that carried interest, which
is subject to the lower qualified capital Gains and dividends
rate upwards of twenty or twenty three point eight percent.
(06:25):
And there have been efforts to try to tax that
income as ordinary income. Right with that, of course, I
think two things. One, it isn't a major revenue raiser
either way. So if you were to tax at ordinary rates,
it only raises maybe about twenty billion over ten, which
is a lot of money, but in the big picture,
is not a lot when you're talking about trillions. So
the major sort of policy debate is on, as you're
(06:45):
hinting at, right, the fairness question of what is the
appropriate tax treatment of that type of income.
Speaker 3 (06:50):
On the one hand, if it's just.
Speaker 4 (06:52):
Basically like wages, right, like labor income, that would be
an argument in favor of taxing and ordinary rates. Folks
who are more defensive of the current treatment would say
it's more like capital gains income. It's more like investment income,
and we don't want to penalize that kind of investment
in the US.
Speaker 3 (07:08):
But the big.
Speaker 4 (07:09):
Trend, as you mentioned earlier, is it's been an uphill
battle to make that treatment stick.
Speaker 3 (07:14):
We did see the.
Speaker 4 (07:15):
President express some interest in that change earlier, but that's
been dropped out of the package, along with other things
like raising the top rate on higher earners.
Speaker 3 (07:23):
These are also issues.
Speaker 4 (07:24):
That could come back back up again in the Senate
potentially if they're looking at how to make the revenue
numbers work.
Speaker 6 (07:29):
YEP, sounds super easy, not at all complicated.
Speaker 5 (07:31):
Garrett, Thanks a lot, Garrett Watson, Director of Policy Analysts
Analysis at the Tax Foundation. We appreciate that in the
latest news that it looks like a speaker at Mike
Johnson and Security an agreement on a forty thousand dollars
assault cap increase. We of course keep you updated on
all the latest.
Speaker 1 (07:47):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on Applecarclay and Android Auto
with the Bloomberg Business app Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 5 (08:01):
Alex Steeler, paulus, when you've done, Tucker.
Speaker 6 (08:03):
This is from BRIC Intelligence Radio.
Speaker 5 (08:06):
Karen Manna is investment director and portfolio manager at feted Hermes,
and she joins us, now take us out of the
blind spot conversation. So when I'm looking at the thirty
year yield five percent, what is the correct term premium
premia for the bomb market right now?
Speaker 7 (08:24):
Good morning Alex, Good morning Paul, Thanks for having me
on again.
Speaker 3 (08:28):
Isn't that really the.
Speaker 7 (08:29):
Question of this era, the return of term premium and
what should what level should we lend out to the
US government, particularly in tens and thirties. I think the
answer is far higher and steeper than we had grown
accustomed to in the decade after the Great Financial Crisis.
So setting that level is what the market is attuned
(08:52):
to this week as we swing to the ring of teriff,
sorry not tariff policy, but move on to extension of
current tax policy, and how do we get there and
get agreement on that? So same some resistance to directly
answer your question around this five ish mark, but do
the headlines steer us north of there, it's possible.
Speaker 2 (09:14):
So I mean, is it fair to look at a
two year at four percent, at thirty year at five percent?
Nice round numbers. One hundred basis points of premium there
give us just some historic context.
Speaker 8 (09:24):
Is that a lot?
Speaker 2 (09:25):
Not a lot?
Speaker 7 (09:27):
It's getting steeper, Paul. I typically would look at FED
funds to ten in my research in evaluating that, and
you would usually see that on average over the period
very long period of closer to one hundred and fifty
basis points. We've been teetering around that level and pulling back,
but one hundred and fifty basis points is about there
(09:51):
bed funds to the ten year, so a little bit
of room to go perhaps usually that metric, But that's
something that we've been talking an awful lot about here
at our shop. We do invest, and we have a
separate allocation or positioning around that yield curve, and we
have re entered a steepener and have been slowly wading
(10:14):
into that trade in a diversified way, looking at twos
and tens and fives and thirties to try to capture
that movement in momentum in the market. Interestingly enough, that
steepening had faded around late January and into February, but
it seems to be back here with a renewed spirit
and perhaps some energy around it. So what we ultimately
(10:36):
could see happen is as the economy slows and if
the data cooperates again, it's that tension between the hard
data published on jobs reports and inflation and all of
those sentiment surveys and indicators. They're moving in different directions.
One is staying pretty firm or reasonable, while the other
shows continued angst. But what we could see ultimately happen
(11:00):
the two year goes down, but the ten and the
thirty year don't cooperate and they continue to either hold
near current levels or actually push up slately higher.
Speaker 5 (11:10):
What should the relationship be between your yield thesis and
the equity market?
Speaker 7 (11:18):
Well, that gets tricky too, and not to always talk
my fixed income book, but it's who I am, But
I think you do start to struggle with financing growth
equities as the tenure eclipses four seventy five approaches five,
and if there's any sort of attitude or feel that
the tenure could stay elevated above that five percent mark,
(11:41):
I think you could see equities roll over for that
financing cost reason, and then folks take a different look
at fixed income more apportion to the income because when
you're yield exceeds your duration, you do have some protection
from volatile around interest rates. So it's bringing that conversation
(12:03):
and fixed income back to the income component, but also
recognizing that the tenure is largely the broad strokes base
or funding costs for many elements of not just private
finance or the public markets that we watch, but also
public markets aka ammunis.
Speaker 2 (12:22):
Credit munimunis. Let's talk about the muni market because we
do love the meuni market. See no, it's not Friday,
we'll talk munis. How do you what's the exposure you
want to have in the municipal bond market.
Speaker 7 (12:35):
Well, of course that's up to the individual, their financial advisor,
their portfolio needs. But if your need that tax advantage
to investing, I would be using it to the full
extent that's reasonable within your portfolio construct. Communis here are
priced attractively. The credit quality is attractive, its sound, nothing
(12:55):
is without its risk, and there are definitely corners of
the muni market that are more attractive than others. Active
managers have feeled back those exposures. They're always assessing credit risk,
They're always looking at valuation within the construct of risk
and exposure and managing those and trimming and adding as appropriate.
But we're very bullish on the media market right now,
(13:18):
particularly you had to trade off because of headline risk
surrounding perhaps you know, feeding the budget by eliminating the
tax exemption that has faded somewhat but created I think
a real buying opportunity.
Speaker 5 (13:32):
All right, Karen, thanks lot, We really appreciate it. Karen
mana investment director and portfolio manager at Federated Hermes.
Speaker 1 (13:39):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Apple Coarclay, and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 5 (13:54):
So I can't believe what just happened. I know, I'm
sitting in the radio studio and in walks and Mike mcgloone,
think Miami Mike. Anyway, Miami Mike mcgloone.
Speaker 3 (14:03):
So we to see a.
Speaker 2 (14:04):
Season as he kind of follows like when the snowbirds
go home, he feels the need to kind of come
back a little bit.
Speaker 3 (14:10):
I think it's just a little bit of that genetics show.
Speaker 6 (14:12):
I see. Are they told him to comfort it?
Speaker 8 (14:13):
Yes? Yeah?
Speaker 5 (14:14):
Or that a junior or Michael McGlone is Boomergan Intelligence
Senior commodity strategist. It's so great to see you in person.
Bitcoin hitting a round the record. Is Bitcoin moving like
gold as like a protection against what we're seeing in
the bond market.
Speaker 6 (14:28):
Is that we're seeing right now.
Speaker 9 (14:29):
I think that's part of it. It's this year, it's unique.
It's actually following gold because we know gold made a
new high a few months ago and bitcoin's catching up today.
And all the crypto people say, oh, Bitcoin's going to outperform.
But I think the key risk for bitcoin is I
like to put him in the same category because they
basically are just the ones much more speculative and excessive
(14:50):
like bitcoin, and the other one's a store value. But
it's set ratio the ounces of gold per one bitcoin
about thirty three right now. That's the same as twenty twenty.
So this rock is outperforming this hot performing crypto asset,
which is I am a bit concerned about.
Speaker 8 (15:06):
The key thing is so I like to point out big.
Speaker 9 (15:08):
Coin will do fine, and it'll do fine versus gold
as long as the stock market's going up. And we
proved in Q one that if the stock market's going down,
bitcoins one of the first things people sell.
Speaker 2 (15:18):
So all right, let's go to gold here, because I'm
going to just front run Alex a little bit here.
I mean, I don't like what I'm hearing out of Israel,
out of a Ran. Potentially there's be some more stuff
going on over there.
Speaker 3 (15:32):
Will not higher.
Speaker 9 (15:33):
Yes, Well, here's the problem with oil. Last year's low
is sixty five. It's looking up at that level. It's
a bear market, yep. And just the latest data from
even you know, we have access to supply increasing inventories.
The driving season is just getting started. This weekend, you
had gasoline demands somewhat declining. The whole picture for crude
oil is bad. It needs some kind of supply shock
(15:55):
to really get it to go.
Speaker 2 (15:56):
Higher, and a supply shock of the dudes in you know,
the basins and the fracking rock.
Speaker 9 (16:01):
Every all over the place. The US has put not
a lot of oil exactly. Finally, Paul, you're heading towards
the low price cure. We're hearing stories now the declining
potential production from the Permian is, which is way you
know in alk space. The key thing is it's taking
low prices. That's what it ticularly takes, and those the
big spike in prices. We got to the peak in
(16:22):
two twenty twenty two just brought on that access supply.
Speaker 8 (16:25):
Now we're getting to that scale.
Speaker 9 (16:26):
But typically you have to get below the US cost
of production, which is between fifteen and fifty five dollars
a barrow to really shut that off in curtail, and
that's what we've done for the last twenty years.
Speaker 8 (16:35):
It's around forty dollars of barrow. So I stick with
that call.
Speaker 9 (16:38):
And the key thing for crudeil right now is it's
the macro increasing demand and excess supply out of the
US and decreasing demand from China, and it's the US
stock market has to stay point. If we just roll
over a little bit, that takes crude oil down the
forty bis.
Speaker 5 (16:52):
Which brings me to the question that John Tucker smartly
asked with WTI at sixty two. But then the energy
stocks getting hammered, and I realized it's just.
Speaker 6 (16:59):
Propose because a lot of that says Phillip sixty six.
Speaker 5 (17:02):
I'm wondering why that discrepancy and if it's if it's
just lack of confidence in sixty two.
Speaker 8 (17:07):
Oil, Yeah, I think that's what it is.
Speaker 9 (17:09):
Well, the good news is we're starting to refill the
spr strategic Patolarum music.
Speaker 6 (17:12):
So there's some kind of support.
Speaker 8 (17:14):
Yes, in the market that's happen.
Speaker 3 (17:18):
Buy and who do they buy from?
Speaker 9 (17:20):
But that's also a good better question for people digging
in the market closer than I do.
Speaker 6 (17:23):
Do youmever whoever they want? I mean, it depends on
what they need.
Speaker 3 (17:26):
To fill the US government.
Speaker 2 (17:28):
I call up Exon and say I want to buy
some of your oil that's sitting there in the.
Speaker 5 (17:33):
I mean, it just also depends what oil you want.
So if you want like heavier oil, which is what
a lot of the refiners here use, you can't really
call up anyone from the US, You're going to have
to call overseas operations. That could still be a chep
runner Exxon, but it needs that the oil needs.
Speaker 9 (17:49):
But when you talk about producers, a key thing I
look at is the future's curve, and it's very flat.
Means that these producers have been selling out on the
future's curve. For years it's called normal backwardation, and right
now it's flat across the curve around sixty, which is
pretty rare. I think they're they're hoping for some kind
of reasons, some kind of spike so they can sell
forward and add to their production. And right now, just
(18:09):
every time we get these little bounces, you see the furve,
the curve come back a little bit, you see more
selling out in the curve.
Speaker 2 (18:15):
So it's May twenty first you're in Miami. Do you
notice people going back north? You can get the reservation.
Maybe you couldn't get in the restaurant before.
Speaker 9 (18:25):
Yeah, well it's as soon as the tulips start popping
up in New York, they're out of there.
Speaker 8 (18:28):
In Easter weekend, it's a big weekend.
Speaker 2 (18:30):
Is that the one?
Speaker 9 (18:31):
Whit did?
Speaker 8 (18:31):
They come down?
Speaker 9 (18:33):
Typically by November Christmas typically they're coming down.
Speaker 8 (18:36):
Yeah, definitely by December.
Speaker 3 (18:37):
And then it's just madhouse.
Speaker 8 (18:40):
It's madhouse. But I don't really.
Speaker 9 (18:42):
My wife and I never have a problem getting reservations
because we go early.
Speaker 8 (18:45):
You know, I usually early there.
Speaker 7 (18:47):
It is.
Speaker 3 (18:47):
I usually in bed by eight or nine because everybody
else in Florida go to bed.
Speaker 9 (18:50):
Well, guess when they're down there, they stay late, you know,
usually it's a later crowd.
Speaker 2 (18:54):
All right, So the Miami still awesome, right, but it's
a power of the tacks.
Speaker 8 (18:59):
You can't stop it. Zero tax, zero tex.
Speaker 3 (19:01):
Is it still considered? Are they still trying to attract.
Speaker 2 (19:05):
Bitcoin and crypto because we've been talking about that as
much as we used to crypto in general.
Speaker 9 (19:09):
There is definitely something that that's the key thing we
have to open Today bigcoins made a record high. The
thing that I've really noticed is that money goes to
places where I don't live, right, more than you know,
a common commoner.
Speaker 8 (19:26):
Yep. Yeah, But it's just the thing. It's it's a
flow from all wealth is coming there. And the key
thing here's a quick like I like to end with.
Speaker 9 (19:33):
They say Miami's the money laundering capital of South America?
Speaker 8 (19:36):
Well, what is New York for the whole world?
Speaker 2 (19:38):
Right?
Speaker 5 (19:38):
It hurts Mike Hurts mil in Studio Bloomberg Intelligence of
Commodity Strategy Senior Commodity Strategies.
Speaker 1 (19:47):
This is the Bloomberg Intelligence podcast, available on Apple, Spotify,
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weekday ten am to noon Eastern on bloomberg dot com,
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