May 1, 2021 • 26 mins
This week, Emily Weis, State Street emerging markets strategist, explained what was behind copper's record week and driving the metal to $10,000. Nir Kaissar, a Bloomberg Opinion columnist and the founder of Unison Advisors, argued why he thinks corporate tax loopholes actually matter more than the rate itself. Michelle Meyer, the head of U.S. economics at Bank of America Securities, went through this week's economic data and offered an outlook for the U.S. housing market. Then Tina Tchen, Time's Up president and CEO, came on to talk about the impact of President Biden's proposed American Families Plan on the labor market and growth.
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Speaker 1 (00:08):
Welcome to What You Missed This Week? I'm Joe Wisenthal.
This podcast has some of our favorite interviews from the
Daily Market Clothes show that I co anchor along with
Romaine Bostick and Caroline Hyde. What do you miss It's
the perfect way to kick off your weekend. This week
we saw more wild action in the commodities market, with
copper hitting ten thousand dollars a ton on Thursday, a
(00:30):
price not scene since mid all the action. Unfortunately, I
forgot my copper ten thousand dollar hat at home, but
we did get some insight on the metal's rally. So
we spoke with Emily Weiss, an emerging market strategic at
State Street, ahead of copper hitting that record level, and
we started by asking her, what are some of the
factors that are impacting the supply side? Yeah, I think
(00:55):
that's exactly the issue of Joe. So what we have
here is that we know that the global demand is there,
and certainly we've seen that reflected across the board in commodities.
But now turning to the supply side, UM and particularly
some of the major suppliers of copper, and in particularly
the two countries that I follow of of Chile and
through there are some domestic political issues that are keeping
investors a bit more cautious on the asset markets and
(01:16):
are also keeping future investments on further copper production, minds,
etcetera at bay for the immediate term as investors sort
of wait to see how these political situations shake out.
I told to us about the political situations, particularly for example,
in Chile at the moment, because how clear are we
getting in terms of the stry caction, how far can
(01:38):
this spin into mine as for example. Yes, so currently
we're on day two of of a port strike, a
port worker strike ongoing in Chile, and there isn't yet
broad involvement from some of the miners unions, although they
have sort of indicated that they're watching this and could
potentially get involved. And this all essentially sparked from recent
moves from the Panera presidency to essentially push back against
(02:00):
recent um recent dips into its emergency savings programs. So
Chilens for two different cycles now have had the ability
to dip into pension on their pension savings and be
able to take some of that out given the COVID issues,
they're now proposing that for a third time, given that
Chile is back in lockdowns unfortunately and still dealing with
the impact of COVID, But the government tried to push
(02:21):
back against that a bit, and in terms of looking
out for the pension funds and how much of the
funds can essentially be withdrawn, people haven't liked that. In general,
these programs are very popular and this has had a
big hit on President Prenara's groupal ratings. It certainly has,
but they keep sort of pushing this idea here. Emily
though that there is sort of a demand component here
and that that will somehow, I don't know, save them
(02:42):
for lack of a better phrase, Yeah, I mean, it's
it's still as much as the there there. We're seeing
these tensions bubble up um. There is still a huge
demand for these commodities and and essentially that does impact
the growth story. In Chile. Around half of the exports
are copper x its other countries, and in Peru it's
around In Colombia you've got one third of their exports
(03:06):
are in oil. So certainly that the correlation with commodity
prices tends to be pretty strong, particularly with the currency. However,
we are seeing recently is that some of those correlations
are starting to break down a bit, and in particular
running below now some of their multi year averages. That's
suggesting there's a bit more at play than just this
bullish commodity supercycle story that maybe I would have initially
(03:26):
hoped there was a few months ago. Let's talk a
little bit more about that demand side. We're actually having
a conversation right at this time yesterday John Turk about
some of the slow, slightly slow and credit impulse out
of China, and of course that could be a potential
big source of demand infrastructure, real estate spending in China.
Could is there signs of demand debating or that is
(03:50):
there a point in which ten thousand dollar copper or
a ton in London starts to uh push back create
a little bit of demand destruction. Yeah. I think John
may some really good points about not being overly concerned
about the China credit impulse, but it being something that's
important to watch. And notably, I think one of the
factors that he brought up is that we now have
these other areas that are making up some of some
(04:12):
of that growth impulse, particularly in Europe or in the
US UM and particularly in the US I think we
see that the plans that have been proposed by the
by an administration round infrastructure and pursuing wre green energy solutions,
all of that is very copper intensive and will require
a lot of a lot of imports of copper, you know,
from nations like Chile and Peru. The question is how
(04:33):
quickly they can ramp up these sort of investments. Um
It obviously takes time and in order to expand on
these production capabilities, and also it depends on how the
political environment unfolds. Talking of politicians knowing exactly that sort
of moon music around infrastructure. We spoke with the Chitty
and Energy and Mining minister and this is what he
(04:53):
had to say about ultimate demands. In the medium term,
renewable energy and electromobility agendas accelerate, the demand for copper
will will go up. And I think that is the
most I would say permanent trend family like clearly they
(05:14):
recognize the trends are in their favor. They've got to
work out whether Chile, whether Peru can dine out on
being the supply side, where else could pick up the slack,
where else could be doing well out of the bat
that politics doesn't look so so well useful in places
like fluentially right now. Sure so, while the politics concerns
(05:36):
are are very real, um, we are looking at a
fairly optimistic outlook for Latin America and the second half
of this year. Unfortunately that that recovery side has been
delayed for longer than we would have liked. We've seen
that going back into lockdowns and COVID still being a
very real issue, along with the delayed vaccination campaign, have
have kept emerging markets on the back foot. Now, the
commodity story provides a tail winch certainly, the politics and
(05:59):
the headwind balancing out those two tho, we do end
up with the situation in the latter half of this
year where there could be this rebound and emerging markets,
particularly driven by lad Damn as that engine of exporting
commodities and and generally having a high correlation to global growth.
And that correlation is there, And of course when we
talk about the correlation, Emily, you also have to talk
about currencies. The dollar doesn't seem to be like it's
(06:21):
going to be as big of a boogeyman as some
people might have thought it was going to be, say
a few months ago, even with sort of this move
that we've seen in yields. Yeah, we're finally starting to
see that dollar move that we were hoping would happen
in January and February of this year, UM, and that
is something that I expect will continue to be in
play in the coming months. Dollar softness, with most of
the good news in the US price in and starting
(06:43):
to see rest of the world growth pick up along
with the rest of the world vaccinations pick up. So
I think there really is an optimistic case to be
made with dollar going generally lower and also with yields
somewhat captain the range that they've been in. UM, there
is an opportunity here for emerging markets, and I do
think there's a lot of is that look pretty optimistic,
but you know, just real quickly, and you mentioned it earlier.
(07:05):
I mean, one of the things it really is striking
the divergence between virus trends in the US and perhaps
in Europe where the vaccination campaign is starting together steam finally,
versus the rest of the world where it's pretty stark.
How much downstairs is there still downside risk that perhaps
people aren't thinking of further lockdowns, further demand destruction or Uh,
(07:29):
do people would you say investors have a realistic take
on the situation X the developed countries? Well, I think
we've seen that UM downside risk playout in Chile already. Um.
Quite frankly, they were one of the countries that had
one of the better vaccination rollouts in emerging markets but
also developed markets to start this year, and that was
really encouraging, and then we quickly saw that turned back
(07:50):
to lockdowns and back to pretty strict lockdowns that are
still ongoing. So I think there is still a lot
of caution to be had. But the good news is
I think it's markets are forward looking mechanisms. Um, there
is a lot of looking further down the line of
how things could improve for the better rather than focusing
on the medium charms, because is like India and Brazil
where things are rough now. This week we also got
(08:11):
a lot of news on the tax front, more details
on President Biden's tax plan and how would impact theoretically
corporations and wealthy individualists. He laid out his plans and
a joint addressed to Congress. The administration wants to pay
for its proposed two point three trillion dollar infrastructure bill
by raising the corporate tax rate to Near case Or,
(08:32):
a Bloomberg opinion columnist and the founder of Unison Advisors,
came on to talk about why he thinks corporate loopholes
actually matter more than the rate itself. We started by
asking Near what his research has to say about what
a change in tax levels means for stocks. Hi, Joe,
you know, there's been a lot of debate about this
(08:54):
corporate uh, this this plan to raise corporate tax rates.
And I wanted to see for myself what, you know,
what what is the level of which companies actually pay taxes?
And we have a lot of data obviously at Bloomberg,
and so I dug up all the dat I could find,
which was roughly um debt on eight hundred public companies
income and tax paid going back to two thousand and eleven,
(09:17):
and I was surprised by the results. What I found
was that in two thousand and eighteen, when the tax rate,
the corporate tax rate went down from thirty, the amount
of money that that companies actually paid in taxes didn't
go down as much as you would think given the
gap um and so and so it raised the question
(09:37):
for me, what happened and what can we expect if
we raise the corporate tax rate back up. And what
I think is going on is that the higher the
tax rate, the greater the incentive for companies to skirt it, effectively,
to to go through the tax code to find the loopholes.
And so I fear that if we raise the tax
the tax rate back to twenty eight up, but we
don't close the loopholes in the tax code, that we're
(10:00):
going to raise the revenue that we think we're going
to raise. I would like to see Congress first closets
and then we can talk about how high the rate
needs to be to to to uh get to our
revenue goals. Yeah, Joe Manchin of course, the key Democrat.
And it's all of this really talking not only about loopholes,
but about actually getting people to pay what they already
owe and getting the oversight the I R s to
(10:22):
be a bit more invested in. But from your perspective,
near what loopholes therefore need to be the first and
foremost focused on? Well, you know, there's so many. I mean,
I I went to law school many decades ago, and
um I took a classic corporate taxation and I can
tell you that in those days it was, the corporate
tax code was just a maze and impenetrable maze of
(10:44):
holes and exceptions, and you know, it's a gold mine
for lawyers and accounts to go through and find ways
to get around the and the taxes. And so I think,
you know, one of the problems is it's not going
to be the kind of thing where you can point
to one or two things that you can easily close.
It really will take an overhaul of the tax code
in order to accomplish this, and of course that's a
(11:06):
very heavy lift. It's much easier to just raise the
corporate tax rate and you might be able to get
to the same place, but it wouldn't be as good
a result in my opinion from a public policy perspective,
because ultimately a more complicated tax code is less transparent,
it's viewed as being less fair, um And and also
it's it's just easier to get around. And so I
(11:26):
think we'd all be better off if we spent the
time on the front end to really make this ex
code simpler, um And I think it will be. And
and by the way, it would also mean that the
headline corporate tax it will be lower, which has some
benefits optically as well. So what does it mean for you,
like thinking about as a portfolio manager, as an investor.
We're going into this season um where taxes across the board,
(11:50):
whether we're talking corporations, individuals, capital gains, it all seems
to be on the table. None of us know exactly
what the final package is gonna look like, if there
even is something get passed, but it's all out there,
lots of discussion. Markets not anxious about it at all
right now, basically at all time highs. Is this a
source of anxiety for any reason? Or is this a
(12:12):
bad reason to be negative? It's it's I mean, you know,
it's funny, Joe. I'm working on a piece actually for tomorrow,
and my editor might be mad at me for previewing
it here, but I will say that I think where
this comes into play is what happens ultimately to corporate earnings.
What impact does this have on corporate earnings over the
(12:32):
next several years, not this quarter, not next quarter. And
the reason that's such an important question is I think
people investors generally don't realize that the returns from the
market and during the last decade largely came from earnings growth.
Of the thirteen per centennial return from the SMP during
the and percent of it came from earnings growth. And
(12:53):
so with valuations where they are, you know, it's hard
to expect it's hard to expect them to expand further.
And with divid and yields are roughly one point four
percent on the S and P, the return has to
come from earnings growth. And if you're going to have
higher corporate tax rates, you're probably gonna have lower earnings.
That's going to have an impact unexpected return and I
think investors have to pick about and we gotta run
(13:15):
down of all of this week's economic data with Michelle Meyer,
at the head of US Economics at Bank of America Securities.
We talked about everything from GDP to the housing market.
We started by asking Michelle if the GDP report confirmed
that the US recovery still has momentum. I think it
was actually very very clear in the data. So not
(13:37):
only Joe, as you mentioned, a headline growth in excess
of six percent, but once you dig into the details,
what you find is very strong domestic demand. So consumer
spending running over ten percent an annualized basis in the
first quarter really driven by good spending still durable good
spending in particular services still a little bit softer. So
there's a lot more to come in a sense of
(13:58):
services spending, and the investment with strong too, equipment investment,
residential investment, intellectual property. The only weakness was commercial real estate,
which makes sense. Um. So when you actually take out
the inventory drag, if you take out the trade deficit widening,
you get domestic demand of nearly eleven percent in Q one.
(14:18):
That's a lot of momentum coming into the rest of
the year, a lot of momentum when supply is just
trying to get up and running, and it is also
catailed by a syncratic issues told us Michelle, how much
you're worrying about the circle bottlenecks, particularly when it comes
to the chip sector. So I do think that there's
this tension in the economy now where you know, going
(14:39):
back to just kind of economics one O one, demand
is outpacing supply. We've had this burst of demand, which
I think that's your Power described very this dynamic very
well yesterday. It's being fueled by stimulus, is being fueled
by reopening, and it's happening very fast. And it's just
taking a lot longer for the supply side to accommodate
that UM and working against the supply side are as
(15:02):
you all noted the supply chain issues, particularly a certain
categories like semi conductors for example. If you're seeing play
out in the auto sector, UM some concerns of our
labor shortages. So it's gonna take time first the supply
side to catch up, but there's no reason that it
can't UM and ultimately that should lend itself to stronger output.
This is the key question that we have to dive
(15:24):
into for the idea that there's no reason that it
can because ultimately that is the sort of core assumption
when the FED chair and other economists talk about transitory inflation,
so far we haven't seen it. It actually seemed to
be getting worse. Uh. Caroline mentioned the chips that doesn't
seem to be getting better yet. For the car companies.
(15:45):
You look at lumber, we had, you know, a sawmill
company said which they should be profiting greatly, came out
and said today that they couldn't actually hit their estimates
because they were having our shortages of freight and logistics
and the trucking companies and the rail cup is couldn't
get So there does seem to be this sort of
like compounding bottleneck. It's emerging. What does it look like
(16:06):
do we have do you have a timeline for when
you think the supply side catches up so to speak? Yeah,
so you're a hundred percent right. I mean it's you
should be seeing the supply curve shifted out and it's
shifting back in more. Right, So it's it's there. There
there challenges, um, but they're all there are reasons behind
all of these challenges on the supply side, whether it's
(16:29):
you know that what happened around Sue is canal that
create even greater delays by chain issues as a result
of the fact that there's still a lot of COVID
cases and virus concerns of broad ware alot and manufacturing
is happening. Um. You know. So I think it's reasonable
to argue that these are issues that can be resolved. Um.
(16:49):
And there's clearly an incentive to do so on the
part of manufacturers, on the part of producers. Um, it's
just a matter of having enough time to get through
these challenges and to meet the increase in demand. So
I would imagine the next few months this tension continues.
It's not something that we can just snap our finger
and it all gets fixed. In the economy can take months,
(17:10):
it can take even quarters for it to be resolved UM.
And that's what the FED wants to see play out,
right if we want time to figure out how this
ends up working itself through UM and what that ultimately
means for crisis. Today, we don't only got GDP, but
we also got the latest round well of other data,
jobs claims, and a sprinkling of housing. Yeah, pretty impressive
(17:31):
numbers still continuing for housing. We actually pending home sales
came in a little bit lighter than expectations. But you know,
part of the issue is there an't many homes sells.
So hard to have a real boom in pending home
sales when there is essentially no inventory out there, as
everyone keeps reminding us. So the question is when will
things improve or ease up or slow down in some way?
(17:53):
I want to bring back in Michelle Meyer, Bank of
American Securities, Head of US Economics. You know, I guess
part of the question is with all these things, and
this includes some of the commodity stuff, is when do
we start to see demands start to abate? If prices
go up for so many things so fast, when do
we start to say, okay, well, eventually buyers have to
pull back. Are we seeing any indication of that in
(18:15):
housing yet? It really doesn't appear that we're seeing that yet.
I think the biggest challenge for the housing market is
simply the lack of supply. As you just note it.
I mean, if you think about the months supply figures
in the existing home market, we're close to record lows.
The number of days on the market is unbelievably short
UM and UM builders are rare, and you are seeing
(18:37):
phenomenal building permits numbers, very strong home builder confidence. We're
trying to ram up construction and add to inventory UM
which helps to ease some of the price pressure and
allow for demand to continue. But now, I don't think
it's a pricing issue really, I think it's a lack
of supply. And you know, one of the reasons that
that I suggest that's the cases if you look at
some of the survey data, for example, the University of
(18:59):
Michigan Good Time to Buy Series UM for housing, you know,
people you're not seeing the reports that prices are too
high and there fortunately good time to buy because remember
prices are high, but we've had this influx of money
and from stimulus, so people have cash on hand and
interest rates are still very low. That helps supportability. It
(19:20):
is a bit of a tale of the haves and
the have nots, though, because if you're living by stimulus check,
you're probably not able to climb on that ladder right now,
particularly of supplies. Chip Thin, I'm aware of the inequality
within this debate, but talk to us about what's happening
in terms of when supply comes on top, because at
some point does the equilibrium come do we just remain
(19:41):
elevated levels to build us and lumber merchants keep the
prices elevated. Yeah. So, so the first point that you made,
the inequality story is extremely important, something that I think
often gets lost when we talk about these aggregate numbers
for the overall economy, and that's something that I think
we have to just always put an asterisk next to
when we're talking about the economy and the trends. In
(20:03):
terms of your second point about when does it all
normalize and doesn't normalize? I do think you know the
economics should work. Ultimately, the market should sort itself out
in the sense of you know, supply being able to
catch up. And I think for housing it's sexually fairly
straightforward because you are seeing builders ramp up construction. So
if you think about the level of building permits for
(20:25):
single family homes right now, and you can chopolate that forward,
we're gonna have a lot of homes hitting the market
the next six months or so. Um. Given what's in
the works right now. Now, there are obstacles. The obstacles
are being lumber prices are highs and they have to
try to, you know, figure out how to pass on
some of those prices. There's challenges around labor shortages. UM.
So there are there are, there are frictions. UM. But
(20:47):
I think the desire to accommodate the market and um,
you know, add to the supply is particularly for housing,
given the imageman there is, I think it's there and
and and ultimately that will cool home prices up. When
you think about home prices nationally, we're running in the
order about twelve percent year of the year. UM. By
the end of the year, we should be back down
to single digit home price appreciation and then Finally, we
(21:14):
talked about President Biden's American Family's Plan and what it
could mean for the labor market with Tina Chen, the
president and CEO of Times Up. Tina also served in
the Obama White House as the chief of staff to
former First Lady Michelle Obama. She's been a longtime advocate
of paid family leaves, saying we are in a caregiving crisis.
So we started by asking Tina per perception on what
(21:35):
chances the legislation had a pass. Well, it's actually a
smart proposal because what the President did was to phase
paid leave in right. If you look closely at it,
you know you don't get to twelve weeks for everyone
all at once. You phase it in over twelve years,
gradually talking you know, doing family ly for new parents
(21:58):
first um and then working your way across you know,
the workforce. So I think it's a really smart proposal
to get paid family leave on the table for the
first time in this country, you know, to the point
that you know, the presidents of the rest of the
world isn't waiting for us. We are one of only
two countries in the world Caroline, that doesn't have a
national paid lead policy. So guess what. Our companies who
(22:20):
want to give paid lead to their workers. They're paying
out of their pocket without any help. I'm doing it.
That puts small businesses that are disadvantaged, and it puts
our global companies that are disadvantaged to you know, companies
in other countries where there it is support for paid
family leave. You know, that's a really interesting point about
this idea of this essentially shifting some of the burden
off the corporate balance sheet, off the corporate payroll, onto
(22:44):
the government's books. When you talk to say companies, how
much of an appeal is that to them, this idea
of like let's just level the playing field like that. Well,
I think more and more companies are seeing it because
the interesting thing about the pandemic moment is everyone now
realized says that caregiving is a problem. Like CEOs have
had to work from home with their kids, you know,
(23:05):
home from school. You couldn't just go to work and
ignore what was happening on the home front anymore. And
so now I see businesses feeling the urgency as equally
as workers have been feeling it for generations. So there
is a desire right now for companies, and there are
a lot of companies who guess what they can do it.
A lot of the big players do it already. But
you know, we know that four out of five private
(23:25):
sector workers don't have access to paid lead now because
they're in smaller companies, they're in startups there in the
small businesses that can't afford to do this on their own.
And a national paid lead program is going to spread
that cost across everyone in the economy and it's going
to help and it pays off. Actually, it creates jobs,
it creates economic activity, and we know from the economic
(23:45):
analysis we've done it times up. It is stimulated to
the economy. Music and usual to the econom mecanolysis is
also done by the Treasury, and of course previous FED
chair now ahead of the Treasury, John Ann and herself
also taking to Twitter and forms of social media to
say your exact point, saying like, historically, childcare other social
(24:06):
programs to help families haven't been seen as crucial investments
on depending American growth and productivity. This is a failure
of perspective. Who have you still yet to convince, Tina,
who are the holdouts? Who look at Europe, who look
at the UK, look at every other country who's doing this,
and think, nah, well, here's the interesting thing, Carolyn, it's
(24:27):
not businesses, because we're hearing from business if they want
this and they need this, it's not actually, you know,
citizens who live in red states, because we know, we
did a survey you know at Times Up and we
found that not only do nine out of ten Democratic
voters support comprehensive caregiving solutions, get out of ten Republicans
supported too. So actual constituents in red states and red
(24:49):
districts support this. It's just their elected leaders in red
districts that seem not to be getting the message in Washington.
And one of the things that needs to happen over
the next few months is they need to hear that
message from their constituents because we know this is what
the vast majority of American people, regardless of what geography
and could they live in, need this. Should there be
(25:11):
some sort of benefit to say, families that homeschool, or
families were only one of the parent works, or other
situations in which uh, you know, sort of a federal
paid leave program for working parents or people who go
out to the workforce, uh may not may not help
them as much. Well, actually, the one of the great
things about the Biden proposals. He takes a conference approach,
(25:34):
so paid leave sits together and works together with things
like an early investment in early child care and universal
pre K. It works with a system of four billion
dollar investment in home care for the elderly. At some point,
if you're homeschooling your kids, you may have a parent
who needs home care services and you don't want to
send them to a nursing theme, especially after what we've
(25:56):
seen gone on the last year. You right now, you're
a waiting list for years. A four hundred billion dollar
investment and making affordable home and community based care available
to you. That's part of the package as well. That's
what we need. We need a system of caregiving that
works from when you're you know you have young children too,
when you yourself are elderly, and supports caregivers in between
(26:17):
and paid lead for workers. And that's it for what
you missed this week. If you like the show, make
sure to subscribe and rate us an Apple podcast or
wherever you listen to podcast. You can catch our show
every weekday from three thirty to five pm on Bloomberg
TV and from four to five pm on Twitter. Thanks
(26:38):
for listening and have a great week.
Welcome to What You Missed This Week? I'm Joe Wisenthal.
This podcast has some of our favorite interviews from the
Daily Market Clothes show that I co anchor along with
Romaine Bostick and Caroline Hyde. What do you miss It's
the perfect way to kick off your weekend. This week
we saw more wild action in the commodities market, with
copper hitting ten thousand dollars a ton on Thursday, a
(00:30):
price not scene since mid all the action. Unfortunately, I
forgot my copper ten thousand dollar hat at home, but
we did get some insight on the metal's rally. So
we spoke with Emily Weiss, an emerging market strategic at
State Street, ahead of copper hitting that record level, and
we started by asking her, what are some of the
factors that are impacting the supply side? Yeah, I think
(00:55):
that's exactly the issue of Joe. So what we have
here is that we know that the global demand is there,
and certainly we've seen that reflected across the board in commodities.
But now turning to the supply side, UM and particularly
some of the major suppliers of copper, and in particularly
the two countries that I follow of of Chile and
through there are some domestic political issues that are keeping
investors a bit more cautious on the asset markets and
(01:16):
are also keeping future investments on further copper production, minds,
etcetera at bay for the immediate term as investors sort
of wait to see how these political situations shake out.
I told to us about the political situations, particularly for example,
in Chile at the moment, because how clear are we
getting in terms of the stry caction, how far can
(01:38):
this spin into mine as for example. Yes, so currently
we're on day two of of a port strike, a
port worker strike ongoing in Chile, and there isn't yet
broad involvement from some of the miners unions, although they
have sort of indicated that they're watching this and could
potentially get involved. And this all essentially sparked from recent
moves from the Panera presidency to essentially push back against
(02:00):
recent um recent dips into its emergency savings programs. So
Chilens for two different cycles now have had the ability
to dip into pension on their pension savings and be
able to take some of that out given the COVID issues,
they're now proposing that for a third time, given that
Chile is back in lockdowns unfortunately and still dealing with
the impact of COVID, But the government tried to push
(02:21):
back against that a bit, and in terms of looking
out for the pension funds and how much of the
funds can essentially be withdrawn, people haven't liked that. In general,
these programs are very popular and this has had a
big hit on President Prenara's groupal ratings. It certainly has,
but they keep sort of pushing this idea here. Emily
though that there is sort of a demand component here
and that that will somehow, I don't know, save them
(02:42):
for lack of a better phrase, Yeah, I mean, it's
it's still as much as the there there. We're seeing
these tensions bubble up um. There is still a huge
demand for these commodities and and essentially that does impact
the growth story. In Chile. Around half of the exports
are copper x its other countries, and in Peru it's
around In Colombia you've got one third of their exports
(03:06):
are in oil. So certainly that the correlation with commodity
prices tends to be pretty strong, particularly with the currency. However,
we are seeing recently is that some of those correlations
are starting to break down a bit, and in particular
running below now some of their multi year averages. That's
suggesting there's a bit more at play than just this
bullish commodity supercycle story that maybe I would have initially
(03:26):
hoped there was a few months ago. Let's talk a
little bit more about that demand side. We're actually having
a conversation right at this time yesterday John Turk about
some of the slow, slightly slow and credit impulse out
of China, and of course that could be a potential
big source of demand infrastructure, real estate spending in China.
Could is there signs of demand debating or that is
(03:50):
there a point in which ten thousand dollar copper or
a ton in London starts to uh push back create
a little bit of demand destruction. Yeah. I think John
may some really good points about not being overly concerned
about the China credit impulse, but it being something that's
important to watch. And notably, I think one of the
factors that he brought up is that we now have
these other areas that are making up some of some
(04:12):
of that growth impulse, particularly in Europe or in the
US UM and particularly in the US I think we
see that the plans that have been proposed by the
by an administration round infrastructure and pursuing wre green energy solutions,
all of that is very copper intensive and will require
a lot of a lot of imports of copper, you know,
from nations like Chile and Peru. The question is how
(04:33):
quickly they can ramp up these sort of investments. Um
It obviously takes time and in order to expand on
these production capabilities, and also it depends on how the
political environment unfolds. Talking of politicians knowing exactly that sort
of moon music around infrastructure. We spoke with the Chitty
and Energy and Mining minister and this is what he
(04:53):
had to say about ultimate demands. In the medium term,
renewable energy and electromobility agendas accelerate, the demand for copper
will will go up. And I think that is the
most I would say permanent trend family like clearly they
(05:14):
recognize the trends are in their favor. They've got to
work out whether Chile, whether Peru can dine out on
being the supply side, where else could pick up the slack,
where else could be doing well out of the bat
that politics doesn't look so so well useful in places
like fluentially right now. Sure so, while the politics concerns
(05:36):
are are very real, um, we are looking at a
fairly optimistic outlook for Latin America and the second half
of this year. Unfortunately that that recovery side has been
delayed for longer than we would have liked. We've seen
that going back into lockdowns and COVID still being a
very real issue, along with the delayed vaccination campaign, have
have kept emerging markets on the back foot. Now, the
commodity story provides a tail winch certainly, the politics and
(05:59):
the headwind balancing out those two tho, we do end
up with the situation in the latter half of this
year where there could be this rebound and emerging markets,
particularly driven by lad Damn as that engine of exporting
commodities and and generally having a high correlation to global growth.
And that correlation is there, And of course when we
talk about the correlation, Emily, you also have to talk
about currencies. The dollar doesn't seem to be like it's
(06:21):
going to be as big of a boogeyman as some
people might have thought it was going to be, say
a few months ago, even with sort of this move
that we've seen in yields. Yeah, we're finally starting to
see that dollar move that we were hoping would happen
in January and February of this year, UM, and that
is something that I expect will continue to be in
play in the coming months. Dollar softness, with most of
the good news in the US price in and starting
(06:43):
to see rest of the world growth pick up along
with the rest of the world vaccinations pick up. So
I think there really is an optimistic case to be
made with dollar going generally lower and also with yields
somewhat captain the range that they've been in. UM, there
is an opportunity here for emerging markets, and I do
think there's a lot of is that look pretty optimistic,
but you know, just real quickly, and you mentioned it earlier.
(07:05):
I mean, one of the things it really is striking
the divergence between virus trends in the US and perhaps
in Europe where the vaccination campaign is starting together steam finally,
versus the rest of the world where it's pretty stark.
How much downstairs is there still downside risk that perhaps
people aren't thinking of further lockdowns, further demand destruction or Uh,
(07:29):
do people would you say investors have a realistic take
on the situation X the developed countries? Well, I think
we've seen that UM downside risk playout in Chile already. Um.
Quite frankly, they were one of the countries that had
one of the better vaccination rollouts in emerging markets but
also developed markets to start this year, and that was
really encouraging, and then we quickly saw that turned back
(07:50):
to lockdowns and back to pretty strict lockdowns that are
still ongoing. So I think there is still a lot
of caution to be had. But the good news is
I think it's markets are forward looking mechanisms. Um, there
is a lot of looking further down the line of
how things could improve for the better rather than focusing
on the medium charms, because is like India and Brazil
where things are rough now. This week we also got
(08:11):
a lot of news on the tax front, more details
on President Biden's tax plan and how would impact theoretically
corporations and wealthy individualists. He laid out his plans and
a joint addressed to Congress. The administration wants to pay
for its proposed two point three trillion dollar infrastructure bill
by raising the corporate tax rate to Near case Or,
(08:32):
a Bloomberg opinion columnist and the founder of Unison Advisors,
came on to talk about why he thinks corporate loopholes
actually matter more than the rate itself. We started by
asking Near what his research has to say about what
a change in tax levels means for stocks. Hi, Joe,
you know, there's been a lot of debate about this
(08:54):
corporate uh, this this plan to raise corporate tax rates.
And I wanted to see for myself what, you know,
what what is the level of which companies actually pay taxes?
And we have a lot of data obviously at Bloomberg,
and so I dug up all the dat I could find,
which was roughly um debt on eight hundred public companies
income and tax paid going back to two thousand and eleven,
(09:17):
and I was surprised by the results. What I found
was that in two thousand and eighteen, when the tax rate,
the corporate tax rate went down from thirty, the amount
of money that that companies actually paid in taxes didn't
go down as much as you would think given the
gap um and so and so it raised the question
(09:37):
for me, what happened and what can we expect if
we raise the corporate tax rate back up. And what
I think is going on is that the higher the
tax rate, the greater the incentive for companies to skirt it, effectively,
to to go through the tax code to find the loopholes.
And so I fear that if we raise the tax
the tax rate back to twenty eight up, but we
don't close the loopholes in the tax code, that we're
(10:00):
going to raise the revenue that we think we're going
to raise. I would like to see Congress first closets
and then we can talk about how high the rate
needs to be to to to uh get to our
revenue goals. Yeah, Joe Manchin of course, the key Democrat.
And it's all of this really talking not only about loopholes,
but about actually getting people to pay what they already
owe and getting the oversight the I R s to
(10:22):
be a bit more invested in. But from your perspective,
near what loopholes therefore need to be the first and
foremost focused on? Well, you know, there's so many. I mean,
I I went to law school many decades ago, and
um I took a classic corporate taxation and I can
tell you that in those days it was, the corporate
tax code was just a maze and impenetrable maze of
(10:44):
holes and exceptions, and you know, it's a gold mine
for lawyers and accounts to go through and find ways
to get around the and the taxes. And so I think,
you know, one of the problems is it's not going
to be the kind of thing where you can point
to one or two things that you can easily close.
It really will take an overhaul of the tax code
in order to accomplish this, and of course that's a
(11:06):
very heavy lift. It's much easier to just raise the
corporate tax rate and you might be able to get
to the same place, but it wouldn't be as good
a result in my opinion from a public policy perspective,
because ultimately a more complicated tax code is less transparent,
it's viewed as being less fair, um And and also
it's it's just easier to get around. And so I
(11:26):
think we'd all be better off if we spent the
time on the front end to really make this ex
code simpler, um And I think it will be. And
and by the way, it would also mean that the
headline corporate tax it will be lower, which has some
benefits optically as well. So what does it mean for you,
like thinking about as a portfolio manager, as an investor.
We're going into this season um where taxes across the board,
(11:50):
whether we're talking corporations, individuals, capital gains, it all seems
to be on the table. None of us know exactly
what the final package is gonna look like, if there
even is something get passed, but it's all out there,
lots of discussion. Markets not anxious about it at all
right now, basically at all time highs. Is this a
source of anxiety for any reason? Or is this a
(12:12):
bad reason to be negative? It's it's I mean, you know,
it's funny, Joe. I'm working on a piece actually for tomorrow,
and my editor might be mad at me for previewing
it here, but I will say that I think where
this comes into play is what happens ultimately to corporate earnings.
What impact does this have on corporate earnings over the
(12:32):
next several years, not this quarter, not next quarter. And
the reason that's such an important question is I think
people investors generally don't realize that the returns from the
market and during the last decade largely came from earnings growth.
Of the thirteen per centennial return from the SMP during
the and percent of it came from earnings growth. And
(12:53):
so with valuations where they are, you know, it's hard
to expect it's hard to expect them to expand further.
And with divid and yields are roughly one point four
percent on the S and P, the return has to
come from earnings growth. And if you're going to have
higher corporate tax rates, you're probably gonna have lower earnings.
That's going to have an impact unexpected return and I
think investors have to pick about and we gotta run
(13:15):
down of all of this week's economic data with Michelle Meyer,
at the head of US Economics at Bank of America Securities.
We talked about everything from GDP to the housing market.
We started by asking Michelle if the GDP report confirmed
that the US recovery still has momentum. I think it
was actually very very clear in the data. So not
(13:37):
only Joe, as you mentioned, a headline growth in excess
of six percent, but once you dig into the details,
what you find is very strong domestic demand. So consumer
spending running over ten percent an annualized basis in the
first quarter really driven by good spending still durable good
spending in particular services still a little bit softer. So
there's a lot more to come in a sense of
(13:58):
services spending, and the investment with strong too, equipment investment,
residential investment, intellectual property. The only weakness was commercial real estate,
which makes sense. Um. So when you actually take out
the inventory drag, if you take out the trade deficit widening,
you get domestic demand of nearly eleven percent in Q one.
(14:18):
That's a lot of momentum coming into the rest of
the year, a lot of momentum when supply is just
trying to get up and running, and it is also
catailed by a syncratic issues told us Michelle, how much
you're worrying about the circle bottlenecks, particularly when it comes
to the chip sector. So I do think that there's
this tension in the economy now where you know, going
(14:39):
back to just kind of economics one O one, demand
is outpacing supply. We've had this burst of demand, which
I think that's your Power described very this dynamic very
well yesterday. It's being fueled by stimulus, is being fueled
by reopening, and it's happening very fast. And it's just
taking a lot longer for the supply side to accommodate
that UM and working against the supply side are as
(15:02):
you all noted the supply chain issues, particularly a certain
categories like semi conductors for example. If you're seeing play
out in the auto sector, UM some concerns of our
labor shortages. So it's gonna take time first the supply
side to catch up, but there's no reason that it
can't UM and ultimately that should lend itself to stronger output.
This is the key question that we have to dive
(15:24):
into for the idea that there's no reason that it
can because ultimately that is the sort of core assumption
when the FED chair and other economists talk about transitory inflation,
so far we haven't seen it. It actually seemed to
be getting worse. Uh. Caroline mentioned the chips that doesn't
seem to be getting better yet. For the car companies.
(15:45):
You look at lumber, we had, you know, a sawmill
company said which they should be profiting greatly, came out
and said today that they couldn't actually hit their estimates
because they were having our shortages of freight and logistics
and the trucking companies and the rail cup is couldn't
get So there does seem to be this sort of
like compounding bottleneck. It's emerging. What does it look like
(16:06):
do we have do you have a timeline for when
you think the supply side catches up so to speak? Yeah,
so you're a hundred percent right. I mean it's you
should be seeing the supply curve shifted out and it's
shifting back in more. Right, So it's it's there. There
there challenges, um, but they're all there are reasons behind
all of these challenges on the supply side, whether it's
(16:29):
you know that what happened around Sue is canal that
create even greater delays by chain issues as a result
of the fact that there's still a lot of COVID
cases and virus concerns of broad ware alot and manufacturing
is happening. Um. You know. So I think it's reasonable
to argue that these are issues that can be resolved. Um.
(16:49):
And there's clearly an incentive to do so on the
part of manufacturers, on the part of producers. Um, it's
just a matter of having enough time to get through
these challenges and to meet the increase in demand. So
I would imagine the next few months this tension continues.
It's not something that we can just snap our finger
and it all gets fixed. In the economy can take months,
(17:10):
it can take even quarters for it to be resolved UM.
And that's what the FED wants to see play out,
right if we want time to figure out how this
ends up working itself through UM and what that ultimately
means for crisis. Today, we don't only got GDP, but
we also got the latest round well of other data,
jobs claims, and a sprinkling of housing. Yeah, pretty impressive
(17:31):
numbers still continuing for housing. We actually pending home sales
came in a little bit lighter than expectations. But you know,
part of the issue is there an't many homes sells.
So hard to have a real boom in pending home
sales when there is essentially no inventory out there, as
everyone keeps reminding us. So the question is when will
things improve or ease up or slow down in some way?
(17:53):
I want to bring back in Michelle Meyer, Bank of
American Securities, Head of US Economics. You know, I guess
part of the question is with all these things, and
this includes some of the commodity stuff, is when do
we start to see demands start to abate? If prices
go up for so many things so fast, when do
we start to say, okay, well, eventually buyers have to
pull back. Are we seeing any indication of that in
(18:15):
housing yet? It really doesn't appear that we're seeing that yet.
I think the biggest challenge for the housing market is
simply the lack of supply. As you just note it.
I mean, if you think about the months supply figures
in the existing home market, we're close to record lows.
The number of days on the market is unbelievably short
UM and UM builders are rare, and you are seeing
(18:37):
phenomenal building permits numbers, very strong home builder confidence. We're
trying to ram up construction and add to inventory UM
which helps to ease some of the price pressure and
allow for demand to continue. But now, I don't think
it's a pricing issue really, I think it's a lack
of supply. And you know, one of the reasons that
that I suggest that's the cases if you look at
some of the survey data, for example, the University of
(18:59):
Michigan Good Time to Buy Series UM for housing, you know,
people you're not seeing the reports that prices are too
high and there fortunately good time to buy because remember
prices are high, but we've had this influx of money
and from stimulus, so people have cash on hand and
interest rates are still very low. That helps supportability. It
(19:20):
is a bit of a tale of the haves and
the have nots, though, because if you're living by stimulus check,
you're probably not able to climb on that ladder right now,
particularly of supplies. Chip Thin, I'm aware of the inequality
within this debate, but talk to us about what's happening
in terms of when supply comes on top, because at
some point does the equilibrium come do we just remain
(19:41):
elevated levels to build us and lumber merchants keep the
prices elevated. Yeah. So, so the first point that you made,
the inequality story is extremely important, something that I think
often gets lost when we talk about these aggregate numbers
for the overall economy, and that's something that I think
we have to just always put an asterisk next to
when we're talking about the economy and the trends. In
(20:03):
terms of your second point about when does it all
normalize and doesn't normalize? I do think you know the
economics should work. Ultimately, the market should sort itself out
in the sense of you know, supply being able to
catch up. And I think for housing it's sexually fairly
straightforward because you are seeing builders ramp up construction. So
if you think about the level of building permits for
(20:25):
single family homes right now, and you can chopolate that forward,
we're gonna have a lot of homes hitting the market
the next six months or so. Um. Given what's in
the works right now. Now, there are obstacles. The obstacles
are being lumber prices are highs and they have to
try to, you know, figure out how to pass on
some of those prices. There's challenges around labor shortages. UM.
So there are there are, there are frictions. UM. But
(20:47):
I think the desire to accommodate the market and um,
you know, add to the supply is particularly for housing,
given the imageman there is, I think it's there and
and and ultimately that will cool home prices up. When
you think about home prices nationally, we're running in the
order about twelve percent year of the year. UM. By
the end of the year, we should be back down
to single digit home price appreciation and then Finally, we
(21:14):
talked about President Biden's American Family's Plan and what it
could mean for the labor market with Tina Chen, the
president and CEO of Times Up. Tina also served in
the Obama White House as the chief of staff to
former First Lady Michelle Obama. She's been a longtime advocate
of paid family leaves, saying we are in a caregiving crisis.
So we started by asking Tina per perception on what
(21:35):
chances the legislation had a pass. Well, it's actually a
smart proposal because what the President did was to phase
paid leave in right. If you look closely at it,
you know you don't get to twelve weeks for everyone
all at once. You phase it in over twelve years,
gradually talking you know, doing family ly for new parents
(21:58):
first um and then working your way across you know,
the workforce. So I think it's a really smart proposal
to get paid family leave on the table for the
first time in this country, you know, to the point
that you know, the presidents of the rest of the
world isn't waiting for us. We are one of only
two countries in the world Caroline, that doesn't have a
national paid lead policy. So guess what. Our companies who
(22:20):
want to give paid lead to their workers. They're paying
out of their pocket without any help. I'm doing it.
That puts small businesses that are disadvantaged, and it puts
our global companies that are disadvantaged to you know, companies
in other countries where there it is support for paid
family leave. You know, that's a really interesting point about
this idea of this essentially shifting some of the burden
off the corporate balance sheet, off the corporate payroll, onto
(22:44):
the government's books. When you talk to say companies, how
much of an appeal is that to them, this idea
of like let's just level the playing field like that. Well,
I think more and more companies are seeing it because
the interesting thing about the pandemic moment is everyone now
realized says that caregiving is a problem. Like CEOs have
had to work from home with their kids, you know,
(23:05):
home from school. You couldn't just go to work and
ignore what was happening on the home front anymore. And
so now I see businesses feeling the urgency as equally
as workers have been feeling it for generations. So there
is a desire right now for companies, and there are
a lot of companies who guess what they can do it.
A lot of the big players do it already. But
you know, we know that four out of five private
(23:25):
sector workers don't have access to paid lead now because
they're in smaller companies, they're in startups there in the
small businesses that can't afford to do this on their own.
And a national paid lead program is going to spread
that cost across everyone in the economy and it's going
to help and it pays off. Actually, it creates jobs,
it creates economic activity, and we know from the economic
(23:45):
analysis we've done it times up. It is stimulated to
the economy. Music and usual to the econom mecanolysis is
also done by the Treasury, and of course previous FED
chair now ahead of the Treasury, John Ann and herself
also taking to Twitter and forms of social media to
say your exact point, saying like, historically, childcare other social
(24:06):
programs to help families haven't been seen as crucial investments
on depending American growth and productivity. This is a failure
of perspective. Who have you still yet to convince, Tina,
who are the holdouts? Who look at Europe, who look
at the UK, look at every other country who's doing this,
and think, nah, well, here's the interesting thing, Carolyn, it's
(24:27):
not businesses, because we're hearing from business if they want
this and they need this, it's not actually, you know,
citizens who live in red states, because we know, we
did a survey you know at Times Up and we
found that not only do nine out of ten Democratic
voters support comprehensive caregiving solutions, get out of ten Republicans
supported too. So actual constituents in red states and red
(24:49):
districts support this. It's just their elected leaders in red
districts that seem not to be getting the message in Washington.
And one of the things that needs to happen over
the next few months is they need to hear that
message from their constituents because we know this is what
the vast majority of American people, regardless of what geography
and could they live in, need this. Should there be
(25:11):
some sort of benefit to say, families that homeschool, or
families were only one of the parent works, or other
situations in which uh, you know, sort of a federal
paid leave program for working parents or people who go
out to the workforce, uh may not may not help
them as much. Well, actually, the one of the great
things about the Biden proposals. He takes a conference approach,
(25:34):
so paid leave sits together and works together with things
like an early investment in early child care and universal
pre K. It works with a system of four billion
dollar investment in home care for the elderly. At some point,
if you're homeschooling your kids, you may have a parent
who needs home care services and you don't want to
send them to a nursing theme, especially after what we've
(25:56):
seen gone on the last year. You right now, you're
a waiting list for years. A four hundred billion dollar
investment and making affordable home and community based care available
to you. That's part of the package as well. That's
what we need. We need a system of caregiving that
works from when you're you know you have young children too,
when you yourself are elderly, and supports caregivers in between
(26:17):
and paid lead for workers. And that's it for what
you missed this week. If you like the show, make
sure to subscribe and rate us an Apple podcast or
wherever you listen to podcast. You can catch our show
every weekday from three thirty to five pm on Bloomberg
TV and from four to five pm on Twitter. Thanks
(26:38):
for listening and have a great week.
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