Welcome to the Bloomberg P and L Podcast.

I'm Pim Fox along with my co host Lisa Abramowitz.

Each day we bring you the most important, noteworthy, and useful interviews for you and your money, whether you at the grocery store or the trading floor.

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Now, I want to bring in Lynna Franco Director of Economic Indicators of the Conference Board, taking a look at the latest reading which is very positive.

US consumer confidence increased in November from a month earlier to the highest level since July two thousand and seven.

Lynn, this seems to be a screamingly good sign.

Is there anything I'm missing here?

Not at all.

I mean, we've had a good rise and consumer confidence.

It's pretty much across the board.

Consumers are telling us that current conditions have strengthened even more.

And coming on the heels of a good g d P report this morning, I think that's welcome news and expectations are that we're going to continue along this path.

Can you explain what the details are, because in looking at the GDP report that three two third quarter print, it seems as though, consumer spending is what's driving that move higher.

Absolutely, it is consumer spending that's driving the economy, and based on these confidence report that we have today, it looks like it's going to be the consumer that continues to drive the economy, especially when we take a look at the particular at the income question that we had.

We had some rather good news there which I think is going to support spending and we've seen signs of that already with the holiday numbers coming in.

You know, Lynn, one thing that I've been watching is the City Group's Economic Surprise Index, which has surged recently to the highest levels in well in a couple of months, which is still significant to me because there has been um a feeling that, you know, the economy will grow but as slower pace.

But the data is coming in better than people are expecting.

What are all of those economists missing, UM, I'm not sure that we're missing very much.

I think we're all just happy to see that the consumer remains rather resilient, UM.

And I think we also expect growth to continue along this path, which I think is very welcome news.

UM.

And you know, when we take a look at these figures that we got in today, it's it's more of more good news, and I think it's going to spell you know, good news for for fourth quarter growth, holiday sales, and for the economy as we head into you know.

Then, one of the other reports we got today had to do with home prices, and we're taking a look at the SNP Case Schiller core Logic National Index prices for US for homes in twenty US cities climbing five point one in September.

I'm just wondering how that works with increases in mortgage rates.

We've seen interest rates move just a little bit higher, they're still at historical lows, but how is that consistent with the higher cost of money.

Well, what we're seeing there obviously is you know that sort of impedes first time buyers or lower income folks from sort of stepping into the housing market.

On the flip side, the price appreciation helps consumers wealth.

So I think we're seeing sort of a dual effect here where not only have home prices gone up, we're seeing stock prices going up, and we're seeing earnings in terms of what people are taking home going up.

So I think across those fronts that's why we're seeing in our income question a more optimistic consumer um.

We also got GDP numbers that the U S economy expanded more than previously reported last quarter due to more household spending.

So, you know, does it seem like there has been enough momentum that's been gathering steam for long enough that that we can see these sort of upward surprises for a while and that the consumer will really support uh faster growth in the US.

Well, I think what we expect to see as consumers supporting growth, not necessarily much stronger growth.

So we're not anticipating growth of you know, three and a half percent or four percent, but we are going to at least anticipate that the consumer will continue to drive the economy as far as the future, because that's what you're you know, as an economist, we always want you to get that.

At Crystal Ball, at what what does the report today tell us about the rest of the quarter?

I think it tells us that it's going to be a consumer driven quarter.

We're seeing consumers telling us that the momentum that we've been seeing building up is continuing into the fourth quarter.

And this is shopping, this is retail or is this spending on a variety of items, a variety of items, but I think in terms of spending, it's a very favorable outlook that we're seeing coming out of today's report.

Happy Black Friday, Lynn Franco, Director of Economic Indicators at the conference board taking a look at some of the positive indications that we've been getting.

And it's not just Black Friday, I mean Cyber Monday.

My colleagues reported that more than one billion dollars of sales in one day.

We're made on mobile click, click and buy.

All right, now, let's talk about oil.

We've got an expert, and Marie Horden is live in Vienna for a Bloomberg executive producer and Marie, what can you tell us about OPEC Russia and the conflict that exists inside this oil exporting consortium.

Over the last hour or two, actually Bloomberg had an amazing scoop and we learned that Saudi Arabia said to be ready to walk out of all talks to subject doing a deal without any compromise by Iran and a rock, So they're really taking a hard line here.

Meanwhile, the Iranian oil minister arrived in the last hour as well.

Um he is saying that they will not cut production.

You know, this verbally came from his mouth earlier this morning um uh, late in New York time.

Um He the Oil Ministry of Iran tweeted that they will not have a cap and then before he came to Vienny spoke on STATV saying it's the will of the people to continue pumping, to go back to pre sanctioned level um And then when he arrived here he is not budging.

They say they will not co production, and the Saudi say without them, they're not doing a deal.

So it's looking to be quite a sticking point here.

Um.

One analyst described it as a Greek tragedy, but he said maybe sometime for happy ending.

But they are really coming down to the wire.

Is there any chance that if they do not come to a resolution, that there is another time in the near future where they can come together and try to resolve some of the differences.

Well, if you if you look at the past year in terms of an unusual opec here in April this happened where talks collapsed in Dohan and then it took them in the four or five six months UH to reach an agreement.

Is talks collapse here.

Anything can happen.

They can decide to meet next week, but likely what would happened is um, they'll see where oil prices landed.

We see what some analysts are saying in the twenties in January.

Uh, you better believe o pack is definitely gonna start talking up in each other to try to get the price back up.

And Marie just quickly.

Iran and Saudi Arabia are they at odds over this politically or is this because Iran just needs the money?

Well, no, for the Iranians, it is definitely political.

They've said for years they've had sanctioned and Saudi has been able to pump.

You know, for Saudi for the last past two years, it's been about market share, pump that will as much as they can.

Um.

So this is political baggage.

I mean what also, what we're hearing is being discussed is about seven percent of oil that the Saudis wants, that Theorians wanted Staudi don't.

So the rain Thereans want to cut about want to pump at four million bartars a day.

Socialities are said to offer something like three point seven in change.

So if you think about it, it's not a ton of barrel, but they are literally fighting over every barrel of oil and this really comes down to politics.

And Marie Hordern live in Vienna talking about OPEC talks.

UH, and Marie Hordern of Bloomberg News, thank you so much for being with us for a look at what the full implications are of this opaque discussion.

I want to go to Rich Pontillo, senior director at NASDAC specializing in utility oil and gas sectors.

Rich, how big of a casualty would it be for not for OPEC if they were not to come to resolution here?

Yeah, like morning Lisa and him, I think it would be fairly significant, given what's your inspired over the last few months.

UH.

If you go back to September, OPEC members held informal meetings in LG years and the outcome there was that they were able to draw a consensus that they would agree at least on a production on a on a production cap.

So I think that would certainly contradict directly, UH, in terms of if they if they cannot reach a resolution tomorrow, I think it will only further cement almost the end of any knee meaningful influence that OPEC has going forward.

On the global oil markets again, given its lack of ability to coalesceer consensus again, particularly especially after after the the the informal agreement that was reached in late September.

Well, we're seeing the price of oil decline.

It's down nearly four percent right now.

Rich the combination of politics and crude oil.

How does that play out in the in the United States?

I was looking at a Golden Sacks report today saying that they say prices to be moderately higher next year.

They talk about the structural shift uh in the cost curve of oil?

What does that?

What does that mean?

How did they get to that conclusion?

Yeah, it's a good point them And actually, uh myself, I was reading that Golden Sacks note and just a a side note that that report cited there's implied volatility in the near term options market of a roughly six dollar price swing in either direction on Brent oil futures UH in response to tomorrow's meetings.

So basically there is a lot hinging on this decision tomorrow UH, and we're going to see a very violent binary effect once that outcome has made public.

UM In terms of next year, again, I I think they're obviously trying to cover both sides of any potential decision.

Um, if you look at what has transpired in the US over the last twelve to twenty four months, you've seen domestic producers become much more put here.

I'm sorry, we're gonna have to cut it.

Their senior advisory solutions at NASDAC.

Thank you so much for joining us.

This is Bloomberg, all right.

Joining us now is Chris Aileman.

He is the manager chief investment officer of calstar as, the nation's a second largest public pension fund assets totaling about a hundred and nine d two billion dollars as of the end of October.

Their investment philosophy long term patient capital buying, a long term net cash flows and capital gain potential at a reasonable price.

Chris Saleman, thank you for being with us.

It's always a pleasure of my favorite radio show.

Well, we love having you, and thank you.

Reason.

I love reasonable price.

I always love it when reasonable and reasonable is intuitive but also analytical.

How do you determine reasonable price?

Um?

You have to look at historical norms, and you really have to focus in on things like price earnings ratios or cap rates in real estate and look at the price you're paying relative to where it's been saved the last thirty years, and I think that gives you a guide of whether you're paying up for something or whether it's reasonably priced.

You're not going to find investments at a bargain.

Very often people hate them if they're at a bargain.

So but a lot of it is what you guys are just talking about.

It's psychology, um, and understanding how investors think they tend to chase markets and run them up to extremes um.

Chris.

I wanted to ask you there was a story that I was reading last night about Cowper is the biggest public US pension in the country with almost three billion dollars of assets, and how they're actively debating whether or not to substantially lower their assumed rate of return going forward from about seven percent or a little more than seven percent to six percent, which is a which is a massive move uh in in in pension land.

Can you talk a little bit about what your current assumed rate of return is and what's appropriate over the next three decades or so.

Ours is seven and a half UM, and what you're seeing across the country is pension plans, reevaluating that they're getting pressure from their actuaries, their investment consultants to reassess what they think is as you said, over a thirty year time period.

So it's not just going to be the one year return or even the five year return.

And when I asked people to step back and say, well, wait a minute, what's a realistic return over the next thirty years, that's where you come into somewhere in the seven.

We used to say it was as much as eight.

But demographically the US is maturing, and so you're gonna expect a little bit less growth out of it.

But it's been a very active debate.

Certainly cal Pers has been the most vocal about it.

Our board is evaluating that all the time.

It's a constant debate.

But again, since it's a thirty year number, you're not going to change it overnight.

You're going to really just try and look at what's historically happened.

Let's talk about what the consequences would be for lowering the assumed rate of return that much.

How much more would taxpayers, uh, you know, workers, how much more would they have to contribute to these plans?

Well, you hit on the head.

There are only two inputs to retirement plan, the contributions, and that goes whether it's a defined benefit plan in a public setting or your own four oh one K.

The two inputs are your contribution rate and your investment return.

So you want a reasonable investment return, and that's what you're trying to decide, is fact to that question of what's reasonable to assume for the next thirty years.

The minute you lower or that assumption, it definitely goes to the contribution rates.

And in many cases that's the employer first, but then also in some cases the employee, and that's what it's always a big debate, But for for California, by and large, it's going to mostly hit the employer on that side of it.

I'm glad you used the word debate, but I'm going to just shift it a little bit, because there is a lack of debate when it comes to ideas that people do not like.

For example, let's say you have a fund manager who happens to sit on the board of an institute that has a position that is contrary to let's say a union leader whose members are also your customers, your clients.

Is this intolerance that seems to infect not only the political discourse but also the social discourse.

Finding ideas that you only agree with.

Is that something you think is here to stay or as a manager, a steward of capital?

Uh?

Do you find it that is just making things ridiculous sleep difficult?

I mean, you're hiring people to make you money, not to give them your political views.

Exactly.

Our job is to find the best money managers we can.

Uh.

And I've often said I don't care whether I like a money manager or dislike them.

I don't care whether they're they're male or female, whether they're purple, they're green, they're from Mars.

They just have to make us money, and that's what we want to focus on.

But you're right, what's happened in our country and obviously around the world is society has gotten more fragmented, and therefore everything is more critical.

There are fewer people in the middle.

So there has been a big, big debate and a big discussion with us about factoring those kinds of considerations in when we hire money managers of not just whether they make us money and what's their philosophy, but what are they doing, what's the culture of the firm, what is the firm doing, what are the principles doing?

And that's something that we're really trying to figure out.

Okay, how do we factor that in?

Frankly, my biggest concern has been less that, but more sustainable investing.

Are they thinking long term and their investment philosophy.

Are they thinking long term personally?

Because I want them to incorporate things like sustainability into their decision model, not just what are they doing politically this year or next.

They've got to do what's right for their clients.

Were the source of their capital, so you have to pay attention to that.

And that's the best way I can describe it is they have to be at least aware of whether their actions are helping their clients or making their life miserable.

Money managers don't want to get a phone call from me saying you are giving me a headache and here's the problem, right that you've got a letter or you've got an email from someone a union leader.

Perhaps it says I don't like this money manager that you hired because they sit on the board of something that I disagree with.

Correct and and what they'd rather.

They don't want that phone call at all.

For me.

But what they'd rather know is I'm unhappy with their investment performance rather than and And the problem is you're getting into First Amendment rights their own individual activities.

UM, how far do we go before we question, you know, my act?

So I like to ride my bike?

Is that a good thing or a bad thing?

Good thing?

I objectively say that it's a good thing for you to ride a bike as a fellow bike rider.

UM.

I want to talk a little bit about when you're talking about money managers, a shift away from hedge funds um and even among some pensions to more index strategies.

Have you also seen a sort of similar shift among your own funds.

We've been long index funds and overweight index funds for almost thirty years, so we very much, we very much believe in in index funds and have doubted the value of active management.

And I think when you look back at two thousand and sixteen, you'll say it was a year where the equity market traded in a channel.

It should have helped active managers.

They should have been able to outperform, Yet they won't.

And to me, that's just another year of compounding evidence that active management is really losing its ability to operate.

And I think investors really have to question the price that they're paying, because that's where it gets killed.

The price is so high in active management.

They've got a question.

It's not worth the money people, It's not worth the cost of active management.

People should make their retirement plans in passive investments.

Kathleen Sebelius is the former head of Health and Human Services, former governor of Kansas joining US now.

Governor Sebelius, thank you very much for being with us.

Glad to be with you him now.

Just wondering if you could give us your impression and your thoughts on the selection of Tom Price as the new head of the Department of Health and Human Services by President elector Donald Trump.

He is a representative Republican representative from Georgia.

Well, I had the opportunity to work with Dr Price Um during my tenure as Secretary.

He served the Ways and Means Committee, which has a lot of jurisdiction over JHS.

So I would start by saying he um he is a health care provider, and I think that's helpful in the Department of Health and Human Services to have that broad personal background.

He also Um has served on a key committee with j g S jurisdictions.

So he will come to the post assuming he's confirmed, with again an array of experience that that will be very helpful.

I think JHS has a huge footprint UM covering everything from you know ni H kind of gold standard on research throughout the world, CDC with Public Health which is in Georgia.

Dr Prices home area UM, you know CMS that covers almost one out of every three Americans is involved in Medicare or Medicaid.

So there's a very substantial UH base of the leven operating agencies, and I think it's really helpful to have someone who has familiarity with a lot of the programs.

Right.

Dr Price is an orthopedic surgeon from Georgia.

It's just mentioned UM and he's also been a vocal critic of the Affordable Care Act or Obama Care UM and was working to UH disabled parts of it.

Based on your experience working with him, Governor Sapilius, what's your sense on what aspects of the Affordable Care Act he's most critical of and will try to disable first?

Well, I think you'll have to let um congresson Price speak for himself in that regard.

I do UM know that everyone, including Dr Price, has been UM skeptical of the calls of health insurance provided in the marketplace.

And you know, frankly, I think it would be wonderful if UH there is a plan to fully ensure the individuals the twenty million people who now have insurance through various programs and UM and UM lower the costs.

I think that would be a widely applauded move.

UM.

I do know that he has not voiced as much enthusiasm over the pre existing condition limitation, making sure insurance companies actually don't lock out our price out people with some kind of pre existing condition.

In fact, he has in the past supported high risk pools as an alternative, and I think that is potentially very very dangerous for a lot of Americans who have serious health conditions, because a high risk pool, by its very nature, is not insurance coverage and is bound to be hugely expensive.

So I think UM around the goal that everyone deserves a right to health insurance, everyone should have access to best care at the lowest possible cost, I think there'll be a lot of bipartisan support for ideas he may bring to the table.

Governor I wonder if you could speak a little bit about your future plans.

Your two time governor of the state of Kansas, obviously serving in the Obama administration, but also you were the former chair of the Democratic Governors Association.

Do you have any plans to participate in actively participate in the ongoing efforts of the Democrat Party to make their voice heard.

Well.

I certainly will be engaged and involved with individuals and groups who are eager to UM save the health program that has made such a difference in twenty million people's lives.

Does it have to look exactly the same now?

UM?

But you'll continue to speak out on issues like pro choice, which you're a big advocate of.

Absolutely, I think women's health and women's choices and UM making sure that Americans don't go back to the point where insurance companies get to pick and choose who gets coverage and who doesn't.

UH is progress that I would hate to see unraveled.

And I think that there is a lot of support for UM making sure that we don't return to the days where only people who could be medically underwritten by insurance companies and allowed into a insurance plan if they bought individual coverage would be covered.

So yes, I feel very strongly we've made huge progress in women's health, which HUCH progress and individuals health who didn't have affordable coverage in their workplace, and I will very much continue to be engaged and involved in those efforts.

I want to thank you very much for spending time with us.

Kathy and Sibelius is a former two term governor of the state of Kansas and former Cabinet Secretary of Health and Human Services.

Thanks for listening to the Bloomberg P and L podcast.

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