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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We

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Speaker 1: hear a lot about the U s stock market and

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Speaker 1: whether it's overvalued, and we hear a lot of people saying, well,

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Speaker 1: you know, honestly, there is momentum underneath the US growth

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Speaker 1: rate and we are going to see better earnings continue.

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Speaker 1: But here to dash that two bits is Ernesto Ramos,

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Speaker 1: head of Equities at BEMO Global Asset Management, which overseas

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Speaker 1: two thirty three billion dollars and new joints. Joins me

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Speaker 1: here in the Bloomberg eleven three oh studios. I was

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Speaker 1: looking at your recent note and you basically said, the

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Speaker 1: US economy has peaked. We've seen it. It's as good

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Speaker 1: as it's going to get. Well, yes, and I think

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Speaker 1: it can continue at this relatively modest space for a

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Speaker 1: little bit, but certainly not going to get to the

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Speaker 1: three percent growth that that the administration has told us

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Speaker 1: we're going to get, and there's several factors behind it.

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Speaker 1: But if you just look at the data, car sales

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Speaker 1: are slowing down. The yield curve is telling you something.

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Speaker 1: It's it's flattened quite a bit, uh, And we just

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Speaker 1: don't see where combining the productivity that we have in

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Speaker 1: the current economy, which is about one and a half

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Speaker 1: percent plus zero point three percent of expansion of the

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Speaker 1: labor force, you're gonna get to three. So we think

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Speaker 1: we we were gonna stay around these levels and maybe

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Speaker 1: start declining from here, and the Fed might just uh

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Speaker 1: compound the problem a little bit more by by raising

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Speaker 1: interest rate. So we just don't see this three percent scenario.

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Speaker 1: We see. We see us stuck here and maybe declining

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Speaker 1: from here going forward. Do you think that current valuations

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Speaker 1: in equities right now are baking in a growth rate

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Speaker 1: that's higher than we currently are seeing and that people

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Speaker 1: are going to have to ratchet back their expectations and

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Speaker 1: possibly suffer some losses as people right size their expectations. Well,

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Speaker 1: the economic growth rate is not what drives the stock market.

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Speaker 1: What drives the stock market is earnings growth, and there

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Speaker 1: we saw a pretty strong number. Uh, the last print

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Speaker 1: was about year on your growth, and we still see

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Speaker 1: potential for that to continue in the double digits, maybe

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Speaker 1: ten or eleven percent looking out a year forward. So

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Speaker 1: that doesn't mean the stock market can't continue to go

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Speaker 1: to move higher. Um, the risk there is the valuation,

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Speaker 1: as you mentioned, because the valuations are a little bit stretched,

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Speaker 1: So disappointment in that earnings growth threat could lead to

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Speaker 1: a pullback. And given the current economic scenario, we think

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Speaker 1: there's there's a potential chance for a pullback. Not to

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Speaker 1: mention all the political and geopolitical risk associated with the

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Speaker 1: current Trump administration that are sometimes blowing up some some

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Speaker 1: some headwinds into the market that we saw last Wednesday

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Speaker 1: when the announcement came out that there was a special

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Speaker 1: Council appointment, so on and so forth. So so we

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Speaker 1: see enough risks out there too to make us a

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Speaker 1: little bit cautious. So how do you position to be cautious?

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Speaker 1: What does that mean? Is it taking all your money

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Speaker 1: and putting it in cash and sitting on it. No,

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Speaker 1: that's not what we would do, right all right? What

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Speaker 1: would you do? So we we still want to remain

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Speaker 1: uh exposed to to the upside inequities, but be defensively

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Speaker 1: positioned for potential dry down. And that's why the BEMO,

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Speaker 1: the Globalastic Management Low Volatility Fund is right now one

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Speaker 1: of the preferred choices to do this because on the

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Speaker 1: average we offer about the upside participation of the market,

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Speaker 1: but in a downturn we only deliver about half of

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Speaker 1: the of the negative return. So it's a good, very

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Speaker 1: good trade off seventy versus fifty, So you participate enough

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Speaker 1: that you do get over the long term a better return. So, ernesto,

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Speaker 1: how is it marketing a low volatility fund at a

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Speaker 1: time when volatility is the lowest that it possibly has

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Speaker 1: been in our lifetimes depending on what measure you look at,

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Speaker 1: And that's precisely the right time to buy protection against

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Speaker 1: volatility spiking. But it is not easy yet, That's what

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Speaker 1: I was gonna say. I imagine you get a lot

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Speaker 1: of people looking at with one eyebrow raised sort of.

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Speaker 1: You know, really, what are you trying to sell me

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Speaker 1: right now? Well, you buy fire insurance when your house

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Speaker 1: is not on fire, and this is the same reason

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Speaker 1: you buy low volatility when volatility is low. But if

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Speaker 1: there's more chances of its spiking here than than going

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Speaker 1: even further lower. Although do you think that some of

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Speaker 1: the gauges that are traditionally used, namely the vix, are

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Speaker 1: sort of imperfect ways to measure volatility and that you

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Speaker 1: won't be able to rely on the same types of

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Speaker 1: instruments going forward to really reflect some of the jitters

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Speaker 1: that that people are feeling. Yeah, I've heard a little

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Speaker 1: bit about what you're talking about. I haven't dug in

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Speaker 1: deep enough to understand. They say that with a new

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Speaker 1: high frequency trading and all of the new ways people

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Speaker 1: are approaching the market, that maybe low altilities here to stay. Um,

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Speaker 1: I've yet to get my arms around all those notions.

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Speaker 1: But every time you've seen altility get to the levels

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Speaker 1: like this in the past, the odds are that's going

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Speaker 1: to rebound from here. And if you look at the

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Speaker 1: market being near the top and volatility at all time low,

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Speaker 1: all time lows, that is actually a bit of a

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Speaker 1: warning signal that things can actually go south from here

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Speaker 1: real quick. How do you hedge against volatility? Well, we

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Speaker 1: basically look at every stock in the universe in terms

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Speaker 1: of its risk, and we're looking to buy companies that

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Speaker 1: have lower risk characteristics and at the same time have

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Speaker 1: strong return potential. Companies like the Apple, for example, believe

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Speaker 1: it or not, it's a lower rist stock. Companies like

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Speaker 1: American Express, which is also lower stock, companies like Darden,

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Speaker 1: or companies like Backs are all of these are lower stocks,

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Speaker 1: but yet with attractive fundamentals and very importantly attractively priced.

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Speaker 1: Because one of the risk right now in low altility,

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Speaker 1: especially the passive instruments, is there have been priced out

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Speaker 1: of sight. But we are very conscious of what we

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Speaker 1: pay for our lower stocks, so we're actually trading our

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Speaker 1: portfolio trades at a discount not only to the low

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Speaker 1: autility passive instruments, but the market itself. So we think

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Speaker 1: we're protecting ourselves, protecting ourselves and our clients from hidden

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Speaker 1: the hidden risk of high prices or high valuations in

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Speaker 1: low ball stocks. Ernesta Almos thank you so much for

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Speaker 1: joining us or Nesta Ralmos as head of Equities for

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Speaker 1: BEMO Global Asset Management, which overseas two three billion dollars

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Speaker 1: of assets, and he has the thankless job of going

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Speaker 1: out and convincing people why they should be at all

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Speaker 1: fearful of volatility at a time when everybody seems to

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Speaker 1: be in a complacent UH days. Thank you so much

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Speaker 1: for joining us. China was downgraded by Moody's overnight for

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Speaker 1: the first time since Line and Moody's Investor Service cited

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Speaker 1: China's huge build up of debt as the main risk

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Speaker 1: factor that the country would have a hard time both

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Speaker 1: tamping down on leverage and meeting its obligations without running

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Speaker 1: into some sort of problem, possibly slowing growth and meaning

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Speaker 1: that their obligations would be that much more onerous. To

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Speaker 1: understand what the challenges are for China and how significant

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Speaker 1: UH this ratings downgrade really is, I want to bring

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Speaker 1: in Patrick Shavannick. He's chief strategist at Silver Crest Asset

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Speaker 1: Management based in New York City. Patrick, thank you so

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Speaker 1: much for joining us. I'd love to first get your

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Speaker 1: take on why Moody's thought it would be necessary to

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Speaker 1: downgrade China. Now, this is a surprise move. It was

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Speaker 1: not something that was widely anticipated. Well, it's a shot

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Speaker 1: across the bow. I think that that reflects a host

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Speaker 1: of concerns that amounting for years about China's reliance on

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Speaker 1: ever expanding credit to drive growth and and the mounting

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Speaker 1: debt and that that's created and so it's you know that,

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Speaker 1: it's it's It may be a surprise in the sense

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Speaker 1: that they didn't signal in an advance, but it's no

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Speaker 1: surprise to people who have been watching China that this

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Speaker 1: is a concern, right, And it's interesting to me that

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Speaker 1: there was not very much reaction. Frankly, and markets certainly

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Speaker 1: not in China. You can see that the tenure yield

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Speaker 1: actually ended the day down uh a touch, So people

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Speaker 1: don't seem to be that thrown off by the Moody's warning.

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Speaker 1: One argument is that a lot of the debt is

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Speaker 1: held by banks or by the government. In other words,

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Speaker 1: it would make it easier to bail out. It's not

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Speaker 1: necessarily the consumer getting over leveraged. You buy that argument, Well,

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Speaker 1: that's true in a sense, and it's also true that

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Speaker 1: there's not a lot of exposure from outside of China

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Speaker 1: the Chinese debt um so, so it's it's entirely true

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Speaker 1: that that within a closed financial system, a lot of

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Speaker 1: debt can be um structured in all kinds of ways,

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Speaker 1: and and uh, the kind of default risk that we

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Speaker 1: might see in a market economy is less. But that's

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Speaker 1: actually part of the problem, and part of the problem

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Speaker 1: is just the opacity of this and the fact that

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Speaker 1: that you've got debt that continues amount that even if

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Speaker 1: it's not recognized, even if the losses um are not transparent,

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Speaker 1: they become a drag on the economy and a drag

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Speaker 1: on growth, and and money keeps on flowing in because

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Speaker 1: people assume that someone well else will pick up the tab. So,

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Speaker 1: as an investor, how do you invest around China's predicament

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Speaker 1: the sort of balancing act that is quite dangerous between

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Speaker 1: both trying to prevent excess leverage, uh and not slowing

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Speaker 1: down the economy so much so as to make the

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Speaker 1: incredible debtload insurmountable. Well, we've been very skeptical of China's

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Speaker 1: growth model for some time. Um. You know, I before

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Speaker 1: my current job, I was a professor at Chingwai University,

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Speaker 1: and you know, was one of the people ten years

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Speaker 1: ago highlighting the danger of China's debt explosion. Uh. You

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Speaker 1: know that said I think for the rest of the

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Speaker 1: global economy, a slowdown in in the kind of growth

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Speaker 1: that we've seen in China. Uh, the investment intensive growth

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Speaker 1: might actually be a good thing for the rest of

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Speaker 1: the global economy. There's been too much over investment and

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Speaker 1: too much over capacity. So uh, to the extent that

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Speaker 1: that you know that they try to rain in debt,

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Speaker 1: which unfortunately they haven't. Uh, you know that that would

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Speaker 1: be a good thing for the global economy and not

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Speaker 1: a bad thing. Um, could you tease that out a

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Speaker 1: little bit? I mean, because I understand what you're saying

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Speaker 1: from the perspective of perhaps, uh, you know, Chinese money,

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Speaker 1: for example, flowing into the Toronto housing market and inflating

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Speaker 1: it to an unsustainable level. But when it comes to

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Speaker 1: other economies in the region near China, I mean, hasn't

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Speaker 1: the incredible growth in China really bolstered all of emerging markets?

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Speaker 1: It depends on where you stand really to the Chinese economy.

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Speaker 1: If you've been feeding China's investment or over investment boom,

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Speaker 1: if you've been selling commodities for example, Uh, if you

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Speaker 1: are you know, uh, if you're if you're feeding it's

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Speaker 1: it's insatiable demand for inputs, then yes, uh, you're hurt

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Speaker 1: by china slowdown, but you know it's China's overcapacity has

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Speaker 1: also been a great exporter of deflation globally, and so

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Speaker 1: you know, we we talk about the idea of secular

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Speaker 1: stagnation throughout other economies. And where does it come from. Well,

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Speaker 1: a lot of it comes from the imbalances that are

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Speaker 1: generated by China's over investment and it's unwillingness to consume

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Speaker 1: commensurate with what it produces. So so rebalancing of China's economy,

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Speaker 1: even if it means slower growth from China, is actually

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Speaker 1: a positive. So in other words, you're saying that potentially

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Speaker 1: China slowing down could actually help inflation picked up? Am I?

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Speaker 1: Am I taking one step too many here? It's you

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Speaker 1: know what the problem is that we assume that all

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Speaker 1: growth is good growth, and no matter where it is,

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Speaker 1: no matter what it consists of globally, and in fact,

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Speaker 1: a lot of the growth that's taken place in China

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Speaker 1: that's been fueled by all this credit expansion is not

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Speaker 1: good for either China or for the rest of the world.

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Speaker 1: So going forward, what are you looking for to make

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Speaker 1: sure that China is sort of managing this balancing act

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Speaker 1: in a way that isn't going to be messy every

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Speaker 1: What everyone's been looking for is reform, which China four

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Speaker 1: years ago announced was urgent and and would move forward.

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Speaker 1: Uh and in fact we've seen very little to show

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Speaker 1: for it. And and in fact it's interesting because the

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Speaker 1: Chinese response to move the Moody's announcement was well, they're

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Speaker 1: ignoring all the reforms that were undertaking. No. In fact,

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Speaker 1: Moody's move, I think is a reflection of growing frustration

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Speaker 1: by people outside of China watching China's promises about reform

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Speaker 1: and the unwillingness or inability to deliver on them. What

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Speaker 1: kind of reforms. Unfortunately, it's a whole host of reforms,

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Speaker 1: including all the financial sector, allowing for companies that are

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Speaker 1: losing money chronically to fail, allowing for a readjustment of

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Speaker 1: asset markets. We saw a failure to allow that kind

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Speaker 1: of adjustment in the stock market a few years ago

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Speaker 1: in China where they intervene heavily. Uh. There's just a

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Speaker 1: whole host of balances that this Chinese themselves have recognized,

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Speaker 1: UH need a correction, and yet when push comes to shove,

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Speaker 1: they're they're not willing to allow those corrections to take place.

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Speaker 1: Patrick Shavannick, thank you so much for joining us truly

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Speaker 1: truly helpful insight into China's path forward in light of

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Speaker 1: the Moody's downgrade and just in general of how much

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Speaker 1: UH they've expanded their debtload as they've tried to prop

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Speaker 1: up their economic growth rate. Patrick Shavannick is Managing director

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Speaker 1: and chief Strategist at Silver Crust Asset Management in New York.

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Speaker 1: We want to take a moment to let you know

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Speaker 1: about something new from Bloomberg. Starting right now, you can

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Speaker 1: It's pretty amazing. Download our I O s app or

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Speaker 1: try it out. Learn more at Bloomberg dot com slash lens.

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Speaker 1: We have heard a lot about billionaire Carl Icon being

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Speaker 1: an advisor to President Trump, giving him hints on how

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Speaker 1: to change regulations, and it's already coming clear UH that

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Speaker 1: he personally in his empire of companies UH have benefited

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Speaker 1: quite a bit from his influence over President Trump. We're

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Speaker 1: here to explain more. Is Mario Parker, who is an

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Speaker 1: agricultural reporter for bloom Brook News and comes to us

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Speaker 1: from our Chicago bureau. Mario, thank you so much for

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Speaker 1: joining us. UH. First, can you just explain the situation

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Speaker 1: with one company, in particular, CVR Energy, which has already

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Speaker 1: benefited quite substantially from carl Icon's influence over President Trump.

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Speaker 1: Can you explain how sure, absolutely well, M carl Icon

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Speaker 1: owns a majority stake in CVR Energy. It's a it's

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Speaker 1: an oil refiner, and under George Bush um energy law

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Speaker 1: UM most people know it as the Ethanol Mandate UM,

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Speaker 1: oil refiners are required to set aside a percentage of

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Speaker 1: their production to renewable fuels. Now, if you're not able

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Speaker 1: to do that, if you're a refiner and you don't have,

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Speaker 1: say the infrastructure to do that, you have to go

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Speaker 1: on the markets. It's almost like captain trade. You go

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Speaker 1: on the open market and then you purchase something called

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Speaker 1: renewable identification numbers or credits. Right. Well, Carl Liken, this

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Speaker 1: has been costing his business, CVR Energy, upwards of two

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Speaker 1: hundred million dollars, and he's UH fighting UM and advocating

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Speaker 1: a change for the Trump administration to um tweak who's

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Speaker 1: responsible for adhering to this mandate or showing compliance with

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Speaker 1: the mandate. He wants it to be moved from refiners

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Speaker 1: like himself, uh further downstream to closer to the customer,

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Speaker 1: to those that actually have the infrastructure and blend renewable

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Speaker 1: fuels and um. Right now, the market seems to be

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Speaker 1: betting that that the that that icon has a pretty

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Speaker 1: good shot to get his getting his way if if

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Speaker 1: if costs and prices for the credits hard to be

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Speaker 1: any type of indication and Mario, I mean just from

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Speaker 1: an outsider's perspective, this might seem like a pretty small techntality.

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Speaker 1: But just to sort of give a sense of the

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Speaker 1: scope of this potential change in money terms, UH, so

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Speaker 1: far CVR Energy has conceivably saved about sixty million dollars

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Speaker 1: based on the decline in this over the counter market

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Speaker 1: for R and I are basically, uh, these certificates you

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Speaker 1: can get to replace having to actually do the blending

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Speaker 1: of the ethanol in your fuel yourself, right right exactly

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Speaker 1: so just um, just from the fourth quarter of the

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Speaker 1: first quarter of this uh this year, it's been a

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Speaker 1: sixty million dollar swing. It's gone from they spent CBR

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Speaker 1: spent about fifty three point five million dollars in the

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Speaker 1: fourth quarter and uh they saved about where they saw

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Speaker 1: a benefit of about six point four million in the

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Speaker 1: first quarter. And this has been why what's interesting is

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Speaker 1: that it's been widespread as well, So it's not just

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Speaker 1: CVR that's benefited, but also it's competitors as a result

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Speaker 1: of this that we're talking to Valleros, the Delta Airlines, etcetera. Well,

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Speaker 1: you know, you have to think that a lot of companies,

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Speaker 1: there's so much money at stake here that there's going

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Speaker 1: to be a lot of lobbying on all sides. How

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Speaker 1: much power does President Trump and his immediate surrounding officials

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Speaker 1: have to unilaterally change this obligation and sort of kick

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Speaker 1: the requirement downstream a little bit in order to basically

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Speaker 1: effectively reducing the cost of these r and I sure so, Well,

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Speaker 1: it's a little unclear. They do have the power to

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Speaker 1: make that change, and as a matter of fact, the

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Speaker 1: e p A is considering it right now. Public comments

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Speaker 1: public comment period on it ended u in late February,

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Speaker 1: so conceivably we should get some type of verdict yea

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Speaker 1: or nay uh sometime this year, so they have the

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Speaker 1: authority to do it. But of course there's so many,

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Speaker 1: so much money at stakes, so many different parties, that

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Speaker 1: it will ultimately lead to um some some legal confrontation

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Speaker 1: as well. I was gonna say, I mean, stepping back

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Speaker 1: a little bit outside of the nitty gritty of this

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Speaker 1: specific issue. This has to raise some questions about carl

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Speaker 1: Icon's influence over the president, given the fact that he

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Speaker 1: is an unpaid advisor who hasn't been vetted by Congress,

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Speaker 1: who hasn't had to comply with you know, sort of

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Speaker 1: uh conflict of interest protocol, and he is directly benefiting

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Speaker 1: I mean from what he's what he's advocating. What what

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Speaker 1: do people say about that when you talk to that sure,

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Speaker 1: sure talking to just analysts and and and researchers and

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Speaker 1: those that kind of study ethics, I mean, they say

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Speaker 1: that this is almost a clear cut issue of conflict

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Speaker 1: of interest, and it's more information should be disclosed because

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Speaker 1: you know, the sense is that, hey, this person has

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Speaker 1: the president's ear, this person is advocating for this change,

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Speaker 1: and this would uh, this is helping this person financially already,

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Speaker 1: but with this actually itself lead to some kind of

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Speaker 1: legal challenge or is that a harder, harder kind of

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Speaker 1: path to go. No, No, it probably will. I mean,

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Speaker 1: before the magnitude of UH of these games were even disclosed, UH,

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Speaker 1: Senator Elizabeth Warren and other Democratic lawmakers sent a letter

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Speaker 1: to UH federal regulators asking for more information into this issue,

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Speaker 1: how this works, etcetera. And then, of course, on the

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Speaker 1: other side, UM, those opposing this change, from those in

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Speaker 1: the bio fuel industry all the way to UM UH

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Speaker 1: some of the mom and popping convenience stores, etcetera. I mean,

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Speaker 1: it's it's it's likely to be headed to a legal

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Speaker 1: confrontation if this is indeed moved. Mario Parker, thank you

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Speaker 1: so much for joining us. Mario Parker is an agriculture

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Speaker 1: culture reporter for Bloomberg News, coming to us from Chicago.

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Speaker 1: I am lucky because I have Joel Stern in the

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Speaker 1: Bloomberg eleven three our studios with me. He is chairman

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Speaker 1: and chief executive officer of Stern Value Management in New York. Also,

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Speaker 1: he is a visiting professor at five that's right, five

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Speaker 1: different business schools, including the University of Chicago, my alma mater,

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Speaker 1: So I wanted to start with you, uh, to talk

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Speaker 1: a little bit about the complacency that we see in

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Speaker 1: the markets, not generally with a lack of volatility, but

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Speaker 1: with respect to a FED policy error. It seems like

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Speaker 1: when you talk to people, they are they have so

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Speaker 1: much faith in the FED that they're going to move

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Speaker 1: slowly at a reserved pace that everything will just sort

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Speaker 1: of work out and it won't really disrupt markets. What

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Speaker 1: do you think they're getting wrong? Do you think that

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Speaker 1: they're getting anything wrong? Where could the FED surprise them? Well,

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Speaker 1: first of all, if the FED doesn't do much, if

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Speaker 1: a's stable about their policy, that's a good policy because

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Speaker 1: we want the economy and the private sector to do

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Speaker 1: its miracles. And the problem off takes place is when

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Speaker 1: the FED starts to either increase the money supply rapidly

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Speaker 1: or cut back on the money supply rapidly. And if

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Speaker 1: they do either of those two things, we have very

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Speaker 1: bad outcomes. As you know, there has been a lot

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Speaker 1: of liquidity created during the economic meltdown of oh seven,

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Speaker 1: O eight, o nine, And you know, the FED has

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Speaker 1: a balance sheet that it looks like it is as

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Speaker 1: it is exploded, right, and the question is what if

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Speaker 1: they start to, uh, try to pull that stuff in

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Speaker 1: nothing nothing that will not be harmful. Why it has

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Speaker 1: never been let out? You see what happened was the

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Speaker 1: FED has essentially kept it to itself withoutout affecting the economy.

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Speaker 1: Keep in mind, lots of monetorists over the last five

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Speaker 1: years kept saying, oh my gosh, are we going to

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Speaker 1: have inflation? Well, you would have had inflation if the

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Speaker 1: FED had let the bank reserves go into money supply

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Speaker 1: create excess money, and that would have created inflation and

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Speaker 1: interest rates today on government could have been so. In

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Speaker 1: other words, just just reading between what you're saying otherwids,

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Speaker 1: it seems like you think that investors are right to

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Speaker 1: have faith that the FED will only move at a

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Speaker 1: glacial pace and be really reserved. Sorry, I don't think

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Speaker 1: that investors have faith. I think what the FED investors

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Speaker 1: have is expectations, and they have been led to believe

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Speaker 1: by Janet Yellen and even people before her. I have

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Speaker 1: seen interviews with Ben Bernanki after his retirement from the FED,

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Speaker 1: and all of them are saying much of the much

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Speaker 1: of the same thing, and that is this again, if

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Speaker 1: the FED maintains a stable policy, and that means very

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Speaker 1: slow monetary growth. Very slow. Believe it or not, inflation

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Speaker 1: is not coming back. Okay, one more thing I should say.

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Speaker 1: I've been listening to the Europeans and others say, Man,

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Speaker 1: we need at least two percent inflation in order to

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Speaker 1: have two percent real growth. I don't know where they

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Speaker 1: got that theory from. I've been teaching economics for fifty

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Speaker 1: years and I've never heard that argument at all. We

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Speaker 1: don't need any inflation to grow at better than two.

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Speaker 1: In fact, it is my belief if the Fed, I'm sorry,

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Speaker 1: if the If the Trump administration does just two things.

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Speaker 1: Number One, they don't have to all of the two

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Speaker 1: thousand plus regulations that Obama put in place, just the

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Speaker 1: onerous ones, and there are plenty of those. That might

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Speaker 1: be about a hundred and sixty altogether. If they get

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Speaker 1: rid of those regulations, and then they slash the corporate

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Speaker 1: income tax rate, then we're off to the races. What's

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Speaker 1: the reason our twenty six major trading partners have a

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Speaker 1: median corporate income tax rate of only Our marginal tax

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Speaker 1: rate including city and state for corporations is as much,

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Speaker 1: although many corporations only pay about many do, and by

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Speaker 1: the way, one of the reasons they do is the

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Speaker 1: same reason why people like you and me hire tax

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Speaker 1: advisers to bring down our effective tax rate. No, none

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Speaker 1: of us wants to pay the full tax rate, and

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Speaker 1: if you make it worthwhile, make it worthwhile, people will

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Speaker 1: do it. But that's not the point. The point is

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Speaker 1: that when new investments are contemplated, it is the after

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Speaker 1: tax rate of return that people care about on those investments.

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Speaker 1: In other words, to grow the economy, we need new investment,

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Speaker 1: and the question is what will the after tax rate

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Speaker 1: of return beyond that. Now, of course they could look

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Speaker 1: for other tax dodges that illegal and bring the tax

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Speaker 1: rate down, but what if they are unable? So what

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Speaker 1: are the onerous regulations one hundred and sixty truly onerous

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Speaker 1: regulations that you're pointing to, And how can people watch

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Speaker 1: them to sort of get a sense of whether or

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Speaker 1: not they will be cut in order to spur row? Well,

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Speaker 1: they have an effect on me personally. I am the

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Speaker 1: CEO of three companies altogether, and I'm in negotiation now

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Speaker 1: with an overseas fund that wants me to work with

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Speaker 1: them to use my ideas and financial economics to make

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Speaker 1: a new fund based on that, and they said, and

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Speaker 1: we'd like to be publicly traded. I said, well, not

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Speaker 1: in the United States. He said, what, why not New York?

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Speaker 1: I said, you must be kidding. You don't want to

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Speaker 1: be there. This is really interesting because this is the

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Speaker 1: new head of the SEC is making this a priority. Right,

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00:26:08,960 --> 00:26:11,000
Speaker 1: is to sort of roll back some of the regulation. Absolutely,

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Speaker 1: the initial public offering. Sorry, more and more and more, listen.

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Speaker 1: I gave a talk two years ago before a private

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Speaker 1: equity group in Miami, Florida. They were just having a

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Speaker 1: convention there and I expected to meet private equity people,

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Speaker 1: but I didn't. I met people who are in the

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Speaker 1: banking business, and I said, what what's happening here? Who

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Speaker 1: are you people? And they said, no, we're ordinary people,

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Speaker 1: just like you. And it looks just like you, Joel.

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Speaker 1: But we went into the banking business because Dodd Frank

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Speaker 1: is stopping the banks from lending money. You see, by

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Speaker 1: the way I went to visit the people over at

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Speaker 1: City Bank, I couldn't believe it. They have over a

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Speaker 1: hundred and fifty new people and their job is to

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Speaker 1: engage in compliance with all of these regulations. That's a

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Speaker 1: good way to run a business, don't you think so?

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Speaker 1: You think that if some of these regulations were pulled back,

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Speaker 1: then you would see more I p o s. You

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Speaker 1: would see more investments and things other than compliance, which

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Speaker 1: a lot of people argue is a nonproductive right. And

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Speaker 1: I would take my company, the new company, I would

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Speaker 1: take it public in New York. I wouldn't take it

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Speaker 1: public in London, which is where I'm going to plan

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Speaker 1: to do it. London. W WE a joint We'll have

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Speaker 1: more than one location for the public offering. But what

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Speaker 1: I'm saying to you is what determines growth is new

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Speaker 1: investment and none of To see new investment, the rate

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Speaker 1: of return on that investment, after taxes and after regulation

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Speaker 1: has to be greater than a required rate of return

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Speaker 1: for the risk. Okay, we know we can calculate the

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Speaker 1: required return for risk. If the returns are going to

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Speaker 1: be above that, we'll have favorable outcomes. But over the

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Speaker 1: last seven eight years, it has been a disaster. Okay, Ulstern,

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Speaker 1: thank you so much for joining us. Truly a pleasure

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Speaker 1: hearing what you have to say. Chuel Stern as chairman

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Speaker 1: and chief executive officer of Stern Value Management. Also he

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Speaker 1: is a visiting professor UH at five or six magic

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00:27:54,920 --> 00:28:00,480
Speaker 1: professor at six different business schools. Thanks for listening to

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Speaker 1: the Bloomberg P and L podcast. You can subscribe and

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00:28:03,440 --> 00:28:07,440
Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast

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00:28:07,440 --> 00:28:10,920
Speaker 1: platform you prefer. I'm Pim Fox. I'm on Twitter at

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00:28:11,080 --> 00:28:14,480
Speaker 1: pim Fox. I'm on Twitter at Lisa Abramo. It's one

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00:28:14,720 --> 00:28:17,399
Speaker 1: before the podcast. You can always catch us worldwide on

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00:28:17,440 --> 00:28:18,280
Speaker 1: Bloomberg Radio