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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. All right, let's talk.

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Speaker 1: You know, cyber security. This is an issue that never

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Speaker 1: goes away, and it seems like you can't spend your

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Speaker 1: way out of the risk. Uh, it continues to be

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Speaker 1: an issue, whether it's Russian hackers, UM or just other

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Speaker 1: state agents. Matt Hayden, he's a VP of Government Tech

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Speaker 1: Solutions gov Tech Solutions at Exeiger Exeter. Thank you very much.

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Speaker 1: Former Assistant Secretary of Homeland Security for cyber Infrastructure, Risk

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Speaker 1: and Resilience. Matt, give us a kind of a thirty

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Speaker 1: thousand foot view where let's call it corporate America, if

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Speaker 1: not the global economy, where are we in terms of

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Speaker 1: really dealing with cybercrime on a on a kind of

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Speaker 1: a global scale. Well, the negative side of things is

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Speaker 1: that it's pretty bleak out there. You have a mix

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Speaker 1: of criminal enterprises and nation state actors aggressively trying to

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Speaker 1: take out or to capture private sector and government information.

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Speaker 1: The good news is is that while it is a mess,

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Speaker 1: it's not as bleak as it could be. A majority

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Speaker 1: of all of these operations and campaigns against our US

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Speaker 1: companies are are coming through ransomware and other techniques such

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Speaker 1: as phishing emails. To where there are ways we can

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Speaker 1: get some of these protections in place to try and

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Speaker 1: curb some of this and not at least be sitting

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Speaker 1: ducks for a lot of this activity. And oh, by

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Speaker 1: the way, welcome to National Critical Infrastructure Month, coming right

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Speaker 1: off Cybersecurity Information Month. So we're trying to hammer the

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Speaker 1: public as best we can on all of this. They

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Speaker 1: have a month for everything they do. How important is

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Speaker 1: uh typto in UM cybersecurity or how much of a

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Speaker 1: problem is it in terms of, you know, crimes being committed.

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Speaker 1: I know that most crimes still, by far more than anything,

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Speaker 1: are committed for dollars, But UM cyber has gained Crypto

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Speaker 1: has gained a lot of attention in terms of cybercrime. Well,

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Speaker 1: it became the currency of of the day when it

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Speaker 1: with ransomware operators ransomware has been around for a very

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Speaker 1: long time. This is not a new approach to bugging

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Speaker 1: and malwearing and challenging workstations and servers and platforms of life.

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Speaker 1: Where crypto came in is it allowed for those transactions,

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Speaker 1: at least at the ten thousand foot level, to appear

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Speaker 1: anonymous and to allow individuals to receive payment without the

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Speaker 1: direct implifications of law enforcement being hot on their heels.

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Speaker 1: And so that has allowed for this expansion, and then

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Speaker 1: it also created a problem where these safe havens where

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Speaker 1: law enforcement can't do direct action, such as Russia and

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Speaker 1: other locations that are allowing this ransomware of spent up

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Speaker 1: further and further in these criminal enterprises. So, Matt, how

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Speaker 1: much in terms of defense here? How much is it

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Speaker 1: private versus public in terms of is it up to

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Speaker 1: every company entity in and know itself to do it

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Speaker 1: or what can the government do? So we use the

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Speaker 1: term collective defense. That's not to say that it's on

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Speaker 1: any one private sector partner to defend itself from a

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Speaker 1: nation state. But it's also to say that no one

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Speaker 1: private sector partner should just not have those core cyber

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Speaker 1: elements taken care of so that they become a weapon

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Speaker 1: in this battle as a or and a victim as

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Speaker 1: opposed to being a part of this collective defense where

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Speaker 1: everyone is starting to make sure they're not easy targets.

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Speaker 1: So what we have right now is hatch management. You know,

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Speaker 1: if you're running software that has a vulnerability and there's

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Speaker 1: a patch for it, put it on there. If you're

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Speaker 1: not doing that, you're opening your door to being not

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Speaker 1: just hacked, but to be used after you get hacked

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Speaker 1: to go after somebody else. And so those those supply

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Speaker 1: chain attacks and everything else on the line all stem

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Speaker 1: from we've got to at least have a baseline of

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Speaker 1: cybersecurity so that the government can do those more advanced

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Speaker 1: features where they have the offensive campaign to try and

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Speaker 1: take out some of the bad guy networks at the

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Speaker 1: same time looking at what they can offer as far

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Speaker 1: as domestic protection. All right, Matt, thanks so much for

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Speaker 1: joining us. Matt Hayden there is the VP of gov

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Speaker 1: Tech Solutions over at Exeter. It's also the former Assistant

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Speaker 1: Secretary of Homeland Security for cyber Infrastructure, Risk and Resilience,

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Speaker 1: so he knows what he's talking about, and they certainly

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Speaker 1: do at Exeter. Thanks so much. For joining us. This

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Speaker 1: is Bloomberg. Now, as Paul said, we're gonna get over

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Speaker 1: to Avery Sheffield right now, Senior PM of long short

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Speaker 1: equity hedge fund Strategy at Rockefeller Asset Management. They have

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Speaker 1: twelve n app billion dollars under under management. And let's

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Speaker 1: talk first every about your outlook for the retailers. We've

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Speaker 1: got a lot of earnings coming up, and the consumer

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Speaker 1: has been I think a really important part of UH

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Speaker 1: this recovery as it is. UH, the consumer is a

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Speaker 1: huge part of the US UM economy. But we've seen

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Speaker 1: consumer confidence come down lately and that was a concern.

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Speaker 1: It gave a lot of economist pause, are they going

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Speaker 1: to keep going out and spending money? Okay? Great? Great question? UH,

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Speaker 1: And that has certainly been on on investor's minds because

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Speaker 1: you know, as as we've seen a lot of UH

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Speaker 1: retailer's report results really starting with you know, the very

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Speaker 1: strong results UM to one to two earnings. Even as

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Speaker 1: two three has come in UM, you know, many of

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Speaker 1: the stocks actually are below their their peaks from the

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Speaker 1: spring with the and that's really due to the fact

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Speaker 1: that everyone's very concerned about how are you going to

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Speaker 1: comp the comp especially in Q one of next year

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Speaker 1: Q four and Q one when you know, we we

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Speaker 1: basically will fully laugh the stimulus. And so look, I'm

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Speaker 1: probably maybe I think that it's not going to be

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Speaker 1: a universal situation where everything's going to do well or

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Speaker 1: everything's not going to do well. Certainly this quarter and

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Speaker 1: next year, I think we're gonna continue to see, um,

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Speaker 1: you know what we've had at the beginnings of a

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Speaker 1: bifurcation of those um those companies that sell things, sell

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Speaker 1: items that were really under purchased in during covid um

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Speaker 1: with a farel accessories, shoes, etcetera. UM kind of topping

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Speaker 1: the list of areas that have been underserved and have

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Speaker 1: a real potential for upside um and those categories you

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Speaker 1: know that that we're really strong during covid Um may

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Speaker 1: be going to be more bifurcated. Right. Demand still looks

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Speaker 1: to be strong for home improvement, but home furnishing is

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Speaker 1: pulling back, and I think that, you know, next year,

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Speaker 1: as we move more towards UM people purchasing experiences, those

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Speaker 1: kind of larger ticket items are going to be more vulnerable.

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Speaker 1: And if you're going to own the stocks of companies

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Speaker 1: that sell those items, you really want to be very

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Speaker 1: careful and focus on the winners versus you know, in

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Speaker 1: the apparel cruises like Disney, Like, uh, what what are

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Speaker 1: you talking about? Yeah? So, I mean in terms of

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Speaker 1: places where we expect people to be spending more. UM,

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Speaker 1: I mean, the theme parks are absolutely an area that

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Speaker 1: we are very constructive on, both near term and longer term. UM.

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Speaker 1: The results we've already seen and the data points you

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Speaker 1: can get from just looking at UM at their their

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Speaker 1: reports of like their taxes to the various municipalities, very

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Speaker 1: strong sales pricing power. I think they'll be able to

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Speaker 1: more than offset labor costs. And that's the place where

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Speaker 1: there are some stocks that are still quite cheap. You know.

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Speaker 1: For us, the key is, I mean to find stocks

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Speaker 1: that don't haven't already priced in a very strong recovery.

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Speaker 1: And the theme parks are one area where we do

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Speaker 1: think that there's there's real potential. Disney in particular has

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Speaker 1: a large digital business, so it's not a pure play

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Speaker 1: on this dynamic. See, I'm not sure that you might.

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Speaker 1: I'm not sure if you're a cruiser or not. I'm

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Speaker 1: not what do you think of the cruise industry area

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Speaker 1: that's when it just vexes me. I mean, I can't

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Speaker 1: imagine get back on a cruise. I want to try

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Speaker 1: it now. I've never done the big like an ocean cruise.

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Speaker 1: You know, how do you think about that? Because those

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Speaker 1: cruisers are hardcore people. Yes, uh, you know. I actually

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Speaker 1: haven't been on a cruise um for many years um,

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Speaker 1: but really enjoyed it. And actually my husband and I

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Speaker 1: were just talking, I think yesterday about potentially taking a

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Speaker 1: cruise this summer. I think the demand for cruises is

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Speaker 1: going to be off the charts um next year and

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Speaker 1: for the next several years. You know, from a stock perspective,

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Speaker 1: it's a little harder because these companies have you know,

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Speaker 1: deluted equity taken on a lot of debt um. So

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Speaker 1: if you look at the stock price chart, you know,

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Speaker 1: you'd think, okay, everything gets better. You know that the

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Speaker 1: stocks have a double or a triple in them. I'm

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Speaker 1: not sure they have a double or a triple um

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Speaker 1: just because of the you know, the different capital structure.

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Speaker 1: But I think that what the surprise really is going

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Speaker 1: to be is the level of demand and the pricing

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Speaker 1: power these companies. And I wouldn't be surprised if their

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Speaker 1: net incomes over the next few years actually exceed the

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Speaker 1: pre COVID net income, their pre COVID net income, and

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Speaker 1: that would probably suggest upside from these levels. I think

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Speaker 1: more people have heard about and thought about cruises because

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Speaker 1: of the pandemic, and so many people at first like

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Speaker 1: I'd never go on, you know, just a floating box

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Speaker 1: of virus. You know. On the other hand, people probably

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Speaker 1: like you, have given it now more thought, and I

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Speaker 1: will say, it's not all about you know, Carnival in

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Speaker 1: the Caribbean. You could do a Lynnblad cruise up and

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Speaker 1: down the Nile. You could go to Antarctica, you could

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Speaker 1: go to the Galapago. So there's other stuff, a little

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Speaker 1: bit more highbrow, more down your alley, I say, alright,

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Speaker 1: so certainly, yeah, interesting every just real quick, e commerce,

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Speaker 1: the trends we saw those are here to stay, right,

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Speaker 1: I mean, they pulled three or four years of demand

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Speaker 1: for it, but there's they're they're here to stay. I'm

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Speaker 1: not really so sure. Actually, I know that this is

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Speaker 1: very controversial, UM, but I think they might have pulled

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Speaker 1: forward more than the natural run rate of demand. UM.

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Speaker 1: Then will potentially ever see in certain sectors. I mean,

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Speaker 1: what's really been fascinating to me about this year is

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Speaker 1: seeing the declines off of last year's high and everyone's

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Speaker 1: just focused on the two year UM. But you know,

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Speaker 1: if e commerce is the be all end all of shopping,

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Speaker 1: you know, if everyone tried it, that would ever consider

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Speaker 1: China and basically every category. If it's so great, um universally,

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Speaker 1: why aren't wise and e commerce up for most companies?

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Speaker 1: You know? Instead, we're absolutely seeing the opposite. I mean

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Speaker 1: even you know when the largest e commerce companies in

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Speaker 1: the world report last quarter, I mean, e commerce is

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Speaker 1: still up, but it was US actually only three per

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Speaker 1: cent for UM and that's globally for I think I'll venture,

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Speaker 1: I think I'll back go back to the Short Hills

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Speaker 1: Mall at some point we'll see, all right, Avery Sheffield,

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Speaker 1: Senior PM, along short equity hedge one strategy of Rockefeller

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Speaker 1: Asset Management. Let's get more serious now. Bill Smith joins

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Speaker 1: US National Director of Tax Technical Services at c BIZ

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Speaker 1: mhm's National tax Office. If you tell somebody your job

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Speaker 1: title in a bar, Bill uh that your name is

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Speaker 1: an easy one to remember, but your job title and

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Speaker 1: the name of the company, You've got to give him

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Speaker 1: a big card. I'm guessing, well that you're the only

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Speaker 1: person who's ever gotten all the way through it correctly,

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Speaker 1: So kudos to you. Let's get to the to the

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Speaker 1: tax provisions that we're watching here, and I don't know

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Speaker 1: how seriously we have to take them, since Joe Mansion

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Speaker 1: doesn't seem even playing ball. But what do you expect

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Speaker 1: in terms of changes to the tax code. We'll start

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Speaker 1: with the corporate tax code um from the US government.

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Speaker 1: Oh well, if if we can rely on the House

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Speaker 1: Ways and means right up and the m the framework

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Speaker 1: that was released by the White House, there's some big

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Speaker 1: changes and a lot of interest in what's not included

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Speaker 1: in the latest write up. So we've got the swing

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Speaker 1: back to the big alternative minimum tax for corporation. It

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Speaker 1: went from a hundred million dollars in the campaign to

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Speaker 1: two billion dollars in the prior write up down to

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Speaker 1: one billion dollars. And that's a really alternative minimum tax

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Speaker 1: for corporations with book profits. Uh where that where not

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Speaker 1: they are not paying any tax. Secondly, there is going

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Speaker 1: to be an excise tax on redemption, so corporations publicly

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Speaker 1: traded corporations who buy back their stock in order to

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Speaker 1: reduce the outstanding numbers are going to have to pay

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Speaker 1: a surcharge on that, with the intention that they want

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Speaker 1: uh the excess funds to be reinvested in what the

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Speaker 1: corporation's core businesses, not in trying to just buy their

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Speaker 1: stock back. Um. There are a lot of other provisions,

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Speaker 1: including limitations on certain interest expense deductions and losses, but

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Speaker 1: those are the two big ones and sort of a

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Speaker 1: hybrid between business and personal or the changes to the

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Speaker 1: Section twelve O two rules. That's the qualified small business

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Speaker 1: stock where depending on the time you bought it, if

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Speaker 1: you bought the original issuance from a C corporation and

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Speaker 1: it met certain parameters, you could exclude either fifty seventy

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Speaker 1: or a hundred percent of the game. That is, now,

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Speaker 1: if this goes through, that's gonna be whittled back to

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Speaker 1: remove the hundred percent and the seventy five percent, so

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Speaker 1: we'll be back to what was the original Section twelve

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Speaker 1: O two rules allowed. There's a lot of like, let's

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Speaker 1: get to the one that's near and dear to Matt's

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Speaker 1: hard because it goes no, it goes right to his wallet.

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Speaker 1: The millionaires surtax a new surtax of place a five

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Speaker 1: percent levy on incomes above ten million? Is that a

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Speaker 1: good idea? Is that gonna get done? Is that a

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Speaker 1: good idea? Because I mean, well, I thought this was

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Speaker 1: all written in stone, because I didn't think that the

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Speaker 1: president would have the press release and get the right

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Speaker 1: up out of House ways and means the same day

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Speaker 1: if he didn't have the votes. We now see that

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Speaker 1: maybe he doesn't have the votes. But there's been so

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Speaker 1: much back and forth on what will pay for the spend,

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Speaker 1: which is down to half of what it was from

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Speaker 1: three and a half trillion to one point seven five

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Speaker 1: essentially maybe one point eight five if you include the

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Speaker 1: immigration But that's in there as a big pay for

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Speaker 1: for this particular bill. So if it goes through like

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Speaker 1: we think it will, assuming they get Joe Manchin on

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Speaker 1: board and Kirsten Cinema, then that'll be in there. And

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Speaker 1: you pegged it pretty accurately. This reminds me that, um,

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Speaker 1: the Penn Wharton School looked at this uh tramework framework,

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Speaker 1: I guess of the word, we're using one point seven

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Speaker 1: five trillion, But they've gotten there by cutting the number

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Speaker 1: of years certain benefits run, like the expand Child Tax

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Speaker 1: Credit and of course, the Democrats are hoping that just

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Speaker 1: gets renewed later on. So now Penn is saying it

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Speaker 1: could be actually a four trillion dollar cost. And this

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Speaker 1: is the kind of slippery slope that people like Joe

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Speaker 1: Manchin and Christen Cinema may be worried about. Absolutely, and

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Speaker 1: that is in fact how they cut the number down. So,

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Speaker 1: as you said, the hope is sort of like the

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Speaker 1: Bush tax cuts, when we would have extender legislation at

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Speaker 1: the end of December every year. They're hoping that once

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Speaker 1: it's on the books and people are used to it,

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Speaker 1: so to speak, they'll get extended. And it's a little

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Speaker 1: bit like when you do a reconciliation bill, which this is,

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Speaker 1: and you're dealing with the ten year budget window. You

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Speaker 1: can't increase the depth sit outside the ten year window.

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Speaker 1: What they did was say we're just gonna cut it

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Speaker 1: back down to five years. Essentially, that'll cut the spin

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Speaker 1: down and we'll hope it gets re upped each time.

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Speaker 1: It's about the sunset, all right, A lot a lot

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Speaker 1: of moving parts there for this framework. Bill Smith, National

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Speaker 1: Director of Tax Technical Services for c BIZ m h

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Speaker 1: M S National Tax Office, giving us the latest just

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Speaker 1: get over now to Tom string Fellow's chief Investments IgG

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Speaker 1: just an argent trust company a thirty five billion dollars

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Speaker 1: in assets under management, And Tom, we've been talking for

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Speaker 1: a long time about inflation, the markets concerns, but they

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Speaker 1: seem to be UM continuing to to to climb, and

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Speaker 1: the idea that inflation was transit transitory UM seems to

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Speaker 1: be pushed further and further by the wayside. What do

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Speaker 1: you expect from the Fed tomorrow? Well, I think they

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Speaker 1: may kind of redefined transitory. I just kind of been

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Speaker 1: interesting as we've been talking about this and halfway expected

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Speaker 1: some nervousness to creep into the market, you know, whether

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Speaker 1: it's a oh it's so u on the basis premise

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Speaker 1: of inflation, and we've not seen that kind of set off.

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Speaker 1: And yeah, we've certainly not seen investors rushing into gold.

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Speaker 1: You know, looked that a few minutes ago. And you know,

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Speaker 1: if I just looked at two elements, inflation and gold

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Speaker 1: trying to price in you know, some of the extreme

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Speaker 1: inflation scenarios I've heard about, it just hasn't happened. Tom.

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Speaker 1: We're about six the way through earnings for the spi UM,

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Speaker 1: very strong numbers, Are they strong enough to support the

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Speaker 1: evaluation in this market? Yeah, when you look at market multiples,

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Speaker 1: I think things are still kind of stretched, and we're

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Speaker 1: still looking at a four twelve opee. It's closer to

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Speaker 1: about twenty one time, so you know, that's certainly pushing averages.

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Speaker 1: But you know, we're not out of a liquid fuel

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Speaker 1: market yet. You know, we've still got a lot of

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Speaker 1: balance sheet liquidity the Fed's put out there. Obviously tapering

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Speaker 1: is going to start changing that a little bit, but yeah,

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Speaker 1: I think the market takes over that versus needing government support.

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Speaker 1: You know, the earning sticture is certainly driving the underlying support.

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Speaker 1: Maybe it's raising the floor of support for corporate earnings

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Speaker 1: and evaluations today because you know, when I look at

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Speaker 1: other asset classes again, you know, what are our choices

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Speaker 1: versus cash and the extinct um. So you know, I

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Speaker 1: could rationalize earnings growth is fueling at the market drive

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Speaker 1: this year. Go back cope years ago when we first

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Speaker 1: had a real noticeable market run, and you know it

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Speaker 1: was all over the premise of you know, in the

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Speaker 1: actualization of tax rates moving up. So you know, now

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Speaker 1: we're in an uncertain picture of what taxes are looking

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Speaker 1: like the corporate earnings are still solid full trin down

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Speaker 1: next year, but they'll still be positive investors living We're

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Speaker 1: probably basing their decisions on earnings and visibility, which we

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Speaker 1: actually have this year. But do you expect earnings the

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Speaker 1: beats have been getting smaller, or at least the the

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Speaker 1: amount by which companies have been beating are as, earnings

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Speaker 1: growth slowing down as we get further away from you know, March. Oh, absolutely,

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Speaker 1: you know, I suspect that while they stay positive, you know,

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Speaker 1: we're not going to see uh, you know, core re

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Speaker 1: angulize earnings growth numbers that are and U plus or

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Speaker 1: minus start you know, it's I think kind of mathematically

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Speaker 1: and won't happen. And if it does, and what we

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Speaker 1: start really worrying about is is a FED starting to

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Speaker 1: push rates a lot faster than you know, what the

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Speaker 1: premises of a couple of times this next year. But

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Speaker 1: earning beats will slow down, the percentage of growth will

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Speaker 1: slow down. But we're still getting into a pretty robust

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Speaker 1: environment that you know, assuming and get rid of the

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Speaker 1: lugeam that's you know, in the ports of l A

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Speaker 1: and Long Beach, and that's not an overnight event. You know,

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Speaker 1: I think we see kind of a trickle through earning

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Speaker 1: sustainability as things come through, and you know, this is

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Speaker 1: probably three to six month time frame. You know, hopefully

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Speaker 1: you know, everybody has a great Christmas and gets the

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Speaker 1: toys under the under the tree from the truck that's

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Speaker 1: sitting on the port. But you know, I see things

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Speaker 1: rolling out through next year slowing down. Let a sustainable

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Speaker 1: rollout of goods which will support you know, the demand

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Speaker 1: that's still out there. We've not seen it. You will

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Speaker 1: slow down in in demand. What we're seeing is a

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Speaker 1: uh you know, a port fuel you know, kind of

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Speaker 1: a surplus uh rundown. That doesn't that doesn't a bad

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Speaker 1: picture for next year. It we'll see more of volatilo

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Speaker 1: and people are trying to come up with the rationale

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Speaker 1: for how long taking. But I don't think that's it's

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Speaker 1: a long term negative, right Hey, Tom, thanks so much

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Speaker 1: for joining us. Really appreciate it. Tom Stringfellow, chief investment

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Speaker 1: strategist at Argent Trust Company from San Antonio, Texas, home

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Speaker 1: of u s a A, the former home of Clear

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Speaker 1: Channel Communications, at one time the largest radio operator back

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Speaker 1: in the day, spent a lot of time in San Antonio.

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Speaker 1: Believe it's the home of Greg Jarrett. Great Jarrett's got

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Speaker 1: it's the birth home. It's the birth home of Greg Jarrett. Yeah,

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Speaker 1: I can't keep track. I need the book. I'm waiting

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Speaker 1: for the book to come out. I mean, there's just

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Speaker 1: so much going on with that guy. So we'll see here.

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Speaker 1: But again, Uh, Tom Stringfeld another one of those folks

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Speaker 1: that says, you know, we're we've got a little bit

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Speaker 1: more room left to go. Uh in this market. I

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Speaker 1: know that wall of worry out there, uh is definitely real,

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Speaker 1: and there's a lot of meaningful bricks in that wall

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Speaker 1: of worry, whether it's inflation UM or the FED or

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Speaker 1: you know, uh, some of these supply chain BOTTLENECKSUM. But

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Speaker 1: the stocks keep moving higher, and again we've got green

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Speaker 1: on the screen. Uh here today. Thanks for listening to

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Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to

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Speaker 1: interviews with Apple Podcasts or whatever podcast platform you prefer.

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Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three.

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Speaker 1: Pt on Ball Sweeney, I'm on Twitter at pt Sweeney.

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Speaker 1: Before the podcast, you can always catch us worldwide at

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Speaker 1: Bloomberg Radio