WEBVTT - Facebook Had Profound Role In Enabling Trump: McNamee 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul Sweene. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma Waits, each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penil podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:22.320 at Bloomberg dot com. This is the interview of the day. 0:00:22.440 --> 0:00:25.800 Roger McNamee, co founder Elevation Partners, joining us here in 0:00:25.800 --> 0:00:28.480 our Bloomberg Interactive Brokers studio. We talk a lot about 0:00:28.560 --> 0:00:31.160 Facebook on this radio station, but maybe we don't talk 0:00:31.240 --> 0:00:34.880 enough about the impact that Facebook has on our daily lives, 0:00:34.880 --> 0:00:38.959 on privacy, on political elections in this country. But that's 0:00:38.960 --> 0:00:42.159 gonna change right now. Roger, thanks so much for joining us. Okay, 0:00:42.479 --> 0:00:46.680 Facebook taken to the cleaners by the public about the 0:00:46.800 --> 0:00:51.080 role that it played knowingly or unknowingly in the election 0:00:51.159 --> 0:00:54.520 in terms of allowing discourse to go in different directions. 0:00:54.720 --> 0:00:56.720 Have they learned their lesson as we gear up for 0:00:56.720 --> 0:00:59.640 the election? Right? We want them to have learned that 0:01:00.040 --> 0:01:04.320 democracy is too important to be damaged by the interests 0:01:04.319 --> 0:01:07.520 of any corporation. The one they've actually learned is that 0:01:08.640 --> 0:01:12.000 Facebook is global, that in many ways it's like a 0:01:12.120 --> 0:01:15.520 nation state, and as a result, it has the power 0:01:16.240 --> 0:01:21.840 to ignore the needs of countries that it operates in. 0:01:21.920 --> 0:01:24.119 I mean, keep in mind, this is a company that 0:01:24.200 --> 0:01:28.360 has ignored subpoenas from the parliaments of the United Kingdom 0:01:28.400 --> 0:01:31.640 and Canada, which are two of its largest and most 0:01:31.680 --> 0:01:35.000 profitable markets. And so I think what's going on right 0:01:35.040 --> 0:01:39.600 now is that I think Mark has concluded that Facebook's 0:01:41.000 --> 0:01:46.280 future will be best assured by maintenance of the status quo, 0:01:46.360 --> 0:01:50.200 so to say, the real action President Trump, and you know, 0:01:50.400 --> 0:01:55.480 without being too obvious about it, I think there making 0:01:55.600 --> 0:01:58.400 changes that at the margin are immensely valuable to the 0:01:58.440 --> 0:02:01.800 Trump campaign where eld of to other campaigns, specifically the 0:02:01.880 --> 0:02:07.440 decision to reverse the policy on fact checking campaign ads, 0:02:08.360 --> 0:02:11.840 and there's an analogous one that they've done for Mark Bloomberg, 0:02:12.240 --> 0:02:17.280 where they've chosen not to fact check things done by 0:02:17.320 --> 0:02:21.640 influencers on Instagram and YouTube that are paid for by campaigns. 0:02:21.720 --> 0:02:25.960 And those are choices that in a normal democracy you 0:02:25.960 --> 0:02:29.880 wouldn't make, but at this moment in time, in this 0:02:29.960 --> 0:02:35.399 particular country, those are decisions Facebook has made with at 0:02:35.560 --> 0:02:39.760 best mild pushback. Well we had. We did get some 0:02:39.800 --> 0:02:44.880 pushback from George Sorrow's civilionaire of philanthropist and uh AN investor, 0:02:45.000 --> 0:02:48.760 and he wrote a note in the Financial Times saying 0:02:49.120 --> 0:02:52.639 that Zuckerberg and Cheryl Sandburg should be removed from their 0:02:52.680 --> 0:02:57.080 posts and saying they should not accept political advertising. Is 0:02:57.120 --> 0:02:59.720 there any other push that perhaps has a little more 0:03:00.120 --> 0:03:02.200 than an op ed in the Financial Times from George 0:03:02.200 --> 0:03:07.040 Sorrows actually to get them to do that. My hypothesis 0:03:07.040 --> 0:03:10.040 is that Mr Soros was speaking mostly to the European Union, 0:03:10.320 --> 0:03:14.360 where I think he is message has a welcome audience. 0:03:15.320 --> 0:03:19.720 You know, I think he is enormously respected around the world, 0:03:20.120 --> 0:03:24.480 but particularly in Europe. The challenge that we face are, 0:03:24.480 --> 0:03:27.600 I think, simply put, is there are no counterfeiling, sorry, 0:03:27.680 --> 0:03:31.000 countervailing forces in our democracy. You know, we were designed 0:03:31.040 --> 0:03:33.520 to have three elements of government that pushed back on 0:03:33.560 --> 0:03:36.280 each other. We would have pressed that pushed back on 0:03:36.400 --> 0:03:39.160 all elements government. You would have business and religion that 0:03:39.280 --> 0:03:42.800 pushed back on each other. And now the things that 0:03:42.920 --> 0:03:45.480 caused those to be in opposition to each other have 0:03:45.680 --> 0:03:49.680 broken down, and so you know, the Trump administration is 0:03:49.720 --> 0:03:52.480 put together an alliance with business and a portion of 0:03:52.520 --> 0:03:56.760 the of the religious world that has allowed it to 0:03:56.840 --> 0:04:03.040 withstand any pushback from journal and has allowed to defy 0:04:03.240 --> 0:04:07.280 two hundred and forty years of convention in operating the government. 0:04:07.280 --> 0:04:11.080 And that I think we cannot overstate the profound impact 0:04:11.120 --> 0:04:14.840 that Google and Facebook have had in enabling that. We 0:04:14.840 --> 0:04:17.320 should note that Michael Bloomberg is the founder and principal 0:04:17.560 --> 0:04:21.920 shareholder of Bloomberg LP and Bloomberg News and Bloomberg Radio. Roger, 0:04:22.400 --> 0:04:25.280 you know, with all your experience in Silicon Valley, UH, 0:04:25.360 --> 0:04:30.280 silver Lake Partners, Elevation Partners, we've you know, during all 0:04:30.279 --> 0:04:32.599 that time, the US has taken a very light touch 0:04:32.760 --> 0:04:36.720 to regulating Silicon Valley and technology versus say the European Union, 0:04:36.720 --> 0:04:38.960 going all the back to Microsoft and things like that. 0:04:39.839 --> 0:04:43.960 Do you sense that that is fundamentally changing at all? 0:04:44.040 --> 0:04:47.320 We've had some CEOs and clarting, including Mark Zuckerberg brought 0:04:47.320 --> 0:04:49.400 in front of a Congress that's kind of new, that 0:04:49.560 --> 0:04:52.120 fields new. Do you think things are changing? I believe 0:04:52.200 --> 0:04:55.599 that they have to change. I think the tech industry 0:04:55.680 --> 0:04:59.520 is today where the chemicals industry was in nineteen sixty, 0:04:59.720 --> 0:05:03.840 where where the medicine industry was in nineteen hundred, or 0:05:03.880 --> 0:05:06.640 where the building trades were after the Great Chicago Fire. 0:05:07.040 --> 0:05:10.760 Where these things are so strategic to the economy that 0:05:11.480 --> 0:05:15.400 you have to find a way to have them operate 0:05:15.440 --> 0:05:20.159 without doing great harm. And you know, the chemicals industries 0:05:20.200 --> 0:05:23.760 to pour mercury into fresh water, and that had massive 0:05:23.839 --> 0:05:26.960 consequence for public health as well as for the environment. 0:05:27.240 --> 0:05:29.240 And we said, look, we're not gonna allow that anymore. 0:05:29.240 --> 0:05:31.960 We're not gonna allow you to spuse smoke into the atmosphere. 0:05:32.000 --> 0:05:34.520 And you know, you remember what New York City was like, 0:05:34.760 --> 0:05:37.000 you know, in the seventies and early eighties, when you 0:05:37.040 --> 0:05:40.760 couldn't see anything because of all the smog. And tech 0:05:40.839 --> 0:05:42.680 is now in that place, and we have to have 0:05:42.760 --> 0:05:45.919 some kind of regulation. And in my mind, we've tried 0:05:45.960 --> 0:05:50.040 self regulation that's failed miserably, and we really need to 0:05:50.080 --> 0:05:52.640 impose it from the outside and has to start, frankly, 0:05:52.880 --> 0:05:55.080 from the people who use the products, who have to 0:05:55.160 --> 0:05:58.040 recognize that there's a lot of harm being done to 0:05:58.080 --> 0:06:00.920 our children, there's a lot of harm done to our family. 0:06:00.960 --> 0:06:03.799 In France, right we can't have Thanksgiving dinner without getting 0:06:03.800 --> 0:06:07.440 into political fights and these things are not an accident. 0:06:07.520 --> 0:06:10.200 They're part of the business model. Roger unfortunately only had 0:06:10.200 --> 0:06:12.320 a better minute left. But I do want to ask you. 0:06:12.320 --> 0:06:16.480 You were an early investor and a mentor to Mark Zuckerberg. 0:06:16.880 --> 0:06:19.880 Do you regret investing in it? I wish that I 0:06:19.920 --> 0:06:24.440 had been more successful by persuading Mark in that there 0:06:24.480 --> 0:06:27.520 was a structural problem at Facebook. Did you know there was? 0:06:28.279 --> 0:06:31.080 I first observed it at the beginning of twenty I 0:06:31.080 --> 0:06:34.240 wish I'd seen it sooner, but I had stopping active 0:06:34.279 --> 0:06:37.600 there in two thousand nine, and candidly, I was just 0:06:37.800 --> 0:06:40.200 enjoying the success of the company because in the early 0:06:40.279 --> 0:06:42.680 days it just felt like this was one of the 0:06:42.760 --> 0:06:46.120 really great new companies, and Mark's value system in those 0:06:46.240 --> 0:06:49.800 days had no negative manifestations that you could see, at 0:06:49.839 --> 0:06:52.040 least that I saw. But when I started to see 0:06:52.080 --> 0:06:54.480 the problem in sixteen, I then reached out to him 0:06:54.520 --> 0:06:58.400 in October and said, Mark, there is something structurally wrong 0:06:58.720 --> 0:07:00.960 with the business model, the out rhythms, and the culture 0:07:01.000 --> 0:07:03.640 that's allowing bad people to hurt innocent people. I gave 0:07:03.720 --> 0:07:06.440 them some examples from civil ryans, and then I really 0:07:06.480 --> 0:07:09.679 focused on both what I saw in the Democratic primary 0:07:09.720 --> 0:07:14.440 with disinformation but especially Brexit, where you could see that 0:07:14.560 --> 0:07:19.040 disinformation almost certainly affected the outcome. And I spent three 0:07:19.120 --> 0:07:22.360 months pleading with them, beginning before the election and then 0:07:22.360 --> 0:07:25.800 continuing for months afterwards as their friends just think, look, 0:07:26.480 --> 0:07:29.280 you got to treat this like Johnson and Johnson treated 0:07:29.280 --> 0:07:31.360 the thilent all poisoning. You got to come to the 0:07:31.400 --> 0:07:35.760 defense to people, use the practices America. And he didn't listen. Well, 0:07:35.760 --> 0:07:39.120 apparently not. Roger mcmacnamee, thank you so much for being 0:07:39.160 --> 0:07:41.360 with us. Tremendous speaking with you, Roger McNamee as co 0:07:41.480 --> 0:07:45.240 founder of Elevation Partners based in Menlo Park, but joining 0:07:45.320 --> 0:07:48.720 us here in our interactive Brokers studios and early mentor 0:07:49.080 --> 0:07:54.760 and investor in Facebook. Really interesting insight into the current 0:07:54.800 --> 0:07:58.320 election cycle and the possibility that Facebook will play a 0:07:58.360 --> 0:08:01.720 similar role. Yeah, sting into it in terms starting more. 0:08:02.200 --> 0:08:04.800 In addition to Rogers starting to get more attention, I 0:08:04.800 --> 0:08:14.360 think from a different walks of life. Well. As a 0:08:14.400 --> 0:08:17.280 democratic race heats up for the White House, one theme 0:08:17.320 --> 0:08:20.880 that is emerging is taxation and taxation of the rich. 0:08:20.960 --> 0:08:23.000 To get a sense of kind of where the different 0:08:23.040 --> 0:08:26.440 candidates stand, we welcome Laura Davidson She's a congressional tax 0:08:26.480 --> 0:08:29.080 reporter for Bloomberg News, joining us in the Bloomberg Ninia 0:08:29.120 --> 0:08:32.080 nine one studio on Washington, d C. Lara, thanks so 0:08:32.160 --> 0:08:34.520 much for joining us. Give us if you would kind 0:08:34.520 --> 0:08:37.280 of a summary of where some of the candidates are 0:08:37.640 --> 0:08:41.560 in terms of taxation going forward. Yeah, so there's really 0:08:41.640 --> 0:08:44.680 quite arranged. They're all promoting sort of the same ideas, 0:08:44.720 --> 0:08:48.200 higher taxes on the wealthy, higher taxes on corporations. But 0:08:48.360 --> 0:08:50.880 really the difference is the magnitude of how much they 0:08:50.880 --> 0:08:52.400 want to raise those levies. So kind of at the 0:08:52.400 --> 0:08:55.960 bottom level, you have Amy Klobachar, Mike Bloomberg, Joe Biden. 0:08:56.360 --> 0:08:59.080 They're proposing, you know, some some modest increases to to 0:08:59.120 --> 0:09:01.400 the corporate tax rate end um, as well as some 0:09:01.480 --> 0:09:03.520 levees that would hit higher earners, but they haven't gone 0:09:03.559 --> 0:09:05.720 as far as like a wealth tax, for example. On 0:09:05.800 --> 0:09:08.960 the other end, you have um Sanders uh short, shortly 0:09:09.000 --> 0:09:11.360 followed by Warren and then Buddha Judge kind of lagging 0:09:11.400 --> 0:09:13.680 there in third place of sort of the biggest tax 0:09:13.720 --> 0:09:16.760 increases you'd see. What they're proposing is really sort of 0:09:17.520 --> 0:09:20.920 um is massive compared to other presidential tax plans we've 0:09:20.920 --> 0:09:23.480 seen in years past. They're looking at tens of trillions 0:09:23.480 --> 0:09:25.920 of dollars, you know, just for comparison, and Hillary Clinton 0:09:25.920 --> 0:09:28.400 in sixteen proposed a you know about one and a 0:09:28.440 --> 0:09:31.800 half trillion dollar tax plans. So there's big differences in um, 0:09:31.880 --> 0:09:33.720 sort of what the more moderate lane is doing and 0:09:33.760 --> 0:09:36.920 what the progressive lane is proposing. Laura, let's drill into 0:09:37.000 --> 0:09:40.040 two particular proposals, because there are two individuals on that 0:09:40.120 --> 0:09:42.440 stage tonight that are going to be really front and center, 0:09:42.800 --> 0:09:45.080 and that is Bernie Sanders because he is emerging as 0:09:45.120 --> 0:09:48.600 the modified front runner of this race. And Michael Bloomberg, 0:09:48.679 --> 0:09:51.320 majority owner and founder of Bloomberg LP, which owns this 0:09:51.440 --> 0:09:54.360 radio station and and the news segment. Uh, this is 0:09:54.400 --> 0:09:56.200 gonna be the first debate that he is going to 0:09:56.280 --> 0:09:59.200 participate in, and so a lot of eyes on him 0:09:59.240 --> 0:10:03.199 and he's compreppers entering the more moderate branch of the 0:10:03.240 --> 0:10:06.240 Democratic Party. Can you give us a sense on on 0:10:06.360 --> 0:10:10.720 sort of the scale, uh, and what their proposals actually are. Yeah, 0:10:10.720 --> 0:10:13.120 So just looking at a corporate taxes, for example, there's 0:10:13.120 --> 0:10:14.640 some new numbers out on that, so that's kind of 0:10:14.679 --> 0:10:17.600 a small piece to look at. Uh, Bernie Sanders, for examples, 0:10:17.679 --> 0:10:21.079 is looking at proposing higher corporate taxes of about almost 0:10:21.080 --> 0:10:23.400 four trillion over a decade. So he's looking at raising 0:10:23.440 --> 0:10:26.120 the corporate rate back to thirty percent, which is where 0:10:26.120 --> 0:10:28.280 it was before the Trump tax law, and as well 0:10:28.280 --> 0:10:31.439 as getting rid of some depreciation benefits that that kind 0:10:31.440 --> 0:10:33.640 of helped corporations lower their tax rates. So that would 0:10:33.679 --> 0:10:36.360 be a huge increase in In the other direction, Mike 0:10:36.360 --> 0:10:39.240 Bloomberg is also talking about raising corporate tax rates, but 0:10:39.559 --> 0:10:42.040 um going to about twenty eight percent, which is, you know, 0:10:42.120 --> 0:10:44.599 lower than it had been, but um kind of a 0:10:44.679 --> 0:10:47.640 number that Obama had had championed for many years. That 0:10:47.640 --> 0:10:49.520 would be only about a one point to one point 0:10:49.559 --> 0:10:53.280 three trillion dollar increase over a decade UM. And at 0:10:53.280 --> 0:10:54.920 that twenty eight number, you see come up a lot. 0:10:54.960 --> 0:10:57.560 And that's also Joe Biden's been talking about that um 0:10:57.600 --> 0:11:00.200 Amy Klobuchars, that has the lowest number in the field 0:11:00.200 --> 0:11:03.360 at which is actually something a number that that Republicans 0:11:03.360 --> 0:11:05.240 had talked about UM when they were planning their tax 0:11:05.240 --> 0:11:07.760 reform a couple of years ago. So, Laura, one of 0:11:07.760 --> 0:11:10.160 the big big issues that really came to the forefront 0:11:10.200 --> 0:11:15.800 in was income inequality. How did these tax plans impact that, 0:11:16.200 --> 0:11:18.880 if at all? Um So, it really depends on not 0:11:18.960 --> 0:11:21.040 kind of the specific provision and kind of how you 0:11:21.040 --> 0:11:23.600 look at them all in total as well. But this 0:11:23.679 --> 0:11:25.760 is an issue that you hear, you know that Bernie 0:11:25.800 --> 0:11:28.600 Sanders and Elizabeth Warren have talked about specifically, but across 0:11:28.600 --> 0:11:31.719 the board, all plans would would would tax the rich 0:11:31.800 --> 0:11:35.320 a lot more. Income inequality and wealth inequality are sort 0:11:35.320 --> 0:11:38.320 of two different issues. Income inequalities a lot easier to tackle. 0:11:38.360 --> 0:11:40.079 You can do that by, you know, raising the capital 0:11:40.120 --> 0:11:42.560 gains rate, which nearly every candidate has proposed to do, 0:11:42.640 --> 0:11:46.000 tax at the same as labor income, raising income rates 0:11:46.000 --> 0:11:48.760 on on high earners, um doing things like a financial 0:11:48.760 --> 0:11:52.280 transaction tax, which uh Mike Bloomberg I said yesterday he 0:11:52.280 --> 0:11:54.800 would support him. That's been something that Sanders and Warren 0:11:54.800 --> 0:11:56.920 and Buddha Judge and another candidates have been talking about 0:11:56.920 --> 0:11:59.600 for a while. Wealth inequality is a little bit trickier 0:11:59.600 --> 0:12:02.199 because that's on accumulated wealth. In our tax system as 0:12:02.240 --> 0:12:05.200 it stands right now, doesn't tax wealth. It just taxes 0:12:05.440 --> 0:12:08.320 income essentially. So the wealth tax that Warren and Sanders 0:12:08.360 --> 0:12:11.840 have been talking about would do more to alleviate wealth inequality. 0:12:11.920 --> 0:12:13.440 But there's a lot of questions about one of that, 0:12:13.520 --> 0:12:16.280 is that politically viable? And two is it even constitutional? 0:12:16.440 --> 0:12:19.559 Is anyone talking about rolling back some of the salt 0:12:20.360 --> 0:12:23.280 issues salt tax deductions? Well, I mean, I'm just wondering 0:12:23.320 --> 0:12:27.120 because there's been a theory this is disproportionately hit coastal 0:12:27.200 --> 0:12:31.480 states that are traditionally voted for Democratic candidates. However, the 0:12:31.520 --> 0:12:35.120 salt tax deduction and the state and local tax deduction 0:12:35.600 --> 0:12:39.800 really does tend to favor wealthier individuals. So it's not politically, 0:12:40.200 --> 0:12:43.360 uh necessarily going to support the Democratic case, has or 0:12:43.400 --> 0:12:46.360 been any way in there by the Democratic candidates. You 0:12:46.360 --> 0:12:48.000 have really just touched on sort of the the hot 0:12:48.000 --> 0:12:51.400 button issue among kind of democratic tax thinkers right now. 0:12:51.480 --> 0:12:54.160 And so really the the movement on salt has been 0:12:54.240 --> 0:12:57.280 on Capitol Hill. Democrats on the campaign trail have not 0:12:57.320 --> 0:12:59.400 been talking to that party, partly because it is a 0:12:59.480 --> 0:13:02.320 such a state specific issue. Some of those states haven't 0:13:02.360 --> 0:13:04.600 even come up yet um in the primaries. As well 0:13:04.640 --> 0:13:07.080 as it it's a politically difficult thing because if you 0:13:07.120 --> 0:13:09.959 live in Florida or Iowa or Kansas or or any 0:13:10.000 --> 0:13:12.160 of these states that that have either no income taxes 0:13:12.240 --> 0:13:15.120 or very low rates. This is an important to you, 0:13:15.160 --> 0:13:17.040 but if you're in Connecticut or New York or California, 0:13:17.120 --> 0:13:20.160 this is so what Democrats on on the hill say 0:13:20.280 --> 0:13:22.360 is they believe that if a Democrat were to come 0:13:22.360 --> 0:13:23.640 into the White House, so they were to take back 0:13:23.640 --> 0:13:26.160 the Senate and have control, salts would be on the table, 0:13:26.440 --> 0:13:28.960 but that Democrats on the campaign trail are just really 0:13:29.000 --> 0:13:31.120 too scared to talk about it right now. So, Laura, 0:13:31.160 --> 0:13:35.600 what's the argument today, the contemporary argument for not raising taxes? 0:13:36.800 --> 0:13:39.640 The contemporary argument for not raising taxes. Well, so, so 0:13:39.679 --> 0:13:42.560 that's sort of kind of your traditional um trickle down 0:13:42.679 --> 0:13:46.080 kind of um idea that Republicans, you know, have champion 0:13:46.120 --> 0:13:48.120 for a long long time. Though, I've been talking to 0:13:48.160 --> 0:13:50.520 some Republicans and they've been saying, uh, you know, and 0:13:50.559 --> 0:13:52.480 you see this with with Trump talking about a middle 0:13:52.480 --> 0:13:56.000 income tax cut, is that they're really concerned to talk 0:13:56.040 --> 0:14:00.840 about lowering rates for the for top earners and for corporations. 0:14:00.840 --> 0:14:02.480 You know, the Republicans used to talk for a long 0:14:02.480 --> 0:14:04.440 time about Louis wearing that top rate which now sits 0:14:04.480 --> 0:14:07.160 at thirty seven percent for individuals down to something in 0:14:07.200 --> 0:14:09.760 the twenties. That's really off the table. They're not They're 0:14:09.800 --> 0:14:12.280 not going there. You see kind of both the window 0:14:12.360 --> 0:14:15.120 of what both parties are are kind of talking about 0:14:15.160 --> 0:14:16.959 has shifted to the left, you know, of course for 0:14:17.000 --> 0:14:19.960 the Democrats, but also some for the Republicans. Laura, thanks 0:14:20.000 --> 0:14:22.240 so much for joining us. We really appreciate your thoughts there. 0:14:22.320 --> 0:14:25.640 Laura Davison, Congressional tax reporter for Bloomberg News, joining us 0:14:25.640 --> 0:14:27.800 from the Bloomberg N nine one studio in Washington, D C. 0:14:27.920 --> 0:14:30.440 And of course, UH taxation is going to be one 0:14:30.480 --> 0:14:32.160 of the key things I suspect that we're going to 0:14:32.240 --> 0:14:34.040 hear a lot about tonight at the debates. Well, there 0:14:34.080 --> 0:14:36.760 also is the bifurcation and the Democratic Party. You've got 0:14:36.800 --> 0:14:39.240 Bernie Sanders emerging very much as a front run are 0:14:39.280 --> 0:14:43.280 consolidating some of the UH the support that previously had 0:14:43.400 --> 0:14:46.240 been split with Elizabeth Warren and it's really going to 0:14:46.320 --> 0:14:49.800 be him very much on the forefront. And Michael Bloomberg 0:14:49.840 --> 0:14:53.160 coming into the first debate again, UH founder and majority 0:14:53.160 --> 0:14:55.040 owner of Bloomberg LP. It's just going to be really 0:14:55.120 --> 0:14:59.040 interesting to see where the focus is is it on 0:14:59.280 --> 0:15:02.920 what plan? There are two further the US economy and 0:15:02.920 --> 0:15:05.480 and sort of you know, with healthcare, etcetera. Or is 0:15:05.480 --> 0:15:07.240 it going to be on beating President Trump? And those 0:15:07.240 --> 0:15:09.280 are sort of some of the two narratives that have 0:15:09.360 --> 0:15:24.440 been dominant throughout the entire race. Boys, we think back 0:15:24.480 --> 0:15:27.440 to en and even year to date here, equity markets 0:15:27.680 --> 0:15:31.480 very very strong. Here one area that's you know, performed better, 0:15:31.560 --> 0:15:33.480 but still I think a little bit unloved as a 0:15:33.560 --> 0:15:37.080 financial sector. Dave Ellis, and portfolio manager for Hennessey Funds, 0:15:37.280 --> 0:15:39.200 joins us. He's based in Boston, but joining us here 0:15:39.200 --> 0:15:42.200 in our Bloomberg Interactor Broker studio. So so Dy've give 0:15:42.280 --> 0:15:44.760 us a sense of kind of just the financial stocks. 0:15:44.760 --> 0:15:46.400 And I think back to some of the big players 0:15:46.400 --> 0:15:49.240 of Goldman Sacks, the cities at JP Morgan's had a 0:15:49.240 --> 0:15:51.680 pretty good twenty nineteen in terms of performance. How do 0:15:51.720 --> 0:15:56.240 you think how's the group in general been performing? Financials? Well, 0:15:56.280 --> 0:15:58.960 I think there's a you're saying a separation the people 0:15:59.000 --> 0:16:02.400 that are balance sheets entric, meaning that they have the 0:16:02.440 --> 0:16:04.880 bulk of their earnings from the balance sheet, they're they're 0:16:04.920 --> 0:16:08.120 not doing well. Uh, they're underperforming. And I have a 0:16:08.120 --> 0:16:10.800 small cat financial fund that's actually down for the year 0:16:11.320 --> 0:16:15.080 and that's primarily a balance sheet centric business. But the 0:16:15.120 --> 0:16:17.680 ones that are that are have more fee income, more 0:16:17.680 --> 0:16:20.200 more recurring fee income, like a Visa or master card, 0:16:20.280 --> 0:16:22.400 they continue to do well because that's what people want. 0:16:22.520 --> 0:16:25.480 They don't, you know, they don't want to own these 0:16:25.480 --> 0:16:28.240 balance sheets that are under threat from either credit or 0:16:28.320 --> 0:16:30.960 low rates. A lot of people look at the banks 0:16:31.160 --> 0:16:34.400 as sort of completely dependent on the yield curve. The 0:16:34.440 --> 0:16:36.640 flat of the yield curve in the United States goes 0:16:36.760 --> 0:16:38.920 the gap between in particular two year and ten year 0:16:38.960 --> 0:16:43.840 treasury yields, the less value people see in financials today, 0:16:43.840 --> 0:16:46.480 we're seeing the yield curve flatten it again. Do you 0:16:46.480 --> 0:16:49.240 think that this is a fair assessment of the relationship 0:16:49.280 --> 0:16:52.240 between the yield curve and financials? I think so, I 0:16:52.240 --> 0:16:56.400 mean disappointingly. So. You know, when I started many many 0:16:56.480 --> 0:16:59.120 years ago, FED funds are eighteen percent, so it didn't 0:16:59.120 --> 0:17:01.520 matter what the yield curve was, you made plenty of money. 0:17:01.840 --> 0:17:03.640 But now the flatness of the yeld curve and the 0:17:03.680 --> 0:17:07.840 lowness of rates relative to zero is a double whammy. 0:17:07.920 --> 0:17:10.320 And if you look at a big bank like JP Morgan, 0:17:10.359 --> 0:17:12.720 half of their profits going to come from the balance sheet. 0:17:13.320 --> 0:17:15.560 If you look at a medium sized a smaller bank, 0:17:15.600 --> 0:17:19.560 it can be seventy five of their income comes from 0:17:19.600 --> 0:17:22.440 the balance sheet. So if rates are gonna go low 0:17:22.480 --> 0:17:24.680 and we're gonna end up like Japan here in America, 0:17:24.800 --> 0:17:27.119 those those spreads are gonna come in and that's gonna 0:17:27.160 --> 0:17:31.440 attack half to of their revenue. So if I told 0:17:31.480 --> 0:17:35.600 you that half of Apple's revenues we're under pressure, where 0:17:35.600 --> 0:17:38.199 do you think the stock would be going? Right? All right, 0:17:38.240 --> 0:17:40.840 let's we see. Let's take a look at the asset 0:17:40.920 --> 0:17:44.040 management side of the business. We had another deal announced yesterday, 0:17:44.320 --> 0:17:48.880 Franklin Templeton buying leg Mason fifty dollars to share. Um. 0:17:49.000 --> 0:17:52.120 Is that just a reaction to the issue that has 0:17:52.160 --> 0:17:54.840 plagued the asset management business for almost a generation now, 0:17:54.840 --> 0:17:59.280 which is pressure on fees. I think it's it's that, 0:17:59.359 --> 0:18:05.640 and it's also these acquisitions allow them to reset employee levels, 0:18:05.720 --> 0:18:10.080 compensation levels, layers of management levels, so you have a 0:18:10.160 --> 0:18:13.080 number of things that go on there. Um. But again 0:18:13.119 --> 0:18:16.600 this is addition. By subtraction, You're you're putting two companies 0:18:16.640 --> 0:18:20.520 together that are losing a u M hoping that you 0:18:20.560 --> 0:18:24.159 can buy subtraction. Meaning even though you're still shrinking. You 0:18:24.240 --> 0:18:28.600 can add value for the shareholders by and again resetting 0:18:28.640 --> 0:18:32.440 the corporate structure. That that's what acquisitions allow you to do. 0:18:32.880 --> 0:18:34.919 Uh and and I think you're going to see that 0:18:35.000 --> 0:18:38.480 more in this business. The backdrop of this merger was 0:18:38.560 --> 0:18:43.439 that active management, in particular equitative active equity fund management 0:18:44.000 --> 0:18:47.199 is a dying industry. That is your industry. What do 0:18:47.240 --> 0:18:50.360 you what do you think when people say that, Well, 0:18:50.400 --> 0:18:54.639 I think there's you know, it's an industry that is 0:18:54.640 --> 0:18:58.840 is under pressure because of what the market is doing. 0:18:59.680 --> 0:19:06.080 Um and the market is giving you fairly decent performance metrics, 0:19:06.280 --> 0:19:09.880 which makes the index funds a safer way to play. 0:19:10.359 --> 0:19:14.200 So what what the FED is essentially done is taking 0:19:14.240 --> 0:19:17.760 a lot of the volatility out of capitalism. They did 0:19:17.800 --> 0:19:22.240 it two decembers ago. They did it when what's three 0:19:22.280 --> 0:19:24.600 or four months ago when the repo thing. They don't 0:19:24.640 --> 0:19:28.760 allow capitalism to come back in and therefore allow active 0:19:28.760 --> 0:19:32.000 management to add value. And so as long as the 0:19:32.040 --> 0:19:38.560 FED is there tamping down volatility and tamping down capitalism, 0:19:38.640 --> 0:19:41.000 than being in an index fund, we're just going along 0:19:41.000 --> 0:19:43.320 with the flow of money and the growth of money 0:19:43.359 --> 0:19:46.160 in the system. Remember, the money is going coming into 0:19:46.200 --> 0:19:50.760 the system every day. There's more dollars out there every day. 0:19:50.960 --> 0:19:53.240 If if the same amount goes in the stock stocks 0:19:53.240 --> 0:19:56.320 will slowly go up. And if the FED says we're 0:19:56.320 --> 0:19:58.240 not going to have any volatility, then you should just 0:19:58.280 --> 0:20:01.600 own an index fund. But once volatility returns, if it 0:20:01.640 --> 0:20:05.359 ever does, the act of management will will win. And 0:20:05.440 --> 0:20:08.320 the question is that the market doesn't, at least investors 0:20:08.320 --> 0:20:10.640 don't believe that that's going to happen right now. What 0:20:10.720 --> 0:20:13.840 areas are you looking at right now that are most uh, 0:20:13.880 --> 0:20:15.920 you know, attractive to you right now? Again, we're eleven 0:20:16.000 --> 0:20:20.359 years into this financial economic cycle. The markets have been rallying, uh, 0:20:20.440 --> 0:20:24.560 And so where do you see opportunities? Well, I think 0:20:24.720 --> 0:20:26.520 you know, the market is telling you that you should 0:20:26.520 --> 0:20:32.639 own five stocks. Um. And that's and and financials aren't 0:20:32.640 --> 0:20:34.640 one of them, are right? Well right, they aren't. But 0:20:34.640 --> 0:20:37.359 but certainly the visa master cards of the world have 0:20:37.440 --> 0:20:39.760 done quite well. And that's why you know, my large 0:20:39.840 --> 0:20:44.360 capt fund is performed well. Thank god, I'm doing something right, um. 0:20:44.400 --> 0:20:46.919 And I think that's I think the winners are going 0:20:46.920 --> 0:20:51.320 to continue to be winners. And you know, the on 0:20:51.520 --> 0:20:53.920 in the companies that don't want to invest in their future, 0:20:54.000 --> 0:20:56.080 don't want to take chances are going to continue to 0:20:56.119 --> 0:20:58.919 fall by the wayside. And I think you just have 0:20:59.000 --> 0:21:01.439 a lot of having have knots out there. You have 0:21:01.520 --> 0:21:03.760 it in in income and distribution, you have it in 0:21:03.800 --> 0:21:07.600 stock valuations, you have it in home prices, and it's 0:21:07.600 --> 0:21:10.120 just going to continue. Dave Ellison, thank you so much 0:21:10.119 --> 0:21:12.880 for being with us. Dave Ellison is a profolio manager 0:21:12.920 --> 0:21:16.479 of the Hennessey Small Cap and large cap financial funds, 0:21:16.760 --> 0:21:19.880 joining us here in our interactive brokers studio is normally 0:21:19.920 --> 0:21:23.480 based in Boston. A really interesting kind of conundrum and 0:21:23.520 --> 0:21:26.200 I've heard this before, Paul, from people saying the FED 0:21:26.320 --> 0:21:29.399 is killed off the volatility as well as sort of 0:21:29.440 --> 0:21:33.199 the natural price discovery that markets have been used to. 0:21:33.800 --> 0:21:37.480 And the question is, you know what will occur if 0:21:37.520 --> 0:21:39.840 they allow it to go back or does this mean 0:21:39.880 --> 0:21:42.200 that they kind of can't. They can't, And if you 0:21:42.200 --> 0:21:43.960 look around the world, it's not just the FED, E 0:21:44.040 --> 0:21:46.040