1 00:00:05,800 --> 00:00:08,360 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim 2 00:00:08,440 --> 00:00:11,440 Speaker 1: Fox along with my co host Lisa Abramowitz. Each day 3 00:00:11,480 --> 00:00:15,000 Speaker 1: we bring you the most important, noteworthy, and useful interviews 4 00:00:15,040 --> 00:00:17,520 Speaker 1: for you and your money, whether you're at the grocery 5 00:00:17,560 --> 00:00:20,560 Speaker 1: store or the trading floor. Find the Bloomberg p m 6 00:00:20,680 --> 00:00:32,000 Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 7 00:00:32,040 --> 00:00:34,400 Speaker 1: And now we want to turn to our nation's capital 8 00:00:34,479 --> 00:00:37,360 Speaker 1: and Nick Wadhams to get a little bit of a 9 00:00:37,440 --> 00:00:40,080 Speaker 1: perspective on what is happening today. I know that we 10 00:00:40,120 --> 00:00:43,120 Speaker 1: are awaiting joint statements by President Donald Trump and the 11 00:00:43,440 --> 00:00:47,040 Speaker 1: South Korean President Moon j In that is scheduled to 12 00:00:47,159 --> 00:00:49,400 Speaker 1: come up I guess in about ten or fifteen minutes, 13 00:00:49,440 --> 00:00:51,680 Speaker 1: and we will of course carry that. It'll be a 14 00:00:51,800 --> 00:00:55,480 Speaker 1: joint press conference and statement at the Rose Garden. Nick, 15 00:00:55,600 --> 00:00:58,560 Speaker 1: what's the most important thing that you believe this this 16 00:00:58,640 --> 00:01:01,800 Speaker 1: meeting between the President and the South Korean president is 17 00:01:01,840 --> 00:01:04,960 Speaker 1: going to yield. Well, there are two big issues here. 18 00:01:05,040 --> 00:01:07,800 Speaker 1: One on the political front is the issue of North 19 00:01:07,880 --> 00:01:11,440 Speaker 1: Korea and how to deal with uh it's continued ambitions 20 00:01:11,480 --> 00:01:14,440 Speaker 1: to develop nuclear weapons in a ballistic missile program. So 21 00:01:14,480 --> 00:01:19,000 Speaker 1: the South Korean president President Moon is new he has 22 00:01:19,040 --> 00:01:21,720 Speaker 1: sought to take a sort of more moderate approach to 23 00:01:21,840 --> 00:01:26,520 Speaker 1: North Korea, possibly including negotiations. President Trump, meanwhile, is saying 24 00:01:26,520 --> 00:01:28,679 Speaker 1: that is not what he wants to do. He wants 25 00:01:29,120 --> 00:01:33,480 Speaker 1: more pressure, specifically economic pressure on North Korea to try 26 00:01:33,520 --> 00:01:36,680 Speaker 1: to bend North Korea to the U. S will. So 27 00:01:36,720 --> 00:01:38,559 Speaker 1: how they resolve that is going to be a big 28 00:01:38,920 --> 00:01:41,600 Speaker 1: But didn't they just slap sanctions on the Chinese bank 29 00:01:41,680 --> 00:01:48,080 Speaker 1: that reportedly is laundering money for North Korea? That's right, 30 00:01:48,120 --> 00:01:51,360 Speaker 1: I mean, so this is another what you see the 31 00:01:51,400 --> 00:01:54,200 Speaker 1: new ways in which the the administration is trying to 32 00:01:54,200 --> 00:01:56,840 Speaker 1: exert pressure. They really see China as the key to 33 00:01:57,440 --> 00:02:01,440 Speaker 1: North Korea because trade with China constitute so much of 34 00:02:01,520 --> 00:02:04,280 Speaker 1: the North Korean economy. So the idea is, okay, we're 35 00:02:04,320 --> 00:02:07,480 Speaker 1: going to go after these Chinese banks basically to bring 36 00:02:07,640 --> 00:02:10,280 Speaker 1: China into line and to try to get its help 37 00:02:10,720 --> 00:02:13,760 Speaker 1: and more cooperation and really putting the squeeze on North Korea. 38 00:02:14,120 --> 00:02:17,760 Speaker 1: Nick uh the South Korean president who's beating with President Trump. 39 00:02:18,000 --> 00:02:20,480 Speaker 1: Moon j n is new It is a month into 40 00:02:20,560 --> 00:02:24,840 Speaker 1: his tenure as president. How does his outlook on the 41 00:02:24,919 --> 00:02:28,160 Speaker 1: US differ from his predecessors, and how does this change 42 00:02:28,160 --> 00:02:31,280 Speaker 1: the dynamic with respect to North Korea. Well, I mean, 43 00:02:31,320 --> 00:02:33,320 Speaker 1: we're we're really going to see how this plays out. 44 00:02:33,360 --> 00:02:35,000 Speaker 1: But I mean, the big one is that he does 45 00:02:35,080 --> 00:02:39,440 Speaker 1: favor of sort of more contact with North Korea rather 46 00:02:39,480 --> 00:02:43,880 Speaker 1: than the previous government's UH view, which is more in 47 00:02:43,960 --> 00:02:46,239 Speaker 1: line with the US. The other is he's sort of 48 00:02:46,280 --> 00:02:50,280 Speaker 1: ambivalent about this missile defense system that the US has 49 00:02:50,360 --> 00:02:55,720 Speaker 1: put into South Korea UH to protect against missile launches 50 00:02:55,800 --> 00:02:58,440 Speaker 1: from the North. So, so the South Korean president has 51 00:02:58,600 --> 00:03:02,200 Speaker 1: has expressed US some concern about that. They've they wanted 52 00:03:02,200 --> 00:03:06,760 Speaker 1: to limit UM basically because as as part of this 53 00:03:06,800 --> 00:03:10,360 Speaker 1: is something that both China and North Korea really really opposed. 54 00:03:10,400 --> 00:03:13,520 Speaker 1: They say this is a could start a new weapons 55 00:03:13,600 --> 00:03:15,400 Speaker 1: race in the region, and and it just sort of 56 00:03:15,440 --> 00:03:18,359 Speaker 1: inflames tensions. And so as he seeks sort of closer 57 00:03:18,880 --> 00:03:22,359 Speaker 1: or better relations with China UM and then also to 58 00:03:22,440 --> 00:03:25,120 Speaker 1: improve ties with North Korea, he says, let's go a 59 00:03:25,160 --> 00:03:26,960 Speaker 1: little bit slower on this. We don't want to go 60 00:03:27,040 --> 00:03:29,919 Speaker 1: quite as quickly as the US has has sought. Well, 61 00:03:30,040 --> 00:03:34,160 Speaker 1: the United States has what nearly thirty thousand American soldiers, sailors, 62 00:03:34,160 --> 00:03:37,640 Speaker 1: and airmen and marines in South Korea. Yeah, I mean 63 00:03:37,720 --> 00:03:41,680 Speaker 1: this is this is a hugely important base for the US. 64 00:03:42,120 --> 00:03:45,040 Speaker 1: The US troops are all along the North Korean border, 65 00:03:45,080 --> 00:03:47,400 Speaker 1: and this is really a big issue for how the 66 00:03:47,480 --> 00:03:51,200 Speaker 1: US proceeds and something that constrains US options because North 67 00:03:51,280 --> 00:03:53,320 Speaker 1: Korea has made clear that the U s if the 68 00:03:53,400 --> 00:03:58,280 Speaker 1: US does anything like remotely belligerent, like a military strike. Uh. 69 00:03:58,320 --> 00:04:00,680 Speaker 1: You know, North Korea has hundreds of on hundreds of 70 00:04:00,760 --> 00:04:03,760 Speaker 1: artillery pieces lined up across the border. Soul is thirty 71 00:04:03,760 --> 00:04:07,400 Speaker 1: miles away. You know, a single artillery barrage could literally 72 00:04:07,480 --> 00:04:10,360 Speaker 1: kill tens of thousands of people, including US troops. So 73 00:04:10,400 --> 00:04:14,880 Speaker 1: that's weighing heavily in President Trump's deliberations on this. South 74 00:04:14,960 --> 00:04:19,680 Speaker 1: Korea President munja and began his visit to the US 75 00:04:19,839 --> 00:04:23,400 Speaker 1: with the announcement of a number of trade deals with 76 00:04:23,440 --> 00:04:27,560 Speaker 1: the US, agreed by more Shale agreeing to invest more 77 00:04:27,600 --> 00:04:30,159 Speaker 1: in companies here in the US. How many of these 78 00:04:30,200 --> 00:04:32,840 Speaker 1: moves are new and how many of them are sort 79 00:04:32,839 --> 00:04:36,200 Speaker 1: of building on established programs that South Korea already had. 80 00:04:36,760 --> 00:04:40,159 Speaker 1: I mean this there's a mixture. The US and South 81 00:04:40,240 --> 00:04:43,440 Speaker 1: Korea have been working on a bilateral investment Tree for 82 00:04:43,520 --> 00:04:45,760 Speaker 1: some time, so that that has been a huge issue. 83 00:04:46,240 --> 00:04:49,159 Speaker 1: You know. One challenge, of course, is that President Trump 84 00:04:49,680 --> 00:04:54,400 Speaker 1: has made US trade deficit an important part of his administration, 85 00:04:54,560 --> 00:04:58,920 Speaker 1: and UH really believes that predatory practices towards the US 86 00:04:59,400 --> 00:05:02,880 Speaker 1: will not band. So he's he's basically saying that, you know, 87 00:05:03,080 --> 00:05:05,920 Speaker 1: the US has suffered trade deficits for for many decades 88 00:05:05,960 --> 00:05:09,080 Speaker 1: and this is a top priority. UH. And the US 89 00:05:09,160 --> 00:05:12,279 Speaker 1: does have a trade deficit with with South Korea that 90 00:05:12,320 --> 00:05:14,279 Speaker 1: it wants to fix. So UM, I mean, we're just 91 00:05:14,320 --> 00:05:17,279 Speaker 1: getting sort of early commentary out of his his meeting 92 00:05:17,320 --> 00:05:20,520 Speaker 1: with the South Korean president from the Oval Office, but 93 00:05:20,680 --> 00:05:23,640 Speaker 1: certainly this is going to weigh on on the deliberations 94 00:05:23,680 --> 00:05:26,360 Speaker 1: between the two leaders. President Trump's concerns over the U 95 00:05:26,440 --> 00:05:30,120 Speaker 1: S trade deficit. Nick. Yesterday, President Donald Trump was at 96 00:05:30,160 --> 00:05:34,320 Speaker 1: the Department of Energy seeking about the renaissance of American 97 00:05:34,440 --> 00:05:39,520 Speaker 1: energy production. One aspect is natural gas. South Korea, I believe, 98 00:05:39,560 --> 00:05:42,240 Speaker 1: has already said that they would like to import US 99 00:05:42,360 --> 00:05:45,200 Speaker 1: natural gas. Is that correct? That's that's right. I mean, 100 00:05:45,440 --> 00:05:48,680 Speaker 1: this is really something that the administration has pushed UM 101 00:05:48,720 --> 00:05:50,920 Speaker 1: and the State Department actually a couple of weeks ago 102 00:05:51,560 --> 00:05:53,960 Speaker 1: made a big announcement about the first shipment of US 103 00:05:54,440 --> 00:05:57,520 Speaker 1: l en G to Poland, um and, and this is 104 00:05:57,560 --> 00:05:59,919 Speaker 1: something that the administration really sees us sort of the 105 00:06:00,040 --> 00:06:04,200 Speaker 1: way forward, not only ensuring US energy security, but seeking 106 00:06:04,640 --> 00:06:06,880 Speaker 1: uh you know, for the US to profit off of 107 00:06:07,320 --> 00:06:10,520 Speaker 1: exports of energy. So uh this fits into a broader 108 00:06:10,560 --> 00:06:14,560 Speaker 1: constellation where the US is seeking to export allergy uh 109 00:06:14,960 --> 00:06:18,360 Speaker 1: in Asia, Europe and around the world. Nick not to 110 00:06:18,360 --> 00:06:20,599 Speaker 1: get off script here, but I'm just wondering how much 111 00:06:20,600 --> 00:06:23,320 Speaker 1: clout does President Trump holed with foreign leaders right now? 112 00:06:23,400 --> 00:06:26,320 Speaker 1: He is not a popular president. He's you know, dealing 113 00:06:26,360 --> 00:06:29,400 Speaker 1: with so much intrigue and drama, you know. And I 114 00:06:29,400 --> 00:06:30,640 Speaker 1: don't know how much of it is just you know, 115 00:06:30,680 --> 00:06:32,799 Speaker 1: fit for tabloids and how much of it is actually 116 00:06:33,200 --> 00:06:37,240 Speaker 1: uh substantive for foreign leaders. But does this matter? I 117 00:06:37,279 --> 00:06:39,080 Speaker 1: think it does matter. And this is a big issue 118 00:06:39,120 --> 00:06:41,479 Speaker 1: that we've all been trying to answer over the last 119 00:06:41,640 --> 00:06:44,960 Speaker 1: several months, particularly because they are often contradictions between what 120 00:06:45,000 --> 00:06:47,600 Speaker 1: President Trump says and what his cabinet says. So you 121 00:06:47,600 --> 00:06:50,360 Speaker 1: have Secretary of State rextilis and saying one thing on 122 00:06:50,600 --> 00:06:53,719 Speaker 1: China and South Korea. You have President Trump often taking 123 00:06:53,720 --> 00:06:57,560 Speaker 1: a much harder line. So officials really don't know where 124 00:06:57,600 --> 00:06:59,880 Speaker 1: to come down. I mean, in the end, though he 125 00:07:00,160 --> 00:07:02,839 Speaker 1: is the president of the United States, you know, the 126 00:07:02,880 --> 00:07:06,320 Speaker 1: most powerful nation in the world, and so what we're 127 00:07:06,320 --> 00:07:09,560 Speaker 1: seeing generally is that what leaders want to believe and 128 00:07:09,640 --> 00:07:13,280 Speaker 1: speak within listen to. The cabinet secretaries therefore, is sort 129 00:07:13,280 --> 00:07:16,720 Speaker 1: of forced to take President Trump seriously regardless of what 130 00:07:16,760 --> 00:07:18,800 Speaker 1: he tweets or he says that the tweets I would 131 00:07:18,840 --> 00:07:22,160 Speaker 1: say they understand are more toward a domestic audience, his base. 132 00:07:22,840 --> 00:07:25,280 Speaker 1: But there is a lot of concern and confusion about 133 00:07:25,280 --> 00:07:30,400 Speaker 1: those contradictory messages between President Trump and his top cabinet officials. Well, 134 00:07:30,520 --> 00:07:32,520 Speaker 1: you're talking about cabinet officials. I want you to just 135 00:07:32,520 --> 00:07:35,560 Speaker 1: give us some thoughts about the Secretary of State Rex Tillerson, 136 00:07:35,720 --> 00:07:38,560 Speaker 1: because you know, there's that ongoing internal review of the 137 00:07:38,600 --> 00:07:41,800 Speaker 1: State Department and what the estimate is that it could 138 00:07:41,840 --> 00:07:44,720 Speaker 1: face a thirty percent budget cut and an elimination of 139 00:07:44,840 --> 00:07:49,160 Speaker 1: twenty jobs. Is that going to happen? Well, I mean, 140 00:07:49,440 --> 00:07:53,600 Speaker 1: this is certainly where the Secretary of State wants to go. However, 141 00:07:54,080 --> 00:07:58,160 Speaker 1: the biggest opposition he faces will be from Congress and 142 00:07:58,600 --> 00:08:02,040 Speaker 1: the fact that Congress does not want a big cut 143 00:08:02,120 --> 00:08:04,800 Speaker 1: like this thirty percent. I mean when when Secretary Towers 144 00:08:04,880 --> 00:08:07,040 Speaker 1: and went to the Hill a couple of weeks ago 145 00:08:07,080 --> 00:08:09,760 Speaker 1: to defend the proposed budget cuts, the head of the 146 00:08:09,800 --> 00:08:14,640 Speaker 1: Senate Foreign Relations Committee Tennessee Center above, Quirker basically just said, listen, 147 00:08:14,640 --> 00:08:16,520 Speaker 1: this isn't even worth talking about. There's no way this 148 00:08:16,560 --> 00:08:19,400 Speaker 1: budget is going to go through. So let's think sort 149 00:08:19,400 --> 00:08:21,960 Speaker 1: of more in the future about how we can align 150 00:08:21,960 --> 00:08:24,080 Speaker 1: our interests because there's no way we're gonna give you 151 00:08:24,120 --> 00:08:26,400 Speaker 1: this thirty percent cut. So you have this really weird 152 00:08:26,760 --> 00:08:30,040 Speaker 1: situation where the Secretary of State is is begging for 153 00:08:30,200 --> 00:08:33,400 Speaker 1: cuts to the agency he leads in Congress is saying no, 154 00:08:33,559 --> 00:08:35,920 Speaker 1: we're not going to let you cut your agency. And 155 00:08:36,000 --> 00:08:39,760 Speaker 1: at the same time, you can reference the historical remarks 156 00:08:39,920 --> 00:08:44,280 Speaker 1: of Secretary Defense James Maddis, who back in at a 157 00:08:44,400 --> 00:08:48,040 Speaker 1: National Security Council Advisory meeting said that if you don't 158 00:08:48,080 --> 00:08:50,439 Speaker 1: fund the State Department fully, then I need to buy 159 00:08:50,559 --> 00:08:54,120 Speaker 1: more ammunition immediately. He said, I think it's a cost 160 00:08:54,120 --> 00:08:56,160 Speaker 1: benefit ratio. The more that we put into the State 161 00:08:56,200 --> 00:08:59,280 Speaker 1: Department's diplomacy, hopefully, the less we have to put into 162 00:08:59,360 --> 00:09:04,880 Speaker 1: a military budget. Do they not speak to each other? Uh? Well, actually, 163 00:09:04,880 --> 00:09:07,599 Speaker 1: that's one of the more interesting things about this administration. 164 00:09:07,760 --> 00:09:12,040 Speaker 1: Secretaries Toysts and Maddis are said to be close friends 165 00:09:12,080 --> 00:09:14,440 Speaker 1: and to speak speak to each other frequently, I mean 166 00:09:14,559 --> 00:09:17,920 Speaker 1: Secretary Toyist and frames this as sort of, uh, bringing 167 00:09:18,320 --> 00:09:21,160 Speaker 1: the State Department into the twenty one century. He says, Look, 168 00:09:21,200 --> 00:09:26,080 Speaker 1: you've seen this budget just increase by vast amounts double 169 00:09:26,160 --> 00:09:28,320 Speaker 1: since basically two thousand and eight, So we sort of 170 00:09:28,320 --> 00:09:31,560 Speaker 1: want to realign to a national security focus and get 171 00:09:31,600 --> 00:09:33,640 Speaker 1: away from a lot of the overlaps. So you would 172 00:09:33,640 --> 00:09:36,720 Speaker 1: have special envoys for certain regions, while you also have 173 00:09:36,800 --> 00:09:40,080 Speaker 1: bureaus that cover those regions. So he's sort of portraying 174 00:09:40,160 --> 00:09:43,360 Speaker 1: this as a bid to sort of streamline and consolidate 175 00:09:43,400 --> 00:09:46,439 Speaker 1: the Department. Of course, then you have people who echo 176 00:09:46,480 --> 00:09:49,679 Speaker 1: Secretary Matdis, who say, listen, you can't h you can't 177 00:09:49,720 --> 00:09:53,359 Speaker 1: cut by thirty percent and still engage in ineffective diplomacy. 178 00:09:53,360 --> 00:09:55,160 Speaker 1: And this is just something we're gonna have to see 179 00:09:55,200 --> 00:09:57,480 Speaker 1: how it plays out over the next you know, coming 180 00:09:57,520 --> 00:10:03,040 Speaker 1: months and years. Has the President appointed the relevant assistant 181 00:10:03,120 --> 00:10:06,440 Speaker 1: secretaries at the State Department in order to make the 182 00:10:06,520 --> 00:10:10,240 Speaker 1: machinery of the State Department run No. I mean those 183 00:10:10,280 --> 00:10:13,680 Speaker 1: are starting to come in in a trickle, but by 184 00:10:13,720 --> 00:10:17,040 Speaker 1: and large those there are dozens of posts that remain 185 00:10:17,240 --> 00:10:20,200 Speaker 1: unfilled in the department, and that is really the biggest 186 00:10:20,200 --> 00:10:22,720 Speaker 1: concern when you talk to career diplomats. And then also 187 00:10:22,800 --> 00:10:26,240 Speaker 1: to get back to your early question about foreign leaders, Uh, 188 00:10:26,320 --> 00:10:28,520 Speaker 1: you know, a lot of foreign investors we've spoken to 189 00:10:28,600 --> 00:10:30,400 Speaker 1: say they just don't know who to go to at 190 00:10:30,400 --> 00:10:32,680 Speaker 1: the State Department, so they end up going to people 191 00:10:32,720 --> 00:10:35,559 Speaker 1: at the NSC or directly at the White House. So 192 00:10:35,600 --> 00:10:38,640 Speaker 1: what you're sort of seeing is in large part a 193 00:10:38,800 --> 00:10:43,040 Speaker 1: sidelining of the State Department, where because there is an 194 00:10:43,080 --> 00:10:47,280 Speaker 1: absence of senior staff, uh, the State Department gets avoided. 195 00:10:47,360 --> 00:10:50,000 Speaker 1: That happens both with foreign leaders but also with other 196 00:10:50,040 --> 00:10:52,000 Speaker 1: agencies in the government. They don't want to deal with 197 00:10:52,040 --> 00:10:55,880 Speaker 1: an acting assistant secretary or a deputy acting assistant. They 198 00:10:55,920 --> 00:10:58,079 Speaker 1: want to go straight to the most powerful person they can. 199 00:10:58,160 --> 00:11:00,240 Speaker 1: That usually these days means the n S see you 200 00:11:00,320 --> 00:11:02,320 Speaker 1: or the White House. I'm trying to put together the 201 00:11:02,400 --> 00:11:07,520 Speaker 1: idea that the the Secretary, that the Foreign Department is 202 00:11:07,559 --> 00:11:10,520 Speaker 1: not fully staffed, that we have the Secretary of state 203 00:11:10,559 --> 00:11:12,840 Speaker 1: that is having some turmoil underneath him as well as 204 00:11:12,840 --> 00:11:15,400 Speaker 1: a president who doesn't always have a coherent message with 205 00:11:15,400 --> 00:11:19,240 Speaker 1: the people around him. And pairing this with the travel 206 00:11:19,280 --> 00:11:21,640 Speaker 1: band that just took effect. How much of is this 207 00:11:21,720 --> 00:11:27,520 Speaker 1: really having a serious, deliterious impact on the USS reputation 208 00:11:27,559 --> 00:11:30,559 Speaker 1: internationally or how much of this is just the classic 209 00:11:31,120 --> 00:11:34,839 Speaker 1: turmoil when a new president comes into office. Well, I mean, 210 00:11:34,880 --> 00:11:37,800 Speaker 1: this is really something we're gonna have to see how 211 00:11:37,840 --> 00:11:40,680 Speaker 1: it plays out, because there is a sort of standard 212 00:11:40,720 --> 00:11:44,439 Speaker 1: amount of turmoil that always happens where there's an adjustment, 213 00:11:44,480 --> 00:11:49,160 Speaker 1: particularly when it goes from one party to the other. However, 214 00:11:49,200 --> 00:11:52,920 Speaker 1: I mean, it is undeniable that the president has shifted 215 00:11:52,920 --> 00:11:56,240 Speaker 1: for foreign policy to such a degree. Uh that has 216 00:11:56,320 --> 00:12:01,760 Speaker 1: led to skepticism. For example, when the US comes into 217 00:12:02,320 --> 00:12:05,600 Speaker 1: agreements with other countries like on the Around Nuclear Deal 218 00:12:05,720 --> 00:12:09,760 Speaker 1: or on the Paris Climate Court and then leaves or 219 00:12:09,920 --> 00:12:12,720 Speaker 1: express as a desire to leave those as as Trump 220 00:12:12,760 --> 00:12:15,120 Speaker 1: has done with the Paris Climate Deal, or saying that 221 00:12:15,160 --> 00:12:17,000 Speaker 1: the Iran deal was a bad deal though that's been 222 00:12:17,080 --> 00:12:20,640 Speaker 1: left in place for now. That just creates uncertainty. Um, 223 00:12:20,840 --> 00:12:23,000 Speaker 1: And so that's really what you're seeing now. The biggest 224 00:12:23,040 --> 00:12:26,959 Speaker 1: question overseas is a question about we don't really know 225 00:12:27,120 --> 00:12:29,400 Speaker 1: where the U. S stands now. We don't know what 226 00:12:29,440 --> 00:12:31,920 Speaker 1: their intentions are. We don't know whether President Trump really 227 00:12:31,960 --> 00:12:36,920 Speaker 1: wants better relationships with Russia, for example. So the biggest 228 00:12:36,920 --> 00:12:39,600 Speaker 1: thing is is a lack of confidence and certainty and 229 00:12:39,640 --> 00:12:43,120 Speaker 1: where the U S stands, Nick, I'm looking at the 230 00:12:43,240 --> 00:12:47,480 Speaker 1: job openings that currently exist under Secretary for Civilian Security, 231 00:12:48,280 --> 00:12:52,079 Speaker 1: Human Rights and Democracy, under Secretary for Economic Growth and Energy, 232 00:12:52,160 --> 00:12:57,480 Speaker 1: all vacant is Rex Chillisen relying on too few people 233 00:12:57,640 --> 00:13:01,040 Speaker 1: understand his chief of staff Margaret Peter Lynn, and UH, 234 00:13:01,400 --> 00:13:05,240 Speaker 1: the Policy Planning Division. I guess no, I beg your 235 00:13:05,240 --> 00:13:08,720 Speaker 1: pardon former Assistant Secretary of State Brian Hook. Are they 236 00:13:08,760 --> 00:13:11,920 Speaker 1: really the point people for for Tillerson? Yes, I mean 237 00:13:11,960 --> 00:13:14,120 Speaker 1: you So, what we know is that he relies on 238 00:13:14,120 --> 00:13:17,400 Speaker 1: a very small circle of aids UH to sort of 239 00:13:17,440 --> 00:13:20,480 Speaker 1: achieve his goals, and that has raised concerns about people 240 00:13:20,520 --> 00:13:23,680 Speaker 1: saying that their requests for information and there's you know, 241 00:13:23,720 --> 00:13:26,199 Speaker 1: they see guidance and things like that that goes unanswered 242 00:13:26,240 --> 00:13:29,720 Speaker 1: because this group is just so small and so overwhelmed. 243 00:13:29,720 --> 00:13:32,560 Speaker 1: I mean, what is happening and what his explanation is 244 00:13:32,559 --> 00:13:35,400 Speaker 1: is that, listen, we're doing a massive restructuring of this department. 245 00:13:35,440 --> 00:13:37,800 Speaker 1: We want to cut jobs, we want to fold bureaus together, 246 00:13:37,840 --> 00:13:40,120 Speaker 1: we want to reorganize things. We don't want to hire 247 00:13:40,240 --> 00:13:42,360 Speaker 1: people for those jobs until we know we want to 248 00:13:42,440 --> 00:13:44,520 Speaker 1: keep those jobs. So this is a process that's going 249 00:13:44,559 --> 00:13:47,600 Speaker 1: to take six months or so. But currently, yes, it 250 00:13:47,679 --> 00:13:50,360 Speaker 1: is a very small circle of advisors that he relies on. 251 00:13:50,720 --> 00:13:52,760 Speaker 1: Nick Waddams, thank you so much for joining us and 252 00:13:52,800 --> 00:13:55,839 Speaker 1: helping us understand this really complicated situation. Nick Wadhams is 253 00:13:55,840 --> 00:14:11,720 Speaker 1: a foreign policy reporter for Bloomberg News. To learn more 254 00:14:11,720 --> 00:14:14,480 Speaker 1: about the municipal market, who better to turn to than 255 00:14:14,520 --> 00:14:18,520 Speaker 1: the editor for Bloomberg Briefs municipal markets, Joe my Sect. Joe, 256 00:14:18,559 --> 00:14:20,880 Speaker 1: thank you very much for being here. Um boy, I 257 00:14:20,880 --> 00:14:22,720 Speaker 1: guess you would be a rich person if you've got 258 00:14:22,760 --> 00:14:24,640 Speaker 1: a nickel for every time you got to utter the 259 00:14:24,640 --> 00:14:28,640 Speaker 1: words Illinois or Puerto Rico this year. Let's start with Illinois. 260 00:14:28,720 --> 00:14:30,680 Speaker 1: What is going on? Are they really going to put 261 00:14:30,680 --> 00:14:35,680 Speaker 1: together a budget eventually? I don't think so. All right, 262 00:14:35,760 --> 00:14:42,480 Speaker 1: done and dusted, they thank you so much. Yeah, um, 263 00:14:42,720 --> 00:14:47,080 Speaker 1: you know, there is each side in this battle. Has 264 00:14:47,160 --> 00:14:51,560 Speaker 1: so much invested that it's almost, um, it's almost philosophical. 265 00:14:52,200 --> 00:14:54,800 Speaker 1: So you have no, it's exactly philosophical. So you have 266 00:14:54,840 --> 00:14:59,160 Speaker 1: these two different political points of view, and to tell 267 00:14:59,160 --> 00:15:01,600 Speaker 1: people that are not f million necessarily with the internal 268 00:15:01,640 --> 00:15:04,520 Speaker 1: politics of the state of Illinois, what is going on here? Okay? 269 00:15:04,520 --> 00:15:07,200 Speaker 1: And I guess the simplest way I could put it 270 00:15:07,280 --> 00:15:10,000 Speaker 1: is that the Democrats have been in power for you know, 271 00:15:10,000 --> 00:15:13,240 Speaker 1: it seems like decades now, and they're a Republican governor. 272 00:15:13,240 --> 00:15:16,800 Speaker 1: And the Republican governor has said, well, you know, we 273 00:15:16,800 --> 00:15:20,080 Speaker 1: should be doing more republican things. We should be cutting spending, 274 00:15:20,720 --> 00:15:24,360 Speaker 1: and we should be lowering taxes, and we should be 275 00:15:24,400 --> 00:15:28,640 Speaker 1: paying attention to this enormous pension debt we have. And 276 00:15:28,800 --> 00:15:32,800 Speaker 1: the Democrats are digging in their heels and saying, well no. 277 00:15:33,360 --> 00:15:37,480 Speaker 1: And so it's essentially a big battle, I would say, 278 00:15:37,560 --> 00:15:45,280 Speaker 1: between your sort of Democrats slash public employees and the 279 00:15:45,320 --> 00:15:49,000 Speaker 1: Republican governor on the other side. And you know, they've 280 00:15:49,000 --> 00:15:52,080 Speaker 1: gone two years without a budget, and I could very 281 00:15:52,120 --> 00:15:55,000 Speaker 1: easily see them going another two years without a budget. 282 00:15:55,040 --> 00:15:59,880 Speaker 1: I mean, right now, there's almost from a philosophical point 283 00:15:59,880 --> 00:16:03,000 Speaker 1: of view, there's almost no point in uh, you know, 284 00:16:03,160 --> 00:16:05,320 Speaker 1: giving up what you believe in. So I think both 285 00:16:05,360 --> 00:16:09,960 Speaker 1: sides are gonna stick uh to to their guns and 286 00:16:10,080 --> 00:16:12,320 Speaker 1: they're not going to pass a budget. Right. Well, um, 287 00:16:12,480 --> 00:16:15,640 Speaker 1: I love philosophy, and I'd love to go a little 288 00:16:15,640 --> 00:16:17,640 Speaker 1: bit deeper into philosophy. But let's get to the reality. 289 00:16:17,680 --> 00:16:21,080 Speaker 1: What is the actual consequence of not having a budget 290 00:16:21,480 --> 00:16:23,880 Speaker 1: for two years and then another three years and then 291 00:16:23,920 --> 00:16:27,880 Speaker 1: ever horrible? Uh, you know, it's cascading through the system. 292 00:16:28,160 --> 00:16:30,160 Speaker 1: We carried a story just the other day about how 293 00:16:30,160 --> 00:16:33,720 Speaker 1: the universities may lose some of the universities, their public 294 00:16:33,800 --> 00:16:37,720 Speaker 1: universities may lose their accreditation because the money is going 295 00:16:37,760 --> 00:16:40,440 Speaker 1: to be cut off. There's just not enough you know 296 00:16:40,520 --> 00:16:43,720 Speaker 1: money in your various continuing resolutions and the way you 297 00:16:43,720 --> 00:16:47,720 Speaker 1: could get money out there for them. And you know, 298 00:16:48,240 --> 00:16:53,400 Speaker 1: very gradually you see the state become paralyzed. And you know, 299 00:16:53,480 --> 00:16:56,720 Speaker 1: what do we see you know after that? Well, I 300 00:16:56,760 --> 00:16:59,920 Speaker 1: know S and P, for example, has warned the stay 301 00:17:00,040 --> 00:17:04,800 Speaker 1: It specifically that if they don't have a budget by 302 00:17:04,840 --> 00:17:11,239 Speaker 1: this evening actually July one, that they may lower their 303 00:17:11,320 --> 00:17:13,800 Speaker 1: rating to junk. They become the first junk rated state. 304 00:17:15,240 --> 00:17:18,000 Speaker 1: All right, Well, that is a distinction that I don't 305 00:17:18,000 --> 00:17:20,560 Speaker 1: think anyone really wants to put on a bumper sticker. 306 00:17:20,840 --> 00:17:23,680 Speaker 1: But did they do the people involved, whether it's the governor, 307 00:17:23,720 --> 00:17:29,280 Speaker 1: whether it's the democratic lawmakers, do they recognize the long 308 00:17:29,400 --> 00:17:35,280 Speaker 1: term effects of what they're doing. I think that they 309 00:17:35,320 --> 00:17:40,360 Speaker 1: they are sticking to their philosophical guns on this one. 310 00:17:40,720 --> 00:17:42,919 Speaker 1: But you can't eat philosophy, right, I mean, you have 311 00:17:43,000 --> 00:17:45,119 Speaker 1: to pay the bills, by the groceries, and you know, 312 00:17:45,200 --> 00:17:49,200 Speaker 1: fund the police and so on. Uh, you know, there 313 00:17:49,240 --> 00:17:52,719 Speaker 1: there's no popular uprising. That's an election next year and 314 00:17:52,760 --> 00:17:57,159 Speaker 1: that's you know when when things will be decided. Uh, 315 00:17:57,200 --> 00:18:00,760 Speaker 1: it's it's shocking to me. It's astonishing. And yet what 316 00:18:00,960 --> 00:18:03,960 Speaker 1: we have here, it's just it's almost purely political. Illinois 317 00:18:04,080 --> 00:18:07,359 Speaker 1: is a very wealthy state. There's lots of things they 318 00:18:07,400 --> 00:18:11,040 Speaker 1: could do. Um, this is almost all political. There's nothing 319 00:18:11,080 --> 00:18:14,360 Speaker 1: economic about this. And yet right now the bills are 320 00:18:14,359 --> 00:18:18,440 Speaker 1: piling up and the certainly the pension liabilities you're growing. Yeah, 321 00:18:18,560 --> 00:18:22,680 Speaker 1: the bondholders they don't care. They're like, yeah, opportunity. Well 322 00:18:22,760 --> 00:18:24,560 Speaker 1: some of the yes, you're right. Some of the big 323 00:18:24,560 --> 00:18:27,800 Speaker 1: banks this week and last week put out call saying, 324 00:18:28,359 --> 00:18:31,399 Speaker 1: you know, there could be some real opportunity in this 325 00:18:31,480 --> 00:18:35,119 Speaker 1: Illinois paper, and they're probably right because that service is 326 00:18:35,119 --> 00:18:37,240 Speaker 1: going to be one of the last things to be affected. 327 00:18:37,560 --> 00:18:41,600 Speaker 1: Great well, philosophy turns into profits for somebody, but certainly 328 00:18:41,680 --> 00:18:44,760 Speaker 1: not the Illinois I want to move to Puerto Rico 329 00:18:44,840 --> 00:18:49,639 Speaker 1: because you're moving to Puerto Rico, alright, be very happy 330 00:18:49,680 --> 00:18:51,440 Speaker 1: that you did so. I will be honest right now, 331 00:18:51,520 --> 00:18:53,560 Speaker 1: I could, I could. I could live with being on 332 00:18:53,600 --> 00:18:56,359 Speaker 1: an island and enjoying palm trees at an ocean. But 333 00:18:56,600 --> 00:18:58,960 Speaker 1: I wanted to touch a base about the Federal over 334 00:18:59,359 --> 00:19:05,000 Speaker 1: Sighteboard voting unanimously to push the government's electric utility into bankruptcy. 335 00:19:05,080 --> 00:19:07,919 Speaker 1: This is after they had a pact with creditors that 336 00:19:07,960 --> 00:19:12,360 Speaker 1: they decided to uh negate renegon what's going on here? 337 00:19:12,400 --> 00:19:13,959 Speaker 1: I mean, does this set a bad tone for the 338 00:19:14,000 --> 00:19:16,480 Speaker 1: rest of the bankruptcy proceedings or does it not even 339 00:19:16,520 --> 00:19:18,919 Speaker 1: matter because it's such a mess and who cares um? 340 00:19:19,080 --> 00:19:24,879 Speaker 1: I think that the Federal Oversight Board taking a taking 341 00:19:24,920 --> 00:19:27,760 Speaker 1: some action, taking a point of view here is probably 342 00:19:27,760 --> 00:19:30,240 Speaker 1: what a lot of people in the bond market who 343 00:19:30,359 --> 00:19:34,199 Speaker 1: view it objectively have been waiting for. Of course, not 344 00:19:34,240 --> 00:19:37,360 Speaker 1: the bond holders and certainly not the people who were 345 00:19:38,440 --> 00:19:41,040 Speaker 1: stood to get eighty five cents in the dollar and 346 00:19:41,080 --> 00:19:43,840 Speaker 1: the settlement on that, on those PREPA bonds. And of 347 00:19:43,880 --> 00:19:47,360 Speaker 1: course right now those PREPA bonds, the Electric Power Authority 348 00:19:47,400 --> 00:19:50,399 Speaker 1: in Puerto Rico, they're trading it around fifty cents on 349 00:19:50,480 --> 00:19:56,680 Speaker 1: the dollar. So wow, Yeah, the the board is becoming 350 00:19:56,720 --> 00:20:00,760 Speaker 1: more activists, as it should, and the politicians, let's face it, 351 00:20:01,080 --> 00:20:05,560 Speaker 1: are going to use the board as uh, something to 352 00:20:05,640 --> 00:20:09,199 Speaker 1: hide behind. There's going to be things done that the 353 00:20:09,280 --> 00:20:12,480 Speaker 1: Board decides that the politicians are going to say, well, 354 00:20:12,480 --> 00:20:14,639 Speaker 1: our hands were tied. But you know what's interesting about this. 355 00:20:14,840 --> 00:20:18,439 Speaker 1: When this Fiscal Control Board was implemented, and this was 356 00:20:18,600 --> 00:20:22,920 Speaker 1: under US legislation that in stated this board, a lot 357 00:20:22,920 --> 00:20:25,199 Speaker 1: of bondholders thought that it would benefit them that this 358 00:20:25,240 --> 00:20:29,480 Speaker 1: fiscal Control Board would come in and exercise some restraint 359 00:20:29,640 --> 00:20:33,000 Speaker 1: in government and curb excessive spending and help create a 360 00:20:33,040 --> 00:20:36,480 Speaker 1: more conservative budget. And then this board has turned out 361 00:20:36,480 --> 00:20:40,840 Speaker 1: to be anything but friendly to them. Well, uh, yes, 362 00:20:41,320 --> 00:20:45,359 Speaker 1: you know, you're right. Several bond holders, some bond holders thought, 363 00:20:45,840 --> 00:20:49,560 Speaker 1: you know, finally that they would get some help here, 364 00:20:50,200 --> 00:20:53,639 Speaker 1: but no, the Oversight Board. You know, when there were 365 00:20:53,680 --> 00:20:56,600 Speaker 1: several members of the Oversight Board, one of whom David 366 00:20:56,680 --> 00:21:02,080 Speaker 1: Skale uh advocated bankruptcy for states at that point. He 367 00:21:02,119 --> 00:21:07,040 Speaker 1: was advocating it thinking that mainly public pensions would get hit. 368 00:21:07,359 --> 00:21:11,120 Speaker 1: But of course we now know that the bond holders 369 00:21:11,240 --> 00:21:14,320 Speaker 1: seem to be almost the first in line. Well, Joe, 370 00:21:14,680 --> 00:21:17,520 Speaker 1: you know, it strikes me that the board, for example, 371 00:21:17,560 --> 00:21:20,480 Speaker 1: has already warned that if the budget is not corrected right, 372 00:21:20,520 --> 00:21:23,919 Speaker 1: they want more cuts. They want more specifics. Uh. You 373 00:21:23,960 --> 00:21:27,560 Speaker 1: could end up with furloughs or a reduction or elimination 374 00:21:27,600 --> 00:21:30,560 Speaker 1: for example, of the Christmas bonus that is paid to workers. 375 00:21:30,840 --> 00:21:33,600 Speaker 1: These are all things that the governor of Puerto Rico, 376 00:21:33,960 --> 00:21:37,840 Speaker 1: Ricardo Rossello, has said, No, we were this would you 377 00:21:37,880 --> 00:21:39,639 Speaker 1: know this is not a good thing because if you 378 00:21:39,680 --> 00:21:42,600 Speaker 1: start taking away money from these people, there's not going 379 00:21:42,640 --> 00:21:45,080 Speaker 1: to be in any economy in order to get out 380 00:21:45,160 --> 00:21:48,119 Speaker 1: of the hole that they've already dug for themselves. Well, 381 00:21:48,359 --> 00:21:51,240 Speaker 1: but trims do have to be made, cuts do have 382 00:21:51,359 --> 00:21:55,439 Speaker 1: to be made. The the size of the governmental sector 383 00:21:55,480 --> 00:21:59,080 Speaker 1: in Puerto Rico is entirely too large. Uh, so you 384 00:21:59,119 --> 00:22:01,680 Speaker 1: know there are going I mean, then the governor has 385 00:22:01,720 --> 00:22:03,720 Speaker 1: to say what the governor is going to say he's 386 00:22:03,720 --> 00:22:09,959 Speaker 1: a very politically ambitious fellow. Um, but there are austerity 387 00:22:10,040 --> 00:22:13,000 Speaker 1: is going to take place, and it's probably gonna be 388 00:22:13,040 --> 00:22:17,840 Speaker 1: ten years of austerity, if if we've learned any ten years. Yeah, 389 00:22:17,840 --> 00:22:19,920 Speaker 1: I feel like this is the slowest moving train wreck 390 00:22:20,000 --> 00:22:21,720 Speaker 1: ever because I feel like we've been talking about it 391 00:22:21,720 --> 00:22:23,600 Speaker 1: forever and people are going to talk about it for 392 00:22:23,600 --> 00:22:25,680 Speaker 1: the next uh ten years, and it's you know, it's 393 00:22:25,680 --> 00:22:28,680 Speaker 1: sort of slow moving, and it's a huge issue. What's 394 00:22:28,680 --> 00:22:30,760 Speaker 1: the next deadline we should be looking for? They could 395 00:22:30,800 --> 00:22:33,720 Speaker 1: possibly offer some clarity and what the road forward will 396 00:22:33,760 --> 00:22:38,439 Speaker 1: look like. There's you know right now the I know 397 00:22:38,520 --> 00:22:43,040 Speaker 1: there are some hearings in July. UM, but you know 398 00:22:43,640 --> 00:22:47,800 Speaker 1: clarity from Puerto Rico. No, no, no, Well, but but 399 00:22:47,880 --> 00:22:50,119 Speaker 1: you know, for example, I'll give you a sense there 400 00:22:50,160 --> 00:22:52,560 Speaker 1: was something there was a story that caught my eye yesterday, 401 00:22:52,680 --> 00:22:57,240 Speaker 1: uh that the SEC is going after some Wall Street 402 00:22:57,280 --> 00:23:01,720 Speaker 1: banks for selling Puerto Rico at in two thousand fourteen, 403 00:23:01,840 --> 00:23:06,000 Speaker 1: underwriting a couple of billion dollars of new bonds even 404 00:23:06,040 --> 00:23:09,280 Speaker 1: though the island was clearly in financial distress. Do you 405 00:23:09,320 --> 00:23:11,560 Speaker 1: know anything about this? I mean, is that something that's 406 00:23:11,560 --> 00:23:17,640 Speaker 1: important to you predicted here first several several weeks. They're 407 00:23:17,680 --> 00:23:22,080 Speaker 1: going after All Street and who could possibly be surprised 408 00:23:22,119 --> 00:23:25,000 Speaker 1: by this. They're going after the underwriters, They're going after 409 00:23:25,080 --> 00:23:30,199 Speaker 1: salespeople who sold bonds under road bonds. Uh, you know, 410 00:23:30,600 --> 00:23:33,479 Speaker 1: who could be surprised after Puerto Rico built up this 411 00:23:33,880 --> 00:23:39,520 Speaker 1: seventy four billion dollar debtload. You know the You know, 412 00:23:39,560 --> 00:23:41,080 Speaker 1: you could sort of on the one hand, you could 413 00:23:41,119 --> 00:23:43,199 Speaker 1: sort of accept it and say, well, this is this 414 00:23:43,240 --> 00:23:46,399 Speaker 1: is what's going on, and they'll, you know, honor their debts. 415 00:23:46,440 --> 00:23:49,800 Speaker 1: On the other hand, you could keep the idea in 416 00:23:49,880 --> 00:23:52,600 Speaker 1: mind that this is getting way out of hand. This 417 00:23:52,680 --> 00:23:57,280 Speaker 1: island is ferociously over leveraged and it cannot come to 418 00:23:57,359 --> 00:24:00,320 Speaker 1: a good end, which indeed it has not. I was 419 00:24:00,359 --> 00:24:03,919 Speaker 1: just looking also at the pension liabilities. I think the 420 00:24:03,920 --> 00:24:07,119 Speaker 1: public pension liabelary. I think it's forty five billion dollars. 421 00:24:07,160 --> 00:24:08,280 Speaker 1: I know this is going to be a story that 422 00:24:08,359 --> 00:24:11,040 Speaker 1: keeps on giving, and you're gonna keep giving us the details. 423 00:24:11,040 --> 00:24:14,160 Speaker 1: Thanks very much. Joe Maisak is the editor for Bloomberg 424 00:24:14,160 --> 00:24:17,760 Speaker 1: Briefs Municipal Market Letter. Always a pleasure. Thank you very 425 00:24:17,800 --> 00:24:31,959 Speaker 1: much for being with us. All right, Well, let's uh, 426 00:24:32,040 --> 00:24:34,320 Speaker 1: let's talk a little bit more about manufacturing in the 427 00:24:34,400 --> 00:24:36,720 Speaker 1: United States and it's connection to trade. I want to 428 00:24:36,720 --> 00:24:39,440 Speaker 1: bring in James Manyika. He is the chairman of the 429 00:24:39,520 --> 00:24:43,480 Speaker 1: mackenzie Global Institute, is also a senior partner at McKinsey 430 00:24:43,520 --> 00:24:46,400 Speaker 1: and Company, and he comes to us today from the 431 00:24:46,440 --> 00:24:51,000 Speaker 1: Aspen Ideas Festival and Aspen, Colorado. Mr Manuka, thank you 432 00:24:51,119 --> 00:24:52,960 Speaker 1: very much for being with us. Tell us about this 433 00:24:53,040 --> 00:24:57,800 Speaker 1: new report that McKenzie has released about manufacturing jobs in 434 00:24:57,840 --> 00:25:00,840 Speaker 1: the United States and the role of manufacturing UH in 435 00:25:00,960 --> 00:25:05,359 Speaker 1: the global economy that we play. UH, So, thank you, 436 00:25:05,400 --> 00:25:07,720 Speaker 1: thank you for having me. Manufacturing is actually a very 437 00:25:07,720 --> 00:25:11,560 Speaker 1: important sector for the US economy. It makes huge contributions 438 00:25:11,560 --> 00:25:15,840 Speaker 1: to value, the growth to productivity, to our trade balance UH, 439 00:25:15,880 --> 00:25:19,159 Speaker 1: and it also contributes to R and D and innovation. 440 00:25:19,520 --> 00:25:21,399 Speaker 1: So it's a very important sector for the U s 441 00:25:21,440 --> 00:25:24,720 Speaker 1: economy that punches way above its weight. And I think 442 00:25:24,760 --> 00:25:27,919 Speaker 1: what's exciting is that when you look forward many of 443 00:25:27,960 --> 00:25:30,800 Speaker 1: the trends of the global economy, everything from what's happening 444 00:25:30,840 --> 00:25:35,400 Speaker 1: with digitization, what's happening with advance manufacturing, what's happening with 445 00:25:35,840 --> 00:25:39,320 Speaker 1: how the the factors that we need as inputs such 446 00:25:39,320 --> 00:25:43,359 Speaker 1: as energy are playing in America's favor, this actually sets 447 00:25:43,400 --> 00:25:46,480 Speaker 1: up America to actually do very well in manufacturing. The 448 00:25:46,480 --> 00:25:48,720 Speaker 1: thing that we point out though, is that I think 449 00:25:48,760 --> 00:25:53,240 Speaker 1: it's important to remember that manufacturing it now only employs 450 00:25:53,280 --> 00:25:56,800 Speaker 1: about nine percent of the workforce. So while in fact 451 00:25:56,960 --> 00:26:01,120 Speaker 1: America can do better and revive manufacture ring, uh, it's 452 00:26:01,160 --> 00:26:03,679 Speaker 1: not going to be the massive, big solver for the 453 00:26:03,800 --> 00:26:06,199 Speaker 1: job's challenge that we've gotten that states. I think we 454 00:26:06,200 --> 00:26:08,480 Speaker 1: can do better than nine percent, but it's going to 455 00:26:08,560 --> 00:26:11,040 Speaker 1: take you know where. It's not going to reverse the 456 00:26:11,080 --> 00:26:14,200 Speaker 1: trend that we've seen in job growth in the US 457 00:26:14,200 --> 00:26:17,600 Speaker 1: economy wide. It's a very very important sector. James, Can 458 00:26:17,640 --> 00:26:19,639 Speaker 1: you just give us a little bit of perspective on 459 00:26:20,080 --> 00:26:23,000 Speaker 1: why now, Why will the US be able to gain 460 00:26:23,240 --> 00:26:27,280 Speaker 1: share in manufacturing now, albeit perhaps not in the form 461 00:26:27,359 --> 00:26:31,920 Speaker 1: that it used to be. Uh? Well, four things going on. One, 462 00:26:32,040 --> 00:26:35,479 Speaker 1: we're seeing all these industries digitized, So the advent of 463 00:26:35,880 --> 00:26:39,160 Speaker 1: three D printing, the adventure of use of digital technologies 464 00:26:39,160 --> 00:26:42,520 Speaker 1: and manufacturing, those are things that the US has enormous 465 00:26:42,560 --> 00:26:45,520 Speaker 1: strengths and and they are transforming manufacturing. So we start 466 00:26:45,800 --> 00:26:48,480 Speaker 1: on that first factor. On a on a position of strength. 467 00:26:48,960 --> 00:26:50,960 Speaker 1: The second thing is that if you look at value 468 00:26:51,000 --> 00:26:55,160 Speaker 1: add in manufacturing, it's migrating towards what you might call 469 00:26:55,200 --> 00:26:57,720 Speaker 1: the advanced industries, things that we're good at, things like 470 00:26:57,800 --> 00:27:03,200 Speaker 1: aircraft manufacturing, unery, medical products, and so forth, and away 471 00:27:03,240 --> 00:27:06,439 Speaker 1: from the factors that used to be labor intensive, like 472 00:27:06,560 --> 00:27:10,480 Speaker 1: textiles and furniture manufacturing and so forth. So that's the 473 00:27:10,520 --> 00:27:13,879 Speaker 1: second important factor. And the third factors you have to 474 00:27:14,160 --> 00:27:17,560 Speaker 1: recognize the huge boon we've had in energy costs. There 475 00:27:17,560 --> 00:27:21,880 Speaker 1: are parts of manufacturing like chemicals, uh in other places 476 00:27:21,920 --> 00:27:25,320 Speaker 1: where the cost of energy makes a big difference. And 477 00:27:25,400 --> 00:27:28,119 Speaker 1: so now that we've become a low cost energy provider, 478 00:27:28,440 --> 00:27:31,119 Speaker 1: that actually tilts the balance in our favor. And of 479 00:27:31,160 --> 00:27:32,800 Speaker 1: course we have to remember that the US is stilled 480 00:27:32,800 --> 00:27:36,639 Speaker 1: by a fign large the largest market demand markets for 481 00:27:36,760 --> 00:27:40,080 Speaker 1: manufactured products. So all of those things work in our 482 00:27:40,080 --> 00:27:43,040 Speaker 1: favor and they're shifting and tilting the balance in our favor. 483 00:27:43,080 --> 00:27:45,639 Speaker 1: But we have to step up and deliver the skills, 484 00:27:45,760 --> 00:27:48,879 Speaker 1: make the investments to be able to capture those opportunities. 485 00:27:49,400 --> 00:27:53,840 Speaker 1: And James, what role do foreign companies and foreign direct 486 00:27:53,920 --> 00:27:57,959 Speaker 1: investment in the United States play in the manufacturing sector. 487 00:27:58,000 --> 00:28:00,520 Speaker 1: We were just talking earlier about manufacturing in things such 488 00:28:00,560 --> 00:28:05,600 Speaker 1: as appliances, electronics as well as automobiles, they play a 489 00:28:05,680 --> 00:28:07,920 Speaker 1: huge role. I mean, historically, if you look at the 490 00:28:08,000 --> 00:28:10,359 Speaker 1: last sort of chances fifteen years, the US has not 491 00:28:10,520 --> 00:28:14,119 Speaker 1: historically gotten what i'd call its fair share of foreign 492 00:28:14,119 --> 00:28:17,160 Speaker 1: direct investment. But that has been changing in the last 493 00:28:17,200 --> 00:28:20,600 Speaker 1: few years. So most foreign companies will look to the 494 00:28:20,680 --> 00:28:22,719 Speaker 1: United States and say, we want to be close to 495 00:28:23,080 --> 00:28:25,520 Speaker 1: the end markets to where the demand is. So you've 496 00:28:25,560 --> 00:28:28,880 Speaker 1: seen that happening automotive. You've seen that happening in even 497 00:28:28,880 --> 00:28:31,760 Speaker 1: in regionally in places like South Carolina, where we've now 498 00:28:31,800 --> 00:28:34,480 Speaker 1: started to get more direct foreign investment. And that's a 499 00:28:34,520 --> 00:28:37,200 Speaker 1: good thing because what it does is that's more investment 500 00:28:37,240 --> 00:28:41,440 Speaker 1: into this economy. It strengthens those manufacturing clusters, and it's 501 00:28:41,480 --> 00:28:43,320 Speaker 1: a good thing. So we need more of that and 502 00:28:43,360 --> 00:28:46,000 Speaker 1: we should encourage it. So how could the US just 503 00:28:46,120 --> 00:28:48,360 Speaker 1: real quick, what are the three things the US could 504 00:28:48,360 --> 00:28:51,600 Speaker 1: do to kind of expedite uh this expansion of its 505 00:28:51,640 --> 00:28:55,680 Speaker 1: market share with respect to manufacturing. I think a few things. First, 506 00:28:55,920 --> 00:29:00,160 Speaker 1: we all we have to unleash the the ability head 507 00:29:00,160 --> 00:29:03,640 Speaker 1: frank and the incentives for companies both domestic and foreign 508 00:29:03,720 --> 00:29:06,880 Speaker 1: to invest in this economy. That's why any changes, whethers 509 00:29:06,920 --> 00:29:09,720 Speaker 1: to the tax code or two incentives that open up 510 00:29:09,760 --> 00:29:12,800 Speaker 1: the ability to invest in encourage investment here will make 511 00:29:12,840 --> 00:29:15,800 Speaker 1: a big difference. Second, I think we have to embrace 512 00:29:16,040 --> 00:29:19,160 Speaker 1: the innovations that are coming digitization and so forth already 513 00:29:19,200 --> 00:29:22,960 Speaker 1: received in our own work at mackenzie. Not enough, not 514 00:29:23,240 --> 00:29:27,400 Speaker 1: enough companies are embracing the possibilities of digitization. A few 515 00:29:27,440 --> 00:29:30,760 Speaker 1: firms were the frontier making big investments. We need more 516 00:29:30,800 --> 00:29:33,360 Speaker 1: to make investments. And finally, we've got to solve the 517 00:29:33,360 --> 00:29:35,880 Speaker 1: skills challenge. And one of the biggest challenges of manufacturing 518 00:29:35,920 --> 00:29:39,520 Speaker 1: is the massive skills gap we have between what these 519 00:29:39,520 --> 00:29:42,960 Speaker 1: this sector needs and what we're producing. A big challenge. 520 00:29:42,960 --> 00:29:44,200 Speaker 1: We're gonna have to leave it there. Thank you so 521 00:29:44,240 --> 00:29:47,120 Speaker 1: much for joining us. James Manka, Chairman of the McKenzie 522 00:29:47,160 --> 00:29:50,280 Speaker 1: Global Institute, based in New York City. This is Bloomberg. 523 00:30:03,200 --> 00:30:06,200 Speaker 1: Well you may soon be buying your groceries from an 524 00:30:06,280 --> 00:30:10,200 Speaker 1: Amazon owned company, namely Whole Foods. And here to tell 525 00:30:10,280 --> 00:30:14,280 Speaker 1: us about some of the opportunities that the deal has 526 00:30:14,400 --> 00:30:18,560 Speaker 1: presented his own, Bill Smede. Bill is the chief executive 527 00:30:18,560 --> 00:30:22,080 Speaker 1: Officer and the Chief investment Officer of SMED Capital Management, 528 00:30:22,240 --> 00:30:24,720 Speaker 1: helping to manage more than two point two billion dollars 529 00:30:24,720 --> 00:30:28,000 Speaker 1: of assets. He is based in Seattle and he can 530 00:30:28,040 --> 00:30:32,120 Speaker 1: be followed on Twitter at Smeede cap So Bill Smeed 531 00:30:33,120 --> 00:30:36,640 Speaker 1: Amazon it's going to own everything, we know that. But 532 00:30:36,760 --> 00:30:40,240 Speaker 1: in the meantime, before they get to that world domination position, 533 00:30:40,400 --> 00:30:42,560 Speaker 1: you might be able to make some money betting the 534 00:30:42,600 --> 00:30:45,800 Speaker 1: other way. Correct, Well, I don't need against them. But 535 00:30:47,040 --> 00:30:50,040 Speaker 1: the way we like to frame it is three weeks 536 00:30:50,040 --> 00:30:55,600 Speaker 1: ago everyone that invests said I have to adjust everything 537 00:30:55,640 --> 00:30:58,520 Speaker 1: to the new world of the Jetsons cartoon show. You 538 00:30:58,520 --> 00:31:02,160 Speaker 1: remember the Jetsons. So you jumped in the vehicle and 539 00:31:02,160 --> 00:31:03,680 Speaker 1: said where you wanted to go? It took you there. 540 00:31:03,760 --> 00:31:09,160 Speaker 1: The robotic Lady Robot that that that was the maid Rosie, Yeah, Rosie, 541 00:31:09,160 --> 00:31:13,680 Speaker 1: the whole thing, and their dog Elroy Dent. So, so 542 00:31:14,320 --> 00:31:19,800 Speaker 1: the Jetsons got priced into everything three weeks ago. And 543 00:31:19,840 --> 00:31:23,160 Speaker 1: the problem is whether it was seven years ago, with 544 00:31:23,280 --> 00:31:29,040 Speaker 1: electronic electric cars, whether anything like that. It always takes 545 00:31:29,160 --> 00:31:32,560 Speaker 1: way longer to happen than people think. Well maybe so, 546 00:31:32,720 --> 00:31:36,840 Speaker 1: but certainly we have seen the retail sector completely disrupted 547 00:31:36,880 --> 00:31:40,480 Speaker 1: by Amazon and the Amazon effect. And you know, certainly 548 00:31:40,960 --> 00:31:44,400 Speaker 1: there is pressure and it is increasing on some of 549 00:31:44,440 --> 00:31:49,920 Speaker 1: these grocery store chains to uh lower their prices compete online. 550 00:31:50,560 --> 00:31:52,080 Speaker 1: How do you counter that? I mean, how it does 551 00:31:52,120 --> 00:31:55,720 Speaker 1: a wal Mart compete with an Amazon when Amazon has 552 00:31:55,760 --> 00:31:59,000 Speaker 1: a grocery chain as well. Well. The biggest problem on 553 00:31:59,120 --> 00:32:02,160 Speaker 1: prices and the growth store business has been food deflation. 554 00:32:03,040 --> 00:32:06,400 Speaker 1: And you know, six months pick up in commodity markets 555 00:32:06,400 --> 00:32:10,320 Speaker 1: would would in agricultural commodities, would go a long way 556 00:32:10,400 --> 00:32:14,000 Speaker 1: to solving that problem for them. So so I think 557 00:32:14,040 --> 00:32:18,680 Speaker 1: everybody needs to be careful because a lot of the 558 00:32:18,720 --> 00:32:22,360 Speaker 1: technology right now that people are excited about takes away 559 00:32:22,440 --> 00:32:27,240 Speaker 1: things to do. And we use the extreme example of uh, 560 00:32:27,280 --> 00:32:29,680 Speaker 1: the Native Americans are getting back at white people by 561 00:32:29,680 --> 00:32:32,320 Speaker 1: sucking money out of them at casinos all across the nation, 562 00:32:32,680 --> 00:32:36,320 Speaker 1: and gambling casino revenue is at record levels. And why 563 00:32:36,480 --> 00:32:40,920 Speaker 1: is that? Because people need something to do. So one 564 00:32:40,920 --> 00:32:43,160 Speaker 1: of our eight criteria is you've got to meet an 565 00:32:43,160 --> 00:32:47,480 Speaker 1: economic need. And there's a point of diminishing returns taking 566 00:32:47,880 --> 00:32:52,400 Speaker 1: things to do away from people and and so uh 567 00:32:52,440 --> 00:32:56,160 Speaker 1: that nobody thinks about that much, but we're going It's 568 00:32:56,240 --> 00:32:59,040 Speaker 1: like in in in drug and biotech, they have a 569 00:32:59,040 --> 00:33:01,600 Speaker 1: thing called bio fix, Right, what what is the ethical 570 00:33:02,000 --> 00:33:05,800 Speaker 1: factor involved in it? So you're making two points here, right, 571 00:33:05,840 --> 00:33:08,080 Speaker 1: So one of them is people need to do something 572 00:33:08,080 --> 00:33:10,520 Speaker 1: with their day. Uh So going to the grocery store 573 00:33:10,560 --> 00:33:12,080 Speaker 1: is one of those things. And people aren't going to 574 00:33:12,160 --> 00:33:14,080 Speaker 1: do everything online because at some point they actually have 575 00:33:14,120 --> 00:33:16,800 Speaker 1: to stand in in order to prevent atrophying of their muscles. 576 00:33:16,960 --> 00:33:19,200 Speaker 1: So that's number one as a point. And then the 577 00:33:19,280 --> 00:33:22,840 Speaker 1: number two point is Uh, that you're saying any kind 578 00:33:22,840 --> 00:33:25,920 Speaker 1: of weakness we've seen in the grocery store sector has 579 00:33:26,000 --> 00:33:28,800 Speaker 1: less to do with Amazon and more to do with 580 00:33:28,920 --> 00:33:32,200 Speaker 1: food deflation. So if we see any kind of agricultural 581 00:33:32,280 --> 00:33:35,520 Speaker 1: inflation that will solve that. Is that correct that you're saying? Basically, 582 00:33:35,520 --> 00:33:37,719 Speaker 1: people shouldn't throw the baby out with the bathwater. Some 583 00:33:37,800 --> 00:33:41,640 Speaker 1: of these grocery store chains might actually have more upside, 584 00:33:41,800 --> 00:33:44,440 Speaker 1: especially if there is some kind of inflation in agriculture. Yeah. 585 00:33:44,520 --> 00:33:51,880 Speaker 1: For example, uh, much more than retail. In retail, Amazon's 586 00:33:51,960 --> 00:33:55,160 Speaker 1: hurt retail. But also there hasn't been a big wave 587 00:33:55,240 --> 00:33:58,240 Speaker 1: of fashion change, and fashion changes for example, for a 588 00:33:58,280 --> 00:34:00,719 Speaker 1: coming like Nords from is a huge thing. Uh, so 589 00:34:00,840 --> 00:34:04,200 Speaker 1: fashion change is a big factor the same way that uh, 590 00:34:04,240 --> 00:34:06,640 Speaker 1: you know, price deflation has been a big negative for 591 00:34:06,680 --> 00:34:13,719 Speaker 1: the grocery stores. So remember, uh this the percentage we're 592 00:34:13,760 --> 00:34:18,080 Speaker 1: dealing at the margin. For twenty years, delivering groceries has 593 00:34:18,160 --> 00:34:22,480 Speaker 1: been where money goes to die. Think about that? Do 594 00:34:22,360 --> 00:34:24,520 Speaker 1: you do you realize the worst career move in the 595 00:34:24,640 --> 00:34:27,720 Speaker 1: history of the United States of America was the senior 596 00:34:27,760 --> 00:34:32,160 Speaker 1: managing partner of Anderson Consulting leaving and taking the job 597 00:34:32,200 --> 00:34:36,759 Speaker 1: as the CEO web Ban, who three years later was bankrupt. 598 00:34:37,080 --> 00:34:39,920 Speaker 1: Four years later Accentia went public. He would have been 599 00:34:39,920 --> 00:34:43,200 Speaker 1: worth hundreds of millions of dollars today if he still 600 00:34:43,239 --> 00:34:45,879 Speaker 1: had the stock he would have got. So so that 601 00:34:46,040 --> 00:34:49,160 Speaker 1: is a great art. You show me one company that 602 00:34:49,239 --> 00:34:52,440 Speaker 1: has proven that they can deliver profitably. All right, now, 603 00:34:52,520 --> 00:34:56,080 Speaker 1: let's let's let's leave that debata side for just a second, 604 00:34:56,080 --> 00:34:58,319 Speaker 1: and I want you to talk to us about Walgreen 605 00:34:58,400 --> 00:35:01,319 Speaker 1: Boots Alliance that is into the news, right aid and 606 00:35:01,400 --> 00:35:04,759 Speaker 1: so on. It is great to snap your fingers and say, 607 00:35:04,800 --> 00:35:06,520 Speaker 1: all right, we're gonna buy a company and it's all 608 00:35:06,520 --> 00:35:08,840 Speaker 1: gonna be great. We're gonna put everybody else out of business. 609 00:35:09,200 --> 00:35:11,839 Speaker 1: You have a different perspective coming about wal group. First 610 00:35:11,840 --> 00:35:17,520 Speaker 1: of all, that's a heavily regulated industry with pharmacies, pharmacy, 611 00:35:17,840 --> 00:35:22,359 Speaker 1: the pharmacies. There's three main drug distributors in the United 612 00:35:22,400 --> 00:35:26,360 Speaker 1: States of America. So for example, let's just hypothesize that 613 00:35:26,719 --> 00:35:31,520 Speaker 1: actually Amazon did have a successful foray into that area. Well, 614 00:35:31,760 --> 00:35:36,720 Speaker 1: Walgreen's owns of one of those three distributors, a marisours Bergen, 615 00:35:37,239 --> 00:35:40,560 Speaker 1: and if they wanted to, they could just buy the 616 00:35:40,560 --> 00:35:43,799 Speaker 1: other seventy percent, so they would then be distributing to 617 00:35:44,000 --> 00:35:48,440 Speaker 1: Amazon as well. So so the beauty of it is, uh, 618 00:35:48,480 --> 00:35:52,640 Speaker 1: them getting hit by that is ludicrous. But here's the 619 00:35:52,719 --> 00:35:56,480 Speaker 1: pricing difference. It's a staple. Walgreen is one of the 620 00:35:56,520 --> 00:35:59,719 Speaker 1: staple companies. The average staple trades at twenty two to 621 00:35:59,760 --> 00:36:02,440 Speaker 1: twenty five times earnings with a similar dividend to theirs, 622 00:36:02,760 --> 00:36:06,600 Speaker 1: and it trades at fifteen. So so you know, uh, 623 00:36:06,640 --> 00:36:09,640 Speaker 1: the death by Amazon is costing in them one third 624 00:36:09,640 --> 00:36:12,719 Speaker 1: of their market compilation. That's what drive stock pickers like us, 625 00:36:12,760 --> 00:36:14,719 Speaker 1: That's that's how we make our money. And it just 626 00:36:14,760 --> 00:36:17,080 Speaker 1: happens to be run by Jim Skinner, who used to 627 00:36:17,120 --> 00:36:20,239 Speaker 1: be the CEO of McDonald's Bill Smith, thank you so 628 00:36:20,280 --> 00:36:22,920 Speaker 1: much for joining us. Bill Smide, chief executive officer and 629 00:36:23,080 --> 00:36:27,239 Speaker 1: chief investment officer of Smede Capital Management, which oversees uh 630 00:36:27,320 --> 00:36:29,400 Speaker 1: nearly two and a half billion dollars and it's based 631 00:36:29,520 --> 00:36:35,080 Speaker 1: in Seattle. Thanks for listening to the Bloomberg P and 632 00:36:35,200 --> 00:36:38,200 Speaker 1: L podcast. You can subscribe and listen to interviews at 633 00:36:38,280 --> 00:36:42,719 Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm 634 00:36:42,719 --> 00:36:46,200 Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on 635 00:36:46,200 --> 00:36:49,520 Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You 636 00:36:49,520 --> 00:36:52,040 Speaker 1: can always catch us worldwide on Bloomberg Radio