WEBVTT - Key Square Group CEO Scott Bessent Talks IRA 0:00:02.440 --> 0:00:06.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.040 --> 0:00:09.239 Scotte Besson's of K Square Group joins us around the 0:00:09.280 --> 0:00:10.960 table for more. Why do you consider to be a 0:00:11.000 --> 0:00:14.400 potential Treasury Secretary? Pick Scock And morning, sir, good morning, 0:00:14.760 --> 0:00:16.439 thanks for coming in. Thank you very much for being 0:00:16.440 --> 0:00:18.439 with us. Let's stop with an easy one. Why do 0:00:18.440 --> 0:00:20.840 you think that one is a bad idea? We're capital 0:00:20.880 --> 0:00:24.120 gains tax? Well, the capital gains tax. Look, Kamala Harris 0:00:24.160 --> 0:00:27.440 is an economic illiterate. Donald Trump is going to give 0:00:27.480 --> 0:00:30.160 an extensive speech at the Economic Club of New York today. 0:00:30.200 --> 0:00:33.800 He's going to take questions. She's reading from a teleprompter, 0:00:34.280 --> 0:00:36.040 and you know, let's just review here. 0:00:36.360 --> 0:00:39.560 The capital gains tax will be after a proposed tax 0:00:39.640 --> 0:00:44.519 on unrealized capital gains, which, in the scheme of the 0:00:44.720 --> 0:00:47.600 new taxes, has to be one of the worst tax 0:00:47.680 --> 0:00:49.240 ideas in thirty years. 0:00:49.440 --> 0:00:52.920 Let's talk about how the former president, perhaps future president 0:00:53.000 --> 0:00:54.880 might count to that. What are his policies. 0:00:55.160 --> 0:00:58.200 Well, I think you're going to hear from President Trump today. 0:00:58.920 --> 0:01:05.800 You are going to hear you a warning that the 0:01:06.080 --> 0:01:10.480 Harris Biden administration caused a great inflation. Vice President Harris 0:01:10.880 --> 0:01:14.240 was the tiebreaking vote on both spending bills that led 0:01:14.240 --> 0:01:19.560 to the inflation, the inappropriately named Inflation Reduction Act and 0:01:19.600 --> 0:01:23.240 the American Rescue Plan. They would not have passed without 0:01:23.240 --> 0:01:25.800 her signatures. I'm still not sure that she knew what 0:01:26.000 --> 0:01:29.080 she signed, but she did sign it. And you know, 0:01:29.200 --> 0:01:32.399 all these policies that she's talking about now, you know, 0:01:32.520 --> 0:01:36.040 are going to ignite inflation again because what happened last 0:01:36.040 --> 0:01:39.319 time was we got a demand shock from government spending 0:01:39.680 --> 0:01:43.440 that was met with high levels of regulation, and that's 0:01:43.440 --> 0:01:47.640 the recipe for inflation. And Trump one point zero. We 0:01:47.800 --> 0:01:52.400 got a demand shock from the private sector, fueled by 0:01:52.440 --> 0:01:55.640 the tax cuts, and that was met with deregulation, and 0:01:55.680 --> 0:01:58.920 that's why we had non inflationary growth. President Trump's going 0:01:58.960 --> 0:02:03.160 to talk about that. He's going to talk about energy dominance. 0:02:03.240 --> 0:02:06.680 He's going to talk about not only stopping the inflation rate, 0:02:06.880 --> 0:02:10.680 but getting prices down, which I think is very important 0:02:10.800 --> 0:02:14.320 for the American household. You know, we're in an affordability crisis, 0:02:14.800 --> 0:02:18.799 and he's going to address getting the deficit down. I mean, 0:02:18.840 --> 0:02:24.720 we are at seven percent peacetime non recessionary deficits. And 0:02:24.880 --> 0:02:27.440 it is clear now, you know, I think I said 0:02:27.440 --> 0:02:29.320 it last time. When I was here. I've been saying 0:02:29.360 --> 0:02:33.000 it for about two months that the economy is slowing dramatically. 0:02:33.919 --> 0:02:36.120 Scott, how do you get the deficit down when if 0:02:36.160 --> 0:02:38.840 you look at Trump's policy proposals floating a corporate tax 0:02:38.919 --> 0:02:43.040 rate of fifteen percent, campaign is also excluding Social Security 0:02:43.040 --> 0:02:48.040 payments from taxes, exempting tax on tipped wages, also increasing 0:02:48.080 --> 0:02:50.600 the child tax credit. All of this is going to 0:02:50.720 --> 0:02:54.560 add to the deficit plus Travis with Some economists will 0:02:54.560 --> 0:02:56.760 say is inflationary. 0:02:56.440 --> 0:03:02.359 Well, let's unpack that there there would be income from 0:03:02.400 --> 0:03:06.120 the tariffs, so that's a big number. 0:03:06.280 --> 0:03:09.000 Well, that's debatable though, that's just going to be passed 0:03:09.000 --> 0:03:09.959 on to consumers. 0:03:10.080 --> 0:03:13.880 Well, all taxes that are passed on the consumers. And 0:03:13.960 --> 0:03:18.080 I think what's interesting about taxes is they aren't necessarily inflationary. 0:03:18.160 --> 0:03:23.720 They're one time administrative price adjustment. Historically forty to fifty 0:03:23.760 --> 0:03:29.600 percent of any upward enmpulse is reflected in the currency. 0:03:29.760 --> 0:03:34.800 So that would all set it. Then we have the 0:03:35.240 --> 0:03:40.960 various preferences by consumers. It could end up in foreign manufacturers' margins. 0:03:40.960 --> 0:03:45.160 Their margins could go down, so and you know their elasticities. 0:03:45.240 --> 0:03:48.520 Consumer behavior can change, but in terms of getting the 0:03:48.560 --> 0:03:52.280 death sit down. I have been talking about it before. 0:03:52.520 --> 0:03:57.600 I think we would freeze domestic programs except for defense. 0:03:58.040 --> 0:04:02.040 If you look at the Paris Biden proposals, and she 0:04:02.120 --> 0:04:06.000 hasn't walked this back yet, maybe she will. They're calling 0:04:06.040 --> 0:04:10.440 for a twenty one percent decrease in defense spending. I 0:04:10.440 --> 0:04:13.520 can't imagine a worse time to do it. The only 0:04:13.640 --> 0:04:17.599 thing that I believe, and again I don't speak for 0:04:17.640 --> 0:04:20.120 the campaign, but the only thing that I believe that 0:04:20.400 --> 0:04:27.720 should have a real increases is defense. The Inflation Reduction 0:04:27.839 --> 0:04:33.320 Act is the doomsday machine for the deficits. It was 0:04:33.360 --> 0:04:36.760 originally scored at a positive score. It was supposed to 0:04:36.760 --> 0:04:41.359 be positive fifty billion, then it went to three hundred billion. 0:04:41.440 --> 0:04:43.640 It's probably going to be a trillion this year, and 0:04:43.720 --> 0:04:46.839 it's now estimated over the life of this thing that 0:04:46.880 --> 0:04:49.080 it could be a four and a half trillion hole 0:04:49.160 --> 0:04:49.840 in the deficits. 0:04:49.839 --> 0:04:51.440 So hold on a second. Does that mean that you 0:04:51.480 --> 0:04:54.719 expect Donald Trump to try to unwind it, put a 0:04:54.720 --> 0:04:56.880 halt to it, okay, but not unwinded. 0:04:57.279 --> 0:05:00.599 Well, I'm not sure what unwine means. I mean, you're 0:05:00.600 --> 0:05:02.839 not going to level the eight charging stations that we 0:05:02.920 --> 0:05:04.479 got for eight billion dollars. 0:05:04.200 --> 0:05:06.200 I guess here's the question, and this is the reason 0:05:06.200 --> 0:05:09.279 why you had the Congressional Budget Office come out saying 0:05:09.440 --> 0:05:12.000 that Donald Trump's proposals will actually increase the deficit more 0:05:12.040 --> 0:05:15.760 than Kamala Harris's. We had a story on Bloomberg talking 0:05:15.800 --> 0:05:20.400 about how potentially Donald Trump's proposal could increase the collective 0:05:20.400 --> 0:05:22.520 costs as much as a ten and a half trillion 0:05:22.600 --> 0:05:25.919 dollars over the next decade. I mean, how do you 0:05:25.960 --> 0:05:26.600 offset that? 0:05:26.839 --> 0:05:31.080 Well, first of all, and you all know that Bloomberg 0:05:31.360 --> 0:05:33.960 is one of my favorite venues. But I do have 0:05:34.040 --> 0:05:36.360 to say that that story yesterday in the ten and 0:05:36.440 --> 0:05:40.880 a half Trillion was poorly written, poorly edited, and compared 0:05:40.960 --> 0:05:45.840 apple st oranges. The ten and a half trillion was 0:05:46.000 --> 0:05:49.880 everything Donald Trump and Jade Evance have ever said, and 0:05:49.920 --> 0:05:52.520 they took it to the highest end. Then they took 0:05:52.600 --> 0:05:56.000 a score from the Wharton School and said, well, this 0:05:56.279 --> 0:06:00.840 is the Harris budget or the Biden Harris budget. It's 0:06:00.839 --> 0:06:03.919 apples and oranges. If we were to take everything the 0:06:04.040 --> 0:06:09.000 Vice President Harris, including what she said in Raleigh, twenty 0:06:09.000 --> 0:06:12.120 five thousand dollars or twenty five thousand dollars for housing, 0:06:12.480 --> 0:06:19.600 including for new arrivals, that would be substantially in excess. 0:06:20.560 --> 0:06:23.760 But the Democrats and Biden's budget now and Kamala Harris 0:06:23.800 --> 0:06:27.280 is part of the administration, have revenue increases. Where are 0:06:27.320 --> 0:06:32.400 the revenue increases to offset all of these tax cuts 0:06:32.400 --> 0:06:33.800 that Trump is talking about. 0:06:34.200 --> 0:06:36.440 Well, look, I think they are paid for us here. 0:06:37.360 --> 0:06:40.880 So it's the cut spending. We do not have emory. 0:06:41.000 --> 0:06:43.640 We do not have a revenue problem in this country. 0:06:43.839 --> 0:06:48.760 We have a spending problem. So traditionally the government revenues, 0:06:49.160 --> 0:06:52.440 federal government revenues are seventeen and a half to nineteen 0:06:52.480 --> 0:06:57.320 percent of GDP. We're right there now. Since two thousand, 0:06:57.800 --> 0:07:01.760 we've averaged about a three percent budget deficits, so spending 0:07:01.960 --> 0:07:08.800 has been twenty one twenty two percent. This administration, led 0:07:08.800 --> 0:07:12.480 by Vice President Harris, has blown out the spending. We're 0:07:12.640 --> 0:07:15.880 at a seven percent budget deficit right now. And what 0:07:15.880 --> 0:07:18.840 do we have to show for it. We had job 0:07:19.800 --> 0:07:23.400 we had the employment numbers revised down by eight hundred 0:07:23.480 --> 0:07:26.760 or nine hundred thousand jobs. We had two hundred and 0:07:26.800 --> 0:07:31.320 fifty thousand private sector jobs. So the idea here is 0:07:31.680 --> 0:07:36.240 what we have seen with Paris Biden. It's what's called 0:07:36.280 --> 0:07:39.720 in Grand Prix driving two footed driving. You've got one 0:07:39.720 --> 0:07:43.120 foot on the accelerator, the FED is putting one foot 0:07:43.200 --> 0:07:43.600 on the brake. 0:07:43.640 --> 0:07:45.360 Scot, forgive me because I've got ten seconds left that 0:07:45.360 --> 0:07:46.800 I don't want to cut you off, So just stick around. 0:07:46.800 --> 0:07:50.080 Scott Besson's of Keysquak Group from New York. This is Bloomberg. 0:07:52.800 --> 0:07:55.160 Typically we talked to Scott beston a Keysquak group a 0:07:55.160 --> 0:07:57.600 lot about politics, given his potential to be the next 0:07:57.600 --> 0:08:00.120 Treasury secretary. Score We've also got to talk about what's 0:08:00.160 --> 0:08:02.000 happening in this market because you've got positions in it. 0:08:02.120 --> 0:08:03.920 I know that you've been long Gold, You've been long 0:08:03.960 --> 0:08:06.240 the Japanese yen. Are you keeping those positions? 0:08:06.440 --> 0:08:08.560 I am, and thanks for focusing on my day job. 0:08:09.640 --> 0:08:12.400 You know, I think in the Japanese yen it's an 0:08:12.400 --> 0:08:15.880 extraordinary opportunity because as central banks around the rest of 0:08:15.920 --> 0:08:21.559 the world are an easing cycle, Japan for the first 0:08:21.560 --> 0:08:24.960 time in almost two decades, is in a hiking cycle. 0:08:25.320 --> 0:08:28.560 So you know, we'll see if they're like sokatas they 0:08:28.600 --> 0:08:31.720 only come out once every seventeen years, or whether this 0:08:31.800 --> 0:08:36.960 turns into a real hiking cycle. My thought is that 0:08:37.160 --> 0:08:39.920 there is the potential for this to keep going, So. 0:08:39.840 --> 0:08:41.320 You want to keep riding this trade. We're at one 0:08:41.480 --> 0:08:43.880 forty now, we were pushing through one sixty previously. What 0:08:43.960 --> 0:08:48.240 kind of numbers have you got in mind? Well, it's 0:08:48.280 --> 0:08:49.200 two sides to this. 0:08:50.600 --> 0:08:56.640 Japan is strengthening inflationary impulses picking up. The other side is, 0:08:57.040 --> 0:09:01.720 as I've said, the US. I believe the US economy, 0:09:01.920 --> 0:09:05.360 I said it recently is buckling, and we're starting to 0:09:05.400 --> 0:09:07.120 see it in the numbers. I think we're going to 0:09:07.400 --> 0:09:13.200 it's both industrial numbers and labor. And I think what's 0:09:13.240 --> 0:09:16.200 funny here on the Democratic side of the aisle, and 0:09:16.240 --> 0:09:19.880 I will put politics back in for a minute. They've 0:09:19.920 --> 0:09:23.400 been screaming for a rate cut all year now. You know, 0:09:23.520 --> 0:09:26.200 even Claudia sam who's been chewing off her arms since 0:09:26.200 --> 0:09:28.920 February for a rate cut, doesn't want to come out 0:09:28.960 --> 0:09:31.280 and say, well, my rule got triggered. And anytime my 0:09:31.360 --> 0:09:34.199 rule gets triggered, we're in a recession. So they don't 0:09:34.200 --> 0:09:36.600 want to use the R word before November fifth. 0:09:37.080 --> 0:09:38.880 So the longdon Nippon steel way, it's the cheaper this 0:09:38.920 --> 0:09:42.000 still gets right essentially for them? 0:09:42.120 --> 0:09:48.439 Well, yes, exactly is they may have, through some terrible 0:09:48.480 --> 0:09:52.200 timing get a better price. We'll see what happens. 0:09:52.520 --> 0:09:54.600 Wak me through what you think should happen, and let's 0:09:54.600 --> 0:09:57.000 finish there. Harris says she wants to block the deal. 0:09:57.240 --> 0:09:58.960 Ban is given the signal he wants to block the 0:09:59.000 --> 0:10:00.599 deal the form of price, and it's given us the 0:10:00.600 --> 0:10:02.800 second he wants to block the deal. The company has 0:10:02.840 --> 0:10:04.600 come out to the Wall Street Journal in the last 0:10:04.600 --> 0:10:06.400 twenty four ans and say, if you block the deal, 0:10:07.240 --> 0:10:09.720 job losses are on the table. We're going to be 0:10:09.720 --> 0:10:12.800 moving out of Pittsburgh. How do you recalibrate the policy 0:10:12.800 --> 0:10:13.640 now with that in mind. 0:10:14.520 --> 0:10:17.480 Well, I think we've seen and it was very surprising 0:10:17.600 --> 0:10:20.920 because I've been going to Japan since nineteen eighty nine 0:10:21.240 --> 0:10:25.960 and Japanese companies traditionally have a very high regard for 0:10:26.040 --> 0:10:29.600 all stakeholders. I remember the first time I went and 0:10:29.679 --> 0:10:31.880 you talking about shareholder value and they said, oh, no, 0:10:32.000 --> 0:10:36.320 you know, Bess and Son. We have our customers, we 0:10:36.360 --> 0:10:39.239 have our employees, we have our banks, we have our community, 0:10:39.320 --> 0:10:41.920 and the shareholders are last. And now you know, they 0:10:42.040 --> 0:10:46.040 reverse that. They're putting shareholders first. And I was surprised 0:10:46.040 --> 0:10:49.360 to see a Japanese company that didn't check in with 0:10:49.440 --> 0:10:52.439 the US stakeholders. They didn't check in with the community, 0:10:52.480 --> 0:10:55.960 they didn't check in with the unions, they didn't check 0:10:56.000 --> 0:10:56.680 in with the customer. 0:10:56.760 --> 0:10:58.640 That's the mistake the mascot. And this is where we are. 0:10:58.880 --> 0:11:00.160 And now we've got to deal with the police. See 0:11:00.160 --> 0:11:02.120 on the campaign trail. Are we going to offer them 0:11:02.120 --> 0:11:04.520 state aid? How do we keep this company in business 0:11:04.520 --> 0:11:06.280 in a way that doesn't end up with job losses? 0:11:06.520 --> 0:11:10.840 Well, look, I think that the you know, maybe the 0:11:10.880 --> 0:11:16.120 deal will be resurrected. Cleveland Clips actually forced Nippon Steel's 0:11:16.120 --> 0:11:20.480 hand with their bids, so maybe a domestic buyer will 0:11:20.480 --> 0:11:21.000 come back. 0:11:21.400 --> 0:11:24.080 You don't see space for state aid. Sorry, you don't 0:11:24.080 --> 0:11:25.280 see space for state eight. 0:11:25.360 --> 0:11:27.280 Well, I don't see why we need it right now 0:11:28.240 --> 0:11:31.720 is what we did state aid with Intel, and Intel 0:11:31.840 --> 0:11:35.160 just laid off fifteen thousand employees. The stocks down sixty 0:11:35.160 --> 0:11:36.840 percent this year, and they're probably going to be pushed 0:11:36.880 --> 0:11:37.400 out of the Dow. 0:11:38.520 --> 0:11:40.400 They got their own problems. Scott, it's good to see you. 0:11:40.480 --> 0:11:42.680 It's nice to touch on markets too. Yeah, let's do 0:11:42.720 --> 0:11:45.080 that again next time I go into a key Square group. 0:11:45.120 --> 0:11:46.800 We like your day job. Too, Thank you, sir,