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

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

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

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

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Speaker 1: or the trading floor. Find the Bloomberg P M L

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

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Speaker 1: r Us and I Heart Media once known as uh

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Speaker 1: I Heart Communications and a whole bunch of other names.

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Speaker 1: What do these companies have in common? Both filing for bankruptcy,

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Speaker 1: both ending years of difficulties with their balance sheets, Both

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Speaker 1: otherwise viable businesses except for the mass of debt on

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Speaker 1: their books. Here to talk about that with us is

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Speaker 1: Matt Townsend, Global business reporter for Bloomberg, as well as

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Speaker 1: Philip Brendel, Senior credit analyst for Bloomberg Intelligence. Matt, I

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Speaker 1: want to start with you. Toys r US is liquidating

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Speaker 1: as the retailer I was unable to successfully turn around

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Speaker 1: its business. You guys have been reporting on this, broke

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Speaker 1: the news on this. Uh, what really is the reason

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Speaker 1: for this demise? Well, from my view, haven't covering the

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Speaker 1: company for number of years. This is a private equity story. Uh,

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Speaker 1: all the people we talked to over the past several months,

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Speaker 1: almost to a tea, said there's a viable business here,

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Speaker 1: but the debt structure is so messed up and the

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Speaker 1: company so over levered. And even the CEO when he

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Speaker 1: was speaking to employees yesterday, we know that he basically said, look,

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Speaker 1: the deck was stacked against us for years. Maybe we

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Speaker 1: could could have done some things differently, of course, but

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Speaker 1: at the end of the day, it was just too

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Speaker 1: hard to get from out from under that debt. Can

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Speaker 1: we just go back a little bit and maybe just

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Speaker 1: set the stage here for a little kind of history

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Speaker 1: lesson when it comes to a choice rust Right, because

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Speaker 1: this is not a brand new thing. Debt was downgraded

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Speaker 1: a junk status. This is back in January of two

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Speaker 1: thousand and five. Right, Amazon sales were just four percent

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Speaker 1: of their current level in two thousand five, and a

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Speaker 1: year later, the company was taken private by KKR, Bain Capital,

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Speaker 1: and Cornado. Six and a half billion dollars purchase left

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Speaker 1: it with five point three billion dollars in debt. How

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Speaker 1: do can you make those numbers work? It's hard? And

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Speaker 1: you know, did KKR and Bain know what was coming

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Speaker 1: with the recession, Do they know how prevalent online shopping

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Speaker 1: would be. No, that definitely hurt the business. But from

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Speaker 1: the years of covering this company, talking to former executives

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Speaker 1: to a t they would say, now, maybe they were

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Speaker 1: trying to cover themselves, but they would say, we had

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Speaker 1: big plans. We want to invest in these kinds of

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Speaker 1: things with the company operations, doing things with the online platform,

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Speaker 1: and the private equity owners just wouldn't let us do

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Speaker 1: it to the level we wanted. So that's why I

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Speaker 1: say this is really a private equity story in many respects. Um,

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Speaker 1: it's very sad. You know, Toys Ours and the US

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Speaker 1: has over thirty thousand employees over sixty worldwide, and the

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Speaker 1: US business for most part is winding down. There is

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Speaker 1: some hope that maybe some stars will stay open, but

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Speaker 1: for most part winding down. So Phil, come on in here.

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Speaker 1: From your perspective, from a debt analysis point of view,

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Speaker 1: was Toys r US inviable given where it's debt was

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Speaker 1: and sort of what the revenue prospects were. I think

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Speaker 1: the biggest problem with Toys r US was that they

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Speaker 1: kept adding debt to it and restructuring debt, and they

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Speaker 1: tried to do everything out of court without ever saying,

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Speaker 1: you know what, this is simply too much debt for

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Speaker 1: this business. We have to reduce it going through bankruptcy

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Speaker 1: once and then you know, try and get the capital

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Speaker 1: structure in the right place. Um. You know that they

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Speaker 1: kept playing games making the capital structure more complex. And

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Speaker 1: one of the things that's fascinating to look at with

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Speaker 1: Toys r US is if you take a look at

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Speaker 1: each of the separate companies that they created, they now

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Speaker 1: each have their own set advisors, financial advisors, lawyers, um,

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Speaker 1: with their own you know, stet of fees and so

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Speaker 1: I think a lot of the complexity here. They went

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Speaker 1: into bankruptcy without a plan, and uh, I think this

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Speaker 1: is ultimately what you're seeing in retails and extremely uh

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Speaker 1: difficult industry to be doing that. In Yeah, they did

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Speaker 1: go in to bankruptcy a plan. You know, the result

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Speaker 1: the company's results were somewhat okay. But what happened was

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Speaker 1: they did hire restructuring advisor late last year that news

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Speaker 1: got out that created that spooked vendors. They stopped shipping

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Speaker 1: or we're gonna hold back shipments, and so they had

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Speaker 1: to file didn't have a plan and it just snowballed

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Speaker 1: from there. And we know that their holiday quarter in

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Speaker 1: the fourth quarter was terrible. They basically got they basically

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Speaker 1: earned half the ibada they expected and that just increased

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Speaker 1: more dowbs with lenders and they decided to pull the plug.

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Speaker 1: This is going to be a textbook case. Uh and uh,

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Speaker 1: I know that we're going to talk to you more

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Speaker 1: about it in the future. Thanks very much, Matt Towns

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Speaker 1: and he's global business reporter for Bloomberg News. You can

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Speaker 1: follow Matt on Twitter at Matt Underscore Townsend. Uh. Phil Brent,

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Speaker 1: I just want you to stay with us for a

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Speaker 1: little bit longer because of course another bankruptcy. I heart media.

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Speaker 1: Give us an update there and what are their future prospects? Sure? Um,

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Speaker 1: you know this is a very different story. I think

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Speaker 1: much of the drama and squabbling has actually been done

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Speaker 1: before it filed for bankruptcy. I've been following this for

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Speaker 1: two years and uh, you know they have. They filed

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Speaker 1: with a restructuring support agreement a term sheet um the

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Speaker 1: support of a class that represents thirteen billion of the

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Speaker 1: fifteen point five billion dollars of death that they're looking

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Speaker 1: to restructure. Uh, so I think it should be on

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Speaker 1: a pretty clean path to getting out of bankruptcy. And uh,

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Speaker 1: you know what's interesting is you have this massive radio

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Speaker 1: business and this massive outdoor business, both of which will

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Speaker 1: ultimately be changing ownership. Bin and th H Lee, which

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Speaker 1: bought this you know, pretty great recession, are are now

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Speaker 1: looking at, you know, getting a much. They do own

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Speaker 1: some of the debt, so they'll own a smaller stake here,

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Speaker 1: but ultimately it will be these creditors who will own

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Speaker 1: both sides of this business. Although this is hardly a

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Speaker 1: model for what private equity ought to do with a company, right,

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Speaker 1: I mean, this is the largest US radio station owner,

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Speaker 1: and uh, from many accounts, would have also been a

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Speaker 1: viable business were it not for the more than twenty

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Speaker 1: billion dollars of debt on its balance sheet stemming from

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Speaker 1: its l b O. Right. Uh, this is what private

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Speaker 1: equity does, right. They've lever up companies that they funded,

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Speaker 1: uh with hopefully cheap debt from their perspective, and they

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Speaker 1: write an equity check. The equity checks here were relatively

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Speaker 1: small because this was another pretty great recession. Lbl Um.

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Speaker 1: Actually this one was a little bit troubled. They in

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Speaker 1: fact had to they had to actually own some of

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Speaker 1: the debt, and this one it was a complicated uh

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Speaker 1: LBO closing. UH. But ultimately, I mean to a certain extent,

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Speaker 1: how long this has been going on. It's ten years

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Speaker 1: before it had ultimately filed for bankruptcy. So that the

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Speaker 1: testament to the strong cash flow here in strong underlying business. UH.

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Speaker 1: The radio side generates a ton of three cash flow

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Speaker 1: and the outdoor side, UH it does, it does a

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Speaker 1: good job as well. So did the firms that put

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Speaker 1: the steel together. Were they able to get some of

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Speaker 1: their money out that? I don't know that. You know

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Speaker 1: that those funds, those private equity funds that actually made

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Speaker 1: the original investment have seemed to do well when I

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Speaker 1: took a look I think it was last year I

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Speaker 1: took a look at that they did UM and you know,

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Speaker 1: presumably they've been writing down the equity as it's traded down.

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Speaker 1: Both these UH stocks actually trade publicly as well. UH.

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Speaker 1: But it's it is possible that perhaps they invested in

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Speaker 1: the debt. UM they did have initial debt investments. They've

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Speaker 1: reduced that over the year. But it's it's it I

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Speaker 1: haven't been able to piece together you know their profitability.

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Speaker 1: I want to thank you very much for helping us

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Speaker 1: a piece together some of the pieces of I heart media.

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Speaker 1: Much appreciated. Also a story that will continue to attract

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Speaker 1: our attention. Phil Brental is a senior credit analyst for

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Speaker 1: Bloomberg in Intelligence. President Trump has talked a lot about

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Speaker 1: deregulating corporate America, including Wall Street banks, but taking a

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Speaker 1: look at what senators and congressmen have done, it isn't

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Speaker 1: quite as much as the rhetoric has made it out

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Speaker 1: to be. Joining us right now is Galman, owner and

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Speaker 1: senior writer focusing on banking and finance for Bloomberg News,

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Speaker 1: and Yeoman, thanks so much for being here with us.

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Speaker 1: So yesterday the US Senate took a concrete step towards

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Speaker 1: rolling back specific regulations. Let's start there and talk about

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Speaker 1: what those are. So the biggest relief really comes for

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Speaker 1: small banks and some regional banks as well. Um, you know,

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Speaker 1: there was a lot of small banks got swept up

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Speaker 1: in dot frank and these were I mean so small

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Speaker 1: that that they were they were a couple of billion

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Speaker 1: dollars in assets, and um, you know the problem with this,

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Speaker 1: and there was a lot of bi properties and support

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Speaker 1: for this um and they've been talking about it for years,

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Speaker 1: basically since Dot Frank passed. Democrats and Republicans have been saying,

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Speaker 1: we need to give some relief to small banks because

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Speaker 1: those are the banks when they fail. We know how

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Speaker 1: to deal with them. We have fd I C which

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Speaker 1: takes over a bank on Friday and opens it Monday

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Speaker 1: morning with some stuff sold in between, and and the

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Speaker 1: system works. It's the too big to fail that we

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Speaker 1: don't know, we didn't know how to deal with during

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Speaker 1: the crisis, and we still are struggling to figure out

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Speaker 1: if we know what to do with, you know, ten

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Speaker 1: years later. But but these these things for the small banks,

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Speaker 1: you know, aren't as as bad as what big banks

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Speaker 1: have been pushing for in their regulation. So what's the

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Speaker 1: likely outcome. We're gonna see changes in the regulation that

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Speaker 1: would what make it more possible for banks of smaller

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Speaker 1: size and scale to combine or be bought out. Um. So,

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Speaker 1: I mean, you know, that has that's a secular trend

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Speaker 1: that's been going on for decades in the US. You know,

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Speaker 1: just twenty years ago, we had you know, more than

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Speaker 1: eight thousand banks. Now we're five thousands and some change

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Speaker 1: there's always mergers constantly happening. Uh small you know, small

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Speaker 1: banks have a hard time surviving anyway. The economies of

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Speaker 1: scaling banking has forced them to keep merging. And it's

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Speaker 1: not just the banking if you look at other sectors

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Speaker 1: of the economy. You know, Amazon pushes small retailers out,

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Speaker 1: even in big retails out, but but a lot of

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Speaker 1: you know, companies get bigger. So there, I don't think

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Speaker 1: the rules will change much. But at least the ones

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Speaker 1: that are managing to survive the months, that are still

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Speaker 1: able to fund their communities will be able to do

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Speaker 1: things easier because they don't have as much compliance cost.

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Speaker 1: That's the important thing. Okay, So that's the step that

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Speaker 1: the Senate took yesterday on a broader issue, just talking

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Speaker 1: about the deregulation of Wall Street. What has happened that

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Speaker 1: does affect the too big to fail institutions. We've heard

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Speaker 1: a lot about Vulcar and how there's a lot of

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Speaker 1: support to roll that back. Of course, that provision of

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Speaker 1: the Dodd Frank Act of prohibited banks are curved their

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Speaker 1: ability to use their own money to just make bets.

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Speaker 1: So what's the stance on that. So there's a there's

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Speaker 1: a five regulator commission that's that's trying to work on

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Speaker 1: revising vocal rule. Um. It was it was done by

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Speaker 1: five regulators. That's what God Frank require them to do it.

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Speaker 1: So that so once it became law, UM, they had

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Speaker 1: to also write detailed rules on how that law can

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Speaker 1: be implemented and that took three and a half years initially.

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Speaker 1: So this is not going to be so easy either

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Speaker 1: because to get five regulators, including the SEC and the

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Speaker 1: CFTC who are not really prudential regulators there the market

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Speaker 1: regulators and the prudential regulators like the FED together and

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Speaker 1: make them agree on some things that is so technical

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Speaker 1: is not easy. So so my best guests and I've

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Speaker 1: it's nothing's gonna come out this year, but something maybe

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Speaker 1: next year. And they can really tweak on the margins

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Speaker 1: because the law that Frank is not being changed, it

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Speaker 1: was not touched on. This volcal rule stays. But there

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Speaker 1: are certain things again they can ease which can help

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Speaker 1: with compliance. In other words, instead of the big bank

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Speaker 1: proving that they did not do every act as as

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Speaker 1: a non prop trading act, they can do all their acts.

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Speaker 1: And if the regulators come in and said this looks

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Speaker 1: like prop trading, explain to me why it wasn't. Then

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Speaker 1: you got to prove. I mean, it is the burden, right.

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Speaker 1: You don't have to go every trade in every day

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Speaker 1: you do hundreds and thousands and put paperwork to prove

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Speaker 1: it's not prop trading. You have to prove when there's

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Speaker 1: some suspicion that it wasn't. So you know, if some

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Speaker 1: compliance costs could come down on that too. Yeah. Man,

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Speaker 1: is there a quid pro quo when it comes to

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Speaker 1: Dodd Frank, which is that if you live under the

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Speaker 1: rules and regulations of Dodd Frank, the government will come

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Speaker 1: and save you if you do something really dumb. That's

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Speaker 1: an interesting one. Well. I mean one of the actually,

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Speaker 1: um elements of DoD Frank was tying the hands of

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Speaker 1: the Federal Reserve for providing bailout money. Um. And it's

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Speaker 1: I mean to call it bailout money is a little stretched.

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Speaker 1: I think it's it's the emergency funding, which of course

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Speaker 1: can become bailout when you really cannot survive the other way. Um.

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Speaker 1: But you know, some critics think that that actually is

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Speaker 1: too restrictive, and the FED in bad times might have

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Speaker 1: to provide temper funding. Doesn't mean the bank cannot stand

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Speaker 1: on its own landro of last resort, which is what

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Speaker 1: central banks are. So you know in those ways that

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Speaker 1: nothing has changed the FED. The FED can provide that

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Speaker 1: kind of emergence funding when it's a group of banks,

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Speaker 1: but they couldn't just do it to bear Stars, which

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Speaker 1: ten years ago they did through JP morgan Um. In

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Speaker 1: the future, it has to be a whole banking sector

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Speaker 1: or a group of banks they can provide funding to.

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Speaker 1: Thank you very much for being with us, y'allmen Onoran

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Speaker 1: as our senior writer for banking and Finance for Bloomberg,

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Speaker 1: and I recommend his book, Zombie Banks. It's a great

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Speaker 1: read and it has not lost its timeliness. President Trump

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Speaker 1: has talked a lot about deregulating corporate America, including Wall

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Speaker 1: Street banks, but taking a look at what senators and

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Speaker 1: congressmen have done, it isn't quite as much as the

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Speaker 1: rhetoric has made it out to be. Joining us right

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Speaker 1: now as Galman owner and senior writer focusing on banking

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Speaker 1: and finance for Bloomberg, news and Yeoman, thanks so much

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Speaker 1: for being here with us. So yesterday the US Senate

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Speaker 1: took a concrete step towards rolling back specific regulations. Let's

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Speaker 1: start there and talk about what those are. So the

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Speaker 1: biggest relief really comes for small banks and some regional

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Speaker 1: banks as well. Um, you know, there was a lot

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Speaker 1: of small banks got swept up in dot frank. And

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Speaker 1: these were I mean so small that that they were

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Speaker 1: they were a couple of billion dollars in assets, and um,

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Speaker 1: you know the problem with this. And there was a

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Speaker 1: lot of bi properties in support for this, um and

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Speaker 1: they've been talking about it for years, basically since dot

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Speaker 1: frank passed. Democrats and Republicans have been saying, we need

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Speaker 1: to give some relief to small banks because those are

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Speaker 1: the banks when they fail. We know how to deal

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Speaker 1: with them. We have fd I C which takes over

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Speaker 1: a bank on Friday and opens Monday morning with some

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Speaker 1: stuff sold in between, and and the system works. It's

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Speaker 1: the too big to fail that we don't know, we

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Speaker 1: didn't know how to deal with during the crisis, and

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Speaker 1: we still are struggling to figure out if we know

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Speaker 1: what to do with, you know, ten years later. But

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Speaker 1: but these these things for the small banks, you know,

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Speaker 1: aren't as as bad as what big banks have been

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Speaker 1: pushing for in their regulation. So what's the likely outcome.

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Speaker 1: We're gonna see changes in the regulation that would what

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Speaker 1: make it more possible for banks of smaller size and

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Speaker 1: scale to combine or be brought out. Um So, I mean,

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Speaker 1: you know that has that's a secular trend that's been

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Speaker 1: going on for decades in the US. You know, just

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Speaker 1: twenty years ago we had you know, more than eight

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Speaker 1: thousand banks. Now we're five thousands and some change. There's

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Speaker 1: always mergers constantly happening. Uh. Small you know, small banks

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Speaker 1: have a hard time surviving anyway. The economies of scaling

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Speaker 1: banking has forced them to keep merging. And it's not

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Speaker 1: just the banking if you look at other sectors of

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Speaker 1: the economy. You know, Amazon pushes small retailers out, even

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Speaker 1: big retailers out, but but a lot of you know,

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Speaker 1: companies get bigger. So there, I don't think the rules

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Speaker 1: will change much. But at least the ones that are

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Speaker 1: managing to survive the months, that are still able to

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Speaker 1: fund their communities will be able to do things easier

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Speaker 1: because they don't have as much compliance cost. That's the

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Speaker 1: important thing. Okay, So that's the step that the Senate

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Speaker 1: took yesterday on a broader issue, just talking about the

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Speaker 1: deregulation of Wall Street. What has happened that does affect

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Speaker 1: the two big to fail institutions. We've heard a lot

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Speaker 1: about VULCAR and how there's a lot of support to

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Speaker 1: roll that back. Of course, that provision of the Dodd

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Speaker 1: Frank Act of prohibited banks are curved their ability to

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Speaker 1: use their own money to just make bets. So what's

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Speaker 1: the stance on that. So there's a there's a five

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Speaker 1: regulator commission that's that's trying to work on revising vocal rule. Um,

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Speaker 1: it was. It was done by five regulators. That's what

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Speaker 1: do Frank required them to do it. So that so

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Speaker 1: once it became law, um, they had to also write

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Speaker 1: detailed rules on how that law can be implemented. And

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Speaker 1: that took three and a half years initially. So this

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Speaker 1: is not going to be so easy either, because to

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Speaker 1: get five regulators, including the SEC and the CFTC who

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Speaker 1: are not really prudential regulators there the market regulators, and

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Speaker 1: then prudential regulators like the FED together and make them

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Speaker 1: agree on some things that is so technical is not easy.

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Speaker 1: So so my best guests, and I've talked to a

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Speaker 1: lot of people you know, working on this as well

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Speaker 1: as observing from outside the industry. Uh, it's nothing's gonna

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Speaker 1: come out this year, but something maybe next year. And

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Speaker 1: they can really tweak on the margins because the law

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Speaker 1: that Frank is not being changed, it was not touched on.

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Speaker 1: This volcan rule stays. But there are certain things again

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Speaker 1: they can ease which can help with compliance. In other words,

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Speaker 1: instead of the Big Bank proving that they did not

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Speaker 1: do every act as as a non prop trading act,

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Speaker 1: they can do all their acts. And if the regulators

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Speaker 1: come in and said this looks like prop trading, explain

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Speaker 1: to me why it wasn't. Then you got to prove.

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Speaker 1: I mean, it is the burden, right. You don't have

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Speaker 1: to go every trade in every day you do hundreds

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Speaker 1: and thousands and put paperwork to prove it's not prop trading.

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Speaker 1: You have to prove when there's some suspicion that it wasn't.

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Speaker 1: So you know, if some compliance costs could come down

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Speaker 1: on that too. Yeah. Is there a quid pro quo

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Speaker 1: when it comes to Dodd Frank, which is that if

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Speaker 1: you live under the rules and regulations of Dodd Frank,

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Speaker 1: the government will come and save you if you do

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Speaker 1: something really dumb. That's an interesting one. Well, I mean

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Speaker 1: one of the actually um elements of dot Frank was

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Speaker 1: tying the hands of the Federal Reserve for providing bailout money. Um.

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Speaker 1: And it's I mean to call it bailout money is

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Speaker 1: a little stretched. I think it's it's the emergency funding,

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Speaker 1: which of course can become bailout when you really cannot

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Speaker 1: survive any other way. Um. But you know, some critics

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Speaker 1: think that that actually is too restrictive, and the FED

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Speaker 1: in bad times might have to provide temperary funding. Doesn't

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Speaker 1: mean the bank cannot stand on its own landard of

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Speaker 1: last resort, which is what central banks are. So you know,

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Speaker 1: in those ways that nothing has changed the FED. The

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Speaker 1: FED can provide that kind of emergence funding when it's

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Speaker 1: a group of banks, but they couldn't just do it

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Speaker 1: to bear Stars, which ten years ago they did through

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Speaker 1: JP Morgan. Um. In the future, it has to be

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Speaker 1: a whole banking sector or a group of banks they

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Speaker 1: can provide funding to Thank you very much for being

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Speaker 1: with us, y'allmen, Onoran as Or, senior writer for Banking

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Speaker 1: and Finance for Bloomberg, and I recommend his book Zombie Banks.

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Speaker 1: It's a great read and it has not lost its

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Speaker 1: timeliness trade wars, trade sanctions, Harriff's allies, enemies, confrontation when

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Speaker 1: it comes to the economy of the United States and

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Speaker 1: the global economy. Here to help us make some sense

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Speaker 1: out of all this is Patrick Chovannack. He is managing

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Speaker 1: director in the chief strategist at Silvercrest Asset Management and

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Speaker 1: you can follow Patrick on Twitter at pr chovannic C

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Speaker 1: H O V A N E C. Alright, the PR

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Speaker 1: sovnic What is the biggest trade blunder that you see

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Speaker 1: happening now that we will not see the consequences for

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Speaker 1: in let's say five to ten years. Oh. I think

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Speaker 1: quitting t p P on day one was the Trans

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Speaker 1: Pacific Partnership. That's correct, because I think it, first of all,

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Speaker 1: had set the tone um for this administration that it

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Speaker 1: saw trade as a losing proposition, that it was seeding leadership.

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Speaker 1: I mean, you know, look, t p P. It was

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Speaker 1: not a perfect agreement. You're not going to get a

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Speaker 1: perfect agreement among you know, eleven or twelve trading partners. UH.

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Speaker 1: It was the centerpiece of uh an effort to frame

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Speaker 1: a vision for what an American lad UH economic order

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Speaker 1: would be in Asia in contrast to the Chinese. What

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Speaker 1: how appealing that could be that maybe the Chinese would

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Speaker 1: want to join that and might have to change their

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Speaker 1: behavior to join that. UM and UM. You know, we

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Speaker 1: just walked away from it, and I think it has

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Speaker 1: it will have security implications. I think it will have

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Speaker 1: economic implications, but they because it wasn't walking away from

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Speaker 1: something that we already have, like NAFTA, you won't see

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Speaker 1: it immediately. That's why I give the answer to your

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Speaker 1: question that way. Patrick, You're a perfect person to have

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Speaker 1: on today UH, given your background, given the fact that

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Speaker 1: you have been a top advisor to many Republican UH lawmakers,

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Speaker 1: including UH John Bayner, the Speaker of the House, and

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Speaker 1: you worked for Carrove, You've been many administrations, So coming

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Speaker 1: this from that perspective and also with your hat as

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Speaker 1: a money manager, how do you view the decline in

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Speaker 1: the dollar? Do you view that as a proxy for

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Speaker 1: the political risk that has risen in the US and

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Speaker 1: sort of the distaste that that has left foreign investors

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Speaker 1: with in the past couple of weeks. Yes, because normally,

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Speaker 1: if you looked over the past year, when President Trump

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Speaker 1: announced the possibility of trade sanctions, usually the dollar would

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Speaker 1: go up, uh and the other currency would go down.

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Speaker 1: And that was because just the economic effect would be uh,

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Speaker 1: there would be less US demand for imports, therefore less

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Speaker 1: demand for foreign currency, more demand for the dollar. The

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Speaker 1: fact that that's reversed, and now in reaction to the

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Speaker 1: steel tariffs, you see the dollar going down, and reaction

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Speaker 1: to some of us talking about China, you see the

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Speaker 1: dollar going down. I think that is a vote of

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Speaker 1: no confidence or at least nervousness about out where US

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Speaker 1: policies heading. Okay, so as you decide how to advise

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Speaker 1: your funds to put allocate cash, I mean, how much

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Speaker 1: can you trade on this political risk? Are you advising

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Speaker 1: them to stay bearish on the dollar because of an

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Speaker 1: ongoing political risk factor? Are you saying, you know what,

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Speaker 1: you can't trade, let's just keep an eye on it.

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Speaker 1: So we um, you know, we manage whole portfolios for

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Speaker 1: for families and uh, so we don't really favor any

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Speaker 1: particular asset class. Uh. And you know, we've been actually

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Speaker 1: pretty constructive about the U. S economy and about US markets,

431
00:24:36,600 --> 00:24:39,359
Speaker 1: because most of the economic data out there is pretty good. Uh,

432
00:24:39,520 --> 00:24:43,600
Speaker 1: there's a lot of growth momentum. We did say when

433
00:24:43,760 --> 00:24:46,320
Speaker 1: the announcement about the tariff the deal terrorists came out,

434
00:24:46,359 --> 00:24:48,520
Speaker 1: that we would if it was enacted, see this as

435
00:24:48,520 --> 00:24:51,639
Speaker 1: a negative uh in terms of our outlook for the

436
00:24:51,680 --> 00:24:55,399
Speaker 1: US economy. And I think, you know, we just have

437
00:24:55,520 --> 00:24:59,000
Speaker 1: to see where this goes, because uh, you know, focusing

438
00:24:59,040 --> 00:25:01,960
Speaker 1: on just one thing, where where with a dollar there's

439
00:25:02,640 --> 00:25:05,240
Speaker 1: this can go in so many directions. And I think

440
00:25:05,280 --> 00:25:07,720
Speaker 1: it's gonna the implications of it, the ramification, are gonna

441
00:25:08,000 --> 00:25:11,439
Speaker 1: unfold over the next few weeks and months when we

442
00:25:11,480 --> 00:25:15,440
Speaker 1: see retaliatory measures, when we see further teriff actions, were

443
00:25:15,480 --> 00:25:18,000
Speaker 1: likely to see that at least probably aimed at China.

444
00:25:18,080 --> 00:25:21,480
Speaker 1: We're hearing um and so you know, we're kind of

445
00:25:21,560 --> 00:25:26,120
Speaker 1: rioting this does roller coaster um, trying to figure out,

446
00:25:26,160 --> 00:25:29,239
Speaker 1: like everyone else, how much of a negative impact this

447
00:25:29,320 --> 00:25:33,000
Speaker 1: will have in an economy which by and large is

448
00:25:33,000 --> 00:25:37,760
Speaker 1: doing pretty well. You've spent a lot of time in China,

449
00:25:37,960 --> 00:25:43,560
Speaker 1: your teacher at university in Beijing. What can you tell

450
00:25:43,600 --> 00:25:47,400
Speaker 1: us about the Chinese attitude towards the United States right now.

451
00:25:48,960 --> 00:25:52,119
Speaker 1: The big change that I saw was in two thousand

452
00:25:52,200 --> 00:25:55,720
Speaker 1: and eight with the financial crisis. Before the financial crisis,

453
00:25:55,840 --> 00:26:00,680
Speaker 1: China by and large look to the US as a model, UH.

454
00:26:00,760 --> 00:26:03,520
Speaker 1: Maybe not a political model, but definitely an economic model,

455
00:26:03,560 --> 00:26:09,240
Speaker 1: which had a lot of implications about openness and um

456
00:26:09,280 --> 00:26:12,120
Speaker 1: and the reformers, the people in favor of a more

457
00:26:12,200 --> 00:26:15,960
Speaker 1: open society and more open economy, had the upper hand.

458
00:26:16,480 --> 00:26:20,840
Speaker 1: After that, there was a lot of disillusionment with the US. UH.

459
00:26:20,880 --> 00:26:23,320
Speaker 1: There was a belief that China had a better model,

460
00:26:23,720 --> 00:26:26,440
Speaker 1: better recipe for success. And I think we've seen that

461
00:26:26,680 --> 00:26:29,520
Speaker 1: work its way out, not just in the economic policies

462
00:26:29,520 --> 00:26:32,240
Speaker 1: in China, but also the political policies, the tightening up

463
00:26:32,720 --> 00:26:37,520
Speaker 1: of you know, one party rule and and uh sort

464
00:26:37,520 --> 00:26:41,359
Speaker 1: of an autocratic top down approach. I think that bodes wealth.

465
00:26:41,600 --> 00:26:43,720
Speaker 1: I think it bodes poorly for China. I think it

466
00:26:43,760 --> 00:26:45,880
Speaker 1: creates a lot of problems they're not they're not really

467
00:26:45,920 --> 00:26:49,600
Speaker 1: dealing with. But it also poses challenges to us about

468
00:26:49,640 --> 00:26:52,920
Speaker 1: how we respond to that. You said that you're expecting

469
00:26:53,240 --> 00:26:56,760
Speaker 1: UH some sort of additional tariffs with respect to China.

470
00:26:56,800 --> 00:27:01,320
Speaker 1: In particular, what would be construct active tariffs in your mind,

471
00:27:01,520 --> 00:27:03,560
Speaker 1: and what would not be I mean, this is the

472
00:27:03,600 --> 00:27:06,720
Speaker 1: big question is is the purpose of of imposing tariffs

473
00:27:06,760 --> 00:27:09,320
Speaker 1: on China to really to get them to open up

474
00:27:09,400 --> 00:27:12,639
Speaker 1: their markets or is it just to imitate China and

475
00:27:12,640 --> 00:27:14,800
Speaker 1: close down our own markets? Um. And a lot of

476
00:27:14,840 --> 00:27:17,920
Speaker 1: the rhetoric that we've heard from the president themselves suggests

477
00:27:17,920 --> 00:27:21,720
Speaker 1: it might be the latter. But assuming it's the former, UM,

478
00:27:21,760 --> 00:27:24,600
Speaker 1: there is a history that shows that, yes, at times

479
00:27:24,720 --> 00:27:28,760
Speaker 1: you can you know, trade threats against China can sometimes work,

480
00:27:28,800 --> 00:27:32,080
Speaker 1: but they have to be very carefully calibrated, very carefully

481
00:27:32,119 --> 00:27:35,960
Speaker 1: targeted UM at sensitive areas, and it's better to go

482
00:27:36,200 --> 00:27:38,840
Speaker 1: in on a multilateral basis. There are a lot of

483
00:27:38,840 --> 00:27:41,680
Speaker 1: other countries that are equally concerned about, for instance, over

484
00:27:41,680 --> 00:27:44,960
Speaker 1: capacity in the steel industry in China. UM, who we

485
00:27:45,000 --> 00:27:47,600
Speaker 1: can work with, But we've burned a lot of those

486
00:27:47,640 --> 00:27:50,520
Speaker 1: bridges over the past week or so. UM. You know,

487
00:27:50,640 --> 00:27:53,680
Speaker 1: the trade fights that we're picking with other countries are

488
00:27:53,680 --> 00:27:56,960
Speaker 1: going to compromise our ability to work together with those

489
00:27:57,000 --> 00:28:01,280
Speaker 1: trading partners to target problem behaviors with China. Which industries

490
00:28:01,280 --> 00:28:03,720
Speaker 1: in China do you think, Oh gosh, I used to

491
00:28:04,200 --> 00:28:07,159
Speaker 1: so when I was in China. I helped out with

492
00:28:07,200 --> 00:28:09,679
Speaker 1: the American Chamber of Commerce in China. Every year we

493
00:28:09,720 --> 00:28:13,280
Speaker 1: would put together a book, I mean a thick book, uh,

494
00:28:13,400 --> 00:28:18,119
Speaker 1: sector by sector of unfair practices that we wanted to change.

495
00:28:18,200 --> 00:28:21,720
Speaker 1: And it really ranges from the service industry, where you

496
00:28:21,760 --> 00:28:26,119
Speaker 1: know a lot of US companies are excluded, uh, to

497
00:28:26,600 --> 00:28:29,080
Speaker 1: uh you know too things like steal over capacity and

498
00:28:29,119 --> 00:28:32,639
Speaker 1: the inability to resolve that and dumping. So you know

499
00:28:32,760 --> 00:28:37,480
Speaker 1: there's a and particularly intellectual property and the theft of

500
00:28:37,520 --> 00:28:40,120
Speaker 1: intellectual property is a big issue, right, but you need

501
00:28:40,120 --> 00:28:43,040
Speaker 1: that multilateral kind of approach to to do it effectively.

502
00:28:43,040 --> 00:28:44,959
Speaker 1: Patrick Shavannick, thank you so much for being with us.

503
00:28:45,120 --> 00:28:48,320
Speaker 1: Patrick Shavannick, Managing director and chief strategist at Silver Crust

504
00:28:48,400 --> 00:28:52,000
Speaker 1: Asset Management, joining us here in our Bloomberg eleven three

505
00:28:52,000 --> 00:28:56,280
Speaker 1: oh studios coming up Bloomberg Politics, Policy, Power and Law.

506
00:28:56,360 --> 00:28:59,240
Speaker 1: They will be talking about the new sanctions as where

507
00:28:59,240 --> 00:29:02,600
Speaker 1: as well as Larry Cudlow as the new head of

508
00:29:02,720 --> 00:29:10,160
Speaker 1: the n EC from New York. This is Bloomberg time.

509
00:29:10,200 --> 00:29:12,600
Speaker 1: We want to visit with Steve Matthews, our economics reporter

510
00:29:12,640 --> 00:29:15,760
Speaker 1: from Bloomberg News, who can be followed on Twitter at

511
00:29:15,920 --> 00:29:21,560
Speaker 1: Steve Matthews twelve, and he's here to discuss Larry Cudler

512
00:29:21,720 --> 00:29:24,480
Speaker 1: and replacing Gary Cohn as Director of the White House

513
00:29:24,560 --> 00:29:31,200
Speaker 1: National Economic Council. Steve, what kind of experience is Larry

514
00:29:31,200 --> 00:29:34,640
Speaker 1: Cuddler going to be bringing to this office that are

515
00:29:34,640 --> 00:29:38,480
Speaker 1: going to be useful to to the president. So, Larry

516
00:29:38,600 --> 00:29:41,680
Speaker 1: is best known for the last decade he's been on

517
00:29:41,760 --> 00:29:45,960
Speaker 1: CNBC and you've been hearing him, you know, basically every

518
00:29:46,040 --> 00:29:52,040
Speaker 1: night on on with with his views on television. But

519
00:29:52,200 --> 00:29:56,760
Speaker 1: before that, he was with Bear Stearns as the chief economist,

520
00:29:57,000 --> 00:30:00,200
Speaker 1: and he's been somebody who's been familiar in in and

521
00:30:00,240 --> 00:30:03,520
Speaker 1: around Wall Street for you know, a couple of decades.

522
00:30:03,800 --> 00:30:11,280
Speaker 1: And he brings essentially a traditional conservative Republican view. Uh

523
00:30:11,320 --> 00:30:15,160
Speaker 1: that is very Wall Street friendly. He believes in free markets,

524
00:30:15,280 --> 00:30:20,320
Speaker 1: free enterprise, free trade. That may be something that could

525
00:30:20,360 --> 00:30:23,720
Speaker 1: cause some conflicts, although he has renounced those views to

526
00:30:23,760 --> 00:30:28,200
Speaker 1: some degree. Yeah, quickly, that's true. He has renounced him Well,

527
00:30:28,240 --> 00:30:31,840
Speaker 1: I wouldn't say renounced, but he has. He has bought

528
00:30:31,880 --> 00:30:36,040
Speaker 1: into the recent tariffs that Trump has has announced on

529
00:30:37,320 --> 00:30:42,640
Speaker 1: I'm stealing aluminum, uh said some comments about China. Uh. So,

530
00:30:42,760 --> 00:30:45,240
Speaker 1: I mean he's definitely trying to be a team player.

531
00:30:45,280 --> 00:30:48,680
Speaker 1: But if you read his views, it's pretty clear, Uh,

532
00:30:48,840 --> 00:30:51,560
Speaker 1: he's on the free trade side of the of the Ledger.

533
00:30:51,760 --> 00:30:54,800
Speaker 1: All right, let's talk about some of his economic calls

534
00:30:54,880 --> 00:30:58,000
Speaker 1: and credentials. I want to read you a quote that

535
00:30:58,240 --> 00:31:02,680
Speaker 1: he uh wrote on December seven, two and seven, in

536
00:31:02,960 --> 00:31:06,640
Speaker 1: National Review. Despite all the doom and gloom from the

537
00:31:06,680 --> 00:31:11,400
Speaker 1: economic pessimists, the resilient US economy continues moving ahead. Of course,

538
00:31:11,440 --> 00:31:14,640
Speaker 1: that was the eve of the worse financial crisis since

539
00:31:14,680 --> 00:31:18,240
Speaker 1: the Great Depression. Everyone can be forgiven for being wrong.

540
00:31:18,360 --> 00:31:22,040
Speaker 1: But has his record been more right than wrong? You know,

541
00:31:22,120 --> 00:31:24,520
Speaker 1: if you look at the last decade, he has made

542
00:31:24,680 --> 00:31:28,160
Speaker 1: lots and lots of bad calls. He was wrong on

543
00:31:28,200 --> 00:31:31,800
Speaker 1: the recession. That that the comment you are citing are

544
00:31:31,880 --> 00:31:35,800
Speaker 1: from December two thousand and seven. That was the month

545
00:31:35,960 --> 00:31:40,200
Speaker 1: that the NBR National Bureau of Economic Research dated the

546
00:31:40,240 --> 00:31:45,120
Speaker 1: recession starting. He said a bit before then, there's no

547
00:31:45,200 --> 00:31:50,440
Speaker 1: housing bubble, and specifically cited Naples, Florida, in Las Vegas. No,

548
00:31:50,680 --> 00:31:54,480
Speaker 1: there's no housing bubble in Las Vegas or Naples. It's

549
00:31:54,520 --> 00:31:59,400
Speaker 1: like that was not exactly right. When Yellen was promoted

550
00:31:59,480 --> 00:32:04,560
Speaker 1: by person Obama, Janet Yellen. He said, this is gonna

551
00:32:04,680 --> 00:32:08,240
Speaker 1: usher in higher inflation, and you know, you just better

552
00:32:08,280 --> 00:32:11,200
Speaker 1: watch out. We're gonna see higher inflation. No, we really

553
00:32:11,200 --> 00:32:16,040
Speaker 1: haven't seen higher inflation. Uh So, the one prediction that

554
00:32:16,080 --> 00:32:18,960
Speaker 1: he's made recently that has turned out to be right

555
00:32:19,000 --> 00:32:23,040
Speaker 1: and has actually been actionable was he said, if Trump

556
00:32:23,120 --> 00:32:26,840
Speaker 1: is elected, by stocks, stocks are gonna go up. Lots

557
00:32:26,880 --> 00:32:30,280
Speaker 1: of people are negative on stocks because they're worried about Trump.

558
00:32:30,800 --> 00:32:35,400
Speaker 1: By them turned out to be right. Steve, Aside from

559
00:32:35,880 --> 00:32:39,520
Speaker 1: his prognostications and whether he got this right that right,

560
00:32:39,600 --> 00:32:41,640
Speaker 1: I mean, I guess a lot of you know, a

561
00:32:41,640 --> 00:32:43,400
Speaker 1: lot of people can get things wrong. I get things

562
00:32:43,400 --> 00:32:46,840
Speaker 1: wrong all the time. But I want to focus on

563
00:32:46,920 --> 00:32:50,760
Speaker 1: his role in the White House because Gary Khone is

564
00:32:50,880 --> 00:32:54,880
Speaker 1: often mentioned as one of the lead architects of the

565
00:32:55,080 --> 00:32:59,600
Speaker 1: tax cuts that were passed in Washington. Is Larry Cudler

566
00:32:59,640 --> 00:33:01,600
Speaker 1: a good person to have if you want to do

567
00:33:01,720 --> 00:33:05,000
Speaker 1: let's say, tax cuts round two, or you want to

568
00:33:05,720 --> 00:33:09,000
Speaker 1: sort of get a group of people like legislators to

569
00:33:09,160 --> 00:33:14,040
Speaker 1: support other economic programs, uh like an infrastructure plan. Is

570
00:33:14,040 --> 00:33:16,200
Speaker 1: he a good cheerleader to help make that happen? I

571
00:33:16,240 --> 00:33:21,560
Speaker 1: think Cudlow is a very articulate spokesman for the administration.

572
00:33:22,240 --> 00:33:26,400
Speaker 1: And you know, one thing that he brings uh that

573
00:33:26,560 --> 00:33:30,440
Speaker 1: maybe more than Gary Cohne, is the ability to kind

574
00:33:30,440 --> 00:33:35,240
Speaker 1: of you know, browbeat Congress to to make his case

575
00:33:35,320 --> 00:33:39,400
Speaker 1: to the people. And Yes, on taxes, he is very

576
00:33:39,480 --> 00:33:43,320
Speaker 1: much in favor of low taxes. Uh, he's already talking

577
00:33:43,360 --> 00:33:47,240
Speaker 1: about perhaps a round two. You could have capital gains

578
00:33:47,280 --> 00:33:49,520
Speaker 1: taxes or something that was not in So maybe this

579
00:33:49,640 --> 00:33:52,040
Speaker 1: is so, maybe it's actually a very good fit. And

580
00:33:52,200 --> 00:33:56,640
Speaker 1: maybe having Larry Cudlow, who is no stranger obviously to

581
00:33:56,800 --> 00:34:00,240
Speaker 1: to the media and being able to communicate to idea

582
00:34:00,280 --> 00:34:03,920
Speaker 1: of constituencies is exactly the kind of person the president

583
00:34:04,000 --> 00:34:06,840
Speaker 1: needs right now. There's a good case to be made

584
00:34:06,960 --> 00:34:09,840
Speaker 1: that he is exactly what is needed. He'll be a

585
00:34:09,880 --> 00:34:13,400
Speaker 1: great communicator. Uh. There are the points of friction that

586
00:34:13,440 --> 00:34:16,239
Speaker 1: you could have, would be over trade, particularly if you know,

587
00:34:16,280 --> 00:34:20,520
Speaker 1: if NAFTA negotiations, uh, you know don't work out so

588
00:34:20,560 --> 00:34:22,920
Speaker 1: well that he could be on the free trade side.

589
00:34:23,760 --> 00:34:27,719
Speaker 1: The other thing that you know a number of of

590
00:34:28,080 --> 00:34:32,880
Speaker 1: commentators point out is that Larry likes the camera. He

591
00:34:32,960 --> 00:34:37,160
Speaker 1: has outspoken. Uh. That can cause some friction if you know,

592
00:34:37,400 --> 00:34:40,560
Speaker 1: if he if he gets too much into the spotlight,

593
00:34:41,040 --> 00:34:43,360
Speaker 1: and some people have already predicted he won't be around

594
00:34:43,440 --> 00:34:47,040
Speaker 1: past Thanksgiving because you know that can cause friction. Well, yeah,

595
00:34:47,120 --> 00:34:49,480
Speaker 1: especially when you have proclamations like the one that he

596
00:34:49,520 --> 00:34:51,480
Speaker 1: came out and said that he would buy the king

597
00:34:51,520 --> 00:34:55,120
Speaker 1: dollar and sell gold. You know if that were I mean,

598
00:34:55,160 --> 00:34:58,160
Speaker 1: guess the dollar is up minorly today, but if that

599
00:34:58,239 --> 00:35:01,120
Speaker 1: were to start some massive dollar rally that then, yeah,

600
00:35:01,200 --> 00:35:04,839
Speaker 1: that will cause friction because supposedly the Treasury Department is

601
00:35:04,920 --> 00:35:07,640
Speaker 1: only supposed to speak about the dollar. So here we

602
00:35:07,680 --> 00:35:12,160
Speaker 1: go in minution. The Treasury Secretary has, as you know,

603
00:35:12,680 --> 00:35:16,160
Speaker 1: made nuance comments but basically suggested he would be fine

604
00:35:16,160 --> 00:35:17,759
Speaker 1: with a week or dollar. Right. This will be an

605
00:35:17,800 --> 00:35:21,560
Speaker 1: interesting White House conversation, I am sure, and you will

606
00:35:21,600 --> 00:35:24,640
Speaker 1: be covering it for a Steve Matthews, economics reporter for

607
00:35:24,840 --> 00:35:29,239
Speaker 1: Bloomberg News, Thank you so much. Thanks for listening to

608
00:35:29,239 --> 00:35:32,120
Speaker 1: the Bloomberg P and L podcast. You can subscribe and

609
00:35:32,200 --> 00:35:36,120
Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast

610
00:35:36,200 --> 00:35:39,680
Speaker 1: platform you prefer. I'm pim Fox. I'm on Twitter at

611
00:35:39,840 --> 00:35:43,760
Speaker 1: pim Fox. I'm on Twitter at Lisa Abramowits one before

612
00:35:43,760 --> 00:35:46,680
Speaker 1: the podcast. You can always catch us worldwide on Bloomberg

613
00:35:46,760 --> 00:35:47,040
Speaker 1: Radio