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Speaker 1: Runt You by Bank of America Mary Lynch with virtual reality,

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Speaker 1: virtually everything will change. Discover opportunities in a transforming world.

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Speaker 1: Be of a mL dot Com, slash VR, Mary Lynch,

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Speaker 1: Pierced Fenner and Smith Incorporated. Ye. Welcome to the Bloomberg

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Speaker 1: Surveillance Podcast. I'm Tom Keene with David Gura. Daily we

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Speaker 1: bring you insight from the best of economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg David Gurral,

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Speaker 1: why don't you bring it into a steam guest? Yeah,

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Speaker 1: Jeffrey Sax with this university Professor at Columbia University, author

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Speaker 1: of building the New American Economy, Smart, fair, and Sustainable.

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Speaker 1: Julia Cornado joining us as well in our Bloomberg and

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Speaker 1: v in three studios, Founder and president of Macro Policy Perspective.

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Speaker 1: Let me start with with you as we await the

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Speaker 1: job support here at thirty Uh, will the Fed ever

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Speaker 1: declare that we've reached full employment? Is that something that

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Speaker 1: just a specter looming in the in the background? What

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Speaker 1: what is the Fed waiting for? Well, they're not waiting.

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Speaker 1: I mean they're they're raising rates. They have basically said

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Speaker 1: on the on the employment side of the mandate there

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Speaker 1: there there may be a little bit more slack is

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Speaker 1: their assessment. But um, they have kind of declared victory

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Speaker 1: on the employment mandate. Now it's the inflation side of

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Speaker 1: their mandate that's still falling short. But they are raising rates,

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Speaker 1: and they are going to put in a balance sheet

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Speaker 1: reduction plan it seems later this year. So they are

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Speaker 1: moving forward with policy tightening ever so slowly, but surely

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Speaker 1: how tenuous the position are they in right now? Look

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Speaker 1: looking at the jobs market where it is, and as

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Speaker 1: you say, worried about the other other half of the mandate, Well,

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Speaker 1: I think the job situation is probably the least of

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Speaker 1: their worries, uh, in a lot of senses. I mean,

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Speaker 1: assessing the outlook with so much uncertainty and the risks

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Speaker 1: to it is is a very difficult job. And again

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Speaker 1: the the inflation side, things have been going in the

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Speaker 1: wrong direction lately, both headline inflation, commodity prices falling, core

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Speaker 1: inflation giving up a good quarter point of progress, wage

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Speaker 1: growth lagging behind inflation expectations really sort of getting anchored

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Speaker 1: at a lower level so, uh, it really looks like

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Speaker 1: they'll struggle. They've emphasized the symmetry of their inflation target lately,

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Speaker 1: but uh, they can't even really get to two. So

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Speaker 1: I think that's where the worries lie for them. Jeffrey

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Speaker 1: Sacks will dive past the headline into the greater detail

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Speaker 1: of this job support this when we look at manufacturing

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Speaker 1: this administration. Others have talked about manufacturing in the US.

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Speaker 1: We were talking about innovation and manufacturing a few moments ago.

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Speaker 1: Where is that going to come from? Where is the

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Speaker 1: the impulse for innovation, the the the training to do

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Speaker 1: new manufacturing going to come from. Is that to be

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Speaker 1: something pioneered by companies going forward, or is that something

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Speaker 1: that is in the providence of the government. First of all,

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Speaker 1: innovation comes from a combination of academia, government and business.

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Speaker 1: And that's the rich model. We call it the innovation system.

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Speaker 1: And that was the vision vanever Bush right after World

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Speaker 1: War Two, that we would build a science and tech

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Speaker 1: based economy through the interactions of the government, academia, and

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Speaker 1: and business. And it works great, and our manufacturing sector

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Speaker 1: is incredibly dynamic technologically, but the technologies of today in

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Speaker 1: the future are eliminating jobs, not creating jobs on the whole.

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Speaker 1: And this is quite real phenomenon. There's nothing special about

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Speaker 1: it or paradoxical about it. We are in a job

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Speaker 1: saving technology mode because the machines are getting smarter and

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Speaker 1: smarter and able to replace what people do, so manufacturing

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Speaker 1: is healthy. Jobs is another matter. That's why the wages

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Speaker 1: are going down for more and more of the labor force.

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Speaker 1: And the winners of this are the equity owners because

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Speaker 1: the whole national income has shifted towards capital. Should we

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Speaker 1: wax historical here, Julia? I mean I think you should

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Speaker 1: wax historical. Let's talk about young sacks thirty five years ago. Comment.

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Speaker 1: Try to remember the employment real wage relationship. You were

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Speaker 1: thinking about this when you started out. This is after

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Speaker 1: Kotlikoff and Lemur, and that this is the employment real

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Speaker 1: wage relationship. Are we a guilded age now like we

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Speaker 1: were a guilded age back then. It's interesting. I have

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Speaker 1: been thinking about how technological change or oil price shocks

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Speaker 1: affects the demand for labor and writing about that for

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Speaker 1: oh my word, almost four decades. But the fact is

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Speaker 1: that the whole uh machine age, which is not just

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Speaker 1: now but goes back to the nineteenth century, has been

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Speaker 1: replacing lower skilled work. And that's why to keep ahead,

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Speaker 1: we have what Larry Katz and Claudia Golden of Harvard

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Speaker 1: is famously called the race between technology and education. Now

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Speaker 1: technology is winning that race, meaning that more and more

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Speaker 1: of our population is not able to keep up with

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Speaker 1: the machines. This doesn't mean that as a whole we're

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Speaker 1: losing from technological innovation. The winners are Larry Page and

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Speaker 1: Sergey Brinn and Tim Cook and UH and Bill Gates,

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Speaker 1: and we have and Jeff Bezos. We have more money

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Speaker 1: at the top than ever. We have a larger economy

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Speaker 1: than ever. We have a dollar economy, but the labor

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Speaker 1: share of national income has been falling. You've got to

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Speaker 1: get off an airplane, polluting, destroying hydrocarbon airplane. Get off

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Speaker 1: the airplane and comeback. Jeff says, thank you so much,

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Speaker 1: really really helpful. They thank you, folks for your many comments.

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Speaker 1: Mr Sachs's appearance, We welcome on Bloomberg Radio and Bloomberg

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Speaker 1: Television worldwide from Janice Anderson. William Gross joins us as

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Speaker 1: he always does after the good analysis of Uh. Jim Glassman.

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Speaker 1: It's good to speak to Bill Gross. Bill, I haven't

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Speaker 1: done the three months moving average of jobs, but we're

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Speaker 1: not getting the job's growth we got ten years ago.

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Speaker 1: Is that a surprise? No, I don't think so, certainly,

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Speaker 1: not at the levels of unemployment that we're at now,

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Speaker 1: not only in terms of you three, but U six.

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Speaker 1: I think as an economy matures, and this recovery is

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Speaker 1: eight nine, close to ten years in the making. Uh.

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Speaker 1: You know, job growth comes down, so I think it's

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Speaker 1: to be expected. It's a weaker number than the market

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Speaker 1: expected today, but not the less, you know. I think

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Speaker 1: it reflects via the work week, via wages, that we're

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Speaker 1: on on steam for a two point two percent type

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Speaker 1: of real economy going forward, which I mean, not see

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Speaker 1: what the market's expecting, but what I think is going

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Speaker 1: to happen. Does the tepidness of this the vectors the

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Speaker 1: three months to the six month or twelve month job

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Speaker 1: formation and also wage growth, does it adjust what chair

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Speaker 1: Yelling will confront June. I don't think it changes much.

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Speaker 1: I do agree that the chair you know, believes in

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Speaker 1: job growth more than anything else, in the the extent

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Speaker 1: that it's lower than the market expected, perhaps, but she's

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Speaker 1: going in June. I think the Fed tom is for

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Speaker 1: clemped to site an old Saturday Night Live skipped phrase.

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Speaker 1: You know, it wants inflation higher in the real economy,

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Speaker 1: but not necessarily in the financial markets. And so we have, um,

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Speaker 1: you know, not dreaded fear, but you know, concern about

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Speaker 1: financial bubbles in some areas commercial real estate and and

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Speaker 1: so on. And and to be fair, other central banks

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Speaker 1: are really pouring on the coal in terms of the

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Speaker 1: global economy. The ECB and the b o J by

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Speaker 1: the way, tom UH now have balance sheets larger than

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Speaker 1: the Fed at four and a half trillion plus each

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Speaker 1: of them. And so there's a lot of money coming

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Speaker 1: into this global economy. And for the Fed to uh

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Speaker 1: you know, join in and stop raising the FED funds

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Speaker 1: level or even you know, not address what we have

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Speaker 1: in terms of their balance sheet later in the year,

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Speaker 1: I think would be a mistake. A little coffee talk

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Speaker 1: here with Bill Gross if Jana Centerson here on Jobs Day, Bill,

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Speaker 1: let me ask you what happens when the FED begins

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Speaker 1: unwinding this balance sheet. What's that going to mean for

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Speaker 1: for term premium? Well, it depends on how fast, right

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Speaker 1: David um and we're talking about not only treasuries but

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Speaker 1: mortgages because they're in that pot too. You know, at

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Speaker 1: the moment the forecasts are the private forecasts are for

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Speaker 1: like ten to fifteen billion dollars a month, which makes

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Speaker 1: an end road in terms of uh, you know, reducing

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Speaker 1: the balance sheet, but certainly at a very slow pace.

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Speaker 1: I think ultimately a though, to answer your question that

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Speaker 1: the term premium for five to ten thirty year treasuries,

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Speaker 1: which are a significant part of that balance sheet, you know,

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Speaker 1: basically have to has to increase. The term premium is

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Speaker 1: uh you know, not only forecast but put into evidence

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Speaker 1: by several district fed uh FED reserve banks has suggested

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Speaker 1: that seventy five basis points lower, you know, was the

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Speaker 1: net net of the four trillion dollar edition that we've seen,

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Speaker 1: you know, prior to the past few years. And so

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Speaker 1: you would have to expect the term premium to go up.

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Speaker 1: Does go back up by seventy five basis points, I

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Speaker 1: don't think so, but certainly higher over the short term.

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Speaker 1: David Gary pick up the question here. But we got

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Speaker 1: to do a data check for radio and television right now,

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Speaker 1: because this is really remarkable. Two on the ten ure

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Speaker 1: yield the thirty year BONDUS seventeen basis points in from

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Speaker 1: three percent. That is a huge deal. And over on

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Speaker 1: the cream. Get over here right now in Bloomberg Television

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Speaker 1: for those of you in radio, this is a wow statistic.

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Speaker 1: Bill Gross is minting money this morning. The two tens

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Speaker 1: spread is broken under ninety basis points. Gross may have

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Speaker 1: to cancel ther David jumping with Bill Well, I continue

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Speaker 1: to look at the spread market. Bill. Let me ask you,

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Speaker 1: your global investor. We have seen changes to geopolitics here

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Speaker 1: over the last twenty four hours and certainly over the

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Speaker 1: last week plus. How does a different role for the

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Speaker 1: US in the world to change your outlook and your positioning? See,

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Speaker 1: I think it's significant. I don't think the market thinks

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Speaker 1: it's significant, because the stocks blew by that news yesterday.

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Speaker 1: But you know, let's look at it this way in

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Speaker 1: terms of the Paris accord, and uh, you know, our

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Speaker 1: our absence, at least in terms of philosophical absence. You know,

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Speaker 1: it's destructive from my point of view for equities because

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Speaker 1: equitists are long term cash flow dependent. And what we're

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Speaker 1: talking about here in terms of global warming going higher

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Speaker 1: as the increase in long term liabilities, and so ultimately

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Speaker 1: stocks have to be affected by the potential for the

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Speaker 1: expense the liability you know, to contain global warming goes

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Speaker 1: much higher. Okay, here's the heart amount of cream. Come

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Speaker 1: over here again, cream, Come on, I make the rules.

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Speaker 1: This chart was to Capitlan of Dallas. This is the

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Speaker 1: vector of inflation, and Bill Gross has been dead on that.

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Speaker 1: We're not right that the court pc inflation is rolling

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Speaker 1: over Bill With this job's report and with the two

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Speaker 1: stents spread under ninety beeps, with yields coming in weaker dollar,

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Speaker 1: would you say even more so now that inflation is

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Speaker 1: just not part of the debate, and that gives Janet

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Speaker 1: Yellen cover to lengthen out her path to a normal

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Speaker 1: yield policy. Well, I I'm not sure I understood the

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Speaker 1: two parts of that question, but I think what it

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Speaker 1: does for Janet Yellen is allow her to m you know,

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Speaker 1: to to keep the Fed funds level, the neutral, the

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Speaker 1: long term neutral Fed funds rate, at a lower level

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Speaker 1: than she would have previously. You know, there is a

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Speaker 1: contentious debate among the Fed officials as to what our star,

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Speaker 1: which is really the real long term uh you know,

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Speaker 1: Fed funds right what it is, and at the moment

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Speaker 1: it appears that it's less than zero. And I think

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Speaker 1: Janet Yellen will keep on keeping on and as long

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Speaker 1: as financial markets in some areas of the economy did

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Speaker 1: not show bubblish types of characteristics. How are you adjusting

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Speaker 1: your portfolio, Janie Henderson, I mean, we have seen a

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Speaker 1: bill gross economy over the last two months, I would

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Speaker 1: suggest where it's been a little bit disappointing from the enthusiasm.

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Speaker 1: How have you ingested your portfolio? Well, let's look at

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Speaker 1: it this way. From all asset classes, tom, So we

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Speaker 1: know of all futility is low. We know about the

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Speaker 1: vix it's less than ten, which is historically low. We're

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Speaker 1: not so uh, you know, necessarily informed on bond volatility,

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Speaker 1: but it's historically low as well. And so when you

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Speaker 1: have volatility and the two major markets at low levels,

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Speaker 1: you know you certainly don't want to sell that volatility.

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Speaker 1: And the way investors basically assume risk and sell volatility

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Speaker 1: is to buy stocks, to buy duration, to buy hild

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Speaker 1: bonds that relatively low spreads. In other words, they move

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Speaker 1: into markets that have low risk premiums when they should

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Speaker 1: move into markets that have high risk premium. So this

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Speaker 1: is definitely a market not just with stocks, but with

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Speaker 1: bonds and other essays classes where an investor has to

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Speaker 1: be careful because of the low volatility that's into the market.

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Speaker 1: David Gern, Tim Keenan New York joining us from Janis Anderson,

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Speaker 1: uh William Gross. Bill Gross, wonderful to have you with us.

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Speaker 1: As always, what I noticed today build it is so

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Speaker 1: different as you get a reaction from the report, and

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Speaker 1: we've had now one into impulses twenty minutes down the line,

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Speaker 1: twenty four minutes down the line of lower yields, weaker dollar.

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Speaker 1: When does the twos ten spread begin to get Bill

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Speaker 1: Gross's attention? If we had a Trump surge, a Trump fade,

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Speaker 1: we went through the curve flatness of November eight to

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Speaker 1: an ever flatter yield curve in with a vengeance, we

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Speaker 1: see more of this morning. When does Bill Gross look

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Speaker 1: at the twos tenants say this has my attention? Well,

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Speaker 1: tell me, it's had my attention actually for a long time.

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Speaker 1: You know, I think most portfolio managers and economists have

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Speaker 1: it wrong. They talk about the flatness and the move

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Speaker 1: of the two ten to a you know, basically a

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Speaker 1: flat level which creates a recession, and it always has

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Speaker 1: historically in the past. But to me, you know, the

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Speaker 1: two ten has been flattening for at least two to

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Speaker 1: three years. It started close to two oter basis points

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Speaker 1: and now where it is as you cite, and so

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Speaker 1: that's an indication of tightening. Now why do we not

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Speaker 1: need to go back to zero to create recessionary types

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Speaker 1: of environments? I think because the US economy and the

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Speaker 1: global economy is much more highly levered and to the

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Speaker 1: extent that the US dollar is the global currency. To

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Speaker 1: the extent that you flat flat flat, you know, it

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Speaker 1: creates more and more risk in terms of a global

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Speaker 1: economic slowdown, not necessarily a recession. So it's got my attention,

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Speaker 1: has had my attention, and I think an actor should

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Speaker 1: continue to watch it and not just look for zero

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Speaker 1: as opposed to where we are now at eight to

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Speaker 1: nine basis point. Bill, you and I should have a

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Speaker 1: moment of silence for all those taking the CFA exam

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Speaker 1: this Saturday. I guess we can do that. And is

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Speaker 1: you know, Bill gross level one convexity is about acceleration.

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Speaker 1: How worried are you of tantrums of convexity? Of acceleration

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Speaker 1: in the glide pass. For Janet Yellen, can she believe

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Speaker 1: in stability or does she have to worry about real upset.

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Speaker 1: I don't think we have to worry about convexity and

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Speaker 1: acceleration from the yelling economy and the yelling FED. I

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Speaker 1: think we have to worry about it from the standpoint

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Speaker 1: of the e c BE, not necessarily the b O J.

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Speaker 1: At some point the e c B, and they've suggested

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Speaker 1: already that they're going to cut back in terms of

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Speaker 1: their purchases. But ultimately, remember the Fed, uh, you know,

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Speaker 1: eliminated quantitative easy and about two years ago, and you

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Speaker 1: know the taper tantrum was before that, but an anticipation

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Speaker 1: of it. And so I think, simply because buns and

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Speaker 1: because um you know, um J g B s are

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Speaker 1: calling the tune for the global market, that we should

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Speaker 1: look to the e c B as the potential leader

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Speaker 1: for any type of tantrum going forward. At the moment,

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Speaker 1: Droggy is basically calm markets and said, hey, inflation is

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Speaker 1: not high enough. But when we come to that point

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Speaker 1: where the ECB starts to cut back, then uh, you know,

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Speaker 1: bond markets globally maybe at risk. But I want to

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Speaker 1: get you react to what James Gorman said to Bloomberg

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Speaker 1: a couple of days ago. We had an exclusive with

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Speaker 1: him in Beijing. The CEO of Morgan Stanley said, the

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Speaker 1: dirty little secret is the U s economy is doing

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Speaker 1: just fine. Secrets out. Do you agree with him? Well, no,

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Speaker 1: I don't think so. You know, I think it comes

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Speaker 1: down to productivity. And as we know over the past

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Speaker 1: few years, actually over the past five years, productivity basically

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Speaker 1: is close to flatlined. And so that's the ultimate indicator

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Speaker 1: of how the US economy is doing. We know that

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Speaker 1: labor force growths. Today's report included you know, it is

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Speaker 1: moving at a point to five percent to point five

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Speaker 1: percent rate going forward. And so the balance, if we're

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Speaker 1: going to go to a two percent the economic growth

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Speaker 1: or higher has to come from productivity. Now, what are

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Speaker 1: the reasons why productivity is flatlined and why might it

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Speaker 1: go higher? You know, perhaps it could go higher simply

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Speaker 1: because there's a lag between technology and the ultimate real economy.

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Speaker 1: But you know, there are negatives to Robert Gordon from

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Speaker 1: Northwestern sites, low hanging fruit and all of it being picked.

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Speaker 1: You know, there's demographics, there's high debt, levels, there's de globalization,

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Speaker 1: all of which suggests, you know, lower productivity going forward.

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Speaker 1: And one last point on you know, the productivity of finance,

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Speaker 1: which has been inherent in the economy for the past

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Speaker 1: twenty or thirty years with lower refi rates and mortgages

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Speaker 1: and so on, you know, basically has gone. And so

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Speaker 1: productivity is the key, and we're not seeing it, and

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Speaker 1: so I don't think the U. S. Economy is doing fine.

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Speaker 1: We saw we saw manufacturing tickdown for the first time

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Speaker 1: in a while in this report today, and I'm just

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Speaker 1: looking through the layers of it. Here is the is

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Speaker 1: the morning. Whereas what does that say to you again

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Speaker 1: putting into that sort of global context we're talking about

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Speaker 1: globalization and the last in the last block, well, I

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Speaker 1: think I'm not sure what's influenced that we know about

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Speaker 1: Ford and we know about the auto companies and the

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Speaker 1: cutbacks in terms of their labor. I don't know whether

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Speaker 1: that's influenced this recent report. But you know, manufacturing depends

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Speaker 1: and we'll give Trump a little bit of credit here,

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Speaker 1: Manufacturing depends on a lower dollar, and to the extent

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Speaker 1: that we've had that for the last three or four months,

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Speaker 1: maybe you know, there's hope for manufacturing going forward, but

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Speaker 1: at the level that Paller was four or five six

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Speaker 1: months ago, you know, the US manufacturing was not at

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Speaker 1: a competitive level. I mean, Bill within this in in

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Speaker 1: the number of minutes that we've got left to do,

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Speaker 1: I want to talk about the to do list for investors.

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Speaker 1: I assume in the battle of yields moving around and

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Speaker 1: prices right now, we got price up, yield down. So

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Speaker 1: I guess you're making money today. But at Janice Henderson,

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Speaker 1: what is the methodology of Bill Gross to be safe

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Speaker 1: and capture yield? What are you actually doing day to day? Okay,

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Speaker 1: first of all, time you have to accept the fact

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Speaker 1: that returns and yields are lower and that you know

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Speaker 1: your investors are going to be slightly disappointed almost no

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Speaker 1: matter what. But secondly, what am I doing? Um and

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Speaker 1: you know, basically avoiding high risk premium markets and to

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Speaker 1: be frank, those are equi These those are long term

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Speaker 1: high yield bonds. You know, those are anything with long

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Speaker 1: term cash flows that may be affected by you know,

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Speaker 1: ultimately slower growth point forward, What is the substitute in

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Speaker 1: the meantime? You know, we heard about Chuck Prince and

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Speaker 1: dancing on the floor until the music stops. Well, to

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Speaker 1: a certain extent, investors are in the same thing. They say,

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Speaker 1: what do I do with my money? Well, what do

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Speaker 1: they do with their money? I think if you're going

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Speaker 1: to invest in high yield bonds, you invest, you know,

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Speaker 1: very short term. There's some E t F S H, Y,

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Speaker 1: G J and K some other alternatives which you know

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Speaker 1: provide four to five percent returns with a three to

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Speaker 1: four year maturity level. I think those are okay. We're

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Speaker 1: buying some of those. There's a preferred E t F

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Speaker 1: called PFF, the biggest preferred PFF, the biggest E t F,

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Speaker 1: and it yields about five and a half percent. Are

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Speaker 1: these low risk types of investments. They're lower risk than

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Speaker 1: UH than long term bonds are box and technology high flyers,

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Speaker 1: and so you know, that's what we're doing to produce

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Speaker 1: a three to four or five percent retire And you

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Speaker 1: sound like a good collo league. Christopher Whalen, who we

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Speaker 1: speak to, like those preferreds from time to time. I

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Speaker 1: believe that's called capturing a coupon. Bill Gross. I want

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Speaker 1: to know the levels where you begin to pay attention.

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Speaker 1: The yen is on a tear this morning, stronger yen

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Speaker 1: one ten seventy three. We mentioned the two ten steps

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Speaker 1: spread flattening out oil down to forty seven. We had

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Speaker 1: a forty six handle in West Texas intermediate. Do you

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Speaker 1: sense a tip point here in the correlation of markets

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Speaker 1: that signal disinflation or can you really say it's a

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Speaker 1: steady American economy and Janet Yelling will act as predicted. Yeah,

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Speaker 1: I think it's a steady American economy and that the

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Speaker 1: market is expecting and we'll see, you know, hike in

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Speaker 1: June and perhaps one later in the year, but the

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Speaker 1: feed is going to stay very, very low, and so

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Speaker 1: that the supports markets to some extent. I would say,

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Speaker 1: you didn't mention gold, but gold is up today. You know,

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Speaker 1: golds a reflection of a weeker dollar and it's a

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Speaker 1: reflection of lower real interest rates, and we see both

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Speaker 1: of those today and so you know, some markets will

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Speaker 1: be affected by the lower yields and by the weaker

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Speaker 1: dollar to to the extent that we continue to see

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Speaker 1: that trend, and those would be markets where you'd want

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Speaker 1: to invest. Bill Gross, thank you was always for your time.

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Speaker 1: He's with Janie Henderson as well. Of course, with Janie

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Speaker 1: Henderson unconstrained. Uh fun, just great to get his perspective.

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Speaker 1: Mr Gross, He's not taking the cf A this weekend,

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Speaker 1: just so you know, you're just for fun. He's we

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Speaker 1: we did it and somehow and they're done that Survive.

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Speaker 1: He went home and he relicked his whole stamp collection.

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Speaker 1: He was so so charted after level three. Example Brunt

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Speaker 1: lens Okay, so let's start with the problem. What's your

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Speaker 1: analysis of the problem. Why has the stock price not

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Speaker 1: reflected a fairly successful operation. Yeah. I think that GM

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Speaker 1: is strong and very many areas of its business, and

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Speaker 1: it's made a number of really good strategic moves that

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Speaker 1: positions itself very well for the future. There's lots of

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Speaker 1: areas in operating an automobile company, from product designed to sales,

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Speaker 1: to manufacturing, customer support, so on and so forth. But

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Speaker 1: one area where GM is weak is in its capital structure.

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Speaker 1: It's weak in finance and it has a balance sheet

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Speaker 1: which is fundamentally too conservative for um for the value

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Speaker 1: that's being created in the operations to be unlocked. The

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Speaker 1: company has a market cap of just about fifty billion dollars.

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Speaker 1: They have twenty billion in cash, They have an undrawn

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Speaker 1: revolver of another thirteen or fourteen billion dollars. They have

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Speaker 1: a few billion dollars more in cash sitting offshore in

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Speaker 1: places like China that isn't even counted. And with so

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Speaker 1: much of the value locked in cash preserving for the downside,

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Speaker 1: it it leaves an in a few capital structure for

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00:25:01,160 --> 00:25:04,119
Speaker 1: the company, and shareholders have been rewarded. Therefore, with the

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00:25:04,200 --> 00:25:07,520
Speaker 1: lowest PE multiple in the entire s and P five hundred,

430
00:25:07,760 --> 00:25:10,440
Speaker 1: it trades it a huge discount even to Ford, where

431
00:25:10,560 --> 00:25:14,320
Speaker 1: to have Ford's PE multiple the stock would be higher.

432
00:25:14,600 --> 00:25:16,760
Speaker 1: So I think that something needs to be done to

433
00:25:16,880 --> 00:25:19,760
Speaker 1: unlock the value that's at GM. So if that's the diagnosis,

434
00:25:20,200 --> 00:25:22,560
Speaker 1: why hasn't management addressed it? I mean, Mary bars certainly

435
00:25:22,640 --> 00:25:24,720
Speaker 1: is concerned about her stock price. She said it to me,

436
00:25:24,800 --> 00:25:26,840
Speaker 1: she said at other people. She knows there's a problem.

437
00:25:27,160 --> 00:25:29,680
Speaker 1: She has a team around her. Why haven't they addressed it?

438
00:25:30,240 --> 00:25:32,760
Speaker 1: I think there's caring about a stock price and caring

439
00:25:32,800 --> 00:25:35,680
Speaker 1: about a stock price. It's kind of like I could

440
00:25:35,760 --> 00:25:38,720
Speaker 1: lose that last five pounds, but do I really care

441
00:25:38,880 --> 00:25:41,960
Speaker 1: enough to change my diet and change my exercise to

442
00:25:42,119 --> 00:25:45,040
Speaker 1: do that. And whereas I would rather have five pounds less,

443
00:25:45,119 --> 00:25:48,359
Speaker 1: I'm not really willing to do that. GM similarly would

444
00:25:48,359 --> 00:25:51,040
Speaker 1: prefer a higher stock price there, but they're not really

445
00:25:51,040 --> 00:25:53,040
Speaker 1: willing to do what it takes to make that happen.

446
00:25:53,240 --> 00:25:55,480
Speaker 1: Is it also possible that they are scarred from the

447
00:25:55,480 --> 00:25:57,720
Speaker 1: experience of going bankrupt and then having come back into

448
00:25:57,720 --> 00:26:00,320
Speaker 1: the marketplace, and so they're saying, we really need money

449
00:26:00,320 --> 00:26:03,040
Speaker 1: for a rainy day, and might they be right about that? Sure,

450
00:26:04,119 --> 00:26:06,200
Speaker 1: the company has said that they're forever grateful to the

451
00:26:06,280 --> 00:26:09,600
Speaker 1: United States for bailing themselves out and and preserving the

452
00:26:09,640 --> 00:26:13,159
Speaker 1: company through the last the last recession, and the company

453
00:26:13,240 --> 00:26:16,360
Speaker 1: is capitalized to make sure that that absolutely positively never

454
00:26:16,440 --> 00:26:19,199
Speaker 1: happens again. So I think that there's several ways to

455
00:26:19,240 --> 00:26:21,320
Speaker 1: get at that particular thing. One is is you could

456
00:26:21,400 --> 00:26:23,600
Speaker 1: decide that you're fighting the last war, and you could

457
00:26:23,680 --> 00:26:27,199
Speaker 1: change your balance sheet, uh to make it more conducive

458
00:26:27,240 --> 00:26:30,040
Speaker 1: to the current business, to the current cost structure of

459
00:26:30,040 --> 00:26:33,119
Speaker 1: the company, which is structurally improved, which would require you know,

460
00:26:33,240 --> 00:26:36,800
Speaker 1: much less liquidity in cash. Or alternatively, you could do

461
00:26:36,840 --> 00:26:38,639
Speaker 1: something that's kind of clever, and we have kind of

462
00:26:38,680 --> 00:26:41,639
Speaker 1: a clever proposal that we've made which allows the company

463
00:26:41,680 --> 00:26:43,600
Speaker 1: to keep all of its cash, to keep all of

464
00:26:43,600 --> 00:26:46,840
Speaker 1: its rainy day money, to have its preservation for any

465
00:26:46,880 --> 00:26:49,480
Speaker 1: future downturn that comes the exact same way that they

466
00:26:49,560 --> 00:26:52,840
Speaker 1: have it right now, but would unlock the value at GM.

467
00:26:53,000 --> 00:26:55,520
Speaker 1: So let's take us through that exactly that clever as

468
00:26:55,520 --> 00:26:58,560
Speaker 1: you call it, clever plan. It involves two classes of stock.

469
00:26:58,680 --> 00:27:02,159
Speaker 1: Essentially what those two classes essentially, what we're saying is

470
00:27:02,160 --> 00:27:04,359
Speaker 1: is you have the stock right now, and as the

471
00:27:04,400 --> 00:27:07,000
Speaker 1: owners of GM, you get dividends, and you get all

472
00:27:07,040 --> 00:27:10,120
Speaker 1: the other values of ownership. And if you separate it out,

473
00:27:10,160 --> 00:27:12,680
Speaker 1: the value of the dividends from all the other values,

474
00:27:12,960 --> 00:27:16,439
Speaker 1: you would unlock you know, thirty to increase in the values.

475
00:27:16,920 --> 00:27:19,560
Speaker 1: So there's a over simple, there's a dividend share, and

476
00:27:19,600 --> 00:27:22,879
Speaker 1: there's a growth share, correct, and each shareholder would get

477
00:27:22,880 --> 00:27:24,960
Speaker 1: one of each one of each, and you still have

478
00:27:25,000 --> 00:27:27,119
Speaker 1: the same dividend that you're getting now, and you'd have

479
00:27:27,160 --> 00:27:29,040
Speaker 1: the same growth you're getting right now. But if you

480
00:27:29,080 --> 00:27:31,560
Speaker 1: wanted to, you could trade one of them or the other.

481
00:27:31,720 --> 00:27:34,080
Speaker 1: And the result is is people who are more interested

482
00:27:34,080 --> 00:27:36,399
Speaker 1: in dividends, you'd have new buyers that would come in

483
00:27:36,400 --> 00:27:39,840
Speaker 1: for those dividend shares. And alternatively, if you're not interested

484
00:27:39,880 --> 00:27:41,600
Speaker 1: in the dividend but you're interested in the growth of

485
00:27:41,600 --> 00:27:44,199
Speaker 1: the company, you would buy you would buy the other shares. Now,

486
00:27:44,240 --> 00:27:47,040
Speaker 1: if the market we're working properly, the value of those

487
00:27:47,080 --> 00:27:49,680
Speaker 1: two shares should equal the value of the one share

488
00:27:49,800 --> 00:27:51,840
Speaker 1: right now, and yet you and your proposals say that

489
00:27:51,880 --> 00:27:54,400
Speaker 1: you think there's a fair amount of upside there. Why

490
00:27:54,520 --> 00:27:56,879
Speaker 1: is that? Where is the market imperfection? It has to

491
00:27:56,920 --> 00:27:59,399
Speaker 1: do with choice. I think of it as as an

492
00:27:59,400 --> 00:28:03,040
Speaker 1: ice cream the end that sells just vanilla chocolate swirl.

493
00:28:03,600 --> 00:28:06,200
Speaker 1: There's some people who like vanilla chocolate swirl, and we'll

494
00:28:06,240 --> 00:28:08,840
Speaker 1: call those the GM shareholders. But if chocolate is the

495
00:28:08,880 --> 00:28:12,160
Speaker 1: dividend and vanilla is the rest of the operation, imagine

496
00:28:12,160 --> 00:28:15,760
Speaker 1: if you sold chocolate, vanilla or swirl in any combination

497
00:28:15,800 --> 00:28:18,800
Speaker 1: that you want, that ice creamstand would attract more customers.

498
00:28:18,880 --> 00:28:20,840
Speaker 1: So there's people who would be interested in the income

499
00:28:20,920 --> 00:28:23,800
Speaker 1: feature of the dividend. They would buy they would buy

500
00:28:23,800 --> 00:28:26,560
Speaker 1: the dividend shares, and those would be new participants in

501
00:28:26,560 --> 00:28:29,000
Speaker 1: the market that would come in and they would bid them.

502
00:28:29,040 --> 00:28:31,320
Speaker 1: You know, we think to a seven to nine percent yield.

503
00:28:31,600 --> 00:28:33,760
Speaker 1: And similarly, there's people who are not that interest in

504
00:28:33,760 --> 00:28:35,720
Speaker 1: the dividend but want just to see the stock go up.

505
00:28:35,840 --> 00:28:38,640
Speaker 1: They would buy the growth shares, the capital appreciation shares,

506
00:28:39,000 --> 00:28:40,840
Speaker 1: and we think that would trade about the same pe

507
00:28:40,840 --> 00:28:43,360
Speaker 1: as you have right now. Adding the math together, is

508
00:28:43,360 --> 00:28:45,880
Speaker 1: what would unlock the value, greater choice would bring in

509
00:28:45,960 --> 00:28:48,600
Speaker 1: new investors. You took that math to Mary Borrow and

510
00:28:48,680 --> 00:28:51,239
Speaker 1: her team, sat down with them, walk them through it.

511
00:28:51,720 --> 00:28:53,360
Speaker 1: They did not embrace you. I think it's fair to

512
00:28:53,360 --> 00:28:55,440
Speaker 1: say fair to say, so, what are they missing? Why

513
00:28:55,480 --> 00:28:56,960
Speaker 1: wouldn't they say that's a good idea. I want to

514
00:28:57,000 --> 00:28:59,040
Speaker 1: get my stock up, let's do that. Yeah. I think

515
00:28:59,040 --> 00:29:01,280
Speaker 1: the truth of the matter is they never really engaged

516
00:29:01,280 --> 00:29:02,560
Speaker 1: in it. They took a little bit of a not

517
00:29:02,720 --> 00:29:05,880
Speaker 1: invented here attitude and they've just fought what we've done

518
00:29:06,240 --> 00:29:08,640
Speaker 1: from the very, very beginning. But what I would say

519
00:29:08,680 --> 00:29:11,240
Speaker 1: is is what we wanted from the beginning was a collaborative,

520
00:29:11,280 --> 00:29:15,000
Speaker 1: iterative process to solve the balance sheet process at g M,

521
00:29:15,080 --> 00:29:16,760
Speaker 1: the balance sheet problem. And so we've done is in

522
00:29:16,840 --> 00:29:19,560
Speaker 1: addition to our plan, which is up for the shareholder

523
00:29:19,560 --> 00:29:22,880
Speaker 1: meeting next week, we've nominated three directors. And these three

524
00:29:22,880 --> 00:29:27,840
Speaker 1: directors bring in enormous capital markets sophistication which is not

525
00:29:27,960 --> 00:29:30,360
Speaker 1: present at GM. I think they're the CFO is a

526
00:29:30,400 --> 00:29:33,400
Speaker 1: little bit weak. I think Mary Barr is a wonderful CEO,

527
00:29:33,760 --> 00:29:35,880
Speaker 1: but finance is the one area where she is not

528
00:29:35,960 --> 00:29:38,120
Speaker 1: as strong as she is in other areas, and I

529
00:29:38,160 --> 00:29:41,320
Speaker 1: think the board lacks this level of financial expertise. So

530
00:29:41,360 --> 00:29:44,520
Speaker 1: what we're bringing in, if if the shareholders vote them on,

531
00:29:44,800 --> 00:29:48,120
Speaker 1: we're bringing in three people who are extraordinarily good in

532
00:29:48,120 --> 00:29:50,240
Speaker 1: this area. One is Leo Henry, who is the CEO

533
00:29:50,840 --> 00:29:54,440
Speaker 1: with UM John Malone Act and all that. For all

534
00:29:54,440 --> 00:29:56,760
Speaker 1: of those years we did all kinds of clever things

535
00:29:56,760 --> 00:29:59,560
Speaker 1: with their balance sheet to minimize the cost of capital

536
00:29:59,760 --> 00:30:02,920
Speaker 1: and animizing cost of capital is very important because GM

537
00:30:02,960 --> 00:30:05,560
Speaker 1: needs to access capital to fund itself. That's a basic

538
00:30:05,640 --> 00:30:08,280
Speaker 1: function of a business. And that's that That's why why

539
00:30:08,280 --> 00:30:10,480
Speaker 1: you bring in that kind of expertise. Then then we

540
00:30:10,520 --> 00:30:12,920
Speaker 1: have Bill Thorndyke, who wrote The Outsiders, which is like

541
00:30:13,000 --> 00:30:16,880
Speaker 1: the Bible on capital allocation and minimizing cost of capital.

542
00:30:17,080 --> 00:30:19,200
Speaker 1: And then my partner vinit Sethi, who is who is

543
00:30:19,240 --> 00:30:22,120
Speaker 1: just a genius at capital asset pricing models. So let

544
00:30:22,120 --> 00:30:23,680
Speaker 1: me kick the tires here a little bit. Has this

545
00:30:23,760 --> 00:30:26,840
Speaker 1: ever been done in any other companies successfully? There's sort

546
00:30:26,840 --> 00:30:29,600
Speaker 1: of restructure. There are many companies that have divided their

547
00:30:29,640 --> 00:30:33,160
Speaker 1: equity interests, whether it's MLPs versus LPs, whether it's reads

548
00:30:33,440 --> 00:30:35,880
Speaker 1: and prop cos and OP cos there's all kinds of

549
00:30:35,880 --> 00:30:39,560
Speaker 1: companies that have transformed their businesses to create essentially one

550
00:30:39,640 --> 00:30:43,360
Speaker 1: stream of income and another stream of capital appreciation. And

551
00:30:43,400 --> 00:30:45,360
Speaker 1: if you're the board or you're the CEO and you

552
00:30:45,440 --> 00:30:47,640
Speaker 1: have this happen, presumably you could sell one of the

553
00:30:47,640 --> 00:30:50,120
Speaker 1: shares and keep the other, so you have divided ownership

554
00:30:50,160 --> 00:30:52,400
Speaker 1: over time. How do you avoid a conflict of interest

555
00:30:52,480 --> 00:30:54,720
Speaker 1: on the part of the divid of the dividend holders

556
00:30:54,960 --> 00:30:57,160
Speaker 1: receivers as opposed to the growth people. As you make

557
00:30:57,200 --> 00:30:59,960
Speaker 1: a decision, cash gets a little shorter. How do you

558
00:31:00,040 --> 00:31:02,320
Speaker 1: make a decision that doesn't favor one set of shareholders

559
00:31:02,320 --> 00:31:04,560
Speaker 1: over another. First of all, you start with the issue

560
00:31:04,600 --> 00:31:07,320
Speaker 1: that the dividend is very stable. G m PA has

561
00:31:07,320 --> 00:31:09,320
Speaker 1: had a little over two billion dollars in dividends, and

562
00:31:09,320 --> 00:31:12,440
Speaker 1: that's what would happen under this proposal. There's twenty billion

563
00:31:12,440 --> 00:31:14,760
Speaker 1: dollars of cash sitting on the balance sheet, so it's

564
00:31:14,800 --> 00:31:17,840
Speaker 1: eight years of dividends. So in almost any scenario you

565
00:31:17,840 --> 00:31:20,000
Speaker 1: can think of, the answer to the dividend is you

566
00:31:20,080 --> 00:31:22,960
Speaker 1: just pay, You just pay the dividend. The second thing

567
00:31:23,040 --> 00:31:25,920
Speaker 1: is is that boards of directors jobs. The reason they're

568
00:31:25,920 --> 00:31:28,600
Speaker 1: paid hundreds of thousands of dollars a year is to

569
00:31:28,760 --> 00:31:33,480
Speaker 1: balance out competing interests of different stakeholders. Those could be suppliers,

570
00:31:33,560 --> 00:31:36,600
Speaker 1: they could be workers, they could be managers, they could

571
00:31:36,600 --> 00:31:39,280
Speaker 1: be executives. They could be customers, they could be dealers,

572
00:31:39,360 --> 00:31:42,560
Speaker 1: they could be regulators, um, they could be just the

573
00:31:42,600 --> 00:31:46,240
Speaker 1: general public. They could be creditors of different status and shareholders.

574
00:31:46,480 --> 00:31:49,200
Speaker 1: And the idea that this board thinks that the corporate

575
00:31:49,240 --> 00:31:52,080
Speaker 1: governance concern is so much that they should reject a

576
00:31:52,160 --> 00:31:56,040
Speaker 1: plan that would increase the stock price by thirty over

577
00:31:56,080 --> 00:31:59,200
Speaker 1: a potential conflict basically just says this board is not

578
00:31:59,400 --> 00:32:01,320
Speaker 1: is not engaged to do its job. Now. In fairness,

579
00:32:01,360 --> 00:32:04,479
Speaker 1: it's not just management who has not been shall we say,

580
00:32:04,560 --> 00:32:07,960
Speaker 1: enthusiastic about this. The market overall has not responded. When

581
00:32:07,960 --> 00:32:09,840
Speaker 1: you came out with this proposal and you've talked about it,

582
00:32:09,960 --> 00:32:12,680
Speaker 1: the market did not take GM shares up. So isn't

583
00:32:12,680 --> 00:32:15,200
Speaker 1: the market sort of voting or at least questioning what

584
00:32:15,320 --> 00:32:18,080
Speaker 1: you're proposing. Well, there's there's no doubt about that. GM

585
00:32:18,160 --> 00:32:21,600
Speaker 1: is a spent essentially spending fifteen million dollars to pedal

586
00:32:21,640 --> 00:32:24,560
Speaker 1: the bear case on its own stock. What they're basically

587
00:32:24,600 --> 00:32:27,720
Speaker 1: saying is is we can't do anything about our stock price.

588
00:32:27,800 --> 00:32:30,160
Speaker 1: The fact that we have a pe that's five when

589
00:32:30,200 --> 00:32:32,640
Speaker 1: even when Ford's is around seven. Well, you know, we're

590
00:32:32,640 --> 00:32:34,800
Speaker 1: an auto company and we're at the top or towards

591
00:32:34,800 --> 00:32:37,000
Speaker 1: the top of the cycle, and nothing can be done

592
00:32:37,040 --> 00:32:39,000
Speaker 1: here until we get to the downturn. And if you

593
00:32:39,000 --> 00:32:40,640
Speaker 1: don't really like that, what you should do is sell

594
00:32:40,680 --> 00:32:43,440
Speaker 1: the stock. So they've been running around to shareholders pitching

595
00:32:43,480 --> 00:32:46,600
Speaker 1: effectively the bear case on their own stock, saying that

596
00:32:46,680 --> 00:32:50,640
Speaker 1: any innovation, you know, it's just too risky even to

597
00:32:50,640 --> 00:32:54,320
Speaker 1: to contemplate. And as a result, I think that um,

598
00:32:54,360 --> 00:32:56,360
Speaker 1: I think that people are hearing the message from management

599
00:32:56,400 --> 00:32:59,280
Speaker 1: and they're sensing fear as opposed to optimism, and I

600
00:32:59,280 --> 00:33:01,720
Speaker 1: think that's having negative impact on the stock. Okay, we

601
00:33:01,720 --> 00:33:04,280
Speaker 1: want to welcome once again both Bloomberg TV and Radio.

602
00:33:04,320 --> 00:33:07,760
Speaker 1: We're talking about David Einhorn about his proposal for General Motors.

603
00:33:07,960 --> 00:33:11,960
Speaker 1: We had in a prominent auto analyst from Morgan Stanley

604
00:33:12,080 --> 00:33:14,840
Speaker 1: just to day before yesterday, and in talking about the

605
00:33:14,880 --> 00:33:17,640
Speaker 1: relative value of Tesla on the one hand and General

606
00:33:17,720 --> 00:33:19,760
Speaker 1: was in the other, he said, if you gave me

607
00:33:19,800 --> 00:33:22,640
Speaker 1: twenty billion dollars to get to either Elon Musk or

608
00:33:22,680 --> 00:33:26,400
Speaker 1: Mary Barrow. I would give it to Elon Musk because

609
00:33:26,400 --> 00:33:28,800
Speaker 1: there's more growth there. It was his response. So what's

610
00:33:28,800 --> 00:33:30,560
Speaker 1: your response to that question, because you have a short

611
00:33:30,560 --> 00:33:32,640
Speaker 1: position on Tesla at the same time you're proposing this

612
00:33:32,680 --> 00:33:34,560
Speaker 1: for General Motors. Yeah. I think it's a question of

613
00:33:34,560 --> 00:33:37,040
Speaker 1: what the purpose of the twenty billion dollars is. If

614
00:33:37,040 --> 00:33:39,160
Speaker 1: the purpose of the twenty billion dollars is to earn

615
00:33:39,160 --> 00:33:41,640
Speaker 1: a profit and a return on the twenty billion dollars,

616
00:33:41,920 --> 00:33:44,200
Speaker 1: I think you would give it to Mary Barra because

617
00:33:44,480 --> 00:33:47,800
Speaker 1: GM is interested in its return on capital. They're trying

618
00:33:47,800 --> 00:33:51,000
Speaker 1: to make about return on its invested capital, and that's

619
00:33:51,040 --> 00:33:54,040
Speaker 1: a wonderful return on twenty billion dollars to the extent

620
00:33:54,080 --> 00:33:56,239
Speaker 1: that they were able to deploy it. I think if

621
00:33:56,280 --> 00:33:59,520
Speaker 1: the purpose of a business is to advance the future,

622
00:33:59,640 --> 00:34:04,640
Speaker 1: to have science experiments and really cool, buzzworthy kind of things,

623
00:34:04,800 --> 00:34:07,600
Speaker 1: then you would give it to Tesla, because there you

624
00:34:07,640 --> 00:34:10,279
Speaker 1: have a guy who's done all kinds of fancy innovation

625
00:34:10,800 --> 00:34:13,360
Speaker 1: and it is thinking about how society should be fifty

626
00:34:13,440 --> 00:34:15,879
Speaker 1: years from now, a hundred years from now, but he's

627
00:34:15,920 --> 00:34:18,560
Speaker 1: yet to actually take any money and turn it into

628
00:34:18,600 --> 00:34:22,279
Speaker 1: a profitable business and I don't have any optimism that

629
00:34:22,280 --> 00:34:25,080
Speaker 1: that will change. Well, you may be right, we'll find

630
00:34:25,080 --> 00:34:27,200
Speaker 1: out about Tesla, but there seems to be a lot

631
00:34:27,239 --> 00:34:29,160
Speaker 1: of investors who are willing to give him more money

632
00:34:29,280 --> 00:34:31,920
Speaker 1: to do science moments or what are he's doing. I mean,

633
00:34:32,000 --> 00:34:33,840
Speaker 1: how much commitment do you have to have as a

634
00:34:33,880 --> 00:34:36,120
Speaker 1: long short investor when you go short outside of testa

635
00:34:36,200 --> 00:34:40,319
Speaker 1: That can get pretty painful. Yeah, Um, Tesla is one

636
00:34:40,360 --> 00:34:42,520
Speaker 1: of you know, many things we have and what we

637
00:34:42,560 --> 00:34:45,319
Speaker 1: so call call our bubble basket of stocks that we

638
00:34:45,360 --> 00:34:48,680
Speaker 1: just think are mispriced, and they're mispriced by huge, huge amounts,

639
00:34:48,800 --> 00:34:51,040
Speaker 1: and um, you know, they're sized in a way that

640
00:34:51,080 --> 00:34:53,359
Speaker 1: gives us the ability to, you know, wait a fair

641
00:34:53,400 --> 00:34:56,160
Speaker 1: amount of time to be proven right or wrong. I

642
00:34:56,200 --> 00:34:59,520
Speaker 1: think eventually the mood of the market will change. Eventually

643
00:34:59,560 --> 00:35:03,000
Speaker 1: the com will be called into account to demonstrate profitability.

644
00:35:03,160 --> 00:35:05,480
Speaker 1: I don't know when that will happen, And and the

645
00:35:05,520 --> 00:35:08,720
Speaker 1: portfolios positioned properly relative to the risk and the reward.

646
00:35:08,719 --> 00:35:11,960
Speaker 1: There you also have a very large position in general motors.

647
00:35:12,040 --> 00:35:15,240
Speaker 1: I mean, you know, I think three of the shares. Yeah,

648
00:35:15,440 --> 00:35:18,360
Speaker 1: it's much larger than our Tesla short, much exactly exactly.

649
00:35:18,600 --> 00:35:21,760
Speaker 1: So if in fact you don't get your three members

650
00:35:21,760 --> 00:35:23,920
Speaker 1: on the board and your plan doesn't go forward, what

651
00:35:23,960 --> 00:35:27,080
Speaker 1: do you do with that position in General Motors? Well,

652
00:35:27,760 --> 00:35:30,640
Speaker 1: our investment in General Motors goes way back before we started.

653
00:35:31,400 --> 00:35:33,960
Speaker 1: We basically bought the stock in two thousand eleven. We

654
00:35:34,000 --> 00:35:36,239
Speaker 1: did sell it for a little while around the ignition

655
00:35:36,400 --> 00:35:40,200
Speaker 1: recall issue, but basically we've been large holders of the

656
00:35:40,280 --> 00:35:44,480
Speaker 1: stock for six years. Um. You know, our investment thesis

657
00:35:44,560 --> 00:35:47,480
Speaker 1: is not predicated on this plan being put into place

658
00:35:47,600 --> 00:35:51,520
Speaker 1: or our directors being nominated. Those are things that came

659
00:35:51,600 --> 00:35:54,279
Speaker 1: up along the way as part of a multi year

660
00:35:54,320 --> 00:35:58,399
Speaker 1: investment we had in GM. UM. You know, I would

661
00:35:58,400 --> 00:36:01,360
Speaker 1: look to Apple, where we had a similar experience talking

662
00:36:01,360 --> 00:36:03,439
Speaker 1: about an idea that we advanced a few years ago.

663
00:36:03,800 --> 00:36:06,040
Speaker 1: Even though they didn't do exactly what we wanted them

664
00:36:06,080 --> 00:36:08,600
Speaker 1: to do, they did change their capital policy and unlocked

665
00:36:08,600 --> 00:36:10,880
Speaker 1: a lot of value. And we're still large holders of

666
00:36:10,920 --> 00:36:13,480
Speaker 1: Apple today, though we have reduced the position some. Well,

667
00:36:13,520 --> 00:36:16,000
Speaker 1: that does raise the question there was a large very

668
00:36:16,080 --> 00:36:18,520
Speaker 1: much the same way exactly. I'm glad you raised Apple

669
00:36:18,560 --> 00:36:20,719
Speaker 1: because there was an extraordinary stock buy back there that

670
00:36:20,800 --> 00:36:23,080
Speaker 1: have got a lot of cash into some shareholders hands.

671
00:36:23,200 --> 00:36:25,920
Speaker 1: Would that if not satisfy you, at least say okay,

672
00:36:25,960 --> 00:36:29,520
Speaker 1: that's good enough. With General Motors, sure, Look with Apple,

673
00:36:29,560 --> 00:36:32,080
Speaker 1: they had a problem with capital allocation. They were storing

674
00:36:32,120 --> 00:36:34,040
Speaker 1: lots and lots of cash, they were returning none of

675
00:36:34,040 --> 00:36:37,200
Speaker 1: it to shareholders. We had an idea. Maybe some people

676
00:36:37,200 --> 00:36:39,640
Speaker 1: thought it was too clever. Management thought it was too clever.

677
00:36:40,000 --> 00:36:42,040
Speaker 1: But instead what they did was they changed their constraint.

678
00:36:42,200 --> 00:36:44,879
Speaker 1: They previously said we're not buying backstock, and since then

679
00:36:45,000 --> 00:36:47,920
Speaker 1: they've borrowed a hundred billion dollars. They've bought back a

680
00:36:48,000 --> 00:36:50,600
Speaker 1: quarter of the stock about less than a hundred dollars

681
00:36:50,600 --> 00:36:53,200
Speaker 1: a share. The pe net of cash is expanded from

682
00:36:53,239 --> 00:36:56,000
Speaker 1: seven to thirteen, in part because Apple has a better

683
00:36:56,040 --> 00:36:59,239
Speaker 1: capital allocation policy today than it did before we came in.

684
00:36:59,560 --> 00:37:03,440
Speaker 1: Now g M has a similar inefficient balance sheet. They've

685
00:37:03,480 --> 00:37:06,120
Speaker 1: said that there's these constraints because they want to retain

686
00:37:06,200 --> 00:37:08,879
Speaker 1: all of this money for a potential rainy day. There's

687
00:37:09,080 --> 00:37:11,840
Speaker 1: several ways to get at it. Our purpose and electing

688
00:37:11,840 --> 00:37:14,200
Speaker 1: directors is to get at that problem. It could be

689
00:37:14,239 --> 00:37:17,160
Speaker 1: through the plan and the proposal that we've advanced, or

690
00:37:17,200 --> 00:37:20,000
Speaker 1: it could be an alternate solution. But either way, when

691
00:37:20,000 --> 00:37:21,640
Speaker 1: you look at GM and you say your cost of

692
00:37:21,719 --> 00:37:23,840
Speaker 1: thirty year debt is five and a half percent or

693
00:37:23,880 --> 00:37:26,240
Speaker 1: five and a quarter percent, and your cost of equities

694
00:37:26,239 --> 00:37:29,680
Speaker 1: basically or the reciprocal of a five p E, that's

695
00:37:29,719 --> 00:37:32,200
Speaker 1: just too big of a gap and something needs to

696
00:37:32,239 --> 00:37:36,440
Speaker 1: be done to close that. So David, finally, um, you're

697
00:37:36,480 --> 00:37:40,240
Speaker 1: a long short investor. You've had extraordinary success through your career,

698
00:37:40,280 --> 00:37:43,040
Speaker 1: I mean legendary success. It hasn't been as easy at

699
00:37:43,040 --> 00:37:45,560
Speaker 1: the less a little while You're not alone in that,

700
00:37:45,880 --> 00:37:47,279
Speaker 1: there are a number of other hedge funds that have

701
00:37:47,360 --> 00:37:50,080
Speaker 1: really been struggling a bit. In your view, because you

702
00:37:50,120 --> 00:37:52,319
Speaker 1: are an expert in this, does that tell us something

703
00:37:52,400 --> 00:37:55,400
Speaker 1: larger about that way of investing or is this a

704
00:37:55,560 --> 00:38:00,320
Speaker 1: temporary aberration? I believe that it's cyclical. There's a period

705
00:38:00,320 --> 00:38:03,160
Speaker 1: where certain types of stocks do better than other types

706
00:38:03,200 --> 00:38:06,239
Speaker 1: of stocks, and you know, we're probably about three years

707
00:38:06,239 --> 00:38:09,400
Speaker 1: into period. That is uh. You know, it's been a

708
00:38:09,400 --> 00:38:11,839
Speaker 1: bit of a headwind for our style of investing. Does

709
00:38:11,880 --> 00:38:14,440
Speaker 1: it put pressure on you both in terms of retaining

710
00:38:14,480 --> 00:38:18,399
Speaker 1: investment um and also in terms of the fees pay?

711
00:38:18,480 --> 00:38:19,759
Speaker 1: I mean, that's what we all, all the talk is

712
00:38:19,760 --> 00:38:21,799
Speaker 1: about fees, right the two and twenty, things like that.

713
00:38:21,920 --> 00:38:24,000
Speaker 1: Do you feel pressure? I've been looking. I've been very

714
00:38:24,080 --> 00:38:28,040
Speaker 1: lucky in my career, and essentially when we started Greenlight

715
00:38:28,080 --> 00:38:31,040
Speaker 1: in with a million dollars, I never envisioned it would

716
00:38:31,040 --> 00:38:32,960
Speaker 1: be anything close to what it's turned out to be.

717
00:38:33,239 --> 00:38:35,719
Speaker 1: When we reached a hundred million dollars, I thought we

718
00:38:35,800 --> 00:38:38,640
Speaker 1: had hit a success that I you know, that I

719
00:38:38,680 --> 00:38:41,200
Speaker 1: never would have imagined. And really, since then, I've never

720
00:38:41,239 --> 00:38:43,160
Speaker 1: really cared about what the size of the fund is

721
00:38:43,360 --> 00:38:45,200
Speaker 1: so it'll go out or to go down. But mostly

722
00:38:45,239 --> 00:38:47,440
Speaker 1: we've we've been closed. We haven't been opened for new

723
00:38:47,480 --> 00:38:50,319
Speaker 1: investment for you know, for many, many years. And my

724
00:38:50,400 --> 00:38:52,960
Speaker 1: goal is not to manage the most money. My job

725
00:38:53,120 --> 00:38:54,480
Speaker 1: is to do a good job with the money that

726
00:38:54,480 --> 00:38:58,720
Speaker 1: we do manage. Finally, going back to General Motors in conclusion, Um,

727
00:38:58,760 --> 00:39:00,799
Speaker 1: if you are successful, why will it be Will it

728
00:39:00,800 --> 00:39:03,200
Speaker 1: be because Mary bar changes her mind? Or will be

729
00:39:03,440 --> 00:39:05,720
Speaker 1: because you get your three directors on the board. Well,

730
00:39:05,760 --> 00:39:07,399
Speaker 1: I guess I don't know the answer to that. There's

731
00:39:07,440 --> 00:39:18,680
Speaker 1: lots of different ways to get to success. Thanks for

732
00:39:18,760 --> 00:39:22,880
Speaker 1: listening to the Bloomberg Surveillance Podcast. Subscribe and listen to

733
00:39:22,960 --> 00:39:29,000
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

734
00:39:29,560 --> 00:39:32,600
Speaker 1: I'm on Twitter at Tom Keene. David Gura is at

735
00:39:32,719 --> 00:39:37,560
Speaker 1: David Gura. Before the podcast, you can always catch us worldwide.

736
00:39:37,760 --> 00:39:52,080
Speaker 1: I'm Bloomberg Radio Brunt You by Bank of America Mary Lynch.

737
00:39:52,360 --> 00:39:57,840
Speaker 1: With virtual reality, virtually everything will change. Discover opportunities in

738
00:39:57,880 --> 00:40:01,280
Speaker 1: a transforming world. Be a a m L dot com,

739
00:40:01,440 --> 00:40:06,320
Speaker 1: slash vr, Mary Lynch, Pierce, Fenner and Smith Incorporated,