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Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You,

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Speaker 1: along with my co host Lisa Brahma wits each day

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

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. He invested in PayPal when his

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Speaker 1: roommate It's Stanford, co founded it. He's been involved with

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Speaker 1: Peter till. He has so much with respect to the

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Speaker 1: tech world, and yet he just wrote a book about

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Speaker 1: the American legal system and what's wrong with it. Bruce

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Speaker 1: Giveney joining us here author and venture capitalist, normally based

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Speaker 1: in San Francisco, but he is currently joining us here

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Speaker 1: in our Bloombergetter Active Brokers Studios. The author of a

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Speaker 1: new book, The Nonsense Factory, The Making and Breaking of

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Speaker 1: the American Legal Law. So why why did you write

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Speaker 1: this book? Well, I had I had been a lawyer,

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Speaker 1: which was the most miserable thirteen months of my life.

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Speaker 1: And uh boy, we've heard that before. Haply, Yeah, but

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Speaker 1: I got out thanks to PayPal. Um and then I

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Speaker 1: became a client and sort of one of the things

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Speaker 1: I've been trained to sort of understand as a lawyer

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Speaker 1: is that you know, the law makes sense, and it's

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Speaker 1: you know, it's as all this cohesive hall and presided

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Speaker 1: by this higher authority and you know, this mechanical universe

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Speaker 1: god operating out of the constitution, everything is just going

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Speaker 1: to be fine. And then as a client, I realized

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Speaker 1: I couldn't get a straight answer to any question worth asking,

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Speaker 1: and that drove me insane so um over the years,

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Speaker 1: I just collected sort of stories and problems and anecdotes

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Speaker 1: about the legal systems failings. Every time you go to

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Speaker 1: a lawyer, you'll bounce around twelve two different departments, you'll

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Speaker 1: get a bill, and the result is always it depends

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Speaker 1: and you're not even sure what it depends on half

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Speaker 1: the time. And I found this as a client to

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Speaker 1: be somewhat unsatisfying. So I wondered, why is that? And

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Speaker 1: I decided to write a book about the legal system

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Speaker 1: as a result. And I think that I'm in a

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Speaker 1: good position to do this, having been on both sides

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Speaker 1: of the legal divide, and also because I'm not captive

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Speaker 1: to the legal system you know, sort of Unlike professors,

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Speaker 1: I don't have to defend law schools, Unlike judges, I

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Speaker 1: don't have to pretend that courts always make rational decisions.

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Speaker 1: Unlike Congressman, I don't have to pretend that our legislature

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Speaker 1: has any idea what it's doing, because he invested in

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Speaker 1: early on, and he made a lot of really really

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Speaker 1: lucrative bets exactly, So it's not just about bed billing.

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Speaker 1: I mean, you argue in your book that the entire

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Speaker 1: legal factory, would you call it, from law schools to judges,

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Speaker 1: to bureaucracies, to the police to maybe even the presidency

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Speaker 1: is completely falling apart. So what's your basic thesis about

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Speaker 1: what's going on? Sure, so laws of cooperative endeavor, just

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Speaker 1: like making a car on an assembly line is a

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Speaker 1: cooperative endeavor. But for that to work, each part of

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Speaker 1: the legal system has to understand each other. So when

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Speaker 1: Congress makes a law, it has to understand the sort

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Speaker 1: of industries it's attempting to regulate, and how the bureaucracies

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Speaker 1: will interpret those regulations or will interpret the law to

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Speaker 1: make regulations. Courts have to understand how Congress works in

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Speaker 1: order to interpret those laws and you know, and so

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Speaker 1: on down the line. Um, you know, law firms have

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Speaker 1: to understand what their clients actually want that they don't.

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Speaker 1: But so as each part of the legal process, you know,

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Speaker 1: sort of as the product moves through the assembly line,

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Speaker 1: you start to see defects compounding because no one sort

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Speaker 1: of takes a holistic view, right, because laws is specialist occupations, like, well,

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Speaker 1: I'm just working on my arbitration provision in this contract.

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Speaker 1: The tax provision is someone else's problem, and so all

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Speaker 1: these things actually do interact and clients businesses know this.

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Speaker 1: Lawyers don't. It's always someone else's problem. Quite literally, legally,

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Speaker 1: it is someone else's problem, and that person, that other

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Speaker 1: person is the client, and that is not acceptable. I've

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Speaker 1: got to say what you're saying definitely, uh seems true

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Speaker 1: on every level. I mean, we've definitely talked to a

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Speaker 1: lot of people about this. I want to shift gears

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Speaker 1: a little bit because you are still an investor in

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Speaker 1: many of the technology companies that we all hear about

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Speaker 1: and talk about every day, and I'm just wondering from

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Speaker 1: your perspective what you make of this latest I P

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Speaker 1: O wave and sort of the state of the tech world, Right,

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Speaker 1: now as people talk about breaking up Facebook and breaking

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Speaker 1: up some of the monopolies. Right. So, the predominant legal

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Speaker 1: strategy when I was coming up in Silicon Valley, which

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Speaker 1: was fifteen years ago, i e. Forever in technology terms,

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Speaker 1: was that you could ignore Washington because it was filled

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Speaker 1: with dinosaurs and some mammal would come out now compete them,

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Speaker 1: and they would go away. And that turns out to

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Speaker 1: be wrong. The dinosaurs are actually quite powerful. They don't

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Speaker 1: know what they're doing all the time, but they can

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Speaker 1: still well I'm not sure that we have mamially, yet

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Speaker 1: we have like a fish with legs um. So that's

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Speaker 1: that's sort of where we are. Uh. Technology has started

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Speaker 1: to invest over the past six or seven years in

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Speaker 1: lobbying and trying to understand Washington, what have you. I

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Speaker 1: think it is actually almost too late. The great difficulty

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Speaker 1: is now that public sentiment has shifted, or at least

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Speaker 1: political sentiment is shifted, there will be a huge push

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Speaker 1: for regulation of all aspects of technology, things that were

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Speaker 1: left alone for you know, the first fifteen years of

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Speaker 1: the of the presence sort of you know, dot com

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Speaker 1: technology resurgence, and I think the regulations are going to

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Speaker 1: be clunky, ill advised, and I don't think they're going

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Speaker 1: to work. I think they're going to be self defeating.

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Speaker 1: And again, this all goes back to the fact that

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Speaker 1: legal system has no idea collectively what it's doing. So

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Speaker 1: it's sort of you know, retail sanity wholesale madness as

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Speaker 1: my as my old friend Peter used to say. And

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Speaker 1: and I think it's going to be a disaster for

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Speaker 1: tech and I think actually it's going to be a

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Speaker 1: disaster for consumers as well. You can't just step in

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Speaker 1: and say we're going to break things up just for

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Speaker 1: the sake of breaking things up. And we actually have

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Speaker 1: already seen some of this because some of the rules

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Speaker 1: have been put in place in Europe have actually had

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Speaker 1: the exact opposite effect, where smaller tech companies don't have

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Speaker 1: the capacity to comply with them, and so they actually

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Speaker 1: give more market share to the big companies. That that's

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Speaker 1: exactly right, right, So again you know, this is sort

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Speaker 1: of self defeeding. It's like, well, we're going to solve

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Speaker 1: this problem, and then you know they don't sort of

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Speaker 1: fully appreciate that they might engender other problems. Um, you know,

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Speaker 1: for examply Apple case, which just came down today, although

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Speaker 1: it's you know, I'm sorry on Monday. It's a technically

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Speaker 1: a terror narrow legal issue right about who is standing

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Speaker 1: to sue? And by the way, this statute was passed

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Speaker 1: a hundred and thirty years ago. How did we not

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Speaker 1: figure this out until today? Um, you know there's another

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Speaker 1: case about tender offers. We're just figuring out fifty years

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Speaker 1: after the fact, you know, who can sue on that.

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Speaker 1: So the legal system is not a vision of lightning action.

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Speaker 1: But um, you know, again with these unintended consequences the application.

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Speaker 1: You know, one of the things that people really like

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Speaker 1: about Apple is you don't have to think about anything,

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Speaker 1: and everything is pretty high quality within its sort of

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Speaker 1: you know walled garden, right, and so as you sort

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Speaker 1: of say, well, listen, we're going to tear down those walls, right,

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Speaker 1: and we're going to you know, impose all units of

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Speaker 1: these you know, pro competitive things from the class action

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Speaker 1: planeiffs go wild and you know, just let's all have

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Speaker 1: at it and let's see how it works out. I

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Speaker 1: don't think it's going to be great for the average

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Speaker 1: Apple consumer. The average Apple consumer really just wants to

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Speaker 1: click on a button and just not think about it.

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Speaker 1: I mean, I'm an Apple consumer, and that's what I

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Speaker 1: want to do. I don't want to think about antivirus

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Speaker 1: software or you know which app story I have to

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Speaker 1: go to the download stuff and what have you. So

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Speaker 1: whatever the sort of you know, narrow anti competitive merits

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Speaker 1: are of of the issue, whatever the narrow legal issues are,

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Speaker 1: it's probably actually not going to work out that well

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Speaker 1: for the average Apple consumer, because I gotta tell you

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Speaker 1: the truth. And it's not just because they did well

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Speaker 1: off people. I really don't care about the last All right,

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Speaker 1: we'll tell us. I'm gonna give you twenty seconds for

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Speaker 1: this one. What should the regulators do with techs? Okay,

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Speaker 1: they should hire people who understand the industry. They should

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Speaker 1: ask Congress for the budget to hire people who can

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Speaker 1: understand the industry, and then they should think about things

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Speaker 1: seriously before promulgating regulations. Very good, are you volunteering yourself?

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Speaker 1: I would rather die. And that was conviction, ladies and

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Speaker 1: gentlemen on the face of Bruce Gibney. Bruce Giveney author

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Speaker 1: venture capitalists and not a d C inside or not

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Speaker 1: a regulator. He's based in San Francisco, but he joined

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Speaker 1: is here in our Bloomberg Interactor Broker Studio. He is

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Speaker 1: also the author of a new book, The Nonsense Factory,

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Speaker 1: The Making and Breaking of the American legal System. He

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Speaker 1: has insights from, as he would say, both sides of

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Speaker 1: the aisle as an attorney, relatively short one certainly, but

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Speaker 1: certainly as a client. And then he was rescued. I

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Speaker 1: think that was the key takeaway here. Thirteen months president

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Speaker 1: Trump speaks, The market responds, we are getting word that

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Speaker 1: President Trump, while he was departing the White House en

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Speaker 1: route to Joint Base Andrews in the South Lawn of

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Speaker 1: uh in Washington, d C, said that his relationship with

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Speaker 1: China's j Ping is extraordinary. He referred to the US

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Speaker 1: China trade dispute as a little squabble, and he said

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Speaker 1: that trade talks with China have not collapsed. In response,

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Speaker 1: we are looking currently at a NASDAC that is up

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Speaker 1: at one point three percent, doubling the gains in percentage

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Speaker 1: terms from earlier today. We will bring you those comments

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Speaker 1: when we get them. Right now, we want to bring

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Speaker 1: in our own Mike mcdonnoh to understand what the latest

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Speaker 1: is with respect to the trade negotiations between the US

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Speaker 1: and China. Mike mcdonnah, chief economist for financial Products at

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Speaker 1: Bloomberg LP, joining us here in our interactive broker studios.

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Speaker 1: So how likely is it that President Trump simply having

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Speaker 1: a more positive, constructive tone is actually going to get

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Speaker 1: a fast resolution to what it seems to be an

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Speaker 1: escalating trade dispute, given given the issues we have, I

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Speaker 1: don't see how you have a fast resolution. I think

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Speaker 1: some of President Trump's comments maybe a function of what

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Speaker 1: he's seeing in the markets. Right, I think that the

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Speaker 1: the bar for as we've we've discussed this many times, right,

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Speaker 1: so the bar first discussed it again. The bar, the

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Speaker 1: bar for trade deal is somewhat a function of how

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Speaker 1: the US economy is doing and how markets are doing. Uh,

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Speaker 1: you know in Q four things look pretty bad, you

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Speaker 1: remember around Christmas time, So I think the bar had

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Speaker 1: gone down. Subsequently things picked back up a bit, Sentiments

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Speaker 1: picked up a bit, markets were doing well. So I

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Speaker 1: think that bar might have gone back up a little

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Speaker 1: bit more. But I think this is even deeper than that. Um. Right,

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Speaker 1: if if what we read is true and there are

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Speaker 1: now these structural differences, or China had promised X, Y

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Speaker 1: and Z and they're now pulling those back. A lot

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Speaker 1: of it had to do. It's it's said, with changing walls.

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Speaker 1: I don't see how we have an easy fix to this,

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Speaker 1: and you know we're talking about what's next. There was

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Speaker 1: this um uh image that was going around Chinese social

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Speaker 1: media that said negotiate sure, war, we're game bullying, no way.

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Speaker 1: So I mean that's the scenarios they're looking at right there. Uh.

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Speaker 1: It was. It was quite popular and we chat so

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Speaker 1: it's hard to say what direction it goes in. But

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Speaker 1: I don't see how. And last time I was on

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Speaker 1: I said this again, you know, based on the volatility

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Speaker 1: we're seeing now and how close everyone thought we were

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Speaker 1: to a deal based on rhetoric, we need more than rhetoric,

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Speaker 1: I think for people to really feel confident we're getting somewhere. Yeah,

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Speaker 1: because I'm looking at markets that are setting their games,

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Speaker 1: so Paul, I don't know. It seems like the markets

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Speaker 1: actually saying okay, thanks for the rhetoric. So Mike, what

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Speaker 1: I mean is this going to take presidency and President

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Speaker 1: Trump getting together in June of the G twenty to

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Speaker 1: hammer something out? Is that the only way the thing

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Speaker 1: gets done? Interestingly, it was that was it was It

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Speaker 1: was when they met last year in Argentina where things

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Speaker 1: kind of got smoothed over when the idea markets. That's

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Speaker 1: when markets and investors got the idea that this was

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Speaker 1: going to go away because there was threats of tariffs.

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Speaker 1: They were going to go up in UM the start

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Speaker 1: of the year. But then they decided, we're going to

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Speaker 1: have these talks. It's not going to happen. The talks

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Speaker 1: continued UM thirteen. Two weeks ago. We were hearing that

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Speaker 1: they were, you know, the sentiment was they were nearing completion,

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Speaker 1: and then all of a sudden we had that Sunday

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Speaker 1: tweet that indicated the exact opposite. We are looking at

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Speaker 1: equity markets broadly higher NAZDAC leading the charge up one

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Speaker 1: point four percent, SMP and down both one point two percent.

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Speaker 1: Still with us here in our Bloomberger Interactive Broker Studios

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Speaker 1: is Mike McDonough, chief economist for Financial Products with Bloomberg,

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Speaker 1: and I'm trying to understand what he's saying with respect

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Speaker 1: to China breaking this off. Was there some from what

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Speaker 1: you gather, I know you do speak with a lot

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Speaker 1: of people. From what you gather, did China suddenly do

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Speaker 1: it about face here. The sense I got is yes,

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Speaker 1: I mean, I I don't I don't know anything for sure,

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Speaker 1: but just that you know, if you look at the concessans,

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Speaker 1: what has read No one's really taken the other side

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Speaker 1: that they haven't. There seems to be agreement that there

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Speaker 1: was some things that had been agreed upon that, at

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Speaker 1: least from the US perception, had changed over the past

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Speaker 1: couple of months. So I do think that is what caused,

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Speaker 1: you know, obviously the spat. I think that going back

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Speaker 1: to the bar, maybe the Chinese perceived that the bar

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Speaker 1: had gone lower than it actually had, and maybe they

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Speaker 1: thought that meant that they could reneeg on some of

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Speaker 1: the things that they had agreed upon. I mean, I

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Speaker 1: don't know, but that certainly would justify this sort of action.

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Speaker 1: So Michael, what do you think China realistically once or

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Speaker 1: expects at this stage. That's that's a good question. I mean, uh,

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Speaker 1: I think they would like to get this uncertainty removed

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Speaker 1: from the market. But I think the thing that they

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Speaker 1: would like most that they may not be able to

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Speaker 1: get is some certainty that this isn't going to come back.

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Speaker 1: As we get closer to the elections. You can imagine

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Speaker 1: you have some enforcement mechanisms in place. They could be

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Speaker 1: used as a pivot point to say, hey, you're not

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Speaker 1: meeting this criteria, or something entirely new could come up

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Speaker 1: and they could say, well, yeah, we had that a deal,

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Speaker 1: that deal for trade, but these tariffs are because you're

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Speaker 1: doing X, which wasn't a part of that. So I

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Speaker 1: think they're concerned, and I don't think they know how

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Speaker 1: to mitigate it. Is how do we make sure that

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Speaker 1: in lead up to this elections this doesn't come back.

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Speaker 1: I think that's a big concern. So President Trump has

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Speaker 1: talked a lot about his relationship with Ji Jimpang, saying

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Speaker 1: it's excellent. One question that has arisen over the past

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Speaker 1: few weeks is how much does that matter? How much

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Speaker 1: pressure is Jim ping under uh internally in China to

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Speaker 1: perhaps retrace some of the things he's given up in

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Speaker 1: his conversations with President Trump. Well, you know, I certainly

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Speaker 1: you know, in the past when there have been issues

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Speaker 1: with Apple, there's been signs that maybe there's been a

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Speaker 1: kind of nationalistic sort of boycott on Apple products within China.

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Speaker 1: So I do think that this is going to stir

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Speaker 1: some nationalism with China, because back to that um image

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Speaker 1: I was talking about where we're not going to be bullied.

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Speaker 1: I think that that they, the Chinese do feel that way, right.

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Speaker 1: They they definitely want some stability, they want to maintain growth,

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Speaker 1: they want to maintain good relationships with the US, but

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Speaker 1: they want to come out looking like they're both winners.

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Speaker 1: I think that there's this perception that the you, the

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Speaker 1: deal the US is angling for, the u S comes

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Speaker 1: out of this, they look like a winner, China looks

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Speaker 1: like a loser. I think China wants a deal that

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Speaker 1: they could both say we've both won uh, and the

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Speaker 1: US isn't necessarily taking that agreeing with that. So it

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Speaker 1: sounds like, I mean, you know, at one point we

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Speaker 1: were talking about g the Marco would be happy just

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Speaker 1: with they know, a headline type of deal, nothing doesn't

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Speaker 1: really have to be substantive. It sounds like maybe that

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Speaker 1: is kind of back on the table because it sounds

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Speaker 1: like from what you're saying, what others are saying, there

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Speaker 1: really are some fundamental challenges, here's some fundamental differences. There

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Speaker 1: are fundamental and and a good deal would benefit both countries.

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Speaker 1: There's no doubt about that. Right. There are some Chinese

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Speaker 1: companies do have some unfair advantages versus foreign companies, especially

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Speaker 1: those operating within China UM. And you know that that

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Speaker 1: is a pretty obvious place to start. So I think

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Speaker 1: both sides give a little bit up, Like you're not

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Speaker 1: going through the trade balance with China is not going

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Speaker 1: to go to neutral, It's not going to go to zero,

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Speaker 1: right So I think the US needs to realize that

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Speaker 1: we will certainly have a deficit with China UM. You know.

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Speaker 1: But I think that, you know, if it were easier

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Speaker 1: for US companies to operate within China, some of that

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Speaker 1: would be forgiven, I think within the Trump administration. But

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Speaker 1: I guess they're feeling they're not giving enough up right now.

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Speaker 1: Mike mcdonnah, thanks so much for joining and staying with this.

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Speaker 1: Mike mcdonnah, chief economists for Financial Products for Bloomberg, joining

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Speaker 1: us here in a Bloomberg even three Oh studios talking

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Speaker 1: off things trade. Uber an exercise in pain and exercise

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Speaker 1: in suffering, at least since it went public, although today

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Speaker 1: it's shares are actually gating up almost one percent, joining

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Speaker 1: us here to talk about the debacle that was the

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Speaker 1: Uber I p O at least so far as Shanelli

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Speaker 1: Bossi the investment banking reporter for Bloomberg. So you know,

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Speaker 1: there's a question what happened here. Is it just terrible

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Speaker 1: timing in terms of coming to market when everything was

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Speaker 1: falling out of bed on trade concerns, or was there

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Speaker 1: some mispricing miscalculation on the part of the main underwriter.

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Speaker 1: So that's the big question looming on Wall Street right now,

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Speaker 1: and certainly Uber and certainly Morgan Stanley, the lead underwriter,

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Speaker 1: want to blame it on the market, and they all

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Speaker 1: do blame it on the market. Um. But when you

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Speaker 1: have investors that are more than ten dollars in the

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Speaker 1: run right now, or you know, as some are more

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Speaker 1: than ten based on the two sixteen pre i P evaluation,

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Speaker 1: they're looking around and say, why did you price this

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Speaker 1: i P O so high? You knew that the trade

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Speaker 1: talks were coming, you knew that there could be some

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Speaker 1: market actility. Why couldn't you do more to support the stock.

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Speaker 1: So certainly, what we haven't seen really is the company

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Speaker 1: blame their investment banker. Um. Is that surprising? The reason

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Speaker 1: it's not surprising is because at forty five dollars to

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Speaker 1: share in the ip O price um and of course

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Speaker 1: since then, it's plunged at forty five dollars a share,

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Speaker 1: they still raised billions of dollars by that point. They

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Speaker 1: have the money, right, and so really, what now is

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Speaker 1: a bunch of investors that are sitting on stock that's

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Speaker 1: falling um. Uber of course doesn't like the stock price,

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Speaker 1: but they don't blame the bankers for a botched IPO

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Speaker 1: by any means. Why isn't there more sort of blame

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Speaker 1: about Lift. Oh, there's a lot of blame on Lift alright, Okay,

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Speaker 1: there's plenty of them on Lifting. There are plenty of lawsuits,

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Speaker 1: they're already and emerged for Lift. Um. So now we're

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Speaker 1: just focusing on Uber. But couldn't you say that since

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Speaker 1: all of the underwriters got it so wrong, if there

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Speaker 1: was just a more broad based miscalculation on the part

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Speaker 1: of the markets UH and and bankers more broadly on

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Speaker 1: what ride sharing services really are worth. That's a really

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Speaker 1: important thing because it's not like every I p O

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Speaker 1: that went out this year is doing poorly. Pinterest is

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Speaker 1: doing okay, right, So it is these rides sharing firms

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Speaker 1: that are plunging, And there's that's the question. Is this

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Speaker 1: these companies that's a problem or you know, there's a

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Speaker 1: worry about whether the I p o s are a

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Speaker 1: problem at all. Well, and then and also the bankers

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Speaker 1: roll in it, right, I mean, how much should they

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Speaker 1: have known if you did have all these investors and

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Speaker 1: not just the ones that they told to invest in

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Speaker 1: these companies, who did value these companies at a much

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Speaker 1: higher level, especially without a profit right. And so the

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Speaker 1: thing that the question moving forward is we've seen Morgan Stanley.

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Speaker 1: We reported on Friday, some of them internally called this

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Speaker 1: the new Fang stock. Uh So, clearly they're still holding

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Speaker 1: onto this dream of Uber becoming one day this huge

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Speaker 1: technology company, but right now it's hard to see that Futureationally,

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Speaker 1: do we have any knowledge of what extent or if

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Speaker 1: Morgan Staley is still in the market as the stabilizing

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Speaker 1: agent trying to support the stock, or is this stock

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Speaker 1: just free trading here. So what we've reported, um at

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Speaker 1: least overnight, is that they've started to stabilize the stock

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Speaker 1: a little bit. So as an underwriter, it's kind of

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Speaker 1: difficult because you don't want to use that entire overall

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Speaker 1: otment immediately because there's another you know, there's thirty days

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Speaker 1: in full, there's something else that could happen next week.

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Speaker 1: So you know, we don't know what to expect about

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Speaker 1: where the stock goes in the short term, but the

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Speaker 1: short term does give investor's confidence to either hold on

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Speaker 1: for the longer term or sell. And of course we're

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Speaker 1: seeing a lot of selling right now. So the shares

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Speaker 1: down at sixteen point four per cent since going public,

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Speaker 1: and actually on May eighth, the I p O is

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Speaker 1: conducted after hours then started treating on the New York

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Speaker 1: Stock Exchange on May nine. I'm just wondering what the

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Speaker 1: potential liability is from Morgan Stanley at this point, well,

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Speaker 1: right now, not much. Right well, the question is moving

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Speaker 1: forward is how does this keep going. We had mentioned

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Speaker 1: that this is kind of a reputational moment for Morgan Stanley.

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Speaker 1: Obviously they worked on Google and Facebook, and those were

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Speaker 1: not considered great I p o s either. They actually

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Speaker 1: really had a lot of trouble getting off the ground. However, um,

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Speaker 1: if you held onto them for the longer term, you

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Speaker 1: did really well. And now Morgan Stanly uses both of

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Speaker 1: those as examples to a new I p o s

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Speaker 1: And so really it depends on how Uber keeps on performing.

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Speaker 1: I'll tell you the investment bank who might be kind

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Speaker 1: of grinning a little bit here is Goldman Sachs. They

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Speaker 1: missed the lift. That's JP Morgan Morgan Stanley takes the

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Speaker 1: hit for Uber. Goldman Sacks is saying, hey, I didn't

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Speaker 1: screw up any deal here, so have you if we

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Speaker 1: heard any Do you think there'll be some posturing and

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Speaker 1: as they go out and pitch future deals. I mean, however,

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Speaker 1: I mean, let's not recuse them here. They were definitely

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Speaker 1: on the I p. O. They were the second to

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Speaker 1: the leads you, so it's not like they weren't involved

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Speaker 1: in this um as well. But there definitely will be

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Speaker 1: posturing moving forward. I love the rhetorical question. Seriously, will

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Speaker 1: there be posturing? That's something exactly. It's interesting, it's there

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Speaker 1: looking for any edge. But when you think about tech,

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Speaker 1: you know, you think about tech I p O S,

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Speaker 1: You think Morgan Stanley, They've done all these great big

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Speaker 1: marquee deals, They've got the great bankers out in Silicon Valley.

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Speaker 1: But you know, I think what maybe what we're seeing

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Speaker 1: here is that the markets, as at least to suggested,

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Speaker 1: maybe just having a hard time valuing these companies. You

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Speaker 1: just don't have a good sense so it's it's really interesting.

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00:21:40,800 --> 00:21:43,280
Speaker 1: Shanali Bosting, thanks so much for joining a Shonalis investment

430
00:21:43,280 --> 00:21:45,719
Speaker 1: banking reporter for Bloomberg News with us here on our

431
00:21:45,720 --> 00:21:48,399
Speaker 1: interactive broker studio. And I will note that Lift is

432
00:21:48,560 --> 00:21:51,720
Speaker 1: up about five percent today, so again maybe these stocks

433
00:21:51,760 --> 00:21:54,760
Speaker 1: are getting a little bit of a floor to see

434
00:21:55,720 --> 00:22:11,840
Speaker 1: Lift bidding. There we go. Well, first quarter economic growth

435
00:22:11,840 --> 00:22:14,200
Speaker 1: here in the US came in at three point two percent,

436
00:22:14,280 --> 00:22:16,919
Speaker 1: well above consensus. Took an a gauge of how the

437
00:22:16,920 --> 00:22:19,040
Speaker 1: economy may play out for the remainder of the year.

438
00:22:19,080 --> 00:22:21,880
Speaker 1: Returned to our next guest, Joel Stern, Joel's chairman, chief

439
00:22:21,880 --> 00:22:24,719
Speaker 1: executive officer of Stern Value Management, joining us live here

440
00:22:24,720 --> 00:22:27,640
Speaker 1: in our Bloomberg Interactive Broker studio. Joel, thanks for joining us.

441
00:22:27,840 --> 00:22:31,480
Speaker 1: First question is three. That was much better than a

442
00:22:31,560 --> 00:22:33,439
Speaker 1: lot of most economis were looking for. What did they

443
00:22:33,440 --> 00:22:39,639
Speaker 1: get wrong? All economists okay, yes, In fact, some of

444
00:22:39,680 --> 00:22:44,280
Speaker 1: them were expecting negative growth negative growth in the first quarter.

445
00:22:44,680 --> 00:22:46,840
Speaker 1: So when I heard that, I said, I want to

446
00:22:46,880 --> 00:22:49,320
Speaker 1: be back on the program with you people so that

447
00:22:49,359 --> 00:22:52,800
Speaker 1: we can talk about what are these people thinking when

448
00:22:52,800 --> 00:22:55,159
Speaker 1: they come up with our forecasts. Just because we we

449
00:22:55,280 --> 00:22:57,399
Speaker 1: we we all like to pick on economists, can we

450
00:22:57,400 --> 00:22:59,840
Speaker 1: get no, no, no, this can't I tell you something. Yes,

451
00:23:00,119 --> 00:23:02,760
Speaker 1: The real reason why they thought the growth rate would

452
00:23:02,800 --> 00:23:07,760
Speaker 1: be low or negative is because all interest rates were

453
00:23:07,840 --> 00:23:12,200
Speaker 1: falling like crazy. That would mean that the demand is

454
00:23:12,240 --> 00:23:16,760
Speaker 1: relatively weak. But I didn't fall for that. What really

455
00:23:16,800 --> 00:23:19,840
Speaker 1: happened is that the consumer finally stepped up to the plate.

456
00:23:21,160 --> 00:23:23,680
Speaker 1: The other parts of the economy we're weak, that's true,

457
00:23:24,160 --> 00:23:28,560
Speaker 1: but not the consumer. There's there's actually a question though

458
00:23:28,680 --> 00:23:31,760
Speaker 1: right now, especially with that first quarter, read about how

459
00:23:31,840 --> 00:23:35,440
Speaker 1: much of the activity was brought forward, how much this

460
00:23:35,520 --> 00:23:37,480
Speaker 1: was in part ahead of tariffs, how much this was,

461
00:23:37,760 --> 00:23:40,800
Speaker 1: you know, in response to sort of the last gasps

462
00:23:40,880 --> 00:23:42,919
Speaker 1: of what we saw from the tax cuts. I mean,

463
00:23:42,960 --> 00:23:44,800
Speaker 1: there are a lot of things that people have basically

464
00:23:44,840 --> 00:23:49,000
Speaker 1: said that this is more idiosyncratic and isn't gonna necessarily

465
00:23:49,040 --> 00:23:50,720
Speaker 1: have lasting effects through the rest of the year. But

466
00:23:50,920 --> 00:23:54,399
Speaker 1: you could say that all the time. What's the reason. Well,

467
00:23:54,440 --> 00:23:58,480
Speaker 1: because the uncertainties that surround where we are in the

468
00:23:58,520 --> 00:24:03,920
Speaker 1: world today call as different economic agents to perform differently

469
00:24:04,400 --> 00:24:06,800
Speaker 1: from what they would perform if the rest of the

470
00:24:06,840 --> 00:24:11,400
Speaker 1: world we're doing well. Okay, so that consumers might have said, oh,

471
00:24:11,480 --> 00:24:14,959
Speaker 1: I better do this before Donald Trump does something else. Okay,

472
00:24:15,119 --> 00:24:17,240
Speaker 1: it's a possibility. I'm not going to say it isn't,

473
00:24:17,720 --> 00:24:19,919
Speaker 1: but it is not my view of the world. All right,

474
00:24:19,960 --> 00:24:23,159
Speaker 1: So what is your view of economic growth for the

475
00:24:23,200 --> 00:24:25,440
Speaker 1: remainder of this year? Do we continue so that strength

476
00:24:25,480 --> 00:24:28,240
Speaker 1: you saw on the first quarter, it's not just the strength.

477
00:24:29,080 --> 00:24:32,240
Speaker 1: The weak parts of the first quarter will become stronger

478
00:24:32,880 --> 00:24:35,800
Speaker 1: during the rest of the year. So if the consumers

479
00:24:35,840 --> 00:24:39,000
Speaker 1: don't change their behavior and they just maintain where they are,

480
00:24:39,680 --> 00:24:41,960
Speaker 1: then I believe that the growth rate on average for

481
00:24:42,000 --> 00:24:44,720
Speaker 1: the year as a whole will be somewhere between three

482
00:24:44,760 --> 00:24:47,000
Speaker 1: and a half and three or three quarters. If that's

483
00:24:47,040 --> 00:24:50,800
Speaker 1: the case, that may be the most disruptive scenario that

484
00:24:50,840 --> 00:24:53,959
Speaker 1: we could possibly imagine, because right now we are looking

485
00:24:54,119 --> 00:24:57,840
Speaker 1: at a market that is pricing in at least one

486
00:24:58,000 --> 00:25:00,840
Speaker 1: rate cut through the remainder of the year, that's what

487
00:25:00,920 --> 00:25:05,359
Speaker 1: they say, and and you're more abound inflation and slow

488
00:25:05,400 --> 00:25:08,680
Speaker 1: growth and people are positioned for that. It would really

489
00:25:08,720 --> 00:25:11,840
Speaker 1: turn things on its head if you got the other

490
00:25:11,840 --> 00:25:14,280
Speaker 1: way around, and it could really discrubt markets. I believe

491
00:25:14,359 --> 00:25:19,919
Speaker 1: what really happened here was that Donald Trump's analysis of

492
00:25:19,960 --> 00:25:24,600
Speaker 1: that fourth quarter increase in rates is essentially correct. We

493
00:25:24,640 --> 00:25:27,879
Speaker 1: would have been around four percent for this year, but

494
00:25:28,040 --> 00:25:31,280
Speaker 1: that one quarter increase. It's not that the that small

495
00:25:31,320 --> 00:25:33,679
Speaker 1: and increase makes that much of a difference. What it

496
00:25:33,760 --> 00:25:38,639
Speaker 1: does do is it affects expectations going forward, what is

497
00:25:38,680 --> 00:25:41,000
Speaker 1: likely to happen in the second quarter and the fourth,

498
00:25:41,000 --> 00:25:43,840
Speaker 1: third quarter and so on. The markets were very concerned

499
00:25:43,840 --> 00:25:46,920
Speaker 1: about that, and I believe that businessmen were very concerned

500
00:25:46,920 --> 00:25:50,000
Speaker 1: about it especially. That's why it was so weak. To

501
00:25:50,080 --> 00:25:52,560
Speaker 1: what extent are you concerned about what we're dealing with

502
00:25:52,560 --> 00:25:54,480
Speaker 1: over the last week or so in terms of rising

503
00:25:54,480 --> 00:26:00,520
Speaker 1: trade tensions with China for your economic outlook? Well, this

504
00:26:00,560 --> 00:26:04,080
Speaker 1: is going to surprise you. I'm a Chicago boy. I

505
00:26:04,119 --> 00:26:07,159
Speaker 1: went to school at the University of Chicago Economics, Business

506
00:26:07,160 --> 00:26:09,520
Speaker 1: School of the Works. What do we believe out there?

507
00:26:09,880 --> 00:26:13,239
Speaker 1: Is there anything sensible to our view? We think so.

508
00:26:13,720 --> 00:26:17,119
Speaker 1: We think that markets at the margin are rational, that

509
00:26:17,240 --> 00:26:20,760
Speaker 1: people behave in their own self interests. But they're looking

510
00:26:20,960 --> 00:26:24,200
Speaker 1: not your short term, they're looking intermediate term as well.

511
00:26:24,359 --> 00:26:27,760
Speaker 1: At the same time, and it is my view that

512
00:26:27,960 --> 00:26:32,640
Speaker 1: the policies that were implemented three things were done they

513
00:26:32,640 --> 00:26:37,239
Speaker 1: were around six d onerous regulations that will put on

514
00:26:37,320 --> 00:26:42,320
Speaker 1: business by the Obama administration sufficient to get people to

515
00:26:42,400 --> 00:26:45,880
Speaker 1: do business overseas instead of here. We don't have those

516
00:26:45,880 --> 00:26:49,840
Speaker 1: regulations overseas, So let's do business in Singapore, or let's

517
00:26:49,840 --> 00:26:53,119
Speaker 1: do business in Africa or whatever. They said. This is

518
00:26:53,160 --> 00:26:57,160
Speaker 1: not for me. Second, tax rates were way too high

519
00:26:57,680 --> 00:27:03,280
Speaker 1: if you include city and state, thirty eight percent overseas.

520
00:27:03,320 --> 00:27:05,680
Speaker 1: So we had to get the tax rate down at

521
00:27:05,720 --> 00:27:09,080
Speaker 1: least to the same level as they have overseas. And

522
00:27:09,119 --> 00:27:13,520
Speaker 1: the third thing, we had something like six trillion dollars

523
00:27:13,520 --> 00:27:17,200
Speaker 1: simply frozen outside the United States. Think of the number

524
00:27:17,200 --> 00:27:19,960
Speaker 1: of jobs that would create if the if the Trump

525
00:27:20,000 --> 00:27:24,959
Speaker 1: administration simply said we'll have a minor penalty but not

526
00:27:25,119 --> 00:27:28,360
Speaker 1: a huge penalty, and that money will come back. And

527
00:27:28,480 --> 00:27:30,960
Speaker 1: all of these things have happened. So the economy is

528
00:27:31,000 --> 00:27:34,959
Speaker 1: doing well because actually the after tax rate of return

529
00:27:35,040 --> 00:27:38,560
Speaker 1: on investment is the key driver of the U. S economy.

530
00:27:38,640 --> 00:27:40,160
Speaker 1: So we just have about a minute left. Why aren't

531
00:27:40,160 --> 00:27:44,359
Speaker 1: we seeing inflation? Ah, because the feed is not printing money.

532
00:27:45,480 --> 00:27:49,240
Speaker 1: Milton treatment was right. After all. Some people say, wow,

533
00:27:49,400 --> 00:27:51,960
Speaker 1: the oil price goes up. Let me tell you if

534
00:27:51,960 --> 00:27:55,119
Speaker 1: the oil price goes up, consumers have less to spend

535
00:27:55,359 --> 00:27:58,560
Speaker 1: on everything else, so the prices of other things then

536
00:27:58,600 --> 00:28:01,560
Speaker 1: come down to offset the oil price. In praise. It

537
00:28:01,680 --> 00:28:04,359
Speaker 1: is my view that as long as the money supply

538
00:28:04,600 --> 00:28:07,199
Speaker 1: is not excessive, we're not going to have anything to

539
00:28:07,240 --> 00:28:09,960
Speaker 1: worry about inflation. And what you should be looking at

540
00:28:10,680 --> 00:28:14,280
Speaker 1: is not the ten year note, it's the thirty year note.

541
00:28:14,800 --> 00:28:18,239
Speaker 1: The thirty year note is yielding. That means for the

542
00:28:18,280 --> 00:28:22,160
Speaker 1: next thirty years. The markets are not expecting in places, yeah,

543
00:28:22,160 --> 00:28:24,760
Speaker 1: but they do expect, or perhaps they should be expecting

544
00:28:24,760 --> 00:28:27,600
Speaker 1: a little bit more of a robust economy in the meantime,

545
00:28:27,680 --> 00:28:31,080
Speaker 1: even without inflation. Why is that? Because the stock market

546
00:28:31,080 --> 00:28:34,040
Speaker 1: has been so strong, it's telling us a message about

547
00:28:34,080 --> 00:28:36,840
Speaker 1: the next twelve months. Joel Stern, thank you so much

548
00:28:36,920 --> 00:28:39,640
Speaker 1: for being here. As always, Joel Stern, Chairman and CEO

549
00:28:39,880 --> 00:28:42,720
Speaker 1: of Stern Value Management, joining us here in our Bloomberg

550
00:28:42,720 --> 00:28:46,000
Speaker 1: Interactive Brokers Studios. Thanks for listening to the Bloomberg P

551
00:28:46,080 --> 00:28:48,640
Speaker 1: and L podcast. You can subscribe and listen to interviews

552
00:28:48,680 --> 00:28:52,520
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney,

553
00:28:52,520 --> 00:28:55,280
Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa abram Woyds.

554
00:28:55,280 --> 00:28:58,280
Speaker 1: I'm on Twitter at Lisa A. Bramwoit's one before the podcast.

555
00:28:58,360 --> 00:29:00,960
Speaker 1: You can always catch us worldwide on Bloomberg Radio