Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You,
Speaker 1: along with my co host Lisa Brahma wits each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. He invested in PayPal when his
Speaker 1: roommate It's Stanford, co founded it. He's been involved with
Speaker 1: Peter till. He has so much with respect to the
Speaker 1: tech world, and yet he just wrote a book about
Speaker 1: the American legal system and what's wrong with it. Bruce
Speaker 1: Giveney joining us here author and venture capitalist, normally based
Speaker 1: in San Francisco, but he is currently joining us here
Speaker 1: in our Bloombergetter Active Brokers Studios. The author of a
Speaker 1: new book, The Nonsense Factory, The Making and Breaking of
Speaker 1: the American Legal Law. So why why did you write
Speaker 1: this book? Well, I had I had been a lawyer,
Speaker 1: which was the most miserable thirteen months of my life.
Speaker 1: And uh boy, we've heard that before. Haply, Yeah, but
Speaker 1: I got out thanks to PayPal. Um and then I
Speaker 1: became a client and sort of one of the things
Speaker 1: I've been trained to sort of understand as a lawyer
Speaker 1: is that you know, the law makes sense, and it's
Speaker 1: you know, it's as all this cohesive hall and presided
Speaker 1: by this higher authority and you know, this mechanical universe
Speaker 1: god operating out of the constitution, everything is just going
Speaker 1: to be fine. And then as a client, I realized
Speaker 1: I couldn't get a straight answer to any question worth asking,
Speaker 1: and that drove me insane so um over the years,
Speaker 1: I just collected sort of stories and problems and anecdotes
Speaker 1: about the legal systems failings. Every time you go to
Speaker 1: a lawyer, you'll bounce around twelve two different departments, you'll
Speaker 1: get a bill, and the result is always it depends
Speaker 1: and you're not even sure what it depends on half
Speaker 1: the time. And I found this as a client to
Speaker 1: be somewhat unsatisfying. So I wondered, why is that? And
Speaker 1: I decided to write a book about the legal system
Speaker 1: as a result. And I think that I'm in a
Speaker 1: good position to do this, having been on both sides
Speaker 1: of the legal divide, and also because I'm not captive
Speaker 1: to the legal system you know, sort of Unlike professors,
Speaker 1: I don't have to defend law schools, Unlike judges, I
Speaker 1: don't have to pretend that courts always make rational decisions.
Speaker 1: Unlike Congressman, I don't have to pretend that our legislature
Speaker 1: has any idea what it's doing, because he invested in
Speaker 1: early on, and he made a lot of really really
Speaker 1: lucrative bets exactly, So it's not just about bed billing.
Speaker 1: I mean, you argue in your book that the entire
Speaker 1: legal factory, would you call it, from law schools to judges,
Speaker 1: to bureaucracies, to the police to maybe even the presidency
Speaker 1: is completely falling apart. So what's your basic thesis about
Speaker 1: what's going on? Sure, so laws of cooperative endeavor, just
Speaker 1: like making a car on an assembly line is a
Speaker 1: cooperative endeavor. But for that to work, each part of
Speaker 1: the legal system has to understand each other. So when
Speaker 1: Congress makes a law, it has to understand the sort
Speaker 1: of industries it's attempting to regulate, and how the bureaucracies
Speaker 1: will interpret those regulations or will interpret the law to
Speaker 1: make regulations. Courts have to understand how Congress works in
Speaker 1: order to interpret those laws and you know, and so
Speaker 1: on down the line. Um, you know, law firms have
Speaker 1: to understand what their clients actually want that they don't.
Speaker 1: But so as each part of the legal process, you know,
Speaker 1: sort of as the product moves through the assembly line,
Speaker 1: you start to see defects compounding because no one sort
Speaker 1: of takes a holistic view, right, because laws is specialist occupations, like, well,
Speaker 1: I'm just working on my arbitration provision in this contract.
Speaker 1: The tax provision is someone else's problem, and so all
Speaker 1: these things actually do interact and clients businesses know this.
Speaker 1: Lawyers don't. It's always someone else's problem. Quite literally, legally,
Speaker 1: it is someone else's problem, and that person, that other
Speaker 1: person is the client, and that is not acceptable. I've
Speaker 1: got to say what you're saying definitely, uh seems true
Speaker 1: on every level. I mean, we've definitely talked to a
Speaker 1: lot of people about this. I want to shift gears
Speaker 1: a little bit because you are still an investor in
Speaker 1: many of the technology companies that we all hear about
Speaker 1: and talk about every day, and I'm just wondering from
Speaker 1: your perspective what you make of this latest I P
Speaker 1: O wave and sort of the state of the tech world, Right,
Speaker 1: now as people talk about breaking up Facebook and breaking
Speaker 1: up some of the monopolies. Right. So, the predominant legal
Speaker 1: strategy when I was coming up in Silicon Valley, which
Speaker 1: was fifteen years ago, i e. Forever in technology terms,
Speaker 1: was that you could ignore Washington because it was filled
Speaker 1: with dinosaurs and some mammal would come out now compete them,
Speaker 1: and they would go away. And that turns out to
Speaker 1: be wrong. The dinosaurs are actually quite powerful. They don't
Speaker 1: know what they're doing all the time, but they can
Speaker 1: still well I'm not sure that we have mamially, yet
Speaker 1: we have like a fish with legs um. So that's
Speaker 1: that's sort of where we are. Uh. Technology has started
Speaker 1: to invest over the past six or seven years in
Speaker 1: lobbying and trying to understand Washington, what have you. I
Speaker 1: think it is actually almost too late. The great difficulty
Speaker 1: is now that public sentiment has shifted, or at least
Speaker 1: political sentiment is shifted, there will be a huge push
Speaker 1: for regulation of all aspects of technology, things that were
Speaker 1: left alone for you know, the first fifteen years of
Speaker 1: the of the presence sort of you know, dot com
Speaker 1: technology resurgence, and I think the regulations are going to
Speaker 1: be clunky, ill advised, and I don't think they're going
Speaker 1: to work. I think they're going to be self defeating.
Speaker 1: And again, this all goes back to the fact that
Speaker 1: legal system has no idea collectively what it's doing. So
Speaker 1: it's sort of you know, retail sanity wholesale madness as
Speaker 1: my as my old friend Peter used to say. And
Speaker 1: and I think it's going to be a disaster for
Speaker 1: tech and I think actually it's going to be a
Speaker 1: disaster for consumers as well. You can't just step in
Speaker 1: and say we're going to break things up just for
Speaker 1: the sake of breaking things up. And we actually have
Speaker 1: already seen some of this because some of the rules
Speaker 1: have been put in place in Europe have actually had
Speaker 1: the exact opposite effect, where smaller tech companies don't have
Speaker 1: the capacity to comply with them, and so they actually
Speaker 1: give more market share to the big companies. That that's
Speaker 1: exactly right, right, So again you know, this is sort
Speaker 1: of self defeeding. It's like, well, we're going to solve
Speaker 1: this problem, and then you know they don't sort of
Speaker 1: fully appreciate that they might engender other problems. Um, you know,
Speaker 1: for examply Apple case, which just came down today, although
Speaker 1: it's you know, I'm sorry on Monday. It's a technically
Speaker 1: a terror narrow legal issue right about who is standing
Speaker 1: to sue? And by the way, this statute was passed
Speaker 1: a hundred and thirty years ago. How did we not
Speaker 1: figure this out until today? Um, you know there's another
Speaker 1: case about tender offers. We're just figuring out fifty years
Speaker 1: after the fact, you know, who can sue on that.
Speaker 1: So the legal system is not a vision of lightning action.
Speaker 1: But um, you know, again with these unintended consequences the application.
Speaker 1: You know, one of the things that people really like
Speaker 1: about Apple is you don't have to think about anything,
Speaker 1: and everything is pretty high quality within its sort of
Speaker 1: you know walled garden, right, and so as you sort
Speaker 1: of say, well, listen, we're going to tear down those walls, right,
Speaker 1: and we're going to you know, impose all units of
Speaker 1: these you know, pro competitive things from the class action
Speaker 1: planeiffs go wild and you know, just let's all have
Speaker 1: at it and let's see how it works out. I
Speaker 1: don't think it's going to be great for the average
Speaker 1: Apple consumer. The average Apple consumer really just wants to
Speaker 1: click on a button and just not think about it.
Speaker 1: I mean, I'm an Apple consumer, and that's what I
Speaker 1: want to do. I don't want to think about antivirus
Speaker 1: software or you know which app story I have to
Speaker 1: go to the download stuff and what have you. So
Speaker 1: whatever the sort of you know, narrow anti competitive merits
Speaker 1: are of of the issue, whatever the narrow legal issues are,
Speaker 1: it's probably actually not going to work out that well
Speaker 1: for the average Apple consumer, because I gotta tell you
Speaker 1: the truth. And it's not just because they did well
Speaker 1: off people. I really don't care about the last All right,
Speaker 1: we'll tell us. I'm gonna give you twenty seconds for
Speaker 1: this one. What should the regulators do with techs? Okay,
Speaker 1: they should hire people who understand the industry. They should
Speaker 1: ask Congress for the budget to hire people who can
Speaker 1: understand the industry, and then they should think about things
Speaker 1: seriously before promulgating regulations. Very good, are you volunteering yourself?
Speaker 1: I would rather die. And that was conviction, ladies and
Speaker 1: gentlemen on the face of Bruce Gibney. Bruce Giveney author
Speaker 1: venture capitalists and not a d C inside or not
Speaker 1: a regulator. He's based in San Francisco, but he joined
Speaker 1: is here in our Bloomberg Interactor Broker Studio. He is
Speaker 1: also the author of a new book, The Nonsense Factory,
Speaker 1: The Making and Breaking of the American legal System. He
Speaker 1: has insights from, as he would say, both sides of
Speaker 1: the aisle as an attorney, relatively short one certainly, but
Speaker 1: certainly as a client. And then he was rescued. I
Speaker 1: think that was the key takeaway here. Thirteen months president
Speaker 1: Trump speaks, The market responds, we are getting word that
Speaker 1: President Trump, while he was departing the White House en
Speaker 1: route to Joint Base Andrews in the South Lawn of
Speaker 1: uh in Washington, d C, said that his relationship with
Speaker 1: China's j Ping is extraordinary. He referred to the US
Speaker 1: China trade dispute as a little squabble, and he said
Speaker 1: that trade talks with China have not collapsed. In response,
Speaker 1: we are looking currently at a NASDAC that is up
Speaker 1: at one point three percent, doubling the gains in percentage
Speaker 1: terms from earlier today. We will bring you those comments
Speaker 1: when we get them. Right now, we want to bring
Speaker 1: in our own Mike mcdonnoh to understand what the latest
Speaker 1: is with respect to the trade negotiations between the US
Speaker 1: and China. Mike mcdonnah, chief economist for financial Products at
Speaker 1: Bloomberg LP, joining us here in our interactive broker studios.
Speaker 1: So how likely is it that President Trump simply having
Speaker 1: a more positive, constructive tone is actually going to get
Speaker 1: a fast resolution to what it seems to be an
Speaker 1: escalating trade dispute, given given the issues we have, I
Speaker 1: don't see how you have a fast resolution. I think
Speaker 1: some of President Trump's comments maybe a function of what
Speaker 1: he's seeing in the markets. Right, I think that the
Speaker 1: the bar for as we've we've discussed this many times, right,
Speaker 1: so the bar first discussed it again. The bar, the
Speaker 1: bar for trade deal is somewhat a function of how
Speaker 1: the US economy is doing and how markets are doing. Uh,
Speaker 1: you know in Q four things look pretty bad, you
Speaker 1: remember around Christmas time, So I think the bar had
Speaker 1: gone down. Subsequently things picked back up a bit, Sentiments
Speaker 1: picked up a bit, markets were doing well. So I
Speaker 1: think that bar might have gone back up a little
Speaker 1: bit more. But I think this is even deeper than that. Um. Right,
Speaker 1: if if what we read is true and there are
Speaker 1: now these structural differences, or China had promised X, Y
Speaker 1: and Z and they're now pulling those back. A lot
Speaker 1: of it had to do. It's it's said, with changing walls.
Speaker 1: I don't see how we have an easy fix to this,
Speaker 1: and you know we're talking about what's next. There was
Speaker 1: this um uh image that was going around Chinese social
Speaker 1: media that said negotiate sure, war, we're game bullying, no way.
Speaker 1: So I mean that's the scenarios they're looking at right there. Uh.
Speaker 1: It was. It was quite popular and we chat so
Speaker 1: it's hard to say what direction it goes in. But
Speaker 1: I don't see how. And last time I was on
Speaker 1: I said this again, you know, based on the volatility
Speaker 1: we're seeing now and how close everyone thought we were
Speaker 1: to a deal based on rhetoric, we need more than rhetoric,
Speaker 1: I think for people to really feel confident we're getting somewhere. Yeah,
Speaker 1: because I'm looking at markets that are setting their games,
Speaker 1: so Paul, I don't know. It seems like the markets
Speaker 1: actually saying okay, thanks for the rhetoric. So Mike, what
Speaker 1: I mean is this going to take presidency and President
Speaker 1: Trump getting together in June of the G twenty to
Speaker 1: hammer something out? Is that the only way the thing
Speaker 1: gets done? Interestingly, it was that was it was It
Speaker 1: was when they met last year in Argentina where things
Speaker 1: kind of got smoothed over when the idea markets. That's
Speaker 1: when markets and investors got the idea that this was
Speaker 1: going to go away because there was threats of tariffs.
Speaker 1: They were going to go up in UM the start
Speaker 1: of the year. But then they decided, we're going to
Speaker 1: have these talks. It's not going to happen. The talks
Speaker 1: continued UM thirteen. Two weeks ago. We were hearing that
Speaker 1: they were, you know, the sentiment was they were nearing completion,
Speaker 1: and then all of a sudden we had that Sunday
Speaker 1: tweet that indicated the exact opposite. We are looking at
Speaker 1: equity markets broadly higher NAZDAC leading the charge up one
Speaker 1: point four percent, SMP and down both one point two percent.
Speaker 1: Still with us here in our Bloomberger Interactive Broker Studios
Speaker 1: is Mike McDonough, chief economist for Financial Products with Bloomberg,
Speaker 1: and I'm trying to understand what he's saying with respect
Speaker 1: to China breaking this off. Was there some from what
Speaker 1: you gather, I know you do speak with a lot
Speaker 1: of people. From what you gather, did China suddenly do
Speaker 1: it about face here. The sense I got is yes,
Speaker 1: I mean, I I don't I don't know anything for sure,
Speaker 1: but just that you know, if you look at the concessans,
Speaker 1: what has read No one's really taken the other side
Speaker 1: that they haven't. There seems to be agreement that there
Speaker 1: was some things that had been agreed upon that, at
Speaker 1: least from the US perception, had changed over the past
Speaker 1: couple of months. So I do think that is what caused,
Speaker 1: you know, obviously the spat. I think that going back
Speaker 1: to the bar, maybe the Chinese perceived that the bar
Speaker 1: had gone lower than it actually had, and maybe they
Speaker 1: thought that meant that they could reneeg on some of
Speaker 1: the things that they had agreed upon. I mean, I
Speaker 1: don't know, but that certainly would justify this sort of action.
Speaker 1: So Michael, what do you think China realistically once or
Speaker 1: expects at this stage. That's that's a good question. I mean, uh,
Speaker 1: I think they would like to get this uncertainty removed
Speaker 1: from the market. But I think the thing that they
Speaker 1: would like most that they may not be able to
Speaker 1: get is some certainty that this isn't going to come back.
Speaker 1: As we get closer to the elections. You can imagine
Speaker 1: you have some enforcement mechanisms in place. They could be
Speaker 1: used as a pivot point to say, hey, you're not
Speaker 1: meeting this criteria, or something entirely new could come up
Speaker 1: and they could say, well, yeah, we had that a deal,
Speaker 1: that deal for trade, but these tariffs are because you're
Speaker 1: doing X, which wasn't a part of that. So I
Speaker 1: think they're concerned, and I don't think they know how
Speaker 1: to mitigate it. Is how do we make sure that
Speaker 1: in lead up to this elections this doesn't come back.
Speaker 1: I think that's a big concern. So President Trump has
Speaker 1: talked a lot about his relationship with Ji Jimpang, saying
Speaker 1: it's excellent. One question that has arisen over the past
Speaker 1: few weeks is how much does that matter? How much
Speaker 1: pressure is Jim ping under uh internally in China to
Speaker 1: perhaps retrace some of the things he's given up in
Speaker 1: his conversations with President Trump. Well, you know, I certainly
Speaker 1: you know, in the past when there have been issues
Speaker 1: with Apple, there's been signs that maybe there's been a
Speaker 1: kind of nationalistic sort of boycott on Apple products within China.
Speaker 1: So I do think that this is going to stir
Speaker 1: some nationalism with China, because back to that um image
Speaker 1: I was talking about where we're not going to be bullied.
Speaker 1: I think that that they, the Chinese do feel that way, right.
Speaker 1: They they definitely want some stability, they want to maintain growth,
Speaker 1: they want to maintain good relationships with the US, but
Speaker 1: they want to come out looking like they're both winners.
Speaker 1: I think that there's this perception that the you, the
Speaker 1: deal the US is angling for, the u S comes
Speaker 1: out of this, they look like a winner, China looks
Speaker 1: like a loser. I think China wants a deal that
Speaker 1: they could both say we've both won uh, and the
Speaker 1: US isn't necessarily taking that agreeing with that. So it
Speaker 1: sounds like, I mean, you know, at one point we
Speaker 1: were talking about g the Marco would be happy just
Speaker 1: with they know, a headline type of deal, nothing doesn't
Speaker 1: really have to be substantive. It sounds like maybe that
Speaker 1: is kind of back on the table because it sounds
Speaker 1: like from what you're saying, what others are saying, there
Speaker 1: really are some fundamental challenges, here's some fundamental differences. There
Speaker 1: are fundamental and and a good deal would benefit both countries.
Speaker 1: There's no doubt about that. Right. There are some Chinese
Speaker 1: companies do have some unfair advantages versus foreign companies, especially
Speaker 1: those operating within China UM. And you know that that
Speaker 1: is a pretty obvious place to start. So I think
Speaker 1: both sides give a little bit up, Like you're not
Speaker 1: going through the trade balance with China is not going
Speaker 1: to go to neutral, It's not going to go to zero,
Speaker 1: right So I think the US needs to realize that
Speaker 1: we will certainly have a deficit with China UM. You know.
Speaker 1: But I think that, you know, if it were easier
Speaker 1: for US companies to operate within China, some of that
Speaker 1: would be forgiven, I think within the Trump administration. But
Speaker 1: I guess they're feeling they're not giving enough up right now.
Speaker 1: Mike mcdonnah, thanks so much for joining and staying with this.
Speaker 1: Mike mcdonnah, chief economists for Financial Products for Bloomberg, joining
Speaker 1: us here in a Bloomberg even three Oh studios talking
Speaker 1: off things trade. Uber an exercise in pain and exercise
Speaker 1: in suffering, at least since it went public, although today
Speaker 1: it's shares are actually gating up almost one percent, joining
Speaker 1: us here to talk about the debacle that was the
Speaker 1: Uber I p O at least so far as Shanelli
Speaker 1: Bossi the investment banking reporter for Bloomberg. So you know,
Speaker 1: there's a question what happened here. Is it just terrible
Speaker 1: timing in terms of coming to market when everything was
Speaker 1: falling out of bed on trade concerns, or was there
Speaker 1: some mispricing miscalculation on the part of the main underwriter.
Speaker 1: So that's the big question looming on Wall Street right now,
Speaker 1: and certainly Uber and certainly Morgan Stanley, the lead underwriter,
Speaker 1: want to blame it on the market, and they all
Speaker 1: do blame it on the market. Um. But when you
Speaker 1: have investors that are more than ten dollars in the
Speaker 1: run right now, or you know, as some are more
Speaker 1: than ten based on the two sixteen pre i P evaluation,
Speaker 1: they're looking around and say, why did you price this
Speaker 1: i P O so high? You knew that the trade
Speaker 1: talks were coming, you knew that there could be some
Speaker 1: market actility. Why couldn't you do more to support the stock.
Speaker 1: So certainly, what we haven't seen really is the company
Speaker 1: blame their investment banker. Um. Is that surprising? The reason
Speaker 1: it's not surprising is because at forty five dollars to
Speaker 1: share in the ip O price um and of course
Speaker 1: since then, it's plunged at forty five dollars a share,
Speaker 1: they still raised billions of dollars by that point. They
Speaker 1: have the money, right, and so really, what now is
Speaker 1: a bunch of investors that are sitting on stock that's
Speaker 1: falling um. Uber of course doesn't like the stock price,
Speaker 1: but they don't blame the bankers for a botched IPO
Speaker 1: by any means. Why isn't there more sort of blame
Speaker 1: about Lift. Oh, there's a lot of blame on Lift alright, Okay,
Speaker 1: there's plenty of them on Lifting. There are plenty of lawsuits,
Speaker 1: they're already and emerged for Lift. Um. So now we're
Speaker 1: just focusing on Uber. But couldn't you say that since
Speaker 1: all of the underwriters got it so wrong, if there
Speaker 1: was just a more broad based miscalculation on the part
Speaker 1: of the markets UH and and bankers more broadly on
Speaker 1: what ride sharing services really are worth. That's a really
Speaker 1: important thing because it's not like every I p O
Speaker 1: that went out this year is doing poorly. Pinterest is
Speaker 1: doing okay, right, So it is these rides sharing firms
Speaker 1: that are plunging, And there's that's the question. Is this
Speaker 1: these companies that's a problem or you know, there's a
Speaker 1: worry about whether the I p o s are a
Speaker 1: problem at all. Well, and then and also the bankers
Speaker 1: roll in it, right, I mean, how much should they
Speaker 1: have known if you did have all these investors and
Speaker 1: not just the ones that they told to invest in
Speaker 1: these companies, who did value these companies at a much
Speaker 1: higher level, especially without a profit right. And so the
Speaker 1: thing that the question moving forward is we've seen Morgan Stanley.
Speaker 1: We reported on Friday, some of them internally called this
Speaker 1: the new Fang stock. Uh So, clearly they're still holding
Speaker 1: onto this dream of Uber becoming one day this huge
Speaker 1: technology company, but right now it's hard to see that Futureationally,
Speaker 1: do we have any knowledge of what extent or if
Speaker 1: Morgan Staley is still in the market as the stabilizing
Speaker 1: agent trying to support the stock, or is this stock
Speaker 1: just free trading here. So what we've reported, um at
Speaker 1: least overnight, is that they've started to stabilize the stock
Speaker 1: a little bit. So as an underwriter, it's kind of
Speaker 1: difficult because you don't want to use that entire overall
Speaker 1: otment immediately because there's another you know, there's thirty days
Speaker 1: in full, there's something else that could happen next week.
Speaker 1: So you know, we don't know what to expect about
Speaker 1: where the stock goes in the short term, but the
Speaker 1: short term does give investor's confidence to either hold on
Speaker 1: for the longer term or sell. And of course we're
Speaker 1: seeing a lot of selling right now. So the shares
Speaker 1: down at sixteen point four per cent since going public,
Speaker 1: and actually on May eighth, the I p O is
Speaker 1: conducted after hours then started treating on the New York
Speaker 1: Stock Exchange on May nine. I'm just wondering what the
Speaker 1: potential liability is from Morgan Stanley at this point, well,
Speaker 1: right now, not much. Right well, the question is moving
Speaker 1: forward is how does this keep going. We had mentioned
Speaker 1: that this is kind of a reputational moment for Morgan Stanley.
Speaker 1: Obviously they worked on Google and Facebook, and those were
Speaker 1: not considered great I p o s either. They actually
Speaker 1: really had a lot of trouble getting off the ground. However, um,
Speaker 1: if you held onto them for the longer term, you
Speaker 1: did really well. And now Morgan Stanly uses both of
Speaker 1: those as examples to a new I p o s
Speaker 1: And so really it depends on how Uber keeps on performing.
Speaker 1: I'll tell you the investment bank who might be kind
Speaker 1: of grinning a little bit here is Goldman Sachs. They
Speaker 1: missed the lift. That's JP Morgan Morgan Stanley takes the
Speaker 1: hit for Uber. Goldman Sacks is saying, hey, I didn't
Speaker 1: screw up any deal here, so have you if we
Speaker 1: heard any Do you think there'll be some posturing and
Speaker 1: as they go out and pitch future deals. I mean, however,
Speaker 1: I mean, let's not recuse them here. They were definitely
Speaker 1: on the I p. O. They were the second to
Speaker 1: the leads you, so it's not like they weren't involved
Speaker 1: in this um as well. But there definitely will be
Speaker 1: posturing moving forward. I love the rhetorical question. Seriously, will
Speaker 1: there be posturing? That's something exactly. It's interesting, it's there
Speaker 1: looking for any edge. But when you think about tech,
Speaker 1: you know, you think about tech I p O S,
Speaker 1: You think Morgan Stanley, They've done all these great big
Speaker 1: marquee deals, They've got the great bankers out in Silicon Valley.
Speaker 1: But you know, I think what maybe what we're seeing
Speaker 1: here is that the markets, as at least to suggested,
Speaker 1: maybe just having a hard time valuing these companies. You
Speaker 1: just don't have a good sense so it's it's really interesting.
Speaker 1: Shanali Bosting, thanks so much for joining a Shonalis investment
Speaker 1: banking reporter for Bloomberg News with us here on our
Speaker 1: interactive broker studio. And I will note that Lift is
Speaker 1: up about five percent today, so again maybe these stocks
Speaker 1: are getting a little bit of a floor to see
Speaker 1: Lift bidding. There we go. Well, first quarter economic growth
Speaker 1: here in the US came in at three point two percent,
Speaker 1: well above consensus. Took an a gauge of how the
Speaker 1: economy may play out for the remainder of the year.
Speaker 1: Returned to our next guest, Joel Stern, Joel's chairman, chief
Speaker 1: executive officer of Stern Value Management, joining us live here
Speaker 1: in our Bloomberg Interactive Broker studio. Joel, thanks for joining us.
Speaker 1: First question is three. That was much better than a
Speaker 1: lot of most economis were looking for. What did they
Speaker 1: get wrong? All economists okay, yes, In fact, some of
Speaker 1: them were expecting negative growth negative growth in the first quarter.
Speaker 1: So when I heard that, I said, I want to
Speaker 1: be back on the program with you people so that
Speaker 1: we can talk about what are these people thinking when
Speaker 1: they come up with our forecasts. Just because we we
Speaker 1: we we all like to pick on economists, can we
Speaker 1: get no, no, no, this can't I tell you something. Yes,
Speaker 1: The real reason why they thought the growth rate would
Speaker 1: be low or negative is because all interest rates were
Speaker 1: falling like crazy. That would mean that the demand is
Speaker 1: relatively weak. But I didn't fall for that. What really
Speaker 1: happened is that the consumer finally stepped up to the plate.
Speaker 1: The other parts of the economy we're weak, that's true,
Speaker 1: but not the consumer. There's there's actually a question though
Speaker 1: right now, especially with that first quarter, read about how
Speaker 1: much of the activity was brought forward, how much this
Speaker 1: was in part ahead of tariffs, how much this was,
Speaker 1: you know, in response to sort of the last gasps
Speaker 1: of what we saw from the tax cuts. I mean,
Speaker 1: there are a lot of things that people have basically
Speaker 1: said that this is more idiosyncratic and isn't gonna necessarily
Speaker 1: have lasting effects through the rest of the year. But
Speaker 1: you could say that all the time. What's the reason. Well,
Speaker 1: because the uncertainties that surround where we are in the
Speaker 1: world today call as different economic agents to perform differently
Speaker 1: from what they would perform if the rest of the
Speaker 1: world we're doing well. Okay, so that consumers might have said, oh,
Speaker 1: I better do this before Donald Trump does something else. Okay,
Speaker 1: it's a possibility. I'm not going to say it isn't,
Speaker 1: but it is not my view of the world. All right,
Speaker 1: So what is your view of economic growth for the
Speaker 1: remainder of this year? Do we continue so that strength
Speaker 1: you saw on the first quarter, it's not just the strength.
Speaker 1: The weak parts of the first quarter will become stronger
Speaker 1: during the rest of the year. So if the consumers
Speaker 1: don't change their behavior and they just maintain where they are,
Speaker 1: then I believe that the growth rate on average for
Speaker 1: the year as a whole will be somewhere between three
Speaker 1: and a half and three or three quarters. If that's
Speaker 1: the case, that may be the most disruptive scenario that
Speaker 1: we could possibly imagine, because right now we are looking
Speaker 1: at a market that is pricing in at least one
Speaker 1: rate cut through the remainder of the year, that's what
Speaker 1: they say, and and you're more abound inflation and slow
Speaker 1: growth and people are positioned for that. It would really
Speaker 1: turn things on its head if you got the other
Speaker 1: way around, and it could really discrubt markets. I believe
Speaker 1: what really happened here was that Donald Trump's analysis of
Speaker 1: that fourth quarter increase in rates is essentially correct. We
Speaker 1: would have been around four percent for this year, but
Speaker 1: that one quarter increase. It's not that the that small
Speaker 1: and increase makes that much of a difference. What it
Speaker 1: does do is it affects expectations going forward, what is
Speaker 1: likely to happen in the second quarter and the fourth,
Speaker 1: third quarter and so on. The markets were very concerned
Speaker 1: about that, and I believe that businessmen were very concerned
Speaker 1: about it especially. That's why it was so weak. To
Speaker 1: what extent are you concerned about what we're dealing with
Speaker 1: over the last week or so in terms of rising
Speaker 1: trade tensions with China for your economic outlook? Well, this
Speaker 1: is going to surprise you. I'm a Chicago boy. I
Speaker 1: went to school at the University of Chicago Economics, Business
Speaker 1: School of the Works. What do we believe out there?
Speaker 1: Is there anything sensible to our view? We think so.
Speaker 1: We think that markets at the margin are rational, that
Speaker 1: people behave in their own self interests. But they're looking
Speaker 1: not your short term, they're looking intermediate term as well.
Speaker 1: At the same time, and it is my view that
Speaker 1: the policies that were implemented three things were done they
Speaker 1: were around six d onerous regulations that will put on
Speaker 1: business by the Obama administration sufficient to get people to
Speaker 1: do business overseas instead of here. We don't have those
Speaker 1: regulations overseas, So let's do business in Singapore, or let's
Speaker 1: do business in Africa or whatever. They said. This is
Speaker 1: not for me. Second, tax rates were way too high
Speaker 1: if you include city and state, thirty eight percent overseas.
Speaker 1: So we had to get the tax rate down at
Speaker 1: least to the same level as they have overseas. And
Speaker 1: the third thing, we had something like six trillion dollars
Speaker 1: simply frozen outside the United States. Think of the number
Speaker 1: of jobs that would create if the if the Trump
Speaker 1: administration simply said we'll have a minor penalty but not
Speaker 1: a huge penalty, and that money will come back. And
Speaker 1: all of these things have happened. So the economy is
Speaker 1: doing well because actually the after tax rate of return
Speaker 1: on investment is the key driver of the U. S economy.
Speaker 1: So we just have about a minute left. Why aren't
Speaker 1: we seeing inflation? Ah, because the feed is not printing money.
Speaker 1: Milton treatment was right. After all. Some people say, wow,
Speaker 1: the oil price goes up. Let me tell you if
Speaker 1: the oil price goes up, consumers have less to spend
Speaker 1: on everything else, so the prices of other things then
Speaker 1: come down to offset the oil price. In praise. It
Speaker 1: is my view that as long as the money supply
Speaker 1: is not excessive, we're not going to have anything to
Speaker 1: worry about inflation. And what you should be looking at
Speaker 1: is not the ten year note, it's the thirty year note.
Speaker 1: The thirty year note is yielding. That means for the
Speaker 1: next thirty years. The markets are not expecting in places, yeah,
Speaker 1: but they do expect, or perhaps they should be expecting
Speaker 1: a little bit more of a robust economy in the meantime,
Speaker 1: even without inflation. Why is that? Because the stock market
Speaker 1: has been so strong, it's telling us a message about
Speaker 1: the next twelve months. Joel Stern, thank you so much
Speaker 1: for being here. As always, Joel Stern, Chairman and CEO
Speaker 1: of Stern Value Management, joining us here in our Bloomberg
Speaker 1: Interactive Brokers Studios. Thanks for listening to the Bloomberg P
Speaker 1: and L podcast. You can subscribe and listen to interviews
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney,
Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa abram Woyds.
Speaker 1: I'm on Twitter at Lisa A. Bramwoit's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio