WEBVTT - HSBC's Maher Shorts Sterling 0:00:00.120 --> 0:00:02.920 Brought you by Bank of America Mary Lynch. Investing in 0:00:03.000 --> 0:00:07.840 local communities, economies and a sustainable future. That's the power 0:00:08.080 --> 0:00:12.360 of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 0:00:12.760 --> 0:00:27.400 member s I p C. Welcome to the Bloomberg Surveillance Podcast. 0:00:27.840 --> 0:00:31.520 I'm Tom Keene with David Gura. Daily we bring you 0:00:31.560 --> 0:00:36.600 insight from the best in economics, finance, investment, and international relations. 0:00:37.000 --> 0:00:41.600 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 0:00:41.680 --> 0:00:48.879 of course on the Bloomberg WI Kick things off though, 0:00:48.880 --> 0:00:52.440 with Brian Belski, the chief investment Strategies at BMO Capital Markets. 0:00:52.479 --> 0:00:55.400 And Brian, let's start with the news. How is the 0:00:55.400 --> 0:00:57.400 market interpreting what we've seen here? I guess it's just 0:00:57.440 --> 0:01:00.760 another layer of uncertainty out of Washington. You know what is? 0:01:01.160 --> 0:01:02.840 The hits just keep coming here on the radio, by 0:01:02.880 --> 0:01:07.240 the way, so glad to be on. Yeah, thank you. Um. 0:01:07.280 --> 0:01:13.679 You know we are set into this reactive uh type 0:01:13.760 --> 0:01:17.080 of mood where we're only looking at short term things. 0:01:17.080 --> 0:01:20.080 I mean, we would continue to tell investors three words. 0:01:20.240 --> 0:01:23.080 Be an investor, you can only control what you can control, 0:01:23.800 --> 0:01:26.640 and I think what you can control in this environment clearly, 0:01:27.160 --> 0:01:29.319 clearly has to be what you own as an investor. 0:01:29.920 --> 0:01:31.399 And so at the end of the day, you want 0:01:31.400 --> 0:01:33.880 to continue to own good assets. And the market goes down, 0:01:33.920 --> 0:01:36.120 you buy a little bit. More market goes up, you 0:01:36.120 --> 0:01:38.400 you sell a little bit. So I think we've entered 0:01:38.400 --> 0:01:42.200 an air of fundamental investing again. We're picking stocks, were 0:01:42.200 --> 0:01:45.600 playing themes, were owning management. We're buying earnings and sales 0:01:45.640 --> 0:01:48.800 and cash flow, and we are trying as best we 0:01:48.880 --> 0:01:50.960 can to ignore all the noise. And today is just 0:01:51.000 --> 0:01:55.520 another day of noise. It's noisy. My ears are hurting, 0:01:55.760 --> 0:01:58.160 My ears are hurting, my my fingers are hurting. In 0:01:58.240 --> 0:02:01.280 terms of trying to type out it's with respect to 0:02:01.760 --> 0:02:04.600 my BlackBerry. Yes, I work for Canadian banks have standard 0:02:04.640 --> 0:02:07.080 issues and so you know, at the end of the day, 0:02:07.120 --> 0:02:09.240 I think we're entering into this old guy market. We're 0:02:09.240 --> 0:02:11.680 a bunch of old guys were we actually understand the 0:02:11.720 --> 0:02:17.320 cycles of the seventies and eighties. Uh, And I think 0:02:17.320 --> 0:02:19.880 we're going back to good old fashioned investing. You talk 0:02:19.919 --> 0:02:22.320 about themes and stocks, what what in specific are you 0:02:22.400 --> 0:02:25.520 looking at right now? Well, you know, you think about 0:02:25.560 --> 0:02:28.440 looking at stocks from a from a broader perspective on 0:02:29.120 --> 0:02:32.079 think about this. We want you to own stocks within industries, 0:02:32.120 --> 0:02:35.320 industries and sectors. I think sector positioning is gonna be 0:02:35.440 --> 0:02:38.440 less important. It's gonna be more about picking stocks and 0:02:38.480 --> 0:02:41.880 playing specific themes. So, for instance, within financials, we love 0:02:42.040 --> 0:02:44.480 scalable business models like the big banks in Canada, the 0:02:44.480 --> 0:02:46.840 big banks in the US, those areas that have several 0:02:46.840 --> 0:02:50.200 different types of divisions that are able to grow through time, 0:02:50.240 --> 0:02:52.000 and not just the regional banks are not just the 0:02:52.000 --> 0:02:54.760 insurance companies. Clearly you should own some regional banks with 0:02:54.760 --> 0:02:58.079 respect to your financial portfolio, but we think the major 0:02:58.160 --> 0:03:01.000 play with respect of the secular drive and de regulation 0:03:01.040 --> 0:03:03.360 of the financial services industry, it's gonna be all about 0:03:03.360 --> 0:03:06.000 the big banks. Brianski with this, Female Capital Markets will 0:03:06.000 --> 0:03:08.200 ask him about the falcons here in a moment. So 0:03:08.360 --> 0:03:12.079 I look, Ryan, within your bullmarket, call Dana her out 0:03:12.080 --> 0:03:14.760 today with ours. I'm just picking on DHR. You know, 0:03:14.800 --> 0:03:17.240 great company. We all know that over the last ten 0:03:17.320 --> 0:03:20.119 years they've made twelve point eight percent per year, which 0:03:20.840 --> 0:03:24.440 you can't you can't make money in stocks. But but 0:03:24.680 --> 0:03:28.560 within that, in down the income statement, help our audience 0:03:28.960 --> 0:03:33.760 revenues Trump operating income, Trump the fact is it's about 0:03:33.800 --> 0:03:37.920 making cash flow. What part of the dynamic of cash 0:03:37.920 --> 0:03:41.120 flow generation are you most focused on now? Free cash 0:03:41.160 --> 0:03:43.800 flow yields are are and will continue to be. We 0:03:43.840 --> 0:03:47.000 think the key, the key key metric in terms of 0:03:47.200 --> 0:03:48.880 how companies are going to grow and you know the 0:03:48.920 --> 0:03:50.800 management of cash and what they do with that cash, 0:03:50.800 --> 0:03:54.880 whether or not they're going to spend that on on capex. 0:03:55.200 --> 0:03:57.880 We've seen so much cash flow go into things like 0:03:58.760 --> 0:04:01.560 paying an increasing dividend ends. We think that's a major 0:04:01.680 --> 0:04:04.080 major secular trend in terms of dividend growth on the 0:04:04.080 --> 0:04:07.120 equity side. But cash flow, remember, generates earnings tom and 0:04:07.160 --> 0:04:09.520 at the end of the day, we're entering a period 0:04:09.840 --> 0:04:13.040 where the denominator is going to be the most important 0:04:13.080 --> 0:04:18.760 part of of valuation, going to way too much math thing. 0:04:18.800 --> 0:04:21.080 And you've got a price and and earnings. You know, 0:04:21.400 --> 0:04:26.599 the cash earning, sales, cash flow book value, that's what matters. 0:04:27.760 --> 0:04:30.000 I'm impressed you're having a coffee and a diamon mountain 0:04:31.640 --> 0:04:34.200 diamond near the Gods. Before I go to Europe, which 0:04:34.320 --> 0:04:37.479 I was two weeks ago. I literally before I jump 0:04:37.520 --> 0:04:40.560 on the plane, grabbed like three or four diamonntain news 0:04:40.600 --> 0:04:43.640 and import them, import them. I'm glad you bring up Europe. 0:04:43.640 --> 0:04:45.360 You've just been there, as you said, and in your 0:04:45.400 --> 0:04:47.479 most recent note, you write, most investors in Europe believe 0:04:47.520 --> 0:04:50.160 little or nothing in terms of legislation will get done. 0:04:50.200 --> 0:04:53.400 If you're in Washington, help us understand that perspective. Should 0:04:53.440 --> 0:04:55.960 we be more in tune with it? No? No, you 0:04:56.000 --> 0:04:58.160 think you think we will see some developments? Yeah, we do. 0:04:58.600 --> 0:05:00.800 You know, at the end of the day, UH, much 0:05:00.839 --> 0:05:04.160 of the get nothing done mantras. What's happened to government 0:05:04.200 --> 0:05:06.479 the last fifteen to twenty years where you've had split 0:05:06.520 --> 0:05:09.160 governments and you hear this whole notion gridlock is good 0:05:09.160 --> 0:05:11.640 and things like that. You know, at the UH, the 0:05:11.680 --> 0:05:14.960 European Investor and we have been seeing and visiting our 0:05:15.000 --> 0:05:17.919 European clients on the institutional site for almost twenty years. 0:05:18.160 --> 0:05:20.040 And the takeaway that I would give you over all, 0:05:20.080 --> 0:05:23.839 the overarching takeaway is that disillusioned. I mean, this is 0:05:23.880 --> 0:05:27.240 the most negative I've ever heard them and seeing them 0:05:27.279 --> 0:05:30.479 in interactions with respective meetings in almost twenty years. They 0:05:30.480 --> 0:05:33.440 don't like America, they don't like our policies, they don't 0:05:33.440 --> 0:05:36.479 like our president. And we think that they are basing 0:05:36.560 --> 0:05:41.120 their investment decisions more on a motion versus analysis, and 0:05:41.200 --> 0:05:42.920 they're gonna miss the boat again. They're gonna miss the 0:05:42.920 --> 0:05:45.440 boat again. John Michols wait, will be in conversation with 0:05:45.520 --> 0:05:48.520 Jeffrey mL tomorrow. That's good. Is a much bigger dinner 0:05:49.120 --> 0:05:51.560 if you would a hundred eighty billion ge capital a 0:05:51.600 --> 0:05:55.000 million years ago, they're now down to a much lesser revenue. 0:05:55.000 --> 0:05:57.400 They go from one eight billion down to a hundred 0:05:57.360 --> 0:06:00.160 and fifteen billion. That's a big drop in revenue over 0:06:00.240 --> 0:06:05.800 five six seven years. Operating income didn't drop nearly as much. 0:06:05.960 --> 0:06:10.320 And again this goes back to free cash flow generation. Yeah, 0:06:10.320 --> 0:06:12.760 I mean full disclosure. We own both dana Her and 0:06:12.800 --> 0:06:15.120 g and the products that we manage for a great 0:06:15.200 --> 0:06:18.960 demo brokers up in Canada. But at the end of 0:06:18.960 --> 0:06:22.520 the day, GEES is reinventing themselves as an industrial machine. 0:06:22.560 --> 0:06:24.200 I mean, it was a big conglomerate. We know what 0:06:24.279 --> 0:06:26.520 happened in the eighties and nineties with respect to what 0:06:26.640 --> 0:06:31.080 their strategy was. Now Mr Emilt is clearly redefining the country. 0:06:31.120 --> 0:06:33.760 And when I talked to people about think about the 0:06:33.800 --> 0:06:36.720 turbines and things like that. They've got single digit high 0:06:36.760 --> 0:06:39.400 single digit divdend growth five year divd and growth with 0:06:39.440 --> 0:06:44.679 all the turmoil up nine. I believe that's four hundred 0:06:44.720 --> 0:06:48.920 basis points above nominal g d P. I mean, that's 0:06:48.960 --> 0:06:51.760 what Mr Emilt is supposed to do right correct. He's 0:06:51.800 --> 0:06:54.280 doing his job. He's doing his job, and we think 0:06:54.320 --> 0:06:57.599 that's the mantra for corporate America. I mean, Jeff's Mr 0:06:57.640 --> 0:07:00.640 Emil has been a survivor through what we've seen a 0:07:00.680 --> 0:07:03.279 lot of turnover on the CEO side and from a 0:07:03.320 --> 0:07:05.480 corporate perspective in terms of how he's trying to grow 0:07:05.520 --> 0:07:08.080 this company and how he's trying to redefine the company. 0:07:08.400 --> 0:07:11.600 That's that's fundamental investing. That's the kind of management that 0:07:11.640 --> 0:07:13.400 you want to see. In back with respect to an 0:07:13.400 --> 0:07:16.120 investment longer term, what is what you see tell you 0:07:16.200 --> 0:07:19.080 or what could portend for industrials as a whole. It's 0:07:19.080 --> 0:07:21.720 a great question. You know, we've been bullish industrial work. 0:07:21.880 --> 0:07:24.240 I never have a great question. That's because I like 0:07:24.360 --> 0:07:28.200 the Patriots. Yeah, I gotta anyway, we'll talk about that hopefully. Um. 0:07:28.400 --> 0:07:29.400 You know, at the end of the day, you want 0:07:29.400 --> 0:07:32.000 you want to buy industrials when when the operating performance 0:07:32.040 --> 0:07:34.920 of the sector is beginning to accelerate, and that's what 0:07:34.920 --> 0:07:37.920 we're seeing with respective return on assets, free cash flow yields, 0:07:37.960 --> 0:07:40.280 return on equity, and so if you look at the 0:07:40.320 --> 0:07:43.080 industrial sector from a longer term perspective like fifty years, 0:07:43.120 --> 0:07:46.200 it's exactly a neutral sector. You want to try to 0:07:46.320 --> 0:07:48.800 buy on a relative performance basis. You want to try 0:07:48.840 --> 0:07:52.240 to buy the sector when fundamentals are accelerating, and where 0:07:52.240 --> 0:07:54.800 the fundamentals are accelerating most are those areas that are 0:07:54.800 --> 0:07:58.360 more focused on domestic domestic issues, domestic girl so those 0:07:58.400 --> 0:08:02.200 companies with tht or less avenue from international sources is 0:08:02.240 --> 0:08:05.000 where we're seeing a massive acceleration and return on next 0:08:05.000 --> 0:08:07.320 where you return on assets PEG ratios are much more 0:08:07.360 --> 0:08:11.680 attractive as the Super Bowl. Now town, I'm ignorant about 0:08:11.680 --> 0:08:14.480 the ATLANTAFL. They have a chance. You're you're one of 0:08:14.480 --> 0:08:17.040 our big football guys. I would tell you that every 0:08:17.040 --> 0:08:20.120 game you know, they suffered, they suffered. Falcon suffered last 0:08:20.160 --> 0:08:23.640 year through a lot of of of injuries and things 0:08:23.720 --> 0:08:27.320 like that. They're very well coached. Um Matt Ryan had 0:08:27.320 --> 0:08:31.800 a wonderful year at the quarterback side. You know, uh, 0:08:31.840 --> 0:08:34.360 my my team member that works for me here in 0:08:34.400 --> 0:08:40.800 New York City huge Jets fans. So I'm sorry he's 0:08:40.800 --> 0:08:44.600 a contrarian investor. No, um, you know, I think you know, 0:08:44.720 --> 0:08:46.360 at the end of the day, if Tom Brady and 0:08:46.400 --> 0:08:48.320 Belichick win the Super Bowl, let's kind of push it 0:08:48.320 --> 0:08:50.439 all aside, saying they are the greatest team that we've 0:08:50.440 --> 0:08:52.679 seen in the history of the NFL. Let's just move 0:08:52.720 --> 0:08:56.360 past that and find another team. After David Harrows in 0:08:56.440 --> 0:09:01.079 Chicago medicated over the Packers, thank you for that Super 0:09:01.080 --> 0:09:03.120 Bowl update. We'll do a little bit of fun with 0:09:03.160 --> 0:09:05.920 the folks into the game this week. If you ordered 0:09:05.920 --> 0:09:09.760 your platter yet, David, girl, you did some klaced holistic 0:09:09.880 --> 0:09:15.440 artisanal platter and Brooklyn free range chicken wing Buffalo. Why 0:09:15.480 --> 0:09:30.360 did I know that? Darnm are with us with it, 0:09:30.480 --> 0:09:32.600 just to see darl Let's rip up the script here. 0:09:33.000 --> 0:09:37.240 Let's define for our audience. I'll get it out. What 0:09:37.480 --> 0:09:45.720 is a currency manipulator? And is exploitation different than manipulation? Uh? 0:09:46.400 --> 0:09:48.839 Not very different. I mean I think the easiest way 0:09:48.840 --> 0:09:52.200 to think of a currency manipulator is someone who's actively 0:09:52.360 --> 0:09:55.360 changing the price of their currency to extract some kind 0:09:55.360 --> 0:09:58.640 of economic advantage. Print generally to be honest. Of course, 0:09:58.640 --> 0:10:01.400 the expectation is is to get your currency weaker, have 0:10:01.600 --> 0:10:04.160 to to get extra competitiveness. But you know, we've had 0:10:04.200 --> 0:10:07.559 other types of manipulation. Plenty of central banks intervened to 0:10:07.600 --> 0:10:12.640 reduce volatility in their currency to prevent excessive depreciations you've 0:10:12.640 --> 0:10:15.520 seen in Mexico. So there's lots of forms. But obviously 0:10:15.559 --> 0:10:18.120 the one that the Trump administration is fixated on is 0:10:18.160 --> 0:10:21.080 the idea that there is this underlying miss pricing of 0:10:21.160 --> 0:10:23.240 some of the big currencies in the world that is 0:10:23.280 --> 0:10:25.439 putting the US at a disadvantage because it's making the 0:10:25.520 --> 0:10:28.920 stronger or the dollar too strong, as he said, Trump said, 0:10:29.080 --> 0:10:31.360 it's killing us. I mean, that's his characterization, at least 0:10:31.480 --> 0:10:33.640 on that note, Tom alludes to this interview with Peter 0:10:33.679 --> 0:10:35.319 Navarro in the FT. Peter Navar the head of the 0:10:35.360 --> 0:10:37.920 New Trade Council, Donald Trump's Trade Council. There's a line 0:10:37.960 --> 0:10:39.560 at the end of that article in the FT he 0:10:39.600 --> 0:10:42.160 says he's not concerned about the possibility of a stronger 0:10:42.200 --> 0:10:44.640 dollar and its impact on US exports. I worry about 0:10:44.640 --> 0:10:46.920 the actual impact America's trade deficit and goods is having 0:10:46.920 --> 0:10:49.559 on our rates of economic growth and income growth. How 0:10:49.559 --> 0:10:52.280 do you navigate the lack of unanimity in this administration? 0:10:52.280 --> 0:10:55.199 You have Stephen Manuchon on Capitol Hill saying that he 0:10:55.240 --> 0:10:57.840 doesn't share Donald Trump's concern with the strong dollar, Donald 0:10:57.840 --> 0:10:59.400 Trump saying he wants a weaker dollar. Now you have 0:10:59.440 --> 0:11:02.200 Peer Navari making this commentary on the strong dollar as well. 0:11:02.520 --> 0:11:04.560 Is the lack of unanimity problematic to you in the 0:11:04.559 --> 0:11:07.840 f X space? It is in a way because well, 0:11:07.880 --> 0:11:10.800 it's it's fostering. Is in a world of a headline 0:11:10.800 --> 0:11:15.080 reaction kind of mentality is well, who speaks next? Because 0:11:15.160 --> 0:11:17.599 really that's what's going to color your reaction. You know that, 0:11:17.679 --> 0:11:20.240 you know Tom described this is a relatively small move 0:11:20.240 --> 0:11:22.080 when you're a dollar, but of course you're obliged to 0:11:22.080 --> 0:11:24.960 react to the latest headline. And the difficulty you have 0:11:25.160 --> 0:11:27.520 is do you want to hold that position? Do you 0:11:27.520 --> 0:11:29.920 have any conviction and being long euro dollar? No, you've 0:11:29.920 --> 0:11:31.520 absolutely known because you don't know the next guy is 0:11:31.520 --> 0:11:33.920 going to stand up and say the very opposite kind 0:11:33.960 --> 0:11:36.880 of sentiments. So this is a difficulty. And also to 0:11:36.920 --> 0:11:38.880 be honest to say that you know, we're worried about 0:11:38.880 --> 0:11:41.960 what the existing trade deficit means for growth, growth is 0:11:41.960 --> 0:11:43.960 determined by the shift in the trade deficit. You know, 0:11:44.080 --> 0:11:46.160 is it a drag? Is that change gonna be a 0:11:46.200 --> 0:11:49.120 drag or a boost? But look, it is a talking point. 0:11:49.400 --> 0:11:52.319 And what's unusual about this administration is the president is 0:11:52.320 --> 0:11:54.560 talking about the dollar. Used to be the treasuries game, 0:11:56.720 --> 0:11:59.120 stream about everything, but you know, you know, for it 0:11:59.200 --> 0:12:01.440 to come in on the doll alright, that's pretty unprecedent. 0:12:01.480 --> 0:12:04.640 Obama talked about it reportedly, very briefly. I remember the 0:12:04.679 --> 0:12:06.760 summit back in France, and then the White House has commands. 0:12:06.800 --> 0:12:08.040 I know, he didn't talk about the dollar. He's talking 0:12:08.040 --> 0:12:11.000 about something entirely different. You said you could see recovering 0:12:11.040 --> 0:12:12.800 the euro in the second quarter. What leads you to 0:12:12.840 --> 0:12:17.360 that conclusion, Well, that is a function of European politics, 0:12:17.600 --> 0:12:20.679 which of course slightly sidelined at the moment amid all 0:12:20.679 --> 0:12:22.600 the US politics. But I think it will get renew 0:12:22.679 --> 0:12:25.080 traction if you get through the Dutch election, if the 0:12:25.120 --> 0:12:28.000 French elections as well again in the in in that 0:12:28.120 --> 0:12:32.679 second quarter, if they deliver mainstream results, which I think 0:12:32.720 --> 0:12:35.480 is still the most likely outcome, then some of the 0:12:35.520 --> 0:12:37.400 political discount I think it's going to creep into the 0:12:37.440 --> 0:12:39.440 price over the next couple of months, we'll have to 0:12:39.440 --> 0:12:40.720 come back at im and we can go as low 0:12:40.760 --> 0:12:43.280 as your dollar one oh one, you know, before we 0:12:43.360 --> 0:12:47.200 get the true revival higher than euro dollar. Politics still 0:12:47.200 --> 0:12:49.439 the driver very much. So it sounds like in Europe 0:12:49.840 --> 0:12:51.600 walks through what happened at the Bank of Japan last 0:12:51.640 --> 0:12:55.600 night and an expected outcome here. Yeah, but what is that? 0:12:55.600 --> 0:12:57.720 What is that portend? Well, they must be pretty happy, 0:12:57.760 --> 0:13:00.760 I would say, on on some levels, because you know, 0:13:01.440 --> 0:13:03.400 this time last year it was a fight for their 0:13:03.440 --> 0:13:06.880 credibility in terms of are they impotent in terms of 0:13:06.920 --> 0:13:09.600 policy delivery? Are they making the right choices and move 0:13:09.640 --> 0:13:12.720 to negative interest rates? This time around it's like, well, okay, 0:13:12.760 --> 0:13:15.120 the yield curvet stills seems to be working. Last week 0:13:15.160 --> 0:13:17.920 they up their bond purchases to try and reinforce the 0:13:17.960 --> 0:13:21.480 idea they want to cup yells on the tenure. So 0:13:21.679 --> 0:13:24.559 you know they've arrived today. Reason me happy about credibility, 0:13:24.600 --> 0:13:26.800 of course, what they're not happy about his inflation, which 0:13:26.800 --> 0:13:30.200 still remains very far off target. And I remember seeing 0:13:30.240 --> 0:13:32.400 a report last week that said, what little inflation there 0:13:32.480 --> 0:13:34.560 is is the wrong type, you know, not even getting 0:13:34.559 --> 0:13:37.600 the right type of inflation. That's a concern. Twenty seconds 0:13:37.640 --> 0:13:39.480 is all we got. We'll get you back there. Do 0:13:39.480 --> 0:13:44.520 you still reaffirm a weaker pound sterling? Yeah, we actually 0:13:44.559 --> 0:13:46.280 just put a trade on yesterday to sell okay, but 0:13:46.320 --> 0:13:48.800 we've got a short term target one twenty and we've 0:13:48.800 --> 0:13:51.080 got a year end target of one ten, so you're 0:13:51.200 --> 0:13:55.840 in one ten two thousand seventy. That, Folks, is one 0:13:55.840 --> 0:13:59.560 of the great outlier cause I think are Anthony from 0:13:59.640 --> 0:14:02.600 spar To, I think he just loaded up on that trade. 0:14:02.640 --> 0:14:05.240 He did it like in the triple He's got a 0:14:05.240 --> 0:14:08.599 triple LEVERAGEX fund with his farroh wink. I think he 0:14:08.760 --> 0:14:12.920 just loaded the dark go out you think you know, 0:14:13.040 --> 0:14:16.080 get out of here. That's an outlier called darwiner where 0:14:16.240 --> 0:14:27.400 HSBC thank you so much. Brought you by Bank of America, 0:14:27.480 --> 0:14:31.720 Mary Lynch. Dedicated to bringing our clients insights and solutions 0:14:32.000 --> 0:14:35.320 to meet the challenges of a transforming world. That's the 0:14:35.400 --> 0:14:40.520 power of global connections. Mary Lynch, Pierce Federan Smith Incorporated 0:14:40.680 --> 0:14:47.520 Member s I P C. James Travitiz, who's appeared with 0:14:47.560 --> 0:14:51.240 this uh many times, Admiral, good morning. How are you 0:14:51.280 --> 0:14:54.160 doing today? Job? Well, I think I'm Okay, Mike Allen 0:14:54.280 --> 0:14:57.360 as a must read note out of Washington, and it's 0:14:57.360 --> 0:15:03.360 the first reporting I've seen. Secretary Tillerson is baffled and 0:15:03.440 --> 0:15:08.240 General Maddie is quote unquote incensed over what we've observed. 0:15:08.760 --> 0:15:13.040 Tell me how an admiral or a general steamed in 0:15:13.120 --> 0:15:18.560 the academic path of stravitas or Maddest responds to mere 0:15:18.680 --> 0:15:22.480 civilians playing at government. Well, you know, when I was 0:15:22.520 --> 0:15:26.200 the Supreme Alley Commander at NATO, Tom occasionally things would 0:15:26.200 --> 0:15:29.600 happen back in Washington that would kind of light you up, 0:15:29.720 --> 0:15:33.120 and you would go back and discuss it and push 0:15:33.200 --> 0:15:36.600 back a little bit. But I'll tell you the general 0:15:36.680 --> 0:15:39.640 I'm really concerned about is General John Kelly. Is that 0:15:39.800 --> 0:15:44.120 Department of Homeland Security because he was evidently cut out 0:15:44.120 --> 0:15:47.200 of the pattern on this executive order. It came out 0:15:47.280 --> 0:15:51.280 with almost no notice to his department. It's his responsibility 0:15:51.320 --> 0:15:54.360 to implement it. Those are his Border and t s 0:15:54.400 --> 0:15:58.040 A agents who are dealing with the public and no 0:15:58.240 --> 0:16:01.680 early consultation, no voice in the process. If I were 0:16:02.120 --> 0:16:04.400 General Kelly, I'd be calling the Chief of Staff in 0:16:04.400 --> 0:16:07.440 the White House and saying, if you ever do that again, 0:16:07.560 --> 0:16:11.880 I'm out of here. General Maddis is incensed because of 0:16:11.880 --> 0:16:16.040 the impact it has on brave Iraqi translators who are 0:16:16.080 --> 0:16:18.560 now banned from coming to this country, as well as 0:16:18.560 --> 0:16:21.360 the effect it has on jihadis. So I think kind 0:16:21.360 --> 0:16:24.960 of the same reaction out of General Maddis. Yeah. Fascinating 0:16:24.960 --> 0:16:27.160 story by Damian Pelletta in the Wall Street Journal today 0:16:27.160 --> 0:16:29.800 looking at that tension between the White House and John 0:16:29.840 --> 0:16:31.920 Kelly at the Department of Homeland Security. Just want to 0:16:31.960 --> 0:16:35.000 read one line from that piece if I could. This 0:16:35.040 --> 0:16:36.600 is all centering on the pick of who is going 0:16:36.640 --> 0:16:38.840 to be his deputy. The White House pushing for Chris Koback, 0:16:38.880 --> 0:16:41.720 who's the Secretary of State. I believe in Kansas. Ultimately 0:16:41.720 --> 0:16:44.400 they picked a Lane Duke. But an incredible line here. 0:16:44.640 --> 0:16:47.040 The White House tried to persuade Mr Kelly to accept 0:16:47.160 --> 0:16:50.360 Mr Koback is his deputy secretary, but Mr Kelly wanted 0:16:50.400 --> 0:16:52.680 to go a different route, picking someone with a background 0:16:53.000 --> 0:16:59.240 in Homeland security. People's what I thought. It begs a 0:16:59.320 --> 0:17:02.880 question here, Admiral, that being what's happening here with picking 0:17:02.880 --> 0:17:05.360 deputies in these departments. We look at the State Department, 0:17:05.359 --> 0:17:07.800 it's so many vacancies. This has got to be worrisome 0:17:07.840 --> 0:17:11.200 for a guy like you, it's totally worrisome. And I am, 0:17:11.400 --> 0:17:13.600 as I've said before, I'm encouraged by the high level 0:17:13.640 --> 0:17:17.680 PIS General Kelly, General Maddis, Rex Tillerson, Dan Senator Dan 0:17:17.720 --> 0:17:20.240 Coates at d NA. These are good choices, but the 0:17:20.280 --> 0:17:23.360 second and third tier is where the rubber meets the road, 0:17:23.440 --> 0:17:26.359 and so far we're not getting good visibility. And I 0:17:26.480 --> 0:17:29.600 suspect there's a lot of what you saw at DHS, 0:17:29.720 --> 0:17:33.479 which is a political filter being put on these folks. 0:17:33.480 --> 0:17:36.680 And that's understandable up to a point. But in these 0:17:36.680 --> 0:17:39.360 departments that deal with their national security, we have got 0:17:39.400 --> 0:17:43.800 to choose competence over political bonafides. We've talked to you 0:17:43.840 --> 0:17:46.200 about the State Department job. By all accounts, you talked 0:17:46.240 --> 0:17:48.520 to the President about the State Department job if you 0:17:48.560 --> 0:17:52.160 were Rex Taylorson right now, watching all of this unfold, 0:17:52.160 --> 0:17:56.159 the retirement of these career civil servants, forced retirements of 0:17:56.160 --> 0:17:58.880 these these career civil servants, you see this disarray. What's 0:17:58.880 --> 0:18:00.720 the thing At this point, I got to imagine that 0:18:00.720 --> 0:18:03.400 a guy who had a huge multinational corporation probably wanted 0:18:03.440 --> 0:18:05.560 to come in and make changes of his own accord. 0:18:05.600 --> 0:18:09.440 What's happening here exactly that he is going to want 0:18:09.480 --> 0:18:14.080 to select uh deputy and under secretaries the next tier 0:18:14.119 --> 0:18:18.240 down who have serious diplomatic experience. I think he'd be 0:18:18.359 --> 0:18:22.119 very well served to select a career diplomat as his 0:18:22.240 --> 0:18:25.159 deputy and not simply take whatever the White House is 0:18:25.200 --> 0:18:28.400 pushing on him at this point. And I would suggest 0:18:28.400 --> 0:18:32.080 someone like Ambassador Bill Burns, Ambassador Nick Burns. We've got 0:18:32.080 --> 0:18:36.159 a a raft of these outstanding folks who could come 0:18:36.200 --> 0:18:41.600 in and help Secretary Tillerson learn this new culture. Um Admiral, 0:18:41.880 --> 0:18:47.920 there's there's General Languel, General Goldfine, some lightweight admiral named Richardson, 0:18:48.240 --> 0:18:53.000 General Kneller, General Milley, General Selva, and a guy named 0:18:53.040 --> 0:18:56.280 Dunford on top of the food chain and joint chiefs 0:18:56.280 --> 0:18:59.000 of staff. You and I go back to eighties six 0:18:59.000 --> 0:19:04.680 and the monum mental Goldwater Nichols reorganization of the competency 0:19:04.760 --> 0:19:08.280 of our military. How do you take Dunford and what 0:19:08.359 --> 0:19:12.639 he represents with Selva, Millie, Kneller, Richardson, Goldfine, et cetera. 0:19:13.200 --> 0:19:17.560 How do you take him off the NSC. It's inconceivable 0:19:17.640 --> 0:19:19.600 to me. And by the way, I have to point 0:19:19.640 --> 0:19:22.760 out for you, Tom, since you love the academic pedigrees, 0:19:22.840 --> 0:19:25.159 the chairman of the Joint Chiefs, General Joe Dunford, is 0:19:25.200 --> 0:19:29.920 a graduate of the Fletcher School of Law Diplomacy. Take 0:19:29.920 --> 0:19:34.840 a lap while you're making note he's down to midshipment. Okay, 0:19:35.080 --> 0:19:37.720 that he would be taken off the Principles Committee or 0:19:37.720 --> 0:19:41.879 not invited all the meetings. I suspect that General Maddis, 0:19:41.960 --> 0:19:44.359 the Secretary of Defense, had a very short and sharp 0:19:44.440 --> 0:19:47.159 conversation with the White House Chief of Staff after that 0:19:47.200 --> 0:19:50.640 announcement and said General Dunford will be attending all Principal 0:19:50.680 --> 0:19:53.760 Committee meetings with me. And you might have noticed Sean 0:19:53.840 --> 0:19:57.160 Spicer at the podium yesterday saying, oh, of course, General 0:19:57.240 --> 0:20:00.280 Dunford is invited to every meeting. Madis will make sure 0:20:00.359 --> 0:20:02.760 he comes. He's got to be there. You need that 0:20:02.880 --> 0:20:08.440 voice of unbiased, unpolitical experience in that Principle's Committee. A 0:20:08.480 --> 0:20:10.479 question that didn't come up in that press briefing yesterday 0:20:10.520 --> 0:20:12.440 was a basic one, that is, why is Steve Bannon 0:20:12.520 --> 0:20:14.879 going to be at these meetings? And maybe you can 0:20:14.920 --> 0:20:16.960 help us understand what these meetings. Therefore, we look back 0:20:16.960 --> 0:20:19.440 on George W. Bush's presidency. He would not allow Karl 0:20:19.520 --> 0:20:23.359 Rove in the room. Exactly what these meetings are not 0:20:23.520 --> 0:20:27.200 about is, gee, let's think about this decision through the 0:20:27.359 --> 0:20:31.880 prism of domestic politics, and so to bring folks with 0:20:32.040 --> 0:20:35.320 that bent into the room, Uh kind of shapes the 0:20:35.400 --> 0:20:37.840 discussion in ways that I think are deleterious to our 0:20:37.920 --> 0:20:41.359 national security. These are to be meetings of experts to 0:20:41.560 --> 0:20:43.919 lay out options in front of the president and have 0:20:44.000 --> 0:20:48.040 a discussion without fear or favor as to the politics 0:20:48.040 --> 0:20:50.919 of the day. So I don't think it's appropriate to 0:20:51.000 --> 0:20:55.640 have someone like Steve Bannon uh in that room. I'm 0:20:55.840 --> 0:20:58.240 like to switch gears here and we're gonna we're very 0:20:58.280 --> 0:21:00.160 generous of the arable will be with us for two 0:21:00.160 --> 0:21:04.880 blocks today. It is a small number, five thousand, eight 0:21:04.920 --> 0:21:09.119 hundred nineties six self identified Muslims out of two point 0:21:09.160 --> 0:21:13.760 two million active and reserve duty members. It's a minority. 0:21:13.800 --> 0:21:17.119 How did you as a command officer in the Middle 0:21:17.160 --> 0:21:20.879 East with NATO and with your other duties including the 0:21:20.960 --> 0:21:25.240 you know the tug about your first commission out of Annapolis? 0:21:25.240 --> 0:21:29.520 How how do you deal with religion on a day 0:21:29.560 --> 0:21:33.680 to day basis in the Navy? Well, first and foremost, 0:21:33.760 --> 0:21:36.240 you have to look at those Muslims who are serving 0:21:36.240 --> 0:21:40.959 on active duty as assets. They have a feel for 0:21:41.000 --> 0:21:44.399 the culture, they have a feel often for the languages 0:21:44.560 --> 0:21:47.919 given their individual backgrounds, and you have to be not 0:21:48.040 --> 0:21:52.040 only respectful of their religious freedom, because that's part of 0:21:52.040 --> 0:21:55.040 what we're fighting for, but also you have to think 0:21:55.040 --> 0:21:58.720