WEBVTT - P&L: O'Brien on "Trump, the Conflicts-of-Interest President" 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.560 you and your money, whether you at the grocery store 0:00:16.800 --> 0:00:19.960 or the trading floor. Find the Bloomberg p L Podcast 0:00:20.000 --> 0:00:30.480 on iTunes, SoundCloud and at Bloomberg dot com. Pim I 0:00:30.520 --> 0:00:32.199 was reading a story this morning. I want to read 0:00:32.200 --> 0:00:34.680 the lead to you when Donald Trump starts work in 0:00:34.720 --> 0:00:37.920 the Oval Office in January. In January, he will have 0:00:38.080 --> 0:00:42.200 more potential business and financial conflicts of interest than any 0:00:42.280 --> 0:00:45.440 other president in US history. The author of that is 0:00:45.479 --> 0:00:51.920 Timothy O'Brien, the head of Bloomberg Gadfly, Bloomberg Editor, Bloomberg View, 0:00:52.360 --> 0:00:57.160 UH publisher. Tell us, what are some of those conflicts? Well, 0:00:57.200 --> 0:00:59.840 they're myriad, Lisa. You know, he's he's coming into the 0:01:00.040 --> 0:01:05.199 b office having sat a top a boutique branding organization, 0:01:05.240 --> 0:01:08.720 the Trump Organization. It has a small clutch of lucrative buildings, 0:01:09.640 --> 0:01:17.480 hotel operations and um UH and his basically a licensing operation. UH. 0:01:17.520 --> 0:01:20.280 He's been a human shingle for about the last ten 0:01:20.360 --> 0:01:23.280 years or so of his business life. He licenses his 0:01:23.400 --> 0:01:26.800 name on everything from mattresses and underwear to other people's 0:01:26.800 --> 0:01:32.680 building buildings, etcetera, etcetera, and um, his kids run it. 0:01:32.920 --> 0:01:36.720 He's got a small clutch of family of close associates 0:01:36.720 --> 0:01:38.440 who have helped him in that business for a long time. 0:01:38.800 --> 0:01:41.280 Now he's going into the White House and as president, 0:01:41.360 --> 0:01:44.640 there are very few conflict of interest laws that apply 0:01:44.760 --> 0:01:47.560 to him, basically none. What kinds of disclosures does he 0:01:47.560 --> 0:01:49.520 have to do as far as the business because it's 0:01:49.520 --> 0:01:52.160 a private, private business. Yeah. I mean, he's said throughout 0:01:52.160 --> 0:01:54.800 the campaign that he didn't need to release his tax 0:01:54.800 --> 0:01:58.960 returns because he had already given the FEC documents about 0:01:59.000 --> 0:02:01.400 his business operation. But the reality is all of that 0:02:01.400 --> 0:02:05.240 stuff is self reported. There are no meaningful numbers associated 0:02:05.280 --> 0:02:08.760 with any of it. We have a guy coming into 0:02:08.800 --> 0:02:13.359 the White House who has substantial financial and business connections 0:02:13.360 --> 0:02:15.080 and we don't really know the full excent of what 0:02:15.160 --> 0:02:17.240 they are, and he's free to make a number of 0:02:17.280 --> 0:02:21.720 policy decisions that could essentially feather his own nest. Timothy O'Brien, 0:02:21.720 --> 0:02:23.200 I want to also mention that you were the author 0:02:23.240 --> 0:02:27.880 of Trump Nation, so you have some detailed history about 0:02:29.160 --> 0:02:34.280 Mr Trump. The president elect. If you could characterize what 0:02:34.400 --> 0:02:39.919 are the most potentially the most confrontational uh, conflicts of interest, 0:02:39.960 --> 0:02:42.639 what would they be. Well, he's a real estate developer, 0:02:42.760 --> 0:02:45.160 so he has a lot of leverage. He's got a 0:02:45.160 --> 0:02:49.000 lot of loans. In particular, Deutsche Bank, the big German bank, 0:02:49.440 --> 0:02:52.720 is one of his primary lenders. Deutsche is currently under 0:02:52.760 --> 0:02:57.560 investigation by the Justice Department. Uh. The Trump's you know, 0:02:57.840 --> 0:03:00.880 the Trump cabinet, will have influence over the course of 0:03:00.880 --> 0:03:05.640 that investigation. UM. Deutsche is very close to the German government. 0:03:06.000 --> 0:03:09.440 So of course any foreign policy or trade agreements that 0:03:09.520 --> 0:03:14.480 Trump engages in overseas comes to bear on that. UM. 0:03:14.600 --> 0:03:19.359 He he campaigned on being against lobbying and entrenched lobbyists, 0:03:19.480 --> 0:03:24.560 but he's got lobbyists throughout his transition team. UM. Policy 0:03:24.639 --> 0:03:30.320 domestically on taxes is going to affect his real estate operations. UM. 0:03:30.400 --> 0:03:34.440 He's got I think currently about seventy five lawsuits outstanding, 0:03:34.480 --> 0:03:37.920 either being filed against him or that he's followed against others, 0:03:37.920 --> 0:03:42.640 including quite prominently the Trump University case. UM. He gets 0:03:42.640 --> 0:03:44.840 immunity from having to appear on the witness stand in 0:03:44.840 --> 0:03:48.560 those case is, but he's not immune from the consequences 0:03:48.560 --> 0:03:51.160 of that litigation, So that's going to play out as well. 0:03:51.400 --> 0:03:53.760 And there was a story today that Berkeley's analysts expect 0:03:53.800 --> 0:03:57.120 that the potential Deutsche Bank find by the Department of 0:03:57.160 --> 0:03:59.880 Justice will probably be much lower in a Trump presidency. 0:04:00.040 --> 0:04:03.240 To your point about Dutch Bank being his major lender, 0:04:03.280 --> 0:04:05.320 I don't know how much that's gonna play into it. 0:04:05.600 --> 0:04:09.080 Um is there or who will play the biggest watchdog 0:04:09.760 --> 0:04:12.800 within the government. Who can play that role? Well, it's 0:04:12.880 --> 0:04:16.520 it really the chief executive of the United States has 0:04:16.560 --> 0:04:19.880 a lot of latitude. There is by design not a watchdog. 0:04:20.360 --> 0:04:23.840 The almost all of the conflict of interest laws at 0:04:23.839 --> 0:04:27.919 the federal level UM and at the executive branch don't 0:04:27.960 --> 0:04:31.520 apply to the president. UM. We've relied on presidents in 0:04:31.520 --> 0:04:34.560 the past creating blind trusts to store their assets so 0:04:34.600 --> 0:04:36.960 someone else can manage them. But those tend to be 0:04:37.040 --> 0:04:40.920 security stocks and bonds. They don't It doesn't include things 0:04:40.960 --> 0:04:44.040 like a real estate operation and golf courses. Trump has 0:04:44.120 --> 0:04:47.360 said that he will distance himself from those operations by 0:04:47.400 --> 0:04:50.640 letting his three children run them, but in fact that's 0:04:50.640 --> 0:04:53.360 really not a prophylactic. He'll be talking. One would assume 0:04:53.640 --> 0:04:56.159 about those businesses with his kids every day, so right 0:04:56.240 --> 0:04:59.160 now we lack a watchdog. Well, coming up, we're gonna 0:04:59.160 --> 0:05:01.600 be speaking with the Thin Dean, our government analyst for 0:05:01.640 --> 0:05:04.680 Bloomberg Intelligence. We're gonna talking about the defense rather the 0:05:04.760 --> 0:05:08.880 Dodd Frank legislation and any attempts to change that. But 0:05:08.920 --> 0:05:11.560 it's just your point about lobbyists and people who are 0:05:11.800 --> 0:05:15.360 veterans in Washington understand that a former representative, Mike Rogers, 0:05:15.800 --> 0:05:19.200 he was a former Reagan attorney general and Heritage Foundation 0:05:19.240 --> 0:05:22.800 fellow Edwin Meees also, so both of them. Uh, don't 0:05:23.040 --> 0:05:25.680 don't forget about Rudy Giuliani himself, the firm that he 0:05:25.720 --> 0:05:29.520 has been with until recently. Greenberg Um did lobby and 0:05:29.520 --> 0:05:32.120 work for the Trump organization over the years on casino issues. 0:05:32.240 --> 0:05:35.040 So all of this stuff is fairly deep and deeply 0:05:35.080 --> 0:05:39.360 embedded in his portfolio and his transition team. Yeah, you're 0:05:39.360 --> 0:05:42.400 saying that I Trump currently has owes as much as 0:05:42.400 --> 0:05:44.880 six hundred and fifty million dollars. So that's a lot 0:05:44.880 --> 0:05:46.440 of money that he has. Be's a lot of money 0:05:46.480 --> 0:05:48.680 that he has at stake here potential for just a 0:05:48.760 --> 0:05:53.240 quickly potential for reinstituting a glass Stiegel as a replacement 0:05:53.279 --> 0:05:56.480 for Dodd Frank. You know, Trump has said all sorts 0:05:56.520 --> 0:06:00.920 of varying things about bank regulation, regulatory reform, Elizabeth Warren 0:06:01.320 --> 0:06:03.479 of all people today, so that she'd love to allie 0:06:03.560 --> 0:06:05.640 with him on some of this. So who would have 0:06:05.680 --> 0:06:07.800 ever thought that Donald Trump and Elizabeth Warren would wind 0:06:07.839 --> 0:06:10.800 up as strange bedfellows. So we're gonna have a lot 0:06:10.839 --> 0:06:13.039 of wait and see on him in public policy. Thank 0:06:13.080 --> 0:06:16.640 you very much. Timothy O'Brien, Executive editor Bloomberg, Gadfly and 0:06:16.680 --> 0:06:19.000 Bloomberg View. He is also the author of the book 0:06:19.360 --> 0:06:23.680 Trump Nation. I'm Pim Fox along with Lisa Abramowitz. This 0:06:23.960 --> 0:06:34.960 is Bloomberg. I want to turn our attention now to 0:06:35.360 --> 0:06:38.719 Dodd Frank legislation. Nathan Dean is our government analyst for 0:06:38.800 --> 0:06:43.280 Bloomberg Intelligence. He joins us, Now, bank stocks have had 0:06:43.279 --> 0:06:45.799 a great run over the last five days. A city 0:06:45.800 --> 0:06:49.120 group up seven and a half percent, Golden Sacks of fourteen, 0:06:49.240 --> 0:06:52.960 Morgan Stanley up fifteen, JP Morgan up twelve. Tell us 0:06:52.960 --> 0:06:56.680 about the future of Dodd Frank, Nathan Dean, So, the 0:06:56.720 --> 0:06:59.440 future of Dodd Frank is that it's going to get weakened. Uh. 0:06:59.600 --> 0:07:02.680 You know now that we have President elect Donald Trump, 0:07:02.800 --> 0:07:06.160 a Republican Senate and a Republican House. UH, Congress is 0:07:06.200 --> 0:07:07.760 going to be able to push forth many of the 0:07:07.839 --> 0:07:09.760 changes that they wanted to do for the last couple 0:07:09.800 --> 0:07:12.440 of years on dot frank. And they're going to weaken it. Well, 0:07:12.720 --> 0:07:14.560 but what are the changes that they want to make? 0:07:15.000 --> 0:07:17.160 So they can't repeal it and they can't get rid 0:07:17.240 --> 0:07:20.040 of anything material, so vocal rule, for example, they can't 0:07:20.080 --> 0:07:22.160 do that because you need sixty votes in the Senate 0:07:22.160 --> 0:07:25.160 to overcome a Democratic filibuster. But what they're gonna do 0:07:25.240 --> 0:07:26.800 is there's a plan out in Congress right now called 0:07:26.800 --> 0:07:29.840 the Financial Choice Act. You pay ten percent of the LIBERATORYTIO, 0:07:29.920 --> 0:07:33.640 so increased capital requirements buy the out of dot frank. UH. 0:07:33.680 --> 0:07:35.880 And another rule that we're going to see, the fiduciary 0:07:35.960 --> 0:07:38.680 duty rule at the Department of Labor. We expect that 0:07:38.760 --> 0:07:41.640 to get weakened. Uh. And so you're gonna see targeted 0:07:41.640 --> 0:07:45.200 relief to certain sectors of the financial services industry small 0:07:45.240 --> 0:07:47.720 mid sized banks round two or fifty billion in assets 0:07:47.760 --> 0:07:51.080 and below, asset managers, insurers, But you're not going to 0:07:51.160 --> 0:07:54.200 see like a global repeal of dot frank. Nathan, just 0:07:54.240 --> 0:07:55.880 go back for just a second. I want to want 0:07:55.880 --> 0:07:58.320 you to recast maybe just offer that detail about if 0:07:58.320 --> 0:08:00.520 you pay the ten percent at and if you have 0:08:00.640 --> 0:08:03.440 that that capital cushion, then you get to opt out. 0:08:03.480 --> 0:08:05.440 You can in a sense, you're pain to get out 0:08:05.440 --> 0:08:08.280 of Dodd Frank exactly. So there's this idea for higher 0:08:08.280 --> 0:08:12.480 requiring coup requirements, less regulation. The planets out in Congress 0:08:12.600 --> 0:08:14.640 right now, and it has to be reintroduced next year, 0:08:14.680 --> 0:08:17.160 so it may look a little bit different. Requires the 0:08:17.160 --> 0:08:20.200 big eight g cs, Bank America, JP, Morgan, etcetera. To 0:08:20.320 --> 0:08:22.600 have a ten percent leverage ratio right now, they're around 0:08:22.600 --> 0:08:26.600 six now. Chairman Henseling estimates that in order to get 0:08:26.640 --> 0:08:29.400 from six to eight a six to ten, those eight 0:08:29.400 --> 0:08:31.480 banks would have to pony up about three D five 0:08:31.520 --> 0:08:34.440 hundred billion in new capital. Now that's a pretty high 0:08:34.520 --> 0:08:37.120 price to pay. But if you go further down the line, 0:08:37.160 --> 0:08:38.959 you start looking at the banks that are around fifty 0:08:39.000 --> 0:08:41.920 billion in assets, ten billion assets, many of them are 0:08:41.920 --> 0:08:45.320 already at that leverage ratio. So, uh, this Financial Choice 0:08:45.360 --> 0:08:48.360 Act really does favor the small and community sized banks. 0:08:49.559 --> 0:08:52.120 So it's you know, it's sort of interesting. I think 0:08:52.160 --> 0:08:55.400 when I talk to people. Their impression is that UH 0:08:55.440 --> 0:08:58.080 and Mr Trump will roll back the majority of the 0:08:58.120 --> 0:09:01.520 Dodd Frank Act, and that include dudes much more risk 0:09:01.640 --> 0:09:04.520 taking at the big banks, and that's one reason why 0:09:05.120 --> 0:09:09.200 people are expecting profitability to go up. And yet it 0:09:09.280 --> 0:09:13.120 sounds like that's not necessarily the case. Well, there are 0:09:13.120 --> 0:09:15.640 many ways that they can do this. So for two 0:09:15.679 --> 0:09:18.640 things to point out. One, the Republicans have tried over 0:09:18.640 --> 0:09:21.400 a times since two thousand ten to amend dot Frank. 0:09:21.559 --> 0:09:24.040 They haven't succeeded because they've never been able to get 0:09:24.040 --> 0:09:27.160 that sixty vote in the Senate. Elizabeth warrened she's going 0:09:27.200 --> 0:09:28.920 to be able to cause a lot of problems in 0:09:28.960 --> 0:09:32.239 the Senate and block a lot of that big regulation. However, 0:09:32.400 --> 0:09:35.600 Donald Trump now controls the financial regulators, and so he 0:09:35.640 --> 0:09:39.200 can instruct the new heads of the SEC, se IFDC, UH, 0:09:39.240 --> 0:09:42.720 you know the Photo Reserve, when if Janet Yen leaves 0:09:42.720 --> 0:09:45.920 into thousand eighteen to start looking at rolling back regulation 0:09:46.000 --> 0:09:48.160 and so UH, they can do things like putting out 0:09:48.160 --> 0:09:51.760 notices saying that we're not going to enforce certain regulations, 0:09:51.760 --> 0:09:54.040 We're not going to hold you accountable. So I think 0:09:54.080 --> 0:09:55.880 if you see in the short term, you're not going 0:09:55.920 --> 0:09:57.520 to see a lot of change, but in the long 0:09:57.600 --> 0:09:59.200 term you're gonna see a lot more. Is there a 0:09:59.200 --> 0:10:02.319 particular regular lation that you're thinking they could sort of 0:10:02.400 --> 0:10:05.240 ignore or pushed to the side. The fiduciary duty is 0:10:05.240 --> 0:10:07.440 the perfect example. So this rule came up from the 0:10:07.480 --> 0:10:10.600 Labor Department. Uh. It caused a lot of problems with 0:10:10.760 --> 0:10:15.120 the life insurance industry, the broker dealers, the retirement investment advisors, 0:10:15.440 --> 0:10:19.400 lots of pushback both from the Democrats, some Democrats and Republicans. 0:10:19.960 --> 0:10:23.280 Rule went into forest compliances in April. So what we 0:10:23.320 --> 0:10:26.200 could see there is, uh, the new administration come out 0:10:26.240 --> 0:10:28.320 put out a notice in March saying you don't have 0:10:28.400 --> 0:10:31.560 to comply, and then they'll have to repropose the rule. Uh. 0:10:31.640 --> 0:10:34.040 You know, any regulation, it's not like Donald Trump can 0:10:34.040 --> 0:10:36.080 come in on day one, just sign an executive order 0:10:36.080 --> 0:10:38.320 and it goes away. They have to repropose it. And 0:10:38.400 --> 0:10:41.160 so the quickest way to overturn a regulation is to 0:10:41.240 --> 0:10:44.040 have Congress passidents law. But if they can't do it 0:10:44.160 --> 0:10:46.440 and they turn to the regulatory agencies, they have to 0:10:46.480 --> 0:10:48.720 do a rulemaking process, which could take up the eighteen 0:10:48.720 --> 0:10:52.920 months to two years Nathan non bank financial institutions such 0:10:52.960 --> 0:10:57.520 as A I G, Met Life, Prudential Financial what can 0:10:57.600 --> 0:11:00.720 we expect there? So, the Financial Stability or Recite Council 0:11:00.840 --> 0:11:03.400 is the one that controls the designation for A I 0:11:03.480 --> 0:11:06.320 G and Prudential and met UH. And they serve at 0:11:06.320 --> 0:11:08.400 the pleasure of the Secretary of the Treasury. They can't 0:11:08.440 --> 0:11:11.040 do anything unless the Treasury Secretary signs off on it. 0:11:11.360 --> 0:11:13.280 And now the Secretary Treasury is going to serve at 0:11:13.320 --> 0:11:15.920 the pleasure of Donald Trump. And so when A I 0:11:16.040 --> 0:11:20.800 G and Prudential have their annual reviews over their city status, 0:11:21.120 --> 0:11:23.080 which which will take place sometime in the September of 0:11:23.120 --> 0:11:26.200 October of two thousand seventeen, UH, it's not unlikely to 0:11:26.280 --> 0:11:28.040 see at that time the f stocks say we're just 0:11:28.080 --> 0:11:30.040 going to d designate you. You know, there's a lot 0:11:30.080 --> 0:11:32.319 of talk about town. Is the f stock going to 0:11:32.400 --> 0:11:35.320 be finished or not? Uh? And one of the easiest 0:11:35.320 --> 0:11:38.200 ways to get rid of that that designation for AI 0:11:38.280 --> 0:11:39.880 G and Prudential is to have the f stock do 0:11:39.960 --> 0:11:42.439 it in you know, later next year. Have the Republicans 0:11:42.440 --> 0:11:46.199 been against the city a designation just real quick, yes, absolutely, 0:11:46.400 --> 0:11:50.160 across the board, really really interesting Nathan dean government analyst 0:11:50.160 --> 0:11:53.439 at Bloomberg Intelligence in Washington, d C, talking about the 0:11:53.480 --> 0:12:06.200 implications UH in a Donald Trump administration. Well, our benchmark. 0:12:06.240 --> 0:12:08.520 When we want to know anything about the retail industries, 0:12:08.559 --> 0:12:11.960 we call Bert Flickinger. He's the managing director a Strategic 0:12:12.200 --> 0:12:15.920 Resource Group. He can be followed on Twitter at Bert 0:12:16.440 --> 0:12:20.520 underscore Flickinger. Alright, Bert underscore Flickinger, tell me about the 0:12:20.559 --> 0:12:24.240 retail ice age that you've most recently witnessed. There's an 0:12:24.280 --> 0:12:27.640 accelerating retail ice age, PIM and Lisa, and you're going 0:12:27.679 --> 0:12:31.800 to see a record number of bankruptcies UH for retailers. 0:12:32.120 --> 0:12:35.880 You're seeing the corporate bond debt trade down for everyone 0:12:35.920 --> 0:12:39.680 from Neiman Marcus trading at eight year below most of 0:12:39.720 --> 0:12:43.800 your listeners know issued in a hundred jay cruise trading 0:12:43.800 --> 0:12:48.760 below forty searies is really struggling. And even today you 0:12:48.840 --> 0:12:51.800 and Lisa talked about the Southsayer of South Korea and 0:12:51.800 --> 0:12:55.320 the magic purses. The rasputant of retail is in the 0:12:55.360 --> 0:12:58.679 headlines today and Bill Ackman, as he left j C 0:12:58.840 --> 0:13:01.760 Penney on death store step dropped the stock from forty 0:13:01.840 --> 0:13:05.560 three to about a dollar twenty and then Steve sat off, 0:13:05.600 --> 0:13:08.720 the pride of Hamilton's College and sex fifth Avenue came back, 0:13:08.800 --> 0:13:11.920 brought Penny back from the dead. They missed today, but 0:13:11.960 --> 0:13:14.240 they're gonna make it where a lot of their competitors 0:13:14.520 --> 0:13:17.920 like the Bonton Uh as well as Sears Holdings which 0:13:17.960 --> 0:13:21.480 still has softer side of Sears, are struggling, and even 0:13:21.640 --> 0:13:24.440 Neiman Marcus Group with Jones Barney their bonds are trading 0:13:24.440 --> 0:13:26.840 at eighty year below. So there's gonna be a real 0:13:27.040 --> 0:13:31.319 rationalization whether companies are impaired by RASP mutants like Bill 0:13:31.360 --> 0:13:35.200 Ackman or just poor consulting and financial advice. Well, and 0:13:35.240 --> 0:13:39.480 you noted that will be the most troubling year for 0:13:39.559 --> 0:13:43.520 retail in a decade, and not to be outdone, eighteen 0:13:43.679 --> 0:13:47.360 will be worth Why well, Lisa, and you you, you 0:13:47.440 --> 0:13:51.240 and PIM already reported declining oil prices. So so for us, 0:13:51.640 --> 0:13:55.720 the Harbinger is really Kazakhstan where Hudson Bay Company opener 0:13:55.960 --> 0:14:00.760 Brand was not expecting that the Harbingers her list to travel. 0:14:00.800 --> 0:14:02.800 But go ahead, but tell us this story because Hudson 0:14:02.840 --> 0:14:05.640 Bay owns a fifth SAX with SAX with the Avenue 0:14:05.920 --> 0:14:12.000 put their latest Crown Crown jewel license store uh in Kazakhstan. 0:14:12.080 --> 0:14:14.640 I know from our work with the State Department in USA. 0:14:15.080 --> 0:14:17.079 It was only a few years ago where people were 0:14:17.080 --> 0:14:21.720 showing up on Saturdays with livestock and butcher butchering cattle 0:14:21.800 --> 0:14:24.800 on their cars and selling pieces of meat, and State 0:14:24.800 --> 0:14:27.280 Department was asking us to come up with basic retail. 0:14:27.320 --> 0:14:30.440 How you get to that luxury goods is beyond me. 0:14:30.520 --> 0:14:33.040 But Sachs did at Harvey Nichols did at Harvey Nichols 0:14:33.120 --> 0:14:36.240 closed their Kazakhstan store in less than a hundred days. 0:14:36.680 --> 0:14:40.920 What's what's the barometer? The petro dollars aren't there. We 0:14:40.920 --> 0:14:44.160 were in Paris for Fashion Week as well as Golden Week. 0:14:44.520 --> 0:14:48.360 All the people from their maz to Le um Le 0:14:48.480 --> 0:14:52.320 Bon Marche. Printon told us the Sinoa, which your listeners 0:14:52.320 --> 0:14:55.600 know as the Chinese, are there with cameras or calculators, 0:14:55.640 --> 0:14:58.280 just snapping pictures and looking for a lower price. And 0:14:58.360 --> 0:15:00.840 his pen reference in the b break. You can go 0:15:00.920 --> 0:15:04.720 to every luxury offline retailer. And that's why Neiman Marcus, 0:15:04.720 --> 0:15:07.680 with its mountain of debt with Bergdorf, is in a 0:15:07.760 --> 0:15:11.960 bad position for for maybe eighteen but Barney's is an 0:15:12.040 --> 0:15:16.080 even worse position for seventeen and Jay Crew possibly for 0:15:16.320 --> 0:15:19.920 this Christmas, Hanka and Kansas. How do you square the 0:15:20.000 --> 0:15:24.080 sudden surgeon optimism about growth in the US and the 0:15:24.120 --> 0:15:27.800 possibility of inflation. And frankly, the more that markets gain, 0:15:27.880 --> 0:15:31.360 the more that the wealthiest people will will gain money 0:15:31.400 --> 0:15:34.920 that they can spend at these at these retailers. So 0:15:34.960 --> 0:15:38.080 why isn't this a positive? It's it's a positive in 0:15:38.160 --> 0:15:41.000 terms of the stock market. The wealth effect is your 0:15:41.000 --> 0:15:44.960 referenced well, Lisa, but but but at the end, uh, 0:15:45.160 --> 0:15:49.680 you also have political problems. Mayor Michael Bloomberg under understood 0:15:49.720 --> 0:15:54.080 the balance of the public and private sector. Average family 0:15:54.120 --> 0:15:56.480 takes four hours and forty minutes to come from the 0:15:56.520 --> 0:15:59.720 suburbs the shop in Midtown Manhattan and Los Angeles, Mischigan 0:15:59.840 --> 0:16:03.280 have Chicago with the traffic density, and the major cities 0:16:03.320 --> 0:16:07.280 in the US, UH, sevent of that time's lofts and traffic, 0:16:07.360 --> 0:16:11.040 So people don't come anymore. So footfalls way down for 0:16:11.160 --> 0:16:14.800 leading department stores and and luxury stores and all of 0:16:14.840 --> 0:16:17.720 what we call the gateway cities. And it's not unique 0:16:17.720 --> 0:16:22.400 to Los Angeles or Vancouver, New York, or Miami at 0:16:22.440 --> 0:16:26.000 Aventure Mall. It's something we're seeing in Singapore and and 0:16:26.120 --> 0:16:29.880 uh we're seeing in in Tokyo and and worldwide. And 0:16:29.920 --> 0:16:33.840 also people have expenses coming up, So it's the aspirational 0:16:33.920 --> 0:16:38.720 middle class. It's the middle upper UH that is has 0:16:38.920 --> 0:16:42.120 everything from higher healthcare to tuition. So they're cutting back 0:16:42.160 --> 0:16:45.640 on retail spending UH spending spending in other areas. And 0:16:45.680 --> 0:16:48.000 then you have the millennials who even if they have 0:16:48.120 --> 0:16:50.920 good jobs and have the money, UH, there are nesting 0:16:51.000 --> 0:16:53.120 or what we call thrift ng and going to UH 0:16:53.240 --> 0:16:58.000 savers or good wealth thrift stores or ladies ladies village 0:16:58.000 --> 0:17:00.880 home improvement stores. So you could out to towns like 0:17:01.440 --> 0:17:05.600 East Hampton and luxury retails not just boarded up. In 0:17:05.640 --> 0:17:08.159 the faller of the Winner, it's largely boarded up. In 0:17:08.200 --> 0:17:10.399 part of the summer, Tiffany had to close their store 0:17:10.680 --> 0:17:13.879 um uh and a number of others closer stores. So 0:17:14.320 --> 0:17:17.680 there'll be a great retail rationalization in the next few years. 0:17:17.720 --> 0:17:20.359 To your point, but there'll be a real retail renaissance 0:17:20.400 --> 0:17:25.200 starting in and really well capitalized capable retailers are win 0:17:25.600 --> 0:17:28.679 particularly the ones with great merchant leaders. So who's that 0:17:28.960 --> 0:17:31.359 who's it going to be? Who are the winners? Uh? 0:17:31.520 --> 0:17:34.760 We we see, we see the winners across sector. Uh, 0:17:35.240 --> 0:17:41.439 multi multi tier. It'll be Kroger, off Price, dollar dollar General, 0:17:41.560 --> 0:17:44.480 t J t J, t j X, Cross stores early. 0:17:45.000 --> 0:17:47.800 If you look at your point him the best leader 0:17:47.800 --> 0:17:52.240 in retailer retailers Ben Camorados, a seminal genius founder of 0:17:52.280 --> 0:17:55.840 t j X, with Carol Meyer, Woods and Ernie Herman. Uh, 0:17:55.880 --> 0:17:59.800 their margins are twice as biggest Amazon. Their inventory turns 0:17:59.920 --> 0:18:02.600 or six times. The rest of the department stores are 0:18:02.640 --> 0:18:05.600 turning inventory two point three to two point seven times. 0:18:05.880 --> 0:18:10.120 It's cash flow. The department stores are paying Uh, many 0:18:10.160 --> 0:18:12.880 of them are paying their vendors late. So the vendors 0:18:13.200 --> 0:18:16.880 need cash to give to Lean fong in their factors, 0:18:16.960 --> 0:18:19.800 less credit available exactly, Well, right, Bert, So then I'll 0:18:19.760 --> 0:18:21.160 ho about on the flip side. I mean you said 0:18:21.160 --> 0:18:23.200 that there could be, was it correct? A record number 0:18:23.240 --> 0:18:26.280 of bankruptcies and retail in the upcoming years. So which 0:18:26.280 --> 0:18:29.879 companies do you expect to go bankrupt? It's uh, you 0:18:29.960 --> 0:18:32.040 never you never want to say it's it's all the 0:18:32.040 --> 0:18:34.639 way over. But it looks like vulnerable. You could just 0:18:34.680 --> 0:18:37.640 say which ones are vulnerably vulnerable to the curtain coming down? 0:18:37.680 --> 0:18:41.119 So when the day Dumas stage. For lease day Dumas 0:18:41.240 --> 0:18:46.400 stage is everybody from Jay Crew to Sears holding UH 0:18:46.520 --> 0:18:52.240 Bontan's trade traded way down, uh Neiman, Marcus Berg Door's 0:18:52.280 --> 0:18:56.520 credit worthy now, but but see issues for them going forward. 0:18:57.480 --> 0:19:01.679 And then UM yeah, even even undercapitalized on the on 0:19:01.720 --> 0:19:05.800 the low end, UH Fred's seems seems to be struggling 0:19:06.560 --> 0:19:10.440 quite a bit. And and then UM chain drug discount 0:19:10.960 --> 0:19:14.199 shop COO. Wherever you see private equity getting greedy and 0:19:14.280 --> 0:19:17.919 up streaming money to themselves, UH and big fees and 0:19:17.920 --> 0:19:21.359 and that's that's my professional view of Bill Ackman UH 0:19:21.520 --> 0:19:24.320 in retail and won't comment on what he's done more 0:19:24.400 --> 0:19:28.440 recently at Valiant. But when you have a great turnaround 0:19:28.520 --> 0:19:32.080 leader like UM our mutual friend Frank Blake at Home 0:19:32.119 --> 0:19:35.560 Depot Bob near Delhi half killed the company, the UH 0:19:35.880 --> 0:19:40.240 three founders Marcus blank Et Cetera brought Blake in and 0:19:40.440 --> 0:19:45.400 UH complete upside Bert Clicking Share managing director at Strategic 0:19:45.440 --> 0:19:58.960 Resource Group on all things retail. This is Bloomberg Einstein's 0:19:59.000 --> 0:20:02.800 The Greatest miss Stake, The Life of a Flawed Genius. 0:20:02.840 --> 0:20:05.679 It was published in September and the author of the 0:20:05.680 --> 0:20:09.320 book David bodenis it joins us now from London. David, 0:20:09.320 --> 0:20:12.880 thank you very much for being with us. Thank you sir. Now. 0:20:13.119 --> 0:20:18.040 Your previous books have included such titles as E equals 0:20:18.200 --> 0:20:22.800 MC squared. You've also written about computer generated fascism. What 0:20:22.960 --> 0:20:26.520 inspired you to write this latest book, Einstein's Greatest Mistake? 0:20:28.000 --> 0:20:29.680 I thought, you know, if you write a book called 0:20:29.680 --> 0:20:31.760 Einstein is smarter than us and we're a bunch of 0:20:31.800 --> 0:20:34.399 dumb schmunks, nobody's interested in that. But if you have 0:20:34.440 --> 0:20:36.840 a book that's like, oh, Paul Einstein, he had something 0:20:36.880 --> 0:20:39.600 wrong because there was a psychological aspect of him that 0:20:39.640 --> 0:20:43.960 we could understand when everybody's interested, including this author. I 0:20:44.160 --> 0:20:47.760 loved um turning him into a human being and really 0:20:47.760 --> 0:20:51.040 seeing not just his great strength, which were magnificent, but 0:20:51.160 --> 0:20:53.879 also what happened when he stumbled? How did he get stuck? 0:20:53.880 --> 0:20:56.840 And what lessons does it give us? So what was 0:20:56.880 --> 0:21:01.200 his biggest mistake? Because because stake, it was a psychologic 0:21:01.280 --> 0:21:04.359 most it was a psychological mistake. He he believed that 0:21:04.440 --> 0:21:07.000 the universe was like a beautiful, clear book, that everything 0:21:07.040 --> 0:21:09.320 was crisp and clear, that there was an order. It 0:21:09.359 --> 0:21:11.439 wasn't like a random magazine with a bit of this 0:21:11.560 --> 0:21:14.119 and a bit of that. Um, And then he had 0:21:14.160 --> 0:21:16.480 had so much reason for believing this. It made all 0:21:16.480 --> 0:21:19.199 sorts of sense about outer space. It led to notions 0:21:19.200 --> 0:21:22.600 of the expanding universe, just terrific insights that later when 0:21:22.600 --> 0:21:25.440 people started studying things on the microscual on the micro 0:21:25.520 --> 0:21:28.480 small level and quantum mechanics, which seem to be just 0:21:28.640 --> 0:21:31.679 that the universe isn't orderly, that it isn't super clear 0:21:31.760 --> 0:21:34.600 and crisp when you analyze. He just couldn't accept it. 0:21:35.480 --> 0:21:37.680 You know. He he had this comment, God does not 0:21:37.880 --> 0:21:43.159 play dice. Was he a religious person? Um? If you 0:21:43.320 --> 0:21:45.240 if you make a sort of just I could to 0:21:45.240 --> 0:21:47.240 say about that comment. So yeah, so Einstein said God 0:21:47.240 --> 0:21:50.359 does not play dice with the universe. Everything's orderly and clear, 0:21:50.400 --> 0:21:53.360 there's a pattern set up in advance. And this good 0:21:53.359 --> 0:21:56.280 friend Nell's boy used to say, Einstein, stop telling God 0:21:56.320 --> 0:22:01.159 what to do, Like, how do you know it's great? Um? 0:22:01.240 --> 0:22:04.320 So for religion. If Einstein he wasn't an atheist, He 0:22:04.320 --> 0:22:07.919 thought atheism was very unscientific it um, you know, like 0:22:08.000 --> 0:22:09.960 you're presuming to know too much. At the other hand, 0:22:09.960 --> 0:22:12.440 he wasn't a believer in traditional like the details of 0:22:12.520 --> 0:22:15.639 revealed religion. So he would think that Moses was very wise, 0:22:15.920 --> 0:22:18.080 But he didn't think that Moses got the commandments from 0:22:18.119 --> 0:22:21.080 gathering on Sinai. But there's a big space in between. 0:22:21.440 --> 0:22:26.600 And uh, Einstein loves the seventeenth century death Jewish philosopher Spinoza. 0:22:26.680 --> 0:22:29.720 He thought, Spinoza, what what wrote about this? These waiting 0:22:29.840 --> 0:22:32.520 patterns in the universe, not presuming to say where they 0:22:32.560 --> 0:22:35.640 came from, but just thinking, how magnificent is it that 0:22:35.640 --> 0:22:39.440 there's instead of chaos and disorder around us, there's this harmony. 0:22:39.480 --> 0:22:42.680 There's these patterns. Where do they come from? Maybe maybe 0:22:42.760 --> 0:22:46.680 really floatful human beings can just discern that pattern, take 0:22:46.720 --> 0:22:49.800 away the veil between us and deepest reality and see 0:22:49.840 --> 0:22:53.160