WEBVTT - Simon Nynens on How to Fail Less 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.440 Along with my co host Lisa A. Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:32.000 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:32.080 --> 0:00:35.360 We are broadcasting from with Ham's fifth Annual Global Summit 0:00:35.400 --> 0:00:39.040 in New York City and the Keno It speaker how 0:00:39.080 --> 0:00:41.320 to Focus That really hit home with me how to 0:00:41.360 --> 0:00:43.800 fail less? He joins us, Now tell me how I 0:00:43.800 --> 0:00:47.240 can fail less? Simon at nineans is chief executive officer 0:00:47.280 --> 0:00:51.080 and chairman of Wayside Technology Group in Eatontown, New Jersey. 0:00:51.200 --> 0:00:54.640 He joins us here at the Renaissance Hotel Street in 0:00:54.680 --> 0:00:58.520 New York City. Simon, how can I fail us? Pleasure 0:00:58.560 --> 0:01:01.760 to be here? How we feel less? Preferably by failing 0:01:01.760 --> 0:01:03.840 a lot early on in life? And you fail a lot, 0:01:03.920 --> 0:01:06.200 but when it doesn't matter, when it doesn't matter, so 0:01:06.240 --> 0:01:08.840 you should practice a lot, fail a lot and get 0:01:08.880 --> 0:01:11.520 better every single time. Usually when you have a first activity, 0:01:11.959 --> 0:01:13.520 you're not that good at it. So tell me the 0:01:13.520 --> 0:01:16.399 time that you failed early, that you think is a 0:01:16.400 --> 0:01:19.319 sort of a lynch pin for your success. Well, we 0:01:19.360 --> 0:01:21.440 looked at it. I came to this acquisition. I worked 0:01:21.440 --> 0:01:25.319 for an auditing firm and they hired me Ernstain. I 0:01:25.440 --> 0:01:27.480 used to work for Instain Young and they bought this 0:01:27.520 --> 0:01:29.440 company and said, you don't have a treasury company, you 0:01:29.440 --> 0:01:33.240 don't have a holding company. UM, so why would you 0:01:33.240 --> 0:01:34.760 you know you need that? And they said, well, if 0:01:34.760 --> 0:01:36.200 you know everything, why did you come do it? For? 0:01:36.319 --> 0:01:38.960 As I was from Amsterdam, the Americans came in and 0:01:38.959 --> 0:01:40.920 I said, sure, I'll come join you, and they sent 0:01:40.959 --> 0:01:43.880 me to Paris and the numbers looked really good. But 0:01:43.920 --> 0:01:45.880 when I joined them in Paris that it was apparent 0:01:46.000 --> 0:01:49.360 that it was a big mess. So there you go. Failed. 0:01:49.800 --> 0:01:53.840 Didn't do my homework before I joined UM, but we did, 0:01:53.880 --> 0:01:56.800 and I went with a lot of youthful enthusiasm and 0:01:56.840 --> 0:01:58.800 tried to fix it and did that. And then they 0:01:58.800 --> 0:02:01.160 got me to the US here and it became apparent 0:02:01.200 --> 0:02:03.560 when I came here that we really have to sell 0:02:03.600 --> 0:02:05.760 the European operations. So I went back to try to 0:02:05.800 --> 0:02:09.519 sell the European operations. UM failed a lot there too. 0:02:09.560 --> 0:02:11.520 You gets a lot of frogs and then finally you 0:02:11.560 --> 0:02:14.280 get to do that success. There's a difference between failing 0:02:14.280 --> 0:02:16.680 and taking risk. Though it sounds like he took risks 0:02:16.960 --> 0:02:20.640 and perhaps you know, went into it without doing as 0:02:20.720 --> 0:02:23.600 much homework, but can you. I mean, it seems like 0:02:24.000 --> 0:02:26.080 it is part of the issue that to be a 0:02:26.080 --> 0:02:29.640 good leader, especially early on, you have to take risks 0:02:29.720 --> 0:02:32.400 and you have to try to do the impossible. Is 0:02:32.440 --> 0:02:34.600 that what you're really going after here? Yeah, it's all 0:02:34.680 --> 0:02:37.399 calculated risks, right, But there are three ways to lead. 0:02:37.480 --> 0:02:39.399 One is with a fist. Right when we were living 0:02:39.440 --> 0:02:41.160 in the cave and you didn't do what I said, 0:02:41.200 --> 0:02:43.560 I smack you. You gotta do it like it's parenting, right, 0:02:43.639 --> 0:02:45.800 you you and my child do what I say. And 0:02:45.800 --> 0:02:49.160 then there's the third. The second one is um money, 0:02:49.720 --> 0:02:53.640 I pay you money. You're management tensill over think people 0:02:53.680 --> 0:02:56.400 are corn operated machines. And then the third one is 0:02:56.400 --> 0:02:59.480 really motivation. What really makes you take Why are you 0:02:59.560 --> 0:03:02.160 choosing a professional? Really drives you in your life? And 0:03:02.160 --> 0:03:04.040 I've noticed that as soon as you focus on the 0:03:04.120 --> 0:03:07.440 third one, yes, you can fail their calculate risks, but 0:03:07.600 --> 0:03:08.960 you love what you do and you do for the 0:03:09.040 --> 0:03:12.240 right reason. So, um, that's basically what I want to 0:03:12.240 --> 0:03:14.840 talk about. How do you implement that in your business 0:03:14.960 --> 0:03:18.960 and wayside? So in our company, I grew up under fear. 0:03:19.160 --> 0:03:21.360 And well, it's funny when I do these talks and 0:03:21.440 --> 0:03:23.400 I asked people, do you have a bad leader, The 0:03:23.440 --> 0:03:25.200 first thing that comes to mind is always that one 0:03:25.240 --> 0:03:27.720 bad leader who stood out, and usually it's the violence person. 0:03:27.760 --> 0:03:31.800 And it's not just physical violence, it's also psychological warfare. 0:03:31.919 --> 0:03:33.720 Right when you walk into that office, you've got to 0:03:33.760 --> 0:03:36.680 come all guarded. You're like, oh my god, I'm gonna 0:03:36.680 --> 0:03:39.280 go in, I'm gonna get yelled at. I hated it. 0:03:39.400 --> 0:03:42.120 I hated it, this public humiliation when you did something 0:03:42.160 --> 0:03:44.400 wrong and that leader came in and it's your fault 0:03:44.440 --> 0:03:47.680 and look showing off. I call it PEAKR behavior, like 0:03:48.040 --> 0:03:50.200 you know, you're my victim and I show the rest 0:03:50.240 --> 0:03:52.800 of how strong I am. Um. So I hated that, 0:03:52.880 --> 0:03:55.400 and I said, there's only there's only two ways, um, 0:03:56.320 --> 0:03:58.800 you can lead. It is by motivation or by fear. 0:03:58.840 --> 0:04:01.360 So I chose motivation. And so in our office, I 0:04:01.400 --> 0:04:03.680 asked people what really drives you? And they said, it 0:04:03.680 --> 0:04:05.560 would be great if we can work from home normally 0:04:05.600 --> 0:04:08.480 people work only from home. We've done senior positions. I 0:04:08.600 --> 0:04:10.720 turned that around and I said, everybody can work from home. 0:04:10.800 --> 0:04:12.920 We started with one day, we're now up to three days. 0:04:13.480 --> 0:04:15.240 You can come in if you want to for the 0:04:15.240 --> 0:04:18.240 camaraderie and and and talk. And our office are beautiful. 0:04:18.640 --> 0:04:21.279 Um people like in silence, people like to be loud. 0:04:21.680 --> 0:04:23.960 We had them next to each other. Didn't work out well. 0:04:24.160 --> 0:04:25.960 So now we have half her office. Nobody has a 0:04:26.000 --> 0:04:28.400 desk anymore. I don't have a desk. Half two people 0:04:28.440 --> 0:04:30.560 can work in outside. Half two people work in what 0:04:30.600 --> 0:04:33.400 we call the cockpit. It's a quiet zone and you 0:04:33.480 --> 0:04:36.359 don't talk. People like to work at cubicles. People like 0:04:36.440 --> 0:04:38.640 to work in private offices. People like to work in 0:04:38.680 --> 0:04:41.920 a collaboration room. So build all of it. Don't force 0:04:41.960 --> 0:04:43.960 people in cubicles, but also don't force him in this 0:04:44.120 --> 0:04:47.520 open room or in private offices. Do what they want. 0:04:48.240 --> 0:04:51.080 And some people like to work in the Starbucks cafe setting, 0:04:51.240 --> 0:04:54.000 so we build a We build a cafe Starbucks kind 0:04:54.000 --> 0:04:56.320 of like we have a outdoor deck. You can work. 0:04:56.680 --> 0:04:59.440 But the point of the matter is what really matters 0:04:59.440 --> 0:05:05.200 interviews is that we sell software. It doesn't matter that 0:05:05.480 --> 0:05:07.279 you know, I had a manager coming in. She came 0:05:07.320 --> 0:05:09.640 in late today and it was horrible. So I made 0:05:09.640 --> 0:05:12.120 her state in our extra so what do we in kindergarten? Is? 0:05:12.160 --> 0:05:15.240 This is this high school? What are you doing? Well? 0:05:15.320 --> 0:05:16.960 She came in late, so I said, why don't we 0:05:16.960 --> 0:05:19.520 have a conversation with her? You know, underpinning all of 0:05:19.560 --> 0:05:23.320 this is this feeling that it isn't that easy to 0:05:23.520 --> 0:05:26.720 recruit and retain quality workers right now? Have you found 0:05:27.320 --> 0:05:29.280 have you found that has it been difficult for you? 0:05:29.440 --> 0:05:31.839 Not with the retention necessarily because it sounds like people 0:05:31.880 --> 0:05:33.640 are very happy with this, but as far as when 0:05:33.680 --> 0:05:35.719 you go out and look to replace somebody, is it 0:05:35.720 --> 0:05:38.000 difficult for you? Yeah? I mean we're in Eaton Town, 0:05:38.040 --> 0:05:40.680 New Jersey, right, We're not in New York. Uh, So 0:05:40.839 --> 0:05:42.560 what do we do out there? You know, you really 0:05:42.600 --> 0:05:44.960 create a family atmosphere. People want to work with us. 0:05:44.960 --> 0:05:48.279 Our average tenure is much longer than our competition, and 0:05:48.360 --> 0:05:50.960 I believe in that. I believe paying a fair wage 0:05:51.320 --> 0:05:53.800 and really involving people. But more than that, we have 0:05:53.839 --> 0:05:56.559 a banner above the door that says did today really matter? 0:05:57.400 --> 0:05:59.599 And I actively when in the beginning, when I took 0:05:59.640 --> 0:06:01.719 over and worked my way up and two thousand and 0:06:01.720 --> 0:06:04.960 six I started as European controller, then became worldwide controller 0:06:04.960 --> 0:06:08.520 and a CFO and executive vice president. And when I 0:06:08.600 --> 0:06:10.960 became CEO, the first thing I told people is like, 0:06:11.000 --> 0:06:12.919 if you're unhappy, you got to come to me. And 0:06:12.920 --> 0:06:15.960 they said, yeah, here's the European guy that that's going 0:06:16.000 --> 0:06:18.080 to be helping me finding a new job. If I'm 0:06:18.120 --> 0:06:20.240 happy in my job, I said absolutely well, and but 0:06:20.279 --> 0:06:22.440 don't tell your manager. If you feel uncomfortable about it, 0:06:22.480 --> 0:06:25.280 come to me. Now, why would I do that? I 0:06:25.320 --> 0:06:29.360 did that because unhappy people effect on average like eight 0:06:29.400 --> 0:06:31.360 people around him. And we all know that you all 0:06:31.400 --> 0:06:33.720 have that unhappy person at work, and it's like, oh, 0:06:33.760 --> 0:06:35.440 we had a great speech, and then after us, oh, 0:06:35.560 --> 0:06:39.040 it's all bus with that is bad. I don't believe them. 0:06:39.400 --> 0:06:44.280 We're gonna go. It's terrible. Um. So I helped a 0:06:44.320 --> 0:06:46.159 couple of people find that other job. And you know 0:06:46.200 --> 0:06:48.320 what they did. They went to that other company. They 0:06:48.320 --> 0:06:50.719 were happy and they said this guy was crazy, but 0:06:51.279 --> 0:06:54.360 buy your software there. That's a win win. Simon Ninans, 0:06:54.400 --> 0:06:56.520 thank you so much for joining us. Simon Ninans is 0:06:56.600 --> 0:07:00.240 chief executive officer and chairman of the Wayside Technology Group 0:07:00.440 --> 0:07:03.920 based in Eaton Town, New Jersey, with treadmills for the desks. 0:07:04.000 --> 0:07:18.920 This is Bloomberg. Right now, we are going to take 0:07:18.960 --> 0:07:22.800 a look at the October jobs report. Ward McCarthy joins 0:07:22.880 --> 0:07:27.280 US now. Ward McCarthy is the chief financial economist for Jeffreyes. 0:07:27.680 --> 0:07:31.040 The numbers came out, they were slightly disappointing, and US 0:07:31.120 --> 0:07:34.720 added two hundred and sixty one jobs, lesson people expected. 0:07:34.760 --> 0:07:37.120 But really it's the wages that they didn't grow at all, 0:07:37.240 --> 0:07:41.080 and they had been expected to grow. Word, what was 0:07:41.080 --> 0:07:45.239 your first take of this report? Well, the the labor 0:07:45.280 --> 0:07:49.720 blanket data continues to reflect some of the consequences of 0:07:49.760 --> 0:07:53.520 the hurricane. Last months, the payerial numbers were really weak 0:07:54.240 --> 0:07:57.240 because of the hurricane, while the household survey was strong 0:07:57.720 --> 0:08:01.320 and this month that clip plopped. And as you pointed out, 0:08:01.440 --> 0:08:05.080 the weakest aspect really of all of this data was 0:08:05.200 --> 0:08:09.360 the fact that average hourly earnings were unchanged and they've 0:08:09.400 --> 0:08:12.240 been just very volatile in recent months. And to the 0:08:12.520 --> 0:08:16.640 prior three months, average hourly earnings had risen five tenths 0:08:16.680 --> 0:08:19.760 of one per cent. And I think that in September 0:08:19.760 --> 0:08:24.240 and October some compositional issues played a big factor. For example, 0:08:24.640 --> 0:08:28.119 the low paying food service and drinking establishment pay rolls 0:08:28.160 --> 0:08:31.600 fell ninety eight thousand in September and they also popped 0:08:31.680 --> 0:08:35.280 eighty nine thousand in October. So uh, the decline in 0:08:35.320 --> 0:08:39.319 September boosted wage measures, while their rise this month UH 0:08:39.360 --> 0:08:42.440 suppressed wage measures. So I think we really have to 0:08:42.480 --> 0:08:45.080 see the November data and maybe even wait to see 0:08:45.120 --> 0:08:49.680 the Deceamberge data before we can really get our hands around, 0:08:49.920 --> 0:08:54.080 uh whether or not the labor market has changed. So uh, 0:08:54.120 --> 0:08:56.079 you know, I know we have a sense of what 0:08:56.200 --> 0:08:59.319 the Janet yell and Photo Reserve would look would look 0:08:59.360 --> 0:09:02.719 at in these jobs supports. What's Jerome Powell going to 0:09:02.760 --> 0:09:05.720 be looking at next year, because we granted the data 0:09:05.800 --> 0:09:07.600 right now is pretty muddy, is still kind of being 0:09:07.600 --> 0:09:11.200 influenced by the hurricanes. But next year, what's he going 0:09:11.240 --> 0:09:13.959 to be looking for in order to determine whether the 0:09:14.000 --> 0:09:17.440 high rates three times two times or not at all? Oh, 0:09:17.480 --> 0:09:19.240 I think he'll be looking at the same thing that 0:09:19.320 --> 0:09:21.840 Jenny Ellen has been looking at and that other members 0:09:21.840 --> 0:09:23.760 of the f O m C have been focused on, 0:09:24.320 --> 0:09:27.600 and that is, you know, what is really happening with 0:09:27.720 --> 0:09:32.800 the underlying inflation measures in the US. Uh, inflation has been, 0:09:33.000 --> 0:09:35.719 you know, a gone through a series of stops and 0:09:35.880 --> 0:09:38.839 starts over the course of this cycle. And this year, 0:09:38.880 --> 0:09:42.880 of course, inflation measures have been somewhat on the soft side. 0:09:42.960 --> 0:09:46.360 So I don't think that's going to change with with 0:09:46.720 --> 0:09:50.080 Powell being at the HELM. I think that uh, you know, 0:09:50.120 --> 0:09:53.120 they're the Fed is pretty happy with what's been happening 0:09:53.120 --> 0:09:56.400 in the labor market. Uh, They're still pretty confused and 0:09:56.480 --> 0:10:00.000 not completely comfortable with what's happening on the inflation side. 0:10:01.200 --> 0:10:04.680 I'm struck by the tax reform bill that we got yesterday. 0:10:04.760 --> 0:10:06.560 A lot of people were waiting for this to sort 0:10:06.600 --> 0:10:09.480 of ignite growth, some sort of fiscal stimulus. We haven't 0:10:09.520 --> 0:10:14.079 hearned anything about infrastructure spending. But yesterday the GOP released 0:10:14.360 --> 0:10:20.120 their tax bill and yields fell upon prices rose, Expectations 0:10:20.160 --> 0:10:22.640 for growth seemed to diminish if you look at the 0:10:22.760 --> 0:10:26.880 narrowing yield curve. Why is that? Well? I think this 0:10:27.080 --> 0:10:29.880 was another one of those by the rumors sell the 0:10:29.920 --> 0:10:33.760 news types of stories. Uh, And quite frankly, with a 0:10:33.800 --> 0:10:37.040 lot of the information that came out on tax reform 0:10:37.160 --> 0:10:42.640 yesterday was a little bit um, I think conflicted and 0:10:42.640 --> 0:10:46.079 and confusing. On the corporate side, I think they pretty 0:10:46.120 --> 0:10:49.800 much nailed it, uh. And the corporate tax reform is 0:10:49.920 --> 0:10:52.880 much needed and will help make the US economy UH 0:10:53.040 --> 0:10:56.600 much more competitive in the globalized world. So that was 0:10:57.080 --> 0:10:59.400 for the most proud, I think pretty good news on 0:10:59.520 --> 0:11:04.080 the end of visual tax size and the changes UM 0:11:04.240 --> 0:11:09.400 make it really difficult to assess, UM because the consequences 0:11:09.400 --> 0:11:13.320 are very different UH for different types of people. UH. 0:11:13.440 --> 0:11:17.080 If indeed, and this appears to be the case, that 0:11:17.120 --> 0:11:19.600 there is going to be a meaningful tax cut for 0:11:20.360 --> 0:11:24.440 uh most middle class individuals, then that should help growth 0:11:24.559 --> 0:11:27.680 because it gives UH the people who are most likely 0:11:27.720 --> 0:11:30.960 to spend it more income to spend. But it also 0:11:31.559 --> 0:11:36.199 causes some problems in areas where already have problems, specifically 0:11:36.280 --> 0:11:41.240 with the handling of mortgage deductions and also state local taxes. 0:11:41.760 --> 0:11:47.160 Because of demographics, some of the higher UM priced existing 0:11:47.200 --> 0:11:53.400 homes having a difficult time selling and um uh these 0:11:53.520 --> 0:11:56.240 and and that's especially true in some of the high 0:11:56.280 --> 0:12:00.160 tax states, and yesterday's tax reform is really only going 0:12:00.240 --> 0:12:04.120 to exacerbate that problem. It also will increase the federal 0:12:04.160 --> 0:12:06.440 deficit by one and a half trillion dollars. At least 0:12:06.440 --> 0:12:11.520 that's the estimate, not including any extra income from faster growth. 0:12:11.840 --> 0:12:14.360 I do wonder though, what that means for the U. S. 0:12:14.400 --> 0:12:16.040 Treasury Department. Does that mean that they're going to have 0:12:16.120 --> 0:12:21.840 to start issuing longer dated bonds in order to finance themselves. Well, 0:12:21.880 --> 0:12:25.239 I think the answer to that question is yes, um, 0:12:25.280 --> 0:12:29.160 both because, uh, you know, if this tax reform goes through, 0:12:29.400 --> 0:12:32.280 the size of the deficits it's going to increase, as 0:12:32.360 --> 0:12:34.000 you pointed out, by as much as one and a 0:12:34.000 --> 0:12:37.040 half trillion. But in addition, the Fed has started to 0:12:37.080 --> 0:12:41.240 shrink its balance sheet and the Treasury securities that it 0:12:41.360 --> 0:12:45.120 rolls off its balance sheet um does have to be 0:12:45.200 --> 0:12:48.640 financed by the Treasury. So, uh, it may it's not 0:12:48.679 --> 0:12:52.760 going to be a seventeen event, but yes, in eighteen 0:12:52.840 --> 0:12:55.720 and beyond, we are going to see the Treasury issue 0:12:55.760 --> 0:12:59.720 more longer term debt simply because the government seems intent 0:12:59.840 --> 0:13:03.439 to and digging itself into a deeper fiscal hole. Well, 0:13:03.559 --> 0:13:05.280 what's your sense about what that will do to yields? 0:13:05.280 --> 0:13:07.600 I mean, I would guess that as the deficit deepens 0:13:07.720 --> 0:13:10.599 and the US sells moren't debt, that would mean that 0:13:10.679 --> 0:13:13.120 borrowing costs go up. I mean, that's the logic, especially 0:13:13.160 --> 0:13:16.640 if the Federal Service also unwinding its balance sheet. How 0:13:16.760 --> 0:13:19.760 how could that not play out that way? Well, I 0:13:21.200 --> 0:13:22.960 tend to agree with you, and I think that is 0:13:23.000 --> 0:13:26.600 how we'll play out. But it's it's a very slow 0:13:26.679 --> 0:13:30.600 moving process. With the FED beginning to shrink its balance sheet. 0:13:30.640 --> 0:13:34.319 It's the beginning of the end of the control that 0:13:34.760 --> 0:13:38.360 central bank balance sheets have over the bond market. And 0:13:38.480 --> 0:13:43.760 that's the normalization process. And as the normalization process persists, uh, 0:13:43.840 --> 0:13:48.280 that should cause rates to you know, um, move somewhat 0:13:48.360 --> 0:13:52.319 higher over a period of time. Uh. And that's both 0:13:52.400 --> 0:13:55.360 from the balance sheet and the FED and all the 0:13:55.480 --> 0:13:58.680 central banks raising short term rates as well. And all 0:13:58.679 --> 0:14:02.120 of this is a natural process of the US economy 0:14:02.400 --> 0:14:07.000 showing strength and resilience, um, you know, many years now 0:14:07.080 --> 0:14:12.080 since our after the financial crisis. So I'm just curious 0:14:12.080 --> 0:14:13.920 because as I listened to it all makes sense, and 0:14:14.040 --> 0:14:16.000 I'm not in an agreement. I'm thinking, all right, throw 0:14:16.000 --> 0:14:18.400 on wanting their balance sheets. The US is going deeper 0:14:18.440 --> 0:14:21.240 into deficit, it should lead to higher yields. And yet 0:14:21.320 --> 0:14:24.640 the logic that seemed to guide markets in the past 0:14:24.720 --> 0:14:26.920 seems to be missing these days. The FETE is actually 0:14:27.000 --> 0:14:31.600 raising rates. Um, do you think this time is different? Well, 0:14:32.760 --> 0:14:36.160 it's I'm not sure what you mean by this time different. Well, 0:14:36.160 --> 0:14:42.000 the yields will actually rise. Well yeah, I think that. Well, 0:14:42.040 --> 0:14:44.600 this time, I wouldn't say is different. I think that 0:14:44.680 --> 0:14:48.440 what's happening is we're returning to a normal cycle. Has 0:14:48.520 --> 0:14:51.720 been the last nine years that have been different, and 0:14:51.760 --> 0:14:55.600 they've been different because of the youth of central bank 0:14:55.640 --> 0:14:59.760 balance sheets to influence the financial markets. And as this 0:15:00.200 --> 0:15:05.720 a central bank balancing influence over the financial markets, uh 0:15:05.960 --> 0:15:10.680 is a gradually eroded, then the financial markets will return 0:15:10.760 --> 0:15:14.440 towards normal and that will give us more normal cyclical 0:15:14.480 --> 0:15:17.520 behavior both our interest rates in the stock market. How 0:15:17.600 --> 0:15:22.440 high can tenure yields go before they send the US 0:15:22.560 --> 0:15:28.520 economy and to another recession? Well, I think that, Uh, 0:15:28.720 --> 0:15:31.480 you need to see interest rates substantially higher from where 0:15:31.520 --> 0:15:34.280 they are now to cause the US economy to go 0:15:34.320 --> 0:15:38.200 into recession. And I think short term rates would have 0:15:38.240 --> 0:15:41.600 to be as much as three hundred basis points higher 0:15:41.600 --> 0:15:46.160 than this. The tenure yield probably somewhere around two hundred 0:15:46.160 --> 0:15:48.840 basis points higher. So, in other words, of tenure yields 0:15:48.840 --> 0:15:51.560 were about a little over four percent. That would be 0:15:51.680 --> 0:15:55.240 enough to send the US into a session. Well, not necessarily, 0:15:55.280 --> 0:16:00.160 but I would that's the yield levels of of that magnitude, UM, 0:16:00.200 --> 0:16:13.200 I think would be uh, you know, cause yellow flags. Anyway, 0:16:17.280 --> 0:16:19.640 here to talk more about the tax plan and some 0:16:19.720 --> 0:16:22.320 of what Gary Khne was talking about as Dave Springsteen, 0:16:22.640 --> 0:16:25.400 partner and head of the tax department at with Them, 0:16:25.800 --> 0:16:28.720 were also joined by Tony Anita, the tax partner for 0:16:28.880 --> 0:16:31.720 with Them in Colorado. Dave, I want to start with you. 0:16:31.800 --> 0:16:35.320 One thing that Gary Cohen said was that people do 0:16:35.400 --> 0:16:38.920 not buy a house based on the deduction that they 0:16:38.960 --> 0:16:41.760 get from their taxes with respect to their interest payments. 0:16:42.000 --> 0:16:44.720 Is that true? I think it's a motivating factor that 0:16:44.760 --> 0:16:47.720 people buy homes invest a little higher than their means 0:16:47.760 --> 0:16:51.000 because they get an interest tax deduction, they get a 0:16:51.000 --> 0:16:53.240 real estate tax deduction. So, you know, I take a 0:16:53.240 --> 0:16:58.240 different view. Maybe there's a level of taxpayers that don't 0:16:58.240 --> 0:17:01.720 need the interest deduction, but more stuffus do. So Tony, 0:17:01.840 --> 0:17:04.520 just have you been I'm sure, spending pretty much every 0:17:04.520 --> 0:17:07.560 waking hour since yesterday morning trying to pass through this 0:17:07.680 --> 0:17:11.879 report the plan? Um, do you think that it will 0:17:11.920 --> 0:17:17.720 materially change the outlook for smaller businesses for the positive. Well, 0:17:17.760 --> 0:17:20.160 I think the answer to that really hinges on how 0:17:20.240 --> 0:17:22.800 you to find small business You know, it's funny when 0:17:23.840 --> 0:17:27.080 this proposal first came out, you know, I I get 0:17:27.080 --> 0:17:29.880 inundated with emails from lobbying groups just because I write 0:17:29.920 --> 0:17:33.600 about tax law for Forbes. And the first two emails 0:17:33.600 --> 0:17:36.400 that came into my box, the first one said, uh, 0:17:36.520 --> 0:17:39.879 Trump tax proposal doesn't House tax proposal does nothing for 0:17:39.880 --> 0:17:43.000 small businesses, and the second one says, House tax proposal 0:17:43.080 --> 0:17:45.400 great for small businesses. Depends on how you find small 0:17:45.440 --> 0:17:49.399 businesses because the idea of a rate for flow throughs 0:17:49.480 --> 0:17:53.119 is all well and good, but the reality is people 0:17:53.280 --> 0:17:56.240 under current law up to two fifty dollars of income 0:17:56.280 --> 0:17:59.960 are already paying tax at rate. So who's really benefit 0:18:00.400 --> 0:18:02.320 tends to be on the higher end of the income scale. 0:18:02.320 --> 0:18:03.760 So it tends to be the people that are paying 0:18:04.040 --> 0:18:06.640 thirty nine point six under current law that suddenly get 0:18:06.640 --> 0:18:09.760 a drop in the rate. And that's where the real 0:18:09.800 --> 0:18:14.399 windfall is. And so small businesses, that depends how you know, 0:18:14.480 --> 0:18:16.760 if you're making three a year from your business, is 0:18:17.240 --> 0:18:19.879 really necessarily a small business for some it maybe for 0:18:19.920 --> 0:18:22.600 others it may not. Well, David, who is getting the windfall? 0:18:22.640 --> 0:18:26.080 Because I've also been reading reports that the big conglomerates, 0:18:26.080 --> 0:18:29.720 the international companies like Ge and Apple, will as we've 0:18:29.720 --> 0:18:32.919 been hearing, basically been be taxed more on the cash 0:18:32.960 --> 0:18:35.840 that they hold and will be facing other levees that 0:18:35.840 --> 0:18:37.800 they currently aren't that they could actually end up with 0:18:37.840 --> 0:18:40.600 a higher tax rate after this is implemented than they 0:18:40.640 --> 0:18:43.199 face now. Yeah, I guess the scorecard on winners and 0:18:43.240 --> 0:18:46.359 losers just yet to come. The guys down scoring the 0:18:46.400 --> 0:18:49.000 tax lell change. They only have limited amount of information 0:18:49.040 --> 0:18:51.560 to deal with this. But at the end of the day, 0:18:52.720 --> 0:18:56.120 corporate rates are going down, but we don't know how 0:18:56.240 --> 0:18:58.800 much corporate taxes. Well, but I'll let me push back 0:18:58.840 --> 0:19:01.120 on that a little bit because now people we talk 0:19:01.160 --> 0:19:04.399 about a very high tax rate, No big company pays 0:19:04.480 --> 0:19:08.119 that rate exactly that That was my point absolutely, so 0:19:08.200 --> 0:19:10.440 we had had a discussion about that before that. Even 0:19:10.480 --> 0:19:13.439 though there's a thirty corporate rate, how many companies are 0:19:13.440 --> 0:19:15.639 actually paying at that rate with all the incentives and 0:19:15.640 --> 0:19:19.679 the off shoring. So we'll see, Tony. One thing that 0:19:19.800 --> 0:19:24.080 has loomed large certainly in the credit world is that 0:19:24.280 --> 0:19:27.800 for highly indebted companies, they will not be able to 0:19:28.480 --> 0:19:32.280 deduct all of their interest. This could potentially, frankly, I 0:19:32.280 --> 0:19:34.920 mean life or death for some of the smaller, more 0:19:35.000 --> 0:19:36.639 levered companies. I mean you think about the Toys r 0:19:36.720 --> 0:19:39.120 US for example, they would have probably gone into bankruptcy 0:19:39.240 --> 0:19:41.800 earlier if they couldn't deduct as much of their interest 0:19:41.880 --> 0:19:44.359 as they could. What are you hearing about that? Well, 0:19:44.480 --> 0:19:47.200 the proposal we saw yesterday builds in a safeguard, so 0:19:47.320 --> 0:19:50.359 any company with average re seats in less than twenty 0:19:50.359 --> 0:19:52.159 five million is not going to be subject to the 0:19:52.200 --> 0:19:55.840 interest limitation. But yeah, any anybody beyond that. What they're 0:19:55.840 --> 0:19:58.600 trying to do, um, it's really kind of threefold. I mean, 0:19:58.800 --> 0:20:01.040 number one, that need a way to pay for these 0:20:01.040 --> 0:20:04.120 corporate tax cuts, right, so you raise some additional revenue 0:20:04.119 --> 0:20:07.639 by the denying deduction for interest expense. Uh. Number Two, 0:20:08.400 --> 0:20:12.480 you're trying to shift the dependency on debt away and 0:20:12.640 --> 0:20:17.080 have more infusion of capital rather than loans into corporations. 0:20:17.240 --> 0:20:20.160 And then three you're simplifying the tax law a bit 0:20:20.240 --> 0:20:23.720 because you no longer have incentive to set up a 0:20:23.760 --> 0:20:27.040 foreign affiliate loan money to the US and then strip 0:20:27.080 --> 0:20:29.919 earnings out by paying interest to a tax in different countries. 0:20:29.920 --> 0:20:32.040 And so they're going to move forward with this, at 0:20:32.119 --> 0:20:33.840 least that's what they're saying at this point. It was 0:20:33.840 --> 0:20:36.520 certainly in the proposal yesterday, and again it's it's a 0:20:36.600 --> 0:20:40.520 key part of paying for these huge corporate tax rate reductions, 0:20:40.520 --> 0:20:45.040 because the rate reduction a loan from thirty is at 0:20:45.080 --> 0:20:47.640 one point eight trillion dollar tax cut over ten years, 0:20:47.680 --> 0:20:51.200 and the maximum size of all of these cuts, business, individual, 0:20:51.359 --> 0:20:54.280 foreign what have you can only top out at one 0:20:54.280 --> 0:20:56.280 point five trillions. So you've got to come up with 0:20:56.320 --> 0:20:58.800 pay for us. Dave, our company is going to be 0:20:58.840 --> 0:21:04.320 filing their tax on postcards. I doubt it's what about individuals? 0:21:04.560 --> 0:21:07.160 There may be a few that will go the postcard route, 0:21:07.359 --> 0:21:09.159 but right now we have a lot of those anyway. 0:21:09.520 --> 0:21:13.320 Really okay, Well, I'm just wondering from your perspective, this 0:21:13.359 --> 0:21:16.720 bill gets dropped. It's November. They're looking to pass this 0:21:16.800 --> 0:21:18.320 by the end of the year. They want to implement 0:21:18.359 --> 0:21:20.840 it as quickly as possible because I need delay. Uh, 0:21:20.960 --> 0:21:23.600 sort of pushes back any potential growth that could come 0:21:23.680 --> 0:21:25.880 from this. How do you guys deal with that? Day 0:21:26.480 --> 0:21:28.879 We're gonna be spending a lot of hours dissecting the rules, 0:21:28.920 --> 0:21:31.199 watching the changes. At the end of the day, we 0:21:31.240 --> 0:21:33.160 also need to be aware of the regulations that will 0:21:33.200 --> 0:21:37.359 follow these rules, because it may be beneficial on paper 0:21:37.440 --> 0:21:40.040 in the basic code, but once the legs are done, 0:21:40.160 --> 0:21:43.359 it could look completely different. So being aware and that 0:21:43.440 --> 0:21:45.639 makes those business decisions with our clients is gonna be 0:21:45.680 --> 0:21:49.280 very important, Tony. And just from your experience, how much 0:21:49.320 --> 0:21:51.840