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U.S. Economy Is Better Than Bonds Think: Joe Davis · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you
• 0:05
  Speaker 1: along with my co host Lisa Brahma Waits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. We got a better than expected
• 0:22
  Speaker 1: headline number out of today's jobs report, we got weaker
• 0:25
  Speaker 1: than expected growth in wages. The market initially took this
• 0:30
  Speaker 1: as a positive report, albeit pretty much in line with expectations,
• 0:35
  Speaker 1: but subsequently President Trump came out and said that the
• 0:38
  Speaker 1: Federal Reserve should drop rates and stop quantitative tightening, even
• 0:42
  Speaker 1: though the economic numbers were very very good. Joining us now,
• 0:46
  Speaker 1: Joseph Davis, chief economist at Vanguard, We are so glad
• 0:50
  Speaker 1: that you can join us. Before we get into the
• 0:52
  Speaker 1: jobs report itself, what do you think, Joe, of the
• 0:55
  Speaker 1: idea of the Federal Reserve cutting rates right now at
• 0:59
  Speaker 1: the point in the credit cycle. Well, it's it's not
• 1:03
  Speaker 1: of view that I would um entertain too strongly. I mean,
• 1:07
  Speaker 1: I think if you look at the where the Fed
• 1:09
  Speaker 1: funds rate should be. I think it's the Federal Reserve
• 1:12
  Speaker 1: is is really navigating a global slowdown and trying to
• 1:15
  Speaker 1: maintain the length of this expansion. And so our view
• 1:19
  Speaker 1: continues to be that the Fed funds rate is close
• 1:21
  Speaker 1: to where it should be. Um. And if there's if
• 1:24
  Speaker 1: you would push me to say where the next move
• 1:26
  Speaker 1: should be, I would say maybe one hike higher rather
• 1:31
  Speaker 1: than cutting rates, because the fundamentals of the economy we're
• 1:35
  Speaker 1: still accommodative. The long story short, I don't see urgent
• 1:39
  Speaker 1: need for the Center Reserve the cut rates. So UM,
• 1:43
  Speaker 1: was there anything in this job's report today that changes
• 1:46
  Speaker 1: your outlook fundamentally? Now? If anything that you probably a
• 1:49
  Speaker 1: little bit of side relief, to be honest, I mean,
• 1:52
  Speaker 1: you know, we went into the year saying we were
• 1:53
  Speaker 1: going to see gross scares in the market, slowdown in
• 1:56
  Speaker 1: the global economy, but we hoped that the expected that
• 2:00
  Speaker 1: the labor market would show signs a deceleration, but we
• 2:04
  Speaker 1: won't see material cracks. Now. The disappointed number we saw
• 2:07
  Speaker 1: last month gives one pause in that assessment. So to
• 2:12
  Speaker 1: see the rebound in somewhat volatile data today I think
• 2:16
  Speaker 1: was more of a sigh of relief. Uh, And I
• 2:19
  Speaker 1: think a medication that yes, we will have choppy waters here,
• 2:23
  Speaker 1: but we're not going into recession. I mean, some of
• 2:25
  Speaker 1: the mature early bed would have to happen in the
• 2:28
  Speaker 1: global economy, I think, to take down the U S
• 2:31
  Speaker 1: economy at this point. So here's what I'm struggling with.
• 2:34
  Speaker 1: A lot of people dismiss President Trump's call for the
• 2:37
  Speaker 1: Fed to drop rates and stop q QT as being
• 2:41
  Speaker 1: a little outrageous at this point in the cycle. People
• 2:44
  Speaker 1: saying that's not needed, that's right now, you're seeing solid
• 2:47
  Speaker 1: job growth, etcetera. Bond markets agree with him. Bond markets
• 2:51
  Speaker 1: right now are pricing in more than a fifty chance
• 2:54
  Speaker 1: that the Federal Reserve will cut rates before year end.
• 2:57
  Speaker 1: And it's it's rising after this job's report, even though
• 3:00
  Speaker 1: people say that it indicates ongoing strengthen the economy. How
• 3:03
  Speaker 1: do you square that well, I think you know the times,
• 3:06
  Speaker 1: there are differences of opinion. I mean, you know, it's
• 3:08
  Speaker 1: always uh, you always had to be a little bit
• 3:10
  Speaker 1: wary saying that the bond market is wrong. Uh. Uh,
• 3:13
  Speaker 1: it's a very efficient market. But that also doesn't mean
• 3:15
  Speaker 1: the treasury markets accurate. All the time, I think, you know,
• 3:18
  Speaker 1: the financial condition deterioration we saw at the end of
• 3:22
  Speaker 1: last year and in January a significant fall and risky
• 3:26
  Speaker 1: assets and the equity market. Um, you know that clearly
• 3:29
  Speaker 1: took UH some momentum out of the sales of of
• 3:34
  Speaker 1: of what the FED I think was was hoping to do.
• 3:37
  Speaker 1: And so I think we're closer. I you know, we're
• 3:39
  Speaker 1: closer to where the Fed's forecast is rather than the
• 3:42
  Speaker 1: bond market. And if we're right that we're not going
• 3:45
  Speaker 1: into recession and the numbers we see today, maybe we'll
• 3:48
  Speaker 1: see somewhat weaker job growth numbers, but nothing below on
• 3:51
  Speaker 1: a trend basis, say below a hundred thousand jobs per month.
• 3:54
  Speaker 1: If we're right, then what what I think could happen
• 3:56
  Speaker 1: is that that anticipation of cuts and rates will slowly
• 3:59
  Speaker 1: be priced out of the of the bond market. I
• 4:02
  Speaker 1: think the key wild card is actually outside the United States.
• 4:04
  Speaker 1: And do we see UH stabilization in China's growth picture,
• 4:08
  Speaker 1: because right now we don't have strong evidence of that. So, Joe,
• 4:11
  Speaker 1: we are now in the tenth year of this economic cycle,
• 4:14
  Speaker 1: which I think is long by most standards. What do
• 4:17
  Speaker 1: you think is different this time? If anything. Structurally well,
• 4:20
  Speaker 1: I think the one thing that is different has just
• 4:22
  Speaker 1: been the fact that the recovery's pace has been fairly tepid.
• 4:26
  Speaker 1: So um, you know typical expansions, you know that haven't
• 4:31
  Speaker 1: involved significant consumer deleveraging. You've had rapid growth out of
• 4:35
  Speaker 1: the recession. Um, the set of reserve not the only factor,
• 4:39
  Speaker 1: but has clearly then been much more aggressive and tightening.
• 4:42
  Speaker 1: I think, um the low pace of inflation as well
• 4:46
  Speaker 1: as the low pace of economic growth can in large
• 4:49
  Speaker 1: part explain why we're into the tent Yer recession. Unless
• 4:52
  Speaker 1: things go fundamentally wrong, we could we could still be
• 4:55
  Speaker 1: talking about the fact that's the eleventh year of expansion
• 4:57
  Speaker 1: this time next year. Again, we're not Pollyanna um and
• 5:01
  Speaker 1: and the risks still remain on growth on the downside.
• 5:03
  Speaker 1: But I think it's the peppe paste of growth that
• 5:05
  Speaker 1: explains the duration and magnitude of it. Just to entertain
• 5:09
  Speaker 1: this idea of a really easy monetary policy or keeping
• 5:13
  Speaker 1: rates UH low or even going lower at this point,
• 5:17
  Speaker 1: I have to look at the lack of wage growth
• 5:19
  Speaker 1: that we've seen and that is ongoing, despite the fact
• 5:22
  Speaker 1: that headline numbers are beating expectations. Even amid and otherwise
• 5:26
  Speaker 1: decelerating US economy. Do you think that that changes the
• 5:31
  Speaker 1: scenario the backdrop for the Federal Reserve. It means that
• 5:35
  Speaker 1: perhaps past models don't hold true given the fact that
• 5:38
  Speaker 1: they were based on the Phillips curve. Yeah, well, you know,
• 5:41
  Speaker 1: we've done a lot of work on the selfs curve.
• 5:42
  Speaker 1: Is a great question. You know, it's it's still exists,
• 5:45
  Speaker 1: but you have to control for a lot of factors
• 5:47
  Speaker 1: to see that. Your relationship and you know, wage growth.
• 5:50
  Speaker 1: In our mind for the past year, we said that
• 5:52
  Speaker 1: wage growth should be around three percent because that's based
• 5:56
  Speaker 1: upon where productivity as we estimate it at best around
• 5:59
  Speaker 1: one in the US, and then you overlay an inflation
• 6:02
  Speaker 1: target around one and half to two percent, and so
• 6:05
  Speaker 1: you should be around three percent. Now you can you
• 6:08
  Speaker 1: can also like clearly above and below that. But um,
• 6:11
  Speaker 1: you know, we we expect wage growth to maybe modestly
• 6:16
  Speaker 1: inch up of the rest of the year, but we
• 6:17
  Speaker 1: would be hard pressed to see four percent wage growth.
• 6:20
  Speaker 1: And unless we see a material rise in productivity, I
• 6:23
  Speaker 1: think eventually we'll see a rebound there. And when I
• 6:26
  Speaker 1: say higher proactivity, it means workers are even more productive
• 6:29
  Speaker 1: than they currently are and hence they see, you know,
• 6:31
  Speaker 1: higher wage increases in firms reward that productivity. But we're
• 6:35
  Speaker 1: not there yet, and so I actually think wages are
• 6:38
  Speaker 1: where they should be. And a great example of that
• 6:40
  Speaker 1: is to look at places like Japan, where you have
• 6:42
  Speaker 1: record low unemployment rates, yet given their inflation expectations and productivity,
• 6:47
  Speaker 1: wage growth is even below where it is in the US.
• 6:50
  Speaker 1: Joe Davis, thank you very much. Joe Davis is chief
• 6:53
  Speaker 1: Global Econmerce for the Van Guard Vanguard Group, joining us
• 6:56
  Speaker 1: from Malvern, Pennsylvania. And I think it's interesting, Lisa that
• 6:59
  Speaker 1: you bring up that day on the Bloomberg terminal about
• 7:01
  Speaker 1: the high percentage almost uh probability of a rate cut
• 7:05
  Speaker 1: in kind of consistent with what we just heard from
• 7:10
  Speaker 1: the President. Yet uh, there certainly are some economists out there,
• 7:13
  Speaker 1: most notably our Carl, Ricka Donna and others, that think that,
• 7:16
  Speaker 1: given the relative strength of the US economy, that a
• 7:19
  Speaker 1: rate hike UH is probably more likely. So we'll have
• 7:23
  Speaker 1: to see how that plays at And obviously the FED
• 7:25
  Speaker 1: is data dependent, as we heard from Carl, and they
• 7:28
  Speaker 1: will be looking at a future data points coming up
• 7:31
  Speaker 1: to push the agenda forward for the fed well. The
• 7:44
  Speaker 1: Eurozone continues to deal with slowing growth. The uncertainty surrounding
• 7:48
  Speaker 1: Brexit certainly is not helping, and there is ongoing concern
• 7:52
  Speaker 1: in the European banking sector that there may be too
• 7:55
  Speaker 1: much supply of banks in the banking sector in Europe.
• 7:58
  Speaker 1: To help us deal with some of these issues, we
• 8:00
  Speaker 1: welcome our guest. Geneve Fillon is the CEO of BNP
• 8:04
  Speaker 1: Parry by U s A. He joins us in our
• 8:06
  Speaker 1: Bloomberg Interactive Broker studio here in New York. Johnny, thank
• 8:09
  Speaker 1: you so much for joining us. I wonder if we
• 8:11
  Speaker 1: could just start off by getting your sense of how
• 8:15
  Speaker 1: the European economy is doing, and maybe specifically dive into
• 8:19
  Speaker 1: the European banking system under pressure. Certainly I would love
• 8:22
  Speaker 1: to get your thoughts. Well. Thank you for having me.
• 8:24
  Speaker 1: By the way, it's always a pleasure to be here. Um. Well,
• 8:28
  Speaker 1: you said it well. The European economy is uh showing
• 8:31
  Speaker 1: some slowdown. In the Eurozone is expected to grow g
• 8:36
  Speaker 1: d P groles at best one uh, it's only Europe,
• 8:41
  Speaker 1: by the way, there is a slut in Asia or
• 8:43
  Speaker 1: slut in in China. And even though the US economy
• 8:46
  Speaker 1: is doing really well. It's not you know, running in
• 8:49
  Speaker 1: a vacuum and it's being impacted by by what's happening there. Um,
• 8:54
  Speaker 1: then it's it's just a factor. Um. You mentioned European
• 8:57
  Speaker 1: banking industry. I think it's important to uh highlight the
• 9:02
  Speaker 1: fact that since the eleven crisis and under the leadership
• 9:07
  Speaker 1: of the Central Bank, the European banking industry has been better,
• 9:11
  Speaker 1: you know, uh capitalized, is probably more liquid and has
• 9:15
  Speaker 1: made progress. Having said that, UM, this is an environment
• 9:19
  Speaker 1: the industry has to deal with. So Johnny Feel, the
• 9:24
  Speaker 1: CEO of BNP Pariba in US, I would love your
• 9:28
  Speaker 1: perspective on negative rate policies and the low rate policies
• 9:32
  Speaker 1: that we have content on an ongoing basis in the US.
• 9:35
  Speaker 1: How much has that been the root cause of a
• 9:39
  Speaker 1: lot of the weakness we've seen in the European banking system. Um,
• 9:43
  Speaker 1: we should go back to the fundamentals here, because the
• 9:45
  Speaker 1: low rate environment we have today and maybe to an
• 9:48
  Speaker 1: extreme in Europe with negative rights, has been a major
• 9:52
  Speaker 1: contributor to creating stimulus. By the way, in the United
• 9:57
  Speaker 1: States and in Europe at a time it was really
• 9:59
  Speaker 1: need in this sense by the way, we've seen convergence
• 10:02
  Speaker 1: between what the FED has been doing here and what
• 10:05
  Speaker 1: the ECB is doing there with the lack of time,
• 10:08
  Speaker 1: because the status of these two economies, you know, have
• 10:11
  Speaker 1: not been exactly the same eighteen months. Europe is about
• 10:14
  Speaker 1: eighteen months behind the US and recovery very true, and
• 10:17
  Speaker 1: this is what we've seen, you know, the FED taking
• 10:19
  Speaker 1: measure on stopping QUI here and probably the e c
• 10:22
  Speaker 1: B being still in a you know, stimulus mode, not
• 10:25
  Speaker 1: through QUEI, but on winding the banalance field at a
• 10:28
  Speaker 1: probably you know, slower pace and really coming back with UM.
• 10:32
  Speaker 1: I would say tools like you know, the t l
• 10:35
  Speaker 1: L t R row which is a way to inject
• 10:37
  Speaker 1: liquid it directly in the banking system that you know
• 10:40
  Speaker 1: might still be required as we probably need to support
• 10:44
  Speaker 1: growth UM even further, maybe to the excellent point you
• 10:48
  Speaker 1: made UM. You know, monetary policy UM is initially made
• 10:54
  Speaker 1: to support economies, not so much to support the banking system,
• 10:58
  Speaker 1: and the banking system I think has to a app
• 11:00
  Speaker 1: to make sure that you know, whichever the goal for
• 11:03
  Speaker 1: supporting the economy is, we we can be there to
• 11:06
  Speaker 1: help and support and help clients. Is a negative right
• 11:09
  Speaker 1: environment sustainable for the many many years. Probably not, but
• 11:13
  Speaker 1: I just wanted to highlight the fact that the lower
• 11:16
  Speaker 1: environment you have here as well as the FED is
• 11:18
  Speaker 1: now UH contemplating basically not hiking anymore and potentially cutting
• 11:24
  Speaker 1: is UH is something that has actually probably helped industries
• 11:28
  Speaker 1: because of supporting the growth. What a politically correct answer, Paul,
• 11:32
  Speaker 1: Because basically, at a time when a lot of people
• 11:34
  Speaker 1: say the negative rate environments killing banks, a nuance to
• 11:37
  Speaker 1: ANSWER's a corporate banker. He knows that this question. So, Johnny,
• 11:40
  Speaker 1: if you know, when we think of BNP Parry Bats
• 11:42
  Speaker 1: obviously one of the major French banks, a major European bank,
• 11:47
  Speaker 1: but maybe people in the US don't know it as well.
• 11:49
  Speaker 1: Tell us about your business here in the US. What
• 11:52
  Speaker 1: is your focus here in US for BNP Pariba. We
• 11:54
  Speaker 1: love the US. We've been here for quite a long time,
• 11:58
  Speaker 1: you know, destinies and the platform we have here. He
• 12:01
  Speaker 1: is actually well balanced between retail. We own a bank
• 12:05
  Speaker 1: in California, Bank of the West, which makes us part
• 12:07
  Speaker 1: of the fabric of this country in one of the
• 12:10
  Speaker 1: most vibrant states in the United States. California as big
• 12:13
  Speaker 1: as France, by the way, in terms of size and
• 12:16
  Speaker 1: the wholesale activity we have out of New York where
• 12:19
  Speaker 1: we serve large institutional clients, corporate clients domestically in the
• 12:25
  Speaker 1: products which we have here, which is fairly large, and
• 12:28
  Speaker 1: obviously our value proposition in cuizes when it's time to
• 12:31
  Speaker 1: serve these corporates. You know, outside of the US and
• 12:34
  Speaker 1: particularly in Europe where we lead in the yoga bound
• 12:38
  Speaker 1: uh market, we have fourteen thou people in the US
• 12:41
  Speaker 1: one four and this is the largest balance sheet allocation
• 12:45
  Speaker 1: of BNBPI by group after France. It's close to groups
• 12:50
  Speaker 1: P revenues and it is really strategic and probably more
• 12:52
  Speaker 1: strategic today as this economy is still benefit from a
• 12:56
  Speaker 1: strong momentum in terms of expansion. So I'm wondering going
• 13:00
  Speaker 1: forward where you see the best opportunity for profitability in
• 13:04
  Speaker 1: the US. Is it in the trading and sales area
• 13:08
  Speaker 1: particularly I know on the on the dead side, is
• 13:11
  Speaker 1: it on originally glans? Where are you seeing opportunities? Well, um,
• 13:15
  Speaker 1: I think that I've served the practice and the platform
• 13:17
  Speaker 1: in the US is to be very centraled around clients,
• 13:21
  Speaker 1: and my growth and expectations for expansions is around the
• 13:26
  Speaker 1: client base one well, and this is very good point,
• 13:31
  Speaker 1: because clients there is a nest, right, it's prural. Then
• 13:34
  Speaker 1: if you look at Bank of the Ways, they have
• 13:35
  Speaker 1: two point five million clients, c IB has d strategic clients,
• 13:40
  Speaker 1: and uh, the more we can continue to support this
• 13:43
  Speaker 1: broad base of client in a growing economy, serving individuals, entrepreneurs,
• 13:49
  Speaker 1: small cat meatcaps with mancos the west and serving large
• 13:52
  Speaker 1: caps with CIB there, with convergence here and somewhere somewhat
• 13:56
  Speaker 1: or white spaces inside. All right, So they basically it
• 13:59
  Speaker 1: sounds like, uh, there's going to be a pretty widespread
• 14:02
  Speaker 1: effort to just get clients in uh one one word answer.
• 14:08
  Speaker 1: Do you think the next move for the Federal Reserve
• 14:10
  Speaker 1: is a rate hike or a rate cut? That there
• 14:13
  Speaker 1: is no one world answer here. That's a good try. No, no,
• 14:18
  Speaker 1: But in fifteen seconds, you know, central bankers are evidence
• 14:23
  Speaker 1: based and react on data and quite independently and quite well.
• 14:27
  Speaker 1: And I think the FED and the CB are doing
• 14:30
  Speaker 1: going to go exactly the same thing onward, look look
• 14:32
  Speaker 1: at data and try to continue to support this economy
• 14:35
  Speaker 1: the best way they can to benefit all industries, including
• 14:38
  Speaker 1: the banking industry. John, you Pion, thank you so much
• 14:41
  Speaker 1: for being with US chief executive Officer of BNP powered
• 14:44
  Speaker 1: by USA and Chairman of the Central Aspect the c
• 14:48
  Speaker 1: i B America's for VNP Party by joining us in
• 14:52
  Speaker 1: our interactive broker's studios. Today is Jobs Day. It also
• 15:06
  Speaker 1: is a day in which President Trump is discussing FED
• 15:10
  Speaker 1: policy and ongoing talks with China. So very much UH
• 15:15
  Speaker 1: Washington d C Front in focus today Chris Lee joining us,
• 15:19
  Speaker 1: now senior fellow at the University of Virginia Miller Center,
• 15:22
  Speaker 1: also former Deputy Secretary of Labor under President Obama. Chris,
• 15:27
  Speaker 1: thank you so much for being with us. We want
• 15:30
  Speaker 1: to get to a piece that you wrote for Newsday
• 15:33
  Speaker 1: that is really interesting. Before we get there, do you
• 15:36
  Speaker 1: have an initial read on today's jobs report and the
• 15:39
  Speaker 1: idea that the Fed should cut rates as President Trump
• 15:41
  Speaker 1: said going forward? You know what a couple a couple
• 15:45
  Speaker 1: of months that we were talking about the said raising rates,
• 15:47
  Speaker 1: and now we're talking about said cutting rates. You know, Look,
• 15:50
  Speaker 1: I don't we always say don't read too much into
• 15:53
  Speaker 1: one month. I think last month, you know, was a
• 15:55
  Speaker 1: blipped down. Um, I want to see a couple more
• 15:58
  Speaker 1: months of job growth. We've seen over the first three
• 16:01
  Speaker 1: months of this year. Uh the economy is averaging about
• 16:03
  Speaker 1: a hundred and eighty thousand. That's pretty good. That's kind
• 16:06
  Speaker 1: of right where we ought to be. Uh. So I
• 16:08
  Speaker 1: would if I were advising the set, I would just
• 16:09
  Speaker 1: tell them to keep things where they are, see a
• 16:11
  Speaker 1: couple more months before we make decisions on interest rate
• 16:15
  Speaker 1: hikes or cuts. Chris, I know, a couple of days
• 16:18
  Speaker 1: ago you wrote an opinion piece in Newsday talking about
• 16:23
  Speaker 1: security clearances, why they matter, and just security protocols overall,
• 16:27
  Speaker 1: why they matter in the White House, any white House.
• 16:30
  Speaker 1: How is the Trump White House different in terms of
• 16:33
  Speaker 1: traditional security clearances and protocols. Yes, So let me give
• 16:37
  Speaker 1: you a little bit of context. Before I was the
• 16:39
  Speaker 1: Deputy Secretary of Labor, I managed President Obama's cabinet. Before that,
• 16:44
  Speaker 1: I managed his presidential transition. So I've seen the security
• 16:47
  Speaker 1: clearance um both coming into office in two thousand nine
• 16:51
  Speaker 1: and then processing all of the people who served in
• 16:53
  Speaker 1: the White House. This is a process that's handled by
• 16:57
  Speaker 1: career professionals who work in the White House and the
• 16:59
  Speaker 1: different UM intelligence agencies. It's exhaustive. UM. I was cleared
• 17:04
  Speaker 1: three different times when I worked for Barack Obama. UM
• 17:08
  Speaker 1: it's not only you know, exhaustive information about your job
• 17:12
  Speaker 1: history and financial information, foreign contexts, drug use, alcohol use, UM.
• 17:17
  Speaker 1: They go out and talk to your associates, friends, colleagues, neighbors, UM,
• 17:21
  Speaker 1: and they gather a lot of information. And career professionals
• 17:24
  Speaker 1: make these decisions. And the reason they spent so much
• 17:27
  Speaker 1: time on this is that when you're cleared for you know,
• 17:29
  Speaker 1: top secret access to information, you have access to some
• 17:33
  Speaker 1: of the most sensitive information in the US government. These
• 17:36
  Speaker 1: are this is information that's been gathered at great financial
• 17:39
  Speaker 1: costs and often at a cost to the people that collected.
• 17:43
  Speaker 1: So you want to make sure it gets in the
• 17:44
  Speaker 1: hands of people who deserve it. So earlier this week, UM,
• 17:48
  Speaker 1: there was a whistleblower who indicated at least twenty and
• 17:50
  Speaker 1: at least twenty five cases in the White House. UM
• 17:53
  Speaker 1: career officials denied the security clearances for White House officials,
• 17:57
  Speaker 1: and then those were overruled by political folks above them.
• 18:01
  Speaker 1: And so you know, look, this is it's sometimes hard
• 18:04
  Speaker 1: to keep track of what really matters in Washington. This
• 18:07
  Speaker 1: should really matter, and this should matter regardless of what
• 18:09
  Speaker 1: party you're a member of. Why what are the potential consequences. Well, look,
• 18:15
  Speaker 1: part of the reason why, UM, this process is so exhaustive. UM,
• 18:19
  Speaker 1: if you want to make sure people don't have vulnerabilities,
• 18:21
  Speaker 1: they don't have weaknesses, because foreign governments, foreign adversaries are
• 18:26
  Speaker 1: looking to exploit those weaknesses to get access to this information.
• 18:30
  Speaker 1: And if you've got something in your past personal issues,
• 18:33
  Speaker 1: financial issues, if you've got to set the foreign context, UM,
• 18:36
  Speaker 1: that makes it easier to manipulate you. UM. And so again,
• 18:40
  Speaker 1: as I said, this information comes at great cost to
• 18:43
  Speaker 1: the US government, and we want to make sure it
• 18:44
  Speaker 1: gets into the hands only of those people who can
• 18:47
  Speaker 1: be trusted. So, Chris, I know this, uh, this report
• 18:51
  Speaker 1: that came out and sited quote to senior White House officialist,
• 18:55
  Speaker 1: I guess they were presumed to be uh Trump's uh
• 18:59
  Speaker 1: daughter Ivancantre and son in law Jared Kushner got their
• 19:02
  Speaker 1: clearances only after the intervention of President Trump. How common
• 19:06
  Speaker 1: is that type of arrangement. Well, it's incredibly unusual. I mean,
• 19:10
  Speaker 1: I look, I'm not aware of a single instance where
• 19:13
  Speaker 1: UM a security clearance denial was overturned during the Obama administration.
• 19:18
  Speaker 1: I know that, UM, subsequent reporting is indicated there may
• 19:20
  Speaker 1: have been one or two, and it dealt with, you know,
• 19:23
  Speaker 1: an initial denial based on drug use that was then overturned.
• 19:26
  Speaker 1: But these are overturned like at a very low level,
• 19:29
  Speaker 1: you know, and you know, different administrations sort of look
• 19:31
  Speaker 1: at particularly drug use in sort of different ways. I
• 19:34
  Speaker 1: am not aware, and I don't think I've seen any
• 19:36
  Speaker 1: reporting indicating that a previous president has overturned one of
• 19:41
  Speaker 1: these rulings. Uh. And obviously doing it for your family
• 19:44
  Speaker 1: member raises a whole other set of issues, and so, um, yes,
• 19:47
  Speaker 1: it should be concerning. What's interesting though, with regard to
• 19:50
  Speaker 1: Jared Kushner is that while his top secret clearance denial
• 19:54
  Speaker 1: was overturned, now his top secret clearance UM. There's an
• 19:57
  Speaker 1: additional level of clearance the the CIA offers UM. It's
• 20:01
  Speaker 1: called s c I clearance. Apparently they have not given
• 20:05
  Speaker 1: him that clearance. So one of his parts, one of
• 20:08
  Speaker 1: the parts of his portfolios to negotiate Middle East peace,
• 20:12
  Speaker 1: and he's doing that without with access to some information
• 20:15
  Speaker 1: which is sensitive, but not to all of the information.
• 20:17
  Speaker 1: So that's a little odd. We're speaking with Chris Lew
• 20:20
  Speaker 1: Senior fellow at the University of Virginia Miller Center. He
• 20:22
  Speaker 1: also has a twenty year career in public service in
• 20:26
  Speaker 1: the highest echelons of the Obama administration and before that
• 20:30
  Speaker 1: eight years working for Representative Henry Waxman is Deputy Chief Council.
• 20:34
  Speaker 1: I'm just wondering, given your extensive experience and your extensive
• 20:37
  Speaker 1: roots in Washington, d C. How many old timers are
• 20:41
  Speaker 1: there left? In other words, given some of the institutional
• 20:45
  Speaker 1: knowledge that is built up over time, how much of
• 20:47
  Speaker 1: that remains in Washington today? Well, not much of it.
• 20:51
  Speaker 1: And I think it's the challenge in a social media
• 20:54
  Speaker 1: environment to sort of try to put the context what
• 20:57
  Speaker 1: is happening, and what matters and what doesn't matter, you know, Um,
• 21:01
  Speaker 1: I mean, if you think about sort of the news
• 21:03
  Speaker 1: of this past week. Um. The other one of the
• 21:05
  Speaker 1: other big news items is that House Democrats requested um,
• 21:09
  Speaker 1: President Trump's tacks returns. Well, it's worth noting for history
• 21:12
  Speaker 1: purposes that president's going back to Richard Nixon, have either
• 21:17
  Speaker 1: disclosed their tax returns when they are running for office
• 21:20
  Speaker 1: or shortly after becoming president. And so yes, I know,
• 21:23
  Speaker 1: in the kind of the swirl of social media, we
• 21:26
  Speaker 1: love to say everything is unprecedented, but sometimes you have
• 21:29
  Speaker 1: to look in the lens of history and say, Okay,
• 21:31
  Speaker 1: really what is where are the norms? And where is
• 21:34
  Speaker 1: this president's actions conduct words outside of that norms? And
• 21:38
  Speaker 1: and so it's sometimes hard because, as you say, there
• 21:40
  Speaker 1: aren't a lot of people now in Washington who have
• 21:43
  Speaker 1: that historical uh knowledge. Well, Chris, the you know, the
• 21:47
  Speaker 1: House Oversight Committee is looking at the security clearance issue.
• 21:51
  Speaker 1: What's the endgame here for them? Can they affect any change?
• 21:55
  Speaker 1: We revoke anything? Do they have any power? Well, look,
• 21:59
  Speaker 1: they've issued subpoenas to the supervisor who was in charge
• 22:03
  Speaker 1: of overturning um a lot of these denials. Uh. They've
• 22:06
  Speaker 1: also asked for copies of memos on this subject. According
• 22:10
  Speaker 1: to news reporting, former Chief of Staff John Kelly um
• 22:13
  Speaker 1: put in writing his concerns about Jared Kushner getting a clearance.
• 22:18
  Speaker 1: So it'll be interesting to see where they get all that.
• 22:20
  Speaker 1: So there will be a fight back and forth about
• 22:22
  Speaker 1: whether these witnesses testify, about whether those documents are turned over. Ultimately,
• 22:27
  Speaker 1: Congress can legislate on this issue. I mean, it is
• 22:29
  Speaker 1: true that the president has the authority to grant a
• 22:32
  Speaker 1: clearance to whoever he wants, but I suspect Congress will
• 22:35
  Speaker 1: try to put greater checks into that and at the
• 22:37
  Speaker 1: very least require some kind of notification to Congress before
• 22:41
  Speaker 1: that happens. Chris Lew, thank you so much. Chris lewis
• 22:44
  Speaker 1: a senior fellow at the University of Virginia Miller Center,
• 22:47
  Speaker 1: and he's also a former Deputy Secretary of Labor under
• 22:50
  Speaker 1: President Obama. Well, there are a bunch of I p
• 23:04
  Speaker 1: o s lined up the initial public offerings that we've
• 23:07
  Speaker 1: seen so far. We've seen LIFT, we've seen trade Web.
• 23:10
  Speaker 1: They've generally been pretty well received, although LIFT has been
• 23:12
  Speaker 1: a little bit rockier. But Blue Apron might be sending
• 23:16
  Speaker 1: a very interesting and perhaps inauspicious message to the I
• 23:21
  Speaker 1: p o s that are lined up for later this year.
• 23:23
  Speaker 1: Sarah Ponzack, crocess, reporter for Bloomberg News, joins us now
• 23:27
  Speaker 1: uh to discuss why that may be. So discuss what
• 23:30
  Speaker 1: happened with Blue April. So Blue Apron can be a
• 23:33
  Speaker 1: cautionary tale. If you look at Blue Apron, since it's
• 23:36
  Speaker 1: I p O. I mean, this is a stock that
• 23:39
  Speaker 1: trades at a dollar, it's down, and when you consider
• 23:43
  Speaker 1: the fact that they originally we're talking about pricing at
• 23:46
  Speaker 1: a much higher level and the only reason they didn't
• 23:48
  Speaker 1: was because that was right around the time that Whole
• 23:51
  Speaker 1: Foods and Amazon we're talking about teaming up. Then it
• 23:53
  Speaker 1: would be about drop for Blue Apron, and it has
• 23:57
  Speaker 1: not been that long. It's only been since. So the
• 24:00
  Speaker 1: way you can look at this is that Blue Apron,
• 24:03
  Speaker 1: interestingly enough, yes it is a meal kit service, it's
• 24:06
  Speaker 1: a food delivery service, but it's also very much grouped
• 24:09
  Speaker 1: in with potential high growth companies, also with tech companies,
• 24:13
  Speaker 1: because it's supposed to be disruptive, it's supposed to be
• 24:15
  Speaker 1: a disruptor, and that's along the lines of a lot
• 24:19
  Speaker 1: of the companies that we are seeing come to market
• 24:22
  Speaker 1: this year potentially. I mean take Lift for example. No,
• 24:24
  Speaker 1: Lift has nothing to do with food, but they are
• 24:29
  Speaker 1: a bride sharing service and that's supposed to be disrupted
• 24:31
  Speaker 1: to the auto industry potentially. Um same thing with Uber,
• 24:34
  Speaker 1: and then you think of other UH companies like maybe Pinterest,
• 24:38
  Speaker 1: Slack coming out later this year. They all are very
• 24:41
  Speaker 1: niche in a way. So some are saying you can
• 24:44
  Speaker 1: look at Blue Apron, and yes, you have to say
• 24:47
  Speaker 1: it is clearly a very different type of company, But
• 24:50
  Speaker 1: look at the rough year and a half about that
• 24:53
  Speaker 1: it's had, and what does that mean for all of
• 24:56
  Speaker 1: the unicorns that we have heard are going to go
• 24:59
  Speaker 1: public this year. I think what it clearly says is
• 25:01
  Speaker 1: if you don't just in case of Blue Apron, if
• 25:03
  Speaker 1: if you don't deliver on what you say you're going
• 25:05
  Speaker 1: to do in your I p O road show, this
• 25:06
  Speaker 1: market will absolutely pound the stock. And I think for Lift,
• 25:10
  Speaker 1: just you know Lisa mentioned Lift in the intro, it
• 25:13
  Speaker 1: is we have to note it's back above the seventy
• 25:15
  Speaker 1: two I p O price at seventy five and change
• 25:17
  Speaker 1: here today, So maybe it's maybe this one's found a
• 25:20
  Speaker 1: little bit of a footing. But what I did here
• 25:22
  Speaker 1: in the aftermath of the Lift and be interesting get
• 25:24
  Speaker 1: your your sense, Sarah, is for Lift, for example, you know,
• 25:28
  Speaker 1: here's a company that lost a billion dollars last year.
• 25:31
  Speaker 1: It's really unclear about when they're going to actually achieve profitability.
• 25:35
  Speaker 1: So yes, I get the top lines growing, but I
• 25:38
  Speaker 1: don't have a real path or a real good sense
• 25:40
  Speaker 1: of a path to profitability. That could be a problem.
• 25:43
  Speaker 1: I think for not only Lift that we've seen, but
• 25:45
  Speaker 1: maybe some of these other companies. Well that's the common
• 25:47
  Speaker 1: denominator here. Blue Apron has never had a quarter of profits.
• 25:51
  Speaker 1: Lift has not either. Uber hasn't either. So these companies,
• 25:55
  Speaker 1: they have to believe that investors are going to take
• 25:58
  Speaker 1: a bet that, no, they're not turning profits right now,
• 26:00
  Speaker 1: but they will eventually be profitable and it's going to
• 26:04
  Speaker 1: be worth it. But a lot of investors are starting
• 26:06
  Speaker 1: to realize that maybe it's going to take a little
• 26:09
  Speaker 1: bit longer for these companies to actually grow into their profits,
• 26:12
  Speaker 1: actually turn profits then they believed at the start of it.
• 26:16
  Speaker 1: And that's why a lot wait, wait, wait, wait, wait,
• 26:18
  Speaker 1: I'm sorry to interrupt you. Is there any evidence of
• 26:21
  Speaker 1: that of investors actually showing skepticism here? So some that
• 26:25
  Speaker 1: I've spoken with, I mean, the issue is they're having
• 26:26
  Speaker 1: a hard time with valuations. I mean a lot of
• 26:29
  Speaker 1: people are looking at these companies and saying, I honestly
• 26:32
  Speaker 1: don't know what to value Lift at. Yes, we're trading
• 26:34
  Speaker 1: back aub of the I p O price, But it's
• 26:36
  Speaker 1: difficult because you can promise on your road show, you
• 26:39
  Speaker 1: can promise when you I p O that you're eventually
• 26:41
  Speaker 1: going to be profitable, but there's a little skepticism. So
• 26:44
  Speaker 1: there's skepticism, but they're still buying at the very high valuations,
• 26:47
  Speaker 1: and they're still sending stocks higher. So even with this
• 26:51
  Speaker 1: lack of conviction around the company's outlook, they're still actively
• 26:56
  Speaker 1: pushing up prices. They are, but we also have to
• 26:59
  Speaker 1: remember we're only a week into lift trading. UB essentially
• 27:03
  Speaker 1: lots of broad assumptions about the broad market about this. Yes, no,
• 27:08
  Speaker 1: it's only been a week, so it's hard to take
• 27:10
  Speaker 1: away exactly what's going to happen. But UBS, interestingly enough,
• 27:13
  Speaker 1: they put out our report this week that kind of
• 27:15
  Speaker 1: dived into the typical on average trading reactions of I
• 27:18
  Speaker 1: p o s and they found that the first day,
• 27:20
  Speaker 1: the first week, you typically have really good play because
• 27:23
  Speaker 1: people are excited. Still, people are still really pumped up
• 27:26
  Speaker 1: about this new company that has so much hype around
• 27:28
  Speaker 1: it coming to market. Where you start to see it
• 27:32
  Speaker 1: really start to potentially lose traction is in the six
• 27:35
  Speaker 1: month mark out to three years, because on average, typically
• 27:38
  Speaker 1: an I p O is actually lower the market return,
• 27:42
  Speaker 1: the risk adjusted return over that period is lower than
• 27:44
  Speaker 1: the market because people start to become a little bit
• 27:47
  Speaker 1: more skeptical, the excitement fades away. So it's hard to
• 27:51
  Speaker 1: really take this all away from Lift for example. Right now,
• 27:55
  Speaker 1: it's too soon to tell. We're going to have to
• 27:57
  Speaker 1: see what actually happens. And with the other Uni corns
• 28:00
  Speaker 1: that are supposed to come out this year too, because
• 28:03
  Speaker 1: they are names that have so much push and so
• 28:07
  Speaker 1: much support and hype surrounding them that it's also kind
• 28:10
  Speaker 1: of hard to live up to that, right, We'll have
• 28:13
  Speaker 1: to see. Sarah pon SEC. Thank you so much, Sarah's
• 28:15
  Speaker 1: across asset reporter for Bloomberg News, joining us live here
• 28:18
  Speaker 1: in the Bloomberg Interactive Broker Studio. Thanks for listening to
• 28:21
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 28:24
  Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
• 28:27
  Speaker 1: you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
• 28:30
  Speaker 1: I'm Lisa A. Bram Woids. I'm on Twitter at Lisa A.
• 28:32
  Speaker 1: Bram Woods One. Before the podcast, you can always catch
• 28:35
  Speaker 1: us worldwide on Bloomberg Radio