Latest / Bloomberg Intelligence / P&L: New Border Taxes Are Biggest Risk to Canada, Wingrove Says

Transcript

P&L: New Border Taxes Are Biggest Risk to Canada, Wingrove Says · Bloomberg Intelligence

• 0:04
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:14
  Speaker 1: you and your money, whether at the grocery store or
• 0:16
  Speaker 1: the trading floor. Find the Bloomberg P L Podcast on iTunes,
• 0:20
  Speaker 1: SoundCloud and at Bloomberg dot com. President Trump this morning
• 0:31
  Speaker 1: signed an order to renegotiate the US trade agreements with
• 0:36
  Speaker 1: Mexico and Canada under NAFTA. I want to get a
• 0:40
  Speaker 1: little bit more insight now on what this means for
• 0:43
  Speaker 1: Canadian US relationships. It's bringing Josh Wingrove, Canada Politics reporter Josh.
• 0:48
  Speaker 1: Do we have a sense of what President Trump might
• 0:52
  Speaker 1: start with in his renegotiation of his Canadian trade deals?
• 0:56
  Speaker 1: I mean defense from the Canadians. Is he going to
• 0:59
  Speaker 1: start with mexic Co and all the industries that are
• 1:02
  Speaker 1: driving what he sees as a trade and balance with
• 1:05
  Speaker 1: Mexico and not Canada. And I think that's what's really
• 1:08
  Speaker 1: going to splinter the nap the path as we know
• 1:12
  Speaker 1: it right now, is that Canada thinks, if not hopes,
• 1:15
  Speaker 1: that it is not the target. The ambassador here or
• 1:18
  Speaker 1: the Canadian ambassador to the US said that they don't
• 1:21
  Speaker 1: want to become the collateral damages Donald Trump makes it
• 1:23
  Speaker 1: takes measures that will address that trade and balance. So
• 1:27
  Speaker 1: for them, I think it's really a wait and see.
• 1:30
  Speaker 1: Canada is the top provider princess of oil for an
• 1:32
  Speaker 1: oil to the US, and they don't think that that
• 1:34
  Speaker 1: will be impacted, So that would at least blunt any
• 1:37
  Speaker 1: initial impact for the Canadian economy. Josh, We're getting a
• 1:40
  Speaker 1: report that Donald the President, Donald Trump's son in law,
• 1:43
  Speaker 1: Jared Kushner, will be going to Calgary for a meeting
• 1:47
  Speaker 1: with Justin Trudeau and his team. He is supposed to
• 1:52
  Speaker 1: travel there tomorrow, where Trudeau and his cabinet are currently
• 1:56
  Speaker 1: holding a two day retreat focused largely on a new
• 2:00
  Speaker 1: US administration. Does send me just having Jared Kushner arrive
• 2:06
  Speaker 1: in Calgary? Does that bode well for US Canada relations? Yeah,
• 2:12
  Speaker 1: I think so. I'm in Calgary now. The meetings here
• 2:15
  Speaker 1: have just kicked off. Steven Schwartzman, was tied to Trump
• 2:18
  Speaker 1: as well, is also here to speak to the Canadian
• 2:21
  Speaker 1: government cabinet about what, if anything he thinks the you know,
• 2:24
  Speaker 1: the m O of this Trump administration is going to be.
• 2:27
  Speaker 1: Kushner and Stephen Bannon have had talks with Justin Trudeau's
• 2:31
  Speaker 1: most senior aids dating back to December. He appears to
• 2:35
  Speaker 1: be sort of the go to guy for Trump when
• 2:38
  Speaker 1: it comes to Canada ties, and so I think that
• 2:40
  Speaker 1: the Canadians are seeing his reported attendance here at this
• 2:43
  Speaker 1: meeting tomorrow as a as a good sign. Josh, can
• 2:47
  Speaker 1: I assume that when you say that Canada is hoping
• 2:49
  Speaker 1: that Mexico is the primary target of this, that Canada
• 2:53
  Speaker 1: is expecting no change to its trade agreements with the
• 2:57
  Speaker 1: US as a results of this, Is that is that right? No,
• 2:59
  Speaker 1: I don't think that that. I think they're expecting that
• 3:02
  Speaker 1: there's no intent to fundamentally change, But their concern is
• 3:06
  Speaker 1: that they're going to be painting with such a wide
• 3:08
  Speaker 1: brush out of Washington that Canada might not be able
• 3:12
  Speaker 1: to avoid getting caught up in things. It would be
• 3:14
  Speaker 1: the biggest risk will be the biggest risk for Canada.
• 3:16
  Speaker 1: The biggest risk or on new border taxes, probably that
• 3:19
  Speaker 1: with the flow of goods across the Canada U s
• 3:22
  Speaker 1: border is staggering and the supply chains are sort of
• 3:26
  Speaker 1: interconnected back and forth in other words, which it can
• 3:29
  Speaker 1: cross the border several times before it actually hits the market,
• 3:32
  Speaker 1: and if you start tagging those back and back, it
• 3:34
  Speaker 1: would throw into disarray the whole scheme at Trudeau's big
• 3:39
  Speaker 1: argument with Trump is that thirty five U S States
• 3:41
  Speaker 1: have Canada as their top export market and they hope
• 3:44
  Speaker 1: that that's our sort of ace in the hole here
• 3:46
  Speaker 1: in Canada. Is there any way that you can kind
• 3:50
  Speaker 1: of quantify the Canadian economy forest right now and the
• 3:54
  Speaker 1: perception of how Justin Trudeau and his Liberals are doing
• 3:58
  Speaker 1: it's sluggish right now. Can that fundamentally has been an
• 4:01
  Speaker 1: oil uh sort of energy economy, and for two and
• 4:03
  Speaker 1: a half years they've been struggling with how to spur
• 4:06
  Speaker 1: that growth. And so any dip or hit from reduced
• 4:10
  Speaker 1: trade with the US, which makes up about seventy of
• 4:13
  Speaker 1: Canada's total trade, would be would be a significant thing.
• 4:17
  Speaker 1: Trudeau is pushing Canada deeper into deficit and a bit
• 4:20
  Speaker 1: to drive growth. That money has been slow going out
• 4:23
  Speaker 1: the door. The data points recently have been mixed, and
• 4:27
  Speaker 1: so really the any US disruption would be viewed by
• 4:30
  Speaker 1: Canada is just sort of another straw on the Canal's
• 4:33
  Speaker 1: back of the economy that's really struggling to pick up team,
• 4:35
  Speaker 1: and you're one what is it, one thirty three Canadian
• 4:39
  Speaker 1: to the dollar. Yeah, that, which has been flagged by
• 4:42
  Speaker 1: Stephen Polas is actually too strong. Our Bank Canada governor
• 4:45
  Speaker 1: here thinks that the if the dollar was weaker, that
• 4:47
  Speaker 1: we'd be seeing a bigger uptick in manufacturing. Canada's typical
• 4:52
  Speaker 1: sort of pendulum is that when plays like Calgary where
• 4:55
  Speaker 1: they're meeting now, where I'm now and which is the
• 4:58
  Speaker 1: oil capital of Canada, when things are down here, manufacturing
• 5:02
  Speaker 1: picks up the flack that right hasn't really happened, and
• 5:05
  Speaker 1: so they're hoping that maybe a lower dollar one day
• 5:07
  Speaker 1: might chool that. Thank you very much for joining us,
• 5:10
  Speaker 1: josh One Grove. He is our Canadian politics reporter joining
• 5:14
  Speaker 1: us from Calgary side of a two day meeting with
• 5:17
  Speaker 1: Justin Trudeau and his Liberal cabinet. McDonald's. McDonald's reported its
• 5:34
  Speaker 1: earnings that exceeded analyst estimates. However, this stock is down
• 5:38
  Speaker 1: about eight tens of a percent, perhaps because of concern
• 5:41
  Speaker 1: over US same store sales they fell one point three percent.
• 5:46
  Speaker 1: But here to tell us all the details, Mike Haylen,
• 5:49
  Speaker 1: senior restaurant analysts for Bloomberg Intelligence, and Mike I I
• 5:53
  Speaker 1: use that word but very carefully here because I read
• 5:57
  Speaker 1: your note this morning and you said, don't look at
• 6:01
  Speaker 1: this near term thing. They're lapping some comps from last
• 6:04
  Speaker 1: year with that All day breakfast. They got bigger problems,
• 6:07
  Speaker 1: don't they. Everyone has bigger problems, Yeah, which we we've
• 6:10
  Speaker 1: written about over the last week, UM, which is demographics. Right,
• 6:14
  Speaker 1: the American population is aging, and they're spending has probably
• 6:19
  Speaker 1: capped out. It's a very large generational cohort um in
• 6:23
  Speaker 1: terms of numbers. They have higher debts than retirees had
• 6:26
  Speaker 1: in the past. So yeah, those are that's the big problem.
• 6:30
  Speaker 1: In terms of their quarter. You know, there is some
• 6:32
  Speaker 1: concern about the same source sales in the US falling
• 6:35
  Speaker 1: one um, you know for the quarter. But that's actually
• 6:39
  Speaker 1: better than what the street had expected. And if you
• 6:41
  Speaker 1: do if you look at what we do is on
• 6:43
  Speaker 1: a two year and a three year trend to kind
• 6:45
  Speaker 1: of smooth out for weather and calendar shifts, UM and
• 6:49
  Speaker 1: large um market and all day breakfasts the more. Yeah, yeah,
• 6:53
  Speaker 1: All day breakfast, and there was a huge marketing push
• 6:55
  Speaker 1: behind it last year. But so when you look at
• 6:57
  Speaker 1: a two year and a three year trend, sale are
• 7:00
  Speaker 1: actually accelerating. So um, you know, with with the um
• 7:04
  Speaker 1: better margins that you're seeing because of their story franchising,
• 7:08
  Speaker 1: you know, the story hasn't changed here. So globally, it's
• 7:11
  Speaker 1: sales accelerated. Where specifically did their sales increase the most? Yeah,
• 7:17
  Speaker 1: they they they were successful in China, Japan and the
• 7:21
  Speaker 1: UK were three of the mortkets that they had mentioned
• 7:23
  Speaker 1: as being strong for them. And and is it just
• 7:25
  Speaker 1: because there wasn't as much penetration in those markets before
• 7:29
  Speaker 1: and they're expanding, Well, the same story of sales numbers
• 7:32
  Speaker 1: come from existing store so um, you know, it could
• 7:35
  Speaker 1: possibly being be that some of the franchisees you know
• 7:39
  Speaker 1: do the refranchising over the last couple of years are um,
• 7:42
  Speaker 1: you know, are are being successful in terms of running
• 7:46
  Speaker 1: better stores. Um there's some um you know, there's still
• 7:50
  Speaker 1: um you know, doing better in Asia where there was
• 7:53
  Speaker 1: some some supply chain issues with chicken and stuff like that.
• 7:55
  Speaker 1: So you're you're comping over some of those issues of
• 8:00
  Speaker 1: the last couple of years. So um that all helps.
• 8:02
  Speaker 1: We you and I were trading some emails Earlier this morning,
• 8:05
  Speaker 1: Mike and I kind of joked about the automat. Why
• 8:09
  Speaker 1: is the automat such an apt reference point for people
• 8:14
  Speaker 1: that don't know you explain, Yeah, well you taught me
• 8:16
  Speaker 1: about the automat. It was a restaurant concept in New
• 8:19
  Speaker 1: York City from decades ago where you would kind of
• 8:21
  Speaker 1: place an order and it would just magically appear and
• 8:24
  Speaker 1: you put your you put you'd put actual coins when
• 8:27
  Speaker 1: coins could actually buy something. Was like little windows, like
• 8:29
  Speaker 1: those little post office you know, where the mail would
• 8:31
  Speaker 1: come in and you would put in your coin and
• 8:33
  Speaker 1: you would be able to take out a piece of
• 8:35
  Speaker 1: pie or whatever, you know, with on a plate. But
• 8:38
  Speaker 1: the reason that's that's relevant is because that is a
• 8:40
  Speaker 1: similar concept in a way to what McDonald's is doing.
• 8:43
  Speaker 1: Explain that the automat was ahead of its time. So yeah,
• 8:46
  Speaker 1: with technology is where a lot of these restaurant chains
• 8:50
  Speaker 1: are moving to kind of help boost their sales. Right. Um,
• 8:55
  Speaker 1: you know, for McDonald's it's a self order kiosks. Millennials
• 8:58
  Speaker 1: don't want to take their ear pods out and talk
• 9:00
  Speaker 1: to anyone, you know, they'd rather just go to the kiosk,
• 9:03
  Speaker 1: you know, you know, hit a few buttons and how
• 9:06
  Speaker 1: their food brought out to them. So this is a
• 9:09
  Speaker 1: big push for McDonald's. UM. Wendy's is another one that
• 9:12
  Speaker 1: that is because it cuts labor costs to right and
• 9:14
  Speaker 1: also speeds of efficiency. We don't see automats today. How
• 9:18
  Speaker 1: effective have these kiosks been, Well, they've been very successful
• 9:23
  Speaker 1: in Europe from McDonald's Frances. What about in the US. Well,
• 9:26
  Speaker 1: the US we've been slow to adopt, right, So labor
• 9:30
  Speaker 1: is much higher as a much higher cost in Europe.
• 9:32
  Speaker 1: So that's why you've seen them push it um there
• 9:35
  Speaker 1: before here, um, but now with minimum wage rates rising
• 9:40
  Speaker 1: over the last handful of years, you know, labor is
• 9:42
  Speaker 1: a bigger cost, so there's more of an incentive. There's
• 9:44
  Speaker 1: a better r o I on these kiosks, so that's
• 9:47
  Speaker 1: why you're seeing chains move that way. Um. Well, this
• 9:50
  Speaker 1: doesn't even have to use the kiosk. You could just
• 9:53
  Speaker 1: use a mobile app, go in and pick it up, right.
• 9:56
  Speaker 1: I mean that's also one of these days there's lines
• 9:59
  Speaker 1: are are going to be a thing of the past.
• 10:00
  Speaker 1: You're just gonna walk in and your food is gonna
• 10:03
  Speaker 1: be waiting for you. So um. You know, we also
• 10:05
  Speaker 1: have these um you know alerts. You know a lot
• 10:08
  Speaker 1: of these apps have alerts. They know when you pull
• 10:10
  Speaker 1: into the drive through and they'll have your they'll they'll
• 10:13
  Speaker 1: start cooking your order as you drive onto the problems,
• 10:16
  Speaker 1: they'll check your previously. Just open your mouth and they
• 10:19
  Speaker 1: throw in an egg McMuffin and you're done right. But
• 10:21
  Speaker 1: they're gonna offer maybe for just for a little bit more.
• 10:23
  Speaker 1: They will offer it to have someone I have breakfast
• 10:26
  Speaker 1: with you. But oh yeah, and and take a napkin
• 10:28
  Speaker 1: and wipe your face if it gets messy. What about
• 10:29
  Speaker 1: other places? What about for example, are they taking a
• 10:32
  Speaker 1: similar que and coming up with sort of self ordering kiosks.
• 10:36
  Speaker 1: They're not moving towards kiosks just yet. They're they're more, um,
• 10:40
  Speaker 1: they're more concerned with the app. And the big thing was,
• 10:42
  Speaker 1: you know, they have the high class problem of long
• 10:44
  Speaker 1: lunch lines. So a big part of that is going
• 10:47
  Speaker 1: to be the order ahead, and they're developing a second
• 10:50
  Speaker 1: make line um that that funnels these electronic orders and
• 10:54
  Speaker 1: get your food ready for you faster. So everyone's going
• 10:57
  Speaker 1: this way. I mean, there's gonna be varying degree of
• 11:00
  Speaker 1: success though we think that you know, McDonald's may have
• 11:02
  Speaker 1: a leg up because they have this technology already implemented
• 11:05
  Speaker 1: in Europe, so they already have a very large test
• 11:09
  Speaker 1: that's gone well, so they have an advantage over somebody
• 11:11
  Speaker 1: like Chipotle who hasn't done it before. Michael Hale and
• 11:14
  Speaker 1: consumer analyst from Bloomberg Intelligence, Thank you so much. I
• 11:17
  Speaker 1: am wondering whether we're ever going to have a day
• 11:20
  Speaker 1: when it's just immediate gratification. We have fast gratification, but
• 11:24
  Speaker 1: this is a whole new level, pimp Fox. Let's turn
• 11:40
  Speaker 1: our attention now to the world of the middle market
• 11:42
  Speaker 1: with Lawrence Gallub. He is the chief executive of Gallub Capital. Lawrence,
• 11:47
  Speaker 1: thanks for being with us here in the studio. Maybe
• 11:49
  Speaker 1: just defined for us what is middle market and then
• 11:53
  Speaker 1: you just in the same context, the information that you
• 11:56
  Speaker 1: glean from your clients you turn into an index that
• 11:59
  Speaker 1: may can reveal something about the economy. Tell us more.
• 12:03
  Speaker 1: The u S middle market refers to companies that have
• 12:06
  Speaker 1: between about ten million dollars a year profit up to
• 12:09
  Speaker 1: a few hundred million dollars a year. Profits generally smaller
• 12:12
  Speaker 1: than what Wall Street or the public markets would pay
• 12:15
  Speaker 1: attention to, but it accounts for one third of US GDP,
• 12:18
  Speaker 1: almost a three trillion dollar market, accounts for more than
• 12:22
  Speaker 1: half of job growth in the United States. Gallup Capital
• 12:25
  Speaker 1: is a lender to U S middle market companies, where
• 12:27
  Speaker 1: the largest non bank lender in the United States, and
• 12:30
  Speaker 1: we have a portfolio of about two hundred different companies
• 12:33
  Speaker 1: that we lend to, and we've created an index with
• 12:37
  Speaker 1: at Altman, a professor at n y U, to track
• 12:39
  Speaker 1: the performance the actual performance of US middle market companies
• 12:43
  Speaker 1: based on actual results from the first two months of
• 12:46
  Speaker 1: each calendar quarter, so we can share that information with
• 12:49
  Speaker 1: the market before earning season really kicks off for public companies.
• 12:52
  Speaker 1: So what are what indications are getting from this index? Well,
• 12:56
  Speaker 1: this quarter profits are a little bit weak. Profits are
• 12:58
  Speaker 1: actually down median profits are down about two and the
• 13:02
  Speaker 1: that weakness is coming from two segments, in particular, restaurants
• 13:07
  Speaker 1: and healthcare services. That's really interesting to me because a
• 13:12
  Speaker 1: lot of people have talked about how the economy is
• 13:15
  Speaker 1: starting to accelerate and there's a clear belief in sort
• 13:18
  Speaker 1: of the reflation of the economy. Could it be that
• 13:20
  Speaker 1: the weakness in these smaller companies is idiosyncratic and separate
• 13:25
  Speaker 1: um or does it sort of bode poorly for some
• 13:28
  Speaker 1: of the bigger companies. Will keep in mind that we
• 13:30
  Speaker 1: only cover about half the industries in the United States
• 13:33
  Speaker 1: with our lending, so we generally don't lend to energy
• 13:35
  Speaker 1: related or commodity related or big bulk manufacturing businesses. And
• 13:40
  Speaker 1: you need to look at its sector by sector to
• 13:42
  Speaker 1: see the trends. Industrial company the US are actually doing
• 13:45
  Speaker 1: pretty well. Profits are up, very consistent with g S
• 13:47
  Speaker 1: earnings announcement that revenues were flatish but profits were up.
• 13:52
  Speaker 1: I think we are dealing in the restaurant sector with
• 13:54
  Speaker 1: a particular set of circumstances that's different from the rest
• 13:58
  Speaker 1: of consumer products. There's really an overcapacity issue and a
• 14:01
  Speaker 1: demand shortfall that's causing counts at restaurants to fall from
• 14:05
  Speaker 1: where they've been historically. One thing that I find fascinating
• 14:08
  Speaker 1: right now is the growing number of pension funds and
• 14:11
  Speaker 1: other large investors who are trying to get into private
• 14:14
  Speaker 1: credit strategies and who are going into middle markets. I'm wondering,
• 14:19
  Speaker 1: from a competitive standpoint, do you think that valuations are
• 14:22
  Speaker 1: getting uh particularly high or that the amount of money
• 14:25
  Speaker 1: that you're seeing is particularly notable. Well, you can look
• 14:27
  Speaker 1: at that in two ways. You can look at purchase
• 14:30
  Speaker 1: multiples by private equity firms of middle market companies and
• 14:33
  Speaker 1: and LBO firms are paying very high multiples for growth.
• 14:37
  Speaker 1: You're seeing double digit multiples for medium sized companies based
• 14:40
  Speaker 1: on the ability or the expectation that eb t A
• 14:43
  Speaker 1: is going to grow through. Add on acquisitions that are
• 14:45
  Speaker 1: creative because they're at lower multiples, or organic growth or
• 14:49
  Speaker 1: green fields. On the credit side, you know, we are
• 14:53
  Speaker 1: seeing pension funds and insurance companies and some sovereign wealth
• 14:56
  Speaker 1: funds looking to deploy more money in a very low
• 14:58
  Speaker 1: interest rate environment, and capital is relatively debt capitals relatively
• 15:02
  Speaker 1: plentiful for good borrowers that are backed by good private
• 15:06
  Speaker 1: equity firms. I just want to bring to your attention
• 15:10
  Speaker 1: at Bloomberg headline that Etna's humanity takeover has been blocked
• 15:14
  Speaker 1: by a judge as anti competitive, and the shares of
• 15:18
  Speaker 1: Etna are down about one and a quarter per cent.
• 15:22
  Speaker 1: And we'll give you more details as we get it,
• 15:24
  Speaker 1: but right now, Etna's Humanity takeover blocked by a judge
• 15:27
  Speaker 1: as anti competitive. You know, Laurence in the middle market,
• 15:32
  Speaker 1: you mentioned you're a non bank lender. UH, can you
• 15:37
  Speaker 1: give us. Since you're not in the banking industry, do
• 15:40
  Speaker 1: you see that banks are walking away from the middle market.
• 15:44
  Speaker 1: That was an accusation that I remember hearing all through
• 15:48
  Speaker 1: the rebuild after two thousand and eight, that there was
• 15:51
  Speaker 1: no bank money coming into small and middle market companies.
• 15:55
  Speaker 1: So if you look at healthy borrowers, because banks don't
• 15:59
  Speaker 1: want to lend to unhealthy borrowers in any field, we
• 16:01
  Speaker 1: look at healthy borrowers. Most of the change happened before
• 16:03
  Speaker 1: the financial crisis. The percentage of capital lending to middle
• 16:07
  Speaker 1: market companies was coming from banks dropped to only about
• 16:12
  Speaker 1: by two thousand and four, well before the credit crisis,
• 16:15
  Speaker 1: Dodd Frank. So we're not seeing any real change. I
• 16:19
  Speaker 1: think it is accurate to say that banks don't lend
• 16:22
  Speaker 1: to middle market companies as much as they did a
• 16:24
  Speaker 1: decade or two ago. But but that's really based on
• 16:28
  Speaker 1: the banks and ability to make money from that as lenders.
• 16:31
  Speaker 1: What about from the demand side, from the borrowers standpoint.
• 16:35
  Speaker 1: I know for a while people were saying, you know,
• 16:37
  Speaker 1: there's plenty of lenders, lenders, willing lenders, but the companies
• 16:41
  Speaker 1: don't really want to borrow. Has that changed? I think
• 16:45
  Speaker 1: that growth buyouts. Companies that are making it on acquisitions
• 16:50
  Speaker 1: expanding want to borrow a lot. Can you give us
• 16:52
  Speaker 1: some examples. Well, we're we're lender to a few companies
• 16:56
  Speaker 1: that are consolidating the veterinary care industry, and to us,
• 17:00
  Speaker 1: that's a consumer product, not a healthcare product. And these
• 17:04
  Speaker 1: these businesses are acquiring mom and pop venary clinics or
• 17:07
  Speaker 1: venrary hospitals, doing fifty add on acquisitions a year, and
• 17:12
  Speaker 1: so they do seek additional capital. We sometimes structure that
• 17:15
  Speaker 1: as a delayed draw term loan, so it's committed capital.
• 17:17
  Speaker 1: Other times it's through upsizes. We often have this debate
• 17:21
  Speaker 1: about increasing revenue but at the expense of profits or
• 17:24
  Speaker 1: vice versa, that margins have been compressed. Are you seeing
• 17:28
  Speaker 1: that in middle markets? We definitely are seeing that in
• 17:30
  Speaker 1: healthcare services. It's interesting you talked about the the ETNA headline.
• 17:34
  Speaker 1: The compression of reimbursement rates in healthcare has caused margin compression.
• 17:38
  Speaker 1: I think we have not seen in healthcare services companies
• 17:42
  Speaker 1: the ability to take advantage of operating leverage. Volumes are up,
• 17:45
  Speaker 1: procedures are up, but costs are up and and margins
• 17:49
  Speaker 1: are not going up. It's really the opposite of what
• 17:51
  Speaker 1: we're seeing in the restaurant area, where the problem is
• 17:53
  Speaker 1: counts not being up more than anything else. So people
• 17:56
  Speaker 1: have sort of referred to the cliche of a credit
• 18:00
  Speaker 1: iCal in terms of baseball innings one through nine. If
• 18:03
  Speaker 1: that were the case, can you give us a sense
• 18:05
  Speaker 1: of where we are in the middle market cycle From
• 18:08
  Speaker 1: a lender's point of view, two percent growth is great?
• 18:11
  Speaker 1: Two percent growth lets us keep our credit losses low. Uh.
• 18:14
  Speaker 1: Two percent growth gives huge margin for safety. Everything we're
• 18:18
  Speaker 1: seeing in our portfolio is consistent with the economy continuing
• 18:23
  Speaker 1: to grow at a steady level. Not a level that's
• 18:25
  Speaker 1: going to make Washington happy, not a level that's going
• 18:27
  Speaker 1: to boost wages dramatically. But everything we see in the
• 18:32
  Speaker 1: credit cycle shows going in a continuing, very stable way.
• 18:36
  Speaker 1: Do you think it would be dangerous for your company
• 18:38
  Speaker 1: as if growth did get to four, well, if inflation
• 18:42
  Speaker 1: picks up, there are some risks because if inflation picks
• 18:46
  Speaker 1: up an interest rates go up. Just the absent level
• 18:48
  Speaker 1: of interest rates takes away some of the cushion. We
• 18:51
  Speaker 1: also would worry about a diversion disparity of weak performers
• 18:56
  Speaker 1: versus strong performers in the portfolio, because any lender is
• 19:00
  Speaker 1: his money from their weak performers, not from their average performer.
• 19:03
  Speaker 1: Lawrence Gollub, thank you so much for joining us. Lawrence Galob,
• 19:06
  Speaker 1: CEO of Gollub Capital with twenty billion dollars under management. Uh,
• 19:10
  Speaker 1: talking about the middle market and how there might be
• 19:13
  Speaker 1: some weakness but in general, UH, fairly studied growth at
• 19:17
  Speaker 1: least among the winners. I want to bring in Jennifer Jacobs.
• 19:33
  Speaker 1: She is a Bloomberg politics reporter here, Uh, to give
• 19:37
  Speaker 1: us a little bit more color from what happened this morning.
• 19:40
  Speaker 1: President Trump met with a round table of business executives
• 19:45
  Speaker 1: and pledged to cut regulation by more than seventy five percent,
• 19:50
  Speaker 1: as well as to drastically slash taxes and uh potentially
• 19:56
  Speaker 1: tax if I have a border tax. Jennifer, what's the
• 20:00
  Speaker 1: headline for you? Yeah, that's exactly it. He's got these
• 20:03
  Speaker 1: big plans for a border tax. He's saying he's going
• 20:06
  Speaker 1: to dramatically cut taxes. There was a lot of different
• 20:09
  Speaker 1: business officials there. We had everyone from Dell Technologies, Whirlpool,
• 20:13
  Speaker 1: Ford Motor Company, Johnson and Johnson del Chemical, etcetera. So
• 20:18
  Speaker 1: the Trump mission today is to really accentuate jobs, US investment,
• 20:24
  Speaker 1: and so they're steering things away from all the controversy
• 20:26
  Speaker 1: over the weekend over crowd sizes in John Spicer's press
• 20:29
  Speaker 1: conference and moving things back to jobs in in economy,
• 20:32
  Speaker 1: and so that is their message of the day and
• 20:33
  Speaker 1: they're trying to stay very focused on that. Jennifer, is
• 20:36
  Speaker 1: there any way that you can describe for us the
• 20:39
  Speaker 1: change that you have experienced so far in covering the
• 20:42
  Speaker 1: Trump administration compared to UH covering the Obama administration, just
• 20:47
  Speaker 1: in terms of organization and details, Because I know that
• 20:50
  Speaker 1: there's a one thirty press briefing schedule for today. Yeah, exactly.
• 20:54
  Speaker 1: That'll be Sean Spicer's the first official press briefing where
• 20:58
  Speaker 1: he takes questions. Of course, the one over the weekend
• 21:01
  Speaker 1: was just a statement. He did not take questions. They're
• 21:03
  Speaker 1: getting their feet under them. One of the aposts joking
• 21:06
  Speaker 1: to me that he's just finding the bathroom where they're
• 21:08
  Speaker 1: now logged into the system and have their White House
• 21:11
  Speaker 1: email addresses. UM, And they're very much, you know, getting
• 21:15
  Speaker 1: organized and doing things more along the lines of how
• 21:18
  Speaker 1: the Modument administration was doing it before. So things were
• 21:21
  Speaker 1: a little bit rocky over the weekend. But you know,
• 21:22
  Speaker 1: we give them a little bit of wicker rooms since
• 21:24
  Speaker 1: they were brand new. Um, but if from the press
• 21:27
  Speaker 1: point of view, they are beginning to mimic what the
• 21:29
  Speaker 1: Obama team did, and it seems to be going much
• 21:31
  Speaker 1: more smoothly, Jennifer, Are relations between the press and President
• 21:36
  Speaker 1: Trump's team as bad as they seem just on the surface?
• 21:40
  Speaker 1: Over the weekend, the news was about alternative fact. Kelly
• 21:44
  Speaker 1: and Conway responded to a television hosts question about Sean
• 21:50
  Speaker 1: Spicer and his claims about a record inaugural attendance, and
• 21:55
  Speaker 1: she said, well, he presented alternative facts. I mean, does
• 21:57
  Speaker 1: this this this highlight sort of a neat deer of
• 22:00
  Speaker 1: a relationship between the press. Well, we are always worried
• 22:04
  Speaker 1: about tensions between the Trump team and the press, but
• 22:09
  Speaker 1: Bloomberg's relationship with their aids is very, very good. I
• 22:13
  Speaker 1: think we do have a sense of trust with them.
• 22:15
  Speaker 1: They appreciate Bloomberg and think we do a lot of good,
• 22:18
  Speaker 1: fair reporting, So I'm not worried about it from that perspective.
• 22:21
  Speaker 1: Just the overarching relationship sometimes does concern me. But you know,
• 22:25
  Speaker 1: Sean Spicer, not to defend him, but just to kind
• 22:28
  Speaker 1: of give some context there. He has a boss who
• 22:31
  Speaker 1: is very, very concerned about crowd size. From the earliest
• 22:35
  Speaker 1: days of Trump's campaign, even before he had officially declared
• 22:37
  Speaker 1: he was running for president, he would get very annoyed
• 22:40
  Speaker 1: with the press, who he thought was underestimating his crowd sizes,
• 22:44
  Speaker 1: including me. I've been the I guess, the subject of
• 22:48
  Speaker 1: some of his rants about underestimating crowd sizes, and so
• 22:52
  Speaker 1: I'm and so this was huge for Trump too. He
• 22:54
  Speaker 1: wanted to be able to come out saying that he
• 22:56
  Speaker 1: has this mandate from the people, that he had a
• 22:58
  Speaker 1: bigger crowd than ever. And so I'm certain that Sean
• 23:01
  Speaker 1: Spicer was doing what the president wished, which was to
• 23:04
  Speaker 1: go out there and say this was the largest crowd
• 23:06
  Speaker 1: that anyone had ever witnessed. And then Sean was very
• 23:08
  Speaker 1: careful to couch that and say around the globe. And
• 23:11
  Speaker 1: that's a very difficult thing to defend or deny. How
• 23:15
  Speaker 1: do we know how many people were witnessing that around
• 23:17
  Speaker 1: the globe? And wasn't more than for President Obama? Who knows,
• 23:20
  Speaker 1: But either way, I just happen to know that that's
• 23:22
  Speaker 1: something and we all know that that's something that President
• 23:24
  Speaker 1: Trump is very sensitive about He always wants to have
• 23:27
  Speaker 1: the biggest crowds, and he always wants to to really
• 23:29
  Speaker 1: push that, and he thinks that any attempt to minimize
• 23:33
  Speaker 1: his crowd is is the media delegitimizing him. Jennifer, this afternoon,
• 23:37
  Speaker 1: I understand that President Trump will be meeting with labor leaders. Uh.
• 23:42
  Speaker 1: We were gonna speak little later on the program about
• 23:44
  Speaker 1: McDonald's app raises, the issue of the minimum wage, federal
• 23:47
  Speaker 1: minimum wage, and so on. I'm wondering if you have
• 23:49
  Speaker 1: any insight into what those discussions will be about, right.
• 23:53
  Speaker 1: I do not yet. I do know that they're very
• 23:55
  Speaker 1: interested in talking to those workers. They had told me
• 23:57
  Speaker 1: yesterday that this was going to be happening and that
• 23:59
  Speaker 1: they really wanted to hear It's a listening session. They
• 24:02
  Speaker 1: really want to hear from them, and they're going to
• 24:04
  Speaker 1: pay attention to what these workers have to say. That's
• 24:06
  Speaker 1: all I know so far, Jen, I you know, the
• 24:09
  Speaker 1: more that I hear some of the actions that President
• 24:12
  Speaker 1: Trump is taking today, I have to wonder what is
• 24:15
  Speaker 1: his relationship with the Republican leaders in House and Senate,
• 24:19
  Speaker 1: And have you gathered whether there is a sort of
• 24:22
  Speaker 1: closeness as far as working together to get some of
• 24:25
  Speaker 1: these provisions past, yeah, definitely. Right before the inauguration, some
• 24:31
  Speaker 1: of the key staffers for some of the leaders on
• 24:33
  Speaker 1: the Hill has told me legitimately their relationship is much better,
• 24:37
  Speaker 1: especially with Speaker Ryan and the Trump team. They legitimately
• 24:41
  Speaker 1: have a good report at this point. They're almost giddy
• 24:44
  Speaker 1: to be working together and to be getting things done.
• 24:46
  Speaker 1: But as far as that sharing of information, I'm not
• 24:50
  Speaker 1: so sure that that's happening quite yet, but partly because
• 24:53
  Speaker 1: the Trump team maybe doesn't have it all planned out.
• 24:56
  Speaker 1: I'm not sure if it's that, but because of what
• 24:58
  Speaker 1: I do ask the Trump team, you know, what are
• 24:59
  Speaker 1: your plans for executive orders? And what are you know?
• 25:01
  Speaker 1: What are you hoping to move first in Congress? And
• 25:03
  Speaker 1: they say, we really do have a plan where we
• 25:06
  Speaker 1: have more um of a plan than anyone would would
• 25:10
  Speaker 1: ever suspect. Trust us, We're ready. Don't don't under estimate
• 25:13
  Speaker 1: us like you guys did there in there in the campaign.
• 25:16
  Speaker 1: So information is trickingling out very slowly. It's very slowly
• 25:20
  Speaker 1: getting up to Congress. But I do think that their
• 25:22
  Speaker 1: relationship is very good right now. Can you toss the
• 25:25
  Speaker 1: status of nominations for the cabinet. UM. Yeah, that I
• 25:30
  Speaker 1: am not certain on um. I I do not have
• 25:32
  Speaker 1: an update for you on that. How about Theresa May
• 25:35
  Speaker 1: and the potential for a UK US trade pact, She's
• 25:39
  Speaker 1: getting to meet with the President on Friday, I believe correct,
• 25:43
  Speaker 1: and Bloomberg broke the news um that they are are
• 25:46
  Speaker 1: hoping to lay the groundwork this week on a trade
• 25:50
  Speaker 1: deal for between the US and the UK for after
• 25:52
  Speaker 1: the UK exits the European Union. I know from speaking
• 25:56
  Speaker 1: to my sources that they began meeting with Theresa May's staff,
• 26:00
  Speaker 1: her defense ministers and foreign ministers in December. They've been
• 26:04
  Speaker 1: meeting repeatedly with them. Um. They met with her two
• 26:07
  Speaker 1: chiefs of staff, and they've been having repeated conversations, continued conversations,
• 26:11
  Speaker 1: really stressing that relationship between the United States and the
• 26:14
  Speaker 1: UK and and this is really really important to them
• 26:17
  Speaker 1: to have her come over here. They want to start
• 26:18
  Speaker 1: building this and they think that they can get a
• 26:20
  Speaker 1: lot of good solid work done on getting a trade
• 26:23
  Speaker 1: agreement with the UK done this week. Thank you very
• 26:27
  Speaker 1: much for joining us. Jennifer Jacobs is our national political
• 26:31
  Speaker 1: reporter for Bloomberg. News. Thanks for listening to the Bloomberg
• 26:41
  Speaker 1: P and L podcast. You can subscribe and listen to
• 26:44
  Speaker 1: interviews at iTunes, SoundCloud, or whatever podcast platform you prefer.
• 26:49
  Speaker 1: I'm pim Fox. I'm out there on Twitter at pim Fox.
• 26:53
  Speaker 1: I'm out there on Twitter at Lisa Abramo. It's one
• 26:56
  Speaker 1: before the podcast. You can always attach us worldwide on
• 26:59
  Speaker 1: Bloomberg Radio