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U.S. Needs to Move Fast and Appoint a Czar to Puerto Rico, Rhodes Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
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  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
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• 0:32
  Speaker 1: am very pleased to welcome to the eleven three oh
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  Speaker 1: Studios Banker to the World, Bill Rhodes, President, chief executive
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  Speaker 1: Officer of william Our Rhodes Global Advisors, also author of
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  Speaker 1: a book, Banker to the World's Leadership Lessons from the
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  Speaker 1: front Lines of Global Finance, with a forward by Paul Volker.
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  Speaker 1: Vocal Bill, I would love to get started with the
• 0:53
  Speaker 1: big question about China and North Korea right now in
• 0:56
  Speaker 1: markets UH, there is a perception that in general, traders
• 1:01
  Speaker 1: are underestimating the degree of risk with respect to North Korea,
• 1:08
  Speaker 1: the prospect of a conflict there, as well as with
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  Speaker 1: China its response to that, as well as its ability
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  Speaker 1: to rein in its own UH situation with an inflated
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  Speaker 1: credit market. From your perspective, how dire is this situation
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  Speaker 1: that's sort of developing in the region, and what's the
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  Speaker 1: what's the best path forward here? Well, I think it's
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  Speaker 1: the biggest single problem we face in the world today, UH,
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  Speaker 1: and the only one that really can can help us
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  Speaker 1: solve this UH is China, and China is right on
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  Speaker 1: the cusp of the biggest conference, the biggest political event
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  Speaker 1: in the last five years, which is their nineteenth Party Congress,
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  Speaker 1: which begins on the eighteenth of October. Because the President
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  Speaker 1: of China, Hi Jinping, who is as strong as leader
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  Speaker 1: of China since Dong Jo Ping, UH, is planning to
• 2:00
  Speaker 1: make a number of announcements, including who is going to
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  Speaker 1: be on the Polar Bureau of the Standing Committee of
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  Speaker 1: the Polar Buro which runs the country, and there's a
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  Speaker 1: lot of speculation that he may make some changes there
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  Speaker 1: even to the premiership of Li Kao Chong, not clear
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  Speaker 1: the rumors to that effect. And the person that's closest
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  Speaker 1: to him is Once sh Shan, who I know well
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  Speaker 1: from over the years, who is now leading in a
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  Speaker 1: corruption campaign and people are watching that very closely. So
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  Speaker 1: she Jumping does not want any problems to disturb this,
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  Speaker 1: so he is very unhappy with what Kim jong un
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  Speaker 1: is doing in Korea because this is making it very
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  Speaker 1: difficult for China because people are leaning on China, mostly
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  Speaker 1: the United States and President Trump to do something about
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  Speaker 1: stopping Kim Jong un from continuing to conduct nuclear tests
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  Speaker 1: and ballistic missile test because what he wants to do
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  Speaker 1: is to marry the ballistic missile UH at the nuclear
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  Speaker 1: warhead and threatened the United States, Japan, whatever, And so
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  Speaker 1: the question is how do you stop them? And in
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  Speaker 1: my mind, the sanctions that have been agreed upon at
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  Speaker 1: the United Nations are helpful, but they're not a solution
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  Speaker 1: and they take time. We know that from what happened
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  Speaker 1: in Iran, South Africa, they don't happen overnight. So what
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  Speaker 1: is necessary and what can stop Kim Jong un from
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  Speaker 1: this and bring him to the table to negotiate, which
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  Speaker 1: is what we would like to do, is to cut
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  Speaker 1: off all his oil and gas supplies because the primary
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  Speaker 1: user of oil and gas in North Korea or the
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  Speaker 1: armed forces, and I think if we cut, if China
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  Speaker 1: cuts off, which is gives them eight of their oil
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  Speaker 1: and gas UH at any particular moment, they will come
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  Speaker 1: to the table within a couple of weeks. The only
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  Speaker 1: other oil and gas are getting is from Russia, maybe
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  Speaker 1: ten through brokers in Southeast Asia. Other than that, I
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  Speaker 1: do not think that the banking uh you know, the
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  Speaker 1: banking measures taken on sanctions or any of the others
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  Speaker 1: are going to work. I think the only thing that
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  Speaker 1: will work is to cut off the oil supplies, and
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  Speaker 1: China is the key to doing that. I think that
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  Speaker 1: if we don't badger them too much, and you know,
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  Speaker 1: do quiet diplomacy with him, I think, uh, you know,
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  Speaker 1: all these statements going back and forth are not helpful.
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  Speaker 1: I think some quiet diplomacy will do it because Shi
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  Speaker 1: Jin Pain does not want his great moment of glory
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  Speaker 1: to be affected by what's going on by Kim Jong oon.
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  Speaker 1: I've been with him at one occasion four or five
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  Speaker 1: years ago, and he made it very plain to me
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  Speaker 1: that and the Chinese think this in general, that Kim
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  Speaker 1: Jong un is a pain in the neck. But the
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  Speaker 1: reason they haven't intervened and done anything earlier is they
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  Speaker 1: do not want American influence on the Yellow That's why, uh,
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  Speaker 1: you know, the Chinese invaded North Korea to support uh
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  Speaker 1: the then government of Kim Il sung was because we
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  Speaker 1: had we had sent troops in the Korean War right
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  Speaker 1: to the Yallow River. It was one of McArthur's mistakes.
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  Speaker 1: He underestimated the Chinese would go in. And the other
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  Speaker 1: thing is if the regime collapses overnight, they're concerned about
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  Speaker 1: all the refugees that may go into Manchuria Northern China.
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  Speaker 1: But the Chinese do not like Kim jongun. They think
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  Speaker 1: he's difficult, he's causing a problem, and particularly at this
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  Speaker 1: great moment of importance for Shi Jin Pain. That's why
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  Speaker 1: he's gone along with the earlier sanctions. But the only
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  Speaker 1: one that will bring Uh Kim Jong un to the
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  Speaker 1: table is to cut off all oil and gas supplies
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  Speaker 1: to the country, and that will completely destabilize the military
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  Speaker 1: because they can't function without oil and gas. We're speaking
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  Speaker 1: with Bill Rhodes. He is the author of Banker to
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  Speaker 1: the World, Leadership Lessons from the front Lines of Global Finance.
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  Speaker 1: And Bill, I want to turn your attention now to
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  Speaker 1: the Caribbean and Venezuela and Puerto Rico, because I know
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  Speaker 1: that you are died your distinguished career at City Bank
• 6:02
  Speaker 1: in Venezuela. You know the Caribbean region very well. You
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  Speaker 1: can vice Chairman of of City corps. What can you
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  Speaker 1: tell us about the region as a result of these hurricanes,
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  Speaker 1: and specifically what is necessary or what is possible rather
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  Speaker 1: to fix the horrendous and catastrophic conditions that currently exist,
• 6:25
  Speaker 1: not only in Puerto Rico, but in many of these
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  Speaker 1: live in Jamaica for a while also, so I remember it.
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  Speaker 1: But I think the situation Puerto Rico's is particularly dire.
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  Speaker 1: You have to remember that this is an island or
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  Speaker 1: country because it's part of the United States. Uh, that
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  Speaker 1: is basically in bankruptcy. That's a starter. When you take
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  Speaker 1: a look at Florida and Texas, say booming economies. Second
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  Speaker 1: of all, they're isolated because they're an island, so you
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  Speaker 1: can't take the railroads down like you were even in
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  Speaker 1: Katrina or or you know, or Texas or Florida. Everything
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  Speaker 1: has to be flown in or sent in by ship. Uh.
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  Speaker 1: They also have had a terrible zekea epidemic there, and
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  Speaker 1: of course with all this water laying down, the mesqu
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  Speaker 1: is going to go wild. A lot of people are
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  Speaker 1: concerned about Colra. I think it is a dire situation.
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  Speaker 1: I think to try and compare it to the earlier
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  Speaker 1: hurricanes is a big mistake. Uh, And we have to
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  Speaker 1: move fast, very fast there or I think it's going
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  Speaker 1: to be a complete debacle. In addition to all of this,
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  Speaker 1: some of the leading talent of Puerto Rico has migrated
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  Speaker 1: to Florida in the last seven or eight years because
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  Speaker 1: of the dire economic situation. You have four hundred thousand
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  Speaker 1: uh Puerto Ricans living in Florida, most of have come
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  Speaker 1: in the last decade. And what are the teachers? Uh, Doctors, lawyers,
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  Speaker 1: architects are the cream of the crop that have left.
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  Speaker 1: And so uh, you know, the island has been just
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  Speaker 1: neuted of all of these of all of this expertise.
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  Speaker 1: And so I think that what we need to do
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  Speaker 1: is put a czar down there, so like we did
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  Speaker 1: the general in in you know, in New Orleans, to
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  Speaker 1: make sure that the aid gets there and it gets
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  Speaker 1: there quickly. Who would you recommend to do that? And
• 8:09
  Speaker 1: what's the likelihood that we get a person who then
• 8:13
  Speaker 1: becomes responsible for making sure that these plans are carried
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  Speaker 1: out and that people get the healthy Well, you see
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  Speaker 1: the problem. You have a governor. But the problem with
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  Speaker 1: the governor is he doesn't control what's going in All
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  Speaker 1: he can do is control the island, so you need
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  Speaker 1: someone who's there for the supplies. We can do it.
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  Speaker 1: We should have learned that with Haiti. You gotta put
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  Speaker 1: you know, Bush may have screwed up at the beginning
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  Speaker 1: uh in New Orleans, but he least he put in
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  Speaker 1: a three star general got the thing moving well. I
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  Speaker 1: feel like you're talking about the flight of talent, and
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  Speaker 1: they're about three and a half million people who currently
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  Speaker 1: live on the island. The population has been shrinking rapidly.
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  Speaker 1: How much more do you expect the population to shrink
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  Speaker 1: in light of this humanitarian disaster? And how will that
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  Speaker 1: affect the current negotiations of over the seventy four billion
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  Speaker 1: dollars of death. The latest senses down there says three
• 8:59
  Speaker 1: point four million. I think it's less than that because
• 9:02
  Speaker 1: they're not taking into account the number of people that
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  Speaker 1: already left gone to Florida, you know, the talent pool.
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  Speaker 1: I said, so, uh, I think that you're going to
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  Speaker 1: have additional people leave, and you have all these small
• 9:13
  Speaker 1: towns through the mountains that that are cut off. I've
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  Speaker 1: been talking to people down there, and really it's it's terrible.
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  Speaker 1: Hospitals don't have electricity to function. Um, and so we
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  Speaker 1: have to make a much more massive effort I think
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  Speaker 1: that we've ever had to before in any of these
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  Speaker 1: hurricanes because of the situation of the island. It would
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  Speaker 1: be great if they were a booming economy. Uh and
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  Speaker 1: uh uh you know they have been able to plan
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  Speaker 1: for this, etcetera. So I think it's a very dire situation.
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  Speaker 1: And I think everything uh that can be done on
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  Speaker 1: a federal level by the United States, but also on
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  Speaker 1: a private level of companies that operate there, do whatever.
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  Speaker 1: Because people have to remember these are United States citizens.
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  Speaker 1: Their their soldiers for in World War One, World War two,
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  Speaker 1: the Korean War, in Vietnam, and you know some of
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  Speaker 1: them also fighting in Iraq Afghanistan. So we owe it
• 10:10
  Speaker 1: to these people. And it's not like some far off place,
• 10:14
  Speaker 1: you know. And and sometimes I get upset with some
• 10:17
  Speaker 1: members of depressed obviously not Bloomberg because you know the
• 10:20
  Speaker 1: importance of this, but others who kind of don't make
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  Speaker 1: a big thing of this. They say, well, it's just
• 10:25
  Speaker 1: another hurricane, and you know, that's some island off there,
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  Speaker 1: and they're not a state and all of this, which
• 10:31
  Speaker 1: is one of the ultimate solutions. I think statehood at
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  Speaker 1: some point in time has to come there so they
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  Speaker 1: can basically integrate themselves more and get more in, you know,
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  Speaker 1: in the way of help that the states are able
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  Speaker 1: to get. Uh. So uh, hopefully these issues will be forced.
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  Speaker 1: Hopefully we will do what's necessary here because otherwise, you know,
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  Speaker 1: when we talk about all of these problems around the
• 10:56
  Speaker 1: world and stuff, we've got to think that we have
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  Speaker 1: a tremendous problem on our front door with Puerto Rico.
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  Speaker 1: I was gonna say, what what about would would Jeb Bush?
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  Speaker 1: Do you think would he be a good person to
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  Speaker 1: lead the reconstruction and revitalization of of Puerto Rico? I mean,
• 11:10
  Speaker 1: former governor of Florida, speaks fluent Spanish. I mean you
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  Speaker 1: need somebody like that who's getting to get down there.
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  Speaker 1: I had mentioned a military man just because we had
• 11:21
  Speaker 1: that in in New Orleans. But someone who can mobilize
• 11:25
  Speaker 1: the administration and mobilize the whole government on the federal level,
• 11:29
  Speaker 1: but also you know, work closely with the governor on
• 11:32
  Speaker 1: domestic side, and also get the private sector, you know,
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  Speaker 1: to be involved there. I think it's a critical must.
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  Speaker 1: And hopefully when the President gets down there, he's gonna
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  Speaker 1: see this. But you know time is passing. Bill Rhodes,
• 11:47
  Speaker 1: thank you so much for joining us. Really a pleasure
• 11:49
  Speaker 1: to hear your thoughts, very insightful. Bill Rhodes is President,
• 11:52
  Speaker 1: chief executive officer of William R. Rhodes Global Advisors, also
• 11:56
  Speaker 1: author of Banker to the World's Leadership Lessons from the
• 11:59
  Speaker 1: front Lines of Global finance. As the Federal Reserve talks
• 12:15
  Speaker 1: about reducing its balance sheet and as people look around markets,
• 12:19
  Speaker 1: some are getting increasingly concerned about financial stability, saying that
• 12:23
  Speaker 1: all of the extra liquidity in markets set it up
• 12:26
  Speaker 1: for a massive fall. Here to weigh in on that,
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  Speaker 1: as Sheila Bear, former chairman of the Federal Deposit Insurance Corporation.
• 12:33
  Speaker 1: Also currently she is the president of Washington College, and
• 12:37
  Speaker 1: she joined us from our Washington, d C studio. Sheila,
• 12:40
  Speaker 1: thank you so much for joining us. I'd love to
• 12:43
  Speaker 1: get your take on the state of financial stability right
• 12:47
  Speaker 1: now and how concerned you are about the excessive liquidity
• 12:51
  Speaker 1: and what can be done about that. Well, yes, it's
• 12:55
  Speaker 1: it's it's a global problem. I mean financial assets. I
• 12:59
  Speaker 1: think about now of global GDP. There's a lot of
• 13:04
  Speaker 1: stocks and bonds out there, many multiples of what real
• 13:08
  Speaker 1: the real economy would represent and it is de stabilizing it.
• 13:12
  Speaker 1: It's looking for return, it's looking for a place to invest,
• 13:16
  Speaker 1: and that creates asset bubbles. Uh and UH. The very
• 13:20
  Speaker 1: low interest rates also create obviously incentives to to borrow
• 13:23
  Speaker 1: and taking a lot of leverage. That's one of the
• 13:25
  Speaker 1: reasons why we have so many financial assets now. So
• 13:29
  Speaker 1: it's the globe eclonomy really is a washing investment dollars
• 13:32
  Speaker 1: far greater than the opportunity for real economic investments. And
• 13:37
  Speaker 1: that's why I'm so amused by this tax reform I think,
• 13:41
  Speaker 1: I hope it's tax reform uh debate, because the suggestion
• 13:45
  Speaker 1: that we need to incentivize even more investment dollars by
• 13:47
  Speaker 1: giving investor at tax breaks is something that I really
• 13:51
  Speaker 1: just think is is counterintuitive, given as you say, we're
• 13:54
  Speaker 1: a washing liquidity right now already. Well, maybe you could
• 13:57
  Speaker 1: just give us your thoughts on at least this specifics
• 14:00
  Speaker 1: as we know them. That the rate on corporations would
• 14:02
  Speaker 1: be set at that's down from the current thirty five,
• 14:07
  Speaker 1: and that corporations would be allowed to immediately right off
• 14:11
  Speaker 1: their capital spending for at least five years. Yeah. Yeah, Well,
• 14:16
  Speaker 1: I think there is some basis in terms of competitiveness
• 14:19
  Speaker 1: of doing the business in the US, our corporate rates
• 14:22
  Speaker 1: are are not competitive, so I and I think there's
• 14:25
  Speaker 1: bipartisan support for that. So that doesn't bother me so much.
• 14:29
  Speaker 1: What really does bother me is the discussion of reducing
• 14:31
  Speaker 1: the past through rate. That would be a huge well
• 14:35
  Speaker 1: we haven't seen the details. That would be a huge
• 14:37
  Speaker 1: benefit to private equity funds and hedge funds, which have
• 14:41
  Speaker 1: already uh, you know, really been able to cash in
• 14:45
  Speaker 1: in uh this uh so called recovery that's been heavily
• 14:48
  Speaker 1: driven by monetary policy, which has made it very cheap
• 14:51
  Speaker 1: for them to borrow and invest. It's also because safe
• 14:54
  Speaker 1: assets return provide such a low return. A lot of
• 14:59
  Speaker 1: people and and funds have endowment, college endowments, pensions, what
• 15:03
  Speaker 1: have you have piled into alternative investments the kind that
• 15:07
  Speaker 1: p funds and hedge funds offer, which is also benefited them.
• 15:12
  Speaker 1: So this idea that somehow we need to give them
• 15:15
  Speaker 1: more breaks, I don't I really don't understand that. And
• 15:19
  Speaker 1: uh to the extent we're talking about, you know, I
• 15:22
  Speaker 1: think people are saying, well, we don't want to give
• 15:24
  Speaker 1: more tax picts to the rich, but the rich seemed
• 15:26
  Speaker 1: to be defined as wage earners, not those who make
• 15:29
  Speaker 1: their money from investment income. And that's really where the
• 15:32
  Speaker 1: super wealthy reside. That that top point one percent that's
• 15:36
  Speaker 1: done so well and this more been the recovery is
• 15:40
  Speaker 1: in that sweet spot. And to to give them this idea,
• 15:43
  Speaker 1: you know, reducing the pass through rate is going to
• 15:45
  Speaker 1: benefit small business. Yes, there will be some small businesses
• 15:47
  Speaker 1: that benefit, and we haven't seen the numbers yet, but
• 15:49
  Speaker 1: my guess as a line share, the benefit will go
• 15:51
  Speaker 1: to the hedge funds and p funds, and that's just counterintuitive.
• 15:54
  Speaker 1: So she from from what it sounds like to me,
• 15:57
  Speaker 1: you don't think that any kind of tax reformer, tax
• 16:00
  Speaker 1: plan that's currently being proposed will substantially boost economic growth
• 16:06
  Speaker 1: in a way that will help the entire economy. Well,
• 16:09
  Speaker 1: I think I think there's an argument for lowering the
• 16:11
  Speaker 1: corporate rate. We need to pay for it. We are
• 16:14
  Speaker 1: not overtaxed as a country. I get, Actually, the percentage
• 16:17
  Speaker 1: of taxes as are you know, all in federal, state,
• 16:22
  Speaker 1: local tax as a percentage of GDP is actually pretty
• 16:24
  Speaker 1: low compared to other developed countries. The problem here is
• 16:28
  Speaker 1: the distribution and UH and UH the you know, the
• 16:32
  Speaker 1: highly inefficient favoritism and tax breaks and loopholes that the
• 16:36
  Speaker 1: code provides. So I think anything should be revenue neutral.
• 16:39
  Speaker 1: I think taking the top rate down, which typically for corporations,
• 16:42
  Speaker 1: which typically is paid by the smaller companies. They don't
• 16:44
  Speaker 1: have the you know, the ability to move stuff overseas
• 16:47
  Speaker 1: or or have armies of tax lawyers to write special
• 16:51
  Speaker 1: breaks for them the tax code. That makes sense, but
• 16:53
  Speaker 1: you should broaden the base by paying for it. And yeah,
• 16:56
  Speaker 1: I absolutely think that makes sense. Going to a territorial
• 16:59
  Speaker 1: system makes the tax code. The corporate code does give
• 17:02
  Speaker 1: affirmative obligations to move to move business and rep income overseas.
• 17:07
  Speaker 1: So going to a territorial system, getting the top right
• 17:09
  Speaker 1: down to be more competitive, and finding a way to
• 17:11
  Speaker 1: pay for that through broadening the brace, I think that
• 17:13
  Speaker 1: could help the economy. Won't you won't take it up
• 17:16
  Speaker 1: to six percent, probably wouldn't even take it up with
• 17:18
  Speaker 1: a three percent, but it certainly could help. And then
• 17:21
  Speaker 1: a middle a true middle class tax cut would make
• 17:23
  Speaker 1: a lot of sense. Again, there's so much investment dollars,
• 17:26
  Speaker 1: somebody investment dollars slashing around already, the problems on the
• 17:29
  Speaker 1: demand side. This hasn't trickled down middle income and lower
• 17:32
  Speaker 1: income families, which growth has been very sluggish, and the
• 17:36
  Speaker 1: bottom tier they're still losing ground. You see that, particularly
• 17:39
  Speaker 1: with minority families, And you know, it's the right thing
• 17:42
  Speaker 1: to do, but it's also the economically smart thing to do,
• 17:45
  Speaker 1: because that's you know, they spend their income and they've
• 17:49
  Speaker 1: been struggling, and that hurts the broader economy too. So
• 17:53
  Speaker 1: providing real relief and additional spending power for the true
• 17:56
  Speaker 1: middle class and lower middle class makes a lot of sense.
• 17:59
  Speaker 1: But giving more tax breaks to very wealthy people that
• 18:01
  Speaker 1: already paying rates already through cured interest or what have you,
• 18:05
  Speaker 1: this makes no sense at all. Thanks very much. Sheila
• 18:08
  Speaker 1: Bear is the former chairman of the Federal Deposit Insurance Corporation. Well,
• 18:23
  Speaker 1: if you're an investor in Bombardier, the Canadian maker of
• 18:27
  Speaker 1: aircraft and trains, you're having a very bad day because
• 18:31
  Speaker 1: the stock is down more than eight and a half
• 18:32
  Speaker 1: percented open down more than six and this has to
• 18:36
  Speaker 1: do with its C series jet and a tariff of
• 18:40
  Speaker 1: two hundred and twenty percent that the United States has
• 18:43
  Speaker 1: leveled against Bombardier to sell those planes into the United States.
• 18:48
  Speaker 1: Here to tell us more is Andrew Mayetta. He's our
• 18:50
  Speaker 1: Bloomberg trade reporter. He joins US from Washington, and joining
• 18:54
  Speaker 1: us from Edinburgh, Scotland is George Ferguson. He's our senior Aerospace,
• 18:58
  Speaker 1: Defense and Airlines analyst for Bloomberg Intelligence. Andrew, let's begin
• 19:02
  Speaker 1: with you if you could just lay out exactly what
• 19:04
  Speaker 1: happened and why. Sure, So, Boeing brought a complaint in
• 19:10
  Speaker 1: the US against the Bardier on two fronts. Basically, they
• 19:14
  Speaker 1: alleged that the Bardier has been receiving unfair government subsidies
• 19:20
  Speaker 1: for years from the Canadian government, from the Quebec government,
• 19:24
  Speaker 1: and also that they've been trying to sell their C
• 19:28
  Speaker 1: series small passenger jet into the US at less than
• 19:35
  Speaker 1: fair market value. And so this was the first ruling
• 19:39
  Speaker 1: by the Commerce Department. It's preliminary, as you said, it's
• 19:44
  Speaker 1: levi dad or rate of two UH. Customs will will
• 19:48
  Speaker 1: begin to collect those um. The final ruling will probably
• 19:54
  Speaker 1: come from the International Trade Commission next year when it
• 19:58
  Speaker 1: determines how much harm Boeing suffered. So, George, come on
• 20:03
  Speaker 1: in here. We see the Bombardier shares are down massively today,
• 20:07
  Speaker 1: nearly ten. How long lasting could this potential hit be
• 20:13
  Speaker 1: four Bombardier, So I think it could last quite a while.
• 20:17
  Speaker 1: So that I think the challenge here really is that
• 20:21
  Speaker 1: Delta was a good portion of the order book, and
• 20:23
  Speaker 1: I think a very important order because along with Left
• 20:27
  Speaker 1: Hans and there's two large, well respected airlines operating the airplane.
• 20:32
  Speaker 1: I think given this ruling, I think it's going to
• 20:33
  Speaker 1: be hard to sell to any other US airlines. I
• 20:36
  Speaker 1: think it's gonna be hard to deliver to Delta and
• 20:38
  Speaker 1: pay the pay the duty um. And I think that
• 20:41
  Speaker 1: really puts a big portion of the order book in
• 20:44
  Speaker 1: question here. So I think without Bombardier bringing more orders
• 20:47
  Speaker 1: to the table in the near term, I think it's
• 20:50
  Speaker 1: going to hurt the hurt the stocks and significantly here George,
• 20:53
  Speaker 1: that's the seventy five jet order for Delta, right, Yeah,
• 20:57
  Speaker 1: they have a seventy order with a fifty option. Uh
• 21:00
  Speaker 1: you know, so so they could be up to a
• 21:03
  Speaker 1: five about three fifty orders. But there's other challenges in
• 21:08
  Speaker 1: the order book as well that we could talk to,
• 21:10
  Speaker 1: but maybe not enough time in this car. Well, I well,
• 21:13
  Speaker 1: I was just gonna go on and say that, you know,
• 21:14
  Speaker 1: it's not only workers in Canada that may suffer as
• 21:18
  Speaker 1: a result of this. Bombardier has a plan to Northern Ireland, correct,
• 21:22
  Speaker 1: but they do, they do. You Know. The thing is, though,
• 21:24
  Speaker 1: if I think if we start getting into the ripple
• 21:28
  Speaker 1: ramifications here, you're going to find that Boeing has plenty
• 21:31
  Speaker 1: of plants around the world, and they're definitely suppliers in
• 21:34
  Speaker 1: the UK that they could point to as well to
• 21:37
  Speaker 1: say that there'd be a ripple effect on them. So
• 21:39
  Speaker 1: I think that that's not going to go as far
• 21:42
  Speaker 1: as Bombardier may may may want. Canada probably has more
• 21:46
  Speaker 1: pulled given their you know, they purchased defense U S
• 21:49
  Speaker 1: Defense equipment as well, so the Canadian discussion might be
• 21:53
  Speaker 1: a little bit better. But I think the global global
• 21:56
  Speaker 1: parts supply stream is not going to help them that
• 21:58
  Speaker 1: much here. Andrew, how long has this action by the
• 22:02
  Speaker 1: U S. Commerce Department been in the works and was
• 22:06
  Speaker 1: this expected? Yeah, they brought the complaint in April, and
• 22:11
  Speaker 1: I would say that this is h This was expected
• 22:15
  Speaker 1: generally speaking, when the International Trade Commission finds on a
• 22:21
  Speaker 1: preliminary basis that a company probably suffered injury, UH Commerce
• 22:26
  Speaker 1: usually just applies a formula to determine what the preliminary
• 22:29
  Speaker 1: duties are going to be. Again, the key decision is
• 22:32
  Speaker 1: going to come next year when the International Trade Commission.
• 22:37
  Speaker 1: Besides whether Boeing is really injured here and you know
• 22:40
  Speaker 1: they're gonna way Bombardi's argument, a Bartier's argument is that
• 22:44
  Speaker 1: Boeing wasn't even really competing for these for these uh
• 22:47
  Speaker 1: for this this uh this delta order. They're saying that,
• 22:51
  Speaker 1: you know, Boeing kind of the facto excited that segment,
• 22:54
  Speaker 1: So how could they have suffered harm? So here's my question.
• 22:57
  Speaker 1: I mean, just on the surface, it seems like is
• 23:00
  Speaker 1: connected or will be connected to some of the NAFTA
• 23:03
  Speaker 1: renegotiations and just the ongoing tension between the US and
• 23:08
  Speaker 1: Canada and the trade partnership. There is that a misreading
• 23:12
  Speaker 1: of this. No, I think that that's bang on. Actually,
• 23:15
  Speaker 1: you mentioned that I was in d C. I'm actually
• 23:17
  Speaker 1: an Ottawa Act the NAFTA talks now, so this is
• 23:21
  Speaker 1: kind of landing like a grenade in the middle of
• 23:23
  Speaker 1: the talks. And you know, as George alluded to, UH,
• 23:27
  Speaker 1: Prime Minister Trudeau has threatened not to buy Boeing c
• 23:32
  Speaker 1: c F E teens UH if if if it doesn't
• 23:36
  Speaker 1: drop the Bombardia case. So, I mean we've talked a
• 23:38
  Speaker 1: little bit about what a trade war looks like. I mean,
• 23:41
  Speaker 1: this is kind of what a low level trade war
• 23:44
  Speaker 1: looks like. You know, company brings a complaint in in
• 23:49
  Speaker 1: an established forum, and then you know, the politicians come
• 23:53
  Speaker 1: under a lot of pressure, like Prime Ministerture though is
• 23:55
  Speaker 1: going to be under a lot of pressure right now
• 23:58
  Speaker 1: to deliver something of a Bartia. George in ten seconds,
• 24:01
  Speaker 1: do you agree that this is what a low grade
• 24:03
  Speaker 1: trade war looks like? Sure? Andrewmeda, thank you so much
• 24:10
  Speaker 1: for joining us. He's a trade reporter for Bloomberg News.
• 24:13
  Speaker 1: Also George Ferguson, Senior Aerospace, Defense and Airlines analyst for
• 24:17
  Speaker 1: Bloomberg Intelligence. Definitely a fascinating issue and a salvo opened
• 24:22
  Speaker 1: up amidst the ongoing NAFTA discussions. This will not be
• 24:28
  Speaker 1: received particularly well by the Canadians, certainly, and we will
• 24:32
  Speaker 1: wait for a response there well. Nike shares are down
• 24:48
  Speaker 1: nearly four percent today after earnings that were highly disappointing
• 24:52
  Speaker 1: to to investors pretty broadly. To get him more details
• 24:56
  Speaker 1: and why they were so disappointing, is Matt Townsend. He's
• 24:59
  Speaker 1: global business reporter for Bloomberg News and joins us in
• 25:01
  Speaker 1: our eleven three oh studios. Mat. Uh, So, let's just
• 25:04
  Speaker 1: talk about what the problem here is. As Nike laid out,
• 25:08
  Speaker 1: the problem is the United States of America h Nike's
• 25:12
  Speaker 1: biggest market, Nike's biggest market. UM. If they're not growing
• 25:17
  Speaker 1: sales in the US, they're not basically growing overall, and
• 25:21
  Speaker 1: sales fail three in North America, which is most of
• 25:23
  Speaker 1: the US. They said next quarter UM sales likely to
• 25:27
  Speaker 1: fall again in the US or North America. So if
• 25:30
  Speaker 1: you're a Nike investor, yes, overseas Asia is growing pretty well,
• 25:34
  Speaker 1: but if you don't get the home country growing, you're
• 25:37
  Speaker 1: it's not you know, it's a struggle to invest in them.
• 25:40
  Speaker 1: At this point. Is someone taking share from Nike? Of course, Yeah,
• 25:43
  Speaker 1: it's it's you know, Adidas. Uh, for the past two
• 25:46
  Speaker 1: years really has just been growing market share. Uh. Is
• 25:51
  Speaker 1: that all the strength of all of their retro lots
• 25:53
  Speaker 1: of the retro is really strong because it is not
• 25:55
  Speaker 1: just athletic ware anymore, and this is you know, it's
• 25:58
  Speaker 1: casual where seven Yeah, I mean, sneakers are a fashion
• 26:02
  Speaker 1: sort of staple nowadays people wear them to work. So
• 26:04
  Speaker 1: you know, this idea that sneakers are just for people
• 26:07
  Speaker 1: doing sports, that's not true. And yes, so it's the
• 26:10
  Speaker 1: retro stuff, but it's also you know, they've had this
• 26:12
  Speaker 1: great success with a brand called Boost, which has gone
• 26:15
  Speaker 1: into many different forms. You know, Kanye West has a
• 26:18
  Speaker 1: big Boost part of his business with Adidas, and they're
• 26:21
  Speaker 1: just there. If there's a if there's a war of
• 26:23
  Speaker 1: or coolness, Adidas is winning it right now, which is
• 26:26
  Speaker 1: kind of surprising because Nike had that mantle for so
• 26:29
  Speaker 1: long well, and it was because of the Air Jordan's, right,
• 26:32
  Speaker 1: I mean, that was one big part of it, Air Jordan's.
• 26:34
  Speaker 1: But even even you know, some of their running shoes
• 26:37
  Speaker 1: were immensely popular. It's just a regular shoe. I mean,
• 26:39
  Speaker 1: it's it's it's pretty striking. I mean, Nike did not
• 26:42
  Speaker 1: grow sales last quarter. They were flat, and they're basically
• 26:46
  Speaker 1: saying we hope to revive growth in the second half.
• 26:48
  Speaker 1: And when investors Investors Nailis asked them about this yesterday
• 26:51
  Speaker 1: on their call, they basically just said, the innovation pipeline,
• 26:55
  Speaker 1: it's great trust us. The things that are coming are
• 26:57
  Speaker 1: great trust trust. So that's the I mean, it's basically
• 27:01
  Speaker 1: you have to buy into the executives and their confidence.
• 27:04
  Speaker 1: And again Nike and all sort of their public interactions
• 27:09
  Speaker 1: are very confident still in the business. So you know,
• 27:11
  Speaker 1: we'll see the second half is gonna be big. You know,
• 27:14
  Speaker 1: you mentioned Adidas, or as Matt Miller of Bloomberg News
• 27:18
  Speaker 1: would say, uh, you know, it's it's sort of under
• 27:22
  Speaker 1: some pretty heavy scrutiny right now, just because the U. S.
• 27:26
  Speaker 1: Attorney's Office in the Southern District of New York went
• 27:29
  Speaker 1: after the n c C Double A as well as Adidas, saying,
• 27:33
  Speaker 1: you guys colluded to basically bribe coaches and schools to
• 27:39
  Speaker 1: use our products. I mean, could this potentially eat into
• 27:41
  Speaker 1: Adidas's appeal and uh and frankly their bottom line potentially.
• 27:46
  Speaker 1: Right now, analysts are not putting too much weight into it. Um.
• 27:51
  Speaker 1: You know, there's been tons of scandals in college sports
• 27:53
  Speaker 1: involving brands that you know and who the effect on
• 27:59
  Speaker 1: the bottom line was pretty minimal. But again, in this investigation,
• 28:02
  Speaker 1: there's definitely gonna be more shoes to drop, probably more
• 28:05
  Speaker 1: schools more. That's where you did that understated more schools.
• 28:10
  Speaker 1: You know, the big question is do eventually the other
• 28:13
  Speaker 1: brands get pulled into this because you know, Adidas was
• 28:15
  Speaker 1: not the biggest player in signing American basketball players to contracts.
• 28:21
  Speaker 1: That's by far Nike is the biggest. Can you tell
• 28:24
  Speaker 1: me about the possibility that Nike would actually buy something else?
• 28:28
  Speaker 1: I mean, is it possible? Because I mean, you've got
• 28:30
  Speaker 1: a lot of competition at the high end, You've got
• 28:32
  Speaker 1: a lot of competition in the low end. Nike has
• 28:36
  Speaker 1: the whole customizable, uh sort of franchise. But why don't
• 28:41
  Speaker 1: they go out and buy someone? I mean, you know,
• 28:42
  Speaker 1: you look at what they've done in the past. That
• 28:45
  Speaker 1: was you know, for a while Converse worked, right, Chuck Taylor.
• 28:48
  Speaker 1: You've also got brands such as Jack Purcell. This is
• 28:52
  Speaker 1: a proliferation. Why don't they go out and buy somebody.
• 28:55
  Speaker 1: They decided a couple of years ago to double down
• 28:57
  Speaker 1: on the Nike brand. They sold off some of their
• 29:00
  Speaker 1: other brands, like they had a hockey band brand called
• 29:02
  Speaker 1: Bauer Um. They had Khan actually several years ago that
• 29:05
  Speaker 1: they sat a private equity deal. Yeah, and but they're
• 29:09
  Speaker 1: basically saying the Nike brands are best brand has most
• 29:13
  Speaker 1: growth potential, So we're gonna focus on that now. You know,
• 29:16
  Speaker 1: maybe things could change. Me, I haven't heard anything, am
• 29:17
  Speaker 1: I reporting or you know that this could potentially be happening.
• 29:20
  Speaker 1: But the Nike brand is not as strong as it was,
• 29:24
  Speaker 1: and that's part of the reason why the stock has
• 29:26
  Speaker 1: been depressed. You know, it is the worst performing stock
• 29:28
  Speaker 1: in the Dow last year for example. Well, Matt, how
• 29:30
  Speaker 1: much is this the death of fth leisure and them
• 29:33
  Speaker 1: kind of suffering from that? Yeah, the death of ath leisure?
• 29:38
  Speaker 1: Maybe that's part of it. Um. You know, you think
• 29:42
  Speaker 1: I'm just thinking that we've heard about it, but there's
• 29:45
  Speaker 1: a bubble for sure. Okay, But but I think for example,
• 29:48
  Speaker 1: Lulu Lemon, I think of athletic, the Gap brand. In fact,
• 29:51
  Speaker 1: they're going to be concentrating on that and getting rid
• 29:53
  Speaker 1: of some Gap stores because that's what's selling. Yeah, I mean,
• 29:56
  Speaker 1: the people have been speculating about this. ATHLETs are trend
• 29:59
  Speaker 1: dying down and a sort of cooling off. But for
• 30:02
  Speaker 1: sure that's hurtin Nike. And you know under arm or
• 30:04
  Speaker 1: two that more and more brands, non athletic brands, are
• 30:07
  Speaker 1: making athletic gear, So that's definitely a problem. Um. But
• 30:12
  Speaker 1: you know, I mean Nike, Nike's big issue is that
• 30:14
  Speaker 1: like I'm saying before, they were the coolest brand in
• 30:18
  Speaker 1: the world forever, and now they've been challenged directly by
• 30:21
  Speaker 1: Adidas on this and they need to respond. All right,
• 30:24
  Speaker 1: I'm not going to tell people about your collection of
• 30:26
  Speaker 1: Stan smith sneakers there. I just want to point out
• 30:29
  Speaker 1: maybe everybody's wearing sneakers to work, but nobody in this
• 30:32
  Speaker 1: office right now is wearing sneakers. I just want to
• 30:33
  Speaker 1: point that up, but go up. Thank you, well done.
• 30:36
  Speaker 1: All right, our sartorial guide right there. Lisa Braunwait's all right,
• 30:40
  Speaker 1: Thanks very much. Matt Townsend, he's our global business reporter
• 30:42
  Speaker 1: for Bloomberg News talking about Nike two shares down about
• 30:46
  Speaker 1: two percent right now. Thanks for listening to the Bloomberg
• 30:52
  Speaker 1: P and L podcast. You can subscribe and listen to
• 30:55
  Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 31:00
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 31:03
  Speaker 1: on Twitter at Lisa abramoits one before the podcast. You
• 31:07
  Speaker 1: can always catch us worldwide on Bloomberg Radio.