Bloomberg Businessweek Special Edition with David Rubenstein

on iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show weekdays at two pm Eastern only on Bloomberg Radio. You're listening to a special edition of Bloomberg Business Week, live from the nation's capital. I'm Jason Kelly alongside David Rubenstein, co founder, co chairman of the Carlisle Group. So David, catching our breath here a little bit. Another record day on Wall Street. It's hard

to believe it can keep going on. I've been amazed, and I think most people would not have predicted this one or two months ago. I think one or two months ago people thought this steam was coming out, and now the steam is kind of heating up. So I wish I could explain it, but I really cannot. So lutely. Well, if you can't explain it, I'm not sure who can.

But we will turn to set the business week agenda with a guy who watches the markets every day, Dave Wilson, Stocks Editor, author of the chart and stock of the day. He's back in our Bloomberg Interactor Broker studio. So Dave, come on in here. What are you seeing underneath this trade? You've got all eleven of the main industry groups in the SNP five hundred higher, which really kind of jumps out.

I mean, some of the more defensive areas of the market leading the way, you know, consumer staples, food, beverage, tobacco, healthcare utilities. But on the other side of the coin, you look at what's going on with the cruise line owners, and they're really leading the way here, especially Carnival up more than seven percent, biggest gay in the SNP five hundred UH. Their fiscal fourth quarter earnings beat analysts average, Essman and Bloomberg survey by the most in two years.

Revenue came out ahead their outlook for the current fiscal year also positively. Put it all together, you've got Royal Caribbean and Norwegian cruise line up by about three and a half percent, also lifting the S and P five. And you want to talk about an economically sensitive kind of area, certainly you would think, you know, cruise line travel fits that bill. So you've kind of got it

from both directions. In today's trading. You know, it's interesting, Uh, with the impeachment crisis going on or in preachment process going on, one might think, if you're an outsider, that there'd be uncertainty in the markets. People are not sure what's going on. What I think is really going on is the China deal is essentially done, the Mexican deal,

County Canadian Mexican deal is essentially done. Interest rates are staying low, unemployment is very low, and I think many people feel that the impeachment process, however it unfolds, is not likely to lead to the president leaving office anytime soon. So people who are looking for certainty in the markets see that there's pretty gonna pretty a fair amount of certainty going forward. We know what the interest rates are likely to be, we know what the trade situations likely

to be in the air term. Uh, we know with the unemployment situations like to be, and we don't see any real change in their presidential situation, and are you surprised, Dave Wilson at how little politics either has not played in or has been baked into. David's point, Well, it really goes to show you that new investors are focusing on things like the economy and earnings. You know, here we are, you know, ten years plus into an economic expansion.

And though certainly you go back to say August and there was concerned that we we finally start to see a contraction, it hasn't materialized. And you know, you'll look out to next year and a whole lot of people

are anticipating the growth will last. And then as far as earnings go, you'll look at the numbers we've compiled on S and P five companies from individual companies, and you see analysts anticipating that, yeah, we may be down this quarter, but you look at the first, second, third, and fourth quarters and next year you're seeing what you would call sequential improvement quartered a quarter. By the time you get to the fourth quarter, thirteen percent plus earnings growth.

Now that's the view. Whether it plays out or not, it remains to be seen. Nonetheless, you can understand where the optimism on stocks comes from. Given the sustainability of the economic expansion and the prospects for earnings as are reflected in analysts estimates. Absolutely, and I think that the markets generally like to figure out what is going to happen the next couple of months or six months or so,

and like like predictability. And right now over the next six months, they don't see a change in interest rates going up. They think President Trump will be in office for certain, they think there's not gonna be trade wars of any consequence. So I think investors are pretty good now. There's no doubt are some economists somewhere who are saying it's going to lead to a at some point we're gonna have a slowdown, and those memos will be pulled out of the files when we actually have a slowdown,

But right now people are not actually surfacing those memos. Yeah. Absolutely, it does not seem to be the case at all. Dave Wilson, thank you so much. You'll be back with me later on with your chart and stock of the day. David Reuben signing, gonna be with me here for a couple of hours. And David, I have to ask you, you know, over at Carlisle, a huge portfolio of companies. You talk to CEOs all the time, you interview them, many of them one your show Peer to Peer Conversations

here on Blueberg TV. How do they feel? I mean, because we have sent some caution from CEOs over the back half of this year. Well, CEOs don't want to look like they're too um a bulliant, and they always want to be prepared for a downturn. But right now they have a fair amount of cash, their stock prices are high. Um, they're feeling pretty good about things. They don't want to go out in the public and say, look how great things are and things can't go wrong,

but they're feeling privately pretty good about things. There's always a cautionary word here or there, but generally they're feeling pretty good. And are they doing deals? I mean, that's always one of the questions around, you know, where we are in the cycle, in terms of do they feel comfortable doing a big acquisition or or sort of spending

some of that money. I think the M and A market is okay, but that the slowdown there at center is a slowdown is simply that prices are very high, so there are no very there are very few bargains out there, and you don't see any value investors really saying there's a great cheap thing to buy. So prices are high and you have to swallow the idea that you're gonna be paying for good companies a much higher

multiple than you normally would pay. And I know we're going to talk about private equity throughout the show, but does that make private equity deal making that much harder those valuations. Private equity deal making is doing okay this year. I would say it's about what it was last year. The principal issue is that you have to get comfortable with paying thirteen fourteen times cash flow or EBIT down multiples.

And the way you can get comfortable with it is really that investors are willing to accept somewhat lower rates of return than they were five or ten years ago. Today, in the low interest rate environment, if you can get an investor thirteen fourteen, fifteen percent net intern and ray to return over five years, they're happy with that. In the old days, you might have won. So investors are willing to take lower rate return. You can still do

these deals, but they're no doubt more expensive. Well feels amazing, and then world of negative interest rates and where you're just not seeing the sorts of yields that you might be used. That's true. Be course, those deals take three or four years to pull off, and there's some liquidity for the in the markets when you when you do those deals. But generally people are pretty uh a feeling they can get those kind of returns, and we have been able to do that, and a lot of enthusiasm

still for alternatives. It feels like among institutional investors there's more enthusiasm. And then in the thirty years I've seen uh this market, and I think the reason is that people think there will be a turn down at some point. And what we learned in the last turn down, the Great Recession, is that private equity and alternatives tended to

be a pretty good hedge Uh. Not not so much hedge funds, but uh private equity firms did pretty well through the Great Recession because they fix their companies, they put in more equity if necessary, or they bought some debt back at discount. And people think, if there's a downturn again, these same managers will figure out how to get through it all right, much much more to come with David Rubinstein here on a special edition of Bloomberg

Business Week. I'm Jason Kelly in wash Ington, d C. We're gonna talk a little bit about this split screen week that we had in politics, talk a little bit about trade, and much more coming up. You are listening to Bloomberg Business Week. Jason Kelly and David rubinstide here in our studio and just crossing the Bloomberg terminal. President Trump accepting the February fourth State of the Union invitation from House Speaker Nan Nancy Pelosi, and who better to

break down politics? We go straight to the boss. We come here to Washington. Craig Gordon, Executive editor and Washington Bureau Chief, joining David and myself in our studio. So we're gonna hear from the President in February four. Yeah, I mean the sort of the historical moments keep piling

up here. I mean, if we understand the schedule for the impeachment trial in the Senate, which we don't really have yet, but the sort of rough guessing is it maybe starts around the second week in January, takes only a couple of weeks. I mean, you could literally have the president having been acquitted of impeachment the too impeachment charges days before he steps into the well of the House to to give his address on the State of

the Union. The person who brought those impeachment articles, of course, the Speaker, Nancy Pelosi, staring right sitting right behind him. Actually, and I mean, it's just I feel like every day we come to work here, there's just another thing that's going to end up in the history books in this That Friday, that Tuesday, February fourth, will be another one of them. It will be surreal. Generally, you don't have an impeachment just having been completed in somebody giving their

State of Union right afterwards. So I'm sure it'll be an interesting address, and I suspect they'll have record ratings. And so Craig tell us about this week. I mean, because I feel like all of us around this table, if you had told us a year ago, certainly five years ago, the level to which people were met about the idea of a president being impeached, we would have told ourselves we were insane. Am I wrong? No, You're

resolutely right. And and and it's it's interesting because, as the Washington Beer rechief, I r in a Bureau of seventy five people that reports me. We cover this news every day, and I did feel myself having to give a couple of new Rockney style speeches like, hey, folks, this is a big moment. Let's not lose sight of that. It's just we were in like big moment overload. You know, every day, almost literally every day since Salstrom has been

the president, something unbelievable has happened. He fires James Comey, he you know, the Muller Report, the Muller testimony, he go right down all the list, all the all the moments we remember. And so when it finally comes to again the ultimate sanction of the United States Congress against the president impeachment, it was a little bit hard sometimes

to muster the energy. Not part of that was just like we all knew there was a foregone conclusion and you know they were going to get the majority in the House. There was never any drama or question about that. You know, it was hard to get excited about will any Democrats to fact, I guess two or three ended up defecting that We kind of even knew who those people were gonna be, So there was some of the drama was just wrung out of it by the by

the sheer inevitability of it um. But what did add certainly a little bit of spice to the day was, you know this split screen moment where you have the President United States that rally and Battle Creek, Michigan literally as the gavel is falling on his impeachment for several minutes, not knowing that, and you know, so he's sort of giving a lot of his standard lines as which hunt is unfair and then no president ship to go through this, and we all know something that the President United State

saysn't know that he's all right, actually just been impeached. And there was actually quite a moment where one of his staffers I believe was one of his staff stenographers literally held up a giant white, you know, sort of piece of poster board that had the vote on it that uh and then he could read it and we could watch him reading it, and we saw him reading it, and then he read it and he said, oh, no

Republicans woke, so you know whatever. So you know, the just again, you almost words almost fail you as you try to capture the history of it. And yet that day there was a certain amount of equality and watching paint drive what's hard to run believe really is that for two years Bob Muller did an investigation. Most people thought something would come from that that would be perhaps not favorite bo to the president, but nothing really came

out of that. Then I whistle blower sent in an anonymous letter three months ago, and in three months you're at the stage. Who would have predicted that? Yeah, I mean, I think I think the one place where Trump, you know, there's a he has a little bit of of a little ground to stand on, is like, folks, you spent two years you hired Robert Mueller. Everybody told me he was the prosecutor's prosecutor, the you know, the most honest man on earth and whatever. And he put out his report.

He we all know, he didn't exonerate the president entirely on the obstruction of justice. Party sort of did in the coclusion part, and the Democrats really did kind of have to just sweep all that aside until this new thing came along from the whistle blower. And it's not my job to decide, you know, whether that's impeachable or not,

but it is sort of remarkable. And this is the one thing that I do think Trump can can make some hay on in the campaign trail that the investigation that was supposed to bring me down bring me didn't bring me down, so they had to come up with something else. Right Now, look what the whistle blower says, pretty dramatic. We all know the facts of the case. He called the guy in Ukraine and said, should investigate

Joe Biden and the guys. Let me get back down that and you know whatnot But you know, again, over three and a half years of Donald Trump's presidency, essentially it was really just the thing that happened the last two months that led to his impeachment, and that alone, I think will give him something to whip up his crowds with, which is quite good at doing, without addressing the merits of the impeachment, the effort, and so forth.

I do wonder if the approach that had been used by Ronald Reagan when he dealt with Iran Contra had

been used here, whether this would have faded away. In other words, a speech by the president saying I didn't quite understand the implications of what I was saying, I'm sorry I made a mistake, whether that contrition might have kept this from going forward and obviously work with Ronald Reagan because many people at the time we're thinking he should have been impeached for the Iran contra thing, and then he made a speech that kind of diffused all

of that. Obviously the president didn't choose to do that, but I think historians will always debate whether something like that might have made a difference. Yeah. I mean, we have been struck many times that there are two words that do not seem to exist in Donald Trump's vocabulary,

and they are i'm sorry. So you're right in that case where Reagan, at that point, somewhat somewhat of a line in winter, somewhat of a fading figure, still had enough of a reservoir of goodwill to tap into to say, hey, yeah, I probably should have done that or I'm sorry. I'm just not sure. Trump his reservoir is empty. There was not much to begin with, so that would have been a harder trip for him to pull off. Recognized it

was probably unlikely would do that. I just wondered if somebody other than Trump had had this same situation and you said I'm sorry, Because generally and in society, people get away with a lot when you say i'm sorry. I made a mistake and people are willing to forgive people. But obviously that's not this situation. Well, the story goes on.

We know that after the first of the year, at some point, maybe before the articles will be sent to the Senate, and the story goes on, we will count on Creig Gordon and his team here in Washington to bring it to us. Craig Gordon, Executive Editor, Washington Bury chief for Bloomberg, joining David Rubinstein and myself here in our one studio. Coming up, I'm gonna talk a little

bit about trade. You are listening to Bloomberg Business Week Jason Kelly the studio in d C. Alongside David reuben Stein, co founder of Carlisle Group and with us now Sean Donnin, senior trade reporter for Bloomberg, one of the busiest guys across the empire. Sean, great to be with you in your town, thanks to having me. All Right, So a big week, to say the least, on a couple fronts as it relates to trade. Let's talk about China first.

What happens next? We're gonna actually get something signed? Yeah, well, you heard Will Burross there. It looks like they're in the final stages of getting something translated. Was talking to someone close to the process yesterday who said they're basically trading drafts in Chinese right now that are going back and forth across the Pacific U I guess you go

with email on that one. They're talking by um the phone as well throughout still working out the details of a signing, but the plan at this point is for Luja, the Chinese Vice Premier, to come to Washington in the first couple of weeks of January and to sign this thing with Bob Leitheiser, the U S Trade representative, who

of course led the negotiations. I think this is agreement that doesn't do everything that everybody wanted out of this agreement, but it does get enough done so that I think the market uncertainty that arose because of the China dispute is probably gone for a while. So, in other words, every issue with China is not going to be resolved, but the market is no longer going to say, what's happening with China? What are we gonna do? And I think this for the time being is a pretty good

deal for that purpose. Yeah. No, there's no question that this absolutely kind of puts at least a pause on any escalation or the prospect of any escalation. I think one of the things that's remarkable is, UH, we always forget just how far we've come. A year ago we had tariffs on fifty billion dollars in imports from China. We now have tariffs on three hundred sixty billion dollars in imports from China. Two hundred and fifty billion dollars of those imports are subject to UH tariff that is

likely to continue for the foreseeable future. It is not going to be rolled back as part of this trade deal. UH. And so one of the questions is going to be for businesses I think is UH. You know, the administration likes these tariffs. The presidents really likes these tests because he thinks they're causing supply chains to shift. But whether we get into a more permanent shift and in terms of businesses, in terms of supply chains and adapting to that.

But there's still a lot of uncertainty hanging out there, not as much as there was. I think the President does like tariffs in part because it's something he can do by himself. He doesn't need to go to Congress or get the courts to approve it. So that's something that is real presidential power. I think the real issue that Bob Leitheiser wanted to address and hasn't yet addressed because it wasn't politically feasible, is the China five issues.

Those are the issues that people think next ten twenty years are the more serious ones, which is to say that China wants to use its government money and resources to enable its companies to be a leader in semiconductor for auction, semichinductor sign artificial intelligence five G. That's the future of trade and the future of technology, and those

issues for lots of reasons, just couldn't be addressed right now. Yeah, And well, I mean and and that's the big question, right I mean, if we look at Phase one is a pause with some commitments from the Chinese on intellectual property that we don't know the details of yet, some commitments on currency manipulation to not do it, uh, some

commitments on opening up the financial sector. Uh. And of course these big agricultural purchases, the President saying that we're talking about two hundred billion dollars and purchases and manufactured and agricultural goods over two years. But I mean, really, this is a pause and the big issues like that issue, those issues of me and China, and the broader issue of industrial subsidies uh in China. I mean, that is what fueled the rise of industrial China, and that is

the reason we talk about China. Is this great economic power in the world today, is this web of industrial subsidies, whether it's cheap owns or cheap electricity, those aren't going away. Well, let me try to explain it in my terms that I often understand this. The trade deficit was a problem and it was very recognizable. So if you're a presidential candidate or president, you could say, the trade deficit is

too high. I've got to do something about it. This might have some moderating effect and it won't dramatically change it. But there hasn't been a political issue that people vote on China. People don't quite understand that. So if you're warning for re election in two thousand twenty, if you've got the Phase one deal done, I think you don't have any political problems of saying we'll deal with China later.

I think that's right. And I think you've also got these tariffs in place, which will satisfy the Hawks that you are taking action and that you are taking a hardline against China for the time big so Sean, before we let you go the other thing U s m c Asma as we so findly call it here on our show. Uh success, it happened now to two point? Oh well, it hasn't happened that just yet and closed

to have always the way with trade. Still needs to go through the Senate, but a a remarkable vote in the House of Representatives yesterday with three five members of the House voting to back this trade agreement. I go back to what Bob Leidheiser said two years ago when he said, I need to have a big bipartisan vote on a new NAFTA. And this is just a renegotiation of NAFTA, we need to remember. But I need to have a big bipartisan vote because I want to rewrite

the politics of trade in America. And the big question today is, now we've got this big bipartisan vote, are we going to go into a different world when it comes to the next trade A Graham, all right, We're gonna leave it there, Sean Donn and always good to catch up with you, Senior Trade reporter for Bloomberg. We're gonna be talking about trade a lot in I have a feeling, and we're gonna count on Sean. He always brings us the real contours of this, whether it's in

Michigan or as it relates to Booze. So stay tuned for all of that. You are listening to Bloomberg Business Week here on a Friday afternoon, Jason Kelly and David Reuben sign in our studio in Washington, d C. Well, let's talk a little bit about a big story in Bloomberg business Week magazine, on the Bloomberg and at Bloomberg dot Com. It's about Rudy Giuliani, client number one, that would be the President United States. A deep dive of sorts and the latest on the former mayor of New

York City. Stephanie joins us on the phone from London. Joel Weber, the editor Bloomberg business Week. He's in our Bloomberg Interactive Broker's studio. Stephanie, I want to start with you. You You have done so much great reporting about the UK, about Ukraine, about Rudy Giuliani. What is the state of Rudy at this point? Yeah, Well, Rudy has um Uh gone from wearing the hat of lawyer, consultant adviser to trying his hand at a form of journalism, if you

can call it that, um. And he's been working on this documentary series with a right wing clit cable news network called O A n about the whole Ukraine impeachment inquiry, and he flew to Ukraine um Uh this month to interview various characters that have appeared in this impeachment inquiry, specifically former prosecutors. And he's been pushing this out um

on his Twitter page and promoting it. He's been appearing less on Fox News and um you know, is trying to basically double down dial up the whole narrative that got Trump into the impeachment mess to begin with. Joel. So, you know, Stephanie has just done an incredible job on sort of this area of coverage. And we've done it in the magazine before from her. But the thing that I thought she did just an incredible job of revealing with this one is ultimately it's all about money for

Rudy and life is expensive. Stephanie, what what did? What? Does it turns out it's like every month his life costs how much. Yeah, we got some of these figures from his divorce proceedings. He recently settled a divorce from his third wife, UM and from that it was revealed that he had about thirty million in assets which he accumulated over the past two decades on the consulting and

legal circuit. But he was he and his ex now ex wife are now are spending two and thirty thousand dollars a month, So he has a very expensive lifestyle. And now when he stood down from his lall from Greenberg Tring to take on the role of Trump's personal lawyer, he did so unpaid, and he gave up about four to six million in annual income from his law firm,

which left a big hole. And I think that's part of this story with Rudy Giuliani over the past eighteen months is uh he was on the one hand representing Trump, but on the other hand still having to fill that financial gap um and that led him to take on multiple clients um. And as we know from his interactions with these two Soviet born uh emigres who were recently arrested and indicted on campaign finance violations, Leved Harness and

Ego Freuman. He took five thousand dollars from them last year and for what it what looked like a very shaky venture, um and from two characters who had a trail of debts, you know, behind them. And I think you know the driving force of Rudy Rudy Giuliani is is is partly money. And I think we still don't know where he has made his money while he's been representing Trump as his personal attorney. And I think that

is where the serious conflicts of interests arise. And I think you know now that near prosecutors are examining both his business and political dealings with partners and frewman Um. You know, I expect more to come out on that. So Jason, that two thirty a month stands out to me because it seems like maybe a little bit more than your life costs a little bit more when you guys, do you know a household budgeting? It strikes me as

a slightly high number. And I do think to Stephanie's point there it goes a long way in just sort of describing where what he's ultimately up against. Right, He's got to pay some bills and therefore there's a drive to actually like push the Rudy brand and all of its different facets to other corners of the world. Absolutely, I mean, you know, whatever he says that he's just Trump's personal lawyer or pro to that he was his

cybersecurity advisor. Internationally, whenever he goes abroad, he is presented in the media as Trump's advisor, and he's treated like a foreign dignitary. So when he goes around the world pitching for his security clients, whether it's Bahrain or whether it's giving a speech for Nancy Iran speech where he's paid, he has seen as internationally as a representative of Trump or as a as a conduit or some way to

get at Trump. Even though he will say very um, it's steadfastly that he does not lobby Trump, he does not engage in influence pedaling. Um. You know, the perception of clients abroad that hire him is that this is a way to get at Trump. David, what's your taking all this. I've never been prosecuted, and I've never been a prosecutor, so and I don't know Rudy Giuliani really

that well. He nice disclaimers, but I would say that my impression is that people who are being looked at by prosecutors are generally well advised to stay out of the press. The prosecutors do not like people who are being investigated to kind of be very visible and almost flaunting what they allegedly are being investigated for. So I assume his lawyers are telling him not to be on television that much, not to be too visible, And I think my impression would be that would be a very

good advice. But again I don't know the substance of what they're looking at, but I would say being low key for a few months or maybe longer would be a good good thing to do, I think, which doesn't seem to be in his constitution. I was gonna say, didn't get that memo. It's, uh, well, I can't. I can't say as somebody who has his own TV show and as on this show that, uh you should you know,

not be very visible. So I I, you know, I recognize the appeal of having a show or or being on radio, but I think it sometimes it's probably a good to lay low and just just do things that are counter to your nature. Right, Stephanie, what do you make of this sort of need to be so visible. Well, you know, there was a period there when he he has dialed back in terms of his media appearances. He has not been on Fox News as often as he

has been. You know, he used he was renowned for taking uh phone calls from any reporter who who could get a hold of his number. And I had that early on in the year when I started reporting on his foreign business dealings back in February March, he spent a lot of time on the phone with me. He's no, he's no longer doing that with everyone. He's being quite selective as to who he actually responds to. You're more likely, and I think this is across the board by multiple

reporters at different news outlets. You're more likely to get a text back from him than you already get a phone call, um, and that is very much different than it was at the beginning of the year. Now, having said that, in the past week or so, he does seem to be really dialing up, but he's doing it through this relatively safely fold format of this documentary series with this obscure channel. Alright, well, we learned a lot

from your reporting. Appreciate you as always. Stephanie Baker, Financial Investigations senior writer for Bloomberg Joinius on the phone from London, Joe Webber. Back in our Bloomberg Interactive Broker studio. You're listening to Bloomberg Business Week with Carol Masser and Jason Kelly on Bloomberg Radio. All right, well, let's do a little Bloomberg economics now, well business Week Economics here at the top of the three o'clock our Wall Street time

headed back to New York. I'm Jason Kelly here in Washington. But let's go back to our Bloomberg Interactor Broker studio for a moment. Alex Harris, their bond reporter, repo expert. All right, Harris, before we go into the weekend, tell us what we need to know that's going on. Is this whole repo mess solve now? Everything's good? Yeah, sure it is. Uh No, I think people are still keeping

a close eye on it. We have more of these term operations next week that are going to span the end of the year, and so what we're trying to gauge at this point is, you know, will the take up from the dealers be less than what the Fed

is offering? And is that starting to tell us that we might have some scarcity at the end of the year, you know, balance sheet scarcity, and and some difficulty intermediating in the repo market, which again we might not really know until we get to December thirty one, so everyone continues to keep an eye on it. I think it's probably going to be one of the more active segments of the fixed income market as we wind down the year, right, and the FED seems to be paying close attention to this.

Stare to say, oh, yeah, absolutely, you know, I know that. You know, Zultime Posar has has said, oh, you know, if this gets out of hand, the Fed's coming in with QUE four at the end of the year. Well, I think we're about six business days away from the end of the year, so I think it's pretty safe to say that we can we can all sort of

walk back that idea that they're coming in here. I think, you know, the ft is acknowledged that the repo market is going to be volatile, and I think people need to get used to that and remember that they just don't want so much volatility that it ends up moving the target policy rate, that FED funds rate and jeopardizes the target range, and so that's what they're really worrying about.

But really what we're looking ahead, we're looking ahead to because this is where you know, people want to know, Okay, the fat is pumping all this liquidity into the market, Well, how are they going to unwind it? Can they unwind it? And that's going to be the big question. And actually, uh, we try and preview this idea this weekend with our year ahead piece on all of this, because it is very difficult. We've seen that the Fed has no problem getting into the markets, but they really have a hard

time untangling themselves. And we saw that the balance sheet unwind. All right, we'll keep a close eye on it. We know you'll be keeping even closer eye on it. Alex Harrispond, reporter for Bloomberg, joining us in New York City. Well, turning our attention here to the nation's capital day of a drouven sign still with me, founder co founder of the Carlogge Group, co chairman, philanthropist, former economic advisor I believe domestic policy advisor to be more precise back in

the Carter administration. Peggy Collins is also here with the managing editor of all of our economic coverage here in the United States. She's in our ninety one studio. So, David, how does the economy feel at this point before we break it down with Peggy. The economy actually feels reasonably good. The problem is that people can't believe it's just good this late in the cycle. So we've never had an economic growth period this long, certainly since World War Two.

So people keep saying, how much longer can this keep going on for? And where are the signs of a crack? But there don't seem to be any signs of a crack. Everything seems to be going the way it should and even the uncertainty of the impeachment hasn't really affected the economy. So right now, I think it's in pretty good shape. What's your teamworking on, Pegs? Well, I think, as David said,

we're in the eleventh year of this record mansion. So the question is really looking at the consumer, because they are really holding up this economy. Right now. We've seen consumer spending continue to hold strong. We had new revised GDP data that came in earlier this morning that reflected that that's still going on, and so what we're really starting to look at is in will that hold up The other thing that's really driving this, which is in

conjunction with the consumer spending, is jobs. We've seen, you know, the lowest unemployment rate in fifty years that continues to hold, and you have some people looking at thinking that number could actually continue to go down. And one of those

people is FED Chairman J. Powell. He's really said, look, the economy is in a good place, and I think if we can continue to roll along at this rate, that we could draw even more people out of the off the sidelines and into the economy who traditionally have had a hard time finding jobs, whether you're marginalized because of your race, or disability or whatnot. You know, when you spend time in the markets and you go up and down over many, many years, you're always looking for

something bad to happen. And I suspect something bad will happen at some point, but I can't put my finger on what it is right now. The only issue that I would note is that the Congress just has agreed to a large spending bill, and we're going to be we're running deficits of one trillion one point two trillion dollars a year, three trillion dollars of debt. The markets seem to say big deal. Modern monetary theory says, who cares. But at some point I think we're gonna have to

pay the price. And I don't know when that's going to be, but at some point we're gonna have to deal with the debt. And there were some questions talking about the reboil market, which Alex is an expert on on whether or not some of that spending by the government actually may have contributed to some of the imbalances there. I also think we did see signs this year that

it's not rock solid. Right. So the trade war with the with the markets end with business investment was certainly something that started to have an effect on the manufacturing industry and business investment overall. You know, David better than probably anyone that when companies feel uncertain about where things are going, whether it's tax policy or the or the economy,

they hold back. And when they hold back on investment, research, development, and hiring, that can flow through to the economy in a negative way. What are bringing some headlines that are just crossing the bloomberg now? Courtesy of dal Jones. SEC Enforcement staff has sought information on listings from Citadel securities specifically related to the listenings of Slack and other unicorns, according to tal Jones uh and focusing in part on the first day of trading, we will continue to look

at that again. That breaking across the Bloomberg terminal right now, according to dal Jones, the SEC probing some listings there. So just in the forty five seconds or so we have left in this segment, David. From a policy perspective, how does it feel right now in terms of the administration and the Fed? I think the fetist feeling pretty good at better position right now. They've lowered interest rates

three times this year. Yeah, I think most economists think they've done a pretty good job reading where the market should be. I don't think there's a feeling we're going to have any increase anytime soon, but also no decrease anytime soon. So I think the Fed is feeling pretty good about the situation. They have to monitor the repo market, and I UH, I think Congress is feeling they've done

a reasonably good job leaving appeachment aside. They have not done anything to damage the economy, and the economy is moving along very nicely. Now. Some exogenous event of war breaking out, some pandemic breaking out can always make things different. But right now, I think people are gonna have a Christmas season that are going to be pretty filled with good times and not so much worries. There you go, all right, well, our thanks to Peggy Collins, managing editor

of our US economic coverage. Here in Washington, David Reuben signed sticking with me for a little bit longer. You are listening to Bloomberg Business Week. Jason Kelly and David Ruben signed here in Washington, d C. Back in our Bloomberg Interactive Broker's studio, the co founders and managing partners of Harlem Capital Partners. We're talking about Henri Pierre, Jocks and Jared Tingle. Gentlemen, welcome to the show. Thanks for having us. All right, so, Henry Ray, excuse me, let

me start with you. Tell us about the creation of Harlem Capital. What's the what's the story behind the story here? Yeah, So we started Harlem Capital December as an angel syndicate. We were investing our own personal capital. We worked on Wall Street, did that for about a year and a half. Realized there was a mark opportunity. People were talking about the lack of diverse founders, but we realized there was

a lack of diverse investors. And then once fast forward a year and a half, Jared and I went to Harvard Business School. We were roommates there. Decided once we got to school that we felt like we had built a track record and there was a large mark opportunity, and so we launched the fund between our first and second year of business school and then announced the closing on the fund UH two weeks ago. So how much

have you raised so far? So we raised forty million dollars for the first fun um and feel really fortunate to have six institutions who backed us. And what type of rates of return are you seeking for your investors? Yeah, so we're targeting for X gross for the fun giving. We're focused on seeds series a early stage from a check sized perspective. Typically we're doing a half a million ti million dollars and we're focused on women and minority founders based in the US and it can be anywhere

in the U S. Is that right correct? We've invested in eight cities across nine industries, and you're focused on any type of area of technology, healthcare, what what? What? What might it be. Yeah, so we're industry agnosticum, but we don't invest in biotech, crypto. We don't do capital intentive industries like energy or infrastructure, where micro fund like ours will just get too diluted long term. How many staff people do you have to help with the two

founders through the analysis? Sure? So it's us two founders, Henri and Jared. We have to venture partners Brandon and John. They both have more of a media entrepreneurship focus, but it's actually a pretty good angle. We get a lot of reach and a lot of great branding as a result. And then we have a senior associate who already joined us part time who will be joining us full time actually graduates from Yale Business School. And then we have another joining us as well who will be finishing up

ross Michigan NBA and will be joining us in June. Okay, So very often in these kinds of funds, uh, some investors say I want to get the highest rate of return I can, And I think emerging managers who are new will have some really great opportunities and other people are ignoring them, so I can get in cheaply and get a good rate of return because of the price is low and so forth. Other people say, I'm trying to create a social good and do something good for society.

So even if I get a lower rate of return, I think I'm helping society. Which of those two perspectives is that of your investors or yours? Yeah, I mean I think it's a combination of both. UM. We don't call ourselves an impact fund, were eventure fund with impact. We fundamentally believe that by investing underrepresenting founders, there's more

outfits to be made. Typically, when we see these founders at the seed stage, they've been in business for two or three years, they've generated revenue and have customers because a lot of them don't have family and and they can't do the early stage rounds they have to do. They have to generate revenue and oftentimes have higher margins in order to actually sustain the business before they can

do an institutionalized seed round. UM. And so for us, we think that you know, our impact is by creating more people of color and women, um who can have ownership and equity in their businesses. And we just fundamientily think that the wealth gap will not change just through education and six figure jobs, that you have to give equity to these founders, and it's been proven that a lot of them can't move up to the rankings in

the top of these large organizations. And your definition of an emerging manager would be somebody it is a minority or a woman, and they have to own a majority of the general partnership of the fund in which you're investing. Is that correct? Correct? Our core demographic as women of all racists and then black and Latino men. Just to clarify, we're investing in VC back startups, So you're investing in startups. Yeah. So so, Jared, let me ask you this in the

fundraising process, what was that like? What did you discover as you were going out to to institution ends who you know, as David just laid out, you know, may have different approaches to this, uh, this world of investing, that that, as you have said, is somewhat untapped. Sure. I think we realized three key things. One is that

people aren't as liquid as you think. So as we were going to our close network of former bosses, banking, m d s, etcetera, it became quickly clear that not a lot of people can write more than the Hunter k Check and the fund or at least feel comfortable doing that because they may have equity in their company, etcetera,

but not a lot of liquid assets. The second thing, we realized that sequencing matters, and so the way you go to market around building credibility with people that are close to you, then moving on to people outside your network they may have more capital, and then moving to

institutions is a path that worked well for us. But in general, I think building up momentum credibility methodically is really important because if we went to some of the institutions that ended up coming into our fun like Vanderbilt, etcetera, it would have been a much type of conversation and going to them after you already had to established ourselves. So and the last thing, it's just relationships matter. Even the biggest institutions. We had to get a warm introduction.

That's one of the reasons why weren't able to get in front of David. But hopefully for fund too may be able to do it. I'll take a look at it looking. I invested a lot of first funds. But let me ask you this, what did your family shaw you go to Harvard Business School, maybe called up some debt. They want you to go to Goldman, Sacks or Mackenzie and you're saying, no, I'm starting on a new fund that's going to be complicated to get off the ground.

But trust me, what did your family say only thirty seconds left? Yep, it was tough. I apply for big mega fund stuff. Um, we got a lot of traction. I think they said it was up to me, but everyone gave me pretty pretty negative feedback because until it's real, it's tough for people to see the vision. But the proof is in the pudding. And because we're able to execute, they ended up coming around eventually. Look, they told Warren Buffett he didn't know what he was doing at the

beginning either, so you might pull it off. Congratulations, all right, great to talk to you guys, and Ridy Pierre Jacques and Jared Tingle, co founders managing partners of Harlem Capital Partners. You are listening to Bloomberg Business Week. Well. Earlier this week on the David Reubenson Show Peer to Peer Conversations, Former Treasury Sectory Hank Paulson talked with David, my co host today about steering the US economy through the financial crisis back in O eight and the state of financial

authorities today. Let's listen in so Lehman was on the verge of going bankrupt and who did not have at that time the authority to save Lehman. I know everybody has asked you about that since then, But in hindsight, is there anything you could have done differently with respect to Lehman? Boy, I'll tell you, I don't think there was. We tried everything we could to get a buyer. Uh, Lehman, it was a bigger problem even than bear Stearns because

they're insolvent. There was a big capital hole. Uh. There was no way that alone was going to solve the problem. It was going to a capital or a loan guarantee. Okay, And ultimately the banking system came back and the financial system came back. But as you look at the system today, could something like that happen again? With the legislation we now have, are we better be able to protect against something like that? First of all, our financial system is

much stronger than was. The banks are better capitalized. It's much less likely to start in the US. There's less dry tinder to start a fire. But and I hate to say this, but we have less authorities today than we had that and the number one problem we had then, the number one problem by far, was we had a

financial system that had outgone our regulatory system. Our regulatory system and authorities have been put in place after the Great Depression when there was a run on banks and we had a situation where the credit was flowing outside of the banking system, all right, And that is former US Treasury six or Hank Paulson speaking with my co host today, David Rubinstein for his show that David Dubenstein show appeared to peer conversations. So, David, uh, that was

just a snippet from Hank Paulson. Obviously that was an unbelievable time. You lived through it as well. What did you take away from Hank in terms of his perspective now, you know, eleven years on from all of that, Well, I think he feels that they did everything they realistically could, and all the analyzes that have been done since then have not come up with anything that said they should have done this differently. They didn't create the financial problem,

they really inherited. It came about for many years of debt being built up. It's hard to believe. But the House of Representatives did not pay us to tarp legislation the first time, right, And that is when people thought we are going down because we didn't passed TARP, we have no remedy. Today, I think he's right, it would be harder for that to happen because we have greater

protections and so forth. What I actually got to the interview, though, in part, was this, Hank Paulson is unlike many former Treasury secretaries. They he has not gone back into business to make take advantage of his visibility, which he could have done. What he's done is he's basically um doing two things. Environmental protection in the United States. He's a big passion environmentalist and secondly improving U S. China relationships. But unlike many people go to China to do things there,

he has no interest in making money. He's only there to try to improve the relationship and in part to improve the environment there as well. So a very admirable person. And I was in the meeting that h the Bloomberg Organization organized recently at in China. The conference and S G Ping presided over the a meeting we had, and the two Americans who spoke who were most listened to the Chinese were Henry Kissinger, not surprisingly, and Hank Paulson.

And Hank Paulson has now been the China over a hundred and fifty times, my goodness, and so he is indefatigable and going there. He started when he was uh um and at the go office of of Goldman Sacks before he was CEO, and he knows this place as well as any business person in the world who's not Chinese. So very admirable person. And I think the interview was quite revealing. And so what does he say about the future of U S. China relationship. He think there is

some tension. He doesn't want to say everything is perfect. He would say that perhaps, And I think he said in the interview that the way that sometimes the administration articulates his position might not be the way he would have articulated it. But he likes to maintain his relationship with the administration, so he's pretty private about his views. But I think he does have enormous cloud in China, and I think he's got pretty good access to people

in this administration because they respect what he's done. You think other people will follow the playbook he has and not sort of go back into the money making realm posts. I think his view was he was never that interested in making a large sum of money and he was a Goldman. Goldman did very well. So he's not uh yeah, he's fine, but he's giving away all his money. Basically has uh committed to give his children are very modest amount of money relatively speaking, and and he's giving away

all of his money. Yeah. Interesting guy, Well, it's a really interesting interview. And we're gonna talk a little bit later in the show about what you've learned from this show. It's the David Ribbon Stidine Show, Peer to peer Conversations. This week's episode, the most recent episode. You just heard a snippet of it there is with former Treasury Treasury

Sector Excuse me, easy for me to say, Hank Paulson. Uh, you just heard a bit about steering the US economy that moment, uh, those critical critical moments when Lehman wasn't say bear Stearn's obviously saved and the brink of collapse that we certainly stared across steered into the ABYSS certainly just a few years ago a journal Yeah, but you let me drive. Oh no, no, no, no no, honey, please excuse me, I want to drive, Just drive baby. Good

questions the drive to the Globe Commune. Thanks, we'll drying us Dawn on Bloomberg Radio, and it's time for the Drive to the close. Now. Michael Cogino back with this, President and portfolio manager of the Permanent Portfolio family of funds, looking after about two point three billion dollars. He joins us on the phone from San Francisco here with David Rubinstein and myself in Washington. Michael, great to have you back. Good afternoon Jason and David, and happy holidays, Thank you

and to you all right. So we're coming towards the end of the year, the last working day for many people as they look forward to taking the week of Christmas off. How do you feel about twenty nineteen. I think it's been a real good year for a lot of different asset classes. If you look at what's going on this year, every asset class that's some degree has

had its day in the sun. Whether it's been gold and silver, whether it's been equities which you bled up all year, whether it was the rally in the bond market caused by the FEDS change in direction. So I think it's been a solid year all the way around. Economic growth has been maybe a little lesson people had

hoped for. Um. You know, you can point to trade issues and potential uncertainty with respect to monetary policy, um, But by large, um, you know, it's been a good year, and the expectations are it's going to continue at least into the first half of twenty I agree with that. I think people are feeling pretty good about next first first six months or next year. For sure, we don't

see any real clouds on horizon. Inevitably, something bad can happen, But right now I think people are feeling pretty good, and I expect that people are gonna feel pretty good during the Christmas season. And so, Michael, trade, is that something that you might worry about again or is this enough, this phase one deal to sort of take it essentially off the table from a or at least from the top of the list or near the top of the

list for investors to worry about. Well, as a broad statement, I think the trade has been reduced as a risk factor going into the new year. Now, when you say trade, you know there's a lot of subcompelments to that. So start. Yeah, I think it was a low, low expectations and low execution deal. Okay, they agreed on the simplest things they could.

That's probably all we're gonna get now, especially going into an election year, and there's some structural issues that really need to be ironed out that I don't think you're going to be short term solutions. So you did the best you could, and you took a risk off the table.

The new NAFTA, assuming it gets approved, not a whole lot different than the old NAFTA, maybe some marginal improvements, but again taking the risk off the table, ensuring that we've got Western Hemisphere free trade going on and maybe some improvements is a good thing for the markets. Um.

And then with Europe you have isolated issues. You know, the potential for a British British only deal has gone up quite a bit with an expectation of the recent action that um, you know we are going to have a Brexit, so that opens the door for an England deal.

And with the EU you've got isolated issues with various countries that I think can be worked out and probably for the benefit of all we ought to get along with those guys as best we could and clean up any loose ends and and have more freer trade there as well. So broadly, risk factors gone and hopefully optimistic viewpoints going forward. I think the President would no doubt say in the campaign, I got these two big trade

agreements done. I got the Korean in Japanese one as well, And you won't know, no one will know whether they really work until probably after next November, so for quite some time, I think somebody can say in the administration we got some deals got done, and then the will take their time to work their way through the system. So I think there'll be some bragging points the administration

would have. Obviously members of Congress want to take credit for U S m c A improvements, but I think the President will probably get the lion's share of the credit for that deal. And so when you talk to your customers, Michael, what are they most worried about as we think about the first three to six months of the year, You know, not really not much right now, which which is interesting because you know there are a

lot of risk factors out there. I think they've been clearly defined and and I think you get tired of talking about them sometimes. But by and large, the economy is working. People record low unemployment, consumers are spending, businesses are spending. The growth and clipper profits has been down, but clipper profits are still growing a little bit um and you've got lower corporate taxes, so more money is

being spent productively. Inflation is low, and monetary policy to cost the capital is low, so you don't generally see recessions start with that fact pattern, So that that's the reason for optimism, and realistically it's probably not misplaced given the landscape at the moment. These things can change quickly, though, and I think you need to keep that in mind.

And we are potentially late psychle. I think one of the biggest things the markets are dealing with is are we late cycle going into recession or are we pausing within a broader growth trend, And that seems to be the one big question I think investors are trying to figure out on our n and I think one of the big things that happened this year was that there was kind of the air taking out of the unicorns, particularly we work for example, and uber uh didn't do

quite as well as people had thought, and therefore you might expect that some people would say, well, well, let's be more wary of the technology cycle and also the technology sector. But I don't think that's really happened. Yes, there's a couple of people, a couple of deals people are worried about, but generally people are still putting money in venture capital, still still giving high valuations to our leading technology companies, and the leading technology companies are five

or six big technology companies are really booming. Yeah, absolutely, all right, Michael Cogino, we're going to let you go, Thank you so much, President, portfolio manager of the Permanent Portfolio family of funds about two point three billion dollars under management. He joined us on the phone from San Francisco. Well, David Rubinstein, I'm gonna you know, I'm gonna let you

get back to your actual day job. Although, let's be honest, like your coolest job is being the host of the David Uban sign Show, Right, that's what I look forward to the most. But since there's no carried interest in interviewing that, and I have to go back to my day job. But thank you very much for inviting me today. No, it's been a lot of fun, and I do wonder, you know, just in a couple of minutes we have left.

As you look back on twenty nineteen, like, what's going to be the defining moment you think from your perspective as an investor of philanthropist TV has Well, I'd say the economy. The big news of the year was basically that the the year powered through pretty well. We didn't get any of the recession kinds of things that actually people predicted at the beginning of the year. And politics,

the big news will obviously be the impeachment. UM. In international, I think the big news was probably the trade agreement with China, the first phase getting done, and the Brexit vote that occurred, and and and and the election in Europe UM. I think those are probably the big pieces of news. I think, Uh, Generally, people entered the year some somewhat nervous about the economy and the politics, and I think they're probably leaving the year feeling pretty good

about the economy. People probably know where the impeachment thing is going to go, so I don't think they're that worried about it, even though it's got to play itself out. So other than a new book from you in twenty what else can we expect from David Rubinstein. Well, I hope to lose with some pounds. I'm going to go exercise my usual five minutes a day. We'll probably go from five minutes or ten minutes um and hopefully I can lose a pound by during the year. Now, well,

that's a good goal. We all have to uh to have goals for sure, and I assume you will be active in your philanthropy as well. As I was landing last night in Washington, I marveled at the now repaired Washington Monument things. Yes, it's open, the elevators fixed, and now we're working on the Lincoln Memorial and the Jefferson Memorial and Arlington House. Hopefully the next year or two some of those will be open with those changes. All right, Well, a lot more to talk about when next you come

to visit. I really appreciate you spending some time with me today. Always good to have your perspective, And most pointedly, I loved being on the phone or on the air with you as you were talking to an emerging investor. I got a sense of what it might be like to be across the table from you Ray seeing some money. Thanks for listening to Bloomberg Business week. You can subscribe to the podcast on iTunes, SoundCloud, or Bloomberg dot com.

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