A Look At Cybersecurity, Taxes, And The Markets

way out of the risk. Uh, it continues to be an issue, whether it's Russian hackers, UM or just other state agents. Matt Hayden, he's a VP of Government Tech Solutions gov Tech Solutions at Exeiger Exeter. Thank you very much. Former Assistant Secretary of Homeland Security for cyber Infrastructure, Risk

and Resilience. Matt, give us a kind of a thirty thousand foot view where let's call it corporate America, if not the global economy, where are we in terms of really dealing with cybercrime on a on a kind of a global scale. Well, the negative side of things is that it's pretty bleak out there. You have a mix of criminal enterprises and nation state actors aggressively trying to take out or to capture private sector and government information. The good news is is that while it is a mess,

it's not as bleak as it could be. A majority of all of these operations and campaigns against our US companies are are coming through ransomware and other techniques such as phishing emails. To where there are ways we can get some of these protections in place to try and curb some of this and not at least be sitting ducks for a lot of this activity. And oh, by the way, welcome to National Critical Infrastructure Month, coming right

off Cybersecurity Information Month. So we're trying to hammer the public as best we can on all of this. They have a month for everything they do. How important is uh typto in UM cybersecurity or how much of a problem is it in terms of, you know, crimes being committed. I know that most crimes still, by far more than anything, are committed for dollars, But UM cyber has gained Crypto

has gained a lot of attention in terms of cybercrime. Well, it became the currency of of the day when it with ransomware operators ransomware has been around for a very long time. This is not a new approach to bugging and malwearing and challenging workstations and servers and platforms of life.

Where crypto came in is it allowed for those transactions, at least at the ten thousand foot level, to appear anonymous and to allow individuals to receive payment without the direct implifications of law enforcement being hot on their heels. And so that has allowed for this expansion, and then it also created a problem where these safe havens where law enforcement can't do direct action, such as Russia and other locations that are allowing this ransomware of spent up

further and further in these criminal enterprises. So, Matt, how much in terms of defense here? How much is it private versus public in terms of is it up to every company entity in and know itself to do it or what can the government do? So we use the term collective defense. That's not to say that it's on any one private sector partner to defend itself from a

nation state. But it's also to say that no one private sector partner should just not have those core cyber elements taken care of so that they become a weapon in this battle as a or and a victim as opposed to being a part of this collective defense where everyone is starting to make sure they're not easy targets. So what we have right now is hatch management. You know, if you're running software that has a vulnerability and there's

a patch for it, put it on there. If you're not doing that, you're opening your door to being not just hacked, but to be used after you get hacked

to go after somebody else. And so those those supply chain attacks and everything else on the line all stem from we've got to at least have a baseline of cybersecurity so that the government can do those more advanced features where they have the offensive campaign to try and take out some of the bad guy networks at the same time looking at what they can offer as far as domestic protection. All right, Matt, thanks so much for joining us. Matt Hayden there is the VP of gov

Tech Solutions over at Exeter. It's also the former Assistant Secretary of Homeland Security for cyber Infrastructure, Risk and Resilience, so he knows what he's talking about, and they certainly do at Exeter. Thanks so much. For joining us. This is Bloomberg. Now, as Paul said, we're gonna get over to Avery Sheffield right now, Senior PM of long short equity hedge fund Strategy at Rockefeller Asset Management. They have twelve n app billion dollars under under management. And let's

talk first every about your outlook for the retailers. We've got a lot of earnings coming up, and the consumer has been I think a really important part of UH this recovery as it is. UH, the consumer is a huge part of the US UM economy. But we've seen consumer confidence come down lately and that was a concern. It gave a lot of economist pause, are they going

to keep going out and spending money? Okay? Great? Great question? UH, And that has certainly been on on investor's minds because you know, as as we've seen a lot of UH retailer's report results really starting with you know, the very

strong results UM to one to two earnings. Even as two three has come in UM, you know, many of the stocks actually are below their their peaks from the spring with the and that's really due to the fact that everyone's very concerned about how are you going to comp the comp especially in Q one of next year Q four and Q one when you know, we we

basically will fully laugh the stimulus. And so look, I'm probably maybe I think that it's not going to be a universal situation where everything's going to do well or everything's not going to do well. Certainly this quarter and next year, I think we're gonna continue to see, um, you know what we've had at the beginnings of a bifurcation of those um those companies that sell things, sell items that were really under purchased in during covid um

with a farel accessories, shoes, etcetera. UM kind of topping the list of areas that have been underserved and have a real potential for upside um and those categories you know that that we're really strong during covid Um may

be going to be more bifurcated. Right. Demand still looks to be strong for home improvement, but home furnishing is pulling back, and I think that, you know, next year, as we move more towards UM people purchasing experiences, those kind of larger ticket items are going to be more vulnerable.

And if you're going to own the stocks of companies that sell those items, you really want to be very careful and focus on the winners versus you know, in the apparel cruises like Disney, Like, uh, what what are you talking about? Yeah? So, I mean in terms of places where we expect people to be spending more. UM, I mean, the theme parks are absolutely an area that

we are very constructive on, both near term and longer term. UM. The results we've already seen and the data points you can get from just looking at UM at their their reports of like their taxes to the various municipalities, very strong sales pricing power. I think they'll be able to more than offset labor costs. And that's the place where there are some stocks that are still quite cheap. You know.

For us, the key is, I mean to find stocks that don't haven't already priced in a very strong recovery. And the theme parks are one area where we do think that there's there's real potential. Disney in particular has a large digital business, so it's not a pure play on this dynamic. See, I'm not sure that you might. I'm not sure if you're a cruiser or not. I'm not what do you think of the cruise industry area that's when it just vexes me. I mean, I can't

imagine get back on a cruise. I want to try it now. I've never done the big like an ocean cruise. You know, how do you think about that? Because those cruisers are hardcore people. Yes, uh, you know. I actually haven't been on a cruise um for many years um, but really enjoyed it. And actually my husband and I were just talking, I think yesterday about potentially taking a cruise this summer. I think the demand for cruises is going to be off the charts um next year and

for the next several years. You know, from a stock perspective, it's a little harder because these companies have you know, deluted equity taken on a lot of debt um. So if you look at the stock price chart, you know, you'd think, okay, everything gets better. You know that the stocks have a double or a triple in them. I'm not sure they have a double or a triple um just because of the you know, the different capital structure.

But I think that what the surprise really is going to be is the level of demand and the pricing power these companies. And I wouldn't be surprised if their net incomes over the next few years actually exceed the pre COVID net income, their pre COVID net income, and that would probably suggest upside from these levels. I think more people have heard about and thought about cruises because of the pandemic, and so many people at first like I'd never go on, you know, just a floating box

of virus. You know. On the other hand, people probably like you, have given it now more thought, and I will say, it's not all about you know, Carnival in the Caribbean. You could do a Lynnblad cruise up and down the Nile. You could go to Antarctica, you could

go to the Galapago. So there's other stuff, a little bit more highbrow, more down your alley, I say, alright, so certainly, yeah, interesting every just real quick, e commerce, the trends we saw those are here to stay, right, I mean, they pulled three or four years of demand for it, but there's they're they're here to stay. I'm not really so sure. Actually, I know that this is very controversial, UM, but I think they might have pulled forward more than the natural run rate of demand. UM.

Then will potentially ever see in certain sectors. I mean, what's really been fascinating to me about this year is seeing the declines off of last year's high and everyone's just focused on the two year UM. But you know, if e commerce is the be all end all of shopping, you know, if everyone tried it, that would ever consider China and basically every category. If it's so great, um universally, why aren't wise and e commerce up for most companies?

You know? Instead, we're absolutely seeing the opposite. I mean even you know when the largest e commerce companies in the world report last quarter, I mean, e commerce is still up, but it was US actually only three per cent for UM and that's globally for I think I'll venture, I think I'll back go back to the Short Hills Mall at some point we'll see, all right, Avery Sheffield, Senior PM, along short equity hedge one strategy of Rockefeller

Asset Management. Let's get more serious now. Bill Smith joins US National Director of Tax Technical Services at c BIZ mhm's National tax Office. If you tell somebody your job title in a bar, Bill uh that your name is an easy one to remember, but your job title and the name of the company, You've got to give him a big card. I'm guessing, well that you're the only person who's ever gotten all the way through it correctly,

So kudos to you. Let's get to the to the tax provisions that we're watching here, and I don't know how seriously we have to take them, since Joe Mansion doesn't seem even playing ball. But what do you expect in terms of changes to the tax code. We'll start with the corporate tax code um from the US government.

Oh well, if if we can rely on the House Ways and means right up and the m the framework that was released by the White House, there's some big changes and a lot of interest in what's not included in the latest write up. So we've got the swing back to the big alternative minimum tax for corporation. It went from a hundred million dollars in the campaign to two billion dollars in the prior write up down to one billion dollars. And that's a really alternative minimum tax

for corporations with book profits. Uh where that where not they are not paying any tax. Secondly, there is going to be an excise tax on redemption, so corporations publicly traded corporations who buy back their stock in order to reduce the outstanding numbers are going to have to pay a surcharge on that, with the intention that they want uh the excess funds to be reinvested in what the corporation's core businesses, not in trying to just buy their

stock back. Um. There are a lot of other provisions, including limitations on certain interest expense deductions and losses, but those are the two big ones and sort of a hybrid between business and personal or the changes to the Section twelve O two rules. That's the qualified small business stock where depending on the time you bought it, if you bought the original issuance from a C corporation and it met certain parameters, you could exclude either fifty seventy

or a hundred percent of the game. That is, now, if this goes through, that's gonna be whittled back to remove the hundred percent and the seventy five percent, so we'll be back to what was the original Section twelve O two rules allowed. There's a lot of like, let's get to the one that's near and dear to Matt's hard because it goes no, it goes right to his wallet. The millionaires surtax a new surtax of place a five percent levy on incomes above ten million? Is that a

good idea? Is that gonna get done? Is that a good idea? Because I mean, well, I thought this was all written in stone, because I didn't think that the president would have the press release and get the right up out of House ways and means the same day if he didn't have the votes. We now see that

maybe he doesn't have the votes. But there's been so much back and forth on what will pay for the spend, which is down to half of what it was from three and a half trillion to one point seven five essentially maybe one point eight five if you include the immigration But that's in there as a big pay for for this particular bill. So if it goes through like we think it will, assuming they get Joe Manchin on board and Kirsten Cinema, then that'll be in there. And

you pegged it pretty accurately. This reminds me that, um, the Penn Wharton School looked at this uh tramework framework, I guess of the word, we're using one point seven five trillion, But they've gotten there by cutting the number of years certain benefits run, like the expand Child Tax Credit and of course, the Democrats are hoping that just gets renewed later on. So now Penn is saying it

could be actually a four trillion dollar cost. And this is the kind of slippery slope that people like Joe Manchin and Christen Cinema may be worried about. Absolutely, and that is in fact how they cut the number down. So, as you said, the hope is sort of like the Bush tax cuts, when we would have extender legislation at the end of December every year. They're hoping that once it's on the books and people are used to it,

so to speak, they'll get extended. And it's a little bit like when you do a reconciliation bill, which this is, and you're dealing with the ten year budget window. You can't increase the depth sit outside the ten year window. What they did was say we're just gonna cut it back down to five years. Essentially, that'll cut the spin down and we'll hope it gets re upped each time. It's about the sunset, all right, A lot a lot

of moving parts there for this framework. Bill Smith, National Director of Tax Technical Services for c BIZ m h M S National Tax Office, giving us the latest just get over now to Tom string Fellow's chief Investments IgG just an argent trust company a thirty five billion dollars in assets under management, And Tom, we've been talking for a long time about inflation, the markets concerns, but they seem to be UM continuing to to to climb, and

the idea that inflation was transit transitory UM seems to be pushed further and further by the wayside. What do you expect from the Fed tomorrow? Well, I think they may kind of redefined transitory. I just kind of been interesting as we've been talking about this and halfway expected some nervousness to creep into the market, you know, whether it's a oh it's so u on the basis premise of inflation, and we've not seen that kind of set off.

And yeah, we've certainly not seen investors rushing into gold. You know, looked that a few minutes ago. And you know, if I just looked at two elements, inflation and gold trying to price in you know, some of the extreme inflation scenarios I've heard about, it just hasn't happened. Tom. We're about six the way through earnings for the spi UM, very strong numbers, Are they strong enough to support the

evaluation in this market? Yeah, when you look at market multiples, I think things are still kind of stretched, and we're still looking at a four twelve opee. It's closer to about twenty one time, so you know, that's certainly pushing averages. But you know, we're not out of a liquid fuel market yet. You know, we've still got a lot of

balance sheet liquidity the Fed's put out there. Obviously tapering is going to start changing that a little bit, but yeah, I think the market takes over that versus needing government support. You know, the earning sticture is certainly driving the underlying support. Maybe it's raising the floor of support for corporate earnings and evaluations today because you know, when I look at other asset classes again, you know, what are our choices

versus cash and the extinct um. So you know, I could rationalize earnings growth is fueling at the market drive this year. Go back cope years ago when we first had a real noticeable market run, and you know it was all over the premise of you know, in the

actualization of tax rates moving up. So you know, now we're in an uncertain picture of what taxes are looking like the corporate earnings are still solid full trin down next year, but they'll still be positive investors living We're probably basing their decisions on earnings and visibility, which we actually have this year. But do you expect earnings the beats have been getting smaller, or at least the the amount by which companies have been beating are as, earnings

growth slowing down as we get further away from you know, March. Oh, absolutely, you know, I suspect that while they stay positive, you know, we're not going to see uh, you know, core re angulize earnings growth numbers that are and U plus or minus start you know, it's I think kind of mathematically and won't happen. And if it does, and what we start really worrying about is is a FED starting to push rates a lot faster than you know, what the

premises of a couple of times this next year. But earning beats will slow down, the percentage of growth will slow down. But we're still getting into a pretty robust environment that you know, assuming and get rid of the lugeam that's you know, in the ports of l A and Long Beach, and that's not an overnight event. You know, I think we see kind of a trickle through earning sustainability as things come through, and you know, this is

probably three to six month time frame. You know, hopefully you know, everybody has a great Christmas and gets the toys under the under the tree from the truck that's sitting on the port. But you know, I see things rolling out through next year slowing down. Let a sustainable rollout of goods which will support you know, the demand that's still out there. We've not seen it. You will slow down in in demand. What we're seeing is a uh you know, a port fuel you know, kind of

a surplus uh rundown. That doesn't that doesn't a bad picture for next year. It we'll see more of volatilo and people are trying to come up with the rationale for how long taking. But I don't think that's it's a long term negative, right Hey, Tom, thanks so much

for joining us. Really appreciate it. Tom Stringfellow, chief investment strategist at Argent Trust Company from San Antonio, Texas, home of u s a A, the former home of Clear Channel Communications, at one time the largest radio operator back in the day, spent a lot of time in San Antonio. Believe it's the home of Greg Jarrett. Great Jarrett's got it's the birth home. It's the birth home of Greg Jarrett. Yeah, I can't keep track. I need the book. I'm waiting

for the book to come out. I mean, there's just so much going on with that guy. So we'll see here. But again, Uh, Tom Stringfeld another one of those folks that says, you know, we're we've got a little bit more room left to go. Uh in this market. I know that wall of worry out there, uh is definitely real, and there's a lot of meaningful bricks in that wall of worry, whether it's inflation UM or the FED or

you know, uh, some of these supply chain BOTTLENECKSUM. But the stocks keep moving higher, and again we've got green on the screen. Uh here today. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Pt on Ball Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio