After Selling Patron, John Paul DeJoria Turns To Rok Mobile

Patron at about five billion dollars. It's expected to close in the first half of the year. Joining us now in a studio is a co founder and chairman of the board of John Paul Mitchell Systems and co founder of Patron Tequila. John Paul Or thanks very much for being in the studio. Oh, my friend, always always a joy interviewing with. All Right, let's just I want to get to set this stage because let's go back to nine.

You are interested in having a friend of yours bring back a bottle of tequila from Mexico and he brings back a hand blown bottle and you and Martin Crowley, Yes, that's correct. You guys decide, oh, we'll make twelve thousand bottles and priced him at thirty seven bucks a bottle, very very close. He came back with a couple of bottles of what I said, Martin, when you go down there,

bring back whatever the aristocrats drink. So he found these bottles, very slim, good bottles, and it was the smoothest I ever drink. He said, But JP, I met this guy named Francisco Alcarez and he could make it even smoother. And then he had this bottle he showed me that was out of blown glass he got in some uh uh you know, gift shop. He says, we could do this, and I said, can we do it out of recycled glass?

He goes yeah. I said, well what that, Let's make twelve tho bottles and uh, you know it's gonna be very expensive. Well, it was very expensive. We had to sell it for thirty seven ninety five in nine when the average tequila I think was four or five dollars and the best one around was fourteen. So we actually started in the United States altar premium tequila. But we thought, you know what a great thing like tequila you could sip and not have to put into Margarita of that quality,

you don't get that big hangover the next day. Not bad. So we want to come out with quality. We be in reorder business. It started out very slowly, by the way, but then people realized, wow, I want to treat myself. This is really good. And with a lot of friends that kind of pitched in to lend a helping hand, is started to take off and off and off, and then zoom. And then unfortunately, uh oh beckon about two thousand and three, my partner had a little bout at

heart attack. Uh and Ed Brown took over as our president. He was in sales at the time. It should have been the president. Great guy, and it went just straight up in the air. It's really a phenomena. But it shows you that America still works. And if you go for a high quality in any product and you don't lessen that quality and give people what they really would like, you've got one of a chance of making it well and you keep that quality going. And that's gonna happen,

by the way, even with the sale to Bacardi. Uh that's it's gonna happen because they've agreed to keep everything exactly the way it is keep our staff in place and work with me on philanthropy and the good conditions and the high quality that we have and not step away from it. And you self funded, patron, Yeah, self fund it, totally self funded. So why did you decide

to sell now? A couple of reasons. One, we've taken it where no one's ever gone before with any tequila, let alone Altar Premium tequila were there and it was a lot of fun. Well, I'd like to take it to the next stage right now. And someone like Baccardi that has their own and they've been our distributed in many parts of the world, but now that they have a piece of it, they could double what we're doing right now. And I know that because the product is

that good. So I'm excited to see this product that I was the father of continue to grow and grow and grow. Uh. And it's just the ideal time to do it. I get more involved in my philanthropic work, which I love. And I'm also working on another major, major thing, which will announce with you guys another two or three months through through rock r Okay Mobile that is going to change the whole world for the better

for all people. So involvement. So I'm just wondering, do you think that it would be harder for an entrepreneur to start a business today than it was back in No, not at all. I think it's so much easier today because when I started Paul Mitchell in night seven, inflation in the United States was twelve and a half percent, unemployment ten and a half percent. If you could get alone, if you could get a loan, prime rate in one was seventeen percent. I mean, it was very difficult, and

we have computers. In those days, we were to set time to make a business card. So today you can make it, I believe a lot easier. But the two things you've got to do if you start a business is make sure that your product or your service is so darn good. You're not in the selling business. During the reorder business. When they get it, they would like it so much they want to reorder it. Make sure that quality is the and at the same time, be

sure that you could overcome rejection. You're gonna get a lot of rejection, and if you know you're gonna get it, it's not gonna hurt you so much. You're not gonna give up after a hundred doors are slamming your face like I did when I sold Encyclomphedias door to door. You just keep on going to vet. You're gonna get it. One of the things you do have, though, is competition. I note that just acquired George Clooney's a high end Casa Amigos tequila brand. I guess that deal was reported

to be worth about a billion dollars. Valuing Patron at five point one billion, that's pretty high. Well, if you valued Patron the same way, uh, the group with their one of them, a couple of friends find that they were part of the owners with them. If I did it that way, Patron would be twenty four billion dollars right now. So if you go on what you do the abada and how many cases you sell. But that's

just crazy, you know. But because Clooney was involved, and I'm sure they could use it for a lot of publicity to them, it made sense. I would love to get that, but you know, and but you know, no one's gonna pay that kind of big money. However, I think at five billion, one million, we did extremely well. I'm very very happy and as you know and have said many times, for seventy of a cumpany top that's a home run. Congratulations. Think I could do a whole

lot more to help change your world with us. Thank you so much for being with us. It really is fascinating, and I want to care about selling Encyclopedia's door to door and we'll start sometime because you're fascinating and maybe perhaps can be an inspiration for my two little sons. First, you have to first have to explain to them what our encyclopedias, Yeah, they don't actually true. It is that we are not around anymore. And tell them to watch

Good Fortune the movie. It was just reallyas you get it on you know, Amazon iTunes. What a good Fortunately the movie. Let your kids watch it shows you how to go from homeless and no money, no influence, being fired many times, and make it in America and you can still do in other countries too. John Paul Gagoria, thank you so much for being with us. John Paul Gagoria as billionaire, co founder and chief executive officer Pau Mitcher and the owner of Patron Spirits, which was just

sold to stocks. Gold and oil are up, bonds in the US dollar are down. Jim Bianco is the president and founder of Bianco Research. He joins us from Chicago. Jim, always a pleasure. Do you think that the dollar weakness will continue? I think over the very short term it will continue because it's got momentum, it's got the Treasury Secretary, it's got a lot of that going. But I do think we're in the late stages of this move. The

dollars at uh significant highs. Speculation, you know, what we call the crowded trade is getting pretty frothy right now. Everybody's in this trade. There's not a lot of people that are actually still long the dollar, and among the speculative categories in words, they're they're long. There's a crowded trade to short sell the dollar, correct, right the crowded trade is there short to dollar or long currencies? Right now?

If you dial up your favorite billionaire at Davos or your favorite hedge fund manager, they're all going to sound the same when it comes to the dollar. It's just gonna keep going down. That's why I think it's at the late stages. Doesn't mean that today or tomorrow, this week is the high, because it's got the momentum going, but it is getting old. This rally speak currency rally dollar weakness, what's gonna make it strengthen? What's the catalyst

and when strengthened against which currency? And which is an important sort of cross to look at. Isn't the US euro the dollar euro? Or is it dollar again? Dollar? Bitcoin? Yeah, it's all our bitcoin, the key indicator that you watch every morning. I watch it, but it's not yet to a key indicator yet. Uh No. But I think one of the things is to your question, you're right that what what crush you'll be looking at right now? Because

the currency should have their own cycles. Some of them should be going up against the dollars, some of them should be sideways, some of them should be down. But right now, as a sign of the speculative frost, the dollar is going down against pretty much everything. Um for now you can so I look at the d X, Y, the the index or the euro understanding that this is a dollar trade. What's gonna change it? I think when we get off of focusing on the dollar, remember with

the currency, there's two sides of the trade. There's what is U s policy? What are US rates? Oh? Yeah, but then there's also what are European policies? What are European rates, and that those are being largely ignored and everything has been focused to US centric. When I think we start focusing on what our Japanese policies and rates, and what are European policies of rates, and what are British policies and rates, I then think that this dollar

weakness will start to peter out. But we're not doing that right now. Well, the rally in stocks peter out. The only in stocks is a little different animal altogether. UM. Following the tax hike or excuse me, following the tax cut, analysts have aggressively hiked their earnings forecast. So for all of seventeen, they're expecting about twelve to fourteen percent gained year over year in earnings. For all of eighteen, they're

expecting another eighteen percent. If you had to two together, that's thirty six percent between last year and this year, justin earnings. The stock markets up twenty eight percent. Maybe with today's rally, UM, it hasn't even caught up to earnings. There has been no multiple expansion at this point. That will come once we get beyond the thirty six percent rally from the beginning of last year. We're up twenty nine right now, if and this is a critical list,

the analysts expectations are right. But I think what's got the market going right now is these aggressive um increases in earnings estimates. All of the companies that have been giving very positive guidance. Right now, you could actually make the case that after rally that we've had, evaluations are really not much different than they were eighteen months ago because there's been such an aggressive uptick in earnings. It's

all about that right now. The earning story seems to be working, So I think the stock market is going to continue to work for a while. All right, So let's turn to bonds. Uh. There is a lot of talk that yields are heading higher, potentially much higher. And uh.

We saw Ray Dalio, the founder and the head of Bridgewater, come out and say that if the tenure treasury yield moves up by another hundred basis points, by another one percentage point, Uh, this will be the biggest bond bear market since the early eighties, and it will sort of

affect markets accordingly. What's your take on this? Um. What he's explaining there is the simple math of the bond market, a phrase that will make everybody fall asleep as positive convexity that as yields get very very low, the sensitivity that a bond has to interest rate movements sensitivey bond price has to interestrate movements. Is that a record high. So when you get a one percent move in bonds

right now, you get an enormous move in price. Different than when you had a one percent move in interest rates when we were at ten percent thirty years ago, you got a very smaller price. Uh. He's mechanically correct on that. But now that that said, there's only one reason that we would have a hundred basis point rise on the long end of the yield curve. And I think that that's if we had solid evidence of inflation returning. Now. The problem with that is everybody's got models and indicators

and they all say inflation is gonna return. They also said that last year. They also said that three years ago, they said that five years ago, and they said that seven years ago. Uh. The models that inflation should have

returned five years ago, it has not. The Federal Reserve Janet Yelling herself has even thrown her hands in the air and said they're not sure why inflation has it returned, and the data dependent FET is now using words like guess when it comes to where inflation is going to go next, because their models don't work anymore on this. If we get inflation, then yes, we could see a

bond route. I'm fully in that camp. The problem is the indicators that say that it will return are there, but they've been there for five years and it's still has it returned, So maybe this is the year it's right, or maybe this isn't just yet another false start, So we're all back to guessing on inflation, and I don't like guessing. I'll stick. If I had to push your pull, I think, yeah, you're gonna probably see yields creep up a little bit more in the next month or two

on the fear of inflation. But I think by the time you get into the later half of this will probably be another false start. Maybe those inflation measures are just playing wrong. Maybe they need a new inflation measure. I think they need. I think they need a new understanding. I think the effect of Amazon and the Internet on inflation is profound. The problem is the FED wants to know when it's going to go up forty basis points. We know that that the internet in Amazon is holding

it down. We just don't know by how much and how to model that yet. Maybe they need to include food and energy in their inflation estimates. But let me ask you about the tenure treasury right where at two six how much uh further does the yield have to move in order for Jim Bianco to say I'm done with stocks. I'm buying ten years, Thank you very much. I'll take my two point uh. I think that you know, it actually doesn't one of two things. Either, it moves

to near three percent thirty the ten year. Excuse me. If we get a three percent yield on that, I think that that could be damaging for the stock market in the economy if we were to get that. But I think to get that we would need inflation. If we don't get inflation, then I think what happens is we're gonna be at Defet's going to raise rates. The yield curve is going to flatten quite a bit. Uh. The yield curve has forecasted correctly every recession since nineteen sixty.

We get that flatten yield curve, it's gonna freak everybody out that a recession is coming. That could be damaging for the market. To Jim Bianco, thank you so much for joining us, President and founder of Bianco Research, also

a Bloomberg profit. The shares are General Electric are down three tenths of a percent right now, and the company has revealed that the Securities and Exchange Commission is looking into the way that it has accounted for some of its past insurance businesses as well as its revenue recognition program. Here to tell us more, Brooks Sutherland our m and a columnist and Bloomberg gad fly when it comes to all things g E and Brooke can be followed on Twitter at b L Seth s U t h Alright,

b L Suth, g E and the SEC. What does the SEC want to know about? So they're reviewing two things is what we learned today. So they're looking into the process leading up to UM. You know gees announcement last week that it's taking a six point two billion after tax charger and its insurance business is paying fifteen

billion over seven years to shore up reserves there. Now, that is a business that you know, g E largely divested between two thousand and four and two thousand and six, so it's been in runoff, they haven't been issuing new businesses, and they've done this review annually ever since. So then to all of a sudden see this need to you know, put fifteen billion to shore up their reserves. I think

obviously raises a lot of questions. So to me, it would be more surprising if the SEC wasn't looking into this. But the interesting thing is the second part of this that they're also looking at gees revenue recognition practice and its controls around its long term service agreements. Now this has been it's a little complicated, but it's been a big sort of watch item for analysts because gees contract

assets have searched over the past couple of years. And what those are are, you know, agreements that ge signs with clients and it goes ahead and books the earnings but not the cash, which then you know is delivered when these service agreements are sort of completed. Now, the concern is that when those agreements were signed, the underlying sort of profitability assumptions may not have been conservative enough. When you look specifically at the power market and how

significantly that's deteriorated. I think you have to wonder, you know what we're sort of the baseline assumptions when those agreements were made and those earnings were booked, and so I think that was something analysts were very concerned about. Now the SEC is looking into it again, not totally surprising, but I think, you know, that's certainly going to be

important to watch. So frankly, it's sort of shocking that the shares aren't own more because if you start talking about potential accounting I don't want to say fraud, but malfeasance over years or at least, you know, some kind of fudging of the numbers over years and years that

calls into question a lot of things about this company. Sure, and I want to be clear, I mean, I don't think we're talking necessarily about fraud here, but if the baseline assumptions were too optimistic, then they have to be rethought. I mean it, we still have a lot to learn about this, the SEC investigators in still very early days. But yes, I mean it certainly does raise a lot

of questions. I think the reason why the stock is not down more is that people have been worried about this for a while, that this issue, you know, is now sort of playing out because we have this sec headline, but the contract bassets have been something that have been, you know, sort of on analyst radar for a very long time, and it's a big reason why g had the cash shortfall that it did because again it's you know, it's sort of booking these as earnings but not getting

the cash, and that's why you've seen the divergence and its actual earnings and free cash flow. So one thing I'm struggling with, so General Electric has a hundred and twenty six billion dollars of debt outstanding. They're at investment grade rated company in the A rating sphere. I'm trying to understand at what point do they get downgraded and all of a sudden, those borrowing costs just surge, piling on yet another concern, another big worry for investors right now.

And the rating agencies came out and they did affirm ges credit ratings after it took that charge and insurance. Now, I don't know if they're going to be reevaluating that as we get more information, but that is certainly something that investors and analysts are worried about, and you know, I think they're concerned because a lot of times when you see companies take these charges to to shore a preserve.

Usually the first number is not the last number. And if you start talking about maybe g E Capital needing more reserves for the insurance business as well as other liabilities that they have. They have this subprime mortgage business that's still laying around and some other potential issues, then you start to get into a question of cane Capital pay all those bills on its own, does it start eating money from the parent company, and then that becomes

a really serious concern for the credit rating. You also have to worry about, you know, goodwill on the Alston acquisition that they did in fifteen is very high. That acquisition is obviously disappointed. Could there be a good will impairment, which you know that's a non cash charge, but that would play into credit rating concerns. Alright, Just to go back for a second, because I want to understand this

in detail. G E Power signed a recently signed a twenty five year, three and thirty million dollar maintenance service contract with the owners of a new power plant in Mexico. It's just south of El Paso at Cirez. How would this contract relate to this investigation if indeed that was part of it. What would be an example of how

that would work. Well, if it's a new contract, that's probably less of a concern because the underlying assumptions for that probably stuck a better relative to the current dynamics in the market. I think the concern is some of these contracts. But all right, so a legacy contracts. So let's say you had a legacy contract and you're in year ten of a twenty five year contract. You then you made certain assumptions about how much that was worth, and now it turns out that contract is not worth

that much because power markets have deteriorated. What is deteriorated, so the demand for the products that GE produces has significantly dropped off. And that's you know, been seeing not just a GE but at Semens. But what we're also seeing is very increased competition in the service markets. And now that is a concern because service is where companies like GE, Siemens, you know, really make all of their profits. I mean, this is the lucrative revenue stream. It's more predictable.

But when you start having a lot of competition and low demand, then you get into a question of what prices can you really charge for those services and customers are pushing back on price and ge. You know, having the most market share has the most to lose and that Brooke Sutherland, thank you so much. This is a

fascinating issue. Really laid it out tremendously well. Brooks Sutherland, Bloomberg gad Fly columnist, UH covering the industrial space, UH, talking about general electric and a lot of questions to be answered. The SEC is looking for some answers as well. There's growing interest and investing in cryptocurrencies as well as the technology underpinning cryptocurrencies like bitcoin, and that is blockchain.

And here to talk to us about that is Dr Steve Waterhouse, CEO and co founder of orchids Labs in San Francisco. He comes to us from Davos, Switzerland. Uh. Steve, thank you so much for being with us. First, I just want you to tell us a little bit about what orchid Labs is. Is a new blockchain based approach to UM anti surveillance, anti censorship on the Internet UM. It's an incentivized network where participants are paid to provide bandwidth to other users UM and people pay a small

amount to access the Internet in the fashion. It's funded by a number of the top French of Apple firms in San Francisco and around the world. UM, and we have a star team of open source experts from the blockchain world and also other areas early units and SDA. Which is the job. I can see iPhone, but can you just tell us a little bit exactly what it does it do? Is this just a conduit for investors

in these new technologies or is it itself participating UM? Well, it's it's certainly a way to invest in the space. But the purpose of the system is to sit above the regular Internet and below applications such as WhatsApp and provide a new UM mechanism to access the Internet in which are not being tracked by your carrier or by

corporations or by the government. So the idea here is basically that if somebody doesn't want to be tracked, they could buy bandwidth from somebody else, use their bandwidth and thus not be seen as themselves, but rather sort of be viewed as the other person or the other bandwidth user. Correct, UM,

it's not so much for that purpose. Is actually more an anonymization technology UM in the form of UM allowing people to access this UH, not necessarily as someone else, But in our system there's no real way of tracing UM the information back to the originating requester UM by the website or the other resource on the Internet which

they're accessing. Thus also go ahead. I was just gonna say, who would be the main user of this, Well, I think obviously there's countries like China which have very strong markets for this, where there's heavy surveillance of the population. UM. The Middle East, where we have you know, very significant human rights issues now is also a very strong market for this. But increasingly, with things like net New Charity being over termed, the US is becoming a major opportunity

area too. And who would be the provider of the bandwidth? Well, it could be you. Um, you could set up your computer and run one of our clients and I provide that you could potentially do it with your iPhone in a smaller capacity, or people could use server farms to provide this kind of capability and contry such as Cleanland,

which have incredibly strong data privacy laws. Our targets for data centers like this, and we're in talks with a number of people, including VPN providers, who want to partner with us to provide this enhanced capability to their customers. And how do you make money? So our systems actually free UM from us. In other words, people pay other people in the network to get that band red allocation.

Our approaches a little bit like the creators of bitcoin, who we still don't know or ethereum in that we create a new currency UM, which we believe, as the network increases in usage, might drive in value. I can't obviously provide investment advice here, but that is the belief of our system. Just like currencies, when they increase in the utility become valuable. What backs the currency We'll walk back to the full faith and credit of the US

government and its ability to tax its citizens. Very good UM economics mondel one, Right, UM. I mean we could argue for a while about what does intrinsic value you mean? And if anything really does UM? But you know, I think since we moved back past the gold standard UM, and I'm not an economist, I'm more of a computer scientist, then gold, which really doesn't have that much intrinsic value either,

UM was the capability to back things. What backs our network is utility, just like the backing of the cloin or etherium. In using these new types of occurrencies, would you have to register with a government if indeed a transaction took place outside the jurisdiction of let's say Greenland. Um. No, in our system, there's no way to trace who's using the network at all. We don't keep records. We can't be subpoena to release those records on like BP and

companies UM. And that's basically the whole idea of the system is, maybe we should have a system in which, in a world in which information is free to accessible and in which it's not, there's no capability to track people. Maybe that should read the default. All right, well, interesting stuff. Thanks very much for joining us. Steve Waterhouse, co founder of Orchid Labs, on the future perhaps of blockchain technology and cryptocurrencies, joining us from Davos, Switzerland. Thanks for listening

to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox, I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio