Welcome to the Bloomberg p m L Podcast. I'm Pim Fox along with my co host Lisa Bramowitz. Each day we bring you the most important, noteworthy, and useful interviews for you and your money, whether you're at the grocery store or the trading floor. Find the Bloomberg p m L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. It's really interesting to hear about what the market response has been like too some of these UH malware attacks, and indeed we are going to take a closer look.
It does look like governments and companies around the world are getting the upper hand against this wave of an unrivaled global cyber attack, but there still are some pretty important lessons to be learned up from this outbreak. To sort of understand what the implications are, let's bring in Michael Coden. He's head of the cybersecurity practice at BCG Platina that's part of the Boston Consulting Group. He's also associate director of the m I T I see cubed um. Michael,
thank you so much for joining us. I want to just start with why this is happening now and are you surprised that an attack like this, which is considered to be the biggest one ever, hasn't happened sooner? Good question, Lisa, Um, it's I think it's happening now only because people were made aware of this latest vulnerability and the attackers see it's done on the opportunity knowing that a lot of
systems have not been patched. They were made aware that they were made aware because of the hack into the US right into the release of the information of what what c IA was doing here. Um, it's possible that you could link those two, but not necessary because every time Microsoft issues new patches, those patches are the fact that the patches out there is exposing the vulnerability. So if you you know, the lesson here really for for companies is to install the patches as soon as possible
after Microsoft issues them. Once Microsoft issues at patch, both you, the good guys and the bad guys know that there's a vulnerability, and it's it's a race. If you can patch your system before they can exploit it, that would be great. The statistics are not in our favor. Typically, once Microsoft issues a patch within seven days, there are malware.
There's malware available to that that exploits that vulnerability. Typically, on the other side, we find that attackers are inside our clients systems for up to two days before they're detective. You know, I was. I'm sort of surprised because when I was looking at the way that this attack unfold it's sort of the classic don't open anything suspicious because
that's how it starts, right correct. So, and then you're actually recommending that people do pay the ransom that they are forced to pay in order to get their files back, because that might be the cheapest way to recover some of their data. Correct. Correct. Um, if you don't have backups, um, and then you need your data, Uh, is not a lot of money. I hate to say it, because I don't endorse crime and I hate to reward the criminals.
But you're you have you're in the conundrum. The lesson here, and that's front is make frequent backups of your data. Make sure that they're um isolated from your your main system so that you can go and easily retrievable so you can go and get them in in the event of the you know, the next ransomware attack that that you do get hit by. So, Michael, your clients, have they been materially increasing the amount of money that they're
putting towards cybersecurity recently. And also do you expect them to only accelerate their expenditures in this front going forward. I can't talk about our clients, but I can talk about general industry trends. UH. The the spending on cybersecurity has been increasing substantially, UH, and we do expect to
see that going forward. The key here is that boards of directors are now realizing that cybersecurity is a true business risk, and that's every much of risk is credit risk is to a bank, or the risk of a natural disaster is to a manufacturing facility or an office building, and they're beginning to deal with it as a true business risk. They've elevated it from oh, just something I t should take care of to something that we have to worry about as a as a corporation or an organization.
Are most of them uh, perhaps not your clients, but the people that you talk to who might know something you can talk about. Do you think that people are looking for to to outsource their cybersecurity? Are they looking to beef up their in house protection. It's a mixture of the two. UM Many or Most organizations would like to beef up internally, but that gets expensive and there is a huge shortage in the labor force. There's probably
a million vacant cybersecurity jobs right now. UH. So we see a very healthy mixture of UH companies hiring UH and training and UH and and then outsourcing those things for which they need special expertise. The real key that we see is the training. UM. Your your first line of defense and cybersecurity are your employees and the kind
of culture they have. The analogy I always give is if you walk into an oil company building, whether it's a refinery or an office building, there's a sign over the where that says two and thirty seven days since the last industrial accident, and nobody wants to be the one who sets that counter back to the hero. We need the same mentality, the safety mentality, the quality mentality that corporations have built into their cultures. They need to
build in the same cybersecurity mentality. Don't lend your password to somebody and you can't even though you trust them. Don't click on that email attachment even though you think it might be an order from a new customer. Well, we're gonna have to leave it there. We could talk for a long time. This is fascinating. Michael Coden, head of cyber the cybersecurity practice at BCG platini in which is part of the Boston Consulting Group. Let us find
out what is the latest drama brewing in Washington. D C. Tolu l Arunaba is following it all for us, our White House reporter for Bloomberg News, who comes to us from the White House us to lou Gosh, where do we even start? I mean, it's like every day more build on, but I really want to begin with the news of a possible shake up in President Trump's inner circle. Can you talk about how realistic these rumors really are
and what it would mean. Yeah, after the last week that the president had, uh, you might not be too too surprised to hear that he wasn't happy with how the week went, how all of his decisions were covered in the news media and on Capitol Hill, with criticism coming from Democrats and Republicans and UH. News analysts looking at how he fired the director of the FBI and all the questions of that race. So the president is looking at a potential shake up. We've heard that he's
you know, considered making some changes. He said publicly that he's considered changing the way he the way his his operation briefs the press, maybe getting rid of the press briefing. Uh. Some people are even saying that a couple of his communications staffers could be on their way out the door. And hold on, you're sanitizing this to lou. Basically people
are thinking that Sean Spicer is out. Uh, and we have heard we've gotten a tweet from President Trump saying that he might issue uh, you know, comments just to send out send out comments rather than have press conferences. Is that what you mean? Yeah, it's not clear how realistic that is, but he basically is taking the taking it a bit hard that a lot of the criticism for his press officials has come every time they've made a statement that's been contradicted by the President himself or
by the facts. Uh, he's saying that, instead of, you know, expecting them to be perfectly accurate, maybe we'll just put out a paper statement with all of the facts correct and see how the media likes that. I don't know if he'll actually will follow through on that, but he is looking at some some changes in his communication shop, and even higher even his chief of chief of staff
and chief strategist. Ranks Previous and Steve Bannon are people who have been reported reportedly on the chopping block and potentially could be UM have their positions changed, or could be on their way out the door in the White House. Why I mean, I guess I'm trying to understand they were not from what I have read, behind the decision to fire James Comey as head of director of the FBI as Director of the FBI um at least not in the past two weeks. So what would be achieved
by getting rid of them? Yeah, It's hard to know what's in the President's head as he as he moles over these staffing decisions. But I think one thing that we've seen is that the President has been surprised by the blowback on a number of different things that he's done, everything from the first round of healthcare, which struggled to get through the House to UH this issue with Jim Comey.
The president is a newcomer to Washington, and he's hired people like UH, like previous who are supposed to know the ins and outs and know how how things might be received and I think the fact that he was surprised by so many different things. It's one reason that he's questioning his chief of staff and his top officials about how well they're preparing him for, you know, for
potential blowback when he makes some of the decisions. And he seems to be blindsided by the fact that, you know, they're not going to go over too well in Washington. So that may be one of the things that he's considering. And you have to remember that he's uh as he has he's focused so much on loyalty. UH. These are people who have come into his orbit in the last year or so, whereas he has his daughter and his son son in law who have been much closer to
him for a much longer time since birth. UM. I do want to ask you about a comment that former Director of National Intelligence Jane Clapper said yesterday in a televised interview. He thinks that our quote institutions are under assault and quote by both other nations such as Russia and by the president. Can you explain what that means and if if he is right, what the implications are. Yeah, that was quite a statement coming from the former Director
of National Intelligence. I think he was definitely focusing on the fact that President Trump has called into question the intelligence agencies. He's called uh news accounts to be fake news if he doesn't like them. He's even questioned whether RUSSI was a a factor in the election, and that's something that all the intelligence agencies have, um have concluded
was the case. So I think the fact that the President is questioning so many of our our institutions, from the intelligence agencies to the media, that's caused a number of people who uh see the value of these institutions to wonder whether or not um some real lasting damages
being done to them. When you have the you know, the highest official in the land, uh questioning, you know, whether they have any value and and deciding to sort of, um, you know, go against some of these institutions, even institutions like the FBI by dismissing the director of the FBI in such a sort of embarrassing way that he did, uh and which seemed to happen kind of uh like
a spur of the moment decision. Uh. Those types of things, those types of institutions and norms are being thrown out the window by the President, and I think that's what Clapper was talking about, Can I just ask about the tapes that has have been speculated about that President Trump may have tape some of his conversations with former FBI Director James Comy. Do you really think, from the talks that you've had with people who have a better sense
of the matter, are there really tapes. I would highly doubt that there are tapes of these conversations that there is a secret taping recording system within the White House. I think this is more sort of the President blowing off steam and trying to change the news cycle and make a veiled threat at the FBI director after some stories had come out about what the FBI director was thinking and saying. And I think that the White House
isn't isn't saying much about this. But I don't think that the President has installed a taping system within the White House. If he has, that would be a major scandal and we'll definitely hear more about it. So, Lou, thank you so much as always for bringing us this news to lose. Alorna but is our White House reporter at Bloomberg News and comes to us from the White House. We want to take a moment to let you know
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It's pretty amazing. Download our Io s app or search for the Bloomberg extension on the Chrome Store to try it out. Learn more at Bloomberg dot com slash lens. We hear a lot about political turmoil in Washington, whether it's the firing of James Comee as a head of FBI or potential turnover in President Trump's inner circle. At what point will some of these developments bleed into the market complacency that has led to a kind of melt up of stocks and risk your bonds. David Dietz perhaps
has some answer. David Eats, founder and president and chief investment strategist at Point View Wealth Management, which oversees two two million dollars in Summit, New Jersey. David, thank you so much for joining us. So let's start there. At what point does the political issues that are painted with such inflamed rhetoric uh in newspapers across the world, At what point will that bleed into the market. Yeah, that's a great question, Lisa, Thank you so much for having
me on. Certainly we see that as a critical risk, which leads into our fundamental caution on the stocks right now. We saw tremendous ramp up in stocks post election as investors priced in the pro growth Trump agenda. UM, then, of course we saw was the first failure to repeal the a C a UM doubt starting to creep into
Trump's ability to push that agenda forward. Now, of course, with the firing of James call Me and other issues, you will start to wonder whether there will be so much distraction on an Siller issues that the Washington would not be able to focus on any of the pro growth items that have caused such enthusiasm on the part of investors. Having said that, you know clearly it's not just enthusiasm over the Trump agenda which is forcing stocks higher,
ironically enough or not ironically enough. Overseas stocks that actually outperformed the United States this year. Hopefully they don't think it's all about the Trump agenda. If anything, the Trump agenda would have curtailed some UM cross border trade. So obviously there are other cross currents. I think we're seeing them today. I think the fact that China is taking some leadership here in terms of global trade also is
providing a boost to this market. Well, so let's talk about China and the fact that they have come out and tried to present themselves as the new global leader, replacing the United States. UH in the wake of some turmoil and protectionist hype rhetoric in the U. Asked you from your fund managing expertise, do you plan on investing more in China as a result of this move? UM China per se, we think it's actually fully valued UM where, but we liked ancillary place based on in effect growth
initiatives that are put forth by China. UM, the so called One Road one Belt would increase trade trade dramatically with Europe. UM. So we are investing in Europe and tilting in that direction. Why would that be? First of all, earnings projections going forward are actually stronger than the United States. UH. They are a major trader with Asia, including China. UM
and also the valuations significantly less. One of the challenges to the US market is the near nineteen times forward earnings, but in Europe that's closer to fifteen times forward earnings, and the davidend yields are better. Um. So the Europe is I think, in a way to take advantage of a uh, the leadership that China is showing on global trade.
So uh. One thing that I am thinking about as you speak is that last week I believe that mutual funds in Europe focused on equities in that region received their biggest weekly inflow ever. So it's not as though people are ignoring European stocks, and yet you're saying they're still not fully valued. Are there particular areas in European
stocks that you think have greater values than others? Well, Lisa, first of all, I would profis my words marked by saying, we think industrial sectors, what you're doing is probably more important than where you're doing it from. So, for example, um, whether you're in the energy business versus the tech business is probably more important than whether you're based in Dallas or Paris. So what we like to do is overlay those sectors that we find most attractive with those geographic reasons.
For US, it would be three key areas financial, uh, energy, in healthcare. So we're actually beating the bushes looking for the best opportunities in those areas that are European based. So one question that keeps coming up is are we just seeing a continuation of the there is no alternative trade?
In other words, because interest rates are so low and continue to be uh and and as central banks continue to buy vans around the world, our stocks simply as high as they are because of this, And could a material increase in benchmark rates in the US disrupt this and cause a pretty big sell off in stocks? Do
you think that's realistic? Well? Is yes, and yes, really, Lisa, I mean the reason they continue to be bullish, notwithstanding higher the normal valuation is not notwithstanding you know some distressing news on the political front is you still got that ten year treasury below two point four percent. So in Donwin's pensions, individuals trying to finance kids education retirements
still think that's just not enough. So every time there's a perceived opportunity pull back, I think people are going to continue to push into stocks. So that's the bullish case, and that's why Frankly, it's even more bullish in Europe. Is interesstrated that much lower, even though stock valuations have higher yields. Um? So could that upset the apple cart if interest ratement went significantly higher. Absolutely? Um. There's nothing that makes the present value of any type of investment
more more valuable if there's a trace higher. Uh. The one silver lining might be if they're going higher because of stronger economic growth, that's probably better than a stagflation inflation situation. We're just driving interest rates higher. So I'm looking at a ten year treasury yield of two point three or four right now. How high does that yield have to go before people start taking the money out
of stocks and going back into government bonds? You know, I don't think there's any one tipping point, And of course, even to back that up is I challenge anyone to figure out exactly we're in strates are going to be one year for now, that's a very complicated topic. Assuming they go higher, I think at the margin that will reduce enthusiasm for the so called Tina trade. But to the extent that people are saying, well, that's because everyone's
going out to buy a new house um. New projects are getting off the drawing boards and being built, so they're borrowing money that can help offset that gradual drift up and interest rates. David Diets, thank you so much for joining us. David Diets is a founder, president, and chief investment strategist at Point View Wealth Management, which is
based in Summit, New Jersey. Talking about industrials as well as gas companies, some of his stock picks are Chevron, Blacks and Smith Klein and a I G. We hear a lot about small businesses in the U S. Since they do provide such a big part of the growth in this country. But just how dire is a situation for small businesses? We hear a lot of rudder. I can here to put some reality to it. Uh to it all is Karen mel Senior Fellow at Harvard Business
School in Boston. She also was the former Small Business Administrator for President Obama from two thousand nineteen. Karen, it's terrific to have you in the studio here in Bloomberg Bloomberg eleven three oh studios. Let's just start with the state of US small businesses today. We hear so much about them struggling to gain the same kind of traction as larger businesses, and yet it seems like credit is fairly free flowing. What's the disconnect here? What is what
is sort of the health here? Well, it's always important to talk about the health of small business because half the people who work in this country own a work for a small business. So I used to say I went to sleep at night worrying about half the jobs. So even in a robust economy, which is what we've been having, you have to keep your eye on the ball. You can't um take your foot off the gas for small businesses or you will have a slowdown, and it
can happen quite quickly. Right now, we're a little worried about that slowdown because the recent optimism indexes all showed a few sort of glitchy moments, and they don't believe small businesses now don't believe that pumped up economy that came from the early Trump bump in the fall is really going to be maintained and maybe their business will go down. Well, and when you talk about the optimism readings, what's the practical implication of a decline in optimism among
small business operators? Well, when small business operators are concerned about the future. They don't hire more people, they don't invest in their business, they don't expand, and the kinds of job creation that you might otherwise see from them slows down. And that can actually have a pretty big effect because the main street businesses, uh, you know, we don't think about them as the innovation drivers of the next Google, but they actually create a huge amount of
the jobs. So what does the current administration need to do to bolster optimism among these business owners as well as provide a more supportive backdrop for them. Well, if I were in Washington day and I saw this, and the President was going off on a foreign trip, I would get all of the domestic folks in the White House or in Congress, and I would hatch a small business piece of legislation, you know, the Small Business Growth
Act of twenty seventeen. She's even naming it, absolutely and everything has a name in Washington, and you know, you could fill it with some tax credits. Small businesses love tax credits, and you doesn't have to wait until some big piece of legislation goes through. You can do some things to reduce regulation and signal to the small business owner that Washington has their back. So how bipartisan with
something like that be what would be very bipartisan. Small business is the holy grail if you look at UM, what people can agree on the first is the military. Right behind it is small businesses. And I found in Washington we were able to pass a lot of small business legislation because people congressmen go home to their districts and they see the small business owner and they hear
from them. So whether they're Republican or Democrat, they feel this sensibility and they want to do something for their small business owners. So why isn't there more of a push to do something like what you just said as President Trump to uh disembarks for for the rest of the world, He's gonna be away. Why aren't they doing
something like this? You know, the notion that small businesses are so critical to the economy is actually kind of new in Washington because small businesses don't have great big lobby a lobbyists and people watching out for them. They're busy, they're just home doing their business. So this time I spent in Washington, one of the things I'm the most proud of is that UM the position was made a cabinet level position, and small business really had a voice
at the table. But sometimes, um, the macro economists and others don't get around to putting small business at the top of the action items, and I think that's a mistake. I think we're really missing the boat here, particularly at a time where it could bring people together and kind of keep our whole democracy and our whole economy on
a more positive footing. So last week we had a former business administrator for UH, former President Bush, George W. Bush UH, and he was Hector Barretto, and UH he blamed some of the distraction that we've been seeing from the firing of James Comey, the former FBI director, as well as other things that have gotten a lot of attention in the prosidy, so that this distraction is what's
sort of keeping legislators from getting things done. I mean, do you see that as the reality that basically as long as we continue to discuss the FBI dust up as well as the Russia investigation, there's going to be just absolute lack of action from Washington. Well, I think that's letting politics get in the way of facts. You know, the reality is that there are lots of people in
Congress who want to do something good. We need leadership both in the White House and in the Republican and the Democratic Party to decide that they do want to work together on something, and small business would be a likely candidate for that. If they decide they want to work together, this is a place where they know they can find common ground. So, um, you're talking about rolling back certain parts of Dodd Frank or at least allowing it to be a little bit easier. How would that
help small businesses? Well, one of the first things there where there's bipartist agreement on Dodd Frank is to do something about small community banks. And here we see, with the advent of fintech, community banks have figured out that they really need to serve the small dollar loans to the smaller customers. And you know, surprisingly enough, these very small rural banks are getting innovative and they're competing with
the fin techs. So making it easier for UH for them to do that and taking away some of the gobbledegook. They have seven federal regulators who are all telling them, um, how to categorize their loans and what to do about their third party arrangements, and sometimes the guidance is conflicting and they don't know what to do. So these people want to comply. I do think we can make it easier for them to do it real quick. Is there one other provision that you think could be changed or
tweaked to make things easier for small businesses? Well, I do think we need small business borrowerk disclosures. We have a very vibrant, innovative new fintech community. They've put out loans to some businesses who couldn't get loans before. But sometimes they charge a lot of money, and sometimes small businesses can't see exactly what they're paying. So I think protecting a small business owner with some disclosure that would be appropriate. Thank you so much for joining us. Karen
Mills is a senior Fellow at Harvard Business School. She also was the former Small Business Administrator under former President Obama from two thousand and nine to two thousand and thirteen, talking about how perhaps Congressman should get together while President Trump is on his global trip and try to pass some real material changes for small businesses to drive forward uh this growth. 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 fall Box, 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