Ex-SEC Chair Levitt: It’s A Bad Idea to Reduce EPS Reporting

than quarterly. On a quarterly basis, President Trump says the idea comes from outgoing PepsiCo chief executive Indra Nuye, who attended last week's at Bedminster business dinner, So that is where the idea came from. Joining me now, I'm very pleased to say, is Arthur Lovitt. He is the former chairman of the U S Securities and Exchange Commission and I believe the longest serving ever SEC chair. He also is a current member of the board at Bloomberg LP.

He also is an advisor to the Promontory Financial Group. Arthur, thank you so much for being with me today. What was your reaction to President Trump's tweet this morning? About allowing companies to report every six months. I don't like it.

I think that investors have much better results when they're better informed, not less than the US capital markets with their quarterly reporting have generated higher returns centers as a result, attracted a lot more capital than those international capital markets with semiannual reporting. Yeah. In the instance of Enron, they reported serious problems in the third quarter of two thousand and one in that earning call and Q and they filed for bankruptcy the first Greek of December in two

thousand and two. With semi annual reporting, investors wouldn't have received the bad news from October until two thousand and two, by which time the company was broke. Otherwise you could say, you know, it just doesn't doesn't make sense. So, coming coming from your background at the end, oh go ahead, Arthur, coming from your background at the SEC, I'm wondering what the process would be like that it could potentially undergo

in order to make this happen. I mean, how long would a study like this take and could they just sort of implement this in the near term. I think the study is likely to take at least six months, and I don't believe they could do this virtually overnight. I think this is a very hot button issue, and I think it will raise a lot of attention, not just in corporate America, but in academia, which is very concerned about how information gets to the public and when

they can act on it. Do you think that if we did move to a six month reporting period that US markets have become less liquid. Yes, I think that they would become less liquid, But more important than that, we would have less information on which to base decisions. And I think a market without information is not as not as nearly as liquid, or as good as a market where information is readily available on a regular basis.

I have to think that some people believe that this was a good thing, that this would reduce short termism among the C suite executives and that people would be looking more longer term for business strategies. That makes sense. What do you say to that, because there are even some investors who think that this would be better for them over the long term. I think from the perspective of business, it would be less costly to relax these standards.

But I honestly believe that the best capital markets are the ones which are the most often, report the most frequently, and the argument for more information for individual investors trumps the argument that providing this information is costly to American business. When you were the SEC chair, did a lot of executives petition you to make this change? No, h uh,

they did not. I think there is always a certain amount of tension between business and regulation, and that's certainly existed, but I was not pressured extensively in connection with this change. I'm curious to know whether you think that the pendulum has swung too far toward deregulating things, or how much further it would have to swing before you get concerned

that we're sowing the seeds for another problem. I don't think there's a specific moment that you can point to, but clearly deregulation is in the air, and that's not bad. I think the pendulum does shift, as you say, but I think we've rolled back a number of things. We've made it easier for business in a number of ways in terms of regulatory context. But I think going much further than we are now, we would do that at the expense of investor interest and the greatest danger to

our capital markets. His lack of transparency, and so far as investors are concerned, that's why I think we can go so far and really not go any further. Just a real quick here. I'm curious, are you worried about as you see independence here? I haven't thought of that. I think that agencies are independent, have been independent, and I think any effort to change that would be terrible

for our markets. I don't regard this as an urgent threat at this point in time, and a lot of it depends on who's running the Commission, and the president SEC chair is mindful of those risks, and I think it's unlikely to move in that direction. Arthur Lovett, thank you so much for taking of time. Always wonderful hearing your insights, especially on an issue so close to your experiences.

Arthur Lovitt is former chairman of the U S Securities and Exchange Commission, current member of the board of Bloomberg LP, as well as an advisor to the Promontory Financial Group. Dominating this otherwise relatively quiet Friday has been the President's tweet respecting the SEC and how it requires companies to report their earnings. Should we be moving to a six

months schedule rather than a quarterly one. I should just note the White House just released a statement saying the President is interested in examining this issue on whether short term earnings reporting requirements for public companies reduce incentives for them to engage in long term investing in the United States. This is part of the administrations on going regulatory reform efforts that aim to ensure that the U. S economy

remains the most productive in the world. Joining me now Hans Olsen, chief investment officer at Fiduciary Trust, which overseas about seventy eight billion dollars. It is based in Boston. Hans joins me today in a very sweaty and warm New York City in our eleven three oh studios. Hans, thank you so much for being here. What do you think of this idea of six months reporting six month reporting, Well, you know, it's it's kind of moving, at least in

the same direction that the Europeans have moved in. They were on a six month um schedule and I think they went to three and then back to six. In the UK, I think it's similarly the same thing. You know, at the end of the day, it's probably less meaningful for equity investors. Than it is for bond investors. Um um. That said, if we went to six months, wouldn't be the end of the world. But I do think that in the interest of transparency, right um, more information is

better than less information. And I think this this whole notion of quarterly capitalism, as the CEO of Unilever put it, um, is of CEO's own making. We get into the earning season they've released, they have analyst conference calls, we go through the kabuki theater of of analysts calling in and congratulating the CEO is in a good quarter and and

basically they're reading from the press release, right um. I think a better way, right to relieve some of the the emphasis around quarterly capitalism is to release the numbers on a quarterly quarterly basis, but only do a semi annual deep dive on the operations of the company. So you keep the transparency and um uh, and you perhaps less than this emphasis on quarter to quarter data. I think it's really interesting what you just said about this

mattering more for bond investors than stock investors. And I think that this really goes to the heart of the short terms short termism is um versus long termism debate that this really highlights, which is perhaps companies would be incentivized to make better longer term decision as if they didn't have to meet these sort of quarterly hurdles. But for a bond investor, the key is, are you guys losing money? Are you getting off track to the point where you're not gonna be able to pay me back?

And so do you think that for equity investors six month reporting would actually increase longer termism thought among corporate executives or do you think it would just be less transparency full stop? I don't. I don't think so. I mean, at the end of the day, CEO is going to be compensated on his or her UM stock price, right and so UM you know from and that's on a

year to year basis. So if you are really talking about long term, you're talking three to five years or more, you know, a business cycle that's just too long for for most investors UM to for you to be able to evaluate a company standing or not. So I think this is much to do about nothing really. All right, well, let's move on to some things that are ado about something.

I do want to just let people know that there is a headline crossing the Business Insider is now reporting that Turkey is preparing to release the imprisoned US Pastor. This of course at the heart of the dispute between the US and Turkey, with the US threatening additional sanctions on Turkey and unless they release this Pastor, so this might be a softening of that issue. Hans, come on in here, because you noted that you are underweight emerging markets.

And I'm wondering how much you see Turkey is an iducent cradit case and how much you see it as emblematic of broader weakness that is going to be felt increasingly across the developing markets. So I think Turkey is a unique case. And and this the issue of the Pastor aside Turkey's problems is an old problem, UH that

is very familiar to emerging markets. Where you get a country that's running a large current account deficit, UH that that is financing it's spending from foreign sources and depending upon exchange rates, and they're engaging in policies that are are not prudent over time, and and finally you start messing around with the country central bank, and you have the cocktail for disaster, and that's essentially what's played out

in Turkey. The the issue with the pastor was a secondary but perhaps exacerbating case, but it perhaps is moving in the right direction. But Turkeys problems isn't going to be cured by the release of this of this pastor. It's really about maintaining the independence of the central bank getting handled on their current account deficits and and the like.

Within a broader perspective, though, Lisa, the the emerging market issue is we're underweight, and we're underweight because the notion that when you start to have a price of money here in the United States, uh, and people have a choice. Where where when we had negative real rates and really quite negative real rates on on on cash, money got

pushed into motion. It was looking for a return and it had to go increasingly to places that it normally wouldn't go emerging market debt, emerging market equities and the like for a return. Now that we're getting a return on cash, they're starting to be a choice. And and as the dollar goes up and as interest rates go up, which reinforces the currency, you know, uh, the attractiveness of

emerging markets become somewhat suspect right. I do want to also talk about the attractiveness of risk assets in the US, and you noted that you've been reducing high yield exposure and some of your portfolios. I would love to get

your perspective on where. How why? Yeah, Yeah, So we've been we've been essentially moving to eliminate our high yield exposure was about three or four percent of portfolio three or four pers three or four, so taking that out, and the reason that we're doing is that we've seen a progressively deteriorating UM backdrop for UM, the underwriting standards

for high yield, whether it be bonds or loans. So when you look at the number of covenant light launs, you look at the valuations spreads that have come to market, UM, the protections that are normally afforded investor has been have been systematically eroded UM as as people have sought for yield and try to protect against rising interest rates. What that doesn't do is protect against the next part of the business cycle, when you know, you go into recession

and the fault rate start rise. You know, it was interesting you noted before the segment that you've reduced all you're gotten rid of all of your leverage loan exposure. And part this has to do with the weakening underwriting standards. And we were talking about this moody Is report showing that recoveries the next downturn for leverage loans will be sixty from pent historically, And I'm just wondering, you know, why do you find it important to get rid of

things now before the cycle is turning? And just I'll give you about sure, that's a good question, uh, position of strength. You do it when the prices are good. You do it ahead of the curve, when you're when you do it when the information is out there, when you're starting to suffer the adversity. It's too late because the prices moved too quickly, as we you know, and when you go looking forbids in this market, it'll be hard to find them. So we're doing it ahead of

the curve. Interesting, So even if we're I don't know, eighteen months out, now is the time in your view. Hans Olsen, a pleasure speaking with you. Thank you so much for coming in. Hans Olsen chief investment officer at Fiduciary Trust based in Boston, but he joins us here in our eleven three oh studios. I do want to know that President Trump is talking to reporters and we will take those uh comments to you when we get them. He's talking about everything from Paul man Afford to John Brennan.

Housing market in the US has seen some signs of stress this year. I'm looking at an index of home builder shares in the SMP five hundred, down nearly eighteen percent so far this year. The question is here, does mark a prolonged takedown of the US housing market or is this a blip to kind of create a more even ground for people who to afford properties. Joining us now to talk about this is Aaron Rozis, Economic research

director for Zillo. Aaron, I'm really glad that you're joining us today because this has been sort of an underlying theme for a lot of people, especially if they're barished in the economy. They say, look at the home builders, So what's going on? I mean, do you see that the weakness that has been observed recently is a symptom of some kind of deeper woe that will be expressed throughout the rest of the year. You're you're something right to point out that housing data have been coming in

a little bit weaker than expected. You look at home sales, housing starts, home val appreciation. Although it's been very strong, it's starting to slow down. We recently produce some data showing that listings for the price cuts, you're seeing a lot more price cuts out there on the market. That said, it's important to put this in context. The housing market has been first of all, leading the economic recovery, was the first sectors to kind of start showing strength. And second, well,

it's been very strong the past few years. Um, I'm normally strong. We saw a rebound and young adult home ownership millennials in particular have been out in force buying homes, and so I think in somewhat some recycle, we're starting to see more of a normalization. Things are kind of coming back to a more normal pace, not the fre netic, hectic pace of the past two years. UM. But still

it's it's still very much of a solar's market. So you noted in your recent reports that about four of all listings across the US had a price cut in June. That's up from a recent low of less than twelve percent near the end of twenty sixteen. So you are seeing people have to realize, Wow, if I really want to sell this home, I have to ask for less. I'm just wondering where you're seeing the biggest price cuts. That's that's a great point because so much of this

story is where it's happening. First of all, it's happening primarily at the top of the market. If you look at that expensive third of the housing market, that's where you see the biggest jump in price cuts and already kind of more price cuts. We know that a subset of the market that buyers are already being tested at

their limits. Um Also, I think the important important thing to keep in mind here is when you look at the size of the price cut, it's actually been pretty stable, you know, the typical price cuts around two to What that tells me is that some of these price cuts that we're seeing has actually been sellers being rather aggressive in their in their listing strategy and then just testing

what the market can tolerate. So, you know, they say, the market is so hot, so fast moving, you know, might as well list aggressively see if I get that dream price. One thing I'm wondering, especially as you talk about the high end homes, seeing the biggest price to clients. How much is this tied to the tax policies and places like New York, New Jersey, Connecticut that are typically high tax states seeing price reductions in the homes due to some of the changes that don't allow some deductions.

That's a great point, you know, I think kind of there's two forces that have been squeezing that high end on the demand side. You talked about the changes in the tax structure, particularly changes in that state and local tax deduction there. You know, we kepted that deduction at ten tho dollars starting this year for most of these very high end communities. Um, that's not even going to

cover local property taxes. And you know, it's something we've been watching in the past few years, past few months, and we are starting to see a little bit of a significant effect of a larger slowdown in places that rely more on that state and local tax deduction. Obviously, the second factor is interest rates. Interest rates are creeping up.

Word that matters more at that high price point. One thing that I found interesting in a recent report about household debt by the government, it looked like people were actually incurring a significant increase in mortgage debt recently, which kind of flies against the theory that rising interest rates would dampen the demand for mortgages. What do you make of that, especially since it is toward higher quality borrowers. This is not necessarily another subprime mortgage boom. Just to

be very clear that the that definitely right. You know, the people who have been um borrowing tend to be high credit borrowers, people with stable incomes, documentable income. I think two factors are driving that increase in in debt outstanding. One, as I've talked about a moment ago, young adults, first time home buyers, have been out and forced the past two years. They're acquiring more eage debts for the first time, often mortgage debt in pricing markets where we know that

there has been a booming jobs uh you know, employment situation. UM, so they're able to kind of buy homes, but very pricing homes at that. I think the second part of that rising debt is borrowing, people borrowing against their homes. Home values have recovered very strongly from the bottom of the market in twelve and so people are starting to feel comfortable enough to borrow a little bit against their home,

perhaps to do renovations. Um perhaps you know to fund any other um you know education, so so return of the reverse more. It's just real quick here, Aaron, I'm curious to know a year from now, your best guest, do you think the prices on US homes will have gone up? I think, uh, prices will certainly have gone up, they will have gone up at a slower pace than than they went up the past year. Do you think about nationwide? Over the past year, we've seen home value

appreciation up about eight percent. I think we'll go down to about six so slower than it's been, but still positive. Aaron to rozz Is, thank you so much for joining us. Really interesting. Aaron to ROZs is economic research director for Zillo. And uh, yeah, those homebuilders have been really beaten up

this year, uh down nearly eighteen per cent. Of course, the home builders have also been hit by higher lumber prices and other higher costs tied to labor, so there could be some other issues there, but certainly a big wild card here. A lot of people looking at the housing market is a possible leading indicator, though, as Aaron just said, it has actually let the market up, so perhaps it's just softening to keep up pace with everything else.

Corporate divorce court can be a bitter place. Joining us now is Matthew Shettenham's media litigation analyst for Bloomberg Intelligence. He has had his hands full recently with a number of different issues, but in particular the Tribune versus Sinclair battle. They obviously we're going to get married. Not so. This was because the Federal Communications Commission chair, a g pie for all intents and purposes, put the kabash on this tie up. Matthew, thank you so much for being with me.

I'm curious from your perspective, you know, what's its stake going forward between these two companies, how much money is on the line, and what needs to happen now to sort of finish out this chapter of would be Love, Yes, Lisa. So it has been kind of an unfortunate saga for for both of these companies over over the past year. This was a deal that was announced in UH May

of seventeen. The companies had hoped to approved when approval of their merger you know, early uh this year, and that just never happened, and it all culminated, as you said last week, UH, with Tribune saying enough is enough, we're going to walk away from this deal. And at the same time we're going to commence a lawsuit in in the Delaware Court of Chancery against Sinclair for our damages and in what you put us through for the

past year. And and as part of that they said, hey, we we would also like to get one billion dollars in in premium that have that's been lost to our shareholders as as a result of this. So it's the it's not the end of the story yet between these two. How did Sinclair wrong Tribune Media Company? So it's perspective. So yeah, so the you know, it's certainly not a a breach of contract just to have a deal go bad.

Tribune says that Sinclair acted beyond the bounds of reasonableness here and it had a duty in its contract it committed to Tribune to take reasonable best efforts to to make this deal happen, and including in working with the two regulators involved here, the Department of Justice and the Federal Communications Commission. And as part of that, Sinclair even had committed they said, will divest stations in ten markets that are that are most likely to to to cause concerns.

They said that in the agreement. What Tribune says is that Sinclair then, when it actually got in negotiations with those regulators, sort of pulled back on that and said and consistently said, well, we don't actually want to divest more than you know, maybe three or four stations of those ten. And according to Tribune, by acting out of its own self interest, uh and and and really kind

of going back on its own word and its contract. Uh, the allegation is that Sinclair breached its contract and and and lad to ultimate the ultimate demise of the deal.

This is really interesting, and perhaps it's not as much on people's radar as it should be, because if Sinclair were forced to pay Tribune one billion dollars, that could be actually a significant loss for Sinclair and a significant gain for Tribune, which has kind of had a rocky, rocky bunch of years now, right right, and and so so the way I see it, though, and I think Tribune may have some merit to to its lawsuit generally speaking, that the idea that that perhaps Sinclair went a little

bit beyond what was reasonable under the terms, I think I think Tribune has a decent shot to to sway the court on on that basis. It's gonna take some some proof and it's gonna take some time, but I think there's there's a valid chance. The idea that it can recover a billion dollars in premium for its shareholders is a longer shot though. Uh it's shareholders aren't named in the contract. We're suing under a contract here, and

they're not named as beneficiaries under the contract. And at least and at least one court has has in a similar case said now, sorry, we you know, we we this is about a contract. You the company can recover damages because you will promised something shareholders weren't. And so I think Tribune, uh it's it's throwing that number out there. It's in its complaint. It's saying it's going after that shareholder premium. I'm not so convinced that that that's really

likely here. So might just pad the bonuses of the executives and nothing more right, And I mean it helps with with with with settlement talks. It's a point of Delaware law that isn't completely settled and so that it's not, you know, frivolous to make the claim and and it will help them in in negotiations and you know, maybe settlement is where this ultimately goes, and this might help

in in in that effort. You know, I have to say, you have one of the most interesting jobs of the moment because there have been so many tie ups among big media companies and everybody's trying to get ahead of the next wave of new media. And while we're talking about FCC chair a pie, uh, certainly we haven't really been focused but probably should be, on all of the net neutrality rules and the fact that the agency has been examining possibly rolling back the Obama era regulations. Has

there been any progress made on that front? Yeah, So, I mean the the the Republican controlled FCC is well on its way to doing that. In fact, it's enacted uh in order to undo the net neutrality regulations, and that has actually taken effect. Now where we are now, this is a story that here in d C will will not go away. Uh, and and there's no sign

that it's going away anytime soon. Because now what what you have is is the next litigation in that front, where the net neutrality supporters are suing the Federal Communications

Commission to say no, you you can't undo those rules. Uh, that that was an unlawful action that's going that won't be decided this year, that will take until sometime next year, could even go to the Supreme Court after that, and then you look at hey, does the FCC change hands in twenty need do we go back to a Democrat controlled FCC and do we do this all over again? In other words, net neutrality isn't going away any time soon. Correct.

The technicality, the technical requirement for it technically isn't on the books right now. You know, in theory, Comcast and Charter and the I S Peace could go ahead and and and violate not neutrality, you know, as much as

they like because there are no rules there. But the the whole idea that this is still hanging out there is itself a form of a check I think on the companies and that it sort of puts them on their best behavior if they if they started to be real egregious in their traffic management, I think you could you could. You know, there's a real threat of of of regulation and Congress stepping in with with something that

the companies wouldn't like. So not neutrality technically isn't required, But practically speaking, I think it will be for for for some time. Just real quick, can you just give us a real quick primer on net neutrality, just in caseity was listening. It sounds great, but I know it's one of those things you know, you have to explain

every time. It's just a basic idea that that even though the internet service providers Comcast, Charter and your phone companies, even though they own the network, that doesn't mean they get to control all the traffic or how it runs.

Over at the ideas that they should treat the network as an open platform, like an open highway that anyone can get on, and so they shouldn't be able to to set fees to prioritize you know, Facebook over Netflix or you know, the next Netflix doesn't doesn't need to get special permission from Comcast in order to create the next great media company. It should be an open platform.

And uh but but the the company's i sp s push back and say, look, we invest billions of dollars to build these networks and so we should be able to control them. Thank you so much for being with us again. I think you have probably one of the most fascinating jobs at this moment of dramatic transformation. In the media industry. Matthew shoulden Helm. He is media litigation analyst for Bloomberg Intelligence. 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 Bluebirg Radio.