Financially-Squeezed Trump Is A National Security Risk: O'Brien

Bloomberg Opinion. Last night, around six pm, The New York Times released a whole cornucopia of stories that detailed as much as we know now and even a little bit more about President Donald Tomp's tax returns. Tim O'Brien, senior columnist for Bloomberg Opinion, writes today that these taxes show he's a national security threat. I'm quoting. At best, he's a haphazard businessman, human billboard and serial bankruptcy artist who gorgees on debt he may have a hard time repaying.

And I won't say what he is at worst. What is he at worst? Him? Well, it works funny, he's you know, he's he's a con artist and a grifter who I think is purple traded a number of public policy frauds on on both his voters in the American public during his tenure, because what the tax returns reveal is that the person who was a signature force behind a major tax overhaul that ben benefited the most affluent

members of our society, um himself. He paid next to no taxes in just seven and fifty dollars and many years he paid no taxes at all. Um. I think the other thing that's that is substantiated in the Times report has been something that's been known about Trump for a long time is that, um, he has hundreds of millions of dollars in debt. I think he's gotten north of a billion, frankly, and uh he may have a hard time paying that debt down if his creditors come calling.

He is his assets are certainly, you know, well in excess of his current debts. But the problem is his assets aren't liquid and uh so his biggest holdings are actually controlled by other people. So he's going to enter into a phase right now where he may be financially squeezed. It makes him a national security risk because if he can't sell his assets to pay back his loans, he's gonna go looking for a handout, and that makes him

vulnerable to foreign influence. So, Tim, you know, when he talked about real estate investors and so on, the there's so much UM tax sheltering that those types of owners and investors can avail themselves to, whether it's depreciating the value of a building and accelerating that depreciation, so on and so forth, that oftentimes you do see these big earners with little to no tax burden. How unusual do you think President Trump is here with his returns versus

some of his peers. That's a good question, paul I. You know, Um, over the last two decades, Trump has underpaid UH taxes by about four million dollars relative to his peers based on the Times data. UM. You know, the wealthiest taxpayers in the United States carry the biggest burden. They're the most affluent members of society, pay more in terms of total dollar amounts UH in taxes than anyone else. Um. But when you compare Donald Trump to his peers, he's

well below them. When you compare Donald Trump to an average American family, say a family making about seventy five THO dollars a year, they're going to play somewhere in the neighborhood of fourteen thousand dollars in taxes in the year that Donald Trump paid seven hundred and fifty dollars. No one looking at that would say that that's equitable. So even if the taxes he pays comport with what real estate fallowers are allowed to do and has not run a file of the tax code, there's a lot

of inequity built into this. Now, obviously we have to remember that this is his self portrayal. Right, these are his taxes that were presumibly VET advice accountants and so on. But tim, if you represent yourself as being able to pay a loan off and you're not able to pay

that loan off, is that a climb? Well, if you misrepresent two investors or two banks the value of your assets um, and you knowingly are making false statements as a form of fraud, Uh, there's you know, it's on the banks and investors to do their own due diligence, But no one is allowed to go around and create valuations out of whole cloth. Uh and and and try to get funding based on that. Uh. Trump. Trump is being investigated currently for that very thing VANNI by the

Manhattan District Attorney's Office. This issue that Michael Cohen raised during his his congressional testimony, things that I've raised decades ago about how he accounts for his his assets. UH. You know, Michael Cohen said that Trump routinely and knowingly inflated valuations in order to get loans and in esters, and that could be putting him in I think legal

peril in the in the upcoming year. So Tim, it's just an update on what some of those external investigations are of the presidents as perhaps it relates to his finances. I guess the Southern District of New York. Yeah, the southern reside of New York has been looking at at Trump. The status of that is unknown. It's complex there because the Southern District, which is the U. S. Attorney's office

there is federal UH. They are under the Attorney General's UH guidance from the Attorney generalist, someone who's routinely run interference for Trump. UM. The state Attorney general in New York is looking at UH has looked at Trump's foundations and his charitable activities. In the past, he and his children were tossed out of the philanthropic world for um

defrauding their own charity. I think UM, the A G and New York is also looking at Trump's taxes, but I think the investigation in the District Attorney's office in New York that is looking at Trump's payment of hush money to UM women who have alleged to have sexual encounters with him, as well as possible accounting UH irregularities or and or fraud UM at the Trump organization is the one that's the most perilous for him. He's got

no federal sway over that investigation. It's something that's going to be waiting for him if he doesn't get reelected in November. And I think it's something that's really animated a lot of his agitation around these issues because he knows he's gonna be facing that next year. Tim, This isn't a flip question, but I would like you to consider it. So about two hundred million came from the Apprentice, a big, big sum. He was getting something like the

royalties or the the fees for that. Given that it's clear he's a money losing businessman. Could the Apprentice or Mark Burnett, or you know, somebody on behalf of Consumers or view where is sue him for falls advertising? Well, I don't you know. I think I think, um, probably Mark Burnett could have gotten Donald Trump more cheaply than he did. That's one of those things we've realized. And all the money he made from that show. Um, you know, I don't think, um, I don't see a false advertising

shoe rising with The Apprentice. I think the usue around The Apprentice has always been that Donald Trump was sitting in a fake boardroom in these phony scenarios with aspiring entrepreneurs, doling out his wisdom as he tried and true dealmaker and and in fact, that persona is what helped lifted him into the White House. White House. And what we've seen time and again is that reality shows that he's never been a gifted dealmaker or businessman. That he's been

uh a routine Um, he's had routine bankruptcies. Another problems the tax returns drives home even further. Hey, Tim, thanks so much for joining us. Who really appreciate me. You're busy today Tim O'Brien, senior columnist for Bloomberg Opinion, giving us his thoughts on this explosive story from The New York Times over the weekend. Of course, you know, Tim wrote in authorized biography of Trump years ago, was sued

by Trump for that before he was president. Tim won that lawsuit, so he's had a lot of experience with then real estate investor Donald Trump. Let's bring back Bill Rhodes, advisor to the world really and banker to the world. We were talking a little bit about China in our last block, and now we want to move to Latin America. We'd just begun on that Bill. There is some very you know, specific cases in Latin America. Obviously Venezuela is

one of them. But the countries that had been sort of skirting the worst of you know, of the fallout from the coronavirus now seemed to be right bang in the center of it. So Mexico, for example, and some of the other countries. How bad will it get over the next two to three order is for Latin America. Well, I think Latin America is facing the greatest challenge it has an over a century. Uh. First of all, you have the COVID UH nineteen situation, a pandemic which has

really hit uh Latin America harder than anywhere else. Um. The latest figures that I've seen show that of the COVID deaths UH so far in the world, and these are figures as of June. I haven't seen anything since coming from Latin America with only eight percent of the population,

So they are getting hit big time. And the latest predictions that you find from the various banks, Bank of America elsewhere is that this year there will be a decline of over eight percent eight point two percent, although the World Bank and the i m F in June had talked about possibility of ten percent. Allow it Alo, We'll just have to see. But it is hitting Latin America much worse in the Middle East, Africa or Emerging Asia. Uh. And as you pointed out, I think Mexico Brazil have

been hit particularly hard. Mexico is on the way, according to the day's statistics put out by the Central Bank, the Bank of Mexico, to a drop of GDP of between eight and uh eight percent and twelve percent uh and it's only being helped keep the float by the flow of remittances from the United States. Um. That's number one, you know, is the COVID thing. Second of all, a lot of these countries, as you point out, had already

been in trouble before. Argentina Ecuador, Venezuela had all been in recession, some of them pretty steep before COVID hit. And the third thing, which is most people forget but we've we've discussed it here on your program, is the greatest refugee problem America's ever faced in its history. Over five million venezue oilans circulating around Latin South America, and the country that's been hit the most with him is Columbia with a million and a half. But these are like,

you know, uh, three horsemen. Of course, there were four horsemen of the apocalypse, but I would say if you had one less horse, it would be three horses of the apocalypse hitting Latin America all at one time. So, Bill, it just seems overwhelming the challenges in Latin America because so many of the issues that you highlighted are deep seated. We're there before the pandemic. Now they're just being exacerbated by the effects of the pandemic. What are some possible solutions,

um for this part of the world. Well, going back to China, um there's an expression in Chinese Mandarin called wai ti, which means crisis opportunity, and um luis Alberto Moreno, who ran the Inter American Development Bank predicted ten years ago that this is going to be the decade for Latin America because they were going to institute UH reforms,

which they didn't do. So this is an opportunity, I think for them to institute major reforms in the area of education, health care services, the rule of law, and also to build up their institutions so that they can come out of this with some sort of a base

going forward. Also, there's an opportunity on the trade side because you have two major trading blocks in Latin America Mircos serp which is Brazil, Argentina, Paraguay, Uruguay, and then you have the Pacific Alliance, which are all those countries in South America from Chilean up through Mexico, which formed, as I said, to Pacific Alliance. And there's been talk about merging the two of those so that you would have, you know, one of the largest trading blocks in the world.

And if that could ever tie itself up to the modern version of NAFTA, which was the idea that George Bush Sr. And Bill Clinton had of a trade zone of the Americas. So sometimes when you get in the depth of despair, Uh, you can build on it. And the question is, uh, is there the will on the part of governments to do so? And will there be the financial backing from international financial institutions and the private

sector to do so? And that will depend on the governments in these individual countries uh taking the steps they need to reform the economies and to try and and uh get away from some of the corrupt practices that we've seen over the last few years. Well, it sounds like a big asks me and and and and a long, long, long, long process. Um. You know, how hopeful are you that we we see some kind of reform in the next

ten years. Well, you know, I'm an optimist in the sense that I saw Latin America to come out of the decade, the so called outlook, the decade of the eighties and reformed itself, but they never continued on with it. And so I think this time they really have to move themselves, that they're going to fall away behind uh Emerging Asia, even Africa, uh, you know, which is taking steps on COVID. So my hope here is that the

governments will respond. The I m F, the World Bank, inter American Development Bank will provide help but very important here and maybe we end on this point I don't know in timing, is the local private sectors have to be uh willing, uh and optimistic about investing in their own country because so often in Latin America the local private sector moves its money out, and you can't expect foreign investment to come in if they see the local

private sector moving their money out. So I think there's there's work here for governments, the private sector, and the international financial institutions to try and take advantage of this terrible situation to put in reforms that they've been holding off on doing for some time. Bill, thanks once again for joining us. We we we appreciate it always. Bill Rhodes, president and CEO of the William R. Rhodes Global Advisor's

former chairman at City Bank. A tour the Forced Vannie of all things global markets from China all the way to Latin American and his Bill points out why the challenges in front of that region of the world in Latin America just seems so so steep. I'm not sure who can lead them out of those challenges well, and particularly now during coronavirus which is ravaging this house as well. You sort of get the impression that everyone would just

listen to Bill everything would be okay. He has so much experience in all of this, but unfortunately and sometimes governments have their own opinions on things. Yeah, but hopefully this can be a catalyst for these countries to come together. Despite the volatility and financial markets stemming large part from the pandemic, one area of the financial markets has seen extraordinary robust new issuance, and that is corporate credit investment

great credit. Just record months we've seen as companies take advantage of historically low interest rates. Together some more color on that, we welcome Steve Kellner. He's head of Corporates for p JIM Fixed Income. They have over eight hundred billion firm wide and fixed income assets, so they know what they're talking about. Steve, Thanks so much for joining us here. We've seen so much new issuance in the

corporate credit market. My question is is this company has taken on additional debt to fuel growth or is it simply refinancing their existing debt and is trying to take advantage here of these historically low rates. First off, thanks for having me. This morning's pleasure to be here. I'd say it's probably UM. It's probably both that companies in the short term are increasing their leverage through the increase

in in gross debt UM. But at the same time, companies have been refinancing a lot about standing debt and a lot of this has been built around increasing liquidity. And we think as we move into two thousand and twenty one, a lot of those companies are going to start buying back their debt or paying off maturing debt, especially in the triple bespect So what kinds of decisions do you have to make on a daily basis, UM, I think we want to actually look at say macro

type of indicators. Um, you know, which way is the economy going, certainly which ways interest rates and the FED going to go in here, and then from there it's a lot of bottoms up analysis and working at different industries and different companies, ripping apart their balance sheets and income statements, and then actually seeing what their use of their free cash flow as they start to generate it is going to be, and which companies out there will

be improving their credit profile going forward. So I'd say it's it's a combination of a top down um macro view of the economy and with different industries that are affected and are going to be affected in the future, coupled with a lot of in depth analysis of the companies in the industries themselves. Hey, sty what are you and your team seeing in terms of credit quality? Out

there were six seven months into this pandemic. There's really some concern here that the economic damage is going to be widespread, continued to be widespread, and perhaps last for longer.

What are you seeing in terms of credit quality? Yeah, it's probably more of a k type of environment where you've got the companies that are actually in the sweet spot and benefiting from the work at home and other technology oriented or consumer oriented um effects, and then you've got the companies that got caught in the headminds of covid um, and those companies themselves is probably where the opportunity is as you look forward, in the sense that

those managements now are really really focusing on cutting expenses. They've actually stopped their share buybacks in most cases, have stopped their dividends. They're focusing on improving their cash flow and using that cash flow to shore up their balance sheets. So this is one of the rare times in the economic cycle that the manager's behavior are closely aligned with

bond holders. And again that's probably more in the industries that have been caught UM in the down draft of COVID, and again most of those would be in the trip will be ratings category. What would your advice be for non sophisticated investors, because obviously, you know there are different levels of investors, and there are certain of those who don't want to be in the stock market right now. Is there any way they could play in your market

the our market themselves. Since we tend to deal in corporate bonds and it's taxable, it really lends itself much more to institutional investing and pension plans where the where

they're non taxable or the taxes are deferred UM. But the way to actually do would be through mutual funds and some of the more perhaps UM core plus or broad market strategy funds which look to take advantage of corporates but also selective high yield and selective emerging markets, and those are typically referred to as total return bond funds, and that's probably the best vehicle that way an investor

can get active management as well as diversification. Steve, how are you guys from the corporate credit perspective, handicapping the upcoming elections, both the presidential election as well as Senate. Yeah, I think this is a pretty gamy time right now. Um. And and you know, it's it's not as much probably about who wins the presidency as much as it is about how how long it takes to determine who the

who that winner is um in here. But we do think that, you know, we are an environment where the markets are going to stay very volatile until we actually get to the election. And it looks like as though we've actually been able to figure out who that winner is going to be if you look forward to next here, um. Obviously the Democrats are talking about raising taxes. Um. Those tax increases for corporate America, if they occur, should be pretty modest, perhaps one to something like maybe on the

tax rate. But remember, even if the Democrats get in, their primary focus next year is probably going to be to continue to fix the economy. Um. And that's going to be difficult to do if you start increasing taxes on corporations. Just briefly, how much in fallen angels are you expecting in the next you know, six twelve months. Yeah, the we've had, we've had a drop off in the rate of fallen angels recently. There's only been a few

in the last few months. UM. The rating agencies, while they have a lot of these companies negative outlook, they're giving them time, um to get the benefit of the turn in the economy when when the economy fully reopens, um and I think that we think that the fallen angels are going to be relatively modished over the next twelve months. We've had we had about a hundred and sixty billion so far this year, and we would expect to be well under that over the next twelve month. Steve,

thank you so much for all the details. Steve Kellner is head of Corporates at p JIM Fixed Income and what an interesting job it must be these days with practically every corporate and the market at the moment, it's really just such a fascinating market. It is time now to talk healthcare. Huge, huge policy and market driver these next few weeks. Let's bring in Brian Rye, senior healthcare policy analyst for Bloomberg Intelligence. Brian, obviously we have the

Scotus nominee and the potential outcome there. We have Democrats saying that, you know, if Amy Coney Barrett is confirmed, that there's the great potential of us strikedown of the A C A in its entirety, and there are many

other things to discuss as well. Let's start there, though, if Amy Coney Barrett, as we assume does get is nominated now and does get confirmed, is that automatically a strikedown of the C A. Well, Hi, Vanni, thanks for having me, And I would start by saying that, no, I don't think it's a certainty that the A C A and its entirety um would be rendered on constitutionally struck down. I think what's probably more likely to happen is that you would see the so called individual mandate

probably struck down. That's not a huge deal because, frankly, because the tax law that Republicans passed zero and out the penalty for that, so in all effects, the mandates

already been rendered um noll and void. I think what could happen is some uncertainty about, okay, if you strike down the mandate, are there other previsions of the A C A, such as community rating guaranteed issue the so called pre existing conditions concerned them you've we've heard a lot of a lot of talk about maybe that could be struck down as well. Um, certainly could create some chaos for the new Congress in one as to Okay, well, and then how do you fix that at that point?

But I think in terms of the entire law being struck down, I'm not sure we'd go that far just yet. So, Brian, we also have a little bit of an election coming up here. Uh, there is a speculation that perhaps the Democrats can retake control of the Senate. If that were to occur, what do you think some of the fallout would be for the healthcare space? You know, that's a great question, Paul, And you're right, I know this is

a meaningful election for a lot of different groups. I would argue that pharma probably has more at stakes than anyone else, you know, because you're right. If Democrats are able to not only win the presidency but retake control of the Senate, then a lot of the things that they've liked that they would like to do are something

back on the table. I think the holy grail for them, the most meaningful reform they'd like to pass is to give the government the ability to negotiate Medicare drug prices directly with manufacturers right now, that's that's prevented, that's prohibited by federal law. Right now, those price negotiations are between drug makers and the insurers or PBMs who participate in

the Medicare Part D program. Nancy Pelosi and the House Democrats have passed Build a couple of different times in the past nine months that would give the government that ability that would repeal that's so called non interference clause. Um. Those those bills have, you know, unsurprisingly died in the Senate, and so that Republican Senate has been a firewall for the industry. And as long as that remains in place,

I think you would see the status quo continue. But you know, if Democrats were able to win a majority there, then a lot of those things get back on the table. The one word of caution though, for for those who

may think, well, that would be an automatic. As much as we saw with Republican promises to repeal and replace the A C A Obamacare heading into the election, we saw that they tried and failed to do that in seventeen Sometimes those votes that are easy to take, you know, they're not going to be enacted into law become a bit more difficult when the votes actually matter. So I think we could see something similar. If it's a slim majority for the Democrats in the Senate, it's an hold

onto the Senate, but the White House changes hands. Does that mean anything? You know? It means probably more on

the administrative side. You know, I don't think it means as much because frankly, President Trump, when he speaks off the cups his own interests don't healthcare Someone aligned more with Democrats sometimes then with with Republicans, such as his international Pricing index and drug importation and other things that most congressional Republicans opposed UM but that he personally sort

of is is in favor of. So I would think you would see obviously new heads of the f D, a new head CMS, new head of HHS, and so from an administrative standpoint, they will probably be more likely to roll back some of the changes to the A C A UM. You know, a lot of the things that the Trump administration has done have been to roll

back some of those protections. UM like make it easier for short term plans to gain a hold in some of the states, gives states a lot more flexibly, uh, for those who don't want to comply with a lot of the a c A mandates to do so, I think you would see that kind of roll back UM as well as have maybe the CMS folks try and restore the the funding to the health insurers who participate as well. So Brian or investors just kind of staying away from the whole healthcare space until we had better

view what's going to happen come November. Well, you know, it's one of many factors. Obviously, there's a lot of things going on in the industry right now, a lot of certainly a lot of interest in development of a

vaccine for the COVID nineteen pandemic and other things. And in a strange sort of way, this interest in innovation and speed UM is perhaps giving the industry somewhat of a decent argument against uh what they would turn price controls and other things that they would claim would stifle such innovation. And so a lot of moving parts are for the industry right now. You know, for better for worse, Paul,

people always get sick. And so no matter who's um, you know, who who's gonna win the election, I think there will always be a need and an interest in what the health care sector is doing. But yeah, I think the as you alluded to earlier, it's not just the White House, but that control of the Senate, given how much the republic looking controlled Senate has been a firewall for the industry, particularly pharma. You know, if that changes hands, then the calculus changes as well. Okay, Brian,

thanks so much for joining us. We will always appreciate you helping us get through these healthcare issues which the policy usues, which are just so dense for the average consumer. Brian Rye, senior healthcare policy analysts for Bloomberg Intelligence. Again, so Bavani's you point out we have, you know, a increasingly conservative uh Supreme Court, We've got the elections coming up, a lot of change from a regulatory perspective for a

lot of industries, none perhaps more so than healthcare. And you know, another question is will coronavirus eventually be considered a pre existing condition, you know, if you suffer from longer term consequences. So what does it mean for all those people getting sick right now too? Yeah, absolutely that it's going to be something to pay attention to the markets up significantly, the doubt of five hundred points. Thanks

for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple, Old Podcasts, or whatever a podcast platform you prefer. I'm Bonnie Quinn, I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio