Florida Is Delivering The Drama To Election Junkies

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. I want to introduce Al Hunt, Bloomberg opinion columnist and expert in all Things Washington, to tell us a little bit about what we should pay attention to on this election day. Al Hunt, always a pleasure, Thanks for being with us. I want you to just tell us a little bit about Katie Hill. Now, this is not a name that many people may be familiar with. She is running in California's twenty five and you've written about Katie Hill and

why this is an election to watch. Tell us, Well, it's a it's basically a Republican leaning district gets represented by an incomment named Steve Knight, who was one of

the stronger incomments running for reelection. It's a district, it's north of l A. It's Ventura Simi Valley, home of the Reagan Library and suddenly this thirty one year old woman who is the daughter of a cop and a nurse, ran a large homeless organization, didn't have a lot of connections or anything, has run this dazzling campaign and come from clearly behind to the point where she is at least an even bet. She raised in the last quarter

three point eight million dollars. Let me repeat that, three point eight million dollars even in Bloomberg terms, that's pretty big. And she's got two thousand volunteers every last weekend at least fanning out. So it's really kind of exciting to see that kind of grassroots enthusiasms. So when you look at the race specific details right now and from what you're hearing with respect turnout, what are you expecting for

today's results? A huge turnout to begin with, and huge turnout under conventional standards would be an advantage for Democrats, and think it still might be. But one doesn't know whether Trump rallied people with his what I consider racist demogo agree on the caravan and other issues the last couple of days, so it's a little bit uncertain. I think the big turnout in suburban areas is clearly going to advantage Democrats. If there's a huge turnout in red

rural areas, that may help Republicans. On balance, I think it's going to help democrats more. Al Hunt, are you looking to the Indiana Senate race as well? Big first six o'clock post closed in Kentucky and Indiana, And there are two really really huge races, one in the House and one of the Senate Senate that you just mentioned.

Joe Donnally is probably one of the three or four most endangered Democratic income with This is a really bad map for Democrats this year, and if Joe Donally survives, that means that Democrats, you know, have a shot taking control of the Senate. It's a long shot, but it's one of Republicans think they have to win. It's a very Republican stage. Joe donny is a one term senator. Uh he voted against bred Cavanall and they have really I think I think Obama's excuse me, I think that

Trump has been there four times. Kentucky. Amy McGrath, Marine combat pilot Amy McGrath is running against Republican income in Andy Barr in a district it's about plus ten GOP and I think she's got a real chance to win. It's a very exciting race, and that will be an indication of a of a wave of interesting candidates winning this year, a lot of them women and a disproportionate number of them veterans young. Do you think that Ted Cruz will no longer be part of the Senate? Come?

I guess well, no, I'm I I'm not saying I'm not weighing in a one way or another. Better artist certainly know you're being there, I'm not, but but better rockers certainly run a competitive campaign, and it seems like there is some uncertainty there though the leaning towards Ted Cruz, right, he's a rock star two thousand and eighteen. Uh, not not Ted Cruise, but better ur it's a it's a really tough state. It's a really really tough state to

Wednesday wide. If you're a Democrat, it's probably moving that way, but slowly. I think the only the only reason Democrats think they may be an upset is because there is a massive surge of early voting there. And the question is do the polls and them and the modeling are they able to reflect that? Because they all show Cruise

winning by about three or four. I don't know the answer that question, but it will be exciting to watch poles closed in Texas at eight, So stay tuned for then next door, you said that Better Rourke is the rock star of this election cycle. So you know, one sort of speculation is if he wins, he'll be considered a candidate for the presidency at some point, perhaps even as soon as Do you think that that's feasible? And

do you think it's feasible even if he doesn't win? Well, I think all the standards change when Donald Trump one. Uh So therefore, you know, experience and gravitas and all that kind of stuff that used to count for something doesn't count much anymore. But I think that would be early. Uh Barack Obama they said was early, but Barack Obama has spent you know what, eight years in the state legislature,

four years in the Senate. I think more of a you know, more ready say than Better would be in twenty But I'll tell you there's an awful lot of of of really movement Democrats who would put their hand to fire for better or work. Al Hunt tell us about the races in Florida, And I don't just mean the Senate race between Bill Nelson and it's it's it's really you know, if you if you're looking for a operations central tonight, it's Florida because it's the one state

that has everything. Huge Senate race, which you just mentioned, Bill Nelson running against an incumbent Governor Rick Scott, I mean, and and the amount of money spent is has been colossal. Same time, you have a fantastic governor's race with a Trump supporting right wing Republican Congresman Rohn de Stantus running against uh. The African American mayor of Tallahassee, Andrew Gillham, has really been a It's been a very tough race.

I was down there a couple of weeks ago, and I think, to the surprise of some Democrats in Washington least, Gillham is just one heck of a candidate, and I think the odds now favor him, and that would be huge because it would be the first time the Democrats control the state House in eight years. It affects redistricting after the two thousand and twenty cents and those two races at the top of Democrats win those by three or four or five points. And some think they will.

That's that's going to affect the number of House seats two I think there right now Democrats think they're going to pick up two House seats in Florida. They have a chance to pick up as many as four or five if they have any kind of a blue wave night. So we're talking a lot about a potential blue waver of Democrats picking up seats. But there is the alternative here, which is that Republicans pick up both they win, they keep control over both houses, both the House for Presentatives

as well as the Senate. And what's the likelihood of that and what would that do for President Trump? Well, the likelihood of that I think is probably you know, in the fifteen, you know, seventeen percent range. I think, you know, far greater than they'll keep controlling the Senate. But but our reach and the half. But if they do, uh, it's uh, you know, it's a free license for Donald Trump. Donald Trump can do anything he wants to. It will be the end of the Affordable Healthcare Act. He can

really get done almost anything he wants. He dominates his party, and his party will dominate Washington. Al Hunt, thank you so much for being with us. All Hunt is a columnist with Bloomberg Opinion talking about the midterm elections. There certainly has been a lot of hype around financial technology

fintech firms. A number of startups have version to the surface, so over the number of years, there is a question though, how much more room is there for startups at a time when the big banks are all trying to plow into financial technology fintech Joining us now to talk about that it should work such a volo. He is a general partner at Trinity Ventures in San Francisco. Shu Work, thank you so much for being with us. So let's

just start there. I mean, do you see a lot of good potential opportunities out there with respect to fintech firms that you are interested investing in? Absolutely. I think fintech's uh is a pretty broad category. There's a lot of different kinds of opportunities up and down the financial services spectrum. Um. I do think the the levels of innovation in fact are just getting started. You had mentioned

the big banks flowing in more. If anything, I think that actually creates a whole bunch of new opportunity because as these big banks effectively try to create new products and services there's a whole bunch of new technology platforms and so of us is that will be necessary in

order to deliver them. A lot of opportunity there, and part of the reason why a lot of the large national institutions are getting more aggressive is because there's a whole bunch of new upstarts are effectively pushing the boundary and kind of forcing a lot more innovation faster. So all in all, I think there's still a lot of opportunity across the spectrum for fintech innovation. Now, you yourself

are a serial entrepreneur in the world of fintech. You've created companies that have then been acquired by master Card, for example. How is it possible that on the consumer level, you're able to take an uber or to transact business completely on your phone instantly, without any friction, you can pay for things. But when it comes to the world of wholesale banking banks moving large amounts of money, why is that still a challenge and why is it still expensive?

It's an excellent quite chin, and I think the simple answer is that the stakes are higher and and the infrastructure that is necessary to be built up in order to plane those spaces is higher simply because the regulatory um requirements that are required to play those spaces are substantially more um stringent, So you have a larger number of regulations that control, you know, things like k y C and m L that all are multiple three letter words that effectively are things that need to be done.

To make sure that the consumer and all the participating parties in a transaction are protected and to make sure that all of those things are done is a much higher bar and a lot of cases actually quite boring stuff. So when you think about financial innovation, UH innovation first starts with the easier things, things that are easier to

get done. But we've recently invested in a company that's actually making that a lot easier do um, a company called Synapse i f I that's actually creating a p I S to almost make access to wholesale banking almost as easy as Stripe has made payment services to be integrated into an over order left for example. And just to do the acronym definition, k y C means know your Customer and a m L for those in the financial world, no, it means anti money laundering rules. Sorry, no, no,

no worries. It's good to point that out, because these acronyms do have purposes for for the regulators and for the banks. But Schwork, I'm wondering you mentioned payments and that was an area that you have expertise in yourself. I'm looking at squares shares, for example, and they're up more than a hundred and twenty percent so far year to date. Is the payment sector still ground zero when it comes to innovation in financial technology? What is the

frontier for the next wave of innovation? Absolutely, I think it's definitely the early days square and of course is then innovating almost in and around the payment sectors, so they're actually kind of getting into things like lending and marketing and all the other kinds of services from payroll and so and so forth. So they the number of services they can offer their existing customer base um is still you know, they're still sketching the surface. I think

there's a lot more upside there. And but if you look at broadly more fintech, I do think the the amount of innovation is almost poised to accelerate because one of the things that almost limits innovation and financial services is in fact regulatory um strength. If you may so, if the the regulators are are being very very cautious, then it almost limits innovation because people are scared to kind of push the boundary a little bit to kind of make sure figure out what it is that actually

can be done. Um. But when the regulators tend to be a little bit more lax, then it tends to become a little bit more um encouraging of innovation. So lending, for example, has been innovated on many, many times over the last ten years because regulators were a little bit more friendly towards innovation in the lending space. So as regulators look favorably upon innovation in different areas, those actually

tend to count alive with a lot more innovation. So I think lately, I think that regulators have been a little bit more encouraging our innovation. The occ is, for example, creating things like the Fintech Charter, so they're they're starting to think about innovation as part of the realm of the things that they want to encourage and push. And so as the regulators start to kind of look at this a little bit more favorably, I think innovation is

only going to accelerate. Can you just tell us quickly about branch because we talked about the developed world, and Branch is a company that you've invested in that works in emerging markets. That's exactly right. I think if you really think about financial services, we tend it kind of almost always on fin techs especially, we tend to think about that as a very US phenomenon. But if you really look at the fintech innovation, it's actually happening across

the world. In fact, because again regulation is a little bit more friendly innovation. In Europe, you actually find and DiNovo banks that have actually been created from scratch actually thriving in Europe, which is not quite played out almost the same way in the US yet. UM. But if you really think about consumers and consumer demand, UM, financial services in the US is almost one of the most

well developed sectors. But across the rest of the world, financial services has very very low penetration, so very few consumers actually even have access to financial services as a

fraction of the entire population. And what Brand is trying to do is kind of taking the device that is that actually does have very high penetration, which is a smartphone UM, which is rapidly increasing in its penetration rates across and developing world and using the the access and information that a smartphone provides in order to be able to create underwriting decisions, in order to give access to both loans and going forward even savings products to consumers

um directly off of their phone. So a branchless banking, if you may, delivered by a smartphone into the very um deepest parts of Africa, India and Mexico and a bunch of other countries as as they go along. Thank you very much for spending time with us and talking about financial technology and the challenges and the opportunities. Schwark Sayavolo is the general partner for Trinity Ventors. Joining us

from San Francisco. The energy and pharmaceutical industries stand to potentially be disrupted depending on the outcome of today's midterm elections in the United States. Joining us now, Brian Rice in your healthcare policy analyst four Brick Intelligence coming to us from our nig n WIN studios in Washington, d C. Brian, thank you so much for joining us. Let's start with the pharmaceutical industry. What is the sort of range of

outcomes from today's election that could potentially affect this industry? Sure, and I think the one that pharmaceutical industry would be most concerned with is if you have the true blue wave where Democrats control not only the House but also the Senate, and in that instance, they would have the ability to not only hold a lot of hearings that would create a lot of noise and headlines, but then

also potentially send some legislation to President Trump's desk. And I think the concern for the industry is that if you've listened to President Trump over the past couple of years, you know his personal leanings from time to time appear to be more aligned with the Democrats on things like giving the federal government more direct influence over the prices

of prescription drugs in the part deep program for example. Now, if it's just a split where our gridlock situation where Democrats maybe win control of the House, but Republicans retain control of the Senate, and I think those more draconian things are are taken off the table. But again, the Democrat controlled House would have the ability to dictate a number more hearings and things that would put pharmaceutical companies UM in more of a spotlight than they are are already.

Brian Ryan, I just want to let you know that we have a group of future voters of America joining us here in our Bloomberg Interactive Broker studios. We have all the members of a Girl Scout a troop nineteen fifty six from Edgemont in Scarsdale. So they're all listening to you because they want to understand how the midterm elections figure into not just this election cycle, but the cycle.

Are these the same issues you believe are going to dominate the next election or is this something that is specific to this mid term because typically you think, oh, however the economy goes, that's how the vote goes. Well. First of all, I'm honored to be speaking in front

of such a distinguished group. Welcome girls, and uh. Secondly, I think the healthcare UH situation is one that will continue to be of particular interest to voters, not only drug pricing, but then also starting tomorrow probably will cycle very quickly into the presidential campaign, in particular the intra Democratic party fight about how far left do you want to go? Are we going to nominate someone who believes in the Bernie Sanders Medicare for All perspective? Or is

it maybe not quite that far down that stretch. So you know, I think twenty nineteen is going to be a very interesting year from a healthcare perspective, and that obviously sets up the battle versus President Trump in twenty depending on the outcome of these UH midterm elections tomorrow and what policies emanate from there, that will obviously drive a lot of the conversation UM UH in heading into and certainly, you know, healthcare, so one that I think

both parties will be forced to talk about, even if they don't want to. Brian, one thing that I'm struck by is that no matter who wins, we're going to probably deepen US deficit right with spending, possibly either with infrastructure spending or a more permanent tax cut. Would you say that that's an accurate statement? And what are the most likely spending scenarios should we see a blue wave

or a red wave? Yeah, I think in certainly history suggests that's a pretty safe bet no matter what the what the outcome of an election is, UM, certainly you have either a blue wave or a split Congress. UM. I think infrastructure is an area where the President has expressed a lot of interest and Democrats UM also would want to to maybe uh, provide more stimulus In that standpoint, I think the political question that the Democrats would then have to ask though, is do they want to hand

the president a win? Do they want to be seen on stage at a bill stigning ceremony for example, where the president is getting something that he wants. And then for the president, would he be willing to to cave in on some Democratic demands? How much would he ask for in return, whether it's the wall or other infrastructure priorities that perhaps the Democrats, um, you know, aren't aligned with, but that I think is an area that investors are

going to want to focus on. But that's certainly that's certainly not a deficit cutting program that we're going to see, Brian, there are a lot of ballot initiatives that voters are going to have to decide on. Tell us the ones that you believe are the most relevant. Well, a couple uh that that I think are in our various analysts are focused on here at Bloomberg Intelligence out in California.

Prop eight I think has a lot of a lot of interest within the healthcare community, in particular dialysis providers, you know, Uh, Divita in particular has been very keen on on that one. UH, several ballot initiatives could could I guess further the trend towards cannabis legalization. I think Michigan is a state in particular that that our analysts are focused on, given the UH the potential market in that state. So those are a couple that across the

country a number of ballot initiatives. This is much more than just the battle for control of Congress. Thank you so much for being with us, Brian, Ryan. I'm sure you've got a long night ahead of you, and we may not even know the results right come tomorrow morning, and there might be some pretty hairy races there. That's right, you know, ballot I guess the post closed around eleven

o'clock tonight Eastern time in California. A number of those races could ultimately decide which way the no the Congress goes next year. Well, Brian, right, I have a wonderful time drinking coffee from now until tomorrow this time, Brian Ryce and your healthcare policy analyst for Bloomberg Intelligence coming to us from the Capital of the United States, Washington, d C. The creditors of Seers are asking the court to probe transactions that involve the bankrupt retailer's biggest shareholder,

Eddie Lampert. And here to tell us about it is Noel Hebert, director of credit research for Bloomberg Intelligence. No just set out for us exactly what kinds of transactions do they want to investigate? It? Well, pretty much all of them. Uh. So mean, over the last several years is in order to keep Sears afloat at these done a number of things to basically inject capital into the business.

The biggest one being the transaction where they spun out a bunch of real estate into what's called Siritage, which is a real estate investment trust that took on a bunch of the stores owned by Sears. But then more recently there's been a number of deals which were more direct lending, whereas Eddie Lampert through his E s L investment font would basically lend dollars secured by new real estate or intellectual property or some of the other assets

of the company. So what's its stake here? I mean, could Eddie Lampert have to pay the credit or something or would you just stand or recover less? Uh it's a great question. Hi, I wish I knew the answer. Uh, you know, I think realistically it's a tactic by creditors to try and extract more from Eddie Lamper to kind of move the process along, because if it doesn't happen quickly, the problem is, as we saw with Toys r Us, that you end up in a situation where you risk

moving from a chapter eleven into a Chapter seven. Um that he doesn't want that because of his Sriitage ownership Steak and because Seritage still collects a lot of rent from scares. So to be clear, chapter seven means that the whole place to stands liquidates and is done, whereas Chapter eleven is more restructuring. Who are the creditors? I mean these are these mostly hedge funds. It's going to be predominantly hedge funds because you gotta remember, you know,

esl controlled, you know, of the equity. He also controlled of you know, the lending part of the portfolio. So between him and fair Home before they had equity exited much of their equity stak. I mean those two collectively owned you know, three quarters of the capital structure. Almost no al How far back will this are they looking for this investigation to go? So they're they're trying to roll up everything going back until which is when you saw Siries Home Town spun out, as well as some

of the deals with Sears Canada. Uh those I mean because a lot of those deals, including Land's End as well, which was a lot of those deals were just done as distributions spun out pro rata or everybody, all the shareholders had equal right to participate. So those look like a tough lift, I would think from the creditor standpoint.

Same with Siritage because I got a fairness opinion and Eddie Lamport in the ESL paid an extra forty million a couple of years after that deal was done to settle shareholder litigation at that point, so you know, it's a good reach for them. I think the more recent deals where you know they lent directly against specific assets of the last call it two years, are probably more doable for for the hedge funds and the people on the other side of the ledger here um. But but

they're going after everything. I'm just wondering there have been some kinks some people who are looking to lend a Sears while they're in bankruptcy adator and possessions loan have sort of balked at the idea of Eddie Lambert being orally in alved where is that and sort of how much are they going to be able to actually borrow

to keep themselves afloat during this whole process. Well, it sounds like at least the latest iteration is that the other creditors are willing to put up another three hundred million, which is what Eddie and E. S l Are trying to do as a second leaned that are in possession financing loan um. So it looks like they're willing to take on that liability, which is okay from the standpoint of you still have plenty of coverage from your working capital,

so your inventory, etcetera. Um. And basically they're trying to keep Eddie from getting more engaged because if he had gotten into the debtor possession role that he would leap frog right the other term loan lenders and some of the other first leans which are still out there as creditors.

So I think the banks and a lot of people who've sort of bought into this process over time and kept you know, kind of maybe seeing the silver lining on the gray cloud that kept building, or maybe now feeling a little more disenchanted with the whole thing and less inclined to the sort of let Eddie have a bigger say and just quickly no time. You mentioned time. Do they have time to let this happen while the company still operates? No, would be my my gut answer here, right.

I mean, the reality is, if you don't have something in place, in a real firm plan by the very early part of next year, call it mid February early March, it'll be very hard to keep this thing from spiraling into liquidation because the company consumes so much cash um, so you need to be able to wipe away all the incremental costs, whether you're talking just the cost of learning the bankruptcy, the cost of the incremental stores, etcetera.

So it's going to be an interesting an interesting road, as it has for the number of years that this has been ongoing. Noal Hebert, thank you so much for being with us. Noal Hebert, Director of Credit Research 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 Abramowitz. One before the podcast, you can always catch us worldwide on Bloomberg Radio