GOP Needs a Return to Wishes of the Common Man, Olsen Says

lot of Republicans. And Henry Olsen was so compelled by Ronald Reagan that he wrote a book about him. Henry Wilson joins us now. He's author and senior fellow at Ethics and Public Policy Center in Washington, d C. It's the Center to the right leading group, and he joins us right now in our Bloomberger eleven three oh studios. He just released his book, The Working Class Republican Ronald

Reagan and the Return of Blue Collar Conservatism. And in the book you highlight some of his democratic roots, some of his admiration for FDR, who has thought of as a very liberal president. What were you trying to accomplish with the book. What I wanted to accomplish was two things. One is to show who the real Ronald Reagan was. He's somebody who never left his admiration of FDR behind. In fact, many of his most famous lines were unattributed

but direct paraphrases of FDR. For example, the night clothes in the debate, where he said, are you better off than you were four years ago? Was a direct rip off of FDR's fifth Fireside chap. But more than historical, what I wanted to show was that that attitude, that combination of traditional conservatism of freedom and conservation of liberalism, of giving people a hand up in American life, is what Reagan was all about, and that was the secret sauce.

That's what let him win, that's what let him set the agenda, and that today's Democrats and Republicans have separate it into partisan squabbling brothers, neither of whom understand what Americans want, which is the continuation, not the repudiation of Franklin Roosevelt. So you wrote this book when President Obama was in charge, right, I mean, it comes out now, but I imagine this was written during a period pre any reality of President Donald Trump. How does that change

the equation for you. It doesn't actually change the equation that much. And it doesn't because, oddly enough, for what Trump did was tapped into the Reagan Democrat. Trump is the first person since Reagan to carry the five Midwestern states that are dominated by blue collar whites, the traditional Reagan Democrat Iowa, Michigan, Ohio, Pennsylvania, and Wisconsin. And he did it by focusing on their concerns. He came out and he said, I understand you're struggling. I'm going to

put you at the center of my agenda. I'm not going to touch, unlike those other Republicans social Security and medicare. I'm going to deal with getting your jobs back. And that was a modern version of what FDR did in the Great Depression, saying you cared more about these people than about financiers on Wall Street, and a modern version

of what Reagan did. He was focusing on the blue collar white, but blue collar voters generally, but particularly the blue collar white, and he won their support in degree that hasn't been seen at all since the degree that they backed Reagan in the nineteen eighties. So are the measures that we have seen out of the President Trump administration. Have they been coherent with what President Reagan would have done. No. Uh.

Trump campaign more coherently than he's governed so far. A lot of the things that he talked about that would have appealed to these voters are falling by the wayside. I think that the debate over the healthcare replacement bill is a perfect example of that. That he said he wouldn't cut Medicaid, but in fact the bill cutts Medicaid. He said people wouldn't lose their health insurance and to be cheaper. In fact, there's a great risk that people

will lose their health insurance. He's become more of the traditional Goldwater right, anti state Republican in office than he campaigned as, and that's a huge problem for him. What would Ronald Reagan do with the GOP healthcare plan? I think Reagan would want to cover as many people as possible, but remove as many regulations as possible. Reagan said throughout his career that he believed that nobody in America should go without medical care because of a lack of funds.

He supported that when he was a conservative in the nineteen sixty one. He supported it when he was a governor. He's tried to expand various medical programs as governor and as president. So I think that Reagan would try and cover as many people as he could, but do it more efficiently through the private sector than through a mandated

benefit structure, which is what Obamacare was. In the introduction, you talked about how you grew up in California as a staunch Republican and how you volunteered for GOP causes, and you really looked up to President Reagan as an archetype of a good leader. I'm wondering, do you still identify as Republican. I do, but I identify as a Reagan Republican. Uh. And what I've come to do is under Dan my idol better and consequently become even more devoted to what he believed than I was when I

misunderstood him. It's harder, though, today, to be a staunch Republican when you see um the sort of mistakes, when you see the sort of oftentimes disregard for the wishes of the common man that too many in our party exact. And I'd like to see a return to what worked and what Americans want, which is a Republican party that focuses on love of the average person rather than love of an abstract ideal or love of the pursuit of wealth. You know, President Reagan oversaw the US during a time

of remarkable economic growth. Uh. He oversaw inflation to decline while growth accelerated. It was considered a golden economic era. But there is a lot of discussion and frankly dissent about whether the sort of voodoo economics, that trickle down economics that he espoused was responsible for that, or whether that was something else altogether. Where do you fall on that, Well,

I think one Reagan never espouse trickle down economics. What Reagan did actually was criticized that he always spoke of a humane economy. He spoke about the American worker, not the entrepreneurs, the foundation of the American economy. In fact, when his first budget director had a revealing interview in one and said that Reagan's tax plan was actually trickled down in disguised, Reagan criticized him for it, and, as

they said, took him to the woodshed. What Reagan believed was that incentives worked for everybody, and that people from all spectrums of the economics Ladder contributed to economic growth. I think a lot of what Reagan did helped increase the economy. I think lowering tax rates on everybody. Today we've got a top tax rate of on the richest people. We used to have a top tax rate of forty people on the middle class. Before Reagan got into office,

tax rates were so much higher. He brought them down, encouraged everybody to work more, and deregulation opened up new industries that were unimaginable. For Reagan, I think he was very much responsible for the economic boom that occurred on his watch. Proportion of Congressman, of senators and representatives UH

currently adhered to Reagan Republicanism. In your view, I think more in practice than in theory that what they've been there's a number of people who are remain unreconciled to UH the New Deal, remain not unreconciled to a mixed economy. And these are like the people you find and the Freedom Caucus that Rand paul ted Cruz. But I think a lot more Republicans are there where Reagan was, but they just don't have a language for it. They've been told that they have to talk in terms of freedom

and opportunity. And entrepreneurship and trickle down um. And so they don't pursue the sort of policies that in their heart they might want to pursue, but they don't really have a grounding for going forward. And that's what I'm

trying to do in this book. I could talk with you for another hour, particularly about the trickle down point, which is uh an issue that I would love to understand a little bit better, because it's sort of a narrow distinction there between high tax you know, lowering taxes and expecting it to go into economic growth versus trickle down what you label it. But unfortunately we have to leave it there. Thank you so much for joining us. Thanks.

Henry Olson is an author and senior Fellow at the Ethics and Public Policy Center based in Washington, d C. His new book, The Working Class Republican Ronald Reagan and the Return of Blue Collar Conservatism is out now and it's a fascinating look at one of the Republican heroes in American history. Well, last week I read a survey

that was somewhat alarming income investors. According to the survey, so he can overall average rate of return and expect a rate of return of eight point six percent on averages is, according to a leg Mason survey, that is higher than may have been able to get rely and is higher than many money managers can imagine that they could possibly achieve at a time when average high bond heels are five point seven percent compared with an average of more than eight percent over the past decade. Michael

Buchanan joins US now. He is deputy Chief Investment Officer of Western Asset Management Company, which is an independent affiliate of Like Mason UH and it oversees four hundred and thirty three billion dollars. Michael, thank you so much for joining US. Um have you ever seen such a big

gap in investor expectations versus reality? Well, I can't tell you that we've actually gone out and measured that gap on a regular basis, but um, you know, I would say that intuitively, it definitely feels today that, um, that gap is certainly large. And is it, you know, as large as it's ever been. Not really sure, but it's it's certainly up there in terms of magnitude. Well, here's

why it seems somewhat concerning. If investors want more than eight percent returns, there will be some money managers who say, look, I can do that for you. I can lever up something uh that's fairly risky at a time of high valuations and ostensibly rising yields uh, and you could you could win big. You could also lose big, but you could win big. Do you see that happening? Um? There? You know, there's always that risk, and I think it's

a good point. I mean, there aren't too many opportunities out there where you can even get close to that type of return. So I think at leasta, you're right, the only way you really can get there is with leverage. And you know, our view is, you know, you don't necessarily have to solve for that. Just because investors expect that type of return doesn't mean we actually have to

go and try to reach for that. But we what we do want to do is make sure that we're utilizing all different parts of the fixed income market to minimize that gap in a in a thoughtful way, in a in a good, risk controlled way. Do you think that because investors have expectation, they will be more aggressive and it will fuel gains in areas that some people

think are already perhaps stretched, like high yield. Yeah, I think, you know, to some extent um, we we're seeing a little bit of that, but I think we're we're far from a point where I would call valuations and a lot of these traditional fixed income markets, whether it's high yield or structured products or emerging markets, I don't feel

like we're at a point where valuations are are stretched. Certainly, all the Central Bank accommodation has caused investors to uh reach a little bit in terms of risk, but I still think when you go back to two thousand and eight in the crisis, that was so damaging that it really did damage risk profiles, investors spirits. So it's just taking longer than it normally would to have those investors take that or take on that risk seeking behavior that

you know ultimately will and does get them into trouble. So, given this gap in expectations and reality, how have you kind of rejiggered your recommendations as for how people should

allocate specifically within fixed income. Well, we definitely are encouraging and have been encouraging our clients to emphasize the the income oriented sectors, the so called spread sectors, and those are like I just mentioned, um and no particular order, corporate credit UM, specifically high yield UH and bank loans UH, select emerging markets, structured products, whether it's UH non agency mortgages or UH CMBs UH. So there's a lot of

areas within fixed income. And one of the things that we're seeing and we think this makes a lot of sense, is when our clients give us the the allowance to make dynamic allocations to these sectors. In other words, it's not a dedicated allocation, but they say on opportunity, UM, we're gonna let you allocate to the various sectors and really kind of take advantage of the best risk adjusted

returns within those sectors. So you don't see it sounds like UM irresponsible investing by fellow money managers, let's say, using a lot of leverage or kind of creating a riskier environment for some of these already UH somewhat riskier asset classes. You know, I really don't, And people will will talk about high yield in that capacity or that regard UH. The amount of triple c issuance UH is

still relatively low. A lot of the more aggressive structures that you typically see when a cycle is getting ready to turn, these are you know, kind of deferred interest mechanisms like paying kind bonds. We're really not seeing a lot of that. We're still seeing a lot of investor discipline in terms of the high yield market. And I always say right now that it's it's it's a lot easier for a company to uh bring a you know, double be kind of the call it a four and

a quarter four and a half percent yield deal. You can sell a lot more of that than a triple ce deal with a double digit coupon. Because I think investors are still you know again they're they're they're they're still very cautious. So embedded in your outlook seems to be an assumption that we will not have a recession in the next twelve months, perhaps eighteen months. Is that correct, Yeah,

that's definitely our view. We think that, um, the economy is you know, sort of a slow growth, but positive growth, an environment that necessitates continued accommodation, even as the FED is removing accommodation. UM. But we don't see those headwinds that UM really give us a lot of cause or

concern for a recession, certainly in the near term. What's the biggest risk, I mean, is there anything that you're looking at right now that could change that you yeahs as portfolio managers, you're always trying to think about, you know, the risk that that can you know, really damage your your main view. Um, you know, I think China is one that um it kind of comes and goes and uh, you know there there is clearly you know when you think of China, it is a big growth engine for

the global economy. We all know there are some latent risks there and um, if if if China were too you know, underwhelm if if you saw a little bit of a hiccup there, if you saw some of those risks and in corporate credits start to manifest themselves into more volatility or slow slower global growth, you know, those could all derail the momentum of the very fragile recovery. But right now things look copasetic. Thank you so much for joining fortuning me. This is really a fascinating issue.

In this gap between investor expectations and the reality is something definitely to keep an eye on. Mike Buchanan, He's deputy Chief investment Officer of Western Asset Management in Pasadena, California. I believe overseeing four d and thirty three billion dollars. Let's talk taxes. This has been the big issue for markets. Everyone has been waiting to hear how much President Trump

will cut taxes. And I should say also Paul Ryan Uh in the House, Linley Browning joined us now she's a tax reporter for Bloomberg News coming to us from Fairfield, Connecticut. And Linley, before we get into the details of what some people are expecting from the tax proposal, I would love to get a sense from you. What do we have that's concrete about this proposal other than that brief, lesson two hundred word description from President Trump a while back.

Do we have something more concrete to base assumptions on at this point? Well, we have, as for example, trumps uh tax for potogos. No, we don't have anything more concrete. We have his uh roughly two hundred word bullet plan proposal in which he reiterated his previous calls for the corporate rate and in fact the rate for all types of businesses be cut to fift So, but do we have are there any bills that have come out of the House or the Senate that sort of map out

a little bit more concretely what they're looking to do. No, we have nothing on the level of bills for legislative language. Everything right now is on the level of arbitrs and concepts and seeing you know what can be done in the name of quote unquote tax reform. UH. Senator House Speaker Paul Ryan, of course has put forth UH and his proposed rate of but it's not clear that that UH could be afforded given opposition to other measures he's

proposed that would help pay for that rate cut. So arbitraging out the different scenarios, experts that you have spoken to came up with this twenty percent figure, which is far higher than the fift tax rate that some Republicans have called for. With respect to the corporate tax rate being lowered. UH, A lot of experts say twenty eight percent is much more realistic. Can you talk a little

about that. The reason percent roughly is more realistic is because it's a rate that, under rules of budget funding and deficits, could be wrangled to quote unquote pay for itself. The idea is that if you want permanent tax reform, are not just temporary rate cut UH. Those UH, any rate reduction in the corporate rate has to not increase the UH budget deficit over a period of a decade. So the question is how do you how do you fund what? What are the pay fors for a rate cut?

And right now the things that the House repos because they propose aren't really going anywhere. The border adjustment tax and the elimination of the net interstroduction, those collectively would raise about two point two trillion over a decade. That would more UH than Ox said a rate cut to.

Trump has no proposals to pay for a rate cut to He's been arguing that, well, you don't really need to pay for is You're going to get into these economic growth and that's going to sort of pay for installed. So in other words, a lot of the Republicans in the Senate and the House don't buy that argument. They want to they want to balance budget. They're not going to just go for cutting the taxes first and hoping that that growth will offset it in the future. They

may not. They may, in fact, UH do away with the idea that UH tax cuts cannot increase the Federals epicits over a ten year windo, and in fact they may seek to extend that window to twenty years or thirty years. It's completely unknown right now. How much does the healthcare bill wag into this. You know, it's for both sides have said we want to get healthcare done before we get tax reform done. They both tames have

made that very clear. And the takeaway on the street right now is that if you can't get healthcare done, how are you going to get tax reform done? Uh. The latter is a much thornier, uh and bigger problem. So in other words, it kind of dampens the hopes for certainly a fifteent tax rate, which probably also factors into why people are are kind of settling on the as sort of more likely scenario possibly too. Yes, that

is correct. Thank you so much for joining me. Linley Browning, tax reporter for Bloomberg News, coming to us from Fairfield, Connecticut. And rarely have I heard a time when taxes were such at the forefront of markets. And this has been absolutely, uh the biggest driver in some people's estimation of some of the stock games and the Trump bump, The expectation that tax cuts will bolster corporate growth green on the screen across the board, across major U s and dissease

as well as overseas. Dave Wilson joins me now. Dave Wilson is Bloomberg Stocks editor, columnist and blogger and m live go on the Bloomberg. You should check it out. It's wonderful and comprehensive. Dave. What is driving today's games? It's a hard one to kind of pin on much of anything, to be honest, other than the market that's

gotten momentum. You see the financial stocks leading the way within the S and P, and certainly that's a group that has been through the ring or a bit lately with on yields coming down, and of course that means that they banks don't stand to earn as much on their loans and investments. That being the case, yet pretty much every financial stock in the SMP five hundreds higher today, So that's certainly a group kind of front and center

helping things along. Beyond that, I mean, we've kind of gotten to the point, you know, week left in the quarter, where there's not a whole lot of company news to really focus on. So it's maybe just the idea that in market in motion stays in motion. As well as anything else with financials, there is an interesting dynamic which took hold over the weekend. And I want to bring in Leonel laurent Uh to join us and sort of

give us some perspective on what happened in Italy. Leonel is a columnist covering finance and markets for Bloomberg gadfline comes to us from London. So Leon know, there was this uh bailout basically orchestrated by Italy, and nineteen billion dollar bailout, the biggest ever for Italy to bail out to troubled banks, and the market is cheering. I thought that after what happened in the ECB rules and the some of the provisions, that there couldn't be a bailout

like this. How does this? How is this kosher? Yeah? I think you've been paying attention maybe too closely, and forgotten that actually this is a very political story. I mean, Italy is simply a very big economy. If you're going to bend the rules for a country, it might as well be a big one. And I think that, you know, we we shouldn't forget that. The fact this is a record is because Italy has actually been been quite a good uh you know child in terms of the of

the crisis. It didn't, It didn't have as bad a crisis some of the other countries. But essentially what you're seeing here is a is a bailout that basically, you know, protects the posters, protect senior bond holders, but at taxpayers expense. And I think the market forgot that there just might be that little escape route for a country like Italy. So is this basically the rally that we're seeing in

financials today? Is this basically a relief rally that, yes, if there is a problem in markets, governments will after our bail banks out again. Well, I think, you know, it is good news that you have to weak banks in Italy out of the system. I think that it comes recently after another week bank, this time in Spain was taken out of the system. So I feel like there is good news to be taken out of this, right. I think that that the problem is on a more

kind of political level, on a more kind of future level. Right. I mean, if if banks do come back to the market, do investors think twice about the whole story of the Eurozone rule book or will they be as pragmatic as the politicians and regulators seem to be Dave is the rally and financials more pronounced in European firms. Well, let me just take a quick look here. You go to the stock six hundred just to get an idea. I mean, that's essentially the European version of the SNP five hundred.

And as far as today's trading goes, well, the financial stocks really aren't kind of leading the way, not not

not an extreme move by any means. In fact, a whole lot of groups doing better in Europe than the financials, So you know, it's another day, another advantage, all right, Well, Leonel, I wanted to talk a little bit about the debt, right because as part of this bailout, the senior bondholders would get prioritized, they wouldn't lose any money, and the junior bondholders would get wiped out sort of, right because there is a large retail ownership component to Italy's junior

bank bonds. In other words, just your mom and pop investors own a lot of the subordinated bonds, and the government couldn't let them just take losses, right, right exactly. And it's it's the sort of that's key. So basically, I think there's going to be an attempt to get a fund together of about two million euros to basically reimburse investors who have been allegedly missold some of these securities.

This is from a culture where you know, these bonds, these securities and to do with banks were sold as you know, really secure, really safe, lifelong investments. And in Teza San Paolo, which is the big strong Italian bank that's going to be buying these weak banks for about a euro has also promised it will pay out money to small savers that are going to suffer from this. So I think, you know, even here you get a yes, junior bond holders wiped out, but it's the it's the

sort of that's that's in question. So so it looks like about a quarter of the junior A debt outstanding will find some kind of refund or recourse. Does this let me precedent? Because in Italy and my mistaken my my impression is in Italy, mom and pop investors on a disproportionate amount of these junior bonds. Is that correct?

That's correct. I think it's about half, So I mean, does it does this set a precedent that if anything does happen, that there needs to be some provision where retail holders of these bonds need to get compensated on some level, or else they'll be political turmoil. This this is all see, all part of the negotiation, all part of the calculation. I think it's also pure litigation risk as well that you know sadly in this case as well,

the taxpayer is on the hook for right. I mean the taxpayer through guarantees to the buyer in Teza, is also helping to cover future litigation risk, which I'm sure we'll cover also taxpayers. Were we are we are delving into the capital structure of these banks. The next us between you know, politics and finance and and households and institutional investors, and that is what these governments and regulators try to unpick every time a bank goes against the wall.

Leonie Lauren, thank you so much for joining us and for your perspective. Leoni Lauren is a calumnist covering finance and markets for Bloomberg. Gad Fly coming to us from London. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple podcast, SoundCloud or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio