Korea Gesture Is A Blink We Should Take Advantage Of: Devine

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Diplomatic changes a foot on the Korean peninsula, as North Korea's leader Kim Jong un says that he will meet with President Donald Trump and the President apparently agreeing to that meeting sometime later this year, perhaps in early summer. Here to help us understand what is going on is Toby Harshaw.

He is our Bloomberg view editor for all things related to national security, and also Jack Divine is the former acting director of this Central Intelligence Agency and founding partner and the president of the security firm the Arkin Group. Gentlemen, thank you very much for being with us that Jack Divine, I want you to come in on this and just give us your thoughts and reactions to this news. Well, I think it's first of all, hit the high note.

I think it's a very positive development. I do think Kim jongan blank. But I want to say blink. It's not like a gladiator that kneels down and begs for mercy. This is a blink. We should take advantage of it. I think it would be one of the more interesting meetings of heads of state that we have seen in uh, in current memory. I think it will be to the matador and the bull trying to size each other up, and Uh, it's going to be a terribly important meeting, Toby,

what are sort of both sides? Where are they in this meeting? Where are they lining up? What do they want to get? What will be considered a win? Well, I'm actually have to tell us which one is the bull and which one is the matador? I think, But I think um in terms of what they hope to gain on the world stage, UM, Kim is sort of the evident winner. I think a lot of people worry that having an American president come and meet with him will sort of legitimize him as a as a world leader, UM,

will legitimize his government. UM. I don't think that's the case. I don't think it's dumb to go and meet with him. I don't think it legitimizes him, but I think in

his mind it's extremely important. Um. There was a notable North Korean propaganda film a few years ago, UM that was called The Country I Saw and it has this huge triumphant ending in which Bill Clinton comes to meet with with the Supreme Leader and this was So this is just a huge thing and what the Kims have built about themselves Jack divine to Toby's point, though, what does it matter whether you know someone is a winner or a loser on a personal level or a prestige level,

if indeed they are able to reach some kind of de escalation as it comes to the nuclear threat that North Korea poses. Well, I think these things are often intertwined. First of all, going back to Tobin's point, I I think we have to route that Donald Trump is the Mata door, okay, and uh, And I think the uh.

The reason why I would just state that, I think Donald Trump, UM, and I think Kim Jong understands this is actually having has a stronger hand, the stronger hand being the might, the economic and military might of the United States, which you know, we can't even say in the same breath that North Korea is in the same category. So he has the mata to restore it here now having said that, we still have a major problem in

that North Korea is now a nuclear force. And if we look back over the arc of the agociations, and I've been proposing to negotiations for as long as we've been speaking together here on Bloomberg, Um, but if you look over the long arc of dealing with North Korea, they have a pattern, and it's a very clear pattern. And when you're talking about deal making, Kim Jong own

considers himself a deal maker. So this is why I think it's going to be a challenge for the two of them, and the national interest and the personal interests are are are intertwined. You know. It's interesting. Jack Toby was on our show the past few weeks and he said something that was very compelling, which is that China is really the big wild card here. And I'm wondering, from your perspective, Jack, what role is China playing in this?

Because right now we understand that South Korea is the one sort of negotiating this meeting, We understand North Korea's stance, now we know President Trump stands, where's China. I think China is indeed a critical player, but it's not the critical player that it was years ago. There have been the distance between China and Korea is quite different than it was years ago, so they do have economic points

of pressure. I was on the show. I've been pessimistic that the Chinese were going to lean as heavily on North Korea is needed needed to be the case. They've actually done more than I thought they would do. I however, on this particular occasion, I think going into these talks, we have to know what we really want to accomplish, because I know what the North Koreans are going to want to accomplish. They've reached a plateau, so they want

to buy. They want to Now my view is to say that they'll stop doing um testing and stop doing development of additional nuclear weapons. Whether they do or not will be the test. Uh and that in exchange the one economic concessions. Now, you know, one of the things when you go back and look at the NEGO, they drag one for years. So I think if something's gonna happened here, it has to happen on a different timeline.

I wouldn't give them only the most minimal concessions during the period, and I think the goal and I've been thinking about this so more heavily in recent days. I do believe the administration's right. It has to be the nuclearization, some effort moving in that direction, not just slowing down the process. So going into this, he's got the hell that sort up high? Toby, come on, do you agree on this? And also do you have a sense that China and Russia are playing in these negotiations at all? Um?

I think that while Jack is very right and we're gonna look at this primarily right away as trading sanctioned relief for concessions on the nuclear program, it's not as as simple as even that, um were. There are all sorts of issues in play. One is their internet, intercontinental ballistic missile systems. Are we going to continue to let

them develop that? There's they're horrible human rights abuses. Can we normalize relations with a country, uh, that that treats its people like this just so that we can get rid of a nuclear threat? Um? Obviously, as Jack said, there's China, UM, there's Russia. UM, there is Japan, and there is South Korea. UM. We've got you know, tens of thousands of troops. They're they're they're just such a huge flood of issues that we cannot look at it as just being about their nukes. But but Toby, do

we just pushed back a little bit. I mean, this is a dynamic situation, and one consider that this is a positive, positive situation, positive element of this dynamic situation. Right now we don't know how it's going to play out, but give every chance for for the support to make this happen. I couldn't agree more. Pim, this is this is a great thing. I'm really glad. I hope it comes together. It's just it's it's the first step in

a big process. And I was just gonna say again Toban's right that there's gonna be so much that goes in the negotiating and so much expertise on the details. The problem is, I'm really recommending that we not get bogged down on negotiations, on negotiations, on negotiations, and find that we're giving them economic relief and nothing's really happening, and then they decide a couple of years from now when they're ready to do another UM program to raise

it to a new platform. We're looking at an empty ball. So I think we have to be really tough, and I think I think this is the right moment because I do think that the Koreans are feeling feeling the pain. Toby, Toby, uh, thank you so much and Jack, thank you so much. You both really lent some fabulous insight to this very complicated and evolving issue. Jack Divine, former acting director of the CIA and founding partner and president of the security form the ark And Group, And of course our own

Toby Harshaw, Bloomberg View editor. Always fascinating to hear your insights. Uh, Pam. Definitely an evolving issue, a lot of questions. One of the biggest right now is who will be preparing President Trump for this meeting and who will be going with him to it, and not to mention where it will be held. Well, Jeffrey the Giraffe maybe calling it a day.

Nol he read is our director of credit research for Bloomberg Intelligence, and Nol, I want you to come in on what's going on with toys r US and is it likely that we can just say goodbye to Jeffrey. It looks like domestically, at least in the current form in terms of the bricks and mortar stores, that does look like it's increasingly going to be the case. Uh, it didn't seem like that needed to be the case

when they filed last October or so. But given the fact that they went into bankruptcy without a plan, and the way things kind of rolled through retail and change very quickly, and how contentious sort of the the bankruptcy has been between all the different stakeholders, that is looking like where we're going as we speak, you know, no, can you just elaborate a little bit on exactly what

happened here? Why this fell apart? We are seeing, uh the shares of toymakers fall today, So there are broader consequences to the concept that Jeffrey the draft will go by the way of retired conception. So what happened here? What broke down? Well, I think, you know, I guess to go back to to part of what I just said, which is to say that they kind of went in

without a plan. So when they filed, you know, unlike a lot of the deals, you know, when you file, you kind of go with plans, so you kind of know how long you're going to be in and how long you might take to get out here. Because they were kind of put into bankruptcy because you had a situation where the vendors basically just shut off for them. They were forced to file prematurely so they could at least get through the holiday, So nobody really anticipated them filing.

And if you recollects, sort of the short term bonds went from like you know, in the nineties into the twenties like effectively overnight, so it was kind of a surp lies filing. And then as they've gotten into bankruptcy, had a very weak holiday. Uh, and you have a lot of operational dynamics that need to happen here for

them to be solvent. But you have a lot of competing interests in terms of you know, you have the property companies that are very interested in preserving the value of the real estate, whereas the operational side of it really needs to get changes to the least terms in order to be profitable. So I think, you know, as the bankruptcy and folded, just given the competitive nature of the different creditor groups made it very difficult for them to sort of come to a consensus of what should

a pro form Toys r US look like. And the toys are us not the only retailer facing some headwinds here Claires tell us about what's going on. So clears is it looks like it's gonna be better in the sense that you could have better in bankruptcy. Um, you know, it's going to be more along the lines of maybe what we saw with Quicksilver a couple of years ago Jimboury a year ago, where creditors are kind of it's

going in with a plan. Right, So you had another LBO story severely over leveled, but you have a company that generates decent cash flow, has a decent little business, and creditors sort of have a plan of what this

thing should look like on the other side. So this one, at least, you know, from the looks of it right now, probably is you know, it could go in maybe being bankruptcy for six months, get quickly turned around, they hand the keys over to the creditors, uh, and then it emerges on the other side, maybe a little bit smaller than what it is right now, but still a functioning operation. No, who's next on this retail death Well, how long is

the list? I don't know so well, I mean, so I guess you know one of the companies that have been on the list that isn't anymore would have been Nemon Marcus right, so they had a reasonably good quarter that they reported today. Bonti has already gone. In Sears is is you know, the living dead of sorts. Um they're they're you know, they're definitely there, right, I mean, liquidity wise, operational wise, they're there. I think, um, you know, you also have names like Jake Crewe, but I think

Jay Cruise get liquidity to navigate the intermediate terms. So if you just had to pick one out of out of the group, I think Sears is the one that obviously faces the you know, a very very weak operating climate, and they're running out of assets to sell to sort of stave off at next stage. Um So, so I think they're They're probably at the front of the queue at this point. No Hubert, thank you so much for

joining us. Always a pleasure. No Hubert is director of credit research for Bloomberg Intelligence, The Walking Dead of retailers. Just In Woyd blank find is preparing to step down as Goldman Sachs Chief executive as soon as the end of the year. This according to The Wall Street Journal. Just crossing moments ago to get some perspective on what this would mean for the bank. I want to bring

in Michael Moore, US finance team leader. Michael, what's your reaction to this and who is the likely successor to Lloyd Blank? Find sure? I think UM not hugely shocking, and you know, Lloyd's UM exit has been kind of forecast for a few years now, and if this is indeed the year, it would make some sense. He's been in the top job for a dozen years now and UH, at the end of twenty sixteen they named two uh

CO presidents below him, Harvey Shortz and David Solomon. UH those are seen as the two likely successors, and now they've had UM a little more than a year in those UM top jobs kind of overseeing the firm with Lloyd, So I think UM this would be seen as a fairly UM you know, smooth handoff to one of them.

Although Michael, this does raise some questions about the timing of this because Goldman Sachs has had some pretty big plans, but reviving it's bond trading unit has been pretty aggressive with consumer lending through its Marcus platform that it started a couple of years ago. UH, do you have any insights on why now UM you know, I think, Um, you know, I think, as you mentioned, they are kind of having this pivot um they um into more of

the consumer business. The trading business has struggled. But if they you see the return of volatility this year, that may help them kind of get on firmer footing in their main business. Um. So um that that could be seen as a time to step down. Michael, just hang on because I want to bring in Tad Ravel. He is the chief investment officer for tc W based in Los Angeles, helping you manage more than a d eighty billion dollars. Tad, thanks very much for being with us.

What are your what's your reaction to this breaking news that we might see Lloyd blank find stepped down as the head of Golden Sacks by the end of the year. Well, Um, I don't think that it is all that surprising in light of the naming of the two com uh CO presidents that occurred a year or so ago. Um. At a personal level, I've met Lloyd in a a smaller intimate type of setting. Always found him to be very amiable,

very humble. Um. There's probably some background about him actually that many of the listeners might not be aware of his father was was a postman, and he initially, uh, as he described it, sort of bumbled into his role at Goldman Sachs by virtue of the fact that he had he had worked in a commodities firm um sometime prior, but actually started his career as an attorney. But he's had a really good run, and he's obviously built a

incredible powerhouse of an operation. Well he as you mentioned, he has spent thirty six years at Goldman Sachs and as you mentioned, previously a gold salesman in the commodity division, then ran the firm's trading of business. Named chief executive in two thousand and six when Hank Paulson became the

Treasury Secretary. Yeah, exactly so, Dad, I'm wondering your perspective on sort of the fixed income trading environment since Goldman Sachs was one of the leaders, has been one of the leaders in that area and has actually doubled down on their debt trading unit, even as revenues have flagged

over the years on a year over year basis. I'm wondering going forward, do you think that we are heading into a better environment for trading revenues and that Goldman Sachs stands to benefit from that, or do you think that we're going to be in a very different environment due to electronification other kinds of streamlining. Well, I think at in the recent past, the issue with respect to poor trading revenues across the entirety of the industry has

really been reflective of to UH two dynamics. One has been the incredibly low level of volatility that has persisted in financial markets to low for longer, and the engineering of this low volatility on the part of the central banks and the DoD Frank legislation that essentially drove large financial firms more or less out of the role of proprietary trading, and have they have been forced to over the course of this cycle to agent risk, but not

to principal risk. And as a consequence of these two dynamics, we've had a very low level of transaction volumes for a long time. Going forward, I think that we can see several things happening. There seems to be some movement in the direction of relaxation of the financial regulations, particularly the vocal rule, which ought to help um. Secondly, we are seemed to be transitioning to a higher volic atility type of environment, and the the thrust as it relates

to electronic trading. That's a process that's been around for a very long period of time, and the Wall Street firms have demonstrated almost an endless ability to adapt and the inventive and to make money as long as there's actually an opportunity for them to do that. Ted, tell us your thoughts right now on investing in fixed income. Do you think we're going to get a repricing of

corporate bonds? Are there things that are worth buying right now? Well, we've been thinking that there ought to have been a repricing of corporate bonds for quite some time. UM where we continue to exist in this environment in which risk appetites are, in our opinion, exuberantly large. UM. The when you examine, for instance, the corporate asset class, several of your takeaways will be the observation of very high levels

of leverage. So when you look at the total stock of debt, for instance, on the part of investment grade companies, and look at the relationship between that totality of debt as compared with their actual earnings, what one will take away is that you are at the highest levels of leverage of debt to EBA DHAH, since at least two thousand and two, you are above where we were back

in two thousand and seven. If you want to look at it through other metrics, for instance, the amount of compensation that the investor earns per turn of leverage on the underlying business, you've come away with the same observation. If you look at what's happening in the M and A market, you can see that private equity has been pushing the envelope in terms of looking for um uh loose looseness in terms of covenant quality, protections for the investor,

and obviously discretion for the equity sponsor. So the list kind of goes on and on. The there are plenty of yellow flags and maybe the beginning of some red flags that have been out there for some time. So you're supposed to be, I think, quite cautious about moving into the more cyclically exposed areas of the corporate as UM asset class, and particularly those areas that also evince financial leverage as well. All right, just real quick, which

asset class and fixed income are your most bullish on? Well, I don't know that there's any asset class out there actually that you should be actually bullish on. I think that where you're supposed to focus your attention is to be disciplined, say short term in terms of maturity, and focus on higher quality type of asset classes, um the kind that we would describe as bendable and not breakable. Tadra Val, chief investment officer at TCW focused unfixed income

TCW managing about hundred eighty billion dollars. Just to reiterate, Goldman Sachs chief executive Lloyd blank Find preparing to step down as soon as later this year, capping twelve years at the home of one of the biggest US banks. Indeed, well, it might not be that quick for Signa to acquire express Script as it has proposed. Evidently, antitrust regulators are very interested in seeing what this deal would actually look like. Here to join us as Max Nissan, biotech, pharma and

healthcare columnist for Bloomberg gad Fly. Max, let's just start with how realistic is it that this deal is going to go through? Uh? You know, I I think it has a pretty decent shot, although it'll be the kind of one of the first real big tests of what any trust looks like under the Trump administration. UM, you know it's it's not a horizontal consolidation. Really, it's you know,

an insurer teaming up with the PBM. Signa has a PBM pharmacy benefits pharmacy benefit manager, but a relatively small one. I guess the question is if you are you're concentrating too much general healthcare market power in the hands of just a few companies, especially when you add in the fact that this will be the second of two very large ensure PBN mergers are the first being at non CBS, So the fact that both of these are arriving at the same time might increase the level of scrutiny from

an industry point of view. Max How do PBMs make money? How to physician pharmacy benefit management companies earned their keep? There are a couple of different ways. UM. The first is that they take a cut of the rebates that they negotiate on behalf of their clients. So example, for example, if you have two diabetes drugs, you pick one of them because they give you a bigger discount. They take a slice of that discount and send the rest onto

their client. UM. They also take a piece of the spread between the manufacturer's price and what a pharmacy pays. And they also collect fees for for certain services um that they provide for clients, which is basically trying to manage drug spend in other ways. So if you use their prefer drug list, you pay a higher fee for example.

So it's all those things. So the theory here, at least, this is what's being proposed to clients, is that mergers of this type will lead to signia, for example, passing along any savings to customers. You're laughing, I see, um, but you know, could that be true? I mean, could they have a certain negotiating power to get down pricing and strip out any sort of excess roles that get sort of uh lost in the shuffle and make it cheaper you know, at least theoretically anytime that you add

scale um. And in this case, you have you know, a single company managing kind of the totality of a person's medical care both you know, the medical part which nets and the drug benefit. So um, theoretically, now that you don't have two different companies taking a slice of that profit, perhaps you'll see some savings and more passed

on to the customer, to clients or two consumers. But um, I think kind of the arc of the health care universe is generally towards more inflation and taking the pretty close to the same amount. We'll see. Maybe maybe I'm just a bit of a skeptic, but I don't imagine that that there will be a tremendous amount of savings inaggregate. Okay,

let's play Devil's advocate. If there are savings to be had, they have to come from someone or I mean a person, but some company or some industry group that is currently enjoying that money. Who is going to get hurt by this? Uh, probably drug makers on one side, and then potentially people who contract with insurers and PBMs on the other because

there's even potentially less competition. Now you have just a couple of very large vendors, and um, you know, all will certainly be price competitive with each other in areas

where they intersect. Um, when there are fewer there's less of a large so large corporations, for example, that use a pharmacy benefit manager in order to manage part of the healthcare costs of their workforce potentially and that's why you see you know, the the Amazon Berkshire JP Morgan thing, UM, them taking to attempting to take a little bit of that power back by running some of these things themselves instead of contracting out to one of these new giant companies.

You know, one question that I have a lot of people say, there's gonna be plenty more consolidation in the healthcare space. Uh. The consolidations that we have seen are the proposed ones are somewhat different in each case. CVS for example, and now that is a healthcare company and a drug store operator. And then here you have a PBM, aformacy benefit manager getting acquired uh by signa a healthcare company.

What's the optimal combination for cost savings? UM, you know, I think the one that I would point to is is having the most potential And we'll see if this is actually realized. Because I'm talking about CVS at and up because they are raising so much debt that's going to constrain their buildOn to actually spend to get the most out of it. But since they're combining UM, you know, and and insure uh, CVS all so owns the largest pharmacy benefit manager in the country, and the drug store,

the physical location where they have clinics. Um, they control kind of the potentially broadest swath of healthcare. And how important is it that they're actually getting data on the health of their clients in real time as they go to clinics and managing their drugs. I mean, is that sort of the understated benefit as well? Yeah, I think that's hugely important. I mean, the more data that you have, the more effectively you can design plans and price them

and interventions. Um, you know, all of these things can can contribute to controlling costs over time. I will see if that actually, you know, manifests as uh, you know, cost savings to the healthcare system as opposed to cost savings for CVS and better margin. But um, there's definitely potential for that. I want to thank you very much for joining us, Max Neeson as always illuminating and thoughtful.

Max Neeson is our Bloomberg Dad Fly columnists for all things related to healthcare, and of course this is a topic that is of interest not only to people who access to healthcare system, but to those who are investing in it. Thanks very much. 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 Bloomberg Radio