Michael Cohen Is A Much Bigger Risk To Trump Than Manafort

with President Trump. Michael Cohen, former attorney to the President, pleaded guilty to a number of charges including campaign finance misuse, lack of reporting, as well as tax fraud. We also are hearing about Paul Manafort, who was convicted of a number of different things, including also tax fraud but also potentially money laundering. Paul Manafort was former campaign campaign advisor

to President Trump. Joining us down to break this all down as Joe Marino Partner, White Collar Defense and Investigations Group member at Cadwalader in Washington, d C. He also is a former prosecutor with the Department of Justice working for the United States in the National Security Division. Also a decorated veteran and a former law attorney with the

Securities and Exchange Commission. Joe, I want to start just giving you a pretty a pretty broad question, which is, you've seen the coverage of both Paul Manaford as well as Michael Cohen. What are people getting wrong or what are we focusing on, uh that we shouldn't be and what should we be focusing on? Hey, Belisa, Hey, thanks, thanks,

thanks for having me on. Really appreciate it. And uh, just one caveat, I was actually not with the Securities and Exchange Commission, but the rest of that interest had absolutely right. Just want to put that out there. But but you're right, I mean a lot happened yesterday afternoon in terms of Paul Manafort, Michael Cohen, and even Duncan Hunter,

a Republican wristman from California being indicted. So to kind of mix through what to focus on going forward and what is sort of gonna you know, is significant, but it's going to blow past us. Uh. Paul Manifests trial generated a lot of attention. I mean, I'm here in Washington, d C. Alexandria is five miles away, and people have been waiting, waiting with bated breath to figure out what's

going to happen. So now we know. But the reality is, aside from Mr Manafort's probably potentially significant sentence and his second trial in DC on money laundering charges next month, he may not have a lot of impact on the White House directly. It does not seem like he's going to crack. He might not have anything that's helpful to

the Special Counsel in terms of Russia collusion. So while it's headline generating and it's fascinating to see the fall of this person um, in terms of the longer picture and impact on the administration, it might not be that significant. Now.

Michael Collen, on the other hand, could be very potentially significant, and you honed in on it in your intro, which is that he's facing well, he's pled now to several different charges, but the ones that really have the potential for some further impact have to do with campaign finance violations and specifically the fact that he indicated that he he he conducted these offenses at the behest of another person, and the you know, the implication is that person was

the candidate for presidency, Donald Trump. So wait, wait, you're absolutely glossing over this one. If you read the the actual charging documents, you know, with person number one who was candidate for president of the United States, it's pretty clear cut that is talking about President Trump. Yes, yes, it could be no one else. So while you know, the while the president is not not indicated by names,

certainly that's you know, that's the exposures here. And so the question will be very focused now in those two charges count seven and eight, that Michael Cohen has now pled guilty to, and what are the implications for other people, specifically the president. And so this goes to, you know,

what exactly was the offense. And it's not the kind of campaign finance violation we often think of right where we have donations from individuals that are meant to be used for legitimate campaign expenses and instead they're used for vacations or personal kind of use, or sports cars or completely inappropriate things. That's the case that's being built against Duncan Hunter. In this case, it's not so much use

of campaign funds. It's a contribution allegedly to the campaign that was used to benefit the campaign and so and it was done in this circuitous way of going through Michael Cohen reimbursed in a kind of a strange way through invoices to the Trump a Trump organization compensated as lawyers fees, when instead it appears that this was money paid to advance the campaign by keeping individual silent about

information negative information about candidate Trump. So the scheme that Michael Cohen has pled to is a little unusual and it could be a little complicated, and there are experts on both sides that would argue whether or not this in fact is a violation because the campaign finance rules and the laws are complicated, and this is not a case that's been brought in the past. So there's a

bit of a leap here. But in terms of what the president's legal team is hunkering down now to think about, this has got to be their focus and it'll be really instructive in the coming days. And we've already seen some tweets this morning about how the president's legal team

is going to address this. Are they going to take it head on and say Michael Cohen is just he's out of his mind, he's lying it didn't happen, or are they going to take a more nuanced approach and say, well, maybe it didn't go down exactly this way, but even if it did it's a technicality, and that seems clear violation.

To be honest. That seems to be the tax that they're taking, based in the fact that he said that this was not breaking the law, President Trump, I'm talking about in a Twitter post today, So that seems to be the tax, sort of honing in on the fact that this is a non traditional, uh and non usual sort of use of this particular provision. Correct, correct, And so you know, that's the approach I would take, right,

I would. It's gonna be hard to say it didn't happen if, in fact, Michael Cohen has tapes and and his one testimony and other evidence he may or may not have. So to kind of take the nuanced approach and say, well, it's not quite a clear violation, and even if it is, it's a technicality at the slap on the wrist. Others done this. You point to other cases like John Edwards and say, you know, it's not a clear violation, and hope that that flies both with

the American people and with Congress. Well, Joe, you know, there's one aspect of this whole thing that I find incredibly confusing, and that is that Michael Cohen is pleaded to a non cooperation agreement. In other words, he hasn't he hasn't been recognized for his cooperation with federal prosecutors. This is confusing to me because he's out there and his attorneys are out there basically begging to give as much information as they can to whoever will listen. What

how did you interpret that? Well, you're not the only one who's confused. This is this is a kind of a nuance in the Southern District of New York. There's effectively two ways he could have pled. One was what he did, which was a straight plea. Basically, he says, I'm owning up to it. I'm not going to fight the charges. I take responsibility for these counts, and I plead guilty, and I throw myself at the mercy of

the court. The other one would have been through a cooperation agreement where he was obligated to give to give some kind of assistance to the FBI and the prosecutors in New York. Now, there could be a couple of reasons why he didn't go that route. One could be that he doesn't have anything that's particularly helpful to them. Either he's not credible or what he said to them was not especially helpful. Uh, the other possibilities, they have what they need. They you know, the SDN Y was

looking at Michael Cohen specifically. They built their case around him. They had with the evidence that they needed, and they're not really concerned about ancillary people. And so the person who could be concerned about ancillary people, of course the Special Counsel Mueller. So that's why there's certainly a possibility and this has been sort of intimated by Michael Collen's lawyer already that he is eager to help Special Council Muller anyway he can. So, yeah, perhaps that will be

the way for him to get a deal. Unfortunately, have to leave it there. Joe Moreno, thank you so much for taking the time. Joe Moreno is partner with Goodwalader in the White Collar Defense and Investigations Group, former federal prosecutor,

also a veteran of the United States Army. Well, today, aside from the Washington d C drama, you are seeing a little bit of drama in oil markets among others, where you are seeing uh significant gain after the US government report showed the biggest decline in crede inventories since late July Hugh Johnson joining US now chairman and chief

investment officer of Hugh Johnson Advisers. I want to start with oil because my sense is, uh that your life is not being very significantly impacted by what's going on with Washington. D c AM. I correct, Yeah, you're absolutely correct. On we're not paying attention to what Washington. D see what's going on there, and it doesn't appear is so it's going to impact the things that really tried the markets,

which of course are interest rates and earnings. Since so right now we're not we're we're not completely ignoring it, but we're not changing our investment strategy because of what's going on in Washington. All right, So given that, I do want to just home in a little bit on oil, just because commodity markets have had kind of an uncertain outlook for the past couple of weeks, in particular with the plunge in metals oil also declining UM, but now

you're seeing a little bit of a gain. I'm curious about how much you think about the price of oil and how that factor into what you what you buy. We think about oil all the time, and it's very volatile and it would be grandiose of me Lesa to say that I could forecast what's going to happen to the price of oil, but quite frankly, we do work

hard on forecasting it. In a price for West Texas intermediate around sixty five dollars, prepare more accurately reflects global supply and demand conditions, but you'll get a lot of volatility around that, so you get a decline from sixty dollars down to fifty dollars. Paths very unusual, but not

in a volatile environment. Most of that decline, in fact, I would say just about all of that decline is largely a function of the fact that the dollar has been so strong, which really means to every other country around the world, the price of oil has gone up and gone up significantly as a result of that, and it's not in today's report, but as a result of that, over time, what we've seen is a significant increase in inventories, and basically what that has done is has caused a

very sharp decline below with the sixty five dollars or equilibrium level, which you know, I think we're going to return to that level even when we get the sanctions on oil and around in November, but it's it looks like we're headed in that direction. So I think oil is very undervalued right now. Okay, but I'm looking right now at a sixty seven dollars and thirty barrel for oil and w c I barrel of oils. So I'm just wondering. I mean, you're saying it's going to go

down to sixty five barrel. Yeah, well, I think it's I think it's gonna Basically, if we're at sixty sixty seven today, then I think it will probably stabilize around current current levels. But believe me, I think that more accurately reflects supply and demand conditions as they exist today. All right, So given that, how do you use that thesis in your investments? Mean, do you buy equities in the big oil companies? Do you look for shell opportunities

and MLPs? What's what sort of your strategy there? Okay? The strategy and energy is, first of all, I think I balanced either market weight maybe even a little bit overweighted in a sector, in the energy sector in a portfolio. Remember, you want to be diversified. You want to exposure to all eleven sectors of the market. And then within the energy sector, you want to have things that work well when the price of oil goes up and things that work well when the price of oil goes down. That

means you want to own production companies. We own production companies conticles an example, but you also want to own companies like Valero and again we own that one, and the Valerios of course a refiner, and that really benefits from a decline in the price of oil. So it's not just owning energy. You want to have a market weight or a slight overweight, but also within the oil sector, make sure you have a sensibly put together portfolio, and

that means production companies and also refiners. How much does the price of oil, in your view, hinge on an escal leastion of trade tensions or a lack thereof. You know, that largely depends on the dollar and what happens to the dollar as a result of trade tensions and what we've seen more recently. And it's important because what the

dollar has been doing is very important. And we've seen the dollar go up and we've seen foreign currencies go down, and that's got good news for it because it attracts a lot of capital to our markets, which in my judgment is very important because domestic money conditions are are are really not that good. We're not getting enough growth and the money supply to drive the economy and earnings.

And fortunately the dollar has been strong attacted attracted foreign capital to our markets, and that's all set the domestic liquidity shortfall. So sort of, kind of indirectly, I would say that the escalation of trade tensions has to some extent benefit us, and thankfully we've got a stronger dollar, and thankfully we've got uh the international flow of capital to to our markets and off set at that domestic

liquidity shortfall. It's a little technical leasa. I's apologized for that, but at the same time it's an extremely important concept. So I'm not worried too much about the trade trade problem right now. One one last thing just quickly here. President Trump has come out and said that he wishes that the dollar we're weaker, also accused China and the European Union of manipulating their currencies. I'm wondering, how much is it, portfolio manager, do you care? You know? Um

right now? And I'd say it's really right now. And that's where I would emphasize is right now because of the domestic liquidity shortfall, a strong dollar is extremely important. It's important for the reasons that I just mentioned attracting foreign capital to our markets when we need it the most. So a week dollar young. I know that's supposed to help a lot of US companies compete in international markets, and and there are times when you have to have that,

but not right now. Right now, with liquidity conditions as weak as they are, a strong dollar is extreme, really important, and we all ought to be very thankful we've got it. Hugh Johnson, thank you so much for being here. It's really interesting to speak with you. Hugh H. Johnson is chairman and chief investment officer and Hugh Johnson Advisers, which overseas more than a billion dollars from Albany, New York. Talking about that dollar, which actually is weakening a little

bit today. Mexican pasto climbing is there are there is speculation that a NAFTA agreement will come up shortly. If you haven't gotten your Tesla fix today, have no fear we're gonna be talking about that company right now, because it is the drama that just keeps on giving. But We're gonna take a little bit different of attack here. We're gonna take a look at the debt aspect of this story. The company has basically financed itself with a debt and I guess to some degree equity, but more

debt as it burns through cash. And there's a question if this company does go private, as Elon Musk seems to want to see it do. So what happens to all that debt? And joining us now is Joel Lovington, senior credit analyst for Bloomberg Intelligence and just general credit guru. If you have a question about credit, you called Joel Lovington. Joel, So, what's your take on this? I mean, what could potentially

happen to this debt? Not a lot. I think it's gonna be sticking out there, particularly the bonds, the senior insecure bonds that we often talk about that are in the Bloomberg indussees. I think it becomes a game of will they be structurally subordinated and to what degree will be the issue, and that will determine where the bonds are going. Okay, so today we had a story on the Bloomberg Tesla bonds may see doomsday and private deal,

don't don't And it was sort of. It was citing this UM blog post by twenty four Asset Management chief executive Mark Coleman say, secure debt funding to take Tesla private may become practically impossible. Do you agree? Well, taking a private and putting a lot of debt on it

our two different things cannot be taken private? Yes. I think the math in my models tell me that you need roughly about sixty billion dollars of equity to have that done, meaning that you can at a at a maximum probably put about ten billion dollars of additional debt on the company today and I take private scenario and still make it work. Um, you know, from a rational uh capital structure standpoint. Okay, I guess that one question that I have is we talk about Tesla and going private.

Morgan Stanley perhaps coming in on this, UM, I have to wonder when does the Tesla run out of cash? When are we sort of done with this? Uh sort of when will they do? What will they do? Kind of discussion to how long can they survive? Discussion? Right, well, that might be never ending until they go p of it. Um. You know, the company had said that it would be as early as the third quarter, where they would be

free cash flow neutral. Uh, the mathematics that I do tell me that it would be really, really difficult for that to happen in the third quarter or in the fourth quarter. And you know, with all of the challenges that are going on now with Elon Musk and the issues that I'm sure are taking up much more of

his time than he ever imagined. Uh, the odds are they're probably taking the ball, their eye off the ball a little bit, and uh, I think they'll struggle into which may eventually be a mechanism which will preclude them

from going into a private scenario. All right, So you know, I want to use Tesla as an example of the broader phile debt market because right now we talk about Tesla, it's burning through cash, it has an erotic CEO, their questions about executive leadership, their questions about the board oversight, especially with some of the tweets that are now being investigated by the SEC for possible market manipulation, and Tesla bonds that are doing certainly trying to get a discounted

a little bit more than eighty seven cents on the dollar. But that isn't that much. I mean the yield to maturity there is seven point six, not as much as you would think, given the fact that over the past two decades that's been very average, if not below the average of high out bonds. I mean, just in general, when you look around the speculative grade universe, do you feel like things are really overvalued at this point or you think that it sort of is in line with

what we've seen elsewhere. Well, I think for the broader universe that I cover, which are industrials and autos, I don't particularly think that it's overvalued. I think, um, in many cases, it becomes hard to find an upside case for some of these bonds. That doesn't mean that they're going down. I just think, particularly on the auto side, it's hard to make cases that autos are going to get better in any way. So I think there are definitely spots where it becomes more challenging to find a

balanced upside downside case. UM. But in aggregate, I think you're you're fine because there's very low default risk. If you're talking about the foot level, yeah, so from the foot level, it doesn't seem like you're gonna necessarily see some kind of wave of bankruptcies. But that said, if you've got very little upside, does that mean that people are just basically buying for for the carry and that's basically the trade at this point? I think so. I think so in many cases, is the carry enough to

justify especially as treasuries gets treasure yields get higher. Uh, Well, you know, treasuries and high yield don't necessarily correlate all that well together. If you think about, you know, why reachs would be rising to slow growth? Uh, that implies that growth is pretty good and smaller companies, when you have smaller numbers like EBNAH and sales, they go up

exponentially relative to large caps. So in some ways, uh, a rising rate environment is indicative of a strong economic backdrop for the for high yield monds to perform well. And one thing that I'm wondering is, you know, are do you think that there could be a substantial hit

to some of these companies if borrowing costs rise? You know, if you do see treasure yields continue to rise, because that people haven't been talking about that that much since treasure yields haven't risen all that much in the past few months. But I'm just wondering, you know, is that still on the radar here? Yeah. I mean I don't think it's a twenty nineteen event, but I think if you look at to twenty let's say one, as a spot where debt maturities will start to elevat again and

you'll be resetting at higher rates. I definitely do think that there is risk, but I think there's been enough refinancing activity that's taken place over the last couple of years that the cand has been kicked down the road a little bit longer. Joel Levington, thank you so much for being with me. I love speaking with you. Joel Lovington, senior credit analyst for Bloomberg Intelligence, joining us here in our eleven three oh studios. Just want to bring you

up to speed on the markets. Sp NAZDAC both have turned green since a somewhat saggy open Dow Jones still down, but just barely less than one tenth of one percent.

If we switch up the boards and we get a sense of what's going on in the bond market, well you're getting a little bit of actually uh decline in yield so rally there as well as people try to understand what the political implications are from a too close uh close contacts with President Trump face legal consequences to a number of actions that may or may not have had anything to do with him. We're gonna be speaking

about that more coming op. We're always gonna be speaking just in general about how much investment managers care because so far markets kind of aren't reacting that much. Let's talk safe havens at a time when the SMP five hundred is reaching a new record high and is climbing to a new record with respect to a bowlmarket length. Joining us now, John Bartlett, vice President, co portfolio manager of the Reeves Utilities e t F for Reeves Asset Management,

overseeing more than three billion dollars. Based in New Jersey, he joins me here in New York. John, thank you so much for being here. I'm wondering, is it a hard sell right now to convince investors to try to even look for a haven at a time when the best bet has been just US equities. Well, it really depends on the investor um and I would say that utilities offer a lot of different things to a lot of different types of of of folks out there, you know,

generally speaking utilities have been having a great summer. The weather is warm. We've been making making more power and generous disgusting go on. But anyway, you know, utilities earnings have been coming through UM and we expect earnings to be growing in the five to six percent range for these for these companies, and the dividend in the in the three to five sorry, in the in the dividend yield in the three and a half percent range UM.

But to your question, you know, there are When we started UM the Reeves Utility e t F about three years ago, there were lots of different concerns then and there maybe some different cerns now. And you know, the question we always get is really about interest rates. Now. Clearly, utilities are wonderful because their safe haven for you know, geopolitical risk and things like that. You need to pay

your bills. That's absolutely right, and these companies can be counted on to grow their earnings year in and year out UM. But by and large, you know, if you kind of go back those last three years, everybody was convinced that that interest rates were going to go up and they were all absolutely right. Um. You know, if you look back, the Fed is raised rates by a hundred and seventy five basis points the ten years gone

from to fifteen to eighty five. But our little level e t F is chugged along at fourteen point two percent a year. And yeah, and that's actually even versus the index has been up about twelve point two. So the question is how does that happen? And the answer really lies in the steady growth of these companies and the very conservative revenue trajectory that they all have. Alright, So steady growth is this? What kind of utilities are these?

I mean, they're more study growth in particular types that rely on different types of energy and different locations around the country. How do you identify the the best utilities? Well, it's you know, it's a it's a great question because it's so important to remember that every utility is different.

We've got fifty one different regulatory jurisdictions in the country, one of which being the federal government, the rest being the states, and so start you have to start with regulation, um, but you also have to look at the you know, utilities need to earn the right to grow, and the ability to grow is really a very important component in this. And I would say that utilities are really the only, um, the only segment of industrial America where investors tend to

underpay for growth. And the answer the reason for that is they tend to overpay for yield and they think that they're you know, getting a compelling total return story by buying. You know that the companies with the highest yield. But what we found is the companies that have been able to deliver consistent earnings growth continue to be able

to do so. Although in fairness, I mean, if if a utility is growing profits too quickly, then because of the fifty one different regulatory regime, you're gonna have an outcry and the regulators are going to swoop in and say, hey, whoa, whoa, whoa, lower those bills. People shouldn't be paying as much if you're being that profitable. That's right. And you know, we look for we look for companies that can provide their regulator,

their regulators political victories. And you know, you have to, like I said, you have to earn the right to grow. Earning the right to grow doesn't mean um, you know, growing having uh really ridiculous profits. What it means is being able to grow your investment base, you know, give give customers something a little bit better for the spending. All right, So let's talk specific regions. I mean, right now,

we're dealing with California's wildfires. Uh that I don't know if that's good or bad for utilities because it could take them out and cause a lot of problems they then have to rebuild. But you are dealing with the heat wave that is leaving people absolutely begging for air conditioning, certainly on the on the East coast. So where are you seeing the opportunities? Well, I think it's worth talking about California for a second, because California really is its

own unique animal um. And it's important to remember that the lines that you see about utilities in California really don't affect utilities in the other states. The the California utilities right now are really in a tangle um regarding the liability from all of these wildfires in California, Pacific Gas and Electric has caused the most damage. They have a potential liability that could be as much as fifteen

billion dollars UM. And in California, no matter what happens um as a consequence of you know, an act of God, if it's if the fire is caused by utility equipment. If somebody runs their car off the road and into a utility poll, knocks the utility poll over and it starts to fire. The utilities on the hook for the for for for the liability. Now, they are supposed to be able to collect that in rates, but the California Commission has to this point said that they don't have

the legal authority to pass those costs along. So authority who does? That's correct? Um, Well, it's that's what's getting getting worked right now right now. So again, you have to be very cognizant of what's going on with regulation. You we try to avoid really some of the hot points. That's a bad pun in this case. But u um anyway, uh So again it's it's something that we we we pay a lot of attention to. All right, So, um, I'm just wondering just here, we've got a little bit

less in a minute. What are the biggest risks to your thesis right now? Well, you know, everybody has to take their own counsel um on on where interest rates are going. That's what I quote sort of see is as as as the biggest quote unquote risk to these companies that's really more of a statement of how low risk they are as opposed to anything else. Frankly, UM, I personally believe that we've been in a fairly benign interest rate environment and we're going to to kind of

stay that way for the foreseeable future. Um. The good news is that utilities remain better than bonds. Right, So if you have a long duration bond and interest rates really move against you, there's really no way to catch up. Um. You know, we're in an environment where people are buying corporate bonds. You can't buy corporate bonds below par anymore and hope for some sort of price reset, right, and utilities you have at least the tailwind of five percent

earnings growth. John Bartlett, really interesting. Thank you so much for being with us today. John Bartlet, Vice Press president and co portfolio manager of the Reeves Utilities E t F trades under the ticker u T e S. It's up five point four percent so far year to date. Reeves Asset Management overseas more than three billion dollars based

in New Jersey. Interesting to think about that fifty one state and federal government regulatory web overseeing just how much you pay every month to have that blessed air conditioning. Thanks for listening to the Bloomberg p m 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.

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