P&L: O'Brien on "Trump, the Conflicts-of-Interest President"

the Oval Office in January. In January, he will have more potential business and financial conflicts of interest than any other president in US history. The author of that is Timothy O'Brien, the head of Bloomberg Gadfly, Bloomberg Editor, Bloomberg View, UH publisher. Tell us, what are some of those conflicts? Well, they're myriad, Lisa. You know, he's he's coming into the b office having sat a top a boutique branding organization,

the Trump Organization. It has a small clutch of lucrative buildings, hotel operations and um UH and his basically a licensing operation. UH. He's been a human shingle for about the last ten years or so of his business life. He licenses his name on everything from mattresses and underwear to other people's building buildings, etcetera, etcetera, and um, his kids run it. He's got a small clutch of family of close associates who have helped him in that business for a long time.

Now he's going into the White House and as president, there are very few conflict of interest laws that apply to him, basically none. What kinds of disclosures does he have to do as far as the business because it's a private, private business. Yeah. I mean, he's said throughout the campaign that he didn't need to release his tax returns because he had already given the FEC documents about his business operation. But the reality is all of that

stuff is self reported. There are no meaningful numbers associated with any of it. We have a guy coming into the White House who has substantial financial and business connections and we don't really know the full excent of what they are, and he's free to make a number of policy decisions that could essentially feather his own nest. Timothy O'Brien, I want to also mention that you were the author of Trump Nation, so you have some detailed history about

Mr Trump. The president elect. If you could characterize what are the most potentially the most confrontational uh, conflicts of interest, what would they be. Well, he's a real estate developer, so he has a lot of leverage. He's got a lot of loans. In particular, Deutsche Bank, the big German bank, is one of his primary lenders. Deutsche is currently under investigation by the Justice Department. Uh. The Trump's you know, the Trump cabinet, will have influence over the course of

that investigation. UM. Deutsche is very close to the German government. So of course any foreign policy or trade agreements that Trump engages in overseas comes to bear on that. UM. He he campaigned on being against lobbying and entrenched lobbyists, but he's got lobbyists throughout his transition team. UM. Policy

domestically on taxes is going to affect his real estate operations. UM. He's got I think currently about seventy five lawsuits outstanding, either being filed against him or that he's followed against others, including quite prominently the Trump University case. UM. He gets immunity from having to appear on the witness stand in those case is, but he's not immune from the consequences of that litigation, So that's going to play out as well.

And there was a story today that Berkeley's analysts expect that the potential Deutsche Bank find by the Department of Justice will probably be much lower in a Trump presidency. To your point about Dutch Bank being his major lender, I don't know how much that's gonna play into it. Um is there or who will play the biggest watchdog within the government. Who can play that role? Well, it's it really the chief executive of the United States has a lot of latitude. There is by design not a watchdog.

The almost all of the conflict of interest laws at the federal level UM and at the executive branch don't apply to the president. UM. We've relied on presidents in the past creating blind trusts to store their assets so someone else can manage them. But those tend to be security stocks and bonds. They don't It doesn't include things

like a real estate operation and golf courses. Trump has said that he will distance himself from those operations by letting his three children run them, but in fact that's really not a prophylactic. He'll be talking. One would assume about those businesses with his kids every day, so right now we lack a watchdog. Well, coming up, we're gonna be speaking with the Thin Dean, our government analyst for Bloomberg Intelligence. We're gonna talking about the defense rather the

Dodd Frank legislation and any attempts to change that. But it's just your point about lobbyists and people who are veterans in Washington understand that a former representative, Mike Rogers, he was a former Reagan attorney general and Heritage Foundation fellow Edwin Meees also, so both of them. Uh, don't don't forget about Rudy Giuliani himself, the firm that he has been with until recently. Greenberg Um did lobby and work for the Trump organization over the years on casino issues.

So all of this stuff is fairly deep and deeply embedded in his portfolio and his transition team. Yeah, you're saying that I Trump currently has owes as much as six hundred and fifty million dollars. So that's a lot of money that he has. Be's a lot of money that he has at stake here potential for just a quickly potential for reinstituting a glass Stiegel as a replacement

for Dodd Frank. You know, Trump has said all sorts of varying things about bank regulation, regulatory reform, Elizabeth Warren of all people today, so that she'd love to allie with him on some of this. So who would have ever thought that Donald Trump and Elizabeth Warren would wind up as strange bedfellows. So we're gonna have a lot of wait and see on him in public policy. Thank you very much. Timothy O'Brien, Executive editor Bloomberg, Gadfly and

Bloomberg View. He is also the author of the book Trump Nation. I'm Pim Fox along with Lisa Abramowitz. This is Bloomberg. I want to turn our attention now to Dodd Frank legislation. Nathan Dean is our government analyst for Bloomberg Intelligence. He joins us, Now, bank stocks have had a great run over the last five days. A city group up seven and a half percent, Golden Sacks of fourteen,

Morgan Stanley up fifteen, JP Morgan up twelve. Tell us about the future of Dodd Frank, Nathan Dean, So, the future of Dodd Frank is that it's going to get weakened. Uh. You know now that we have President elect Donald Trump, a Republican Senate and a Republican House. UH, Congress is going to be able to push forth many of the changes that they wanted to do for the last couple of years on dot frank. And they're going to weaken it. Well, but what are the changes that they want to make?

So they can't repeal it and they can't get rid of anything material, so vocal rule, for example, they can't do that because you need sixty votes in the Senate to overcome a Democratic filibuster. But what they're gonna do is there's a plan out in Congress right now called the Financial Choice Act. You pay ten percent of the LIBERATORYTIO, so increased capital requirements buy the out of dot frank. UH. And another rule that we're going to see, the fiduciary

duty rule at the Department of Labor. We expect that to get weakened. Uh. And so you're gonna see targeted relief to certain sectors of the financial services industry small mid sized banks round two or fifty billion in assets and below, asset managers, insurers, But you're not going to see like a global repeal of dot frank. Nathan, just

go back for just a second. I want to want you to recast maybe just offer that detail about if you pay the ten percent at and if you have that that capital cushion, then you get to opt out. You can in a sense, you're pain to get out of Dodd Frank exactly. So there's this idea for higher requiring coup requirements, less regulation. The planets out in Congress right now, and it has to be reintroduced next year, so it may look a little bit different. Requires the

big eight g cs, Bank America, JP, Morgan, etcetera. To have a ten percent leverage ratio right now, they're around six now. Chairman Henseling estimates that in order to get from six to eight a six to ten, those eight banks would have to pony up about three D five hundred billion in new capital. Now that's a pretty high price to pay. But if you go further down the line, you start looking at the banks that are around fifty billion in assets, ten billion assets, many of them are

already at that leverage ratio. So, uh, this Financial Choice Act really does favor the small and community sized banks. So it's you know, it's sort of interesting. I think when I talk to people. Their impression is that UH and Mr Trump will roll back the majority of the Dodd Frank Act, and that include dudes much more risk taking at the big banks, and that's one reason why people are expecting profitability to go up. And yet it sounds like that's not necessarily the case. Well, there are

many ways that they can do this. So for two things to point out. One, the Republicans have tried over a times since two thousand ten to amend dot Frank. They haven't succeeded because they've never been able to get that sixty vote in the Senate. Elizabeth warrened she's going to be able to cause a lot of problems in

the Senate and block a lot of that big regulation. However, Donald Trump now controls the financial regulators, and so he can instruct the new heads of the SEC, se IFDC, UH, you know the Photo Reserve, when if Janet Yen leaves into thousand eighteen to start looking at rolling back regulation and so UH, they can do things like putting out notices saying that we're not going to enforce certain regulations,

We're not going to hold you accountable. So I think if you see in the short term, you're not going to see a lot of change, but in the long term you're gonna see a lot more. Is there a particular regular lation that you're thinking they could sort of ignore or pushed to the side. The fiduciary duty is the perfect example. So this rule came up from the

Labor Department. Uh. It caused a lot of problems with the life insurance industry, the broker dealers, the retirement investment advisors, lots of pushback both from the Democrats, some Democrats and Republicans. Rule went into forest compliances in April. So what we could see there is, uh, the new administration come out put out a notice in March saying you don't have

to comply, and then they'll have to repropose the rule. Uh. You know, any regulation, it's not like Donald Trump can come in on day one, just sign an executive order and it goes away. They have to repropose it. And so the quickest way to overturn a regulation is to

have Congress passidents law. But if they can't do it and they turn to the regulatory agencies, they have to do a rulemaking process, which could take up the eighteen months to two years Nathan non bank financial institutions such as A I G, Met Life, Prudential Financial what can we expect there? So, the Financial Stability or Recite Council is the one that controls the designation for A I G and Prudential and met UH. And they serve at

the pleasure of the Secretary of the Treasury. They can't do anything unless the Treasury Secretary signs off on it. And now the Secretary Treasury is going to serve at the pleasure of Donald Trump. And so when A I G and Prudential have their annual reviews over their city status, which which will take place sometime in the September of October of two thousand seventeen, UH, it's not unlikely to see at that time the f stocks say we're just going to d designate you. You know, there's a lot

of talk about town. Is the f stock going to be finished or not? Uh? And one of the easiest ways to get rid of that that designation for AI G and Prudential is to have the f stock do it in you know, later next year. Have the Republicans been against the city a designation just real quick, yes, absolutely, across the board, really really interesting Nathan dean government analyst at Bloomberg Intelligence in Washington, d C, talking about the

implications UH in a Donald Trump administration. Well, our benchmark. When we want to know anything about the retail industries, we call Bert Flickinger. He's the managing director a Strategic Resource Group. He can be followed on Twitter at Bert underscore Flickinger. Alright, Bert underscore Flickinger, tell me about the

retail ice age that you've most recently witnessed. There's an accelerating retail ice age, PIM and Lisa, and you're going to see a record number of bankruptcies UH for retailers. You're seeing the corporate bond debt trade down for everyone from Neiman Marcus trading at eight year below most of your listeners know issued in a hundred jay cruise trading below forty searies is really struggling. And even today you and Lisa talked about the Southsayer of South Korea and

the magic purses. The rasputant of retail is in the headlines today and Bill Ackman, as he left j C Penney on death store step dropped the stock from forty three to about a dollar twenty and then Steve sat off, the pride of Hamilton's College and sex fifth Avenue came back,

brought Penny back from the dead. They missed today, but they're gonna make it where a lot of their competitors like the Bonton Uh as well as Sears Holdings which still has softer side of Sears, are struggling, and even Neiman Marcus Group with Jones Barney their bonds are trading at eighty year below. So there's gonna be a real rationalization whether companies are impaired by RASP mutants like Bill

Ackman or just poor consulting and financial advice. Well, and you noted that will be the most troubling year for retail in a decade, and not to be outdone, eighteen will be worth Why well, Lisa, and you you, you and PIM already reported declining oil prices. So so for us, the Harbinger is really Kazakhstan where Hudson Bay Company opener Brand was not expecting that the Harbingers her list to travel.

But go ahead, but tell us this story because Hudson Bay owns a fifth SAX with SAX with the Avenue put their latest Crown Crown jewel license store uh in Kazakhstan. I know from our work with the State Department in USA. It was only a few years ago where people were showing up on Saturdays with livestock and butcher butchering cattle on their cars and selling pieces of meat, and State Department was asking us to come up with basic retail. How you get to that luxury goods is beyond me.

But Sachs did at Harvey Nichols did at Harvey Nichols closed their Kazakhstan store in less than a hundred days. What's what's the barometer? The petro dollars aren't there. We were in Paris for Fashion Week as well as Golden Week. All the people from their maz to Le um Le Bon Marche. Printon told us the Sinoa, which your listeners know as the Chinese, are there with cameras or calculators, just snapping pictures and looking for a lower price. And his pen reference in the b break. You can go

to every luxury offline retailer. And that's why Neiman Marcus, with its mountain of debt with Bergdorf, is in a bad position for for maybe eighteen but Barney's is an even worse position for seventeen and Jay Crew possibly for this Christmas, Hanka and Kansas. How do you square the sudden surgeon optimism about growth in the US and the possibility of inflation. And frankly, the more that markets gain, the more that the wealthiest people will will gain money

that they can spend at these at these retailers. So why isn't this a positive? It's it's a positive in terms of the stock market. The wealth effect is your referenced well, Lisa, but but but at the end, uh, you also have political problems. Mayor Michael Bloomberg under understood

the balance of the public and private sector. Average family takes four hours and forty minutes to come from the suburbs the shop in Midtown Manhattan and Los Angeles, Mischigan have Chicago with the traffic density, and the major cities in the US, UH, sevent of that time's lofts and traffic, So people don't come anymore. So footfalls way down for leading department stores and and luxury stores and all of

what we call the gateway cities. And it's not unique to Los Angeles or Vancouver, New York, or Miami at Aventure Mall. It's something we're seeing in Singapore and and uh we're seeing in in Tokyo and and worldwide. And also people have expenses coming up, So it's the aspirational middle class. It's the middle upper UH that is has everything from higher healthcare to tuition. So they're cutting back

on retail spending UH spending spending in other areas. And then you have the millennials who even if they have good jobs and have the money, UH, there are nesting or what we call thrift ng and going to UH savers or good wealth thrift stores or ladies ladies village home improvement stores. So you could out to towns like East Hampton and luxury retails not just boarded up. In the faller of the Winner, it's largely boarded up. In part of the summer, Tiffany had to close their store

um uh and a number of others closer stores. So there'll be a great retail rationalization in the next few years. To your point, but there'll be a real retail renaissance starting in and really well capitalized capable retailers are win particularly the ones with great merchant leaders. So who's that who's it going to be? Who are the winners? Uh? We we see, we see the winners across sector. Uh,

multi multi tier. It'll be Kroger, off Price, dollar dollar General, t J t J, t j X, Cross stores early. If you look at your point him the best leader in retailer retailers Ben Camorados, a seminal genius founder of t j X, with Carol Meyer, Woods and Ernie Herman. Uh, their margins are twice as biggest Amazon. Their inventory turns or six times. The rest of the department stores are turning inventory two point three to two point seven times.

It's cash flow. The department stores are paying Uh, many of them are paying their vendors late. So the vendors need cash to give to Lean fong in their factors, less credit available exactly, Well, right, Bert, So then I'll ho about on the flip side. I mean you said that there could be, was it correct? A record number of bankruptcies and retail in the upcoming years. So which companies do you expect to go bankrupt? It's uh, you never you never want to say it's it's all the

way over. But it looks like vulnerable. You could just say which ones are vulnerably vulnerable to the curtain coming down? So when the day Dumas stage. For lease day Dumas stage is everybody from Jay Crew to Sears holding UH Bontan's trade traded way down, uh Neiman, Marcus Berg Door's credit worthy now, but but see issues for them going forward. And then UM yeah, even even undercapitalized on the on the low end, UH Fred's seems seems to be struggling

quite a bit. And and then UM chain drug discount shop COO. Wherever you see private equity getting greedy and up streaming money to themselves, UH and big fees and and that's that's my professional view of Bill Ackman UH in retail and won't comment on what he's done more

recently at Valiant. But when you have a great turnaround leader like UM our mutual friend Frank Blake at Home Depot Bob near Delhi half killed the company, the UH three founders Marcus blank Et Cetera brought Blake in and UH complete upside Bert Clicking Share managing director at Strategic Resource Group on all things retail. This is Bloomberg Einstein's The Greatest miss Stake, The Life of a Flawed Genius. It was published in September and the author of the

book David bodenis it joins us now from London. David, thank you very much for being with us. Thank you sir. Now. Your previous books have included such titles as E equals MC squared. You've also written about computer generated fascism. What inspired you to write this latest book, Einstein's Greatest Mistake? I thought, you know, if you write a book called Einstein is smarter than us and we're a bunch of

dumb schmunks, nobody's interested in that. But if you have a book that's like, oh, Paul Einstein, he had something wrong because there was a psychological aspect of him that we could understand when everybody's interested, including this author. I loved um turning him into a human being and really seeing not just his great strength, which were magnificent, but also what happened when he stumbled? How did he get stuck? And what lessons does it give us? So what was

his biggest mistake? Because because stake, it was a psychologic most it was a psychological mistake. He he believed that the universe was like a beautiful, clear book, that everything was crisp and clear, that there was an order. It wasn't like a random magazine with a bit of this and a bit of that. Um, And then he had had so much reason for believing this. It made all

sorts of sense about outer space. It led to notions of the expanding universe, just terrific insights that later when people started studying things on the microscual on the micro small level and quantum mechanics, which seem to be just that the universe isn't orderly, that it isn't super clear and crisp when you analyze. He just couldn't accept it. You know. He he had this comment, God does not play dice. Was he a religious person? Um? If you if you make a sort of just I could to

say about that comment. So yeah, so Einstein said God does not play dice with the universe. Everything's orderly and clear, there's a pattern set up in advance. And this good friend Nell's boy used to say, Einstein, stop telling God what to do, Like, how do you know it's great? Um? So for religion. If Einstein he wasn't an atheist, He thought atheism was very unscientific it um, you know, like

you're presuming to know too much. At the other hand, he wasn't a believer in traditional like the details of revealed religion. So he would think that Moses was very wise, But he didn't think that Moses got the commandments from gathering on Sinai. But there's a big space in between. And uh, Einstein loves the seventeenth century death Jewish philosopher Spinoza.

He thought, Spinoza, what what wrote about this? These waiting patterns in the universe, not presuming to say where they came from, but just thinking, how magnificent is it that there's instead of chaos and disorder around us, there's this harmony. There's these patterns. Where do they come from? Maybe maybe really floatful human beings can just discern that pattern, take away the veil between us and deepest reality and see

what's there. And Einstein really wanted to do that. Can you maybe draw some connection to the way people look at the markets and and money because you talk about patterns and being able to understand the patterns and the and the moves is there. Can you define the difference between a psychological mistake and a technical mistake that might be applied to looking at the world of business and finance? Sure,

very much. The reason Einstein got stuck in his psychological mistake was because his particular approach had been really successful before. And if something's worked really well, if your company has done well, you tend to think it's because of my approach, my approach to the markets, my insight. Well, it might actually just be chats, right, I mean, that's why tracker funds on a simple level have done so well. So very often people get not just so much a ruther

of failure, but a rut of success. You're doing something well and it's really hard to change it because it's been very successful. The other thing that comes from Einstein which might apply to the markets is he developed his own tools, which is a great thing to do for him. It was certain tools and mathematics. Within the markets, it might be I don't know, certain quantitative people would brings in or certain analytic approaches, and you become really proud

of your tools. You get good at using your tools, and you find it hard to imagine what would be like using very very different tools. And then of course behind it all is maybe what was your your first question? If you believe, like Spinoza and Einstein, there's a deep patterns waiting in the universe, you're not going to give up till you find them. And some people, you know,

it always comes up. Somebody has this guaranteed way to understand, which appears to be turbulence in the market actually follows such and such deep patterns, and we're very often disappointed. Those those in tights tend not to hold for more than than temporary intervals. But just that belief is there, and that belief, well, you can move a lot of

money on that belief. Well, you know, one sort of cliche about Einstein is that he took a long time to read and didn't do so well in school and um, and so what can we learn from where he was a genius? And is that true? Oh, it turns out that the story that Einstein was a bad students I've managed to trace it back to Rocky one and written by Sylvester Stallone. And although Mr Stallone had magnificent biceps and um, other muscles, he's not noted as an Einstein scholar.

And it turns out Einstein was actually einesteme was a perfectly good student. Um, he was a good beat plus or a minor students. He went to the Polytechnic in Zurich. He did fail to get in on his first tribe. But he's only sixteen, he hadn't even finished high school, and his scores and math and physics were strong, but his his Latin and some of his friend led him down. And he did quite well after a year of media high school. So he was a strong student. But it's

nice is that he wasn't a perfect student. He wasn't like oh an a plus student from Harvard or Columbia who's always had the things easy. So Einstein got used to looking at things with a bit of a struggle. So he was I don't want to call him a total outsider. He was a moderate outsider. And there's a great advantage as being a moderate outsider. You know what's going on, but you're kind of willing that, you're kind of willing to take a fresh perspective. David bodanis author

of Einstein's Greatest Mistake. Joining us from London. Thank you so much. Thanks for listening to the Bloomberg pien L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter, at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio