P&L: We'll See A Massive Disruption in Society, Scaramucci Says

with more than ten billion dollars of market capitalization. Uh faca. You have outlets all across the world, and I want to ask you about one place in particular, that's China. Can you give us a sense, given that you oversee operations on the ground in one of the most uh uh questionable areas, people don't have a sense of what's actually going on with the economy. What's your perspective? I just wanted to tell what what is world s M.

Thank you for having me here. I indeed factor superman, CEO of Royal ds M, founded in an alands, operating worldwide. More than two and fifty locations and all continents in the world, being the biggest in nutritional ingredients in the world. So people who eat sometimes and many people do, half a chance that they eat our ingredients every single day.

Please continue to do so, including our ingredients, but also materials, materials for solar panels, for second generation bio fields, new energies, so sustainability. So sustainability and nutrition are two core areas which we deliver to our customers globally. Okay, So now now China and China, I think there's many elements in China, second largest economy of the world, still smaller than the US, but running up more than five six annual growth? Is

that bad? Should we be concerned? I don't think at all. The fundamentals I will come back on that. There is a there is a point. I agree with you. I agree with you. P please interrupret me as much as possible. But it is not only positive, but the fundamentals are not bad. I mean, there's a middle class, there is urbanization. There's new people every single day coming on the markets who would never purchase before, and once they move from the rural area to the domestic area, they do purchase.

So the fundamentals in China is not bad. Two million people from from universities, a big need, six percent grows. But ask me your question about the concerns, because you seem to be concerned or not well. I mean just the fact that they're financing at all with the fastest pace of debt creation that know everybody is seen in the world. I mean, this is a tremendous concern for people in my world and focus. Yes, I know, state that deficit pretty low, still one of the lowest in

the world. But I agree with you. The deficits on companies is you and many companies are state owned and it's not counted the state deficits, So there you have a point. But also deficits in provinces and lower government levels is pretty huge. And even the big thing is unclear to everybody how big the deficit is. For me, a bigger underlying issue is where is the gross coming

from in China? And the gross is coming from investments, the growth is coming less and less from exports, and the growth is not coming yet enough from domestic consumption. And there are three very clear reasons why the people save money in China and do not consume, and that is because their concerns about education, their concerns about the health care, their concerns about pensions. Later on, it sounds just like Americans. No, not at all. You know are Americans.

They're concerned about their pensions, they're concerned about their health care, and they're concerned about education. You are totally right. However, having said so, you know, the afforage spent of the dollar earned of the average American, it's a little bit over the dollar. And the average spent of the dollar earned in China is around sixty cents. The average spent in Europe is around eighty cents of the dollar earned. So the Chinese are one of the biggest safest in

the world. So maybe they're concerned about the same issues as the Europeans or the Americans, but they saved much more money for those occasions in pension, healthcare, and education. Well, I have to also because there is no safety net that has really been in place like the one that exists in many European countries and also uh in the United States. And I want to turn if you can to Europe and tell us you think that there's going to be another country that will vote on leaving the

European Union. Obviously we had Brexit in during Yes, baby Italy, they have a reference coming up in December. What's your thought and what do you think will Europe look like a year from now? Please? No, please, we need to have a strong Europe. It's the only way. I mean, a strong Belgium. Maybe get them to get their government together, right, yeah, United Belgium would already be a great step forward now breaking up even the European Treaty with Canada almost as

a part of Belgium. But I think what we need in Europe is not a split of Europe in twenty seven pieces. That's the way we started. That's not the direction we should go to. So we need to be united to form an economic power block um compared with the US, compared with China, compared within the compared to what it looked like tim Brazil um. So that is

what what we need. But my big concern is if I look to maybe also the elections here in the country, if I look to the elections and the Brexit in European countries, is are our leaders and maybe not only the political leaders, but also leaders of businesses or institutions, are our leaders still trusted by the voters? Are the leaders still trusted by the people they represent? Um? And

that is I think a concern. And the British people were just angry and they voted, and I think maybe they did not voted so much for stepping out to you being a union, but they voted for being very angry and felt to be left alone. And that is a concern and broader than in Europe or the United States. Well, and to that question you're saying, you know, do the

voters trust the politicians and the corporate leaders? I think that in a lot of corners the answer is no. Uh So what do the politicians and the corporate leaders such as yourself do too? And gender more trust to do what you stand for and to define where you stand for. As a company. Should I only make money? Should I take care my shareholder has become as rich as possible, as fast as possible? Is that the only thing I stand for? Please know I ever brought a

purpose to serve. I of course should take care of my shoulders, but it should take care of my own people. I should take take care of my customers. I should take care of society as a whole. We have a big influence in the world in terms of nutrition or

in terms of climate change. And I see that as a priority, as a goal for our company, and I hope that our companies do it too, because that's the concern of the people, like you said, about their pensions, about the future, about the climate, and a few yields more on your investments, and a few percentage more and investing in the wrong things which kills our climate later on will cost our citizens later on much much more money.

So that's the way we should run our countries, our companies, and that's the way I try to do with them. I want to thank you very much for spending time with us. Figures the best money is the chief Exam Kitti, Chairman of Royal d s M. This is Bloomberg. I want to talk with someone about what the implications are about this latest election season. I really don't have a sense of that, but you know who does, Pim Michael Jesus.

I was going to say, Michael Jesus, he knows everything about this Chief municipal ready for you, and he's here with us. Michael, thank you for joining us. Hey, thanks for having me on. Very flattering. So I was reading your your latest note, and uh, you seem to believe that they will not get some kind of definitive results, such as a president that's a Democrat as well as Congress that's Democratic, but the sort of split the difference,

and that there'll only be incremental changes. But even so, you said that even that would create a risk to tax policies pro sectors like financials and commercial real estate. Can you explain that, Yeah, well, to the extent that there's overlap between um, what Hillary Clinton would like to do in her policy proposals and House Republicans, and we

think the House is very likely to stay Republican. There is some overlap on the tax reform side, particularly on the corporate reform side around repatriation, and in particular around the idea of using some of that money to fund

infrastructure spending. So in the devil's really in the details as to how you execute that, of course, but just from a political standpoint, Um, if there is a path of lease resistance for any policy proposal on either side at this point, that's probably This is probably the area

where there's maximum overlap. Michaelm wondering if we could just kind of ground ourselves in a little, uh, sort of yield so that we understand, you know, what you're actually getting as an investor if you're let's say, buying triple tax free munis State of California one point nine seven percent, New York one point eight oh percent, Florida flaridest different one point eight four Just give us a little idea

of of what the landscape looks like right now. Yeah, Well, yields are are obviously near all time lows at this point, uh, and that seems to be the story every subsequent year. I think that story is sort of divorced from what you get out of fixed income as a as a sort of mix of your entire asset allocation. And we we've been arguing anyway that the macro economic environment is such that lower for longer yield, that the yield level itself isn't necessarily what you're supposed to be pointing to.

By the macro economic environment of low inflation and slow growth is pretty good for owning fixed income, pretty good for owning US dollars and fixed income in particular, and because of the tax advantages of munies. Uh, that's still a core part of your asset allocation and Uh, not just owning short munies, but kind of owning longer duration munies paired with short meunis to have a relatively even barbell across the curve to take advantage of that macroeconomic environment.

And so uh, you know how this pertains to the election, obviously is to the extent that major tax reform comes in. Um. Is there something in the cards that either lowers the value of tax exempt income because tax brackets are going lower like under Donald Trump's plan? Uh, and from either side the idea that they might eliminate or at least reduce uh tax exclusions and preference items like the fact

that you don't have to pay interest on your muni debt. Uh. That is implicitly a feature of both plans the way we judge it at this point, though, because the divided government scenario that we talked about earlier, we argue the odds are still against that. Well, given that, but given that, it seems like, I mean, I'm trying to imagine what

you're saying. In other words, Uh, if there is some sort of reduced taxes, then it will actually reduce the allure of tax exempt bonds because you can get income uh. And from other places that won't be taxed as much. Um, Is that correct? Yeah, Okay, that's that's the right way to think about it. So I think about if you want to hopefully I get too specific on it, but if you have a thousand dollars of tax exempt income right now you're in and you're in the thirty tax bracket,

you're basically shielded from three d fifty of tax. If you if tax rates were to go down and you found the percent bracket, you're only shielded from two eighty dollars of tax. So the value of that tax shield goes down, and therefore the value of the bond on one thing, you know, you seem rather unfazed about the sort of political season and and the hysteria that some people have worked themselves up into. But one thing that perhaps is more realistic, certainly for these municipalities, is the

pension burden. How much do you look at the fact that pensions are climbing and the pension deficits are climbing as income goes down in this yield, low yield environment. I mean, this is a this is a really important part of our investment philosophy around Muni's UH state and local governments. We think have historically been kind of a less cyclical part of the muni market and have become since the financial crisis, the more cyclical part of the muni market. Uh. In no small way do the pension

issue that you're talking about. State revenue growth is really kind of flat at this point, and the claims on those incoming dollars are just getting bigger from the capital side, whether it be physical capital with h deferred spending on roads and bridges and schools, or the underfunded liabilities that

you're talking about. And UH, it's a situation where there aren't any easy legal um uh fixes to this and where you know, over the long term, UH, you're likely to hit a crisis point and frankly, the market is not really compensating you and most areas to uh to deal with this. So we think it's a very easy sector uh to underweight and um uh. And we really would prefer being in enterprise sectors as a consequence, transportation

and water, sewer utilities and the like. Hey, Michael, I wonder if you could just tell us a question that you would like answered from a top economic advisor to the Trump campaign, because coming up we're gonna be speaking with Anthony Scaramucci, who has been advising the Trump campaign on economic policy. Yeah, um, you know that. I'd say the question that we get the most from clients on the Trump tax policy is how do they how do they lower the business tax rates but also eliminate the

carried interest loophole um. And the reason we get that question a lot is because for asset managers, the question is are they going to be worse off or better off under that? Because obviously they enjoy carried interest, but if he's also offering a corporate rate, or they actually somehow better off under that scenario, even though he's been touting the idea that that eliminating carried interest is a is something that would hurt the asset management crowd. Good question,

all right, thank you. Yeah, because we're gonna be speaking with, as I said, Anthony Scaramucci. But he also is, of course, the founder of a Skybridge Capital, and he's got a new book out called I Think It's What Hopping Over the rabbit Hole. Now let's turn our attention to the world of politics and money. Our guest is Anthony Scaramucci. He is the founder of Skybridge Capital, helping to manage

more than twelve billion dollars of customer assets. He is also the author of his This is his third book. It is entitled Hopping Over the rabbit Hole. How Entrepreneurs Turn Failure into Success. Anthony, thank you very much for coming in and spending time with him. It's a pleasure to be here. Thank you. Let's begin by talking just a second about hopping over the rabbit hole. Do you feel like you kind of hopped over the rabbit hole during the selection season and the New kind together. I

can't speak for the election until after it's over. If if the outcome comes out the way I think it's

going to come out, then I've hopped over it. But I think all of us, in some ways, and the American electorate in general, has fallen into the rabbit hole a little bit because at the end of the day, our politics is becoming too personal, it's becoming too emotionally charged in an ad hominum way, and we've got to discuss the policies and the issues a way more than we're currently doing, and that's going to be way more

beneficial to the American people. So, um, just to stick with your book for for one second, what's been your biggest failure? Well, I got so many of them. I I think, Adam of the biggest failure was my near death experience with Skybridge, which is the whole genesis of the book. We went from a four d and fifty million dollars of assets under management to two hundred million, and we were on our way out of business, and so we had to literally adapt and pivot and redesign

the business. And frankly, if I wasn't successful or we weren't successful in buying City Banks alternative investment management company, I'm not sure if Skybridge could have survived. So that would be failure big time. Number one. I did fail the bar exam twice. I know my mom is listening, so I took it the third time to eventually pass it here in New York State. That was due to

intellectual arrogance. I wasn't studying enough for the exam. As a younger man, I got fired from Goldman Sachs h We could blame it on structural layoffs, but the truth of the matter is I stunk at the job of being an investment banker. Um. So those are a few big failures, but I've got a ton more. Well, you know, I just want to quickly ask, how does it affect you to hear when people like Jamie Diamond or Warren Buffett come out against Donald Trump, including his economic plans. Listen.

I mean, these guys look at an enormous amount of respect for them in business, but I think they're missing something about what's going on in the American public right now. And so what has happened, And we have to all be very careful of this because of where we live and who we interact with. We've gotta it's a very

dangerous circle of elitism. We've got to be super careful because the working class that used to be an aspirational working class is now becoming the working poor, and the middle class is shrinking while the rest of us are sitting in salons talking to each other about how great everything is. And so I think that's a real big fallacy. And you can see that in the Bernie Sanders supporters, and you can see that in the Donald J. Trump supporters. And so I love Jamie Diamond. I have an enormous

amount of respect for him. Uh, The big corporate CEOs like the status quo. They like to predictability of that. But if we're not careful in our society and we don't figure out a way to solve the problems for the working poor and for the middle class, you're gonna see a massive disruption in the society. This is a minor tremor what's gone on in the two thousand and

sixteen election. The biggest risk, and Frank, I'll speak very candidly, you don't mind being a little bit political here, is that you end up with a charismatic, good looking socialist that comes in and totally subverts and disrupts the American society. And so for me, I think that I respect Warren Buffett, I respect Jamie Diamond. They also have boards that they represent and their publicly traded companies, and I understand where

they're coming from. But I do think that neither of them have been to with Donald Trump rally, and my guess is neither of them have been to a Bernie Sanders rally. And if you go there, you can feel the quiet desperation that's in the United States that we have to fix. I want to turn your attention to investments, because it's not often that I get to talk to you about where the money really is going, and you've

got to follow the money. Someone comes to you, let's say they want to open a new account, maybe they got attended. They tell you that they have a tenure horizon and the uh, they don't want run of the mill plane vanilla, because I can get that anywhere else. Tell tell people a little bit about strategy and about

where you'd be looking right now. Well, the number one thing that we have to do in our business is mental conditioning, because everybody is a long term investor until they have short term losses, and that's typically what happens. So the losses come in short term, they set their hair on fire and they want to change their strategy. And so what I tell people about Skybridge, You should have a stock and bond portfolio pretty much plain vanilla, but five to fifteen cents of your portfolio should be

in products like what we offer. Now, what is that we have a hedge fund business where we're actually taking your money and we're allocating it to a group of hedge funds and our portfolio now it's about thirty funds. The funds are designed to give you a non correlated absolute return over a market cycle. That is above bonds, and so I don't even know if I'm allowed to talk about my performance or not, so I won't, but

somebody can go look it up. The performance has been very good, and the reason it has been very good is that we're we're we're targeting a certain lower risk targeted to return, and so I tell people you're trying to reach an actually our real goal. The market is going to become more volatile as the feed is normalizing rates. Passive indexes which have worked and so have e t s, they may not necessarily work with the same success over the next five years. So diversify a little bit into

products like ours. Real quick to Donald Trump, give you autonomy to come up with your own economic plans as you weigh in. There's no question he weighs in. I mean, you see, this is the thing that I think that has been distorted through the media prism and probably also from his stump campaigning. He is a very thoughtful, very methodical guy. He is a doer with a big long list on a on a yellow pit. Anthony Scaramucci, thank

you so much for being with us. Anthony Scaramuchie, founder of Skybridge Capital and author of his third book Hopping over the rabbit Hole. Thanks for being with us. This is Bluebird and to learn more about Apple, we have brought in none other than the expert Shira O Vida columnists covering technology a Bloomberg gad fly, which just means that fast commentary section. Boy, you know, it's great to

have you here. My pleasure, Thank you, and I just want to point out that you're followable on Twitter at Shira O v Day. Yes O v I D Thank you. Um Apple, you got this column out fast. What's been going on? You're fast? Oh no no. But the reason I say that is is because you got it out fast. But you make a long term point in the piece, maybe just to describe that, expand on that. So it's really two points. The basic message is, look, the party's

over for Apple. So on the one hand, you have a company that was this incredible growth story for basically fifteen years. Revenue increased annually for fifteen years, and this was the first time since two thousand one that fiscal year revenue declined for Apple, and looking ahead, it doesn't look that much better. We have a company that, I mean generates incredible profits, by far the most profitable company

in the world. But the basis of Apple has been this is a company with incredible profits and incredible growth, and incredible growth is no longer on the horizon. So the big question is what's next for Apple, and they don't have an immediate answer. At the iPhone is now their annual sales or so, and there really isn't a product again on the near term horizon to replace the incredible sales and profit growth that the iPhone is generated. So let's say that this is the end of the

Party's Sorry, Apple, it's over. You've gotten to your peak size. What does that mean for investors in the stock? I mean there's still throwing off so much cash. I mean they still have this fortress of money on their balance sheet, right, and that's always been the bowl case on Apple, that been during its most heady growth period. It still looks

like an incredibly cheap stock. I believe it's trading right now, or at least before today, it's something like thirteen times next twelve month revenue, and for a tech stock compared to something like Google or Facebook, that's incredibly inexpensive. So if you believe that this profit machine at least continues for the foreseeable future, and I do, then that's a

reason to back the stock. But again, if you are an investor in Apple and you want incredible growth and incredible profits, um, the growth picture is probably not part of the story anymore. But how many people really predicted that Apple would reach to these heights, let's say, twenty years ago. It's a good point. I I don't think anyone did. I mean, this was a company that almost died, right and has been on this incredible march, the likes

of which we've probably never seen in the corporate world. Well, and the reason I say that is because I know that the new iPhone seven does not have let's say an extension a plug for earphones. It does not have an earphone plug that right, So that may change. You don't know what the third and fourth iteration is, specifically, since they have the Beats acquisition, you don't know what the technology is going to evolve into in order to best the competition. And right now, the competition is all

outside the United States. So if you want a US company and you believe that cell phones are going to continue to be in demand, what else is there? Yeah, that's that's fair. It's you're right. It's not as though Apple's smartphone competitors are in much better shape, particularly Samsung with this um problem with their exploding smartphones. The issue is that the smartphone industry is not growing anymore worldwide and um, Apple can't change that, probably on its own.

So to me, the most telling moment on the earnings call the Apple earnings call last night was one of the veteran Apple analysts asked him Cook, what's the next big thing for Apple beyond the iPhone? The Apple Watch is not a blockbuster it quite yet. Apple music is not a blockbuster hit quite yet. You're not generating a lot of money from Apple pay. There's nothing on the current product lineup that is the next growth driver. So do you have a vision of what that growth driver

is for the next generation of Apple? And Tim Cook answered, I think rather grumpily that they have the best product pipeline they've ever had, which is what Apple CEOs always say from the beginning of time. And he also said, we're not going to tell you what it is. Basically, it's the sort of trust us message from Tim Cook. The problem is the trust us message from Apple doesn't work anymore. Just real quick, did they mentioned Samsung and how much market share they could end up getting. They

got asked that question and they punted it. I think it's clear they're not going to pick up huge sales from Samsung. Shara over Day, thank you so much for being with us. Thanks for listening to the Bloomberg P and L podcast. You can subscribe in 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