U.S. Needs to Move Fast and Appoint a Czar to Puerto Rico, Rhodes Says

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. I am very pleased to welcome to the eleven three oh Studios Banker to the World, Bill Rhodes, President, chief executive Officer of william Our Rhodes Global Advisors, also author of a book, Banker to the World's Leadership Lessons from the front Lines of Global Finance, with a forward by Paul Volker.

Vocal Bill, I would love to get started with the big question about China and North Korea right now in markets UH, there is a perception that in general, traders are underestimating the degree of risk with respect to North Korea, the prospect of a conflict there, as well as with China its response to that, as well as its ability to rein in its own UH situation with an inflated credit market. From your perspective, how dire is this situation that's sort of developing in the region, and what's the

what's the best path forward here? Well, I think it's the biggest single problem we face in the world today, UH, and the only one that really can can help us solve this UH is China, and China is right on the cusp of the biggest conference, the biggest political event in the last five years, which is their nineteenth Party Congress,

which begins on the eighteenth of October. Because the President of China, Hi Jinping, who is as strong as leader of China since Dong Jo Ping, UH, is planning to make a number of announcements, including who is going to be on the Polar Bureau of the Standing Committee of the Polar Buro which runs the country, and there's a lot of speculation that he may make some changes there even to the premiership of Li Kao Chong, not clear

the rumors to that effect. And the person that's closest to him is Once sh Shan, who I know well from over the years, who is now leading in a

corruption campaign and people are watching that very closely. So she Jumping does not want any problems to disturb this, so he is very unhappy with what Kim jong un is doing in Korea because this is making it very difficult for China because people are leaning on China, mostly the United States and President Trump to do something about stopping Kim Jong un from continuing to conduct nuclear tests and ballistic missile test because what he wants to do

is to marry the ballistic missile UH at the nuclear warhead and threatened the United States, Japan, whatever, And so the question is how do you stop them? And in my mind, the sanctions that have been agreed upon at the United Nations are helpful, but they're not a solution and they take time. We know that from what happened

in Iran, South Africa, they don't happen overnight. So what is necessary and what can stop Kim Jong un from this and bring him to the table to negotiate, which is what we would like to do, is to cut off all his oil and gas supplies because the primary user of oil and gas in North Korea or the armed forces, and I think if we cut, if China cuts off, which is gives them eight of their oil and gas UH at any particular moment, they will come

to the table within a couple of weeks. The only other oil and gas are getting is from Russia, maybe ten through brokers in Southeast Asia. Other than that, I do not think that the banking uh you know, the banking measures taken on sanctions or any of the others are going to work. I think the only thing that will work is to cut off the oil supplies, and

China is the key to doing that. I think that if we don't badger them too much, and you know, do quiet diplomacy with him, I think, uh, you know, all these statements going back and forth are not helpful. I think some quiet diplomacy will do it because Shi Jin Pain does not want his great moment of glory to be affected by what's going on by Kim Jong oon. I've been with him at one occasion four or five years ago, and he made it very plain to me that and the Chinese think this in general, that Kim

Jong un is a pain in the neck. But the reason they haven't intervened and done anything earlier is they do not want American influence on the Yellow That's why, uh, you know, the Chinese invaded North Korea to support uh the then government of Kim Il sung was because we had we had sent troops in the Korean War right to the Yallow River. It was one of McArthur's mistakes.

He underestimated the Chinese would go in. And the other thing is if the regime collapses overnight, they're concerned about all the refugees that may go into Manchuria Northern China. But the Chinese do not like Kim jongun. They think he's difficult, he's causing a problem, and particularly at this great moment of importance for Shi Jin Pain. That's why

he's gone along with the earlier sanctions. But the only one that will bring Uh Kim Jong un to the table is to cut off all oil and gas supplies to the country, and that will completely destabilize the military because they can't function without oil and gas. We're speaking with Bill Rhodes. He is the author of Banker to the World, Leadership Lessons from the front Lines of Global Finance.

And Bill, I want to turn your attention now to the Caribbean and Venezuela and Puerto Rico, because I know that you are died your distinguished career at City Bank in Venezuela. You know the Caribbean region very well. You

can vice Chairman of of City corps. What can you tell us about the region as a result of these hurricanes, and specifically what is necessary or what is possible rather to fix the horrendous and catastrophic conditions that currently exist, not only in Puerto Rico, but in many of these live in Jamaica for a while also, so I remember it. But I think the situation Puerto Rico's is particularly dire. You have to remember that this is an island or

country because it's part of the United States. Uh, that is basically in bankruptcy. That's a starter. When you take a look at Florida and Texas, say booming economies. Second of all, they're isolated because they're an island, so you can't take the railroads down like you were even in Katrina or or you know, or Texas or Florida. Everything has to be flown in or sent in by ship. Uh. They also have had a terrible zekea epidemic there, and of course with all this water laying down, the mesqu

is going to go wild. A lot of people are concerned about Colra. I think it is a dire situation. I think to try and compare it to the earlier hurricanes is a big mistake. Uh, And we have to move fast, very fast there or I think it's going to be a complete debacle. In addition to all of this, some of the leading talent of Puerto Rico has migrated to Florida in the last seven or eight years because

of the dire economic situation. You have four hundred thousand uh Puerto Ricans living in Florida, most of have come in the last decade. And what are the teachers? Uh, Doctors, lawyers, architects are the cream of the crop that have left. And so uh, you know, the island has been just neuted of all of these of all of this expertise.

And so I think that what we need to do is put a czar down there, so like we did the general in in you know, in New Orleans, to make sure that the aid gets there and it gets there quickly. Who would you recommend to do that? And what's the likelihood that we get a person who then becomes responsible for making sure that these plans are carried out and that people get the healthy Well, you see

the problem. You have a governor. But the problem with the governor is he doesn't control what's going in All he can do is control the island, so you need someone who's there for the supplies. We can do it. We should have learned that with Haiti. You gotta put you know, Bush may have screwed up at the beginning uh in New Orleans, but he least he put in

a three star general got the thing moving well. I feel like you're talking about the flight of talent, and they're about three and a half million people who currently live on the island. The population has been shrinking rapidly. How much more do you expect the population to shrink in light of this humanitarian disaster? And how will that affect the current negotiations of over the seventy four billion dollars of death. The latest senses down there says three

point four million. I think it's less than that because they're not taking into account the number of people that already left gone to Florida, you know, the talent pool. I said, so, uh, I think that you're going to have additional people leave, and you have all these small towns through the mountains that that are cut off. I've been talking to people down there, and really it's it's terrible.

Hospitals don't have electricity to function. Um, and so we have to make a much more massive effort I think that we've ever had to before in any of these hurricanes because of the situation of the island. It would be great if they were a booming economy. Uh and uh uh you know they have been able to plan for this, etcetera. So I think it's a very dire situation.

And I think everything uh that can be done on a federal level by the United States, but also on a private level of companies that operate there, do whatever. Because people have to remember these are United States citizens. Their their soldiers for in World War One, World War two, the Korean War, in Vietnam, and you know some of them also fighting in Iraq Afghanistan. So we owe it to these people. And it's not like some far off place,

you know. And and sometimes I get upset with some members of depressed obviously not Bloomberg because you know the importance of this, but others who kind of don't make a big thing of this. They say, well, it's just another hurricane, and you know, that's some island off there, and they're not a state and all of this, which

is one of the ultimate solutions. I think statehood at some point in time has to come there so they can basically integrate themselves more and get more in, you know, in the way of help that the states are able to get. Uh. So uh, hopefully these issues will be forced. Hopefully we will do what's necessary here because otherwise, you know, when we talk about all of these problems around the world and stuff, we've got to think that we have a tremendous problem on our front door with Puerto Rico.

I was gonna say, what what about would would Jeb Bush? Do you think would he be a good person to lead the reconstruction and revitalization of of Puerto Rico? I mean, former governor of Florida, speaks fluent Spanish. I mean you need somebody like that who's getting to get down there. I had mentioned a military man just because we had

that in in New Orleans. But someone who can mobilize the administration and mobilize the whole government on the federal level, but also you know, work closely with the governor on domestic side, and also get the private sector, you know, to be involved there. I think it's a critical must. And hopefully when the President gets down there, he's gonna see this. But you know time is passing. Bill Rhodes, thank you so much for joining us. Really a pleasure

to hear your thoughts, very insightful. Bill Rhodes is President, chief executive officer of William R. Rhodes Global Advisors, also author of Banker to the World's Leadership Lessons from the front Lines of Global finance. As the Federal Reserve talks about reducing its balance sheet and as people look around markets, some are getting increasingly concerned about financial stability, saying that all of the extra liquidity in markets set it up

for a massive fall. Here to weigh in on that, as Sheila Bear, former chairman of the Federal Deposit Insurance Corporation. Also currently she is the president of Washington College, and she joined us from our Washington, d C studio. Sheila, thank you so much for joining us. I'd love to get your take on the state of financial stability right now and how concerned you are about the excessive liquidity and what can be done about that. Well, yes, it's

it's it's a global problem. I mean financial assets. I think about now of global GDP. There's a lot of stocks and bonds out there, many multiples of what real the real economy would represent and it is de stabilizing it. It's looking for return, it's looking for a place to invest, and that creates asset bubbles. Uh and UH. The very low interest rates also create obviously incentives to to borrow and taking a lot of leverage. That's one of the

reasons why we have so many financial assets now. So it's the globe eclonomy really is a washing investment dollars far greater than the opportunity for real economic investments. And that's why I'm so amused by this tax reform I think, I hope it's tax reform uh debate, because the suggestion that we need to incentivize even more investment dollars by giving investor at tax breaks is something that I really just think is is counterintuitive, given as you say, we're

a washing liquidity right now already. Well, maybe you could just give us your thoughts on at least this specifics as we know them. That the rate on corporations would be set at that's down from the current thirty five, and that corporations would be allowed to immediately right off

their capital spending for at least five years. Yeah. Yeah, Well, I think there is some basis in terms of competitiveness of doing the business in the US, our corporate rates are are not competitive, so I and I think there's bipartisan support for that. So that doesn't bother me so much. What really does bother me is the discussion of reducing the past through rate. That would be a huge well

we haven't seen the details. That would be a huge benefit to private equity funds and hedge funds, which have already uh, you know, really been able to cash in in uh this uh so called recovery that's been heavily driven by monetary policy, which has made it very cheap for them to borrow and invest. It's also because safe

assets return provide such a low return. A lot of people and and funds have endowment, college endowments, pensions, what have you have piled into alternative investments the kind that p funds and hedge funds offer, which is also benefited them. So this idea that somehow we need to give them

more breaks, I don't I really don't understand that. And uh to the extent we're talking about, you know, I think people are saying, well, we don't want to give more tax picts to the rich, but the rich seemed to be defined as wage earners, not those who make their money from investment income. And that's really where the super wealthy reside. That that top point one percent that's done so well and this more been the recovery is

in that sweet spot. And to to give them this idea, you know, reducing the pass through rate is going to benefit small business. Yes, there will be some small businesses that benefit, and we haven't seen the numbers yet, but my guess as a line share, the benefit will go to the hedge funds and p funds, and that's just counterintuitive.

So she from from what it sounds like to me, you don't think that any kind of tax reformer, tax plan that's currently being proposed will substantially boost economic growth in a way that will help the entire economy. Well, I think I think there's an argument for lowering the corporate rate. We need to pay for it. We are not overtaxed as a country. I get, Actually, the percentage of taxes as are you know, all in federal, state, local tax as a percentage of GDP is actually pretty

low compared to other developed countries. The problem here is the distribution and UH and UH the you know, the highly inefficient favoritism and tax breaks and loopholes that the code provides. So I think anything should be revenue neutral. I think taking the top rate down, which typically for corporations, which typically is paid by the smaller companies. They don't have the you know, the ability to move stuff overseas or or have armies of tax lawyers to write special

breaks for them the tax code. That makes sense, but you should broaden the base by paying for it. And yeah, I absolutely think that makes sense. Going to a territorial system makes the tax code. The corporate code does give affirmative obligations to move to move business and rep income overseas. So going to a territorial system, getting the top right down to be more competitive, and finding a way to pay for that through broadening the brace, I think that

could help the economy. Won't you won't take it up to six percent, probably wouldn't even take it up with a three percent, but it certainly could help. And then a middle a true middle class tax cut would make a lot of sense. Again, there's so much investment dollars, somebody investment dollars slashing around already, the problems on the demand side. This hasn't trickled down middle income and lower income families, which growth has been very sluggish, and the

bottom tier they're still losing ground. You see that, particularly with minority families, And you know, it's the right thing to do, but it's also the economically smart thing to do, because that's you know, they spend their income and they've been struggling, and that hurts the broader economy too. So providing real relief and additional spending power for the true middle class and lower middle class makes a lot of sense.

But giving more tax breaks to very wealthy people that already paying rates already through cured interest or what have you, this makes no sense at all. Thanks very much. Sheila

Bear is the former chairman of the Federal Deposit Insurance Corporation. Well, if you're an investor in Bombardier, the Canadian maker of aircraft and trains, you're having a very bad day because the stock is down more than eight and a half percented open down more than six and this has to do with its C series jet and a tariff of two hundred and twenty percent that the United States has leveled against Bombardier to sell those planes into the United States.

Here to tell us more is Andrew Mayetta. He's our Bloomberg trade reporter. He joins US from Washington, and joining us from Edinburgh, Scotland is George Ferguson. He's our senior Aerospace, Defense and Airlines analyst for Bloomberg Intelligence. Andrew, let's begin with you if you could just lay out exactly what happened and why. Sure, So, Boeing brought a complaint in

the US against the Bardier on two fronts. Basically, they alleged that the Bardier has been receiving unfair government subsidies for years from the Canadian government, from the Quebec government, and also that they've been trying to sell their C series small passenger jet into the US at less than fair market value. And so this was the first ruling by the Commerce Department. It's preliminary, as you said, it's levi dad or rate of two UH. Customs will will

begin to collect those um. The final ruling will probably come from the International Trade Commission next year when it determines how much harm Boeing suffered. So, George, come on in here. We see the Bombardier shares are down massively today, nearly ten. How long lasting could this potential hit be four Bombardier, So I think it could last quite a while.

So that I think the challenge here really is that Delta was a good portion of the order book, and I think a very important order because along with Left Hans and there's two large, well respected airlines operating the airplane. I think given this ruling, I think it's going to be hard to sell to any other US airlines. I think it's gonna be hard to deliver to Delta and pay the pay the duty um. And I think that really puts a big portion of the order book in

question here. So I think without Bombardier bringing more orders to the table in the near term, I think it's going to hurt the hurt the stocks and significantly here George, that's the seventy five jet order for Delta, right, Yeah, they have a seventy order with a fifty option. Uh you know, so so they could be up to a five about three fifty orders. But there's other challenges in the order book as well that we could talk to,

but maybe not enough time in this car. Well, I well, I was just gonna go on and say that, you know, it's not only workers in Canada that may suffer as a result of this. Bombardier has a plan to Northern Ireland, correct, but they do, they do. You Know. The thing is, though, if I think if we start getting into the ripple ramifications here, you're going to find that Boeing has plenty of plants around the world, and they're definitely suppliers in the UK that they could point to as well to

say that there'd be a ripple effect on them. So I think that that's not going to go as far as Bombardier may may may want. Canada probably has more pulled given their you know, they purchased defense U S Defense equipment as well, so the Canadian discussion might be a little bit better. But I think the global global parts supply stream is not going to help them that much here. Andrew, how long has this action by the U S. Commerce Department been in the works and was

this expected? Yeah, they brought the complaint in April, and I would say that this is h This was expected generally speaking, when the International Trade Commission finds on a preliminary basis that a company probably suffered injury, UH Commerce usually just applies a formula to determine what the preliminary duties are going to be. Again, the key decision is going to come next year when the International Trade Commission.

Besides whether Boeing is really injured here and you know they're gonna way Bombardi's argument, a Bartier's argument is that Boeing wasn't even really competing for these for these uh for this this uh this delta order. They're saying that, you know, Boeing kind of the facto excited that segment, So how could they have suffered harm? So here's my question.

I mean, just on the surface, it seems like is connected or will be connected to some of the NAFTA renegotiations and just the ongoing tension between the US and Canada and the trade partnership. There is that a misreading of this. No, I think that that's bang on. Actually, you mentioned that I was in d C. I'm actually an Ottawa Act the NAFTA talks now, so this is kind of landing like a grenade in the middle of

the talks. And you know, as George alluded to, UH, Prime Minister Trudeau has threatened not to buy Boeing c c F E teens UH if if if it doesn't drop the Bombardia case. So, I mean we've talked a little bit about what a trade war looks like. I mean, this is kind of what a low level trade war

looks like. You know, company brings a complaint in in an established forum, and then you know, the politicians come under a lot of pressure, like Prime Ministerture though is going to be under a lot of pressure right now to deliver something of a Bartia. George in ten seconds, do you agree that this is what a low grade trade war looks like? Sure? Andrewmeda, thank you so much for joining us. He's a trade reporter for Bloomberg News.

Also George Ferguson, Senior Aerospace, Defense and Airlines analyst for Bloomberg Intelligence. Definitely a fascinating issue and a salvo opened up amidst the ongoing NAFTA discussions. This will not be received particularly well by the Canadians, certainly, and we will wait for a response there well. Nike shares are down nearly four percent today after earnings that were highly disappointing to to investors pretty broadly. To get him more details

and why they were so disappointing, is Matt Townsend. He's global business reporter for Bloomberg News and joins us in our eleven three oh studios. Mat. Uh, So, let's just talk about what the problem here is. As Nike laid out, the problem is the United States of America h Nike's biggest market, Nike's biggest market. UM. If they're not growing sales in the US, they're not basically growing overall, and sales fail three in North America, which is most of

the US. They said next quarter UM sales likely to fall again in the US or North America. So if you're a Nike investor, yes, overseas Asia is growing pretty well, but if you don't get the home country growing, you're it's not you know, it's a struggle to invest in them. At this point. Is someone taking share from Nike? Of course, Yeah, it's it's you know, Adidas. Uh, for the past two

years really has just been growing market share. Uh. Is that all the strength of all of their retro lots of the retro is really strong because it is not just athletic ware anymore, and this is you know, it's casual where seven Yeah, I mean, sneakers are a fashion sort of staple nowadays people wear them to work. So you know, this idea that sneakers are just for people

doing sports, that's not true. And yes, so it's the retro stuff, but it's also you know, they've had this great success with a brand called Boost, which has gone into many different forms. You know, Kanye West has a big Boost part of his business with Adidas, and they're

just there. If there's a if there's a war of or coolness, Adidas is winning it right now, which is kind of surprising because Nike had that mantle for so long well, and it was because of the Air Jordan's, right, I mean, that was one big part of it, Air Jordan's. But even even you know, some of their running shoes were immensely popular. It's just a regular shoe. I mean, it's it's it's pretty striking. I mean, Nike did not

grow sales last quarter. They were flat, and they're basically saying we hope to revive growth in the second half. And when investors Investors Nailis asked them about this yesterday on their call, they basically just said, the innovation pipeline, it's great trust us. The things that are coming are great trust trust. So that's the I mean, it's basically you have to buy into the executives and their confidence. And again Nike and all sort of their public interactions

are very confident still in the business. So you know, we'll see the second half is gonna be big. You know, you mentioned Adidas, or as Matt Miller of Bloomberg News would say, uh, you know, it's it's sort of under some pretty heavy scrutiny right now, just because the U. S. Attorney's Office in the Southern District of New York went after the n c C Double A as well as Adidas, saying, you guys colluded to basically bribe coaches and schools to

use our products. I mean, could this potentially eat into Adidas's appeal and uh and frankly their bottom line potentially. Right now, analysts are not putting too much weight into it. Um. You know, there's been tons of scandals in college sports involving brands that you know and who the effect on the bottom line was pretty minimal. But again, in this investigation, there's definitely gonna be more shoes to drop, probably more schools more. That's where you did that understated more schools.

You know, the big question is do eventually the other brands get pulled into this because you know, Adidas was not the biggest player in signing American basketball players to contracts. That's by far Nike is the biggest. Can you tell me about the possibility that Nike would actually buy something else? I mean, is it possible? Because I mean, you've got a lot of competition at the high end, You've got a lot of competition in the low end. Nike has

the whole customizable, uh sort of franchise. But why don't they go out and buy someone? I mean, you know, you look at what they've done in the past. That was you know, for a while Converse worked, right, Chuck Taylor. You've also got brands such as Jack Purcell. This is a proliferation. Why don't they go out and buy somebody. They decided a couple of years ago to double down on the Nike brand. They sold off some of their other brands, like they had a hockey band brand called

Bauer Um. They had Khan actually several years ago that they sat a private equity deal. Yeah, and but they're basically saying the Nike brands are best brand has most growth potential, So we're gonna focus on that now. You know, maybe things could change. Me, I haven't heard anything, am I reporting or you know that this could potentially be happening. But the Nike brand is not as strong as it was, and that's part of the reason why the stock has

been depressed. You know, it is the worst performing stock in the Dow last year for example. Well, Matt, how much is this the death of fth leisure and them kind of suffering from that? Yeah, the death of ath leisure? Maybe that's part of it. Um. You know, you think I'm just thinking that we've heard about it, but there's a bubble for sure. Okay, But but I think for example, Lulu Lemon, I think of athletic, the Gap brand. In fact, they're going to be concentrating on that and getting rid

of some Gap stores because that's what's selling. Yeah, I mean, the people have been speculating about this. ATHLETs are trend dying down and a sort of cooling off. But for sure that's hurtin Nike. And you know under arm or two that more and more brands, non athletic brands, are

making athletic gear, So that's definitely a problem. Um. But you know, I mean Nike, Nike's big issue is that like I'm saying before, they were the coolest brand in the world forever, and now they've been challenged directly by Adidas on this and they need to respond. All right, I'm not going to tell people about your collection of Stan smith sneakers there. I just want to point out maybe everybody's wearing sneakers to work, but nobody in this

office right now is wearing sneakers. I just want to point that up, but go up. Thank you, well done. All right, our sartorial guide right there. Lisa Braunwait's all right, Thanks very much. Matt Townsend, he's our global business reporter for Bloomberg News talking about Nike two shares down about two percent right now. 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 abramoits one before the podcast. You can always catch us worldwide on Bloomberg Radio.