Gross Says Weak Jobs Data Won't Stay Fed on Rates

and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg David Gurral, why don't you bring it into a steam guest? Yeah, Jeffrey Sax with this university Professor at Columbia University, author of building the New American Economy, Smart, fair, and Sustainable. Julia Cornado joining us as well in our Bloomberg and v in three studios, Founder and president of Macro Policy Perspective.

Let me start with with you as we await the job support here at thirty Uh, will the Fed ever declare that we've reached full employment? Is that something that just a specter looming in the in the background? What what is the Fed waiting for? Well, they're not waiting. I mean they're they're raising rates. They have basically said on the on the employment side of the mandate there there there may be a little bit more slack is their assessment. But um, they have kind of declared victory

on the employment mandate. Now it's the inflation side of their mandate that's still falling short. But they are raising rates, and they are going to put in a balance sheet reduction plan it seems later this year. So they are moving forward with policy tightening ever so slowly, but surely

how tenuous the position are they in right now? Look looking at the jobs market where it is, and as you say, worried about the other other half of the mandate, Well, I think the job situation is probably the least of their worries, uh, in a lot of senses. I mean, assessing the outlook with so much uncertainty and the risks

to it is is a very difficult job. And again the the inflation side, things have been going in the wrong direction lately, both headline inflation, commodity prices falling, core inflation giving up a good quarter point of progress, wage growth lagging behind inflation expectations really sort of getting anchored at a lower level so, uh, it really looks like they'll struggle. They've emphasized the symmetry of their inflation target lately, but uh, they can't even really get to two. So

I think that's where the worries lie for them. Jeffrey Sacks will dive past the headline into the greater detail of this job support this when we look at manufacturing this administration. Others have talked about manufacturing in the US. We were talking about innovation and manufacturing a few moments ago. Where is that going to come from? Where is the the impulse for innovation, the the the training to do

new manufacturing going to come from. Is that to be something pioneered by companies going forward, or is that something that is in the providence of the government. First of all, innovation comes from a combination of academia, government and business. And that's the rich model. We call it the innovation system. And that was the vision vanever Bush right after World War Two, that we would build a science and tech based economy through the interactions of the government, academia, and

and business. And it works great, and our manufacturing sector is incredibly dynamic technologically, but the technologies of today in the future are eliminating jobs, not creating jobs on the whole. And this is quite real phenomenon. There's nothing special about it or paradoxical about it. We are in a job saving technology mode because the machines are getting smarter and smarter and able to replace what people do, so manufacturing

is healthy. Jobs is another matter. That's why the wages are going down for more and more of the labor force. And the winners of this are the equity owners because the whole national income has shifted towards capital. Should we wax historical here, Julia? I mean I think you should wax historical. Let's talk about young sacks thirty five years ago. Comment. Try to remember the employment real wage relationship. You were

thinking about this when you started out. This is after Kotlikoff and Lemur, and that this is the employment real wage relationship. Are we a guilded age now like we were a guilded age back then. It's interesting. I have been thinking about how technological change or oil price shocks affects the demand for labor and writing about that for oh my word, almost four decades. But the fact is that the whole uh machine age, which is not just now but goes back to the nineteenth century, has been

replacing lower skilled work. And that's why to keep ahead, we have what Larry Katz and Claudia Golden of Harvard is famously called the race between technology and education. Now technology is winning that race, meaning that more and more of our population is not able to keep up with the machines. This doesn't mean that as a whole we're losing from technological innovation. The winners are Larry Page and Sergey Brinn and Tim Cook and UH and Bill Gates,

and we have and Jeff Bezos. We have more money at the top than ever. We have a larger economy than ever. We have a dollar economy, but the labor share of national income has been falling. You've got to get off an airplane, polluting, destroying hydrocarbon airplane. Get off the airplane and comeback. Jeff says, thank you so much, really really helpful. They thank you, folks for your many comments. Mr Sachs's appearance, We welcome on Bloomberg Radio and Bloomberg

Television worldwide from Janice Anderson. William Gross joins us as he always does after the good analysis of Uh. Jim Glassman. It's good to speak to Bill Gross. Bill, I haven't done the three months moving average of jobs, but we're not getting the job's growth we got ten years ago. Is that a surprise? No, I don't think so, certainly, not at the levels of unemployment that we're at now, not only in terms of you three, but U six. I think as an economy matures, and this recovery is

eight nine, close to ten years in the making. Uh. You know, job growth comes down, so I think it's to be expected. It's a weaker number than the market expected today, but not the less, you know. I think it reflects via the work week, via wages, that we're on on steam for a two point two percent type of real economy going forward, which I mean, not see what the market's expecting, but what I think is going

to happen. Does the tepidness of this the vectors the three months to the six month or twelve month job formation and also wage growth, does it adjust what chair Yelling will confront June. I don't think it changes much. I do agree that the chair you know, believes in job growth more than anything else, in the the extent that it's lower than the market expected, perhaps, but she's going in June. I think the Fed tom is for clemped to site an old Saturday Night Live skipped phrase.

You know, it wants inflation higher in the real economy, but not necessarily in the financial markets. And so we have, um, you know, not dreaded fear, but you know, concern about financial bubbles in some areas commercial real estate and and so on. And and to be fair, other central banks are really pouring on the coal in terms of the global economy. The ECB and the b o J by the way, tom UH now have balance sheets larger than the Fed at four and a half trillion plus each

of them. And so there's a lot of money coming into this global economy. And for the Fed to uh you know, join in and stop raising the FED funds level or even you know, not address what we have in terms of their balance sheet later in the year, I think would be a mistake. A little coffee talk here with Bill Gross if Jana Centerson here on Jobs Day, Bill, let me ask you what happens when the FED begins unwinding this balance sheet. What's that going to mean for

for term premium? Well, it depends on how fast, right David um and we're talking about not only treasuries but mortgages because they're in that pot too. You know, at the moment the forecasts are the private forecasts are for like ten to fifteen billion dollars a month, which makes an end road in terms of uh, you know, reducing the balance sheet, but certainly at a very slow pace.

I think ultimately a though, to answer your question that the term premium for five to ten thirty year treasuries, which are a significant part of that balance sheet, you know, basically have to has to increase. The term premium is uh you know, not only forecast but put into evidence by several district fed uh FED reserve banks has suggested that seventy five basis points lower, you know, was the net net of the four trillion dollar edition that we've seen,

you know, prior to the past few years. And so you would have to expect the term premium to go up. Does go back up by seventy five basis points, I don't think so, but certainly higher over the short term. David Gary pick up the question here. But we got to do a data check for radio and television right now, because this is really remarkable. Two on the ten ure yield the thirty year BONDUS seventeen basis points in from three percent. That is a huge deal. And over on

the cream. Get over here right now in Bloomberg Television for those of you in radio, this is a wow statistic. Bill Gross is minting money this morning. The two tens spread is broken under ninety basis points. Gross may have to cancel ther David jumping with Bill Well, I continue to look at the spread market. Bill. Let me ask you, your global investor. We have seen changes to geopolitics here over the last twenty four hours and certainly over the last week plus. How does a different role for the

US in the world to change your outlook and your positioning? See, I think it's significant. I don't think the market thinks it's significant, because the stocks blew by that news yesterday. But you know, let's look at it this way in terms of the Paris accord, and uh, you know, our our absence, at least in terms of philosophical absence. You know, it's destructive from my point of view for equities because

equitists are long term cash flow dependent. And what we're talking about here in terms of global warming going higher as the increase in long term liabilities, and so ultimately stocks have to be affected by the potential for the expense the liability you know, to contain global warming goes much higher. Okay, here's the heart amount of cream. Come over here again, cream, Come on, I make the rules.

This chart was to Capitlan of Dallas. This is the vector of inflation, and Bill Gross has been dead on that. We're not right that the court pc inflation is rolling over Bill With this job's report and with the two stents spread under ninety beeps, with yields coming in weaker dollar, would you say even more so now that inflation is just not part of the debate, and that gives Janet Yellen cover to lengthen out her path to a normal

yield policy. Well, I I'm not sure I understood the two parts of that question, but I think what it does for Janet Yellen is allow her to m you know, to to keep the Fed funds level, the neutral, the long term neutral Fed funds rate, at a lower level than she would have previously. You know, there is a contentious debate among the Fed officials as to what our star, which is really the real long term uh you know, Fed funds right what it is, and at the moment

it appears that it's less than zero. And I think Janet Yellen will keep on keeping on and as long as financial markets in some areas of the economy did not show bubblish types of characteristics. How are you adjusting your portfolio, Janie Henderson, I mean, we have seen a bill gross economy over the last two months, I would suggest where it's been a little bit disappointing from the enthusiasm. How have you ingested your portfolio? Well, let's look at

it this way. From all asset classes, tom, So we know of all futility is low. We know about the vix it's less than ten, which is historically low. We're not so uh, you know, necessarily informed on bond volatility, but it's historically low as well. And so when you have volatility and the two major markets at low levels, you know you certainly don't want to sell that volatility. And the way investors basically assume risk and sell volatility is to buy stocks, to buy duration, to buy hild

bonds that relatively low spreads. In other words, they move into markets that have low risk premiums when they should move into markets that have high risk premium. So this is definitely a market not just with stocks, but with bonds and other essays classes where an investor has to be careful because of the low volatility that's into the market. David Gern, Tim Keenan New York joining us from Janis Anderson, uh William Gross. Bill Gross, wonderful to have you with us.

As always, what I noticed today build it is so different as you get a reaction from the report, and we've had now one into impulses twenty minutes down the line, twenty four minutes down the line of lower yields, weaker dollar. When does the twos ten spread begin to get Bill Gross's attention? If we had a Trump surge, a Trump fade, we went through the curve flatness of November eight to an ever flatter yield curve in with a vengeance, we see more of this morning. When does Bill Gross look

at the twos tenants say this has my attention? Well, tell me, it's had my attention actually for a long time. You know, I think most portfolio managers and economists have it wrong. They talk about the flatness and the move of the two ten to a you know, basically a flat level which creates a recession, and it always has historically in the past. But to me, you know, the two ten has been flattening for at least two to

three years. It started close to two oter basis points and now where it is as you cite, and so that's an indication of tightening. Now why do we not need to go back to zero to create recessionary types of environments? I think because the US economy and the global economy is much more highly levered and to the extent that the US dollar is the global currency. To the extent that you flat flat flat, you know, it creates more and more risk in terms of a global

economic slowdown, not necessarily a recession. So it's got my attention, has had my attention, and I think an actor should continue to watch it and not just look for zero as opposed to where we are now at eight to nine basis point. Bill, you and I should have a moment of silence for all those taking the CFA exam this Saturday. I guess we can do that. And is you know, Bill gross level one convexity is about acceleration. How worried are you of tantrums of convexity? Of acceleration

in the glide pass. For Janet Yellen, can she believe in stability or does she have to worry about real upset. I don't think we have to worry about convexity and acceleration from the yelling economy and the yelling FED. I think we have to worry about it from the standpoint of the e c BE, not necessarily the b O J. At some point the e c B, and they've suggested already that they're going to cut back in terms of

their purchases. But ultimately, remember the Fed, uh, you know, eliminated quantitative easy and about two years ago, and you know the taper tantrum was before that, but an anticipation of it. And so I think, simply because buns and because um you know, um J g B s are calling the tune for the global market, that we should look to the e c B as the potential leader for any type of tantrum going forward. At the moment, Droggy is basically calm markets and said, hey, inflation is

not high enough. But when we come to that point where the ECB starts to cut back, then uh, you know, bond markets globally maybe at risk. But I want to get you react to what James Gorman said to Bloomberg a couple of days ago. We had an exclusive with him in Beijing. The CEO of Morgan Stanley said, the dirty little secret is the U s economy is doing just fine. Secrets out. Do you agree with him? Well, no, I don't think so. You know, I think it comes

down to productivity. And as we know over the past few years, actually over the past five years, productivity basically is close to flatlined. And so that's the ultimate indicator of how the US economy is doing. We know that labor force growths. Today's report included you know, it is moving at a point to five percent to point five percent rate going forward. And so the balance, if we're going to go to a two percent the economic growth

or higher has to come from productivity. Now, what are the reasons why productivity is flatlined and why might it go higher? You know, perhaps it could go higher simply because there's a lag between technology and the ultimate real economy. But you know, there are negatives to Robert Gordon from Northwestern sites, low hanging fruit and all of it being picked.

You know, there's demographics, there's high debt, levels, there's de globalization, all of which suggests, you know, lower productivity going forward. And one last point on you know, the productivity of finance, which has been inherent in the economy for the past twenty or thirty years with lower refi rates and mortgages and so on, you know, basically has gone. And so productivity is the key, and we're not seeing it, and so I don't think the U. S. Economy is doing fine.

We saw we saw manufacturing tickdown for the first time in a while in this report today, and I'm just looking through the layers of it. Here is the is the morning. Whereas what does that say to you again putting into that sort of global context we're talking about globalization and the last in the last block, well, I think I'm not sure what's influenced that we know about Ford and we know about the auto companies and the cutbacks in terms of their labor. I don't know whether

that's influenced this recent report. But you know, manufacturing depends and we'll give Trump a little bit of credit here, Manufacturing depends on a lower dollar, and to the extent that we've had that for the last three or four months, maybe you know, there's hope for manufacturing going forward, but at the level that Paller was four or five six months ago, you know, the US manufacturing was not at

a competitive level. I mean, Bill within this in in the number of minutes that we've got left to do, I want to talk about the to do list for investors. I assume in the battle of yields moving around and prices right now, we got price up, yield down. So I guess you're making money today. But at Janice Henderson, what is the methodology of Bill Gross to be safe

and capture yield? What are you actually doing day to day? Okay, first of all, time you have to accept the fact that returns and yields are lower and that you know your investors are going to be slightly disappointed almost no matter what. But secondly, what am I doing? Um and you know, basically avoiding high risk premium markets and to be frank, those are equi These those are long term

high yield bonds. You know, those are anything with long term cash flows that may be affected by you know, ultimately slower growth point forward, What is the substitute in the meantime? You know, we heard about Chuck Prince and dancing on the floor until the music stops. Well, to a certain extent, investors are in the same thing. They say, what do I do with my money? Well, what do they do with their money? I think if you're going to invest in high yield bonds, you invest, you know,

very short term. There's some E t F S H, Y, G J and K some other alternatives which you know provide four to five percent returns with a three to four year maturity level. I think those are okay. We're buying some of those. There's a preferred E t F called PFF, the biggest preferred PFF, the biggest E t F, and it yields about five and a half percent. Are

these low risk types of investments. They're lower risk than UH than long term bonds are box and technology high flyers, and so you know, that's what we're doing to produce a three to four or five percent retire And you sound like a good collo league. Christopher Whalen, who we speak to, like those preferreds from time to time. I believe that's called capturing a coupon. Bill Gross. I want to know the levels where you begin to pay attention. The yen is on a tear this morning, stronger yen

one ten seventy three. We mentioned the two ten steps spread flattening out oil down to forty seven. We had a forty six handle in West Texas intermediate. Do you sense a tip point here in the correlation of markets that signal disinflation or can you really say it's a

steady American economy and Janet Yelling will act as predicted. Yeah, I think it's a steady American economy and that the market is expecting and we'll see, you know, hike in June and perhaps one later in the year, but the feed is going to stay very, very low, and so that the supports markets to some extent. I would say,

you didn't mention gold, but gold is up today. You know, golds a reflection of a weeker dollar and it's a reflection of lower real interest rates, and we see both of those today and so you know, some markets will be affected by the lower yields and by the weaker dollar to to the extent that we continue to see that trend, and those would be markets where you'd want to invest. Bill Gross, thank you was always for your time. He's with Janie Henderson as well. Of course, with Janie

Henderson unconstrained. Uh fun, just great to get his perspective. Mr Gross, He's not taking the cf A this weekend, just so you know, you're just for fun. He's we we did it and somehow and they're done that Survive. He went home and he relicked his whole stamp collection. He was so so charted after level three. Example Brunt You by Bank of America Mary Lynch. With virtual reality, virtually everything will change. Discover opportunities in a transforming world.

VI of a mL dot Com slash VR, Mary Lynch, Pierced Fenner and Smith Incorporated. There's something new from Bloomberg. It's called Lens. Starting right now, you can use the Bloomberg Io s app off your iPhone or iPad, or our new Google Chrome extension to read any news story on any website, scan it, and then instantly see the news stories relevant market data from Bloomberg. In addition, see all the bios of the key people mentioned in the story.

It's called lens, and it is just that, a lens into the people and the data of any story you may be reading. Again. Lens brings you the power of Bloomberg's news and data Download or io s app or search for the Bloomberg extension at the Chrome store to try lens out. Learn more at Bloomberg dot com slash lens Okay, so let's start with the problem. What's your analysis of the problem. Why has the stock price not

reflected a fairly successful operation. Yeah. I think that GM is strong and very many areas of its business, and it's made a number of really good strategic moves that positions itself very well for the future. There's lots of areas in operating an automobile company, from product designed to sales, to manufacturing, customer support, so on and so forth. But one area where GM is weak is in its capital structure.

It's weak in finance and it has a balance sheet which is fundamentally too conservative for um for the value that's being created in the operations to be unlocked. The company has a market cap of just about fifty billion dollars. They have twenty billion in cash, They have an undrawn revolver of another thirteen or fourteen billion dollars. They have a few billion dollars more in cash sitting offshore in

places like China that isn't even counted. And with so much of the value locked in cash preserving for the downside, it it leaves an in a few capital structure for the company, and shareholders have been rewarded. Therefore, with the lowest PE multiple in the entire s and P five hundred, it trades it a huge discount even to Ford, where to have Ford's PE multiple the stock would be higher. So I think that something needs to be done to unlock the value that's at GM. So if that's the diagnosis,

why hasn't management addressed it? I mean, Mary bars certainly is concerned about her stock price. She said it to me, she said at other people. She knows there's a problem. She has a team around her. Why haven't they addressed it? I think there's caring about a stock price and caring about a stock price. It's kind of like I could lose that last five pounds, but do I really care enough to change my diet and change my exercise to do that. And whereas I would rather have five pounds less,

I'm not really willing to do that. GM similarly would prefer a higher stock price there, but they're not really willing to do what it takes to make that happen. Is it also possible that they are scarred from the experience of going bankrupt and then having come back into the marketplace, and so they're saying, we really need money

for a rainy day, and might they be right about that? Sure, the company has said that they're forever grateful to the United States for bailing themselves out and and preserving the company through the last the last recession, and the company is capitalized to make sure that that absolutely positively never happens again. So I think that there's several ways to

get at that particular thing. One is is you could decide that you're fighting the last war, and you could change your balance sheet, uh to make it more conducive to the current business, to the current cost structure of the company, which is structurally improved, which would require you know,

much less liquidity in cash. Or alternatively, you could do something that's kind of clever, and we have kind of a clever proposal that we've made which allows the company to keep all of its cash, to keep all of its rainy day money, to have its preservation for any future downturn that comes the exact same way that they have it right now, but would unlock the value at GM. So let's take us through that exactly that clever as you call it, clever plan. It involves two classes of stock.

Essentially what those two classes essentially, what we're saying is is you have the stock right now, and as the owners of GM, you get dividends, and you get all the other values of ownership. And if you separate it out, the value of the dividends from all the other values, you would unlock you know, thirty to increase in the values.

So there's a over simple, there's a dividend share, and there's a growth share, correct, and each shareholder would get one of each one of each, and you still have the same dividend that you're getting now, and you'd have the same growth you're getting right now. But if you wanted to, you could trade one of them or the other. And the result is is people who are more interested in dividends, you'd have new buyers that would come in

for those dividend shares. And alternatively, if you're not interested in the dividend but you're interested in the growth of the company, you would buy you would buy the other shares. Now, if the market we're working properly, the value of those two shares should equal the value of the one share right now, and yet you and your proposals say that you think there's a fair amount of upside there. Why is that? Where is the market imperfection? It has to

do with choice. I think of it as as an ice cream the end that sells just vanilla chocolate swirl. There's some people who like vanilla chocolate swirl, and we'll call those the GM shareholders. But if chocolate is the dividend and vanilla is the rest of the operation, imagine if you sold chocolate, vanilla or swirl in any combination that you want, that ice creamstand would attract more customers. So there's people who would be interested in the income

feature of the dividend. They would buy they would buy the dividend shares, and those would be new participants in the market that would come in and they would bid them. You know, we think to a seven to nine percent yield. And similarly, there's people who are not that interest in the dividend but want just to see the stock go up. They would buy the growth shares, the capital appreciation shares, and we think that would trade about the same pe

as you have right now. Adding the math together, is what would unlock the value, greater choice would bring in new investors. You took that math to Mary Borrow and her team, sat down with them, walk them through it. They did not embrace you. I think it's fair to say fair to say, so, what are they missing? Why wouldn't they say that's a good idea. I want to get my stock up, let's do that. Yeah. I think the truth of the matter is they never really engaged

in it. They took a little bit of a not invented here attitude and they've just fought what we've done from the very, very beginning. But what I would say is is what we wanted from the beginning was a collaborative, iterative process to solve the balance sheet process at g M, the balance sheet problem. And so we've done is in addition to our plan, which is up for the shareholder

meeting next week, we've nominated three directors. And these three directors bring in enormous capital markets sophistication which is not present at GM. I think they're the CFO is a little bit weak. I think Mary Barr is a wonderful CEO, but finance is the one area where she is not as strong as she is in other areas, and I

think the board lacks this level of financial expertise. So what we're bringing in, if if the shareholders vote them on, we're bringing in three people who are extraordinarily good in this area. One is Leo Henry, who is the CEO with UM John Malone Act and all that. For all of those years we did all kinds of clever things with their balance sheet to minimize the cost of capital and animizing cost of capital is very important because GM needs to access capital to fund itself. That's a basic

function of a business. And that's that That's why why you bring in that kind of expertise. Then then we have Bill Thorndyke, who wrote The Outsiders, which is like the Bible on capital allocation and minimizing cost of capital. And then my partner vinit Sethi, who is who is just a genius at capital asset pricing models. So let me kick the tires here a little bit. Has this ever been done in any other companies successfully? There's sort

of restructure. There are many companies that have divided their equity interests, whether it's MLPs versus LPs, whether it's reads and prop cos and OP cos there's all kinds of companies that have transformed their businesses to create essentially one stream of income and another stream of capital appreciation. And if you're the board or you're the CEO and you have this happen, presumably you could sell one of the shares and keep the other, so you have divided ownership

over time. How do you avoid a conflict of interest on the part of the divid of the dividend holders receivers as opposed to the growth people. As you make a decision, cash gets a little shorter. How do you make a decision that doesn't favor one set of shareholders over another. First of all, you start with the issue that the dividend is very stable. G m PA has had a little over two billion dollars in dividends, and

that's what would happen under this proposal. There's twenty billion dollars of cash sitting on the balance sheet, so it's eight years of dividends. So in almost any scenario you can think of, the answer to the dividend is you just pay, You just pay the dividend. The second thing is is that boards of directors jobs. The reason they're paid hundreds of thousands of dollars a year is to

balance out competing interests of different stakeholders. Those could be suppliers, they could be workers, they could be managers, they could be executives. They could be customers, they could be dealers, they could be regulators, um, they could be just the general public. They could be creditors of different status and shareholders.

And the idea that this board thinks that the corporate governance concern is so much that they should reject a plan that would increase the stock price by thirty over a potential conflict basically just says this board is not is not engaged to do its job. Now. In fairness, it's not just management who has not been shall we say, enthusiastic about this. The market overall has not responded. When you came out with this proposal and you've talked about it,

the market did not take GM shares up. So isn't the market sort of voting or at least questioning what you're proposing. Well, there's there's no doubt about that. GM is a spent essentially spending fifteen million dollars to pedal the bear case on its own stock. What they're basically saying is is we can't do anything about our stock price. The fact that we have a pe that's five when

even when Ford's is around seven. Well, you know, we're an auto company and we're at the top or towards the top of the cycle, and nothing can be done here until we get to the downturn. And if you don't really like that, what you should do is sell the stock. So they've been running around to shareholders pitching effectively the bear case on their own stock, saying that any innovation, you know, it's just too risky even to

to contemplate. And as a result, I think that um, I think that people are hearing the message from management and they're sensing fear as opposed to optimism, and I think that's having negative impact on the stock. Okay, we want to welcome once again both Bloomberg TV and Radio. We're talking about David Einhorn about his proposal for General Motors.

We had in a prominent auto analyst from Morgan Stanley just to day before yesterday, and in talking about the relative value of Tesla on the one hand and General was in the other, he said, if you gave me twenty billion dollars to get to either Elon Musk or Mary Barrow. I would give it to Elon Musk because there's more growth there. It was his response. So what's your response to that question, because you have a short position on Tesla at the same time you're proposing this

for General Motors. Yeah. I think it's a question of what the purpose of the twenty billion dollars is. If the purpose of the twenty billion dollars is to earn a profit and a return on the twenty billion dollars, I think you would give it to Mary Barra because GM is interested in its return on capital. They're trying to make about return on its invested capital, and that's a wonderful return on twenty billion dollars to the extent

that they were able to deploy it. I think if the purpose of a business is to advance the future, to have science experiments and really cool, buzzworthy kind of things, then you would give it to Tesla, because there you have a guy who's done all kinds of fancy innovation and it is thinking about how society should be fifty years from now, a hundred years from now, but he's yet to actually take any money and turn it into a profitable business and I don't have any optimism that

that will change. Well, you may be right, we'll find out about Tesla, but there seems to be a lot of investors who are willing to give him more money to do science moments or what are he's doing. I mean, how much commitment do you have to have as a long short investor when you go short outside of testa

That can get pretty painful. Yeah, Um, Tesla is one of you know, many things we have and what we so call call our bubble basket of stocks that we just think are mispriced, and they're mispriced by huge, huge amounts, and um, you know, they're sized in a way that gives us the ability to, you know, wait a fair amount of time to be proven right or wrong. I think eventually the mood of the market will change. Eventually the com will be called into account to demonstrate profitability.

I don't know when that will happen, And and the portfolios positioned properly relative to the risk and the reward. There you also have a very large position in general motors. I mean, you know, I think three of the shares. Yeah, it's much larger than our Tesla short, much exactly exactly. So if in fact you don't get your three members on the board and your plan doesn't go forward, what

do you do with that position in General Motors? Well, our investment in General Motors goes way back before we started. We basically bought the stock in two thousand eleven. We did sell it for a little while around the ignition recall issue, but basically we've been large holders of the stock for six years. Um. You know, our investment thesis is not predicated on this plan being put into place or our directors being nominated. Those are things that came up along the way as part of a multi year

investment we had in GM. UM. You know, I would look to Apple, where we had a similar experience talking about an idea that we advanced a few years ago. Even though they didn't do exactly what we wanted them to do, they did change their capital policy and unlocked a lot of value. And we're still large holders of Apple today, though we have reduced the position some. Well, that does raise the question there was a large very

much the same way exactly. I'm glad you raised Apple because there was an extraordinary stock buy back there that have got a lot of cash into some shareholders hands. Would that if not satisfy you, at least say okay, that's good enough. With General Motors, sure, Look with Apple, they had a problem with capital allocation. They were storing lots and lots of cash, they were returning none of it to shareholders. We had an idea. Maybe some people

thought it was too clever. Management thought it was too clever. But instead what they did was they changed their constraint. They previously said we're not buying backstock, and since then they've borrowed a hundred billion dollars. They've bought back a quarter of the stock about less than a hundred dollars a share. The pe net of cash is expanded from seven to thirteen, in part because Apple has a better capital allocation policy today than it did before we came in.

Now g M has a similar inefficient balance sheet. They've said that there's these constraints because they want to retain all of this money for a potential rainy day. There's several ways to get at it. Our purpose and electing directors is to get at that problem. It could be through the plan and the proposal that we've advanced, or

it could be an alternate solution. But either way, when you look at GM and you say your cost of thirty year debt is five and a half percent or five and a quarter percent, and your cost of equities basically or the reciprocal of a five p E, that's just too big of a gap and something needs to be done to close that. So David, finally, um, you're a long short investor. You've had extraordinary success through your career,

I mean legendary success. It hasn't been as easy at the less a little while You're not alone in that, there are a number of other hedge funds that have really been struggling a bit. In your view, because you are an expert in this, does that tell us something larger about that way of investing or is this a temporary aberration? I believe that it's cyclical. There's a period where certain types of stocks do better than other types of stocks, and you know, we're probably about three years

into period. That is uh. You know, it's been a bit of a headwind for our style of investing. Does it put pressure on you both in terms of retaining investment um and also in terms of the fees pay? I mean, that's what we all, all the talk is about fees, right the two and twenty, things like that.

Do you feel pressure? I've been looking. I've been very lucky in my career, and essentially when we started Greenlight in with a million dollars, I never envisioned it would be anything close to what it's turned out to be. When we reached a hundred million dollars, I thought we had hit a success that I you know, that I never would have imagined. And really, since then, I've never really cared about what the size of the fund is so it'll go out or to go down. But mostly

we've we've been closed. We haven't been opened for new investment for you know, for many, many years. And my goal is not to manage the most money. My job is to do a good job with the money that we do manage. Finally, going back to General Motors in conclusion, Um, if you are successful, why will it be Will it be because Mary bar changes her mind? Or will be because you get your three directors on the board. Well, I guess I don't know the answer to that. There's

lots of different ways to get to success. Thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio Brunt You by Bank of America Mary Lynch. With virtual reality, virtually everything will change. Discover opportunities in

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