Rice's Actions in Trump Intelligence May Be Improper, Lake Says

of course, on the Bloomberg Bomb Formats. Is the vice chairman of Kissinger Associate's former Under Secretary of State for Economic Growth, Energy, and the Environment. He joins us now in Bloomberg eleven three studios. But I'm good to see you, good to be here as always. Let's start with this meeting in Florida. Uh, we've seen the president try to forge priest relationships with world leaders a few times now since he took office. What's gonna be particularly different about

this encounter in Florida. Well, he's going to have to take the measure of President Shijin Ping, who's a very formidable, very skillful, very authoritative guy. He knows what he's doing. He's been in office for quite some time, he has a lot of power. He knows that he wants to get out of this meeting, and I think Donald Trump is going to have to do a lot of listening. He doesn't know much about China, and I suspect Hijin Ping will make a number of points about Chinese policy

that may be new to Trump's ears. So I think it would be useful. I know Chijin Ping reasonably well. I've met him a number of times. He's a very impressive person and a very a very strong figure, and he will be articulate in explaining China's views. Where China can work with the US and where China feel it can't work with the US. There are various areas. I think they do want to work on North Korea. They don't have as much influence as we perhaps think they do,

but they do have some. They certainly want to work in dealing with terrorism. They want to work on climate to the extent Trump wants to work on climate, and they're now developing this very very ambitious, very I think positive generally notion of increasing infrastructure in the region, and a lot of American companies would like to participate in this. The question is is Trump going to be willing to allow that kind of participation to occur. So President Trump

doesn't know China well. On whom is he relying to to to inform him on how the country works today? He has some very capable people on the National Security Council staff that will do this. Uh he He also seems to be relying on his son in law, Jared Kushner. I don't know how it is in a rock he'll be dealing with China. But there are good people on the National Secure Council staff, but the State Department is

not at full complement. A lot of the China experts are there in the State Department among Foreign service officers, but there is not an Assistant Secretary for the Far East, non assistant secretary for many other functions as well. But I suspect he'll get some good advice, but he has to listen to the advice. He has to understand the history of U. S. China relations, and he has to measure his words very carefully because he has to be understood.

And if he appears not to really understand what's going on in China, not to have any sense of Chinese history. To make statements like he has in the past, I think it will cause a lot of confusion. This is a very important meeting because almost nothing constructive will be dying internationally in the world over the next four to eight to twelve years without a substantial measure of US Chinese cooperation. He has to figure out a framework with

President Shooting Ping four. That kind of cooperation China is very important. Americans should understand it. You can't push them around there there they have strong nationalistic pressures. Internally in China, they won't be pushed around. The way you deal with them is to work with them in a constructive fashion. Trump's negotiating tactics may work in the real estate area, they're probably not going to work, almost certainly not going to work in dealing with China if he takes that

sort of pugnacious approach that he sometimes does. Performance. You've been partied to meetings like this before, you say, met that the Chinese president several times as well. How do they unfold what's what's going to happen here? How much is the formality going to eclipse the opportunity here for these two leaders to get to know each other on

any sort of personal level. Well, I suspect this will be somewhat less formal than the meetings, given the sets they were in Washington, given the setting, But they have to get to know one another, and the best way of doing that is for President Trump to listen to President Hinjin Ping and hear what he has to say first before weighing in with his thoughts. He can learn uh a lot about China from listening to President She and then say what he has to say. But the

United States has a problem. That is, we really don't have an Asian strategy yet, we haven't put it together. Is it that we want to be tough on trade? What is our position in the on the question of the islands and the South China Sea? What is our position on Korea? The Chinese will have and do have a strategy. We may or may not agree with the strategy, but they have developed a strategy over a number of years for the region and for the world. President She

announced a lot of that in Davos. We don't have one yet, we haven't taken the time to put one together. That puts President Trump at a disadvantage. He'll be making a number of statements, But the Chinese are gonna wonder are they part of a broader strategy or they ad hoc and are they going to be follow it up? Are they going to be ad hoc and then change the next day or the next week, which creates a sense of unreliability and and and misunderstanding. Well, what's the

worst press conference you ever had? Were you on a plane traveling somewhere and you said, geez, I wish the press wasn't here. Did that ever happen to Ambassador Worm answer? I always like the press being there because I think you normally could on planes have good conversations with the press on an informal, off the record basis and explain not just what the policy is or was, but give background.

And I think it's important to have background so the press can understand not just what the policy is, but how you got there, what the basis of the policy. Critically, is Secretary Tillison's policy a new policy or do you look at it as bombing him back to John Hay or do you know Secretary Route or whoever. I think he would be far better served by bringing the press along on his trips. Every Secretary of State I've traveled with, and I've traveled with seven or eight of them have

always starting with Rogers Vote to Panama. That was a lovely trip in those days. But you know, with Secretary Kissinger and and many other subsequent Secretary Kissinger, they've always found a way of working with the press. Not the press always agrees with them or they always agree with the press, but they were able to use the fact that the press was on the plane to give background information, not just the policy, but why the policy was put

forward the way it was. What are the underlying reasons for the policy, what are the underlying facts? To give the press background so they can write their stories. They may agree or not agree, but at least you can give them background, get to know them, and it works

very well. It always worked for me, it always worked for a number of the secretaries I've traveled with, and I think that the American people deserve to have a press traveling with the Secretary of State so they can communicate the policies more clearly and thoughtfully and with sufficient background. That's does Rex Taylerson have more of a worldview, world outlook than this white as you talked about not having the strategy here going into this meeting with China at

least not knowing it. Where's that Where's that strategy being devised? I assume it's being devised primarily in the National Security Council among National Security Council staff. But if they're wise, they will call on the experts in the State Department who know China very well. Many of them have served a long time in China, and I think they can add a great deal to the thought process that goes into putting together what the President says and and putting

together a strategy. If that's indeed what they intend to do. But since you don't have a lot of people at higher levels, it's become a very difficult process to put a strategy together. Let's come back with Ambassador harm Mats of Kissinger Associates. Of course, this public service to the Obama administration some important thoughts. They're linking uh State Department

matters into Treasury and fiscal policy. Maybe coming back, we'll talk about some of the constraints that any administration were to have with the dynamics of our debt and deficits. Let's rip up the script. I mean, come on, David, you have no sleep. You know your team, one our executive producers gonna achieve sainthood. So let's rip up the script of Robert Pimtz Bob the French election. We are distant from Shirock Mitterran Valerie just started to staying. I

just got an email from Anthony from Sparta. He wants to hear my French. He loved it on TV this morning tonight. There's a debate. There's all people debating exact mole. They're becoming American like, but they're not. You know, the French are not becoming American like. They are not. But there is a very bright star on the French horizon. Emmanuel mccron. Macron was the economic minister in the alarmed government earlier on. I know him very well. He's a

very good friend. He used to work for Rothschild. He's an internationalist. He's a fresh new face on the horizon. He's doing very well in the polls and I do believe that if he were elected president of France, it would be a very positive boost for France and a very positive boost for Europe and for French American relations. I think he's a new rising star and a very positive force on the French political scene. What's the central issue here in this election is it? Is it to

membership in the EU? Can you paint with his broader brushes that I think it's much more the economy and how to deal with the economy. How to get the economy going on a sustained basis, uh that would be number one. The second is how to work with the other major EU partners. Assuming Merkel is re elected, or at least as the head of a coalition that's reelected may be different from the one she has now, she

would be an important partner. The Dutch have come through without moving to this populace right that some people feared. So it may well be that the rising tide of the populace right is now receding, and it would received a lot further if Matt Crown were elected. So I think working with the other Europeans is important, and also strengthening NATO. The French understand. I believe that a strong NATO, a coherent EU, strong relationship with the US all are

very important to the future of France. And you need someone who is pragmatic to do that. So bring about Uncle a Merca. We last spoke. I think before she went to the White House, and we were talking about what you were going to be observing as all of that unfolded. Uh, I'm sure you watched it. I'm sure you listen to the to the press conference after US Ambassador Harmon at the steam was coming out of this so much. He was melting ice trying to be diplomatic.

I was trying to be diplomatic. But where where does that relationship go from from what we sought the White House? Well, what I don't understand is that Trump does not seem to have the background, um, the historical background to really understand the origins of Native the origins of the EU,

and why they're so important to the US. The US was a great power after World War Two, impart because it had a strong economy and a strong military, but it was also great power because it developed strong alliances. It worked to strengthen European unity, which was important for stability in Europe and also to counter the spread of Soviet Communism during the Cold War. Now we need Europe as a partner, UH, to deal with a number of things that Putin is doing in various parts of Europe.

He's trying to undermine European cohesion cause fragmentation within European countries and among them, and certainly in NATO. We need a strong Europe to resist that kind of thing. And and that's really what he has to understand, that that a strong Europe can be a big asset. If you want to make America great again, you need to have also great allies, great friendships, great partnerships, and that should be part of a make America great strategy if that's

the strategy he wants to pursue. But you're not going to be great if you have only a strong economy and a strong military and you have weak allies. That will not make America great again. He's got to make sure our allies are great again. Working with Merkel, working with Macrol if he's elected, working with other European leaders is very definitely a part of that process, or at

least should be in the need of strategy for doing it. Ambassador, Thank you so much, kind of you to come into just so much to talk about um just an extraordinary time and the Crystal much more from our Washington News bureau. Eli Lake, Who's Bloomberg View column last night came out in the afternoon percolated in the afternoon. It really blew up about four pm UH last night over Susan Rice of the Obama administration requesting the names and documents that

have been blacked out had been redacted. Mr Lake joins us right now, I know David's got some important questions. Eli. I look at the Google feed and it's just as polarized as you would imagine. Susan Rice unmasked Trump team. The latest wire tap bombshell turns out to be another dud unmasking reporter. This is bigger than Trump that of course some Fox News insider, which is it, Eli Lake?

Who should take comfort from your Bloomberg view piece? At this point, I'm really reluctant to right to say, you know where the story is going to end, because I'm still reporting it. UM. I think it's important for the Trump supporters to recognize that this was a unique situation. After the election, there were credible allegations that UM that there was credible information I should say, an intelligence community

had concluded the Russians tried to influence the election. There was an active FBI investigation that was confirmed last months UH into the Trump campaign to see if they UH collaborated in some way with the Russians in this influenced operation. Susan Rice would have had to have known about that. And even though we my my reporting says that she was asking for information to be on mass on us, the US person, to be on maths that were affiliated with the Trump transition that did not have to do

with Russia. At the same time, this is the environment, the backdrop, and it was relevant in that sense of a national in the in the national security sense, particularly if we were to believe other reports in the New York Times and other places that there was a lot of intelligence coming in after the election that did show that there were more contacts and meetings and so forth between Trump World and Russia. On the other hand, none

of that has amounted to the impeachable offense of collusion. Uh. This has been stated by people like James Clapper, who

was Barack Obama's Director of National Intelligence. And it appears that what we're learning now is that the standard for a national security advisor to ask who a U S person is who is incidentally collected there's no warrant on this person, UH in in a in a routine kind of wire tap of a foreign target or criminal target is so loose that it pretty much you could you could you can pretty much look to see anything and

you would get your request. It appears fulfilled, which is what happened in this National Security Council review that started under the Trump administration of this policy known as unmaking. And that right there is something that ought to wary Democrats as well as Republicans, because right now the president of Democrat as a president is Sonald Trump. He's a Republican.

And if indeed, you know, the rules are so laxed that you can uh have a back door loophole to go around the very strict procedures for surveilling US persons by going to a stupid sport known as the FISA court, well, then this is something that Trump could then do to his domestic opposition. And Democrats should be interested in geting

the bombo. And I'm actually happy to say that at least the ranking Democrats in the Senate and House Intelligence committees are now saying that this is something worth looking at you. This is great, Uh, the surveillance and friends, I guess that's what we'll call it, David, Right, we need a new couch Eli Here's what I'm struggling with. You've got the credible information, you've got the FBI investigation, you've got the independent reporting by a number of journalism organizations.

Would there be those who say, look, this is a national security advisor looking into something that would have been of great concern. You could have outlined this in your piece as well. There's nothing here to indicate you're kind of alluding to this moment to go that that Susan Rice did anything wrong. We're illegal? Am I right in

reading that correctly? Well? Illegal? I think it's I think when I've talked to experts about this, you know the law and the procedures, I think it's it's it's legal for a natural security advisor to make these unmapped requests, and the bar is very low. Improper is a different questions. And because this is a key point here, I think people are missing. This is stuff that is so shrouded in state secrecy. We rarely really get much of an

insight into how this process works. Every few years, when the FIE the law is reauthorized in Congress, there are hearings and the leaders of the intelligence community make a show of saying that there are great that the intelligence community takes great pains to redact the names of s persons who were incidentally collected in eavesdropping and monitoring in

that kind of thing. But if it turns out that a political appointee can pretty much request to unmask that information at any time, well then it's worth finding you know, the origins of this policy, how long this has been going on, and hopefully a sense to reform it, So

I would separate the questions of illegal and improper. And if it did turn out that in fact, Susan Rice was doing more than just asking for the end the information, but was spreading that around to Democrats for any kind of political advantage, or that she had something to do, and I'm not reporting this, I want to make this very clear. She had something to do with leaking um, the identity of Mike Flynn, who did end up in the newspaper in his phone calls with the Russian ambassador,

and that forced him to resign. That did have a huge political effect. Um, then that reason, she really isn't a bit of trouble here. So I want to make it very clear that the thing that I'm reporting on right now is in and of itself it doesn't appear to be illegal, but it may very well be improper. And I'm starting to think that the real scandal here is the fact that it's not illegal, that it may be standard operating procedure. And how long has this been

going on? Is the question? Can you introduce us here to a principle you mentioned in the piece. That's Ezra co and Wattnick the name that I don't think we'll be familiar to many of our of our listeners, but is is or was wielding a pretty heavy hand on the National Security Council as an advisor to to the president. Who is he? What do we know about his background and why was he the one conducting this investigation? Well, he's a Defense intelligence I mean he's a he's a

former Defense Intelligence Agency officer. UM. He was brought in originally by Mike flann and I have to say that, you know, what he was doing was well within his remit as the UM National Security Council's Director for Intelligence, which is to review policies like this, which is when the White House, you know, what is the procedure for unmasking US persons in these reports? And that's when he discovered the what the kinds of phenomenal anomalies and then

and made this available to the General Council. Um, he's somebody who has gotten recently, you know, there's been some interest to him among you know, sort of the progressive and liberal media. Um. Although I have to say at this point, Um, the argument that you know, what he was doing is improper, I have not seen it. I'm you know, we're all reporting his story out. But you know, eventually he hands the information over, the General Council says,

all right, we want you to stop the investigation. At this point he complied with that as I've I can, I can report and you know, and kind of continued on. But the idea that it was improper to review this stuff for a policy like this, I mean, that's exactly what the Director for Intelligence or what I think it's called, the classified Executive Secretariat, it is supposed to do. As an asshole security Council. It's not it's not really out of the ordinary. And you know, and for that job

he was qualified. What happens here next day lie with with the Chairman of the House Intelligence Committe, Devin Nonez. We've seen what you sort of characterizes as bizarre behavior him going back and forth to the White House. Obviously this could be all tied up into that, but he's lost the confidence of some of his colleagues on the hill. What are the next steps do you think for the

for the chairman of the House Intelligence Committee. Well, I wrote a very tough column last week because I thought that, you know, the story that he had told the press, and specifically in an interview with me, it was very misleading because he made it appear that he was in forming President Trump of new information when you know, his own White House had been uh you know, knew about

it and discovered it and so forth. That said, I also understand that the Chairman had his own independent sources before all of this, that we're telling him that there was you know, improper in mass unmasking going on, and that there um were a number of kind of intelligence reports that were making their way to the White House setting that that that had improper details about the Trump transition. But that said, you know, the fact that it was he made it appear that he was forming the president

of something he didn't know. Um, I thought was uh count miss leading and deceptive, and I did burn him on noting my diet I criticized him very harshly a column last week on that said, the fact that now it's come out, um that Susan Rice had requested in dozens of the cases. You know, this kind of unmasking in some ways vindicates is initial concerns about this, which because it's very classified and because it's a really complex

issue and most people covering it our political orders. Yeah, we're gonna have to leave it there, Eli, Thank you so much. Really appreciate the sequence of Bloomberg View columns that we've seen from Mr Like Eli like writing for Bloomberg View, making national news brought you by Bank of America, Mary Lynch, dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the

power of global connections. Mary Lynch, Pierce Federan Smith Incorporated, Member s I p C. So I'm gonna make this very quick because David Girl has got to get to her esteem. Guest here who's taken an oath to be brief with us, uh today, here's the deal. Many of you know that I consider the Verizon a o L transaction to be one of the great transactions of this Era by Tim Armstrong. I put it in a class with Pete Peterson's Blackstone transaction. It's just an amazing deal

to bring a O l over to Verizon. Forget about that. What you need to know, David Gura is Kelly Potter is out of Lawrence Academy playing hockey for Connecticut College. And the uproar is, Tim, nothing has changed from when you were coaching hockey at CC. North Dakota is gonna get rid of women's hockey. Nothing's changed in the women's sports, of this women's sports milieu in twenty years. Tom, let

me tell you something. First, great to be back here and the Lawrence Academy, Connecticut College, but more importantly women's ice hockey. You know, I coach women's ice hockey during played lacrosse there, but also in the winter, I used to coach the women's ice hockey team. And look, the bottom line is, uh, you know, women's sports is an amazing uh since Title nine, but there's a lot more work to be done. Said, well, it's funny we own makers dot Com, which is number one women's leadership brand

in the world. And uh, I just think that the women's leadership movement right now has a lot of energy behind it. And the North Dakota situation you just brought up is exactly the type of thing that needs to get addressed. Things David flabbergast. Could you see them take men's basketball away from U n C. David, Would that happen? It wouldn't happen. Let's take an old thing get started. All right, this is the rebranding. You've gotten some flag for this, Uh, the rebranding of the company of Yahoo

and AO. I'll tell us a bit about the branding. What this company is gonna look like a lot of people wondering what shape it's gonna take. Sure, So David, good to see you again. And Uh. One thing that we're talking about today is the launch of a new B two B name, which is essentially House of Brands supporter. We uh, we'll touch about over a billion consumers once

the Yahoo deal closes. Where we have a house of brand strategy, which is we have about twenty major brands, which include a O L, Yahoo, Tech, Crunch, uh On, Gadget, Movie Phone. So we have a really big digital portfolio. And like a Berkshire Hathaway or Procter and Gamble, oath is the name that we're taking that basically supports those brands. As a consumer, you probably won't see Oath a lot um. You'll see our brand. So if you are a sports fan,

you'll see Yahoo Sports. If your finance fan, you'll see Yahoo Finance. If you're into tech, you'll see tech Crunch. So we wanted to have a values based brand that holds everything together. It's really the Oath is the soil that great brands grow out of. And our mission statement is build brands people love, and that's a long term commitment. Oath is a commitment word, and that's why we decided to name the company from a B two B standpoint Oath.

How much did this blueprint change? Is you're building this house of brands over these last many months. Of course, you had the the Yahoo hacking, you were going through all of that, the deal was being reevaluated and changed. How was your vision for this this combined company changed? You know, the vision stayed basically the same, which is

we're betting on two simple principles. One is that the world is going to get connected by software and by mobile phones, and the second is that brands are gonna matter even more when that happens because the level of noise in the world that brands are going to continue to pop out and there's a chance to grow global brands. The Yahoo data breach that happened, I think is something

that's happened a lot to a lot of companies. It's something that yeah, Who's done a great job working through and we're focused now on basically, you know, launching the next series of great brands for the world. Facebook, I believe the other day did a Snapchat equivalent. Not that I'm in Tim, I'm sorry, I'm not a snap I'm sorry, but but help me here with how you compete with Facebook, compete with Google and the other juggernauts. Yeah, so our

strategy is interesting. So we we have a different strategy than competing head on with them. We're partners with them. So Huffing a Post, which we own, is the largest distributed news source on Facebook. We have big deals with Google, with Amazon, uh, with Apple. So we look at those and be honest with you, I look at them as uh, really a distribution source for our business. So we basically both put content all over those distributions sources and we

monetize with them also. So I love those companies and our content people love those companies, and we're going to work in that ecosystem. We partner with everyone in that in the space, So we're we're not looking to compete, We're looking to differentiate. Kim, how are you processing what we're seeing with YouTube right now? Obviously you care a lot about ad revenue as well as you look to this new to this new brand, But you see the difficulty that YouTube and Google is facing, uh, you know,

monitoring what's being put out on YouTube. Talk about the complexity there and how you make sure that what happens there isn't happening with your brands as well. So I think you know, we're we're a brand company. We're building brands people love. So from our standpoint, we want to

be in a brand safe environment and really scaled. I think the tension point you're saying at the YouTube's and and Facebook is you know that they're they're dealing with billions of humors and trying to connect you know, millions or hundreds of millions of videos at the same time and try to monetize them. To be honest with you, the things that have been happening recently are probably a

natural outcome of the scale we face it, um, you know. Also, but the flip side of it, the silver lining is it is if we can solve those issues as an industry and all the companies can solve them. You know, you can either have smaller scale and not have all those problems, or you can have big scale and be connected to billions of consumers and fix that and then having a wonderful business. And I think we're heading towards the wonderful business side. Um. But I think the advertisers

are speaking. They want brand, trusted environments. Who's gonna put Twitter out of their misery? I think I'm I'm a big believer in Twitter and big believer in the management team at Twitter and very close with them. So I'm guessing that their their misery is going to turn to joy at some point, and it's going to be self resurrected from how those guys are doing and girls are doing their work. Did you notice, David, he didn't answer

that question. If you want to follow timbarks drinking, Thank you so much for the oath discussion a year particularly after inside, I'm gonna tweet this out. Good morning Serious sex TEMN Channel one nineteen in North Dakota as we looked at women's North Dakota hockey David, why don't you bring him in? All and Ruskins over on the phone with a Queen of England trying to explain to the week sterlink tour. Yeah, we'll get to that in just a month. Let me ask you about the South African

rand first, if I could. We saw a piece of breaking news here Bloomberg breaking uh in exclusive this morning. The head of South Africa's treasury has asked to leave his post at the end of this month, a year before his contract runs out. So it seems like we're getting compounding bad news out of South Africa. We've seen the weakening of the rand here over these last seven days and down eleven precent. I think, what's your sense of where things are going here? And I mentioned the compounding?

Is there there more yet to happen? It's definitely yes, absolutely, yeah. I think we're at a little bit of pivot point here. You know, the market I guess is talking about is there some sort of Dilma moment as it were, whereby you know, you'd have a change in leadership and you know, change in philosophy to some extential perhaps even some of the old god coming back in, the old Finance minister coming back in seen as relatively credible, and the rand

could perhaps rally substantially from here. We alternatively, we continue on the path we've just set over the last few days, in which case, you know, dollar rand I think will be up well into the four teens before we know it. I imagine you've looked at with the reading agencies have had to say here. Of course they're putting it, putting

South Africa unnoticed. What stood out to you from from from those commentaries, Well, the actions have been pretty quick, so you know, look, you know, to some extent to your earlier question, there's a lot up in the air in terms of the political direction where as to where South Africa goes. And in some sense, I don't think, you know, it makes a lot of sense to change ratings right at this very moment when you can wait a few weeks and perhaps have much more information, so

that that is a bit of a stand up. But at the same time, of course you've got you know what the smp S actions already, You've got let's see where Moodies go. Is it one notch two notches. Um, you know it. It is substantial. Of course, if South Africa uses its investment grade. Okay, help our rookie ffects traders listening worldwide. Where does a guy like you enter the trade long South African rand strong ran week US dollar? Does Allen Ruskin wait for a press release, a Bloomberg headline?

Do you do it technically? How do you do this? Tom? I think the South African rand is not a currency for rookies. I would say that as a warning point, you know, because this thing flies around. Really we've seen you know, seven eight percent move in in roughly a week, So that tells you that. Um, certainly, if you're thinking in terms of yield and carry, you don't really want to just have your all your eggs in one basket and in a currency like the South African rand. So

that's a starting point right now. It's unfortunately much more of a political story than an economic story. So you know, typically I like it more when we're reacting to data, when we're looking at the broader macro environment, which I think is still actually slightly friendly for carry. We've had a very good run for carry, but it's still I think slightly friendly in the South African rand naturally lends itself to be in that basket. But right now I'd

be very cautious because, as I said, we're at a pivoct. Really, we could be at thirteen on good political news or so called good political news, and we could be at fourteen and a half quite easily in a heartbeat. I thought there was a good piece of the Wall Street Journal this mooeting looking at the Chinese currency. I want to ask you a bit about that as we had

to these meetings on on Friday. In the lead of that piece was there's a new twist in the persistent argument that China is keeping its currency artificially low against the dollar, the un has actually been rising. As again, as we head to those meetings this Friday, what are we seeing with the currency and sort of what would the nsequences be if the US does in fact label

a trying out currency manipulator. Well, I think the U s has been in a tricky situation because the old story where you saw a lot of pressure for dollar Chinese to go down and the Chinese were resistant of that, they were resistant of Chinese currency strength kind of flipped on its head and has flipped on his head for quite a while, whereby the currencies, if anything, too weak and was weakening faster than they would have wanted, and they were trying to resist it that way around, in

which case that was pretty much consistent with what the U S would want anyway. So the US has found itself in a in a somewhat difficult position. And I think, you know, even people who said, okay, you know the currency, the Chinese currency is misvalued, have had to rethink. And you know, people like the I m F, I think, said okay, you know we're closer to fair value here, don't you, Brink has led. I'll give you a just

BC credit on a weak sterling call. If anything, you've been more aggressive about it our suggestion than he just BC. You're getting to have some more company right now. Is it about weak sterling or is it about strong dollar? A little bit of both really, but I'd say, actually, you know, if you had to put more weight, it was at least as much really on a stronger dollars story, and that is not panning out quite according to plan,

of course. But I think you know, the good news Tim, just to interrupt there was was that it's nice when you forecast currencies and you like both legs really, so in that sense, we like both. This is really important, David, currencies. You don't talk about one currency. You've heard me scream about this. It's about a pair. And if you get them both going in the right direction, that's where you make the alpha. That's a that's a cardinal rule. That's

not said enough exactly, Tim. So I think, look, I think both are gonna work in that direction. I e. Sterling will be somewhat weaker in and of itself really and the dollars should be somewhat stronger. But it's a case of somewhat right. I think we're you know, looking now at a dollar moves which are more contained than

we would have anticipated at this point in time. And given what the Feds actually the catalyst to get strong dollar, to get the February dollar we're supposed to have be a mayor junior or September dollar, well, I think a couple of things time. I think firstly, the Fed hopefully you know, still more in play than the market that projects. And I think that that that's a pretty comfortable call at this point. So we're talking, uh, you know, Ray takes in June and September and then a balance sheet

action towards the end of the year. So that is

all consistent with the stronger dollar story. But we need the back end in general to play to play ball in all of this, right, we have to keep in mind that the tenure has been incredibly well behaved, really and I think if tenure heels and the broader heeled curve backs up, then you know the story kicks into gear and with with more gusta with the euro with Strala, we had the speech by to reason, We've got to EU meeting tomorrow again hammering out what the price is

going to be here for for brexit. How how long terms can you be on currency amidst all of the much nations that we're going to see here over these next two years. Yeah, I think you know, some people would say, look in this respect, when you're looking at a to your political profile, you can actually be quite

long term. But you're still reading the tea leaves. You're still trying to get a sense of, you know, is the EU twenty seven which is looking for the UK to first set up some sort of divorce rules before we actually come up with a new set of trade rules, or you know, is the UK winning and we're actually doing this all in parallel kind of thing. So I think you're constantly kind of making some sort of judgment about who's got the upper hand as far as the

politics is concerned. It McAuley of City good bit, take good morning, good morning, time, get to be with you. Did you change your auto recommendations yesterday off of one month's auto sales? Now? You know, our our views, you know, has been pretty consistent of mid seventeen million auto sales with a peak coming in eighteen and sixteen million is our nineteen estimate. Um, you know last year in March, in March sixteen we also had about a sixteen and a half million SAR. The full year ended up at

seventeen and a half. Of these fluctuations are not that uncommon. Um you know on February we were seventeen and a half a million. We do see a bit more downside now is we're approaching the peak based on our latest work. But um, yes, they's number did not call us to change our Our opinion is you know, there's a partial differentiation of revenue units is compared to price and then

in the auto world, there's also size of car. How critical is it that they can't sell the big cars, so they're starting to give away a lot of incentives. What does that do down the income statement? Sure? So, so the companies recover, like four and GM, we think the majority of profits in North America come from the pickup truck segments, and pickups we think has actually a

very unique supplied demand imbalance. We have seen com pricing pressure in sedan segments even crossover segments now since last year. So some of this incentives rising affordability head to win our natural later cycle pressure points that we see. Why did GM confirm their twenty seventeen guidance last week instead of all the negativity that we read about them on the auto sector Because the pickup trucks have a unique

supply demand in balance, and we think that continues. And that's why despite costs for peak auto for the past three years, right three years um, your profits in North America from domestic O e m's like GM and Ford have been strong. So I think the pickup trucks story is frankly highly overlooked. In his whole debate about the cycle, how weird are you about the glut. You've got a glat of new vehicles, a glat of old vehicles, and you've got companies here who are trying to reinvent their

product lines. It seems like that's a recipe for for

a lot of trouble. Yeah, I mean, you are seeing awf leaves of volume again pret now fill this later point in the cycle, and some affordability had warned the report we published actually last night, we're kind of making the argument that if you look at affordability historically, even if you account, you know, for some of the pressures that are incrementally occurring, we don't think we're in some sort of unshottered territory in terms of monthly payments and

auto sales and how they relate to the current macro economy. They have consumer confidence, disposable income, So we don't think we're in some sort of unshotted territory. But at this kind of seventh eighth ending of the cycle, you should start to see some you know, pressure points in select segments, and and kind of our point is all that's happening and all that's been absorbed. Um, But the pickup truck story,

which is the anchor for earnings. Again, the majority we think of GM and Ford um had does not get the attention in public. There's a lot of times people equated to housing or oil, and we think it's a much bigger story than than that. With this, we continue each I did a chart of US car inflation price change, if you will, really real to see some real price erosion year over year in used cars. How linked are the equity shares of the big auto companies to use

card dynamics. There's certainly some some exposure from a lending perspective. We saw, you know, Ford had an impact late last year. Well, I need to interrupt because this is so important. I'm sorry didn't get into my puny brain. It's do you agree with Steve Iceman that there is a subprime auto challenge in the markets? I mean, we have seen delinquencies generally rise. I mean we don't think that we haven't seen data on subprime deminquency that seems um kind of

again as an outlying relative to the past. And there's been a lot of articles written about subprime lending being pulled back in the fourth quarter, which is fine, and we want to see rational lending behavior. So what we're looking for is, if there is a problem, if there is a higher delinquency rate in subprime, we want to

see the industry kind of pulled back on that. Has been a lot of reports that that did occur in the fourth quarter because what the market want, the equat prices of these companies want to see, Tom is they want to see different behavior than prior cycles. They want to see, you know, production cutsift sales are weaker, reduction cuts are okay to maintain the inventory. They want to see you start pint lending, to your question, kind of

get pulled back if that becomes an issue. And that's what we think is the bigger story, UM, because you know these docks, you know, like if you look at GM earnings going from three dollars to over six dollars, they only have an earnings problem. They have a multiple problem on their equity prices. And I think part of it is how will these companies react in a post peak environment to someone these kind of natural pressure points

for the curve. But now we have not been in the view that there's some sort of an auto bubble there for lending. UM, although at this point in the cycle, you are you know, you do type of cities, pressure points. What's the financing picture look like to you? Quickly? We'll come back and talk more in a moment. In the last thirty seconds we got here before the break. Has

the financing picture look yeah, it's okay. I mean we think we're seeing the linquent is kind of you know, move up a little bit to use car pricing pressures having a bit of an impact. If you're you know, long pick off the trucks which has a lot less leasing than sedance, we think you're in better shape, which is why in our selectivity we prefer the max pick up exposure that you can find. But generally we're seeing what you typically see you know at this stage later

on in the cycle. Um. But you know, as the last cycle proved um, you know, use vehicle prices strengthen very quickly after the last procession because you know, card density came down quickly, so some there's some natural hedges here in terms of the cyclical exposure reentertainment Colley, So do you go thrill to have them on today? After the shock yesterday of the auto report will continue with Mr mccaulley and talk about individual securities here in a

moment any time. I want to ask you about what we heard from David Einhorn if green Light Capital last week at proposal that he made for a new share of structure for GM. How did you react to what he's proposed on the heels of that announcement. What more information do we have about how that might play out and what management thinks of it. Rating agency said that there will be a risk of of GM's credit ratings falling below investment grade, which would be a serious issue

at this stage of the cycle for any company. So we don't really have a formal view, but what we wrote in a note is that the root of the GM problem is a perception problem tied to pick up trucks and believe it or not, technology and the real opportunity have to take their loss making card business, we think into something that's much better um in the past, you know, buy backs and dividends and certain things that

we're not really helpful to the stock. And with all the view on the last proposal, but well, I think the rating agencies with a key voice here, we have to kind of see how this play is out. But what we really want to focus on was the root of the problem, which is a perception problem that we think is really the cause of of you know, where valuations stand today. Help me with with some fact checking here.

We've heard from the CEOs of GM and Ford. They've you know, made some moves, perhaps not in light of what the President has said or asked them to do, but they've decided to keep some factories here, move some production here to the US, and that's been in the works for for a long time. Something that struck me when I heard Mark Fields talk after one of these one of these news items, was this is something that made financial sense, didn't have anything to do with with politics.

Is there truth to that is? And if that's the case, why did it take the company so long to do what it's done? Sure? Yeah, no, absolutely. And there's something we wrote about even last night that well, we're watching for how does the industry react as auto sales plateau? And I mean to be talking last segments about some of the pressure points that you're seeing. And certainly, you know, one of the questions we've gotten for an investors of the past few years is why are automakers adding capacity

when auto sales are plaque coming? You see companies take that back, Yeah, you kind of score point for rational behavior whause exactly what you want to see um at this point of the cycle. So there's a lot of capacity coming in and we have to watch that very carefully. Yeah, I gotta look at a chart, and if I want to look at a long term chart to get forward, because they're the only ones that didn't go out of business, I guess I could look at the Europeans as well.

Sell me here, and why is an institution or a long term retail investor I want to own these dogs? I mean they're cyclical, six percent total return for four in the last ten years. Help me? Or are they going to become like the airline stocks where they grow up and finally deliver massive cash flow or is it the same old cyclical story of metal benders in Detroit? Short?

So clear, you know we we don't recommend Ford where neutral on Ford have been for the last few years, but the GM we we do recommend sisty one dollar price target. And here's the thing that most of the profits here come from a segment that is bigger than it's been in many many years. Pick up trucks. Three

players have over market share. Think about how fragmented the global automotive industry is, and you have these companies and this is why we're seeing earnies confirmations in spite of all the pressure points that we talked about in the last segment. Um At the same time, you have, I think, but what is an overlooked that's call a self help story over the longer term where you know a lot of talk to me about autonomous and shared mobility connected cards.

We do a lot of work on this, and a lot of investors tend to you rightfully focus on the suppliers who will provide content on these more advanced vehicles, but there's not as much attention on who the future mobility providers and specifically the mobility networks of tomorrow are going to be. And we think that that in the automaker space, there's gonna be some select opportunities, winners and losers,

and we think GM is one of those opportunities. Me here though with their GM dividend payout ratio, they got five six seven gazillion dollars in free cash flow. They're running it like they did thirty years ago. When do I get a real dividend payout from these people? Yeah?

I mean they're paying on a pretty healthy dividend of about two and a half billion per year, they're buying backstops, they've got a pretty um tight capital allocation policy from all free cash flow going to shareholders and either investing in UM this year incremental six and fimillion dollars just an autonomous UM technology alone. So we actually we're seeing investment and we're seeing some pretty decent kind of capital returns. Thank you so much it Tay mcaulley with US was

sitting greatly appreciate it. Any auto. This is what we love to do. This is what this is what surveillance is about. Jamie Butters one day, who's a genius on the whole Detroit thing, and then an expert like Mr mccaulley. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene, David Gura is at David Gura. Before the podcast, you can

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