Steve Eisman: “They mistook leverage for genius”


Steve Eisman: Quantitative Easing was a failure: it didn’t get corporations to borrow and invest. Rather, they borrowed and bought up their own stock.

 


Steve Eisman: Inequality was cause of Financial Crisis (10:17)

 

Steve Eisman: They made money because of their leverage (debt ratio) and they mistook their leverage for genius (12:19)

 

Steve Eisman was one of the few who predicted the 2008 financial crisis, and he made his name by foreseeing the collapse of subprime mortgage market.

Michael Lewis portrays him as one of the heroes in the bestselling book The Big Short and Steve Carrell plays an outspoken version of him in the Oscar-winning movie of the same name.

EFN:s Katrine Marçal meets Steve Eisman at Claridges hotel in London.


Transcript

00:00
they’re all getting screwed you know you
00:03
know if they care about they care about
00:04
the ballgame or they care about what
00:06
actresses went into rehab I think you
00:08
should try medication no no we agreed if
00:12
it interferes with work you hate Wall
00:14
Street maybe it’s time to quit I love my
00:15
job you hate your job I love my job
00:18
you’re miserable I love my job I love my
00:21
job honey
00:22
mark Steve Iseman welcome to the offense
00:25
I’m glad to be here so you’ve been
00:27
portrayed in a book and in a film what
00:30
did you prefer I would say they were
both fairly accurate as the way I was
back then and let’s just leave it at
00:38
that okay okay so I’ve heard that some
00:42
Brad Pitt’s almost caladium in the film
00:44
it’s not true I got a phone call from
00:47
Adam McKay who was the author director
00:50
of the movie in November of 2015 to say
00:58
that he was writing the movie and that
01:02
there was a possibility that Brad Pitt
01:04
would play me to which I responded that
01:08
the only thing Brad Pitt and I have in
01:10
common is that we both have really good
01:11
hair okay
01:13
so being one a few people who sold the
01:16
financial crash coming how did it feel
01:18
to have see this big disaster unfold and
01:20
not being able to do anything about it
01:23
the analogy I use it’s a little bit like
Noah in the ark yeah so you know Noah’s
on the ark he’s okay and that he saved
his family but he’s not exactly happy
hearing everybody screaming outside
01:38
that’s was sort of my experience all
01:41
right did you think the financial market
01:44
potential market from the financial
01:46
sector would get back get back to
01:47
business and get back to some kind of
01:49
normal as quickly as it did no I didn’t
01:51
expect it would it would happen that
01:53
quickly you know a lot of that was the
01:57
fact that the government backstop the
01:59
system and once the become a backstop
02:01
the system it was what the financial
02:04
markets did come back but the banking
02:05
system has been changed so in the book
02:08
and the film it becomes very clear that
02:09
you’re you betting against the subprime
02:11
mortgage market is not
02:13
just a trade but it’s kind of a moral
02:15
crusade are you still on this moral
02:17
crusade I’m not because a lot has
02:20
changed
02:22
you know dodd-frank I think really fixed
02:25
a lot of things leverage has come down
02:27
enormous ly the Consumer Financial
02:29
Protection Board has been put in place
02:31
to protect consumers I the world’s very
02:33
different from what it was pre-crisis
02:35
hmm but now many of these things are
02:38
threatening I mean Donald Trump has
02:39
promised to repeal vast parts of the
02:41
dodd-frank act for example it’s not
02:44
something I’m in favor of I think that
02:46
will be a big fight you know it’s
02:48
possible the industry is going to get
02:50
deregulated to a degree we’re not going
02:52
to go back to what we where it was so
02:54
for example you know Citigroup used to
02:56
be levered 35 to 1 today its levered 10
03:00
to 1 I feel if we go into some type of
03:03
deregulation maybe you get 2 to 3 turns
03:05
more leverage it’s not something that
03:07
I’m personally in favor of but I don’t
03:08
think it’s a calamity hmm so do you
03:11
think with Donald Trump be president
03:14
today if more than one banker had gone
03:17
to jail for the financial crisis it’s an
03:19
excellent question and the answer is I
03:22
don’t know you know I don’t know
03:24
I’m cold about it I’ve thought about it
03:26
a lot
03:27
I think there’s a definite very strong
03:30
sentiment that it was wrong that nobody
03:34
went to jail I’m not going to say if
03:36
that sentiment is right or not but
03:39
there’s definitely a very strong
03:40
sentiment in the country that that’s the
03:41
case and I think people are very angry
03:44
that nobody did go to jail again I’m not
03:46
going to say whether that’s right or
03:48
wrong and if people had gone to jail I
03:50
think that would have soothed some of
03:52
the hangar that was seen in the election
03:55
so it’s possible that impact of the
03:57
election but it’s impossible it’s
03:58
impossible to say right so now taxes are
04:01
going to be can’t and Finance regulators
04:03
because the populace to campaign against
04:05
Wall Street 1 correct correct okay so
04:09
what do you do with investment then I
04:11
hear you you are investing quite a lot
04:13
in bank stocks well I mean there’s
04:15
there’s two issues there’s what I think
04:18
about finance the financial system and
04:20
what I think about financial stocks and
04:24
the two don’t necessarily
04:26
correlate so with respect to the
04:28
financial system I think that what’s
04:31
been done has been a good thing but it’s
04:34
been very intense bank the dodd-frank
04:36
act and the Fed forcing people to
04:39
de-lever to de-risk etc so from a
04:43
financial system I’m very happy I could
04:47
say very strongly the United States
financial system has never been held
this healthy in my lifetime but it’s
been very painful for financial stocks
because as you de-lever and do risk you
make less money and therefore it hurts
your stock price so the last six years
05:08
or so have been extremely painful for
05:10
financial stocks especially banks as
05:13
they’ve de-levered and dearest well if
05:16
we’re going to go into world where we’re
05:17
going to deregulate and leverage is
05:19
going to go up at least some just
05:22
reverse the story
05:23
so therefore financial stocks should do
05:25
well right okay
05:27
like I said financial system financial
05:30
stocks but you are not necessarily the
05:32
same an interest rates in America are
05:34
going up yes that’s very good for banks
05:37
all right
05:37
so America is kind of moving from a
05:39
monetary stimulus to a fiscal stimulus
05:41
with something but it’s like that’s
05:43
something I’m in favor of yes I think
05:45
it’s a good thing the infrastructure
05:46
investment yeah that’s right until not
05:48
believe that quantitative easing is a
05:52
successful strategy why not there are
05:55
too many negative impacts for from it to
06:00
I mean look it was a noble experiment
06:02
there was no fiscal expansion there was
06:04
no other game in town so I don’t blame
06:06
the Fed for doing it the idea was that
lowering rates would cause people to go
up or out on the risk curve and vest in
the economy and really the other thing
happened was they went out on the risk
curve by buying back their own stock
they didn’t really invest in the economy
06:22
and with lower rates that hurts consumer
06:25
because they makes us money we pay the
06:26
money in the bank so I haven’t you know
06:30
when we started the monetary policy of
06:33
quantitative easing
06:34
us growth was one-and-a-half to two
06:38
percent and after we did it it’s one and
06:41
a half to two percent so in my view
quantitative easing is a failure
06:45
alright so in November you said to the
06:48
Guardian in Europe but Europe is screwed
06:50
you guys are still screwed referring to
06:53
their non-performing loans in the
06:54
Italian depends of the country yes
06:56
are we in Europe still screwed well my
07:00
wife wish I hadn’t said that
07:01
yes so okay oh we in big trouble not big
07:07
it depends on the country you know Italy
07:10
has a very large non-performing loan
07:11
problem I don’t see the Italian
07:14
government doing anything to really
07:16
solve that problem if they like before
07:18
Christmas that was a nasty suppose that
07:20
was just monte de Paz yeah and you never
07:22
like to say monte de Partie because it’s
07:24
such a great name and the world’s oldest
07:27
bank as the world’s oldest bank correct
07:29
and I don’t you know you could try and
07:31
Simmel to deposit ten times fast it’s
07:33
very hard but it’s not really solving
07:37
the problem I mean this is something
07:39
called a Texas ratio which is a ratio
07:42
that bank analyst Achon myself compute
07:45
which is non-performing loans divided by
07:49
tangible book value plus reserves
07:52
basically the numerators all the bad
07:54
stuff divided by the money you have to
07:57
pay for the bad stuff and one of the
08:00
great lessons about bank analysis is
08:03
that one in Texas ratio gets over a
08:05
hundred percent the bank is done and in
08:08
Italy the two largest banks are in paisa
08:11
and you credit and their Texas ratios
08:15
are at ninety percent and every other
08:17
Bank in Italy is over 100 percent so I
08:21
don’t envy Italy the problem ok famous
08:24
ahma is the country there’s the bigger
08:26
than I think it won’t come and I think
08:28
the problem with the banks generally in
08:30
Europe is that they are still under
08:33
capitalized and they they are they do
08:37
not make enough money per dollar
08:39
employed basically European banks don’t
charge enough for this
services they never have and they’ve
tried to make up the difference with
leverage and in a world where you have
to use less leverage that model doesn’t
work
what about Deutsche Bank quite the same
well don’t you make sort of the poster
child for that let’s think about this
09:01
this way so today if a bank has a 1%
09:08
return on asset and is loved or ten to
09:12
one the return on equity is 10% that’s
09:15
the simple formula so you know Citigroup
09:19
for example doesn’t even have a 1% ROA
09:23
but they’re not that far off but
09:27
Deutsche Bank today has a 30 basis point
09:29
ROA they need to improve their
09:31
profitability by more than three times
09:34
there’s no way Georgia Bank on its own
09:37
can improve its profitability three
09:39
times the entire European banking system
09:41
has to be price you know how that’s
09:44
going to ever happen I don’t know but
09:46
until it does your paint banks it could
09:48
be a problem
09:49
they’re going to be a problem so you’ve
09:50
been in here in London for a few hours
09:52
now and you must have realized already
09:54
that the only thing people talk about
09:55
here with breakfast yes
09:57
so what financial risks do you see
09:59
coming from brexit big question is a big
10:04
question
10:04
okay what will happen in March I have no
10:07
idea you have no I really have no idea
10:08
honestly I don’t think and more
10:11
importantly anybody else has any idea
10:12
that it’s going to be an adventure a not
10:15
so it’s going to be a fun adventure but
10:17
it’s going to be an adventure so you
10:18
said that we’re very bad at dealing with
10:20
crises that develop very slowly and you
put the blame on the big financial
crisis of 2007-2008 on income
distribution really do you see that
10:32
changing at all I mean let me explain
10:35
that yes because it’s not intuitively
10:39
obvious how the two are connected so you
10:42
know my thesis is that one of the
underlying causes of the financial
crisis it was bad income distribution so
you know when I say that people’s eyes
generally clays are like you know what
are you talking about
but I think that there’s a
cause-and-effect relationship in that
you know starting in the 90s when income
distribution started to get really poor
in the United States rather than focus
on that and what the solutions worth of
that problem let credit get democratized
that was the euphemism for will will
make loans to people that we didn’t make
loans to before so rather than get
people’s incomes up they let them lever
themselves [take out more debt] and one of the ways people
lever themselves was by taking out loans
on their homes and loving themselves
that way and so I think one of the
causes of the subprime mortgage crisis
is that you know post dodd-frank hard to
get a mortgage loan yeah you know
incomes have only started to start
growing again we’ll have to see what it
does the new administration can do
anything hmm
so it don’t Frank it’s harder to get a
loan but well it’s hard to get a
mortgage why although I don’t think that
I caused a defect of dodd-frank I think
it’s more of an effect of all the fines
that were imposed on the banks for the
mortgage crisis and so the banks I think
not unjustifiably are kind of worried
12:11
about making mortgage loans that they
12:14
might they might not should or should
12:16
not make so the financial crisis what he
12:19
said the main problem was the products
12:22
the tools available or the culture ah I
would say is one of the unsung aspects
of the financial crisis that people have
definitely not written that up about
which is psychology yes and what I mean
by psychology is you have an entire
generation of Wall Street executives who
grew up in the 90s in the early aughts
who really only had one experience which
is they made more money every single
year now what they didn’t really notice
was that as they were making more money
every single year the leverage of their
various institutions was increasing
every single year
now they thought they were making more
money because it was them but really
what was happening as they were making
more money because their institution was
becoming more levered and really what
happened was they mistook leverage for
genius
I wrote that sentence by the way I read
that I do it’s a good son it’s a good
sentence I don’t write a lot of good
sentences but that’s definitely one of
them tweetable yes it’s very good right
if I tweeted I would tweet listen I am
so let’s imagine you went to a Wall
Street executive in circa 2006 and you
said to the CEO of you know pick the
name of your institution and you’d say
dude listen the entire paradigm of your
career is wrong you have to de-lever so
did you ever have a conversation like
that I did I’ve never told this story
before there’s like AI now it can be
told story okay um so the day is
February 2008 and I have a meeting with
the head of Risk Management and one of
the big Wall Street firms we won’t name
them anyone else today but it wouldn’t
matter because I would have had the same
it would have been the same conversation
with any of them
given what was discussion one so I sit
down with a head of risk management of
one of the big farms it’s one month
before Bear Stearns almost to the day
and I say to him you have got to de-lever
and you’ve got to de-lever now because
Armageddon is coming the point of it is
the direct that’s almost a direct quote
I used the word Armageddon and he looks
at me and he says you know I hear what
you’re saying but you know we at X we
can be much more levered to the bank now
back then there was a bank based in
Detroit called net city it was a
medium-sized regional bank and it had a
lot of subprime mortgages so it was a
bit of the topic of the day and so I
said to him you know do you know what
happens if knacks City goes down and he
says no what happens I said nothing the
regulator’s come in they seize the bank
they pay off the depositors they fix the
bank they sell the bank the government
takes something of a loss end of story
do you know what happens if your firm
goes down planet earth burns who should
be more levered and he looked at me like
I was speaking ancient Greek like he
just it was so outside his paradigm it’s
like he didn’t know I was talking about
and I realized it was over that there
was no way these guys were going to do
what needed to be done before the world
blew up but I think we’re going to see
someone to go to jail right
I mean you can have to break up the bank
partido I don’t know I don’t know I have
a feeling in a few years people are
going to be doing what they always do in
the economy tanks they would be blaming
immigrants and poor people it’s not X
equate from you is that Hollywood’s a
great quote it’s a great mark it’s not
yellow it was written by Adam McKay with
the author and director and but did you
16:26
think in those terms back then oh I
16:28
always think in those times always
16:30
thinks in terms of disaster yes why is
16:33
that just I have a very strange DNA do
16:39
you see this paradigm changing at all
16:40
this culture I was told check it steady
16:42
change they’ve been beaten to a pulp
16:44
yeah
16:45
you know the dodd-frank gave much more
16:49
power to the Fed to regulate the banks
16:53
that power was put in the hand of
16:56
Governor Daniel Tarullo and I think he’s
17:00
done a tremendous job of de-levering the
17:03
banks in the United States you know I
17:05
would say the CEOs of the bank’s fought
17:09
him kicking and screaming but I’d say in
17:12
the last year or two they gave up and I
17:15
know you said before that Europe’s done
17:18
not as good of a job with that that’s
17:21
correct why well it’s what your starting
17:25
point so you know just pre-crisis
17:29
Citigroup is levered thirty five to one
17:31
deutsche bank is lowered over 50 to one
17:35
so today’s Citigroup is levered ten to
17:37
one and deutsche bank depending on how
17:40
you calculate is probably levered twenty
17:41
five to one so everybody’s leverage is
17:44
lower European banks have always been
17:48
much more levered than US banks so
17:51
they’re still more levered they just
17:53
left levered than they were right not
17:57
they’re not de-levered enough to my taste
17:59
yes
18:00
but that again we gets back to the Paula
18:03
Mills they’re not profitable enough per
18:05
dollar employed so the regulator’s in
18:08
Europe let them be more levered I think
18:10
it’s a mistake but that’s the way the
18:12
systems it works okay and everyone’s
18:16
asking you what the next one of the
18:17
crisis is going to be so I don’t have a
18:19
dick I know I’m not going to ask you
18:20
money I will ask you that question I say
18:25
you know everybody’s trying to pick the
18:28
next big short and I’ve done that
18:30
already I’m in no rush
18:31
okay thanks a lot Steve Eisman thank you

Why Capital Structure Matters

Companies that repurchased stock two years ago are in a world of hurt.

Thirty-five years ago business publications were writing that major money-center banks would fail, and quoted investors who said, “I’ll never own a stock again!” Meanwhile, some state and local governments as well as utilities seemed on the brink of collapse. Corporate debt often sold for pennies on the dollar while profitable, growing companies were starved for capital.

CHAD CROWE

If that all sounds familiar today, it’s worth remembering that 1974 was also a turning point. With financial institutions weakened by the recession, public and private markets began displacing banks as the source of most corporate financing. Bonds rallied strongly in 1975-76, providing underpinning for the stock market, which rose 75%. Some high-yield funds achieved unleveraged, two-year rates of return approaching 100%.

The accessibility of capital markets has grown continuously since 1974. Businesses are not as dependent on banks, which now own less than a third of the loans they originate. In the first quarter of 2009, many corporations took advantage of low absolute levels of interest rates to raise $840 billion in the global bond market. That’s 100% more than in the first quarter of 2008, and is a typical increase at this stage of a market cycle. Just as in the 1974 recession, investment-grade companies have started to reliquify. Once that happens, the market begins to open for lower-rated bonds. Thus BB- and B-rated corporations are now raising capital through new issues of equity, debt and convertibles.

This cyclical process today appears to be where it was in early 1975, when balance sheets began to improve and corporations with strong capital structures started acquiring others. In a single recent week, Roche raised more than $40 billion in the public markets to help finance its merger with Genentech. Other companies such as Altria, HCA, Staples and Dole Foods, have used bond proceeds to pay off short-term bank debt, strengthening their balance sheets and helping restore bank liquidity. These new corporate bond issues have provided investors with positive returns this year even as other asset groups declined.

The late Nobel laureate Merton Miller and I, although good friends, long debated whether this kind of capital-structure management is an essential job of corporate leaders. Miller believed that capital structure was not important in valuing a company’s securities or the risk of investing in them.

My belief — first stated 40 years ago in a graduate thesis and later confirmed by experience — is that capital structure significantly affects both value and risk. The optimal capital structure evolves constantly, and successful corporate leaders must constantly consider six factors

  1. the company and its management,
  2. industry dynamics, t
  3. he state of capital markets,
  4. the economy,
  5. government regulation and social trends.

When these six factors indicate rising business risk, even a dollar of debt may be too much for some companies.

Over the past four decades, many companies have struggled with the wrong capital structures. During cycles of credit expansion, companies have often failed to build enough liquidity to survive the inevitable contractions. Especially vulnerable are enterprises with unpredictable revenue streams that end up with too much debt during business slowdowns. It happened 40 years ago, it happened 20 years ago, and it’s happening again.

Overleveraging in many industries — especially airlines, aerospace and technologystarted in the late 1960s. As the perceived risk of investing in such businesses grew in the 1970s, the price at which their debt securities traded fell sharply. But by using the capital markets to deleverage — by paying off these securities at lower, discounted prices through tax-free exchanges of equity for debt, debt for debt, assets for debt and cash for debt — most companies avoided default and saved jobs. (Congress later imposed a tax on the difference between the tax basis of the debt and the discounted price at which it was retired.)

Issuing new equity can of course depress a stock’s value in two ways:

  1. It increases the supply, thus lowering the price; and it
  2. “signals” that management thinks the stock price is high relative to its true value.

Conversely, a company that repurchases some of its own stock signals an undervalued stock. Buying stock back, the theory goes, will reduce the supply and increase the price. Dozens of finance students have earned Ph.D.s by describing such signaling dynamics. But history has shown that both theories about lowering and raising stock prices are wrong with regard to deleveraging by companies that are seen as credit risks.

Two recent examples are Alcoa and Johnson Controls each of which saw its stock price increase sharply after a new equity issue last month. This has happened repeatedly over the past 40 years. When a company uses the proceeds from issuance of stock or an equity-linked security to deleverage by paying off debt, the perception of credit risk declines, and the stock price generally rises.

The decision to increase or decrease leverage depends on market conditions and investors’ receptivity to debt. The period from the late-1970s to the mid-1980s generally favored debt financing. Then, in the late ’80s, equity market values rose above the replacement costs of such balance-sheet assets as plants and equipment for the first time in 15 years. It was a signal to deleverage.

In this decade, many companies, financial institutions and governments again started to overleverage, a concern we noted in several Milken Institute forums. Along with others, including the U.S. Chamber of Commerce, we also pointed out that when companies reduce fixed obligations through asset exchanges, any tax on the discount ultimately costs jobs. Congress responded in the recent stimulus bill by deferring the tax for five years and spreading the liability over an additional five years. As a result, companies have already moved to repurchase or exchange more than $100 billion in debt to strengthen their balance sheets. That has helped save jobs.

The new law is also helpful for companies that made the mistake of buying back their stock with new debt or cash in the years before the market’s recent fall. These purchases peaked at more than $700 billion in 2007 near the market top — and in many cases, the value of the repurchased stock has dropped by more than half and has led to ratings downgrades. Particularly hard hit were some of the world’s largest companies (i.e., General Electric, AIG, Merrill Lynch); financial institutions (Hartford Financial, Lincoln National, Washington Mutual); retailers (Macy’s, Home Depot); media companies (CBS, Gannett); and industrial manufacturers (Eastman Kodak, Motorola, Xerox).

Without stock buybacks, many such companies would have little debt and would have greater flexibility during this period of increased credit constraints. In other words, their current financial problems are self-imposed. Instead of entering the recession with adequate liquidity and less debt with long maturities, they had the wrong capital structure for the time.

The current recession started in real estate, just as in 1974. Back then, many real-estate investment trusts lost as much as 90% of their value in less than a year because they were too highly leveraged and too dependent on commercial paper at a time when interest rates were doubling. This time around it was a combination of excessive leverage in real-estate-related financial instruments, a serious lowering of underwriting standards, and ratings that bore little relationship to reality. The experience of both periods highlights two fallacies that seem to recur in 20-year cycles: that any loan to real estate is a good loan, and that property values always rise. Fact: Over the past 120 years, home prices have declined about 40% of the time.

History isn’t a sine wave of endlessly repeated patterns. It’s more like a helix that brings similar events around in a different orbit. But what we see today does echo the 1970s, as companies use the capital markets to push out debt maturities and pay off loans. That gives them breathing room and provides hope that history will repeat itself in a strong economic recovery.

It doesn’t matter whether a company is big or small. Capital structure matters. It always has and always will.

Hedging with Bitcoin: Everyone Should Have 1% of their Net Worth in Bitcoin

Chamath Palihapitiya: UWaterloo Electrical Engineering Grad

Everyone Should Own 1% of their Net Worth in Bitcoin

 

Hedge Funds are Levered 12-15 Times

Transcript

00:00
and our special guest hostess our social
00:02
capital founder and virgin we people
00:05
have been caught at virgin Galactica
00:06
which i think is a good name because it
00:08
merges all the different culture /
00:13
chairman trim off probably Hypatia it’s
00:16
good to have you here
00:17
great to see you you got more things
00:19
going on this is just one of them but
00:20
this is yeah you know compared to the
00:22
last time you were on it’s like why are
00:24
you doing this pie-in-the-sky type stuff
00:26
next thing you know the stocks worth
00:28
like eight billion dollars or something
00:30
for a market the real thing
00:31
the real thing it was a real thing when
00:33
we did it I told we were talking
00:35
off-camera about you know Tomas has to
00:37
wait like everyone else to go up and I
00:38
said you can put me on the waiting list
00:40
can I be like ten millionth person you
00:43
said go before I’ll take you I want to
00:47
see it film it when you go send it to
00:50
IMAX and I’m gonna go in and experience
00:52
it like right over here at the New
00:53
Jersey Science Center it’s close enough
00:56
for me US equity futures at this hour I
00:58
guess I’m going up 77 points back up we
01:01
were just unchanged her down again been
01:04
all over the map this morning
01:06
the SP indicated up about 12 Nasdaq
01:09
rebounding a little bit this morning of
01:12
32 maybe the most important thing to
01:15
watch is that 10-year and earlier we
01:17
were down under 135 and now our 137 as
01:20
that goes up it’s kind of a fear gauge
01:23
of for Believe It or Not for the
01:26
pandemic and the coronavirus there the
01:28
more the yield goes down to all-time
01:29
lows the more you worry about global
01:33
growth slowing because of a possible
01:35
pandemic okay let’s show you how we got
01:37
here right now markets began the day
01:40
yesterday in the green socks are
01:42
positive out of the gate if you recall
01:44
at 9:30 with the dow up nearly 200
01:47
points at one time then fortunes changed
01:49
and indexes fell throughout the day with
01:51
investors nervous about the coronavirus
01:52
cases in new countries and then the cdc
01:55
came in and coming out and saying the
01:56
global spread of the illness suggesting
01:58
a pandemic was likely and that everybody
02:00
should get prepared the taliban ended
02:02
down 879 points add that to monday’s
02:06
thousand point to call it a rout now and
02:09
we’ve now seen the Dow’s biggest two-day
02:12
point drop ever with one
02:13
point seven trillion dollars in market
02:15
cap just wiped straight off the sp500
02:18
that index down now more than six
02:20
percent for the week the only two thirds
02:22
of stocks in the S&P are now in
02:24
correction territory the tech sector now
02:26
in correction territory is well down
02:27
more than ten percent in just the last
02:29
week and of course bond yields as Joe
02:31
was mentioning continuing their own
02:33
slide the 10-year note hitting an
02:35
all-time low of just one point three
02:37
percent the 30-year bond hitting an
02:39
all-time low under 1.8 percent that’s
02:41
more than a full percentage point lower
02:43
than last Friday’s close and we are
02:46
looking up at the moment but we’ll see
02:49
where things are the four Chema the most
02:53
yeah the most recent stuff is the Virgin
02:55
Galactic the the report don’t on
02:58
earnings in and where things are headed
03:00
but we’ve got to just we all have
03:03
feelings about coronavirus and you’ve
03:05
got a lot of investments all over the
03:07
world all over the world in a lot of
03:09
different areas so I got to ask you
03:10
about our guest OSes Tomas probably –
03:11
Tia founder and CEO of social capital
03:13
also chairman of Virgin Galactic but a
03:16
social capital has tentacles in a lot of
03:19
different yeah places and and this is on
03:21
everyone’s mind obviously when the
03:23
market goes down almost 2000 points in
03:25
two days yeah what do you make of it you
03:28
know I think that we are at a really
03:30
important inflection point the thing
03:32
that we don’t know quite honestly is
03:34
what is the real denominator in China
03:35
like this is the very complicated thing
03:37
that nobody knows we’ve been told it’s
03:40
in the tens of thousands but the reality
03:42
is this number could be in the hundreds
03:44
of thousands and it could be in the
03:45
millions and then you have to account
03:47
for all the people that are latent ly
03:49
carrying coronavirus not just within
03:50
China but all over the world so if you
03:53
ask me the deaths are hard to hide so
03:55
there’s been several thousand of those
03:57
but but the denominator probably tells
03:59
me that if if it’s in the hundreds of
04:01
thousands or Millions
04:02
then what we’re really dealing with is
04:03
something that’s akin to a flu right now
04:05
that’s much more of a tractable thing
04:08
because we know how to deal with flus
04:10
although what if it’s two to five times
04:12
the mortality rate as we’ve had some
04:15
people to die this is why I think it’s
04:18
really important to understand what the
04:19
denominator is hardly the denominator is
04:21
high enough it’s the flu if the
04:23
denominator is as low as it is but then
04:26
the viral spread and
04:27
viral coefficient is as fast as we’re
04:29
being told this is a really serious
04:30
problem too late right and it’s it’s
04:33
it’s not a question of too late but I
04:34
mean it’s going to it’s gonna shut down
04:36
not just how you know countries work
04:39
cities work but borders and it’s going
04:42
to be something that we haven’t really
04:43
seen in a very long time and that’s
04:45
going to be the only thing that a
04:46
responsible government should do to
04:48
react so is a responsible investor what
04:50
do you do well it’s a really complicated
04:52
question so you know the problem is I
04:54
have billions of dollars a private
04:55
company equity I can’t do anything about
04:58
it you know just kind of holding you
05:00
know billions of dollars of no wonder
05:02
you dress like that you’re you you of
05:05
billions of dollars of equity there’s
05:10
nothing I can do about that so how do I
05:11
hedge how do you hedge
05:13
how would you head you have some public
05:15
marketing I have I have a fair amount of
05:16
concentrated public market exposure and
05:19
increasingly I’m trying to find
05:20
opportunities where I can just short
05:22
broad base indices and just get some
05:25
hopefully relief and then the rest of it
05:28
is I come back and I ask myself as long
05:31
as I can re underwrite the things that I
05:33
own just remember that I’m not owning
05:35
stocks you know kind of the Buffett
05:37
thing I own companies and as long as I
05:39
can maintain some semblance of normalcy
05:41
this will take eight to nine months I
05:44
think to roll its way through the
05:46
markets and for the markets to rewrite
05:48
and probably at the tail end of this a
05:51
net buyer and right now if I can just
05:53
you know manage my own psychology for
05:57
the next five or six months by not
05:59
losing as much as I think I’m going to
06:00
lose I think it’ll feel like a it means
don’t be leveraged right

I’ve never wrong I mean this is the
thing by the way can I just say
something I I’ve been meeting a lot of
great folks the last three days here
every time I come to New York I meet
some of the best hedge funds and one of
the things that really struck out to me
this time around is how levered
everybody is I mean folks are running
five six seven eight nine turns
if
they’re actually running something
that’s more liquid like a you know
typical macro strategy they’re running
12 13 14 15 times levered
that song I
have never run an iota of leverage and
I’ve always felt like I’ve been on the
when I see people printing these
enormous gains and I thought to myself
why am I being so conservative but in
moments like this I feel really really
cost math you’re the first person that’s
kind of said that on this set that there
are a lot of hedge funds that are super
levered up out there
and that caught you
off guard that to me sounds like a
potential problem when you see activity
like we’ve seen the last couple of days
I mean you know that this is a much
bigger problem because I think just the
hedge fund industry has a completely you
know misaligned upside down business
model so they try to have very very
small exposures but then they lever the
whole thing up to make the whole thing
work they’re not necessarily hedged to
begin with there’s a ton of correlation
and when things like this happen and
everything rewrites and you’re you know
07:21
running five six seven eight times then
07:23
the selling gets exacerbated so the
07:25
thing that we haven’t seen is what if
07:28
that happens because I think it’s fair
07:30
to say that you can oh you’ll go risk
07:32
off and people will take money out of
07:34
the market that’ll represent you know
07:37
the first maybe eight hundred points in
07:39
the Dow or the first thousand points in
07:41
the Dow but then if this thing moves
another two or three thousand points
it’s just forced sellers
okay let’s I
want talk space because it’s so exciting
by the way I see space we Eddie news the
07:51
President Trump is going to hold a news
07:52
conference about about coronavirus at
07:55
6:00 p.m. this evening I did ask him
07:57
about that great for it was a so glimmer
08:00
in our eyes in Davos and that was my
08:02
first question that’s a man I know I’ve
08:04
been worried and he said Larry coming
08:06
about to say he’s not worried obviously
08:07
the CDC has a very different view of
08:09
that but well a lot of people get
08:11
focused on what the president has to say
08:13
so choo-choo moth you’ve taken companies
08:17
from you know again a glimmer in
08:21
someone’s eyes all the way to where
08:22
they’re their major companies so you
08:24
know about how things get valued is
08:26
space ahead of it as is verging ahead of
08:29
itself if you’ve been surprised at
08:30
what’s happened based on the
08:31
fundamentals and where the market cap is
08:33
right now is it a story stock in your
08:35
view well can I take a step back and
08:37
actually just give you the set up so and
08:39
I think this set up not it doesn’t just
08:41
apply to virgin but it also applies to
08:43
Tesla and those two things are actually
08:46
the most similar stories and the set up
08:48
goes along the following lines first
08:50
let’s look at the fixed income markets
08:51
for the last ten years
everything that is look like a nail has
been dealt with the following hammer
which is print money cut rates you know
the Patriots when the Superbowl print
money cut rates Trump tweets print money
cut rates coronavirus print money cut
rates and while that’s happened rates
have gone to zero and there’s trillions
of excess capacity just sloshing around
in the fixed income side then on the
equity side the number of companies you
can invest in has shrank by 1/3
there’s really no growth outside of
multiple expansion and there’s no growth
outside of buybacks
so everybody crowds into the 5
technology companies right the fang
stocks which represent 20% of the market
cap of the S&P so when you put those two
things together there’s a set up where
there’s no real growth there’s no unique
stories and there’s nothing that can
give you long term outlook so then when
a company comes along that has a unique
narrative and is trying to do something
that is differentiated high margin and
could theoretically grow for 10 years
where there’s an enormous amount of
consumer demand these things get
09:58
repriced in ways that are
10:00
non-traditional sounds to me like you’re
10:02
saying yes it’s a story stock but that
10:04
doesn’t mean that it’s not gonna turn
10:05
into something huge I I really believe
10:08
in virgin I mean I didn’t invest the
10:09
amount of money that I did or put myself
10:11
on the line to do this deal because I
10:13
did the ones that first like of it’s not
10:15
gonna be June anymore right well the the
10:17
goal is to fly Richard on a commercial
10:19
flight this year this year
10:21
yeah we’re no longer do yeah I think the
10:23
point is that you know setting an
10:24
arbitrary date for something like
10:26
spaceflight is not the right thing to do
10:27
I think you want to move forward in a
10:29
plan not move backwards from a date and
10:31
give that team who are you know the best
10:34
scientists from NASA JPL gives them the
10:37
chance and the opportunity to just build
10:38
an exceptionally beautiful experience
10:40
the thing for you and you just said it
10:42
is we want you to not say you want to be
10:44
the millionth customer that you want to
10:45
be the ten thousandth customer or the
10:47
thousandth customer did you say Sorkin
10:48
what you said ten thousands of customers
10:50
I said a multiple of lata no over 8,000
10:54
because you said we think that we said
10:55
yeah okay so you’re the hey by the way
10:57
guys like and what George suggested is
10:59
they’re making amazing progress like you
11:01
know working through the FAA working
11:03
through the technical capabilities
11:05
flying the machines back down to
11:07
New Mexico and then on top of that all
11:10
this demand keeps piling up 124 percent
11:13
increase in the number of people that
11:14
want to buy tickets we’ve now started to
11:17
accept pre reservations or if those
11:19
8,000 people just those 8,000 people
11:22
doesn’t seem like a lot but when you
11:24
think that the price could be around 300
11:26
grand
11:26
that’s 2.4 billion of pipeline a real
11:30
quick question is there an insurance
11:31
program ya know for individuals I
11:33
believe there will be yeah so if
11:35
something tragic were to happen do you
11:38
know what the payout would be relative
11:39
to a regular airliner and I just curious
11:42
because I think that’s actually I mean I
11:44
don’t know what people think about it
11:46
like that I don’t know but I do know
11:47
that there will be a really robust
11:49
insurance very quickly Mike Santoli
11:50
brings up a good question to just point
11:52
out that when you bought the into the
11:54
SPAC it was at half the valuation of
11:56
like one and a half billion now it’s a
11:58
lot harder did you take Richard Branson
12:01
to the cleaners or is this current
12:04
valuation overdone or did things just
12:06
change that drastically no neither I
12:08
think that I think Richard and I found a
12:10
way for us to do a deal we give to
12:11
remember like you know we put 800
12:14
million dollars into the business I mean
12:16
between secondary and primary so you
12:19
know there aren’t a lot of people that
12:20
can are walking around with 800 million
12:23
dollars burning a hole in their pocket
12:24
so we found a fair valuation for him and
12:26
for me I think the the other thing
12:28
though Becky that happened is when you
12:30
take these things that I just talked
12:31
about you know the dearth of
12:33
opportunities and the fact that there’s
12:34
so much money on the sidelines and then
12:36
apply it to a unique story I think what
12:38
happened in the fall was people finally
12:40
woke up to Tesla and then people started
12:42
to say what else
12:44
Kim looks very similar to this I mean
12:45
you have to remember you people missed
12:47
out on a 75 X on Tesla over the last
12:50
decade I didn’t I was a proponent of the
12:53
Tesla converts I’ve been shredded on
12:54
Twitter for years and years being a
12:57
supporter of Elon in that company we
12:59
turned out to be right the shorts turned
13:00
out to be wrong and I feel just as
emotionally invested and intellectually
invested in virgin Leon what do you say
to like the 50 million plus people that
believe that if you read the policies
and take the label of socialism aside he
really looks more like a social democrat
that’s akin to a politician in the noir
country’s than he does to you know Fidel
Castro 2.0 I don’t know that’s not how
Bernie Sanders sounds to me my main
hang-up has been all along the the
constant attacking of wealthy people
the villainizing of the billionaire
class now I luckily got into the
billionaire class but I’m one of these
guys I’m gonna give it all the way I
don’t care much about money okay I don’t
I don’t get it you know I look at a Mike
Bloomberg the way he’s treated in these
debates whether he’s attacked Mike
Bloomberg new unemployment he was lost
out in a power struggle with linguas his
mid-30s he had this vision of building a
machine he built a ubiquitous machine
that you need if you’re in the
investment business he’s built the 60
billion dollar at worth he gave away
nine billion dollars to charity on his
own well before he became a PO you know
and involved in a big political way he
did a fabulous job as mayor of New York
okay in the biggest city in the world
and they’re attacking him and he had a
great line in the last night last night
where he said I’m the only guy in this
platform that built the business and he
oh they all looked at each other
blank Bernie more Bernie Sanders is not
worth his life EE and I just think at
the end of the day look i-i’ve been
equally blessed as you so I’m in the
same fortunate position urine but at the
end of the day if the worst thing that
happens is people name call us a little
bit and call us billionaires and detach
that’s not such a it’s not the worst
thing in the world if it allows us to
wake up to the reality that a lot of
people haven’t been able to participate
in what has really been you know an
equity market expansion where you know
14:59
folks like you and I who can be you know
15:01
long equities in a massive way levered
15:03
up you know access to certain products
15:05
can do well to a degree that everybody
15:08
else can it’s so it’s got people let’s
15:11
just acknowledge that that’s happened
15:12
and you know it’s it’s it’s it’s not an
15:14
easy it goes beyond it goes beyond that
15:18
it goes beyond that I believe in the
15:21
progressive income tax structure I
15:22
believe rich people should pay more okay
15:25
what we have to do as a nation is agree
15:27
upon what to the maximum marginal tax
15:29
rate be on wealthy people that will
15:31
define the revenue yield to the
15:32
government and we have to saw
15:33
the government to that revenue the yield
15:34
now I’m prepared to work six months a
15:37
year for the government the six months
15:38
of myself that’s a fifty percent
15:40
marginal tax rate unfortunately
15:42
depending on what state you live in you
15:43
already passed there between state and
15:44
federal income taxes and as it gets to
15:47
be confessor Kotori there’s a great
15:49
comment that I read recently by Thomas
Sowell he said since this is an era when
many people are concerned about fairness
and social justice
what is your fair share of what someone
else has worked for okay I’m willing to
give pay a 50% mark okay I have no
problem with that
16:06
okay I just think that the dialogue is
16:09
destructive it’s not inclusive so I give
16:12
you a perfect example I spoke at the
16:14
delivering alpha conferences number of
16:16
months ago nothing whatsoever was said
16:18
about politics the moderator Scott
16:20
Wapner the question after I gave my
16:22
formal presentation he said what do I
16:24
think the marker would do if the
16:26
Elizabeth Warren was elected president
16:27
and I said who go down 25% I think you
16:30
had a different view I’ve heard you were
16:32
previously okay and the next day she
16:36
tweets Leon I’m only looking for 2% give
16:39
others a chance of the American dream
16:40
she has no clue about anything about me
16:42
okay I’ve given away 700 million dollars
16:45
in less three years to charity that’s
16:47
why Rick it let me finish please if I
16:49
may I yeah I said firing kids to college
16:51
in Newark New Jersey I pay their their
16:54
tuition okay
16:55
and basically I decide to take the high
16:58
road okay Michelle Obama said when they
17:01
go low we go high I said they’re rather
17:03
well written letter very respectful very
17:06
conciliatory with a closing paragraph
17:08
that always has to work together deal
17:10
with the issues but there are issues I
17:11
don’t deny that there are issues my
17:14
approach to resolving the issues is to
17:16
education and hopefully faster economic
17:18
growth what does she do she puts out a
17:21
you know excuse me common
17:24
insider trader and own stock in navien
17:26
very constructive The Wall Street
17:28
Journal wrote an editorial page coming
17:30
that day she said that said mr. Koopman
17:32
won the case what is Sheik accusing them
17:34
them but it was nothing constructive she
17:37
was a politician in the worst sense of
17:38
the word
17:39
okay and that we need people that see
17:42
the issues I like the fact that certain
17:46
Mike Bloomberg was a Republican and
17:47
certain respects as a Democrat these
17:49
voting issues okay we have to avoid the
17:53
labels we have to work together in a
17:55
cooperative manner and all this income
17:57
differentiation it’s been really the
17:59
result of monetary policy response but I
18:03
want to add one other piece to it and
18:04
I’ll speak not for you but but I’ll add
18:07
another element to this which is
18:09
assuming that a Bernie Sanders or an
18:12
Elizabeth Warren were put into office
18:14
and and and I know that you’re you’re
18:17
okay with maybe some of the the
18:20
criticism that the vocal criticism that
18:23
they have about built the billionaire
18:25
class but the question is from a policy
18:27
perspective are you okay or encouraging
18:30
of that policy and to the extent that
18:33
you can appoint the head of the
18:36
Department of Justice and and say you
18:39
know please go look at these individuals
18:40
if you could say you know if you can
18:42
appoint the head of the SEC who is going
18:44
to maybe look into various companies in
18:47
a more aggressive way I’m not saying
18:49
they shouldn’t I’m just I’m just raising
18:50
the issues even if you have a completely
18:52
divided Congress how you see this
18:55
playing itself out if it doesn’t matter who gets elected
in my opinion it does I I have sort of
generally lost faith in the power and
the impact of the presidency in domestic
policy for years it is generally been
the case that the President of the
United States is given one hall pass to
do one meaningful piece of legislation
in the first two years of their term at
which point the American population
either flips the house or flips the
Senate and create stasis and it has
happened relatively predictably now and
I think that it will continue to happen
and so the question is what do we think
is the most likely thing to happen when
Trump came into office the only thing
that they were able to get done in which
Republicans were able to corral the
wagons was tax cuts and tax change but
everything else basically just came to a
grinding halt Obama was the same thing I
don’t agree with that I think that the
wouldn’t Trump I’m not a Trump fan okay
but I believe the man deserves
a certain amount of credit for what was
going on you know I don’t like his style
and so at the end of the day you have to
decide you vote your values you vote
your pocketbook I’m gonna stage in my
life where I want to vote my values my
values tell me that it is wrong to call
Mitt Romney a jackass it is wrong to
tell reptillus and he’s dumb as a rock
it’s wrong to denigrate John McCain who
was a true war hero it’s wrong basically
to say John Dingell is looking up and
not down even though I had totally
different political views to him okay
but the president deserves credit okay
when he came in it was like they took
the foot off to throw the economy the
economy and the stock market is at
record high unemployment for the
minorities is a record low overall
employment economy is at record high
we’ve opened up a long overdue
constructive dialogue and trade with
20:50
China we focus attention or illegal
20:53
immigration all this is good stuff the
20:55
problem with it is his deportment and I
20:58
analogize him to Ronald Reagan Ronald
21:01
Reagan was very beloved president okay
21:03
when Ronald Reagan ran for office he
21:04
said I had a three-prong program prong
21:07
one get the government off the backs of
21:08
people and I do that reducing taxes and
21:10
regulations you know for Trump you said
21:13
I’m going to restore the lost prestige
21:14
United States after the Carter years and
21:16
I do that by rebuilding our defense
21:18
ditto for Trump the crux of the matter
21:22
is even if you Softsoap Bernie Sanders
21:25
policies and say it’s a Nordic style
21:27
democratic socialism it would still
21:30
reverse a lot of these positive things
21:33
that has happened it’s that simple 60
21:35
trillion degree New Deal or 50 trillion
21:38
dollars on Medicare for all is not just
21:41
having a conversation about non that has
21:43
not dissipated a lot of young people
21:49
talking about we don’t need about a
21:54
gridlock in government we don’t
understand economics anymore to not
understand the capitalism got us where
we are so you can have these great
high-minded Nordic social democratic
conversations but it’s a dangerous place
you’re trying to take
you say we can’t get there so just have
the conversation but why not acknowledge
that it’s capitalism and it’s free more
time somebody taught us where we are
exact we’re a lot to have a diversity of
22:19
opinions okay that’s an entire cohort of
22:22
young people you’ve got Bernie Sanders
22:24
leading the pack in the Democratic field
22:26
and that is a problem for Democrats my
22:28
my that’s okay that he’s going to get
22:31
the nomination that’s fine I think you
22:33
dig Doug Doug or I take a lot of energy
22:37
in learning about what’s happening I
22:40
take a lot of energy reframe is stuck
22:42
with Bernie versus Trump that could be
22:45
the end result of all this happen let me
22:47
do this we weren’t gonna talk about it
22:51
basically when Bob first got the job
22:57
people thought of him dare I say as a
22:59
suit they did not think of him as some
23:01
kind of creative genius they thought of
23:03
him as a business person so to some
23:05
degree che Peck has that same kind of
23:07
reputation how important do you think it
23:09
is for a CEO of a media company or media
23:13
entertainment company in this day and
23:15
age to be both a the the numbers
23:18
business guy if you will and also a sort
23:21
of left-brain right-brain situation
23:25
well what’s particularly interesting in
23:27
this transition is Bob Iger saying he’s
23:30
going to spend the next year and a half
23:31
or however long it is being an executive
23:34
chairman ‘those focused mainly on
23:37
creative because as you say he came in
23:40
as not as the creative person he came in
23:44
as a business suit so to speak in the in
23:47
the Hollywood jargon I think Bob Meyer
23:51
has great taste he has great great
23:53
fingertip feel you know for both
23:56
television and stars but he’s not one of
23:59
these Hollywood people who is known as
24:02
let me be the creative product person so
24:06
it’ll be interesting to see that he
24:07
decided to cast himself in that role for
24:10
the next year and a half all right
24:12
samatha you’re making faces what are you
24:15
thinking I mean Bezos has this term
24:18
called narrative fallacy which is after
24:20
something works you look backwards and
24:21
you kind of
24:22
invent whatever you want to say to make
24:24
yourself seem amazing you know that’s a
24:27
business that I think frankly more than
24:29
anything else has proved the value of
24:31
really good M&A by using the highly
24:33
levered security that’s what they’ve
24:36
done because when you look at Pixar
24:37
Pixar was moderately successful
24:40
the stock was just kind of flat for
24:42
three years once they tagged Marvel then
24:44
it was a game changer and so that single
24:47
acquisition was I think the
24:49
transformational event and so in my mind
24:51
what it proves was the value of M&A and
24:53
so if you have a balance sheet like
24:55
Disney I would kind of think why not put
24:58
somebody who has an eye more towards a
25:00
transactional impetus than an
25:03
operational focus and so you have to get
25:05
you give him credit for for I mean you
25:07
got people set us way too much to pay
25:09
for Pixar I mean you have to give Agri
25:11
credit for doing the M&A deals it’s an
25:16
incredibly successful in the M&A guy and
25:18
now wants everyone bows to but even
25:22
Spielberg and I think Britain betrays
25:24
what he’s really good at but that’s
25:25
brilliant but if the new guy is an
25:27
Operations guy you’ve built up this huge
25:28
company now you need somebody who knows
25:30
how to run it well well I don’t say next
25:32
step or you think it’s no I think Disney
25:34
isn’t he is it’s such an excellent
25:36
exceptional example of what an old-line
25:39
industry company needs to do which is
25:42
you need to find where the puck is going
25:44
and then aggressively acquire it not do
25:47
it organically
25:47
you can’t do it organically it’s not
25:49
possible even Facebook can’t do it
25:51
organically they need to acquire so
25:53
facebook can’t do it if Google can’t do
25:55
it and their requirement why do you and
25:57
if you listen to the words of Bob Iger
25:59
yesterday he said look we have now all
26:01
of our assets in place in fact I thought
26:03
the suggestion that he was making was
26:05
definitely though a difficulty the
26:07
domore M&A know the difficulty is now
26:10
what they’re finding and this was
26:11
Netflix that’s going to do this is
26:13
Netflix has transformed the court
26:15
cutting streaming business into a
26:17
consumer surplus business it’s going to
26:19
basically take margins to zero and as
26:21
they do that and as they fight for
26:23
subscribers the only way to survive for
26:25
somebody like Disney is to acquire and
26:27
to bolt on acquisitions over and over
26:29
and over again so I think you probably
26:32
need someone who has the wherewithal the
26:34
risk tolerance and the vision to take
26:36
that risk
26:37
this our tamale Hypatia Virgin Galactic
26:40
chairman and social capital CEO got a
26:42
couple quick questions for you one this
26:45
was a SPAC that you did do you believe
26:47
and we talked about this used to talk
26:49
about this as being the IPO 22.0 yeah do
26:51
you think this is actually changing the
26:53
game in terms of how a company to grow
26:55
publicly yeah completely I think that
26:57
what we showed was that there’s a lot of
26:59
high-growth companies in Silicon Valley
27:00
and increasingly as well in Europe and
27:03
in China where this is actually a much
27:05
better way to go public it’s better than
27:06
the traditional IPO and it’s better than
27:08
a direct listing even though it looks
27:10
like mr. Branson may have given you a
27:11
lot for this I think that what you’re
27:14
gonna see is like back to you the price
27:15
action right has been nothing but
27:17
positive like what you don’t want to
27:19
have happen is a complete miss pricing
27:20
on the front end where people are locked
27:23
up volatility moves and the people that
27:25
make the money are the people that
27:27
entered in at the point of the IPO
27:30
because of relationship with ranks and
27:31
otherwise we unlocked
27:33
everybody from day one and we allowed
27:35
everybody to participate up to you know
27:37
42 bucks a share wherever it went to um
27:40
let me ask a couple other questions we
27:41
you’ve talked about Tesla briefly but
27:43
not really which is how high do you
27:45
think you can go since I know you’re
27:47
long yeah I mean I you know I bought
27:49
these converts a long time ago I was it
27:51
was kind of like my big picot zone you
27:53
know three years ago
27:55
I really believe in this business
27:56
because what they’re now moving into is
27:59
beyond cars and transportation but
28:02
sustainability and I think that you know
28:04
strip away whether you believe in
28:06
climate change or not it doesn’t matter
28:08
what they offer is a set of products
28:11
that I think will be increasingly in
28:12
demand how much are your convertibles
28:14
worth what’s the stake you have right
28:16
now good it’s a large number are you
28:19
surprised to see the stock run so
28:21
quickly
28:21
so fast this year yeah you know that’s
28:24
why I actually started to put together a
28:26
framework of like what is actually
28:27
happening and this is what I said before
28:29
with rates at zero with trillions of
28:31
dollars of printed money with no
28:32
investable equities companies that are
28:35
unique in and of one Tesla Virgin
28:36
Galactic are going to have a bid and
28:38
then if you do something that really
28:40
captures consumer imagination retail is
28:42
now going to be a huge part of it ESG
28:45
rila marketing it’s a complete fraud
28:47
complete fraud it’s so ridiculous
28:49
governance has been a
28:50
that’s useful but you know this idea
28:52
that you’re gonna get a stamp that says
28:54
oh listen like you know my supplier you
28:56
know I’ve offset their carbon credits
28:57
and now I understand my AM it’s a joke
29:00
it’s jargon and I think what people are
29:02
doing right now is using it as a way to
29:05
you know for example like if you can
29:08
paint yourself as ESG in Europe you can
29:10
essentially borrow money from the ECB at
29:12
negative rates I’m gonna come over but
29:20
but I I personally believe in climate
29:23
change I know we need to do something
29:24
and so the problem with the SG is it’s
29:27
gonna take years for this over this
29:29
alone you hear JP Morgan yesterday says
29:31
no they’re not gonna finance fossil
29:33
fuels or you hear at Bastion at Delta
29:35
say he’s gonna spend 100 million dollars
29:36
of real money by the way effectively
29:38
buying carbon offsets and investing in
29:39
new biofuels every year you say two
29:42
things
29:43
JP Morgan by saying what they said will
29:46
be able to borrow billions of dollars
29:48
from the ECB at negative rates you think
29:50
that’s what that is
29:51
it’s obviously what it is it doesn’t
29:53
have to work they don’t need to do
29:55
anything they are now getting free money
29:56
from Europe and basically being able to
29:58
say this and you don’t think they would
29:59
get that money otherwise no cuz Europe
30:01
basically has this condition where you
30:02
can issue green bonds and you have all
30:04
of this you know
30:05
checks and balances at the– so that’s
30:07
one thing okay it’s going to be very
30:09
important for you to really be able to
30:11
diligence the supply chain all the way
30:13
down to the supplier and the supplier
30:15
supply Microsoft is very large in for
30:17
example these are these are useful
30:20
statements it’s great marketing but
30:23
again it’s a lot of sizzle no steak I
30:25
think that what we need to do is invest
30:28
in actual companies that can go and
30:30
count right and can go and you know
30:34
legitimize the actual impact that
30:38
companies have so that you can do the
30:39
right amount of carbon offsets and then
30:42
you have to have a legitimate exchange
30:43
where you can actually trade them you
30:44
really believe in climate change you got
30:46
to do some hard work now by the way
30:48
Virgin Galactic is gonna be throwing up
30:50
a lot of carbon do you buy offsets
30:51
collective yeah we have a plan to sort
30:55
of get to what you do why if it’s
30:57
important he believe he just said he
31:00
believes it the other stuff was great
31:02
I’d need a cigarette in fact
31:04
after that it was so good for me but God
31:06
tell me how crypto does that ever become
31:10
a an actual means of transacting yeah it
31:14
does still everything I said crypto am I
31:18
allowed to say crypto I hope I’m allowed
to say crypto can I bring it up I would
really like Bloomberg to take this
article that I wrote for them into 2013
out of their pay wall but basically you
know my view at the time which I’ve held
since today haven’t changed is that
everybody should problem have 1% of
their assets in Bitcoin specifically I
still believe that today and I think it
is just a fantastic hedge so if you go
ack to the conversation this morning
when you see the amount of leverage the
financial industry is running and you
think about all these dislocations and
all these exhaustion as things that are
happening that you can’t predict there’s
a lot of risk to the downside and it
would be great that an an average
individual citizen of any country in the
world has an uncorrelated hedge and I’ve
said this repeatedly at nauseam on the
show every financial instrument is
correlated but money but except bit but
Jomon uncorrelated hedge it that Warren
Buffett says has zero value 0 in here
III unless someone pays more I think
he’s an exceptional person I’ve learned
an enormous amount both from afar and
the few interactions I’ve had with him
he is completely wrong and operated on
student the prices have gone up during
this career most a few issued Haven went
down like gold if it was really digital
gold I think that you have to look more
at volumes these are not necessarily
event-driven
strategies meaning you don’t you don’t
want all the digital gold no you didn’t
say that
no he didn’t that’s that’s that’s the
people say I don’t think you buy I don’t
think when you know you wake up and you
see a coronavirus care in the Dow down
mm you should not be going in and buying
Bitcoin that is an idiotic strategy I
think a reasonable strategy is to say
one percent of my net worth should be in
something that is completely
uncorrelated to the world and how the
world works you quietly and quick you
know over some number at a time
accumulate a position and then you just
never look at it again and hope that
that insurance under the mattress never
has to come due right but if it does it
will protect you because then that thing
will be hundreds of thousands or million
dollars a coin okay and when we get we
got to go but Fang stocks do you like
them or hate them
I’m a net seller you’re a net seller of
tech companies other than Amazon because
33:39
I think Facebook gets regulated I think
33:43
Google will have to go through a bunch
33:44
of divestitures to avoid regulation I
33:46
think Netflix has turned into a consumer
33:48
surplus business and their their
33:50
viability to cash flow is de minimis and
33:53
Amazon just keeps growing by 25% every
33:56
year like clockwork it’s an incredible
33:58
incredible business okay
34:00
Thank You Tomas appreciate that thanks
34:01
guys
34:03
you
34:11
you

 

Seniors disrespecting the younger generation

Senate Democrats have the power to stop Trump. All they have to do is use it.

As a Democratic Senate aide for the past seven years, I had a front-row seat to an impressive show of obstruction. Republicans, under then-Senate Minority Leader Mitch McConnell, decided they would oppose President Barack Obama and Senate Majority Leader Harry Reid at every turn to limit their power. And it worked: They extorted concessions from Democrats with threats of

  • shutdowns,
  • fiscal cliffs and
  • financial chaos.

I know firsthand that Democrats’ passion for responsible governance can be exploited by Republicans who are willing to blow past all norms and standards.

Now we have a president who exemplifies that willingness in the extreme. Partly, this explains why he faces more questions about his legitimacy than any president in recent history and why he drew three times as many protesters as inauguration attendees last weekend. But in something of a mismatch, Republicans’ unified control of government means that the most effective tool for popular resistance lies in the Senate — the elite, byzantine institution envisioned by the founders as the saucer that cools the teacup of popular opinion.

Senate Democrats have a powerful tool at their disposal, if they choose to use it, for resisting a president who has no mandate and cannot claim to embody the popular will. That tool lies in the simple but fitting act of withholding consent. An organized effort to do so on the Senate floor can bring the body to its knees and block or severely slow down the agenda of a president who does not represent the majority of Americans.

The procedure for withholding consent is straightforward, but deploying it is tricky. For the Senate to move in a timely fashion on any order of business, it must obtain unanimous support from its members. But if a single senator objects to a consent agreement, McConnell, now majority leader, will be forced to resort to time-consuming procedural steps through the cloture process, which takes four days to confirm nominees and seven days to advance any piece of legislation — and that’s without amendment votes, each of which can be subjected to a several-day cloture process as well.

McConnell can ask for consent at any time, and if no objection is heard, the Senate assumes that consent is granted. So the 48 senators in the Democratic caucus must work together — along with any Republicans who aren’t afraid of being targeted by an angry tweet — to ensure that there is always a senator on the floor to withhold consent.

Because every Senate action requires the unanimous consent of members from all parties, everything it does is a leverage point for Democrats. For instance, each of the 1,000-plus nominees requiring Senate confirmation — including President Trump’s Cabinet choices — can be delayed for four days each.

While the tactic works well, as we’ve seen for the past eight years, there remains the question of strategy. Should Democrats be pragmatic and let Trump have his nominees on a reasonable timetable, so as not to appear obstructionist? So far, this has been their approach to some of Trump’s Cabinet picks.

But it’s also fair to say that, by nominating a poorly qualified and ethically challenged Cabinet, Trump forfeited his right to a speedy confirmation process, and Democrats should therefore slow it down to facilitate the adequate vetting that Trump and Senate Republicans are determined to avoid by rushing the process before all the questionnaires and filings are submitted. Four days of scrutiny on the Senate floor per nominee, even after the committee hearings, is a reasonable standard for fulfilling the Senate’s constitutional responsibility of advice and consent.

Democrats can also withhold their consent from every piece of objectionable legislation McConnell tries to advance. With 48 senators in their caucus, they have the votes to block most bills. But even when Democrats don’t have the votes, they can force McConnell to spend time jumping through procedural hoops. This is the insight McConnell deployed against Reid to manufacture the appearance of gridlock, forcing him to use the cloture process more than 600 times.

Finally, Democrats can withhold their consent from Trump until they feel confident that foreign governments are not interfering in our elections. Credible reports hold that U.S. intelligence agencies are investigating whether Trump’s campaign cooperated with the Russian government on Vladi­mir Putin’s personally directed meddling. Withholding consent from Trump’s agenda until an independent, bipartisan probe provides answers is not just reasonable; it’s responsible. If Democrats withhold consent from everything the Senate does until such a process is established, they can stall Trump’s agenda and confirmation of his nominees indefinitely. Sen. Richard Durbin has been a leader in demanding an independent investigation. But unless Democrats back their calls with the threat of action, McConnell will steamroll them and never look back.

Of course, it would be unwise to deploy this strategy blindly. The kind of universal obstruction pioneered by McConnell during Obama’s presidency is not in Democrats’ nature: They believe in the smooth functioning of government.

But Democrats’ concern with delivering results for their constituents is also part of who we are and something we should embrace. Even for innately cautious Democrats, some issues demand dramatic action. If Trump wants to put their concerns about his legitimacy to rest, he can reach out with consensus nominees and policies, and come clean about his ties to Russia and his tax returns (which may show whether he has compromising financial debts to Russian interests). Until then, Democrats can stand up for America by withholding their consent.

Trump’s Tariffs, Once Seen as Leverage, May Be Here to Stay

WASHINGTON — President Trump’s tariffs were initially seen as a cudgel to force other countries to drop their trade barriers. But they increasingly look like a more permanent tool to shelter American industry, block imports and banish an undesirable trade deficit.

More than two years into the Trump administration, the United States has emerged as a nation with the highest tariff rate among developed countries, outranking Canada, Germany and France, as well as China, Russia and Turkey. And with further trade confrontations brewing, the rate may only increase from here.

On Tuesday, the president continued to praise his trade war with China, saying that the 25 percent tariffs he imposed on $250 billion worth of Chinese goods would benefit the United States, and that he was looking “very strongly” at imposing additional levies on nearly every Chinese import.

I think it’s going to turn out extremely well. We’re in a very strong position,” Mr. Trump said in remarks from the White House lawn. “Our economy is fantastic; theirs is not so good. We’ve gone up trillions and trillions of dollars since the election; they’ve gone way down since my election.”

He called the trade dispute “a little squabble” and suggested he was in no rush to end his fight, though he held out the possibility an agreement could be reached, saying: “They want to make a deal. It could absolutely happen.” Stock markets rebounded on Tuesday, after plunging on Monday as China and the United States resumed their tariff war.

Additional tariffs could be on the way. Mr. Trump faces a Friday deadline to determine whether the United States will proceed with his threat to impose global auto tariffs, a move that has been criticized by car companies and foreign policymakers. And despite complaints by Republican lawmakers and American companies, Mr. Trump’s global metal tariffs remain in place on Canada, Mexico, Europe and other allies.

The trade barriers are putting the United States, previously a steadfast advocate of global free trade, in an unfamiliar position. The country now has the highest overall trade-weighted tariff rate at 4.2 percent, higher than any of the Group of 7 industrialized nations, according to Torsten Slok, the chief economist of Deutsche Bank Securities. That is now more than twice as high as the rate for Canada, Britain, Italy, Germany and France, and higher than most emerging markets, including Russia, Turkey and even China, Mr. Slok said.

[A trade war with China could be long and painful.]

The shift is having consequences for an American economy that is dependent on global trade, including multinational companies like Boeing, General Motors, Apple, Caterpillar and other businesses that source components from abroad and want access to growing markets overseas.

While trade accounts for a smaller percentage of the American economy than in most other countries — just 27 percent in 2017, compared with 38 percent for China and 87 percent for Germany, according to World Bank data — it is still a critical driver of jobs and economic growth.

Mr. Trump and his economic advisers say the administration’s trade policy is aiding the American economy, companies and consumers. And despite the tough approach, the administration continues to insist its goal is to strike trade agreements that give American businesses better trade terms overseas.

At a briefing last week, Steven Mnuchin, the Treasury secretary, praised the president’s trade policies for helping economic growth thus far and said the administration supports “free and fair reciprocal trade.”

But if the goal really is freer trade, the administration has never been further from achieving that goal than it is today, said Chad Bown, a senior fellow at the Peterson Institute for International Economics.

“They’re heading in the opposite direction,” Mr. Bown said.

Beyond an update to the United States agreement with South Korea, no other free trade deals have been finalized. Mr. Trump’s revisions to the North American Free Trade Agreement with Canada and Mexico still await passage in Congress, while trade talks with the European Union and Japan have been troubled from the start, with governments squabbling over the scope of the agreement.

Mr. Trump came into office fiercely critical of the failure of past administrations and global bodies like the World Trade Organization for failing to police China’s unfair trade practices. He withdrew the United States from multilateral efforts like the Trans-Pacific Partnership, a multicountry trade deal negotiated by President Barack Obama, and the Paris climate accord.

That shift has created an opening for other countries to step forward as global leaders, including Europe, Japan and China, despite its position as one of the world’s most controversial economic actors. On Tuesday, China submitted its proposals for overhauling the World Trade Organization, including broadening the privileges of developing countries, a status that China claims for itself.

Advocates of free trade fear that governments in India, China, South Africa and elsewhere might find Mr. Trump’s model of protectionism appealing and erect even higher barriers to foreign companies.

While the United States and China could still strike a trade deal that would roll back many of their tariffs, that likelihood has appeared to diminish in recent weeks.

Progress toward a deal came to a sudden halt this month when China backtracked on certain commitments and Mr. Trump threatened to move ahead with higher tariffs.

“We had a deal that was very close, and then they broke it,” he said on Tuesday.

The two sides continue to disagree over whether the deal’s provisions must be enshrined in China’s laws. But they are also arguing over Mr. Trump’s tariffs, which were intended to prod the Chinese to agree to more favorable trade terms for the United States. China insists those tariffs must come off once a deal is reached, but the Trump administration wants some to remain in place, to ensure China abides by its commitments.

In an interview on Tuesday on CNBC, Senator Marco Rubio, Republican of Florida, supported the administration’s tactics.

“Ideally, you wouldn’t have tariffs,” he said. But the United States already faces “all kinds of impediments” to gaining access to the Chinese marketplace, including tariffs, subsidization of industries and theft of intellectual property.

“We already have a series of hundreds of billions of dollars of Chinese penalties against the United States which are threatening our long-term viability,” Mr. Rubio said.

Canada and Mexico have repeatedly pressed the administration to lift its tariffs on steel and aluminum now that negotiations over the Nafta revision are done. The three countries signed the United States-Mexico-Canada Agreement in November, but the pact awaits passage in all three legislatures.

The Trump administration still views the tariffs as a source of leverage in case it needs to demand final changes to the deal from Canada and Mexico. But Canadian and Mexican officials — as well as many in Congress — say the levies are actually an impediment because all three legislatures will refuse to finalize the deal while they are in place.

A similar standoff could soon unfold with the European Union, which Mr. Trump has accused of being a “brutal trading partner” and being “tougher than China.”

The president, who wants Europe to open its markets to American farmers and companies, has already imposed tariffs on European metals and is threatening to levy a 25 percent tax on imports of European cars and car parts if the bloc does not give the United States better trade terms.

Europe has absorbed Mr. Trump’s steel and aluminum tariffs without too much damage. But car tariffs would strike the most important industry in Germany, which has the Continent’s biggest economy. European officials would regard car tariffs as a breach of a truce they worked out last year with Mr. Trump, and they have said they would refuse to negotiate as long as car tariffs were in place.

Cecilia Malmstrom, the European commissioner for trade, repeated on Monday that the European Union had prepared a list of American products worth $22.5 billion — including ketchup, suitcases and tractors — that would face immediate retaliatory tariffs.

“We’re prepared for the worst,” Ms. Malmstrom said in an interview with the Süddeutsche Zeitung newspaper in Germany.

European officials still hold out hope that Mr. Trump will see them as allies and not geopolitical rivals like the Chinese. And he could ultimately delay the decision and extend the Friday deadline for countries that are in trade talks with the United States.

But the president shows no signs of backing away from his stance that tariffs have helped the United States.

On Tuesday morning, Mr. Trump posted on Twitter that tariffs had rebuilt America’s steel industry and were encouraging companies to leave China, making it “more competitive” for buyers in the United States.

“China buys MUCH less from us than we buy from them, by almost 500 Billion Dollars, so we are in a fantastic position,” Mr. Trump tweeted. “Make your product at home in the USA and there is no Tariff.”

As China Talks Begin, Trump’s Trade Negotiator Tries to Keep President From Wavering

WASHINGTON — In the middle of his crowded dinner in Buenos Aires with President Xi Jinping of China, President Trump leaned across the table, pointed to Robert Lighthizer, the United States trade representative whose skepticism of China runs deep, and declared, “That’s my negotiator!

He then turned to Peter Navarro, his even more hawkish trade adviser, adding, “And that’s my tough guy!” according to aides with knowledge of the exchange.

Now, with talks between China and the United States set to begin this week in Beijing, Mr. Lighthizer, aided by Mr. Navarro, faces the assignment of a lifetime: redefining the trade relationship between the world’s two largest economies by Mr. Trump’s March 2 deadline to reach an agreement.

And he must do it in a way that tilts the balance of power toward the United States. His approach will have significant ramifications for American companies, workers and consumers whose fortunes, whether Mr. Trump likes it or not, are increasingly tied to China.

First, however, Mr. Lighthizer will need to keep a mercurial president from wavering in the face of queasy financial markets, which have suffered their steepest annual decline since 2008. Despite his declaration that trade wars are “easy to win” and his recent boast that he is a “Tariff Man,” Mr. Trump is increasingly eager to reach a deal that will help calm the markets, which he views as a political electrocardiogram of his presidency.

Mr. Trump has repeatedly told his advisers that Mr. Xi is someone with whom he can cut a big deal, according to people who have spoken with the president. On Saturday, Mr. Trump called Mr. Xi to discuss the status of talks, tweeting afterward that good progress was being made. “Deal is moving along very well,” Mr. Trump said.

The administration has tried to force China to change its ways with stiff tariffs on $250 billion worth of Chinese products, restrictions on Chinese investment in the United States and threats of additional levies on another $267 billion worth of goods. China has responded with its own tit-for-tat tariffs on American goods. But over a steak dinner during the Group of 20 summit meeting in Argentina, Mr. Xi and Mr. Trump agreed to a 90-day truce and to work toward an agreement that Mr. Trump said could lead to “one of the largest deals ever made.”

Mr. Lighthizer — whose top deputy will meet with Chinese officials this week ahead of more high-level talks in February — has played down any differences with Mr. Trump and views his role as ultimately executing the directive of his boss. But the trade representative, who declined to be interviewed, has told friends and associates that he is intent on preventing the president from being talked into accepting “empty promises” like temporary increases in soybean or beef purchases.

Mr. Lighthizer, 71, is pushing for substantive changes, such as forcing China to end its practice of requiring American companies to hand over valuable technology as a condition of doing business there. But after 40 years of dealing with China and watching it dangle promises that do not materialize, Mr. Lighthizer remains deeply skeptical of Beijing and has warned Mr. Trump that the United States may need to exert more pressure through additional tariffs in order to win true concessions.

When Mr. Lighthizer senses that anyone — even Mr. Trump — might be going a little soft on China, he opens a paper-clipped manila folder he totes around and brandishes a single-page, easy-reading chart that lists decades of failed trade negotiations with Beijing, according to administration officials.

Bob’s attitude toward China is very simple. He wants them to surrender,” said William A. Reinsch, a former federal trade official who met him three decades ago when Mr. Lighthizer was a young aide for former Senator Bob Dole of Kansas. “His negotiating strategy is simple too. He basically gives them a list of things he wants them to do and says, ‘Fix it now.’

Mr. Trump’s selection of Mr. Lighthizer last month to lead the talks initially spooked markets, which viewed the China skeptic’s appointment as an ominous sign. It also annoyed Chinese officials, who had been talking with the Treasury secretary, Steven Mnuchin, a more moderate voice on trade and the primary point of contact for Liu He, China’s top trade negotiator. Mr. Mnuchin has urged the president to avoid a protracted trade war, even if that entails reaching an interim agreement that leaves some issues unresolved.

Mr. Mnuchin, who attended the G-20 dinner, helped Mr. Trump craft an upbeat assessment declaring the Buenos Aires meeting “highly successful” in the presidential limousine back to the airport, according to a senior administration official.

The disparate views among Mr. Trump’s top trade advisers have prompted sparring — both publicly and behind the scenes.

During an Oval Office meeting with the trade team the fall of 2017, Mr. Lighthizer accused Mr. Mnuchin and Gary D. Cohn, the former National Economic Council director, of bad-mouthing him to free-trade Republican senators.

The argument grew so heated that the White House chief of staff, John F. Kelly, quickly pulled the combatants into the nearby Roosevelt Room and away from the president, where the argument raged on for a few more minutes, according to two witnesses.

Emily Davis, a spokeswoman for the United States trade representative, disputed the account.

Mr. Lighthizer has since worked to increase his own face time with Mr. Trump. He has joked to colleagues that he has more influence with Mr. Trump during winter months because he is able to hitch a ride on Air Force One during the president’s flights down to Mar-a-Lago, which is several miles from Mr. Lighthizer’s own $2.3 million waterfront condo in Palm Beach, Fla.

He used that access to argue to Mr. Trump that the United States has never had more leverage to extract structural reforms on intellectual property, forced transfer of technology from American companies and cybercrime. But while Mr. Trump has jumped at the chance to claim victory in changing China’s ways, experts say that what Mr. Lighthizer is demanding would require significant shifts in how Beijing’s central government and its manufacturing sector coordinate their activities, and that might simply not be possible in the short term.

“Good luck with that,” Mr. Scissors said.

Those who know Mr. Lighthizer say he will try to force concessions through a combination of pressure tactics, like tariffs, and public condemnation. Mr. Lighthizer — who described his own negotiating style as “knowing where the leverage is” during a 1984 interview — typically presents few specific demands during initial talks while publicly bashing efforts by the other side.

He used that approach during recent talks with Canada and Mexico to revise the North American Free Trade Agreement, criticizing foreign counterparts as intransigent and characterizing complaints by American businesses as pure greed.

Mr. Lighthizer’s unsparing view of China comes, in part, from his childhood in Ashtabula, Ohio, an industrial and shipping town on the Great Lakes hit by the offshoring of steel and chemical production. For much of his career, Mr. Lighthizer was a lonely protectionist voice in a Republican Party dominated by free traders, alternating between jobs in government and a lucrative private law career representing large American corporations like United States Steel in trade cases against China.

Mr. Lighthizer found his way into Mr. Trump’s orbit through his work in the steel industry, where he gained prominence by filing lawsuits accusing Japan and China of dumping metals into the United States, in violation of trade laws. In 2011, Mr. Lighthizer caught Mr. Trump’s eye with an opinion piece in The Washington Times, in which he defended Mr. Trump’s approach to China as consistent with conservative ideology and compared the future president to Republican icons like Ronald Reagan.

Taciturn in public and self-deprecating in private, Mr. Lighthizer sees himself as a serious player on the world stage: Two recent guests to Mr. Lighthizer’s Georgetown townhouse were greeted by the stern visage of their host staring down at them from an oil portrait on the wall.

The trade adviser is guarded around Mr. Trump, often waiting until the end of meetings to make his points and quietly nudging the president away from actions he views as counterproductive, current and former officials said. That was the case in mid-2017 when he cautioned the president against withdrawing unilaterally from the World Trade Organization, adding for emphasis, “And I hate the W.T.O. as much as anybody.”

He does not always get his way. In the wake of a new trade agreement with Mexico and Canada this fall, Mr. Lighthizer urged Mr. Trump to consider easing steel and aluminum tariffs on those countries and replacing them with less burdensome quotas. Mr. Trump rejected his plan, according to negotiators from all three countries.

A poker-faced Mr. Lighthizer broke the news to his Mexican and Canadian counterparts by declaring the proposal was inoperative, one of the officials said.

The president also ignored Mr. Lighthizer’s advice in early December when he announced that he intended to begin the six-month process of withdrawing the United States from Nafta in order to pressure House Democrats into passing the new United States-Mexico-Canada Agreement.

That threat undermined months of quiet negotiations between Mr. Lighthizer, labor groups and Democrats like Senator Sherrod Brown of Ohio and Representative Nancy Pelosi of California to try to win their support for the new trade deal. Mr. Trump has yet to follow through on his threat, and Mr. Lighthizer continues trying to work with Democrats to get the new trade deal approved.

Bob is trying to provide stability and focus in a completely chaotic environment,” Mr. Brown said. “I can’t speak for Bob, but I am certain he is frustrated. How could you not be frustrated as the U.S. trade representative for a president who knows what his gut thinks but hasn’t put much of his brains into trade?

 

Cohen’s guilty plea suggests Russia has ‘leverage’ over Trump, top Democrat says

Rep. Jerrold Nadler (D-N.Y.), the incoming chairman of the House Judiciary Committee, said in an appearance on NBC’ News’s “Meet the Press” that Thursday’s guilty plea by Cohen, Trump’s former personal attorney, raises the question of whether Russia continues to have leverage over Trump.

.. “Does the Kremlin have a hold on him over other things?” Nadler said. “There certainly was leverage during the campaign period and until recently because they knew he was lying, they knew he had major business dealings or that Cohen on his behalf had major business dealings.”

.. Sen. Mark R. Warner (D-Va.) said Sunday that “most Republicans who were about to nominate Donald Trump in the summer of ’16 would probably have thought it was a relevant fact” that Trump was still trying to do business with Russia at the time.

.. “What I find particularly interesting with the revelation of Cohen’s plea is that he’s saying he lied to protect then-candidate Trump’s stories that he had nothing to do with Russia,”

.. “So, the president seemed to already be changing his story a little bit and say, ‘well, it was all legal.’ ”