WHEN: Today, Tuesday, May 8, 2018
WHERE: CNBC’s “Squawk on the Street”
Following is the unofficial transcript of a FIRST ON CNBC interview with former National Economic Council director Gary Cohn and CNBC’s Bob Pisani on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Tuesday, May 8th. Following is the video of the full interview on CNBC.com:
Pros And Cons Of Tail Risk Funds
Editor’s note: This article is part of a series ValueWalk is doing on tail risk hedge funds. The series is based on over a month of research and discussions with over a dozen experts in the field. All the content will be first available to our premium subscribers and some will be released at a Read More
Carl quintanilla: alright, sue, thank you very much. Sue herera. Let’s get over to bob pisani who is at btig’s 16th annual charity day sitting down with a very special guest. Hey bob.
Bob pisani: very special indeed. Gary cohn, the former head of the national economic council under president trump, joins us for btig charity day. I want to get it right at the top, ‘cause you wanted me to say, you’re here to represent the dream which is a charter school in harlem.
Gary cohn: absolutely, bob. That’s why I’m here today. We’re here for charity. We’re here to raise money for all amazing charities in new york. There’s an amazing lineup of people coming in today to really do what new york is best at doing, which is raising money for people in need in the city. You’ve got the btig day today. You’ve got robin hood next week. You know, this is something that new york really is spectacular at.
Pisani: are you going to get more involved in philanthropic issues? It’s been two months since you left the white house. What have you been up to?
Cohn: well, I have been involved in some philanthropic issues. And that’s something that is near and dear to me, and near and dear to my family and my wife. So yes, we have been involved in some of that. I’m also looking at other opportunities out there in world but I’m taking my time right now and seeing what is out there in the world. And there is no shortage of opportunities right now.
Pisani: it must be a wonderful feeling -- having served in the white house and so many prestigious jobs to sort of feel a little free. Do you feel freer?
Cohn: I feel freer. I feel more rested. I feel happier. You know, I said to someone last night at dinner, “for the last 36 years I got up, showered, shaved, put my suit on and was sitting at my desk by 7:00 in the morning.” not having to do that for the last four weeks has been kind of interesting. I’m still up early. I don’t have to put a suit on every day. Today I put one on for you, though bob.
Pisani: now you seem very energetic. You said there are opportunities. Tell us what opportunities there are out there for you. What do you want to do next? What excites you now? What do you want to do next?
Cohn: well, I’m looking at a variety of opportunities. I have been talked to by a bunch of different companies about working with them whether at a ceo level. There’s an enormous amount of board opportunities if you want to do board work. I don’t want to discourage anyone but I’m less inclined to do board work for existing companies. I am much more inclined to get involved with younger companies. One of the things that I really enjoyed was the time I spent with young entrepreneurs working with young entrepreneurs whether it was you know, uber – when working with travis, I spent a lot of time with elon musk, I spent a lot of time with drew at dropbox. It’s been a – I could go through a long list. And I miss working with the young entrepreneurs so getting involved with companies earlier is something that I can see myself doing but I wouldn’t rule out getting involved with a more mature company, as well. I also wouldn’t rule out philanthropic work, as well. And you know, there is always the chance of just going back just running money or doing something like that. Or, guess what, I can do nothing.
Pisani: it sounds like a lot of opportunities. So, it sounds like you’d potentially be the ceo of a startup – potentially interested you. Young entrepreneurs. You mentioned that.
Cohn: I don’t know if I would want to be ceo. I would much prefer I think at this point to really work with entrepreneurs or work with a couple of entrepreneurs. I do have an idea for a company, as well. There is a company that I’m spending a little bit of time with, lawyers right now looking at the possibility of a company to see if it makes sense – to see if it can legally be done.
Pisani: can you tell us who this is?
Cohn: no, I can’t.
Pisani: ok. I had to ask. Alright?
Cohn: of course you had to ask. And of course I had to tell you I couldn’t tell you. It would be an interesting concept playing on the knowledge that I know from the banking world in running a regulated bank but in a digitized world.
Pisani: that’s an interesting idea. Alright, what about a big ceo job? You know, mike mayo who is the wells fargo analyst recently promoted you as the next chairman of citi group. He brought your name up. Any interest in a high level job like that?
Cohn: you know, mike’s got his own opinions. Mike’s always got a couple opinions and he’s entitled to his opinions. As I said, I’m interested in seeing what is out there. I’m interested in talking to people. I have made absolutely no decisions at this point what’s next for gary cohn.
Pisani: alright. Let’s talk about the economy a little bit. Your old boss president trump has said he wants to make tax cuts permanent. That’s a controversial issue. Chance of happening?
Cohn: remember, the corporate side is permanent. When he says he wants to make tax cuts permanent, the one thing that we regret in not having been able to do in the original tax bill was the personal side expires. We would like to go back and make the personal side permanent. We believe that the individuals deserve a personal tax reduction and we need that to be permanent. We do not want that to expire. So when everyone runs the tax analytics and say that this is a tax increase on persons, they run it the year after the expiration of the tax reduction that we just put in because it is temporary. We need to go back and make the personal side permanent. That is something that president trump wants to do, that’s something that chairman brady wants to do, and the house ways and means committee. He’s talking about tax 2.0 where he wants to come back and make that permanent. Chairman brady has an interesting idea and it’s something that we should do. He thinks we should do tax modifications every year. You know, the world is always changing. Tax law is changing. We in the united states should not stay stagnant. He thinks we should have tax bill every year. He thinks that this years tax bill should be to make the personal side permanent and every year we should get used to making the changes we need to make our taxes the more competitive of the world.
Pisani: and yet tax cuts have certainly resonated in the stock market. The corporate side. But those don’t seem to have resonated that much with the general public. How far can this idea advance in this kind of environment?
Cohn: look, I think the idea of making personal cuts permanent can resonate with everyone. I mean, who can be against making personal income taxes lower and making it permanent? Who can be against the fact that we’ve increased child tax credit? The fact that we’ve increase the personal deduction to $24,000. You know, those are basic concepts that allow hard working middle income families to keep almost 100% of what they earn. Those are concepts that we believe in this country.
Pisani: let me move on to trade. You left after the president unveiled steel and aluminum tariffs. So the president’s economic team, wilbur ross, steven mnuchin, just came back from negotiations with china. Has the threat of a trade war increased or decreased since you left office?
Cohn: I don’t think anyone wants a trade war. No one wins in a trade war. And I think that everyone understands that no one wins in a trade war. What we do need in america and what I think everyone believes in and we’ve talked about this is free, fair, open and reciprocal. And I think what the team was talking about when they were in china is opening up more of the chinese markets to u.S. Goods, u.S. Services, u.S. Businesses. Today u.S. Businesses in china can only own a minority of their businesses, have to have a chinese partner. Chinese businesses in the united states can own 100% of their business. We need to level the playing field where businesses -- american businesses in china can own all of their business. They can have 100% of proceeds. They can repatriot the proceeds back into the united states. So we need to open up the chinese markets. On the reciprocal side we need to get the tariffs to – in a perfect world, they would be nonexistent. We would have no tariffs for chinese products, they would have no tariffs for u.S. Products so products would freely move between country and country. We wouldn’t have protectionist tariffs. That’s what the president is trying to get to. That’s what I believe is in everyone’s best interests: let an economy thrive on what they can manufacture best and let them sell to the world without a tariff – without an artificial tariff border.
Pisani: but it was common knowledge that you differed with the president on the tariff issues.
Pisani: where did that come down? Where did that issue ultimately get resolved? You ultimately left as a result of that. If you were still advising him would you continue the course of action on the negotiations as they’re currently happening with china?
Cohn: bob, I made my position on tariffs very clear. I have a strong view of what the u.S. Economy looks like. And I think we’ll all agree with it. We are a dominant service economy in the united states. 80 plus percent of job creation, 80 plus percent of gdp is in the service sector. We are good at creating service jobs. What happens in our economy here is u.S. Consumers take their paycheck, they pay their taxes and they owe taxes -- hopefully they owe less and less taxes every year. They buy what goods they need to buy. With the remainder of their paycheck they spend it on services or savings. We need them to buy goods as cheap as they possibly can, to spend their money on services or savings. If we artificially raise the price of goods because of tariffs, we’re hurting our service economy. That’s not in our best interest. So putting on input tariffs is not the objective with me. I really have a problem with input tariffs. I have less of a problem with finished good tariffs because you’re not really effecting all the down stream production. So to me really going after input products is not the way to fix a trade deficit.
Pisani: but generally you were known for your defense of free trade. When you look back at your time in the white house –
Cohn: look, I am a free trader. That is not a general comment. That’s an absolute comment. I am a free trader. I am not pro tariffs. I am pro open economy. I am pro reciprocal. I am anti tariff.
Pisani: when you look back at your time at the white house obviously you are associated with the tax cuts but what do you see as your biggest contribution? How did you influence the national conversation and effect the outcome?
Cohn: look, I think the tax cuts was the big accomplishment. We started working on the tax plan prior to inauguruation. So january of that year before the inauguruation, we were coming down to washington to move the ball forward on taxes. You know, the history of the tax deal was quite extensive. You know, we started with a house that wanted a border adjustment tax. We had a senate that would not support our border adjustment tax. Secretary mnuchin and I worked for a long time together to get the house and the senate in one place where we can agree on a framework upon which to do taxes. We worked for a long time to get that framework. Then we let the tax writers and the ways and means committee and then the senate finance committee work on actually drafting tax legislation that could get passed through the house, passed through the senate and the president obviously signed. We didnt get 100% of what we wanted in that tax legislation. No one did: the house didn’t, the senate didn’t, the president didn’t. So that’s why we are talking about tax 2.0. Can we fix the things we would like to fix like making the individual side permanent?
Pisani: I thought it was interesting that the president, in thanking you for your service, described you as a globalist. Now, are you globalist and what exactly does that mean to you?
Cohn: I was going to ask what it means to you. I can’t answer if I’m a globalist without the definition.
Pisani: well, I mean, generically it is someone who believes we live in an interconnected world. But the concept of change, I mean I guess the question is, where do you find a balance between acknowledging that we live in an interconnected world and the demands of some conservatives who favor some form of economic nationalism? I think that is the crux of the debate.
Cohn: so, in your definition, I’m a globalist. I believe we live in an interconnected world. We live in an economically interconnected world. We live in a world of allies, where we have ally nations that when we go to war, or when they’re attacked or we’re attacked, they’re attacked. We have treaties and agreement where we defend each other. We’re interconnected on the military side. We’re interconnected on the economic side. We’re interconnected on the intelligence side. We work together as allies in all of the major spheres that make the world a better place for us and including economic growth, including helping out under developed economies, helping out those in need around the world through different forms of aid.
Pisani: the president though made a point of describing you as a globalist and seeming to position himself in a slightly different atmosphere of economic nationalism. I don’t know what the appropriate phrase is, but I think you understand the point, what he was getting at there.
Cohn: well, look. I am a globalist. I believe that we are very good at doing certain things in the united states. Other countries are very good at doing different things. We should buy from them what they are good at. We should sell to them what we are good at. There is competitive advantage, comparative advantage. I believe in comparative advantage. And I don’t believe that we can manufacture, make and produce everything we need in the united states for ourselves at the most efficient and effective price available. And I believe that we need allies. I believe we need trading partners. I believe we need an open economy and I believe we need to share with our allies and developing markets around the world.
Pisani: let me just move on to where we are on the economic cycle. Markets have been fluttering recently. There seems to be a real tug of war between the bulls and the bears. In january everyone was talking about record earnings. Now the phrases are shifting towards peak earnings. Everyone was talking about a global synchronous economic expansion, a wonderful phrase. And now a lot of people, some are talking about slower global growth. Where are we in the economic cycle and what do you think is going happen for the rest of the year?
Cohn: look I am pretty bullish on where the economy is right now. I think everything we thought would be happening is happening. I think that earnings -- if you look at q 1 earnings this year 20 plus percent growth in earns. You look at employment data, employment data continues to be strong to very strong. You look at wage growth, it’s still slow which is something we have been talking about for a year and a half, that wage growth is slow which will allow the fed I believe to take a more moderate approach. We may see some flattening of the yield curve, but I don’t think we have run away interest rates in the united states. You take the tax plan that has been implemented, we’re just starting to see taxes affect corporate earnings. Yes they affect the rate, but we haven’t seen the capex that we’re stimulating through having the deductibility of capital expenditures over the next five years. You know, corporations have to plan for capex. It takes quarters to plan for capex, spend the money, expense it, hire the people and do what they need to do there. So, when I look at the economy I am pretty excited about where we are in the economic cycle. I think that people are confused about corporate earnings and think this is a one off. This is not a one off. Tax cuts on the corporate side are here to stay. Expensing is here to stay. What I think there is a little bit of worry about is are we going to get commodity price inflation. On a couple earnings calls you heard about steel prices and you heard about aluminum prices going up because of some of the tariffs. Look, I’m concerned about that. I don’t like the tariffs. I don’t think we want steel prices and aluminum prices going up. Remember, we are a big down stream user of steel and aluminum. We have many thousands, tens of thousands of more people that are employed in using aluminum than in manufacturing aluminum. It doesn’t matter what we do, that’s gonna be the u.S. Economy. If you look at the car business, the car business is a big user of steel and aluminum, much bigger than the steel manufacturing business is ever going to be. So, you are starting to see those worries trickle in. So remember, last year you had a stock market implementing tax reform that was up over 20%.
Pisani: big mover.
Cohn: this year we’ve earnings growth up over 25 and a stock market that’s flat. I think that people are concerned that the economic policies of washington are not as clear this year as they were last year.
Pisani: I agree. I think peak earnings are a bit of bogus argument. We’re getting global growth for sure. You mentioned flat yield curve. There’s been people who have been curved about the fact that the fed may have to get more aggressive. Three rate hikes is priced in. Four, maybe not. You talked to jay powell. First off, what do you think of his performance so far? What are you telling him? And where is the fed gonna go?
Cohn: look, I think the fed is doing a great job. You know the fed is independent. They do what they’re supposed to do. They have better data and more analytics than all of us combined, so I applaud their independence, and I applaud what they’re doing. My personal opinion here is that I think those people that think we’re in for, you know, a lot of interest rate increase and the curve is going to get very steep and rates are going to run away, and the ten-year is going to be substantially higher, I don’t really agree with that. You look at where the ten-year has been, you know, there was a lot of hype when the ten-year went 3%. It went 3%, and, you know what, the sun came up in the east and set in the west, and we’re back below 3%. We’ve been hovering in a very tight range right around 3%. Here. The front ends coming up a little bit. I think we’re gonna see more flattening than we’re gonna see runaway yields in this market.
Pisani: and gdp, obviously, first quarter was a little bit disappointing. But there seems to be some anomaly --
Cohn: there’s seasonality –
Pisani: something’s going on there.
Cohn: yeah, and remember the last four first quarters have been low. So, I don’t understand the anomaly either. We’ve been trying to figure it out. We talked to all the economists in washington to try to figure out why that first quarter is an anomaly. But I think, look, when youre 2.3 in the first quarter, that’s pretty good momentum going into a year with the tax incentives kicking in. And there was a bunch of things moved around between q4 and q1 because of expensing – expense at the high tax rate and invest at the low tax rate. So there’s a little bit of an anomaly between q4 and q1.
Pisani: let me ask about your old firm. How do you feel about david solomon as the next ceo?
Cohn: david solomon is a great guy. He’s a good friend of mine and I wish david nothing but success and good luck.
Pisani: let me just move on. A quick question on bitcoin, I gotta ask about it. How do you feel about it? At your old firm, they’ve got a desk or they’re gonna start a desk and they’ll be facilitating futures bitcoin trading at goldman. How do you feel about it?
Cohn: look, they can do whatever they want, they can do whatever’s in their shareholder’s best interest. I’m not a big believer in bitcoin. I am a believer in blockchain technology. I do think we will have a global cryptocurrency at somepoint where the world understands it and it’s not based on mining costs and costs of electricity and things like that. It will be a more easily understood cryptocurrency, that will probably some block chain technology behind it, but it will be much more easily understood how it’s created and how it moves and how people can use it.
Pisani: you can understand how goldman sees an enormous opportunity there. I mean, they’ve been the first ones out to take risk on a risky business.
Cohn: look -- they should do what they think is in the best interest of their shareholders.
Pisani: important thing is, they’re on the cutting edge of that.
Pisani: and I’m not surprised by it at all. You still own goldman shares?
Cohn: no, I’m not.
Pisani: none at all?
Cohn: nope. None at all.
Pisani: alright. Gary cohn, thank you very much for stopping by. It’s always a pleasure. And please, will you let us know as soon as -- first on cnbc?
Cohn: remember the important thing. Today is about charities and helping the needy in new york city.
Pisani: of course. And congratulations on all your success. But you’ll let us know when you get the new job?
Cohn: I will let you know.
Pisani: first on cnbc.
Cohn: I don’t know about that but we’ll let you know.
Pisani: we’ll talk later. Gary cohn, the former head of the national economic council under president trump joining us. Btig charity day will be here all day