WHEN: Today, Thursday, April 25, 2019
WHERE: CNBC’s “Squawk on the Street”
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Former White House chief strategist Steve Bannon, Hayman Capital Management CIO Kyle Bass, and CNBC’s Brian Sullivan on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Thursday, April 25th. The following is a link to video of the interview on CNBC.com:
Bannon And Bass: Is Corporate America Funding The Chinese Communist Party?
DAVID FABER: Alright, welcome back to "Squawk on the Street.” Time now to send it over to Brian Sullivan. He is live from the Committee on the Present Danger. It is an event in New York. And he’s sitting down with two special guests. Brian, take it away.
BRIAN SULLIVAN: David, thank you very much. Joined here by Stephen Bannon and Kyle Bass as well. Both well known to the CNBC audience. And the Committee on the Present Danger is the fourth iteration of really an organization that was built in the 1950s to counter Russian influence, as well has gone through a number of cycles. This fourth cycle really is based on the China threat. These two gentlemen are members of the organization. Steve, to start with you: listen, okay, I heard your talk, and there’s a lot of talk about the China threat. Per capita income of $9,000, right? Agrarian preindustrial economy still. Demographic cliff. Why do you believe China really is such a threat to the United States and the global economy?
STEVE BANNON: Look at what they’re doing. Look at ‘One Belt, One Road,’ ‘Made in China 2025,’ and the 5G rollout of Huawei. They have a converging geopolitical strategy to combine – to basically unite the Eurasian landmass into one single market, and to force the United States, first, out of the Western Pacific, then out of the Pacific overall, and off the Eurasian landmass. I mean, they are the most significant existential threat that we have ever faced. And on a per capita basis, it may be correct. But they are a major financial power, a major industrial power, and the radical cadre – this is not the Chinese people, the Chinese people are among the most hardworking and decent people in the world -- this is about a radical cadre that is taking charge of the Chinese Communist Party, led by President Xi and Wang Qishan and other of his henchmen, that are driving us to really – they have been running economic war against the industrial democracies, Japan, South Korea, North America, and Western Europe, for 20 years.
BRIAN SULLIVAN: Is it – Steve, is it industrial war or is it just exactly what the United States did 100 years ago? Right? We were the low-cost labor producer to England. We had child labor. We had all these labor law violations. Seven days a week. The triangle shirt waist factory.
STEVE BANNON: We never had – hang on, hang on, hang on --
BRIAN SULLIVAN: How are they – how are they? They’re trying to build their economy the same way we built ours.
STEVE BANNON: Totally 100% different. We still had the rule of law. Right? We had the Constitution. We had free speech. We had freedom of religion. We had freedom of expression. We had free market capitalism. Okay, what they have is exactly opposite. Right? They are basically, and this is what you see with both the Uighurs and what their technology and their facial recognition, they essentially run, you know, almost a slave camp. Right? They are a suppressive totalitarian dictatorship that the western -- the west has financed. It is totally different in the rise of the United States, which just was the rise of another developing country like India and others. You don’t see what China is foisting on the world. And right now, they got this predatory capitalism like the British East India Company that is One Belt, One Road, that they get these companies in death traps, foreclose on the assets and take control. So, this is a radically different thing.
BRIAN SULLIVAN: Okay. Kyle, I’ll get to you in a second. I have a follow up one on that. Because you had a line in there which I think opened a lot of eyeballs because there is a lot of Wall Street people that were listening. And you said corporate America is the lobbying firm for the Chinese Communist Party and Wall Street is the investor relations firm for it. Really? Corporate America is funding the Chinese Communist Party?
STEVE BANNON: And by the way, the funding -- the entire operation of the Chinese Communist Party and what they’re running in China is being funded by Wall Street, which Kyle can walk through, being funded by Wall Street. And corporate America – remember, PBS or NPR had this thing the other day about intrusions into stealing Intellectual Property in American companies. They talked to a Treasury official went around to 200 companies. Not one company would -- had been stolen from would press charges because they didn’t want to be blocked out of China. Corporate America today is the lobbying arm of the Chinese Communist Party and Wall Street is the investor relations department. You can see this on President Trump’s -- on President Trump’s trade negotiation, which I say is an armistice on the economic war. When Liu He comes to the United States, where does he go first? He goes to – he had a lunch, this is about two months ago--
BRIAN SULLIVAN: The Chinese Trade Representative. He works with President Xi.
STEVE BANNON: He comes, first day he has a lunch with representatives, the governor affairs guys, and the COOs and presidents of the biggest companies in China to put pressure on President Trump. All the pressure coming from President Trump to get a deal is not from the Chinese, it is from Wall Street, it is from industrial America.
BRIAN SULLIVAN: Kyle, you’ve been critical of China and their economy and their banking system and their currencies for a long-time. How do -- tie in what Steve is saying to what you’re trying to do. Your first investor letter in three years came out today called The Quiet Panic, talking about Hong Kong. Do you believe the political issues there are bleeding into the markets, which by the way, I don’t need to tell you, are the strongest performing stock markets in the world this year?
KYLE BASS: Yeah, well you have incredible debt-led growth in China. But I do agree with what Steve is saying, specifically about corporate America being a lobbying arm of the Chinese. Look at who fought CFIUS reform. Some of the biggest Fortune 500 companies in the United States and Wall Street lobbied together to fight CFIUS reform, and CFIUS –
BRIAN SULLIVAN: It’s the Committee on Foreign Investment in the United States that decides whether something is a security violation, just for people who don’t know.
KYLE BASS: Right. Basically, protecting National Security from investment, let’s say, from the communist party or by the communist party. So, Steve is right 100% on who is fighting. If you look behind the scenes, it is corporate America pushing Trump to do a deal. And it is the corporate American Chieftons that have their biggest businesses, let’s say most growth, coming out of China. And China plays that card. They play it better than anybody else. They open a market to very specific people to basically court influence with that person and going to – into the presidential office to actually change policy.
STEVE BANNON: Remember, before President Trump came, we had kind of these disparate movements and kind of talking to China. Now we have a whole of government, if look at Pence’s speech at Hudson Institute, we have a whole of government approach to really confront China on this economic war. This has never happened. Whether it is a democratic administration or a republican administration, the permanent political class and their pay masters on Wall Street were totally all about strategic economic dialogue. That has allowed China to tap us along while they do more forced technology transfers, Intellectual Property theft and this massive subsidies—the state of industry.
BRIAN SULLIVAN: Steve, corporate America, public companies anyway, have a fiduciary duty to maximize their shareholder data. Can you blame corporate America from going into China and trying to get the best deal possible?
STEVE BANNON: Corporate America has -- I went to Harvard Business School and worked at Goldman Sachs.
BRIAN SULLIVAN: And you lived in China, correct? You lived in China.
STEVE BANNON: And I’ve lived in China, off and on. I’ve owned businesses over there. I’ve worked-- at Goldman Sachs. I’ve worked on deals-- cross border deals you know, for 20, 30 years. What corporate America has a fiduciary responsibility for is their stakeholders. Maximization of shareholder value is one. But they also have it to their employees. They also have it to the country. They’re just not domicile here. These are American Corporations. And what Trump has done is I think get everybody focused on - and behind closed doors, a lot of these people are saying, ‘Yes, the forced technology transfer is terrible, but I can’t get into China, I can’t tap the market, I can’t tap the low production cost, unless I do business with them.’
BRIAN SULLIVAN: What do you tell GM? Don’t sell a Buick into China? Don’t sell a Cadillac?
STEVE BANNON: No. What you do is you back President Trump. President Trump, that’s why the six verticals, remember, he promised in his State of the Union he would bring structural changes to the Chinese economy to integrate it more into the free market industrial democracies. Remember, we have two different systems running right now. They’re a totalitarian mercantilist system. What he’s trying to do in these structural changes, which forced technology transfers, non-trade barriers, currency manipulation, you know, the cyber intrusions, all of those verticals, what Lighthizer and Navarro are trying to do is get major structural changes as a beginning to really bring China more into what I call the Westphalian western democracies, the nation state. And not just so they’re the center of the manufacturing universe. People should look at -- they don’t call it One Belt, One Road anymore. Right? Because they knew the terminology looked like they were trying to dominate the Eurasian landmass. They don’t call it Made in China 2025 anymore. They haven’t talked about that in six months. Because they understand the west was starting to wake up under Trump to say, ‘Hey, look, unless we confront this today, not just tap it along, unless we confront it today, in 5, 10, 15 years, they’re going to be the dominant economic power in the world.’
BRIAN SULLIVAN: In your newsletter, though, Kyle, there’s two systems as well economically: there’s domestic and Hong Kong.
KYLE BASS: Right.
BRIAN SULLIVAN: Hong Kong has got this sort of unique system. There was a story in The Journal the other day about how we can’t sell satellites to China, but these Hong Kong-based companies can lease them because they’re under sort of a different sphere. Your – and I don’t want to misquote you -- your newsletter effectively says the Hong Kong dollar needs to drop because Hong Kong is, what, like you correctly predicted subprime, is a bubble?
KYLE BASS: Well, no. I think, look, something that was fixed 36 years ago for different economic and political reasons doesn’t have the same economic and political reasons to be fixed today. And the thing I point out is Hong Kong happens to be the place where the Chinese raise all of their dollars, right? They do equity offerings, they do bond offerings.
BRIAN SULLIVAN: There’s a lot of American money behind it, by the way.
KYLE BASS: When American pensions and endowments invest in China, they send the money to Hong Kong. Hong Kong has an important free trade relationship with the U.S. that we signed as part of the U.S. Hong Kong Policy Act in 1992. But we require -- we as a country required Hong Kong to live up to a few things for us to maintain that agreement every year. And it’s they need to have an autonomy in their economy. They need to have an autonomy in their judicial system. And they must keep a free democracy. And for those people that think Hong Kong is going to be this oasis of democracy and Southeast Asia, they’re just wrong.
BRIAN SULLIVAN: Four pro-democracy activists were sentenced to 16 months in prison yesterday in Hong Kong. Today. By the way. Chinese nationals.
KYLE BASS: My point isn’t as narrowly focused --
BRIAN SULLIVAN: What’s the financial—
KYLE BASS: -- where their currency is going, Brian. What I’m saying is if you look at Hong Kong, their banks are now almost 900% of their GDP. Their household leverage is 300% of GDP. They’re the most levered developed country in the world, they’re running out of their reserves. They spent 80% of reserves defending this 36-year-old peg that I think is going to end up falling because their economies were more linked to China than it is to the U.S. 36 years ago, they were more linked to U.S. economic growth and there was a synchronicity.
BRIAN SULLIVAN: You got famous because a number of years ago you and a few small groups of others were saying -- screaming about subprime. People said you were nuts, that you were wrong. That you were clearly—
KYLE BASS:Partially wrong.
BRIAN SULLIVAN: Look, you had hair then. But -- by the way, a few years later, they made a book about you guys being right when everyone said you were wrong. Do you believe that’s the case with Hong Kong right now?
KYLE BASS: Well, I mean, the numbers are impossible to argue. Alight? The outcome is what is under debate. And, you know, look, if you look at it, and develop an objective opinion here as to where the imbalances are, you have a 36-year peg that creates a pressure cooker. And it looks like the pressure cooker is about to go off. And about to in the timeline of 36 years might mean a year, it might mean two years, it might mean six months.
BRIAN SULLIVAN: Quickly, because I want to get back to -- what is the outcome that you’re looking for then?
KYLE BASS: I think you’re going to see a revaluation of all the Southeast Asian currencies including Hong Kong—
BRIAN SULLIVAN: Down.
KYLE BASS: Down. Including China and Hong Kong.
BRIAN SULLIVAN: Joe Biden.
STEVE BANNON: I think – first off, Joe Biden is going to Pennsylvania today to try to cut into -- he understands that he’s got to deliver the Midwest and the industrial blue-collar workers, the Reagan democrats that came over and voted for President Trump. He’s in Pittsburgh today. He’s a total hypocrite. What he should do—
BRIAN SULLIVAN: Why is he a hypocrite?
STEVE BANNON: In 2013, he took his son on Air Force II, I think it was, and the son a week later cut a billion-dollar deal with Bank of China on a Private Equity fund. Remember, we kicked off -- I worked on Clinton cash for Peter Schweizer for years, which was the thing that got the Clintons rolling and put them on the spotlight of corruption. We also did one, and I took off for the White House and the campaign, but Secret Empires specifically calls out the Biden. And what Joe Biden has got to do, he’s goy to talk about his relationships with senior members of the Chinese Communist Party, he’s got to talk about his relationships with financial institutions, he and his son, where this billion-and-a-half-dollar fund came from. And Biden was part of the Obama administration. They looked the other way when stationary islands were built in the South China sea, which is the single biggest national security threat to the western democracies, closing off the South China sea, that happened on Joe Biden’s watch and he didn’t say a word. What we need to hear from Joe Biden, he’s up in Pennsylvania, he ought to say why he didn’t put tariffs on steel and aluminum when he was Vice President of the United States and didn’t have President Obama do it. It is Donald Trump that did that. All the happy talk -- all Joe Biden is nothing but happy talk.
BRIAN SULLIVAN: Okay, listen. I don’t know what stuff you’re talking about. I can’t verify what you’re talking about. I wasn’t there. I didn’t write the book. I’m going to ask you a more basic question, bottom line, can he win? You said the other day to Joe Kernen on CNBC the other day, maybe a month and a half ago, that it was Kamala, Beto—
STEVE BANNON: I think—
BRIAN SULLIVAN: --was the combination that could beat Trump. Can Biden win?
STEVE BANNON: Absolutely not. Joe Biden will not win their primary. You’re seeing peak Biden right now. Joe Biden will not be able to stand over this primary process, and I don’t think, no chance that he could take on Donald Trump one-on-one. He doesn’t have the stamina. He doesn’t have the smarts. He doesn’t have the actual get into combat with somebody like Trump. Trump -- I think the democrats are going to understand that. I think you’re seeing peak Biden now. But what Biden has got to – before he starts going around and blowing smoke up, talking to blue collar workers.
BRIAN SULLIVAN: He’s from Scranton for Pete’s sake.
STEVE BANNON: Then why did he not defend these workers? Why did it take Donald Trump to do it?
BRIAN SULLIVAN: Alright. We’re out of time, but I’ve got to ask you this. Do you believe -- what is going to be the culmination of the Mueller report? Will Donald Trump, your former boss, be impeached?
STEVE BANNON: Absolutely zero. They’re not even – I mean, the Mueller people should read the Mueller report. There is -- there is absolutely no collusion, as Donald Trump said. And I actually recommended don’t fire Comey because there is no collusion. There is no collusion. There is no obstruction. And so, I think this thing passes, the democrats are going to try to – like I said, this is going to be six months of terrible vitriol because they’re everyday they’re going after his finances, they’re going to go after his family, they’re going after everything because they control the house. Donald Trump will power through this. But the democrats are going to need somebody that can mobilize them. I’m going to tell the democrats something: unless you start talking about China, you’re not going to be competitive in 2020 against Donald Trump. They had five hours of CNN the other night. The one thing you never hear about is China.
BRIAN SULLIVAN: Steve, thank you. Kyle, thank you. I know we’re going to stick around and do more of an interview for Worldwide Exchange tomorrow morning. Appreciate that, guys. Alright, "Squawk on The Street," I’ll send it back to you.