WEBVTT - Bloomberg Wall Street Week - May 12th, 2023 0:00:00.560 --> 0:00:03.720 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.880 --> 0:00:04.840 to the markets this week. 0:00:05.000 --> 0:00:08.640 USCPI Nembers reinforcing concerns about inflation, the. 0:00:08.640 --> 0:00:10.520 Financial stories that shape. 0:00:10.200 --> 0:00:12.799 Our worth a really different reaction to Mark. Some more 0:00:12.800 --> 0:00:16.000 indications of just how hot the US economy really is 0:00:16.079 --> 0:00:19.520 through the eyes of the most influential voices. Katherine Keating, 0:00:19.600 --> 0:00:22.079 CEO of B and Y Moan, Ryan Winnahan, a Bank 0:00:22.079 --> 0:00:25.920 of America, Sam Zell, Chairman and founder of Equity Group Investment. 0:00:25.960 --> 0:00:29.920 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.280 --> 0:00:33.800 All Eyes on Washington, on the drama over the federal debt, 0:00:34.120 --> 0:00:36.320 on whether the FED can take a break from raising raids, 0:00:36.360 --> 0:00:39.560 and on the two men who are running for president again. 0:00:40.280 --> 0:00:43.440 This is Boobert Wall Street Week. I'm David Weston. This 0:00:43.560 --> 0:00:46.720 week Blair Ephron is Center View Partners on the appetite 0:00:46.720 --> 0:00:49.279 for big deals despite all the uncertainty we. 0:00:49.280 --> 0:00:52.479 Are in uncharted complicated waters. 0:00:52.600 --> 0:00:55.640 Former FED Vice chair Randall Quarrels on what went wrong 0:00:55.720 --> 0:00:58.680 with Silicon Valley Bank, and former BBC and New York 0:00:58.680 --> 0:01:02.480 Times head Mark Thompson on what streaming and AI mean 0:01:02.600 --> 0:01:03.920 for the business of news. 0:01:04.120 --> 0:01:06.520 The news is going through a revolution. That's what's going on. 0:01:18.920 --> 0:01:19.319 This week. 0:01:19.400 --> 0:01:21.560 Global Wall Streets spent a lot of its time trying 0:01:21.600 --> 0:01:24.240 to look around corners like the corner of the debt 0:01:24.319 --> 0:01:26.720 ceiling and whether it will keep the government from paying 0:01:26.720 --> 0:01:29.240 the debts it is already run up. The speaker McCarthy 0:01:29.280 --> 0:01:31.720 traveling to the White House for what may or may 0:01:31.760 --> 0:01:33.320 not the negotiations. 0:01:33.480 --> 0:01:35.479 I was very clear with the President we have now 0:01:35.520 --> 0:01:36.280 just two weeks to go. 0:01:36.920 --> 0:01:39.800 And the issue followed Treasure sector yell onto the G 0:01:39.920 --> 0:01:43.360 seven finance ministers meeting in Nigata, Japan at the end 0:01:43.360 --> 0:01:43.800 of the week. 0:01:44.120 --> 0:01:47.800 If Congress fails to do that, it really impairs our 0:01:47.840 --> 0:01:52.240 credit rating. We have to default on some obligation, whether 0:01:52.280 --> 0:01:55.480 it's treasuries or payments to Social Security. 0:01:55.760 --> 0:01:58.840 The presidential election may still be eighteen months away, but 0:01:58.880 --> 0:02:01.640 the two meeting candidates each had his own take on 0:02:01.680 --> 0:02:04.440 the debt ceialing issue, with President Biden saying it wasn't 0:02:04.480 --> 0:02:07.200 just the United States that is in the crosshairs. 0:02:07.120 --> 0:02:10.519 If we default on our debt, the whole world isn't 0:02:10.560 --> 0:02:12.840 Trump this is a manufactured crisis. 0:02:12.880 --> 0:02:15.040 But on the other hand, former President Trump appeared on 0:02:15.120 --> 0:02:17.840 CNN and said, maybe a default isn't that big a deal. 0:02:18.080 --> 0:02:21.320 I say that the Republicans out there, Congressman, senators, if 0:02:21.320 --> 0:02:24.160 they don't give you massive cuts, you're going to have 0:02:24.160 --> 0:02:24.960 to do a default. 0:02:25.400 --> 0:02:28.080 And in the meantime, consumer price index numbers came in 0:02:28.080 --> 0:02:29.320 this week as predicted. 0:02:29.680 --> 0:02:32.040 The month over month changed for both the headline and 0:02:32.080 --> 0:02:35.880 the core comes in exactly as forecast at four tenths 0:02:35.919 --> 0:02:38.920 of a percent. That's up on a headline basis over 0:02:39.000 --> 0:02:40.720 what we saw last month. 0:02:40.639 --> 0:02:42.959 Which is like vince Reinhardt to doubt that they would 0:02:43.040 --> 0:02:45.040 do anything to change the Fed's path. 0:02:46.040 --> 0:02:51.760 Was today's print disqualifying for FED action in June fifteens ers? 0:02:51.840 --> 0:02:56.320 No, The markets this week were relatively calm, with the 0:02:56.360 --> 0:02:58.560 S and P five hundred off just three tenths percent, 0:02:58.639 --> 0:03:01.520 the Nasdaq up for ten hund percent, and the yield 0:03:01.520 --> 0:03:03.480 and the ten yere up less than two basis points, 0:03:04.639 --> 0:03:06.880 ending the week at three point four to six six. 0:03:07.280 --> 0:03:09.240 To take us through what we saw this week, we 0:03:09.240 --> 0:03:11.720 welcome now Liz Ann Saunders back to Wall Street week. 0:03:11.760 --> 0:03:15.440 She's Chief Investment Strategies at Charles Schwab and Kristen Britterally, 0:03:15.520 --> 0:03:19.240 she is head of North America Investments at Citygroup Global Markets. 0:03:19.280 --> 0:03:21.040 So welcome to both of you. Great you have you, Kristen, 0:03:21.080 --> 0:03:22.760 thank you for coming to Wall Street. We really good 0:03:22.800 --> 0:03:23.240 to have you here. 0:03:23.280 --> 0:03:24.000 It's great to be here. 0:03:24.080 --> 0:03:24.400 Thank you. 0:03:24.480 --> 0:03:25.040 Let's start with you. 0:03:25.080 --> 0:03:27.720 In the equity markets, they seem to be relatively calm, 0:03:27.760 --> 0:03:31.200 despite that talk about maybe some kerfuffle down in Washington. 0:03:31.280 --> 0:03:33.080 Yeah, this is really interesting, and I think it's one 0:03:33.120 --> 0:03:35.160 of the most frequently asked questions that we're getting from 0:03:35.160 --> 0:03:38.200 our investors. Why has volatility muted? Why are we not 0:03:38.320 --> 0:03:41.400 seeing any stresses within the equity markets? And I think 0:03:41.400 --> 0:03:44.360 there's a couple of explanations for this. So the first 0:03:44.360 --> 0:03:46.320 one is, when you look at the breadth of the 0:03:46.360 --> 0:03:49.800 equity market rally that we've seen, it's really only seven 0:03:49.880 --> 0:03:53.200 stocks are driving eighty percent of the year today gains. 0:03:53.320 --> 0:03:57.240 So this is very concentrated. This is very idiosyncratic. Another 0:03:57.280 --> 0:03:59.080 way to look at it is you have about ten 0:03:59.120 --> 0:04:02.160 companies that are driving twenty five percent of the free 0:04:02.160 --> 0:04:05.920 cashlow generation within the US market. So this is a 0:04:05.960 --> 0:04:09.160 story about the companies that are really well run as 0:04:09.200 --> 0:04:12.600 opposed to a breadth and depth of this rally. 0:04:13.040 --> 0:04:15.480 So LU say, what about that does that narrowness of 0:04:15.520 --> 0:04:16.919 the rally, if we can call it that in the 0:04:16.920 --> 0:04:19.720 stock market, does that make you nervous? 0:04:20.520 --> 0:04:23.080 Well, it doesn't suggest as healthy a market as if 0:04:23.120 --> 0:04:25.840 you had the soldiers at the front line and not 0:04:25.920 --> 0:04:28.240 just the generals at the front line. I think there's 0:04:28.360 --> 0:04:30.360 a little bit of muscle memory in a knee jerk 0:04:30.400 --> 0:04:33.279 move that goes back into names like this when people 0:04:33.320 --> 0:04:37.000 think back to those that group of stocks, many of 0:04:37.000 --> 0:04:41.320 the same ones represented almost a defensive place to go 0:04:41.440 --> 0:04:44.320 during the worst part of the pandemic. But of course 0:04:44.320 --> 0:04:48.720 what it represented fundamentally at that time was those represented 0:04:48.880 --> 0:04:52.520 the only ecosystems in which we were living when everything 0:04:52.600 --> 0:04:56.040 was shut down. I think this time it's a bit different. 0:04:56.279 --> 0:05:00.000 Chris talked about the large size and liquidity and cash 0:05:00.040 --> 0:05:03.719 generation of these companies. You can also see the dominance 0:05:03.720 --> 0:05:07.520 of their outperformance really kick into high gear when we 0:05:07.680 --> 0:05:11.760 saw the failure of SVB Bank and the ripple effects, 0:05:12.240 --> 0:05:15.680 So I think that really was the push there. You 0:05:15.720 --> 0:05:18.440 can have an environment like that last a while and 0:05:18.480 --> 0:05:21.599 it doesn't necessarily have to be calamitous. There are times 0:05:21.640 --> 0:05:25.360 where you can see some catched down by the big 0:05:25.400 --> 0:05:29.600 dominant names. While you're seeing improving breadth and better participation 0:05:29.760 --> 0:05:31.440 on the way back up. That's a bit of what 0:05:31.520 --> 0:05:34.040 was going on last fall when the market had its low. 0:05:34.680 --> 0:05:37.839 But I think concentration risk in terms of what is 0:05:37.839 --> 0:05:42.039 the manifestation actually for investors, I think investors should be 0:05:42.080 --> 0:05:45.600 mindful of not chasing that and ending up with too 0:05:45.680 --> 0:05:46.760 much concentration risk. 0:05:46.920 --> 0:05:49.480 So the equity markets can't get too far away from earnings. 0:05:49.839 --> 0:05:52.279 And we're well into earnings now towards the end of 0:05:52.320 --> 0:05:54.560 this season, and we looked act to our elves. You 0:05:54.560 --> 0:05:56.240 know that we have twenty four l's of which we 0:05:56.279 --> 0:05:59.080 have one from City actually, and they're protecting overall I 0:05:59.080 --> 0:06:02.040 think two hundred six dollars at the end of the 0:06:02.120 --> 0:06:04.520 year earnings for share, which is down about eight percent 0:06:04.520 --> 0:06:05.080 from last year. 0:06:05.120 --> 0:06:06.160 Where are you on that projection? 0:06:06.279 --> 0:06:08.080 We're very much aligned to that that we started this 0:06:08.240 --> 0:06:11.640 year about looking at about a ten percent earnings contraction. 0:06:12.160 --> 0:06:14.320 We're now in the ballpark of about eight to ten percent. 0:06:14.720 --> 0:06:16.600 And I think when we look at Q one earnings, 0:06:16.600 --> 0:06:18.839 they were certainly better than feared, which is why we 0:06:18.839 --> 0:06:21.480 could see some reduction of that number. But I think 0:06:21.480 --> 0:06:23.320 what we have to keep in mind is when we 0:06:23.360 --> 0:06:25.920 look at the US equity market, we have seven out 0:06:25.920 --> 0:06:28.960 of eleven sectors that are already in a profits recession. 0:06:29.320 --> 0:06:31.839 When we look at what the FED has done already, 0:06:31.880 --> 0:06:35.719 the five hundred basis points of great hikes, the quantitative tightening, 0:06:35.960 --> 0:06:38.520 the stresses in the banking sector that are going to 0:06:38.600 --> 0:06:41.320 lead to tightening of credit conditions, this is something that 0:06:41.360 --> 0:06:44.680 has us very cautious. It's more difficult for companies to 0:06:44.720 --> 0:06:48.640 be profitable in this environment. It's more challenging on the consumer, 0:06:48.920 --> 0:06:50.800 and the idea that this isn't going to flow through 0:06:50.839 --> 0:06:53.600 to corporate earnings in a more material way is something 0:06:53.600 --> 0:06:55.960 that we just don't believe. So playing a little defense 0:06:56.000 --> 0:06:59.839 here and expecting some downside is what we're advising our investors. 0:07:00.480 --> 0:07:04.160 We're either in or rapidly approaching a federal debt crisis, 0:07:04.360 --> 0:07:07.279 as the so called X DAYE when the government runs 0:07:07.279 --> 0:07:09.600 out of money is just over two weeks away now. 0:07:09.880 --> 0:07:13.480 With a default, something most everyone agrees would be a catastrophe. 0:07:13.760 --> 0:07:16.040 And there are some indications in the T bill and 0:07:16.040 --> 0:07:18.880 the CDs markets that at least some investors are starting 0:07:18.880 --> 0:07:21.280 to get worried, but you couldn't really tell that from 0:07:21.280 --> 0:07:23.840 the equity markets. This is not the first time we 0:07:23.920 --> 0:07:26.560 have been here, and we asked our colleague Michael McKee 0:07:26.680 --> 0:07:29.000 to compare what we're seeing now with what we saw 0:07:29.040 --> 0:07:32.160 in twenty eleven when we had a similar close brush 0:07:32.320 --> 0:07:33.000 with disaster. 0:07:35.000 --> 0:07:39.440 Industrious David would rather hope that history doesn't repeat or rhyme. 0:07:39.880 --> 0:07:42.200 For some time, we've been told that nothing's going to 0:07:42.240 --> 0:07:44.920 happen on the debt ceiling until we get to the 0:07:45.000 --> 0:07:48.200 last minute or until Wall Street melts down, and it 0:07:48.240 --> 0:07:51.320 does seem we're getting close on both counts. Here's what 0:07:51.680 --> 0:07:54.720 JP Morgan Chase CEO Jamie Diamond told us just a 0:07:54.720 --> 0:07:55.400 few days ago. 0:07:55.760 --> 0:08:00.640 Actual default that is potentially catastrophic, and you can go 0:08:00.720 --> 0:08:04.640 through a million ways, but everyone, anyone's anyone knows that 0:08:05.080 --> 0:08:06.920 Cass Tropick and I don't think it's going to happen 0:08:06.960 --> 0:08:08.960 because it gets cash Rowberick, and the close you get 0:08:08.960 --> 0:08:11.720 to it, you will have panic. Markets get volatile, maybe 0:08:11.760 --> 0:08:14.360 there's Doc mar go down. The treasury markets will have 0:08:14.440 --> 0:08:15.240 their own problems. 0:08:15.400 --> 0:08:18.760 It's amazing. You already have certain T bills. 0:08:18.280 --> 0:08:20.760 Trading three percent and right next to one five percent. 0:08:21.120 --> 0:08:22.520 This is not good. 0:08:23.080 --> 0:08:25.760 We have seen this movie before the debt ceiling taken 0:08:25.800 --> 0:08:28.280 hostage for spending cuts a number of times over the 0:08:28.320 --> 0:08:32.480 past couple of decades. Twenty and eleven is one time 0:08:32.600 --> 0:08:36.560 when investors don't want history to rhyme. They went down 0:08:36.559 --> 0:08:39.320 to the wire as President Obama fought the idea of 0:08:39.400 --> 0:08:43.960 giving in to extortion on the debt ceiling. Then markets collapsed. 0:08:44.120 --> 0:08:47.200 The S and P five hundred went down about twenty 0:08:47.200 --> 0:08:50.400 percent and stayed down for quite some time before starting 0:08:50.440 --> 0:08:51.559 to go back up again. 0:08:53.360 --> 0:08:57.679 Losenne Sanders, Charles Schwab, and Chrissian Bitterly of City are 0:08:57.720 --> 0:08:59.640 still with us, and let me go to you on this. 0:09:00.080 --> 0:09:02.000 Why aren't we seeing more reaction in the equity markets 0:09:02.040 --> 0:09:03.360 than we have so far in the dead ceiling. 0:09:05.160 --> 0:09:08.480 I hope it's not just complacency and a correct assumption 0:09:08.800 --> 0:09:11.720 that although they can will probably inevitably kick to the 0:09:11.720 --> 0:09:14.360 eleventh hour fifty nine minute. That's just the way things 0:09:14.960 --> 0:09:19.040 are done, particularly on this subject. But so my guess 0:09:19.120 --> 0:09:22.520 is just complacency and an assumption that something will get done. 0:09:22.559 --> 0:09:24.120 I'd hate to think we have to go down the 0:09:24.160 --> 0:09:26.920 same path of twenty eleven, which is also a kin 0:09:28.080 --> 0:09:30.679 for different reasons of what happened in two thousand and 0:09:30.720 --> 0:09:33.320 eight with ultimately the passage of TARP, you needed that 0:09:33.440 --> 0:09:37.120 riot moment in markets. I think I agree with Jamie Diamond. 0:09:37.160 --> 0:09:39.160 I think it would be cataclysmic. I don't think anybody 0:09:39.200 --> 0:09:44.120 should be cavalier about letting it happen, whether it's for 0:09:45.400 --> 0:09:48.920 you know, political gain or whatever reason. My concern with 0:09:48.960 --> 0:09:53.000 regard to twenty eleven macro conditions are very different. We 0:09:53.000 --> 0:09:55.120 were on an upswing in the economy, having come out 0:09:55.160 --> 0:09:57.920 of the global financial crisis. We weren't dealing with an 0:09:57.960 --> 0:10:01.640 inflation problem or having come out of the most aggressive 0:10:01.679 --> 0:10:05.920 tightening cycle in forty years. And then there's certainly more 0:10:06.000 --> 0:10:09.640 vitriol right now. So I think we all should be 0:10:09.679 --> 0:10:12.040 worried about it, but I think ultimately something will get done. 0:10:12.240 --> 0:10:14.400 Okay, thank you so very much to Leazenne Sanders or 0:10:14.440 --> 0:10:16.439 Charles schwa for being back with us, and Kristin Bitterly 0:10:16.480 --> 0:10:19.400 for coming to us from city. Partisan fights over the 0:10:19.400 --> 0:10:22.160 dead ceiling are nothing new for Wall Street those Rockeiser 0:10:22.200 --> 0:10:24.920 talked about it in March of nineteen ninety six when 0:10:24.960 --> 0:10:27.640 Congress ended up with a short term stop gap spending 0:10:27.640 --> 0:10:30.439 bill to keep the US from defaulting. Back then, if 0:10:30.440 --> 0:10:32.760 you remember the top movie in the country was Mike 0:10:32.840 --> 0:10:36.400 Nichols The Bird Cage. Coming up, Where have all those 0:10:36.440 --> 0:10:39.079 deals gone and are they coming back? We're going to 0:10:39.120 --> 0:10:41.120 ask Blair Effron, a center of your partners, about whether 0:10:41.120 --> 0:10:43.400 it has to do with credits tightening or whether they're 0:10:43.400 --> 0:10:46.120 bigger factors such as, for example, what's going on Washington 0:10:46.240 --> 0:10:48.320 on the debt ceiling. All of that is coming up 0:10:48.360 --> 0:10:51.040 next on Wall Street Week, and we are on Bloomberg. 0:11:06.000 --> 0:11:10.160 This is Bloomberg Wall Street Week with David Weston from 0:11:10.320 --> 0:11:11.280 Bloomberg Radio. 0:11:18.600 --> 0:11:21.839 Credit it's what makes the financial world go round, and 0:11:21.880 --> 0:11:25.240 that world is concerned there may be less credit available. 0:11:25.520 --> 0:11:27.920 One of the big questions will be to what extent 0:11:28.000 --> 0:11:32.520 does credit titan and you know, if that is material 0:11:32.679 --> 0:11:35.040 that will have a drag on the economy. 0:11:35.520 --> 0:11:39.560 With CEO's mentions of credit tightening spiking this earning season, 0:11:40.240 --> 0:11:43.240 the series of regional bank shocks made matters only worse 0:11:43.600 --> 0:11:47.000 as bankers struggling to stay afloat, had little appetite to 0:11:47.040 --> 0:11:48.840 take on the risk of extending credit. 0:11:50.040 --> 0:11:53.640 A banking system which has government guarantees where people put their. 0:11:53.559 --> 0:11:57.679 Money in a trust relationship if they suffer significant losses, 0:11:57.920 --> 0:11:59.560 that's what causes concern. 0:12:00.120 --> 0:12:03.000 But as important as credit is, it's just that hard 0:12:03.040 --> 0:12:05.480 sometimes to get a handle on it in real time. 0:12:06.000 --> 0:12:09.320 The fed's backward looking numbers on bank commercial and industrial 0:12:09.360 --> 0:12:12.720 loans fell sharply in January and February, but started to 0:12:12.720 --> 0:12:16.000 recover in March, only to turn down again in April. 0:12:16.840 --> 0:12:20.680 And the forward looking Senior Loan Officer Opinion survey Or 0:12:20.720 --> 0:12:24.680 SLUICE numbers this week pointed to further tightening, which FED 0:12:24.760 --> 0:12:26.920 Chair J. Powell got a peak at last week and 0:12:27.000 --> 0:12:30.320 told us in advance was in line with what they expected. 0:12:30.440 --> 0:12:32.960 In mid size banks have some of them had been 0:12:32.960 --> 0:12:35.280 tightening their lending standards. 0:12:36.120 --> 0:12:39.000 Banking data will show that lending has continued to grow, 0:12:39.040 --> 0:12:39.880 but the pace has. 0:12:39.720 --> 0:12:41.400 Been slowing really since the second. 0:12:41.120 --> 0:12:45.240 Half of last year. And to take us through the 0:12:45.280 --> 0:12:47.000 world of credit and what it may or may not 0:12:47.080 --> 0:12:49.079 be doing to the deal pace, we turned out of 0:12:49.120 --> 0:12:50.839 somebody who really knows that space awfully well. 0:12:50.840 --> 0:12:51.640 He's Blair Efron. 0:12:51.960 --> 0:12:55.080 He is a partner and co founder of Centerview Partner. 0:12:55.160 --> 0:12:56.240 So welcome back to Walter. 0:12:56.440 --> 0:12:57.480 Great to have you see. 0:12:57.600 --> 0:12:59.160 Okay, let's start with credit. 0:12:58.840 --> 0:13:00.840 Because it was one thing that does affect the pace 0:13:00.840 --> 0:13:03.120 of deals. Is it affecting it from your point view 0:13:03.240 --> 0:13:03.560 right now? 0:13:03.679 --> 0:13:08.360 Absolutely, it's getting better. Still constrained fourth quarter of twenty two, 0:13:08.400 --> 0:13:11.880 you had nothing. Today, you actually have the markets loosening 0:13:12.000 --> 0:13:14.880 up for the right deals, ignishing data point. For example, 0:13:15.040 --> 0:13:19.320 the largest LBO in the past six seven eight months 0:13:19.520 --> 0:13:23.240 was a deal with Blackstone and Emerson for their climate business, 0:13:23.280 --> 0:13:27.960 fourteen billion dollar deal. No bank that was available. The 0:13:28.000 --> 0:13:32.480 private direct lending market stepped in firms like Apollo, Blackstone, 0:13:32.559 --> 0:13:35.320 KKR Areas that did five and a half billion of 0:13:35.320 --> 0:13:37.719 financing to see it through. Half of that has been 0:13:37.760 --> 0:13:40.040 replaced in the past week by the banks. So it 0:13:40.120 --> 0:13:44.920 really depends on the credit and it depends on what 0:13:44.960 --> 0:13:48.040 the deal is, but there is absolutely credit available. Obviously, 0:13:48.200 --> 0:13:50.320 the key is it's much more expensive. You should assume 0:13:50.480 --> 0:13:55.480 for a private equity transaction it's five hundred basis points 0:13:55.559 --> 0:13:57.079 or so higher than it would have been a year 0:13:57.080 --> 0:13:59.480 and a half ago, and for a corporate deal two 0:13:59.600 --> 0:14:02.880 hundred one hundred fifty basis points. And that leads to 0:14:02.920 --> 0:14:05.520 the next issue, which is how you price an asset 0:14:05.720 --> 0:14:08.640 for sale. And obviously with multiple staying high and elevated 0:14:08.679 --> 0:14:11.520 and at eighteen times PE, it's the same as it 0:14:11.559 --> 0:14:13.240 was last year, same as it was in twenty one, 0:14:13.920 --> 0:14:16.560 But yet your returns in any transaction are more difficult. 0:14:16.679 --> 0:14:20.240 So you have to think about how to get the 0:14:20.440 --> 0:14:23.320 buyer and the seller to come to agreement. Not easy. 0:14:23.360 --> 0:14:24.920 As I recalled center of you might have had something 0:14:24.920 --> 0:14:26.440 to do with the Emerson deals like we did. 0:14:27.200 --> 0:14:28.400 You can give us a plug, I won't. 0:14:28.440 --> 0:14:29.480 Okay, we'll do that. 0:14:30.040 --> 0:14:32.280 So let's go to that question of buyers and sellers 0:14:32.320 --> 0:14:34.280 and where they think the price is. Because some of 0:14:34.280 --> 0:14:37.040 those prices are coming down. Valuations are affected by interest 0:14:37.120 --> 0:14:39.800 rates and also some slowing of the economy in some places, 0:14:40.160 --> 0:14:42.120 have the sellers gotten their heads around the fact that 0:14:42.160 --> 0:14:43.160 their price may be lower. 0:14:43.360 --> 0:14:45.880 They finally starting to do that, which is actually why 0:14:45.880 --> 0:14:48.520 I think there's more discussion. You don't see it yet 0:14:48.560 --> 0:14:51.200 in terms of announcements, but you see companies thinking more 0:14:51.240 --> 0:14:54.920 about M and A as part of their thinking in 0:14:54.920 --> 0:14:57.840 twenty three, and I would venture to say that as 0:14:57.880 --> 0:15:00.480 we exit the year twenty three and get into twenty four, 0:15:00.760 --> 0:15:02.800 you'll see activity actually start to pick up quite a bit. 0:15:03.040 --> 0:15:04.480 So you think it will come back? Do you think 0:15:04.520 --> 0:15:06.160 we'll reach the levels we had before? Because we have 0:15:06.240 --> 0:15:07.040 some record levels. 0:15:07.080 --> 0:15:09.160 Oh boy, that was high. You think about a five 0:15:09.240 --> 0:15:15.040 trillion dollars peak market, that probably unlikely. But the idea 0:15:15.040 --> 0:15:17.960 that you'll have a stable global M and a market 0:15:17.960 --> 0:15:21.320 of four trillion dollars or so every year, I think absolutely. 0:15:21.440 --> 0:15:23.560 And what you find out generally about M and A 0:15:23.720 --> 0:15:28.080 David now is it's less prone to cyclicality. It's part 0:15:28.120 --> 0:15:30.840 of a company's core strategy. Most companies are actually very 0:15:30.840 --> 0:15:34.040 good at it. And when you're thinking about new avias 0:15:34.120 --> 0:15:36.320 and growth new areas for your business, you're thinking about 0:15:36.360 --> 0:15:40.160 the pace of disruption and how you combat that. It 0:15:40.320 --> 0:15:43.360 becomes important for most companies to want to consider. 0:15:43.640 --> 0:15:46.800 When you've been on with us before, you've emphasized Blair 0:15:46.920 --> 0:15:50.200 that uncertainty is one of the biggest factors in determining 0:15:50.400 --> 0:15:53.280 whether companies want to do deals or not. Where are 0:15:53.360 --> 0:15:55.000 we uncertain? Because there seems to be a lot of 0:15:55.040 --> 0:15:56.240 uncertainty around right now. 0:15:56.400 --> 0:16:01.080 We are in uncharted complicated words starting with obviously the 0:16:01.080 --> 0:16:04.000 dead ceiling, which way to come back to the banking 0:16:04.120 --> 0:16:08.440 environment more generally, and whether you think we're a slow 0:16:08.520 --> 0:16:12.640 down or something more severe in the coming months. I 0:16:12.640 --> 0:16:14.400 happen to be in a slow down camp. I think 0:16:14.440 --> 0:16:16.680 there's a lot of resiliency that we don't account for. 0:16:17.280 --> 0:16:21.040 It's a lot of tailwind that will lead stability. But 0:16:21.120 --> 0:16:24.280 that uncertainty clearly is an issue when you think about 0:16:24.280 --> 0:16:26.840 doing a transaction. And remember you want to be able 0:16:26.880 --> 0:16:30.360 to think of a dead transaction when there's a macrotail wind, 0:16:30.920 --> 0:16:34.000 because it covers up some of your assumptions that may 0:16:34.040 --> 0:16:35.920 not pan out. It's just people do better in a 0:16:35.960 --> 0:16:39.800 growth environment. Any company does, so clearly an issue. And 0:16:39.840 --> 0:16:44.800 I think until the dead ceiling situation resolves, and that's 0:16:45.160 --> 0:16:49.920 with the question mark, I hope it'll be weighing pretty heavily. 0:16:50.000 --> 0:16:51.440 We've had this dead ceiling situation before. 0:16:51.480 --> 0:16:53.520 Two thousand eleven was the time we had a downgrade 0:16:53.520 --> 0:16:55.480 actually from it, and we have a lot of people, 0:16:55.560 --> 0:16:57.240 the president of that States as well as Mitch will Connell 0:16:57.320 --> 0:16:59.480 agreeing we can't have a default. We actually had formed 0:16:59.480 --> 0:17:01.800 person tru I'm saying this week, well, maybe it wouldn't 0:17:01.800 --> 0:17:04.080 be that bad a thing. Well, how does it figure 0:17:04.119 --> 0:17:07.200 in the minds of people doing deals, CEOs and others 0:17:07.359 --> 0:17:09.439 thinking about deals? Are they taking into account? Do they 0:17:09.480 --> 0:17:10.120 take it seriously? 0:17:10.240 --> 0:17:12.280 So everybody's takend seriously let's get away from the deal 0:17:12.320 --> 0:17:14.560 market for a second. Let's talk about a company's performance. 0:17:16.200 --> 0:17:19.920 I think the debt situation, the debt ste situation already 0:17:19.960 --> 0:17:23.719 is having a big impact. If you think about driving 0:17:23.720 --> 0:17:26.400 a car, you're a passenger and the driver goes ninety 0:17:26.400 --> 0:17:28.640 miles an hour and then slows down, you're gonna think 0:17:28.640 --> 0:17:30.399 twice about getting back in the car, which you have 0:17:30.480 --> 0:17:33.920 already Simply the spectra of its probably hit GDP growth 0:17:33.960 --> 0:17:37.480 thirty basis points. It's probably hit jobs two hundred and 0:17:37.480 --> 0:17:40.680 fifty thousand, according to CEA, the Council of Economic Advisors, 0:17:42.119 --> 0:17:44.240 and then you start to think about what the impact 0:17:44.359 --> 0:17:47.560 is if you go over and have a default that 0:17:47.960 --> 0:17:51.280 is measured in days and weeks. The fact of the 0:17:51.320 --> 0:17:53.919 matter is that's a half a million jobs, that's a 0:17:53.920 --> 0:17:56.720 half a point of GDP growth, and that's before you 0:17:56.760 --> 0:18:01.879 start to think of the absolutely urgent consequences of something 0:18:01.920 --> 0:18:02.919 that's protracted. 0:18:03.600 --> 0:18:06.760 We also have regulatory uncertainty, particularly in the antitrust area, 0:18:06.800 --> 0:18:09.680 both for the FTC and from the Justice Department. Bloomberg 0:18:09.680 --> 0:18:12.280 actually had a piece this week saying that that really 0:18:12.359 --> 0:18:15.919 is deterring or some of the CEOs from moving forward 0:18:15.920 --> 0:18:18.240 because you're not sure whether we're going to approve, but 0:18:18.240 --> 0:18:20.440 even more than that, how long it will take. There's 0:18:20.480 --> 0:18:22.439 a lot of uncertainty running. Are you dealing with that 0:18:22.600 --> 0:18:23.560 as you advise. 0:18:23.400 --> 0:18:25.960 Absolutely, David, And if you just it shows up in 0:18:25.960 --> 0:18:29.200 the numbers. Year to date we have I think fourteen 0:18:29.240 --> 0:18:31.800 deals over ten billion dollars versus last year was twenty 0:18:31.800 --> 0:18:34.080 four deals. But you account for that in your thinking. 0:18:34.200 --> 0:18:36.960 If it's going to take eighteen months for a transaction 0:18:37.040 --> 0:18:39.760 to close, you spend a lot of time thinking about 0:18:39.800 --> 0:18:44.359 how both the acquired business and the acquiring company manage 0:18:44.359 --> 0:18:48.440 their own businesses, keep the base business performing well, and 0:18:49.280 --> 0:18:52.480 try to minimize uncertainty for all the employees. You can 0:18:52.520 --> 0:18:55.320 think about different structures. If you stock, for example, in 0:18:55.359 --> 0:19:02.919 a transaction, the selling company has more of a vested interest, 0:19:02.960 --> 0:19:06.280 if you will, more of a meeting the minds in 0:19:06.359 --> 0:19:09.640 terms of what it takes to do well. And I'd 0:19:09.680 --> 0:19:13.040 also say you think about the whole question of synergy 0:19:13.320 --> 0:19:15.359 in a different way. I think that you need to 0:19:15.359 --> 0:19:17.840 be more conservative, certainly on cost, and you need to 0:19:17.880 --> 0:19:24.080 be more aggressive and absolutely committed to the idea that 0:19:24.280 --> 0:19:27.960 the transaction leads to better growth, which leads to job creation, 0:19:28.119 --> 0:19:32.240 which leads to potentially better outcomes for consumers. All this 0:19:32.400 --> 0:19:37.080 factors into the thinking. I would also finally say that 0:19:37.240 --> 0:19:41.960 it's much more the administration using a megaphone than actually 0:19:42.440 --> 0:19:47.240 litigating that people are attentive to. But all that said, 0:19:48.320 --> 0:19:51.399 smart deals are still happening and they will continue to happen. 0:19:51.800 --> 0:19:53.560 Blair, it's great to have you back on Walshiver. Thank 0:19:53.600 --> 0:19:55.280 you so much for having me, David. That's Blair Efron 0:19:55.320 --> 0:19:57.080 a Center View Partners. 0:19:58.359 --> 0:19:58.800 Coming up. 0:19:58.920 --> 0:20:03.000 Generative AI just the latest challenge to the news business model. 0:20:03.359 --> 0:20:05.560