Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: With its push to disrupt global trade, the Trump administration
Speaker 2: has insisted its playing the long game. The president argues
Speaker 2: that eventually tariffs on some of the US's largest trading
Speaker 2: partners will usher in a new era for American manufacturing,
Speaker 2: they'll raise money for proposed tax cuts, and they'll give
Speaker 2: the entire US economy a boost. The juries still out
Speaker 2: on that long term vision, but the short term impacts
Speaker 2: are already starting to make themselves clear in whip sawing
Speaker 2: markets and downgraded global growth forecasts. Government data published this
Speaker 2: morning shows the US economy shrank zero point three percent
Speaker 2: in the first quarter as companies rush to import goods
Speaker 2: before tariffs took effect, and according to one of the
Speaker 2: world's most influential banking executives, the uncertain caused by Trump's
Speaker 2: tariff policies could mean more economic pain ahead.
Speaker 1: When there's a high level of uncertainty, people titanervelt, they
Speaker 1: invest less, they spend less, and all those things slow
Speaker 1: down growth.
Speaker 2: David Solomon is the CEO of Goldman Sachs, the behemoth
Speaker 2: investment bank and financial services company that oversees three point
Speaker 2: one trillion dollars in assets globally. Solomon sat down with
Speaker 2: Bloomberg's editor at large, Francine Lacroix earlier this week in
Speaker 2: Oslo during the Norwegian Sovereign Wealth Fund's annual investment Conference.
Speaker 2: They talked about the fate of the US dollar as
Speaker 2: a reserve currency, opportunities for new investment in European markets,
Speaker 2: and what a slowdown could mean for IPOs and CEOs.
Speaker 2: I'm Sarah Holder, and this is the big take from
Speaker 2: Bloomberg News today. On the show how Goldman Sachs CEO
Speaker 2: Dave at Solomon is assessing the economic impact of Donald
Speaker 2: Trump's trade war.
Speaker 3: We have to start with Trump policies. It's been one
Speaker 3: hundred days since the inauguration.
Speaker 4: Like where are we? We've seen a lot of volatility.
Speaker 4: How would you describe this moment in time?
Speaker 1: Four one hundred days in And I would say there
Speaker 1: are a handful of policy initiatives that are being put forward.
Speaker 1: Some of them certainly are very very interesting and intreating
Speaker 1: to the market. But what's been put forward on trade
Speaker 1: so far has raised the level of uncertainty very significantly.
Speaker 5: And so I'd say, one hundred days in, we need.
Speaker 1: Another one hundred days to kind of see where the
Speaker 1: policy directives are going and to try to have a
Speaker 1: better understanding of how what's talked about so far, particularly
Speaker 1: with respect to trade, is ultimately going to be put
Speaker 1: in place, how it's going to play out. But the
Speaker 1: policy actions to date have raised the level of uncertainty
Speaker 1: to a degree that I don't think is healthy for
Speaker 1: investment and growth, and I think it's going to be
Speaker 1: important that we get more clarity on the direction of
Speaker 1: travel from here.
Speaker 3: So if you look at markets, there's been a sum off,
Speaker 3: a pretty dramatic sell off in the US assets.
Speaker 4: It's somewhat come back, but hasn't been too drastic.
Speaker 1: Well, it's not just for the markets, you know, first
Speaker 1: and foremost, it's.
Speaker 5: For businesses, it's for individuals. You know.
Speaker 1: One of the things that has happened over the course
Speaker 1: of the first one hundred days is that the perspective
Speaker 1: on forward growth has been decreased.
Speaker 5: And so when you decrease.
Speaker 1: That perspective on forward growth, that changes investor's perspective of
Speaker 1: equity values. So what we've seen is a relatively orderly
Speaker 1: kind of repricing of equity assets. And what's unusual on
Speaker 1: the context of this with pricing is generally, when you
Speaker 1: have that kind of equity market stress, people run to
Speaker 1: treasuries or safe haven. But here we're seeing a slightly
Speaker 1: different rotation because of the.
Speaker 5: Nature of the policy.
Speaker 1: We've seen a weakening of the dollar, you know, at
Speaker 1: the margin, and so that's been different than I think
Speaker 1: what people expected.
Speaker 4: Our treasury is still safe haven.
Speaker 1: I think US treasuries absolutely are safe, but you can
Speaker 1: reprice the safe of an asset as people's preferences shift slightly,
Speaker 1: you know. I think at the margin, we've had for
Speaker 1: a long period of time a trend of capital flows
Speaker 1: into US assets, and you know, at the.
Speaker 5: Margin, people are looking at their portfolio.
Speaker 1: Constructions and saying, given the uncertainty that's been raised in
Speaker 1: the US, do we want to rebalance that a little bit?
Speaker 1: And I'd say the rebalancing so far has been at
Speaker 1: the margin.
Speaker 3: Investors are asking a risk premium, pretty hefty risk premium
Speaker 3: to own US assets at the moment. Even if there's
Speaker 3: a reversal in terms of terrorists, does it come back
Speaker 3: to what it was like or.
Speaker 4: Is there a permanent change.
Speaker 1: Well, I'm not sure that they're asking a pretty hefty
Speaker 1: risk premium. They're certainly asking a different premium than were
Speaker 1: we were three months ago.
Speaker 5: But I think everything's.
Speaker 1: Got to be looked at, you know, in a broader perspective.
Speaker 1: The moves have been real in terms of the reprice
Speaker 1: of the equities, particularly some of the growth stuff, the
Speaker 1: Magnificent Seven, some of these stocks, you know that really led.
Speaker 5: The last rally.
Speaker 1: But i'd all so step back and just say, when
Speaker 1: you look at where stocks were a year ago, when
Speaker 1: you look at where stocks were six months ago, you know,
Speaker 1: we had a big move up in the early part
Speaker 1: of the year, and we've kind of reset to kind
Speaker 1: of where we were, you know, six and twelve months ago.
Speaker 1: What's really important is people need to understand the policy
Speaker 1: set going forward and the prospects for growth going forward.
Speaker 1: And so until we have more certainty about the policy directive,
Speaker 1: it's hard for you to see more capital allocation, more investment.
Speaker 4: Does the dollar remain a reserve currency? Absolutely, in ten years,
Speaker 4: twenty years.
Speaker 1: I absolutely think the dollar is going to be the
Speaker 1: reserve currency, but the value of the dollar relative to
Speaker 1: other alternatives can shift, and I do think over time
Speaker 1: the US needs to be very focused on our levels
Speaker 1: of debt or deficit spending, et cetera.
Speaker 5: And I think to the degree that we don't handle
Speaker 5: that appropriately, it can put more pressure on the dollar.
Speaker 1: But I don't see a scenario in the near term
Speaker 1: where I think it's likely that the dollar is not
Speaker 1: the reserve currency for the world.
Speaker 3: I know you're basically saying, look, keep a cool head
Speaker 3: until we have a better understanding.
Speaker 4: Right, some of the policies could in.
Speaker 3: Place, But what does it do to the US economy
Speaker 3: going forward?
Speaker 4: You know, does a FED need to cut rights? Because
Speaker 4: if I'm.
Speaker 5: Certain general growth, I think it depends.
Speaker 1: You know, Goldman Sachs has lowered its growth forecast from
Speaker 1: two percent too point five percent. It's not clear how
Speaker 1: this will all play out in the coming months. No
Speaker 1: one really knows. But to the degree that the economy slows,
Speaker 1: ultimately the FED will try to act to buffet, you know,
Speaker 1: some of that slow down in the economy, to the
Speaker 1: degree that we go into recession, you know, that will
Speaker 1: lead to a different reaction. So again, the FED will
Speaker 1: look at the data. We'll look at the information, they'll
Speaker 1: look at labor, they'll look at growth, and they'll make.
Speaker 5: Decisions based on that.
Speaker 1: Everyone wants to project forward and know the answer for
Speaker 1: a moment in time where it's more uncertain than makes
Speaker 1: everybody comfortable, and I just you know, I just say,
Speaker 1: it's a moment in time. Let's you know, step back,
Speaker 1: Let's see how some of these trade deals are cut.
Speaker 1: Let's see what policy actually does go into place, and
Speaker 1: that will help us better understand the forward growth trajectory.
Speaker 5: But it's clearly been slowed by these actions.
Speaker 1: And as I'm talking to CEOs, as I'm talking to
Speaker 1: our clients, they are holding back on investment and they're
Speaker 1: certainly tightening their belt. You're going to see some companies
Speaker 1: laying off employees and running their businesses tighter because of
Speaker 1: this level of uncertainty.
Speaker 4: Well, where's China and all of this.
Speaker 1: Well, China is a hugely important trading partner to the West,
Speaker 1: to the to Europe.
Speaker 5: At the moment, we're in.
Speaker 1: The early stages of what I think is an obvious
Speaker 1: negotiation between the US and China, and we need more clarity.
Speaker 1: But the current state of affairs is not sustainable, and
Speaker 1: so that's why I think there will be some change.
Speaker 1: You're starting to hear the administration talking about the fact
Speaker 1: that there needs to be changed and what's in place
Speaker 1: is not sustainable, but no one knows exactly how this
Speaker 1: will play out at the moment, and that's that's increasing
Speaker 1: the level of uncertainty.
Speaker 2: After the break, more from Francing the interview with Goldman
Speaker 2: Sachs CEO David Solomon. They discussed the prospects of financial
Speaker 2: deregulation on both sides of the Atlantic and what it
Speaker 2: means that some companies are tightening their belts. Goldman Sachs
Speaker 2: kicked off twenty twenty five with better than expected revenue.
Speaker 2: In Q one of this year, Goldman stock traders rode
Speaker 2: the market volatility to their highest revenues on record, but
Speaker 2: CEO David Solomon says the company is entering a more
Speaker 2: challenging operating environment as the trade war wages on, and
Speaker 2: at the Norwegian Sovereign Wealth Fund's annual investment conference this week,
Speaker 2: he told Bloomberg's editor at large, Francine Lacroix, that while
Speaker 2: the US remains an attractive market for investors, he's also
Speaker 2: eyeing Europe.
Speaker 1: I think one of the most interesting things about what's
Speaker 1: going on is it would be really good for global
Speaker 1: growth and good for the global economy if Europe can
Speaker 1: make more progress on capital markets, reform, European you know,
Speaker 1: champions really bringing together and harnessing the power of the
Speaker 1: European Union.
Speaker 5: And one of the things.
Speaker 1: I'm encouraged by as I'm over here visiting in Europe
Speaker 1: right now is I definitely take away a sense of resolve,
Speaker 1: of excitement about actually moving forward breaking down some of
Speaker 1: the regulatory barriers that have been inhibition to growth here.
Speaker 1: And I think that would be quite constructive and more stimulative.
Speaker 1: Fixtal action here in Europe also would be quite constructive
Speaker 1: for growth. So you know, there gives and gets, but
Speaker 1: it would be really terrific to see some progress on
Speaker 1: the economic trajectory of Europe holistically here. And I'm encouraged
Speaker 1: by some of the things I'm hearing from our clients
Speaker 1: over here.
Speaker 4: Where do you see opportunities in Europe?
Speaker 3: And again, is there like a six month window where
Speaker 3: if Europe doesn't get it backed together, it's.
Speaker 4: Just too light?
Speaker 1: No, I think you know, there's never just a six
Speaker 1: month window here or in the US. You know, it's
Speaker 1: a great sound bite, but these are the big important economies.
Speaker 1: I do think that European growth has been hampered by
Speaker 1: a very complex regulatory environment particularly in Brussels, and by
Speaker 1: a sense that many of the nations have acted, you know,
Speaker 1: more nationalistically than holistically. I think given what's going on
Speaker 1: with the US, there's really a push to break down
Speaker 1: some of that regulatory bureaucracy, to really think about how
Speaker 1: European champions can be bolstered and there can be more investment.
Speaker 1: And I think that's a big opportunity. There's more tech
Speaker 1: innovation going on here. It doesn't quite match up or
Speaker 1: compared to what's going on in the US, but there's
Speaker 1: more opportunity here, and so you know, I'm hopeful that
Speaker 1: this is a moment in time where we can see
Speaker 1: greater investment and a greater sense of the opportunity of
Speaker 1: Europe holistically, and that would be quite constructive.
Speaker 5: For global growth if we could see some progress on that.
Speaker 4: I'm talking about regulation.
Speaker 3: What are you expecting regulation for banks to look like
Speaker 3: in the US?
Speaker 4: Just do rip up some of the regular Well.
Speaker 1: I think we saw an enormous pendulum swing in the
Speaker 1: last four years toward a much tougher financial regulatory environment
Speaker 1: in the US. I don't think it was constructive, and
Speaker 1: I do think from a positive perspective, this administration would
Speaker 1: like to reset that I'm hearing some very constructive things
Speaker 1: along three fronts. One obviously is the leverage ratio, which
Speaker 1: is very very important for the treasury market. Two is
Speaker 1: on the capital regime and the construct of how bank
Speaker 1: capital is calculated.
Speaker 5: And third is just on the supervisory process.
Speaker 1: Supervisory process should be focused on ensuring that we have
Speaker 1: a safe and sound banking system and it shouldn't get
Speaker 1: distracted into other areas. And so I'm encouraged by what
Speaker 1: I hear out of Treasury. I'm encouraged by what I
Speaker 1: hear more bloodly, and so I do think there's an
Speaker 1: opportunity to take that pendulum which really was an inhibitor
Speaker 1: to growth, free up some capital, get that capital we
Speaker 1: cycled into the system, increase line in activity, and so
Speaker 1: I'm quite constructive that we're going to see some positive
Speaker 1: change on the front of financial regulation in the US.
Speaker 3: Do you think Europe then follow suits in deregulating at
Speaker 3: the margins or otherwise it puts European banks.
Speaker 4: In a very difficult position.
Speaker 1: Well, I think one of the issues for Europe is
Speaker 1: that the banking system in Europe has not come along
Speaker 1: over the last fifteen years.
Speaker 5: The same way as the US banking system.
Speaker 1: As you know, there are obviously lots of institutions in
Speaker 1: the United States that are bigger, broader, much larger market
Speaker 1: cap banks, and so in the context of that, consolidation
Speaker 1: and growth in Europe and a capital markets union in
Speaker 1: Europe would be a very constructive thing for the capital
Speaker 1: markets more broadly. But Europe's been slow to make progress
Speaker 1: in that. I'm hopeful that we'll see more progress in
Speaker 1: the coming twelve to twenty four months.
Speaker 3: There's a lot of talk about credits and of course
Speaker 3: private equity and some of the l turn for investments.
Speaker 3: How much does that grow in these uncertain times.
Speaker 1: Well, when there's a higher level of uncertainty, the growth
Speaker 1: of private capital slows, just like the growth of asset
Speaker 1: management business and public capital slows too when there's uncertainty.
Speaker 1: But I think the long term secular growth trends around
Speaker 1: private capital formation are solidly intact. And if you step
Speaker 1: back and you step out of this moment in time,
Speaker 1: I think with a five or ten year view, we
Speaker 1: still have very good secular growth.
Speaker 5: In private capital formation.
Speaker 1: You know, with respect to private credit, we haven't had
Speaker 1: a credit cycle in quite some time. If we have
Speaker 1: a real economic slow down or ultimately.
Speaker 5: A recession, you will have a credit cycle. We have
Speaker 5: to manage through that.
Speaker 1: But with a five to ten year view, I still
Speaker 1: think growth in private capital formation is a long term
Speaker 1: trend that's firmly in place, and a firm like Golden
Speaker 1: Sachs and what we do in our asset wealth management
Speaker 1: business is very well positioned to benefit for that.
Speaker 3: We often talk about a canary in the coal mine,
Speaker 3: or is there anything in either prior credit or anything
Speaker 3: that you're watching out for an indication of a significant
Speaker 3: souring I guess of the economy.
Speaker 1: Or well, what's what has happened that we're all watching
Speaker 1: is the level of uncertainty has changed the prospects for
Speaker 1: growth in the short term, and as a result of that,
Speaker 1: companies slow down capital plans, people because they have less
Speaker 1: confidence spend less.
Speaker 5: I think there was evidence in late.
Speaker 1: January early February that when you looked at certain consumer
Speaker 1: discretionary businesses, we were starting to see a little bit
Speaker 1: of slow down.
Speaker 5: Obviously, with the level of uncertainty we have now.
Speaker 1: That's been accelerated, and so you know, there's no canary
Speaker 1: in the coal mine. The prospects for growth are slower,
Speaker 1: and as a result of that, investment will be slower.
Speaker 1: And until there's more confidence in the policy path forward,
Speaker 1: we're going to have to manage through a slower growth environment,
Speaker 1: and so m.
Speaker 4: And A and IPOs will take a backseat.
Speaker 5: Too strong a statement.
Speaker 1: Again, capital markets activity was up year of year in
Speaker 1: the first quarter, m and A activity for deals above
Speaker 1: five hundre millions, So the kind of m ANDAU and
Speaker 1: I talk about was up in the first quarter year
Speaker 1: over year. Sponsor m and A was up in the
Speaker 1: first quarter year over year. I think it depends on
Speaker 1: where we go from here. You know, if you look
Speaker 1: at the month of April, there's still been a reasonable
Speaker 1: amount of MNA activity. IPO activity is slower given the
Speaker 1: level of uncertainty. If the level of it certainly grows
Speaker 1: from here, yes you won't see the same amount of
Speaker 1: capital markets activity. But my own belief is things will
Speaker 1: settle down. We'll have a clearer policy perspective and some
Speaker 1: normalization of capital markets as we shift into twenty five
Speaker 1: and twenty six. Even if we have a slower economy
Speaker 1: or even far worse we have a recession, Ultimately, when
Speaker 1: the market adjusts to that and resets. People need to transact,
Speaker 1: they need to raise capital, they need liquidity for their investments,
Speaker 1: and so part of this is just a reset of
Speaker 1: expectations and we're in the process of that happening.
Speaker 3: And given all of this, where do you see hiring
Speaker 3: and firing in what divisions and where geographically.
Speaker 1: At Goldman's, Well, I think this firm always manages its
Speaker 1: headcount with a long term perspective, and we will continue
Speaker 1: to do that in an environment like this, where there's
Speaker 1: more uncertainty.
Speaker 5: We probably control.
Speaker 1: Our headcount by doing less hiring, not by at the
Speaker 1: moment based on what I see doing more firing. But
Speaker 1: I do think one of the things that the labor
Speaker 1: force broadly will have to deal with when there's uncertainty
Speaker 1: with companies.
Speaker 5: And I'm hearing this from CEOs.
Speaker 1: More broadly, CEOs tightener belts, and when CEO's titaner belts,
Speaker 1: they get focused on expenses.
Speaker 5: And so I think we're going to go through a
Speaker 5: period here in twenty.
Speaker 1: Twenty five where expense management is going to be more
Speaker 1: in focus for CEOs running big businesses than capital investment.
Speaker 1: And if we get more certainty as companies head into
Speaker 1: their planning processes.
Speaker 5: In the summer, that might change.
Speaker 1: But if we have the level of uncertainty we have now,
Speaker 1: that probably won't change in twenty twenty five.
Speaker 2: This is the Big Take from Bloomberg News. I'm Sarah Holder.
Speaker 2: This episode was produced by Bloomberg TV. It was edited
Speaker 2: by our Deputy Executive producer Julia Weaver, Patty Hirsch, and
Speaker 2: Daniel Taube. It was fact checked by Rachel Lewis Kriskey
Speaker 2: and Audriana Tapia, and mixed and sound designed by Alex Sugiura.
Speaker 2: Our senior producer is Naomi Shaven. Our senior editor is
Speaker 2: Elizabeth Ponso. Our executive producer is Nicole beamsterbor Sage Bauman
Speaker 2: is Bloomberg's head of Podcasts. If you liked this episode,
Speaker 2: make sure to subscribe and review The Big Take wherever
Speaker 2: you listen to podcasts. It helps people find the show.
Speaker 2: Thanks so much for listening. We'll be back tomorrow.