WEBVTT - Bloomberg Wall Street Week - August 23rd, 2024 0:00:00.280 --> 0:00:02.559 This is Bloomberg Wall Street Week. 0:00:02.680 --> 0:00:07.280 The global push into infrastructure, breaking the IPO logjam in text. 0:00:07.160 --> 0:00:09.120 The financial stories that shape. 0:00:08.880 --> 0:00:12.000 Our work, cutting inflation without losing jobs. Do we need 0:00:12.080 --> 0:00:14.520 rate cuts? And if so? How many? Investing in the 0:00:14.560 --> 0:00:16.120 time of geopolitical turmoil. 0:00:16.200 --> 0:00:18.520 Through the eyes of the most influential voices. 0:00:18.720 --> 0:00:23.479 Ten Rogoff Economists of Harvard, former fdicehead Shila bet Ge CEO, 0:00:23.600 --> 0:00:27.760 Larry Coulp, San Francisco Fed President Mary Daily, Bloomberg Wall Street. 0:00:27.440 --> 0:00:30.200 Week with David Weston from Bloomberg Radio. 0:00:30.280 --> 0:00:34.360 Democrats nominate their candidate for president. Ford abandons it's all 0:00:34.400 --> 0:00:37.680 electric SUV and the Fed moves closer to a September 0:00:37.760 --> 0:00:38.120 rate cut. 0:00:38.520 --> 0:00:40.879 This is Bloomberg Wall Street Week. I'm David Weston. 0:00:41.960 --> 0:00:44.479 This week Scott Bessen's of Key Square Capital on a 0:00:44.479 --> 0:00:49.480 precarious equilibrium for investors and the economic choice looming in November. 0:00:49.840 --> 0:00:52.720 The US economy, in my mind, is starting to look 0:00:52.800 --> 0:00:54.440 like an emerging market economy. 0:00:55.120 --> 0:00:58.160 And Jennifer Huddleson of the Cato Institute on the path 0:00:58.200 --> 0:00:59.600 forward for Google. 0:01:00.320 --> 0:01:02.680 Is not just what it means for Google, but what 0:01:02.720 --> 0:01:15.560 it means for consumers. 0:01:17.000 --> 0:01:19.800 We start with Chairman Powell's remarks in Jackson Hole and 0:01:19.840 --> 0:01:23.160 welcome back our very special contributor Larry Summers of Harvard. So, Larry, 0:01:23.319 --> 0:01:25.840 we heard this week from share Powell. What did you 0:01:25.880 --> 0:01:26.839 make of what he had to say? 0:01:28.360 --> 0:01:31.760 Look, I think he's in the right broad place. 0:01:31.920 --> 0:01:39.360 Inflation is coming down, the economy is slowing on current facts. Absolutely, 0:01:39.959 --> 0:01:44.479 the next move should be towards monetary policy easing. And 0:01:45.080 --> 0:01:49.080 that's what he said, and I'm glad he said that. 0:01:50.080 --> 0:01:55.000 I think there were a number of really important issues 0:01:55.040 --> 0:02:00.640 that are likely to be shaping of the policies for 0:02:00.680 --> 0:02:04.840 the FED and for the economy more broadly that he 0:02:04.920 --> 0:02:12.400 didn't address. He didn't say anything about epic budget deficit 0:02:12.919 --> 0:02:16.919 challenges in the years ahead. At the same time, we've 0:02:16.960 --> 0:02:20.960 got a huge investment demand for the green economy and 0:02:21.080 --> 0:02:26.200 a huge investment demand for data centers and the like. 0:02:26.840 --> 0:02:29.560 And so the question of what the neutral interest rate 0:02:29.760 --> 0:02:34.000 is was one he talked Pat He didn't really engage 0:02:34.080 --> 0:02:38.520 with the FED is saying that the neutral interest rate 0:02:38.880 --> 0:02:44.000 is somewhere in the twos. I think that's extremely unlikely. 0:02:44.760 --> 0:02:48.000 And if you don't have the right north star, you 0:02:48.080 --> 0:02:52.000 don't navigate very accurately. And so I think the FEDS 0:02:52.560 --> 0:02:58.079 making a serious mistake by believing that the neutral interest 0:02:58.200 --> 0:03:04.880 rate is so low, and therefore is misjudging how restrictive 0:03:05.360 --> 0:03:10.720 any given level of policy is. So I'd be surprised, 0:03:11.040 --> 0:03:18.960 quite surprised if it actually proves possible with sustainability to 0:03:19.000 --> 0:03:22.360 bring inflation down by nearly as much as the market 0:03:22.440 --> 0:03:25.639 is expecting, or bring interest rates down by nearly as 0:03:25.680 --> 0:03:30.160 much as the market is expecting over the next two years. 0:03:31.120 --> 0:03:35.080 The other thing that the FED must be aware of, 0:03:35.840 --> 0:03:41.000 and I understand why the chair didn't address it, but 0:03:41.160 --> 0:03:43.440 it seems to me it's something they have to be 0:03:43.680 --> 0:03:48.280 keeping in mind. Is we've got what people regard as 0:03:48.320 --> 0:03:52.760 a fifty to fifty presidential election coming, and one of 0:03:52.760 --> 0:03:56.560 the candidates says that the FED shouldn't be independent anymore. 0:03:57.360 --> 0:04:00.760 That same candidate, Donald Trump, says that we need a 0:04:00.840 --> 0:04:05.840 much weaker dollar. That same candidate says we need to 0:04:06.040 --> 0:04:13.960 push tariffs way up, meaning higher prices of consumer goods 0:04:14.600 --> 0:04:19.880 and more of an inflation threat. That same candidate talks 0:04:19.920 --> 0:04:24.360 about sending millions of workers home, which would create epically 0:04:24.480 --> 0:04:30.760 tight labor markets in our country and would surely go 0:04:30.880 --> 0:04:34.960 back to labor shortages and wage inflation. 0:04:35.480 --> 0:04:37.800 Larry turning back for a minute to Jay Powell's remarks 0:04:37.839 --> 0:04:41.080 this week, he had sort of an initial explanation of 0:04:41.160 --> 0:04:44.400 what happened with inflation, where it came from what the 0:04:44.400 --> 0:04:46.919 FED did in response, and at least my take on 0:04:46.960 --> 0:04:50.520 it was we had really supply shocks that were really unprecedented. 0:04:50.520 --> 0:04:52.640 It took a longer sort of out, and we had 0:04:52.640 --> 0:04:55.280 this big demand push, particularly in goods, that spilled over 0:04:55.320 --> 0:04:58.360 into services. So it was sort of understandable why we 0:04:58.480 --> 0:05:02.120 sort of made a mistake on team trans what's your reaction. 0:05:03.160 --> 0:05:07.080 Look, I guess it's under I guess it's understandable. I 0:05:07.120 --> 0:05:11.159 think I was reasonably clear in the spring of twenty 0:05:11.320 --> 0:05:14.720 and twenty one that it seemed to me that there 0:05:14.760 --> 0:05:21.880 were enormous inflation risks. I think looking back, it's kind 0:05:21.880 --> 0:05:25.160 of incredible that the Fed could have said in May 0:05:25.240 --> 0:05:30.120 of twenty twenty one that it expected to hold interest 0:05:30.240 --> 0:05:34.279 rates at zero until the summer of twenty twenty four, 0:05:35.440 --> 0:05:41.680 and so the misjudgment was a pretty egregious one. They're 0:05:42.120 --> 0:05:46.719 trying to leave the impression that it was all surprising 0:05:46.960 --> 0:05:50.720 supply shocks, and I think there are two problems with 0:05:50.800 --> 0:05:54.760 that view. One is there shouldn't have been anything very 0:05:54.800 --> 0:05:59.479 surprising about it. It's not like everybody didn't know that 0:05:59.760 --> 0:06:06.080 cod was affecting the supply capacity of the economy. So 0:06:06.720 --> 0:06:09.400 when the supply capacity is down, that means you have 0:06:09.440 --> 0:06:14.680 to adjust the demand. And the other is that if 0:06:14.720 --> 0:06:19.320 you look at nominal GDP growth, so that's dollar GDP, 0:06:19.600 --> 0:06:26.240 it's the money stock adjusted for the velocity, it averaged 0:06:26.680 --> 0:06:30.000 ten percent in twenty twenty one, in twenty twenty two, 0:06:30.800 --> 0:06:34.880 and above eight percent for the three years twenty twenty 0:06:34.960 --> 0:06:39.919 one to twenty twenty three. So how can you think 0:06:40.080 --> 0:06:44.320 with eight to ten percent nominal GDP growth that you're 0:06:44.360 --> 0:06:50.440 going to have anything like target inflation? And that nominal 0:06:50.480 --> 0:06:55.720 GDP is just a measure of demand, which is what 0:06:55.880 --> 0:06:58.160 monetary policy is supposed to. 0:06:58.160 --> 0:06:59.839 Be all about. 0:07:00.279 --> 0:07:04.480 So I think the FED got it wrong, and in 0:07:04.520 --> 0:07:09.560 all honesty, I don't think it was a low point 0:07:10.040 --> 0:07:14.880 in terms of monetary policy judgment. But you know, we 0:07:14.920 --> 0:07:20.000 all make lots of mistakes, and the important thing is 0:07:20.080 --> 0:07:25.240 when you make a mistake, to recognize it and fix it. 0:07:25.880 --> 0:07:28.280 And I've got to give the FED credit for the 0:07:28.320 --> 0:07:31.960 fact that while it wasn't always obvious that this would 0:07:32.000 --> 0:07:37.480 be the case. They moved strongly enough and vigorously enough 0:07:38.200 --> 0:07:45.080 to keep expectations anchored. And that's why it now looks 0:07:45.600 --> 0:07:49.160 more frankly than I would have expected, like we're going 0:07:49.200 --> 0:07:54.680 to get out of this very costly inflation episode without 0:07:55.080 --> 0:07:56.320 a major recession. 0:07:57.160 --> 0:07:58.760 Larry, thank you so much. It's always a treat to 0:07:58.800 --> 0:07:59.320 have you with us. 0:07:59.440 --> 0:08:01.400 That is our special contributor here on Wall Street Week. 0:08:01.400 --> 0:08:05.320 He's Larry Summers of Harvard. The stock market continued its 0:08:05.400 --> 0:08:07.880 upward climb this week, with one short detour on Thursday, 0:08:08.040 --> 0:08:10.040 as the S and P five hundred added another one 0:08:10.080 --> 0:08:12.679 point four five percent to end the week at fifty 0:08:12.800 --> 0:08:15.720 six thirty five. That's nicely above the median number per 0:08:15.840 --> 0:08:18.320 year end set by our Bloomberg Als at fifty six hundred. 0:08:18.520 --> 0:08:21.040 The Nasdaq was just behind the S and P up 0:08:21.080 --> 0:08:23.200 one point four percent for the week, while the yield 0:08:23.240 --> 0:08:25.920 in the tenure was down almost nine basis points and 0:08:26.040 --> 0:08:28.520 even week at three point eight percent. To take us 0:08:28.560 --> 0:08:31.280 through the markets, we welcome back now, Scott Croner City. 0:08:31.280 --> 0:08:32.559 Scott. Great to have you back with us. 0:08:32.640 --> 0:08:34.960 We think of you as our equity expert here. So 0:08:35.280 --> 0:08:37.160 tell me what's going on with these markets, they just 0:08:37.200 --> 0:08:39.560 seem to go one direction pretty much, and that's up. 0:08:39.640 --> 0:08:40.720 Should we be getting. 0:08:40.400 --> 0:08:43.000 Worked well, David, great to be here. 0:08:43.240 --> 0:08:47.040 I'd say the risk reward from our perspective has gotten 0:08:47.080 --> 0:08:51.120 more balanced with this rally we've had. Essentially, we went 0:08:51.280 --> 0:08:54.040 into Q three with the view that S and P 0:08:54.200 --> 0:08:56.720 five hundred at fifty six hundred per year end made 0:08:56.720 --> 0:09:01.360 some sense. We argue that valuations around twenty two times 0:09:01.440 --> 0:09:05.360 we're sustainable. We're now at twenty three times. We've argued 0:09:05.400 --> 0:09:08.080 that earnings growth under the surface for the S and 0:09:08.160 --> 0:09:11.240 P five hundred is in good shape. That came through 0:09:11.280 --> 0:09:15.360 with Q two reporting bigger picture, you've got three forces 0:09:15.360 --> 0:09:18.360 at work in equities right now. One is the AI 0:09:18.520 --> 0:09:21.800 tailwind that's been supporting the megacap. 0:09:21.360 --> 0:09:22.520 Growth part of the market. 0:09:22.880 --> 0:09:27.280 The other is soft landing conviction yes or no, and 0:09:27.320 --> 0:09:31.200 it's been more yes of late, aided by Chairman Polace 0:09:31.280 --> 0:09:34.880 commentary at Jackson Hole today. And then the third element 0:09:35.040 --> 0:09:38.040 is the election impact, and that's I'm going to say 0:09:38.040 --> 0:09:40.360 a little bit more of a tail risk that's been 0:09:40.400 --> 0:09:43.920 pushed to side for now as we continue to kind 0:09:43.960 --> 0:09:47.560 of work our way through the aftermath of the dmc SO. 0:09:47.520 --> 0:09:49.720 Let's go to the first one there, the AI momentum. 0:09:49.720 --> 0:09:52.080 If I can put it that way, We've got Nvidia. 0:09:51.840 --> 0:09:53.000 Earnings coming up next week. 0:09:53.120 --> 0:09:56.120 How important does that make something like in Vidia's earnings 0:09:56.240 --> 0:09:59.319 indicating whether we're keeping the momentum or losing some of it. 0:10:00.160 --> 0:10:02.200 Well, the starting point is you look at where we 0:10:02.360 --> 0:10:04.360 ended the first half. The S and P was up 0:10:04.360 --> 0:10:08.440 about fifteen percent, and we'd attribute about five percentage points 0:10:08.440 --> 0:10:11.000 of that move to each of Nvidia, the rest of 0:10:11.040 --> 0:10:13.959 the MAG seven and the other four ninety three within 0:10:14.000 --> 0:10:16.719 the S and P. So Nvidia has been an important 0:10:16.720 --> 0:10:19.920 contributor to the S and P five hundred move. Obviously, 0:10:19.960 --> 0:10:23.560 it pulled back from mid July into early August and 0:10:23.679 --> 0:10:27.240 now has recovered. So I'd say absolutely yes. The way 0:10:27.280 --> 0:10:30.160 they report, the way they position themselves in terms of 0:10:30.440 --> 0:10:33.800 future growth expectations is going to have an important influence 0:10:33.920 --> 0:10:36.520 on its stock but also on the balance of the 0:10:36.559 --> 0:10:38.160 MAG seven and this AI play. 0:10:38.280 --> 0:10:39.880 Well, it's interesting, as you said, sort of a third 0:10:39.880 --> 0:10:42.600 to third to third, but the third third was actually 0:10:42.640 --> 0:10:45.120 the rest of the pack. Are we starting to see 0:10:45.160 --> 0:10:47.199 some broadening out now? Because for a long time we 0:10:47.200 --> 0:10:50.240 were worried there was such a narrow driving of the SMP. 0:10:51.400 --> 0:10:54.200 Well, it's fascinating when you look at the way Q 0:10:54.280 --> 0:10:57.320 two results have finished. Okay, and we're pretty close. We 0:10:57.360 --> 0:10:59.559 still have to get Nvidia and a few others to report. 0:11:00.200 --> 0:11:03.840 You actually had that meg seven component growing earnings in 0:11:03.920 --> 0:11:07.400 Q two by roughly thirty eight percent, which is pretty astonishing. 0:11:07.480 --> 0:11:07.880 Okay. 0:11:08.120 --> 0:11:12.280 We think there's some persistence of that in the second half. Interestingly, 0:11:12.400 --> 0:11:16.680 the other four ninety three grew earnings in aggregate five percent. 0:11:16.920 --> 0:11:20.240 Doesn't sound like much, but that's the first quarter of 0:11:20.240 --> 0:11:23.360 the last six where we've actually gotten a positive earnings 0:11:23.400 --> 0:11:26.440 growth dynamic out of the rest of the four ninety three. 0:11:27.280 --> 0:11:29.120 How are we positioned going into the second half of 0:11:29.160 --> 0:11:31.360 the year. We're now starting the second half of the year. 0:11:32.400 --> 0:11:36.240 Go ahead, get that piece back in there. You've got it, okay, Scott. 0:11:36.280 --> 0:11:38.240 What I was asking was how are we position going 0:11:38.280 --> 0:11:38.920 in the second. 0:11:38.720 --> 0:11:39.240 Half of the year. 0:11:40.160 --> 0:11:43.199 So we think we're pretty well positioned. From the following 0:11:43.240 --> 0:11:46.880 perspective on the pullback, we were very comfortable re engaging 0:11:46.880 --> 0:11:51.000 in that megacap growth cohort on this mantra that growth 0:11:51.080 --> 0:11:54.840 is defensive as we navigate signs of economic weakness, which 0:11:54.880 --> 0:11:59.560 is ongoing, but more directly, we put our major sector 0:11:59.640 --> 0:12:03.000 focus on those areas most likely to benefit from the 0:12:03.000 --> 0:12:06.520 FED pivot, which apparently is getting closer and closer. Obviously 0:12:06.800 --> 0:12:10.640 September coming up. So we've been quite constructive on areas 0:12:10.640 --> 0:12:15.360 such as consumer discretionary financials via the banks and then 0:12:15.559 --> 0:12:18.480 interestingly also through the real estate part of the SMP. 0:12:18.800 --> 0:12:21.760 Scott, that's why you're our equities expert. Always, thank you 0:12:21.760 --> 0:12:24.960 so much, as Scott Kroner of City. Coming up, Michael 0:12:25.000 --> 0:12:27.720 Milkine has said the drive to LBOs was made possible 0:12:27.720 --> 0:12:30.760 by VISITALC. What changes could be driven by the current 0:12:30.800 --> 0:12:34.160 crop of tech innovations. We've talked with William Deringer of MIT. 0:12:34.640 --> 0:12:36.920 That's coming up next on Wall Street Weeek on Bloomberg. 0:12:40.160 --> 0:12:44.400 This is Bloomberg Wall Street Week with David Weston from 0:12:44.520 --> 0:12:49.400 Bloomberg Radio. 0:12:52.120 --> 0:12:54.760 This is Wall Street Week. I'm David Weston, Junk Bond King. 0:12:54.920 --> 0:12:57.920 Michael Milkine once said that it was the earlier spreadsheet 0:12:57.960 --> 0:13:01.679 program VISITALC that made pop sold the LBOs and takeovers 0:13:01.679 --> 0:13:02.600 of the nineteen eighties. 0:13:03.040 --> 0:13:05.320 Technology has come a long way from then. 0:13:05.720 --> 0:13:08.959 Professor William Deringer of MIT has studied what effects this 0:13:09.040 --> 0:13:12.640 ever increasing computing bar is having on which deals get 0:13:12.679 --> 0:13:16.600 done and how we asked him what led to his research. 0:13:18.400 --> 0:13:20.720 So this sort of an interesting story. 0:13:20.760 --> 0:13:25.440 I was actually at an event at MIT and I 0:13:25.559 --> 0:13:29.160 was speaking with someone who was one of the board 0:13:29.240 --> 0:13:32.880 members at MIT, and he mentioned, you know, I used 0:13:32.880 --> 0:13:34.200 to know some of the people who were involved with 0:13:34.559 --> 0:13:37.920 VisiCalc early on, and a series of conversations led me 0:13:38.120 --> 0:13:41.720 to this kind of interesting anecdote that apparently Michael Milcott 0:13:41.720 --> 0:13:44.040 at one point had said that if you really want 0:13:44.040 --> 0:13:48.320 to understand what happened in the eighties and the kind of. 0:13:48.120 --> 0:13:49.000 The rise of. 0:13:50.440 --> 0:13:53.079 Buyouts and the sort of Maggie deals of that period, 0:13:54.160 --> 0:13:57.439 the real key is visital So it was spreadsheet software. 0:13:57.960 --> 0:13:59.160 And so I spent some time trying. 0:13:58.960 --> 0:14:01.080 To kind of track down this anect. 0:14:01.480 --> 0:14:03.520 I found it mentioned a couple of a couple of 0:14:03.559 --> 0:14:05.600 other places, and it took me on this sort of 0:14:05.600 --> 0:14:08.400 interesting journey of trying to figure out, well, what what 0:14:08.400 --> 0:14:10.560 would that I have actually looked like? What so, how 0:14:10.600 --> 0:14:14.720 would spreadsheets software actually have changed things? 0:14:14.840 --> 0:14:18.080 And what I found was that it's sort of more 0:14:18.120 --> 0:14:18.719 than just. 0:14:19.040 --> 0:14:23.880 A matter of kind of making calculations easier, but that 0:14:24.280 --> 0:14:28.400 it really seemed to change the kind of limits of 0:14:28.720 --> 0:14:33.320 financial thinking and imagination, so things that were pretty hard 0:14:33.360 --> 0:14:36.880 to do. So modeling and modeling an LBO by hand 0:14:37.160 --> 0:14:42.720 kind of you know, on paper, was very arduous, very 0:14:42.760 --> 0:14:47.080 time consuming, and importantly it was not sort of dynamic. 0:14:47.160 --> 0:14:50.600 You couldn't kind of tweak one parameter, you know, tweak 0:14:50.640 --> 0:14:53.200 an interest rate, tweak a projection for revenue growth or 0:14:53.280 --> 0:14:57.360 something and then kind of get a new answer. 0:14:58.080 --> 0:15:01.480 Uh. And so what seems to have been very quickly. 0:15:01.240 --> 0:15:05.360 And there are you know, interesting quotations about this from 0:15:05.400 --> 0:15:10.040 people at the time, was deal makers realized that you 0:15:10.040 --> 0:15:14.680 could use spreadsheet software to not only kind of model 0:15:15.280 --> 0:15:19.120 potential deals, but also to sort of scan the realm 0:15:19.160 --> 0:15:22.480 of possible deals. So instead of having to just look 0:15:22.480 --> 0:15:25.040 at one possible deal, you could run similar sorts of 0:15:25.040 --> 0:15:29.680 scenarios across the kind of wide range of different potential 0:15:29.680 --> 0:15:30.360 target companies. 0:15:30.400 --> 0:15:32.240 And I think that in some ways, really we could 0:15:32.280 --> 0:15:36.000 even say it sort of changed the way in which business. 0:15:35.800 --> 0:15:40.200 Was understood from the sort of perspective of Wallstreet. 0:15:40.160 --> 0:15:41.120 From your work. 0:15:41.280 --> 0:15:44.880 Could Mike Milkine have done what he did without spreadsheets? 0:15:45.240 --> 0:15:47.320 I don't think so. I mean I think that a lot. 0:15:47.360 --> 0:15:49.760 I think there would have been significant limitations. I mean, 0:15:49.760 --> 0:15:53.240 a one of the things that's interesting about the Milkan story, 0:15:53.400 --> 0:15:55.040 and this was actually a lot of what my research 0:15:55.160 --> 0:15:59.080 was interested in, was he was sort of simultaneously his 0:15:59.120 --> 0:16:05.000 work was simultaneously very technologically innovative and at the same 0:16:05.080 --> 0:16:05.760 time sort of. 0:16:05.800 --> 0:16:07.600 Very personality drivet. 0:16:08.600 --> 0:16:11.000 But there were certain aspects of the kind of milk 0:16:11.040 --> 0:16:13.880 and machine that was built built that was highly technical. 0:16:13.920 --> 0:16:16.720 I mean, much of it was even down to things 0:16:16.760 --> 0:16:21.800 like being able to track and sort of catalog the 0:16:21.880 --> 0:16:25.680 existence sort of where the market was in high yield bonds, 0:16:25.680 --> 0:16:28.560 who owned things, who were you know, who were potential buyers? 0:16:29.640 --> 0:16:30.000 Uh. 0:16:30.040 --> 0:16:34.920 But then also kind of valuation techniques. There were sort 0:16:34.960 --> 0:16:38.320 of long standing methods of course for valuing bonds, but 0:16:38.600 --> 0:16:43.560 with new sort of handheld calculators and the spreadsheets those 0:16:43.680 --> 0:16:48.040 the ability to kind of analyze and value fixed income 0:16:48.120 --> 0:16:50.800 instruments became kind of radically easier. 0:16:51.440 --> 0:16:55.360 Where are we now, How is the current technology changing 0:16:55.400 --> 0:16:58.200 the nature of deal making and private aquay? And let 0:16:58.200 --> 0:16:59.840 me ask you a very specific question, do we just 0:17:00.280 --> 0:17:02.240 need as many private bankers anymore? 0:17:02.840 --> 0:17:03.080 Yeah? 0:17:03.160 --> 0:17:05.119 So, I mean, as as someone who spend most of 0:17:05.160 --> 0:17:08.240 my time in the in the past. I I know 0:17:08.359 --> 0:17:10.639 sort of about as much about the kind of really 0:17:10.680 --> 0:17:13.360 cutting edge stuff as certainly you know many of your 0:17:13.440 --> 0:17:14.240 of your viewers. 0:17:14.280 --> 0:17:17.000 But from what I understand, you. 0:17:16.960 --> 0:17:19.680 Know, one of the areas of development, as for example, 0:17:20.359 --> 0:17:23.800 trying to find sort of use the classy of AI 0:17:24.040 --> 0:17:26.800 to sort of simplify and automate things. 0:17:26.600 --> 0:17:27.640 Like modeling LBOs. 0:17:27.720 --> 0:17:30.800 Right, So, you know, when I was at DID training, 0:17:31.000 --> 0:17:34.920 you know, my first day as an investment banker. You 0:17:35.600 --> 0:17:37.400 not the first day, but maybe you know, week two 0:17:37.480 --> 0:17:40.440 or something, you learned how to kind of build LBO. 0:17:40.240 --> 0:17:42.080 Models on spreadsheets. 0:17:42.080 --> 0:17:44.840 And that's the sort of thing that required quite a 0:17:44.840 --> 0:17:48.600 lot of training, required a certain kind of technical artifice 0:17:48.640 --> 0:17:51.000 and expertise, And that's the sort of thing that may 0:17:51.080 --> 0:17:56.200 go towards that that may require less sort of direct 0:17:57.560 --> 0:18:00.840 kind of time and training. But one thing I think, 0:18:01.000 --> 0:18:03.960 you know, we know from the history of technology and 0:18:04.000 --> 0:18:07.639 certainly the history of the kind of calculation tools that 0:18:07.880 --> 0:18:13.040 I like to study, is that the kind of automation 0:18:13.160 --> 0:18:16.840 of some of those calculations and the automation of kind 0:18:16.880 --> 0:18:20.120 of lots of different things and the world don't necessarily 0:18:21.000 --> 0:18:22.159 lead to less work. 0:18:23.480 --> 0:18:25.119 So if I had to guess. 0:18:24.880 --> 0:18:26.919 And I mean, as a historian, we're always sort of 0:18:26.920 --> 0:18:31.760 cautious about making prognostications. I would not think that new 0:18:31.840 --> 0:18:36.240 tools would sort of lead to the need for fewer people, 0:18:37.119 --> 0:18:40.200 but rather, what I would expect to happen. 0:18:40.040 --> 0:18:42.320 Was that they would kind of change the nature of 0:18:42.400 --> 0:18:42.879 the work. 0:18:43.680 --> 0:18:47.359 That was Professor William Derringer of MIT at the end 0:18:47.440 --> 0:18:49.639 of a week focused on Kamala Harris's plans for the 0:18:49.640 --> 0:18:52.880 economy and how they differ from Donald Trump's. Welcome back now, 0:18:53.000 --> 0:18:57.240 macro investor Scott Besson, founder and CEO of Key Square Capital. So, Scott, 0:18:57.280 --> 0:18:59.360 welcome back. Good to have you here, David, always nice 0:18:59.400 --> 0:19:01.480 to be with you. Before we get to the rival 0:19:01.720 --> 0:19:03.800 economic theories here, let's talk about where we are in 0:19:03.800 --> 0:19:04.240 the economy. 0:19:04.240 --> 0:19:04.520 Generally. 0:19:04.600 --> 0:19:06.800 You have a note out right now talking about a 0:19:06.840 --> 0:19:11.000 precarious equilibrium in the economy. What makes that precarious? 0:19:11.160 --> 0:19:15.240 Well, now, I've been doing this thirty thirty five years now, 0:19:15.560 --> 0:19:18.720 and the US economy, in my mind, is starting to 0:19:18.760 --> 0:19:23.160 look like an emerging market economy. That or every kind 0:19:23.200 --> 0:19:25.880 of emerging market below up that I've seen in my career, 0:19:26.320 --> 0:19:30.840 and that is you have rise in asset prices. So 0:19:31.119 --> 0:19:35.240 in the US stocks and housing that is fueling consumption 0:19:35.480 --> 0:19:38.520 by the top ten or twenty percent of households, top 0:19:38.560 --> 0:19:41.119 ten or twenty percent of households or count for more 0:19:41.160 --> 0:19:46.240 than fifty percent of US consumption. Then the below that 0:19:46.720 --> 0:19:49.439 the rise in asset price is being fueled by a 0:19:49.520 --> 0:19:53.880 seven percent to GDP budget deficit, the biggest we've ever 0:19:53.920 --> 0:19:57.920 had when it's not a war, not a reception. Then 0:19:57.960 --> 0:20:00.480 the third leg of that is jenet y and has 0:20:00.560 --> 0:20:05.800 moved the quarterly refunding to what shorter term debt, which 0:20:05.800 --> 0:20:09.600 has had the effect of suppressing interest rates. So you 0:20:09.680 --> 0:20:12.080 know you've got I call it the three body problem 0:20:12.320 --> 0:20:15.920 after the Chinese science fiction book and the famous math problem. 0:20:16.160 --> 0:20:20.080 So we don't know which one of those could go first, 0:20:20.640 --> 0:20:23.200 but it's one of these that if the stock market 0:20:23.240 --> 0:20:26.720 were to go down, then it could create a gap 0:20:26.760 --> 0:20:27.800 in consumer spending. 0:20:28.160 --> 0:20:31.440 So that does sound pretty perilous for investors. And given 0:20:31.440 --> 0:20:33.399 the fact we don't know which one will break, although 0:20:33.400 --> 0:20:34.919 you think one of them is likely to break at 0:20:34.960 --> 0:20:37.480 some point, what does investor do? How do they position 0:20:37.520 --> 0:20:38.760 themselves for something breaking? 0:20:38.960 --> 0:20:43.199 Well, I think investors should be ready for more volatility, 0:20:43.320 --> 0:20:46.639 which I also talked about in the note you know, 0:20:47.040 --> 0:20:50.640 I think gold's very interesting here. It's at an all 0:20:50.720 --> 0:20:54.840 time high, I think as we're speaking today, and you know, 0:20:55.080 --> 0:20:57.600 I think just in general, everyone should do a gut 0:20:57.680 --> 0:20:59.520 check make sure they're not too far out on the 0:20:59.560 --> 0:21:02.359 risk curve, because you know, it's been a pretty good run. 0:21:03.000 --> 0:21:06.000 So let's turn to the question of rival economic plans 0:21:06.040 --> 0:21:08.600 from Donald Trump, somebody whom you know have known for 0:21:08.640 --> 0:21:10.480 a lot of years and talked to you from time 0:21:10.520 --> 0:21:13.119 to time, and then Kamala Harris, someone new out of 0:21:13.160 --> 0:21:16.200 the scene at least with inspector economic plans. How does 0:21:16.280 --> 0:21:20.199 investor really really address those two alternatives? How do you 0:21:20.240 --> 0:21:22.680 macro investor on these tools? Start with Kamala Harris. 0:21:22.720 --> 0:21:26.480 Well, look, I think it's two competing visions. You know, 0:21:27.640 --> 0:21:30.000 Michael Boskin had a very good editorial in the Wall 0:21:30.000 --> 0:21:33.720 Street Journal yesterday and he said, you know, we're not 0:21:33.760 --> 0:21:36.680 getting a lot of meat out of Kamala Harris's programs yet, 0:21:36.920 --> 0:21:39.359 but we can go back and look, and there are 0:21:39.400 --> 0:21:43.199 three different sources there. What is she say in the 0:21:43.200 --> 0:21:47.400 twenty twenty campaign? What did Harris Biden do? And then 0:21:47.480 --> 0:21:50.080 what is she said so far so in the twenty 0:21:50.119 --> 0:21:54.199 twenty campaign, which you know, she's running from you know, 0:21:55.000 --> 0:22:01.400 single pair healthcare, you know, lots of restrictions, the big, big, 0:22:01.440 --> 0:22:04.240 big spending stopping fracking, which. 0:22:04.080 --> 0:22:06.720 She has backed off of. She said she's thinking better now. 0:22:07.359 --> 0:22:09.679 Well, you know, I always think with a politician, it's 0:22:09.720 --> 0:22:12.480 where's your heart and where's your head? And I think 0:22:12.480 --> 0:22:14.960 in her heart she still believes that. You know, with 0:22:15.400 --> 0:22:19.720 Joe Biden, he campaigned to Scranton Joe and then broke 0:22:19.800 --> 0:22:22.919 hard left, and you know, we ended up with a 0:22:22.920 --> 0:22:23.720 great inflation. 0:22:24.200 --> 0:22:26.880 I think she is hard left. She's trying to. 0:22:28.480 --> 0:22:32.120 Maybe constructive ambiguity, and you know, I think maybe that's 0:22:32.200 --> 0:22:35.920 why CNN in the Washington Post came out and chastise her. 0:22:36.520 --> 0:22:39.879 Chastised her over the policy she talked about in Raleigh 0:22:39.880 --> 0:22:42.320 on Friday, because she's supposed to keep the mask on 0:22:43.080 --> 0:22:45.000 the past November fifth. 0:22:46.080 --> 0:22:49.440 However we read it. What about things like housing? She's 0:22:49.440 --> 0:22:51.320 trying to address that we do have a housing problem 0:22:51.359 --> 0:22:53.399 in this country. I think you'd agree we do not 0:22:53.440 --> 0:22:55.920 have enough housing. We're not building enough housing. She has 0:22:55.920 --> 0:22:57.560 a plan at least to try to stimulate that. 0:22:58.000 --> 0:22:59.960 Well, there was no plan to say how she's going 0:22:59.960 --> 0:23:02.399 to stimulate it. What she's going to stimulate is buying. 0:23:02.800 --> 0:23:05.600 We don't need more house buyers, we need more houses, 0:23:05.960 --> 0:23:08.399 and there was nothing for how that's going to happen. 0:23:08.800 --> 0:23:10.520