1 00:00:00,240 --> 00:00:02,440 Speaker 1: This is Bloomberg Wall Street Week. 2 00:00:02,480 --> 00:00:04,400 Speaker 2: And we may not have an overall recession, we're having 3 00:00:04,400 --> 00:00:05,200 Speaker 2: a rolling recession. 4 00:00:05,240 --> 00:00:07,040 Speaker 1: To Cone rowl looks pretty strongly. It is when it 5 00:00:07,080 --> 00:00:09,840 Speaker 1: comes to jobs. The financial stories that shape our work. 6 00:00:09,960 --> 00:00:13,640 Speaker 2: Three major regional bank failures send shockwaves through the banking system. 7 00:00:13,680 --> 00:00:15,440 Speaker 2: We're all trying to figure out what to make of 8 00:00:15,600 --> 00:00:17,000 Speaker 2: generative AI. 9 00:00:16,920 --> 00:00:19,320 Speaker 3: Through the eyes of the most influential voices. 10 00:00:19,440 --> 00:00:22,400 Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 11 00:00:22,560 --> 00:00:25,279 Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of 12 00:00:25,280 --> 00:00:26,280 Speaker 2: the Columbia Business School. 13 00:00:26,280 --> 00:00:30,120 Speaker 3: Bloomberg Wall Street Week with David Weston from Bloomberg Radio 14 00:00:30,280 --> 00:00:31,640 Speaker 3: show me the money. 15 00:00:31,520 --> 00:00:34,159 Speaker 2: To keep the government going, to justify rate cuts, and 16 00:00:34,200 --> 00:00:37,360 Speaker 2: for former President Trump to post his bond. This is 17 00:00:37,360 --> 00:00:41,199 Speaker 2: Bloomberg Wall Street Week. I'm David Weston. This week, nad 18 00:00:41,400 --> 00:00:44,040 Speaker 2: Meggie of Blackstone on the case for investing in real 19 00:00:44,159 --> 00:00:45,880 Speaker 2: estate despite all you've. 20 00:00:45,600 --> 00:00:50,360 Speaker 4: Heard, what we see is a generational investing opportunity while 21 00:00:50,440 --> 00:00:52,680 Speaker 4: others are looking in the rear view mirror. 22 00:00:52,800 --> 00:00:55,440 Speaker 2: And Lindsay Rosner of Golden Sachs on the risks and 23 00:00:55,600 --> 00:00:59,440 Speaker 2: opportunities in fixed income when yields are high but spreads. 24 00:00:59,040 --> 00:01:02,280 Speaker 5: Are tight, We're finding an interesting pocket is actually in 25 00:01:02,360 --> 00:01:03,400 Speaker 5: structured products. 26 00:01:16,040 --> 00:01:17,880 Speaker 1: But we start with the US economy. 27 00:01:18,080 --> 00:01:22,040 Speaker 2: Calling a Goldilocks doesn't go far enough for Nobel Laureate Paul. 28 00:01:21,880 --> 00:01:24,400 Speaker 4: Krugman, I've been arguing with people who say, you know, 29 00:01:24,480 --> 00:01:26,000 Speaker 4: this is a Goldilock's. 30 00:01:25,440 --> 00:01:29,440 Speaker 6: Economy, and that's wrong. Goldilocks found a parts. 31 00:01:29,200 --> 00:01:31,000 Speaker 7: That was neither too hot nor too cold. 32 00:01:31,160 --> 00:01:33,039 Speaker 4: But you've got an economy that's hot where you want 33 00:01:33,080 --> 00:01:35,479 Speaker 4: it to be hot, like in GDP growth, and cold 34 00:01:35,520 --> 00:01:36,600 Speaker 4: where you want it to be cold. 35 00:01:36,600 --> 00:01:40,520 Speaker 2: On inflation, even as sentiment numbers lag well behind. 36 00:01:40,360 --> 00:01:43,880 Speaker 8: The levels of sentiment are more like deeper session levels 37 00:01:44,280 --> 00:01:47,680 Speaker 8: than sort of mildly pessimistic levels. I think a lot 38 00:01:47,720 --> 00:01:50,800 Speaker 8: of that is unrelated to the economy, and a lot of. 39 00:01:50,720 --> 00:01:54,080 Speaker 2: That negative sentiment is because of inflation, with some saying 40 00:01:54,080 --> 00:01:56,760 Speaker 2: that the way the FED calculates it makes it seem 41 00:01:56,840 --> 00:01:57,600 Speaker 2: worse than. 42 00:01:57,480 --> 00:01:58,080 Speaker 1: It really is. 43 00:01:58,600 --> 00:02:01,760 Speaker 9: The Fed's inflation numbers are artificially high. I think if 44 00:02:01,800 --> 00:02:04,360 Speaker 9: you look at real housing costs and you talk to 45 00:02:04,400 --> 00:02:08,440 Speaker 9: the people who own collectively hundreds of thousands of residential 46 00:02:08,520 --> 00:02:11,600 Speaker 9: units across the country, even in the best markets, rents 47 00:02:11,639 --> 00:02:15,640 Speaker 9: are basically flat. Most people aren't moving from their home 48 00:02:15,720 --> 00:02:18,160 Speaker 9: because their mortgage is low, so their occupant zy costs 49 00:02:18,200 --> 00:02:22,320 Speaker 9: are flat. So to say, inflation because of some metric 50 00:02:22,400 --> 00:02:24,760 Speaker 9: that the FED is using, is six percent, and that's 51 00:02:24,760 --> 00:02:27,760 Speaker 9: thirty percent of inflation. I think you're overstating inflation by 52 00:02:27,760 --> 00:02:29,880 Speaker 9: as much as one point eight percent. So I think 53 00:02:29,919 --> 00:02:33,440 Speaker 9: inflation is actually pretty pretty benign right now. The economy 54 00:02:33,480 --> 00:02:36,240 Speaker 9: is doing pretty well, so why should the Fed suddenly 55 00:02:36,280 --> 00:02:37,000 Speaker 9: lower rates? 56 00:02:37,440 --> 00:02:40,040 Speaker 2: This week we got the most recent numbers on inflation, 57 00:02:40,240 --> 00:02:43,400 Speaker 2: the ones the FED pays attention to, and core PCEE 58 00:02:43,560 --> 00:02:46,960 Speaker 2: came in just about we're expected, showing inflation growing two 59 00:02:47,040 --> 00:02:50,919 Speaker 2: point four percent year over year. After the most recent numbers, 60 00:02:50,919 --> 00:02:53,560 Speaker 2: we sat down with San Francisco FED President Mary Daily 61 00:02:53,880 --> 00:02:56,760 Speaker 2: and asked her how she squares the strong growth and 62 00:02:56,880 --> 00:03:00,560 Speaker 2: jobs numbers with the relatively weak consumer centim figures. 63 00:03:01,040 --> 00:03:05,440 Speaker 10: When you think about how hard it is to work 64 00:03:05,440 --> 00:03:08,560 Speaker 10: as hard as you can work multiple jobs and not 65 00:03:08,680 --> 00:03:11,440 Speaker 10: be able to afford things one month to the next, 66 00:03:11,960 --> 00:03:16,679 Speaker 10: that has a psychological toll that I think we can't underestimate. 67 00:03:16,960 --> 00:03:20,520 Speaker 10: And as the economy continues to make gains and we 68 00:03:20,560 --> 00:03:23,720 Speaker 10: bring inflation down, that scar, if you will, will. 69 00:03:23,600 --> 00:03:24,280 Speaker 11: Start to heal. 70 00:03:24,360 --> 00:03:26,839 Speaker 10: But people need that certainty, and that's why we keep 71 00:03:26,880 --> 00:03:30,320 Speaker 10: saying we're not done until we're done. You know these 72 00:03:30,360 --> 00:03:33,359 Speaker 10: good inflation data that we're seeing. That's not price stability too. 73 00:03:33,480 --> 00:03:36,760 Speaker 2: Is For people in financial media and on Wall Street, 74 00:03:36,920 --> 00:03:38,560 Speaker 2: the number one issue is rate cuts. 75 00:03:38,920 --> 00:03:40,280 Speaker 11: Yes, that is their number one issue. 76 00:03:40,320 --> 00:03:43,000 Speaker 10: But we work for the American people, not necessarily not 77 00:03:43,080 --> 00:03:43,680 Speaker 10: for markets. 78 00:03:43,720 --> 00:03:45,440 Speaker 1: So but explain it to it. 79 00:03:45,600 --> 00:03:47,760 Speaker 2: In your summary of economic projections, the last one you 80 00:03:47,840 --> 00:03:49,600 Speaker 2: have three in for the year. That's a projection. It's 81 00:03:49,640 --> 00:03:53,160 Speaker 2: not a promise. But some people think you should have more. 82 00:03:53,240 --> 00:03:55,000 Speaker 2: Maybe some people think you have less. Why are we 83 00:03:55,040 --> 00:03:56,840 Speaker 2: talking about rade cuts at all? Given the strength of 84 00:03:56,840 --> 00:03:59,000 Speaker 2: the economy and the economy scems, we're doing just fine 85 00:03:59,200 --> 00:04:00,600 Speaker 2: with the rate cuts you've put in place. 86 00:04:00,840 --> 00:04:03,600 Speaker 10: So we put a projection out about what we think 87 00:04:03,680 --> 00:04:06,560 Speaker 10: we'll need to do if the economy evolves as we 88 00:04:06,680 --> 00:04:10,080 Speaker 10: expect it to. So what's the expectation inflation continues to 89 00:04:10,080 --> 00:04:14,080 Speaker 10: come down gradually the labor market and the economy slow, 90 00:04:14,160 --> 00:04:16,839 Speaker 10: but don't tip over, and then it would be appropriate 91 00:04:16,920 --> 00:04:20,159 Speaker 10: as inflation comes down to bring the nominal rate of 92 00:04:20,200 --> 00:04:22,640 Speaker 10: interest down to make sure we're not how holding on 93 00:04:22,760 --> 00:04:25,560 Speaker 10: even tighter, because we want to avoid the following. We 94 00:04:25,600 --> 00:04:28,160 Speaker 10: want to avoid holding on all the way to two percent. 95 00:04:28,640 --> 00:04:32,200 Speaker 10: They're putting policy very tight and then cause an unnecessary 96 00:04:32,680 --> 00:04:36,359 Speaker 10: downturn that you give people lower inflation, but you cost 97 00:04:36,400 --> 00:04:39,240 Speaker 10: them their jobs. So that's a balancing act. That means 98 00:04:39,240 --> 00:04:41,880 Speaker 10: we have to be calibrating. So I want to just 99 00:04:41,920 --> 00:04:45,279 Speaker 10: be clear. Though you don't see many FED officials, including myself, 100 00:04:45,520 --> 00:04:48,760 Speaker 10: talking about rate cuts. You see us talking about restoring 101 00:04:48,800 --> 00:04:52,480 Speaker 10: price stability, bringing inflation down, being data dependent, looking at 102 00:04:52,480 --> 00:04:56,520 Speaker 10: the full balance, being patient and methodical. So I do 103 00:04:56,600 --> 00:05:00,000 Speaker 10: think that message is clear. It's not always what peoples 104 00:05:00,000 --> 00:05:02,120 Speaker 10: necessarily want to hear, but it is a clear message 105 00:05:02,160 --> 00:05:02,760 Speaker 10: that we've been on. 106 00:05:03,080 --> 00:05:04,440 Speaker 2: I'm not expecting you to tell us one you're going 107 00:05:04,480 --> 00:05:06,279 Speaker 2: to cut rates. But let me ask a different question. 108 00:05:06,960 --> 00:05:08,880 Speaker 2: I'm old enough to remember when Potter student in the Supreme 109 00:05:08,880 --> 00:05:11,200 Speaker 2: Court said about obersentity, you'll know it when you see it. 110 00:05:11,440 --> 00:05:13,440 Speaker 2: How will you know it when you see it? That's 111 00:05:13,640 --> 00:05:15,400 Speaker 2: the time we should start cutting rates. 112 00:05:15,600 --> 00:05:16,520 Speaker 11: That's a great question. 113 00:05:17,120 --> 00:05:19,880 Speaker 10: So what I look at is what I think of 114 00:05:19,880 --> 00:05:23,440 Speaker 10: as a dashboard of indicators and The dashboard of indicators 115 00:05:23,480 --> 00:05:27,480 Speaker 10: has the published data, which everybody focuses on, but those 116 00:05:27,520 --> 00:05:30,200 Speaker 10: tend to be data points, and you don't want to 117 00:05:30,200 --> 00:05:31,160 Speaker 10: be data point dependent. 118 00:05:31,200 --> 00:05:33,040 Speaker 11: You want to be data dependent, So you have to. 119 00:05:33,080 --> 00:05:35,880 Speaker 10: Look underneath the hood of those data and really see 120 00:05:35,880 --> 00:05:38,760 Speaker 10: what's driving them. And also you have to talk to people. 121 00:05:38,920 --> 00:05:41,400 Speaker 10: And what I'm looking for right now is for the 122 00:05:41,400 --> 00:05:45,320 Speaker 10: published data continue to gradually slow and inflation to gradually 123 00:05:45,320 --> 00:05:49,280 Speaker 10: come down, but for the behavior when I talk to firms, 124 00:05:49,279 --> 00:05:49,880 Speaker 10: when I talk. 125 00:05:49,800 --> 00:05:50,760 Speaker 11: To businesses, etc. 126 00:05:51,160 --> 00:05:53,640 Speaker 10: That they're saying, oh, yes, we're not going to continue 127 00:05:53,720 --> 00:05:57,200 Speaker 10: to raise prices. Oh yes, we see input costs coming down. 128 00:05:57,279 --> 00:06:00,640 Speaker 10: Workers saying we see jobs, we want to stick. 129 00:06:00,320 --> 00:06:03,360 Speaker 11: With our employer. We are not worried about. 130 00:06:03,120 --> 00:06:06,120 Speaker 10: Five percent wage growth because we don't feel inflation's going 131 00:06:06,160 --> 00:06:08,920 Speaker 10: to continue. I'm looking for those things to all come 132 00:06:08,960 --> 00:06:12,400 Speaker 10: together and form a collage of evidence, if you will, 133 00:06:12,480 --> 00:06:15,279 Speaker 10: that we are on the path to price stability sustainably. 134 00:06:15,440 --> 00:06:16,360 Speaker 11: I'm seeing parts of that. 135 00:06:16,400 --> 00:06:18,800 Speaker 10: I see a lot of green shoots, as we like 136 00:06:18,880 --> 00:06:20,719 Speaker 10: to say, but we're not there yet. 137 00:06:20,960 --> 00:06:22,120 Speaker 1: You talked about your dashboard. 138 00:06:22,279 --> 00:06:25,200 Speaker 2: Let me ask about one specific figure on your dashboard, 139 00:06:25,320 --> 00:06:26,120 Speaker 2: and that is inflation. 140 00:06:26,240 --> 00:06:26,600 Speaker 1: Numbers. 141 00:06:26,720 --> 00:06:29,560 Speaker 2: There's some concern now that maybe inflation's overstated. I've talked 142 00:06:29,560 --> 00:06:31,279 Speaker 2: to a couple of people who are pretty active in 143 00:06:31,279 --> 00:06:33,919 Speaker 2: real estate, commercial real estate in recent days who said 144 00:06:34,120 --> 00:06:37,880 Speaker 2: the owner equivalent ret is overstating inflation. As pactic matter, 145 00:06:38,040 --> 00:06:40,680 Speaker 2: somebody said, actually recently on this program as much as 146 00:06:40,680 --> 00:06:42,960 Speaker 2: one point seven to one point eight percent, are you 147 00:06:43,040 --> 00:06:45,919 Speaker 2: concerned that maybe we're overstating inflation right now? 148 00:06:46,000 --> 00:06:49,040 Speaker 10: So that's a really terrific question, and it might help 149 00:06:49,160 --> 00:06:50,840 Speaker 10: for me to just talk about how I look at 150 00:06:50,839 --> 00:06:54,279 Speaker 10: the data. So there are multiple inflation indicators, and you 151 00:06:54,279 --> 00:06:57,240 Speaker 10: can unpack all of them into what's driving them. But 152 00:06:57,320 --> 00:07:00,040 Speaker 10: we can't just look at those published inflation data to 153 00:07:00,120 --> 00:07:03,520 Speaker 10: see the story. We have to actually go into communities 154 00:07:03,600 --> 00:07:06,560 Speaker 10: and look at what's happening with local house price appreciation, 155 00:07:06,680 --> 00:07:09,760 Speaker 10: what's happening with rental price appreciation, and there you do 156 00:07:09,920 --> 00:07:11,920 Speaker 10: see the elements of the slowing you. 157 00:07:11,840 --> 00:07:12,960 Speaker 11: Would expect to see. 158 00:07:13,040 --> 00:07:17,880 Speaker 10: So I actually am growing more confident that housing inflation, 159 00:07:18,080 --> 00:07:22,640 Speaker 10: shelter inflation, and rental inflation are coming down. The speed 160 00:07:22,640 --> 00:07:24,800 Speaker 10: at which they come down is still unknown, but I'm 161 00:07:24,800 --> 00:07:27,760 Speaker 10: not seeing signs that they're picking back up yet. 162 00:07:27,920 --> 00:07:30,240 Speaker 2: What is the reason why you have such a concentration 163 00:07:30,280 --> 00:07:31,880 Speaker 2: of tech in your district. I mean, we tend to 164 00:07:31,880 --> 00:07:34,000 Speaker 2: think about Silicon Valley as being close to Stanford and 165 00:07:34,280 --> 00:07:37,800 Speaker 2: Berkeley and some universities. Is it the educational system there, 166 00:07:37,960 --> 00:07:40,120 Speaker 2: is it some other factors? Is just critical mass? 167 00:07:40,640 --> 00:07:42,360 Speaker 10: I think there is a bit of critical mass, and 168 00:07:42,400 --> 00:07:44,720 Speaker 10: there's a number of research studies that say, you know, 169 00:07:44,760 --> 00:07:47,440 Speaker 10: these network effects are large. So one of the things 170 00:07:47,440 --> 00:07:50,280 Speaker 10: we've seen is, and you see this anywhere in the country, 171 00:07:50,280 --> 00:07:53,800 Speaker 10: really is that people might start in Silicon Valley, they 172 00:07:53,840 --> 00:07:56,480 Speaker 10: might start in Austin, Texas, they might start in Boston, 173 00:07:56,680 --> 00:07:58,960 Speaker 10: but then they move, you know, family things take them 174 00:07:59,000 --> 00:08:01,800 Speaker 10: other places. We have a lot of lovely states to 175 00:08:01,880 --> 00:08:05,040 Speaker 10: live in, so people go other places, and then they 176 00:08:05,600 --> 00:08:09,000 Speaker 10: build those tech centers around them because they have the expertise. 177 00:08:09,640 --> 00:08:12,360 Speaker 2: As strong as the tech sector is in Mary Daily's region, 178 00:08:12,400 --> 00:08:15,560 Speaker 2: commercial real estate has been struggling a bit, as it 179 00:08:15,600 --> 00:08:18,160 Speaker 2: has in some other major urban areas. 180 00:08:19,000 --> 00:08:21,280 Speaker 12: I was just in New York recently and it seemed 181 00:08:21,280 --> 00:08:24,880 Speaker 12: a lot more animated than certainly parts of downtown San Francisco. 182 00:08:25,600 --> 00:08:29,440 Speaker 12: But again, I think the venture money is here, and 183 00:08:29,480 --> 00:08:34,600 Speaker 12: we have a highly educated population, so as a labor market. Literally, 184 00:08:34,960 --> 00:08:38,000 Speaker 12: no one can compete with a Bay area and that 185 00:08:38,320 --> 00:08:41,000 Speaker 12: force for what the future is with some of this 186 00:08:41,120 --> 00:08:45,640 Speaker 12: new technology is what's going to animate these large agglomerations 187 00:08:45,679 --> 00:08:51,199 Speaker 12: San Francisco, Boston, New York and Los Angeles, Houston and 188 00:08:51,200 --> 00:08:55,360 Speaker 12: Miami because of what's going on in financial services and 189 00:08:55,400 --> 00:09:00,320 Speaker 12: the relocations in Miami. So I'm a I'm not a 190 00:09:00,360 --> 00:09:04,000 Speaker 12: doom low person at all for these cities. I think 191 00:09:04,040 --> 00:09:06,800 Speaker 12: they are going to recover. There is going to be pain, 192 00:09:06,920 --> 00:09:10,040 Speaker 12: as I just said, there are defaults, there are losses, 193 00:09:10,120 --> 00:09:14,000 Speaker 12: there is retail closure, and I think the mix of 194 00:09:14,640 --> 00:09:18,360 Speaker 12: real estate, especially in downtown San Francisco, where we have 195 00:09:18,559 --> 00:09:22,400 Speaker 12: very little housing, so it's very dependent on the workforce 196 00:09:22,559 --> 00:09:27,240 Speaker 12: for animation, and without that workforce, without a return to work, 197 00:09:28,160 --> 00:09:31,080 Speaker 12: San francisc is going to be challenged, Whereas New York 198 00:09:31,160 --> 00:09:36,120 Speaker 12: has a good mix of housing and office space within 199 00:09:36,160 --> 00:09:40,760 Speaker 12: the urban core. Boston to the same degree, and San 200 00:09:40,760 --> 00:09:42,800 Speaker 12: Francisco is going to have to figure this out with 201 00:09:42,960 --> 00:09:46,719 Speaker 12: housing and to reanimate parts of its downtown. 202 00:09:48,000 --> 00:09:50,360 Speaker 10: Commercial real estate's a big name for a lot of 203 00:09:50,400 --> 00:09:53,640 Speaker 10: different segments. So if you're an industrial and warehousing space, 204 00:09:54,120 --> 00:09:55,520 Speaker 10: you're feeling very good. 205 00:09:55,400 --> 00:09:56,440 Speaker 11: About things right now. 206 00:09:56,600 --> 00:10:00,480 Speaker 10: If you're in retail space or even multi family housing 207 00:10:00,559 --> 00:10:03,880 Speaker 10: out in suburban areas, then you're feeling really good. 208 00:10:04,000 --> 00:10:04,720 Speaker 11: You're confident. 209 00:10:05,360 --> 00:10:09,520 Speaker 10: The place where you're seeing weakness and everybody knows it 210 00:10:09,600 --> 00:10:14,760 Speaker 10: is in the urban cores of particularly cities like Seattle, Portland, 211 00:10:14,880 --> 00:10:17,200 Speaker 10: San Francisco. LA is doing a little bit better, but 212 00:10:17,280 --> 00:10:19,559 Speaker 10: you can find pockets of this in LA and that 213 00:10:19,600 --> 00:10:21,000 Speaker 10: has to do with the fact that a lot of 214 00:10:21,000 --> 00:10:23,760 Speaker 10: people are still working from home in those communities. Those 215 00:10:23,800 --> 00:10:26,959 Speaker 10: big office complexes that were built up for those individuals 216 00:10:27,040 --> 00:10:30,760 Speaker 10: to work in, they just aren't They're not filled, and 217 00:10:30,800 --> 00:10:34,080 Speaker 10: so there will be a repricing and a resettlement. The 218 00:10:34,120 --> 00:10:36,520 Speaker 10: thing is, we've known it's coming for a while, and 219 00:10:36,600 --> 00:10:41,400 Speaker 10: I see private equity money, venture money sitting on the sidelines, 220 00:10:41,640 --> 00:10:43,480 Speaker 10: ready to come in when the price is right. 221 00:10:43,760 --> 00:10:45,400 Speaker 11: So there'll be some repricing, there'll be. 222 00:10:45,360 --> 00:10:50,200 Speaker 10: Some loss of valuations, for sure, but it doesn't seem 223 00:10:50,240 --> 00:10:53,599 Speaker 10: today to be the kind of disorderly adjustment that you 224 00:10:53,640 --> 00:10:56,640 Speaker 10: would worry about. It's something that is more orderly, even 225 00:10:56,640 --> 00:10:59,000 Speaker 10: though it might be certainly going to be painful for 226 00:10:59,040 --> 00:11:03,120 Speaker 10: those involved, is not going as likely to be as disruptive. 227 00:11:03,240 --> 00:11:05,600 Speaker 2: One of the concerns is about regional banks, which tend 228 00:11:05,679 --> 00:11:08,440 Speaker 2: to be more exposed to really commercial real estate. And 229 00:11:08,440 --> 00:11:10,840 Speaker 2: then we've heard about that from the FED in Washington, 230 00:11:10,920 --> 00:11:12,000 Speaker 2: absolutely sure about that. 231 00:11:12,520 --> 00:11:13,600 Speaker 1: How do you assess it out there? 232 00:11:13,640 --> 00:11:16,120 Speaker 2: You have a little experience with this with Silicon Valley 233 00:11:16,120 --> 00:11:18,240 Speaker 2: Bank and things like that. Well, how do you assess 234 00:11:18,240 --> 00:11:20,000 Speaker 2: the risk for the banks, the regional banks? 235 00:11:20,200 --> 00:11:23,520 Speaker 10: So I would separate the failure of Silicon Valley Bank, 236 00:11:23,679 --> 00:11:27,320 Speaker 10: Signature Bank, and First Republic, which really they all three 237 00:11:27,400 --> 00:11:31,040 Speaker 10: had the same experience, which is depositors who were uninsured 238 00:11:31,559 --> 00:11:35,400 Speaker 10: ran and that's a different situation than the commercial real estate. 239 00:11:35,400 --> 00:11:36,160 Speaker 11: But what they did. 240 00:11:36,240 --> 00:11:40,800 Speaker 10: What that situation did is it alerted all investors and 241 00:11:40,840 --> 00:11:45,360 Speaker 10: depositors to the fact that there's a portfolio underlying the 242 00:11:45,440 --> 00:11:48,040 Speaker 10: health of a bank, and we should focus on that portfolio. 243 00:11:48,200 --> 00:11:49,720 Speaker 11: I think it's useful to remind people too. 244 00:11:49,760 --> 00:11:51,559 Speaker 10: We have over forty five hundred banks in the United 245 00:11:51,600 --> 00:11:54,720 Speaker 10: States and only three failed. So the banking system is 246 00:11:54,760 --> 00:11:57,640 Speaker 10: safe and sound and resilient, but there will be adjustments. 247 00:11:57,920 --> 00:12:00,319 Speaker 10: And one of the things that you've heard the Chair 248 00:12:00,360 --> 00:12:04,200 Speaker 10: of Supervision Michael Barr speak about and other the FDIC 249 00:12:04,559 --> 00:12:09,600 Speaker 10: chair and occ is really focusing their efforts on ensuring 250 00:12:09,640 --> 00:12:14,319 Speaker 10: that banks are preparing for those adjustments, So it's certainly there. 251 00:12:14,760 --> 00:12:17,400 Speaker 10: The final thing, though, that I think is really often 252 00:12:18,559 --> 00:12:22,160 Speaker 10: not known, is that regional banks don't have a lot 253 00:12:22,320 --> 00:12:26,680 Speaker 10: in these big urban core office buildings. Those are really 254 00:12:26,720 --> 00:12:32,480 Speaker 10: investor owned, and so it's useful to separate the concerns 255 00:12:32,480 --> 00:12:35,000 Speaker 10: you might have about regional banks on commercial real estate 256 00:12:35,080 --> 00:12:40,679 Speaker 10: from those big, monolithic empty buildings that everybody's worried won't 257 00:12:40,720 --> 00:12:41,280 Speaker 10: get filled. 258 00:12:42,080 --> 00:12:45,280 Speaker 2: Many thanks to Mary Daily, president of the San Francisco Fed. 259 00:12:47,040 --> 00:12:48,880 Speaker 2: Coming up, we go over the week in the markets 260 00:12:48,880 --> 00:12:50,520 Speaker 2: with Barbara Reinhardt of VOYE. 261 00:12:52,200 --> 00:12:54,360 Speaker 1: That's next on Wall Street Week on Bloomberg. 262 00:12:55,480 --> 00:12:59,680 Speaker 3: This is Bloomberg Wall Street Week with David Weston from 263 00:12:59,800 --> 00:13:05,640 Speaker 3: the Blomberg Radio. 264 00:13:07,160 --> 00:13:08,840 Speaker 1: This is all straight week. I'm David Weston. 265 00:13:08,960 --> 00:13:12,040 Speaker 2: Most equity markets continue their upward climb this week, with 266 00:13:12,080 --> 00:13:14,440 Speaker 2: the S and P five hundred closing it another record 267 00:13:14,520 --> 00:13:17,720 Speaker 2: high of fifty one thirty seven, up just under one 268 00:13:17,760 --> 00:13:20,960 Speaker 2: percent for the week and still nicely over the median 269 00:13:21,080 --> 00:13:23,920 Speaker 2: year end number of five thousand from our Bloomberg Elves. 270 00:13:24,000 --> 00:13:26,640 Speaker 2: Despite the Elves continuing to raise their estimates every week, 271 00:13:26,880 --> 00:13:29,719 Speaker 2: the Nasdaq had an even stronger week, adding one point 272 00:13:29,800 --> 00:13:32,280 Speaker 2: seven four percent, while the yield on the tenure was 273 00:13:32,360 --> 00:13:34,920 Speaker 2: down just under seven basis points to end the week 274 00:13:34,920 --> 00:13:36,280 Speaker 2: at four point one eight. 275 00:13:36,520 --> 00:13:37,440 Speaker 1: To take us through the week. 276 00:13:37,280 --> 00:13:39,479 Speaker 2: Of the markets, we welcome back now with Barbara Reinhardt, 277 00:13:39,559 --> 00:13:44,040 Speaker 2: Voya Investment Management, CIO of Multi Assets Strategies and Solutions. 278 00:13:44,120 --> 00:13:45,840 Speaker 2: Great to have you back with his barber. So, so, 279 00:13:45,960 --> 00:13:47,960 Speaker 2: what's causing this form reporting of the markets? Is it 280 00:13:48,000 --> 00:13:49,800 Speaker 2: that strong economy Mary Daily. 281 00:13:49,640 --> 00:13:50,120 Speaker 1: Just talked about. 282 00:13:50,240 --> 00:13:52,199 Speaker 13: Well, I think there's a couple of things, David. Number 283 00:13:52,200 --> 00:13:55,880 Speaker 13: one is you have to remember the Fed pivot rally 284 00:13:55,920 --> 00:13:57,840 Speaker 13: that's been in place for the past two months has 285 00:13:57,880 --> 00:14:01,040 Speaker 13: been pretty powerful, and it's been driven by a lot 286 00:14:01,040 --> 00:14:04,880 Speaker 13: of multiple expansions. Specifically, since the end of October, multiples 287 00:14:04,920 --> 00:14:07,040 Speaker 13: have driven about eighty seven percent of the S and 288 00:14:07,040 --> 00:14:09,800 Speaker 13: P five hundreds run. But you've had a relatively good 289 00:14:09,840 --> 00:14:14,240 Speaker 13: earning season as well, right, so earning's estimates continue to 290 00:14:14,559 --> 00:14:16,760 Speaker 13: kind of bottom out and hook back up. The US 291 00:14:16,840 --> 00:14:19,480 Speaker 13: seems to be leading the way in this charge, and 292 00:14:19,680 --> 00:14:22,680 Speaker 13: it seems as though the markets digesting that the federal 293 00:14:22,680 --> 00:14:25,640 Speaker 13: Reserve may not cut or may not cut as much 294 00:14:25,640 --> 00:14:27,880 Speaker 13: as they expect this year, and they're taking it pretty 295 00:14:27,920 --> 00:14:28,480 Speaker 13: much in stride. 296 00:14:28,480 --> 00:14:30,240 Speaker 2: Well, that's one of the things I'm interested because where 297 00:14:30,280 --> 00:14:32,120 Speaker 2: the market was on how many cuts and where it 298 00:14:32,120 --> 00:14:34,000 Speaker 2: is today is quite different. So then cut it like 299 00:14:34,080 --> 00:14:36,160 Speaker 2: in half the number of cuts, and yet the markets 300 00:14:36,160 --> 00:14:37,600 Speaker 2: didn't seem to take that to adversly. 301 00:14:37,640 --> 00:14:40,040 Speaker 13: Why is that, Well, the bond market certainly did, right, 302 00:14:40,120 --> 00:14:43,480 Speaker 13: so you had the long long data. Treasuries had backed 303 00:14:43,520 --> 00:14:46,480 Speaker 13: up pretty significantly, but the equity market was pretty much 304 00:14:46,560 --> 00:14:48,560 Speaker 13: able to power through it. And we think one of 305 00:14:48,560 --> 00:14:51,200 Speaker 13: the reasons that this is the case is that many 306 00:14:51,320 --> 00:14:55,560 Speaker 13: companies US companies, specifically large cap companies have termed out 307 00:14:55,600 --> 00:14:58,680 Speaker 13: their debt so they don't have big refinancing risks coming 308 00:14:58,760 --> 00:15:01,360 Speaker 13: up in twenty three, twenty four or twenty five. They're 309 00:15:01,400 --> 00:15:03,760 Speaker 13: looking to later dates more like twenty twenty seven and 310 00:15:03,800 --> 00:15:06,560 Speaker 13: twenty twenty eight before they have to worry about refinancing. 311 00:15:06,680 --> 00:15:09,280 Speaker 13: And we think that's a big reason that the equity 312 00:15:09,320 --> 00:15:12,800 Speaker 13: market can look through some of the noise of pricing 313 00:15:12,840 --> 00:15:13,520 Speaker 13: in FED cuts. 314 00:15:13,680 --> 00:15:15,440 Speaker 2: One of the concerns you hear a lot about is 315 00:15:15,480 --> 00:15:18,440 Speaker 2: concentration in the equity markets, particularly there's magnificent seven or 316 00:15:18,480 --> 00:15:21,440 Speaker 2: help many our count it. How concerns should we be 317 00:15:21,560 --> 00:15:24,000 Speaker 2: about that concentration that is not broad enough in the 318 00:15:24,000 --> 00:15:24,800 Speaker 2: equity markets. 319 00:15:25,000 --> 00:15:27,840 Speaker 13: Well, the concentration is indeed going global. You see it 320 00:15:27,880 --> 00:15:30,320 Speaker 13: in the US markets, you see it in the international 321 00:15:30,400 --> 00:15:33,000 Speaker 13: markets as well, specifically in Europe and also in Japan. 322 00:15:33,600 --> 00:15:36,680 Speaker 13: In the US, though, I think there's a really interesting point. 323 00:15:36,400 --> 00:15:38,320 Speaker 7: To look at this. So if you take go back 324 00:15:38,320 --> 00:15:39,080 Speaker 7: to the dot. 325 00:15:38,880 --> 00:15:43,200 Speaker 13: Com period in the early two thousands, right, the top 326 00:15:43,240 --> 00:15:48,120 Speaker 13: five companies, they had a net income margin of about 327 00:15:48,160 --> 00:15:51,160 Speaker 13: twenty percent. Right, if you take a look at the 328 00:15:51,160 --> 00:15:53,360 Speaker 13: top five companies in the S and P five hundred 329 00:15:53,360 --> 00:15:56,880 Speaker 13: this year, their margin is closer to thirty to thirty 330 00:15:56,920 --> 00:16:00,600 Speaker 13: one percent. I think you cannot strip out the operational 331 00:16:00,640 --> 00:16:03,640 Speaker 13: dominance of these large companies and the high free cash 332 00:16:03,640 --> 00:16:07,040 Speaker 13: flow that they are indeed throwing off every year. And 333 00:16:07,080 --> 00:16:08,440 Speaker 13: I think when you take a look at it on 334 00:16:08,440 --> 00:16:11,920 Speaker 13: a pe basis, no question the market's expensive, But when 335 00:16:11,960 --> 00:16:14,720 Speaker 13: you drill down on some of those other metrics, some 336 00:16:14,840 --> 00:16:16,920 Speaker 13: of the frost starts to come out of it, and 337 00:16:16,960 --> 00:16:21,480 Speaker 13: it's being supported by relatively strong earnings and relatively good 338 00:16:21,520 --> 00:16:22,880 Speaker 13: free cash flow as well. 339 00:16:23,080 --> 00:16:24,920 Speaker 2: One of the things you hear about is evaluation. I mean, 340 00:16:25,480 --> 00:16:27,800 Speaker 2: does it make sense to buy more at these valuations 341 00:16:27,800 --> 00:16:29,880 Speaker 2: because it seems to be a lot is where they 342 00:16:29,880 --> 00:16:30,480 Speaker 2: say price. 343 00:16:30,320 --> 00:16:32,080 Speaker 1: To perfection and price of perfection. 344 00:16:32,200 --> 00:16:34,520 Speaker 13: Short there's not many places that you can find great 345 00:16:34,600 --> 00:16:38,080 Speaker 13: value at this point, along with improving fundamentals. But we 346 00:16:38,240 --> 00:16:40,840 Speaker 13: do think that the US is going to have another 347 00:16:41,000 --> 00:16:44,000 Speaker 13: relatively strong year relative to the rest of the world. 348 00:16:44,360 --> 00:16:46,120 Speaker 13: I know there's a lot of chatter going on in 349 00:16:46,120 --> 00:16:48,840 Speaker 13: the markets right now about maybe buying Europe, maybe buying 350 00:16:48,880 --> 00:16:52,280 Speaker 13: the emerging markets. China may do a big fiscal stimulus. 351 00:16:52,760 --> 00:16:57,160 Speaker 13: We think that the relative valuation and the premium that 352 00:16:57,200 --> 00:17:00,480 Speaker 13: the US commands is for a relatively good reason. We're 353 00:17:00,480 --> 00:17:03,640 Speaker 13: sticking closer to home. We're sticking in US large cap stocks. 354 00:17:04,080 --> 00:17:07,280 Speaker 13: If the FED were to aggressively start cutting interest rates, 355 00:17:07,359 --> 00:17:09,760 Speaker 13: it may make sense to go down and cap size. 356 00:17:09,880 --> 00:17:11,840 Speaker 13: But right now, I think you're better off being in 357 00:17:11,840 --> 00:17:14,880 Speaker 13: the US. And because the rest of the world isn't 358 00:17:14,920 --> 00:17:18,359 Speaker 13: feeling particularly well, it's kind of the somewhat reminiscence of 359 00:17:18,359 --> 00:17:21,080 Speaker 13: the mid nineteen nineties. US was doing well, rest of 360 00:17:21,080 --> 00:17:23,960 Speaker 13: the world was on its back. Relative strengths for the 361 00:17:24,040 --> 00:17:26,560 Speaker 13: US dollar is another one to consider as well, when 362 00:17:26,600 --> 00:17:27,800 Speaker 13: you're going global. 363 00:17:27,600 --> 00:17:30,320 Speaker 2: On its back, but Japan is not quite the way 364 00:17:30,320 --> 00:17:32,400 Speaker 2: it was on its back as before. Is that sort 365 00:17:32,440 --> 00:17:34,160 Speaker 2: of coming up a little bit? I hear some talk 366 00:17:34,200 --> 00:17:34,800 Speaker 2: about Japan. 367 00:17:35,040 --> 00:17:37,840 Speaker 13: It only took thirty four years for it to recapture 368 00:17:37,880 --> 00:17:41,639 Speaker 13: it's nineteen eighty nine high. So look, Japan is a 369 00:17:41,680 --> 00:17:44,320 Speaker 13: really interesting market to US. I think that if you're 370 00:17:44,320 --> 00:17:45,960 Speaker 13: going to go out to Japan, you have to head 371 00:17:46,000 --> 00:17:47,719 Speaker 13: your currency back into US dollars. 372 00:17:48,400 --> 00:17:49,679 Speaker 7: Japan, because they've been. 373 00:17:49,560 --> 00:17:52,880 Speaker 13: Through so much over the past really three decades, they 374 00:17:52,960 --> 00:17:56,080 Speaker 13: don't the market doesn't tend to respond much to recessions 375 00:17:56,160 --> 00:17:58,280 Speaker 13: as you do, say in the US or in Europe. 376 00:17:58,440 --> 00:18:02,400 Speaker 13: But Germany right now is in a middling recession. Emerging 377 00:18:02,400 --> 00:18:04,760 Speaker 13: markets don't feel particularly good. If I had to be 378 00:18:04,800 --> 00:18:07,040 Speaker 13: any place, i'd probaly stick in US large caps. 379 00:18:07,160 --> 00:18:09,040 Speaker 1: US A large cap, not medium and small. 380 00:18:09,320 --> 00:18:10,320 Speaker 13: No US large. 381 00:18:10,400 --> 00:18:12,239 Speaker 1: Yeah, it's too hard to pick those stocks in as 382 00:18:12,240 --> 00:18:13,000 Speaker 1: small as the large. 383 00:18:13,000 --> 00:18:15,920 Speaker 13: As a probate, you need a fed rate cutting cycle 384 00:18:15,960 --> 00:18:17,879 Speaker 13: to really get that smaller cap size of the market. 385 00:18:17,920 --> 00:18:20,400 Speaker 2: Going one last quick one, what about terming out debt 386 00:18:20,520 --> 00:18:22,479 Speaker 2: and fixed income because you might want to lock in 387 00:18:22,480 --> 00:18:23,560 Speaker 2: some of these rates. 388 00:18:23,560 --> 00:18:26,760 Speaker 13: Look, we think that there's a lot of money sitting 389 00:18:26,760 --> 00:18:28,840 Speaker 13: in money market funds. At this point, everyone says I 390 00:18:28,840 --> 00:18:30,960 Speaker 13: can get five percent in money market funds, Why do 391 00:18:31,000 --> 00:18:33,800 Speaker 13: I want to do anything else? Even if the Federal 392 00:18:33,840 --> 00:18:37,680 Speaker 13: Reserve doesn't cut interest rates this year, five percent won't 393 00:18:37,720 --> 00:18:40,840 Speaker 13: be there forever. There's a reason that cash is generally 394 00:18:40,880 --> 00:18:45,040 Speaker 13: not part of an asset allocation portfolio. I would say 395 00:18:45,080 --> 00:18:47,600 Speaker 13: that the most interesting piece right now to us looks 396 00:18:47,600 --> 00:18:50,360 Speaker 13: like longer data treasuries. We think that they're good insulation 397 00:18:50,480 --> 00:18:53,399 Speaker 13: against economic slowdown and you're getting that positive real yield. 398 00:18:53,560 --> 00:18:55,239 Speaker 1: Robert's always a true to have you. Thank you so much, 399 00:18:55,440 --> 00:18:56,919 Speaker 1: Barbert Reinhardt a voya. 400 00:18:57,760 --> 00:19:00,760 Speaker 2: Commercial real estate has taken something of a bading recently, 401 00:19:00,880 --> 00:19:03,680 Speaker 2: as higher interest rates and lower occupancy rates at least 402 00:19:03,720 --> 00:19:06,320 Speaker 2: when it comes to offices have forced a repricing and 403 00:19:06,359 --> 00:19:09,320 Speaker 2: a fair amount of refinancing as well. Blackstone is one 404 00:19:09,320 --> 00:19:11,879 Speaker 2: of the leading investors in the asset class and welcome 405 00:19:11,920 --> 00:19:14,440 Speaker 2: now it's global co head for real estate. He is 406 00:19:14,480 --> 00:19:17,760 Speaker 2: in the Deem Midgie. Many thanks to Redemed for being here. 407 00:19:17,760 --> 00:19:19,600 Speaker 2: So the deam give us a sense of where we 408 00:19:19,640 --> 00:19:22,160 Speaker 2: are in commercial real estate. Have we seen the bottom. 409 00:19:22,640 --> 00:19:25,959 Speaker 4: Thank you David for having me on the program. You know, 410 00:19:26,200 --> 00:19:29,399 Speaker 4: if you take a step back, we've had two really 411 00:19:29,440 --> 00:19:32,200 Speaker 4: difficult years for commercial real estate and there are really 412 00:19:32,240 --> 00:19:36,000 Speaker 4: two reasons for that. One of those is a historic 413 00:19:36,080 --> 00:19:40,040 Speaker 4: increase in rates, which put downward pressure on valuation multiples 414 00:19:40,440 --> 00:19:43,760 Speaker 4: for real estate. The other thing that's happened is office 415 00:19:43,760 --> 00:19:48,240 Speaker 4: buildings have faced a lot of pressure and the combination 416 00:19:48,320 --> 00:19:51,919 Speaker 4: of that has resulted in negative headlines and negative sentiment. 417 00:19:52,119 --> 00:19:55,240 Speaker 6: And frankly, those headlines will continue. 418 00:19:55,080 --> 00:19:58,760 Speaker 4: To be negative because you're still going to have stories 419 00:19:58,960 --> 00:20:02,520 Speaker 4: of banks dealing with loans that they made in a 420 00:20:02,520 --> 00:20:05,680 Speaker 4: different environment at a different moment when rates were lower, 421 00:20:05,720 --> 00:20:10,480 Speaker 4: sponsors owners who maybe did deals in a different rate environment. 422 00:20:11,280 --> 00:20:15,760 Speaker 4: But from our perspective, that's all priced into asset values today, 423 00:20:15,880 --> 00:20:18,560 Speaker 4: and in fact, when we look forward, we see something 424 00:20:18,720 --> 00:20:23,480 Speaker 4: very different. What we see is a generational investing opportunity, 425 00:20:23,680 --> 00:20:27,000 Speaker 4: buying opportunity while others are looking. 426 00:20:26,760 --> 00:20:27,840 Speaker 6: In the rear view mirror. 427 00:20:28,200 --> 00:20:31,240 Speaker 4: And what we believe is happening is that values are bottoming. 428 00:20:31,600 --> 00:20:35,600 Speaker 4: And the reason for that is number one, interest rates 429 00:20:36,080 --> 00:20:39,560 Speaker 4: inflation is cooling. Rates have come down from their October 430 00:20:39,640 --> 00:20:45,040 Speaker 4: hives from last year, and credit formation is once again 431 00:20:45,200 --> 00:20:46,320 Speaker 4: happening in real estate. 432 00:20:46,520 --> 00:20:47,840 Speaker 6: All in, borrowing. 433 00:20:47,440 --> 00:20:51,160 Speaker 4: Costs are down two hundred basis points over the last 434 00:20:51,200 --> 00:20:55,240 Speaker 4: five or six months, and transaction activity is picking back up. 435 00:20:55,560 --> 00:20:58,200 Speaker 4: The other thing that's happening that I think is under 436 00:20:58,200 --> 00:21:01,600 Speaker 4: reported is this idea of new construction, which is down 437 00:21:02,000 --> 00:21:05,920 Speaker 4: thirty to seventy percent in our core sectors versus two 438 00:21:06,000 --> 00:21:08,160 Speaker 4: years ago, and I think that in the medium term 439 00:21:08,640 --> 00:21:12,640 Speaker 4: will lead to a sharper recovery than the market likely expect. 440 00:21:12,720 --> 00:21:15,280 Speaker 4: And then the third thing I would say, which is 441 00:21:15,320 --> 00:21:18,560 Speaker 4: critically important, and we've been saying this for years, is 442 00:21:18,600 --> 00:21:22,840 Speaker 4: where you invest matters. There's a huge bifurcation across asset classes. 443 00:21:23,119 --> 00:21:26,520 Speaker 4: We all know what's happening with office values are under pressure, 444 00:21:26,880 --> 00:21:28,120 Speaker 4: rents or under pressure. 445 00:21:29,080 --> 00:21:32,920 Speaker 6: In fact, US office represents only one and a half percent. 446 00:21:32,680 --> 00:21:36,040 Speaker 4: Of our global portfolio because we were nervous about office. 447 00:21:36,320 --> 00:21:38,919 Speaker 4: On the flip side, look at data centers, which are 448 00:21:39,000 --> 00:21:43,320 Speaker 4: our fastest growing asset class two percent vacancy, twenty five 449 00:21:43,400 --> 00:21:46,760 Speaker 4: percent rent growth, ten times the demand that we saw 450 00:21:47,280 --> 00:21:50,960 Speaker 4: only five years ago. And the AI revolution is just 451 00:21:50,960 --> 00:21:54,040 Speaker 4: getting started. So for us, it's all about understanding the 452 00:21:54,080 --> 00:21:57,480 Speaker 4: difference between the winners and the losers, and doubling down 453 00:21:57,480 --> 00:21:59,200 Speaker 4: in the places where we see more growth. 454 00:21:59,280 --> 00:22:02,000 Speaker 2: We hear from about warehouses with e commerce, and especially 455 00:22:02,040 --> 00:22:05,040 Speaker 2: now data centers with generative AI and the expectation we're 456 00:22:05,119 --> 00:22:08,119 Speaker 2: need a lot more data centers. Are people already rushing 457 00:22:08,200 --> 00:22:12,200 Speaker 2: into those properties that make it less attractive to you? 458 00:22:12,200 --> 00:22:12,919 Speaker 6: No, it's interesting. 459 00:22:12,960 --> 00:22:15,320 Speaker 4: It's actually quite the opposite, which is to say that 460 00:22:15,440 --> 00:22:19,120 Speaker 4: in both data centers and warehouses, for example, the fundamentals 461 00:22:19,600 --> 00:22:22,880 Speaker 4: from a long term perspective are as attractive as they've 462 00:22:22,880 --> 00:22:28,399 Speaker 4: ever been, Yet there's a shortage of capital pursuing these opportunities. 463 00:22:28,600 --> 00:22:31,040 Speaker 4: There's a shortage of liquidity in the system. So even 464 00:22:31,119 --> 00:22:34,679 Speaker 4: as debt capital is coming back, there's still quite a 465 00:22:34,720 --> 00:22:37,960 Speaker 4: bit less competition today than a couple years ago. So 466 00:22:38,040 --> 00:22:40,960 Speaker 4: when I think about data centers, for example, this is 467 00:22:41,000 --> 00:22:42,440 Speaker 4: an asset class. 468 00:22:42,280 --> 00:22:44,520 Speaker 6: Where we took a view a few years ago. 469 00:22:44,840 --> 00:22:48,640 Speaker 4: That the combination of digitization of the economy, the cloud, 470 00:22:49,000 --> 00:22:54,240 Speaker 4: artificial intelligence would all result in a greater demand for 471 00:22:54,600 --> 00:22:57,560 Speaker 4: data centers because all of this data that's being created 472 00:22:57,640 --> 00:23:02,440 Speaker 4: needs to be housed inside servers, inside data centers. And 473 00:23:02,560 --> 00:23:04,719 Speaker 4: what we see on the ground is that the major 474 00:23:04,800 --> 00:23:08,480 Speaker 4: technology companies have announced that they're going to invest one 475 00:23:08,520 --> 00:23:13,040 Speaker 4: trillion dollars of capital into their digital infrastructure over the 476 00:23:13,080 --> 00:23:15,240 Speaker 4: next five years. That's going to drive more demand for 477 00:23:15,320 --> 00:23:18,520 Speaker 4: data centers, and yet very few people can capitalize on 478 00:23:18,600 --> 00:23:22,399 Speaker 4: this opportunity at a moment like this because you need 479 00:23:22,440 --> 00:23:26,119 Speaker 4: scale capital. Data center developments used to be one hundred 480 00:23:26,119 --> 00:23:29,320 Speaker 4: million dollars. Now they can be as big as a billion, 481 00:23:29,359 --> 00:23:31,840 Speaker 4: two billion, three billion dollars. Very few people have that 482 00:23:31,960 --> 00:23:33,959 Speaker 4: kind of capital. The other thing you need to have 483 00:23:34,080 --> 00:23:36,600 Speaker 4: is a large land bank. You need to have access 484 00:23:36,640 --> 00:23:39,560 Speaker 4: to power, which takes years to procure. You need to 485 00:23:39,560 --> 00:23:43,440 Speaker 4: have relationships with the major technology companies. And so what 486 00:23:43,480 --> 00:23:46,840 Speaker 4: we've done is we own a platform that we bought 487 00:23:46,840 --> 00:23:50,359 Speaker 4: three years ago, QTS Data Centers. It's the fastest growing 488 00:23:50,400 --> 00:23:53,640 Speaker 4: data center company in the world. We've taken that development 489 00:23:53,680 --> 00:23:57,800 Speaker 4: pipeline from one billion dollars only four years ago, three 490 00:23:57,880 --> 00:24:01,080 Speaker 4: years ago to today eighteen billion dollars. 491 00:24:01,119 --> 00:24:02,640 Speaker 6: We've grown the installed. 492 00:24:02,240 --> 00:24:07,280 Speaker 4: Capacity by sixfold over this very short period of time, 493 00:24:07,520 --> 00:24:09,200 Speaker 4: and we still think we're in the early innings. 494 00:24:09,240 --> 00:24:11,000 Speaker 6: But again, not anyone can do this. 495 00:24:11,320 --> 00:24:12,879 Speaker 1: You mentioned Europe earlier. 496 00:24:13,119 --> 00:24:16,280 Speaker 2: What opportunity do you see for you Blackstone in real 497 00:24:16,400 --> 00:24:17,440 Speaker 2: estate in Europe. 498 00:24:17,640 --> 00:24:18,560 Speaker 6: Sure, you know. 499 00:24:18,600 --> 00:24:21,040 Speaker 4: I think sometimes people are surprised by the fact that 500 00:24:21,400 --> 00:24:25,240 Speaker 4: our most active region globally has been Europe in light 501 00:24:25,280 --> 00:24:30,160 Speaker 4: of a sort of nominal backdrop GDP growth that's been 502 00:24:30,280 --> 00:24:34,800 Speaker 4: quite quite flat. But what it turns out is that 503 00:24:35,240 --> 00:24:39,840 Speaker 4: sentiment is so negative today and liquidity is so short 504 00:24:40,480 --> 00:24:42,879 Speaker 4: that you have folks who need to raise cash. And 505 00:24:42,920 --> 00:24:47,439 Speaker 4: so we've been buying from groups who for whatever reason, 506 00:24:47,680 --> 00:24:50,520 Speaker 4: are willing to part ways with high quality assets in 507 00:24:50,560 --> 00:24:55,080 Speaker 4: this moment. But we're buying at prices today that don't 508 00:24:55,119 --> 00:24:59,240 Speaker 4: require us to believe a V shaped recovery. And so 509 00:24:59,400 --> 00:25:01,720 Speaker 4: just as one to example, we're acquiring. 510 00:25:01,240 --> 00:25:03,040 Speaker 6: Warehouses throughout Europe. 511 00:25:03,080 --> 00:25:06,680 Speaker 4: We've acquired four billion euros of warehouses in only the 512 00:25:06,760 --> 00:25:09,960 Speaker 4: last twelve months, and what we see is deep value. 513 00:25:10,040 --> 00:25:12,560 Speaker 4: And as we look forward, we think that that buying opportunity, 514 00:25:12,560 --> 00:25:16,080 Speaker 4: in buying opportunity in Europe continues because there are very 515 00:25:16,119 --> 00:25:18,800 Speaker 4: few folks who have the scale that we do who 516 00:25:18,840 --> 00:25:21,080 Speaker 4: can compete with us across the continent. 517 00:25:21,160 --> 00:25:22,520 Speaker 2: The theme it's a real treat to have you on 518 00:25:22,520 --> 00:25:23,920 Speaker 2: Wall Streeter, thank you for being here. 519 00:25:24,119 --> 00:25:25,520 Speaker 1: That is Nade Meggie of. 520 00:25:25,720 --> 00:25:30,320 Speaker 2: Blackstone Coming up, we move from investing in real estate 521 00:25:30,359 --> 00:25:33,880 Speaker 2: to investing in fixed income with Goldman Sachs Asset Managements, 522 00:25:33,840 --> 00:25:36,600 Speaker 2: a head of multi sector investing, Lindsay Rosner. 523 00:25:37,000 --> 00:25:39,760 Speaker 5: Typically when there are geopolitical flares, you see a flight 524 00:25:39,840 --> 00:25:42,119 Speaker 5: to quality rally, people go into treasuries. 525 00:25:42,280 --> 00:25:43,359 Speaker 7: That has not been the case. 526 00:25:45,160 --> 00:25:47,320 Speaker 1: That's next down Wall Street Week on Bloomberg. 527 00:25:48,520 --> 00:25:52,720 Speaker 3: This is Bloomberg Well Street Week with David Weston from 528 00:25:52,840 --> 00:25:57,640 Speaker 3: Bloomberg Radio. 529 00:26:00,280 --> 00:26:02,080 Speaker 1: This is Wall Street Week. I'm David Weston. 530 00:26:02,160 --> 00:26:05,280 Speaker 2: After years of little or no return, fixed income is 531 00:26:05,320 --> 00:26:07,840 Speaker 2: back as an attractive asset class. To take us through 532 00:26:07,840 --> 00:26:11,560 Speaker 2: the opportunities and the risks. We welcome Lindsay Rosner, Goldman 533 00:26:11,640 --> 00:26:15,520 Speaker 2: Sachs Asset Management, head of Multi sector Investing. So, Lindsay, welcome. 534 00:26:15,600 --> 00:26:16,800 Speaker 2: Is really great to have you on Wall Street Week. 535 00:26:16,880 --> 00:26:18,280 Speaker 7: Thank you for having me excited to be here. 536 00:26:18,320 --> 00:26:20,520 Speaker 2: So let's talk about those opportunities and risks because they 537 00:26:20,520 --> 00:26:23,360 Speaker 2: are out there. Where is there risk you can take 538 00:26:23,359 --> 00:26:24,760 Speaker 2: that you get paid for right now? 539 00:26:24,800 --> 00:26:25,480 Speaker 1: In fixed income? 540 00:26:25,600 --> 00:26:28,520 Speaker 5: Yes, So it's a really interesting environment right now. Yields 541 00:26:28,560 --> 00:26:32,879 Speaker 5: are abundant, they abound. However, spreads are tight, so you 542 00:26:33,000 --> 00:26:35,919 Speaker 5: really need to be thoughtful about where you are taking 543 00:26:35,960 --> 00:26:39,600 Speaker 5: that risk. And to your question, where are there opportunities 544 00:26:40,200 --> 00:26:45,240 Speaker 5: ret large US investment grade, very very tight spreads, high yield, 545 00:26:45,640 --> 00:26:48,720 Speaker 5: pretty tight, tighter than average as well. Where we're finding 546 00:26:48,720 --> 00:26:51,800 Speaker 5: an interesting pocket is actually in structured product. And what 547 00:26:51,840 --> 00:26:55,600 Speaker 5: I mean by that is commercial mortgage backed securities colos, 548 00:26:55,960 --> 00:26:57,440 Speaker 5: even some massive back securities. 549 00:26:57,680 --> 00:27:00,240 Speaker 2: So why isn't the market pricing that accurately? Now, what's 550 00:27:00,240 --> 00:27:01,479 Speaker 2: the market got wrong about that? 551 00:27:02,119 --> 00:27:04,640 Speaker 5: Well, I think it's not necessarily that the market got 552 00:27:04,640 --> 00:27:07,040 Speaker 5: it wrong, But what's happening in the market has changed 553 00:27:07,040 --> 00:27:10,200 Speaker 5: so dramatically. And where we lived in twenty twenty three 554 00:27:10,280 --> 00:27:13,159 Speaker 5: and even started in January was a world in which 555 00:27:13,280 --> 00:27:16,720 Speaker 5: the FED may continue to hike or at least hike 556 00:27:16,960 --> 00:27:20,399 Speaker 5: and hold at those high interest rate levels. It is 557 00:27:20,720 --> 00:27:24,040 Speaker 5: very difficult for some of the collateral and some of 558 00:27:24,080 --> 00:27:28,479 Speaker 5: these different structures in structured product to give value. And 559 00:27:28,560 --> 00:27:30,800 Speaker 5: one of the big things, like commercial mortgage backed securities, 560 00:27:30,880 --> 00:27:33,600 Speaker 5: underlying it is commercial real estate. If there is a 561 00:27:33,640 --> 00:27:37,280 Speaker 5: wall of maturity, how does that get refinanced and what rates? 562 00:27:37,359 --> 00:27:39,800 Speaker 5: And again the market was pricing in what those rates 563 00:27:39,840 --> 00:27:42,919 Speaker 5: would be would be a lot higher, which decrease the value. 564 00:27:43,040 --> 00:27:44,000 Speaker 7: Now we had a. 565 00:27:44,000 --> 00:27:48,560 Speaker 5: Really consequential CPI print in October which told us, hey, 566 00:27:48,560 --> 00:27:51,159 Speaker 5: a soft landing is very much on the table and 567 00:27:51,480 --> 00:27:55,240 Speaker 5: the deflation or disinflation is really taking holds. That has 568 00:27:55,320 --> 00:27:57,840 Speaker 5: really changed that narrative that you see in the rates market, 569 00:27:58,200 --> 00:28:01,080 Speaker 5: and for us, we believe that also changes the expected 570 00:28:01,160 --> 00:28:05,040 Speaker 5: return or the outcome for various parts of structured products. 571 00:28:05,119 --> 00:28:06,800 Speaker 1: So pick up on that. I'm curious. 572 00:28:07,320 --> 00:28:09,720 Speaker 2: There has been a real shift in the expectations about 573 00:28:09,800 --> 00:28:12,040 Speaker 2: rad cuts this year, and some people think that's a 574 00:28:12,080 --> 00:28:13,919 Speaker 2: bad thing because when it was many rate cuts. But 575 00:28:13,960 --> 00:28:16,119 Speaker 2: I wonder if the reason the markets were pricing in 576 00:28:16,160 --> 00:28:19,240 Speaker 2: that many rate cuts was actually the anticipation a chance 577 00:28:19,280 --> 00:28:22,080 Speaker 2: of recession, and as that goes away, it actually reduces 578 00:28:22,119 --> 00:28:23,760 Speaker 2: the need to cut rates, so. 579 00:28:23,920 --> 00:28:27,480 Speaker 5: There is definitely less of a view of recession. Goldman 580 00:28:27,600 --> 00:28:31,560 Speaker 5: had a fantastic hall last year calling for a softish landing. 581 00:28:31,600 --> 00:28:33,080 Speaker 7: I think it was lonely in that camp. 582 00:28:33,160 --> 00:28:35,280 Speaker 5: Many were calling for a recession, and in fact we 583 00:28:35,320 --> 00:28:39,920 Speaker 5: really are getting a soft landing ish situation as that 584 00:28:40,080 --> 00:28:42,760 Speaker 5: recession has really come off the table. If the Fed 585 00:28:42,840 --> 00:28:47,760 Speaker 5: doesn't have to do those insurance cuts to protect the economy, instead, 586 00:28:47,840 --> 00:28:51,680 Speaker 5: they can be more metered and take some time to 587 00:28:51,800 --> 00:28:56,400 Speaker 5: be sure that inflation is coming down and that growth 588 00:28:56,440 --> 00:28:59,040 Speaker 5: actually is not reaccelerating too much. So there's kind of 589 00:28:59,080 --> 00:29:02,160 Speaker 5: this like happy medium kind of channel they're looking for. 590 00:29:02,280 --> 00:29:03,960 Speaker 2: Right now, as we sit here, it looks like things 591 00:29:03,960 --> 00:29:06,240 Speaker 2: are pretty good in the United States. The economy teams 592 00:29:06,240 --> 00:29:08,840 Speaker 2: are doing pretty well. The labor market's in pretty good shape. 593 00:29:08,960 --> 00:29:10,840 Speaker 2: You know, the rates have gone up, but they don't 594 00:29:10,840 --> 00:29:13,520 Speaker 2: seem to be going up too far. What is the 595 00:29:13,600 --> 00:29:15,360 Speaker 2: risk we should be looking out for that we may 596 00:29:15,400 --> 00:29:17,200 Speaker 2: not be missing. I think early on in your career 597 00:29:17,240 --> 00:29:18,600 Speaker 2: you had some experience with that at l Amen. 598 00:29:18,880 --> 00:29:19,080 Speaker 14: Yes. 599 00:29:19,200 --> 00:29:22,280 Speaker 5: I did have some experience with risks at Lehman Brothers. 600 00:29:22,480 --> 00:29:24,000 Speaker 5: I was two years out of college. As I like 601 00:29:24,040 --> 00:29:25,920 Speaker 5: to say, I am not responsible. I feel like I 602 00:29:25,920 --> 00:29:28,320 Speaker 5: have to put that out there. But I learned a lot. 603 00:29:28,520 --> 00:29:31,400 Speaker 5: And what I learned and it's never left me, is 604 00:29:31,440 --> 00:29:34,640 Speaker 5: that you don't necessarily know what the risk will be, 605 00:29:34,920 --> 00:29:36,560 Speaker 5: but risk will come. And I think this is the 606 00:29:36,640 --> 00:29:39,520 Speaker 5: idea of the black Swan as well, and they happen 607 00:29:39,600 --> 00:29:45,000 Speaker 5: with frequency. So it's important, especially when things feel really good, 608 00:29:45,280 --> 00:29:48,080 Speaker 5: to say what could be the problems. A few things 609 00:29:48,120 --> 00:29:51,520 Speaker 5: that come to mind number one, geopolitical. You can literally 610 00:29:51,560 --> 00:29:54,000 Speaker 5: spin the globe, put a finger down and you're likely 611 00:29:54,160 --> 00:29:58,320 Speaker 5: to point out a geopolitical tension, flair issue, or maybe 612 00:29:58,360 --> 00:30:02,800 Speaker 5: even something more pronounced. Right now, all the geopolitical issues 613 00:30:02,840 --> 00:30:05,480 Speaker 5: that are out there, especially ones that started even in 614 00:30:05,520 --> 00:30:08,400 Speaker 5: twenty twenty three or earlier than that, they are unresolved. 615 00:30:08,720 --> 00:30:12,080 Speaker 5: It's not like we've crossed a geopolitical tension or issue 616 00:30:12,080 --> 00:30:14,840 Speaker 5: off the list and say that one we can put aside. 617 00:30:15,400 --> 00:30:17,280 Speaker 7: It's done. It still exists. 618 00:30:17,280 --> 00:30:20,240 Speaker 5: So that's something that's really important to remember that can 619 00:30:20,280 --> 00:30:22,560 Speaker 5: be out there now. What's been interesting in the market 620 00:30:22,680 --> 00:30:25,360 Speaker 5: is typically when there are geopolitical flares, you see a 621 00:30:25,400 --> 00:30:27,960 Speaker 5: flight to quality rally, people go into treasuries. 622 00:30:28,400 --> 00:30:29,520 Speaker 7: That has not been the case. 623 00:30:29,920 --> 00:30:32,800 Speaker 5: So there is this real exuberance in euphoria. And it's 624 00:30:32,840 --> 00:30:36,719 Speaker 5: exactly then that we like to say, are we thinking 625 00:30:36,720 --> 00:30:38,040 Speaker 5: about things properly? 626 00:30:38,320 --> 00:30:39,640 Speaker 7: Are they properly valued? 627 00:30:39,680 --> 00:30:42,680 Speaker 5: So geopolitical would be one thing that I would think about. 628 00:30:43,000 --> 00:30:45,560 Speaker 5: The other one, I think is just an interesting technical 629 00:30:45,600 --> 00:30:48,959 Speaker 5: that's developed in the market, which is the private credit 630 00:30:49,000 --> 00:30:51,920 Speaker 5: world has grown and I'm sure you've spoken a lot 631 00:30:51,960 --> 00:30:54,720 Speaker 5: on this show with people who are part of private credit, 632 00:30:54,800 --> 00:30:57,560 Speaker 5: or at least speaking about it. And it is a 633 00:30:57,640 --> 00:31:00,720 Speaker 5: one point seven trillion dollar right now. 634 00:31:00,760 --> 00:31:03,440 Speaker 7: That's really big. We've never seen it this big. 635 00:31:03,960 --> 00:31:07,520 Speaker 5: And the interesting dynamic is that money has been committed 636 00:31:07,560 --> 00:31:08,680 Speaker 5: to it, but not all. 637 00:31:08,600 --> 00:31:10,000 Speaker 7: The capital has been called. 638 00:31:10,400 --> 00:31:13,520 Speaker 5: So, as you're a private credit investor, you're waiting for 639 00:31:13,600 --> 00:31:18,080 Speaker 5: your capital to be called to go service deals, where 640 00:31:18,080 --> 00:31:18,720 Speaker 5: do you put it? 641 00:31:19,160 --> 00:31:20,600 Speaker 7: And I think that's a big question. 642 00:31:20,960 --> 00:31:23,480 Speaker 5: It's probably not sitting under a pillow or under a 643 00:31:23,520 --> 00:31:26,600 Speaker 5: mattress somewhere. It's maybe in money markets. It's maybe in 644 00:31:26,960 --> 00:31:31,000 Speaker 5: US investment grade funds, or maybe it's in public high yields, 645 00:31:31,000 --> 00:31:34,720 Speaker 5: because that is a yield more analogous to what investors 646 00:31:34,720 --> 00:31:36,120 Speaker 5: thinks they'll get in private credit. 647 00:31:36,760 --> 00:31:39,840 Speaker 2: That makes me wonder about liquidity because if it all 648 00:31:39,880 --> 00:31:41,680 Speaker 2: got called tomorrow, which is not, but if it all 649 00:31:41,720 --> 00:31:43,320 Speaker 2: got called tomorrow, they would take a lot of liquidity 650 00:31:43,320 --> 00:31:45,400 Speaker 2: out of the marketplace. At the same time, you have 651 00:31:45,880 --> 00:31:48,120 Speaker 2: the FED starting to really run down the balance sheet. 652 00:31:48,320 --> 00:31:50,880 Speaker 2: But is taking liquidity out? Is there a prospect of 653 00:31:50,960 --> 00:31:52,760 Speaker 2: really a liquidity issue here? 654 00:31:53,120 --> 00:31:55,520 Speaker 7: That is exactly the issue. I mean you said it. 655 00:31:56,120 --> 00:31:59,520 Speaker 5: If that capital needs to be called, likely there will 656 00:31:59,520 --> 00:32:02,920 Speaker 5: be a liquid of something to get that money out 657 00:32:02,960 --> 00:32:06,160 Speaker 5: the door. And so that is something we're also thinking about. 658 00:32:06,560 --> 00:32:09,920 Speaker 5: If investors have to sell, where are they going to sell? 659 00:32:10,160 --> 00:32:12,840 Speaker 5: And with spreads, as I mentioned, so tight, I mean 660 00:32:12,880 --> 00:32:16,240 Speaker 5: something's like US investment grade is at the tenth percentile, 661 00:32:16,920 --> 00:32:21,200 Speaker 5: really really tight spreads. Could they stay at this level 662 00:32:21,240 --> 00:32:24,800 Speaker 5: if there were four sellers or outflows, It'd be hard. 663 00:32:24,600 --> 00:32:25,600 Speaker 7: To imagine it could. 664 00:32:25,840 --> 00:32:28,520 Speaker 5: And so big picture, when we're thinking about investing our 665 00:32:28,560 --> 00:32:31,480 Speaker 5: portfolios and I invest, me and the team in public 666 00:32:31,520 --> 00:32:35,600 Speaker 5: fixed income, we are constructive on risk, but we aren't 667 00:32:35,640 --> 00:32:38,600 Speaker 5: all in. We're using I would say about forty or 668 00:32:38,680 --> 00:32:41,800 Speaker 5: fifty percent of our risk budget, meaning we have dry 669 00:32:41,840 --> 00:32:47,160 Speaker 5: powder for if and when a geopolitical tension happens, flares up, 670 00:32:47,560 --> 00:32:50,520 Speaker 5: maybe something like private credit and a movement of capital 671 00:32:50,520 --> 00:32:53,440 Speaker 5: and the need to deploy money happens, or just a 672 00:32:53,480 --> 00:32:56,600 Speaker 5: plain vanilla black swan of hers and they do. We 673 00:32:56,680 --> 00:33:00,000 Speaker 5: want to be ready to be a liquidity provider private. 674 00:32:59,760 --> 00:33:02,320 Speaker 2: Quid you missed mentioned a couple times private credit, which 675 00:33:02,360 --> 00:33:04,479 Speaker 2: is huge, and we do talk about a fair amount. 676 00:33:05,280 --> 00:33:07,800 Speaker 2: Is there a risk there in private country credit because 677 00:33:07,800 --> 00:33:10,680 Speaker 2: of the name private, That is to say, we don't 678 00:33:10,720 --> 00:33:14,080 Speaker 2: necessarily know the valuations the underlying assets where they don't 679 00:33:14,080 --> 00:33:15,880 Speaker 2: mark to market the same way we do in a 680 00:33:15,880 --> 00:33:18,360 Speaker 2: public market. Is that a risk for the system overall 681 00:33:18,400 --> 00:33:20,600 Speaker 2: that could redound to all of our dis benefit. 682 00:33:21,000 --> 00:33:24,760 Speaker 5: Well, there is less transparency. You're absolutely right. There actually 683 00:33:24,880 --> 00:33:27,680 Speaker 5: was a paper published by the FED on February twenty 684 00:33:27,680 --> 00:33:32,360 Speaker 5: third discussing all of this. But certainly, having both the 685 00:33:32,480 --> 00:33:36,240 Speaker 5: lack of transparency and the lack of liquidity, private credit 686 00:33:36,320 --> 00:33:38,240 Speaker 5: is locked up. It is not in the world I 687 00:33:38,320 --> 00:33:41,120 Speaker 5: live in a public fixed income you can typically and 688 00:33:41,200 --> 00:33:45,120 Speaker 5: in most situations, get liquidity or your money both invested 689 00:33:45,200 --> 00:33:49,080 Speaker 5: or taken away on any given day. It is not 690 00:33:49,240 --> 00:33:51,720 Speaker 5: that in private credit. So I think where there is 691 00:33:51,760 --> 00:33:55,200 Speaker 5: a lack of transparency there is more risk. Between the 692 00:33:55,320 --> 00:33:58,440 Speaker 5: lack of transparency and also the lock up. You are 693 00:33:58,600 --> 00:34:02,400 Speaker 5: given more of a spread or an additional yield compensation 694 00:34:02,840 --> 00:34:05,520 Speaker 5: for that, so it should be priced into it. 695 00:34:05,720 --> 00:34:07,880 Speaker 7: But there is something there. You're absolutely right. 696 00:34:07,960 --> 00:34:09,680 Speaker 2: Linda's a real treat to have you on Wall Street, Reeve. 697 00:34:09,760 --> 00:34:14,200 Speaker 2: That's Lindsay Rosner of Goldman Sachs. Finally, one more thought. 698 00:34:14,600 --> 00:34:18,000 Speaker 2: Last weekend, Warren Buffett sent his annual letter to shareholders 699 00:34:18,239 --> 00:34:20,759 Speaker 2: and even as Berkshire Hathaway approached a market cap of 700 00:34:20,880 --> 00:34:24,120 Speaker 2: one trillion dollars, he doubled down on his quest for 701 00:34:24,160 --> 00:34:28,200 Speaker 2: companies that quote can deliver wealth almost beyond measure. Even 702 00:34:28,239 --> 00:34:31,759 Speaker 2: airs to such a holding, can ugg sometimes live a 703 00:34:31,760 --> 00:34:32,640 Speaker 2: lifetime of leisure. 704 00:34:33,000 --> 00:34:34,719 Speaker 1: That is an ug from Warren Buffett. 705 00:34:35,040 --> 00:34:38,200 Speaker 2: We've recently had plenty of examples of wealth beyond measure, 706 00:34:38,400 --> 00:34:41,680 Speaker 2: even from those not pursuing Warren Buffet Charlie Munger's conservative 707 00:34:41,680 --> 00:34:45,320 Speaker 2: investment strategy. Much of this untold wealth has come from tech, 708 00:34:45,760 --> 00:34:48,880 Speaker 2: as Elon Musk as a master over two hundred million dollars, 709 00:34:49,120 --> 00:34:52,360 Speaker 2: and Jeff Bezos, Mark Zuckerberg, and Bill Gates are all 710 00:34:52,400 --> 00:34:55,240 Speaker 2: with him in the top five on the Bloomberg Billionaires list. 711 00:34:55,520 --> 00:34:56,799 Speaker 1: Coming up fast as the co. 712 00:34:56,760 --> 00:34:59,759 Speaker 2: Founder of Nvidia Jensen Wong, who shot up the list 713 00:34:59,840 --> 00:35:02,239 Speaker 2: of twenty in just a few short months with a 714 00:35:02,280 --> 00:35:04,960 Speaker 2: net worth of nearly seventy million dollars thanks to his 715 00:35:05,040 --> 00:35:08,480 Speaker 2: AI company, capturing the imagination of investors everywhere. 716 00:35:08,960 --> 00:35:12,799 Speaker 14: Look the godfather of AI in Jensen and Video. I mean, 717 00:35:13,120 --> 00:35:16,239 Speaker 14: this is really the yearning's heard around the world, the 718 00:35:16,280 --> 00:35:20,000 Speaker 14: most important earnings in many years, and it chows this 719 00:35:20,120 --> 00:35:22,360 Speaker 14: AI party. It's just getting started. 720 00:35:22,760 --> 00:35:23,800 Speaker 1: But it's not just tech. 721 00:35:24,200 --> 00:35:26,800 Speaker 2: The man who owns everything from Vovkli Coo to jivon 722 00:35:26,920 --> 00:35:30,760 Speaker 2: She to Louis Vitant, Bernard Orna is the second richest 723 00:35:30,760 --> 00:35:33,600 Speaker 2: person in the world, coming in just under Musks two 724 00:35:33,680 --> 00:35:34,640 Speaker 2: hundred million dollars. 725 00:35:35,160 --> 00:35:38,360 Speaker 15: Benois seventy four years old. He's actually changed the rules 726 00:35:38,360 --> 00:35:40,680 Speaker 15: recently to make sure he can run the company until 727 00:35:40,680 --> 00:35:44,479 Speaker 15: he's eighty. But clearly the succession story at LVMH will 728 00:35:44,520 --> 00:35:47,160 Speaker 15: be in everybody's mind over the next few years. 729 00:35:47,600 --> 00:35:50,040 Speaker 2: Here is the rich get richer, some of them a 730 00:35:50,080 --> 00:35:52,479 Speaker 2: lot richer, and kind of is like Paul Romer warn 731 00:35:52,520 --> 00:35:55,160 Speaker 2: about the dangers of leaving so many of our fellow 732 00:35:55,200 --> 00:35:56,080 Speaker 2: citizens behind. 733 00:35:56,320 --> 00:36:00,719 Speaker 16: If you look at employment the average adult, the average 734 00:36:00,920 --> 00:36:02,480 Speaker 16: number of adults who have a job in the United 735 00:36:02,520 --> 00:36:05,480 Speaker 16: States has gone down, mostly because the people who are 736 00:36:05,560 --> 00:36:09,560 Speaker 16: high school educated have such miserable prospects that some of 737 00:36:09,600 --> 00:36:12,160 Speaker 16: them have given up. The rest are staying there in 738 00:36:12,719 --> 00:36:13,160 Speaker 16: the market. 739 00:36:13,480 --> 00:36:16,520 Speaker 2: Other economists like Larry Summers, say that economic growth and 740 00:36:16,560 --> 00:36:19,880 Speaker 2: innovation doesn't require a tax system that prefers the accumulation 741 00:36:19,960 --> 00:36:21,640 Speaker 2: of vast amounts of capital. 742 00:36:22,040 --> 00:36:26,239 Speaker 17: It defies belief that the young Bill Gates, the young 743 00:36:26,320 --> 00:36:31,560 Speaker 17: Mark Zuckerberg, the young Steve Jobs would have not done 744 00:36:31,640 --> 00:36:36,440 Speaker 17: their projects if they thought they would have had to 745 00:36:36,520 --> 00:36:42,120 Speaker 17: pay a bit higher capital gains taxes, and we would 746 00:36:42,120 --> 00:36:46,480 Speaker 17: have been without those companies. 747 00:36:46,800 --> 00:36:49,640 Speaker 2: And Warren Buffet himself has condemned a tax system where 748 00:36:49,680 --> 00:36:52,920 Speaker 2: his secretary pays a higher tax rate than he does. 749 00:36:53,400 --> 00:36:57,400 Speaker 2: But whatever the risks or benefits to unimaginable wealth, there's 750 00:36:57,440 --> 00:36:59,920 Speaker 2: plenty of evidence that wealth doesn't have to translate in 751 00:37:00,080 --> 00:37:01,200 Speaker 2: to a life of leisure. 752 00:37:01,440 --> 00:37:02,800 Speaker 1: Warren warned about. 753 00:37:03,080 --> 00:37:06,640 Speaker 2: The wealthy routinely contribute enormous amounts to charity, led by 754 00:37:06,640 --> 00:37:07,600 Speaker 2: Bill Gates. 755 00:37:07,320 --> 00:37:09,120 Speaker 1: Elon Musk, and our very own Mike. 756 00:37:08,920 --> 00:37:11,880 Speaker 2: Bloomberg, each of whom, according to the Chronicle of Philanthropy, 757 00:37:12,040 --> 00:37:15,359 Speaker 2: gave away more than a billion dollars last year alone, 758 00:37:15,520 --> 00:37:18,200 Speaker 2: and Warren himself is always at or near. 759 00:37:18,120 --> 00:37:19,160 Speaker 1: The top of that list. 760 00:37:19,719 --> 00:37:22,759 Speaker 2: This week we got another reminder of how much good 761 00:37:22,840 --> 00:37:25,040 Speaker 2: can be done with great wealth when we learned of 762 00:37:25,080 --> 00:37:27,640 Speaker 2: a gift of one billion dollars to the Albert Einstein 763 00:37:27,719 --> 00:37:30,080 Speaker 2: College of Medicine in the Bronx, which will pay for 764 00:37:30,120 --> 00:37:34,120 Speaker 2: the tuition for all of its students in perpetuity. It 765 00:37:34,160 --> 00:37:36,799 Speaker 2: came from a longtime member of the school's faculty and 766 00:37:36,880 --> 00:37:39,320 Speaker 2: former board chair, doctor Ruth Gottessman. 767 00:37:39,719 --> 00:37:43,759 Speaker 18: I'm happy to share with you the starting in August 768 00:37:44,040 --> 00:37:49,000 Speaker 18: this year, the Albert Einstein College of Medicine will be 769 00:37:49,200 --> 00:37:50,800 Speaker 18: tuition free. 770 00:37:52,560 --> 00:37:53,680 Speaker 1: And where did it come from? 771 00:37:53,880 --> 00:37:56,960 Speaker 2: Those companies Warren Buffett and his partner Charlie Munger have 772 00:37:57,040 --> 00:38:00,000 Speaker 2: been picking through the years. It turns out that doctor 773 00:38:00,120 --> 00:38:03,560 Speaker 2: Ruth Goddessman is the widow of Sandy Goddessman, who connected 774 00:38:03,560 --> 00:38:06,240 Speaker 2: with Buffett around the time Warren took over the company 775 00:38:06,320 --> 00:38:09,920 Speaker 2: in nineteen sixty five. He became one of Berkshire's biggest 776 00:38:09,920 --> 00:38:12,880 Speaker 2: shareholders and served on its board, and when he passed 777 00:38:12,920 --> 00:38:15,440 Speaker 2: away two years ago, he left one billion dollars in 778 00:38:15,520 --> 00:38:18,080 Speaker 2: stock to his widow with the instruction to quote, do 779 00:38:18,239 --> 00:38:21,279 Speaker 2: whatever you think is right with it, and now she's 780 00:38:21,360 --> 00:38:25,360 Speaker 2: done just that. Warren Buffett also once said that someone 781 00:38:25,480 --> 00:38:28,560 Speaker 2: sitting in the shade today because someone planted a tree 782 00:38:28,600 --> 00:38:31,960 Speaker 2: a long time ago. Thanks to the Goddessmans, the medical 783 00:38:32,000 --> 00:38:35,800 Speaker 2: students at Albert Einstein will sit in the shade in perpetuity. 784 00:38:36,239 --> 00:38:36,759 Speaker 1: That does it. 785 00:38:36,800 --> 00:38:39,120 Speaker 2: For this episode of Wall Street Week, I'm David Weston 786 00:38:39,239 --> 00:38:40,000 Speaker 2: this is Bloomberg. 787 00:38:40,280 --> 00:38:41,040 Speaker 1: See you next week.