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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Farrell and Lisa Brownwitz Jay Ley, we bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple, podcast, SoundCloud, Bloomberg

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Speaker 1: dot com, and of course on the Bloomberg terminal. The

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Speaker 1: hallmark of David Fulkert's Landau's work at Deutsche Bank is

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Speaker 1: to have a group of economists, people that battled the

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Speaker 1: side and then do acute published research. John Farrell, no

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Speaker 1: exception here in the last couple of weeks is Mr

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Speaker 1: Hooper and Mr Lozettie have looked at the movement that

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Speaker 1: we will see and particularly the rate and rates of

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Speaker 1: change that we will see. John arery happy to say

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Speaker 1: that Matt joins us NATSA on Matt Loozettie at Deutsche Bank.

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Speaker 1: Mantless start that the workout going into the weekend with

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Speaker 1: Peter Hooper, the race that the Fed needs to do more,

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Speaker 1: this argument that we still experience longer variable lengths with policy.

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Speaker 1: They already behind the curve and how much more do

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Speaker 1: they need to do? Sure? First, thanks so much for

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Speaker 1: having me. Certainly we did argue that that is behind

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Speaker 1: the curve now, and I think that's mostly a byproduct

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Speaker 1: of the rapid improvement we've seen, most importantly on the

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Speaker 1: labor market front. I think it's important to remember that

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Speaker 1: as of June of last year, we were at five

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Speaker 1: point nine percent unemployment, So the unemployment rate has formed

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Speaker 1: by two percentage points basically over the past six months,

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Speaker 1: but then very much so on on inflation and in

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Speaker 1: terms of the wage data that we've seen. So I

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Speaker 1: think given the very rapid developments, the very rapid improvements

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Speaker 1: that we've seen both on the labor market front and

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Speaker 1: high inflation, uh, the idea that the Fed should be

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Speaker 1: at their current policy setting, which is zero interest rate

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Speaker 1: still adding to the balance sheet at this point, with

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Speaker 1: an economy that has satisfied their dual mandate goals and

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Speaker 1: very strong growth, there's there's definitely a disconnect between those

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Speaker 1: two things at the moment. You've put some numbers on

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Speaker 1: the balance sheet reduction five hundred and sixty billion this year,

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Speaker 1: a strong tilt towards bills once TRILLI and more in three.

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Speaker 1: You also equite balance sheet reduction to interest right hikes.

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Speaker 1: The total draw down of the balance sheet through the

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Speaker 1: end of twenty three amounts the somewhere between two and

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Speaker 1: a half and three and a half twenty five basis

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Speaker 1: point increases. Matt, Can you help us understand whether that

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Speaker 1: balance sheet reduction complements the right hikes you were already

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Speaker 1: calling for or replaces them. Sure? So, I think the

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Speaker 1: interesting thing from our own forecast is we we've brought

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Speaker 1: rate hikes forward at the same time that we were

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Speaker 1: building in a faster drawn under the balance sheet. So

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Speaker 1: at this point, our our baseline is that they had

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Speaker 1: grades four times this year March. You know, given all

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Speaker 1: the FED communications, given the data, seems very very likely

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Speaker 1: in terms of liftoff at this point. Uh and we've

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Speaker 1: we've had four hikes in addition to that balance sheet

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Speaker 1: wind down that we've seen. I think there's been different

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Speaker 1: views within the committee on this. We've heard from people

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Speaker 1: such as Mary Daily, Governor Waller, Jim Bullard, all those

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Speaker 1: officials who actually want to I think actively substitute doing

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Speaker 1: more on the balance sheet and doing less on the

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Speaker 1: on the front end. We haven't heard as much from

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Speaker 1: FED leadership share pal John Williams on this uh Leo brainer.

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Speaker 1: But but I anticipate that the rest of the can

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Speaker 1: Make Committee will want to set the balance sheet, allow

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Speaker 1: that financial condition tightening to happen as a result of that,

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Speaker 1: and do what they need to on the front end,

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Speaker 1: so not really actively substitute between the two, but at

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Speaker 1: least realize that both of them will be tightening financial conditions. Matt,

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Speaker 1: why do you disagree with Peter Sheer who says this

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Speaker 1: could just be the FED job owning. So I think,

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Speaker 1: you know, perhaps there is some part to that, but

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Speaker 1: but I think the the economic reality is we have

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Speaker 1: very easy financial conditions. UH. The unemployment rate is below

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Speaker 1: the Fed's view of nay room, inflation is well above

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Speaker 1: target and they expected to remain well above target UH,

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Speaker 1: and wage growth inflation expectations. The broadening of inflation pressures

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Speaker 1: suggest that the risk starts the upside on inflation, and

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Speaker 1: so in that environment, UM, I think it'd be surprising

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Speaker 1: simply for a central bank to to jaw bone their

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Speaker 1: way towards tightening monetary policy. I think that actual tightening

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Speaker 1: needs to take place both via the front end via

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Speaker 1: policy rates UH and also via the balance sheets, and

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Speaker 1: I expect the FED will deliver on that this year

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Speaker 1: and one reason why your research has been so original,

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Speaker 1: Matt is you try to game out the effect of

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Speaker 1: quantitative tightening on markets, which has been a moving target

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Speaker 1: and frankly has a lot of people questioning what the

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Speaker 1: ramifications will be. How difficult was it when you came

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Speaker 1: up with this call of two and a half to

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Speaker 1: three and a half rate hikes by the end of

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Speaker 1: that would be the equivalent of what quantitative tightening would

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Speaker 1: exact onto the markets. Sure, I think it's very clearly

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Speaker 1: an uncertain one and it's one that the FED still

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Speaker 1: grapples with. We here in the minutes, I'm still discussioning

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Speaker 1: discussing the effects both of QUEI and qt UM, and

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Speaker 1: so I would highlight first, I think that there are

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Speaker 1: lots of uncertainty around this, but we do have a

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Speaker 1: lot of research. We have the FED owned staff, research

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Speaker 1: from the Board and some of the regional feds. We've

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Speaker 1: done a lot of our own work, UH, And it

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Speaker 1: kind of interestingly and and thankfully I think, clusters around

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Speaker 1: a certain range of estimates which suggests that call it

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Speaker 1: six fifty billion, give or take UH of qt we

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Speaker 1: tend to equate to one rate increase, and so the

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Speaker 1: draw down that we expect at the end of next year,

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Speaker 1: we think is material in terms of the tending that

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Speaker 1: has two and a half to three and a half

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Speaker 1: rate hikes. As you mentioned, Matt focused Landau and Peter

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Speaker 1: Hooper have beaten into you a respect for history. Let's

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Speaker 1: go back to Paul Vocer seventy nine, where fifty basis

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Speaker 1: points wasn't under debate. It was a major emergency, including

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Speaker 1: an emergency October move, and they moved rates in four

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Speaker 1: or five months from ten and a half percent out

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Speaker 1: to fifteen and a half percent to break inflation. Now

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Speaker 1: that's not happening right now, But what is the price

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Speaker 1: to the Greenspan credibility that's been earned over decades if

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Speaker 1: we jump fifty beeps? Now what do we lose? Sure?

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Speaker 1: And if you go back to that episode, and then

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Speaker 1: then even later, we had a change in the monetary

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Speaker 1: regime looking at money supply rather than then focusing on

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Speaker 1: interest rates, and so there was a sense in which

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Speaker 1: you needed to shock the system at that point to

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Speaker 1: get it inflation expectations back down into break the inflation

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Speaker 1: psychology here, Uh, you know, we do think that fifty

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Speaker 1: basis points move is possible at some point. At this point,

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Speaker 1: it does not seem the most likely case for March

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Speaker 1: from my perspective, at least for two reasons. One from

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Speaker 1: FED officials. We were hearing from them, even the more

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Speaker 1: hawkish members like like Waller not supporting Governor Waller not

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Speaker 1: supporting a fifty basis point hike at this point. But

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Speaker 1: also if you hear you know, certainly Chair Pal talk

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Speaker 1: about tending policy at this point, that is testimony last week.

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Speaker 1: He basically said we want to move from extremely accommodated

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Speaker 1: to somewhatless accommodative UH and officials are saying they want

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Speaker 1: to do it in a way that really does not

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Speaker 1: disrupt the labor market. And so I don't think you've

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Speaker 1: seen a shift in communications or a shift in thinking

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Speaker 1: or public thinking from the Fed which suggests that they

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Speaker 1: need to really actively tighten the monetary policy to reign

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Speaker 1: and demand. I think possibly that that may change at

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Speaker 1: some point, and that would change. I think if we

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Speaker 1: get clearer evidence that inflation is not coming back down

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Speaker 1: this year, clear evidence that the labor market continues to

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Speaker 1: tighten UH and perhaps you know, I think inflation expectations

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Speaker 1: they will continue to rise, could be a big part

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Speaker 1: of that. I was going back and forth with Dr

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Speaker 1: Lary and at the University of Cambridge this morning. Matt

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Speaker 1: and we were talking about the extrapolation of all these

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Speaker 1: markets w I r P function and all that. Nobody

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Speaker 1: in history cares about that. It didn't happen really until

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Speaker 1: the Bloomberg game began, the parlor game began. So this

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Speaker 1: is a FED that's going to get on a path.

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Speaker 1: Why can't they say we're gonna raise fifty beeps and

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Speaker 1: then we're going to sit on it. That's what they

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Speaker 1: used to do. Why can't they do that again? Sure,

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Speaker 1: so I think the idea of raising fifty basis points

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Speaker 1: and then sitting on it is a difficult one. I

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Speaker 1: think one to communicate the market reaction to going fifty

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Speaker 1: basis points and going fifty basis points in March, I

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Speaker 1: think we'll simply pull forward the entire tightening cycle and

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Speaker 1: may actually reduce the flexibility and scope of what they

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Speaker 1: could do moving forward. And so I think from that perspective,

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Speaker 1: you know, a forward looking market will not take the

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Speaker 1: FED um as saying we're gonna pause from here and

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Speaker 1: wait and see how how things happen. We will see

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Speaker 1: I think more significant tightening As a result of that,

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Speaker 1: I think to your point, though, we are in a

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Speaker 1: world where forward guidance is curtailed and I think it's

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Speaker 1: limited in its effectiveness. UM. And you know, looking back

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Speaker 1: the past two tightening cycles, we had one where we

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Speaker 1: had both where uh, the end point was pretty well known,

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Speaker 1: the pace of rate hikes was well known, the starting

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Speaker 1: point was very well known, and that damp and volatility

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Speaker 1: markets were able to I think very clearly anticipated predict

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Speaker 1: where the Fed was going. I think the most important

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Speaker 1: point from my perspective about this cycle, uh, is that

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Speaker 1: that it's gonna be far less predictable. You know, we

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Speaker 1: are talking about fifty basis point rate hikes. We are

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Speaker 1: thinking of real scope for the FED moving at every meeting,

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Speaker 1: they're drawing down the balance sheet more aggressively. So this

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Speaker 1: is something that we haven't seen in markets, you know,

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Speaker 1: for several decades in terms of the pace and the

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Speaker 1: extent of tightening of our relatively short period. That final point,

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Speaker 1: that is the importent one. Mattlazetie a Deutsche Bank. Matt,

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Speaker 1: great work over the last few weeks, right work walwise,

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Speaker 1: but particularly the last week the research has been outstanding.

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Speaker 1: Matt Lazetie a Deutsche Bank. Andrew Sheets is at a

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Speaker 1: Brown University, staggered into Morgan Stanley one day and everybody

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Speaker 1: leaned forward. He's the kind of guy who writes a

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Speaker 1: fourteen page research report and has fourteen people writing with it.

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Speaker 1: He coalesces in all of the Morgan Stanley view worldwide,

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Speaker 1: from Mike Wilson over to economics and Ellen Zettner, Mingui

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Speaker 1: and the rest of them. John, what's great here is

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Speaker 1: his mathiness gives you a really interesting opinion. Andrew shakes

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Speaker 1: his with us right now. Andrew, great to catch up

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Speaker 1: with you, said, why is this the where the index

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Speaker 1: stars to struggle? Yeah, great, it's great to be with you.

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Speaker 1: I think you have a couple of factors that are

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Speaker 1: coming together that that we think will drive us index underperformance.

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Speaker 1: And and a lot of that goes back to the

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Speaker 1: point that Lisa made about real yields, that that real

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Speaker 1: yields did not rise last year. That was a surprise

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Speaker 1: given how strong the recovery was the rise of inflation.

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Speaker 1: We think the really yields start to rise is this year,

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Speaker 1: and that really yield rises both more pronounced in the

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Speaker 1: US and the US market is more sensitive to it.

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Speaker 1: So we do think US earnings will be relatively strong.

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Speaker 1: We think the U S economy this year will be

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Speaker 1: relatively solid, but the valuations need to come down like

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Speaker 1: they've come down in a lot of other markets, and

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Speaker 1: we think that leads the US down to perform. Andrew,

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Speaker 1: this is an important distinction. Is the underperformance driven by

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Speaker 1: FED policy or is it driven by margin compression from

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Speaker 1: the inflation that we're seeing from wages and other input costs. Yeah. Thanks,

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Speaker 1: We think it's more by FED policy, or more specifically

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Speaker 1: by the market pricing in a more realistic real interest

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Speaker 1: rate and more realistic discount rate over time. On the

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Speaker 1: margin front, it will definitely impact a lot of individual

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Speaker 1: companies that it will definitely drive idiosyncratic risk for companies

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Speaker 1: that do not have pricing power. But for overall earnings

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Speaker 1: this year, you know, our estimates are are kind of

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Speaker 1: near consensus, a little bit above consensus. So from that basis,

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Speaker 1: it's hard for us to argue that that margin disappointment

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Speaker 1: at an overall index level is the big problem. Instead,

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Speaker 1: it's it's more the valuation in the discount rate and

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Speaker 1: the Jenna Martin Adams at Bloomberg Intelligence Equities just publishes

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Speaker 1: on this and she says margin scrutiny in the United

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Speaker 1: States is front and center. Your lead sentence is you're

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Speaker 1: away from American stocks and you're towards Europe. I believe

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Speaker 1: in japan stocks as well. Won't they have the same

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Speaker 1: margin scrutiny, the same margin pressure. Well, so it's it's

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Speaker 1: fair that I think some of the issues are our

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Speaker 1: universal rising commodity prices, tighter labor markets. But I think

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Speaker 1: two factors are at work. First, in aggregate, we are

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Speaker 1: you know, less worried about that margin compression overall, that

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Speaker 1: we still have a very strong nominal GDP growth globally

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Speaker 1: next year. We think nominal GDP in in both the

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Speaker 1: US and Europe is six seven percent. That's a that's

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Speaker 1: a pretty strong revenue backdrop that should be somewhat supportive

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Speaker 1: of margins. And then also I think especially for your

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Speaker 1: up you know, my Colligram Sector, who who's our European

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Speaker 1: equity strategists, notes that consensus expectations they're just look very low.

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Speaker 1: That that the market is not expecting much out of

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Speaker 1: European companies, which is under understandable. European earnings have disappointed

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Speaker 1: for a long period of time. But we think that

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Speaker 1: bar is so low that it's just gonna be very

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Speaker 1: easy to clear, even if our growth expectations are a

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Speaker 1: little short of what we think. And I could take

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Speaker 1: that comment, those few comments and just look back maybe

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Speaker 1: five ten years, and they just sound like the same

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Speaker 1: comments I've heard over the last decade when it comes

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Speaker 1: to Europe, Andrew, you know that what's new about this? Sure?

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Speaker 1: So you're absolutely right. You know Europe is underperformed for

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Speaker 1: a long period of time. I think it's supported for

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Speaker 1: us to step back and think about why it has underperformed.

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Speaker 1: It's it's not that the US is outperformed because the

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Speaker 1: FED has been active. I mean the c B has

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Speaker 1: been buying bonds, that the Bank of Japan has been

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Speaker 1: active in the market. The reason the US market has

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Speaker 1: outperformed has been because it's had superior earnings growth, or

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Speaker 1: at least that's been a big part of the story.

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Speaker 1: I think something that we think is is different this

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Speaker 1: time in Europe as we think the earnings can actually

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Speaker 1: come through that. We think we have a much stronger

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Speaker 1: commodity environment, which helps Europe. We think we have a

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Speaker 1: stronger economic recovery in Europe with a very strong consumer

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Speaker 1: I think you have a better political backdrop in Europe

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Speaker 1: than you've had at many points over the last five years.

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Speaker 1: And you have a much better relative valuation argument of

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Speaker 1: Europe relative to other regions, especially in the US, than

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Speaker 1: you've had over a lot of the last decades. So

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Speaker 1: kind of putting all those factors together, that's why we

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Speaker 1: think it can ultimately do it what it hasn't really

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Speaker 1: done much over the last twenty years and outperform. If

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Speaker 1: there is a devish surprise from the Federal Reserve, if

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Speaker 1: they see the move in real rates, if they see

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Speaker 1: the repricing and they say, wait a second, we're perhaps

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Speaker 1: getting a little ahead of ourselves, and they push back

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Speaker 1: next week, and they push back in the months to come,

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Speaker 1: is that a risks case to your scenario? Do you

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Speaker 1: see that reversing this trade and actually making US equities

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Speaker 1: more attractive? Yeah? Thanks, I think that's fair. I think

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Speaker 1: if if the Fed does blink as uh maybe maybe

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Speaker 1: as you describe, I think that would make investors, you know,

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Speaker 1: more constructive towards towards US assets. UM, it would probably

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Speaker 1: weaken the dollar, and we have moved to a neutral

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Speaker 1: dollar stands. But look, I mean the part about that

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Speaker 1: that's interesting is can the FED do that credibly right?

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Speaker 1: Because we still we're still in a window where inflation

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Speaker 1: hasn't come down yet, where inflation is still quite high.

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Speaker 1: And so you know, if if the FED is more debbish,

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Speaker 1: but the market thinks that it's too soon for the

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Speaker 1: FED to make that pivot, and that causes longer and

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Speaker 1: yields to rise. The market thinks that that the FED

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Speaker 1: is just going to have to catch up and do

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Speaker 1: more later. That might not necessarily be be good either.

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Speaker 1: So you know, I do think that the FED is

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Speaker 1: probably a tougher policy predicament than the E s c

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Speaker 1: B or the Bank of Japan, and that's one of

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Speaker 1: the reasons why we think equities and those markets can

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Speaker 1: ultimately outperformance. You interesting, that's the kill andrew S. Thank

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Speaker 1: you said of more. Can Stanley enjoyed the rate over

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Speaker 1: the last few weeks coming from the TAB and all

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Speaker 1: of that reset. Yeah, right now, Leslie Falconio has to

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Speaker 1: deal with this. Senior fixed income strategists for the Americas

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Speaker 1: at UBS, We're thrilled you could join us this morning, Leslie.

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Speaker 1: We go from Morgan Stanley and as Lisa mentioned the

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Speaker 1: resurrection and maybe it Shinnali mentioned the resurrection and fixed

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Speaker 1: income as well. Right now, I think it's priced down

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Speaker 1: yield up. That's my analysis. Where are you on duration? Well,

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Speaker 1: I mean we've embarished for quite some time, and I

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Speaker 1: think what we're seeing right now in terms of indistrates,

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Speaker 1: we thought we would see in the fourth quarter of

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Speaker 1: twenty one. And I think the key is that this

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Speaker 1: is being driven by a rising real rates. I mean,

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Speaker 1: the setender yield was at one seventy back on November

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Speaker 1: and I think it's important to remember that also, you know,

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Speaker 1: we we do think interest rates are going to rise,

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Speaker 1: but you know now that we get towards that two percent,

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Speaker 1: and given the bearish indicators at the market has already

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Speaker 1: priced in whether it's qt the FED tapering, you know,

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Speaker 1: and you know, new risk into the marketplace. As we

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Speaker 1: enter a new year, you've gotta pause for a bit,

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Speaker 1: and we don't think over the longer term, it's necessarily

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Speaker 1: a bad thing to start aft costing here. So this

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Speaker 1: is the concern that some people have, including Peter Sheer,

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Speaker 1: that perhaps the FED is just job owning, trying to

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Speaker 1: get people to move and then they won't actually have

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Speaker 1: to make the moves that would then potentially break the market.

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Speaker 1: So they get to a certain point. According to Jim Bianco,

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Speaker 1: where do you stand on this point? I mean, do

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Speaker 1: you think the Fed cannot come through with the rate

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Speaker 1: hicks currently priced into the market. Well, the market is

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Speaker 1: pricing in, you know, about four rate hikes and we're

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Speaker 1: probably about three to four as well. We also think

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Speaker 1: that they're going to start q T as sort of

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Speaker 1: a process to continuously tighten financial conditions. I mean, but

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Speaker 1: we definitely leaned towards the longer type of you know, uh,

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Speaker 1: financial conditions tightening. We think the trauma rate goes higher.

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Speaker 1: We don't think it's gonna be a fast and done.

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Speaker 1: You know, the market going forward is only pricing in

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Speaker 1: you know, a few rate hikes in three. We think

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Speaker 1: it extends out more. And you know, we do think

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Speaker 1: that they're probably four rate hikes this year, but you know,

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Speaker 1: going forward, I think it's gonna be a little bit long,

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Speaker 1: get them more people participating. Do you think that the

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Speaker 1: market is underprising the impact of QT? You know, I

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Speaker 1: think I think that the risk of QT is it

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Speaker 1: goes quicker and faster, right, or more or more faster,

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Speaker 1: hiring faster, But what do you think about what the

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Speaker 1: primary markets were actually showing in terms of what they

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Speaker 1: expected for QT Most of them really didn't even thin

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Speaker 1: would happen until three. So I think the market is

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Speaker 1: actually reacting quite well given that they pushed it for

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Speaker 1: you know, known to know exactly where that sort of

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Speaker 1: normalization will be in balalty to reserves. But I do

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Speaker 1: think the market is fairly prepared for it. Leslie, thank

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Speaker 1: you as a white Lets con a UBS Global Weath Management.

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Speaker 1: David Rubinstein Peer to peer conversation tonight at nine pm

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Speaker 1: and Mr Rubinstein joins us right now. Darren Walker really

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Speaker 1: interesting character here in a changing philanthropy, David, What did

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Speaker 1: you learn from him? On the new philanthropy? While Darren Walker,

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Speaker 1: as somebody who has the head of the Ford Foundation,

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Speaker 1: has has as much impact on the philanthropic world as

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Speaker 1: people who are worth billions of dollars giving away their

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Speaker 1: own money, because he's really transformed a lot of philanthropy

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Speaker 1: and what he's done at the Ford Foundation and also

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Speaker 1: by influencing a lot of other wealth well known philanthropists. David,

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Speaker 1: what's important here as you do these peer to peer conversations,

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Speaker 1: and they never dovetail as nicely with the news as

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Speaker 1: they do today. Darren Walker was at UBS, That's where

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Speaker 1: he did some of his banking and maybe raised his

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Speaker 1: first actual tangible wealth. And we see ubs today move

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Speaker 1: x on out of their climate funds. The Ford Foundation

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Speaker 1: and others many that you are directly related to are

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Speaker 1: having the same discussions as well. What did you learn

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Speaker 1: from Darren Walker about how to manage E s G

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Speaker 1: in the new philanthropy? Well, for those who don't know

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Speaker 1: Darren Walker, what he did is when he became the

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Speaker 1: head of the Ford Foundation, he said, I'm going to

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Speaker 1: basically focus the Ford Foundation on one principal thing, inequality

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Speaker 1: in our society. And so he got rid of a

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Speaker 1: lot of the other things that the Ford Foundation did,

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Speaker 1: but he also influenced other things like E s G

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Speaker 1: and other areas of inequality. So he's a transformative figure.

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Speaker 1: Came from poverty, raised by single mother in Texas, went

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Speaker 1: to public schools, came to New York to be a

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Speaker 1: lawyer and then a banker, but ultimately he society life

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Speaker 1: was more important if he would spend time giving back

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Speaker 1: to society. Rose up as you mentioned, to be at

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Speaker 1: the Rockefeller Foundation now the Ford Foundation, and he really

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Speaker 1: is a charismatic figure who I think influences almost everybody

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Speaker 1: he comes in touch with because he's so passionate about

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Speaker 1: the things he believes in. So I wouldn't be surprised

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Speaker 1: if somebody would say that he had an impact on

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Speaker 1: the UBS decision, because he has an impact on so

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Speaker 1: many things in the philanthropic world. David, I see a

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Speaker 1: connective link between Darren Walker and your Priority week's guest

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Speaker 1: Melody Hobson, basically in that career trajectory in coming from

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Speaker 1: poverty and actually coming to a place of incredible respect, power,

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Speaker 1: and frankly monetary largess. I'm curious whether their perspective on

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Speaker 1: the modern American dream has changed in our new moment,

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Speaker 1: whether it's more difficult for people to come from that

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Speaker 1: type of background and get to the place where they

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Speaker 1: find themselves today. It's an interesting question. Generally people would say, well,

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Speaker 1: if you have um Darren Walker on your show and

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Speaker 1: you have Melody Hops on your show, this shows how

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Speaker 1: people are rising up from minority backgrounds and poverty. But

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Speaker 1: they would say that actually a situation is probably worse

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Speaker 1: than it's been before, because the level of income and

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Speaker 1: equality has gotten much worse as a result of COVID,

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Speaker 1: and the number of people who are below the poverty

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Speaker 1: line is actually increasing. So although you can see Melody Hobson,

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Speaker 1: you can see Darren Walker, and they're great examples of

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Speaker 1: people rising up from modest circumstances, the truth is, they

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Speaker 1: would say, and I would say as well, that probably

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Speaker 1: the problem is worse than it's been in many, many

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Speaker 1: years because of growing income in equality United States and

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Speaker 1: the chances of more and more Melody Hobson's and Darren

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Speaker 1: Walkers are probably reduced. That's an unfortunate, uh and unfortunate take,

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Speaker 1: and one that I do hear a lot. I am wondering, David,

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Speaker 1: detailing this into the corporate picture, and from your position

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Speaker 1: at the Carlisle Group, I'm wondering whether there's a similar

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Speaker 1: type of worsening in the outlook of smaller companies, particularly

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Speaker 1: in the face of some of the inflationary pressures and

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Speaker 1: the supply chain disruptions, the labor shortages. We've heard about

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Speaker 1: how some of the bigger companies have been more flexible

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Speaker 1: in dealing with them, and smaller ones are struggling more

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Speaker 1: what's been your on the ground experience of that. Well,

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Speaker 1: we've become a tale of two cities, really, or a

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Speaker 1: country of two cities. Because the large companies, the Carlisles

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Speaker 1: of the world, and the Microsofts and so forth, we're

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Speaker 1: all doing reasonably well, and our employees are doing reasonably well.

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00:21:41,240 --> 00:21:45,120
Speaker 1: But companies that have blue collar workers, that have uneducated

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00:21:45,119 --> 00:21:47,560
Speaker 1: workers who don't have high school degrees or college degrees,

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00:21:47,760 --> 00:21:49,639
Speaker 1: people who have a lot of companies have a lot

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00:21:49,680 --> 00:21:53,000
Speaker 1: of people that really are not well paid, well educated.

435
00:21:53,200 --> 00:21:55,400
Speaker 1: They are really falling behind, and many of those people

436
00:21:55,440 --> 00:21:58,440
Speaker 1: are being laid off because of COVID and other kinds

437
00:21:58,480 --> 00:22:02,120
Speaker 1: of concerns that that some of those employers have. So

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00:22:02,400 --> 00:22:04,879
Speaker 1: the better known companies in the United States are actually

439
00:22:04,880 --> 00:22:09,040
Speaker 1: prospering reasonably well. Clearly nothing's perfect, but they're doing reasonably well.

440
00:22:09,240 --> 00:22:11,679
Speaker 1: I'm more worried about those people that are working at

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00:22:11,960 --> 00:22:17,359
Speaker 1: food trucks, at at at walmarts, at uh drug stores

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00:22:17,440 --> 00:22:19,280
Speaker 1: or things like that. Many of these people are laid

443
00:22:19,280 --> 00:22:21,480
Speaker 1: off relatively quickly. They don't have a lot of to

444
00:22:21,560 --> 00:22:24,320
Speaker 1: fall back on. So yes, if you if you watch

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00:22:24,440 --> 00:22:26,439
Speaker 1: television and you watch business news, you'll see a lot

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00:22:26,440 --> 00:22:28,600
Speaker 1: of wealthy people talking about how good the economy is

447
00:22:28,600 --> 00:22:31,320
Speaker 1: in some respects and how many billions of dollars certain

448
00:22:31,359 --> 00:22:33,720
Speaker 1: people are making. But if you talk below that line,

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00:22:34,200 --> 00:22:37,119
Speaker 1: I think we have some real challenges in the country. David,

450
00:22:37,160 --> 00:22:40,359
Speaker 1: I must ask your observation of a new phrase, the

451
00:22:40,400 --> 00:22:44,280
Speaker 1: new defenses, which are the huge big texts in their

452
00:22:44,440 --> 00:22:47,359
Speaker 1: massive balance seats, and we saw that at work yesterday

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00:22:47,400 --> 00:22:52,200
Speaker 1: with Microsoft with a sent billion all in transaction. Tell

454
00:22:52,280 --> 00:22:55,800
Speaker 1: us the power of the cash that these behemoths have.

455
00:22:57,400 --> 00:22:59,880
Speaker 1: We've never seen anything like this. We've never had come

456
00:23:00,000 --> 00:23:03,199
Speaker 1: and ease up until recent years, had cash hordes. If

457
00:23:03,240 --> 00:23:06,199
Speaker 1: I use that phrase um of a hundred billion dollars

458
00:23:06,320 --> 00:23:09,440
Speaker 1: or more so. Microsoft I think has about a hundred

459
00:23:09,440 --> 00:23:11,879
Speaker 1: and fifty billion dollars of cash, so they're using for

460
00:23:11,920 --> 00:23:16,640
Speaker 1: this transaction maybe half of that. But Google UM has

461
00:23:16,800 --> 00:23:20,120
Speaker 1: enormous amounts of cash as well, so does Facebook. Obviously,

462
00:23:20,119 --> 00:23:22,840
Speaker 1: Apple has an enormous amount of cash. We've never seen

463
00:23:22,880 --> 00:23:25,360
Speaker 1: anything like that's in corporate America before, and I think

464
00:23:25,359 --> 00:23:28,000
Speaker 1: the companies are increasingly under under pressure to do something

465
00:23:28,040 --> 00:23:31,040
Speaker 1: with it, either give it back to the shareholders through dividends,

466
00:23:31,040 --> 00:23:34,080
Speaker 1: which they are often reluctant to do or to make acquisitions.

467
00:23:34,119 --> 00:23:36,040
Speaker 1: So I think you're gonna see much more of this

468
00:23:36,160 --> 00:23:39,199
Speaker 1: cash used because I think regulators increasingly are saying and

469
00:23:39,240 --> 00:23:41,360
Speaker 1: members of Congress, what do you need all that cash for?

470
00:23:41,600 --> 00:23:43,520
Speaker 1: If you if you have that much cash, maybe you're

471
00:23:43,600 --> 00:23:46,720
Speaker 1: charging too much, Maybe you're a little bit uh too strong.

472
00:23:47,359 --> 00:23:50,400
Speaker 1: Is it a Silicon Valley conceit? Is it a conceit

473
00:23:50,480 --> 00:23:54,320
Speaker 1: of a generation behind you? Well, there are a lot

474
00:23:54,320 --> 00:23:57,040
Speaker 1: of people who work in Silicon Valley, and I like

475
00:23:57,119 --> 00:23:59,280
Speaker 1: a lot of those people who feel that they are

476
00:23:59,359 --> 00:24:01,480
Speaker 1: masters of the reverse. There was a phrase that we

477
00:24:01,560 --> 00:24:03,800
Speaker 1: offer no and you have that much cash. If you've

478
00:24:03,800 --> 00:24:06,359
Speaker 1: got a hundred fifty billion dollars a cash in the bank,

479
00:24:06,400 --> 00:24:08,440
Speaker 1: pretty much, I think you can do anything. So I

480
00:24:08,760 --> 00:24:12,000
Speaker 1: think humility is not the greatest virtue of some people,

481
00:24:12,240 --> 00:24:14,879
Speaker 1: um in some parts of Silicon Valley. We've got to

482
00:24:14,960 --> 00:24:18,359
Speaker 1: leave it there. David Rubinstein, Master of the Universe and

483
00:24:18,440 --> 00:24:20,720
Speaker 1: a member of Carlyle and of course his interviews peer

484
00:24:20,760 --> 00:24:24,479
Speaker 1: to peer on Bloomberg with Darren Walker. Looked for that tonight.

485
00:24:24,640 --> 00:24:29,280
Speaker 1: Very interesting. Seven. This is the Bloomberg Surveillance Podcast. Thanks

486
00:24:29,280 --> 00:24:32,600
Speaker 1: for listening. Join us live weekdays from seven to ten

487
00:24:32,680 --> 00:24:37,159
Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each

488
00:24:37,240 --> 00:24:40,960
Speaker 1: day from six to nine am for insight from the

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00:24:41,000 --> 00:24:46,200
Speaker 1: best in economics, finance, investment, and international relations. And subscribe

490
00:24:46,240 --> 00:24:51,200
Speaker 1: to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com,

491
00:24:51,240 --> 00:24:54,520
Speaker 1: and of course, on the terminal. I'm Tom Keene, and

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00:24:54,640 --> 00:25:01,800
Speaker 1: this is Bloomberg two.