Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Farrell and Lisa Brownwitz Jay Ley, we bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple, podcast, SoundCloud, Bloomberg
Speaker 1: dot com, and of course on the Bloomberg terminal. The
Speaker 1: hallmark of David Fulkert's Landau's work at Deutsche Bank is
Speaker 1: to have a group of economists, people that battled the
Speaker 1: side and then do acute published research. John Farrell, no
Speaker 1: exception here in the last couple of weeks is Mr
Speaker 1: Hooper and Mr Lozettie have looked at the movement that
Speaker 1: we will see and particularly the rate and rates of
Speaker 1: change that we will see. John arery happy to say
Speaker 1: that Matt joins us NATSA on Matt Loozettie at Deutsche Bank.
Speaker 1: Mantless start that the workout going into the weekend with
Speaker 1: Peter Hooper, the race that the Fed needs to do more,
Speaker 1: this argument that we still experience longer variable lengths with policy.
Speaker 1: They already behind the curve and how much more do
Speaker 1: they need to do? Sure? First, thanks so much for
Speaker 1: having me. Certainly we did argue that that is behind
Speaker 1: the curve now, and I think that's mostly a byproduct
Speaker 1: of the rapid improvement we've seen, most importantly on the
Speaker 1: labor market front. I think it's important to remember that
Speaker 1: as of June of last year, we were at five
Speaker 1: point nine percent unemployment, So the unemployment rate has formed
Speaker 1: by two percentage points basically over the past six months,
Speaker 1: but then very much so on on inflation and in
Speaker 1: terms of the wage data that we've seen. So I
Speaker 1: think given the very rapid developments, the very rapid improvements
Speaker 1: that we've seen both on the labor market front and
Speaker 1: high inflation, uh, the idea that the Fed should be
Speaker 1: at their current policy setting, which is zero interest rate
Speaker 1: still adding to the balance sheet at this point, with
Speaker 1: an economy that has satisfied their dual mandate goals and
Speaker 1: very strong growth, there's there's definitely a disconnect between those
Speaker 1: two things at the moment. You've put some numbers on
Speaker 1: the balance sheet reduction five hundred and sixty billion this year,
Speaker 1: a strong tilt towards bills once TRILLI and more in three.
Speaker 1: You also equite balance sheet reduction to interest right hikes.
Speaker 1: The total draw down of the balance sheet through the
Speaker 1: end of twenty three amounts the somewhere between two and
Speaker 1: a half and three and a half twenty five basis
Speaker 1: point increases. Matt, Can you help us understand whether that
Speaker 1: balance sheet reduction complements the right hikes you were already
Speaker 1: calling for or replaces them. Sure? So, I think the
Speaker 1: interesting thing from our own forecast is we we've brought
Speaker 1: rate hikes forward at the same time that we were
Speaker 1: building in a faster drawn under the balance sheet. So
Speaker 1: at this point, our our baseline is that they had
Speaker 1: grades four times this year March. You know, given all
Speaker 1: the FED communications, given the data, seems very very likely
Speaker 1: in terms of liftoff at this point. Uh and we've
Speaker 1: we've had four hikes in addition to that balance sheet
Speaker 1: wind down that we've seen. I think there's been different
Speaker 1: views within the committee on this. We've heard from people
Speaker 1: such as Mary Daily, Governor Waller, Jim Bullard, all those
Speaker 1: officials who actually want to I think actively substitute doing
Speaker 1: more on the balance sheet and doing less on the
Speaker 1: on the front end. We haven't heard as much from
Speaker 1: FED leadership share pal John Williams on this uh Leo brainer.
Speaker 1: But but I anticipate that the rest of the can
Speaker 1: Make Committee will want to set the balance sheet, allow
Speaker 1: that financial condition tightening to happen as a result of that,
Speaker 1: and do what they need to on the front end,
Speaker 1: so not really actively substitute between the two, but at
Speaker 1: least realize that both of them will be tightening financial conditions. Matt,
Speaker 1: why do you disagree with Peter Sheer who says this
Speaker 1: could just be the FED job owning. So I think,
Speaker 1: you know, perhaps there is some part to that, but
Speaker 1: but I think the the economic reality is we have
Speaker 1: very easy financial conditions. UH. The unemployment rate is below
Speaker 1: the Fed's view of nay room, inflation is well above
Speaker 1: target and they expected to remain well above target UH,
Speaker 1: and wage growth inflation expectations. The broadening of inflation pressures
Speaker 1: suggest that the risk starts the upside on inflation, and
Speaker 1: so in that environment, UM, I think it'd be surprising
Speaker 1: simply for a central bank to to jaw bone their
Speaker 1: way towards tightening monetary policy. I think that actual tightening
Speaker 1: needs to take place both via the front end via
Speaker 1: policy rates UH and also via the balance sheets, and
Speaker 1: I expect the FED will deliver on that this year
Speaker 1: and one reason why your research has been so original,
Speaker 1: Matt is you try to game out the effect of
Speaker 1: quantitative tightening on markets, which has been a moving target
Speaker 1: and frankly has a lot of people questioning what the
Speaker 1: ramifications will be. How difficult was it when you came
Speaker 1: up with this call of two and a half to
Speaker 1: three and a half rate hikes by the end of
Speaker 1: that would be the equivalent of what quantitative tightening would
Speaker 1: exact onto the markets. Sure, I think it's very clearly
Speaker 1: an uncertain one and it's one that the FED still
Speaker 1: grapples with. We here in the minutes, I'm still discussioning
Speaker 1: discussing the effects both of QUEI and qt UM, and
Speaker 1: so I would highlight first, I think that there are
Speaker 1: lots of uncertainty around this, but we do have a
Speaker 1: lot of research. We have the FED owned staff, research
Speaker 1: from the Board and some of the regional feds. We've
Speaker 1: done a lot of our own work, UH, And it
Speaker 1: kind of interestingly and and thankfully I think, clusters around
Speaker 1: a certain range of estimates which suggests that call it
Speaker 1: six fifty billion, give or take UH of qt we
Speaker 1: tend to equate to one rate increase, and so the
Speaker 1: draw down that we expect at the end of next year,
Speaker 1: we think is material in terms of the tending that
Speaker 1: has two and a half to three and a half
Speaker 1: rate hikes. As you mentioned, Matt focused Landau and Peter
Speaker 1: Hooper have beaten into you a respect for history. Let's
Speaker 1: go back to Paul Vocer seventy nine, where fifty basis
Speaker 1: points wasn't under debate. It was a major emergency, including
Speaker 1: an emergency October move, and they moved rates in four
Speaker 1: or five months from ten and a half percent out
Speaker 1: to fifteen and a half percent to break inflation. Now
Speaker 1: that's not happening right now, But what is the price
Speaker 1: to the Greenspan credibility that's been earned over decades if
Speaker 1: we jump fifty beeps? Now what do we lose? Sure?
Speaker 1: And if you go back to that episode, and then
Speaker 1: then even later, we had a change in the monetary
Speaker 1: regime looking at money supply rather than then focusing on
Speaker 1: interest rates, and so there was a sense in which
Speaker 1: you needed to shock the system at that point to
Speaker 1: get it inflation expectations back down into break the inflation
Speaker 1: psychology here, Uh, you know, we do think that fifty
Speaker 1: basis points move is possible at some point. At this point,
Speaker 1: it does not seem the most likely case for March
Speaker 1: from my perspective, at least for two reasons. One from
Speaker 1: FED officials. We were hearing from them, even the more
Speaker 1: hawkish members like like Waller not supporting Governor Waller not
Speaker 1: supporting a fifty basis point hike at this point. But
Speaker 1: also if you hear you know, certainly Chair Pal talk
Speaker 1: about tending policy at this point, that is testimony last week.
Speaker 1: He basically said we want to move from extremely accommodated
Speaker 1: to somewhatless accommodative UH and officials are saying they want
Speaker 1: to do it in a way that really does not
Speaker 1: disrupt the labor market. And so I don't think you've
Speaker 1: seen a shift in communications or a shift in thinking
Speaker 1: or public thinking from the Fed which suggests that they
Speaker 1: need to really actively tighten the monetary policy to reign
Speaker 1: and demand. I think possibly that that may change at
Speaker 1: some point, and that would change. I think if we
Speaker 1: get clearer evidence that inflation is not coming back down
Speaker 1: this year, clear evidence that the labor market continues to
Speaker 1: tighten UH and perhaps you know, I think inflation expectations
Speaker 1: they will continue to rise, could be a big part
Speaker 1: of that. I was going back and forth with Dr
Speaker 1: Lary and at the University of Cambridge this morning. Matt
Speaker 1: and we were talking about the extrapolation of all these
Speaker 1: markets w I r P function and all that. Nobody
Speaker 1: in history cares about that. It didn't happen really until
Speaker 1: the Bloomberg game began, the parlor game began. So this
Speaker 1: is a FED that's going to get on a path.
Speaker 1: Why can't they say we're gonna raise fifty beeps and
Speaker 1: then we're going to sit on it. That's what they
Speaker 1: used to do. Why can't they do that again? Sure,
Speaker 1: so I think the idea of raising fifty basis points
Speaker 1: and then sitting on it is a difficult one. I
Speaker 1: think one to communicate the market reaction to going fifty
Speaker 1: basis points and going fifty basis points in March, I
Speaker 1: think we'll simply pull forward the entire tightening cycle and
Speaker 1: may actually reduce the flexibility and scope of what they
Speaker 1: could do moving forward. And so I think from that perspective,
Speaker 1: you know, a forward looking market will not take the
Speaker 1: FED um as saying we're gonna pause from here and
Speaker 1: wait and see how how things happen. We will see
Speaker 1: I think more significant tightening As a result of that,
Speaker 1: I think to your point, though, we are in a
Speaker 1: world where forward guidance is curtailed and I think it's
Speaker 1: limited in its effectiveness. UM. And you know, looking back
Speaker 1: the past two tightening cycles, we had one where we
Speaker 1: had both where uh, the end point was pretty well known,
Speaker 1: the pace of rate hikes was well known, the starting
Speaker 1: point was very well known, and that damp and volatility
Speaker 1: markets were able to I think very clearly anticipated predict
Speaker 1: where the Fed was going. I think the most important
Speaker 1: point from my perspective about this cycle, uh, is that
Speaker 1: that it's gonna be far less predictable. You know, we
Speaker 1: are talking about fifty basis point rate hikes. We are
Speaker 1: thinking of real scope for the FED moving at every meeting,
Speaker 1: they're drawing down the balance sheet more aggressively. So this
Speaker 1: is something that we haven't seen in markets, you know,
Speaker 1: for several decades in terms of the pace and the
Speaker 1: extent of tightening of our relatively short period. That final point,
Speaker 1: that is the importent one. Mattlazetie a Deutsche Bank. Matt,
Speaker 1: great work over the last few weeks, right work walwise,
Speaker 1: but particularly the last week the research has been outstanding.
Speaker 1: Matt Lazetie a Deutsche Bank. Andrew Sheets is at a
Speaker 1: Brown University, staggered into Morgan Stanley one day and everybody
Speaker 1: leaned forward. He's the kind of guy who writes a
Speaker 1: fourteen page research report and has fourteen people writing with it.
Speaker 1: He coalesces in all of the Morgan Stanley view worldwide,
Speaker 1: from Mike Wilson over to economics and Ellen Zettner, Mingui
Speaker 1: and the rest of them. John, what's great here is
Speaker 1: his mathiness gives you a really interesting opinion. Andrew shakes
Speaker 1: his with us right now. Andrew, great to catch up
Speaker 1: with you, said, why is this the where the index
Speaker 1: stars to struggle? Yeah, great, it's great to be with you.
Speaker 1: I think you have a couple of factors that are
Speaker 1: coming together that that we think will drive us index underperformance.
Speaker 1: And and a lot of that goes back to the
Speaker 1: point that Lisa made about real yields, that that real
Speaker 1: yields did not rise last year. That was a surprise
Speaker 1: given how strong the recovery was the rise of inflation.
Speaker 1: We think the really yields start to rise is this year,
Speaker 1: and that really yield rises both more pronounced in the
Speaker 1: US and the US market is more sensitive to it.
Speaker 1: So we do think US earnings will be relatively strong.
Speaker 1: We think the U S economy this year will be
Speaker 1: relatively solid, but the valuations need to come down like
Speaker 1: they've come down in a lot of other markets, and
Speaker 1: we think that leads the US down to perform. Andrew,
Speaker 1: this is an important distinction. Is the underperformance driven by
Speaker 1: FED policy or is it driven by margin compression from
Speaker 1: the inflation that we're seeing from wages and other input costs. Yeah. Thanks,
Speaker 1: We think it's more by FED policy, or more specifically
Speaker 1: by the market pricing in a more realistic real interest
Speaker 1: rate and more realistic discount rate over time. On the
Speaker 1: margin front, it will definitely impact a lot of individual
Speaker 1: companies that it will definitely drive idiosyncratic risk for companies
Speaker 1: that do not have pricing power. But for overall earnings
Speaker 1: this year, you know, our estimates are are kind of
Speaker 1: near consensus, a little bit above consensus. So from that basis,
Speaker 1: it's hard for us to argue that that margin disappointment
Speaker 1: at an overall index level is the big problem. Instead,
Speaker 1: it's it's more the valuation in the discount rate and
Speaker 1: the Jenna Martin Adams at Bloomberg Intelligence Equities just publishes
Speaker 1: on this and she says margin scrutiny in the United
Speaker 1: States is front and center. Your lead sentence is you're
Speaker 1: away from American stocks and you're towards Europe. I believe
Speaker 1: in japan stocks as well. Won't they have the same
Speaker 1: margin scrutiny, the same margin pressure. Well, so it's it's
Speaker 1: fair that I think some of the issues are our
Speaker 1: universal rising commodity prices, tighter labor markets. But I think
Speaker 1: two factors are at work. First, in aggregate, we are
Speaker 1: you know, less worried about that margin compression overall, that
Speaker 1: we still have a very strong nominal GDP growth globally
Speaker 1: next year. We think nominal GDP in in both the
Speaker 1: US and Europe is six seven percent. That's a that's
Speaker 1: a pretty strong revenue backdrop that should be somewhat supportive
Speaker 1: of margins. And then also I think especially for your
Speaker 1: up you know, my Colligram Sector, who who's our European
Speaker 1: equity strategists, notes that consensus expectations they're just look very low.
Speaker 1: That that the market is not expecting much out of
Speaker 1: European companies, which is under understandable. European earnings have disappointed
Speaker 1: for a long period of time. But we think that
Speaker 1: bar is so low that it's just gonna be very
Speaker 1: easy to clear, even if our growth expectations are a
Speaker 1: little short of what we think. And I could take
Speaker 1: that comment, those few comments and just look back maybe
Speaker 1: five ten years, and they just sound like the same
Speaker 1: comments I've heard over the last decade when it comes
Speaker 1: to Europe, Andrew, you know that what's new about this? Sure?
Speaker 1: So you're absolutely right. You know Europe is underperformed for
Speaker 1: a long period of time. I think it's supported for
Speaker 1: us to step back and think about why it has underperformed.
Speaker 1: It's it's not that the US is outperformed because the
Speaker 1: FED has been active. I mean the c B has
Speaker 1: been buying bonds, that the Bank of Japan has been
Speaker 1: active in the market. The reason the US market has
Speaker 1: outperformed has been because it's had superior earnings growth, or
Speaker 1: at least that's been a big part of the story.
Speaker 1: I think something that we think is is different this
Speaker 1: time in Europe as we think the earnings can actually
Speaker 1: come through that. We think we have a much stronger
Speaker 1: commodity environment, which helps Europe. We think we have a
Speaker 1: stronger economic recovery in Europe with a very strong consumer
Speaker 1: I think you have a better political backdrop in Europe
Speaker 1: than you've had at many points over the last five years.
Speaker 1: And you have a much better relative valuation argument of
Speaker 1: Europe relative to other regions, especially in the US, than
Speaker 1: you've had over a lot of the last decades. So
Speaker 1: kind of putting all those factors together, that's why we
Speaker 1: think it can ultimately do it what it hasn't really
Speaker 1: done much over the last twenty years and outperform. If
Speaker 1: there is a devish surprise from the Federal Reserve, if
Speaker 1: they see the move in real rates, if they see
Speaker 1: the repricing and they say, wait a second, we're perhaps
Speaker 1: getting a little ahead of ourselves, and they push back
Speaker 1: next week, and they push back in the months to come,
Speaker 1: is that a risks case to your scenario? Do you
Speaker 1: see that reversing this trade and actually making US equities
Speaker 1: more attractive? Yeah? Thanks, I think that's fair. I think
Speaker 1: if if the Fed does blink as uh maybe maybe
Speaker 1: as you describe, I think that would make investors, you know,
Speaker 1: more constructive towards towards US assets. UM, it would probably
Speaker 1: weaken the dollar, and we have moved to a neutral
Speaker 1: dollar stands. But look, I mean the part about that
Speaker 1: that's interesting is can the FED do that credibly right?
Speaker 1: Because we still we're still in a window where inflation
Speaker 1: hasn't come down yet, where inflation is still quite high.
Speaker 1: And so you know, if if the FED is more debbish,
Speaker 1: but the market thinks that it's too soon for the
Speaker 1: FED to make that pivot, and that causes longer and
Speaker 1: yields to rise. The market thinks that that the FED
Speaker 1: is just going to have to catch up and do
Speaker 1: more later. That might not necessarily be be good either.
Speaker 1: So you know, I do think that the FED is
Speaker 1: probably a tougher policy predicament than the E s c
Speaker 1: B or the Bank of Japan, and that's one of
Speaker 1: the reasons why we think equities and those markets can
Speaker 1: ultimately outperformance. You interesting, that's the kill andrew S. Thank
Speaker 1: you said of more. Can Stanley enjoyed the rate over
Speaker 1: the last few weeks coming from the TAB and all
Speaker 1: of that reset. Yeah, right now, Leslie Falconio has to
Speaker 1: deal with this. Senior fixed income strategists for the Americas
Speaker 1: at UBS, We're thrilled you could join us this morning, Leslie.
Speaker 1: We go from Morgan Stanley and as Lisa mentioned the
Speaker 1: resurrection and maybe it Shinnali mentioned the resurrection and fixed
Speaker 1: income as well. Right now, I think it's priced down
Speaker 1: yield up. That's my analysis. Where are you on duration? Well,
Speaker 1: I mean we've embarished for quite some time, and I
Speaker 1: think what we're seeing right now in terms of indistrates,
Speaker 1: we thought we would see in the fourth quarter of
Speaker 1: twenty one. And I think the key is that this
Speaker 1: is being driven by a rising real rates. I mean,
Speaker 1: the setender yield was at one seventy back on November
Speaker 1: and I think it's important to remember that also, you know,
Speaker 1: we we do think interest rates are going to rise,
Speaker 1: but you know now that we get towards that two percent,
Speaker 1: and given the bearish indicators at the market has already
Speaker 1: priced in whether it's qt the FED tapering, you know,
Speaker 1: and you know, new risk into the marketplace. As we
Speaker 1: enter a new year, you've gotta pause for a bit,
Speaker 1: and we don't think over the longer term, it's necessarily
Speaker 1: a bad thing to start aft costing here. So this
Speaker 1: is the concern that some people have, including Peter Sheer,
Speaker 1: that perhaps the FED is just job owning, trying to
Speaker 1: get people to move and then they won't actually have
Speaker 1: to make the moves that would then potentially break the market.
Speaker 1: So they get to a certain point. According to Jim Bianco,
Speaker 1: where do you stand on this point? I mean, do
Speaker 1: you think the Fed cannot come through with the rate
Speaker 1: hicks currently priced into the market. Well, the market is
Speaker 1: pricing in, you know, about four rate hikes and we're
Speaker 1: probably about three to four as well. We also think
Speaker 1: that they're going to start q T as sort of
Speaker 1: a process to continuously tighten financial conditions. I mean, but
Speaker 1: we definitely leaned towards the longer type of you know, uh,
Speaker 1: financial conditions tightening. We think the trauma rate goes higher.
Speaker 1: We don't think it's gonna be a fast and done.
Speaker 1: You know, the market going forward is only pricing in
Speaker 1: you know, a few rate hikes in three. We think
Speaker 1: it extends out more. And you know, we do think
Speaker 1: that they're probably four rate hikes this year, but you know,
Speaker 1: going forward, I think it's gonna be a little bit long,
Speaker 1: get them more people participating. Do you think that the
Speaker 1: market is underprising the impact of QT? You know, I
Speaker 1: think I think that the risk of QT is it
Speaker 1: goes quicker and faster, right, or more or more faster,
Speaker 1: hiring faster, But what do you think about what the
Speaker 1: primary markets were actually showing in terms of what they
Speaker 1: expected for QT Most of them really didn't even thin
Speaker 1: would happen until three. So I think the market is
Speaker 1: actually reacting quite well given that they pushed it for
Speaker 1: you know, known to know exactly where that sort of
Speaker 1: normalization will be in balalty to reserves. But I do
Speaker 1: think the market is fairly prepared for it. Leslie, thank
Speaker 1: you as a white Lets con a UBS Global Weath Management.
Speaker 1: David Rubinstein Peer to peer conversation tonight at nine pm
Speaker 1: and Mr Rubinstein joins us right now. Darren Walker really
Speaker 1: interesting character here in a changing philanthropy, David, What did
Speaker 1: you learn from him? On the new philanthropy? While Darren Walker,
Speaker 1: as somebody who has the head of the Ford Foundation,
Speaker 1: has has as much impact on the philanthropic world as
Speaker 1: people who are worth billions of dollars giving away their
Speaker 1: own money, because he's really transformed a lot of philanthropy
Speaker 1: and what he's done at the Ford Foundation and also
Speaker 1: by influencing a lot of other wealth well known philanthropists. David,
Speaker 1: what's important here as you do these peer to peer conversations,
Speaker 1: and they never dovetail as nicely with the news as
Speaker 1: they do today. Darren Walker was at UBS, That's where
Speaker 1: he did some of his banking and maybe raised his
Speaker 1: first actual tangible wealth. And we see ubs today move
Speaker 1: x on out of their climate funds. The Ford Foundation
Speaker 1: and others many that you are directly related to are
Speaker 1: having the same discussions as well. What did you learn
Speaker 1: from Darren Walker about how to manage E s G
Speaker 1: in the new philanthropy? Well, for those who don't know
Speaker 1: Darren Walker, what he did is when he became the
Speaker 1: head of the Ford Foundation, he said, I'm going to
Speaker 1: basically focus the Ford Foundation on one principal thing, inequality
Speaker 1: in our society. And so he got rid of a
Speaker 1: lot of the other things that the Ford Foundation did,
Speaker 1: but he also influenced other things like E s G
Speaker 1: and other areas of inequality. So he's a transformative figure.
Speaker 1: Came from poverty, raised by single mother in Texas, went
Speaker 1: to public schools, came to New York to be a
Speaker 1: lawyer and then a banker, but ultimately he society life
Speaker 1: was more important if he would spend time giving back
Speaker 1: to society. Rose up as you mentioned, to be at
Speaker 1: the Rockefeller Foundation now the Ford Foundation, and he really
Speaker 1: is a charismatic figure who I think influences almost everybody
Speaker 1: he comes in touch with because he's so passionate about
Speaker 1: the things he believes in. So I wouldn't be surprised
Speaker 1: if somebody would say that he had an impact on
Speaker 1: the UBS decision, because he has an impact on so
Speaker 1: many things in the philanthropic world. David, I see a
Speaker 1: connective link between Darren Walker and your Priority week's guest
Speaker 1: Melody Hobson, basically in that career trajectory in coming from
Speaker 1: poverty and actually coming to a place of incredible respect, power,
Speaker 1: and frankly monetary largess. I'm curious whether their perspective on
Speaker 1: the modern American dream has changed in our new moment,
Speaker 1: whether it's more difficult for people to come from that
Speaker 1: type of background and get to the place where they
Speaker 1: find themselves today. It's an interesting question. Generally people would say, well,
Speaker 1: if you have um Darren Walker on your show and
Speaker 1: you have Melody Hops on your show, this shows how
Speaker 1: people are rising up from minority backgrounds and poverty. But
Speaker 1: they would say that actually a situation is probably worse
Speaker 1: than it's been before, because the level of income and
Speaker 1: equality has gotten much worse as a result of COVID,
Speaker 1: and the number of people who are below the poverty
Speaker 1: line is actually increasing. So although you can see Melody Hobson,
Speaker 1: you can see Darren Walker, and they're great examples of
Speaker 1: people rising up from modest circumstances, the truth is, they
Speaker 1: would say, and I would say as well, that probably
Speaker 1: the problem is worse than it's been in many, many
Speaker 1: years because of growing income in equality United States and
Speaker 1: the chances of more and more Melody Hobson's and Darren
Speaker 1: Walkers are probably reduced. That's an unfortunate, uh and unfortunate take,
Speaker 1: and one that I do hear a lot. I am wondering, David,
Speaker 1: detailing this into the corporate picture, and from your position
Speaker 1: at the Carlisle Group, I'm wondering whether there's a similar
Speaker 1: type of worsening in the outlook of smaller companies, particularly
Speaker 1: in the face of some of the inflationary pressures and
Speaker 1: the supply chain disruptions, the labor shortages. We've heard about
Speaker 1: how some of the bigger companies have been more flexible
Speaker 1: in dealing with them, and smaller ones are struggling more
Speaker 1: what's been your on the ground experience of that. Well,
Speaker 1: we've become a tale of two cities, really, or a
Speaker 1: country of two cities. Because the large companies, the Carlisles
Speaker 1: of the world, and the Microsofts and so forth, we're
Speaker 1: all doing reasonably well, and our employees are doing reasonably well.
Speaker 1: But companies that have blue collar workers, that have uneducated
Speaker 1: workers who don't have high school degrees or college degrees,
Speaker 1: people who have a lot of companies have a lot
Speaker 1: of people that really are not well paid, well educated.
Speaker 1: They are really falling behind, and many of those people
Speaker 1: are being laid off because of COVID and other kinds
Speaker 1: of concerns that that some of those employers have. So
Speaker 1: the better known companies in the United States are actually
Speaker 1: prospering reasonably well. Clearly nothing's perfect, but they're doing reasonably well.
Speaker 1: I'm more worried about those people that are working at
Speaker 1: food trucks, at at at walmarts, at uh drug stores
Speaker 1: or things like that. Many of these people are laid
Speaker 1: off relatively quickly. They don't have a lot of to
Speaker 1: fall back on. So yes, if you if you watch
Speaker 1: television and you watch business news, you'll see a lot
Speaker 1: of wealthy people talking about how good the economy is
Speaker 1: in some respects and how many billions of dollars certain
Speaker 1: people are making. But if you talk below that line,
Speaker 1: I think we have some real challenges in the country. David,
Speaker 1: I must ask your observation of a new phrase, the
Speaker 1: new defenses, which are the huge big texts in their
Speaker 1: massive balance seats, and we saw that at work yesterday
Speaker 1: with Microsoft with a sent billion all in transaction. Tell
Speaker 1: us the power of the cash that these behemoths have.
Speaker 1: We've never seen anything like this. We've never had come
Speaker 1: and ease up until recent years, had cash hordes. If
Speaker 1: I use that phrase um of a hundred billion dollars
Speaker 1: or more so. Microsoft I think has about a hundred
Speaker 1: and fifty billion dollars of cash, so they're using for
Speaker 1: this transaction maybe half of that. But Google UM has
Speaker 1: enormous amounts of cash as well, so does Facebook. Obviously,
Speaker 1: Apple has an enormous amount of cash. We've never seen
Speaker 1: anything like that's in corporate America before, and I think
Speaker 1: the companies are increasingly under under pressure to do something
Speaker 1: with it, either give it back to the shareholders through dividends,
Speaker 1: which they are often reluctant to do or to make acquisitions.
Speaker 1: So I think you're gonna see much more of this
Speaker 1: cash used because I think regulators increasingly are saying and
Speaker 1: members of Congress, what do you need all that cash for?
Speaker 1: If you if you have that much cash, maybe you're
Speaker 1: charging too much, Maybe you're a little bit uh too strong.
Speaker 1: Is it a Silicon Valley conceit? Is it a conceit
Speaker 1: of a generation behind you? Well, there are a lot
Speaker 1: of people who work in Silicon Valley, and I like
Speaker 1: a lot of those people who feel that they are
Speaker 1: masters of the reverse. There was a phrase that we
Speaker 1: offer no and you have that much cash. If you've
Speaker 1: got a hundred fifty billion dollars a cash in the bank,
Speaker 1: pretty much, I think you can do anything. So I
Speaker 1: think humility is not the greatest virtue of some people,
Speaker 1: um in some parts of Silicon Valley. We've got to
Speaker 1: leave it there. David Rubinstein, Master of the Universe and
Speaker 1: a member of Carlyle and of course his interviews peer
Speaker 1: to peer on Bloomberg with Darren Walker. Looked for that tonight.
Speaker 1: Very interesting. Seven. This is the Bloomberg Surveillance Podcast. Thanks
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Speaker 1: and of course, on the terminal. I'm Tom Keene, and
Speaker 1: this is Bloomberg two.