Speaker 1: Boo, Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: Terminal and the Bloomberg Business App. Joining us now to
Speaker 2: discuss that is the former IMF Chief economist Ken rogof
Speaker 2: Ken It's going to.
Speaker 3: See you, sir, Good to see you.
Speaker 4: You wrote a.
Speaker 2: Piece in the South China Morning Post. I believe questioning
Speaker 2: whether we could see the same boom this time around
Speaker 2: as we saw last time around. And I want to
Speaker 2: be clear, and I'm going to do this for you
Speaker 2: and give you some credit. Back in sixteen seventeen, you
Speaker 2: weren't pessimistic on the Trump economy going into it. You
Speaker 2: were somewhat constructive. Is we're very very downbeat, So what's
Speaker 2: changed for you? Personally?
Speaker 5: People were unhappy when I said that, but I think
Speaker 5: it was closer to true than not. Well, I mean,
Speaker 5: for one thing, if we're just looking at policies, the
Speaker 5: things that he did and the first term I think
Speaker 5: on the whole were constructive, as you say, for the economy, deregulation,
Speaker 5: the tax cuts, getting rid of the state and local deduction,
Speaker 5: I think was actually a good move over.
Speaker 6: The long term.
Speaker 5: And this time every campaign practice promised practically is something counterproductive.
Speaker 5: I mean you could go to the tariffs, social Security
Speaker 5: being not taxed, and on and on and on. So
Speaker 5: you know, it's less obvious that he has the same
Speaker 5: room to run with his policies. And when he came
Speaker 5: interest rates were zero. Now they're not. Our bill for
Speaker 5: debt was you know, a couple hundred billion a year.
Speaker 5: Now it's pushing a trillion. So he has a lot
Speaker 5: of strengths that he didn't face the first time. So
Speaker 5: I don't think we can expect quite the boom that
Speaker 5: we got the last time.
Speaker 2: Ken was doing a panel at the World Economic Forum
Speaker 2: a little bit earlier this morning. Fantastic lineup, and you're
Speaker 2: also alongside Ruggaraja, who we'll catch up with in about
Speaker 2: five or ten minutes time. You mentioned that we're now
Speaker 2: spending more on our interests in America than we are
Speaker 2: in our defense. Do you think we are at that
Speaker 2: tipping point where this becomes problematic or are we not
Speaker 2: there yet?
Speaker 5: We hit it a while ago. I mean, I don't
Speaker 5: know about tipping point to crisis. But interest rates had
Speaker 5: been going down and down in the whole world, and
Speaker 5: I'm sure you interviewed them here over the years. Secular
Speaker 5: stagnation lower forever. That's very ingrained in the mindset, and
Speaker 5: it met in Washington and a lot of policy think
Speaker 5: tanks at the central banks. Dat is free, nothing to
Speaker 5: worry about. But when the interest rates are this high,
Speaker 5: then you start to have to think about it. I mean,
Speaker 5: so we're running a six point seven percent depsit on
Speaker 5: top of or I don't know, thirty five trillion dollar debt.
Speaker 5: You start to pile up an interest bill, and I
Speaker 5: think we've reached a moment where things have tanged. It's
Speaker 5: the interest rate that's turned. It has happened. It's not
Speaker 5: Donald Trump. I think it would have happened just as
Speaker 5: much if Harris had won.
Speaker 1: And you point out that right now where interest rates
Speaker 1: are would add two to three percent to the deficit
Speaker 1: of the United States over the coming years, just based
Speaker 1: on where rates are currently, do you think they will
Speaker 1: stay here? Do you think that they're going to go up?
Speaker 1: You said, you know, last time we spoke to you,
Speaker 1: that the FED couldn't necessarily cut that much.
Speaker 2: Can they cut again?
Speaker 1: Are they going to have to hike?
Speaker 5: Well, let's start with the long term rates. I don't
Speaker 5: think they're going lower outside of a recession. In fact,
Speaker 5: if I had to look at the arc of the
Speaker 5: next five years, I think we'll get another burst of
Speaker 5: inflation sometime within the next five to seven years, and
Speaker 5: this time we will not get a free pass. Inflation
Speaker 5: expectations will go up and interest rates will go up
Speaker 5: even more. But for now, I think think they're settled,
Speaker 5: you know, around in the four and a half five
Speaker 5: range that they probably going to stay. Maybe in a
Speaker 5: recession going down, I mean, the Fed's a different matter.
Speaker 5: But my guess is where we are at the moment,
Speaker 5: is the odds of a hiker as good as the
Speaker 5: odds of a cut.
Speaker 6: I think the.
Speaker 5: FED was way off the mark on where the neutral
Speaker 5: interest rate was, and that's what I found in my
Speaker 5: research on They're adjusting. They're starting to see that, And
Speaker 5: I don't think it's just what's going on the second.
Speaker 5: I think it's a longer term phenomenon.
Speaker 1: You were not very positive on the potential for the
Speaker 1: first Trump term. You're much less positive this time around,
Speaker 1: as John was mentioning, And I'm just wondering what that
Speaker 1: lack of positivity looks like in contrast to all the
Speaker 1: optimism we're hearing from all the bankers.
Speaker 5: So just to be clear, I don't have Trump derangement syndrome.
Speaker 5: I try to have an I try to have an objective, you.
Speaker 2: Know, trying to give you that pass that.
Speaker 5: We're starting at a very strong this is a question,
Speaker 5: and we've been booming for a while. It's a different picture,
Speaker 5: you know, somewhat than when he came in before. And
Speaker 5: you know, so just based on that, it's not as
Speaker 5: obvious that it would do well where I wouldn't quite
Speaker 5: say recessions around the corner, but it's not as many
Speaker 5: miles away as it was, you know, at one time.
Speaker 5: But also the uh, you know, I think certainly corrections
Speaker 5: to some of the things Biden did are welcome.
Speaker 6: I get it.
Speaker 5: Why so much of corporate America feels the wicked Witch
Speaker 5: is dead, and you know, now they can finally, you know,
Speaker 5: breathe freely on a lot of different dimensions.
Speaker 2: We drove down on that just a little bit. I
Speaker 2: understand it. The wicked Witch is dead. He was hardly
Speaker 2: warm and fuzzy with corporate America. GDP was pretty decent.
Speaker 2: These guys wetuwn out record profits quarter on quarter. Many
Speaker 2: of them were what is actually going to change fundamentally?
Speaker 2: So the underlying economy GDP growth, corporate profits, well.
Speaker 5: I mean, the sustainability of what's going on is its
Speaker 5: highly questionable. So yes, GDP growth was good, but we
Speaker 5: have this massive deficit we're running. I mean, all these
Speaker 5: Keynesians were saying the multipliers too. In other words, for
Speaker 5: every percent deficit you run, you get two percent growth.
Speaker 5: We're running double the deficit, more than doubles that we're
Speaker 5: getting in growth.
Speaker 6: Now.
Speaker 5: The immigration was probably larger than the official numbers by
Speaker 5: a considerable margin, and that also is contributing to growth.
Speaker 5: These things are not sustainable. But yeah, I mean, neverthing,
Speaker 5: you know. So it's true. You're right that some of
Speaker 5: what's going on was going to run out at some point.
Speaker 5: So it's a more difficult situation that he's inheriting.
Speaker 2: The death story is terrible. We all agree on that.
Speaker 2: Any evidence that people are pulling back from the US
Speaker 2: dollar and doubles denominated assets.
Speaker 5: With that in mind, well, the interest rate is the
Speaker 5: vote that they have. I mean, so I think our
Speaker 5: markets are very dollar oriented. Over the very long run,
Speaker 5: there could be more fragmentation that Chinese don't like the system.
Speaker 5: You know, you heard the session I was in this
Speaker 5: morning in Kyuzhin, who's a great brilliant economists originally from China,
Speaker 5: was talking about everything they're doing to build away from
Speaker 5: the dollar.
Speaker 3: If you go back to the.
Speaker 5: Sixties, the Europe was moving towards trying to have its
Speaker 5: own currency, and the dollar before it broke off, a
Speaker 5: lot of things were starting to be denominated in deutsch mark's.
Speaker 5: So you know, there's some gradual movement. But the big thing,
Speaker 5: you know, certainly is that the interest rates are going up,
Speaker 5: and that's people.
Speaker 3: Are requiring more.
Speaker 5: If they love the dollars so much, why don't they
Speaker 5: love it at one in one point seventy five percent
Speaker 5: for the tenure, which is what they were taking you know,
Speaker 5: five years ago.
Speaker 1: This is something that a lot of people were talking
Speaker 1: about that the US can afford to borrow more and
Speaker 1: more if the dollar is strong. You wrote a book
Speaker 1: about the dollar and the loss of its reserve currency status.
Speaker 1: Is it going to closer as a result of the
Speaker 1: deficits that we're seeing right now? Are you seeing that
Speaker 1: time frame brought forward?
Speaker 6: So?
Speaker 5: I have a book coming out in May called Our
Speaker 5: Dollar Year Problem that deals with us and some of
Speaker 5: your colleagues may have seen some early version, but you know,
Speaker 5: the dollar has just soared beyond anything people expected. There
Speaker 5: were several turns, not just the value, but it's footprint.
Speaker 5: But surely over time they're forces that are going to
Speaker 5: push that back. Crypto may not take over the legal economy,
Speaker 5: but the illegal economy, the underground economy, which in my
Speaker 5: work I find twenty percent of the global economy that's
Speaker 5: up for grabs, and China clearly needs to pull away.
Speaker 5: If China pulls away, then it pulls other people with them.
Speaker 3: That's a slow process.
Speaker 5: But yeah, I mean, I think, you know, we've had
Speaker 5: a great run. It's not over, but we might be
Speaker 5: looking at a little bit last sage are in a prevalence.
Speaker 3: In the future.
Speaker 2: Ken we could talk all day, but we're eating into
Speaker 2: raggedge times, so we got to go.
Speaker 3: Don't want to do that.
Speaker 2: To see sir, you got to catch up. Thank you.
Speaker 2: Ken Rogoff there, the former IMF Chief Economists and so
Speaker 2: much more joining us sat at the World Economic Forum.
Speaker 2: I'm pleased to say Gary Cohen, the IBM Vice chairman
Speaker 2: and former National Economic Council Director under Donald Trump. Gary
Speaker 2: or Gary's going to see you.
Speaker 6: Great to be here.
Speaker 2: Thanks very We mentioned this the last time we caught
Speaker 2: up in New York, how different things might be this
Speaker 2: time around. What are you hearing here in Davos, Switzerland?
Speaker 2: How different are things this time around compared to years
Speaker 2: gone by?
Speaker 7: You know, I started with the propos lease of making
Speaker 7: I always take dives with the grain of salt, because
Speaker 7: you know, you have lots of different opinions here, and
Speaker 7: I'm always the start of a new year. Everyone likes
Speaker 7: to be excited. Everyone likes to be balled up. We
Speaker 7: obviously went through an inauguration and change of power in
Speaker 7: the United States yesterday. We know that's fairly positive for
Speaker 7: business on the fundamental level. It's positive business. It's a
Speaker 7: pro business. It's a smart regulatory environment. So everyone's thinking
Speaker 7: that's very good for business. But I think we're going
Speaker 7: to ultimately have to see what the year brings, because
Speaker 7: there's still more unknowns.
Speaker 6: Than knowns in the equation at this point.
Speaker 2: When you were last in the administration, the focus was
Speaker 2: on taxes first, and I spent the best part of
Speaker 2: the year trying to work out that tax build. The
Speaker 2: following year things shifted towards trade. There's a sense this
Speaker 2: time around that maybe we can do everything all at once.
Speaker 2: How difficult is it to do everything all at once?
Speaker 7: Look, I'm not in Washington right now, so I don't know.
Speaker 7: I can't speak for them, but look, doing taxes by
Speaker 7: itself is going to be quite difficult. You know, there
Speaker 7: are a lot of different constituencies in Washington when it
Speaker 7: comes to doing taxes, and look, there are small margins
Speaker 7: of victory, so especially in the House.
Speaker 6: You know you've got two or three today.
Speaker 7: It might even be one or two seat majority in
Speaker 7: the House. And within the House, you've got certain members
Speaker 7: that want certain things.
Speaker 6: To be able to vote for a tax bill.
Speaker 7: You've got certain people that are deficit hawks, so they
Speaker 7: do not want to see the deficit go out. You've
Speaker 7: got other members that want to bring back as much
Speaker 7: of the state and local tax deduction assault as we
Speaker 7: always call it, the salt deduction. You've got other members
Speaker 7: that want to just extend everything in the Trump's tax cuts.
Speaker 7: Then you've got those that want to not only extend
Speaker 7: what's there and all of the additional things that were
Speaker 7: talked about on the campaign trail.
Speaker 6: All of those things.
Speaker 7: Have a price tag associated with them, so it's four trillion,
Speaker 7: five trillion, six trillion, and you try and balance those
Speaker 7: with the people that don't want to have a deficit,
Speaker 7: and ultimately something has to be worked out. And remember,
Speaker 7: the only thing that really has to change because its
Speaker 7: expires at the end of the year, is the personal
Speaker 7: side of the equation.
Speaker 6: That doesn't mean they won't.
Speaker 7: Touch the corporate side of the equation, because to make
Speaker 7: this all work, they're going to have to balance it.
Speaker 7: It's a balancing act, and there's numbers, so you're going
Speaker 7: to need revenue from certain places to be able to
Speaker 7: give it in other places.
Speaker 1: It's a balancing for Congress, and each congressional member has
Speaker 1: its own power just simply because of the thin margins.
Speaker 1: It is a one man show that when it comes
Speaker 1: to tariffs, And are you surprised that we didn't see
Speaker 1: more aggressive tariffs implemented or at least even announced from
Speaker 1: the get go, other than what we heard about from
Speaker 1: Mexico in Canada.
Speaker 6: No, I'm not supplied prize.
Speaker 7: I think that even when I was there eight years ago,
Speaker 7: there was always a heavy debate on tariffs, on the
Speaker 7: positives and the negatives of tariffs, on the intended consequences
Speaker 7: and the unintended consequences. You know, look, it's day one
Speaker 7: of a four year administration. You don't have to put
Speaker 7: tariffs on day one. I'm sure there's an enormous amount
Speaker 7: of debate going on in the White House today as
Speaker 7: there was in the transition, on what to do with tariffs,
Speaker 7: Where to put tariffs, Where can tariffs be helpful?
Speaker 6: Where can tariffs be hurtful?
Speaker 7: There are places, I'm sure where there's pretty universal agreement
Speaker 7: that we should tariff. There's other places where there's probably
Speaker 7: divided opinion, and there's places where people think there should
Speaker 7: not be terrif.
Speaker 1: So we're here in Davos. Everyone's incredibly excited about all
Speaker 1: the good and not really considering the potential inflationary component
Speaker 1: of this. The potentially rate, the potential rate rise that
Speaker 1: could accompany this, or the potential slow down from an
Speaker 1: increase in the price of goods at a time when
Speaker 1: spending power has been coming down. Are you trying to
Speaker 1: tell corporate executives who you meet with or others maybe
Speaker 1: temper your enthusiasm.
Speaker 7: No, I'm not trying to tell corporate executives anything. I
Speaker 7: think every one of us is eyes wide open. Everyone
Speaker 7: has a fairly good view of what's going on in Washington. Look,
Speaker 7: the one thing about the Trump administration is they're very transparent,
Speaker 7: and the administration are very transparent.
Speaker 6: They've had enormous access.
Speaker 7: The corporate community has access, The corporate community has been involved.
Speaker 7: The Trump administration has wanted to hear from corporate community.
Speaker 7: So I don't need no one needs to tell the
Speaker 7: corporate community to slow down. I think what people are
Speaker 7: starting to understand is what are the intended what are
Speaker 7: the unintended consequences? As you talked about, we've seen a
Speaker 7: higher rate environment. We're talking about an environment where we
Speaker 7: may not get.
Speaker 6: Cuts this year.
Speaker 7: We're talking about a steeper and steeper yield curve. I
Speaker 7: think the realization that the COVID financings that we're five
Speaker 7: year financings come do.
Speaker 6: There's a big maturity wall coming up.
Speaker 7: There's also a lot of deals in the pipeline. If
Speaker 7: you look back at the vintage years of sort of
Speaker 7: twenty ten on in the venture world, the private equi world,
Speaker 7: there's been very little to no liquidity.
Speaker 6: Out of twenty ten vintages on.
Speaker 7: There's a lot of investors, especially pensions and endowments, started
Speaker 7: looking for a return of capital from those vintage years.
Speaker 6: There's a lot of pressure in the.
Speaker 7: System to do transactions and get deals done. We all
Speaker 7: feel that, we all know that that will be great
Speaker 7: if we can get.
Speaker 6: It all done.
Speaker 7: But I think there's a realism that not all this
Speaker 7: can get done at the same time, and we'll have
Speaker 7: to see what the market can bear it. And we
Speaker 7: have all of this at the exact same time when
Speaker 7: we have very tight credit spreads and very high multiples
Speaker 7: in the market.
Speaker 2: You've said it repeated by coming into this year, there's
Speaker 2: a lot of paper that needs to be moved. Moment
Speaker 2: in the hearing with Scott Besson, the incoming Treasury Secretary,
Speaker 2: where he was asked about scrapping the debt ceiling, the
Speaker 2: debt limit and he said something instead of the warrant
Speaker 2: didn't really let him speak. But what I ultimately was
Speaker 2: going out was that he wanted to survey market participants.
Speaker 2: And what I sensed about where he was going was
Speaker 2: he wanted to find out how market participants would respond
Speaker 2: to that headline. Now, you've been in both office in
Speaker 2: the administration, and you've know the business financial markets, and
Speaker 2: your time at Goldman Sachs. What would you be telling
Speaker 2: Scott Besson about that, about how that headline would be
Speaker 2: absorbed in financial markets? And you're concerned that we could
Speaker 2: get some pushback to some of these plans.
Speaker 6: Well, I think you will get some pushback some of
Speaker 6: these plans.
Speaker 3: You know, the.
Speaker 7: Market is getting to a point now where they're telling
Speaker 7: you we are more concerned about the debt and the
Speaker 7: deficit today than we have been in a while.
Speaker 6: And I think there's a few factors there.
Speaker 7: The debt and deficit continues to get bigger, but we're
Speaker 7: also getting closer and closer to that Social security sort.
Speaker 6: Of tipping point.
Speaker 7: You know, when they work together, we all know that
Speaker 7: the Social Security Trust Fund will be unable to fund
Speaker 7: itself in a matter of years. So it's five six,
Speaker 7: seven four, you know, somewhere in there. And I think
Speaker 7: we're all confident that no one's going to cut those
Speaker 7: security payments. There's no member of Congress that is going
Speaker 7: to vote to cut those.
Speaker 6: Security payment nor should they.
Speaker 7: So not only do you take the pre existing debt
Speaker 7: that we have, the debt that we're going to continue
Speaker 7: to build by running this government, you're going to have
Speaker 7: a new source of additional debt called Social Security that
Speaker 7: you're going to have to have to fund. So you
Speaker 7: start putting all those things together, and you look at
Speaker 7: what the government's need going to need to borrow in
Speaker 7: the near future, and it's a fairly large number. And
Speaker 7: the rollovers, the quarterly rollovers, are going to start getting
Speaker 7: quite staggering. Add to that that the prior administration did
Speaker 7: not really elongate the maturities on the debt. They were
Speaker 7: using a very short dated maturity system, which I didn't
Speaker 7: understand when we had low rates. When you have low rates,
Speaker 7: you want to elongate your debt. We're going to have to
Speaker 7: deal with the problem that we never really put.
Speaker 6: Duration into the pre existing debt. So we've got to
Speaker 6: roll the duration of the pre existing.
Speaker 7: Debt out we've got to add to it the exist
Speaker 7: the new debt we're going to create, and we've got
Speaker 7: to be prepared for.
Speaker 6: So security.
Speaker 2: Do you think we can term out of debt just
Speaker 2: to unpack one piece of that? If we turned out
Speaker 2: the debt right now and you're fantastic this, We've talked
Speaker 2: about it before. Front end of the curve. At the
Speaker 2: moment it is priced around FED funds on twos, the
Speaker 2: curve is what forty fifty basis points step maybe forty
Speaker 2: something like that. The last time I check, historically that's
Speaker 2: not that much. I mean, I don't think there's any
Speaker 2: real sign that we're freaking out about the fiscal debt.
Speaker 2: So yeah, that's before you even do all of these
Speaker 2: things you've talked about.
Speaker 6: We're not.
Speaker 7: Look, I think it is a good opportunity to term
Speaker 7: out debt. We've got a, as you said, a forty
Speaker 7: point inverted yield curve. Historically, we've got to positively shape
Speaker 7: yield curve. You know, we still need to continue to
Speaker 7: elongate our maturities in the United States.
Speaker 2: You think we have the space to do that right
Speaker 2: now because I think it's about forty basis points steeper
Speaker 2: twos versus ten. Do you think we have the space
Speaker 2: to do it so steep?
Speaker 7: Yeah, Yeah, it's Steve, You're right, we do need we
Speaker 7: do need to do it at forty basis points.
Speaker 6: I still think it's it's the right place to go.
Speaker 2: Your message to the people that didn't live a steep
Speaker 2: yield curve and things that right now at the moment
Speaker 2: like this might be it. What's your message to them?
Speaker 6: My message is go back and look at history. You know,
Speaker 6: if you go back.
Speaker 7: And look at history, the one hundred year ten year
Speaker 7: rate average in the United States is over four percent.
Speaker 7: If you look at the steepness of the yield curve
Speaker 7: over the one hundred years, we've always had one hundred
Speaker 7: and fifty basis points of steepening in of steepness in
Speaker 7: the curve if you look at FED funds out so
Speaker 7: we are still in a relatively flat curve.
Speaker 2: Gary, appreciate your time. Always shop It's going to catch up,
Speaker 2: Thank you, sir. Gary Khan there the former National Economic
Speaker 2: Council Director and of course formerly of Goldman Sachs, as
Speaker 2: well David Rubinstein, a co founder and co chairman of
Speaker 2: the Carlough Group. David, it's going to see you. My
Speaker 2: pleasure to be here, thanks for joining us. We caught
Speaker 2: it with someone you know well, mister Friedman of Canyon Partners,
Speaker 2: someone who you've spoken see quite recently, and he said
Speaker 2: that the inauguration felt like a commercial for all the
Speaker 2: best of the United States of America or the CEOs
Speaker 2: from the biggest tech firms. Joe Biden, the former president,
Speaker 2: has said something different. He said, an oligarchy is taping shape.
Speaker 2: How do you see things?
Speaker 8: Well, I don't want to side with either side and
Speaker 8: say either person.
Speaker 2: Is right, you know both of them.
Speaker 8: I would say that clearly there are a lot of
Speaker 8: technology people that are involved with Donald Trump, and they
Speaker 8: were very visible at the inauguration. You could see the
Speaker 8: most visible people at the inauguration right behind the President
Speaker 8: when he was being sworn in. Where the tech CEOs,
Speaker 8: the finance CEOs. They must have been in Wall Street
Speaker 8: doing deals, or maybe they're in Davos.
Speaker 3: They weren't there.
Speaker 8: There's no doubt that business people have become very important
Speaker 8: in the American economy in the last couple of years
Speaker 8: because of technology.
Speaker 3: There's no doubt about it.
Speaker 8: This is true for President Biden, President Trump, the technology companies,
Speaker 8: United States are not only dominant in the United States,
Speaker 8: they're dominant in the world.
Speaker 3: So live anywhere in the world today.
Speaker 8: Can you get through a technology get through the day
Speaker 8: without using an American technology. Almost everybody in the world is
Speaker 8: using either Amazon or an Apple, or Facebook or a Google.
Speaker 8: And European technologies are not quite like that. And even
Speaker 8: the Asian technology, with the exception of TikTok, isn't really prevalent.
Speaker 8: So the American technology leaders have become important business leaders,
Speaker 8: not only the United States, all over the world.
Speaker 3: And they're more than.
Speaker 8: Business leaders, They've become like folk heroes in some ways.
Speaker 8: People that started these companies, Bill Gates, Mark Zuckerberg, among others,
Speaker 8: and the.
Speaker 3: Late Steve Jobs.
Speaker 8: These are like people have done much larger than life figures.
Speaker 8: And I'm not surprised that President Trump would want to
Speaker 8: involve them, and I think President Biden did meet with
Speaker 8: them as well.
Speaker 2: Mark Zuckerberg said recently in a podcast with Joe Rogan
Speaker 2: that he found like the European regulators were going after
Speaker 2: the US tech firms, and the US administration was given
Speaker 2: the Europeans cover to do that. Do you sense a
Speaker 2: shift where we are now celebrating our national champions under
Speaker 2: Donald Trump in a way that maybe we have done
Speaker 2: over the last four years.
Speaker 8: Well, I think both all presidents want to celebrate American technologist.
Speaker 8: I'm not sure exactly what he's referred with Mark Zuckerberg
Speaker 8: referring to, so I can't comment on that, but there's
Speaker 8: no doubt that when you have American technology companies that
Speaker 8: are very dominant. Google is another one that had a
Speaker 8: lot of problems in Europe, you expect Europeans to maybe
Speaker 8: regulate because they're not happy with the fact that American
Speaker 8: companies are dominating their technology. You know, Europe and France
Speaker 8: really invented the Internet. They had a kind of an
Speaker 8: Internet before we had the Internet, but they kind of
Speaker 8: lost it and as a result, today, think of a
Speaker 8: European technology that you need to get through the day,
Speaker 8: there's virtually none of them. So I'm not surprised that
Speaker 8: Europe is upset about it. But Europe is an important
Speaker 8: a life the United States.
Speaker 2: So I don't expect Rolex. I'm sorry, Well, I literally.
Speaker 8: I want to have a great summer vacation. There is
Speaker 8: no place better in the world than you know, Mediterranean
Speaker 8: or Europe, and the museums are great, the food's great,
Speaker 8: the people are family, everything's grown of them. But if
Speaker 8: you really want to build a great technology company, many
Speaker 8: of the great technology leadlead are moving to the United
Speaker 8: States from India or from Europe.
Speaker 1: So there's a larger question here about how much we've
Speaker 1: priced in the US market tech market divorcing from China
Speaker 1: at a time when it seems like maybe that's not
Speaker 1: exactly Donald Trump's plan, and I wonder whether that might
Speaker 1: be the surprise actually a shift toward a more amenable
Speaker 1: approach towards China than currently this market is expecting.
Speaker 8: I can't speak for Donald Trump, obviously, and he changes
Speaker 8: his mind when he feels it's appropriate to do so.
Speaker 8: He's a very transaction oriented person. I wouldn't say as ideological,
Speaker 8: as transaction oriented, that would be my perception.
Speaker 3: And therefore, if he can get a.
Speaker 8: Deal with the Chinese on something that would be helped
Speaker 8: with the United States, I think he'll do that. I've
Speaker 8: read that he wants to move there and get there
Speaker 8: relatively quickly and have a meeting with Cgping. I think
Speaker 8: that'd be a good idea, But I think it's too
Speaker 8: early to say whether China is going to go down
Speaker 8: and the United States is going to go up in
Speaker 8: terms of the fight between each other, whether it's going
Speaker 8: to be large tariffs. I think the Secretary of Treasury
Speaker 8: said designate that the tariff policy is a maximalist policy,
Speaker 8: which is to say, it's to be used in negotiating positions.
Speaker 8: So I suspect that that will be what Donald Trump does,
Speaker 8: and as people negotiate and have the threat of tariffs,
Speaker 8: but maybe not you impose them.
Speaker 1: Well, the reason why I ask this is because we're
Speaker 1: trying to figure out signal from noise right and the
Speaker 1: TikTok ban that was delayed for seventy five days. There's
Speaker 1: a signal in that that maybe there isn't as much
Speaker 1: of a concern about the national security concerns surrounding a
Speaker 1: property like this, at least in Donald Trump's mind, and
Speaker 1: that could open the door to more negotiating between the
Speaker 1: US and China in a way that a lot of
Speaker 1: businesses had really backtracked from how much you hearing them
Speaker 1: actually start to look at potential opportunities again with China,
Speaker 1: given that maybe that got overestimated well in the.
Speaker 3: National security information and concerns.
Speaker 8: I don't have access to what the senators and members
Speaker 8: of the House saw. So I can't comment on that,
Speaker 8: but I would say Donald Trump is obviously interested in
Speaker 8: MAB security, but he may have some way to deal
Speaker 8: with that if you have an American press in the
Speaker 8: company or American ownership. So I just have to wait
Speaker 8: and see. It might take more than ninety days to
Speaker 8: actually get this resolved. You know, business deals don't get
Speaker 8: done that quickly. But the fact that TikTok is able
Speaker 8: to get the attention of the present of United States
Speaker 8: in a way that many people wouldn't have expected a
Speaker 8: couple months ago shows that this is a technology that
Speaker 8: obviously has a lot of popularity in United States. Think
Speaker 8: about one hundred and seventy million users, which is staggering
Speaker 8: when you think about it.
Speaker 1: Right now, the takeaway for us from Davos has been
Speaker 1: this incredible optimism, this whole deal making surge that we
Speaker 1: were expecting. Do you think that's overplayed or do you
Speaker 1: think that that's going to be validated in the numbers.
Speaker 8: Well, the optimism certainly is here. Whether it'll be merited,
Speaker 8: I don't know yet, but I do think that many
Speaker 8: business people feel that there'll be more of an opportunity
Speaker 8: to get regulatory burdens removed. There'll be more opportunity to
Speaker 8: get things done that won't have be on our trust concerns.
Speaker 8: The SEC won't be as big a challenge for many people.
Speaker 8: I think that is the feeling of some business people,
Speaker 8: not everybody, And that is the feeling that I think
Speaker 8: is fueling a lot of the optimism.
Speaker 2: Sure is that you'll failing. I'm sorry, is that you'll failing.
Speaker 3: I feel it's a different environment, will be different.
Speaker 8: I think there were some pluses to some of the
Speaker 8: things that were done in the previous administration, and there
Speaker 8: were some things that probably I wouldn't have agreed with.
Speaker 8: And we'll see what the new administration is going to do.
Speaker 8: I think the important thing you should think about is this.
Speaker 8: We've only had a president the second term non consecutively
Speaker 8: once before, as Grover Cleveland. And when you have second
Speaker 8: terms for presidents, sometimes in the second terms, they get tired,
Speaker 8: they make mistakes. Reagan's second term wasn't perfect. Obviously, Nixon
Speaker 8: had to leave, Bill Clinton had some challenges as well.
Speaker 8: Maybe that's because in a second term, a president gets tired,
Speaker 8: and it's people get tired. Maybe if you have a
Speaker 8: president who has served for as president before, it actually
Speaker 8: knows something about the job, has some chance to think
Speaker 8: about it, comes back with fresh people. Maybe a second
Speaker 8: term it's not consecutive, might produce some good results.
Speaker 3: We'll time, Hotel, we.
Speaker 2: Will see and we'll catch up with you saying no
Speaker 2: doubt as well, David, appreciate your time.
Speaker 3: Thank you, thanks much for this.
Speaker 2: Thank you, David Rubinstein there as the Carlisle Group, joining
Speaker 2: Guess not Stave, Town of Bound, the founder of Golden
Speaker 2: Tree Asset Management Stave. It's good to say, you.
Speaker 4: Said, John Lisa, great to be back.
Speaker 2: Thank you for being with us. I was listening to
Speaker 2: some of your comments immediately after the election. Why you
Speaker 2: said it might be more bock than bite, but maybe
Speaker 2: people that get in how over that scace just to
Speaker 2: touch What do you think we are now and what
Speaker 2: do you expected?
Speaker 9: So it's been a lot of enthusiasm, a lot of hope,
Speaker 9: and it's great and prospects look like they were accelerating, improving,
Speaker 9: and valuations suggest that my guess is it's not going
Speaker 9: to be a one way train, a one way trip,
Speaker 9: and that we're going to likely to get a pause.
Speaker 4: What does it mean six months to a year from now.
Speaker 9: If you look at the Reagan analogy, there was a
Speaker 9: lot of hope build up. The first year was tougher,
Speaker 9: but then it built on that and it was ended
Speaker 9: up being a very good experience. And there's no reason
Speaker 9: to think you can't have different environment but similar results
Speaker 9: over time.
Speaker 2: Is confidence sufficient to generate economic activity? Because confidence feels
Speaker 2: sky high speaking to American executives, and you see that
Speaker 2: the sentiment surveys over the last few months as well.
Speaker 2: Do you see that translating right now into superior economic activity?
Speaker 9: Absolutely, there's a lot of excitement and there's a can
Speaker 9: do attitude and people feel good.
Speaker 1: So dubos always tends to be wrong. People get together
Speaker 1: and they have this conviction and then the exact opposite
Speaker 1: usually happens over the remainder of the year.
Speaker 2: I just keep that in mind.
Speaker 1: At a time where the conviction seems to be American exceptionalism,
Speaker 1: growth is going to go gangbusters, and there's this huge
Speaker 1: fly in the ointment, which is the debt market and
Speaker 1: what rates are saying. How much does that worry you?
Speaker 4: A great question?
Speaker 9: Because what we get the cuts that the market's hoping
Speaker 9: and a lot of the valuations are assuming that rates
Speaker 9: have a downward bias, and if they don't and have
Speaker 9: an upward or a flat bias without hurt valuations. If
Speaker 9: you look at nominal growth rates, which we think will
Speaker 9: be about five percent, so nominal is inflation plus real,
Speaker 9: and if real is a higher percentage than inflation in
Speaker 9: that five percent number, that's a good thing and they'll
Speaker 9: be room to cut.
Speaker 4: But if it's about.
Speaker 9: The same, or if there's more inflation in that nominal
Speaker 9: number as a percentage of the total, then it's going
Speaker 9: to be a pause and that's not going to be
Speaker 9: good for the markets based on that.
Speaker 1: Are credit markets in particular, high yield markets priced perfection
Speaker 1: sort of leverage to both the growth and the idea
Speaker 1: of potential cuts.
Speaker 4: You're leading the witness and by the way.
Speaker 6: So.
Speaker 2: Carry on, yes, please answer.
Speaker 9: As long as the market's constructive about growth, valuations make sense.
Speaker 9: If there's volatility on, is inflation accelerating, is there a
Speaker 9: concern that you're not going to have cut you may
Speaker 9: even have an interest rate spike or pause, then that's
Speaker 9: going to be different. Some of the outliers, like the
Speaker 9: tariff conversation, I'm less concerned about today's how.
Speaker 1: Much are you actually starting to look outside the US
Speaker 1: because of valuation story. I mean, this is something we
Speaker 1: keep hearing about going to Europe. Sure we're here, but
Speaker 1: also investing.
Speaker 9: So one of the interesting things on Europe are the
Speaker 9: real rates are quite low compared to the US. So
Speaker 9: if you look at economies, for instance, like Germany, you
Speaker 9: could say, well, there's low debt to GDP and their
Speaker 9: real rates are called the twenty rates. The twenty year
Speaker 9: rates are under one, so that you could kind of
Speaker 9: make a case for that, I don't think a very
Speaker 9: good good case. But when you look for something like France,
Speaker 9: where it seems like they have worse flexibility, they're going
Speaker 9: to might be spending more on defense, less entitlements, less growth,
Speaker 9: and those real rates or the twenty year rates or
Speaker 9: in the mid ones to low ones and the US
Speaker 9: or in the mid twies, it doesn't seem right. So
Speaker 9: the real rates in Europe seem high. I do feel
Speaker 9: as if when you look at the Mario Drahi report, uncompetitive,
Speaker 9: there are solutions, there is self help if they choose
Speaker 9: to do it.
Speaker 2: How much needs to go right to generate bigger retents
Speaker 2: out of Europe because expectations into twenty five are exceptionally low.
Speaker 2: We've seen one innings reply. I can think of Richemont
Speaker 2: in the last week come out with a decent endings
Speaker 2: report at stock coup ten fifteen to twenty percent.
Speaker 4: Just like that, John, It feels that way.
Speaker 9: So you look at for instance, I was talking about
Speaker 9: draw Hay's report. He singled out telecom where they used
Speaker 9: to very much encourage competition. So retail price is low,
Speaker 9: but as a result you couldn't reinvest in the properties
Speaker 9: in the systems, and as a result, the investments the
Speaker 9: companies sell are very low multiples. You take something like
Speaker 9: a Vodaphone, if all of a sudden, the consolidation occurs,
Speaker 9: which allowed occurred, and that they allowed the investment on
Speaker 9: their systems to have appropriate returns, those valuations could be
Speaker 9: up fifty to one hundre percent. So I could see it.
Speaker 9: Look at something like Germany in Vodafone. If that's stabilized
Speaker 9: and you believe that there is a good investment, that
Speaker 9: could be really very attractive.
Speaker 2: Before we let you go.
Speaker 1: Last year year Soldier's crypto business. This year crypto has
Speaker 1: gone crazy. Yes, do you regret it?
Speaker 4: You know it not at all. And because it's in
Speaker 4: a better home.
Speaker 9: I mean, we still we've done some things that have
Speaker 9: been crypto related, and of the firm Republic, who we
Speaker 9: sold it to, is just a more appropriate home for it.
Speaker 9: But and I think it's an interesting space. I'm not
Speaker 9: so sure that the valuations justify the fundamentals today, but
Speaker 9: the fundamentals are very strong.
Speaker 2: How do you value these companies? How do you value
Speaker 2: these things? What are the valuations off them? I've had
Speaker 2: from traditional investors, They just say, I can't have tolerance
Speaker 2: to invest in something if I don't know why it
Speaker 2: guys up or down from week to week.
Speaker 9: You know it's I try and focus on what I
Speaker 9: can analyze, and there's enough of that then to worry
Speaker 9: about what I can and you know, there's very much.
Speaker 9: It's a concept and you could have said that about
Speaker 9: the Internet in two thousand. It's true, and you know
Speaker 9: it's a concept and some will be realized and some
Speaker 9: won't be.
Speaker 2: Steve appreciate your time so aways you get to hear
Speaker 2: from you're super smart Steve talnabout that of Golden Tree.
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