WEBVTT - Surveillance: Small Business With Goldman's Solomon 0:00:05.120 --> 0:00:13.800 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jailey. 0:00:13.960 --> 0:00:17.560 We bring you inside from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.360 Bloomberg dot Com, and of course on the Bloomberg. It 0:00:27.480 --> 0:00:30.560 is the most interesting year for Goldman Sachs, but it was. 0:00:30.640 --> 0:00:34.080 What's so important in back the eighteen sixty nine is, 0:00:34.120 --> 0:00:38.560 at one point Goldman Sachs was a small business. Things 0:00:38.600 --> 0:00:41.680 have changed, and for David Solomon, the history of Goldman 0:00:41.720 --> 0:00:44.639 Sachs is front and center and also the future as 0:00:44.680 --> 0:00:51.000 well with Mr Solomon Urani. Thank you Tom, and thank 0:00:51.040 --> 0:00:53.880 you David for joining me today. You know, we're here 0:00:53.920 --> 0:00:57.640 outside the Capitol building and you have picketed the lawn 0:00:57.760 --> 0:01:01.520 with help wanted signs. You know you had said Goldman 0:01:01.520 --> 0:01:04.919 Sachs had said just weeks ago that more than thirty 0:01:04.959 --> 0:01:07.720 percent of small businesses didn't even know that they could 0:01:07.800 --> 0:01:12.520 survive through this pandemic. What's at stake here, well, small 0:01:12.560 --> 0:01:14.880 businesses are First of all, thank you for having me. 0:01:14.920 --> 0:01:17.000 I'm thrilled to be here, you know, out cold with 0:01:17.040 --> 0:01:19.959 you outside the Capitol on this this gray morning but 0:01:20.040 --> 0:01:23.360 small businesses are such a vitally important part of our economy, 0:01:23.720 --> 0:01:26.600 and they're so important in terms of how they employ, 0:01:26.760 --> 0:01:29.520 take care of families, contribute to the communities that we 0:01:29.560 --> 0:01:32.240 all live and operated. And they've been so badly hit, 0:01:32.440 --> 0:01:35.440 so badly affected by the pandemic, and they need help. 0:01:35.880 --> 0:01:38.440 And some help has come, but more help is needed. 0:01:38.480 --> 0:01:40.039 And so one of the things we're trying to do 0:01:40.800 --> 0:01:43.680 by picketing here on the hill is to let Congress 0:01:43.720 --> 0:01:46.240 know there are a number of things that small businesses 0:01:46.240 --> 0:01:48.080 still need help and support on to get to the 0:01:48.120 --> 0:01:50.240 other side. They can see the light at the end 0:01:50.280 --> 0:01:52.600 of the tunnel, but they need some help, you know, 0:01:52.640 --> 0:01:54.480 to get through the tunnel and get to the other side. Now, 0:01:54.520 --> 0:01:56.880 a lot of this is about stimulus, and Joe Biden 0:01:56.960 --> 0:01:59.840 himself has called the current package a down payment. So 0:02:00.240 --> 0:02:03.040 what is the David Solomon plan? What would you say 0:02:03.160 --> 0:02:05.920 is needed in terms of the amount needed to save 0:02:05.920 --> 0:02:08.160 this economy. So one of the things that we've done 0:02:08.280 --> 0:02:10.440 over the course of the last few months, given that 0:02:10.480 --> 0:02:13.000 we have over ten thousand businesses, small businesses that have 0:02:13.040 --> 0:02:15.600 been through our program over the course of the last descade, 0:02:15.760 --> 0:02:17.640 as we've gone out we've surveyed them and we've talked 0:02:17.639 --> 0:02:20.240 to them, and we've created something called ten thousand Small 0:02:20.240 --> 0:02:23.480 Businesses Voices, which is really an advocacy platform, and we've 0:02:23.520 --> 0:02:25.760 asked them, what do you need help with? And if 0:02:25.760 --> 0:02:28.000 you look at these placards that are on the lawn, 0:02:28.400 --> 0:02:31.040 they raise a number of issues that the small businesses 0:02:31.040 --> 0:02:33.120 are saying, Hey, we need help with this, And i'd 0:02:33.160 --> 0:02:35.000 highlight three of them to you that I think are 0:02:35.120 --> 0:02:38.120 very very important. The first is they need access to capital. 0:02:38.320 --> 0:02:41.600 They need capital to bridge them through this challenging period 0:02:41.600 --> 0:02:43.760 of time, and something like the Restart Act I think 0:02:43.880 --> 0:02:46.840 is a good way to get it. That Second, they 0:02:46.880 --> 0:02:49.480 talk about the need to support the people who work 0:02:49.560 --> 0:02:52.400 for them, particularly around healthcare, and healthcare costs are just 0:02:52.440 --> 0:02:55.520 so prohibitive. Often they're not in a position to take 0:02:55.560 --> 0:02:58.560 care of the healthcare issues that their employees have, and 0:02:58.680 --> 0:03:01.160 so they need some way to create better incentives to 0:03:01.240 --> 0:03:05.200 provide healthcare support for their employees. And Third, because people 0:03:05.200 --> 0:03:07.880 are working harder given the challenges they face, they need 0:03:07.880 --> 0:03:10.560 more help with childcare and just basic support so they 0:03:10.560 --> 0:03:12.760 can be president at work but also make sure that 0:03:12.760 --> 0:03:15.000 their children are taken care of. You know, while they're 0:03:15.040 --> 0:03:17.240 working and trying to keep their businesses afloat. So all 0:03:17.280 --> 0:03:21.080 of this is happening as unemployment still remains very elevated, 0:03:21.160 --> 0:03:23.520 and it's even worse for Black Americans, even worse for 0:03:23.560 --> 0:03:26.760 Hispanic Americans and Asian Americans. What do you think on 0:03:26.880 --> 0:03:30.480 day one is going to be Joe Biden's toughest task 0:03:30.520 --> 0:03:33.560 in fixing that gap. Well, the toughest task that the 0:03:33.560 --> 0:03:36.320 new administration has is continuing to march forward, to make 0:03:36.360 --> 0:03:39.640 progress on getting the vaccines distributed so we can get 0:03:39.680 --> 0:03:42.000 to the other side of the virus. There is going 0:03:42.040 --> 0:03:44.920 to be a lot of discussion about what additional stimulus 0:03:44.960 --> 0:03:47.720 is needed. We've raised a bunch of issues here this 0:03:47.760 --> 0:03:50.480 morning where we're trying to get people focused on things 0:03:50.480 --> 0:03:53.400 that we think needs to be included in any additional 0:03:53.440 --> 0:03:56.440 stimulus that's brought forward. But I think the big focus 0:03:56.560 --> 0:03:58.360 right now is we've got to get people vaccinated. We've 0:03:58.360 --> 0:04:00.200 got to get to the other side of the virus. Well, 0:04:00.240 --> 0:04:02.320 a lot of the market had been reacting to this 0:04:02.520 --> 0:04:05.120 vaccine hope, but the role out has been so slow 0:04:05.480 --> 0:04:07.800 so far, and it's done a lot of concerns. How 0:04:07.880 --> 0:04:09.920 is that impacting your own plans and how is that 0:04:09.960 --> 0:04:12.640 impacting the plans of your clients. Well, I think there's 0:04:12.640 --> 0:04:16.080 still a lot of uncertainty, and there's no question that 0:04:16.480 --> 0:04:19.040 the supply of vaccine is growing. In fact, I'm very 0:04:19.120 --> 0:04:21.600 encouraged by the amount of vaccine that's out there. But 0:04:21.680 --> 0:04:25.719 we have to find more flexible, nimble, more efficient ways 0:04:25.760 --> 0:04:29.240 to get that vaccine distributed. And I'm hopeful that, in 0:04:29.279 --> 0:04:32.440 addition to the state actions that are being taken around 0:04:32.440 --> 0:04:35.240 the country, potentially will allow the private sector to help 0:04:35.640 --> 0:04:38.640 with plans to get this vaccine distributed. There's plenty of vaccine, 0:04:39.040 --> 0:04:41.920 we have to create increased speed and efficiency in getting 0:04:41.960 --> 0:04:45.000 that vaccine to people who are in need, especially vulnerable 0:04:45.040 --> 0:04:47.560 people and frontline workers who need the support. Right now, 0:04:47.640 --> 0:04:49.480 do you think it's moving fast enough that you'll be 0:04:49.520 --> 0:04:52.080 able to bring Goldman SAX employees back and full by 0:04:52.080 --> 0:04:54.480 the end of the year. I I certainly would expect 0:04:54.480 --> 0:04:56.520 that we'll have Golden SAX employees back and full by 0:04:56.520 --> 0:04:57.919 the end of the year. We will get through this 0:04:58.560 --> 0:05:00.720 um and I'm really hopeful that over the course of 0:05:00.760 --> 0:05:03.560 the next six months we see a real improvement. But 0:05:03.640 --> 0:05:06.240 they still work to be done, and once we deal 0:05:06.279 --> 0:05:10.000 with the vaccine and the virus and people feel safe. 0:05:10.360 --> 0:05:12.040 We're still going to have to deal with the economic 0:05:12.120 --> 0:05:16.320 consequence of the shutdowns and the impact on our economy 0:05:16.360 --> 0:05:18.240 that this pandemic has had, and that I think will 0:05:18.320 --> 0:05:22.719 be a bumpier a longer period of time before we 0:05:22.760 --> 0:05:24.520 get to the next six months. We have to get 0:05:24.560 --> 0:05:28.160 past the next three weeks and tonight with Georgia going on. 0:05:28.240 --> 0:05:31.360 I know everyone would love your opinion here on if 0:05:31.400 --> 0:05:34.080 the Democrats were to win the seats, what kind of 0:05:34.160 --> 0:05:37.240 impact would that have on the markets. Well, I'm watching 0:05:37.240 --> 0:05:40.240 the election as anybody everybody is, and you know, we'll 0:05:40.279 --> 0:05:42.640 see over whether it's tonight or it's over the next 0:05:42.640 --> 0:05:46.400 couple of days, what the what the result is um 0:05:46.440 --> 0:05:48.800 you know, depending on the result, that obviously can have 0:05:48.800 --> 0:05:52.599 an impact on policy policy effects markets. I think the 0:05:52.680 --> 0:05:55.560 markets think that this this election at the moment is 0:05:55.560 --> 0:05:58.520 still very uncertain, very close, too close to call, and 0:05:58.520 --> 0:06:00.520 so like you, we'll watch and we'll see the outcome, 0:06:00.520 --> 0:06:03.000 and then we'll listen to the policy responses. The policy 0:06:03.000 --> 0:06:05.039 responses will have an impact on markets at that point 0:06:05.040 --> 0:06:07.080 in time. It's a lot of the concerns simply around 0:06:07.120 --> 0:06:10.840 taxes and the taxation of corporations on well the individuals 0:06:10.920 --> 0:06:13.440 or what is really the concern? I think I think 0:06:13.920 --> 0:06:18.719 people like people like to know the answer. The answer 0:06:18.760 --> 0:06:21.960 is uncertain at the moment. I'm sure once we know 0:06:22.120 --> 0:06:25.520 the answer will move forward. Markets will be Markets will 0:06:25.560 --> 0:06:27.680 be fine. That doesn't mean they'll go up the way 0:06:27.680 --> 0:06:30.280 they've gone up the last few months, but markets will 0:06:30.320 --> 0:06:33.159 be fine. We'll move forward. I think the big focus 0:06:33.200 --> 0:06:35.880 has to be on getting the economy back in shape, 0:06:35.880 --> 0:06:39.839 getting people employed, helping small businesses, really dealing with the 0:06:39.880 --> 0:06:43.880 consequence an impact of the pandemic, not so much the 0:06:43.920 --> 0:06:46.359 short term gyrations of the market. And on top of 0:06:46.360 --> 0:06:48.960 the Georgia elections, we do have this issue of certifying 0:06:49.000 --> 0:06:51.599 the Biden win. And you are one of two almost 0:06:51.640 --> 0:06:54.920 two hundred executives that had signed a letter urging Congress 0:06:54.920 --> 0:06:58.680 to do so. What's at risk here amid all these uncertainties. Well, 0:06:58.720 --> 0:07:01.640 I think at this point in time, it's important for 0:07:01.720 --> 0:07:03.760 us to get focused on the tasks that are at hand. 0:07:03.800 --> 0:07:05.800 We have to get through the pandemic, we have to 0:07:05.880 --> 0:07:07.760 help those in need in the economy. We've got to 0:07:07.760 --> 0:07:11.000 get the economy running again. And so I congratulated the 0:07:11.000 --> 0:07:13.920 president elect back in November when it was clear to 0:07:14.040 --> 0:07:16.520 me that he was the president elect and we were 0:07:16.520 --> 0:07:18.920 going to go move forward. What's going on here the 0:07:18.920 --> 0:07:21.320 next couple of days, I think is a distraction. I 0:07:21.360 --> 0:07:23.600 know what will happen on the twentie of January, and 0:07:23.640 --> 0:07:25.680 we will move forward, and that's what's important at this point. 0:07:25.760 --> 0:07:27.800 Do you have the twentieth of January, then, in the 0:07:27.840 --> 0:07:30.920 first days of Biden's and in presidency, what do you 0:07:30.920 --> 0:07:32.920 expect from him? What do you want to see beyond 0:07:32.960 --> 0:07:35.640 the vaccine I'd like to see. I'd like to see 0:07:35.920 --> 0:07:40.040 some leadership around helping us all move forward around the pandemic, 0:07:40.080 --> 0:07:43.600 helping us move forward in terms of economically supporting those 0:07:43.840 --> 0:07:46.840 that need help because of the pandemic, particularly small businesses. 0:07:47.120 --> 0:07:50.360 I'd like to see a consistent message as to what 0:07:50.400 --> 0:07:52.400 we all need to do to come together to solve 0:07:52.440 --> 0:07:54.520 these problems. This is a time for us to come 0:07:54.520 --> 0:07:58.360 together as a country to get past the pandemic and 0:07:58.440 --> 0:08:01.000 move forward and help people that have been really adversely 0:08:01.000 --> 0:08:03.640 affected by this this horrible twelve months that we've had. 0:08:04.080 --> 0:08:06.240 You know, I think there's a lot of been a 0:08:06.240 --> 0:08:08.520 lot of concerns for many months about why the stock 0:08:08.560 --> 0:08:11.480 market has been rallying so much while we have so 0:08:11.520 --> 0:08:14.520 many of these underlying concerns. Do you have any concerns 0:08:14.560 --> 0:08:16.840 about the fragility of the market at these current levels, 0:08:16.960 --> 0:08:19.160 given that we still have so much wrong? Well, I 0:08:19.760 --> 0:08:22.680 think that there's no question that the monetary policy and 0:08:22.680 --> 0:08:27.280 fiscal policy actions have definitely been very, very supportive of 0:08:27.320 --> 0:08:31.040 asset prices, and so obviously equity markets benefit from that. 0:08:31.880 --> 0:08:34.080 I said a few weeks ago, and I stand by 0:08:34.120 --> 0:08:37.440 it now. It's hard to justify some of the valuations 0:08:37.440 --> 0:08:40.200 I see in the market, particularly around very very growthy companies, 0:08:40.280 --> 0:08:42.600 around some of the I p O s that have come. Uh. 0:08:42.840 --> 0:08:45.959 We've seen other periods of ebulence and markets before they 0:08:46.000 --> 0:08:49.920 rebalance over time, and my expectation is some of the 0:08:49.960 --> 0:08:52.080 excess we've seen maybe over the course of the last 0:08:52.080 --> 0:08:54.440 few months, will rebalance in the coming months. But I'm 0:08:54.520 --> 0:08:57.040 much more focused on the medium or long term. I 0:08:57.040 --> 0:08:59.640 don't get too upset about short term market generations. I 0:08:59.679 --> 0:09:01.839 do gonna get your opinion here on something else that's 0:09:01.880 --> 0:09:03.520 going on in the market that a lot of other 0:09:03.559 --> 0:09:05.640 people are concerned about. You know, we saw this big 0:09:05.640 --> 0:09:08.920 move by the New York Stock exchange also to potentially 0:09:08.920 --> 0:09:12.600 delist some Chinese companies and then reverse that course. You know, 0:09:12.640 --> 0:09:15.559 you're somebody who has a lot of business abroad, huge 0:09:15.600 --> 0:09:18.480 growth areya in China. I'm wondering what all these uncertainties 0:09:18.559 --> 0:09:23.360 mean for you in terms of China reopening its financial system. Well, 0:09:23.400 --> 0:09:26.200 the first the first stage of the first phase of 0:09:26.200 --> 0:09:31.480 the trade agreement called for broader access for financial firms 0:09:31.720 --> 0:09:34.640 to markets in China, and that's being executed. You know, 0:09:34.679 --> 0:09:36.880 at the moment, we'll see if it carries through and 0:09:36.960 --> 0:09:39.920 executes all the way. But the relationship between the US 0:09:40.040 --> 0:09:43.560 and China right now, the by latter relationship is incredibly complex, 0:09:43.760 --> 0:09:45.280 and I think it's one of the big challenges that 0:09:45.320 --> 0:09:49.400 the Biden administration has going forward. The foreign policy strategy 0:09:49.480 --> 0:09:53.280 that we've really executed on with China over the last 0:09:53.320 --> 0:09:57.840 forty years, and that allowing them to participate with all 0:09:57.840 --> 0:10:00.880 the other economies around the world, including the S and 0:10:00.920 --> 0:10:03.120 thinking they'll move in our direction in terms of how 0:10:03.120 --> 0:10:06.360 they operate. That does not seem to have worked. Uh, 0:10:06.400 --> 0:10:08.760 And we need to ensure as we go forward that 0:10:08.800 --> 0:10:11.840 the playing field is level and fair and appropriate. And 0:10:11.960 --> 0:10:13.679 I think they're gonna be big challenges to that as 0:10:13.679 --> 0:10:16.160 we move forward, But that's something that the administration will 0:10:16.160 --> 0:10:17.720 have to take on. But there's a lot of uncertainty 0:10:17.760 --> 0:10:19.680 around that, and I think that's something that we're going 0:10:19.720 --> 0:10:22.920 to be talking about and living with and thinking about 0:10:23.040 --> 0:10:24.520 for a number of years as we move forward to 0:10:24.520 --> 0:10:26.320 the future. Right, That's what that was gonna be. My 0:10:26.360 --> 0:10:28.240 other question, how much of an overhang do you think 0:10:28.280 --> 0:10:30.719 that uncertainty will be? I mean, Biden has all these 0:10:30.760 --> 0:10:32.880 other issues as we discussed to take care of first, 0:10:33.520 --> 0:10:35.599 how how quickly do you think the trade relationship with 0:10:35.640 --> 0:10:38.440 China will get figured out? I think this is a 0:10:38.440 --> 0:10:40.679 complicated issue that's going to take time to sort out, 0:10:40.960 --> 0:10:43.360 but certainly I know will be a big focus of 0:10:43.400 --> 0:10:45.960 the Biden administration, as it was with the Trump administration. 0:10:46.040 --> 0:10:48.439 I think it'll be important for us to continue to 0:10:48.480 --> 0:10:52.400 focus on improving that relationship and making progress to level 0:10:52.400 --> 0:10:57.040 the plane for field and assure that that that partnership. 0:10:57.120 --> 0:11:00.320 We have to work with China as a trade partner. 0:11:00.360 --> 0:11:02.720 We have to work with China sometimes as a competitor. 0:11:02.760 --> 0:11:04.760 We have to work with China sometimes as an adversary. 0:11:04.800 --> 0:11:06.800 But we have to balance all that and do what's 0:11:06.880 --> 0:11:08.640 right for the US to move forward. So I want 0:11:08.640 --> 0:11:10.480 to turn to your business for a second, because in 0:11:10.520 --> 0:11:13.240 the most recent quarter you had a standout quarter, right 0:11:13.440 --> 0:11:16.840 it was returns of equity of more than sevent uh 0:11:16.880 --> 0:11:19.400 You know, people look into one and I think everyone 0:11:19.440 --> 0:11:22.200 wants to know what is the biggest growth driver for 0:11:22.280 --> 0:11:26.960 you this year? Well, we um we have a number 0:11:27.000 --> 0:11:28.600 of businesses I think, as you know and you and 0:11:28.640 --> 0:11:31.079 I have talked before. We obviously have our big corporate 0:11:31.080 --> 0:11:35.960 investment bank with our business that serves governments, institutions, corporate 0:11:35.960 --> 0:11:39.280 clients broadly, that's investment, banking, sales and trading UH and 0:11:39.320 --> 0:11:41.440 there are clients given the uncertainty in the world, have 0:11:41.480 --> 0:11:44.360 been very very active and we expect that activity to continue. 0:11:44.760 --> 0:11:47.080 We also have a large asset management business. We're very 0:11:47.160 --> 0:11:50.920 very significant asset manager globally around the world in almost 0:11:50.960 --> 0:11:53.640 all products broadly, and we think there's a lot of 0:11:53.679 --> 0:11:56.000 opportunity for us to continue to help our clients in 0:11:56.040 --> 0:11:58.640 the asset management business and that's an area of growth 0:11:58.640 --> 0:12:01.559 for us and something that we've been focused on. In addition, 0:12:01.800 --> 0:12:04.600 we have a consumer wealth business that we're expanding, a 0:12:04.679 --> 0:12:07.560 digital consumer business that we're trying to grow so that 0:12:07.600 --> 0:12:10.480 we can serve a broader array of clients with respect 0:12:10.520 --> 0:12:13.559 to all their financial leads digitally, and we're very focused 0:12:13.559 --> 0:12:15.280 on the growth of that business. So those are three 0:12:15.320 --> 0:12:18.400 big platforms broadly, and we see growth opportunities and all 0:12:18.520 --> 0:12:20.600 three of them as we move forward, and we're gonna 0:12:20.600 --> 0:12:24.319 work hard to help our clients manage their financial needs 0:12:24.360 --> 0:12:26.240 because that's that's a big part of what we do 0:12:26.280 --> 0:12:28.040 on a day to day basis. You know, even after 0:12:28.080 --> 0:12:30.760 a pandemic, you still have all this excess capital. What 0:12:30.800 --> 0:12:33.520 are you gonna do with all of that. Well, we're 0:12:33.520 --> 0:12:36.080 making investments in our business, as we just discussed, and 0:12:36.120 --> 0:12:40.120 that obviously requires capital. Um We have not been able 0:12:40.160 --> 0:12:42.600 to return capital to shareholders during the course of this 0:12:42.720 --> 0:12:45.800 year because we took that action with a number of 0:12:45.800 --> 0:12:47.760 the other large banks back in the spring because we 0:12:47.760 --> 0:12:50.960 didn't think it's appropriate. We probably are in a position 0:12:51.480 --> 0:12:54.400 to start that at some point one and so we 0:12:54.480 --> 0:12:58.040 will consider, uh, you know, we will consider both investments 0:12:58.040 --> 0:13:01.000 and return of capital as appropriate as we've forward. Also 0:13:01.080 --> 0:13:04.200 be watching for deals. Thank you so much David for 0:13:04.280 --> 0:13:08.000 joining us in a tone best thank you so much 0:13:08.000 --> 0:13:10.880 with the leader of Goldman Sex and again extraordinary year 0:13:10.960 --> 0:13:14.600 for Goldman Sex. You wonder what two one will bring 0:13:18.640 --> 0:13:22.240 James everything, because with everything standard, he's given us wonderful 0:13:22.280 --> 0:13:26.800 perspective across assets as well. James, how have you already 0:13:26.880 --> 0:13:32.320 rewritten your two thousand twenty one outlook morning, Tom? Thankfully 0:13:32.320 --> 0:13:35.520 I haven't had to just yet. Um, it was obviously 0:13:35.520 --> 0:13:38.840 a very strong market consensus coming into this year that 0:13:38.880 --> 0:13:42.360 we were going to see really a very happy market environment, 0:13:42.480 --> 0:13:47.240 with everything risk facing and cyclical performing extremely well, and 0:13:47.640 --> 0:13:51.600 possibly a steady but low volatility, and in no way 0:13:51.679 --> 0:13:55.679 concerning rising in treasury yields and steepening of the curve 0:13:56.559 --> 0:13:59.480 the dollar. I think everybody wants to be selling the dollar. 0:13:59.520 --> 0:14:01.440 There are inje of views as to how far that 0:14:01.480 --> 0:14:04.400 will move. You mentioned City. I think that they're up 0:14:04.440 --> 0:14:07.280 there with one of the bigger moves that they're forecasting. 0:14:07.360 --> 0:14:09.839 But that's all part of the saint market environment of 0:14:10.559 --> 0:14:14.240 risk on. And then yesterday happened, and and already I 0:14:14.280 --> 0:14:17.160 can I can imagine that some people might be sweating 0:14:17.160 --> 0:14:21.160 a little about the one cause, but we've been cautious 0:14:21.360 --> 0:14:24.360 and defensive and circumspect about the economic how look, certainly 0:14:24.360 --> 0:14:26.320 for the first half of the year, so nothing that 0:14:26.360 --> 0:14:29.320 happened yesterday has changed James. We just hit on Russ 0:14:29.360 --> 0:14:32.560 coster Rich of black Rock, who's taken a massive victory 0:14:32.600 --> 0:14:34.840 lap on a on A two thousand twenty where his 0:14:34.920 --> 0:14:39.200 portfolio was up plus. You know, really extraordinary when you 0:14:39.240 --> 0:14:44.040 look at everybody's returns mixed in. Mr Costrich mentioned a 0:14:44.240 --> 0:14:49.560 Barbell strategy, and I would compare that to a diversified strategy. 0:14:50.000 --> 0:14:53.680 Discuss how you're approaching that. Are we diversified in two 0:14:53.720 --> 0:14:56.720 thousand twenty one or do we make bets within an 0:14:56.760 --> 0:15:03.160 equity Barbell strategy. Sometimes diversification seems to be seen as 0:15:03.160 --> 0:15:06.720 a dirty word. People make ex post comparisons against the 0:15:06.760 --> 0:15:09.200 best performing asset or asset class and say, well, if 0:15:09.200 --> 0:15:12.360 you didn't achieve that return, then then what you've achieved 0:15:12.440 --> 0:15:15.880 is not not acceptable. The reality is that long term 0:15:15.920 --> 0:15:19.560 performance is achieved not by being top top percentile one 0:15:19.640 --> 0:15:22.680 year and bottom percentile the next, but by sticking around 0:15:22.720 --> 0:15:25.480 the middle of the pack um and chipping away at 0:15:25.480 --> 0:15:28.720 those returns over a long period, and diversification is a 0:15:28.760 --> 0:15:32.000 way of achieving that. Now, in the current market environment, 0:15:32.320 --> 0:15:36.760 diversification is difficult because we have very slim number of 0:15:36.880 --> 0:15:40.640 themes driving markets and a high degree of of correlation 0:15:40.840 --> 0:15:44.200 across assets in relation to those macro themes. But that 0:15:44.200 --> 0:15:47.240 doesn't mean that there aren't diversification benefits and there aren't 0:15:47.240 --> 0:15:50.360 ways of diversifying side. Still highly recommend that, you know, 0:15:50.400 --> 0:15:55.000 the vast majority of investors should be diversifying wherever possible 0:15:55.640 --> 0:15:59.720 across assets, and that includes you know, things like precious metals, 0:15:59.720 --> 0:16:02.480 and if you're that way inclined, potentially even things like 0:16:02.520 --> 0:16:05.040 cryptocurrency that I have to say, I am skeptical on 0:16:05.080 --> 0:16:06.800 that front. Wait, hold on a second. We're not going 0:16:06.840 --> 0:16:09.640 to let you go mentioning bitcoin just sort of on 0:16:09.680 --> 0:16:12.520 the side here as a potential alternative. Are you seriously 0:16:12.560 --> 0:16:15.160 considering this going forward if there is more stability and 0:16:15.200 --> 0:16:19.040 say bitcoin, No, not really, because I still don't see 0:16:19.040 --> 0:16:22.160 the use case as being convincing in the slightest. You know, 0:16:22.200 --> 0:16:24.680 one of the big advantages apparently of bitcoin is that 0:16:24.720 --> 0:16:28.040 it has limited supply, and that's true, but cryptocurrencies do 0:16:28.080 --> 0:16:30.320 not have limited supply. So given that the blockchain is 0:16:30.320 --> 0:16:33.840 pretty open source, what is really to prevent an alternative 0:16:33.840 --> 0:16:37.080 to bitcoin appearing and having another twenty one million coins available? 0:16:37.240 --> 0:16:39.280 There is nothing really to prevent that, given that you 0:16:39.320 --> 0:16:42.640 can't pay your taxes in bitcoin, and it's volatility relative 0:16:42.680 --> 0:16:44.760 to the kinds of fear currency that you do pay 0:16:44.760 --> 0:16:48.120 your taxes in is incredible. It really isn't a store 0:16:48.120 --> 0:16:49.560 of value that can be used on a day to 0:16:49.600 --> 0:16:52.040 day basis at the moment. Anyway, I think the case 0:16:52.120 --> 0:16:54.600 for Bitcoin today, and the one that seems to be 0:16:54.680 --> 0:16:58.080 driving the price in dramatic fashion, it is merely that 0:16:58.560 --> 0:17:03.080 thea currency is being played with by central banks to 0:17:03.120 --> 0:17:06.480 an extreme that we really haven't seen in the Western world. 0:17:07.200 --> 0:17:10.040 And therefore the chances of fear currency across the board 0:17:10.080 --> 0:17:13.160 losing its value, not relative to one another, but all 0:17:13.200 --> 0:17:16.040 of them, is meaningful and people are saying, well, what 0:17:16.119 --> 0:17:19.719 can I invest in that doesn't involve me being denominated 0:17:19.720 --> 0:17:22.760 in fear currency? And so Bitcoin, you know, it does 0:17:22.880 --> 0:17:26.640 satisfy I think that requirement, but without a use case, 0:17:26.680 --> 0:17:29.760 I still struggle to believe that that is a long 0:17:29.880 --> 0:17:32.840 term investment that I believe truly has value. I've got 0:17:32.880 --> 0:17:34.160 to say, I haven't heard a lot of people talk 0:17:34.160 --> 0:17:36.239 about how you can't pay taxes in bitcoin and how 0:17:36.280 --> 0:17:39.720 this is a potential detraction for the crypto acid. I 0:17:39.760 --> 0:17:42.280 will say yesterday's sell off was sort of heralded as 0:17:42.320 --> 0:17:44.479 some as bringing risk back to the market. What did 0:17:44.560 --> 0:17:47.480 you make of it? Yeah, it was a funny one, really, 0:17:47.560 --> 0:17:48.920 wasn't it. I Mean there are a number of again 0:17:48.960 --> 0:17:52.439 expost rationalizations as to why I guess my on a 0:17:52.520 --> 0:17:55.159 daily basis, Obviously we have no idea. Excuse me, we 0:17:55.200 --> 0:17:57.760 have no idea really what drives markets. But I would 0:17:57.800 --> 0:18:00.520 just look at the preponderance of things which are going 0:18:00.560 --> 0:18:06.679 on macro, political, technical, in financial markets and inequity markets 0:18:06.680 --> 0:18:09.199 in particular, and say that we were really at some 0:18:09.280 --> 0:18:12.399 extremes in terms of what was implicitly being discanted or 0:18:12.440 --> 0:18:15.520 priced or expected by markets. They really were managing to 0:18:15.520 --> 0:18:18.600 see the best in everything um and that includes some 0:18:18.800 --> 0:18:20.879 you know, some well known tech companies which have got 0:18:20.920 --> 0:18:23.800 astronomical valuations, but some not very well known tech companies 0:18:23.800 --> 0:18:26.320 which have got astronomical valuations as well. And so the 0:18:26.400 --> 0:18:28.399 combination of these things I think meant that we had 0:18:28.400 --> 0:18:31.040 a market which was particularly fragile, and I still think 0:18:31.040 --> 0:18:33.200 it is particularly fragile. I don't think it's going to 0:18:33.280 --> 0:18:36.440 take much in terms of disappointment to see some further 0:18:36.480 --> 0:18:39.159 froth coming out of equities James, the gloom crew is 0:18:39.200 --> 0:18:42.240 out in force. You're not part of that crew. Can 0:18:42.320 --> 0:18:47.840 you see a bear market coming? I mean all the fundamentally, 0:18:48.080 --> 0:18:50.200 all the conditions really have been there for a bear 0:18:50.280 --> 0:18:53.160 market for quite some time, because in spite of what 0:18:53.200 --> 0:18:57.600 we've seen, equities have managed to maintain a complete disconnect 0:18:57.640 --> 0:19:00.240 from the real world. And all the people are doing 0:19:00.320 --> 0:19:02.359 is trying to expost justify that by saying, well, the 0:19:02.359 --> 0:19:05.680 equity market has never been the real economy. But that's 0:19:05.680 --> 0:19:08.080 not really true. Over long periods of time, there is 0:19:08.200 --> 0:19:12.639 absolutely a link between economic activity UM and company revenues. 0:19:12.680 --> 0:19:15.960 There has to be. That's inevitable UM. So it's not 0:19:16.000 --> 0:19:20.000 a question of you know, the conditions being there today necessarily, 0:19:20.000 --> 0:19:22.119 because that's looking for triggers, and we've always said that 0:19:22.160 --> 0:19:25.000 triggers are difficult to identify until you see them in 0:19:25.040 --> 0:19:28.040 the rear view mirror. For me, it's about identifying where 0:19:28.080 --> 0:19:31.080 there are risks and fragilities, and I think there are 0:19:31.160 --> 0:19:33.640 so many of those that we don't have long enough 0:19:34.160 --> 0:19:37.000 to cover them all. Really, James Afi, thank you so much. 0:19:37.040 --> 0:19:40.760 Just a lot of elveryn in standard investment senior investment manager. 0:19:45.040 --> 0:19:47.880 Right now, the gentleman has given us the greatest leadership 0:19:47.960 --> 0:19:51.840 during this pandemic. Peter ots of conversations of February and 0:19:51.880 --> 0:19:55.040 March at Baylor College, and of course he has received 0:19:55.040 --> 0:19:58.159 the vaccine. No shark there, Peter ote Is. To go 0:19:58.200 --> 0:20:00.639 to the directness of it, What was it like the 0:20:00.760 --> 0:20:04.040 jab in the arm? That was? It was fine? Tom, 0:20:04.080 --> 0:20:06.880 Thanks for asking. You know, it was uh that evening. 0:20:06.920 --> 0:20:10.440 I had some arm soreness and somebody aches, maybe even 0:20:10.480 --> 0:20:14.439 a little bit of low grade fever um the next morning, 0:20:14.440 --> 0:20:17.960 a little achy by mid morning the next day. Totally fine. 0:20:18.040 --> 0:20:21.560 So no worse than any other adult vaccination, no worse 0:20:21.560 --> 0:20:25.480