WEBVTT - Goldman Sachs CEO David Solomon Talks Iran, Markets, Private Credit

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. I'm Hardie Stradolz here

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<v Speaker 1>in Sydney and we have a very special guest, a

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<v Speaker 1>very special event here in Sydney this morning. It is

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<v Speaker 1>the Golden Sacks Australia Week Alternatives and Macro's Summit, and

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<v Speaker 1>with me here as a seer and chairman, David Solomon.

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<v Speaker 1>Really great to have you with us, and I know

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<v Speaker 1>you've been doing a lot of talking. We're about to

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<v Speaker 1>make you do some more. Welcome to Australia. But of

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<v Speaker 1>course markets, wonderful to have you. Markets are really gripped

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<v Speaker 1>by what's going on Roughly eight thousand miles away right

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<v Speaker 1>the Middle East conflict is still front and center. We

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<v Speaker 1>don't know how extended it's going to be. You said

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<v Speaker 1>yesterday you were surprised Baha benign markets were Your team

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<v Speaker 1>of strategists, led by Peter Oppenheimer, is saying, by the dear,

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<v Speaker 1>do you see complacency at this moment?

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<v Speaker 2>I I don't see complacency. I just I think there's

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<v Speaker 2>a lot of uncertainty around the direction of the conflict,

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<v Speaker 2>how it will be resolved. You know what the off

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<v Speaker 2>ramps are, and you know, I think it's fair to

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<v Speaker 2>say when you're markets market reactions have been relatively benign,

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<v Speaker 2>and I certainly could have seen over the last couple

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<v Speaker 2>of days, you know, a little bit more volatility. But

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<v Speaker 2>I don't think people are being complacent. I think that

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<v Speaker 2>market participants are looking and trying to say, you know,

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<v Speaker 2>how is this going to play out?

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<v Speaker 3>What's the end game?

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<v Speaker 2>You can see you know, good scenarios and more difficult scenarios,

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<v Speaker 2>and as they have more information in the coming days

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<v Speaker 2>and the coming week or two, you know, I think

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<v Speaker 2>that will have an impact on risk premiums. I think

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<v Speaker 2>at the moment, what market participants are really looking at

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<v Speaker 2>is is this going to translate through to things that

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<v Speaker 2>affect economic growth and activity, particularly energy supply chains you

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<v Speaker 2>know so far. I think one of the reasons why

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<v Speaker 2>markets are reacting the way they are is they're encouraged

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<v Speaker 2>that there is you know, strong support for trying to

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<v Speaker 2>ensure that doesn't happen.

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<v Speaker 3>But it's uncertain. You don't know, and we'll see in

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<v Speaker 3>the long run.

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<v Speaker 2>For portfolio allocation, and I know Peter Oppenheimer, Charmin most

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<v Speaker 2>of Barramari, it a call for our wealth clients.

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<v Speaker 3>You know, if you have portfolio allocation.

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<v Speaker 2>There's nobody that's say you should share your fundamental portfolio

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<v Speaker 2>allocation because of what's going on. But for traders and

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<v Speaker 2>day to day market participants to think about risk premia,

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<v Speaker 2>you know, every single day.

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<v Speaker 3>Obviously they're watching very closely.

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<v Speaker 1>What a lot of people that run big, major global

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<v Speaker 1>banks like yours, right, do you worry about the lack

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<v Speaker 1>of predictability when it comes to policy, when it comes

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<v Speaker 1>to how this potentially ends, and when it ends, what's

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<v Speaker 1>going on with your at least operations.

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<v Speaker 2>For anxiety, I worry about a lot of things. We

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<v Speaker 2>run a big global business. We have an extraordinary team,

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<v Speaker 2>and you know, I think one of the things that

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<v Speaker 2>we have to accept is the world as a very

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<v Speaker 2>complicated place. There's always a lot of uncertainty. There's always

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<v Speaker 2>a lot of nuance. But we have you know, base

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<v Speaker 2>beliefs and how economies will perform, how the world will evolve,

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<v Speaker 2>and you know, we operate around that. But we always

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<v Speaker 2>are prepared to risk manage and think about downside risks.

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<v Speaker 2>And I think one of the things you have to

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<v Speaker 2>do when you run a big, large financial institution is

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<v Speaker 2>that when you know fact change or risk come up

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<v Speaker 2>you've always got to.

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<v Speaker 3>Be prepared to pivot, to shift to de risk. And

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<v Speaker 3>you know, we run our business, you know that way always.

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<v Speaker 2>We run a big balance sheet and we you know,

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<v Speaker 2>we think about that every day. But there's there's nothing

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<v Speaker 2>while these are very very significant events and I don't

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<v Speaker 2>want to diminish them in any stretch. You know, we've

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<v Speaker 2>operated the firm through lots of very significant events. You're

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<v Speaker 2>in year out, and that's that's part of what we do.

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<v Speaker 1>Is it business is normal? Then for say, your offices

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<v Speaker 1>in Saudi Arabia, is this travel going on? What's a

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<v Speaker 1>communication with third clients?

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<v Speaker 3>That's that is complex.

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<v Speaker 2>We have We've got a significant number of people in

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<v Speaker 2>you know, in those Middle East countries, and obviously, first

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<v Speaker 2>and foremost we're concerned with their safety and you know

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<v Speaker 2>we're trying to do everything we can to support them

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<v Speaker 2>in their families. I would not say, you know, it's

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<v Speaker 2>business as usual in those markets. You know, all those

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<v Speaker 2>markets for all businesses you know are operating work from

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<v Speaker 2>home and and you know stay safe as a first priority.

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<v Speaker 2>And so we'll just have to watch closely, you know,

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<v Speaker 2>how things play out. And you know, we're very very

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<v Speaker 2>focused on making sure our people and their families are

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<v Speaker 2>safe and sound, and at the moment, that's our primary focus.

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<v Speaker 3>In that part of the world.

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<v Speaker 1>Do you think there is a bit of an existential

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<v Speaker 1>cloud of buy as a financial center, now.

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<v Speaker 2>Well, you know, I do think safety and security, you know, matters,

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<v Speaker 2>And I wouldn't say I think it's a little bit

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<v Speaker 2>premature to talk about existential clouds. But you know, if

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<v Speaker 2>you're living and operating in a place and you didn't

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<v Speaker 2>anticipate this, it's quite scary and it's quite unsettling. And so,

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<v Speaker 2>as I said, our primary focus is on the safety

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<v Speaker 2>and security of our people there were working very hard

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<v Speaker 2>to make sure that we're protecting.

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<v Speaker 3>Them and their families.

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<v Speaker 1>It's not as the background prior to this conflict was

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<v Speaker 1>crystal clear, right, we just came off really trying to

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<v Speaker 1>work out what the AI scare trade is going to be. Like,

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<v Speaker 1>do you do think that when it comes to that

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<v Speaker 1>narrative of sustainability of you know, I know, Jamie Dahmer said,

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<v Speaker 1>there's some players doing dumb things, for example, does that

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<v Speaker 1>still have further to go?

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<v Speaker 2>I'm not sure I understood the question exactly. Are you

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<v Speaker 2>you're talking about kind of AI investment. You know growth. Look,

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<v Speaker 2>AI is a fabulous, fabulous, incredible technology that is going

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<v Speaker 2>to drive massive productivity gains through society. There's a lot

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<v Speaker 2>of capital being deployed to grow AI capabilities around the world.

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<v Speaker 2>Some of that capital is are going to get reasonable returns,

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<v Speaker 2>some of that capital is not.

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<v Speaker 3>They're going to be winners, they're going to be losers.

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<v Speaker 2>As within any technology super cycle, I think we're early

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<v Speaker 2>in that process, but I think it's exciting and I

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<v Speaker 2>actually look at the.

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<v Speaker 3>Glass being half full.

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<v Speaker 2>That doesn't mean that there won't be capital that's burned

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<v Speaker 2>companies that don't work out. But I think overall, the

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<v Speaker 2>benefits to enterprise productivity, you know, the economy broadly as

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<v Speaker 2>this technology gets developed and deployed is going to be

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<v Speaker 2>quite exciting. And I'm looking at the optimism of you know,

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<v Speaker 2>what's ahead from all this, and of course try to

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<v Speaker 2>manage the risk of the downside, the speed bumps that

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<v Speaker 2>will inevitably come along the way.

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<v Speaker 1>I like the earlier saige. You know, in your job,

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<v Speaker 1>you will worry about a lot of things, right, Trade

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<v Speaker 1>Tariff's US policies obviously one of them, And I think

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<v Speaker 1>this is the first time we've spoken to you since

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<v Speaker 1>the Supreme Court passed down their judgment. Does the further

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<v Speaker 1>lack of predictability on trade policy? Is that also a

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<v Speaker 1>concern when it comes to business sentiment, when it comes

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<v Speaker 1>to your views on how the US economy is going

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<v Speaker 1>to cope?

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<v Speaker 2>What? I think uncertainty does affect business sentiment broadly, But

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<v Speaker 2>I just say I don't think that.

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<v Speaker 3>I don't think that at.

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<v Speaker 2>The moment, US trade policy is that uncertain, you know.

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<v Speaker 2>I think this administration has been clear about how they

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<v Speaker 2>intend to drive a trade policy. I think the Supreme

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<v Speaker 2>Court decision affects a certain discharge of tariff's into the economy,

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<v Speaker 2>but there's certainly other avenues for the president. I think

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<v Speaker 2>the President's made quite clear, you know, how he thinks

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<v Speaker 2>about tariff and trade. And I think while this administration

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<v Speaker 2>is in place, that is going to be a construct

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<v Speaker 2>that we have to operate in. Of course, if there

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<v Speaker 2>could be more, it can be more certainty around exactly

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<v Speaker 2>how that looks. And I think the important thing is

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<v Speaker 2>how it will look in longer perpetuity. You know, of

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<v Speaker 2>course the market would appreciate that, but I think the

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<v Speaker 2>market operates knowing that there's a level uncertainty around trade

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<v Speaker 2>and trade policy that we just have to adapt to.

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<v Speaker 3>And we have to live with.

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<v Speaker 1>I wanted to get a bit more while you're here,

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<v Speaker 1>for example, in beautiful Sydney, do times that use of

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<v Speaker 1>increased global and certainty does it make a relatively more

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<v Speaker 1>idiostromcratic market like Australia more interesting?

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<v Speaker 3>Well, Australia's always been interesting market.

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<v Speaker 2>We have four hundred people here, but a lot of

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<v Speaker 2>very very important, you know companies in Australia. We have

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<v Speaker 2>a good wealth business in Australia. You know, Australia is

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<v Speaker 2>an important market and an important economy, not just for

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<v Speaker 2>the world, but also for Golden Sacks. You know, any market,

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<v Speaker 2>any economy that's important is important for Golden Sacks. Given

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<v Speaker 2>our global footprint, I try to get here about once

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<v Speaker 2>a year.

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<v Speaker 3>I try to do it around an event like this.

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<v Speaker 2>So we've got a lot of our clients bort together

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<v Speaker 2>first of all for this conference. But this has always been,

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<v Speaker 2>you know, this has always been an important market, an

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<v Speaker 2>important economy for Golden Sacks, and you know, I think

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<v Speaker 2>that's consistent, you know, in any environment. So I was

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<v Speaker 2>here the same week last week, and I'm excited to

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<v Speaker 2>be back again this year.

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<v Speaker 1>What else are you excited about around the region? Are

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<v Speaker 1>there as a house view Goldmen Sex is very bullish

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<v Speaker 1>on China or it's of course National People's Congress Week

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<v Speaker 1>as well. What's your feel about that market given some

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<v Speaker 1>of the crosswinds on trade, on tech, on geopolitics.

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<v Speaker 2>Is China is one of the largest China is one

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<v Speaker 2>of the largest economies in the world. That's going to

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<v Speaker 2>continue to be one of the largest economies in the world.

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<v Speaker 3>You know.

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<v Speaker 2>At the moment, I'm very focused on the bi ladder

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<v Speaker 2>relationship between the US and China. I'm looking forward to

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<v Speaker 2>President Trump's visit with President Chief that it's planned for

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<v Speaker 2>later this month, the beginning of April. It'll be interesting

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<v Speaker 2>to see what comes out of that, and you know,

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<v Speaker 2>whether or not China and the US can make.

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<v Speaker 3>More progress, you know, on their biladder relationship.

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<v Speaker 2>I think that's important for growth in the world, and

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<v Speaker 2>I think it's important for both the US and China,

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<v Speaker 2>and I think at the moment that's fragile, and so

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<v Speaker 2>I'm very curious to see, you know, how that progresses.

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<v Speaker 2>In the meantime, Chinese markets have done very well in

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<v Speaker 2>the last twelve months. That's increased capital flows, you know

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<v Speaker 2>into the region. We obviously participate in that. But we're

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<v Speaker 2>going to watch those bilateral meetings and progress in the

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<v Speaker 2>Bilader relationship very closely.

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<v Speaker 1>What would you like to come out in terms of

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<v Speaker 1>deliverables from.

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<v Speaker 2>I'd like to see, you know, more certainty and clarity

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<v Speaker 2>around how the Biladder relationship will work going forward. I

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<v Speaker 2>think there are things that the US wants and things

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<v Speaker 2>that China wants. I'd like more clarity around what that's

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<v Speaker 2>going to look like, you know, not just in twenty

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<v Speaker 2>twenty six, but you know, over the coming years. And

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<v Speaker 2>I think that's still relatively uncertain.

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<v Speaker 1>What are we not talking about enough? I know we've

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<v Speaker 1>talked a little bit about private credit. You don't think

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<v Speaker 1>it's a sort of a systemic risk at this point.

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<v Speaker 2>I think credit formation around the world is really correlated

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<v Speaker 2>to you know, economic growth and economic activity. I do

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<v Speaker 2>think that we've gone if I just look at the

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<v Speaker 2>US market, which is obviously, you know, very when you

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<v Speaker 2>talk about private credit, a very very large market. The

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<v Speaker 2>context of private credit, We've got a long time without

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<v Speaker 2>a credit cycle. We've gone a long time without a recession.

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<v Speaker 2>I do think when you have these long dated cycles,

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<v Speaker 2>they're a variety of things that happen. One, credit spreads narrow,

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<v Speaker 2>two lending standards.

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<v Speaker 3>People have more capital deploy they get.

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<v Speaker 2>Aggressive, lending standards deteriorate a little bit due diligent standards deteriorate,

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<v Speaker 2>and so we're watching very closely to see if there's

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<v Speaker 2>been a little bit too much aggression froftiness in those markets.

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<v Speaker 2>But fundamentally, when you look at the underlying credit portfolios,

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<v Speaker 2>particularly below investment grade credit, while there have been a

0:10:02.720 --> 0:10:05.800
<v Speaker 2>bunch of idiosyncratic events where there have been problems, the

0:10:05.840 --> 0:10:09.560
<v Speaker 2>broad portfolios are performing reasonably well. Why are they performing

0:10:09.559 --> 0:10:12.200
<v Speaker 2>reasonably well because the economy is doing fine and it's

0:10:12.320 --> 0:10:16.000
<v Speaker 2>very hard to have broad underperformance and a broad diversified

0:10:16.040 --> 0:10:19.480
<v Speaker 2>credit portfolio. If the economy is doing well. When we

0:10:19.520 --> 0:10:20.320
<v Speaker 2>do have a slow.

0:10:20.120 --> 0:10:21.520
<v Speaker 3>Down in the economy, you will see it.

0:10:21.559 --> 0:10:24.040
<v Speaker 2>I think because of the length of the cycle, you

0:10:24.120 --> 0:10:26.440
<v Speaker 2>probably will find places where the losses are higher than

0:10:26.480 --> 0:10:27.319
<v Speaker 2>people expect.

0:10:27.520 --> 0:10:29.120
<v Speaker 3>We're very, very focused.

0:10:28.679 --> 0:10:32.520
<v Speaker 2>On back leverage and things that could affect or amplify

0:10:32.679 --> 0:10:35.960
<v Speaker 2>in a more difficult economic environment, you know, credit deployment.

0:10:35.960 --> 0:10:37.280
<v Speaker 3>But at the moment when you.

0:10:37.200 --> 0:10:40.280
<v Speaker 2>Look broadly across portfolios. We're not seeing things that are

0:10:40.280 --> 0:10:45.480
<v Speaker 2>super concerning. That's a completely different issue than retail participation

0:10:45.559 --> 0:10:50.400
<v Speaker 2>and retail investors wanting liquidity from what are fundamentally illiquid products,

0:10:50.440 --> 0:10:52.640
<v Speaker 2>and so that's getting a lot of attention. But that's

0:10:52.679 --> 0:10:55.640
<v Speaker 2>different than the underlying credit portfolios. But I do think

0:10:55.920 --> 0:10:57.880
<v Speaker 2>that when there is a slowdown in the economy or

0:10:57.880 --> 0:11:00.560
<v Speaker 2>we do get to a place where we have, you know,

0:11:00.600 --> 0:11:04.000
<v Speaker 2>a recession, you're you're going to see losses and credit portfolios,

0:11:04.080 --> 0:11:06.559
<v Speaker 2>and you know those losses could be meaningful, but you know,

0:11:06.600 --> 0:11:08.760
<v Speaker 2>we'll watch that closely while the economy is chugging along.

0:11:09.120 --> 0:11:11.199
<v Speaker 2>You know, that's that's not the primary focus.

0:11:11.440 --> 0:11:13.040
<v Speaker 1>David, I know we must let you go, but we

0:11:13.080 --> 0:11:15.000
<v Speaker 1>really appreciate you giving us your time in a very

0:11:15.040 --> 0:11:17.760
<v Speaker 1>very busy schedule. Thank you so much for joining us.

0:11:17.840 --> 0:11:19.800
<v Speaker 3>Absolutely great to be with you. Thank you for having me.

0:11:20.040 --> 0:11:22.720
<v Speaker 1>Also Common Sex chairman and CEO David Solomon here at

0:11:22.800 --> 0:11:24.280
<v Speaker 1>the Australia Week event