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Speaker 1: Talk about expecting and expected. Why is tech at a

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Speaker 1: record This is a totally different playbook over the last

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Speaker 1: three weeks, and all of a sudden we reverted back

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Speaker 1: to what we see for the majority of twenty twenty

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Speaker 1: three record high in the Nasdaq one hundred and Guy

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Speaker 1: and I just couldn't get our arms around. Why So, Ralph,

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Speaker 1: last nine evercore chairman Emeritis is here to help us

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Speaker 1: understand it. Ralph, It's so good to see you.

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Speaker 2: Why it's great to be here on your very last day.

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Speaker 2: I'm really sad about that. Yeahs they're amazing together.

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Speaker 1: Oh, thank you really are.

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Speaker 2: And I'll tell anybody again, I'll tell the entire audience

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Speaker 2: thank you so much.

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Speaker 1: We do appreciate it. We are definitely sad to be parted,

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Speaker 1: but it is good to have you on the last show.

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Speaker 1: So what do you think about tech?

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Speaker 2: Well, I think if you look back over the last

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Speaker 2: ten to fifteen years, when new innovations, new technologies have

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Speaker 2: come into the world, the market in the earlier days

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Speaker 2: has consistently undervalued them. Look at how Google traded, Look

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Speaker 2: at how Meta in their early days, Look at how

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Speaker 2: Netflix traded, even though we all thought they were highly valued.

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Speaker 2: And perhaps even overvalued. And I think the market has

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Speaker 2: become accustomed to, particularly in periods when risk is valued

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Speaker 2: in reaching from a multiple point of view and a

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Speaker 2: multiple of earnings point of view for these high growth

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Speaker 2: and really strong market position companies.

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Speaker 3: But it's still.

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Speaker 4: Scary to say about Well okay, so why okay? Why

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Speaker 4: is it scary? Does it remind you of two thousands?

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Speaker 4: Does it remind you of a previous era? Is what

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Speaker 4: is it that scares you about this?

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Speaker 2: No, I don't think we're at the world of two thousand.

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Speaker 2: I mean you looked at some of the companies then

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Speaker 2: there were companies that had literally no earnings nor any

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Speaker 2: prospect of having earnings, and they were valued at multiple

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Speaker 2: billion dollars. Remember looking at a company that's a terrific company, Cisco,

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Speaker 2: and in two thousand it was valued as if it

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Speaker 2: would capture one hundred and fifty percent of the router market.

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Speaker 3: Wow, So you know that's just not possible.

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Speaker 2: And I don't think we have that kind of froth

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Speaker 2: in the system right now. If you look at the

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Speaker 2: multiples of the Magnificent seven in large measure, there they're

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Speaker 2: fact and earnings based, not hope based, and so and

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Speaker 2: you know, the overall valuation of the market is not

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Speaker 2: you know, it's not cheap, but it's not way stretched either,

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Speaker 2: And as rates have come down, the valuation has become

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Speaker 2: a little more reasonable.

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Speaker 1: So if I said to you that the cuts seven

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Speaker 1: times this year, buying tech makes sense, well.

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Speaker 3: I don't believe that's going to happen.

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Speaker 2: You know, Okay, you think so, don't tell me that

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Speaker 2: what you I think the market is over expecting interest

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Speaker 2: rate cuts by the Fed. And by the way, if

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Speaker 2: we did have seven interest right cuts this year, that

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Speaker 2: would be a bad thing, not a good thing, because

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Speaker 2: it would be the reason they would cut that much

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Speaker 2: would be that they're seeing real weakness in the economy

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Speaker 2: and that the employment part of their dual mandate was

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Speaker 2: at risk.

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Speaker 3: And we don't want that.

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Speaker 2: What we want, and certainly what the FED is hoping for,

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Speaker 2: is a continued reduction in inflation without too much erosion

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Speaker 2: in the strength of the employment markets. And you know,

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Speaker 2: if you look at twenty twenty three, you'd have to

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Speaker 2: give the Fed a pretty damn good grade for what

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Speaker 2: they achieved. If you were sitting here in January of

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Speaker 2: twenty three and said we would end the year where

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Speaker 2: we're ending now in inflation, women and unemployment. Everyone on

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Speaker 2: the planet would have said, sign me up. Yeah, So.

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Speaker 4: What do you want to own in that kind of scenario?

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Speaker 4: If we get a soft landing, if the FED can

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Speaker 4: deliver and continue to deliver an economy that is seeing

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Speaker 4: full employments. We've seen the claims numbers this week that's stunning,

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Speaker 4: and SE's inflation coming down. We just seen the University

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Speaker 4: of Michigan numbers come in as well. Consumer feels good,

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Speaker 4: inflation is coming down. What do you want to own

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Speaker 4: in that kind of scenario? Is it big tech or

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Speaker 4: is this the environment in which the market should, in theory,

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Speaker 4: broadened out.

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Speaker 2: I'm a believer that at some point the market does

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Speaker 2: broaden out. There are a lot of great companies that

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Speaker 2: are actually trading at discounts, and in some cases significant

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Speaker 2: discounts to the market multiple. I think small and mid

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Speaker 2: cap companies have been left behind a little bit. And

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Speaker 2: I think that's, you know, particularly the case when you

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Speaker 2: think that you know, small and MidCap companies tend to.

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Speaker 3: Have a little bit higher proportion of their sales.

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Speaker 2: In domestically in the US, and the US economy is

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Speaker 2: clearly the outperformer the trend, and I'm not sure I

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Speaker 2: necessarily am a huge supporter of this, but the trend

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Speaker 2: is definitely in more trade barriers, less flow of goods

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Speaker 2: and services across the border. That's something actually that should

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Speaker 2: benefit the Russell two thousand relative to the S and

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Speaker 2: P and the Nasdaq one hundred.

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Speaker 1: So does that mean that if I'm at the FED,

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Speaker 1: that it's a possibility that there won't be a landing,

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Speaker 1: But that won't necessarily mean if that's going to have

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Speaker 1: to hike or that we're going to see a massive acceleration.

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Speaker 2: I think the probability of the Fed hiking at this

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Speaker 2: point is very very low.

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Speaker 1: We could not land like things could just bump along.

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Speaker 2: Okay, Yeah, I mean, if you ask me what do

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Speaker 2: I expect to happen this year, I think inflation continues

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Speaker 2: to drift down much more slowly than it came down

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Speaker 2: in twenty three, but the general trend will be positive.

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Speaker 2: And you know, the range of you know, I guess

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Speaker 2: recessions are judged by GDP growth is you know, down

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Speaker 2: a little bit up to two and a half percent,

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Speaker 2: So it's a pretty narrow range unless we get a

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Speaker 2: serious mixogynous shock, and we've had some which haven't really

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Speaker 2: affected the market. So I think you you can never

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Speaker 2: be totally relaxed on those things because we never see

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Speaker 2: them before they happen. But in the absence of that,

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Speaker 2: I think the band of activity or expectations for the

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Speaker 2: economy this year is relatively narrow.

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Speaker 3: It's not very exciting.

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Speaker 4: We're trying, We're trying, but it could but no, But Ralph,

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Speaker 4: you look at the year ahead, there's plenty of potential

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Speaker 4: for excitements. You've already alluded to what is happening in

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Speaker 4: the Red Sea and some of the potential shocks that

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Speaker 4: could come from there. But let's hold in politics here.

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Speaker 4: US politics. We're heading towards an election at the end

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Speaker 4: of this year. Donald Trump is polling very strongly. It's

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Speaker 4: a coin toss in terms of what the polling is

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Speaker 4: predicting at the moment of aster, who will be the

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Speaker 4: next president of the United States, where it's to be

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Speaker 4: Biden versus Trump. I know you've got some skin in

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Speaker 4: the game here, but is that going to be the

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Speaker 4: biggest factor here in terms of the way the US

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Speaker 4: markets trade this year? What happens with politics rather than

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Speaker 4: what happens with the FED.

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Speaker 2: That will certainly be a big factor. As you look back, historically,

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Speaker 2: election years have generally been positive years for the market

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Speaker 2: because the FED tends not to try to make sharp

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Speaker 2: moves during those years in support of one that would

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Speaker 2: be viewed as support of one or the other candidates.

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Speaker 2: And you know, fiscal policy tends to be on glidpath

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Speaker 2: during election years as well.

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Speaker 3: So I think the election it's certainly a factor.

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Speaker 2: You know, I'm a lifelong Democrat, but way down the

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Speaker 2: list of things that concern me about Donald Trump or

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Speaker 2: that he's a Republican, I'm concerned that, you know, way

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Speaker 2: before I'm a Democrat, I'm an American, and I believe

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Speaker 2: in our institutions, and I'm shocked in appalled that we

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Speaker 2: have a candidate representing one of the two great parties

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Speaker 2: who doesn't think there was really anything wrong with January sixth,

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Speaker 2: who doesn't really believe in the peaceful transfer of power,

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Speaker 2: who doesn't believe that we should be supporting Ukraine in

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Speaker 2: what I think is an existential battle for the the

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Speaker 2: democratic West. And I think those things are in my view,

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Speaker 2: terribly threatening to our democratic institutions and to our role in.

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Speaker 1: The world, and for market participants, impossible to price what yeah,

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Speaker 1: I mean, you can't hedge that kind of that kind

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Speaker 1: of risk. It does those seem that no matter who

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Speaker 1: is in the White House, we will see more spending.

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Speaker 1: It's a matter of where the spending may be. And

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Speaker 1: with Trump, they'll be tax cuts in a particular way. Well,

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Speaker 1: how do you think that that winds up playing out

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Speaker 1: over the medium term, like there is no cap to

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Speaker 1: spending anymore at all.

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Speaker 2: Well, I think we have a we have a spending

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Speaker 2: and a taxing problem both. If you look at the

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Speaker 2: percentage of the GDP that is US government spending, it

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Speaker 2: has gone up a little bit, not a lot, and

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Speaker 2: it has gone up a lot less than the percentage

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Speaker 2: of GDP that goes to federal tax receipts. So we

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Speaker 2: have a serious deficit problem in this country. We have

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Speaker 2: a serious fiscal imbalance, and at some point that is

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Speaker 2: going to come home to roost, and it's going to

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Speaker 2: come home to roost in a pretty ugly and unexpected

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Speaker 2: way in my humble opinion. But the you know, the

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Speaker 2: solution to that is, you know, unfortunately we have a

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Speaker 2: Republican party that doesn't really act with much fiscal restraint

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Speaker 2: and cuts taxes all the time in a Democratic party

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Speaker 2: that certainly doesn't act with much fiscal restraint, and it

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Speaker 2: is fearful of reversing the tax cuts that Republicans have

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Speaker 2: made because they're very popular.

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Speaker 3: So we're not in a great spot.

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Speaker 4: Do you think you can get Does Liz Trust have

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Speaker 4: a lesson to teach America?

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Speaker 2: Yes, you can't have a policy that's not in some

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Speaker 2: way moored to the general economy of your country in

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Speaker 2: the world.

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Speaker 3: That's a that's a pretty good lesson for.

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Speaker 1: You just basically need a lot of like one big

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Speaker 1: pension fund in one part of the market to move it.

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Speaker 1: Because you can make that argument. We've seen that lots

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Speaker 1: of times, and it hasn't had the same kind of

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Speaker 1: effect like we saw with less Trust last.

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Speaker 4: Year, but I think could at some point at some point, Ralph,

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Speaker 4: does the bone market say enough, at some point you

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Speaker 4: can't keep doing this?

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Speaker 3: Yeah, I don't.

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Speaker 2: I'm not predicting that's going to happen this year or

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Speaker 2: next year, but if we continue on the path that

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Speaker 2: we're on right now, at some point there is going

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Speaker 2: to have to be a major, major adjustment in our

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Speaker 2: fiscal policy, and that will most likely be precipitated by

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Speaker 2: the bond market, because the bond market actually tends to

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Speaker 2: discount future problems or issue is more quickly than the

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Speaker 2: stock market does.

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Speaker 1: We only have about a minute, but I'd love to

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Speaker 1: get your take on where China goes here, because no

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Speaker 1: matter who's in the White House, it feels like the

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Speaker 1: decoupling de risking will not go away.

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Speaker 3: I think the.

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Speaker 2: First of all, I don't think you can blame the

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Speaker 2: decoupling and de risking primarily even on the United States

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Speaker 2: or the West. There's been a pretty dramatic shift in

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Speaker 2: the leadership of China and their attitude toward free and

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Speaker 2: open trade, joining the world order. And you see this

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Speaker 2: if you talk to one hundred companies that have global

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Speaker 2: businesses and have businesses in China, they'll all tell you

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Speaker 2: it's somewhat different.

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Speaker 3: And so.

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Speaker 2: Some of what we're experiencing in the United States in

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Speaker 2: the West is a reaction to that, and some of

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Speaker 2: that is, you know, just pure politics in the sense

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Speaker 2: that you would have to search really long and hard

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Speaker 2: to find any meaningful leader in either party who wants

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Speaker 2: to stand up and say, you know, we really need

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Speaker 2: to reverse course on China.

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Speaker 3: And get closer.

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Speaker 4: Ralph Philosphy. Years, Alex and I have really appreciated your

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Speaker 4: time and your wisdom. Thank you very much, indeed for today,

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Speaker 4: thank you very much, indeed for all the other appearances

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Speaker 4: as well. Praephlostan