1
00:00:00,000 --> 00:00:02,120
Speaker 1: All right, let's get right to our first guest, kicking

2
00:00:02,240 --> 00:00:04,800
Speaker 1: us off to the close. A wealth of experience, of course,

3
00:00:05,160 --> 00:00:07,240
Speaker 1: from his days at the Treasury Apartment, to Leman, to

4
00:00:07,360 --> 00:00:10,280
Speaker 1: co founding black Rock and then of course shepherding Evercore

5
00:00:10,360 --> 00:00:13,080
Speaker 1: for more than a decade. Ralph Schastein joining us right now,

6
00:00:13,200 --> 00:00:16,239
Speaker 1: Chairman emeritus of Evercore, please to have you on the

7
00:00:16,239 --> 00:00:18,320
Speaker 1: show here, Ralph, on a day where I think everyone

8
00:00:18,440 --> 00:00:20,920
Speaker 1: was hoping to get a little bit more insight into

9
00:00:21,280 --> 00:00:23,959
Speaker 1: economic conditions and fight against inflation and whether the Fed

10
00:00:24,400 --> 00:00:27,240
Speaker 1: really has any real case here to keep to remain

11
00:00:27,280 --> 00:00:28,120
Speaker 1: on pause.

12
00:00:28,240 --> 00:00:33,600
Speaker 2: Well, I think we got a big non surprise today

13
00:00:33,640 --> 00:00:37,920
Speaker 2: which left everybody uncertain. But I think the real issue

14
00:00:37,960 --> 00:00:41,680
Speaker 2: here is, honestly, in my view, I don't believe that

15
00:00:41,760 --> 00:00:45,919
Speaker 2: another twenty five basis points of hike, or the lack thereof,

16
00:00:46,440 --> 00:00:48,920
Speaker 2: will have really that much effect on the direction of

17
00:00:48,960 --> 00:00:51,400
Speaker 2: the real economy. The real question I think that we

18
00:00:51,479 --> 00:00:56,640
Speaker 2: all have to ask is what effect will the five

19
00:00:56,720 --> 00:01:00,360
Speaker 2: hundred basis points of hiking that we've already had have

20
00:01:00,440 --> 00:01:03,520
Speaker 2: on the real economy, And that of course will ultimately

21
00:01:03,560 --> 00:01:05,759
Speaker 2: affect the direction of the markets themselves.

22
00:01:06,560 --> 00:01:09,200
Speaker 1: How in sync are the markets right now with the

23
00:01:09,240 --> 00:01:11,880
Speaker 1: real economy. There's always sort of that catchphrase. You always

24
00:01:11,880 --> 00:01:14,040
Speaker 1: hear people saying that the market is not the economy

25
00:01:14,080 --> 00:01:16,640
Speaker 1: and vice versa. But what is the correlation, at least

26
00:01:16,680 --> 00:01:17,839
Speaker 1: from an investor's.

27
00:01:17,360 --> 00:01:22,920
Speaker 2: Perspective, Well, the markets are discounting or expecting a soft landing.

28
00:01:23,480 --> 00:01:25,920
Speaker 2: If you look at what's happened this year, we've had

29
00:01:25,920 --> 00:01:31,240
Speaker 2: a very strong rally in equity markets. However, earnings are flat.

30
00:01:32,200 --> 00:01:35,120
Speaker 2: So what that means is essentially all of the gains

31
00:01:35,160 --> 00:01:39,119
Speaker 2: that we've had this year are coming from multiple expansion,

32
00:01:40,200 --> 00:01:45,680
Speaker 2: and that's effectively anticipating that earnings will rebound later this

33
00:01:45,800 --> 00:01:50,680
Speaker 2: year and earlier early next year, which can only happen

34
00:01:50,800 --> 00:01:56,560
Speaker 2: if we have a soft landing for the market to

35
00:01:56,640 --> 00:02:00,240
Speaker 2: stay where it is much less to rally more. We

36
00:02:00,280 --> 00:02:03,720
Speaker 2: really need that soft landing and a rebound in corporate

37
00:02:03,760 --> 00:02:06,600
Speaker 2: earnings to justify the multiples that we have right now.

38
00:02:07,160 --> 00:02:09,920
Speaker 3: Yeah, well, it's a real head squatcher. We're not seeing

39
00:02:10,000 --> 00:02:12,640
Speaker 3: a whole lot of slack in the labor market, not

40
00:02:12,639 --> 00:02:14,320
Speaker 3: seeing very much at all, in fact, and we are

41
00:02:14,360 --> 00:02:17,560
Speaker 3: seeing inflation picking up again. Now, how if at all,

42
00:02:17,760 --> 00:02:20,519
Speaker 3: does that turn into rate cuts of any kind next year?

43
00:02:21,919 --> 00:02:24,760
Speaker 2: Well, I'm not sure that it does. To be honest,

44
00:02:25,320 --> 00:02:31,720
Speaker 2: I think that we have two powerful effects, which some

45
00:02:31,800 --> 00:02:34,960
Speaker 2: of which are pushing against each other in the economy

46
00:02:35,040 --> 00:02:38,200
Speaker 2: right now. One is the powerful effect of five hundred

47
00:02:38,200 --> 00:02:43,799
Speaker 2: plus basis points of FED increases in the FED funds rate,

48
00:02:43,880 --> 00:02:47,520
Speaker 2: which obviously will have a slowing effect on the economy,

49
00:02:47,560 --> 00:02:53,320
Speaker 2: but a significant lag. The other effect is the remaining

50
00:02:53,360 --> 00:02:57,280
Speaker 2: effect of the stimulus that was passed to offset COVID,

51
00:02:58,000 --> 00:03:03,800
Speaker 2: which has been spent slowly by consumers, not immediately, so

52
00:03:03,960 --> 00:03:07,560
Speaker 2: that has been mitigating somewhat what otherwise would have been

53
00:03:07,560 --> 00:03:12,320
Speaker 2: a more powerful effect of the FED rate increases. At

54
00:03:12,320 --> 00:03:18,200
Speaker 2: some point, the stimulative effect of that stimulus package will

55
00:03:18,280 --> 00:03:20,840
Speaker 2: run out, and I think there's some risk that when

56
00:03:20,880 --> 00:03:25,760
Speaker 2: that happens, we'll see a more immediate and perhaps more

57
00:03:26,240 --> 00:03:28,560
Speaker 2: significant effect from the FED tightening.

58
00:03:29,280 --> 00:03:33,200
Speaker 3: Well, what's your outlook for M and A activity and

59
00:03:33,320 --> 00:03:35,560
Speaker 3: just capital market activity in general. I'm thinking of the

60
00:03:35,640 --> 00:03:38,320
Speaker 3: rm IPO, for example, which should take place this week,

61
00:03:38,360 --> 00:03:40,200
Speaker 3: and also the idea that there might be still a

62
00:03:40,200 --> 00:03:43,520
Speaker 3: little bit of problem in the banking industry. We're seeing

63
00:03:43,600 --> 00:03:46,320
Speaker 3: the regional sell off of it today.

64
00:03:46,480 --> 00:03:52,760
Speaker 2: I think we're seeing green shoots and not immaterial green

65
00:03:52,800 --> 00:03:58,200
Speaker 2: shoots in both the capital markets, the arm offering, Instacart, etc.

66
00:03:58,640 --> 00:04:03,480
Speaker 2: We're seeing some real meaningful IPOs coming back, and we're

67
00:04:03,520 --> 00:04:09,480
Speaker 2: also seeing a real pickup in dialogue both between strategics

68
00:04:10,600 --> 00:04:13,920
Speaker 2: and on the part of private equity in the M

69
00:04:13,960 --> 00:04:19,520
Speaker 2: and A markets. The impact of in the capital markets

70
00:04:19,920 --> 00:04:23,000
Speaker 2: will be felt much more immediately because it doesn't take

71
00:04:23,040 --> 00:04:27,560
Speaker 2: that long to gin up an IPO or a secondary offering,

72
00:04:28,560 --> 00:04:33,400
Speaker 2: whereas it takes quite a bit longer for strategic discussions

73
00:04:33,440 --> 00:04:37,080
Speaker 2: to come to fruition, to even announcement, and then of

74
00:04:37,120 --> 00:04:42,520
Speaker 2: course it very often takes several months or quarters before

75
00:04:42,560 --> 00:04:45,760
Speaker 2: they close. So in terms of the impact on the

76
00:04:45,880 --> 00:04:49,760
Speaker 2: revenues of the banking business, the investment banking business, I

77
00:04:49,760 --> 00:04:53,559
Speaker 2: think you'll see the pickup in equity markets and debt

78
00:04:53,600 --> 00:04:57,039
Speaker 2: markets starting to be felt even in the third quarter

79
00:04:57,040 --> 00:04:59,320
Speaker 2: and certainly in the fourth quarter, and M and A

80
00:04:59,480 --> 00:05:02,640
Speaker 2: probably more reasonably early next year.

81
00:05:02,960 --> 00:05:05,599
Speaker 1: All Right, folks who are really trying to guide themselves

82
00:05:05,600 --> 00:05:07,560
Speaker 1: through I guess for a lot of folks a very

83
00:05:07,560 --> 00:05:10,479
Speaker 1: difficult market cycle. Ralph, You've seen several market cycles, and

84
00:05:10,480 --> 00:05:13,480
Speaker 1: we really appreciate you taking time for us. Ralph, Swochstein.

85
00:05:13,560 --> 00:05:16,040
Speaker 1: There evercore chairman's emeritus