WEBVTT - Ralph Schlosstein Talks M&A Outlook After Midterms 0:00:02.520 --> 0:00:04.210 Bloomberg Audio Studios. 0:00:04.690 --> 0:00:06.210 Podcasts. Radio. 0:00:06.650 --> 0:00:09.780 News. Pleased to say that joining the show now is 0:00:09.960 --> 0:00:14.020 Evercourt Chairman Emeritus Ralph Schlossstein. He is also the co-founder 0:00:14.040 --> 0:00:17.400 of BlackRock and former Deputy Assistant Secretary of the Treasury 0:00:17.800 --> 0:00:20.189 in the Carter administration. Ralph, no one we'd rather talk 0:00:20.210 --> 0:00:22.850 with this morning. You're an entrepreneur, you're a business person, 0:00:22.870 --> 0:00:26.329 you've had experience in government too. You have constant conversations 0:00:26.370 --> 0:00:29.630 with CEOs. For CEOs who are waking up in America 0:00:29.690 --> 0:00:32.699 today following a blue wave, what if anything changes for them? 0:00:33.710 --> 0:00:36.680 I think a number of things. Number one, I think 0:00:36.760 --> 0:00:42.420 the vote last night was a vote for centrism, a 0:00:42.479 --> 0:00:46.930 vote for checks and balances, a vote for a less 0:00:47.290 --> 0:00:54.100 volatile world, and obviously a vote for paying attention to 0:00:54.140 --> 0:00:57.380 the needs of of the vast majority of American people 0:00:57.420 --> 0:01:01.260 who are, in their minds and in reality, paying too 0:01:01.320 --> 0:01:06.119 much for their lives. For the CEOs, I think number one, 0:01:06.440 --> 0:01:10.330 it bodes for a pretty good economy. I really believe that. 0:01:11.890 --> 0:01:16.990 And historically, if you look at divided government, Congress being 0:01:17.030 --> 0:01:20.490 in one party's hand, the presidency in another. Those have 0:01:20.510 --> 0:01:25.670 been periods of some compromise, economic growth, and good for markets. 0:01:26.310 --> 0:01:30.100 And one other thing, if you're sitting there, and this 0:01:30.220 --> 0:01:35.340 affects obviously Evercore's business particularly, If you're sitting there thinking 0:01:35.420 --> 0:01:38.990 about that big strategic deal that you want to do, 0:01:39.930 --> 0:01:45.110 I think it's reasonable to conclude that the regulatory environment 0:01:45.150 --> 0:01:47.369 will be a little more receptive over the next two 0:01:47.390 --> 0:01:50.630 years than it might be after that. 0:01:51.030 --> 0:01:53.110 So then how do you think this current political environment 0:01:53.130 --> 0:01:56.510 could change where global capital flows and how companies invest them? 0:01:57.610 --> 0:01:58.110 I think the. 0:02:01.580 --> 0:02:06.420 Global capital flows will continue to go to America. We 0:02:06.460 --> 0:02:10.280 have the single, we have the strongest capital markets, the 0:02:10.320 --> 0:02:17.030 most liquid capital markets. We have the greatest creative entrepreneurship 0:02:17.120 --> 0:02:20.690 in the world, by far. You know, I wouldn't trade 0:02:21.350 --> 0:02:26.829 America's hand with any country or continent. 0:02:28.169 --> 0:02:31.889 Today. and it's still a country with incredible growth, too. 0:02:32.050 --> 0:02:34.280 We see that in all the figures. This idea, Ralph, 0:02:34.310 --> 0:02:38.440 that this was a vote for moderation, for a more 0:02:38.520 --> 0:02:41.579 centric government, I just wonder how that also squares, though, 0:02:41.600 --> 0:02:44.500 with this big pull from the left, with very far 0:02:44.580 --> 0:02:50.260 left candidates upsetting in the primaries, winning their elections last night. 0:02:50.560 --> 0:02:52.540 Does that sort of change the dynamic, at least for 0:02:52.580 --> 0:02:55.540 those coming in, and just how center this current Democratic 0:02:55.590 --> 0:02:56.130 Party looks? 0:02:56.169 --> 0:03:00.429 Well, I would say that in reality, they get a 0:03:00.450 --> 0:03:04.850 lot of publicity, but they're a very small minority of 0:03:04.930 --> 0:03:10.710 the Democratic caucus in the House and in the Senate. 0:03:10.750 --> 0:03:16.000 We have exactly... one Democratic senator who ran with a 0:03:16.300 --> 0:03:21.570 somewhat more left than I would be comfortable with. And 0:03:21.590 --> 0:03:22.850 so that's out of 54 or 55 or 56. In 0:03:22.870 --> 0:03:24.850 the House, I think you have 12 or 15 senators 0:03:30.330 --> 0:03:32.420 It looks like there are going to be somewhere on 0:03:32.440 --> 0:03:37.500 the order of 250 Democratic House members. So you've got 0:03:38.420 --> 0:03:43.500 literally somewhere between five, six, seven percent of the caucus. 0:03:43.620 --> 0:03:49.330 And very importantly, Hakeem Jeffries, who will be the new speaker, 0:03:50.380 --> 0:03:54.340 can actually get the majority of his caucus to go 0:03:54.380 --> 0:03:57.660 for something without any of those members. So I think 0:03:58.040 --> 0:04:03.600 the size of the victory in the House gives Speaker 0:04:03.640 --> 0:04:07.560 Jeffries a lot of flexibility that he might not have 0:04:07.600 --> 0:04:11.680 otherwise hoped for, and certainly more than Speaker Johnson had 0:04:12.060 --> 0:04:14.120 in the previous Congress. 0:04:14.560 --> 0:04:16.530 Do you think the results we saw overnight is a 0:04:16.550 --> 0:04:17.810 preview of what 2028 could look like? 0:04:19.250 --> 0:04:23.350 Well, I think the Democrats in the Congress have a 0:04:24.500 --> 0:04:30.799 really important decision to make. There are two temptations. The first, 0:04:31.000 --> 0:04:36.200 which I very strongly support, is put on your policy hats, 0:04:36.940 --> 0:04:41.600 pass legislation that's important and relevant to the things that 0:04:42.040 --> 0:04:49.620 the American people care about. Energy prices, food prices. housing availability, 0:04:49.820 --> 0:04:55.600 health care availability. And the president may compromise on some 0:04:55.620 --> 0:04:59.480 of those. He may veto some of those. But I 0:04:59.540 --> 0:05:03.560 am a democratically inclined business person. That's what I hope 0:05:03.600 --> 0:05:09.030 we do. There will be some who are tempted to 0:05:09.630 --> 0:05:17.039 have a little bit of a more investigative approach persecution-oriented, 0:05:18.920 --> 0:05:21.440 because obviously we've seen a period of time when the 0:05:21.500 --> 0:05:26.570 Justice Department has been weaponized a bit in the eyes 0:05:26.630 --> 0:05:31.910 of many. And there's a temptation to respond to that 0:05:33.230 --> 0:05:37.190 somewhat in like kind. I truly hope that the Democrats 0:05:37.250 --> 0:05:42.210 in Congress resist that and that they focus on doing 0:05:42.540 --> 0:05:44.280 the right things for the American people. 0:05:44.690 --> 0:05:47.550 When it comes to the fiscal trajectory of this United States, 0:05:47.610 --> 0:05:50.400 it's something you've long spoken out against and you're concerned there. 0:05:50.900 --> 0:05:53.580 That's one of the things that notably wasn't on the ballot, 0:05:53.720 --> 0:05:56.260 deficit spending. Maybe the bond market has fits and starts 0:05:56.330 --> 0:05:58.650 about what it cares. If it cares about that bond 0:05:58.690 --> 0:06:01.890 market notably rallying today. Is there anything that puts a 0:06:01.910 --> 0:06:05.029 brake on this Congress? Again, especially because that was not 0:06:05.310 --> 0:06:07.650 on the ballot. They came in with no one talking 0:06:07.770 --> 0:06:09.430 about deficit spending in the United States. 0:06:09.630 --> 0:06:13.320 Well, if I have a concern about the next couple 0:06:13.339 --> 0:06:18.640 of years, I think our fiscal trajectory is totally unsustainable. 0:06:19.560 --> 0:06:21.690 It will end. I've often said this. It will end. 0:06:22.250 --> 0:06:25.410 When it ends, it will end badly. I just don't 0:06:25.470 --> 0:06:28.470 know what will precipitate that and when it will happen. 0:06:29.470 --> 0:06:33.030 If you look back historically at periods of divided government, 0:06:33.490 --> 0:06:39.300 particularly centered around the fiscal policy and budgets, the method 0:06:39.339 --> 0:06:44.200 of compromise between the Democrats and the Republicans has very 0:06:44.339 --> 0:06:48.779 often been no new taxes for the Republicans and some 0:06:49.240 --> 0:06:54.460 more spending for the Democrats. That would obviously exacerbate the 0:06:54.850 --> 0:06:59.589 concern that I already have. I think it's a very 0:06:59.710 --> 0:07:03.750 low probability, but what would be a remarkable thing would 0:07:03.790 --> 0:07:07.370 be if we actually had something along the lines of, 0:07:09.190 --> 0:07:11.380 I don't think you could do a real Simpson-Bowles, but 0:07:11.440 --> 0:07:15.280 a mini Simpson-Bowles where there's an acknowledgement on both sides 0:07:15.340 --> 0:07:19.500 of the aisle that we have to start bending the 0:07:19.560 --> 0:07:20.800 curve on our fiscal trajectory. 0:07:20.820 --> 0:07:22.460 Do you think the bond market could force markets to 0:07:22.480 --> 0:07:24.880 do that? Again, notably not reacting today, but it has 0:07:24.940 --> 0:07:27.390 this year had past episodes that has gotten the attention 0:07:27.410 --> 0:07:27.990 of this government. 0:07:28.190 --> 0:07:32.650 Yeah, I ultimately believe it will be the bond market 0:07:33.210 --> 0:07:36.440 that is the trigger but it will be something else 0:07:36.460 --> 0:07:38.990 that triggers the bond market. It won't be the bond 0:07:39.030 --> 0:07:39.650 market alone. 0:07:39.850 --> 0:07:41.690 You were getting into this before. Part of the reason 0:07:41.710 --> 0:07:43.870 that a lot of corporate America has said we are 0:07:43.930 --> 0:07:45.630 going all out with M & A is because it's 0:07:45.670 --> 0:07:48.690 a more friendly regulatory environment. You were saying that you 0:07:48.730 --> 0:07:52.330 expect companies, basically, they're now having a two-year ticking clock. 0:07:52.390 --> 0:07:54.090 Is that fair to say that we don't know what's 0:07:54.110 --> 0:07:56.850 going to happen in 2028? This is still favorable. Let's 0:07:56.870 --> 0:07:57.530 get deals done. 0:07:57.650 --> 0:07:59.330 Yeah, I think you have to look at the fact 0:07:59.390 --> 0:08:05.110 that a huge amount of what business deals with is 0:08:05.190 --> 0:08:10.440 not adjudicated in the legislative world. It's adjudicated in the 0:08:10.980 --> 0:08:15.480 regulatory world, which is controlled by the executive branch. So 0:08:16.660 --> 0:08:19.260 if you look, if you're sitting here today as a 0:08:19.300 --> 0:08:23.370 business person, you're going to say, well, the political world 0:08:23.640 --> 0:08:28.410 has gone a fair amount more democratic, which traditionally has 0:08:28.650 --> 0:08:33.959 involved more regulation, more antitrust oversight. But the executive world 0:08:34.540 --> 0:08:40.120 still has two years to go. And I basically, even 0:08:40.160 --> 0:08:43.980 before this, nobody would have anticipated the degree of the 0:08:45.059 --> 0:08:49.719 blue victory here. But even before that, and it's not 0:08:49.820 --> 0:08:52.540 clear to me that this changes what I said earlier, 0:08:52.610 --> 0:08:55.280 which is if you look at what Trump has done 0:08:55.350 --> 0:08:59.450 in his first two years, there's only one piece of 0:08:59.550 --> 0:09:03.569 meaningful legislation, the big, beautiful bill. Everything else he has 0:09:03.630 --> 0:09:08.280 done by executive order, by fiat, and the really only 0:09:08.360 --> 0:09:12.360 check and balance on him has been the courts. And 0:09:12.400 --> 0:09:14.680 in some cases, he's ignored that. 0:09:14.860 --> 0:09:17.420 What do you then make of the incoming overhouse committee 0:09:17.440 --> 0:09:20.870 chairman saying two words, lawyer up? I mean, for companies, 0:09:20.929 --> 0:09:23.530 is this just more investigations, especially Trump-aligned ones? 0:09:24.370 --> 0:09:27.330 In the world I live in, that's a very disappointing statement. 0:09:27.350 --> 0:09:30.010 Do you want to say anything more about that, Ralph, 0:09:30.110 --> 0:09:31.240 or do you want to just leave that there? 0:09:31.890 --> 0:09:33.970 You know, I think disappointing is a very strong word. 0:09:33.980 --> 0:09:35.840 Okay, it is a very strong word. Okay, but not 0:09:35.880 --> 0:09:38.060 just that, because again, this idea that you get pushback. 0:09:38.420 --> 0:09:40.240 The states have been quite active as well. I mean, 0:09:40.280 --> 0:09:42.380 all you need to look at is the Paramount deal 0:09:42.440 --> 0:09:45.959 and what California did. Excuse me, considering some of the 0:09:46.000 --> 0:09:49.040 local elections, do you expect states also to continue to 0:09:49.100 --> 0:09:51.330 push back against various deals that get done? 0:09:51.650 --> 0:09:58.089 Well, in these areas, states have de minimis standing in reality. 0:09:58.610 --> 0:09:58.730 And. 0:09:58.760 --> 0:09:58.880 you. 0:10:00.820 --> 0:10:04.400 Know, I think I was not involved in the Paramount 0:10:04.740 --> 0:10:11.760 discussions or the transaction. But my guess is that Paramount, 0:10:12.140 --> 0:10:15.910 even though they probably would have won in court, made 0:10:15.950 --> 0:10:18.190 a decision. We want to get on with this and 0:10:18.230 --> 0:10:21.839 let's make a, you know, a set of milk, which 0:10:21.880 --> 0:10:25.920 was of modest proportions. And that California probably agreed to 0:10:25.960 --> 0:10:29.179 that because they knew their legal case was not as 0:10:29.240 --> 0:10:32.400 strong as they would want. So I don't, you know, 0:10:33.240 --> 0:10:36.109 in a lot of areas, the states and the localities 0:10:36.670 --> 0:10:42.490 have huge influence, including over elections, but in antitrust, not really. 0:10:43.170 --> 0:10:45.050 If we choose to stay local, let's go to Texas, 0:10:45.090 --> 0:10:48.010 because that saw the first Democratic win since 1990s, and 0:10:48.030 --> 0:10:50.390 Bloomberg Invest had a conference there. Danny was the headline 0:10:50.770 --> 0:10:54.480 for much of that. And entangled with Texas is data centers, 0:10:54.540 --> 0:10:56.420 and roughly a third of the data centers that are 0:10:56.460 --> 0:10:58.660 set to be built are in Texas. What do you 0:10:58.700 --> 0:10:59.980 make of that? Do you think that we will see 0:11:00.000 --> 0:11:01.020 more roadblocks ahead? 0:11:01.429 --> 0:11:02.890 I don't think this is going to be a black 0:11:02.950 --> 0:11:06.750 or white thing. I mean, I think, you know, AI 0:11:06.840 --> 0:11:10.860 is the single biggest thing that's happened in my business lifetime. 0:11:12.020 --> 0:11:19.570 It's incredibly important to America's competitiveness, and we're not going 0:11:19.590 --> 0:11:25.390 to stop progress. I do think things will slow, but 0:11:25.550 --> 0:11:30.390 even in the Democratic leaders, I mean, you look at 0:11:30.429 --> 0:11:35.180 Josh Shapiro, for example, in Pennsylvania, His position is let's 0:11:35.420 --> 0:11:39.620 have them slow down, but I'm not against them as 0:11:39.700 --> 0:11:44.240 long as they don't cause higher utility bills and higher 0:11:44.300 --> 0:11:49.620 taxes for the localities. So the position I think that 0:11:49.679 --> 0:11:54.270 the Democratic Party, leaders will ultimately come to is not, 0:11:54.290 --> 0:11:57.720 you know, let's go back to the railroad ball, you know, 0:11:57.780 --> 0:12:02.020 to ball bearings, but let's have progress, but let's have 0:12:02.080 --> 0:12:08.520 progress that doesn't hurt the less well-off and less able 0:12:08.580 --> 0:12:10.840 to defend themselves, people in our society. 0:12:11.820 --> 0:12:15.520 While slowing down doesn't derail AI progress, it certainly has 0:12:15.620 --> 0:12:18.420 in past instances, and certainly today injected fear into markets, 0:12:18.490 --> 0:12:21.670 core weave, all the data center plays down quite significantly. 0:12:22.590 --> 0:12:25.370 Is this slowly becoming, or maybe quickly becoming, a less 0:12:25.410 --> 0:12:28.329 favorable environment for Anthropic to IPO into? 0:12:28.350 --> 0:12:32.089 Well, I think you look at what stocks are doing today, 0:12:32.370 --> 0:12:34.230 you couldn't say that's an unfavorable environment. 0:12:34.670 --> 0:12:36.390 Sorry, I'm always looking for the doom and gloom. I'm 0:12:36.470 --> 0:12:38.790 a skeptical journalist, Ralph, but please continue. 0:12:39.510 --> 0:12:46.110 And look, Anthropic is a fantastic company. And, you know, 0:12:46.350 --> 0:12:53.580 I hearken back to the 1999-2000 2001 period when we 0:12:53.620 --> 0:12:56.969 had a much more of a bubble than we have 0:12:57.050 --> 0:13:00.689 today and I remember doing an analysis you know I 0:13:00.730 --> 0:13:04.810 was at BlackRock at the time and Cisco which is 0:13:04.850 --> 0:13:09.410 a great company in order to justify the valuation that 0:13:09.470 --> 0:13:14.340 they had they had to capture 150% of the global 0:13:14.600 --> 0:13:19.880 router market that obviously was not going to happen so Clearly, 0:13:19.960 --> 0:13:24.619 there are some companies that have too frothy evaluation. And 0:13:24.660 --> 0:13:28.280 there are some companies who are going to, you know, 0:13:28.600 --> 0:13:30.660 will become the pets.coms of the world. 0:13:30.700 --> 0:13:32.000 Where should we look for the froth? Where do you 0:13:32.020 --> 0:13:32.280 see it? 0:13:32.870 --> 0:13:42.809 You know, right now, almost anything AI attracts some amount 0:13:42.850 --> 0:13:46.559 of money. Not all of these companies are going to. 0:13:48.750 --> 0:13:53.910 Grow into their valuations. But there will be some, 10 0:13:53.910 --> 0:13:56.230 years from now, we're gonna be sitting here staring at 0:13:56.290 --> 0:14:00.950 a several trillion dollar value company that didn't exist 10 0:14:00.950 --> 0:14:01.390 years ago. 0:14:01.410 --> 0:14:03.970 And earlier you said that there's no place you'd invest 0:14:04.030 --> 0:14:05.840 in other than America, and I'm sure many would agree. 0:14:05.929 --> 0:14:07.679 I didn't say no place, I said it's the best. 0:14:07.840 --> 0:14:10.660 Best place, yeah, distinct difference. So let's take a best place. 0:14:11.160 --> 0:14:13.839 Do you think that investors should prepare for higher corporate 0:14:13.880 --> 0:14:19.390 taxes and also more regulation? under this new administration? 0:14:20.170 --> 0:14:24.480 That is certainly a possibility two years from now. And 0:14:25.540 --> 0:14:34.220 I remember in 2016, I was in Paris election night, 0:14:35.000 --> 0:14:37.400 and I was awakened at five in the morning by 0:14:37.420 --> 0:14:42.250 Ed Hyman, who was the head economist at Evercore ISI 0:14:42.290 --> 0:14:45.050 at the time, and he was in Japan And he said, 0:14:45.070 --> 0:14:47.630 I have to speak to a bunch of institutional investors 0:14:49.010 --> 0:14:51.330 in an hour. What should I say? And at that time, 0:14:51.390 --> 0:14:55.890 the S & P was down 100 points, 5%. And 0:14:55.910 --> 0:14:59.390 I said, Ed, I just woke up. But if you 0:14:59.410 --> 0:15:02.270 want to be provocative, here's what I would say if 0:15:02.350 --> 0:15:07.130 I were delivering that speech. I would say that by 0:15:07.170 --> 0:15:09.950 the time the New York Stock Exchange closes at 4 0:15:09.950 --> 0:15:15.040 o'clock in New York, stocks will be up. And he said, really? 0:15:15.160 --> 0:15:16.840 Why are you saying that? And I said, well, because 0:15:17.320 --> 0:15:19.580 we're going to have lower corporate taxes, we're going to 0:15:19.620 --> 0:15:22.380 have a stimulative fiscal policy, and we're going to have 0:15:22.420 --> 0:15:25.620 lower regulation. Those things are very good for stocks, and 0:15:25.660 --> 0:15:29.780 people will quickly realize that. Last night at 1 o'clock, 0:15:30.300 --> 0:15:34.130 I switched very briefly from CNN to Bloomberg and saw 0:15:34.190 --> 0:15:36.910 the S & P was down 30 points. And I said, gee, 0:15:36.950 --> 0:15:39.710 I wish I was on the show right now so 0:15:39.740 --> 0:15:41.160 I could say that stocks will be up. 0:15:41.380 --> 0:15:43.180 Next time you call in, I'm going to give you 0:15:43.220 --> 0:15:44.980 my phone number after this because I was there. You 0:15:45.000 --> 0:15:46.240 should have called me and told me this. Ralph, thank 0:15:46.260 --> 0:15:49.020 you so much for joining. Great to see you. Ralph Schlossstein, 0:15:49.400 --> 0:15:53.290 Evercore Chairman Emeritus and BlackRock co-founder. This is Bloomberg.