WEBVTT - Bloomberg Wall Street Week - January 26th, 2024 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 And we may not have an overall recession, we're having 0:00:04.400 --> 0:00:06.760 a rolling recession. Econm of roll looks pretty strongly. It 0:00:06.800 --> 0:00:07.640 is when it comes to jobs. 0:00:07.720 --> 0:00:09.840 The financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.440 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.000 generative AI. 0:00:16.920 --> 0:00:19.320 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 0:00:22.560 --> 0:00:25.279 Debro Lair of the Paulson Institute, well then Hubbard of 0:00:25.280 --> 0:00:26.280 the Columbia Business School. 0:00:26.280 --> 0:00:31.000 Bloomberg Wall Street Week with David Weston from Bloomberg Radio Momentum. 0:00:31.360 --> 0:00:34.320 Donald Trump has it, Netflix has it, US economy has it, 0:00:34.560 --> 0:00:36.920 and China is trying to get it back. This is 0:00:36.920 --> 0:00:40.800 Bloomberg Wall Street Week. I'm David Weston. This week former 0:00:40.840 --> 0:00:43.360 Treasury Secretary Bob Rubin on the need to get the 0:00:43.479 --> 0:00:45.160 US fiscal house in order. 0:00:45.360 --> 0:00:48.360 Once you get to legislating, there isn't the will. There's 0:00:48.400 --> 0:00:52.520 a lot of talk, but the talk is always divided politically. 0:00:52.720 --> 0:00:55.800 We're him a POORI of HPS Investment Partners on private 0:00:55.840 --> 0:00:58.840 credit trees growing to the sky, and Charmine most of 0:00:58.880 --> 0:01:15.640 our rock money investing into a rising market. Golal Wall 0:01:15.640 --> 0:01:19.000 Street saw some impressive performances this week, as former President 0:01:19.000 --> 0:01:22.600 Trump continued his march to the Republican presidential nomination with 0:01:22.680 --> 0:01:26.040 a big win in New Hampshire, even as his remaining rival, 0:01:26.160 --> 0:01:29.120 former UN investor Nikki Haley, said, not so fast. 0:01:29.880 --> 0:01:32.320 This race is far from over. 0:01:32.480 --> 0:01:35.000 There are dozens of states. 0:01:34.560 --> 0:01:35.240 Left to go. 0:01:35.840 --> 0:01:39.360 Netflix showed that not all streaming businesses are troubled as 0:01:39.360 --> 0:01:43.240 it posted big fourth quarter wins on subscribers and on revenue. 0:01:43.360 --> 0:01:46.840 We're really thrilled with our engagement trends domestically, Anglibly, our 0:01:46.920 --> 0:01:50.400 engagement is a bit impacted by our paid sharing. Think 0:01:50.440 --> 0:01:54.440 about it, like fewer households using the same account. So 0:01:54.560 --> 0:01:56.560 as those folks spin off and get their own accounts 0:01:56.560 --> 0:01:59.760 and we win them over with our programming, that will 0:02:00.080 --> 0:02:01.440 normalize and continue to grow. 0:02:01.840 --> 0:02:04.200 Even as the streaming giant moved into the world of 0:02:04.360 --> 0:02:07.680 live entertainment with a big deal with the WWE. 0:02:07.840 --> 0:02:09.880 We're pleased with the deal and we love the fact 0:02:10.120 --> 0:02:12.120 that Netflix was willing to take a bet on us 0:02:12.280 --> 0:02:14.880 for us with raw it was yet another test of 0:02:14.960 --> 0:02:16.600 someone new in the space. 0:02:16.520 --> 0:02:18.560 Obviously an established. 0:02:17.960 --> 0:02:21.520 Streaming entity, the streaming entity, if you will. It was 0:02:21.560 --> 0:02:23.639 a good bet by us, and we think a good 0:02:23.680 --> 0:02:24.239 bet by them. 0:02:24.919 --> 0:02:28.320 China recognized that it needed to get some momentum back 0:02:28.560 --> 0:02:31.440 by cutting its bank reserve requirement ratio in a bid 0:02:31.480 --> 0:02:32.799 to boost its economy. 0:02:33.240 --> 0:02:35.919 There is still a sufficient room for China's monetary policy 0:02:35.960 --> 0:02:37.800 in the next stage, and we will. 0:02:37.639 --> 0:02:40.480 Continue to strike a balance between short term and long term, 0:02:40.639 --> 0:02:42.600 between stable growth and risk prevention. 0:02:42.880 --> 0:02:46.120 But the US economy continued to show its strong momentum 0:02:46.120 --> 0:02:49.959 with surprisingly robust GDP growth numbers for the fourth quarter. 0:02:50.440 --> 0:02:52.919 Well, we got to look at GDP first, because that's 0:02:52.960 --> 0:02:56.360 what everybody has been watching, up by three point three percent, 0:02:56.400 --> 0:02:57.880 a significantly. 0:02:57.280 --> 0:02:59.480 Higher number than anticipated. 0:03:00.760 --> 0:03:03.400 Equity markets spent most of the week marching higher, with 0:03:03.560 --> 0:03:05.359 just a little bit of a sell off on Friday. 0:03:05.520 --> 0:03:07.160 For the week, the S and P five hundred was 0:03:07.200 --> 0:03:10.240 up just over one percent, ending up at forty eight ninety, 0:03:10.320 --> 0:03:13.440 which is only sixty points away from the median consensus 0:03:13.560 --> 0:03:16.160 estimate of the Bloomberg else for the end of the year, 0:03:16.480 --> 0:03:19.440 the NASAC roads just under one percent, and the yield 0:03:19.440 --> 0:03:22.080 on the tenure rose just two basis points, tanned up 0:03:22.080 --> 0:03:25.120 at four point one four. Welcome back now, Sarah Malik, 0:03:25.320 --> 0:03:27.880 CIO of neuven to help us sort all this out. So, Sarah, 0:03:27.880 --> 0:03:29.760 thanks so much for being back with us. I guess 0:03:29.760 --> 0:03:31.760 my question is when it comes to equities, what is 0:03:31.840 --> 0:03:33.880 causing all this momentum? It just keeps coming. 0:03:35.240 --> 0:03:36.400 Good to see you, David Well. 0:03:36.440 --> 0:03:39.320 The January effect is in full force CISPA, and it's 0:03:39.320 --> 0:03:42.120 been driven by the Bellweather technology sector. 0:03:42.160 --> 0:03:44.480 There's been three reasons for the rally. 0:03:44.800 --> 0:03:49.440 First, inflation is moderating, Second, the economy remains surprisingly strong, 0:03:49.680 --> 0:03:52.040 and third, expectation for rate cuts. 0:03:52.240 --> 0:03:53.960 Now, we got two out of points this week that 0:03:54.040 --> 0:03:55.160 support that narrative. 0:03:55.400 --> 0:03:59.000 PCEE, which is the Fed's preferred barometer of inflation, came 0:03:59.040 --> 0:04:03.120 as in naziks expected and GDP blue Pass expectations coming 0:04:03.120 --> 0:04:05.560 in at three point three percent. So where do we 0:04:05.640 --> 0:04:06.320 go from here? 0:04:06.480 --> 0:04:09.040 But we have an FMC meeting next week. I think 0:04:09.040 --> 0:04:11.040 the Fed continues to watch and wake. 0:04:11.320 --> 0:04:13.880 There's no reason for them to start talking about rate 0:04:13.920 --> 0:04:17.039 cuts at this point with the economy so strong and 0:04:17.200 --> 0:04:20.360 also with inflation while it's moderating, I'd like I think 0:04:20.360 --> 0:04:22.480 they'd like to see more of a consistent trend. So 0:04:22.760 --> 0:04:25.719 while when we're going past earning season, with forty percent 0:04:25.760 --> 0:04:28.159 of marketcap reporting next week, I think it's going to 0:04:28.160 --> 0:04:30.360 be tough to find a catalyst after that. S and 0:04:30.440 --> 0:04:34.039 P evaluations that are about a twenty percent premium to average. 0:04:34.080 --> 0:04:36.279 I think that's going to be your headwind going forward, 0:04:36.480 --> 0:04:38.560 and that'll cause the rally to peter out eventually. 0:04:38.800 --> 0:04:41.120 So, Sarah, before we get to what comes after, let's 0:04:41.120 --> 0:04:43.760 talk about next week and tech. You mentioned technology being 0:04:43.760 --> 0:04:45.800 a big driver. We've got some big tech names out 0:04:45.880 --> 0:04:47.440 next week. What are you expecting? 0:04:47.600 --> 0:04:50.000 But it's a high bar for earning season in general, 0:04:50.120 --> 0:04:51.480 where consensus. 0:04:50.920 --> 0:04:53.800 Expects earnings to grow by about five percent, And what 0:04:53.839 --> 0:04:55.840 we're seeing is the haves and the have not. So 0:04:55.880 --> 0:04:58.719 the halves are the companies beating sales and earnings, those 0:04:58.720 --> 0:05:01.680 socks are going up two percent. When that happens to 0:05:01.800 --> 0:05:04.599 have nots companies missing on sales and earnings, they're dropping 0:05:04.600 --> 0:05:08.960 by about five percent. So next week, all the megacap companies, Amazon, Apple, 0:05:09.040 --> 0:05:11.359 Alphabet report, I think they are going to be the 0:05:11.440 --> 0:05:12.760 leaders for Ernie's growth. 0:05:12.920 --> 0:05:13.920 But we prefer. 0:05:13.960 --> 0:05:17.000 Amazon and Alphabet over Apple Apple I think still has 0:05:17.040 --> 0:05:20.279 headwinds while Wee coming back into the market could cause 0:05:20.320 --> 0:05:23.240 them to lose market share, and importantly iPhone it fifty 0:05:23.240 --> 0:05:26.400 percent of their profitability has been normalizing to flat unit 0:05:26.480 --> 0:05:29.360 growth hosts the COVID bump. Also, we're worried about their 0:05:29.400 --> 0:05:33.120 app store and the profitability there given regulations. Now Alphabet 0:05:33.160 --> 0:05:36.880 and Amazon, they're benefiting from a cyclical upturn and advertising. 0:05:37.040 --> 0:05:39.960 Also Amazon finally bearing the fruits of their investments in 0:05:40.000 --> 0:05:41.080 their retail business. 0:05:41.240 --> 0:05:43.760 All of that I think positive for Alphabet and Amazon. 0:05:44.240 --> 0:05:46.719 So what about some of the risks, the downside risks 0:05:46.720 --> 0:05:49.440 for equities and particularly are those expectations about raid cuts. 0:05:49.640 --> 0:05:51.320 I mean, there's been a back and forth between the 0:05:51.320 --> 0:05:53.400 Fed and the markets here about what's coming up. What 0:05:53.520 --> 0:05:55.480 is the risk here that, in fact the markets may 0:05:55.480 --> 0:05:56.400 be disappointed. 0:05:56.800 --> 0:05:59.480 I think that's a good risk that is definitely out there. 0:05:59.600 --> 0:06:02.320 Came in twenty twenty four with the market expecting six 0:06:02.400 --> 0:06:05.320 to seven rate cuts this year starting in March. As 0:06:05.360 --> 0:06:07.400 of today, the March rate cut is now a fifty 0:06:07.400 --> 0:06:10.040 to fifty chance, So we're already starting to push those out. 0:06:10.160 --> 0:06:12.239 I don't think we're going to get six rate cuts 0:06:12.279 --> 0:06:14.360 with the economy functioning so strongly. 0:06:14.640 --> 0:06:16.599 Second risk for the market is valuations. 0:06:16.640 --> 0:06:19.400 We came into this year with SMP valuations at about 0:06:19.440 --> 0:06:21.200 twenty percent above average. 0:06:21.240 --> 0:06:23.159 That's going to be a headwin for the markets. And 0:06:23.240 --> 0:06:24.640 also let's take a look at yields. 0:06:24.720 --> 0:06:27.280 The ten year yield now backing up to about four 0:06:27.320 --> 0:06:28.239 point two percent. 0:06:28.520 --> 0:06:29.840 That's a headwind for equities too. 0:06:29.920 --> 0:06:32.680 So that's why I said host earnings a catalyst for 0:06:32.720 --> 0:06:33.600 the next leg up for. 0:06:33.560 --> 0:06:36.280 Equities to cross five thousand on the SMP is hard 0:06:36.320 --> 0:06:36.719 to find. 0:06:37.040 --> 0:06:38.599 Sarah's always such a treat to have you with us 0:06:38.640 --> 0:06:40.280 on Wall Street Week. Thank you for being here at 0:06:40.320 --> 0:06:44.400 Sarah Mallick of neuvene US Equity has had a pretty 0:06:44.400 --> 0:06:46.600 good run in twenty twenty three, which has led some 0:06:46.680 --> 0:06:49.040 people to think about taking some money off the table 0:06:49.240 --> 0:06:52.240 at those high valuations. For a different view, We welcome 0:06:52.279 --> 0:06:55.159 back now Charmin most of aur Rokwani. She's chief investment 0:06:55.200 --> 0:06:57.560 officer of Goldman Sachs Wealth Manager. Great to have you 0:06:57.600 --> 0:07:00.280 back with the Charmine. So let's look at your out 0:07:01.240 --> 0:07:03.800 your outlook, America powers out. We're going to put the 0:07:03.880 --> 0:07:05.359 image up for those who can see it on the 0:07:05.360 --> 0:07:09.039 screen nineteen fifty nine Cadillac one of my favorite cars 0:07:09.040 --> 0:07:11.360 of all time. So give us your sense about why 0:07:11.440 --> 0:07:15.000 you think, boy, it's time to stay with US equities. 0:07:14.640 --> 0:07:18.200 First and foremost. Our view of US pre eminence is intact, 0:07:18.440 --> 0:07:20.760 and that's why we chose that car. It is such 0:07:20.800 --> 0:07:23.720 an American looking car. It's so clear it can't be 0:07:23.760 --> 0:07:26.960 confused with cars from any other place. It also shows 0:07:27.360 --> 0:07:31.080 that America's been pre eminent for quite some time. We 0:07:31.160 --> 0:07:34.560 have a great quote from Bruce Springinstein's song Pink Cadillac 0:07:34.640 --> 0:07:38.760 there where people are saying, oh, after the global financial crisis, 0:07:38.800 --> 0:07:42.280 this was the end of the American century and if 0:07:42.280 --> 0:07:44.720 the century belonged to China. And our view is actually no, 0:07:45.200 --> 0:07:48.119 US pre eminence is going to continue for the long run, 0:07:48.560 --> 0:07:50.880 and that's driven by a number of factoris. But that 0:07:50.920 --> 0:07:55.120 results in great earnings per share growth, very consistent, persistent, 0:07:55.200 --> 0:07:57.679 reliable growth, and that's why one should stay invested. 0:07:57.920 --> 0:08:00.560 So if you look backwards, which you do in your outlook, 0:08:00.680 --> 0:08:03.160 actually you have remarkable numbers. If you take one hundred 0:08:03.160 --> 0:08:05.320 million dollars you correct me if I'm wrong here, back 0:08:05.360 --> 0:08:07.440 in two thousand and nine, it would be worth just 0:08:07.520 --> 0:08:11.320 under a billion dollars today invested in US docs as 0:08:11.360 --> 0:08:16.360 opposed to if you took a developed markets equities non US, 0:08:16.760 --> 0:08:20.400 it would be four hundred million, I believe, and if 0:08:20.400 --> 0:08:22.960 you did it in developing markets it'd be three hundred 0:08:22.960 --> 0:08:25.400 and eighteen. China two hundred and twenty nine million as 0:08:25.400 --> 0:08:28.239 opposed to just under a billion dollars. That's a pretty 0:08:28.240 --> 0:08:29.280 extraordinary performance. 0:08:29.960 --> 0:08:32.920 When we show these numbers to our clients, they are 0:08:33.040 --> 0:08:36.400 so surprised because, as you say, one hundred million would 0:08:36.480 --> 0:08:40.040 be just under a billion dollars just in US equities 0:08:40.080 --> 0:08:42.520 and not even a quarter of that in China. And 0:08:42.559 --> 0:08:45.040 for everybody who thinks of China's growth rate, it goes 0:08:45.080 --> 0:08:49.679 to show that economic growth alone doesn't drive equity markets 0:08:49.760 --> 0:08:52.800 or earnings per share growth. And so that's why when 0:08:52.880 --> 0:08:56.280 we tell clients stay overweight US equities from a strategic 0:08:56.320 --> 0:08:59.480 long term perspective, they look at that data and it's 0:08:59.520 --> 0:09:01.320 easier to persuade them to do that. 0:09:01.440 --> 0:09:04.440 Such an important thing. You said, stay in they could. 0:09:04.440 --> 0:09:06.080 One of the questions is is it time to take 0:09:06.120 --> 0:09:08.360 the money off the table. Because we always hear that 0:09:08.400 --> 0:09:12.160 disclaimer about past performance in future, Why isn't this the 0:09:12.160 --> 0:09:13.439 time to say, oh, you know what I did pretty 0:09:13.440 --> 0:09:15.440 well in equities, I should put the money someplace else. 0:09:16.320 --> 0:09:18.760 So there'd be three places people could put their money. 0:09:18.760 --> 0:09:20.679 One would be you could put your money in non 0:09:20.840 --> 0:09:23.920 US equities. And that is a function of whether you 0:09:24.000 --> 0:09:27.280 think earnings per earnings per share growth will be faster. 0:09:27.480 --> 0:09:30.239 Do you think economic growth is going to be more sustainable. 0:09:30.559 --> 0:09:34.640 Does one think that evaluations are more attractive. Another place 0:09:34.640 --> 0:09:37.000 would be bonds, and another would be cash. And we 0:09:37.080 --> 0:09:40.000 actually make the case that even though the returns for 0:09:40.200 --> 0:09:43.640 US equities relative to all these other assets has been 0:09:43.760 --> 0:09:48.000 outsized since the global financial crisis, we still recommend stay 0:09:48.040 --> 0:09:51.200 with US equities. And the argument there is that, first 0:09:51.200 --> 0:09:53.160 of all, when you're looking at cash and bonds, you're 0:09:53.200 --> 0:09:55.760 going to have substantially lower returns over the long growth. 0:09:56.240 --> 0:09:58.880 Second one is you look at other parts of the world. 0:09:59.040 --> 0:10:03.600 Even though valueations look expensive, you need to adjust for 0:10:03.720 --> 0:10:08.720 sector weights, meaning US SMP five hundred benchmarks have a 0:10:08.760 --> 0:10:12.600 lot more earnings from technology stocks, so you have faster 0:10:12.720 --> 0:10:16.280 growing companies, faster growing earnings for share relative to for example, 0:10:16.760 --> 0:10:20.000 the UK equity market. It's really remarkable s and P 0:10:20.160 --> 0:10:23.680 five hundred when you look at the earnings about thirty 0:10:23.679 --> 0:10:27.760 percent comes from technology. In the UK equity market only 0:10:27.840 --> 0:10:31.080 one percent. So when you're looking at benchmarks, you need 0:10:31.120 --> 0:10:34.040 to adjust for sector weights and then the US is expensive, 0:10:34.080 --> 0:10:36.199 but not that expensive relative to other market. 0:10:36.200 --> 0:10:37.920 That was one of the things I got from your report. 0:10:37.920 --> 0:10:40.760 I had that, folks, because I hear it's expensive. It's expensive. 0:10:40.760 --> 0:10:44.120 It is fully valued. If you look at price earnings 0:10:44.240 --> 0:10:46.840 ratios and things. It's pretty historically it's up there, right, 0:10:47.080 --> 0:10:49.360 it's going to worry bit historically, but you're saying, if 0:10:49.400 --> 0:10:50.719 you really look at the right way, it's not as 0:10:50.720 --> 0:10:51.720 expensive as you think it is. 0:10:52.440 --> 0:10:54.720 Yes, it is correct that it's expensive. So if we 0:10:54.720 --> 0:10:57.240 look at its own history, it's what we call in 0:10:57.280 --> 0:11:00.840 the tenth decign meaning equities have been cheaper ninety percent 0:11:00.880 --> 0:11:03.000 of the time. But when you look at it relative 0:11:03.040 --> 0:11:05.920 to other markets, you can't just look at the price 0:11:06.000 --> 0:11:08.760 to forward earnings. For example, you need to say, well, 0:11:09.160 --> 0:11:14.280 if index has a lot more technology versus another index 0:11:14.320 --> 0:11:16.880 that has a lot more energy and financials, the one 0:11:16.920 --> 0:11:19.280 with a lot of energy and financials will look cheaper, 0:11:19.520 --> 0:11:22.320 but that's only because it has slower earnings growth. Once 0:11:22.360 --> 0:11:25.400 you make that adjustment, these other markets don't appear as cheap. 0:11:25.600 --> 0:11:28.280 Of course China is the exception, but we actually don't 0:11:28.280 --> 0:11:31.160 recommend client clients invest in trying to no matter how cheap. 0:11:31.000 --> 0:11:33.720 It looks, it's not too good. So there are some 0:11:33.840 --> 0:11:36.400 risks in your outlook, and it struck me in looking 0:11:36.440 --> 0:11:38.520 at them, it looks like they're pretty much all either 0:11:38.559 --> 0:11:40.480 geopolitical or straight up political. 0:11:41.120 --> 0:11:44.840 That is correct. We start with the all the things 0:11:44.880 --> 0:11:46.880 going on in the Middle East, so we start with 0:11:46.920 --> 0:11:50.200 the Israel Hamas, or we look at Iran. We're saying, 0:11:50.200 --> 0:11:53.000 what is the risk there? What about Iran Russia relationships? 0:11:53.040 --> 0:11:56.560 What does that mean? So everything related to the Middle 0:11:56.600 --> 0:11:59.199 East is on that list, and fears of escalation. It's 0:11:59.200 --> 0:12:01.600 not as if there's zer or probability of even further 0:12:01.720 --> 0:12:05.160 escalation beyond what we've seen. Obviously, with what's going on 0:12:05.240 --> 0:12:08.199 in the region, risk of terrorism goes up, and then 0:12:08.280 --> 0:12:11.840 domestically in the US we have it as our lowest risk, 0:12:11.880 --> 0:12:14.480 even though people are very concerned about it. We don't 0:12:14.520 --> 0:12:18.160 think this kind of pessimism is warranted. They'll be volatility 0:12:18.240 --> 0:12:20.400 around the elections, but at the end of the day, 0:12:20.840 --> 0:12:23.240 the system of checks and balances in the US and 0:12:23.280 --> 0:12:26.080 the strength of the institutions is what makes the country 0:12:26.080 --> 0:12:28.199 pre eminent. So we think clients need to look past 0:12:28.240 --> 0:12:29.880 that and past that volatility. 0:12:30.200 --> 0:12:31.840 Thank you so much, Sherman. Really great to have you 0:12:31.840 --> 0:12:34.280 back with us as charmian. Most of our ROCKMANI of 0:12:34.360 --> 0:12:41.120 Goldman Sachs coming up. They say US deficits are unsustainable. 0:12:41.520 --> 0:12:43.880 We talk with the man who helped design the last 0:12:43.920 --> 0:12:46.959 serious attempt to deal with the debt and deficits, former 0:12:47.000 --> 0:12:51.920 Treasury Secretary Bob Rubin. That's next on Wall Street Week 0:12:52.120 --> 0:12:52.760 on Bloomberg. 0:12:54.280 --> 0:12:58.480 This is Bloomberg Wall Street Week with David Weston from 0:12:58.600 --> 0:13:01.360 Bloomberg Radio. 0:13:06.640 --> 0:13:10.360 Thirty four trillion dollars. That's what the US government owes 0:13:10.400 --> 0:13:14.440 its creditors, foreign and domestic, and it's only getting worse. 0:13:15.160 --> 0:13:17.520 The problem is that's led us to years and years 0:13:17.559 --> 0:13:18.400 of borrowing too much. 0:13:18.480 --> 0:13:20.600 We now have a debt that's about to be at 0:13:20.640 --> 0:13:23.839 record levels, interestatements that are the fastest growing part of 0:13:23.880 --> 0:13:25.960 the budget, about to be larger than defense. 0:13:26.760 --> 0:13:29.520 Some say that the problem is that we're spending too much. 0:13:29.960 --> 0:13:33.199 Do you have to start cutting what you spend? Why 0:13:33.360 --> 0:13:36.480 is it everybody in this room balances a budget. I 0:13:36.600 --> 0:13:39.079 balanced a budget as governor of South Carolina. Why is 0:13:39.160 --> 0:13:41.920 Congress the only group that refuses to balance a budget? 0:13:42.440 --> 0:13:44.600 Others point to the Trump tax cuts. 0:13:45.120 --> 0:13:47.800 There are a lot of people who basically on Wall Street, 0:13:47.800 --> 0:13:50.240 who you and I would know, who voted for Trump 0:13:50.280 --> 0:13:52.680 once or even twice, and basically, look, I don't like 0:13:52.679 --> 0:13:54.640 the guy, but I like the policies, and they got 0:13:54.679 --> 0:13:57.200 what they wanted, the tax of the TCGA the Tax 0:13:57.200 --> 0:13:59.880 Cutting Jobs Act being the most prominent. 0:14:00.200 --> 0:14:03.480 And the answer likely is both, which was why President 0:14:03.559 --> 0:14:07.320 Clinton both raised taxes and cut spending in his nineteen 0:14:07.400 --> 0:14:11.200 ninety three omnimous Budget Reconciliation Act, the last time that 0:14:11.240 --> 0:14:14.760 the federal government really got serious about addressing the debt. 0:14:15.320 --> 0:14:18.600 I think he laid out the case. He brought people together. 0:14:19.160 --> 0:14:23.160 He was willing to do things that were painful for 0:14:23.240 --> 0:14:28.440 the people who were his friends. He was able to 0:14:28.520 --> 0:14:32.160 explain the case to the American people. 0:14:37.200 --> 0:14:38.840 And to explain to us where we are in the 0:14:38.840 --> 0:14:41.160 debt and deficit and where we were back in nineteen 0:14:41.240 --> 0:14:43.480 ninety three. We welcome now one of the architects of 0:14:43.520 --> 0:14:46.280 that plan that President Clinton pursued. He is Bob Ruin, 0:14:46.360 --> 0:14:48.720 former Treasury Secretary. So, Bob, thank you, so much for 0:14:48.760 --> 0:14:49.760 being on Wall Street week. 0:14:49.960 --> 0:14:50.960 David, happy to be with you. 0:14:51.400 --> 0:14:53.680 So at the time, you actually were Director of National 0:14:53.720 --> 0:14:55.880 Economic Council and you helped put together a plan with 0:14:55.960 --> 0:14:59.080 Lloyd Benson the Treasury, but President Clinton really pushed it through. 0:14:59.240 --> 0:15:02.240 Give us a cent of how bad the problems were 0:15:02.280 --> 0:15:04.200 you were facing. Then what caused you to do what 0:15:04.360 --> 0:15:05.760 you did in ninety three Act. 0:15:06.240 --> 0:15:10.000 David, We met with the president elect Governor of Arkansas 0:15:10.240 --> 0:15:13.800 in Little Rock after the election the economic theme the 0:15:13.840 --> 0:15:16.920 Income Economic Team, and we talked to him about what 0:15:17.000 --> 0:15:20.560 kind of an strategy he should have, and he said, 0:15:21.200 --> 0:15:24.720 listening to all this, our deficit is a threshold issue 0:15:24.840 --> 0:15:26.920 and we want everything else. We've got to do that 0:15:27.000 --> 0:15:28.840 because we have to get our fiscal house in order, 0:15:29.080 --> 0:15:31.720 and that was really our focus. Now we did it 0:15:31.760 --> 0:15:35.080 in the same time we did public investment. But the pressures, 0:15:35.280 --> 0:15:37.640 I think were very substantial. There was a lot of 0:15:37.640 --> 0:15:39.040 concern in the business community, there was a lot of 0:15:39.040 --> 0:15:41.320 concern in the markets, and there was a real public 0:15:41.320 --> 0:15:44.840 political environment which unfortunately we don't have today to address these. 0:15:45.320 --> 0:15:47.120 He not only had the substance of it, which is 0:15:47.160 --> 0:15:48.720 President Clinton, the few that this was the rest of 0:15:48.880 --> 0:15:52.360 issue at threshold issue. We also have a political environment in. 0:15:52.360 --> 0:15:55.160 Which it was doable if we can try to tease 0:15:55.200 --> 0:15:57.400 those two things out. How much of it was the 0:15:57.440 --> 0:16:00.400 market reaction what you were seeing. Basically, we have the 0:16:00.440 --> 0:16:02.920 incidents supposedly where Jim Carvell said, I want to come 0:16:02.920 --> 0:16:03.800 back as the bond market. 0:16:03.920 --> 0:16:06.400 Well that was James said that he wanted to come well, 0:16:06.480 --> 0:16:08.800 because what happened there was we were having a debate 0:16:08.800 --> 0:16:12.520 within the administration should we focus on fiscal matters or 0:16:12.560 --> 0:16:14.760 should we focus on public investment. We end up doing both, 0:16:14.880 --> 0:16:17.560 but with a program, the ninety three Deaths Production program 0:16:17.600 --> 0:16:19.760 that was very heavily focused on death reduction. And that's 0:16:19.760 --> 0:16:22.120 when James said he want Because we argued, and I 0:16:22.160 --> 0:16:24.280 think rightly argued, and it turned out to be correct 0:16:24.520 --> 0:16:27.160 that markets would react very favorably if we were serious, 0:16:27.480 --> 0:16:30.120 and also the better reserve would react very favorably. So 0:16:30.240 --> 0:16:32.280 James and responses all that said he would like to 0:16:32.320 --> 0:16:34.080 come back into the next life is the bond market. 0:16:34.560 --> 0:16:37.040 So that is a somewhat market oriented approach. I mean, 0:16:37.040 --> 0:16:38.960 you'd come out of Goldman Sachs, you knew the market's 0:16:39.040 --> 0:16:42.720 terribly well, you took that sort of approach the whole question. 0:16:42.800 --> 0:16:44.320 How much of that drove what it was? Was it 0:16:44.320 --> 0:16:46.600 really just almost dollars and cents in what was going 0:16:46.640 --> 0:16:47.960 on in the markets. 0:16:47.600 --> 0:16:49.160 Well, it was more than it was more than just 0:16:49.200 --> 0:16:51.360 the markets, And I think this is something unfortunately it 0:16:51.360 --> 0:16:54.120 hasn't been focused on, but it was the market's David, 0:16:54.200 --> 0:16:57.760 and when we got serious about Death's reduction, it was 0:16:57.800 --> 0:17:00.600 very favorable for the markets. And also Green's been reacted 0:17:00.680 --> 0:17:06.919 very well in terms of maintaining a relatively livable would 0:17:07.000 --> 0:17:10.679 a practical speaking a rate, a FED Fund rate that 0:17:10.800 --> 0:17:13.199 was consistent with growth, but it went way beyond that. 0:17:13.240 --> 0:17:15.399 We wanted to have the resilience after if you're going 0:17:15.440 --> 0:17:17.520 to have, if you have an economic or anir security 0:17:17.760 --> 0:17:19.560 emergency of some sort, you want to be able to 0:17:19.600 --> 0:17:23.000 deal with it without creating fiscal havoc. And another thing, 0:17:23.080 --> 0:17:25.119 when I was at Goldman Sachs and Steve Freeman and 0:17:25.160 --> 0:17:28.359 I were the co CEOs of Coleman Sacks in ninety 0:17:28.359 --> 0:17:32.120 one and in ninety two, one thing that I had 0:17:32.119 --> 0:17:35.320 the impression was that business was very concerned about our 0:17:35.320 --> 0:17:38.240 fiscal position, not only because the fiscal position per se, 0:17:38.520 --> 0:17:40.400 but also because it gave them the feeling government wasn't. 0:17:40.600 --> 0:17:43.359 It was incapable of dealing with our problems. So business 0:17:43.400 --> 0:17:46.680 confidence I think was a very important factor. And once 0:17:46.720 --> 0:17:48.920 we acted, I think it had a really positive effect 0:17:49.000 --> 0:17:49.840 on business confidence. 0:17:50.040 --> 0:17:52.280 Well, giving me a sense of what that means as 0:17:52.280 --> 0:17:55.000 a practimatory, is that does that translate into investment or 0:17:55.119 --> 0:17:55.760 lack of investment? 0:17:55.800 --> 0:18:00.560 Yeah, that's exactly what it. Well, investment plan in terms 0:18:00.600 --> 0:18:05.360 of expansion and generally just John Maynor Kaines famously referred 0:18:05.359 --> 0:18:07.639 to animal spirits in his letter, his famous letter to 0:18:07.920 --> 0:18:11.880 President Roosevelt, and animal spirits make a new confidence makes 0:18:11.920 --> 0:18:14.560 a very big difference. And yeah, it does in terms 0:18:14.600 --> 0:18:18.040 of hiring plans, expansion plans, investment, And that absolutely is 0:18:18.080 --> 0:18:18.520 what happened. 0:18:18.720 --> 0:18:20.640 Give me a sense of what was going on politically 0:18:20.640 --> 0:18:23.399 in the country that obviously President Clinton was reflecting to 0:18:23.400 --> 0:18:25.040 some extent what he thought that people felt. 0:18:25.400 --> 0:18:27.840 Yeah, I think there was the people. I think there 0:18:27.840 --> 0:18:30.639 was a feeling there was a broad public concern about 0:18:30.640 --> 0:18:35.040 our fiscal position. And then Songus ran, Paul Songus ran 0:18:35.080 --> 0:18:38.639 for president on a fiscal unfortunately died as you know 0:18:39.000 --> 0:18:45.119 in that process, but on a fiscal discipline plank, if 0:18:45.160 --> 0:18:47.280 you want to call it. That our programs say, and 0:18:47.320 --> 0:18:49.760 that attracted a lot of favorable attention. Then ross Borough 0:18:49.840 --> 0:18:55.240 came along and he ran also on a fiscal discipline theory, 0:18:55.560 --> 0:18:57.119 and he got about nineteen percent of the vote, if 0:18:57.119 --> 0:18:59.760 I remember correctly. President Clinton believed it to begin with. 0:19:00.400 --> 0:19:04.439