1 00:00:02,529 --> 00:00:04,210 Speaker 1: Bloomberg Audio Studios. 2 00:00:04,670 --> 00:00:05,370 Speaker 2: Podcasts. 3 00:00:05,690 --> 00:00:06,210 Speaker 3: Radio. 4 00:00:06,660 --> 00:00:07,040 Speaker 4: News. 5 00:00:12,520 --> 00:00:16,660 Speaker 1: This is the Bloomberg Surveillance Podcast. Catch us live weekdays 6 00:00:16,720 --> 00:00:20,230 Speaker 1: at 7 a.m. Eastern on Apple CarPlay or Android Auto 7 00:00:20,290 --> 00:00:23,870 Speaker 1: with the Bloomberg Business App. Listen on demand wherever you 8 00:00:23,910 --> 00:00:26,950 Speaker 1: get your podcasts or watch us live on YouTube. 9 00:00:26,970 --> 00:00:29,450 Speaker 4: I truly appreciate that. Like, I'm supposed to give them 10 00:00:29,470 --> 00:00:32,529 Speaker 4: some lofty introduction. You'd have Gary Gensler and then Robert 11 00:00:32,590 --> 00:00:35,839 Speaker 4: Kaplan for an extensive conversation as to what it's about, 12 00:00:35,880 --> 00:00:38,599 Speaker 4: the former president. head of the Dallas Fed with all 13 00:00:38,620 --> 00:00:41,199 Speaker 4: of his work. The only equivalent I can say to 14 00:00:41,280 --> 00:00:44,260 Speaker 4: Robert Kaplan is Michael Spence with all he did in 15 00:00:44,340 --> 00:00:48,900 Speaker 4: academics at Stanford and what he did across all of economics. 16 00:00:49,159 --> 00:00:51,620 Speaker 4: But I got it. Can I do an audible start? 17 00:00:51,690 --> 00:00:54,890 Speaker 4: I mean, it's closing, but I have to. Alexis just 18 00:00:54,950 --> 00:00:59,270 Speaker 4: mentioned Coca-Cola. You grew up in the Dr. Pepper belt. 19 00:00:59,910 --> 00:01:02,490 Speaker 4: Were you weaned on Dr. Pepper? 20 00:01:02,570 --> 00:01:05,750 Speaker 3: In Kansas City. It's Texas drink, but I drank it 21 00:01:05,800 --> 00:01:06,759 Speaker 3: in Kansas City, yes. 22 00:01:07,380 --> 00:01:09,840 Speaker 4: You have no idea how foreign that was when I 23 00:01:09,880 --> 00:01:10,380 Speaker 4: was a kid. 24 00:01:10,400 --> 00:01:10,860 Speaker 5: I like Dr. 25 00:01:10,880 --> 00:01:11,060 Speaker 6: Pepper. 26 00:01:11,200 --> 00:01:14,840 Speaker 4: Once a year. And we'd get a bottle. It's good. 27 00:01:14,840 --> 00:01:15,510 Speaker 4: You'd have to split it. 28 00:01:15,730 --> 00:01:16,110 Speaker 5: It's yummy. 29 00:01:16,990 --> 00:01:19,310 Speaker 3: It's a little medicinal tasting for me, but I just 30 00:01:19,390 --> 00:01:20,830 Speaker 3: don't send me hateful X things. 31 00:01:21,030 --> 00:01:21,170 Speaker 7: Mrs. 32 00:01:21,190 --> 00:01:22,950 Speaker 4: King calls it Robitussin. 33 00:01:23,030 --> 00:01:25,429 Speaker 8: I'm with your wife. 34 00:01:25,530 --> 00:01:29,270 Speaker 4: Robert Kaplan with us, always of Kansas and Goldman Sachs, 35 00:01:29,330 --> 00:01:33,230 Speaker 4: and of course his public service at the Dallas Fed. 36 00:01:33,250 --> 00:01:36,530 Speaker 4: I look at the moment we're at, and what I 37 00:01:36,569 --> 00:01:39,270 Speaker 4: want to say, Dr. Kaplan, is we want to get 38 00:01:39,330 --> 00:01:43,380 Speaker 4: back to basics. What are basics for Robert Kaplan out 39 00:01:43,420 --> 00:01:48,010 Speaker 4: of the election and given the news flow that's mind-numbing, 40 00:01:48,570 --> 00:01:52,270 Speaker 4: how do we get back to Robert Kaplan basics? 41 00:01:52,490 --> 00:01:53,520 Speaker 5: Two or three points. 42 00:01:55,630 --> 00:01:59,669 Speaker 3: I'd say this economy is, if it's anything AI related 43 00:01:59,730 --> 00:02:05,070 Speaker 3: or defense spending related, super strong. If it's related to housing, autos, 44 00:02:05,610 --> 00:02:11,280 Speaker 3: serving low, moderate income consumers, sluggish. Government, historically highly leveraged. 45 00:02:11,880 --> 00:02:14,180 Speaker 3: And we're seeing that play out in the treasury curve. 46 00:02:14,240 --> 00:02:17,040 Speaker 3: And while that's going on, you've got a historic demand 47 00:02:17,080 --> 00:02:21,450 Speaker 3: for capital. to fund this AI infrastructure boom. And we're 48 00:02:21,490 --> 00:02:25,639 Speaker 3: seeing that play out in rates. And on the inflation side, 49 00:02:26,660 --> 00:02:31,080 Speaker 3: you got to say some of this inflation and maybe 50 00:02:31,120 --> 00:02:35,860 Speaker 3: the bulk of it is structural, not necessarily cyclical. I 51 00:02:35,900 --> 00:02:38,889 Speaker 3: don't know that there's an overheating of this economy. So 52 00:02:38,950 --> 00:02:41,889 Speaker 3: those are some of the things that we're looking at. 53 00:02:42,210 --> 00:02:44,410 Speaker 7: How does the Fed put all that together over the 54 00:02:44,450 --> 00:02:47,639 Speaker 7: next couple of days, do you think? Uh. 55 00:02:49,040 --> 00:02:53,310 Speaker 3: I think I would be spending most of my time 56 00:02:53,430 --> 00:02:55,679 Speaker 3: debating how much of this. 57 00:02:55,740 --> 00:02:57,799 Speaker 5: Is supply, how much of this is demand. 58 00:02:59,169 --> 00:03:01,570 Speaker 4: Torsten Slock's note this morning. 59 00:03:01,810 --> 00:03:04,560 Speaker 3: Yeah, and I saw his note, and it's based on 60 00:03:04,600 --> 00:03:06,740 Speaker 3: a paper from the San Francisco Fed, and I always 61 00:03:06,780 --> 00:03:10,540 Speaker 3: read Torsten Slock. I don't know that they know. They 62 00:03:10,600 --> 00:03:13,440 Speaker 3: say some of it's supply, some of it's demand, some 63 00:03:13,460 --> 00:03:16,460 Speaker 3: of it's ambiguous. I think that would be where I'd 64 00:03:16,500 --> 00:03:18,220 Speaker 3: be digging in a lot more, and I don't think 65 00:03:18,260 --> 00:03:19,919 Speaker 3: the data is going to help you as much as 66 00:03:20,220 --> 00:03:21,540 Speaker 3: being out there talking to companies. 67 00:03:21,560 --> 00:03:23,510 Speaker 4: I'm going to interrupt here because, folks, you just heard 68 00:03:23,550 --> 00:03:26,970 Speaker 4: the Kaplan distinction there. You've got a lot of PhDs 69 00:03:27,010 --> 00:03:30,310 Speaker 4: who are really trained not to say, I don't know. 70 00:03:30,330 --> 00:03:33,750 Speaker 4: But this is your heritage at the Fed where you'd say, wait, 71 00:03:33,850 --> 00:03:35,960 Speaker 4: we don't know, is it? There's a lot we don't 72 00:03:36,000 --> 00:03:36,430 Speaker 4: know right now. 73 00:03:36,460 --> 00:03:42,120 Speaker 3: And here's why it's confusing. Diesel bleeds when diesel goes up. 74 00:03:42,440 --> 00:03:46,340 Speaker 3: Turns out it's embedded in 50 other items. And so 75 00:03:46,540 --> 00:03:50,380 Speaker 3: a broadening of inflation is not a surprise when diesel 76 00:03:50,560 --> 00:03:53,900 Speaker 3: is this elevated. But the issue is I could raise 77 00:03:53,940 --> 00:03:57,080 Speaker 3: the Fed funds rate if diesel does not come down. 78 00:03:57,900 --> 00:04:00,960 Speaker 3: the impact of raising too far too fast may be 79 00:04:01,000 --> 00:04:04,260 Speaker 3: to slow already sluggish parts of the economy, and it 80 00:04:04,300 --> 00:04:07,700 Speaker 3: may not make a dent in inflation. And so that's 81 00:04:07,760 --> 00:04:11,000 Speaker 3: the kind of thing, that's the reason to skip today 82 00:04:11,500 --> 00:04:15,880 Speaker 3: and raise rates but do it deliberately. There are pros 83 00:04:15,920 --> 00:04:18,040 Speaker 3: and cons to that. If I thought this was a 84 00:04:18,100 --> 00:04:21,320 Speaker 3: cyclical overheating, I'd say let's get moving faster. 85 00:04:22,210 --> 00:04:26,920 Speaker 7: AI impact on just economic growth. A lot of folks 86 00:04:26,940 --> 00:04:28,620 Speaker 7: would say if you take a look at maybe 2% 87 00:04:28,620 --> 00:04:33,219 Speaker 7: real GDP growth, half of that may be related to AI. 88 00:04:33,240 --> 00:04:35,099 Speaker 9: I guess that's good. 89 00:04:34,980 --> 00:04:35,940 Speaker 4: As long as it's working. 90 00:04:36,520 --> 00:04:39,610 Speaker 7: But boy, if it rolls over to any degree, that 91 00:04:39,630 --> 00:04:42,290 Speaker 7: could be really rough for the overall economy. Do you 92 00:04:42,310 --> 00:04:43,470 Speaker 7: think the Fed thinks about that? 93 00:04:44,510 --> 00:04:48,690 Speaker 3: It should, and that this is not a broad-based... We're 94 00:04:48,870 --> 00:04:51,910 Speaker 3: used to, over the last number of decades, a consumer-led 95 00:04:51,970 --> 00:04:55,700 Speaker 3: economy that, you know, how strong is the consumer? 96 00:04:55,920 --> 00:04:57,200 Speaker 5: Is unemployment up or down? 97 00:04:58,960 --> 00:05:05,650 Speaker 3: This AI push is more narrow. It's about building data centers, power, chips, 98 00:05:05,850 --> 00:05:10,130 Speaker 3: everything related to it. And then you've got the adoption wave, 99 00:05:10,230 --> 00:05:13,150 Speaker 3: but we're early in the adoption wave. I'm very optimistic 100 00:05:13,210 --> 00:05:17,280 Speaker 3: about how many of these adoption use cases. 101 00:05:16,940 --> 00:05:19,360 Speaker 5: Are going to work, but we're going to learn a 102 00:05:19,420 --> 00:05:20,440 Speaker 5: lot over the next year. 103 00:05:20,760 --> 00:05:23,460 Speaker 4: So then go to leadership at Harvard, your three books 104 00:05:23,520 --> 00:05:29,169 Speaker 4: there on leadership. To quote a Larian, Muhammad Larian, with 105 00:05:29,190 --> 00:05:33,690 Speaker 4: the unknown unknowns of AI and How does a given CEO, 106 00:05:33,890 --> 00:05:38,510 Speaker 4: away from tech certitude, how do they lead out three years, 107 00:05:38,730 --> 00:05:40,530 Speaker 4: out five years, out 10 years? 108 00:05:40,610 --> 00:05:45,479 Speaker 3: So we talk about this a lot. As a CEO, 109 00:05:45,500 --> 00:05:47,599 Speaker 3: the most important thing right now is to be able 110 00:05:47,660 --> 00:05:52,370 Speaker 3: to ask a question. be open and confident enough to 111 00:05:52,790 --> 00:05:58,469 Speaker 3: seek advice, have debate and disagreement, say sometimes, I don't know, 112 00:05:58,790 --> 00:06:02,349 Speaker 3: I'm not sure, I changed my mind. I think that's 113 00:06:02,410 --> 00:06:03,600 Speaker 3: the sign of a good leader. 114 00:06:03,740 --> 00:06:06,200 Speaker 4: Let me digress, Paul. Paul wanted to talk about this. 115 00:06:06,200 --> 00:06:11,600 Speaker 4: 60,000 love notes at Microsoft? Yeah. Have you and I 116 00:06:11,680 --> 00:06:14,240 Speaker 4: ever seen this? I don't think so. No. 117 00:06:15,540 --> 00:06:19,340 Speaker 3: That, obviously, I won't comment on any one, but that's significant. 118 00:06:19,700 --> 00:06:23,750 Speaker 3: I actually think more broadly, and I see this among 119 00:06:23,830 --> 00:06:25,950 Speaker 3: clients I work on in our own business, and I 120 00:06:26,029 --> 00:06:29,230 Speaker 3: see it among small business. I think the AI adoption 121 00:06:29,270 --> 00:06:33,049 Speaker 3: phase will change the mix of businesses. The issue at Microsoft, 122 00:06:33,070 --> 00:06:35,560 Speaker 3: they have lots of programmers. There are going to be 123 00:06:35,600 --> 00:06:38,060 Speaker 3: fewer programmers, but I think you're going to have more 124 00:06:38,080 --> 00:06:43,560 Speaker 3: and more people covering clients, building relationships, externally focused. The 125 00:06:43,700 --> 00:06:46,380 Speaker 3: mix of employment will change, and the challenge for an 126 00:06:46,420 --> 00:06:50,110 Speaker 3: individual worker is if you define your job very narrowly, 127 00:06:51,220 --> 00:06:52,560 Speaker 3: It's going to be tough. You're going to need to 128 00:06:52,600 --> 00:06:57,630 Speaker 3: be more flexible and you need to be able to read, write, communicate, 129 00:06:57,670 --> 00:07:02,190 Speaker 3: have a debate, build a relationship. And I think I 130 00:07:02,250 --> 00:07:06,380 Speaker 3: think with all the remote communication we've got, I think 131 00:07:06,420 --> 00:07:09,120 Speaker 3: those skills have atrophied a little bit and we need 132 00:07:09,140 --> 00:07:09,960 Speaker 3: to rebuild them. 133 00:07:11,000 --> 00:07:12,860 Speaker 7: We're going to have some elections a week from today 134 00:07:12,940 --> 00:07:16,250 Speaker 7: here in this country. We have obviously some elections in 135 00:07:16,310 --> 00:07:19,500 Speaker 7: Israel today. What do your clients want to discuss with 136 00:07:19,540 --> 00:07:22,200 Speaker 7: you about a world where there might be a change 137 00:07:22,220 --> 00:07:24,360 Speaker 7: in Congress? It might be that the Democrats maybe take 138 00:07:24,400 --> 00:07:28,040 Speaker 7: the House, maybe even the Senate, who knows? What does 139 00:07:28,080 --> 00:07:30,110 Speaker 7: that mean for their business, for their growth and their 140 00:07:30,170 --> 00:07:31,020 Speaker 7: capital allocation? 141 00:07:31,610 --> 00:07:34,410 Speaker 3: So like a lot of things, most business people and 142 00:07:34,450 --> 00:07:38,090 Speaker 3: certainly the markets have already priced in the outcome. However, 143 00:07:38,630 --> 00:07:42,790 Speaker 3: the part I think that they don't know is we 144 00:07:44,110 --> 00:07:45,470 Speaker 3: need more productivity growth. 145 00:07:45,590 --> 00:07:47,110 Speaker 5: We don't have much labor force growth. 146 00:07:47,890 --> 00:07:52,420 Speaker 3: Is there going to be a change in regulation? I 147 00:07:52,780 --> 00:07:54,680 Speaker 3: don't think people think a change in Congress for the 148 00:07:54,740 --> 00:07:58,140 Speaker 3: moment is going to change tariffs or immigration policy. But 149 00:07:58,200 --> 00:08:01,600 Speaker 3: is it going to change regulatory policy? And that's the 150 00:08:01,640 --> 00:08:02,540 Speaker 3: thing people are watching. 151 00:08:02,620 --> 00:08:05,750 Speaker 4: Is there a dash right now into year end? I mean, literally, 152 00:08:05,820 --> 00:08:06,750 Speaker 4: you know, getting ready for. 153 00:08:06,770 --> 00:08:09,890 Speaker 3: I think I think I think most people still think 154 00:08:09,930 --> 00:08:12,850 Speaker 3: we've got a couple of more year window where we're 155 00:08:12,890 --> 00:08:16,450 Speaker 3: going to have not no regulation, but balanced regulation. And 156 00:08:16,490 --> 00:08:19,310 Speaker 3: I think business leaders, I think, are hoping and I'm hoping, too, 157 00:08:19,750 --> 00:08:23,250 Speaker 3: that that continues. We in an economy that needs more 158 00:08:23,290 --> 00:08:24,710 Speaker 3: growth and we're highly leveraged. 159 00:08:24,830 --> 00:08:25,050 Speaker 6: Right. 160 00:08:25,710 --> 00:08:29,210 Speaker 3: You need productivity growth and balanced regulation can help with that. 161 00:08:29,430 --> 00:08:32,240 Speaker 4: Robert Kaplan with us. We continue with the former head 162 00:08:32,250 --> 00:08:34,339 Speaker 4: of the Dallas Fed with his work, vice chairman of 163 00:08:34,380 --> 00:08:37,300 Speaker 4: Goldman Sachs as well. So Jess Manton was in the 164 00:08:37,380 --> 00:08:42,740 Speaker 4: other day fighting Texas Aggie. And there was disparagement out 165 00:08:42,820 --> 00:08:46,080 Speaker 4: on Twitter that she's better than me, that she should 166 00:08:46,120 --> 00:08:46,980 Speaker 4: do it every day. 167 00:08:47,300 --> 00:08:47,479 Speaker 5: Yeah. 168 00:08:47,679 --> 00:08:50,880 Speaker 4: And that I should be pretty good. In honor of 169 00:08:50,940 --> 00:08:54,390 Speaker 4: Jess Manton, Robert McDonough, McTeer gave me this. This is 170 00:08:54,450 --> 00:08:57,330 Speaker 4: my fighting Texas Aggie bow tie. 171 00:08:57,350 --> 00:08:58,270 Speaker 5: The lonesome dove. 172 00:08:58,370 --> 00:09:01,170 Speaker 4: I should say my father, to say the least, was 173 00:09:01,250 --> 00:09:03,309 Speaker 4: a class of 50 at A & M with their 174 00:09:03,350 --> 00:09:06,410 Speaker 4: great sacrifice. I grew up the whole, I would have 175 00:09:06,429 --> 00:09:08,130 Speaker 4: gone to A & M except they didn't have a 176 00:09:08,170 --> 00:09:08,689 Speaker 4: hockey team. 177 00:09:08,950 --> 00:09:09,350 Speaker 7: Wow. 178 00:09:09,610 --> 00:09:13,120 Speaker 4: I said to my dad, I'm not going hullabaloo, canook, canook, 179 00:09:13,660 --> 00:09:17,020 Speaker 4: and all that. So with that said, in what Robert 180 00:09:17,080 --> 00:09:21,370 Speaker 4: McTeer lived... We have moments where we're certain and then 181 00:09:21,470 --> 00:09:24,770 Speaker 4: bad things happen. And usually we don't see them coming, 182 00:09:24,809 --> 00:09:27,850 Speaker 4: think the SNL crisis and the roll-up. What do you 183 00:09:27,890 --> 00:09:30,450 Speaker 4: worry about at night? What do you worry about in 184 00:09:30,530 --> 00:09:33,050 Speaker 4: class when some mouthy person. 185 00:09:32,710 --> 00:09:36,910 Speaker 3: Is— Well, now I'm out with clients, but I would 186 00:09:36,929 --> 00:09:39,719 Speaker 3: say the biggest tail risk I see still starts with— 187 00:09:40,309 --> 00:09:43,220 Speaker 3: governments around the world and witness what's going on in France. 188 00:09:43,260 --> 00:09:47,620 Speaker 3: Governments historically highly leveraged. And in the aftermath of COVID, 189 00:09:47,660 --> 00:09:49,640 Speaker 3: we got a lot more leverage and we don't have 190 00:09:49,700 --> 00:09:53,760 Speaker 3: workforce growth. So that means we're putting all our chips 191 00:09:54,010 --> 00:09:58,089 Speaker 3: on productivity growth. And I do worry that we've got 192 00:09:58,110 --> 00:10:00,640 Speaker 3: to come up around the world, including here with a 193 00:10:00,940 --> 00:10:04,810 Speaker 3: fiscal approach that at least shows how we're going to 194 00:10:04,929 --> 00:10:08,500 Speaker 3: bend these deficits as a percentage of GDP because I 195 00:10:08,559 --> 00:10:11,660 Speaker 3: worry about the long end of the curve that it 196 00:10:11,700 --> 00:10:15,580 Speaker 3: keeps backing up. And that's squeezing housing. It's squeezing a 197 00:10:15,600 --> 00:10:16,160 Speaker 3: lot of businesses. 198 00:10:16,179 --> 00:10:17,890 Speaker 4: I've got to get this in quickly because Paul's got 199 00:10:17,929 --> 00:10:20,790 Speaker 4: a series of questions. So then do you advocate that 200 00:10:20,830 --> 00:10:23,910 Speaker 4: we should get our blended tax rate back up to 201 00:10:23,950 --> 00:10:27,380 Speaker 4: where it was. That's what's coming down the pike from, say, 17% 202 00:10:27,380 --> 00:10:31,120 Speaker 4: or 18% of budget up to 19% or 20% halfway there. 203 00:10:31,220 --> 00:10:33,500 Speaker 3: I'm not smart enough to know it. But I think 204 00:10:33,540 --> 00:10:35,300 Speaker 3: there's 15 things you need to do. 205 00:10:35,360 --> 00:10:35,820 Speaker 5: So what do you need? 206 00:10:35,840 --> 00:10:38,329 Speaker 3: You need to grow faster. I would argue we need 207 00:10:38,370 --> 00:10:42,170 Speaker 3: to relook at immigration. We need $ 1 million to $ 2 208 00:10:42,110 --> 00:10:44,510 Speaker 3: million a year in immigration. There are a lot of 209 00:10:44,590 --> 00:10:48,559 Speaker 3: open jobs that are not getting filled. And it's slowing growth. 210 00:10:50,100 --> 00:10:52,660 Speaker 3: I think you're going to have to continue to keep 211 00:10:52,760 --> 00:10:56,230 Speaker 3: balanced regulation to help spur growth. Yeah, we need a 212 00:10:56,290 --> 00:10:59,569 Speaker 3: plan to use all the– every company we've just heard 213 00:10:59,630 --> 00:11:02,840 Speaker 3: is using AI to control costs. Governments should be doing 214 00:11:02,880 --> 00:11:06,810 Speaker 3: the same. So reinstitute AI. embedded cost management in all 215 00:11:06,830 --> 00:11:10,230 Speaker 3: the government entities. And entitlement reform is going to be 216 00:11:10,290 --> 00:11:13,110 Speaker 3: on the menu, also has to be, because it's such 217 00:11:13,150 --> 00:11:15,440 Speaker 3: a big part of the budget. And you notice the 218 00:11:15,480 --> 00:11:20,220 Speaker 3: big miss on the budget deficit in 2026, I think 219 00:11:20,220 --> 00:11:25,540 Speaker 3: $ 250 billion of it was entitlement surprise heading north. Another 220 00:11:25,540 --> 00:11:29,309 Speaker 3: $ 100 billion, I believe, was interest expense. So we're going 221 00:11:29,330 --> 00:11:31,330 Speaker 3: to have to look at entitlement reform. So you need 222 00:11:31,370 --> 00:11:33,770 Speaker 3: a menu of things. And we can do it, but 223 00:11:33,790 --> 00:11:34,370 Speaker 3: we've got to start. 224 00:11:35,250 --> 00:11:37,590 Speaker 7: These are the conversations that we as a society have 225 00:11:37,610 --> 00:11:40,650 Speaker 7: been having for 40 plus years that I've been on 226 00:11:40,690 --> 00:11:43,790 Speaker 7: Global Wall Street. We just haven't had the political will 227 00:11:43,850 --> 00:11:50,020 Speaker 7: to engage. Do you sense there's something that's going to 228 00:11:50,080 --> 00:11:52,500 Speaker 7: accelerate this? Is it people looking across the pond to 229 00:11:52,580 --> 00:11:55,000 Speaker 7: France and saying, you don't want to be in that position? 230 00:11:55,470 --> 00:11:57,650 Speaker 3: So people say all the time, we've been talking about 231 00:11:57,670 --> 00:12:00,390 Speaker 3: this my whole life, it's never mattered why now. I 232 00:12:00,410 --> 00:12:02,870 Speaker 3: think we're getting to a level of debt to GDP now. 233 00:12:03,990 --> 00:12:06,370 Speaker 3: And you're seeing this in Europe, you're seeing this around 234 00:12:06,390 --> 00:12:10,780 Speaker 3: the world, you're seeing in Japan, where I think the 235 00:12:10,880 --> 00:12:14,610 Speaker 3: treasury curve is not acting right now like a cyclical diversifier. 236 00:12:15,020 --> 00:12:16,780 Speaker 5: There was a flight to quality the last two weeks. 237 00:12:16,800 --> 00:12:17,849 Speaker 5: I think it was refreshing. 238 00:12:18,179 --> 00:12:20,829 Speaker 3: But for the last two years, the theory is when 239 00:12:20,870 --> 00:12:24,610 Speaker 3: the economy slows, markets go down, treasuries rally. 240 00:12:24,910 --> 00:12:25,850 Speaker 5: We're not seeing that. 241 00:12:25,910 --> 00:12:28,330 Speaker 3: I think we're getting to a level of debt where 242 00:12:28,650 --> 00:12:31,449 Speaker 3: people are more reluctant now to own treasuries. That's a 243 00:12:31,510 --> 00:12:34,969 Speaker 3: dangerous thing. I think that should be the red warning 244 00:12:35,050 --> 00:12:36,610 Speaker 3: light that gets us to address this. 245 00:12:37,010 --> 00:12:40,770 Speaker 4: I've got to get this in. It's too important. Skydance. Paramount. 246 00:12:41,130 --> 00:12:43,690 Speaker 4: Five days a week in the office. Warner Brothers. 247 00:12:43,710 --> 00:12:43,780 Speaker 5: Yes. 248 00:12:44,300 --> 00:12:47,900 Speaker 4: Three days in the office, work from home. Robert Kaplan 249 00:12:47,920 --> 00:12:50,650 Speaker 4: wrote a book years ago, folks, What You're Really Meant 250 00:12:50,710 --> 00:12:53,230 Speaker 4: to Do. And it didn't, you know, it wasn't like 251 00:12:53,270 --> 00:12:57,370 Speaker 4: a Netflix series because it was really an uncomfortable book. 252 00:12:58,030 --> 00:13:02,140 Speaker 4: The importance of relationships. How in God's name, Robert Kaplan, 253 00:13:02,480 --> 00:13:05,880 Speaker 4: would you or I be where we are today, working 254 00:13:05,980 --> 00:13:06,520 Speaker 4: from home? 255 00:13:06,880 --> 00:13:07,580 Speaker 5: Discuss. 256 00:13:07,820 --> 00:13:12,079 Speaker 3: This is why most businesses during COVID, the first reaction was, 257 00:13:12,380 --> 00:13:14,760 Speaker 3: oh my God, this is working better than we thought 258 00:13:14,800 --> 00:13:20,360 Speaker 3: working remotely. And then eventually people realize, no, training, mentoring, coaching, 259 00:13:20,420 --> 00:13:25,380 Speaker 3: relationship building deteriorates. And that's why most businesses, including ours 260 00:13:25,490 --> 00:13:27,040 Speaker 3: at Goldman, we asked, we got to come back to 261 00:13:27,090 --> 00:13:32,150 Speaker 3: the office because we need the gathering in person in 262 00:13:32,210 --> 00:13:35,410 Speaker 3: order to... make our folks, help our folks develop. So 263 00:13:35,429 --> 00:13:36,070 Speaker 3: what does Nick Booth. 264 00:13:36,110 --> 00:13:38,830 Speaker 4: At Stanford get wrong? Let me cut to the chase. 265 00:13:39,130 --> 00:13:42,480 Speaker 4: He's leading the academic charge on him. There's a lot of, 266 00:13:42,520 --> 00:13:45,380 Speaker 4: full disclosure, folks, I'm six days in the office. 267 00:13:45,400 --> 00:13:46,079 Speaker 5: Okay. 268 00:13:47,059 --> 00:13:50,040 Speaker 4: What's Booth and the crew get wrong at Stanford? 269 00:13:50,059 --> 00:13:53,870 Speaker 3: Listen, there are certain functions that I think, and I 270 00:13:53,929 --> 00:13:58,330 Speaker 3: think there's some good development, certain functions you can work remotely. Listen, 271 00:13:58,429 --> 00:14:01,209 Speaker 3: if you have children and you have other obligations, I 272 00:14:01,250 --> 00:14:04,530 Speaker 3: think we ought to accommodate those. But by and large, 273 00:14:05,910 --> 00:14:12,340 Speaker 3: I think what you're missing is the cultural development, mentoring, coaching, observing. 274 00:14:12,679 --> 00:14:18,120 Speaker 3: Coaching requires observation. I can't observe you if we're not together. 275 00:14:18,420 --> 00:14:22,170 Speaker 3: For younger people in particular, they need the coaching, and 276 00:14:22,270 --> 00:14:25,170 Speaker 3: I see it every day. And you can't do it 277 00:14:25,210 --> 00:14:27,210 Speaker 3: if it's remote because I don't know what you're doing. 278 00:14:27,710 --> 00:14:28,850 Speaker 4: Absolutely. Real quickly. 279 00:14:29,210 --> 00:14:33,690 Speaker 7: So Goldman Sachs, the younger bankers, I mean, to me, 280 00:14:33,710 --> 00:14:35,630 Speaker 7: when I was a young banker, I learned by just 281 00:14:35,740 --> 00:14:38,860 Speaker 7: observing and interacting with my senior folks. I mean, to 282 00:14:38,900 --> 00:14:41,930 Speaker 7: this day, I have no idea. I do things a 283 00:14:41,950 --> 00:14:43,330 Speaker 7: certain way because I think back to what? 284 00:14:43,350 --> 00:14:43,750 Speaker 5: Same here. 285 00:14:44,070 --> 00:14:47,980 Speaker 7: I mean, was there a generation lost there? 286 00:14:49,050 --> 00:14:52,320 Speaker 3: I think when folks were out of the office there 287 00:14:52,400 --> 00:14:57,240 Speaker 3: for a year or two, I think some of the training, leadership, development, mentoring, 288 00:14:57,280 --> 00:14:59,840 Speaker 3: and coaching might have atrophied a little bit. And I 289 00:14:59,880 --> 00:15:02,260 Speaker 3: think we're working very hard, and I think most businesses are, 290 00:15:02,540 --> 00:15:05,320 Speaker 3: to rebuild that if you want a successful firm. 291 00:15:06,240 --> 00:15:09,310 Speaker 4: Come on, the movie Margin Call. Could they have had 292 00:15:09,350 --> 00:15:11,729 Speaker 4: that famous meeting with Jeremy Irons at the end of 293 00:15:11,750 --> 00:15:14,710 Speaker 4: the table if they were all worked from home? I 294 00:15:15,570 --> 00:15:18,950 Speaker 4: don't think so. Robert Kapp, we got through it without 295 00:15:19,010 --> 00:15:21,640 Speaker 4: talking about University of Kansas football. 296 00:15:22,480 --> 00:15:24,520 Speaker 3: We're to important topics now, yeah. 297 00:15:24,580 --> 00:15:26,960 Speaker 4: Robert Kapp, thank you so much. With Goldman Sachs, the 298 00:15:26,980 --> 00:15:29,960 Speaker 4: former president of the Federal Reserve Bank of Dallas. 299 00:15:31,810 --> 00:15:32,410 Speaker 5: Stay with us. 300 00:15:32,710 --> 00:15:35,940 Speaker 10: More from Bloomberg Surveillance coming up after this. 301 00:15:43,220 --> 00:15:46,820 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 302 00:15:46,900 --> 00:15:50,060 Speaker 1: weekday afternoons from 7 to 10 a.m. Eastern. Listen on 303 00:15:50,180 --> 00:15:53,430 Speaker 1: Apple CarPlay and Android Auto with the Bloomberg Business app. 304 00:15:53,650 --> 00:15:55,350 Speaker 1: Or watch us live on YouTube. 305 00:15:55,830 --> 00:15:57,750 Speaker 4: He's no introduction to global Wall Street. 306 00:15:57,810 --> 00:15:58,030 Speaker 5: Mr. 307 00:15:58,070 --> 00:16:01,550 Speaker 4: Gensler's here, the former chairman of the Securities Exchange Commission. 308 00:16:01,910 --> 00:16:04,730 Speaker 4: The Nobel laureate Simon Johnson has the privilege of working 309 00:16:04,770 --> 00:16:08,420 Speaker 4: with him up at MIT. How's that going? How's this 310 00:16:08,500 --> 00:16:12,660 Speaker 4: wonderful experiment of Gensler and Johnson going? Johnson and Gessler going. 311 00:16:13,000 --> 00:16:14,040 Speaker 8: We're having a lot of fun. 312 00:16:14,080 --> 00:16:17,730 Speaker 2: And of course, the markets and we call this show 313 00:16:17,750 --> 00:16:20,370 Speaker 2: the power and consequence. And there's so many different things 314 00:16:20,430 --> 00:16:25,760 Speaker 2: going on around this White House, around international affairs in 315 00:16:25,940 --> 00:16:30,270 Speaker 2: Europe and, of course, artificial intelligence. So we're doing all right. 316 00:16:30,630 --> 00:16:32,870 Speaker 2: I don't think we're nipping at your heels yet, though, Tom. 317 00:16:33,010 --> 00:16:35,430 Speaker 4: Well, you know, we're living it every day. Paul and 318 00:16:35,470 --> 00:16:38,720 Speaker 4: I are living this fire hose of news flow. Let 319 00:16:38,740 --> 00:16:41,660 Speaker 4: me just begin with almost a Greenspan and Schiller of 320 00:16:41,720 --> 00:16:47,920 Speaker 4: Yale idea of Gensler calibrating the exuberance. The word I 321 00:16:48,080 --> 00:16:51,410 Speaker 4: use is almost people feel it's febrile. It's almost got 322 00:16:51,450 --> 00:16:55,630 Speaker 4: a fever to it, this moment we're living in of technology. 323 00:16:56,180 --> 00:16:59,450 Speaker 4: of politics, of Iran, the news this morning that maybe 324 00:16:59,490 --> 00:17:04,169 Speaker 4: there'll be talks. Do you sense a constructive or less 325 00:17:04,210 --> 00:17:05,760 Speaker 4: than constructive exuberance? 326 00:17:06,520 --> 00:17:08,500 Speaker 8: Well, I think that we will have. 327 00:17:10,150 --> 00:17:14,790 Speaker 2: A deceleration of this AI boom, and then some form 328 00:17:14,990 --> 00:17:17,970 Speaker 2: of a reversal in the next 18 to 30 months. 329 00:17:18,410 --> 00:17:20,750 Speaker 2: And the question really, to me, is a little bit 330 00:17:20,790 --> 00:17:25,020 Speaker 2: about timing, when, and then how deep it is. And 331 00:17:25,080 --> 00:17:27,060 Speaker 2: I think the depth of it is going to be 332 00:17:27,170 --> 00:17:29,179 Speaker 2: all dependent upon all the debt. 333 00:17:29,400 --> 00:17:32,060 Speaker 8: How much debt's in the system? Where is it? Who 334 00:17:32,140 --> 00:17:32,540 Speaker 8: holds it? 335 00:17:32,540 --> 00:17:37,399 Speaker 2: So, I don't know, Tom, if that does it for you. 336 00:17:37,460 --> 00:17:39,159 Speaker 2: And now in terms of politics, we're going to have 337 00:17:39,180 --> 00:17:43,850 Speaker 2: the midterms in a week. And then, Katie, bar the door, 338 00:17:43,910 --> 00:17:46,649 Speaker 2: there's going to be 15 or 20 people running for 339 00:17:46,710 --> 00:17:49,710 Speaker 2: president for 28 that will all be announced by January 340 00:17:49,730 --> 00:17:50,830 Speaker 2: or February of next year. 341 00:17:51,210 --> 00:17:54,110 Speaker 4: Or by the Wednesday after the election. 342 00:17:54,130 --> 00:17:54,550 Speaker 5: Exactly. 343 00:17:54,970 --> 00:17:59,629 Speaker 7: So, Gary, yesterday was... Just an incredible day for AI, 344 00:17:59,710 --> 00:18:03,070 Speaker 7: the story, the theme. We had Anthropic File. It's S1, 345 00:18:03,330 --> 00:18:04,350 Speaker 7: long awaited. 346 00:18:04,470 --> 00:18:06,720 Speaker 8: Have you read the 400 pages yet? We're getting through it. 347 00:18:06,810 --> 00:18:09,690 Speaker 7: I'm having AI work on it for me. We also 348 00:18:09,730 --> 00:18:13,940 Speaker 7: had Meta just do a flyby $ 90 billion equity offering. 349 00:18:13,980 --> 00:18:17,830 Speaker 7: So just extraordinary amounts of capital here. How do you 350 00:18:17,869 --> 00:18:21,350 Speaker 7: frame this AI discussion? Because one could argue, as you 351 00:18:21,369 --> 00:18:24,030 Speaker 7: just suggested, that to the extent it ever pulls back, 352 00:18:24,109 --> 00:18:24,650 Speaker 7: rolls over. 353 00:18:24,690 --> 00:18:26,730 Speaker 4: Whatever you want to say, that could be problematic. 354 00:18:27,030 --> 00:18:30,229 Speaker 2: Well, Paul, it will pull back. I mean, history tells 355 00:18:30,310 --> 00:18:34,510 Speaker 2: us this. You can be positive about the technology and 356 00:18:34,570 --> 00:18:41,170 Speaker 2: still say our capital markets tends to overfund in an exuberance. 357 00:18:41,810 --> 00:18:44,960 Speaker 2: There's some game theory, too, that everybody wants to get 358 00:18:45,040 --> 00:18:48,639 Speaker 2: in on it, on railroads, on canals, on the internet, 359 00:18:49,220 --> 00:18:52,619 Speaker 2: and on this. And so it's just a question of 360 00:18:53,160 --> 00:18:58,050 Speaker 2: when and then how deep it goes. And I would 361 00:18:58,109 --> 00:19:02,070 Speaker 2: say this, when you see the metas raising $ 90 billion, 362 00:19:02,130 --> 00:19:06,630 Speaker 2: when you see the debt issuance, which is very significant. 363 00:19:06,670 --> 00:19:12,280 Speaker 2: You saw Broadcom announced late yesterday a $ 63 billion package 364 00:19:12,320 --> 00:19:14,600 Speaker 2: that's not even in that S-1. They have to amend 365 00:19:14,640 --> 00:19:19,980 Speaker 2: the S-1 and put that in. $ 63 billion of complex 366 00:19:20,080 --> 00:19:24,120 Speaker 2: guarantees and so forth, all off balance sheet. 367 00:19:24,440 --> 00:19:25,480 Speaker 8: You start to worry. 368 00:19:25,550 --> 00:19:29,690 Speaker 2: That's feeling a little like that 08 off balance sheet craze. 369 00:19:29,970 --> 00:19:34,770 Speaker 4: Gary Gensler, with his service to the nation, Many different jobs, 370 00:19:34,850 --> 00:19:37,630 Speaker 4: but I would suggest with the election, there's a less 371 00:19:37,810 --> 00:19:43,629 Speaker 4: regulatory persuasion and then a more regulatory persuasion. Does the 372 00:19:43,710 --> 00:19:47,510 Speaker 4: government at some point, particularly if the Democrats take over again, 373 00:19:48,210 --> 00:19:52,680 Speaker 4: have to step in and begin manifesting? these huge amounts 374 00:19:52,740 --> 00:19:55,660 Speaker 4: of money flowing in, the risk to the public? Do 375 00:19:55,740 --> 00:19:58,000 Speaker 4: you desire more regulation? 376 00:20:00,290 --> 00:20:02,490 Speaker 2: I think it's a balance, and I would say in 377 00:20:02,550 --> 00:20:06,449 Speaker 2: terms of the capital markets, I think we're really successful 378 00:20:06,470 --> 00:20:09,640 Speaker 2: in the U.S. keeping the government out of the choices 379 00:20:09,700 --> 00:20:13,020 Speaker 2: we make, that we're merit neutral. And if the public 380 00:20:13,060 --> 00:20:17,780 Speaker 2: wishes to invest in Anthropic, that's the public's choice as 381 00:20:17,840 --> 00:20:20,619 Speaker 2: long as there's the material disclosures of all the risks. 382 00:20:21,540 --> 00:20:24,980 Speaker 2: On the other hand, there's this cleanup crowd that has 383 00:20:25,030 --> 00:20:27,129 Speaker 2: to come in afterwards. And if I were at the 384 00:20:27,230 --> 00:20:31,459 Speaker 2: Federal Reserve, This week, I'd be saying, look, if we 385 00:20:31,500 --> 00:20:36,420 Speaker 2: have a deceleration, what does that mean for inflation, for 386 00:20:36,520 --> 00:20:37,580 Speaker 2: growth in. 387 00:20:37,500 --> 00:20:37,860 Speaker 4: 2027, 2028? 388 00:20:37,859 --> 00:20:42,060 Speaker 2: I think they're going to have a rate increase come December. 389 00:20:42,680 --> 00:20:44,460 Speaker 8: But what do they do after that? 390 00:20:44,640 --> 00:20:47,400 Speaker 2: And I am starting to think they're going to start 391 00:20:47,440 --> 00:20:50,510 Speaker 2: to see a deceleration, and maybe they don't raise rates 392 00:20:50,590 --> 00:20:51,179 Speaker 2: as much in 2027. 393 00:20:51,180 --> 00:20:54,310 Speaker 4: Well, Vice Chairman Gensler, can you see it? I can 394 00:20:54,390 --> 00:20:58,530 Speaker 4: see it. Vice Chairman Gensler has a rig. I'm kidding, folks. 395 00:20:58,830 --> 00:21:00,949 Speaker 4: But if I was speaking to Vice Chairman Clarity, it'd 396 00:21:00,970 --> 00:21:04,530 Speaker 4: be the same question. Out of COVID, stimulus one, stimulus two, 397 00:21:04,930 --> 00:21:08,110 Speaker 4: many have a stimulus that was called the Biden stimulus. 398 00:21:08,150 --> 00:21:11,430 Speaker 4: Maybe there's a fourth, fifth stimulus as well. Has this 399 00:21:11,630 --> 00:21:18,700 Speaker 4: nominal GDP been goosed so much that we risk not disaster, 400 00:21:19,060 --> 00:21:22,320 Speaker 4: but some real pain and angst and workout as we 401 00:21:22,400 --> 00:21:24,580 Speaker 4: pull nominal GDP down? 402 00:21:25,619 --> 00:21:29,830 Speaker 2: Well, look, this is a challenge for any central bank. 403 00:21:30,310 --> 00:21:32,130 Speaker 2: But if you feel that you're kind of at the 404 00:21:32,270 --> 00:21:36,409 Speaker 2: late stages of a capital expenditure boom, that's what I 405 00:21:36,450 --> 00:21:40,010 Speaker 2: contend we are. If you're at that late stages, how 406 00:21:40,030 --> 00:21:43,350 Speaker 2: do you affect monetary policy? And by the way, you 407 00:21:43,390 --> 00:21:46,330 Speaker 2: might have been the right first person right here to 408 00:21:46,390 --> 00:21:48,990 Speaker 2: say that there's going to be a fiscal stimulus package 409 00:21:49,050 --> 00:21:49,490 Speaker 2: in 2028 on the horizon. 410 00:21:51,859 --> 00:21:55,139 Speaker 8: If we have that deceleration, I'll give you that credit. 411 00:21:55,520 --> 00:21:58,030 Speaker 4: Let's turn it over to Jack Lew, because I think 412 00:21:58,330 --> 00:22:00,990 Speaker 4: I stole I steal from everybody. I mean, I know 413 00:22:01,050 --> 00:22:03,689 Speaker 4: nothing about Duke. I steal it all from Paul. But 414 00:22:03,710 --> 00:22:06,530 Speaker 4: the answer is, I believe Secretary Lew was the one 415 00:22:06,570 --> 00:22:10,780 Speaker 4: who suggested the morning after the 28 election, we get 416 00:22:10,900 --> 00:22:13,459 Speaker 4: fiscal challenges and also Social Security issues. 417 00:22:14,010 --> 00:22:14,410 Speaker 5: Study. 418 00:22:14,890 --> 00:22:15,930 Speaker 4: That's where it begins. 419 00:22:16,050 --> 00:22:20,540 Speaker 2: I think Jack's right about that. But that's the long-term 420 00:22:20,630 --> 00:22:24,980 Speaker 2: structural thing. So we're already running very high debt to 421 00:22:25,040 --> 00:22:27,960 Speaker 2: our economy. But see what's happening in France, who has 422 00:22:28,040 --> 00:22:31,000 Speaker 2: even higher debt to economy. They don't have what's called 423 00:22:31,200 --> 00:22:36,530 Speaker 2: fiscal room to step in. We have limited fiscal room 424 00:22:36,630 --> 00:22:39,610 Speaker 2: as well, but we're a bigger, I would say more 425 00:22:40,250 --> 00:22:41,630 Speaker 2: significant economy. 426 00:22:42,590 --> 00:22:47,490 Speaker 7: We're going to have these elections a week from today. Presumably, 427 00:22:47,540 --> 00:22:49,060 Speaker 7: the Democrats are going to gain a little bit more 428 00:22:49,100 --> 00:22:53,000 Speaker 7: leverage in the House, maybe even the Senate. What does 429 00:22:53,040 --> 00:22:55,740 Speaker 7: that mean for our executive branch for the next two 430 00:22:56,100 --> 00:22:58,419 Speaker 7: years here? A lot of folks are saying, you think 431 00:22:58,440 --> 00:23:00,270 Speaker 7: you've seen some stuff here in the first two years? 432 00:23:00,310 --> 00:23:01,189 Speaker 7: Just wait for the next two. 433 00:23:01,510 --> 00:23:05,669 Speaker 2: Well, look, history tells us that presidents tend in the 434 00:23:05,710 --> 00:23:08,750 Speaker 2: last two years. And remember, this president will have had 435 00:23:08,930 --> 00:23:14,369 Speaker 2: six years already, will turn more to foreign affairs. They 436 00:23:14,410 --> 00:23:17,530 Speaker 2: have less leverage with Congress. But I do think that 437 00:23:17,570 --> 00:23:20,710 Speaker 2: there'll be Democrats on the Hill that will look to 438 00:23:20,800 --> 00:23:23,740 Speaker 2: still get some things done. And if this president wants 439 00:23:23,800 --> 00:23:26,900 Speaker 2: to work with them, and that's a question, I think 440 00:23:26,940 --> 00:23:29,919 Speaker 2: they'll want to get some things done on behalf of 441 00:23:29,940 --> 00:23:35,550 Speaker 2: the American voters. and address affordability, address housing, address the 442 00:23:35,650 --> 00:23:40,560 Speaker 2: AI worry that's on everybody's mind, AI safety, and my 443 00:23:40,640 --> 00:23:42,280 Speaker 2: kids being addicted to this stuff. 444 00:23:42,700 --> 00:23:44,600 Speaker 7: How about the kids up at MIT? How do they 445 00:23:44,640 --> 00:23:47,570 Speaker 7: interact with AI, broadly defined. 446 00:23:48,510 --> 00:23:52,209 Speaker 2: Well, they're terrific students at MIT. I'm bragging on them 447 00:23:52,290 --> 00:23:55,010 Speaker 2: all the time, the graduate students and the undergrads. 448 00:23:55,430 --> 00:23:56,169 Speaker 8: But they use it. 449 00:23:56,150 --> 00:23:58,850 Speaker 2: 98% of them will use it. And most of them 450 00:23:58,930 --> 00:24:02,210 Speaker 2: use it on some regular basis. The faculty use it 451 00:24:02,290 --> 00:24:06,930 Speaker 2: as well. I say to them, you have to keep 452 00:24:07,030 --> 00:24:10,149 Speaker 2: training your brain. You have to stay in front of it. 453 00:24:10,600 --> 00:24:15,980 Speaker 2: Other people might have cognitive decline because they offload everything 454 00:24:16,040 --> 00:24:17,120 Speaker 2: to it or most. 455 00:24:17,440 --> 00:24:18,669 Speaker 8: You've got to stay ahead of it. 456 00:24:19,859 --> 00:24:22,520 Speaker 2: But some of the students are just terrific in using 457 00:24:22,560 --> 00:24:25,040 Speaker 2: the AI in getting ahead. 458 00:24:25,070 --> 00:24:27,070 Speaker 4: We're going to rip up the script. This is too important. 459 00:24:27,090 --> 00:24:30,350 Speaker 4: But this is absolutely brilliant. And then two years out, 460 00:24:30,510 --> 00:24:33,109 Speaker 4: five years out, 20 years out, We're going to have 461 00:24:33,150 --> 00:24:37,680 Speaker 4: a cadre of intellect that uses AI as a constructive 462 00:24:37,800 --> 00:24:41,179 Speaker 4: bolt-on to their critical thinking skills. And we're going to 463 00:24:41,220 --> 00:24:44,460 Speaker 4: have this huge body of people slipping by, Gary. That's 464 00:24:44,800 --> 00:24:47,470 Speaker 4: the worry. They're going to be slipping by using it 465 00:24:47,770 --> 00:24:48,389 Speaker 4: as a crutch. 466 00:24:48,830 --> 00:24:49,429 Speaker 8: Yeah. 467 00:24:49,730 --> 00:24:54,149 Speaker 2: And so the challenge for all of us personally is 468 00:24:54,190 --> 00:24:57,240 Speaker 2: that we keep pushing our brain. One of my colleagues, 469 00:24:57,300 --> 00:24:59,620 Speaker 2: Eric So, wrote a terrific book on this. And he said, 470 00:24:59,660 --> 00:25:03,960 Speaker 2: you know, we humans are actually biologically wired to conserve energy. 471 00:25:04,380 --> 00:25:08,820 Speaker 2: So we're biologically wired not to use our brain as much. 472 00:25:08,960 --> 00:25:13,400 Speaker 2: And we have to sort of fight against that biology 473 00:25:13,840 --> 00:25:17,640 Speaker 2: and go further. But I think that MIT students got 474 00:25:17,680 --> 00:25:19,110 Speaker 2: what they need to do that. 475 00:25:19,109 --> 00:25:22,940 Speaker 4: 1987, you were too young. The answer is I learned 476 00:25:22,980 --> 00:25:27,770 Speaker 4: how to spell portfolio insurance about 2 p.m. in 1987. 477 00:25:27,770 --> 00:25:30,430 Speaker 4: Where's the shadow for you in the system right now, 478 00:25:30,810 --> 00:25:31,770 Speaker 4: Professor Gensler? 479 00:25:32,090 --> 00:25:35,790 Speaker 2: Well, if you're asking me where is the debt in 480 00:25:35,830 --> 00:25:38,820 Speaker 2: the system, that's a different question. But I do concern 481 00:25:38,859 --> 00:25:42,379 Speaker 2: myself that the risk in the system is In artificial intelligence, 482 00:25:42,420 --> 00:25:46,859 Speaker 2: we've raised over $ 500 billion of new debt this year. 483 00:25:46,880 --> 00:25:51,290 Speaker 2: And then you add this Broadcom $ 63 billion. So we're 484 00:25:51,330 --> 00:25:56,010 Speaker 2: pushing $ 600 billion. And who holds it? I think it's 485 00:25:56,170 --> 00:26:00,350 Speaker 2: insurance sector I worry about that's picked up a lot 486 00:26:00,390 --> 00:26:04,899 Speaker 2: of holding of debt through private credit or just directly. 487 00:26:05,540 --> 00:26:10,919 Speaker 2: I worry about all these guarantees that Broadcom, NVIDIA, AMD 488 00:26:11,040 --> 00:26:15,440 Speaker 2: have written back into these data centers, and it's off 489 00:26:15,520 --> 00:26:18,840 Speaker 2: balance sheet. They're setting up more special purpose vehicles than 490 00:26:18,900 --> 00:26:20,980 Speaker 2: even Citicorp did in the day. 491 00:26:21,000 --> 00:26:22,480 Speaker 4: Let me get one more in here because Paul's got 492 00:26:22,540 --> 00:26:24,910 Speaker 4: any questions. We're going to wait for Ethan Bronner, folks, 493 00:26:24,950 --> 00:26:28,929 Speaker 4: a critical conversation from Tel Aviv. Gary Gensler, this is 494 00:26:28,970 --> 00:26:32,260 Speaker 4: the critical moment then. If we have those worries... Do 495 00:26:32,300 --> 00:26:39,160 Speaker 4: we understand the simple depreciation or obsolescence of all this technology? 496 00:26:39,520 --> 00:26:41,179 Speaker 4: I do not have a clear picture. 497 00:26:41,200 --> 00:26:44,850 Speaker 2: So and a lot of the funding is funding the chips, 498 00:26:44,930 --> 00:26:50,090 Speaker 2: the memory chips. And those chips might have four to 499 00:26:50,170 --> 00:26:51,830 Speaker 2: seven year useful lives. 500 00:26:51,890 --> 00:26:53,280 Speaker 8: Now, I get it. I get it. 501 00:26:53,590 --> 00:26:57,190 Speaker 2: It's somebody in maybe another country will be using these 502 00:26:57,230 --> 00:26:57,870 Speaker 2: in the future. 503 00:26:59,250 --> 00:27:00,430 Speaker 8: But there's such uncertainty. 504 00:27:00,900 --> 00:27:07,700 Speaker 2: Fabulous scaling, such technological advances that the chips of 2026 505 00:27:07,700 --> 00:27:10,899 Speaker 2: won't be that valuable in 2032. 506 00:27:10,900 --> 00:27:15,149 Speaker 7: Are you have any confidence that our friends in Washington 507 00:27:15,609 --> 00:27:18,750 Speaker 7: have any idea what AI is and what AI can 508 00:27:18,790 --> 00:27:23,570 Speaker 7: be and what AI risks are? Boy, I think global 509 00:27:23,590 --> 00:27:25,090 Speaker 7: Wall Street's trying to just figure it out as we 510 00:27:25,109 --> 00:27:28,300 Speaker 7: go through this anthropic S1. I can't imagine our friends 511 00:27:28,359 --> 00:27:31,380 Speaker 7: in Washington Look, it ranges. 512 00:27:31,750 --> 00:27:32,970 Speaker 8: Some part do. 513 00:27:33,190 --> 00:27:37,830 Speaker 2: And just like in the media business, just like financial analysts, 514 00:27:39,310 --> 00:27:40,720 Speaker 2: they're grappling with it. 515 00:27:41,590 --> 00:27:44,010 Speaker 8: There's real issues. 516 00:27:43,940 --> 00:27:48,380 Speaker 2: That we can chat about, about AI safety and AI 517 00:27:48,500 --> 00:27:50,520 Speaker 2: working on its own and. 518 00:27:52,020 --> 00:27:55,379 Speaker 8: Not being controlled by us humans. That's a deep thing. 519 00:27:55,400 --> 00:28:00,090 Speaker 2: I worry, of course, about this overall financial stability as 520 00:28:00,130 --> 00:28:04,810 Speaker 2: we decelerate from a capital expenditure boom. And then you've 521 00:28:04,830 --> 00:28:06,730 Speaker 2: got a White House that just got their foot on 522 00:28:06,750 --> 00:28:09,689 Speaker 2: the accelerator pedal. and wants to go as fast as 523 00:28:09,770 --> 00:28:12,710 Speaker 2: possible in competition with China. And China's not going to 524 00:28:12,780 --> 00:28:18,139 Speaker 2: slow down. So these are hard choices. And then the 525 00:28:18,200 --> 00:28:21,300 Speaker 2: Federal Reserve has to decide, well, do we raise rates 526 00:28:21,359 --> 00:28:24,100 Speaker 2: again in December? Do we raise rates again in March? 527 00:28:24,280 --> 00:28:26,640 Speaker 2: I think they might pause after December. 528 00:28:26,820 --> 00:28:30,850 Speaker 4: What's the pixie dust? Come on. Simon Johnson finally won 529 00:28:30,910 --> 00:28:34,310 Speaker 4: a Nobel Prize. His book, 13 Bankers, was brilliant on 530 00:28:34,330 --> 00:28:39,450 Speaker 4: the crash, a short monograph. Holland Woodford, MIT. I mean, 531 00:28:39,470 --> 00:28:43,870 Speaker 4: is it the legacy of Solo in 1956 or Stanley Fischer? 532 00:28:44,130 --> 00:28:48,210 Speaker 4: What's the pixie dust on the Cambridge River at MIT? 533 00:28:48,490 --> 00:28:53,620 Speaker 2: Look, I mean, my colleagues and I don't agree. And 534 00:28:53,650 --> 00:28:56,740 Speaker 2: that's a good thing about being at MIT. There's such 535 00:28:56,780 --> 00:29:01,180 Speaker 2: a diversity of viewers. Some think there's only going to 536 00:29:01,200 --> 00:29:06,810 Speaker 2: be modest productivity gains and there'll be significant labor disruptions. 537 00:29:07,030 --> 00:29:08,750 Speaker 8: I'm more optimistic. 538 00:29:08,190 --> 00:29:13,130 Speaker 2: About the productivity gains over the next five to 10 years, 539 00:29:13,770 --> 00:29:16,650 Speaker 2: but that still could be that we've overbuilt some of 540 00:29:16,690 --> 00:29:19,430 Speaker 2: these data centers at the same time. 541 00:29:19,850 --> 00:29:22,710 Speaker 4: Gary Gensler, thank you so much. It's a podcast. Simon Johnson, 542 00:29:23,030 --> 00:29:26,510 Speaker 4: Gary Gensler up at MIT. Thank you so much. He's 543 00:29:26,550 --> 00:29:32,140 Speaker 4: a former chairman of the Securities Exchange Commission. Stay with us. 544 00:29:32,460 --> 00:29:35,690 Speaker 10: More from Bloomberg Surveillance coming up after this. 545 00:29:42,950 --> 00:29:46,560 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 546 00:29:46,630 --> 00:29:49,820 Speaker 1: weekday afternoons from 7 to 10 a.m. Eastern. Listen on 547 00:29:49,920 --> 00:29:53,180 Speaker 1: Apple CarPlay and Android Auto with the Bloomberg Business app 548 00:29:53,380 --> 00:29:55,100 Speaker 1: or watch us live on YouTube. 549 00:29:55,520 --> 00:29:58,020 Speaker 4: Mike Wilson with us right now with Morgan Stanley here. 550 00:29:58,380 --> 00:30:01,440 Speaker 4: It's clearing events we're looking for in the research. No, 551 00:30:01,810 --> 00:30:03,690 Speaker 4: I know you don't write the research. I'm going to 552 00:30:03,710 --> 00:30:07,110 Speaker 4: blame this on Nicholas Lentini or maybe even Michelle Weaver. 553 00:30:07,430 --> 00:30:11,510 Speaker 4: Buried in your note, you have the dreaded word correction. Okay, 554 00:30:11,550 --> 00:30:14,590 Speaker 4: that's like a correction. Except I look at SPX, I 555 00:30:14,630 --> 00:30:17,570 Speaker 4: look at NASDAQ, and they're not in correction. Is the 556 00:30:17,630 --> 00:30:20,770 Speaker 4: new correction just flatlining since the summer? 557 00:30:21,110 --> 00:30:23,950 Speaker 9: Well, it's a fair question. But I mean, you know, Tom, 558 00:30:24,060 --> 00:30:25,710 Speaker 9: beneath the surface always tells us a little bit of 559 00:30:25,780 --> 00:30:28,700 Speaker 9: a different story. So earlier this year, it was a 560 00:30:28,740 --> 00:30:31,440 Speaker 9: broadening story. That was our call for 2026, and it happened, 561 00:30:31,480 --> 00:30:34,100 Speaker 9: and it was an earnings story that drove that. And 562 00:30:34,120 --> 00:30:37,260 Speaker 9: then that paused in June, which we identified as this 563 00:30:37,320 --> 00:30:40,500 Speaker 9: mid-cycle transition. It became very narrow. And that's what we've 564 00:30:40,520 --> 00:30:42,960 Speaker 9: been dealing with. So there's been an incredible correction under 565 00:30:43,020 --> 00:30:45,670 Speaker 9: the surface that started in June for the right reasons. 566 00:30:45,730 --> 00:30:47,150 Speaker 9: And I think we're probably 80%, 90% done with that. 567 00:30:47,170 --> 00:30:50,550 Speaker 4: Do you buy the beleaguered corrected or do you stay 568 00:30:50,670 --> 00:30:51,950 Speaker 4: on board the juggernaut? 569 00:30:52,890 --> 00:30:54,610 Speaker 9: Well, I think you stay on board with the leaders 570 00:30:54,650 --> 00:30:56,990 Speaker 9: for now, which is quality. And it's not just the MAG-7. 571 00:30:57,230 --> 00:30:59,940 Speaker 9: It's quality as a factor. And that's been our call 572 00:30:59,960 --> 00:31:04,160 Speaker 9: since June. Now, ironically, these corrections tend to end with 573 00:31:04,180 --> 00:31:07,780 Speaker 9: the quality index down. finally getting hit. So in other words, 574 00:31:08,100 --> 00:31:09,920 Speaker 9: the S and P 500, what we've been talking about 575 00:31:09,940 --> 00:31:12,260 Speaker 9: for the last two months is typically these corrections. And 576 00:31:12,280 --> 00:31:14,770 Speaker 9: when the S and P catches down to the breath 577 00:31:14,880 --> 00:31:17,030 Speaker 9: or the breath catches up, and we've seen a meeting 578 00:31:17,050 --> 00:31:19,190 Speaker 9: in the middle of those two metrics that we follow. 579 00:31:19,630 --> 00:31:21,130 Speaker 9: And we think it's sort of, you know, we're in 580 00:31:21,150 --> 00:31:23,010 Speaker 9: the ninth inning of this and this, and we have 581 00:31:23,050 --> 00:31:24,950 Speaker 9: these clearing events, which you wrote about this week, that 582 00:31:25,110 --> 00:31:28,070 Speaker 9: should kind of bring a final ending to this chapter. 583 00:31:28,360 --> 00:31:29,820 Speaker 9: And then we can move forward with the bull market 584 00:31:29,860 --> 00:31:31,200 Speaker 9: into 2027. 585 00:31:31,200 --> 00:31:33,620 Speaker 7: One of the clearing events, you highlighted the midterm elections 586 00:31:33,640 --> 00:31:37,070 Speaker 7: a week from today. Um, I guess the experts are 587 00:31:37,090 --> 00:31:40,570 Speaker 7: telling us the Democrats are going to get some, maybe 588 00:31:40,630 --> 00:31:42,490 Speaker 7: win the house, maybe even, maybe even the Senate. What 589 00:31:42,530 --> 00:31:46,370 Speaker 7: does that mean for, I guess it's just deadlock and 590 00:31:46,590 --> 00:31:48,020 Speaker 7: gridlock and all that kind of stuff. 591 00:31:48,040 --> 00:31:48,890 Speaker 9: What does that mean for markets? 592 00:31:49,190 --> 00:31:49,520 Speaker 5: Not much. 593 00:31:49,820 --> 00:31:52,000 Speaker 9: I mean, to your point, the markets tend to trade 594 00:31:52,040 --> 00:31:54,900 Speaker 9: pre-trade this just like any event, right? So another part 595 00:31:54,920 --> 00:31:57,020 Speaker 9: of the reason why the markets have been unstable or 596 00:31:57,100 --> 00:31:58,880 Speaker 9: weaker the last month or so is there is a 597 00:31:58,900 --> 00:32:02,300 Speaker 9: lot of nervousness around this election, not so much who 598 00:32:02,340 --> 00:32:04,060 Speaker 9: wins or the magnitude of the wind, but just all 599 00:32:04,100 --> 00:32:07,920 Speaker 9: the anxiety around the tension. all the language that's being 600 00:32:07,940 --> 00:32:10,620 Speaker 9: thrown around. The president talking about he's going to do 601 00:32:10,680 --> 00:32:13,830 Speaker 9: something dramatic after the election. So the uncertainty around that. 602 00:32:14,230 --> 00:32:17,050 Speaker 9: So to me, it's the uncertainty factor. And most of 603 00:32:17,070 --> 00:32:19,250 Speaker 9: that has been priced out too. And so sometimes these 604 00:32:19,370 --> 00:32:21,910 Speaker 9: elections are clearing events simply because the event has come 605 00:32:21,950 --> 00:32:25,380 Speaker 9: and gone. And then we realize that nothing has really changed. 606 00:32:25,410 --> 00:32:29,120 Speaker 9: Going forward, is legislation really going to be dramatically different 607 00:32:29,140 --> 00:32:31,380 Speaker 9: in the midterm? No, that usually happens in the presidential 608 00:32:31,420 --> 00:32:33,880 Speaker 9: election when you have a real wholesale change in leadership. 609 00:32:34,830 --> 00:32:38,250 Speaker 7: Yesterday, all we talked about was AI because we had 610 00:32:38,270 --> 00:32:42,960 Speaker 7: the Anthropic S1. We had the meta $ 90 billion follow-on 611 00:32:43,020 --> 00:32:45,700 Speaker 7: offering announcement. We didn't even talk about the fact that 612 00:32:45,720 --> 00:32:47,520 Speaker 7: the Fed's meeting. And, I mean, we're going to have 613 00:32:47,540 --> 00:32:50,160 Speaker 7: a Fed meeting tomorrow. I mean, should we be paying 614 00:32:50,200 --> 00:32:50,900 Speaker 7: attention to that? 615 00:32:51,240 --> 00:32:51,600 Speaker 5: Well, sure. 616 00:32:51,640 --> 00:32:53,959 Speaker 9: But I think the reason why is because the expectation 617 00:32:53,980 --> 00:32:56,050 Speaker 9: is there's nothing going to be done at this Fed meeting. 618 00:32:56,470 --> 00:32:58,450 Speaker 9: That was done last meeting, and now they're kind of 619 00:32:58,510 --> 00:33:01,010 Speaker 9: on hold. That's the presumption. I think that's right. I mean, 620 00:33:01,050 --> 00:33:03,770 Speaker 9: I'm not saying that that's wrong. But it's going to 621 00:33:03,790 --> 00:33:09,230 Speaker 9: be more about the tonal interpretation of the press conference 622 00:33:09,310 --> 00:33:13,360 Speaker 9: and all the Fed watchers scribbling afterwards. But at the 623 00:33:13,380 --> 00:33:14,820 Speaker 9: end of the day, if I look at the last 624 00:33:14,840 --> 00:33:17,220 Speaker 9: three or four Fed meetings, this is probably the one 625 00:33:17,240 --> 00:33:19,520 Speaker 9: where the least amount of change is sort of expected. 626 00:33:19,840 --> 00:33:22,680 Speaker 4: Mike Wilson with us. He's Chief Investment Officer driving all 627 00:33:22,720 --> 00:33:26,709 Speaker 4: of equity at Morgan Stanley this morning. Whitney Tilson darkened 628 00:33:26,730 --> 00:33:29,810 Speaker 4: the door on Friday on Bloomberg Money. And he framed 629 00:33:29,850 --> 00:33:32,750 Speaker 4: this out, and it was perfect for Mike Wilson. I 630 00:33:32,830 --> 00:33:35,530 Speaker 4: own the Mag 7. I got lucky. I've made a 631 00:33:35,550 --> 00:33:40,200 Speaker 4: lot of money. I've never owned them. Massive regret right now. 632 00:33:40,840 --> 00:33:43,460 Speaker 4: Or that group that bought them then sold them. And 633 00:33:43,500 --> 00:33:47,860 Speaker 4: you've been so good about being patient. Discuss Mike Wilson's 634 00:33:48,500 --> 00:33:53,570 Speaker 4: buy and hold. The blind holding is a phrase. Discuss 635 00:33:54,120 --> 00:33:56,310 Speaker 4: buy and hold as a trap or is that a 636 00:33:56,370 --> 00:33:57,470 Speaker 4: positive construct? 637 00:33:58,110 --> 00:34:01,130 Speaker 9: Well, generally, stocks over time go up. And the S & 638 00:34:00,630 --> 00:34:03,270 Speaker 9: P 500, of course, is a great index. It's a 639 00:34:03,330 --> 00:34:06,690 Speaker 9: high-quality index that is self-regulating, right? You have names go 640 00:34:06,710 --> 00:34:08,890 Speaker 9: in and out. Now, what we've had in the last 641 00:34:08,890 --> 00:34:10,930 Speaker 9: 10 or 15 years has been pretty unusual. You have 642 00:34:10,969 --> 00:34:13,420 Speaker 9: basically monopoly businesses. That's what these are. 643 00:34:13,660 --> 00:34:16,620 Speaker 4: Thank you. At least monopsony, which is a. 644 00:34:16,520 --> 00:34:17,520 Speaker 9: Whole different discussion. 645 00:34:17,520 --> 00:34:17,680 Speaker 4: 100%. 646 00:34:17,680 --> 00:34:19,379 Speaker 9: And they're in different lines. I mean, you have one 647 00:34:19,420 --> 00:34:22,380 Speaker 9: that's feeding the hyperscalers. The hyperscalers are then feeding the 648 00:34:22,440 --> 00:34:24,780 Speaker 9: other ones. So It's kind of a circular thing, but 649 00:34:24,940 --> 00:34:28,130 Speaker 9: it's all being funded mostly by equity and cash flow, 650 00:34:28,190 --> 00:34:29,509 Speaker 9: I mean, for the most part. Yeah, they've been borrowing 651 00:34:29,530 --> 00:34:32,629 Speaker 9: more money lately, but the markets have adjusted for that. 652 00:34:32,830 --> 00:34:34,970 Speaker 9: I like to remind people when they say, oh, my God, 653 00:34:35,010 --> 00:34:37,719 Speaker 9: the stock market's up 10% this year. It's like stock 654 00:34:37,760 --> 00:34:39,799 Speaker 9: investors are idiots. They have no idea what's going on. 655 00:34:40,000 --> 00:34:42,440 Speaker 9: Can't they see all this stuff that's happening? The multiple 656 00:34:42,620 --> 00:34:45,399 Speaker 9: for the S & P 500 has gone down almost 20% 657 00:34:45,400 --> 00:34:47,819 Speaker 9: from a year ago. So, you know, don't tell me 658 00:34:47,890 --> 00:34:49,169 Speaker 9: that the market isn't paying attention. 659 00:34:49,190 --> 00:34:49,570 Speaker 4: It is. 660 00:34:49,810 --> 00:34:52,230 Speaker 9: The question is, is that enough of a discount? I think, yeah, 661 00:34:52,270 --> 00:34:55,210 Speaker 9: I think the multiple now is cheap enough to basically 662 00:34:55,250 --> 00:34:57,870 Speaker 9: feel comfortable that it's discounted a lot of these risks. 663 00:34:58,070 --> 00:35:01,110 Speaker 9: And when you have these monopoly-type businesses really driving the 664 00:35:01,150 --> 00:35:03,790 Speaker 9: bulk of that, it's hard to argue that this trend 665 00:35:03,830 --> 00:35:05,370 Speaker 9: of earnings growth doesn't sustain. 666 00:35:05,630 --> 00:35:05,790 Speaker 4: Yep. 667 00:35:06,330 --> 00:35:08,870 Speaker 7: Earnings growth, you just mentioned, I mean, the first half 668 00:35:08,890 --> 00:35:11,500 Speaker 7: of this year was just extraordinary. in terms of the 669 00:35:11,540 --> 00:35:14,120 Speaker 7: earnings growth numbers. Third quarter coming in, I think, pretty 670 00:35:14,140 --> 00:35:16,910 Speaker 7: strong as well. But if nothing else, the comps next. 671 00:35:16,810 --> 00:35:17,469 Speaker 9: Year are going to be tough. 672 00:35:17,510 --> 00:35:21,089 Speaker 7: How does a market deal with a 20%, 30% growth 673 00:35:21,110 --> 00:35:23,529 Speaker 7: rate down to a mid-teens, which we would kill for 674 00:35:23,550 --> 00:35:26,299 Speaker 7: at any other time? How does the market deal with that? 675 00:35:26,560 --> 00:35:28,200 Speaker 9: It deals with it by the multiple going down by 20%. 676 00:35:28,200 --> 00:35:31,980 Speaker 9: So in other words, like last year, in October of 677 00:35:32,000 --> 00:35:34,620 Speaker 9: last year, a year ago, we were trading at 23 678 00:35:34,620 --> 00:35:36,860 Speaker 9: times earnings. And people were pulling their hair out. They 679 00:35:36,900 --> 00:35:38,360 Speaker 9: were screaming, like, what is going on? 680 00:35:38,390 --> 00:35:39,010 Speaker 4: Where are we now? 681 00:35:39,290 --> 00:35:41,330 Speaker 9: Well, now we're at 18, 19 times, depending on how 682 00:35:41,350 --> 00:35:43,009 Speaker 9: you measure it, equal weight, market cap weight. 683 00:35:43,030 --> 00:35:45,730 Speaker 4: So we're going to be at 16 times out there 684 00:35:45,810 --> 00:35:47,540 Speaker 4: on the x-axis. Maybe. 685 00:35:47,700 --> 00:35:51,259 Speaker 9: I don't think the multiple has to come down much 686 00:35:51,360 --> 00:35:54,180 Speaker 9: further from here. In other words, the market is discounting 687 00:35:54,219 --> 00:35:57,740 Speaker 9: the deceleration that you talked about. And a year ago, 688 00:35:58,060 --> 00:36:00,160 Speaker 9: don't forget, a lot of people were very bearish on growth. 689 00:36:00,739 --> 00:36:03,420 Speaker 9: If you talk to most economists and strategists, they were 690 00:36:03,440 --> 00:36:05,520 Speaker 9: all bearish. And I was looking around going, why are 691 00:36:05,540 --> 00:36:07,620 Speaker 9: people bearish on growth? You have all this fiscal stimulus. 692 00:36:08,010 --> 00:36:09,529 Speaker 9: You have all this cap access going to become. It's 693 00:36:09,550 --> 00:36:11,660 Speaker 9: going to be a boom next year, and that's what 694 00:36:11,680 --> 00:36:14,020 Speaker 9: the market is forecasting. So now what the market's forecasting 695 00:36:14,080 --> 00:36:18,020 Speaker 9: is that boom is going to decelerate. And could that 696 00:36:18,060 --> 00:36:21,860 Speaker 9: turn into something more significant, like a real growth scare, recession? 697 00:36:22,190 --> 00:36:24,390 Speaker 9: It could, but right now it's way premature to make 698 00:36:24,430 --> 00:36:24,770 Speaker 9: that call. 699 00:36:24,969 --> 00:36:26,490 Speaker 4: Paul, can I ask the rude question? 700 00:36:26,530 --> 00:36:27,390 Speaker 5: Sure. He can handle it. 701 00:36:27,410 --> 00:36:31,030 Speaker 4: Okay. He can handle it. Mike Wilson is with Morgan Stanley, 702 00:36:31,070 --> 00:36:33,609 Speaker 4: and some would say he is Morgan Stanley with all 703 00:36:33,640 --> 00:36:37,580 Speaker 4: of his driving of equity and optimism. Now, I assume 704 00:36:37,620 --> 00:36:41,359 Speaker 4: you're getting anthropic shares. I mean, we just assume this. 705 00:36:41,840 --> 00:36:44,830 Speaker 4: Are we going to see you top-tick Stephen Ross with 706 00:36:44,850 --> 00:36:50,110 Speaker 4: a $ 101 million gift in athletics to the University of Michigan? 707 00:36:50,330 --> 00:36:54,050 Speaker 4: Are we going to see the Mike Wilson North Complex? 708 00:36:54,290 --> 00:36:59,910 Speaker 9: Let's talk about $ 100. That's my annual gift. 709 00:36:59,989 --> 00:37:02,650 Speaker 4: To migrate from that quickly here, Mike Wilson, the wealth 710 00:37:02,750 --> 00:37:05,770 Speaker 4: generation of this era, we don't really understand. 711 00:37:06,440 --> 00:37:06,560 Speaker 3: No. 712 00:37:07,020 --> 00:37:08,660 Speaker 9: I mean, it's funny. People were talking about these big 713 00:37:08,719 --> 00:37:12,719 Speaker 9: numbers and shows on recently, the size of these offerings. 714 00:37:13,420 --> 00:37:15,780 Speaker 9: I go, well, what about the cost of these stadiums? 715 00:37:16,000 --> 00:37:18,779 Speaker 9: We're going back to sports again. That's just inflation, Tom. 716 00:37:19,060 --> 00:37:21,460 Speaker 9: So these numbers get bigger and bigger and bigger. A 717 00:37:21,520 --> 00:37:23,779 Speaker 9: lot of the reason why the stock market has done 718 00:37:23,820 --> 00:37:27,140 Speaker 9: so well since COVID is inflation. And we've written about 719 00:37:27,180 --> 00:37:28,960 Speaker 9: this extensively, as you know. So we live in a 720 00:37:28,980 --> 00:37:32,480 Speaker 9: nominal world. And you have to be honest with yourself 721 00:37:32,540 --> 00:37:35,440 Speaker 9: and say, am I really getting ahead of myself? I mean, 722 00:37:35,460 --> 00:37:37,180 Speaker 9: am I getting ahead of the world with my investments? 723 00:37:37,219 --> 00:37:39,840 Speaker 9: Or am I just sort of keeping up? 724 00:37:40,040 --> 00:37:41,899 Speaker 4: You've got to come back on Bloomberg Money and talk 725 00:37:41,940 --> 00:37:44,640 Speaker 4: about this. To me, it's my arch theme. The kids 726 00:37:44,719 --> 00:37:46,530 Speaker 4: really think they're getting ahead of themselves. 727 00:37:46,620 --> 00:37:47,290 Speaker 10: I'm like, yeah. 728 00:37:47,940 --> 00:37:51,160 Speaker 4: Maybe not. Mike Wilson, again, look to Morgan Stanley for 729 00:37:51,200 --> 00:37:54,450 Speaker 4: his brilliant work as well. You know, you got to 730 00:37:54,469 --> 00:37:57,730 Speaker 4: wait and see when Nicholas Lentini and Michelle Weaver and 731 00:37:57,750 --> 00:38:01,990 Speaker 4: the rest actually write the material. Mike Wilson with Morgan Stanley. 732 00:38:02,030 --> 00:38:04,989 Speaker 4: Thank you. Stay with us. 733 00:38:05,290 --> 00:38:08,540 Speaker 10: More from Bloomberg Surveillance coming up after this. 734 00:38:15,800 --> 00:38:19,400 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 735 00:38:19,480 --> 00:38:21,540 Speaker 1: weekday afternoons from 7 to 10 a.m. 736 00:38:21,600 --> 00:38:22,000 Speaker 10: Eastern. 737 00:38:22,100 --> 00:38:25,380 Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg 738 00:38:25,420 --> 00:38:27,950 Speaker 1: Business app. Or watch us live on YouTube. 739 00:38:28,760 --> 00:38:30,750 Speaker 4: Colin Graham with us. 740 00:38:31,110 --> 00:38:31,630 Speaker 5: Help me with the. 741 00:38:31,850 --> 00:38:34,310 Speaker 4: I'm the one person in America that can't do this. 742 00:38:34,770 --> 00:38:41,319 Speaker 4: Rebecca or Rebecca? Rebecca. Rebecca. Very good. Rubico strategy. I'm 743 00:38:41,390 --> 00:38:45,770 Speaker 4: looking here beneath the headlines at a persistent, stronger dollar. 744 00:38:45,790 --> 00:38:50,770 Speaker 4: Euro gives way. I may get a 110 handle on Euro. 745 00:38:51,230 --> 00:38:56,050 Speaker 4: And I got Chinese renminbi ever so slightly getting stronger. 746 00:38:56,310 --> 00:39:00,990 Speaker 4: Fold foreign exchange and what it says about your strategy forward. 747 00:39:02,690 --> 00:39:07,330 Speaker 6: It's saying that while we've got earnings, then the ceiling 748 00:39:07,370 --> 00:39:13,240 Speaker 6: is right. being raised for equity investors. However, the currency, 749 00:39:13,340 --> 00:39:17,259 Speaker 6: the oil, the credit markets, that's really putting a floor 750 00:39:17,300 --> 00:39:20,510 Speaker 6: on the volatility and that's actually rising that floor. So 751 00:39:20,860 --> 00:39:24,210 Speaker 6: your gap between your earnings growth and the cost of 752 00:39:24,270 --> 00:39:28,589 Speaker 6: capital and competition for capital is rising. So that's what 753 00:39:28,650 --> 00:39:32,900 Speaker 6: we're really focused on. So the currencies are another contributor 754 00:39:32,940 --> 00:39:35,560 Speaker 6: to that, you know, stronger dollar, good for the U.S., 755 00:39:35,700 --> 00:39:38,420 Speaker 6: but it means it keeps the growth in the U.S. 756 00:39:39,219 --> 00:39:41,660 Speaker 6: You know, when we talk about weaker dollar, you talk 757 00:39:41,700 --> 00:39:44,700 Speaker 6: about growth spreading out across the world, good for emerging markets, 758 00:39:44,719 --> 00:39:49,350 Speaker 6: for example. But, you know, that's concentrating the growth in 759 00:39:49,969 --> 00:39:50,490 Speaker 6: the US. 760 00:39:51,150 --> 00:39:55,359 Speaker 7: So I know, Robico, with my time working with them, 761 00:39:55,719 --> 00:39:59,940 Speaker 7: global investors have been for 40 years, if not longer. 762 00:39:59,960 --> 00:40:01,720 Speaker 7: How do you think. 763 00:40:01,600 --> 00:40:04,600 Speaker 9: About the US versus rest of the world these days? 764 00:40:07,060 --> 00:40:11,240 Speaker 6: It's expensive, especially on the equity market. The bond market, 765 00:40:11,280 --> 00:40:13,490 Speaker 6: if you look at that, then, again, we're not even 766 00:40:13,530 --> 00:40:17,569 Speaker 6: at fair value on a long 10-year. So is there 767 00:40:17,590 --> 00:40:20,860 Speaker 6: room to raise? Yes, there is room There is growth 768 00:40:20,900 --> 00:40:26,570 Speaker 6: differentials in the US which support higher rates. But if 769 00:40:26,610 --> 00:40:28,890 Speaker 6: you look at Europe, you know, you look at France, 770 00:40:28,930 --> 00:40:32,609 Speaker 6: then your GDP is like 2%. So, you know, you 771 00:40:32,790 --> 00:40:36,210 Speaker 6: are getting tight monetary conditions within France, and that's what 772 00:40:36,230 --> 00:40:38,950 Speaker 6: the market worries about. So for us, you know, we 773 00:40:39,010 --> 00:40:40,690 Speaker 6: look at the US and go, you have to be there. 774 00:40:41,489 --> 00:40:43,759 Speaker 6: And then you pick and choose where you want to 775 00:40:43,800 --> 00:40:47,259 Speaker 6: be within the US. But, you know, don't ignore the 776 00:40:47,300 --> 00:40:49,830 Speaker 6: rest of the world because you will get points in 777 00:40:49,850 --> 00:40:52,770 Speaker 6: the cycle and points in the year where they will 778 00:40:52,810 --> 00:40:53,989 Speaker 6: outperform significantly. 779 00:40:54,650 --> 00:40:57,589 Speaker 9: And we look at the U.S. 780 00:40:57,670 --> 00:40:58,830 Speaker 5: As a source of capital. 781 00:40:59,790 --> 00:41:03,009 Speaker 6: So if there's a theme somewhere else and a little 782 00:41:03,050 --> 00:41:05,540 Speaker 6: bit of capital moves out of the U.S. into those markets, 783 00:41:05,820 --> 00:41:07,560 Speaker 6: they pop. You've seen it in Korea. You saw it 784 00:41:07,600 --> 00:41:09,480 Speaker 6: in gold. You've seen it in these markets. 785 00:41:10,580 --> 00:41:14,540 Speaker 7: How are you thinking about just the, I guess, equities, 786 00:41:14,739 --> 00:41:15,920 Speaker 7: bonds in the U.S. 787 00:41:15,940 --> 00:41:16,100 Speaker 6: Here? 788 00:41:16,120 --> 00:41:19,629 Speaker 7: Because you can clip some nice coupons here in the U.S. 789 00:41:19,670 --> 00:41:21,270 Speaker 7: Treasury market, if you want to take a little bit 790 00:41:21,290 --> 00:41:23,690 Speaker 7: of credit risk, even more so. How do you think 791 00:41:23,739 --> 00:41:27,700 Speaker 7: about the stocks, bonds kind of allocation or discussion. 792 00:41:27,320 --> 00:41:32,000 Speaker 6: In the U.S.? Well, to me, there's no upside to bonds. 793 00:41:32,160 --> 00:41:34,819 Speaker 6: You're going to get 5% return, but you can invest 794 00:41:34,900 --> 00:41:37,460 Speaker 6: in the equities and you get 20% in from earnings. 795 00:41:38,420 --> 00:41:42,120 Speaker 6: So from that perspective, there's no, yes, you're paying multiple. 796 00:41:42,160 --> 00:41:45,190 Speaker 6: But if you look at the impact valuations have had 797 00:41:45,270 --> 00:41:49,090 Speaker 6: over the last three, four years on the stock returns 798 00:41:49,130 --> 00:41:51,820 Speaker 6: going forward, it's not been a good indicator. 799 00:41:52,260 --> 00:41:55,180 Speaker 4: I talk about nominal GDP. You've got a wonderful paragraph 800 00:41:55,700 --> 00:41:59,540 Speaker 4: on my wheelhouse, which is nominal GDP is everything. The 801 00:41:59,700 --> 00:42:02,940 Speaker 4: ultimate risk is nominal GDP in a given country or 802 00:42:02,980 --> 00:42:07,310 Speaker 4: globally comes down. Is that a legitimate risk? Two years? 803 00:42:08,200 --> 00:42:13,830 Speaker 6: Yes, from that perspective, the high nominal GDP growth, especially 804 00:42:13,850 --> 00:42:16,910 Speaker 6: in the US, has allowed other sectors to play. We've 805 00:42:16,950 --> 00:42:19,150 Speaker 6: seen the numbers from UPS today. 806 00:42:19,170 --> 00:42:20,730 Speaker 5: Exactly. 807 00:42:20,770 --> 00:42:24,290 Speaker 6: So that allows them to generate good earnings. So to me, 808 00:42:25,690 --> 00:42:28,230 Speaker 6: GDP coming down is an issue. So if we go 809 00:42:28,270 --> 00:42:30,819 Speaker 6: through next year, what do we think the fiscal stimulus 810 00:42:30,860 --> 00:42:31,239 Speaker 6: is going to be? 811 00:42:31,300 --> 00:42:32,390 Speaker 5: It's probably going to be less. 812 00:42:32,940 --> 00:42:37,360 Speaker 6: So that's going to probably deflate nominal GDP growth. 813 00:42:38,340 --> 00:42:38,800 Speaker 5: As well. 814 00:42:39,020 --> 00:42:43,700 Speaker 4: Okay, we'll bring that brilliant analysis over to France. Jay 815 00:42:43,739 --> 00:42:49,570 Speaker 4: Hadfield had a paragraph on Frexit. Frexit. Is that like Fresca? 816 00:42:50,030 --> 00:42:51,430 Speaker 4: Did you like Fresca? 817 00:42:52,020 --> 00:42:52,180 Speaker 3: No. 818 00:42:52,420 --> 00:42:55,000 Speaker 4: No, it was terrible. It was undrinkable. You don't even 819 00:42:55,020 --> 00:42:59,320 Speaker 4: know what Fresca is, Colin, right? Blue can. Yes. Soda 820 00:42:59,340 --> 00:43:03,420 Speaker 4: was undrinkable. OK, so let's look at Fresca over in France. 821 00:43:03,800 --> 00:43:05,640 Speaker 4: And the heart of the matter is they don't have 822 00:43:05,660 --> 00:43:09,960 Speaker 4: the nominal GDP elasticity over there because ECB plays by 823 00:43:10,000 --> 00:43:10,819 Speaker 4: a different rule book. 824 00:43:11,320 --> 00:43:13,780 Speaker 6: Yeah, and that's why we're more concerned about Europe, because 825 00:43:14,020 --> 00:43:17,040 Speaker 6: Europe doesn't have that growth buffer that the US does. 826 00:43:17,600 --> 00:43:22,279 Speaker 6: So raising rates there into energy shock And it is 827 00:43:22,340 --> 00:43:23,600 Speaker 6: more acute. 828 00:43:23,160 --> 00:43:25,410 Speaker 5: In Europe than it is in the US because they 829 00:43:25,430 --> 00:43:27,210 Speaker 5: import much more of their energy. 830 00:43:27,989 --> 00:43:32,190 Speaker 6: It doesn't seem like a good recipe for continued economic 831 00:43:32,230 --> 00:43:36,790 Speaker 6: growth and for investors necessarily there. And then if you look, 832 00:43:37,410 --> 00:43:40,730 Speaker 6: rule of thumb, I will be shouted down by a 833 00:43:40,870 --> 00:43:45,320 Speaker 6: true fixed income investor. But nominal GDP is the rate 834 00:43:45,360 --> 00:43:48,610 Speaker 6: of growth of your economy. And if you can't cover 835 00:43:48,630 --> 00:43:51,529 Speaker 6: your cost of interest from your growth rates, then you're 836 00:43:51,550 --> 00:43:51,830 Speaker 6: in trouble. 837 00:43:51,950 --> 00:43:52,870 Speaker 4: And that's where France is. 838 00:43:52,989 --> 00:43:53,169 Speaker 5: Yes. 839 00:43:53,370 --> 00:43:55,670 Speaker 4: Basically. This has been too short. We've got to do 840 00:43:55,710 --> 00:43:58,650 Speaker 4: it again. Colin Graham, thank you so much. Robico, did 841 00:43:58,710 --> 00:44:00,050 Speaker 4: I say? Robico. 842 00:44:00,230 --> 00:44:00,670 Speaker 5: Robico. 843 00:44:00,850 --> 00:44:05,470 Speaker 4: Nailed it. Robico. Head of multi-asset strategy there. Thank you 844 00:44:05,510 --> 00:44:05,840 Speaker 4: so much. 845 00:44:06,050 --> 00:44:10,980 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, 846 00:44:11,100 --> 00:44:15,360 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 847 00:44:15,360 --> 00:44:20,800 Speaker 1: 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, 848 00:44:21,120 --> 00:44:24,180 Speaker 1: and the Bloomberg Business app. You can also watch us 849 00:44:24,280 --> 00:44:28,280 Speaker 1: live every weekday on YouTube and always on the Bloomberg Terminal. 850 00:44:31,530 --> 00:44:32,129 Speaker 4: Thank you.