Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: I mean may not have an overall recession, We're having
Speaker 2: a rolling recession to kind of role looks pretty strongly
Speaker 2: it is when it comes to jobs.
Speaker 1: The financial story is that shape our word.
Speaker 2: Three major regional bank failures send shockwaves through the banking system.
Speaker 2: We're all trying to figure out what to make of
Speaker 2: generative AI through.
Speaker 1: The eyes of the most influential voices.
Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America,
Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of
Speaker 2: the Columbia Business School.
Speaker 3: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: A whole lot of smoke and fires to match, some
Speaker 2: being started and some being put out. This is Bloomberg
Speaker 2: Wall Street Week. I'm David Weston. This week Bridgewater founder
Speaker 2: Ray Dalyio and economic historian Neil Ferguson on where China
Speaker 2: is headed.
Speaker 1: There is not a winner or a loser.
Speaker 4: I'm not saying there's any guarantee that the United States
Speaker 4: is assigned that winds Cold War two.
Speaker 2: Pete Savros of KKR on a different approach to private equity.
Speaker 3: This is a superior way of operating a company in
Speaker 3: every perspective.
Speaker 2: And Bank of America CEO Brian moynihan, I'm saving money
Speaker 2: with ai Way.
Speaker 5: I really think his near term helpful is a computer
Speaker 5: programming development.
Speaker 2: Whatever the rest of Global Wall Street was doing this week,
Speaker 2: all of us in New York were looking skyward at
Speaker 2: the worst air quality in the entire world, all because
Speaker 2: of forest fires in Canada.
Speaker 1: This is an unprecedented in our city.
Speaker 5: In all New York should limit outdoor activity to the
Speaker 5: greatest extent possibly.
Speaker 2: And while firefighters in Canada were trying to put out
Speaker 2: the fires there, things were heating up in the South
Speaker 2: China Sea as a Chinese Navy warship came close to
Speaker 2: colliding with the US destroyer in the Taiwan Strait, even
Speaker 2: as Secretary of State Blincoln planned that delayed trip to
Speaker 2: Beijing to try to take the temperature down a bit.
Speaker 4: So since I think has A Russians could involve President
Speaker 4: changing because the United States looks to resume high level communication.
Speaker 2: The PGA shocked everyone by trying to put out the
Speaker 2: fire in its relationship with Saudi Arabia's live Golf, leaving
Speaker 2: people like Mark Lazry wondering why.
Speaker 6: Why did the PGA to do this? It's clear why
Speaker 6: I lived in it. A week ago, day ago, a
Speaker 6: year ago. That was the devil, and today they're your partner.
Speaker 2: But while so many were trying to tamp the fires down,
Speaker 2: some were getting new fires started, like sec Shared, Gary
Speaker 2: Gensler going after crypto platforms Finance and coinbase and likening
Speaker 2: what's going on to the huge scandal with Sam bankman
Speaker 2: Fried's FTX.
Speaker 5: There's parallels here to the FTX fraud manipulation that we saw.
Speaker 2: And two new contestants edited the Republican side of the
Speaker 2: race for president in twenty twenty four trying to light
Speaker 2: some fires under their campaigns.
Speaker 6: I know we can bring this country back, but it'll
Speaker 6: require new leadership in the White House and the Republican Party.
Speaker 7: We have leaders who have shown us over and over again,
Speaker 7: but not only are they devoid of character, but they
Speaker 7: don't care.
Speaker 2: And then late Thursday, the leader in the Republican field,
Speaker 2: Donald Trump, added his own fuel to the fire as
Speaker 2: he was indicted for holding onto classified documents after we
Speaker 2: left office in.
Speaker 8: Selection interference at the highest level.
Speaker 9: There's never been anything like what's happened. I'm an innocent man.
Speaker 10: I'm an innocent person.
Speaker 2: Despite all the heat and smoke from the week, markets
Speaker 2: came through it all relatively on scathed, with the S
Speaker 2: and P five hundred ending the week in a bull
Speaker 2: market by a mere five points at forty two ninety
Speaker 2: eight of four tenths of a percent. On the week,
Speaker 2: the Nansdaq was up just over one tenth of a percent,
Speaker 2: while the yield on the tenure went up five basis
Speaker 2: points to end up at three point seventy four. To
Speaker 2: take us through the week in the markets, we welcome
Speaker 2: now Julian Salisbury, Golden Sacks, CIO of Wealth and Asset Management, Erickson,
Speaker 2: US Bank, head.
Speaker 1: Of Public Markets.
Speaker 2: Please let me start with you about this so called
Speaker 2: bull market. Is it for real? Is it going to
Speaker 2: be sustained? I must say, we have our elves here
Speaker 2: that follow these things for Bloomberg, various securities analysts, and
Speaker 2: they think we're gonna end up the year around four thousand.
Speaker 2: We're now pushing forty three hundred.
Speaker 1: Is it real?
Speaker 9: Well, we're what we call a skeptical participant in the market,
Speaker 9: really with a neutral position on US equities and really
Speaker 9: the reason why is you've got a conflicting set of
Speaker 9: signals going on as far as what may happen with
Speaker 9: the stock market. So on the one side, we certainly
Speaker 9: know that fundamentals have been slowing, whether it's on the
Speaker 9: top down corporate basis or on the bottom up, top
Speaker 9: down macro basis or the bottom up corporate basis, and
Speaker 9: we have headwinds of continued a tight policy in monetary factors.
Speaker 9: On the other hand, however, we have seen some green
Speaker 9: shoots starting to come up recently, and technicals certainly have
Speaker 9: been pushing on a relative basis the US equity market higher.
Speaker 9: So are we in a new bamarket? We think it
Speaker 9: still remains to be seen, but certainly there is some
Speaker 9: momentum right now towards an upward trajectory.
Speaker 2: Julie, We're going to hear from the Fed next week,
Speaker 2: and we talked about that tight monufterry buzz. Is that
Speaker 2: one of the things you could actually take this bullmarket
Speaker 2: back away.
Speaker 1: From us again?
Speaker 11: Look, I think, just out to Lisa's points, I think
Speaker 11: the technicals here are certainly being very supportive of this run.
Speaker 11: People came into the year very nervous, sort of concerned
Speaker 11: about the outlet for earnings earnings surprise to the upside,
Speaker 11: I think substantially in Q one, and people are sitting
Speaker 11: there along a lot of cash, and I think, you know,
Speaker 11: you're going to see risk assets continue to perform here
Speaker 11: because of the you know, the amount of amount of
Speaker 11: cash at along sidelines looking to get invested. You know,
Speaker 11: it's interesting that you talked about a bullmarket. Yes, I
Speaker 11: guess it is now technically a bull market up until
Speaker 11: you know, just a few weeks ago, it's a fairly
Speaker 11: concentrated bullmarket. So it's it's you know, with the whether
Speaker 11: it's the top seven, eight nine stocks have driven a
Speaker 11: large amount of that. But I'd say that started to
Speaker 11: become more broad based. So you know, you've seen the
Speaker 11: small cap mid cap industrials starting to catch up. So
Speaker 11: it's starting to look like a slightly healthier run as
Speaker 11: well than the very concentrated run we were seeing just
Speaker 11: a few weeks ago.
Speaker 2: Is there a lot of dry powder?
Speaker 1: Jullian?
Speaker 2: Right now we see over five trillion I think now
Speaker 2: in money market funds. It could come back to the
Speaker 2: equities market.
Speaker 11: Yeah, there's about five point two trillion in US money
Speaker 11: markets alone, around six point five trillion on a global basis.
Speaker 11: It's interesting that, you know, the flow into those is
Speaker 11: still modestly positive, nowhere near the rate that we were
Speaker 11: seeing money coming into those money market funds around the
Speaker 11: events of SVB a few months ago, but it's still
Speaker 11: gradually trickling in. You know, an interesting phenomena there, there's
Speaker 11: a lot of stress in the money market complex ahead
Speaker 11: of the debt ceiling without being resolved. That's really kind
Speaker 11: of gone out of the system now, you know, there's
Speaker 11: a lot of treasury assurance coming up for the next
Speaker 11: few weeks, and our expectations, you know, the money market
Speaker 11: funds are really going to take up a lot of
Speaker 11: that supply.
Speaker 2: Well, So a week or two ago, we were all
Speaker 2: concerned about the banks as we had that series of
Speaker 2: bank failure starting in March. There's a lot of concerned
Speaker 2: about liquidity, willingness to land. Are we through that at
Speaker 2: this point? Do we still have risks of a lack
Speaker 2: of liquidity, particularly as we have to issue all those
Speaker 2: T bills to make up for what we drew down
Speaker 2: because of that debt seiling problem.
Speaker 9: We are still really carefully watching the liquidity To your point,
Speaker 9: David and The reason why is while we've had a
Speaker 9: fortunate reprieve in what's going on with financial sector stresses,
Speaker 9: certainly they are facing potential increased regulatory requirements as well
Speaker 9: as really just dealing with general economic slowdown, and so
Speaker 9: you've got some tightening conditions there. In addition, as you mentioned,
Speaker 9: the Treasury General account really has to rebuild because they
Speaker 9: were spending down all of that money during the debt
Speaker 9: ceiling debate, and they need to rebuild up the reserve.
Speaker 9: So as they do that, they're going to pull money
Speaker 9: out of the system. What's interesting is we did just
Speaker 9: have some options starting to rebuild that reserve this week,
Speaker 9: and the good news is as we monitored some of
Speaker 9: the yield activity around those auctions, we didn't see any
Speaker 9: concerning signs at this point. But it is very early
Speaker 9: days and there's almost about a trillion that's expected to
Speaker 9: come into the TJA coffers and out of the market
Speaker 9: really over the next several months, so that's something we'll
Speaker 9: just continue to monitor.
Speaker 11: I think this part of the rally we've seen in
Speaker 11: the last few weeks it's people getting increasingly comfortable that
Speaker 11: the banks this situation seems to have stabilized somewhat, and
Speaker 11: that's certainly been true in the near town. I think
Speaker 11: the short term liquidity issues have been somewhat put to bed,
Speaker 11: but I think we're not out of the woods yet.
Speaker 11: I think there's still going to be continued pressure on
Speaker 11: the banks on a whole variety of levels. I think
Speaker 11: new interest margins will remain under pressure. I think credit
Speaker 11: quality is going to continue to become under pressure. We're
Speaker 11: still in the early innings there.
Speaker 2: And Julian, you're just fresh back from Berlin, a big
Speaker 2: conference over there, and it was more private oriented. I think,
Speaker 2: what about private credit? Is it going to step in
Speaker 2: wherever we needed for the banks.
Speaker 11: Look, I think a lot of questions around this topic everyone,
Speaker 11: you know, as I go around the world, not just
Speaker 11: in Berlin, but Middle East, Far East, there's a lot
Speaker 11: of interest in private credit. Of course here in the US,
Speaker 11: questions being asked about, you know, is that getting over
Speaker 11: inflated now? Is there too much excitement, too much money
Speaker 11: going into that? And I would say, look, it's great
Speaker 11: that it's there as an alliternative source of capital at
Speaker 11: a time like this, when the banks the broadly syndicated,
Speaker 11: broadly syndicated market, that CLO market's not really there to
Speaker 11: provide liquidity, so they're able to step in, and I
Speaker 11: think there's still a long way to run. I mean,
Speaker 11: it's still only about you know, about seven percent of
Speaker 11: the fixed income market is private credit, only about two
Speaker 11: percent of global AUM, only seventeen percent even of alternatives.
Speaker 11: So we still think that private credit market has an
Speaker 11: opportunity to continue compounding circut twenty percent plus growth rates
Speaker 11: over the next few years.
Speaker 2: Even apart from the private credit mark, Where do you
Speaker 2: see opportunities in fixed income right now particularly?
Speaker 9: Well, we think there's actually a number of interesting opportunities
Speaker 9: in fixed income and while overall yields really are much
Speaker 9: higher than they were a year ago, if you look
Speaker 9: into specific sectors, there really are some very additional opportunities
Speaker 9: to pick up yields. So one area, for example, that
Speaker 9: we are advocating heavily with our clients is an area
Speaker 9: called reinsurance, where basically, as an investor you're really helping
Speaker 9: to pick up some of that insurance risk and in
Speaker 9: turn get paid a hefty premium. The property and casualty area,
Speaker 9: and what we're seeing right now is really not only
Speaker 9: that nice incremental yield, but there's actually just a lot
Speaker 9: of pressure for those prices to continue to be very
Speaker 9: attractive for investors simply because there's a lack of capital
Speaker 9: in the sector. So that's really one area we're interested in.
Speaker 9: Another one really is an area called non agency mortgages,
Speaker 9: and so here what you have is actually still fairly
Speaker 9: strong fundamentals underpinning some of these borrowers for very large
Speaker 9: mortgages that are not necessarily guaranteed by the agencies, but
Speaker 9: again very strong yields that are supported by borrower repayments.
Speaker 2: Many thanks to Lisa Erickson of US Bank and also
Speaker 2: Julian Salisbury of Goldman Sachs. Coming up the all important
Speaker 2: and all two strained relationship between the world's two largest economies.
Speaker 2: We hear from Bridgewater founder Ray Dalio about the US
Speaker 2: relationship with China, and then we're going to hear from
Speaker 2: the economic historian Neil Ferguson.
Speaker 1: We're going to hear what.
Speaker 2: He has to say about Ray Dalio thinks about US
Speaker 2: China relations Oh that is coming up next on Wall
Speaker 2: Street Week, and we are on Bloomberg.
Speaker 3: This is Bloomberg Wall Street Week with David Weston from
Speaker 3: Bloomberg radio.
Speaker 2: However you measure it. The economic relationship between the United
Speaker 2: States and China is the most important in the world.
Speaker 2: Bridgewater founder Ray Dalio has been an important observer of
Speaker 2: and participant in that relationship as China has emerged to
Speaker 2: become the global economic superpower that it is today with
Speaker 2: tensions rising. This week, we spent some time with Ray
Speaker 2: at Bloomberg at VEST and talked with him about where
Speaker 2: US China relations are today and where they are headed.
Speaker 1: Right now.
Speaker 12: There are irreconcilable differences on a number of topics Taiwan, Russia,
Speaker 12: revers Ifius, chips and so on. They're kind of at
Speaker 12: the edge and there's an inability to talk, so there's
Speaker 12: quite a bit of brinksmanship. And we are also heading
Speaker 12: into a political year here in which there's going to
Speaker 12: be more pressuring pressure. Both sides are very worried about this.
Speaker 12: So I think you're going to see restraint. I don't
Speaker 12: think it's going to lead to a terrible situation in
Speaker 12: terms of but it is leading. But you're going to
Speaker 12: see restraint in a period of time where you're going
Speaker 12: to see more tangents. There's the Mike Allagher's Commission, and
Speaker 12: so on more pressure with chips and so on and so forth.
Speaker 12: I don't think that that's going to cross the line,
Speaker 12: but it is going to raise tensions. You will see
Speaker 12: also more attempts Tony Blincoln's going over. You'll see more
Speaker 12: attempts to try to smooth things out, because both sides
Speaker 12: are afraid of where we are. In any case, While
Speaker 12: it'll be that kind of bringsmanship, most likely there is
Speaker 12: a building of self sufficiency. In other words, efficiency was
Speaker 12: the game before everything was global.
Speaker 1: You produce it in wherever.
Speaker 12: The cheapest place was mostly cost effective, and we became
Speaker 12: very intertwined with each other. Now in this global world,
Speaker 12: there's the worry about being cut off, cut off in
Speaker 12: all sorts of things, and so you're having that dynamic play,
Speaker 12: you know, a negative role in economics and inflation.
Speaker 2: In thinking about the US relationship with China, which I
Speaker 2: think is probably the most important geopolitical economic relationship for
Speaker 2: the next generation, I would venture to say many people
Speaker 2: have made much of the fact that China is going
Speaker 2: to overtake the United States in the terms of the
Speaker 2: size of its economy, the strength of this economy. There
Speaker 2: are some questions about that. Now, where are you on
Speaker 2: that question, and if in fact is not as strong
Speaker 2: as we have thought it is economically, I'm talking about now,
Speaker 2: how does that affect the relationship.
Speaker 12: I think it's almost like splitting hairs.
Speaker 1: There are two great powers.
Speaker 12: And you know the.
Speaker 1: Difference of overtake.
Speaker 12: If you take purchasing power parody the size of GDP,
Speaker 12: they have slightly overtaken us if you take the other,
Speaker 12: who knows they're going to the main thing is they're comparable.
Speaker 1: Powers in many ways, having strains in them.
Speaker 12: They can do a lot of They have a lot
Speaker 12: of dependency with each other, and they can do a
Speaker 12: lot of harm. So the most important thing I think
Speaker 12: is how we take care of ourselves. Can we get strong?
Speaker 12: Can we raise productivity? Can we be politically and economically
Speaker 12: cohesive so that we can be effecient, effective and strong?
Speaker 12: Because you know, you can't rule out China. Since I
Speaker 12: started to go to China, you know, nineteen eighty four
Speaker 12: per capita income increased by twenty eight times. It's a
Speaker 12: power and it's a smart power. So it's going to
Speaker 12: be it's going to be like that. No, there's not
Speaker 12: a winner or a loser. There were only either.
Speaker 1: You're gonna have both winners, or you're gonna have both losers.
Speaker 2: I mean, you founded Bridgewater, and for everything I've read
Speaker 2: about Bridgewater, I mean you put a great emphasis on
Speaker 2: the systems involved, the mechanics involved, the engine. It seems
Speaker 2: to me, without knowing about it, having done this for
Speaker 2: twenty five years or so, that AI might apply to
Speaker 2: that fairly easily. Is that your sense? Where are we
Speaker 2: going with artificiality?
Speaker 1: Yeah?
Speaker 12: I'm so excited because, as you say, for twenty five years,
Speaker 12: I would always write down my investment principles, all my principles,
Speaker 12: and then I would convert them to algorithms, which became
Speaker 12: decision rules, which became systems, and everything would run and
Speaker 12: they would like setting up a computer chess game.
Speaker 1: It would play.
Speaker 12: I would play next to it, and we would then
Speaker 12: reconcile differences and.
Speaker 1: We would learn together.
Speaker 12: Now what's happening with generative AI is that I can
Speaker 12: one can take all of that knowledge and have it
Speaker 12: there and then go beyond that to have it as
Speaker 12: a partner, a thought partner, because the intelligence has capacities
Speaker 12: that the human mind doesn't have. We don't, you know,
Speaker 12: the ability to process so much and everything at the
Speaker 12: same time. So I'm extremely excited. I think that this
Speaker 12: is the greatest revolution, bigger than the Internet revolution. But
Speaker 12: like technology, it really depends. The problem isn't with the technology.
Speaker 12: The problem is with the people who use the technology.
Speaker 12: Will that technology be used to raise humanity's living standards
Speaker 12: or will that be used for war in a sense,
Speaker 12: for hurting each other? And so, but any way we're
Speaker 12: going to cut it. If you take those five we're
Speaker 12: going to go through a time warp. If we take
Speaker 12: the next five to ten years, In the next five
Speaker 12: to ten years, it's going to go through a time warp.
Speaker 12: We're going to come out the other side, and you're
Speaker 12: going to see a very completely different world.
Speaker 2: Ray Dalio always puts his analysis of finance, markets and
Speaker 2: the economy into a broader historical perspective, and so we
Speaker 2: ask noted economic historian Neil Ferguson, Senior fellow at the
Speaker 2: Hoover Institution and Bloomberg Opinion colonists for his reaction to
Speaker 2: raise analysis.
Speaker 4: There are certainly irreconcilable differences, and there's certainly not enough
Speaker 4: communication going on. Ray Dalio talks about their being restraints.
Speaker 4: I think that's pretty clear on the US side, right now,
Speaker 4: because there's been quite a diplomatic charm offensive by Jake Sullivan.
Speaker 4: Tony Blinkin is going to China after they had to
Speaker 4: reschedule his last trip because of the balloon over in Montana.
Speaker 4: But I'm not sure just how receptive or how restrained
Speaker 4: the Chinese side is being.
Speaker 2: Neil, do you share ray Alio's view about the ultimate
Speaker 2: resolution of this conflict? Call it Corld War two as
Speaker 2: you have called it. He said, one side will not
Speaker 2: win and the other lose. Either both sides will win
Speaker 2: or both sides will lose. Do you share that view?
Speaker 4: No, and I don't understand it to be perfectly honest.
Speaker 4: In Cold War one, I don't think there's any controversy
Speaker 4: that one side won the United States and its allies,
Speaker 4: and the other side lost the Soviet Union, which of
Speaker 4: course disintegrated in nineteen ninety one. And why shouldn't there
Speaker 4: be a similar outcome to a second Cold War? Now?
Speaker 4: I'm not saying there's any guarantee that the United States
Speaker 4: is the side that wins Cold War two. China's a
Speaker 4: much more formidable opponent than the Soviet Union was, and
Speaker 4: I sometimes think that the United States isn't in the
Speaker 4: same kind of domestic internal shape that it was in
Speaker 4: Cold War One. But I think the key point about
Speaker 4: a cold water remember is that if it stays cold,
Speaker 4: he doesn't escalate into hot war, at least not at
Speaker 4: the global level. You can have hot wars in spaces
Speaker 4: like say Ukraine, but if it doesn't escalate into World
Speaker 4: War three, then the United States and its allies are
Speaker 4: probably better placed to wins.
Speaker 2: That was Bloomberg Opinion commist Neil Ferguson of the Hoover
Speaker 2: Institutions coming up, improving your investment by sharing some of
Speaker 2: the upside. We'll talk with Pete Stabbers A Kkar about
Speaker 2: his approach to private equity with a decidedly different tilt.
Speaker 3: You've got a better opportunity to deliver our value creation.
Speaker 2: That's next down Watery Week. I'm Bloomberg.
Speaker 3: This is Bloomberg Wall Street Week with David Weston from
Speaker 3: Bloomberg Radio.
Speaker 2: Stakeholder capitalism. Milton Friedman famously wrote in The New York
Speaker 2: Times over fifty years ago that the social responsibility of
Speaker 2: a business is to increase its profits. I think we've
Speaker 2: had fifty years, let's say, of Milton Friedman, some good
Speaker 2: right in terms of competitiveness and innovation, some bad, and
Speaker 2: this became something of a gospel for many in the
Speaker 2: business community.
Speaker 10: For years, all of us are Ohana that our local communities,
Speaker 10: plus our employees and our customers and our partners, all
Speaker 10: of them are key stakeholders, and that we're trying to
Speaker 10: practice stakeholder capitalism.
Speaker 2: But recently there's been a new initiative dubbed stakeholder Capitalism,
Speaker 2: trying to make sure corporations are doing their best to
Speaker 2: serve all stakeholders, including shareholders, employees, customers, suppliers and communities.
Speaker 2: As set out in a Business Roundtable statement signed by
Speaker 2: two hundred of its CEOs in twenty nineteen, you.
Speaker 13: Have to produce for your customers, your teammates and your shareholders,
Speaker 13: and you have to produce for society because if you
Speaker 13: don't have and if that's the core, I won't be
Speaker 13: sitting here.
Speaker 2: And after that, mentions of purpose driven actions in S
Speaker 2: and P five hundred company earnings calls jumped, but recently
Speaker 2: it's been the subject of some debate, with as many
Speaker 2: as fifteen states taking the side against ESG investing.
Speaker 4: The facts show that when you have a diverse workforce
Speaker 4: with inclusive leadership that listens to those employees, that takes
Speaker 4: into account their views, you actually add value.
Speaker 10: To the company.
Speaker 2: Whenever you think about stakeholder capitalism overall, it hasn't historically
Speaker 2: been associated with the rough and tumble business of private equity,
Speaker 2: the kind that made presidential candidate Mitt Romney's running bain
Speaker 2: capital an issue in twenty twelve. It's a very healthy
Speaker 2: and positive debate.
Speaker 7: That doesn't mean the private equity world is going to
Speaker 7: enjoy it very much.
Speaker 2: But all that may be changing. To take us through
Speaker 2: how stakeholder capitalism may be changing the face of private equity,
Speaker 2: we welcome noized Pete Stavros. He's KKR cohed of Global
Speaker 2: Private Equity.
Speaker 1: So welcome to Pete.
Speaker 2: Great to have you here, Thank you for having me.
Speaker 2: So let's start with the basics for you, because you're
Speaker 2: actually doing it rather than talking about it. What is
Speaker 2: stakeholder capitalism?
Speaker 3: Well, stakeholder capitalism for me is finding a way to
Speaker 3: not only deliver great outcomes for shareholders, but doing right
Speaker 3: by workers and the climate. And I have to say
Speaker 3: there's tons of brilliant people working on climate issues. Obviously
Speaker 3: it's critical, there's not enough people focused on labor, and
Speaker 3: so that's really my passion. A lot of it has
Speaker 3: to do with how I grew up. My dad was
Speaker 3: a construction worker for forty years, earned an hourly wage,
Speaker 3: and really taught my sister and I around the dinner
Speaker 3: table what it's like being an hourly worker. You know,
Speaker 3: you don't have a voice, nobody listens to you, there's
Speaker 3: no incentive alignment, and you have no stake in the outcomes.
Speaker 3: So that ignited a passion in me from a very
Speaker 3: early age to think about these labor issues. And then
Speaker 3: when I became an investor, you know, wow, what an
Speaker 3: opportunity because you're responsible for all of these companies with
Speaker 3: all of these many employees, and if you can cascade
Speaker 3: change through a variety of a number of companies, which
Speaker 3: private equity is well suited to do, you can impact
Speaker 3: you know, thousands, if not hundreds of thousands of people.
Speaker 2: So that sounds fine, but you'll forgive me if many
Speaker 2: of us who don't understand private equity the way you do,
Speaker 2: don't associate that approach with private equity. You tend to
Speaker 2: think you go and you buy the company, you strip
Speaker 2: out costs, you'll leverage it up.
Speaker 1: You sell it. Yeah.
Speaker 3: Well, look, private equity is not perfect, Capitalism's not not perfect,
Speaker 3: but this is a superior way of operating a company
Speaker 3: in every perspect You can align incentives not just of
Speaker 3: the senior team, but of all of the employees, help
Speaker 3: them create wealth for themselves and create a better culture.
Speaker 3: I mean, if you can figure out a way and
Speaker 3: we think we're on the right path here to have
Speaker 3: employees less likely to quit their jobs, more engaged on
Speaker 3: the job, you've got a better opportunity to deliver on
Speaker 3: value creation initiatives, which is the core of private The
Speaker 3: core of private equity is transformation. Take a good business,
Speaker 3: make it right, and you're not going to be as
Speaker 3: effective as you could be in that effort if you
Speaker 3: don't have everyone aligned.
Speaker 2: So that sounds great, also sounds fairly simple, is it
Speaker 2: when you actually do it, because often the implementations were
Speaker 2: the tricky part.
Speaker 3: Lot Ye, it's incredibly difficult. Let me just define the program.
Speaker 3: The program that we've been working around around employee ownership
Speaker 3: is about much more than handing out stock. If it's
Speaker 3: just handing out stock, then we're in a compensation discussion,
Speaker 3: which is important, but that's not going to change cultures.
Speaker 3: As my friend Dove Seideman always says, you can triple
Speaker 3: people's compensation and not get ownership behaviors, which I think
Speaker 3: is very true. So we are taking ownership as the foundation,
Speaker 3: as an ethos, and then on top of that, we
Speaker 3: are building a robust employee engagement effort, teaching financial literacy,
Speaker 3: opening up the business plan to all employees, financial information,
Speaker 3: sharing financials with all employees, and teaching basic corporate fans
Speaker 3: so they can understand the information being shared with them. No,
Speaker 3: it's not easy, but it's worth the effort.
Speaker 1: It's a great report.
Speaker 2: Pete, thank you so much for joining us to bring
Speaker 2: it to Let's the in starbs of KKR. This is
Speaker 2: Wall Street Week. I'm David Weston. We talked with Brian moynihan,
Speaker 2: chair and CEO Back of America this week at Bloomberg
Speaker 2: Invests about a range of topics, but we started with
Speaker 2: the possible increases in capital requirements for the banks and
Speaker 2: how that might affect his ability to make loans.
Speaker 5: It's a fairly straightforward. If our capital ratios go up
Speaker 5: by one hundred basis points, we basically, you know, simply put,
Speaker 5: you can't make about one hundred fifty million dollars loans.
Speaker 5: And because people say, well, you have more capital, make
Speaker 5: more loans. But if we took risk on that capital,
Speaker 5: we wouldn't have that capital ratio. So it has to
Speaker 5: be a riskless build. A capital can't be out there
Speaker 5: taking risks. See, the only thing you really do is
Speaker 5: leave it in cash or buy treasury securities. And that's
Speaker 5: not a very productive use of money. So and if
Speaker 5: you had it, and that's the problem. And so every
Speaker 5: time capital goes up, there's a there's a countervailing effect
Speaker 5: to it impacts lending.
Speaker 2: Is that a gating function of here right now? Over
Speaker 2: the last couple of weeks, you've been saying, in effect,
Speaker 2: some of your lending is slowing down anyway, just because
Speaker 2: the economy is slowing down. Is it a demand? Is
Speaker 2: there demand enough for the loans that you can't make.
Speaker 5: That ebbs and flows all the time. So the loans,
Speaker 5: the loan demand is more product of customer activity. And
Speaker 5: so our team has a recession predicted beginning in the
Speaker 5: third quarter, fourth quarter or first quarter. Bank American Research team,
Speaker 5: which Candae Browning Plot leads, is tremendous and they have
Speaker 5: that has moved out a little bit as a consumer
Speaker 5: and activities stayed stronger even in light of the fastest
Speaker 5: FED rate increase in long time. But it's still the prediction.
Speaker 5: And so I think companies are having gone through the
Speaker 5: inflation and then it's sort of flattening out and thinking
Speaker 5: about the future. Just be more careful because they realize
Speaker 5: that some are able to move prices, some are able
Speaker 5: to do it. They're getting relief on the commodity side,
Speaker 5: on the price side, but are they be able to
Speaker 5: hold price demands its final demand and the construction it
Speaker 5: just will be a stronger year from now it is
Speaker 5: today and housing. All this is on people's mind, so
Speaker 5: they tend to pull in, and so that means line
Speaker 5: used to just flatten back out. So line usage was
Speaker 5: here before the pandemic and then fell and moved up,
Speaker 5: and it was kind of moving up, you know, incrementally
Speaker 5: back to where the pandemic sort of flatten out the
Speaker 5: last couple of months, which means that your companies are
Speaker 5: just being a little more careful.
Speaker 2: Let's talk about something that's very much in the news
Speaker 2: these days. That's artificial intelligence, particularly generative artificial intelligence, large
Speaker 2: language model. You and I've talked in the past about Erica,
Speaker 2: which is a form of I think machine learning you've
Speaker 2: been using.
Speaker 1: For some years now five years.
Speaker 2: We've never really talked about what that is. So it
Speaker 2: take us through what Erica is for Bank of America
Speaker 2: right now, and then we can talk about where it's going.
Speaker 5: So what Erica is is a product capability that's in
Speaker 5: the mobile banking app and other that you can go
Speaker 5: into and type either type in or say, you know,
Speaker 5: pay my landscape or pay my you know, school tuition,
Speaker 5: whatever it is, you know, and it will then say
Speaker 5: pay and I'll say the name of the of the
Speaker 5: provider and how much you want to pay, and then
Speaker 5: it'll go pay it. You'll just run through the bill
Speaker 5: paying systems, so instead of going the bill payment, going
Speaker 5: down the list and do all the stuff and do it.
Speaker 5: Or what's the routing number? What's my routing number? Because
Speaker 5: that's a topic that people call us and ask us
Speaker 5: about five million times a year.
Speaker 2: They used to call us.
Speaker 5: Now they don't have the routing numbers on the base
Speaker 5: of your check and routing number for all of you
Speaker 5: is the same, so it's not but people call because frankly,
Speaker 5: judging by the age of the people laughing. We were
Speaker 5: taught some point or how to write a check and
Speaker 5: how the numbers were and what was your account number.
Speaker 5: That's no longer in the system, so when somebody's doing
Speaker 5: ah and stuff. So really, like seven or eight years ago,
Speaker 5: we said, let's build something that can do that kind
Speaker 5: of language processing, the LP part of a thing, and
Speaker 5: then predict what the question was, use our data and
Speaker 5: our information and come back with the answer to them.
Speaker 5: And so we started to do that, and the first
Speaker 5: thing we realized is the language that was out there
Speaker 5: for these natural language recognition type things was not written
Speaker 5: for banking. So what's my balance? Do you want to
Speaker 5: go to a yoga class?
Speaker 2: You know?
Speaker 5: It thinks about it had So the first thing I
Speaker 5: had to do is we went to outside and got
Speaker 5: them to write a banking language program and things, and
Speaker 5: then we had to pair it with our data and
Speaker 5: our information. And so that's now five years old, and
Speaker 5: you know, twenty million people use it, and they use
Speaker 5: one hundred and fifty too, and million times. We're just
Speaker 5: right across a billion interactions with it. We'll get another
Speaker 5: billion and another twelve eighteen months. It's growing that fast.
Speaker 5: And it just saves a lot of time for the
Speaker 5: customer and client, and the experience is great. And yet
Speaker 5: people I think we'll start using even more now because
Speaker 5: they're playing around with chat to ept and doing other
Speaker 5: things that this was sort of foreign to them. They
Speaker 5: were what is Erica like, you asked? But what we've
Speaker 5: seen is it just continues to grow.
Speaker 2: That was Brian moynihan, Chair and CEO of Bank of
Speaker 2: America coming up. The perils are trying to do good
Speaker 2: and do well at the same time, all while you're
Speaker 2: trying to run a business. That's the next on Wall
Speaker 2: Street read on Bloomberg. Finally, one more thought, doing well
Speaker 2: by doing good. Corporate social responsibility is nothing new, but
Speaker 2: it's come a long way since the days of Google
Speaker 2: claiming its corporate code of conduct was simply don't be evil.
Speaker 2: Today a range of companies embrace values like protecting the environment.
Speaker 5: We've certainly incorporated ESG SO environmental social and governance, risk
Speaker 5: management and thinking into our analysis.
Speaker 2: Or promoting diversity, equality and inclusion. You need workplaces that
Speaker 2: are truly inclusive and guess what, that makes all our
Speaker 2: businesses more profitable in the long run. But once you
Speaker 2: dip your corporate tow into the waters of social values,
Speaker 2: it's sometimes hard to get it back out again. Considered
Speaker 2: this week, for example, the story of the Professional Golf Association,
Speaker 2: which asks its members to take a principled stance against
Speaker 2: Saudi Arabia and its live golf because of the murder
Speaker 2: of Jamal Kashoji, only to reverse course and merge with
Speaker 2: a live without so much as an explanation.
Speaker 7: Let's be honest, the Saudis aren't buying the PGA because
Speaker 7: they love golf. They're buying the PGA because they want
Speaker 7: to erase their dizzying campaign of political repression.
Speaker 2: Or as the Walt Disney Company about the way out
Speaker 2: of its fight with the State of Florida after the
Speaker 2: largest entertainment company in the world took a stance on
Speaker 2: legislation restricting talk about same sex relationships and schools, rising
Speaker 2: the ire of Governor DeSantis.
Speaker 7: You know, this idea of one corporation having its own
Speaker 7: government in Central Florida is something that is no longer
Speaker 7: in the best interest of the State of Florida.
Speaker 2: It's all being grouped under the heading of woke. That's
Speaker 2: a term dating back to the nineteen forties when black
Speaker 2: Americans referred to being woken up to injustice, but that
Speaker 2: history has largely been lost on current day leaders, such
Speaker 2: as for example, our former president and I don't like
Speaker 2: the term woke because I hear woke, woke, woke.
Speaker 1: You know, it's like just a term that use. Half
Speaker 1: the people can't even define it. They don't know what
Speaker 1: it is.
Speaker 2: Josh Bolton of the Business round Table asks simply the
Speaker 2: companies be left alone to serve their customers and employees,
Speaker 2: whether or not that is woke.
Speaker 8: Our message to policymakers is let business do business, and they,
Speaker 8: you know they they should get to decide how they
Speaker 8: treat their customers and their employees.
Speaker 2: And some companies find they have no choice but to
Speaker 2: consider things like climate change if they're going to stay
Speaker 2: in business, for example, ensuring homes in the state of California.
Speaker 2: But never fear whether you personally like companies going so
Speaker 2: called woke or not. You can always vote with your
Speaker 2: own purse, as purchasing a bud Light apparently did recently
Speaker 2: when sales dipped after some marketing person sent a trans
Speaker 2: influencer beer cans with her face on them, and she
Speaker 2: then posted it on Instagram.
Speaker 9: A Ken with my face on it.
Speaker 2: But those customer boycounts may not be as easy as
Speaker 2: they sound, as Congressman Dan Crenshaw of Texas recently found
Speaker 2: out for himself.
Speaker 3: So guess what we're gonna do with throughout every little
Speaker 3: bud light we've got in the fridge?
Speaker 1: Alright, Well, I guess that was easy.
Speaker 2: That does it for this episode of Wall Street Week.
Speaker 2: I'm David Weston. This is Bloomberg. See you next week.