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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,

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Speaker 1: and of course, on the Bloomberg Terminal. Let's get started

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Speaker 1: now at these world Economic for meetings with someone who

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Speaker 1: can synthesize it together. Jason Furman. He's professor at Harvard

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Speaker 1: Kennedy School, former chairman of the U S Council of

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Speaker 1: Economic Advisors. What he does more than anyone in this

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Speaker 1: nation is stand up in front of bright cherubs and

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Speaker 1: teach them their first course in economics at Harvard. He

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Speaker 1: is the one who has followed on from mank You

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Speaker 1: and Martin Feldstein to deliver what's called eck ten. What

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Speaker 1: did you say in the first week of May to

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Speaker 1: the eager students who have never seen a buying market

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Speaker 1: like this and never seen the second derivative moves that

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Speaker 1: we're seeing in markets as it relates to our economy. Well,

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Speaker 1: to my students, I told them that when the price

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Speaker 1: goes down, the yield goes up. Where do we need

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Speaker 1: somebody tired? I think your viewers are probably on top

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Speaker 1: of that one already. Um, what I'm not sure your

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Speaker 1: viewers are on top of is that I think this

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Speaker 1: inflation is going to be pretty persistent, not where it

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Speaker 1: is now, but way above where the Fed wants it

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Speaker 1: going to be to be. That means the Fed is

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Speaker 1: going to need to stay at it. A FED funds

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Speaker 1: right to four percent or higher, completely plausible, not at

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Speaker 1: all priced into the market right now because a lot

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Speaker 1: of people like Marky Batel who was just on, believes

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Speaker 1: that the Federals are will come out and they will

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Speaker 1: rescue the markets. And you're saying, no way why because

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Speaker 1: we are way above our inflation target. That is the

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Speaker 1: job the Fed was assigned. You have a share who

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Speaker 1: talks about himself in the sort of wake of Paul

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Speaker 1: Boker and that historical shadow. He wants to bring that

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Speaker 1: inflation down right now. The market is helping him do

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Speaker 1: his job. I think this is not an accident. This

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Speaker 1: is almost something that they are fine with. We were laughing.

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Speaker 1: We shouldn't have been laughing completely because the prospect of

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Speaker 1: a recession is horrendous. Do you think it's avoidable, as

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Speaker 1: Joe Biden said, or do you think the Fed frankly

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Speaker 1: has to essentially allow that to happen to cool the

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Speaker 1: inflation as it is over the next year. I'm not

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Speaker 1: that worried. I mean, I'm always attent for a recession.

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Speaker 1: Maybe I'm at now for the next year, but not

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Speaker 1: much higher. Consumers are still spending a lot, there's people

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Speaker 1: coming off the sidelines for jobs. This more inventory rebuilding

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Speaker 1: to be done. When you look after this year, that's

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Speaker 1: when I get more worried. That's when more of the

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Speaker 1: FED rate hikes start to kick in and affecting the economy. Jason,

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Speaker 1: the pungentry out there right now, I've never seen It's

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Speaker 1: worth some two thousand nine. Those pundits are silent when

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Speaker 1: they listen to you within the geometry of where we are.

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Speaker 1: When we get interest rates to slam like they are

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Speaker 1: when you give us the fear of a terminal rate

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Speaker 1: to four percent, how does that link in to the

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Speaker 1: actual assumption of bonds and separately, the total return of equities. Yeah,

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Speaker 1: I think that the long bonds haven't fully priced in that.

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Speaker 1: You know, they think the Fed's gonna stop at three percent.

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Speaker 1: That might happen. We might hit a recession and they

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Speaker 1: go back to zero, but that we could be at four,

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Speaker 1: well above four. I think that's the modal scenario. When

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Speaker 1: you look at something like the long yields, those just

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Speaker 1: haven't gone up the same way they have on the

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Speaker 1: front end. Or Benjamin Friedman, the giant of Harvard Economics,

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Speaker 1: let's go back to the Napoleonic Wars, or the Panic

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Speaker 1: of eighteen seventy, the gyrations out of World War One,

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Speaker 1: of fractured Europe and all. That's the arch fear that's

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Speaker 1: out there for truly a generation or two that have

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Speaker 1: not enjoyed what we're in right now. What does it

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Speaker 1: do to a portfolio? What does it do to a

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Speaker 1: pension fund? Yeah? I mean that interest rate shows up

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Speaker 1: in every single stock price as on the discount factor.

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Speaker 1: That's why you know almost every single stock price is

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Speaker 1: going down right now. Leverage locas from like you trying

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Speaker 1: to pitch that is how what you're going They want

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Speaker 1: me to start it if they wann't starting the E

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Speaker 1: T F for an n n F T. Remember what

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Speaker 1: I can imagine defense the fear here, Jason, is if

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Speaker 1: we get a further first and second to rivetive move

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Speaker 1: that we've all enjoyed for four months, that we're going

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Speaker 1: to get a true negative thirty five percent. Now, we're

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Speaker 1: gonna get bonds like we've never never seen back to

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Speaker 1: say the thirties. Do you ascribe to them. I think

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Speaker 1: that's a possibility. Look, I focused more on the real economy.

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Speaker 1: I look at households that have two point three trillion

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Speaker 1: dollars still saved up from all the transfers they got

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Speaker 1: over the last two years. I look at businesses who

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Speaker 1: still are facing pretty good financing if they want to

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Speaker 1: make more investments. I look at a global environment where

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Speaker 1: the dollar strength is you know, worrying me, and the

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Speaker 1: down draft we're getting on net exports. So I'm looking

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Speaker 1: at those factors overall. You know, I think we're gonna

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Speaker 1: see a lot of jobs this year. So there are

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Speaker 1: some people who believe that the more we see a

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Speaker 1: momentum and a lack of recession now, the worst it

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Speaker 1: will be later. And they point to people levering up

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Speaker 1: on the consumer side once again in order to fuel

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Speaker 1: their purchases even at higher prices. Do you agree I

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Speaker 1: think that's possible. It really depends, you know, the fat things.

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Speaker 1: Inflation is coming down to two and a half percent.

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Speaker 1: If that happens in this sort of a chance it happens,

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Speaker 1: that will be wonderful. We can avoid all these things

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Speaker 1: if inflation stays stuck at four and a half five percent,

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Speaker 1: and that's roughly where the underlying inflation rate is right now. Um.

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Speaker 1: I don't know what sort of and you'd need if

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Speaker 1: you want to bring it back down. One minute long

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Speaker 1: agoing far away, a Columbia professor saw a kid at Harvard,

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Speaker 1: and you said, this kid is different. He's gonna work

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Speaker 1: with me. How dead on was your mentor? Joe Stiglets

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Speaker 1: on globalization and its discontents. It's shocky I saw Joe. Joe.

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Speaker 1: Joe doesn't love globalization, but Joe likes it here in Davos.

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Speaker 1: Uh um uh. You know. I think I think we're

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Speaker 1: seeing a pause and globalization. I think we're seeing a plateau.

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Speaker 1: I don't think we're going to see that bigger transtrument

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Speaker 1: because there are so many efficiency gains from operating all

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Speaker 1: over the world. We'll see some recalibration, but I don't

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Speaker 1: think there's going to be a big withdrawal from it.

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Speaker 1: And I don't think there should be in the agreement

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Speaker 1: that we have folks. Just so you understand this is

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Speaker 1: I get to choose one guest, so we have the

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Speaker 1: optimism of Jason Furman and you stiglets. We haven't ye

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Speaker 1: Siglets will be coming up and he'll be character we said,

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Speaker 1: we heard that you like globalization here at Davos, I

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Speaker 1: was wishing, I told us. And we'll see what he

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Speaker 1: responds to get a start of here in Dovlson right

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Speaker 1: now at the conversation Tom that we're about to have

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Speaker 1: really sums up. Can we get a reprieve from the

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Speaker 1: seven straight weeks of declines the longest stretch going back

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Speaker 1: to two thousand one? Is this what we're seeing this morning?

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Speaker 1: Head fake? Or is it really the start of a

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Speaker 1: by the depth and it goes to the synthesis that

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Speaker 1: we're in here, and it's the market coverage of equities, bonds, currencies, bonds.

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Speaker 1: Rebecca Patterson has dealt in all those areas and it's

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Speaker 1: culminated after her work at Bessemer with Bridgewater, where she

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Speaker 1: is chief investment strategist with a guy named Prince and

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Speaker 1: Dalio as well our Prince, our Prince and Dalio in

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Speaker 1: speaking terms, absolutely, Okay, what what's the latest meetings like

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Speaker 1: in terms of the volatility we're seeing, the complexities and nuances.

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Speaker 1: What is the tone within your meetings as you assess

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Speaker 1: is two thousand twenty two. Well, obviously, as you hinted

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Speaker 1: at least that there's just so much changing now structurally

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Speaker 1: as well as cyclically, and so there's a lot of

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Speaker 1: people saying, where are we going not just the next

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Speaker 1: month or next quarter, but the next five to ten years.

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Speaker 1: If we do deglobalize or regionalize, what does that look like?

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Speaker 1: What are the implications of that? As well as the

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Speaker 1: short term worries over can the Fed? Will the FED

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Speaker 1: tighten enough to get inflation back down to its target?

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Speaker 1: If we have higher, stickier inflation for longer, how does

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Speaker 1: that flow through to the market. So a lot of uncertainty.

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Speaker 1: If I had to sum it up, how do you

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Speaker 1: determine whether a move like what we're seeing ahead of

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Speaker 1: the open today is a head fake or not. Well,

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Speaker 1: we don't trade daily wiggles in the market, so we'd

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Speaker 1: take a step back and say, Okay, what's discounted? A

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Speaker 1: lot has changed since the beginning of the year. I

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Speaker 1: think the biggest change has been discounted tightening by central banks,

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Speaker 1: particularly the FED, and we have seen that flow through

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Speaker 1: clearly to the bond market, and we have seen the

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Speaker 1: equity declined so far largely a function of the change

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Speaker 1: and discount rates. You haven't seen a major change in

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Speaker 1: expected earnings growth, and so that to us is the

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Speaker 1: thing we're watching. If this is a head fake or continuing,

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Speaker 1: that would be the shoe to drop. If the FED

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Speaker 1: continues to tighten to try to reduce demand to get

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Speaker 1: inflation under control, I would expect to see that flow

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Speaker 1: through into discounted growth, which then eventually should bring equities

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Speaker 1: that next leg lower. For years, people were saying that

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Speaker 1: markets were benefiting even though the economy was not, and

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Speaker 1: it actually we saw all of the financialization represented by

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Speaker 1: an STP on a vertical trajectory. Are we heading into

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Speaker 1: the opposite? Can we be heading into the opposite where

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Speaker 1: we see markets lag behind an economy that continues to

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Speaker 1: be strong. Actually, that has been our view and continues

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Speaker 1: to be our view as we look ahead, that we're

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Speaker 1: in a situation now where the nominal economy is likely

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Speaker 1: to outperform financial markets fairly substantially. UM and that is

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Speaker 1: mainly a function of the policy reaction we got during

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Speaker 1: the pan stomach, all the fiscal and monetary stimulus that

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Speaker 1: came through and left households wealthier than before the pandemic,

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Speaker 1: corporate balance sheets stronger than before the pandemic. It gives

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Speaker 1: them a cushion to withstand the tightening. So it is

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Speaker 1: going to feed through to markets. And obviously that wealth

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Speaker 1: effect will also feed through to the economy. But that's

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Speaker 1: starting strong. Non no point for the economy means financial

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Speaker 1: assets could underperform. You've got it, Bridgewater and your fancy kitchen.

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Speaker 1: They get the whole sub zero thing like the big stone.

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Speaker 1: Look who's talking blue? Hello, Regalile memorial pressure cooker. And

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Speaker 1: the only reason I hired you is the steam coming

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Speaker 1: out of the kettle. Is the currency market? To me

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Speaker 1: the conundrum here, and you beautifully describe the fiscal impulse

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Speaker 1: and the wealthy that occurred, and maybe the d well

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Speaker 1: thing that's occurred. Now, what what releases the pressure is

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Speaker 1: dollar dynamics? What kind of pressures will we see? Well,

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Speaker 1: I think the most important thing to understand about the

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Speaker 1: dollar right now is how quickly our external need for

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Speaker 1: foreign capital is increasing. So if you go on your

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Speaker 1: Bloomberg page, it will show our current account deficit for

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Speaker 1: the United States at around three and a half percent,

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Speaker 1: which is already a big widening. Our timely estimates suggest

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Speaker 1: us closer to five or six percent of GDP. And

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Speaker 1: so for the dollar to stay supported, we need to

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Speaker 1: continue getting enough capital to offset that, and we think

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Speaker 1: there's a growing risk around that. So the dollar we

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Speaker 1: think is vulnerable on a cyclical basis and also a

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Speaker 1: structural basis. This is important, Steve Roach one oh one.

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Speaker 1: Someone has supported us for years here and and Davos.

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Speaker 1: And if we get a twin deficit, do you link

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Speaker 1: those two together mathematically or philosophically? Do you link current

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Speaker 1: account with recession bloom together or the two separate events. Well,

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Speaker 1: they are mathematically linked, as as you know. Well, Tom,

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Speaker 1: you're being humble, Yeah you do. But I think what

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Speaker 1: what we're following. It's like this is a tip, surveillance tip.

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Speaker 1: Don't ask the question unless you know the answer. It's

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Speaker 1: just like judge, Judy, continue, so that the current account,

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Speaker 1: the balance of payments is what I'm focused on, relatively

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Speaker 1: more um and so that financing need is the is

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Speaker 1: the canary in the coal mine. If US growth continues

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Speaker 1: to outperform the rest of the world, if interest rates

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Speaker 1: in the US continue to be so much more attractive,

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Speaker 1: both on an absolute level and on a change basis,

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Speaker 1: that maybe the US does continue to hold up for

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Speaker 1: the dollar. But it's a question market where do Where

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Speaker 1: does the money go if it doesn't go to the Well,

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Speaker 1: let's look, let's look. I mean you're to date, Japanese

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Speaker 1: equities are actually outperforming US equities if you take out

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Speaker 1: the currency effect. Um UK stocks are outperforming US stocks,

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Speaker 1: Some emerging market equities are outperforming, and so not all

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Speaker 1: the capital is flooding here. It is looking for opportunities

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Speaker 1: where policymakers are less constrained, where valuations are a lot

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Speaker 1: less demanding, where positions where exposure is is a lot

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Speaker 1: more moderate. What you said about yields being attractive to

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Speaker 1: other nations, how high do treasure yields have to go

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Speaker 1: in order to remain that attractive to support the dollar.

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Speaker 1: That's a great question, and I don't have a number

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Speaker 1: for you. But what what is interesting to us when

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Speaker 1: we look at the bond market, so we try to

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Speaker 1: understand all the different players in every market. What motivates

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Speaker 1: them to buy or sell. And when we look at

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Speaker 1: the US bond market today, even though you have less

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Speaker 1: issuance for the FED, flipping from quantitative easy into quantitative

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Speaker 1: tightening is obviously very significant. But the big player that

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Speaker 1: we're watching that we think is is suggest more upside

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Speaker 1: for bond yields are banks. So a year ago you

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Speaker 1: had a steep curve, you had a ton of deposits

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Speaker 1: coming in and the banks were putting that into bonds,

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Speaker 1: so you had a lot of demand keeping down the yield.

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Speaker 1: That's over the curve is flatter, the deposit inflow is slower,

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Speaker 1: so there's less bank buying of bonds to hold down

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Speaker 1: the yield. So when we look at who's going to

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Speaker 1: buy those bonds if the Feds out, we still see

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Speaker 1: a supply demand and balance that to us suggest yields higher.

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Speaker 1: I don't know what the magic number is, but we

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Speaker 1: still think we have further to go on the upside.

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Speaker 1: To go. Electrical engineering on you, this is within the

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Speaker 1: perfect electrical system of Switzerland, and trust me, folks, it

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Speaker 1: is perfect. The slew rates here that you're describing, how

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Speaker 1: do you affect an interest rate parody strategy? A sophisticated

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Speaker 1: hedge if you will. Given SLEW rates we've never seen before.

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Speaker 1: Are you talking about risk parity? Are we talking about Yeah?

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Speaker 1: So what's so interesting to me about all of this

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Speaker 1: is when you think about how most investors in the

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Speaker 1: world of position for the last one or two decades,

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Speaker 1: they have been biased towards rising growth and falling inflation.

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Speaker 1: That's sixty forty, right, You're going to do your equities

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Speaker 1: do well and growth is rising, et cetera. Right, it

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Speaker 1: worked great till now and the world has gone upside down.

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Speaker 1: So now we have falling growth and rising inflation. Obviously

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Speaker 1: we've seen the portfolio hit those folks have taken. The

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Speaker 1: difference with risk parity strategies is that their balance for

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Speaker 1: growth and inflation. So even if bond deals are going up,

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Speaker 1: you have Allan's and other parts of the portfolio, namely

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Speaker 1: commodities and other inflation sensitive assets, so they tend to

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Speaker 1: hold up better through the cycles, including these periods. If

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Speaker 1: they let me go back to New York, can you

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Speaker 1: come back and visit us to continue this discussion. Of course,

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Speaker 1: it's the arch financial question for our listeners and viewers

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Speaker 1: is the death of calibration? Rebecca Patterson just brilliant right now, Well,

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Speaker 1: we've got a lot of things to speak of in

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Speaker 1: a one hour conversation. We will compress with John Kerry.

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Speaker 1: He is U S Special Climate Envoy and former U

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Speaker 1: S Secretary of State, and whatever your politics, he is

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Speaker 1: someone who has honed our political debate of this nation

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Speaker 1: for decades. It started at St. Paul's School. You're up

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Speaker 1: at St. Paul's in Conquered New Hampshire. A few years

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Speaker 1: that debate and discussion was beaten into you, wasn't it.

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Speaker 1: At Although we we had to tradition of back and

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Speaker 1: forth socratic, it was a it was a really important

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Speaker 1: tradition back then. What happened to America where we walked

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Speaker 1: away from the niceties of debate? Um? Well, the United

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Speaker 1: States Senate used to be the greatest deliberative body in

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Speaker 1: the world, and obviously a lot of people are anxious

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Speaker 1: about where the deliberation is today. It's it's changed, It's

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Speaker 1: really changed. I think what happened is in the ninety

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Speaker 1: nineties are politics changed? It became far angrier, far more intense,

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Speaker 1: far more personal. You remember the discussions of politics of

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Speaker 1: personal destruction and now, um, we have a lot of

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Speaker 1: angry people who are who are appropriately angry on either

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Speaker 1: side of the aisle right left, and they just don't

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Speaker 1: feel the government's delivering to them, and we have to

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Speaker 1: change that. How does the US lead with such disunity

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Speaker 1: at home? Oh? I think President Biden and showing you

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Speaker 1: how you lead right now, he's in Asia uh and

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Speaker 1: uh meeting with the Quad. He's been leading on global

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Speaker 1: climate to change around the world. He put America back

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Speaker 1: into the into put the United States back into the

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Speaker 1: Paris Agreement, helped raise ambition in Glasgow, make Glasgow of success. Um.

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Speaker 1: You know, I think people understand that we had four

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Speaker 1: difficult years. The country decided that was an aberration and

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Speaker 1: elected President Biden. Now, Uh, we're in the busy building

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Speaker 1: back process. But I think we've made a lot of

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Speaker 1: progress of last year. The helicopter flying over says gop

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Speaker 1: on the side of it. I think that's what right now,

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Speaker 1: the Senator Kerry, I want to talk to you about climate.

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Speaker 1: I was blown away a number of years ago with

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Speaker 1: the Bank of America people. You you are not another

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Speaker 1: face talking climate, You're not another celeb talking client. You've

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Speaker 1: actually leaned over the desk uh in Boston and said,

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Speaker 1: I gotta learn the math. I gotta learn the statistics.

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Speaker 1: It's been knocked asunder by the price of coal by

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Speaker 1: this war in Ukraine. What is your strategy to sustain

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Speaker 1: our focus on climate change given the tumult is measured

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Speaker 1: by the price of coal. Well, President Biden is determined

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Speaker 1: that over the course of the next months, we're gonna

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Speaker 1: get ready for the next meeting by trying to raise

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Speaker 1: ambition around the world. We are very busy right now

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Speaker 1: working with specific countries Indonesia, Vietnam, South Africa, India to

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Speaker 1: bring capital to the table, to bring the finance and

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Speaker 1: the technology to help them be able to deploy UH

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Speaker 1: to meet the goals of the Glasgow Powers Agreement. But

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Speaker 1: in addition to that, we have to work to get

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Speaker 1: the trillions of dollars deployed. This is going to cost

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Speaker 1: Litter League trillions of dollars in order to effect the transitions.

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Speaker 1: And the way that we can do that is by

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Speaker 1: bringing various players to the table, philanthropy to help blend

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Speaker 1: the finance. So you have people taking first risk, people

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Speaker 1: who are de risking the investment and hopefully UH there

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Speaker 1: are a lot of folks doing that we have companies

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Speaker 1: that are now signing up. On Wednesday, we'll be making

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Speaker 1: a major announcement with Bill Gates and Mark many Off

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Speaker 1: of Salesforce, others of CEOs who are directing their companies

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Speaker 1: to become first movers. They're they're they're creating demand in

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Speaker 1: the marketplace. Ordering ten of the steel Volvo or Ford

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Speaker 1: Motor Company will buy is going to be uh green

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Speaker 1: steel cement. The largest cement dealer in the world. Fulls

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Speaker 1: in Lafarte is producing green cement. I mean there's just

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Speaker 1: a whole range of things and aluminum in in car removal,

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Speaker 1: in shipping. We only have a couple of minutes left

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Speaker 1: and I do want to get your sense on gas.

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Speaker 1: You've talked about natural gas being central to the transition

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Speaker 1: to a greener future, but not talked about investing over

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Speaker 1: the next thirty to forty years. Because you're hoping to

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Speaker 1: transition away from that. How do you dovetail them now

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Speaker 1: into the future. I think it's critical that lending institutions

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Speaker 1: that have a vast amount of capital involved in the

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Speaker 1: fosil field industry begin to demand more from that industry.

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Speaker 1: It is appropriate, I think to have a gas transition

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Speaker 1: for a short period for some period of time while

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Speaker 1: you bring technology to scale that is going to change

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Speaker 1: altogether what we're doing. The enormous amount of research right now,

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Speaker 1: and frankly it's about a trillion dollars of venture capital

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Speaker 1: already moving towards these new technologies green hydrogen, longer battery storage,

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Speaker 1: direct air have been capture, green hydraten. I mean, there

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Speaker 1: there are things that are going to just change the

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Speaker 1: way businesses do business, and that's going to be part

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Speaker 1: of this revolution. I think we're looking at and I

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Speaker 1: don't think this is exaggeration. We're looking at the largest

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Speaker 1: economic opportunity and transformation since the Industrial Revolution. And this

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Speaker 1: will be bigger because every nation in the world is

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Speaker 1: going to have to move to a clean, new energy

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Speaker 1: economy and future. I want to center back here in

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Speaker 1: the final question to the future of the Democratic Party.

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Speaker 1: What we have seen is a centrist Joe Biden and you,

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Speaker 1: as a centrist John Carey, overrun by a rigid progressive

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Speaker 1: or liberal wing of the Democratic Party. What is your

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Speaker 1: counsel as they maybe lose the House, maybe lose the Senate.

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Speaker 1: Who knows of the White House, But what is the

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Speaker 1: council you have to liberals who will not bend as

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Speaker 1: you have spent a career bending. Well, I'd like to

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Speaker 1: thank I have it. I find the compromise where you can,

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Speaker 1: and you need to. But you have to be reasonable. Obviously,

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Speaker 1: you have to recognize, I mean the old saying in Washington,

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Speaker 1: don't let the good, you know, don't let the perfect

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Speaker 1: become the enemy of the good. You have to find

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Speaker 1: a compromise. That's the nature of legislating. If you decide

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Speaker 1: you want to be a legislator, do that, and we

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Speaker 1: need to move in that direction. But I'm not in

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Speaker 1: the politics of the back and forth now. I'm trying

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Speaker 1: to bring people together Republican, Democrat, liberal, conservative, to understand

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Speaker 1: that this crisis is existential, doesn't have a political label.

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Speaker 1: It's universal. It's not a bilateral issue between China and

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Speaker 1: the United States. It is existential for everybody on the planet,

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Speaker 1: and we need to be smarter about coming to solution.

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Speaker 1: The best way you get there is through, you know,

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Speaker 1: winning an election, but then also compromising to find a

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Speaker 1: path forward. John Kerry, thank you so much for joining

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Speaker 1: us as he is. You are Special Presidential Envoy for

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Speaker 1: Climate This is an important conversation each and every year

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Speaker 1: at Davos there is someone who owns the valley. Usually

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Speaker 1: it's some rock star that shows up by helicopter, or

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Speaker 1: maybe it's some famous model that I don't know their name,

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Speaker 1: you know, someone like that. This year's rock star is

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Speaker 1: Joseph Stiglitz. He is in the Nobel Winner for the

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Speaker 1: Mysteries of Information. He has someone in Colombia who has

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Speaker 1: taught and written about our discontents and with the challenges

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Speaker 1: of globalization, given war in Ukraine and food crisis and others. Truly,

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Speaker 1: Joe Stigletz is the attendee this year at Davos. If

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Speaker 1: you wrote globalization and as discontents today, what would be different?

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Speaker 1: I think, Uh, when I wrote globalization etiskan tent, I

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Speaker 1: was mostly focused on the discontent in the South, in

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Speaker 1: the development countries and emerging markets. Since then, that discontent

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Speaker 1: has become global. We've had globalization of global discontent, and

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Speaker 1: I think part of the reason is that we've seen

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Speaker 1: that globalization has left us in the United States unprepared

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Speaker 1: for the COVID nineteen. We weren't able to prepare, uh

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Speaker 1: produce even simple thing like face mass protective gear. Complicated

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Speaker 1: things and UH now. Uh, this broader discontented globalization that

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Speaker 1: I talked about uh uh with emerging markets in developing

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Speaker 1: countries is showing up in a peculiar way in the

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Speaker 1: lack of support for the West, for the United States

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Speaker 1: and Europe and other democracies, in the our position against

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Speaker 1: russiasm by of Ukraine. Before we get to that, though,

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Speaker 1: is the inflation that we're seeing right now a symptom

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Speaker 1: of these fissures of these crises, whether it's Russia and

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Speaker 1: the war and you created the lockdowns in China, or

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Speaker 1: is it just an exasperation of a deglobalization or reglobalization

428
00:25:16,080 --> 00:25:20,360
Speaker 1: in a new form that people haven't fully understood yet. Well.

429
00:25:21,440 --> 00:25:25,440
Speaker 1: The disturbances are to a large extent a reflection of

430
00:25:25,680 --> 00:25:30,119
Speaker 1: the same kind of short sidedness, uh, failure of markets

431
00:25:30,160 --> 00:25:33,359
Speaker 1: to attend to risk adequately that we saw on the

432
00:25:33,400 --> 00:25:38,120
Speaker 1: two thousand eight crisis. I wrote my book Making Globalization Work,

433
00:25:38,240 --> 00:25:43,240
Speaker 1: The Sequel to Globalization and Discontent, that it was extraordinarily

434
00:25:43,680 --> 00:25:47,639
Speaker 1: risky for jury to become so dependent on Russian gas.

435
00:25:47,720 --> 00:25:51,199
Speaker 1: It was so clear back then that Russia was not

436
00:25:51,280 --> 00:25:54,240
Speaker 1: a reliable trade partner. Why would you put all your

437
00:25:54,280 --> 00:25:58,680
Speaker 1: money in all your eggs in that basket, and yet

438
00:25:59,680 --> 00:26:04,119
Speaker 1: Juror did, Europe did, and part of what we're seeing

439
00:26:04,160 --> 00:26:08,879
Speaker 1: now because we didn't respond to climate change. You have

440
00:26:09,040 --> 00:26:12,080
Speaker 1: Senator carry here a few minutes ago talking about this.

441
00:26:12,200 --> 00:26:17,640
Speaker 1: We should have we should have moved to renewable energy,

442
00:26:18,720 --> 00:26:22,879
Speaker 1: realizing that it was more reliable than political dictators. So

443
00:26:22,960 --> 00:26:26,359
Speaker 1: fast forward to today and the policies that we're implementing,

444
00:26:26,359 --> 00:26:28,840
Speaker 1: whether it's to try to curb Russia and and to

445
00:26:29,240 --> 00:26:31,760
Speaker 1: hamper them in their advance in Ukraine, or whether it

446
00:26:31,760 --> 00:26:35,480
Speaker 1: comes to tariffs in China. What are we getting wrong? Oh?

447
00:26:35,520 --> 00:26:41,520
Speaker 1: I think, Uh, we're not getting enough solidarity. We're asking

448
00:26:42,440 --> 00:26:44,480
Speaker 1: a few countries. They may have made mistakes in the

449
00:26:44,520 --> 00:26:47,920
Speaker 1: future in the past, but now we have to have solidarity.

450
00:26:48,000 --> 00:26:51,359
Speaker 1: We're fighting a war right now. It's a global war.

451
00:26:51,560 --> 00:26:55,040
Speaker 1: It's a war to preserve the international rule of law.

452
00:26:55,760 --> 00:26:59,200
Speaker 1: And yet we're asking some of the poorest countries to

453
00:26:59,359 --> 00:27:01,880
Speaker 1: pare to bear a lot of the price in terms

454
00:27:01,920 --> 00:27:05,320
Speaker 1: of higher food prices. They may starve that we're not

455
00:27:05,359 --> 00:27:09,600
Speaker 1: doing anything about the deck prices. So uh, in terms

456
00:27:09,680 --> 00:27:14,600
Speaker 1: of managing a global alliance, we're so you came out

457
00:27:14,600 --> 00:27:17,760
Speaker 1: of Gary, Indiana. It's flat on its back like no

458
00:27:17,840 --> 00:27:22,040
Speaker 1: other city in the country. The rhodicurs to academics writing

459
00:27:22,040 --> 00:27:26,080
Speaker 1: in Foreign Affairs talk about the initiatives forward, Where hey,

460
00:27:26,160 --> 00:27:29,919
Speaker 1: the fancy people, Maybe I ought to pay attention to

461
00:27:30,040 --> 00:27:35,000
Speaker 1: the middle class. How in this new America do we

462
00:27:35,080 --> 00:27:39,040
Speaker 1: get the elites to join with the middle class like

463
00:27:39,119 --> 00:27:41,600
Speaker 1: they did when you and I grew up. Why? I

464
00:27:41,880 --> 00:27:46,440
Speaker 1: I think that we all need to be aware. Our

465
00:27:46,520 --> 00:27:52,200
Speaker 1: democracy is at risk and our system of economic system

466
00:27:52,359 --> 00:27:54,800
Speaker 1: is at risk. So if we don't get that kind

467
00:27:54,800 --> 00:27:58,240
Speaker 1: of solidarity, who knows where things will go. So do

468
00:27:58,720 --> 00:28:02,480
Speaker 1: you talked a little bit of before about inflation? It's

469
00:28:02,480 --> 00:28:05,399
Speaker 1: really hurting the people at the bottom in the middle,

470
00:28:05,840 --> 00:28:14,240
Speaker 1: uh enormously. There are UH oil companies making billions of dollars.

471
00:28:15,000 --> 00:28:17,879
Speaker 1: You thought this battle in nine he had a V

472
00:28:18,080 --> 00:28:20,920
Speaker 1: W rabbit. You would have loved it, Joe. The bottom

473
00:28:20,960 --> 00:28:25,480
Speaker 1: line is the elites have forgotten the middle class across

474
00:28:25,520 --> 00:28:30,159
Speaker 1: the entire political persuasion. How do we re engage and

475
00:28:30,280 --> 00:28:33,920
Speaker 1: build a trust with the middle class in America? Given

476
00:28:33,920 --> 00:28:38,000
Speaker 1: the present shocks here in a happy Valley. I think

477
00:28:38,040 --> 00:28:44,200
Speaker 1: that we have to remind them, uh as I did.

478
00:28:44,280 --> 00:28:48,120
Speaker 1: Probably article I wrote eleven years ago of the one percent,

479
00:28:48,200 --> 00:28:50,760
Speaker 1: for the one percent, and by the one percent. Part

480
00:28:50,760 --> 00:28:53,480
Speaker 1: of the message of that article in the Vanity Fair

481
00:28:54,200 --> 00:28:57,440
Speaker 1: was to say that it is in your own self

482
00:28:57,520 --> 00:29:03,200
Speaker 1: interest two show more solidarity, because if you don't, this

483
00:29:03,240 --> 00:29:06,000
Speaker 1: whole system is going to fray apart. At least this

484
00:29:06,080 --> 00:29:08,760
Speaker 1: is important, really important. Given the years and when you

485
00:29:09,000 --> 00:29:12,160
Speaker 1: and Rogue off we're on stage here, that honor when

486
00:29:12,160 --> 00:29:14,600
Speaker 1: the two they haven't gotten along for years. It's like

487
00:29:14,640 --> 00:29:17,240
Speaker 1: the Kardashians. It's worse than that. Here's the heart of

488
00:29:17,240 --> 00:29:21,040
Speaker 1: the matter. We had compensation structures in America where the

489
00:29:21,080 --> 00:29:23,640
Speaker 1: middle class was attached to the elites, and then we

490
00:29:23,800 --> 00:29:26,560
Speaker 1: changed it to where the elites are making more money

491
00:29:26,640 --> 00:29:29,720
Speaker 1: than God and the little classes left bond. And to me,

492
00:29:29,800 --> 00:29:32,240
Speaker 1: that was a tipping point. This has been a tipping point.

493
00:29:32,240 --> 00:29:34,200
Speaker 1: And here we are with a new tipping point with inflation,

494
00:29:34,280 --> 00:29:36,600
Speaker 1: and just want to end here. Do you think that

495
00:29:36,680 --> 00:29:39,440
Speaker 1: it's more important to get inflation under control at this

496
00:29:39,520 --> 00:29:44,360
Speaker 1: moment than to worry about or avoid some sort of downturn,

497
00:29:44,440 --> 00:29:48,920
Speaker 1: which seems to be the feds conundrump. Raising interest rates

498
00:29:49,080 --> 00:29:51,360
Speaker 1: is not going to solve the problem with inflation. It's

499
00:29:51,440 --> 00:29:54,719
Speaker 1: not going to create more food. It's going to make

500
00:29:54,760 --> 00:29:56,680
Speaker 1: it more difficult because you aren't going to be able

501
00:29:56,720 --> 00:29:58,600
Speaker 1: to make the investment. How do you clear the market

502
00:29:58,640 --> 00:30:01,160
Speaker 1: if you don't raise interest rates? What you do is

503
00:30:01,200 --> 00:30:06,320
Speaker 1: you have supply side interventions. Uh. One of the things

504
00:30:06,360 --> 00:30:08,560
Speaker 1: that President Biden tried to do is to have more

505
00:30:09,320 --> 00:30:12,840
Speaker 1: care for children, and that would mean more women into

506
00:30:12,840 --> 00:30:16,800
Speaker 1: the labor force. That releases one of the UH constraints

507
00:30:16,920 --> 00:30:21,040
Speaker 1: labor supply. Uh. You look at we used to have

508
00:30:21,080 --> 00:30:24,000
Speaker 1: surpluses and food in the United States. We can get

509
00:30:24,000 --> 00:30:25,800
Speaker 1: those back. How do we do this in a of

510
00:30:25,800 --> 00:30:29,960
Speaker 1: prisitive way. I think we can do a lot more

511
00:30:30,480 --> 00:30:34,400
Speaker 1: than we're doing. Uh. Can you go an economy through

512
00:30:34,440 --> 00:30:37,320
Speaker 1: raising interest breaks? Is not going to be at any

513
00:30:37,360 --> 00:30:41,720
Speaker 1: time frame? So at least trying to do everything we

514
00:30:41,800 --> 00:30:45,040
Speaker 1: can globally to increase the supply is going to do

515
00:30:45,240 --> 00:30:49,120
Speaker 1: more on dealing with the problem causing a depression. One

516
00:30:49,200 --> 00:30:51,960
Speaker 1: last question, you're heated, rhetoric melted all the snow in

517
00:30:52,000 --> 00:30:55,160
Speaker 1: the valley. Let's go all Scoop Jackson on you right now,

518
00:30:55,200 --> 00:30:58,080
Speaker 1: the giant from Washington State. Can you, as a raging

519
00:30:58,160 --> 00:31:03,040
Speaker 1: Democrat support of a school rebuilding of our defense and

520
00:31:03,120 --> 00:31:06,640
Speaker 1: of our navy to push against China in the shock

521
00:31:06,680 --> 00:31:10,880
Speaker 1: of Putin and Russia. Uh, I think we can uh

522
00:31:11,280 --> 00:31:17,240
Speaker 1: have uh uh support defense. We clearly Puttin a show

523
00:31:17,360 --> 00:31:21,400
Speaker 1: we need defense. Much of what we spend is weapons

524
00:31:21,440 --> 00:31:24,920
Speaker 1: that don't work against enemies that don't exist. So if

525
00:31:24,920 --> 00:31:28,640
Speaker 1: we take our current spending on defense and re examine it,

526
00:31:28,680 --> 00:31:31,800
Speaker 1: I mean we're paying we're so much back in the

527
00:31:31,840 --> 00:31:35,360
Speaker 1: twentieth century. The latter half of the twentieth century. We're

528
00:31:35,400 --> 00:31:40,080
Speaker 1: in a We're a world of cyber warfare, of all

529
00:31:40,240 --> 00:31:44,320
Speaker 1: kinds of new forms of warfare. We need to adapt

530
00:31:45,680 --> 00:31:50,000
Speaker 1: our military expenditure. I think if we did that, we

531
00:31:50,040 --> 00:31:52,600
Speaker 1: don't have to spend more and more and more. We

532
00:31:52,640 --> 00:31:55,320
Speaker 1: have to spend smarter and smart smarter. We're out of time.

533
00:31:55,400 --> 00:31:59,560
Speaker 1: Joe Stick, Let's thank you for professor from Columbia University,

534
00:31:59,600 --> 00:32:03,600
Speaker 1: and iials say, most seriously, folks, a reading of globalization

535
00:32:03,680 --> 00:32:06,200
Speaker 1: and his discontent is a good place to start on

536
00:32:06,240 --> 00:32:13,720
Speaker 1: a study of international economies. Let's dive into a conversation

537
00:32:13,760 --> 00:32:17,160
Speaker 1: with someone who has had world world leadership and quality conversations.

538
00:32:17,200 --> 00:32:19,720
Speaker 1: David Rubinstein joins us. Of course, you know him with

539
00:32:19,760 --> 00:32:22,120
Speaker 1: his work on Bloomberg. He's co chairman and co founder

540
00:32:22,560 --> 00:32:26,800
Speaker 1: Carlyle Group. He's on the board of the World Economic Forum,

541
00:32:26,880 --> 00:32:30,600
Speaker 1: and I think owns like three cantons in Switzerland. Switzerland's well,

542
00:32:30,640 --> 00:32:33,240
Speaker 1: wonderful day. Have you here today, My pleasure to be here.

543
00:32:33,320 --> 00:32:35,240
Speaker 1: Thanks for having Is it better in the summer or

544
00:32:35,320 --> 00:32:37,400
Speaker 1: the winter. It's a lot easier to get around in

545
00:32:37,440 --> 00:32:39,520
Speaker 1: the summertime, and you don't have to worry about falling down.

546
00:32:39,560 --> 00:32:41,120
Speaker 1: At least I don't have to worry about it so much.

547
00:32:41,200 --> 00:32:43,400
Speaker 1: I know you had a little slip, but you're okay, right,

548
00:32:43,520 --> 00:32:46,960
Speaker 1: I'm okay doing fun. Um. Let us talk about what

549
00:32:47,200 --> 00:32:52,240
Speaker 1: underlies it underpins every transaction at Carlyle, every transaction of

550
00:32:52,320 --> 00:32:56,280
Speaker 1: President Biden, and that is a financial system where it

551
00:32:56,520 --> 00:32:59,840
Speaker 1: is priced down yield up. If I take the Leman Index,

552
00:32:59,880 --> 00:33:05,080
Speaker 1: the bloom Bird Total Return aggregate index. Essentially, David, we've

553
00:33:05,160 --> 00:33:09,840
Speaker 1: never seen this. How does the financial system adapt to

554
00:33:10,000 --> 00:33:15,200
Speaker 1: such losses in bonds? Well, the financial system will adapt.

555
00:33:15,200 --> 00:33:19,040
Speaker 1: It always does. Markets correct, and the markets will correct. Now,

556
00:33:19,080 --> 00:33:21,600
Speaker 1: I think we've had a time of enormous a bulliance

557
00:33:21,800 --> 00:33:25,200
Speaker 1: in the markets, low interest rates, very high growth rates,

558
00:33:25,200 --> 00:33:27,760
Speaker 1: and now it's changing. You can't go on forever as

559
00:33:27,760 --> 00:33:30,120
Speaker 1: it was, so now it's slowing down a bit. I

560
00:33:30,120 --> 00:33:33,280
Speaker 1: don't think it's a calamitous situation, but clearly the growth

561
00:33:33,320 --> 00:33:35,520
Speaker 1: market right now is not great, and I would say

562
00:33:35,560 --> 00:33:37,080
Speaker 1: interest rates are gonna come up for a while and

563
00:33:37,240 --> 00:33:40,160
Speaker 1: probably put us into what somebody in the Carter administration

564
00:33:40,240 --> 00:33:42,360
Speaker 1: used to call a banana. He didn't want to use

565
00:33:42,400 --> 00:33:45,720
Speaker 1: the word recession. So Carter said, don't use the word recession,

566
00:33:46,000 --> 00:33:48,280
Speaker 1: use some other word. And Fred Cohn, the inflation of Easer,

567
00:33:48,320 --> 00:33:50,160
Speaker 1: said all right, I think we might be in a banana.

568
00:33:50,480 --> 00:33:52,400
Speaker 1: So I don't want to say we're in a recession.

569
00:33:52,440 --> 00:33:54,160
Speaker 1: I don't know if we're in a banana, but it's

570
00:33:54,200 --> 00:33:57,040
Speaker 1: some something close between a recession and a banana. Okay.

571
00:33:57,040 --> 00:33:59,200
Speaker 1: So then Biden this morning, when he was asked about it,

572
00:33:59,280 --> 00:34:01,400
Speaker 1: should have said banana, because you think that that's the

573
00:34:01,440 --> 00:34:05,560
Speaker 1: more realistic outcome. There are many different definitions of recession,

574
00:34:05,600 --> 00:34:07,040
Speaker 1: so I don't want to be quoted saying we're in

575
00:34:07,040 --> 00:34:09,359
Speaker 1: a recession. Nobody really knows yet for sure, but clear

576
00:34:09,400 --> 00:34:11,360
Speaker 1: the economy is not as robust as it was the

577
00:34:11,440 --> 00:34:14,200
Speaker 1: last couple of years, in part because of COVID, the

578
00:34:14,560 --> 00:34:17,880
Speaker 1: effects of that, and part because of the war in Ukraine,

579
00:34:18,040 --> 00:34:19,919
Speaker 1: and part because the interest rates are going up again,

580
00:34:20,120 --> 00:34:21,759
Speaker 1: And so if all those things come together, it's not

581
00:34:21,800 --> 00:34:24,239
Speaker 1: a great economic environment. On the other hand, if you're

582
00:34:24,239 --> 00:34:26,479
Speaker 1: an investor, prices have come down to the point where

583
00:34:26,480 --> 00:34:28,440
Speaker 1: there's some really good bargains now, and I think a

584
00:34:28,440 --> 00:34:30,279
Speaker 1: lot of people that buy at the bottom are looking

585
00:34:30,480 --> 00:34:32,040
Speaker 1: pretty happy. Now. Do you think that right now this

586
00:34:32,160 --> 00:34:34,640
Speaker 1: is a bottoming out that you see? In other words,

587
00:34:34,640 --> 00:34:37,560
Speaker 1: from the conversation that you're having, is a more optimism

588
00:34:37,560 --> 00:34:41,640
Speaker 1: about investing now than pessimism about the recession or banana?

589
00:34:41,960 --> 00:34:44,719
Speaker 1: What depends. If you own a lot of these assets

590
00:34:44,719 --> 00:34:47,000
Speaker 1: and they've gone down, you're not so optimistic. But if

591
00:34:47,000 --> 00:34:48,799
Speaker 1: you don't own those assets and you now have some

592
00:34:48,840 --> 00:34:51,359
Speaker 1: fresh capital to invest, it's a lot better now than

593
00:34:51,400 --> 00:34:53,399
Speaker 1: it was a while ago, because you're a lot low

594
00:34:54,280 --> 00:34:56,440
Speaker 1: with your own assets. The ones you own may not

595
00:34:56,520 --> 00:34:58,319
Speaker 1: be worth as much, but you don't have to sell

596
00:34:58,320 --> 00:35:00,759
Speaker 1: those asset these prices. But right out people are gonna

597
00:35:00,760 --> 00:35:02,840
Speaker 1: make a lot of money buying at these prices, I believe,

598
00:35:02,840 --> 00:35:05,160
Speaker 1: because prices are pretty low now relative to where they've been.

599
00:35:05,200 --> 00:35:08,360
Speaker 1: But David to Andrew Mellon in another time in place,

600
00:35:09,360 --> 00:35:12,200
Speaker 1: are we going to see the elites do a national

601
00:35:12,560 --> 00:35:17,840
Speaker 1: roll up of our assets while with inflation the middle

602
00:35:17,880 --> 00:35:20,600
Speaker 1: class is flat on their back. And to get specific,

603
00:35:20,920 --> 00:35:26,320
Speaker 1: Blackstone take taking the heat. But private equity, private money

604
00:35:26,400 --> 00:35:29,719
Speaker 1: is going after residential housing is a sound investment. And

605
00:35:29,760 --> 00:35:32,080
Speaker 1: there's a raging debate about that. Is this is this

606
00:35:32,160 --> 00:35:35,640
Speaker 1: a shell game of the elites where the middle class

607
00:35:35,719 --> 00:35:39,759
Speaker 1: beleaguer doesn't get to participate. First of all, Blackstone and

608
00:35:39,840 --> 00:35:43,480
Speaker 1: Carlisle and other firms, they basically represents pension funds to

609
00:35:43,560 --> 00:35:47,000
Speaker 1: large extent, which our teachers, firemen, policemen, so forth. So

610
00:35:47,040 --> 00:35:49,360
Speaker 1: it's not exactly the elites who are buying it for themselves.

611
00:35:49,440 --> 00:35:52,400
Speaker 1: They're buying it for pension funds a large extent. Secondly, um,

612
00:35:52,520 --> 00:35:54,439
Speaker 1: the economy is much different than Andrew melle s period

613
00:35:54,480 --> 00:35:56,760
Speaker 1: of time than a few people did control an economy.

614
00:35:57,080 --> 00:35:58,880
Speaker 1: So now there it's a much bigger comment. It's a

615
00:35:58,880 --> 00:36:03,160
Speaker 1: global economy, wasn't when Andrew Mellon was Secretary of Treasury. Meanwhile,

616
00:36:03,200 --> 00:36:05,600
Speaker 1: we are looking at the turmoil, and I do wonder

617
00:36:05,920 --> 00:36:08,560
Speaker 1: whether you think that Davos still has the same relevancy

618
00:36:08,640 --> 00:36:12,200
Speaker 1: that it once did Tavos. I think is relevant because

619
00:36:12,200 --> 00:36:14,160
Speaker 1: people are still coming. If people didn't come, it wouldn't

620
00:36:14,160 --> 00:36:16,840
Speaker 1: be relevant. People are coming because when you can go

621
00:36:17,040 --> 00:36:19,680
Speaker 1: in one place and see the CEOs and the heads

622
00:36:19,719 --> 00:36:21,759
Speaker 1: of state from so many different places, it's a good thing.

623
00:36:21,760 --> 00:36:23,799
Speaker 1: It's very convenient. So if I wanted to see some

624
00:36:23,840 --> 00:36:25,680
Speaker 1: of the people here, I would have to spend six

625
00:36:25,719 --> 00:36:27,960
Speaker 1: months going around and meeting all these people. Now they

626
00:36:27,960 --> 00:36:29,400
Speaker 1: can meet them in a couple of days here, So

627
00:36:29,440 --> 00:36:31,359
Speaker 1: it's very relevant. Now, are we going to solve all

628
00:36:31,360 --> 00:36:33,439
Speaker 1: the global problems in the world in the next four days.

629
00:36:33,480 --> 00:36:35,600
Speaker 1: Probably not. But I don't see anybody that comes here

630
00:36:35,640 --> 00:36:37,439
Speaker 1: and says, you know, I wish I was somewhere else.

631
00:36:37,520 --> 00:36:39,600
Speaker 1: People come here because they think it's actually a good

632
00:36:39,680 --> 00:36:41,759
Speaker 1: chance to meet other people, and because we've been in

633
00:36:41,840 --> 00:36:44,600
Speaker 1: COVID environment for so long, some of these people haven't

634
00:36:44,600 --> 00:36:46,760
Speaker 1: been seen by others for three or four years. In person.

635
00:36:46,960 --> 00:36:48,760
Speaker 1: I haven't seen some of these people for three years.

636
00:36:49,120 --> 00:36:51,680
Speaker 1: Robert Hormad's a couple of days ago, was heated with

637
00:36:51,800 --> 00:36:56,400
Speaker 1: us about the rebuild or a relationship with the Pacific RIM.

638
00:36:56,480 --> 00:37:01,120
Speaker 1: What could private capital do? She was our government and

639
00:37:01,200 --> 00:37:04,480
Speaker 1: projecting a new America vision there. You know, I think

640
00:37:04,480 --> 00:37:07,080
Speaker 1: of the isle of family in the Philippines and other

641
00:37:07,239 --> 00:37:12,120
Speaker 1: large pools of capital. Don't we assist our nation by

642
00:37:12,200 --> 00:37:16,640
Speaker 1: projecting an advancing capital to the Pacific Rim? We do,

643
00:37:16,719 --> 00:37:18,520
Speaker 1: and we are. I mean a lot of the private

644
00:37:18,520 --> 00:37:21,720
Speaker 1: equty firms and other large corporations are investing enormous amounts

645
00:37:21,719 --> 00:37:23,839
Speaker 1: of money in Asia. Asia has grown dramatically the last

646
00:37:23,880 --> 00:37:26,239
Speaker 1: forty or fifty years since Nixon went to China. It's

647
00:37:26,239 --> 00:37:30,360
Speaker 1: an incredible, incredibly different world. We aren't pulling back dramatically.

648
00:37:30,400 --> 00:37:32,440
Speaker 1: I think the investment in China is pulling back a

649
00:37:32,480 --> 00:37:35,239
Speaker 1: bit because of some of the regulatory conscerns there and

650
00:37:35,440 --> 00:37:38,520
Speaker 1: the economic concerns and COVID. But money is flowing into

651
00:37:38,520 --> 00:37:41,279
Speaker 1: other countries. India is a good example, Japan is a

652
00:37:41,280 --> 00:37:43,480
Speaker 1: good example, Korea is a good example. A lot of

653
00:37:43,480 --> 00:37:45,399
Speaker 1: Western money is going in there now. So I don't

654
00:37:45,400 --> 00:37:47,440
Speaker 1: think we're pulling out from the Pacific RIM. And I

655
00:37:47,440 --> 00:37:49,680
Speaker 1: think Biden is money is there now as he is

656
00:37:49,840 --> 00:37:52,360
Speaker 1: he's talking about American capital coming in. I think American

657
00:37:52,400 --> 00:37:55,160
Speaker 1: capital is coming in. David Rubinstein, thank you so much

658
00:37:55,200 --> 00:37:58,760
Speaker 1: for joining with Kyle. Thank you for your conversation. My pleasure,

659
00:37:58,800 --> 00:38:01,279
Speaker 1: thank you for all time was Jeff Bezos. He was

660
00:38:01,640 --> 00:38:04,319
Speaker 1: the best. I don't feel the best, but it was

661
00:38:04,360 --> 00:38:06,560
Speaker 1: just great how you hammered him, I mean it was great.

662
00:38:06,800 --> 00:38:14,120
Speaker 1: Thank you very much, David Rubinstein, thank you again. What

663
00:38:14,160 --> 00:38:16,400
Speaker 1: we'rena do now is drive for the conversation with a

664
00:38:16,480 --> 00:38:19,239
Speaker 1: vent to Latin America. But we do so with the

665
00:38:19,280 --> 00:38:23,360
Speaker 1: financial acuity of General Atlantic. There are storied name in

666
00:38:23,440 --> 00:38:27,439
Speaker 1: financial Martin Escobaro joins us now their co president. Thank

667
00:38:27,440 --> 00:38:30,560
Speaker 1: you for joining us here in Windy City, Tom, Lisa,

668
00:38:30,680 --> 00:38:33,080
Speaker 1: thank you for having around a deck in Chicago. It'll

669
00:38:33,760 --> 00:38:36,239
Speaker 1: it'll work out. I want you to talk to me.

670
00:38:36,440 --> 00:38:41,680
Speaker 1: How you use foreign exchange in Latin America is a

671
00:38:41,760 --> 00:38:45,279
Speaker 1: litmus paper of how government systems are doing there. You

672
00:38:45,280 --> 00:38:48,480
Speaker 1: are doing finance, you're doing long term investment in the

673
00:38:48,560 --> 00:38:53,280
Speaker 1: Latin America, and yet it's within fragile economies with fragile

674
00:38:53,320 --> 00:38:56,800
Speaker 1: foreign exchange. How do you use foreign exchange to study

675
00:38:56,960 --> 00:39:00,160
Speaker 1: Latin America. That's a great question, Tom. Listen, we've we've

676
00:39:00,160 --> 00:39:02,600
Speaker 1: been in Latin America. So first level set g A

677
00:39:02,800 --> 00:39:05,960
Speaker 1: is forty two years old, eighty billion dollars in assets.

678
00:39:05,960 --> 00:39:08,080
Speaker 1: We've been investing in technology for forty years. We've been

679
00:39:08,080 --> 00:39:11,279
Speaker 1: in the emerging market for twenty including Latin America, and

680
00:39:11,400 --> 00:39:14,640
Speaker 1: Latin America has been tough for most private equity investors

681
00:39:14,640 --> 00:39:18,160
Speaker 1: because they got ex wrong. And what we've tried to

682
00:39:18,200 --> 00:39:21,480
Speaker 1: do is bet on digital companies that are growing thirty

683
00:39:21,560 --> 00:39:25,040
Speaker 1: fifty six. So even if we get the ffs wrong,

684
00:39:25,320 --> 00:39:28,879
Speaker 1: we still meet the required returns. And it's really easy

685
00:39:28,920 --> 00:39:30,759
Speaker 1: to get the FX wrong. So we've seen a huge

686
00:39:30,760 --> 00:39:33,759
Speaker 1: reset in all tech companies around the world over the

687
00:39:33,800 --> 00:39:37,160
Speaker 1: past six months. Has there been the same reset just

688
00:39:37,239 --> 00:39:40,759
Speaker 1: not priced in yet in the private world? I heard

689
00:39:40,800 --> 00:39:44,200
Speaker 1: you Tom used the word cartnage. There's been cartnage and

690
00:39:44,239 --> 00:39:48,680
Speaker 1: growth public growth stocks drop seventy to eighty percent. It's been,

691
00:39:49,000 --> 00:39:52,440
Speaker 1: and it's been abroad across good companies. Great companies are

692
00:39:52,480 --> 00:39:55,719
Speaker 1: more or less companies. The private markets have not transacted

693
00:39:55,719 --> 00:39:57,840
Speaker 1: as much. And what we we we've looked at in

694
00:39:57,920 --> 00:40:02,880
Speaker 1: previous corrections is it takes six to nine months before

695
00:40:02,960 --> 00:40:06,120
Speaker 1: the public market comps to translate into private transactions because

696
00:40:06,280 --> 00:40:09,520
Speaker 1: good companies need not trans transact in the middle of

697
00:40:09,560 --> 00:40:11,640
Speaker 1: the storm, and we are in the middle of the storm,

698
00:40:11,640 --> 00:40:13,319
Speaker 1: not just in the house. So does that mean that

699
00:40:13,400 --> 00:40:17,840
Speaker 1: you're extending less money, less financing at this moment in

700
00:40:17,920 --> 00:40:21,000
Speaker 1: preparation for what's to come in the follow on in

701
00:40:21,040 --> 00:40:24,399
Speaker 1: the private world. So interestingly, we in the short term

702
00:40:24,440 --> 00:40:28,200
Speaker 1: we're seeing terrific opportunities in the public markets. Were not

703
00:40:28,239 --> 00:40:31,600
Speaker 1: typically a public market investor, exceptionally, we're becoming one right now.

704
00:40:32,120 --> 00:40:34,879
Speaker 1: In the private markets, we are slowing down. Now. What's

705
00:40:34,880 --> 00:40:38,080
Speaker 1: beginning to happen is consolidation. I mean, last year, sixty

706
00:40:38,440 --> 00:40:40,520
Speaker 1: companies got funded. Half of them won't make it through

707
00:40:40,520 --> 00:40:42,919
Speaker 1: the correction. The strong will get stronger and the weaker

708
00:40:42,960 --> 00:40:45,240
Speaker 1: will be consolidated into the strong, and so we're beginning

709
00:40:45,280 --> 00:40:49,240
Speaker 1: to add capital some of these companies to consolidate their industries.

710
00:40:49,520 --> 00:40:53,120
Speaker 1: Follow this is important. You're pulling back from the private

711
00:40:53,120 --> 00:40:56,799
Speaker 1: sphere and going to public companies because of the opportunity

712
00:40:56,800 --> 00:40:59,399
Speaker 1: that you see. Do you think that we are not

713
00:40:59,520 --> 00:41:02,560
Speaker 1: prepared for the selling for the lack of investment on

714
00:41:02,600 --> 00:41:04,960
Speaker 1: the private side that will trickle out in the next

715
00:41:05,000 --> 00:41:10,480
Speaker 1: few months. Listen, in the short term, the best opportunities

716
00:41:10,480 --> 00:41:12,719
Speaker 1: on the public markets, because there's an stampede of people

717
00:41:13,160 --> 00:41:16,720
Speaker 1: coming out of the public markets and the macros forces

718
00:41:16,760 --> 00:41:19,360
Speaker 1: overwhelmed the micro ones. It's such a mispricing of growth

719
00:41:19,360 --> 00:41:21,200
Speaker 1: and even overall, if you look at the p to

720
00:41:21,280 --> 00:41:23,880
Speaker 1: growth of the entire market, it's a zero point seven.

721
00:41:24,239 --> 00:41:25,759
Speaker 1: The last time it was this low is that the

722
00:41:25,760 --> 00:41:28,440
Speaker 1: Great Financial Crisis, and it was zero point eight. So

723
00:41:28,480 --> 00:41:31,440
Speaker 1: we're just fighting better deals now. There's so much liquidit

724
00:41:31,440 --> 00:41:33,920
Speaker 1: in the private markets. It will take a while before

725
00:41:33,920 --> 00:41:36,440
Speaker 1: this phenomena begins to affect companies, but it will. Our

726
00:41:36,520 --> 00:41:40,080
Speaker 1: guest is six to nine months. Are you seeing within

727
00:41:41,040 --> 00:41:44,239
Speaker 1: sort of a decades long autocracy? And I mean that

728
00:41:44,280 --> 00:41:48,440
Speaker 1: in a very loose phrase of South America, a greater

729
00:41:48,680 --> 00:41:53,960
Speaker 1: respect in understanding for capitalization, for contract, for rule law.

730
00:41:54,280 --> 00:41:57,439
Speaker 1: Is it easier to do business now than five years ago,

731
00:41:57,840 --> 00:42:02,919
Speaker 1: ten years ago. It's a change in a number of ways. First,

732
00:42:02,960 --> 00:42:08,239
Speaker 1: there's something we call the globalization of entrepreneurship. Great minds

733
00:42:08,280 --> 00:42:10,760
Speaker 1: are born everywhere, but they don't have access to ideas

734
00:42:10,760 --> 00:42:13,000
Speaker 1: and funding in the old world. In the new world,

735
00:42:13,200 --> 00:42:15,440
Speaker 1: they have access to ideas and funding. Just to give

736
00:42:15,480 --> 00:42:17,840
Speaker 1: you a sense of magnitude, last year in Latin America,

737
00:42:18,080 --> 00:42:22,279
Speaker 1: the growth and venture capital invested nineteen billion dollars. That's

738
00:42:22,320 --> 00:42:24,960
Speaker 1: more than the previous twenty years combined So if you

739
00:42:25,080 --> 00:42:29,400
Speaker 1: if you're Latin American entrepreneurs, why such a ginormous number,

740
00:42:29,960 --> 00:42:32,600
Speaker 1: Because we're catching up and there were enough proof points.

741
00:42:32,840 --> 00:42:38,000
Speaker 1: I mean, we invested in a company that saw appreciation,

742
00:42:38,360 --> 00:42:41,720
Speaker 1: it's probably trading twenty billion dollar company, profitable, trading a multiple,

743
00:42:42,080 --> 00:42:46,640
Speaker 1: and and there were it's a complical xp inc it's

744
00:42:46,640 --> 00:42:48,719
Speaker 1: it's traded in as like and it's it's it's in

745
00:42:48,800 --> 00:42:51,560
Speaker 1: a real profit, not not speculative. But there's been a

746
00:42:51,600 --> 00:42:54,080
Speaker 1: there's been a handful of success stories and nothing attracts

747
00:42:54,320 --> 00:42:57,560
Speaker 1: capitalized proven success and and that's what happened. So there's

748
00:42:57,600 --> 00:43:00,440
Speaker 1: been a step change in access of fun to the

749
00:43:00,480 --> 00:43:05,759
Speaker 1: best entrepreneurs. And economies are formalized. The electrinification of payments

750
00:43:06,040 --> 00:43:08,080
Speaker 1: mean you can't devate taxes anymore, and all of a

751
00:43:08,080 --> 00:43:13,120
Speaker 1: sudden of companies who are formally half informal couldn't do it,

752
00:43:13,200 --> 00:43:15,560
Speaker 1: and that opened it up for private investment. Does General

753
00:43:15,600 --> 00:43:19,000
Speaker 1: Atlantic think that Latin America will emerge stronger or weaker

754
00:43:19,080 --> 00:43:22,520
Speaker 1: from the current inflationary impulse that's allowing their exports to

755
00:43:22,520 --> 00:43:25,719
Speaker 1: be that much more valuable. So listen, Latin America is

756
00:43:25,719 --> 00:43:30,760
Speaker 1: about ten of what we do globally. In the next

757
00:43:30,800 --> 00:43:34,359
Speaker 1: three years. Brazil will benefit from the commodity cycle. It's

758
00:43:34,400 --> 00:43:37,160
Speaker 1: a net exporter or commodities. The effects should benefit from

759
00:43:37,200 --> 00:43:40,760
Speaker 1: that that that is a great tailwind. Mexico will benefit

760
00:43:40,760 --> 00:43:44,840
Speaker 1: from near shoring. So these two global macro tendencies will benefit.

761
00:43:44,880 --> 00:43:48,319
Speaker 1: The two largest economies represent the GDP. So I think

762
00:43:48,440 --> 00:43:51,520
Speaker 1: in this storm surprising that America is not such a

763
00:43:51,600 --> 00:43:54,479
Speaker 1: risky place. I got fourteen more questions. Can you please

764
00:43:54,560 --> 00:43:56,880
Speaker 1: visit us in New York anytime if we survive the

765
00:43:56,880 --> 00:44:00,719
Speaker 1: windstorms coming back? Martinozcarbary, thank you so much of General Lanty.

766
00:44:06,280 --> 00:44:08,800
Speaker 1: Right now, we've got a really interesting guess. This is

767
00:44:08,840 --> 00:44:11,719
Speaker 1: a gentleman who was weaned on thear against at lager beer,

768
00:44:11,880 --> 00:44:14,839
Speaker 1: ended up in Pennsylvania where he did the worst job

769
00:44:14,880 --> 00:44:17,440
Speaker 1: in the world, which is owned a restaurant, and he

770
00:44:17,600 --> 00:44:21,719
Speaker 1: survived even better, got into politics and as a Republican

771
00:44:22,280 --> 00:44:25,640
Speaker 1: help parts from from Pennsylvania. We welcome someone in the news.

772
00:44:25,680 --> 00:44:29,359
Speaker 1: Senator pack to him, he's Senator welcome. So we're really

773
00:44:29,360 --> 00:44:33,840
Speaker 1: weaned on there against that way. But I get the reference.

774
00:44:34,120 --> 00:44:36,400
Speaker 1: Get you get the reference with the red Sox. Of course,

775
00:44:36,800 --> 00:44:41,279
Speaker 1: Senator is an immense time of tumult, and people with

776
00:44:41,400 --> 00:44:44,000
Speaker 1: a little bit of change from under the bed are

777
00:44:44,040 --> 00:44:47,319
Speaker 1: going into Rookies restaurant, the old Rookies restaurant in Allentown

778
00:44:48,040 --> 00:44:51,960
Speaker 1: and all of a sudden inflations killing him. That's the

779
00:44:52,000 --> 00:44:56,080
Speaker 1: people in America. We're getting killed. What's the Toomey solution

780
00:44:56,520 --> 00:44:59,840
Speaker 1: for Republicans who take the House, Maybe take the Senate,

781
00:45:00,200 --> 00:45:03,839
Speaker 1: maybe take the White House. Yeah, So I think two

782
00:45:03,880 --> 00:45:08,719
Speaker 1: things right. Um, when we had the shutdown in from

783
00:45:08,760 --> 00:45:11,680
Speaker 1: the pandemic, UM, I think it's fair to say we

784
00:45:11,719 --> 00:45:14,640
Speaker 1: lost about two trillion dollars of economic activity. So we

785
00:45:14,760 --> 00:45:17,160
Speaker 1: dug a two trillion dollar hold, we filled it with

786
00:45:17,160 --> 00:45:20,680
Speaker 1: six trillion dollars of spending. We goose demand way beyond

787
00:45:20,719 --> 00:45:22,560
Speaker 1: where it would have been at a time when supply

788
00:45:22,680 --> 00:45:26,239
Speaker 1: was constrained. Meanwhile, the FED, I think was throwing gasoline

789
00:45:26,239 --> 00:45:32,200
Speaker 1: on this fire. Ever since the the pandemic lockdowns, UM

790
00:45:32,239 --> 00:45:35,680
Speaker 1: continued with emergency policy long after the emergency passed. So

791
00:45:35,880 --> 00:45:38,239
Speaker 1: I think the FED has gotten the joke and has

792
00:45:38,680 --> 00:45:41,160
Speaker 1: made a big pivot. I think they committed to see

793
00:45:41,160 --> 00:45:43,720
Speaker 1: this through. And what we've got to do is stop

794
00:45:43,800 --> 00:45:46,440
Speaker 1: the wild spending that's been going on. I am most

795
00:45:46,520 --> 00:45:49,359
Speaker 1: certain that in the Senate of this United States, you

796
00:45:49,360 --> 00:45:55,400
Speaker 1: are the most supple dynamic mind on economic dynamics, financial dynamics,

797
00:45:55,400 --> 00:45:59,839
Speaker 1: currency swaps, and derivatives. How do you explain the Republican

798
00:46:00,400 --> 00:46:03,880
Speaker 1: who have a static vision back to the nineteen fifties,

799
00:46:04,320 --> 00:46:07,959
Speaker 1: that they need to be more subtle, more dynamic to

800
00:46:08,000 --> 00:46:11,600
Speaker 1: build and grow this country. I think you need to

801
00:46:11,600 --> 00:46:13,960
Speaker 1: give my Republican colleagues a little more credit than that.

802
00:46:14,000 --> 00:46:16,560
Speaker 1: Most of them actually weren't yet adults in the night,

803
00:46:16,600 --> 00:46:19,840
Speaker 1: but they're pressured by a president desperately, a President Trump

804
00:46:20,000 --> 00:46:22,759
Speaker 1: who desperately wants to go back to another time, and

805
00:46:22,960 --> 00:46:25,000
Speaker 1: I think he wants to invent a new time altogether.

806
00:46:25,080 --> 00:46:28,200
Speaker 1: President Trump, I mean, and and he's not the president now,

807
00:46:28,239 --> 00:46:31,120
Speaker 1: and I think the party should not take economic advice

808
00:46:31,160 --> 00:46:33,600
Speaker 1: from him, as long as we acknowledge there were some

809
00:46:33,600 --> 00:46:36,960
Speaker 1: tremendous successes. I think the tax reform was extremely pro growth,

810
00:46:37,080 --> 00:46:40,000
Speaker 1: very constructive, gave us really the best economy of my

811
00:46:40,040 --> 00:46:43,080
Speaker 1: lifetime before the pandemic hit um. But I think the

812
00:46:43,120 --> 00:46:45,520
Speaker 1: President has been dead wrong on trade from the beginning,

813
00:46:45,680 --> 00:46:48,520
Speaker 1: So so it's a mixed bag there. As I say,

814
00:46:48,719 --> 00:46:50,719
Speaker 1: I don't look to him, I don't think most of

815
00:46:50,719 --> 00:46:54,440
Speaker 1: my colleagues do. Um we uh, I think we have

816
00:46:54,480 --> 00:46:56,200
Speaker 1: a better grounding, he said, I do you think he's

817
00:46:56,239 --> 00:46:58,080
Speaker 1: dead wrong on trade? Do you agree with them with

818
00:46:58,200 --> 00:47:01,200
Speaker 1: President Biden that they should possibly removed some of the

819
00:47:01,200 --> 00:47:04,719
Speaker 1: tariffs sun China problem? The problem is President President Biden

820
00:47:04,760 --> 00:47:07,680
Speaker 1: has been a complete extension of the Trump administration and trade.

821
00:47:08,000 --> 00:47:11,400
Speaker 1: Consider the only free trade agreement under Trump was to

822
00:47:11,560 --> 00:47:14,480
Speaker 1: renegotiate NAFTA in a way that would diminish trade. We've

823
00:47:14,520 --> 00:47:17,600
Speaker 1: never done that before, and President Biden not a single

824
00:47:17,640 --> 00:47:20,719
Speaker 1: free trade negotiation underway. Now a year and a half

825
00:47:20,719 --> 00:47:24,320
Speaker 1: into his administration, he hasn't lifted all the two thirty

826
00:47:24,320 --> 00:47:29,080
Speaker 1: two tariffs. He's resisting a corporate exception process on three

827
00:47:29,160 --> 00:47:31,960
Speaker 1: or one tariffs. So no, I think the Biden administration

828
00:47:31,960 --> 00:47:34,360
Speaker 1: has been an extension of the Trump administration on trade.

829
00:47:34,520 --> 00:47:36,920
Speaker 1: Do you think that your Republican colleagues would agree with

830
00:47:36,920 --> 00:47:39,800
Speaker 1: you that some of these Trump era tariffs should be removed?

831
00:47:41,080 --> 00:47:43,160
Speaker 1: I think some do and some don't. Right, So this

832
00:47:43,200 --> 00:47:46,480
Speaker 1: has become a divisive issue among Republicans when there used

833
00:47:46,520 --> 00:47:49,520
Speaker 1: to be a very broad Republican consensus that was pro trade,

834
00:47:49,760 --> 00:47:54,120
Speaker 1: expanding trade, free trade, agreements. That's that's diminished in all

835
00:47:54,719 --> 00:47:57,880
Speaker 1: candor um. And we've got we've got friction on the

836
00:47:57,920 --> 00:48:00,600
Speaker 1: other side too. Right, previously Democratic presidens, whether it was

837
00:48:00,640 --> 00:48:04,239
Speaker 1: Barack Obama or Bill Clinton, we're pro trade. Um. We've

838
00:48:04,280 --> 00:48:06,279
Speaker 1: lost that now, and so we've really lost the pro

839
00:48:06,400 --> 00:48:09,200
Speaker 1: trade consensus. So you go out, you take the Pennsylvania

840
00:48:09,239 --> 00:48:11,200
Speaker 1: train and you go out. There's that road turn near

841
00:48:11,200 --> 00:48:14,720
Speaker 1: Altuna where the road turns three d and sixty degrees around.

842
00:48:14,760 --> 00:48:18,080
Speaker 1: The train track goes around, and you end up in Latrobe,

843
00:48:18,080 --> 00:48:20,800
Speaker 1: and you're having a rolling rock at a bar. Explained

844
00:48:20,840 --> 00:48:24,359
Speaker 1: to the people pounding rolling rocks at that bar, how

845
00:48:24,400 --> 00:48:27,759
Speaker 1: the new Republican Party is going to make them prospered

846
00:48:28,160 --> 00:48:32,480
Speaker 1: with foreign trade. Well, I would point out, so the

847
00:48:32,520 --> 00:48:35,600
Speaker 1: best economy in their lifetime was also the best in mind,

848
00:48:35,600 --> 00:48:42,480
Speaker 1: which was record low unemployment, strong growth, low inflation, diminishing

849
00:48:42,560 --> 00:48:45,480
Speaker 1: income gap between high income and lower income pay. But

850
00:48:45,520 --> 00:48:48,239
Speaker 1: it was really it's really hard to find anything not

851
00:48:48,320 --> 00:48:50,719
Speaker 1: to like about where the economy was that was inter

852
00:48:50,800 --> 00:48:53,920
Speaker 1: sponsor to Republican policies. It's true President Trump was pushing

853
00:48:53,920 --> 00:48:56,280
Speaker 1: back on trade, but he had hardly moved the needle

854
00:48:56,320 --> 00:48:59,480
Speaker 1: in a substantive sense. Right, we still have roughly the

855
00:48:59,480 --> 00:49:02,680
Speaker 1: freest trade aiding environment in a hundred years. That guy

856
00:49:02,920 --> 00:49:05,440
Speaker 1: at the bar with me and Latrobe, his wages were

857
00:49:05,440 --> 00:49:08,479
Speaker 1: going up faster than inflation. That's not a bad place

858
00:49:08,520 --> 00:49:10,640
Speaker 1: to be. How do you break inflation? And right now

859
00:49:10,680 --> 00:49:12,920
Speaker 1: the integrin he's the only guy I can talk to

860
00:49:13,000 --> 00:49:15,759
Speaker 1: from Washington will get this. And the x X is

861
00:49:15,800 --> 00:49:19,080
Speaker 1: the integrin of a negative real wage we haven't seen

862
00:49:19,080 --> 00:49:22,400
Speaker 1: in age. Is the thickness of our negative real wage

863
00:49:22,560 --> 00:49:25,600
Speaker 1: is frightening me. Now, what is the two mey prescription?

864
00:49:25,719 --> 00:49:28,160
Speaker 1: So that it's the Fed's got to do its job.

865
00:49:28,160 --> 00:49:30,760
Speaker 1: It's got to stay this course with negative real interest

866
00:49:30,800 --> 00:49:32,800
Speaker 1: rates as negative as they are. I don't think we

867
00:49:32,880 --> 00:49:35,160
Speaker 1: get there. But the market is doing a lot to help, right,

868
00:49:35,600 --> 00:49:37,799
Speaker 1: the backup in the bond market, the strength of the

869
00:49:37,840 --> 00:49:40,640
Speaker 1: dollar and the currency markets, all of that is at

870
00:49:40,719 --> 00:49:44,440
Speaker 1: least this inflationary, if not deflationary. Meanwhile, we've started to

871
00:49:44,480 --> 00:49:49,480
Speaker 1: see slight declines in consumer purchases. Right our big retailers

872
00:49:49,480 --> 00:49:52,439
Speaker 1: have seen they've kept nominal growth, but not real growth.

873
00:49:52,520 --> 00:49:55,239
Speaker 1: So that tells me there's demands destructure. Should we break

874
00:49:55,239 --> 00:49:58,120
Speaker 1: the rules for the sun? I think we should think

875
00:49:58,680 --> 00:50:01,040
Speaker 1: is a Fed gonna blink? I don't think so. Okay,

876
00:50:01,040 --> 00:50:02,799
Speaker 1: well this I don't think to ask, do you think

877
00:50:02,840 --> 00:50:05,200
Speaker 1: that it's worth it for the Fed to not blink,

878
00:50:05,360 --> 00:50:07,480
Speaker 1: to keep going even if it means a recession. The

879
00:50:07,520 --> 00:50:09,719
Speaker 1: Fed has to stay the course here, even if it

880
00:50:09,719 --> 00:50:12,200
Speaker 1: remains recession, even if it means a recession. The FED

881
00:50:12,239 --> 00:50:15,239
Speaker 1: blew this badly. They had a paradigm that guarantee that

882
00:50:15,280 --> 00:50:17,799
Speaker 1: they would be behind the curve, and they were. Now

883
00:50:17,840 --> 00:50:20,319
Speaker 1: they get it. I don't think this Fed wants to

884
00:50:20,320 --> 00:50:23,960
Speaker 1: be the Fed that brings back enormously problematic inflation from

885
00:50:24,000 --> 00:50:26,360
Speaker 1: How much do your colleagues agree with you? Because we

886
00:50:26,440 --> 00:50:29,480
Speaker 1: heard Joe Biden saying that a recession is not inevitable.

887
00:50:29,719 --> 00:50:33,200
Speaker 1: Maybe not inevitable, do but do people in Washington agree

888
00:50:33,360 --> 00:50:36,680
Speaker 1: that right now it's preferable to have a recession than

889
00:50:36,719 --> 00:50:39,120
Speaker 1: to allow prices to continue to climb at this pace.

890
00:50:39,200 --> 00:50:41,719
Speaker 1: So that's if if it has to be right, that

891
00:50:41,880 --> 00:50:43,880
Speaker 1: that's that's why. First of all, I don't think inflation

892
00:50:44,120 --> 00:50:47,200
Speaker 1: recession is inevitable. It's probably a little more likely than not.

893
00:50:47,760 --> 00:50:50,880
Speaker 1: It could be mild, it could be brief, Unemployment could

894
00:50:51,400 --> 00:50:55,239
Speaker 1: rise very modestly from really quite low levels that they're

895
00:50:55,280 --> 00:50:57,920
Speaker 1: right now. But we never get back to really strong

896
00:50:58,000 --> 00:51:00,920
Speaker 1: growth and really good opportunity on less we get stability

897
00:51:00,920 --> 00:51:03,359
Speaker 1: in the dollar. We're not there right now. That's got

898
00:51:03,360 --> 00:51:06,319
Speaker 1: to be exercise number one for our medium and long

899
00:51:06,440 --> 00:51:09,239
Speaker 1: term prosperity. Do you think that the banks with the

900
00:51:09,280 --> 00:51:12,760
Speaker 1: financial banking sector really under your pure view, are prepared

901
00:51:13,160 --> 00:51:15,239
Speaker 1: for a FED that is not going to blink as

902
00:51:15,280 --> 00:51:17,399
Speaker 1: so many people seem to believe. Yeah, yeah, I think

903
00:51:17,440 --> 00:51:19,640
Speaker 1: so well. I mean, as you know, there's a rising

904
00:51:19,640 --> 00:51:22,320
Speaker 1: interest rate environment is actually helpful for a lot of banks.

905
00:51:22,680 --> 00:51:25,360
Speaker 1: So I'm not sure which ones you're referring to. Obviously,

906
00:51:25,400 --> 00:51:28,080
Speaker 1: those that are based more on securities trading, you know,

907
00:51:28,200 --> 00:51:30,399
Speaker 1: they it's hard to say right they may they may

908
00:51:30,440 --> 00:51:33,080
Speaker 1: do well for volume purposes, they'll take their lumps in

909
00:51:33,120 --> 00:51:36,640
Speaker 1: other ways, but look that that can't be the consideration.

910
00:51:36,840 --> 00:51:40,319
Speaker 1: We've got to get back to normalizing interest rates, normalizing

911
00:51:40,320 --> 00:51:43,880
Speaker 1: the inflation level, and then we can have strong growth again.

912
00:51:44,640 --> 00:51:50,120
Speaker 1: Andrew Carnegy build a plan of school building at Carnegie Mellon,

913
00:51:50,680 --> 00:51:55,319
Speaker 1: and he build it with a slanted floor so that

914
00:51:55,400 --> 00:51:58,879
Speaker 1: if it failed, if Carnegie Mellon university failed, you could

915
00:51:58,880 --> 00:52:01,960
Speaker 1: turn it into a factor. That was the entrepreneurial spirit

916
00:52:02,239 --> 00:52:05,799
Speaker 1: of Pittsburgh of long long ago, one far away. You

917
00:52:05,920 --> 00:52:11,400
Speaker 1: and I live the crater that was Pittsburgh. Do we

918
00:52:11,480 --> 00:52:14,680
Speaker 1: need to fear that? Do we need some humility still

919
00:52:15,080 --> 00:52:19,680
Speaker 1: about manufacturing in America? Or we now become service sectors?

920
00:52:19,719 --> 00:52:21,920
Speaker 1: So much so you know this very well, but I

921
00:52:21,960 --> 00:52:27,320
Speaker 1: do think it's worth repeating. America manufact will will manufacture

922
00:52:27,360 --> 00:52:29,439
Speaker 1: more this year than any year in our history. More

923
00:52:29,480 --> 00:52:33,200
Speaker 1: added value in manufacturing. It happens in different uh with

924
00:52:33,239 --> 00:52:35,799
Speaker 1: different products. It's less labor intensive. But we are a

925
00:52:35,840 --> 00:52:39,560
Speaker 1: great manufacturing powerhouse. We will retain that in my view,

926
00:52:40,040 --> 00:52:43,000
Speaker 1: and Pittsburgh's doing great. Sedator, Before we let you go,

927
00:52:43,400 --> 00:52:46,200
Speaker 1: who do you hope replaces you in the Senate? Um?

928
00:52:46,239 --> 00:52:48,960
Speaker 1: You know? Either one of these guys. I've never made

929
00:52:48,960 --> 00:52:54,480
Speaker 1: an endorsement. Now, seriously, there's two great candidates. They are

930
00:52:54,640 --> 00:52:57,320
Speaker 1: dead tied. I think this ends within a few hundred

931
00:52:57,360 --> 00:53:00,360
Speaker 1: votes literally, and either one wins the like in the

932
00:53:00,440 --> 00:53:04,200
Speaker 1: fall spoken like a true politicans that good candidates. It's

933
00:53:04,239 --> 00:53:07,120
Speaker 1: going to be a fair recount. It is, and to

934
00:53:07,200 --> 00:53:09,480
Speaker 1: the credit of both candidates, they have taken the view

935
00:53:09,480 --> 00:53:11,360
Speaker 1: that it's probably a good idea to actually count all that.

936
00:53:11,360 --> 00:53:14,200
Speaker 1: How many citizens are involved in the recount of something.

937
00:53:14,360 --> 00:53:17,960
Speaker 1: These people nationwide are being abused. My mother was an

938
00:53:17,960 --> 00:53:20,960
Speaker 1: election canvas or whatever it was called. How many people

939
00:53:21,000 --> 00:53:23,239
Speaker 1: are involved in the RecA I don't know the number,

940
00:53:23,280 --> 00:53:24,719
Speaker 1: but let me just tell you. I think some of

941
00:53:24,800 --> 00:53:27,239
Speaker 1: our great heroes have been the people that did their

942
00:53:27,320 --> 00:53:30,400
Speaker 1: job of whatever party, counted the votes and went with

943
00:53:30,520 --> 00:53:33,320
Speaker 1: the outcome they got. That's how the system is supposed

944
00:53:33,360 --> 00:53:36,279
Speaker 1: to work. That's how it worked, and it'll work that way.

945
00:53:36,320 --> 00:53:38,919
Speaker 1: In senators, thank you when you're done with politics, fix

946
00:53:39,000 --> 00:53:47,680
Speaker 1: the pirates to me is a senator from Pennsylvania. Christiano

947
00:53:47,680 --> 00:53:50,480
Speaker 1: Mind joins us right now, the chief executive officer. How

948
00:53:50,600 --> 00:53:55,480
Speaker 1: genormous was Intel the day you walked in the door. Well,

949
00:53:55,520 --> 00:53:58,680
Speaker 1: you know, Intel has been an incredible company as they

950
00:53:58,719 --> 00:54:02,360
Speaker 1: built what is to day, you know, the PC. But

951
00:54:02,480 --> 00:54:05,719
Speaker 1: Qualcom story is a little different. Qualcom story. It's it's

952
00:54:05,760 --> 00:54:09,640
Speaker 1: a company that actually was always focused on building mobile

953
00:54:09,800 --> 00:54:14,720
Speaker 1: communications and uh in creating the processing technology that allows

954
00:54:14,719 --> 00:54:17,000
Speaker 1: you to have a computer in the palm of your hands.

955
00:54:17,000 --> 00:54:20,399
Speaker 1: And that's our most love device today, the smartphone. That's

956
00:54:20,400 --> 00:54:24,000
Speaker 1: what we do want going niche? Is there a risk

957
00:54:24,080 --> 00:54:28,320
Speaker 1: to moving away from NICHE? Now? What's happening to Qualcom

958
00:54:28,400 --> 00:54:31,319
Speaker 1: right now? Uh? And that's one of the greatest opportunities

959
00:54:31,360 --> 00:54:35,640
Speaker 1: in our history, which is UH. The mobile technology scale

960
00:54:35,680 --> 00:54:38,080
Speaker 1: is incredible. If you think of a smartphone today is

961
00:54:38,360 --> 00:54:41,920
Speaker 1: mainkind largest development platform. But what the smartphone really is

962
00:54:42,239 --> 00:54:45,680
Speaker 1: is an advanced competition device that is connected. And when

963
00:54:45,680 --> 00:54:50,040
Speaker 1: we look at digital transformation that is happening across every enterprise,

964
00:54:50,360 --> 00:54:52,839
Speaker 1: we see demand for technology and other industry and that's

965
00:54:52,840 --> 00:54:56,080
Speaker 1: what's happened to the company. The company continued to be UH,

966
00:54:56,200 --> 00:55:00,320
Speaker 1: the company driving the pace of innovation in mobile community stations,

967
00:55:00,719 --> 00:55:04,360
Speaker 1: but the automobile is becoming a connected computer on wheels.

968
00:55:04,520 --> 00:55:07,160
Speaker 1: We're growing through the automobile space and then every other

969
00:55:07,200 --> 00:55:10,359
Speaker 1: industry as they digitally transform. You fended off an acquisition

970
00:55:10,760 --> 00:55:14,680
Speaker 1: pitch from Broadcom. This morning, it's reported the Broadcom and

971
00:55:14,760 --> 00:55:17,759
Speaker 1: vm ware are in talks that Broadcom is going to

972
00:55:17,760 --> 00:55:19,880
Speaker 1: acquire vm ware. Do you expect this to be the

973
00:55:19,920 --> 00:55:23,640
Speaker 1: future that in order to have scale and sustenance, you

974
00:55:23,680 --> 00:55:27,239
Speaker 1: need to consolidate and you see that really being the future. Look,

975
00:55:27,680 --> 00:55:29,879
Speaker 1: it's it's really for Broadcom to comment by the way,

976
00:55:29,920 --> 00:55:31,840
Speaker 1: I look, Broadcom has become a more of a software

977
00:55:31,880 --> 00:55:34,560
Speaker 1: company and uh, you know with some of the acquisitions

978
00:55:34,560 --> 00:55:36,480
Speaker 1: they made in the past, and I think vm or

979
00:55:36,560 --> 00:55:39,680
Speaker 1: is a software company. We're going to the different direction.

980
00:55:39,800 --> 00:55:43,720
Speaker 1: I think we will continue to be a semiconductor company.

981
00:55:43,840 --> 00:55:47,560
Speaker 1: Focus in the growth that we have in this industry,

982
00:55:47,760 --> 00:55:51,040
Speaker 1: especially at the edge, and uh we'll continue to see

983
00:55:51,080 --> 00:55:55,919
Speaker 1: not consolidation but conversions of all those opportunities. How much

984
00:55:55,960 --> 00:55:58,600
Speaker 1: are you trying to move away from relying on one

985
00:55:58,680 --> 00:56:01,839
Speaker 1: region on Taiwan for example, or some of the other

986
00:56:01,920 --> 00:56:05,279
Speaker 1: major semiconductor producers as you focus on the hardware. This

987
00:56:05,520 --> 00:56:07,920
Speaker 1: is a great topic of conversation. I think we what

988
00:56:08,120 --> 00:56:13,600
Speaker 1: we saw of the past couple of years. I think globally, um,

989
00:56:13,640 --> 00:56:16,240
Speaker 1: if there is a if there is a silver lining.

990
00:56:16,440 --> 00:56:19,719
Speaker 1: We saw that some my conductors are important and and

991
00:56:19,880 --> 00:56:23,239
Speaker 1: uh as chips are going in pretty much everything. Even

992
00:56:23,280 --> 00:56:26,120
Speaker 1: as we saw the shortage of MY conductor. People buy

993
00:56:26,200 --> 00:56:29,640
Speaker 1: more goods than services and their chips and everything. Plus

994
00:56:29,719 --> 00:56:33,319
Speaker 1: what's happened in the future, we need a reliable supply chain.

995
00:56:33,400 --> 00:56:36,799
Speaker 1: So Qualcom we we have done better than some of

996
00:56:36,840 --> 00:56:40,240
Speaker 1: our peers because we have been diversified since the very beginning.

997
00:56:40,280 --> 00:56:43,359
Speaker 1: As an example, we are very well balanced between taime

998
00:56:43,400 --> 00:56:47,320
Speaker 1: one and South Korea with Samsung. We also been using

999
00:56:47,400 --> 00:56:50,680
Speaker 1: chips from global founders, and our chips spends exactly coming

1000
00:56:50,719 --> 00:56:54,359
Speaker 1: from manufacturing in the United States. And I think as

1001
00:56:54,400 --> 00:56:57,000
Speaker 1: a general rule, as we think of the importance of

1002
00:56:57,080 --> 00:56:59,799
Speaker 1: semiconductor for the future of our economy, I think we

1003
00:56:59,840 --> 00:57:03,359
Speaker 1: need don't have a geographically diversified and orsilian supply chain.

1004
00:57:03,440 --> 00:57:07,800
Speaker 1: What can America participate in that given the massive labor

1005
00:57:08,000 --> 00:57:11,120
Speaker 1: arbitrage or is that a discussion of twenty years ago.

1006
00:57:11,600 --> 00:57:14,320
Speaker 1: I think is a discussion from the past. What's really

1007
00:57:14,360 --> 00:57:18,400
Speaker 1: happening and SAM conductor manufacturing is not an issue of labor,

1008
00:57:18,480 --> 00:57:20,880
Speaker 1: It's an issue of scale. But if you look what

1009
00:57:20,920 --> 00:57:23,680
Speaker 1: the United States is doing a sport of U SEKA

1010
00:57:23,880 --> 00:57:27,360
Speaker 1: and the US Chips Act. We'll see if it gets,

1011
00:57:27,800 --> 00:57:31,440
Speaker 1: you know, approved by the House. The Europeans actually moving

1012
00:57:31,480 --> 00:57:34,160
Speaker 1: with a very similar legislation called the EU Chips Act.

1013
00:57:34,200 --> 00:57:37,680
Speaker 1: The Koreans talking about uh the Korean Chips Act. Just

1014
00:57:37,720 --> 00:57:40,280
Speaker 1: if you look at United States alone fifty two billion dollars,

1015
00:57:40,360 --> 00:57:44,120
Speaker 1: the Europeans about forty three billion dollars. That is about

1016
00:57:44,240 --> 00:57:49,960
Speaker 1: creating incentives for manufacturing to be built in the United

1017
00:57:50,000 --> 00:57:52,320
Speaker 1: States are and I think it's possible. The reason I

1018
00:57:52,320 --> 00:57:55,800
Speaker 1: think it's possible it's the semi conductor consumption is going

1019
00:57:55,840 --> 00:57:58,080
Speaker 1: to double in the next five years, so there's an

1020
00:57:58,080 --> 00:58:02,000
Speaker 1: opportunity to build in different places. What should Apple do

1021
00:58:02,120 --> 00:58:05,560
Speaker 1: with all that cash and the other apples out there?

1022
00:58:06,040 --> 00:58:09,360
Speaker 1: To generate free cash flow every ninety days to choke

1023
00:58:09,440 --> 00:58:14,440
Speaker 1: a horse, you're a competitor, you're a friend, you're an enemy,

1024
00:58:14,480 --> 00:58:16,960
Speaker 1: you're removed. But at the same time, you have to

1025
00:58:16,960 --> 00:58:20,640
Speaker 1: be curious about where all that cash is gonna end up. Well,

1026
00:58:20,680 --> 00:58:25,880
Speaker 1: today we're a supplier of Apple, we provide chips today iPhones.

1027
00:58:26,280 --> 00:58:27,880
Speaker 1: But at the end of the day, when we think

1028
00:58:27,920 --> 00:58:32,360
Speaker 1: about where most of our futurists, it's really to focus

1029
00:58:32,400 --> 00:58:36,720
Speaker 1: on building the platforms, which is uh driving a lot

1030
00:58:36,720 --> 00:58:41,720
Speaker 1: of the Android, the premium and high tier devices. Automotive.

1031
00:58:42,560 --> 00:58:46,200
Speaker 1: We recently announce an agreement with Volkswagen. Before that, it

1032
00:58:46,200 --> 00:58:49,800
Speaker 1: was still and taste to build you know, digital cockpit solution,

1033
00:58:50,320 --> 00:58:54,000
Speaker 1: uh aid ask for sister driving and then the broad IoT,

1034
00:58:54,120 --> 00:58:56,120
Speaker 1: and that's what our future is going to be. Christiano

1035
00:58:56,200 --> 00:58:57,960
Speaker 1: 'm on, thank you so much. For being with us,

1036
00:58:57,960 --> 00:59:00,760
Speaker 1: the CEO of Qualcom at the enter of so many

1037
00:59:00,800 --> 00:59:04,560
Speaker 1: debates right now. This is the Bloomberg Surveillance Podcast. Thanks

1038
00:59:04,560 --> 00:59:07,880
Speaker 1: for listening. Join us live weekdays from seven to ten

1039
00:59:07,960 --> 00:59:12,400
Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each

1040
00:59:12,520 --> 00:59:16,240
Speaker 1: day from six to nine am for insight from the

1041
00:59:16,280 --> 00:59:21,480
Speaker 1: best in economics, finance, investment, and international relations. And subscribe

1042
00:59:21,520 --> 00:59:26,439
Speaker 1: to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com,

1043
00:59:26,520 --> 00:59:29,760
Speaker 1: and of course on the terminal. I'm Tom Keene, and

1044
00:59:29,920 --> 00:59:31,760
Speaker 1: this is Bloomberg