Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course, on the Bloomberg Terminal. Let's get started
Speaker 1: now at these world Economic for meetings with someone who
Speaker 1: can synthesize it together. Jason Furman. He's professor at Harvard
Speaker 1: Kennedy School, former chairman of the U S Council of
Speaker 1: Economic Advisors. What he does more than anyone in this
Speaker 1: nation is stand up in front of bright cherubs and
Speaker 1: teach them their first course in economics at Harvard. He
Speaker 1: is the one who has followed on from mank You
Speaker 1: and Martin Feldstein to deliver what's called eck ten. What
Speaker 1: did you say in the first week of May to
Speaker 1: the eager students who have never seen a buying market
Speaker 1: like this and never seen the second derivative moves that
Speaker 1: we're seeing in markets as it relates to our economy. Well,
Speaker 1: to my students, I told them that when the price
Speaker 1: goes down, the yield goes up. Where do we need
Speaker 1: somebody tired? I think your viewers are probably on top
Speaker 1: of that one already. Um, what I'm not sure your
Speaker 1: viewers are on top of is that I think this
Speaker 1: inflation is going to be pretty persistent, not where it
Speaker 1: is now, but way above where the Fed wants it
Speaker 1: going to be to be. That means the Fed is
Speaker 1: going to need to stay at it. A FED funds
Speaker 1: right to four percent or higher, completely plausible, not at
Speaker 1: all priced into the market right now because a lot
Speaker 1: of people like Marky Batel who was just on, believes
Speaker 1: that the Federals are will come out and they will
Speaker 1: rescue the markets. And you're saying, no way why because
Speaker 1: we are way above our inflation target. That is the
Speaker 1: job the Fed was assigned. You have a share who
Speaker 1: talks about himself in the sort of wake of Paul
Speaker 1: Boker and that historical shadow. He wants to bring that
Speaker 1: inflation down right now. The market is helping him do
Speaker 1: his job. I think this is not an accident. This
Speaker 1: is almost something that they are fine with. We were laughing.
Speaker 1: We shouldn't have been laughing completely because the prospect of
Speaker 1: a recession is horrendous. Do you think it's avoidable, as
Speaker 1: Joe Biden said, or do you think the Fed frankly
Speaker 1: has to essentially allow that to happen to cool the
Speaker 1: inflation as it is over the next year. I'm not
Speaker 1: that worried. I mean, I'm always attent for a recession.
Speaker 1: Maybe I'm at now for the next year, but not
Speaker 1: much higher. Consumers are still spending a lot, there's people
Speaker 1: coming off the sidelines for jobs. This more inventory rebuilding
Speaker 1: to be done. When you look after this year, that's
Speaker 1: when I get more worried. That's when more of the
Speaker 1: FED rate hikes start to kick in and affecting the economy. Jason,
Speaker 1: the pungentry out there right now, I've never seen It's
Speaker 1: worth some two thousand nine. Those pundits are silent when
Speaker 1: they listen to you within the geometry of where we are.
Speaker 1: When we get interest rates to slam like they are
Speaker 1: when you give us the fear of a terminal rate
Speaker 1: to four percent, how does that link in to the
Speaker 1: actual assumption of bonds and separately, the total return of equities. Yeah,
Speaker 1: I think that the long bonds haven't fully priced in that.
Speaker 1: You know, they think the Fed's gonna stop at three percent.
Speaker 1: That might happen. We might hit a recession and they
Speaker 1: go back to zero, but that we could be at four,
Speaker 1: well above four. I think that's the modal scenario. When
Speaker 1: you look at something like the long yields, those just
Speaker 1: haven't gone up the same way they have on the
Speaker 1: front end. Or Benjamin Friedman, the giant of Harvard Economics,
Speaker 1: let's go back to the Napoleonic Wars, or the Panic
Speaker 1: of eighteen seventy, the gyrations out of World War One,
Speaker 1: of fractured Europe and all. That's the arch fear that's
Speaker 1: out there for truly a generation or two that have
Speaker 1: not enjoyed what we're in right now. What does it
Speaker 1: do to a portfolio? What does it do to a
Speaker 1: pension fund? Yeah? I mean that interest rate shows up
Speaker 1: in every single stock price as on the discount factor.
Speaker 1: That's why you know almost every single stock price is
Speaker 1: going down right now. Leverage locas from like you trying
Speaker 1: to pitch that is how what you're going They want
Speaker 1: me to start it if they wann't starting the E
Speaker 1: T F for an n n F T. Remember what
Speaker 1: I can imagine defense the fear here, Jason, is if
Speaker 1: we get a further first and second to rivetive move
Speaker 1: that we've all enjoyed for four months, that we're going
Speaker 1: to get a true negative thirty five percent. Now, we're
Speaker 1: gonna get bonds like we've never never seen back to
Speaker 1: say the thirties. Do you ascribe to them. I think
Speaker 1: that's a possibility. Look, I focused more on the real economy.
Speaker 1: I look at households that have two point three trillion
Speaker 1: dollars still saved up from all the transfers they got
Speaker 1: over the last two years. I look at businesses who
Speaker 1: still are facing pretty good financing if they want to
Speaker 1: make more investments. I look at a global environment where
Speaker 1: the dollar strength is you know, worrying me, and the
Speaker 1: down draft we're getting on net exports. So I'm looking
Speaker 1: at those factors overall. You know, I think we're gonna
Speaker 1: see a lot of jobs this year. So there are
Speaker 1: some people who believe that the more we see a
Speaker 1: momentum and a lack of recession now, the worst it
Speaker 1: will be later. And they point to people levering up
Speaker 1: on the consumer side once again in order to fuel
Speaker 1: their purchases even at higher prices. Do you agree I
Speaker 1: think that's possible. It really depends, you know, the fat things.
Speaker 1: Inflation is coming down to two and a half percent.
Speaker 1: If that happens in this sort of a chance it happens,
Speaker 1: that will be wonderful. We can avoid all these things
Speaker 1: if inflation stays stuck at four and a half five percent,
Speaker 1: and that's roughly where the underlying inflation rate is right now. Um.
Speaker 1: I don't know what sort of and you'd need if
Speaker 1: you want to bring it back down. One minute long
Speaker 1: agoing far away, a Columbia professor saw a kid at Harvard,
Speaker 1: and you said, this kid is different. He's gonna work
Speaker 1: with me. How dead on was your mentor? Joe Stiglets
Speaker 1: on globalization and its discontents. It's shocky I saw Joe. Joe.
Speaker 1: Joe doesn't love globalization, but Joe likes it here in Davos.
Speaker 1: Uh um uh. You know. I think I think we're
Speaker 1: seeing a pause and globalization. I think we're seeing a plateau.
Speaker 1: I don't think we're going to see that bigger transtrument
Speaker 1: because there are so many efficiency gains from operating all
Speaker 1: over the world. We'll see some recalibration, but I don't
Speaker 1: think there's going to be a big withdrawal from it.
Speaker 1: And I don't think there should be in the agreement
Speaker 1: that we have folks. Just so you understand this is
Speaker 1: I get to choose one guest, so we have the
Speaker 1: optimism of Jason Furman and you stiglets. We haven't ye
Speaker 1: Siglets will be coming up and he'll be character we said,
Speaker 1: we heard that you like globalization here at Davos, I
Speaker 1: was wishing, I told us. And we'll see what he
Speaker 1: responds to get a start of here in Dovlson right
Speaker 1: now at the conversation Tom that we're about to have
Speaker 1: really sums up. Can we get a reprieve from the
Speaker 1: seven straight weeks of declines the longest stretch going back
Speaker 1: to two thousand one? Is this what we're seeing this morning?
Speaker 1: Head fake? Or is it really the start of a
Speaker 1: by the depth and it goes to the synthesis that
Speaker 1: we're in here, and it's the market coverage of equities, bonds, currencies, bonds.
Speaker 1: Rebecca Patterson has dealt in all those areas and it's
Speaker 1: culminated after her work at Bessemer with Bridgewater, where she
Speaker 1: is chief investment strategist with a guy named Prince and
Speaker 1: Dalio as well our Prince, our Prince and Dalio in
Speaker 1: speaking terms, absolutely, Okay, what what's the latest meetings like
Speaker 1: in terms of the volatility we're seeing, the complexities and nuances.
Speaker 1: What is the tone within your meetings as you assess
Speaker 1: is two thousand twenty two. Well, obviously, as you hinted
Speaker 1: at least that there's just so much changing now structurally
Speaker 1: as well as cyclically, and so there's a lot of
Speaker 1: people saying, where are we going not just the next
Speaker 1: month or next quarter, but the next five to ten years.
Speaker 1: If we do deglobalize or regionalize, what does that look like?
Speaker 1: What are the implications of that? As well as the
Speaker 1: short term worries over can the Fed? Will the FED
Speaker 1: tighten enough to get inflation back down to its target?
Speaker 1: If we have higher, stickier inflation for longer, how does
Speaker 1: that flow through to the market. So a lot of uncertainty.
Speaker 1: If I had to sum it up, how do you
Speaker 1: determine whether a move like what we're seeing ahead of
Speaker 1: the open today is a head fake or not. Well,
Speaker 1: we don't trade daily wiggles in the market, so we'd
Speaker 1: take a step back and say, Okay, what's discounted? A
Speaker 1: lot has changed since the beginning of the year. I
Speaker 1: think the biggest change has been discounted tightening by central banks,
Speaker 1: particularly the FED, and we have seen that flow through
Speaker 1: clearly to the bond market, and we have seen the
Speaker 1: equity declined so far largely a function of the change
Speaker 1: and discount rates. You haven't seen a major change in
Speaker 1: expected earnings growth, and so that to us is the
Speaker 1: thing we're watching. If this is a head fake or continuing,
Speaker 1: that would be the shoe to drop. If the FED
Speaker 1: continues to tighten to try to reduce demand to get
Speaker 1: inflation under control, I would expect to see that flow
Speaker 1: through into discounted growth, which then eventually should bring equities
Speaker 1: that next leg lower. For years, people were saying that
Speaker 1: markets were benefiting even though the economy was not, and
Speaker 1: it actually we saw all of the financialization represented by
Speaker 1: an STP on a vertical trajectory. Are we heading into
Speaker 1: the opposite? Can we be heading into the opposite where
Speaker 1: we see markets lag behind an economy that continues to
Speaker 1: be strong. Actually, that has been our view and continues
Speaker 1: to be our view as we look ahead, that we're
Speaker 1: in a situation now where the nominal economy is likely
Speaker 1: to outperform financial markets fairly substantially. UM and that is
Speaker 1: mainly a function of the policy reaction we got during
Speaker 1: the pan stomach, all the fiscal and monetary stimulus that
Speaker 1: came through and left households wealthier than before the pandemic,
Speaker 1: corporate balance sheets stronger than before the pandemic. It gives
Speaker 1: them a cushion to withstand the tightening. So it is
Speaker 1: going to feed through to markets. And obviously that wealth
Speaker 1: effect will also feed through to the economy. But that's
Speaker 1: starting strong. Non no point for the economy means financial
Speaker 1: assets could underperform. You've got it, Bridgewater and your fancy kitchen.
Speaker 1: They get the whole sub zero thing like the big stone.
Speaker 1: Look who's talking blue? Hello, Regalile memorial pressure cooker. And
Speaker 1: the only reason I hired you is the steam coming
Speaker 1: out of the kettle. Is the currency market? To me
Speaker 1: the conundrum here, and you beautifully describe the fiscal impulse
Speaker 1: and the wealthy that occurred, and maybe the d well
Speaker 1: thing that's occurred. Now, what what releases the pressure is
Speaker 1: dollar dynamics? What kind of pressures will we see? Well,
Speaker 1: I think the most important thing to understand about the
Speaker 1: dollar right now is how quickly our external need for
Speaker 1: foreign capital is increasing. So if you go on your
Speaker 1: Bloomberg page, it will show our current account deficit for
Speaker 1: the United States at around three and a half percent,
Speaker 1: which is already a big widening. Our timely estimates suggest
Speaker 1: us closer to five or six percent of GDP. And
Speaker 1: so for the dollar to stay supported, we need to
Speaker 1: continue getting enough capital to offset that, and we think
Speaker 1: there's a growing risk around that. So the dollar we
Speaker 1: think is vulnerable on a cyclical basis and also a
Speaker 1: structural basis. This is important, Steve Roach one oh one.
Speaker 1: Someone has supported us for years here and and Davos.
Speaker 1: And if we get a twin deficit, do you link
Speaker 1: those two together mathematically or philosophically? Do you link current
Speaker 1: account with recession bloom together or the two separate events. Well,
Speaker 1: they are mathematically linked, as as you know. Well, Tom,
Speaker 1: you're being humble, Yeah you do. But I think what
Speaker 1: what we're following. It's like this is a tip, surveillance tip.
Speaker 1: Don't ask the question unless you know the answer. It's
Speaker 1: just like judge, Judy, continue, so that the current account,
Speaker 1: the balance of payments is what I'm focused on, relatively
Speaker 1: more um and so that financing need is the is
Speaker 1: the canary in the coal mine. If US growth continues
Speaker 1: to outperform the rest of the world, if interest rates
Speaker 1: in the US continue to be so much more attractive,
Speaker 1: both on an absolute level and on a change basis,
Speaker 1: that maybe the US does continue to hold up for
Speaker 1: the dollar. But it's a question market where do Where
Speaker 1: does the money go if it doesn't go to the Well,
Speaker 1: let's look, let's look. I mean you're to date, Japanese
Speaker 1: equities are actually outperforming US equities if you take out
Speaker 1: the currency effect. Um UK stocks are outperforming US stocks,
Speaker 1: Some emerging market equities are outperforming, and so not all
Speaker 1: the capital is flooding here. It is looking for opportunities
Speaker 1: where policymakers are less constrained, where valuations are a lot
Speaker 1: less demanding, where positions where exposure is is a lot
Speaker 1: more moderate. What you said about yields being attractive to
Speaker 1: other nations, how high do treasure yields have to go
Speaker 1: in order to remain that attractive to support the dollar.
Speaker 1: That's a great question, and I don't have a number
Speaker 1: for you. But what what is interesting to us when
Speaker 1: we look at the bond market, so we try to
Speaker 1: understand all the different players in every market. What motivates
Speaker 1: them to buy or sell. And when we look at
Speaker 1: the US bond market today, even though you have less
Speaker 1: issuance for the FED, flipping from quantitative easy into quantitative
Speaker 1: tightening is obviously very significant. But the big player that
Speaker 1: we're watching that we think is is suggest more upside
Speaker 1: for bond yields are banks. So a year ago you
Speaker 1: had a steep curve, you had a ton of deposits
Speaker 1: coming in and the banks were putting that into bonds,
Speaker 1: so you had a lot of demand keeping down the yield.
Speaker 1: That's over the curve is flatter, the deposit inflow is slower,
Speaker 1: so there's less bank buying of bonds to hold down
Speaker 1: the yield. So when we look at who's going to
Speaker 1: buy those bonds if the Feds out, we still see
Speaker 1: a supply demand and balance that to us suggest yields higher.
Speaker 1: I don't know what the magic number is, but we
Speaker 1: still think we have further to go on the upside.
Speaker 1: To go. Electrical engineering on you, this is within the
Speaker 1: perfect electrical system of Switzerland, and trust me, folks, it
Speaker 1: is perfect. The slew rates here that you're describing, how
Speaker 1: do you affect an interest rate parody strategy? A sophisticated
Speaker 1: hedge if you will. Given SLEW rates we've never seen before.
Speaker 1: Are you talking about risk parity? Are we talking about Yeah?
Speaker 1: So what's so interesting to me about all of this
Speaker 1: is when you think about how most investors in the
Speaker 1: world of position for the last one or two decades,
Speaker 1: they have been biased towards rising growth and falling inflation.
Speaker 1: That's sixty forty, right, You're going to do your equities
Speaker 1: do well and growth is rising, et cetera. Right, it
Speaker 1: worked great till now and the world has gone upside down.
Speaker 1: So now we have falling growth and rising inflation. Obviously
Speaker 1: we've seen the portfolio hit those folks have taken. The
Speaker 1: difference with risk parity strategies is that their balance for
Speaker 1: growth and inflation. So even if bond deals are going up,
Speaker 1: you have Allan's and other parts of the portfolio, namely
Speaker 1: commodities and other inflation sensitive assets, so they tend to
Speaker 1: hold up better through the cycles, including these periods. If
Speaker 1: they let me go back to New York, can you
Speaker 1: come back and visit us to continue this discussion. Of course,
Speaker 1: it's the arch financial question for our listeners and viewers
Speaker 1: is the death of calibration? Rebecca Patterson just brilliant right now, Well,
Speaker 1: we've got a lot of things to speak of in
Speaker 1: a one hour conversation. We will compress with John Kerry.
Speaker 1: He is U S Special Climate Envoy and former U
Speaker 1: S Secretary of State, and whatever your politics, he is
Speaker 1: someone who has honed our political debate of this nation
Speaker 1: for decades. It started at St. Paul's School. You're up
Speaker 1: at St. Paul's in Conquered New Hampshire. A few years
Speaker 1: that debate and discussion was beaten into you, wasn't it.
Speaker 1: At Although we we had to tradition of back and
Speaker 1: forth socratic, it was a it was a really important
Speaker 1: tradition back then. What happened to America where we walked
Speaker 1: away from the niceties of debate? Um? Well, the United
Speaker 1: States Senate used to be the greatest deliberative body in
Speaker 1: the world, and obviously a lot of people are anxious
Speaker 1: about where the deliberation is today. It's it's changed, It's
Speaker 1: really changed. I think what happened is in the ninety
Speaker 1: nineties are politics changed? It became far angrier, far more intense,
Speaker 1: far more personal. You remember the discussions of politics of
Speaker 1: personal destruction and now, um, we have a lot of
Speaker 1: angry people who are who are appropriately angry on either
Speaker 1: side of the aisle right left, and they just don't
Speaker 1: feel the government's delivering to them, and we have to
Speaker 1: change that. How does the US lead with such disunity
Speaker 1: at home? Oh? I think President Biden and showing you
Speaker 1: how you lead right now, he's in Asia uh and
Speaker 1: uh meeting with the Quad. He's been leading on global
Speaker 1: climate to change around the world. He put America back
Speaker 1: into the into put the United States back into the
Speaker 1: Paris Agreement, helped raise ambition in Glasgow, make Glasgow of success. Um.
Speaker 1: You know, I think people understand that we had four
Speaker 1: difficult years. The country decided that was an aberration and
Speaker 1: elected President Biden. Now, Uh, we're in the busy building
Speaker 1: back process. But I think we've made a lot of
Speaker 1: progress of last year. The helicopter flying over says gop
Speaker 1: on the side of it. I think that's what right now,
Speaker 1: the Senator Kerry, I want to talk to you about climate.
Speaker 1: I was blown away a number of years ago with
Speaker 1: the Bank of America people. You you are not another
Speaker 1: face talking climate, You're not another celeb talking client. You've
Speaker 1: actually leaned over the desk uh in Boston and said,
Speaker 1: I gotta learn the math. I gotta learn the statistics.
Speaker 1: It's been knocked asunder by the price of coal by
Speaker 1: this war in Ukraine. What is your strategy to sustain
Speaker 1: our focus on climate change given the tumult is measured
Speaker 1: by the price of coal. Well, President Biden is determined
Speaker 1: that over the course of the next months, we're gonna
Speaker 1: get ready for the next meeting by trying to raise
Speaker 1: ambition around the world. We are very busy right now
Speaker 1: working with specific countries Indonesia, Vietnam, South Africa, India to
Speaker 1: bring capital to the table, to bring the finance and
Speaker 1: the technology to help them be able to deploy UH
Speaker 1: to meet the goals of the Glasgow Powers Agreement. But
Speaker 1: in addition to that, we have to work to get
Speaker 1: the trillions of dollars deployed. This is going to cost
Speaker 1: Litter League trillions of dollars in order to effect the transitions.
Speaker 1: And the way that we can do that is by
Speaker 1: bringing various players to the table, philanthropy to help blend
Speaker 1: the finance. So you have people taking first risk, people
Speaker 1: who are de risking the investment and hopefully UH there
Speaker 1: are a lot of folks doing that we have companies
Speaker 1: that are now signing up. On Wednesday, we'll be making
Speaker 1: a major announcement with Bill Gates and Mark many Off
Speaker 1: of Salesforce, others of CEOs who are directing their companies
Speaker 1: to become first movers. They're they're they're creating demand in
Speaker 1: the marketplace. Ordering ten of the steel Volvo or Ford
Speaker 1: Motor Company will buy is going to be uh green
Speaker 1: steel cement. The largest cement dealer in the world. Fulls
Speaker 1: in Lafarte is producing green cement. I mean there's just
Speaker 1: a whole range of things and aluminum in in car removal,
Speaker 1: in shipping. We only have a couple of minutes left
Speaker 1: and I do want to get your sense on gas.
Speaker 1: You've talked about natural gas being central to the transition
Speaker 1: to a greener future, but not talked about investing over
Speaker 1: the next thirty to forty years. Because you're hoping to
Speaker 1: transition away from that. How do you dovetail them now
Speaker 1: into the future. I think it's critical that lending institutions
Speaker 1: that have a vast amount of capital involved in the
Speaker 1: fosil field industry begin to demand more from that industry.
Speaker 1: It is appropriate, I think to have a gas transition
Speaker 1: for a short period for some period of time while
Speaker 1: you bring technology to scale that is going to change
Speaker 1: altogether what we're doing. The enormous amount of research right now,
Speaker 1: and frankly it's about a trillion dollars of venture capital
Speaker 1: already moving towards these new technologies green hydrogen, longer battery storage,
Speaker 1: direct air have been capture, green hydraten. I mean, there
Speaker 1: there are things that are going to just change the
Speaker 1: way businesses do business, and that's going to be part
Speaker 1: of this revolution. I think we're looking at and I
Speaker 1: don't think this is exaggeration. We're looking at the largest
Speaker 1: economic opportunity and transformation since the Industrial Revolution. And this
Speaker 1: will be bigger because every nation in the world is
Speaker 1: going to have to move to a clean, new energy
Speaker 1: economy and future. I want to center back here in
Speaker 1: the final question to the future of the Democratic Party.
Speaker 1: What we have seen is a centrist Joe Biden and you,
Speaker 1: as a centrist John Carey, overrun by a rigid progressive
Speaker 1: or liberal wing of the Democratic Party. What is your
Speaker 1: counsel as they maybe lose the House, maybe lose the Senate.
Speaker 1: Who knows of the White House, But what is the
Speaker 1: council you have to liberals who will not bend as
Speaker 1: you have spent a career bending. Well, I'd like to
Speaker 1: thank I have it. I find the compromise where you can,
Speaker 1: and you need to. But you have to be reasonable. Obviously,
Speaker 1: you have to recognize, I mean the old saying in Washington,
Speaker 1: don't let the good, you know, don't let the perfect
Speaker 1: become the enemy of the good. You have to find
Speaker 1: a compromise. That's the nature of legislating. If you decide
Speaker 1: you want to be a legislator, do that, and we
Speaker 1: need to move in that direction. But I'm not in
Speaker 1: the politics of the back and forth now. I'm trying
Speaker 1: to bring people together Republican, Democrat, liberal, conservative, to understand
Speaker 1: that this crisis is existential, doesn't have a political label.
Speaker 1: It's universal. It's not a bilateral issue between China and
Speaker 1: the United States. It is existential for everybody on the planet,
Speaker 1: and we need to be smarter about coming to solution.
Speaker 1: The best way you get there is through, you know,
Speaker 1: winning an election, but then also compromising to find a
Speaker 1: path forward. John Kerry, thank you so much for joining
Speaker 1: us as he is. You are Special Presidential Envoy for
Speaker 1: Climate This is an important conversation each and every year
Speaker 1: at Davos there is someone who owns the valley. Usually
Speaker 1: it's some rock star that shows up by helicopter, or
Speaker 1: maybe it's some famous model that I don't know their name,
Speaker 1: you know, someone like that. This year's rock star is
Speaker 1: Joseph Stiglitz. He is in the Nobel Winner for the
Speaker 1: Mysteries of Information. He has someone in Colombia who has
Speaker 1: taught and written about our discontents and with the challenges
Speaker 1: of globalization, given war in Ukraine and food crisis and others. Truly,
Speaker 1: Joe Stigletz is the attendee this year at Davos. If
Speaker 1: you wrote globalization and as discontents today, what would be different?
Speaker 1: I think, Uh, when I wrote globalization etiskan tent, I
Speaker 1: was mostly focused on the discontent in the South, in
Speaker 1: the development countries and emerging markets. Since then, that discontent
Speaker 1: has become global. We've had globalization of global discontent, and
Speaker 1: I think part of the reason is that we've seen
Speaker 1: that globalization has left us in the United States unprepared
Speaker 1: for the COVID nineteen. We weren't able to prepare, uh
Speaker 1: produce even simple thing like face mass protective gear. Complicated
Speaker 1: things and UH now. Uh, this broader discontented globalization that
Speaker 1: I talked about uh uh with emerging markets in developing
Speaker 1: countries is showing up in a peculiar way in the
Speaker 1: lack of support for the West, for the United States
Speaker 1: and Europe and other democracies, in the our position against
Speaker 1: russiasm by of Ukraine. Before we get to that, though,
Speaker 1: is the inflation that we're seeing right now a symptom
Speaker 1: of these fissures of these crises, whether it's Russia and
Speaker 1: the war and you created the lockdowns in China, or
Speaker 1: is it just an exasperation of a deglobalization or reglobalization
Speaker 1: in a new form that people haven't fully understood yet. Well.
Speaker 1: The disturbances are to a large extent a reflection of
Speaker 1: the same kind of short sidedness, uh, failure of markets
Speaker 1: to attend to risk adequately that we saw on the
Speaker 1: two thousand eight crisis. I wrote my book Making Globalization Work,
Speaker 1: The Sequel to Globalization and Discontent, that it was extraordinarily
Speaker 1: risky for jury to become so dependent on Russian gas.
Speaker 1: It was so clear back then that Russia was not
Speaker 1: a reliable trade partner. Why would you put all your
Speaker 1: money in all your eggs in that basket, and yet
Speaker 1: Juror did, Europe did, and part of what we're seeing
Speaker 1: now because we didn't respond to climate change. You have
Speaker 1: Senator carry here a few minutes ago talking about this.
Speaker 1: We should have we should have moved to renewable energy,
Speaker 1: realizing that it was more reliable than political dictators. So
Speaker 1: fast forward to today and the policies that we're implementing,
Speaker 1: whether it's to try to curb Russia and and to
Speaker 1: hamper them in their advance in Ukraine, or whether it
Speaker 1: comes to tariffs in China. What are we getting wrong? Oh?
Speaker 1: I think, Uh, we're not getting enough solidarity. We're asking
Speaker 1: a few countries. They may have made mistakes in the
Speaker 1: future in the past, but now we have to have solidarity.
Speaker 1: We're fighting a war right now. It's a global war.
Speaker 1: It's a war to preserve the international rule of law.
Speaker 1: And yet we're asking some of the poorest countries to
Speaker 1: pare to bear a lot of the price in terms
Speaker 1: of higher food prices. They may starve that we're not
Speaker 1: doing anything about the deck prices. So uh, in terms
Speaker 1: of managing a global alliance, we're so you came out
Speaker 1: of Gary, Indiana. It's flat on its back like no
Speaker 1: other city in the country. The rhodicurs to academics writing
Speaker 1: in Foreign Affairs talk about the initiatives forward, Where hey,
Speaker 1: the fancy people, Maybe I ought to pay attention to
Speaker 1: the middle class. How in this new America do we
Speaker 1: get the elites to join with the middle class like
Speaker 1: they did when you and I grew up. Why? I
Speaker 1: I think that we all need to be aware. Our
Speaker 1: democracy is at risk and our system of economic system
Speaker 1: is at risk. So if we don't get that kind
Speaker 1: of solidarity, who knows where things will go. So do
Speaker 1: you talked a little bit of before about inflation? It's
Speaker 1: really hurting the people at the bottom in the middle,
Speaker 1: uh enormously. There are UH oil companies making billions of dollars.
Speaker 1: You thought this battle in nine he had a V
Speaker 1: W rabbit. You would have loved it, Joe. The bottom
Speaker 1: line is the elites have forgotten the middle class across
Speaker 1: the entire political persuasion. How do we re engage and
Speaker 1: build a trust with the middle class in America? Given
Speaker 1: the present shocks here in a happy Valley. I think
Speaker 1: that we have to remind them, uh as I did.
Speaker 1: Probably article I wrote eleven years ago of the one percent,
Speaker 1: for the one percent, and by the one percent. Part
Speaker 1: of the message of that article in the Vanity Fair
Speaker 1: was to say that it is in your own self
Speaker 1: interest two show more solidarity, because if you don't, this
Speaker 1: whole system is going to fray apart. At least this
Speaker 1: is important, really important. Given the years and when you
Speaker 1: and Rogue off we're on stage here, that honor when
Speaker 1: the two they haven't gotten along for years. It's like
Speaker 1: the Kardashians. It's worse than that. Here's the heart of
Speaker 1: the matter. We had compensation structures in America where the
Speaker 1: middle class was attached to the elites, and then we
Speaker 1: changed it to where the elites are making more money
Speaker 1: than God and the little classes left bond. And to me,
Speaker 1: that was a tipping point. This has been a tipping point.
Speaker 1: And here we are with a new tipping point with inflation,
Speaker 1: and just want to end here. Do you think that
Speaker 1: it's more important to get inflation under control at this
Speaker 1: moment than to worry about or avoid some sort of downturn,
Speaker 1: which seems to be the feds conundrump. Raising interest rates
Speaker 1: is not going to solve the problem with inflation. It's
Speaker 1: not going to create more food. It's going to make
Speaker 1: it more difficult because you aren't going to be able
Speaker 1: to make the investment. How do you clear the market
Speaker 1: if you don't raise interest rates? What you do is
Speaker 1: you have supply side interventions. Uh. One of the things
Speaker 1: that President Biden tried to do is to have more
Speaker 1: care for children, and that would mean more women into
Speaker 1: the labor force. That releases one of the UH constraints
Speaker 1: labor supply. Uh. You look at we used to have
Speaker 1: surpluses and food in the United States. We can get
Speaker 1: those back. How do we do this in a of
Speaker 1: prisitive way. I think we can do a lot more
Speaker 1: than we're doing. Uh. Can you go an economy through
Speaker 1: raising interest breaks? Is not going to be at any
Speaker 1: time frame? So at least trying to do everything we
Speaker 1: can globally to increase the supply is going to do
Speaker 1: more on dealing with the problem causing a depression. One
Speaker 1: last question, you're heated, rhetoric melted all the snow in
Speaker 1: the valley. Let's go all Scoop Jackson on you right now,
Speaker 1: the giant from Washington State. Can you, as a raging
Speaker 1: Democrat support of a school rebuilding of our defense and
Speaker 1: of our navy to push against China in the shock
Speaker 1: of Putin and Russia. Uh, I think we can uh
Speaker 1: have uh uh support defense. We clearly Puttin a show
Speaker 1: we need defense. Much of what we spend is weapons
Speaker 1: that don't work against enemies that don't exist. So if
Speaker 1: we take our current spending on defense and re examine it,
Speaker 1: I mean we're paying we're so much back in the
Speaker 1: twentieth century. The latter half of the twentieth century. We're
Speaker 1: in a We're a world of cyber warfare, of all
Speaker 1: kinds of new forms of warfare. We need to adapt
Speaker 1: our military expenditure. I think if we did that, we
Speaker 1: don't have to spend more and more and more. We
Speaker 1: have to spend smarter and smart smarter. We're out of time.
Speaker 1: Joe Stick, Let's thank you for professor from Columbia University,
Speaker 1: and iials say, most seriously, folks, a reading of globalization
Speaker 1: and his discontent is a good place to start on
Speaker 1: a study of international economies. Let's dive into a conversation
Speaker 1: with someone who has had world world leadership and quality conversations.
Speaker 1: David Rubinstein joins us. Of course, you know him with
Speaker 1: his work on Bloomberg. He's co chairman and co founder
Speaker 1: Carlyle Group. He's on the board of the World Economic Forum,
Speaker 1: and I think owns like three cantons in Switzerland. Switzerland's well,
Speaker 1: wonderful day. Have you here today, My pleasure to be here.
Speaker 1: Thanks for having Is it better in the summer or
Speaker 1: the winter. It's a lot easier to get around in
Speaker 1: the summertime, and you don't have to worry about falling down.
Speaker 1: At least I don't have to worry about it so much.
Speaker 1: I know you had a little slip, but you're okay, right,
Speaker 1: I'm okay doing fun. Um. Let us talk about what
Speaker 1: underlies it underpins every transaction at Carlyle, every transaction of
Speaker 1: President Biden, and that is a financial system where it
Speaker 1: is priced down yield up. If I take the Leman Index,
Speaker 1: the bloom Bird Total Return aggregate index. Essentially, David, we've
Speaker 1: never seen this. How does the financial system adapt to
Speaker 1: such losses in bonds? Well, the financial system will adapt.
Speaker 1: It always does. Markets correct, and the markets will correct. Now,
Speaker 1: I think we've had a time of enormous a bulliance
Speaker 1: in the markets, low interest rates, very high growth rates,
Speaker 1: and now it's changing. You can't go on forever as
Speaker 1: it was, so now it's slowing down a bit. I
Speaker 1: don't think it's a calamitous situation, but clearly the growth
Speaker 1: market right now is not great, and I would say
Speaker 1: interest rates are gonna come up for a while and
Speaker 1: probably put us into what somebody in the Carter administration
Speaker 1: used to call a banana. He didn't want to use
Speaker 1: the word recession. So Carter said, don't use the word recession,
Speaker 1: use some other word. And Fred Cohn, the inflation of Easer,
Speaker 1: said all right, I think we might be in a banana.
Speaker 1: So I don't want to say we're in a recession.
Speaker 1: I don't know if we're in a banana, but it's
Speaker 1: some something close between a recession and a banana. Okay.
Speaker 1: So then Biden this morning, when he was asked about it,
Speaker 1: should have said banana, because you think that that's the
Speaker 1: more realistic outcome. There are many different definitions of recession,
Speaker 1: so I don't want to be quoted saying we're in
Speaker 1: a recession. Nobody really knows yet for sure, but clear
Speaker 1: the economy is not as robust as it was the
Speaker 1: last couple of years, in part because of COVID, the
Speaker 1: effects of that, and part because of the war in Ukraine,
Speaker 1: and part because the interest rates are going up again,
Speaker 1: And so if all those things come together, it's not
Speaker 1: a great economic environment. On the other hand, if you're
Speaker 1: an investor, prices have come down to the point where
Speaker 1: there's some really good bargains now, and I think a
Speaker 1: lot of people that buy at the bottom are looking
Speaker 1: pretty happy. Now. Do you think that right now this
Speaker 1: is a bottoming out that you see? In other words,
Speaker 1: from the conversation that you're having, is a more optimism
Speaker 1: about investing now than pessimism about the recession or banana?
Speaker 1: What depends. If you own a lot of these assets
Speaker 1: and they've gone down, you're not so optimistic. But if
Speaker 1: you don't own those assets and you now have some
Speaker 1: fresh capital to invest, it's a lot better now than
Speaker 1: it was a while ago, because you're a lot low
Speaker 1: with your own assets. The ones you own may not
Speaker 1: be worth as much, but you don't have to sell
Speaker 1: those asset these prices. But right out people are gonna
Speaker 1: make a lot of money buying at these prices, I believe,
Speaker 1: because prices are pretty low now relative to where they've been.
Speaker 1: But David to Andrew Mellon in another time in place,
Speaker 1: are we going to see the elites do a national
Speaker 1: roll up of our assets while with inflation the middle
Speaker 1: class is flat on their back. And to get specific,
Speaker 1: Blackstone take taking the heat. But private equity, private money
Speaker 1: is going after residential housing is a sound investment. And
Speaker 1: there's a raging debate about that. Is this is this
Speaker 1: a shell game of the elites where the middle class
Speaker 1: beleaguer doesn't get to participate. First of all, Blackstone and
Speaker 1: Carlisle and other firms, they basically represents pension funds to
Speaker 1: large extent, which our teachers, firemen, policemen, so forth. So
Speaker 1: it's not exactly the elites who are buying it for themselves.
Speaker 1: They're buying it for pension funds a large extent. Secondly, um,
Speaker 1: the economy is much different than Andrew melle s period
Speaker 1: of time than a few people did control an economy.
Speaker 1: So now there it's a much bigger comment. It's a
Speaker 1: global economy, wasn't when Andrew Mellon was Secretary of Treasury. Meanwhile,
Speaker 1: we are looking at the turmoil, and I do wonder
Speaker 1: whether you think that Davos still has the same relevancy
Speaker 1: that it once did Tavos. I think is relevant because
Speaker 1: people are still coming. If people didn't come, it wouldn't
Speaker 1: be relevant. People are coming because when you can go
Speaker 1: in one place and see the CEOs and the heads
Speaker 1: of state from so many different places, it's a good thing.
Speaker 1: It's very convenient. So if I wanted to see some
Speaker 1: of the people here, I would have to spend six
Speaker 1: months going around and meeting all these people. Now they
Speaker 1: can meet them in a couple of days here, So
Speaker 1: it's very relevant. Now, are we going to solve all
Speaker 1: the global problems in the world in the next four days.
Speaker 1: Probably not. But I don't see anybody that comes here
Speaker 1: and says, you know, I wish I was somewhere else.
Speaker 1: People come here because they think it's actually a good
Speaker 1: chance to meet other people, and because we've been in
Speaker 1: COVID environment for so long, some of these people haven't
Speaker 1: been seen by others for three or four years. In person.
Speaker 1: I haven't seen some of these people for three years.
Speaker 1: Robert Hormad's a couple of days ago, was heated with
Speaker 1: us about the rebuild or a relationship with the Pacific RIM.
Speaker 1: What could private capital do? She was our government and
Speaker 1: projecting a new America vision there. You know, I think
Speaker 1: of the isle of family in the Philippines and other
Speaker 1: large pools of capital. Don't we assist our nation by
Speaker 1: projecting an advancing capital to the Pacific Rim? We do,
Speaker 1: and we are. I mean a lot of the private
Speaker 1: equty firms and other large corporations are investing enormous amounts
Speaker 1: of money in Asia. Asia has grown dramatically the last
Speaker 1: forty or fifty years since Nixon went to China. It's
Speaker 1: an incredible, incredibly different world. We aren't pulling back dramatically.
Speaker 1: I think the investment in China is pulling back a
Speaker 1: bit because of some of the regulatory conscerns there and
Speaker 1: the economic concerns and COVID. But money is flowing into
Speaker 1: other countries. India is a good example, Japan is a
Speaker 1: good example, Korea is a good example. A lot of
Speaker 1: Western money is going in there now. So I don't
Speaker 1: think we're pulling out from the Pacific RIM. And I
Speaker 1: think Biden is money is there now as he is
Speaker 1: he's talking about American capital coming in. I think American
Speaker 1: capital is coming in. David Rubinstein, thank you so much
Speaker 1: for joining with Kyle. Thank you for your conversation. My pleasure,
Speaker 1: thank you for all time was Jeff Bezos. He was
Speaker 1: the best. I don't feel the best, but it was
Speaker 1: just great how you hammered him, I mean it was great.
Speaker 1: Thank you very much, David Rubinstein, thank you again. What
Speaker 1: we'rena do now is drive for the conversation with a
Speaker 1: vent to Latin America. But we do so with the
Speaker 1: financial acuity of General Atlantic. There are storied name in
Speaker 1: financial Martin Escobaro joins us now their co president. Thank
Speaker 1: you for joining us here in Windy City, Tom, Lisa,
Speaker 1: thank you for having around a deck in Chicago. It'll
Speaker 1: it'll work out. I want you to talk to me.
Speaker 1: How you use foreign exchange in Latin America is a
Speaker 1: litmus paper of how government systems are doing there. You
Speaker 1: are doing finance, you're doing long term investment in the
Speaker 1: Latin America, and yet it's within fragile economies with fragile
Speaker 1: foreign exchange. How do you use foreign exchange to study
Speaker 1: Latin America. That's a great question, Tom. Listen, we've we've
Speaker 1: been in Latin America. So first level set g A
Speaker 1: is forty two years old, eighty billion dollars in assets.
Speaker 1: We've been investing in technology for forty years. We've been
Speaker 1: in the emerging market for twenty including Latin America, and
Speaker 1: Latin America has been tough for most private equity investors
Speaker 1: because they got ex wrong. And what we've tried to
Speaker 1: do is bet on digital companies that are growing thirty
Speaker 1: fifty six. So even if we get the ffs wrong,
Speaker 1: we still meet the required returns. And it's really easy
Speaker 1: to get the FX wrong. So we've seen a huge
Speaker 1: reset in all tech companies around the world over the
Speaker 1: past six months. Has there been the same reset just
Speaker 1: not priced in yet in the private world? I heard
Speaker 1: you Tom used the word cartnage. There's been cartnage and
Speaker 1: growth public growth stocks drop seventy to eighty percent. It's been,
Speaker 1: and it's been abroad across good companies. Great companies are
Speaker 1: more or less companies. The private markets have not transacted
Speaker 1: as much. And what we we we've looked at in
Speaker 1: previous corrections is it takes six to nine months before
Speaker 1: the public market comps to translate into private transactions because
Speaker 1: good companies need not trans transact in the middle of
Speaker 1: the storm, and we are in the middle of the storm,
Speaker 1: not just in the house. So does that mean that
Speaker 1: you're extending less money, less financing at this moment in
Speaker 1: preparation for what's to come in the follow on in
Speaker 1: the private world. So interestingly, we in the short term
Speaker 1: we're seeing terrific opportunities in the public markets. Were not
Speaker 1: typically a public market investor, exceptionally, we're becoming one right now.
Speaker 1: In the private markets, we are slowing down. Now. What's
Speaker 1: beginning to happen is consolidation. I mean, last year, sixty
Speaker 1: companies got funded. Half of them won't make it through
Speaker 1: the correction. The strong will get stronger and the weaker
Speaker 1: will be consolidated into the strong, and so we're beginning
Speaker 1: to add capital some of these companies to consolidate their industries.
Speaker 1: Follow this is important. You're pulling back from the private
Speaker 1: sphere and going to public companies because of the opportunity
Speaker 1: that you see. Do you think that we are not
Speaker 1: prepared for the selling for the lack of investment on
Speaker 1: the private side that will trickle out in the next
Speaker 1: few months. Listen, in the short term, the best opportunities
Speaker 1: on the public markets, because there's an stampede of people
Speaker 1: coming out of the public markets and the macros forces
Speaker 1: overwhelmed the micro ones. It's such a mispricing of growth
Speaker 1: and even overall, if you look at the p to
Speaker 1: growth of the entire market, it's a zero point seven.
Speaker 1: The last time it was this low is that the
Speaker 1: Great Financial Crisis, and it was zero point eight. So
Speaker 1: we're just fighting better deals now. There's so much liquidit
Speaker 1: in the private markets. It will take a while before
Speaker 1: this phenomena begins to affect companies, but it will. Our
Speaker 1: guest is six to nine months. Are you seeing within
Speaker 1: sort of a decades long autocracy? And I mean that
Speaker 1: in a very loose phrase of South America, a greater
Speaker 1: respect in understanding for capitalization, for contract, for rule law.
Speaker 1: Is it easier to do business now than five years ago,
Speaker 1: ten years ago. It's a change in a number of ways. First,
Speaker 1: there's something we call the globalization of entrepreneurship. Great minds
Speaker 1: are born everywhere, but they don't have access to ideas
Speaker 1: and funding in the old world. In the new world,
Speaker 1: they have access to ideas and funding. Just to give
Speaker 1: you a sense of magnitude, last year in Latin America,
Speaker 1: the growth and venture capital invested nineteen billion dollars. That's
Speaker 1: more than the previous twenty years combined So if you
Speaker 1: if you're Latin American entrepreneurs, why such a ginormous number,
Speaker 1: Because we're catching up and there were enough proof points.
Speaker 1: I mean, we invested in a company that saw appreciation,
Speaker 1: it's probably trading twenty billion dollar company, profitable, trading a multiple,
Speaker 1: and and there were it's a complical xp inc it's
Speaker 1: it's traded in as like and it's it's it's in
Speaker 1: a real profit, not not speculative. But there's been a
Speaker 1: there's been a handful of success stories and nothing attracts
Speaker 1: capitalized proven success and and that's what happened. So there's
Speaker 1: been a step change in access of fun to the
Speaker 1: best entrepreneurs. And economies are formalized. The electrinification of payments
Speaker 1: mean you can't devate taxes anymore, and all of a
Speaker 1: sudden of companies who are formally half informal couldn't do it,
Speaker 1: and that opened it up for private investment. Does General
Speaker 1: Atlantic think that Latin America will emerge stronger or weaker
Speaker 1: from the current inflationary impulse that's allowing their exports to
Speaker 1: be that much more valuable. So listen, Latin America is
Speaker 1: about ten of what we do globally. In the next
Speaker 1: three years. Brazil will benefit from the commodity cycle. It's
Speaker 1: a net exporter or commodities. The effects should benefit from
Speaker 1: that that that is a great tailwind. Mexico will benefit
Speaker 1: from near shoring. So these two global macro tendencies will benefit.
Speaker 1: The two largest economies represent the GDP. So I think
Speaker 1: in this storm surprising that America is not such a
Speaker 1: risky place. I got fourteen more questions. Can you please
Speaker 1: visit us in New York anytime if we survive the
Speaker 1: windstorms coming back? Martinozcarbary, thank you so much of General Lanty.
Speaker 1: Right now, we've got a really interesting guess. This is
Speaker 1: a gentleman who was weaned on thear against at lager beer,
Speaker 1: ended up in Pennsylvania where he did the worst job
Speaker 1: in the world, which is owned a restaurant, and he
Speaker 1: survived even better, got into politics and as a Republican
Speaker 1: help parts from from Pennsylvania. We welcome someone in the news.
Speaker 1: Senator pack to him, he's Senator welcome. So we're really
Speaker 1: weaned on there against that way. But I get the reference.
Speaker 1: Get you get the reference with the red Sox. Of course,
Speaker 1: Senator is an immense time of tumult, and people with
Speaker 1: a little bit of change from under the bed are
Speaker 1: going into Rookies restaurant, the old Rookies restaurant in Allentown
Speaker 1: and all of a sudden inflations killing him. That's the
Speaker 1: people in America. We're getting killed. What's the Toomey solution
Speaker 1: for Republicans who take the House, Maybe take the Senate,
Speaker 1: maybe take the White House. Yeah, So I think two
Speaker 1: things right. Um, when we had the shutdown in from
Speaker 1: the pandemic, UM, I think it's fair to say we
Speaker 1: lost about two trillion dollars of economic activity. So we
Speaker 1: dug a two trillion dollar hold, we filled it with
Speaker 1: six trillion dollars of spending. We goose demand way beyond
Speaker 1: where it would have been at a time when supply
Speaker 1: was constrained. Meanwhile, the FED, I think was throwing gasoline
Speaker 1: on this fire. Ever since the the pandemic lockdowns, UM
Speaker 1: continued with emergency policy long after the emergency passed. So
Speaker 1: I think the FED has gotten the joke and has
Speaker 1: made a big pivot. I think they committed to see
Speaker 1: this through. And what we've got to do is stop
Speaker 1: the wild spending that's been going on. I am most
Speaker 1: certain that in the Senate of this United States, you
Speaker 1: are the most supple dynamic mind on economic dynamics, financial dynamics,
Speaker 1: currency swaps, and derivatives. How do you explain the Republican
Speaker 1: who have a static vision back to the nineteen fifties,
Speaker 1: that they need to be more subtle, more dynamic to
Speaker 1: build and grow this country. I think you need to
Speaker 1: give my Republican colleagues a little more credit than that.
Speaker 1: Most of them actually weren't yet adults in the night,
Speaker 1: but they're pressured by a president desperately, a President Trump
Speaker 1: who desperately wants to go back to another time, and
Speaker 1: I think he wants to invent a new time altogether.
Speaker 1: President Trump, I mean, and and he's not the president now,
Speaker 1: and I think the party should not take economic advice
Speaker 1: from him, as long as we acknowledge there were some
Speaker 1: tremendous successes. I think the tax reform was extremely pro growth,
Speaker 1: very constructive, gave us really the best economy of my
Speaker 1: lifetime before the pandemic hit um. But I think the
Speaker 1: President has been dead wrong on trade from the beginning,
Speaker 1: So so it's a mixed bag there. As I say,
Speaker 1: I don't look to him, I don't think most of
Speaker 1: my colleagues do. Um we uh, I think we have
Speaker 1: a better grounding, he said, I do you think he's
Speaker 1: dead wrong on trade? Do you agree with them with
Speaker 1: President Biden that they should possibly removed some of the
Speaker 1: tariffs sun China problem? The problem is President President Biden
Speaker 1: has been a complete extension of the Trump administration and trade.
Speaker 1: Consider the only free trade agreement under Trump was to
Speaker 1: renegotiate NAFTA in a way that would diminish trade. We've
Speaker 1: never done that before, and President Biden not a single
Speaker 1: free trade negotiation underway. Now a year and a half
Speaker 1: into his administration, he hasn't lifted all the two thirty
Speaker 1: two tariffs. He's resisting a corporate exception process on three
Speaker 1: or one tariffs. So no, I think the Biden administration
Speaker 1: has been an extension of the Trump administration on trade.
Speaker 1: Do you think that your Republican colleagues would agree with
Speaker 1: you that some of these Trump era tariffs should be removed?
Speaker 1: I think some do and some don't. Right, So this
Speaker 1: has become a divisive issue among Republicans when there used
Speaker 1: to be a very broad Republican consensus that was pro trade,
Speaker 1: expanding trade, free trade, agreements. That's that's diminished in all
Speaker 1: candor um. And we've got we've got friction on the
Speaker 1: other side too. Right, previously Democratic presidens, whether it was
Speaker 1: Barack Obama or Bill Clinton, we're pro trade. Um. We've
Speaker 1: lost that now, and so we've really lost the pro
Speaker 1: trade consensus. So you go out, you take the Pennsylvania
Speaker 1: train and you go out. There's that road turn near
Speaker 1: Altuna where the road turns three d and sixty degrees around.
Speaker 1: The train track goes around, and you end up in Latrobe,
Speaker 1: and you're having a rolling rock at a bar. Explained
Speaker 1: to the people pounding rolling rocks at that bar, how
Speaker 1: the new Republican Party is going to make them prospered
Speaker 1: with foreign trade. Well, I would point out, so the
Speaker 1: best economy in their lifetime was also the best in mind,
Speaker 1: which was record low unemployment, strong growth, low inflation, diminishing
Speaker 1: income gap between high income and lower income pay. But
Speaker 1: it was really it's really hard to find anything not
Speaker 1: to like about where the economy was that was inter
Speaker 1: sponsor to Republican policies. It's true President Trump was pushing
Speaker 1: back on trade, but he had hardly moved the needle
Speaker 1: in a substantive sense. Right, we still have roughly the
Speaker 1: freest trade aiding environment in a hundred years. That guy
Speaker 1: at the bar with me and Latrobe, his wages were
Speaker 1: going up faster than inflation. That's not a bad place
Speaker 1: to be. How do you break inflation? And right now
Speaker 1: the integrin he's the only guy I can talk to
Speaker 1: from Washington will get this. And the x X is
Speaker 1: the integrin of a negative real wage we haven't seen
Speaker 1: in age. Is the thickness of our negative real wage
Speaker 1: is frightening me. Now, what is the two mey prescription?
Speaker 1: So that it's the Fed's got to do its job.
Speaker 1: It's got to stay this course with negative real interest
Speaker 1: rates as negative as they are. I don't think we
Speaker 1: get there. But the market is doing a lot to help, right,
Speaker 1: the backup in the bond market, the strength of the
Speaker 1: dollar and the currency markets, all of that is at
Speaker 1: least this inflationary, if not deflationary. Meanwhile, we've started to
Speaker 1: see slight declines in consumer purchases. Right our big retailers
Speaker 1: have seen they've kept nominal growth, but not real growth.
Speaker 1: So that tells me there's demands destructure. Should we break
Speaker 1: the rules for the sun? I think we should think
Speaker 1: is a Fed gonna blink? I don't think so. Okay,
Speaker 1: well this I don't think to ask, do you think
Speaker 1: that it's worth it for the Fed to not blink,
Speaker 1: to keep going even if it means a recession. The
Speaker 1: Fed has to stay the course here, even if it
Speaker 1: remains recession, even if it means a recession. The FED
Speaker 1: blew this badly. They had a paradigm that guarantee that
Speaker 1: they would be behind the curve, and they were. Now
Speaker 1: they get it. I don't think this Fed wants to
Speaker 1: be the Fed that brings back enormously problematic inflation from
Speaker 1: How much do your colleagues agree with you? Because we
Speaker 1: heard Joe Biden saying that a recession is not inevitable.
Speaker 1: Maybe not inevitable, do but do people in Washington agree
Speaker 1: that right now it's preferable to have a recession than
Speaker 1: to allow prices to continue to climb at this pace.
Speaker 1: So that's if if it has to be right, that
Speaker 1: that's that's why. First of all, I don't think inflation
Speaker 1: recession is inevitable. It's probably a little more likely than not.
Speaker 1: It could be mild, it could be brief, Unemployment could
Speaker 1: rise very modestly from really quite low levels that they're
Speaker 1: right now. But we never get back to really strong
Speaker 1: growth and really good opportunity on less we get stability
Speaker 1: in the dollar. We're not there right now. That's got
Speaker 1: to be exercise number one for our medium and long
Speaker 1: term prosperity. Do you think that the banks with the
Speaker 1: financial banking sector really under your pure view, are prepared
Speaker 1: for a FED that is not going to blink as
Speaker 1: so many people seem to believe. Yeah, yeah, I think
Speaker 1: so well. I mean, as you know, there's a rising
Speaker 1: interest rate environment is actually helpful for a lot of banks.
Speaker 1: So I'm not sure which ones you're referring to. Obviously,
Speaker 1: those that are based more on securities trading, you know,
Speaker 1: they it's hard to say right they may they may
Speaker 1: do well for volume purposes, they'll take their lumps in
Speaker 1: other ways, but look that that can't be the consideration.
Speaker 1: We've got to get back to normalizing interest rates, normalizing
Speaker 1: the inflation level, and then we can have strong growth again.
Speaker 1: Andrew Carnegy build a plan of school building at Carnegie Mellon,
Speaker 1: and he build it with a slanted floor so that
Speaker 1: if it failed, if Carnegie Mellon university failed, you could
Speaker 1: turn it into a factor. That was the entrepreneurial spirit
Speaker 1: of Pittsburgh of long long ago, one far away. You
Speaker 1: and I live the crater that was Pittsburgh. Do we
Speaker 1: need to fear that? Do we need some humility still
Speaker 1: about manufacturing in America? Or we now become service sectors?
Speaker 1: So much so you know this very well, but I
Speaker 1: do think it's worth repeating. America manufact will will manufacture
Speaker 1: more this year than any year in our history. More
Speaker 1: added value in manufacturing. It happens in different uh with
Speaker 1: different products. It's less labor intensive. But we are a
Speaker 1: great manufacturing powerhouse. We will retain that in my view,
Speaker 1: and Pittsburgh's doing great. Sedator, Before we let you go,
Speaker 1: who do you hope replaces you in the Senate? Um?
Speaker 1: You know? Either one of these guys. I've never made
Speaker 1: an endorsement. Now, seriously, there's two great candidates. They are
Speaker 1: dead tied. I think this ends within a few hundred
Speaker 1: votes literally, and either one wins the like in the
Speaker 1: fall spoken like a true politicans that good candidates. It's
Speaker 1: going to be a fair recount. It is, and to
Speaker 1: the credit of both candidates, they have taken the view
Speaker 1: that it's probably a good idea to actually count all that.
Speaker 1: How many citizens are involved in the recount of something.
Speaker 1: These people nationwide are being abused. My mother was an
Speaker 1: election canvas or whatever it was called. How many people
Speaker 1: are involved in the RecA I don't know the number,
Speaker 1: but let me just tell you. I think some of
Speaker 1: our great heroes have been the people that did their
Speaker 1: job of whatever party, counted the votes and went with
Speaker 1: the outcome they got. That's how the system is supposed
Speaker 1: to work. That's how it worked, and it'll work that way.
Speaker 1: In senators, thank you when you're done with politics, fix
Speaker 1: the pirates to me is a senator from Pennsylvania. Christiano
Speaker 1: Mind joins us right now, the chief executive officer. How
Speaker 1: genormous was Intel the day you walked in the door. Well,
Speaker 1: you know, Intel has been an incredible company as they
Speaker 1: built what is to day, you know, the PC. But
Speaker 1: Qualcom story is a little different. Qualcom story. It's it's
Speaker 1: a company that actually was always focused on building mobile
Speaker 1: communications and uh in creating the processing technology that allows
Speaker 1: you to have a computer in the palm of your hands.
Speaker 1: And that's our most love device today, the smartphone. That's
Speaker 1: what we do want going niche? Is there a risk
Speaker 1: to moving away from NICHE? Now? What's happening to Qualcom
Speaker 1: right now? Uh? And that's one of the greatest opportunities
Speaker 1: in our history, which is UH. The mobile technology scale
Speaker 1: is incredible. If you think of a smartphone today is
Speaker 1: mainkind largest development platform. But what the smartphone really is
Speaker 1: is an advanced competition device that is connected. And when
Speaker 1: we look at digital transformation that is happening across every enterprise,
Speaker 1: we see demand for technology and other industry and that's
Speaker 1: what's happened to the company. The company continued to be UH,
Speaker 1: the company driving the pace of innovation in mobile community stations,
Speaker 1: but the automobile is becoming a connected computer on wheels.
Speaker 1: We're growing through the automobile space and then every other
Speaker 1: industry as they digitally transform. You fended off an acquisition
Speaker 1: pitch from Broadcom. This morning, it's reported the Broadcom and
Speaker 1: vm ware are in talks that Broadcom is going to
Speaker 1: acquire vm ware. Do you expect this to be the
Speaker 1: future that in order to have scale and sustenance, you
Speaker 1: need to consolidate and you see that really being the future. Look,
Speaker 1: it's it's really for Broadcom to comment by the way,
Speaker 1: I look, Broadcom has become a more of a software
Speaker 1: company and uh, you know with some of the acquisitions
Speaker 1: they made in the past, and I think vm or
Speaker 1: is a software company. We're going to the different direction.
Speaker 1: I think we will continue to be a semiconductor company.
Speaker 1: Focus in the growth that we have in this industry,
Speaker 1: especially at the edge, and uh we'll continue to see
Speaker 1: not consolidation but conversions of all those opportunities. How much
Speaker 1: are you trying to move away from relying on one
Speaker 1: region on Taiwan for example, or some of the other
Speaker 1: major semiconductor producers as you focus on the hardware. This
Speaker 1: is a great topic of conversation. I think we what
Speaker 1: we saw of the past couple of years. I think globally, um,
Speaker 1: if there is a if there is a silver lining.
Speaker 1: We saw that some my conductors are important and and
Speaker 1: uh as chips are going in pretty much everything. Even
Speaker 1: as we saw the shortage of MY conductor. People buy
Speaker 1: more goods than services and their chips and everything. Plus
Speaker 1: what's happened in the future, we need a reliable supply chain.
Speaker 1: So Qualcom we we have done better than some of
Speaker 1: our peers because we have been diversified since the very beginning.
Speaker 1: As an example, we are very well balanced between taime
Speaker 1: one and South Korea with Samsung. We also been using
Speaker 1: chips from global founders, and our chips spends exactly coming
Speaker 1: from manufacturing in the United States. And I think as
Speaker 1: a general rule, as we think of the importance of
Speaker 1: semiconductor for the future of our economy, I think we
Speaker 1: need don't have a geographically diversified and orsilian supply chain.
Speaker 1: What can America participate in that given the massive labor
Speaker 1: arbitrage or is that a discussion of twenty years ago.
Speaker 1: I think is a discussion from the past. What's really
Speaker 1: happening and SAM conductor manufacturing is not an issue of labor,
Speaker 1: It's an issue of scale. But if you look what
Speaker 1: the United States is doing a sport of U SEKA
Speaker 1: and the US Chips Act. We'll see if it gets,
Speaker 1: you know, approved by the House. The Europeans actually moving
Speaker 1: with a very similar legislation called the EU Chips Act.
Speaker 1: The Koreans talking about uh the Korean Chips Act. Just
Speaker 1: if you look at United States alone fifty two billion dollars,
Speaker 1: the Europeans about forty three billion dollars. That is about
Speaker 1: creating incentives for manufacturing to be built in the United
Speaker 1: States are and I think it's possible. The reason I
Speaker 1: think it's possible it's the semi conductor consumption is going
Speaker 1: to double in the next five years, so there's an
Speaker 1: opportunity to build in different places. What should Apple do
Speaker 1: with all that cash and the other apples out there?
Speaker 1: To generate free cash flow every ninety days to choke
Speaker 1: a horse, you're a competitor, you're a friend, you're an enemy,
Speaker 1: you're removed. But at the same time, you have to
Speaker 1: be curious about where all that cash is gonna end up. Well,
Speaker 1: today we're a supplier of Apple, we provide chips today iPhones.
Speaker 1: But at the end of the day, when we think
Speaker 1: about where most of our futurists, it's really to focus
Speaker 1: on building the platforms, which is uh driving a lot
Speaker 1: of the Android, the premium and high tier devices. Automotive.
Speaker 1: We recently announce an agreement with Volkswagen. Before that, it
Speaker 1: was still and taste to build you know, digital cockpit solution,
Speaker 1: uh aid ask for sister driving and then the broad IoT,
Speaker 1: and that's what our future is going to be. Christiano
Speaker 1: 'm on, thank you so much. For being with us,
Speaker 1: the CEO of Qualcom at the enter of so many
Speaker 1: debates right now. This is the Bloomberg Surveillance Podcast. Thanks
Speaker 1: for listening. Join us live weekdays from seven to ten
Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each
Speaker 1: day from six to nine am for insight from the
Speaker 1: best in economics, finance, investment, and international relations. And subscribe
Speaker 1: to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com,
Speaker 1: and of course on the terminal. I'm Tom Keene, and
Speaker 1: this is Bloomberg