1 00:00:05,120 --> 00:00:08,480 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:08,520 --> 00:00:12,360 Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Join us each day 3 00:00:12,400 --> 00:00:16,840 Speaker 1: for insight from the best an economics, geopolitics, finance and investment. 4 00:00:17,280 --> 00:00:22,119 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,320 --> 00:00:26,600 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,640 --> 00:00:30,840 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. John Ferrell 7 00:00:30,920 --> 00:00:31,920 Speaker 1: with Mary Burrow, I. 8 00:00:31,840 --> 00:00:33,640 Speaker 2: Want to go through some of the numbers for our audience. 9 00:00:33,920 --> 00:00:37,000 Speaker 2: Divid end up thirty three percent, biggest ever buyback plan 10 00:00:37,360 --> 00:00:40,040 Speaker 2: ten billion dollars, forty billion dollar name yesterday. Just some 11 00:00:40,120 --> 00:00:44,120 Speaker 2: context perspective there that is massive inquiring minds. Mary will 12 00:00:44,159 --> 00:00:47,479 Speaker 2: want to know why have you decided to deliver a 13 00:00:47,600 --> 00:00:50,600 Speaker 2: ten billion dollar buy back shortly after you've signed a 14 00:00:50,680 --> 00:00:53,960 Speaker 2: labor contract that adds nine point three billion to expenses 15 00:00:54,440 --> 00:00:55,560 Speaker 2: over its term. 16 00:00:56,240 --> 00:00:58,520 Speaker 3: Well, as we looked at what was happening from a 17 00:00:58,600 --> 00:01:02,160 Speaker 3: labor perspective, we had built and really the labor environment 18 00:01:02,280 --> 00:01:05,720 Speaker 3: going into our negotiations, we had put conservative estimates into 19 00:01:05,760 --> 00:01:08,040 Speaker 3: our plan. So although it was a little higher than 20 00:01:08,080 --> 00:01:11,000 Speaker 3: what we expected, we believe that we have and our 21 00:01:11,000 --> 00:01:14,080 Speaker 3: guidance for next year, we've already said that we'll be 22 00:01:14,120 --> 00:01:17,600 Speaker 3: able to offset that completely with the plan that we 23 00:01:17,680 --> 00:01:20,360 Speaker 3: already had of a two billion dollar cost out perspective. 24 00:01:20,800 --> 00:01:24,120 Speaker 3: So we did the right thing to recognize our manufacturing 25 00:01:24,120 --> 00:01:26,319 Speaker 3: team members who have done a great job and continue 26 00:01:26,360 --> 00:01:30,440 Speaker 3: to build vehicles safely with high quality. And we also 27 00:01:30,480 --> 00:01:32,200 Speaker 3: thought that we've got to look and make sure that 28 00:01:32,280 --> 00:01:34,880 Speaker 3: we're balanced across all of our stakeholders, and our owners 29 00:01:34,920 --> 00:01:36,840 Speaker 3: are very important. So we think this was a very 30 00:01:36,920 --> 00:01:40,080 Speaker 3: balanced response when we look at what was done from 31 00:01:40,080 --> 00:01:42,280 Speaker 3: a labor perspective and what we're doing as part of 32 00:01:42,280 --> 00:01:44,560 Speaker 3: our capital allocation framework for our owners. 33 00:01:44,640 --> 00:01:46,919 Speaker 2: Well, let's get into that. So shareholders are super happy. 34 00:01:46,959 --> 00:01:49,160 Speaker 2: The name is up by almost eleven percent so far 35 00:01:49,240 --> 00:01:52,840 Speaker 2: this morning. I wonder if you aw Wiz Mary, they 36 00:01:52,840 --> 00:01:55,760 Speaker 2: didn't get the forty percent they wanted. They got twenty 37 00:01:55,760 --> 00:01:58,960 Speaker 2: five plus cost of living adjustments and other things as well. 38 00:01:59,240 --> 00:02:01,080 Speaker 2: Is the old things of this morning not something that 39 00:02:01,120 --> 00:02:01,720 Speaker 2: concerns you. 40 00:02:02,280 --> 00:02:04,200 Speaker 3: When I look at it, I think it's balanced. Again, 41 00:02:04,840 --> 00:02:08,120 Speaker 3: we have very well compensated and you know, when you 42 00:02:08,160 --> 00:02:11,280 Speaker 3: look at the suite of benefits that our represented team 43 00:02:11,320 --> 00:02:14,800 Speaker 3: members have it's a very very appropriate package and frankly 44 00:02:14,919 --> 00:02:18,480 Speaker 3: leading from an industry perspective broader than just the auto industry. 45 00:02:18,560 --> 00:02:21,200 Speaker 3: So I think we did the right thing to recognize 46 00:02:21,200 --> 00:02:24,440 Speaker 3: and reward the hard work of our manufacturing team members 47 00:02:24,680 --> 00:02:27,240 Speaker 3: across the board. But also one of the things our 48 00:02:27,240 --> 00:02:31,360 Speaker 3: manufacturing team members very much value is job security. And 49 00:02:31,440 --> 00:02:33,239 Speaker 3: to have job security, you have to have a strong 50 00:02:33,280 --> 00:02:35,560 Speaker 3: company and you have to look at all of your stakeholders. 51 00:02:35,800 --> 00:02:39,000 Speaker 3: So what we did from a share buyback perspective for 52 00:02:39,120 --> 00:02:41,440 Speaker 3: our owners is I think a very balanced response. 53 00:02:41,560 --> 00:02:43,320 Speaker 2: As you know, this move this morning not just about 54 00:02:43,320 --> 00:02:46,520 Speaker 2: the capital return program, also about cost cuts. We know 55 00:02:46,560 --> 00:02:49,760 Speaker 2: you're looking to fully offset that labor contract the additional 56 00:02:49,760 --> 00:02:52,880 Speaker 2: costs from it. Have you identified where you will cut 57 00:02:53,000 --> 00:02:53,960 Speaker 2: where you need to cut? 58 00:02:54,480 --> 00:02:56,800 Speaker 3: Yes, a lot of this was already underway. At the 59 00:02:56,800 --> 00:02:59,280 Speaker 3: beginning of this year calendar year twenty twenty three, we 60 00:02:59,280 --> 00:03:03,280 Speaker 3: announced it too, billion dollar cost reduction structural cost reduction 61 00:03:03,440 --> 00:03:05,400 Speaker 3: between twenty three and the end of twenty four. 62 00:03:05,680 --> 00:03:06,679 Speaker 4: That's well underway. 63 00:03:06,720 --> 00:03:09,200 Speaker 3: As I said, we also comprehended that we would have 64 00:03:09,880 --> 00:03:12,600 Speaker 3: increases in our labor cost as we looked at what 65 00:03:12,639 --> 00:03:17,680 Speaker 3: the environment was and also wanting to reward our manufacturing employees. 66 00:03:17,720 --> 00:03:20,760 Speaker 3: So you know there's work going across many aspects of 67 00:03:20,800 --> 00:03:23,639 Speaker 3: the business and including making our products more efficient while 68 00:03:23,639 --> 00:03:27,000 Speaker 3: still having the features, the functionality and beautiful designs that 69 00:03:27,000 --> 00:03:30,079 Speaker 3: our customers want. So there's been a concentrated effort at 70 00:03:30,080 --> 00:03:33,800 Speaker 3: the company to lower our fixed costs while enabling wonderful 71 00:03:33,800 --> 00:03:37,080 Speaker 3: products and rewarding the team that is helping us deliver them. 72 00:03:37,200 --> 00:03:39,560 Speaker 2: Clearly, these are additional costs. Are they forcing a change 73 00:03:39,560 --> 00:03:41,520 Speaker 2: in execution or a change in strategy? 74 00:03:42,080 --> 00:03:45,440 Speaker 3: Definitely not a change in strategy. Our strategy is clear. 75 00:03:45,560 --> 00:03:49,080 Speaker 3: It's really based on four pillars of executing our strong 76 00:03:49,120 --> 00:03:52,720 Speaker 3: internal combustion engine program vehicles, and we see we're performing 77 00:03:52,840 --> 00:03:54,880 Speaker 3: very well in the market and we see that we're 78 00:03:54,880 --> 00:03:57,080 Speaker 3: below the average incentives. I think that speaks to the 79 00:03:57,080 --> 00:04:01,280 Speaker 3: strength of our internal combustion engine products. From an EVY perspective, 80 00:04:01,840 --> 00:04:04,200 Speaker 3: we have confidence in the portfolio we have. We're a 81 00:04:04,240 --> 00:04:07,200 Speaker 3: bit disappointed this year that we were constrained by the 82 00:04:07,280 --> 00:04:10,480 Speaker 3: automation to build modules. So this is not something that 83 00:04:10,600 --> 00:04:14,080 Speaker 3: is fundamentally an issue with Altium. It was more manufacturing 84 00:04:14,160 --> 00:04:16,640 Speaker 3: automation issue that we're working and we'll be out of 85 00:04:16,680 --> 00:04:19,280 Speaker 3: it by middle of next year and making improvement every 86 00:04:19,360 --> 00:04:21,159 Speaker 3: quarter from that perspective. 87 00:04:21,200 --> 00:04:23,040 Speaker 4: Also software and this year. 88 00:04:23,760 --> 00:04:27,119 Speaker 3: Earlier this year, Mike Abbott joined our team who brings 89 00:04:27,200 --> 00:04:30,280 Speaker 3: tremendous software expertise and he's built a very strong team 90 00:04:30,520 --> 00:04:32,120 Speaker 3: that we'll share more about when we get to our 91 00:04:32,160 --> 00:04:35,400 Speaker 3: investor day in March of next year. And then autonomy 92 00:04:35,520 --> 00:04:38,360 Speaker 3: and when you look at autonomous vehicles and the importance 93 00:04:38,400 --> 00:04:41,920 Speaker 3: of this technology and the talent that we have at Cruise. 94 00:04:42,480 --> 00:04:46,840 Speaker 3: We are doing an independent review from an incident perspective 95 00:04:46,839 --> 00:04:49,760 Speaker 3: but also overall from a safety perspective, and that will 96 00:04:49,760 --> 00:04:51,800 Speaker 3: guide our path forward there. But we have a very 97 00:04:51,800 --> 00:04:54,839 Speaker 3: capable team there. So the four pillars of our strategy 98 00:04:54,880 --> 00:04:58,200 Speaker 3: have not changed at all. What has changed is our tactics, 99 00:04:58,360 --> 00:05:00,799 Speaker 3: and our tactics are changing because of the world is changing. 100 00:05:01,000 --> 00:05:05,599 Speaker 3: We never thought that the EV adoption would necessarily be 101 00:05:05,640 --> 00:05:08,360 Speaker 3: a straight line. We've seen this in other markets, we're 102 00:05:08,400 --> 00:05:10,039 Speaker 3: seeing it now in the US. But I think the 103 00:05:10,080 --> 00:05:12,560 Speaker 3: thing that everybody has to remember, if the growth is slowing, 104 00:05:12,640 --> 00:05:15,720 Speaker 3: it is still growing. And we think as we get 105 00:05:15,760 --> 00:05:19,039 Speaker 3: more of the EV products we have this year into next, 106 00:05:19,240 --> 00:05:22,080 Speaker 3: we think we're going to see is strong adoption for 107 00:05:22,160 --> 00:05:25,840 Speaker 3: our products, and as the charging infrastructure continues to be 108 00:05:25,880 --> 00:05:28,600 Speaker 3: more robust, we think that's going to drive adoption as 109 00:05:28,640 --> 00:05:31,200 Speaker 3: well as having affordable evs. And that's where when you 110 00:05:31,200 --> 00:05:34,400 Speaker 3: look at the Chevrolet Equinox as well as the Blazer 111 00:05:34,680 --> 00:05:36,920 Speaker 3: and the Bolt that's coming, we're going to be having 112 00:05:37,160 --> 00:05:40,279 Speaker 3: products in that range of affordable vehicles. 113 00:05:40,279 --> 00:05:42,440 Speaker 4: That is going to be very important from EV adoption. 114 00:05:42,600 --> 00:05:44,680 Speaker 2: Two things to unpack there. One is robot taxis. The 115 00:05:44,720 --> 00:05:46,839 Speaker 2: other is EV. So let's deal with robot taxis. First, 116 00:05:47,320 --> 00:05:51,560 Speaker 2: your counting expenses on crews substantially, just how committed are 117 00:05:51,640 --> 00:05:53,480 Speaker 2: you there? I remember only a number of years ago 118 00:05:53,480 --> 00:05:55,800 Speaker 2: we were talking about bringing in fifty billion in revenue 119 00:05:55,839 --> 00:05:58,359 Speaker 2: by twenty thirty, and I get it. Married We'll understand 120 00:05:58,440 --> 00:06:00,600 Speaker 2: that new tech is tough to develop, its to deploy. 121 00:06:00,880 --> 00:06:02,760 Speaker 2: I think we're seeing that across a range of issues. 122 00:06:02,800 --> 00:06:05,000 Speaker 2: But when do you know if it's the right time 123 00:06:05,040 --> 00:06:07,080 Speaker 2: just to walk away from this well, I. 124 00:06:07,000 --> 00:06:09,320 Speaker 3: Think the first of all, when you look at the 125 00:06:09,320 --> 00:06:11,240 Speaker 3: progress that the Cruise team has made over the eight 126 00:06:11,400 --> 00:06:14,840 Speaker 3: last eight years when General Motors acquired crews, I think 127 00:06:14,880 --> 00:06:18,839 Speaker 3: it's substantial and we've already demonstrated that the cruise vehicle 128 00:06:18,880 --> 00:06:22,479 Speaker 3: can perform at a level that's safer than a human driver. 129 00:06:22,800 --> 00:06:26,080 Speaker 3: Let's not forget over forty thousand people on average lose 130 00:06:26,120 --> 00:06:30,080 Speaker 3: their lives in traffic accidents in the US alone, and 131 00:06:30,200 --> 00:06:32,600 Speaker 3: ninety percent of them are caused by human error. What 132 00:06:32,640 --> 00:06:35,680 Speaker 3: we have learned with this incident is it's got to 133 00:06:35,680 --> 00:06:38,520 Speaker 3: be significantly better than a human driver to drive adoption, 134 00:06:38,720 --> 00:06:40,359 Speaker 3: and we have to do a much better job of 135 00:06:40,400 --> 00:06:43,279 Speaker 3: working with the regulators. That's something that GM has a 136 00:06:43,360 --> 00:06:46,840 Speaker 3: long reputation of working and being transparent with regulators at 137 00:06:46,880 --> 00:06:49,560 Speaker 3: the local, state, and federal level. So I think as 138 00:06:49,600 --> 00:06:51,719 Speaker 3: we do that and get the results of the independent 139 00:06:52,200 --> 00:06:54,960 Speaker 3: review we're doing, that will guide us on our path forward. 140 00:06:54,960 --> 00:06:57,159 Speaker 4: From an AV perspective. 141 00:06:57,000 --> 00:06:59,480 Speaker 2: I'm always interested in how we know when we're wrong 142 00:06:59,560 --> 00:07:01,280 Speaker 2: an exit size I think everyone has to go through, 143 00:07:01,320 --> 00:07:04,320 Speaker 2: including myself married. But on this topic of EV's the 144 00:07:04,440 --> 00:07:07,440 Speaker 2: slow down, what's behind it and why aren't we just 145 00:07:07,520 --> 00:07:11,160 Speaker 2: learning that American consumers just don't want these cars? 146 00:07:11,760 --> 00:07:13,960 Speaker 3: Well, I don't think it's that American consumers just don't 147 00:07:13,960 --> 00:07:16,960 Speaker 3: want these cars. I think there still is limited availability 148 00:07:17,000 --> 00:07:19,520 Speaker 3: when you look at the choice that customers had today, 149 00:07:19,520 --> 00:07:22,680 Speaker 3: from an internal combustion vehicle perspective, I think a lot 150 00:07:22,680 --> 00:07:24,040 Speaker 3: of the evs that are out. 151 00:07:23,880 --> 00:07:25,400 Speaker 4: Right now are more expensive. 152 00:07:25,400 --> 00:07:26,880 Speaker 3: You've got to look at where the sweet spot of 153 00:07:26,880 --> 00:07:28,880 Speaker 3: the market is, and when you really want to win 154 00:07:28,920 --> 00:07:31,240 Speaker 3: an EV's you've got to make sure that you are 155 00:07:31,320 --> 00:07:33,920 Speaker 3: meeting the customer who only owns one vehicle. That's the 156 00:07:33,960 --> 00:07:36,960 Speaker 3: bulk of people who buy vehicles today, new vehicles. They 157 00:07:37,000 --> 00:07:38,680 Speaker 3: only own one vehicle or if they have two in 158 00:07:38,720 --> 00:07:43,040 Speaker 3: their family. They're needed every day to earning their livelihoods. 159 00:07:43,280 --> 00:07:45,200 Speaker 3: So we've got to get affordable. There's got to be 160 00:07:45,240 --> 00:07:48,800 Speaker 3: a robust charging infrastructure. So again, the growth hasn't gone 161 00:07:48,840 --> 00:07:51,800 Speaker 3: in reverse. It's slowing. I think we never expected. We 162 00:07:51,800 --> 00:07:54,200 Speaker 3: thought it would be have some bumps along the way. 163 00:07:54,440 --> 00:07:55,760 Speaker 3: I think that's what we're. 164 00:07:55,640 --> 00:07:56,440 Speaker 4: Seeing right now. 165 00:07:56,600 --> 00:07:59,440 Speaker 3: But I think when we have evs that are affordable, 166 00:07:59,760 --> 00:08:03,200 Speaker 3: when people realize how much fun they are to drive 167 00:08:03,400 --> 00:08:06,400 Speaker 3: and the performance and they're not giving anything up, and 168 00:08:06,440 --> 00:08:09,120 Speaker 3: then that all important charging infrastructure, I think you know 169 00:08:09,120 --> 00:08:11,520 Speaker 3: we're going to see them start to grow at a 170 00:08:11,560 --> 00:08:14,120 Speaker 3: more rapid break again. And that's something that we'll continue 171 00:08:14,200 --> 00:08:16,400 Speaker 3: to watch. And that's why we've changed some of our 172 00:08:16,440 --> 00:08:18,880 Speaker 3: tactics to be responsive to where the customer is. 173 00:08:19,080 --> 00:08:21,240 Speaker 2: You've been super generous with your time. Marriage. Just want 174 00:08:21,240 --> 00:08:24,360 Speaker 2: to fit in one further question. Right now, you're a 175 00:08:24,400 --> 00:08:26,360 Speaker 2: forty three billion dollar name. It's a big move this 176 00:08:26,440 --> 00:08:30,400 Speaker 2: morning by ten percent. The forward multiple we're talking about 177 00:08:30,400 --> 00:08:33,200 Speaker 2: four times expected earnings a little more than that after 178 00:08:33,200 --> 00:08:35,840 Speaker 2: today's move. The stock has been dead money for the 179 00:08:35,840 --> 00:08:38,240 Speaker 2: best part of a decade. You've been doing this a 180 00:08:38,240 --> 00:08:41,120 Speaker 2: long time. I know you're super close with investors. What 181 00:08:41,280 --> 00:08:43,320 Speaker 2: is it that you think is in this plan, this 182 00:08:43,440 --> 00:08:46,120 Speaker 2: strategy that you have and a strategy that you've suggested 183 00:08:46,120 --> 00:08:48,760 Speaker 2: this morning hasn't changed that's going to turn this around. 184 00:08:49,120 --> 00:08:52,360 Speaker 3: Well, I think demonstrating our commitment to all of our 185 00:08:52,400 --> 00:08:54,840 Speaker 3: stakeholders and the I think when you look at a 186 00:08:54,880 --> 00:08:59,360 Speaker 3: ten billion dollar accelerated buyback program, it should signal because 187 00:08:59,559 --> 00:09:02,240 Speaker 3: it means we have confidence in the cash generation ability 188 00:09:02,280 --> 00:09:05,160 Speaker 3: of this company. We have confidence in our strategy across 189 00:09:05,200 --> 00:09:07,520 Speaker 3: the four pillars that I covered. Yes, we had some 190 00:09:07,679 --> 00:09:10,800 Speaker 3: challenges that this year with our ultim based evs that 191 00:09:10,840 --> 00:09:14,320 Speaker 3: I think gabe investors some concern, But we're demonstrating the 192 00:09:14,320 --> 00:09:17,359 Speaker 3: confidence that we and the board have that we're executing 193 00:09:17,360 --> 00:09:20,000 Speaker 3: the strategy, and we're going to see growth, strong cash 194 00:09:20,000 --> 00:09:21,240 Speaker 3: flow and strong margins. 195 00:09:21,440 --> 00:09:22,600 Speaker 4: That's what we're going to deliver. 196 00:09:22,800 --> 00:09:25,920 Speaker 2: That's captured in today's move nine percent. Mary, appreciate your 197 00:09:25,920 --> 00:09:27,600 Speaker 2: time ready tell you thanks for catching up with us, 198 00:09:27,640 --> 00:09:33,480 Speaker 2: Mary Parda of GM too. 199 00:09:33,520 --> 00:09:37,360 Speaker 1: Wiseman joins us right now. Global Efects interest rate strategist 200 00:09:37,400 --> 00:09:40,000 Speaker 1: much more than that at Macquarie, with lots and lots 201 00:09:40,040 --> 00:09:43,760 Speaker 1: of experience on this. I love the first sentence of 202 00:09:43,800 --> 00:09:47,600 Speaker 1: your note. Don't believe the hype You've been skeptical. Are 203 00:09:47,640 --> 00:09:50,520 Speaker 1: you combining and dovetailing in with your low rate call 204 00:09:50,760 --> 00:09:52,520 Speaker 1: a true slowdown in the economy? 205 00:09:52,640 --> 00:09:57,240 Speaker 5: Yes? Absolutely. I think the narrative these days from Wall 206 00:09:57,240 --> 00:09:58,760 Speaker 5: Street that I've seen in the last few weeks is 207 00:09:58,800 --> 00:10:00,760 Speaker 5: that the reason the ten year field has been coming 208 00:10:00,760 --> 00:10:03,080 Speaker 5: down is because we're in a disinflationary phase here in 209 00:10:03,080 --> 00:10:04,920 Speaker 5: the economy, and there's going to be more disinflation to 210 00:10:04,920 --> 00:10:06,800 Speaker 5: come in the US. I agree with that we are 211 00:10:06,840 --> 00:10:08,720 Speaker 5: going to see disinflation in the US. It's going to 212 00:10:08,720 --> 00:10:10,520 Speaker 5: come in rants, it's going to come in those eras 213 00:10:10,520 --> 00:10:13,800 Speaker 5: of the CPI that are linked to consumer discretionary spending. 214 00:10:14,040 --> 00:10:15,840 Speaker 5: But let's Also keep in mind one of the reasons 215 00:10:15,840 --> 00:10:17,920 Speaker 5: we're going to see this disinflation is because the consumer 216 00:10:18,000 --> 00:10:21,599 Speaker 5: is slowing. And there you have the don't believe the 217 00:10:21,960 --> 00:10:24,679 Speaker 5: hype story, right, I don't believe the story is about 218 00:10:24,679 --> 00:10:30,400 Speaker 5: record breaking Black Thursdays, by Friday sales and Cyber Monday sales. 219 00:10:31,280 --> 00:10:33,400 Speaker 5: I think what I think these sales were on the 220 00:10:33,440 --> 00:10:35,920 Speaker 5: back of heavy discounting. If you look at what some 221 00:10:35,960 --> 00:10:39,520 Speaker 5: of these corporate execs had said prior to the start 222 00:10:39,559 --> 00:10:42,000 Speaker 5: of the holiday spending season, they talked about having to 223 00:10:42,040 --> 00:10:45,199 Speaker 5: cut prices. We'll all Marty even talked about deflation. So 224 00:10:45,520 --> 00:10:47,920 Speaker 5: this is this is about disinflation. But let's keep in 225 00:10:48,000 --> 00:10:49,760 Speaker 5: mind where this this inflation is going to come from. 226 00:10:49,800 --> 00:10:51,840 Speaker 5: It's going to come from a weakening and pricing power 227 00:10:53,120 --> 00:10:56,360 Speaker 5: at the consumer product and services level. It's going to 228 00:10:56,400 --> 00:10:59,880 Speaker 5: be driven by slow down in agurate demand in the US. 229 00:11:00,240 --> 00:11:03,320 Speaker 2: Also about how they're pank for this stuff Binapailita. You 230 00:11:03,320 --> 00:11:04,840 Speaker 2: look at some of the numbers just booming. What do 231 00:11:04,840 --> 00:11:05,520 Speaker 2: you take away from that? 232 00:11:05,640 --> 00:11:08,240 Speaker 5: So my takeaway is from a macroeconomic perspective, what it 233 00:11:08,320 --> 00:11:11,000 Speaker 5: does is it shifts spending to the early part of 234 00:11:11,040 --> 00:11:14,600 Speaker 5: the season because normally you would have to save up 235 00:11:14,640 --> 00:11:17,679 Speaker 5: a few more shekels as you approach your deadline on 236 00:11:17,760 --> 00:11:21,199 Speaker 5: December twenty fifth to get those purchases done with by now, 237 00:11:21,480 --> 00:11:23,040 Speaker 5: pay later. You don't need to do that, so it 238 00:11:23,080 --> 00:11:25,640 Speaker 5: allows you to spend earlier, especially if you don't have 239 00:11:25,720 --> 00:11:28,839 Speaker 5: access to revolving credit or credit cards. So I think 240 00:11:28,880 --> 00:11:30,640 Speaker 5: that's another reason why we might have seen the so 241 00:11:31,160 --> 00:11:36,600 Speaker 5: called record breaking days on last Friday and Monday. But again, 242 00:11:37,240 --> 00:11:39,360 Speaker 5: if that's if it's the case that spending was only 243 00:11:39,679 --> 00:11:42,160 Speaker 5: pulled forward, it doesn't mean that in aggregate for the 244 00:11:42,160 --> 00:11:43,960 Speaker 5: whole of the season we're going to get that much 245 00:11:44,480 --> 00:11:45,679 Speaker 5: that much hype. 246 00:11:46,559 --> 00:11:50,000 Speaker 6: So far, people have viewed weaker US data as a positive. 247 00:11:50,200 --> 00:11:52,560 Speaker 6: It's both been for a bond rally and a stock rally, 248 00:11:52,600 --> 00:11:54,120 Speaker 6: And you're saying that we could see that bond rally 249 00:11:54,120 --> 00:11:57,480 Speaker 6: continue quite significantly going forward. Will there be a diversion 250 00:11:57,559 --> 00:12:00,560 Speaker 6: so in terms of risk asseesis or have to be 251 00:12:00,880 --> 00:12:03,280 Speaker 6: to fuel a bond rally that goes much deeper than 252 00:12:03,320 --> 00:12:04,040 Speaker 6: where we are now. 253 00:12:04,120 --> 00:12:07,920 Speaker 5: Absolutely, to let the bond rally extend to say where 254 00:12:07,960 --> 00:12:09,880 Speaker 5: the ten yure yield gets the three percent, I do 255 00:12:09,880 --> 00:12:12,600 Speaker 5: think it has to be associated with a sell off 256 00:12:12,679 --> 00:12:14,720 Speaker 5: at risk assets. I don't think you know, to get 257 00:12:14,760 --> 00:12:18,000 Speaker 5: that kind of forceful move early in the bond market, 258 00:12:18,040 --> 00:12:20,920 Speaker 5: you need to have some sort of dislocation in risk ASTs, 259 00:12:20,920 --> 00:12:24,319 Speaker 5: some sort of drop in stocks, but over time, not necessarily. 260 00:12:24,400 --> 00:12:26,160 Speaker 5: I think we can see a situation where, if this 261 00:12:26,240 --> 00:12:29,440 Speaker 5: inflation continues slowly, you get the bond deal going down 262 00:12:29,440 --> 00:12:31,880 Speaker 5: to where it was, let's say in the spring. Three 263 00:12:31,920 --> 00:12:35,160 Speaker 5: and a half percent is not inconceivable without a stock 264 00:12:35,280 --> 00:12:40,160 Speaker 5: market drop as long as it happens slowly and steadily. 265 00:12:40,280 --> 00:12:43,520 Speaker 1: But well, corporations adapt. If I go back to bear Stearns, 266 00:12:43,520 --> 00:12:47,439 Speaker 1: where you're held court, you had an entire security analysis 267 00:12:47,480 --> 00:12:51,440 Speaker 1: team looking at these slowdowns, I don't buy the gloom. 268 00:12:51,480 --> 00:12:54,880 Speaker 1: And the corporations, like General Motors, will adapt. 269 00:12:55,920 --> 00:12:59,599 Speaker 5: I'm not sure what they're going to adapt to. Technological 270 00:12:59,640 --> 00:13:03,480 Speaker 5: progress and changes. They can adapt to. Government policies that 271 00:13:04,040 --> 00:13:07,960 Speaker 5: spur more investment in electric vehicles and clean energy technologies 272 00:13:07,960 --> 00:13:10,000 Speaker 5: they can adapt to. But what do you do when 273 00:13:10,160 --> 00:13:13,480 Speaker 5: you have excess inventory as the auto dealers do? 274 00:13:13,640 --> 00:13:13,840 Speaker 7: Now? 275 00:13:13,960 --> 00:13:17,560 Speaker 5: What do you do when the banks and the finance 276 00:13:17,600 --> 00:13:20,200 Speaker 5: companies are cutting off credit to auto buyers? 277 00:13:20,640 --> 00:13:21,040 Speaker 8: What do you do? 278 00:13:21,120 --> 00:13:24,120 Speaker 5: Then you're not in control of that situation. You're in 279 00:13:24,160 --> 00:13:26,520 Speaker 5: control of what's happening on your factory floor, You're in 280 00:13:26,520 --> 00:13:28,960 Speaker 5: control of promotions, and maybe the way you adapt is 281 00:13:28,960 --> 00:13:31,480 Speaker 5: by cutting prices. Let's face it, that's a way of 282 00:13:31,520 --> 00:13:34,800 Speaker 5: adapting to to hold on to market share in the 283 00:13:34,840 --> 00:13:38,040 Speaker 5: face of excess inventories, in the face of consumers slowing 284 00:13:38,040 --> 00:13:39,920 Speaker 5: their demand. So yeah, they can adapt, but it's not 285 00:13:39,960 --> 00:13:42,880 Speaker 5: necessarily in a way that is going to make their 286 00:13:42,880 --> 00:13:44,360 Speaker 5: stock prices shoot up. 287 00:13:44,600 --> 00:13:47,400 Speaker 2: You've identified a series of places in this economy where 288 00:13:47,400 --> 00:13:50,480 Speaker 2: we could see lower prices retail, Walmart, talked about the 289 00:13:50,520 --> 00:13:53,480 Speaker 2: auto makers, We're talking about GM, maybe lower prices, going 290 00:13:53,559 --> 00:13:55,520 Speaker 2: to see that come through the pipeline soon. What's the 291 00:13:55,520 --> 00:13:57,720 Speaker 2: biggest threat that still lingers for you? The biggest threat 292 00:13:57,760 --> 00:14:01,040 Speaker 2: to that view that this disinflation continue through next year. 293 00:14:00,880 --> 00:14:05,679 Speaker 5: It's supply shocks. I think the lesson of twenty twenty 294 00:14:05,760 --> 00:14:08,280 Speaker 5: twenty two and early twenty twenty three was that we 295 00:14:08,360 --> 00:14:10,640 Speaker 5: cannot control what happens in the rest of the world, 296 00:14:10,960 --> 00:14:13,599 Speaker 5: especially as it pertains to the supply of oil, the 297 00:14:13,640 --> 00:14:16,600 Speaker 5: supply of natural gas. So from my perspective, if we 298 00:14:16,640 --> 00:14:19,360 Speaker 5: get another shock in that market, and by the way, 299 00:14:19,400 --> 00:14:21,880 Speaker 5: it doesn't have to be because of a war, although 300 00:14:21,920 --> 00:14:23,920 Speaker 5: in the past two years that has been the case. 301 00:14:24,320 --> 00:14:27,960 Speaker 5: It could be simply that OPEC plus decides to curtail 302 00:14:28,320 --> 00:14:30,680 Speaker 5: supply and we get a brand going back up to 303 00:14:30,720 --> 00:14:33,360 Speaker 5: the low nineties as a result of that. Again, it's 304 00:14:33,360 --> 00:14:35,400 Speaker 5: a question of how much they curtail supply by, but 305 00:14:35,480 --> 00:14:38,400 Speaker 5: that's the biggest risk right now. The good news is 306 00:14:38,400 --> 00:14:40,920 Speaker 5: that gasoline prices in the US have been falling for 307 00:14:41,400 --> 00:14:44,480 Speaker 5: six weeks straight, I think, and steadily. I think that's 308 00:14:44,480 --> 00:14:46,800 Speaker 5: going to show up in the CPI by the time 309 00:14:46,880 --> 00:14:49,200 Speaker 5: we rolled around to seeing the November numbers and the 310 00:14:49,200 --> 00:14:52,240 Speaker 5: December numbers. But the real reason that the CPI is 311 00:14:52,240 --> 00:14:55,760 Speaker 5: going to still see disinflation is because rents rents in 312 00:14:55,840 --> 00:14:57,960 Speaker 5: the new tenant market and the new lease market are 313 00:14:57,960 --> 00:14:59,360 Speaker 5: coming down. That's going to put a lot of pressu 314 00:14:59,400 --> 00:15:02,200 Speaker 5: ultimately on the yellows as measures of rents of primary residences. 315 00:15:02,320 --> 00:15:04,480 Speaker 5: We're going to get that disinflation over the next few months. 316 00:15:04,680 --> 00:15:07,240 Speaker 2: This is exactly what nil Data of Renaisance Macro is 317 00:15:07,280 --> 00:15:10,720 Speaker 2: talking about tom the disinflation that's in the pipeline for 318 00:15:10,800 --> 00:15:13,440 Speaker 2: rents for used cars, which is why based on what 319 00:15:13,480 --> 00:15:16,280 Speaker 2: Walla said yesterday, it's not that much of an if 320 00:15:16,880 --> 00:15:18,640 Speaker 2: for the likes of Terry, for the likes of Nil Duta, 321 00:15:18,640 --> 00:15:19,960 Speaker 2: which is why they think you're going to get this 322 00:15:20,000 --> 00:15:22,360 Speaker 2: conversation early next year about which you said interest rates. 323 00:15:22,480 --> 00:15:24,680 Speaker 1: Yeah, there's no question there's a school of thought out 324 00:15:24,720 --> 00:15:26,680 Speaker 1: there that this is not if. It's just simply when 325 00:15:26,760 --> 00:15:29,320 Speaker 1: in the path to it. But I would dovetail it 326 00:15:29,400 --> 00:15:32,960 Speaker 1: back to the labor economy, which we've barely touched on today, 327 00:15:32,960 --> 00:15:35,640 Speaker 1: and we've got claims coming up here Thursday. And then 328 00:15:35,680 --> 00:15:38,240 Speaker 1: you mentioned the late jobs report for November. I believe 329 00:15:38,240 --> 00:15:41,320 Speaker 1: it's December eighth. But the basic idea here, John is 330 00:15:41,440 --> 00:15:44,440 Speaker 1: when does a labor economy finally go? If you get 331 00:15:44,480 --> 00:15:47,440 Speaker 1: a labor economy to go, you get there instantly. 332 00:15:47,960 --> 00:15:50,320 Speaker 2: Claims two O nine, keep going back to two nine 333 00:15:50,320 --> 00:15:53,720 Speaker 2: claims to eighty one economy in so many different ways 334 00:15:54,080 --> 00:15:56,080 Speaker 2: over the last eighteen months or so. Terry, it's going 335 00:15:56,120 --> 00:15:58,680 Speaker 2: to see it, Terry wi there at Macquarie. 336 00:16:07,960 --> 00:16:12,320 Speaker 1: Longer going far away. There was KKR nineteen seventy six 337 00:16:12,360 --> 00:16:15,480 Speaker 1: with history made in a style and a method. At 338 00:16:15,560 --> 00:16:20,320 Speaker 1: KKR it was original. Shanale Basset gets an update from 339 00:16:20,360 --> 00:16:23,520 Speaker 1: their co CEO Shanale, Good morning, Thank you, Tom. 340 00:16:23,560 --> 00:16:26,040 Speaker 9: I'm standing by with the co CEO of KKR, Scott 341 00:16:26,120 --> 00:16:27,880 Speaker 9: not All, and it is a really big day for 342 00:16:28,000 --> 00:16:31,040 Speaker 9: KKR because they are doing this. They're buying the rest 343 00:16:31,080 --> 00:16:33,720 Speaker 9: of Global Atlantic, a big insurance company that they don't 344 00:16:33,880 --> 00:16:36,920 Speaker 9: already own. That is an all cash, two point seven 345 00:16:37,040 --> 00:16:40,120 Speaker 9: billion dollar deal. But you're also creating a new unit 346 00:16:40,440 --> 00:16:44,480 Speaker 9: at KKR that houses a core private equity business. If 347 00:16:44,520 --> 00:16:47,720 Speaker 9: you had to give the market one way to understand 348 00:16:47,760 --> 00:16:49,720 Speaker 9: what you're trying to do over there, what is it? 349 00:16:50,720 --> 00:16:52,440 Speaker 10: First of all, Shanali, great to be with you, Thanks 350 00:16:52,480 --> 00:16:55,160 Speaker 10: for having me. Really, what we're trying to do today 351 00:16:55,320 --> 00:16:57,640 Speaker 10: is lay out the big three growth engines we have 352 00:16:57,720 --> 00:17:00,120 Speaker 10: as a firm. So you're right, we are buying the 353 00:17:00,680 --> 00:17:04,199 Speaker 10: minority stake in Global Atlantic we don't already own. We 354 00:17:04,200 --> 00:17:06,160 Speaker 10: already owned sixty three percent of the companies, so we're 355 00:17:06,160 --> 00:17:09,640 Speaker 10: buying the other thirty seven percent. Global Atlantic has been 356 00:17:09,720 --> 00:17:12,840 Speaker 10: a great partnership for us. This is a transaction we 357 00:17:12,840 --> 00:17:15,359 Speaker 10: did in twenty twenty one. The company is more than 358 00:17:15,400 --> 00:17:17,760 Speaker 10: doubled since we announced the original deal in July of 359 00:17:17,800 --> 00:17:20,399 Speaker 10: twenty twenty and it's been highly recurring a lot of 360 00:17:20,440 --> 00:17:24,000 Speaker 10: growth earnings for KKR, so that's part one. We are 361 00:17:24,000 --> 00:17:27,720 Speaker 10: also modifying our compensation ratios so our asset management business 362 00:17:27,760 --> 00:17:28,679 Speaker 10: continues to scale. 363 00:17:29,080 --> 00:17:31,400 Speaker 8: Our run rate management fees have doubled over the last 364 00:17:31,440 --> 00:17:32,000 Speaker 8: three years. 365 00:17:32,400 --> 00:17:35,240 Speaker 10: So the second thing we're doing is reducing the compensation 366 00:17:35,359 --> 00:17:39,080 Speaker 10: ratioon fees, making an offsetting increase on kerry, and that 367 00:17:39,119 --> 00:17:41,600 Speaker 10: will allow us to create more fee related earnings for 368 00:17:41,640 --> 00:17:42,160 Speaker 10: our shareholder. 369 00:17:42,200 --> 00:17:43,800 Speaker 9: You're changing the way you pay people. 370 00:17:43,560 --> 00:17:46,880 Speaker 10: In effect, not the aggregate amount of compensation, but we're 371 00:17:46,920 --> 00:17:49,800 Speaker 10: providing more of the fee related earnings to our shareholders, 372 00:17:50,400 --> 00:17:52,600 Speaker 10: a little bit more carry to our people. 373 00:17:53,240 --> 00:17:54,760 Speaker 8: The net of that is about. 374 00:17:54,440 --> 00:17:57,960 Speaker 10: Neutral, but it will mean more of few related earnings overall. 375 00:17:58,240 --> 00:17:59,960 Speaker 10: And then the third thing we're doing to your point, 376 00:18:00,080 --> 00:18:03,160 Speaker 10: and this is relatively new for us, is we're creating 377 00:18:03,280 --> 00:18:05,000 Speaker 10: a new segment for the firm. 378 00:18:05,080 --> 00:18:06,680 Speaker 8: So we've historically reported. 379 00:18:06,320 --> 00:18:09,280 Speaker 10: As asset management and insurance. We are adding a new 380 00:18:09,320 --> 00:18:12,720 Speaker 10: segment called Strategic Holdings. And what we will include in 381 00:18:12,760 --> 00:18:15,800 Speaker 10: there are the dividends that we're receiving and will begin 382 00:18:15,840 --> 00:18:19,800 Speaker 10: to receive in greater magnitude from our core private equity portfolio, 383 00:18:20,040 --> 00:18:24,560 Speaker 10: which is a portfolio of great diversified recession resistant companies 384 00:18:24,560 --> 00:18:26,679 Speaker 10: that we've been building up over the last several years. 385 00:18:26,960 --> 00:18:30,600 Speaker 9: KKR, Apollo, Brookfield, they're all buying insurance companies. All of 386 00:18:30,640 --> 00:18:34,040 Speaker 9: you are diversifying in pretty meaningful ways if you think 387 00:18:34,080 --> 00:18:36,760 Speaker 9: about it. It's made private equity, by the dollars, by 388 00:18:36,800 --> 00:18:39,800 Speaker 9: the assets under management, a smaller part of all of 389 00:18:39,800 --> 00:18:42,119 Speaker 9: your businesses. What does this mean for the future of 390 00:18:42,160 --> 00:18:42,880 Speaker 9: private equity? 391 00:18:43,640 --> 00:18:46,200 Speaker 10: Private equity is still a growth business for us. We 392 00:18:46,280 --> 00:18:48,919 Speaker 10: expect to continue to grow that part of KKR for 393 00:18:48,960 --> 00:18:51,840 Speaker 10: a long time, both with respect to the flagship strategies, 394 00:18:52,080 --> 00:18:54,480 Speaker 10: but also we've created a number of different growth strategies. 395 00:18:54,600 --> 00:18:57,520 Speaker 10: The core private equity business is part of private equity 396 00:18:57,600 --> 00:18:59,560 Speaker 10: that's now a thirty billion dollar franchise for us. 397 00:19:00,280 --> 00:19:02,359 Speaker 8: So this isn't about an ore. This is about an 398 00:19:02,400 --> 00:19:05,399 Speaker 8: and we see an ability to grow PE and. 399 00:19:05,400 --> 00:19:08,720 Speaker 10: All the other parts of KKR, and we've diversified meaningfully 400 00:19:08,760 --> 00:19:10,879 Speaker 10: over the course of the last ten to fifteen years. 401 00:19:10,960 --> 00:19:12,760 Speaker 8: We're just continuing our way down that path. 402 00:19:12,880 --> 00:19:15,359 Speaker 9: Now, what does Global Atlantic exactly do. It seems like 403 00:19:15,400 --> 00:19:18,240 Speaker 9: what it's really doing is giving you a whole balance 404 00:19:18,240 --> 00:19:21,159 Speaker 9: sheet to be using to compete on you've mentioned capital 405 00:19:21,200 --> 00:19:23,879 Speaker 9: markets is one place there's been a lot of competition 406 00:19:23,920 --> 00:19:25,880 Speaker 9: from your industry to the banks. How does this help 407 00:19:25,920 --> 00:19:27,320 Speaker 9: you now compete in a bigger way? 408 00:19:27,440 --> 00:19:31,080 Speaker 10: Sure, Global Atlantic, as you know, it's largely issued annuities 409 00:19:31,119 --> 00:19:33,239 Speaker 10: to individuals, and so if you think about what we 410 00:19:33,280 --> 00:19:37,480 Speaker 10: do at KKRE, we work for pensioners, retirement retirees all 411 00:19:37,480 --> 00:19:40,840 Speaker 10: around the world now family offices and individual investors as well. 412 00:19:41,440 --> 00:19:44,639 Speaker 10: Global Atlantic distributes its products to that same kind of 413 00:19:44,680 --> 00:19:47,960 Speaker 10: an audience. So historically we've worked for tens of millions 414 00:19:48,000 --> 00:19:50,800 Speaker 10: of retirees. We still do, but now they're just in 415 00:19:50,840 --> 00:19:53,359 Speaker 10: the form of policyholders. And that's our mission at KKR 416 00:19:53,400 --> 00:19:54,920 Speaker 10: is to actually do a great job for all those 417 00:19:54,960 --> 00:19:55,919 Speaker 10: people that we work for. 418 00:19:56,000 --> 00:19:57,800 Speaker 8: We're not confused about who our bosses are. 419 00:19:58,280 --> 00:20:00,639 Speaker 10: And so to the second part of your question on 420 00:20:00,760 --> 00:20:04,439 Speaker 10: capital markets, what Global Atlantic allows us to do is 421 00:20:04,520 --> 00:20:06,280 Speaker 10: create more synergy. 422 00:20:06,320 --> 00:20:08,439 Speaker 8: We didn't necessarily see all this three. 423 00:20:08,359 --> 00:20:10,200 Speaker 10: Years ago when we started our way down this path, 424 00:20:10,400 --> 00:20:12,359 Speaker 10: but we think there's even more we can do to 425 00:20:12,480 --> 00:20:15,800 Speaker 10: unlock value between the two companies, and capital markets is 426 00:20:15,840 --> 00:20:16,879 Speaker 10: just one of those examples. 427 00:20:16,880 --> 00:20:19,280 Speaker 9: Capital markets means you might be appearing on more and 428 00:20:19,359 --> 00:20:22,879 Speaker 9: more deals lending a balance sheet to provide capital for 429 00:20:22,920 --> 00:20:25,840 Speaker 9: big buyouts and other leverage loan deals. 430 00:20:25,920 --> 00:20:27,479 Speaker 8: That's right, and we're already in that business. 431 00:20:27,480 --> 00:20:29,399 Speaker 10: So the way that we built our capital markets business 432 00:20:29,480 --> 00:20:32,200 Speaker 10: is by partnering with a Street, So we'll be alongside 433 00:20:32,400 --> 00:20:34,880 Speaker 10: of the traditional banks and investment banks as we built 434 00:20:34,920 --> 00:20:37,439 Speaker 10: that business. But what Global Atlantic brings us is an 435 00:20:37,440 --> 00:20:40,800 Speaker 10: ability to expand the vision for that franchise. So there's 436 00:20:40,800 --> 00:20:44,120 Speaker 10: more to do across asset based finance. As an example, more, 437 00:20:44,160 --> 00:20:47,920 Speaker 10: when Global Atlantic does their large institutional block transactions, we 438 00:20:48,000 --> 00:20:49,879 Speaker 10: can put some of the Global Atlantic balance sheet. 439 00:20:50,160 --> 00:20:51,440 Speaker 8: GA has its own. 440 00:20:51,320 --> 00:20:55,159 Speaker 10: Sidecard third party capital funds called IVY, so some can 441 00:20:55,200 --> 00:20:57,560 Speaker 10: go into those third party funds, and then we can 442 00:20:57,600 --> 00:21:00,760 Speaker 10: syndicate the excess through our capital markets forranchise as well. 443 00:21:00,960 --> 00:21:03,760 Speaker 10: Just like we do private equity and infrastructure transactions, it 444 00:21:03,800 --> 00:21:05,840 Speaker 10: applies to insurance deals as well. 445 00:21:05,880 --> 00:21:08,080 Speaker 9: Something interesting about these deals is that you already have 446 00:21:08,160 --> 00:21:10,439 Speaker 9: told investors this morning that this will add twenty percent 447 00:21:10,440 --> 00:21:13,639 Speaker 9: to total operating earnings. You're boosting your targets into twenty 448 00:21:13,680 --> 00:21:15,640 Speaker 9: twenty six for few related earnings. 449 00:21:15,960 --> 00:21:17,680 Speaker 4: What are the real financial impacts? 450 00:21:17,680 --> 00:21:20,520 Speaker 9: What can stockholders feel for KKR over the next two 451 00:21:20,600 --> 00:21:21,560 Speaker 9: three years, well, I. 452 00:21:21,520 --> 00:21:23,520 Speaker 10: Think what they'll be able to see is we are 453 00:21:23,520 --> 00:21:26,080 Speaker 10: going to grow all three of our recurring forms of 454 00:21:26,119 --> 00:21:29,000 Speaker 10: earnings in a much more meaningful way going forward, So 455 00:21:29,200 --> 00:21:31,760 Speaker 10: a few related earnings will be higher. We continue to 456 00:21:31,760 --> 00:21:34,840 Speaker 10: see a lot of organic growth in our businesses. Just 457 00:21:34,840 --> 00:21:37,520 Speaker 10: by changing our compensation ratios, you get accretion on few 458 00:21:37,560 --> 00:21:39,719 Speaker 10: related earnings, and we think by virtue of what we're 459 00:21:39,720 --> 00:21:41,639 Speaker 10: renouncing today, we can do even more. With the Global 460 00:21:41,680 --> 00:21:44,959 Speaker 10: Atlantic where we invest that portfolio, it's already gone from 461 00:21:45,040 --> 00:21:47,720 Speaker 10: seventy two billion of AUM when we announced the transaction 462 00:21:47,720 --> 00:21:49,840 Speaker 10: to one hundred and fifty eight billion over the last 463 00:21:49,880 --> 00:21:50,399 Speaker 10: few years. 464 00:21:50,560 --> 00:21:53,200 Speaker 8: We think we can do even more together. But they'll 465 00:21:53,240 --> 00:21:54,000 Speaker 8: also see. 466 00:21:53,760 --> 00:21:57,360 Speaker 10: More insurance operating earnings, which we believe are highly recurring 467 00:21:57,440 --> 00:21:59,760 Speaker 10: and fast growing. And then we'll have this third element, 468 00:22:00,119 --> 00:22:02,560 Speaker 10: which will be the core private equity dividends showing up 469 00:22:02,560 --> 00:22:05,119 Speaker 10: in the strategic holding segment. If you put those three 470 00:22:05,119 --> 00:22:08,399 Speaker 10: things together, we think that'll be seventy percent or more 471 00:22:08,640 --> 00:22:11,399 Speaker 10: of our overall pre tax income is those three forms 472 00:22:11,440 --> 00:22:13,480 Speaker 10: of recurring earnings, and we're going to introduce them a 473 00:22:13,520 --> 00:22:15,919 Speaker 10: new metric around that called operating earnings and we'll talk 474 00:22:15,920 --> 00:22:17,560 Speaker 10: about that later today with our shareholders. 475 00:22:18,080 --> 00:22:19,400 Speaker 4: Scott, we do have to leave it there. 476 00:22:19,760 --> 00:22:21,720 Speaker 9: Thank you for joining us on a big day over 477 00:22:21,760 --> 00:22:23,800 Speaker 9: at KKR. Tom shout on the. 478 00:22:23,800 --> 00:22:26,440 Speaker 1: Basic Thank you so much with a gentleman from KKR 479 00:22:26,480 --> 00:22:34,159 Speaker 1: in the future of what they do, joining us now, Lawyer. 480 00:22:34,240 --> 00:22:38,080 Speaker 1: I'm chief US economist at FS Investments. On an eight 481 00:22:38,240 --> 00:22:44,720 Speaker 1: point nine percent nominal GDP America, Laurie, what's so great 482 00:22:44,720 --> 00:22:47,320 Speaker 1: about your economics is you've got it from the litmus 483 00:22:47,359 --> 00:22:52,560 Speaker 1: paper of the FX market. How alone is the United 484 00:22:52,720 --> 00:22:57,880 Speaker 1: States with an eight point nine percent nominal GDP. When 485 00:22:58,000 --> 00:23:01,840 Speaker 1: Rishie Sonak is telling Francy Qua he's worried about. 486 00:23:01,680 --> 00:23:07,960 Speaker 11: Austerity, I think we are still the growth continued to 487 00:23:08,040 --> 00:23:11,880 Speaker 11: just surprise to the upside, and to me, it's remarkable 488 00:23:11,920 --> 00:23:17,240 Speaker 11: the inconsistency between talking about rake cuts to you know, 489 00:23:17,600 --> 00:23:19,720 Speaker 11: this idea that we're going to need rake cuts in 490 00:23:19,760 --> 00:23:23,000 Speaker 11: the near term to support the economy, or the short 491 00:23:23,080 --> 00:23:26,399 Speaker 11: term idea that we've seen the labor market slow. And 492 00:23:26,560 --> 00:23:28,840 Speaker 11: really we do feel like we're an economy and the 493 00:23:28,920 --> 00:23:33,800 Speaker 11: data would show that we're an economy firing on all cylinders. Government, 494 00:23:34,000 --> 00:23:38,320 Speaker 11: business bending, consumption the only keys that's not really adding 495 00:23:38,320 --> 00:23:41,000 Speaker 11: to it as residential construction. I would say that we 496 00:23:41,040 --> 00:23:43,000 Speaker 11: are the standalone leader on growth. 497 00:23:43,280 --> 00:23:46,120 Speaker 1: And what's so important here, Lisa, A nominal GDP topline, 498 00:23:46,160 --> 00:23:49,360 Speaker 1: that's real GDP posts inflation is there's an assumption here 499 00:23:49,400 --> 00:23:51,600 Speaker 1: by the Bill Ackmans of the world economists and not 500 00:23:52,080 --> 00:23:55,520 Speaker 1: that it's going to plunge down to what six percent, 501 00:23:56,040 --> 00:23:58,560 Speaker 1: five percent? Even that's a boom economy. 502 00:23:58,840 --> 00:24:01,960 Speaker 6: And when you say it, they're talking the inflation component. 503 00:24:02,040 --> 00:24:03,919 Speaker 6: And Laura, that's what I want you to weigh in on. 504 00:24:04,040 --> 00:24:06,560 Speaker 6: How much does it matter if we see a slow 505 00:24:06,600 --> 00:24:08,920 Speaker 6: down do we need to slow down if we continue 506 00:24:08,920 --> 00:24:11,000 Speaker 6: to see the pace of disinflation that we've seen so 507 00:24:11,080 --> 00:24:11,760 Speaker 6: far this year. 508 00:24:12,840 --> 00:24:15,680 Speaker 11: I think there's two pieces to that argument. To me, 509 00:24:16,040 --> 00:24:19,560 Speaker 11: the real and one place from probably off consensus is 510 00:24:20,040 --> 00:24:22,560 Speaker 11: I am really reticent to think that we are going 511 00:24:22,600 --> 00:24:25,800 Speaker 11: to get this magical slow down in inflation back to 512 00:24:25,880 --> 00:24:29,160 Speaker 11: that two percent lane that we have had. On the 513 00:24:29,200 --> 00:24:33,119 Speaker 11: good side, we have a lot of indications that just 514 00:24:33,240 --> 00:24:37,320 Speaker 11: from some slower demand and from some of these resolutions 515 00:24:37,320 --> 00:24:40,280 Speaker 11: and inventory that we're going to see lower goods prices. 516 00:24:40,560 --> 00:24:42,920 Speaker 11: But I think we are really ignoring the big elephant 517 00:24:42,920 --> 00:24:45,800 Speaker 11: in the room, which is services. We still have a 518 00:24:45,960 --> 00:24:49,640 Speaker 11: hot labor market by my measure, we still have wage 519 00:24:49,680 --> 00:24:53,720 Speaker 11: pressure that is way higher than prior to the pandemic, 520 00:24:54,080 --> 00:24:57,119 Speaker 11: and the resting heart rate of inflation is still well 521 00:24:57,160 --> 00:25:00,399 Speaker 11: above two percent. And on the services side really is 522 00:25:00,440 --> 00:25:01,359 Speaker 11: the problem here. 523 00:25:01,800 --> 00:25:03,040 Speaker 4: So I think we need to. 524 00:25:03,000 --> 00:25:06,280 Speaker 11: Be careful about being very complacent about inflation coming down, 525 00:25:06,560 --> 00:25:11,800 Speaker 11: and that really feeds into this non recessionary rate decline 526 00:25:11,880 --> 00:25:15,199 Speaker 11: Goldilocks complacency that has taken hold of equity markets at 527 00:25:15,200 --> 00:25:15,600 Speaker 11: this moment. 528 00:25:15,720 --> 00:25:18,119 Speaker 6: In some ways, the Fed's wall are really kind of 529 00:25:18,119 --> 00:25:20,359 Speaker 6: fed into that yesterday, which is a reason why maybe 530 00:25:20,400 --> 00:25:22,760 Speaker 6: he gave Steams some of these market movements. He said, 531 00:25:23,160 --> 00:25:25,840 Speaker 6: there is just no reason to say you would keep 532 00:25:25,960 --> 00:25:30,000 Speaker 6: rates really high and inflation is back at target, how 533 00:25:30,080 --> 00:25:32,719 Speaker 6: high is the threshold then to cut rates. If we 534 00:25:32,720 --> 00:25:35,680 Speaker 6: do see the disinflation in the pipeline significant, it might 535 00:25:35,720 --> 00:25:38,080 Speaker 6: not be long lasting because of some of these other issues, 536 00:25:38,080 --> 00:25:40,400 Speaker 6: but we do see year over year comps come in 537 00:25:40,680 --> 00:25:44,800 Speaker 6: with autoprice disinflation or outright deflation with rents coming in, 538 00:25:45,040 --> 00:25:48,080 Speaker 6: with the fact that goods, as Walmart said, just prices 539 00:25:48,119 --> 00:25:49,720 Speaker 6: are actually going down outright. 540 00:25:51,119 --> 00:25:53,520 Speaker 11: I think the FED is good at looking around the 541 00:25:53,560 --> 00:25:56,000 Speaker 11: corner on especially this rent issue. 542 00:25:56,200 --> 00:25:58,000 Speaker 4: There's no doubt that rent. 543 00:25:57,800 --> 00:26:01,000 Speaker 11: Is a very lagging indicator, but it's sticky for a reason. 544 00:26:01,480 --> 00:26:03,840 Speaker 11: And all of the short term indicators that you know, 545 00:26:03,880 --> 00:26:06,240 Speaker 11: six months ago were really pointing to rents coming down 546 00:26:06,320 --> 00:26:09,439 Speaker 11: fast have now reversed. And I think something that's very 547 00:26:09,480 --> 00:26:12,200 Speaker 11: important to me is the fact that rents are far 548 00:26:12,359 --> 00:26:15,240 Speaker 11: below the cost that it is to buy a home 549 00:26:15,359 --> 00:26:19,480 Speaker 11: per square foot. You are costing you a lot less 550 00:26:19,480 --> 00:26:22,399 Speaker 11: to rent, and landlords are rational. They're going to see this, 551 00:26:22,840 --> 00:26:25,720 Speaker 11: and they are going to over the next several quarters, 552 00:26:25,960 --> 00:26:29,320 Speaker 11: you know, push rents higher again. So it's something that 553 00:26:29,359 --> 00:26:31,280 Speaker 11: you just can't ignore in the core, even if you 554 00:26:31,320 --> 00:26:33,880 Speaker 11: get the headline hitting two percent. I get nervous when 555 00:26:33,880 --> 00:26:37,280 Speaker 11: the FED tries to micro manage the inflation process. 556 00:26:37,080 --> 00:26:41,120 Speaker 1: Laura, and this with your overarching philosophy of summing all 557 00:26:41,160 --> 00:26:44,960 Speaker 1: this together, are we beyond the pandemic? It sure doesn't 558 00:26:44,960 --> 00:26:47,840 Speaker 1: feel like it to me. It feels like the stimulus 559 00:26:47,920 --> 00:26:50,880 Speaker 1: is still pop and popping, popping. But from where you sit, 560 00:26:51,280 --> 00:26:53,760 Speaker 1: are we beyond COVID Not? 561 00:26:53,960 --> 00:26:56,879 Speaker 11: In the data, Tom, I think we're seeing this trampoline 562 00:26:56,920 --> 00:27:00,880 Speaker 11: effect and the Q three GDP numbers are great example 563 00:27:00,920 --> 00:27:03,960 Speaker 11: of that, and we had a big inventory, you know, 564 00:27:04,040 --> 00:27:07,879 Speaker 11: push higher. We could very well get that. Still detracting 565 00:27:07,920 --> 00:27:10,359 Speaker 11: from the fourth quarter, you're still getting some of these 566 00:27:10,560 --> 00:27:14,879 Speaker 11: big swings in factors that are disguising what's going on 567 00:27:15,040 --> 00:27:18,159 Speaker 11: underneath with demand which is still really red hot. So 568 00:27:18,600 --> 00:27:21,080 Speaker 11: this is a big to me, you know, piece that 569 00:27:21,080 --> 00:27:23,800 Speaker 11: we're looking at. For twenty twenty four, we start to 570 00:27:23,840 --> 00:27:28,240 Speaker 11: see some move away from reliance on savings towards income. 571 00:27:28,320 --> 00:27:30,679 Speaker 11: I think the irony is it could be a period 572 00:27:30,680 --> 00:27:35,280 Speaker 11: of lower growth next year, but actually better sentiment about 573 00:27:35,920 --> 00:27:40,439 Speaker 11: household economics as you see income finally catch up to 574 00:27:40,560 --> 00:27:42,680 Speaker 11: the prior year and a half of inflation. 575 00:27:42,760 --> 00:27:45,000 Speaker 1: Okay, I'm gonna pinion down it. Give me some twenty 576 00:27:45,080 --> 00:27:48,200 Speaker 1: twenty four lower outlook numbers, real GDP. 577 00:27:48,440 --> 00:27:49,080 Speaker 8: What do you think? 578 00:27:49,640 --> 00:27:53,600 Speaker 11: Real GDP one point four and I think the tenure 579 00:27:53,760 --> 00:27:56,480 Speaker 11: stays pretty high. I'm putting it at four percent for 580 00:27:56,520 --> 00:27:57,240 Speaker 11: twenty twenty four. 581 00:27:57,440 --> 00:28:01,560 Speaker 1: I mean, these are Lisa, these are huge slow down numbers. 582 00:28:01,600 --> 00:28:04,040 Speaker 1: And then the question comes over immediately, what does non 583 00:28:04,080 --> 00:28:07,200 Speaker 1: farm payrolls do? David Kelly, a JP Morgan would say 584 00:28:07,240 --> 00:28:08,360 Speaker 1: goes negative. 585 00:28:08,080 --> 00:28:10,240 Speaker 6: Well and This is really the ultimate question, Laura, do 586 00:28:10,280 --> 00:28:13,200 Speaker 6: we get that kind of slow growth but high yield 587 00:28:13,400 --> 00:28:17,080 Speaker 6: along with a full, fully employed America, along with job 588 00:28:17,119 --> 00:28:19,920 Speaker 6: creation that continue to chugle all. 589 00:28:19,960 --> 00:28:22,880 Speaker 11: I think that we look at the recessions that we've 590 00:28:22,920 --> 00:28:27,200 Speaker 11: had in the two thousands, twy tens, even the nineteen nineties, 591 00:28:27,480 --> 00:28:30,480 Speaker 11: we saw very little. If you look at nineteen ninety 592 00:28:30,560 --> 00:28:33,600 Speaker 11: two thousand recessions, we saw very little drop and output, 593 00:28:33,600 --> 00:28:37,000 Speaker 11: but a massive decline in labor in this I think 594 00:28:37,119 --> 00:28:40,400 Speaker 11: upcoming year we're going to see a slower economy, but 595 00:28:40,760 --> 00:28:43,240 Speaker 11: I think that companies continue to view labor as a 596 00:28:43,240 --> 00:28:46,400 Speaker 11: scarce resource. I think the true Goldilocks is not going 597 00:28:46,440 --> 00:28:48,880 Speaker 11: to be defined by output. It's going to be defined 598 00:28:48,920 --> 00:28:51,640 Speaker 11: by the labor market, and we are going to see 599 00:28:51,760 --> 00:28:54,000 Speaker 11: the I think the unemployment rates stay quite low. 600 00:28:54,200 --> 00:28:54,360 Speaker 12: Lar. 601 00:28:54,640 --> 00:28:57,239 Speaker 1: Thank you. We FS investment slower rhyme this morning there 602 00:28:57,240 --> 00:28:59,840 Speaker 1: were a one point four percent called slower economy year. 603 00:29:10,400 --> 00:29:14,520 Speaker 1: Howard Marks, chairman of oak Tree Capital Management, and I 604 00:29:14,680 --> 00:29:18,000 Speaker 1: must point out author of not one, two, but three 605 00:29:18,280 --> 00:29:22,720 Speaker 1: important books on investing of What to Do and just 606 00:29:22,760 --> 00:29:26,800 Speaker 1: as importantly Howard What Not to Do. Howard on Charlie 607 00:29:27,440 --> 00:29:32,120 Speaker 1: Munger getting the odds on your side. How did Charlie 608 00:29:32,200 --> 00:29:34,840 Speaker 1: Munger get the odds on his side? 609 00:29:37,640 --> 00:29:40,040 Speaker 12: He started off with a brilliant mind and a brilliant partner. 610 00:29:40,880 --> 00:29:46,320 Speaker 12: He intensively studied the financials, thinking about the long term. 611 00:29:46,440 --> 00:29:49,400 Speaker 12: He never tried to guess what a company or a 612 00:29:49,400 --> 00:29:52,160 Speaker 12: stock would do in the short term. And he held 613 00:29:52,160 --> 00:29:56,040 Speaker 12: for many years. You know, he was a great practitioner. 614 00:29:56,120 --> 00:29:59,720 Speaker 12: Sit on your hands, and he did it flawlessly in. 615 00:29:59,760 --> 00:30:03,120 Speaker 1: The modern day, in the modern media, I remember reading 616 00:30:03,120 --> 00:30:06,000 Speaker 1: those annual reports. How are years ago there was no 617 00:30:06,200 --> 00:30:11,040 Speaker 1: financial media, there was no blogging internet. The short termism 618 00:30:11,080 --> 00:30:15,040 Speaker 1: we're living it now. What is the lesson of Charlie 619 00:30:15,120 --> 00:30:16,720 Speaker 1: Munger's long termism? 620 00:30:18,920 --> 00:30:21,320 Speaker 12: Well, if you want to hit the long ball, you 621 00:30:21,400 --> 00:30:25,400 Speaker 12: have to be very patient, and you know, when the 622 00:30:25,400 --> 00:30:27,560 Speaker 12: stock moves up the first twenty percent, you can't start 623 00:30:27,560 --> 00:30:31,160 Speaker 12: taking profits. Charlie and Warren have held things for decades. 624 00:30:32,440 --> 00:30:36,400 Speaker 12: And the other thing is they were and Charlie always 625 00:30:36,440 --> 00:30:42,640 Speaker 12: talked about this, you have very few moonshots. Charlie said 626 00:30:42,720 --> 00:30:46,600 Speaker 12: within the last year that most of his wealth came 627 00:30:46,600 --> 00:30:51,080 Speaker 12: from four decisions. And so you know what would have 628 00:30:51,080 --> 00:30:53,600 Speaker 12: happened if he would have started trimming those four decisions 629 00:30:54,040 --> 00:30:58,440 Speaker 12: early he certainly would not have accomplished what he did, 630 00:30:58,840 --> 00:31:01,040 Speaker 12: and I think Warren would the same thing. Maybe the 631 00:31:01,120 --> 00:31:03,360 Speaker 12: number four would be a little different with Warren, but 632 00:31:04,080 --> 00:31:08,920 Speaker 12: you know, you know, Warren's famous for having said, put 633 00:31:08,960 --> 00:31:11,320 Speaker 12: all your eggs in one basket. And I watched the 634 00:31:11,360 --> 00:31:14,600 Speaker 12: basket really closely, and I think that it wasn't one basket. 635 00:31:14,640 --> 00:31:22,040 Speaker 12: But the idea of concentration and patience coupled with good 636 00:31:22,040 --> 00:31:26,360 Speaker 12: decisions makes for a great success. You know, a concentration 637 00:31:26,480 --> 00:31:31,440 Speaker 12: and patience don't accomplish anything if you can't make above 638 00:31:31,480 --> 00:31:33,120 Speaker 12: average investment decisions. 639 00:31:33,400 --> 00:31:35,920 Speaker 7: But putting it all together is the formula for success. 640 00:31:36,280 --> 00:31:39,360 Speaker 6: Howard, you wrote in some of your thoughts about Charlie 641 00:31:39,400 --> 00:31:42,400 Speaker 6: Mungerth that he had very definite opinions, in particular regarding 642 00:31:42,440 --> 00:31:46,600 Speaker 6: the investment management industry. He viewed the industry with considerable skepticism, 643 00:31:46,960 --> 00:31:48,560 Speaker 6: and while a member of it, I found myself in 644 00:31:48,640 --> 00:31:51,720 Speaker 6: agreement with him more often than not. What exactly are 645 00:31:51,760 --> 00:31:52,960 Speaker 6: you talking about in particular? 646 00:31:54,160 --> 00:31:59,880 Speaker 12: You know, I think both Charlie and Warren felt that 647 00:32:00,080 --> 00:32:06,440 Speaker 12: our industry, relatively few members of it made substantial contributions 648 00:32:06,440 --> 00:32:10,800 Speaker 12: to their clients wealth. Many more members that were well paid. 649 00:32:13,040 --> 00:32:17,080 Speaker 12: He was always one who questions incentives. He says, you 650 00:32:17,160 --> 00:32:19,920 Speaker 12: give me incentive, an incentive, I'll tell you the behavior. 651 00:32:20,600 --> 00:32:25,960 Speaker 12: And and I think that, you know, I think that 652 00:32:26,000 --> 00:32:31,280 Speaker 12: Warren and Charlie, if you're their operation, they, in fact 653 00:32:31,920 --> 00:32:35,720 Speaker 12: Warren's ed and quotes, not a partnership, not a corporation 654 00:32:35,760 --> 00:32:40,080 Speaker 12: of partnership. And they considered there there the people they 655 00:32:40,080 --> 00:32:40,760 Speaker 12: manage money for. 656 00:32:40,760 --> 00:32:42,720 Speaker 7: Their shareholders to be their partners. 657 00:32:43,160 --> 00:32:45,600 Speaker 12: And they considered themselves to be working for their partners 658 00:32:46,040 --> 00:32:49,960 Speaker 12: and not themselves, and their own wealth and success was 659 00:32:50,000 --> 00:32:53,480 Speaker 12: a byproduct of working of doing great work for the partners. 660 00:32:53,920 --> 00:32:58,960 Speaker 12: So you know, I like to put my sameself in 661 00:32:59,000 --> 00:33:02,959 Speaker 12: the same boat. Those sentiments appeal to me greatly, and 662 00:33:03,000 --> 00:33:04,080 Speaker 12: I've tried to follow that. 663 00:33:04,640 --> 00:33:07,840 Speaker 6: How difficult has it been to sort of to adapt 664 00:33:07,920 --> 00:33:11,280 Speaker 6: the strategy to different eras When you had conversations with 665 00:33:11,360 --> 00:33:14,160 Speaker 6: Charlie Munger, there are questions around tech and how that 666 00:33:14,240 --> 00:33:17,760 Speaker 6: changed the investment thesis. How did they think about the 667 00:33:17,920 --> 00:33:21,680 Speaker 6: changing concept of what a wonderful company looked like and 668 00:33:21,720 --> 00:33:22,960 Speaker 6: what fair value was. 669 00:33:25,680 --> 00:33:28,520 Speaker 7: You know, you, on the one hand, you have to 670 00:33:28,560 --> 00:33:29,720 Speaker 7: evolve with the times. 671 00:33:30,040 --> 00:33:32,920 Speaker 12: On the other hand, you know they never went a 672 00:33:33,080 --> 00:33:38,400 Speaker 12: full bore into the tech sector. You know, their famous 673 00:33:38,400 --> 00:33:40,240 Speaker 12: are having made a lot of money with Apple, but 674 00:33:41,400 --> 00:33:44,479 Speaker 12: you know, most tech the way they said it, they 675 00:33:44,520 --> 00:33:48,840 Speaker 12: put it on the too hard pile. And if you 676 00:33:50,200 --> 00:33:54,040 Speaker 12: have if you understand that your success will come from 677 00:33:54,040 --> 00:33:57,480 Speaker 12: a small number of holdings, that means you don't need twenty. 678 00:33:57,320 --> 00:34:01,960 Speaker 7: Thirty thirtyfty sixty. You don't need to exploit all the sceptors. 679 00:34:02,200 --> 00:34:03,840 Speaker 7: You just have to find a few great ones. 680 00:34:04,280 --> 00:34:06,840 Speaker 12: Of course, on the other hand, you know Tom said 681 00:34:07,080 --> 00:34:09,520 Speaker 12: that we're you know, we're in a new era with 682 00:34:09,560 --> 00:34:12,400 Speaker 12: all the communications we have. Part of what that means 683 00:34:12,840 --> 00:34:16,640 Speaker 12: is that the world is a more interconnected, intelligent place. 684 00:34:18,600 --> 00:34:20,600 Speaker 12: You know, back fifty years ago we used to be 685 00:34:20,600 --> 00:34:24,680 Speaker 12: able to exploit things nobody else knew. Today there's very 686 00:34:24,719 --> 00:34:28,520 Speaker 12: little information that doesn't make its waste speedily around the world. 687 00:34:28,960 --> 00:34:31,279 Speaker 1: Howard to help us with one final question here to 688 00:34:31,320 --> 00:34:35,279 Speaker 1: the management the future management of Berkshire Hathaway. They have 689 00:34:35,400 --> 00:34:38,680 Speaker 1: a from COVID buildup of cash a four hundred and 690 00:34:38,680 --> 00:34:42,479 Speaker 1: twelve billion out to half a trillion dollars five hundred 691 00:34:42,520 --> 00:34:45,560 Speaker 1: and twenty five trillion. You and everybody else out there 692 00:34:45,600 --> 00:34:49,600 Speaker 1: is living with explosive money market fund growth. You know 693 00:34:49,680 --> 00:34:55,160 Speaker 1: the story in that forward here for Berkshire, Hathaway, what's 694 00:34:55,200 --> 00:35:01,200 Speaker 1: the best use of there in our mounds of cash? 695 00:35:01,560 --> 00:35:06,560 Speaker 12: You know, the people who run Berkshire today and will 696 00:35:06,600 --> 00:35:12,479 Speaker 12: run it tomorrow understand the limitations of size. All things 697 00:35:12,520 --> 00:35:17,560 Speaker 12: being equal, size makes it harder to outperform. They have 698 00:35:18,280 --> 00:35:22,320 Speaker 12: the best probability of outperforming of any company their size, 699 00:35:23,040 --> 00:35:26,759 Speaker 12: but their size will matter. And you know one of 700 00:35:26,800 --> 00:35:31,480 Speaker 12: my professors at University of Chicago. I asked him afterwards, 701 00:35:32,000 --> 00:35:34,239 Speaker 12: how would you manage a big fund? He'd say, I 702 00:35:34,239 --> 00:35:36,160 Speaker 12: would index the cord and manage the hell out of 703 00:35:36,160 --> 00:35:40,920 Speaker 12: the periphery. And I would imagine that at their size, 704 00:35:40,960 --> 00:35:44,000 Speaker 12: they'll have to move in the direction of something like that, 705 00:35:44,280 --> 00:35:46,799 Speaker 12: although they will not give up on outperformance. 706 00:35:47,440 --> 00:35:50,759 Speaker 1: Howard Marx, thank you with oak Tree Capital Management. In 707 00:35:50,880 --> 00:35:55,480 Speaker 1: remembrance of Charlie. 708 00:35:58,000 --> 00:36:00,360 Speaker 6: I'm so pleased that we get to speak with Tipenstein, 709 00:36:00,440 --> 00:36:03,000 Speaker 6: co founder and co chair of Carlisle Group, host of 710 00:36:03,000 --> 00:36:06,120 Speaker 6: Peer to Peer Conversations on Bloomberg Television, because David is 711 00:36:06,120 --> 00:36:09,400 Speaker 6: somebody who talks with all the executives across Wall Street, 712 00:36:09,440 --> 00:36:12,759 Speaker 6: Main Street and beyond to understand how they're dealing with 713 00:36:12,760 --> 00:36:16,000 Speaker 6: some of these transformative technologies of the moment, and David, 714 00:36:16,040 --> 00:36:18,560 Speaker 6: I want to start there kind of where the similarities 715 00:36:18,600 --> 00:36:21,399 Speaker 6: are in how some of these executives are thinking about 716 00:36:21,400 --> 00:36:25,160 Speaker 6: the developments and artificial intelligence in a generative AI. 717 00:36:26,719 --> 00:36:29,200 Speaker 13: Well, everybody wants to be an expert on AI and 718 00:36:29,239 --> 00:36:31,879 Speaker 13: figure out how it's going to affect their company positively 719 00:36:31,960 --> 00:36:35,160 Speaker 13: or negatively, but honestly, nobody really knows for sure yet 720 00:36:35,200 --> 00:36:38,400 Speaker 13: how it will work. We're really inning one of artificial 721 00:36:38,440 --> 00:36:40,960 Speaker 13: intelligence in terms of how major companies are going to 722 00:36:41,040 --> 00:36:44,000 Speaker 13: use it or have it used against them. So everybody's 723 00:36:44,000 --> 00:36:47,080 Speaker 13: trying to hire artificial experts or get people into their 724 00:36:47,120 --> 00:36:50,600 Speaker 13: firm who can help them assess whether artificial intelligence is 725 00:36:50,640 --> 00:36:52,560 Speaker 13: going to be useful to them or helpful to them, 726 00:36:52,760 --> 00:36:55,560 Speaker 13: And nobody really knows yet, So I can't say anybody 727 00:36:55,600 --> 00:36:57,879 Speaker 13: is certain how it's going to impact their business yet. 728 00:36:58,320 --> 00:37:01,759 Speaker 1: David, mister Zevino stealed Marsh mcclennan and others, and then 729 00:37:01,840 --> 00:37:07,319 Speaker 1: Nannie goes to AIG where different than other executives, he 730 00:37:07,400 --> 00:37:11,440 Speaker 1: has to deal with disaster. What did you learn about 731 00:37:11,440 --> 00:37:14,080 Speaker 1: how he handles the unexpected? 732 00:37:15,719 --> 00:37:18,879 Speaker 13: Well, insurance is about dealing with the unexpected, really, and 733 00:37:18,960 --> 00:37:22,120 Speaker 13: so AIG became the largest insurance company in the world 734 00:37:22,680 --> 00:37:25,440 Speaker 13: for many, many years, and as a result of that, 735 00:37:25,960 --> 00:37:29,799 Speaker 13: it had enormous tentacles throughout the entire financial complex. It 736 00:37:29,960 --> 00:37:35,680 Speaker 13: clearly extended itself too much, didn't anticipate problems that arose, 737 00:37:35,719 --> 00:37:38,160 Speaker 13: particularly in the mortgage area, and as a result had 738 00:37:38,200 --> 00:37:40,399 Speaker 13: to be bailed out by the US government to tune 739 00:37:40,440 --> 00:37:42,719 Speaker 13: of about one hundred and eighty billion dollars. Now that 740 00:37:42,760 --> 00:37:45,440 Speaker 13: money's been paid back with interest. But AIG is no 741 00:37:45,520 --> 00:37:47,719 Speaker 13: longer the biggest insurance company in the world, and it 742 00:37:47,719 --> 00:37:49,759 Speaker 13: doesn't have quite the tentacles around the world that it 743 00:37:49,800 --> 00:37:52,080 Speaker 13: once did, but still a very profitable company. 744 00:37:52,200 --> 00:37:55,120 Speaker 1: David and Newsmaker yesterday. This is what Rubinstein does. He's 745 00:37:55,120 --> 00:37:58,200 Speaker 1: steering the thunder from journalist David Rubinstein with Bill Ackman 746 00:37:58,320 --> 00:38:02,000 Speaker 1: yesterday and the track that this nation will take. What 747 00:38:02,040 --> 00:38:04,239 Speaker 1: did you learn from mister Rackman, David Rwinstein. 748 00:38:05,680 --> 00:38:09,319 Speaker 13: Well, Bill is a very impressive person who obviously is outspoken, 749 00:38:09,400 --> 00:38:13,319 Speaker 13: has been outspoken on many issues over many years. Recently 750 00:38:13,360 --> 00:38:16,400 Speaker 13: has become quite visible in what he's been saying about Harvard. 751 00:38:16,760 --> 00:38:19,120 Speaker 13: But he said in the interview which will air not 752 00:38:19,160 --> 00:38:22,080 Speaker 13: too long from now that he's made a new bet. 753 00:38:22,160 --> 00:38:24,200 Speaker 13: He's made a number of macro bets that have turned 754 00:38:24,200 --> 00:38:27,080 Speaker 13: out to be extremely positive. One of them, he made 755 00:38:27,120 --> 00:38:29,439 Speaker 13: it over one hundred times his money on a bet 756 00:38:29,480 --> 00:38:31,920 Speaker 13: that he made a number of years ago in the 757 00:38:31,960 --> 00:38:34,960 Speaker 13: time of COVID. Now he's made a bet that interest 758 00:38:35,000 --> 00:38:38,400 Speaker 13: rates will be cut sooner by the Fed than is 759 00:38:38,440 --> 00:38:41,399 Speaker 13: otherwise expected. And if that bet is successful, I guess 760 00:38:41,400 --> 00:38:43,560 Speaker 13: he'll make a fair amount of money. But that's the 761 00:38:43,600 --> 00:38:46,120 Speaker 13: big issue that many people are grappling with. Will the 762 00:38:46,200 --> 00:38:49,600 Speaker 13: Fed decide and it needs to lower interest rates before 763 00:38:49,719 --> 00:38:52,200 Speaker 13: the political season starts, let's say, in the summer or 764 00:38:52,239 --> 00:38:53,080 Speaker 13: the fall of next year. 765 00:38:53,840 --> 00:38:57,240 Speaker 1: Dave, excuse me, go ahead, Lisa, please my fault. 766 00:38:57,400 --> 00:38:59,640 Speaker 6: David, is it surprising to you that a big hedge 767 00:38:59,640 --> 00:39:03,600 Speaker 6: fund is focused on making big bets on treasuries right now? 768 00:39:05,280 --> 00:39:08,040 Speaker 13: Well, many hedge funds people are doing that. Honestly, he 769 00:39:08,080 --> 00:39:10,600 Speaker 13: has not done the so called treasury trade that others 770 00:39:10,600 --> 00:39:13,920 Speaker 13: have done, where he's buying treasuries and shorting treasury futures. 771 00:39:14,040 --> 00:39:16,600 Speaker 13: He hasn't done that. This is basically a bet that 772 00:39:16,640 --> 00:39:19,760 Speaker 13: the Fed will succumb to some pressure to lower interest 773 00:39:19,840 --> 00:39:23,279 Speaker 13: rates before too long. Now, the conventional wisdom in Wall 774 00:39:23,280 --> 00:39:25,879 Speaker 13: Street is that the Fed will lower interest rates at 775 00:39:25,880 --> 00:39:28,640 Speaker 13: some point during their first or second quarter, more likely 776 00:39:28,680 --> 00:39:31,200 Speaker 13: the second quarter. I think his bet is it'll probably 777 00:39:31,239 --> 00:39:33,920 Speaker 13: do it sooner than the conventional wisdom. And I have 778 00:39:34,000 --> 00:39:36,280 Speaker 13: said publicly before, and I still think it's the case 779 00:39:36,520 --> 00:39:39,400 Speaker 13: that the Fed will get in trouble if it lowers 780 00:39:39,440 --> 00:39:43,400 Speaker 13: interest rates around the political season, because the Republicans will say, well, 781 00:39:43,440 --> 00:39:46,360 Speaker 13: you're helping Joe Biden by lowering interest rates if you 782 00:39:46,400 --> 00:39:48,480 Speaker 13: do so over the summer or in the early fall. 783 00:39:48,760 --> 00:39:50,960 Speaker 13: So the Fed is going to lower interest rates, probably 784 00:39:50,960 --> 00:39:53,120 Speaker 13: to avoid political criticism. It don't have to do it 785 00:39:53,160 --> 00:39:54,520 Speaker 13: sooner than later. 786 00:39:54,800 --> 00:39:58,680 Speaker 1: David, you mentioned mister Ackman in Harvard in the Horror 787 00:39:58,760 --> 00:40:01,080 Speaker 1: of the Eastern Mediterrane. I want to go to your 788 00:40:01,160 --> 00:40:04,080 Speaker 1: Duke University where they have a bridge. Folks. There's an 789 00:40:04,080 --> 00:40:07,080 Speaker 1: old bridge called the Free Expression Bridge. And to make 790 00:40:07,120 --> 00:40:08,960 Speaker 1: a long story short, they had to paint over a 791 00:40:09,000 --> 00:40:12,960 Speaker 1: pro Palestinian tone as well. David, I want you to 792 00:40:13,000 --> 00:40:15,759 Speaker 1: talk to the great and good right now about how 793 00:40:15,840 --> 00:40:20,080 Speaker 1: those of means and success should deal with their shock 794 00:40:20,440 --> 00:40:22,200 Speaker 1: at our American universities. 795 00:40:24,120 --> 00:40:26,680 Speaker 13: Well, the American university system is still the envy of 796 00:40:26,719 --> 00:40:30,000 Speaker 13: the world, and our private universities are really the places 797 00:40:30,040 --> 00:40:31,880 Speaker 13: that people from all over the world want to attend. 798 00:40:32,480 --> 00:40:36,520 Speaker 13: There's been a shock that many people didn't realize how 799 00:40:36,880 --> 00:40:40,200 Speaker 13: strong the anti Israel feeling has been in some campuses, 800 00:40:40,480 --> 00:40:43,840 Speaker 13: and the result of that has been outraged by some alums. 801 00:40:44,200 --> 00:40:47,319 Speaker 13: Some universities have handled this better than other universities. I 802 00:40:47,320 --> 00:40:49,120 Speaker 13: am the chairman of the board of the University of Chicago, 803 00:40:49,400 --> 00:40:51,840 Speaker 13: and we have a tradition of not issuing statements on 804 00:40:52,360 --> 00:40:55,200 Speaker 13: political matters or outside matters, and we have an issue 805 00:40:55,200 --> 00:40:58,200 Speaker 13: one in this case. But in many cases other universities 806 00:40:58,200 --> 00:41:00,440 Speaker 13: have not had that policy, and they've got in trouble 807 00:41:00,440 --> 00:41:03,080 Speaker 13: for issuing statements that don't please one side or the other. 808 00:41:03,719 --> 00:41:06,520 Speaker 13: It's a difficult way to walk his fine line, and 809 00:41:06,520 --> 00:41:08,840 Speaker 13: I don't know that anybody has figured it out properly 810 00:41:08,960 --> 00:41:09,520 Speaker 13: or correctly. 811 00:41:10,200 --> 00:41:14,040 Speaker 1: David All glorious day for Bloomberg Surveillance with Doug cass 812 00:41:14,080 --> 00:41:17,800 Speaker 1: and Howard Marks with us and membrance of Charlie Munger. 813 00:41:18,200 --> 00:41:22,719 Speaker 1: Give us your thoughts on the hugely successful experiment that 814 00:41:23,040 --> 00:41:24,560 Speaker 1: was Berkshire Hathaway. 815 00:41:25,960 --> 00:41:28,359 Speaker 13: For those who don't know. Charlie Munger was from Warren 816 00:41:28,400 --> 00:41:32,239 Speaker 13: Buffett's hometown of Omaha. He moved to Los Angeles and 817 00:41:32,400 --> 00:41:35,280 Speaker 13: later reconnected with Warren Buffett, who hadn't really known before, 818 00:41:35,440 --> 00:41:38,000 Speaker 13: but he had worked for Warren Buffet's grandfather at one 819 00:41:38,000 --> 00:41:42,759 Speaker 13: point in a store. Charlie Munger was had outspoken, very 820 00:41:42,840 --> 00:41:46,120 Speaker 13: very smart, a lawyer who transitioned from being a lawyer 821 00:41:46,280 --> 00:41:48,839 Speaker 13: to being an investor, and his track record early on 822 00:41:48,920 --> 00:41:51,480 Speaker 13: was actually better than Warren Buffett's in some respects. They 823 00:41:51,520 --> 00:41:56,640 Speaker 13: teamed up became an incredible team of people who were 824 00:41:56,719 --> 00:41:59,719 Speaker 13: mostly known to the public through their annual meetings where 825 00:42:00,000 --> 00:42:02,600 Speaker 13: Warren Buffett and Charlie Munger would answer questions for six 826 00:42:02,680 --> 00:42:05,520 Speaker 13: hours on end. And Charlie Munger was quite well known 827 00:42:05,560 --> 00:42:09,279 Speaker 13: for his I would say, dismissive ideas of some other 828 00:42:09,280 --> 00:42:13,839 Speaker 13: people's thoughts about investing. He was a very fundamentalist kind 829 00:42:13,840 --> 00:42:17,640 Speaker 13: of investor and he transformed Warren Buffett. Warren Buffett was 830 00:42:17,719 --> 00:42:21,879 Speaker 13: taught to buy things very cheap, and buy things cheap 831 00:42:21,880 --> 00:42:24,640 Speaker 13: you can always make money. It was Charlie Munger's view 832 00:42:24,640 --> 00:42:27,279 Speaker 13: that you should buy good companies. Maybe you pay a 833 00:42:27,280 --> 00:42:29,879 Speaker 13: reasonable price for it, but buying good companies is better 834 00:42:29,920 --> 00:42:32,479 Speaker 13: than buying cheap companies which may not be that good. 835 00:42:32,600 --> 00:42:34,600 Speaker 13: And Warren Buffett gives a lot of credit credit to 836 00:42:34,640 --> 00:42:37,880 Speaker 13: Charlie Munger for having transformed his views on the investment world. 837 00:42:38,320 --> 00:42:41,560 Speaker 1: David, thank you for joining us today with us remember, 838 00:42:41,560 --> 00:42:43,960 Speaker 1: and so Charlie Munger and of course with your excellence. 839 00:42:44,239 --> 00:42:47,200 Speaker 1: Look for a conversation with Peter Zefino. Peer to peer 840 00:42:47,280 --> 00:42:52,040 Speaker 1: conversations hugely anticipated in the next ten days. A conversation 841 00:42:52,640 --> 00:42:56,160 Speaker 1: with Bill Eckman that move I would suggest move Markets. 842 00:42:56,360 --> 00:43:00,239 Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and 843 00:43:00,360 --> 00:43:04,560 Speaker 1: anywhere else you get your podcasts. Listen live every weekday 844 00:43:04,840 --> 00:43:08,319 Speaker 1: starting at seven am Easter. I'm Bloomberg dot Com, the 845 00:43:08,440 --> 00:43:13,000 Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You 846 00:43:13,000 --> 00:43:17,040 Speaker 1: can watch us live on Bloomberg Television and always I'm 847 00:43:17,080 --> 00:43:21,040 Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and 848 00:43:21,200 --> 00:43:22,759 Speaker 1: this is Bloomberg