WEBVTT - Evercore Chairman Emeritus Ralph Schlosstein Talks Markets Under Trump

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>All right here in studio now is Ralph flast nine,

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<v Speaker 2>chairman Emeritis over at Evercore Real.

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<v Speaker 3>Good to see you, Great to see you, Alex.

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<v Speaker 2>Okay, So this is like all systems go, This is

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<v Speaker 2>like animal spirits. CEO is feeling good. M and A

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<v Speaker 2>is going to rock. Everything's awesome. Is this your theme

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<v Speaker 2>for this year? Two?

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<v Speaker 3>Well, that's certainly what we all should be anticipating, giving

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<v Speaker 3>the start of the year and the certainly the dialogue

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<v Speaker 3>that we're having with CEOs would suggest that a lot

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<v Speaker 3>of things that they've been thinking about for some time

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<v Speaker 3>are more likely to come to fruition.

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<v Speaker 2>This is what confuses me, though we have, you know,

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<v Speaker 2>the last ten minutes we focused on tariffs and the

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<v Speaker 2>question mark there. Yet it seems like we're just looking

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<v Speaker 2>through that and looking at deregulation, tax cuts. How do

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<v Speaker 2>you understand that? Is this a sequencing thing for you guys?

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<v Speaker 3>Well, I think, rightly or wrong, there's a perception in

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<v Speaker 3>the business community that there's a tension in the things

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<v Speaker 3>that the new president wants to do. He definitely is

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<v Speaker 3>a fan of tariffs, and he often used them as

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<v Speaker 3>a tool of negotiation. I think there's a sentiment that

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<v Speaker 3>the bite will be a lot less worse than the bark.

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<v Speaker 3>And I think there's also a feeling, which I think

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<v Speaker 3>is a legitimate one, that probably the most important economic

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<v Speaker 3>marker that this president follows is the market. How is

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<v Speaker 3>it doing. I think he wakes up every morning and

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<v Speaker 3>says stocks are going up, I'm doing well, stocks are

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<v Speaker 3>going down. Maybe my policy needs a little bit of correction.

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<v Speaker 3>So I think there is a sentiment, which I think

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<v Speaker 3>has some validity based on history, that this will be

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<v Speaker 3>a pretty decent environment for the equity markets, notwithstanding the

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<v Speaker 3>fact that they are pretty fully valued right now.

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<v Speaker 1>Yeah, the SMB at a record high right now. I

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<v Speaker 1>do wonder that can the market kind of be that

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<v Speaker 1>arbor against Trump. There's a lot of talk that there's

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<v Speaker 1>really no one in his universe that can really push

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<v Speaker 1>back on him, But can the market do that? Whether

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<v Speaker 1>it's equity market, bond market, whatever.

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<v Speaker 3>I would bet more on the markets than on any

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<v Speaker 3>individual advisor that he has.

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<v Speaker 1>Yeah, So how confident are you though, going deeper into

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<v Speaker 1>this year? I mean, we've seen this rally coming up

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<v Speaker 1>post election, and obviously at the start of his administration,

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<v Speaker 1>and it's certainly understandable given some of the pro growth

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<v Speaker 1>policies that he's been promoting. When you balance that out

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<v Speaker 1>with the potential risk, do you see buying opportunities here,

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<v Speaker 1>particularly with valuations, as you said, relatively high.

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<v Speaker 3>Well, I think a lot will depend on what happens

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<v Speaker 3>to earnings this year. You know, so far the fourth

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<v Speaker 3>quarter earnings seem to be quite strong. If we have

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<v Speaker 3>real good earnings growth, which we could have with a

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<v Speaker 3>growing to me slowing inflation and a margin expansion, you

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<v Speaker 3>could actually have the earnings of companies grow into the valuations.

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<v Speaker 3>And by the way, there have been plenty of times

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<v Speaker 3>in history when stocks have been fully valued or perhaps

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<v Speaker 3>even a little bit overvalued, when they've continued to go up.

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<v Speaker 2>Do you think that we need continued FED cuts for

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<v Speaker 2>things to go along smoothly? What has a conversation developing order?

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<v Speaker 3>I think that the FED is becoming less and less

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<v Speaker 3>important to the markets.

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<v Speaker 2>We're allowed to say that.

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<v Speaker 3>Well, I have a lot the highest regard for j Pal.

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<v Speaker 3>If he were sitting here, I would say that, and

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<v Speaker 3>by the way, I think he might say that's healthy.

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<v Speaker 2>So then to that point, things that are sort of

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<v Speaker 2>irrespected of the FED and the overall economy that's going

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<v Speaker 2>to be AI. How is everyone in Evercord talking about

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<v Speaker 2>the massive investment in AI and just sort of the

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<v Speaker 2>stocks to the moon at this point?

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<v Speaker 3>Oh, I think, you know, I look at this not

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<v Speaker 3>dissimilar from the Internet bubble that we had in ninety eight,

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<v Speaker 3>ninety nine, two thousand and there were a whole bunch

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<v Speaker 3>of companies that had seemingly absurd valuations. Many of them

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<v Speaker 3>don't exist anymore, and their valuations were in fact absurd,

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<v Speaker 3>they didn't have real businesses. But some of those who

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<v Speaker 3>we all thought were pretty fully valued at that time

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<v Speaker 3>have become trillion dollar market cap companies. You know, Facebook, Meta,

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<v Speaker 3>or Google, Amazon, Netflix, Tesla. These are all companies that

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<v Speaker 3>you know, at that time or when they became public companies,

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<v Speaker 3>we thought their valuations were insane. And I think what

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<v Speaker 3>we're seeing is a there's an element of land grab

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<v Speaker 3>in the new economy, and those companies that put the

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<v Speaker 3>pedal to the mettle and invest what seems to be

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<v Speaker 3>insanely wind up with a massive amount of ground that

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<v Speaker 3>they control. I have often said that Amazon should have

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<v Speaker 3>been created by Walmart. They had the access to the

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<v Speaker 3>product they had the global USY distribution network, all the

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<v Speaker 3>things that Amazon had to build. Why didn't that happen?

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<v Speaker 3>It didn't happen because companies that are valued on earnings

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<v Speaker 3>can't make the kind of investment that Jeff Bezos did

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<v Speaker 3>for twenty years before before he started earning a dime.

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<v Speaker 1>But that raises a question too, because when we talk

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<v Speaker 1>about the investment in AI, it's coming from a lot

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<v Speaker 1>of those companies that kind of grew out of the

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<v Speaker 1>dot com bubble and actually became legitimate companies Microsoft, Amazons, etc.

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<v Speaker 3>Of the world.

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<v Speaker 1>Doesn't that create an argument here that given the companies

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<v Speaker 1>that are really leading the charge in AI are established

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<v Speaker 1>companies billions of dollars in revenue in some cases billions

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<v Speaker 1>of dollars in profits, is there a bubble with a

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<v Speaker 1>company like that?

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<v Speaker 3>Can there be? In some cases they're doing that, In

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<v Speaker 3>other cases they're they're selling and getting revenues and profits

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<v Speaker 3>to the companies that are making those investments. And there's

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<v Speaker 3>a couple, you know, Microsoft, Meta Alphabet, that are profit

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<v Speaker 3>profitable companies and it's depressing their margins. But the vast

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<v Speaker 3>majority of the investment in A is coming in private

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<v Speaker 3>companies that are that nobody cares what their earnings are.

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<v Speaker 1>That's a good point. Is there anything that knocks I

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<v Speaker 1>mean in the public markets, Is there anything that kills

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<v Speaker 1>this rally? I mean, is there a risk out there

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<v Speaker 1>that could plausibly take this down?

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<v Speaker 3>I think the biggest risk is do the companies collectively

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<v Speaker 3>deliver expected earnings in twenty twenty five. That's the biggest

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<v Speaker 3>risk we have. The second biggest risk, in my view

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<v Speaker 3>is I do believe we have a over the intermediate

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<v Speaker 3>term and unsustainable fiscal policy in this country. I know

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<v Speaker 3>it will end at some point. It will not end

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<v Speaker 3>in a pretty way, but no one is smart enough

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<v Speaker 3>to know whether that's going to be in one year

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<v Speaker 3>or two years, three years, four years, or five years,

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<v Speaker 3>and it's something exogenous will trigger that, and then we'll

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<v Speaker 3>all say, you know, how could we miss this? You know,

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<v Speaker 3>we can't have six percent deficits forever. Yeah.

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<v Speaker 1>I feel like that's kind of a human nature, or

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<v Speaker 1>at least American nature. We wait to the last minute

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<v Speaker 1>to recognize the problem and then try to solve it. Ralph,

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<v Speaker 1>always a pleasure talking to you.

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<v Speaker 3>Thank you very much for having me.

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<v Speaker 1>Ralph Slostein of course, chairman emeritus over at evercoret