Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: All right here in studio now is Ralph flast nine,
Speaker 2: chairman Emeritis over at Evercore Real.
Speaker 3: Good to see you, Great to see you, Alex.
Speaker 2: Okay, So this is like all systems go, This is
Speaker 2: like animal spirits. CEO is feeling good. M and A
Speaker 2: is going to rock. Everything's awesome. Is this your theme
Speaker 2: for this year? Two?
Speaker 3: Well, that's certainly what we all should be anticipating, giving
Speaker 3: the start of the year and the certainly the dialogue
Speaker 3: that we're having with CEOs would suggest that a lot
Speaker 3: of things that they've been thinking about for some time
Speaker 3: are more likely to come to fruition.
Speaker 2: This is what confuses me, though we have, you know,
Speaker 2: the last ten minutes we focused on tariffs and the
Speaker 2: question mark there. Yet it seems like we're just looking
Speaker 2: through that and looking at deregulation, tax cuts. How do
Speaker 2: you understand that? Is this a sequencing thing for you guys?
Speaker 3: Well, I think, rightly or wrong, there's a perception in
Speaker 3: the business community that there's a tension in the things
Speaker 3: that the new president wants to do. He definitely is
Speaker 3: a fan of tariffs, and he often used them as
Speaker 3: a tool of negotiation. I think there's a sentiment that
Speaker 3: the bite will be a lot less worse than the bark.
Speaker 3: And I think there's also a feeling, which I think
Speaker 3: is a legitimate one, that probably the most important economic
Speaker 3: marker that this president follows is the market. How is
Speaker 3: it doing. I think he wakes up every morning and
Speaker 3: says stocks are going up, I'm doing well, stocks are
Speaker 3: going down. Maybe my policy needs a little bit of correction.
Speaker 3: So I think there is a sentiment, which I think
Speaker 3: has some validity based on history, that this will be
Speaker 3: a pretty decent environment for the equity markets, notwithstanding the
Speaker 3: fact that they are pretty fully valued right now.
Speaker 1: Yeah, the SMB at a record high right now. I
Speaker 1: do wonder that can the market kind of be that
Speaker 1: arbor against Trump. There's a lot of talk that there's
Speaker 1: really no one in his universe that can really push
Speaker 1: back on him, But can the market do that? Whether
Speaker 1: it's equity market, bond market, whatever.
Speaker 3: I would bet more on the markets than on any
Speaker 3: individual advisor that he has.
Speaker 1: Yeah, So how confident are you though, going deeper into
Speaker 1: this year? I mean, we've seen this rally coming up
Speaker 1: post election, and obviously at the start of his administration,
Speaker 1: and it's certainly understandable given some of the pro growth
Speaker 1: policies that he's been promoting. When you balance that out
Speaker 1: with the potential risk, do you see buying opportunities here,
Speaker 1: particularly with valuations, as you said, relatively high.
Speaker 3: Well, I think a lot will depend on what happens
Speaker 3: to earnings this year. You know, so far the fourth
Speaker 3: quarter earnings seem to be quite strong. If we have
Speaker 3: real good earnings growth, which we could have with a
Speaker 3: growing to me slowing inflation and a margin expansion, you
Speaker 3: could actually have the earnings of companies grow into the valuations.
Speaker 3: And by the way, there have been plenty of times
Speaker 3: in history when stocks have been fully valued or perhaps
Speaker 3: even a little bit overvalued, when they've continued to go up.
Speaker 2: Do you think that we need continued FED cuts for
Speaker 2: things to go along smoothly? What has a conversation developing order?
Speaker 3: I think that the FED is becoming less and less
Speaker 3: important to the markets.
Speaker 2: We're allowed to say that.
Speaker 3: Well, I have a lot the highest regard for j Pal.
Speaker 3: If he were sitting here, I would say that, and
Speaker 3: by the way, I think he might say that's healthy.
Speaker 2: So then to that point, things that are sort of
Speaker 2: irrespected of the FED and the overall economy that's going
Speaker 2: to be AI. How is everyone in Evercord talking about
Speaker 2: the massive investment in AI and just sort of the
Speaker 2: stocks to the moon at this point?
Speaker 3: Oh, I think, you know, I look at this not
Speaker 3: dissimilar from the Internet bubble that we had in ninety eight,
Speaker 3: ninety nine, two thousand and there were a whole bunch
Speaker 3: of companies that had seemingly absurd valuations. Many of them
Speaker 3: don't exist anymore, and their valuations were in fact absurd,
Speaker 3: they didn't have real businesses. But some of those who
Speaker 3: we all thought were pretty fully valued at that time
Speaker 3: have become trillion dollar market cap companies. You know, Facebook, Meta,
Speaker 3: or Google, Amazon, Netflix, Tesla. These are all companies that
Speaker 3: you know, at that time or when they became public companies,
Speaker 3: we thought their valuations were insane. And I think what
Speaker 3: we're seeing is a there's an element of land grab
Speaker 3: in the new economy, and those companies that put the
Speaker 3: pedal to the mettle and invest what seems to be
Speaker 3: insanely wind up with a massive amount of ground that
Speaker 3: they control. I have often said that Amazon should have
Speaker 3: been created by Walmart. They had the access to the
Speaker 3: product they had the global USY distribution network, all the
Speaker 3: things that Amazon had to build. Why didn't that happen?
Speaker 3: It didn't happen because companies that are valued on earnings
Speaker 3: can't make the kind of investment that Jeff Bezos did
Speaker 3: for twenty years before before he started earning a dime.
Speaker 1: But that raises a question too, because when we talk
Speaker 1: about the investment in AI, it's coming from a lot
Speaker 1: of those companies that kind of grew out of the
Speaker 1: dot com bubble and actually became legitimate companies Microsoft, Amazons, etc.
Speaker 3: Of the world.
Speaker 1: Doesn't that create an argument here that given the companies
Speaker 1: that are really leading the charge in AI are established
Speaker 1: companies billions of dollars in revenue in some cases billions
Speaker 1: of dollars in profits, is there a bubble with a
Speaker 1: company like that?
Speaker 3: Can there be? In some cases they're doing that, In
Speaker 3: other cases they're they're selling and getting revenues and profits
Speaker 3: to the companies that are making those investments. And there's
Speaker 3: a couple, you know, Microsoft, Meta Alphabet, that are profit
Speaker 3: profitable companies and it's depressing their margins. But the vast
Speaker 3: majority of the investment in A is coming in private
Speaker 3: companies that are that nobody cares what their earnings are.
Speaker 1: That's a good point. Is there anything that knocks I
Speaker 1: mean in the public markets, Is there anything that kills
Speaker 1: this rally? I mean, is there a risk out there
Speaker 1: that could plausibly take this down?
Speaker 3: I think the biggest risk is do the companies collectively
Speaker 3: deliver expected earnings in twenty twenty five. That's the biggest
Speaker 3: risk we have. The second biggest risk, in my view
Speaker 3: is I do believe we have a over the intermediate
Speaker 3: term and unsustainable fiscal policy in this country. I know
Speaker 3: it will end at some point. It will not end
Speaker 3: in a pretty way, but no one is smart enough
Speaker 3: to know whether that's going to be in one year
Speaker 3: or two years, three years, four years, or five years,
Speaker 3: and it's something exogenous will trigger that, and then we'll
Speaker 3: all say, you know, how could we miss this? You know,
Speaker 3: we can't have six percent deficits forever. Yeah.
Speaker 1: I feel like that's kind of a human nature, or
Speaker 1: at least American nature. We wait to the last minute
Speaker 1: to recognize the problem and then try to solve it. Ralph,
Speaker 1: always a pleasure talking to you.
Speaker 3: Thank you very much for having me.
Speaker 1: Ralph Slostein of course, chairman emeritus over at evercoret