WEBVTT - Bloomberg Wall Street Week - November 17th, 2023 0:00:00.240 --> 0:00:02.480 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 I mean may not have an overall recession. We're having 0:00:04.400 --> 0:00:06.760 a rolling recession. To Cone rowl looks pretty strongly. It 0:00:06.800 --> 0:00:07.680 is when it comes to jobs. 0:00:07.720 --> 0:00:09.840 The financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.480 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.400 generative AI through. 0:00:17.160 --> 0:00:19.320 The eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 0:00:22.560 --> 0:00:25.279 deebro Lair of the Paulson Institute, well Then Hubbard of 0:00:25.280 --> 0:00:26.280 the Columbia Business School. 0:00:26.280 --> 0:00:30.160 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.640 --> 0:00:34.920 Sometimes no news can be good news. No government shutdown, 0:00:35.320 --> 0:00:38.320 no new flare up in US China relations, and no 0:00:38.479 --> 0:00:42.080 news surge in inflation numbers. This is Bloomberg Wall Street Week. 0:00:42.159 --> 0:00:45.760 I'm David Weston, this week's special contributor to Larry Summers 0:00:45.760 --> 0:00:48.720 of Harvard on whether we're through the worst on inflation. 0:00:49.040 --> 0:00:51.519 I'm not sure the inflation figures over the next two 0:00:51.640 --> 0:00:54.319 years are going to be quite as favorable as the 0:00:54.360 --> 0:00:56.600 market is expecting. 0:00:56.920 --> 0:00:59.880 Tony James of Jefferson River capital on the past and 0:01:00.080 --> 0:01:01.960 future of private equity and credit. 0:01:02.320 --> 0:01:05.319 Private equity really needs to be operational as well. You 0:01:05.360 --> 0:01:07.520 still need the transaction skills, You still need to be 0:01:07.560 --> 0:01:09.520 an investor, but now you need to be able to 0:01:09.520 --> 0:01:11.440 intervene in the company's fortunes. 0:01:11.760 --> 0:01:15.240 And Dan Senor about the Israeli Hamas War and what 0:01:15.400 --> 0:01:17.200 it means for the Israeli economy. 0:01:17.520 --> 0:01:18.920 They can get through the short term. 0:01:19.040 --> 0:01:21.200 I think in the long run, Israel's tech economy will 0:01:21.200 --> 0:01:26.080 be stronger. 0:01:34.440 --> 0:01:37.520 Global Wall Street had an exciting week, mainly because of 0:01:37.560 --> 0:01:41.520 what didn't happen. President Biden met with President g during 0:01:41.560 --> 0:01:44.480 the APEX summit, and they appeared to set a new 0:01:44.720 --> 0:01:47.919 more constructive tone to US China relations. 0:01:48.160 --> 0:01:51.160 Our meetings have always been Canada straightforward. We haven't always agreed, 0:01:51.680 --> 0:01:54.840 but they've been straightforward and today build on the groundwork 0:01:54.880 --> 0:01:57.680 related Over the past several months of high level diplomacy 0:01:57.720 --> 0:02:01.080 between our teams, we've made some important progress. 0:02:01.120 --> 0:02:03.880 I believe the US Congress got its act together and 0:02:04.040 --> 0:02:07.360 finally agreed not to shut the government down at least 0:02:07.400 --> 0:02:09.880 until after the new year. I have good news for 0:02:09.960 --> 0:02:13.760 the American people this Friday night, there will be no 0:02:14.280 --> 0:02:17.880 government shutdown but most exciting for global Wall Street this 0:02:17.919 --> 0:02:20.880 week were those CPI numbers that came in even better 0:02:21.000 --> 0:02:24.480 than expected, pointing to a continued sawing in the rate 0:02:24.520 --> 0:02:27.720 of inflation and maybe just maybe no need for the 0:02:27.760 --> 0:02:29.320 Fed to keep hiking rates. 0:02:29.520 --> 0:02:34.480 It's a rather amazing number. This morning, CPI comes in flat. 0:02:34.520 --> 0:02:36.840 The estimate was one tenth that it had been zero 0:02:36.840 --> 0:02:39.920 point four back in September, and that leaves the year 0:02:39.960 --> 0:02:43.280 over year headline number at three point two percent, down 0:02:43.320 --> 0:02:44.360 from three point seven. 0:02:46.200 --> 0:02:48.959 And then late on Friday, word came that the man 0:02:49.000 --> 0:02:52.760 who made chat GPT famous, Sam Altman, was stepping down 0:02:52.840 --> 0:02:56.480 immediately as CEO of open Ai after the board lost 0:02:56.560 --> 0:03:00.639 confidence in his candor, and Microsoft shares dropped on that news. 0:03:01.000 --> 0:03:03.440 The markets overall had a nice bump up during the 0:03:03.480 --> 0:03:06.720 week with the news about slowing inflation and a strong economy. 0:03:06.880 --> 0:03:08.480 The S and P five hundred was up two point 0:03:08.480 --> 0:03:11.520 two four percent, ending at four five one four. That's 0:03:11.520 --> 0:03:14.519 comfortably above the median number of our Bloomberg elves that 0:03:14.560 --> 0:03:17.000 they're predicting for year end. The Nasdaq was up two 0:03:17.000 --> 0:03:19.480 point three seven percent, while the yield on the tenure 0:03:19.840 --> 0:03:22.919 dropped almost twenty two basis points to four point four. 0:03:23.240 --> 0:03:25.360 Here to tell us what it all means are Sarah 0:03:25.400 --> 0:03:30.000 Mallik Neuveen Asset Management CIO and Peter Borisch, Computer Trading CEO. 0:03:30.160 --> 0:03:31.640 So welcome back both of you. It's great to have 0:03:31.680 --> 0:03:33.560 you here. Sarah, let me start with you. Was it 0:03:33.600 --> 0:03:35.680 really all about the CPI numbers in the end for 0:03:35.800 --> 0:03:36.280 this week? 0:03:37.280 --> 0:03:38.120 Well, the Santa. 0:03:37.880 --> 0:03:40.640 Claus rally has come early this year for three reasons. 0:03:40.760 --> 0:03:44.040 One of those is inflation, which is coming in under expectations. 0:03:44.320 --> 0:03:47.560 Also the feedest signal the end of the rate pike cycle, 0:03:47.840 --> 0:03:50.440 and finally the economy, which is showing some signs of 0:03:50.480 --> 0:03:53.240 cooling but not enough to take us into a recession. 0:03:53.520 --> 0:03:56.040 All of this caused ten year treasury yields to drop 0:03:56.080 --> 0:03:59.520 by about fifty basis points and markets to rally. However, 0:03:59.560 --> 0:04:02.720 I caught twenty twenty four looks a little bit more complicated. 0:04:03.000 --> 0:04:05.360 The question is going to move not from how high 0:04:05.400 --> 0:04:08.160 will interest rates go, but to how long will interest 0:04:08.240 --> 0:04:11.640 rates stay high? And given that futures markets, you're expecting 0:04:11.840 --> 0:04:14.560 four rate cuts in twenty twenty four. I think that's 0:04:14.600 --> 0:04:17.960 optimistic because inflation is still above target and we're not 0:04:18.040 --> 0:04:20.200 in a recession. So I don't see why the FED 0:04:20.240 --> 0:04:23.000 would be cutting rates so aggressively going into next year. 0:04:23.360 --> 0:04:25.159 So, Peter, before we get to twenty twenty four, which 0:04:25.200 --> 0:04:26.919 we do want to get to, what are for the 0:04:26.960 --> 0:04:28.840 rest of this year? Can we put our pencils down? 0:04:28.920 --> 0:04:30.760 Our desks are in pretty good shape for the rest 0:04:30.760 --> 0:04:31.120 of this year. 0:04:31.160 --> 0:04:33.039 Do you think you know? 0:04:33.120 --> 0:04:35.039 In this business, a week can be a long time. 0:04:35.200 --> 0:04:37.960 Just look at the move from two Fridays ago to 0:04:38.320 --> 0:04:40.960 this Friday. So no, and you can never put your 0:04:41.000 --> 0:04:44.240 pencils down. And if you listen to some of the 0:04:44.240 --> 0:04:49.320 FED talk President Collins, they're kind of like, wait a second, 0:04:49.560 --> 0:04:53.240 financial conditions aren't really that tight. If you look at 0:04:53.279 --> 0:04:56.479 the equity markets, we may have to raise again. 0:04:56.520 --> 0:04:57.839 So I agree with Sarah. 0:04:58.120 --> 0:04:59.760 I mean, I'm in the camp that I don't even 0:04:59.760 --> 0:05:03.840 think the FED is going to cut at all next year, 0:05:03.920 --> 0:05:06.359 and that's going to make for a bumpy road. And 0:05:06.440 --> 0:05:10.040 depending on what the news conferences after the next FED meeting, 0:05:11.040 --> 0:05:13.840 this could sort of be an upside down. Remember in 0:05:13.839 --> 0:05:17.600 twenty eighteen you had the tremendous rally the last week 0:05:17.640 --> 0:05:18.080 of the year. 0:05:18.360 --> 0:05:19.560 This could be the opposite of that. 0:05:19.800 --> 0:05:22.800 Oh really, so the reverse of a Santa Claus rally, Well. 0:05:22.600 --> 0:05:24.320 You have a you know, if you pick any low 0:05:24.360 --> 0:05:26.960 in the fourth quarter, by definition, you're going to have 0:05:26.960 --> 0:05:29.680 a rally off of it. So yeah, she said, we 0:05:29.680 --> 0:05:32.160 had an early Santa so Santa Claus rally, we had 0:05:32.160 --> 0:05:35.359 a low, we rallied, but then we could have a 0:05:35.839 --> 0:05:38.279 nice little correction going into the end of the year. 0:05:38.839 --> 0:05:40.240 Sir, how much of it do you think is in 0:05:40.279 --> 0:05:42.240 the hands of the Fed. We all focus on the FED. 0:05:42.240 --> 0:05:44.359 It's understanding what we do, but it's not just the 0:05:44.400 --> 0:05:46.880 FED that determines things like yields. For example, We've got 0:05:46.880 --> 0:05:49.040 a lot of issuance coming out of the treasure these days. 0:05:49.080 --> 0:05:50.880 It looks like that's not going to stop anytime soon. 0:05:52.360 --> 0:05:54.240 I think it is still very important. And what is 0:05:54.240 --> 0:05:55.480 the FED going to do next year? 0:05:55.600 --> 0:05:57.840 Let's start with inflation at which Peter talked about, which 0:05:57.880 --> 0:06:00.760 will have to do with whether we get rape. Inflation 0:06:00.880 --> 0:06:03.120 is still about a percent above the FEDCE target when 0:06:03.120 --> 0:06:06.200 it comes to CPI, and that last mile of inflation 0:06:06.480 --> 0:06:08.800 could be the longest miile. Our view is that inflation 0:06:09.040 --> 0:06:11.880 likely doesn't hit target in twenty twenty four. That's going 0:06:11.920 --> 0:06:14.960 to prevent you from getting aggressive rate cuts. So that's 0:06:14.960 --> 0:06:16.760 going to be an issue for the FED. And also 0:06:16.880 --> 0:06:20.000 looking at the economy, the consumer and employment markets have 0:06:20.040 --> 0:06:22.800 been driving the economy. Payrolls are still coming in close 0:06:22.839 --> 0:06:25.840 to two hundred thousand. Yes, we did see unemployment claims 0:06:25.880 --> 0:06:29.120 spiked to August levels this week, so employment is starting 0:06:29.120 --> 0:06:31.919 to slow. Consumers starting to show some cracks when it 0:06:31.960 --> 0:06:34.920 comes to delinquencies. But none of that means the recession 0:06:34.960 --> 0:06:37.440 is imminent until you get those two factors of inflation 0:06:37.600 --> 0:06:41.040 at or below target and a recession right in front 0:06:41.040 --> 0:06:41.240 of us. 0:06:41.320 --> 0:06:42.840 I don't think the Fed's going to have the room 0:06:43.040 --> 0:06:43.719 to cut rates. 0:06:43.760 --> 0:06:46.120 Well, what were the equity side, Sarah, Because we've had 0:06:46.160 --> 0:06:51.360 sort of a I can say a subdued earnings earning 0:06:51.720 --> 0:06:53.719 session here. What are we looking for in twenty twenty four? 0:06:54.560 --> 0:06:56.840 Well, Q three marked the end of an earnings recession. 0:06:56.880 --> 0:06:59.120 Before Q three we had three quarters. 0:06:58.760 --> 0:07:00.680 Of negative earnings, so it was good to see this 0:07:00.839 --> 0:07:03.400 growth in third quarter, and in twenty twenty four we 0:07:03.480 --> 0:07:06.360 expect about five percent earnings growth. That will be positive. 0:07:06.440 --> 0:07:10.200 It will be dependent on companies' ability to preserve margins 0:07:10.280 --> 0:07:13.600 as inflation continues to moderate, so that'll be the positive. 0:07:13.640 --> 0:07:15.080 I don't think we're going to see a lot of 0:07:15.360 --> 0:07:18.640 valuation expansion driving the markets in twenty twenty four because 0:07:18.720 --> 0:07:20.760 valuations are already out of premium. 0:07:21.240 --> 0:07:23.520 So Peter, what about the consumer, Because the consumer really 0:07:23.600 --> 0:07:27.000 feeds directly into earnings because companies have to sell things. 0:07:27.600 --> 0:07:29.600 Where is the consumer right now? Are they running out 0:07:29.640 --> 0:07:31.800 of all that excess savings that they had? 0:07:33.000 --> 0:07:35.200 Well, first of all, Saraen made a great point, but 0:07:35.440 --> 0:07:37.280 when I look at the consumer, I kind of try 0:07:37.320 --> 0:07:40.920 to watch, you know, Visa and MasterCard as a proxy 0:07:41.120 --> 0:07:45.120 for consumer and those stocks have continued to stay strong 0:07:45.200 --> 0:07:47.920 close to their all time highs. So I think it's 0:07:47.960 --> 0:07:52.440 a little premature given the fact that employment is still 0:07:52.640 --> 0:07:56.960 high right, Unemployment is low again another indication that financial 0:07:56.960 --> 0:08:00.960 conditions are not tight, and therefore I think the higher 0:08:01.040 --> 0:08:04.760 probability of rates going up. So the consumer's in pretty 0:08:04.760 --> 0:08:09.280 good shape for now. But I look at the three c's, copper, corn, 0:08:09.840 --> 0:08:13.239 and crude, and they have been weak. So that's saying 0:08:13.280 --> 0:08:16.560 something about the aggregate demand in the economy. So that's 0:08:16.560 --> 0:08:20.240 the irony of markets. They have been weak. That drags 0:08:20.280 --> 0:08:23.400 down inflation. But is that bullish, Sarah? 0:08:23.480 --> 0:08:26.520 As it brings up a good point David about the consumer. 0:08:26.560 --> 0:08:29.800 They continue to spend and consumer discretionary stocks have been 0:08:29.960 --> 0:08:32.400 very strong this year. But if you look behind under 0:08:32.400 --> 0:08:35.880 the hood at the consumer, auto and credit card delinquencies 0:08:36.080 --> 0:08:39.440 are increasing significantly. I think the consumer is starting to 0:08:39.440 --> 0:08:42.240 show some cracks. And if the employment markets continue to 0:08:42.280 --> 0:08:44.800 slow and people do not feel secure in their jobs, 0:08:44.920 --> 0:08:47.400 I think that'll be the unwinding of the economy that 0:08:47.440 --> 0:08:49.200 does eventually get us into that recession. 0:08:49.240 --> 0:08:50.960 But again, as I said, that is not right around 0:08:51.000 --> 0:08:51.440 the corner. 0:08:51.640 --> 0:08:53.360 Sarah, you usually like to pick a stock or two 0:08:53.360 --> 0:08:55.400 for us. Do you have a stock or two to recommend? 0:08:56.320 --> 0:08:58.160 We do, so we're looking at first of all, we 0:08:58.200 --> 0:09:01.080 think the dollar is going to be it's at peak levels. 0:09:01.120 --> 0:09:03.000 I'm going to weaken from here, so outside of the 0:09:03.120 --> 0:09:06.400 US countries where there could be demand, and also commodities 0:09:06.400 --> 0:09:07.000 which tend to. 0:09:06.960 --> 0:09:10.040 Benefit from a week or dollar. Peter mentioned copper. That's 0:09:10.040 --> 0:09:12.760 an area that we like. Supply is type for copper. 0:09:13.360 --> 0:09:16.920 Freeport Macmaran is a company specifically, they're finishing their last 0:09:16.920 --> 0:09:20.280 smelter in Indonesian in early twenty twenty four, so capex 0:09:20.360 --> 0:09:23.800 is declining and they are returning cash to shareholders. Demand 0:09:23.800 --> 0:09:26.640 for copper is strong. Not only has US production of 0:09:26.679 --> 0:09:30.480 copper declined significantly over the last half century, but also 0:09:30.880 --> 0:09:34.959 wind solar electric vehicles and increase need for US infrastructure 0:09:35.000 --> 0:09:38.600 as we onshore, all of that will increase demand for copper. 0:09:38.760 --> 0:09:41.320 Multi year tailwinds for that commodity. 0:09:41.200 --> 0:09:42.959 Peter, so too soon to get back in the pool. 0:09:43.080 --> 0:09:46.280 For real estate, well, there was a very interesting article 0:09:46.320 --> 0:09:51.720 on Bloomberg today about how so many homeowners actually don't 0:09:51.960 --> 0:09:56.559 have a mortgage. So this notion that well, the market's 0:09:56.559 --> 0:09:58.760 frozen because people don't want to sell because they have 0:09:58.800 --> 0:09:59.599 low mortgages. 0:10:00.080 --> 0:10:01.160 That may not be true. 0:10:01.280 --> 0:10:04.240 If that's the case, and people want to trade their stock, 0:10:04.320 --> 0:10:08.320 that may increase the housing supply and that could drive 0:10:08.360 --> 0:10:13.360 down some prices. Again, ironically, is that bullish or bearish 0:10:13.840 --> 0:10:17.840 for interest rates as housing demand gets met with increased supply. 0:10:18.280 --> 0:10:21.400 So is it too soon? No, but it's going to 0:10:21.440 --> 0:10:22.800 be interesting in fascinating. 0:10:22.960 --> 0:10:25.640 Well, Well, an area David within reads that looks really 0:10:25.679 --> 0:10:29.120 attractive is actually the public reads sector. It's trading at 0:10:29.120 --> 0:10:32.400 a discount to net asset value. Reads actually tend to 0:10:32.480 --> 0:10:35.200 underperform while rates are going up and in periods of 0:10:35.280 --> 0:10:38.240 rate pauses, and rate cuts, reads out perform, and I 0:10:38.240 --> 0:10:40.960 think that's what we're getting to. This elongated pause by 0:10:40.960 --> 0:10:43.640 the Fed should be positive for segments such as reads. 0:10:43.720 --> 0:10:47.160 Well, so that's fascinating. Reads got clobbered, obviously. Do you 0:10:47.200 --> 0:10:48.960 think they've bottomed, they're going to come back up. 0:10:50.000 --> 0:10:52.080 We've actually seen them bottom in the last couple of 0:10:52.120 --> 0:10:55.120 weeks as yields rolled over. And if you look at history, 0:10:55.280 --> 0:10:57.600 as the Fed pauses and we don't expect any more 0:10:57.640 --> 0:11:00.360 Fed rate hikes, that should be positive for reads. They're 0:11:00.400 --> 0:11:03.240 still cheap, they're trading at a discount to nav Many 0:11:03.240 --> 0:11:05.480 are worried about commercial real estate, but if you look 0:11:05.480 --> 0:11:08.679 at the main benchmarks, it is a very insignificant, low 0:11:08.720 --> 0:11:13.600 single digit percentage portion of their benchmarks, industrial rates, apartment reads, 0:11:13.640 --> 0:11:16.120 all of those are actually doing very well. So it's 0:11:16.160 --> 0:11:18.360 not just a commercial real estate story. That's a very 0:11:18.400 --> 0:11:19.640 small piece of reds. 0:11:20.160 --> 0:11:22.000 Sarah Malak and Peter Buscher are going to be staying 0:11:22.040 --> 0:11:23.400 with us, but first we're going to take a look 0:11:23.440 --> 0:11:26.520 back at another time we watch the Fed wait patiently 0:11:26.559 --> 0:11:29.839 for inflation to come down. Here's Frank Capiello on Wall 0:11:29.840 --> 0:11:32.559 Street Week with R. Lewis Rockeiser way back in nineteen 0:11:32.640 --> 0:11:40.120 eighty two. This is a whole new operation. 0:11:40.720 --> 0:11:43.320 And I think what's happening is economic policies now are 0:11:43.360 --> 0:11:47.160 more important than the statistics, and the policies are less inflati. 0:11:47.760 --> 0:11:51.040 We've really got a FED a reserve that's fighting many 0:11:51.160 --> 0:11:54.199 recurrence of inflation, and we've got interest rates. It will 0:11:54.200 --> 0:11:55.080 eventually come down. 0:11:56.280 --> 0:11:58.319 This is Wall Street Week on Bloomberg. 0:12:11.760 --> 0:12:14.520 President G is desperate for American investment because he has 0:12:14.520 --> 0:12:17.920 made a series of economic decisions and political decisions are 0:12:17.960 --> 0:12:21.960 arresting people where capital is fleeing the coin of the realm. 0:12:21.960 --> 0:12:25.400 For the United States, we have allies, we have friends, 0:12:25.640 --> 0:12:26.959 and they want to be aligned with us. 0:12:28.320 --> 0:12:30.840 That was US investor in Japan, Rama Manuel, talking at 0:12:30.880 --> 0:12:33.080 the APEX summit this week in San Francisco. Had efforts 0:12:33.120 --> 0:12:36.520 by Chinese President G to attract Western investment flows back 0:12:36.559 --> 0:12:39.640 into China. Sarah Malak of Nouvegne and Peter Borsh of 0:12:39.640 --> 0:12:41.800 Computer Trading have stayed with us. So Sarah, let me 0:12:41.800 --> 0:12:44.600 start with you. We had the meeting with President Biden 0:12:44.679 --> 0:12:47.240 President G. Not a lot came out except they did talk. 0:12:47.320 --> 0:12:49.360 They didn't fight with one another. I guess that's good. 0:12:49.640 --> 0:12:52.480 But overall, do you think this affects the really the 0:12:53.559 --> 0:12:56.520 status of investments right now that in fact US and 0:12:56.600 --> 0:12:58.720 China may be at least not at Dagger's drawn. 0:13:00.080 --> 0:13:02.240 I think there's two issues to think about from this 0:13:02.280 --> 0:13:04.400 week's meeting and over the long term. One is geo 0:13:04.760 --> 0:13:07.800 political issues, which I think did become reduced a bit 0:13:07.880 --> 0:13:10.920 this week. You saw that with CDs spreads narrowing a bit. 0:13:11.200 --> 0:13:14.320 But the main issue with China is exports. They've declined 0:13:14.360 --> 0:13:16.959 significantly in terms of what they export to the US 0:13:17.240 --> 0:13:20.000 over the last five years, and that I think until 0:13:20.000 --> 0:13:22.079 they can turn that around, that's going to be an issue. 0:13:22.160 --> 0:13:24.720 And there's other countries that are benefiting from this, like 0:13:24.840 --> 0:13:28.520 Mexico with its near shoring, the increased need for infrastructure 0:13:28.520 --> 0:13:30.320 in the US, which is a segment of the market 0:13:30.320 --> 0:13:33.800 that we really like. Countries like Indonesia with the young populations, 0:13:33.920 --> 0:13:36.320 and Japan which is benefiting with their weaker yen. 0:13:36.440 --> 0:13:39.120 So as Chima loses in these areas, these other. 0:13:39.000 --> 0:13:42.320 Emerging and developed international countries are winning, and I don't 0:13:42.320 --> 0:13:44.240 see that trend reversing in the near term. 0:13:44.640 --> 0:13:46.439 When it comes to China's exports. 0:13:46.080 --> 0:13:48.440 To the US, who do you talked earlier about commodities. 0:13:48.520 --> 0:13:50.560 We often think about China when it comes to things 0:13:50.679 --> 0:13:54.200 like copper, for example, to one extent, is the demand 0:13:54.280 --> 0:13:56.280 for copy of the price of copper are going determined 0:13:56.360 --> 0:13:58.520 by what happens in China and whether they can really 0:13:58.559 --> 0:13:59.640 rebound in their economy. 0:14:00.440 --> 0:14:01.960 Well, I think a lot of that, and you could 0:14:02.000 --> 0:14:06.720 see earlier this week they laid out the objective by 0:14:06.920 --> 0:14:10.640 doing a big soybean purchase, right, which reminds us of 0:14:10.679 --> 0:14:13.679 the early seventies when you had another crisis and they 0:14:13.720 --> 0:14:16.440 came in and bought a bunch of grain before President 0:14:16.520 --> 0:14:19.400 Nixon went to China. But I think the history lesson 0:14:19.440 --> 0:14:25.600 here is that emerging countries in their markets understand that 0:14:25.680 --> 0:14:30.080 if you partner with the US, you get rich. Now 0:14:30.240 --> 0:14:33.760 you've had growth and they got rich, and then they're like, Okay, 0:14:33.760 --> 0:14:36.960 we don't need you anymore. This crisis in China has 0:14:37.000 --> 0:14:40.200 made them realize that if you want to stay rich, 0:14:40.240 --> 0:14:43.920 you need to partner and continue partnering with the US. 0:14:43.960 --> 0:14:47.840 So what Sarah said is critical, and yes, so they 0:14:47.920 --> 0:14:51.520 need our capital, as an ambassador Manual just said, but 0:14:51.560 --> 0:14:53.560 people aren't going to fly in there. They have to 0:14:53.720 --> 0:14:57.040 demonstrate that the capital is going to be safe, that 0:14:57.520 --> 0:15:00.480 the human capital in China is going to continue to 0:15:00.520 --> 0:15:00.880 be safe. 0:15:00.880 --> 0:15:01.680 So it's going to be. 0:15:01.880 --> 0:15:04.960 A little bit of a slower process, and that's going 0:15:05.000 --> 0:15:08.840 to be reflected not an immediate demand for commodities and copper, 0:15:09.160 --> 0:15:10.680 but a slow and steady demand. 0:15:10.680 --> 0:15:12.320 As Sarah was saying earlier. 0:15:12.000 --> 0:15:14.440 Sarah, just briefly here at the end. Does that mean 0:15:14.480 --> 0:15:17.400 for other opportunities? For example, in Japan, I think you've 0:15:17.400 --> 0:15:20.080 just gotten back from Japan iView not I was. 0:15:20.120 --> 0:15:22.760 I was in Japan last week, and Japan's economy is 0:15:22.800 --> 0:15:26.040 growing very strongly for two reasons. One the increased focus 0:15:26.080 --> 0:15:29.080 on governance not only within the country but from non 0:15:29.200 --> 0:15:33.360 japan investors. Secondarily, Japanese government is very focused on getting 0:15:33.360 --> 0:15:36.880 individuals out of cash into more investable asset classes. And 0:15:37.000 --> 0:15:39.480 second is the Japanese economy is going very strong. The 0:15:39.520 --> 0:15:41.800 yen has been weak. However, our view is with some 0:15:41.920 --> 0:15:44.960 moderate inflation that we're seeing in Japan and likely higher 0:15:45.040 --> 0:15:47.400 interest rates, I think the yen is likely to bottom 0:15:47.440 --> 0:15:49.640 and reverse from here, but that does not unwind the 0:15:49.720 --> 0:15:52.320 japan story that has been very strong this year and 0:15:52.320 --> 0:15:53.240 should continue. 0:15:53.480 --> 0:15:56.160 And finally, Peter also Mexico's a lot more attractive than it. 0:15:56.120 --> 0:16:01.520 Was, absolutely for the near sourcing for their innovation. And 0:16:02.120 --> 0:16:04.800 you know, again, climate change has a little impact on 0:16:04.840 --> 0:16:07.600 that because we were saying earlier that the Panama Canal 0:16:07.760 --> 0:16:11.160 is low, so Mexico's trying to build and increase their 0:16:11.200 --> 0:16:14.440 transportation infrastructure. I just want to add in ten seconds, 0:16:15.280 --> 0:16:19.280 China Japan that story that's bearish for US treasuries because 0:16:19.280 --> 0:16:24.320 they are both selling treasuries to focus on their domestic economies. 0:16:24.400 --> 0:16:27.760 It's a globally integrated world, so you have to be 0:16:27.800 --> 0:16:28.760 careful what you wish for. 0:16:29.160 --> 0:16:31.000 What about that? Just a word or two, Sarah, do 0:16:31.000 --> 0:16:33.440 you agree there's a problem here with foreign buyers and treasuries. 0:16:34.320 --> 0:16:36.440 I think Peter makes a good point and that could 0:16:36.520 --> 0:16:37.560 be a headwind. 0:16:37.960 --> 0:16:40.200 Okay, thank you so much both of you for reading 0:16:40.200 --> 0:16:42.680 back with us. It's Peter Borsh of Computer Trading and 0:16:42.760 --> 0:16:51.840 Sarah Malaka New Ven. This is Wall Street Week. I'm 0:16:51.920 --> 0:16:56.000 David Weston. Israel's war with Hamas continues with Israeli troops 0:16:56.080 --> 0:17:00.680 fighting Hamas in Gaza as the humanitarian toll mounts. SR 0:17:00.840 --> 0:17:03.480 was a foreign policy advisor to George W. Bush when 0:17:03.480 --> 0:17:06.000 he was President in his administration, and as well, to 0:17:06.040 --> 0:17:08.639 admit Romney, he is the author of a brand new book. 0:17:08.680 --> 0:17:11.399 It's called The Genius of Israel. So Dan, welcome, it's 0:17:11.400 --> 0:17:13.480 good to have here. Congratulations in the book Congression of 0:17:13.520 --> 0:17:15.440 the fact that's on the New York Times bestseller leans. 0:17:15.480 --> 0:17:18.360 I should make you you actually wrote this book, completed 0:17:18.359 --> 0:17:21.760 it before what happened in last October seven, at the 0:17:21.760 --> 0:17:24.600 same time you were anticipating some difficulties with Israel. There 0:17:24.600 --> 0:17:27.080 have been demonstrations because of what happened with the part 0:17:27.080 --> 0:17:29.720 of Justice. So as we go forward, now, one of 0:17:29.760 --> 0:17:32.919 your themes is Israel is resilient. You've got then your 0:17:32.960 --> 0:17:37.119 subtitle Resilient and comes together. What have you learned since 0:17:37.119 --> 0:17:38.320 October seven about Israel? 0:17:38.400 --> 0:17:40.560 What we argued in the book because we wrote the 0:17:40.560 --> 0:17:43.000 book at the point at which Israel's in the depth 0:17:43.160 --> 0:17:46.320 of internal division, as you say, and we argued that 0:17:46.359 --> 0:17:49.439 as divided as Israel was, it was politically polarized. And 0:17:49.440 --> 0:17:54.000 we said, look, most Western affluent democracies are very politically polarized. 0:17:54.080 --> 0:17:57.800 Israel's not immune to political polarization. The difference between Israel 0:17:57.840 --> 0:18:01.080 and other Western countries is Israel has these societal shock 0:18:01.119 --> 0:18:05.640 absorbers built into it. This infrastructure that just as polarized 0:18:05.680 --> 0:18:08.399 as it may get, the country doesn't spin apart. And 0:18:08.440 --> 0:18:10.760 that's why were we said that in a sense, is 0:18:11.000 --> 0:18:13.240 like a blueprint for the West to look at how 0:18:13.280 --> 0:18:15.879 they keep the country together even when it looks like it's. 0:18:15.720 --> 0:18:16.800 About to go over the edge. 0:18:16.800 --> 0:18:19.680 We look at the role of national military service, which 0:18:19.680 --> 0:18:21.520 is interesting because it not only as we wrote in 0:18:21.520 --> 0:18:24.600 our first book about the tech economy, the national military 0:18:24.680 --> 0:18:29.080 the compulsory service helps young people develop management skills, leadership skills, 0:18:29.080 --> 0:18:32.080 in some cases specific technology skills that help them in 0:18:32.080 --> 0:18:34.600 the startup scene. But in this book we focus on 0:18:35.000 --> 0:18:39.160 the national Compulsory Service brings Israelis together from all walks 0:18:39.160 --> 0:18:42.880 of life, religious and secular, politically right wing, politically left 0:18:42.920 --> 0:18:45.000 wing people from the center of the country, like in 0:18:45.359 --> 0:18:48.320 booming cities like Tel Aviv, versus the struggling towns of 0:18:48.359 --> 0:18:51.080 the periphery. It brings all these people together and has 0:18:51.119 --> 0:18:52.679 them in the hull of a tank or in the 0:18:52.680 --> 0:18:55.720 warehouse on a military base, and they are working together 0:18:55.800 --> 0:18:57.800 and living together, and it makes it harder for them 0:18:57.840 --> 0:19:01.320 to look at one another as the other. So that's 0:19:01.359 --> 0:19:04.840 another important national compulsory service, and then lastly on national 0:19:04.840 --> 0:19:05.760 compulsory service. 0:19:06.359 --> 0:19:09.399 Is they focus on the we, not the me. 0:19:09.880 --> 0:19:13.080 In other words, to be effective in national military service 0:19:13.119 --> 0:19:16.000 in Israel and in other parts formative parts of Israeli life, 0:19:16.200 --> 0:19:19.000 you have to focus on being part of a team, community, 0:19:19.080 --> 0:19:21.080 a group. And we go through this in the book 0:19:21.119 --> 0:19:24.680 and say, compare that experience to how Americans go through 0:19:24.720 --> 0:19:26.840 life trying to get into colleges, trying to get into 0:19:26.840 --> 0:19:29.399 elite colleges. It's all about your own individual performance, your 0:19:29.440 --> 0:19:32.439 own individual excellence. There's a lot to learn from Israel 0:19:32.480 --> 0:19:35.560 in terms of these institutions that keep people together even 0:19:35.600 --> 0:19:37.800 though they see the world differently. And that's why we 0:19:37.800 --> 0:19:40.600 were hopeful that even if there were an October seventh event, 0:19:40.640 --> 0:19:42.960 an event, and we didn't anticipate in October seventh event, 0:19:43.000 --> 0:19:45.679 but even if there were one, it wouldn't surprise us 0:19:45.680 --> 0:19:46.840 if the country held together. 0:19:47.000 --> 0:19:49.919 Obviously, the first priority is dealing with security of the 0:19:49.960 --> 0:19:52.560 Israeli state and it's people. At the same time, there 0:19:52.600 --> 0:19:55.240 is an economy, the thriving economy. Where does that stand 0:19:55.320 --> 0:19:59.760 right now and what longer term challenges might this war pose. 0:20:00.080 --> 0:20:02.600 Look, there's no doubt in the near term. This is 0:20:02.640 --> 0:20:03.240 a setback. 0:20:03.440 --> 0:20:05.399 You've called up three hundred The Israel's called up three 0:20:05.480 --> 0:20:08.600 hundred and sixty thousand people, three hundred and sixty thousand reserves. 0:20:08.440 --> 0:20:11.679 It's the largest call up I think in its modern history. 0:20:12.560 --> 0:20:14.840 It's the number of Israelies have been called up for 0:20:14.920 --> 0:20:17.760 reserves is larger than the standing armies of the UK 0:20:17.800 --> 0:20:18.879 and France combined. 0:20:19.240 --> 0:20:20.400 Those are people who. 0:20:20.359 --> 0:20:22.919 Work in the hospitality industry and the tourism industry. Now 0:20:22.960 --> 0:20:24.800 there's a lot of tourism right now and a lot 0:20:24.800 --> 0:20:26.760 of people who work in the tech economy. So I 0:20:26.760 --> 0:20:29.760 speak to venture capitalists in Israel quite regularly, and many 0:20:29.800 --> 0:20:32.000 of them tell me that they're top that they look 0:20:32.000 --> 0:20:35.000 at their portfolio companies about ten percent of their top 0:20:35.040 --> 0:20:38.000 executives have been called up in one form or another. 0:20:38.600 --> 0:20:41.399 Does that mean these companies grind to a halt, these startups. No, 0:20:41.640 --> 0:20:43.120 but it does mean if they're in the middle trying 0:20:43.119 --> 0:20:44.760 to close a fundraising round, or in the middle of 0:20:44.760 --> 0:20:48.280 trying to complete an M and A deal or some 0:20:48.320 --> 0:20:51.440 sort of business development or sales deal, it slows things down. 0:20:51.800 --> 0:20:52.720 That's the bad news. 0:20:52.800 --> 0:20:55.639 I think this size, the scale of the reserve call 0:20:55.720 --> 0:20:59.120 up is going to shrink pretty soon. Particularly Israel's making 0:20:59.200 --> 0:21:01.760 much more progress I think anyone expected in Gaza. So 0:21:01.800 --> 0:21:04.760 I think they'll draw down on the reserves relatively soon. 0:21:04.800 --> 0:21:05.880 I don't know exactly when. 0:21:06.600 --> 0:21:09.560 And Two, if you look at how Israel the economy 0:21:09.560 --> 0:21:13.000 has dealt with major security like I go back to 0:21:13.119 --> 0:21:15.679 nineteen ninety one First Golf War, when the whole country 0:21:15.760 --> 0:21:18.640 was shut down, when Saddam Hussein was launching scud missiles 0:21:18.680 --> 0:21:21.639 into Israel and the whole country shut down. Most of 0:21:21.640 --> 0:21:24.440 the multinationals set up in Israel that had Israel R 0:21:24.440 --> 0:21:25.040 and D centers. 0:21:25.040 --> 0:21:25.879 There are Israel teams. 0:21:25.920 --> 0:21:29.360 Didn't miss a single deadline, didn't miss a single milestone. 0:21:29.560 --> 0:21:30.240 So they've sort of. 0:21:30.200 --> 0:21:33.040 Proven that even when they're these security shocks, they still 0:21:33.160 --> 0:21:35.720 can hold together. I think the same will be true 0:21:35.760 --> 0:21:38.159 here in the long term. The short term, it's going 0:21:38.200 --> 0:21:40.600 to be pretty stressful. I do think the experience, so 0:21:40.600 --> 0:21:42.520 I hate to say what I'm about to say, but 0:21:42.560 --> 0:21:45.800 I do think the experience of these young people who 0:21:45.840 --> 0:21:49.520 run companies in Israel going having to go through this experience, 0:21:49.920 --> 0:21:53.000 developing interdisciplinary skills, having the sub in for someone who's 0:21:53.040 --> 0:21:55.880 been called up, having to juggle a bunch of balls. 0:21:55.920 --> 0:21:58.320 Just you know when you're in when you're in Gaza 0:21:58.400 --> 0:21:59.680 for three days and you come back to work for 0:21:59.680 --> 0:22:01.480 a week, and you go back to gazam for three days. 0:22:02.040 --> 0:22:05.240 I do think there's a resilience factor that ultimately serves 0:22:05.280 --> 0:22:07.119 these companies in the long run, wealth they can get 0:22:07.160 --> 0:22:08.080 through the short term. 0:22:08.240 --> 0:22:10.560 I think in the long run, Israel's tech economy will. 0:22:10.440 --> 0:22:12.919 Be stronger Israel's had I think a disproportion of effect 0:22:12.920 --> 0:22:15.760 in the global economy, given its size, in its location, 0:22:16.240 --> 0:22:19.360 is that in any way in jeopardy the integration, certainly 0:22:19.400 --> 0:22:22.520 within the Middle East we were hoping for really a 0:22:22.600 --> 0:22:25.880 Repushwan with Saudi Arabia that certainly is not happening anytime soon, 0:22:26.040 --> 0:22:28.160 but even more broadly in Europe and as the rest 0:22:28.160 --> 0:22:31.480 of the world starts to be really uneasy with what's 0:22:31.480 --> 0:22:32.240 going on in Gaza. 0:22:32.440 --> 0:22:34.840 So I think there are two Look, if the US 0:22:34.960 --> 0:22:38.320 stays strong it shoulder to shoulder with Israel during these 0:22:38.400 --> 0:22:40.720 next few months that are going to be difficult, I 0:22:40.760 --> 0:22:42.600 think the rest of the world will basically follow. I 0:22:42.600 --> 0:22:44.640 don't think Europe is going to go in a dramatically 0:22:44.640 --> 0:22:47.000 different direction. In the US, That's why it's very important 0:22:47.040 --> 0:22:50.080 to Israel that it stays locked arms with the United States. 0:22:50.160 --> 0:22:53.399 And so far that's pretty good. That all indicators are 0:22:53.400 --> 0:22:55.679 that's pretty strong. The question, to your point, is the 0:22:55.720 --> 0:22:58.480 golf in the Arab world, that's where the most progress 0:22:58.520 --> 0:22:59.800 is being made. Now, if you go back in the 0:23:00.000 --> 0:23:04.239 book at why the Sunni golf, Bahrain, the Emiradis, the 0:23:04.280 --> 0:23:07.280 Saudis were in the works, as I call Israel's friends 0:23:07.320 --> 0:23:10.240 in Israel's future friends. Why all that was deepening and 0:23:10.280 --> 0:23:13.679 warming was not out of love for Israel. Those countries 0:23:13.680 --> 0:23:15.840 were doing it because they believed in Israeli strength. They're 0:23:15.840 --> 0:23:19.080 depending on the strength of Israel's economy, it's tech sectors, 0:23:19.119 --> 0:23:21.760 we're just talking about. It's geopolitical positioning in the world 0:23:21.920 --> 0:23:25.000 which had been growing, and they believed in the idea 0:23:25.040 --> 0:23:28.720 that Israel's military and intelligence capabilities were a juggernaut and 0:23:28.760 --> 0:23:30.240 they wanted a piece of it. They want to be 0:23:30.280 --> 0:23:33.360 part of it because they shared a common enemy, specifically 0:23:33.920 --> 0:23:35.360 Iran and the Muslim brotherhood. 0:23:35.520 --> 0:23:37.600 Dan, it's really great to have you back on Wall Street. 0:23:37.600 --> 0:23:39.800 Read that is Dan Senior. He is the author of 0:23:39.840 --> 0:23:44.760 the new book The Genius of Israel. This is Wall 0:23:44.800 --> 0:23:56.800 Street Week on Bloomberg Private equity. It's been around a while, 0:23:56.960 --> 0:23:58.960 but it hit the big time back in the eighties 0:23:59.200 --> 0:24:02.200 when the leverage out of R JR. Nabisco put Henry 0:24:02.240 --> 0:24:04.000 Cravis up on the big screen. 0:24:04.480 --> 0:24:07.520 I'm talking about putting a mountain of money into everybody's 0:24:07.520 --> 0:24:08.760 pocket right now. 0:24:09.000 --> 0:24:12.080 Since the go go days of lbo's, private equity and 0:24:12.240 --> 0:24:15.800 alternative investments more broadly have come a long way. The 0:24:15.840 --> 0:24:21.240 big guys like Cravis, KKR, Steve Schwarzman's Blackstone, David Rubinstein's Carlisle, 0:24:21.280 --> 0:24:24.600 and Jim Colter's TPG have gone from being the upstart 0:24:24.640 --> 0:24:27.879 pirates of finance to an entrenched and important part of 0:24:27.920 --> 0:24:31.199 the establishment, and along the way have been joined by 0:24:31.280 --> 0:24:35.240 a wide range of others, including the likes of Kim Kardashian. 0:24:35.680 --> 0:24:38.440 I've often said that private equity is the highest calling 0:24:38.520 --> 0:24:39.280 of mankind. 0:24:39.400 --> 0:24:41.480 Why did it take you so long to realize that? 0:24:41.880 --> 0:24:43.720 And that to join the private equity world? 0:24:45.480 --> 0:24:48.399 I finally got talked into it once I came to 0:24:48.440 --> 0:24:52.560 that realization. In the process, private equity has grown enormously, 0:24:52.840 --> 0:24:56.480 accounting today for some twelve trillion dollars in assets, with 0:24:56.600 --> 0:24:59.840 Blackstone now managing over one trillion dollars in assets all 0:25:00.000 --> 0:25:04.040 by itself, KKR about half that and Carlisle about a third, 0:25:04.640 --> 0:25:08.159 and they've taken somewhat different paths. With Blackstone's emphasis on 0:25:08.280 --> 0:25:10.880 its access to private data that may not be as 0:25:10.920 --> 0:25:13.119 readily available to public markets. 0:25:13.240 --> 0:25:18.760 I believe AI will reinforce and further the advantage advantages 0:25:18.800 --> 0:25:21.960 of private market investing relative to public market investing. Why 0:25:22.040 --> 0:25:24.399 is that Well, I think the reason for that is 0:25:24.560 --> 0:25:28.520 it's actually pretty simple public market investing, which relies obviously 0:25:28.600 --> 0:25:33.119 on publicly available data. That sort of data will be 0:25:33.280 --> 0:25:37.080 increasingly and further commoditized in an AI world. The value 0:25:37.080 --> 0:25:39.280 of that sort of information and data and ability to 0:25:39.320 --> 0:25:42.400 mind insights from that and have pattern recognition coming out 0:25:42.400 --> 0:25:45.520 of that, both longitudinally and across your business that will 0:25:45.520 --> 0:25:47.280 only be further enhanced. 0:25:47.080 --> 0:25:51.159 To KKR's big move into Asia and stakeholder capitalism. 0:25:51.320 --> 0:25:54.600 Our founders Henry Cravis and George Roberts say internally they 0:25:54.600 --> 0:25:57.399 pioneered the private equity business, and they said, if we 0:25:57.400 --> 0:25:59.320 were twenty two, we would go to Japan right now, 0:25:59.359 --> 0:26:01.600 because that's actually where you're seeing some of the real 0:26:01.680 --> 0:26:04.320 movement in creating some opportunities. 0:26:03.800 --> 0:26:08.280 Look private equity is not perfect, capitalism's not perfect, but 0:26:08.640 --> 0:26:11.320 this is a superior way of operating a company in 0:26:11.359 --> 0:26:15.879 every respect. But those most involved say they've only just begun. 0:26:16.560 --> 0:26:19.480 We have a very long term view on building the business. 0:26:19.760 --> 0:26:22.119 You know, we don't just want to be a very 0:26:22.119 --> 0:26:25.280 good asset management company. That's in addition to that. We 0:26:25.320 --> 0:26:27.359 want to build really one of the great companies in 0:26:27.400 --> 0:26:30.360 the world that is very enduring. That is Steve Schwarzman's 0:26:30.440 --> 0:26:33.040 vision and it permeates, you know, our culture and everything 0:26:33.080 --> 0:26:33.640 we do. 0:26:35.280 --> 0:26:37.040 And to take us through where private equity and the 0:26:37.080 --> 0:26:39.920 world of alternative investment, where broadly is today web So 0:26:40.040 --> 0:26:42.560 who knows it terribly well? He is Tony James. He 0:26:42.680 --> 0:26:45.480 is the founder and chair of Jefferson River Capital and 0:26:45.520 --> 0:26:48.280 of course for years was president and COO of Blacksmith. Tony, 0:26:48.320 --> 0:26:50.560 thank you so much for being here, pleasure, David. So, 0:26:50.760 --> 0:26:54.080 this has grown rather dramatically over the time you've watched 0:26:54.119 --> 0:26:56.760 it and participated, and it's like a twelve trillion dollar 0:26:56.840 --> 0:26:58.760 business today. It didn't start out that way in the eighties. 0:26:59.160 --> 0:27:01.840 So what gave rise to that? Why did it have 0:27:01.880 --> 0:27:04.120 such an advantage over other ways of investing? 0:27:04.320 --> 0:27:05.040 Well, as you point out. 0:27:05.040 --> 0:27:08.440 It started about fifty years ago, so there's something appropriate 0:27:08.480 --> 0:27:10.320 for now dealing with that. It started as a bit 0:27:10.359 --> 0:27:15.080 of a curiosity industry. It was primarily dominated by investment bankers. 0:27:15.720 --> 0:27:18.159 They perceived that the public markets. 0:27:17.760 --> 0:27:19.240 Were not what they are today. 0:27:19.280 --> 0:27:23.840 There were companies that were under managed, asset heavy, kind 0:27:23.840 --> 0:27:27.080 of sleepy, and an investment baker come in there, use 0:27:27.119 --> 0:27:30.600 the company's own assets to buy itself, spin off some assets, 0:27:30.640 --> 0:27:32.240 cut some costs, and then flip it out again and 0:27:32.240 --> 0:27:36.520 make some good returns. That pulled in more capital, of course, 0:27:36.680 --> 0:27:39.560 and after a while that became more competitive, so that 0:27:39.600 --> 0:27:42.199 the private equity industry then needed to actually not only 0:27:42.280 --> 0:27:44.439 have the transactional skills, but they needed to be investors too. 0:27:44.520 --> 0:27:47.000 They need to perceive value and where are the company's 0:27:47.040 --> 0:27:49.879 going and will it be a good company and will 0:27:49.920 --> 0:27:52.320 I be able to exit it at a good value. 0:27:52.680 --> 0:27:57.040 And so that expanded a lot the opportunity set. But again, 0:27:57.600 --> 0:28:00.600 the success of that pulled in more capital. Today it's 0:28:00.600 --> 0:28:04.800 evolved to where private equity really needs to be operational 0:28:04.800 --> 0:28:06.840 as well. You still need the transaction skills, you still 0:28:06.840 --> 0:28:09.119 need to be an investor, but now you need to 0:28:09.160 --> 0:28:13.480 be able to intervene in the company's fortunes and create value. 0:28:13.760 --> 0:28:17.439 So at Blackstone we've figured we could add by our 0:28:17.520 --> 0:28:20.960 own intervention, five to ten percent on average of a 0:28:21.000 --> 0:28:27.640 company's EBITDA, just by things like procurement, redesigning the healthcare plans, 0:28:28.880 --> 0:28:35.600 providing AI and data science, lean manufacturing, pricing, marketing, all 0:28:35.600 --> 0:28:39.040 of those things. And we could have world leading experts 0:28:39.040 --> 0:28:43.680 in that because we can deploy them and frankly deploy 0:28:43.720 --> 0:28:47.520 their cost over two hundred or so portfolio companies, medium 0:28:47.520 --> 0:28:49.640 and small companies, which are the focus that private equity 0:28:49.720 --> 0:28:54.640 can't really afford to have world class experts in all. 0:28:53.560 --> 0:28:55.080 These special areas. 0:28:55.440 --> 0:28:58.720 So a private equity firm is very well positioned to. 0:28:58.720 --> 0:28:59.760 Create the value. 0:29:00.720 --> 0:29:03.520 And that's had some other implications. 0:29:04.000 --> 0:29:05.680 In the early days, the. 0:29:06.600 --> 0:29:10.080 Kind of buy a company that's ascid heavy, sell off 0:29:10.120 --> 0:29:12.720 some assets, you made all your money, like in the 0:29:12.720 --> 0:29:14.200 first year or so, you cut some costs, you so 0:29:14.240 --> 0:29:17.120 al those asses, and then you flipped it. Now we're 0:29:17.120 --> 0:29:19.640 trying to create great companies. We're trying to grow them, 0:29:20.080 --> 0:29:22.600 and transforming a company takes the number of years and 0:29:22.640 --> 0:29:25.800 you sow the seeds, but they don't blossom right away. 0:29:25.880 --> 0:29:27.000 So private AQA. 0:29:26.880 --> 0:29:29.400 Has come much much more of a long term holder 0:29:29.720 --> 0:29:31.000 and builder of companies. 0:29:31.120 --> 0:29:33.600 And I would wouldn't be surprised. 0:29:33.200 --> 0:29:36.640 If in the early days of the industry, privately actually 0:29:36.680 --> 0:29:40.000 cost jobs. But today there's absolutely no doubt about it 0:29:40.040 --> 0:29:43.920 that it's a job creator. And so I think the 0:29:43.960 --> 0:29:46.040 industry has evolved to a better place. 0:29:46.120 --> 0:29:46.880 I kind of view. 0:29:47.560 --> 0:29:49.800 I mean, the gains the private aquho are always going 0:29:49.800 --> 0:29:52.880 to pensioners, but now I view the private itself as 0:29:52.920 --> 0:29:55.560 a force for good in the economy to a much 0:29:55.600 --> 0:29:57.000 greater degree than it was way back. 0:29:57.040 --> 0:29:59.400 When does that require more patience on the part of 0:29:59.440 --> 0:30:01.360 people who were giving them money to invest? I mean, 0:30:01.360 --> 0:30:03.600 if you're holding the company a lot longer time to 0:30:03.640 --> 0:30:06.600 get those operational benefits, and is there that patience? And 0:30:06.640 --> 0:30:08.640 by the way, what about the liquidity issue? One of 0:30:08.640 --> 0:30:10.840 the issues on private equity has always been I can't 0:30:10.880 --> 0:30:11.720 pull my money out. 0:30:11.600 --> 0:30:16.320 When I want to, right right, It does definitely require 0:30:16.440 --> 0:30:20.960 more patients, But most investors now actually want longer holding 0:30:20.960 --> 0:30:25.440 periods because because you get richer, you get richer. Compounding 0:30:25.440 --> 0:30:27.800 something at twelve percent for twenty years, then you do 0:30:27.880 --> 0:30:32.320 compounding at twenty percent for five years. So the IRR 0:30:32.400 --> 0:30:35.840 that people talk about the compounding, that's only one aspect 0:30:35.960 --> 0:30:36.200 of it. 0:30:36.400 --> 0:30:38.760 So a lot of investors they want. 0:30:38.600 --> 0:30:40.400 That money out, they want that money working for them 0:30:40.440 --> 0:30:42.760 over a long period of time, and they're content with 0:30:43.560 --> 0:30:46.760 longer holding periods. We can get into different investor classes, 0:30:46.800 --> 0:30:49.560 but there are other ways you can get liquid if 0:30:49.600 --> 0:30:50.280 you really need it. 0:30:50.360 --> 0:30:52.520 Well, I was going to answer about that secondary there's 0:30:52.520 --> 0:30:54.520 a secondary market now as I understand it. So actually 0:30:54.520 --> 0:30:56.840 you can get your money out through secondary market, as 0:30:56.840 --> 0:30:57.880 I understand explain that. 0:30:58.520 --> 0:31:02.360 Sure, well, twelve trillion dollars, it's muff roomed out there. 0:31:02.640 --> 0:31:05.120 Inevitably a certain number of vestors want to get their 0:31:05.120 --> 0:31:07.080 money out, and not necessarily for. 0:31:07.400 --> 0:31:09.280 Because assets not performing for them. 0:31:09.400 --> 0:31:11.640 Private acuity has been the best performing asset class for 0:31:11.680 --> 0:31:16.480 most institutions, and just a sidelight. One of the ironies 0:31:16.520 --> 0:31:19.920 of that is if an institution has an asset allocation model, 0:31:19.920 --> 0:31:23.160 so twenty percent in private equity, forty percent in public ateke, 0:31:23.280 --> 0:31:26.560 forty percent in debt, let's just say, and private equly outperforms. 0:31:26.880 --> 0:31:28.640 What happens is that all of a sudden they have 0:31:28.640 --> 0:31:31.640 more than twenty percent in private equity, right, and so 0:31:31.760 --> 0:31:34.400 now they need to sell down private equity. So it's 0:31:34.680 --> 0:31:38.680 got a kind of a counterintuitive the success means they 0:31:38.720 --> 0:31:41.800 need to be net sellers, which is kind of odd, 0:31:41.840 --> 0:31:42.360 but that's. 0:31:42.160 --> 0:31:43.600 The way, that's the way it works. 0:31:44.480 --> 0:31:50.000 So but but reallocating, rebalancing the portfolio strategy changes with 0:31:50.960 --> 0:31:53.600 corporate pension funds. When they've become fully funded, they then 0:31:53.640 --> 0:31:56.680 want to go out of risk assets of just essentially 0:31:56.720 --> 0:32:01.720 lock in the with double a credit stuff the liabilities, 0:32:01.760 --> 0:32:05.200 so defeats the liabilities. If in retail investor, you have 0:32:05.280 --> 0:32:07.560 life changes, you get divorced, you have the state planning, 0:32:07.800 --> 0:32:12.920 so all those reasons. There are sellers of LP interest 0:32:13.040 --> 0:32:19.280 and this business secondaries has ballooned as the primaries have. 0:32:19.360 --> 0:32:22.920 It's still lagging. But to provide that liquidity. 0:32:23.120 --> 0:32:25.360 Tony Yousers mentioned retail investors. I think if you go 0:32:25.400 --> 0:32:27.200 back ten years ago, I wouldn't have thought of retail 0:32:27.200 --> 0:32:30.239 investors in the same sentence with private equity. How has 0:32:30.280 --> 0:32:32.560 that changed to what extent are retail investors coming in 0:32:32.560 --> 0:32:35.240 and what is the profile of those retail investors in general? 0:32:36.040 --> 0:32:39.600 Well, it started off as very high net worth investors. 0:32:39.680 --> 0:32:42.480 There are almost many institutions in a way, but now 0:32:42.520 --> 0:32:45.280 it's down to the mom and pop, and the industry 0:32:45.320 --> 0:32:47.880 has evolved to create products that are more and more 0:32:47.960 --> 0:32:51.880 appropriate for smaller investors. And retail investors have the same 0:32:51.920 --> 0:32:56.000 need for returns that institutions do. And you know, we've 0:32:56.120 --> 0:32:58.520 essentially had a forty year downtrend in interest rates, but 0:32:58.560 --> 0:33:02.360 that's pulled the returns all asset classes down, so the 0:33:02.360 --> 0:33:06.320 need for added returns becomes more and more acute. At 0:33:06.320 --> 0:33:10.240 the same time, institutions realized particularly the first were the 0:33:10.320 --> 0:33:13.240 endowments of the universities. They are the most sophisticated David 0:33:13.280 --> 0:33:14.040 Swinson and so. 0:33:14.000 --> 0:33:14.640 On and so forth. 0:33:15.160 --> 0:33:17.880 Then there were the pensions, and then now to the 0:33:17.960 --> 0:33:22.160 high networth individuals. Endowments have about fifty percent of their 0:33:22.320 --> 0:33:26.200 endowments in private assets, pension funds about twenty five, retail 0:33:26.240 --> 0:33:32.000 investors less than five, so they still have ways to go. 0:33:32.080 --> 0:33:35.520 And what the institutions realized is, I don't need all 0:33:35.560 --> 0:33:39.520 that liquidity. I'm never going to need to raise to 0:33:40.280 --> 0:33:45.520 liquidate everything overnight. And I think increasingly high networth individuals 0:33:45.720 --> 0:33:49.960 are realizing the same thing. If you have assets financially, 0:33:50.040 --> 0:33:52.680 if you own your home, and you say you're lucky 0:33:52.760 --> 0:33:54.160 enough to have a second home, and you have financial 0:33:54.200 --> 0:33:57.320 assets multiples of annual spending. Do you really need to 0:33:57.320 --> 0:34:00.680 be able to liquate everything tomorrow? Because it has a 0:34:00.720 --> 0:34:03.240 real cost. It has a real cost in lower return. 0:34:04.080 --> 0:34:07.000 And so it also has a cost because it's tempting 0:34:07.040 --> 0:34:10.200 because individuals tend to do the wrong thing. They get 0:34:10.239 --> 0:34:13.000 worried when the markets are collapsing. That's probably the time 0:34:13.000 --> 0:34:15.480 they should buy, but they end up selling, and they 0:34:15.520 --> 0:34:17.520 get embulent when they see everyone making a lot of 0:34:17.520 --> 0:34:19.239 money and they throw them theirselves in the market. 0:34:19.280 --> 0:34:20.719 That's probably the time they shouldn't do that. 0:34:21.200 --> 0:34:26.480 So it's got a counterintuitive negative too. So yeah, it's 0:34:27.680 --> 0:34:30.480 the sort of the new frontier is retail investors, and 0:34:30.520 --> 0:34:35.680 the big new frontier is not their ULTRAI networth but 0:34:36.000 --> 0:34:37.279 the mass market, and. 0:34:37.239 --> 0:34:41.000 That's growing very much. Yeah, okay, Tony, really great to 0:34:41.040 --> 0:34:42.960 have you with us on Walster. I really appreciate that's 0:34:43.000 --> 0:34:47.839 Tony James of Jefferson River Capital. Coming up, we wrap 0:34:47.920 --> 0:34:50.759 up the week with our special contributor Larry Summers of Harvard. 0:34:51.200 --> 0:35:03.640 That's next on Wall Street Week on Bloomberg. This is 0:35:03.640 --> 0:35:05.719 Wall Street Week. I'm David Weston. We're joined once again 0:35:05.719 --> 0:35:07.640 by our very special contributor here in Wall Street Week, 0:35:07.680 --> 0:35:09.839 he is Larry Summers of Harvard, So Larry, welcome back. 0:35:09.840 --> 0:35:11.960 Great to have you here. Let's start with one of 0:35:11.960 --> 0:35:13.799 the major events of the week, and that was the 0:35:13.840 --> 0:35:18.080 President g and President Biden actually meeting around the APEC 0:35:18.160 --> 0:35:20.520 meetings out there in San Francisco. It's hard to know 0:35:20.600 --> 0:35:23.239 where this will go, but so far, so good. They 0:35:23.320 --> 0:35:26.200 seem to be trying to really pull themselves back from 0:35:26.200 --> 0:35:26.920 the precipice. 0:35:27.440 --> 0:35:31.800 Look, it's important to have meetings like this. Churchill famously said, 0:35:32.400 --> 0:35:38.080 much better jaw jaw than bang bang. On the other hand, 0:35:38.600 --> 0:35:40.919 I think we need to remember that there are very 0:35:40.960 --> 0:35:47.520 difficult fundamentals here, very different systems, very different views of 0:35:47.600 --> 0:35:54.600 the world, profound competition in the technological arena, concerns on 0:35:54.920 --> 0:36:01.080 the American side about China subversion of our our international 0:36:01.200 --> 0:36:06.920 our vision of the international system, compares concerns on the 0:36:07.000 --> 0:36:10.239 Chinese side that the United States is trying. 0:36:09.960 --> 0:36:12.320 To hold them down. 0:36:12.840 --> 0:36:17.840 So there are very profound geopolitical forces at play, and 0:36:18.400 --> 0:36:22.600 this struggle is going to be with us for a long, 0:36:22.680 --> 0:36:26.680 a very long time. So I'm glad to see the meeting, 0:36:26.840 --> 0:36:31.359 but I'm concerned and I'm particularly concerned in light of 0:36:31.400 --> 0:36:36.080 the gravity of the economic challenges that China is facing. 0:36:36.160 --> 0:36:40.240 And my concern is that, as with the Soviet Union 0:36:41.480 --> 0:36:47.440 in the nineteen sixties, a sense of very serious economic 0:36:47.600 --> 0:36:52.799 challenges is going to drive a felt need for increasing 0:36:52.880 --> 0:36:57.839 assertiveness in the international arena, as we saw with Khrushchev's 0:36:57.960 --> 0:37:01.880 moves on Berlin, as we saw with the placement of 0:37:02.000 --> 0:37:07.000 missiles in Cuba. And while I don't see anything concrete 0:37:07.560 --> 0:37:11.480 like that that's happening right now, I think the economic 0:37:11.640 --> 0:37:16.080 distress and the link to nationalism, given some of the 0:37:16.200 --> 0:37:20.520 very strong positions that g has taken, is something that 0:37:21.200 --> 0:37:24.080 is going to require the United States and the West 0:37:24.719 --> 0:37:27.880 to be on their guard going forward. 0:37:28.600 --> 0:37:30.640 Global Wall Street has paid a lot of attention this 0:37:30.680 --> 0:37:32.400 week to those CPI numbers that came out for the 0:37:32.480 --> 0:37:35.520 United States. Some people are, if not declaring victory, close 0:37:35.560 --> 0:37:38.120 to declaring victory over inflation. Are they premature? 0:37:38.760 --> 0:37:41.440 Look, those were good numbers. Those were better numbers than 0:37:41.480 --> 0:37:45.279 I would have expected, better numbers than I think most 0:37:45.320 --> 0:37:50.640 people would have expected. And I think inflation performance has 0:37:50.719 --> 0:37:55.560 been more favorable certainly that I have expected over the 0:37:55.680 --> 0:38:00.480 last year. I thought a lot about that. David and 0:38:00.520 --> 0:38:04.120 I think there are two or three factors to emphasize. 0:38:05.040 --> 0:38:09.680 The first is that policy has been much tighter than 0:38:09.840 --> 0:38:15.000 was anticipated. In July of twenty twenty two, markets were 0:38:15.280 --> 0:38:19.800 assigning a probability of under ten percent to the level 0:38:19.840 --> 0:38:25.239 of tightness in policy that we have seen so far. 0:38:25.400 --> 0:38:30.200 So more tight policy has led to better outcomes on inflation. 0:38:30.719 --> 0:38:34.200 That doesn't mean inflation fears were unwarranted. It means that 0:38:34.680 --> 0:38:38.520 people took the fears seriously, which was good. I think 0:38:38.560 --> 0:38:42.919 that's one important aspect. I do think that given how 0:38:43.000 --> 0:38:47.160 strong the economy has been, there's still a surprise in 0:38:47.280 --> 0:38:51.160 what's happened to inflation, and that I think has to 0:38:51.200 --> 0:38:56.839 do in part with transitory factors. Transitory factors that were 0:38:56.840 --> 0:39:01.560 pushing inflation up from bottleneck that are now mean reverting 0:39:01.640 --> 0:39:05.719 and are pushing inflation down. So I think there's been 0:39:05.760 --> 0:39:09.520 a little bit of prematurity in some of the declarations 0:39:09.640 --> 0:39:13.399 of victory. And I'm not sure the inflation figures over 0:39:13.440 --> 0:39:15.719 the next two years are going to be quite as 0:39:15.760 --> 0:39:20.839 favorable as the market is expecting, especially in light of 0:39:20.880 --> 0:39:27.839 the geopolitical risks around oil and some other commodities. So 0:39:27.920 --> 0:39:31.240 we'll have to see whether we're really able to get 0:39:31.280 --> 0:39:38.000 down to two percent quite as easily as many people imagine. 0:39:38.040 --> 0:39:39.880 And what is the risk right now of a recession 0:39:39.880 --> 0:39:41.239 in the first half of next year. 0:39:41.520 --> 0:39:44.879 It's certainly under fifty to fifty David. I think it's 0:39:44.880 --> 0:39:51.520 probably on the order of twenty twenty five twenty five percent. 0:39:51.719 --> 0:39:55.440 That ultimately something will happen which will cause the nber 0:39:56.560 --> 0:40:01.480 to data recession is having begun in the first half 0:40:02.080 --> 0:40:07.319 of the year. In general, when recessions come, we don't 0:40:07.320 --> 0:40:11.160 even know that we're in them till they've been underway 0:40:11.400 --> 0:40:16.280 for several months, so I think you got to recognize 0:40:16.920 --> 0:40:20.640 that as a real risk. On the other hand, with 0:40:20.880 --> 0:40:24.520 what we've been seeing in the employment reports, incomes are 0:40:24.920 --> 0:40:29.960 continuing to grow, so I don't think that is the 0:40:30.600 --> 0:40:33.000 preponderant scenario. 0:40:33.480 --> 0:40:35.640 One thing that maybe at verse in store is actually, 0:40:35.640 --> 0:40:37.640 besides of the federal deficit, a lot of talk about that. 0:40:37.719 --> 0:40:40.600 This week. It appears we've avoided actually shutting down the government. 0:40:40.800 --> 0:40:42.920 People came to their senses, but it's only up to 0:40:43.040 --> 0:40:45.560 next January before they come to it again. And the 0:40:45.560 --> 0:40:48.000 main issue is not even what they did this week, 0:40:48.040 --> 0:40:50.839 but the larger issue about the weight that this may 0:40:50.880 --> 0:40:52.320 impose on the US economy. 0:40:52.760 --> 0:40:56.960 If somebody's got a basic problem of being overweight. It's 0:40:57.040 --> 0:41:02.439 good if a skip desserts. It's good if they check 0:41:02.480 --> 0:41:06.320 into a spa for a weekend. But what really matters 0:41:06.440 --> 0:41:10.239 is whether they change their habits and they change their lifestyle, 0:41:10.840 --> 0:41:15.160 And nothing in this agreement or anything in the discussions 0:41:15.239 --> 0:41:20.080 currently underway, is about changing the American habit or lifestyle 0:41:20.520 --> 0:41:23.920 with respect to spending in taxes. I look at the 0:41:23.960 --> 0:41:28.480 world right now, and it is the most ominous world 0:41:29.080 --> 0:41:34.400 geopolitically that I have seen, certainly since the Berlin Wall 0:41:34.520 --> 0:41:39.640 fell in nineteen eighty nine. I look at projections for 0:41:39.719 --> 0:41:43.040 the federal budget that call for defense spending as a 0:41:43.080 --> 0:41:47.279 share of GDP to fall substantially. I don't think that 0:41:47.400 --> 0:41:51.760 should happen, and I don't think that will happen, almost 0:41:51.800 --> 0:41:56.480 regardless of how domestic politics play out. And so I think, 0:41:56.560 --> 0:41:59.480 as I look at the budget picture, we got to 0:41:59.520 --> 0:42:03.800 recognize that we've got a big national defense liability ahead 0:42:03.800 --> 0:42:07.279 of us that we're not really budgeting for in the 0:42:07.360 --> 0:42:13.560 current projections. And much more generally, David is a very 0:42:13.600 --> 0:42:20.400 profound question of how long the world's greatest debtor will 0:42:20.440 --> 0:42:26.440 remain the world's greatest and most secure power. And so 0:42:26.960 --> 0:42:31.840 I think that everybody talks about our resilience as a country. Well, 0:42:32.200 --> 0:42:36.239 part of resilience for a company, part of resilience for 0:42:36.320 --> 0:42:41.040 a household is containing your leverage and containing your borrowing. 0:42:41.680 --> 0:42:43.920 And I think that's something we need to think about 0:42:43.960 --> 0:42:44.480 as a nation. 0:42:45.640 --> 0:42:48.560 Larry, just give us a little wisdom from the nineteen nineties. 0:42:48.719 --> 0:42:50.960 You serve in the Clinton administration back then when they 0:42:51.000 --> 0:42:54.279 got their arms around the budget, and my recollection to 0:42:54.360 --> 0:42:57.080 continue your analogy to dieting. If you're going to lose weight, 0:42:57.320 --> 0:42:59.719 you can't just exercise. You can't just cut back on 0:42:59.719 --> 0:43:02.200 what you You got to do both. And right now 0:43:02.360 --> 0:43:04.799 one might think we have one party who doesn't want 0:43:04.840 --> 0:43:07.279 to increase taxes and increase revenues, the other doesn't want 0:43:07.280 --> 0:43:10.520 to cut spending. How did you manage in the nineteen 0:43:10.600 --> 0:43:12.799 nineties to get over that home. 0:43:13.080 --> 0:43:17.120 Well, I'm happy to try to answer the question how 0:43:17.120 --> 0:43:20.439 Bill Clinton managed. I don't want to be the one 0:43:20.600 --> 0:43:27.439 taking credit for the nineteen ninety three budget deal. Look, 0:43:27.560 --> 0:43:30.840 I think he laid out the case. He brought people together, 0:43:31.400 --> 0:43:36.960 He was willing to do things that were painful. His 0:43:37.400 --> 0:43:40.520 for the people who were his. 0:43:42.200 --> 0:43:42.680 Friends. 0:43:43.239 --> 0:43:47.680 He was able to explain the case to the American people, 0:43:48.320 --> 0:43:51.200 and that's the kind of leadership. 0:43:50.680 --> 0:43:51.520 We're going to need. 0:43:52.320 --> 0:43:55.759 And he reaped a benefit that I think people need 0:43:55.800 --> 0:43:59.880 to recognize and that maybe hasn't come into focus quite Ye. 0:44:00.560 --> 0:44:02.640 Okay, Larry, thank you so very much. Always great to 0:44:02.680 --> 0:44:07.680 have you with us, as Larry Summers of Harvard coming up. 0:44:07.719 --> 0:44:11.719 Second acts. Sometimes you win, sometimes you lose, and sometimes 0:44:11.840 --> 0:44:14.560 you end up with the cat. That's the next time 0:44:14.640 --> 0:44:26.600 Wall Street Week on Bloomberg. Finally, one more thought. F 0:44:26.640 --> 0:44:29.680 Scott Fitzgerald told us that in American lives, there are 0:44:29.840 --> 0:44:33.560 no second acts. The annals of business and politics and 0:44:33.680 --> 0:44:36.800 sports are filled with stories of stars who had great 0:44:36.840 --> 0:44:39.720 first acts but fell short when they tried to come back. 0:44:40.040 --> 0:44:43.160 Think Michael Jordan's ill fated career as a professional baseball 0:44:43.160 --> 0:44:46.319 player after he had dominated the world of basketball. Or 0:44:46.360 --> 0:44:50.080 famed Hollywood agent Michael Ovitz, who left an indelible stamp 0:44:50.120 --> 0:44:53.399 on the entertainment industry with his creation of CAA, only 0:44:53.440 --> 0:44:55.959 to struggle with a transition to the corporate world under 0:44:56.000 --> 0:44:59.160 Michael Eisner. But that doesn't keep people from trying and 0:44:59.200 --> 0:45:02.239 sometimes succeed all the way back to the early nineteenth 0:45:02.239 --> 0:45:05.000 century when President John Quincy Adams lost to his arch 0:45:05.120 --> 0:45:08.480 rival Andrew Jackson, only to come back as a congressman, 0:45:08.520 --> 0:45:11.319 and some have suggested he had more success in that role. 0:45:11.760 --> 0:45:14.440 Or Arnold Schwarzenegger, who went from action star of the 0:45:14.440 --> 0:45:17.520 big screen to become a successful governor of California. 0:45:19.360 --> 0:45:20.200 I'll be back. 0:45:21.160 --> 0:45:23.920 Just within the past two years, we've had two notable 0:45:23.960 --> 0:45:27.279 comebacks in the corporate world, as Howard Schultz returned for 0:45:27.320 --> 0:45:30.640 a second time to run Starbucks and he's seriously considered 0:45:30.719 --> 0:45:33.359 a second act that would go way past coffee. 0:45:33.600 --> 0:45:37.080 I am seriously thinking of running for president. 0:45:37.880 --> 0:45:40.680 Bob Eyer returned to CEO to Disney just under a 0:45:40.719 --> 0:45:44.000 year ago and was praised by competitors like Reid Hoffman. 0:45:44.440 --> 0:45:46.400 Bob is I think one of the great CEOs of 0:45:46.400 --> 0:45:49.520 our time. Part of what you want CEOs to be doing, 0:45:49.520 --> 0:45:53.400 which is acting like owners and feeling that the important 0:45:53.400 --> 0:45:55.760 thing is the legacy of the company that they hand 0:45:55.800 --> 0:45:59.280 on to their successors, to employees, to society. 0:45:59.400 --> 0:46:02.239 I think, Bob, And even as we speak, we have 0:46:02.360 --> 0:46:05.040 Donald Trump, the forty fifth president, trying to come back 0:46:05.040 --> 0:46:09.320 as the forty seventh vowing to make America great again again. 0:46:09.719 --> 0:46:12.640 In order to make America great and glorious again, I 0:46:12.680 --> 0:46:17.239 am tonight announcing my candidacy for President of the United States. 0:46:17.400 --> 0:46:20.240 But perhaps the oddest story of attempted second acts comes 0:46:20.280 --> 0:46:23.280 not from America, but from Great Britain. We all remember 0:46:23.400 --> 0:46:26.840 David Cameron, that young, charismatic British Prime Minister who was 0:46:26.880 --> 0:46:29.480 so confident his fellow Britons wanted to stay in the 0:46:29.520 --> 0:46:32.000 European Union that he decided to put it to a vote. 0:46:32.440 --> 0:46:35.440 He was wrong. They voted to leave, and mister Cameron 0:46:35.440 --> 0:46:37.280 had little choice but to leave as well. 0:46:37.560 --> 0:46:40.480 The British people have made a very clear decision to 0:46:40.600 --> 0:46:44.040 take a different path, and as such, I think the 0:46:44.080 --> 0:46:48.000 country requires fresh leadership to take it in this direction. 0:46:48.360 --> 0:46:52.560 Now, seven years later, another struggling Tory Prime Minister, Rishi Sunak, 0:46:52.640 --> 0:46:55.840 has decided to bring mister Cameron back, not as Prime Minister, 0:46:55.920 --> 0:46:59.040 to be sure, but as his Foreign secretary. Things are 0:46:59.120 --> 0:47:01.880 quite a bit different than they were when mister Cameron 0:47:01.960 --> 0:47:04.799 left Number ten. The world's been through a pandemic. The 0:47:04.880 --> 0:47:08.080 promises of economic prosperity made by the Brexiteers have proven 0:47:08.239 --> 0:47:11.399 largely hollow and the polls point to labor being back 0:47:11.440 --> 0:47:13.560 in power with the next general election. 0:47:14.160 --> 0:47:16.680 The labor market data was also pretty positive. 0:47:16.840 --> 0:47:18.879 Wage growth decelerated a little bit. 0:47:19.200 --> 0:47:22.239 It's still incredibly high though, and so I would put 0:47:22.280 --> 0:47:24.040 all of this in a category of good news. 0:47:24.200 --> 0:47:27.200 But David Cameron will have one friendly face to greet 0:47:27.280 --> 0:47:30.080 him when he pays visits Number ten Downing Street. That 0:47:30.200 --> 0:47:34.160 of Larry, the chief mouser at the Prime Minister's residence, 0:47:34.520 --> 0:47:36.879 a cat who shared the house with the Cameron's back 0:47:36.960 --> 0:47:39.520 when they were in charge. That does it for this 0:47:39.520 --> 0:47:42.320 episode of Wall Street Week. I'm David Weston. This is Bloomberg. 0:47:42.560 --> 0:47:47.239 See you next week.