Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg to
Speaker 1: talk about the regime, we can welcome in here in
Speaker 1: New York, YenS Norvik, Exante data founder and CEO, who
Speaker 1: joins us around a table right now. It's great to
Speaker 1: have you with us. Thank you. It's still goldilocks or
Speaker 1: a thing's changing. Well. People definitely got very worried about
Speaker 1: the spike and wage growth the previous months, so the
Speaker 1: fact that that's coming down is important. But obviously we
Speaker 1: have a lot of noise in this data. There's something
Speaker 1: about the hours work swinging up and down that is
Speaker 1: in in these numbers in both directions. So I personally
Speaker 1: think it's important to look ahead, like what is the
Speaker 1: trajectory of the economy. And what is really interesting is
Speaker 1: that they're not only have we got that the tax
Speaker 1: cut that is sort of working its way through its economy,
Speaker 1: but we have very very significant increases in physical spending
Speaker 1: in the second half of that year of this year,
Speaker 1: and actually first half from next year as well. That's
Speaker 1: going to add a lot to growth. Right, So we're
Speaker 1: looking at what the economy is are doing now, but
Speaker 1: we know it's going to shift up a gear pretty
Speaker 1: much over the next twelve months and it will be
Speaker 1: very very interesting to see how the Fed reacts that.
Speaker 1: Are they going to sort of be reacting slowly or
Speaker 1: they're going to say, okay, we need to be a
Speaker 1: bit more proactive. That that's the key. So I can't
Speaker 1: tell you how many research nights have read this morning
Speaker 1: with the word goldilocks in it. Kitchen Ciber at sock
Speaker 1: Jam with the with the title of his research this morning,
Speaker 1: who spiked goldilocks? Is Porridge and he's talking about the
Speaker 1: fiscal stimulus that come from Washington, d C. So help
Speaker 1: me understand what this means for the Federal Reserve. They've
Speaker 1: had a raised for the last few years of output rich,
Speaker 1: inflation poor, and then all of a sudden they've got
Speaker 1: to start thinking about capacity constraints and what happens when
Speaker 1: the fiscal stimulus really starts to buy What is the
Speaker 1: prudent monetary policy response to that. You've got years on
Speaker 1: your side of just output rich inflation poor, but the
Speaker 1: real prospect that things are starting to shift. Well, I
Speaker 1: think that the prudent monitory policy is to really keep
Speaker 1: your options open. So we were on TV like a
Speaker 1: couple of minutes ago, and we talked about, Okay, should
Speaker 1: the FED really make every single FED meeting live? I
Speaker 1: think that would be a good option here, Like they
Speaker 1: need to have the ability to step up the pace
Speaker 1: of tightening if they see it. And one way of
Speaker 1: of of sort of bring that optionality into play is
Speaker 1: to make every single meeting a line meeting with the
Speaker 1: press conference. So that would be one thing. The other
Speaker 1: thing I think is to do with the signals that
Speaker 1: they send a little bit further ahead. I think increasing
Speaker 1: the pace of hikes beyond for a year right now
Speaker 1: will be dramatic step, but they can sick on okay
Speaker 1: next year, next year. We want to keep our options open.
Speaker 1: We don't know exactly where our star is. It's a
Speaker 1: very ecademic concept, so perhaps we need to go longer
Speaker 1: than people anticipating. I think that's the kind of forward
Speaker 1: guidance they can send now, and I think that would
Speaker 1: soon be appropriate. Within the forward guidance is a Fed
Speaker 1: that has to act. Everybody seems to agree on that.
Speaker 1: How far behind are they the real rate? The Fed
Speaker 1: funds real rate is still negative? Right yeah? Um. I
Speaker 1: think the problem is that we get so tied to
Speaker 1: this very academic way of analyzing what the equilibrium rate is.
Speaker 1: This our star concept is something that is incredibly difficult
Speaker 1: to calculate, and it's easy to say, Okay, here's a
Speaker 1: good academic paper. Now I'm going to believe there's number,
Speaker 1: but reality nobody knows. So I think this is probably
Speaker 1: one area where we can go back to the Green
Speaker 1: Splan days and really go into the minutia and say, okay,
Speaker 1: how is each sector really responding to these slightly higher rates.
Speaker 1: I've heard this from other people. What what's you're reading
Speaker 1: of that? I mean, you're not out there looking at
Speaker 1: every sector, but what you're reading of each in every sector?
Speaker 1: Right now? Because John and I get mail when we
Speaker 1: say that it's a fully employed America, our our audience
Speaker 1: thinks we're nuts. Well we can we can see the
Speaker 1: is definitely a big move in the participation right in
Speaker 1: the in the latest numbers. So that's very very interesting,
Speaker 1: and I guess Yellen was was very vocal a little
Speaker 1: while ago about saying, Okay, we need to push this
Speaker 1: economy harder to see okay, because there's some kind of
Speaker 1: reverses the races we can bring into play here. And
Speaker 1: perhaps she was right, but I think in terms of
Speaker 1: evaluating what's going on with the economy, it's aweso important
Speaker 1: to think about, Okay, the various sectors, can they actually
Speaker 1: cope with higher rates? And what It's very interesting if
Speaker 1: you look at the sort of debt levels, right, there's
Speaker 1: often a lot of focus on the fact that, Okay,
Speaker 1: we have a fishcal problem, we have a dead problem
Speaker 1: in in the government space. But if you look at
Speaker 1: the household sector, we actually have less debt relative to
Speaker 1: disposable income than we had the before the crisis. So
Speaker 1: that's a sector that I think can be quite resilient.
Speaker 1: So I think it's very very hard to to say okay,
Speaker 1: or a star is real rate a little bit above zero,
Speaker 1: maybe we can get too substantially higher normal rates than
Speaker 1: people are anticipating. Now. Well, yes, I think there's two
Speaker 1: ways of looking at this. And Danny blanche Flower of
Speaker 1: Dartmouth was messaging me over the weekend. Of course he
Speaker 1: would be very dovish if he was on the Federal
Speaker 1: Reserve and the data backs him up. The participation rate
Speaker 1: is rising. This is an economy still printing three hundred
Speaker 1: thousand jobs apparently in a given month. We've been looking
Speaker 1: at two d K every other month seemingly, and yet
Speaker 1: wage growth isn't picking up. So there is a dovish
Speaker 1: picture you can paint of the labor market. At the
Speaker 1: same time, there's another way of just looking at this. Practically,
Speaker 1: should rights at the FETE big around one and a
Speaker 1: half percent near an emergency setting when we this late
Speaker 1: in the psycho and GDP is as high as it is. Yeah, Now,
Speaker 1: I think this is the big debate, Like we can
Speaker 1: discuss the manusha about okay, what is the wage growth
Speaker 1: number now? But the really big picture is when you
Speaker 1: set monitored policy, are you going to set it based
Speaker 1: on whether it's important that inflation is one point nine
Speaker 1: or two point zero or you're gonna take a bigger
Speaker 1: picture where you say, Okay, we have a strong economy
Speaker 1: and we want to have real rates. That's going to
Speaker 1: sort of create a degree of stability for the long
Speaker 1: term in the financial system. And I think we as
Speaker 1: you look around the world. You're seeing some extreme examples
Speaker 1: of central banks that get extremely mathematical about getting to
Speaker 1: two point zero, and they are actually totally not focusing
Speaker 1: on this bigger picture. Well, the bigger picture here you
Speaker 1: said this earlier, the idea that we're going to see
Speaker 1: substantial currency movement. Give us an example of a pair
Speaker 1: where we're gonna see figure movement that somebody can enjoy
Speaker 1: making or losing money on today. Well, so we've seen
Speaker 1: actually pretty big moves in two thousand eighteen. Right, We've
Speaker 1: had dolly in from one thirteen down to one of six.
Speaker 1: That's a pretty big move. And does it go further?
Speaker 1: It means it gonna go under a hundred, I think.
Speaker 1: So I'm obsessed with capital flows. I spent the last
Speaker 1: week just crunching all the Japanese capital flows because this
Speaker 1: is what our clients are very very focused on. Now,
Speaker 1: I think we're actually going to take a bit of
Speaker 1: a breather now. I think there's some of the forces
Speaker 1: that pushed it very fast. They're going to take a breather.
Speaker 1: But I think the next big pair to focus on
Speaker 1: is sort of this thing about NAFTA versus China. We've
Speaker 1: had all the tension around the NAFTA currency in Mexico
Speaker 1: and Canada. The next piece of tension is going to
Speaker 1: be China, so I think there can be some very
Speaker 1: interesting movement there where there's relaxation around the NAFTA currencies
Speaker 1: and more pressure on Asian currencies. With EXE data, John,
Speaker 1: why don't you bring in our next guest who just
Speaker 1: had he added to the g d P of the
Speaker 1: Greater New York Area that because he had to get
Speaker 1: a new mantle for his fireplace. His house is so big,
Speaker 1: he has like four fireplaces in it, and we bring
Speaker 1: it in the morning staff fixed in kind Manager of
Speaker 1: the Year. The trophy was so big he had to
Speaker 1: get you know, he had scaffolding up until they replaced
Speaker 1: it with a marble buttressed. Part of that PAGM team
Speaker 1: is Greg Paid, his managing director and senior investment officer. Greg.
Speaker 1: It's always great to get you on a program to
Speaker 1: to get your time. Really fascinating. The compare and contrast
Speaker 1: between the January jobs report and a February payrolls report.
Speaker 1: The fear that the January payrolls report put into this
Speaker 1: mark kid next to the camp that was ejected into
Speaker 1: this market for risk assets on Friday following the February
Speaker 1: pay rolls report, where's the truth one of the other
Speaker 1: somewhere in between. Greg, Yeah, the lesson is let's not
Speaker 1: get um too excited one way or the other month
Speaker 1: to month. I think we need to look at some
Speaker 1: of the longer trends. And you know, January was such
Speaker 1: an important set of data. It really kind of catalyzed
Speaker 1: a new regime in many different respects of higher yields,
Speaker 1: inflation getting out of controls on and so forth. UH,
Speaker 1: and the last UH and the last release on Friday
Speaker 1: really just threw cold water on it. So I think
Speaker 1: the message, at least at least for us a p gym, is,
Speaker 1: you know, let's not get overly excited one way or
Speaker 1: the other. Let's look at the broader set of data
Speaker 1: and the broader trends. And when you look at that,
Speaker 1: it's clear that you're seeing some firming on the inflation side.
Speaker 1: But as far as UH, you know, runaway wage or
Speaker 1: kind of broad based inflation, I think it's to premature
Speaker 1: to be called for that. So to that point, Greg,
Speaker 1: and we're seeing the shifting into a new regime or
Speaker 1: is it just the fear of a shift to a
Speaker 1: new regime that has gripped markets to some extent. I
Speaker 1: think it's more fear than reality at this point. Uh.
Speaker 1: You know, I do know that markets trade expectations. Uh,
Speaker 1: and so something that we watch very closely is inflation expectations.
Speaker 1: But at some point the expectations have to match kind
Speaker 1: of underlying hard data. Uh. And I think that became
Speaker 1: somewhat disconnected the past several months or so. Um. So
Speaker 1: you know, you know, to us, as steady as she goes? Uh,
Speaker 1: you think the Fed continues to move uh, you know,
Speaker 1: three times this year maybe for two thousand and nineteen
Speaker 1: is the bigger question. The markets are still pricing in
Speaker 1: just one in a quarter for two thousand and nineteen.
Speaker 1: But um, yeah, I think it's steady as you go.
Speaker 1: It's quite Frankly, Jonathan greg what was the distinction that
Speaker 1: made for your outstanding two thousand seventeen? What was the
Speaker 1: strategic decision you made within your fixed income portfolios to
Speaker 1: outpace the easy to find average. Yeah, so last year
Speaker 1: was uh, you know, gosh, you know, we're talking a
Speaker 1: lot about last year. This year is much much harder.
Speaker 1: I will say, last year, what I think the market's
Speaker 1: got really excited over the new administration coming in, yields
Speaker 1: really spice higher, UH and we felt like, uh, a
Speaker 1: lot of that was not going to come to fruition,
Speaker 1: and in fact that played out. I think this year
Speaker 1: is very different though, as you are seeing tangible things happening. Right,
Speaker 1: you have seen a continued firming of the labor market
Speaker 1: at a trend that has been in place for you know,
Speaker 1: many years of course. But but but you have more
Speaker 1: pro growth policies and you have a tighter labor market,
Speaker 1: even though the jobs data report UH digit suggest and
Speaker 1: right fully so, that there's more um kind of sideline
Speaker 1: workers than many people envisioned. But I think last year
Speaker 1: was really easy. Obviously retrospect is, you know, much easier
Speaker 1: to call. But if you look at the fact that
Speaker 1: you had a really bullish environment for credit as an example,
Speaker 1: with no volatility. I mean you were seeing sharp ratios
Speaker 1: across many different portfolios of over ten times, they were
Speaker 1: equity like returns almost are you managing for the coupon
Speaker 1: this year? I think this year is much more difficult,
Speaker 1: and so we squeezed a lot of the juice out
Speaker 1: of the lemon last year, and I think this year
Speaker 1: is much more difficult, and so while we're not barish
Speaker 1: from a fundamental or economics standpoint, where we're more cautious,
Speaker 1: there's really just valuations. As valuations have really come far
Speaker 1: and it's hard to get too excited, and that's why
Speaker 1: we've taken down a risk somewhat um and you to
Speaker 1: your point, Tom, it's you know, seems like much more
Speaker 1: of a coupon, hopefully with a little kiss to it.
Speaker 1: But I think it's more of a coupon. You Well, Greg,
Speaker 1: let's work our way through it from rates three to
Speaker 1: corporates and begin with rates and talk to me about
Speaker 1: how you express this framework in the market for rates
Speaker 1: last year from speaking to you guys throughout the whole year.
Speaker 1: Stay short at the front end. The long end isn't
Speaker 1: going to drift higher in the way that people expect.
Speaker 1: That's going to remain anchored. So you're looking for the
Speaker 1: curve to flatten short the front end and then we're
Speaker 1: just gonna stay anchored around tens through to through to thirties.
Speaker 1: How has that changed for you, Greg and rates? That
Speaker 1: is still broadly the case. I we still think that
Speaker 1: a curve flatten er is the preferred path or the
Speaker 1: way that uh, we see the rate curve playing out,
Speaker 1: but the front end is increasingly more difficult to be short.
Speaker 1: I I still think you need to be short at
Speaker 1: the front end. Uh. And so we do have the
Speaker 1: same flatten Er bias for sure, but but it's not
Speaker 1: as uh as easy as it once was, as there's
Speaker 1: a lot being pricing to the front end now. And
Speaker 1: so we mentioned there's three full hikes priced in for
Speaker 1: two thousan eighteen. Uh. You know, if you get the
Speaker 1: four hikes, that's basically price for perfection. So I don't
Speaker 1: think you want to invest in something price for perfection
Speaker 1: until we're getting close. But I still think it's the
Speaker 1: same trend. If you want to be long the belly uh,
Speaker 1: and the curve will flatten. What's the yield there? I mean,
Speaker 1: within the mix that you have at p Jim, can
Speaker 1: I get to a four percent all in coupon? Uh?
Speaker 1: It's it's hard, you know, I mean you know that's
Speaker 1: the point the underlying kind of yield construct not only
Speaker 1: here in the US, but more more so in Europe,
Speaker 1: and we are a global manager. Uh. It's uh, it's
Speaker 1: it's very challenging to get high yields if you would, um. Uh.
Speaker 1: And so you know, quite frankly, speaking of high yield,
Speaker 1: that's an area that uh, you know, we've really liked
Speaker 1: for quite some time. We have taken in our risk
Speaker 1: down in uh, in the high yield market broadly. But
Speaker 1: what we're doing is that we actually think there's more
Speaker 1: value out the risk curve, and so we see more
Speaker 1: value in triple cs than we do double bees, which
Speaker 1: less clear that's where the performance has been this year
Speaker 1: as well. Is that, uh, you know, because I think
Speaker 1: the double B market has been much more sensitive to
Speaker 1: the selling that you're seeing on the mutual fund and
Speaker 1: et F side, as that's more rate yield driven um.
Speaker 1: Whereas the triple C part of the market, which we
Speaker 1: think you're getting amply paid for, is about you know,
Speaker 1: over three point three times the amount of spread relative
Speaker 1: the double bees. It's more idiosyncratic. Uh, And you're not
Speaker 1: tied to kind of rates moving up and down. Great.
Speaker 1: Just to be clear, are you blaming the tourists for
Speaker 1: the action and double bass No? I I just think
Speaker 1: that's where the you know, the rate sensitive the market
Speaker 1: is right. But to be clear, you have seen a
Speaker 1: proliferation of these short duration high quality funds both in
Speaker 1: investment grade UH and HI yould bonds. And so that's
Speaker 1: the first thing to be sold pageon Managings Director and
Speaker 1: Senior Investment Officer. This is a formal thing before we
Speaker 1: get to a serious conversation with Chad Bound at the
Speaker 1: Peterson Institute. This is an annual thing that happens now, folks,
Speaker 1: we're handing the bracket to the head of my life
Speaker 1: to the bus to let her know that we are
Speaker 1: boiler up. Is this why I put you? Is in
Speaker 1: for our global audience? Yes, my whiz, I actually did
Speaker 1: pretty well last year. How are they ranked? They're like good,
Speaker 1: They're better? They're like what okay, there are two team
Speaker 1: say there it is provedn be nice to meets your
Speaker 1: hands to Pharaoh so he knows what not to do.
Speaker 1: There you go. You just do the opposite of what
Speaker 1: Chad Bound with us for the Peterson Institute. We have
Speaker 1: a lot of fun with the brackets and we say
Speaker 1: good morning to allow you across the nation on serious sexption.
Speaker 1: On one nineteen, Mr Bown is to the Peterson Institute
Speaker 1: and we do need an update on terroriffs. Is that
Speaker 1: that nudges away in our vision and yet it should
Speaker 1: not Chad. What do we need to focus on now
Speaker 1: with this huge tariff debate, Well, the first thing we
Speaker 1: need to focus on is my buck now, Bison, my
Speaker 1: my school number fifteen, Michigan State. Get to the important
Speaker 1: stuff to watching them go there. But more seriously, uh
Speaker 1: so we're still waiting to see how all this plays out.
Speaker 1: So President Trump on Thursday tariffs on steel, ten percent
Speaker 1: tariffs on aluminum. But the first thing he said was well,
Speaker 1: for now, we're not going to impose these things on
Speaker 1: Canada and Mexico. We're gonna potentially exempt them that we
Speaker 1: may hang it over their head a little bit in
Speaker 1: the NAFTA talk. So we'll see what happens there. But
Speaker 1: everybody else is up for grabs. Now. He did open
Speaker 1: the possibility that are Security Alliance partners may be able
Speaker 1: to wiggle their way out of this somehow. So the
Speaker 1: U S Trade Representative, Robert Leidheiser was in Brussels on
Speaker 1: Saturday meeting with Cecilia Moms from the EU Trade Commissioner,
Speaker 1: the Japanese Trade Commissioner. Uh you know, potentially seeking them
Speaker 1: to get exempted. But nobody else has been exempted yet
Speaker 1: so as of now, only Canada and Mexico are not
Speaker 1: going to be hit by these new tariffs. So it's
Speaker 1: the President United States has just twaited for USAULT to
Speaker 1: say the Secretary of Commas, Wilbur Ross, will be speaking
Speaker 1: with representatives of the European Union about eliminating the large
Speaker 1: tariffs and barriers they use against the United States of America.
Speaker 1: The words of the President this morning chat, this is
Speaker 1: the time when ready the United States should be working
Speaker 1: with Europe, with Japan to address the issue that is China. Instead,
Speaker 1: there seems to be friction, tension between themselves at a
Speaker 1: time that China is sort of centralizing strength within President
Speaker 1: Shape talk to me about how difficult it will be
Speaker 1: to take on China alone if you don't have Europe,
Speaker 1: Europe and Japan with you. Yeah, that's exactly the issue here.
Speaker 1: So the source of the underlying concern when it comes
Speaker 1: to steal aluminum is global over capacity, most of which
Speaker 1: has come out of China. Uh. And you know, the
Speaker 1: Europeans are suffering in much the same way as U
Speaker 1: s deal and aluminum. The Japanese are as well. So
Speaker 1: you would think that if you're the US administration that
Speaker 1: you would want to get the EU Japan to cooperate
Speaker 1: with you in dealing with this, this underlying problem of China.
Speaker 1: But that doesn't seem to be their approach. They're gonna,
Speaker 1: you know, potentially slap tariffs on them. That EU has
Speaker 1: already come out with their list of products over which
Speaker 1: they're gonna have to threaten to retaliate against the United States.
Speaker 1: And so all of this is really a side show
Speaker 1: to the actual underlying problem. So let's get to the
Speaker 1: underlying problem. I'm still wanting for a great answer to
Speaker 1: this question, chat, what is the best approach for dealing
Speaker 1: with China? Well, I do think you need cooperation. Uh.
Speaker 1: You know, having the United States trying to go at
Speaker 1: it alone, uh and without its key allies is really
Speaker 1: not going to work. So you do need to get
Speaker 1: the other major players out there to actually stand up,
Speaker 1: stand up alongside you. Now, you know, we we can't
Speaker 1: take that off the table completely. Uh. You know, there
Speaker 1: was a renewed engagement by the three the US, EU
Speaker 1: and in Japan coming out of the weekend. You know,
Speaker 1: this was this meeting that they had on Saturday, was
Speaker 1: long scheduled. The timing ended up being a little bit
Speaker 1: awkward because it was right after President Trump's Triff announcement,
Speaker 1: But this thing had been in the planning for a while,
Speaker 1: trying to deal with China on uh steal an aluminium capacity,
Speaker 1: the bigger intellectual property issues that that they're worried about
Speaker 1: jointly as well. So it's going to take a cooperative
Speaker 1: approach for for these and and all the other economies
Speaker 1: of the world to really address this. I'll chat. I'm
Speaker 1: sure that we'll touch upon this with you in the future.
Speaker 1: None of this matters. After the Bucknell Bison crushed Colgate.
Speaker 1: To get to the joy of facing Michigan State, Chad Bound,
Speaker 1: how does the strategy change as you move from Colgate
Speaker 1: to Michigan State. Well, Michigan State is going to be tough, um,
Speaker 1: So I will say Bucknell does have a really good
Speaker 1: track record in the Big Dance. You know, it wasn't
Speaker 1: that long ago that I forget if they were at
Speaker 1: They actually took out Kansas in the first round, So
Speaker 1: you never know with my andh Why do I see
Speaker 1: buck now in your bracket? Tom King? It is not
Speaker 1: in my bracket. What I what I suggest, Chad Bound,
Speaker 1: is you head over to the chemistry department at Bucktell
Speaker 1: Bucknell Folks, which was world acclaimed and maybe they could
Speaker 1: come up with some flubber or something to put on
Speaker 1: the ball to uh get you within shouting distance of
Speaker 1: Michigan State Chad bound in the Peterson Institute and Bucknell.
Speaker 1: As we look at teriffs and uh, really the fund
Speaker 1: for our global audience is just playing fun to look
Speaker 1: at march Mandis because people know it's very simple. At
Speaker 1: two hundred West Street downtown is the Golden Sax Tower,
Speaker 1: forty four stories high. And of course all of Global
Speaker 1: Wall Street repealed for Fumta Bianca or Fumta and Era
Speaker 1: today and as Dac and Campbell knows, the ballots of
Speaker 1: the partners were burnt and the white smoke came out
Speaker 1: and David Solomon was annointed. I mean, you know, we've
Speaker 1: talked a lot about these people. David. Let's talk about
Speaker 1: the process within Goldman, or for that matter, any other
Speaker 1: firm and what it means for Goldman Sax forward Pope
Speaker 1: Solomon is was he selected with joy or was this
Speaker 1: a really ugly battle. It's a good question. I think
Speaker 1: it depends on who you ask. I think if you
Speaker 1: talk to David or Harvey in their um in moments
Speaker 1: when they're being real, they would say this did get
Speaker 1: heated at times. Uh, not to the term, not to
Speaker 1: the tune of you know, yelling at each other. But
Speaker 1: they both took it very seriously and they both wanted
Speaker 1: to win this. How do they compare and contrast the soul?
Speaker 1: There's that point in a William Cohen book where the
Speaker 1: leadership of Goldman Sex is having an excellent sandwich. I
Speaker 1: think it was it's three guys, uh him years ago
Speaker 1: when they did some genormous deal across a deli over
Speaker 1: and excelled sandwich. I mean, the heritage of the firm
Speaker 1: is conservative and basic. How did these two guys stack
Speaker 1: up within the new Goldman Sex. Yes, so Harvey came
Speaker 1: up through the securities division. He did spend some time
Speaker 1: in the investment bank, but he's really thought of internally
Speaker 1: and by a lot of people externally as a trading
Speaker 1: as a sales and trading guy. David came up through
Speaker 1: the investment banking division almost exclusively. He ran that division
Speaker 1: for uh, you know, a decade or more. Uh. It's
Speaker 1: worth noting that in seventeen the investment banking division turned
Speaker 1: in more revenue than the traders for the first time
Speaker 1: since two thousand, so the first time in seventeen years.
Speaker 1: So certainly you could say the investment bank and the
Speaker 1: people who have led the investment bank are ascended. Can
Speaker 1: you tell us a little bit about the person who
Speaker 1: is Mr Solomon? I mentioned earlier that his assistant I
Speaker 1: believe it was earlier in the year, was arrested because
Speaker 1: he was found to have been stealing wine from Mr
Speaker 1: Solomon's wine collection. And he's got a background when he's
Speaker 1: uh went to Hamilton's College, black belt in karate. I
Speaker 1: believe that's harvy. I beg your pardon. Yes, So so
Speaker 1: David went to Hamilton's College. He's been investment banker for
Speaker 1: uh just about all of his career. Uh, and he
Speaker 1: does have a wine collection. He is a DJ on
Speaker 1: that's what I Yeah, I confuse DJ and black belt.
Speaker 1: What was what about? So he plays electronic music? Uh,
Speaker 1: he does that about once a month. It's something that
Speaker 1: he got into several years ago. And is he considers
Speaker 1: one of his hobbies is the the issue of diversity
Speaker 1: and a social uh change. I guess is that a
Speaker 1: factor in in how Goldman Sax sees its future, and
Speaker 1: as a result, perhaps why Mr Solomon was tapped. David
Speaker 1: when he was running the investment bank, UH did a
Speaker 1: lot in on diversity efforts. He really tried at the
Speaker 1: analyst level, so the incoming class, to to really get
Speaker 1: fifty percent men and fifty percent women. And his belief
Speaker 1: is if you can start at fifty fifty at the bottom,
Speaker 1: then by the time people leave, or UH you ask
Speaker 1: people to to go, by the time you get to
Speaker 1: the top, you'll have a much broader set of choices
Speaker 1: to make for the division or the firm senior leaders.
Speaker 1: He took that message to the board and as I understand,
Speaker 1: really impressed the board with those concerns and with those
Speaker 1: what he's trying to do. There is a board removed
Speaker 1: from the partners because I'm looking at revenue growth, which
Speaker 1: is basically going nowhere within a general statement, and operating
Speaker 1: income is basically going nowhere is a general statement. I mean,
Speaker 1: this is really you know, forget about all the social stuff.
Speaker 1: Is this just a financial exercise where Mr blank find
Speaker 1: didn't get it done in terms of running the bank.
Speaker 1: Running the bank, I'm looking at revenue growth, which is flat.
Speaker 1: I'm looking at operating income over four or five years. Great,
Speaker 1: it's a great margin thirty five cents thirty six cents
Speaker 1: on the dollar. But there's no growthiness here. I'm sorry, Diack,
Speaker 1: and that's what I'm seeing. Nobody's doing a James Gorman
Speaker 1: Victory lab that what this is about understood, this is
Speaker 1: uh it is it is. I guess you could you
Speaker 1: could put this in terms of a vote for the
Speaker 1: future as opposed to a vote for the past. So
Speaker 1: if Goldman was a trading shop and they turned in
Speaker 1: thirty three billion in trading a loan in two thousand nine,
Speaker 1: then going forward, maybe they think that that they're not
Speaker 1: going to be a trading shop, that it has to
Speaker 1: be more broadly based investment banking. They're not giving up
Speaker 1: on trading, let's not get ourselves wrong here. But they've
Speaker 1: also got asset management and they've got this consumer lender.
Speaker 1: I'm trying to get Henry Paulson as a DJ and
Speaker 1: I can't get there. Is Mr Solomon essentially a uh
Speaker 1: Paulson equivalent. Ah, he is definitely a client guy. The
Speaker 1: two of them shared that very much. Just so everybody understands.
Speaker 1: Henry Paulson has perceived as his high and mighty Wall
Speaker 1: Street guy. He was out in the dregs of Chicago
Speaker 1: taking every single airplane flight domestically out of a hair
Speaker 1: that exists. I mean people don't know. I mean it's
Speaker 1: all the romance of being on the Upper East Side
Speaker 1: and deciding where to go to your second, third, or
Speaker 1: fourth country house. And as you know, Dacon, that's not
Speaker 1: what it's about. It's like a grind, isn't it. That's right,
Speaker 1: it is. And and and David has been since he's been
Speaker 1: tapped as co CEO fifteen months ago, David has really
Speaker 1: continued the uh the schedule that he set when he
Speaker 1: was at the investment bank, going out, seeing clients, going out. He's,
Speaker 1: as I understand, he's introduced himself to maybe too many
Speaker 1: partners that he hadn't met before. So uh so that
Speaker 1: is sort of in his blood. And and uh he's
Speaker 1: similar to Hank Paulson in that how does the decision
Speaker 1: like this get made? And uh, are there any other
Speaker 1: changes that you foresee happening at Goldman Sex because of
Speaker 1: his appointment. I want to say, I want to be
Speaker 1: careful saying I don't see any other changes, because I'll
Speaker 1: be I could be wrong in a heartbeat. Excuse me,
Speaker 1: Dakon Campbell wrong making note of that. But this is
Speaker 1: this is largely a choice made by the board and
Speaker 1: also Lloyd blank Find. So at some point the board,
Speaker 1: as we understand, in February, came to a decision that
Speaker 1: they had seen enough among these two and that David
Speaker 1: was their guy, and so, uh, you know, it took
Speaker 1: him several weeks to to come out with the announcement,
Speaker 1: but that's what got us to today. James Johnson, Bill George,
Speaker 1: who we've had on this show many times. Mr Mattall,
Speaker 1: Michelle Burns, David Vinnier, we know him from another time.
Speaker 1: Peter Roppenheimer, Ellen Coolman is is, well, what's the character
Speaker 1: of the board. It's a good question. It's changed in
Speaker 1: the in the last couple of years. They've added a
Speaker 1: couple of new members. Yes, certainly, but as I understand,
Speaker 1: these are largely people who are loyal to Lloyd blank
Speaker 1: Find and are gonna allow Lloyd despite what you might
Speaker 1: think Tom about revenue and earnings growth. The board is
Speaker 1: still content, as I understand, to let Lloyd sort of
Speaker 1: finish out his term. How that's important? How long is
Speaker 1: that for? Yeah, they haven't said a timetable yet. It
Speaker 1: could be a year. I will not be two years.
Speaker 1: I have to ask a sense of question, and with
Speaker 1: great respect to Mr blank finds wonderful health. Is this
Speaker 1: about the fragility of his health over the last three
Speaker 1: or four years. I don't think so. I think he's
Speaker 1: largely covered beyond that from from that episode, from that cancer.
Speaker 1: What's the biggest challenge that Goldman Sex has right now?
Speaker 1: The biggest challenge I think is, as as Tom's spelled
Speaker 1: it out, is revenue growth. With with the trading business,
Speaker 1: which had been such a big part of the revenue
Speaker 1: base in the past not doing well and certainly not
Speaker 1: going back to the days of the pre pre crisis days,
Speaker 1: they really need to figure out how to generate revenue
Speaker 1: growth other areas. Who's quickly? Who's next? Done? Wall Street?
Speaker 1: Do you have any idea where where there's sort of
Speaker 1: time for a CEO to change. Mr Gorman's had a
Speaker 1: heck of a run as he entrenched at Morgan. I
Speaker 1: think he is. I think the next one you might
Speaker 1: see would be Jamie Diamond. I mean that's I don't
Speaker 1: really know anything, but that's that would be my guest
Speaker 1: Jamie's been there a long time. I think he if
Speaker 1: he had something else to do, and if he felt
Speaker 1: like he was at a good point in time, he
Speaker 1: might do something like this as well, taking Camel terrific briefing.
Speaker 1: Thank you that that was really valuable. Thanks for listening
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Speaker 1: I'm on Twitter at Tom Keane before the podcast. You
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