WEBVTT - Bloomberg Wall Street Week - May 17th 2024 0:00:02.440 --> 0:00:07.720 Bloomberg Audio Studios, podcasts, radio news, The. 0:00:07.760 --> 0:00:12.040 Slovak Prime Minister is shot, Memestock's return and inflation takes 0:00:12.039 --> 0:00:14.840 a half step back. This is Bloomberg Wall Street Week. 0:00:14.960 --> 0:00:19.680 I'm David weston this week. Paul Talban PJT Partners on 0:00:19.760 --> 0:00:20.720 what's holding. 0:00:20.480 --> 0:00:25.920 M and A back, The current view on anti trust 0:00:26.280 --> 0:00:27.960 is clearly having a chilling effect. 0:00:28.640 --> 0:00:31.520 And Elizabeth Career of JD Power on what difference the 0:00:31.600 --> 0:00:33.760 new tariffs on Chinese evs will. 0:00:33.560 --> 0:00:37.600 Make consumers are looking for lower cost vehicles within the 0:00:37.680 --> 0:00:39.400 segments of their preference. 0:00:52.640 --> 0:00:55.600 We start with the CPI numbers out on Wednesday, giving 0:00:55.600 --> 0:00:57.840 investors a sigh of relief when it comes to inflation. 0:00:58.200 --> 0:01:00.600 To explain the numbers in the larger context of the 0:01:00.640 --> 0:01:03.920 economy and monetary policy. Welcome back now, Rick Reader. He's 0:01:03.960 --> 0:01:07.480 Blackrock Chief investment Officer for Global fixed Income and head 0:01:07.560 --> 0:01:10.440 of the Global Allocation Investment Team. Rick, always a treat 0:01:10.440 --> 0:01:11.600 to have you on Wall Street Week. 0:01:11.640 --> 0:01:12.360 Thanks for having me. 0:01:12.680 --> 0:01:14.440 So let's start with the CPI number. As you saw 0:01:14.440 --> 0:01:16.240 what the markets have made out of it, they liked 0:01:16.240 --> 0:01:18.320 it a lot because they thought maybe inflation is coming down. 0:01:18.440 --> 0:01:20.840 What did you make out of those numbers, so the 0:01:20.880 --> 0:01:24.120 worst fears were allayed. I mean it was it wasn't 0:01:24.120 --> 0:01:26.720 that far from expectations. You know, the markets can tend 0:01:26.720 --> 0:01:29.559 to parse a couple of hundreds of basis point through 0:01:29.560 --> 0:01:32.360 our basis point to determine like it's better or worse. 0:01:32.760 --> 0:01:34.840 There were some things that were that were better there 0:01:34.880 --> 0:01:37.120 that we're encouraging, including you start to see some of 0:01:37.160 --> 0:01:40.240 the transportation services come down. Rent started to come down 0:01:40.280 --> 0:01:42.639 of it, So there's some encouraging things. It was pretty 0:01:42.680 --> 0:01:45.360 much on expectation, but there was a fear because we've 0:01:45.360 --> 0:01:48.040 had three months in a row of high numbers that 0:01:48.240 --> 0:01:51.440 maybe we're moving to a more normal, more stable environment. 0:01:51.600 --> 0:01:54.800 And by the way, it was contiguous to retail sales 0:01:54.840 --> 0:01:57.840 that were softer. Some of what you've seen play out 0:01:57.840 --> 0:02:01.160 in these earnings reports. There's definitely some consumer pullback. So 0:02:01.240 --> 0:02:05.640 the combination of N and PPI not being that bad, 0:02:05.800 --> 0:02:10.079 some stability, and then gosh, you're seeing some softness show up. 0:02:10.280 --> 0:02:13.080 That you've got a federal reserve that you know already 0:02:13.120 --> 0:02:15.519 raise the bar of hiking rates, but now you can 0:02:15.639 --> 0:02:17.760 you can start to think, can you get a cut 0:02:17.840 --> 0:02:20.040 or two done this year? And I think that in 0:02:20.120 --> 0:02:21.320 bold in that thesis. 0:02:21.720 --> 0:02:23.280 It's always in the media have a tendency to look 0:02:23.280 --> 0:02:25.800 at a number, how much is up or down? There 0:02:25.800 --> 0:02:27.800 are a lot of things under that number. Address one 0:02:27.800 --> 0:02:30.359 thing I've been curious about goods versus services because there's 0:02:30.360 --> 0:02:33.040 a different trend there and inflation. From the Fed's point 0:02:33.080 --> 0:02:35.440 of view, do they need both goods and services to 0:02:35.480 --> 0:02:37.320 come down? Because the one is going down, the other 0:02:37.360 --> 0:02:38.040 not so fast. 0:02:38.320 --> 0:02:40.400 So it's pretty remarkable. You know, we're moving to a 0:02:40.440 --> 0:02:43.600 service oriented economy. More money is being spent on services. 0:02:43.760 --> 0:02:46.359 But it's actually what's happening because goods prices have come 0:02:46.400 --> 0:02:50.079 down so much, it's allowing for disposable income to go 0:02:50.200 --> 0:02:54.600 into services. That's actually booing prices and services ironically. You know, 0:02:54.600 --> 0:02:56.480 I've said this over time, and I've used a bunch 0:02:56.480 --> 0:02:58.720 of examples. Like a price of a pair of tennis 0:02:58.720 --> 0:03:00.959 shoes is what it was twenty years ago. If you 0:03:01.000 --> 0:03:02.919 go to a tennis match, it's double what it used 0:03:02.919 --> 0:03:05.880 to be, So meaning services, goods come down service Thinking 0:03:05.880 --> 0:03:09.040 about an autos price of autos on relative basis, So 0:03:09.160 --> 0:03:11.880 what's happening for the Fed? Listen, you want to get 0:03:12.200 --> 0:03:14.720 the average, you want to get inflation down to around 0:03:14.720 --> 0:03:17.360 the two percent number. Their mandate is price stability is 0:03:17.360 --> 0:03:20.200 not two. If you're running two and a half, you know, 0:03:20.280 --> 0:03:23.480 core pcees now two eight. But it's pretty stable. We 0:03:23.520 --> 0:03:25.840 think it'll be pretty stable throughout the year if you've 0:03:25.840 --> 0:03:28.520 got a good economy nominal GDP. So if you take 0:03:28.560 --> 0:03:33.000 two eight of inflation, you get real GDP of two, 0:03:33.639 --> 0:03:35.080 you've got a nominal GDP of four and. 0:03:35.080 --> 0:03:37.240 A half to five. Pretty good. I mean, it's a 0:03:37.240 --> 0:03:38.200 pretty good environment. 0:03:38.560 --> 0:03:41.160 Some people have been surprised. I think that the economy 0:03:41.200 --> 0:03:44.080 has not reacted faster to five hundred basis points and 0:03:44.120 --> 0:03:46.960 interest rate increases. Some of that is because you can 0:03:47.000 --> 0:03:49.880 turn out the debts some people do. And one of 0:03:49.920 --> 0:03:52.240 the things that we've seen recently is a difference for 0:03:52.320 --> 0:03:54.760 households because you know what they own, their mortgage, which 0:03:54.800 --> 0:03:56.880 is a longer term thing, and the shorter term debt 0:03:57.000 --> 0:03:58.800 such as credit cards and auto payments. 0:04:00.040 --> 0:04:03.280 I'm not certain that raising interest rates actually brings down inflation. 0:04:03.400 --> 0:04:05.440 In fact, I would lay out an argument that I actually, 0:04:05.480 --> 0:04:08.200 if you cut interest rates, you'd bring down inflation. Why 0:04:08.280 --> 0:04:10.840 is that exactly to your point, look at what's happening now. 0:04:10.920 --> 0:04:15.880 Interest expense is growing, has now eclipsed mortgage payments. Lower 0:04:15.880 --> 0:04:19.640 income who much higher percentage of their of their net 0:04:19.680 --> 0:04:23.760 worth is in the debt, credit cards, student loans, auto finance, etc. 0:04:24.279 --> 0:04:27.000 What's happened is you've raised the rate and that has 0:04:27.080 --> 0:04:29.920 created a real impact. But the other side of it 0:04:30.000 --> 0:04:33.080 is you actually have an economy because of this massive 0:04:33.200 --> 0:04:36.480 transfer from the public sector, from the government to the 0:04:36.480 --> 0:04:39.840 private sector. People are higher income, middle to higher income 0:04:39.880 --> 0:04:42.480 are now getting a big benefit from these interest rates, 0:04:43.000 --> 0:04:45.440 and that's flowing into those are the people that spend 0:04:45.440 --> 0:04:48.719 an aggregate on services. So there's an ironic thing that 0:04:48.760 --> 0:04:52.120 I've never seen, nobody's ever seen in history, big transfer 0:04:52.120 --> 0:04:54.479 of money from the government into the private sector. The 0:04:54.520 --> 0:04:59.400 private sector now is a creditor versus a debtor in 0:04:59.480 --> 0:05:02.800 terms of the the big pocket of wealth. It's what's 0:05:02.800 --> 0:05:05.799 happening those lower income. So there's the chart we show around. 0:05:06.000 --> 0:05:09.240 Look at restaurants, high end restaurants killing it, low end 0:05:09.320 --> 0:05:11.840 restaurants or low income having a really tough time. You 0:05:11.880 --> 0:05:14.040 saw it in all the earnings in this last quarter. 0:05:14.520 --> 0:05:17.159 Really big deal today. And then the other side of 0:05:17.200 --> 0:05:20.000 it is not as lower income getting hurt. Not only 0:05:20.120 --> 0:05:23.360 is small business getting hurt, local banks getting hurt in 0:05:23.520 --> 0:05:24.720 part of why I think they need to bring the 0:05:24.800 --> 0:05:25.320 rate down. 0:05:26.040 --> 0:05:27.400 But you look at companies today. 0:05:27.400 --> 0:05:30.880 Normally when you raise the interest rate, companies pull back. 0:05:31.440 --> 0:05:32.520 Companies term their dead out. 0:05:32.520 --> 0:05:34.880 Because we went through not only a transfer of money 0:05:35.240 --> 0:05:37.719 from the government to the private sector, we kept interest 0:05:37.760 --> 0:05:40.400 rates down for so long. Seventy percent of the high 0:05:40.400 --> 0:05:42.080 youd market termed their dead out when the fundsrate was 0:05:42.160 --> 0:05:44.719 under one. They have no debt company, they have no 0:05:44.800 --> 0:05:47.400 real maturity wall. So think about what the interest rate 0:05:47.440 --> 0:05:49.440 does you raise it, it doesn't really matter for companies. 0:05:49.480 --> 0:05:51.000 In fact, companies are sitting in a lot of cash, 0:05:51.640 --> 0:05:54.279 so they're actually getting the benefit of higher rates. So 0:05:54.640 --> 0:05:57.120 point being, I think the Federal Reserve can get that 0:05:57.240 --> 0:05:59.400 rate down from five and three a's. 0:05:59.240 --> 0:06:01.480 Even if you got it to four four and a half. 0:06:01.560 --> 0:06:04.799 Still restrictive relative to a two eight core PCE. 0:06:05.640 --> 0:06:06.400 And I just am not. 0:06:06.480 --> 0:06:08.160 It's not clear to me you've raised rates five hundred 0:06:08.200 --> 0:06:11.120 basis points, does it really impact inflation? And I would 0:06:11.160 --> 0:06:14.200 argue at a certain level it actually maybe is actually 0:06:14.200 --> 0:06:17.760 helping keep inflation high in a because we've never seen 0:06:17.839 --> 0:06:18.520 this in history. 0:06:18.560 --> 0:06:20.440 Because of those other influences. 0:06:19.920 --> 0:06:21.599 So you think it's possible if they cut rates, it 0:06:21.640 --> 0:06:24.440 actually might deter inflation rather than's go around. 0:06:24.720 --> 0:06:26.720 By the way, I throw one other thing, there's been 0:06:26.720 --> 0:06:29.240 an aging of the population that we've never seen before 0:06:29.320 --> 0:06:32.559 and a wealth creation at the higher end. It's actually 0:06:32.560 --> 0:06:35.560 if you break down the demographic today, there's been an 0:06:35.800 --> 0:06:39.800 incredible growth of the savings and the spending at old 0:06:39.960 --> 0:06:43.560 from older people at fifty five and above. It's fascinating 0:06:43.600 --> 0:06:45.240 what's happening. By the way, if you keep the real 0:06:45.320 --> 0:06:49.280 rate high, huge benefit to those people. They're turning around spending. 0:06:49.320 --> 0:06:51.760 So why is inflation high in things like health insurance? 0:06:52.160 --> 0:06:56.080 Why is inflation high in number of these service sectors, 0:06:56.160 --> 0:07:00.920 auto insurance, etc. They're sticky, they're unresponsible interest rates, and 0:07:01.000 --> 0:07:05.160 people are spending. Older people middle to high income are 0:07:05.240 --> 0:07:09.920 spending and are keeping that service level inflation at high levels. 0:07:10.120 --> 0:07:12.200 Is it a good thing for fixed income investors right now? 0:07:12.360 --> 0:07:14.040 What is the timing good right now? 0:07:14.640 --> 0:07:16.760 So I would say I don't think rates are going 0:07:16.800 --> 0:07:18.760 to come down. You know we're gonna have this incredible 0:07:19.480 --> 0:07:22.840 rate drop of anytime soon. I do think the world 0:07:22.960 --> 0:07:25.200 is in more of an easing cycle. You look at 0:07:25.240 --> 0:07:29.440 obviously in Europe, UK moving faster, emerging markets, many countries moving, 0:07:29.800 --> 0:07:32.800 so Argentina just dropped the rate in a radical way. 0:07:33.120 --> 0:07:36.080 So that is healthy. But there's something in fixing i'm 0:07:36.080 --> 0:07:38.720 not I think is extremely unique. You can create income. 0:07:39.400 --> 0:07:41.680 I mean for years, decades we were sitting at rates 0:07:41.760 --> 0:07:42.240 or a zero. 0:07:42.320 --> 0:07:44.480 You had to buy dicey emerging markets, you had to 0:07:44.480 --> 0:07:46.960 buy dicey parts of the high yield market. Today you 0:07:46.960 --> 0:07:50.960 can create a six six and a half seven percent yield. 0:07:51.480 --> 0:07:53.280 And so what you're seeing is people like, gosh, if 0:07:53.280 --> 0:07:54.520 you can get me six and a half without a 0:07:54.520 --> 0:07:57.080 lot of volatility. I own equities, I get volatility there, 0:07:57.120 --> 0:07:59.320 I'm okay with it. Give me my fixing, Come get 0:07:59.320 --> 0:08:02.280 me a lot of yield without the same volatility. That's 0:08:02.320 --> 0:08:04.320 a pretty unique point time. I've said it's the golden 0:08:04.400 --> 0:08:06.520 era of fixed inc. I'm not because rates are going 0:08:06.560 --> 0:08:08.280 to come down, but you can build a lot of 0:08:08.360 --> 0:08:09.400 yield in the portfolios. 0:08:09.480 --> 0:08:11.440 So explain something to me I don't understand as a 0:08:11.480 --> 0:08:14.680 fixed income investor in a marketplace. Normally, if that's true, 0:08:14.760 --> 0:08:16.840 a lot of money will crowd into fixed income and 0:08:16.880 --> 0:08:19.440 that should drive their rates down. Actually, right, So you 0:08:19.480 --> 0:08:21.160 don't get as much out of them. Why isn't the 0:08:21.160 --> 0:08:23.520 market actually taking a lot of that benefit out of 0:08:23.520 --> 0:08:24.640 the investment fixed income. 0:08:25.280 --> 0:08:27.520 So it's a great question. So there's two things happening. 0:08:27.520 --> 0:08:29.800 One US government has a huge amount of debt that 0:08:29.840 --> 0:08:32.040 they've got to keep issuing. And I've said that four 0:08:32.080 --> 0:08:34.079 hundred billion a week of bills, one hundred and billion 0:08:34.080 --> 0:08:37.800 a week on average of coupon issue once from the cup. 0:08:37.880 --> 0:08:40.000 So there's a ton of money that's coming in. You've 0:08:40.000 --> 0:08:41.839 got a federal reserve that's keeping the front end of 0:08:41.880 --> 0:08:45.480 the curve. I would argue too high today, but high today. 0:08:45.720 --> 0:08:49.000 So those are are obviously keeping the yields where they are. 0:08:49.559 --> 0:08:52.959 Companies should be borrowing two hundred to three hundred base 0:08:53.000 --> 0:08:55.720 points lower yield. You know, given we talk about their 0:08:55.720 --> 0:08:59.040 credit quality is superb today, they're not. Because service level 0:08:59.080 --> 0:09:01.600 inflation is high. It keeps the rate high. And so 0:09:01.640 --> 0:09:05.080 as an investor or anybody today who gets to be 0:09:05.120 --> 0:09:08.120 a lender, you're getting to buy credit asset's a couple 0:09:08.200 --> 0:09:10.280 hundred base points cheaper than you really should, even though 0:09:10.320 --> 0:09:11.200 the spreads are tight. 0:09:11.800 --> 0:09:14.040 It's just because a risk free rate, because it's given 0:09:14.160 --> 0:09:16.640 how much where treasuries are it's it's so high today. 0:09:16.800 --> 0:09:18.680 One last one on the investment front, and that is 0:09:18.679 --> 0:09:20.720 the first thing you talked about, the demand from the 0:09:20.760 --> 0:09:23.040 treasury there to borrow a lot of money. We here 0:09:23.040 --> 0:09:27.959 increasingly for all wide registers, Ray Value, Jamie Dimond. Everyone 0:09:28.040 --> 0:09:30.120 talks about the fact that we are really borrowing a 0:09:30.160 --> 0:09:32.040 lot of money, and sooner or later there's going to 0:09:32.040 --> 0:09:34.120 be a problem. We talked to Paul Ryan, somebody you 0:09:34.120 --> 0:09:36.120 know well last week who said he thinks it's not 0:09:36.320 --> 0:09:39.440 at all unlikely that the next president, whoever it is, 0:09:39.640 --> 0:09:42.000 will face perhaps a real debt crisis in the form 0:09:42.000 --> 0:09:44.000 of a failed treasury auction. Do you see that on 0:09:44.080 --> 0:09:44.680 the horizon. 0:09:45.840 --> 0:09:47.720 So those are all smart people. Can I just say agree? 0:09:47.760 --> 0:09:50.760 And so yeah, I think that debt's too big, and 0:09:50.840 --> 0:09:52.640 I think we're not going to address the size of 0:09:52.640 --> 0:09:53.760 the debt in the country today. 0:09:53.800 --> 0:09:54.560 And I think over the. 0:09:54.600 --> 0:09:57.439 Next year or two, I think you'll see auctions thirty 0:09:57.559 --> 0:09:59.280 or auctions that I'll have a hard time clear in 0:09:59.320 --> 0:10:01.440 the market. It's just it's too much debt at the 0:10:01.440 --> 0:10:04.480 same point in time most countries, and you know, you 0:10:04.520 --> 0:10:06.040 think about China, Japan A. 0:10:07.040 --> 0:10:08.439 You know they have alternatives. 0:10:08.480 --> 0:10:12.120 They're funding more domestic priorities versus the United States debt, 0:10:12.440 --> 0:10:14.280 and so I think we have to be pretty careful 0:10:14.320 --> 0:10:16.920 about that. There's a lot of debt coming. There'll be 0:10:16.960 --> 0:10:19.439 a point in time if the Fed is moving towards 0:10:19.440 --> 0:10:22.080 lowering rates, you feel better about we'll be able to 0:10:22.080 --> 0:10:22.400 fund it. 0:10:22.400 --> 0:10:24.760 People are comfortable coming in. I'm not going to lose money. 0:10:24.920 --> 0:10:27.400 There's going to be a point in time where rates 0:10:27.400 --> 0:10:29.520 will move up again and people say, you know, I 0:10:29.520 --> 0:10:32.120 don't want it. Who's going to fund it? And so 0:10:32.160 --> 0:10:33.439 I think what will happen is more we'll have to 0:10:33.440 --> 0:10:36.320 go on the Fed's balance sheet again. Think about Japan, 0:10:36.480 --> 0:10:38.800 what happened to the currency Listen. I think we got 0:10:38.800 --> 0:10:40.640 to be careful about it, and I think policy makers 0:10:40.920 --> 0:10:42.360 are going to need to address it over the next 0:10:42.400 --> 0:10:43.000 couple of years. 0:10:43.200 --> 0:10:45.160 Okay, Rick Reader is going to be staying with us 0:10:45.200 --> 0:10:47.160 as we turn to the latest developments in the market, 0:10:47.200 --> 0:10:52.400 including performance of his active fixed income ETF. That's going 0:10:52.440 --> 0:10:59.960 to be next down on Wall Street week on Bluebird. 0:11:05.080 --> 0:11:07.400 This is Wall Street. I'm David Weston. Rick Reader of 0:11:07.400 --> 0:11:09.400 Blackrock has stayed with us. So Rick, there are some 0:11:09.559 --> 0:11:12.760 larger forces at play right now in financial markets, and 0:11:12.800 --> 0:11:14.439 one of them is what I would call at least 0:11:14.600 --> 0:11:19.160 active ETFs. You have your own Blackrock Flexible Income BINK 0:11:19.360 --> 0:11:21.560 b A n C. I think we talked about when 0:11:21.559 --> 0:11:23.800 you first announced it on this program. How's it doing 0:11:24.679 --> 0:11:25.040 so far? 0:11:25.120 --> 0:11:25.440 So good? 0:11:25.480 --> 0:11:27.839 I mean, I think we've beaten the aggregate index by 0:11:28.080 --> 0:11:30.000 you know, since inception eight hundred base, which so for 0:11:30.080 --> 0:11:31.240 fixed income not equities. 0:11:31.280 --> 0:11:33.160 It's pretty good. It's pretty good. We're hanging in l right, 0:11:33.480 --> 0:11:33.640 you know. 0:11:33.640 --> 0:11:36.080 I think we're up this year, you know, the market 0:11:36.080 --> 0:11:38.839 where rates have moved higher and the only industries most 0:11:38.840 --> 0:11:39.720 of the industries are down. 0:11:39.840 --> 0:11:41.440 So I have no doubt that people are giving you 0:11:41.480 --> 0:11:43.440 money because you do a better job than the people do. 0:11:43.559 --> 0:11:45.120 So a lot of it's just on the merits, But 0:11:45.160 --> 0:11:47.200 what about larger forces. Why is so much money going 0:11:47.240 --> 0:11:49.120 to ets? And where's it coming from? Other ways? It 0:11:49.160 --> 0:11:51.240 just because there's that much more money to be invested, 0:11:51.400 --> 0:11:53.200 or is it coming out of other places? 0:11:52.880 --> 0:11:54.720 So a couple of things that are happening. 0:11:55.320 --> 0:11:55.520 You know. 0:11:55.679 --> 0:11:59.360 Now models have become so financial advisors that can create 0:11:59.400 --> 0:12:03.240 these models that can be very precise about where you invest, 0:12:03.600 --> 0:12:06.600 and gosh, I want to have X amount in yielding 0:12:06.640 --> 0:12:09.520 fixed income. I want to x amount in this type 0:12:09.559 --> 0:12:12.960 of technology equities. Maybe I'll take some alternatives, use some 0:12:13.000 --> 0:12:16.240 private credit, but the ability to be precise around I 0:12:16.280 --> 0:12:20.360 want active ETFs. Then I just want exposure to an 0:12:20.360 --> 0:12:22.720 index like I use passive ETFs in my funds all 0:12:22.760 --> 0:12:24.960 the time. I want to get in the highield really quickly. 0:12:25.000 --> 0:12:26.360 I can get in through an ETF. I want to 0:12:26.360 --> 0:12:29.600 buy the SMP through spy. I want to do it 0:12:29.640 --> 0:12:33.320 really quickly. The marriage of active and passive has become 0:12:33.600 --> 0:12:37.439 really beneficial to financial advisors. People want to build portfolios, 0:12:37.679 --> 0:12:39.240 and I just think that's going to grow. I think 0:12:39.240 --> 0:12:41.680 the whole moniker if it's an active ETF versus passive, 0:12:42.160 --> 0:12:43.880 I just think it's like, what is your mandate? What 0:12:43.920 --> 0:12:46.040 are you trying to achieve? And I just think that 0:12:46.080 --> 0:12:48.080 will continue to grow. And it's so handy for people. 0:12:48.080 --> 0:12:51.160 It's tax beneficial and they can move quickly when they 0:12:51.160 --> 0:12:53.160 want to alter their portfolio. 0:12:53.760 --> 0:12:55.760 Another thing that is a phenomenon right now and is 0:12:55.800 --> 0:12:59.000 growing the private market's betewually private credit. We've had private 0:12:59.040 --> 0:13:01.800 equity for some time, but private credit has really been 0:13:01.840 --> 0:13:04.920 growing dramatically. What do you make of that what's driving 0:13:04.960 --> 0:13:05.679 that right now? 0:13:06.360 --> 0:13:09.440 I mean, I think the biggest thing is, you know, 0:13:09.480 --> 0:13:11.520 if you take of so this before, there's forty seven 0:13:11.600 --> 0:13:15.120 hundred and fifty banks in the United States, and you know, 0:13:15.120 --> 0:13:17.880 when you you know, the dynamic recap rate slow, you 0:13:17.960 --> 0:13:19.120 had a lot of funding, there were a lot of 0:13:19.120 --> 0:13:22.240 commercial real estate funding, and then local banks regional mind 0:13:22.320 --> 0:13:24.920 or having a tougher time. There's a dearth of lending 0:13:25.360 --> 0:13:27.920 to what would be the traditional lending market. So whether 0:13:27.960 --> 0:13:31.199 it's corporate credit, real estate, you know, everyis oh my god, 0:13:31.200 --> 0:13:32.559 commercial real estate, and I want to touch it. 0:13:32.559 --> 0:13:33.680 I don't want to touch office. 0:13:34.440 --> 0:13:37.360 Office is tricky much of the office real estate markets. 0:13:37.679 --> 0:13:42.319 But there are things in hospitality, things in logistics, multifamily financing. 0:13:42.640 --> 0:13:47.400 So what's happened is because of the lending system today 0:13:48.000 --> 0:13:50.079 being when a lot of banks pulling back have to 0:13:50.120 --> 0:13:53.439 build capital, it's created this opportunity to create by the way, 0:13:53.679 --> 0:13:56.079 real yield because of whether risk free rate is, you 0:13:56.160 --> 0:14:00.400 can create double digit yields with you know, when you think, gosh, 0:14:00.440 --> 0:14:02.520 what do I want to get an equity? You know, 0:14:02.520 --> 0:14:05.080 if I can only get mid high teens and equities, 0:14:05.080 --> 0:14:09.000 if I can get in credit or real estate collateralized. 0:14:09.559 --> 0:14:12.160 If I can get load a mid double digit return 0:14:12.520 --> 0:14:17.480 yields mid load of mid teens yields, that's pretty darn attractive. 0:14:17.600 --> 0:14:19.040 One of the things we hear from people in private 0:14:19.080 --> 0:14:21.360 credit is it is a better model in that you 0:14:21.560 --> 0:14:24.440 have long money out and long money in. It's committed 0:14:24.480 --> 0:14:26.280 to you for a previous time, where banks, of course 0:14:26.520 --> 0:14:30.520 really substantially on deposits that can be withdrawn. Is that 0:14:30.760 --> 0:14:33.440 a better model in general or are there downsides that 0:14:33.560 --> 0:14:35.360 model as well? There's some places where that does not 0:14:35.520 --> 0:14:36.040 work so well. 0:14:36.600 --> 0:14:38.480 So listen, I mean a few other federal reserve and 0:14:38.520 --> 0:14:40.640 you're trying to manage velocity in the system and the 0:14:40.720 --> 0:14:44.840 lending dynamic and more leaves the banking system, your toolkit 0:14:44.960 --> 0:14:46.840 becomes more imprecise. 0:14:46.280 --> 0:14:49.080 In terms how you manage that. So that is that 0:14:49.320 --> 0:14:51.640 is that is a tricky part of it. Listen. 0:14:51.720 --> 0:14:54.160 I think that, like everything in life, some balance and 0:14:54.240 --> 0:14:56.400 some moderation, and I think it's quite frankly, I think 0:14:56.400 --> 0:14:58.080 it's a very positive evolution that. 0:14:58.120 --> 0:15:00.960 You have more of a match of asset liabilities. 0:15:01.000 --> 0:15:03.320 You think about financial christs and other times it's the 0:15:03.440 --> 0:15:07.280 mismatch of asset liabilities that creates real stress. So today 0:15:07.320 --> 0:15:09.680 I think that's more in balance. As the banks build 0:15:09.760 --> 0:15:12.720 capital through this period, you're creating a better buffer and 0:15:12.800 --> 0:15:16.800 better foundation. But so anyway, I think there's some positives. 0:15:17.280 --> 0:15:18.640 And by the way, I think, you know, we run 0:15:18.640 --> 0:15:20.920 a lot of funds that are daily liquidity. You just 0:15:20.960 --> 0:15:23.120 got to manage your asset liability mix. And I think 0:15:23.160 --> 0:15:24.920 for people, let's say, Gosh, I want to have stuff 0:15:24.920 --> 0:15:27.360 that I can move around quickly, and then I'm going 0:15:27.440 --> 0:15:29.280 to go into alternatives where I'm going to lock my 0:15:29.360 --> 0:15:32.120 money up. I think it's all about balance. And like 0:15:32.240 --> 0:15:34.360 my mom used to say, like everything in moderation is 0:15:34.640 --> 0:15:35.920 is good. 0:15:36.040 --> 0:15:38.600 US versus the rest of the world Europe, Japan, Asia, 0:15:38.800 --> 0:15:40.880 things like that. Right now, US seems to be placed. 0:15:40.960 --> 0:15:44.120 Everyone's going to as fasts they can. Is that likely 0:15:44.200 --> 0:15:46.720 to continue to think as you see the longer term trends. 0:15:47.040 --> 0:15:48.680 So I think there are so depends if you're doing 0:15:48.840 --> 0:15:51.520 debtor equity. Like I think the equity story in Japan 0:15:52.400 --> 0:15:54.720 is pretty interesting today. Money that used to go to 0:15:54.840 --> 0:15:57.720 China's going to Japan. Real technology, women in the workforce 0:15:57.800 --> 0:15:59.840 that are now have real wages. Japan from an equity 0:16:00.000 --> 0:16:03.600 out of use interesting India in equity is really you 0:16:03.720 --> 0:16:05.920 got to do sort of small to mid cap companies. 0:16:06.080 --> 0:16:10.240 Oftentimes India is interesting in the equity side. I think 0:16:10.320 --> 0:16:14.680 being a lender in Europe UK is interesting because you're 0:16:14.680 --> 0:16:17.000 not growing as fast. They've got to drop rates faster, 0:16:17.120 --> 0:16:19.760 inflation's coming down faster. So I like on the death 0:16:19.840 --> 0:16:21.920 side being more in Europe. On the equity side, being 0:16:21.960 --> 0:16:25.160 in some of these faster what I always call the rivers, 0:16:25.200 --> 0:16:27.760 the fast rivers a cash flow, and I think the 0:16:27.880 --> 0:16:30.600 fastest river at cash flow inequities in the US full 0:16:30.680 --> 0:16:32.120 stop technology. 0:16:31.640 --> 0:16:35.360 Evolution is I mean, what we're going through today. Everybody 0:16:35.360 --> 0:16:36.120 talks about AI. 0:16:36.480 --> 0:16:40.040 They don't talk about healthcare, biotech, you know, other parts 0:16:40.240 --> 0:16:43.640 of technology they're developing. Anyway, I still think in equity 0:16:44.160 --> 0:16:46.840 the fastest river a cash flow is in the is 0:16:46.880 --> 0:16:47.320 in the US. 0:16:47.600 --> 0:16:50.520 One last one. It's probably unfair. What's the biggest underpriced 0:16:50.600 --> 0:16:52.160 opportunity right now for an investor? 0:16:53.480 --> 0:16:55.920 Most underpriced opportunity? Listen about? 0:16:56.360 --> 0:16:59.000 You know, I think I think being boring in UH 0:16:59.480 --> 0:17:02.720 is is okay today, Like I've been doing this thirty 0:17:02.840 --> 0:17:07.040 thirty something years. I don't say the number, but today buildings, 0:17:07.200 --> 0:17:08.879 I mean, you know, if you can build six and 0:17:08.960 --> 0:17:12.159 a half to seven, that is unbelievable that we're not 0:17:12.320 --> 0:17:13.479 you know, two years from now. If even to say, 0:17:13.520 --> 0:17:16.359 remember we got to buy European as a dollar investor, 0:17:16.359 --> 0:17:18.560 you got to buy European investment in grade credit at 0:17:18.600 --> 0:17:19.240 five and a half to six. 0:17:19.280 --> 0:17:21.960 Remember we were lending the money at negative yields. Like 0:17:22.119 --> 0:17:23.359 that's pretty that's pretty good. 0:17:23.400 --> 0:17:26.680 And then listen, I you know, I think people underestimate 0:17:27.119 --> 0:17:30.440 how fast technology is changing. Like I think, you know, 0:17:30.520 --> 0:17:32.000 there's a you know we can talk about, you know, 0:17:32.080 --> 0:17:36.080 the videos, et cetera. Incredibly impressive. Boy, there's so many 0:17:36.200 --> 0:17:37.720 secondary and tertiary. 0:17:37.320 --> 0:17:40.120 Impacts of what's happening there. Like it's an exciting time. 0:17:40.200 --> 0:17:42.680 I mean, this is really we're watching commerce change sort 0:17:42.720 --> 0:17:44.720 of like you know, I've said it's like the Internet bubble, 0:17:45.080 --> 0:17:47.040 except for it's not a bubble because it's cash flow 0:17:47.080 --> 0:17:49.880 attached to it, and so it's a pretty exciting time. 0:17:49.920 --> 0:17:52.280 I think, Yeah, real company is making real money like 0:17:52.359 --> 0:17:55.080 the Internet bubble. Rick, it's always so great to have you. 0:17:55.240 --> 0:17:57.400 Thank you so much. That's Rick Reader of Black Rock. 0:18:04.480 --> 0:18:07.080 This is Wall Street Week. I'm David Weston. If inexpensive 0:18:07.119 --> 0:18:09.520 electric vehicles are the way to get Americans to switch. 0:18:09.880 --> 0:18:12.480 We're not going to get very many of them for China, 0:18:12.800 --> 0:18:15.520 as the Biden administration this week announced it would be 0:18:15.640 --> 0:18:17.840 raising the tariffs on EV's from China to over one 0:18:17.960 --> 0:18:20.280 hundred percent. To give us a sense of what this 0:18:20.400 --> 0:18:23.440 could mean for US consumers, we welcome back now, Elizabeth Kreer. 0:18:23.480 --> 0:18:27.520 She's JD Power Vice President Electric Vehicle Practice. Elizabeth, welcome back. 0:18:27.560 --> 0:18:29.440 Good to have you here. So, I guess my basic 0:18:29.560 --> 0:18:33.880 question is these electric vehicles from China are very inexpensive. 0:18:34.760 --> 0:18:37.159 Is it likely that Americans would buy them anyway? Is 0:18:37.240 --> 0:18:39.520 there an appetite for cheap Chinese evs? 0:18:41.320 --> 0:18:43.879 Well, the auto industry is a global industry, as you know, 0:18:44.400 --> 0:18:47.840 and all competition needs to be taken seriously. At the 0:18:47.920 --> 0:18:51.400 end of the day, the consumer decides. Consumers want choices, 0:18:51.520 --> 0:18:57.280 new technology, and value. The USV capacity has now died 0:18:57.600 --> 0:19:00.880 consumer demand for evs and we're starting to see conquest 0:19:00.960 --> 0:19:02.840 sales through price deals and incentives. 0:19:03.480 --> 0:19:06.040 Competition is expected to continue. 0:19:05.640 --> 0:19:09.119 To increase, with ten more evs hitting the US market 0:19:09.160 --> 0:19:13.280 this year, particularly in the mid size suv and truck segments. 0:19:14.200 --> 0:19:17.040 Suv and truck sales make up over eighty percent of 0:19:17.119 --> 0:19:21.119 the US market. In contrast, small cars make up less 0:19:21.160 --> 0:19:25.439 than one percent of the US market. The eleven thousand 0:19:25.520 --> 0:19:29.719 dollars China seagull would be in this small car segment. 0:19:30.280 --> 0:19:33.919 The Chevrolet Bolt, also a small car under twenty thousand 0:19:33.960 --> 0:19:38.439 dollars with federal tax incentives. During its peak, sold less 0:19:38.560 --> 0:19:42.359 than a half a percent of industry monthly retail sales. 0:19:42.800 --> 0:19:45.920 I'm not an expert in geo political decision making, but 0:19:46.359 --> 0:19:50.200 consumers are looking for lower cost vehicles within the segments 0:19:50.359 --> 0:19:51.440 of their preference. 0:19:52.040 --> 0:19:54.240 There is a void in the marketplace, and this is 0:19:54.320 --> 0:19:54.960 similar to the. 0:19:55.040 --> 0:19:59.480 Late nineteen eighties early nineteen nineties when Hyundai Ikia came 0:19:59.680 --> 0:20:01.560 to the u US market looking to fill the void. 0:20:02.000 --> 0:20:05.479 The weather low cost evs are first offered by domestic brands, 0:20:05.760 --> 0:20:09.000 Asian brands, European brands, or Chinese brands will have to 0:20:09.040 --> 0:20:10.240 wait and see, but there. 0:20:10.280 --> 0:20:11.359 Is a market for them. 0:20:11.600 --> 0:20:14.160 But as you just said, Elizabeth, within the segment they're 0:20:14.240 --> 0:20:17.320 interested in. It sounds like the segment that you Seagulls in, 0:20:17.640 --> 0:20:21.040 the really small, really inexpensive one that's not potentially that 0:20:21.160 --> 0:20:22.600 much or a threat to US automakers. 0:20:24.200 --> 0:20:27.440 That's correct. That's a very small segment. 0:20:28.680 --> 0:20:31.520 So you've been studying consumers and their reactions to electric vehicles. 0:20:31.560 --> 0:20:33.280 You actually had to report out at the end of March, 0:20:33.680 --> 0:20:35.920 and as I read that it isn't so much the 0:20:36.040 --> 0:20:39.520 price point as the charging stations. People really are invoking 0:20:39.600 --> 0:20:40.920 that as a reason to be hesitant. 0:20:43.480 --> 0:20:44.240 Absolutely. 0:20:45.600 --> 0:20:48.920 You know, we survey over two thousand new vehicle shoppers 0:20:49.000 --> 0:20:51.640 every month to gauge their interest in evs, and when 0:20:51.720 --> 0:20:54.760 we look at the top reasons for rejection those who 0:20:54.840 --> 0:20:57.880 say I am not interested in an EV, we see 0:20:57.960 --> 0:21:01.200 lack of charging station availability as the top reason for rejection, 0:21:01.920 --> 0:21:03.400 but purchase price. 0:21:03.280 --> 0:21:07.920 As the second. So that's where EV education comes into play. 0:21:08.080 --> 0:21:11.040 There is a learning curve to owning an EV, figuring 0:21:11.080 --> 0:21:14.080 out where to charge, how frequent to charge, how much 0:21:14.200 --> 0:21:18.119 to charge, and although for many charging may not truly 0:21:18.240 --> 0:21:21.119 be an issue in terms of availability, but perception is 0:21:21.359 --> 0:21:24.520 reality and charging is simply too much of an unknown 0:21:24.560 --> 0:21:27.840 for them. And same goes for price and understanding the 0:21:27.960 --> 0:21:31.200 total cost of ownership of owning an EV. Often the 0:21:31.320 --> 0:21:35.000 savings with the EV incentives and operating costs and maintenance 0:21:35.040 --> 0:21:38.399 for that matter, often offset that initial price. But again 0:21:39.040 --> 0:21:42.600 this needs to be explained to the average shopper. So infrastructure, price, 0:21:42.800 --> 0:21:44.400 education all very important. 0:21:44.720 --> 0:21:46.920 One last one, Elizabeth, if they need to feel comfortable 0:21:46.960 --> 0:21:49.639 about charging, what's going on right now with Tesla and 0:21:49.960 --> 0:21:51.640 Musk might not give them a lot of comfort because 0:21:51.680 --> 0:21:54.000 it looked like they laid off the entire division and 0:21:54.080 --> 0:21:56.040 then they sort of change their minds. Where are we 0:21:56.160 --> 0:21:58.879 right now with Tesla and the supercharging and have they 0:21:58.960 --> 0:21:59.920 really changed their course? 0:22:01.480 --> 0:22:05.800 This is potentially a big blow to the infrastructure build out. 0:22:06.160 --> 0:22:10.040 The supercharger network is the nation's largest and most reliable 0:22:10.119 --> 0:22:14.840 fast charging network. When NACS was adopted by non Tesla manufacturers, 0:22:14.920 --> 0:22:18.240 that helped address one of the most pressing needs in 0:22:18.320 --> 0:22:21.800 the EV space, which is increased availability of public charging. 0:22:22.480 --> 0:22:26.879 With more evs utilizing those superchargers, that is going to 0:22:27.040 --> 0:22:30.800 add to the congestion increasing weight times, which will be 0:22:30.920 --> 0:22:36.560 exacerbated with increased EV adoption. For now, supercharger has the 0:22:36.680 --> 0:22:40.840 highest reliability ninety five percent compared to only eighty one 0:22:40.960 --> 0:22:44.840 percent for non Tesla networks. With the mass layoff, it 0:22:44.960 --> 0:22:48.359 calls into question Tesla's commitment to growing the network and 0:22:48.560 --> 0:22:52.840 maintaining the reliability, and this move could also impact the 0:22:52.920 --> 0:22:57.159 brand's sales. Public charging availability is a primary driver of 0:22:57.280 --> 0:23:01.840 why consumers purchase Tesla based on our the ownership study. Similarly, 0:23:02.320 --> 0:23:06.000 based on our shopping survey, the number one reason people 0:23:06.240 --> 0:23:10.560 cross shop with Tesla is for the supercharger network. So 0:23:10.720 --> 0:23:13.720 the supercharger network move could impact the brand sales if 0:23:13.800 --> 0:23:18.280 customers no longer see the supercharger network as a brand differentiator. 0:23:18.840 --> 0:23:20.760 Elizabeth is always so helpful to talk to you about 0:23:20.800 --> 0:23:23.159 these things. Thank you so much. That's Elizabeth Career of 0:23:23.359 --> 0:23:27.800 JD Power. Coming up. We're told that M and A 0:23:27.960 --> 0:23:30.880 is on its way back, but when and what's keeping 0:23:30.960 --> 0:23:31.800 it the less? 0:23:31.840 --> 0:23:32.240 Paul J. 0:23:32.440 --> 0:23:35.680 Talvman, he's chairman and CEO of PJT Partners. 0:23:36.640 --> 0:23:40.080 M and A volumes continue to be soft. 0:23:41.960 --> 0:23:53.040 That's next on Wall Street Week on Bloomberg. This is 0:23:53.040 --> 0:23:55.600 Wall Street Week. I'm David weston higher interest rates and 0:23:55.720 --> 0:23:58.080 uncertainty over where they are headed. Put some mergers and 0:23:58.119 --> 0:24:00.600 acquisitions on hold, but they appear to be on their 0:24:00.640 --> 0:24:03.440 way back. Perhaps take us through how far they've come. 0:24:03.520 --> 0:24:06.200 We're welcome now. Paul J. Taubman, he is founder and 0:24:06.320 --> 0:24:09.879 CEO PJT Partners, So thank you so much for being here. Paul, 0:24:10.640 --> 0:24:11.959 give us a sense of where we are. I mean, 0:24:12.000 --> 0:24:14.399 you had some record years of emerging acquisitions and then 0:24:14.440 --> 0:24:15.959 it really fell off a cliff a little bit. 0:24:16.240 --> 0:24:17.720 How far back are we look? 0:24:17.760 --> 0:24:19.239 I think you need to look at this as pre 0:24:19.359 --> 0:24:23.320 COVID and post COVID because the disruptions of the COVID 0:24:23.800 --> 0:24:29.040 period extraordinary, And the reality is almost every market is 0:24:29.160 --> 0:24:32.680 healing and is reaching higher highs other than the M 0:24:32.720 --> 0:24:35.480 and A market. So we're seeing investment grade debt issuance 0:24:35.960 --> 0:24:39.760 record levels, spreads as low as have ever been in 0:24:39.840 --> 0:24:42.760 a similar vein on the equity side, equity issuance now 0:24:42.880 --> 0:24:46.040 is ahead of where it was pre COVID. So all 0:24:46.160 --> 0:24:50.040 of the necessary conditions are in place, and notwithstanding all 0:24:50.080 --> 0:24:53.040 of the desire to transact and to get ahead of 0:24:53.160 --> 0:24:58.000 a changing economy, M and A volumes continue to be. 0:24:59.520 --> 0:24:59.800 Soft. 0:25:00.080 --> 0:25:02.639 So explore the other than part of that. Why is 0:25:02.680 --> 0:25:04.960 it other than Why is M and A lagging behind 0:25:05.000 --> 0:25:06.000 the other markets? Well? 0:25:06.000 --> 0:25:07.080 I think it's a couple of things. 0:25:07.200 --> 0:25:13.000 One is, the current view on anti trust is clearly 0:25:13.119 --> 0:25:16.480 having a chilling effect on some deals. So we see 0:25:16.560 --> 0:25:20.119 many deals being contested. You're seeing the FTC and the 0:25:20.200 --> 0:25:24.639 DOJ being very vigilant in their anti trust enforcement, lots 0:25:24.640 --> 0:25:30.119 of second requests, elongated periods between announcements and closings, and 0:25:30.200 --> 0:25:33.080 it's not just those deals that get reviewed. There's a 0:25:33.119 --> 0:25:35.800 self editing process, and we're seeing a lot of deals 0:25:35.840 --> 0:25:38.960 that are debated vigorously in boardrooms. They never see the 0:25:39.040 --> 0:25:42.960 light of day because companies are uncomfortable putting themselves through 0:25:43.040 --> 0:25:44.720 that extended review process. 0:25:45.280 --> 0:25:46.639 That is one of the big issues. 0:25:46.800 --> 0:25:50.920 And I think the second one is private equity, which 0:25:51.040 --> 0:25:54.400 is such an engine of M and A activity. They've 0:25:54.480 --> 0:25:58.920 not been on the front legs the way they were historically, 0:25:58.960 --> 0:26:00.200 and I think a lot of that has to do 0:26:00.680 --> 0:26:01.440 with interest rates. 0:26:01.600 --> 0:26:04.200 On the first issue about regulation, do boards ever get 0:26:04.320 --> 0:26:05.960 sort of used to it, as it were, because although 0:26:05.960 --> 0:26:08.399 there is a lot of challenges, not too many have 0:26:08.480 --> 0:26:11.440 been successful, as I recall, so at some point they say, okay, yeah, 0:26:11.480 --> 0:26:13.200 they'll challenge, but in fact we'll get it through. 0:26:13.920 --> 0:26:17.360 The batting average of the government has not been very high. 0:26:17.480 --> 0:26:19.560 But what it has done is it's sent a signal 0:26:20.280 --> 0:26:23.720 that for many deals, even if there's no underlying reason 0:26:24.119 --> 0:26:27.240 why the transaction should not be approved, you're going to 0:26:27.359 --> 0:26:30.480 end up with an extended review process and review processes 0:26:30.520 --> 0:26:33.920 that get elongated, they bring risk. And the more risk 0:26:34.000 --> 0:26:37.520 there is, question becomes how does the business perform during 0:26:37.560 --> 0:26:40.320 what could be of twelve to fifteen even eighteen months 0:26:40.359 --> 0:26:43.040 between signing and closing. That's a lot of risk that 0:26:43.119 --> 0:26:46.200 a buyer is underwriting, and I think there are a 0:26:46.240 --> 0:26:48.600 lot of boards that are uncomfortable with that. Now, to 0:26:48.680 --> 0:26:51.360 your point, do we ever get past it? I think 0:26:51.400 --> 0:26:54.000 once we get past this election and we either have 0:26:54.040 --> 0:26:57.720 a change in administration and a change in antitrust policy, 0:26:58.560 --> 0:27:01.280 or there's a sense that the here and now is 0:27:01.400 --> 0:27:03.760 going to stay for another four years, I think either 0:27:03.880 --> 0:27:07.600 one of those is likely to be a significant catalyst 0:27:07.760 --> 0:27:10.240 on those deals that have yet to be brought to 0:27:10.320 --> 0:27:10.920 the marketplace. 0:27:11.160 --> 0:27:13.639 And what about the other item that you mentioned, actually, 0:27:13.800 --> 0:27:15.520 and that is a question of the P and E. 0:27:16.240 --> 0:27:18.479 We're here from a lot of limited partners right now. 0:27:18.480 --> 0:27:20.760 They're a little impatient about getting some of their capital 0:27:20.840 --> 0:27:23.479 back from the general partners. Are there vehicles that get 0:27:23.520 --> 0:27:25.399 around that that you might be involved in. 0:27:25.640 --> 0:27:28.720 Well, if there definitely are vehicles, but let's just kind 0:27:28.760 --> 0:27:31.480 of unpack it. What the problem is if you have 0:27:31.800 --> 0:27:34.359 private equity firms who have bought assets in a low 0:27:34.440 --> 0:27:37.120 interest rate environment and now all of a sudden, rates 0:27:37.119 --> 0:27:41.040 are meaningfully higher. There is a reluctance to monetize or 0:27:41.119 --> 0:27:44.080 to sell those assets in a period where they underwrote 0:27:44.080 --> 0:27:46.800 it at one multiple and now they're looking at selling 0:27:46.840 --> 0:27:49.040 it at a different multiple. And one of the great 0:27:49.080 --> 0:27:52.040 things about private equity firms is they are exquisite in 0:27:52.160 --> 0:27:56.399 controlling the exits. And what we're seeing is with a 0:27:56.600 --> 0:27:59.840 sense that while rates have crested, they have yet to 0:28:00.080 --> 0:28:02.880 come down. It's not going to be until rates start 0:28:02.960 --> 0:28:05.520 to come down. We believe that you're going to see 0:28:05.800 --> 0:28:10.440 a lot of monetizations from the private equity industry, and 0:28:10.600 --> 0:28:13.200 since there haven't been a lot of monetizations, they have 0:28:13.320 --> 0:28:17.560 been reluctant to continue to call capital from their limited partners. 0:28:18.080 --> 0:28:20.400 And in fact, I think we are at an extended 0:28:20.400 --> 0:28:24.280 period of time where the capital calls to investors in 0:28:24.359 --> 0:28:28.879 private equity funds continues to exceed the capital returned, and 0:28:29.119 --> 0:28:32.520 that's putting pressure on the deployment of capital. So private 0:28:32.560 --> 0:28:35.920 equity is less aggressive and deploying capital, and they've been 0:28:36.160 --> 0:28:40.160 less willing to monetize their own assets. And we're trying 0:28:40.200 --> 0:28:43.200 to work with private equity firms to deal with those 0:28:43.280 --> 0:28:44.080 liquidity issues. 0:28:44.640 --> 0:28:46.680 Out of Milkin and Los Angeles last week we heard 0:28:46.720 --> 0:28:49.920 a lot about continuation vehicles. Explain exactly what those are, 0:28:50.040 --> 0:28:51.840 how they work, and how they might release some of 0:28:51.840 --> 0:28:52.720 the pressure. Perhaps. 0:28:53.320 --> 0:28:56.640 So the whole idea of a continuation fund starts with 0:28:56.720 --> 0:28:59.120 the premise that when you find an asset that you 0:28:59.360 --> 0:29:03.120 like and you own it and you continue. 0:29:02.680 --> 0:29:04.560 To deliver superior results. 0:29:05.480 --> 0:29:09.240 This forced shot clock in monetizing it four five six 0:29:09.360 --> 0:29:13.160 years in just simply to give liquidity to investors, many 0:29:13.240 --> 0:29:15.920 of whom would be perfectly content if you just continued 0:29:16.320 --> 0:29:19.360 to own the asset and continue to get excess returns. 0:29:19.840 --> 0:29:22.360 But you do have other limited partners who have other 0:29:22.520 --> 0:29:26.160 needs for the capital want liquidity. So what a continuation 0:29:26.320 --> 0:29:30.240 vehicle does is it gives those limited partners who want 0:29:30.440 --> 0:29:34.560 liquidity the ability to leave or to exit the investment 0:29:35.080 --> 0:29:37.960 and let new funds, new pools of capital come in 0:29:38.760 --> 0:29:40.760 and the private equity firm continues to own and to 0:29:40.880 --> 0:29:41.720 manage the asset. 0:29:42.320 --> 0:29:44.240 So one of the things that has relieved in that 0:29:44.440 --> 0:29:47.040 past some of the pressure on private equity has been 0:29:47.160 --> 0:29:50.040 initial public offerings IPOs, which also have gone through a 0:29:50.080 --> 0:29:52.440 period a little more fallow. Where are we're in a 0:29:52.480 --> 0:29:54.400 the IPL market and could that give relief to some 0:29:54.480 --> 0:29:54.960 of these people. 0:29:55.360 --> 0:29:59.080 The answer is, of course it can, but it's easier 0:29:59.160 --> 0:30:02.800 said than done. So the IPO market is healthier today 0:30:02.880 --> 0:30:04.320 than it was a year ago. I think a year 0:30:04.320 --> 0:30:07.080 ago we were looking at pretty much a shut IPO market. 0:30:07.680 --> 0:30:10.960 We're getting back to levels pre COVID like, but not 0:30:11.160 --> 0:30:14.400 yet there. One of the issues is there's a disconnect 0:30:14.480 --> 0:30:16.920 between how the S and P five hundred companies are 0:30:16.960 --> 0:30:20.600 performing and the broader set of companies. So whether you're 0:30:20.600 --> 0:30:24.680 looking at the midcaps, small cap companies, the Russell, all 0:30:24.760 --> 0:30:28.360 of those indices have meaningfully underperformed the S and P 0:30:29.040 --> 0:30:30.640 and when you look at those companies, in fact, I 0:30:30.680 --> 0:30:33.080 think the Russell is down over the last three years 0:30:33.240 --> 0:30:36.959 in absolute dollars. So there's been a lot of reluctance 0:30:37.120 --> 0:30:40.840 to bring companies to market because those companies that are 0:30:40.920 --> 0:30:46.240 IPO candidates better resemble small and mid cap indosey companies 0:30:46.640 --> 0:30:48.440 than they do the S and P five hundred, and 0:30:48.480 --> 0:30:51.560 there's been this divergence. But there's been a number of 0:30:51.640 --> 0:30:55.560 IPOs that have successfully been launched in the marketplace. They've 0:30:55.560 --> 0:30:59.120 traded well in the aftermarket, and that should begin to 0:30:59.320 --> 0:31:03.400 create some additional liquidity for the private equity firms to 0:31:03.520 --> 0:31:06.640 return capital to LPs to enable them to be more 0:31:06.720 --> 0:31:10.520 front footed in deploying new capital. But what's happened is 0:31:10.680 --> 0:31:14.080 as the IPO market has been shut for an extended 0:31:14.080 --> 0:31:17.600 period of time, there are a lot of these planes 0:31:17.640 --> 0:31:20.120 that are circling up in the air that need to land, 0:31:20.800 --> 0:31:25.280 and the shadows supply of companies looking to IPO is 0:31:25.400 --> 0:31:29.040 probably more than the market can handle, So increasingly they're 0:31:29.040 --> 0:31:31.280 going to need to be other ways to create liquidity 0:31:31.840 --> 0:31:33.200 for these portfolio companies. 0:31:33.240 --> 0:31:35.200 So if you have a willing buyer, winning seller, you 0:31:35.240 --> 0:31:37.080 need to come up with the price. And obviously i've 0:31:37.120 --> 0:31:39.320 interest it's go up. That affects the valuation. I suspect 0:31:39.320 --> 0:31:41.240 that's part of the problem here. But is the problem 0:31:41.360 --> 0:31:43.800 the level of the interest rates or the uncertainty about 0:31:43.800 --> 0:31:46.240 where it's heading. Which is the more chilling effect in 0:31:46.360 --> 0:31:46.880 your business? 0:31:47.400 --> 0:31:50.040 I like to say that you know, you either bought 0:31:50.080 --> 0:31:53.000 things in a higher low interest rate environment and you're 0:31:53.040 --> 0:31:55.600 selling it in a higher low interest rate environment. And 0:31:55.720 --> 0:31:59.200 three of those four quadrants work just fine for deals. 0:31:59.720 --> 0:32:01.880 It's only when you bought things in a low interest 0:32:01.920 --> 0:32:04.680 rate environment and you're now selling them in a high 0:32:04.720 --> 0:32:07.360 interest rate environment, that you end up. 0:32:07.360 --> 0:32:11.200 With reluctant sellers. And right now, that's the environment we're in. 0:32:11.400 --> 0:32:13.960 And what's making it a bit more difficult is there 0:32:14.080 --> 0:32:17.320 is the prevailing wisdom that while rates are higher, they've 0:32:17.400 --> 0:32:18.400 crested and. 0:32:18.480 --> 0:32:19.680 Are likely to come down. 0:32:20.200 --> 0:32:22.960 Now, if ultimately rates stay at these elevated levels and 0:32:23.040 --> 0:32:25.440 they don't come down, then I think everyone's going to 0:32:25.480 --> 0:32:27.880 make their peace with the new paradigm and you're going 0:32:27.920 --> 0:32:30.520 to start to see more transactions. But as long as 0:32:30.560 --> 0:32:34.240 there's an anticipation the rates are coming down, I think 0:32:34.280 --> 0:32:37.760 you're going to see a lot of sellers withhold their 0:32:38.240 --> 0:32:41.240 inventory from the marketplace and you're going to see a 0:32:41.360 --> 0:32:42.640 more sluggish environment. 0:32:42.760 --> 0:32:45.120 You also need financing, and we've heard some of the 0:32:45.160 --> 0:32:48.600 banks pulling back somewhat because of regulatory other constraints. The 0:32:48.600 --> 0:32:51.040 same time, private credit we hear about every single day, 0:32:51.520 --> 0:32:53.840 is that providing the financing. Is there any shortage of 0:32:53.880 --> 0:32:54.640 financing right now? 0:32:54.840 --> 0:32:58.200 I think there's an abundance of capital. The issue is 0:32:58.240 --> 0:33:01.520 it's more costly capital. And when it's more costly capital, 0:33:01.600 --> 0:33:05.080 prices need to adjust to the fact that you need 0:33:05.200 --> 0:33:08.560 to take on a much higher interest burden. And it 0:33:08.720 --> 0:33:11.760 used to be that you could leverage yourself at four 0:33:11.840 --> 0:33:14.840 or five six times, and in a low interest rate environment, 0:33:14.960 --> 0:33:18.040 the interest coverage worked just fine. Now, all of a sudden, 0:33:18.040 --> 0:33:20.800 you do that math with rates meaningfully higher, and you 0:33:20.880 --> 0:33:24.120 need to put more equity into deals, which lowers returns. 0:33:24.520 --> 0:33:27.480 And the only way that works is you need lower prices. 0:33:27.560 --> 0:33:31.400 But there's an abundance of capital. Interestingly, money is flowing 0:33:31.440 --> 0:33:35.920 into credit funds from all all parts, and the reason 0:33:36.000 --> 0:33:38.320 for that is there's a general sense that over time 0:33:39.240 --> 0:33:42.320 rates are coming down and if you get in now 0:33:42.480 --> 0:33:45.880 and you could ride that rate travel down, you're going 0:33:45.920 --> 0:33:49.240 to end up making hefty profits on your credit. 0:33:49.360 --> 0:33:52.680 So credit is in demand. 0:33:53.200 --> 0:33:54.719 There isn't a lot of M and A right now, 0:33:54.880 --> 0:33:58.280 so there's relatively little supply of new inventory. Most of 0:33:58.360 --> 0:34:02.520 it is refinancings. Reds have collapsed. The issue is just 0:34:02.600 --> 0:34:07.560 the absolute rate is too high given the current environment. 0:34:07.800 --> 0:34:10.319 And I as I said before, one or two things 0:34:10.360 --> 0:34:11.920 are going to happen. Either rates are going to travel 0:34:12.000 --> 0:34:15.120 back down, in which case we'll get on stuck, or 0:34:15.200 --> 0:34:17.759 there's going to be a growing sense that this is 0:34:17.840 --> 0:34:21.000 the new normal, and folks will will make their peace with. 0:34:21.080 --> 0:34:22.239 Them as as it were. 0:34:22.440 --> 0:34:24.040 Yes, exactly the way to say. 0:34:24.080 --> 0:34:26.040 Paul Talbman will be staying with us as we turn 0:34:26.080 --> 0:34:28.480 to spin offs and whether we've seen the high watermark 0:34:28.600 --> 0:34:32.399 poor conglomerates. That's coming up next on Wall Street Week 0:34:32.560 --> 0:34:42.880 on Bloomberg. This is Wall Street Week. I'm David Weston 0:34:42.920 --> 0:34:45.480 and Paul Talban of PGAT Partners has stayed with us. 0:34:45.480 --> 0:34:47.640 SA Paul, let's talk about something you're very active, and 0:34:47.880 --> 0:34:50.360 that is some of the spinoff business, including Geve Vernovo 0:34:50.440 --> 0:34:52.200 one that we know something about. But you've been in 0:34:52.320 --> 0:34:54.040 quite a few of these. What's going on right now 0:34:54.120 --> 0:34:55.839 with these companies breaking up and spinning off. 0:34:56.360 --> 0:35:02.280 Look, the reality is that more focused company achieve better results. 0:35:03.040 --> 0:35:06.040 And the way you get focus is you shrink the 0:35:06.120 --> 0:35:10.000 mission and you're able to better allocate capital better and 0:35:10.120 --> 0:35:13.319 center employees have everyone feel as if what they're doing 0:35:13.480 --> 0:35:16.759 is the main event, that their mission critical and more 0:35:16.840 --> 0:35:20.359 focus does drive greater returns. And when you have these 0:35:20.480 --> 0:35:23.719 four flung conglomerates, which really is a throwback to a 0:35:23.800 --> 0:35:27.719 different era, this notion of diversification, you end up making 0:35:27.800 --> 0:35:33.160 inefficient capital allocations. The company tends not to benefit from 0:35:33.960 --> 0:35:37.200 the stars in the portfolio when those assets are in 0:35:37.320 --> 0:35:40.200 favor because there are other parts of the portfolio that 0:35:40.280 --> 0:35:43.320 are out of favor. You end up with a less 0:35:43.640 --> 0:35:47.239 competitive cost of capital, and then you've got shareholders who 0:35:47.320 --> 0:35:51.080 are frustrated, employees who are frustrated, boards who are frustrated, 0:35:51.160 --> 0:35:55.319 and increasingly there's a sense that let the shareholders, let 0:35:55.440 --> 0:35:59.719 them diversify, let them construct their own portfolio. But pure 0:35:59.719 --> 0:36:03.840 play are clearly in favor, and they command premium valuations. 0:36:03.920 --> 0:36:06.120 So the pure plays are in favor. Is it a 0:36:06.239 --> 0:36:08.600 fad or is it a permanent structural phenomenal because we 0:36:08.719 --> 0:36:10.480 had in the past times when we're going to put 0:36:10.480 --> 0:36:12.839 together these conglomerates as big as possible, then we broke 0:36:12.840 --> 0:36:14.120 them up. But it feels like it sort of goes 0:36:14.160 --> 0:36:16.360 back and forth and back and forth. Or are there 0:36:16.400 --> 0:36:18.760 structural factors that may be putting in one direction. 0:36:19.000 --> 0:36:21.560 Well, look, I would I would never underestimate Wall Street's 0:36:21.600 --> 0:36:24.800 ability to come full circle on any issue or any trend. 0:36:25.320 --> 0:36:27.959 So I hesitate to say we won't see those days again. 0:36:28.520 --> 0:36:31.200 I think what's different now is you have more vocal 0:36:31.400 --> 0:36:37.560 shareowners who are much more clear in their disdain for 0:36:37.760 --> 0:36:43.040 companies to just simply create diversification or size without purpose. 0:36:43.520 --> 0:36:45.880 And I think that probably is a governor that didn't 0:36:45.960 --> 0:36:49.120 exist a decade ago or two decades ago. So you've 0:36:49.160 --> 0:36:52.480 got much more in tune boards of directors, you have 0:36:52.760 --> 0:36:58.120 much more vocal shareowners than before. The one cautionary tale 0:36:58.200 --> 0:37:01.759 to that, David, is if you continue to have a 0:37:02.560 --> 0:37:08.760 FTC and a DOJ, that's going to block horizontal deals 0:37:09.600 --> 0:37:12.520 and they're going to prevent companies from getting bigger. I 0:37:12.719 --> 0:37:16.239 suspect that at some point companies are going to just 0:37:16.360 --> 0:37:20.720 it's a natural, a natural tendency to look at deals 0:37:21.000 --> 0:37:23.920 that can get regulatory approval. They may not be the 0:37:24.040 --> 0:37:27.880 right deals, but I can see if you're frustrated continuously 0:37:28.600 --> 0:37:31.719 trying to get deals done in your space and you're 0:37:31.760 --> 0:37:34.560 trying to grow your business, that you then look to 0:37:34.760 --> 0:37:38.880 diversifying transactions. But my hope is that companies remain focused 0:37:38.920 --> 0:37:39.440 on the mission. 0:37:39.640 --> 0:37:42.120 So start first with the efficient part of the capital markets. 0:37:42.280 --> 0:37:44.400 How much of this because the capital markets have become global, 0:37:44.400 --> 0:37:46.600 they become much more efficient, so the capital goes to 0:37:46.640 --> 0:37:48.399 where it belongs, if I can put it that way, 0:37:48.600 --> 0:37:50.279 much more quickly than they did back, for example, in 0:37:50.360 --> 0:37:52.400 the seventies or eighties. How much of that is driving 0:37:52.520 --> 0:37:55.720 some of this splitting up into more focused, perhaps smaller companies. 0:37:55.920 --> 0:37:58.359 Look, clearly, we're in a world that's speeding up, it's 0:37:58.440 --> 0:38:01.920 not slowing down, and companies need to have a currency 0:38:02.000 --> 0:38:06.040 that's competitive. And in many parts of the world you 0:38:06.160 --> 0:38:09.279 have companies who are listed outside the United States who 0:38:09.440 --> 0:38:12.040 enjoy a cost or theyn't enjoy they're burdened by a 0:38:12.120 --> 0:38:15.719 cost of capital disadvantage, and that's an issue. Then you 0:38:15.840 --> 0:38:19.120 have here in the United States and elsewhere conglomerates who 0:38:19.200 --> 0:38:21.680 are not getting credit for all of the assets that 0:38:21.760 --> 0:38:24.480 are all housed under one roof. And as they're competing 0:38:24.560 --> 0:38:27.959 for other assets against pure play companies with a higher 0:38:28.040 --> 0:38:31.640 flying currency, the trades that are hire multiple they're at 0:38:31.640 --> 0:38:34.960 a competitive disadvantage. So I think there's a necessity to 0:38:35.160 --> 0:38:38.240 making sure that you're always front footed. So what's different 0:38:38.280 --> 0:38:41.080 now from a generation to go is people are using 0:38:41.080 --> 0:38:44.920 their currency. Companies are using their currency. It's a competitive asset, 0:38:45.280 --> 0:38:47.320 and you need to make sure it doesn't become a liability. 0:38:47.480 --> 0:38:48.160 That's driving this. 0:38:48.680 --> 0:38:51.360 And the second is you have less patient capital today 0:38:51.840 --> 0:38:54.680 who's not willing to take comfort in the fact that 0:38:54.760 --> 0:38:57.920 while the stock doesn't trade well, the underlying assets are 0:38:57.960 --> 0:39:00.360 worth a lot. They want to see the underlying asset 0:39:00.520 --> 0:39:02.399 values reflected in the share price. 0:39:02.480 --> 0:39:05.040 Does it also redown to the shareholders benefit of potentially 0:39:05.040 --> 0:39:06.920 I remember talking to Larry C. Calp that you represented 0:39:06.960 --> 0:39:09.320 with the ge Ornovo's been a saying, look at some 0:39:09.360 --> 0:39:11.600 people want to really back healthcare, some people want to 0:39:11.960 --> 0:39:14.440 back energy, some people want to like aviation. And when 0:39:14.480 --> 0:39:16.279 we had them all together, you had to make a choice. 0:39:16.719 --> 0:39:18.560 Right now, you can go to one or the other, 0:39:18.680 --> 0:39:21.200 depending on which one you like. Is it actually more power? 0:39:21.280 --> 0:39:22.480 Does a lot of shareholders hand? 0:39:22.880 --> 0:39:25.000 It's all of those things right now. You know, shareowners 0:39:25.040 --> 0:39:28.520 can diversify themselves. If you own a healthcare stock and 0:39:28.600 --> 0:39:30.319 you want to be in airspace as well, you can 0:39:30.360 --> 0:39:34.239 buy another pure play company and create your own synthetic conglomerate. 0:39:34.320 --> 0:39:35.120 That's the first point. 0:39:35.520 --> 0:39:38.799 So all of this notion of diversification, which was part 0:39:38.840 --> 0:39:41.680 of you know, financial theory in the seventies and eighties 0:39:41.719 --> 0:39:45.800 and probably goes back to the sixties, that's been debunked, 0:39:45.840 --> 0:39:49.279 which is shareowners can create their own diversification. Second thing 0:39:49.480 --> 0:39:53.120 is when you're in very large organizations that do many things, 0:39:53.560 --> 0:39:56.640 oftentimes there's not a sense of purpose and an organizing 0:39:56.719 --> 0:39:59.440 principle for the employees and for the company to have 0:39:59.560 --> 0:40:00.480 a clear mission. 0:40:01.080 --> 0:40:01.720 That's different. 0:40:01.800 --> 0:40:03.799 So I think studies have shown that you get better 0:40:04.000 --> 0:40:08.160 operating performance. It's not just financial alchemy. You get better 0:40:08.320 --> 0:40:12.640 operating performance in a focused organization where what you do 0:40:12.920 --> 0:40:15.680 is mission critical. And I think GE is an incredible 0:40:15.719 --> 0:40:18.680 success story. Larry Colp and that team have done an 0:40:18.680 --> 0:40:21.840 extraordinary job. If you look at where they are today 0:40:22.000 --> 0:40:25.719 versus where they traded, stock is up I think five 0:40:25.840 --> 0:40:30.840 folds from the depths for GE, and the combined market 0:40:30.920 --> 0:40:35.360 capitalization of those three entities is approaching three hundred billion dollars. 0:40:35.440 --> 0:40:38.279 It's extraordinary what they've been able to do, but it 0:40:38.360 --> 0:40:41.839 starts with operating performance and then it translates into being 0:40:42.280 --> 0:40:45.520 able to get that value reflected in the public markets. 0:40:45.760 --> 0:40:48.440 You mentioned one of the potential impediments to sort of 0:40:48.440 --> 0:40:51.560 a more efficient allocation of capital is regulatory potentially, and 0:40:51.640 --> 0:40:53.719 you mentioned the FTC and Department of Justice, but they're 0:40:53.760 --> 0:40:55.920 not the only ones in the world. I mean European 0:40:57.960 --> 0:41:00.279 Common Market that EU has its own competion is what 0:41:00.400 --> 0:41:03.839 the UK does, China does, Japan does. So are those 0:41:04.080 --> 0:41:07.080 similarly potential impediments to what you need to get done. 0:41:09.239 --> 0:41:13.640 The complexity is multiplying, you know, it's a multiplicative complexity 0:41:13.719 --> 0:41:17.720 because these are global companies who have global customer bases. 0:41:17.840 --> 0:41:19.799 They operate almost everywhere in the world. 0:41:19.880 --> 0:41:23.040 The regulatory approvals they need need to come from the EU, 0:41:23.160 --> 0:41:27.080 the UK, China, the United States. You've got all sorts 0:41:27.080 --> 0:41:31.359 of different issues, protectionist issues, you've got trade wars, you've 0:41:31.440 --> 0:41:36.000 got a sense of what's national security issues. You've got 0:41:36.040 --> 0:41:42.040 the SAFIAT issues in the US, you've got consistent concerns elsewhere. 0:41:42.440 --> 0:41:44.719 And for global companies to be able to navigate all 0:41:44.719 --> 0:41:48.560 of that, even for those transactions that should be approved 0:41:48.680 --> 0:41:51.880 and ultimately are approved, it's just taking longer and that 0:41:52.000 --> 0:41:55.520 injects more risks. So it can be navigated, and you 0:41:55.600 --> 0:41:58.120 need to be thoughtful about it. And lots of deals 0:41:58.160 --> 0:42:01.279 get done and most deals that get announced do not 0:42:01.400 --> 0:42:05.279 get successfully challenged. The challenge, though, is you never know 0:42:05.520 --> 0:42:08.160 whether you're going to be in the crosshairs, whether you're 0:42:08.239 --> 0:42:12.080 the collateral damage, because the regulators aren't really looking at 0:42:12.120 --> 0:42:15.840 your transaction, they're trying to just send a signal that 0:42:16.400 --> 0:42:19.279 others in that industry should think twice before they bring 0:42:19.480 --> 0:42:23.000 transactions to the marketplace. And I think that's one of 0:42:23.400 --> 0:42:26.239 the ways in which we can explain why, in a 0:42:26.320 --> 0:42:29.400 world that's speeding up, where there's a great desire to 0:42:29.760 --> 0:42:36.080 constantly grow and develop one's company through acquisitions, divestitures, combinations, 0:42:36.480 --> 0:42:38.080 why we haven't seen it in the numbers. 0:42:38.560 --> 0:42:39.239 I think the. 0:42:40.040 --> 0:42:44.240 Regulatory oversight from a global perspective has clearly weighed on activity. 0:42:44.600 --> 0:42:46.480 Paul, it's really great, Javin wallstret Week, thank you so 0:42:46.600 --> 0:42:56.920 much for being here. That's Paul Tullban of PGAT Partners. Finally, 0:42:57.160 --> 0:43:01.200 one more thought. Artificial intelligence pioneer fafe A Lee says 0:43:01.280 --> 0:43:04.719 that AI is everywhere. It's not that big scary thing 0:43:04.800 --> 0:43:08.120 in the future. AI is here with us, And when 0:43:08.160 --> 0:43:10.400 she says it is here with us, she means with 0:43:10.600 --> 0:43:13.040 all of us, and in all sorts of different ways. 0:43:13.600 --> 0:43:16.200 Our special contributor Larry Summers says that it's not like 0:43:16.280 --> 0:43:18.680 the automation we've seen in the past, where machines took 0:43:18.719 --> 0:43:21.359 over manual chores. It's something much more. 0:43:22.239 --> 0:43:26.960 Most of the technological changes we've had before came for 0:43:28.239 --> 0:43:33.480 working people doing relatively routine things. I have a suspicion 0:43:34.120 --> 0:43:37.640 that AI is coming for the cognitive clash. 0:43:38.239 --> 0:43:41.360 Private equity juggernaut. Blackstone says it can use AI to 0:43:41.480 --> 0:43:44.160 sort through the wealth of data about past deals to 0:43:44.239 --> 0:43:47.040 figure out which future deals are most likely to work. 0:43:47.560 --> 0:43:51.560 Public market investing, which relies obviously on publicly available data, 0:43:52.840 --> 0:43:56.680 that sort of data will be increasingly and further commoditized 0:43:56.760 --> 0:44:00.320 in an AI world. And in contrast, the value you 0:44:00.400 --> 0:44:03.359 a proprietary data and insights that you can clean from 0:44:03.360 --> 0:44:07.920 a really large private market portfolio accumulator over many years 0:44:08.040 --> 0:44:11.160 across many businesses that will only be further enhanced. 0:44:11.760 --> 0:44:15.080 Besides building our portfolios, AI may end up building our 0:44:15.160 --> 0:44:16.560 ships for us as well. 0:44:17.040 --> 0:44:18.800 Now, I was listening to Jenson Wang speak at a 0:44:18.840 --> 0:44:20.840 conference the other day, and he showed how they can 0:44:20.880 --> 0:44:24.680 build a boat through AI, a very complicated supertiker, and 0:44:24.719 --> 0:44:27.240 then he said, we can build the factory that builds 0:44:27.280 --> 0:44:30.399 the voat, and then we'll build the robots that build 0:44:30.440 --> 0:44:31.440 the boat in the factory. 0:44:31.719 --> 0:44:32.840 And I'm like, where are the workers? 0:44:33.560 --> 0:44:36.480 What do we do? AI can enhance our medical care 0:44:36.560 --> 0:44:38.879 by cutting through some of what we go through. Now 0:44:39.000 --> 0:44:40.240 that doesn't help us get. 0:44:40.120 --> 0:44:43.800 Better effective in that hopefully we'll eliminate a lot of 0:44:43.960 --> 0:44:48.919 unnecessary testing, a lot of procedures or activities that don't 0:44:49.040 --> 0:44:51.840 directly link to the well being of the patient. 0:44:52.200 --> 0:44:55.440 AI may even provide companionship for us in our old age. 0:44:55.880 --> 0:44:58.200 The New York State Office for the Aging has already 0:44:58.280 --> 0:45:01.800 launched a pilot program giving some across the state AI 0:45:02.080 --> 0:45:05.359 robots free of charge. They tell corny jokes, they take 0:45:05.400 --> 0:45:08.279 seniors on virtual trips, and generally hang out with them 0:45:08.320 --> 0:45:10.880 when no one else is there. Those in the program 0:45:11.000 --> 0:45:15.000 are reporting a ninety five percent drop in loneliness. So 0:45:15.239 --> 0:45:18.359 I suppose it was inevitable that generative AI would enter 0:45:18.440 --> 0:45:21.719 our love lives as well. The founder of the online 0:45:21.800 --> 0:45:25.640 dating app Bumble last week described an AI dating concierge 0:45:26.040 --> 0:45:29.000 that could go out on dates with others AI avatars 0:45:29.320 --> 0:45:32.319 and scope things out, seeing whether the relationship is worth 0:45:32.400 --> 0:45:35.680 venturing out on an actual physical date with the real person. 0:45:36.239 --> 0:45:39.040 There is a world where your dating concierge could go 0:45:39.120 --> 0:45:41.520 and date for you with other dating concierge. 0:45:42.600 --> 0:45:44.160 No, no, truly, and then you. 0:45:44.200 --> 0:45:46.960 Don't have to talk to six hundred people and all 0:45:47.040 --> 0:45:49.399 of San Francisco for you say, these are the three 0:45:49.440 --> 0:45:50.640 people you really ought to meet. 0:45:51.000 --> 0:45:53.239 But why leave it there? Why not take it all 0:45:53.320 --> 0:45:55.880 the way and simply leave it up to our avatars 0:45:55.960 --> 0:45:58.719 to figure out the mysteries of courtship and mating and 0:45:58.800 --> 0:46:01.480 commitment and save us all all the trouble. Open AI 0:46:01.680 --> 0:46:03.560 gave us a taste of this and announcing it's all 0:46:03.640 --> 0:46:07.160 new Chack GPT four this week, complete with a voice 0:46:07.200 --> 0:46:10.000 that some have said sounds a lot like Scarlett Johansson 0:46:10.239 --> 0:46:12.600 playing the role of an AI operating system. 0:46:12.360 --> 0:46:17.839 In her I'm learning everything about everything, lovely look the world. 0:46:19.480 --> 0:46:21.640 But then again, you likely won't have to pay at 0:46:21.680 --> 0:46:24.880 alimony if things don't work out. That does it for 0:46:24.960 --> 0:46:27.600 this episode of Wall Street Week, I'm David Weston. See 0:46:27.640 --> 0:46:28.239 you next week.