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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: a happy man, Daniel Pinto, JP Morgan Chase President. Daniel,
Speaker 2: It's good to see you, sir.
Speaker 3: Thank you for me.
Speaker 4: It's great here.
Speaker 2: Do you feel happy? Do you feel lighter now you
Speaker 2: know you're stepping down and Retiringhi have it.
Speaker 4: I'm in the company for more than four years.
Speaker 5: I add my contribution to the success of the company.
Speaker 4: The company is in an amazing place at the moment.
Speaker 5: It is the right time to embrace the next generation,
Speaker 5: to work with Jamie and prepare the company for the
Speaker 5: future and his succession. So I feel good about the
Speaker 5: opportunity company gave me my contribution and looking forward to
Speaker 5: a very violence life going forward.
Speaker 2: You are living the life that we all aspire to.
Speaker 6: Why now and what do you expect the next twelve
Speaker 6: to eighteen months.
Speaker 2: To look like?
Speaker 5: So it's very simple in the next This has been
Speaker 5: planned for a long period of time, and now is
Speaker 5: the time for me to transition a very very smooth way.
Speaker 5: This transition will go over a couple of years. I
Speaker 5: will my job will be to help the management team
Speaker 5: to continue advising Jamie and the war in issues that
Speaker 5: there is strategic and important for JP Morgan and for
Speaker 5: the future of the company. So it is a right time.
Speaker 5: It is the right group that I helped Jamie.
Speaker 4: To build up to.
Speaker 5: So I think that I feel good about where the
Speaker 5: company is and where I am now.
Speaker 6: I've been a JP Morgan and it's Affilia Banks for
Speaker 6: poor decades. It's a long time.
Speaker 2: You've been to a lot of Davoss.
Speaker 6: You've seen a lot of different cycles of enthusiasm. How
Speaker 6: enthusiastic is the optimism around the deal making and some
Speaker 6: of the mergers and acquisitions that could come down the pike.
Speaker 4: I think that is quite enthusiastic.
Speaker 5: It was twenty four was a very good year too,
Speaker 5: So you think about them. An historical average of volumes
Speaker 5: around four trillion a year in twenty three, it was
Speaker 5: around three point two, last year three point five. We
Speaker 5: think that this year could get to around for trillion,
Speaker 5: which is historical average. And most important, we hope that
Speaker 5: the timing but there in the US to approve transaction
Speaker 5: is not as long. It's moved from six months in
Speaker 5: the bus to running eighteen months.
Speaker 4: Hopefully we go go back.
Speaker 5: It's not just to announce new lys, also to close
Speaker 5: new There's an environment is said for that.
Speaker 2: Let's talk about the environment. Is it just a regulatory
Speaker 2: shift that we need or do you find that four
Speaker 2: percent five percent interest rates of how people back as well?
Speaker 5: I think that if you think about the US economy
Speaker 5: has grown very well in twenty four over three percent.
Speaker 5: It's likely to grow over two percent this year, So
Speaker 5: the environment is good. I think that even that is
Speaker 5: an economy that you don't see and balances that tell
Speaker 5: you that it is an economy that is about to
Speaker 5: go into recession. This cycle could continue for a period
Speaker 5: of time. There is plenty of monetization that needs to
Speaker 5: be done in the sponsor space.
Speaker 4: That is like essentially the evaluations.
Speaker 5: In the US that are much higher than any other places.
Speaker 5: It's also incentivizeding merging into US companies, So I think
Speaker 5: that it would be a good environment.
Speaker 2: Which way to one bank yesterday who suggested that maybe
Speaker 2: these US companies could go on a bit of a
Speaker 2: shopping spread in places like Europe with evaluations were depressed.
Speaker 2: You engage any active conversations right now in companies looking
Speaker 2: to do those kind of things.
Speaker 5: So we are always engaged with clients all over the world,
Speaker 5: and there is a lot of optimism everywhere about where
Speaker 5: the US could do.
Speaker 4: So therefore, yes, there is dialogue everywhere.
Speaker 6: So everyone sounds very optimistic, and then you go to
Speaker 6: some of these forries in the evening and people say
Speaker 6: there's a lot of enthusiasm. What actually will get done
Speaker 6: we're less clear on, just simply because there is that
Speaker 6: question mark to John's point about benchmark rates, about the
Speaker 6: fact that the economy isn't slowing down so much, so
Speaker 6: why would they go any lower? And what happens if
Speaker 6: they go higher still because of debt and deficit.
Speaker 4: I tell you how I think about it.
Speaker 5: When you think about the US economy, isn't a good
Speaker 5: place there not imbalance is consumer is in a good place,
Speaker 5: the corporate sector is in a good place. Inflation hasn't
Speaker 5: yet got to the levels that it should be, and
Speaker 5: the deficit is high. And then you have policies coming
Speaker 5: from immigration, policies started physical the policies and others.
Speaker 4: So at the end, the government is about growth.
Speaker 5: So therefore I hope they will balance the implementation of
Speaker 5: those policies in a way that it doesn't either overhit
Speaker 5: the economy or triggers a recessions. So I think that
Speaker 5: the hope is because of that, because the economy is
Speaker 5: in a good place, and certain things like rational revelation,
Speaker 5: I don't like to talk about the regulation. Rational regulation
Speaker 5: in our sector, in any other sector could be good
Speaker 5: for growth, but if things go too far, then the
Speaker 5: fact will have may.
Speaker 4: Have to hydrate and deal with inflation. Hopefully doesn't happen.
Speaker 6: I guess what I'm getting at. Some people are asking
Speaker 6: what potentially derail this optimism? Is there anything that you
Speaker 6: could see derailing this optimism this year at a time
Speaker 6: where people are basically counting on this sort of rational
Speaker 6: regulation or some of the other growth measures.
Speaker 4: It's an extent, is what I said like inflation.
Speaker 5: Could be that economy goes a bit too fast and
Speaker 5: doesn't allow inflation.
Speaker 4: To to come down.
Speaker 5: That geo political space is still in a challenging place,
Speaker 5: though there is some signs of potential improvement there. And
Speaker 5: at the end is like any other policy, you can
Speaker 5: do the right amount, you can do too much of
Speaker 5: do little. Hopefully the right amount, the right amount is
Speaker 5: done in a way that doesn't really derail. An economy
Speaker 5: that is not ready for a recession is an economy
Speaker 5: that is ready to continue to grow at a decent pace.
Speaker 2: Daniel, A lot's changed in your banking career, tremendous amount,
Speaker 2: and now a bunch of alternative asset managers are looking
Speaker 2: for the activity that traditionally was on a bank balance sheet.
Speaker 2: Can you walk us through as you depart, how different
Speaker 2: banking might look in the years ahead compared to when
Speaker 2: you first started.
Speaker 4: Well, it's very different.
Speaker 5: I think that is in a better place, with more scale,
Speaker 5: better quality of service, is a better quality of products,
Speaker 5: and a safer industry that probably has ever been. I
Speaker 5: think that you are referring to private credit. I think
Speaker 5: that banks we've been lending for two hundred years, and
Speaker 5: private credit is no more than a normal loan. So
Speaker 5: I think that we feel very good and where we
Speaker 5: are in order to compete in that space. And at
Speaker 5: the end, so what is how we're rejected to be
Speaker 5: able to provide the best possible service to a client.
Speaker 5: So therefore, what is it is in a certain transaction
Speaker 5: you will be able to offer a syndicative facility or
Speaker 5: you will be to offer that a lending facility. Both
Speaker 5: markets will tend to converge some way or the other.
Speaker 4: And we are in an.
Speaker 5: Amazing position to compete because we do have relationship with
Speaker 5: all those clients and we offer them not just the loan,
Speaker 5: We offer them a bunch of activities.
Speaker 2: We saw a relationship developed between Mark row AND's Apollo
Speaker 2: and Jane Fraser City and that'nced the end of last year.
Speaker 2: Are you exploring similar partnerships we have?
Speaker 5: We have plenty of partnerships, several where we have coll
Speaker 5: landing facilities. We rather as a managers and that they
Speaker 5: want to participate in the origination. The issue for all
Speaker 5: these funds at the moment is that they are getting
Speaker 5: a huge amount of influence and they may not be
Speaker 5: enough accests to deploy.
Speaker 4: So therefore to.
Speaker 5: Have a partnership with someone like us, a city or
Speaker 5: any other to be able to participate in the origination
Speaker 5: of these banks. It is a good thing we are
Speaker 5: doing the same, not just with one, with as many.
Speaker 4: As we can.
Speaker 6: That kindt dynamic gets people worried. Not to be negative
Speaker 6: Nelly here, but you know, going to worries we're going forward.
Speaker 2: I realize, okay, I.
Speaker 6: Realized that I'm sounding pretty negative. But I'm wondering, given
Speaker 6: how much the flows have come in to the private
Speaker 6: credit sphere and how they've been searching for ways to
Speaker 6: be deployed, is there anything that makes you nervous within
Speaker 6: this ecosystem that's grown up.
Speaker 2: Very quickly.
Speaker 5: At the moment now, I think that when you look
Speaker 5: at these funds, they don't have too much leverage. Their
Speaker 5: leverage one one and a have times so from that
Speaker 5: point of view, particularly in the more in the bigger space, bigger.
Speaker 4: Loans and not so much.
Speaker 5: The only thing that made me post and think about
Speaker 5: it is there is a lot of direct lending going
Speaker 5: into small business. There is a lot of direg lending
Speaker 5: going into the smaller side of middle market, and this
Speaker 5: industry in the current form hasn't been tested through a
Speaker 5: down turn cycle because when COVID happened, it was all
Speaker 5: subsidized by the different governments. So how these funds are
Speaker 5: going to behave in a downturn with small business is
Speaker 5: something that you want.
Speaker 4: To be concerned about. It you want to keep an
Speaker 4: eye on.
Speaker 2: But I don't think that there is a systemic re.
Speaker 5: Issue in this space in the short term. The components
Speaker 5: are not there for that to happen.
Speaker 2: Then you find a question. That's the golf game, It's.
Speaker 5: Okay, it's been deteriorating's a very really worse.
Speaker 2: What's the handicap now?
Speaker 4: It has gone from five to eight? Wipfully to do it?
Speaker 7: Now?
Speaker 2: Can you appreciate your time, sir? Congratulations on a fantastic career.
Speaker 2: Now I can do a more formal introduction to the
Speaker 2: former US Secretary of State John Carey, also co executive
Speaker 2: chair of Galvanized Climate Solutions. Secretary carry good to see you, sir,
Speaker 2: start again. We're starting can help be more rugby. I'm
Speaker 2: happy to see you, you know I am.
Speaker 3: Thank you, sir.
Speaker 2: The new president says, drill, baby, drill. I want to
Speaker 2: understand how you feel about that and what kind of
Speaker 2: trajectory you think we might be going on through the
Speaker 2: next four years.
Speaker 7: Well, I think I think the President's correct that we
Speaker 7: need an abundance of what we call firm energy.
Speaker 3: We need to make sure that America.
Speaker 7: Is leading in the technologies of this this transition to
Speaker 7: new energy, clean energy.
Speaker 3: But I would say that build.
Speaker 7: Baby, builder, I mean drill mayby drill ought to be
Speaker 7: replaced by build, may be build, because that's what we
Speaker 7: need to do in all aspects of energy. There will
Speaker 7: be higher demand. He's absolutely correct, and I'm glad to
Speaker 7: see a five hundred million dollar infrastructure announced because that's
Speaker 7: going to be the key to our doing it, and
Speaker 7: it's going to be the key to leading in AI
Speaker 7: BUTT and there's a huge butt. Data centers demand a
Speaker 7: massive amount of energy, and.
Speaker 3: That's going to become very competitive.
Speaker 7: Will that energy be provided by clean energy or is
Speaker 7: it going to just add to the problem we have
Speaker 7: of a warming planet with increased intensity to our storms,
Speaker 7: more damage all around the world. We haven't suddenly lost
Speaker 7: the connection between the choices we make about how we
Speaker 7: provide energy and its impact just because we elected a
Speaker 7: new president. So we've got to stay tuned into the science.
Speaker 7: We have to stay tuned into the marketplace, and the
Speaker 7: marketplace is going to move predominantly in the direction of
Speaker 7: this new energy. To wit, last year, about almost two
Speaker 7: trillion dollars went into venture capital for new energy, clean
Speaker 7: energy systems. One trillion went into fossil fueld. It's a
Speaker 7: two to one first time ever shift in the marketplace.
Speaker 7: And if you look at what's happening in that marketplace,
Speaker 7: other technologies are coming on, like wind Texas, the home
Speaker 7: of fossil fuels in America, that is now the leading
Speaker 7: state for the deployment of wind turbines. So I think
Speaker 7: the marketplace is going to continue to invest in moving
Speaker 7: this direction on a global basis.
Speaker 2: Is that the marketplace or government intervention.
Speaker 3: Last the marketplace. It's happening all around the world.
Speaker 7: I mean, I've been recently in the Far East in Singapore, and.
Speaker 3: Recently also in the Middle East.
Speaker 7: In most of the Middle Eastern countries, everyone is engaged
Speaker 7: in this transition. UA a major producer of oil and gas,
Speaker 7: is also a major producer of new nuclear plants.
Speaker 3: They've got four new nuclear plants.
Speaker 7: They have a vast array of solar one of the
Speaker 7: largest fields in the world, and they are determined to
Speaker 7: have a higher level of energy produced by renewable energy.
Speaker 6: The building on John is talking about, I'm thinking about,
Speaker 6: let's say, the electric vehicle credits, and there was this
Speaker 6: idea that we would really transition people to vehicles that
Speaker 6: were considered cleaner. And yet China did it successfully because
Speaker 6: they have the resources to do that.
Speaker 2: The United States doesn't.
Speaker 6: They need to import them, and it actually makes it
Speaker 6: in the US more dependent on other places or some
Speaker 6: of the government policies misguided in what was necessary to
Speaker 6: actually tackle the problem. From an economic perspective.
Speaker 7: I think we've worked very hard to open up new
Speaker 7: supply chains, and we did open up new supply chains
Speaker 7: India as an example, we were invested at about five
Speaker 7: hundred million dollars in trying to build, not trying to
Speaker 7: in building the largest production plant in the world. And yes,
Speaker 7: China has in fact captured much of that market, and
Speaker 7: they captured it frankly with unfair trade practices, which is
Speaker 7: one of the reasons that's a legitimate issue.
Speaker 3: Between US and them, and we have to work that out.
Speaker 7: Solar was really worked on and developed by the United
Speaker 7: States and Germany and then China stepped in. There was
Speaker 7: a massive amount of dumping into our country and.
Speaker 3: The production gravitated towards China.
Speaker 7: But today China is now I mean, many people complain,
Speaker 7: including the President. President said China is not doing what
Speaker 7: it should be doing well. China is the largest producer
Speaker 7: of renewable energy and deployer of renewable energy anywhere in
Speaker 7: the world, including more than all the rest of the
Speaker 7: world put together. So China is now commanding the market
Speaker 7: just by virtue of its production level.
Speaker 3: We need to get into that and compete.
Speaker 2: But it raises this.
Speaker 6: Question national security versus cleaner energy. It kind of pits
Speaker 6: two of your babies together. It sort of raises this question,
Speaker 6: which do you prioritize.
Speaker 7: The climate crisis is a national security crisis. The fact
Speaker 7: there's are about thirty nine million people wandering around Africa
Speaker 7: elsewhere trying to knock on the door of places where
Speaker 7: they think they can live because they can't live there anymore.
Speaker 7: They can't produce the food anymore, it's getting too hot,
Speaker 7: you can't work outdoors, so that's going to increase that challenge.
Speaker 7: We had about a million people come in from the
Speaker 7: desert into Damascus, which changed the dynamic of the Arab spring.
Speaker 3: And of the war in Syria. So there's a linkage.
Speaker 7: What happens when water starts being reduced in spread, what
Speaker 7: happens when the food basket of Africa implodes as they
Speaker 7: can't grow it anymore. These are real threats that smart
Speaker 7: people are spending a lot of time analyzing and understanding,
Speaker 7: and within the Pentagon, the Pentagon has called the climate
Speaker 7: crisis a threat multiplier. It presents serious challenges to all
Speaker 7: of us, and we need to treat it like the
Speaker 7: security issue that it really is.
Speaker 2: You understand to Lisa's point that we have become more
Speaker 2: dependent on an adversary on China for all the reasons
Speaker 2: that you describe, and yet we have some of these
Speaker 2: critical minerals, these resources within the United States. I'm sure
Speaker 2: you're familiar with the resolution copper deposit that Rio's explored.
Speaker 2: It's ready to go, can support twenty five percent of
Speaker 2: the copper demands of the United States of America, and
Speaker 2: yet for some reason it's been dragging along and hasn't
Speaker 2: been greenlit in a way that it should be.
Speaker 7: We have a problem in the United States, which I
Speaker 7: hope will be cured. It's a bipartisan challenge. We need
Speaker 7: Republicans and Democrats alike to come together in order to
Speaker 7: do permitting reform. Two thousand gigawatts, a huge amount of energy,
Speaker 7: almost as much as China has today. We have that
Speaker 7: backed up at FIRK Federal Energy Regulatory Commission, that has
Speaker 7: not been improved over these years.
Speaker 3: Why politics.
Speaker 7: So I hope we're going to get the politics out
Speaker 7: of the way, and I think President Trump understands that
Speaker 7: that is a way to accelerate the deployment of the
Speaker 7: energy that he has now said.
Speaker 2: It didn't happen under a Democratic president.
Speaker 8: Didn't come pa Sis, Why didn't the immigration bill? Why
Speaker 8: didn't the immigration bill that had been put together with
Speaker 8: you know, Senator Langford from Oklahoma, he worked hard at that.
Speaker 7: It was bipartisan, it was ready to be passed. And
Speaker 7: President Trump then then, you know, former President Trump called
Speaker 7: up and said, don't pass this. It will help the Democrats,
Speaker 7: it'll help the divide administration look good.
Speaker 3: I don't want to get involve themselves.
Speaker 2: Look, I'm not here the start of this conversation. Do
Speaker 2: you think do you think they helped themselves for the
Speaker 2: last four years, the Democrats over the last four years
Speaker 2: did the party have themselves.
Speaker 7: I think there were serious questions about the message and
Speaker 7: so forth. But I'm not here to be political. I'm
Speaker 7: here to talk about the energy crisis.
Speaker 2: Isn't that something very political about this crisis? Though it
Speaker 2: is by.
Speaker 7: Starting nation, it seems to have been weaponized, and unfortunately
Speaker 7: that's a loss for all Americans.
Speaker 3: For instance, if you.
Speaker 7: Decide, as president has to pull out of Paris, we
Speaker 7: are not at the table. We lose the leverage of
Speaker 7: being at the table. We lose the protection of our
Speaker 7: country in terms of something that might be passed or
Speaker 7: not passed by.
Speaker 3: Not being at the table. Moreover, you know.
Speaker 7: Last time he pulled out, there was only one person
Speaker 7: in the entire world of all the leaders in the
Speaker 7: world that pulled out of the Paris Agreement. And by
Speaker 7: the way, the Paris Agreement was still implemented in the
Speaker 7: United States because we have thirty seven governors who implement
Speaker 7: renewable portfolio laws and they did that. We had over
Speaker 7: one thousand mayors join into something called the worst stell
Speaker 7: In movement. And that's exactly what's going to happen now.
Speaker 7: And by the way, in this Bloomberg obviously understands.
Speaker 3: Better than anybody.
Speaker 7: The power of the marketplace is what is going to
Speaker 7: make determinations. Air oil is a commodity and hasn't really
Speaker 7: changed much in price for over one hundred years. But
Speaker 7: technology is what is really driving these changes that are
Speaker 7: taking place, and I think rather than being driven by
Speaker 7: commodity prices, this revolution is going to be driven by
Speaker 7: technology prices, which are now lower than the prices of
Speaker 7: fossil fuel.
Speaker 6: You've been a big proponent of not exceeding this one
Speaker 6: point five degree increase in the global climate. You've said
Speaker 6: that you think we're going to blow past it. You're
Speaker 6: working with Tom Steyer of Galvanies try to raise money.
Speaker 2: There's been a huge.
Speaker 6: Vibe shift away from ESG where people are saying, well,
Speaker 6: if we can't solve it, whatever, how do you sort
Speaker 6: of see the enthusia siasm to invest in things that
Speaker 6: have been highly politicized.
Speaker 3: Really, that is a great question.
Speaker 7: I'm really glad you asked it because it's central to
Speaker 7: what we're doing. Nothing that we're doing is based on
Speaker 7: reliance on the government to do something, or reliance on.
Speaker 3: A subsidy of some kind. We're not in there to find.
Speaker 7: Or to be the source of concessionary funding or to
Speaker 7: find the concessionary funding. We are investing in portfolio companies
Speaker 7: that have the ability to affect this transition just on
Speaker 7: basic fundamentals of business, just looking at the marketplace, and
Speaker 7: we will show people how, in fact, and there are
Speaker 7: other companies doing this now, how this transition will allow
Speaker 7: you to invest and make money and you will be
Speaker 7: able to make better returns than some other things that
Speaker 7: are out there today. That's the basis of this investing.
Speaker 7: And when the market sees the way that a whole
Speaker 7: bunch of people or in fact turning this around making money,
Speaker 7: AI is going to be a big part of this.
Speaker 3: Geothermal may be a part of it, but you need
Speaker 3: an all of the above.
Speaker 7: Investment effort now because the science is telling us we
Speaker 7: have to move faster and ultimately that demand is going
Speaker 7: to change people's attitude about this. You know, electric vehicles
Speaker 7: grew by fivefold last year, in sales grew by about
Speaker 7: fourfold last year. Solar has now had a sixty percent
Speaker 7: reduction in price. So whereas oil is affected by the
Speaker 7: economy as a commodity, the renewable portfolios are going to
Speaker 7: be affected by the technology change which is lowering their costs.
Speaker 7: And I'll tell you what right now, there is no
Speaker 7: question but that the reduction in price of wind and solar,
Speaker 7: and the new fibers that's available to transmit higher levels
Speaker 7: of energy at much lower cost, all of these things
Speaker 7: that come together to say it is cheaper one point
Speaker 7: seven since per kilowatt hour in some contracts that are
Speaker 7: being let now on solar. So I think the marketplace
Speaker 7: is going to make this decision, and no one person.
Speaker 2: You'll feel me to jumping in because we're up against
Speaker 2: the clocks. But I just wanted to fit in one
Speaker 2: final question because your voice is important on this issue.
Speaker 2: Are you encouraged by recent developments in the Middle East
Speaker 2: and the agreement strung between Hamas and Israel.
Speaker 7: Well, obviously, I think it's great that we've got an
Speaker 7: agreement that a lot of people worked extremely hard on
Speaker 7: for some period of time.
Speaker 3: Things are always tentative and difficult in that part of
Speaker 3: the world.
Speaker 7: A lot will depend on the government of Israel and
Speaker 7: how it approaches the future. I saw a debate this
Speaker 7: morning on TV about the meaning of the West Bank,
Speaker 7: and if efforts are made, I think to move to
Speaker 7: the sort of greater Sumaria today a Samaria.
Speaker 3: Philosophy.
Speaker 7: Without resolving what's going to happen in the long term governance, it's.
Speaker 3: Going to be a real problem.
Speaker 7: So hopefully wiser heads will prevail and people move forward.
Speaker 7: But you have to begin to build, build in building box.
Speaker 7: This is the first step. Build a little confidence, make
Speaker 7: some things happen, but then hopefully have a shared vision
Speaker 7: for the long term future of Gaza and of the
Speaker 7: West Bank, and obviously for Israel security, which is paramount.
Speaker 7: You've got to be able to resolve that as you
Speaker 7: move forward.
Speaker 2: I think we all share that hope. Thanks for being
Speaker 2: with this. I appreciate your time.
Speaker 3: As always to be here with you.
Speaker 2: Don't carry that the former US Secretary of State joining
Speaker 2: us not to discuss. It's the Guggenheims, Cio and Welsh
Speaker 2: and it's going to see you. Good morning, welcome to
Speaker 2: the studio. Let's talk about it. The salespeople running around
Speaker 2: Davos trying to sell saying things are really good in
Speaker 2: America right now, get even bets. You've got to put
Speaker 2: money to work. We're already priced for a lot of that.
Speaker 2: How challenging is it for you and the team.
Speaker 9: Well, it is an interesting time. You've got rates that
Speaker 9: are range bound the ten year trading between we'll call
Speaker 9: it three seventy five and four seventy five. You have
Speaker 9: credit spreads that are tight relative to history, and you
Speaker 9: have stocks that are stretched and valuation relative to expectations
Speaker 9: and at a risk premium that is less than zero.
Speaker 9: So it can be very tricky at this particular juncture.
Speaker 9: But fundamentals remain pretty strong, and so there's opportunity for
Speaker 9: investment in maybe a wide array of selections and sectors,
Speaker 9: so there's things.
Speaker 10: To invest in.
Speaker 6: I remember this sort of pendulum switching from bonds to stocks,
Speaker 6: people saying that stocks really seem like the dynamic place
Speaker 6: to be in a pro growth administration at a time
Speaker 6: where inflation hasn't completely gone down. Do you agree with
Speaker 6: that that stocks are preferable to bonds at a time
Speaker 6: or really growth is the main theme?
Speaker 9: Well, I think that does give a lift to stocks,
Speaker 9: and as long as earnings per share projections turn out
Speaker 9: to be accurate, I think that there's still room for
Speaker 9: opportunity inequities. However, we also have to remember that not
Speaker 9: all markets.
Speaker 3: Are exactly the same.
Speaker 9: So if you look at the Russell two thousand, you
Speaker 9: still have a very high percentage around forty percent that
Speaker 9: are non earners, and the mag seven of course as well,
Speaker 9: below risk premium levels that we've seen not since the
Speaker 9: late nineteen nineties where we had negative negative risk premiums.
Speaker 9: So I think that we have some risk associated with
Speaker 9: the market that it is priced for perfection. So I
Speaker 9: would be cautious, but cautiously optimistic. And as long as
Speaker 9: and we still see earnings per share rising, maybe not
Speaker 9: at the level that is priced into the S and
Speaker 9: P right now at fifteen percent earnings per share growth,
Speaker 9: but nonetheless still a fairly positive environment.
Speaker 6: Stocks are priced to perfection in your view, our bonds
Speaker 6: price to perfection.
Speaker 9: No, Actually, I think there's some real opportunities in fixed income.
Speaker 2: Still we have a risk premium.
Speaker 9: That's positive relative to certainly relative to equities. And also
Speaker 9: you're getting a real rate of return that is much
Speaker 9: better than we had pre COVID, and you're getting a
Speaker 9: nominal rate of return in any number of areas that
Speaker 9: make a lot of sense. So we like all sorts
Speaker 9: of credit stories, structured credit, corporate credit, even high yield,
Speaker 9: and particularly the high quality portion of the high yield market.
Speaker 9: So there's still some real, real fundamental value that can
Speaker 9: be found in fixed income.
Speaker 2: Can you say the same thing about treasuries?
Speaker 9: Well, like I said, we're range bound in treasuries, and
Speaker 9: there's a trade that's actionable there. As we go up
Speaker 9: towards the top end of the range on the high fours,
Speaker 9: if you will, four seventy five, you can extend duration.
Speaker 9: You can then also as we've moved back shorten after all,
Speaker 9: we saw one hundred and twenty basis point rise in
Speaker 9: the ten year and we were able to play that
Speaker 9: trajectory really quite nimbly, if you will, during that window
Speaker 9: of time.
Speaker 2: The incoming government might have to look at extending duration
Speaker 2: as well. Will that complicate things? How do you think
Speaker 2: about the deficit concerns of the moment and do you
Speaker 2: think that's been responsible for the pickup and yields we've
Speaker 2: seen through December and into the new year.
Speaker 9: I think there's a couple things that have really influenced
Speaker 9: the rise and rate. One is the deficit, and it's
Speaker 9: a real concern who's going to buy all these bonds
Speaker 9: that we have to issue in the US. Right now,
Speaker 9: we're still being able to be financed through both US
Speaker 9: investors as well as international investors. So that story is
Speaker 9: still playing out pretty well. But at the same time,
Speaker 9: you also have a FED that is sending mixed signals
Speaker 9: with regard to the rate trajectory. Now, our belief is
Speaker 9: that rates are still going to be moving down over
Speaker 9: the course of twenty twenty five, and we're going to
Speaker 9: move towards a neutral rate, and I think it's going
Speaker 9: to be tricky for the FED to really find that
Speaker 9: perfect neutral rate. But at the same time, they are
Speaker 9: also still slowly reducing their balance sheet, so they're sending
Speaker 9: mixed messages messages, and they're also acting in mixed ways.
Speaker 6: You know, John alluded to this idea that the US
Speaker 6: has to finance all this, and you are mentioning this, right,
Speaker 6: where's the money going to actually come from?
Speaker 2: And we've talked.
Speaker 6: About how that sucking sound of cash going into the
Speaker 6: United States to feel this crowding out some of the
Speaker 6: debt issue ins and other assets and other regions. How
Speaker 6: destabilizing is it to have one economy accelerating so quickly
Speaker 6: and diverging from the rest of the world.
Speaker 9: Well, it is unusual. But what I would also say
Speaker 9: is that because the strength of the US economy has
Speaker 9: definitely been there if we continue to see an inflow
Speaker 9: of capital, and I think we're going to continue to
Speaker 9: see that, and the opportunity for investment is going to
Speaker 9: go beyond the markets necessarily and into infrastructure, investment, manufacturing,
Speaker 9: build out, real.
Speaker 2: Estate or the US for the US, not for the
Speaker 2: rest of the world.
Speaker 9: Not for the rest of the world so much, and
Speaker 9: so there's going to have to be some real balance there.
Speaker 9: For the meantime, the US is going to continue to
Speaker 9: attract capital.
Speaker 2: Can we get you excited about Europe in any way,
Speaker 2: shape or form. Were sitting care in Switzerland. It's beautiful,
Speaker 2: it's beautiful. A lot of people say it's a great
Speaker 2: place for vacation. I've always been sold that by US
Speaker 2: based investors. Can we get you excited about Europe at all?
Speaker 9: I think that Europe has some real opportunity, but they
Speaker 9: have to really make some structural changes and we'll see
Speaker 9: if Europe is able to do that.
Speaker 10: One of the areas of.
Speaker 9: Maybe concern or caution is that previously very stable governments
Speaker 9: are seeing some turmoil. France, Germany elections coming up, and
Speaker 9: so I think that as we come through those and
Speaker 9: we see more evidence of the trajectory.
Speaker 10: And if we see a real desire for Europe.
Speaker 9: To engage in structural reforms, then I think we might
Speaker 9: be able to see an investable opportunity.
Speaker 2: There's lots of facts and I appreciate your time as always,
Speaker 2: it's good to see it and Welsh the Cockenheim Cio.
Speaker 2: Lots of changes overnight on the trade front once again,
Speaker 2: lots of threats that we can explore with the former
Speaker 2: US House Speaker Paul Ryan speaker run it's going to
Speaker 2: say you sir, it good to be with you. Let's
Speaker 2: think about the ideology at the sitting president. What is
Speaker 2: the ideology? What's your familiarity with the ideology around things
Speaker 2: like trade.
Speaker 1: I think the best way to describe as America first.
Speaker 1: I think he's articulately in America first on trades, a
Speaker 1: little more more caantilistic, say than the traditional Republican you
Speaker 1: know Reagan free trade. But America first is the quickest
Speaker 1: way of describing it. A lot of good fiscal policy,
Speaker 1: you know, regulatory policy, tax policy.
Speaker 10: There's a lot of optimism.
Speaker 1: Frankly, but on trade, I mean, I'm sure you have
Speaker 1: an international audience here. There's going to be some trade friction,
Speaker 1: no two ways about.
Speaker 2: It, without a doubt. How do you feel about the
Speaker 2: mccancil has taken over the Republican Party. It's not the
Speaker 2: right step.
Speaker 1: Well, there's different kinds of Republicans. I'm a classical liberal,
Speaker 1: free market, free trade Republican, so I'm a different breed
Speaker 1: of a Republican. His breed of populist Trump Republican is
Speaker 1: is the ascendant breed. They're basically the dominant force in
Speaker 1: the Republican Party. Donald Trump is the dominant force in
Speaker 1: the Republican Party, no toys about it. But we have
Speaker 1: a coalition that is playing nice with each other right now.
Speaker 1: And frankly, I'm optimistic on a lot of policies that
Speaker 1: are coming together. And all of those policies will not
Speaker 1: happen if you have Republican disunity. So I think it's
Speaker 1: very important that Republicans stay unified.
Speaker 10: The executive branch.
Speaker 1: Has an enormous amount of power when it comes to
Speaker 1: trade policy. That's something that one hundred years ago Congress
Speaker 1: seated to the White House. But on all this other
Speaker 1: fiscal policy, Congress has a huge role to play, and
Speaker 1: it's really important that Republicans stay unified with these razor
Speaker 1: thin majorities we have.
Speaker 6: One of the initiatives that they need to deal with
Speaker 6: is the deficit. And I'm focused very much on the
Speaker 6: bond markets, and I'm sure you are too as a
Speaker 6: free market Republican. And I just wonder how much conviction
Speaker 6: you really see in both camps of the Republican Party
Speaker 6: as you just laid out to truly combat some of
Speaker 6: the deficit concerns that we feel here at DAVA.
Speaker 1: They're definitely definite hawks, and Congress no toys about it.
Speaker 1: The people running the various committees in charge of this,
Speaker 1: the budget, the ways the means can be, definance can be, they.
Speaker 10: Are deficit hawks.
Speaker 1: So first of all, you can't do well on your
Speaker 1: debt servicing if you don't have don lal GDP growth
Speaker 1: outpacing your debt servicing costs. So number one, fast economic
Speaker 1: growth is paramount. That's why this deregulation is very necessary.
Speaker 1: That's why extending tax reform is necessary. We don't want
Speaker 1: to hit the economy with a wet blanket like Biden
Speaker 1: did with the promise to higher taxes and more regulations.
Speaker 10: Really important on the debt.
Speaker 1: The only way to get the debt under control is
Speaker 1: to do in titlement reform that's more of a comprehensive thing.
Speaker 1: That's what I spent most of my time in Congress
Speaker 1: working on.
Speaker 10: I think there's a way to do it.
Speaker 1: There's the most bipartisan solution that's out there right now
Speaker 1: are these fiscal commissions.
Speaker 10: There's a lot of talk about that.
Speaker 1: It wouldn't surprise me if Congress acted in a bipart
Speaker 1: is a way on a fiscal commission, not like Wull Simpsons,
Speaker 1: which I served on, but one with teeth that requires action.
Speaker 1: That's probably the biggest talk in town right now about
Speaker 1: real debt reduction, but in reconciliation.
Speaker 10: Who knows, you could see some debt reduction occur there too.
Speaker 6: We've already heard though from this administration. They're not going
Speaker 6: to Social Security, they're not going to cut Medicare, they're
Speaker 6: not going to cut any of those titlements that they
Speaker 6: really want to cut. And I just wonder what.
Speaker 10: I wouldn't say they really want to cut.
Speaker 1: Okay, everybody who ran for president lately has been saying
Speaker 1: we're not touching these things.
Speaker 10: I don't agree with that. I'm a different, like I said,
Speaker 10: reading and.
Speaker 6: It's going to hit the wall that there's going to
Speaker 6: be a real challenge to undermines some of the optimism
Speaker 6: that we're hearing here.
Speaker 1: Well, within a decade you have both the Medicare part
Speaker 1: a trust fund and the Social Career Trust Fund going
Speaker 1: bankrupt and solve it. So you have to do something
Speaker 1: about that. You've got to step in front of that.
Speaker 1: By the way, you don't need to cut these programs
Speaker 1: to fix this. You can grow them a little more slowly.
Speaker 1: You can reform these programs, and you can do it
Speaker 1: in a prospective way so that you don't affect people
Speaker 1: in or near retirement, but do it for the younger
Speaker 1: generation like my ex generation.
Speaker 10: So there are good reforms.
Speaker 1: Out there that I think are politically palatable that move
Speaker 1: the needle on the debt tremendously. The question is whether
Speaker 1: or not. And by the way, if it were easy,
Speaker 1: we had already done it. I pass four budgets in
Speaker 1: the House when our budget shair that did this, but
Speaker 1: they did meant nowhere in the Senate.
Speaker 10: So this is really hard to.
Speaker 2: Do, which you have for an extension of the tax
Speaker 2: cuts and jobs that absolutely why.
Speaker 1: Does not make sense because we want growth.
Speaker 10: If you don't do this.
Speaker 1: The kind of tax increases that are going to hit
Speaker 1: the economy. First of all, immunia, expensing, R and D, amortization.
Speaker 1: These are very important business tax relief. But what people
Speaker 1: who aren't Americans don't necessarily see is more than two
Speaker 1: thirds of our businesses are not CEA corporations. They're passed
Speaker 1: through LLCs sub sub Chapter A S corporations.
Speaker 10: They pay their taxes as individuals.
Speaker 1: There's a massive tax increase on those businesses the engine
Speaker 1: of job creation in America if you let those things expire.
Speaker 10: So that's really important. It's this thing we call Section
Speaker 10: one nine A. I don't want to get too deep
Speaker 10: in the details.
Speaker 2: We haven't got signed.
Speaker 10: You're going to hit. You're going is gonna be.
Speaker 1: Bad for the economy if you let those tax cuts expire.
Speaker 10: So you do need to extend.
Speaker 2: Sous And said the same thing. They said, it could
Speaker 2: be an economic calamity. Could you describe that colomacy for us?
Speaker 1: Just how about I'd say about eighty percent of small
Speaker 1: businesses would have a massive tax increase, over twenty percent
Speaker 1: tax increase. And oh, by the way, you'll put them
Speaker 1: at a massive competitive disadvantage against corporations, huge job dislocation,
Speaker 1: and most of our jobs come from small and medium businesses.
Speaker 1: You cannot hit those with a big tax increase.
Speaker 2: You know, that's difficult to re import together these bills.
Speaker 2: That's only one piece of a tax eff.
Speaker 1: Yeah, I wrote the last one night you're it was
Speaker 1: I had a twenty two seat margin.
Speaker 10: Easier to play with the twenty and.
Speaker 2: A half dozen montins this time around. How difficult is
Speaker 2: it going to base it to an I think above
Speaker 2: and beyond just extending. This is why I.
Speaker 1: Say Republicans need to stay unified because all of us
Speaker 1: agree on this, this fiscal this type of fiscal policy.
Speaker 1: We may have different agreements on trade, we don't have
Speaker 1: disagreements on this. Really important that Republican factionalism doesn't occur.
Speaker 1: They stay unified and get this done. The country's counting
Speaker 1: on us. Donald Trump promised it, and one of the
Speaker 1: reasons why people are so optimistic is because they believe
Speaker 1: this is going to happen.
Speaker 10: At Tanao, we pulled.
Speaker 1: Seven hundred CEOs ten trillion dollars a wealth and it's
Speaker 1: a thirty two point swing in optimism from last year
Speaker 1: to this year.
Speaker 2: We've seen it on the US E Konda can tye
Speaker 2: spake Iron. We hear it repeatedly every single out that.
Speaker 1: Optimism has to be translated into policy for it to
Speaker 1: be realized, and that means past this bill Speaker Ron, Thank.
Speaker 3: You, sir.
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