1 00:00:00,240 --> 00:00:02,960 Speaker 1: This is Bloomberg Wall Street Week. And we may not 2 00:00:03,040 --> 00:00:05,280 Speaker 1: have an overall recession, We're having a rolling recession. To 3 00:00:05,360 --> 00:00:07,200 Speaker 1: Cone roll looks pretty strongly. It is when it comes 4 00:00:07,240 --> 00:00:10,160 Speaker 1: to jobs. The financial stories that shape our work. Three 5 00:00:10,240 --> 00:00:13,640 Speaker 1: major regional bank failures send shockwaves through the banking system. 6 00:00:13,680 --> 00:00:15,440 Speaker 1: We're all trying to figure out what to make of 7 00:00:15,600 --> 00:00:19,320 Speaker 1: generative AI through the eyes of the most influential voices. 8 00:00:19,440 --> 00:00:22,400 Speaker 1: Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America, 9 00:00:22,520 --> 00:00:25,360 Speaker 1: deebro Lair of the Paulson Institute, Len Hubbard of the 10 00:00:25,360 --> 00:00:28,760 Speaker 1: Columbia Business School. Bloomberg Wall Street Week with David Weston 11 00:00:28,880 --> 00:00:32,640 Speaker 1: from Bloomberg Radio. Looking up. As the US economy continues 12 00:00:32,680 --> 00:00:35,640 Speaker 1: to grow, the Fed signals it's nearing an end to hikes, 13 00:00:35,960 --> 00:00:38,879 Speaker 1: and big tech comes back in a big way. This 14 00:00:39,000 --> 00:00:42,280 Speaker 1: is Bloomberg Wall Street Week. I'm David Weston. This week, 15 00:00:42,440 --> 00:00:45,520 Speaker 1: Former White House economist Laura Tyson on why the Fed 16 00:00:45,680 --> 00:00:47,640 Speaker 1: just may have an ace up its sleeve. 17 00:00:48,240 --> 00:00:52,839 Speaker 2: He thinks this time we can engineer. He can engineer 18 00:00:52,920 --> 00:00:53,920 Speaker 2: a soft landing. 19 00:00:54,480 --> 00:00:57,400 Speaker 1: Ralph Schlastin of Evercore on how deal makers are getting 20 00:00:57,440 --> 00:00:59,440 Speaker 1: ready for the next surge. 21 00:01:00,040 --> 00:01:06,280 Speaker 3: We're certainly beginning to see a significantly a greater amount 22 00:01:06,280 --> 00:01:06,960 Speaker 3: of activity. 23 00:01:07,240 --> 00:01:10,680 Speaker 1: And Darren Williams of Southern bancour on the continuing shakeup 24 00:01:10,720 --> 00:01:12,600 Speaker 1: in the ranks of regional banks. 25 00:01:12,800 --> 00:01:16,560 Speaker 4: The particular merger between Pecquests and Bank A Galaia. 26 00:01:16,080 --> 00:01:17,640 Speaker 2: That made sense probably for them. 27 00:01:17,680 --> 00:01:20,280 Speaker 4: It seems that that's going to be a stronger institution. 28 00:01:33,560 --> 00:01:36,480 Speaker 1: There were some puts in takes, but overall Global Wall 29 00:01:36,480 --> 00:01:39,200 Speaker 1: Street had a pretty good week. Big Tech seems to 30 00:01:39,240 --> 00:01:42,640 Speaker 1: be back on track with strong earnings reports from Alphabet 31 00:01:42,920 --> 00:01:45,480 Speaker 1: setting up a move for Ruth port Up to president 32 00:01:45,760 --> 00:01:48,040 Speaker 1: and chief Investment Officer, So. 33 00:01:47,920 --> 00:01:50,160 Speaker 5: She's going to be CFO up until September the first, 34 00:01:50,280 --> 00:01:52,440 Speaker 5: and this has got this newly created role that is 35 00:01:52,480 --> 00:01:53,600 Speaker 5: going to be the CIO. 36 00:01:53,720 --> 00:01:55,720 Speaker 1: I'm president and she's going to remain with the business 37 00:01:55,760 --> 00:01:59,480 Speaker 1: until they find a success. And then Meta reported more users, 38 00:01:59,720 --> 00:02:03,840 Speaker 1: more advertising revenue, and promises of even better yet to come. 39 00:02:04,520 --> 00:02:06,640 Speaker 2: We're really excited about what we think that this is 40 00:02:06,680 --> 00:02:09,280 Speaker 2: going to bring to bear for the consumer experience and 41 00:02:09,360 --> 00:02:12,960 Speaker 2: of course also eventually for businesses to connect with consumers. 42 00:02:13,160 --> 00:02:16,280 Speaker 1: Across the family of ops. Two ups had a somewhat 43 00:02:16,280 --> 00:02:20,200 Speaker 1: different moment in the sun when the union representing UPS drivers, 44 00:02:20,240 --> 00:02:23,720 Speaker 1: reached a tentative deal to avoid a strike, and Teamster's 45 00:02:23,800 --> 00:02:27,680 Speaker 1: chief Sean O'Brien wasted no time in saying he's eager 46 00:02:27,720 --> 00:02:29,320 Speaker 1: to move on to Amazon. 47 00:02:30,360 --> 00:02:33,000 Speaker 6: Amazon's definitely going to be a target to organize. We're 48 00:02:33,000 --> 00:02:36,280 Speaker 6: going to take this historic agreement and use it as 49 00:02:36,280 --> 00:02:39,640 Speaker 6: a template to show the Amazon workers what they will 50 00:02:39,880 --> 00:02:42,959 Speaker 6: receive when they joined the Team Stit's union and reorganize them. 51 00:02:43,280 --> 00:02:46,639 Speaker 1: Things were a bit rockier for President je Over in China, 52 00:02:46,720 --> 00:02:50,359 Speaker 1: who removed Foreign Minister Chin Gong after only seven months 53 00:02:50,400 --> 00:02:54,480 Speaker 1: in office and brought back his predecessor Wang ye I. 54 00:02:54,520 --> 00:02:56,000 Speaker 7: Think one's going nowhere. 55 00:02:56,520 --> 00:02:59,120 Speaker 1: And then there was the case of British real estate 56 00:02:59,160 --> 00:03:03,160 Speaker 1: magnet Joe Lewis, arraigned in a Manhattan court for allegedly 57 00:03:03,160 --> 00:03:06,280 Speaker 1: giving illegal stock tips to the staff on his super yacht, 58 00:03:06,680 --> 00:03:10,960 Speaker 1: his private jet pilots, and his girlfriends. But the big 59 00:03:10,960 --> 00:03:14,160 Speaker 1: one this week was the Fed's much awaited July decision, 60 00:03:14,520 --> 00:03:17,600 Speaker 1: which brought another twenty five basis points in rate increases, 61 00:03:17,680 --> 00:03:21,040 Speaker 1: which surprised no one, but left open the possibility it 62 00:03:21,240 --> 00:03:24,720 Speaker 1: may be done or nearly done with tightening. 63 00:03:25,240 --> 00:03:26,840 Speaker 8: It's really a question of how do you have balance 64 00:03:26,880 --> 00:03:28,720 Speaker 8: the two risks, the risk of doing too much or 65 00:03:28,760 --> 00:03:31,400 Speaker 8: doing too little. And you know, I would say that, 66 00:03:32,520 --> 00:03:34,600 Speaker 8: you know, we're coming to a place where where there 67 00:03:34,600 --> 00:03:36,920 Speaker 8: really are risks on both sides. It's hard to say 68 00:03:36,960 --> 00:03:39,720 Speaker 8: exactly whether whether they're in balance or not. But as 69 00:03:40,280 --> 00:03:43,680 Speaker 8: our stances become more restrictive and inflation moderates, we do 70 00:03:43,760 --> 00:03:45,080 Speaker 8: increasingly face that risk. 71 00:03:45,600 --> 00:03:48,960 Speaker 1: As the odds for that soft landing seemed to increase, 72 00:03:49,280 --> 00:03:52,600 Speaker 1: the US economy came in significantly stronger than expected, and 73 00:03:52,680 --> 00:03:55,280 Speaker 1: inflation continued to ease so. 74 00:03:55,360 --> 00:03:58,080 Speaker 7: Better than expected GENP report for the second quarter. This 75 00:03:58,160 --> 00:04:01,280 Speaker 7: is going to have the FED changing some of its forecasts, 76 00:04:02,960 --> 00:04:03,440 Speaker 7: and if. 77 00:04:03,320 --> 00:04:05,160 Speaker 1: All that word enough. At the end of the week, 78 00:04:05,200 --> 00:04:08,000 Speaker 1: the Bank of Japan shook global bond markets by saying 79 00:04:08,080 --> 00:04:11,280 Speaker 1: it's ceiling for ten year jgvs will now be a 80 00:04:11,360 --> 00:04:14,880 Speaker 1: reference point rather than a fixed ceiling. For all the drama, 81 00:04:15,000 --> 00:04:18,000 Speaker 1: bond markets ended the week relatively calm, as the yield 82 00:04:18,040 --> 00:04:21,119 Speaker 1: on the ten year US Treasury spiked to over four 83 00:04:21,200 --> 00:04:23,760 Speaker 1: on the BOJ news on Thursday, but then settled back 84 00:04:23,760 --> 00:04:27,280 Speaker 1: down to three point ninety four stocks. Meanwhile, we're all 85 00:04:27,320 --> 00:04:30,240 Speaker 1: about the FED and the strong economic numbers, with the 86 00:04:30,279 --> 00:04:32,799 Speaker 1: S and P five hundred, up one percent on the week, 87 00:04:33,040 --> 00:04:35,320 Speaker 1: powered in part by earnings per share coming in so 88 00:04:35,520 --> 00:04:37,240 Speaker 1: far in an average of two hundred and twenty three 89 00:04:37,320 --> 00:04:40,640 Speaker 1: dollars compared with the Bloomberg Elves expectation of two hundred 90 00:04:40,640 --> 00:04:44,239 Speaker 1: and thirteen dollars per year end. The Nasdaq once again 91 00:04:44,360 --> 00:04:47,279 Speaker 1: outperformed the S and P of just over two percent 92 00:04:47,320 --> 00:04:49,479 Speaker 1: for the week. To give us his take on what 93 00:04:49,640 --> 00:04:52,480 Speaker 1: we are seeing, Welcome back now, Greg Peters. He is 94 00:04:52,560 --> 00:04:55,200 Speaker 1: pgim cocio for fixing him. Greg. Great to have you 95 00:04:55,240 --> 00:04:57,400 Speaker 1: back on Ball Street week here. It really was sort 96 00:04:57,400 --> 00:04:58,880 Speaker 1: of a bond week, if I can put it that way, 97 00:04:58,960 --> 00:05:01,200 Speaker 1: fixed income, it's your kind of week. First, start with 98 00:05:01,279 --> 00:05:02,839 Speaker 1: the Fed. What did we hear from the Fed? What 99 00:05:02,880 --> 00:05:04,360 Speaker 1: did you hear from the Fed? What does it mean 100 00:05:04,360 --> 00:05:05,120 Speaker 1: for the bond markets? 101 00:05:06,560 --> 00:05:09,480 Speaker 9: Yeah, so the Fed is kind of dancing along the 102 00:05:09,600 --> 00:05:14,839 Speaker 9: nice said tier. Inflation is much more under control than 103 00:05:14,880 --> 00:05:16,840 Speaker 9: where we were a year ago. So we're moving in 104 00:05:16,960 --> 00:05:21,520 Speaker 9: the right direction, but it's far from declaring victory. And 105 00:05:21,560 --> 00:05:26,440 Speaker 9: so they're very open to being data dependent and somewhat ambiguous. 106 00:05:26,520 --> 00:05:29,719 Speaker 9: And what's really unique about this cycle, David, is that 107 00:05:29,760 --> 00:05:33,960 Speaker 9: the markets are embracing that ambiguity. Typically that is a 108 00:05:34,080 --> 00:05:38,760 Speaker 9: volve producer, but in this case is having the opposite effet. 109 00:05:38,800 --> 00:05:42,680 Speaker 9: So the Fed is doing somewhat of a masterclass year 110 00:05:43,720 --> 00:05:48,280 Speaker 9: on dampening market concerns, which I think is important of course. 111 00:05:48,920 --> 00:05:51,520 Speaker 1: So great, what are the bond markets telling us, if anything, 112 00:05:51,560 --> 00:05:54,400 Speaker 1: about the likelihood a recession, Because on the one hand, 113 00:05:54,440 --> 00:05:57,680 Speaker 1: we got really strong economic numbers this week, surprise a 114 00:05:57,680 --> 00:06:00,000 Speaker 1: lot of people. We don't see a lot of weakness 115 00:06:00,120 --> 00:06:02,239 Speaker 1: in the market. At the same time, as I understand, 116 00:06:02,240 --> 00:06:05,320 Speaker 1: we still are pricing in price rate cuts coming up 117 00:06:05,320 --> 00:06:05,800 Speaker 1: next year. 118 00:06:07,160 --> 00:06:08,880 Speaker 9: Yeah, So I think it's important to remember that the 119 00:06:08,880 --> 00:06:12,039 Speaker 9: bond market's been wrong now for a better part of 120 00:06:12,040 --> 00:06:14,520 Speaker 9: a year or so, so the curve has been inverted 121 00:06:15,360 --> 00:06:19,520 Speaker 9: that typically suggests that a recession is imminent. This has 122 00:06:19,560 --> 00:06:22,719 Speaker 9: been the most forecasted recession that hasn't come about yet. 123 00:06:23,640 --> 00:06:27,320 Speaker 9: So I think, you know, the economy, the nominal part 124 00:06:27,320 --> 00:06:30,559 Speaker 9: of the economy GDP has been quite robust and quite strong, 125 00:06:30,600 --> 00:06:34,400 Speaker 9: and I think that's surprised a lot of pundits. That's 126 00:06:34,440 --> 00:06:36,600 Speaker 9: the first thing. But what's curious in the market as 127 00:06:36,640 --> 00:06:39,920 Speaker 9: well is the fact that we're still seeing rate cuts 128 00:06:39,960 --> 00:06:43,680 Speaker 9: priced in, so investors are quite bullish around the outlook. 129 00:06:44,920 --> 00:06:47,719 Speaker 9: Your risk assets are, you know, taking off and doing 130 00:06:47,800 --> 00:06:51,200 Speaker 9: quite well, but you're still seeing back end rate cuts 131 00:06:51,200 --> 00:06:53,840 Speaker 9: being priced in, and to us, we just see that 132 00:06:53,920 --> 00:06:56,760 Speaker 9: as incongruent. You can't have your cake and eat it 133 00:06:56,800 --> 00:06:59,880 Speaker 9: too right. You can't have a situation where risk assets 134 00:07:00,240 --> 00:07:03,800 Speaker 9: really well and the FED is cutting because of economic weakness. 135 00:07:03,839 --> 00:07:06,000 Speaker 9: So you have to choose a side. And I think 136 00:07:06,760 --> 00:07:08,559 Speaker 9: there's some confusion here on that front. 137 00:07:08,760 --> 00:07:11,920 Speaker 1: Greg. What does that tell you as a bond investor, 138 00:07:12,600 --> 00:07:14,320 Speaker 1: where do you invest if at all? Right now is 139 00:07:14,360 --> 00:07:16,440 Speaker 1: just a good time fixed income? And if so, what 140 00:07:16,600 --> 00:07:17,559 Speaker 1: parts of fixed income? 141 00:07:18,880 --> 00:07:21,200 Speaker 9: Yes, so I actually think it's a great time to 142 00:07:21,240 --> 00:07:23,720 Speaker 9: be in fixed income. And it's very simple premise, and 143 00:07:23,720 --> 00:07:26,840 Speaker 9: that is the income piece and the yield piece. So 144 00:07:27,080 --> 00:07:30,320 Speaker 9: yields are much higher than where we were a year 145 00:07:30,400 --> 00:07:33,040 Speaker 9: or two years ago. I think that is a fantastic 146 00:07:33,200 --> 00:07:37,000 Speaker 9: starting point. So the income producing nature of fixed income 147 00:07:37,760 --> 00:07:42,600 Speaker 9: really starts to assert itself. Where we see value is twofold. 148 00:07:42,720 --> 00:07:45,480 Speaker 9: One is leaning against those rate cuts. So we think 149 00:07:45,480 --> 00:07:49,160 Speaker 9: the hurdle for the Fed to raise interest rates or 150 00:07:49,320 --> 00:07:53,120 Speaker 9: i'm sorry, cut interest rates is really quite high even 151 00:07:53,160 --> 00:07:55,240 Speaker 9: if there's a tweak, what's being priced in as too 152 00:07:55,320 --> 00:07:58,160 Speaker 9: much in our minds. So we see value being kind 153 00:07:58,160 --> 00:08:02,160 Speaker 9: of short here, at least in the fun end, and 154 00:08:02,200 --> 00:08:05,080 Speaker 9: we see a lot of value in high quality assets 155 00:08:05,080 --> 00:08:07,640 Speaker 9: within fixed income. So no longer do you have to 156 00:08:07,680 --> 00:08:10,880 Speaker 9: reach out the risk curve in order to achieve those 157 00:08:10,920 --> 00:08:14,240 Speaker 9: income goals and targets. So we think it's a great 158 00:08:14,920 --> 00:08:17,760 Speaker 9: time to invest in fixed income where you get a 159 00:08:17,760 --> 00:08:22,400 Speaker 9: lot of safe carry and really kind of good earnings 160 00:08:22,400 --> 00:08:23,080 Speaker 9: along the way. 161 00:08:23,320 --> 00:08:26,800 Speaker 1: So high quality fixed income, are you being compensated for 162 00:08:26,840 --> 00:08:28,920 Speaker 1: the risk when it comes to high yield or leverage loans? 163 00:08:30,480 --> 00:08:32,640 Speaker 9: I think that's where it's a little more tricky, David. 164 00:08:32,760 --> 00:08:34,920 Speaker 9: I look at it, or we look at, you know, 165 00:08:35,080 --> 00:08:37,440 Speaker 9: the parts of the high yield market, We look at 166 00:08:37,480 --> 00:08:39,880 Speaker 9: the lever loan market, we look at the private credit 167 00:08:39,920 --> 00:08:44,120 Speaker 9: market and really question whether you're being appropriately compensated for 168 00:08:44,200 --> 00:08:47,280 Speaker 9: the risks there. So these are still you know, highly 169 00:08:47,360 --> 00:08:50,360 Speaker 9: levered entities. There's been a lot of leverage added to 170 00:08:50,480 --> 00:08:53,120 Speaker 9: capital structures over the past decade or so, kind of 171 00:08:53,160 --> 00:08:57,280 Speaker 9: feasting off the low interest rates. But as those interest 172 00:08:57,320 --> 00:09:01,240 Speaker 9: costs continue to kind of reset high higher, right as 173 00:09:01,320 --> 00:09:04,440 Speaker 9: the cheaper debt rolls off into more expensive debt. I 174 00:09:04,440 --> 00:09:07,280 Speaker 9: think that puts a lot more pressure on these companies 175 00:09:07,320 --> 00:09:10,640 Speaker 9: in that segment of the market, and even without a recession, 176 00:09:10,720 --> 00:09:14,840 Speaker 9: I think you'll have a a higher default experience than 177 00:09:14,880 --> 00:09:18,600 Speaker 9: what we've observed over the past just called five seven years. 178 00:09:18,800 --> 00:09:20,480 Speaker 1: Greg, we can't let you go without talking about what 179 00:09:20,520 --> 00:09:22,439 Speaker 1: happened with the Bank of Japan because it shook a 180 00:09:22,480 --> 00:09:25,040 Speaker 1: lot of people. When that report came out a Thursday afternoon, 181 00:09:25,160 --> 00:09:27,200 Speaker 1: there was a lot of move in the markets actually 182 00:09:27,200 --> 00:09:29,160 Speaker 1: at the time, at least for a short period of time. 183 00:09:29,240 --> 00:09:31,200 Speaker 1: What did you make out of what happened and does 184 00:09:31,240 --> 00:09:32,600 Speaker 1: it have long lasting effects? 185 00:09:34,040 --> 00:09:36,240 Speaker 9: I think it's too early to tell. So it was 186 00:09:36,440 --> 00:09:38,319 Speaker 9: you know, in the price over the past couple of 187 00:09:38,360 --> 00:09:40,800 Speaker 9: days or so. But either way, ten year jgb's kind 188 00:09:40,800 --> 00:09:43,040 Speaker 9: of jumped ten bases points, which is a pretty big 189 00:09:43,040 --> 00:09:47,120 Speaker 9: move in that market. But essentially the Bank of Japan 190 00:09:47,240 --> 00:09:50,560 Speaker 9: is drafting off of other global central banks, so we'll see, 191 00:09:50,640 --> 00:09:55,320 Speaker 9: so they have this last mover advantage and so a 192 00:09:55,320 --> 00:09:58,640 Speaker 9: lot of that the tightening has kind of happened away 193 00:09:58,640 --> 00:10:01,160 Speaker 9: from them, and so they're just catching up. But I 194 00:10:01,160 --> 00:10:06,559 Speaker 9: think it's a rationalization that's finally occurring into Japanese markets, 195 00:10:06,559 --> 00:10:08,280 Speaker 9: but I think it's a long ways to go. So 196 00:10:09,200 --> 00:10:11,560 Speaker 9: you know, our strong senses yields will continue to move 197 00:10:11,640 --> 00:10:16,520 Speaker 9: higher in jaman with in Japan test that one percent threshold. 198 00:10:17,640 --> 00:10:21,200 Speaker 9: But we're finally starting to see some movement out of 199 00:10:21,240 --> 00:10:23,920 Speaker 9: the Bank of Japan, who's been stuck very much in 200 00:10:24,000 --> 00:10:28,040 Speaker 9: this highly accommodated stance for a very long time. 201 00:10:28,160 --> 00:10:30,160 Speaker 1: Many thanks now, Greg, always great to have you with 202 00:10:30,240 --> 00:10:33,200 Speaker 1: us as Greg Peters of PGM. Coming up, we're going 203 00:10:33,280 --> 00:10:35,640 Speaker 1: to go over with the Fed told us and also 204 00:10:35,720 --> 00:10:38,560 Speaker 1: what it left unsaid with the Connors Laura Tyson of 205 00:10:38,600 --> 00:10:41,920 Speaker 1: the Berkeley Has School of Business. And then next week 206 00:10:42,000 --> 00:10:44,120 Speaker 1: we're going to take you to Aspen for a special 207 00:10:44,280 --> 00:10:47,000 Speaker 1: edition of Wall Street Week from the Aspen Economic Strategy 208 00:10:47,000 --> 00:10:49,839 Speaker 1: Group's annual meeting. We'll sit down with former Council of 209 00:10:49,880 --> 00:10:54,319 Speaker 1: Economic Advisors Chair Celia Raus, Atlanta FED President Raphael Bastik, 210 00:10:54,640 --> 00:10:58,640 Speaker 1: Chicago FED President Austin Goolsby, and more, only on Wall 211 00:10:58,640 --> 00:11:09,120 Speaker 1: Street Week on blueg This is Wall Street Week. I'm 212 00:11:09,200 --> 00:11:12,320 Speaker 1: David Weston. The FED spoke again this week and raised 213 00:11:12,360 --> 00:11:15,480 Speaker 1: interest rates again, this time by twenty five basis points, 214 00:11:15,640 --> 00:11:18,080 Speaker 1: hoping it is doing enough to deal with inflation but 215 00:11:18,200 --> 00:11:21,199 Speaker 1: not too much, a risk that isn't new for the FED. 216 00:11:21,280 --> 00:11:24,040 Speaker 1: As Lewis Ruckheiser described on Wall Street Week back in 217 00:11:24,120 --> 00:11:26,840 Speaker 1: July of two thousand and one, back in the days 218 00:11:26,840 --> 00:11:28,160 Speaker 1: of Alan Greenspan. 219 00:11:29,480 --> 00:11:33,920 Speaker 10: The FED chairman misread the economy's signals so embarrassingly in 220 00:11:34,000 --> 00:11:36,920 Speaker 10: nineteen ninety nine and two thousand that he was raising 221 00:11:36,920 --> 00:11:40,520 Speaker 10: in interest rates to guard against inflation when he should 222 00:11:40,520 --> 00:11:43,079 Speaker 10: have been lowering them to go out against what has 223 00:11:43,120 --> 00:11:46,199 Speaker 10: proved to be the biggest economic collapse in a decade. 224 00:11:46,440 --> 00:11:48,840 Speaker 1: To take us through the risks facing this FED and 225 00:11:48,960 --> 00:11:51,560 Speaker 1: this FED chair. In twenty twenty three, we welcome back 226 00:11:51,640 --> 00:11:54,960 Speaker 1: Laura Tyson, Professor at the Berkeley Hawes School of Business. 227 00:11:55,160 --> 00:11:57,600 Speaker 1: Doctor Tyson served both as chair of the Council of 228 00:11:57,640 --> 00:12:01,040 Speaker 1: Economic Advisors and as Director of the National Economic Council 229 00:12:01,160 --> 00:12:03,959 Speaker 1: under President Clinton. So doctor Tyson, thank you so much 230 00:12:04,000 --> 00:12:05,960 Speaker 1: for being back with us. So a lot that we 231 00:12:06,120 --> 00:12:08,600 Speaker 1: heard from the FED and from Sharepowe was not a 232 00:12:08,600 --> 00:12:11,120 Speaker 1: big surprise. Was there anything you found surprising? 233 00:12:11,720 --> 00:12:16,040 Speaker 2: Really surprising but forward looking or going out a little 234 00:12:16,120 --> 00:12:20,520 Speaker 2: bit to say for a variety of reasons. He thinks 235 00:12:20,640 --> 00:12:25,600 Speaker 2: this time we can engineer he can engineer a soft landing. 236 00:12:25,720 --> 00:12:29,679 Speaker 2: He noted that that's very rare, but he did talk 237 00:12:29,720 --> 00:12:32,920 Speaker 2: about the fact that we have an economy which is 238 00:12:33,000 --> 00:12:40,000 Speaker 2: stronger than expected, stronger than expected. His own FED forecasters 239 00:12:40,040 --> 00:12:43,360 Speaker 2: have taken out a recession for this year and put 240 00:12:43,400 --> 00:12:47,680 Speaker 2: in stronger growth. But he noted, also, we have inflation 241 00:12:47,800 --> 00:12:52,840 Speaker 2: coming down, we have quits coming down, we have job 242 00:12:52,960 --> 00:12:55,440 Speaker 2: openings coming down. We have a kind of sense that 243 00:12:55,520 --> 00:13:00,160 Speaker 2: the labor market may be easing without creating unemployment, and 244 00:13:00,240 --> 00:13:02,640 Speaker 2: that growth may still be strong, and that would be 245 00:13:02,679 --> 00:13:03,520 Speaker 2: a soft landing. 246 00:13:03,720 --> 00:13:06,560 Speaker 1: Well, and underscore what you're saying, doctor Tyson. The day 247 00:13:06,600 --> 00:13:10,080 Speaker 1: after the FEDS decision, we got GDP numbers out that 248 00:13:10,280 --> 00:13:13,720 Speaker 1: really were substantially stronger than we expected, indicating the economy 249 00:13:13,760 --> 00:13:16,120 Speaker 1: is doing quite well. At the same time, we've raised 250 00:13:16,160 --> 00:13:18,760 Speaker 1: interest rates a lot at this point, a lot in 251 00:13:18,800 --> 00:13:21,240 Speaker 1: a very short period of time. How do you account 252 00:13:21,240 --> 00:13:23,520 Speaker 1: for the fact we don't have more unemployment because a 253 00:13:23,520 --> 00:13:25,920 Speaker 1: lot of people, I think, predicted that if you raise 254 00:13:25,920 --> 00:13:29,400 Speaker 1: interestrates that high that fast, you're going to have higher unemployment. 255 00:13:30,040 --> 00:13:33,920 Speaker 2: We do know that consumers continue to be a spend 256 00:13:34,040 --> 00:13:38,320 Speaker 2: out of their savings, they continue to create strong demand 257 00:13:38,800 --> 00:13:44,560 Speaker 2: for output, both services now and increasingly products, and Pal 258 00:13:44,800 --> 00:13:49,520 Speaker 2: mentioned that yesterday the importance of the shifting of spending 259 00:13:49,640 --> 00:13:53,720 Speaker 2: back towards goods, because that way you can ease some 260 00:13:53,800 --> 00:13:56,840 Speaker 2: of the inflationary pressures on the services side and on 261 00:13:56,880 --> 00:13:59,440 Speaker 2: the good side, as you pointed out, the supply chain 262 00:13:59,520 --> 00:14:02,320 Speaker 2: is really it's strong now. There's a lot of supply, 263 00:14:02,720 --> 00:14:05,360 Speaker 2: so the demand for consumer goods and the shift in 264 00:14:05,440 --> 00:14:12,640 Speaker 2: consumer goods important. He mentioned investment as well, and I 265 00:14:12,679 --> 00:14:19,360 Speaker 2: think there the change in technology, the artificial intelligence breakthroughs, 266 00:14:19,800 --> 00:14:23,720 Speaker 2: and the rush by firms to figure out a way 267 00:14:23,720 --> 00:14:28,040 Speaker 2: to invest in that technology, that's boosting investments. So you 268 00:14:28,160 --> 00:14:33,680 Speaker 2: have sources of demand at home, consumption and investment demand stronger, 269 00:14:34,280 --> 00:14:38,240 Speaker 2: and that's what's keeping the economy going. Certain interest rate 270 00:14:38,360 --> 00:14:43,840 Speaker 2: sectors housing you don't see that strength obviously, but for 271 00:14:43,880 --> 00:14:46,400 Speaker 2: a variety of reasons, demand remains strong. 272 00:14:47,240 --> 00:14:49,640 Speaker 1: Artificial intelligence is all the rage these days, at least 273 00:14:49,640 --> 00:14:52,200 Speaker 1: to talk about. I'm not sure we're seeing it show 274 00:14:52,280 --> 00:14:55,600 Speaker 1: up yet, but there are some who really speculate it 275 00:14:55,640 --> 00:15:00,200 Speaker 1: could have significant effect on productivity. Do you expect it 276 00:15:00,280 --> 00:15:02,680 Speaker 1: may have that effect and if so, how long does 277 00:15:02,720 --> 00:15:05,400 Speaker 1: that take to have to really show up in the numbers. 278 00:15:06,120 --> 00:15:10,960 Speaker 2: So one of the interesting omissions yesterday in the discussion 279 00:15:11,280 --> 00:15:14,120 Speaker 2: of Chairman Pale, and this is a standard omission because 280 00:15:14,200 --> 00:15:18,040 Speaker 2: FED chairs don't talk a lot about productivity. But if 281 00:15:18,080 --> 00:15:21,800 Speaker 2: you're thinking about inflation and you're thinking about, well, as 282 00:15:22,200 --> 00:15:24,480 Speaker 2: our wage is going up, is that going to drive 283 00:15:24,560 --> 00:15:31,080 Speaker 2: inflation up further? There's an intermediate variable there that is wages, 284 00:15:31,560 --> 00:15:37,200 Speaker 2: productivity growth, and prices. If productivity growth picks up and 285 00:15:37,240 --> 00:15:42,960 Speaker 2: you have that allows for stronger wage growth without an 286 00:15:42,960 --> 00:15:48,200 Speaker 2: effect on price growth. So productivity is really important. It 287 00:15:48,280 --> 00:15:52,120 Speaker 2: is very hard to predict. I have to smile at 288 00:15:52,160 --> 00:15:56,440 Speaker 2: the fact that you started with two thousand. The Federal 289 00:15:56,480 --> 00:16:04,200 Speaker 2: Reserve Chairman Greenspan, President Clinton were absolutely surprised by the 290 00:16:04,240 --> 00:16:08,200 Speaker 2: strength of productivity growth. No one predicted it. And there 291 00:16:08,320 --> 00:16:12,360 Speaker 2: was a very significant uptick in productivity growth associated with 292 00:16:12,520 --> 00:16:18,000 Speaker 2: the rollout, the very rapid rollout of internet technology, which 293 00:16:18,040 --> 00:16:20,880 Speaker 2: really occurred from the late nineteen nineties. So you had 294 00:16:21,320 --> 00:16:26,840 Speaker 2: a decade of much stronger percentage point stronger growth rate 295 00:16:26,920 --> 00:16:31,720 Speaker 2: in productivity, and that changed the inflation outlook. It changed 296 00:16:31,760 --> 00:16:35,720 Speaker 2: the course of monetary policy. So I think about today 297 00:16:36,320 --> 00:16:39,920 Speaker 2: and I would say perhaps because I'd mostly spend my 298 00:16:40,000 --> 00:16:45,440 Speaker 2: time in northern California. But there are a number of scholars. 299 00:16:45,440 --> 00:16:48,040 Speaker 2: For Examma McKinsey. Global Wins too just did something on this, 300 00:16:48,880 --> 00:16:55,320 Speaker 2: looking at how AI is affecting already productivity in major 301 00:16:55,400 --> 00:17:00,440 Speaker 2: business functions and sales functions, in accounting functions in majorctors 302 00:17:00,480 --> 00:17:07,080 Speaker 2: of the economy like finance. So it's already looking to 303 00:17:07,240 --> 00:17:10,399 Speaker 2: generate a productivity burst. 304 00:17:11,000 --> 00:17:13,200 Speaker 1: So, doctor Tis, you were there in the White House 305 00:17:13,440 --> 00:17:17,720 Speaker 1: when the Internet phenomenon was really taking hold. As an economist, 306 00:17:17,800 --> 00:17:20,960 Speaker 1: so often the economic numbers are backward looking. How long 307 00:17:21,000 --> 00:17:23,879 Speaker 1: did it take you to see that productivity increase in 308 00:17:24,000 --> 00:17:25,720 Speaker 1: the numbers? How long did it take you to figure 309 00:17:25,720 --> 00:17:27,239 Speaker 1: out this is actually what's going on. 310 00:17:27,560 --> 00:17:31,840 Speaker 2: Well, we saw the numbers pretty quickly. We were surprised 311 00:17:31,840 --> 00:17:36,280 Speaker 2: at the numbers. I want to say, I oftentimes tell 312 00:17:36,520 --> 00:17:40,600 Speaker 2: the story that I used to do brief President Clinton 313 00:17:40,640 --> 00:17:47,760 Speaker 2: regularly on the outlook for the deficit, and that depended 314 00:17:47,880 --> 00:17:50,840 Speaker 2: very much on the outlet for economic growth, and that 315 00:17:50,920 --> 00:17:54,320 Speaker 2: depended very much on the outlook for productivity growth. And 316 00:17:54,400 --> 00:17:58,879 Speaker 2: I used to give them the pretty standard economist answers 317 00:17:59,320 --> 00:18:04,359 Speaker 2: that productivity growth was likely remain slow, We shouldn't expect 318 00:18:04,480 --> 00:18:09,960 Speaker 2: a significant change. We needed to be cautious, and we 319 00:18:10,080 --> 00:18:17,719 Speaker 2: therefore were constantly surprised at the extent of the productivity gains, 320 00:18:17,760 --> 00:18:21,840 Speaker 2: and they really started to come in early. The artificial 321 00:18:21,880 --> 00:18:26,480 Speaker 2: intelligence revolution is going to be as significant as the 322 00:18:26,520 --> 00:18:29,800 Speaker 2: Internet revolution is actually probably going to be more significant 323 00:18:29,800 --> 00:18:35,120 Speaker 2: than that, and the question therefore becomes how fast will 324 00:18:35,160 --> 00:18:40,760 Speaker 2: the effects be felt. A very good positive indicator here 325 00:18:40,960 --> 00:18:44,679 Speaker 2: is that in some sectors which are early adopters, you 326 00:18:44,840 --> 00:18:48,960 Speaker 2: already see some amazing productivity gains. In some of the 327 00:18:49,040 --> 00:18:53,160 Speaker 2: work being done by economists. You see using you know, 328 00:18:53,600 --> 00:18:56,600 Speaker 2: there are cases where they'll sort of look at the 329 00:18:56,640 --> 00:18:59,919 Speaker 2: application of AI to a call center and see how 330 00:19:00,080 --> 00:19:05,040 Speaker 2: how much the productivity of each call center worker increases. 331 00:19:05,240 --> 00:19:08,160 Speaker 2: And it's not just the quantity that's the productivity number, 332 00:19:08,359 --> 00:19:11,600 Speaker 2: but the quality. They do better job, and the customers 333 00:19:11,720 --> 00:19:15,320 Speaker 2: like it more. So. I think we've got a lot 334 00:19:15,480 --> 00:19:19,119 Speaker 2: pieces of evidence all around that this productivity effect is 335 00:19:19,160 --> 00:19:21,439 Speaker 2: going to be large, and it's going to be quick, 336 00:19:21,880 --> 00:19:27,199 Speaker 2: but very We do not have good economic models to 337 00:19:27,320 --> 00:19:30,400 Speaker 2: make this prediction, so we have to look at I've 338 00:19:30,440 --> 00:19:33,360 Speaker 2: been you know, I heard yesterday a lot of companies. 339 00:19:33,359 --> 00:19:36,119 Speaker 2: So even though the interest rate is high, the cost 340 00:19:36,240 --> 00:19:40,719 Speaker 2: of capital is high, credit conditions are restrictive. Companies are 341 00:19:40,800 --> 00:19:45,919 Speaker 2: rushing out to invest in this technology because they realize 342 00:19:46,400 --> 00:19:50,359 Speaker 2: it's maybe signaling a fundamental change. So the long term 343 00:19:50,440 --> 00:19:53,320 Speaker 2: you have to look at your investment decisions. Now for 344 00:19:53,400 --> 00:19:54,680 Speaker 2: the long term. 345 00:19:54,400 --> 00:19:56,280 Speaker 1: Yeah, well, not a certainty, but something we could certainly 346 00:19:56,320 --> 00:19:58,560 Speaker 1: hope for. Thank you so much, doctor, is always a 347 00:19:58,560 --> 00:20:00,800 Speaker 1: pleasure having on the Wall Street Week. That is Professor 348 00:20:00,880 --> 00:20:03,640 Speaker 1: Laura Tyson of the Haas School of Business at Berkeley 349 00:20:03,760 --> 00:20:09,200 Speaker 1: University coming up. Those higher rates brought deal making almost 350 00:20:09,280 --> 00:20:11,960 Speaker 1: to a halt, but there are some indications now that 351 00:20:12,040 --> 00:20:15,320 Speaker 1: things may be coming back soon. We'll ask Ralph Schlastein 352 00:20:15,400 --> 00:20:16,040 Speaker 1: of Evercore. 353 00:20:16,800 --> 00:20:21,560 Speaker 3: Certainly the amount of dialogue among our clients is up 354 00:20:21,640 --> 00:20:23,800 Speaker 3: quite dramatically, and our backlogs are up. 355 00:20:24,280 --> 00:20:29,719 Speaker 1: This is Wall Street Week on Bloomberg. This is Bloomberg 356 00:20:29,760 --> 00:20:41,080 Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. Mergers 357 00:20:41,119 --> 00:20:44,480 Speaker 1: and acquisitions. They make the investment bankers world go round, 358 00:20:44,760 --> 00:20:47,280 Speaker 1: And just two short years ago it was going around 359 00:20:47,320 --> 00:20:50,440 Speaker 1: pretty fast, when a record three point eight trillion dollars 360 00:20:50,520 --> 00:20:52,760 Speaker 1: worth of deals were done in twenty twenty one. 361 00:20:53,480 --> 00:20:56,919 Speaker 11: We are continuing to see a just tremendous momentum in 362 00:20:57,119 --> 00:20:57,760 Speaker 11: US emini. 363 00:20:58,200 --> 00:21:01,040 Speaker 1: But then inflation came along and the Fed decided it 364 00:21:01,080 --> 00:21:04,840 Speaker 1: had to raise interest rates fast to get things under control, 365 00:21:05,200 --> 00:21:07,840 Speaker 1: leading to all sorts of uncertainty in terms of our 366 00:21:07,920 --> 00:21:08,399 Speaker 1: own business. 367 00:21:08,440 --> 00:21:11,440 Speaker 3: Oh yes, it has a big effect because when the 368 00:21:11,560 --> 00:21:14,119 Speaker 3: volatility is so high, and that the VIX this twenty 369 00:21:14,240 --> 00:21:14,960 Speaker 3: was thirty two and a half. 370 00:21:15,000 --> 00:21:20,000 Speaker 7: I think of when the day started, people hesitate, They. 371 00:21:19,880 --> 00:21:22,720 Speaker 3: Want to step back and wait for the smoke to 372 00:21:22,760 --> 00:21:27,040 Speaker 3: clear in the environment to settle, and so transactions slow down, 373 00:21:27,320 --> 00:21:28,360 Speaker 3: there's no doubt about it. 374 00:21:28,600 --> 00:21:31,080 Speaker 1: All of which took that three point eight trillion dollars 375 00:21:31,080 --> 00:21:33,440 Speaker 1: in deals in twenty twenty one all the way down 376 00:21:33,480 --> 00:21:36,359 Speaker 1: to two point six trillion last year, and the pace 377 00:21:36,440 --> 00:21:39,800 Speaker 1: this year so far is down another forty percent from that. 378 00:21:40,440 --> 00:21:43,000 Speaker 1: But now markets think we may be nearing the end 379 00:21:43,040 --> 00:21:46,040 Speaker 1: of those rate hikes, leading some people like Michael Jay 380 00:21:46,160 --> 00:21:48,840 Speaker 1: of Blackstone to think the deals are about to come back. 381 00:21:49,200 --> 00:21:52,879 Speaker 4: I think market participants are now seeing that we're nearing 382 00:21:52,880 --> 00:21:57,560 Speaker 4: the end of this dramatic rate increased cycle and therefore 383 00:21:57,960 --> 00:22:01,600 Speaker 4: feeling like there's a little less uncertainty, certainty and are 384 00:22:01,640 --> 00:22:03,400 Speaker 4: readier to transact. 385 00:22:03,280 --> 00:22:06,960 Speaker 1: Though Betsy Grask Morgan Stanley says it maybe next year 386 00:22:07,000 --> 00:22:11,000 Speaker 1: before we really see mergers and acquisitions get their mojo back. 387 00:22:11,400 --> 00:22:14,760 Speaker 12: We are one of those who is looking for an 388 00:22:14,800 --> 00:22:17,720 Speaker 12: acceleration and deal activity as we go into next year. 389 00:22:17,920 --> 00:22:22,600 Speaker 12: Part of the reason is understanding what the terminal rate 390 00:22:22,760 --> 00:22:23,520 Speaker 12: is in Ray. 391 00:22:23,400 --> 00:22:27,760 Speaker 1: Heins, and to bring us up this feed on exactly 392 00:22:27,800 --> 00:22:30,000 Speaker 1: where we are in mergers acquisitions, we turn to a 393 00:22:30,000 --> 00:22:33,960 Speaker 1: true authority. He's Wel Schlestein. He is Chairman emeritus of Evercore. 394 00:22:34,119 --> 00:22:36,120 Speaker 1: Ralph thanks so much for being back on Wall Street week. 395 00:22:36,320 --> 00:22:38,119 Speaker 1: We hear a lot about the fact that M and 396 00:22:38,160 --> 00:22:40,440 Speaker 1: A dropped off, as we know from those record numbers 397 00:22:40,480 --> 00:22:42,880 Speaker 1: back in twenty one. Are they coming back. 398 00:22:44,000 --> 00:22:51,000 Speaker 3: We're certainly beginning to see a significantly greater amount of activity. 399 00:22:51,119 --> 00:22:56,520 Speaker 3: It hasn't manifested itself yet in announced transactions, but announced 400 00:22:57,080 --> 00:22:58,760 Speaker 3: M and A for the first six months of the 401 00:22:58,840 --> 00:23:02,200 Speaker 3: year was down. The dollar volume was down forty percent. 402 00:23:03,320 --> 00:23:06,359 Speaker 3: I don't expect it will be quite as bad in 403 00:23:06,400 --> 00:23:09,880 Speaker 3: the second half of the year, but certainly the amount 404 00:23:09,880 --> 00:23:14,720 Speaker 3: of dialogue among our clients is up quite dramatically, and 405 00:23:14,760 --> 00:23:15,840 Speaker 3: our backlogs are up. 406 00:23:16,720 --> 00:23:20,160 Speaker 1: A big change from twenty one, for example, is interest rates. Yes, 407 00:23:20,160 --> 00:23:23,600 Speaker 1: I mean that has been adding interest rate basis points 408 00:23:23,640 --> 00:23:26,080 Speaker 1: as fast as it could. How does that change the 409 00:23:26,160 --> 00:23:28,000 Speaker 1: nature I mean going forward? I mean, are they're going 410 00:23:28,040 --> 00:23:30,560 Speaker 1: to look different the deals that you do well? It does. 411 00:23:30,640 --> 00:23:34,920 Speaker 3: It unquestionably affects the amount of leverage that you can 412 00:23:34,920 --> 00:23:38,280 Speaker 3: put on a transaction, and that of course affects the 413 00:23:38,280 --> 00:23:44,880 Speaker 3: private equity firms, particularly not as much industrial companies because 414 00:23:44,920 --> 00:23:49,199 Speaker 3: they're all or many of them are investment grade rated, 415 00:23:50,280 --> 00:23:54,800 Speaker 3: and you know, the ultimately the banks or the lenders 416 00:23:54,840 --> 00:23:59,120 Speaker 3: which are increasingly non bank you know, calculate how much 417 00:23:59,240 --> 00:24:03,199 Speaker 3: debt a company can support by you know, some measure 418 00:24:03,280 --> 00:24:07,240 Speaker 3: of interest coverage. So when rates are up, that limits 419 00:24:07,520 --> 00:24:14,040 Speaker 3: somewhat the amount of debt that that a private equity 420 00:24:14,040 --> 00:24:18,160 Speaker 3: firm can put on a company. However, they also look 421 00:24:18,200 --> 00:24:20,920 Speaker 3: at the way a mortgage is done. You know, what's 422 00:24:20,960 --> 00:24:24,040 Speaker 3: the amount of loan to value a traditional loan to 423 00:24:24,119 --> 00:24:28,639 Speaker 3: value analysis, and that doesn't really change that much. So 424 00:24:28,640 --> 00:24:32,359 Speaker 3: it's a balancing act between interest coverage and the fact 425 00:24:33,000 --> 00:24:34,800 Speaker 3: the loan to value analysis you. 426 00:24:34,760 --> 00:24:37,359 Speaker 1: Mentioned private particularly private credit to what extent is private 427 00:24:37,400 --> 00:24:40,480 Speaker 1: credit taking up the slack right now, particularly banks feel 428 00:24:40,720 --> 00:24:41,840 Speaker 1: they may needed to pull back some. 429 00:24:42,040 --> 00:24:45,120 Speaker 3: Well, there was a period probably five six months ago 430 00:24:45,240 --> 00:24:53,120 Speaker 3: when almost all leveraged loans, all leveraged buyout transactions were 431 00:24:53,119 --> 00:24:56,679 Speaker 3: financed by private credit. And by the way, that's not 432 00:24:56,760 --> 00:25:03,720 Speaker 3: a terrible thing because they're separated from the deposit insurance function, 433 00:25:04,400 --> 00:25:07,840 Speaker 3: and so that's taking actually credit risk out of the 434 00:25:07,920 --> 00:25:14,760 Speaker 3: banking system. So there's probably you know, a trillion dollars 435 00:25:15,080 --> 00:25:21,480 Speaker 3: of private credit balance sheet out there, and so that's 436 00:25:21,520 --> 00:25:25,960 Speaker 3: become a significant competitor for the banks. But that's probably 437 00:25:25,960 --> 00:25:27,800 Speaker 3: a healthy thing for the financial system. 438 00:25:28,280 --> 00:25:30,119 Speaker 1: What is the shakeup if I can put that one 439 00:25:30,280 --> 00:25:32,919 Speaker 1: M and A doing to the investment banking business itself, 440 00:25:32,960 --> 00:25:35,760 Speaker 1: because we saw credit sweet now is really obviously essentially 441 00:25:35,760 --> 00:25:38,080 Speaker 1: pulling out of the business. Entire Golden SAX has been 442 00:25:38,119 --> 00:25:41,919 Speaker 1: laying off of the bankers. Is it changing the personnel 443 00:25:42,040 --> 00:25:44,760 Speaker 1: situation for a place like evercor Well. 444 00:25:44,600 --> 00:25:49,480 Speaker 3: The interesting thing is that so advisory you know M 445 00:25:49,560 --> 00:25:52,119 Speaker 3: and A restructuring, but M and A obviously being the 446 00:25:52,119 --> 00:25:56,280 Speaker 3: biggest part of it, is almost our only business. We 447 00:25:56,320 --> 00:25:59,040 Speaker 3: have a research business and we have an underwriting business. 448 00:25:59,080 --> 00:26:03,439 Speaker 3: But their peak they were maybe fourteen to fifteen percent 449 00:26:03,480 --> 00:26:06,400 Speaker 3: of our revenues. So the vast majority of our revenues 450 00:26:06,440 --> 00:26:11,680 Speaker 3: come from advisory. Goldman Sachs, which has the largest advisory business, 451 00:26:12,240 --> 00:26:16,960 Speaker 3: advisory is about five percent of their revenues, so it's 452 00:26:17,040 --> 00:26:21,639 Speaker 3: the most prestigious part of their business. But it's not 453 00:26:21,920 --> 00:26:29,560 Speaker 3: something that dramatically affects, you know, the profitability of the business, 454 00:26:29,640 --> 00:26:32,080 Speaker 3: although when you put it together with equity underwriting and 455 00:26:32,119 --> 00:26:36,639 Speaker 3: debt underwriting and other things, that's not great for Goldman Sachs. 456 00:26:37,520 --> 00:26:43,119 Speaker 3: In terms of our business, you know, our growth comes 457 00:26:43,160 --> 00:26:47,960 Speaker 3: from adding a plus and a talent, and we just 458 00:26:48,000 --> 00:26:49,560 Speaker 3: announced our earnings yesterday. 459 00:26:50,200 --> 00:26:51,760 Speaker 1: We've had a record. 460 00:26:51,440 --> 00:26:57,160 Speaker 3: Number of very, very talented what we call senior managing directors, 461 00:26:57,200 --> 00:27:00,480 Speaker 3: which is our most senior title, join us or commit 462 00:27:00,560 --> 00:27:02,640 Speaker 3: to join us in the first half of the year. 463 00:27:03,240 --> 00:27:08,760 Speaker 3: So disruption in the large firms, you know, causes people 464 00:27:08,800 --> 00:27:10,720 Speaker 3: to stick up their head and say, gee, do I 465 00:27:10,760 --> 00:27:13,280 Speaker 3: want to be in a place where what I do 466 00:27:13,960 --> 00:27:18,719 Speaker 3: is the core business of the company rather than you know, 467 00:27:18,800 --> 00:27:21,160 Speaker 3: five or seven percent of revenues. And in the case 468 00:27:21,200 --> 00:27:24,040 Speaker 3: of places like you know, JP Morgan and b of A, 469 00:27:24,200 --> 00:27:28,800 Speaker 3: they're so big, still important, still prestigious, but it's a 470 00:27:28,880 --> 00:27:30,280 Speaker 3: very small part of their revenues. 471 00:27:30,480 --> 00:27:32,880 Speaker 1: Let's talk about regulation for a second. There's a lot 472 00:27:32,920 --> 00:27:35,440 Speaker 1: of talk has been since the beginning of the administration 473 00:27:35,520 --> 00:27:38,360 Speaker 1: about anti trust enforcement, and now we've just had new 474 00:27:38,400 --> 00:27:42,800 Speaker 1: proposed merger guidelines come out which are decidedly more restrictive, 475 00:27:42,840 --> 00:27:46,920 Speaker 1: particularly involving private equity. Potentially, how much of a chilling 476 00:27:46,920 --> 00:27:49,879 Speaker 1: effect is that having on businesses as they think about 477 00:27:49,920 --> 00:27:51,280 Speaker 1: mergers and acquisition. 478 00:27:50,880 --> 00:27:53,320 Speaker 3: Now, well, I think I may have been asked this 479 00:27:53,640 --> 00:27:56,680 Speaker 3: a couple of years ago when the appointments were made 480 00:27:56,720 --> 00:28:01,840 Speaker 3: to the FTC and the Anti Trust position, and I 481 00:28:01,920 --> 00:28:05,400 Speaker 3: said that there definitely will be a more aggressive enforcement, 482 00:28:06,119 --> 00:28:11,320 Speaker 3: but for it to actually dramatically limit activity, there would 483 00:28:11,359 --> 00:28:14,040 Speaker 3: have to be law change in Congress. And I was 484 00:28:14,160 --> 00:28:18,040 Speaker 3: very skeptical about that happening. That has not happened, It's 485 00:28:18,080 --> 00:28:21,520 Speaker 3: not going to happen in my view. So we've gone 486 00:28:21,560 --> 00:28:24,080 Speaker 3: through a cycle. In my view, you've gone through a 487 00:28:24,119 --> 00:28:30,600 Speaker 3: period where there's been more enforcement, more second requests, more 488 00:28:31,200 --> 00:28:38,959 Speaker 3: challenges to transactions, and some of those transactions companies chose 489 00:28:39,040 --> 00:28:41,600 Speaker 3: to not proceed because they didn't want to go through 490 00:28:41,640 --> 00:28:46,440 Speaker 3: the pain of contesting the FDC or the anti trust 491 00:28:46,480 --> 00:28:51,800 Speaker 3: divisions contesting. Now we've seen two or three or four 492 00:28:53,080 --> 00:28:56,800 Speaker 3: instances where companies have said, you don't really have a 493 00:28:56,840 --> 00:29:01,239 Speaker 3: basis in law for challenging this merger, so we're going 494 00:29:01,280 --> 00:29:05,880 Speaker 3: to go to court. And their record in court has 495 00:29:05,960 --> 00:29:11,920 Speaker 3: not been great because the law hasn't changed. And so 496 00:29:12,640 --> 00:29:16,920 Speaker 3: now what you're hearing a little bit more from clients 497 00:29:17,240 --> 00:29:22,720 Speaker 3: is I recognize that this will probably be challenged, but 498 00:29:22,880 --> 00:29:23,800 Speaker 3: let them take me to. 499 00:29:23,760 --> 00:29:26,640 Speaker 1: Court because we'll win. But it must increase the friction costs. 500 00:29:27,000 --> 00:29:30,040 Speaker 1: That's longer, it'd be more expensive. You have litigation you 501 00:29:30,040 --> 00:29:32,480 Speaker 1: have to pay for. So is that to turn it 502 00:29:32,560 --> 00:29:35,000 Speaker 1: at all? Or it is people just blow past that. 503 00:29:35,080 --> 00:29:36,040 Speaker 1: It raises the bar. 504 00:29:36,680 --> 00:29:41,959 Speaker 3: But if the bar went up because of the challenges 505 00:29:42,200 --> 00:29:44,880 Speaker 3: six or eight or ten months ago, it's now come 506 00:29:44,960 --> 00:29:48,960 Speaker 3: down a little bit because they've lost in court and 507 00:29:49,600 --> 00:29:55,160 Speaker 3: challenging them legally has become a more accepted practice. 508 00:29:55,640 --> 00:29:57,200 Speaker 1: Ralph, it's really great to have you on. Thank you 509 00:29:57,280 --> 00:29:58,920 Speaker 1: so much for being back on Wall Street. Because Ralph 510 00:29:59,000 --> 00:30:01,880 Speaker 1: last night is chairman emeritus of Evercore. 511 00:30:03,760 --> 00:30:04,160 Speaker 2: Coming up. 512 00:30:04,240 --> 00:30:07,600 Speaker 1: Unemployment is just a number unless you're the one out 513 00:30:07,600 --> 00:30:12,320 Speaker 1: of a job. That's next on Wall Street Week on Bloomberg. 514 00:30:26,680 --> 00:30:29,120 Speaker 1: This is Wall Street Week. I'm David Weston. This week 515 00:30:29,160 --> 00:30:32,000 Speaker 1: we saw a continued rise in bond defaults and it 516 00:30:32,120 --> 00:30:35,600 Speaker 1: decided drop off and lending, especially in Europe. To take 517 00:30:35,680 --> 00:30:38,400 Speaker 1: us through the two developments and whether they may be connected. 518 00:30:38,720 --> 00:30:43,440 Speaker 1: Welcome back now, Bloomberg International and Economics correspondent Michael McKee. 519 00:30:45,040 --> 00:30:47,440 Speaker 7: Can you have too much of a bad thing to 520 00:30:47,520 --> 00:30:52,120 Speaker 7: control inflation? Central banks raise interest rates, credit becomes more expensive, 521 00:30:52,480 --> 00:30:57,440 Speaker 7: Fewer people and companies borrow, and economic activity slows. Monetary 522 00:30:57,480 --> 00:31:00,880 Speaker 7: policy is working by that book in Europe. This week, 523 00:31:00,920 --> 00:31:04,240 Speaker 7: the European Central Bank reported demand for loans among companies 524 00:31:04,240 --> 00:31:07,200 Speaker 7: in the Eurozone plunged by the most on record in 525 00:31:07,240 --> 00:31:10,960 Speaker 7: the second quarter. Demand for mortgages and other consumer borrowing 526 00:31:11,080 --> 00:31:14,080 Speaker 7: also fell. Could that be a sign the policy has 527 00:31:14,120 --> 00:31:14,960 Speaker 7: gone too far? 528 00:31:15,440 --> 00:31:15,600 Speaker 1: Well. 529 00:31:15,640 --> 00:31:19,120 Speaker 7: Banks play a dominant role in financing the European economy, 530 00:31:19,320 --> 00:31:23,560 Speaker 7: and the Eurozone has seen two consecutive quarters of economic contraction. 531 00:31:24,480 --> 00:31:26,880 Speaker 7: It's a different story in the US, where growth has 532 00:31:26,920 --> 00:31:30,320 Speaker 7: remained stronger than expected. There is bank lending, of course, 533 00:31:30,360 --> 00:31:33,480 Speaker 7: and it's flattened out in recent months, but the capital 534 00:31:33,520 --> 00:31:35,880 Speaker 7: markets play a much bigger role here, and there are 535 00:31:35,960 --> 00:31:40,000 Speaker 7: incipient signs of trouble in those markets. Defaults are beginning 536 00:31:40,040 --> 00:31:43,920 Speaker 7: to rise, no surprise, particularly for commercial real estate. But 537 00:31:44,040 --> 00:31:47,120 Speaker 7: a New York Fed index shows stress in the bond 538 00:31:47,160 --> 00:31:51,400 Speaker 7: market is up, even for investment grade bonds for the Fed, 539 00:31:51,600 --> 00:31:54,520 Speaker 7: like the ECB. The trick from here is to keep 540 00:31:54,560 --> 00:32:00,760 Speaker 7: the pressure on inflation without turning lending stress into economic distress. 541 00:32:01,560 --> 00:32:07,720 Speaker 1: David Many thanks to Bloomberg's Michael McKee. Finally, one more thought, 542 00:32:08,120 --> 00:32:10,760 Speaker 1: whe knows the answer. One reason is really as good 543 00:32:10,800 --> 00:32:13,600 Speaker 1: as another. An awful lot of employees seem to be 544 00:32:13,640 --> 00:32:16,320 Speaker 1: getting a no when it comes to their jobs these days. 545 00:32:16,520 --> 00:32:19,680 Speaker 1: Whatever the reasons, it certainly is hitting Goldman. 546 00:32:19,720 --> 00:32:21,520 Speaker 2: For Goldman to make cuts. 547 00:32:21,560 --> 00:32:25,040 Speaker 6: This steep is very concerning because the question is when 548 00:32:25,080 --> 00:32:27,280 Speaker 6: do deals come back in a way to justify these 549 00:32:27,280 --> 00:32:29,440 Speaker 6: swollen workforces all across. 550 00:32:29,120 --> 00:32:31,320 Speaker 1: Wall Street and big tech heavyweights. 551 00:32:31,680 --> 00:32:34,280 Speaker 10: Most of these layoffs at scale are happening in the 552 00:32:34,320 --> 00:32:35,840 Speaker 10: soupus right there, happening in the mess. 553 00:32:35,920 --> 00:32:37,520 Speaker 1: Is there happening in the facebooks? 554 00:32:37,520 --> 00:32:39,800 Speaker 10: That are happening in twits are And to a degree 555 00:32:39,840 --> 00:32:41,120 Speaker 10: it's just kind of right sizing. 556 00:32:41,320 --> 00:32:43,760 Speaker 1: A fair number of people are being shown the proverbial 557 00:32:43,920 --> 00:32:47,080 Speaker 1: door without a key to get back in? Are you 558 00:32:47,640 --> 00:32:49,400 Speaker 1: you need your key card? And it's not just their 559 00:32:49,440 --> 00:32:52,000 Speaker 1: rank and file who are feeling a bit less secure 560 00:32:52,080 --> 00:32:55,320 Speaker 1: in their jobs. Think about Bob Chapek out as CEO 561 00:32:55,400 --> 00:32:57,520 Speaker 1: of Disney after only twenty one months. 562 00:32:58,000 --> 00:33:01,960 Speaker 11: We think Japek failed to win hearts and minds of 563 00:33:02,200 --> 00:33:05,520 Speaker 11: the troops and the creative businesses at Disney. And we 564 00:33:05,560 --> 00:33:08,640 Speaker 11: think there is quite literally nobody on earth as well 565 00:33:08,720 --> 00:33:11,360 Speaker 11: qualified to do that as Bob Ayger or. 566 00:33:11,400 --> 00:33:15,080 Speaker 1: Chris Licked being shown the door at CNN after thirteen. 567 00:33:14,600 --> 00:33:18,640 Speaker 5: Months, The CNN CEO Chris Liked has stepped down from 568 00:33:18,640 --> 00:33:21,960 Speaker 5: the cable news channel pair and company Warner Brothers Discovery. 569 00:33:21,960 --> 00:33:24,560 Speaker 5: He says his departure is immediate and that they're scouting 570 00:33:24,960 --> 00:33:27,600 Speaker 5: for a new leader. This comes after the backlash over 571 00:33:27,640 --> 00:33:31,040 Speaker 5: a Trump town hall in May and an unflattering profile 572 00:33:31,120 --> 00:33:32,440 Speaker 5: of him by the Atlantics. 573 00:33:32,560 --> 00:33:35,000 Speaker 1: So with all the turnover out there, it's good to 574 00:33:35,000 --> 00:33:37,040 Speaker 1: know that there is still one place where you can 575 00:33:37,160 --> 00:33:40,120 Speaker 1: keep your job pretty much no matter what, one place 576 00:33:40,120 --> 00:33:42,560 Speaker 1: that just doesn't know what a pink slip looks like. 577 00:33:43,120 --> 00:33:46,560 Speaker 1: Those in the higher education have long enjoyed tenure going 578 00:33:46,600 --> 00:33:49,720 Speaker 1: back as far as the sixteen hundreds. The idea originally 579 00:33:49,800 --> 00:33:53,360 Speaker 1: served to protect academics from religious prejudice, making sure they 580 00:33:53,360 --> 00:33:56,600 Speaker 1: could not be removed no matter how the time's changed. 581 00:33:57,080 --> 00:33:59,520 Speaker 1: But this summer all that is coming into a bit 582 00:33:59,560 --> 00:34:02,960 Speaker 1: of question, as professor at Harvard's Business School was put 583 00:34:03,000 --> 00:34:06,400 Speaker 1: on administrative leave after challenging some data she used in 584 00:34:06,480 --> 00:34:10,080 Speaker 1: several published papers. Next came the president of Stanford, who 585 00:34:10,200 --> 00:34:12,440 Speaker 1: abruptly announced he'd be stepping down at the end of 586 00:34:12,480 --> 00:34:15,520 Speaker 1: the summer after questions were raised by the Stanford student 587 00:34:15,640 --> 00:34:19,359 Speaker 1: newspaper about data he relied on for some seminal work 588 00:34:19,400 --> 00:34:20,200 Speaker 1: on Alzheimer's. 589 00:34:20,280 --> 00:34:23,160 Speaker 13: The president said yesterday he would resign, so there is 590 00:34:23,200 --> 00:34:25,920 Speaker 13: an interim. Yes, he'll be leaving at the end of 591 00:34:25,960 --> 00:34:29,560 Speaker 13: August and interim coming in in September. But the reason 592 00:34:29,640 --> 00:34:32,360 Speaker 13: is kind of shocking that over the last twenty years 593 00:34:32,400 --> 00:34:35,280 Speaker 13: there were issues in research that he did not correct. 594 00:34:35,600 --> 00:34:37,920 Speaker 1: And last week came word that the president of Texas 595 00:34:37,920 --> 00:34:41,560 Speaker 1: and M stepped down after fear over misandling of the 596 00:34:41,640 --> 00:34:44,960 Speaker 1: hiring of a prominent black professor from UT Austin to 597 00:34:45,000 --> 00:34:49,560 Speaker 1: head Texas a M's journalism program, apparently because of the 598 00:34:49,600 --> 00:34:53,400 Speaker 1: politics over diversity hiring all this couldn't come at a 599 00:34:53,440 --> 00:34:56,080 Speaker 1: worse time for students who run a debt to pay 600 00:34:56,160 --> 00:34:59,800 Speaker 1: those schools for their sky high tuition fell Stelio wallets, 601 00:35:00,120 --> 00:35:03,160 Speaker 1: pull your baby shoes. They will shrink themselves down to 602 00:35:03,200 --> 00:35:05,319 Speaker 1: two inches high height in your pockets and take that 603 00:35:05,400 --> 00:35:07,839 Speaker 1: money back one time. It's a time, But if your 604 00:35:07,920 --> 00:35:11,720 Speaker 1: student debt won't be forgiven, maybe you should consider simply 605 00:35:11,800 --> 00:35:15,200 Speaker 1: asking for your money back. That does it. For this 606 00:35:15,239 --> 00:35:18,320 Speaker 1: episode of Wall Street Week, I'm David Weston. This is Bloomberg. 607 00:35:18,560 --> 00:35:20,799 Speaker 1: See you next week.