WEBVTT - Evercore Chairman Emeritus Ralph Schlosstein Talks Deals, US Election

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's pivot to the US economy right now and gets

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<v Speaker 2>a perspective there. Wilbert Ross, the former US Commerce secretary

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<v Speaker 2>under Donald Trump, told Bloomberg where he thinks the US

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<v Speaker 2>economy is heading.

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<v Speaker 3>I think the US is heading toward probably a very

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<v Speaker 3>mild recessionary period, and that shouldn't be too surprising. It

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<v Speaker 3>was artificially propped up by all the great situations that

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<v Speaker 3>had prevailed and all the chaos that was pumped into

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<v Speaker 3>the economy in the aftermath of COVID. I think they

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<v Speaker 3>all did that.

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<v Speaker 2>Has Wilbur Ross, former US Secretary of Commerce under Donald

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<v Speaker 2>Trump's first administration. They're talking about a very mild recessionary period.

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<v Speaker 2>That's his expectation. Let's get another perspective on the US

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<v Speaker 2>economy and on markets, on deals and much beyond. We're

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<v Speaker 2>pleased to say we're joined by Ralph Schulstein, Evercore Chairman

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<v Speaker 2>emeritus and black Rock co founder. Ralph, really nice to

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<v Speaker 2>see you this morning. Welcome to the studio. Thanks very

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<v Speaker 2>much for joining us. Let's start with your sort of

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<v Speaker 2>in the moment market expectations. There's a lot of people

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<v Speaker 2>wondering whether we're going to get a cut of twenty

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<v Speaker 2>five fifty basis points from the Fed next week seems

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<v Speaker 2>to matter. I wonder if in the ground scheme of things,

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<v Speaker 2>that's the sort of thing that matters to you because

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<v Speaker 2>of the signaling it might give to markets. What are

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<v Speaker 2>you thinking?

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<v Speaker 4>I do think it does matter, and if I were

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<v Speaker 4>in the room, I would actually be pushing for a

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<v Speaker 4>fifty basis point rather than a twenty five basis point cut.

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<v Speaker 4>Not because I think the economy is on the verge

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<v Speaker 4>of recession, but I think the balance of risks has

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<v Speaker 4>shifted from a risk that inflation doesn't come down as

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<v Speaker 4>we hope to a risk that unemployment and grows up

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<v Speaker 4>faster than we would hope, and employment doesn't grow as

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<v Speaker 4>fast as we would hope. And as a result, I

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<v Speaker 4>think the argument for moving toward neutral is a pretty

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<v Speaker 4>strong one.

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<v Speaker 2>Okay, so you're in the fifty camp. Yes, it would

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<v Speaker 2>that be saying to fifty.

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<v Speaker 4>I'm not saying they'll do that. I'm saying that's what

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<v Speaker 4>I think they should do.

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<v Speaker 2>Yes, So if we is there a danger though, that

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<v Speaker 2>if they did fifty, that that swoops the horses. Would

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<v Speaker 2>this be taken as risk on or risk off?

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<v Speaker 5>Do you think by not right?

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<v Speaker 6>I think.

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<v Speaker 4>I believe the right thing to do is fifty for

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<v Speaker 4>two reasons. One, I think the balance of risks are

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<v Speaker 4>more in the slower employment growth, and second, you know

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<v Speaker 4>we're quite a ways away from neutral. The risks, even

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<v Speaker 4>if they are balanced, we should be closer to neutral.

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<v Speaker 4>And I think a path which starts at fifty rather

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<v Speaker 4>than one that goes twenty five and then fifty, actually

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<v Speaker 4>communicates a more relaxed view about how the economy is

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<v Speaker 4>doing right now, whereas if you started at twenty five

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<v Speaker 4>and then in November did fifty, it would actually spook

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<v Speaker 4>the market a little bit.

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<v Speaker 5>Good morning, l So just listenings that you fairly confident

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<v Speaker 5>that a fifty would not signal that we're in a

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<v Speaker 5>hard landing.

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<v Speaker 6>No, I think you know we're so far.

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<v Speaker 4>You know, obviously, when we were at zero, we were

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<v Speaker 4>a long way from neutral. YEP, at five and a

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<v Speaker 4>quarter to five and a half, we're also a long

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<v Speaker 4>way from neutral. And if the risks of slower employment

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<v Speaker 4>and inflation are roughly balanced, we should be closer to neutral.

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<v Speaker 4>And to me, the statement should be we now have

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<v Speaker 4>balanced risks. If anything, we have a little more risk

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<v Speaker 4>that employment is going to grow too slowly and therefore

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<v Speaker 4>or we should be getting on with the pop the

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<v Speaker 4>path getting to neutral.

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<v Speaker 5>Just to break it down a little bit, Which bits

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<v Speaker 5>of the US economy do you think need rate cuts

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<v Speaker 5>right now?

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<v Speaker 6>Is it's the private sect?

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<v Speaker 5>I look at company margins, they look fantastic, still really good.

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<v Speaker 5>Is it? Is it the employment story or is it

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<v Speaker 5>the governments that needs a right cut right now?

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<v Speaker 4>Well, the government benefits from a rate cut, But the

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<v Speaker 4>parts that I think need a rate cut are the

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<v Speaker 4>rate sensitive sectors like housing and smaller business where all

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<v Speaker 4>of their borrowing is tied to short rates, prime lines

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<v Speaker 4>of credit, et cetera, and so and and by the

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<v Speaker 4>you know, big business is doing great, margins are high,

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<v Speaker 4>top line growth is decent. So I don't think the

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<v Speaker 4>cases you know in the S and P five hundred

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<v Speaker 4>or the Dow Jones, the cases in the part of

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<v Speaker 4>the economy that actually generates the vast majority of new jobs.

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<v Speaker 1>How much of that strength, though, is that the whim

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<v Speaker 1>of what might happen in the political space in the

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<v Speaker 1>next six months. I'm curious if we're talking about these

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<v Speaker 1>interest rate cuts in this resilience. How much should the

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<v Speaker 1>FED be thinking about the continuity or the potential increase

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<v Speaker 1>of tariffs in the.

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<v Speaker 6>Next six months. Well, the FED would always say that they.

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<v Speaker 4>React to the economy, not to fiscal policy or to

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<v Speaker 4>trade policy, and I think that's basically true. I think

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<v Speaker 4>we are We're in a period right now of significant

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<v Speaker 4>economic uncertainty. We're in this transition period from when inflation

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<v Speaker 4>was too high and it's now coming down.

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<v Speaker 6>It hasn't quite reached the Fed's target.

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<v Speaker 4>Yet, but it's certainly moving in that direction, and unemployment

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<v Speaker 4>is drifting upward, and you know, as you just heard

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<v Speaker 4>from the former Commerce secretary, there certainly is you know,

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<v Speaker 4>some risk that we will have not a soft landing

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<v Speaker 4>but a mild recession. All of that means there's uncertainty.

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<v Speaker 4>The political period adds additional uncertainty, and so that's kind

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<v Speaker 4>of a chilling effect on significant moves by business.

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<v Speaker 1>Well, Well, famously, in twenty nineteen, j. Powell basically announced

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<v Speaker 1>an insurance cut to address the pain from tariffs. Which

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<v Speaker 1>is why I'm wondering if that playbook sees a little

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<v Speaker 1>bit of a repeat, and if terroriffs are even something

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<v Speaker 1>the market, the economy has gotten used to or maybe

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<v Speaker 1>is the budget perhaps the bigger worry.

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<v Speaker 4>Well, I think the I think you have to separate

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<v Speaker 4>what I would call trade balancing or tactical or targeted

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<v Speaker 4>tariffs and blanket tariffs. Blanket tariffs I think presage and

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<v Speaker 4>high tariffs presage a period of declining.

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<v Speaker 6>Free trade, which we've already entered.

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<v Speaker 4>Somewhat, and that is inflationary and very bad for markets.

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<v Speaker 4>So if that happened, I think we would we'd certainly

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<v Speaker 4>see an effect in the markets. The impact in the

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<v Speaker 4>economy would be, you know, always uncertain.

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<v Speaker 1>Well, we're already seeing you mentioned the difference in blank

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<v Speaker 1>tariffs and target tarifs, already seeing that kind of a

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<v Speaker 1>continuation of not just the Trump era, but even in

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<v Speaker 1>the Bien era, a continuation of tariffs not just on

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<v Speaker 1>China but on Europe as well. At what point is

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<v Speaker 1>that so damaging to the economy.

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<v Speaker 4>Well, the magnitude of them has not been that great

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<v Speaker 4>so far, and I think as a general matter, the

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<v Speaker 4>Biden administration has tried to balance you know, what they

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<v Speaker 4>would call fair read and you know, a reasonable relationship

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<v Speaker 4>with Europe and our allies in Asia, and not a.

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<v Speaker 6>Whole scale attack on free trade.

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<v Speaker 4>You know, being the special trade representative in the Biden

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<v Speaker 4>administration has probably not been the most exciting job over

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<v Speaker 4>the last four years.

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<v Speaker 2>Yeah yeah, maybe let's talk about areas of the market

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<v Speaker 2>that might be exciting and talk about deals, because that's

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<v Speaker 2>something I'm sure your views on. We just see another

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<v Speaker 2>example this morning, digital Bridge sets away the sale of

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<v Speaker 2>a four billion dollar firm, edge Point, just another example

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<v Speaker 2>of maybe some deals going through. We heard from Berkleay's

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<v Speaker 2>this week, Goldwyn Sachs this week, both saying things are

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<v Speaker 2>nothing to pick up on the deal's front, wishful thinking

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<v Speaker 2>or actually seeing evidence of that.

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<v Speaker 4>Well, there's definitely a some pickup in the nowt activity.

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<v Speaker 6>If you look at the first.

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<v Speaker 4>Eight months or so of this year, the dollar volume

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<v Speaker 4>of announced transactions is up. Interestingly enough, the number of

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<v Speaker 4>transactions is still down this year. There's you know, if

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<v Speaker 4>I look at Evercor's business, we track a number of indicators.

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<v Speaker 4>The least forward looking is our backlog, which is you know, tangible.

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<v Speaker 4>The other measurable ones are new engagement letters signed earlier

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<v Speaker 4>than that is, new conflicts clearance. When a client calls

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<v Speaker 4>us up and says, hey, we're thinking of this will

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<v Speaker 4>you help us? And even earlier than that, which is

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<v Speaker 4>not quantifiable is active dialogue with our clients. The active

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<v Speaker 4>dialogue with clients is way up, new engagement letters is up,

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<v Speaker 4>and conflicts clearances are up somewhere in between those two.

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<v Speaker 4>So there's definitely a significant amount of pent up activity.

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<v Speaker 4>As we talked earlier, we're in a period of economic uncertainty.

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<v Speaker 4>Economic uncertainty is the enemy of announced activity, So it's

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<v Speaker 4>going to happen. It's a question of when it really starts.

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<v Speaker 5>Do you think the Harris camp is generating economic uncertaincy?

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<v Speaker 5>We don't know yet what the Horras camp is going

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<v Speaker 5>to deliver in terms of its economic agenda. We seem

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<v Speaker 5>to be light on detail.

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<v Speaker 6>What is your sense of that?

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<v Speaker 4>Well, I'm not sure if I had a scale here,

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<v Speaker 4>and I watched the debate on Tuesday night, which I

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<v Speaker 4>did at two am, that if going down was on

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<v Speaker 4>the one side, was how specific was the candidate in

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<v Speaker 4>terms of their economic policy. I'm not sure that the

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<v Speaker 4>Trump side would go down more than the harriside. So

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<v Speaker 4>I think that you know, both of them are trying

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<v Speaker 4>to say, is little specifically that so that they don't

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<v Speaker 4>offend anyone. I actually think she's been more specific than

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<v Speaker 4>he has, at least in the last you know, since

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<v Speaker 4>she's entered the race, and.

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<v Speaker 6>You know, so, I don't think.

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<v Speaker 4>I think the fact that these are two very different

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<v Speaker 4>visions for America, definitely, and it's a you know, it's

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<v Speaker 4>a toss up, definitely injects uncertainty. But I wouldn't put

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<v Speaker 4>her policy as being.

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<v Speaker 6>A principal contributor to that uncertainty.

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<v Speaker 1>You talk about her specifics, her campaign is certainly outlined

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<v Speaker 1>as she has as well in terms of continuation of

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<v Speaker 1>the Biden policy, which is tackling drug pricing. She's talked

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<v Speaker 1>about grocery prices, housing affordability. Economists and investors would listen

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<v Speaker 1>to that and hear that and be concerned about that

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<v Speaker 1>being a recipe for stagflation. Do you agree?

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<v Speaker 6>No, I don't.

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<v Speaker 4>I think that there are two elements to her policy.

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<v Speaker 4>And by the way, I am a Democrat, so take

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<v Speaker 4>this all with a grain of salt. I think there

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<v Speaker 4>are two elements to her policy. One, it's a torque

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<v Speaker 4>the benefits of our society a little bit toward the

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<v Speaker 4>middle class and those less privileged. And I think her

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<v Speaker 4>policies on housing, affordability, drug prices, childcare, and the child

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<v Speaker 4>tax credit all are geared there. And you know there's

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<v Speaker 4>going to be a massive debate next year about the

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<v Speaker 4>extension of the Trump tax cuts. And I think the

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<v Speaker 4>biggest difference between these two is the position that they

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<v Speaker 4>will take on that. Whereas Trump is for extending all

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<v Speaker 4>of them and for in fact expanding some of them

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<v Speaker 4>on the corporate side, and She is clearly for expanding

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<v Speaker 4>all of them for those below four hundred thousand dollars

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<v Speaker 4>in income and cutting back on the corporate side. She's

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<v Speaker 4>proposed twenty eight percent rather than twenty one percent, and

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<v Speaker 4>probably eliminating some of the cuts that are beneficial to

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<v Speaker 4>the most wealthy in our society. I don't think I

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<v Speaker 4>think it's a policy focused on a little bit of

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<v Speaker 4>retorking toward the middle class and below and a growth agenda.

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<v Speaker 1>The counter argument that's would be that the Trump taskts

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<v Speaker 1>did great for the economy. JB. Diamond has made that

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<v Speaker 1>point a conversation for another time. Ralph Lasson, we have

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<v Speaker 1>to leave it there, ever, Core Chairman emeritus and Blackrock

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<v Speaker 1>co founder, we thank you so much for joining the program.