WEBVTT - Moelis & Co.'s Eric Cantor Talks AI Supercycle

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

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<v Speaker 2>We got some new forecasts from JP Morgan in the

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<v Speaker 2>last twenty four hours and they're looking for yields to

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<v Speaker 2>go even higher. They're looking for five forty on thirties,

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<v Speaker 2>four eighty five on ten's and Barclay's say there's room

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<v Speaker 2>for long term rates to move even higher. What does

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<v Speaker 2>it mean for this competition for capital, this race to

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<v Speaker 2>raise money? Joining us now Madison Company vice chair and

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<v Speaker 2>former House Majority leader Eric Canterer, Eric at Mornig, It's

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<v Speaker 2>good to see it, great to be here. We've got

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<v Speaker 2>a major competition for capital. I haven't seen anything like

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<v Speaker 2>this for a long long time. What do you see

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<v Speaker 2>in your business?

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<v Speaker 3>Look, some people say that we are in the biggest

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<v Speaker 3>investment cycle since the late eighteen hundreds. I mean, it

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<v Speaker 3>is amazing to see sort of the pivot into this

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<v Speaker 3>incredible digital infrastructure surge around data centers and really the

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<v Speaker 3>standing up of new industries are most I mean this

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<v Speaker 3>is I think we're every conversation that we're having at

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<v Speaker 3>Morris is somehow downstream from this incredible cycle we're seeing.

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<v Speaker 3>And you know, listen, the markets are still constructive for

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<v Speaker 3>the m and a deal environment. As you said just now,

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<v Speaker 3>the resiliency is pretty stunning on the consumer end, although

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<v Speaker 3>people will say it's a case shaped consumer market. But

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<v Speaker 3>for now, again, I think you've got Washington poise such

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<v Speaker 3>that it wants to see this growth continue given everything

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<v Speaker 3>else that's going on in the world.

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<v Speaker 2>We were speaking to Cisco to G two Pateau in

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<v Speaker 2>the last week or so, and I've been somewhat concerned

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<v Speaker 2>about where the technology might be heading for several different reasons.

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<v Speaker 2>And he asked me if I was still skeptical concerned,

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<v Speaker 2>and I said I was becoming more concerned about where

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<v Speaker 2>financial markets were going, the amount of debt that's being issued,

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<v Speaker 2>the amount of debt that will be issued over the

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<v Speaker 2>next year, and perhaps even beyond. Have we entered the

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<v Speaker 2>more creative stage on Wall Street that might be of concern.

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<v Speaker 3>Look, there's no question, Number one, there's a super cycle

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<v Speaker 3>for the megacaps. I mean there's no question. And we've

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<v Speaker 3>seen this with hyper scaleers. We're seeing this with everyone

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<v Speaker 3>you know on the board level, at the senior management level,

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<v Speaker 3>who come into their jobs every day and say, hey,

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<v Speaker 3>how are we going to position given this technological revolution

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<v Speaker 3>that we're facing and given where the constructive nature of

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<v Speaker 3>the regulatory environment, I think that there is a willingness

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<v Speaker 3>and a desire to want to transact.

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<v Speaker 1>You know.

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<v Speaker 3>On the private equity side, you know, there's a lot

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<v Speaker 3>of dialogue that continues, and I know that we and

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<v Speaker 3>Molis are continuing in all kinds of discussions with our

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<v Speaker 3>sponsor clients as well. And there's just availability of capital

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<v Speaker 3>for good companies, you know, as we know, there's been

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<v Speaker 3>a thematic in the sponsor world about trying to return

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<v Speaker 3>more capital to LPs and if there isn't a traditional

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<v Speaker 3>exit strategy, there are all kinds of creative solutions to

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<v Speaker 3>help these investors access capital so they can return to

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<v Speaker 3>LPs and start a new fund. So it is pretty

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<v Speaker 3>remarkable the resiliency of what we're seeing.

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<v Speaker 1>How active do you expect deals to be in the

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<v Speaker 1>second half, I mean, is it going to be accelerating

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<v Speaker 1>actually even from the first half because of the smaller

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<v Speaker 1>corporate action from LPs from these exits that are getting creative.

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<v Speaker 3>Well, I just think in general, the markets are still

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<v Speaker 3>looking fairly healthy. As you noted, the earning season has

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<v Speaker 3>been pretty stunning on the part of those that have reported,

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<v Speaker 3>and I think that is indicative of where the mindset

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<v Speaker 3>is that we are continuing an upward trend just in

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<v Speaker 3>the macro level of the market. So, you know, you

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<v Speaker 3>have midterms looming out there, and people always like to say,

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<v Speaker 3>will that or won't that impact transaction activity? We'll have

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<v Speaker 3>to see.

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<v Speaker 1>Do you think that good corporates are competing for capital

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<v Speaker 1>with the US government?

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<v Speaker 3>Look, I don't think there's any question, But if you

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<v Speaker 3>look at the spreads between you know, the ten year

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<v Speaker 3>corporate investment grade instrument versus the ten year I think

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<v Speaker 3>if historically it's one hundred and fifty bases points spread,

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<v Speaker 3>I think we're under one hundred now, which could tell

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<v Speaker 3>you one or two things. Either corporates are getting a

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<v Speaker 3>lot more healthy or the government's getting a little less healthy.

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<v Speaker 3>So I do think there is a race for capital.

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<v Speaker 3>And as we said before, we're in the super cycle

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<v Speaker 3>of investment. The preferred choice of financing currently has been

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<v Speaker 3>this issuance of debt on the private side, and yet

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<v Speaker 3>we have this increasing populism around the world that is

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<v Speaker 3>forcing governments to have to take a look at how

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<v Speaker 3>much and how they're going to figure out to finance

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<v Speaker 3>the needs of their government and their population.

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<v Speaker 2>The increasing and grime. Majority of that all in yield

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<v Speaker 2>is the treasury, and I think that's tiws you about

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<v Speaker 2>where the concern might be more recently.

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<v Speaker 1>Well, and that's really the ultimate question. Are we getting

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<v Speaker 1>to that Liz trust moment in the United States? Do

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<v Speaker 1>you see us as getting closer to it?

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<v Speaker 3>I don't tell me. I have a lot of faith

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<v Speaker 3>in America. And you know, look at.

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<v Speaker 2>Eric, I've got tons of faith in America. I love

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<v Speaker 2>this country. Do I have faith in your Washington? I

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<v Speaker 2>have far less faith in your Washington.

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<v Speaker 3>Look. I've always said that this country, more so than

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<v Speaker 3>any where else in the world, relies on the growth

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<v Speaker 3>and the innovation in the private sector. And we've always

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<v Speaker 3>found a way to try and rise the occasion. And

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<v Speaker 3>the private sector puts the pressure on Washington.

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<v Speaker 2>Right, there's the issue, and private sector's on this job.

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<v Speaker 3>The private sector.

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<v Speaker 2>But the economy, this economy, the US economy is grand

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<v Speaker 2>tons when you're intically, when you just want to finish

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<v Speaker 2>the thought it's important. It's done fantastically well, and we're

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<v Speaker 2>still running deficits around six percent percent.

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<v Speaker 3>And that's why I think that all this discussion around

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<v Speaker 3>Kevin Morrison. You know, I happen to be a big

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<v Speaker 3>fan of his, and I happen to think he's been

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<v Speaker 3>unequivocal on his desire to beat inflation. He said, where

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<v Speaker 3>we are is not success.

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<v Speaker 2>Uh.

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<v Speaker 3>And the markets and the let's just say, the observers

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<v Speaker 3>are throwing a tantrum that he's not being more like

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<v Speaker 3>Jay Powell, but he's not being like Alan greens fan,

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<v Speaker 3>like which way are we going to go? And I

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<v Speaker 3>think there is a space in the middle for him

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<v Speaker 3>to go. And he said he doesn't like the mission

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<v Speaker 3>creep of the Federal Reserve. He wants to get back

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<v Speaker 3>to basics. He wants to make sure that there is

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<v Speaker 3>some discipline about the regulatory construct of the federal zero.

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<v Speaker 3>But all that having been said, I'll tell you that

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<v Speaker 3>the net interest costs, and we've talked about this before,

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<v Speaker 3>the net interest costs of the federal government is at

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<v Speaker 3>a point now where in history, markets, bond markets, and

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<v Speaker 3>others begin to pay attention and Washington wakes up and

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<v Speaker 3>it will do its job when it has to, because

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<v Speaker 3>the political cost of inaction will become more than acting.

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<v Speaker 3>And that's I think when it does work, and it

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<v Speaker 3>will in this country.

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<v Speaker 1>Just based on what you're seeing in the companies that

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<v Speaker 1>you do business with, do you think it's appropriate for

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<v Speaker 1>the Fed to hike rates to try to restrain some

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<v Speaker 1>of what we're seeing with respect to inflation?

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<v Speaker 3>Again, I just think, you know, from you know, a

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<v Speaker 3>firm like Arison Mollis, you know, we are looking at

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<v Speaker 3>where management teams, boards take a view of their own company,

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<v Speaker 3>and they are receivers of what the policy makers are

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<v Speaker 3>doing in Washington. And so I think that the Federal

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<v Speaker 3>Reserve and other are looking at it from a much

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<v Speaker 3>more macro level, and that is where are we going

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<v Speaker 3>to be long term? What does this mean? And when

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<v Speaker 3>you're in an election year, what does this mean? Not

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<v Speaker 3>just for the businesses that we advise, but it's really

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<v Speaker 3>about the people who are waking up this morning and

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<v Speaker 3>looking at those gas prices and what does that mean

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<v Speaker 3>and how does that figure into inflation? You know, we've

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<v Speaker 3>got a real shortage of refined product. You know, there's

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<v Speaker 3>been a lot of controversy about the earnings of the

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<v Speaker 3>super majors in the oil and gas sector, but again,

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<v Speaker 3>it's really about the market. It is. People have been

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<v Speaker 3>saying for months now that this conflict in the Middle

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<v Speaker 3>East is going to result in a shortage of supply.

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<v Speaker 3>I mean, we know that that was coming, and I

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<v Speaker 3>think we're here now