Speaker 1: Bloomberg Audio Studios, podcasts, radio news, Rebecca Patterson in studio
Speaker 1: right now with the Council on Foreign Relations, but also
Speaker 1: institutional work among others, with Bessemer Trust, and of course
Speaker 1: the solo is associated with Bridgewater for years. I have
Speaker 1: three words when I speak to Cherubs and I talk
Speaker 1: about concision, I talk about acuity. I talk about avoiding conflation,
Speaker 1: which is something that you conflate two ideas together and
Speaker 1: you get in trouble. You are the queen, because the
Speaker 1: queen's visiting in Washington. You are the queen of acuity.
Speaker 1: And you walked in the studio having a full Patterson
Speaker 1: tantrum over sovereign wealth funds. Beware, what do I need
Speaker 1: to know about the rich guys country to country?
Speaker 2: So I think one of the biggest underappreciated risks right
Speaker 2: now for US financial markets and especially this tech rally,
Speaker 2: is the possibility. I'm not saying it will happen, but
Speaker 2: there is a probability that's not zero, that some of
Speaker 2: the golf sovereign wealth funds, particularly I think Saudi and UAE,
Speaker 2: if this war lasts a little longer, are going to
Speaker 2: need cash. They're going to need it to shore up defenses,
Speaker 2: to shore up damaged infrastructure. And right now the sovereign
Speaker 2: wealth fund cash is largely We're the biggest single recipient
Speaker 2: going to the US, and it's going fairly concentrated to
Speaker 2: technology yep, and through a handful of financial intermediaries.
Speaker 3: Now I'm not saying it'll.
Speaker 2: Stop coming, but if that flow is cut by a
Speaker 2: third even it would have a material impact on the US.
Speaker 3: So that is a risk I'm watching carefully.
Speaker 2: Saudi Arabia has a pretty big budget deficit, so it's
Speaker 2: not like they have a ton of cash sitting around
Speaker 2: they can easily tap.
Speaker 4: It's inesting. Just in the small little world of professional golf,
Speaker 4: we're starting to see it. There's reports out there, widely
Speaker 4: reported that they may withdraw their financial support of the
Speaker 4: Live Golf tour to the tune of a five billion
Speaker 4: dollar number, and that caught everybody by surprise, and I
Speaker 4: think in some of their discussions they were suggesting, Hey,
Speaker 4: it is the pressure from the war. We need to
Speaker 4: rethink some of our investments. That ties in, Yeah, exactly
Speaker 4: with you.
Speaker 2: And PIF, which is the Saudi main sovereign weal funds.
Speaker 2: There's about thirteen big ones in the Gulf countries the GCC.
Speaker 2: But PIF, even before the war in December, came out
Speaker 2: with its five year plan saying it wanted to be
Speaker 2: more efficient, more and more domestically focused with its investment.
Speaker 2: So I just think we need to be thoughtful on
Speaker 2: assuming that capital just keeps coming to the same degree
Speaker 2: it has.
Speaker 4: And I'm not sure what that says about that whole
Speaker 4: region of the world, which was the money was just
Speaker 4: flowing in there for years and years. Every financial firm
Speaker 4: in the world was setting up an office in that
Speaker 4: part of the world, and that was expected to be
Speaker 4: maybe you know, a new financial globe, the capital of.
Speaker 2: Capital exactly right, that's what they wanted to be. So
Speaker 2: after I mean, it's been going on for a while,
Speaker 2: but twenty fifteen, twenty sixteen, you guys remember oil prices
Speaker 2: crashing in that period, partly because US fracking took off
Speaker 2: and the Middle East had an Aha moment. They said,
Speaker 2: wait a second, we need to double down on diversifying
Speaker 2: our economies. Part of that was the sovereign wealth funds
Speaker 2: making these big strategic investments and attracting US money to them.
Speaker 2: So it is a quid pro quo, and they've built
Speaker 2: up tourism, they've built up high value manufacturing, They've built
Speaker 2: up tech and finance, of course, but can it last? Partly,
Speaker 2: it depends how long this war goes. Is it just
Speaker 2: temporary damage or is it something bigger?
Speaker 1: I got an email coming in here in anticipation of
Speaker 1: Rebecca Patterson being with the Threads down in Durham. First
Speaker 1: of all, I'd love to go down just to see
Speaker 1: the Durham Bulls play in the stadium.
Speaker 3: But they got a new arena which is still a jewel,
Speaker 3: very nice.
Speaker 1: It's right downtown and you know, good morning down in
Speaker 1: North Carolina. And he is an absolutely brilliant question which
Speaker 1: goes back to your time at Besseer Trust. Okay, we
Speaker 1: have been schooled that for certain our actual assumption of
Speaker 1: equity returns will be single digit, two hundred beeps above
Speaker 1: nominal GDP. We all studied the test, drank the kool aid,
Speaker 1: and it's just been wrong, wrong, wrong, for years. Fred
Speaker 1: wants to know who's right this equity market or single
Speaker 1: digits subsided equity returns, which is it?
Speaker 2: I mean, the equity returns we've had over the last
Speaker 2: call it fifteen years or so have been fueled by
Speaker 2: I think three main forces. Unusually large fiscal stimulus, some
Speaker 2: of that was pandemic related, and some of it was
Speaker 2: national security economic security related, monetary policy. Remember it wasn't
Speaker 2: that long ago that we had zero and even in
Speaker 2: some countries negative interest rates that fueled equity assets. And
Speaker 2: then the structural tech trend. And I think those three
Speaker 2: things combined help explain the differential between the economy and
Speaker 2: the equity markets. Now going forward, are we able to
Speaker 2: con continue this or do we go back to something
Speaker 2: more in line with historical averages. With bond yields at
Speaker 2: four point three to one this morning, and the Fed
Speaker 2: in my view, unlikely to go back to a zero
Speaker 2: world or something close to that anytime soon because inflation
Speaker 2: is structurally higher, I think it's going to be difficult
Speaker 2: to continue the ride we've had with stocks. I mean again,
Speaker 2: this year, we're only up four percent year to date.
Speaker 2: It's funny, everyone's like an all time high, all time high.
Speaker 2: It feels like it should be more. It's only four percent. Right,
Speaker 2: if you had your money in Japan, you'd be up
Speaker 2: twenty percent already this year.
Speaker 4: Are you surprised though, that when we did have that
Speaker 4: sell off? With the beginning of the war. I think
Speaker 4: a lot of people were surprised the veracity of the snapback.
Speaker 3: Oh, one hundred percent. One hundred percent.
Speaker 2: I mean the fact that we have oil prices at
Speaker 2: one hundred and seven hundred and eight dollars I'm looking
Speaker 2: at Brent crude, that we have higher bond yields, that
Speaker 2: we have a worsening fiscal position, we have a k
Speaker 2: shape to con with those lower end consumers hit harder
Speaker 2: by high energy and high food prices. It and job
Speaker 2: markets that aren't worsening but have stalled. The fact that
Speaker 2: stocks are here and it rallied so hard is striking
Speaker 2: to me. I think investors have been conditioned in recent
Speaker 2: years to expect that we will have a resolution quickly
Speaker 2: because it's a midterm election year and it's not in
Speaker 2: the GOP's interest to have a prolonged war that could
Speaker 2: hurt voters, and they've been conditioned to expect that buying
Speaker 2: the dip pays. It worked in pandemic, it worked in
Speaker 2: Liberation Day, but I think you have to be really
Speaker 2: careful about that.
Speaker 1: You know, Rebecca's people called me up this weekend, stop
Speaker 1: me on the street, I should say, rather and they said, Tom,
Speaker 1: if you don't plug the Council for Economic Education, she's
Speaker 1: not coming back. This is a cool event you got.
Speaker 1: Jan Azi is showing up of Goldman Sachs and I've
Speaker 1: done this years ago. I think this is your diamond
Speaker 1: gala event. Yep. And is it like with the King
Speaker 1: and Queen meat? Is it like tuxedos and all.
Speaker 3: That you No, we don't force tuxedo.
Speaker 2: We let people show up in their work clothes and
Speaker 2: you all are obviously invited as guests to my table
Speaker 2: if you can be free on a six. But the
Speaker 2: CE Council on Economic Education is focused on making sure
Speaker 2: K through twelve students finish high school understanding the basics
Speaker 2: of economics and personal finances.
Speaker 3: It's getting more traction.
Speaker 2: In recent years, we've seen state legislatures wake up. We
Speaker 2: now have thirty nine states in the US that require
Speaker 2: high school kids to take at least one personal finance
Speaker 2: class before they graduate. So thirty nine is a huge
Speaker 2: step forward from where we were. But it's not fifty,
Speaker 2: which is crazy because this is so fundamental. If we
Speaker 2: want a strong economy, if we want strong stock markets,
Speaker 2: we have to have financially healthy consumers. So you can
Speaker 2: talk about the moral arguments for this, the ability to
Speaker 2: narrow that opportunity gap. But at the end of the day,
Speaker 2: if I'm an equity investor listening to this conversation, this
Speaker 2: is in my interest.
Speaker 5: Interesting my daughter has They just added that a personal
Speaker 5: finance and it's an AP course, so advanced placement, yes,
Speaker 5: which is an incentive for kids to take it.
Speaker 3: And I was so happy to see that. Yeah.
Speaker 2: So we've just partnered with the College Board on that
Speaker 2: AP course and we agree like if you can get
Speaker 2: kids focusing on this, they're going to have a better
Speaker 2: time in college and they're going to have better prospects
Speaker 2: going ahead. They'll understand what the credit score is, how
Speaker 2: to borrow, how to save.
Speaker 5: Those are great to thirsteen colonies, but you got to
Speaker 5: know how to also bounce a chess and what compounding means.
Speaker 3: Thank you so much, thank you.
Speaker 1: I appreciate it. With the Council on Foreign Relations and
Speaker 1: again uh the CEE, the Council of Economic Education with
Speaker 1: their event in early May,