WEBVTT - Bloomberg Wall Street Week - June 7th, 2024 0:00:00.280 --> 0:00:02.560 This is Bloomberg Wall Street Week. 0:00:02.680 --> 0:00:07.280 The global push into infrastructure, breaking the IPO logjam in text. 0:00:07.160 --> 0:00:09.280 The financial stories that shape. 0:00:08.920 --> 0:00:12.000 Our work, cutting inflation without losing jobs. Do we need 0:00:12.119 --> 0:00:14.560 rate cuts and if so? How many? Investing in the 0:00:14.560 --> 0:00:16.120 time of geopolitical turmoil. 0:00:16.200 --> 0:00:18.560 Through the eyes of the most influential voices. 0:00:18.720 --> 0:00:22.520 Ten Rogueff Economists of Harvard, former FDIC had Shiela Beert 0:00:22.640 --> 0:00:25.799 g E CEO Larry Kulp, San Francisco FED President Mary 0:00:25.880 --> 0:00:27.360 Daily Bloomberg. 0:00:26.840 --> 0:00:30.240 Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.360 --> 0:00:33.559 Big elections in Mexico and India. In Europe, the ECB 0:00:33.680 --> 0:00:36.560 cuts rates, and in the US all eyes are on 0:00:36.600 --> 0:00:39.400 the jobs numbers. This is Bloomberg Wall Street Week. I'm 0:00:39.479 --> 0:00:43.120 David Weston. This week we're Alph Schlostein of Evercore on 0:00:43.280 --> 0:00:47.080 getting deals back on track or actually. 0:00:47.240 --> 0:00:49.280 In a period of returning activity. 0:00:50.080 --> 0:00:52.560 Ragaram Rajin of the Booth School on what the Indian 0:00:52.600 --> 0:00:54.720 election means for investors. 0:00:54.880 --> 0:00:58.120 Hopefully a more democratic to India, which is what this 0:00:58.240 --> 0:01:01.400 election means actually into some of them. 0:01:02.040 --> 0:01:05.400 And Ford CEO Jim Farley on the return of Detroit 0:01:05.440 --> 0:01:07.679 and the US auto industry. 0:01:07.760 --> 0:01:19.399 Were in a different era where Detroit is growing after decades. 0:01:24.040 --> 0:01:26.399 We begin with the markets and their reaction to those 0:01:26.480 --> 0:01:29.640 US jobs numbers out on Friday. Once again, the labor 0:01:29.680 --> 0:01:32.240 market surprised thep side, adding another two hundred and seventy 0:01:32.280 --> 0:01:35.520 two thousand jobs with earnings increasing four tenths of a percent, 0:01:35.920 --> 0:01:38.559 both well above what was expected, and at the same time, 0:01:38.800 --> 0:01:42.399 the unemployment rate paradoxically ticked up to four percent. The 0:01:42.440 --> 0:01:45.000 bond market reacted with a vengeance, as the yield shot 0:01:45.080 --> 0:01:47.440 up fourteen basis points to four point four to three 0:01:47.480 --> 0:01:49.880 percent at the end of the week that until Friday 0:01:50.000 --> 0:01:53.120 was all about falling yields. The stock market, though once again, 0:01:53.240 --> 0:01:55.680 seemed to take it pretty much in strive. For the week, 0:01:55.720 --> 0:01:57.680 the S and P five hundred was up one point 0:01:57.680 --> 0:02:00.080 three percent to close at fifty three forty seven, and 0:02:00.080 --> 0:02:03.440 that is nicely above that median number our Bloomberg ls 0:02:03.480 --> 0:02:05.720 have for the year end of fifty two hundred, and 0:02:05.720 --> 0:02:08.440 the NASDAC it was up two point four percent for 0:02:08.480 --> 0:02:10.919 the week. To take us through all us Now, welcome 0:02:10.919 --> 0:02:13.440 to Sarah Ketter of Causeway Capitals. So, Sarah, thank you 0:02:13.480 --> 0:02:15.480 so much for being back with this really appreciated. So 0:02:15.800 --> 0:02:18.560 explain exactly what the market reaction was this week, because 0:02:18.600 --> 0:02:21.680 the stock market really didn't react too vigorously, although the 0:02:21.919 --> 0:02:23.520 bond market did to these jobs numbers. 0:02:25.000 --> 0:02:25.799 Well, thanks David. 0:02:26.120 --> 0:02:30.080 That stock market is likely taking its queue from earnings 0:02:30.120 --> 0:02:35.559 more than it is any of these potential underlying impetus 0:02:35.560 --> 0:02:36.959 for changes and interest rates. 0:02:37.960 --> 0:02:41.919 The likely most investors. 0:02:41.320 --> 0:02:44.600 Recognize that the FED is in a difficult position and 0:02:45.600 --> 0:02:48.960 lowering rates might be tough with this sort of strong data. 0:02:49.720 --> 0:02:51.800 On the other hand, earnings coming out of some of 0:02:51.840 --> 0:02:55.440 the market leaders still looks really good, and that's probably 0:02:55.480 --> 0:02:58.160 what's keeping the market aflut So. 0:02:58.280 --> 0:03:00.359 I wonder about this question of interest rate. There's a 0:03:00.360 --> 0:03:02.399 lot of speculation about what's going to happen this year 0:03:02.400 --> 0:03:04.560 for the fad we winning the year with six six 0:03:04.639 --> 0:03:06.360 rate cuts blood baked in. We're way off of that 0:03:06.440 --> 0:03:08.840 now at this point. But what about for the longer term? 0:03:08.960 --> 0:03:11.560 Are we is getting a sense maybe the longer term 0:03:11.560 --> 0:03:13.799 intry some people call the nutro rate will be higher 0:03:13.880 --> 0:03:15.320 And if so, what does that mean for you as 0:03:15.320 --> 0:03:16.320 an equity investor? 0:03:18.000 --> 0:03:20.359 Well, if you care about valuation, you have to use 0:03:20.400 --> 0:03:22.960 tools like discount rates. In other words, as stock is 0:03:23.000 --> 0:03:25.200 just worth the present value of all the cash that 0:03:25.240 --> 0:03:29.280 can generate into perpetuity discounted to present, and the higher 0:03:29.280 --> 0:03:31.919 that discount rate goes, the less the cash flow stream 0:03:32.040 --> 0:03:35.120 is worth, or they give it another way that the 0:03:35.400 --> 0:03:37.280 valuation multiples need to come down. 0:03:37.920 --> 0:03:40.040 So prolonged higher. 0:03:39.840 --> 0:03:42.600 Rates is a kind of a sobering effect for markets 0:03:42.600 --> 0:03:43.320 and investors. 0:03:43.360 --> 0:03:45.360 We have to be very careful about what we pay. 0:03:45.840 --> 0:03:49.280 And it also makes fixed income a very viable alternative 0:03:49.320 --> 0:03:53.480 to equities, so there's competition out there. So higher rates, 0:03:53.640 --> 0:03:56.960 if they're sustained, also have economic impacts. 0:03:56.480 --> 0:03:58.240 That we have to take into account when we do 0:03:58.400 --> 0:03:59.280 valuation work. 0:04:00.080 --> 0:04:04.080 Old myriad of reasons why sustained higher rates can lead 0:04:04.160 --> 0:04:09.200 to a tougher environment for stocks, not just because companies' 0:04:09.200 --> 0:04:12.160 earnings may be under pressure, but also because investors might 0:04:12.200 --> 0:04:13.760 want to go elsewhere or. 0:04:13.760 --> 0:04:15.640 For any reasonable period of time. The stock market has 0:04:15.680 --> 0:04:17.559 done pretty well, take the S and PO five hundred, 0:04:17.560 --> 0:04:20.120 for example, but there are a few stocks that have 0:04:20.160 --> 0:04:23.239 really driven it disproportionately. Some of those big tech stacks 0:04:23.240 --> 0:04:24.880 at AI stacks. Can I keep going? 0:04:27.880 --> 0:04:28.640 They could. 0:04:28.800 --> 0:04:31.640 It's very hard to call the tops of any of 0:04:31.680 --> 0:04:34.719 these stocks that have so much momentum behind them. And 0:04:34.839 --> 0:04:38.719 have sold their product like Nvidia far out into the future. 0:04:39.320 --> 0:04:42.760 They look so certain, and yet as the price rises, 0:04:42.800 --> 0:04:47.159 it gets closer to something that approximates fair value. And 0:04:47.200 --> 0:04:50.760 we're not seeing the big earnings upgrades any longer. Let 0:04:50.880 --> 0:04:53.560 pace of that is slowed. So it's very likely that 0:04:53.680 --> 0:04:56.080 these big market leaders, at least for the time being 0:04:56.120 --> 0:04:58.880 the next twelve months, have seen the bulk of their returns. 0:04:59.440 --> 0:05:03.040 Now is what's the next set of stocks? 0:05:03.040 --> 0:05:05.760 It will benefit from the same theme that propelled these 0:05:05.880 --> 0:05:10.479 big these big market leaders. And if it's not Gpu, 0:05:11.240 --> 0:05:13.720 it's not the chips, and it's not the servers or 0:05:13.760 --> 0:05:18.440 the data centers, than what and there are some fascinating 0:05:20.080 --> 0:05:24.360 great stocks in that layer beneath who should benefit from, 0:05:24.760 --> 0:05:28.160 for example, the demand for much more memory. So that's 0:05:28.320 --> 0:05:32.560 DRAM memory, not just the high bendwidth memory that an 0:05:32.600 --> 0:05:36.880 SK Micron has and Samsung Electronics soon will have, and 0:05:37.279 --> 0:05:41.320 Micron in the US, but even the commodity memory will 0:05:41.360 --> 0:05:44.279 be more in demand because there's only so much factory 0:05:44.360 --> 0:05:47.680 floor space. There's almost only so much room to make 0:05:47.720 --> 0:05:52.880 these high bandwidth memory chips. They're faster, they're they're more 0:05:53.240 --> 0:05:57.479 less power consumptive. So memory is so interesting, and stocks 0:05:57.520 --> 0:05:59.919 like Samsung traded very reasonable multiple. 0:06:00.520 --> 0:06:02.360 What about some of the stocks that have actually taken 0:06:02.360 --> 0:06:05.479 something of a hit taking the information tech services area 0:06:05.760 --> 0:06:09.159 and the assumption that perhaps AI generative AI really hurt 0:06:09.160 --> 0:06:11.960 their business. Is it possible the market's overreacted with some 0:06:12.000 --> 0:06:12.600 of those. 0:06:13.640 --> 0:06:17.000 Oh, those stocks had a terrible time when Cloud was 0:06:17.040 --> 0:06:21.800 first transitioning because enterprises say, oh, we can do it ourselves, 0:06:21.839 --> 0:06:25.040 and they very much can't. First of all, for most companies, 0:06:25.080 --> 0:06:28.440 they need to build the infrastructure to adopt AI tools, 0:06:28.960 --> 0:06:32.800 So infrastructure comes first and then application second. And there 0:06:32.800 --> 0:06:37.120 are you can look across almost all IT services companies 0:06:37.120 --> 0:06:40.400 and find that the market is very negative on them, 0:06:40.720 --> 0:06:44.760 but they have good based businesses and without doubt, and 0:06:44.800 --> 0:06:47.479 says companies like Cognizant, for example in the US or 0:06:47.640 --> 0:06:50.920 Fujitsu in Japan, the orders will have to pick up 0:06:50.960 --> 0:06:52.719 because enterprises we're going to need help. 0:06:52.720 --> 0:06:53.559 They'll have to work. 0:06:54.080 --> 0:06:56.480 Enterprises will have to work with their IT services companies 0:06:56.480 --> 0:06:59.480 in ways they'd never done before in order to implement AI. 0:07:00.040 --> 0:07:01.719 Sarah, it's always such a pleasure to have you with us. 0:07:01.760 --> 0:07:04.560 Thank you so much. That is Sarah Kutter of Causeway 0:07:04.560 --> 0:07:08.640 Capital Higher rates and greater uncertainty have put a damper 0:07:08.680 --> 0:07:12.080 on corporate deals coming off of what had been record years. 0:07:12.280 --> 0:07:14.120 To fill us in on where things stand today, we 0:07:14.120 --> 0:07:17.680 welcome back now Ralph Schlostein evercore chairman Emeritis. So Relph, 0:07:17.680 --> 0:07:19.680 great to have you back with us. Where are we 0:07:19.760 --> 0:07:20.800 right now on deal flow? 0:07:21.320 --> 0:07:25.280 Well, we're actually in a period of returning activity. So 0:07:25.320 --> 0:07:29.000 if you look, particularly in the US, announced transactions in 0:07:29.040 --> 0:07:31.160 the first half of the first five months of the 0:07:31.240 --> 0:07:35.080 year are about forty percent of last year. The last 0:07:35.360 --> 0:07:40.520 two years have been a period of low activity, driven 0:07:40.600 --> 0:07:47.440 by predominantly by uncertainty rather than economic uncertainty, because that 0:07:47.600 --> 0:07:51.640 is the enemy of M and A activity. And if 0:07:51.640 --> 0:07:55.520 you look back over the last forty five years, go 0:07:55.640 --> 0:07:58.680 back to nineteen eighty, m and A has generally been 0:07:58.760 --> 0:08:02.600 characterized by five to eight year up cycles and two 0:08:02.600 --> 0:08:05.600 to three year down cycles. And we're kind of at 0:08:05.600 --> 0:08:08.320 the end of that two to three year down cycle 0:08:08.480 --> 0:08:10.960 and at the beginning of what I suspect will be 0:08:11.080 --> 0:08:17.239 an extended period of increased activity, twenty four being better 0:08:17.280 --> 0:08:20.200 than twenty three and twenty five being better than twenty four. 0:08:20.400 --> 0:08:22.080 So, as you know, here a Bloomberg repay. A lot 0:08:22.080 --> 0:08:23.880 of attention to the FED. Are they going to cut it? 0:08:23.880 --> 0:08:25.040 They're not going to cut it, They're going to raise 0:08:25.080 --> 0:08:26.600 what's going to happen. At the beginning of the year 0:08:26.640 --> 0:08:29.280 there was something like six great cuts priced in. Now 0:08:29.280 --> 0:08:32.559 we're down to maybe one. Does that affect CEOs thing 0:08:32.600 --> 0:08:35.719 about doing deals? It really doesn't. 0:08:35.800 --> 0:08:40.079 What they care more about is the availability of debt 0:08:40.120 --> 0:08:43.280 capital rather than the cost. And I think we're at 0:08:43.280 --> 0:08:48.040 a period right now where the cost of debt capital 0:08:48.280 --> 0:08:51.520 the risks are asymmetric. The risk that it goes up 0:08:51.640 --> 0:08:55.560 is lower than the risk that it stays where it 0:08:55.640 --> 0:08:59.200 is or drifts down. So that's kind of off the 0:08:59.280 --> 0:09:05.600 table today. In terms of transaction activity, economic uncertainty and 0:09:05.679 --> 0:09:12.520 political uncertainty now are not unimportant in having people think 0:09:12.559 --> 0:09:14.600 hard about whether they do transactions. 0:09:14.720 --> 0:09:16.360 If you talk to private credit people, is I know 0:09:16.480 --> 0:09:19.000 you do all the time? They say, Yes, we're lending 0:09:19.040 --> 0:09:20.920 a lot of money, but we're much more careful about it. 0:09:20.920 --> 0:09:23.200 We put a lot more restrictions and covenants and things 0:09:23.240 --> 0:09:24.160 like that on it. 0:09:24.200 --> 0:09:29.480 Is that true in your experience? No, To be honest, 0:09:29.559 --> 0:09:35.319 I think there's this thing called the credit cycle that 0:09:35.360 --> 0:09:40.480 we've heard about for many years and credit. There are 0:09:40.480 --> 0:09:44.520 periods of time like right now, where people feel some 0:09:44.600 --> 0:09:48.160 amount of pressure to put assets on the books, whether 0:09:48.200 --> 0:09:55.200 they're private credit or banking, and that tends to weaken 0:09:55.320 --> 0:10:00.800 a little bit. The underwriting discipline not thrown away, because 0:10:00.880 --> 0:10:03.080 I think we all learned from two thousand and eight 0:10:04.080 --> 0:10:08.480 that discipline and credit is really really important. But I 0:10:08.520 --> 0:10:13.440 recall once when I was at Blackrock, we were hired 0:10:14.320 --> 0:10:17.960 by Xerox to make a decision about what they should 0:10:17.960 --> 0:10:22.640 do with their insurance business. And one of the things 0:10:22.640 --> 0:10:25.120 we did is we visited five of the smarter people 0:10:25.200 --> 0:10:29.400 in the insurance property and casualty business, one of whom 0:10:29.480 --> 0:10:32.760 was Warren Buffett. So we flew out to Omaha and 0:10:32.800 --> 0:10:35.760 we met with him, and he talked about the property 0:10:35.800 --> 0:10:39.600 and casualty business. He said, you know, I've bought every 0:10:39.640 --> 0:10:44.560 single one of my underwriters a golf club membership, and 0:10:45.360 --> 0:10:47.760 the only thing that I do is I tell them 0:10:47.760 --> 0:10:50.640 when they must use their golf club membership and when 0:10:50.640 --> 0:10:54.560 they can't. And his point was, there's sometimes when the 0:10:54.640 --> 0:10:57.439 underwriting cycle is really bad, and I want you all 0:10:57.480 --> 0:11:01.079 to play golf, and there are times when it's really 0:11:01.120 --> 0:11:03.520 attractive and that's when I want you to not play 0:11:03.559 --> 0:11:08.520 golf and write lots of policies. And you know, bankers 0:11:08.559 --> 0:11:14.400 and private credit don't have that same luxury. So you know, 0:11:14.920 --> 0:11:20.560 discipline not in major ways, but in minor ways. Ebbs 0:11:20.600 --> 0:11:24.920 and flows and pricing, the tightening of spreads. So we've 0:11:24.920 --> 0:11:28.040 had a period where longer term interest rates have risen 0:11:28.760 --> 0:11:32.880 that has been largely offset by a tightening of spreads 0:11:33.280 --> 0:11:36.559 versus the treasury market. So a double B borrower today 0:11:37.320 --> 0:11:40.840 can borrow more cheaply than they could a year ago, 0:11:41.080 --> 0:11:44.439 notwithstanding the fact the treasury rates are up eighty ninety 0:11:44.440 --> 0:11:45.640 basis points. 0:11:45.760 --> 0:11:49.120 Cycles and M and A. Are there also trends because 0:11:49.160 --> 0:11:51.000 most recently some of the deals we've seen have not 0:11:51.040 --> 0:11:54.960 been conglomerations really bringing together bigger companies, but actually focus 0:11:55.040 --> 0:11:57.199 spinning off. If you look at g you look at DuPont. 0:11:57.520 --> 0:12:00.679 Is that a trend right now? Are people more interesting focusing? 0:12:01.200 --> 0:12:05.800 I would say, you know, over forty to fifty years, 0:12:05.840 --> 0:12:13.720 you've seen a period of time when conglomerates were overvalued 0:12:13.960 --> 0:12:17.560 relative to the sum of their parts and period when 0:12:17.600 --> 0:12:22.360 they are undervalued. We're in one of those periods where 0:12:23.600 --> 0:12:29.360 in companies that are in multiple disconnected business lines. The 0:12:29.480 --> 0:12:33.120 value of the whole company is generally less than the 0:12:33.240 --> 0:12:38.600 value of its constituent parts. Ralph s Losneger is. 0:12:38.600 --> 0:12:40.280 Going to be staying with us. As returned from the 0:12:40.280 --> 0:12:43.400 business climate for merchants and acquisitions to the political climate 0:12:43.679 --> 0:12:45.920 as next on Wall Street Week on Bloomberg. 0:12:50.240 --> 0:12:54.480 This is Bloomberg Wall Street Week with David Weston from 0:12:54.600 --> 0:12:55.520 Bloomberg Radio. 0:13:01.960 --> 0:13:04.360 This is Wall Street Week. I'm David western Evercourt chairman 0:13:04.360 --> 0:13:06.800 of Meritis. Ralph last nine has stayed with us. So, Ralph, 0:13:07.000 --> 0:13:08.800 you were good enough to tell us about the business 0:13:08.800 --> 0:13:10.920 climate for Emine And let's talk about the political climate 0:13:11.160 --> 0:13:13.160 where we are right now, particularly as we're looking toward 0:13:13.160 --> 0:13:15.960 an election come November. What are the things that might 0:13:16.040 --> 0:13:19.720 affect actually the level of deals that get done well. 0:13:19.760 --> 0:13:25.439 First of all, you have to recognize that anti trust 0:13:26.600 --> 0:13:32.480 is driven predominantly by the law. The law has not changed. 0:13:33.559 --> 0:13:37.040 There are people at the FTC and obviously the Assistant 0:13:37.040 --> 0:13:41.720 Attorney General for Anti trust who may have a more 0:13:41.760 --> 0:13:47.559 aggressive or less aggressive posture within the confines of the law, 0:13:48.640 --> 0:13:51.840 and sometimes not within the confines of the law. So 0:13:52.080 --> 0:13:55.920 there's no question that the Biden administration has tried to, 0:13:57.520 --> 0:14:04.600 you know, reasonably aggressively slowed down activity almost any transaction 0:14:04.720 --> 0:14:09.480 of consequence. There is a discussion of that, and what 0:14:09.520 --> 0:14:16.600 you're finding increasingly, where there's a judgment that the anti 0:14:16.679 --> 0:14:23.080 trust law is not being violated, companies are willing to 0:14:23.120 --> 0:14:27.160 go ahead and basically say, let them take me to court. 0:14:27.400 --> 0:14:29.680 So you worked for President Carter, as I recall, in 0:14:29.720 --> 0:14:32.400 the Carter White House, and you've been identified with democratic 0:14:32.400 --> 0:14:34.360 causes through the years. At the same time, you're very 0:14:34.440 --> 0:14:36.480 much a part of Wall Street. There's sort of a 0:14:36.480 --> 0:14:39.320 prevailing sense right now among some of Wall Street right 0:14:39.320 --> 0:14:43.160 now that it just makes sense for them personally to 0:14:43.400 --> 0:14:46.440 have Trump in the White House because they'll make more money, 0:14:46.560 --> 0:14:47.320 they'll be richer. 0:14:47.640 --> 0:14:52.360 Is that wrong? Well, it's interesting. I once got asked 0:14:52.400 --> 0:14:55.880 what was the very best piece of advice I received 0:14:55.920 --> 0:15:00.600 in my entire forty five year professional career was actually 0:15:00.640 --> 0:15:02.600 the first day of my very first job, when I 0:15:02.640 --> 0:15:06.040 was an economist on the Joint Economic Committee, and the 0:15:06.080 --> 0:15:09.480 staff director had this sort of welcome talk that he 0:15:09.560 --> 0:15:12.760 gave to, you know, kids right out of graduate school, 0:15:13.600 --> 0:15:18.800 and the gist of it was listen to people. This 0:15:19.000 --> 0:15:22.320 was a Joint committee bipartisan committee. You're going to have 0:15:22.360 --> 0:15:29.960 disagreements on substance, but never question someone's motives. So I 0:15:30.000 --> 0:15:35.360 do believe certainly that there are some people in the 0:15:35.400 --> 0:15:41.080 Wall Street community, the financial community, who probably are driven 0:15:41.160 --> 0:15:45.600 to a certain extent by what's best for their pocketbooks. 0:15:46.360 --> 0:15:47.360 But I'm also. 0:15:49.840 --> 0:15:53.400 I think, open minded enough to say that there are 0:15:53.440 --> 0:15:57.440 certainly some of them who may support President Trump who 0:15:57.480 --> 0:16:01.640 do so because they have, you know, particular policy agreements 0:16:01.680 --> 0:16:06.280 with him or disagreements with the current administration. So I 0:16:06.280 --> 0:16:12.520 don't think it's purely financial. And I happen to be, 0:16:12.960 --> 0:16:19.040 as you say, very democratically inclined. But in this election, honestly, 0:16:19.120 --> 0:16:24.680 I think the stakes and policy are really important, but 0:16:24.760 --> 0:16:31.000 the stakes on support of our democratic institutions are even 0:16:31.000 --> 0:16:37.760 more important. And the idea that our judiciary deserves to 0:16:37.840 --> 0:16:43.320 be truly independent, the idea that our federal reserve should 0:16:43.360 --> 0:16:47.800 be truly independent, the idea that our Justice Department should 0:16:47.840 --> 0:16:53.560 be free to investigate independently, the idea that our press 0:16:54.160 --> 0:16:59.520 should feel unencumbered by fear of reprisal if they report, 0:17:00.680 --> 0:17:05.199 you know, unhappily on the current administration. Those are things 0:17:05.240 --> 0:17:10.520 to me that are so important that to me, that's 0:17:10.560 --> 0:17:12.400 a really critical part of this selection. 0:17:12.760 --> 0:17:14.679 I didn't mean to suggest it's wrong to be considered 0:17:14.720 --> 0:17:17.400 a pocketbook because it's generally thought in most elections, most 0:17:17.480 --> 0:17:21.000 voters in part are voting their pocketbook. It's perfectly understandable. 0:17:21.240 --> 0:17:23.440 But when it comes to a Trump administration, one of 0:17:23.520 --> 0:17:27.200 the differences potentially with the Bide administration is taxes, the excise, 0:17:27.200 --> 0:17:30.040 which is taxation, and it's closely I think related to 0:17:30.080 --> 0:17:32.840 a concern that some people express that just the Biden administration, 0:17:33.440 --> 0:17:36.480 for whatever reason, has gotten the government just involved in 0:17:36.520 --> 0:17:39.320 a lot more of business and that that's not in 0:17:39.359 --> 0:17:40.280 the long term healthy. 0:17:40.359 --> 0:17:44.200 What do you make of that, well, I think attractiveness 0:17:44.640 --> 0:17:49.200 of generally Republican policies in terms of a little, you know, 0:17:49.560 --> 0:17:52.680 somewhere between a little and a lot less regulation, I'm 0:17:52.720 --> 0:17:56.439 not negative on that, to be very honest. I think 0:17:57.359 --> 0:18:03.720 the most critical thing for narrowing the economic gap in 0:18:03.760 --> 0:18:11.320 this country is economic growth and regulation. Sometimes over regulation 0:18:11.480 --> 0:18:16.920 can certainly constrain economic growth. So I think there are 0:18:17.040 --> 0:18:23.840 elements of what would be considered traditional Republican policy that 0:18:23.920 --> 0:18:29.520 I think are very supportive of economic growth and helping 0:18:29.560 --> 0:18:33.280 those who are in need in our society. Tax policy, 0:18:34.320 --> 0:18:39.480 I think two things are really important. One is the 0:18:39.520 --> 0:18:44.120 share of our GDP that goes to federal taxes. Today 0:18:44.359 --> 0:18:48.840 it's around sixteen percent. That's down from about nineteen percent. 0:18:49.680 --> 0:18:53.280 We're not paying for the government that we want and 0:18:53.320 --> 0:18:58.520 that's a long term, non sustainable situation. So that has 0:18:58.600 --> 0:19:01.680 to be corrected one way or other. And the second 0:19:01.760 --> 0:19:06.120 thing is, I think you know, the tax policy has 0:19:06.720 --> 0:19:10.400 been significantly responsible for the widening in the wealth gap 0:19:10.440 --> 0:19:13.639 in this country. I'm one of these very rare people 0:19:13.640 --> 0:19:17.600 in finance who believes that capital gains and dividends should 0:19:17.600 --> 0:19:21.480 be taxed like ordinary income rather than at half the rate, 0:19:22.520 --> 0:19:27.040 because there's no reason on the planet that when I 0:19:27.160 --> 0:19:31.240 make a private equity investment the tax rate should be 0:19:31.359 --> 0:19:36.200 less than somebody who's making a couple hundred thousand dollars 0:19:36.240 --> 0:19:40.880 a year and working forty fifty sixty seventy hours a week. 0:19:41.040 --> 0:19:43.840 I'm a minority. I probably even am a minority in 0:19:43.880 --> 0:19:48.159 my own party in that regard. But look, I think 0:19:48.480 --> 0:19:56.000 if you look back over centuries and centuries, great societies 0:19:56.160 --> 0:20:02.600 failed because the have had too much relative to the 0:20:02.640 --> 0:20:05.440 have nots, and that's not a healthy thing for America 0:20:05.640 --> 0:20:06.200 in my view. 0:20:06.800 --> 0:20:08.720 Okay, well, thank you so very much. It's really great 0:20:08.800 --> 0:20:13.080 Davy with us. That's Ralph Shlstein of Evercore. India completed 0:20:13.119 --> 0:20:15.920 its national elections this week and to the surprise of many, 0:20:16.040 --> 0:20:19.200 President Modi did not receive the overwhelming majority that had 0:20:19.200 --> 0:20:21.840 been expected. For an early sense of what this may 0:20:21.920 --> 0:20:25.000 mean for the Indian economy and for investors, welcome now 0:20:25.119 --> 0:20:27.840 rogarram Rogen. He is the former governor of the Reserve 0:20:27.880 --> 0:20:30.520 Bank of India. Mister Rogin is now professor of finance 0:20:30.640 --> 0:20:32.880 at Chicago's Boost School. So, professor, thank you so much 0:20:32.880 --> 0:20:35.919 for joining us. I know it's early going, but obviously 0:20:36.000 --> 0:20:39.760 Premiseermody was known for his economic reforms, his economic projects. 0:20:40.119 --> 0:20:42.520 What do you think is made of those enlighted this 0:20:42.760 --> 0:20:43.600 narrow victory. 0:20:44.080 --> 0:20:47.919 Well, first, he doesn't have a majority anymore with his party, 0:20:48.119 --> 0:20:51.119 so he needs coalition partners, which means he needs to 0:20:51.160 --> 0:20:55.040 develop more consensus as he goes along. I think that's 0:20:55.040 --> 0:20:59.399 good news actually, because part of what was going on 0:20:59.520 --> 0:21:02.359 with this guy government was it had a lot of 0:21:02.400 --> 0:21:05.840 reforms in its first term, but the second term has 0:21:05.880 --> 0:21:09.040 been more focused on the social agenda of the government. 0:21:09.640 --> 0:21:14.240 Sometimes the majority in agenda, while the few attempts at 0:21:14.280 --> 0:21:19.440 economic reforms, including the change in agricultural laws, were done 0:21:19.520 --> 0:21:24.480 without developing a broad consensus and essentially were withdrawn after 0:21:24.560 --> 0:21:28.320 tremendous pushback by the farmers. So this may actually mean 0:21:28.480 --> 0:21:32.480 that the reforms that are proposed going forward have more 0:21:32.600 --> 0:21:34.840 consensus and therefore more sticking power. 0:21:35.720 --> 0:21:38.240 Did the reforms in your opinion? Are they likely to 0:21:38.280 --> 0:21:40.960 focus on some of the lower income families, because the 0:21:41.000 --> 0:21:44.080 reports at least of the politics of this election were 0:21:44.119 --> 0:21:46.960 that many of the lower income voters did not back 0:21:47.119 --> 0:21:47.800 mister motive. 0:21:48.160 --> 0:21:48.360 Yeah. 0:21:48.440 --> 0:21:51.960 I think a big problem which the government hadn't paid 0:21:52.080 --> 0:21:57.080 enough attention to was growing levels of unemployment, especially amongst 0:21:57.240 --> 0:22:02.520 educated youth, a growing sense of insecureity amongst poorer households. 0:22:02.600 --> 0:22:08.200 The small and medium enterprises were also suffering, so essentially 0:22:08.640 --> 0:22:12.000 the government was looking at the big you know, capital 0:22:12.000 --> 0:22:16.000 intensive enterprises which comprise much of the stock market. No 0:22:16.119 --> 0:22:19.119 wonder the stock market took fright after the early election 0:22:19.240 --> 0:22:21.760 results has come back a little bit, But really the 0:22:21.840 --> 0:22:25.199 government has to pay more attention to these groups and 0:22:25.240 --> 0:22:29.119 it actually may help even enhance growth over the short 0:22:29.119 --> 0:22:32.920 to medium term because consumption hasn't been strong. As these 0:22:32.960 --> 0:22:36.600 households feel anxious, you know, a revival in consumption could 0:22:36.760 --> 0:22:38.840 help the economic grow faster. 0:22:39.440 --> 0:22:41.040 One of the things that investors have paid attention to 0:22:41.160 --> 0:22:44.720 is inflation in India, which is still has inflation, but 0:22:44.760 --> 0:22:46.520 it's more out of control than it has been in 0:22:46.560 --> 0:22:49.320 the past. Is there are risk trying to address some 0:22:49.400 --> 0:22:51.160 of the needs from the voters who did that well 0:22:51.160 --> 0:22:53.600 for mister Bildy, that you actually have more physical stimulus 0:22:53.600 --> 0:22:56.240 and you actually have more problems with inflation going forward. 0:22:56.480 --> 0:23:00.720 Well, one of the sort of hallmarks of the Modi 0:23:00.800 --> 0:23:05.760 administration has been fiscal restraint, and I don't see why 0:23:05.760 --> 0:23:09.720 they should suddenly abandon that. Yes, there needs to be 0:23:09.760 --> 0:23:14.240 a repurposing of resources. As you know in a recent book, 0:23:14.840 --> 0:23:18.359 Breaking the Mold, I argue that you know, we need 0:23:18.480 --> 0:23:23.359 more jobs in areas like services, and that requires killing 0:23:23.400 --> 0:23:27.879 the workforce. That requires some redeployment of resources away from, 0:23:27.920 --> 0:23:32.359 for example, massive subsidies to manufacturing, to actually investing in 0:23:32.440 --> 0:23:36.400 colleges and schools in skilling programs. But I think this 0:23:36.760 --> 0:23:39.800 is something that can be done without breaking the budget. Yes, 0:23:39.920 --> 0:23:43.520 there will be some more fiscal spending given the nature 0:23:43.760 --> 0:23:48.040 of the verdict, but I think it will help, you know, 0:23:48.200 --> 0:23:52.520 solidify the economy and actually remove household anxiety, which I 0:23:52.520 --> 0:23:53.480 think would be a big win. 0:23:53.800 --> 0:23:55.439 What do you think this election may mean for the 0:23:55.440 --> 0:24:01.040 relationship with the central government and the individual states? Understand it? In India, 0:24:01.119 --> 0:24:03.040 the states have a fair amount of power. The Prime 0:24:03.040 --> 0:24:05.560 Minister can't do certain things without this before the states. 0:24:05.800 --> 0:24:07.639 Is that going to shift now because mister Modi has 0:24:07.640 --> 0:24:09.520 perceived its being somewhat less powerful. 0:24:09.640 --> 0:24:13.280 It should, but I think in the right direction. One 0:24:13.320 --> 0:24:17.440