1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,800 --> 00:00:23,840 Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:29,720 Speaker 1: and of course, on the Bloomberg terminal. We welcome you 6 00:00:30,080 --> 00:00:34,160 Speaker 1: with Shannally bask in a conversation with Goldben Sachs Chief 7 00:00:34,240 --> 00:00:37,880 Speaker 1: executive Officer David Solomon. We note that the gentleman from 8 00:00:37,880 --> 00:00:42,640 Speaker 1: Hamilton College applied to Goldben Sacks a few years ago Chinali, 9 00:00:43,440 --> 00:00:47,360 Speaker 1: and was rejected. That rejected was swept aside over the years, 10 00:00:47,640 --> 00:00:51,480 Speaker 1: and the investment banker replacing Lloyd Blank find about four 11 00:00:51,560 --> 00:00:55,680 Speaker 1: years ago leads Goldben Sacks forward into two thousand twenty 12 00:00:55,680 --> 00:00:59,360 Speaker 1: three at their conference are Chanali Bassk, Tom, thank you 13 00:00:59,520 --> 00:01:02,080 Speaker 1: so much for your time, and David, thank you for 14 00:01:02,200 --> 00:01:04,720 Speaker 1: joining us. You know you have this conference here, you're 15 00:01:04,840 --> 00:01:07,399 Speaker 1: entering your fifth year CEO. You're in such a different 16 00:01:07,400 --> 00:01:09,479 Speaker 1: place than you were even six months ago. Your stock 17 00:01:09,520 --> 00:01:11,480 Speaker 1: is actually holding up better than every single one of 18 00:01:11,520 --> 00:01:14,520 Speaker 1: your rivals. But the reality too is here that everyone 19 00:01:14,640 --> 00:01:17,120 Speaker 1: is preparing for what could be a mild or even 20 00:01:17,160 --> 00:01:20,560 Speaker 1: deeper recession. As the CEO of Goldman Sachs, how do 21 00:01:20,600 --> 00:01:23,160 Speaker 1: you prepare your bank for that? Well, first of all, 22 00:01:23,160 --> 00:01:24,880 Speaker 1: thank you for having me, and I'm delighted to be 23 00:01:24,920 --> 00:01:26,600 Speaker 1: here with you, and I appreciate your being at our 24 00:01:26,760 --> 00:01:29,640 Speaker 1: financial services conference. This is a thirty three year We've 25 00:01:29,680 --> 00:01:31,399 Speaker 1: got a terrific group of clients here and it's a 26 00:01:31,400 --> 00:01:33,480 Speaker 1: great time to kind of reflect on our industry and 27 00:01:33,520 --> 00:01:36,360 Speaker 1: really look at our industry going forward. I think you've 28 00:01:36,360 --> 00:01:39,160 Speaker 1: framed it just just correctly. We're at a very uncertain time. 29 00:01:39,760 --> 00:01:43,040 Speaker 1: Uncertain time given we're changing monetary and economic conditions very 30 00:01:43,120 --> 00:01:46,119 Speaker 1: very quickly, and that's certainly having an impact of slowing 31 00:01:46,120 --> 00:01:48,560 Speaker 1: down economic activity. And so if you're running a big 32 00:01:48,560 --> 00:01:52,760 Speaker 1: financial services firm, I think you have to assume that 33 00:01:52,920 --> 00:01:55,120 Speaker 1: we have some bumpy times ahead and you have to 34 00:01:55,120 --> 00:01:57,560 Speaker 1: be a little bit more cautious with your financial resources, 35 00:01:57,880 --> 00:02:00,440 Speaker 1: with your sizing and the footprint of the organization. I 36 00:02:00,440 --> 00:02:02,680 Speaker 1: think you have to expect that activity levels are going 37 00:02:02,720 --> 00:02:05,840 Speaker 1: to be more constrained in a tougher economic environment. So 38 00:02:06,200 --> 00:02:09,040 Speaker 1: we have businesses that are very very correlated to economic 39 00:02:09,080 --> 00:02:12,160 Speaker 1: growth in the world, and we're predicting economic growth will slow. 40 00:02:12,200 --> 00:02:15,000 Speaker 1: Our Our economists predict one point nine percent economic growth 41 00:02:15,000 --> 00:02:19,320 Speaker 1: around the world uhe, which is obviously slowing growth. And 42 00:02:19,360 --> 00:02:23,000 Speaker 1: the big question is as central banks tighten monetary conditions 43 00:02:23,000 --> 00:02:25,600 Speaker 1: and try to control inflation, can they do that in 44 00:02:25,720 --> 00:02:28,520 Speaker 1: or constrate orchestrate some sort of a soft landing. And I, 45 00:02:28,600 --> 00:02:30,160 Speaker 1: you know, I think that's still uncertain. I think there's 46 00:02:30,160 --> 00:02:32,560 Speaker 1: a possibility of that, but I certainly think we could 47 00:02:32,560 --> 00:02:34,880 Speaker 1: see our session in also, And so I think you've 48 00:02:34,880 --> 00:02:38,040 Speaker 1: got to be cautious and prepare. How then do you 49 00:02:38,080 --> 00:02:41,959 Speaker 1: prepare your staff around all of this. It's December, stand 50 00:02:42,000 --> 00:02:43,880 Speaker 1: of the year. People are worried about jobs, people are 51 00:02:43,880 --> 00:02:46,959 Speaker 1: thinking about jobs, are thinking about pay as well. It's 52 00:02:46,960 --> 00:02:50,880 Speaker 1: bonus season coming up. We've reported that you are even 53 00:02:50,919 --> 00:02:54,920 Speaker 1: thinking about having lower bonuses at businesses that will have 54 00:02:55,080 --> 00:02:58,200 Speaker 1: rising revenue this year. How are you thinking about this? 55 00:02:58,240 --> 00:03:00,880 Speaker 1: Bring us inside your decision making process us and what 56 00:03:00,960 --> 00:03:04,440 Speaker 1: you're telling your staff right now? Well, we we operate 57 00:03:04,480 --> 00:03:07,480 Speaker 1: a business for every single year, UM, we have to 58 00:03:07,480 --> 00:03:10,120 Speaker 1: pay our most important asset, which is our people. It 59 00:03:10,160 --> 00:03:13,320 Speaker 1: shouldn't be surprising to people watching the performance of the 60 00:03:13,360 --> 00:03:17,079 Speaker 1: business this year. That one was an exceptional year. It 61 00:03:17,200 --> 00:03:19,600 Speaker 1: was a record year for the firm, was the highest 62 00:03:19,639 --> 00:03:22,880 Speaker 1: revenue year ever for the firm. Twenty two is a 63 00:03:22,880 --> 00:03:26,480 Speaker 1: different year, and so naturally compensation will be lower. We're 64 00:03:26,520 --> 00:03:28,920 Speaker 1: still early in the process of making those decisions. But 65 00:03:29,000 --> 00:03:31,600 Speaker 1: just like every year, we pay for performance, and we 66 00:03:31,639 --> 00:03:34,360 Speaker 1: will pay people based on the overall performance of the firm, 67 00:03:34,360 --> 00:03:37,480 Speaker 1: and especially for our senior people. Um. You know, we 68 00:03:37,480 --> 00:03:39,920 Speaker 1: we consider the overall performance of the firm as we 69 00:03:39,960 --> 00:03:43,160 Speaker 1: go through our compensation process. How do you balance also, 70 00:03:43,240 --> 00:03:45,760 Speaker 1: you know, this year you've been we introduced the you know, 71 00:03:45,800 --> 00:03:48,920 Speaker 1: the natural calling of head count. The bonus discussion is 72 00:03:48,920 --> 00:03:51,520 Speaker 1: not just here, it's obviously everywhere on Wall Street. How 73 00:03:51,560 --> 00:03:53,200 Speaker 1: do you balance that with kind of the story that 74 00:03:53,200 --> 00:03:55,360 Speaker 1: we saw just a year ago, this talent war, that 75 00:03:55,400 --> 00:03:58,960 Speaker 1: we saw this booming market for people, and what's happening 76 00:03:59,000 --> 00:04:01,240 Speaker 1: this year going into next stend a tougher time. How 77 00:04:01,240 --> 00:04:05,480 Speaker 1: do you balance retention as well as those more difficult conversations. Well, 78 00:04:05,520 --> 00:04:08,080 Speaker 1: we take a very long term view with with everything 79 00:04:08,120 --> 00:04:10,920 Speaker 1: we do, and you have to adjust to the environment 80 00:04:10,920 --> 00:04:13,520 Speaker 1: and so you make changes around the margin. Um. But 81 00:04:13,600 --> 00:04:15,200 Speaker 1: at the same point, you know, you take a long 82 00:04:15,320 --> 00:04:17,599 Speaker 1: term view, and you try to think about your business 83 00:04:17,680 --> 00:04:20,320 Speaker 1: over time. We're extremely focused on serving our clients and 84 00:04:20,360 --> 00:04:23,520 Speaker 1: our core businesses. Our clients have been active, and so 85 00:04:23,560 --> 00:04:26,120 Speaker 1: it's important for us to strike the right balance in 86 00:04:26,560 --> 00:04:30,480 Speaker 1: protecting our franchise and making sure that our people are 87 00:04:30,480 --> 00:04:32,960 Speaker 1: paid for performance. On the other hand, where in an 88 00:04:33,040 --> 00:04:36,400 Speaker 1: environment that's a tougher environment, broadly performance is not as strong, 89 00:04:36,440 --> 00:04:38,040 Speaker 1: and so we balanced that. But we take a long 90 00:04:38,120 --> 00:04:40,680 Speaker 1: term view. Our people take a long term view. But 91 00:04:40,720 --> 00:04:43,080 Speaker 1: I just made some comments in the in the Financial 92 00:04:43,120 --> 00:04:46,200 Speaker 1: Services Forum where I said that I'm surprised by how 93 00:04:46,240 --> 00:04:48,520 Speaker 1: resilient the competition for talent is. And by the way, 94 00:04:48,520 --> 00:04:50,560 Speaker 1: this is just not in our industry. You're seeing across 95 00:04:50,839 --> 00:04:53,560 Speaker 1: the United States and around the world that labor is 96 00:04:53,600 --> 00:04:56,320 Speaker 1: still relatively tight. Talent war is not over talent. Well, 97 00:04:56,440 --> 00:04:59,960 Speaker 1: the talent war is is is um. I think there's 98 00:05:00,000 --> 00:05:03,560 Speaker 1: and headwinds given we're changing economic conditions, but the competition 99 00:05:03,600 --> 00:05:05,520 Speaker 1: for talent is still very very strong. Now. How that 100 00:05:05,560 --> 00:05:09,080 Speaker 1: evolves in is unknown. Certainly, if we have a slower 101 00:05:09,080 --> 00:05:12,279 Speaker 1: economic environment, it will have an effect. You can see 102 00:05:12,320 --> 00:05:15,560 Speaker 1: across all industries, not just tech, that people are thinking 103 00:05:15,560 --> 00:05:18,640 Speaker 1: about their head count size, and they're making let's say, 104 00:05:18,640 --> 00:05:21,520 Speaker 1: pruning cuts or adjustments just because they feel more margin 105 00:05:21,600 --> 00:05:24,400 Speaker 1: pressure coming. So financial services is not immune to that, 106 00:05:24,440 --> 00:05:26,120 Speaker 1: and I think we all have to watch the environment 107 00:05:26,160 --> 00:05:29,160 Speaker 1: and make the right long term decisions for our organizations 108 00:05:29,160 --> 00:05:31,520 Speaker 1: and for our shareholders, whether it's tight counter otherwise. As 109 00:05:31,560 --> 00:05:33,600 Speaker 1: you think about this kind of tough for economic environment 110 00:05:33,680 --> 00:05:35,640 Speaker 1: on certainty, do you think Goldman is going to have 111 00:05:35,760 --> 00:05:38,799 Speaker 1: to pursue another round of cost cuts in any fashion? 112 00:05:38,960 --> 00:05:41,000 Speaker 1: And if that were to be the case, where could 113 00:05:41,040 --> 00:05:43,960 Speaker 1: you see them? Well, we we always look at the environment, 114 00:05:43,960 --> 00:05:45,920 Speaker 1: and we always size the firm to the environment. If 115 00:05:45,920 --> 00:05:49,040 Speaker 1: the environment gets tougher, we will obviously make decisions to 116 00:05:49,080 --> 00:05:51,640 Speaker 1: size the footprint of the firm appropriately. That can come 117 00:05:51,680 --> 00:05:54,599 Speaker 1: from slowing down hiring, which we've already done considerably in 118 00:05:54,640 --> 00:05:56,600 Speaker 1: the second half of the year um and that might 119 00:05:56,720 --> 00:06:00,240 Speaker 1: also come from pruning in certain areas. So switching years 120 00:06:00,240 --> 00:06:03,000 Speaker 1: a little bit here kind of broader financial services picture 121 00:06:03,000 --> 00:06:07,600 Speaker 1: and talent war and whatnot. Last year fintech crypto firms booming. 122 00:06:08,040 --> 00:06:11,080 Speaker 1: I'm curious whether the collapse of f t X is 123 00:06:11,160 --> 00:06:14,440 Speaker 1: making you think in any fashion differently about crypto as 124 00:06:14,480 --> 00:06:19,120 Speaker 1: an industry and the ability to potentially invest in some firms, 125 00:06:19,160 --> 00:06:22,680 Speaker 1: maybe buy some assets here. Well, I've I've been very 126 00:06:22,680 --> 00:06:25,120 Speaker 1: clear on my view around this space. I think the 127 00:06:25,160 --> 00:06:29,159 Speaker 1: underlying technology of blockchain is extremely interesting. I think they're 128 00:06:29,240 --> 00:06:33,760 Speaker 1: enormous opportunities for blockchain to play a role in evolving 129 00:06:34,240 --> 00:06:37,440 Speaker 1: the infrastructure of our financial system. I think there's an 130 00:06:37,520 --> 00:06:40,160 Speaker 1: enormous amount of friction and the way money moves. I 131 00:06:40,200 --> 00:06:43,040 Speaker 1: think there are a variety of ways that this technology 132 00:06:43,080 --> 00:06:46,160 Speaker 1: can be used to allow more participation and inclusive participation 133 00:06:46,640 --> 00:06:49,280 Speaker 1: in financial activities. I think it can break down barriers. 134 00:06:49,600 --> 00:06:52,840 Speaker 1: That has nothing to do with bitcoin or a cryptocurrency. 135 00:06:52,920 --> 00:06:55,480 Speaker 1: I don't I don't really, you know, offer a view 136 00:06:55,480 --> 00:06:58,760 Speaker 1: on on cryptocurrencies. I think they're highly speculative. They may 137 00:06:58,800 --> 00:07:00,880 Speaker 1: hold value, they may not. But I'm interested in the 138 00:07:00,920 --> 00:07:04,440 Speaker 1: underlying technology and how the underlying technology can help serve 139 00:07:04,480 --> 00:07:07,360 Speaker 1: our clients, our customers, and really take friction out of 140 00:07:07,360 --> 00:07:10,120 Speaker 1: the financial system and also help make it more accessible. 141 00:07:10,240 --> 00:07:12,400 Speaker 1: But the reality too is kind of Goldman was pretty 142 00:07:12,400 --> 00:07:14,800 Speaker 1: early in the market here when it came to futures trading, 143 00:07:14,880 --> 00:07:17,080 Speaker 1: when it came to the industry at large. Do you 144 00:07:17,120 --> 00:07:19,080 Speaker 1: think that there's a chance to lean in or is 145 00:07:19,120 --> 00:07:22,040 Speaker 1: there still too many regulatory risks? Were we when when 146 00:07:22,040 --> 00:07:26,320 Speaker 1: you say we're early, we've done a very narrow um 147 00:07:26,560 --> 00:07:30,440 Speaker 1: selection of things around this broad area because from a 148 00:07:30,480 --> 00:07:34,160 Speaker 1: regulatory perspective, we're extremely limited in terms of our participation 149 00:07:34,680 --> 00:07:37,440 Speaker 1: UM and I don't I don't see that changing UM 150 00:07:37,440 --> 00:07:39,680 Speaker 1: in the immediate future. And so we want to be 151 00:07:39,720 --> 00:07:42,360 Speaker 1: available to give our client's advice and insight and how 152 00:07:42,360 --> 00:07:45,240 Speaker 1: we think about some of these things, but our activities 153 00:07:45,280 --> 00:07:48,040 Speaker 1: are extremely limited in the space. I want to take 154 00:07:48,040 --> 00:07:50,000 Speaker 1: a moment to realize it's about to be a big moment. 155 00:07:50,040 --> 00:07:52,480 Speaker 1: You're five, that you're becoming CEO here, that you've been 156 00:07:52,560 --> 00:07:55,040 Speaker 1: running this firm for is there anything you didn't do 157 00:07:55,080 --> 00:07:57,000 Speaker 1: in the first five years that will kind of be 158 00:07:57,000 --> 00:07:58,800 Speaker 1: at the top of your list here to execute as 159 00:07:58,840 --> 00:08:01,560 Speaker 1: you enter this kind of new things. Well, we laid 160 00:08:01,640 --> 00:08:03,360 Speaker 1: out and I know you were there because you've covered 161 00:08:03,360 --> 00:08:05,560 Speaker 1: it as a reporter. In our first investor day three 162 00:08:05,640 --> 00:08:09,040 Speaker 1: years ago, a desire to grow the firm, to diversify 163 00:08:09,080 --> 00:08:12,080 Speaker 1: its revenue base and make it more durable, to operate 164 00:08:12,080 --> 00:08:14,960 Speaker 1: the firm more efficiently, and in particular, we focused on 165 00:08:14,960 --> 00:08:18,280 Speaker 1: the opportunities for us and asset management wealth management, and 166 00:08:18,280 --> 00:08:21,600 Speaker 1: on our recent reorganization, we've now got those businesses together. 167 00:08:21,640 --> 00:08:24,240 Speaker 1: We run the fifth largest active asset manager in the world. 168 00:08:24,560 --> 00:08:26,440 Speaker 1: We have a jewel of a wealth management business, and 169 00:08:26,440 --> 00:08:29,240 Speaker 1: we see real opportunity in the coming years to continue 170 00:08:29,240 --> 00:08:31,240 Speaker 1: to grow that and so we're on a journey to 171 00:08:31,320 --> 00:08:34,040 Speaker 1: diversify the firm. I think the thing that we're most 172 00:08:34,080 --> 00:08:36,520 Speaker 1: proud of over the course of the first few years, 173 00:08:36,520 --> 00:08:38,440 Speaker 1: and I think our team has done an extraordinary job, 174 00:08:39,040 --> 00:08:41,199 Speaker 1: is at the time of that investor day, there was 175 00:08:41,240 --> 00:08:46,000 Speaker 1: a lot of skepticism about our markets franchise, particular Thick franchise, 176 00:08:46,040 --> 00:08:49,000 Speaker 1: the returns we could generate, our client position in that business, 177 00:08:49,440 --> 00:08:51,880 Speaker 1: and we've really strengthened that business. That is a leading 178 00:08:51,920 --> 00:08:55,720 Speaker 1: franchise that's performing very well. We've taken over three basis 179 00:08:55,720 --> 00:08:58,000 Speaker 1: points of market share in that franchise and that's really 180 00:08:58,000 --> 00:09:00,120 Speaker 1: made the firm. It's our biggest business. It's made the 181 00:09:00,160 --> 00:09:03,240 Speaker 1: firm much stronger. How do we really focused. We've really 182 00:09:03,240 --> 00:09:05,240 Speaker 1: focused I'm sorry to it to interrupt you for a second, smile. 183 00:09:05,280 --> 00:09:09,520 Speaker 1: We've really focused on the client experience and making sure 184 00:09:09,559 --> 00:09:11,920 Speaker 1: that the way we serve our clients is really really 185 00:09:11,920 --> 00:09:14,760 Speaker 1: differentiated and we're getting great feedback from from clients on 186 00:09:14,800 --> 00:09:16,800 Speaker 1: that and that strengthening in our business. So we're on 187 00:09:16,840 --> 00:09:20,080 Speaker 1: this journey to diversify the business, to strengthen the business. 188 00:09:20,120 --> 00:09:21,559 Speaker 1: I think we've made a lot of progress, but we 189 00:09:21,600 --> 00:09:23,320 Speaker 1: have a lot of work to do and m and 190 00:09:23,360 --> 00:09:26,520 Speaker 1: we continue to focus on on growing and strengthening the firm. 191 00:09:26,600 --> 00:09:28,480 Speaker 1: So you're leaning into so much of the core of 192 00:09:28,480 --> 00:09:31,600 Speaker 1: Goldman Sacks. A couple of months ago you announced this 193 00:09:31,720 --> 00:09:35,760 Speaker 1: general realignment, let's say, of Marcus and the consumer strategy. 194 00:09:35,840 --> 00:09:38,319 Speaker 1: Do you expect more big changes to be announced a 195 00:09:38,400 --> 00:09:41,880 Speaker 1: head as you have your next big investor day coming up. 196 00:09:42,440 --> 00:09:44,719 Speaker 1: Do you think that you'll have a target here? Do 197 00:09:44,760 --> 00:09:47,720 Speaker 1: you have any sense of when it can become profitable? Well, 198 00:09:47,760 --> 00:09:51,400 Speaker 1: we we made a very purposeful decision in this reorganization, 199 00:09:51,400 --> 00:09:55,240 Speaker 1: which was a significant decision to organize the business into 200 00:09:55,800 --> 00:09:58,640 Speaker 1: three units. Are asset wealth management business, which we were 201 00:09:58,679 --> 00:10:01,920 Speaker 1: just discussing, our banking markets business, which I was highlighting 202 00:10:01,960 --> 00:10:04,440 Speaker 1: the strength of the markets franchise, and obviously our investment 203 00:10:04,480 --> 00:10:07,760 Speaker 1: banking franchise is a is a leading franchise. And we 204 00:10:07,800 --> 00:10:11,720 Speaker 1: took our platform businesses transaction banking, and our consumer platforms, 205 00:10:11,720 --> 00:10:15,520 Speaker 1: and we put them together. We narrowed our focus purposefully 206 00:10:16,000 --> 00:10:18,200 Speaker 1: on our consumer business and tried to align it with 207 00:10:18,320 --> 00:10:21,079 Speaker 1: things that we think really play to our strength, whether 208 00:10:21,120 --> 00:10:25,640 Speaker 1: it's the technology, development of platforms, our relationship to enterprise businesses, 209 00:10:26,080 --> 00:10:28,800 Speaker 1: and also in alignment with our wealth business. With that 210 00:10:28,920 --> 00:10:33,720 Speaker 1: narrowed focus, we're gonna be very very attentive to making 211 00:10:33,720 --> 00:10:36,480 Speaker 1: sure we scale those platforms and they're profitable as quickly 212 00:10:36,559 --> 00:10:39,800 Speaker 1: as possible. David Year five. You look around um all 213 00:10:39,920 --> 00:10:42,560 Speaker 1: corporate America, not just Wall Street really, and you see 214 00:10:42,600 --> 00:10:45,800 Speaker 1: so many companies as they think about succession planning. The 215 00:10:45,840 --> 00:10:49,240 Speaker 1: CEOs have had to come back on multiple occasions. You 216 00:10:49,280 --> 00:10:51,880 Speaker 1: see it at Disney, You've seen it at Carlisle when 217 00:10:51,880 --> 00:10:53,680 Speaker 1: it comes to Golden Sacks. How are you thinking about 218 00:10:53,679 --> 00:10:56,200 Speaker 1: succession planning now as you kind of move into this 219 00:10:56,320 --> 00:10:58,520 Speaker 1: next part of your art. I am, I am, I 220 00:10:58,559 --> 00:11:01,760 Speaker 1: am in your far. I've I've got a great team. 221 00:11:01,840 --> 00:11:04,319 Speaker 1: We're working on all the things we were just talking about, 222 00:11:04,360 --> 00:11:06,520 Speaker 1: and that's what I'm focused on. And there'll be a 223 00:11:06,640 --> 00:11:09,240 Speaker 1: you know, there'll be a time when it will be uh, 224 00:11:09,320 --> 00:11:12,200 Speaker 1: someone else's turn to Steward this great institution that's been 225 00:11:12,200 --> 00:11:15,439 Speaker 1: around for hundred and fifty four years, and at that time, 226 00:11:15,600 --> 00:11:17,680 Speaker 1: you know we'll make the will make the appropriate decisions. 227 00:11:17,679 --> 00:11:20,319 Speaker 1: But for right now, this leadership team is really focused 228 00:11:20,640 --> 00:11:22,760 Speaker 1: on continuing to grow and strength and golden stacks, and 229 00:11:22,800 --> 00:11:24,160 Speaker 1: we feel like we've made a lot of progress, but 230 00:11:24,200 --> 00:11:25,880 Speaker 1: we also feel like there's a lot that we can 231 00:11:25,920 --> 00:11:28,520 Speaker 1: do and we're excited to talk about somewhere that in February. 232 00:11:28,600 --> 00:11:30,920 Speaker 1: I'm looking forward to this investor day. Thank you so 233 00:11:31,000 --> 00:11:32,480 Speaker 1: much for taking time with us on a really big 234 00:11:32,559 --> 00:11:34,760 Speaker 1: day here at Goldman. You said thirty three year conference, 235 00:11:34,800 --> 00:11:36,839 Speaker 1: thirty three years of the conference. Yeah, thank you so much. 236 00:11:36,960 --> 00:11:39,960 Speaker 1: Thank you. It's nice to be with you. Shinali brilliant 237 00:11:40,080 --> 00:11:53,640 Speaker 1: as always. The latest from city term a slowdown to 238 00:11:53,679 --> 00:11:57,160 Speaker 1: a fifty basis point hike in December remains very likely, 239 00:11:57,280 --> 00:11:59,680 Speaker 1: but we should expect FED officials to guide towards higher 240 00:11:59,760 --> 00:12:02,000 Speaker 1: term rates and we maintain our call for another fifty 241 00:12:02,000 --> 00:12:04,959 Speaker 1: basis point high can February had a terminal range of 242 00:12:05,920 --> 00:12:09,200 Speaker 1: to five fifty. And here's the final line with asymmetric 243 00:12:09,280 --> 00:12:13,320 Speaker 1: upside risk, that's the bottom line, sam As City, and 244 00:12:13,360 --> 00:12:15,839 Speaker 1: that is a key determinant, and let us be clear 245 00:12:15,920 --> 00:12:18,320 Speaker 1: here at the end of the year in celebration that Andrew, 246 00:12:18,440 --> 00:12:20,559 Speaker 1: can we all agree Andrew Holland Horst and his team 247 00:12:21,120 --> 00:12:24,040 Speaker 1: the way out from City in Bank America I think 248 00:12:24,120 --> 00:12:26,240 Speaker 1: laughed at in spring of this year when they started 249 00:12:26,280 --> 00:12:29,240 Speaker 1: to talk about how Finns FED might push it. It's 250 00:12:29,240 --> 00:12:31,719 Speaker 1: turned out to be my my My basic take is 251 00:12:31,760 --> 00:12:35,120 Speaker 1: Deutsche Bank had the recession hallway early, and Holland Horst 252 00:12:35,120 --> 00:12:39,680 Speaker 1: had the interest rate vector just absolutely great. Now we 253 00:12:39,720 --> 00:12:42,200 Speaker 1: got an update. Now Mr holland Horst of UCLA joins 254 00:12:42,200 --> 00:12:45,640 Speaker 1: the chief US economist at City Group. Andrew, I'm gonna 255 00:12:45,679 --> 00:12:48,440 Speaker 1: cut to the chase. The fancy math, the ratio math 256 00:12:48,800 --> 00:12:53,000 Speaker 1: of the Bloomberg Financial Conditions Index is not good for Powell. 257 00:12:53,440 --> 00:12:57,400 Speaker 1: Goes against your thesis as well. We are accommodative. It's 258 00:12:57,440 --> 00:13:01,120 Speaker 1: in research notes this morning, Ben laydler over detro notes 259 00:13:01,559 --> 00:13:06,120 Speaker 1: off the Chicago Financial Conditions series as well. How much 260 00:13:06,160 --> 00:13:09,360 Speaker 1: are those measurements going against the chairman of the Fed. 261 00:13:10,480 --> 00:13:12,640 Speaker 1: I think you're right, Tom, it's going in the wrong direction, 262 00:13:12,760 --> 00:13:15,040 Speaker 1: the wrong direction from what share Powell would like to see. 263 00:13:15,320 --> 00:13:18,160 Speaker 1: I watched those conditions every morning, just like you. Just 264 00:13:18,280 --> 00:13:22,240 Speaker 1: like the viewers. And every morning I'm thinking, what is 265 00:13:22,320 --> 00:13:25,360 Speaker 1: Chair Powell thinking when he sees this. I think that's 266 00:13:25,360 --> 00:13:28,520 Speaker 1: true today. I think that was true after his comments 267 00:13:28,559 --> 00:13:32,520 Speaker 1: at the Brookings Institution a week ago, where I think 268 00:13:32,520 --> 00:13:35,640 Speaker 1: he was trying to send a hawkish message or a 269 00:13:35,679 --> 00:13:38,760 Speaker 1: neutral message, and the market took it as stubblished. So 270 00:13:38,880 --> 00:13:41,520 Speaker 1: it's just all more hawkish risk down the line if 271 00:13:41,520 --> 00:13:44,600 Speaker 1: we extend the ex access out. Let's say we do 272 00:13:44,840 --> 00:13:48,000 Speaker 1: that and we do move to a higher nominal rate, 273 00:13:48,280 --> 00:13:51,840 Speaker 1: even more advanced real rates as well. Does that give 274 00:13:51,880 --> 00:13:55,360 Speaker 1: our economy time to get used to a new higher 275 00:13:55,480 --> 00:13:59,280 Speaker 1: rate regime. I think the idea was slowing down is 276 00:13:59,320 --> 00:14:02,720 Speaker 1: it gives the FED a chance to really evaluate in 277 00:14:02,800 --> 00:14:06,240 Speaker 1: real time what has been the effect of raising interest 278 00:14:06,320 --> 00:14:09,120 Speaker 1: rates of tight ending financial conditions. We see that in 279 00:14:09,160 --> 00:14:11,400 Speaker 1: the housing sector. We see a housing sector that's going 280 00:14:11,440 --> 00:14:14,120 Speaker 1: in reverse, house prices that are coming down. That's where 281 00:14:14,160 --> 00:14:18,200 Speaker 1: interest rate policy is very pogent and very effective. The 282 00:14:18,240 --> 00:14:20,720 Speaker 1: issue that this Fed is facing is we have a 283 00:14:20,760 --> 00:14:23,440 Speaker 1: really tight labor market and they're trying to loosen that 284 00:14:23,560 --> 00:14:26,240 Speaker 1: labor market with a really blunt tool, which is interest 285 00:14:26,360 --> 00:14:30,280 Speaker 1: rate policy. Not clear that that's moved far enough yet 286 00:14:30,400 --> 00:14:33,040 Speaker 1: to see that loosening. Andrew, what are we missing? We 287 00:14:33,160 --> 00:14:35,240 Speaker 1: keep thinking that there's going to be a much more 288 00:14:35,280 --> 00:14:38,960 Speaker 1: sustained downturning, Yet the data keeps surprising. John was asking earlier, 289 00:14:39,280 --> 00:14:41,880 Speaker 1: is this economy speeding up for slowing down? We can't 290 00:14:41,960 --> 00:14:44,920 Speaker 1: tell based on some of the recent data. So what 291 00:14:45,200 --> 00:14:48,840 Speaker 1: explains these surprises that we keep getting. So you've seen 292 00:14:48,880 --> 00:14:50,760 Speaker 1: some areas of the economy slow down. We were talking 293 00:14:50,760 --> 00:14:53,760 Speaker 1: about housing, which is going in reverse. Good spending in 294 00:14:53,800 --> 00:14:57,600 Speaker 1: general has been a lot weaker, but really strong services spending. 295 00:14:57,680 --> 00:14:59,640 Speaker 1: And when we keep seeing that spending data that's coming 296 00:14:59,680 --> 00:15:03,280 Speaker 1: in wrong, we think back to all of the savings 297 00:15:03,280 --> 00:15:05,640 Speaker 1: that built up over the last couple of years that's 298 00:15:05,680 --> 00:15:08,360 Speaker 1: coming down. Now. The savings rate is historically low, but 299 00:15:08,400 --> 00:15:10,800 Speaker 1: it looks like there maybe even more of that excess 300 00:15:10,840 --> 00:15:13,800 Speaker 1: savings to work through. You look at credit card balances 301 00:15:13,800 --> 00:15:17,880 Speaker 1: which are rising. That can't continue forever, But remember consumers 302 00:15:18,040 --> 00:15:20,960 Speaker 1: were very under leveled coming into this year, and there's 303 00:15:20,960 --> 00:15:24,200 Speaker 1: a lot of room to grow credit on consumer balance sheets, 304 00:15:24,240 --> 00:15:27,160 Speaker 1: so that process is underway. All of that is stoking 305 00:15:27,560 --> 00:15:30,600 Speaker 1: continued demand, and as long as the demand is out there, 306 00:15:30,760 --> 00:15:32,680 Speaker 1: you're going to see firms that at the very least 307 00:15:32,680 --> 00:15:34,680 Speaker 1: want to hold onto their existing workers. These are hard 308 00:15:34,680 --> 00:15:37,360 Speaker 1: workers to hire. It's been a tight labor market, so again, 309 00:15:37,640 --> 00:15:40,920 Speaker 1: very very hard to loosen that labor market. Andrew, we're 310 00:15:40,920 --> 00:15:43,600 Speaker 1: hearing about white collar workers that are getting laid off first, 311 00:15:43,680 --> 00:15:45,760 Speaker 1: exactly to your point that the rank and file that 312 00:15:45,800 --> 00:15:49,000 Speaker 1: actually make things go on a tangible level are needed 313 00:15:49,040 --> 00:15:51,320 Speaker 1: and necessary. How much do you think that a soft 314 00:15:51,400 --> 00:15:53,520 Speaker 1: landing is pretty much off the table, despite the fact 315 00:15:53,560 --> 00:15:56,480 Speaker 1: that so many people are basically betting on that being 316 00:15:56,520 --> 00:15:59,360 Speaker 1: the outcome. I think we just need to be really 317 00:15:59,400 --> 00:16:02,440 Speaker 1: clear on this, Lisa, and it is an unfortunate reality 318 00:16:02,520 --> 00:16:05,440 Speaker 1: to have to acknowledge, But the likelihood of a soft 319 00:16:05,520 --> 00:16:08,640 Speaker 1: landing is quite low. Yes, it's possible. Yes, there's a 320 00:16:08,680 --> 00:16:10,960 Speaker 1: hopeful scenario where you can get a soft landing, and 321 00:16:11,080 --> 00:16:13,600 Speaker 1: everybody would like to see that, but we need to 322 00:16:13,640 --> 00:16:17,920 Speaker 1: be realistic the balance of the historical evidence, as well 323 00:16:17,960 --> 00:16:20,600 Speaker 1: as the fact that inflation is just running so high 324 00:16:20,600 --> 00:16:23,640 Speaker 1: and it's so difficult to bring down inflation from these levels. 325 00:16:24,040 --> 00:16:27,119 Speaker 1: I think if you acknowledge those facts, and you acknowledge 326 00:16:27,120 --> 00:16:29,400 Speaker 1: that we really do have a wage price spiral here, 327 00:16:29,440 --> 00:16:32,120 Speaker 1: I know that it's very unpopular to say that, but 328 00:16:32,200 --> 00:16:35,000 Speaker 1: there's no question wages are rising, prices are rising, there's 329 00:16:35,000 --> 00:16:37,520 Speaker 1: an expectation that they continue to rise. It's a self 330 00:16:37,560 --> 00:16:42,520 Speaker 1: reinforcing dynamic that is likely going to take a recession 331 00:16:42,800 --> 00:16:45,440 Speaker 1: to bring those inflationary forces back down. At what point 332 00:16:45,480 --> 00:16:47,840 Speaker 1: is a financial accident going to be the trigger to 333 00:16:47,920 --> 00:16:50,360 Speaker 1: some sort of more rapid decline rather than just sort 334 00:16:50,400 --> 00:16:51,880 Speaker 1: of waiting for kodoh, which is what a lot of 335 00:16:51,880 --> 00:16:54,560 Speaker 1: people seem to be doing, and then confirming their experience 336 00:16:54,800 --> 00:16:57,320 Speaker 1: or their expectation, rather for some sort of downturn and 337 00:16:57,360 --> 00:17:00,360 Speaker 1: specific data. I think that's where you're kind of balance 338 00:17:00,400 --> 00:17:02,800 Speaker 1: what's going on in financial markets and what's going on 339 00:17:02,880 --> 00:17:05,320 Speaker 1: in the real economy. So, like we were talking about 340 00:17:05,320 --> 00:17:08,400 Speaker 1: financial conditions tight and very aggressively now loosened from those 341 00:17:08,440 --> 00:17:12,119 Speaker 1: tighter levels, and we've seen the economy slow down in sectors, 342 00:17:12,119 --> 00:17:15,160 Speaker 1: but we haven't seen this broad slowing that's cool demand 343 00:17:15,480 --> 00:17:19,240 Speaker 1: and broad inflation down. So it could be the case 344 00:17:19,400 --> 00:17:23,159 Speaker 1: that financial conditions just continue to tighten further, need to 345 00:17:23,160 --> 00:17:26,000 Speaker 1: continue to tighten further from here, Then the risk that 346 00:17:26,280 --> 00:17:29,919 Speaker 1: there's a more significant breakdown in the financial sector becomes higher. 347 00:17:30,240 --> 00:17:32,760 Speaker 1: I would say that looking at the world today, look 348 00:17:32,800 --> 00:17:36,920 Speaker 1: at the US in particular today, pretty clean consumer balance sheet, 349 00:17:36,960 --> 00:17:39,520 Speaker 1: it's banks that are not over levered as well. All 350 00:17:39,520 --> 00:17:42,280 Speaker 1: of that makes us feel more comfortable about the ability 351 00:17:42,320 --> 00:17:45,040 Speaker 1: of the economy to withstand higher interest rates. But certainly 352 00:17:45,040 --> 00:17:47,640 Speaker 1: those risk rises you continue to find the financial poditions. 353 00:17:48,080 --> 00:17:50,119 Speaker 1: What what drives me nuts here, and maybe it's my 354 00:17:50,240 --> 00:17:53,040 Speaker 1: fossildom is well, do you see what's sounder? Cassidy said 355 00:17:53,080 --> 00:17:55,000 Speaker 1: to me yesterday. Do you want to repeat that for people? 356 00:17:55,000 --> 00:17:58,360 Speaker 1: We missed it? I think because I'm not saying it's 357 00:17:58,400 --> 00:18:02,359 Speaker 1: like if I go home Vett Bill screaming at me 358 00:18:02,400 --> 00:18:05,040 Speaker 1: on the Cassidy the Cassidy diet. We'll talk about that 359 00:18:05,320 --> 00:18:08,640 Speaker 1: in a minute. Andrew, older people like me know that 360 00:18:08,680 --> 00:18:12,800 Speaker 1: we somehow survived a five percent terminal rate. The ut 361 00:18:12,920 --> 00:18:16,119 Speaker 1: of America, including you think we're all gonna die on? 362 00:18:16,840 --> 00:18:19,720 Speaker 1: Can't we survive where we're going to with this city 363 00:18:19,720 --> 00:18:24,399 Speaker 1: group call? Well, there's a really important concept which I 364 00:18:24,440 --> 00:18:26,800 Speaker 1: know we talked about all the time, but it's important 365 00:18:26,800 --> 00:18:29,800 Speaker 1: to emphasize, which is the real interest rate, the nominal 366 00:18:29,840 --> 00:18:33,960 Speaker 1: interest rate minus inflation. And that's really what I think 367 00:18:34,240 --> 00:18:37,320 Speaker 1: fed officials are focusing on more here, and we just 368 00:18:37,400 --> 00:18:40,320 Speaker 1: saw on the wage data wage growth that's five percent 369 00:18:40,359 --> 00:18:43,280 Speaker 1: plus we've known for some time, and the price inflation data, 370 00:18:43,320 --> 00:18:45,880 Speaker 1: price inflation this five percent plus. So when you look 371 00:18:45,880 --> 00:18:48,199 Speaker 1: at that five percent interest rate and you're noting at 372 00:18:48,200 --> 00:18:51,640 Speaker 1: the top we were saying five percent policy rates, five 373 00:18:51,680 --> 00:18:55,160 Speaker 1: and a half percent policy rates with upside risk to that, 374 00:18:55,160 --> 00:18:57,240 Speaker 1: that's because just getting to five percent, we get that 375 00:18:57,280 --> 00:18:59,960 Speaker 1: real rate just back to zero. So if you think 376 00:19:00,040 --> 00:19:02,600 Speaker 1: that real interest rates need to move positive, then the 377 00:19:02,640 --> 00:19:05,720 Speaker 1: Fed would need to move potentially beyond that level. Um 378 00:19:05,720 --> 00:19:08,320 Speaker 1: And to your point, talk in an economy that's running 379 00:19:08,400 --> 00:19:13,040 Speaker 1: high inflation, five percent plus interest rates should not be surprising. Andrey, 380 00:19:13,160 --> 00:19:15,000 Speaker 1: thanks for being with us great core this year, No 381 00:19:15,000 --> 00:19:17,440 Speaker 1: doubt we're talk before year end. Andrew Holland, host there 382 00:19:17,760 --> 00:19:25,040 Speaker 1: of city joining us now, Amy Wuve Silverman. According to 383 00:19:25,040 --> 00:19:28,160 Speaker 1: derivative strategist at RBC Capital Markets, Amy, can we begin 384 00:19:28,200 --> 00:19:30,679 Speaker 1: with a consensus view for next year. Here's a quote 385 00:19:30,680 --> 00:19:34,080 Speaker 1: for you. Evidence of slowing core inflation, peaking official rates, 386 00:19:34,080 --> 00:19:36,320 Speaker 1: and signs of economic recovery should pave the way for 387 00:19:36,359 --> 00:19:39,400 Speaker 1: more risk taking in a second half of I want 388 00:19:39,400 --> 00:19:40,920 Speaker 1: to be clear here, Amy, I'm not picking on any 389 00:19:40,960 --> 00:19:44,440 Speaker 1: single bank. That is the consensus view for next year. 390 00:19:44,640 --> 00:19:49,680 Speaker 1: Do you share it? Yeah? It's interesting because I think 391 00:19:49,720 --> 00:19:52,240 Speaker 1: if you looked at any outlook it would say almost 392 00:19:52,240 --> 00:19:55,040 Speaker 1: the same thing. And when I was in Europe last 393 00:19:55,040 --> 00:19:58,560 Speaker 1: week speaking with clients that is also their view, I 394 00:19:58,600 --> 00:20:02,120 Speaker 1: would say that, you know, it's it's really hard to say. 395 00:20:02,200 --> 00:20:04,639 Speaker 1: The options market when we look at pricing to that 396 00:20:04,800 --> 00:20:08,000 Speaker 1: term structure is sort of fifty fifty. Essentially, you know, 397 00:20:08,080 --> 00:20:11,440 Speaker 1: no one is placing big bets yet that will see this, 398 00:20:11,600 --> 00:20:14,760 Speaker 1: you know, miraculous second half rally. But certainly that's the 399 00:20:14,840 --> 00:20:17,479 Speaker 1: sentiment that is being expressed, but it is nowhere in 400 00:20:17,520 --> 00:20:20,560 Speaker 1: the positioning yet. Amy, Honored to have you with us. 401 00:20:20,600 --> 00:20:23,400 Speaker 1: I've never seen the physics envy I see in this 402 00:20:23,480 --> 00:20:26,360 Speaker 1: year's set of outlooks. You and I can look at 403 00:20:26,400 --> 00:20:29,840 Speaker 1: time series and go Matthew and all that. Guess what 404 00:20:30,119 --> 00:20:33,840 Speaker 1: predicting out the January to me seems as uncertain is 405 00:20:33,880 --> 00:20:38,280 Speaker 1: gaming June or December? How do you interpret not the 406 00:20:38,320 --> 00:20:43,159 Speaker 1: indecision but the pivotness that we see the nodes, the 407 00:20:43,280 --> 00:20:46,480 Speaker 1: points along two thousand twenty three where things are going 408 00:20:46,520 --> 00:20:49,080 Speaker 1: to happen. Who are we kidding? We can't predict that. 409 00:20:51,119 --> 00:20:53,439 Speaker 1: You know, I've been thinking about this a lot, Tom, 410 00:20:53,480 --> 00:20:56,240 Speaker 1: and I think this year, more than any other year 411 00:20:56,320 --> 00:20:59,879 Speaker 1: in the market, has really come down to positioning so much, 412 00:21:00,400 --> 00:21:03,040 Speaker 1: because if you think about it, last year, sentiment wise, 413 00:21:03,119 --> 00:21:04,720 Speaker 1: we were kind of in the same place. You know, 414 00:21:04,760 --> 00:21:06,879 Speaker 1: there was a barish outlook. We knew the FED was 415 00:21:06,920 --> 00:21:09,879 Speaker 1: going to go into a hiking cycle. But you saw 416 00:21:09,920 --> 00:21:12,880 Speaker 1: that in equity skew. You saw that in your favorite word, 417 00:21:12,880 --> 00:21:16,160 Speaker 1: in critosis. Right, we saw so much hedging demand from 418 00:21:16,240 --> 00:21:18,560 Speaker 1: last year at the beginning of this year, and you 419 00:21:18,600 --> 00:21:21,359 Speaker 1: see none this year. Why is the positioning so different 420 00:21:21,440 --> 00:21:24,240 Speaker 1: if the sentiment is the same. I think because people 421 00:21:24,280 --> 00:21:27,360 Speaker 1: remain off sides or they've gone touristing in other markets, 422 00:21:27,400 --> 00:21:30,040 Speaker 1: and you know, equity is just not that there is 423 00:21:30,080 --> 00:21:33,760 Speaker 1: no alternative world anymore. What does the epsilon look like? 424 00:21:33,880 --> 00:21:37,639 Speaker 1: That randomness, that systematic error off the back side of 425 00:21:37,680 --> 00:21:42,000 Speaker 1: the algebra? What is the character of our uncertainty? Are unknown? 426 00:21:44,040 --> 00:21:47,600 Speaker 1: So so here's where I would say I'm quite concerned 427 00:21:47,600 --> 00:21:50,160 Speaker 1: in terms of tales. On the down side, what I've 428 00:21:50,160 --> 00:21:53,600 Speaker 1: heard from a number of clients is a potential systemic 429 00:21:53,680 --> 00:21:56,840 Speaker 1: risk and leverage loans. You're starting to see that, uh, 430 00:21:56,960 --> 00:21:59,399 Speaker 1: you know, specifically in b k L and which is 431 00:21:59,400 --> 00:22:03,440 Speaker 1: the proxy et F. That's a big downside risk. Geopolitics 432 00:22:03,560 --> 00:22:07,080 Speaker 1: continue to play a downside risk Taiwan or Russian Ukraine. 433 00:22:07,600 --> 00:22:11,600 Speaker 1: Now on the upside, it's much more general. People just 434 00:22:11,840 --> 00:22:14,960 Speaker 1: cannot miss rallies. You're seeing this in zero day to 435 00:22:15,160 --> 00:22:18,040 Speaker 1: exprey trading, and that tells me that the reach for 436 00:22:18,119 --> 00:22:21,800 Speaker 1: upside remains the pain trade, even though the sentiment remains parish. 437 00:22:21,920 --> 00:22:25,440 Speaker 1: I think those tails are not priced. Everyone's between thirty 438 00:22:27,000 --> 00:22:30,240 Speaker 1: their price targets, and yet those tales remain something that 439 00:22:30,320 --> 00:22:32,520 Speaker 1: we need to watch for next year. Amy, I'd love 440 00:22:32,520 --> 00:22:36,200 Speaker 1: you to elaborate on those systemic risks, whether it's leverage loans, 441 00:22:36,200 --> 00:22:38,120 Speaker 1: whether it's the private markets, which a lot of people 442 00:22:38,160 --> 00:22:40,840 Speaker 1: have been pointing to, whether it's just interest rate swap 443 00:22:41,720 --> 00:22:46,320 Speaker 1: overlaid currency debt issues that we're seeing our just currency 444 00:22:46,440 --> 00:22:49,600 Speaker 1: swap overlaid on top of debt, and this is something 445 00:22:49,600 --> 00:22:52,240 Speaker 1: the Bank of International Settlements has been pointing to. What 446 00:22:52,320 --> 00:22:55,199 Speaker 1: are you most concerned about? What's the transmission mechanism to 447 00:22:55,240 --> 00:22:59,879 Speaker 1: the broader market that hasn't already yet taken place. So 448 00:23:00,160 --> 00:23:02,880 Speaker 1: I think it's two things. I think you know, especially 449 00:23:02,880 --> 00:23:05,520 Speaker 1: on the credit side, when we speak to credit investors, 450 00:23:06,160 --> 00:23:08,720 Speaker 1: they know these risks are out there. For instance, you 451 00:23:08,760 --> 00:23:11,440 Speaker 1: know if down grades by the rating agencies in the 452 00:23:11,480 --> 00:23:14,800 Speaker 1: fourth quarter of next year caused something and leverage loans. 453 00:23:15,160 --> 00:23:18,320 Speaker 1: I think what the concern is if the positioning, as 454 00:23:18,359 --> 00:23:21,560 Speaker 1: I mentioned prior, is really all to the upside, right, 455 00:23:21,600 --> 00:23:23,880 Speaker 1: so all your demand is sitting on that call wing, 456 00:23:24,400 --> 00:23:27,159 Speaker 1: then you're going to get quite a cycle when people 457 00:23:27,240 --> 00:23:30,119 Speaker 1: start to need to reach for that downside because that 458 00:23:30,200 --> 00:23:33,000 Speaker 1: downside tail, you know, a three standard deviation draw down 459 00:23:33,000 --> 00:23:35,320 Speaker 1: on the market. We measured that with t dex is 460 00:23:35,359 --> 00:23:37,840 Speaker 1: treating in its second percent. Hell over five years. People. 461 00:23:37,920 --> 00:23:40,880 Speaker 1: People are not sitting on tails. You're not using downside 462 00:23:40,880 --> 00:23:43,879 Speaker 1: protection right now, and so when that grab happens, I 463 00:23:43,920 --> 00:23:46,359 Speaker 1: think it'll be quite violent. And when you have the 464 00:23:46,440 --> 00:23:48,720 Speaker 1: VIX now you know, back to a twenty handle, I 465 00:23:48,760 --> 00:23:51,480 Speaker 1: think that can reflate quite quickly. Lisa. I mean something 466 00:23:51,520 --> 00:23:53,000 Speaker 1: I want to finish with is just to give you 467 00:23:53,040 --> 00:23:56,240 Speaker 1: the opportunity to go over something you delivered a number 468 00:23:56,280 --> 00:23:58,200 Speaker 1: of months ago. So a note about why this market 469 00:23:58,200 --> 00:24:00,720 Speaker 1: regime is going to come with more volatility, and that's 470 00:24:00,720 --> 00:24:02,760 Speaker 1: going to stay with this for longer than many people think. 471 00:24:03,280 --> 00:24:05,560 Speaker 1: Amy can we finish that? What are you seeing? And 472 00:24:05,640 --> 00:24:08,720 Speaker 1: what have you seen? Two that you think we need 473 00:24:08,760 --> 00:24:14,439 Speaker 1: to live with? Three and perhaps even beyond. Yeah, you know. 474 00:24:14,560 --> 00:24:17,439 Speaker 1: I think one nuance that people forget because they're so 475 00:24:17,560 --> 00:24:20,760 Speaker 1: fixated on where VIX goes from thirty to forty is 476 00:24:20,800 --> 00:24:24,080 Speaker 1: actually that if you've noticed all year, VIX essentially hasn't 477 00:24:24,160 --> 00:24:28,640 Speaker 1: dropped below twenty. So it's not necessarily that we're spiking 478 00:24:28,640 --> 00:24:31,040 Speaker 1: the higher levels during the pandemic we hit a VIX 479 00:24:31,040 --> 00:24:34,560 Speaker 1: of eighty. It's that our floor has simply gotten higher. 480 00:24:34,600 --> 00:24:37,320 Speaker 1: Our bits is not moving below twenty. And there's a 481 00:24:37,359 --> 00:24:41,000 Speaker 1: result of that, you know, the correlation components of volatility, 482 00:24:41,000 --> 00:24:44,040 Speaker 1: it's a big component to old index. Volatilities has remained 483 00:24:44,160 --> 00:24:46,840 Speaker 1: high and I think will continue to remain high if 484 00:24:46,840 --> 00:24:49,400 Speaker 1: that VIXED floor does not come down from that twenty handle. 485 00:24:49,520 --> 00:24:51,480 Speaker 1: I think we remember the years tom when the floor 486 00:24:51,520 --> 00:24:54,359 Speaker 1: was tent was that four or five years ago? Twice? 487 00:24:54,520 --> 00:24:56,760 Speaker 1: A big change. It's a big, big change, that's for sure. 488 00:24:56,920 --> 00:24:59,399 Speaker 1: It's a big, big change. You know, to under to 489 00:24:59,440 --> 00:25:01,320 Speaker 1: take the rail from a thirty one ish into a 490 00:25:01,359 --> 00:25:04,480 Speaker 1: twenty a better market, a lower vix as well. But 491 00:25:04,840 --> 00:25:07,119 Speaker 1: I really have trouble Frame and John, other than a 492 00:25:07,200 --> 00:25:09,960 Speaker 1: massive bull market, how do you get from twenty to seventeen? 493 00:25:10,480 --> 00:25:13,720 Speaker 1: That that that there's a lot of inertial force that 494 00:25:13,800 --> 00:25:15,680 Speaker 1: has to be overcome. And he's been putting in amy 495 00:25:15,680 --> 00:25:17,879 Speaker 1: thank you for payment to Sami with Silverman that of 496 00:25:17,960 --> 00:25:33,920 Speaker 1: obviously capital markets now a joy Edward Morrise honed hydrocarbon 497 00:25:34,119 --> 00:25:37,520 Speaker 1: analysis in the street at a small shop called Lehman 498 00:25:37,600 --> 00:25:40,480 Speaker 1: Brothers years ago. He did this off of his academic 499 00:25:40,520 --> 00:25:44,680 Speaker 1: work at Princeton, his political economic work on oil over 500 00:25:44,720 --> 00:25:47,399 Speaker 1: many decades, and now hold shop with global head of 501 00:25:47,440 --> 00:25:49,760 Speaker 1: Commodities research at City Group or thrilled he could join 502 00:25:49,840 --> 00:25:52,880 Speaker 1: us today with that the call of the year, Let's 503 00:25:52,880 --> 00:25:56,080 Speaker 1: go the other way. What did the one dollar over 504 00:25:56,280 --> 00:26:02,359 Speaker 1: a barrel? People get wrong? They got wrong, Uh, both 505 00:26:02,359 --> 00:26:05,080 Speaker 1: supply and demand, but more and more on the demand side. 506 00:26:05,080 --> 00:26:07,199 Speaker 1: I mean, this was supposed to be a year depending 507 00:26:07,200 --> 00:26:09,920 Speaker 1: on whose projection you're looking at, that was going to 508 00:26:10,000 --> 00:26:13,920 Speaker 1: continue that five or six percent demand growth post pandemic, 509 00:26:14,280 --> 00:26:17,120 Speaker 1: and it just fritted out, fritted out, largely because it's 510 00:26:17,160 --> 00:26:20,760 Speaker 1: something nobody expected, namely the pace of the slowdowns and 511 00:26:20,840 --> 00:26:25,119 Speaker 1: the recessions emerging in the largest economies in the world, China, 512 00:26:25,160 --> 00:26:29,879 Speaker 1: the US, and obviously Europe. So the demand side really 513 00:26:30,040 --> 00:26:34,119 Speaker 1: is the the big killer on this. Uh, we're looking 514 00:26:34,160 --> 00:26:38,000 Speaker 1: at probably maybe one point seven demand growth this year 515 00:26:38,240 --> 00:26:43,560 Speaker 1: compared to projections of Right. Well, what's interesting add to 516 00:26:43,640 --> 00:26:46,600 Speaker 1: me as the price as we come down and everyone's 517 00:26:46,720 --> 00:26:51,000 Speaker 1: rationalizing along the way to a price point where riod 518 00:26:51,080 --> 00:26:55,440 Speaker 1: reacts or Washington reacts, etcetera. What is the price point 519 00:26:55,520 --> 00:26:58,879 Speaker 1: you have in your head where this becomes painful for 520 00:26:58,920 --> 00:27:04,320 Speaker 1: the oil winners. Uh, Well, the price point when it 521 00:27:04,359 --> 00:27:06,560 Speaker 1: comes really painful, it's going to be below sixty five. 522 00:27:06,680 --> 00:27:10,639 Speaker 1: There's plenty of oil that can be productively, Uh, you know, 523 00:27:11,320 --> 00:27:16,639 Speaker 1: exploited at seventy. We start getting into some fields that 524 00:27:16,760 --> 00:27:20,720 Speaker 1: just don't work at six five. But I guess unbelievably 525 00:27:20,720 --> 00:27:23,800 Speaker 1: painful below fifty five. But we still have and you 526 00:27:23,920 --> 00:27:27,360 Speaker 1: just remarked on it. Uh, the U. S Government having 527 00:27:27,600 --> 00:27:30,119 Speaker 1: indicated it might start buying oil if w t I 528 00:27:30,160 --> 00:27:33,000 Speaker 1: falls below seventy, and I think that's the first test. 529 00:27:33,040 --> 00:27:35,719 Speaker 1: I think OPEC has said, Hey, we're gonna stick to this. 530 00:27:35,760 --> 00:27:38,640 Speaker 1: We're not gonna change forecasts. We're not going to change 531 00:27:38,640 --> 00:27:41,879 Speaker 1: our our our oil projections of what we're putting in 532 00:27:41,880 --> 00:27:45,360 Speaker 1: the market. Maybe evaluate them in February, the next time 533 00:27:45,880 --> 00:27:49,399 Speaker 1: their JMMC, the Monitoring Committee meets. So I think the 534 00:27:49,440 --> 00:27:52,959 Speaker 1: next political move on managing the market will be up 535 00:27:52,960 --> 00:27:56,359 Speaker 1: to the US, up to the U S. How so, 536 00:27:56,600 --> 00:28:00,320 Speaker 1: what are you looking for? Well, I I I go 537 00:28:00,400 --> 00:28:04,280 Speaker 1: back to the President's point that at seventy dollars a 538 00:28:04,359 --> 00:28:07,280 Speaker 1: barrel they can start buying back oil for the strategic reserve, 539 00:28:08,080 --> 00:28:10,919 Speaker 1: and that's meant as an encouragement to the industry to 540 00:28:11,119 --> 00:28:14,480 Speaker 1: keep drilling and to keep producing. So well, it'll be 541 00:28:14,520 --> 00:28:17,800 Speaker 1: a test to see what happens and whether the President 542 00:28:17,880 --> 00:28:20,840 Speaker 1: is serious about this, thinks that, hey, maybe this is 543 00:28:20,880 --> 00:28:23,359 Speaker 1: the time when we're really getting off of oil because 544 00:28:23,400 --> 00:28:26,400 Speaker 1: demand for it may be falling faster than people thought. 545 00:28:26,560 --> 00:28:28,840 Speaker 1: Why are we talking about the downside surprise at a 546 00:28:28,920 --> 00:28:32,560 Speaker 1: time when China is potentially reopening, when these headlines don't 547 00:28:32,600 --> 00:28:35,360 Speaker 1: seem to be moving the needle at all, even though 548 00:28:35,680 --> 00:28:37,760 Speaker 1: this is definitely a big concern and people thought that 549 00:28:37,800 --> 00:28:43,040 Speaker 1: perhaps it could send oil prices two a barrel on Brent. Well, 550 00:28:43,080 --> 00:28:44,840 Speaker 1: I take exception to that you know, we had the 551 00:28:44,960 --> 00:28:47,360 Speaker 1: China news that really did move the market and moved 552 00:28:47,400 --> 00:28:49,600 Speaker 1: the market up but a little bit higher than the 553 00:28:49,680 --> 00:28:52,640 Speaker 1: fundamentals warranted. And now we're having the good news in 554 00:28:52,680 --> 00:28:55,600 Speaker 1: the US, the good news about the economy, which is 555 00:28:55,680 --> 00:28:58,640 Speaker 1: really bad news in terms of the commodity markets because 556 00:28:58,680 --> 00:29:00,680 Speaker 1: it indicates that the FED is going to keep going 557 00:29:01,000 --> 00:29:04,360 Speaker 1: and raising the prices at the prior level that people thought. 558 00:29:05,040 --> 00:29:08,480 Speaker 1: So the dollar gets more expensive, the economy slows down more, 559 00:29:08,640 --> 00:29:11,560 Speaker 1: and demand for oil fall. So I think that the 560 00:29:11,680 --> 00:29:14,720 Speaker 1: market is responding to news. It's just today's news is 561 00:29:14,760 --> 00:29:17,280 Speaker 1: the good news in the US. Last week's news was 562 00:29:17,360 --> 00:29:19,320 Speaker 1: the good news in China. But it's also this wee 563 00:29:19,720 --> 00:29:21,959 Speaker 1: this week that we're getting some news about China perhaps 564 00:29:22,480 --> 00:29:26,320 Speaker 1: loosening some of the testing requirements in Beijing after reducing 565 00:29:26,400 --> 00:29:29,840 Speaker 1: them in Shanghai just yesterday. How much does this sort 566 00:29:29,840 --> 00:29:32,920 Speaker 1: of come together and something that does accelerate demand more 567 00:29:33,000 --> 00:29:35,000 Speaker 1: than perhaps the base case, or is that not even 568 00:29:35,040 --> 00:29:38,000 Speaker 1: on the table because of how much the Russian barrels 569 00:29:38,000 --> 00:29:39,880 Speaker 1: are coming back on. I just am not understanding the 570 00:29:39,960 --> 00:29:42,360 Speaker 1: price action at all right now, based on some of 571 00:29:42,400 --> 00:29:45,080 Speaker 1: the narratives people have been saying for a while. Well, 572 00:29:45,120 --> 00:29:46,760 Speaker 1: the first thing you have to remember about the price 573 00:29:46,840 --> 00:29:49,320 Speaker 1: action is liquidity is dried up even more than it 574 00:29:49,440 --> 00:29:52,520 Speaker 1: already dried up. People are fleeing the market because of 575 00:29:52,600 --> 00:29:55,400 Speaker 1: the level of market uncertainty and because we're getting towards 576 00:29:55,400 --> 00:29:57,400 Speaker 1: the end of the year, and those who made money 577 00:29:57,480 --> 00:29:59,520 Speaker 1: this year don't want to lose any come the end 578 00:29:59,560 --> 00:30:01,760 Speaker 1: of the year. So liquidity has dried up. And when 579 00:30:01,800 --> 00:30:05,400 Speaker 1: liquidity drives up, you get an incredible volatility coming out 580 00:30:05,440 --> 00:30:08,080 Speaker 1: in the market. I think that's a very important point. 581 00:30:08,200 --> 00:30:12,600 Speaker 1: The second point is the uncertainty about Russian oil. Uh. 582 00:30:13,040 --> 00:30:16,080 Speaker 1: We thought that there was going to be a significant 583 00:30:16,400 --> 00:30:20,440 Speaker 1: increase in demand for oil from other sources as you're 584 00:30:20,520 --> 00:30:23,760 Speaker 1: moved off of Russian oil. We actually had that, and 585 00:30:23,880 --> 00:30:27,280 Speaker 1: it was an incredible increase in exports out of the 586 00:30:27,360 --> 00:30:30,440 Speaker 1: United States. A week ago the print was about eleven million, 587 00:30:30,480 --> 00:30:33,440 Speaker 1: seven hundred thousand barrels a day of gross exports and 588 00:30:33,520 --> 00:30:36,400 Speaker 1: crude oil and petroleum products out of the US. The 589 00:30:36,520 --> 00:30:40,240 Speaker 1: US has been replacing those Russian varils, and uh, you know, 590 00:30:40,360 --> 00:30:43,680 Speaker 1: we've had our inventories fall on the crude side, but 591 00:30:43,760 --> 00:30:46,080 Speaker 1: they're rising on the product side. You know, this was 592 00:30:46,120 --> 00:30:48,840 Speaker 1: supposed to be a period of time when diesel demand 593 00:30:49,000 --> 00:30:51,600 Speaker 1: was going to be high and diesel cracks we're gonna 594 00:30:51,640 --> 00:30:54,160 Speaker 1: stay at forty And now diesel cracks are going down 595 00:30:54,240 --> 00:30:58,280 Speaker 1: and we're actually building an inventory. So the data mixed, 596 00:30:58,320 --> 00:31:00,720 Speaker 1: but they're they're you know, they're to equally Barrishes, they are, 597 00:31:01,400 --> 00:31:03,960 Speaker 1: and Morris, I want to touch back on your years 598 00:31:04,040 --> 00:31:07,160 Speaker 1: of work with Woodrow Wilson at Princeton and Johns Hopkins 599 00:31:07,480 --> 00:31:10,040 Speaker 1: and the rest as well. We have a miracle happening 600 00:31:10,080 --> 00:31:12,680 Speaker 1: to the President of the United States is going to 601 00:31:12,760 --> 00:31:16,440 Speaker 1: attempt to turn the inertial force of globalization on its 602 00:31:16,560 --> 00:31:21,600 Speaker 1: ear by traveling out to Arizona where we're gonna build semiconductors. 603 00:31:22,120 --> 00:31:25,280 Speaker 1: From where you sit with your decades of experience, can 604 00:31:25,400 --> 00:31:31,560 Speaker 1: we be successful in stealing back manufacturing processes from around 605 00:31:31,600 --> 00:31:36,520 Speaker 1: the world. Actually, I think we can, and you mentioned 606 00:31:36,760 --> 00:31:40,720 Speaker 1: a deglobalization. Effectively, we're not gonna see trade growing the 607 00:31:40,760 --> 00:31:43,120 Speaker 1: way it did in the in the go go years. 608 00:31:43,160 --> 00:31:48,719 Speaker 1: In we're seeing all three major economies, China, the US, 609 00:31:48,840 --> 00:31:52,840 Speaker 1: and Europe putting blockages on trade and being a little 610 00:31:52,880 --> 00:31:56,440 Speaker 1: bit protective here. There's a coincidence of interest between the 611 00:31:56,600 --> 00:31:59,920 Speaker 1: US and Europe based on what the Europeans are calling 612 00:32:00,040 --> 00:32:04,160 Speaker 1: their sea BAM UH, their carbon border adjustment mechanism. Having 613 00:32:04,200 --> 00:32:06,960 Speaker 1: the US effectively putting the same sea BAM on China 614 00:32:07,640 --> 00:32:13,320 Speaker 1: helps them competitively. So there's a commonality of interest there. 615 00:32:13,440 --> 00:32:16,800 Speaker 1: China is pulling back on trade because of energy security 616 00:32:17,000 --> 00:32:20,120 Speaker 1: issues and you might say commodity security issues, and one 617 00:32:20,200 --> 00:32:24,040 Speaker 1: more made at home or more important, not by seaboard trade, 618 00:32:24,160 --> 00:32:28,040 Speaker 1: but by on land trade. Hence the Belton Road initiative, 619 00:32:28,080 --> 00:32:31,080 Speaker 1: hence the pipelines from Russia and the like. So we're 620 00:32:31,120 --> 00:32:36,080 Speaker 1: seeing all three major economies pulling back from globalization, getting 621 00:32:36,120 --> 00:32:39,680 Speaker 1: those supply chains at home. And I think that's an 622 00:32:39,720 --> 00:32:42,160 Speaker 1: important shift that's going to dominate the next decade. And 623 00:32:42,240 --> 00:32:43,760 Speaker 1: I just want to squeeze is saying, just to blend 624 00:32:43,760 --> 00:32:47,360 Speaker 1: two stories, she and rhyat this week. What are you 625 00:32:47,400 --> 00:32:52,520 Speaker 1: expecting from that mating. The one thing you can expect is, 626 00:32:52,920 --> 00:32:56,320 Speaker 1: you know, greater ties on the oil market side. UH. 627 00:32:56,600 --> 00:33:00,520 Speaker 1: China and the Saudis already have an agreement and putting 628 00:33:00,560 --> 00:33:06,040 Speaker 1: in new refining, testing out the Saudi technology to convert 629 00:33:06,560 --> 00:33:12,160 Speaker 1: oil directly into petrochemicals. UH. Petrochemicals is where the growth 630 00:33:12,240 --> 00:33:15,239 Speaker 1: and demand is going to be the Saudis have an 631 00:33:15,280 --> 00:33:19,400 Speaker 1: answer there. So so I think it's gonna be partly 632 00:33:19,520 --> 00:33:25,360 Speaker 1: about the world, partly about new alignance alignments. The lot 633 00:33:25,400 --> 00:33:28,200 Speaker 1: the alignments are not gonna, you know, be totally solidly 634 00:33:28,280 --> 00:33:31,080 Speaker 1: moving to the to the east. For the Saudis, if 635 00:33:31,120 --> 00:33:34,000 Speaker 1: you look at where their interests are in terms of 636 00:33:34,560 --> 00:33:38,920 Speaker 1: UH issuing bombs, in terms of putting out shares on 637 00:33:39,080 --> 00:33:41,680 Speaker 1: the I p o s of their state owned enterprises. 638 00:33:42,360 --> 00:33:44,800 Speaker 1: They can't go away from London and New York. They 639 00:33:44,880 --> 00:33:47,080 Speaker 1: can't get what they can get in London and New 640 00:33:47,160 --> 00:33:50,320 Speaker 1: York provided by either Moscow or Beijing. But it is 641 00:33:50,360 --> 00:33:56,360 Speaker 1: a move solidifying UH that line of of purchasing of oil. 642 00:33:57,480 --> 00:34:01,320 Speaker 1: The Saudis are there to provide oil that is kind 643 00:34:01,360 --> 00:34:04,520 Speaker 1: of under the table. It's meant to go into into 644 00:34:04,760 --> 00:34:08,520 Speaker 1: strategic stocks. The Chinese want as the prices go down, 645 00:34:08,960 --> 00:34:11,680 Speaker 1: to get their strategic stockpile built up to the level 646 00:34:11,719 --> 00:34:15,000 Speaker 1: they want. They have Russia that's selling oil at a 647 00:34:15,080 --> 00:34:17,200 Speaker 1: distress and they're saying, well they can get through the 648 00:34:17,280 --> 00:34:19,440 Speaker 1: Saturdays as well. At wonderful to catch up with you, 649 00:34:19,840 --> 00:34:22,080 Speaker 1: I'm wonderful co in the last couple of months and 650 00:34:22,160 --> 00:34:29,400 Speaker 1: most that and I'm not gonn immnce words. This is 651 00:34:29,480 --> 00:34:32,080 Speaker 1: newly meanted at the Keene household. I feel lucky to 652 00:34:32,239 --> 00:34:34,840 Speaker 1: have this. This is the fancy iPhone for those of 653 00:34:34,880 --> 00:34:37,960 Speaker 1: you on radio. It's a what we call Faraoh purple 654 00:34:38,560 --> 00:34:42,520 Speaker 1: and it's yeah, it's like sort of like the Tots uniform, 655 00:34:42,640 --> 00:34:45,440 Speaker 1: the kit that they have cared with the awake thank you, 656 00:34:46,040 --> 00:34:49,279 Speaker 1: But um, I feel lucky to have this. Demand is 657 00:34:49,360 --> 00:34:53,600 Speaker 1: so great that it's hard to find. Yeah, I had 658 00:34:53,640 --> 00:34:56,920 Speaker 1: to wait like weeks and the answer is they want 659 00:34:56,960 --> 00:35:00,520 Speaker 1: to bring the stuff in here, the Magic Canny Year 660 00:35:01,120 --> 00:35:03,759 Speaker 1: over to America. That's all there is to it. Very cool. 661 00:35:03,760 --> 00:35:06,280 Speaker 1: We're gonna talk about that Today. Tim Cook of Apple 662 00:35:06,360 --> 00:35:09,520 Speaker 1: and other worthies will join the President of the United 663 00:35:09,600 --> 00:35:13,800 Speaker 1: States in Barry Goldwaters, Arizona. There's a calculus here of 664 00:35:13,920 --> 00:35:18,760 Speaker 1: science and technology, chips and security. Brian Deese, the Director 665 00:35:18,840 --> 00:35:21,960 Speaker 1: of National Economic Council for the President, is with us 666 00:35:22,040 --> 00:35:25,400 Speaker 1: for an early morning brief before he travels to Arizona. 667 00:35:25,640 --> 00:35:28,759 Speaker 1: I want to get right to the political economics of this, Brian, 668 00:35:28,840 --> 00:35:31,920 Speaker 1: that you studied at Middlebury, which is low and behold 669 00:35:32,160 --> 00:35:38,400 Speaker 1: a democratic runaway in Arizona. Hearkening back to even nineteen fifty. 670 00:35:38,920 --> 00:35:44,720 Speaker 1: If the president moves for investment, does that bring democratic votes? 671 00:35:44,840 --> 00:35:47,800 Speaker 1: I mean, is this a political victory lab for the 672 00:35:47,920 --> 00:35:52,680 Speaker 1: president as well as a science victory lap Well, the 673 00:35:52,680 --> 00:35:55,399 Speaker 1: most impactful thing I've learned today is your color choices, Tom, 674 00:35:55,480 --> 00:35:59,880 Speaker 1: But what this is today is a big milestone for 675 00:36:00,040 --> 00:36:03,759 Speaker 1: the country for economic and national security reasons, as you said, 676 00:36:03,840 --> 00:36:08,080 Speaker 1: inside that iPhone, but also importantly inside military applications. Inside 677 00:36:08,120 --> 00:36:12,920 Speaker 1: our most advanced computing applications are these leading edge semiconductors, 678 00:36:13,000 --> 00:36:15,480 Speaker 1: and today we produced none of them in the United 679 00:36:15,520 --> 00:36:19,320 Speaker 1: States zero. So t SMC's announcement today, he signals the 680 00:36:19,400 --> 00:36:22,480 Speaker 1: beginning of building out that American supply chain. And the 681 00:36:22,560 --> 00:36:24,360 Speaker 1: other thing we're gonna be doing in Phoenix, though, is 682 00:36:24,440 --> 00:36:27,320 Speaker 1: underscoring that we're seeing this across the board. It's not 683 00:36:27,480 --> 00:36:30,520 Speaker 1: just in semiconductors, it's in clean energy innovation. It's an 684 00:36:30,600 --> 00:36:34,160 Speaker 1: upgrading infrastructure. So you see across the Phoenix area big 685 00:36:34,239 --> 00:36:38,600 Speaker 1: investments in electric vehicle batteries, in um in in the 686 00:36:39,200 --> 00:36:42,640 Speaker 1: fiber that will lay for broadband across the country. That 687 00:36:42,800 --> 00:36:45,400 Speaker 1: does bring big economic benefits and I think a renewed 688 00:36:45,440 --> 00:36:48,279 Speaker 1: sense of economic optimism to places like Phoenix, there has 689 00:36:48,320 --> 00:36:51,320 Speaker 1: to be an inertial tip point where you push against 690 00:36:51,440 --> 00:36:55,480 Speaker 1: all the foreign manufacture. What is your timeline, Brian? I mean, 691 00:36:55,600 --> 00:36:59,120 Speaker 1: let's be honest, we're really not moving the global semiconductor needle. 692 00:36:59,200 --> 00:37:04,120 Speaker 1: Here Out there, somewhere is where America gets a critical 693 00:37:04,320 --> 00:37:10,279 Speaker 1: mass and manufacturing these complex processes, including lithium batteries. How 694 00:37:10,360 --> 00:37:13,160 Speaker 1: long is it des timeline to get to where we 695 00:37:13,280 --> 00:37:18,239 Speaker 1: move the semiconductor needle. Well, look, these are big projects 696 00:37:18,400 --> 00:37:21,000 Speaker 1: and the key in this industry is scale, so that 697 00:37:21,080 --> 00:37:23,759 Speaker 1: doesn't happen overnight. Building one of these fabs, like the 698 00:37:23,800 --> 00:37:27,880 Speaker 1: President will see today, is a very complicated, multi year process. 699 00:37:28,239 --> 00:37:31,360 Speaker 1: But the good news is that we now have enacted 700 00:37:31,600 --> 00:37:33,800 Speaker 1: these long term incentives, and I think that's one of 701 00:37:33,840 --> 00:37:37,120 Speaker 1: the key pieces to understand about what we accomplished legislatively 702 00:37:37,200 --> 00:37:40,279 Speaker 1: here in both clean energy and semiconductors. We now have 703 00:37:40,360 --> 00:37:44,480 Speaker 1: incentives in place for multiple years, a decade really, and 704 00:37:44,640 --> 00:37:47,880 Speaker 1: that gives private companies and private capital the ability to 705 00:37:48,000 --> 00:37:50,520 Speaker 1: move in and move quickly. A lot of people say, well, 706 00:37:50,600 --> 00:37:52,320 Speaker 1: but you know, we may not see the benefits of 707 00:37:52,400 --> 00:37:54,440 Speaker 1: this for a couple of years, but we're seeing it 708 00:37:54,600 --> 00:37:57,880 Speaker 1: right now and companies pulling forward investment and deciding to 709 00:37:58,000 --> 00:38:00,960 Speaker 1: invest in the United States. So while the full timeline 710 00:38:01,000 --> 00:38:04,520 Speaker 1: to build out the supply chain to produce chips here 711 00:38:04,560 --> 00:38:06,759 Speaker 1: in the United States, to produce batters here in the 712 00:38:06,800 --> 00:38:09,600 Speaker 1: United States, that's a multi year project, we are seeing 713 00:38:10,040 --> 00:38:12,080 Speaker 1: in ways that a lot of people didn't think was 714 00:38:12,160 --> 00:38:16,680 Speaker 1: possible activity and that activity will result in economic opportunity 715 00:38:16,960 --> 00:38:19,719 Speaker 1: in right. How concerned are you? How concerned is the 716 00:38:19,760 --> 00:38:22,080 Speaker 1: President with some of the tension that this has caused 717 00:38:22,120 --> 00:38:24,600 Speaker 1: with European allies who say that this is investment not 718 00:38:24,719 --> 00:38:27,319 Speaker 1: going into Europe, that this is anti competitive and really 719 00:38:27,440 --> 00:38:30,120 Speaker 1: draws a lot more dollars to the US and a 720 00:38:30,200 --> 00:38:33,279 Speaker 1: lot more of the tech industry. Well, the President had 721 00:38:33,280 --> 00:38:36,440 Speaker 1: a good conversation with President McCrone on that topic and 722 00:38:36,600 --> 00:38:39,520 Speaker 1: other European leaders as well. A couple of points. The 723 00:38:39,600 --> 00:38:42,160 Speaker 1: first is the President makes no apology for the fact 724 00:38:42,280 --> 00:38:46,320 Speaker 1: that his economic strategy is focused on generating more economic opportunity, 725 00:38:46,440 --> 00:38:51,200 Speaker 1: more economic security, and resilience for our economy and our workers. 726 00:38:51,520 --> 00:38:55,640 Speaker 1: At the same time, the opportunity globally for the US 727 00:38:55,760 --> 00:38:58,759 Speaker 1: leadership in these areas is quite significant. You know, in 728 00:38:58,920 --> 00:39:02,160 Speaker 1: semiconductors and energy, these are areas where the world is 729 00:39:02,320 --> 00:39:06,560 Speaker 1: short supply. We need more electric vehicle batteries globally, we 730 00:39:06,640 --> 00:39:10,040 Speaker 1: need more semiconductors globally. So when the United States invests 731 00:39:10,360 --> 00:39:13,800 Speaker 1: pulls forward innovation that lowers cost, that makes it easier 732 00:39:13,880 --> 00:39:17,400 Speaker 1: to deploy in other jurisdictions as well. So certainly we're 733 00:39:17,400 --> 00:39:20,120 Speaker 1: gonna work with our partners and allies. Where there are concerns, 734 00:39:20,200 --> 00:39:22,080 Speaker 1: we can sit down and talk about them. But the 735 00:39:22,120 --> 00:39:26,200 Speaker 1: President's strategy here an industrial strategy to make the United 736 00:39:26,280 --> 00:39:29,080 Speaker 1: States and attractive place to invest but also pull forward 737 00:39:29,120 --> 00:39:32,000 Speaker 1: innovation reduced cost, is one that will have benefits for 738 00:39:32,000 --> 00:39:34,200 Speaker 1: the whole world. One of the problems with creating some 739 00:39:34,239 --> 00:39:36,560 Speaker 1: of these policies historically has been that it has to 740 00:39:36,640 --> 00:39:39,520 Speaker 1: be a longer term basis for that investment to bear fruit, 741 00:39:39,600 --> 00:39:42,440 Speaker 1: for those factories to actually take a stance. How important 742 00:39:42,520 --> 00:39:45,080 Speaker 1: is consistency. And I say this at a time when 743 00:39:45,239 --> 00:39:47,960 Speaker 1: President Biden Ron Clean was talking about this in the 744 00:39:48,000 --> 00:39:50,520 Speaker 1: past couple of days is expected to announce a running 745 00:39:50,520 --> 00:39:53,680 Speaker 1: again and members of the Economic Council Cecilia Rouse I 746 00:39:53,719 --> 00:39:56,960 Speaker 1: know has talked about leaving the Council and others I 747 00:39:57,040 --> 00:39:59,080 Speaker 1: know that there have been rumors about yourself. How much 748 00:39:59,239 --> 00:40:01,960 Speaker 1: is that implore into was kind of keeping things on 749 00:40:02,080 --> 00:40:06,200 Speaker 1: the rails. Well, you're raising a really important point, which is, 750 00:40:06,600 --> 00:40:09,240 Speaker 1: if we're going to provide long term incentives and certainty 751 00:40:09,320 --> 00:40:11,399 Speaker 1: for private capital to invest here in the United States, 752 00:40:11,480 --> 00:40:14,960 Speaker 1: we need policy certainty. But one of the important elements 753 00:40:15,000 --> 00:40:16,480 Speaker 1: of what we got done over the course of the 754 00:40:16,520 --> 00:40:19,839 Speaker 1: past year is that most of what we passed has 755 00:40:19,960 --> 00:40:24,000 Speaker 1: broad bipartisan support. It certainly has bryan partisan support outside Washington. 756 00:40:24,080 --> 00:40:26,279 Speaker 1: You look at the Chips and Science Act, it had 757 00:40:26,320 --> 00:40:30,160 Speaker 1: brought bipartisan support in Congress as well. You've got Democrats 758 00:40:30,200 --> 00:40:34,200 Speaker 1: and Republicans, but also people business leaders from across the country, 759 00:40:34,280 --> 00:40:36,359 Speaker 1: from the center of the country, from the coast, all 760 00:40:36,480 --> 00:40:39,680 Speaker 1: kind of buying into this idea that having the United 761 00:40:39,760 --> 00:40:42,279 Speaker 1: States as a leader in clean energy manufacturing, a leader 762 00:40:42,320 --> 00:40:46,440 Speaker 1: in semiconductor production, that is a worthwhile, long term national 763 00:40:46,520 --> 00:40:51,200 Speaker 1: investment that will help provide that stability that private investors need. 764 00:40:51,239 --> 00:40:52,919 Speaker 1: You know, Brian, I love that you were wearing Hugo 765 00:40:53,000 --> 00:40:54,880 Speaker 1: Boss to the State dinner or the other night with 766 00:40:55,000 --> 00:40:58,520 Speaker 1: Mr McCraw and all. You're enjoying your Rouge River Blue cheese. 767 00:40:58,640 --> 00:41:01,800 Speaker 1: Let me cut to the Chase Brian, how's our trade 768 00:41:01,840 --> 00:41:05,600 Speaker 1: relationship with the French? As we talk about the technology 769 00:41:06,000 --> 00:41:10,120 Speaker 1: and all that, how are we doing? Look, I think 770 00:41:10,160 --> 00:41:12,760 Speaker 1: the relationship as a whole is very strong and certainly 771 00:41:12,880 --> 00:41:16,160 Speaker 1: undergirded by a great state visit, and it's always important 772 00:41:16,440 --> 00:41:18,759 Speaker 1: when the two leaders have an opportunity to really sit 773 00:41:18,880 --> 00:41:22,080 Speaker 1: with each other, spend time, break bread, and that happens 774 00:41:22,160 --> 00:41:25,520 Speaker 1: here we have. Look, you know, we have our challenges, 775 00:41:25,800 --> 00:41:28,920 Speaker 1: but we also are able as to two countries to 776 00:41:29,120 --> 00:41:31,760 Speaker 1: lift up. And there were really poignant moments, for example 777 00:41:31,800 --> 00:41:34,680 Speaker 1: at the state dinner with the toasts of the two leaders, 778 00:41:34,800 --> 00:41:38,040 Speaker 1: marking just how our two countries have been there for 779 00:41:38,160 --> 00:41:41,160 Speaker 1: each other when it really matters. And obviously with Ukraine 780 00:41:41,560 --> 00:41:44,640 Speaker 1: UH and the fight in Europe, the United States is 781 00:41:44,719 --> 00:41:47,600 Speaker 1: proving once again that it's a reliable ally. We're gonna 782 00:41:47,640 --> 00:41:49,600 Speaker 1: have our concerns, We're gonna have the issues that we're 783 00:41:49,640 --> 00:41:52,200 Speaker 1: going to discuss, but you know, overall, I think the 784 00:41:52,280 --> 00:41:55,239 Speaker 1: relationship is quite in a quite a strong place. Can 785 00:41:55,320 --> 00:41:57,399 Speaker 1: you confirm it was actually a hugo boss? I think 786 00:41:57,440 --> 00:42:00,400 Speaker 1: it was in the building. I was in the building 787 00:42:00,440 --> 00:42:06,680 Speaker 1: and I can confirm definitively it wasn't here go, Brian, 788 00:42:06,719 --> 00:42:09,359 Speaker 1: can you confirm definitively is staying with the administration? Can 789 00:42:09,400 --> 00:42:12,600 Speaker 1: we wrap that one up? I can confirm that I'm 790 00:42:12,640 --> 00:42:14,920 Speaker 1: totally focused on the work we have to do. We 791 00:42:15,000 --> 00:42:16,640 Speaker 1: have a lot to do here between now and the 792 00:42:16,760 --> 00:42:18,759 Speaker 1: end of the year. That's where my focus is. I 793 00:42:18,840 --> 00:42:22,360 Speaker 1: can confirm you kind of touch that one. But Brian, 794 00:42:22,440 --> 00:42:24,040 Speaker 1: fantastic to catch up with, he said, thanks for it 795 00:42:24,120 --> 00:42:27,880 Speaker 1: time this morning. We appreciate it. On AC Council, this 796 00:42:28,000 --> 00:42:31,759 Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us 797 00:42:31,840 --> 00:42:35,600 Speaker 1: live weekdays from seven to ten am Eastern. I'm Bloomberg 798 00:42:35,680 --> 00:42:39,480 Speaker 1: Radio and on Bloomberg Television each day from six to 799 00:42:39,640 --> 00:42:44,280 Speaker 1: nine am for insight from the best and economics, finance, investment, 800 00:42:44,440 --> 00:42:49,440 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 801 00:42:49,560 --> 00:42:53,360 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 802 00:42:53,480 --> 00:42:57,600 Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg