Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Do you want to
Speaker 1: welcome everybody who is watching too on Bloomberg Television Carol Master,
Speaker 1: Joe Matthew live here at the Milkin Institute Global Conference
Speaker 1: in Beverly Hill with.
Speaker 2: A very special guest that we want to welcome here
Speaker 2: to our set at Milk And it's the former Treasury
Speaker 2: Secretary Steven Mnuch And thanks for being with us, sir,
Speaker 2: Great to be here with you. We've got a lot
Speaker 2: we'd love to talk to you about. But we've got
Speaker 2: breaking news that just went right on the terminal right
Speaker 2: before we began the broadcast, and that is a proposal
Speaker 2: by the SEC to go to semi annual reporting, or
Speaker 2: at least allow it. And you can look at two
Speaker 2: different sides of this coin. Do you think this is
Speaker 2: good for the markets? Is it good for investors?
Speaker 3: Well? I support the proposal.
Speaker 4: I think there's too many companies that are too focused
Speaker 4: on quarterly earnings and whether they miss or beat expectations,
Speaker 4: analysts expectations. So I think the idea of giving companies
Speaker 4: the option of whether they want to do quarterly or
Speaker 4: semi annual is a good thing. I mean, I can
Speaker 4: imagine There are a number of company, particularly companies that
Speaker 4: are growing, that are still going to be interested in
Speaker 4: showing quarterly earnings and showing their progress through the air.
Speaker 4: But I think giving companies the option is a very
Speaker 4: good idea.
Speaker 1: Does it do anything to kind of the global perspective
Speaker 1: from investors about how US market is kind of the
Speaker 1: gold standards, so transparent because of those quarterly reports and
Speaker 1: so much more and some of the rules and regulations
Speaker 1: that really govern our companies here.
Speaker 4: Well, there's no question the US is the gold standard
Speaker 4: for companies to be listed. It's the most liquid market
Speaker 4: in the world, it's the largest in the largest economy.
Speaker 4: And I think giving companies the options, I think will
Speaker 4: continue to have transparency.
Speaker 5: Do you think most of them will still stick to
Speaker 5: quarterly reporting, Well.
Speaker 3: My guess is some will switch and some won't.
Speaker 4: I mean, as I said, if you're a growth company,
Speaker 4: you have every reason to want to show the growth
Speaker 4: every quarter. If you're a company that's in turnaround and
Speaker 4: things are improving, you're going to want to show it.
Speaker 4: On the other hand, there are plenty of companies where
Speaker 4: they're focused on a long, long term transition.
Speaker 3: I think giving them an option is a good thing.
Speaker 2: To pretty quickly see two classes of companies when it
Speaker 2: comes to reporting season. Yeahs are going to feel really different, Carol.
Speaker 2: But so I'd love to hear from you on this
Speaker 2: market as a whole, in the psychology that's confounding a
Speaker 2: lot of us. As we mentioned already, it's rally time,
Speaker 2: mister Secretary. Oil prices are lower again today after the
Speaker 2: Defense Secretary suggested that this effort in the Strait would
Speaker 2: not go on forever. That's all you need and we're
Speaker 2: back to buying on Wall Street. Is this getting a
Speaker 2: little topy or can you rationalize what you're seeing?
Speaker 4: I think there's two things that are going on in
Speaker 4: the market. One is that you have very large capex
Speaker 4: spending and very large growth around AI, around data centers,
Speaker 4: around the cloud, and that to me, we are still
Speaker 4: in the early innings of this transition. There's no question
Speaker 4: that AI is going to impact almost every business that
Speaker 4: we touch, and that's something that's going to be a
Speaker 4: very positive, but there's also going to be job issues
Speaker 4: in job implications on that. The second thing we have
Speaker 4: going on is the US is the destination of where
Speaker 4: people want to invest. You know, Europe's economy is underperforming.
Speaker 4: People are concerned about what's going on in Europe. So
Speaker 4: the flow of funds into the US dollar, in particular
Speaker 4: into US equities is still very strong. As I like
Speaker 4: to say, if you can take a ten year horizon,
Speaker 4: there's no better place than buying s and P five hundreds.
Speaker 3: You know, if you're day trading.
Speaker 4: That's a little bit of a different issue trying to
Speaker 4: predict the short term market.
Speaker 1: How do we figure out whether or not the spend
Speaker 1: in terms of data centers is just too much that
Speaker 1: there isn't some overspend ultimately. You know, we were talking
Speaker 1: on a panel of real estate panel with folks who
Speaker 1: are all investing in data centers, talking maybe like do
Speaker 1: we need to have an exit strategy? You know, we
Speaker 1: talked about data centers in space, like this thing could evolve,
Speaker 1: chips get more efficient. So is it something that could
Speaker 1: be down the road but not to worry about now,
Speaker 1: or do we need to think about the overspend?
Speaker 4: Well, say, in the short term, the demand for compute
Speaker 4: is very strong, and you're seeing this across a number
Speaker 4: of companies. I'd say there's two different things. You have
Speaker 4: open AI and anthropic on the one hand, who are
Speaker 4: going to consume a lot of cash as they build
Speaker 4: out these businesses. And then you have Microsoft, Amazon, Google
Speaker 4: Meta that all are cash machines and are building out
Speaker 4: both AI and are building out the cloud. I think
Speaker 4: the good news is if there's overspending in the next
Speaker 4: few years, they'll cut back, So I don't think you're
Speaker 4: going to see the same trajectory. I think the other
Speaker 4: issue is going to be we're going to run out
Speaker 4: of power for data centers. So I think it's people
Speaker 4: want to spend the money now get the data centers operating,
Speaker 4: and if they have to scale back over time. I
Speaker 4: mean some of these data centers, particularly the training centers
Speaker 4: that have fifteen year leases, my guess is fifteen years
Speaker 4: from now they're dark. The cloud data centers will have
Speaker 4: tremendous growth and we'll be around for the next fifty years.
Speaker 5: Do you have exposure to the area.
Speaker 4: We spent a lot of time on the area where
Speaker 4: we're long term investors in what we believe are stabilize
Speaker 4: data centers.
Speaker 2: Do you worry that just to add on to that,
Speaker 2: and I think this might be where you're going a
Speaker 2: little bit caroll that efficiencies whatever is going to be
Speaker 2: developing in the next couple of years will render these
Speaker 2: massive data centers useless. They could be the size of
Speaker 2: a phone booth at some point, or just a completely
Speaker 2: different to Carrol's point in space, is this something that
Speaker 2: has a shorter timeline knowing that technology will evolve.
Speaker 4: You know, if you look back at data centers from
Speaker 4: twenty years ago in Virginia, we're still using them.
Speaker 6: Well, that's true.
Speaker 4: So again I separate training data centers. You're going to
Speaker 4: need to train these models, then you're going to it's
Speaker 4: very different kind of the cloud native issues. But just
Speaker 4: going back to the market, you know, the market is
Speaker 4: discounting kind of the geopolitical risk in my opinion, so
Speaker 4: you know, we don't really see the market is expecting
Speaker 4: we're going to have a good outcome. I completely support
Speaker 4: President Trump and what he's doing in Iran. I always
Speaker 4: said Iran getting a nuclear weapon is the biggest risk
Speaker 4: in our lifetime, and there's no question from my experience
Speaker 4: in the government, they intended to do that. You know,
Speaker 4: how we play out from here is a little bit
Speaker 4: more complicated, and as you said, we've seen a lot
Speaker 4: of volatility in the oil markets and the stock market
Speaker 4: is really not discounting this going on for a long.
Speaker 6: Sounds like we're missing something here.
Speaker 3: Yeah, I wouldn't say we're missing.
Speaker 4: What I'd say is hopefully we will have a good outcome.
Speaker 4: Iran will come to the negotiating table. I think the
Speaker 4: economic in the blockade, the sanctions work.
Speaker 2: Even if the straight reopen tomorrow, though we've heard that
Speaker 2: it could be months before energy flows are back to
Speaker 2: where they were.
Speaker 6: Does the market have a reality check coming on that?
Speaker 4: I think it will take a while. Having said that,
Speaker 4: there are such positive things going on in the economy
Speaker 4: that I think to the extent this trade can open
Speaker 4: up relatively soon, well, the economy will absorb those energy costs.
Speaker 1: I want to ask you, you obviously were in the
Speaker 1: first administration. You have a better really probably great understanding
Speaker 1: of President Trump. And as we say, the markets can
Speaker 1: go from day to day based on the headlines, it
Speaker 1: looks like it's.
Speaker 5: A one to eighty. How should we be reading what
Speaker 5: the president is doing? What do we need to understand?
Speaker 1: Because do you feel like this is a different Donald
Speaker 1: Trump's the second term versus the first term.
Speaker 3: No, I don't.
Speaker 4: I think there's a lot of similarities in it. I
Speaker 4: think on this issue, and this is an issue he's
Speaker 4: been focused on since the first term. He's determined and
Speaker 4: his legacy will be that he's going to prevent hern
Speaker 4: from getting a nuclear weapon. And there's been other administrations
Speaker 4: that were, you know, understood the risk, but we're concerned.
Speaker 4: I also give Israel a lot of credit because one
Speaker 4: of the concerns was all the ballistic missiles and obviously
Speaker 4: the defense, the air defense system in the region have
Speaker 4: been very powerful. But no, I think this is a
Speaker 4: president that would prefer not to go to war with
Speaker 4: them again, but will if he needs to.
Speaker 1: But this could go. Could it be still talking about
Speaker 1: war at the end of the year.
Speaker 3: I think we could.
Speaker 4: I mean, I think he's determined that he prevents this
Speaker 4: from happening, the nuclear situation, and I think that party
Speaker 4: the issue is and he said this, you know, he
Speaker 4: took out a lot of the leadership. So part of
Speaker 4: this is making sure that leadership develops in Iran that
Speaker 4: can negotiate a deal that they'll stick with.
Speaker 1: What's the other geopolitical? Because you say geopolitical, is it
Speaker 1: just the Middle East? Are you thinking about China? Are
Speaker 1: you thinking about other parts of the world?
Speaker 4: No, I think it's I mean, there is this war
Speaker 4: in Ukraine. I don't want to forget what's going on
Speaker 4: in Ukraine. That's still an important issue. I feel like
Speaker 4: we don't see it on the press every day. But
Speaker 4: obviously the big issue right now in terms of risks
Speaker 4: for the economy and risk for the world is the
Speaker 4: at the least, you.
Speaker 2: Know, there's another cloud you could argue is hanging over
Speaker 2: this market that has nothing to do with the war
Speaker 2: in ironalthough maybe there's a connection at some point when
Speaker 2: we start talking about the cost of this operation, but
Speaker 2: that's the debt now topping one hundred percent of GDP.
Speaker 2: Mister Secretary, how long can we sustain this? Hank Paulson
Speaker 2: mentioned to David weston the need for a break glass solution.
Speaker 2: What should the Treasury be preparing at this time for this?
Speaker 4: Well, I unfortunately think there's not a break the glass solution,
Speaker 4: you know. I think there's no question that during COVID
Speaker 4: we had to spend massive amounts of money. We shut
Speaker 4: down the economy. I mean, anybody who ran a business
Speaker 4: never ran it thinking you'd have zero revenues. You know,
Speaker 4: I'm particularly proud of we saved the airline industry so
Speaker 4: we have a very robust airline industry.
Speaker 3: Having said that, well, but we saved.
Speaker 4: The industry overall, and I think it was I think
Speaker 4: it was the right thing to let spirit go through
Speaker 4: what they are. Having said that, it kind of normalized
Speaker 4: trillion dollar spending. And I think this is an issue
Speaker 4: that needs bipartisan support. You know, part of it is
Speaker 4: the mandatory spending. We have to deal with that part
Speaker 4: of the budget, and you know you also do though
Speaker 4: if you look.
Speaker 1: At what's being allocated for defense in budget, it's a lot.
Speaker 4: Look, there's no question, particularly in this day and age,
Speaker 4: we need to spend more money in defense. I think
Speaker 4: right now it's going to be hard to spend another
Speaker 4: five hundred billion dollars in defense without significantly cutting other
Speaker 4: things out of the budget. So I am concerned about deficits.
Speaker 4: I think this has to be dealt with. And I
Speaker 4: think the good thing is President Trump understands these issues
Speaker 4: and if there's someone who can tackle the spending issues,
Speaker 4: I think he's the one to do it.
Speaker 5: Does this mean, I mean, what's the make or break moment?
Speaker 1: Because I'll go back ten fifteen years we were talking
Speaker 1: about concerns about the deficit or more, and then it
Speaker 1: kind of faded away.
Speaker 5: So what is the make or break moment?
Speaker 1: And I think about this in the context of Kevin
Speaker 1: warsh coming in as the next FED share you know,
Speaker 1: in terms of servicing the dent and so on and
Speaker 1: so forth, pressure that might be on him kind of
Speaker 1: roll it all together. Do you think that he should
Speaker 1: be cutting rates in this environment?
Speaker 4: Well, I think we're close to the equilibrium rate. So
Speaker 4: before the situation in the Mid East, we did have
Speaker 4: inflation coming down close to the FEDS two percent target,
Speaker 4: and I think you could say the equilibrium rate is
Speaker 4: probably between two and a half and three percent.
Speaker 3: So we're close to that level.
Speaker 4: Also, there's no question that the deficits push up our
Speaker 4: cost of funding, so that there's a risk premium built in.
Speaker 4: And one of the things that Kevin is talking about,
Speaker 4: which I also support, is shrinking the fed's portfolio. Well,
Speaker 4: if you shrink the fed's portfolio, that's also another tool
Speaker 4: that you don't.
Speaker 3: Have to lower rates.
Speaker 4: Ultimately, the FED does shrek term set short term rights.
Speaker 4: If they're not doing quantitative easing, which they're not going
Speaker 4: to do now, they're not setting long term rights. I mean,
Speaker 4: and I don't think we're going to have a make
Speaker 4: or break moment where one day we wake up and
Speaker 4: we can't finance the debt. I do think you'll see
Speaker 4: an increase in risk premiums. I mean, you see the
Speaker 4: thirty year bond kind of approaching, you know, kind of
Speaker 4: five percent. Part of that is the volatility around inflation
Speaker 4: and what's going to happen with the word. But part
Speaker 4: of that is also just pushing up the cost of
Speaker 4: long term financing for us.
Speaker 2: What's Kevin worshin for when he wakes up in the
Speaker 2: morning and looks at truth social is this contentious relationship
Speaker 2: with the chair if he's not cutting going to continue.
Speaker 3: I think Kevin will be terrific in his new job. Ok.
Speaker 4: I think he will be an independent fat That doesn't
Speaker 4: mean that he will or won't agree with the president. Now, look,
Speaker 4: part of it is where interest rates are depending on
Speaker 4: the economy. If we continue to have a very strong economy,
Speaker 4: we're not going to need to cut rights. If for
Speaker 4: whatever reason, we go into a recession, we will have
Speaker 4: one percent rates. So I mean, we had zero rates
Speaker 4: in COVID. You know there was a reason why they
Speaker 4: went down to zero.
Speaker 5: Hey, we can't leave without talking about lions Gate. Thank you.
Speaker 5: Guys have about a thirteen percent position. Do what's your
Speaker 5: plan with lions Gate? What do you want to do?
Speaker 4: It's a great business. I've recently gone on the board.
Speaker 4: Lionsgate is one of the few independent studios left. It
Speaker 4: has an incredible film library, and Michael's been a great success.
Speaker 3: So you want to learn all the story Michael Jackson.
Speaker 3: I can't comment on that.
Speaker 2: Well, so let's wrap with one fun question about the movies.
Speaker 2: Michael is an incredible debut. It looks like it's across
Speaker 2: the board when it comes to demographics, and we're in
Speaker 2: a world where consumer sentiment is pointing lower. They're worries
Speaker 2: about consumer spending, the price of gas, but they're lining
Speaker 2: up for that movie.
Speaker 6: What does that tell us about that?
Speaker 4: It shows you that when you have the right content,
Speaker 4: people still want to go to the movies. It's not
Speaker 4: just about sitting at home and watching it on TV.
Speaker 4: And you know, Michael Jackson was just an incredible performer
Speaker 4: and his music was obviously pretty extraordinary on my playlist,
Speaker 4: got to be and we all remember growing up with
Speaker 4: MTVA and trailer.
Speaker 6: It's not just old folks going on exactly not.
Speaker 5: You do you miss the administration?
Speaker 4: Being inside, it was an experience of a lifetime. I
Speaker 4: couldn't be happier that I did it. I'm proud of
Speaker 4: what we did. I'm enjoying being on the outside and
Speaker 4: rooting for them.
Speaker 5: Well, we certainly enjoyed having here. Thank you so much.
Speaker 1: Really appreciate Steven Menisin of course former Treasury Secretary, and
Speaker 1: of course he is Liberty Strategic Capital founder and managing partner.