Bloomberg Surveillance TV: January 22, 2025

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and a Marie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. Joining us now

Thank you for me.

It's great here.

Do you feel happy? Do you feel lighter now you know you're stepping down and Retiringhi have it.

I'm in the company for more than four years.

I add my contribution to the success of the company.

The company is in an amazing place at the moment.

It is the right time to embrace the next generation, to work with Jamie and prepare the company for the future and his succession. So I feel good about the opportunity company gave me my contribution and looking forward to a very violence life going forward.

You are living the life that we all aspire to.

Why now and what do you expect the next twelve to eighteen months.

To look like?

So it's very simple in the next This has been planned for a long period of time, and now is the time for me to transition a very very smooth way. This transition will go over a couple of years. I will my job will be to help the management team to continue advising Jamie and the war in issues that there is strategic and important for JP Morgan and for the future of the company. So it is a right time. It is the right group that I helped Jamie.

To build up to.

So I think that I feel good about where the company is and where I am now.

I've been a JP Morgan and it's Affilia Banks for poor decades. It's a long time.

You've been to a lot of Davoss.

You've seen a lot of different cycles of enthusiasm. How enthusiastic is the optimism around the deal making and some of the mergers and acquisitions that could come down the pike.

I think that is quite enthusiastic.

It was twenty four was a very good year too, So you think about them. An historical average of volumes around four trillion a year in twenty three, it was around three point two, last year three point five. We think that this year could get to around for trillion, which is historical average. And most important, we hope that the timing but there in the US to approve transaction is not as long. It's moved from six months in the bus to running eighteen months.

Hopefully we go go back.

It's not just to announce new lys, also to close new There's an environment is said for that.

Let's talk about the environment. Is it just a regulatory shift that we need or do you find that four percent five percent interest rates of how people back as well?

I think that if you think about the US economy has grown very well in twenty four over three percent. It's likely to grow over two percent this year, So the environment is good. I think that even that is an economy that you don't see and balances that tell you that it is an economy that is about to go into recession. This cycle could continue for a period of time. There is plenty of monetization that needs to be done in the sponsor space.

That is like essentially the evaluations.

In the US that are much higher than any other places. It's also incentivizeding merging into US companies, So I think that it would be a good environment.

Which way to one bank yesterday who suggested that maybe these US companies could go on a bit of a shopping spread in places like Europe with evaluations were depressed. You engage any active conversations right now in companies looking to do those kind of things.

So we are always engaged with clients all over the world, and there is a lot of optimism everywhere about where the US could do.

So therefore, yes, there is dialogue everywhere.

So everyone sounds very optimistic, and then you go to some of these forries in the evening and people say there's a lot of enthusiasm. What actually will get done we're less clear on, just simply because there is that question mark to John's point about benchmark rates, about the fact that the economy isn't slowing down so much, so why would they go any lower? And what happens if they go higher still because of debt and deficit.

I tell you how I think about it.

When you think about the US economy, isn't a good place there not imbalance is consumer is in a good place, the corporate sector is in a good place. Inflation hasn't yet got to the levels that it should be, and the deficit is high. And then you have policies coming from immigration, policies started physical the policies and others.

So at the end, the government is about growth.

So therefore I hope they will balance the implementation of those policies in a way that it doesn't either overhit the economy or triggers a recessions. So I think that the hope is because of that, because the economy is in a good place, and certain things like rational revelation, I don't like to talk about the regulation. Rational regulation in our sector, in any other sector could be good for growth, but if things go too far, then the fact will have may.

Have to hydrate and deal with inflation. Hopefully doesn't happen.

I guess what I'm getting at. Some people are asking what potentially derail this optimism? Is there anything that you could see derailing this optimism this year at a time where people are basically counting on this sort of rational regulation or some of the other growth measures.

It's an extent, is what I said like inflation.

Could be that economy goes a bit too fast and doesn't allow inflation.

To to come down.

That geo political space is still in a challenging place, though there is some signs of potential improvement there. And at the end is like any other policy, you can do the right amount, you can do too much of do little. Hopefully the right amount, the right amount is done in a way that doesn't really derail. An economy that is not ready for a recession is an economy that is ready to continue to grow at a decent pace.

Daniel, A lot's changed in your banking career, tremendous amount, and now a bunch of alternative asset managers are looking for the activity that traditionally was on a bank balance sheet. Can you walk us through as you depart, how different banking might look in the years ahead compared to when you first started.

Well, it's very different.

I think that is in a better place, with more scale, better quality of service, is a better quality of products, and a safer industry that probably has ever been. I think that you are referring to private credit. I think that banks we've been lending for two hundred years, and private credit is no more than a normal loan. So I think that we feel very good and where we

And we are in an.

Amazing position to compete because we do have relationship with all those clients and we offer them not just the loan, We offer them a bunch of activities.

We saw a relationship developed between Mark row AND's Apollo and Jane Fraser City and that'nced the end of last year. Are you exploring similar partnerships we have?

We have plenty of partnerships, several where we have coll landing facilities. We rather as a managers and that they want to participate in the origination. The issue for all these funds at the moment is that they are getting a huge amount of influence and they may not be enough accests to deploy.

So therefore to.

Have a partnership with someone like us, a city or any other to be able to participate in the origination of these banks. It is a good thing we are doing the same, not just with one, with as many.

As we can.

That kindt dynamic gets people worried. Not to be negative Nelly here, but you know, going to worries we're going forward.

I realize, okay, I.

Realized that I'm sounding pretty negative. But I'm wondering, given how much the flows have come in to the private credit sphere and how they've been searching for ways to be deployed, is there anything that makes you nervous within this ecosystem that's grown up.

Very quickly.

At the moment now, I think that when you look at these funds, they don't have too much leverage. Their leverage one one and a have times so from that point of view, particularly in the more in the bigger space, bigger.

Loans and not so much.

The only thing that made me post and think about it is there is a lot of direct lending going into small business. There is a lot of direg lending going into the smaller side of middle market, and this industry in the current form hasn't been tested through a down turn cycle because when COVID happened, it was all subsidized by the different governments. So how these funds are going to behave in a downturn with small business is something that you want.

To be concerned about. It you want to keep an eye on.

But I don't think that there is a systemic re.

Issue in this space in the short term. The components are not there for that to happen.

Then you find a question. That's the golf game, It's.

Okay, it's been deteriorating's a very really worse.

What's the handicap now?

It has gone from five to eight? Wipfully to do it?

Now?

Can you appreciate your time, sir? Congratulations on a fantastic career. Now I can do a more formal introduction to the former US Secretary of State John Carey, also co executive chair of Galvanized Climate Solutions. Secretary carry good to see you, sir, start again. We're starting can help be more rugby. I'm happy to see you, you know I am.

Thank you, sir.

The new president says, drill, baby, drill. I want to understand how you feel about that and what kind of trajectory you think we might be going on through the next four years.

Well, I think I think the President's correct that we need an abundance of what we call firm energy.

We need to make sure that America.

Is leading in the technologies of this this transition to new energy, clean energy.

But I would say that build.

Baby, builder, I mean drill mayby drill ought to be replaced by build, may be build, because that's what we need to do in all aspects of energy. There will be higher demand. He's absolutely correct, and I'm glad to see a five hundred million dollar infrastructure announced because that's going to be the key to our doing it, and it's going to be the key to leading in AI BUTT and there's a huge butt. Data centers demand a massive amount of energy, and.

That's going to become very competitive.

Will that energy be provided by clean energy or is it going to just add to the problem we have of a warming planet with increased intensity to our storms, more damage all around the world. We haven't suddenly lost the connection between the choices we make about how we provide energy and its impact just because we elected a new president. So we've got to stay tuned into the science. We have to stay tuned into the marketplace, and the marketplace is going to move predominantly in the direction of

Is that the marketplace or government intervention.

Last the marketplace. It's happening all around the world.

I mean, I've been recently in the Far East in Singapore, and.

Recently also in the Middle East.

In most of the Middle Eastern countries, everyone is engaged in this transition. UA a major producer of oil and gas, is also a major producer of new nuclear plants.

They've got four new nuclear plants.

They have a vast array of solar one of the largest fields in the world, and they are determined to have a higher level of energy produced by renewable energy.

The building on John is talking about, I'm thinking about, let's say, the electric vehicle credits, and there was this idea that we would really transition people to vehicles that were considered cleaner. And yet China did it successfully because they have the resources to do that.

The United States doesn't.

They need to import them, and it actually makes it in the US more dependent on other places or some of the government policies misguided in what was necessary to actually tackle the problem. From an economic perspective.

I think we've worked very hard to open up new supply chains, and we did open up new supply chains India as an example, we were invested at about five hundred million dollars in trying to build, not trying to in building the largest production plant in the world. And yes, China has in fact captured much of that market, and they captured it frankly with unfair trade practices, which is one of the reasons that's a legitimate issue.

Between US and them, and we have to work that out.

Solar was really worked on and developed by the United States and Germany and then China stepped in. There was a massive amount of dumping into our country and.

The production gravitated towards China.

But today China is now I mean, many people complain, including the President. President said China is not doing what it should be doing well. China is the largest producer of renewable energy and deployer of renewable energy anywhere in the world, including more than all the rest of the world put together. So China is now commanding the market just by virtue of its production level.

We need to get into that and compete.

But it raises this.

Question national security versus cleaner energy. It kind of pits two of your babies together. It sort of raises this question, which do you prioritize.

The climate crisis is a national security crisis. The fact there's are about thirty nine million people wandering around Africa elsewhere trying to knock on the door of places where they think they can live because they can't live there anymore. They can't produce the food anymore, it's getting too hot, you can't work outdoors, so that's going to increase that challenge. We had about a million people come in from the desert into Damascus, which changed the dynamic of the Arab spring.

And of the war in Syria. So there's a linkage.

What happens when water starts being reduced in spread, what happens when the food basket of Africa implodes as they can't grow it anymore. These are real threats that smart people are spending a lot of time analyzing and understanding, and within the Pentagon, the Pentagon has called the climate crisis a threat multiplier. It presents serious challenges to all of us, and we need to treat it like the security issue that it really is.

You understand to Lisa's point that we have become more dependent on an adversary on China for all the reasons that you describe, and yet we have some of these critical minerals, these resources within the United States. I'm sure you're familiar with the resolution copper deposit that Rio's explored.

We have a problem in the United States, which I hope will be cured. It's a bipartisan challenge. We need Republicans and Democrats alike to come together in order to do permitting reform. Two thousand gigawatts, a huge amount of energy, almost as much as China has today. We have that backed up at FIRK Federal Energy Regulatory Commission, that has not been improved over these years.

Why politics.

So I hope we're going to get the politics out of the way, and I think President Trump understands that that is a way to accelerate the deployment of the energy that he has now said.

It didn't happen under a Democratic president.

Didn't come pa Sis, Why didn't the immigration bill? Why didn't the immigration bill that had been put together with you know, Senator Langford from Oklahoma, he worked hard at that.

It was bipartisan, it was ready to be passed. And President Trump then then, you know, former President Trump called up and said, don't pass this. It will help the Democrats, it'll help the divide administration look good.

I don't want to get involve themselves.

Look, I'm not here the start of this conversation. Do you think do you think they helped themselves for the last four years, the Democrats over the last four years did the party have themselves.

I think there were serious questions about the message and so forth. But I'm not here to be political. I'm here to talk about the energy crisis.

Isn't that something very political about this crisis? Though it is by.

Starting nation, it seems to have been weaponized, and unfortunately that's a loss for all Americans.

For instance, if you.

Decide, as president has to pull out of Paris, we are not at the table. We lose the leverage of being at the table. We lose the protection of our country in terms of something that might be passed or not passed by.

Not being at the table. Moreover, you know.

Last time he pulled out, there was only one person in the entire world of all the leaders in the world that pulled out of the Paris Agreement. And by the way, the Paris Agreement was still implemented in the United States because we have thirty seven governors who implement renewable portfolio laws and they did that. We had over one thousand mayors join into something called the worst stell In movement. And that's exactly what's going to happen now.

Better than anybody.

The power of the marketplace is what is going to make determinations. Air oil is a commodity and hasn't really changed much in price for over one hundred years. But technology is what is really driving these changes that are taking place, and I think rather than being driven by commodity prices, this revolution is going to be driven by technology prices, which are now lower than the prices of fossil fuel.

You've been a big proponent of not exceeding this one point five degree increase in the global climate. You've said that you think we're going to blow past it. You're working with Tom Steyer of Galvanies try to raise money.

There's been a huge.

Vibe shift away from ESG where people are saying, well, if we can't solve it, whatever, how do you sort of see the enthusia siasm to invest in things that have been highly politicized.

Really, that is a great question.

I'm really glad you asked it because it's central to what we're doing. Nothing that we're doing is based on reliance on the government to do something, or reliance on.

A subsidy of some kind. We're not in there to find.

Or to be the source of concessionary funding or to find the concessionary funding. We are investing in portfolio companies that have the ability to affect this transition just on basic fundamentals of business, just looking at the marketplace, and we will show people how, in fact, and there are other companies doing this now, how this transition will allow you to invest and make money and you will be able to make better returns than some other things that

Geothermal may be a part of it, but you need an all of the above.

Investment effort now because the science is telling us we have to move faster and ultimately that demand is going to change people's attitude about this. You know, electric vehicles grew by fivefold last year, in sales grew by about fourfold last year. Solar has now had a sixty percent reduction in price. So whereas oil is affected by the economy as a commodity, the renewable portfolios are going to be affected by the technology change which is lowering their costs.

You'll feel me to jumping in because we're up against the clocks. But I just wanted to fit in one final question because your voice is important on this issue. Are you encouraged by recent developments in the Middle East and the agreement strung between Hamas and Israel.

Well, obviously, I think it's great that we've got an agreement that a lot of people worked extremely hard on for some period of time.

Things are always tentative and difficult in that part of the world.

A lot will depend on the government of Israel and how it approaches the future. I saw a debate this morning on TV about the meaning of the West Bank, and if efforts are made, I think to move to the sort of greater Sumaria today a Samaria.

Philosophy.

Without resolving what's going to happen in the long term governance, it's.

Going to be a real problem.

So hopefully wiser heads will prevail and people move forward. But you have to begin to build, build in building box. This is the first step. Build a little confidence, make some things happen, but then hopefully have a shared vision for the long term future of Gaza and of the West Bank, and obviously for Israel security, which is paramount. You've got to be able to resolve that as you move forward.

I think we all share that hope. Thanks for being with this. I appreciate your time.

As always to be here with you.

Don't carry that the former US Secretary of State joining us not to discuss. It's the Guggenheims, Cio and Welsh and it's going to see you. Good morning, welcome to the studio. Let's talk about it. The salespeople running around Davos trying to sell saying things are really good in America right now, get even bets. You've got to put money to work. We're already priced for a lot of that. How challenging is it for you and the team.

Well, it is an interesting time. You've got rates that are range bound the ten year trading between we'll call it three seventy five and four seventy five. You have credit spreads that are tight relative to history, and you have stocks that are stretched and valuation relative to expectations and at a risk premium that is less than zero. So it can be very tricky at this particular juncture.

To invest in.

I remember this sort of pendulum switching from bonds to stocks, people saying that stocks really seem like the dynamic place to be in a pro growth administration at a time where inflation hasn't completely gone down. Do you agree with that that stocks are preferable to bonds at a time or really growth is the main theme?

Well, I think that does give a lift to stocks, and as long as earnings per share projections turn out to be accurate, I think that there's still room for opportunity inequities. However, we also have to remember that not all markets.

Are exactly the same.

So if you look at the Russell two thousand, you still have a very high percentage around forty percent that are non earners, and the mag seven of course as well, below risk premium levels that we've seen not since the late nineteen nineties where we had negative negative risk premiums. So I think that we have some risk associated with the market that it is priced for perfection. So I

Stocks are priced to perfection in your view, our bonds price to perfection.

No, Actually, I think there's some real opportunities in fixed income.

Still we have a risk premium.

That's positive relative to certainly relative to equities. And also you're getting a real rate of return that is much better than we had pre COVID, and you're getting a nominal rate of return in any number of areas that make a lot of sense. So we like all sorts of credit stories, structured credit, corporate credit, even high yield, and particularly the high quality portion of the high yield market. So there's still some real, real fundamental value that can be found in fixed income.

Can you say the same thing about treasuries?

Well, like I said, we're range bound in treasuries, and there's a trade that's actionable there. As we go up towards the top end of the range on the high fours, if you will, four seventy five, you can extend duration. You can then also as we've moved back shorten after all, we saw one hundred and twenty basis point rise in the ten year and we were able to play that trajectory really quite nimbly, if you will, during that window of time.

The incoming government might have to look at extending duration as well. Will that complicate things? How do you think about the deficit concerns of the moment and do you think that's been responsible for the pickup and yields we've seen through December and into the new year.

I think there's a couple things that have really influenced the rise and rate. One is the deficit, and it's a real concern who's going to buy all these bonds that we have to issue in the US. Right now, we're still being able to be financed through both US investors as well as international investors. So that story is still playing out pretty well. But at the same time, you also have a FED that is sending mixed signals

You know, John alluded to this idea that the US has to finance all this, and you are mentioning this, right, where's the money going to actually come from?

And we've talked.

About how that sucking sound of cash going into the United States to feel this crowding out some of the debt issue ins and other assets and other regions. How destabilizing is it to have one economy accelerating so quickly and diverging from the rest of the world.

Well, it is unusual. But what I would also say is that because the strength of the US economy has definitely been there if we continue to see an inflow of capital, and I think we're going to continue to see that, and the opportunity for investment is going to go beyond the markets necessarily and into infrastructure, investment, manufacturing, build out, real.

Estate or the US for the US, not for the rest of the world.

Not for the rest of the world so much, and so there's going to have to be some real balance there. For the meantime, the US is going to continue to attract capital.

Can we get you excited about Europe in any way, shape or form. Were sitting care in Switzerland. It's beautiful, it's beautiful. A lot of people say it's a great place for vacation. I've always been sold that by US based investors. Can we get you excited about Europe at all?

I think that Europe has some real opportunity, but they have to really make some structural changes and we'll see if Europe is able to do that.

One of the areas of.

Maybe concern or caution is that previously very stable governments are seeing some turmoil. France, Germany elections coming up, and so I think that as we come through those and we see more evidence of the trajectory.

And if we see a real desire for Europe.

To engage in structural reforms, then I think we might be able to see an investable opportunity.

There's lots of facts and I appreciate your time as always, it's good to see it and Welsh the Cockenheim Cio. Lots of changes overnight on the trade front once again, lots of threats that we can explore with the former US House Speaker Paul Ryan speaker run it's going to say you sir, it good to be with you. Let's think about the ideology at the sitting president. What is the ideology? What's your familiarity with the ideology around things like trade.

I think the best way to describe as America first. I think he's articulately in America first on trades, a little more more caantilistic, say than the traditional Republican you know Reagan free trade. But America first is the quickest way of describing it. A lot of good fiscal policy, you know, regulatory policy, tax policy.

There's a lot of optimism.

Frankly, but on trade, I mean, I'm sure you have an international audience here. There's going to be some trade friction, no two ways about.

It, without a doubt. How do you feel about the mccancil has taken over the Republican Party. It's not the right step.

Well, there's different kinds of Republicans. I'm a classical liberal, free market, free trade Republican, so I'm a different breed of a Republican. His breed of populist Trump Republican is is the ascendant breed. They're basically the dominant force in the Republican Party. Donald Trump is the dominant force in the Republican Party, no toys about it. But we have a coalition that is playing nice with each other right now. And frankly, I'm optimistic on a lot of policies that

The executive branch.

Has an enormous amount of power when it comes to trade policy. That's something that one hundred years ago Congress seated to the White House. But on all this other fiscal policy, Congress has a huge role to play, and it's really important that Republicans stay unified with these razor thin majorities we have.

One of the initiatives that they need to deal with is the deficit. And I'm focused very much on the bond markets, and I'm sure you are too as a free market Republican. And I just wonder how much conviction you really see in both camps of the Republican Party as you just laid out to truly combat some of the deficit concerns that we feel here at DAVA.

They're definitely definite hawks, and Congress no toys about it. The people running the various committees in charge of this, the budget, the ways the means can be, definance can be, they.

Are deficit hawks.

So first of all, you can't do well on your debt servicing if you don't have don lal GDP growth outpacing your debt servicing costs. So number one, fast economic growth is paramount. That's why this deregulation is very necessary. That's why extending tax reform is necessary. We don't want to hit the economy with a wet blanket like Biden did with the promise to higher taxes and more regulations.

Really important on the debt.

The only way to get the debt under control is to do in titlement reform that's more of a comprehensive thing. That's what I spent most of my time in Congress working on.

I think there's a way to do it.

There's the most bipartisan solution that's out there right now are these fiscal commissions.

There's a lot of talk about that.

It wouldn't surprise me if Congress acted in a bipart is a way on a fiscal commission, not like Wull Simpsons, which I served on, but one with teeth that requires action. That's probably the biggest talk in town right now about real debt reduction, but in reconciliation.

Who knows, you could see some debt reduction occur there too.

We've already heard though from this administration. They're not going to Social Security, they're not going to cut Medicare, they're not going to cut any of those titlements that they really want to cut. And I just wonder what.

I wouldn't say they really want to cut.

Okay, everybody who ran for president lately has been saying we're not touching these things.

I don't agree with that. I'm a different, like I said, reading and.

It's going to hit the wall that there's going to be a real challenge to undermines some of the optimism that we're hearing here.

Well, within a decade you have both the Medicare part a trust fund and the Social Career Trust Fund going bankrupt and solve it. So you have to do something about that. You've got to step in front of that. By the way, you don't need to cut these programs to fix this. You can grow them a little more slowly. You can reform these programs, and you can do it in a prospective way so that you don't affect people in or near retirement, but do it for the younger generation like my ex generation.

So there are good reforms.

Out there that I think are politically palatable that move the needle on the debt tremendously. The question is whether or not. And by the way, if it were easy, we had already done it. I pass four budgets in the House when our budget shair that did this, but they did meant nowhere in the Senate.

So this is really hard to.

Do, which you have for an extension of the tax cuts and jobs that absolutely why.

Does not make sense because we want growth.

If you don't do this.

The kind of tax increases that are going to hit the economy. First of all, immunia, expensing, R and D, amortization. These are very important business tax relief. But what people who aren't Americans don't necessarily see is more than two thirds of our businesses are not CEA corporations. They're passed through LLCs sub sub Chapter A S corporations.

They pay their taxes as individuals.

There's a massive tax increase on those businesses the engine of job creation in America if you let those things expire.

So that's really important. It's this thing we call Section one nine A. I don't want to get too deep in the details.

We haven't got signed.

You're going to hit. You're going is gonna be.

Bad for the economy if you let those tax cuts expire.

So you do need to extend.

Sous And said the same thing. They said, it could be an economic calamity. Could you describe that colomacy for us?

Just how about I'd say about eighty percent of small businesses would have a massive tax increase, over twenty percent tax increase. And oh, by the way, you'll put them at a massive competitive disadvantage against corporations, huge job dislocation, and most of our jobs come from small and medium businesses. You cannot hit those with a big tax increase.

You know, that's difficult to re import together these bills. That's only one piece of a tax eff.

Yeah, I wrote the last one night you're it was I had a twenty two seat margin.

Easier to play with the twenty and.

A half dozen montins this time around. How difficult is it going to base it to an I think above and beyond just extending. This is why I.

Say Republicans need to stay unified because all of us agree on this, this fiscal this type of fiscal policy. We may have different agreements on trade, we don't have disagreements on this. Really important that Republican factionalism doesn't occur. They stay unified and get this done. The country's counting on us. Donald Trump promised it, and one of the reasons why people are so optimistic is because they believe this is going to happen.

At Tanao, we pulled.

Seven hundred CEOs ten trillion dollars a wealth and it's a thirty two point swing in optimism from last year to this year.

We've seen it on the US E Konda can tye spake Iron. We hear it repeatedly every single out that.

Optimism has to be translated into policy for it to be realized, and that means past this bill Speaker Ron, Thank.

You, sir.

This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business opp