Surveillance: Davos, Day 1 (Podcast)

can synthesize it together. Jason Furman. He's professor at Harvard Kennedy School, former chairman of the U S Council of Economic Advisors. What he does more than anyone in this nation is stand up in front of bright cherubs and teach them their first course in economics at Harvard. He is the one who has followed on from mank You

and Martin Feldstein to deliver what's called eck ten. What did you say in the first week of May to the eager students who have never seen a buying market like this and never seen the second derivative moves that we're seeing in markets as it relates to our economy. Well, to my students, I told them that when the price goes down, the yield goes up. Where do we need somebody tired? I think your viewers are probably on top

of that one already. Um, what I'm not sure your viewers are on top of is that I think this inflation is going to be pretty persistent, not where it is now, but way above where the Fed wants it going to be to be. That means the Fed is going to need to stay at it. A FED funds right to four percent or higher, completely plausible, not at all priced into the market right now because a lot of people like Marky Batel who was just on, believes that the Federals are will come out and they will

rescue the markets. And you're saying, no way why because we are way above our inflation target. That is the job the Fed was assigned. You have a share who talks about himself in the sort of wake of Paul Boker and that historical shadow. He wants to bring that inflation down right now. The market is helping him do his job. I think this is not an accident. This is almost something that they are fine with. We were laughing. We shouldn't have been laughing completely because the prospect of

a recession is horrendous. Do you think it's avoidable, as Joe Biden said, or do you think the Fed frankly has to essentially allow that to happen to cool the inflation as it is over the next year. I'm not that worried. I mean, I'm always attent for a recession. Maybe I'm at now for the next year, but not much higher. Consumers are still spending a lot, there's people coming off the sidelines for jobs. This more inventory rebuilding to be done. When you look after this year, that's

when I get more worried. That's when more of the FED rate hikes start to kick in and affecting the economy. Jason, the pungentry out there right now, I've never seen It's worth some two thousand nine. Those pundits are silent when they listen to you within the geometry of where we are. When we get interest rates to slam like they are when you give us the fear of a terminal rate to four percent, how does that link in to the

actual assumption of bonds and separately, the total return of equities. Yeah, I think that the long bonds haven't fully priced in that. You know, they think the Fed's gonna stop at three percent. That might happen. We might hit a recession and they go back to zero, but that we could be at four, well above four. I think that's the modal scenario. When you look at something like the long yields, those just haven't gone up the same way they have on the

front end. Or Benjamin Friedman, the giant of Harvard Economics, let's go back to the Napoleonic Wars, or the Panic of eighteen seventy, the gyrations out of World War One, of fractured Europe and all. That's the arch fear that's out there for truly a generation or two that have not enjoyed what we're in right now. What does it do to a portfolio? What does it do to a pension fund? Yeah? I mean that interest rate shows up in every single stock price as on the discount factor.

That's why you know almost every single stock price is going down right now. Leverage locas from like you trying to pitch that is how what you're going They want me to start it if they wann't starting the E T F for an n n F T. Remember what I can imagine defense the fear here, Jason, is if we get a further first and second to rivetive move that we've all enjoyed for four months, that we're going

to get a true negative thirty five percent. Now, we're gonna get bonds like we've never never seen back to say the thirties. Do you ascribe to them. I think that's a possibility. Look, I focused more on the real economy. I look at households that have two point three trillion dollars still saved up from all the transfers they got over the last two years. I look at businesses who still are facing pretty good financing if they want to

make more investments. I look at a global environment where the dollar strength is you know, worrying me, and the down draft we're getting on net exports. So I'm looking at those factors overall. You know, I think we're gonna see a lot of jobs this year. So there are some people who believe that the more we see a momentum and a lack of recession now, the worst it will be later. And they point to people levering up on the consumer side once again in order to fuel

their purchases even at higher prices. Do you agree I think that's possible. It really depends, you know, the fat things. Inflation is coming down to two and a half percent. If that happens in this sort of a chance it happens, that will be wonderful. We can avoid all these things if inflation stays stuck at four and a half five percent, and that's roughly where the underlying inflation rate is right now. Um. I don't know what sort of and you'd need if

you want to bring it back down. One minute long agoing far away, a Columbia professor saw a kid at Harvard, and you said, this kid is different. He's gonna work with me. How dead on was your mentor? Joe Stiglets on globalization and its discontents. It's shocky I saw Joe. Joe. Joe doesn't love globalization, but Joe likes it here in Davos. Uh um uh. You know. I think I think we're seeing a pause and globalization. I think we're seeing a plateau.

I don't think we're going to see that bigger transtrument because there are so many efficiency gains from operating all over the world. We'll see some recalibration, but I don't think there's going to be a big withdrawal from it. And I don't think there should be in the agreement that we have folks. Just so you understand this is I get to choose one guest, so we have the

optimism of Jason Furman and you stiglets. We haven't ye Siglets will be coming up and he'll be character we said, we heard that you like globalization here at Davos, I was wishing, I told us. And we'll see what he responds to get a start of here in Dovlson right now at the conversation Tom that we're about to have really sums up. Can we get a reprieve from the seven straight weeks of declines the longest stretch going back to two thousand one? Is this what we're seeing this morning?

Head fake? Or is it really the start of a by the depth and it goes to the synthesis that we're in here, and it's the market coverage of equities, bonds, currencies, bonds.

Rebecca Patterson has dealt in all those areas and it's culminated after her work at Bessemer with Bridgewater, where she is chief investment strategist with a guy named Prince and Dalio as well our Prince, our Prince and Dalio in speaking terms, absolutely, Okay, what what's the latest meetings like in terms of the volatility we're seeing, the complexities and nuances. What is the tone within your meetings as you assess

is two thousand twenty two. Well, obviously, as you hinted at least that there's just so much changing now structurally as well as cyclically, and so there's a lot of people saying, where are we going not just the next month or next quarter, but the next five to ten years. If we do deglobalize or regionalize, what does that look like? What are the implications of that? As well as the short term worries over can the Fed? Will the FED tighten enough to get inflation back down to its target?

If we have higher, stickier inflation for longer, how does that flow through to the market. So a lot of uncertainty. If I had to sum it up, how do you determine whether a move like what we're seeing ahead of the open today is a head fake or not. Well, we don't trade daily wiggles in the market, so we'd take a step back and say, Okay, what's discounted? A

lot has changed since the beginning of the year. I think the biggest change has been discounted tightening by central banks, particularly the FED, and we have seen that flow through clearly to the bond market, and we have seen the equity declined so far largely a function of the change and discount rates. You haven't seen a major change in expected earnings growth, and so that to us is the thing we're watching. If this is a head fake or continuing,

that would be the shoe to drop. If the FED continues to tighten to try to reduce demand to get inflation under control, I would expect to see that flow through into discounted growth, which then eventually should bring equities that next leg lower. For years, people were saying that markets were benefiting even though the economy was not, and it actually we saw all of the financialization represented by an STP on a vertical trajectory. Are we heading into

the opposite? Can we be heading into the opposite where we see markets lag behind an economy that continues to be strong. Actually, that has been our view and continues to be our view as we look ahead, that we're in a situation now where the nominal economy is likely

to outperform financial markets fairly substantially. UM and that is mainly a function of the policy reaction we got during the pan stomach, all the fiscal and monetary stimulus that came through and left households wealthier than before the pandemic, corporate balance sheets stronger than before the pandemic. It gives them a cushion to withstand the tightening. So it is going to feed through to markets. And obviously that wealth effect will also feed through to the economy. But that's

starting strong. Non no point for the economy means financial assets could underperform. You've got it, Bridgewater and your fancy kitchen. They get the whole sub zero thing like the big stone. Look who's talking blue? Hello, Regalile memorial pressure cooker. And the only reason I hired you is the steam coming out of the kettle. Is the currency market? To me the conundrum here, and you beautifully describe the fiscal impulse and the wealthy that occurred, and maybe the d well

thing that's occurred. Now, what what releases the pressure is dollar dynamics? What kind of pressures will we see? Well, I think the most important thing to understand about the dollar right now is how quickly our external need for foreign capital is increasing. So if you go on your Bloomberg page, it will show our current account deficit for the United States at around three and a half percent, which is already a big widening. Our timely estimates suggest

us closer to five or six percent of GDP. And so for the dollar to stay supported, we need to continue getting enough capital to offset that, and we think there's a growing risk around that. So the dollar we think is vulnerable on a cyclical basis and also a structural basis. This is important, Steve Roach one oh one. Someone has supported us for years here and and Davos. And if we get a twin deficit, do you link those two together mathematically or philosophically? Do you link current

account with recession bloom together or the two separate events. Well, they are mathematically linked, as as you know. Well, Tom, you're being humble, Yeah you do. But I think what what we're following. It's like this is a tip, surveillance tip. Don't ask the question unless you know the answer. It's just like judge, Judy, continue, so that the current account, the balance of payments is what I'm focused on, relatively more um and so that financing need is the is

the canary in the coal mine. If US growth continues to outperform the rest of the world, if interest rates in the US continue to be so much more attractive, both on an absolute level and on a change basis, that maybe the US does continue to hold up for the dollar. But it's a question market where do Where does the money go if it doesn't go to the Well, let's look, let's look. I mean you're to date, Japanese equities are actually outperforming US equities if you take out

the currency effect. Um UK stocks are outperforming US stocks, Some emerging market equities are outperforming, and so not all the capital is flooding here. It is looking for opportunities where policymakers are less constrained, where valuations are a lot less demanding, where positions where exposure is is a lot more moderate. What you said about yields being attractive to other nations, how high do treasure yields have to go in order to remain that attractive to support the dollar.

That's a great question, and I don't have a number for you. But what what is interesting to us when we look at the bond market, so we try to understand all the different players in every market. What motivates them to buy or sell. And when we look at the US bond market today, even though you have less issuance for the FED, flipping from quantitative easy into quantitative tightening is obviously very significant. But the big player that we're watching that we think is is suggest more upside

for bond yields are banks. So a year ago you had a steep curve, you had a ton of deposits coming in and the banks were putting that into bonds, so you had a lot of demand keeping down the yield. That's over the curve is flatter, the deposit inflow is slower, so there's less bank buying of bonds to hold down the yield. So when we look at who's going to buy those bonds if the Feds out, we still see a supply demand and balance that to us suggest yields higher.

I don't know what the magic number is, but we still think we have further to go on the upside. To go. Electrical engineering on you, this is within the perfect electrical system of Switzerland, and trust me, folks, it is perfect. The slew rates here that you're describing, how do you affect an interest rate parody strategy? A sophisticated hedge if you will. Given SLEW rates we've never seen before. Are you talking about risk parity? Are we talking about Yeah?

So what's so interesting to me about all of this is when you think about how most investors in the world of position for the last one or two decades, they have been biased towards rising growth and falling inflation. That's sixty forty, right, You're going to do your equities do well and growth is rising, et cetera. Right, it worked great till now and the world has gone upside down. So now we have falling growth and rising inflation. Obviously

we've seen the portfolio hit those folks have taken. The difference with risk parity strategies is that their balance for growth and inflation. So even if bond deals are going up, you have Allan's and other parts of the portfolio, namely commodities and other inflation sensitive assets, so they tend to hold up better through the cycles, including these periods. If they let me go back to New York, can you

come back and visit us to continue this discussion. Of course, it's the arch financial question for our listeners and viewers is the death of calibration? Rebecca Patterson just brilliant right now, Well, we've got a lot of things to speak of in a one hour conversation. We will compress with John Kerry. He is U S Special Climate Envoy and former U S Secretary of State, and whatever your politics, he is someone who has honed our political debate of this nation

for decades. It started at St. Paul's School. You're up at St. Paul's in Conquered New Hampshire. A few years that debate and discussion was beaten into you, wasn't it. At Although we we had to tradition of back and forth socratic, it was a it was a really important tradition back then. What happened to America where we walked away from the niceties of debate? Um? Well, the United States Senate used to be the greatest deliberative body in the world, and obviously a lot of people are anxious

about where the deliberation is today. It's it's changed, It's really changed. I think what happened is in the ninety nineties are politics changed? It became far angrier, far more intense, far more personal. You remember the discussions of politics of personal destruction and now, um, we have a lot of angry people who are who are appropriately angry on either side of the aisle right left, and they just don't feel the government's delivering to them, and we have to

change that. How does the US lead with such disunity at home? Oh? I think President Biden and showing you how you lead right now, he's in Asia uh and uh meeting with the Quad. He's been leading on global climate to change around the world. He put America back into the into put the United States back into the Paris Agreement, helped raise ambition in Glasgow, make Glasgow of success. Um. You know, I think people understand that we had four

difficult years. The country decided that was an aberration and elected President Biden. Now, Uh, we're in the busy building back process. But I think we've made a lot of progress of last year. The helicopter flying over says gop on the side of it. I think that's what right now, the Senator Kerry, I want to talk to you about climate. I was blown away a number of years ago with the Bank of America people. You you are not another

face talking climate, You're not another celeb talking client. You've actually leaned over the desk uh in Boston and said, I gotta learn the math. I gotta learn the statistics. It's been knocked asunder by the price of coal by this war in Ukraine. What is your strategy to sustain our focus on climate change given the tumult is measured by the price of coal. Well, President Biden is determined that over the course of the next months, we're gonna get ready for the next meeting by trying to raise

ambition around the world. We are very busy right now working with specific countries Indonesia, Vietnam, South Africa, India to bring capital to the table, to bring the finance and the technology to help them be able to deploy UH to meet the goals of the Glasgow Powers Agreement. But in addition to that, we have to work to get the trillions of dollars deployed. This is going to cost Litter League trillions of dollars in order to effect the transitions.

And the way that we can do that is by bringing various players to the table, philanthropy to help blend the finance. So you have people taking first risk, people who are de risking the investment and hopefully UH there are a lot of folks doing that we have companies that are now signing up. On Wednesday, we'll be making a major announcement with Bill Gates and Mark many Off of Salesforce, others of CEOs who are directing their companies

to become first movers. They're they're they're creating demand in the marketplace. Ordering ten of the steel Volvo or Ford Motor Company will buy is going to be uh green steel cement. The largest cement dealer in the world. Fulls in Lafarte is producing green cement. I mean there's just a whole range of things and aluminum in in car removal, in shipping. We only have a couple of minutes left and I do want to get your sense on gas.

You've talked about natural gas being central to the transition to a greener future, but not talked about investing over the next thirty to forty years. Because you're hoping to transition away from that. How do you dovetail them now into the future. I think it's critical that lending institutions that have a vast amount of capital involved in the fosil field industry begin to demand more from that industry.

It is appropriate, I think to have a gas transition for a short period for some period of time while you bring technology to scale that is going to change altogether what we're doing. The enormous amount of research right now, and frankly it's about a trillion dollars of venture capital already moving towards these new technologies green hydrogen, longer battery storage,

direct air have been capture, green hydraten. I mean, there there are things that are going to just change the way businesses do business, and that's going to be part of this revolution. I think we're looking at and I don't think this is exaggeration. We're looking at the largest economic opportunity and transformation since the Industrial Revolution. And this will be bigger because every nation in the world is going to have to move to a clean, new energy

economy and future. I want to center back here in the final question to the future of the Democratic Party. What we have seen is a centrist Joe Biden and you, as a centrist John Carey, overrun by a rigid progressive or liberal wing of the Democratic Party. What is your counsel as they maybe lose the House, maybe lose the Senate. Who knows of the White House, But what is the council you have to liberals who will not bend as you have spent a career bending. Well, I'd like to

thank I have it. I find the compromise where you can, and you need to. But you have to be reasonable. Obviously, you have to recognize, I mean the old saying in Washington, don't let the good, you know, don't let the perfect become the enemy of the good. You have to find a compromise. That's the nature of legislating. If you decide you want to be a legislator, do that, and we need to move in that direction. But I'm not in

the politics of the back and forth now. I'm trying to bring people together Republican, Democrat, liberal, conservative, to understand that this crisis is existential, doesn't have a political label. It's universal. It's not a bilateral issue between China and the United States. It is existential for everybody on the planet, and we need to be smarter about coming to solution. The best way you get there is through, you know, winning an election, but then also compromising to find a

path forward. John Kerry, thank you so much for joining us as he is. You are Special Presidential Envoy for Climate This is an important conversation each and every year at Davos there is someone who owns the valley. Usually it's some rock star that shows up by helicopter, or maybe it's some famous model that I don't know their name, you know, someone like that. This year's rock star is Joseph Stiglitz. He is in the Nobel Winner for the

Mysteries of Information. He has someone in Colombia who has taught and written about our discontents and with the challenges of globalization, given war in Ukraine and food crisis and others. Truly, Joe Stigletz is the attendee this year at Davos. If you wrote globalization and as discontents today, what would be different? I think, Uh, when I wrote globalization etiskan tent, I was mostly focused on the discontent in the South, in

the development countries and emerging markets. Since then, that discontent has become global. We've had globalization of global discontent, and I think part of the reason is that we've seen that globalization has left us in the United States unprepared for the COVID nineteen. We weren't able to prepare, uh produce even simple thing like face mass protective gear. Complicated

things and UH now. Uh, this broader discontented globalization that I talked about uh uh with emerging markets in developing countries is showing up in a peculiar way in the lack of support for the West, for the United States and Europe and other democracies, in the our position against

russiasm by of Ukraine. Before we get to that, though, is the inflation that we're seeing right now a symptom of these fissures of these crises, whether it's Russia and the war and you created the lockdowns in China, or is it just an exasperation of a deglobalization or reglobalization in a new form that people haven't fully understood yet. Well.

The disturbances are to a large extent a reflection of the same kind of short sidedness, uh, failure of markets to attend to risk adequately that we saw on the two thousand eight crisis. I wrote my book Making Globalization Work, The Sequel to Globalization and Discontent, that it was extraordinarily risky for jury to become so dependent on Russian gas. It was so clear back then that Russia was not

a reliable trade partner. Why would you put all your money in all your eggs in that basket, and yet Juror did, Europe did, and part of what we're seeing now because we didn't respond to climate change. You have Senator carry here a few minutes ago talking about this. We should have we should have moved to renewable energy,

realizing that it was more reliable than political dictators. So fast forward to today and the policies that we're implementing, whether it's to try to curb Russia and and to hamper them in their advance in Ukraine, or whether it comes to tariffs in China. What are we getting wrong? Oh? I think, Uh, we're not getting enough solidarity. We're asking a few countries. They may have made mistakes in the future in the past, but now we have to have solidarity.

We're fighting a war right now. It's a global war. It's a war to preserve the international rule of law. And yet we're asking some of the poorest countries to pare to bear a lot of the price in terms of higher food prices. They may starve that we're not doing anything about the deck prices. So uh, in terms of managing a global alliance, we're so you came out of Gary, Indiana. It's flat on its back like no

other city in the country. The rhodicurs to academics writing in Foreign Affairs talk about the initiatives forward, Where hey, the fancy people, Maybe I ought to pay attention to the middle class. How in this new America do we get the elites to join with the middle class like they did when you and I grew up. Why? I I think that we all need to be aware. Our democracy is at risk and our system of economic system is at risk. So if we don't get that kind

of solidarity, who knows where things will go. So do you talked a little bit of before about inflation? It's really hurting the people at the bottom in the middle, uh enormously. There are UH oil companies making billions of dollars. You thought this battle in nine he had a V W rabbit. You would have loved it, Joe. The bottom line is the elites have forgotten the middle class across the entire political persuasion. How do we re engage and build a trust with the middle class in America? Given

the present shocks here in a happy Valley. I think that we have to remind them, uh as I did. Probably article I wrote eleven years ago of the one percent, for the one percent, and by the one percent. Part of the message of that article in the Vanity Fair was to say that it is in your own self interest two show more solidarity, because if you don't, this whole system is going to fray apart. At least this

is important, really important. Given the years and when you and Rogue off we're on stage here, that honor when the two they haven't gotten along for years. It's like the Kardashians. It's worse than that. Here's the heart of the matter. We had compensation structures in America where the middle class was attached to the elites, and then we changed it to where the elites are making more money than God and the little classes left bond. And to me,

that was a tipping point. This has been a tipping point. And here we are with a new tipping point with inflation, and just want to end here. Do you think that it's more important to get inflation under control at this moment than to worry about or avoid some sort of downturn, which seems to be the feds conundrump. Raising interest rates is not going to solve the problem with inflation. It's not going to create more food. It's going to make it more difficult because you aren't going to be able

to make the investment. How do you clear the market if you don't raise interest rates? What you do is you have supply side interventions. Uh. One of the things that President Biden tried to do is to have more care for children, and that would mean more women into the labor force. That releases one of the UH constraints labor supply. Uh. You look at we used to have surpluses and food in the United States. We can get those back. How do we do this in a of prisitive way. I think we can do a lot more

than we're doing. Uh. Can you go an economy through raising interest breaks? Is not going to be at any time frame? So at least trying to do everything we can globally to increase the supply is going to do more on dealing with the problem causing a depression. One last question, you're heated, rhetoric melted all the snow in the valley. Let's go all Scoop Jackson on you right now,

the giant from Washington State. Can you, as a raging Democrat support of a school rebuilding of our defense and of our navy to push against China in the shock of Putin and Russia. Uh, I think we can uh have uh uh support defense. We clearly Puttin a show we need defense. Much of what we spend is weapons that don't work against enemies that don't exist. So if we take our current spending on defense and re examine it, I mean we're paying we're so much back in the

twentieth century. The latter half of the twentieth century. We're in a We're a world of cyber warfare, of all kinds of new forms of warfare. We need to adapt our military expenditure. I think if we did that, we don't have to spend more and more and more. We have to spend smarter and smart smarter. We're out of time. Joe Stick, Let's thank you for professor from Columbia University, and iials say, most seriously, folks, a reading of globalization and his discontent is a good place to start on

a study of international economies. Let's dive into a conversation with someone who has had world world leadership and quality conversations. David Rubinstein joins us. Of course, you know him with his work on Bloomberg. He's co chairman and co founder Carlyle Group. He's on the board of the World Economic Forum, and I think owns like three cantons in Switzerland. Switzerland's well, wonderful day. Have you here today, My pleasure to be here. Thanks for having Is it better in the summer or

the winter. It's a lot easier to get around in the summertime, and you don't have to worry about falling down. At least I don't have to worry about it so much. I know you had a little slip, but you're okay, right, I'm okay doing fun. Um. Let us talk about what underlies it underpins every transaction at Carlyle, every transaction of President Biden, and that is a financial system where it is priced down yield up. If I take the Leman Index,

the bloom Bird Total Return aggregate index. Essentially, David, we've never seen this. How does the financial system adapt to such losses in bonds? Well, the financial system will adapt. It always does. Markets correct, and the markets will correct. Now, I think we've had a time of enormous a bulliance in the markets, low interest rates, very high growth rates, and now it's changing. You can't go on forever as

it was, so now it's slowing down a bit. I don't think it's a calamitous situation, but clearly the growth market right now is not great, and I would say interest rates are gonna come up for a while and probably put us into what somebody in the Carter administration used to call a banana. He didn't want to use the word recession. So Carter said, don't use the word recession, use some other word. And Fred Cohn, the inflation of Easer, said all right, I think we might be in a banana.

So I don't want to say we're in a recession. I don't know if we're in a banana, but it's some something close between a recession and a banana. Okay. So then Biden this morning, when he was asked about it, should have said banana, because you think that that's the more realistic outcome. There are many different definitions of recession, so I don't want to be quoted saying we're in

a recession. Nobody really knows yet for sure, but clear the economy is not as robust as it was the last couple of years, in part because of COVID, the effects of that, and part because of the war in Ukraine, and part because the interest rates are going up again, And so if all those things come together, it's not

a great economic environment. On the other hand, if you're an investor, prices have come down to the point where there's some really good bargains now, and I think a lot of people that buy at the bottom are looking pretty happy. Now. Do you think that right now this is a bottoming out that you see? In other words, from the conversation that you're having, is a more optimism about investing now than pessimism about the recession or banana? What depends. If you own a lot of these assets

and they've gone down, you're not so optimistic. But if you don't own those assets and you now have some fresh capital to invest, it's a lot better now than it was a while ago, because you're a lot low with your own assets. The ones you own may not be worth as much, but you don't have to sell those asset these prices. But right out people are gonna make a lot of money buying at these prices, I believe, because prices are pretty low now relative to where they've been.

But David to Andrew Mellon in another time in place, are we going to see the elites do a national roll up of our assets while with inflation the middle class is flat on their back. And to get specific, Blackstone take taking the heat. But private equity, private money is going after residential housing is a sound investment. And there's a raging debate about that. Is this is this a shell game of the elites where the middle class

beleaguer doesn't get to participate. First of all, Blackstone and Carlisle and other firms, they basically represents pension funds to large extent, which our teachers, firemen, policemen, so forth. So it's not exactly the elites who are buying it for themselves. They're buying it for pension funds a large extent. Secondly, um, the economy is much different than Andrew melle s period of time than a few people did control an economy. So now there it's a much bigger comment. It's a

global economy, wasn't when Andrew Mellon was Secretary of Treasury. Meanwhile, we are looking at the turmoil, and I do wonder whether you think that Davos still has the same relevancy that it once did Tavos. I think is relevant because people are still coming. If people didn't come, it wouldn't be relevant. People are coming because when you can go in one place and see the CEOs and the heads of state from so many different places, it's a good thing.

It's very convenient. So if I wanted to see some of the people here, I would have to spend six months going around and meeting all these people. Now they can meet them in a couple of days here, So it's very relevant. Now, are we going to solve all the global problems in the world in the next four days. Probably not. But I don't see anybody that comes here and says, you know, I wish I was somewhere else.

People come here because they think it's actually a good chance to meet other people, and because we've been in COVID environment for so long, some of these people haven't been seen by others for three or four years. In person. I haven't seen some of these people for three years. Robert Hormad's a couple of days ago, was heated with us about the rebuild or a relationship with the Pacific RIM. What could private capital do? She was our government and

projecting a new America vision there. You know, I think of the isle of family in the Philippines and other large pools of capital. Don't we assist our nation by projecting an advancing capital to the Pacific Rim? We do, and we are. I mean a lot of the private equty firms and other large corporations are investing enormous amounts of money in Asia. Asia has grown dramatically the last forty or fifty years since Nixon went to China. It's

an incredible, incredibly different world. We aren't pulling back dramatically. I think the investment in China is pulling back a bit because of some of the regulatory conscerns there and the economic concerns and COVID. But money is flowing into other countries. India is a good example, Japan is a good example, Korea is a good example. A lot of Western money is going in there now. So I don't think we're pulling out from the Pacific RIM. And I think Biden is money is there now as he is

he's talking about American capital coming in. I think American capital is coming in. David Rubinstein, thank you so much for joining with Kyle. Thank you for your conversation. My pleasure, thank you for all time was Jeff Bezos. He was the best. I don't feel the best, but it was just great how you hammered him, I mean it was great. Thank you very much, David Rubinstein, thank you again. What we'rena do now is drive for the conversation with a vent to Latin America. But we do so with the

financial acuity of General Atlantic. There are storied name in financial Martin Escobaro joins us now their co president. Thank you for joining us here in Windy City, Tom, Lisa, thank you for having around a deck in Chicago. It'll it'll work out. I want you to talk to me. How you use foreign exchange in Latin America is a

litmus paper of how government systems are doing there. You are doing finance, you're doing long term investment in the Latin America, and yet it's within fragile economies with fragile foreign exchange. How do you use foreign exchange to study Latin America. That's a great question, Tom. Listen, we've we've been in Latin America. So first level set g A is forty two years old, eighty billion dollars in assets.

We've been investing in technology for forty years. We've been in the emerging market for twenty including Latin America, and Latin America has been tough for most private equity investors because they got ex wrong. And what we've tried to do is bet on digital companies that are growing thirty fifty six. So even if we get the ffs wrong, we still meet the required returns. And it's really easy to get the FX wrong. So we've seen a huge reset in all tech companies around the world over the

past six months. Has there been the same reset just not priced in yet in the private world? I heard you Tom used the word cartnage. There's been cartnage and growth public growth stocks drop seventy to eighty percent. It's been, and it's been abroad across good companies. Great companies are more or less companies. The private markets have not transacted

as much. And what we we we've looked at in previous corrections is it takes six to nine months before the public market comps to translate into private transactions because good companies need not trans transact in the middle of the storm, and we are in the middle of the storm, not just in the house. So does that mean that you're extending less money, less financing at this moment in preparation for what's to come in the follow on in the private world. So interestingly, we in the short term

we're seeing terrific opportunities in the public markets. Were not typically a public market investor, exceptionally, we're becoming one right now. In the private markets, we are slowing down. Now. What's beginning to happen is consolidation. I mean, last year, sixty companies got funded. Half of them won't make it through

the correction. The strong will get stronger and the weaker will be consolidated into the strong, and so we're beginning to add capital some of these companies to consolidate their industries. Follow this is important. You're pulling back from the private sphere and going to public companies because of the opportunity that you see. Do you think that we are not prepared for the selling for the lack of investment on the private side that will trickle out in the next

few months. Listen, in the short term, the best opportunities on the public markets, because there's an stampede of people coming out of the public markets and the macros forces overwhelmed the micro ones. It's such a mispricing of growth and even overall, if you look at the p to growth of the entire market, it's a zero point seven. The last time it was this low is that the Great Financial Crisis, and it was zero point eight. So we're just fighting better deals now. There's so much liquidit

in the private markets. It will take a while before this phenomena begins to affect companies, but it will. Our guest is six to nine months. Are you seeing within sort of a decades long autocracy? And I mean that in a very loose phrase of South America, a greater respect in understanding for capitalization, for contract, for rule law. Is it easier to do business now than five years ago, ten years ago. It's a change in a number of ways. First,

there's something we call the globalization of entrepreneurship. Great minds are born everywhere, but they don't have access to ideas and funding in the old world. In the new world, they have access to ideas and funding. Just to give you a sense of magnitude, last year in Latin America,

the growth and venture capital invested nineteen billion dollars. That's more than the previous twenty years combined So if you if you're Latin American entrepreneurs, why such a ginormous number, Because we're catching up and there were enough proof points. I mean, we invested in a company that saw appreciation, it's probably trading twenty billion dollar company, profitable, trading a multiple, and and there were it's a complical xp inc it's it's traded in as like and it's it's it's in

a real profit, not not speculative. But there's been a there's been a handful of success stories and nothing attracts capitalized proven success and and that's what happened. So there's been a step change in access of fun to the best entrepreneurs. And economies are formalized. The electrinification of payments mean you can't devate taxes anymore, and all of a sudden of companies who are formally half informal couldn't do it,

and that opened it up for private investment. Does General Atlantic think that Latin America will emerge stronger or weaker from the current inflationary impulse that's allowing their exports to be that much more valuable. So listen, Latin America is about ten of what we do globally. In the next three years. Brazil will benefit from the commodity cycle. It's a net exporter or commodities. The effects should benefit from that that that is a great tailwind. Mexico will benefit

from near shoring. So these two global macro tendencies will benefit. The two largest economies represent the GDP. So I think in this storm surprising that America is not such a risky place. I got fourteen more questions. Can you please visit us in New York anytime if we survive the windstorms coming back? Martinozcarbary, thank you so much of General Lanty.

Right now, we've got a really interesting guess. This is a gentleman who was weaned on thear against at lager beer, ended up in Pennsylvania where he did the worst job in the world, which is owned a restaurant, and he survived even better, got into politics and as a Republican help parts from from Pennsylvania. We welcome someone in the news. Senator pack to him, he's Senator welcome. So we're really weaned on there against that way. But I get the reference.

Get you get the reference with the red Sox. Of course, Senator is an immense time of tumult, and people with a little bit of change from under the bed are going into Rookies restaurant, the old Rookies restaurant in Allentown and all of a sudden inflations killing him. That's the people in America. We're getting killed. What's the Toomey solution for Republicans who take the House, Maybe take the Senate, maybe take the White House. Yeah, So I think two

things right. Um, when we had the shutdown in from the pandemic, UM, I think it's fair to say we lost about two trillion dollars of economic activity. So we dug a two trillion dollar hold, we filled it with six trillion dollars of spending. We goose demand way beyond where it would have been at a time when supply was constrained. Meanwhile, the FED, I think was throwing gasoline on this fire. Ever since the the pandemic lockdowns, UM

continued with emergency policy long after the emergency passed. So I think the FED has gotten the joke and has made a big pivot. I think they committed to see this through. And what we've got to do is stop the wild spending that's been going on. I am most certain that in the Senate of this United States, you are the most supple dynamic mind on economic dynamics, financial dynamics,

currency swaps, and derivatives. How do you explain the Republican who have a static vision back to the nineteen fifties, that they need to be more subtle, more dynamic to build and grow this country. I think you need to give my Republican colleagues a little more credit than that.

Most of them actually weren't yet adults in the night, but they're pressured by a president desperately, a President Trump who desperately wants to go back to another time, and I think he wants to invent a new time altogether. President Trump, I mean, and and he's not the president now, and I think the party should not take economic advice from him, as long as we acknowledge there were some

tremendous successes. I think the tax reform was extremely pro growth, very constructive, gave us really the best economy of my lifetime before the pandemic hit um. But I think the President has been dead wrong on trade from the beginning, So so it's a mixed bag there. As I say, I don't look to him, I don't think most of my colleagues do. Um we uh, I think we have a better grounding, he said, I do you think he's

dead wrong on trade? Do you agree with them with President Biden that they should possibly removed some of the tariffs sun China problem? The problem is President President Biden has been a complete extension of the Trump administration and trade. Consider the only free trade agreement under Trump was to renegotiate NAFTA in a way that would diminish trade. We've never done that before, and President Biden not a single

free trade negotiation underway. Now a year and a half into his administration, he hasn't lifted all the two thirty two tariffs. He's resisting a corporate exception process on three or one tariffs. So no, I think the Biden administration has been an extension of the Trump administration on trade. Do you think that your Republican colleagues would agree with you that some of these Trump era tariffs should be removed?

I think some do and some don't. Right, So this has become a divisive issue among Republicans when there used to be a very broad Republican consensus that was pro trade, expanding trade, free trade, agreements. That's that's diminished in all candor um. And we've got we've got friction on the other side too. Right, previously Democratic presidens, whether it was Barack Obama or Bill Clinton, we're pro trade. Um. We've lost that now, and so we've really lost the pro

trade consensus. So you go out, you take the Pennsylvania train and you go out. There's that road turn near Altuna where the road turns three d and sixty degrees around. The train track goes around, and you end up in Latrobe, and you're having a rolling rock at a bar. Explained to the people pounding rolling rocks at that bar, how the new Republican Party is going to make them prospered

with foreign trade. Well, I would point out, so the best economy in their lifetime was also the best in mind, which was record low unemployment, strong growth, low inflation, diminishing income gap between high income and lower income pay. But it was really it's really hard to find anything not to like about where the economy was that was inter sponsor to Republican policies. It's true President Trump was pushing back on trade, but he had hardly moved the needle

in a substantive sense. Right, we still have roughly the freest trade aiding environment in a hundred years. That guy at the bar with me and Latrobe, his wages were going up faster than inflation. That's not a bad place to be. How do you break inflation? And right now the integrin he's the only guy I can talk to from Washington will get this. And the x X is the integrin of a negative real wage we haven't seen in age. Is the thickness of our negative real wage

is frightening me. Now, what is the two mey prescription? So that it's the Fed's got to do its job. It's got to stay this course with negative real interest rates as negative as they are. I don't think we get there. But the market is doing a lot to help, right, the backup in the bond market, the strength of the dollar and the currency markets, all of that is at least this inflationary, if not deflationary. Meanwhile, we've started to

see slight declines in consumer purchases. Right our big retailers have seen they've kept nominal growth, but not real growth. So that tells me there's demands destructure. Should we break the rules for the sun? I think we should think is a Fed gonna blink? I don't think so. Okay, well this I don't think to ask, do you think that it's worth it for the Fed to not blink, to keep going even if it means a recession. The Fed has to stay the course here, even if it

remains recession, even if it means a recession. The FED blew this badly. They had a paradigm that guarantee that they would be behind the curve, and they were. Now they get it. I don't think this Fed wants to be the Fed that brings back enormously problematic inflation from How much do your colleagues agree with you? Because we heard Joe Biden saying that a recession is not inevitable.

Maybe not inevitable, do but do people in Washington agree that right now it's preferable to have a recession than to allow prices to continue to climb at this pace. So that's if if it has to be right, that that's that's why. First of all, I don't think inflation recession is inevitable. It's probably a little more likely than not. It could be mild, it could be brief, Unemployment could rise very modestly from really quite low levels that they're

right now. But we never get back to really strong growth and really good opportunity on less we get stability in the dollar. We're not there right now. That's got to be exercise number one for our medium and long term prosperity. Do you think that the banks with the financial banking sector really under your pure view, are prepared for a FED that is not going to blink as so many people seem to believe. Yeah, yeah, I think

so well. I mean, as you know, there's a rising interest rate environment is actually helpful for a lot of banks. So I'm not sure which ones you're referring to. Obviously, those that are based more on securities trading, you know, they it's hard to say right they may they may do well for volume purposes, they'll take their lumps in other ways, but look that that can't be the consideration.

We've got to get back to normalizing interest rates, normalizing the inflation level, and then we can have strong growth again. Andrew Carnegy build a plan of school building at Carnegie Mellon, and he build it with a slanted floor so that if it failed, if Carnegie Mellon university failed, you could turn it into a factor. That was the entrepreneurial spirit of Pittsburgh of long long ago, one far away. You and I live the crater that was Pittsburgh. Do we

need to fear that? Do we need some humility still about manufacturing in America? Or we now become service sectors? So much so you know this very well, but I do think it's worth repeating. America manufact will will manufacture more this year than any year in our history. More added value in manufacturing. It happens in different uh with different products. It's less labor intensive. But we are a great manufacturing powerhouse. We will retain that in my view,

and Pittsburgh's doing great. Sedator, Before we let you go, who do you hope replaces you in the Senate? Um? You know? Either one of these guys. I've never made an endorsement. Now, seriously, there's two great candidates. They are dead tied. I think this ends within a few hundred votes literally, and either one wins the like in the fall spoken like a true politicans that good candidates. It's

going to be a fair recount. It is, and to the credit of both candidates, they have taken the view that it's probably a good idea to actually count all that. How many citizens are involved in the recount of something. These people nationwide are being abused. My mother was an election canvas or whatever it was called. How many people are involved in the RecA I don't know the number,

but let me just tell you. I think some of our great heroes have been the people that did their job of whatever party, counted the votes and went with the outcome they got. That's how the system is supposed to work. That's how it worked, and it'll work that way. In senators, thank you when you're done with politics, fix the pirates to me is a senator from Pennsylvania. Christiano Mind joins us right now, the chief executive officer. How

genormous was Intel the day you walked in the door. Well, you know, Intel has been an incredible company as they built what is to day, you know, the PC. But Qualcom story is a little different. Qualcom story. It's it's a company that actually was always focused on building mobile communications and uh in creating the processing technology that allows you to have a computer in the palm of your hands. And that's our most love device today, the smartphone. That's

what we do want going niche? Is there a risk to moving away from NICHE? Now? What's happening to Qualcom right now? Uh? And that's one of the greatest opportunities in our history, which is UH. The mobile technology scale is incredible. If you think of a smartphone today is mainkind largest development platform. But what the smartphone really is

is an advanced competition device that is connected. And when we look at digital transformation that is happening across every enterprise, we see demand for technology and other industry and that's what's happened to the company. The company continued to be UH, the company driving the pace of innovation in mobile community stations, but the automobile is becoming a connected computer on wheels. We're growing through the automobile space and then every other

industry as they digitally transform. You fended off an acquisition pitch from Broadcom. This morning, it's reported the Broadcom and vm ware are in talks that Broadcom is going to acquire vm ware. Do you expect this to be the future that in order to have scale and sustenance, you

need to consolidate and you see that really being the future. Look, it's it's really for Broadcom to comment by the way, I look, Broadcom has become a more of a software company and uh, you know with some of the acquisitions they made in the past, and I think vm or is a software company. We're going to the different direction. I think we will continue to be a semiconductor company. Focus in the growth that we have in this industry, especially at the edge, and uh we'll continue to see

not consolidation but conversions of all those opportunities. How much are you trying to move away from relying on one region on Taiwan for example, or some of the other major semiconductor producers as you focus on the hardware. This is a great topic of conversation. I think we what we saw of the past couple of years. I think globally, um, if there is a if there is a silver lining. We saw that some my conductors are important and and uh as chips are going in pretty much everything. Even

as we saw the shortage of MY conductor. People buy more goods than services and their chips and everything. Plus what's happened in the future, we need a reliable supply chain. So Qualcom we we have done better than some of our peers because we have been diversified since the very beginning. As an example, we are very well balanced between taime one and South Korea with Samsung. We also been using chips from global founders, and our chips spends exactly coming

from manufacturing in the United States. And I think as a general rule, as we think of the importance of semiconductor for the future of our economy, I think we need don't have a geographically diversified and orsilian supply chain. What can America participate in that given the massive labor arbitrage or is that a discussion of twenty years ago. I think is a discussion from the past. What's really happening and SAM conductor manufacturing is not an issue of labor,

It's an issue of scale. But if you look what the United States is doing a sport of U SEKA and the US Chips Act. We'll see if it gets, you know, approved by the House. The Europeans actually moving with a very similar legislation called the EU Chips Act. The Koreans talking about uh the Korean Chips Act. Just if you look at United States alone fifty two billion dollars, the Europeans about forty three billion dollars. That is about creating incentives for manufacturing to be built in the United

States are and I think it's possible. The reason I think it's possible it's the semi conductor consumption is going to double in the next five years, so there's an opportunity to build in different places. What should Apple do with all that cash and the other apples out there? To generate free cash flow every ninety days to choke a horse, you're a competitor, you're a friend, you're an enemy, you're removed. But at the same time, you have to

be curious about where all that cash is gonna end up. Well, today we're a supplier of Apple, we provide chips today iPhones. But at the end of the day, when we think about where most of our futurists, it's really to focus on building the platforms, which is uh driving a lot of the Android, the premium and high tier devices. Automotive.

We recently announce an agreement with Volkswagen. Before that, it was still and taste to build you know, digital cockpit solution, uh aid ask for sister driving and then the broad IoT, and that's what our future is going to be. Christiano 'm on, thank you so much. For being with us, the CEO of Qualcom at the enter of so many debates right now. This is the Bloomberg Surveillance Podcast. Thanks

for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene, and this is Bloomberg