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All right here in studio now is Ralph flast nine, chairman Emeritis over at Evercore Real.
Good to see you, Great to see you, Alex.
Okay, So this is like all systems go, This is like animal spirits. CEO is feeling good. M and A is going to rock. Everything's awesome. Is this your theme for this year? Two?
Well, that's certainly what we all should be anticipating, giving the start of the year and the certainly the dialogue that we're having with CEOs would suggest that a lot of things that they've been thinking about for some time are more likely to come to fruition.
This is what confuses me, though we have, you know, the last ten minutes we focused on tariffs and the question mark there. Yet it seems like we're just looking through that and looking at deregulation, tax cuts. How do you understand that? Is this a sequencing thing for you guys?
Well, I think, rightly or wrong, there's a perception in the business community that there's a tension in the things that the new president wants to do. He definitely is a fan of tariffs, and he often used them as a tool of negotiation. I think there's a sentiment that the bite will be a lot less worse than the bark. And I think there's also a feeling, which I think is a legitimate one, that probably the most important economic marker that this president follows is the market. How is
it doing. I think he wakes up every morning and says stocks are going up, I'm doing well, stocks are going down. Maybe my policy needs a little bit of correction. So I think there is a sentiment, which I think has some validity based on history, that this will be a pretty decent environment for the equity markets, notwithstanding the fact that they are pretty fully valued right now.
Yeah, the SMB at a record high right now. I do wonder that can the market kind of be that arbor against Trump. There's a lot of talk that there's really no one in his universe that can really push back on him, But can the market do that? Whether it's equity market, bond market, whatever.
I would bet more on the markets than on any individual advisor that he has.
Yeah, So how confident are you though, going deeper into this year? I mean, we've seen this rally coming up post election, and obviously at the start of his administration, and it's certainly understandable given some of the pro growth policies that he's been promoting. When you balance that out with the potential risk, do you see buying opportunities here, particularly with valuations, as you said, relatively high.
Well, I think a lot will depend on what happens to earnings this year. You know, so far the fourth quarter earnings seem to be quite strong. If we have real good earnings growth, which we could have with a growing to me slowing inflation and a margin expansion, you could actually have the earnings of companies grow into the valuations.
And by the way, there have been plenty of times in history when stocks have been fully valued or perhaps even a little bit overvalued, when they've continued to go up.
Do you think that we need continued FED cuts for things to go along smoothly? What has a conversation developing order?
I think that the FED is becoming less and less important to the markets.
We're allowed to say that.
Well, I have a lot the highest regard for j Pal. If he were sitting here, I would say that, and by the way, I think he might say that's healthy.
So then to that point, things that are sort of irrespected of the FED and the overall economy that's going to be AI. How is everyone in Evercord talking about the massive investment in AI and just sort of the stocks to the moon at this point?
Oh, I think, you know, I look at this not dissimilar from the Internet bubble that we had in ninety eight, ninety nine, two thousand and there were a whole bunch of companies that had seemingly absurd valuations. Many of them don't exist anymore, and their valuations were in fact absurd, they didn't have real businesses. But some of those who we all thought were pretty fully valued at that time have become trillion dollar market cap companies. You know, Facebook, Meta,
or Google, Amazon, Netflix, Tesla. These are all companies that you know, at that time or when they became public companies, we thought their valuations were insane. And I think what we're seeing is a there's an element of land grab in the new economy, and those companies that put the pedal to the mettle and invest what seems to be insanely wind up with a massive amount of ground that they control. I have often said that Amazon should have
been created by Walmart. They had the access to the product they had the global USY distribution network, all the things that Amazon had to build. Why didn't that happen? It didn't happen because companies that are valued on earnings can't make the kind of investment that Jeff Bezos did for twenty years before before he started earning a dime.
But that raises a question too, because when we talk about the investment in AI, it's coming from a lot of those companies that kind of grew out of the dot com bubble and actually became legitimate companies Microsoft, Amazons, etc.
Of the world.
Doesn't that create an argument here that given the companies that are really leading the charge in AI are established companies billions of dollars in revenue in some cases billions of dollars in profits, is there a bubble with a company like that?
Can there be? In some cases they're doing that, In other cases they're they're selling and getting revenues and profits to the companies that are making those investments. And there's a couple, you know, Microsoft, Meta Alphabet, that are profit profitable companies and it's depressing their margins. But the vast majority of the investment in A is coming in private companies that are that nobody cares what their earnings are.
That's a good point. Is there anything that knocks I mean in the public markets, Is there anything that kills this rally? I mean, is there a risk out there that could plausibly take this down?
I think the biggest risk is do the companies collectively deliver expected earnings in twenty twenty five. That's the biggest risk we have. The second biggest risk, in my view is I do believe we have a over the intermediate term and unsustainable fiscal policy in this country. I know
it will end at some point. It will not end in a pretty way, but no one is smart enough to know whether that's going to be in one year or two years, three years, four years, or five years, and it's something exogenous will trigger that, and then we'll all say, you know, how could we miss this? You know, we can't have six percent deficits forever. Yeah.
I feel like that's kind of a human nature, or at least American nature. We wait to the last minute to recognize the problem and then try to solve it. Ralph, always a pleasure talking to you.
Thank you very much for having me.
Ralph Slostein of course, chairman emeritus over at evercoret