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We can cross over now to Turin, where, of course, are Tom McKenzie speaking to David Solomon the Interview of the Day here it.
Is it's given the geopolitical strains given now as well the shutdown in the US. David, does the US economy weather the current political standoff in Washington and does that resilience that we've seen this year continue into twenty twenty six.
Well, first, thank you for having me here. Delighted to be here. The US economy is in pretty good shape, and there are some very very strong tailwinds that have really had a profound effect. And there are also some things going on that are creating headwinds and are probably leading the economy to underperformance expectations this time. But I'm optimistic that we're probably going to see an acceleration as
we continue to add into twenty twenty six. The big structural issue that's kept the US economy going so well as the US and by the way, other developed economies around the world are running very aggressive fiscal stimulus plays. Governments are spending enormously into economies in the developed world, and that keeps the economy going even when you have
other headwinds. Second big macro phenomenon that's affecting the US economy is all of the AI infrastructure build, all the capital spending, all that's going into the ground to support the deployment, the development, the continued growth of AI infrastructure into the enterprise, and that's a big tail wind too. That's balanced on the other side by the implementation of the trade policies, which are still getting absorbed.
I think we're seeing, you know, some of the.
Effects from trade, but you know, there's still more to go in terms of really understanding how the trade policy is fully implemented and how it balances growth. And then obviously the world's a little bit more geopolitically fragile and that has an impact on growth and.
You know, kind of confidence.
But when you balance it all and you saw the third quarter reading was quite strong, but year over year from last December to this December, the overall growth trajectory it will probably be a little bit less than two percent, and so that's slightly below trend, but still in pretty good shape.
And then the acceleration into twenty twenty seven.
I think that as the trade policies are absorbed and you have the continued stimulus and the continued kind of tech spend, You've got a pretty good tailwind. You know, I hear as I talk to CEOs that would kind of have their finger on the pull. Certainly, the upper end of the economy is still spending quite strongly, a little bit more constraint on the downside on the you know, the lower part of the economy.
But I think the things you have to watch. You have to watch labor.
There's no question labor shorts is a little bit softer, and the FEDS watching labor carefully. And you know, I think you've also got to watch inflation and whether or not the impact of trade is just a one time price movement or there's something you know, more significantly comes through and it's too early to know.
And you touched on labor, how would you character rise the health of the US job market right now?
It's a little bit it's a little bit softer, And I think you can step back and you can understand why when you think about big enterprises and what's going on with technology, people are pausing hiring to really kind of evaluate how as they bring this technology into the enterprise they can automate, create efficiencies, reinvest and so you know, I think at the moment that slowed hiring and as a result, you know, the labor number is a little bit softer.
The Federal Reserve interest rates for the first time this year in September last month. The markets are expecting another approximately four cuts between now and this time next year, another one percentage point of cuts, with inflation remaining above the target for the Fed.
Does that seem reasonable to you?
I think it's in the distribution of outcomes, you know. I think we'll have to watch. I know, there's a great parlor game of people kind of predicting what the world's going to look like six months, you know, twelve months out.
If you think about what the world looked like.
In April and where markets were in April and think about where they are today, you know.
I'd just be cautious. I think that.
I think that we've got competing forces between labor and inflation and how they balance, which is still a little bit uncertain. We'll have an impact on whether we get one more cut or we get, you know, two or three more cuts.
Global stocks at record highs, US stocks at record hizs, the s and P five on. It is up about fifteen percent year today in Nvidia's market camp is around four and a half trillion dollars. That's more than the entire market camps of France, UK, Germany, Italy combined. Does the market rally? Does this bull market? Are you comfortable with this pool market? Given some of the concerns you flagged?
Am I am I comfortable?
You know? Yeah?
Sleep, I sleep very well. I'm not I'm not going to bed every night and worried about what will happen next.
But markets, market's running cycles, and whenever we've historically had a significant acceleration and a new technology that creates a lot of capital formation and therefore lots of interesting new companies around it, you generally see the market run ahead of the potential because they're going to be winners and losers.
They're going to be winners and losers.
If you go back and you think about the Internet, pick on Amazon. You know, Amazon was one of many companies that was prosecuting that kind of opportunity. Many of the companies went away. Amazon became an incredible company. You're going to see a similar phenomenon here. I wouldn't be surprised if in the next twelve to twenty four months we see a draw down with respect to you know, equity markets, but that shouldn't be surprising and given the
run we've had. But generally speaking, I think what's super exciting is the technology is expanding.
New companies are being formed.
And the potential of this technology deployed into the enterprise can be very, very powerful, and so it's an exciting time and the market, you know, the market looks forward.
What does that mean for deal making? You've seen a pickup in deal making, What is the scale of the pickup you expect to see and what are you seeing in Europe?
The pickup and deal making broadly is meaningful, but it's particularly accel in the US.
And what's driving the.
Pickup and deal making is a changed regulatory environment. So if you were thinking strategically and you wanted to really expand your scale or your competitive position in almost any industry, for the last four years in the United States, the answer was no. From a regulatory perspective, it really wasn't.
What's the question, what could the answer be? The answer is no, And I think CEOs at this point imagine they're an environment where you actually can get strategic transactions done to expand your competitive position.
And so we obviously inside Gold and.
Sachs, we have an early look at that activity in those dialogues, and I would say it's accelerated very significantly if you just look at the facts in terms of what's public. We've obviously had a very significant m ANDA quarter. We had a one trillion dollar m and A volume quarter this past quarter. And if you look at large cap m and A meaning m and A for companies that are ten million dollars are larger, it's up one hundred percent year over year. So there is real moment
in the deal making environment. I think you're going to see an acceleration of that into twenty six for sure. And increasingly CEOs are testing what the bounds are of their ability to enhance their competitive position or improve their scale and their lead where they have a leading position in a variety of industries, and I think the regulatory environment is going to permit that at the moment.
Okay, so it sounds like you're going to be very busy you in the team on deal making in twenty twenty six. What are your priorities David for Goldman and the franchise.
Next year, well, we.
Don't really think about it, you know, next year ach Our priorities always start with the way we face and serve our clients. But in twenty nineteen, twenty twenty, we late a strategic plan out for the firm and we've been executing against it for the last six or seven years. And as you highlighted earlier in the discussion, we've created a lot of value because we've grown the firm. At the end of the day, as a public company, we
have to grow. We might be a big, mature public company, but we have to grow.
We have to grow. We have to grow our earnings.
And to do that, you know, you have to have a coaching plan where you're investing in different parts of the business. We have two big principal businesses, our investment banking and trading business. Who I think there's a little debate about our leadership position. It's an extraordinary business, very big business. We've been investing and adding more resources to that business over the last five six years. We've increased
our market shares very meaningfully in that business. Our market shares are up about three hundred and fifty basis points over the last five years in that business, and then separately we have the fifth or sixth seventh, depending on how you look at it, largest active asset manager in the world. We manage about three point three three point four trillion dollars through our asset wealth management platform. That business is growing high single digits, is what we've put
out publicly. It's actually been growing faster than that, and we continue to invest in a variety of aspects of that business where we see real growth. We can grow our wealth business, which is an ultra high net worth
wealth business. We can continue to grow our alternatives platforms, private capital formation, and we have a very flexible solutions business where really for big institutional capital allocators, we have an ability to really create and customize what they need from an investment perspective.
There's been a lot of discussion here at it Onian Tech Week about how to get globally significant generational businesses. Tech business is built out of Europe one hundred billion dollar plus.
What is your prescription for that?
I mean my prescription for that is savings in Europe and capital in Europe needs to come into the risk economy in Europe. You just don't have the scale and scope of the available savings here are getting deployed into the tech risk ecosystem at the pace that it should when you compare and you look to the way things are deployed in the United States, and in fact, one of the things that happens here is capital from here
looks over there, and so there are enormously smart, talented people. Here, are lots of great ideas, capital formation, and a real focus on risk taking.
Stuff's going to.
Go right, Stuff's going to go wrong, but you've got
to take risk, You've got to deploy capital. This really has to become a bigger center of capital deploy And also, the more we can get the European Union to be operating as an economic union and taking advantage of the four hundred plus million people that are here as opposed to the individual states, for lack of a better term, the more we can get the tech economy working that way, I think, the better chance we have of reaching your goal, which I think would be a very noble goal for
the world. So I mean, the more the more innovation over here, the better for the world.
So us to live on the line will be here.
So your one message to the European Commission president would be centralizing or capital most certainly the urgency.
I you know, I'm feeling more urgency when I'm over here. But still, you know, the regulatory process in Europe is slow. Capital markets Union for sure, you know, more encouragement of risk taking in capital markets, trying to bring it all together. Consolidation in the banking system instead of national champions in every market, consolidation and the exchange system instead of champions
in every market. You know, those are all things that will make capital formation easier, risk capital formation better, and will allow the acceleration of great companies here in these markets.
You have lennin to tech and into AI.
Your team at tell them you have twelve thousand engineers across Goldman Sachs. You have an AI the Golden SACS AI assistant, you have an AI developer. What parts of the business, and you've talked about some of them, whether it's well for asset management or trading or the consumer. What parts of the business at Goldman are going to be most transformed by AI?
Well, I think you know the business of work is getting transformed by AI broadly.
And you know we are at our HeartWare professional services firm.
If you think about Goldman Sachs and the value it brings to its clients, its value is deployed really among three different things. People, capital, technology, and so if you think about AI, you know, AI really allows smart, talented, driven, sophisticated people to be more productive, to touch more people that have better information. Is they're dismall better analysis. I mean, this is a journey we've been on. You know, this
technology accelerates it. But when I started forty two years ago and I wanted to look at five different companies and think about how to compare the trading in five different companies, I had to go to the library, I had to go.
To the microfiche.
I'd spend hours really thinking about how to put that comparison together. Obviously, today you can do it in a fraction of a second speaking into your phone. So this journey and providing tools to super super productive people and giving them more capacity to serve their clients and to be more productive is obvious. And we've been working on
all those tools as most enterprises have. I think the more interesting thing for enterprises broadly, and this isn't unique to gold and Sachs, because the world is underpinned by technology. Coding is time consuming, but this technology allows you to code with greater productivity and efficiency. So one great coder now with a tool such as cognition labs Denim Devin for example, you know, really creates massive coding capacity for one coder as opposed to you know, having ten twenty
people sit around for a few days. So big productivity there. And then, of course, when you think about operational systems in any business, the ability to accelerate automation and therefore drive more productivity, it's not just a cost exercise. It's actually about taking that productivity and having more capacity to reinvest in growth in your business. We'll spend you know, six million dollars on technology this year. I would have liked to spend eight, but I can't afford it because
I've got to deliver returns. But with this technology, my ability to spend more and invest more in growth and accelerate things that can grow our enterprise, it's more available.
To us five ten years time. Fewer jobs in banking as a result of ailing.
I don't think that's the right lens.
I think there are places where the number of jobs, the actual jobs will come down.
But the way the lens. I look at it is.
You know, I think we can continue to grow Goldman Sachs, I think we can continue to serve a wider slice of clients with these tools and these capabilities being integrated into the firm, changing our processes the question, you know, the way I would answer the question. If the firm was the same size and it didn't grow, we would
certainly be operating with fewer people. But if the firm grows and you expand and you can invest in other areas for growth, we'll wind up with more jobs ten years from now than we have today, just as by the way we have in every step along the journey for the last forty years, as technology has made us more productive, I don't think it's different this time.
So you thought, just be clear. You foresee more headcount at five ten times.
That's because I think we're going to be running a much bigger enterprise.
Gay, do you worry about that there'd been something There's been some hand ringing in terms of the investment we' seen the hyperscoale. There's three hundred and fifty billion dollars in terms of capex and data centres and infrastructure, and the concern that the returnal investment isn't being matched, that's not matching the revenue on the other side. Does that concern you, that mismatch or sure it.
You know it serve it concerns anybody that's deploying capital. But I think I think the journey is pretty clear, even though you know, we're at the beginning of the movie, at the end of the movie, I guarantee you at the end of the movie, there'll be a bunch of winners and there'll be a bunch of losers.
There'll be a bunch of capital that was.
Deployed that ultimately delivered very attractive returns, and there'll be a lot of capital that was deployed that did not deliver returns. And you can go back in any super tech cycle or any big investment cycle, and that is the pattern you'll see. It's not again, it's not different this time. We just don't know how that will play out. But it's very exciting to see these technologies get deployed
and the impact that's going to have. It just allows productive people and productive businesses to be even more productive. And so people get very caught in this question of more or less. And you know, I prefer.
A lensis is. There are obviously things where we're gonna have.
A lot fewer people, but I'd love to have the capacity to go get more people to spend time with clients. I've loved to have the capacity to invest in new businesses where I think we can affect clients, and we need people to do those things. So it's it's a give and take, and nobody stands still.
To be clear, you're not worried about an AI bubble.
You know an AI bubble.
I I think that there will be a lot of capital that's deployed that will turn out to not deliver returns. And when that happens, okay, people won't feel good. Okay if if you know, I don't, I'm not gonna use the word bubble because I don't know.
I don't know what the path will be.
But I do know people are out on the risk curve because they're excited, and when they're excited, they tend to think about the good things that can go right, and they diminish the things you should be skeptical about that can go wrong. We're in one of those environments where people out on the risk curve and they'll be a there'll be a reset, they'll be a they'll be a there'll be a check.
At some point, there'll be a draw down.
The extent to that will depend on how long this goes. By the way, if you were if we were having this conversation in nineteen eighty eight, you would have been asking the same nineteen ninety eight, you would have been.
Asking the same question.
Yet the environment went on for another three years until there was not a significant check in two thousand and one and two thousand and two. So I'm not smart enough to know. I think it's going to go on for a while. I think the opportunities are great. I think they're very exciting, but I also see complacency.
Around risk take.
Even when that happens, ultimately there'll be some speed bumpser some drawdowns.
David Solomon, chairman and CEO of Goldman Sachs, thank you so much.
Thank you.
I'm texting.
Appreciate it.
Thank you, Davis, thank you, appreciate it.
See you looking.
What a wonderful conversation. Also with I have to say a spitting sets not something that you see every day, Tommy Kenzie. They're speaking with our golden well, the golden Sacks, chief executive of Solomon at Time Tech Week. They talked about the FED, they talked about tech and some of of course, the things that we should be watching out for.