Guggenheim Securities Co-Chairman Jim Millstein Talks

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Remember JP Morgan CEO Jamie Diamond spoke with the APEX CEO summit in Lima this week and he noted about how many banks are seeing the opportunity and deregulation that could happen under a second Trump administration and how excited those bankers are for that moment.

Whether you voted for Trump or or Joe Biden. You know a lot of bankers they're like dancing in the street because you know, they've had successive years and years of regulations, a lot of stemy credit, you know, and you could have kept the banks equally safe but had them do more credit, and so like just give an example,

We're going to talk about the banks, the Trump economic policy, and more with Guggenheim Securities co chair Jim Milstein, who was a Treasury Department's Chief for struct String Officer under President Barack Obama. In the wake of the two thousand and eight financial crisis. A great person to talk about regulation. But I've got to ask, as Jamie Diamond says, are your bankers dancing in the streets?

Well, I think you know, you saw the rally after the election and the equity markets. That's getting a little more muted now as reality sets in. But yeah, I think there's a general expectation that the M and A environment will open up. The financing markets have been incredibly strong, so you know, I think there's there's no lack of credit availability. I was satting what Jamie says about the banks. You know, the private credit markets have boomed in the

Probably one of the clearest trades you have seen is in the financial system in the banks. You'ven seen investors pour a lot of money in the banks thinking that not only that Basil three might not be as strong as it would have otherwise been. But you think about even Shared Brown not in the Senate Banking Committee anymore, for example, or the SEC facing some change under a Trump administration, How significant, Jim, might the rollbacks in regulation be for the financial industry.

Yeah, so it depends who first, It depends who's in the seats. We still don't know who's going to be at occ the FDIC, the FHFA, the CFPB, the Treasury Department. These are all still open seats, and the people matter, right, that's first and foremost. The second thing is is the regulator, particularly with regard to the banks. The regulatory system is

It'll take time.

Do you think that there is a paradigm shift going on? You think about just a whole generation of bankers that were not working in the two thousand and eight run up. They don't remember what it looked like, the froth under the surface. Do you think that deregulation could create that froth again.

Well, it may be true in the financial institutions that there are few of us left to were there and went through that trauma, but it's not true in the regulatory community. Now there could be a wholesale slaughter of regulators at all levels under the Trump administration.

I doubt it.

And as a result, the regulatory institutions have fed the Treasury Department the occ you know, a deep institutional memory. So I think there's still the experience of that crisis is it's muted now over time, but I think people understand that we don't we don't want to get so deregulated as to create risks of that kind of crisis again.

Now, let's switch gears a little bit, go over from the tempering of regulation to the trade and tariff policies that have been put forward. When you think about the entirety of what has been proposed during the campaign, do you expect moves that drastic into next year?

Look, we don't.

You know, we've had campaign proposals, and how which ones of those turn into real policy and legislation, you know, still remains an open question. But you know, the president elek has made a commitment to use tariffs as a negotiating tool to bring I think to bring tariff barriers that we face down. But there are strategics, you know,

So, you know, I.

Expect on the tariffs that you know, President Trump will use them vis vis the rest of the world, Europe and our other allies. He'll use those in a way to try to create reciprocity, better reciprocity with China.

I think it's a totally different story.

I think there's a using tariffs as part of a strategic agenda to improve our defense capacities.

What do you make of the impact for investors. I had this conversation earlier this week with City Group CEO Jane Fraser. She made the point that yes, you could worry about inflation, but that productivity could fill in some of that gap, that it might not be as big of a problem as a lot of people had initially pointed out.

What do you make of that argument?

Well, I think that's what we're seeing right now right, I mean, notwithstanding sort of the campaign rhetoric, the economy is incredibly strong. It's growing above trend. Productivity is the highest it's been in tw ten years. So we've had a real surge of productivity. We have low unemployment. You know, I think the b and yet inflation kind of remains sticky, particularly in the housing market, which takes time for rents to roll over in the way the Fed calculates UH

And the deficits are coming down, but they're still huge.

You know, we're still running a six percent of GDP deficit, which is unprecedented in peacetime. So the fiscal space that the new administration has to maneuver is much more constrained than it was when he took office in twenty seventeen.

You have seen the tenure really react to this idea. You've seen it hovering around four point five percent. What would you warrant investors about where.

It could go?

Yeah, I think the I don't think it's going to go down much because of the Treasury Apartment to fund to refund the outstanding debt, which has a relatively short maturity profile, and to fund the deficits this year, Department is going to have to do eight trillion dollars of financing.

So pity the new Treasury secretary.

The first job is going to be to figure out is he selling coupons, is he selling bills? What's he doing to try to moderate the impact of the deficit, and let alone what deficit incremental deficits the Trump administration might create from, you know, tax cuts.

So I do.

Think I don't doubt the depth of the treasury market, but it's a question of the price the Treasury Department will have to pay for long term for treasuries when they're issuing eight trillion dollars of it this year. And you know, as important as short term rates are, which the Fed controls, you know, real money investors look to the tenure as their benchmark. And so you know, a higher a tenure that stays where it is or gets higher because of the clearing pricequired to sell eight trillion

At what point does the bond market say no more?

I think we're a long way from that.

I think it's about price and creating a positive slope in the curve so people can borrow short to fund long, which is you know how many you know hedge funds play in the treasury market, and they're an important factor in the head treasury market. So I don't think it's a question now of no mass. I think it's really a question of price. But the federal government, you know, has been running persistent deficits that have been growing for twenty years.

That's what I was going to ask you. You and I have talked a lot about the deficit and the idea of it getting bigger. It's been financed, right, I mean, at what point does this become a problem. How do you reframe the problem going into next year thinking about those tax cuts.

Yeah, so problem.

Well, look, since the financial crisis, the federal debt to GDP ratio has gone from like fifty percent to one hundred and twenty percent. So we're growing the debt faster than we're growing the economy.

So the debt is and there are arguments among.

You know, more sophisticated people than I that the overhang of debt becomes a constraint on growth, in part because the interest burden that the federal government. You know, we're now spending trillion dollars on interest. It's becoming the largest part of the federal budget. And when you think about what, you know, the federal government does. We have a we have a mixed economy. The government constitutes about twenty to

So I want to.

Switch gears here a little bit because your expertise, as of course, in bankruptcies kind of leads me into doomsday conversations with you sometimes. But when you think about AI and the productivity boom that a lot of people are expecting, I'm actually wondering about just the opposite. If you think about how AI is changing industries, is it going to create a different type of bankruptcy wave for companies that can't keep up well.

I think the challenge of AI across first and foremost across our end, across law accounting. I think those are the areas where you're going to see the most dramatic changes, because those are the areas where productivity is stalled over the last twenty years. It's really it's hard to make a banker more productive, but AI will do that. It's hard to make a lawyer more productive.

But AI will do that.

So I think you can see a huge transformation in the professional services business very quickly.

I think it's already having an impact.

How is AI going to make a banker more productive?

Well, there's a lot of work that that's behind the deal maker, that goes to the evaluation of strategy, tactics and valuation, and a lot of that valuation work can be done with these large language models. And the same thing is true in the law and in accounting, so

And I think this is a very transformative technology.

The productivity impacts of it will be will probably lag, but there will be substantial.

Jim, we have to leave it there. It's so great to see you here in studio. That is Jim Millstein, of course, Goggenheim Securities co Chair