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I want to welcome everyone here, and this is a forum to talk about investment ideas and a frame of reference. And we have the task of explaining how to navigate the current business climate, and these two gentlemen we'll explain to us how we can frame the current events that we're facing off with and how companies are grappling with them at a time where the business climate changes in
thirty minute increments. Joining us here is Ray MacGuire, president of Lazard, as well as the seventieth US Secretary of the Treasury, Robert Rubin. They have both told me that I can call them Bob and Ray or your honor. I want to start with this question of where are your honor If you want.
Your honor, your people in Congress who called me things far south of Bob, I'll tell you, well.
Hopefully we don't go there, but I do want to start with just where we are in the day's news, which is the tariffs and this idea that we got twenty five percent tariffs actually put on Mexico on Canada, an additional ten percent tariffs put on China. I want to start with you, Ray, how are companies making sense of this?
You know it.
We're in the early stages of this tariff diplomacy, if you will, geopolitical diplomacy, and boards and senior managements are now trying to assess the implications. It's been advertised for a while and today it's begun to be implemented. Having said that, there's also the suggestion that in April there's going to be a reset, so there'll be a review, and most investors, most companies do take a long term view, and so we'll see how this early move on the
chess board plays out. People are assessing, companies are assessing them implications, But for the most part, there's a long term view that is now being contemplated. We've not seen this level of terrorist at least in modern times. We've seen it historically, the implications of which historically have been pretty dramatic, and we'll see today whether or not the implications are going to be equally as dramatic.
Bob, how do you take a long term view when it's unclear what the destination is?
Well, I have the following deal.
I think these are going to adverse the effect us with respect inflation. The adverse effects us respect the growth, adversity effect productivity, but I think is an even bigger point in some respects Lisa, we have treaty obligations with Canada and Mexico and we have now violated congressionally approved treaties. What does that do to our credibility around the world aspect to our commitments? And that can adversity affect us
geo politically and adversity effect us economically. We have spent all these years since World War Two developing alliances and allies excuse me, supported by all sorts of commitments in our our partner has been enormously in our economic self interest, well in our economic self interest, in our geopolitical self interest, and I think we're putting.
All that at risk.
Right.
Do you see companies thinking about it that way or dealing with international partners who are calling into question some of the framework of being able to come through the.
Answers that and I agree with Bob.
Companies are being forced to now contemplate variables that historically we haven't contemplated. Remember the peak of US manufacturing happened in nineteen seventy nine. Between nineteen seventy nine and today, we have relied on a supply chain that has been so dependent upon our international partners, especially our closest one being Canada in Mexico, and so as that begins to be challenged, how we onshore or at some point we talked about nearshoring and near sharing was canadon in Mexico.
Since we've now applied tariffs to those countries, it's unclear how US manufacturers will navigate.
So we're exposed.
The corporate America is exposed, especially those in the industrial in the industrial arena's technology, perhaps a little less soil that we have exposure to what's taking place on the chip front, But the implications here on the market we've seen today you've seen a sell off of two to three trillion dollars. Risk is off today. Before today you had a little bit more risk on. You look at the volatility index, which is a VIX. Historically it's average twenty.
Now you're at twenty five or so. If you look at the options on VIX fifty, which gets to the high end of risk, we see more activity in those options in what we've seen in quite some time. So you now are in a relatively complex environment with interdependency, having to do with the supply chain for all the goods and all the products that we consume.
We're gonna have to be able to manage through that.
Bobby mentioned that this is going to cause inflation, and it's also going to cause some sort of deceleration and growth. People argue that tariffs in the long run are disinflationary. It's a one time price shock and then it gets absorbed and it's sort of part of the mess to get to a final goal of bringing more domestic production, reviving domestic production. What's your outlook. Do you think that it's going to look a bit different than.
That, Well, a little bit technical for the moment at least, you're right, it's a one time supply shock, so that
increases costs, and then it can level off. So the rate of inflation may not have gone up, but costs will be higher to consumers, to our producers, the producers who compete with imported goods can now raise their prices, and I think in terms of the long run for US, I think it means less productivity because the whole theory of trade is comparative advantage, so that every country gets the benefit of getting the most it possibly can for that which it is best suited to produce, and now
we're interfering.
With that process.
It will cost us in terms of productivity and growth. I think I think this is about ideology and the desiions. I think you're it's about ideology and I think of not factor analysis grounded.
It raises this question about a time when heading into this year, companies, we're talking about incredible dynamism, incredible expansionism, the idea of American exceptionalism. You're going to see a boom in deal making. Ray, do you think that that's just on hold, that that can come back, or do you think that people are rethinking that in corporate executive offices.
Well, let's be clear about productivity and how does it we transition. In order to rebuild the industrial infrastructure of this country, it will take five to ten years. So while we think about being able to remove ourselves from that supply chain dynamic, the reality is it will take a while before we do that. Having said that, is I think about some of the tailwinds in this environment.
You have I don't know ten trillion dollars sitting on the sideline, seven and a half trillion on corporate balance sheets two and a half trillion. With the asset managers, you have fourteen trillion dollars or so of debt available to trillion and with the asset managers twelve trillion traditional banks. Will we need to somehow deploy that capital to continue to grow the entries?
Yes, we will.
So I have, on the one hand, a lot of capital that is pent up. On the other hand, notwithstanding the sell off that we're seeing in the market today which brings it back down to still it is a pretty historical high. We're trading at twenty semi times next year's earning forward earnings. So I look at the dynamics of the resources that we have and how we deploy those resources, and the pent up demand for growth.
So we will pause for a while as we.
Understand and interpret the implications of the tariff dynamics, and once we get to a new normal, then at some point we will re engage. Will it be at the same levels that we've engaged re engaged historically unclear?
Yeah, But do you think that we're going to have that boom and m and a, that boom and deals that everyone was expecting that's been propelling financial stocks higher.
Well, we had the prospect of that, didn't We When we came in, we thought that there was going to be because of the factors of the availability of capital
where the market was going. And we also thought there's going to be a relaxation in some of the regulatory environments having to do with what took place in the many environment last year, where regulators came in and upset a few of those transactions, said note or a few implications which are pretty severe on a few of those companies that were not able to e merge, and given the pent up demand and demand for growth for these companies, and so I think you will see some once this
the first move in the tariff environment, once that move gets digested, the implications of which are still going to be long term is Bob reference.
Well, and Bob, something that you talked about is that one of the foundations to the business climate in the United States has been some level of predictability. Is what some level of predictability?
Oh boy, Yeah. And I think what we're doing absolutely is. And I think that that goes even beyond that. The rule of law underlies our economy, and I think we're and that gives you a certainty and predictability, and I think a lot of what's going on is adversely affecting confidence. It is now, and I think we'll more so in
the future. Confidence in the rule of law. This whole discussion about retribution and the use of the law enforcement agency in the United States to attack our components or opponents throughout the administrations is a good example.
I think, just as I said.
A moment ago, I think the violation of our treaty obligations to Mexico and to Canada.
So yeah, I think that.
I think predictability and confidence are essential and undermined underlie rather our economy. And I think I think of another good example, if I may, if something I think is doing tremendous damage, which is Doge. I've spent my entire career focused on fiscal discipline. We bounced the budget in nineteen ninety eight, first time in thirty years. I think we knew what the heck we were doing. I don't
think these people the foggiest notion what they're doing. And I think DOSE is doing tremendous damage to government and to the recipients of government services and government activities. Now, are there excess expended? Are there inefficiencies and is there excess regulation, Yes, but you approach it with the cost of a rational cost benefit analysis, not a burn and the burning down of what exists, and then the thought
that you rebuild it. And I think, I think we really are doing tremendous damage to government and to our economy.
Right, you're nodding, do you want to add.
In a little?
The answer is the response is, as you think about the world geoeconomically and geopolitically, the anchor, the sacro sa anchor that the US has is a rule of law. It has never been a factor in any conversations that we've had up.
To this point.
Is it a factor now?
It is.
It is moving into the conversation in the ways that we haven't we haven't visited historically. So we need to be very mindful of conversations that today. It is not central to the conversations, but it has now become part of the conversation where historically it hasn't been.
One thing that some people would argue, the Trump administration argues is that this is an effort to rearrange a system that has been structurally disadvantaging the United States, especially when it comes to China. And they make the argument that you need to play tough and do different things to try to shake up the status quo. Are companies
still talking like that? Do they expect this to just be a negotiation that they're to raise point Bob that there will be a new normal that will emerge and that the second half of this year we'll have a more stable kind of foundation that's more visible for corporations.
What kind of a new normal do you want to have, Lisa, I think that the normal.
No, I'm sure.
I think there's a new normal of irrationality, and I don't think that's going to be helpful to our economy. I think our new normal to be to return to sensible cost benefit judgments about everything that we do in terms of public policy, and I don't think and I think we're doing exactly opposite right now.
What we're hearing from companies Ray is that there could be some reasons behind some of the tariffs, and some investors have come out and said that tariffs are attacks, but some have said.
You know, both our attacks.
Some have come out and said that you know that they can manage through this. The US economy is strong and resilient and once we're past this negotiation tip for TAT they can continue with the growth plans, and they still are optimistic about the consumer. Ray have you heard anything different than that?
I think there is optimism still, but optimism maybe without the same level of conviction. Right, So the the randomness that appears to be at play here is not one that gives boards. And see there's a lot of confidence. So whatever the new normal is, will they react? Is they will react whatever whenever we get there. If it's a new normal of continued unpredictability, there's quite quite certain how aggressive people are going to act.
So I would.
Continue to pay pay it, pay attention to the volatility index. I would continue to pay attention to the tenure treasure, which I think what the administration is currently looking.
To as guidance.
And see if we get to a new normal, what that new normal looks like.
It's not clear yet.
Fun Yeah, And if a new normal, Lisa, is new normal which the world has tariff walls, we haven't because they have to have retali We're having retaliation already. We'll continue to have retaliation. And if the new war, if the new normal is a world of tariff walls, then will all just be less productive, less efficient, and less effective as economies, and our people will as a result, do less well and they would otherwise have done.
You mentioned the ten year treasure yields and Scott Bessett has made it. The treasure secretary under Donald Trump has made it very clear that the ten year treasure yield is his north star in some ways, that he wants to bring yields lower. That is a requirement to deal with the deficit that we have. Is that how companies are thinking about it as well? Is this how people? I think that actually ten year treasure yields?
Now, pray Tell does he plan to do that?
Seriously? Yeah, this is something I know a little bit about.
Oh yeah, how pray Tell does he?
No?
I'm serious.
I would have gone into Act twenty six years. This is what I did for a living and I was a treasury for one of it. How does he want to bring ten year yields down?
Well?
He says that according to his plans that there will be greater efficiencies through doche but also through cost cuts.
Those an't going to create data efficiencies.
What those is going to do is tear apart our government.
But that he you need.
A greater efficial.
In the way you do that is you look at the excesses in both regulation and government and then you're approach them with a course of reasoned course benefit.
Now not slash and burn.
Well, the ten your treasure yield has been down every single week, Donald Trump, the ten your treasure yield has been down every since.
But there's people starting to worry about the economy.
So then I would ask you ray at a certain point.
No, I will.
I'm now being excluded from the conversation.
All right, I'll send you totally quiet.
No, I actually I would love to have to further the cover.
That's what I'm yeelding to the secondary and I'm looking at the chart here and unfortunately, if it happens to be right, well, no.
This is this is really the key question. And actually to your point, there has been this theory that if yields go down, you end up with more economic dynamism because companies will invest more. And that has been the FED put right, this idea that if they lower rates that will encourage people to spend more. That is not
what we're seeing in markets. That is the opposite. What we're seeing is yields lower risk off people scared exactly to your point and right to your point from your perspective, do companies see yields lower as a positive shift before when we were talking about the potential for rate hikes or are they growing increasingly concerned to Bob's point that this really represents a pretty massive, massive and seismic shift in the economy.
Remember this is we're responding real time, right. I got a pretty low tenure, and I got a stock market to Soloft treat two to three trillion dollars today and a VIC that's gone up by twenty percent. So the data is and I got a conference call that's taking place now up north, and I got one that's going to take place to night leave. I got one that's
taking place tonight that we're all going to witness. So the question is is CEOs are waiting to digest as much and boards are waiting to do just as much of this information as they can and then somehow position themselves for what the world is going to look like after the next two days or so.
But it won't be just that. They have to look at the entire.
Supply chain infrastructure and how it impacts what they do as will the US consumer. And if you go through and look at the implications on the large retailers out there, both electronic retailers and food retailers look at consumer staples. For some reason, consumer staples are up. I'm looking at some of the companies with which are in we interact every day, and their stock scens have been moving in the right direction. Well, right direction means the stocks are
moving up. And I'm looking at this and you're looking at what you're looking at the vics here.
It's easier sometimes to talk about what the market's.
Doing, bought working here. So it's something that we suggest you put a slide up.
You can just keep talking on this, Bob, I want to come back to you about this idea.
So you're excluding me.
You want to come back to me, I may not, I may not engage.
I think you'll engage a little bit. You're talking about how you have quite a bit of experience as being the Treasury secretary.
Of experience, but good idea.
And you said, how is he going to bring down ten year treasure yields?
And right now we see them dropping.
The best way to bring down treasuries is to have a sound economy and then have, in response to that, have sound monetary policy, and then have treasury yiels adjust accordingly. You don't want to have eels go down because people are concerned that we're going to have a weak economy or that we may run into growth problems.
It raises this question, even if these teriffs come off, even if they rolled back.
If what rolls back the terriffs, Oh, I'm sorry.
If they are being used as a cudgel of sorts, how long can this uncertainty remain before just the idea of having uncertainty is really pernicious for growth.
Cain famously said that confidence underlies economic activity, and confidence is predictability. And I think that the actions we're taking, the tariffs, the immigration actions that we're taking, we're doing with dough which, as I said, I think doing tremendous damage to government and ineffectively addressing what is a real problem with your inefficiencies and excess regulation. I think all of that have not only substant effects, but adverse effects
on confidence and unpredictability. And I think all this talk about retribution, of which there's been a lot of talk, I think feeds that that lack of confidence and unpredictability.
Right from your perspective, how long can this go on before companies that are delaying some of their investment plans just take them off the table, you know.
I think it's early days again.
I think you're in the early innings of this tariff diplomacy, and companies are pretty wise and thoughtful about how they engage. This still remains the largest, used to be faster grow an economy that exists on the planet. So there's still confidence in what's taking place in the uas US notwithstanding the lack of predictability. A lot of reserves, a lot of capital reserves, a lot of pent up capital that needs to be allocated. So I don't think there's going
to be a rush to judgment. Having said that, the more the actions are unpredictable, then that goes to the level of confidence that exist with senior managers and boards. They will wait, they will wait out, wait this out to see what the implications are in the house of the Earth, the implications, and then take a decision on how they're going to move forward.
Is the United States still the best place in the world to invest?
Ah?
I would rather that's a good question, Lisa. I would rather invest here than any other economy. But of course that a little bit reflects on what's going elsewhere China, Europe, etc. I mean, those are all places with tons of problems. But having said that, we also I think it's the
greatest uncertainty. Having said that, think it's the greatest uncertainty in the twenty six years that I've been involved, or rather sixty years roughly that I've been involved in decision making it one sort or another respective markets and economies, and I think those risks have been substantially increased, as we discussed briefly, by the action of the administration or the perspective actions of administration, and then one other things, if I made Lisa, I think we have an unsustainable
fiscal trajectory, and I think that as and there that is what the administration says. The problem is, I don't think they go at the right way. I think you can be rational about trying to save some money, and I think we can save some but I think it's a practical matter that is a very limited an opportunity, but a very limited opportunity, and fundamentally we need more revenues. And if you look to tar and tarifs for revenues, You'll get more revenues, but you ms be adversely affecting growth.
And the offset of.
That is probably and I've had this model for me. Actually the offset of that is a very small, if any, net increase in revenues.
But the.
Answer lies prodominantly on the revenue side.
Right your thought about what the United's States is still the place that everybody wants to invest, you know.
Without reservation longer term. Yes, I look at the advantags that have been made in technology Max seven been examples. If I look at all the advantages that we're making across the landscape, notwithstanding our dependence on supply chain in many ways, this still is the most attractive, the greatest country that exists.
What about next six months.
We're going to go through some challenges over the next six months, We'll be challenged.
Will we get through them? The answer is yes, presumably. Now.
The challenge I have is that it's a historical mindset. We've not seen factors come in to play historically the way we see today. And so and I say that with a bitter conviction, not necessarily the hope, but a bitter conviction. I hope will always be there, but conviction that we'll get through this.