Bloomberg Audio Studios, podcasts, radio news, Rebecca Patterson in studio right now with the Council on Foreign Relations, but also institutional work among others, with Bessemer Trust, and of course the solo is associated with Bridgewater for years. I have three words when I speak to Cherubs and I talk about concision, I talk about acuity. I talk about avoiding conflation, which is something that you conflate two ideas together and you get in trouble. You are the queen, because the
queen's visiting in Washington. You are the queen of acuity. And you walked in the studio having a full Patterson tantrum over sovereign wealth funds. Beware, what do I need to know about the rich guys country to country?
So I think one of the biggest underappreciated risks right now for US financial markets and especially this tech rally, is the possibility. I'm not saying it will happen, but there is a probability that's not zero, that some of the golf sovereign wealth funds, particularly I think Saudi and UAE, if this war lasts a little longer, are going to need cash. They're going to need it to shore up defenses,
to shore up damaged infrastructure. And right now the sovereign wealth fund cash is largely We're the biggest single recipient going to the US, and it's going fairly concentrated to technology yep, and through a handful of financial intermediaries.
Now I'm not saying it'll.
Stop coming, but if that flow is cut by a third even it would have a material impact on the US.
So that is a risk I'm watching carefully.
Saudi Arabia has a pretty big budget deficit, so it's not like they have a ton of cash sitting around they can easily tap.
It's inesting. Just in the small little world of professional golf, we're starting to see it. There's reports out there, widely reported that they may withdraw their financial support of the Live Golf tour to the tune of a five billion dollar number, and that caught everybody by surprise, and I think in some of their discussions they were suggesting, Hey, it is the pressure from the war. We need to rethink some of our investments. That ties in, Yeah, exactly with you.
And PIF, which is the Saudi main sovereign weal funds. There's about thirteen big ones in the Gulf countries the GCC. But PIF, even before the war in December, came out with its five year plan saying it wanted to be more efficient, more and more domestically focused with its investment. So I just think we need to be thoughtful on assuming that capital just keeps coming to the same degree it has.
And I'm not sure what that says about that whole region of the world, which was the money was just flowing in there for years and years. Every financial firm in the world was setting up an office in that part of the world, and that was expected to be maybe you know, a new financial globe, the capital of.
Capital exactly right, that's what they wanted to be. So after I mean, it's been going on for a while, but twenty fifteen, twenty sixteen, you guys remember oil prices crashing in that period, partly because US fracking took off and the Middle East had an Aha moment. They said, wait a second, we need to double down on diversifying our economies. Part of that was the sovereign wealth funds making these big strategic investments and attracting US money to them.
So it is a quid pro quo, and they've built up tourism, they've built up high value manufacturing, They've built up tech and finance, of course, but can it last? Partly, it depends how long this war goes. Is it just temporary damage or is it something bigger?
I got an email coming in here in anticipation of Rebecca Patterson being with the Threads down in Durham. First of all, I'd love to go down just to see the Durham Bulls play in the stadium.
But they got a new arena which is still a jewel, very nice.
It's right downtown and you know, good morning down in North Carolina. And he is an absolutely brilliant question which goes back to your time at Besseer Trust. Okay, we have been schooled that for certain our actual assumption of equity returns will be single digit, two hundred beeps above nominal GDP. We all studied the test, drank the kool aid,
and it's just been wrong, wrong, wrong, for years. Fred wants to know who's right this equity market or single digits subsided equity returns, which is it?
I mean, the equity returns we've had over the last call it fifteen years or so have been fueled by I think three main forces. Unusually large fiscal stimulus, some of that was pandemic related, and some of it was national security economic security related, monetary policy. Remember it wasn't that long ago that we had zero and even in some countries negative interest rates that fueled equity assets. And
then the structural tech trend. And I think those three things combined help explain the differential between the economy and the equity markets. Now going forward, are we able to con continue this or do we go back to something
more in line with historical averages. With bond yields at four point three to one this morning, and the Fed in my view, unlikely to go back to a zero world or something close to that anytime soon because inflation is structurally higher, I think it's going to be difficult to continue the ride we've had with stocks. I mean again, this year, we're only up four percent year to date. It's funny, everyone's like an all time high, all time high.
It feels like it should be more. It's only four percent. Right, if you had your money in Japan, you'd be up twenty percent already this year.
Are you surprised though, that when we did have that sell off? With the beginning of the war. I think a lot of people were surprised the veracity of the snapback.
Oh, one hundred percent. One hundred percent.
I mean the fact that we have oil prices at one hundred and seven hundred and eight dollars I'm looking at Brent crude, that we have higher bond yields, that we have a worsening fiscal position, we have a k shape to con with those lower end consumers hit harder by high energy and high food prices. It and job markets that aren't worsening but have stalled. The fact that stocks are here and it rallied so hard is striking
to me. I think investors have been conditioned in recent years to expect that we will have a resolution quickly because it's a midterm election year and it's not in the GOP's interest to have a prolonged war that could hurt voters, and they've been conditioned to expect that buying the dip pays. It worked in pandemic, it worked in Liberation Day, but I think you have to be really careful about that.
You know, Rebecca's people called me up this weekend, stop me on the street, I should say, rather and they said, Tom, if you don't plug the Council for Economic Education, she's not coming back. This is a cool event you got. Jan Azi is showing up of Goldman Sachs and I've done this years ago. I think this is your diamond gala event. Yep. And is it like with the King and Queen meat? Is it like tuxedos and all.
That you No, we don't force tuxedo.
We let people show up in their work clothes and you all are obviously invited as guests to my table if you can be free on a six. But the CE Council on Economic Education is focused on making sure K through twelve students finish high school understanding the basics of economics and personal finances.
It's getting more traction.
In recent years, we've seen state legislatures wake up. We now have thirty nine states in the US that require high school kids to take at least one personal finance class before they graduate. So thirty nine is a huge step forward from where we were. But it's not fifty, which is crazy because this is so fundamental. If we want a strong economy, if we want strong stock markets, we have to have financially healthy consumers. So you can talk about the moral arguments for this, the ability to
narrow that opportunity gap. But at the end of the day, if I'm an equity investor listening to this conversation, this is in my interest.
Interesting my daughter has They just added that a personal finance and it's an AP course, so advanced placement, yes, which is an incentive for kids to take it.
And I was so happy to see that. Yeah.
So we've just partnered with the College Board on that AP course and we agree like if you can get kids focusing on this, they're going to have a better time in college and they're going to have better prospects going ahead. They'll understand what the credit score is, how to borrow, how to save.
Those are great to thirsteen colonies, but you got to know how to also bounce a chess and what compounding means.
Thank you so much, thank you.
I appreciate it. With the Council on Foreign Relations and again uh the CEE, the Council of Economic Education with their event in early May,