Bloomberg Audio Studios, podcasts, radio news. Do you want to welcome everybody who is watching too on Bloomberg Television Carol Master, Joe Matthew live here at the Milkin Institute Global Conference in Beverly Hill with.
A very special guest that we want to welcome here to our set at Milk And it's the former Treasury Secretary Steven Mnuch And thanks for being with us, sir, Great to be here with you. We've got a lot we'd love to talk to you about. But we've got breaking news that just went right on the terminal right before we began the broadcast, and that is a proposal by the SEC to go to semi annual reporting, or at least allow it. And you can look at two different sides of this coin. Do you think this is
good for the markets? Is it good for investors?
Well? I support the proposal.
I think there's too many companies that are too focused on quarterly earnings and whether they miss or beat expectations, analysts expectations. So I think the idea of giving companies the option of whether they want to do quarterly or semi annual is a good thing. I mean, I can imagine There are a number of company, particularly companies that are growing, that are still going to be interested in showing quarterly earnings and showing their progress through the air.
But I think giving companies the option is a very good idea.
Does it do anything to kind of the global perspective from investors about how US market is kind of the gold standards, so transparent because of those quarterly reports and so much more and some of the rules and regulations that really govern our companies here.
Well, there's no question the US is the gold standard for companies to be listed. It's the most liquid market in the world, it's the largest in the largest economy. And I think giving companies the options, I think will continue to have transparency.
Do you think most of them will still stick to quarterly reporting, Well.
My guess is some will switch and some won't.
I mean, as I said, if you're a growth company, you have every reason to want to show the growth every quarter. If you're a company that's in turnaround and things are improving, you're going to want to show it. On the other hand, there are plenty of companies where they're focused on a long, long term transition.
I think giving them an option is a good thing.
To pretty quickly see two classes of companies when it comes to reporting season. Yeahs are going to feel really different, Carol. But so I'd love to hear from you on this market as a whole, in the psychology that's confounding a lot of us. As we mentioned already, it's rally time, mister Secretary. Oil prices are lower again today after the Defense Secretary suggested that this effort in the Strait would not go on forever. That's all you need and we're
back to buying on Wall Street. Is this getting a little topy or can you rationalize what you're seeing?
I think there's two things that are going on in the market. One is that you have very large capex spending and very large growth around AI, around data centers, around the cloud, and that to me, we are still in the early innings of this transition. There's no question that AI is going to impact almost every business that we touch, and that's something that's going to be a very positive, but there's also going to be job issues
in job implications on that. The second thing we have going on is the US is the destination of where people want to invest. You know, Europe's economy is underperforming. People are concerned about what's going on in Europe. So the flow of funds into the US dollar, in particular into US equities is still very strong. As I like to say, if you can take a ten year horizon, there's no better place than buying s and P five hundreds.
You know, if you're day trading.
That's a little bit of a different issue trying to predict the short term market.
How do we figure out whether or not the spend in terms of data centers is just too much that there isn't some overspend ultimately. You know, we were talking on a panel of real estate panel with folks who are all investing in data centers, talking maybe like do we need to have an exit strategy? You know, we talked about data centers in space, like this thing could evolve,
chips get more efficient. So is it something that could be down the road but not to worry about now, or do we need to think about the overspend?
Well, say, in the short term, the demand for compute is very strong, and you're seeing this across a number of companies. I'd say there's two different things. You have open AI and anthropic on the one hand, who are going to consume a lot of cash as they build out these businesses. And then you have Microsoft, Amazon, Google Meta that all are cash machines and are building out
both AI and are building out the cloud. I think the good news is if there's overspending in the next few years, they'll cut back, So I don't think you're going to see the same trajectory. I think the other issue is going to be we're going to run out of power for data centers. So I think it's people want to spend the money now get the data centers operating,
and if they have to scale back over time. I mean some of these data centers, particularly the training centers that have fifteen year leases, my guess is fifteen years from now they're dark. The cloud data centers will have tremendous growth and we'll be around for the next fifty years.
Do you have exposure to the area.
We spent a lot of time on the area where we're long term investors in what we believe are stabilize data centers.
Do you worry that just to add on to that, and I think this might be where you're going a little bit caroll that efficiencies whatever is going to be developing in the next couple of years will render these massive data centers useless. They could be the size of a phone booth at some point, or just a completely different to Carrol's point in space, is this something that has a shorter timeline knowing that technology will evolve.
You know, if you look back at data centers from twenty years ago in Virginia, we're still using them.
Well, that's true.
So again I separate training data centers. You're going to need to train these models, then you're going to it's very different kind of the cloud native issues. But just going back to the market, you know, the market is discounting kind of the geopolitical risk in my opinion, so you know, we don't really see the market is expecting we're going to have a good outcome. I completely support
President Trump and what he's doing in Iran. I always said Iran getting a nuclear weapon is the biggest risk in our lifetime, and there's no question from my experience in the government, they intended to do that. You know, how we play out from here is a little bit more complicated, and as you said, we've seen a lot of volatility in the oil markets and the stock market is really not discounting this going on for a long.
Sounds like we're missing something here.
Yeah, I wouldn't say we're missing.
What I'd say is hopefully we will have a good outcome. Iran will come to the negotiating table. I think the economic in the blockade, the sanctions work.
Even if the straight reopen tomorrow, though we've heard that it could be months before energy flows are back to where they were.
Does the market have a reality check coming on that?
I think it will take a while. Having said that, there are such positive things going on in the economy that I think to the extent this trade can open up relatively soon, well, the economy will absorb those energy costs.
I want to ask you, you obviously were in the first administration. You have a better really probably great understanding of President Trump. And as we say, the markets can go from day to day based on the headlines, it looks like it's.
A one to eighty. How should we be reading what the president is doing? What do we need to understand?
Because do you feel like this is a different Donald Trump's the second term versus the first term.
No, I don't.
I think there's a lot of similarities in it. I think on this issue, and this is an issue he's been focused on since the first term. He's determined and his legacy will be that he's going to prevent hern from getting a nuclear weapon. And there's been other administrations that were, you know, understood the risk, but we're concerned. I also give Israel a lot of credit because one of the concerns was all the ballistic missiles and obviously the defense, the air defense system in the region have
been very powerful. But no, I think this is a president that would prefer not to go to war with them again, but will if he needs to.
But this could go. Could it be still talking about war at the end of the year.
I think we could.
I mean, I think he's determined that he prevents this from happening, the nuclear situation, and I think that party the issue is and he said this, you know, he took out a lot of the leadership. So part of this is making sure that leadership develops in Iran that can negotiate a deal that they'll stick with.
What's the other geopolitical? Because you say geopolitical, is it just the Middle East? Are you thinking about China? Are you thinking about other parts of the world?
No, I think it's I mean, there is this war in Ukraine. I don't want to forget what's going on in Ukraine. That's still an important issue. I feel like we don't see it on the press every day. But obviously the big issue right now in terms of risks for the economy and risk for the world is the at the least, you.
Know, there's another cloud you could argue is hanging over this market that has nothing to do with the war in ironalthough maybe there's a connection at some point when we start talking about the cost of this operation, but that's the debt now topping one hundred percent of GDP. Mister Secretary, how long can we sustain this? Hank Paulson mentioned to David weston the need for a break glass solution. What should the Treasury be preparing at this time for this?
Well, I unfortunately think there's not a break the glass solution, you know. I think there's no question that during COVID we had to spend massive amounts of money. We shut down the economy. I mean, anybody who ran a business never ran it thinking you'd have zero revenues. You know, I'm particularly proud of we saved the airline industry so we have a very robust airline industry.
Having said that, well, but we saved.
The industry overall, and I think it was I think it was the right thing to let spirit go through what they are. Having said that, it kind of normalized trillion dollar spending. And I think this is an issue that needs bipartisan support. You know, part of it is the mandatory spending. We have to deal with that part of the budget, and you know you also do though if you look.
At what's being allocated for defense in budget, it's a lot.
Look, there's no question, particularly in this day and age, we need to spend more money in defense. I think right now it's going to be hard to spend another five hundred billion dollars in defense without significantly cutting other things out of the budget. So I am concerned about deficits. I think this has to be dealt with. And I think the good thing is President Trump understands these issues and if there's someone who can tackle the spending issues, I think he's the one to do it.
Does this mean, I mean, what's the make or break moment?
Because I'll go back ten fifteen years we were talking about concerns about the deficit or more, and then it kind of faded away.
So what is the make or break moment?
And I think about this in the context of Kevin warsh coming in as the next FED share you know, in terms of servicing the dent and so on and so forth, pressure that might be on him kind of roll it all together. Do you think that he should be cutting rates in this environment?
Well, I think we're close to the equilibrium rate. So before the situation in the Mid East, we did have inflation coming down close to the FEDS two percent target, and I think you could say the equilibrium rate is probably between two and a half and three percent.
So we're close to that level.
Also, there's no question that the deficits push up our cost of funding, so that there's a risk premium built in. And one of the things that Kevin is talking about, which I also support, is shrinking the fed's portfolio. Well, if you shrink the fed's portfolio, that's also another tool that you don't.
Have to lower rates.
Ultimately, the FED does shrek term set short term rights. If they're not doing quantitative easing, which they're not going to do now, they're not setting long term rights. I mean, and I don't think we're going to have a make or break moment where one day we wake up and we can't finance the debt. I do think you'll see an increase in risk premiums. I mean, you see the thirty year bond kind of approaching, you know, kind of five percent. Part of that is the volatility around inflation
and what's going to happen with the word. But part of that is also just pushing up the cost of long term financing for us.
What's Kevin worshin for when he wakes up in the morning and looks at truth social is this contentious relationship with the chair if he's not cutting going to continue.
I think Kevin will be terrific in his new job. Ok.
I think he will be an independent fat That doesn't mean that he will or won't agree with the president. Now, look, part of it is where interest rates are depending on the economy. If we continue to have a very strong economy, we're not going to need to cut rights. If for whatever reason, we go into a recession, we will have one percent rates. So I mean, we had zero rates in COVID. You know there was a reason why they went down to zero.
Hey, we can't leave without talking about lions Gate. Thank you. Guys have about a thirteen percent position. Do what's your plan with lions Gate? What do you want to do?
It's a great business. I've recently gone on the board. Lionsgate is one of the few independent studios left. It has an incredible film library, and Michael's been a great success.
So you want to learn all the story Michael Jackson. I can't comment on that.
Well, so let's wrap with one fun question about the movies. Michael is an incredible debut. It looks like it's across the board when it comes to demographics, and we're in a world where consumer sentiment is pointing lower. They're worries about consumer spending, the price of gas, but they're lining up for that movie.
What does that tell us about that?
It shows you that when you have the right content, people still want to go to the movies. It's not just about sitting at home and watching it on TV. And you know, Michael Jackson was just an incredible performer and his music was obviously pretty extraordinary on my playlist, got to be and we all remember growing up with MTVA and trailer.
It's not just old folks going on exactly not.
You do you miss the administration?
Being inside, it was an experience of a lifetime. I couldn't be happier that I did it. I'm proud of what we did. I'm enjoying being on the outside and rooting for them.
Well, we certainly enjoyed having here. Thank you so much.
Really appreciate Steven Menisin of course former Treasury Secretary, and of course he is Liberty Strategic Capital founder and managing partner.