This is Bloomberg Wall Street Week.
And we may not have an overall recession, we're having a rolling recession to kind of ROWL looks pretty strongly. It is when it comes to jobs, the financial stories that shape our world. Three major regional bank failures send shockwaves through the banking system. We're all trying to figure out what to make of generative AI through.
The eyes of the most influential voices.
Welcome down, Doctor Paul Krugman, Ryan moynihan, am Bank of America, deebro Lair of the Paulson Institute, well then Hubbard of the Columbia Business School.
Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Making history and not always in a good way, in the Middle East, in California, in regional banking, and in sports streaming. This is Bloomberg Wall Street Week. I'm David Weston. This week, Julian Salisbury of Sixth Street on the surge and alternative investing.
You've seen like a greater interest in investing in private capital.
Former FDIC had Sheila Bear on the continuing struggles of regional banks.
That's really more about commercial real estate than New York Community.
Bank and Jonathan Karp of Simon and Schuster with Petz stavros O Kkar on an iconic publishing house in the hands of private equity.
This idea of broad based ownership has really energized the company.
With this unloved gem of a business inside of paramount.
Living through history can sometimes try the nerves Global Wall Street. This week watch with concern as Israel's fight with Mamas threatened to spill over into the Greater Region, even as Secretary of State Blincoln continued shuttle diplomacy to contain the fighting.
There's still a lot of work to be done, but we continue to believe that an agreement is possible and indeed essential, and we will continue to work relentlessly to achieve it.
California spent much of the week battling rains that were truly historic, causing buildings to slide down mountains in floods of mud. Regional banks took another shot this week as New York Community Bank stock fell to its lowest level in twenty seven years after it cut its dividend and had its credit rating lowered, leading it to try to clean up its balance sheet.
This is a bank that's very large and has just gone over the one hundred billion dollar.
Asset level.
That is, that is giving it a lot closer regulatory scrutinate.
And the Walt Disney Company announced earnings that beat all expectations and drove the stock up, even as it sought to combine its sports streaming business with that of Fox and Warner Brothers Discovery in what would make sports history. The purpose of the venture is purely distribution.
It's not about procurement of content.
So we'll continue to compete with each other for sports rights, just as we always have.
Thursday evening, President Biden made an impromptu appearance at the White House to denounce a Special Councils report that had said there would be no prosecution for misuse of classified documents, but only because no jury would convict an elderly man with a poor memory. My memory is fine, my memory. Take a look at what I've done since I've become pressive. None of you thought I could pass any of the things I got passed.
How'd that happen?
You know?
I guess I just forgot.
What was going on.
The equity markets responded to an event packed week by continuing their march upward with the s and P five hundred, adding almost one point four percent to close for the first time over five thousand, already putting it over the median point for where the bloomberg Els think will end up the year. The NAZAC climb two point three percent, while the yield on the tenure also rose some fifteen basis points to end at one point four point one point seven. To give us his read on where these
equities are headed. We welcome back now, Scott Kroner, City US equity strategist. Scott, great to have you back with us. So I guess the basic question is have they gone far enough? Are we overpriced now in the equity markets? Because they really marched.
Up, I'd say evaluations are certainly getting to a more stretched level. What we think this really does those put an ongoing burden.
On a couple of forces.
First, we do need to see an ongoing tailwind from a fundamental perspective.
Second, we have to keep.
An eye on ten year yields, which are around the four percent level we think send a pretty decent signal for equities.
But at this point it's really.
The Q four earnings period that we think is supporting a lot of the action we've seen thus far, and we think of bodes well for the fundamental outlook for the SP five hundred over the course of twenty twenty four.
All the talk in your equity area is about those Magnificent seven. However, many I think six ' eight whatever they are, magnificent seven, is that likely to broaden out? And are they likely to keep marching on?
Well?
Okay, so the big seven are magnificent seven? Really is three? This year there's three of.
Those components that have contributed half of the index gained year to date. We've been arguing that they become more idiosyncratic in their behavior.
That's unfolding.
Our big theme, though, has been one of broadening beyond the S and p's exposure to just those megacaps, and we are seeing evidence of that as well.
So from our first.
Active broadening from a fundamental earnings growth perspective is mission critical to further upside for the SMP. And what we think that does is lend itself to a broadening from a performance perspective across a broader array of sectors.
So you talk about fundamentals, I interpret that as earnings and telling me about earnings. Where we are in earnings. Where we're headed earnings, I mean, you're you're actually toward the top of the Bloomberg elves and your projection for where we're going to be earnings this year.
Yeah, we're pretty bullish on the earnings out look and the fundamental picture for the S and B of five hundred for sure. And what I would say about that is going into the Q four reporting period, which obviously sets up for twenty twenty four, expectations had come down and so they're being easily exceeded at this point, again something that we had expected.
We had also expected that we'd see a.
Downward bias to full your twenty twenty four estimates, and in fact that had been occurring. But we're now seeing some signs of stabilization. We think the path higher for equities from here begins with fundamentals, and there we were quite.
Constructive on the earnings picture.
We're looking for the S and P earnings growth in the twenty twenty four time frame to be in the neighborhood of ten to twelve percent.
When it comes to tech, does a lot to talk about AI and its effect on productivity and where we're going there. What's your take on a on how it's going to affect equities.
Well, the way we've been viewing it is that it's going to affect it in two ways. First, you're going to have that subset of companies that has a direct beneficiary you can measure either via revenues or earnings. That's a small subset of the megacap growth cohort that we've.
Been discussing already.
But under the surface, we're looking for AI to lead to productivity enhancements across a broader swath of companies. That's going to be much harder to get one's hands around from a granular perspective, but we expect to see it in margins and profitability.
I'm not sure we call it a fundamental But what about the election? I mean I keep hearing that historically in years where incumbent presidents are running for re election, whether they get, whether they win or lose, the market, Well, do you ascribe to that view?
Yeah?
I think the way we're approaching this election is you can throw out historic playbooks. We don't think that a lot of the performance patterns from previous presidential elections will
hold out this time. We think there is a different set of issues that need to be contented with, and each of the two candidates, in our view, has some aspects of their policy stance that are not particularly a US equity friendly, and so we're going to have to monitor the way their platforms really fall into place over the next several months.
As in so many elections, risks on both sides, many thanks to Scott Kroner of City. It started with private equity engineering the leveraged buyout of our Ja and Ebisco back in the mid nineteen eighties, but it's gone far beyond leverage buyouts and far beyond private equity alone, as private credit, real estate infrastructure on a range of alternative
investment vehicles have blossomed. One of those is six Street Partners, now investing some seventy five billion dollars, and we welcome its new co cio, Julian Starsbury.
Welcome back to Wall Street. We're good to have you, Julian, great to be here. So tell me about the move from Goldman to Six Street Partners. Not so much about why you personally did it, but what is it represented in your mind about larger trends in Wall Street and investing.
Yeah, if you go back twenty or thirty years, I would say private equity was a relatively niche area. Private credit was people didn't really talk about private credit. There was middle market lending going on at banks certainly, you know, you had hedge funds out there who may do the odd private loan here and there. Infrastructure really wasn't, you know, on the tip of everybody's tongue. And what you've seen is just this gradual trend over the last twenty or
thirty years. As you saw some of the early moves into alternatives back in the eighties and nineties, the endowments and the state pension plans, they were generating tremendous returns from the asset class. This was giving rise to increased allocations towards initially private equity, but then wanting to broaden into other diversifiers, and then subsequently that brought in other capital.
So you've seen like a greater interest in investing in private capital, which means the roles for banks has just changed.
That there's still an incredibly important role for banks to play as a financier, as an intermediary, as an advisor around these given situations, but actually the retention of the risk capital in these deals whether it's owning the private equity transaction or owning the you know, the junior debt tranchers, owning the real estate asset is increasingly just moving into the hands of long dated private capital that typically, if structured right, has a liability set which is matched against
the assets that they're invested in.
We were a tendency in financial media to talk about active investing passive investing. What about active management and passive management in this sense? We had Tony James on a little while ago and you said, in private agrey, it evolves from something that was basically a financial transaction. We'd love ridge things up. We can make money, you can flip it in privately. Increasingly you have to actually manage the business, make some change the business, make it more valuable.
Are you seeing that with the various vehicles you're looking at that you are more involved in the business.
Absolutely.
I think about there's a continuum of investments that you can make somewhat where which are relatively more passive and some that require very active involvement. And one could say, you know, building a company from scratch or or scaling up a platform control. Private equity being the most active form of active management, and there's a continuum in between.
And I think what you're going to see over time is areas where you're simply an intermediary between capital from a client going into a situation where it's a relatively light touch will be harder to prove value and add value.
And if you you know, and whereas you.
Know, the more actively managed situations, you can really demonstrate to your clients that you're value to them, but also you're a better solution provider to the company that you're that you're investing in.
Given what you said, I'm not going to ask you what categories private equity versus private credit for something make the most sense, because what you said is it depends depends on the problem. We'll use different tools for different purposes. What about sectors. One of the things that we're hearing a lot about and now, for example, is infrastructure. You've seen some big deals now in infrastructure with some other
investment firms. Is that a real opportunity that you're looking at going forward?
Look, I think it's pretty consensus that there's some like big long term themes that everybody's spending time on. I would say infrastructure is one of those because that kind of ties into a number of themes. Digital transformation of the economy, reorienting of the energy infrastructure across the across
across the globe, decarbonization. I think that the demographic shifts and then also the deglobalization trends that we're seeing with more businesses wanting to not necessarily exit on mass from certain markets, but at least to think more about supply chain certainty and security and all of those mega trends essentially necessity infrastructure investment, and that will give rise to tremendous investment opportunities, trillions of dollars that need to be
invested in infrastructure in the coming decades.
Okay, thank you so much. It's really great to have you.
This.
That's Julian Salisbury, Six Street Partners coming up anticipating a possible Trump rally if he's reelected this fall. We'll talk with Scott Vessant of Key Square Capital Management.
I would say, right now, this is a Nirvana situation for the market.
That's next on Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
If you look at history, election years are always up heres, this is going to be a year where the economy medals along. So as Mary said, interest rates are going to stay down, stocks are going up, so they're probably, in my view, we're going to continue for the balance of the year. If you want to worry about something, I'd start to worry about.
Nineteen ninety seven, that was Harvey Eisen of Wright Investors Service on Wall Street Week with Lewis Rockeiser, anticipating what the presidential election year of nineteen ninety six could mean for investors back then. For his thoughts on the twenty twenty four election and what it could mean for Wall Street. Today, we welcome now Scott's Bessen of Key Square Management. Scott, thank you so much for being here. Great to have you.
Good, thanks for having me.
So you have looked into this, you have an analysis. Actually, you're not just picking things out of the air about what you think is going on right now. Let's start with a so called Trump rally. We had one last time back in twenty sixteen. You think we're in one right now.
We finance people are simple.
In twenty sixteen, the market crashed on election eve and then took off for three four weeks after that, had a big run. So you know, Pablovian investors are anchoring to November fifth, the twenty twenty four on what a Trump win could mean, and you know they're generally market friendly policies.
Well, what are this positives are we talk about taxes and regulation mainly.
Yeah, so the Trump tax cuts expire in the twenty twenty five, so presumably those would be reinstated and extended, light touch regulation, energy and dependence. And I think the market thinks under Trump two that the international situation would calm down a bit.
We'll talk about international situation before you talk about geopolitics. What about trade, because we've had him come out now and say this is foreign President Trump's saying ten percent traffs across the board, and Robert Leithheiser, his advisor's written a book that says we'll start at ten percent and then just keep ratching it up until we eliminate trade deficits.
Right.
Well, I have a contrary view or a differentiated view on that. I actually think that they're putting the gun on the table with the notion of not having to fire it is. You know, that's how you start a negotiation. You go to the most extreme position, and the world's already falling for it. Christian Leguard came out, President of the ECB, came out last week and said, almost assuredly, if Donald Trump comes back, he will put terrorists in Europe.
So without having done anything, he's in a strong negotiating position.
But do we want tarifts on Europe or is that going to hurt our economy?
We don't know, is so what will terriffs be.
Tariffs are inflationary, they tend to strengthen the dollar, but it is that it's good for domestic industry.
So you say, the market's discounting the likelihood or quite distinct possibility to down trouble come back, and we saw it worked well the last time. But also is they kind of getting a little bit of help from the current administration.
Well, so my thesis that this is a Trump rally is two parts. So market anchoring on Trump is ahead in the polls victory November fifth, But Janet Yellen's also looking at that Poles, So David.
Since nineteen fifty.
Two, the market has never had a down year when in accumu's running, never headed down year.
And why is that?
Because the economic apparatus in the White House is pumping away, so providing a lot of liquidity, spending a lot of money, releasing a lot of the programs that were passed last year. Maybe they've delayed, so you know, they're trying to reach some kind of crescendo this summer, and the market likes that. So, you know, I would say right now, this is a nirvana situation for the market.
Trump's ahead in the polls, Marc's.
Anchoring on November fifth, and Yellen sees the same poles, and she's pumping away as hard as she can.
It's got One of the things I found fascinating your note is you have a chart in there that basically tracks where the S and P. Five hundred is gaining versus where Trump is versus Biden the polls, which is pretty stunning. It tends to say the more Trump gets ahead in the polls, the better the market does, and when Biden gets the poles, it's flat or even a little bit down.
Yeah, so that's correct. You know, I did put the normal disclaimers. There are not a lot of episode, not a lot of observations.
You know, there's a lot of serial correlation.
In there, but directionally, I think it's correct, and the magnitude, as you said, is quite big. On periods when Trump is up, we've had a cumulative gain of thirty five percent. Periods on Biden's up, it's thirty percent.
Scott, it's really great to have you in Willsherter. Thank you so much. That's Scott Bessent of Key Square Management. Regional and community banks. They're important to our financial system and the United States has more of them than anyone else.
I think the regional banks are very important, extremely important. You know, we have forty five hundred banks, which is a lot more than any other country per capita or per dollar of GDP.
As important as they are, regional banks have come under pressure in recent days. First we had the effects of a dramatic rise in interest rates leading to the closure of Silicon Valley Bank, Signature Bank, and First Republic Bank.
So breaking news late Sunday, the Treasury Department, the Federal Reserve, and the FDIC said it will wind down Silicon Valley Bank in a way that quote Tom fully protects all deposits.
As we know.
The one question everyone was asking themselves over the weekend, why do we bank? And do we need to open a new account.
Then came the decline in commercial real estate values, which hit regional banks particularly hard.
Commercial real estate is not a is not a principal risk or a major risk for the very large largest banks. It is much more for regional and really the smaller banks have proportionally much larger exposure to real estate.
And now we have new capital requirements proposed by the Federal Reserve which would extend to reas not covered before and that bankers say will curtail lending.
We have the examinations we have on capital. They do impact our ability to drive competition the market and help America's businesses grow expand around the world, grow domestically and on a level playing field. Is a critical issue here is that these rules go through the US banking system went from being here relative to the European banking capitalization or other countries.
To hear raising questions about the price will pay for higher capital requirements.
Raising capital requirements spy as much as twenty percent on an industry that all participants believe is well capitalized is a bad idea in any environment, but it becomes even more problematic with economic uncertainty ahead.
And whether the benefits are worth that price.
I think capital requirements need to be somewhat higher.
Now.
Having said that, I think it's incumbent on the banking agencies to dig into those analyzes of optimal capital levels, to trade off between financial stability and economic growth, and to explain in a way that's accessible not just to experts but to the public, why the capital increases are warranted, and to.
Tell us what we think we know about what's going on with regional banks as well as those proposed new capital cords. We welcome back to Wall Street Week Shila Beert. She's the former head of the fdi C. Sheila, thank you so much for being back on Wall Street Week. Let's start with New York Community Bank. Much in the news this week. What do we think we know about what happened there and is it a one off? Do we think or does it say something more broadly about regional banks?
Well, now, I think it says something about the commercial real estate markets, especially in urban areas. Office commercial real estate and urban areas is suffering a lot of it. Some of it's interest rate, some of us just their transition to remote work and hybrid work is reducing demand for office space and creating high vacancy rates stress.
For the landlords.
So and then if they have to refinance about it. I think you know about to have a train is refinancing this year, I mean after refinance at higher rates.
So that's what's going on.
It's really more about commercial real estate than New York Community Bank. They do have significant exposure, you know. Uh, it seems to me they were under reserved. They had they added a lot of a lot of to the reserves in the most recent financials, which is a concern.
But hopefully they've got it covered now.
You know, we change the rules a while back to require banks to reserve against expected losses on their loans based on a forward looking through the cycle, looking at all market conditions.
Uh.
In the FD I see put some really good guidance out about this last year, reminding banks that they're supposed to be looking at all market conditions, not just historical performance, which is pretty good. But historically you didn't have this problem with remote and hybrid work.
So uh, you know, other bags may be under reserve.
They'll need to get those reserves up, and that's going to cut into earnings, but hopefully that plus their capital base will be sufficient to get them through this.
Give us your sense about those capital requirements on how they would affect the banks, although things I've read suggested really falls more on some of the regional banks that on the very big ones.
Yeah, well, actually the bulk of the capital increases would fall on the largest banks.
They already said that the largest banks already have enough reserves, right, that they already have enough capital, That's what I've read.
Well, so it will increase their regulatory minimum capital requirements for the fossil three D end game. That still will primarily impact the largest banks.
And I'm glad you asked this because those rules.
Really the up of those rules was the Great Financial Crisis, and their primary impact is on market risk and operational risk, not so much credit risk, which is what we're getting into now with commercial real estate.
So there will be impacts on the regional banks.
Do lower the higher capital requirements to one hundred and billion and about from two fifty, so the assets going to have an impact, But there's a very the ficial those rules are far from being finalized and it'll be many many years before they actually come into effect. When they do, so, I think it convestors are ever reacting to the prospect of those rules. Now there is no not going to be really for better words, there's not going to be any real immediate impact.
On these banks. Is a very long transition period for them, and again most of it is actually falling on the.
Largest banks, especially ones with big investment training operations.
And the banking industry doesn't seem to like what's been proposed so far. I think it's very safe, for sure, not a big surprise, and they push back hard, but they have from where you say, do they have a point because one of the claims is it's going beyond what BOSL three actually requires.
There are many things about this proposed rules I don't agree with, and so I think they have legitimate arguments on certain aspects of the rules. Issue is around complexity, but just I mean, what they're really just saying. Their raw argument is any increase in capital is bad and it's going to hurt.
Some main street et cetera.
And there, you know, they raise a lot of false arguments We've heard over and over again. The common one is that it's going to hurt lending, it's going to constrain lending. First of all, these rules primarily impact trading operations and opera trading and operations, not lending. Actually in aggregate capital, pharmas go down a little bit under those proposed rules were so called credit risks. So and even if that was true, we all capitalized banks do a better job of blending through the cycle.
You want them to be resilient enough.
We've been talking about the situation we have now with commercial real estate. This is going to create more increased credit losses on the banking system, and large banks have some exposure here. Two Also, as you know, as monetary policy titans, again, you have market law inflated asset valuations adjust, low yielding assets lose marketa So when we get to these cycles and of monetary tightening, we talk about a
hard landing. But the way you avoid a hard landing is to make sure that the banking system has enough capital to absorb the kinds of losses we're seeing right now at which time with monetary tightening.
Chilla, thank you so much for being back on Wallshers are always great to have you. That's Shila Beart. She is the former chair of the FDIC. Coming up, Private Equity seeks to Breathe New Life. In the book publishing business. We talk with Pete, staffers of KKR and Simon and Schuster CEO Jonathan Carp.
What's possible if we become the destination of choice for editors.
It is a tracking more town. Already we've already been able to hire marquee editors.
That's next on Wall Street Week on Bloomberg.
This is Bloomberg Well Street Week with David Weston from Bloomberg Radio.
This is Wall Street Week. I'm David western Iconic publishing house has changed hands as Simon and Schuster has been bought by KKR. And we're joined now by the two individuals who've driven this deal. They are the president of the CEO of Simon Schuster he is Jonathan Carp, and by our friend and colleague from k Pete Stavros. So. Pete, welcome, Thank you for having me. Great to have you back, and great to have you here. Jonathan.
Thanks.
So Pete, let me start with you. We've talked to you about KKR's theory about acquisitions at this point, explain why you picked book publishing because there's a lot of people think that that's not a great business. It's a wonderful thing, but it's not necessarily a great growth business, so.
It's more stable than you might think. So book publishing, the volumes are stable, and they've survived the Internet. They've survived mobile in a way that a lot of old line media businesses have not in industries have not. If you look at their content library at Simon and Schuster company's been around one hundred years, They've published everything from The Great Gas b to Catch twenty two, it's you
could not replace their content library. And now on top of that, what gets us excited is it was this unloved gem of a business inside of Paramount, so it did not get an investment, it did not get a lot of attention, and so we looked at it and we said, well, could they do more with audiobooks? What type of operational improvements could there be? You know, Jonathan and I have talked about this. Forecasting demand for a
new book is really hard. How many copies of that book are going to be sold is very difficult to predict. We think there's ways to do bring a little more science to that, and also to shrink our supply chain and be more responsive so we're not producing excess books
that end up getting thrown out employee engagement. There's sixteen hundred and fifty employees at the company, fewer than five percent head ownership in the company, which is something we're going to bring to the table around employee engagement and ownership. You know, what's possible if we become the destination of choice for editors, you know, who are effectively talent agents for authors. So then we're going to be the destination
of choice for authors. And what this could all unleash in now being the only standalone book publishing company out there, This could be a big deal.
So, Jonathan, what about from your side, from Simon and Schuster side of it, what does KKR potentially bring to the tables? K said, they don't want to start picking the books, they don't want to do your job.
Well, I mean, first of all, the idea of giving all of the employees a piece of the action, This idea of broad based ownership has really energized a company, and I think it's got all of us rowing together, and I think it was it was a jolt of excitement that went through the company when this was announced.
And you know, I really.
Credit Pee with with you know, being an advocate and an evangelist, for this idea because it is attracting more talent. Already, We've already been able to hire some marquee editors, and as Pete said, I mean those editors are going to attract the authors.
Well, explain that part of the business exactly. I mean they want to work harder because they have a piece of the action. Now, if you get those market editors, does that bring in authors that will give you hits? Because my understanding is it is still a hit driven business.
Well, it is a hit driven business on the front list, but now about half of our sales are coming from backlist books that have been out for more than a year, and so you want the best editors to attract the books that are going to last, and the books that are lasting are easier and easier to sell because of digital marketing. So it's actually a much better business than it's ever been because we can instantly sell books through
ebooks or through audio. The other part of the business that's really really exciting right now is audiobooks because Spotify's gotten into the business. Of course, Audible and Apple are already there, but with Spotify getting into the market, our books are reaching an entirely different audience, and when you think about it, only about half of the people in
the country will buy a book in a year. But the people who are listening to Spotify, they may be music listeners and they may just be people who aren't really into the habit of reading. Last year, when we published the Britney Spears Memoir, we set records on Spotify and we've sold over a million audio books of Britney Spears. So that's a very exciting development for the business.
So you talked about the catalog before, and I was wondering ways to exploit the pathology. It sounds like part of it is new outlets, essentially new forms of media. What are the margins on that though? When you go to a Spotify so you can't make as much money off of that as you do off a book. I assume I don't think we want to talk about that.
Yeah, I'm not going to talk about the margins, but I mean, but the distribution is frictionless, so there are no returns with audio books and there are no returns with ebooks. So it's a better way of getting books out there to the public. And it's also instant. You're always going to be able to find it if you're searching for a digitally, that's certainly not as true when you go to your local bookstore.
That's fascinating AI. We've talked about AI before. How does that help you with publishing?
Well, it could be a tool to make authors and editors more productive. I mean, just to be clear, what's not going to happen is we're not going to go start writing books with AI. That's something we talked about on the front end. It could be a productivity tool. There's so much that's unknown, so we don't know exactly how it might help us be more productive in the future, but it's something we're thinking about in study.
It strikes me this is the first time, I think since nineteen seventy five Simon Tusher was not owned by a conglomerate, I mean, going all the way back to Gulf and Western I believe. How does that change your orientation, Jonathan, now that you have somebody who's really focused on book publishing rather than focusing on a lawful lot of other businesses.
Well, it is true that KKR is going to allow us to invest more in our own business. So there are there are several engines that drive our growth one of them obviously PU the adult the adult books, but also children's books, audio, UH international, and distribution. We actually distribute books from many other smaller publishers. So those are
our five engines of growth. And KKR is going to allow us to invest more in our international distribution and more in attracting other clients to distribute.
Is there more transparency now for people at shows about how they're business works, about what they're contributing to it, and whether you're succeeding or not succeeding.
Absolutely. We are having quarterly shareholder meetings now. And I have to say, before KKR bought us, I was called into a meeting with to the principles at R, Richard Sarnoff and Ted Oberwager, And before they bought us, they wanted to make sure that I was on board with the idea of broad based ownership, and they set up a whole special meeting just to talk to me about this, and I was actually quite surprised. I was incredulous actually that they would think that any CEO would be opposed
to such a thing. But they said that it is a lot of work and you have to really communicate with the employees and explain all this to them, and it actually has been a fair amount of work, but worth it every step of the way. And I really do think that it has really changed changed the tone at this company.
The pushback we sometimes get from executive Certainly we didn't get this from Jonathan, but sometimes people just say, I'm so overwhelmed with priorities. You know, I already heard you want us to double our earnings. You want our financials by the fifteenth of the month. We want us to decarbonize ad diversity, and on and on and on, and now you want me to teach financial literacy, drive employee engagement, make everyone an owner.
I just can't do it all.
And the unlock, and Jonathan got there way earlier than many others. The unlock is if you do those last few things well, then everything else that came before it is a lot easier. If you've got a more stable workforce that's more engaged on the job, has a stake in the outcome, all the other operational initiations are going to be easier to accomplish.
Do you have a time horizon in your head at KKR about how long you're likely to hold us. We're not in a hurry.
So I would say KKR is distinguished in taking our time. We've owned businesses for twenty years before it takes as long as it takes. Our base case would be this is, you know, five, six seven years. We've got a bunch of things we want to accomplish. Maybe it becomes a great public company someday we'll see, but we're not in a hurry.
So fut six seven years, maybe longer over that course. I mean, there are things you'll do behind the scenes, Jonathan, to improve things. What about in terms of the books you publish. What are the categories that you're looking at right now that you think are growth categories in terms of attractiveness of books.
Well, we're getting into the Latino market more. Obviously, almost twenty percent of the American public is from the Latin American background, and that audience hasn't really been reached very well by book publishers, So that's a big one. We're getting more into science fiction and fantasy. We hadn't really been publishing very many books in that category for some reason. We want to be publishing more business books on an
international level. I mean, there are so many categories that we're not in right now.
Okay, thank you so much, Jonathan Kark of Simon Schuster and pet Saboroughs of KKR. Finally, one more thought. Former World Bank President Paul wolf Woods once said about firing employees, that's unfortunately part of doing business. And there's a lot lot of that sort of business being done these days. Just ask the three thousand people being laid off at Esday.
Lauder cutting as much as three thousand positions we talk about. We continue to see job cuts. This is part of a restructuring plan to put one of the world's largest beauty companies back on track. Many investors, as we know, would have said this was long in coming.
Or the thirty two thousand tech employees let go already this year, including ten percent of those working at a Snap.
Snap saying, these cuts are being made to quote.
Best position our business to execute on our highest priorities. It's been facing that deceleration and ad revenue, as have many of its tech peers.
Or the twelve thousand people in management at ups who are about to be shown the.
Door, and what they're really doing is looking at the structure of their networks, you know, whether that is their labor network, and then their management ranks. They're looking at their brokerage business. They've decided to put that under a strategic review. What it is showing us is that they're taking a hard look at their costs. And you know we would they have to say, Ups and some other large transportation companies have gotten fat over the years.
Not even those in the relatively new departments devoted to diversity, equity, and inclusion are immune. As we heard this week that Zoom is shuttering the entire operation and outsourcing it. As Paul Wolfowitz suggests, there's nothing new in layoffs. They came to my hometown of Flint, Michigan in the nineteen eighties, and before they were done, the auto plants where my father and grandfather had worked were gone.
Flint, Michigan, USA built cars for General Motors, the world's largest corporation, until Roger Smith, the chairman of General Motors, shut down the assembly lines.
We do not have any plan to cut our workforce.
Closed eleven automobile plants.
This is not a plant closing as a loss of one product.
And laid off thirty thousand workers.
He has as much concern about these people.
As you do. Anyone who knows business understands that sometimes what they call creative destruction is necessary for broader produit progress in the economy, in business, and even in the workforce.
You have some jobs that are lost and other jobs that are gained. We had four hundred and fifty thousand telephone operators in this country in the nineteen fifties. You tell me the last time you talked to a telephone operator, we had close to two million people. I assume most of them women classified as typists.
That's not even a.
Job category anymore in the BLS. And alternately, we've developed millions of jobs in technology industries and finance and other sectors that have actually been helped by the development of technology.
And despite all the layoffs, the US unemployment level remains in an historically low three point seven percent. But however necessary and even beneficial these so called restructurings may be, we should never lose sight of what they mean for those whose lives are being upended.
And came here to let you go, pardon, I came here to fire you, Jerry.
That does it. For this episode of Wall Street Week, I'm David Weston. This is Blueberg. See you next week.