From Beverly Hills for
the Milken Institute Global Conference. This is a special edition of Bloomberg
Wall Street Week. I'm David Westin. This week, Karen Karniol-Tambour of Bridgewater
on the geopolitics of industrial policy. Everything you're seeing
in industrial policy. Officially, it's doing something else. Former Treasury Secretary
Steven Mnuchin on his plans to buy TikTok. I do believe the algorithms
could be rebuilt. So my plan, if we were to purchase
it, would be to rebuild the technology under U.S. leadership. And Barry Sternlicht of Starwood Capital On why he's so unhappy with his alma
mater, Brown University. They should be shown the door,
and I don't want to pay for them, so I don't want to support university
that houses that language. We began the week at Milken with Marc
Rowan, Apollo CEO on the surge in private credit and why
he believes it's a better way to go. If you look over time, we had 8000
plus public companies in the U.S.. We now have just over 4000
public companies. We should logically expect, therefore,
to be more in the private markets. And I don't think people actually
appreciate the scale. And this is not just the U.S.,
but it's U.S. and Europe. 80% of companies, over
100 million revenue are private. 80% of employment private. Why would we not expect a growth in the private marketplace? So why is it a better mousetrap? I mean, fundamentally, I think about banks
as being intermediaries sort of between people putting capital up
and people needing capital. Why is private a better intermediary
than the big banks? So let's work. Let's work in reverse.
What needs? What are the needs for financing today? We're financing infrastructure long term. We're financing energy transition
really long term. We're financing the new economy,
data centers, power. Really long term. Long term financing. What do banks do? Well, banks borrow short and lend long. They are not ideally situated to be
investors in long term assets. And so regulators, when they look
at the funding for the economy, they only have two choices the banking
system or the investment marketplace. Increasingly, since 2008, regulators have chosen the investment
marketplace to provide financing. Now you come to the investment marketplace
and you have to more choices. You have daily liquid funds or you have long term investors who are trying to match long term
liabilities and long term assets. I think the choice is obvious Do we really want to create
more instability in our public markets by matching long term financing
needs with short term daily liquid fast? I don't think so. We are watching the logical outgrowth
of changes that started in 2008 that accelerated
through a zero rate environment that were exacerbated by COVID, that were then refreshed by SVB and RV. And this is not just happening in the U.S. it's happening everywhere in the world. Regulators are looking at the choice
of how they fund their economy, and they're choosing investors over banks. That doesn't mean banks shrink. It just means on the margin, the growth
is going to the investment marketplace. Are there some things that public markets
do better than private markets? You described other things.
Private does better than public. Are there some things that public really
does better? Look, we have we have in the U.S.,
in particular, a focus on daily liquidity. If you want something that is daily
liquid, if you want pricing every single day, you can only accomplish
that in public markets. Private markets are not going to give you
daily pricing. They can give you
an indication of pricing, nor are they going to give you immediate
liquidity. So if you want something
that's immediately liquid, you're talking
about the public marketplace. If you want access to vast amount of capital today,
because that's where the capital is. You're talking
about the public marketplace. But if you're talking about matching
long term capital needs, you're really talking
about the private marketplace. When you talk about daily pricing,
some people here a transparency. That is to say you have transparency in the public markets
and not in the private markets. Is that right? I don't I don't really think so. So let's start in the fixed income market. You own a public bond. Can you sell that public bond? Maybe on average, it takes about five days to sell an investment
grade public bond today. When you see a price or a quote,
that's for a very small subset of the bond market. In the private market,
Can you sell your bond? Yes. On average, probably takes you
about five days to sell your bond. What we're watching is we're watching
as private markets get bigger. We're actually watching
increased liquidity in private markets. That's not to say
it's the same as public markets. It's not. But this notion of transparency
is actually itself an interesting thing. Are private markets not transparent? This is the argument
that I'm the regulators make. They talk about private credit
as a threat to the system. Well,
every dollar that moves out of our U.S. banking system makes the system
more resilient. Banks are levered 10 to 12 times
investors, zero leverage mutual funds, zero leverage. BDCs, 1.5 times leverage. Retirement services companies many times
lock everything that moves out of the banking system deleverage us. So we've been talking about
structural changes within the financial industry, actually,
that have made private markets evolve. What about larger forces? What we're looking at right now,
we've gone through a period of extraordinarily low interest rates,
a lot of liquidity, as United States and other places
have a lot of money into the system for good and sufficient reason.
We had a pandemic. We had a great financial crisis. As that tightens up, as I assume it will. How does that change the equation
for private? It is absolutely the driving force. I mean, this is focusing on the urgent,
which is what we were talking about before we came on air versus
the important. This is the important thing
that's happening in our business at our recent partners offsite. I put up a slide that said in 2008,
Apollo 40 billion of you in 2023, 650 billion of AOL. We grew 14 times. We outgrew Apple. We have grown. We have grown. Microsoft. Pretty impressive stat. Next slide, where we lucky are smart. We were lucky. You can't possibly plan on growing your business 14 times,
but you can position the business in a way that you take advantage
of powerful tailwinds or transform. What were the tail was 28. We had a financial crisis which puts most financial institutions
in the Western world on defense. People who had made promises to retirees,
to pensioners and had other obligations that were fixed all of a sudden needed
to look elsewhere for rate of return. They were willing to consider that perhaps
private markets offer an alternative. So, Marc,
let me shift to a different subject here. You started as a media banker,
I think. Unbelievable. Hard to know. You talk about disruption. I mean, having spent some time in media,
including on the business side, there's a huge disruption in media
right now. Can you compare what we're seeing
that shifts the fundamental shifts in media with what we're seeing
in the move to private from public? Is it a similar sort of fundamental
shifting of the ground under us? I do.
I think there's a wholesale rewiring. If you think about where people used to spend their time in media
and how they consume media, I joke with my kids
who are somewhat older this time. What do the numbers two, four,
five, seven, nine, 11 and 13 mean? They look at me like they must be prime
numbers or something like that. I'm like, No, they're channels. But that's how people used to consume
media. We we had we had a time
we watched something at a time. All bets are off, not only in terms
of how many is delivered, but how it's created, the user
with interest created and so on and so on. Financial services,
we are going through that same sort of revolution
in a much more regulated business. So it will not happen as fast. It is not just about public
and private markets, it's about security. It's about who provides our services. We have a whole group of tech companies who are encroaching
on the turf of the banking system. We have banks who are living
in a more regulated paradigm but are nonetheless
the key gatekeepers to services. So I look at our industry. What is our our job and our job at Apollo? Our job is to match long term
liabilities and long term assets to provide rate of return to investors,
excess return per unit of risk. What is our job not to do? Well, we're not actually
the competitor of the banks. We don't want their customer. We don't want to provide them
advice, equity, M&A, hedging derivatives,
foreign exchange payments or credit cards. I think the banking system, particularly the regional banking system,
is going to look very different. The big banks, lots of advantages,
the regional banks, higher funding costs, higher regulatory
costs, higher technology costs, and answering really fundamental questions
like are deposits sticky? Well, they used to be sticky. You and I unfortunately remember
that there used to be something called a passbook,
which no one else will know what that is. Now we just swipe right
and our money moves in that era. Our SBB, an FRB. Isolated incidents. Or are they simply the beginning
of the evidence of what the system looks like when money moves
at the touch of a fingertip? You're right. I did have a passbook at one
point because I had one too. So Marc Rowan, CEO of Apollo Global
Management, will be staying with us. as we turn to the question
to the plight of what's going on on college
campuses across the country. That's next. On Wall Street Week on Bloomberg. This is Wall Street Week. I'm David Westin, and we are joined
once again by Marc Rowan. He's the CEO of Apollo Global Management. So, Marc, let's turn to a different
subject that you've been involved in. That's what's going on in the university
college campuses right now. You've been involved
particularly at Pennsylvania and the Wharton School,
for a good long time on the board. Have things changed? College campuses or is it always been thus or it's just been triggered
by this Israel-Gaza phenomenon? Look, I think we've we've actually seen
a lot of change take place over time. So I have a very favorable memory
of my experience at the University of Pennsylvania campus. But I think more broadly, U.S. universities where they were
and are the envy of the world. We can destroy that. We can lose it. Why are kids there? Why did we think they were there
to be exposed to different points of view? Learn how to think critical
reasoning and critical thinking? Maturation? Is that what they're getting today? I think in some places it is
what they're getting and in some classes it is what they're getting. But what I saw at the University
of Pennsylvania when I spoke out against it was a dominant narrative
that was taking hold on our campuses. Call it a postcolonial education. Call it what you will. It gave rise to an institutionalization
of a point of view that there were favored groups and disfavored groups, that there was acceptable
speech and unacceptable speech. I'm not sure that's the job
that we all signed up for or that's the university
that we signed up for it. What we're watching today on
these campuses is nothing more than the outgrowth
of 20 years of bad management. If you have a
dominant narrative on campus, do you have academic freedom? Do you have freedom of speech? I have seen over the past few years
as I've really stepped up my involvement. Professors, department chairs
who are afraid to speak their mind because their thoughts, their speech goes
against the dominant narrative. What we're watching today on campuses,
we're told, are leftists. We used to think leftists were liberal. This hardly seems liberal. This actually seems illiberal
in the most extreme way. Why haven't they been cleared out? Well, listen to Ben
Sasse of the University of Florida. We're all about free speech. We're all about the right to protest. But there's a time and a place in a way
you violate and trespass. There are consequences. Why would we not deal with them
everywhere? And that way, certainly protests
that were inconsistent with the narrative that we find on our campus campuses have
and will be dealt with in that manner. Speakers are regularly shouted down. Professors, you're see administrators who did not react in that way
without that kind of moral clarity. They now have encampments. Once you have encampments,
you have the potential for violence. You have other considerations
that come into play. But make no mistake, outside agitators,
not mostly students, trespass danger to our the rest of the students
and the rest of the community. This is what 20 years of a dominant
narrative has done. These are not corporations. But if they were corporations
where you distrust snobbery, I would say there's
a failure of management in some I'm not saying this at all, but in some
a fundamental failure of management having seen from the inside. Where is the failure? The failures in multiple places. But I think it starts with me
and with us as trustees. We were asleep at the wheel for 20 years. We part of our job was to provide balance. I do not think the popular frame
of a campus today where trustees and alumni are fighting professors over
academic freedom is actually correct. I actually think the appropriate frame is university administrators
who maintain this dominant narrative. Our fighting professors
for academic Freedom trustees
and alumni are here to provide balance. We have been asleep at the wheel. We have not done
what we were supposed to do. We did not object
as these dominant narratives took hold. And it is our job, I believe, to support
long term excellence in education, Academic research, freedom of expression,
freedom to disagree. That's not what we have on
many of our campuses today. We've got a long way from academic
excellence. How is that corrected without the trustees
overstepping their boundaries? And then, you know,
and I know when you sit at a board, there are certain things
you really need to do. You don't want to run the thing
day to day. You don't have trustees
there to be micromanaging. How do you have the proper role
for the trustees without overstepping boundaries? There's a question of overstepping. I think the danger right now
is far from trustees overstepping about. I think trustees for the most part of these big institutions, myself
included, have failed to act. We have not done our job
in the most fundamental way. I don't think we are anywhere close
to the line of overstepping our balance. Most universities operate
in a shared governance manner. Transparency
is often the best disinfectant. I do not believe at the University
of Pennsylvania or many of these campuses, the vast majority of professors actually believe in this dominant narrative. We, as trustees can assure anonymous
polling representation across the faculty. Lots of other things that we can do in addition
to just exercising common sense. But ultimately,
the job of a trustees is to pick a leader and to provide that leader
with some notion of strategic plan. Taking good leaders goes a long way to developing a strategic plan,
goes a long way. And as you said, it is not the job of the trustee or the alumni for that matter,
to run these universities. This is best left
to professional administrators. This all comes against the backdrop
of increasing questioning of the price of a college education
and whether it's worth it, whether you get the return on investment
you serve as the value, at least in some of these institutions
actually gone down of the investments. And will there be a market correction
as people start to say, you know what, it's not worth it to send my kid. I'll pick on a college right now Columbia
when they can't graduate a commencement. I know. Very unfortunate situation. I don't want to say value has gone down. I think value has been dispersed. So if I look at our industry
as a microcosm, we 30 years ago we hired from a very narrow
subset of universities. You know what? There are 50 great places. There are not eight or ten great places. There are 50 great places. So we're watching the value
of an education. Democratize. We are as an employer, and I know our peer group,
as employers increasingly go into places
that we had never gone to before. Why? Because the end product is X
and it is not. We do not take for granted that because
once someone went to one of ten schools, they actually received
an excellent education. We do not treat people as groups. We actually treat them as individuals. Imagine the novelty of that. As you said, Marc, I think Brandeis said
that sunlight is the best disinfectant. It seems to be a lot of sunlight right now
on college campuses. Could this actually readout to the benefit
of our higher education system? Actually, as we really are
exposed to this, we debate it publicly and we make some reforms. Like for me, I'm I'm an optimist,
but I am incredibly hopeful that this is a moment
as much as our college presidents and leaders are suffering
under a congressional inquiry right now, it's only because what they've done
historically can't be defended. Imagine if they actually got up there
and they had something to say. This is how we run it. This is our goal. This is our plan. This is how we make sure the kids
are protected and also challenged. Being called in front of Congress
is only a negative if in fact, you have something to hide. I think in academia we've done
a very poor job in the past 20 years. We have a lot to learn,
a lot of mistakes to rectify. But I do hope this is a sunlight
disinfecting moment of going forward. One of the things we've seen actually is donors
now say we're going to withhold donations. You've been involved as well, but it goes
well beyond Penn, well beyond you. Do you think that's having any effect? Can you see any tangible effect
in any of these colleges? Yes, I'll leave it there. Look how I people generally do not support those things that are against
their fundamental interest. They may do it for a small period of time
where they actually don't know. I think what we've seen in the past
year, donors are now on notice as to what their university
or college is or is not doing, and they will elect to fund
or not fund places in which they believe are consistent with their values,
consistent with their principles. For me, I'm hopeful that these
big institutions are going to change. I know there are a number of entrepreneurs
who have simply looked and said these places are never changing. Let's start
the institutions of the future. And they've attracted some really good,
really important faculty. But let's not also forget
technology is changing. These institute since technology
is democratizing access to knowledge. You know, to think that any industry,
even academia, is immune to the forces of change,
I think is just naive. I think this is a good opportunity
for our universities to have a come to Jesus moment
and really think about what the future is for
them and who they want to be. Marc, thank you so much. Really great to have you on Wall Street. That’s Marc Rowan
and he is CEO of Apollo Global Management. Coming up,
we turn from the politics and U.S. campuses to the geopolitics
of industrial policy around the world with Karen Karniol-Tambour of Bridgewater. That's next on Wall Street
Week on Bloomberg. This is a special Milken
edition of Wall Street. We’re coming from Beverly Hills. One of the subjects of this year's
Milken Conference was how investors respond
to an increasingly fractious world. We hosted a panel of major
chief investment officers, including for Bridgewater and Tomasic. And we start with Karen
Karniol-Tambour on how geopolitics may be driving
the move toward industrial policy. I think we've gone to a world
where it almost seems desirable to people to see lack of convergence,
to see divergence. You talk to businesses
and you know there's the ups and downs every day of what's happening
with the US-China relationship. But they get the direction. They understand that they need to get out
of having that much reliance on China, and they're setting up for constantly
talking about resilience. What is resilience means? It basically means you've got to double
do what you're doing and make it more expensive than it was
before because you weren't in China for no reason. You were in China
because it was the cheapest place to be, because that's
where you had cheap capital, because that's where you could set up
most efficiently. So to go set up a double do to go
create resilience such that if there's a problem, you have a different way
of getting your goods or creating them. That's expensive. I think the biggest implication
for investors is that we were kind of in this world where there is like
almost a gravitational pull, like all else equal of inflation to,
I don't know, zero 1%. And that was that kind of underpinned
a lot of the investment landscape because it meant that central banks
could always be easier than usual because they didn't
really have any tension. There's no inflation. You might as well
just be as easy as you can at all times. What's the downside? There's no inflation, and this shift in geopolitics has been
one of the really important drivers kind of smacking us out of that world
to a new era where the gravitational pull of inflation
is higher. Maybe they're more like 2%,
not a disastrous number, but one where that tension actually
starts existing because you have all this structural spending that people feel
they have to do whatever the price. Some of that is just militarization
without some of these geopolitical pressures. You wouldn't have that. But countries around
the world are basically saying, I need to spend more on
military activities. Some of it is corporate spending on redoing their supply chain.
And the third type I'd mention is everything
you're seeing in industrial policy. Officially, it's doing something else. For example,
the IRA is going after climate. But I don't believe that spending
would have been there without that backdrop
of geopolitical competition and that sense that if China
is willing to spend so much state money going after their strategic goals,
why aren't we? Karen, Bridgewater has been thought of
in terms of China for some time. You have a long history there. And when you were talking about Asia,
I don't think you mentioned India. So I'm curious about China
with respect to India and for that matter, other places like Vietnam and Indonesia, as foreign direct
investment has seemed to fall in China. How do you assess India as an alternative
to China and for that matter, Indonesia, other Asian countries? I think India is fascinating. It is still meaningfully smaller
than China, as you know. It's just kind of what the markets are like and more difficult
than China to transact in. So if you look at China, I don't know,
seven years ago or something, it was very difficult for a global player
to practically be in China. And so even if you weren't worried at all
about geopolitics, about them confiscating your assets or anything,
just logistically the question of like, how do you buy a bond or how do you buy
a stock was a challenging one to work through. And now a lot of that shifted. And it's significantly easier, though it's obviously still harder to buy
Chinese assets. I shouldn't say obvious. They could have made it easier,
but still easier by the Chinese are harder to buy a Chinese asset
than, say, European asset. But a lot of barriers have come down. So today China is accessible. You can, as a global investor, build up a relatively meaningful
allocation if you want to, and you'll get this
like extremely uncorrelated exposure that, in my view,
even with pretty disastrous outcomes
in China, may have reasonable return because the pricing
is just so pessimistic. Coming up, geopolitics went to court this week as TikTok sued
the US government over its forced sale. We've talked at Milken
with someone who wants to buy it. Former Treasury Secretary
Steven Mnuchin. That's next. On Wall Street Week on Bloomberg. Geopolitics went to court this week as TikTok sued
the US government over its forced sale. We talking at Milken
with someone who wants to buy it. Former Treasury Secretary
Steven Mnuchin. Mr. Secretary, give us your sense
of the US economy right now. How strong is it?
Where do you see weaknesses? Well, parts of the economy
have continued to be quite strong and obviously we're seeing inflation
still being very sticky. So, you know, the market has moved towards less rate cuts this year. I do think we're going to continue
to see a slowdown of the US economy
at these levels of interest rates. So you always
you worked for President Trump. President Biden's a different man,
different economic policy. Is there anything you see in the Biden
over policy that you approve of? Do you think they've done a good job with? Look, I think there's certain things
that they've done that have been okay. But I think there's been a very different
economic agenda. And prior to COVID, we saw the Trump
tax cuts were really working. I think to the extent that we hadn't
had COVID, we were seeing an increase of the economy and the cuts
would have paid for themselves. And we're we're seeing very robust
economic activity now. Obviously, in COVID,
we had to spend a lot of money. I think had
we not spent the first $2 trillion, we would have had a worldwide depression,
not recession. But I think in hindsight,
we went on to spend too much money. And I think when the Biden administration came in,
they continued to spend too much money. And I think these deficits are going
to come back and be a real problem. We have a very strong U.S. dollar. Is that a good thing for the economy? I think it is a good thing. I mean, for one, the dollar is the reserve
currency of the world, and that's allowed us to finance
these very large deficits. But over time, this is something
we can't be reliant too on. I think with the dollar will continue to be the reserve currency
for the foreseeable future. But we have a responsibility to get
our financial situation back in shape. One of the issues of spending right now
are the Russian assets, central bank assets that have been seized
in Europe and the United States. What should be done,
if anything, with those? Do you have a view about whether
we actually should be taking those assets and basically giving them to train
for rebuilding Ukraine because of the war? Well, first of all, I think the sanctions
programs are very important and it's a major foreign policy tool
that the U.S. has. And I've always said, because we are the reserve currency,
we need to be careful about how we use it. So the first part of this is making sure
we put in place sanctions and we enforce that. I'm very concerned
that the Russian oil sanctions and the Iran oil sanctions
are not being enforced. We're seeing flagrant violations of those. And I think that has to be enforced out
in regards to what you do with the money. The money needs to go through either
a legal process square, a legislative process. And I think there should be
a healthy debate. But I think using the Russian money
to rebuild Ukraine after the war is something should be seriously consider
since you all have the government. One of the big moves you made, at least
the New York community bank buying it. Give us your sense of why
that was a good move. There's a lot of concern
about regional banks right now, although, you know, regional banks
personally pretty well. I've been in the banking business
for a long time. During the financial crisis,
I bought three banks from the FDIC. We had the largest bank actually
headquartered here in Southern California. One West
I've known New York Community Bank for the last ten years. You know,
this was a merger of three institutions. And in coming together, they didn't have the proper procedures
for a $100 billion bank. They ran into some issues
with real estate. So we raised over
$1,000,000,000 of capital. A very large portion of that
will be to build robust reserves. And we've come out with a three year plan to restore profitability to the bank. And by the end of 2026, the management team has will deliver
on a plan that gets the bank to an 11 to 12% return on tangible common equity
and 11 to 12%. So you do want to make it
a well-capitalized bank. One of the things you've expressed interest is in TikTok, in fact
buying from Bytedance. We now have legislation
that within a year, as I understand, less than a year now, that unless they do something different,
they're going to have to sell it. Are you still interested in TikTok? I'm still very interested in buying it. And to the extent
they want to sell it or spin it off, we very much wonder for sure
that I support that. Congress passed the bill
and it's now been signed into law. I will say this is just incredible,
overwhelming support with Republicans and Democrats. This may be the only thing
that everybody agrees on. The fact that it's on £160 million, I do
think it's a security issue in the U.S. and I'm glad I said it's being addressed. One of the big issues
is the algorithm. Right. This is very powerful for TikTok. Does that tell that
does the deal still work? If the algorithm doesn't come with TikTok? Well,
the Chinese government has been very clear that they won't give an export license
on the algorithm. And I understand that we have
sensitive technology that we don't want to transfer to them, and they don't
want to transfer this to the US. I've actually spoken to a lot of tech
companies are working about rebuilding this. I do believe the algorithms
could be rebuilt. So my plan, if we were to purchase
it, would be to rebuild the technology under U.S. leadership,
make sure that it's all disconnected from Bytedance going forward
and that it it is very robust and secure. I understand what point you suggest you might talk to the former
President Trump about this possibility. Do you have a sense of where he is
on this deal? I haven't spoken to him
since the law has been passed on this. I've spoken to him on other issues. But, you know,
this started under his leadership, so I'm sure he understands
the national security issues. And it was under this
his leadership that this really started. You now
are very active as a national banker. We have TikTok as a possibility. We have a community bank done. What's the theory of the case?
What's the connection? What do you
what sorts of deals are you looking at? So we have three areas that we focus on,
which are areas that we have a lot of expertise. The first is technology with a big focus
on national security and cyber along with myself. General Dunford, former chairman of
the Joint Chiefs, is one of our partners. We also have the person who ran
the cyber task force for the government. The second area has been tech
and financials. Again, my general counsel was general
counsel at Treasury and understands all the regulatory issues. I've obviously been around
banking for 40 years and the last area is entertainment
and content where, you know, in my previous life
I made a lot of entertainment investments that we're we're a big believer
in what we call a new kind lens. And TikTok fits right in with that,
where you talk about a lot of turmoil, the entertainment industry,
there's a lot of turmoil in media. We see it everywhere we look right now. You're clearly the Paramount
most recently. But Mile Shop, Disney,
you know, has had some difficulties. There's a lot of challenges. Warner Brothers Discovery as well.
What do you make of that? What is the future for the media
entertainment business? I mean, I think to the extent
these companies can execute properly, there are very, very good
opportunities, particularly given how low some of the values
are on traditional media. I don't think the traditional media
is going to go away overnight. But there's no question
there's a complete transition in the market from the way when we grew up from network TV to streaming and not just streaming
to, you know, short form video and long form video that we see on TikTok,
we see on Instagram, we see YouTube. So there is a whole new distribution
model. Having said that,
you know, great content has a lot of value and a lot of these media companies
have any enormous library of great content
that can be mined. So I think distribution is a very important issue,
that there needs to be a transition. Coming up, we turn from a former Treasury secretary
to a former House speaker and ask Paul Ryan about what's at stake
for global Wall Street in this year's U.S. elections. That's next on Wall Street
Week on Bloomberg. This is Wall Street Week. I'm David Westin. We are here in Los Angeles
for the Milken Conference. And one of the subjects
is the election going on, particularly what it means
for the economy and for investors. So you can see that we have somebody who knows the economy
generally well, as well as knowing something
about elections. He's Paul Ryan, former
speaker of the House, is also Arsenal. And now is partner of Sol Amir Capital. So, Mr. Speaker,
thank you so much for joining us. Good to be with you, David. Most basic question for a lot of you
Bloomberg viewers is we have the election coming up, presidential election,
other election, the entire Congress. What is the biggest economic issue
at stake? What can make a difference
the most in the economy? Number one would be tax policy. What's the tax code going to look like? What's tax policy
looking like in the future? Number two, I'd say tariffs. So number three,
I think it's reasonable to assume the next president is is quite possibly
going to face a debt crisis. You don't know when that is or exactly
what form that takes place. But a lot of fiscal policies, online
tax policy, trade policy, debt policy,
therefore interest rates. Third thing you mentioned was debt crisis. So debt crisis for the next president,
whoever the next president is. Take us through that. We've all been talking about the debt
and the deficit, how much it's growing. He says. It's a problem.
Nobody does anything about it. It hasn't really come home to roost yet. It doesn't seem what's the debt
crisis look like, an auction failure? I mean, it's not inconceivable that once
the Fed's done cutting rates and people aren't buying bonds is readily
and you've got us and all these other
industrialized countries with the same problems, aging baby
boomers, entitlement programs, unfunded tapering, this,
you know, floating all this paper in the world markets,
you could have an oversupply of bonds. And it's not inconceivable on my mind
in a handful of years X presidency an auction or to fail
and then the Fed steps in and buys our paper
and then they're really monetizing debt. It's bad for the dollar. That's bad for dollar dominance. That's an interest rate problem. You know this terribly well. Can we get our fiscal house in order
without increasing taxes? I'm not saying we shouldn't. Cuts in spending do,
but can you do just one and not the other? Yes, you can for sure.
I can show you how to do it. I passed four budgets in Congress
that did it. What in politics
is that's a political question. My guess is
if you have divided government, there's going to be a mixture of both. I believe you can have a better, faster growing tax code
that still gets you higher revenue lines than what we have today
without doing damage to economic growth. Now, the way I would do
would be a cash flow tax. Tax reform. And that's not the way
Joe Biden would do it. The question is, can you get more revenue
for the federal government to get our debt under control
coupled with entitlement reforms and do it in a way that doesn't sacrifice
economic growth? I think the answer is yes to that. But nobody's talking like that these days. I guess the question is, what could you do now knowing
we have debt problems in the future? I think there's a couple of things
Congress could do. They're not,
but maybe they'll get something done. I think Stablecoin legislation would be
a good step in the right direction, and that could be helpful. That can be done this year. But I don't see anything
other than that on the horizon. Let's talk about Stablecoin, because I've heard you say that actually getting legislation on
that could help Treasury auctions. And when you said it, I said,
what's the connection there? Take us through
take our audience through that connection. Yeah. So Stablecoins, which are digital, digital
and private sector dollar backed currencies, it's not crypto
because it's tethered to the U.S. dollar. They have to have our backed assets, they have to have Treasuries
or cash to back them. Stablecoins There's not a law
that governs these right now, so there aren't really deployed. But if you actually have a law
which actually we can read in in sure. What WATERS MAXINE Waters said,
we are putting a deal together. Schumer is in talks with them. I think there's a there's a reasonable chance they could get
a deal on Stablecoin legislation. That means you have a legal framework
in which you have stablecoins deployed. You'd go from a couple of hundred billion dollars of stablecoins
to, you know, maybe trillions. Right now, Stablecoins are like
the 16th largest buyer of bonds, bills and notes
among all sovereigns. If you actually regulate stablecoins
having deployed, that does two things. That gets the U.S. dollar more deeply ingrained in
the oncoming digitization of currencies. That's a good thing. And you create new consumers
demand for bonds because they have to have those to back up
the stablecoin. So more demand for treasuries,
more use of a digital dollar throughout the system
to help better entrenched the dollar. It's a win win situation for America. I think it's a no brainer. I'm hopeful, cautiously optimistic
Congress might do that this year. Still, there are good talks happening
and that's one thing you could do on the margins. Trying, you know, improve demand
for our bonds and improve dollar dollars. Okay, Mr. Speaker,
thank you so much for joining us here. That's Paul Ryan, Teneo and Sullum. They're happy. Coming up, we talk with Barry Sternlicht of Starwood Capital
about real estate, of course, but also about why he is so unhappy
with his alma mater, Brown University. Well, if I were the president of Brown,
I would say we stand
with the democracies in free speech. We stand. Israel is not an apartheid state. That's next on Wall
Street Week on Bloomberg. This is Wall Street week
coming from Beverly Hills. I'm David Westin. Real estate has been something
of a punching bag for investors. And one of the topics for discussion this week has been
whether we've seen the worst of it. Barry Sternlicht of Starwood Capital
was outspoken at the Milken conference, and we asked him about where he is
looking for pockets of opportunity. The good spots! Data center has a good spot today,
and anything with power. It's true. I think it's just interesting
to see, you know, the real estate is not you can't use
one word to describe real estate. There's you can fly up
and down the capital stack. You can make mortgages, mezzanine
mortgages, preferred equity, equity investments,
You can buy homes, you can buy students housing, you drive senior housing,
you can buy land, you can buy single family for rent, build to rent,
you can buy industrial. I mean, there's so many different flavors
and it's hard. The one thing that is true about the real estate markets
today is because of Powell rate movement. We have a sort of a balance sheet crisis. You know, we don't have an asset
level crisis for the most part. The the asset classes, at least the United States,
are fairly in balance, supply and demand. There's
a little bit of oversupply of multifamily in the in some of the growth markets,
but that will get absorbed over the next 18 months. And we'll be back to a very healthy
rent profile, I think. But for the most part, people are going to have trouble
refinancing their debt because interest rates rose
500 basis points. And also many of the traditional lenders,
like the banks have are moving, are backing out because they're they're full up to their gills
in real estate loans. Markets react to things like interest
rates like work from home. They also often overreact. Have there been overreactions
on the downside for office, for example, some places or on the upside for data centers because
we hear so much about data centers. Is there a danger of getting overbuilt? There's a regulator in data centers
because the project is so expensive that if you don't have a lease,
you can't finance the construction. So it's almost impossible to overbuild. There will be people who will buy land
in the hope of getting power, in the hope of getting a tenant, and they may wind up
losing a bunch of money if they paid too much for land. And it has no alternative use other than their dream of someday
getting a power, a power, a power source. So I don't think I think
I think was certainly Druckenmiller was at this conference and he said like it might be overhyped
short term, but it's under hype long term. And I think that's probably true that the the well, we try the thing that I try
to spend time thinking about disease is implications
on the real estate markets. How are things going to change
and then what is going to do to destabilize or support
some of our tenants. Right. So which ones will go
the way of the dodo bird? What industries will be heavily impacted
and will they come up with new applications that require them to keep as many people
just doing different things? Or will they just have people do everything? I was listening to Jensen Huang speak at a conference the other day
and he showed how they can build a boat through a a very complicated supertanker. And then he said, We can build the factory
that builds the boat, and then we'll build the robots
that build the boat in the factory. And I'm like, Where are the workers? What do we do? I would say, Well, I'm going to continue to invest heavily in resorts because everyone
will have all this time off and they'll be working
from our hotels in Hawaii. I think I think is just the beginning. I can
I know how it's going to change so much and it's very exciting
and also terrifying. Is there a day of reckoning coming at
real estate, that so-called maturity wall or does it just play out over a long
period of time is a long present, almost like Japan was four years, where
just doesn't grow, it doesn't go forward. It just sort of hangs in there
and refinances. One of the great thing about our system
is capital adjust and find the opportunities. I do think it's going to be
a rolling wall of thunder and you're going to every time a loan matures, it's a negotiation
or an explosion. There's an extension. A borrower tries to come up with money. He doesn't have it. He has to go to people like us or others. In the old days,
there are doctors and lawyers and friends and raise the money to pay down the debt
rather than give the asset back. It'll be market by market, asset by asset. You mentioned return to office. It wasn't that long ago.
It wasn't return to office in New York. It was just leaving New York altogether
and moving to Miami. Yeah. Have we seen Peak Miami
for the time being? Because there was a time
that everyone was rushing down there with their employees and they said,
and now you hear maybe not so fast. They're coming back a little bit. Miami has an issue because of schools. It doesn't have enough schools. And that that's probably the reason
Miami slowing. But Amazon just announced
they're moving 50,000, 15, 50,000 feet. There are a lot of companies
that would move down if they could get their employees
kids into schools, which is impossible. So you got to be very bullish on Citadel,
which obviously left Chicago. I mean, they alone have decided they're going to make Miami
into the financial capital of the United States,
and they have the power to do that. Can can is very philanthropic
and has moved a lot of 1500 people into the market. And that affects the housing market. We still we're waiting. I mean, if I was really smart, I'd
just buy all the houses in Coral Gables and and sell them to the Citadel employees
as they move down. I don't think Miami's peaked. I think Miami and Florida
have sort of cycles because they get overbuilt,
but their ever higher cycles, you just have to have stamina
and stay with it. The housing market, you know, a $4 million house
became a 10 million lower house and now it's an $8 million house,
But it's still twice what the guy paid for it four years ago. And really good stuff. I mean, recently, Barry Diller moved down. Jeff Bezos has moved down. It's I anticipated the climate. You know, obviously the weather's better. I understand the ceiling, the winter. I anticipated the tax savings. And obviously for the darkness,
blue states it's material. I didn't anticipate
how welcoming the state is to business and how success is is actually applauded,
not vilified. So I think for businesses,
that's that's a nice thing. The state wants you to succeed
and they want to attract business and maybe the blue states. I mean, the governor of Florida said I guess he got on a phone call
with the governor of New York and said, you know, stop taking my people, is all he says, Every time you talk,
I get another tenant. Barry, you made some news
this week about Brown. You've been a loyal supporter of Brown,
have done an awful lot of good for that school. You said for the time being,
as I understand, you got to really suspend
further decisions. Why were you so upset about what they did? As I understand, what they did
is they agreed with the students. They would talk about divestment. They just talk about
what's so wrong about talking. I think schools and the country needs to get back to facts,
get to the truth, one and one is two. It's not for even if the students tell you
it's four, it's two. And I think I think the only place,
the number one place you should see to truth teach the truth is universities
and schools of higher education. If in fact these universities
don't approve of BDS, they don't divest from Israel, the kids will say,
People like me influence the board. They need to know the facts first. I am about the facts. And if you know the facts
and then you're pro-Palestinian or pro-Hamas, I'm not anti. I think I believe in a two state solution, but I don't believe in the right to return
because there'll be no Israel. So given what we know,
what should Brown have done or for that matter, not just Brown Columbia,
my alma mater of yours in Michigan. This is a problem across
a lot of Hollywood. Do if should the adults do encourage
free speech and debate, not violence, not hate speech,
no child should have a fear for his safety walking around a university campus,
Get rid of the agitators. I mean, it should occur to somebody
that the first the attack on Israel on October
7th was right. The rumor was the Saudi Israeli peace
conflict was going to be solved. This well-orchestrated campus
demonstration happened after Iran shot 300 missiles into Israel
and Israel responded with sort of a light touch like
we can get you but don't know we're here. And then they pulled back, right, because the administration said
don't do anything. And they they kind of did,
but nothing right world
sentiment was shifting against Israel, unleashed the crack
and let the kids protests all across the United States campuses.
It was well orchestrated by these. SJP Yeah, and all these organizations
that are being funded by some left wing organizations. I if I were the President. Brown, I would say we stand
with the democracies and free speech. We stand.
Israel is not an apartheid state. Here's the proof. Israel is not committing
genocide. Here's the proof. If you don't like it, I understand.
That's great. Leave your keys on my desk
and go to another university. You know, my father survived Germany,
so I have a lot to say. I'm just not going to be quiet about it. It's clear you feel strongly about it and
a lot of people feel strongly about it. But when you make a decision like I'm not
going to contribute for the time being, is that an expression of your views,
your principles? Do you feel you're sorry about,
or is it an attempt to change behavior? Do you think you can go beyond expression
to actually change behavior? Look, I don't
I don't think he's university, Christine. If actions a great present at Brown
University, she's trying really hard. She's got all she's got. You know, these universities
have very left leaning faculties. You know, you should not have a tenured
professor who said there was no Holocaust. How can that person how can you teach that
at Columbia University? How could that person have a job? And if you thought that was fair,
if you had a professor said there was no slavery, it didn't happen,
would you have him as a tenured professor or a professor who's saying he celebrates
and thinks that the at Cornell, we thought the Hamas should be celebrated
killing innocent children and parents. I mean, they should be shown the door
and I don't want to pay for them. So I don't want to support a university that houses that language.
That was Barry Sternlicht of Starwood Capital. That does it for this special episode
of Wall Street Week, coming from the Milken Conference
in Beverly Hills, I'm David Westin. This is Bloomberg. See you next week from back in New York.
