Show notes
Mary Barra, GM CEO, discusses the company's announcement of its biggest-ever buyback plan, and says she expects 'strong adoption' of more affordable EVs. Thierry Wizman, Macquarie Global Interest Rates & Currencies Strategist, says the biggest risk right now is another sudden shock in the oil market. Scott Nuttall, Kohlberg Kravis Roberts Co-CEO, discusses his firm's acquisition of insurer Global Atlantic. Lara Rhame, FS Investments Chief US Economist, says the state of services in the economy could threaten the Fed's 2% inflation goal. Howard Marks, Oaktree Capital Co-Chairman & Co-Founder, reflects on the legendary life and career of Berkshire Hathaway's Charlie Munger. David Rubenstein, Carlyle Group Co-Founder, previews brand-new episodes of Bloomberg's "The David Rubenstein Show: Peer to Peer Conversations" featuring AIG CEO Peter Zaffino and Pershing Square CEO Bill Ackman. Get the Bloomberg Surveillance newsletter, delivered every weekday. Sign up now: https://www.bloomberg.com/account/newsletters/surveillance Full Transcript: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Ferrell and Lisa Abramowitz. Join us each day for insight from the best an economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. John Ferrell with Mary Burrow, I want to go through some of the numbers for our audience. Divid end up thirty three percent, biggest ever buyback plan ten billion dollars, forty billion dollar name yesterday. Just some context perspective there that is massive inquiring minds. Mary will want to know why have you decided to deliver a ten billion dollar buy back shortly after you've signed a labor contract that adds nine point three billion to expenses over its term. Well, as we looked at what was happening from a labor perspective, we had built and really the labor environment going into our negotiations, we had put conservative estimates into our plan. So although it was a little higher than what we expected, we believe that we have and our guidance for next year, we've already said that we'll be able to offset that completely with the plan that we already had of a two billion dollar cost out perspective. So we did the right thing to recognize our manufacturing team members who have done a great job and continue to build vehicles safely with high quality. And we also thought that we've got to look and make sure that we're balanced across all of our stakeholders, and our owners are very important. So we think this was a very balanced response when we look at what was done from a labor perspective and what we're doing as part of our capital allocation framework for our owners. Well, let's get into that. So shareholders are super happy. The name is up by almost eleven percent so far this morning. I wonder if you aw Wiz Mary, they didn't get the forty percent they wanted. They got twenty five plus cost of living adjustments and other things as well. Is the old things of this morning not something that concerns you. When I look at it, I think it's balanced. Again, we have very well compensated and you know, when you look at the suite of benefits that our represented team members have it's a very very appropriate package and frankly leading from an industry perspective broader than just the auto industry. So I think we did the right thing to recognize and reward the hard work of our manufacturing team members across the board. But also one of the things our manufacturing team members very much value is job security. And to have job security, you have to have a strong company and you have to look at all of your stakeholders. So what we did from a share buyback perspective for our owners is I think a very balanced response. As you know, this move this morning not just about the capital return program, also about cost cuts. We know you're looking to fully offset that labor contract the additional costs from it. Have you identified where you will cut where you need to cut? Yes, a lot of this was already underway. At the beginning of this year calendar year twenty twenty three, we announced it too, billion dollar cost reduction structural cost reduction between twenty three and the end of twenty four. That's well underway. As I said, we also comprehended that we would have increases in our labor cost as we looked at what the environment was and also wanting to reward our manufacturing employees. So you know there's work going across many aspects of the business and including making our products more efficient while still having the features, the functionality and beautiful designs that our customers want. So there's been a concentrated effort at the company to lower our fixed costs while enabling wonderful products and rewarding the team that is helping us deliver them. Clearly, these are additional costs. Are they forcing a change in execution or a change in strategy? Definitely not a change in strategy. Our strategy is clear. It's really based on four pillars of executing our strong internal combustion engine program vehicles, and we see we're performing very well in the market and we see that we're below the average incentives. I think that speaks to the strength of our internal combustion engine products. From an EVY perspective, we have confidence in the portfolio we have. We're a bit disappointed this year that we were constrained by the automation to build modules. So this is not something that is fundamentally an issue with Altium. It was more manufacturing automation issue that we're working and we'll be out of it by middle of next year and making improvement every quarter from that perspective. Also software and this year. Earlier this year, Mike Abbott joined our team who brings tremendous software expertise and he's built a very strong team that we'll share more about when we get to our investor day in March of next year. And then autonomy and when you look at autonomous vehicles and the importance of this technology and the talent that we have at Cruise. We are doing an independent review from an incident perspective but also overall from a safety perspective, and that will guide our path forward there. But we have a very capable team there. So the four pillars of our strategy have not changed at all. What has changed is our tactics, and our tactics are changing because of the world is changing. We never thought that the EV adoption would necessarily be a straight line. We've seen this in other markets, we're seeing it now in the US. But I think the thing that everybody has to remember, if the growth is slowing, it is still growing. And we think as we get more of the EV products we have this year into next, we think we're going to see is strong adoption for our products, and as the charging infrastructure continues to be more robust, we think that's going to drive adoption as well as having affordable evs. And that's where when you look at the Chevrolet Equinox as well as the Blazer and the Bolt that's coming, we're going to be having products in that range of affordable vehicles. That is going to be very important from EV adoption. Two things to unpack there. One is robot taxis. The other is EV. So let's deal with robot taxis. First, your counting expenses on crews substantially, just how committed are you there? I remember only a number of years ago we were talking about bringing in fifty billion in revenue by twenty thirty, and I get it. Married We'll understand that new tech is tough to develop, its to deploy. I think we're seeing that across a range of issues. But when do you know if it's the right time just to walk away from this well, I think the first of all, when you look at the progress that the Cruise team has made over the eight last eight years when General Motors acquired crews, I think it's substantial and we've already demonstrated that the cruise vehicle can perform at a level that's safer than a human driver. Let's not forget over forty thousand people on average lose their lives in traffic accidents in the US alone, and ninety percent of them are caused by human error. What we have learned with this incident is it's got to be significantly better than a human driver to drive adoption, and we have to do a much better job of working with the regulators. That's something that GM has a long reputation of working and being transparent with regulators at the local, state, and federal level. So I think as we do that and get the results of the independent review we're doing, that will guide us on our path forward. From an AV perspective, I'm always interested in how we know when we're wrong an exit size I think everyone has to go through, including myself married. But on this topic of EV's the slow down, what's behind it and why aren't we just learning that American consumers just don't want these cars? Well, I don't think it's that American consumers just don't want these cars. I think there still is limited availability when you look at the choice that customers had today, from an internal combustion vehicle perspective, I think a lot of the evs that are out right now are more expensive. You've got to look at where the sweet spot of the market is, and when you really want to win an EV's you've got to make sure that you are meeting the customer who only owns one vehicle. That's the bulk of people who buy vehicles today, new vehicles. They only own one vehicle or if they have two in their family. They're needed every day to earning their livelihoods. So we've got to get affordable. There's got to be a robust charging infrastructure. So again, the growth hasn't gone in reverse. It's slowing. I think we never expected. We thought it would be have some bumps along the way. I think that's what we're seeing right now. But I think when we have evs that are affordable, when people realize how much fun they are to drive and the performance and they're not giving anything up, and then that all important charging infrastructure, I think you know we're going to see them start to grow at a more rapid break again. And that's something that we'll continue to watch. And that's why we've changed some of our tactics to be responsive to where the customer is. You've been super generous with your time. Marriage. Just want to fit in one further question. Right now, you're a forty three billion dollar name. It's a big move this morning by ten percent. The forward multiple we're talking about four times expected earnings a little more than that after today's move. The stock has been dead money for the best part of a decade. You've been doing this a long time. I know you're super close with investors. What is it that you think is in this plan, this strategy that you have and a strategy that you've suggested this morning hasn't changed that's going to turn this around. Well, I think demonstrating our commitment to all of our stakeholders and the I think when you look at a ten billion dollar accelerated buyback program, it should signal because it means we have confidence in the cash generation ability of this company. We have confidence in our strategy across the four pillars that I covered. Yes, we had some challenges that this year with our ultim based evs that I think gabe investors some concern, But we're demonstrating the confidence that we and the board have that we're executing the strategy, and we're going to see growth, strong cash flow and strong margins. That's what we're going to deliver. That's captured in today's move nine percent. Mary, appreciate your time ready tell you thanks for catching up with us, Mary Parda of GM too. Wiseman joins us right now. Global Efects interest rate strategist much more than that at Macquarie, with lots and lots of experience on this. I love the first sentence of your note. Don't believe the hype You've been skeptical. Are you combining and dovetailing in with your low rate call a true slowdown in the economy? Yes? Absolutely. I think the narrative these days from Wall Street that I've seen in the last few weeks is that the reason the ten year field has been coming down is because we're in a disinflationary phase here in the economy, and there's going to be more disinflation to come in the US. I agree with that we are going to see disinflation in the US. It's going to come in rants, it's going to come in those eras of the CPI that are linked to consumer discretionary spending. But let's Also keep in mind one of the reasons we're going to see this disinflation is because the consumer is slowing. And there you have the don't believe the hype story, right, I don't believe the story is about record breaking Black Thursdays, by Friday sales and Cyber Monday sales. I think what I think these sales were on the back of heavy discounting. If you look at what some of these corporate execs had said prior to the start of the holiday spending season, they talked about having to cut prices. We'll all Marty even talked about deflation. So this is this is about disinflation. But let's keep in mind where this this inflation is going to come from. It's going to come from a weakening and pricing power at the consumer product and services level. It's going to be driven by slow down in agurate demand in the US. Also about how they're pank for this stuff Binapailita. You look at some of the numbers just booming. What do you take away from that? So my takeaway is from a macroeconomic perspective, what it does is it shifts spending to the early part of the season because normally you would have to save up a few more shekels as you approach your deadline on December twenty fifth to get those purchases done with by now, pay later. You don't need to do that, so it allows you to spend earlier, especially if you don't have access to revolving credit or credit cards. So I think that's another reason why we might have seen the so called record breaking days on last Friday and Monday. But again, if that's if it's the case that spending was only pulled forward, it doesn't mean that in aggregate for the whole of the season we're going to get that much that much hype. So far, people have viewed weaker US data as a positive. It's both been for a bond rally and a stock rally, And you're saying that we could see that bond rally continue quite significantly going forward. Will there be a diversion so in terms of risk asseesis or have to be to fuel a bond rally that goes much deeper than where we are now. Absolutely, to let the bond rally extend to say where the ten yure yield gets the three percent, I do think it has to be associated with a sell off at risk assets. I don't think you know, to get that kind of forceful move early in the bond market, you need to have some sort of dislocation in risk ASTs, some sort of drop in stocks, but over time, not necessarily. I think we can see a situation where, if this inflation continues slowly, you get the bond deal going down to where it was, let's say in the spring. Three and a half percent is not inconceivable without a stock market drop as long as it happens slowly and steadily. But well, corporations adapt. If I go back to bear Stearns, where you're held court, you had an entire security analysis team looking at these slowdowns, I don't buy the gloom. And the corporations, like General Motors, will adapt. I'm not sure what they're going to adapt to. Technological progress and changes. They can adapt to. Government policies that spur more investment in electric vehicles and clean energy technologies they can adapt to. But what do you do when you have excess inventory as the auto dealers do? Now? What do you do when the banks and the finance companies are cutting off credit to auto buyers? What do you do? Then you're not in control of that situation. You're in control of what's happening on your factory floor, You're in control of promotions, and maybe the way you adapt is by cutting prices. Let's face it, that's a way of adapting to to hold on to market share in the face of excess inventories, in the face of consumers slowing their demand. So yeah, they can adapt, but it's not necessarily in a way that is going to make their stock prices shoot up. You've identified a series of places in this economy where we could see lower prices retail, Walmart, talked about the auto makers, We're talking about GM, maybe lower prices, going to see that come through the pipeline soon. What's the biggest threat that still lingers for you? The biggest threat to that view that this disinflation continue through next year, it's supply shocks. I think the lesson of twenty twenty twenty two and early twenty twenty three was that we cannot control what happens in the rest of the world, especially as it pertains to the supply of oil, the supply of natural gas. So from my perspective, if we get another shock in that market, and by the way, it doesn't have to be because of a war, although in the past two years that has been the case. It could be simply that OPEC plus decides to curtail supply and we get a brand going back up to the low nineties as a result of that. Again, it's a question of how much they curtail supply by, but that's the biggest risk right now. The good news is that gasoline prices in the US have been falling for six weeks straight, I think, and steadily. I think that's going to show up in the CPI by the time we rolled around to seeing the November numbers and the December numbers. But the real reason that the CPI is going to still see disinflation is because rents rents in the new tenant market and the new lease market are coming down. That's going to put a lot of pressu ultimately on the yellows as measures of rents of primary residences. We're going to get that disinflation over the next few months. This is exactly what nil Data of Renaisance Macro is talking about tom the disinflation that's in the pipeline for rents for used cars, which is why based on what Walla said yesterday, it's not that much of an if for the likes of Terry, for the likes of Nil Duta, which is why they think you're going to get this conversation early next year about which you said interest rates. Yeah, there's no question there's a school of thought out there that this is not if. It's just simply when in the path to it. But I would dovetail it back to the labor economy, which we've barely touched on today, and we've got claims coming up here Thursday. And then you mentioned the late jobs report for November. I believe it's December eighth. But the basic idea here, John is when does a labor economy finally go? If you get a labor economy to go, you get there instantly. Claims two O nine, keep going back to two nine claims to eighty one economy in so many different ways over the last eighteen months or so. Terry, it's going to see it, Terry wi there at Macquarie longer going far away. There was KKR nineteen seventy six with history made in a style and a method. At KKR it was original. Shanale Basset gets an update from their co CEO Shanale, Good morning, Thank you, Tom. I'm standing by with the co CEO of KKR, Scott not All, and it is a really big day for KKR because they are doing this. They're buying the rest of Global Atlantic, a big insurance company that they don't already own. That is an all cash, two point seven billion dollar deal. But you're also creating a new unit at KKR that houses a core private equity business. If you had to give the market one way to understand what you're trying to do over there, what is it? First of all, Shanali, great to be with you, Thanks for having me. Really, what we're trying to do today is lay out the big three growth engines we have as a firm. So you're right, we are buying the minority stake in Global Atlantic we don't already own. We already owned sixty three percent of the companies, so we're buying the other thirty seven percent. Global Atlantic has been a great partnership for us. This is a transaction we did in twenty twenty one. The company is more than doubled since we announced the original deal in July of twenty twenty and it's been highly recurring a lot of growth earnings for KKR, so that's part one. We are also modifying our compensation ratios so our asset management business continues to scale. Our run rate management fees have doubled over the last three years. So the second thing we're doing is reducing the compensation ratioon fees, making an offsetting increase on kerry, and that will allow us to create more fee related earnings for our shareholder. You're changing the way you pay people, in effect, not the aggregate amount of compensation, but we're providing more of the fee related earnings to our shareholders, a little bit more carry to our people. The net of that is about neutral, but it will mean more of few related earnings overall. And then the third thing we're doing to your point, and this is relatively new for us, is we're creating a new segment for the firm. So we've historically reported as asset management and insurance. We are adding a new segment called Strategic Holdings. And what we will include in there are the dividends that we're receiving and will begin to receive in greater magnitude from our core private equity portfolio, which is a portfolio of great diversified recession resistant companies that we've been building up over the last several years. KKR, Apollo, Brookfield, they're all buying insurance companies. All of you are diversifying in pretty meaningful ways if you think about it. It's made private equity, by the dollars, by the assets under management, a smaller part of all of your businesses. What does this mean for the future of private equity? Private equity is still a growth business for us. We expect to continue to grow that part of KKR for a long time, both with respect to the flagship strategies, but also we've created a number of different growth strategies. The core private equity business is part of private equity that's now a thirty billion dollar franchise for us. So this isn't about an ore. This is about an and we see an ability to grow PE and all the other parts of KKR, and we've diversified meaningfully over the course of the last ten to fifteen years. We're just continuing our way down that path. Now, what does Global Atlantic exactly do. It seems like what it's really doing is giving you a whole balance sheet to be using to compete on you've mentioned capital markets is one place there's been a lot of competition from your industry to the banks. How does this help you now compete in a bigger way? Sure, Global Atlantic, as you know, it's largely issued annuities to individuals, and so if you think about what we do at KKRE, we work for pensioners, retirement retirees all around the world now family offices and individual investors as well. Global Atlantic distributes its products to that same kind of an audience. So historically we've worked for tens of millions of retirees. We still do, but now they're just in the form of policyholders. And that's our mission at KKR is to actually do a great job for all those people that we work for. We're not confused about who our bosses are. And so to the second part of your question on capital markets, what Global Atlantic allows us to do is create more synergy. We didn't necessarily see all this three years ago when we started our way down this path, but we think there's even more we can do to unlock value between the two companies, and capital markets is just one of those examples. Capital markets means you might be appearing on more and more deals lending a balance sheet to provide capital for big buyouts and other leverage loan deals. That's right, and we're already in that business. So the way that we built our capital markets business is by partnering with a Street, So we'll be alongside of the traditional banks and investment banks as we built that business. But what Global Atlantic brings us is an ability to expand the vision for that franchise. So there's more to do across asset based finance. As an example, more, when Global Atlantic does their large institutional block transactions, we can put some of the Global Atlantic balance sheet. GA has its own sidecard third party capital funds called IVY, so some can go into those third party funds, and then we can syndicate the excess through our capital markets forranchise as well. Just like we do private equity and infrastructure transactions, it applies to insurance deals as well. Something interesting about these deals is that you already have told investors this morning that this will add twenty percent to total operating earnings. You're boosting your targets into twenty twenty six for few related earnings. What are the real financial impacts? What can stockholders feel for KKR over the next two three years, well, I think what they'll be able to see is we are going to grow all three of our recurring forms of earnings in a much more meaningful way going forward, So a few related earnings will be higher. We continue to see a lot of organic growth in our businesses. Just by changing our compensation ratios, you get accretion on few related earnings, and we think by virtue of what we're renouncing today, we can do even more. With the Global Atlantic where we invest that portfolio, it's already gone from seventy two billion of AUM when we announced the transaction to one hundred and fifty eight billion over the last few years. We think we can do even more together. But they'll also see more insurance operating earnings, which we believe are highly recurring and fast growing. And then we'll have this third element, which will be the core private equity dividends showing up in the strategic holding segment. If you put those three things together, we think that'll be seventy percent or more of our overall pre tax income is those three forms of recurring earnings, and we're going to introduce them a new metric around that called operating earnings and we'll talk about that later today with our shareholders. Scott, we do have to leave it there. Thank you for joining us on a big day over at KKR. Tom shout on the basic Thank you so much with a gentleman from KKR in the future of what they do, joining us now, Lawyer. I'm chief US economist at FS Investments. On an eight point nine percent nominal GDP America, Laurie, what's so great about your economics is you've got it from the litmus paper of the FX market. How alone is the United States with an eight point nine percent nominal GDP. When Rishie Sonak is telling Francy Qua he's worried about austerity, I think we are still the growth continued to just surprise to the upside, and to me, it's remarkable the inconsistency between talking about rake cuts to you know, this idea that we're going to need rake cuts in the near term to support the economy, or the short term idea that we've seen the labor market slow. And really we do feel like we're an economy and the data would show that we're an economy firing on all cylinders. Government, business bending, consumption the only keys that's not really adding to it as residential construction. I would say that we are the standalone leader on growth. And what's so important here, Lisa, A nominal GDP topline, that's real GDP posts inflation is there's an assumption here by the Bill Ackmans of the world economists and not that it's going to plunge down to what six percent, five percent? Even that's a boom economy. And when you say it, they're talking the inflation component. And Laura, that's what I want you to weigh in on. How much does it matter if we see a slow down do we need to slow down if we continue to see the pace of disinflation that we've seen so far this year. I think there's two pieces to that argument. To me, the real and one place from probably off consensus is I am really reticent to think that we are going to get this magical slow down in inflation back to that two percent lane that we have had. On the good side, we have a lot of indications that just from some slower demand and from some of these resolutions and inventory that we're going to see lower goods prices. But I think we are really ignoring the big elephant in the room, which is services. We still have a hot labor market by my measure, we still have wage pressure that is way higher than prior to the pandemic, and the resting heart rate of inflation is still well above two percent. And on the services side really is the problem here. So I think we need to be careful about being very complacent about inflation coming down, and that really feeds into this non recessionary rate decline Goldilocks complacency that has taken hold of equity markets at this moment. In some ways, the Fed's wall are really kind of fed into that yesterday, which is a reason why maybe he gave Steams some of these market movements. He said, there is just no reason to say you would keep rates really high and inflation is back at target, how high is the threshold then to cut rates. If we do see the disinflation in the pipeline significant, it might not be long lasting because of some of these other issues, but we do see year over year comps come in with autoprice disinflation or outright deflation with rents coming in, with the fact that goods, as Walmart said, just prices are actually going down outright. I think the FED is good at looking around the corner on especially this rent issue. There's no doubt that rent is a very lagging indicator, but it's sticky for a reason. And all of the short term indicators that you know, six months ago were really pointing to rents coming down fast have now reversed. And I think something that's very important to me is the fact that rents are far below the cost that it is to buy a home per square foot. You are costing you a lot less to rent, and landlords are rational. They're going to see this, and they are going to over the next several quarters, you know, push rents higher again. So it's something that you just can't ignore in the core, even if you get the headline hitting two percent. I get nervous when the FED tries to micro manage the inflation process, Laura, and this with your overarching philosophy of summing all this together, are we beyond the pandemic? It sure doesn't feel like it to me. It feels like the stimulus is still pop and popping, popping. But from where you sit, are we beyond COVID Not? In the data, Tom, I think we're seeing this trampoline effect and the Q three GDP numbers are great example of that, and we had a big inventory, you know, push higher. We could very well get that. Still detracting from the fourth quarter, you're still getting some of these big swings in factors that are disguising what's going on underneath with demand which is still really red hot. So this is a big to me, you know, piece that we're looking at. For twenty twenty four, we start to see some move away from reliance on savings towards income. I think the irony is it could be a period of lower growth next year, but actually better sentiment about household economics as you see income finally catch up to the prior year and a half of inflation. Okay, I'm gonna pinion down it. Give me some twenty twenty four lower outlook numbers, real GDP. What do you think? Real GDP one point four and I think the tenure stays pretty high. I'm putting it at four percent for twenty twenty four. I mean, these are Lisa, these are huge slow down numbers. And then the question comes over immediately, what does non farm payrolls do? David Kelly, a JP Morgan would say goes negative well and This is really the ultimate question, Laura, do we get that kind of slow growth but high yield along with a full, fully employed America, along with job creation that continue to chugle all. I think that we look at the recessions that we've had in the two thousands, twy tens, even the nineteen nineties, we saw very little. If you look at nineteen ninety two thousand recessions, we saw very little drop and output, but a massive decline in labor in this I think upcoming year we're going to see a slower economy, but I think that companies continue to view labor as a scarce resource. I think the true Goldilocks is not going to be defined by output. It's going to be defined by the labor market, and we are going to see the I think the unemployment rates stay quite low. Lar. Thank you. We FS investment slower rhyme this morning there were a one point four percent called slower economy year. Howard Marks, chairman of oak Tree Capital Management, and I must point out author of not one, two, but three important books on investing of What to Do and just as importantly Howard What Not to Do. Howard on Charlie Munger getting the odds on your side. How did Charlie Munger get the odds on his side? He started off with a brilliant mind and a brilliant partner. He intensively studied the financials, thinking about the long term. He never tried to guess what a company or a stock would do in the short term. And he held for many years. You know, he was a great practitioner. Sit on your hands, and he did it flawlessly in the modern day, in the modern media, I remember reading those annual reports. How are years ago there was no financial media, there was no blogging internet. The short termism we're living it now. What is the lesson of Charlie Munger's long termism? Well, if you want to hit the long ball, you have to be very patient, and you know, when the stock moves up the first twenty percent, you can't start taking profits. Charlie and Warren have held things for decades. And the other thing is they were and Charlie always talked about this, you have very few moonshots. Charlie said within the last year that most of his wealth came from four decisions. And so you know what would have happened if he would have started trimming those four decisions early he certainly would not have accomplished what he did, and I think Warren would the same thing. Maybe the number four would be a little different with Warren, but you know, you know, Warren's famous for having said, put all your eggs in one basket. And I watched the basket really closely, and I think that it wasn't one basket. But the idea of concentration and patience coupled with good decisions makes for a great success. You know, a concentration and patience don't accomplish anything if you can't make above average investment decisions. But putting it all together is the formula for success. Howard, you wrote in some of your thoughts about Charlie Mungerth that he had very definite opinions, in particular regarding the investment management industry. He viewed the industry with considerable skepticism, and while a member of it, I found myself in agreement with him more often than not. What exactly are you talking about in particular? You know, I think both Charlie and Warren felt that our industry, relatively few members of it made substantial contributions to their clients wealth. Many more members that were well paid. He was always one who questions incentives. He says, you give me incentive, an incentive, I'll tell you the behavior. And and I think that, you know, I think that Warren and Charlie, if you're their operation, they, in fact Warren's ed and quotes, not a partnership, not a corporation of partnership. And they considered there there the people they manage money for their shareholders to be their partners. And they considered themselves to be working for their partners and not themselves, and their own wealth and success was a byproduct of working of doing great work for the partners. So you know, I like to put my sameself in the same boat. Those sentiments appeal to me greatly, and I've tried to follow that. How difficult has it been to sort of to adapt the strategy to different eras When you had conversations with Charlie Munger, there are questions around tech and how that changed the investment thesis. How did they think about the changing concept of what a wonderful company looked like and what fair value was. You know, you, on the one hand, you have to evolve with the times. On the other hand, you know they never went a full bore into the tech sector. You know, their famous are having made a lot of money with Apple, but you know, most tech the way they said it, they put it on the too hard pile. And if you have if you understand that your success will come from a small number of holdings, that means you don't need twenty thirty thirtyfty sixty. You don't need to exploit all the sceptors. You just have to find a few great ones. Of course, on the other hand, you know Tom said that we're you know, we're in a new era with all the communications we have. Part of what that means is that the world is a more interconnected, intelligent place. You know, back fifty years ago we used to be able to exploit things nobody else knew. Today there's very little information that doesn't make its waste speedily around the world. Howard to help us with one final question here to the management the future management of Berkshire Hathaway. They have a from COVID buildup of cash a four hundred and twelve billion out to half a trillion dollars five hundred and twenty five trillion. You and everybody else out there is living with explosive money market fund growth. You know the story in that forward here for Berkshire, Hathaway, what's the best use of there in our mounds of cash? You know, the people who run Berkshire today and will run it tomorrow understand the limitations of size. All things being equal, size makes it harder to outperform. They have the best probability of outperforming of any company their size, but their size will matter. And you know one of my professors at University of Chicago. I asked him afterwards, how would you manage a big fund? He'd say, I would index the cord and manage the hell out of the periphery. And I would imagine that at their size, they'll have to move in the direction of something like that, although they will not give up on outperformance. Howard Marx, thank you with oak Tree Capital Management. In remembrance of Charlie. I'm so pleased that we get to speak with Tipenstein, co founder and co chair of Carlisle Group, host of Peer to Peer Conversations on Bloomberg Television, because David is somebody who talks with all the executives across Wall Street, Main Street and beyond to understand how they're dealing with some of these transformative technologies of the moment, and David, I want to start there kind of where the similarities are in how some of these executives are thinking about the developments and artificial intelligence in a generative AI. Well, everybody wants to be an expert on AI and figure out how it's going to affect their company positively or negatively, but honestly, nobody really knows for sure yet how it will work. We're really inning one of artificial intelligence in terms of how major companies are going to use it or have it used against them. So everybody's trying to hire artificial experts or get people into their firm who can help them assess whether artificial intelligence is going to be useful to them or helpful to them, And nobody really knows yet, So I can't say anybody is certain how it's going to impact their business yet. David, mister Zevino stealed Marsh mcclennan and others, and then Nannie goes to AIG where different than other executives, he has to deal with disaster. What did you learn about how he handles the unexpected? Well, insurance is about dealing with the unexpected, really, and so AIG became the largest insurance company in the world for many, many years, and as a result of that, it had enormous tentacles throughout the entire financial complex. It clearly extended itself too much, didn't anticipate problems that arose, particularly in the mortgage area, and as a result had to be bailed out by the US government to tune of about one hundred and eighty billion dollars. Now that money's been paid back with interest. But AIG is no longer the biggest insurance company in the world, and it doesn't have quite the tentacles around the world that it once did, but still a very profitable company. David and Newsmaker yesterday. This is what Rubinstein does. He's steering the thunder from journalist David Rubinstein with Bill Ackman yesterday and the track that this nation will take. What did you learn from mister Rackman, David Rwinstein. Well, Bill is a very impressive person who obviously is outspoken, has been outspoken on many issues over many years. Recently has become quite visible in what he's been saying about Harvard. But he said in the interview which will air not too long from now that he's made a new bet. He's made a number of macro bets that have turned out to be extremely positive. One of them, he made it over one hundred times his money on a bet that he made a number of years ago in the time of COVID. Now he's made a bet that interest rates will be cut sooner by the Fed than is otherwise expected. And if that bet is successful, I guess he'll make a fair amount of money. But that's the big issue that many people are grappling with. Will the Fed decide and it needs to lower interest rates before the political season starts, let's say, in the summer or the fall of next year. Dave, excuse me, go ahead, Lisa, please my fault. David, is it surprising to you that a big hedge fund is focused on making big bets on treasuries right now? Well, many hedge funds people are doing that. Honestly, he has not done the so called treasury trade that others have done, where he's buying treasuries and shorting treasury futures. He hasn't done that. This is basically a bet that the Fed will succumb to some pressure to lower interest rates before too long. Now, the conventional wisdom in Wall Street is that the Fed will lower interest rates at some point during their first or second quarter, more likely the second quarter. I think his bet is it'll probably do it sooner than the conventional wisdom. And I have said publicly before, and I still think it's the case that the Fed will get in trouble if it lowers interest rates around the political season, because the Republicans will say, well, you're helping Joe Biden by lowering interest rates if you do so over the summer or in the early fall. So the Fed is going to lower interest rates, probably to avoid political criticism. It don't have to do it sooner than later. David, you mentioned mister Ackman in Harvard in the Horror of the Eastern Mediterrane. I want to go to your Duke University where they have a bridge. Folks. There's an old bridge called the Free Expression Bridge. And to make a long story short, they had to paint over a pro Palestinian tone as well. David, I want you to talk to the great and good right now about how those of means and success should deal with their shock at our American universities. Well, the American university system is still the envy of the world, and our private universities are really the places that people from all over the world want to attend. There's been a shock that many people didn't realize how strong the anti Israel feeling has been in some campuses, and the result of that has been outraged by some alums. Some universities have handled this better than other universities. I am the chairman of the board of the University of Chicago, and we have a tradition of not issuing statements on political matters or outside matters, and we have an issue one in this case. But in many cases other universities have not had that policy, and they've got in trouble for issuing statements that don't please one side or the other. It's a difficult way to walk his fine line, and I don't know that anybody has figured it out properly or correctly. David All glorious day for Bloomberg Surveillance with Doug cass and Howard Marks with us and membrance of Charlie Munger. Give us your thoughts on the hugely successful experiment that was Berkshire Hathaway. For those who don't know. Charlie Munger was from Warren Buffett's hometown of Omaha. He moved to Los Angeles and later reconnected with Warren Buffett, who hadn't really known before, but he had worked for Warren Buffet's grandfather at one point in a store. Charlie Munger was had outspoken, very very smart, a lawyer who transitioned from being a lawyer to being an investor, and his track record early on was actually better than Warren Buffett's in some respects. They teamed up became an incredible team of people who were mostly known to the public through their annual meetings where Warren Buffett and Charlie Munger would answer questions for six hours on end. And Charlie Munger was quite well known for his I would say, dismissive ideas of some other people's thoughts about investing. He was a very fundamentalist kind of investor and he transformed Warren Buffett. Warren Buffett was taught to buy things very cheap, and buy things cheap you can always make money. It was Charlie Munger's view that you should buy good companies. Maybe you pay a reasonable price for it, but buying good companies is better than buying cheap companies which may not be that good. And Warren Buffett gives a lot of credit credit to Charlie Munger for having transformed his views on the investment world. David, thank you for joining us today with us remember, and so Charlie Munger and of course with your excellence. Look for a conversation with Peter Zefino. Peer to peer conversations hugely anticipated in the next ten days. A conversation with Bill Eckman that move I would suggest move Markets. 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