Chapter 1: What is the main topic discussed in this episode?
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We begin this hour with stocks extending their sell-off as President Donald Trump's push to take control of Greenland is sending fresh volatility into markets worldwide. The IBM vice chairman and former NEC director Gary Cohn joins us now for more. Gary, good to see you. Thanks for having me. You heard the way we opened the program.
There seemed to be a concrete ideology when you were alongside the president in his first term. How would you describe this moment? What is this all about?
No one knows for sure. But I think what we've seen evolve in the Trump presidency is this desire to negotiate and get a deal. So ultimately, is Greenland all about getting a deal? We know that the North Atlantic is becoming much more of a sought-after territory from a militaristic standpoint. So I understand the president's concern to have a military presence and protection of the North Atlantic.
If we want to expand our air defenses, Greenland is a pretty strategic spot. So I understand what the president's interest is. They also have rare earths, which is something that we in the United States can't supply to ourselves. So the question is, is this a negotiating posture to get a deal with Greenland to get more rare earths, to get a larger naval and air force presence? And it may be.
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Chapter 2: What insights does Gary Cohn offer about the current state of the US economy?
People are repatriating currency back home. They're selling dollars to buy local currency. They're selling stock market. They've got to repatriate currency. So I think we're seeing a little bit of that. I don't think that's what's driving the overall market right now. It doesn't feel like we've got to liquidate America.
It feels like we've got to trim around the edges in asset allocation models going on.
This goes back to the wrestling match we were describing. AI on one side, you've got politics on the other, and they're facing off, and it's sort of sell America until AI rears its head and gets to the lead, and that's where we're going.
And it's sell America until the light turns green and everyone has to buy America again. Because in the real reality, if you look at the U.S. economy, what's going on, we've got one of the strongest economies in the world today. You know, we're growing at five plus percent growth. You know, we've got a pretty good tailwind going on behind us.
I mean, right now, the only thing stopping is all this geopolitical risk. If and when, and I say when, this geopolitical risk settles down, the market's probably going to take off again. That's been the history of this pattern. Yes.
Settled down? Gary, two and a half weeks ago, we captured Nicolas Maduro. It feels like a decade ago. Now we're sitting in Davos talking about Greenland.
You think geopolitics will settle down under a Trump administration? Two weeks. Yeah, we're going to settle down.
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Chapter 3: How does the Trump administration's negotiation style affect global perceptions?
I think that there's a couple balls up in the air right now. A couple. But, you know, this too shall pass. We can go back in the last eight, 12 years, and there's been periods of time where we've had these highly volatile geopolitical moments. We're in a highly volatile geopolitical moment right now. And by the way, I'm not sure it's a coincidence that Davos is right in the middle.
All right, interesting. I want to ask you about the Fed chair race, because you were in the room with the president in Trump 1 when he decided to go for Jay Powell. What kind of questions do you think he's lobbing at these individuals? And in the end, who do you think it's going to come down to?
Look, the president's in an enviable position right now. He's got what we know. He's got four really highly qualified candidates. Any one of those four could do a really good job in there. I think the president at this point is trying to understand the sort of mindset of the person he's going to put into the position. The president clearly has a view on what interest rate policy should be.
The problem or the opportunity with the Fed job is once he appoints someone into that job, they're an independent agency, and he loses his day-to-day contact with that person. So I think the president learned in the first administration that it's very important to who he puts in that job and that he should make sure that he's very comfortable with their policy mandate before he appoints them.
Do you think it's become even more important now that that individual needs to have the ability to persuade the rest of the committee in a way that maybe a few years ago that wasn't as relevant? There's just a sense on Wall Street that the president's approach in the last 12 months has galvanized the rest of the committee to dig in.
Look, I think the committee structure is going to be the committee structure. I'm not sure if the chairperson can ultimately sway the committee that far. Could they sway one vote or two votes potentially? But you've got some very strong regional bank presidents. You've got some very strong governors in the Fed.
I think the Fed ultimately at the end of the day is going to be a tough group to persuade. I think they'll come out in the right place. I mean, historically, the Fed has done a very good job. Have they been a little bit late? Yeah, they were late in the transitory inflationary problem of COVID, but they've caught up, they've gotten to the right place.
I think if you look at the Fed through the cycle, they end up getting to the right place.
You were diplomatic about the four candidates. Can I just talk about some of them individually? You can. Governor Chris Waller. You can, too. Yeah, you can. Governor Chris Waller, I believe you were part of that process, right? Mm-hmm. Vice Chair Clarity, you were part of that process, too. What was the president's approach to that process back then? Was he as involved as he appears to be now?
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Chapter 4: What is the significance of the 'Sell America' trade?
They are going to build these data centers. The only question that rates have is what is the ultimate all-in cost to build these things. And interest rates are going to be important. These are big, huge, capex expenditures with 30-year lives. So the amount of interest you're going to pay to finance one of these centers is important. So 25 or 50 basis points has a lot to do with these decisions.
But I will caution you, like I always do, the Fed only controls Fed funds. They control overnight rates. You've been talking all morning about the 10-year, the 10 years at 430. Where these data centers are going to be financed, they're going to be financed to the medium, to the long, to the very long end of the curve. It's going to be a combination of duration.
Fed funds is not going to affect that. So Fed funds could possibly go down, and the interest rate to finance a data center could be unchanged. Do you miss the trading floor? Of course you missed the trading floor.
Yeah, I get the feeling you missed the trading floor. Can you imagine how scary things were back at Goldman back in the day? First year analyst, Gary's walking the trading floor.
Yeah, I think that he would have probably... But John, that's when there really were trading floors. Like you actually stood up and talked on phones and spoke to each other.
Did it prepare you for the West Wing?
Now it's machines.
Did it prepare you for the West Wing?
It did. It did. It very much did. In what way, Gary? Just I think the ability to be watching five different things going on at the same time and be listening in five places. People in the White House were always amazed that I could be like having a conversation over here and talking to someone behind me because I heard them talking.
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