Roger Altman Says Inflation Isn't a 'Threatening Factor'

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00:00You know, Roger, you have such a wealth of experience from banking to the Treasury Department

00:05to the firm that you founded. We didn't really know where to start, but I thought

00:08AI would be appropriate because you started Evercore in 95, and that's when, right at the

00:14beginning of the dot-com mania, where for the next five years it was just up, up, up. Do you see any

00:20parallels to what we're seeing, you know, in this market where we're up 25% a year seemingly on

00:27excitement for NVIDIA? By the way, wealth of experience is another way of saying,

00:32hey, you're old. No. But beyond that, the only parallel is simply the sustained upward march of

00:42the markets themselves. I don't think the underlying factors are all that comparable because

00:48the dot-com bubble really involved a lot of, I mean, a countless number of businesses

00:57that were never sustainable, Pets.com and so forth. And that's not the case here.

01:05The biggest investors in AI, we all know, are huge, powerful, highly profitable companies from Meta

01:12to Amazon to Google and so forth. So that is a big difference. The question, I think, is whether

01:25the promise of these investments is likely to match the size of them. And that is an unanswerable

01:35question. You see article after article about OpenAI as to whether the investment commitment,

01:43whether the capital expenditures they've committed to can possibly generate a return in light of the

01:50relatively smaller size of revenues they have now and so forth. I don't think anybody knows the answer

01:55to that question. But if you step back and ask yourself whether markets could continue to march

02:01upward like this and multiples continue to march upward like this ad infinitum, we all know the

02:08answer to that is no, they can't. If I were smart enough to know when the correction would take place,

02:14we could be doing this from my giant yacht, but I'm not smart enough to know and there is no yacht.

02:20Well, I hear what you're saying about, you know, you think about the comparisons to the 90s,

02:25the early 2000s. You make the good point that these are quality, mature companies that we're talking

02:30about in many cases. But when it comes specifically to OpenAI, I do think it's interesting to see

02:36basically, I've been calling it spending in a circle. A lot of people have made the point that

02:40these deals look a little bit circular. You have a lot of overlapping commitments being signed. And

02:47the point has been made that it seems like these companies are closely tying their fortunes together,

02:52maybe closer than they have been in the past, Roger. And I wonder what you make of that.

02:57Well, I think one would have to know a lot more of the inside. I think you'd have to be on the inside

03:05of OpenAI to really be able to assess that. I mean, these are smart companies. You know,

03:12Broadcom, which just announced its own deal, or so many of the others. These are smart,

03:21well-run, experienced companies. And I would give them the benefit of the doubt by a lot

03:28on the extent to which they know what they're doing.

03:33And they're, you know, very established, huge companies. OpenAI is a different story. It's a

03:40newer company and so forth. But in terms of the parties that are partnering with them,

03:47I think they know what they're doing. Oracle and so forth.

03:51Hey, Roger, I wonder about the backdrop. I was talking with Paul Tudor Jones on my program this

03:57morning, and he pointed out the differences between, you know, October, this October and

04:01October of 1999 was back then we had a budget surplus. It's hard for people to believe, but the

04:09government, the federal government was running a budget surplus. And we had a Fed that was, you know,

04:13hiking rates four or five more times until the crash. Now we have, you know, obviously profligate

04:20spending and a Fed that's cutting into an inflationary outlook. What do you make of the

04:28run-up in stocks with that background?

04:33Well, first of all, inflation, while it's not yet down to the Fed's 2% long-term target,

04:40you know, is in the twos, which by historical standards is not bad. So I don't think inflation

04:46is a threatening factor at the moment, even though everyone would like to see it lower.

04:53And we do have underlying consistent growth. We could talk about that growth because it's in,

05:02it's like a tale of two cities with parts of the economy doing quite well and parts of the economy

05:08quite a bit less well. But we do have consistent solid growth. And we've had umpteen years of new job

05:18growth. So the fundamentals of the economy have been and remain good. In terms of fiscal policy,

05:27uh, at some point markets will wake up, look at the real fiscal trajectory of the United States

05:37and reject it. But there's no sign of that today. Uh, and, uh, it could be years off. Uh, but I think the,

05:47the, the underlying economic fundamentals, uh, are good. And therefore, you know, market levels,

05:56while perhaps it's hard to explain the stratospheric levels you see on the mag seven and so forth,

06:01market levels are supported by a solid economy and good, consistently good corporate profits.

06:09And so, I mean, I mean, the number of corporations that consistently are beating

06:13consensus is very high, including the banks this morning.

06:17Right. And Roger, we only have about a minute left with you, but I do want to get your perspective

06:21on the dealmaking landscape as well, because for a while we were seeing equities go higher and higher

06:26and not seeing really the IPO window open back up. We weren't seeing dealmaking come back in a big

06:32way. It feels like that narrative has changed a little bit. Certainly you're seeing a lot of deals

06:37come through. We saw that in the big bank results, but it feels like we've been here before. We've seen

06:42false dawns before. Do you think that this current wave, this current bout of dealmaking is something

06:47sustainable? Actually, I've been surprised that it took this long for levels of merger activity and

06:57transaction activity and financing activity to strengthen. Because fundamentally, if you look at

07:04M&A, M&A is strong when you have the following ingredients in place. A solid economy,

07:10a good business outlook, relatively high stock prices and favorable financing conditions. All of

07:21those ingredients are in place and they have been for a little bit. So it's not a surprise at all to

07:27me that dealmaking is strengthened now. I was more wondering why it took this long.

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