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00:00Well, is it crazy?
00:01John, I love talking to folks like you.
00:03You guys have been investing for a long time.
00:05You've seen a lot of market cycles.
00:07Like there are, you know, how do you kind of factor in this one
00:11and the stuff that feels like every morning we can wake up
00:14and there can either be something out of Washington that really impacts the trade
00:19and there are days it doesn't.
00:20So how do you kind of work all that into strategy?
00:24Well, I think of the 43 years.
00:25The noise, if you will.
00:26Yeah.
00:27I mean, the 43s of Ariel, we've had lots of ups and downs.
00:30You know, 1987 crash, of course, 08 and 09 financial crisis.
00:35But this is the first time we seem like they're sort of we're making this crisis happen.
00:39You know, making a conscious decision to make policy decisions,
00:44whether it's the tariffs or now whether it's the war.
00:47And that's causing all this drama and all this angst.
00:51And that's something that's unusual and different for us.
00:53How do you trade that?
00:54Well, I think on the one hand you traded is that we know that President Trump cares about the markets.
00:59He sees that as a scorecard.
01:01So the one positive thing you can pluck out is that eventually he figures out a way to adjust
01:07to get things back to a calm state eventually.
01:11But you just hope he doesn't go too far, you know, one more time and stretch
01:15and do something that really he can't pull it back.
01:17You know, I'm curious about your view on this as it does not relate to markets.
01:21It sounded like you were saying that we've entered a new paradigm,
01:24at least with the decisions that this administration is making.
01:28I'm wondering how you're looking at that.
01:30We understand that what the president wants to achieve with tariffs.
01:34I would not say I understand what he wants to achieve right now.
01:37Yet with Iran, we're still waiting to hear exactly what the U.S. wants to achieve there.
01:41But how do you view this, not necessarily with regard to markets?
01:44Well, what I worry about is that Iran does something that's extraordinarily painful for America
01:53or another part of the world.
01:56As they fight back and feel like they have to defend their honor,
02:00they'll just do something that we'll all have a hard, hard time living with over the long run.
02:06And so we all saw what happened when the World Trade Center collapsed
02:10and all the trauma and drama and extraordinary heartbreak from that situation.
02:14And you just hope that nothing like that happens again ever in the United States
02:19or in our friendly countries.
02:21I've got to say, I went right there after this happened,
02:23and that's what I thought about retaliation.
02:25Any of us who were here in New York during 9-11 remember it like it was yesterday.
02:30And it does make me a little scared, and I'm not an alarmist,
02:34but it did make me think, okay, what's the retaliation of all of this?
02:39We're going to set that aside for a moment.
02:40We can shift back to markets, Carol.
02:42We can shift back to markets.
02:43Well, I want to go back to something you said actually in January,
02:45and I was doing some read-in on this.
02:47And you said the U.S. will likely slide into a small recession at the end of the year.
02:51Stock market will drop as average income consumers struggle with high living costs.
02:55And this was, I think, at the Executive Club of Chicago's annual Outlook event.
03:00And you talked about the Dow maybe declining 15% to 20% this year.
03:05And it also got into this dichotomy, which I think really increasingly, I know it bothers us,
03:11wealthy consumers doing okay, so many other consumers are not.
03:15So talk to me about that.
03:16Do you still feel this way about maybe we see some kind of small recession?
03:20I still do.
03:22I've never seen anything quite like it.
03:23I know a lot of people have been talking about this.
03:25But we're right when people are still going and spending money on cruise ships
03:30or going to Las Vegas for experiences, doing things that are really the wealthy people can do.
03:36Right.
03:37But the average American is really, really struggling.
03:39You know, I go to McDonald's pretty much every day.
03:41And you see how much it costs to, you know, buy your drink and your french fries and what happens.
03:47And you realize that ordinary Americans are having a hard time covering the cost of just day-to-day life
03:53in America.
03:53I think that's a real challenge for our economy, a real challenge for certain industries.
03:58It's the so-called K-shaped economy is something that we talk about a lot and we think about a
04:02lot.
04:02Are there policy proposals or are there policies that the U.S. government could enact that would make the gap
04:11between the very wealthy and the poor?
04:13Or that would bring back the middle class, I think, is something that we talk about a lot, too.
04:17Is it something that you think the free market can solve?
04:20How do we get out of this?
04:21I think the free market will solve it.
04:24America always goes to extremes and things ultimately get back to normal.
04:30As Warren Buffett says, you know, our capitalist democracy is the best system ever invented.
04:35And so we'll ultimately put the right people in place.
04:37Governments will shift and change.
04:39And people will be able to get to a place that I think will bring back a better life for
04:45folks from middle America.
04:46And I think that's really, really important.
04:48I think keeping interest rates reasonable, keeping inflation low is really, really important, creating the other tax policies that are
04:55fair and equitable.
04:57So I think we'll get there.
04:59It takes a while, but we'll be on our way back.
05:01And I think we're in that process now.
05:02So you're optimistic?
05:03I'm optimistic that we will create the wealth gap in our country will start to diminish over time.
05:09So when I look at, I want to talk a little bit about the investment environment.
05:13We saw broadening out, certainly, in terms of where investors were placing some bets here.
05:18Where do you see some mispricing within the market where you think that that presents some opportunities for investors?
05:23Well, I think right now the financial services companies are what I think have gotten to be extremely cheap.
05:28They've gotten, you know, very, very worrisome about what's happening with private credit, as we all know, what you guys
05:34are reporting on and talking about all the time.
05:36But I think it's overdone.
05:38I saw David Rubenstein speak last week.
05:40He was interviewed by our chairman, Charlie Bobrinskoy.
05:43Yeah.
05:43You know, and his optimism about Carlisle, I thought, was striking.
05:47And I think they've gotten sort of a hit with what's happened in private credit everywhere, even though they have
05:53a small exposure to private credit.
05:55There's also been this huge concern around private equity that people won't come back, that, you know, it's going to
06:00be harder and harder to raise funds.
06:01I think as interest rates get lower, companies that have the kind of brand that Carlisle has will be able
06:06to do extremely, extremely well.
06:08And then secondarily, a company like Lazard, you know, one of the world's best investment banking firms.
06:13You know, Peter Orzag has done a great job in getting that company on track.
06:16It's moving in the right direction.
06:19And being one of the best investment bankers, they're going to benefit from all the deals that are going to
06:22happen in this deregulated environment.
06:25investment, it's really a great opportunity for companies to buy, merge, do things that are right for shareholders.
06:31It's really kind of refreshing.
06:32I haven't heard you say AI.
06:34Yeah.
06:35Where does that fit into?
06:38It's not a value play, right?
06:42How does that factor in?
06:43Like, because I do think the AI trade has evolved over the last two, three years in terms of where
06:49investors want to place their bets.
06:50And now we're talking a lot more about inference and agentic AI and kind of where that's going.
06:56But I think we still don't know a lot.
06:59We still don't.
07:00And we're working really, really hard on it at Ariel.
07:02We're using some of the, you know, top academic minds at the University of Chicago to help guide us as
07:07we think through.
07:08Yeah.
07:08Which industries will be the most disrupted?
07:10Which ones will not be disrupted?
07:12And where maybe the fear is overdone?
07:15So, like, for us, one of our favorite stocks is Jones Lang LaSalle, JLL.
07:20You know, real estate brokerage is still an important business.
07:23It's a complicated business.
07:24If you're a CEO trying to move hundreds of people from one office tower to another, one campus to another,
07:30you need a great broker who can help you see and have the insights that are there.
07:34So I think AI helps to make them more efficient and more effective.
07:38And AI is not going to replace that real estate broker the way some people are afraid of.
07:42So much of the concentration, literally, and when it comes to coverage of the market has been make-a-cap
07:50tech names.
07:52And I'm wondering if it's possible, in your view, I think I know what you're going to say, but if
07:57it's possible, in your view, to outperform mega-cap tech or the S&P 500 by excluding those from a
08:05portfolio, by finding those value names?
08:08Well, I think so.
08:09You know, I've been very public.
08:10I think the large-cap growth stocks have gotten way, way, way too expensive.
08:14Everyone's fallen in love with that trade for quite a long time.
08:17But I've seen this happen time and time again in my 43 years at Ariel, but also saw it throughout
08:22history, the nifty 50s during the 70s, the nifty 50 stocks.
08:28You saw it during what happened in the go-go 20s.
08:31People just fall in love with the sector and think it's just going to go up and up forever, and
08:36the small stocks get neglected.
08:37They get misunderstood.
08:38They're not as well followed.
08:40And so opportunity gets created because everyone's fallen in love with this hot, shiny, shiny dollar out there.
08:46And you think that's happening right now?
08:48I really, really do, up until most recently.
08:50I mean, I've seen the Palantir's, the world, and others have finally started to have some of their comeuppance.
08:55It reminds me of what happened during the turn of the century when the Internet bubble finally burst.
08:59So you start to see some signs that the world is coming back to rationality and people are realizing some
09:05opportunities in their smaller names.
09:07When it comes to the investment environment, are you anticipating that investors need to be thinking about it's going to
09:12be a higher rate environment going forward?
09:14And so you've got to think about that and what it means in terms of valuations.
09:18Well, I think I'm more optimistic about rates.
09:21I think that...
09:21Meaning they'll go lower?
09:22I think they'll go lower.
09:23Okay.
09:23I really do.
09:24I think that the new Fed chairman is clearly someone who's going to want to make the president happy.
09:29He's going to do everything he can to bend the will of the Federal Reserve.
09:34Doesn't that make you nervous, though?
09:35If it's not fundamentally based?
09:38Long term, it makes me nervous.
09:40Okay.
09:41But I do think in the short to intermediate term, if we keep rates lower, it's always good.
09:45Low rates are always positive for the markets.
09:48And, of course, some things will come back to haunt us because of it.
09:52Yeah.
09:52But I think that's more longer term.
09:54In the short term, I think this will be something that will help the market stay where it needs to
09:59be
09:59and be sort of a tailwind for the markets.
10:03It doesn't sound like...
10:04You know, one of the narratives that it felt like we were coming into was...
10:09I mean, think about President Biden before President Trump won the election.
10:15Like, the U.S. was the best place to invest.
10:17When President Trump came in a year ago, again, like, the U.S. market was the place to invest.
10:23And then we were just thinking about the U.S. being uninvestable.
10:27Like, that became a narrative.
10:28And to a certain extent, even though the U.S. markets did well last year,
10:31there was a lot of underperformance compared to global markets for 2025.
10:34Is that something you think a lot about or that we are seeing investors start to diversify away from the
10:44U.S. market?
10:44Or that's impossible because of how deep and how liquid the U.S. market is?
10:48I think it's really, really hard to diversify away from the U.S. markets in any meaningful way.
10:55You know, we still have the deepest economic system, the most successful economic system,
11:00the best universities in the world.
11:02You know, we're the United States of America.
11:04And even though there's been all this drama and trauma right now,
11:08ultimately people want to come back to the country where you can count on our currency,
11:12you can count on our democracy and the regulatory environment that we have,
11:17and just all the great success.
11:19We've had Wall Street to Silicon Valley.
11:21I think that America is the best.
11:25So this is just a blip?
11:26I think so.
11:27It's just because it's interesting.
11:30I think we try to figure out the lasting impact of the last year or so.
11:34Well, one thing that we're trying to figure out is the impact that immigration or a lack thereof will have
11:39on the economy here.
11:40If we think about in recent years, Americans not having enough babies,
11:45and one of the ways that has been supplemented and we've been able to avoid turning into Japan, for example,
11:51is because we have had people come to the United States and increase economic activity that we wouldn't have had,
11:58had we not had that.
11:59And I'm wondering how we have to adjust our expectations for a world that is increasingly,
12:05I was going to say isolationist, but we're not necessarily seeing that right now,
12:09but one that looks inward toward itself more than looking outward.
12:12And you only have 30 seconds to stop the world's promise.
12:13Oh, I'm sorry.
12:14That was my bad.
12:16We got lost in this.
12:17In this business, the ability to see the future is the most important thing.
12:21And so if you look out two to three or four years, we will be past this crisis,
12:25this isolationism, the challenges that we face.
12:27One way or another, you're going to have a new president, you're going to have a new government,
12:31and I think America will still be in a strong, strong place.
12:34One way or another, you're going to have a new president, you're going to have a new president,
12:34you're going to have a new president, you're going to have a new president,
12:34you're going to have a new president, you're going to have a new president,
12:35you're going to have a new president, you're going to have a new president,
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