00:00I'd like to start with the markets right now.
00:01Obviously, the S&P 500 has been defying what some say logic, would say is logic.
00:07Record high again overnight, but the bond route has indicated that we have some turbulence,
00:12some swirling tide pools under that record high.
00:15How are you reading the markets right now?
00:18Well, I think there are animal spirits that come out in the equity markets and fueled by two things.
00:23One, the anticipated IPO prices of OpenAI, of SpaceX, and of Anthropic.
00:30I think people are anticipating those will have very high valuations,
00:33and that will fuel the market and have an impact on other stocks.
00:36Secondly, I think people are thinking the war will eventually be over.
00:40And while we don't know when it will be over, they think it's in sight.
00:44And therefore, I think that will fuel the equity markets, and it's fueling it right now.
00:47The bond markets, I think, have been hurt in part because people recognize
00:51we still have a lot of debt in the United States, a staggering amount of federal debt,
00:55and that there's no real easy way to get around that debt in the near term.
00:59Secondly, I think people believe that it will be very difficult for the Federal Reserve
01:03under its new leader, whose chairman is a very talented person,
01:07very difficult to lower interest rates in the near term.
01:09So what's Kevin Warsh, what's he going to do?
01:12And how does he build unity among the other 11 members on the FOMC
01:15if he's going to be in one year, get advice from the White House, cut rates,
01:20whereas the bond market and others stresses that we're going to get a fresh reading
01:24on inflation coming Thursday, it's climbing towards 4%,
01:29and that may actually indicate a need for a hike.
01:34Well, the president said at the sweary end that he wanted an independent Fed,
01:38and I think that was a signal that he recognizes that lowering interest rates
01:43in the near term is probably not likely.
01:46But I think the Fed has a friend in the White House in the sense that
01:50Kevin Warsh is closer to the president, obviously closer than Jay Powell,
01:53and I think that the president is going to make it a little bit easier for him
01:57than they did for Jay Powell, in my view.
01:59I think Kevin Warsh is a very smart person.
02:01He recognizes that the numbers, if they come in as high as people expect,
02:05it would be very difficult to lower interest rates.
02:06The Fed futures market is anticipating two rate cuts in the not-too-distant future,
02:12rate increases in the not-too-distant future.
02:14So probably 25 basis points each time, and that's what the markets are assuming.
02:18That might not sit well with Mr. Trump in the White House.
02:21How much are you concerned by Fed independence now that we've gone to Mr. Warsh?
02:26Everybody wants Fed independence.
02:28I think the president said he wanted it,
02:29but I think recognizing that the war situation is unusual
02:33and that Kevin Warsh needs a little time to get his feet on the ground
02:36before he can begin to do what he wants to do, which is lower interest rates.
02:39He also wants to shrink the Fed balance sheet,
02:41and that will take some time to do as well.
02:43Is he going to be able to get consensus on that?
02:45Because we're going to have a guest later,
02:47the former Chicago Fed president for 16 years,
02:49who says that's not the way to go.
02:51Well, there are some members of the Fed board now
02:53who are saying that they don't think we should lower it.
02:55I think one of the board members the other day said
02:56they didn't think it could decrease right now, the balance sheet.
03:00But we'll see what happens.
03:01In the end, I think the war will determine a lot.
03:05If the war is over, it'll make things better.
03:07If war goes on for a long time,
03:08I think it's going to be more difficult to lower interest rates
03:11and to shrink the balance sheet.
03:12You wrote the book, How to Invest.
03:13How do you invest in this turbulent times
03:15when we don't know if the Fed is going to go left
03:18or they're going to go right?
03:19And we don't know necessarily the inflationary outlook.
03:24How do you invest in this?
03:25I know you don't have executive power necessarily
03:28at the Carlisle Group anymore,
03:29but where would you want to be looking for opportunities?
03:33Well, we have to not try to make outsized returns.
03:37If you're trying to get 20%, 30% rates of return,
03:39you're probably going to be disappointed.
03:41The most important thing is invest with people
03:43that know what they're doing,
03:44have a track record,
03:45charge reasonable fees,
03:46give you transparency,
03:47and have a realistic expectation
03:49of the rate of return you want.
03:50And I think a realistic expectation
03:52for a rate of return for blended
03:53is probably somewhere in the high single digit,
03:56low double digits.
03:57If you can get 10% average on overall
03:59on your investments, that's very good.
04:01If you're going into the alternative space,
04:04private equity or the private equity equivalents,
04:05you should probably get something in the mid-teens,
04:08but something in between 10%, 15%
04:10with a blended rate of return,
04:11with a blended portfolio is very good.
04:14Don't try to get 20% and 30% and 40% rates of return,
04:16because most people are not going to get that.
04:18They're going to lose money if they do that.
04:19You like Mag7?
04:20Do you like the AI play as it stands right now?
04:23Would, I mean, of course,
04:25a lot of the infrastructure speculation,
04:27whether data centers and AI
04:28is a good investment right now.
04:30What's your outlook on that?
04:33I wish I were an investor at a very low price
04:36in OpenAI and Anthropic,
04:38because I think they're going to have very good IPOs.
04:40But whether those markets and those prices
04:42will continue going up as much as they have,
04:44I don't know.
04:45I think there's going to be a lot of people,
04:46probably when they can sell their shares,
04:48will probably sell the shares,
04:50be my guess.
04:51I don't know if a lot of people
04:52are buying OpenAI at the IPO
04:53going to hold on forever,
04:54but I don't really know.
04:56But I think the prices are fairly full right now.
04:59What is your outlook for AI
05:00as its impact on the economy and on jobs?
05:03Everyone's weighing in on it right now.
05:04Iqbal Khan of UBS was saying
05:06there are going to be ramifications on jobs,
05:08even though, of course,
05:09they want higher productivity from it.
05:11Jamie Dimon was out saying a similar thing,
05:14that he wants to hire more people
05:15who are AI experts
05:16than maybe traditional investment bankers.
05:19What's it going to do to jobs?
05:21Whenever a new technology comes along,
05:23people get nervous that it will infect jobs,
05:25and adversely so.
05:26But in the end,
05:27when the Industrial Revolution came,
05:29when the Internet Revolution came,
05:30when other things came,
05:31they did unemploy some people,
05:33but they employed even more people.
05:35So in the end,
05:36human ingenuity is such
05:37that I think humans will figure out
05:38how to redeploy their talents,
05:40and I think in the end,
05:41it'll be good for society,
05:42but there may be a difficult transition period.
05:44Yeah.
05:45What is your outlook for private credit?
05:48Obviously, Carlisle's involved with private credit.
05:50We know there were a couple of high-profile cases,
05:53Tricolor and First Brands last year.
05:56Going forward,
05:57with the widening spreads
05:59and the higher yields right now
06:01with this bond shock that we're seeing,
06:02what is the future of private credit?
06:05For people buying private credit now
06:07or investing in it,
06:08I think they're going to do reasonably well
06:09because the rates are higher.
06:11The default rates on private credit
06:13are not all that significant.
06:14They're relatively about what they are
06:16in other types of credit markets.
06:18If we go into a recession,
06:20then all credit instruments
06:21are going to have some challenge.
06:22In other words,
06:23we haven't had a recession in the United States
06:24for more than 10 years.
06:26And so if you go into a recession,
06:27there's going to be a lot of economic challenges.
06:29But short of a recession,
06:30I don't think there's a big problem
06:32in private credit
06:32or other debt instruments at the moment.
06:34How does all of the things
06:35we just talked about
06:36factor into the midterms?
06:38I think the conventional wisdom
06:40is that a president will lose in the midterms.
06:42On average, they lose about 25 seats.
06:45On the first midterm,
06:46in his first term,
06:47President Trump lost 41 seats,
06:48I believe it was.
06:49Barack Obama lost 60-some seats.
06:51Bill Clinton lost 50-some seats.
06:53So presidents tend to lose seats.
06:54Very rarely do you gain seats.
06:56I think at the moment,
06:57given the war going on
06:58and high inflation,
07:00I think the president
07:00and his people would be thrilled
07:02if they could just keep it even.
07:05But I don't think they expect
07:06to win the House
07:06or have a bigger margin on the House.
07:08There will probably be some losses
07:10for the Republicans in the House,
07:12but probably not as big
07:13as people once thought.
07:15Is the war going to be his undoing
07:16in the midterms?
07:17The war will be a factor.
07:19The war is not that popular,
07:20but I suspect the war
07:21will probably be over
07:22by the midterms,
07:23and therefore it won't be
07:24as big a factor then.
07:26You and I are baseball fans.
07:27You're the owner
07:28of the Baltimore Orioles.
07:29So do you agree with expansion
07:31and do you agree with the salary gap?
07:33I'm tired of seeing the L.A. Dodgers
07:35win the World Series every year.
07:36Small market teams like my Mariners
07:38need to have a fair playing field.
07:40The Mariners are an excellent team
07:42with an excellent owner,
07:43and they're the only team
07:44that's never been in the World Series.
07:45I hope someday they get there,
07:46but not before the Orioles.
07:48Salary cap?
07:50I will let the commissioner
07:51deal with that.
07:52Okay.
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