Episode summary
Everybody Wants Fed Independence, Rubenstein Says
The David Rubenstein Show
· · Hosts: David Rubenstein · Guests: Stephen Engle
Summary
The guest says markets are being driven by animal spirits in equities and by fear in bonds. He points to anticipated IPOs from OpenAI, SpaceX and Anthropic, plus hopes that the war will eventually end, as reasons stocks keep climbing. By contrast, he says the bond selloff reflects heavy U.S. debt and investor skepticism that the Federal Reserve can cut rates quickly under its new chair, Kevin Warsh.
On the Fed, the guest argues that everyone wants independence, but that Warsh will need time to settle in before pushing lower rates and shrinking the balance sheet. He says the White House is likely to give Warsh some room, though any move to cut rates could run into inflation running toward 4% and a market that is already pricing in uncertainty about the next two rate moves.
For investors, the guest counsels realism: he says the goal should not be outsized returns, but steady performance from managers with a track record, reasonable fees and transparency. He sees 10% as a strong blended return and mid-teens as reasonable in alternatives. He also says private credit should remain attractive unless the economy tips into recession, while AI should eventually boost productivity even if it creates a difficult transition for jobs.
Key takeaways
- The guest says the equity rally is being fueled by expected mega-IPOs and hopes the war will end.
- He says the bond rout reflects U.S. debt burdens and doubts the Fed can cut rates quickly.
- The guest expects Kevin Warsh to need time before shrinking the Fed balance sheet or lowering rates.
- He says investors should target realistic blended returns around 10%, not 20% to 40%.
- He sees private credit holding up unless a recession hits, when all credit markets would face pressure.
Notable quotes
“I think there are animal spirits that come out in the equity markets and fueled by two things”
“The bond markets, I think, have been hurt, in part because people recognize we still have a lot of debt in the United States, a staggering amount of federal debt”
“Everybody wants fed independence. I think the president said he wanted it”
“If you're trying to get 20%, 30% rates return, you're probably going to be disappointed”
How the episode opens
I'd like to start with the markets right now. Obviously, the S&P 500 has been defying what some say. Logic I would say is logic.
Record high again overnight. But the bond rout has indicated that we have some turbulence, some swirling tide pools under that record high How are you reading the markets right now? Well, I think there are animal spirits that come out in the equity markets and fueled by two things.
One, the anticipated IPO prices of openAI of SpaceX and of anthropic. I think people are anticipating those will have very high valuations and that will fuel the market and and have an impact on other stocks. Secondly, I think people are thinking the war will eventually be over.
And while we don't know when it's be over, they think it's in sight. And therefore I think that will fuel the equity markets and is fueling it right now. The bond markets, I think, have been hurt, in part because people recognize we still have a lot of debt in the United States, a staggering amount of federal debt, and that there's no real easy way to get around that debt in the near term.
Secondly, I think people believe that will be very difficult for the Federal Reserve under its new leader, whose chairman is very talented person, very difficult to lower interest rates in the near term. So what's Kevin Warsh, what's he going to do and how does he build unity among the other 11 members on the FOMC? If he's going to be in one ear, get advice from the white House cut rates.
Whereas the bond market and others stresses that we're going to get a fresh reading on inflation coming Thursday. It's it's climbing towards 4% and that may actually indicate a need for a hike.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed independence
- interest rates
- kevin warsh outlook
- uber asian investment conference
- investing outlook
Companies and tickers mentioned
- CG
- UBS
- Carlyle
- UBS
Watch the episode
Watch “Everybody Wants Fed Independence, Rubenstein Says” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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