It's been a week maybe a month of hearing all the bad things. Everywhere you turn and it's inflation and it's the Fed and it's
Ukraine it's China it's inflation. How bad is it. Well they S&P 500 as of right now is down more or less 20 percent. And that's
the definition of a true correction. And so I would say it's been pretty severe.
I think the big question is how much worse can it get. And no one knows the answer to that. And I certainly don't. But
it certainly could get worse before it gets better. And you know historically when you see such a profound change in monetary
policy which as we're having now are in the beginning stages of now. Historically it's been at least over the
short term after the change starts bad for equity values. It's really been the case very often. So it's not surprising that
stocks are down now that the Fed has ended this relatively long period of almost free money
and is headed up on a substantial substantial upward trajectory in terms of
tightening. It's not surprising stocks are down. But I think as you just
said it coincides with a lot of other negative news. Most basically inflation but also some of the other points you make
about Ukraine and so forth. And so it could get worse. Do I think we're
on the verge of a financial crisis. I don't. I don't. I just think it's a
sharp correction in equity values which when you step back and think about them in so many cases especially tech were hard to
hard to rationalize before this change. I mean there was some astronomical values as you well know and it's not surprising
that they're finally wrapped up being rectified. So you're talking about the equity markets. We've talked with the bond
markets as well which has really taken it on the chin. What is the relations between those financial markets on one hand. If I
can put it this way the real world because a lot of your work at Evercore is dealing with real companies who are buying and
selling companies or pieces of companies. Does it directly translate into the value of those assets or is it somewhat
removed. It does directly translate in two ways. The stock market is a
pretty reliable predictor of the broad economy albeit nine months or so in advance of the real economy is changing. So
right now there's that big debate as to whether we may have a recession in 2023 and.
I think that's about 50/50 myself but we're good we're slowing down even right now. And and the market
is in effect telling us that in terms of our own business. So yes it has a big effect because when the volatility is so high
and the VIX this morning was thirty two and a half I think before the day started.
People hesitate. They want to step back and wait for the smoke to clear in the environment to settle and so transactions slow
down. There's no doubt about it. And you can see that by the way in the valuations of all the
investment banks which have come down a lot for a variety of reasons but one of them is an anticipated slowdown in
transaction volume. But it's interesting people start to sit on their hands if like that where they're afraid to make a move and
that trumps what otherwise might be an instinct. You know there are some bargains now. So prices are coming down. The price tax
is lower. It might cause some CEOs to say now's the time to move. Well and in fact just before I just got my way over here I
was on the phone with some of my colleagues before having a call tonight with a very very well-known company that we work with
closely. That's a technology company a very big one. And a lot of the smaller companies they've been interested in buying in
recent years have just been too expensive. These are tiny companies but they're smaller than this guy. And
we were just observing to ourselves that the valuations have changed so much in the past few weeks that some of these
companies they've long studied are now possibly at a level they could buy. So you're right this environment does create
opportunities but people tend to want to see the smoke to clear or the or there are stability to return before they act. Does it
also change the nature of some companies. People would be interested acquiring in this sense. You refer to the tech sector
before. A lot of people say what's going on in tech is basically people who are betting on the come as it were its future
earnings. And now it's not they're not as sure. And also as the discount rate goes up they're not worth quite as much. Does it
make more of a premium on companies that are more sort of steady as you go throw off real cash. Year in year out. Does the
temperament change. I think the answer is yes. And to give you a little metric maybe to support that
in so many areas of technology the relevant multiple over the last three or four years has been the multiple of revenue and so
many companies trading at very very high multiples of revenue. I met with a company this morning.
Which is private but its main comparable is public and the comparable had been trading I think twelve or 14 times revenue
until very recently. It was a pretty crazy multiples. Yes there are examples of transformational technology where
occasionally something like that is justified. But that was pretty widespread and it's changing now. And it was a piece in
The New York Times this morning about how unicorns have come down to earth. And there are so many of that so many cases of
that. But the answer is yes. You said that the stock market is a
pretty reliable indicator of potential slowdown in the economy overall. For the other way around when the market begins to rise
before the economy does it can go either way. Right now the market is projecting a slowdown. But we've also seen plenty of
examples where the economy's in bad shape. The market goes up and the market is telling you that nine months or twelve months
from now the economy is going to be better and the Federal Reserve might well applaud something of a slowdown. I mean
they've got to get inflation. What they're seeking said that's their priority. They're seeking it. And they're they're trying
to avoid the so-called hard landing which is a recession. But they're certainly seeking a slowdown in the economy because most
recent inflation number eight and a half percent that's pretty high. And so that release the question about the soft versus
hard landing slowdown is one thing recessions another. As you look out what are your expectations about a possible recession
or maybe as important as you talk to CEOs you talk to companies do they have that possibly in mind as they think about possible
acquisitions or not. Well very first of all very few that I would be talking to are yet experiencing a serious slowdown in
their own businesses. This is all a question of where will we be in six months or so or later.
And I think the big debate in the market is mostly about 2023. Will we see a recession next year. What would cause a recession.
It'd be a combination of consumers pulling back because right now every single American worker including you and me are seeing
our real incomes fall because inflation is running well above the rate of increase in wages although the rate of increase in
wages by a circle standards is pretty good running at about 5 percent but inflation is running at 8 to 9 percent. So every
single American worker is going backwards right this minute. You do that long enough. A few months for example and people start
to get conservative and they start to pull back.
That would be one factor. And the second factor would be just the impact of higher interest
rates. So mortgage rates as you know are up about 250 basis points from their level of full five months ago. That's a lot.
And that's going to impact the mortgage market and the housing markets. I don't think it's enough to bring them to a halt. But
we've all seen it. We've been seeing a very hot housing market in this country both starts and secondary sales. And I think
that level of increase in mortgage rates is probably more to come on that is going to slow down that market. So combination
of interest rates what I call consumer psychology is it plays into consumer spending and maybe business. Also just a lot of
the volatility pulling back a little bit on investment. Those three factors are the what could cause a recession. Finally
Roger you've been a leader not just on Wall Street but also in Washington. Is there anything that President Biden can do about
this at this point. Well you notice that the last couple of days really he's changed
his tone on this issue. Two days ago he said this is now my top domestic priority which
is change of tone. And then yesterday I noticed on his trip he was standing in
front of a big background which said prices down inflation control. So they've changed their their
priorities or at least the way they state them. Actually I think that's quite good. And it's not trivial because you want the
American public to think that you wake up in the morning with inflation on your mind and you go to sleep with that on your
mind. And every single thing you can do you're going to do.