Following is the unofficial transcript of a CNBC interview with Goldman Sachs Chairman & CEO David Solomon on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Tuesday, July 30 from Paris.
Goldman Sachs CEO David Solomon on the Olympics, Fed's rate path and M&A landscape
ANDREW ROSS SORKIN: Welcome back to Squawk Box. We are live in Paris this morning. And David Solomon, Goldman Sachs' Chairman and CEO is here on the set with us. Nice to see you, sir.
DAVID SOLOMON: It's great to see you guys. It's great to be here.
SORKIN: So we've been talking all day about just how many CEOs have sort of converged on these Olympic Games. It's not just a sport. It's now like a meeting ground.
SOLOMON: Well, I think, first and foremost, it's sport and it's bringing people together. One of the things that for me is just so inspiring is to watch all the people from around the world cheering for everyone. There's just such a sense of unity when you come and you participate in the Olympics that it's really wonderful to see. So it's not a surprise that people from all over the world, you know, kind of --
SORKIN: This is the first Olympics that we've had in a long time, probably since London, where this has turned into you know, a client event, if you will, for so many.
SOLOMON: Well, it's -- we obviously had the pandemic, and the pandemic changed the dynamic. But I feel very lucky. I've been to a number of Olympics over my life. The first one, I was 14-years-old. I went to Montreal at 14-years-old on a school bus and stayed in beds in a school. And I just remember it being such a seminal experience. People from all over the world coming together. It's -- to me, the Olympics is just -- it shows the optimism we should all have about the way our society can come together at a time when generally, we're all talking about things that pull us apart. So I'm thrilled to be a part of it.
SORKIN: We're going to get into some of the issues though that will probably pull us apart in just a second. But you went to a lunch last week with President Macron. Elon Musk was there, I believe. Brian Chesky was there from Airbnb. Shou Chew from TikTok. What happened at this meeting?
SOLOMON: Well, the lunch was a general convening of a broad group of business leaders that were here, including some French business leaders that are very, very involved in the promotion of the Olympics, and a very diverse group of CEOs from around the globe that were in town. It was an off-the-record conversation about what's going on in the world. But you know, I must say and I come to Paris regularly. We have a very big business here. We have over 400 people in our office here across all aspects of our business, so I'm here pretty regularly. And I would just say this president has a tendency to convene business leaders and try to really engage in a very, very open way. And this was not the first of those sessions. But he really brings people together and he asks people their opinion on a variety of issues and he kind of encourages that dialogue. And so I'm not an expert on French politics. French politics is certainly tough right now. But I do think the model of business coming together and you know, in a candid way --
SORKIN: Is he going to -- he's getting --
SOLOMON: -- having an open dialogue is a model that should be emulated around the world.
SORKIN: Easier to do business here now or you think harder after having the snap election?
SOLOMON: I think there have been -- I think I look at things over time. There's certainly been an improvement. I mean, we're operating with many more people and have a bigger business here than we had a decade ago. But like with everything else, it's a pendulum and politics and policy swing back and forth, and that has an impact. But we're incredibly committed. There's a huge business community here. We obviously have a lot of people across our banking and markets business, our private wealth business, our asset management business here. My guess is it's going to continue to grow because France is an enormous part of the you know, the economic ecosystem.
SORKIN: Back home, the Fed is going to be meeting and we're going to hear what they have to say tomorrow. What are you telling people they're going to say tomorrow? Because I imagine everybody asks you that question here.
SOLOMON: I don't -- I tend not to try to guess at what the Fed will say tomorrow. But direction of travel, I think you guys know because I've said it on air with you that I’ve been more cautious about interest rate cuts all year and the general consensus, when I now look at the data and the way things are setting up, I think you know, the perspective of one or two cuts in the fall seems more likely. My guess is there will be some messaging around that, but I don't want to speculate. We'll see. We'll obviously have another you know, another print with the jobs report on Friday, which will give us some more information. But I think the direction of travel is relatively clear. And I'd just also say -- and you see it in some of the earnings reports that you've seen this week. You look at McDonald's earnings report, there's no question there are some shifts in consumer behavior. And the cumulative impact of what's been kind of a long inflationary pressure, even though it's moderating, is having an effect on consumer habits. And so, we watch that very closely.
JOE KERNEN: Procter & Gamble -- I don't know if you were watching but China --
SOLOMON: Yeah.
KERNEN: -- China and Procter & Gamble. And so that's almost across the board.
SOLOMON: Yeah, it's across the board, Joe. I think you're right about that. And I was you know, I was in China two months ago and my takeaway was the economy is relatively soft. And so I'm not surprised to see that, and I think we'll see more of that. But step back from that high level. You know, the economic environment has been relatively benign, and I think the base case is still a relatively benign environment unless there's some other shock as we finish out the year.
QUICK: Hey, David, you said recently that it looks like M&A activity is set to pick up, and you guys probably know this better than just about anybody. What signs are you tracking? What do you see just in terms of lending or other issues that lead you to think that?
SOLOMON: There's no question we have a window into it based on activity inside the firm. You know, if you listen to our earnings report in July, a few weeks ago and earlier in July, I specifically said in the transcript that our backlog increased significantly.
QUICK: Yeah.
SOLOMON: You know, we choose our words very, very carefully, so that's a data point. But I'd still highlight M&A actively broadly is running 20 percent below 10-year averages, so it still hasn't recovered to what I would say is a normalized environment. I think it's moving in that direction and you know, I think the tailwinds that we see and the interactions of our broad team around the world indicate it's moving in that direction. Regulatory environment, a headwind for sure, but we'll see how the election plays out.
SORKIN: But how much of is that a regulatory issue, do you think, or how much is that a private equity issue? Because the truth is that private equity had become an outsized portion of M&A over the last three or four years and has effectively -- I don't want to say fallen off a cliff but kind of fallen off a cliff.
SOLOMON: So private equity has become very significant. It was operating about 35 percent of M&A activity, and it's not recovered but it's starting to turn on. That's one of the data points we have in looking at what's going on inside Goldman Sachs. But I'd just highlight if you think about what happened, we had a significant move in valuations. Private equities incentive system incents their decision-making process to take the optionality of waiting as opposed to accelerate their decisions. Some pressure from LPs to accelerate those decisions. But that will recover. That's not permanent, Andrew. Private equity makes money by selling things and buying things; not by sitting and waiting.
QUICK: Do you think everybody's waiting just to see what happens in the November election and decisions will be made at that point?
SOLOMON: I think with private equity it's been more of a rebalancing of expectation because the valuations were higher. Valuations got marked down and they're converging. You know, I wouldn't say there's a big wait for a change in policy. The regulatory process has been a headwind, but you know, I -- we don't know what direction of travel we're going to have after the election. And so, you know, people have to make strategic decisions.
SORKIN: But what are you telling clients? I imagine there's a lot of folks in Europe who are saying what is going on in the United States -- a presidential election -- and what -- you know, where is this all headed? I imagine two weeks ago you would have told them it looks like former President Trump may become the president again. I don't know what you're telling them today.
SOLOMON: I am not a political pundit and so I all -- even when I'm talking to clients privately -- I mean, privately, you can exchange views with clients in a bilateral meeting. But if you're talking to a broad group of clients, the election is close, OK? The country is divided. We're talking about a handful of swing states. Yes, four weeks ago it looked slightly different than it looks today. But I think all of us should be framed by the fact that a lot has happened in the last four weeks we didn't anticipate. We have three more months to go before the election. A lot can happen.
SORKIN: But does that mean there's even more uncertainty?
SOLOMON: I think we have an election. There's uncertainty around U.S. elections because they're close. And to kind of speculate as to what's going to happen over the next three months, we just don't know. And so we're watching closely and like everyone else, we're preparing for either outcome to make sure that we can operate in either outcome. And most of our clients think about it in that way. They can't control the outcome, but they're prepared to operate in either outcome and also to support whatever administration we have in moving the U.S. forward.
SORKIN: What do you think, by the way, just of the role that CEOs have played this election cycle compared to prior election cycles? It appears that actually folks, including yourself, may be a little bit quieter. Less willing to sort of speak out either way. You have a lot of folks in Silicon Valley but mostly in the sort of venture capital world that you know, their principals themselves and not necessarily running Fortune 500 companies. But sort of how everybody is weighing in on this.
SOLOMON: Yeah. I mean, I'm operating the way I've always operated. You know, I'm running Goldman Sachs and I'm not making --
KERNEN: You're not going to get anywhere.
SOLOMON: I'm not -- I'm not --
KERNEN: This is going nowhere with him.
SORKIN: I've got to try.
KERNEN: I know.
SORKIN: I've got to understand what's happening because you have a lot of people out there. I mean, Peter Thiel on one side, Reid Hoffman and others on the other.
KERNEN: He's not –
SOLOMON: I'm focused -- I'm focused on our -- I'm focused on our clients. I'm focused on --
SORKIN: And I will bet the top question that your clients ask you though is what's going to happen in the presidential race.
SOLOMON: I absolutely agree, Andrew, that it is a question that people are asking. But I'd turn the question back to you. Do you know what's going to happen in the next three months in the U.S. presidential election? I don't think anybody knows. And so, I think one of the things you shouldn't do is speculate --
SORKIN: Right.
SOLOMON: -- without fact, OK? So we're watching very closely. There's a lot going on. We all know what the six or seven states are that matter, and we'll see how this progresses.
KERNEN: And then you do the Senate at that point. There's at least 10 states --
SORKIN: Maybe I'll ask in a different way. If the vice president becomes the president, do you think that her administration would be more progressive, more left leaning, less progress, more centrist? I mean, I think the question -- this goes to -- this is like Lina Khan question is some ways as it relates to how you're thinking about what M&A might look like in the future and how your business might shift. Again, you could say there's a Trump world and a Harris world and how that --
SOLOMON: I think it's very hard. If Harris is elected it's very hard to know exactly what the administration will be like. Because at this point, other than looking at the Biden record and what the Biden track record is, at this point, she hasn't said a lot about policy. And so I think one of things that is interesting that will shape what will happen over the next few months is I expect she's going to start talking about --
KERNEN: She hasn't said a lot recently about policy. I can --
SOLOMON: I think --
KERNEN: -- tell you some things she's said in the past.
SOLOMON: I think that --
KERNEN: I've got 10 of them. You want to hear them? I don't think Andrew wants to hear them.
SOLOMON: I don't think you want to waste your time on air with me.
QUICK: But here's a better part to that. You said businesses can't wait. That they have to go ahead and plan. And how you plan accordingly when you could be looking at pretty different environments to operate under.
SOLOMON: I think -- I think we've operated under an environment. I think -- here's a base case that I think, Becky, is reasonable. You know, at the margin, OK, it will look more like the last four years than the four years previous. And so you can plan around that. And look, the world -- business in the world is very flexible and very adaptive. It's really amazing when things happen that we don't expect how quickly business in the world adapts.
QUICK: Right.
SOLOMON: And so I think that's a lens to really think about. It's great. It's your job to get us all to be pundits and predict, but the reality of it is the economic system in the world is incredibly versatile, incredibly dynamic, and also very good at adapting to what's thrown at it, which usually is unexpected.
KERNEN: David, do you think that --
SOLOMON: Control the things you can control.
KERNEN: As a -- as a for instance, if we had -- and it wasn't that out of the question until Clyburn decided to intervene. If we had, let's say, a Bernie Sanders-Elizabeth Warren ticket and an administration, you know that would be -- businesses would have to deal differently with the world at that point. So that's what we're trying to get at. Is that what we're looking at with Vice President Harris or –
SOLOMON: I think -- the honest -- the honest answer, Joe, is --
KERNEN: OK.
SOLOMON: -- I don't know.
KERNEN: Would that be troubling to you if --
SOLOMON: It would -
KERNEN: Bernie is --
SOLOMON: I would -- I would say that if Bernie Sanders --
KERNEN: I'm leading a witness. I'm leading the witness.
SOLOMON: If Bernie Sanders and Elizabeth Warren --
KERNEN: And Elizabet Warren --
SOLOMON: That is not -- that's not my view of where the business --
KERNEN: OK.
SOLOMON: -- world wants to be.
QUICK: Alright. Let me ask you --
SOLOMON: And that wouldn't surprise you or I think anybody else that's watching.
QUICK: Let me ask you an easier question that is your field of expertise, and that's if the market is anticipating these cuts coming from the Fed -- if something happens that it -- we don't get these cuts, then what? What does that look like? And is the market poised for a downturn in that event or is it poised for a potential more upside?
SOLOMON: I think -- I think, Becky, it depends. But I'd also just highlight there is a market expectation of one or two cuts in the fall.
QUICK: Yeah.
SOLOMON: But think about policy -- where policy is -- and can you really say that one or two cuts creates a hugely different policy picture than where we are at the moment? I think the bigger --
QUICK: Yeah, but it signals -- it signals that rates have peaked and that lower rates are in the future.
SOLOMON: Well, it signals that rates have peaked at this moment --
QUICK: Yeah.
SOLOMON: -- but it doesn't necessarily mean 12 months from now rates have peaked. And I'm not -- I'm not advocating that 12 months from now rates will be higher. I just -- I think one of the things that's still unclear is the trajectory of the economy over the next 12 to eight months. And while the inflation information looks better and we certainly don't have the hyperinflation that we saw for a short period of time, which was from the disruptions of the pandemic, the trajectory over the next 12 to 18 months is still a little bit unclear. And so, to be so certain about the direction of travel on rates and the direction of policy, I think it's early. And by the way, whichever administration comes will put a bunch of policies in that could have an implication. So that's something to watch very closely.
SORKIN: Great. As you know, we often talk about cryptocurrency on this show and Bitcoin. And you and I -- and all of us have had conversations over the years about Bitcoin. It was up at $70,000 just this morning and then came down to $66,000. You're seeing, obviously, it's become almost a political issue. Trump is showing up at Bitcoin conferences. Apparently, Vice President Harris is now trying to court the crypto community. Does this mean that crypto is here to stay? I know a couple of years ago I think you were on the other side of where Bitcoin might ultimately land.
SOLOMON: I've never -- I've never been on the other side as to whether or not Bitcoin would be something that's around. I've always -- and we've talked about it, Andrew. I've always said to you I think it's a speculative investment --
SORKIN: Right.
SOLOMON: -- and I don't see a real use case. I think the technology underlying it is super interesting. I think as you look at the financial system -- the digitization of the financial system and progress that can be made to take friction out of the financial system is super interesting. But that's different in speculating whether Bitcoin is going to be $70,000, $30,000, or $120,000. I don't spend a lot of time --
KERNEN: Is it building a reserve similar to a gold reserve? Is that a use case or is that a store of value case? Do you think there's a store of value case to be made for --
SOLOMON: There could be. There very well could be a store of value case. I've never been a gold bull because I kind of stepped back and I've said over a 25 or 50-year period we've generally done better to invest in gold. So it's --
KERNEN: If you inherited a lot of gold, you'd be happy, though?
SOLOMON: Well, you certainly would if somebody gave it to you. But I don't know.
KERNEN: But it has held its value, I mean, for thousands of years.
SOLOMON: Personally, if I was -- it has held its value. It's definitely store of value. But if I was 35 years old --
KERNEN: No, I know.
SOLOMON: -- and I inherited a bunch of gold --
KERNEN: No income.
SOLOMON: -- I would probably sell it.
SORKIN: Sell and buy some Goldman Sachs stock.
SOLOMON: Well, I'd certainly do that. But in addition -- in addition, I'd diversify into the market and diversify --
SORKIN: Yeah.
SOLOMON: -- my holdings. Because I think as a 35-year-old with a perspective on saving over a long period of time you have more upside, and it would probably -- not necessarily, probably compound better during your lifetime in other asset classes than just holding gold. But as a part of a diversified portfolio as a store of value, sure.
KERNEN: Yeah.
SORKIN: David Solomon, thank you for joining us here in Paris.
SOLOMON: Thank you for having me. I hope you guys are enjoying your time. Thanks a lot.
SORKIN: Thank you.
KERNEN: Wait -- can I ask you one more time about the election? Can I just one –
QUICK: Run away, David.
SOLOMON: I mean, I told you. I told you guys -- I told you guys I'm not a political speculator --
KERNEN: You are good.
SOLOMON: -- before we started.
KERNEN: You are good. I went all the way to a dream ticket, really, for a lot of people -- the Bernie Sanders-Elizabeth Warren ticket. I went all the way to that to try and I got something out of you there. You said --
SOLOMON: Well --
KERNEN: -- that I would not like.
SOLOMON: Well done, Joe.
KERNEN: Thank you.