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When you think about, you know, investors funneling money in, you have companies raising money in the equity market, also big time in the bond market. Uh, really interesting set of circumstances here and uh I'm excited to talk about all of it with Gary Gensler. He is the former SEC chair. He's also a professor of the practice of global economics and management as well as finance at the MIT Sloan School of Management. Gary Gensler, it's great to see you.
So, let's talk broadstrokes about the US equity market because for years, as I know you know, it had been shrinking. Uh, and now you're in this situation where IPOs are back in a big way. You have the likes of SK Hynix coming here listing in the US and you're also seeing some of these big tech companies engineer capital raises as well. So for the first time in a long time it feels like the net supply of equity in the US is growing and you know I wonder what you make of this sea change, what it says.
Well, our equity market is half the world's equity market. And as all of your guests will chat about, it has high valuations right now. And it doesn't really matter which measure you use. Whether it's the total market to our economy, that's the Warren Buffett index, or if it's price earnings ratios, past forward, Shiller index, you name it. High valuations. And so I think that's part of why there's supply. Why did Google raise 85 billion? Why did SK Hynix raise 26 billion and see a 14% bump and SpaceX go public? These are all tells that people are saying this is a high valuation market. I want to raise capital while I can.
And I mean certainly you're seeing uh both companies and investors seize upon that moment. But, you know, I want to bring in the word bubble to this conversation. You mentioned the high valuations. A pessimist would look at that.
I said I said it first. You you brought me there. You said valuations. They're very high right now. I mean, do you see any worrisome signs amid all of that, you know, enthusiasm, if you will.
Well, the actual numbers, the data would suggest we're at the highest valuations that we've been in a very long time. But also history tells us when we look at this transformation of an economy through artificial intelligence and the investments going in. Pick your favorite general purpose technology over 200 years. You can start with canals or railroads or electricity or the internet. You love it all.
What happens if you look at the last 10? You usually have this big enthusiastic financial market support. We Americans have a great capital market,
but then we usually overinvest and then valuations come down and we often either have a recession or even worse. I mean that 1870s thing after the railroad boom was terrible in the 1930s as well as you know.
So that's really the question and it's human nature. Companies will pile in. They need to. Google needs to invest versus OpenAI or Meta. Mark Zuckerberg is saying, 'No, I have to.' They, of course, Facebook and Google want to protect their advertising revenues. They don't want somebody else to get in there.
But think about this. SK Hynix is competing with Micron and Samsung. They do that big capital raise today, right?
Well, they right now have tremendous pricing power.
Yeah. they can charge almost anything for their high bandwidth memory chips
2 or 3 years from now. That's questionable.
Well, that's well that's what a lot of people are asking about and we can take SK Hynix not to just pick on them, but I mean as recently as 2023 they were basically shrinking more or less. I mean they had basically negative EBITDA. They weren't really profitable. They were selling chipsets for less than what they made them and now they're selling them for uh you know multiple times of what they make them. Does it bother you at all as a former regulator about a company like this coming in under an ADR structure rather than a more formal listing where there would maybe be a little bit more oversight of their books.
It doesn't bother me. I think that the US capital markets benefit from those foreign issuers. We worked when I was in the Biden administration to see if we could get the Chinese issuers, Alibaba and others,
a lot of them. And you guys had some issues.
We did have issues, but the Chinese authorities ultimately signed a 50-page agreement and have lived by it since then. It was about accounting.
I think it's good for the US markets to have those companies. And of course, we have the world's largest fabrication lab in TSMC,
Taiwanese company here in the US in a similar structure. These ADR structures.
Um, I think that's all right. I think the question really is now the valuations, the investors, the risks.
Uh, but they've put out those material risks. I read that S1, the document in preparation.
Of course you did. Yeah. I mean,
Well, because you guys keep me honest. Yeah.
And um they have a lot of risk disclosures in there. Mhm.
Um I do want to say on that risk disclosures and I think what a lot of people feel like in this market could potentially be a sign of a top. We've gotten through the first half of the year. We got you know obviously the biggest IPO ever. There's a lot more in the pipeline here. When you look at just the health of financial markets and by health I'm really talking about liquidity and stability. Um do you see the potential to absorb more of this in the relatively seamless fashion that we absorb what we did in the first half of the year?
I think there's a valuation question
and will the market stay open you know Anthropic and OpenAI want to come into this market, will they stay open and there's also huge international flows that are still pouring into the US market
and uh those international flows might at some point say you know I'm not as confident in investing in dollar assets so that could pull off and then of course
uh the retail public as well. Where do they come? So, I think the net flows have helped boost the market
