Former SEC Chair Gary Gensler Talks Revival of US Equity Market

**SPEAKER_1** (0:02)
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**SPEAKER_2** (0:07)
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. Really interesting set of circumstances here. And 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.

**Gary Gensler** (0:34)
Great to be with you.

**SPEAKER_2** (0:35)
So let's talk broad strokes about the US equity market, because for years, as I know, you know, it had been shrinking.
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 seed change, what it says.

**Gary Gensler** (1:04)
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 it, whether it's the total market to our economy, that's the Warren Buffett index, or if it's price earnings ratios, past, forward, Schiller 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 in 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.

**SPEAKER_2** (1:54)
And I mean, certainly you're seeing both companies and investors seize upon that moment. But I want to bring in the word bubble to this conversation. You mentioned the high valuations. A pessimist would look at that.

**Gary Gensler** (2:05)
She said bubble, not me.

**SPEAKER_4** (2:07)
I said it first.

**SPEAKER_2** (2:08)
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 enthusiasm, if you will?

**Gary Gensler** (2:17)
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, Kitty, if you like 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 over invest 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. And 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 Open AI or Meta. Mark Zuckerberg is saying, no, I have to. 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. Well, they right now have tremendous pricing power. They can charge almost anything for their high bandwidth memory chips. Two or three years from now, that's questionable.

**SPEAKER_4** (3:56)
Well, that's what a lot of people are asking about. We can take SK Hynix not to just pick on them, but as recently as 2023, they were basically shrinking more or less. They had basically negative EBITDA. They weren't really profitable. They were selling chips for less than what they made them. Now, they're selling them for 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?

**Gary Gensler** (4:31)
It doesn't remain. 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, Alibab and others.

**SPEAKER_4** (4:43)
Yeah, a lot of them. And you guys had some issues.