Latest / Bloomberg Intelligence / Credit Crunch, Stocks, Ukraine, and the Debt Ceiling (Podcast)

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Credit Crunch, Stocks, Ukraine, and the Debt Ceiling (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: Find the Bloomberg Markets Podcast called Apple Podcasts or wherever
0:17
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
0:21
Speaker 1: All right, so let's up in private credit Randy Schumer
0:23
Speaker 1: he joins his cohed of Senior Lending a Churchill Asset Management. Randy,
0:26
Speaker 1: thanks so much for joining us again here in our
0:27
Speaker 1: Bloomberg Interactive Broker studio. We appreciate you making the walkover
0:31
Speaker 1: the banking turmoil or crisis. I don't know where you
0:35
Speaker 1: come up on this. How's that impacted the private credit business?
0:40
Speaker 3: Yeah, thanks for having me on again. I looked up
0:45
Speaker 3: on the FBIIC website the number of bank failures that
0:48
Speaker 3: we have had, and I'm surprised. We've had three this year,
0:50
Speaker 3: and they've been large, no question about it. But there
0:53
Speaker 3: were four in twenty twenty, there were another four in
0:57
Speaker 3: twenty nineteen, and there were eight in twenty seventeen, and
1:00
Speaker 3: you go back and there were more actually going back
1:03
Speaker 3: and obviously the Great Session. So I think that because
1:07
Speaker 3: Silicon Valley was large, and because it was part of
1:11
Speaker 3: the technology ecosystem, I think investors looked at that and said,
1:16
Speaker 3: I wonder if there's something else going on that we
1:18
Speaker 3: don't know, And so for some reason they continue to
1:23
Speaker 3: be worried about private credit, which actually has none of
1:25
Speaker 3: the attributes that the banks have. We are match funded
1:29
Speaker 3: long term capital, long term assets. We are floating, right
1:33
Speaker 3: so when rates go up, so do our assets and
1:35
Speaker 3: liability costs, so we're match funded from that perspective. We
1:38
Speaker 3: have no customer deposits, so we don't have fast money.
1:42
Speaker 3: And you know, we're serving the middle market, and the
1:44
Speaker 3: middle market represents about seventy percent of the growth of
1:48
Speaker 3: the entire economy, and these are millions of businesses out there,
1:53
Speaker 3: small medium sized companies that are providing a lot of
1:56
Speaker 3: the job support in the economy right now. So it's
1:59
Speaker 3: really import important that people understand that. You know that
2:02
Speaker 3: while the banking system is obviously critical, the businesses that
2:05
Speaker 3: we're supporting is also critical, and the private debt arrangers
2:09
Speaker 3: are for the most part, none of them are systemically important.
2:13
Speaker 3: Because of the fact that again we don't have customer deposits,
2:16
Speaker 3: so I think that understanding, you know, transparency is really important, Paul,
2:21
Speaker 3: And the thing that I've focused on is telling the
2:24
Speaker 3: story with you on Blueberg, and we really appreciate the opportunity.
2:27
Speaker 3: And you know, Churchill is one of the leading providers
2:30
Speaker 3: of private capital, is in a position where you know,
2:33
Speaker 3: we're supported by a trillion dollar parent company in Uvene,
2:37
Speaker 3: and that is one of the most stable triple A
2:40
Speaker 3: companies around. So we kind of feel when you look
2:43
Speaker 3: at the banking system, first of all, I think that
2:45
Speaker 3: the crisis seems to have passed. It seems like the stocks,
2:47
Speaker 3: and you've been reporting on this, regional stocks have done better.
2:51
Speaker 3: So right now in private capital, I think there's a
2:53
Speaker 3: stability there which is attracting even more attention than it
2:56
Speaker 3: did before the crisis.
2:58
Speaker 4: About a year.
2:59
Speaker 5: Ago when we started seeing I mean it started we
3:01
Speaker 5: were deep in at the carnage you saw in public markets.
3:04
Speaker 5: It kind of felt like everyone who was in either
3:06
Speaker 5: private equity or private credit was kind of standing on
3:08
Speaker 5: a hill being like, we told you this is where
3:10
Speaker 5: all the money was.
3:11
Speaker 6: Supposed to go.
3:11
Speaker 7: Yeah. A year on from that.
3:13
Speaker 5: It kind of feels like when you talk to people
3:15
Speaker 5: in the private markets, they're starting to be a little
3:18
Speaker 5: bit of that worry that we saw in public markets
3:20
Speaker 5: a year ago. Has that lag caught up.
3:22
Speaker 3: To us when it comes to the private market, It hasn't,
3:24
Speaker 3: and we haven't seen it in our business for sure.
3:26
Speaker 3: None of the companies in our portfolio have seen any
3:30
Speaker 3: real recession, you know indicators. In fact, if anything, the
3:35
Speaker 3: growth both in revenues and cash flow have been double
3:38
Speaker 3: digit over the last twelve months. But the thing, to
3:41
Speaker 3: your point, Critty, that's significant is interest rates have not
3:44
Speaker 3: really caught up yet, right, So the twelve percent all
3:48
Speaker 3: in return that our investors are getting but borrowers are paying,
3:52
Speaker 3: that has not been in the system for twelve months, right,
3:54
Speaker 3: because the Fed just stopped raising rates. So over the
3:58
Speaker 3: next several quarters, we're going to kind of see which
4:00
Speaker 3: companies are over levered because those expenses are going to
4:04
Speaker 3: be felt eventually in a full twelve month than four
4:08
Speaker 3: quarter results. But I think for the businesses that are
4:12
Speaker 3: more free cash flow oriented, more defensive sectors, really the folks,
4:17
Speaker 3: most of the focus that we have, you're going to see,
4:20
Speaker 3: I think continue support and one of the things that
4:22
Speaker 3: Fed's battling against right now is the fact that the
4:24
Speaker 3: economy still is pretty strong, Unemployment at a you know,
4:28
Speaker 3: forty to fifty whatever is you'll low, and these businesses
4:31
Speaker 3: are doing quite well. So I think in the right
4:34
Speaker 3: sectors you're going to see much better support and growth
4:38
Speaker 3: than in some of the areas that have nots that
4:40
Speaker 3: to your point, have been affected, you know, more because
4:43
Speaker 3: of the higher interest rates and higher leverage.
4:46
Speaker 1: Randy's how would you characterize the deal flow that you're
4:49
Speaker 1: seeing today? Because we've heard from the publicly traded big
4:51
Speaker 1: investment banks, you know, lamenting the lack of flow and
4:55
Speaker 1: advisory business. What are you seeing in your small to
4:58
Speaker 1: mid sized market?
4:59
Speaker 3: So when I was here last month, Paul, I think
5:01
Speaker 3: what I said was there was a wait and see attitude.
5:05
Speaker 3: I think I think the waiting is starting to be
5:08
Speaker 3: over and I think the seeing is starting to take over.
5:11
Speaker 3: So what's happening is the FED stopped raising rates, So
5:15
Speaker 3: now there's a sense of the pause, meaning we think
5:19
Speaker 3: we've topped out. We don't know when the next move
5:21
Speaker 3: down will be. There's indications that I've seen from your
5:25
Speaker 3: reports that some market observers are thinking there will be
5:29
Speaker 3: a move down before the end, maybe even two before
5:32
Speaker 3: the end of the year. So what I think investors
5:34
Speaker 3: are looking at is they're saying, you know what, we're
5:36
Speaker 3: at the top. The rest of the second half of
5:38
Speaker 3: the year is going to be more constructive for credit
5:41
Speaker 3: because we've seen the worst, so we can start to
5:44
Speaker 3: lean in now. And so we've seen private equity literally
5:47
Speaker 3: in the last week, it was almost like it was
5:50
Speaker 3: timed for this meeting with you. For the last week.
5:54
Speaker 3: We have seen the number of deals that we've gotten
5:56
Speaker 3: in double over the last week. And I think it's
6:01
Speaker 3: because a certain amount of confidence is returning to investors saying,
6:04
Speaker 3: you know what, I think it's the worst is over.
6:06
Speaker 3: And I think that while we may have a recession
6:09
Speaker 3: because there is still sense that this critique cretic critic.
6:13
Speaker 3: To your point, the higher rates could have an impact.
6:16
Speaker 3: We may see a model session, but it's going to
6:17
Speaker 3: be mild. So we're seeing some increased flow in our
6:20
Speaker 3: in our business right now.
6:22
Speaker 5: Really really really smart. So Randy, I only have thirty
6:24
Speaker 5: seconds left with you, so I'm not going to ask
6:26
Speaker 5: you about private credit. I'm going to ask you about
6:27
Speaker 5: why you have a bachelor's and masters in English. Why
6:30
Speaker 5: do you pick English?
6:31
Speaker 3: Yeah, it's a long story for another session. But one
6:35
Speaker 3: of the things, to Paul's point that I found as
6:38
Speaker 3: an English major was it was way more exciting to
6:41
Speaker 3: be interviewing for jobs at Golden Sacks Morgan's family and
6:44
Speaker 3: as it turned out for me, JP Morgan where I
6:46
Speaker 3: ended up than sitting in the library and so and
6:49
Speaker 3: this was in the early eighties. And so I use
6:53
Speaker 3: my English degree for our Lead Left, the Lead Left newsletter,
6:57
Speaker 3: which you guys get every week, really spreading the word
7:01
Speaker 3: the gospel about private credit to everybody every week. We
7:04
Speaker 3: got fifty thousand readers thanks to you, and we have
7:08
Speaker 3: a lot of attention now in the market. So really
7:10
Speaker 3: telling a story is my big thing here.
7:12
Speaker 5: You're not getting his favorite author today, next.
7:16
Speaker 7: Time, Yeah, exactly.
7:18
Speaker 1: Randy Schummer, co head of Senior Lending, Senior Managing Director,
7:21
Speaker 1: Churchill Asset Management. We always appreciate getting some of Randy's
7:24
Speaker 1: time talk about the private credit business. It's become an
7:27
Speaker 1: increasingly big part of the capital market scene. We appreciate
7:30
Speaker 1: getting a few minutes.
7:32
Speaker 8: You're listening to the team Ken's Are Live program Bloomberg
7:35
Speaker 8: Markets weekdays at ten am. Eastern on Bloomberg dot com,
7:39
Speaker 8: the iHeartRadio app and the Bloomberg Business app, or listen
7:42
Speaker 8: on demand wherever you get your podcasts.
7:46
Speaker 7: I'm still going to our next guest. All in Boston,
7:49
Speaker 7: all right?
7:50
Speaker 1: He gets his undergrad at Boston University NBA Babson. Okay,
7:55
Speaker 1: then he goes and works at Fidelity Wellington State Street,
8:00
Speaker 1: and now he's at Essex. I mean, has a guy
8:02
Speaker 1: ever left Boston ever? Bill Page, Senior portfolio manager, head
8:06
Speaker 1: of a global environmental Opportunity strategy at Essex Investment Management. Bill,
8:12
Speaker 1: thanks so much for joining us here. I mean, do
8:14
Speaker 1: you vacation on the cape?
8:16
Speaker 7: You have to.
8:18
Speaker 4: Thanks for having me, Johnny Credi, I will say I
8:23
Speaker 4: never did leave Boston, but New York's be my second home.
8:26
Speaker 7: I'm down there a bunch, so exactly. Well, I consider it.
8:28
Speaker 1: I considered Boston my second home when I was on
8:30
Speaker 1: the cell side. You had to go up there once
8:32
Speaker 1: a quarter and see all the good folks at Essex
8:34
Speaker 1: and Fidelity and Putnam and all that kind of good stuff.
8:36
Speaker 7: So I know Boston well.
8:38
Speaker 1: So Bill, the global environmental Opportunity strategy, talk to what
8:43
Speaker 1: is that strategy? How do you guys think about that
8:46
Speaker 1: type of investing.
8:48
Speaker 4: Sure, Paul, Yeah, so called GEOS for short. We have
8:52
Speaker 4: a mutual fund also, we launched about five years ago,
8:55
Speaker 4: and our focus is on investing in clean energy tech.
9:01
Speaker 4: We've been at it for we get a lot of
9:03
Speaker 4: scar tissue. We've been at it for almost almost fourteen
9:06
Speaker 4: years next month. And we focus on what's known as
9:10
Speaker 4: thematic investing, so we invest across nine themes. So things
9:14
Speaker 4: like anything that enables resource efficiency are doing more with less.
9:19
Speaker 4: That's how we define clean tech, so things like our
9:21
Speaker 4: technology efficient transport, renewables, water, et cetera.
9:27
Speaker 5: So it's got to be more complicated, I'm sure than
9:29
Speaker 5: say you pick a Tesla for example, or even clean tech.
9:32
Speaker 5: I have no at least for sometimes for ESG requirements,
9:35
Speaker 5: which I know you don't don't necessarily focus on. Even
9:38
Speaker 5: Apple falls under that category. Give us some names here, Bill,
9:41
Speaker 5: what are what are you kind of? What names do
9:43
Speaker 5: you look at?
9:44
Speaker 9: For example?
9:45
Speaker 4: Yeah, so we we're not invested in Tesla given our
9:49
Speaker 4: concerns on corporate governance and valuation. It's you know, sort
9:52
Speaker 4: of becoming more of a regular OEM car company. The
9:57
Speaker 4: way we differentiate what we do with when you think
9:58
Speaker 4: about Apples, So Apples do went a ton, along with
10:01
Speaker 4: a lot of the other megacap tech on investing in
10:06
Speaker 4: efficiencies that improve their margins. So think about Apple doing
10:11
Speaker 4: a lot on power storage by renewables. So that's what
10:15
Speaker 4: I call a sustainability investor. What we do is invest
10:20
Speaker 4: in technologies that enable them to have that sustainability profile.
10:24
Speaker 4: So with geos, we enable sustainability. So it's investing in
10:28
Speaker 4: what I call output, So investing in technologies that enable
10:33
Speaker 4: companies like Apple or Google to have good sustainability profiles.
10:37
Speaker 4: So we invest in the technologies the companies that are
10:40
Speaker 4: enabling this transition to the new energy economy.
10:44
Speaker 1: Bill talk to us about an area that I'm really
10:47
Speaker 1: interested in, which is, you know, automobile batteries.
10:50
Speaker 7: As we migrate to an ev.
10:54
Speaker 1: Fleet of automobiles around the world, how do you guys
10:57
Speaker 1: think about the development of the whole battery situation infrastructure.
11:02
Speaker 7: How do you play that?
11:04
Speaker 4: Yeah, it's hard because there's not a lot of profitability
11:07
Speaker 4: in the charging companies per se, companies like wall Box
11:11
Speaker 4: for instance. But we are invested across the EV ecosystem,
11:17
Speaker 4: the electric vehical ecosystem, so we're doing things like investing
11:21
Speaker 4: with solar Edge, and these are technologies that help at
11:25
Speaker 4: the at the edge of the network. So when you
11:28
Speaker 4: think about bi directional vehicle charging or charging technology, you
11:33
Speaker 4: need inverter technology and that's what solar edge offers. And
11:36
Speaker 4: the other thing that electrification of the car. Where you
11:39
Speaker 4: know this is you guys are well aware it's going
11:42
Speaker 4: to be a lot of speed bumps on the road
11:45
Speaker 4: to electrification of the car the next five or six years.
11:49
Speaker 4: It's going to be ugly, but we believe it'll be
11:51
Speaker 4: profitable for companies that are helping enable that. So Aptive
11:55
Speaker 4: is a company that's helping aptvs, helping electrification, silicon anodes,
12:02
Speaker 4: silicon carbide, so these are technologies that help improve the
12:07
Speaker 4: performance of the battery. So companies like wolf Speed is
12:10
Speaker 4: a company that put there also improving battery safety. So
12:14
Speaker 4: thermal runaway is euphemism for battery fires. You saw the
12:18
Speaker 4: bolt recall around that in Aspen Aerojails. Ticker ASPN is
12:24
Speaker 4: helping provide safety protocols for battery technology. So we believe
12:31
Speaker 4: when you think about batteries out five years, probably sixty
12:36
Speaker 4: percent will be for electrification in the car. The other
12:39
Speaker 4: forty percent are going to go towards battery storage in
12:44
Speaker 4: that's an area that we have investments too. The key
12:48
Speaker 4: here is that it's an entire broad ecosystem and it
12:51
Speaker 4: also involves our electrical grid.
12:54
Speaker 10: So we tech.
12:54
Speaker 4: We have companies in the portfolio like Quanta, a ticker's
12:58
Speaker 4: PWR and Hubble, so they're helping with grid to digitize
13:03
Speaker 4: what's known as electrons, and what that means in middle
13:06
Speaker 4: school science is utilities need to see the energy flow
13:11
Speaker 4: better with these disruptive technologies. We now have electrons going
13:15
Speaker 4: obviously to our houses, but now as we have and
13:18
Speaker 4: this is more in the future charging capability, will be
13:22
Speaker 4: able to move energy from the car back to the grid.
13:25
Speaker 4: And so there's a massive need to improve our grid
13:28
Speaker 4: infrastructure to make it more resilient for superstorms, but also
13:32
Speaker 4: to make it smarter for these electrons that are now
13:35
Speaker 4: going Two directions.
13:37
Speaker 5: Bill, how much of the clean tech thesis is ultimately
13:41
Speaker 5: based on the support from the Biden administration. What happens
13:44
Speaker 5: if we get a different administration or Republican administration circa
13:51
Speaker 5: twenty twenty four and onwards. Does that kind of throw
13:53
Speaker 5: the bull case out the window?
13:55
Speaker 10: Yeah?
13:56
Speaker 4: So one of the misperceptions about clean tech is that
14:00
Speaker 4: it's all dependent on incentive and so full stop we
14:04
Speaker 4: invest in what's known as commercially viable technology. So these
14:07
Speaker 4: are technologies that work. We don't do lab experiments, so
14:12
Speaker 4: they're profitable today. That means it's free cash flow positive
14:16
Speaker 4: EPITA margin positive. But also these technologies are commercially viable
14:20
Speaker 4: and taking share, so we look at incentives as sort
14:24
Speaker 4: of a second derivative.
14:26
Speaker 10: All that being.
14:27
Speaker 4: Said, the IRA, there's a massive clean tech arms race
14:31
Speaker 4: that was created last August when Biden signed the IRA.
14:35
Speaker 4: What's interesting about it is that it's a massive growth multiplier.
14:39
Speaker 4: So you've got about four hundred billion dollars going in,
14:45
Speaker 4: but it's also multiply and according to work out of Princeton,
14:48
Speaker 4: five times in the economy now our sources, our work
14:53
Speaker 4: is showing that there'll be no roll back in the
14:56
Speaker 4: RA if we have new administration next year. Importantly, you're
15:00
Speaker 4: seeing in the flyover Red States, that's where you've seen
15:03
Speaker 4: the biggest growth YEP of renewables. Is your guys are
15:07
Speaker 4: probably aware. The biggest wind power project is just announced
15:11
Speaker 4: in New Mexico and Arizona. So we believe this stuff, right, Bob, We're.
15:15
Speaker 1: Gonna have to just leave it there just because of
15:17
Speaker 1: the time, but we appreciate getting your time. Bill Paige,
15:19
Speaker 1: Senior PM and Head of Global Environmental Opportunities Strategy at
15:23
Speaker 1: Essex Investment Manage.
15:25
Speaker 8: You're listening to the tape Can's are live program Bloomberg
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15:44
Speaker 1: Talk about somebody darkening the door that I was not expecting.
15:48
Speaker 7: Mike mcgloone.
15:49
Speaker 1: Now, Mike mcgloone, reasonably competent analyst, reasonably good career on
15:56
Speaker 1: Wall Street. He was one of the But his smartest
15:58
Speaker 1: move I think ever was in beginning of this pandemic.
16:01
Speaker 1: He said, I'm moving down to Miami Beach, Baby, I'm
16:04
Speaker 1: following all the.
16:04
Speaker 7: Other smart money down there.
16:06
Speaker 1: So he said he's put the flag into ground for
16:08
Speaker 1: Bloomberg Intelligence in South Florida.
16:11
Speaker 7: We appreciate that.
16:11
Speaker 1: Mike mcglohane here, he joins us in our Bloomberg.
16:13
Speaker 7: Interactive Brokers studio.
16:14
Speaker 1: He covers all the commodity stuff, big strategist guy, and
16:18
Speaker 1: appreciate seeing him.
16:18
Speaker 7: He's well tanned as you would expect.
16:21
Speaker 1: But I'm going to talk to him in like mid
16:23
Speaker 1: July and see how that South Florida things going for him.
16:26
Speaker 1: Then he talks tough in January and February. We'll see
16:29
Speaker 1: how it goes there. Mike, you know, I'm looking at
16:31
Speaker 1: your recent note and we get some more inflation data
16:36
Speaker 1: this week.
16:37
Speaker 7: Talk to us about PPI.
16:40
Speaker 1: What is PPI two, why is it important? And what's
16:42
Speaker 1: happening with producer prices?
16:44
Speaker 9: Well, first I have to get it over. Those introductions
16:46
Speaker 9: called those are the best I kept about this, and
16:49
Speaker 9: I have to met I've become a Florida assisting being
16:50
Speaker 9: from Chicago in that cold weather. But the key thing
16:52
Speaker 9: I like is a commodity guys. Facts in PPI. Producer
16:57
Speaker 9: price IndX since nineteen forty eight has never dropped at
17:00
Speaker 9: the velocity is falling now. The peak was eighteen, it's three.
17:03
Speaker 9: Now it's probably going to deprint around two and it's
17:04
Speaker 9: going negative. That's a year over year measure.
17:07
Speaker 10: Wow.
17:08
Speaker 9: And that's just following commodities. And the good news is
17:11
Speaker 9: when crude oil was on their way up. I predicted
17:15
Speaker 9: that only because that's what.
17:16
Speaker 7: It always does. And the Keith fact is.
17:19
Speaker 9: Last time we had a similar collapse, similar velocity collapse
17:22
Speaker 9: in PPI, you have to go back to the actually
17:25
Speaker 9: the fifties, but most recent was the Great Financial Crisis.
17:28
Speaker 9: The lowest ever was July PPI from two thousand and nine.
17:31
Speaker 9: Why because crude oil peaked in July two thousand and eight.
17:34
Speaker 9: Guess when crudeil peaked June of last year one thirty
17:37
Speaker 9: or so. So when we measure PPI for June, which
17:41
Speaker 9: is going to come out July thirteenth, it's very likely
17:43
Speaker 9: to be negative unless crude oil can go back up.
17:46
Speaker 9: So there's your deflation. The key thing I find shocking
17:48
Speaker 9: is a strategy who just loves to study financial history,
17:51
Speaker 9: is the fact that the Fed Reserve is still tightening,
17:54
Speaker 9: at least they said they stopped. That's severe deflation coming
17:58
Speaker 9: from ppn I. And with this one thing about PPI,
18:01
Speaker 9: if you take PPI and subtract Fed funds the highest
18:05
Speaker 9: it's it's right now at minus one point four percent,
18:08
Speaker 9: which means it's restrictive. That the interest rate is higher
18:11
Speaker 9: than that year of a year measure of producer price index,
18:14
Speaker 9: it's probably going to go to negative ten percent, just
18:16
Speaker 9: on a normal trajectory, which is where it's going right now.
18:20
Speaker 7: It's just I look at.
18:21
Speaker 1: This, does CPI follow PPI? And if so, what's the lag?
18:25
Speaker 1: Like when am I going to start paying less than
18:26
Speaker 1: the supermarket?
18:27
Speaker 9: So you will, But that's the key thing. The way
18:29
Speaker 9: is PPI has basically a two beta to CPI. What
18:32
Speaker 9: that means is CPI if PPI. If PPI is up
18:35
Speaker 9: ten percent, PPI is usually twenty percent, and the same
18:38
Speaker 9: on the way down. Now that's going back to the
18:40
Speaker 9: last twenty years, and you can go back fifty years.
18:43
Speaker 9: But it's basically a two BATA. It's the leading it's
18:45
Speaker 9: basically high beta measure of inflation forward looking, and what
18:49
Speaker 9: the Fed's focusing on is backward looking measures, which like
18:52
Speaker 9: they have to like personal consumption expenditures, Employment costs Index,
18:55
Speaker 9: and core CPI. And key thing I like to say
18:57
Speaker 9: about core cpis a nextpon trator is main major component.
19:01
Speaker 9: There is owner's equivalent rent. It's the highest ever eight percent.
19:04
Speaker 9: It's never been higher, which means there's only one way
19:07
Speaker 9: for it to go down and down hard.
19:09
Speaker 11: I'm glad you brought up PPI because I feel like
19:12
Speaker 11: producer prices a lot of times not as sexy of
19:15
Speaker 11: an indicator when you think of CPI or obviously pc
19:17
Speaker 11: defence preferred gauge. But your colleagues at Bloomberg Intelligence like
19:20
Speaker 11: a Gillian Wolf, they focused a lot on the CPIPPI
19:24
Speaker 11: spread and that the divergence there. It shifted dramatically in December,
19:28
Speaker 11: and a lot of my sources, especially on the equity
19:30
Speaker 11: side of things, they point to producer prices and the
19:34
Speaker 11: improvement there as far as pointing to that as seeing
19:37
Speaker 11: how that filters in faster before you'll see that into
19:40
Speaker 11: when we're looking at CPI prices. So I was kind
19:43
Speaker 11: of curious as far as when we're looking at that,
19:45
Speaker 11: if this obviously could potentially bode well for the broader
19:48
Speaker 11: equity market when you're seeing a vast improvement there on
19:50
Speaker 11: the producer prices side.
19:52
Speaker 9: It could. The problem is the number one factor in
19:56
Speaker 9: equities is liquidity, and we're still in a significant liquidity dump.
20:01
Speaker 9: I mean, you just look at bank credit, so you
20:03
Speaker 9: look at money supply, and definitely what's the FED been
20:06
Speaker 9: doing now they said they stopped tightening. But if the market,
20:09
Speaker 9: stock market goes up, So that's the problem. The key
20:11
Speaker 9: thing it's I'm looking at indications for commodities are they're showing,
20:15
Speaker 9: counter to most consensus, significant global deflationary lack of economic demand,
20:21
Speaker 9: poll trends. Natural gas US natural gas is the number
20:24
Speaker 9: one benchmark for heat, electricity, and fertilizer in this country.
20:27
Speaker 9: It got as high as ten last year, now it's two.
20:29
Speaker 9: It's topped eighty percent. That's the same price as it
20:31
Speaker 9: started trading in nineteen ninety. Why because in this country
20:34
Speaker 9: we create more of it. We actually use morbid but
20:36
Speaker 9: we have the technology to continue creating more. So that's
20:39
Speaker 9: significant deflation. You look at price of copper, it's down
20:42
Speaker 9: about ten ten percent on a twelve month basis. Now
20:45
Speaker 9: it's up this year, but everything's up this year. The
20:48
Speaker 9: key thing that's up that I find it's significant is
20:50
Speaker 9: gold's up on a twelve month basis ten percent or so,
20:53
Speaker 9: copper's down. That's a recessionary indication. Then I look over
20:56
Speaker 9: what I've learned in life is what's the FED doing
20:59
Speaker 9: to help provide They are still contracting that liquidy. So
21:03
Speaker 9: what I'm afraid of that. We're heading towards a pretty
21:05
Speaker 9: significant economic reset, and commodities are signaling that bond yields
21:10
Speaker 9: too inverted curve. You just look at here's one little
21:12
Speaker 9: thing ether with Fed funds. I always looked one year out,
21:15
Speaker 9: the one year Fed funds on the terminal f F
21:17
Speaker 9: one to three. It's price right now three sixty nine
21:21
Speaker 9: yield a three six nights. So always look one forward.
21:23
Speaker 9: So the market's expecting Fed funds to be a three
21:25
Speaker 9: to sixty nine a year from now, and right now
21:26
Speaker 9: the effective rates around five percent. There's only one key
21:29
Speaker 9: way for that to happen. It's a stock market to
21:31
Speaker 9: go down the way I see it, man.
21:33
Speaker 11: I'm glad you brought it. Stuff going on here copper prices,
21:36
Speaker 11: because that's such a big barometer to your point of
21:39
Speaker 11: how the global economy is doing. Is there a particular
21:42
Speaker 11: level when it comes to when you're watching copper which
21:45
Speaker 11: would be more of a red flag to you? Like
21:47
Speaker 11: you mentioned still up for the year. Was obviously on
21:49
Speaker 11: a tear last year. But I guess what's that particular
21:52
Speaker 11: threshold there to where it would potentially cause some concern
21:55
Speaker 11: for investors.
21:55
Speaker 9: It's it's the unique thing about copper. If the price
21:59
Speaker 9: of copper right now is about four dollars upound, it's
22:01
Speaker 9: actually a little bit less if you overlay that with
22:04
Speaker 9: the S and P five hundred. Just take three zeros
22:07
Speaker 9: off the S and P five hundred, it's the exact
22:09
Speaker 9: same price for since twenty fifteen. Within ticks, it's almost
22:12
Speaker 9: the same. It's something's happened. So copper is complete. Good
22:16
Speaker 9: doctor copper, you know the American known hephd economics. Right
22:20
Speaker 9: now it's tilting downward below four. So I look at
22:22
Speaker 9: as an next trader, it's been holding a four bid
22:24
Speaker 9: and it's think it's going four. Offer to me, that's
22:26
Speaker 9: signaling for the S and P five hundred. But right
22:28
Speaker 9: now for copper to go up, the stock market needs
22:31
Speaker 9: to go up. Now we hear all the things that
22:33
Speaker 9: are like, there's some issues with supply out of South
22:35
Speaker 9: American people are hopeful for demand out of China. But
22:38
Speaker 9: that has been the classic consensus. That's not proving true.
22:42
Speaker 9: And I like to end with this. I like to
22:44
Speaker 9: point out, with copper and all commonies, if the world's
22:46
Speaker 9: largest economy is heading towards recession, which is virtually guarantee
22:49
Speaker 9: at this point based on on a Wong and our
22:51
Speaker 9: economics team starting in July. It's basically, I think illogical
22:57
Speaker 9: to expect demand out of the rest of the world
22:59
Speaker 9: for things like that upper and crude oil and natural
23:01
Speaker 9: gas and corn.
23:03
Speaker 1: All right, I'm a big fan of Yellowstone the TV show,
23:06
Speaker 1: so I'm all in and cattle. I checked my cattle
23:08
Speaker 1: quotes and lean and live cattle and feeder cattle and
23:12
Speaker 1: all that kind of stuff. But I'm sure I'm probably
23:14
Speaker 1: the only one there. What is the commodities call you
23:18
Speaker 1: have that you've been making most actively this year or
23:22
Speaker 1: you're finding a lot of residents with your clients.
23:24
Speaker 10: Bear market.
23:25
Speaker 9: The Bloomberg Commodity Index on a twelve month basis is
23:28
Speaker 9: down about twenty percent in our data since nineteen sixty
23:31
Speaker 9: the FED has never tightened in that environment, yet they
23:33
Speaker 9: still are. It's been down about twenty percent from last
23:35
Speaker 9: year's peak for a while, so it's a clear bear
23:37
Speaker 9: market and it's got a lot of room. ID like
23:39
Speaker 9: to say it's a bear market with fuel because it's
23:42
Speaker 9: just getting started. And the key thing I'm looking at
23:44
Speaker 9: I'm looking at is potentially at a cliff's edge and
23:47
Speaker 9: deflation commodities are going down, yields are going down, and
23:51
Speaker 9: that key final trigger is probably going to come. The
23:54
Speaker 9: stock market needs to go up over hitting towards inflation.
23:56
Speaker 9: One good primary early indicator for that is crypto's in
24:00
Speaker 9: bitcoin because they're the fastest horse in the race massive
24:02
Speaker 9: speculation last few years and that's still in the process
24:05
Speaker 9: of the liquidity dump, and that's just trades twenty four
24:08
Speaker 9: to seven, and bitcoin is one of the ones people
24:10
Speaker 9: looking now. It's a good indicator. Matt Miller has been
24:12
Speaker 9: over that in the Morning show.
24:13
Speaker 1: So twenty seven five on bitcoin, we're going higher or
24:19
Speaker 1: lover on this thing.
24:19
Speaker 11: Were we going to see thirty?
24:21
Speaker 7: No, that's a problem.
24:22
Speaker 9: So we hit thirty during the big consensus conference in
24:25
Speaker 9: Texas recently, and that's classic Foamo I think. I think
24:29
Speaker 9: also Ethereum peaked around two thousand. That was my primary
24:32
Speaker 9: resistance early in here I look at that as okay
24:34
Speaker 9: in the market says no mosque, there's too much sellers
24:37
Speaker 9: above there, and it's a good leading indicator. It could,
24:40
Speaker 9: but right now it's tilting back downward. And I think
24:42
Speaker 9: this is an indication that all risk as is going downward.
24:45
Speaker 9: And that's why I'm still bullish gold and treasury bonds.
24:48
Speaker 9: And the key thing is the FED still tight. And
24:50
Speaker 9: here's one key question I can ask, what's the key
24:52
Speaker 9: metric that can help make our government come to the
24:55
Speaker 9: table with his budget impass? What happened two thousand and eleven
24:58
Speaker 9: stock market went down and forced and say, okay, we
25:00
Speaker 9: got to do something.
25:01
Speaker 1: Yep, all right, We'll get to pork bellies and frozen
25:04
Speaker 1: concentrated orange juice next time. Mike McLoone, senior macro strategists
25:08
Speaker 1: for Bloomberg Intelligence, joining us live here in our Bloomberg
25:11
Speaker 1: Interactive Broker Studio, which is always a treatment.
25:14
Speaker 7: You appreciate that.
25:16
Speaker 10: You're listening to the team.
25:18
Speaker 8: Ken's our live program Bloomberg Markets weekdays at ten am
25:21
Speaker 8: Eastern on Bloomberg dot Com, the iHeartRadio app, and the
25:24
Speaker 8: Bloomberg Business App, or listen.
25:26
Speaker 10: On demand wherever you get your podcasts.
25:31
Speaker 1: Looking at the k R, which is spider S and
25:33
Speaker 1: p Regional Banking ETF, it's off one point one percent today.
25:38
Speaker 1: Year to date, it's off thirty six percent. You know,
25:42
Speaker 1: I've been going back and forth.
25:43
Speaker 7: Is this a crisis? Is just a turmoil? Is just
25:46
Speaker 7: a stress?
25:47
Speaker 1: I don't know, it goes different days, but it's certainly
25:50
Speaker 1: have an impact on the market. We want to check
25:52
Speaker 1: in with the professional and see how they're kind of
25:53
Speaker 1: factoring that in. David Boson, cio of the Bonson Group, Hey, David, thanks.
25:57
Speaker 7: So much for joining us here. I mean, it's not every.
26:00
Speaker 1: Day we get a banking crisis here. If that's what
26:02
Speaker 1: it is, how is kind of the you know, the
26:05
Speaker 1: turmoil we've seen in the banking system. How's that impacted
26:08
Speaker 1: your outlook at all, if at all in terms of
26:11
Speaker 1: investing here.
26:13
Speaker 12: Well, I think that as dividend growth investors, I don't
26:17
Speaker 12: necessarily see a macro impact to the way that we're allocating.
26:22
Speaker 12: We want companies that are still growing dividends, whether there's
26:26
Speaker 12: a regional bank saga, or any other type of you know,
26:30
Speaker 12: distressed event. I do think when you say it's not
26:33
Speaker 12: every day we get a banking crisis, that we should
26:35
Speaker 12: basically point out it's never happened that we get a
26:38
Speaker 12: banking crisis when nobody is missing any payments. Ye, all
26:43
Speaker 12: banking crisis, all financial panics always are credit impairment events,
26:49
Speaker 12: and this isn't. And it's utterly fascinating that We've had
26:52
Speaker 12: three banks go down with nobody missing any payments, no
26:57
Speaker 12: loan deterioration or credit, purely interest rate driven phenomena of liquidity,
27:04
Speaker 12: a really unprecedented moment for financial distress.
27:07
Speaker 11: So, David, are you advising clients to buy the dip
27:10
Speaker 11: on any of these bank shares right now?
27:14
Speaker 12: Well, the one that we bought, and bought heavily is Truest,
27:17
Speaker 12: the ticker KEFC, because we really don't think it belongs
27:23
Speaker 12: in the list of regionals, and yet it is down
27:26
Speaker 12: on the year. Now, I should be clear, it's down
27:29
Speaker 12: thirty three percent and not you know, seventy eighty ninety
27:32
Speaker 12: like some of the Pack West and these others that
27:35
Speaker 12: have gotten really hammered. But Truest is really, in a
27:39
Speaker 12: lot of ways more like a JP Morgan than it
27:42
Speaker 12: is a pack West. I mean, nobody's JP Morgan in
27:45
Speaker 12: terms of sheer size. But it was bb and T
27:48
Speaker 12: and sun Trust that merged together. They're kind of a
27:52
Speaker 12: super regional with ample liquidity, their deposit base is not eroded,
27:57
Speaker 12: and yet they've gotten hit. So we want to look
27:59
Speaker 12: to those opportunities were maybe someone threw a little baby
28:02
Speaker 12: out with bathwater and created a value opportunity.
28:06
Speaker 1: So I mean it kind of goes to the I'm
28:08
Speaker 1: not sure how you feel about this, but a lot
28:09
Speaker 1: of concern out there is maybe some of the stress
28:11
Speaker 1: on our regional banks will just hasten tighter credit conditions
28:15
Speaker 1: and then really accelerate or hasten the recession and maybe
28:18
Speaker 1: the depths of the recession. Do you see that kind
28:21
Speaker 1: of scenario playing out, Well, I.
28:23
Speaker 12: Think it's entirely possible, but i'd look to one step
28:26
Speaker 12: beyond that. It's also possible that that ends up being
28:29
Speaker 12: the catalyst that forces the FED to throw in the
28:33
Speaker 12: white flag, to wave the white flag. I think that
28:36
Speaker 12: they've been acting for some time as if they were
28:38
Speaker 12: going to keep going until they broke something, and this
28:41
Speaker 12: may very well be the thing that they broke. Now
28:44
Speaker 12: people who are looking at it saying there's going to
28:46
Speaker 12: be less residential lending, I think they're missing what's really
28:49
Speaker 12: going on there on the demand side and the affordability side.
28:52
Speaker 12: Prices just simply had to come down there, and there's
28:55
Speaker 12: ample equity in the homeowner's market. I don't think that's
28:58
Speaker 12: a systemic event. We've been talking about commercial real estate forever,
29:02
Speaker 12: and that's one of the great most bullish things you
29:04
Speaker 12: could say is when everybody's talking about it, there's no
29:07
Speaker 12: way it's a systemically bad event. It's never happened that
29:12
Speaker 12: the number one story people talk about, usually in this case,
29:15
Speaker 12: treating industrial and multifamily buildings as if there's the same
29:19
Speaker 12: thing as an abandoned office building in Portland, Oregon. There's
29:23
Speaker 12: just not a monolithic thing called commercial real estate. So
29:28
Speaker 12: what would the systemic impact be? I think it's small business.
29:30
Speaker 12: I think that if you really do see credit tighten
29:33
Speaker 12: enough at a small business level, that could end uphitting
29:36
Speaker 12: labor markets, wages, corporate profits, and that's usually what we
29:40
Speaker 12: call a recession.
29:42
Speaker 11: And beyond even just when we were talking about the
29:45
Speaker 11: bank stocks, what are their corners of the market are
29:47
Speaker 11: you snapping up right now? And which corners do you
29:49
Speaker 11: think are still just more vulnerable at this point?
29:53
Speaker 12: Yeah, I do think that we have been really good
29:56
Speaker 12: in the way we picked up consumer staples. I wouldn't
29:59
Speaker 12: say that it's streaming cheap now, but the thesis we
30:03
Speaker 12: had a year ago that they were going to maintain
30:05
Speaker 12: pricing power, and these were products people still had to buy,
30:09
Speaker 12: and so even if volumes dipped, prices would stay the
30:13
Speaker 12: same and they would ultimately end up with margin expansion.
30:16
Speaker 12: So I think consumer staples has proven to be a
30:19
Speaker 12: great story. Energy is our number one sector. Obviously, it
30:22
Speaker 12: was up huge in twenty twenty one and twenty twenty two.
30:26
Speaker 12: This year it has not done as well, and yet
30:28
Speaker 12: midstream is hung in there just fine. Still up on
30:31
Speaker 12: the year for the pipelines, and you're getting six seven
30:34
Speaker 12: percent dividend yields. On financials, though, I want to point
30:38
Speaker 12: out that everyone talks about financials like their banks, and
30:41
Speaker 12: I think asset managers have something really interesting to offer here.
30:45
Speaker 13: You look at.
30:45
Speaker 12: Blackstone and Apollo. We don't own KKR. I know they
30:49
Speaker 12: were leased yesterday, but some of these fee based asset
30:54
Speaker 12: managers that are somewhat rate sensitive, a lot of that
30:57
Speaker 12: was priced in last year.
30:58
Speaker 13: I think they have a.
30:59
Speaker 12: Ton of leverage and they're operating models to do really
31:03
Speaker 12: good things from here.
31:04
Speaker 1: Apollo is one of the names you just mentioned. What's
31:07
Speaker 1: the play right there, because I think they're moving into
31:08
Speaker 1: private wealth, which I know is a It's an attractive business,
31:13
Speaker 1: but it's also very competitive business.
31:16
Speaker 12: Well, the thing is very interesting, and this is sort
31:18
Speaker 12: of like where I feel sometimes like we have inside
31:21
Speaker 12: information because I run a nearly four and a half
31:24
Speaker 12: billion dollar private wealth firm, and I've been with Blackstone
31:27
Speaker 12: for twelve years and watch them enter private wealth from
31:31
Speaker 12: the ground up and do it extremely well, very very profitably.
31:36
Speaker 12: And Apollo is a little bit late, but they're really
31:39
Speaker 12: good at what they do. And I think that we're
31:41
Speaker 12: watching Apollo do all the right things for distribution, for
31:45
Speaker 12: product development. It's a profitable space. There's a lot of
31:50
Speaker 12: opportunity there. And if we're right on a macro level
31:53
Speaker 12: that we're not going to be in a decade of
31:54
Speaker 12: a screaming bowl market in stocks and bonds like the
31:58
Speaker 12: post financial crisis decade, then I think you're going to
32:01
Speaker 12: see more people go back to alternatives, more kind of
32:04
Speaker 12: bespoke product, private credit, real estate, hedge funds, some of
32:08
Speaker 12: the things that places like Apollo and Blackstone do really well.
32:12
Speaker 12: And I think there are those two in particular in
32:14
Speaker 12: a unique position to do well with private wealth.
32:18
Speaker 11: You mentioned the pipeline stocks, and what's interesting when I
32:22
Speaker 11: think about energy, people have brought up the concern about
32:24
Speaker 11: whether value in that corner of the market can still
32:26
Speaker 11: hold up as we see inflation begin to continue to fall.
32:29
Speaker 11: But what is it specifically about pipelines that might diversify
32:32
Speaker 11: a little bit more. And obviously you mentioned the dividend
32:34
Speaker 11: growth there that other potential corners of energy might not
32:37
Speaker 11: be able to deliver as much.
32:40
Speaker 12: Well, it's fascinating to me that when we're dealing with
32:42
Speaker 12: let's call it seventy to ninety dollars oil, and we
32:45
Speaker 12: have that in a couple other points in the last decade,
32:49
Speaker 12: and some of those pipeline companies were paying out over
32:52
Speaker 12: one hundred percent of free cash flow and dividends. Right now,
32:55
Speaker 12: the average in our portfolio, and as far as really
32:58
Speaker 12: well run midstream type companies people could buy, has one
33:02
Speaker 12: hundred and sixty percent coverage of their distribution. They're using
33:07
Speaker 12: way less leverage, they don't have to sell equity to
33:10
Speaker 12: fund capex, and frankly, they're not doing as much capex.
33:14
Speaker 12: They're not overbuilding, over investing. There's a lot more capital discipline,
33:19
Speaker 12: So you basically have better fundamentals with companies behaving better,
33:24
Speaker 12: and you still have a really attractive yield spread. So
33:28
Speaker 12: the pipelines to us have less commodity sensitivity than upscreen
33:32
Speaker 12: producers and drillers, and yet even better fundamentals.
33:37
Speaker 1: So just thirty seconds, David, what's the call that you're
33:41
Speaker 1: making that no one else really gets.
33:43
Speaker 12: Maybe, well, that's a permanent answer. Given in growth, I
33:49
Speaker 12: think people continue to believe they can buy a whole
33:51
Speaker 12: index or constantly by faying and technology and get a
33:54
Speaker 12: market return, and they don't understand that they're buying at
33:57
Speaker 12: very high multiples, praying for higher multiples, and then the
34:01
Speaker 12: worst thing is and as you get them and you
34:03
Speaker 12: think you know what you're doing, and the reality is
34:06
Speaker 12: multiples revert to the mean. A dividend growth is about
34:09
Speaker 12: pre cash flow generation and I just think it's an
34:11
Speaker 12: entirely different way to think about investing. So that's what
34:14
Speaker 12: we do all the time. And it is different. It
34:16
Speaker 12: is contrarion. And you had a lot of people right
34:18
Speaker 12: now like the idea more defensive investments, more stable business models.
34:23
Speaker 12: So I can't say enough about the overall world of
34:25
Speaker 12: dividend growth.
34:26
Speaker 1: All right, David, thank you so much for joining us.
34:28
Speaker 1: We really appreciate getting your perspective giving us some time.
34:30
Speaker 1: David Boson, he's the CIO of the Bonson Group, talking stocks,
34:35
Speaker 1: talking markets here again, he's had a lot of experience
34:39
Speaker 1: at Ubs and Morgan Stanley, so we appreciate getting some
34:41
Speaker 1: of his time.
34:42
Speaker 8: You're listening to the tape. Ken's are live program Bloomberg
34:46
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
34:49
Speaker 8: tune in app, Bloomberg dot Com.
34:51
Speaker 10: And the Bloomberg Business App.
34:52
Speaker 8: You can also listen live on Amazon Alexa from our
34:55
Speaker 8: flagship New York station just say Alexa playing Bloomberg eleven.
34:59
Speaker 7: And Third, let's talk to geopolitics.
35:03
Speaker 1: When we do that, we check in with Mick mulroy.
35:06
Speaker 1: He's the co founder of the Lobo Institute and former
35:08
Speaker 1: Deputy Assistant Secretary of Defense for the Middle East at
35:11
Speaker 1: the US Department of Defense. He joins us from Doha, Kutter,
35:16
Speaker 1: so he is at a security meeting there. We appreciate
35:19
Speaker 1: getting a few minutes of his times. Mick, let's talk
35:21
Speaker 1: about Ukraine. It's springtime and that's when the war tends
35:26
Speaker 1: to kick up in terms of intensity. Give us your
35:29
Speaker 1: view of kind of where we are in this conflict
35:31
Speaker 1: in Ukraine.
35:34
Speaker 13: So I think we're at a pivotal moment. We've had
35:37
Speaker 13: around forty thousand troops get trained in the West to
35:40
Speaker 13: use all the equipment we've been providing him over the
35:43
Speaker 13: last several months, and now they're all getting back to
35:46
Speaker 13: Ukraine and getting ready to launch, as you said, a
35:50
Speaker 13: counter offensive. So there's a lot of pressure on him,
35:54
Speaker 13: there's a lot of expectations, but I do think they're ready,
35:57
Speaker 13: and I think the General Staff has been really good
36:00
Speaker 13: at integrating these new weapon systems like the Bradley A Striker,
36:05
Speaker 13: the Leopard tanks, all these really advanced weapon systems that
36:10
Speaker 13: should be able to give them a power to punch
36:12
Speaker 13: through the Russian lines and hopefully take back from Joying
36:15
Speaker 13: and Mick.
36:15
Speaker 11: Just last week we saw how Russia did have those
36:18
Speaker 11: claims that Ukraine attempted to assassinate Vladimir Putin with this
36:22
Speaker 11: drone attack. Can you discuss with us these allegations that
36:25
Speaker 11: were made by the Kremlin and the response from the
36:27
Speaker 11: US as well as Ukraine.
36:31
Speaker 13: So I don't know who was behind it, but the idea,
36:37
Speaker 13: of course the United States is behind it, I think
36:39
Speaker 13: is just nonsensical. There's a lot of factors that I'm
36:44
Speaker 13: sure the intelligence community is looking at. I do believe
36:46
Speaker 13: they'll get to the bottom of it. But for example,
36:49
Speaker 13: the type of drone could not fly from Ukraine, to Moscow.
36:53
Speaker 13: That's around three hundred miles. Most of the Ukrainian drones only
36:57
Speaker 13: go about one hundred and eighty piles. Very unlikely they
37:00
Speaker 13: would have gone on three hundred miles without being shot
37:03
Speaker 13: down by multiple eensectric layers of air defense. So it's
37:07
Speaker 13: and then of course why with somebody at the two
37:09
Speaker 13: thirty more wanting just filming this prema. So there's a
37:12
Speaker 13: lot of questions. That's just what we know in the public,
37:15
Speaker 13: But the intelligence community will be able to look back
37:17
Speaker 13: with the signals intelligence look at imagery and likely determine
37:21
Speaker 13: whether this would be staged what they call false flag
37:24
Speaker 13: operations by the Russians or whether it's some kind of
37:27
Speaker 13: internal opposition. Potentially they launched this. I don't know, but
37:31
Speaker 13: I think we will be.
37:32
Speaker 1: Able to nick when do we expect this counter offensive
37:36
Speaker 1: by the Ukrainians?
37:37
Speaker 7: Number one?
37:37
Speaker 1: And number two, what's the feeling in your community, the
37:40
Speaker 1: intelligence community here about the confidence you.
37:43
Speaker 7: May have in them having some success.
37:48
Speaker 13: So a lot of the troops that have been trained
37:50
Speaker 13: are back. I think they're waiting for all the rest
37:53
Speaker 13: to get back and to get into place. Most likely
37:56
Speaker 13: for me looking at it pactically, is them to go
38:00
Speaker 13: to the Zapparisia River I mean a region and goes
38:03
Speaker 13: straight all the way to the ce of Azor. And
38:05
Speaker 13: what that does is will cut Russia off from the
38:08
Speaker 13: land bridge to Crimea and potentially being able to control
38:12
Speaker 13: the water go into Crimea. That will give them probably
38:15
Speaker 13: the most leverage, and it's also maximizing the new weapon
38:18
Speaker 13: systems they have based on the terrain in the south,
38:21
Speaker 13: and I think that is likely what they'll do. I
38:23
Speaker 13: don't think we should expect large games. I think that's
38:26
Speaker 13: too much to ask. The Russian's been digging in for
38:29
Speaker 13: months and months. But I think as long as Ukraine
38:32
Speaker 13: starts taking back to terrain and Russia obviously loses terrain,
38:36
Speaker 13: we're headed in the right direction. I think that's the
38:38
Speaker 13: standard we should be looking for.
38:40
Speaker 11: Nick, what's the timeline on this as far as how
38:42
Speaker 11: much longer this could continue?
38:46
Speaker 13: Unfortunately, it could be years. I mean the Russians, you know,
38:52
Speaker 13: they're talking about another nationwide call up. They have it's
38:56
Speaker 13: three to four times besides Ukraine, so they have a
38:58
Speaker 13: huge population. Ukrainians obviously are not going to give up
39:02
Speaker 13: because if they give up, there no more Ukraine. So
39:04
Speaker 13: there's a lot of reasons. Unfortunately, to see this's going
39:07
Speaker 13: on for a long period of time. The biggest thing
39:10
Speaker 13: for Ukraine is that the West stays with them. If
39:12
Speaker 13: they stay as we stay as solid partners from Russia,
39:16
Speaker 13: they're going to have to eventually show some gains or
39:19
Speaker 13: even in their system. It'll start challenging Kutin's leadership of
39:23
Speaker 13: the country because it is a growing dissatisfaction with this war,
39:29
Speaker 13: which has crossed the lives of an around one hundred
39:32
Speaker 13: thousand or more of Russians already.
39:36
Speaker 1: Nick, what do you think the appetite is of the
39:37
Speaker 1: West to take that next major step of support with airpower?
39:46
Speaker 13: So I think that is probably a good question that
39:49
Speaker 13: probably the next step would be do we give them
39:52
Speaker 13: advanced fighter aircraft like the F sixteen. There are F
39:55
Speaker 13: sixteens I think going there right now from other countries.
39:59
Speaker 13: But when the US divides these really advanced weapon systems.
40:02
Speaker 13: We do so trying to ensure that this doesn't escalate
40:05
Speaker 13: into a war between the United States Russia, obviously, but
40:08
Speaker 13: really the criticism of that, although I think it's I
40:12
Speaker 13: think it's a fair thing to do. We don't want
40:13
Speaker 13: this to be a war between the US and Russia.
40:15
Speaker 13: But the criticism then we're just incrementally giving them eventually
40:20
Speaker 13: what they needed to win in the first place. So
40:22
Speaker 13: it almost, even though it's in our intent, it almost
40:24
Speaker 13: looks like it's delaying the outcome of the war. But
40:27
Speaker 13: I do think we will look at that and give
40:30
Speaker 13: them what they need, which is combined arms maneuveral work
40:33
Speaker 13: there which is air ground be done a lot of
40:35
Speaker 13: the ground in long range fires. The long range fires
40:39
Speaker 13: like the HIMAR system, and the attack on the system
40:42
Speaker 13: is what they really need to be able to reach
40:44
Speaker 13: into Crimea to really take out a lot of the logistics.
40:47
Speaker 13: Before that, the Russians started using to keep their grip
40:50
Speaker 13: on that.
40:50
Speaker 11: Fans in the US did announce a one point two
40:53
Speaker 11: billion dollar aid package to Ukraine with this counter offensive
40:57
Speaker 11: that is beginning to loom here. I mean, is that an.
41:02
Speaker 13: So it won't be enough. It is certainly a good thing.
41:05
Speaker 13: It's a good thing to get this rolling, and I
41:08
Speaker 13: am my understanding of the aid package is going to
41:10
Speaker 13: come directly from the manufacturer, so it won't be pulled
41:13
Speaker 13: out of our own stock. But I mean, we have
41:16
Speaker 13: to understand that this is a war that's going to
41:19
Speaker 13: be a war of attrition when it comes to munitions
41:24
Speaker 13: and the ability to logistically keep supplying one side or
41:27
Speaker 13: the other. The Russians are having a hard time with it.
41:30
Speaker 13: We have to give the Ukrainians, which are vastly outnumbered,
41:33
Speaker 13: at least the ability to keep up when it comes
41:35
Speaker 13: to communition, and that's going to take a lot of money.
41:38
Speaker 13: But I think we should look at it instead of
41:40
Speaker 13: like charity. It's not charity. Russia is one of our
41:44
Speaker 13: number one adversaries next to China. You have Russia. The
41:47
Speaker 13: amount of money we're sending on this, it depleted the
41:49
Speaker 13: Russian forces by fifty percent. So just from a US
41:53
Speaker 13: point of view, a national security point of view, that
41:56
Speaker 13: is money well spent. They have significantly depleted. Are one
42:01
Speaker 13: of our most significant adversaries capacity a wage war in
42:05
Speaker 13: the United States.
42:06
Speaker 7: Mack thirty seconds. What's the status of the Russian Armed forces?
42:12
Speaker 13: So it is, you know, I think one of the
42:15
Speaker 13: things that we learned out of this is we vastly
42:17
Speaker 13: overestimated the Russian Armed forces. They have a failure of
42:23
Speaker 13: leadership from the top all the way to the bottom.
42:26
Speaker 13: They've essentially conducted a campaign of war crimes that focused
42:30
Speaker 13: almost primarily now when it comes to their air defense
42:33
Speaker 13: or air strikes against civilian targets. And now the most
42:37
Speaker 13: significant fighting force is actually a mercenary force, the Wadner Group,
42:41
Speaker 13: which just showed you that the Russian military can't even
42:45
Speaker 13: do that. They turned to a mercenary group that's now
42:48
Speaker 13: composed primarily a convicts. It is far less of a
42:52
Speaker 13: significant military force than we ever thought.
42:54
Speaker 1: All right, and Nick, thanks so much for joining us.
42:56
Speaker 1: We really appreciate you taking time out. We know you're
42:58
Speaker 1: over in Doha at a conference. Mc moulory co founder
43:01
Speaker 1: of the Lobo Institute and former Assistant Secretary of Defense
43:05
Speaker 1: for the Middle East at the US Department of Defense.
43:07
Speaker 1: And he was a US Marine Infantry officer for sixteen years,
43:11
Speaker 1: so we thank him for his service.
43:13
Speaker 8: You're listening to the tape. Catch our live program Bloomberg
43:16
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43:20
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43:22
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43:23
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43:30
Speaker 7: Thirty stat ceiling thing.
43:35
Speaker 1: I think it's I don't know if it's become a
43:36
Speaker 1: thing yet for this marketplace, but I think it will.
43:39
Speaker 7: So such are when.
43:41
Speaker 11: My sources feel like it's more of a bond story
43:43
Speaker 11: at the moment rather than a stock story. But to
43:46
Speaker 11: what point does it then become more of a broader
43:48
Speaker 11: equity market story.
43:50
Speaker 1: All I know is I feel like we need to
43:51
Speaker 1: get a little bit smarter on this whole thing. So
43:53
Speaker 1: we've got a great roundtable to help us do that.
43:55
Speaker 1: I'm excited Doctor Lori Esposito Murray President for the commite.
44:00
Speaker 1: We have Economic Development at the conference board. Now, folks,
44:02
Speaker 1: she has a resume as long as my arm.
44:05
Speaker 7: I can't go through it.
44:06
Speaker 1: But let me just tell you she's been all over Washington,
44:08
Speaker 1: d C. Both on the Democratic side and the Republican side,
44:12
Speaker 1: and you can tell a lot of folks depend upon
44:14
Speaker 1: her and her opinions and her analysis. So we're gonna
44:18
Speaker 1: we're thrilled to have Lori Esposito Murray with us. Also,
44:22
Speaker 1: Jack Fitzpatrick, our go to guy at Bloomberg down there
44:26
Speaker 1: in Washington, DC. He knows how the capital works, he
44:29
Speaker 1: knows how the sausage is made, so we have him
44:31
Speaker 1: as well, and we appreciate getting his time. Doctor, let's
44:34
Speaker 1: start with you here. Is this just how again, how
44:37
Speaker 1: the sausage get gets made, how government works? Or should
44:41
Speaker 1: we be concerned to citizens that it seems like we're
44:43
Speaker 1: at this point every couple of years.
44:45
Speaker 6: It seems like, well, we should definitely be concerned. But
44:49
Speaker 6: there are two things to be concerned about here, which
44:51
Speaker 6: is really important and really important in terms of this
44:54
Speaker 6: round of death sealing debate crisis. One is the death
44:59
Speaker 6: sealing itself. We're at thirty one trillion dollars. In twenty
45:03
Speaker 6: eleven when we had this crisis, we were at sixteen
45:05
Speaker 6: trillion dollars. It has doubled since that crisis, and that
45:09
Speaker 6: is a real concern that should be a real concern
45:11
Speaker 6: to Americans and policymakers. And then of course there's the
45:14
Speaker 6: debt ceiling default itself, which at this time, in a
45:17
Speaker 6: very fragile economy, can really up end the economy.
45:20
Speaker 11: Jack, I want to bring you into this conversation. Can
45:22
Speaker 11: you lead the groundwork for us as far as what's
45:25
Speaker 11: the latest developments when it comes to.
45:26
Speaker 10: All of this.
45:28
Speaker 14: Well, there's supposed to be a key meeting at four
45:30
Speaker 14: o'clock today. The President is supposed to meet with the
45:33
Speaker 14: top four congressional leaders, the majority and minority leaders in
45:37
Speaker 14: the House and Senate. Really, this is expected to be
45:40
Speaker 14: the beginning of negotiations between the President and Speaker Kevin McCarthy,
45:45
Speaker 14: Although some Democrats kind of hope that Mitch McConnell will
45:48
Speaker 14: step in and he's got more of a history negotiating
45:51
Speaker 14: with Biden. I think there's sort of almost a fantasy
45:54
Speaker 14: that he'll come in and save the day. But after
45:57
Speaker 14: they come out of that meeting, which has fair low expectations,
46:01
Speaker 14: I don't think anybody thinks that they're going to come
46:02
Speaker 14: out and say we have a deal to sort of
46:04
Speaker 14: an opening discussion. After that, we may get a sense
46:07
Speaker 14: of how close or far apart they are, and what
46:11
Speaker 14: the mood is in the room, if there's going to
46:12
Speaker 14: be a subsequent meeting, if there's a counteroffer coming from Democrats,
46:16
Speaker 14: But really just starting the conversation which has been long
46:20
Speaker 14: stalled at four o'clock today and that key meeting is
46:23
Speaker 14: the big next step.
46:25
Speaker 1: Laurie, this is a domestic issue primarily, but how does
46:30
Speaker 1: this play on a global scale? There are allies and adversaries.
46:33
Speaker 1: Did they look at this and say, boy, the Americans
46:35
Speaker 1: can't even pay their bills on time. Here, How does again,
46:40
Speaker 1: folks outside the US view this process if at.
46:42
Speaker 6: All, Well, of course it's it's a global issue because
46:46
Speaker 6: the US economy is so significant the global economy. But
46:49
Speaker 6: you're absolutely right. I mean, this is larger than the
46:52
Speaker 6: economic disruption that will occur. It is about US leadership.
46:57
Speaker 6: It's about the strength of the dollar. It's about US
47:01
Speaker 6: leadership with the dollar, how our allies are looking at
47:05
Speaker 6: us in terms of how we can lead, how we
47:07
Speaker 6: can govern, and what is going to be our role
47:09
Speaker 6: going forward in terms of global leadership. And this does
47:12
Speaker 6: not help, Laurie.
47:14
Speaker 11: I'm curious as far as what are you hearing from
47:16
Speaker 11: businesses and CEOs right now about their concerns around this.
47:20
Speaker 6: Oh, there is really serious concern about this. And as
47:23
Speaker 6: it says, it's taking place on two levels. It's taking
47:26
Speaker 6: place both in terms of default itself, and there is
47:30
Speaker 6: very strong sentiment that we cannot afford a default. We
47:34
Speaker 6: can't even afford the threat of going to the cliff
47:37
Speaker 6: or getting close to the cliff, which is what happened
47:41
Speaker 6: just a couple of years ago when we were looking
47:44
Speaker 6: at possibly going to default, and you saw the market's
47:47
Speaker 6: up end just with that possibility, So we don't want
47:51
Speaker 6: to go there. There's real concern about going there. There's
47:53
Speaker 6: real concern about the necessity of coming to an agreement
47:56
Speaker 6: on this and not defaulting. But there's also extreme concern
48:00
Speaker 6: and this is why this cycle is very different. Extreme
48:04
Speaker 6: concern about the thirty one trillion dollars in debt and
48:07
Speaker 6: rising that we have and how do you get your
48:09
Speaker 6: hands around that? And that's been really prompted by two things.
48:14
Speaker 6: One is the extreme spending during the current crisis COVID
48:18
Speaker 6: of course, with you know, the six trillion dollars in
48:20
Speaker 6: bills plus that were passed by Congress to meet the crisis,
48:26
Speaker 6: and now the disruption that's happening with Ukraine war. But
48:30
Speaker 6: also what's really changing the dynamic here is inflation. Inflation
48:34
Speaker 6: is causing the price to rise to service the debt
48:37
Speaker 6: and threatens to really consume the federal budget so that
48:41
Speaker 6: we can't meet international meets.
48:43
Speaker 1: So Jack, given that backdrop, you know, how important is
48:48
Speaker 1: it for President Biden to really win the day here?
48:51
Speaker 1: I mean he was elected in large part on his
48:53
Speaker 1: ability to a be an adult in the room, and
48:56
Speaker 1: you know, based upon his forty years experience in the
48:58
Speaker 1: Senate and maybe you know, in negotia shading and get
49:00
Speaker 1: some legislation passed. How important is is it for present
49:03
Speaker 1: Biden to kind of win the day here.
49:07
Speaker 14: It's going to be very difficult for him to win
49:09
Speaker 14: the day. His concern seems to be a bit more
49:12
Speaker 14: about cutting his losses. For example, you know, the proposal
49:16
Speaker 14: from House Republicans is to get a bunch of concessions,
49:19
Speaker 14: a bunch of spending cuts and tougher work requirements for
49:22
Speaker 14: social safety net stuff, and only kick this down about
49:26
Speaker 14: a year. He probably does not want to have to
49:29
Speaker 14: deal with this again in this term. If he can
49:31
Speaker 14: strike a deal that extends this for long enough that
49:35
Speaker 14: it's not a problem next year going into the election.
49:38
Speaker 14: That that's not winning the day, but that would be
49:41
Speaker 14: you know, cutting his losses. He also doesn't want to
49:44
Speaker 14: reward Republicans for making demands on something so explosive as
49:49
Speaker 14: the debt limit. You know, if you if you give
49:51
Speaker 14: them a lot here and then you've got another deadline
49:53
Speaker 14: that you set, whether it's a year or two down
49:55
Speaker 14: the road, you know what they're gonna want coming back.
49:57
Speaker 14: They're gonna they're gonna come back for more. It's very
50:00
Speaker 14: difficult for the president to win things from this. The
50:03
Speaker 14: leverage kind of belongs to the Republicans. But there's a
50:06
Speaker 14: question of one, how little can he give and what
50:10
Speaker 14: precedent does that set for future negotiations. And two, if
50:14
Speaker 14: this is an unpopular bill, because it's going to lead
50:17
Speaker 14: to spending cuts, the subsequent appropriations bills might not be
50:20
Speaker 14: so popular. Democrats want Republicans to take the blame for that.
50:25
Speaker 14: They want the Republicans to take the heat and establish
50:27
Speaker 14: that this was their idea so they have something to
50:30
Speaker 14: campaign on in twenty twenty.
50:32
Speaker 11: Four, Laurie, what specific industries are more vulnerable to this
50:37
Speaker 11: versus those that might be able to withstand it more so?
50:41
Speaker 6: Oh, well, it's going to effect the entire economy. So
50:44
Speaker 6: you're going to see the American public, the consumer really
50:49
Speaker 6: hurt by this. You're going to see further inflation. You know,
50:53
Speaker 6: in twenty eleven we saw mortgage crisises go up, you know,
50:57
Speaker 6: quite with a high increase. So you're going to it's
51:01
Speaker 6: really the consumer. It's the Americans who are going to
51:04
Speaker 6: be really hurt by default getting to the cliff. And
51:09
Speaker 6: they're also obviously as I'm making the point about the
51:13
Speaker 6: howth businesses are concerned about the debt. They're also going
51:16
Speaker 6: to be hurt by the fact if we don't deal
51:20
Speaker 6: with particularly the debt to GDP ratio, which is almost
51:24
Speaker 6: that it was just about it a hundred percent of
51:27
Speaker 6: economy right now. So I would say the consumer, the
51:29
Speaker 6: American public is going to be most hurt. All businesses
51:32
Speaker 6: are really going to feel the effect on this, as
51:34
Speaker 6: is the global economy.
51:36
Speaker 1: Laurie, Why doesn't there seem to be any you know,
51:40
Speaker 1: I guess bipartisan effort to kind of address the national debt,
51:44
Speaker 1: as you point out it as a big and growing problem.
51:47
Speaker 6: Yeah, it's It's interesting. It's not something that grabs a
51:51
Speaker 6: lot of attention. It's not something that either party has
51:53
Speaker 6: been interested in in a consistent way. It seems to
51:56
Speaker 6: be one of its most expedient for them to ain't
52:00
Speaker 6: about the debt. But I do think we're at a
52:02
Speaker 6: pivot point here where the debt has increased so large
52:06
Speaker 6: because of the really challenging crises we've been dealing with
52:10
Speaker 6: with COVID and now the disruption of the global economy
52:12
Speaker 6: with the war in Ukraine and food prices and energy prices,
52:16
Speaker 6: So there's actually a you know, a new focus on
52:21
Speaker 6: the implications, at least among policy makers, and I'm actually
52:25
Speaker 6: a little bit more encouraged that given those given these circumstances,
52:32
Speaker 6: there is room for a compromise because the actual impact
52:37
Speaker 6: is so high. But among the American public there hasn't
52:40
Speaker 6: been that much focus on this issue because it hasn't
52:42
Speaker 6: really been discussed in any real serious way in Washington.
52:47
Speaker 6: But that's also changing with inflation and with the disruption
52:52
Speaker 6: you might see as we approach the xtape for default.
52:57
Speaker 1: All right, Really appreciate getting the comments from both of you,
53:00
Speaker 1: doctor Lori Esposito Murray, president for the Committee of Economic
53:04
Speaker 1: Development at the Conference Board, and Jack Fitzpatrick, reporter for
53:07
Speaker 1: Bloomberg Industry Group down in Washington, DC covers all things
53:11
Speaker 1: coming out of DC, So love getting both perspectives there.
53:14
Speaker 1: The debt ceiling, it is an issue that must be addressed.
53:16
Speaker 1: And the X date that date it could be as
53:19
Speaker 1: early as you know, June first, or sometime into August
53:22
Speaker 1: sometime there. It seems like something has to get done again.
53:26
Speaker 1: A big meeting at the White House this afternoon at
53:28
Speaker 1: four pm Wall Street Time.
53:32
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53:35
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53:39
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53:45
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53:48
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53:50
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