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Politics, Private Credit, Markets and China (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Let's sit down to Washington,
• 0:23
  Speaker 1: d C. And let's talk policy. We've got a couple
• 0:25
  Speaker 1: of the midterms are over. We kind of know where
• 0:28
  Speaker 1: we are there. The question is what can our good
• 0:30
  Speaker 1: friends in Washington, d C. Get done in the next
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  Speaker 1: couple of years before we have another election cycle. Upon
• 0:37
  Speaker 1: is Nathan Dean. He's a senior policy anals with Bloomberg Intelligence. Uh.
• 0:40
  Speaker 1: For better or worse. He's based in Washington, d C. Uh, Nathan,
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  Speaker 1: you're down there in the pit that is Washington, d C.
• 0:47
  Speaker 1: What do you and your expert buddies down there think
• 0:50
  Speaker 1: that Washington get done in the next couple of years
• 0:53
  Speaker 1: of this administration, this Congress. So you know, a lot
• 0:56
  Speaker 1: of it's gonna come down to the horse trading in
• 0:59
  Speaker 1: the negotiations over these months pass pieces of legislation like
• 1:02
  Speaker 1: the government shut down, and this is what we're seeing
• 1:04
  Speaker 1: right now with the omnibus package. You know, don't think
• 1:07
  Speaker 1: about bills that have to be bipartisan. Think about bills
• 1:10
  Speaker 1: that have bipartisan warmth. And what I mean here is
• 1:13
  Speaker 1: is that they may not be economic, grandiose, fiscal stimulating
• 1:16
  Speaker 1: bill bills, but these are bills that are more in
• 1:19
  Speaker 1: the trenches and more in the sectors. For example, I'm
• 1:21
  Speaker 1: tracking a bill right now that Senator Derman has put
• 1:24
  Speaker 1: out there that would increase competition for Visa massacred bad
• 1:26
  Speaker 1: for them, good for American Express and Discover. Now, you
• 1:29
  Speaker 1: would normally think that this bill doesn't have a chance
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  Speaker 1: of passage, but Target and Walmart like it. And if
• 1:34
  Speaker 1: Targeted Walmart like it, then maybe you know Walmart being
• 1:37
  Speaker 1: in Arkansas, the Arkansas senators would like it. And so
• 1:40
  Speaker 1: even though this is something that's not huge, the sector
• 1:43
  Speaker 1: bills that would increase costs, strive revenues down, make competition
• 1:48
  Speaker 1: more more important or more more competitive for example, these
• 1:52
  Speaker 1: are the things that actually do have a chance of passage.
• 1:54
  Speaker 1: You won't see him on the on the front page
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  Speaker 1: of the headlines, but it's something you gotta pay attention
• 1:58
  Speaker 1: to Sorry, yeah, a rookie here, but you know some
• 2:05
  Speaker 1: emen wondering about you in this kind of second half
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  Speaker 1: of the Biden and administration first term here, do you
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  Speaker 1: think that certain deals might not be able to go
• 2:14
  Speaker 1: through here with some of the pressure here on and
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  Speaker 1: to trust and concerns about consumer protections. Oh? Absolutely, I
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  Speaker 1: mean there will be more failed chances that deals than
• 2:24
  Speaker 1: successful deals. And what I mean by that is, you know,
• 2:27
  Speaker 1: and we'll just take the elections for example. You know,
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  Speaker 1: the Democrats have now have fifty they can tear up
• 2:32
  Speaker 1: the power sharing agreement and so they can move forward
• 2:35
  Speaker 1: much quicker in the Senate with legislation. So you're going
• 2:38
  Speaker 1: to see more progressive style legislation come out. You could
• 2:41
  Speaker 1: drive up headline risk, but again you need the House
• 2:44
  Speaker 1: representatives to go forward with it. So what will happen
• 2:47
  Speaker 1: is is that nothing will happen, and then you'll get
• 2:49
  Speaker 1: to this time where the government's going to shut down
• 2:51
  Speaker 1: or the dead selling is going to occur and so
• 2:53
  Speaker 1: forth like that, and then the horse trade and they
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  Speaker 1: may get something done, they may not, but the failures
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  Speaker 1: were outweighed the successes. Just keep in mind that even
• 3:00
  Speaker 1: for things like f t X in crypto right now.
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  Speaker 1: The Republicans have said we want to do something. The
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  Speaker 1: Democrats have said we want to do something. But there's
• 3:08
  Speaker 1: something differs, and in more times than not, Congress would
• 3:12
  Speaker 1: much more likely kick the can down the road and
• 3:13
  Speaker 1: say we'll figure it out now with the second term.
• 3:16
  Speaker 1: To your point, we have a presidential election that's already
• 3:19
  Speaker 1: kicked off. By the end of most of Washington will
• 3:23
  Speaker 1: have turned its focus away from doing deals and turned
• 3:26
  Speaker 1: it onto the presidential politics. And the President Biden were
• 3:29
  Speaker 1: to announce next year that he's not going to run again,
• 3:32
  Speaker 1: he becomes a lame duck. That's a lot of political
• 3:34
  Speaker 1: capital he loses up on Capitol Hill. And so really
• 3:38
  Speaker 1: the first six months, the first nine months is the
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  Speaker 1: most important in our view, because that's when a lot
• 3:43
  Speaker 1: of the legislation could get done. Nathan, you know you
• 3:46
  Speaker 1: mentioned f t X as well on myself and buying
• 3:48
  Speaker 1: my tickets down to d C for next week to
• 3:51
  Speaker 1: be in those earings. Ah, And you know, I'm really
• 3:56
  Speaker 1: curious what you expect to get out of it, So
• 3:59
  Speaker 1: in know it, really the big question is is Sam
• 4:01
  Speaker 1: Bankman for You're going to show up or not. But
• 4:03
  Speaker 1: even if he doesn't show up. The question I have
• 4:06
  Speaker 1: from an investor point of view, or just like wondering
• 4:08
  Speaker 1: what the crypto industry is gonna look like going forward,
• 4:10
  Speaker 1: is what's the policymaker of you? What do they want
• 4:13
  Speaker 1: to do? Because we've seen statements from the House Financial
• 4:16
  Speaker 1: Services Committee that they want to move forward with a
• 4:18
  Speaker 1: stable coin bill. We've seen statements from Shared Brown, the
• 4:20
  Speaker 1: chairman of the Senate Banking Committee, that he wants to
• 4:23
  Speaker 1: move forward with his own legislation. Elizabeth Warren has her
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  Speaker 1: own legislation. The Senate ad Committee has their own legislation.
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  Speaker 1: My point here is is that none of this legislation
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  Speaker 1: actually is the same, and so what I want to
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  Speaker 1: see is not so much the responses from the member
• 4:38
  Speaker 1: of the people that are testifying. I want to see
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  Speaker 1: what the policymakers are saying in terms of provisions. Do
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  Speaker 1: they believe that bitcoin and ethereum should be a commodities
• 4:47
  Speaker 1: and not securities? Do they believe that nine of the
• 4:50
  Speaker 1: tokens out there should be under the Securities and Exchange Commission?
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  Speaker 1: Do they believe that new custody provisions need to be
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  Speaker 1: put in place? So try and find that bipartisan warmth,
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  Speaker 1: like I mentioned before, are in terms of these provisions,
• 5:02
  Speaker 1: and then the next year potentially they could get packaged
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  Speaker 1: into a bill. And Nathan, we got about thirty seconds left.
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  Speaker 1: He said, the next six to nine months, you're gonna
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  Speaker 1: be most support what what do you think is on
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  Speaker 1: the priority list here for Congress, any administration. We're telling
• 5:15
  Speaker 1: you everybody, death ceiling, that feeling dead ceiling, death ceiling,
• 5:18
  Speaker 1: September October next year. The dead ceiling is going to
• 5:21
  Speaker 1: have a tremendous impact on markets. We do not think
• 5:24
  Speaker 1: that death ceiling is going to get resolved any time
• 5:27
  Speaker 1: before then. And you know, like we saw in twenty eleven,
• 5:30
  Speaker 1: fixed income markets were upset, equity markets were upset. It's
• 5:33
  Speaker 1: just going to be a really painful time. We don't
• 5:36
  Speaker 1: think the death ceiling we'll be reached, but we are
• 5:38
  Speaker 1: telling people that's the most important thing to look out
• 5:40
  Speaker 1: for in three Nathan, you're pretty good at this stuff.
• 5:44
  Speaker 1: I wonder who hired about the death ceiling too, for
• 5:47
  Speaker 1: like five months here and nobody believe me. I'm not
• 5:51
  Speaker 1: worried about it, but I'll let I'll let the people
• 5:52
  Speaker 1: like Nathan Dean worry about it. He's the smart guy,
• 5:54
  Speaker 1: Nathan Dean. He's a senior policy analyst for Bloomberg in intelligence.
• 5:58
  Speaker 1: He's Dona, Washington. Indeed, see he's on top of all
• 6:01
  Speaker 1: that policy stuff. It's green on the screen here today,
• 6:07
  Speaker 1: and folks will take that. It's been five days of decline,
• 6:10
  Speaker 1: so UH, if nothing else, maybe a little reversion here
• 6:12
  Speaker 1: to the mean, a little bit of buying on the
• 6:14
  Speaker 1: dip um. Let's see what the pros are doing here
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  Speaker 1: as we wind up and get set for twenty three.
• 6:20
  Speaker 1: Tim Lyon, CEO of and Terrace Capital, based in Chicago,
• 6:25
  Speaker 1: one of my favorite towns. Yeah, awesome town. He's undergrad
• 6:29
  Speaker 1: from Illinois NBA from some school there and Northwestern. They
• 6:36
  Speaker 1: have a heck of an NBA program. Tim, thanks so
• 6:38
  Speaker 1: much for joining us here. I mean, I tell you
• 6:41
  Speaker 1: professional money managers, you had a rough two I mean,
• 6:44
  Speaker 1: you couldn't go to equities, you couldn't go to bonds.
• 6:47
  Speaker 1: I don't know where you guys went, But how are
• 6:50
  Speaker 1: you thinking about kind of winding up this year and
• 6:53
  Speaker 1: looking forward to next year? Morning Shale and Paul, thanks
• 6:58
  Speaker 1: so much for asking me to join. UH. This year,
• 7:01
  Speaker 1: when you look at our market volume overall was down,
• 7:06
  Speaker 1: but we expected it to be down this year. So
• 7:08
  Speaker 1: last year was a record year. M and A volume
• 7:11
  Speaker 1: in the US sponsored middle market's been down ten through
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  Speaker 1: the end of Q three. It was down Q three
• 7:19
  Speaker 1: of this year versus last year. And really it's down
• 7:23
  Speaker 1: because it's challenging to finance buyouts right now. The broadly
• 7:27
  Speaker 1: syndicated market is it's they talked about this all the
• 7:30
  Speaker 1: time in the journal it UH in Bloomberg and other publications.
• 7:35
  Speaker 1: It's very a liquid right now, and private debt lenders
• 7:38
  Speaker 1: are committing less dollars per transaction, so so that means, yeah,
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  Speaker 1: volumes down. But interestingly, so all of the deals that
• 7:47
  Speaker 1: we financed are with private equity sponsors, and what we've
• 7:51
  Speaker 1: seen is those private equity sponsors are still executing add
• 7:55
  Speaker 1: on acquisitions for their investment platforms. So of our deals
• 8:02
  Speaker 1: that antiris are to support existing borrowers. So while primary
• 8:07
  Speaker 1: M and A volumes down, our add on activity is
• 8:10
  Speaker 1: up almost this year versus lash sim I'm really curious
• 8:13
  Speaker 1: because if you look at the market, here there's a moment.
• 8:15
  Speaker 1: There's this moment where you have a short term here
• 8:19
  Speaker 1: halt and withdrawals for certain black Stone funds that had
• 8:24
  Speaker 1: quarterly redemptions. Here, I'm wondering, you know, is there something
• 8:29
  Speaker 1: broader going on in the market, not even just about
• 8:31
  Speaker 1: the underlying asset classes that you know, folks, private private
• 8:36
  Speaker 1: investors are invested in, but the strain that their investors
• 8:40
  Speaker 1: are under. So it is interesting. There's been quite a
• 8:47
  Speaker 1: bit written in the past couple of weeks about both
• 8:51
  Speaker 1: b kred and and black Stones Real Estate Fund um
• 8:56
  Speaker 1: when you look at the private debt side of their business.
• 9:01
  Speaker 1: So the b cred even though they had to limit
• 9:04
  Speaker 1: the withdrawals because they exceeded the five limit. That's the
• 9:08
  Speaker 1: way the fund is set up. The fund is set
• 9:11
  Speaker 1: up for high net worth individuals. It's it's private. They
• 9:16
  Speaker 1: know going in that there's a limitation quarterly withdrawals, so
• 9:23
  Speaker 1: they signed the documents. It is what it is. And
• 9:26
  Speaker 1: but importantly, if you look and Blackstone made this comment yesterday,
• 9:32
  Speaker 1: they're overall they had more money to come in then
• 9:36
  Speaker 1: go out. So if the private the private debt class
• 9:40
  Speaker 1: right now in this rising rate environment is actually quite
• 9:45
  Speaker 1: attractive because the we structure our deals on a floating
• 9:50
  Speaker 1: rate basis, so uh, the floating rage rates, short maturities,
• 9:56
  Speaker 1: credit seniority, so that actually is a pretty big positive
• 10:01
  Speaker 1: in kind of with this global economic uncertainty right now
• 10:04
  Speaker 1: and rising rates. You know, Shelly, if I was a
• 10:06
  Speaker 1: young banker these days, I'd be shopping on my resume
• 10:09
  Speaker 1: around for these private uh credit managers because it seems
• 10:12
  Speaker 1: to be a real growth part of financial services and
• 10:16
  Speaker 1: tim When I think about your business private credit, you know,
• 10:20
  Speaker 1: it feels like it's it's a play on private equity,
• 10:22
  Speaker 1: And all I know is private equity guys are raising
• 10:25
  Speaker 1: money left, right and center. The money has got to
• 10:28
  Speaker 1: get put to work. How do you kind of think
• 10:31
  Speaker 1: about that kind of driver of your business. Yeah, it's
• 10:36
  Speaker 1: it's a great question in your spot on. So private
• 10:40
  Speaker 1: equity has grown significantly and importantly over the next five years.
• 10:46
  Speaker 1: Pretty much any of the the folks that kind of
• 10:50
  Speaker 1: predict how the market's going to grow, private equity is
• 10:53
  Speaker 1: supposed to own a greater percentage of companies five years
• 10:58
  Speaker 1: from now, especially in middlemar keet companies, than they do today.
• 11:02
  Speaker 1: Private equity uses private debt to finance a lot of
• 11:06
  Speaker 1: their transactions. So private debt is forecasted to grow at
• 11:10
  Speaker 1: double digit annual rates private credit assets under management over
• 11:15
  Speaker 1: the next five years. So Um, that's that's pretty significant,
• 11:19
  Speaker 1: and it's just going to as private equity continues to
• 11:22
  Speaker 1: raise more and more money, private debt needs to be
• 11:25
  Speaker 1: how much how much do you think that you know,
• 11:28
  Speaker 1: the everyday American can get really exposure to this if
• 11:32
  Speaker 1: you think about it. This has been a secular trend
• 11:34
  Speaker 1: away from the banking system into the private debt markets.
• 11:38
  Speaker 1: I've covered it for ten years here and it's been
• 11:40
  Speaker 1: hard to explain and hard to cover because it's not
• 11:42
  Speaker 1: like you see a trading every day, So why does
• 11:45
  Speaker 1: it matter to people who are not large institutions. So
• 11:52
  Speaker 1: so a couple of just one other thing I'd add
• 11:55
  Speaker 1: in terms of that growth. So just to give you
• 11:57
  Speaker 1: a sense of how significant it was in the in
• 11:59
  Speaker 1: the third quarter, because the broadly syndicated loans market was
• 12:05
  Speaker 1: in very a liquid the banks that did on the
• 12:08
  Speaker 1: right deals before the market sell off had taken billions
• 12:12
  Speaker 1: in write downs and it's really constrained their appetite for underwriting.
• 12:16
  Speaker 1: So in the third quarter US sponsor of middle market
• 12:20
  Speaker 1: the direct lending share of that was in Q three,
• 12:24
  Speaker 1: So it's really significant the private the So it's been
• 12:28
  Speaker 1: available to high net worth investors for quite some time,
• 12:31
  Speaker 1: but you do have, um public they're called b dcs.
• 12:36
  Speaker 1: There's a number of them out there, um, and those
• 12:40
  Speaker 1: are available to any investor. Just uh yeah, so so
• 12:46
  Speaker 1: they're available. Um and I think once again reveals that
• 12:51
  Speaker 1: those companies are paying are quite attractive. All right, Tim,
• 12:55
  Speaker 1: great stuff there, Tim Lyon, he's the CEO of and
• 12:57
  Speaker 1: Terry's Capital Private Credit. And I want to get the
• 13:02
  Speaker 1: latest on kind of what's going on there with our retailers, uh,
• 13:06
  Speaker 1: and the holiday shopping season. Plus we want to talk
• 13:08
  Speaker 1: about rent the runway. Uh, we do that. Put the goil.
• 13:11
  Speaker 1: She's a senior annals covering all things retail Bloomberg Intelligence.
• 13:14
  Speaker 1: Put what's the early read or maybe the kind of
• 13:16
  Speaker 1: the mid cycle read on how this holiday shopping seasons
• 13:19
  Speaker 1: shaping up? Sure, thanks Paul. Yeah, the holiday season is
• 13:22
  Speaker 1: actually shaping out to be strong. So far. We had
• 13:25
  Speaker 1: a great November both online and in stores, and we
• 13:29
  Speaker 1: think retailers are using discounts to really draw sales and
• 13:33
  Speaker 1: clearing the exos inventory that they've built up all year.
• 13:36
  Speaker 1: So so far, so good. But there's still a lot
• 13:38
  Speaker 1: of shopping left in the coming two and a half
• 13:41
  Speaker 1: weeks and that will really determine if holiday did in
• 13:44
  Speaker 1: fact turn out to be stronger than everyone expected. But
• 13:47
  Speaker 1: are you like totally in trouble here if you didn't
• 13:50
  Speaker 1: already order your goods because I have not, No, I
• 13:53
  Speaker 1: don't think so. I think. I think you still have
• 13:55
  Speaker 1: time to get things online for sure before the holidays,
• 13:59
  Speaker 1: and stores too. You know they're stocked well, they have
• 14:02
  Speaker 1: enough inventory this year, so you don't have to be
• 14:05
  Speaker 1: scrambling that you may not get what you want this year. Hey,
• 14:10
  Speaker 1: talk to us about this Rent the Runway. It's a
• 14:12
  Speaker 1: pretty cool company that just came to my awareness in
• 14:14
  Speaker 1: the last four or five years. Stocks up today. What's
• 14:18
  Speaker 1: the story there? Yeah, So Runt the Runway. I think
• 14:20
  Speaker 1: it's all about execution, and I think what they've been
• 14:23
  Speaker 1: doing for the last two quarters are proving that the
• 14:25
  Speaker 1: execution is paying off, is really putting that pedal on
• 14:29
  Speaker 1: the profits. So this is the second quarter in a
• 14:32
  Speaker 1: row where they have delivered positive growth margins above and
• 14:36
  Speaker 1: Ebit justin Ebit Dallas positive. That's really been the key
• 14:40
  Speaker 1: focus for many of these re commerce companies that have
• 14:42
  Speaker 1: I p oed in the last few years, where we
• 14:45
  Speaker 1: know that there's plenty of opportunity for topline growth given
• 14:48
  Speaker 1: how um how young this sector is overall right, and
• 14:53
  Speaker 1: but the focus has been on can they be profitable
• 14:56
  Speaker 1: and rent the runway? So far as it feeded, it's
• 14:58
  Speaker 1: planned and last plan on how quickly they can achieve
• 15:02
  Speaker 1: break emanata and get to their goal ofent of just
• 15:06
  Speaker 1: bada marchin and free cash flow positive in the medium
• 15:09
  Speaker 1: turn alright, good stuff, rent the runway again. The good
• 15:12
  Speaker 1: news is up thirty three percent today. The bad news
• 15:16
  Speaker 1: is is down seventy percent year to day. So it's
• 15:18
  Speaker 1: got some work to do to get back trades at
• 15:20
  Speaker 1: one cents per share. Put him coil. She covers all
• 15:24
  Speaker 1: things retail for a Bloomberg. Intelligence is always good this
• 15:27
  Speaker 1: time of year, around the holidays. You get a sense
• 15:29
  Speaker 1: of how the retailers are doing during this holiday season,
• 15:33
  Speaker 1: which is such a big part of their business. Let's
• 15:38
  Speaker 1: be honest. I mean, here we are in December. It's
• 15:40
  Speaker 1: been a brutal year for investorge. You couldn't go in equities,
• 15:42
  Speaker 1: You've got slammed there even worse from a historic perspective
• 15:47
  Speaker 1: for fixed income. I got two of my rearview mirror Shinale.
• 15:51
  Speaker 1: I don't know about you, and I'm looking forward to
• 15:55
  Speaker 1: Robert Teater. He's head of Investment Policy and Strategy group
• 15:57
  Speaker 1: at Silver crests Asset Management. He joins us here in
• 15:59
  Speaker 1: our blue Burg Interactive Broker studio. Robert, give us your
• 16:04
  Speaker 1: post mortem on two. We've got a few weeks left.
• 16:06
  Speaker 1: But you know, if you're picking up talking to one
• 16:09
  Speaker 1: of your clients, how would you kind of put that
• 16:10
  Speaker 1: into into perspective. Sure, I'd characterized the year as being
• 16:14
  Speaker 1: defined by one word, which is inflation. So we had
• 16:17
  Speaker 1: a massive draw down in both fixed income in equities,
• 16:20
  Speaker 1: as you said, nowhere to hide and nowhere to hide
• 16:21
  Speaker 1: because of inflation. So the FED working against you, rates
• 16:25
  Speaker 1: heading higher, valuations heading down, the zoom out a little
• 16:28
  Speaker 1: bit and look back to pre pandemic through Now you've
• 16:30
  Speaker 1: had earnings growing about had stocks only up about twenty
• 16:34
  Speaker 1: and most of that has come in that compression in
• 16:36
  Speaker 1: multiples in the past year. So I think one word
• 16:38
  Speaker 1: defined the year, which is inflation, made it a really
• 16:40
  Speaker 1: tough year. So something I've been wondering a lot about
• 16:42
  Speaker 1: is a lot of investors got so burned this year
• 16:44
  Speaker 1: and the heat of everything. You're saying, are they too
• 16:48
  Speaker 1: burned to deploy significant capital next year, should the opportunity arise. Yeah,
• 16:54
  Speaker 1: it's a great question. I think one of the things
• 16:55
  Speaker 1: that's characterized this year a little bit differently from some
• 16:58
  Speaker 1: prior declines is that were coming on the back of
• 17:00
  Speaker 1: very big gains over the prior few years. So I
• 17:02
  Speaker 1: think that puts people in a little bit of a
• 17:04
  Speaker 1: better spot. If you zoom out, wealth is generally up
• 17:06
  Speaker 1: over the past three years, even over the last two years,
• 17:09
  Speaker 1: so it's really just been this year of decline. So
• 17:11
  Speaker 1: I do think there is some appetite for risk when
• 17:13
  Speaker 1: you get inflation off the table and when you get
• 17:15
  Speaker 1: the fed uh sort of out of fighting against you
• 17:17
  Speaker 1: for a bit. So what are you telling your clients
• 17:19
  Speaker 1: for your pen or you're are going to pen your
• 17:23
  Speaker 1: letter to your clients talking about next year? What are
• 17:26
  Speaker 1: you telling them? Sure, So we think there are two
• 17:28
  Speaker 1: components to this story, as there always are. On the
• 17:31
  Speaker 1: earning side, we see a pretty tight range of outcomes,
• 17:33
  Speaker 1: So we think slow economic growth probably not a big recession.
• 17:36
  Speaker 1: So slow numbers on the economic side, slow numbers on
• 17:39
  Speaker 1: the earning side, with kind of a tight range, the
• 17:41
  Speaker 1: sort of a back to boring environment, low economic growth,
• 17:44
  Speaker 1: maybe you know, minus five percent on earnings to plus
• 17:47
  Speaker 1: five percent, kind of in a tight range. So the
• 17:49
  Speaker 1: whole story will be multiples and it will be a
• 17:51
  Speaker 1: bit choppy, but we do think there will be some
• 17:53
  Speaker 1: valuation recovery, so similar to what we've seen in the
• 17:56
  Speaker 1: past six weeks or so, As you get inflation trending down,
• 17:59
  Speaker 1: you get a little bit of relief on the multiple side.
• 18:01
  Speaker 1: So we think next year could be an okay year
• 18:03
  Speaker 1: for stocks and also an okay year for bonds, both
• 18:06
  Speaker 1: be on the basis of inflation fading throughout the course
• 18:08
  Speaker 1: of the year. There seems to be no consensus here
• 18:10
  Speaker 1: on how bad things can get and whether or not
• 18:13
  Speaker 1: you think that there's a mild recession or deep procession
• 18:15
  Speaker 1: or things are priced in. How nervous are your clients
• 18:18
  Speaker 1: and how split are they and how is that impacting
• 18:21
  Speaker 1: what they might do next. Yeah, it's a great question.
• 18:24
  Speaker 1: I think one of the things that we've seen from
• 18:25
  Speaker 1: from both clients and professional investors and everyone has been
• 18:28
  Speaker 1: a tendency to take the latest news data point and
• 18:31
  Speaker 1: sort of extrapolated over the year. So inflations here therefore,
• 18:34
  Speaker 1: let's assume it's going to be here forever economic weakness
• 18:37
  Speaker 1: is probably coming on the basis of you know, lagged
• 18:39
  Speaker 1: effects of of FED ray hiked, so maybe that will
• 18:42
  Speaker 1: be here forever, and we're trying to step back from
• 18:44
  Speaker 1: that a little bit and just look through a little
• 18:45
  Speaker 1: bit of the noise on that front. So I do
• 18:47
  Speaker 1: think there's some concern There are legitimate concerns I think
• 18:50
  Speaker 1: around economic slowdown, around inflation maybe not cooling as quickly
• 18:53
  Speaker 1: as possible, But bigger picture, we think both things are
• 18:56
  Speaker 1: probably headed in the right direction over the course of
• 18:58
  Speaker 1: a full year next year. So what sectors should are
• 19:01
  Speaker 1: you suggesting to your clients and maybe they think about
• 19:04
  Speaker 1: some exposure to Is it some of the traditional growth
• 19:07
  Speaker 1: tech names that have worked so well for everybody since
• 19:09
  Speaker 1: the I don't know, the Great Financial Crisis? Or is
• 19:11
  Speaker 1: it more kind of reopening places, whether they're cyclicals or
• 19:14
  Speaker 1: you know, how are you thinking about that? Yeah, it's
• 19:16
  Speaker 1: a it's a great question. I think there there is
• 19:18
  Speaker 1: still some room to go in some of the consumer space.
• 19:20
  Speaker 1: So our work shows that there's been a you know,
• 19:22
  Speaker 1: a big over earning if you will, in the good
• 19:24
  Speaker 1: space of the economy. Thinking in terms of GDP, the
• 19:27
  Speaker 1: good sectors of over earned probably well above trend, a
• 19:29
  Speaker 1: little bit of paybacks still there, but on the services
• 19:32
  Speaker 1: side sort of under earning and underappreciated in terms of
• 19:35
  Speaker 1: potential future growth for consumer on the services side. The
• 19:38
  Speaker 1: other thing that we really like is the small cap space,
• 19:41
  Speaker 1: So there's there's a lot of return to focus on.
• 19:44
  Speaker 1: Domestic activity in the US might not be directly going
• 19:47
  Speaker 1: into these small cap companies, but so of the old
• 19:49
  Speaker 1: fashioned multiplier effect of more capex spending, more re on
• 19:52
  Speaker 1: shoring winds its way into earnings for small cap companies.
• 19:56
  Speaker 1: I'm wondering. Also, we've been talking a lot here about
• 19:58
  Speaker 1: not just the public markets, but ivan markets, and you
• 20:02
  Speaker 1: hear some of the stresses that are in the private markets,
• 20:04
  Speaker 1: and then you hear the CEOs talk about this great
• 20:06
  Speaker 1: wealth opportunity. But do the wealthy individuals want to buy
• 20:10
  Speaker 1: as much as they think they do. I think there's
• 20:13
  Speaker 1: a there's a little bit of both sides of that argument.
• 20:15
  Speaker 1: So one thing that we've been careful with in private
• 20:17
  Speaker 1: equity is emphasizing that there are great opportunities, but it's
• 20:21
  Speaker 1: not one size fits all. The entire opportunity set might
• 20:24
  Speaker 1: not be compelling, and so it's really important to recognize
• 20:27
  Speaker 1: that certain firms in the space are doing strong and
• 20:30
  Speaker 1: good work in terms of improving companies, improving earnings the
• 20:33
  Speaker 1: same way that you create wealth in the public markets,
• 20:35
  Speaker 1: which is compounding of earnings over time, growing capital um.
• 20:38
  Speaker 1: That's really the true story that exists in a lot
• 20:41
  Speaker 1: of the opportunities in the private equity space, not all
• 20:43
  Speaker 1: of them. I think there had been maybe perhaps a
• 20:45
  Speaker 1: little bit too much enthusiasm and lack of willingness to
• 20:48
  Speaker 1: dig through the surface. But that's starting to come to
• 20:51
  Speaker 1: fruition now, and so we think there's an important opportunity
• 20:53
  Speaker 1: in private equity, just very careful to be selective about
• 20:55
  Speaker 1: how you pursue it. Today, we've been talking a lot
• 20:58
  Speaker 1: here on Bloomberg Radio about x On Mobile. They've they're
• 21:01
  Speaker 1: raising their salaries for most unemployees by nine percent. That's
• 21:04
  Speaker 1: a good thing. We've been looking at the stock stocks
• 21:06
  Speaker 1: up seventies some month percent this year. That's a good thing.
• 21:09
  Speaker 1: They up there, buy back another fifty billion dollars as
• 21:12
  Speaker 1: energy kind of had its run, or you guys thinking
• 21:15
  Speaker 1: that maybe there's more room to go there. I mean,
• 21:17
  Speaker 1: I think there's probably a bit more room to go.
• 21:19
  Speaker 1: It's been interesting to watch the divergence of oil prices
• 21:21
  Speaker 1: coming down and energy stocks still continuing to perform strongly.
• 21:24
  Speaker 1: And I think that's on the basis of just a
• 21:26
  Speaker 1: recognition that we've moved energy in terms of national importance
• 21:29
  Speaker 1: from something lower down on the stack too much higher
• 21:32
  Speaker 1: up on the stack. And so I think there's a
• 21:33
  Speaker 1: willingness to invest in that space, invest in the areas, uh,
• 21:37
  Speaker 1: and really a willingness to recognize that this is going
• 21:39
  Speaker 1: to be a continuing, ongoing issue for some time. And
• 21:42
  Speaker 1: so what oil prices are down now, probably not likely
• 21:45
  Speaker 1: to you know, spike again very quickly, but long term,
• 21:48
  Speaker 1: it's a space where there will be continued activity, and
• 21:50
  Speaker 1: so we do think there's some opportunity there. You know.
• 21:52
  Speaker 1: Another thing about this is, you know, we talked so
• 21:54
  Speaker 1: much about public market stocks, some of these exciting sectors.
• 21:58
  Speaker 1: What about the things are harder to see, I mean,
• 22:01
  Speaker 1: real realistically the interesting trades this year we're macro commodities
• 22:05
  Speaker 1: and um, how has that kind of changed the calculus
• 22:08
  Speaker 1: here on kind of how non traditional your clients are
• 22:12
  Speaker 1: looking to invest. Yeah, that's a good question too. So
• 22:14
  Speaker 1: over the years, like many we've seen an increase in
• 22:17
  Speaker 1: interest in alternative investments, you know, sort of first and
• 22:19
  Speaker 1: hedge funds than into private equity. I think the real
• 22:22
  Speaker 1: key for this year was finding things that weren't correlated
• 22:25
  Speaker 1: to that one direction inflation trade and sort of pushed
• 22:27
  Speaker 1: down on valuation and pushed down on bonds buying the dollar. Yes,
• 22:34
  Speaker 1: so anything in alternatives we sort of view as a
• 22:36
  Speaker 1: third leg of the stool. So you have traditional equity
• 22:38
  Speaker 1: risk most times, but not always fixed income offsets that
• 22:42
  Speaker 1: this year it didn't, and so it's a great argument
• 22:44
  Speaker 1: for why there should be a third leg to the
• 22:45
  Speaker 1: stool and some alternatives in some portfolios for clients who
• 22:48
  Speaker 1: can handle I liquidity. All right, Robert, thank you so
• 22:50
  Speaker 1: much for joining us here. Robert Teeter. He's head of
• 22:53
  Speaker 1: investment policy and the strategy group at Silver Crest Asset Management.
• 22:57
  Speaker 1: He's a neighbor of ours here in Midtown than that,
• 22:59
  Speaker 1: and so we appreciate getting him here in our Bloomberg
• 23:01
  Speaker 1: Interactive Brokers studio. I want to pivot to China here
• 23:07
  Speaker 1: because I tell you, the Chinese governments, you know, is
• 23:10
  Speaker 1: really seemingly making an about face here and kind of
• 23:15
  Speaker 1: really kind of reopening their economy a little bit more
• 23:18
  Speaker 1: aggrestfully than I think most people thought, and we saw
• 23:20
  Speaker 1: that we said we gotta get Tom or Like on
• 23:22
  Speaker 1: the air. Why because Tom he's their chief economist for
• 23:24
  Speaker 1: Bloomberg Economics, so he's a smart person to talk to.
• 23:28
  Speaker 1: But he lived in Beijing for many years. He worked
• 23:30
  Speaker 1: in Beijing for many years. He knows what it's like,
• 23:34
  Speaker 1: the Chinese government is like and how it plays out
• 23:36
  Speaker 1: over time. So Tom loved Thanks so much for joining us. Share.
• 23:39
  Speaker 1: Are you at all surprised here about kind of what
• 23:41
  Speaker 1: we've seen from the Chinese officials over the last several
• 23:44
  Speaker 1: days in terms of reopening? I think it is surprising, Paul.
• 23:48
  Speaker 1: If you'd asked me a few weeks ago, and I
• 23:51
  Speaker 1: think if you'd asked most people who followed China a
• 23:53
  Speaker 1: few weeks ago, when is China going to make the
• 23:56
  Speaker 1: big tivot towards reopening, the answer would have been, well,
• 24:00
  Speaker 1: we don't know, but probably March three's at decent bet
• 24:04
  Speaker 1: get through the winter, get vaccines into people's arms, and
• 24:08
  Speaker 1: then reopen. So the pivot that we've seen in the
• 24:11
  Speaker 1: last few days has really been a surprise and substantially
• 24:15
  Speaker 1: earlier than I think I expected, and many in the
• 24:18
  Speaker 1: markets expected. I'm really curious about what this means for investors,
• 24:24
  Speaker 1: because obviously there's been a fair bit of pain this year.
• 24:26
  Speaker 1: I'm wondering about the ripple effects. From where I sit, Tom,
• 24:30
  Speaker 1: there was an interesting phenomenon here where you saw a
• 24:32
  Speaker 1: lot of Chinese investors start to sell Blackstones major real
• 24:37
  Speaker 1: estate fund to the point that they had to halt redemptions.
• 24:40
  Speaker 1: And the reason yesterday that Steve Schwartzman had given for
• 24:43
  Speaker 1: this was not just the fact that the index was down,
• 24:48
  Speaker 1: but also the fact that regional investors were so highly levered,
• 24:51
  Speaker 1: and that leverage issue has played out over and over
• 24:54
  Speaker 1: and over in so many different ways when you think
• 24:56
  Speaker 1: about the Chinese economy, So how do you think the
• 25:00
  Speaker 1: pockets of pain that might still exist when it comes
• 25:02
  Speaker 1: to leverage. So I think the leverage question is a
• 25:07
  Speaker 1: really interesting one, Shinali. And when I think about it
• 25:11
  Speaker 1: in the Chinese context, I think about the huge volume
• 25:15
  Speaker 1: of debt which China has taken on over the last
• 25:19
  Speaker 1: ten or fifteen years, and the way that's going to
• 25:21
  Speaker 1: continue playing out, especially as we see the pain continuing
• 25:26
  Speaker 1: in the property sector. When I think about the leverage
• 25:29
  Speaker 1: question globally, and how China plays into that well. Of course,
• 25:34
  Speaker 1: China's reopening is a significant positive for China's economy, as
• 25:38
  Speaker 1: significant positive for China's markets, but it adds an additional
• 25:44
  Speaker 1: level of risk for the rest of the world. When
• 25:47
  Speaker 1: China reopens, we've got one point four billion Chinese people
• 25:50
  Speaker 1: going from stuck at home to getting back in their cars,
• 25:54
  Speaker 1: getting on the train, getting on the airplane. That has
• 25:57
  Speaker 1: to be a driver of global energy prices. Is potentially
• 26:01
  Speaker 1: that adds an additional leg to global inflation in the
• 26:05
  Speaker 1: year ahead, forces the FED and other central banks to
• 26:08
  Speaker 1: do more to get inflation under control, and of course
• 26:12
  Speaker 1: adds to the pain for investors who have taken on
• 26:15
  Speaker 1: a lot of death Tom, I wonder just how this
• 26:20
  Speaker 1: reopening is going to occur. Do we know what percentage
• 26:24
  Speaker 1: of their population is vaxed, Do we know if it's
• 26:27
  Speaker 1: an effective vaccination? Is this country setting itself up for
• 26:32
  Speaker 1: a surge in cases and and you know other bed news.
• 26:38
  Speaker 1: I think that's absolutely the right question to be asking, Paul.
• 26:41
  Speaker 1: China does not have the leading edge mr NA vaccines,
• 26:45
  Speaker 1: which have played such an important role in protecting public
• 26:48
  Speaker 1: health in the US and in Europe. Neither have they
• 26:52
  Speaker 1: been particularly successful at getting the less effective Chinese vaccines
• 26:58
  Speaker 1: into people's arms. And what that means is that as
• 27:02
  Speaker 1: reopening happens, as cases inevitably rise, then the next step,
• 27:08
  Speaker 1: sadly is going to be an increase in hospitalizations, and yes,
• 27:12
  Speaker 1: an increasing steps, And that raises a question, well, how
• 27:18
  Speaker 1: does China's government then react? Is there the potential for
• 27:22
  Speaker 1: a bumpy path ahead in the next six months? Could
• 27:26
  Speaker 1: this be a backward and forward process as China attempts
• 27:29
  Speaker 1: to contain what could be a public health emergency whilst
• 27:33
  Speaker 1: retaining the benefits of reopening. These are big important questions.
• 27:38
  Speaker 1: I think we're going to have to wait and see
• 27:39
  Speaker 1: how they play out in the weeks ahead of the
• 27:43
  Speaker 1: next six to twelve months. What are you most concerned
• 27:46
  Speaker 1: about in terms of both what can happen on the mainland,
• 27:50
  Speaker 1: but also what could happen in terms of any ripple
• 27:53
  Speaker 1: effects it might have to the countries that are trading
• 27:57
  Speaker 1: partners or um you know, we're all in their supply
• 28:00
  Speaker 1: chains and um on the emerging markets that are suffering already.
• 28:06
  Speaker 1: So I think if you sort of think about where
• 28:08
  Speaker 1: we were on China a few weeks ago, Hinale, we
• 28:12
  Speaker 1: had lockdown still in place, we had the property sector
• 28:17
  Speaker 1: in a major correction, and we had US China relations
• 28:23
  Speaker 1: spiraling down. And in the last few weeks we've had
• 28:27
  Speaker 1: a move to reopen, We've had more support for the
• 28:31
  Speaker 1: property sector and perhaps more on the way, and we've
• 28:34
  Speaker 1: had that shake hands meeting between She and Biden in Bali,
• 28:39
  Speaker 1: which didn't deliver a lot of substance in terms of
• 28:41
  Speaker 1: improving the relationship, but at least sort of hedged against
• 28:46
  Speaker 1: the risk of a downward spiral. So on all of
• 28:49
  Speaker 1: those big issues, on COVID, on property, on relations with
• 28:54
  Speaker 1: the United States, the signs from China in the last
• 28:58
  Speaker 1: few weeks have all been in the right direction. They've
• 29:00
  Speaker 1: all been what the market wanted to hear. So the
• 29:03
  Speaker 1: base case for China in the year ahead is that,
• 29:05
  Speaker 1: how a little bit more positive than it was. We're
• 29:08
  Speaker 1: penciling in five point one GDP growth for China, good
• 29:13
  Speaker 1: news for the Chinese people, good news for investors in China,
• 29:16
  Speaker 1: as we discussed, potentially not great news for the rest
• 29:20
  Speaker 1: of the world as they grapple with inflation, and now
• 29:24
  Speaker 1: that potential inflationary impulse that comes as China reopens and
• 29:28
  Speaker 1: amps up its demand for commodity. Hey, Tom, I'd love
• 29:31
  Speaker 1: to get your opinion on Hong Kong. It's it's long
• 29:34
  Speaker 1: been one of my favorite places in the world. I mean,
• 29:37
  Speaker 1: it's just a global was a global financial hub, you know,
• 29:40
  Speaker 1: along the lines of New York and London. What do
• 29:43
  Speaker 1: you think the future of Hong Kong is? So, I
• 29:47
  Speaker 1: think it's really interesting, Paul um And I think it's
• 29:51
  Speaker 1: really interesting because you've had these two kind of big
• 29:54
  Speaker 1: forces interacting at the same time. Right. One force has
• 29:59
  Speaker 1: been the kind of the National Security law um and
• 30:04
  Speaker 1: all that has men for the sort of one country,
• 30:07
  Speaker 1: two systems approach and the fear that that's going to
• 30:11
  Speaker 1: bring Hong Kong much closer to the mainland in terms
• 30:15
  Speaker 1: of the way it's government, it's legal system, and it's
• 30:18
  Speaker 1: media operating. At the same time, you've had the COVID
• 30:22
  Speaker 1: pandemic and all that has meant in terms of lockdowns
• 30:25
  Speaker 1: and quarantines and difficulty getting in and out of the
• 30:31
  Speaker 1: of the place. Um. So, both of those things have
• 30:34
  Speaker 1: been happening at the same time, and they've both been
• 30:36
  Speaker 1: negatives for Hong Kong's standing as as a global financial center. Well,
• 30:41
  Speaker 1: in the months ahead, we're going to see the COVID
• 30:44
  Speaker 1: drag disappearing, but the National security law drag staying in place. Yeah,
• 30:50
  Speaker 1: that's going to be. That's going to mean it's going
• 30:52
  Speaker 1: to be able to sort of disentangled those two effects
• 30:55
  Speaker 1: and see if Hong Kong's standing as a global financial
• 30:58
  Speaker 1: center is still there or not. Tom great Stuff has
• 31:00
  Speaker 1: always loved getting your perspective, Tom or like chief economists
• 31:03
  Speaker 1: for Bloomberg Economics, getting the update on China. It appears
• 31:08
  Speaker 1: that China is reopening. Thanks for listening to the Bloomberg
• 31:13
  Speaker 1: Markets podcast. You can subscribe and listen to interviews with
• 31:17
  Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.
• 31:22
  Speaker 1: I'm on Twitter at Matt Miller. On Ball Sweeney I'm
• 31:26
  Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can
• 31:29
  Speaker 1: always catch us worldwide at Bloomberg Radio