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Nvidia, Ukraine, Retail, and AI (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.
• 0:05
  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.
• 0:14
  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: Darkening the Door, I gotta describe here what's going on here?
• 0:25
  Speaker 1: Pretty this is a little bit I'm thrown unnerving here.
• 0:28
  Speaker 1: All right, let's start with anaag Rana. He walks from
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  Speaker 1: the door freshly shaven. Now, the reason this is important
• 0:34
  Speaker 1: because he's had a scraggly beard. I'm calling it for
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  Speaker 1: a couple three years. I don't know if it was
• 0:38
  Speaker 1: a pandemic thing, but I was petitioning from the shave
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  Speaker 1: it off since the first time I saw it. That's
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  Speaker 1: gone looks a thousand times younger. I would say, he
• 0:47
  Speaker 1: looks him ten years younger.
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  Speaker 3: I gotta say, I saw him walking towards the radio
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  Speaker 3: studio and I see a double take.
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  Speaker 4: I didn't even recognize it.
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  Speaker 1: I know. Sorry, which we got that going for us? Yeah,
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  Speaker 1: and then we've got Dan ives he covers technology stuff
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  Speaker 1: for web Bush Security. So I think I'm scruff are you? Okay,
• 1:01
  Speaker 1: it's just not it's not even a choice here with Ana.
• 1:03
  Speaker 1: You gotta go. And then he's got the haircut. He's like,
• 1:05
  Speaker 1: it's a whole new on ruck, all right. So dan
• 1:07
  Speaker 1: Ives comes in with an summer outfit that is right
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  Speaker 1: on the edge of being summer cool chic.
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  Speaker 4: It's like fresh back from Bermuda. What's going on here?
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  Speaker 1: Or it's right on that line of being cool and
• 1:18
  Speaker 1: being obscene. I don't know where we are.
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  Speaker 3: It's it's like a Picasso painting in a very strange way,
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  Speaker 3: like I can't even I don't even know what's saying.
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  Speaker 1: And you brought that look over to Asia because I
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  Speaker 1: saw your postings on social media Daan when you're over
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  Speaker 1: on your marketing trip to Asia. You weren't holding back,
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  Speaker 1: were you.
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  Speaker 5: No?
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  Speaker 6: I mean we brought it from from two to one
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  Speaker 6: two over to Asia.
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  Speaker 4: Oh that's where the color is coming from. Okay, this
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  Speaker 4: makes sense two one.
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  Speaker 6: Two color over to Asia, and I think, yeah, I
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  Speaker 6: think it worked well. It could be a media a trend.
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  Speaker 6: You've started seeing some tech investers throughout Asia. It's because
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  Speaker 6: I mean it could besides AI and some of the themes,
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  Speaker 6: you could have a all.
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  Speaker 1: Right, so let me here's all right, Let let me
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  Speaker 1: just go to anaack here, what does Nvidia do and
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  Speaker 1: why are they seemingly getting all these all this chip
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  Speaker 1: demand for AIS? Is this high bitch or is it real?
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  Speaker 7: Well, the high pot is will always be driven by
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  Speaker 7: you know, a little bit of valuation. But I think
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  Speaker 7: one of the things you have to think about when
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  Speaker 7: you run some of the very large workloads, even on
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  Speaker 7: the cloud, you need really fast computers and you really
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  Speaker 7: need faster chips. And Nvidia is the leader in those
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  Speaker 7: chips out there, and they really posted good numbers, which
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  Speaker 7: basically tells us that the world is investing a lot
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  Speaker 7: more in high powered computers right now because of all
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  Speaker 7: the AI frenzy.
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  Speaker 4: Before I go to.
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  Speaker 3: Dan, can I just point out that the reason an
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  Speaker 3: rag has haircut and fresh shave and all that because
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  Speaker 3: there's an event happening this evening, afternoon, afternoon, slush evening
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  Speaker 3: it is, I argue.
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  Speaker 7: Went to tell them, Yeah, there'll be a big semiconductory
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  Speaker 7: event we are having in the one twenty park about well,
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  Speaker 7: have Micron, Intel and Global founderies. They're talking about, you know,
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  Speaker 7: the the making of the chips in the US from
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  Speaker 7: an executive from Department of Commerce.
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  Speaker 1: Yeah, perfect suite of.
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  Speaker 4: Some of the Yeah, some of the some the biggest
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  Speaker 4: and some of the best. Very excited about that. Yeah,
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  Speaker 4: they are on top of it. Somean deep thing. Bloomberg
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  Speaker 4: Intelligence will be there on ROG of course leading the charge.
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  Speaker 1: Yeah.
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  Speaker 4: Good, good lineup, Dan, talk.
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  Speaker 3: To us a little bit about this trade here the
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  Speaker 3: idea that kind of AI is driving in video shares
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  Speaker 3: and video isn't a pure play on AI necessarily. So
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  Speaker 3: how quickly does this thirty percent move in the stock
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  Speaker 3: get walked back?
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  Speaker 6: Look, this is historic. I mean in covering tech stocks
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  Speaker 6: twenty two years, I've never seen anything in my career
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  Speaker 6: where you have a guidance raise sixty percent in the quarter.
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  Speaker 6: And I think the difference and why this is I
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  Speaker 6: think the ripple effects here in terms of this goal
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  Speaker 6: rushers happen in AI.
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  Speaker 1: It validates it.
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  Speaker 6: Demand is Eshian's real because ultimately, as that Aerog talks about,
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  Speaker 6: they're the ones that see at first. I believe, in
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  Speaker 6: my view.
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  Speaker 1: This is just a start.
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  Speaker 6: I think it's a revolution that's playing out and in
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  Speaker 6: my view, Microsoft, Google, across the board. It's just the
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  Speaker 6: start of what I view is probably the biggest transformational
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  Speaker 6: theme that I've ever seen.
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  Speaker 1: Cortentions, You've been.
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  Speaker 3: A techable for ages, so this is this is pretty
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  Speaker 3: This makes a lot of sense that you would say
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  Speaker 3: that what flips your view?
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  Speaker 4: What gets in the way of us?
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  Speaker 6: It's when I talked and I can tell you the
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  Speaker 6: last three weeks, like whether it's asier whether us when
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  Speaker 6: I talk to CIOs, when I talked to product managers,
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  Speaker 6: and now they're looking to spend for every one hundred
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  Speaker 6: dollars in cloud, spend thirty five to forty dollars incremental
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  Speaker 6: for AI. To me, that that's the game changing. That's
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  Speaker 6: why like, look those if your valuation centric and we've
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  Speaker 6: talked about this, you would have missed the Facebook's Netflix,
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  Speaker 6: has it? I feel like this is one where we're
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  Speaker 6: talking conservatively eight hundred billion over the next decade incremental
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  Speaker 6: spend and mebe aggressively in the trillions with the amount
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  Speaker 6: of names you count on two hands, all.
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  Speaker 1: Right, so Anurag explain to me, I mean every company
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  Speaker 1: in yester p. Five hundred and the last quarterly earnings
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  Speaker 1: mentioned AI Yeah, for the average company, average person, what
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  Speaker 1: is AI.
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  Speaker 7: So it's you get trying to get a lot more
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  Speaker 7: insights from what you're doing already and try to make
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  Speaker 7: better decisions either on the revenue side or the cost site.
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  Speaker 1: Because you have data, You have data, another way to analyze,
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  Speaker 1: organize and analyze data.
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  Speaker 7: So you know, it's much easier to do on the
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  Speaker 7: consumer front because it's you know, we have all the
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  Speaker 7: consumer data, you have the Internet, you can feed off that.
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  Speaker 7: It's a little bit harder on the enterprise side because
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  Speaker 7: your data is extremely disaggregated in multiple systems, so it's
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  Speaker 7: a little bit of a longer process. Means you have
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  Speaker 7: to buy the computers which we we're looking at, or
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  Speaker 7: the chips. Then you've got to figure out how to
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  Speaker 7: put the data in a common data platform where you're
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  Speaker 7: going to bring all the data together from let's say
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  Speaker 7: hundreds of systems. Then you got to analyze it, and
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  Speaker 7: then you put the algorithm on top of it to
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  Speaker 7: get you insights. So it's a little bit more longer
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  Speaker 7: term view when it comes to enterprises, but a lot
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  Speaker 7: faster when it's it's a consumer application.
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  Speaker 3: Well, explain to me, like put put some numbers on it.
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  Speaker 3: For us, if we're looking at what do you say
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  Speaker 3: in it was an eight.
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  Speaker 6: Hundred eight hundred billion or eight hundred billion an incremental
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  Speaker 6: spend that basically six months ago, wasn't there?
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  Speaker 3: Okay, eight hundred billion over the next decade. And Dan,
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  Speaker 3: I'm going to come to you next on this, but
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  Speaker 3: explain how the math works here, because if you're looking
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  Speaker 3: at Nvidia, I think that this data right or something
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  Speaker 3: was like the share price a loan or the market
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  Speaker 3: cap alone off this rally has risen like one am
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  Speaker 3: D or something like that.
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  Speaker 4: It's most direct competitor.
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  Speaker 3: How do you price in eight hundred million worth of
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  Speaker 3: market over the next ten years.
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  Speaker 7: So one of the things you have to see is
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  Speaker 7: you know what kind of applications are going to be created.
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  Speaker 7: Who's going to be the big beneficiary? Now we talked
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  Speaker 7: about a chip manufacturer. For our point of view, the
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  Speaker 7: cloud players are going to be the biggest beneficiary because
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  Speaker 7: you have to build this thing on a cloud. You
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  Speaker 7: can't really run it in your basement and come up
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  Speaker 7: with applications. These are things that require very fast computation
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  Speaker 7: and very large memory needs. So you need very very
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  Speaker 7: large you know, cloud hyperscale cloud wider, So that's one
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  Speaker 7: big beneficiary. We also think, you know areas where such
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  Speaker 7: as you have a lot of consulting companies are going
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  Speaker 7: to come out and help out to create these applications.
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  Speaker 7: So that's very downstream work. But it really starts with
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  Speaker 7: the chip and the hardware level. Then it trickles down
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  Speaker 7: to software, then it trickles down to services. Everybody in
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  Speaker 7: the ecosystem will get some piece of it. And we've
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  Speaker 7: seen every company service now just had their analysts day.
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  Speaker 7: They spent entires analysts day talking about, you know, how
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  Speaker 7: they're going to improve their product portfolio through it. Adobe
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  Speaker 7: did the same thing, you know, a few weeks ago.
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  Speaker 7: So everybody is spending crazy amount of money trying to
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  Speaker 7: make their products a lot more smarter for the users
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  Speaker 7: to use it.
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  Speaker 4: All right, Dan, your turn. What's your price target? By
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  Speaker 4: the way, on in.
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  Speaker 6: Video, Yes, well, I mean we think the video right here,
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  Speaker 6: I mean five hundred hours when you start to work
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  Speaker 6: at where this could be fat to six hundred hours
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  Speaker 6: could be fair value based on the income and opportunity,
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  Speaker 6: and then you even stream it to Microsoft Poe case.
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  Speaker 6: I mean you could have a start with a foreign
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  Speaker 6: front of it, because now all that incremental spend, it's
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  Speaker 6: going to Microsoft, it's going to Alphabet, it's going to
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  Speaker 6: potential to Amazon and others. In my view to your question,
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  Speaker 6: I view it that now, look execution is clearly there
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  Speaker 6: will be issues. Now there's gonna be losers. There's gonna
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  Speaker 6: be AI roadkill as well. Yeah, but this goes back
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  Speaker 6: to basically a late nineties type feel in terms of
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  Speaker 6: trying trying to identify the winners. There will be losers.
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  Speaker 6: From evaluation perspective, I think it's sort of the it's
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  Speaker 6: a goal rush because now it really changes the whole
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  Speaker 6: paradigm in terms of what the revenue opportunity Paul.
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  Speaker 3: For a radio audience, it's worth saying, he said, a
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  Speaker 3: four handle on Microsoft shares Microsoft shares are training at
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  Speaker 3: three twenty one right now, and a five handle on
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  Speaker 3: end Video training about three eighty a share.
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  Speaker 1: Here's what I see, having been in this market for
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  Speaker 1: more than thirty years, I see the average portfolio manager
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  Speaker 1: anywhere in the world saying I have to have exposure
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  Speaker 1: to AI, calls up as tech analyst. Tech anist comes
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  Speaker 1: back with the NVDA. That's what we're seeing here today.
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  Speaker 1: I don't see. I don't see a seven hundred and
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  Speaker 1: fifty billion dollar market cap stock up twenty five percent
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  Speaker 1: on anything more than just panic buying.
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  Speaker 6: Almost But to your point, I mean, you call it FOMA,
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  Speaker 6: but so many investadors that sit there in debt ceiling,
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  Speaker 6: macro evaluation, you're you missed these moves in the video
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  Speaker 6: in Microsoft and Alphabet in terms of institutional speaking, you're
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  Speaker 6: trying to figure out what fond to use on the
• 9:31
  Speaker 6: resume this year. And I think that's that's sort of
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  Speaker 6: the issue. You could sit there, well, you could talk
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  Speaker 6: valuation till you're blue in the face. That in three
• 9:39
  Speaker 6: bucks gets you. He is not a coffee don't get
• 9:40
  Speaker 6: all right, So when.
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  Speaker 1: You're in Asia talking to clients and they say I
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  Speaker 1: want to get exposure to AI, what do you tell them?
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  Speaker 6: So on the China side, clearly there's there's bob about
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  Speaker 6: ten cent by do you know from a China perspective,
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  Speaker 6: But more and more they're looking for us, and I
• 9:55
  Speaker 6: viewed as the basket. It's it's Microsoft, it's Alphabet. I
• 9:59
  Speaker 6: view powervolunteers and name that's a play here Salesforce dot Com.
• 10:04
  Speaker 6: You have the chip players navidian a MD and then
• 10:07
  Speaker 6: you kind of go down stream data dog, Snowflake, Mango dB.
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  Speaker 6: I mean you're really now starting to look at baskets
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  Speaker 6: and that's why today it all changes. I mean, I
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  Speaker 6: view this as historic. If there was an earnings Hall
• 10:20
  Speaker 6: of Fame, this would be historic in terms of what
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  Speaker 6: it means for broader tech.
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  Speaker 3: An a quick question here on the infrastructure investment dan
• 10:29
  Speaker 3: Way and if you have any thoughts. One of the
• 10:30
  Speaker 3: things that overnight, I promise they're connected, but overnight one
• 10:33
  Speaker 3: of the things that was so shocking was kind of
• 10:34
  Speaker 3: the DeSantis going on Twitter thing. Trust me this connects,
• 10:39
  Speaker 3: but Twitter essentially crashed and a lot of people said, look,
• 10:41
  Speaker 3: they were preparing for a bigger fallout without having the
• 10:44
  Speaker 3: infrastructure to do it. Could a similar thought be applied
• 10:47
  Speaker 3: to this kind of AI boom that everyone's ready for AI,
• 10:49
  Speaker 3: but the infrastructure can't catch up.
• 10:51
  Speaker 7: See that's why I'm saying the hyper schedus love provider
• 10:53
  Speaker 7: us at the right place to be because you don't
• 10:56
  Speaker 7: have a bigger computer than Amazon across the world.
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  Speaker 5: Yeah.
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  Speaker 7: Now Amazon doesn't having you know, partnerships with some of
• 11:01
  Speaker 7: these leading AI. I'll goithm companies right now. But I
• 11:04
  Speaker 7: can bet you in the next twelve months all of
• 11:06
  Speaker 7: that changes. It is just going to happen. So you
• 11:09
  Speaker 7: can't run this thing, you know, in somebody's back office.
• 11:12
  Speaker 7: It just doesn't work that way. Now, we will over time,
• 11:16
  Speaker 7: at any given time, we will see crashes in the
• 11:18
  Speaker 7: cloud infrastructure, just because that's the nature of it. It's
• 11:21
  Speaker 7: a bunch of computers connected together. You know, somebody somewhere
• 11:24
  Speaker 7: it is going to do something stupid that will crash
• 11:27
  Speaker 7: this thing.
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  Speaker 6: I'd also say it is Andy Jasey right now has
• 11:31
  Speaker 6: a number of people in some room somewhere in Seattle,
• 11:34
  Speaker 6: and they're looking at it like they see Microsoft, they
• 11:37
  Speaker 6: see Alphabet. They got to figure out their AI strategy,
• 11:41
  Speaker 6: and that right now, I think is probably the biggest
• 11:43
  Speaker 6: person need there.
• 11:44
  Speaker 1: All right, guys on ock ten seconds. What's your conference
• 11:46
  Speaker 1: again today?
• 11:47
  Speaker 7: Semigindert conference. You can see it on Life Go.
• 11:50
  Speaker 1: Live, Go okay, And two of the best dressed tech
• 11:52
  Speaker 1: analysts on Wall Street right here on a rag Rana
• 11:55
  Speaker 1: from Bloomberg Intelligence, Dan Eyes from what Bush Securities joining
• 11:58
  Speaker 1: us here to help us put in perspective kind of
• 12:00
  Speaker 1: what we're seeing out there on as Dan was suggesting
• 12:02
  Speaker 1: kind of a historic day here for tech, and you've
• 12:04
  Speaker 1: got it. Seems like the markets is opening its eyes
• 12:07
  Speaker 1: today to what AI could mean across the tech stack,
• 12:10
  Speaker 1: and that's what we're seeing. So we thank those gentlemen
• 12:12
  Speaker 1: coming in. This is Bloomberg.
• 12:15
  Speaker 8: You're listening to the team. Ken's a our live program,
• 12:17
  Speaker 8: Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com,
• 12:22
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• 12:25
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• 12:29
  Speaker 1: Let's get off the Nvidia trail for just a second,
• 12:32
  Speaker 1: go little macro here and we could do that with
• 12:34
  Speaker 1: one of our all time faves here, Danielle di Martino, Booth,
• 12:37
  Speaker 1: CEO and chief strategists at QI Research. She was also
• 12:41
  Speaker 1: a former advisor at the Federal Reserve Bank of Dallas,
• 12:44
  Speaker 1: so we always appreciate getting her thoughts and her insight there. Danielle,
• 12:47
  Speaker 1: Let's just start with our good friends Dan in Washington,
• 12:50
  Speaker 1: d C. Trying to figure out a way to pay
• 12:53
  Speaker 1: the bills and everything. How does that hold I guess
• 12:55
  Speaker 1: uncertainty factory and kind of to your outlook and your.
• 12:58
  Speaker 5: Work, Well, it factors in pretty largely given I was
• 13:03
  Speaker 5: around in twenty eleven, and you know now that we're
• 13:07
  Speaker 5: talking about Fitch possibly downgrading the nation's credit it's kind
• 13:11
  Speaker 5: of getting real. And you know, for all of the
• 13:14
  Speaker 5: headlines that speak of progress, that's the one thing that
• 13:18
  Speaker 5: doesn't seem to be getting made is progress. So you
• 13:22
  Speaker 5: have to stuff in wonder right.
• 13:24
  Speaker 3: Well, Danille, talk to us a little bit about the
• 13:27
  Speaker 3: fundamental agreement here, because the formula for GDP is to
• 13:32
  Speaker 3: econ one oh one. A big part of that is
• 13:35
  Speaker 3: government spending. If you were looking at even the flatline
• 13:40
  Speaker 3: offer from the Biden adminstiration, which is just to keep
• 13:43
  Speaker 3: spending the same as it is right now, that's still
• 13:45
  Speaker 3: got to take some sort of toll on economic growth.
• 13:49
  Speaker 3: Why aren't we worried about that?
• 13:52
  Speaker 5: Well, you have a really fundamental question, and we should
• 13:56
  Speaker 5: be worried about that, because once you dig into the
• 14:00
  Speaker 5: the guts of the GDP math, we haven't been getting
• 14:04
  Speaker 5: a lot from the biggest traditional inputs of business investment
• 14:10
  Speaker 5: and consumption. In fact, we've been seeing just the opposite.
• 14:14
  Speaker 5: And if you look at Bank of America proprietary credit
• 14:16
  Speaker 5: card debit card data, that's trending in the same way
• 14:19
  Speaker 5: as well, so these are the times when your economy
• 14:24
  Speaker 5: is slowing into recession that you need the offset of
• 14:28
  Speaker 5: government spending the most exactly.
• 14:31
  Speaker 1: So we had some a little bit of economic data today.
• 14:34
  Speaker 1: We're gonna get some more tomorrow with the PC deflator data,
• 14:37
  Speaker 1: which is obviously real key with the Fed. But just
• 14:40
  Speaker 1: on the job was front. I mean, I don't know
• 14:41
  Speaker 1: how you want to look at I know we had
• 14:42
  Speaker 1: some squirmy numbers coming out of Massachusetts, kind of stuff
• 14:46
  Speaker 1: I usually expect to see in New Jersey. But anyway,
• 14:49
  Speaker 1: jobs claims came in a little bit better and expected
• 14:51
  Speaker 1: at the labor market still looks pretty solid. How do
• 14:54
  Speaker 1: you think about it?
• 14:55
  Speaker 5: So I don't look at the labor market in absolute
• 14:58
  Speaker 5: numbers I research, we haven't for some time. What we
• 15:02
  Speaker 5: look at is the number of states that we have
• 15:05
  Speaker 5: with rising claims, and that really does take all the
• 15:07
  Speaker 5: Massachusetts noise out of the mass and we've had at
• 15:10
  Speaker 5: least two thirds of the states with rising initial and
• 15:13
  Speaker 5: continuing claims here for a persistent period of time. And
• 15:18
  Speaker 5: that tells you that while off, it is off a
• 15:21
  Speaker 5: small base, a low base historically speaking, as it would
• 15:25
  Speaker 5: be coming out of a pandemic that re employed people
• 15:28
  Speaker 5: who wanted to be re employed and left people on
• 15:31
  Speaker 5: the sidelines who were making enough from the government for
• 15:34
  Speaker 5: a good long time. Think of how long the government
• 15:37
  Speaker 5: was paying household rent and still is in states like California.
• 15:42
  Speaker 5: But given the breath of states be R, E. A.
• 15:45
  Speaker 5: D H that are seeing rising initial and continuing jobless claims,
• 15:50
  Speaker 5: we are at or passed recessionary levels.
• 15:55
  Speaker 3: Danille, Is there a way here to still get that
• 15:59
  Speaker 3: shall recession or is the hard landing still the growing
• 16:03
  Speaker 3: base case?
• 16:05
  Speaker 5: Well, I think it grows with every day that the
• 16:07
  Speaker 5: media tells us there's been quote unquote progress on the
• 16:11
  Speaker 5: debt ceiling front, and we up at the end of
• 16:13
  Speaker 5: the day without that progress. So once we can take
• 16:17
  Speaker 5: the air quotes off progress and we actually see a
• 16:19
  Speaker 5: deal done. And even in that case, the Terminal had
• 16:23
  Speaker 5: a story out a few days ago that said that
• 16:26
  Speaker 5: that Wells Fargo figured that if the debt ceiling was
• 16:28
  Speaker 5: resolved by Labor Day, call it, which seems like a
• 16:32
  Speaker 5: we're not even a Memorial day, so Labor Day seems
• 16:35
  Speaker 5: a long ways away. But Wells Fargo said that even
• 16:37
  Speaker 5: if the debt ceiling was resolved by a memorial day
• 16:39
  Speaker 5: that the Treasury Department would have to sell somewhere around
• 16:42
  Speaker 5: one point five trillion dollars in treasuries between then and
• 16:47
  Speaker 5: the end of the first quarter twenty twenty four. That's
• 16:49
  Speaker 5: a lot of liquidity to pull out of a system
• 16:52
  Speaker 5: that's already contending with US households pulling money out of
• 16:56
  Speaker 5: banks and putting them into investments that pay five percent
• 17:00
  Speaker 5: or more.
• 17:02
  Speaker 1: Hey, Danielle. When I when I type into FED go
• 17:04
  Speaker 1: function into the Bloomberg terminal FAD, I get a lot
• 17:07
  Speaker 1: of information about the FED and what's going on there.
• 17:09
  Speaker 1: One of the easiest piece of data is I got
• 17:12
  Speaker 1: another appointment on June fourteenth, which is not only Flag Day,
• 17:15
  Speaker 1: but it's going to be a big day for the markets.
• 17:18
  Speaker 1: I'm guessing the Fed's going to know something about this
• 17:21
  Speaker 1: whole debt ceiling by June fourteenth. One would think, how
• 17:24
  Speaker 1: do you think the Fed's looking at this news every day?
• 17:26
  Speaker 1: Are they hanging on every word like we are, or
• 17:29
  Speaker 1: are they just maybe working under the assumption that things
• 17:32
  Speaker 1: will be okay.
• 17:33
  Speaker 5: So, given I used to work at the FED, I
• 17:36
  Speaker 5: kind of know who's who. And let's just say that
• 17:38
  Speaker 5: Christopher Waller is as close to if you can't get Waller,
• 17:42
  Speaker 5: if you can't get Powell at a microphone, then you
• 17:44
  Speaker 5: can substitute in Christopher Waller. He's about palace closest confidant.
• 17:48
  Speaker 5: And yesterday he said he didn't like the position that
• 17:51
  Speaker 5: the US government had put FED policymakers in, but that
• 17:55
  Speaker 5: that was not formulating into his calculus. I think that's
• 17:58
  Speaker 5: a lot of the reason that we're being the probability
• 18:00
  Speaker 5: of a June fourteenth rate hike the highest since it's
• 18:04
  Speaker 5: been Now we're north of forty percent there for June fourteenth.
• 18:08
  Speaker 5: Yesterday we were talking about, oh, will we get twenty
• 18:10
  Speaker 5: five basis points by July. At this point, we're getting
• 18:14
  Speaker 5: really close to a toss up on June, and we've
• 18:17
  Speaker 5: got some critical data between now and that meeting, And
• 18:20
  Speaker 5: again Waller's saying, we are data dependent. So as we
• 18:23
  Speaker 5: get into their hot employment report in who knows, who
• 18:27
  Speaker 5: knows that they don't go right then on June fourteenth
• 18:30
  Speaker 5: and raise the flag.
• 18:31
  Speaker 3: Danielle connect those dots for us though, how does the
• 18:35
  Speaker 3: debt ceiling affect FED policy? How much of it is inflationary?
• 18:42
  Speaker 5: It's not inflationary, and well back in twenty eleven, the
• 18:46
  Speaker 5: tenure bond. The benchmark tenure yield came down quite dramatically.
• 18:53
  Speaker 5: It was a massive rally in the bond market, and
• 18:56
  Speaker 5: immediately the stock market shaved seventeen percentage point. It's not
• 19:00
  Speaker 5: a small move. So in that sense, it makes the
• 19:04
  Speaker 5: Fed's job easier, But it is the disruptive effect of
• 19:09
  Speaker 5: the financial markets that plays into how policymakers approach FED policy,
• 19:15
  Speaker 5: and if there's something that's highly disruptive, very difficult, and
• 19:19
  Speaker 5: again we forget that. It's like the stock market does
• 19:23
  Speaker 5: yoga before every FED meeting and financial conditions ease. Things
• 19:28
  Speaker 5: always seem to be nicer, more complacent. But again that's
• 19:33
  Speaker 5: just how it always seems to be. Right at the
• 19:35
  Speaker 5: cusp of FED meetings. If there's a massive disruption in
• 19:40
  Speaker 5: the financial markets because of this debt ceiling stand up,
• 19:43
  Speaker 5: makes it much more difficult for the FED to go.
• 19:46
  Speaker 1: Danielle, you know, I've got Eco go on my terminal,
• 19:49
  Speaker 1: But that's basically all I have for economic indicators, and
• 19:52
  Speaker 1: it's pretty high, high level market stuff. I always know
• 19:55
  Speaker 1: you always quote these really obscure things that for you
• 19:57
  Speaker 1: are really important, and you think that really tell it
• 20:00
  Speaker 1: maybe a deeper story, what are you looking at now
• 20:04
  Speaker 1: these days? And kind of what's it telling you?
• 20:08
  Speaker 5: So two things this week, in particular, because it's been
• 20:11
  Speaker 5: a pretty quiet economic data docket, we did see purchase
• 20:17
  Speaker 5: applications for homes did right back down to kind of
• 20:20
  Speaker 5: that thirty year low. And at the same time, I've
• 20:24
  Speaker 5: put what my trader buddies on Wall Street se there,
• 20:27
  Speaker 5: like Danielle, We've got teflation up on our screens, watched
• 20:30
  Speaker 5: tru True inflation since it's like checking a billion prices
• 20:35
  Speaker 5: in real time. And again, it was kind of a moment.
• 20:39
  Speaker 5: It was a threshold. It was a rubicon that was
• 20:41
  Speaker 5: crossed in yesterday's trading that it traded south of the
• 20:44
  Speaker 5: three percent mark. So in the real world, I understand
• 20:48
  Speaker 5: the beautiful models that come out of agencies and the
• 20:52
  Speaker 5: Census Bureau and the BA and the BLS and all
• 20:55
  Speaker 5: of those happy acronyms in the statistical agencies. But in
• 20:58
  Speaker 5: the real world, inflation is breaking below three percent, which
• 21:02
  Speaker 5: is pretty close to the FEDS two percent targets. So
• 21:05
  Speaker 5: and I'm seeing it. My grocery circular is thicker than
• 21:09
  Speaker 5: it used to be. There are more things on sale,
• 21:12
  Speaker 5: and I'm sure as Heck, don't see any help wanted
• 21:15
  Speaker 5: signs where I am. These are the telltale signs.
• 21:18
  Speaker 1: Okay, Danielle DeMartino Booth, thank you so much for joining
• 21:20
  Speaker 1: us on this Thursday before Memorial Day weekend. We appreciated
• 21:24
  Speaker 1: Danielle de Martino Booth. She's the CEO and chief strategistic
• 21:28
  Speaker 1: QI Research, and she a former advisor at the Federal
• 21:31
  Speaker 1: Reserve Bank of Dallas, so really has a unique view
• 21:33
  Speaker 1: into the FED and we always appreciate getting some of
• 21:34
  Speaker 1: her time. And again, one of the many reasons we
• 21:37
  Speaker 1: like talking to Danielle is because she looks at the
• 21:40
  Speaker 1: economic data sets that I didn't even know existed, but
• 21:43
  Speaker 1: they do. And she looks at the data and she's
• 21:45
  Speaker 1: able to put that data into context for us and
• 21:47
  Speaker 1: tell us why it's important and why we should focus
• 21:49
  Speaker 1: on it.
• 21:50
  Speaker 8: You're listening to the tape. Ken's are Live program Bloomberg
• 21:53
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, tune
• 21:57
  Speaker 8: in app, Bloomberg dot Com, and The Bloomberg Business. You
• 22:00
  Speaker 8: can also listen live on Amazon Alexa from our flagship
• 22:03
  Speaker 8: New York station, Just Say Alexa, play Bloomberg eleven thirty.
• 22:09
  Speaker 1: Let's step back a little bit shit gears and talk geopolitics.
• 22:13
  Speaker 1: Let's head over to Europe. A lot of news coming
• 22:15
  Speaker 1: out out of Europe, of course, and where you want
• 22:17
  Speaker 1: to get the latest on the war in Ukraine and
• 22:19
  Speaker 1: some other topics over there. Let's go to Maria today. Oh,
• 22:23
  Speaker 1: she's a European correspondent for Bloomberg News. She is based
• 22:26
  Speaker 1: in our Brussels office over there, but she's all over
• 22:31
  Speaker 1: Europe covering the big stories over there. So Maria, thank
• 22:33
  Speaker 1: you so much for taking some time out of your
• 22:36
  Speaker 1: busy afternoon and evening. Let's start with Ukraine here, the counteroffensive.
• 22:42
  Speaker 1: I kind of thought we might have seen it start
• 22:44
  Speaker 1: by Now, what's the feeling in Europe about when this
• 22:48
  Speaker 1: may start, what it may mean, and how we should
• 22:51
  Speaker 1: think about it?
• 22:53
  Speaker 9: Yes, and it's a free, good question. And today I
• 22:56
  Speaker 9: happen to speak with one of the senior advisors to
• 22:59
  Speaker 9: presidents and I key on this matter. Now, what the
• 23:02
  Speaker 9: Ukrainians will say, and you hear two sides of the story.
• 23:05
  Speaker 9: They say, we're still waiting for more weapons and the
• 23:09
  Speaker 9: counter offensive will be successful, but obviously they do not
• 23:12
  Speaker 9: want to put a date on it. And then on
• 23:15
  Speaker 9: the other hand, you also have other officials also from
• 23:17
  Speaker 9: the Ukrainian government who say, when you launch a counter offensive,
• 23:21
  Speaker 9: this is not going to be like d D when
• 23:23
  Speaker 9: it all happens on one day and this is a
• 23:25
  Speaker 9: make or break. This will be a serious of events
• 23:28
  Speaker 9: that will happen. So it's very difficult and obviously for
• 23:31
  Speaker 9: them too, it's not something that they would do to
• 23:33
  Speaker 9: publicize a date or to say it has started already.
• 23:37
  Speaker 9: But what I can't say, specially when you look to
• 23:40
  Speaker 9: European officials, is that this counter offensive will be key.
• 23:44
  Speaker 9: There's so much going on for Ukraine in terms of
• 23:47
  Speaker 9: the momentum for the war, in terms of whether or
• 23:50
  Speaker 9: not they can make significant gains, and the West has
• 23:54
  Speaker 9: provided money, they have provided weapons.
• 23:56
  Speaker 10: Obviously it's the.
• 23:57
  Speaker 9: Ukrainian people that suffer the war. Is the Ukraine army
• 24:00
  Speaker 9: that fights the war and ultimately also dies in battle.
• 24:03
  Speaker 9: I mean, that's the grim reality of this. But there
• 24:06
  Speaker 9: is a sense that a lot is going on with
• 24:08
  Speaker 9: its kind of friends. It means a lot. If it
• 24:10
  Speaker 9: doesn't go well, it could remove some of the momentum.
• 24:13
  Speaker 9: This idea that Ukraine can win if they are successful
• 24:16
  Speaker 9: and they're able to claim some of the land back,
• 24:19
  Speaker 9: it could change a lot of things in terms of
• 24:20
  Speaker 9: what the future piece may look like.
• 24:23
  Speaker 3: So let's go from the war in Ukraine Maria to
• 24:26
  Speaker 3: the economics of Europe broadly Germany and during its first recession.
• 24:32
  Speaker 3: Talk us through the numbers here and essentially how the
• 24:35
  Speaker 3: biggest economy in Europe is really being interpreted by its
• 24:39
  Speaker 3: peers right now.
• 24:40
  Speaker 9: Well, Germany we always care about for two reasons. Obviously,
• 24:43
  Speaker 9: just the biggest economy in the euro area. So obviously
• 24:46
  Speaker 9: the cloud and the just kind of say they have
• 24:50
  Speaker 9: in talks and negotiations when it comes to anything that
• 24:53
  Speaker 9: gets done in Europe is tremendous. Obviously, this is a
• 24:56
  Speaker 9: country that has the biggest pockets, also a big industrial
• 25:01
  Speaker 9: power for Europe too, on their husband's idea that we
• 25:04
  Speaker 9: have to rebuild the European industry and that Germany will
• 25:08
  Speaker 9: be key because of the well just simply the fact
• 25:11
  Speaker 9: that they know how to make things and they make
• 25:13
  Speaker 9: them very well and also export them very well. When
• 25:16
  Speaker 9: you look at the number today the recession, it is
• 25:18
  Speaker 9: significant in some ways if you look at the political
• 25:22
  Speaker 9: narrative all of Schultz, the Chancellor had repeated many times.
• 25:26
  Speaker 9: Remember he did an interview with our editor in chief
• 25:28
  Speaker 9: about two months ago, and he said, We're not going
• 25:31
  Speaker 9: to have this recession. We're going to escape this recession
• 25:33
  Speaker 9: that we're trying to flip the momentum of it. Today
• 25:36
  Speaker 9: we see the economic reality is different. Having said that,
• 25:39
  Speaker 9: are we shocked surprise? Well, no, because the PMIS had
• 25:43
  Speaker 9: been painting a bad picture for Germany. We knew that
• 25:47
  Speaker 9: manufacturing was already in contraction. We knew that some of
• 25:50
  Speaker 9: the implications of the energy crisis. This was not the
• 25:53
  Speaker 9: winter from Hell that we were expecting. This was not
• 25:56
  Speaker 9: the terrible winter that would break Europe, but obviously lasting
• 26:00
  Speaker 9: effects on the industry, and now we see them play
• 26:03
  Speaker 9: out and beyond Germany. To answer your question a bigger picture,
• 26:06
  Speaker 9: I think it also reflects some of the fears that
• 26:09
  Speaker 9: I hear and see in every panel that I do,
• 26:12
  Speaker 9: in every conference that I've done over the past months,
• 26:14
  Speaker 9: this idea that Europe is losing attractiveness when it comes
• 26:18
  Speaker 9: to the industry. And there was this survey just very briefly,
• 26:21
  Speaker 9: but I think this is so key that came out
• 26:23
  Speaker 9: this week from a very influential European saying tank that
• 26:26
  Speaker 9: said fifty two percent of CEOs would consider changing investments
• 26:31
  Speaker 9: and operations and moving them to North America. That is
• 26:34
  Speaker 9: terrible means for main in Germany. But beyond that, and
• 26:37
  Speaker 9: here's another stat and this is terrible, eighty percent of
• 26:40
  Speaker 9: the CEOs that were surveyed they said that they believe, yes,
• 26:43
  Speaker 9: Europe is losing competitiveness when it comes to the industry.
• 26:47
  Speaker 9: So eighty percent of respond that number is really it
• 26:50
  Speaker 9: is worrying, it is, it is.
• 26:52
  Speaker 1: And in Germany, just following up there in Germany, you know,
• 26:55
  Speaker 1: when I think of Germany, I think some of these
• 26:57
  Speaker 1: great industrial companies Semens and so on, and I think
• 27:00
  Speaker 1: about them making big, big stuff and exporting it to China.
• 27:05
  Speaker 1: So they must have a very difficult political and economic,
• 27:08
  Speaker 1: you know, tightrope to walk in terms of the relationships,
• 27:11
  Speaker 1: the relationship with China. How do they phrase it? How
• 27:14
  Speaker 1: does the German government phrase it?
• 27:16
  Speaker 9: Yes, for sure, and it's not just the big companies
• 27:19
  Speaker 9: in Germany that we all know of, and obviously they
• 27:22
  Speaker 9: make things that are very well and then very well
• 27:23
  Speaker 9: done and that they sell, but it's also the atames. Remember,
• 27:27
  Speaker 9: Germany is a country that is built on small to
• 27:30
  Speaker 9: medium companies too, that that are interconnected.
• 27:32
  Speaker 11: With the big ones.
• 27:33
  Speaker 9: But it doesn't stop there because Germany is also a
• 27:36
  Speaker 9: country that buys components and parts to countries like Italy,
• 27:40
  Speaker 9: So a recession in Germany has trickled down effects on
• 27:43
  Speaker 9: countries like Italy. So overall this is a very heavily
• 27:45
  Speaker 9: connected economy when you look at China. Look, this is
• 27:49
  Speaker 9: a difficult question for Germany, but also the European Union overall.
• 27:53
  Speaker 9: When you see the G seven statement and all of
• 27:56
  Speaker 9: Scheltz obviously participates representing Germany, they all agree in the
• 27:59
  Speaker 9: communication that they have to de risk the economy, not decouple,
• 28:04
  Speaker 9: and they mentioned China in that statement twenty times. I
• 28:07
  Speaker 9: have never seen that in the GET statement, So that
• 28:10
  Speaker 9: shows the political jitters are obviously playing out. They have
• 28:13
  Speaker 9: been accelerated by the war in Ukraine. But for Germany
• 28:15
  Speaker 9: this is a very very difficult question because on the
• 28:18
  Speaker 9: one hand, the relationship with Russia on the energy is
• 28:21
  Speaker 9: over the North Triam blew up. But also a major
• 28:24
  Speaker 9: recipient of your experts. You're now having to rethink is
• 28:27
  Speaker 9: this country a partner, is there a revival? Is it
• 28:30
  Speaker 9: a challenge? And now what do you do after years
• 28:33
  Speaker 9: in which China was a huge market for Germany and
• 28:35
  Speaker 9: continues to be Maria.
• 28:38
  Speaker 3: In the absence of, let's say, some sort of transition
• 28:41
  Speaker 3: or diversification away from China, who's the benefactor from Germany's perspective.
• 28:46
  Speaker 9: From Germany's I look again, it's a good question because
• 28:51
  Speaker 9: and it goes back to the initial point that I
• 28:53
  Speaker 9: made on European CEOs being gloomy. What they feel is like,
• 28:58
  Speaker 9: if we lose business with China, if we also have
• 29:02
  Speaker 9: a lot of the regulation that kicks in, especially when
• 29:04
  Speaker 9: it comes to the greening the economy, there's all these
• 29:06
  Speaker 9: transitions that are going on, and we don't have the
• 29:08
  Speaker 9: money and the type of subsidies that perhaps a transformation
• 29:12
  Speaker 9: like this would entail. Then one of the big beneficiaries
• 29:16
  Speaker 9: is obviously the United States, and we know that for
• 29:19
  Speaker 9: the Europeans there have been a lot of concerns now
• 29:21
  Speaker 9: for the Inflatient Reduction Act. What they mean when obviously
• 29:24
  Speaker 9: they see a survey, we're one in two CEOs essentially
• 29:27
  Speaker 9: say I would consider relocated to North America.
• 29:30
  Speaker 5: That is problematic.
• 29:31
  Speaker 9: But at the same time, you find yourself in a
• 29:32
  Speaker 9: situation where again politically and diplomatically, the United States and
• 29:37
  Speaker 9: the European Union are very close now because of the
• 29:39
  Speaker 9: war in Ukraine.
• 29:41
  Speaker 1: Maria, thank you so much for joining us. I really
• 29:42
  Speaker 1: appreciate getting your perspective about all things Europe. Lots to
• 29:46
  Speaker 1: think about there. Maria Today, European correspondent for Bloomberg News.
• 29:51
  Speaker 1: She does fantastic reporting from all of the hotspots around Europe,
• 29:56
  Speaker 1: including Ukraine. So again some great color there from Maria
• 29:59
  Speaker 1: today on the ground in Europe.
• 30:03
  Speaker 8: You're listening to the Team Ken's are Live program Bloomberg
• 30:07
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg dot Com,
• 30:10
  Speaker 8: the iHeartRadio app, and the Bloomberg Business App, or listen
• 30:14
  Speaker 8: on demand wherever you get your podcasts.
• 30:18
  Speaker 1: Next guest, this is kind of stuff right in my wheelhouse.
• 30:20
  Speaker 1: We're talking leverage finance, you know, putting loan. I had
• 30:24
  Speaker 1: the first when I was at Chaseman, a bank. We
• 30:26
  Speaker 1: lent to a company called god I can't remember it
• 30:29
  Speaker 1: became next Star, became oh, it's fleet Call. I was
• 30:32
  Speaker 1: asking for a two hundred fifty million dollar loan on
• 30:35
  Speaker 1: no assets, wow, no cash flow. We were lending against
• 30:39
  Speaker 1: air and we got the loan. Our committee we finally
• 30:42
  Speaker 1: took us like three weeks of meetings, but we finally
• 30:44
  Speaker 1: convinced her and it turned out to be fleet call.
• 30:46
  Speaker 1: We made a ga jillion dollars on the warrants. Ted Swimmer,
• 30:48
  Speaker 1: he knows what I'm talking about. He's head of Capital
• 30:50
  Speaker 1: Markets and Citizens Financial. Ted. You guys at Citizens Financial
• 30:53
  Speaker 1: kind of mid market upper mid market financing deals getting
• 30:56
  Speaker 1: deals done. Tell us about that part of the market today,
• 31:00
  Speaker 1: because here's sman and I we just sit around and
• 31:02
  Speaker 1: we talk about the debt ceiling and the FED and
• 31:04
  Speaker 1: stuff like that. You're on the ground helping companies raise
• 31:07
  Speaker 1: capital to grow and to buy stuff and build stuff.
• 31:10
  Speaker 1: What do you see?
• 31:11
  Speaker 11: You know, it feels a lot better out there than
• 31:14
  Speaker 11: it has in about a year year and a half.
• 31:17
  Speaker 11: You know, a year ago, we saw M and A
• 31:20
  Speaker 11: kind of cease, a lot of people concerned about how
• 31:22
  Speaker 11: high rates we're going to go, People uncomfortable with trying
• 31:26
  Speaker 11: to raise debt in the public markets and the private markets.
• 31:29
  Speaker 11: And we saw a real pause in M and A
• 31:31
  Speaker 11: and in debt financing. If you've just looked the last
• 31:36
  Speaker 11: two months, a fair amount of transactions that started to
• 31:39
  Speaker 11: be announced, underwritten by banks, underwritten by debt direct lenders.
• 31:43
  Speaker 11: We're starting to see the market unfreeze a little bit,
• 31:45
  Speaker 11: and we're starting to see, especially for really good companies,
• 31:48
  Speaker 11: a very very active m and a market, so things
• 31:51
  Speaker 11: feel a heck of a lot better than they did.
• 31:53
  Speaker 12: That kind of sounds surprising to me because at the
• 31:55
  Speaker 12: same time, you know, the Fed's talking about tightening lending conditions.
• 31:58
  Speaker 12: You know, that's what we're hearing from money managers as well.
• 32:01
  Speaker 12: And you're in this upper middle market space. Shouldn't this
• 32:05
  Speaker 12: regional banking stress kind of take away from some of
• 32:08
  Speaker 12: these things have the opposite effect.
• 32:10
  Speaker 11: Perhaps, Well, there's there's a lot of different parts in
• 32:13
  Speaker 11: the lending market. There's a leverage finance market which is
• 32:16
  Speaker 11: funded a lot by colos and things of that nature,
• 32:20
  Speaker 11: and by direct lenders, and you know, as banks sell
• 32:22
  Speaker 11: a fair amount of these exposures off the markets to do,
• 32:25
  Speaker 11: those have unfrozen. You've seen the secondary levels trade up,
• 32:29
  Speaker 11: both on the bank and the bond side, which are
• 32:32
  Speaker 11: giving and banks a lot more comfort in underwriting the
• 32:35
  Speaker 11: transactions which they didn't have this time last year. I mean,
• 32:40
  Speaker 11: you saw how the bank the bank index kind of
• 32:42
  Speaker 11: went down about ten points, bond index trading in the
• 32:44
  Speaker 11: low eighties. That's all reversed and if we're still not
• 32:48
  Speaker 11: back to where we were twenty twenty one, but it
• 32:50
  Speaker 11: feels a heck a lot better than it did recently.
• 32:53
  Speaker 11: But let's go ahead.
• 32:54
  Speaker 1: You know, I just want to ask you about one
• 32:56
  Speaker 1: of the big topics that I like here, and it
• 32:58
  Speaker 1: seems like a real growth business on Wall Street over
• 32:59
  Speaker 1: the several years has been private credit, not private equity,
• 33:03
  Speaker 1: private credit, and coming down the Great Financial Crisis, a
• 33:06
  Speaker 1: lot of the banks really were curtailed in their ability
• 33:09
  Speaker 1: to take to type of lending they could do, with
• 33:12
  Speaker 1: the risks they could take on. And I kind of
• 33:13
  Speaker 1: created this private credit business and it seems like they're
• 33:16
  Speaker 1: raising money hand over fist. How do you deal with
• 33:19
  Speaker 1: how do you view private credit in the marketplace as
• 33:22
  Speaker 1: a competitor to you guys.
• 33:23
  Speaker 11: It's a competitor, and it's also it's also somebody we
• 33:27
  Speaker 11: work with, so as we underwrite transactions, sometimes we'll move
• 33:31
  Speaker 11: it over to the CLO market more of a public
• 33:34
  Speaker 11: not public, but more diversified market, and sometimes we'll work
• 33:38
  Speaker 11: directly with private credit to help place deals. If you
• 33:41
  Speaker 11: look at a lot of the deals that are coming out,
• 33:43
  Speaker 11: some of the larger deals, you'll see a combination of
• 33:46
  Speaker 11: bank underwriting and private credit both underwriting the transaction together now,
• 33:52
  Speaker 11: so you're starting to see these markets I think, start
• 33:54
  Speaker 11: to merge a little bit more. And it's not just
• 33:56
  Speaker 11: private credit or bank you're seeing a combination of both.
• 34:00
  Speaker 11: Blackstone did a deal last year where you saw them
• 34:03
  Speaker 11: both use the bank market and the private credit market
• 34:05
  Speaker 11: to get something done. So you've seen a combination of
• 34:08
  Speaker 11: those markets come together.
• 34:10
  Speaker 12: Well, we talked about this enthusiasm for private credit. I mean,
• 34:15
  Speaker 12: has I feel like that's the only thing we read
• 34:17
  Speaker 12: about on top on the Bloomberg terminal? Has this gotten
• 34:20
  Speaker 12: over as skis? Has too much money been raised? Or
• 34:23
  Speaker 12: how does this How does this money enter the economy
• 34:26
  Speaker 12: over the next couple of years.
• 34:28
  Speaker 11: Well, it enters the economy with an increase in M
• 34:30
  Speaker 11: and A flow. I mean a lot of the deals
• 34:32
  Speaker 11: that are being h that are that are being a
• 34:36
  Speaker 11: lot of the financing is going into these new M
• 34:39
  Speaker 11: and A transactions. And I think you've seen a period
• 34:41
  Speaker 11: of time over the last year where there hasn't been
• 34:43
  Speaker 11: a lot of M and A and you've seen the
• 34:45
  Speaker 11: private credit funds build up capacity. So there's a lot
• 34:49
  Speaker 11: of unused capacity which I think will help fund as
• 34:52
  Speaker 11: people get more and more comfortable with valuations and whatever,
• 34:55
  Speaker 11: this new rate environment looks like you'll see an avenue
• 34:59
  Speaker 11: for both private credit and for colo credit put to
• 35:02
  Speaker 11: work in order to finance these transactions.
• 35:05
  Speaker 1: So you guys at Citizens hosted a conference in Atlanta recently,
• 35:09
  Speaker 1: and presumably that's where you bring companies together, sponsors together,
• 35:12
  Speaker 1: and you guys try to generate some conversations and hopefully
• 35:15
  Speaker 1: some some trades down the line. What was kind of
• 35:17
  Speaker 1: the conversation when he brought these folks together.
• 35:20
  Speaker 11: Sounds like you were there, Paul, you described I described
• 35:24
  Speaker 11: many of them. Yeah, you know, it was a very
• 35:27
  Speaker 11: optimistic group. We've we've had we've hosted this conference in
• 35:30
  Speaker 11: the last four or five years, and we saw more optimism.
• 35:36
  Speaker 11: We we had a record amount of attendance, a market
• 35:38
  Speaker 11: amount of sponsors, financial at private equity firms, and a
• 35:41
  Speaker 11: record amount of companies looking to try to transact.
• 35:44
  Speaker 6: Now.
• 35:45
  Speaker 11: I think what we're what we're hearing is for really
• 35:48
  Speaker 11: solid companies, there's a very very active market and an
• 35:51
  Speaker 11: aggressive market to get those transactions done. For a little
• 35:55
  Speaker 11: bit more storied credits. We're still seeing it'll be a
• 35:58
  Speaker 11: little slow, but our pipelines right now at a record amount,
• 36:01
  Speaker 11: and it's just a question of can we get a
• 36:03
  Speaker 11: buyer and a seller together.
• 36:04
  Speaker 1: To how about you? You bring it? Host this conference,
• 36:08
  Speaker 1: you get you get some conversations going boom, you think
• 36:11
  Speaker 1: you got a deal, you get them together, you go
• 36:13
  Speaker 1: to your credit committee, or you go to whoever. Can
• 36:15
  Speaker 1: you get deals done? Leverage deals or with a little
• 36:18
  Speaker 1: hair on them? What's it like going to try to
• 36:21
  Speaker 1: get some some of these deals done right now?
• 36:26
  Speaker 11: It's not easy ran Obviously, banks are thinking about a
• 36:29
  Speaker 11: lot of different things right now as they're putting capital
• 36:32
  Speaker 11: to work. But again, a lot of these deals are
• 36:33
  Speaker 11: distributed to markets where we can, which is very active
• 36:38
  Speaker 11: and very liquid right now. I mean, to Simon's point earlier,
• 36:41
  Speaker 11: you've seen a ton of private credit raised, there's a
• 36:45
  Speaker 11: lot of there's a lot of desire to put money
• 36:47
  Speaker 11: to work. You've seen very little loan issuance over the
• 36:50
  Speaker 11: last year, so there's a really pent up demand on
• 36:52
  Speaker 11: the COLO side. So although banks are not necessarily desirous
• 36:56
  Speaker 11: to hold big capital commitments right now, there are other
• 37:00
  Speaker 11: avenues of investors that are and our ability to put
• 37:03
  Speaker 11: the buyer and the seller together take some distribution risk
• 37:07
  Speaker 11: has never I wouldn't say never been as good, but
• 37:09
  Speaker 11: it is certainly improving over the last twenty for twelve months.
• 37:13
  Speaker 12: When you look down to I guess lower middle kind
• 37:17
  Speaker 12: of credits, is that somewhere you see a little bit
• 37:21
  Speaker 12: more anxiety.
• 37:22
  Speaker 11: Yes, absolutely, the lower And just to clarify what we're
• 37:26
  Speaker 11: talking about, I would say upper middle market is epita
• 37:30
  Speaker 11: sizes of the fifty million dollars or greater, so enterprise
• 37:33
  Speaker 11: value somewhere between four hundred and a billion dollars type things.
• 37:37
  Speaker 11: When you start looking at lower that's become a market
• 37:40
  Speaker 11: that has been more dominated by direct lenders as they've
• 37:43
  Speaker 11: been able to do things that are banks would have
• 37:46
  Speaker 11: a tough time during the due to a regulatory environment
• 37:49
  Speaker 11: to get done, but the direct lenders can certainly do
• 37:53
  Speaker 11: as they're not obviously regulated by the bank. So we're
• 37:56
  Speaker 11: seeing a lot of appetite from that for those type
• 37:59
  Speaker 11: transactions getting done with direct lenders.
• 38:01
  Speaker 12: Because it was really interesting, the CEO of Citizens Financial
• 38:05
  Speaker 12: was on Bloomberg Markets yesterday and he was talking about
• 38:07
  Speaker 12: how restricting reining in credit by two to three percent
• 38:13
  Speaker 12: was going to essentially help the FED do its job,
• 38:16
  Speaker 12: but it does seem to really disadvantage smaller businesses.
• 38:21
  Speaker 11: It's a great point. I think a lot of that
• 38:23
  Speaker 11: was done prior right after, as Paul mentioned that the
• 38:25
  Speaker 11: Great Recession, when the regulatory environment became harder, we really
• 38:29
  Speaker 11: saw direct lenders pick up some of the slack. But
• 38:31
  Speaker 11: I think as you get to more corporate driven transactions
• 38:35
  Speaker 11: that don't necessarily have tradition relied on the bank, I
• 38:37
  Speaker 11: think that's where you're going to see some issues if
• 38:41
  Speaker 11: things get tighter from a lending perspective, because banks are
• 38:43
  Speaker 11: used to holding very large dollar amounts of those and
• 38:46
  Speaker 11: obviously that's going to become more expensive as capital becomes
• 38:49
  Speaker 11: more precious.
• 38:50
  Speaker 1: What are some of the sectors you guys like right here?
• 38:54
  Speaker 1: Some sectors you like investing in and business with right now.
• 38:57
  Speaker 11: So we're doing a fair amount with data Center's. Digital
• 39:01
  Speaker 11: infrastructure is a great space for us right now. We're
• 39:04
  Speaker 11: seeing We just purchased an m and a firm called
• 39:06
  Speaker 11: DH Capital that specializes in that, and we've had a
• 39:10
  Speaker 11: great run in that business and we see that as
• 39:13
  Speaker 11: a real growth engine over the next couple of years.
• 39:17
  Speaker 11: A lot of business technology, business outsourcing, things of that nature.
• 39:24
  Speaker 11: We've been showing a commercial industrial industrial flows stuff for
• 39:28
  Speaker 11: doing a fair amount in there. So those areas have
• 39:32
  Speaker 11: really grown and seem to be somewhat especially the digital infrastructure,
• 39:36
  Speaker 11: somewhat immune to concern around the overall economy that seems
• 39:39
  Speaker 11: to be a never ending need for the capital and
• 39:41
  Speaker 11: now business.
• 39:43
  Speaker 1: So all right, Ted, thanks so much for coming in.
• 39:45
  Speaker 1: Appreciate it as always, Ted Swimmer, you set of capital
• 39:48
  Speaker 1: markets at Citizens Financial, joining us live in our Bloomberg
• 39:51
  Speaker 1: Interactive Brokers Studio. None of this phony and in garbage
• 39:54
  Speaker 1: coming in live to the Bloomberg Term studio.
• 39:57
  Speaker 8: You're listening to the tape Cancher Line program. I'm Bloomberg
• 40:00
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 40:04
  Speaker 8: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 40:07
  Speaker 8: You can also listen live on Amazon Alexa from our
• 40:10
  Speaker 8: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
• 40:16
  Speaker 1: Marie Driscoll. She's a luxury retail analyst for Core Site Research.
• 40:20
  Speaker 1: Got lots of experience in the retail space, and let's
• 40:23
  Speaker 1: start with with the luxury space here. I'm just looking
• 40:26
  Speaker 1: at LVMH. That's kind of one of the names I
• 40:28
  Speaker 1: kind of know, and it's big. It's four hundred billion
• 40:31
  Speaker 1: market cap. I'm looking at the French shares that trade
• 40:34
  Speaker 1: in France up twenty percent year to date of fifty
• 40:37
  Speaker 1: percent on a troilling twelve month basis. Talk to us
• 40:40
  Speaker 1: about retail space. What are you seeing out there these days?
• 40:44
  Speaker 10: So if we're talking about luxury in LVNH, you know
• 40:49
  Speaker 10: there's still pockets of money. The aspirational shopper is definitely
• 40:55
  Speaker 10: more purposeful and making the purchases, you know, with thought.
• 41:01
  Speaker 10: And we heard that from the likes of Walmart.
• 41:05
  Speaker 13: On up.
• 41:07
  Speaker 10: But for a company like LVMH that has seventy five
• 41:11
  Speaker 10: brands in the luxury space, and brands that are powerfully
• 41:16
  Speaker 10: supported throughout various economic cycles, these brands hold a lore
• 41:22
  Speaker 10: and they never, they really rarely marked down. Their key
• 41:27
  Speaker 10: brands like a Christian Dior or the Louis Duitan. They're
• 41:32
  Speaker 10: not marked down, and because of that, many consumers look
• 41:37
  Speaker 10: at them as like storage value, like you know that
• 41:41
  Speaker 10: when you buy it, you're not making a mistake. It
• 41:43
  Speaker 10: won't be marked down next week. Luxury shoppers are still shopping.
• 41:47
  Speaker 10: People are being more purposeful, and you do see a
• 41:50
  Speaker 10: bifurcated market. The people that have are spending, and they're
• 41:55
  Speaker 10: not spending flagrantly, but they're still buying luxury products. Has
• 42:00
  Speaker 10: also benefited from price increases for the last few years.
• 42:04
  Speaker 10: China is coming back, so we expect to see a
• 42:07
  Speaker 10: slow down in US consumption of luxury as the US
• 42:11
  Speaker 10: consumer deals with the impacts of inflation and also reverts
• 42:16
  Speaker 10: back to a pre COVID lifestyle of increased experiences. Experiences
• 42:23
  Speaker 10: are where the consumer is encountering severe inflation. You know,
• 42:29
  Speaker 10: twenty to forty percent increases in the price of going
• 42:33
  Speaker 10: out to eat or staying in a hotel airfare, and
• 42:36
  Speaker 10: yet consumers want that. There's pent up demand for that,
• 42:40
  Speaker 10: and so as consumers spend on those experiences in America,
• 42:45
  Speaker 10: they're less likely to be spending on another expensive handbag.
• 42:51
  Speaker 10: Though the handbag is the handbag that remains of choice
• 42:53
  Speaker 10: and they'll spend on it when they when they decide
• 42:56
  Speaker 10: to do so. But this year luxury will see the
• 43:00
  Speaker 10: benefits of the Chinese returning to the market with the
• 43:03
  Speaker 10: opening of China again, and other UAE will be strong.
• 43:08
  Speaker 10: And also you have gen Z supporting you know, a
• 43:12
  Speaker 10: younger a younger luxury shopper that is supporting luxury.
• 43:16
  Speaker 12: All right, Well, you know we have been hearing from
• 43:18
  Speaker 12: CEOs across the consumer space about this softening of US demand.
• 43:25
  Speaker 12: Take me through the details of that. Which demographics are
• 43:30
  Speaker 12: feeling the pinch most, and that who are the recipients
• 43:36
  Speaker 12: or of this potential cynicism and you know, inflation tightening
• 43:40
  Speaker 12: of belts from consumers.
• 43:42
  Speaker 10: Yeah, so you see like people are tightening their belts.
• 43:46
  Speaker 10: Like if you just listen to the Walmart Paul, people
• 43:51
  Speaker 10: are purposeful, they're looking for bargains Walmart. During COVID, Walmart
• 43:57
  Speaker 10: attracted many consumers earning one hundred thousand a year or more,
• 44:03
  Speaker 10: and of course they're trying to retain them as customers
• 44:07
  Speaker 10: this year. This year, you know, higher end consumers. Everybody
• 44:11
  Speaker 10: feels inflation. And you know, except for the one percent,
• 44:17
  Speaker 10: most people feel inflation. They feel it in their growth
• 44:21
  Speaker 10: rey bills, they feel it in going out to eat,
• 44:24
  Speaker 10: and in their travel and it's and various services and
• 44:28
  Speaker 10: experience it and so there while there's demands for selected
• 44:34
  Speaker 10: items like if you recently cold, which is very Middle
• 44:38
  Speaker 10: America reported, and where did they see strength? They saw
• 44:42
  Speaker 10: incredible strength and beauty so people are still saying, I'm
• 44:46
  Speaker 10: going to buy I'm going to have this cheap taste
• 44:49
  Speaker 10: of luxury and with a fragrance or a lipstick. And
• 44:53
  Speaker 10: guess what, you can use ellipstick every day. So it's
• 44:56
  Speaker 10: got efficacy which is similar to using luxury hand you know,
• 45:01
  Speaker 10: so you can there's room for that. So the last
• 45:04
  Speaker 10: few years, we've spent a lot on casual attire calls,
• 45:08
  Speaker 10: a big increase in both men's and women's more occasion
• 45:15
  Speaker 10: the attire or address the.
• 45:18
  Speaker 12: Attire right, you know, with calls though, I mean, you
• 45:23
  Speaker 12: saw shares pop up seven and a half percent, but
• 45:27
  Speaker 12: I think you know during the day that was quite
• 45:29
  Speaker 12: a bit higher. Is it enough for these companies to
• 45:34
  Speaker 12: just sort of like beat the estimates that their executives
• 45:37
  Speaker 12: put out. Is that what we're seeing in the market
• 45:41
  Speaker 12: reaction or are we seeing some fundamental sense from investors
• 45:45
  Speaker 12: that the consumer is a little bit better off than
• 45:48
  Speaker 12: they had anticipated going into earning season.
• 45:52
  Speaker 10: So you know, you know, reading enough and listening to
• 45:57
  Speaker 10: enough call during the last week or two, A few
• 46:01
  Speaker 10: of the big takeaways are that while sales may not
• 46:06
  Speaker 10: be meeting ejectives, and the consumer is more purposeful and
• 46:10
  Speaker 10: there's winners and there's losers. Here I'm going to quote
• 46:14
  Speaker 10: what the Dick Hayne's urban outfitter said. The hostile operating
• 46:20
  Speaker 10: environment of the last few years has finally abated. Freight
• 46:24
  Speaker 10: rates are have normalized, Supply chain speed and reliability have returned.
• 46:30
  Speaker 10: Our initial merchandise markup. Improvement initiatives have begun to bear fruit,
• 46:36
  Speaker 10: and total inventories are down and we're once again growing
• 46:39
  Speaker 10: inventories that have slower rates themselves. That kind of the
• 46:45
  Speaker 10: way he characterized his business is what I was seeing
• 46:48
  Speaker 10: across many businesses. While the top line isn't there. The
• 46:52
  Speaker 10: erratic business operating environment we've dealt with in the last
• 46:57
  Speaker 10: three years with peaks of this man not enough, not
• 47:01
  Speaker 10: enough supply, then the rush of supply and too much
• 47:05
  Speaker 10: and not enough demand is abating, and we're entering a
• 47:10
  Speaker 10: time when now the costs of getting your products to
• 47:14
  Speaker 10: the store are less. You're seeing a return to stores.
• 47:19
  Speaker 10: Digital is strolling down, people are in the stores.
• 47:22
  Speaker 12: So the fundamental post pandemic improvements, you know, that's what
• 47:27
  Speaker 12: we're seeing rather than yeah, I think consumer.
• 47:30
  Speaker 10: And if we can get through a quarter or two
• 47:33
  Speaker 10: of you know, like the consume, like these are the
• 47:38
  Speaker 10: summer is the week quarter. The summer is when the
• 47:41
  Speaker 10: US consumer is out traveling. If we can get through that,
• 47:45
  Speaker 10: the second half of the year should be a better time.
• 47:48
  Speaker 10: And I think investors should be looking at that.
• 47:50
  Speaker 1: Hey, Marie, China reopening. As I walk through Midtown and
• 47:55
  Speaker 1: down Fifth Avenue and Madison Avenue, I see tons of
• 47:57
  Speaker 1: European shoppers. I don't see Chinese. When are they coming back?
• 48:02
  Speaker 10: Yeah, so, you know, of course that is very close
• 48:05
  Speaker 10: to the Chinese consumer. We have offices there, we have
• 48:08
  Speaker 10: analysts on the ground, and we've been following them for
• 48:10
  Speaker 10: probably eight years and more, and but we're you know,
• 48:15
  Speaker 10: it's going to take six to twelve months for them
• 48:18
  Speaker 10: to come back. They just opened up in February, basically,
• 48:21
  Speaker 10: and it takes a while to get your travel plants
• 48:25
  Speaker 10: in order. We don't really see it coming end of
• 48:29
  Speaker 10: this year, next year, but the Europeans are here, and
• 48:34
  Speaker 10: the Chinese are starting to travel domestically within within the
• 48:39
  Speaker 10: Asia region, and so many American brands will benefit from that,
• 48:45
  Speaker 10: you know, the European brand.
• 48:46
  Speaker 1: Yeah, absolutely, absolutely well, they're welcome on Fifth Avenue, the
• 48:49
  Speaker 1: walkome on Madison Avenue. I'm sure I speak for all
• 48:52
  Speaker 1: the retailers there, because when you talk luxury retail, a big,
• 48:55
  Speaker 1: big component, a big driver is the Chinese Chinese consumer.
• 48:59
  Speaker 1: Marie Driscoll, luxury retail analysts at Corsite Research, joining us
• 49:02
  Speaker 1: here to talk to us all things retail. Despite some
• 49:05
  Speaker 1: of the tough headwinds out there in terms of inflation
• 49:08
  Speaker 1: and economic concern NEI, there are certain pockets of some
• 49:10
  Speaker 1: retail strength, and we're seeing other areas where some consumers
• 49:13
  Speaker 1: are trading down a little bit.
• 49:14
  Speaker 8: You're listening to the tape. Can's are live program Bloomberg
• 49:17
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 49:21
  Speaker 8: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 49:24
  Speaker 8: You can also listen live on Amazon Alexa from our
• 49:27
  Speaker 8: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
• 49:33
  Speaker 1: I think one of my favorite stories coming out of
• 49:35
  Speaker 1: Bloomberg News this week was won by John Gittelson about
• 49:40
  Speaker 1: Downtown LA's office distress. So's the pain coming for cities A.
• 49:44
  Speaker 1: This is an incredibly well sourced and reported story, and
• 49:47
  Speaker 1: it's got just killer graphics by Kyle Kim, and it
• 49:51
  Speaker 1: really brings home some of the problems we're going to
• 49:53
  Speaker 1: see in some of these big US cities that you
• 49:55
  Speaker 1: wouldn't necessarily think but like LA, go figure. So anyway,
• 49:59
  Speaker 1: us on. He's a reporter, real estate reporter for Bloomberg News. John,
• 50:02
  Speaker 1: thanks so much for joining us here. I said to
• 50:04
  Speaker 1: our producer Eric, we got to get John on here
• 50:06
  Speaker 1: because this is a great story. Here. Talk to us
• 50:08
  Speaker 1: about LA and some of the primo building's iconic been
• 50:13
  Speaker 1: in buildings in LA. They're in a lot of trouble,
• 50:15
  Speaker 1: aren't they.
• 50:17
  Speaker 14: Yeah, they really are. I mean, downtown LA has not
• 50:21
  Speaker 14: really been a magnet for office workers for quite a while,
• 50:25
  Speaker 14: but the pandemic really gave it this punch to the stomach.
• 50:30
  Speaker 14: And so the biggest landlord, Brookfield, is defaulted on three
• 50:38
  Speaker 14: buildings and it's got more troubled dead out there. So
• 50:42
  Speaker 14: one point one billion dollars worth of loans it's not
• 50:46
  Speaker 14: been paying and uh more trouble on the way trying
• 50:50
  Speaker 14: to refinance those buildings.
• 50:51
  Speaker 12: Yeah, talk to me about what happens exactly to those buildings.
• 50:55
  Speaker 12: I'm sure some of it we don't know. So Brookfield
• 50:59
  Speaker 12: in some cases has said we'll step away from this
• 51:02
  Speaker 12: building completely. I believe based on the story, but it's
• 51:06
  Speaker 12: not necessarily true for all of them.
• 51:08
  Speaker 14: Take me through the process, that's right, Well, I mean
• 51:11
  Speaker 14: there's a lot of options. Basically, though, these buildings are underwater,
• 51:16
  Speaker 14: so that means their debt is bigger than the value
• 51:20
  Speaker 14: of the buildings themselves. So what can happen is the
• 51:23
  Speaker 14: lenders can say, Okay, well take a haircut and you
• 51:27
  Speaker 14: can keep running the building. You can keep managing it.
• 51:30
  Speaker 14: Or the owner can walk away and somebody else could
• 51:36
  Speaker 14: take over the building could sell for a loss to
• 51:39
  Speaker 14: a new owner. Theoretically, down the road, maybe some of
• 51:44
  Speaker 14: these buildings could be converted to another use, like an
• 51:48
  Speaker 14: apartment building. But a lot of these are kind of
• 51:50
  Speaker 14: like nineteen eighties nineteen nineties office towers that would be
• 51:54
  Speaker 14: very hard to convert to apartments.
• 51:56
  Speaker 1: The eighties were very good for me, John.
• 52:00
  Speaker 14: Well, they weren't necessarily good buildings in today's world. You're
• 52:04
  Speaker 14: in your prime, so.
• 52:07
  Speaker 1: So it's interesting, John, like I noticed, you know what
• 52:10
  Speaker 1: my experience with downtown la is. I would go see
• 52:12
  Speaker 1: Capital Research Group and the Trust Company of the West,
• 52:15
  Speaker 1: and that was kind of it. Every all the other
• 52:17
  Speaker 1: asset managers and financial firms were kind of scattered throughout
• 52:20
  Speaker 1: the Greater LA area. Who is in downtown before, Well,
• 52:24
  Speaker 1: that's a good point.
• 52:26
  Speaker 14: Yeah, I mean there's a lot of law firms. There's
• 52:28
  Speaker 14: a lot of accounting firms. One of the two of
• 52:31
  Speaker 14: the towers actually that Brookfield owns at the top of
• 52:33
  Speaker 14: the building once says ey Plaza, which is Ernest and Young.
• 52:37
  Speaker 14: The other one is Deloitte, another accounting firm. A lot
• 52:40
  Speaker 14: of law firms. Those businesses are classic like we don't
• 52:44
  Speaker 14: need all this office space because our workers maybe work
• 52:49
  Speaker 14: in somebody else's office, or they can work remotely so
• 52:52
  Speaker 14: they don't necessarily need to go downtown. Then there's a
• 52:54
  Speaker 14: lot of government workers downtown. About a third of the
• 52:57
  Speaker 14: employment based downtown is like city, county, state, federal court
• 53:02
  Speaker 14: type of government workers, many of whom continue to work remotely.
• 53:07
  Speaker 12: You mentioned potentially converting these buildings into you know, perhaps
• 53:12
  Speaker 12: apartments or something like that. Kyle bass Back, I believe
• 53:16
  Speaker 12: last month was talking about how, you know, maybe these
• 53:19
  Speaker 12: buildings are just going to have to come down wholesale
• 53:21
  Speaker 12: because they're not necessarily built for people to live in.
• 53:25
  Speaker 12: I think he was speaking specifically about warehouses and that
• 53:28
  Speaker 12: sort of office space at least in you know, smaller cities,
• 53:34
  Speaker 12: but in LA is that a realistic thing that could
• 53:36
  Speaker 12: happen these buildings get converted into residential real estate.
• 53:41
  Speaker 14: Well, I think the sort of trophy office buildings that
• 53:45
  Speaker 14: you see in the skyline photos of downtown LA, those
• 53:49
  Speaker 14: ones would be very hard to convert. But actually, there
• 53:53
  Speaker 14: are dozens of older buildings built in early nineteen twenties
• 53:59
  Speaker 14: scattered around that are now already converted to apartments, lofts, condos,
• 54:06
  Speaker 14: and they were before the pandemic, very attractive places to live.
• 54:11
  Speaker 14: Downtown LA is relatively affordable and has a lot of
• 54:15
  Speaker 14: new multifamily offerings compared to like the West Side or
• 54:20
  Speaker 14: other parts of LA where there's it's very expensive to
• 54:24
  Speaker 14: live and it's also kind of difficult to build new products.
• 54:29
  Speaker 14: So there is a possibility that people will move into
• 54:32
  Speaker 14: some of these buildings. The glass and steel late twentieth
• 54:36
  Speaker 14: century ones are going to have a very hard path forward, though.
• 54:41
  Speaker 1: Hey, John, just about I don't know, thirty two minutes,
• 54:43
  Speaker 1: I'm going to begin my walk from Bloomberg at fifty
• 54:45
  Speaker 1: eight and Lex to Penn Station at thirty fourth and
• 54:47
  Speaker 1: let's call it seventh Avenue, So right through the heart
• 54:49
  Speaker 1: of midtown Manhattan, and I'm going to see a lot
• 54:52
  Speaker 1: of empty buildings, a lot of dark floors. But it's
• 54:56
  Speaker 1: bad here. But it's a lot worse than other big
• 54:58
  Speaker 1: cities like Houston and Los Angeles that your reporting brings out.
• 55:01
  Speaker 1: So what are those cities thinking about?
• 55:04
  Speaker 14: Yeah, well, I mean part of the problem with cities
• 55:07
  Speaker 14: like Houston, La, Atlanta, Denver, Dallas, they're car centric. So
• 55:14
  Speaker 14: people have a lot of opportunities to go outside of
• 55:16
  Speaker 14: the city to offices to they have big houses that
• 55:20
  Speaker 14: they can work from. Commuting to downtown is very hard.
• 55:23
  Speaker 14: So yeah, those cities have a problem. They're facing falling revenue,
• 55:27
  Speaker 14: They're facing retailers who are not making street life very attractive.
• 55:33
  Speaker 14: So urban planners are really kind of trying to figure
• 55:37
  Speaker 14: out what to do with all of this real estate.
• 55:40
  Speaker 14: Downtown could be potentially a great place to live in
• 55:43
  Speaker 14: La for example, there's great transportation downtown. It's a good
• 55:48
  Speaker 14: place to leave, not necessarily just a good place to
• 55:51
  Speaker 14: go into nine to five during the day, so people
• 55:55
  Speaker 14: who live downtown can get to a lot of other
• 55:57
  Speaker 14: parts of this metro area and jobs. For example, in
• 56:02
  Speaker 14: the entertainment industry, you may work in Hollywood one six
• 56:06
  Speaker 14: month period, and then you're going out to Burbank for
• 56:09
  Speaker 14: a job for another six month period. So living downtown
• 56:12
  Speaker 14: can be very central and easy to commute from.
• 56:15
  Speaker 1: Hey, John, One of the things that I you know,
• 56:17
  Speaker 1: maybe the next shoe to drop in this whole commercial
• 56:19
  Speaker 1: real estate, office building real estate story is we start
• 56:22
  Speaker 1: seeing some transactions, some sales of buildings, and I think
• 56:26
  Speaker 1: the write down that we'll see in some of these
• 56:29
  Speaker 1: is going to be shocking to a lot of people.
• 56:31
  Speaker 1: Have we seen anything change hands in Los Angeles to
• 56:34
  Speaker 1: give us a sense of how far down that market's fallen.
• 56:37
  Speaker 14: Well, yeah, in LA they're Union Bank building sold in
• 56:42
  Speaker 14: March for one hundred and four million dollars. It lasts
• 56:45
  Speaker 14: sold in twenty ten for two hundred and eight million dollars.
• 56:49
  Speaker 14: So there's an exam there. Yeah, fifty percent price drop.
• 56:55
  Speaker 14: There was a motivated seller, and there was a little
• 56:58
  Speaker 14: bit of timing. If you did the deal before March thirty, first,
• 57:02
  Speaker 14: you didn't have to pay a five and a half
• 57:04
  Speaker 14: percent transfer tax. That's a new kind of disincentive to
• 57:08
  Speaker 14: real estate investors in LA. So anyway, there are multiple
• 57:13
  Speaker 14: which hauld I say, factors at play here. But basically,
• 57:19
  Speaker 14: you know, it's going to have to get a lot
• 57:20
  Speaker 14: worse before it gets better for offices here in LA.
• 57:23
  Speaker 12: Now, does this have a ripple effect on the residential
• 57:27
  Speaker 12: space in LA that downtown is suffering? How does this
• 57:33
  Speaker 12: emanate from that central area?
• 57:37
  Speaker 14: Yeah, well, if the offices are vacant, if people aren't
• 57:42
  Speaker 14: on the streets. What's happened in LA is the sort
• 57:46
  Speaker 14: of ratio between homeless and you know, housed normal people
• 57:53
  Speaker 14: has fallen out of whack. So there are fewer people
• 57:57
  Speaker 14: going to offices, there are fewer commuters, and it seems
• 58:01
  Speaker 14: like the population of people who are unhoused, who are
• 58:06
  Speaker 14: not necessarily very how to state this anyway, they can
• 58:11
  Speaker 14: be scary, and so it's a deterrent to people, you
• 58:15
  Speaker 14: know there, it's a deterrent to businesses. There's just a
• 58:19
  Speaker 14: lot of factors at play. Safety is a key issue
• 58:23
  Speaker 14: being downtown that has really come to the forefront as
• 58:29
  Speaker 14: office vacancies have risen.
• 58:31
  Speaker 1: Yeah, it's a challenge for LA, as you're reporting indicates,
• 58:34
  Speaker 1: but lots of other cities around the country be very
• 58:37
  Speaker 1: interesting to see how this plays out over the coming years.
• 58:40
  Speaker 1: Is probably how it's going to play out.
• 58:41
  Speaker 14: Again, it's going to be a slow melting ice cube.
• 58:44
  Speaker 1: Yeah, I think you're right, John. So that's John ghettos On.
• 58:47
  Speaker 1: He is the Bloomberg News real estate reporter. He's got
• 58:50
  Speaker 1: this great story out. Check it out Bloomberg dot Com.
• 58:53
  Speaker 1: Check it out. Downtown LA's office distress shows the pains
• 58:56
  Speaker 1: coming for cities. I also want to call out the
• 58:58
  Speaker 1: graphics because I like pictures. They me understand things. So
• 59:01
  Speaker 1: the graphics here by Kyle Kim were outstanding, really blended
• 59:04
  Speaker 1: really well into this story, and it just gives you
• 59:07
  Speaker 1: a sense of how tough things are out there in
• 59:08
  Speaker 1: the commercial real estate business.
• 59:09
  Speaker 12: Yeah, making real these numbers.
• 59:11
  Speaker 1: Exactly exactly, and what it means for the lenders, you know.
• 59:14
  Speaker 1: I mean, that's that's the next wave that a lot
• 59:16
  Speaker 1: of people are concerned about. Are we gonna start seeing
• 59:18
  Speaker 1: banks take some big write downs on commercial real estate?
• 59:20
  Speaker 1: So good story.
• 59:21
  Speaker 8: You're listening to the tape Cansur Live program Bloomberg Markets
• 59:25
  Speaker 8: weekdays at ten am Eastern on Bloomberg Radio, the tune
• 59:28
  Speaker 8: in app, Bloomberg dot Com, and the Bloomberg Business App.
• 59:31
  Speaker 8: You can also listen live on Amazon Alexa from our
• 59:34
  Speaker 8: flagship New York station just say Alexa playing Bloomberg eleven thirty.
• 59:41
  Speaker 1: Small Foxman Paul Sweety here in the Bloomberg Interactive Brokers studio.
• 59:45
  Speaker 1: Seems like for months all we've been talking about is AI,
• 59:47
  Speaker 1: and then of course in the last twenty four hours
• 59:49
  Speaker 1: with uh in Nvidia even more to the front and center.
• 59:54
  Speaker 1: Let's bring AI to investing. People are doing that. Our
• 59:58
  Speaker 1: next guest is part of that whole wave frame O.
• 1:00:01
  Speaker 1: He is the APEX CEO and head of AI E
• 1:00:04
  Speaker 1: t FS and the firm's name is Craft Technologies APAC
• 1:00:08
  Speaker 1: with a Q, Craft with a Q. Francis you know
• 1:00:12
  Speaker 1: we're applying AI, or at least people believe we're applying
• 1:00:16
  Speaker 1: AI to just about everything we do in life. I
• 1:00:18
  Speaker 1: think it feels overdone to me. But what do I know?
• 1:00:21
  Speaker 1: How about for in the business of investing? How can
• 1:00:24
  Speaker 1: artificial intelligence help individual investors just kind of navigate the
• 1:00:28
  Speaker 1: whole investment process?
• 1:00:30
  Speaker 8: Right?
• 1:00:30
  Speaker 13: First of all, thanks for having me here. It's great
• 1:00:33
  Speaker 13: to speak more about how the Craft Technologies applying the
• 1:00:37
  Speaker 13: AI into the investment practices we have been developing our
• 1:00:42
  Speaker 13: AM all since twenty sixteen. Two different area one is
• 1:00:45
  Speaker 13: stock selection based AI. The out one is the sl
• 1:00:48
  Speaker 13: location tope of model because.
• 1:00:49
  Speaker 1: We want to stock selection. Two important things you've got
• 1:00:53
  Speaker 1: to get right.
• 1:00:53
  Speaker 13: As yes, okay, yes exactly. And the technology we are
• 1:00:57
  Speaker 13: using you see something similar to the chechipt as well.
• 1:01:00
  Speaker 13: CHAPT is the the core AI engine is a transformer
• 1:01:05
  Speaker 13: engine and the transform engine is combination of attention layer.
• 1:01:08
  Speaker 13: Attention is a difficult tom but attention layer yourself. What
• 1:01:11
  Speaker 13: it does is the trying to analyze the relationship between
• 1:01:14
  Speaker 13: the input data. So when we type something, the CHPTPT
• 1:01:18
  Speaker 13: is trying to analyzing the wordings or the sentences or
• 1:01:22
  Speaker 13: paragraph to analyzing relationship, trying to get the context what
• 1:01:26
  Speaker 13: we are asking to them so they delivered answer back
• 1:01:28
  Speaker 13: to us. Where we are applying that attention layer to
• 1:01:33
  Speaker 13: our Stacks election model is trying to analyze input data,
• 1:01:36
  Speaker 13: price data, fundamental data and macro data and relationship of
• 1:01:40
  Speaker 13: that to the future expected return of the stack within
• 1:01:44
  Speaker 13: the universe. So we've been using that for since twenty nineteen.
• 1:01:47
  Speaker 13: That for our Stacks election model. But yesterday we launched
• 1:01:50
  Speaker 13: our AI t B a power that's a location ATS.
• 1:01:53
  Speaker 1: So it check us AIDB for yes okayes.
• 1:01:56
  Speaker 13: But that is thes a location type of btfs. It
• 1:01:59
  Speaker 13: first lunch in here.
• 1:02:01
  Speaker 12: Well, congratulations on the launch.
• 1:02:03
  Speaker 1: I've been looking back. They rang the opening bell today.
• 1:02:05
  Speaker 13: In your Yeah, it was so owner.
• 1:02:08
  Speaker 12: Yes, you know, look, I'm looking back at the performance
• 1:02:11
  Speaker 12: of some of the ETFs that you have out there.
• 1:02:14
  Speaker 12: Pretty spectacular twenty twenty thirty seven point six percent for
• 1:02:20
  Speaker 12: the US large capt Yeah. But you know what's clear
• 1:02:24
  Speaker 12: is it's not always the market beating, at least against
• 1:02:28
  Speaker 12: the S and P total return. When does AI perform better?
• 1:02:33
  Speaker 12: When do AI generated investment decisions perform better than the
• 1:02:38
  Speaker 12: overall picture? Is there any sort of common threads that
• 1:02:42
  Speaker 12: go into this?
• 1:02:43
  Speaker 13: Okay, show is very the cancussion, yes to we lalid
• 1:02:49
  Speaker 13: a lot to Don twenty. First, it start to decrease
• 1:02:52
  Speaker 13: your bit. Remember the moment of the Alpha Go when
• 1:02:57
  Speaker 13: the Alpha Go was a batting the professional good players.
• 1:03:00
  Speaker 13: It beat the human most of the time, but only
• 1:03:03
  Speaker 13: the one game it was losing the game as well,
• 1:03:06
  Speaker 13: there was unexpected the play was happened by the uh,
• 1:03:10
  Speaker 13: the professional goal player, and it could be similar to
• 1:03:12
  Speaker 13: our AM model as well. Something unexpected happened for you,
• 1:03:16
  Speaker 13: like or the very sharp the regime reversion or regime changes.
• 1:03:22
  Speaker 13: It could be make our AM model or confused on
• 1:03:24
  Speaker 13: the stock selection, but that could be also happening for
• 1:03:26
  Speaker 13: the human perform manager. And the main difference is or
• 1:03:30
  Speaker 13: the possible a distinctive advantage. You see, AM model at
• 1:03:34
  Speaker 13: least has doesn't have ego like or the big perform manager.
• 1:03:38
  Speaker 13: It didn't attach it to the previous investment decison making
• 1:03:42
  Speaker 13: to the next one.
• 1:03:43
  Speaker 12: So I mean does that make moments like game stop
• 1:03:46
  Speaker 12: and the meme crazes. Does that make it a little
• 1:03:49
  Speaker 12: bit easier for you guys to capture that?
• 1:03:52
  Speaker 13: Uh, there was the moment, Yes, but we are are
• 1:03:55
  Speaker 13: using atfs are mostly the last v. It didn't get
• 1:03:58
  Speaker 13: to have a chance for the GM or the other
• 1:04:01
  Speaker 13: memes that yeah, project could be Yes.
• 1:04:03
  Speaker 1: So to what extent, Francis, are retail investors or retail advisors,
• 1:04:09
  Speaker 1: retail investors, institution investors. To what extent are they using
• 1:04:12
  Speaker 1: AI today? Is it happening? Is the typical broker out
• 1:04:17
  Speaker 1: there or fund manager using artificial intelligence?
• 1:04:20
  Speaker 13: It's started to start boling in the market right now.
• 1:04:23
  Speaker 13: So we are having so we are the B to
• 1:04:25
  Speaker 13: B solution provider and then lucky enough get the size
• 1:04:28
  Speaker 13: of funding from sub bank group beginning of the laws
• 1:04:31
  Speaker 13: one hundred for six million. So we currently providing we
• 1:04:34
  Speaker 13: have our AA t ETF, but at the same time
• 1:04:36
  Speaker 13: providing our solution to twenty different financial institutions for PUFLO
• 1:04:40
  Speaker 13: signals or trading execution mode less TRU. And right now,
• 1:04:44
  Speaker 13: the big agenda I keep hearing from our potential patnus
• 1:04:47
  Speaker 13: is the how to leveraging AI to deliver a personalized
• 1:04:52
  Speaker 13: investment solution or advice back to the clients the like
• 1:04:55
  Speaker 13: a freeom like a banking or the lost managers. The
• 1:04:58
  Speaker 13: top tier of the clients is covered by the human
• 1:05:01
  Speaker 13: private bankers, but those who are under are still uh
• 1:05:04
  Speaker 13: and the dead areas could be probably lossouped by the AI.
• 1:05:10
  Speaker 12: As a market participant that uses a lot of the
• 1:05:13
  Speaker 12: AI technology. And we're looking at you know, this massive
• 1:05:17
  Speaker 12: gain and Nvidia on the verge of maybe, I mean
• 1:05:21
  Speaker 12: maybe it's surpassed at this point a trillion dollar company.
• 1:05:26
  Speaker 12: How do you see some of this demand for chips
• 1:05:30
  Speaker 12: for these various different components because you're putting together these
• 1:05:33
  Speaker 12: models that use that stuff, right.
• 1:05:35
  Speaker 13: Yes, we use a lot of chips from them video, Yes,
• 1:05:40
  Speaker 13: we spent a lot of money.
• 1:05:40
  Speaker 4: Well, I guess is this is this over Is this overplayed?
• 1:05:44
  Speaker 13: Yes, it's true, but at the same time I believe
• 1:05:47
  Speaker 13: the watch it is literally changing the game for the
• 1:05:50
  Speaker 13: AI in the public space or the private market. Is
• 1:05:53
  Speaker 13: the It gives A the two A the experiences and
• 1:05:58
  Speaker 13: stop to building up the trust of the This is
• 1:06:01
  Speaker 13: the level of the AI can deliver back to the
• 1:06:04
  Speaker 13: the client solution services rust. So there will be more
• 1:06:07
  Speaker 13: and more demand. And one funny thing for the not
• 1:06:10
  Speaker 13: funny thing, one interesting for the m VIDA is the
• 1:06:13
  Speaker 13: beginning of dismay. The one of our A A t
• 1:06:16
  Speaker 13: F A M O m us last momentum MEDIAF is
• 1:06:18
  Speaker 13: dumbed the Apple and then pick the Nvidia as the things.
• 1:06:23
  Speaker 13: So you're seeing the huge gain. Uh today, I'm excited
• 1:06:27
  Speaker 13: about it.
• 1:06:28
  Speaker 1: How about your just thirty seconds left the demand for
• 1:06:31
  Speaker 1: your ETFs? What are you seeing out there? Who's who's
• 1:06:33
  Speaker 1: interested in your A t FS?
• 1:06:34
  Speaker 13: Yes, mostly from these who have the savvy understanding of
• 1:06:38
  Speaker 13: the tech background or who wants to feel is lee
• 1:06:41
  Speaker 13: that I want to experience the new adoption of the
• 1:06:44
  Speaker 13: AI could be helpful. What I want to envision into
• 1:06:47
  Speaker 13: five to ten years later is the if one of
• 1:06:50
  Speaker 13: our goal is trying to deliver a sustainable alpha generative
• 1:06:53
  Speaker 13: solution by the AI. And if that is happening, I
• 1:06:56
  Speaker 13: believe there will be a moment that AI power investment
• 1:06:58
  Speaker 13: solution become in the new bat you baykind the market.
• 1:07:02
  Speaker 1: Great stuff, exciting stuff. Francis Oh, I'm glad there's somebody
• 1:07:05
  Speaker 1: doing this stuff. Francis Oh APAX CEO and head of
• 1:07:08
  Speaker 1: AI ETFs, Man Technology Changes Everything, Craft Technologies APAC. That's
• 1:07:13
  Speaker 1: the name of the firm. They've got some ETFs out
• 1:07:15
  Speaker 1: they're really using to integrate artificial intelligence into the investment process.
• 1:07:20
  Speaker 1: And why not. You're using AI for just about everything
• 1:07:23
  Speaker 1: else in life. So we've learned just maybe in the
• 1:07:26
  Speaker 1: last six months, it seems to have been front and center.
• 1:07:31
  Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
• 1:07:34
  Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
• 1:07:38
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• 1:07:39
  Speaker 1: I'm Matt Miller.
• 1:07:40
  Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three.
• 1:07:44
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• 1:07:46
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• 1:07:49
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