1 00:00:05,080 --> 00:00:09,160 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa Abramoids along 2 00:00:09,200 --> 00:00:12,160 Speaker 1: with Tom Keane and Jonathan Farrow. Join us each day 3 00:00:12,200 --> 00:00:16,440 Speaker 1: for insight from the best in economics, geopolitics, finance and investment. 4 00:00:16,760 --> 00:00:20,279 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:20,360 --> 00:00:23,840 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:23,840 --> 00:00:27,080 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. Let's bring 7 00:00:27,080 --> 00:00:30,280 Speaker 1: in Seth Carpenter, who has been quoted so frequently this 8 00:00:30,360 --> 00:00:32,920 Speaker 1: morning on the show, chief global economist at Morgan Stanley 9 00:00:33,000 --> 00:00:35,120 Speaker 1: is Seth, what's your initial reaction to these numbers? 10 00:00:36,640 --> 00:00:39,800 Speaker 2: Yeah, the tick up I think is there that there 11 00:00:39,880 --> 00:00:42,320 Speaker 2: is a bit of softening. We've been saying for a 12 00:00:42,320 --> 00:00:44,919 Speaker 2: long time. I think everybody's been looking for some softening 13 00:00:45,479 --> 00:00:48,680 Speaker 2: in the economy as this year progresses, and I think 14 00:00:48,720 --> 00:00:49,600 Speaker 2: that's what we're getting. 15 00:00:49,960 --> 00:00:51,120 Speaker 3: The level is important. 16 00:00:51,120 --> 00:00:52,960 Speaker 2: It's still quite low, so it's not as though we've 17 00:00:52,960 --> 00:00:55,440 Speaker 2: fallen off a cliff or anything like it. I think 18 00:00:55,480 --> 00:00:58,720 Speaker 2: the market reaction that you cited is also important. You know, 19 00:00:58,800 --> 00:01:03,000 Speaker 2: we have one more rate hike as our baseline forecast 20 00:01:03,040 --> 00:01:05,760 Speaker 2: at the main meeting, and then none after that, and 21 00:01:05,800 --> 00:01:07,800 Speaker 2: I think the market is going to have to sort out. 22 00:01:07,959 --> 00:01:10,360 Speaker 2: You know, when is the Fed going to say the 23 00:01:10,400 --> 00:01:13,440 Speaker 2: softening is there, it's enough softening without it being too 24 00:01:13,520 --> 00:01:15,840 Speaker 2: much softening, And you know, these data go go in 25 00:01:15,840 --> 00:01:16,360 Speaker 2: that direction. 26 00:01:16,560 --> 00:01:18,680 Speaker 1: So we get these data points, and then we also 27 00:01:18,760 --> 00:01:20,679 Speaker 1: got earlier this morning, and we'll get throughout the day 28 00:01:21,040 --> 00:01:24,800 Speaker 1: the regional banking results, which have also pointed to potentially 29 00:01:25,200 --> 00:01:29,560 Speaker 1: some withdrawal of credit. How do you factor that into employment? 30 00:01:29,600 --> 00:01:31,679 Speaker 1: How do you factor that into the Fed's decision? 31 00:01:33,840 --> 00:01:38,080 Speaker 2: The banking situation is clearly important. It tightens financial conditions, 32 00:01:38,080 --> 00:01:41,360 Speaker 2: it tightens access to credit. But we have to keep 33 00:01:41,400 --> 00:01:44,120 Speaker 2: in mind the tightening access to credit and tightening financial 34 00:01:44,120 --> 00:01:47,120 Speaker 2: conditions is exactly what the FED has been trying to 35 00:01:47,160 --> 00:01:50,520 Speaker 2: do since they started raising interest rates. The hard part is, 36 00:01:50,760 --> 00:01:53,080 Speaker 2: you know how much is this? Chair Powell at the 37 00:01:53,160 --> 00:01:55,960 Speaker 2: last meeting, at the March meeting said maybe it's about 38 00:01:56,320 --> 00:02:00,520 Speaker 2: one or two rate hikes worth of tightening. Sure, we've 39 00:02:00,520 --> 00:02:03,320 Speaker 2: got much data since then that says that he's wrong 40 00:02:03,560 --> 00:02:06,680 Speaker 2: about that. It clearly matters. It clearly has increased cost 41 00:02:06,680 --> 00:02:09,640 Speaker 2: of funding for banks, but we haven't seen again, we 42 00:02:09,720 --> 00:02:11,960 Speaker 2: haven't seen. It looked like things are going off of 43 00:02:11,960 --> 00:02:15,080 Speaker 2: a cliff, and so it's marginally more tightening, which again 44 00:02:15,120 --> 00:02:17,760 Speaker 2: for us is the reason why one more heighten makes sense. 45 00:02:17,840 --> 00:02:19,600 Speaker 2: But we don't need to go back to the place 46 00:02:19,600 --> 00:02:22,919 Speaker 2: where the markets are pricing at six percent peak rates. 47 00:02:22,960 --> 00:02:25,240 Speaker 1: For the FED, there's this tension right now when you 48 00:02:25,280 --> 00:02:28,520 Speaker 1: talk about the lag effects that will take place as 49 00:02:28,560 --> 00:02:31,160 Speaker 1: some of the credit tightening continues at a time when 50 00:02:31,160 --> 00:02:34,120 Speaker 1: you're already seeing deterioration in the labor market. Do we 51 00:02:34,160 --> 00:02:37,720 Speaker 1: have a sense of how controlled this increase in unemployment 52 00:02:37,800 --> 00:02:39,320 Speaker 1: could be. Are we just going to go to four 53 00:02:39,320 --> 00:02:41,080 Speaker 1: and a half percent, as a FED is predicting, and 54 00:02:41,120 --> 00:02:43,760 Speaker 1: stay there or is there a risk that it will 55 00:02:43,760 --> 00:02:46,840 Speaker 1: accelerate on itself which is traditional in downturns. 56 00:02:48,560 --> 00:02:53,560 Speaker 2: Risk absolutely, and the amount of control that you the 57 00:02:53,600 --> 00:02:56,799 Speaker 2: way you phrase it control, that's what the FED is 58 00:02:56,840 --> 00:02:59,760 Speaker 2: hoping for, but it is it is impossible to believe 59 00:02:59,760 --> 00:03:02,639 Speaker 2: that they have a huge amount of precision over these 60 00:03:02,639 --> 00:03:05,600 Speaker 2: sorts of things. They're going to be feeling their way. 61 00:03:05,960 --> 00:03:08,800 Speaker 2: I think what might be instructive for this cycle is 62 00:03:08,800 --> 00:03:12,040 Speaker 2: to go back to the nineteen nineties. That hiking cycle 63 00:03:12,200 --> 00:03:15,200 Speaker 2: was pretty fast like this one. At change pace. They 64 00:03:15,200 --> 00:03:18,000 Speaker 2: stopped hiking at one point, and then they actually cut 65 00:03:18,000 --> 00:03:20,639 Speaker 2: a little bit. They did a mid cycle correction, if 66 00:03:20,680 --> 00:03:23,600 Speaker 2: you will, cut a little bit, and then held rates 67 00:03:24,000 --> 00:03:26,839 Speaker 2: high for several years after that. I think that kind 68 00:03:26,880 --> 00:03:31,000 Speaker 2: of recalibration is entirely possible, precisely because there's not going 69 00:03:31,040 --> 00:03:33,399 Speaker 2: to be a lot of precision over the real economy. 70 00:03:33,680 --> 00:03:35,480 Speaker 1: You know, as we talk about the destination, that was 71 00:03:35,520 --> 00:03:38,560 Speaker 1: one of the big comments people at the IMF had that, 72 00:03:38,840 --> 00:03:40,600 Speaker 1: whether they were on the side of the IMF or not, 73 00:03:40,720 --> 00:03:43,680 Speaker 1: that we're going back to where we were pre pandemic. 74 00:03:44,000 --> 00:03:47,040 Speaker 1: Based on some of these additional views with respect to 75 00:03:47,080 --> 00:03:50,720 Speaker 1: credit tightening, with respective potentially overshooting, with the pace of 76 00:03:50,800 --> 00:03:53,640 Speaker 1: unemployment creeping higher, do you think that that is the 77 00:03:53,720 --> 00:03:56,480 Speaker 1: highest likelihood that we are going back to a low inflation, 78 00:03:56,600 --> 00:03:57,520 Speaker 1: low right situation. 79 00:03:59,240 --> 00:04:03,040 Speaker 2: I'm not convinced that's the single most likely outcome, at 80 00:04:03,120 --> 00:04:06,560 Speaker 2: least not for the next few years. Is there a 81 00:04:06,600 --> 00:04:10,000 Speaker 2: possibility of a recession, Absolutely, the risks are clearly higher 82 00:04:10,040 --> 00:04:14,840 Speaker 2: than they were before. However, I'm enough to remember when 83 00:04:14,840 --> 00:04:17,600 Speaker 2: we've had recessions in this country without the funds rate 84 00:04:17,640 --> 00:04:20,800 Speaker 2: going back to zero, and I suspect even in that version. 85 00:04:20,920 --> 00:04:22,680 Speaker 2: It's not our baseline that we have a recession. But 86 00:04:22,720 --> 00:04:25,240 Speaker 2: even if we did have a mild recession, I don't 87 00:04:25,240 --> 00:04:26,720 Speaker 2: think they're going to cut all the way to zero. 88 00:04:27,720 --> 00:04:31,719 Speaker 1: How does the geopolitical overhang factor into this? And I 89 00:04:31,760 --> 00:04:34,160 Speaker 1: say this as Treasure Secretary Jenne Yellen is said to 90 00:04:34,160 --> 00:04:37,159 Speaker 1: speak in less than two hours and talk about how 91 00:04:37,200 --> 00:04:42,120 Speaker 1: they're going to put national security before economic influence. How 92 00:04:42,200 --> 00:04:45,760 Speaker 1: much does that factor the fragmentation and the higher inflationary 93 00:04:45,800 --> 00:04:46,719 Speaker 1: regime going forward. 94 00:04:47,800 --> 00:04:52,080 Speaker 2: Oh, it just adds another layer of complexity and difficulty 95 00:04:52,080 --> 00:04:56,920 Speaker 2: in forecasting when it comes to the inflationary side of things. 96 00:04:56,960 --> 00:04:59,599 Speaker 2: If we disrupt global supply chains, it does mean that 97 00:04:59,640 --> 00:05:02,800 Speaker 2: any urgent demand won't be met with as much supply 98 00:05:02,920 --> 00:05:05,520 Speaker 2: or as quickly with the supply, and so it could 99 00:05:05,600 --> 00:05:09,359 Speaker 2: lead to more bouts of inflation. I don't know that 100 00:05:09,400 --> 00:05:12,920 Speaker 2: it necessarily means we shift into a permanently higher inflationary 101 00:05:13,040 --> 00:05:15,880 Speaker 2: regime there. That's going to depend on whether or not 102 00:05:16,000 --> 00:05:19,719 Speaker 2: the FED can control the economy rein in aggregate demand 103 00:05:19,720 --> 00:05:24,159 Speaker 2: to keep inflation from staying high. But ultimately it will 104 00:05:24,160 --> 00:05:27,360 Speaker 2: make things more volatile. You'll see more macroeconomic volatility. 105 00:05:27,560 --> 00:05:29,400 Speaker 1: We've been talking about all the FED speak that we're 106 00:05:29,440 --> 00:05:31,200 Speaker 1: going to be getting today, jamming it in ahead of 107 00:05:31,200 --> 00:05:33,320 Speaker 1: the quiet period. What do you hope to learn from 108 00:05:33,400 --> 00:05:34,120 Speaker 1: FED speakers? 109 00:05:36,320 --> 00:05:38,640 Speaker 2: I know, as always it's a question of what is 110 00:05:38,680 --> 00:05:41,520 Speaker 2: it that they're looking at. I have consistently had the 111 00:05:41,600 --> 00:05:44,400 Speaker 2: view that they are trying to slow the economy but 112 00:05:44,560 --> 00:05:47,440 Speaker 2: not kill the economy, And so the real question is 113 00:05:47,440 --> 00:05:49,760 Speaker 2: is the softening that we're seeing in the labor market, 114 00:05:49,839 --> 00:05:52,320 Speaker 2: just like we were talking about before with the initial 115 00:05:52,320 --> 00:05:55,640 Speaker 2: claims data, is that softening enough for them to say, 116 00:05:55,880 --> 00:05:58,520 Speaker 2: we'll stay roughly where we are. Like I said, our 117 00:05:58,560 --> 00:06:01,000 Speaker 2: base case is one more hike. Are we seeing enough 118 00:06:01,040 --> 00:06:04,520 Speaker 2: downward momentum for them to feel comfortable that the economy 119 00:06:04,560 --> 00:06:07,680 Speaker 2: is lowing enough for inflation to continue its downward trend 120 00:06:07,839 --> 00:06:10,400 Speaker 2: and for over the next couple of years to get 121 00:06:10,440 --> 00:06:11,120 Speaker 2: back to target. 122 00:06:11,279 --> 00:06:13,280 Speaker 1: Seth Carpenter of Morgan Stanley, thank you so much for 123 00:06:13,320 --> 00:06:13,760 Speaker 1: being with. 124 00:06:13,720 --> 00:06:19,679 Speaker 4: Us to ignore this the feed speak. 125 00:06:19,920 --> 00:06:22,000 Speaker 1: Well, I really wanted you to do that again because 126 00:06:22,000 --> 00:06:22,920 Speaker 1: I really enjoy it when. 127 00:06:22,839 --> 00:06:23,120 Speaker 5: You do it. 128 00:06:23,120 --> 00:06:24,640 Speaker 1: Come on, go ahead, you want me to go again, 129 00:06:24,720 --> 00:06:31,080 Speaker 1: Waller Mester, it's really good anyway, all of them, they're 130 00:06:31,080 --> 00:06:32,640 Speaker 1: going to be sting many of us alongside. 131 00:06:32,640 --> 00:06:35,520 Speaker 4: It's just shaking his head. All of this joined us 132 00:06:35,520 --> 00:06:37,560 Speaker 4: from avicor Jenny. What do you make of that just 133 00:06:37,600 --> 00:06:39,680 Speaker 4: before the quiet period that many Feed speakers. 134 00:06:39,720 --> 00:06:41,719 Speaker 5: What I make of it is that your ability to 135 00:06:41,760 --> 00:06:44,080 Speaker 5: do tongue twisters is absolutely phenomenal. 136 00:06:44,440 --> 00:06:47,200 Speaker 4: An you know, DJ back in the day, of course, 137 00:06:47,920 --> 00:06:49,400 Speaker 4: was absolutely so. 138 00:06:49,480 --> 00:06:52,240 Speaker 5: All I can say is is when looking at this 139 00:06:52,360 --> 00:06:55,880 Speaker 5: morning and the setup, given the earnings volatility we've seen 140 00:06:56,160 --> 00:07:00,840 Speaker 5: so far today, is cautious at the outset. Let us 141 00:07:00,880 --> 00:07:05,400 Speaker 5: recall the last time Secretary Yellen spoke alongside the Fed, 142 00:07:05,480 --> 00:07:08,520 Speaker 5: which was Jay Powell. We had an enormous amount of 143 00:07:08,600 --> 00:07:12,720 Speaker 5: volatility and the fact that we're in all likelihood going 144 00:07:12,760 --> 00:07:15,800 Speaker 5: to get two conflicting messages, a bunch of Fed speak 145 00:07:15,880 --> 00:07:19,320 Speaker 5: coming out, probably hinting towards one and done, which is 146 00:07:19,480 --> 00:07:23,480 Speaker 5: our view as opposed to okay, well the economy is 147 00:07:23,520 --> 00:07:28,080 Speaker 5: now taking a second spot to political relations coming from 148 00:07:28,160 --> 00:07:31,360 Speaker 5: the Treasury secretary. There's a lot of confusion. 149 00:07:31,120 --> 00:07:33,560 Speaker 4: One and done, then pause. Some people see that pause 150 00:07:33,600 --> 00:07:35,840 Speaker 4: as bullish, others don't. I might include you in that. 151 00:07:36,040 --> 00:07:38,000 Speaker 4: Over the weekend, I was reading your research to start 152 00:07:38,000 --> 00:07:40,360 Speaker 4: a new week. This quote jumped out to me, twenty 153 00:07:40,400 --> 00:07:42,560 Speaker 4: three's pause is likely to see a further sell off, 154 00:07:42,600 --> 00:07:47,520 Speaker 4: recession volatility spike before the inevitable new ballmarket gain. Can 155 00:07:47,560 --> 00:07:49,200 Speaker 4: you put some numbers on that? How are you thinking 156 00:07:49,200 --> 00:07:50,080 Speaker 4: about that situation? 157 00:07:50,520 --> 00:07:50,880 Speaker 3: Sure? 158 00:07:50,960 --> 00:07:54,320 Speaker 5: So, if you look at it, the history of pauses 159 00:07:54,640 --> 00:07:57,440 Speaker 5: tends to be on a twelve month basis quite positive. 160 00:07:57,800 --> 00:08:00,920 Speaker 5: We expect that. But the problem here is you've still 161 00:08:01,000 --> 00:08:04,640 Speaker 5: got to get through the recession. And yes, we've all 162 00:08:04,680 --> 00:08:07,800 Speaker 5: been waiting for the recession for a year now. Remember 163 00:08:07,840 --> 00:08:10,680 Speaker 5: there were two back to back negative GDP quarters to 164 00:08:10,760 --> 00:08:13,680 Speaker 5: start twenty twenty two, So the watch is on. But 165 00:08:13,800 --> 00:08:17,960 Speaker 5: ultimately part of this calculus is that we've had so 166 00:08:18,200 --> 00:08:22,240 Speaker 5: much more tightening since that time. It doesn't take away 167 00:08:22,520 --> 00:08:25,840 Speaker 5: the concept of recession. The watchpot is going to boil. 168 00:08:26,160 --> 00:08:28,239 Speaker 5: And so for us, when we look at the last month, 169 00:08:29,080 --> 00:08:34,080 Speaker 5: what's clear is that the reason the market traded positively 170 00:08:34,440 --> 00:08:38,200 Speaker 5: into the trough of the banking turmoil back in March 171 00:08:38,520 --> 00:08:43,480 Speaker 5: is because it began discounting the pause prematurely. It's in 172 00:08:43,520 --> 00:08:46,840 Speaker 5: the price now, so it isn't necessarily a bullish outcome. 173 00:08:47,240 --> 00:08:50,080 Speaker 5: And look, it's been our expectation, as you know, and 174 00:08:50,120 --> 00:08:53,160 Speaker 5: This is a frustrating market for both bulls and bears. 175 00:08:53,280 --> 00:08:56,560 Speaker 5: But it's been our expectation for six months now that 176 00:08:56,679 --> 00:08:59,360 Speaker 5: at some point, given a recession ahead of US one 177 00:08:59,440 --> 00:09:01,440 Speaker 5: or more than May, your indsease is going to test 178 00:09:01,440 --> 00:09:02,480 Speaker 5: those October lows. 179 00:09:02,760 --> 00:09:05,920 Speaker 1: So if you were John Williams, you'd probably be glued 180 00:09:05,960 --> 00:09:09,079 Speaker 1: to Eternal this morning looking at these small bank earnings 181 00:09:09,080 --> 00:09:11,079 Speaker 1: and parsing through their balance sheets to understand the state 182 00:09:11,120 --> 00:09:13,000 Speaker 1: of credit creation in the United States. It seems like 183 00:09:13,080 --> 00:09:16,360 Speaker 1: what they're doing right now, what would your conclusion be 184 00:09:16,640 --> 00:09:19,240 Speaker 1: in terms of is this just an idiosyncratic issue that 185 00:09:19,320 --> 00:09:21,840 Speaker 1: leaves us in the same place, or was this clearly 186 00:09:21,880 --> 00:09:22,520 Speaker 1: something more. 187 00:09:22,760 --> 00:09:27,720 Speaker 5: Well, you know, the whole concept of idiosyncratic across every 188 00:09:27,800 --> 00:09:31,040 Speaker 5: company that's reporting is a little bit of a misnomer. 189 00:09:31,520 --> 00:09:35,960 Speaker 5: In general. This is a process. Part of the fact 190 00:09:36,080 --> 00:09:40,120 Speaker 5: that we created so much liquidity through fiscal and monetary 191 00:09:40,160 --> 00:09:42,959 Speaker 5: expansion over a couple of years to fight the pandemic 192 00:09:43,240 --> 00:09:45,880 Speaker 5: means that the other side of this unwind is a 193 00:09:45,960 --> 00:09:49,560 Speaker 5: process as opposed to a shock. This is all part 194 00:09:49,600 --> 00:09:51,800 Speaker 5: of the process, and frankly, when you look at the 195 00:09:51,880 --> 00:09:54,400 Speaker 5: longer term, it's better that it's going to take a 196 00:09:54,440 --> 00:09:58,479 Speaker 5: while than you know, more sort of near death experiences 197 00:09:58,800 --> 00:10:02,640 Speaker 5: like last month, But doesn't mean that the stress is 198 00:10:02,720 --> 00:10:05,000 Speaker 5: going to go away. It's just going to roll out 199 00:10:05,000 --> 00:10:05,800 Speaker 5: over a longer period. 200 00:10:05,880 --> 00:10:07,800 Speaker 1: What does this process mean? Does that mean that regional 201 00:10:07,800 --> 00:10:09,920 Speaker 1: banks are uninvestable for you? Or does this mean that 202 00:10:10,200 --> 00:10:11,680 Speaker 1: you're going to just sort of see a roll up 203 00:10:11,720 --> 00:10:13,320 Speaker 1: in a survival of the fittest. 204 00:10:13,600 --> 00:10:18,199 Speaker 5: So the question here is where are the next dominos 205 00:10:18,360 --> 00:10:20,679 Speaker 5: likely to fall? And I don't know that we know 206 00:10:20,920 --> 00:10:24,240 Speaker 5: any more about that now than we did two or 207 00:10:24,320 --> 00:10:26,680 Speaker 5: three weeks ago, or even two or three hours ago 208 00:10:27,360 --> 00:10:30,600 Speaker 5: before these reports came out, So I think we'll just 209 00:10:30,640 --> 00:10:33,040 Speaker 5: have to look. And part of the issue that we 210 00:10:33,160 --> 00:10:36,839 Speaker 5: have is that you had such a sell off over 211 00:10:36,880 --> 00:10:40,400 Speaker 5: that month in the regional banks. And look, the fact 212 00:10:40,400 --> 00:10:43,359 Speaker 5: of the matter is is when you sort of anticipate 213 00:10:43,400 --> 00:10:46,120 Speaker 5: the news and I don't think anyone's surprised by the 214 00:10:46,120 --> 00:10:49,280 Speaker 5: earnings reports we've seen this morning, but the shares don't 215 00:10:49,280 --> 00:10:53,440 Speaker 5: respond even after this massive sell off. That's not a 216 00:10:53,480 --> 00:10:54,120 Speaker 5: great message. 217 00:10:54,280 --> 00:10:55,880 Speaker 4: Is Tesla idiosyncratic? 218 00:10:56,679 --> 00:10:56,760 Speaker 3: No? 219 00:10:57,559 --> 00:10:57,800 Speaker 2: Why not? 220 00:10:58,559 --> 00:11:02,599 Speaker 5: Because basically what you're seeing, and this is the dichotomy 221 00:11:02,679 --> 00:11:06,520 Speaker 5: and why the market's actually been trading sideways look ed. 222 00:11:06,600 --> 00:11:12,000 Speaker 5: Heiman has been extremely optimistic about the trajectory of inflation 223 00:11:12,440 --> 00:11:14,960 Speaker 5: over this year and internets we're going to get a 224 00:11:14,960 --> 00:11:18,960 Speaker 5: two handle on inflation. Is that and all clear? Well, 225 00:11:19,000 --> 00:11:21,560 Speaker 5: it's probably not, because the way that you get to 226 00:11:21,600 --> 00:11:25,200 Speaker 5: the two handle is through an economic downturn, and that's 227 00:11:25,200 --> 00:11:26,640 Speaker 5: what that earnings report is happening. 228 00:11:26,720 --> 00:11:28,959 Speaker 4: When do we get that two handled this year, next year, 229 00:11:29,040 --> 00:11:30,600 Speaker 4: at the end of this year we think so, you 230 00:11:30,600 --> 00:11:32,320 Speaker 4: think at the end of this year we do handle 231 00:11:32,360 --> 00:11:32,920 Speaker 4: on CPI? 232 00:11:33,080 --> 00:11:33,320 Speaker 3: We do? 233 00:11:33,600 --> 00:11:34,200 Speaker 4: Is that headline? 234 00:11:34,280 --> 00:11:34,439 Speaker 6: Core? 235 00:11:34,520 --> 00:11:34,880 Speaker 4: What is that? 236 00:11:36,640 --> 00:11:39,679 Speaker 5: So again you can Parson, you can Parson, We'll go 237 00:11:39,720 --> 00:11:42,439 Speaker 5: with Core. We'll go with Core PC just to make 238 00:11:42,480 --> 00:11:44,080 Speaker 5: the fad happy, Okay. 239 00:11:43,840 --> 00:11:46,320 Speaker 1: Can I just ask you, given the fact that we 240 00:11:46,400 --> 00:11:50,200 Speaker 1: really haven't gotten great earnings, there have been plenty of disappointments, 241 00:11:50,440 --> 00:11:52,680 Speaker 1: why has the market not come around to your view 242 00:11:52,800 --> 00:11:55,000 Speaker 1: and the parish views of the likes of Mike Wilson. 243 00:11:55,440 --> 00:11:58,960 Speaker 5: Well, because again, part if you look at the last year, 244 00:11:59,400 --> 00:12:04,079 Speaker 5: we were so so obsessed with inflation that the fact 245 00:12:04,080 --> 00:12:07,520 Speaker 5: that it's coming down in an environment where yes, we've 246 00:12:07,559 --> 00:12:11,439 Speaker 5: done a huge amount of tightening, but the liquidity provision 247 00:12:11,600 --> 00:12:14,599 Speaker 5: over those first couple of years to fight. The pandemic 248 00:12:14,920 --> 00:12:17,360 Speaker 5: is so extreme. If you look at M two, M 249 00:12:17,400 --> 00:12:21,000 Speaker 5: two is contracting right now, but the growth trend line 250 00:12:21,120 --> 00:12:24,400 Speaker 5: regression line is still well below where we are. So 251 00:12:24,440 --> 00:12:29,200 Speaker 5: there's residual liquidity in the system and positioning has been 252 00:12:29,240 --> 00:12:31,800 Speaker 5: bearished for the most part. So we're at this stalemate. 253 00:12:31,840 --> 00:12:33,200 Speaker 4: It just to be clear. Hey, you're still at forty 254 00:12:33,240 --> 00:12:35,319 Speaker 4: one fifty year end on the S and P. 255 00:12:35,320 --> 00:12:37,000 Speaker 5: Five hundred year right now. 256 00:12:37,040 --> 00:12:38,880 Speaker 4: We're at forty one to fifty right now. You just 257 00:12:38,920 --> 00:12:41,280 Speaker 4: see a lot of volatility story now and then. 258 00:12:41,240 --> 00:12:47,160 Speaker 5: Right if anyone thinks about convexity in their portfolio, it 259 00:12:47,280 --> 00:12:50,280 Speaker 5: is time to load up on convexity. Whether you're bullish 260 00:12:50,360 --> 00:12:53,760 Speaker 5: or bearish. The vix at seventeen is way too low and. 261 00:12:53,840 --> 00:12:55,520 Speaker 4: The year right now, Bromo, you're ready to go? 262 00:12:55,640 --> 00:12:56,560 Speaker 1: Yeah, absolutely, let's. 263 00:12:56,400 --> 00:12:59,360 Speaker 4: Go where we go it, let's go we go on vacation. 264 00:12:59,559 --> 00:13:00,960 Speaker 4: Are where am I going? 265 00:13:00,960 --> 00:13:02,200 Speaker 1: You're gonna go to a Dacy Morn game? 266 00:13:02,280 --> 00:13:02,800 Speaker 4: I'd love to. 267 00:13:02,960 --> 00:13:03,800 Speaker 1: I know that's where you want to go. 268 00:13:03,960 --> 00:13:07,040 Speaker 4: I'm trying to secure tickets, something to talk to management 269 00:13:07,080 --> 00:13:12,040 Speaker 4: to get the time off. Get the tickets first, obviously, 270 00:13:12,200 --> 00:13:14,880 Speaker 4: then have the debate internally in the newsroom. Can I 271 00:13:14,920 --> 00:13:16,480 Speaker 4: cover it? Can we take a camera? Can you pay 272 00:13:16,480 --> 00:13:17,040 Speaker 4: for the flights? 273 00:13:17,800 --> 00:13:31,280 Speaker 7: Something like that, Giny and thank you appreciate it, buddy. 274 00:13:33,400 --> 00:13:35,079 Speaker 4: Let's talk about the banks and we can do that 275 00:13:35,280 --> 00:13:39,679 Speaker 4: with Christopher Maronak, the director of research at Jenny Montgomery Scott, Christopher. 276 00:13:39,679 --> 00:13:41,560 Speaker 4: Wonderful to catch up with you, sir. Thanks for taking 277 00:13:41,559 --> 00:13:43,240 Speaker 4: some time because I know how busy you've been this 278 00:13:43,280 --> 00:13:46,400 Speaker 4: morning just going through Bancuff, the Bancuff, the bank. Chris, 279 00:13:46,400 --> 00:13:48,199 Speaker 4: what jumps out for you this morning from the names 280 00:13:48,240 --> 00:13:48,800 Speaker 4: you've looked at? 281 00:13:49,679 --> 00:13:52,560 Speaker 6: So the banks are profitable and you see thamsbile book 282 00:13:52,640 --> 00:13:55,520 Speaker 6: value and tangibile capital growing, so we're happy about that. 283 00:13:55,640 --> 00:13:58,760 Speaker 6: I think deposits have been mixed. Some company deposits are 284 00:13:58,800 --> 00:14:03,480 Speaker 6: off slightly. Really, deposit outflows were a lot less problematic 285 00:14:03,520 --> 00:14:06,440 Speaker 6: than I think feared in March, so the real numbers 286 00:14:06,480 --> 00:14:09,280 Speaker 6: suggest that deposits are coming down, but really coming down 287 00:14:09,320 --> 00:14:12,160 Speaker 6: at a measured pace. I think liquidity is still really high, 288 00:14:12,200 --> 00:14:14,000 Speaker 6: and I think banks are now putting out a bunch 289 00:14:14,040 --> 00:14:17,600 Speaker 6: of information about the uninsured deposits, about office real estate, 290 00:14:17,679 --> 00:14:21,240 Speaker 6: about deposit granularity. So I think that really starts to 291 00:14:21,240 --> 00:14:24,600 Speaker 6: build confidence. We have credit quality generally very good for 292 00:14:24,640 --> 00:14:28,320 Speaker 6: the quarter, no major change, maybe small uptics and charge offs, 293 00:14:28,320 --> 00:14:31,000 Speaker 6: but overall, the banks are preparing for the recession if 294 00:14:31,040 --> 00:14:33,520 Speaker 6: and when it comes, and I think capital generally is 295 00:14:33,560 --> 00:14:34,480 Speaker 6: moving in the right direction. 296 00:14:34,880 --> 00:14:37,480 Speaker 1: Christopher, if this is all positive, then why are the 297 00:14:37,520 --> 00:14:40,440 Speaker 1: shares negative even after all of the losses that we've 298 00:14:40,440 --> 00:14:41,360 Speaker 1: seen so far this year. 299 00:14:42,680 --> 00:14:44,680 Speaker 6: So I think the banks still climb the wall to 300 00:14:44,760 --> 00:14:47,720 Speaker 6: worry about the recession, and many investors remember how bad 301 00:14:47,720 --> 00:14:49,560 Speaker 6: it was in two thousand and eight, nine and ten, 302 00:14:49,960 --> 00:14:52,320 Speaker 6: So we have to get through this period no different 303 00:14:52,360 --> 00:14:55,480 Speaker 6: than the uncertainty that existed back in COVID and twenty twenty. 304 00:14:55,680 --> 00:14:58,040 Speaker 6: It took the bank six months to finally recover and 305 00:14:58,080 --> 00:15:01,000 Speaker 6: go back to better valuation that I'm afraid that might 306 00:15:01,040 --> 00:15:02,080 Speaker 6: be the case again this year. 307 00:15:02,080 --> 00:15:04,000 Speaker 3: We're hoping it's more like three or four months and 308 00:15:04,040 --> 00:15:04,560 Speaker 3: not six. 309 00:15:05,040 --> 00:15:07,360 Speaker 6: But the reality is banks still have a lot of 310 00:15:07,440 --> 00:15:10,960 Speaker 6: unrealized security losses and held the maturity and available for sale. 311 00:15:11,160 --> 00:15:12,840 Speaker 3: We haven't worked through all those yet. 312 00:15:13,040 --> 00:15:15,160 Speaker 6: We still have a lot of investors kind of haircutting 313 00:15:15,200 --> 00:15:17,840 Speaker 6: capital for those losses, and I think at some point 314 00:15:17,920 --> 00:15:20,320 Speaker 6: we have to get through that and see better securities 315 00:15:20,400 --> 00:15:22,000 Speaker 6: values in the quarters ahead. 316 00:15:22,040 --> 00:15:23,760 Speaker 3: But in the meantime credit is stable. 317 00:15:24,080 --> 00:15:26,760 Speaker 6: We think over all the banks will stay profitable, and 318 00:15:26,800 --> 00:15:30,160 Speaker 6: the fears about big deposit outflows and deposit runs really 319 00:15:30,200 --> 00:15:31,240 Speaker 6: have not proven. 320 00:15:30,960 --> 00:15:31,520 Speaker 3: To be true. 321 00:15:31,600 --> 00:15:34,040 Speaker 1: Although we are seeing net interest margins come in below 322 00:15:34,160 --> 00:15:36,360 Speaker 1: estimates pretty much across the board. I mean even Cinavius, 323 00:15:36,840 --> 00:15:39,160 Speaker 1: which just reported, and they came out with better than 324 00:15:39,200 --> 00:15:42,520 Speaker 1: expected deposits, better than expected loan growth, love fewer than 325 00:15:42,560 --> 00:15:45,640 Speaker 1: expected provisions for credit losses. And yet here we are 326 00:15:45,880 --> 00:15:49,760 Speaker 1: once again net interest margin coming in lower than expected, 327 00:15:49,760 --> 00:15:51,720 Speaker 1: three point four to three percent versus three point five 328 00:15:51,760 --> 00:15:54,760 Speaker 1: to one percent. Is it takeaway just that the profitability 329 00:15:54,760 --> 00:15:57,160 Speaker 1: case for these banks has been severely challenged and will 330 00:15:57,160 --> 00:15:58,400 Speaker 1: continue to be going forward. 331 00:15:59,400 --> 00:16:01,120 Speaker 3: I would say it's it's not severely challenged. 332 00:16:01,120 --> 00:16:03,400 Speaker 6: I think it's modestly challenged, and some of that is 333 00:16:03,440 --> 00:16:05,480 Speaker 6: really just to catch up on the cost of funds. 334 00:16:05,800 --> 00:16:08,960 Speaker 6: Most banks deposits are way behind the FED funds rate. 335 00:16:09,000 --> 00:16:11,520 Speaker 6: It's about three hundred basis points wide. It's as wide 336 00:16:11,520 --> 00:16:14,160 Speaker 6: as I've ever seen it in thirty years covering banks. 337 00:16:14,160 --> 00:16:15,760 Speaker 6: So I think that's going to narrow in the next 338 00:16:15,800 --> 00:16:18,800 Speaker 6: few quarters, so that catch up has definitely hurt margins, 339 00:16:18,800 --> 00:16:21,760 Speaker 6: but I think the repricing ability of new loans is 340 00:16:21,800 --> 00:16:23,600 Speaker 6: still very good for the banks. A lot of new 341 00:16:23,640 --> 00:16:26,400 Speaker 6: loans are coming on in the high six is low sevens, 342 00:16:26,480 --> 00:16:28,720 Speaker 6: and that's going to actually help margins stabilize. 343 00:16:28,760 --> 00:16:31,600 Speaker 3: So margin declines are real at the moment. 344 00:16:31,680 --> 00:16:33,800 Speaker 6: I think there's more of them in the second quarter, 345 00:16:33,840 --> 00:16:36,160 Speaker 6: But I think the downside risk is not as bad 346 00:16:36,480 --> 00:16:37,440 Speaker 6: as investors fear. 347 00:16:37,520 --> 00:16:39,960 Speaker 3: But again, we have to prove this to investors. 348 00:16:40,000 --> 00:16:41,880 Speaker 6: A lot of folks are from Missouri that want to 349 00:16:41,880 --> 00:16:43,800 Speaker 6: be shown that this is really true. 350 00:16:43,880 --> 00:16:46,880 Speaker 4: It's about upside potential as well, not just downside risk. 351 00:16:46,920 --> 00:16:48,320 Speaker 4: As you know, Chris, and you alluded to some of 352 00:16:48,360 --> 00:16:53,160 Speaker 4: this just briefly, the threat of regulation from here. Do 353 00:16:53,200 --> 00:16:55,080 Speaker 4: you think that threat of regulation is going to keep 354 00:16:55,080 --> 00:16:58,560 Speaker 4: people away from these banks despite whatever happens with the 355 00:16:58,560 --> 00:16:59,960 Speaker 4: fundamentals in the months to come. 356 00:17:01,240 --> 00:17:03,360 Speaker 6: Sure, And the reality is that I think we still 357 00:17:03,400 --> 00:17:06,600 Speaker 6: do not know what's going to happen with FDIC deposit premiums, 358 00:17:06,600 --> 00:17:09,359 Speaker 6: that the Fed and FDSC are very slow to approve 359 00:17:09,440 --> 00:17:10,080 Speaker 6: bank deals. 360 00:17:10,359 --> 00:17:12,760 Speaker 3: That's grinding, and we have a possible change in the. 361 00:17:12,680 --> 00:17:15,879 Speaker 6: White House, which really impacts regulation here in the several 362 00:17:15,920 --> 00:17:18,600 Speaker 6: quarters from now, so that is a very good reason 363 00:17:18,680 --> 00:17:20,879 Speaker 6: not to own banks. But I also think there are 364 00:17:20,920 --> 00:17:23,320 Speaker 6: a fair amount of investors who have to own some position. 365 00:17:23,400 --> 00:17:25,639 Speaker 6: They can't be at zero. They may be underweight, but 366 00:17:25,680 --> 00:17:27,240 Speaker 6: they can't be at zero. So I think you're going 367 00:17:27,280 --> 00:17:29,680 Speaker 6: to see some nibbling on the stocks as time passes, 368 00:17:29,920 --> 00:17:31,960 Speaker 6: But there are a lot of folks on the sidelines. 369 00:17:32,000 --> 00:17:33,400 Speaker 3: I think your point's very accurate. 370 00:17:33,480 --> 00:17:35,080 Speaker 4: There's a lot of economists who are looking for this 371 00:17:35,160 --> 00:17:37,760 Speaker 4: data that comes out in early May, the Senior Loan 372 00:17:38,080 --> 00:17:40,800 Speaker 4: Officer Opinion Survey. Christopher and I wonder if we can 373 00:17:40,840 --> 00:17:42,679 Speaker 4: sort of front run then a little bit based on 374 00:17:42,720 --> 00:17:45,000 Speaker 4: what we've heard from the banks so far. There are 375 00:17:45,040 --> 00:17:46,960 Speaker 4: people who sit around this table with U Chris every 376 00:17:46,960 --> 00:17:49,120 Speaker 4: single day that talk about the beginning of a process 377 00:17:49,160 --> 00:17:52,080 Speaker 4: that leads to time of financial conditions and lending standards. 378 00:17:52,320 --> 00:17:55,240 Speaker 4: Are you hearing that from executives from these banks they've 379 00:17:55,240 --> 00:17:56,560 Speaker 4: reported so far this week? 380 00:17:57,480 --> 00:17:58,040 Speaker 3: Absolutely. 381 00:17:58,080 --> 00:18:00,199 Speaker 6: I think we heard it in January before all this 382 00:18:00,240 --> 00:18:02,720 Speaker 6: started to happen, So it's very much a reality. 383 00:18:03,080 --> 00:18:04,400 Speaker 3: It will continue to get tighter. 384 00:18:04,560 --> 00:18:06,560 Speaker 6: But the good news is there are companies who have 385 00:18:06,640 --> 00:18:08,560 Speaker 6: to borrow and banks who want to lend to them, 386 00:18:08,600 --> 00:18:10,480 Speaker 6: they're just going to be tougher on the standards. I 387 00:18:10,480 --> 00:18:13,159 Speaker 6: think that actually bodes well for credit quality through the cycle. 388 00:18:13,560 --> 00:18:16,040 Speaker 6: Loan to values are going to be lower than folks realize. 389 00:18:16,080 --> 00:18:19,800 Speaker 6: I think the rates that people will accept from banks 390 00:18:19,800 --> 00:18:20,479 Speaker 6: will be higher. 391 00:18:20,680 --> 00:18:22,159 Speaker 3: That's ultimately good for business. 392 00:18:22,200 --> 00:18:25,040 Speaker 6: But there's no doubt it's a tighter credit market out there, 393 00:18:25,280 --> 00:18:27,280 Speaker 6: and what happened in the past six weeks has certainly 394 00:18:27,520 --> 00:18:29,560 Speaker 6: put an exclamation point on that tightening. 395 00:18:29,680 --> 00:18:31,360 Speaker 1: Have you got in a sense based on what we've 396 00:18:31,359 --> 00:18:34,639 Speaker 1: gotten from earnings of how significant the roll up will be, 397 00:18:34,800 --> 00:18:37,080 Speaker 1: of how much there will be mergers and acquisitions and 398 00:18:37,080 --> 00:18:41,040 Speaker 1: a consolidation to become a larger regional bank rather than 399 00:18:41,080 --> 00:18:42,560 Speaker 1: just a smaller one. 400 00:18:42,960 --> 00:18:45,159 Speaker 6: So I think there's always winners and losers in the 401 00:18:45,160 --> 00:18:47,760 Speaker 6: bank space, and I think consolidation will continue to happen. 402 00:18:47,800 --> 00:18:51,520 Speaker 6: Even if the regulators take their slow time to approve deals, 403 00:18:51,720 --> 00:18:54,440 Speaker 6: We'll still see consolidation over time. So what I'm looking 404 00:18:54,480 --> 00:18:57,720 Speaker 6: for is the strongest companies will start to raise capital 405 00:18:58,040 --> 00:19:00,840 Speaker 6: to prove they can that will differentiate them, that will 406 00:19:00,840 --> 00:19:03,760 Speaker 6: help their stock prices recover sooner, and that ultimately will 407 00:19:03,840 --> 00:19:06,920 Speaker 6: lead to consolidation. There definitely will be a difference between 408 00:19:06,960 --> 00:19:09,679 Speaker 6: buyers and sellers on valuations, even though it may not 409 00:19:09,760 --> 00:19:11,960 Speaker 6: seem it today. I think that differentiated will start to 410 00:19:12,000 --> 00:19:13,879 Speaker 6: happen in the next six to eight weeks. 411 00:19:14,080 --> 00:19:16,280 Speaker 4: Chris, as I say, I know you're super busy this morning, 412 00:19:16,320 --> 00:19:18,560 Speaker 4: so thanks again for confinats some time for us as 413 00:19:18,560 --> 00:19:21,119 Speaker 4: you pull through these bank earnings. Christopher Maronak, the of 414 00:19:21,200 --> 00:19:27,960 Speaker 4: Jenny Montgomery Scott Lebby Cantrell joins US now had a 415 00:19:27,960 --> 00:19:30,480 Speaker 4: public policy over at PIMCO Libya. I've been looking forward 416 00:19:30,520 --> 00:19:32,600 Speaker 4: to this conversation. Thanks for being with us this morning. 417 00:19:32,720 --> 00:19:34,440 Speaker 4: Can we start there. I think it's a really really 418 00:19:34,440 --> 00:19:38,159 Speaker 4: important topic for US today and maybe over the next decade. Lebby, 419 00:19:38,320 --> 00:19:40,879 Speaker 4: what kind of actions are you expecting from this administration 420 00:19:40,920 --> 00:19:42,280 Speaker 4: off the back of comments like these? 421 00:19:43,080 --> 00:19:45,639 Speaker 8: Yeah, well, John, your earlier comments I think are spot on. 422 00:19:46,080 --> 00:19:50,080 Speaker 8: The rhetoric of the previous administration was quite strong. We 423 00:19:50,119 --> 00:19:54,440 Speaker 8: saw that somewhat followed up by policy. But this administration 424 00:19:54,600 --> 00:19:56,639 Speaker 8: actually the rhetoric has been maybe a little bit softer. 425 00:19:57,280 --> 00:20:02,879 Speaker 8: They've really emphasized strate hegic competition, but also cooperation, cooperation 426 00:20:02,960 --> 00:20:06,879 Speaker 8: follows sort of closely after that emphasis on competition. But 427 00:20:07,119 --> 00:20:10,720 Speaker 8: I would argue that the policies have actually been more 428 00:20:10,760 --> 00:20:14,400 Speaker 8: substantive from the Biden administration and more putative in many 429 00:20:14,440 --> 00:20:17,000 Speaker 8: ways as it relates to China. So, as Lisa mentioned, 430 00:20:17,000 --> 00:20:19,920 Speaker 8: we saw those export controls on semiconductors. We think that's 431 00:20:19,960 --> 00:20:25,920 Speaker 8: the beginning of a broader process around export controls. But importantly, John, 432 00:20:25,920 --> 00:20:29,160 Speaker 8: and this should be forthcoming in the next few weeks, months, 433 00:20:29,640 --> 00:20:33,560 Speaker 8: but definitely by come midsummer, is this executive order on 434 00:20:33,720 --> 00:20:37,520 Speaker 8: capital outflows that would require at least disclosure, if not 435 00:20:37,640 --> 00:20:41,240 Speaker 8: prohibition of some capital outflows from the United States to 436 00:20:41,440 --> 00:20:44,280 Speaker 8: China and specific sectors for sure, But it could have 437 00:20:44,400 --> 00:20:47,040 Speaker 8: spillover effects to the public markets as sort of this 438 00:20:47,280 --> 00:20:50,920 Speaker 8: chill in general goes on in terms of investment from 439 00:20:50,960 --> 00:20:52,160 Speaker 8: the US to China. 440 00:20:52,280 --> 00:20:54,520 Speaker 1: Libby, how many of the investors you speak with fully 441 00:20:54,520 --> 00:20:58,720 Speaker 1: appreciate what the implications of this are from a pricing perspective, 442 00:20:58,760 --> 00:21:02,240 Speaker 1: from a demand perspective, just in general, from reshaping the 443 00:21:02,280 --> 00:21:04,960 Speaker 1: way that markets really really trade. 444 00:21:05,359 --> 00:21:07,560 Speaker 8: I think a lot of our clients realize that the 445 00:21:07,600 --> 00:21:11,720 Speaker 8: political risk of investing in China has increased, and maybe 446 00:21:11,800 --> 00:21:15,119 Speaker 8: the economic benefit of investing in China is also not 447 00:21:15,160 --> 00:21:17,440 Speaker 8: as much of a sort of as clear cut as 448 00:21:17,480 --> 00:21:20,679 Speaker 8: it was at least several years ago. So we are 449 00:21:20,800 --> 00:21:24,280 Speaker 8: sort of seeing a reticence, especially in our US clients, 450 00:21:24,800 --> 00:21:27,479 Speaker 8: more of a kind of a tilt toward to home bias, 451 00:21:27,640 --> 00:21:31,320 Speaker 8: you know, Still an appreciation for diversification, still understanding that 452 00:21:31,440 --> 00:21:33,919 Speaker 8: China is going to be a source of global growth 453 00:21:33,960 --> 00:21:37,119 Speaker 8: over the secular and super secular timeframe, but also just 454 00:21:37,119 --> 00:21:40,200 Speaker 8: sort of realizing that some of these investments may be 455 00:21:40,320 --> 00:21:43,760 Speaker 8: fraught and again maybe tied up in both the political 456 00:21:43,840 --> 00:21:46,960 Speaker 8: rhetoric but also some of these policies coming out of Washington. 457 00:21:47,080 --> 00:21:49,840 Speaker 1: It's one thing to avoid buying Chinese bonds or stocks. 458 00:21:49,840 --> 00:21:53,480 Speaker 1: It's another thing to question the valuations of say an 459 00:21:53,560 --> 00:21:56,800 Speaker 1: Apple or some of the other technology giants at a 460 00:21:56,840 --> 00:21:59,760 Speaker 1: time when so much of their businesses really rely on 461 00:22:00,400 --> 00:22:04,160 Speaker 1: not just them, frankly, auto manufacturers, fast food companies. There's 462 00:22:04,200 --> 00:22:08,919 Speaker 1: so many basic corporate America so standbys that are tied 463 00:22:09,160 --> 00:22:12,119 Speaker 1: to China growth. How much is that appreciated? 464 00:22:13,440 --> 00:22:15,520 Speaker 8: Yeah, again, I mean I think that it's not to 465 00:22:15,520 --> 00:22:17,639 Speaker 8: say that the domestic market in China is not going 466 00:22:17,680 --> 00:22:19,800 Speaker 8: to continue to grow, and I think some of those 467 00:22:19,840 --> 00:22:23,400 Speaker 8: companies are aimed more at that domestic that domestic market, 468 00:22:23,680 --> 00:22:27,159 Speaker 8: but just in general being a US investor, and of 469 00:22:27,200 --> 00:22:29,439 Speaker 8: course that's who we're talking to in terms of our 470 00:22:30,080 --> 00:22:32,840 Speaker 8: US based clients, and they do sort of see that 471 00:22:33,119 --> 00:22:36,520 Speaker 8: this is more fraught in terms of actually investing US 472 00:22:36,640 --> 00:22:39,320 Speaker 8: dollars into China Chinese companies. It's not to say that 473 00:22:39,320 --> 00:22:40,480 Speaker 8: this is not going to you know, this is going 474 00:22:40,560 --> 00:22:44,440 Speaker 8: to stop altogether, but I think this administration is any 475 00:22:44,480 --> 00:22:46,840 Speaker 8: a pretty clear signal that they are going to at 476 00:22:46,920 --> 00:22:50,840 Speaker 8: least require some disclosure and some oversight into how kind 477 00:22:50,840 --> 00:22:54,959 Speaker 8: of US dollars are being allocated in China and importantly, 478 00:22:55,000 --> 00:22:57,760 Speaker 8: are they going to sectors that could increase sort of 479 00:22:57,800 --> 00:23:00,680 Speaker 8: the military and competitive of China. 480 00:23:00,880 --> 00:23:02,800 Speaker 4: Libby, this is the United States looking out to the 481 00:23:02,800 --> 00:23:04,760 Speaker 4: rest of the world. Let's talk about the rest of 482 00:23:04,800 --> 00:23:07,280 Speaker 4: the world looking into the United States. A big, big 483 00:23:07,320 --> 00:23:10,359 Speaker 4: topic of conversation. As you know, later this summer is 484 00:23:10,359 --> 00:23:12,920 Speaker 4: going to be the debt ceiling. We've had tax Day. 485 00:23:13,119 --> 00:23:14,640 Speaker 4: I think a lot of people are trying to use 486 00:23:14,680 --> 00:23:18,240 Speaker 4: that to try and understand where that X date might fall. Libby, 487 00:23:18,240 --> 00:23:20,320 Speaker 4: have you got a deeper understanding, a better understanding of 488 00:23:20,320 --> 00:23:21,159 Speaker 4: where that date might be. 489 00:23:21,560 --> 00:23:23,639 Speaker 8: Well, I think we're we're beholden to the data just 490 00:23:23,680 --> 00:23:26,280 Speaker 8: as anybody else's. I mean, there was some promising data 491 00:23:26,320 --> 00:23:29,320 Speaker 8: that came out yesterday just in terms of, you know, 492 00:23:29,359 --> 00:23:33,320 Speaker 8: potentially getting past this June fifteenth tax filing date. I 493 00:23:33,359 --> 00:23:37,200 Speaker 8: think that's been the open question. Can we is there 494 00:23:37,240 --> 00:23:40,639 Speaker 8: sort of enough capacity for the Treasury to get to this, 495 00:23:40,880 --> 00:23:43,800 Speaker 8: to beyond this June fifteenth date, meaning that then they 496 00:23:43,840 --> 00:23:46,600 Speaker 8: have more extraordinary measures to deploy, and then likely the 497 00:23:46,680 --> 00:23:49,240 Speaker 8: X date will fall sort of mid July, end of July, 498 00:23:49,440 --> 00:23:52,720 Speaker 8: maybe even August or even early September. I think there 499 00:23:52,720 --> 00:23:55,120 Speaker 8: was some question around that and some concern that actually 500 00:23:55,240 --> 00:23:57,560 Speaker 8: they may not get past that June fifteenth date. I 501 00:23:57,560 --> 00:23:59,760 Speaker 8: think yesterday John, what we saw in terms of the 502 00:24:00,400 --> 00:24:02,639 Speaker 8: data and the receipts is that we may actually be 503 00:24:02,680 --> 00:24:04,800 Speaker 8: able to get past at June fifteenth date, meaning the 504 00:24:04,920 --> 00:24:08,159 Speaker 8: X date is pushed it more to later in the summer. 505 00:24:08,240 --> 00:24:10,560 Speaker 8: And I think actually there's some folks in Congress though 506 00:24:10,760 --> 00:24:13,640 Speaker 8: that wouldn't mind the X date being more being closer 507 00:24:13,760 --> 00:24:15,880 Speaker 8: right more right around the quarters, because then that sort 508 00:24:15,880 --> 00:24:18,840 Speaker 8: of forces folks to actually come to the table and 509 00:24:18,920 --> 00:24:20,160 Speaker 8: to seek a resolution. 510 00:24:20,280 --> 00:24:22,680 Speaker 4: Speaker McCarthy says, he's got a plan. Do you think 511 00:24:22,680 --> 00:24:24,239 Speaker 4: there's a plan out there at the moment that you 512 00:24:24,280 --> 00:24:25,520 Speaker 4: see as realistic. 513 00:24:27,480 --> 00:24:30,199 Speaker 8: Well, he does have a plan, and he's you know, 514 00:24:30,240 --> 00:24:32,879 Speaker 8: he's now now there's a bill actually, So it was 515 00:24:32,880 --> 00:24:34,560 Speaker 8: a plan on Monday when he was up here in 516 00:24:34,600 --> 00:24:38,320 Speaker 8: New York. Now that it's actually in legislative text, I think, John, 517 00:24:38,359 --> 00:24:40,679 Speaker 8: the real open question is can he get two hundred 518 00:24:40,680 --> 00:24:42,960 Speaker 8: and eighteen members. Of course, Republicans are like two hundred 519 00:24:42,960 --> 00:24:45,480 Speaker 8: and twenty two in the House of Representatives. That means 520 00:24:45,480 --> 00:24:47,960 Speaker 8: he can only lose four in order to actually get 521 00:24:48,000 --> 00:24:50,639 Speaker 8: this through the House. Now, you know, investors in the 522 00:24:50,640 --> 00:24:54,040 Speaker 8: market should realize that whatever is passed, if this ultimately 523 00:24:54,040 --> 00:24:56,720 Speaker 8: this bill gets passed, it will not be signed into laws. 524 00:24:57,000 --> 00:24:59,679 Speaker 8: This is of course dead on arrival in the Senate. 525 00:24:59,800 --> 00:25:02,919 Speaker 8: But it's important from a Speaker McCarthy perspective because it 526 00:25:02,920 --> 00:25:05,760 Speaker 8: would increase his leverage with the White House. Right now, 527 00:25:06,119 --> 00:25:09,320 Speaker 8: all he does is has legislative text, and he doesn't 528 00:25:09,359 --> 00:25:11,960 Speaker 8: necessarily have a bill that's been able to pass the 529 00:25:12,119 --> 00:25:14,639 Speaker 8: past the House. I think that's the open question John, 530 00:25:14,720 --> 00:25:17,680 Speaker 8: if he is able to pass this again this will 531 00:25:17,680 --> 00:25:19,359 Speaker 8: not get signed into LOB but then at least it 532 00:25:19,440 --> 00:25:23,840 Speaker 8: sort of starts formally these negotiations and certainly increases his 533 00:25:23,960 --> 00:25:26,640 Speaker 8: sort of his positioning and negotiating power with the president. 534 00:25:26,720 --> 00:25:28,320 Speaker 4: Libby, you're one of the very best. We're lucky to 535 00:25:28,320 --> 00:25:30,440 Speaker 4: catch out with you again. Let me cancel there, Pim 536 00:25:30,480 --> 00:25:32,560 Speaker 4: car Let's do this again soon on this topic. 537 00:25:43,080 --> 00:25:46,040 Speaker 1: Shanelli Bosik is joining us now ahead of an interview 538 00:25:46,040 --> 00:25:48,440 Speaker 1: with somebody on the other side potentially of this, John Gray, 539 00:25:48,760 --> 00:25:51,000 Speaker 1: who is president and CEO of Blackstone. 540 00:25:51,160 --> 00:25:51,320 Speaker 5: Yeah. 541 00:25:51,359 --> 00:25:53,960 Speaker 9: Absolutely, John, thank you for joining us so much because 542 00:25:54,000 --> 00:25:56,480 Speaker 9: you have such a large place in this story when 543 00:25:56,480 --> 00:26:00,560 Speaker 9: we're looking at lending contracting across the country and so anyways, 544 00:26:00,720 --> 00:26:04,000 Speaker 9: but let's start with your results here, John, because when 545 00:26:04,000 --> 00:26:06,840 Speaker 9: you look at the numbers, you've beat on earnings per share, 546 00:26:07,160 --> 00:26:10,640 Speaker 9: but assets under management. We've been waiting quarter after quarter here, 547 00:26:10,680 --> 00:26:13,760 Speaker 9: you're so close dating that one trillion dollar mark. You've 548 00:26:13,760 --> 00:26:16,280 Speaker 9: said things are kind of slowing out there in the environment. 549 00:26:16,680 --> 00:26:19,600 Speaker 9: At what point do things start to turn around here 550 00:26:20,200 --> 00:26:22,040 Speaker 9: to kind of help push black zone a little bit 551 00:26:22,040 --> 00:26:23,440 Speaker 9: further in this environment. 552 00:26:24,400 --> 00:26:27,159 Speaker 10: Chanale, it's great to be with you. I would just 553 00:26:27,240 --> 00:26:31,679 Speaker 10: say We're incredibly proud of the quarter. We protected investor 554 00:26:31,760 --> 00:26:35,959 Speaker 10: capital and that performance is ultimately what's going to propel 555 00:26:36,040 --> 00:26:39,760 Speaker 10: us forward to raise more capital. We did see forty 556 00:26:39,840 --> 00:26:43,520 Speaker 10: billion dollars of inflows more than two hundred billion over 557 00:26:43,560 --> 00:26:47,439 Speaker 10: the last year, and for our shareholders, we delivered nearly 558 00:26:47,480 --> 00:26:51,399 Speaker 10: a dollar in distributable earnings despite limited performance fees. And 559 00:26:51,440 --> 00:26:53,880 Speaker 10: we really think we have the right model. We've got 560 00:26:53,920 --> 00:26:57,160 Speaker 10: staying power where we can hold assets in a difficult 561 00:26:57,160 --> 00:27:01,320 Speaker 10: period in firepower nearly two hundred billion dollars to deploy, 562 00:27:01,520 --> 00:27:05,200 Speaker 10: so our views, we just keep executing for our investors 563 00:27:05,440 --> 00:27:08,160 Speaker 10: and the assets will take care of themselves over time. 564 00:27:08,840 --> 00:27:11,160 Speaker 9: Now we want to look a little bit broader across 565 00:27:11,240 --> 00:27:14,480 Speaker 9: the universe here because Blackstone, of course is one of 566 00:27:14,520 --> 00:27:17,520 Speaker 9: the biggest private landlords in the country, everything from warehouses 567 00:27:17,560 --> 00:27:20,080 Speaker 9: to single family homes. I'm wondering, if you take out 568 00:27:20,119 --> 00:27:23,720 Speaker 9: your crystal ball, John and kind of look across the economy, 569 00:27:23,760 --> 00:27:26,720 Speaker 9: what are people not seeing about the real estate market. 570 00:27:26,800 --> 00:27:27,960 Speaker 9: What's the next shoot drop? 571 00:27:29,200 --> 00:27:32,480 Speaker 10: Well, I think on real estate, the issue is people 572 00:27:32,560 --> 00:27:35,879 Speaker 10: are looking through a very narrow lens and they're thinking 573 00:27:35,920 --> 00:27:39,800 Speaker 10: about real estate all is one thing and the reality 574 00:27:40,000 --> 00:27:44,080 Speaker 10: is where you invest matters. So if you look at 575 00:27:44,359 --> 00:27:48,359 Speaker 10: office buildings, traditional office buildings in the US, which fortunately 576 00:27:48,400 --> 00:27:51,520 Speaker 10: for US are less than two percent of our portfolio, 577 00:27:52,040 --> 00:27:56,640 Speaker 10: there we're seeing really unprecedented weakness. Vacan see rates are 578 00:27:57,200 --> 00:28:01,560 Speaker 10: twenty percent, rents are under pressure, and valuations are under 579 00:28:01,600 --> 00:28:06,760 Speaker 10: significant pressure. But if you look across to logistics Global Logistics, 580 00:28:06,760 --> 00:28:09,600 Speaker 10: which is forty percent of what we own, their things 581 00:28:09,640 --> 00:28:14,880 Speaker 10: look very different, almost unprecedented strength. You've got vacancy rates 582 00:28:15,160 --> 00:28:19,040 Speaker 10: less than three percent. You've got rents growing double digit, 583 00:28:19,480 --> 00:28:23,440 Speaker 10: mark to market lease rates of forty fifty percent between 584 00:28:23,520 --> 00:28:26,479 Speaker 10: where the market rents are and what's in place, and 585 00:28:26,560 --> 00:28:29,360 Speaker 10: so I think it's a pretty vast world out there. 586 00:28:29,400 --> 00:28:33,760 Speaker 10: In real estate, hotels continue to exhibit strength, data centers, 587 00:28:34,040 --> 00:28:38,160 Speaker 10: student housing, but yes, commercial real estate in the office 588 00:28:38,160 --> 00:28:41,920 Speaker 10: sector's challenge, and we expect that'll continue for some time. 589 00:28:42,200 --> 00:28:45,640 Speaker 1: Has that unprecedented weakness john been fully priced in when 590 00:28:45,640 --> 00:28:47,200 Speaker 1: it comes to the office space. 591 00:28:48,120 --> 00:28:51,080 Speaker 10: Well, I think you see it in the stocks of 592 00:28:51,160 --> 00:28:54,520 Speaker 10: the public rates. They've traded off very dramatically. Some of 593 00:28:54,520 --> 00:28:58,560 Speaker 10: the big public office companies are off fifty seventy five percent. 594 00:28:59,080 --> 00:29:02,280 Speaker 10: You've seen in the price market, valuations in the limited 595 00:29:02,320 --> 00:29:06,000 Speaker 10: trades that are happening are down significantly. I think some 596 00:29:06,120 --> 00:29:09,800 Speaker 10: folks in terms of funds, private funds may not have 597 00:29:09,920 --> 00:29:12,960 Speaker 10: marked fully to what's been happening. I think you'll see 598 00:29:13,000 --> 00:29:15,000 Speaker 10: more of that. We tend to be ahead of the 599 00:29:15,080 --> 00:29:18,120 Speaker 10: curve on those things. But I think the good news is, 600 00:29:18,120 --> 00:29:19,920 Speaker 10: because I know there's a lot of focus on the 601 00:29:19,960 --> 00:29:24,440 Speaker 10: banking sector, is that leverage levels around commercial real estate 602 00:29:24,520 --> 00:29:27,440 Speaker 10: going into this, we're pretty low. So I think banks 603 00:29:27,480 --> 00:29:31,440 Speaker 10: probably lent against office buildings at about sixty percent of value, 604 00:29:31,720 --> 00:29:34,680 Speaker 10: so they should have a pretty good cushion, and office 605 00:29:34,720 --> 00:29:38,000 Speaker 10: buildings as a percentage of their balance sheets is pretty small. 606 00:29:38,080 --> 00:29:41,240 Speaker 10: So it's an area where there will be real headwinds. 607 00:29:41,480 --> 00:29:44,880 Speaker 10: Equity owners will take some real hits, but the broader 608 00:29:44,920 --> 00:29:47,120 Speaker 10: real estate market looks a lot healthier. 609 00:29:47,360 --> 00:29:49,640 Speaker 1: How concerned are you, John, even in the broader real 610 00:29:49,760 --> 00:29:52,360 Speaker 1: estate space about some of the issues that we've seen 611 00:29:52,400 --> 00:29:55,520 Speaker 1: in the small banks, given that they own a significant 612 00:29:55,600 --> 00:29:59,320 Speaker 1: portion of the lending books to commercial real estate across 613 00:29:59,360 --> 00:30:00,400 Speaker 1: the industry. 614 00:30:01,360 --> 00:30:04,120 Speaker 10: Well, there's no question that credit will be tighter to 615 00:30:04,400 --> 00:30:08,720 Speaker 10: commercial real estate. Some of the good news is the agencies, 616 00:30:08,760 --> 00:30:11,480 Speaker 10: the government agencies Fanny and Freddie lead the way in 617 00:30:11,680 --> 00:30:16,520 Speaker 10: multifamily lending and apartment lending, there is strength in other areas. 618 00:30:16,600 --> 00:30:20,560 Speaker 10: Real estate lending is broader than just banks because insurance companies, 619 00:30:21,200 --> 00:30:25,840 Speaker 10: commercial mortgage backed securities exist, mortgage reates are out there, 620 00:30:26,080 --> 00:30:29,160 Speaker 10: so there are multiple sources of capital. But I do 621 00:30:29,240 --> 00:30:32,479 Speaker 10: think credit will be tighter in commercial real estate. The 622 00:30:32,520 --> 00:30:37,160 Speaker 10: one benefit to existing owners is construction lending is going 623 00:30:37,200 --> 00:30:40,240 Speaker 10: to get a lot tighter, and so you'll see less 624 00:30:40,360 --> 00:30:44,200 Speaker 10: new supply long term that's a positive. But yes, I 625 00:30:44,240 --> 00:30:47,800 Speaker 10: think we will see less capital available. It will dampen 626 00:30:47,880 --> 00:30:52,000 Speaker 10: things a bit, but ultimately fundamentals around supply and demand 627 00:30:52,200 --> 00:30:55,280 Speaker 10: or what drives value, and that's why if confidence going 628 00:30:55,320 --> 00:30:58,880 Speaker 10: forward in most of the sectors, certainly away from office buildings. 629 00:30:59,000 --> 00:31:01,680 Speaker 9: John, I'm really curious about an update here on b Rate, 630 00:31:02,520 --> 00:31:04,760 Speaker 9: the real estate fund that has faced on withdrawals over 631 00:31:04,800 --> 00:31:08,160 Speaker 9: the last couple of months. Performance has been pretty stellar 632 00:31:08,200 --> 00:31:10,600 Speaker 9: over three years, more than seventeen percent, but it has 633 00:31:10,640 --> 00:31:14,160 Speaker 9: turned negative this year so far. I'm wondering what the 634 00:31:14,200 --> 00:31:16,840 Speaker 9: pitch is to invest this year when performance is starting 635 00:31:16,840 --> 00:31:17,480 Speaker 9: to be more muted. 636 00:31:18,800 --> 00:31:22,600 Speaker 10: Well, the performance this year, interestingly, Shanali has been hurt 637 00:31:22,680 --> 00:31:25,640 Speaker 10: mostly by the interest rate hedges we put in place 638 00:31:26,040 --> 00:31:29,480 Speaker 10: to protect the fund, which really helped us last year. 639 00:31:29,600 --> 00:31:34,440 Speaker 10: The historic decline in March and rates impacted, but if 640 00:31:34,480 --> 00:31:37,400 Speaker 10: you looked at the performance pre those hedges, you would 641 00:31:37,440 --> 00:31:40,680 Speaker 10: have had positive performance in the quarter. I think rates 642 00:31:40,680 --> 00:31:43,520 Speaker 10: have now moved down a fair amount, so that headwind 643 00:31:43,600 --> 00:31:46,080 Speaker 10: should be away from us. The other thing I'd point 644 00:31:46,080 --> 00:31:49,160 Speaker 10: to is the cash flow growth. In the first quarter, 645 00:31:49,400 --> 00:31:53,000 Speaker 10: estimated cash flow growth for b rate was nine percent, 646 00:31:53,640 --> 00:31:59,520 Speaker 10: led by hotels, student housing logistics, which we talked about, 647 00:31:59,840 --> 00:32:03,520 Speaker 10: So the underlying cash flow growth is good. It looks 648 00:32:03,680 --> 00:32:07,840 Speaker 10: like inflations getting under control. The ten years has moved down, 649 00:32:07,920 --> 00:32:11,239 Speaker 10: which long term is a positive for this portfolio, so 650 00:32:11,280 --> 00:32:14,560 Speaker 10: we feel really good. It's a portfolio of rental housing 651 00:32:14,880 --> 00:32:17,920 Speaker 10: logistics in the sun belt of the United States. It's 652 00:32:18,000 --> 00:32:20,600 Speaker 10: exactly what you want to own, and we think once 653 00:32:20,640 --> 00:32:23,920 Speaker 10: you get through this more volatile markets period, people will 654 00:32:23,960 --> 00:32:27,280 Speaker 10: focus again on fundamentals and that'll be quite helpful for 655 00:32:27,360 --> 00:32:28,520 Speaker 10: the flows in be reach. 656 00:32:28,640 --> 00:32:30,800 Speaker 9: You know, we started to talk about the banking market 657 00:32:30,840 --> 00:32:32,680 Speaker 9: as it pertains to commercial real estate, but you know, 658 00:32:32,720 --> 00:32:34,680 Speaker 9: I want to cite some of Bloomberg's own reporting here. 659 00:32:34,880 --> 00:32:38,440 Speaker 9: Black Zone had been in talks with Valley to buy 660 00:32:38,480 --> 00:32:41,440 Speaker 9: some assets from Silicon Valley Bank. I'm really curious what 661 00:32:41,480 --> 00:32:44,440 Speaker 9: this says about your ambition in this banking kind of 662 00:32:44,480 --> 00:32:47,800 Speaker 9: tumult period. Do you think you could do more by 663 00:32:47,920 --> 00:32:51,160 Speaker 9: means of working with regional banks providing more credit where 664 00:32:51,200 --> 00:32:53,840 Speaker 9: credit is tightening up, especially given some of your private 665 00:32:54,040 --> 00:32:56,760 Speaker 9: credit books are up more than nine percent so far. 666 00:32:58,080 --> 00:33:01,320 Speaker 10: I think that's a great question, Chanale. Interestingly, of the 667 00:33:01,360 --> 00:33:05,160 Speaker 10: forty billion we raised in the quarter, sixty percent of 668 00:33:05,200 --> 00:33:08,840 Speaker 10: it came in our credit insurance and real estate credit areas. 669 00:33:08,880 --> 00:33:12,280 Speaker 10: Investors are allocating more capital. We have in total in 670 00:33:12,320 --> 00:33:16,120 Speaker 10: those areas three hundred and fifty billion dollars, and so 671 00:33:16,360 --> 00:33:19,960 Speaker 10: I think there's a real opportunity. We're actually in discussions 672 00:33:19,960 --> 00:33:23,480 Speaker 10: today with a number of regional banks to partner with them. 673 00:33:23,880 --> 00:33:28,160 Speaker 10: They have very valuable relationships with borrowers out there across 674 00:33:28,200 --> 00:33:31,719 Speaker 10: the country. We have long term capital, and so in 675 00:33:31,760 --> 00:33:36,280 Speaker 10: consumer financing and small and medium business financing, particularly in 676 00:33:36,320 --> 00:33:40,080 Speaker 10: the asset backed area, we think there's a real opportunity 677 00:33:40,160 --> 00:33:42,520 Speaker 10: to deploy more capital. And I think it's one of 678 00:33:42,560 --> 00:33:45,560 Speaker 10: the real strengths of the alternatives business. As you know, 679 00:33:45,680 --> 00:33:48,520 Speaker 10: this used to just be about private equity, real estate, 680 00:33:48,560 --> 00:33:51,800 Speaker 10: private equity, but what we do today is much broader, 681 00:33:52,000 --> 00:33:54,960 Speaker 10: and I think the private credit area is really at 682 00:33:54,960 --> 00:33:58,480 Speaker 10: a golden moment because we do see tightening out there, 683 00:33:58,520 --> 00:34:01,600 Speaker 10: and yet we have this large pool of capital to deploy, 684 00:34:01,880 --> 00:34:04,320 Speaker 10: and so I think you'll see us become much more active. 685 00:34:04,800 --> 00:34:07,960 Speaker 1: John, do you think that private credit will come into 686 00:34:08,000 --> 00:34:11,160 Speaker 1: its golden era at a time where private equity is fading, 687 00:34:11,320 --> 00:34:13,759 Speaker 1: where the valuations make less sense, at a time when 688 00:34:13,840 --> 00:34:16,960 Speaker 1: rates are so high and offset some of the potential 689 00:34:17,000 --> 00:34:17,920 Speaker 1: equity valuation. 690 00:34:19,560 --> 00:34:22,040 Speaker 10: You know, I think we see cycles, and so if 691 00:34:22,080 --> 00:34:27,000 Speaker 10: you look at private equity, it's had enduring performance premiums. 692 00:34:27,000 --> 00:34:29,719 Speaker 10: That's certainly been the case for us. Our group has 693 00:34:29,760 --> 00:34:33,399 Speaker 10: done a terrific job deploying capital. What you're seeing now 694 00:34:33,520 --> 00:34:38,160 Speaker 10: is a cyclical slowdown in transaction activity. That's what happens 695 00:34:38,160 --> 00:34:42,400 Speaker 10: at moments when people are cautious. But ultimately this recovers, 696 00:34:42,440 --> 00:34:46,239 Speaker 10: and so our ability to find great businesses, to intervene 697 00:34:46,239 --> 00:34:49,840 Speaker 10: with those companies, to partner with management teams create value 698 00:34:50,160 --> 00:34:54,839 Speaker 10: that still exists. We announced a sizeable public to private 699 00:34:55,000 --> 00:34:58,960 Speaker 10: of a company called Seavent in the online event management 700 00:34:59,000 --> 00:35:02,200 Speaker 10: space for a north of four billion dollars this quarter. 701 00:35:02,760 --> 00:35:05,680 Speaker 10: I think you'll see us find more opportunities over time. 702 00:35:05,920 --> 00:35:07,759 Speaker 10: I think it just says right now things are a 703 00:35:07,800 --> 00:35:10,359 Speaker 10: little bit slower, but they'll come back, and I think 704 00:35:10,400 --> 00:35:12,160 Speaker 10: that business is going to do quite well. 705 00:35:12,239 --> 00:35:14,759 Speaker 9: He John, I'm really curious about your thoughts here on 706 00:35:14,840 --> 00:35:17,240 Speaker 9: rates and inflation. You've heard a number of your banking 707 00:35:17,360 --> 00:35:20,759 Speaker 9: rivals and peers say already that maybe the market is 708 00:35:20,840 --> 00:35:24,439 Speaker 9: not really prepared for the eventuality of higher rates, and 709 00:35:24,760 --> 00:35:27,960 Speaker 9: you've said also that maybe cuts this year are also 710 00:35:28,120 --> 00:35:31,520 Speaker 9: not on the horizon. So what is the thing that 711 00:35:31,520 --> 00:35:34,400 Speaker 9: the market is not seeing here about the direction of travel. 712 00:35:35,480 --> 00:35:38,040 Speaker 10: Well, I would say on the inflation front, I'll give 713 00:35:38,080 --> 00:35:41,960 Speaker 10: you a little bit of optimism. We see inflation moving 714 00:35:42,040 --> 00:35:46,080 Speaker 10: into the rare view mirror. And I say that because 715 00:35:46,640 --> 00:35:52,120 Speaker 10: across our portfolio the statistics are really encouraging. Our procurement 716 00:35:52,200 --> 00:35:56,239 Speaker 10: managers at portfolio companies are saying inflation in terms of 717 00:35:56,239 --> 00:35:59,120 Speaker 10: input costs was only up two percent in the quarter. 718 00:35:59,560 --> 00:36:03,720 Speaker 10: Shipping costs have come back almost back to twenty nineteen levels. 719 00:36:04,040 --> 00:36:07,840 Speaker 10: Even wages, which we're up as high as seven percent 720 00:36:07,840 --> 00:36:11,080 Speaker 10: in our portfolio six months ago, are now at five 721 00:36:11,120 --> 00:36:15,320 Speaker 10: point six percent, and the availability of workers has gotten 722 00:36:15,360 --> 00:36:18,759 Speaker 10: a lot better for our portfolio companies. And if you 723 00:36:18,840 --> 00:36:22,120 Speaker 10: looked at the CPI number last month, it was five percent, 724 00:36:22,520 --> 00:36:25,920 Speaker 10: but if you exclude shelter, which is a lagging indicator, 725 00:36:26,239 --> 00:36:28,600 Speaker 10: it was up just three point four percent. So that 726 00:36:28,800 --> 00:36:31,319 Speaker 10: is the good news. I think the more challenging news 727 00:36:31,360 --> 00:36:34,160 Speaker 10: to your question on rates is the FED is going 728 00:36:34,239 --> 00:36:36,760 Speaker 10: to want to make sure this inflation really gets down. 729 00:36:37,160 --> 00:36:40,480 Speaker 10: So I think the idea that they're going to pivot 730 00:36:41,080 --> 00:36:43,560 Speaker 10: is a mistake. I think they're much more likely to 731 00:36:43,680 --> 00:36:47,680 Speaker 10: pause hold rates and an elevated level and continue to 732 00:36:47,719 --> 00:36:50,920 Speaker 10: see the economy decelerate. And now when you add in 733 00:36:50,960 --> 00:36:53,880 Speaker 10: what we've been talking about with regional banks, that's going 734 00:36:53,960 --> 00:36:58,759 Speaker 10: to create further tightening, and so credit is becoming less available, 735 00:36:59,160 --> 00:37:02,280 Speaker 10: more expensive. It's really you know, sort of the blood 736 00:37:02,320 --> 00:37:05,840 Speaker 10: flow through the circulatory engine of the economy, and that 737 00:37:06,000 --> 00:37:07,960 Speaker 10: is slowing, and I think that will lead to a 738 00:37:08,000 --> 00:37:11,640 Speaker 10: sequential slowdown in the economy, so that will stay tight. 739 00:37:11,920 --> 00:37:16,120 Speaker 10: But the good news for investors for consumers is inflation's 740 00:37:16,160 --> 00:37:18,200 Speaker 10: coming down, and we think that's really positive. 741 00:37:18,320 --> 00:37:20,000 Speaker 1: John twenty seconds, how long is it going to take 742 00:37:20,040 --> 00:37:21,160 Speaker 1: for deal making to come back. 743 00:37:22,840 --> 00:37:25,600 Speaker 10: You know, I think it's going to take some stability 744 00:37:25,640 --> 00:37:30,920 Speaker 10: in markets, certainly getting past this inflation, people having more confidence. 745 00:37:31,320 --> 00:37:33,879 Speaker 10: Hopefully it happens in the back half of the year. 746 00:37:34,080 --> 00:37:36,279 Speaker 10: I think it's the latest sometime in the early part 747 00:37:36,280 --> 00:37:36,919 Speaker 10: of next year. 748 00:37:37,200 --> 00:37:40,239 Speaker 1: John Gray of Blackstone and Bloomberg Shanolipassic, thank you both 749 00:37:40,480 --> 00:37:44,320 Speaker 1: so much for being here. Subscribe to the Bloomberg Surveillance podcast 750 00:37:44,400 --> 00:37:47,399 Speaker 1: on Apple, Spotify, and anywhere else you get your podcasts. 751 00:37:47,719 --> 00:37:50,600 Speaker 1: Listen live every weekday starting at seven am Eastern, on 752 00:37:50,640 --> 00:37:53,960 Speaker 1: Bloomberg dot Com, the iHeartRadio app tune In, and the 753 00:37:54,000 --> 00:37:57,240 Speaker 1: Bloomberg Business app. You can watch us live on Bloomberg 754 00:37:57,239 --> 00:38:00,920 Speaker 1: Television and always on the Bloomberg Terminal. Thanks for listening. 755 00:38:01,000 --> 00:38:03,320 Speaker 1: I'm Lisa Abramowitz, and this is Bloomberg.