WEBVTT - Surveillance: Fed in Focus with Carpenter

0:00:05.080 --> 0:00:09.160
<v Speaker 1>This is the Bloomberg Surveillance Podcast. I'm Lisa Abramoids along

0:00:09.200 --> 0:00:12.160
<v Speaker 1>with Tom Keane and Jonathan Farrow. Join us each day

0:00:12.200 --> 0:00:16.440
<v Speaker 1>for insight from the best in economics, geopolitics, finance and investment.

0:00:16.760 --> 0:00:20.279
<v Speaker 1>Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

0:00:20.360 --> 0:00:23.840
<v Speaker 1>anywhere you get your podcasts, and always on Bloomberg dot Com,

0:00:23.840 --> 0:00:27.080
<v Speaker 1>the Bloomberg Terminal, and the Bloomberg Business App. Let's bring

0:00:27.080 --> 0:00:30.280
<v Speaker 1>in Seth Carpenter, who has been quoted so frequently this

0:00:30.360 --> 0:00:32.920
<v Speaker 1>morning on the show, chief global economist at Morgan Stanley

0:00:33.000 --> 0:00:35.120
<v Speaker 1>is Seth, what's your initial reaction to these numbers?

0:00:36.640 --> 0:00:39.800
<v Speaker 2>Yeah, the tick up I think is there that there

0:00:39.880 --> 0:00:42.320
<v Speaker 2>is a bit of softening. We've been saying for a

0:00:42.320 --> 0:00:44.919
<v Speaker 2>long time. I think everybody's been looking for some softening

0:00:45.479 --> 0:00:48.680
<v Speaker 2>in the economy as this year progresses, and I think

0:00:48.720 --> 0:00:49.600
<v Speaker 2>that's what we're getting.

0:00:49.960 --> 0:00:51.120
<v Speaker 3>The level is important.

0:00:51.120 --> 0:00:52.960
<v Speaker 2>It's still quite low, so it's not as though we've

0:00:52.960 --> 0:00:55.440
<v Speaker 2>fallen off a cliff or anything like it. I think

0:00:55.480 --> 0:00:58.720
<v Speaker 2>the market reaction that you cited is also important. You know,

0:00:58.800 --> 0:01:03.000
<v Speaker 2>we have one more rate hike as our baseline forecast

0:01:03.040 --> 0:01:05.760
<v Speaker 2>at the main meeting, and then none after that, and

0:01:05.800 --> 0:01:07.800
<v Speaker 2>I think the market is going to have to sort out.

0:01:07.959 --> 0:01:10.360
<v Speaker 2>You know, when is the Fed going to say the

0:01:10.400 --> 0:01:13.440
<v Speaker 2>softening is there, it's enough softening without it being too

0:01:13.520 --> 0:01:15.840
<v Speaker 2>much softening, And you know, these data go go in

0:01:15.840 --> 0:01:16.360
<v Speaker 2>that direction.

0:01:16.560 --> 0:01:18.680
<v Speaker 1>So we get these data points, and then we also

0:01:18.760 --> 0:01:20.679
<v Speaker 1>got earlier this morning, and we'll get throughout the day

0:01:21.040 --> 0:01:24.800
<v Speaker 1>the regional banking results, which have also pointed to potentially

0:01:25.200 --> 0:01:29.560
<v Speaker 1>some withdrawal of credit. How do you factor that into employment?

0:01:29.600 --> 0:01:31.679
<v Speaker 1>How do you factor that into the Fed's decision?

0:01:33.840 --> 0:01:38.080
<v Speaker 2>The banking situation is clearly important. It tightens financial conditions,

0:01:38.080 --> 0:01:41.360
<v Speaker 2>it tightens access to credit. But we have to keep

0:01:41.400 --> 0:01:44.120
<v Speaker 2>in mind the tightening access to credit and tightening financial

0:01:44.120 --> 0:01:47.120
<v Speaker 2>conditions is exactly what the FED has been trying to

0:01:47.160 --> 0:01:50.520
<v Speaker 2>do since they started raising interest rates. The hard part is,

0:01:50.760 --> 0:01:53.080
<v Speaker 2>you know how much is this? Chair Powell at the

0:01:53.160 --> 0:01:55.960
<v Speaker 2>last meeting, at the March meeting said maybe it's about

0:01:56.320 --> 0:02:00.520
<v Speaker 2>one or two rate hikes worth of tightening. Sure, we've

0:02:00.520 --> 0:02:03.320
<v Speaker 2>got much data since then that says that he's wrong

0:02:03.560 --> 0:02:06.680
<v Speaker 2>about that. It clearly matters. It clearly has increased cost

0:02:06.680 --> 0:02:09.640
<v Speaker 2>of funding for banks, but we haven't seen again, we

0:02:09.720 --> 0:02:11.960
<v Speaker 2>haven't seen. It looked like things are going off of

0:02:11.960 --> 0:02:15.080
<v Speaker 2>a cliff, and so it's marginally more tightening, which again

0:02:15.120 --> 0:02:17.760
<v Speaker 2>for us is the reason why one more heighten makes sense.

0:02:17.840 --> 0:02:19.600
<v Speaker 2>But we don't need to go back to the place

0:02:19.600 --> 0:02:22.919
<v Speaker 2>where the markets are pricing at six percent peak rates.

0:02:22.960 --> 0:02:25.240
<v Speaker 1>For the FED, there's this tension right now when you

0:02:25.280 --> 0:02:28.520
<v Speaker 1>talk about the lag effects that will take place as

0:02:28.560 --> 0:02:31.160
<v Speaker 1>some of the credit tightening continues at a time when

0:02:31.160 --> 0:02:34.120
<v Speaker 1>you're already seeing deterioration in the labor market. Do we

0:02:34.160 --> 0:02:37.720
<v Speaker 1>have a sense of how controlled this increase in unemployment

0:02:37.800 --> 0:02:39.320
<v Speaker 1>could be. Are we just going to go to four

0:02:39.320 --> 0:02:41.080
<v Speaker 1>and a half percent, as a FED is predicting, and

0:02:41.120 --> 0:02:43.760
<v Speaker 1>stay there or is there a risk that it will

0:02:43.760 --> 0:02:46.840
<v Speaker 1>accelerate on itself which is traditional in downturns.

0:02:48.560 --> 0:02:53.560
<v Speaker 2>Risk absolutely, and the amount of control that you the

0:02:53.600 --> 0:02:56.799
<v Speaker 2>way you phrase it control, that's what the FED is

0:02:56.840 --> 0:02:59.760
<v Speaker 2>hoping for, but it is it is impossible to believe

0:02:59.760 --> 0:03:02.639
<v Speaker 2>that they have a huge amount of precision over these

0:03:02.639 --> 0:03:05.600
<v Speaker 2>sorts of things. They're going to be feeling their way.

0:03:05.960 --> 0:03:08.800
<v Speaker 2>I think what might be instructive for this cycle is

0:03:08.800 --> 0:03:12.040
<v Speaker 2>to go back to the nineteen nineties. That hiking cycle

0:03:12.200 --> 0:03:15.200
<v Speaker 2>was pretty fast like this one. At change pace. They

0:03:15.200 --> 0:03:18.000
<v Speaker 2>stopped hiking at one point, and then they actually cut

0:03:18.000 --> 0:03:20.639
<v Speaker 2>a little bit. They did a mid cycle correction, if

0:03:20.680 --> 0:03:23.600
<v Speaker 2>you will, cut a little bit, and then held rates

0:03:24.000 --> 0:03:26.839
<v Speaker 2>high for several years after that. I think that kind

0:03:26.880 --> 0:03:31.000
<v Speaker 2>of recalibration is entirely possible, precisely because there's not going

0:03:31.040 --> 0:03:33.399
<v Speaker 2>to be a lot of precision over the real economy.

0:03:33.680 --> 0:03:35.480
<v Speaker 1>You know, as we talk about the destination, that was

0:03:35.520 --> 0:03:38.560
<v Speaker 1>one of the big comments people at the IMF had that,

0:03:38.840 --> 0:03:40.600
<v Speaker 1>whether they were on the side of the IMF or not,

0:03:40.720 --> 0:03:43.680
<v Speaker 1>that we're going back to where we were pre pandemic.

0:03:44.000 --> 0:03:47.040
<v Speaker 1>Based on some of these additional views with respect to

0:03:47.080 --> 0:03:50.720
<v Speaker 1>credit tightening, with respective potentially overshooting, with the pace of

0:03:50.800 --> 0:03:53.640
<v Speaker 1>unemployment creeping higher, do you think that that is the

0:03:53.720 --> 0:03:56.480
<v Speaker 1>highest likelihood that we are going back to a low inflation,

0:03:56.600 --> 0:03:57.520
<v Speaker 1>low right situation.

0:03:59.240 --> 0:04:03.040
<v Speaker 2>I'm not convinced that's the single most likely outcome, at

0:04:03.120 --> 0:04:06.560
<v Speaker 2>least not for the next few years. Is there a

0:04:06.600 --> 0:04:10.000
<v Speaker 2>possibility of a recession, Absolutely, the risks are clearly higher

0:04:10.040 --> 0:04:14.840
<v Speaker 2>than they were before. However, I'm enough to remember when

0:04:14.840 --> 0:04:17.600
<v Speaker 2>we've had recessions in this country without the funds rate

0:04:17.640 --> 0:04:20.800
<v Speaker 2>going back to zero, and I suspect even in that version.

0:04:20.920 --> 0:04:22.680
<v Speaker 2>It's not our baseline that we have a recession. But

0:04:22.720 --> 0:04:25.240
<v Speaker 2>even if we did have a mild recession, I don't

0:04:25.240 --> 0:04:26.720
<v Speaker 2>think they're going to cut all the way to zero.

0:04:27.720 --> 0:04:31.719
<v Speaker 1>How does the geopolitical overhang factor into this? And I

0:04:31.760 --> 0:04:34.160
<v Speaker 1>say this as Treasure Secretary Jenne Yellen is said to

0:04:34.160 --> 0:04:37.159
<v Speaker 1>speak in less than two hours and talk about how

0:04:37.200 --> 0:04:42.120
<v Speaker 1>they're going to put national security before economic influence. How

0:04:42.200 --> 0:04:45.760
<v Speaker 1>much does that factor the fragmentation and the higher inflationary

0:04:45.800 --> 0:04:46.719
<v Speaker 1>regime going forward.

0:04:47.800 --> 0:04:52.080
<v Speaker 2>Oh, it just adds another layer of complexity and difficulty

0:04:52.080 --> 0:04:56.920
<v Speaker 2>in forecasting when it comes to the inflationary side of things.

0:04:56.960 --> 0:04:59.599
<v Speaker 2>If we disrupt global supply chains, it does mean that

0:04:59.640 --> 0:05:02.800
<v Speaker 2>any urgent demand won't be met with as much supply

0:05:02.920 --> 0:05:05.520
<v Speaker 2>or as quickly with the supply, and so it could

0:05:05.600 --> 0:05:09.359
<v Speaker 2>lead to more bouts of inflation. I don't know that

0:05:09.400 --> 0:05:12.920
<v Speaker 2>it necessarily means we shift into a permanently higher inflationary

0:05:13.040 --> 0:05:15.880
<v Speaker 2>regime there. That's going to depend on whether or not

0:05:16.000 --> 0:05:19.719
<v Speaker 2>the FED can control the economy rein in aggregate demand

0:05:19.720 --> 0:05:24.159
<v Speaker 2>to keep inflation from staying high. But ultimately it will

0:05:24.160 --> 0:05:27.360
<v Speaker 2>make things more volatile. You'll see more macroeconomic volatility.

0:05:27.560 --> 0:05:29.400
<v Speaker 1>We've been talking about all the FED speak that we're

0:05:29.440 --> 0:05:31.200
<v Speaker 1>going to be getting today, jamming it in ahead of

0:05:31.200 --> 0:05:33.320
<v Speaker 1>the quiet period. What do you hope to learn from

0:05:33.400 --> 0:05:34.120
<v Speaker 1>FED speakers?

0:05:36.320 --> 0:05:38.640
<v Speaker 2>I know, as always it's a question of what is

0:05:38.680 --> 0:05:41.520
<v Speaker 2>it that they're looking at. I have consistently had the

0:05:41.600 --> 0:05:44.400
<v Speaker 2>view that they are trying to slow the economy but

0:05:44.560 --> 0:05:47.440
<v Speaker 2>not kill the economy, And so the real question is

0:05:47.440 --> 0:05:49.760
<v Speaker 2>is the softening that we're seeing in the labor market,

0:05:49.839 --> 0:05:52.320
<v Speaker 2>just like we were talking about before with the initial

0:05:52.320 --> 0:05:55.640
<v Speaker 2>claims data, is that softening enough for them to say,

0:05:55.880 --> 0:05:58.520
<v Speaker 2>we'll stay roughly where we are. Like I said, our

0:05:58.560 --> 0:06:01.000
<v Speaker 2>base case is one more hike. Are we seeing enough

0:06:01.040 --> 0:06:04.520
<v Speaker 2>downward momentum for them to feel comfortable that the economy

0:06:04.560 --> 0:06:07.680
<v Speaker 2>is lowing enough for inflation to continue its downward trend

0:06:07.839 --> 0:06:10.400
<v Speaker 2>and for over the next couple of years to get

0:06:10.440 --> 0:06:11.120
<v Speaker 2>back to target.

0:06:11.279 --> 0:06:13.280
<v Speaker 1>Seth Carpenter of Morgan Stanley, thank you so much for

0:06:13.320 --> 0:06:13.760
<v Speaker 1>being with.

0:06:13.720 --> 0:06:19.679
<v Speaker 4>Us to ignore this the feed speak.

0:06:19.920 --> 0:06:22.000
<v Speaker 1>Well, I really wanted you to do that again because

0:06:22.000 --> 0:06:22.920
<v Speaker 1>I really enjoy it when.

0:06:22.839 --> 0:06:23.120
<v Speaker 5>You do it.

0:06:23.120 --> 0:06:24.640
<v Speaker 1>Come on, go ahead, you want me to go again,

0:06:24.720 --> 0:06:31.080
<v Speaker 1>Waller Mester, it's really good anyway, all of them, they're

0:06:31.080 --> 0:06:32.640
<v Speaker 1>going to be sting many of us alongside.

0:06:32.640 --> 0:06:35.520
<v Speaker 4>It's just shaking his head. All of this joined us

0:06:35.520 --> 0:06:37.560
<v Speaker 4>from avicor Jenny. What do you make of that just

0:06:37.600 --> 0:06:39.680
<v Speaker 4>before the quiet period that many Feed speakers.

0:06:39.720 --> 0:06:41.719
<v Speaker 5>What I make of it is that your ability to

0:06:41.760 --> 0:06:44.080
<v Speaker 5>do tongue twisters is absolutely phenomenal.

0:06:44.440 --> 0:06:47.200
<v Speaker 4>An you know, DJ back in the day, of course,

0:06:47.920 --> 0:06:49.400
<v Speaker 4>was absolutely so.

0:06:49.480 --> 0:06:52.240
<v Speaker 5>All I can say is is when looking at this

0:06:52.360 --> 0:06:55.880
<v Speaker 5>morning and the setup, given the earnings volatility we've seen

0:06:56.160 --> 0:07:00.840
<v Speaker 5>so far today, is cautious at the outset. Let us

0:07:00.880 --> 0:07:05.400
<v Speaker 5>recall the last time Secretary Yellen spoke alongside the Fed,

0:07:05.480 --> 0:07:08.520
<v Speaker 5>which was Jay Powell. We had an enormous amount of

0:07:08.600 --> 0:07:12.720
<v Speaker 5>volatility and the fact that we're in all likelihood going

0:07:12.760 --> 0:07:15.800
<v Speaker 5>to get two conflicting messages, a bunch of Fed speak

0:07:15.880 --> 0:07:19.320
<v Speaker 5>coming out, probably hinting towards one and done, which is

0:07:19.480 --> 0:07:23.480
<v Speaker 5>our view as opposed to okay, well the economy is

0:07:23.520 --> 0:07:28.080
<v Speaker 5>now taking a second spot to political relations coming from

0:07:28.160 --> 0:07:31.360
<v Speaker 5>the Treasury secretary. There's a lot of confusion.

0:07:31.120 --> 0:07:33.560
<v Speaker 4>One and done, then pause. Some people see that pause

0:07:33.600 --> 0:07:35.840
<v Speaker 4>as bullish, others don't. I might include you in that.

0:07:36.040 --> 0:07:38.000
<v Speaker 4>Over the weekend, I was reading your research to start

0:07:38.000 --> 0:07:40.360
<v Speaker 4>a new week. This quote jumped out to me, twenty

0:07:40.400 --> 0:07:42.560
<v Speaker 4>three's pause is likely to see a further sell off,

0:07:42.600 --> 0:07:47.520
<v Speaker 4>recession volatility spike before the inevitable new ballmarket gain. Can

0:07:47.560 --> 0:07:49.200
<v Speaker 4>you put some numbers on that? How are you thinking

0:07:49.200 --> 0:07:50.080
<v Speaker 4>about that situation?

0:07:50.520 --> 0:07:50.880
<v Speaker 3>Sure?

0:07:50.960 --> 0:07:54.320
<v Speaker 5>So, if you look at it, the history of pauses

0:07:54.640 --> 0:07:57.440
<v Speaker 5>tends to be on a twelve month basis quite positive.

0:07:57.800 --> 0:08:00.920
<v Speaker 5>We expect that. But the problem here is you've still

0:08:01.000 --> 0:08:04.640
<v Speaker 5>got to get through the recession. And yes, we've all

0:08:04.680 --> 0:08:07.800
<v Speaker 5>been waiting for the recession for a year now. Remember

0:08:07.840 --> 0:08:10.680
<v Speaker 5>there were two back to back negative GDP quarters to

0:08:10.760 --> 0:08:13.680
<v Speaker 5>start twenty twenty two, So the watch is on. But

0:08:13.800 --> 0:08:17.960
<v Speaker 5>ultimately part of this calculus is that we've had so

0:08:18.200 --> 0:08:22.240
<v Speaker 5>much more tightening since that time. It doesn't take away

0:08:22.520 --> 0:08:25.840
<v Speaker 5>the concept of recession. The watchpot is going to boil.

0:08:26.160 --> 0:08:28.239
<v Speaker 5>And so for us, when we look at the last month,

0:08:29.080 --> 0:08:34.080
<v Speaker 5>what's clear is that the reason the market traded positively

0:08:34.440 --> 0:08:38.200
<v Speaker 5>into the trough of the banking turmoil back in March

0:08:38.520 --> 0:08:43.480
<v Speaker 5>is because it began discounting the pause prematurely. It's in

0:08:43.520 --> 0:08:46.840
<v Speaker 5>the price now, so it isn't necessarily a bullish outcome.

0:08:47.240 --> 0:08:50.080
<v Speaker 5>And look, it's been our expectation, as you know, and

0:08:50.120 --> 0:08:53.160
<v Speaker 5>This is a frustrating market for both bulls and bears.

0:08:53.280 --> 0:08:56.560
<v Speaker 5>But it's been our expectation for six months now that

0:08:56.679 --> 0:08:59.360
<v Speaker 5>at some point, given a recession ahead of US one

0:08:59.440 --> 0:09:01.440
<v Speaker 5>or more than May, your indsease is going to test

0:09:01.440 --> 0:09:02.480
<v Speaker 5>those October lows.

0:09:02.760 --> 0:09:05.920
<v Speaker 1>So if you were John Williams, you'd probably be glued

0:09:05.960 --> 0:09:09.079
<v Speaker 1>to Eternal this morning looking at these small bank earnings

0:09:09.080 --> 0:09:11.079
<v Speaker 1>and parsing through their balance sheets to understand the state

0:09:11.120 --> 0:09:13.000
<v Speaker 1>of credit creation in the United States. It seems like

0:09:13.080 --> 0:09:16.360
<v Speaker 1>what they're doing right now, what would your conclusion be

0:09:16.640 --> 0:09:19.240
<v Speaker 1>in terms of is this just an idiosyncratic issue that

0:09:19.320 --> 0:09:21.840
<v Speaker 1>leaves us in the same place, or was this clearly

0:09:21.880 --> 0:09:22.520
<v Speaker 1>something more.

0:09:22.760 --> 0:09:27.720
<v Speaker 5>Well, you know, the whole concept of idiosyncratic across every

0:09:27.800 --> 0:09:31.040
<v Speaker 5>company that's reporting is a little bit of a misnomer.

0:09:31.520 --> 0:09:35.960
<v Speaker 5>In general. This is a process. Part of the fact

0:09:36.080 --> 0:09:40.120
<v Speaker 5>that we created so much liquidity through fiscal and monetary

0:09:40.160 --> 0:09:42.959
<v Speaker 5>expansion over a couple of years to fight the pandemic

0:09:43.240 --> 0:09:45.880
<v Speaker 5>means that the other side of this unwind is a

0:09:45.960 --> 0:09:49.560
<v Speaker 5>process as opposed to a shock. This is all part

0:09:49.600 --> 0:09:51.800
<v Speaker 5>of the process, and frankly, when you look at the

0:09:51.880 --> 0:09:54.400
<v Speaker 5>longer term, it's better that it's going to take a

0:09:54.440 --> 0:09:58.479
<v Speaker 5>while than you know, more sort of near death experiences

0:09:58.800 --> 0:10:02.640
<v Speaker 5>like last month, But doesn't mean that the stress is

0:10:02.720 --> 0:10:05.000
<v Speaker 5>going to go away. It's just going to roll out

0:10:05.000 --> 0:10:05.800
<v Speaker 5>over a longer period.

0:10:05.880 --> 0:10:07.800
<v Speaker 1>What does this process mean? Does that mean that regional

0:10:07.800 --> 0:10:09.920
<v Speaker 1>banks are uninvestable for you? Or does this mean that

0:10:10.200 --> 0:10:11.680
<v Speaker 1>you're going to just sort of see a roll up

0:10:11.720 --> 0:10:13.320
<v Speaker 1>in a survival of the fittest.

0:10:13.600 --> 0:10:18.199
<v Speaker 5>So the question here is where are the next dominos

0:10:18.360 --> 0:10:20.679
<v Speaker 5>likely to fall? And I don't know that we know

0:10:20.920 --> 0:10:24.240
<v Speaker 5>any more about that now than we did two or

0:10:24.320 --> 0:10:26.680
<v Speaker 5>three weeks ago, or even two or three hours ago

0:10:27.360 --> 0:10:30.600
<v Speaker 5>before these reports came out, So I think we'll just

0:10:30.640 --> 0:10:33.040
<v Speaker 5>have to look. And part of the issue that we

0:10:33.160 --> 0:10:36.839
<v Speaker 5>have is that you had such a sell off over

0:10:36.880 --> 0:10:40.400
<v Speaker 5>that month in the regional banks. And look, the fact

0:10:40.400 --> 0:10:43.359
<v Speaker 5>of the matter is is when you sort of anticipate

0:10:43.400 --> 0:10:46.120
<v Speaker 5>the news and I don't think anyone's surprised by the

0:10:46.120 --> 0:10:49.280
<v Speaker 5>earnings reports we've seen this morning, but the shares don't

0:10:49.280 --> 0:10:53.440
<v Speaker 5>respond even after this massive sell off. That's not a

0:10:53.480 --> 0:10:54.120
<v Speaker 5>great message.

0:10:54.280 --> 0:10:55.880
<v Speaker 4>Is Tesla idiosyncratic?

0:10:56.679 --> 0:10:56.760
<v Speaker 3>No?

0:10:57.559 --> 0:10:57.800
<v Speaker 2>Why not?

0:10:58.559 --> 0:11:02.599
<v Speaker 5>Because basically what you're seeing, and this is the dichotomy

0:11:02.679 --> 0:11:06.520
<v Speaker 5>and why the market's actually been trading sideways look ed.

0:11:06.600 --> 0:11:12.000
<v Speaker 5>Heiman has been extremely optimistic about the trajectory of inflation

0:11:12.440 --> 0:11:14.960
<v Speaker 5>over this year and internets we're going to get a

0:11:14.960 --> 0:11:18.960
<v Speaker 5>two handle on inflation. Is that and all clear? Well,

0:11:19.000 --> 0:11:21.560
<v Speaker 5>it's probably not, because the way that you get to

0:11:21.600 --> 0:11:25.200
<v Speaker 5>the two handle is through an economic downturn, and that's

0:11:25.200 --> 0:11:26.640
<v Speaker 5>what that earnings report is happening.

0:11:26.720 --> 0:11:28.959
<v Speaker 4>When do we get that two handled this year, next year,

0:11:29.040 --> 0:11:30.600
<v Speaker 4>at the end of this year we think so, you

0:11:30.600 --> 0:11:32.320
<v Speaker 4>think at the end of this year we do handle

0:11:32.360 --> 0:11:32.920
<v Speaker 4>on CPI?

0:11:33.080 --> 0:11:33.320
<v Speaker 3>We do?

0:11:33.600 --> 0:11:34.200
<v Speaker 4>Is that headline?

0:11:34.280 --> 0:11:34.439
<v Speaker 6>Core?

0:11:34.520 --> 0:11:34.880
<v Speaker 4>What is that?

0:11:36.640 --> 0:11:39.679
<v Speaker 5>So again you can Parson, you can Parson, We'll go

0:11:39.720 --> 0:11:42.439
<v Speaker 5>with Core. We'll go with Core PC just to make

0:11:42.480 --> 0:11:44.080
<v Speaker 5>the fad happy, Okay.

0:11:43.840 --> 0:11:46.320
<v Speaker 1>Can I just ask you, given the fact that we

0:11:46.400 --> 0:11:50.200
<v Speaker 1>really haven't gotten great earnings, there have been plenty of disappointments,

0:11:50.440 --> 0:11:52.680
<v Speaker 1>why has the market not come around to your view

0:11:52.800 --> 0:11:55.000
<v Speaker 1>and the parish views of the likes of Mike Wilson.

0:11:55.440 --> 0:11:58.960
<v Speaker 5>Well, because again, part if you look at the last year,

0:11:59.400 --> 0:12:04.079
<v Speaker 5>we were so so obsessed with inflation that the fact

0:12:04.080 --> 0:12:07.520
<v Speaker 5>that it's coming down in an environment where yes, we've

0:12:07.559 --> 0:12:11.439
<v Speaker 5>done a huge amount of tightening, but the liquidity provision

0:12:11.600 --> 0:12:14.599
<v Speaker 5>over those first couple of years to fight. The pandemic

0:12:14.920 --> 0:12:17.360
<v Speaker 5>is so extreme. If you look at M two, M

0:12:17.400 --> 0:12:21.000
<v Speaker 5>two is contracting right now, but the growth trend line

0:12:21.120 --> 0:12:24.400
<v Speaker 5>regression line is still well below where we are. So

0:12:24.440 --> 0:12:29.200
<v Speaker 5>there's residual liquidity in the system and positioning has been

0:12:29.240 --> 0:12:31.800
<v Speaker 5>bearished for the most part. So we're at this stalemate.

0:12:31.840 --> 0:12:33.200
<v Speaker 4>It just to be clear. Hey, you're still at forty

0:12:33.240 --> 0:12:35.319
<v Speaker 4>one fifty year end on the S and P.

0:12:35.320 --> 0:12:37.000
<v Speaker 5>Five hundred year right now.

0:12:37.040 --> 0:12:38.880
<v Speaker 4>We're at forty one to fifty right now. You just

0:12:38.920 --> 0:12:41.280
<v Speaker 4>see a lot of volatility story now and then.

0:12:41.240 --> 0:12:47.160
<v Speaker 5>Right if anyone thinks about convexity in their portfolio, it

0:12:47.280 --> 0:12:50.280
<v Speaker 5>is time to load up on convexity. Whether you're bullish

0:12:50.360 --> 0:12:53.760
<v Speaker 5>or bearish. The vix at seventeen is way too low and.

0:12:53.840 --> 0:12:55.520
<v Speaker 4>The year right now, Bromo, you're ready to go?

0:12:55.640 --> 0:12:56.560
<v Speaker 1>Yeah, absolutely, let's.

0:12:56.400 --> 0:12:59.360
<v Speaker 4>Go where we go it, let's go we go on vacation.

0:12:59.559 --> 0:13:00.960
<v Speaker 4>Are where am I going?

0:13:00.960 --> 0:13:02.200
<v Speaker 1>You're gonna go to a Dacy Morn game?

0:13:02.280 --> 0:13:02.800
<v Speaker 4>I'd love to.

0:13:02.960 --> 0:13:03.800
<v Speaker 1>I know that's where you want to go.

0:13:03.960 --> 0:13:07.040
<v Speaker 4>I'm trying to secure tickets, something to talk to management

0:13:07.080 --> 0:13:12.040
<v Speaker 4>to get the time off. Get the tickets first, obviously,

0:13:12.200 --> 0:13:14.880
<v Speaker 4>then have the debate internally in the newsroom. Can I

0:13:14.920 --> 0:13:16.480
<v Speaker 4>cover it? Can we take a camera? Can you pay

0:13:16.480 --> 0:13:17.040
<v Speaker 4>for the flights?

0:13:17.800 --> 0:13:31.280
<v Speaker 7>Something like that, Giny and thank you appreciate it, buddy.

0:13:33.400 --> 0:13:35.079
<v Speaker 4>Let's talk about the banks and we can do that

0:13:35.280 --> 0:13:39.679
<v Speaker 4>with Christopher Maronak, the director of research at Jenny Montgomery Scott, Christopher.

0:13:39.679 --> 0:13:41.560
<v Speaker 4>Wonderful to catch up with you, sir. Thanks for taking

0:13:41.559 --> 0:13:43.240
<v Speaker 4>some time because I know how busy you've been this

0:13:43.280 --> 0:13:46.400
<v Speaker 4>morning just going through Bancuff, the Bancuff, the bank. Chris,

0:13:46.400 --> 0:13:48.199
<v Speaker 4>what jumps out for you this morning from the names

0:13:48.240 --> 0:13:48.800
<v Speaker 4>you've looked at?

0:13:49.679 --> 0:13:52.560
<v Speaker 6>So the banks are profitable and you see thamsbile book

0:13:52.640 --> 0:13:55.520
<v Speaker 6>value and tangibile capital growing, so we're happy about that.

0:13:55.640 --> 0:13:58.760
<v Speaker 6>I think deposits have been mixed. Some company deposits are

0:13:58.800 --> 0:14:03.480
<v Speaker 6>off slightly. Really, deposit outflows were a lot less problematic

0:14:03.520 --> 0:14:06.440
<v Speaker 6>than I think feared in March, so the real numbers

0:14:06.480 --> 0:14:09.280
<v Speaker 6>suggest that deposits are coming down, but really coming down

0:14:09.320 --> 0:14:12.160
<v Speaker 6>at a measured pace. I think liquidity is still really high,

0:14:12.200 --> 0:14:14.000
<v Speaker 6>and I think banks are now putting out a bunch

0:14:14.040 --> 0:14:17.600
<v Speaker 6>of information about the uninsured deposits, about office real estate,

0:14:17.679 --> 0:14:21.240
<v Speaker 6>about deposit granularity. So I think that really starts to

0:14:21.240 --> 0:14:24.600
<v Speaker 6>build confidence. We have credit quality generally very good for

0:14:24.640 --> 0:14:28.320
<v Speaker 6>the quarter, no major change, maybe small uptics and charge offs,

0:14:28.320 --> 0:14:31.000
<v Speaker 6>but overall, the banks are preparing for the recession if

0:14:31.040 --> 0:14:33.520
<v Speaker 6>and when it comes, and I think capital generally is

0:14:33.560 --> 0:14:34.480
<v Speaker 6>moving in the right direction.

0:14:34.880 --> 0:14:37.480
<v Speaker 1>Christopher, if this is all positive, then why are the

0:14:37.520 --> 0:14:40.440
<v Speaker 1>shares negative even after all of the losses that we've

0:14:40.440 --> 0:14:41.360
<v Speaker 1>seen so far this year.

0:14:42.680 --> 0:14:44.680
<v Speaker 6>So I think the banks still climb the wall to

0:14:44.760 --> 0:14:47.720
<v Speaker 6>worry about the recession, and many investors remember how bad

0:14:47.720 --> 0:14:49.560
<v Speaker 6>it was in two thousand and eight, nine and ten,

0:14:49.960 --> 0:14:52.320
<v Speaker 6>So we have to get through this period no different

0:14:52.360 --> 0:14:55.480
<v Speaker 6>than the uncertainty that existed back in COVID and twenty twenty.

0:14:55.680 --> 0:14:58.040
<v Speaker 6>It took the bank six months to finally recover and

0:14:58.080 --> 0:15:01.000
<v Speaker 6>go back to better valuation that I'm afraid that might

0:15:01.040 --> 0:15:02.080
<v Speaker 6>be the case again this year.

0:15:02.080 --> 0:15:04.000
<v Speaker 3>We're hoping it's more like three or four months and

0:15:04.040 --> 0:15:04.560
<v Speaker 3>not six.

0:15:05.040 --> 0:15:07.360
<v Speaker 6>But the reality is banks still have a lot of

0:15:07.440 --> 0:15:10.960
<v Speaker 6>unrealized security losses and held the maturity and available for sale.

0:15:11.160 --> 0:15:12.840
<v Speaker 3>We haven't worked through all those yet.

0:15:13.040 --> 0:15:15.160
<v Speaker 6>We still have a lot of investors kind of haircutting

0:15:15.200 --> 0:15:17.840
<v Speaker 6>capital for those losses, and I think at some point

0:15:17.920 --> 0:15:20.320
<v Speaker 6>we have to get through that and see better securities

0:15:20.400 --> 0:15:22.000
<v Speaker 6>values in the quarters ahead.

0:15:22.040 --> 0:15:23.760
<v Speaker 3>But in the meantime credit is stable.

0:15:24.080 --> 0:15:26.760
<v Speaker 6>We think over all the banks will stay profitable, and

0:15:26.800 --> 0:15:30.160
<v Speaker 6>the fears about big deposit outflows and deposit runs really

0:15:30.200 --> 0:15:31.240
<v Speaker 6>have not proven.

0:15:30.960 --> 0:15:31.520
<v Speaker 3>To be true.

0:15:31.600 --> 0:15:34.040
<v Speaker 1>Although we are seeing net interest margins come in below

0:15:34.160 --> 0:15:36.360
<v Speaker 1>estimates pretty much across the board. I mean even Cinavius,

0:15:36.840 --> 0:15:39.160
<v Speaker 1>which just reported, and they came out with better than

0:15:39.200 --> 0:15:42.520
<v Speaker 1>expected deposits, better than expected loan growth, love fewer than

0:15:42.560 --> 0:15:45.640
<v Speaker 1>expected provisions for credit losses. And yet here we are

0:15:45.880 --> 0:15:49.760
<v Speaker 1>once again net interest margin coming in lower than expected,

0:15:49.760 --> 0:15:51.720
<v Speaker 1>three point four to three percent versus three point five

0:15:51.760 --> 0:15:54.760
<v Speaker 1>to one percent. Is it takeaway just that the profitability

0:15:54.760 --> 0:15:57.160
<v Speaker 1>case for these banks has been severely challenged and will

0:15:57.160 --> 0:15:58.400
<v Speaker 1>continue to be going forward.

0:15:59.400 --> 0:16:01.120
<v Speaker 3>I would say it's it's not severely challenged.

0:16:01.120 --> 0:16:03.400
<v Speaker 6>I think it's modestly challenged, and some of that is

0:16:03.440 --> 0:16:05.480
<v Speaker 6>really just to catch up on the cost of funds.

0:16:05.800 --> 0:16:08.960
<v Speaker 6>Most banks deposits are way behind the FED funds rate.

0:16:09.000 --> 0:16:11.520
<v Speaker 6>It's about three hundred basis points wide. It's as wide

0:16:11.520 --> 0:16:14.160
<v Speaker 6>as I've ever seen it in thirty years covering banks.

0:16:14.160 --> 0:16:15.760
<v Speaker 6>So I think that's going to narrow in the next

0:16:15.800 --> 0:16:18.800
<v Speaker 6>few quarters, so that catch up has definitely hurt margins,

0:16:18.800 --> 0:16:21.760
<v Speaker 6>but I think the repricing ability of new loans is

0:16:21.800 --> 0:16:23.600
<v Speaker 6>still very good for the banks. A lot of new

0:16:23.640 --> 0:16:26.400
<v Speaker 6>loans are coming on in the high six is low sevens,

0:16:26.480 --> 0:16:28.720
<v Speaker 6>and that's going to actually help margins stabilize.

0:16:28.760 --> 0:16:31.600
<v Speaker 3>So margin declines are real at the moment.

0:16:31.680 --> 0:16:33.800
<v Speaker 6>I think there's more of them in the second quarter,

0:16:33.840 --> 0:16:36.160
<v Speaker 6>But I think the downside risk is not as bad

0:16:36.480 --> 0:16:37.440
<v Speaker 6>as investors fear.

0:16:37.520 --> 0:16:39.960
<v Speaker 3>But again, we have to prove this to investors.

0:16:40.000 --> 0:16:41.880
<v Speaker 6>A lot of folks are from Missouri that want to

0:16:41.880 --> 0:16:43.800
<v Speaker 6>be shown that this is really true.

0:16:43.880 --> 0:16:46.880
<v Speaker 4>It's about upside potential as well, not just downside risk.

0:16:46.920 --> 0:16:48.320
<v Speaker 4>As you know, Chris, and you alluded to some of

0:16:48.360 --> 0:16:53.160
<v Speaker 4>this just briefly, the threat of regulation from here. Do

0:16:53.200 --> 0:16:55.080
<v Speaker 4>you think that threat of regulation is going to keep

0:16:55.080 --> 0:16:58.560
<v Speaker 4>people away from these banks despite whatever happens with the

0:16:58.560 --> 0:16:59.960
<v Speaker 4>fundamentals in the months to come.

0:17:01.240 --> 0:17:03.360
<v Speaker 6>Sure, And the reality is that I think we still

0:17:03.400 --> 0:17:06.600
<v Speaker 6>do not know what's going to happen with FDIC deposit premiums,

0:17:06.600 --> 0:17:09.359
<v Speaker 6>that the Fed and FDSC are very slow to approve

0:17:09.440 --> 0:17:10.080
<v Speaker 6>bank deals.

0:17:10.359 --> 0:17:12.760
<v Speaker 3>That's grinding, and we have a possible change in the.

0:17:12.680 --> 0:17:15.879
<v Speaker 6>White House, which really impacts regulation here in the several

0:17:15.920 --> 0:17:18.600
<v Speaker 6>quarters from now, so that is a very good reason

0:17:18.680 --> 0:17:20.879
<v Speaker 6>not to own banks. But I also think there are

0:17:20.920 --> 0:17:23.320
<v Speaker 6>a fair amount of investors who have to own some position.

0:17:23.400 --> 0:17:25.639
<v Speaker 6>They can't be at zero. They may be underweight, but

0:17:25.680 --> 0:17:27.240
<v Speaker 6>they can't be at zero. So I think you're going

0:17:27.280 --> 0:17:29.680
<v Speaker 6>to see some nibbling on the stocks as time passes,

0:17:29.920 --> 0:17:31.960
<v Speaker 6>But there are a lot of folks on the sidelines.

0:17:32.000 --> 0:17:33.400
<v Speaker 3>I think your point's very accurate.

0:17:33.480 --> 0:17:35.080
<v Speaker 4>There's a lot of economists who are looking for this

0:17:35.160 --> 0:17:37.760
<v Speaker 4>data that comes out in early May, the Senior Loan

0:17:38.080 --> 0:17:40.800
<v Speaker 4>Officer Opinion Survey. Christopher and I wonder if we can

0:17:40.840 --> 0:17:42.679
<v Speaker 4>sort of front run then a little bit based on

0:17:42.720 --> 0:17:45.000
<v Speaker 4>what we've heard from the banks so far. There are

0:17:45.040 --> 0:17:46.960
<v Speaker 4>people who sit around this table with U Chris every

0:17:46.960 --> 0:17:49.120
<v Speaker 4>single day that talk about the beginning of a process

0:17:49.160 --> 0:17:52.080
<v Speaker 4>that leads to time of financial conditions and lending standards.

0:17:52.320 --> 0:17:55.240
<v Speaker 4>Are you hearing that from executives from these banks they've

0:17:55.240 --> 0:17:56.560
<v Speaker 4>reported so far this week?

0:17:57.480 --> 0:17:58.040
<v Speaker 3>Absolutely.

0:17:58.080 --> 0:18:00.199
<v Speaker 6>I think we heard it in January before all this

0:18:00.240 --> 0:18:02.720
<v Speaker 6>started to happen, So it's very much a reality.

0:18:03.080 --> 0:18:04.400
<v Speaker 3>It will continue to get tighter.

0:18:04.560 --> 0:18:06.560
<v Speaker 6>But the good news is there are companies who have

0:18:06.640 --> 0:18:08.560
<v Speaker 6>to borrow and banks who want to lend to them,

0:18:08.600 --> 0:18:10.480
<v Speaker 6>they're just going to be tougher on the standards. I

0:18:10.480 --> 0:18:13.159
<v Speaker 6>think that actually bodes well for credit quality through the cycle.

0:18:13.560 --> 0:18:16.040
<v Speaker 6>Loan to values are going to be lower than folks realize.

0:18:16.080 --> 0:18:19.800
<v Speaker 6>I think the rates that people will accept from banks

0:18:19.800 --> 0:18:20.479
<v Speaker 6>will be higher.

0:18:20.680 --> 0:18:22.159
<v Speaker 3>That's ultimately good for business.

0:18:22.200 --> 0:18:25.040
<v Speaker 6>But there's no doubt it's a tighter credit market out there,

0:18:25.280 --> 0:18:27.280
<v Speaker 6>and what happened in the past six weeks has certainly

0:18:27.520 --> 0:18:29.560
<v Speaker 6>put an exclamation point on that tightening.

0:18:29.680 --> 0:18:31.360
<v Speaker 1>Have you got in a sense based on what we've

0:18:31.359 --> 0:18:34.639
<v Speaker 1>gotten from earnings of how significant the roll up will be,

0:18:34.800 --> 0:18:37.080
<v Speaker 1>of how much there will be mergers and acquisitions and

0:18:37.080 --> 0:18:41.040
<v Speaker 1>a consolidation to become a larger regional bank rather than

0:18:41.080 --> 0:18:42.560
<v Speaker 1>just a smaller one.

0:18:42.960 --> 0:18:45.159
<v Speaker 6>So I think there's always winners and losers in the

0:18:45.160 --> 0:18:47.760
<v Speaker 6>bank space, and I think consolidation will continue to happen.

0:18:47.800 --> 0:18:51.520
<v Speaker 6>Even if the regulators take their slow time to approve deals,

0:18:51.720 --> 0:18:54.440
<v Speaker 6>We'll still see consolidation over time. So what I'm looking

0:18:54.480 --> 0:18:57.720
<v Speaker 6>for is the strongest companies will start to raise capital

0:18:58.040 --> 0:19:00.840
<v Speaker 6>to prove they can that will differentiate them, that will

0:19:00.840 --> 0:19:03.760
<v Speaker 6>help their stock prices recover sooner, and that ultimately will

0:19:03.840 --> 0:19:06.920
<v Speaker 6>lead to consolidation. There definitely will be a difference between

0:19:06.960 --> 0:19:09.679
<v Speaker 6>buyers and sellers on valuations, even though it may not

0:19:09.760 --> 0:19:11.960
<v Speaker 6>seem it today. I think that differentiated will start to

0:19:12.000 --> 0:19:13.879
<v Speaker 6>happen in the next six to eight weeks.

0:19:14.080 --> 0:19:16.280
<v Speaker 4>Chris, as I say, I know you're super busy this morning,

0:19:16.320 --> 0:19:18.560
<v Speaker 4>so thanks again for confinats some time for us as

0:19:18.560 --> 0:19:21.119
<v Speaker 4>you pull through these bank earnings. Christopher Maronak, the of

0:19:21.200 --> 0:19:27.960
<v Speaker 4>Jenny Montgomery Scott Lebby Cantrell joins US now had a

0:19:27.960 --> 0:19:30.480
<v Speaker 4>public policy over at PIMCO Libya. I've been looking forward

0:19:30.520 --> 0:19:32.600
<v Speaker 4>to this conversation. Thanks for being with us this morning.

0:19:32.720 --> 0:19:34.440
<v Speaker 4>Can we start there. I think it's a really really

0:19:34.440 --> 0:19:38.159
<v Speaker 4>important topic for US today and maybe over the next decade. Lebby,

0:19:38.320 --> 0:19:40.879
<v Speaker 4>what kind of actions are you expecting from this administration

0:19:40.920 --> 0:19:42.280
<v Speaker 4>off the back of comments like these?

0:19:43.080 --> 0:19:45.639
<v Speaker 8>Yeah, well, John, your earlier comments I think are spot on.

0:19:46.080 --> 0:19:50.080
<v Speaker 8>The rhetoric of the previous administration was quite strong. We

0:19:50.119 --> 0:19:54.440
<v Speaker 8>saw that somewhat followed up by policy. But this administration

0:19:54.600 --> 0:19:56.639
<v Speaker 8>actually the rhetoric has been maybe a little bit softer.

0:19:57.280 --> 0:20:02.879
<v Speaker 8>They've really emphasized strate hegic competition, but also cooperation, cooperation

0:20:02.960 --> 0:20:06.879
<v Speaker 8>follows sort of closely after that emphasis on competition. But

0:20:07.119 --> 0:20:10.720
<v Speaker 8>I would argue that the policies have actually been more

0:20:10.760 --> 0:20:14.400
<v Speaker 8>substantive from the Biden administration and more putative in many

0:20:14.440 --> 0:20:17.000
<v Speaker 8>ways as it relates to China. So, as Lisa mentioned,

0:20:17.000 --> 0:20:19.920
<v Speaker 8>we saw those export controls on semiconductors. We think that's

0:20:19.960 --> 0:20:25.920
<v Speaker 8>the beginning of a broader process around export controls. But importantly, John,

0:20:25.920 --> 0:20:29.160
<v Speaker 8>and this should be forthcoming in the next few weeks, months,

0:20:29.640 --> 0:20:33.560
<v Speaker 8>but definitely by come midsummer, is this executive order on

0:20:33.720 --> 0:20:37.520
<v Speaker 8>capital outflows that would require at least disclosure, if not

0:20:37.640 --> 0:20:41.240
<v Speaker 8>prohibition of some capital outflows from the United States to

0:20:41.440 --> 0:20:44.280
<v Speaker 8>China and specific sectors for sure, But it could have

0:20:44.400 --> 0:20:47.040
<v Speaker 8>spillover effects to the public markets as sort of this

0:20:47.280 --> 0:20:50.920
<v Speaker 8>chill in general goes on in terms of investment from

0:20:50.960 --> 0:20:52.160
<v Speaker 8>the US to China.

0:20:52.280 --> 0:20:54.520
<v Speaker 1>Libby, how many of the investors you speak with fully

0:20:54.520 --> 0:20:58.720
<v Speaker 1>appreciate what the implications of this are from a pricing perspective,

0:20:58.760 --> 0:21:02.240
<v Speaker 1>from a demand perspective, just in general, from reshaping the

0:21:02.280 --> 0:21:04.960
<v Speaker 1>way that markets really really trade.

0:21:05.359 --> 0:21:07.560
<v Speaker 8>I think a lot of our clients realize that the

0:21:07.600 --> 0:21:11.720
<v Speaker 8>political risk of investing in China has increased, and maybe

0:21:11.800 --> 0:21:15.119
<v Speaker 8>the economic benefit of investing in China is also not

0:21:15.160 --> 0:21:17.440
<v Speaker 8>as much of a sort of as clear cut as

0:21:17.480 --> 0:21:20.679
<v Speaker 8>it was at least several years ago. So we are

0:21:20.800 --> 0:21:24.280
<v Speaker 8>sort of seeing a reticence, especially in our US clients,

0:21:24.800 --> 0:21:27.479
<v Speaker 8>more of a kind of a tilt toward to home bias,

0:21:27.640 --> 0:21:31.320
<v Speaker 8>you know, Still an appreciation for diversification, still understanding that

0:21:31.440 --> 0:21:33.919
<v Speaker 8>China is going to be a source of global growth

0:21:33.960 --> 0:21:37.119
<v Speaker 8>over the secular and super secular timeframe, but also just

0:21:37.119 --> 0:21:40.200
<v Speaker 8>sort of realizing that some of these investments may be

0:21:40.320 --> 0:21:43.760
<v Speaker 8>fraught and again maybe tied up in both the political

0:21:43.840 --> 0:21:46.960
<v Speaker 8>rhetoric but also some of these policies coming out of Washington.

0:21:47.080 --> 0:21:49.840
<v Speaker 1>It's one thing to avoid buying Chinese bonds or stocks.

0:21:49.840 --> 0:21:53.480
<v Speaker 1>It's another thing to question the valuations of say an

0:21:53.560 --> 0:21:56.800
<v Speaker 1>Apple or some of the other technology giants at a

0:21:56.840 --> 0:21:59.760
<v Speaker 1>time when so much of their businesses really rely on

0:22:00.400 --> 0:22:04.160
<v Speaker 1>not just them, frankly, auto manufacturers, fast food companies. There's

0:22:04.200 --> 0:22:08.919
<v Speaker 1>so many basic corporate America so standbys that are tied

0:22:09.160 --> 0:22:12.119
<v Speaker 1>to China growth. How much is that appreciated?

0:22:13.440 --> 0:22:15.520
<v Speaker 8>Yeah, again, I mean I think that it's not to

0:22:15.520 --> 0:22:17.639
<v Speaker 8>say that the domestic market in China is not going

0:22:17.680 --> 0:22:19.800
<v Speaker 8>to continue to grow, and I think some of those

0:22:19.840 --> 0:22:23.400
<v Speaker 8>companies are aimed more at that domestic that domestic market,

0:22:23.680 --> 0:22:27.159
<v Speaker 8>but just in general being a US investor, and of

0:22:27.200 --> 0:22:29.439
<v Speaker 8>course that's who we're talking to in terms of our

0:22:30.080 --> 0:22:32.840
<v Speaker 8>US based clients, and they do sort of see that

0:22:33.119 --> 0:22:36.520
<v Speaker 8>this is more fraught in terms of actually investing US

0:22:36.640 --> 0:22:39.320
<v Speaker 8>dollars into China Chinese companies. It's not to say that

0:22:39.320 --> 0:22:40.480
<v Speaker 8>this is not going to you know, this is going

0:22:40.560 --> 0:22:44.440
<v Speaker 8>to stop altogether, but I think this administration is any

0:22:44.480 --> 0:22:46.840
<v Speaker 8>a pretty clear signal that they are going to at

0:22:46.920 --> 0:22:50.840
<v Speaker 8>least require some disclosure and some oversight into how kind

0:22:50.840 --> 0:22:54.959
<v Speaker 8>of US dollars are being allocated in China and importantly,

0:22:55.000 --> 0:22:57.760
<v Speaker 8>are they going to sectors that could increase sort of

0:22:57.800 --> 0:23:00.680
<v Speaker 8>the military and competitive of China.

0:23:00.880 --> 0:23:02.800
<v Speaker 4>Libby, this is the United States looking out to the

0:23:02.800 --> 0:23:04.760
<v Speaker 4>rest of the world. Let's talk about the rest of

0:23:04.800 --> 0:23:07.280
<v Speaker 4>the world looking into the United States. A big, big

0:23:07.320 --> 0:23:10.359
<v Speaker 4>topic of conversation. As you know, later this summer is

0:23:10.359 --> 0:23:12.920
<v Speaker 4>going to be the debt ceiling. We've had tax Day.

0:23:13.119 --> 0:23:14.640
<v Speaker 4>I think a lot of people are trying to use

0:23:14.680 --> 0:23:18.240
<v Speaker 4>that to try and understand where that X date might fall. Libby,

0:23:18.240 --> 0:23:20.320
<v Speaker 4>have you got a deeper understanding, a better understanding of

0:23:20.320 --> 0:23:21.159
<v Speaker 4>where that date might be.

0:23:21.560 --> 0:23:23.639
<v Speaker 8>Well, I think we're we're beholden to the data just

0:23:23.680 --> 0:23:26.280
<v Speaker 8>as anybody else's. I mean, there was some promising data

0:23:26.320 --> 0:23:29.320
<v Speaker 8>that came out yesterday just in terms of, you know,

0:23:29.359 --> 0:23:33.320
<v Speaker 8>potentially getting past this June fifteenth tax filing date. I

0:23:33.359 --> 0:23:37.200
<v Speaker 8>think that's been the open question. Can we is there

0:23:37.240 --> 0:23:40.639
<v Speaker 8>sort of enough capacity for the Treasury to get to this,

0:23:40.880 --> 0:23:43.800
<v Speaker 8>to beyond this June fifteenth date, meaning that then they

0:23:43.840 --> 0:23:46.600
<v Speaker 8>have more extraordinary measures to deploy, and then likely the

0:23:46.680 --> 0:23:49.240
<v Speaker 8>X date will fall sort of mid July, end of July,

0:23:49.440 --> 0:23:52.720
<v Speaker 8>maybe even August or even early September. I think there

0:23:52.720 --> 0:23:55.120
<v Speaker 8>was some question around that and some concern that actually

0:23:55.240 --> 0:23:57.560
<v Speaker 8>they may not get past that June fifteenth date. I

0:23:57.560 --> 0:23:59.760
<v Speaker 8>think yesterday John, what we saw in terms of the

0:24:00.400 --> 0:24:02.639
<v Speaker 8>data and the receipts is that we may actually be

0:24:02.680 --> 0:24:04.800
<v Speaker 8>able to get past at June fifteenth date, meaning the

0:24:04.920 --> 0:24:08.159
<v Speaker 8>X date is pushed it more to later in the summer.

0:24:08.240 --> 0:24:10.560
<v Speaker 8>And I think actually there's some folks in Congress though

0:24:10.760 --> 0:24:13.640
<v Speaker 8>that wouldn't mind the X date being more being closer

0:24:13.760 --> 0:24:15.880
<v Speaker 8>right more right around the quarters, because then that sort

0:24:15.880 --> 0:24:18.840
<v Speaker 8>of forces folks to actually come to the table and

0:24:18.920 --> 0:24:20.160
<v Speaker 8>to seek a resolution.

0:24:20.280 --> 0:24:22.680
<v Speaker 4>Speaker McCarthy says, he's got a plan. Do you think

0:24:22.680 --> 0:24:24.239
<v Speaker 4>there's a plan out there at the moment that you

0:24:24.280 --> 0:24:25.520
<v Speaker 4>see as realistic.

0:24:27.480 --> 0:24:30.199
<v Speaker 8>Well, he does have a plan, and he's you know,

0:24:30.240 --> 0:24:32.879
<v Speaker 8>he's now now there's a bill actually, So it was

0:24:32.880 --> 0:24:34.560
<v Speaker 8>a plan on Monday when he was up here in

0:24:34.600 --> 0:24:38.320
<v Speaker 8>New York. Now that it's actually in legislative text, I think, John,

0:24:38.359 --> 0:24:40.679
<v Speaker 8>the real open question is can he get two hundred

0:24:40.680 --> 0:24:42.960
<v Speaker 8>and eighteen members. Of course, Republicans are like two hundred

0:24:42.960 --> 0:24:45.480
<v Speaker 8>and twenty two in the House of Representatives. That means

0:24:45.480 --> 0:24:47.960
<v Speaker 8>he can only lose four in order to actually get

0:24:48.000 --> 0:24:50.639
<v Speaker 8>this through the House. Now, you know, investors in the

0:24:50.640 --> 0:24:54.040
<v Speaker 8>market should realize that whatever is passed, if this ultimately

0:24:54.040 --> 0:24:56.720
<v Speaker 8>this bill gets passed, it will not be signed into laws.

0:24:57.000 --> 0:24:59.679
<v Speaker 8>This is of course dead on arrival in the Senate.

0:24:59.800 --> 0:25:02.919
<v Speaker 8>But it's important from a Speaker McCarthy perspective because it

0:25:02.920 --> 0:25:05.760
<v Speaker 8>would increase his leverage with the White House. Right now,

0:25:06.119 --> 0:25:09.320
<v Speaker 8>all he does is has legislative text, and he doesn't

0:25:09.359 --> 0:25:11.960
<v Speaker 8>necessarily have a bill that's been able to pass the

0:25:12.119 --> 0:25:14.639
<v Speaker 8>past the House. I think that's the open question John,

0:25:14.720 --> 0:25:17.680
<v Speaker 8>if he is able to pass this again this will

0:25:17.680 --> 0:25:19.359
<v Speaker 8>not get signed into LOB but then at least it

0:25:19.440 --> 0:25:23.840
<v Speaker 8>sort of starts formally these negotiations and certainly increases his

0:25:23.960 --> 0:25:26.640
<v Speaker 8>sort of his positioning and negotiating power with the president.

0:25:26.720 --> 0:25:28.320
<v Speaker 4>Libby, you're one of the very best. We're lucky to

0:25:28.320 --> 0:25:30.440
<v Speaker 4>catch out with you again. Let me cancel there, Pim

0:25:30.480 --> 0:25:32.560
<v Speaker 4>car Let's do this again soon on this topic.

0:25:43.080 --> 0:25:46.040
<v Speaker 1>Shanelli Bosik is joining us now ahead of an interview

0:25:46.040 --> 0:25:48.440
<v Speaker 1>with somebody on the other side potentially of this, John Gray,

0:25:48.760 --> 0:25:51.000
<v Speaker 1>who is president and CEO of Blackstone.

0:25:51.160 --> 0:25:51.320
<v Speaker 5>Yeah.

0:25:51.359 --> 0:25:53.960
<v Speaker 9>Absolutely, John, thank you for joining us so much because

0:25:54.000 --> 0:25:56.480
<v Speaker 9>you have such a large place in this story when

0:25:56.480 --> 0:26:00.560
<v Speaker 9>we're looking at lending contracting across the country and so anyways,

0:26:00.720 --> 0:26:04.000
<v Speaker 9>but let's start with your results here, John, because when

0:26:04.000 --> 0:26:06.840
<v Speaker 9>you look at the numbers, you've beat on earnings per share,

0:26:07.160 --> 0:26:10.640
<v Speaker 9>but assets under management. We've been waiting quarter after quarter here,

0:26:10.680 --> 0:26:13.760
<v Speaker 9>you're so close dating that one trillion dollar mark. You've

0:26:13.760 --> 0:26:16.280
<v Speaker 9>said things are kind of slowing out there in the environment.

0:26:16.680 --> 0:26:19.600
<v Speaker 9>At what point do things start to turn around here

0:26:20.200 --> 0:26:22.040
<v Speaker 9>to kind of help push black zone a little bit

0:26:22.040 --> 0:26:23.440
<v Speaker 9>further in this environment.

0:26:24.400 --> 0:26:27.159
<v Speaker 10>Chanale, it's great to be with you. I would just

0:26:27.240 --> 0:26:31.679
<v Speaker 10>say We're incredibly proud of the quarter. We protected investor

0:26:31.760 --> 0:26:35.959
<v Speaker 10>capital and that performance is ultimately what's going to propel

0:26:36.040 --> 0:26:39.760
<v Speaker 10>us forward to raise more capital. We did see forty

0:26:39.840 --> 0:26:43.520
<v Speaker 10>billion dollars of inflows more than two hundred billion over

0:26:43.560 --> 0:26:47.439
<v Speaker 10>the last year, and for our shareholders, we delivered nearly

0:26:47.480 --> 0:26:51.399
<v Speaker 10>a dollar in distributable earnings despite limited performance fees. And

0:26:51.440 --> 0:26:53.880
<v Speaker 10>we really think we have the right model. We've got

0:26:53.920 --> 0:26:57.160
<v Speaker 10>staying power where we can hold assets in a difficult

0:26:57.160 --> 0:27:01.320
<v Speaker 10>period in firepower nearly two hundred billion dollars to deploy,

0:27:01.520 --> 0:27:05.200
<v Speaker 10>so our views, we just keep executing for our investors

0:27:05.440 --> 0:27:08.160
<v Speaker 10>and the assets will take care of themselves over time.

0:27:08.840 --> 0:27:11.160
<v Speaker 9>Now we want to look a little bit broader across

0:27:11.240 --> 0:27:14.480
<v Speaker 9>the universe here because Blackstone, of course is one of

0:27:14.520 --> 0:27:17.520
<v Speaker 9>the biggest private landlords in the country, everything from warehouses

0:27:17.560 --> 0:27:20.080
<v Speaker 9>to single family homes. I'm wondering, if you take out

0:27:20.119 --> 0:27:23.720
<v Speaker 9>your crystal ball, John and kind of look across the economy,

0:27:23.760 --> 0:27:26.720
<v Speaker 9>what are people not seeing about the real estate market.

0:27:26.800 --> 0:27:27.960
<v Speaker 9>What's the next shoot drop?

0:27:29.200 --> 0:27:32.480
<v Speaker 10>Well, I think on real estate, the issue is people

0:27:32.560 --> 0:27:35.879
<v Speaker 10>are looking through a very narrow lens and they're thinking

0:27:35.920 --> 0:27:39.800
<v Speaker 10>about real estate all is one thing and the reality

0:27:40.000 --> 0:27:44.080
<v Speaker 10>is where you invest matters. So if you look at

0:27:44.359 --> 0:27:48.359
<v Speaker 10>office buildings, traditional office buildings in the US, which fortunately

0:27:48.400 --> 0:27:51.520
<v Speaker 10>for US are less than two percent of our portfolio,

0:27:52.040 --> 0:27:56.640
<v Speaker 10>there we're seeing really unprecedented weakness. Vacan see rates are

0:27:57.200 --> 0:28:01.560
<v Speaker 10>twenty percent, rents are under pressure, and valuations are under

0:28:01.600 --> 0:28:06.760
<v Speaker 10>significant pressure. But if you look across to logistics Global Logistics,

0:28:06.760 --> 0:28:09.600
<v Speaker 10>which is forty percent of what we own, their things

0:28:09.640 --> 0:28:14.880
<v Speaker 10>look very different, almost unprecedented strength. You've got vacancy rates

0:28:15.160 --> 0:28:19.040
<v Speaker 10>less than three percent. You've got rents growing double digit,

0:28:19.480 --> 0:28:23.440
<v Speaker 10>mark to market lease rates of forty fifty percent between

0:28:23.520 --> 0:28:26.479
<v Speaker 10>where the market rents are and what's in place, and

0:28:26.560 --> 0:28:29.360
<v Speaker 10>so I think it's a pretty vast world out there.

0:28:29.400 --> 0:28:33.760
<v Speaker 10>In real estate, hotels continue to exhibit strength, data centers,

0:28:34.040 --> 0:28:38.160
<v Speaker 10>student housing, but yes, commercial real estate in the office

0:28:38.160 --> 0:28:41.920
<v Speaker 10>sector's challenge, and we expect that'll continue for some time.

0:28:42.200 --> 0:28:45.640
<v Speaker 1>Has that unprecedented weakness john been fully priced in when

0:28:45.640 --> 0:28:47.200
<v Speaker 1>it comes to the office space.

0:28:48.120 --> 0:28:51.080
<v Speaker 10>Well, I think you see it in the stocks of

0:28:51.160 --> 0:28:54.520
<v Speaker 10>the public rates. They've traded off very dramatically. Some of

0:28:54.520 --> 0:28:58.560
<v Speaker 10>the big public office companies are off fifty seventy five percent.

0:28:59.080 --> 0:29:02.280
<v Speaker 10>You've seen in the price market, valuations in the limited

0:29:02.320 --> 0:29:06.000
<v Speaker 10>trades that are happening are down significantly. I think some

0:29:06.120 --> 0:29:09.800
<v Speaker 10>folks in terms of funds, private funds may not have

0:29:09.920 --> 0:29:12.960
<v Speaker 10>marked fully to what's been happening. I think you'll see

0:29:13.000 --> 0:29:15.000
<v Speaker 10>more of that. We tend to be ahead of the

0:29:15.080 --> 0:29:18.120
<v Speaker 10>curve on those things. But I think the good news is,

0:29:18.120 --> 0:29:19.920
<v Speaker 10>because I know there's a lot of focus on the

0:29:19.960 --> 0:29:24.440
<v Speaker 10>banking sector, is that leverage levels around commercial real estate

0:29:24.520 --> 0:29:27.440
<v Speaker 10>going into this, we're pretty low. So I think banks

0:29:27.480 --> 0:29:31.440
<v Speaker 10>probably lent against office buildings at about sixty percent of value,

0:29:31.720 --> 0:29:34.680
<v Speaker 10>so they should have a pretty good cushion, and office

0:29:34.720 --> 0:29:38.000
<v Speaker 10>buildings as a percentage of their balance sheets is pretty small.

0:29:38.080 --> 0:29:41.240
<v Speaker 10>So it's an area where there will be real headwinds.

0:29:41.480 --> 0:29:44.880
<v Speaker 10>Equity owners will take some real hits, but the broader

0:29:44.920 --> 0:29:47.120
<v Speaker 10>real estate market looks a lot healthier.

0:29:47.360 --> 0:29:49.640
<v Speaker 1>How concerned are you, John, even in the broader real

0:29:49.760 --> 0:29:52.360
<v Speaker 1>estate space about some of the issues that we've seen

0:29:52.400 --> 0:29:55.520
<v Speaker 1>in the small banks, given that they own a significant

0:29:55.600 --> 0:29:59.320
<v Speaker 1>portion of the lending books to commercial real estate across

0:29:59.360 --> 0:30:00.400
<v Speaker 1>the industry.

0:30:01.360 --> 0:30:04.120
<v Speaker 10>Well, there's no question that credit will be tighter to

0:30:04.400 --> 0:30:08.720
<v Speaker 10>commercial real estate. Some of the good news is the agencies,

0:30:08.760 --> 0:30:11.480
<v Speaker 10>the government agencies Fanny and Freddie lead the way in

0:30:11.680 --> 0:30:16.520
<v Speaker 10>multifamily lending and apartment lending, there is strength in other areas.

0:30:16.600 --> 0:30:20.560
<v Speaker 10>Real estate lending is broader than just banks because insurance companies,

0:30:21.200 --> 0:30:25.840
<v Speaker 10>commercial mortgage backed securities exist, mortgage reates are out there,

0:30:26.080 --> 0:30:29.160
<v Speaker 10>so there are multiple sources of capital. But I do

0:30:29.240 --> 0:30:32.479
<v Speaker 10>think credit will be tighter in commercial real estate. The

0:30:32.520 --> 0:30:37.160
<v Speaker 10>one benefit to existing owners is construction lending is going

0:30:37.200 --> 0:30:40.240
<v Speaker 10>to get a lot tighter, and so you'll see less

0:30:40.360 --> 0:30:44.200
<v Speaker 10>new supply long term that's a positive. But yes, I

0:30:44.240 --> 0:30:47.800
<v Speaker 10>think we will see less capital available. It will dampen

0:30:47.880 --> 0:30:52.000
<v Speaker 10>things a bit, but ultimately fundamentals around supply and demand

0:30:52.200 --> 0:30:55.280
<v Speaker 10>or what drives value, and that's why if confidence going

0:30:55.320 --> 0:30:58.880
<v Speaker 10>forward in most of the sectors, certainly away from office buildings.

0:30:59.000 --> 0:31:01.680
<v Speaker 9>John, I'm really curious about an update here on b Rate,

0:31:02.520 --> 0:31:04.760
<v Speaker 9>the real estate fund that has faced on withdrawals over

0:31:04.800 --> 0:31:08.160
<v Speaker 9>the last couple of months. Performance has been pretty stellar

0:31:08.200 --> 0:31:10.600
<v Speaker 9>over three years, more than seventeen percent, but it has

0:31:10.640 --> 0:31:14.160
<v Speaker 9>turned negative this year so far. I'm wondering what the

0:31:14.200 --> 0:31:16.840
<v Speaker 9>pitch is to invest this year when performance is starting

0:31:16.840 --> 0:31:17.480
<v Speaker 9>to be more muted.

0:31:18.800 --> 0:31:22.600
<v Speaker 10>Well, the performance this year, interestingly, Shanali has been hurt

0:31:22.680 --> 0:31:25.640
<v Speaker 10>mostly by the interest rate hedges we put in place

0:31:26.040 --> 0:31:29.480
<v Speaker 10>to protect the fund, which really helped us last year.

0:31:29.600 --> 0:31:34.440
<v Speaker 10>The historic decline in March and rates impacted, but if

0:31:34.480 --> 0:31:37.400
<v Speaker 10>you looked at the performance pre those hedges, you would

0:31:37.440 --> 0:31:40.680
<v Speaker 10>have had positive performance in the quarter. I think rates

0:31:40.680 --> 0:31:43.520
<v Speaker 10>have now moved down a fair amount, so that headwind

0:31:43.600 --> 0:31:46.080
<v Speaker 10>should be away from us. The other thing I'd point

0:31:46.080 --> 0:31:49.160
<v Speaker 10>to is the cash flow growth. In the first quarter,

0:31:49.400 --> 0:31:53.000
<v Speaker 10>estimated cash flow growth for b rate was nine percent,

0:31:53.640 --> 0:31:59.520
<v Speaker 10>led by hotels, student housing logistics, which we talked about,

0:31:59.840 --> 0:32:03.520
<v Speaker 10>So the underlying cash flow growth is good. It looks

0:32:03.680 --> 0:32:07.840
<v Speaker 10>like inflations getting under control. The ten years has moved down,

0:32:07.920 --> 0:32:11.239
<v Speaker 10>which long term is a positive for this portfolio, so

0:32:11.280 --> 0:32:14.560
<v Speaker 10>we feel really good. It's a portfolio of rental housing

0:32:14.880 --> 0:32:17.920
<v Speaker 10>logistics in the sun belt of the United States. It's

0:32:18.000 --> 0:32:20.600
<v Speaker 10>exactly what you want to own, and we think once

0:32:20.640 --> 0:32:23.920
<v Speaker 10>you get through this more volatile markets period, people will

0:32:23.960 --> 0:32:27.280
<v Speaker 10>focus again on fundamentals and that'll be quite helpful for

0:32:27.360 --> 0:32:28.520
<v Speaker 10>the flows in be reach.

0:32:28.640 --> 0:32:30.800
<v Speaker 9>You know, we started to talk about the banking market

0:32:30.840 --> 0:32:32.680
<v Speaker 9>as it pertains to commercial real estate, but you know,

0:32:32.720 --> 0:32:34.680
<v Speaker 9>I want to cite some of Bloomberg's own reporting here.

0:32:34.880 --> 0:32:38.440
<v Speaker 9>Black Zone had been in talks with Valley to buy

0:32:38.480 --> 0:32:41.440
<v Speaker 9>some assets from Silicon Valley Bank. I'm really curious what

0:32:41.480 --> 0:32:44.440
<v Speaker 9>this says about your ambition in this banking kind of

0:32:44.480 --> 0:32:47.800
<v Speaker 9>tumult period. Do you think you could do more by

0:32:47.920 --> 0:32:51.160
<v Speaker 9>means of working with regional banks providing more credit where

0:32:51.200 --> 0:32:53.840
<v Speaker 9>credit is tightening up, especially given some of your private

0:32:54.040 --> 0:32:56.760
<v Speaker 9>credit books are up more than nine percent so far.

0:32:58.080 --> 0:33:01.320
<v Speaker 10>I think that's a great question, Chanale. Interestingly, of the

0:33:01.360 --> 0:33:05.160
<v Speaker 10>forty billion we raised in the quarter, sixty percent of

0:33:05.200 --> 0:33:08.840
<v Speaker 10>it came in our credit insurance and real estate credit areas.

0:33:08.880 --> 0:33:12.280
<v Speaker 10>Investors are allocating more capital. We have in total in

0:33:12.320 --> 0:33:16.120
<v Speaker 10>those areas three hundred and fifty billion dollars, and so

0:33:16.360 --> 0:33:19.960
<v Speaker 10>I think there's a real opportunity. We're actually in discussions

0:33:19.960 --> 0:33:23.480
<v Speaker 10>today with a number of regional banks to partner with them.

0:33:23.880 --> 0:33:28.160
<v Speaker 10>They have very valuable relationships with borrowers out there across

0:33:28.200 --> 0:33:31.719
<v Speaker 10>the country. We have long term capital, and so in

0:33:31.760 --> 0:33:36.280
<v Speaker 10>consumer financing and small and medium business financing, particularly in

0:33:36.320 --> 0:33:40.080
<v Speaker 10>the asset backed area, we think there's a real opportunity

0:33:40.160 --> 0:33:42.520
<v Speaker 10>to deploy more capital. And I think it's one of

0:33:42.560 --> 0:33:45.560
<v Speaker 10>the real strengths of the alternatives business. As you know,

0:33:45.680 --> 0:33:48.520
<v Speaker 10>this used to just be about private equity, real estate,

0:33:48.560 --> 0:33:51.800
<v Speaker 10>private equity, but what we do today is much broader,

0:33:52.000 --> 0:33:54.960
<v Speaker 10>and I think the private credit area is really at

0:33:54.960 --> 0:33:58.480
<v Speaker 10>a golden moment because we do see tightening out there,

0:33:58.520 --> 0:34:01.600
<v Speaker 10>and yet we have this large pool of capital to deploy,

0:34:01.880 --> 0:34:04.320
<v Speaker 10>and so I think you'll see us become much more active.

0:34:04.800 --> 0:34:07.960
<v Speaker 1>John, do you think that private credit will come into

0:34:08.000 --> 0:34:11.160
<v Speaker 1>its golden era at a time where private equity is fading,

0:34:11.320 --> 0:34:13.759
<v Speaker 1>where the valuations make less sense, at a time when

0:34:13.840 --> 0:34:16.960
<v Speaker 1>rates are so high and offset some of the potential

0:34:17.000 --> 0:34:17.920
<v Speaker 1>equity valuation.

0:34:19.560 --> 0:34:22.040
<v Speaker 10>You know, I think we see cycles, and so if

0:34:22.080 --> 0:34:27.000
<v Speaker 10>you look at private equity, it's had enduring performance premiums.

0:34:27.000 --> 0:34:29.719
<v Speaker 10>That's certainly been the case for us. Our group has

0:34:29.760 --> 0:34:33.399
<v Speaker 10>done a terrific job deploying capital. What you're seeing now

0:34:33.520 --> 0:34:38.160
<v Speaker 10>is a cyclical slowdown in transaction activity. That's what happens

0:34:38.160 --> 0:34:42.400
<v Speaker 10>at moments when people are cautious. But ultimately this recovers,

0:34:42.440 --> 0:34:46.239
<v Speaker 10>and so our ability to find great businesses, to intervene

0:34:46.239 --> 0:34:49.840
<v Speaker 10>with those companies, to partner with management teams create value

0:34:50.160 --> 0:34:54.839
<v Speaker 10>that still exists. We announced a sizeable public to private

0:34:55.000 --> 0:34:58.960
<v Speaker 10>of a company called Seavent in the online event management

0:34:59.000 --> 0:35:02.200
<v Speaker 10>space for a north of four billion dollars this quarter.

0:35:02.760 --> 0:35:05.680
<v Speaker 10>I think you'll see us find more opportunities over time.

0:35:05.920 --> 0:35:07.759
<v Speaker 10>I think it just says right now things are a

0:35:07.800 --> 0:35:10.359
<v Speaker 10>little bit slower, but they'll come back, and I think

0:35:10.400 --> 0:35:12.160
<v Speaker 10>that business is going to do quite well.

0:35:12.239 --> 0:35:14.759
<v Speaker 9>He John, I'm really curious about your thoughts here on

0:35:14.840 --> 0:35:17.240
<v Speaker 9>rates and inflation. You've heard a number of your banking

0:35:17.360 --> 0:35:20.759
<v Speaker 9>rivals and peers say already that maybe the market is

0:35:20.840 --> 0:35:24.439
<v Speaker 9>not really prepared for the eventuality of higher rates, and

0:35:24.760 --> 0:35:27.960
<v Speaker 9>you've said also that maybe cuts this year are also

0:35:28.120 --> 0:35:31.520
<v Speaker 9>not on the horizon. So what is the thing that

0:35:31.520 --> 0:35:34.400
<v Speaker 9>the market is not seeing here about the direction of travel.

0:35:35.480 --> 0:35:38.040
<v Speaker 10>Well, I would say on the inflation front, I'll give

0:35:38.080 --> 0:35:41.960
<v Speaker 10>you a little bit of optimism. We see inflation moving

0:35:42.040 --> 0:35:46.080
<v Speaker 10>into the rare view mirror. And I say that because

0:35:46.640 --> 0:35:52.120
<v Speaker 10>across our portfolio the statistics are really encouraging. Our procurement

0:35:52.200 --> 0:35:56.239
<v Speaker 10>managers at portfolio companies are saying inflation in terms of

0:35:56.239 --> 0:35:59.120
<v Speaker 10>input costs was only up two percent in the quarter.

0:35:59.560 --> 0:36:03.720
<v Speaker 10>Shipping costs have come back almost back to twenty nineteen levels.

0:36:04.040 --> 0:36:07.840
<v Speaker 10>Even wages, which we're up as high as seven percent

0:36:07.840 --> 0:36:11.080
<v Speaker 10>in our portfolio six months ago, are now at five

0:36:11.120 --> 0:36:15.320
<v Speaker 10>point six percent, and the availability of workers has gotten

0:36:15.360 --> 0:36:18.759
<v Speaker 10>a lot better for our portfolio companies. And if you

0:36:18.840 --> 0:36:22.120
<v Speaker 10>looked at the CPI number last month, it was five percent,

0:36:22.520 --> 0:36:25.920
<v Speaker 10>but if you exclude shelter, which is a lagging indicator,

0:36:26.239 --> 0:36:28.600
<v Speaker 10>it was up just three point four percent. So that

0:36:28.800 --> 0:36:31.319
<v Speaker 10>is the good news. I think the more challenging news

0:36:31.360 --> 0:36:34.160
<v Speaker 10>to your question on rates is the FED is going

0:36:34.239 --> 0:36:36.760
<v Speaker 10>to want to make sure this inflation really gets down.

0:36:37.160 --> 0:36:40.480
<v Speaker 10>So I think the idea that they're going to pivot

0:36:41.080 --> 0:36:43.560
<v Speaker 10>is a mistake. I think they're much more likely to

0:36:43.680 --> 0:36:47.680
<v Speaker 10>pause hold rates and an elevated level and continue to

0:36:47.719 --> 0:36:50.920
<v Speaker 10>see the economy decelerate. And now when you add in

0:36:50.960 --> 0:36:53.880
<v Speaker 10>what we've been talking about with regional banks, that's going

0:36:53.960 --> 0:36:58.759
<v Speaker 10>to create further tightening, and so credit is becoming less available,

0:36:59.160 --> 0:37:02.280
<v Speaker 10>more expensive. It's really you know, sort of the blood

0:37:02.320 --> 0:37:05.840
<v Speaker 10>flow through the circulatory engine of the economy, and that

0:37:06.000 --> 0:37:07.960
<v Speaker 10>is slowing, and I think that will lead to a

0:37:08.000 --> 0:37:11.640
<v Speaker 10>sequential slowdown in the economy, so that will stay tight.

0:37:11.920 --> 0:37:16.120
<v Speaker 10>But the good news for investors for consumers is inflation's

0:37:16.160 --> 0:37:18.200
<v Speaker 10>coming down, and we think that's really positive.

0:37:18.320 --> 0:37:20.000
<v Speaker 1>John twenty seconds, how long is it going to take

0:37:20.040 --> 0:37:21.160
<v Speaker 1>for deal making to come back.

0:37:22.840 --> 0:37:25.600
<v Speaker 10>You know, I think it's going to take some stability

0:37:25.640 --> 0:37:30.920
<v Speaker 10>in markets, certainly getting past this inflation, people having more confidence.

0:37:31.320 --> 0:37:33.879
<v Speaker 10>Hopefully it happens in the back half of the year.

0:37:34.080 --> 0:37:36.279
<v Speaker 10>I think it's the latest sometime in the early part

0:37:36.280 --> 0:37:36.919
<v Speaker 10>of next year.

0:37:37.200 --> 0:37:40.239
<v Speaker 1>John Gray of Blackstone and Bloomberg Shanolipassic, thank you both

0:37:40.480 --> 0:37:44.320
<v Speaker 1>so much for being here. Subscribe to the Bloomberg Surveillance podcast

0:37:44.400 --> 0:37:47.399
<v Speaker 1>on Apple, Spotify, and anywhere else you get your podcasts.

0:37:47.719 --> 0:37:50.600
<v Speaker 1>Listen live every weekday starting at seven am Eastern, on

0:37:50.640 --> 0:37:53.960
<v Speaker 1>Bloomberg dot Com, the iHeartRadio app tune In, and the

0:37:54.000 --> 0:37:57.240
<v Speaker 1>Bloomberg Business app. You can watch us live on Bloomberg

0:37:57.239 --> 0:38:00.920
<v Speaker 1>Television and always on the Bloomberg Terminal. Thanks for listening.

0:38:01.000 --> 0:38:03.320
<v Speaker 1>I'm Lisa Abramowitz, and this is Bloomberg.