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Speaker 3: Kind of mellow this Monday after Thanksgiving, and it's not
Speaker 3: like there's a good meeting in a week and a
Speaker 3: half too.
Speaker 4: Is everyone just they're bringing turkey for lunch for leftovers. Yeah,
Speaker 4: and they're falling asleep at their desk because of the
Speaker 4: ingredient in turkey that makes you fall asleep, supposedly, I
Speaker 4: don't know if that's true.
Speaker 5: It could be.
Speaker 4: I don't know.
Speaker 5: I don't know.
Speaker 4: Maybe maybe watch any football.
Speaker 5: We didn't really watch football.
Speaker 4: I was in Ohio, so we had to watch the
Speaker 4: Ohio State Michigan game.
Speaker 5: For your wife for.
Speaker 4: A while, for every family, for anybody you walked into,
Speaker 4: anybody you've ran into in the entire state, if you
Speaker 4: were walking down the street. That's how it works there.
Speaker 5: It's a big ye fall state.
Speaker 4: Go you go Ohio State, is what I have to say.
Speaker 5: Well, yeah, it was a lot of football this past weekend.
Speaker 3: Let's let's go talk a little bit about the markets,
Speaker 3: because we've been bouncing around here and it does look
Speaker 3: like we're counting down in next week's SPED meeting.
Speaker 5: With US right now is Doug Sioca.
Speaker 3: He's chief executive officer partner at Kavar Capital Partners. The
Speaker 3: firm has about one point six billion in assets under management.
Speaker 3: He joins US from Leewood, Kansas. Doug, there is so
Speaker 3: much going on, so many important things. You've got that
Speaker 3: next FED meeting, next FED share, the spend on AI,
Speaker 3: the crypto fallout, so many important things. But we've got
Speaker 3: to start Tim with what's really the most important thing,
Speaker 3: and that is the Kansas City Chiefs. We got to
Speaker 3: ask they're in danger of missing the playoffs for the
Speaker 3: first time in more than a decade. They've been in
Speaker 3: the last three Super Bowls. I'm always rooting for them,
Speaker 3: watching them play. They always come back, Yet this year
Speaker 3: seems like it's something different. How painful is that for you?
Speaker 6: You know, it's tough.
Speaker 7: It's more painful to hear Tim ruding for the Ohio.
Speaker 8: State book guy, Come on, Isabelle, but we do.
Speaker 7: He's still a lot of counts in our Chiefs. It's
Speaker 7: it's funny and maybe an a lot of markets. There's
Speaker 7: mean reversion that tends to take place. And the Chiefs
Speaker 7: have lost six games, all within one score, and really
Speaker 7: the last seven or eight years they've seen win all
Speaker 7: those one score games. So they may have used up
Speaker 7: some of this year's luck and prior seasons, but we're
Speaker 7: still a long way to go. If I think that
Speaker 7: if they can win ten eleven games, they have a
Speaker 7: decent chance to get into the playoffs.
Speaker 4: So we're still hopeful.
Speaker 3: Wow, what's easier the market? The equity market continuing to
Speaker 3: move to the upside, or the Chiefs actually getting a
Speaker 3: chance at another Super Bowl?
Speaker 7: Hey? You know, I mean this look the stock market,
Speaker 7: and we wrote a piece a couple of months ago.
Speaker 7: It just talked about these all time highs, and certainly
Speaker 7: there's an obsession about where we go and you get
Speaker 7: to those inflection points, which is defensible, right, but you know,
Speaker 7: it's how could we not be at all time highs
Speaker 7: and we have earnings growing as fast as they have,
Speaker 7: We have a fed that's in a very accomodative posture.
Speaker 7: We have low taxes and regulation, and we're in the
Speaker 7: midst of one of the greatest ever like tangible technological
Speaker 7: revolutions our country in the world has ever seen. So
Speaker 7: are not too terribly surprised that we're at all time highs,
Speaker 7: Nor are we too terribly surprised when we see a
Speaker 7: little bit of consternation and maybe some in intermittent volatility
Speaker 7: that transpires around these levels.
Speaker 4: So okay, so let's broaden this out a little bit
Speaker 4: and think about the people who are in control of
Speaker 4: interest rates, and that would be, of course, the Federal Reserve.
Speaker 4: We spoke with Christina Lee a little earlier, and it
Speaker 4: seems like Carol people are pretty set on the fact
Speaker 4: that it could be Kevin Hasset, the president of City's
Speaker 4: made a decision. Yeah, we just don't know who that is.
Speaker 4: Now Kevin Hassett as FED chair. Does it change your view?
Speaker 4: What do you? What do you make of it?
Speaker 7: You know, we knew whoever President Trump was going to
Speaker 7: pick was going to be very dubbish, and Kevin certainly
Speaker 7: came to the top of almost all lists over the
Speaker 7: course the last couple months.
Speaker 8: I didn't think anyone.
Speaker 7: Ever thought Miron was going to get the nod as
Speaker 7: the Cherokee likely would never get confirmed. Kevin Walsh seen
Speaker 7: to fall off the table. Going back to the fighting Irish.
Speaker 7: I had a saft spot for Chris Waller since he
Speaker 7: used to teach economics at the university, but I think
Speaker 7: Kevin Hass.
Speaker 8: Would be a very good choice.
Speaker 4: And I do think.
Speaker 7: Look, I mean the FED wants to cut rates, Carol
Speaker 7: mentioned on the lead in We've got a FED meeting
Speaker 7: the next week and a half. I think that the
Speaker 7: Fed we've got this theory that they're in this sort of.
Speaker 8: This triangulation of FED tension.
Speaker 7: Right. As I mentioned, we have a really strong economy,
Speaker 7: but it's very uneven in its benefit distribution. We have
Speaker 7: a fear of excellss liquidity if we see a lowering
Speaker 7: of interest rates. But it's also a time where it's
Speaker 7: a very very significant cohort of the consumer that is
Speaker 7: dying for a little reprieve with lower rates because they
Speaker 7: have of floating rate depth, because they have jobs, and
Speaker 7: it'll keep up with the cost of living in the
Speaker 7: increasing price of things because they don't have money in
Speaker 7: the market. Right. And then the third thing is we
Speaker 7: have this incredible technological revolution. It's ubiquitous in its industry application,
Speaker 7: and it's unprecedented in its efficiency elevation.
Speaker 6: But it's exacerbating unemployment.
Speaker 7: Right, So the Fed really is at a consternation point.
Speaker 7: I think they do want to cut rates. They've talked
Speaker 7: about doing it as an insurance cut. We think of
Speaker 7: it more like a cohort cut to a certain very
Speaker 7: important part of the underlying consumer.
Speaker 4: Well, what does the path look like beyond December?
Speaker 7: Then, yeah, that's a great that's a really good question, Tim,
Speaker 7: you know, I think again, maybe that comes back to
Speaker 7: Hassett where you know, interestingly, President Trump had said for
Speaker 7: a while in some of his his detigradation of Chair
Speaker 7: Powell that shoot, we need to be closer to where
Speaker 7: Japan is in Europe is, and we need to cut
Speaker 7: rates by three and fifty basis points. While we look
Speaker 7: at the bottom market this morning or in the midst
Speaker 7: of one of the biggest sell offs we've had in
Speaker 7: the last couple of months, because there was an expectation
Speaker 7: over night that Japan is going to hike rates. So
Speaker 7: if we have sort of a monetary policy that's not
Speaker 7: globally coordinated, that could create a little more consternation to
Speaker 7: fixed income markets, but it could underscore the need for
Speaker 7: the US to be able to accommodative more so than
Speaker 7: we otherwise would have to be if the rest of
Speaker 7: world was on the same page.
Speaker 3: Hey, I want to go back to though I don't disagree,
Speaker 3: I think a lot of people don't disagree that when
Speaker 3: you look at the K shaped economy, that there are
Speaker 3: many folks that are struggling in this economic environment.
Speaker 5: And you're right, Doug, they're not in the equity markets.
Speaker 3: We now are talking about the three A pillars, whether
Speaker 3: it's you know, acid prices going up because of the
Speaker 3: spend on AI and that is making the rich people
Speaker 3: even richer affluent, and so you know, they have a
Speaker 3: lot of money to spend, and we know the wealthier
Speaker 3: consumer is really important to the overall consumer spend. Having
Speaker 3: said that, society wise, socially, it's important right to take
Speaker 3: care of all citizens because there's a lot of Americans
Speaker 3: that aren't in the equity market. Having said that, the
Speaker 3: Fed's mandate is to watch inflation and to watch the
Speaker 3: labor market. And is there a risk if they go
Speaker 3: on a trajectory of cutting rates, if they just do
Speaker 3: it in December. Do you think there's any risk of
Speaker 3: creating some excess liquidity in a market where you say,
Speaker 3: earnings look good and there's a lot of good stuff
Speaker 3: out there. So is there, you know, the possibility of
Speaker 3: a risk and who knows how that plays out and
Speaker 3: what kind of a crisis.
Speaker 5: Maybe none, but I just wonder.
Speaker 6: I love it's crisis, like Carol.
Speaker 7: But I do think again, this goes back to this
Speaker 7: tension that the FED is really.
Speaker 8: Walking a tightrope because to your.
Speaker 7: Point, I do think widespread prosperity is one of the
Speaker 7: things that makes our.
Speaker 4: Country so special.
Speaker 7: With that expectation that is it is creating to reach
Speaker 7: for full participation. I think the issue becomes like if
Speaker 7: things used to become on affordable that you're helping this
Speaker 7: important color with one hand and you're knocking them back
Speaker 7: with the other.
Speaker 6: So that's the part.
Speaker 7: Where they unfortunately have a pretty blunt instrument. Yeah, there
Speaker 7: might be other ways, right, whether that is just balance
Speaker 7: sheet management of things along those lines, whether that becomes
Speaker 7: some of the entore that takes place with fiscal policy
Speaker 7: incentives to increase employment because it is a really challenging time,
Speaker 7: without question, No.
Speaker 6: And listen. Totally agree.
Speaker 3: It's got of the wealth has to spread out to
Speaker 3: a lot more folks across the country. Doug Cioka always
Speaker 3: appreciate it, ca our capital partners.
Speaker 4: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 4: up after this.
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Speaker 3: Let's get now to developments in AI big tech. As
Speaker 3: the king of AI bel whether as we're talking about,
Speaker 3: Nvidia invested two billion dollars in chip design software maker
Speaker 3: Synopsis as part of a broader engineering and designed tie
Speaker 3: up aiming tim to infuse its AI computing technology into
Speaker 3: more industries.
Speaker 4: With the Tech Roundup, we had to the Bloomberg News
Speaker 4: studio and bureau in San Francisco, where we find the
Speaker 4: co host of Bloomberg Tech, Ed Ludlow, ed, why is
Speaker 4: Nvidia doing this? Why?
Speaker 9: Now, Yeah, I guess there's a question of why is
Speaker 9: Nvidia doing this? And then what does Synopsis get out
Speaker 9: of it? You know, so, like Synopsis makes the software
Speaker 9: by which chips are designed but also validated. So before
Speaker 9: you send a chip through the fab to be manufactured,
Speaker 9: you want to know that that design works. And that's
Speaker 9: a big part of what Synopsis does with all kinds
Speaker 9: of tech companies. And so part of the interpretation of
Speaker 9: why is Nvidia doing this is it's a sales channel
Speaker 9: because Synopsis is basically saying, imagine how good our software
Speaker 9: would be if it was underpinned by Nvidia's GPUs and
Speaker 9: in Vidia's catalog of software, which largely it is called
Speaker 9: Kuda X. It's basically a library of building blocks for
Speaker 9: AI that just make existing software platforms better. And so
Speaker 9: the next thing you're going to ask me about it's
Speaker 9: probably circular financing. But from perspective, you know, it gives
Speaker 9: them entry to a tool or a platform that lots
Speaker 9: of people are using.
Speaker 3: So circular finance, I mean, come on, like Carols, did it?
Speaker 6: Is it just getting crazy or so?
Speaker 9: I don't know the parties on this specific deal in
Speaker 9: video and Synopsis would say this is not circular financing.
Speaker 9: In the same way that the graphic you're showing to
Speaker 9: our video audience illustrates, there is no requirement that Synopsis purchases.
Speaker 8: From Nvidia in videos GPUs.
Speaker 9: Additionally, and this is all according to Nvidia CEO Jensen
Speaker 9: Wong who was speaking this morning. Additionally, as I said,
Speaker 9: Synopsis does business with all kinds of chip makers, and
Speaker 9: Nvidia also does business with other makers of chip design
Speaker 9: in software Semens is one, for example, And none of
Speaker 9: that's going to change. Everyone is free to carry on
Speaker 9: as they want. And it goes back to the why
Speaker 9: is in video doing this? You know, this is an
Speaker 9: area of the technology where we call electronic design automation
Speaker 9: EDA software and a lot of people feel that those
Speaker 9: systems which have historically been run on CPUs old engineering
Speaker 9: platforms could be a lot better if they were run
Speaker 9: on GPUs or AI accelerators. They're just better pieces of
Speaker 9: software as a result. But there are loads of players
Speaker 9: now everyone's free to have better software.
Speaker 8: Is how in video would put it?
Speaker 10: Well?
Speaker 3: Why, I mean Synopsis wants to have Envidea as a customer, right,
Speaker 3: so why did they need it? Like what does that
Speaker 3: two billion dollar investment doo?
Speaker 9: So now this is like highly analogous with the Intel situation,
Speaker 9: and it's highly analogous with the Nokia situation. And so
Speaker 9: this year I've had two specific opportunities to ask Jensen Wang,
Speaker 9: what's the rationale taking a steak, like why do you
Speaker 9: need to own between two and three percent of these companies?
Speaker 9: And his answer is always I thought it would be
Speaker 9: a great investment and that in the future that investment
Speaker 9: will pay off. So in Nvidia got these synops of
Speaker 9: shares at four one hundred and fourteen dollars and seventy
Speaker 9: nine cents apiece.
Speaker 8: The stock's now higher than that. I can't see it
Speaker 8: on the screen, four hundred and forty dollars a piece.
Speaker 9: But I remember back in October when we're in DC,
Speaker 9: I asked the same question of Jensen, why did you
Speaker 9: have to take almost three percent of Nokia? And he
Speaker 9: was like, well, it looks like a pretty genius move now,
Speaker 9: doesn't it, because Nokia shares are up twenty percent, And
Speaker 9: I just like in the moment, I couldn't believe that
Speaker 9: was his answer, But he genuinely believes that it's going
Speaker 9: to be a great investment because he sees those engineering
Speaker 9: partnerships changing the respective fields that they're going into.
Speaker 4: Okay, Ed, we only have three minutes left, but there's
Speaker 4: two more stories we want to hear with you. One
Speaker 4: is deep Seek because China's deep Seek unveiled two new
Speaker 4: versions of an experimental AI model that it released weeks ago.
Speaker 4: It adds fresh capabilities a startup set would help with
Speaker 4: combining reasoning and executing certain actions autonomously. I'm old enough
Speaker 4: to remember earlier this year when a deep Sea update
Speaker 4: comes out and tank shares of Nvidia. We don't see that,
Speaker 4: and we haven't seen that. Where is deep Seek when
Speaker 4: it comes to competition?
Speaker 9: Okay, so deep Seek the three point two has been
Speaker 9: out for a number of weeks now in the form
Speaker 9: of deep sec v three point two exp Experimental. They
Speaker 9: just dropped the exp bit and it's an open source
Speaker 9: model that against benchmarking, performs very well against GBT five
Speaker 9: Open AI islaers model. Where they've made a difference in
Speaker 9: this open source world is that, like open AI, deep
Speaker 9: Seak wants to make the tool more useful, so they
Speaker 9: had the human reasoning element. It parrots the behavior of
Speaker 9: a human, but it replies the tool in a more
Speaker 9: useful way. Markets reacted in January through April the way
Speaker 9: they did because they didn't understand how deep Seek had
Speaker 9: achieved that performance for a model at the low cost
Speaker 9: point that it did.
Speaker 5: That, does the world need to be worried?
Speaker 3: Those are our guests, like, how does this fit in?
Speaker 3: How competitive?
Speaker 9: Is it?
Speaker 10: Real?
Speaker 8: Quickly, it's competitive.
Speaker 9: Models at this scale have tens of billions of parameters
Speaker 9: or more. And what Deepseek did is called mixture of
Speaker 9: experts or MOZ designs, where if you have one hundred
Speaker 9: billion parameter model, when you run the inference, you actually
Speaker 9: run it, you don't need to access all one hundred
Speaker 9: billion parameters. They found a way of just accessing say
Speaker 9: ten billion parameters or sixty billion parameters, which makes the
Speaker 9: cost of running it in the compute much more efficient.
Speaker 9: So the model is as performance, it's just easier to run.
Speaker 3: I do feel like everything's now about efficiency in terms
Speaker 3: of power use, in just getting things done. Hey, what
Speaker 3: do we need to know about Nasiyoshi's son, the soft
Speaker 3: Bank founder who said he wouldn't have sold off in
Speaker 3: video shares of his company had unlimited money to bankroll
Speaker 3: its next investments in artificial intelligence? Is there something important
Speaker 3: here that we should acknowledge?
Speaker 9: All you need to know is that he wishes he
Speaker 9: hadn't sold it, but he didn't have enough money. He
Speaker 9: needed more money, so he sold the thing that could
Speaker 9: get him money and video shares, and then he used
Speaker 9: it to invest in the thing he thinks will make
Speaker 9: him more money in the future.
Speaker 8: Open AI. And it's as simple as that.
Speaker 5: All Right, I love it.
Speaker 4: Even he needs more money? What does that say?
Speaker 5: How about buy now?
Speaker 4: That's just society. This is the world we live in.
Speaker 3: Everybody needs more money, all right, Gonna leave it there.
Speaker 5: Ed always glad we can go around the world of
Speaker 5: technology with you. Ed Lolove.
Speaker 3: Of course, he is co host of Bloomberg Tech at
Speaker 3: Bloomberg Television. Catch Ed and Caroline Hyde eleven am Wall
Speaker 3: Street Time every Monday through Friday on Bloomberg TV.
Speaker 2: This is the Bloomberg Business Week Daily Podcast. Listen live
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Speaker 2: flagship New York station, Just Say Alexa played Bloomberg eleven
Speaker 2: thirty Well.
Speaker 4: Bloomberg opinion piece grabbed our attention today, Paul J. Davies
Speaker 4: He's based in London. He writes that quote, the lack
Speaker 4: of transparency in private credit is one and that investors
Speaker 4: and journalists could be more fearful than is warranted by
Speaker 4: historical performance. But there's illustrating data too, illuminating data rather
Speaker 4: from analysts and ratings companies that show the outlook for
Speaker 4: repayment problems and bankruptcies isn't great. In fact, it's getting worse.
Speaker 3: That Again from his column, Davis goes on to write
Speaker 3: that he's quote talking about junk rated loans made by
Speaker 3: private credit funds, mostly mid sized companies, often used to
Speaker 3: fund private equity buyouts, and similar to the leverage loans
Speaker 3: at banks underwrite and sell to investors. To be fair,
Speaker 3: there's a lot of questions that have emerged in recent
Speaker 3: weeks about private credit, and we have yet to see
Speaker 3: kind of a systemic issue or problem, at least that's
Speaker 3: what we hear from a lot of the voices we
Speaker 3: talked to.
Speaker 4: Let's bring in Christina Lee. She's managing director and co
Speaker 4: portfolio manager for US private debt strategy over at oak
Speaker 4: Tree Capital Management affirm that's gotten more than two hundred
Speaker 4: billion dollars in assets under management. Welcome, it's good to
Speaker 4: have you.
Speaker 10: Well, thank you so much for having me here.
Speaker 4: You must have been watching the events over the last
Speaker 4: few weeks. With great interest, And I'm wondering just your
Speaker 4: view on the chatter around greater concerns when it comes
Speaker 4: to private credit. And again I'm using the term like,
Speaker 4: you know, a monolith, but not all private credit is
Speaker 4: the same.
Speaker 3: Yeah.
Speaker 10: I think it's been called the Great cocker Chores, you
Speaker 10: name it. I think one of the issues that I
Speaker 10: think people are having is there's been some high profile
Speaker 10: bankruptcies that I've had recently, and people are saying, is
Speaker 10: this systemic? Is this a pattern of what's next? I
Speaker 10: think sometimes you do have to take a step back
Speaker 10: and remember we're doing some investment grade credit. You are
Speaker 10: taking risk. There will be defaults, there will be restructurings.
Speaker 10: You don't get eight to nine percent all in yields
Speaker 10: by not taking risk.
Speaker 3: Okay, So having said that, when you guys, especially you know,
Speaker 3: in terms of private credit, I think what really tripped
Speaker 3: a lot of investors or investments up in the private world,
Speaker 3: private credit, private equity for that matter, is.
Speaker 5: That there weren't the exits that were normally there.
Speaker 3: Right, we've seen them pushed off and I think it's
Speaker 3: starting to come back. But then you had renegotiated you
Speaker 3: just like all these things started to happen, and you
Speaker 3: just wonder whether it gets a little bit fuzzier and
Speaker 3: that there is more opportunities or more touch points for
Speaker 3: things to come undone roll that in and how we
Speaker 3: should be thinking about that part of it.
Speaker 10: I think defaults have been very very low in private credit,
Speaker 10: and if you were to look at various managers their
Speaker 10: loss ratios, et cetera, default rates would probably all be
Speaker 10: relatively similar. And that's because private credit hasn't really been
Speaker 10: through a downturn yet, right the advent of the class
Speaker 10: when it really started booming was maybe ten years ago.
Speaker 8: I think COVID was too short.
Speaker 10: I think what you're seeing right now also is defaults
Speaker 10: will likely rise because a lot of these bars put
Speaker 10: in capital structures when it was a zero interest rate environment,
Speaker 10: which is you know, now it's higher for longer, and
Speaker 10: I think that's why you're seeing defaults and some cracks emerge.
Speaker 3: Does it get worse though, because you're right, an investment
Speaker 3: in a zero rate where money costs nothing is very
Speaker 3: different from where.
Speaker 5: We are today, right, It's just the business.
Speaker 3: Dynamics and the financial dynamics of a deal looks very different.
Speaker 3: So do we see more cracks going forward, is Jamie
Speaker 3: diamond Wright that there's never just one cockroach.
Speaker 10: I think you likely will see some cracks, but what
Speaker 10: will be dependent is the cracks have been massed, the
Speaker 10: cracks have been around for a year or two. Is
Speaker 10: there's a lot of liquidity in private credit and even
Speaker 10: in private equity. They weren't necessarily deploying in new investments,
Speaker 10: but they were helping the resisting investments.
Speaker 3: Forgive me for when does too much liquidity, though, become
Speaker 3: a problem where you're chasing after there's so much more
Speaker 3: folks involved in the private market world, private credit, private equity,
Speaker 3: and when there's a lot of money around, it's like
Speaker 3: people are chasing deals and maybe more likely to take
Speaker 3: on even more risks.
Speaker 6: So when does it get messy or does it not?
Speaker 5: In this world? Maybe it's something different.
Speaker 10: I think right now what you're seeing is there's still
Speaker 10: a supply demand and balance. As you had mentioned, there's
Speaker 10: less exits, there's less M and A and so private
Speaker 10: credit dry powder has increased. But if we were to
Speaker 10: look at kind of the exit piece that private equity
Speaker 10: needs to do, M and A should increase starting in
Speaker 10: twenty twenty six, and that supply demand imbalance should lessen.
Speaker 10: But right now, what you're seeing is there's really an
Speaker 10: imbalance right now, and so you are seeing that competitive
Speaker 10: nature of private credit. And does that mean looser underwriting
Speaker 10: standards a lot of time, yes, which you note.
Speaker 4: Howard Marx, the co chairman, principal, co founder of oak
Speaker 4: Tree Capital Management, out just last month, it was in
Speaker 4: the beginning of November, with a traditionally long memo about
Speaker 4: private credit, but in bold on the second page he writes, So, no,
Speaker 4: I don't think this is necessarily the beginning of a trend.
Speaker 4: And by the way, it's called cockroaches in the coal mine.
Speaker 4: It's not an indictment of the whole sub investment grade
Speaker 4: debt market or the whole private credit market. Rather, it's
Speaker 4: just a reminder that the yield spreads people care about
Speaker 4: so much are there for a reason, because sub investment
Speaker 4: grade debt entails credit risk. You agree, this is essentially
Speaker 4: just part of investing in this type of debt.
Speaker 10: Exactly if you don't take on risk, that usually means
Speaker 10: that you're yielding something lower. Right, it goes hand in hand,
Speaker 10: And I think because we've been in such a benign
Speaker 10: market where that you haven't seen a lot of defaults,
Speaker 10: et cetera. That's why people, I think are surprised.
Speaker 4: So then what's the what's the what are the products
Speaker 4: or what are what's the credit that investors should avoid
Speaker 4: right now?
Speaker 10: Like?
Speaker 4: How do you separate because of another? A criticism I
Speaker 4: guess you could say is that there's not a lot
Speaker 4: of transparency necessarily with this type of investment. So then
Speaker 4: how do investors know what they should invest in and
Speaker 4: what they should stay away from?
Speaker 10: Yeah, I think one of the things to look out
Speaker 10: for is one of the questions. I think that we
Speaker 10: all talk about our valuation works. Right, is there transparency?
Speaker 10: Is there not transparency?
Speaker 8: I always as.
Speaker 10: Tell people to ask them what is your valuation methodology?
Speaker 10: How often are you looking at your valuation? Because in
Speaker 10: the end, we are in a private eliquis market, there's
Speaker 10: no mark to market, there is no market, and so
Speaker 10: there is a subjectiveness and a judgment on the manager.
Speaker 10: And I think a lot of it is do they
Speaker 10: mark their investments aggressively or are they conservative?
Speaker 5: Right?
Speaker 4: How do you know?
Speaker 10: I think you have to ask your questions of how
Speaker 10: what methodology does to you? Do you discounted cash flow?
Speaker 10: How much does current field matter? What is your recovery rates?
Speaker 4: So this is what wrote about last week.
Speaker 3: Well, yeah, yes, but this is where, like I think
Speaker 3: about Christina, that a firm, whether it's oak Tree or
Speaker 3: somebody else, Right, if you're you're playing games in terms
Speaker 3: of valuations or not being so transparent or whatever for
Speaker 3: your investors, the deals aren't going to pay off, right,
Speaker 3: and investors are not going to give you any more money.
Speaker 3: So is that kind of a checks and balance in
Speaker 3: some way in terms of ensuring you guys are doing
Speaker 3: the work like they trust a manager. Yeah, and that
Speaker 3: you guys are making sure you have the transparency before
Speaker 3: you go into a deal.
Speaker 10: Exactly, because if you are way too aggressive and all
Speaker 10: your marks are inflated, you'll have a really hard time
Speaker 10: with your investors, right, right. That is reputation risk. And
Speaker 10: also just inherently as a creditor, you are always worried
Speaker 10: about kind of what's next, what's the next risk, because
Speaker 10: your upside is getting what's contractually due to you, right,
Speaker 10: So a lot of just inherently as a credit investor,
Speaker 10: you tend to be conservative.
Speaker 3: Because that's why it's you know, and some of the
Speaker 3: conversations we've had in trying to figure out, like there
Speaker 3: are there more cockroaches out there that maybe some of
Speaker 3: what some have said is smaller players that maybe maybe
Speaker 3: don't do as much homework or something that that's where
Speaker 3: we might see some problems. Talk to us about the
Speaker 3: market overall, where you guys are finding opportunities right now
Speaker 3: and what kind of kind of opportunities. And I'm curious
Speaker 3: if it tells you kind of what this investment environment.
Speaker 3: Is it a healthy one? Is it a stressed one?
Speaker 3: Like I'm just curious.
Speaker 10: I would say right now, it is, there's a supply demand,
Speaker 10: a balance, So what does that mean. It's very competitive.
Speaker 10: If you think about the first nine months of the
Speaker 10: year with the tariffs, right with all of the uncertainty,
Speaker 10: M and A went to a screeching halt for the
Speaker 10: most part. Now M and A has kind of come
Speaker 10: back after Labor Day, and so now you're seeing what
Speaker 10: I call a little bit of fomo where you're seeing
Speaker 10: a lot of lenders rush to get deals done. And
Speaker 10: I think this is the time that you want to
Speaker 10: be very selective, you want to be a credit picker,
Speaker 10: because the terms are getting more aggressive, Leverage is going up,
Speaker 10: pricing is going down, and so from like oak Tree's
Speaker 10: philosophy standpoint is, you really need to be selective. It's
Speaker 10: it's a yellow light. Proceed with caution. You're not going
Speaker 10: to stop investing, but you've got to pick and choose
Speaker 10: your spots.
Speaker 4: Do you think this type of asset class will end
Speaker 4: up in the four oh one k's of many Americans?
Speaker 10: I think that is I call it the next frontier.
Speaker 10: I think from a technology standpoint, if you think about
Speaker 10: private credit, it's a relative. I'm talking about more sponsor
Speaker 10: direct lending. It's a pretty mature asset class at this point, right, right,
Speaker 10: And I think where you're going to see innovation was
Speaker 10: what I call technologies on reaching new investors or fund construction.
Speaker 10: And so I do think four oh one case will
Speaker 10: be the next horizon. But that's also where private equity
Speaker 10: is also going into, right, And so will that help
Speaker 10: a little bit with the supply demand?
Speaker 6: Yes, rightly?
Speaker 5: Right?
Speaker 4: Whether whether people want it or not in their four
Speaker 4: o one case, I know, well it.
Speaker 3: Does though it creates another demand right for what's going
Speaker 3: on there?
Speaker 5: Just get about a minute left?
Speaker 6: Can you can you share with us?
Speaker 3: I don't know an interesting deal that you recently did.
Speaker 3: I don't know how specific you can get, but just
Speaker 3: give us an idea in terms of maybe the type
Speaker 3: of deal, terms or whatever you can share.
Speaker 10: Can't just not about a specific deal, but just what
Speaker 10: we're seeing in the market right now is it's kindter intuitive,
Speaker 10: but as the interest rates go lower, you're seeing leverage
Speaker 10: creep up because bars can actually make their interest charges now.
Speaker 10: And so before when interest rates were say four percent
Speaker 10: on sofa, you didn't really see deals go over six
Speaker 10: times because otherwise a barrow couldn't pay their interest. Now
Speaker 10: it's actually going the other way, where you're getting lower yields,
Speaker 10: but higher leverage just notes the level of competition. So
Speaker 10: we're hoping that twenty twenty six there will be a
Speaker 10: little bit more balance than deals. Yeah, but that's what
Speaker 10: we're seeing in the moment.
Speaker 3: So does this assume too, that you think the Fed
Speaker 3: will continue to rate to cut rates even into twenty
Speaker 3: twenty six.
Speaker 10: I think it all depends on who gets appointed, you really, So.
Speaker 3: Yeah, do you think is it is it a done
Speaker 3: thing that if it's Kevin Hassett that you can assume
Speaker 3: that there'll be lower rates just cut about thirty seconds.
Speaker 10: I'm not going to make an assumption around it, but
Speaker 10: we all have an understanding of where the administration wants
Speaker 10: this lower rates right, interesting time, and we'll see where
Speaker 10: the underlying economy also says well. Hopefully we'll also dictate
Speaker 10: wor the race of neflee.
Speaker 3: Land right that the Fed sticks to the band aate
Speaker 3: and what needs to be done.
Speaker 5: Thank you so much, really appreciate it.
Speaker 3: Christina Lee, Managing director and co portfolio manager for US
Speaker 3: Private Debt Strategy over at oak Tree Capital Management.
Speaker 5: Joining us right here in our Bloomberg Interactive Broker Studio.
Speaker 4: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 4: up after that.
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Speaker 3: So our Bloomberg Intelligence team writing earlier today that holiday
Speaker 3: retail sales appear to be off to a good start
Speaker 3: despite mixeddore traffic.
Speaker 5: There's a bunch of metrics coming at us.
Speaker 3: Your retail next coming out, saying visits to malls were
Speaker 3: soft down three point six percent. MasterCard saying Black Friday's
Speaker 3: online and instore sales res four point one percent. Salesforce
Speaker 3: says global online spending will increase eight percent to reach
Speaker 3: fifty three point seven billion, while US spending will rise.
Speaker 5: By four percent to thirteen point four billion. And then
Speaker 5: there's Adobe Analytics team.
Speaker 4: They noted a sharp nine point one percent acceleration in
Speaker 4: digital sales as consumers lean into the ease and convenience
Speaker 4: of buying online. Well, someone who knows how to read
Speaker 4: through all of these numbers does her own in depth
Speaker 4: research too. She understands the retail industry. Dana Telsey is
Speaker 4: back with us, founder, CEO and chief Research officer of
Speaker 4: Telsea Advisory Group. She's been joining us here Atloomberg quite
Speaker 4: a bit. Carol, going back to Black.
Speaker 6: Friday is her Wednesday.
Speaker 4: She's your Wednesday day here, he's here inside of the Monday.
Speaker 4: She joins us here in the studio today.
Speaker 6: Thank you for having me. There's a lot of time.
Speaker 6: I think you have a desk with your name on it.
Speaker 6: It's easy, thank you and convenient on my office.
Speaker 5: We Love, we Love?
Speaker 3: Is there there are so many different metrics that come
Speaker 3: at us. Is there a metric that catches your attention
Speaker 3: more than most Or is it that you rely.
Speaker 5: Just on kind of the work you guys do.
Speaker 11: I rely on what we do, but I also look
Speaker 11: at all the metrics to tell a story, and frankly,
Speaker 11: what you're seeing the metrics tell the story of Essentially,
Speaker 11: it was solidly optimistic for this upcoming holiday season. They're
Speaker 11: good metrics. A lot of the metrics surpassed their expectations.
Speaker 11: The other thing, when you look at online versus in store,
Speaker 11: in store is always going to be lower than online
Speaker 11: because online is a smaller part of the business. But
Speaker 11: one of the differences this year is online sales the
Speaker 11: rate of growth slow, going off a bigger base. While
Speaker 11: you're looking at it in store, the rate of in
Speaker 11: store sales increased for some traffic is holding steady with
Speaker 11: what it's been here to date. And I think, for
Speaker 11: whatever you want to say, the gen z ors the teens,
Speaker 11: they like that experience of being in stores. That's what
Speaker 11: I saw on Friday when I traveled all the stores.
Speaker 4: What do you mean by that? Like this is like
Speaker 4: the same people who watch Friends ironically because they you know,
Speaker 4: didn't watch it the first time around, are now going
Speaker 4: to the mall.
Speaker 6: Like the teens are going on.
Speaker 4: Yeah, that's what I mean.
Speaker 11: Everyone wants the experience. I think what everyone missed from
Speaker 11: COVID talking to each other saying this looks nice on you,
Speaker 11: or look at this deal.
Speaker 6: That communication matters.
Speaker 4: So what's old is new again, Carol. They're going back
Speaker 4: to the mall just like we did when we were kids.
Speaker 6: Well, I know who doesn't love them all?
Speaker 5: I don't love them all anymore.
Speaker 3: Having said that, though, Dana, like my daughter twenty two,
Speaker 3: there were some that she was going to buy online,
Speaker 3: but we went to Bloomingdale's to try it on and
Speaker 3: she ended up like, Okay, this doesn't work and not
Speaker 3: buying it. So it's like interesting kind of this mix
Speaker 3: of how we're figuring it, how to shop.
Speaker 11: And it's always the surprise because when you buy something
Speaker 11: you've had before, maybe you do get the same size
Speaker 11: or you know what it is when you're buying something new.
Speaker 11: And one of the things this year is there's newness
Speaker 11: to wardrobing. You're looking at shoes where people are going
Speaker 11: back to whether it's black brown suede boots like Steve
Speaker 11: Madden is selling, whether it's wide legged denim jeans, it's
Speaker 11: not just the same old, same old, and partially because
Speaker 11: events are taking place.
Speaker 4: So we look at retail sales as this monolist, but
Speaker 4: we know that's not the way that they're actually sliced.
Speaker 4: What would you say characterizes the companies that are doing
Speaker 4: a good job and actually bringing consumers through the door
Speaker 4: versus the ones that are not newness?
Speaker 11: I think the newness and product innovation really matter, something
Speaker 11: that they don't have in their closets. You think about
Speaker 11: the newness even in consumer electronics, whether it's Nintendo, whether
Speaker 11: it's or Rings, there's new things out there, same old,
Speaker 11: same old. You're going to watch for the deals and
Speaker 11: what the value you're getting. But today when you have
Speaker 11: whether it's Coach adding new items to their Tabby collection,
Speaker 11: whether it's Macy's who now has forty percent newness, twenty
Speaker 11: new cosmetics brands in their stores, whether it happens to
Speaker 11: be Steve Madden, which I mentioned with the brown Swede boots,
Speaker 11: the closed Toad shoes at Birkenstock, or you look at Levi's,
Speaker 11: which frankly has new collaborations that's driving demand. So what
Speaker 11: are you showing me this year that you didn't show
Speaker 11: me last year.
Speaker 3: What about promotions, because I have to say, leading up
Speaker 3: to it, I saw some big promotions fifty to sixty
Speaker 3: and they built through that through kind of the weekend.
Speaker 11: So we do a tracker eighty five retailers that we
Speaker 11: track every holiday. We've been doing it for over ten years.
Speaker 11: We did see promotions build, particularly in some of the
Speaker 11: specialty apparel retailers, but not everyone. We saw some promotional increases,
Speaker 11: whether it's the bathroom body Works, we saw it in
Speaker 11: and you've seen a wider range of promotions instead of
Speaker 11: maybe last year forty to fifty, maybe it's forty to
Speaker 11: sixty percent. You're going to watch that. At the same time,
Speaker 11: you know who had fear of promotions or less promotion,
Speaker 11: Ralph Lauren thirty percent off instead of forty percent off
Speaker 11: last year.
Speaker 4: So what's the picture that all of this paints of
Speaker 4: the consumer.
Speaker 11: I think it paints a consumer who's a bifurcated consumer,
Speaker 11: higher income continuing to spend lower income, basically being very
Speaker 11: discerning and what they're spending on their particularly on essentials.
Speaker 11: But it's also showing consumers want to celebrate the holiday
Speaker 11: season and they'll think about January and January and they'll
Speaker 11: spend for holiday.
Speaker 3: How much though I think about this a lot, I mean,
Speaker 3: how are they buying? We saw some information about the
Speaker 3: buy now, Pay Later continuing to be an important payment
Speaker 3: option for consumers. Adobe forecasting twenty point two billion will
Speaker 3: be spent through the payment method this holiday, eleven percent
Speaker 3: growth over twenty twenty four.
Speaker 11: I think on the buy now, pay later, look who
Speaker 11: it's going after. It's going after those consumers who have
Speaker 11: more limited spending power, and it's picking up interest. You
Speaker 11: are seeing companies who have had buy now, pay later
Speaker 11: for a long time.
Speaker 6: It's still important everywhere.
Speaker 11: Now it is everywhere, so it's not as differentiated as
Speaker 11: it had been in the past.
Speaker 4: It's not a sign of anything in your view.
Speaker 11: No, I'm watching credit card delinquencies a lot. We're looking
Speaker 11: to see what that looks like. We're watching, certainly what
Speaker 11: consumer spending looks like. And if anything, you're still seeing
Speaker 11: some pretty solid results. Take a look at the retailer's
Speaker 11: earnings the past few weeks, Well, they've been mixed. Some
Speaker 11: of the outliers, I mean, who would have thought Coals
Speaker 11: basically showed some improvement and we've seen some good results.
Speaker 11: More to come this week because this is everyone from
Speaker 11: Macy's Victorious Secret Alta Signet are all reporting and we'll
Speaker 11: get some more color on discretion. So it feels pretty
Speaker 11: good it our character driven price increases, I mean to
Speaker 11: demand elasticity is something to be watching carefully.
Speaker 3: So that's definitely there is this. Does it feel like
Speaker 3: a season where folks were like, holidays are important, and
Speaker 3: so I'm budgeting so that I can spend here.
Speaker 5: And maybe I won't do something else.
Speaker 11: I think there's some of that, but I think they're
Speaker 11: also spending saying I'll pay it back later. I think
Speaker 11: they want to celebrate given it's been a tough year
Speaker 11: with a lot going at consumers all at the same time.
Speaker 4: So you said that Nintendo has done a good job
Speaker 4: this year bringing consumers through the door, companies including Steve Madden,
Speaker 4: Levi's Ralph Lauren Rough. Lauren, what are the hot products?
Speaker 11: Says we look to have to say, la boo boo, Oh,
Speaker 11: la boo boo is the hot product?
Speaker 4: Yeah, okay, it is.
Speaker 6: I don't even know what a lot boo boo. It's
Speaker 6: like a little bit.
Speaker 11: It's a collectible thing, a collectible yep. It could be
Speaker 11: on handbags, backpacks. Guys and girls wear La Boo boo
Speaker 11: or have La boo boos.
Speaker 6: And it is the hospital.
Speaker 5: No, I don't no, I.
Speaker 4: Don't know, but it's just kind of well, now I
Speaker 4: know what I'm getting each of you.
Speaker 6: For the holidays.
Speaker 11: Thank you.
Speaker 6: Is there like an it thing? Is that that is
Speaker 6: the it thing?
Speaker 11: The little Boo boo is the it thing? I mean,
Speaker 11: there's other things out there that are certainly trending. Legos
Speaker 11: are always trending and are very popular. So who can't
Speaker 11: take that away? When it's gotten colder out, so you're
Speaker 11: definitely seeing sweaters and outerwear takes center stage.
Speaker 5: I love it.
Speaker 3: In a Telsea founder, CEO and Chief Research Officer of
Speaker 3: Telsea Advisory Group.
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