Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: Terminal and the Bloomberg Business app. Has turned back to
Speaker 2: the energy story, Crewed rising after a run war. The
Speaker 2: US against continuing its naval blockade, saying it would violate
Speaker 2: the terms of the ceasefire. Susan Bello Wrister Energy writing,
Speaker 2: Homers will reopen, But the question is how much pain
Speaker 2: the market absorbs in the meantime. Susan joins us now
Speaker 2: from More. Susan, good morning and welcome to the studio.
Speaker 2: Thank you so much. Let's get into how much pain
Speaker 2: we're experiencing right now. Just describe what's handling in physical markets.
Speaker 1: So the physical markets are extremely stressed, and I think
Speaker 1: you know a lot of focuses on the ice print price.
Speaker 1: But the ice print price is a cash settled market, right,
Speaker 1: It's not a physically settled market. And really, what if
Speaker 1: you want to see what the pain is, look at
Speaker 1: dated BRNT and data Brent. Premiums to ice Brant are
Speaker 1: in the order of twenty five. Yesterday the market closed
Speaker 1: with dated brand at I think thirty dollars higher than
Speaker 1: ice print. So the true physical markets are extremely stressed.
Speaker 2: Do you expect that to turn around anytime soon? Because
Speaker 2: this market, and when I say this market, this equity
Speaker 2: market has moved on really really quickly.
Speaker 1: Right, No, I don't. I mean, we really do need
Speaker 1: to see flows establish out of the straight of horror
Speaker 1: moves before the physical markets can start to rebalance. I
Speaker 1: do you know. I think the reason why the financial markets,
Speaker 1: so that the KRUDEOL financial markets have been relatively stable
Speaker 1: over the past couple of days, is that we have
Speaker 1: yet to see Iran retaliate. Now, the US the Pentagon
Speaker 1: yesterday said that they successfully blocked four vessels or at
Speaker 1: least four vessels turned around on their command. But then
Speaker 1: there's conflicting news coming out of some of the shipping
Speaker 1: the ship tracking agencies that are saying, well, actually, there
Speaker 1: was one vessel that was loaded at an Iranian port
Speaker 1: that was able to get through the blockade. So you know,
Speaker 1: there's there's a lot of really conflicting information out there,
Speaker 1: and so far Iran has not retaliated, but the news
Speaker 1: this morning that they do intend to retaliate if their
Speaker 1: trade does get blocked, that would markets up all over again.
Speaker 1: Let's say there isn't a massive escalation, that things kind
Speaker 1: of stay where they are for a number of weeks
Speaker 1: and then slowly get a little bit better. Does it
Speaker 1: make sense to you that December dated contracts for Brent
Speaker 1: are at eighty two dollars and forty nine cents? It does,
Speaker 1: you know, if there is not a massive escalation, and
Speaker 1: if the straight of Horror moves takes its time to reopen,
Speaker 1: it does make sense that dated brint or that the
Speaker 1: Brent contract is so elevated in December. Because what's happening
Speaker 1: right now is we're digging a hole in inventories, and
Speaker 1: when the supply recovers, a lot of that volume has
Speaker 1: to go back into restocking. Right So it's not that
Speaker 1: we're going to see the markets collapse the minute we
Speaker 1: start to see flows coming out of out of the
Speaker 1: straight of hooor moves.
Speaker 3: I thought you were going to say that it should
Speaker 3: be a lot higher. So that was where I was
Speaker 3: kind of heading. So that's sort of one of the
Speaker 3: questions that people have. We're focused very much on the
Speaker 3: oil and the energy space. Is that the real disruption
Speaker 3: that you think is going to be truly problematic for
Speaker 3: the global economy or do you think that some of
Speaker 3: the other disruptions, whether it's agriculture, whether it's the metal sector,
Speaker 3: could be potentially worse.
Speaker 1: I think that, you know, energy is a it's almost
Speaker 1: a human right, and that is going to be the
Speaker 1: most painfully impact of all of this. But I do
Speaker 1: believe that there is if we don't start to see
Speaker 1: something happening in the egg space, the fact that fertilizers
Speaker 1: are so expensive and effectively unavailable for some nations because
Speaker 1: it's unaffordable, this could move into food scarcity, which which
Speaker 1: is which is very concerning.
Speaker 4: Well, what about things like LPG which India needs to
Speaker 4: cook every single meal.
Speaker 1: Absolutely and LPG is a significant issue, particularly for India.
Speaker 1: They had resolved their immediate concerns by negotiating transit for
Speaker 1: vessels through the Strait of Horror moves, and of course,
Speaker 1: you know, the Trump administration is saying they are not
Speaker 1: going to block navigation for trade that is not tied
Speaker 1: to Iran, so India should still be able to get
Speaker 1: their LPG. But of course, if Iran retaliates, that upends everything.
Speaker 1: And if Iran retaliates and the Hoofy get involved and
Speaker 1: start to impact that flow out of the Red Sea,
Speaker 1: that puts even more pressure on Asia because so much
Speaker 1: of their crude oil is coming from that direction.
Speaker 4: Now this morning, India actually got four million barrels from
Speaker 4: Iran from that general license that the Treasury had three
Speaker 4: weeks ago that they were unsanctioning Iranian oil at sea.
Speaker 4: How long does it take for ship to go from
Speaker 4: the Strait of Hormuz to a port basically meaning if
Speaker 4: it's blockade really started earnest yesterday, when do you think
Speaker 4: we could see even more physical disruption?
Speaker 1: So I think the average days of transit for from
Speaker 1: the Strait of Horror moves into Asia is you know,
Speaker 1: fifteen to twenty days. It depends. I mean, if they're
Speaker 1: going all the way to China, it's longer. India it
Speaker 1: would be shorter. So if you know, Asia has already
Speaker 1: seen the fact that they're not getting any oil right now.
Speaker 1: There was oil on water through the first twenty five
Speaker 1: days of March, but now there's no oil on water.
Speaker 2: Stay with us, multiple impax. Savannah's coming up off to
Speaker 2: this the latest from the president. Then speaking to Fox News,
Speaker 2: these headlines just being released, the cham and Pam will
Speaker 2: be fined if he doesn't leave on time at mos
Speaker 2: of Raymond James, I going to use Good Morning mornin.
Speaker 2: I got to say your reaction to that headline? Where
Speaker 2: is this going with this Federal Reserve. So there's a
Speaker 2: couple things that we have to watch.
Speaker 5: One the Supreme Court's probably going to tell him pretty
Speaker 5: quickly that he does not have the authority to fire
Speaker 5: a FED governor because he's already tried to fire someone
Speaker 5: doctor re Lisa Cook. And I think if you take
Speaker 5: a step back, what he has done is ultimately going
Speaker 5: to make the FED more independent. If he didn't do anything,
Speaker 5: these threats actually could have meant something, And now he
Speaker 5: can threaten and it's probably going to make Powell stay
Speaker 5: longer if he is going to be threatened to kind
Speaker 5: of get fired for leaving on time and then we
Speaker 5: go to Tom tillis he's really important. It's thirteen eleven
Speaker 5: on the Banking Committee, it will be twelve twelve. But
Speaker 5: we also have to remember you don't actually have to
Speaker 5: have a permative vote in committee to be considered on
Speaker 5: the floor of the Senate. All that's required is the
Speaker 5: Senate majority leader has to file a discharge position. If
Speaker 5: you have fifty one votes or fifty plus the Vice President,
Speaker 5: you can confirm someone. So yes, he'll dig in his heels.
Speaker 5: This could add to the drama, but it doesn't stop
Speaker 5: Kevin Warsh from being confirmed if the Senate majority leader
Speaker 5: in fifty one members of the Senate want him confirmed.
Speaker 5: So that's why the base case remains Kevin Warsh will
Speaker 5: be in the job sooner rather than later. May sixteenth
Speaker 5: around then, I mean, we still have a month here.
Speaker 5: We got all of the financial forms, all of the
Speaker 5: forums are now filed yesterday. Kind of the paperwork is done.
Speaker 5: Now it's time for a confirmation hearing. That goes, well,
Speaker 5: you just bring it to the floor. Prioritize this. He's confirmed.
Speaker 4: Okay, So then what happens when the President says the
Speaker 4: FED chair doesn't leave on time. He's going to be fired.
Speaker 4: Do you think the president means his chairmanship or his
Speaker 4: governorship which ends in twenty twenty eight.
Speaker 5: It's a good question because if you look at the
Speaker 5: Federal Reserve Act, there isn't anything related to firing the chair.
Speaker 5: There is about firing governors for cause, and so you
Speaker 5: could make the case that the chair could be fired
Speaker 5: and that role, but the individual governor is going to
Speaker 5: be decided by the Supreme Court ultimately. The other thing
Speaker 5: we'd look at, and this is what we've seen in
Speaker 5: the past, is that the FOMC actually chooses its own chair.
Speaker 5: So the FED, the president could fire him as chair
Speaker 5: of the Fed, but the FOMC would then pretty quickly
Speaker 5: reaffirm him as chair of the policy making decisions related
Speaker 5: to monetary policy, which is what the market actually really
Speaker 5: cares about.
Speaker 3: Amory, is this an ego issue or is this an
Speaker 3: issue trying to get interest rates lower?
Speaker 5: I think it's a combination. I think this is just
Speaker 5: a pattern. You asked her, like, why do we do this?
Speaker 5: He had an off ramp, he didn't take it. How
Speaker 5: many times have we said it was right there? And
Speaker 5: then he did something that made it harder to actually happen.
Speaker 5: So this here is I think a pattern. I know
Speaker 5: that he wants this to be confirmed. I think that
Speaker 5: they could have confirmed him earlier than kind of the
Speaker 5: May fifteenth and maybe pushed him on. We've had the
Speaker 5: DOJ show up at the FED. As we saw, the
Speaker 5: FED didn't let him in. And so anytime that there
Speaker 5: is a conflict between like, you don't let my guys
Speaker 5: do what I want them to do. You don't get
Speaker 5: to dictate that, I get to dictate that. I think
Speaker 5: this is behind that. I think he's seeing some of
Speaker 5: these stories that the Federal Reserve Police Force didn't let
Speaker 5: his folks in, and he's going to kind of establish
Speaker 5: this as I'm the one in charge.
Speaker 3: From a market's perspective, it's popcorn. Watch this in your
Speaker 3: free time, But it has no relevance to anything unless
Speaker 3: it starts to increase some of the pressure on Kevin
Speaker 3: worsh Should he get confirmed to lower rates in the
Speaker 3: face of inflation that is somewhat higher and a really
Speaker 3: resistant FED board that has pushed back significantly. So at
Speaker 3: what point does it enter the market's frame and some
Speaker 3: sort of relevant point other than just popcorn.
Speaker 5: Yeah, So two things I say the market always tests
Speaker 5: the new Fed cheer, and we're going to see kind
Speaker 5: of that in rates more than you know, kind of
Speaker 5: the equity markets. But obviously that spills over to the
Speaker 5: equity markets. The conversation is going to be about the
Speaker 5: FED balance sheet. Is he going to force that to
Speaker 5: be shrunk? Number two. I think that Scott Bessen provided
Speaker 5: Warsh with a huge amount of political cover this week
Speaker 5: saying maybe it's not the time to cut rates. So
Speaker 5: next week in his confirmation hearing, you know, as kind
Speaker 5: of democratic senators are going to say, are you going
Speaker 5: to do the president's bidding? And are you going to
Speaker 5: cut rates even if inflation is higher, even in the
Speaker 5: face of this war. It's like, look, I'm going to
Speaker 5: look what the data is. There is a debate about this.
Speaker 5: Even the Treasury Secretary said maybe it's not.
Speaker 2: The time just yet, so we will see.
Speaker 5: I think the market has taken out the price, you know,
Speaker 5: kind of the the cuts for this year pushed it
Speaker 5: into next year. I think that is now the base case. Thankfully,
Speaker 5: he'll have that political cover as he's debating this in
Speaker 5: the Senate Banking Committee next week.
Speaker 4: And you mentioned the fact that US prosecutors made this
Speaker 4: prize visit to the Fed. The market doesn't seem to
Speaker 4: care about that at all. If that happened in a
Speaker 4: country like Turkey, it'd be a massive deal. Why is
Speaker 4: it not a big deal here?
Speaker 5: Because it's a continuation of a story that most have
Speaker 5: decided is not a story.
Speaker 4: Right, doesn't matter?
Speaker 5: No, I mean it's like it's the you know, we
Speaker 5: are talking about a renovation of a building. Anyone who
Speaker 5: walks by or drives by have seen a construction project
Speaker 5: there that is massive for years. We recognize that there
Speaker 5: are constraints on the way in which these are built.
Speaker 5: They're actually a Federal Reserve Act kind of dictates the
Speaker 5: number of buildings that the FED is allowed to have,
Speaker 5: which drives up these construction costs. And so to the
Speaker 5: extent that this is about a monetary policy, that would
Speaker 5: be a bigger deal. But if it's over a construction project, yeah,
Speaker 5: it's like it's a very expensive marble.
Speaker 2: Stay with us. Mulplendex. Savan's coming up off to this.
Speaker 2: So here's the laces this morning. Whatll Street banks reporting
Speaker 2: at least one hundred billion dollars of exposure to private
Speaker 2: credit firms has investors question the durability of the sector,
Speaker 2: Gay Vonderlin, the CEO of Schroder's Capital writing, weaker players
Speaker 2: are being exposed while stronger disciplined investors stand out. Okay,
Speaker 2: joined us now for more. Welcome to the program, and
Speaker 2: welcome to New York. It's good to see you, sir,
Speaker 2: Thank you, and thank you for having me. Can you
Speaker 2: help us understand the difference between a liquidity driven repricing
Speaker 2: and a structural credit event. Just explain to us one
Speaker 2: versus the other, and what you think.
Speaker 6: This is very happy too, and it probably links nicely
Speaker 6: to some of the commands made earlier and other executives
Speaker 6: in the industry. Effectively, what the market isn't really differentiating
Speaker 6: right now is liquidity distress in semi liquid vehicles so
Speaker 6: linked to structures ultimately in funds versus impairments of underlying assets.
Speaker 6: So what we have is liquidity distress in essentially retail
Speaker 6: oriented structures. So funds that have sold they have been
Speaker 6: sold to retail investors in some cases where probably these
Speaker 6: investors haven't fully understood what they're investing in. In some
Speaker 6: cases may be compounded by the fact that the software
Speaker 6: exposure and the market is trying to price software and
Speaker 6: revalue ultimately software in the light of upcoming anticipated software disruption.
Speaker 6: Note it hasn't happened yet, And essentially the real distress
Speaker 6: or on pairment of underlying assets, which isn't which isn't
Speaker 6: there't which isn't happening. So that effectively is the difference
Speaker 6: between the two.
Speaker 2: What does it mean for you and the team and
Speaker 2: the justifications you've seen so far the money that you're
Speaker 2: looking to put to work.
Speaker 6: So I mean for us just first of all, to
Speaker 6: note we're not a direct lender. We are focusing on
Speaker 6: sectors which we think is the sort of the boring,
Speaker 6: sexy part of the new the boring part of the market,
Speaker 6: i e. Sort of lending against infrastructure assets, lending against
Speaker 6: real estate assets, lending against on an asset back basis,
Speaker 6: for example, against hard assets where we have better collateral,
Speaker 6: which is less sicknically exposed. And I think to us
Speaker 6: that as a key opportunity also going forward to investors
Speaker 6: to build more resilience into their portfolios by embracing this
Speaker 6: next to the exposures that have in direct.
Speaker 3: Lending at a time of rapid change, a dislocation. The
Speaker 3: idea of AI and what that could potentially do in
Speaker 3: transforming business. Is there an advantage to being illiquid versus
Speaker 3: liquid with respect your asset allocation?
Speaker 6: I think it's you know, like, broadly speaking, this gets
Speaker 6: to the advantages of private markets. Generally speaking, I think
Speaker 6: you want to be both. Really, I think there is
Speaker 6: no way an investor can only be liquid or only
Speaker 6: be liquid. I mean, effectively, private markets roughly capture probably
Speaker 6: eighty percent of the economy, depending on how you count it.
Speaker 6: I mean, in terms of businesses in the United States
Speaker 6: is probably ninety nine percent of businesses are not listed.
Speaker 6: Eighty percent of the workforce is working for non listed companies.
Speaker 6: I mean, it's a bit hard to gauge, really, but
Speaker 6: it's such a big part of the economy. A lot
Speaker 6: of the innovation economy is actually happening in the understated space.
Speaker 6: A lot of actively real assets, infrastructure, real estate is
Speaker 6: not really suitable for listings. And then there's obviously also
Speaker 6: bigger listed companies, and so in any portfolio there will
Speaker 6: have to be there will have to be both.
Speaker 3: Do you think that iliquid assets need to have a
Speaker 3: higher bar for transparency given that one of the big
Speaker 3: concerns is that a number of lenders are mismarking their
Speaker 3: books or marking aggressively and optimistically just how high some
Speaker 3: of the valuations could be.
Speaker 6: I think the issue is much more the how you
Speaker 6: deal with this in the context of semi liquid structures
Speaker 6: or liquid structures where you can trade in and out
Speaker 6: of liquid assets, rather than effectively the time lag and
Speaker 6: valuations and the approach to valuations in liquids in general.
Speaker 6: So you don't have a problem in in liquid funds
Speaker 6: ultimately or on celos even in the private credit space
Speaker 6: really whether there is no trading in and out so
Speaker 6: you know, essentially the daily volatility and themes which are
Speaker 6: played through the stock market, Like you know, should valuations
Speaker 6: for software companies be lower now because there will be
Speaker 6: disrupt in the future even though earnings are still very
Speaker 6: much where you know, unchanged and very much in a
Speaker 6: good territory. Isn't something that a private market fund would
Speaker 6: reflect on a daily basis. However, if you have investors
Speaker 6: that can trade in and out, either daily or on
Speaker 6: a quality basis, you all of a suddenly have that
Speaker 6: issue translating into these types of structures. And I guess
Speaker 6: this is where the ultimately the issue arises, and for me,
Speaker 6: the question is ultimately whether whether then investors fully understand
Speaker 6: what they've brought into and the fact that the underlying
Speaker 6: asset is ultimately I liquid and the mechanisms that prevent
Speaker 6: single investors from trading out from trading out and contagion
Speaker 6: to spread to a broader group of investors just because
Speaker 6: of sentiment.
Speaker 2: Clearly things haven't gone right for the industry over the
Speaker 2: last few months. With a minute, we have left what
Speaker 2: should the lessons be of the last few months for
Speaker 2: the industry?
Speaker 6: So I guess you know, I mean to say it,
Speaker 6: maybe slightly provocative, provocaty, growing too quickly in certain areas,
Speaker 6: essentially and selling too much of one thing, maybe with
Speaker 6: slightly too much diverse too little diversification, too much sector
Speaker 6: exposure in certain areas. Maybe also a degree of lack
Speaker 6: of discipline in terms of underwriting in the twenty twenty one,
Speaker 6: twenty twenties pre the change and the rate environment is
Speaker 6: something that now has to feed through the system per se.
Speaker 6: That's not an issue. And it's also not leading to
Speaker 6: credit losses, to just say this again, And it's also
Speaker 6: not leading loss to losses in private equity, but probably
Speaker 6: a series of vintages that will have slightly lower performance.
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