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Speaker 1: We had the economic data that came out earlier today, right,

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Speaker 1: your durable goods better than expected. You had that revision

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Speaker 1: of personal income over the twenty twenty two twenty twenty

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Speaker 1: four to three period also increasing, and really through that

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Speaker 1: jump within the bond market, the two year yields selling off.

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Speaker 1: You have yields up by five basis points after it

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Speaker 1: hit the bottom around eight thirty nine o'clock this morning.

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Speaker 1: So what does that mean for the curve and then

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Speaker 1: where do you actually wind up investing. Bruce Richard is

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Speaker 1: a CEO and chairman of Marathon Asset Management. A lot

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Speaker 1: to get through, Bruce, but we can't talk about the

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Speaker 1: stuff unless we know what you think the curve is

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Speaker 1: going and where the action is going to be.

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Speaker 2: So the curve is very important. But first on the

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Speaker 2: FED and that fifty base point move, there's no question

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Speaker 2: that they made that move, not because the commedy is

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Speaker 2: getting weaker. We saw three point zero GDP today in

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Speaker 2: the second quarter, and we're going to see two point

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Speaker 2: nine percent in the third quarter according gp GDP now

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Speaker 2: by the FED, which is bostic in the Landa FED.

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Speaker 2: So it's looking really strong from the commedy standpoint. Corporate

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Speaker 2: earning is also very strong, and.

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Speaker 1: So we will cutting industry.

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Speaker 2: We believe they're cutting into strain and thank you for

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Speaker 2: saying that, and that's going to help accelerate markets. And

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Speaker 2: it's risk on across the board. And so what does

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Speaker 2: it mean for the you'll curve Well, I believe the

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Speaker 2: you'll curve fed funds eventually get to a three percent

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Speaker 2: terminal rate FED funds, which puts two year notes around

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Speaker 2: three and a quarter down from three to sixty right now.

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Speaker 2: But the big move is not ten year notes, which

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Speaker 2: probably settle in around four percent, So they have nowhere

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Speaker 2: to go. They can go lower for a trade, but

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Speaker 2: they have nowhere to go over the low run. The

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Speaker 2: real trade is the six point five trillion seeing your

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Speaker 2: money market accounts that's going to see its rate fall

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Speaker 2: from five a quarter to three percent. And with that decline,

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Speaker 2: there's going to be a lot of money that starts

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Speaker 2: to deploy that's been on the sidelines earning these higher

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Speaker 2: money market rates. And so it's risk on for credit

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Speaker 2: and for markets.

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Speaker 1: Does that money belong to the credit market.

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Speaker 2: That money belongs everywhere in terms of risk on. I

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Speaker 2: think the number one place he goes into fixed income

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Speaker 2: like securities and credit. But it also will be deployed

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Speaker 2: across the board as the allocators do what they do,

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Speaker 2: allok capital for what are the better opportunities. And we're

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Speaker 2: seeing this globally, by the way, all the central banks

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Speaker 2: around the world at cutting rates. And so while US

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Speaker 2: GDP next year might come in at two percent or

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Speaker 2: slightly higher, I believe global GDP three percent, which is

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Speaker 2: terrific for emerging markets, terrific for risk assets like high

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Speaker 2: yield and loans, private credit equities, especially leverage equities, where

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Speaker 2: if rates come down, those equities fly. Companies are high

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Speaker 2: old companies have been suffering on these higher rates, then

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Speaker 2: when they see lower rates all of a sudden can

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Speaker 2: generate cash flow to the bottom line. So there's all

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Speaker 2: kinds of opportunities in the marketplace.

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Speaker 3: So we'll break that down a little bit more specifically

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Speaker 3: in the private space. So if you do see that

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Speaker 3: money come out and move a little bit into private

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Speaker 3: credit here, I mean what areas where is that money

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Speaker 3: going to go? Specifically into what areas because you still

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Speaker 3: kind of have a lot of unresolved issues of past

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Speaker 3: cycle investments here, So is it going to be a

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Speaker 3: piggyback on that or something new.

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Speaker 2: I think it's all above, because I think it's by

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Speaker 2: all credit generally as a as a big theme and

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Speaker 2: within private creditors. The what you're talking about is the opportunity, the.

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Speaker 3: Opportunity are going to do more for so I think.

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Speaker 2: There's gonna be more of a basket. I think there's

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Speaker 2: gonna be opportunitist to credit because of all those LBO

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Speaker 2: deals at zero rates that still need to work out,

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Speaker 2: and there's going to be a tremendous opportunity there. In fact,

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Speaker 2: if you can buy into a book of existing you

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Speaker 2: know assets, you know from that vintage, that's probably going

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Speaker 2: to be a really good do so Number one. Number

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Speaker 2: two is direct lending with rates coming down, and you

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Speaker 2: know this, the LBO machine is going to start up

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Speaker 2: big because earnings are strong, the commed is strong, and

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Speaker 2: now you're putting in the formula lower interest rates, which

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Speaker 2: we're going to see an enormous boon in leverage buyouts.

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Speaker 2: We're financing some of that in the direct lending market

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Speaker 2: and our brethren out there at will as well. And

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Speaker 2: then finally, asset based lending is a big business that's

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Speaker 2: getting bigger and there's no stopping that train because there's

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Speaker 2: already left to station and we're going to see more

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Speaker 2: and more of those deals. There's not a week that

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Speaker 2: doesn't go by that we're not doing free transactions. Private

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Speaker 2: credit and our asset based lending business.

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Speaker 3: What's actually driving some of this activity? And we're going

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Speaker 3: to speak a little bit later year with a real

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Speaker 3: giant in the M and A space, And I'm curious,

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Speaker 3: is this sort of being opened up by the dropping

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Speaker 3: interest rates or is this more about the read on

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Speaker 3: the economy and the idea that those worst case scenarios

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Speaker 3: that everybody had priced in last year never really came

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Speaker 3: to be.

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Speaker 2: I think it's both, and I think it's a corporate

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Speaker 2: or strong The commedy is doing well, and now you're

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Speaker 2: applying a lower interest rate to finance that buyout. Remember

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Speaker 2: for every dollar that were billion dollars to get spent

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Speaker 2: on a buyout, five hundred million is finance for debt,

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Speaker 2: and that cost of that debt is a lower level,

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Speaker 2: which means it helps accelerate transaction flow. So we're super bowls.

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Speaker 2: Our direct lending team never been busier. It's in the

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Speaker 2: pipeline today, it's deals closed recently. But what's coming is prolific.

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Speaker 1: You mentioned, does that include China?

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Speaker 2: That includes China? You know, China, you like, you like.

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Speaker 2: So it's a fixed allocation for US as opposed to

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Speaker 2: an overweight or an underweight and as it relates to China,

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Speaker 2: you know. And there's been a lot of news about

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Speaker 2: how the equities have flown and k webs up and

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Speaker 2: Ali bab and you know, all the big tech companies

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Speaker 2: are up. But the other side is, because it's a

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Speaker 2: tael of two cities, are the banks are deficient, they

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Speaker 2: don't have capital. It's being improperly marked their loan book.

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Speaker 2: Because the real estate market is collapsed. These real estate projects,

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Speaker 2: both commercial and residential, are so far under water that's

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Speaker 2: very little to resolve in many of these loans. And

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Speaker 2: so the whole construction cycle of building buildings and building

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Speaker 2: roads has come to an end. And so even this

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Speaker 2: steel mills are in a file for bankruptcy. So while

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Speaker 2: the tech sector is going to come out of this

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Speaker 2: with low multiples and good valuations and you know, everyone's

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Speaker 2: missing out of this because there's very little capital allocated

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Speaker 2: to it. The other side of equation is, you know,

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Speaker 2: China is in a very tough position because of geopolitics,

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Speaker 2: because of increased terrorist despite who's going to be in

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Speaker 2: the White House coming their way, and so I wouldn't

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Speaker 2: want to be long China. I would want to be

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Speaker 2: long some of the undervalued tech if you're going to

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Speaker 2: go long China. But it's not our trade. We don't

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Speaker 2: invest in Chinese tech. But it relates to sovereigns. The

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Speaker 2: sovereigns a fine credit. It's the second biggest economy in

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Speaker 2: the world, and it has no problem servicing its debt,

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Speaker 2: and with interest rates coming down, it's bullsfor it'step We

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Speaker 2: literally only.

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Speaker 1: Have thirty seconds left. So I hate to throw this

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Speaker 1: at you, but I'm gonna we to peece out on

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Speaker 1: the Bloomberg that talked about City and Apollo adjoining forces

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Speaker 1: to work together on like twenty five million dollars worth

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Speaker 1: of deals over the next five years. Are you talking

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Speaker 1: to big banks about working on stuff?

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Speaker 2: So, first of all, I love that transaction for Apollo.

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Speaker 2: I think it's great. So they have a theme. They'll

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Speaker 2: be able to feed a theme both on the investment

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Speaker 2: grade side as well as the high yult side and

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Speaker 2: broadly loans. But those are great partnerships. What I love

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Speaker 2: is like the Marathon Webster Bank partnership. We're in the

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Speaker 2: middle market space with a commercial bank that has a

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Speaker 2: strong direct lending, sponsor coverage team, and we are exclusive

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Speaker 2: partners and it's a powerful partnership. We're for our clients.

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Speaker 2: We have the flow of all the private equity sponsor

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Speaker 2: middle market loans, strong covenants, strong financial documents, low leverage

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Speaker 2: ratios that are coming into our book as a result

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Speaker 2: of that relationship. So the banks and the asset managers,

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Speaker 2: I'm a huge fan of that. I think it works

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Speaker 2: for Pollo when you're talking about upmarket. I think it

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Speaker 2: works for Marathon when you're talking about the value in

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Speaker 2: the middle markets.

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Speaker 3: All right, Bruce got to leave it. They are always

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Speaker 3: a great conversation. Bruce Richards, CEO and chairman at Marathon

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Speaker 3: Asset Management