Speaker 1: Joining us on.
Speaker 2: I'm Gonna do This is the Bloombergs Podcast along with
Speaker 2: Jonathan Ferris and Lisa Ramot. Join us in each stay
Speaker 2: insight from sneaking, politics, finances, investment.
Speaker 1: Subscribe to Bloomberg Serance on demand certainly and Spotify. Get
Speaker 1: your podcast as an always data on Bloomberg dot Com,
Speaker 1: The Bloomberg the Revision and the Bloomberg Times.
Speaker 3: When you look at what the revisions were to Q two,
Speaker 3: core PC was unrevised, so didn't really tell you a
Speaker 3: different story about the New York term inflation trend. I
Speaker 3: think that's that's really important. A big downward vision to
Speaker 3: consumer spending, which is surprising at this point in time.
Speaker 3: We know that there was a big pick up during
Speaker 3: the summer months, but I've been highlighting if you look
Speaker 3: at the ba's credit card spending data, it slowed materially
Speaker 3: throughout September. So I think you know, as you look
Speaker 3: at what's been happening in Marcus, as you've seen consumer
Speaker 3: discretionary stocks coming off a bit, where we've been concerned
Speaker 3: about the head winds facing the consumer, I think we're
Speaker 3: seeing it in the high frequency data coming through. But
Speaker 3: you're still in this fuzzy period of time here where
Speaker 3: it's unclear if it's just to give back from the
Speaker 3: strong summer months that we had, or whether it's a
Speaker 3: new trend on the consumer of weakening.
Speaker 4: Is there a stronger signal that you're getting from the
Speaker 4: job as claims to just keep coming in at incredibly
Speaker 4: low rates.
Speaker 1: Yeah.
Speaker 3: I think when you look at the labor market, the
Speaker 3: consistent story is one in which labor demand is coming
Speaker 3: down materially and that is leading to a labor market
Speaker 3: that is no longer extraordinarily tight. It's no longer very tight,
Speaker 3: but it just looks historically tight. But at the same time,
Speaker 3: there's not much evidence of layoffs taking place. That's true
Speaker 3: in the jolts data, it's true in how people are
Speaker 3: perceiving their job opportunities, it's true in the unemployment claims data.
Speaker 3: So far, the key question will be if the consumer
Speaker 3: does slow as we continue to anticipate as these headwinds hit,
Speaker 3: can that story remain true? Can you continue to have
Speaker 3: a slowing labor market that is only demand driven.
Speaker 4: When you talk about a fuzzy period of time, and
Speaker 4: this is important because we've been talking about how we
Speaker 4: don't know that we're not a soft landing until it
Speaker 4: no longer is. Is there a historical corollary that you
Speaker 4: look to where there is a period of slow in
Speaker 4: consumer spending but a very robust labor market. Is that
Speaker 4: something that can be a persistent feature of an economy
Speaker 4: for a prolonged period of time.
Speaker 3: Yeah, you know, I think we were coming out of
Speaker 3: this very unusual period, and so we're kind of prone
Speaker 3: to say that everything is very unusual at what we're
Speaker 3: seeing with the labor market. It is typically nonlinear. So
Speaker 3: it is often the case that things look generally okay
Speaker 3: until you have a shock and layoffs pickup. You know,
Speaker 3: that's the Sam rule where if the unemployment rate rises
Speaker 3: by fifty basis points, you have a recession, and it
Speaker 3: always rises by more. So from that perspective, I don't
Speaker 3: know that there's all that much that's unusual here. You know,
Speaker 3: certainly from the lag of defects of monetary policy, people
Speaker 3: are pointing towards it not hitting as much. The key
Speaker 3: question is did it not tighten or hit as much
Speaker 3: because we had a lot of latent physical stimulus in
Speaker 3: the system and it's now beginning to bite. That's our view,
Speaker 3: but there's a lot of uncertaint about whether that's the correct.
Speaker 1: You right now, the data check folks, let's do that.
Speaker 2: We get the green on the screen. We're up three
Speaker 2: tenths of a percent on the SPX. The VIX comes
Speaker 2: in nicely, sprightly from an eighteen level into seventeen zero
Speaker 2: point ninety four tenure, yielding three basis points off the
Speaker 2: announcement of claims really quite good to zero four with
Speaker 2: a constructive leveling revision of to zero two. And we've
Speaker 2: got the GDP numbers here. Let's stagger over to Michael
Speaker 2: McKee for an insight. He's got the bramocam. I caught
Speaker 2: in a bramocam McKeegan, let me in, let me in,
Speaker 2: what do you got?
Speaker 5: Well, we do have the revisions here, and it does
Speaker 5: solve one of the mysteries or at least brings us
Speaker 5: closer to an answer of why gross domestic income has
Speaker 5: been lower than gross domestic product. It's because gross domestic
Speaker 5: product was over measured. That right now, the government says
Speaker 5: that the GDP from the fourth quarter of twenty nineteen
Speaker 5: to the second quarter of twenty twenty was down seventeen
Speaker 5: and a half percent. That is up seven tenths of
Speaker 5: a percent point. But when the expansion started again from
Speaker 5: twenty twenty the fourth quarter of twenty twenty through the
Speaker 5: first quarter of twenty twenty three, GDP was up five
Speaker 5: point six percent. That's two tenths lower than had been
Speaker 5: originally estimated. So it brings those numbers into a little
Speaker 5: bit more agreement.
Speaker 2: There's the heart of the matter to both of you,
Speaker 2: Matt was Eddie and Mike McKee. Does this allow the
Speaker 2: Fed to change course? Does it give them cover to
Speaker 2: change tone?
Speaker 3: I don't think so. I mean, when you're looking at
Speaker 3: Q three trackers, we're at three point eight percent. You
Speaker 3: know if the Atlanta FED closer to five percent, do
Speaker 3: you see the job as claims data here today? You know,
Speaker 3: the real time evidence that we have in terms of
Speaker 3: what happens with the labor market and the growth data
Speaker 3: so far for Q three, I think all fits with
Speaker 3: them maintaining this hawkish bias, that the thread of another
Speaker 3: rate hike that's out there. We don't think they deliver
Speaker 3: on it, but I think that it fits with them
Speaker 3: sticking with that story.
Speaker 4: When you talk about you don't know whether that we're
Speaker 4: seeing the lag in variable effects coming into play now.
Speaker 4: We don't understand why they didn't happen earlier. We don't
Speaker 4: understand a lot about this economy. What is your compass right,
Speaker 4: especially at a time where we might not be getting
Speaker 4: data from the government because of a government shutdown. What
Speaker 4: is the most important data that you're tracking? Is it
Speaker 4: credit card spending? Is it jobless claims? Is it something else?
Speaker 4: The sort of intangibles that some of the FED officials
Speaker 4: have said in the conversations with small business owners are
Speaker 4: the most important.
Speaker 3: Yeah, I think it appeared where you're not getting the
Speaker 3: key backer data, you have to rely on some of
Speaker 3: these other alternative data sets, the anecdotes that we might get,
Speaker 3: the surveys from the isms and those types of services
Speaker 3: will be incredibly important, I think for distilling what's happening
Speaker 3: with the economy. But I think it's all about the
Speaker 3: consumer and it's all about the labor market. We've done
Speaker 3: some research in the past which suggests that continuing jobless
Speaker 3: claims are the best real time indicator of recession. Right now,
Speaker 3: they're clearly not telling you that we are in a recession.
Speaker 3: They don't lead significantly, but they tell you when we
Speaker 3: are in a recession, and so I think that remains
Speaker 3: the key data point from a consumer perspective. I think
Speaker 3: it is this card spending data. It gives you kind
Speaker 3: of a weekly view on how things are evolving. It's volatile,
Speaker 3: it has thesal adjustment issues, so there's a lot of
Speaker 3: trickiness in it. But if you smooth through what we
Speaker 3: look at over a four week basis, it slowed materially
Speaker 3: over the back half of August and then into September.
Speaker 4: Is it coherent with this idea that you could see
Speaker 4: a sharp spike upward in the unemployment rate or is
Speaker 4: that still very unclear in your view?
Speaker 2: No.
Speaker 3: I think if we have a slow down where growth
Speaker 3: goes into negative territory and the consumer actually begins to
Speaker 3: contract with where how much labor demand has come down,
Speaker 3: I would not be surprised at all to see the
Speaker 3: unemployment route begin to move higher. It's kind of part
Speaker 3: of our baseline forecast. Timing that exactly when that happens
Speaker 3: is very different.
Speaker 1: Matt, was that e chief us a columns of Deutsche Bank?
Speaker 6: We need sunglasses from next guest standouts of Wetbush remain
Speaker 6: in bullish send this quote our view of tech stocks
Speaker 6: that the transformation or growth around AI will continued, cloud cybersecurity,
Speaker 6: a rebound of digital Antdellas will create a bringing board
Speaker 6: of growth into twenty twenty four that is currently being
Speaker 6: underappreciated by the street. Dani's TK of wet Bush out.
Speaker 2: On the web quote the iPhone is getting really hot
Speaker 2: when using it, even for a short while. Date July fourth,
Speaker 2: two thousand and seven. This has happened before the uproar.
Speaker 2: This morning, the man with titanium closed, Dan Ives joins
Speaker 2: us this morning here on the latest stuff where OMG,
Speaker 2: it's hot. First thing I said is, yeah, whenever they
Speaker 2: bring out a new phone, the software is screwed up,
Speaker 2: it's hot.
Speaker 1: It's like not news, is it.
Speaker 7: But this is not a surprised Apple. I mean the
Speaker 7: Apple knew from a titanium that this was going to happen.
Speaker 7: There will be some software updates fixed that come out
Speaker 7: of the next week, and it's typical Cooper Tino. They're
Speaker 7: going to fix it. And if you look ultimately at
Speaker 7: the demand for this iPhone, it continues to be adding
Speaker 7: much better.
Speaker 1: Thanks BacT for seriously, we got to do this.
Speaker 2: Is there any danger to the public with this, like
Speaker 2: exploding around an airplane lithium.
Speaker 1: But you know the gloom that's out there, something like danger.
Speaker 4: Not all.
Speaker 7: If you look at any even some of the ones
Speaker 7: that have tested this in terms of stress tested it,
Speaker 7: there's nothing like that. It's really just more it overheats
Speaker 7: in some instances. But I believe this, this bug, that
Speaker 7: the fix that they'll come out with it is going
Speaker 7: to resild.
Speaker 2: So if John's a Covent Garden buying a new iPhone,
Speaker 2: he can go in safe.
Speaker 7: He can go in safe, and he's gonna be able
Speaker 7: to watch Premier League and do all of everything. He
Speaker 7: loves descriptions.
Speaker 6: When I just go back, it seems to you just
Speaker 6: said something. You said demand will be better than expected.
Speaker 6: In fact, you implied that it is better than expected.
Speaker 6: Can you tell me about a what was expected and
Speaker 6: be how you're engaging current demand?
Speaker 1: What are you looking at?
Speaker 7: If you look at lead times in terms of iPhone deliveries,
Speaker 7: we are still ahead of iPhone fourteen and it's actually extending.
Speaker 7: And if you look last year, you basically had a
Speaker 7: shortage of iPhones. So when you actually combine what i'll
Speaker 7: call about ten million incremental units that we actually have
Speaker 7: now from an inventory perspective, we're tracking so far based
Speaker 7: on our estimate about ten to twelve percent ahead expectations.
Speaker 6: How do you make a distinction between scarcity that is,
Speaker 6: let's say, massaged by the company that produces this particular handset,
Speaker 6: and scarcity that's driven by real demand. Just doesn't Apple
Speaker 6: play this game. It's difficult to get our products. There's
Speaker 6: a big lead time, there's a delay. No, it's not
Speaker 6: getting some AirPods, it takes two months. Everybody wants them.
Speaker 6: Isn't that the whole marketing strategy?
Speaker 1: Look?
Speaker 7: And I think that it's a Rubik's cube to figure out,
Speaker 7: and that's why we spend so much time in Easia
Speaker 7: trying to understand what incremental units have actually been produced,
Speaker 7: what the demand looks like relative to the supply chain.
Speaker 7: And I think right now we're running probably about three
Speaker 7: to four million units ahead, you know, if you look
Speaker 7: relative to where iPhones are going to shape out. Also, asps,
Speaker 7: even in China continue to go up because of the
Speaker 7: pro And I think that's really the story here, is
Speaker 7: that the ASP talents there and despite doomsdays sort of
Speaker 7: you out there. I mean, you're basically seeing an iPhone
Speaker 7: demand story going into how itdays that's going to be
Speaker 7: ahead of expectation.
Speaker 4: How much is Apple eating the lunch of everybody else
Speaker 4: in terms of a market that is actually shrinking or
Speaker 4: at least in stasis. When it comes to the smartphone market.
Speaker 7: It's great. I mean, we've seen it in China. They've
Speaker 7: gained about three hundred BIPs in market share the last
Speaker 7: eighteen months, and I think even despite Huawei, I think
Speaker 7: will continue to gain share because Huawei, if you buy
Speaker 7: that phone, it's like buying an iPhone twelve and it
Speaker 7: comes down to the chips and what they've done. From
Speaker 7: a silicon perspective, it's the best smartphone in the world,
Speaker 7: I think by by miles at this point.
Speaker 4: Which raises a question in my mind, which is maybe
Speaker 4: Apple is the cleaner shirt in a dirty hamper or
Speaker 4: whatever the expression is. Yet the overall macro backdrop is
Speaker 4: souring in a way that is more meaningful. We saw
Speaker 4: that from Micron yesterday as some of the expectations coming
Speaker 4: out seem to be more negative than people previously expected.
Speaker 4: Where do interest rates have to stay to keep your
Speaker 4: both thesis afloat without the macro gloom getting in the way.
Speaker 7: Yeah, any look, and we've talked about it before. I mean,
Speaker 7: obviously it's a macro backdrop that's really causing white knuckles
Speaker 7: across tech bowls, and I think I see from investadors
Speaker 7: in their daily basis. Look, look, I mean my view
Speaker 7: is that going into this next year, I believe, you know,
Speaker 7: Fed's gonna cut at least from a backdrop perspective.
Speaker 1: But I focus.
Speaker 7: I'm more macro aware, micro obsessed in terms of how
Speaker 7: we've done it, and if I look at growth in tech,
Speaker 7: I believe it's going to be the biggest growth we've
Speaker 7: seen in the last thirty years. And that's why a
Speaker 7: lot of the bears that have called ten of the
Speaker 7: last two downturns, I get it. I get their thesis.
Speaker 7: I just think we sit here six nine months from
Speaker 7: now and Apples an all time.
Speaker 2: High calendar item October is upon us, and institutions are behind.
Speaker 2: With our question, they're under owned on Apple insiders share
Speaker 2: ownership off the Bloomberg Apple sixty six percent, Sacha Nadella
Speaker 2: and Microsoft seventy five percent, they're under owned end of
Speaker 2: the year. Do you get a massive short squeeze to
Speaker 2: get you from one seventy out to your two forty targets.
Speaker 7: I mean our view is this is a stock that's
Speaker 7: ultimately going to have a two in front of it
Speaker 7: over the next three to four months. I think earning
Speaker 7: season for Tech is going to cause I think a
Speaker 7: major what does a.
Speaker 2: Big institution do JP Morgan Asset Management name the company worldwide?
Speaker 1: They're under owned in this dog. They have to buy
Speaker 1: it in the year end.
Speaker 7: Right, it is a gift what I view Apple here
Speaker 7: a golden buying opportunity, and institutions that I talk to
Speaker 7: continue it's a groundhog Day situation. New York City cab
Speaker 7: drivers barish on Tech and Apple into earning season, and
Speaker 7: I think we sit here end of the year and
Speaker 7: we look back and this was an opportunity going into
Speaker 7: what I view as a mini supercycle, especially as everyone's
Speaker 7: position right now in big tech.
Speaker 6: It's China a groundhouk Day situation, Isn't that new?
Speaker 7: Well? I think when you look at China, I mean
Speaker 7: even if you go back the worries about government ban
Speaker 7: and everything we've seen, but yet you see the lines.
Speaker 7: You see Chinese consumers that are actually lining up to
Speaker 7: buy iPhone. So I think when I look at China,
Speaker 7: Cook ten percent politician ninety percent CEO. That continues me
Speaker 7: the hearts and lungs of the story. So I just
Speaker 7: view that as one where it's the big bad wolf.
Speaker 7: It's always the fear out there, but at least the
Speaker 7: bark is going to be worse than bite. So far
Speaker 7: in this cycle, I want to.
Speaker 4: Just end broadening out to where the macro fears are.
Speaker 4: Right now, this idea that we are seeing more strength
Speaker 4: that is going to cause more profit margin compression, that's
Speaker 4: going to lead to a lack of investment by a
Speaker 4: lot of companies. How much does that delay or would
Speaker 4: that delay your thesis of growing profits to new record
Speaker 4: highs as a lot of companies invest in artificial intelligence
Speaker 4: if they don't have the extra capital on hand to
Speaker 4: do so.
Speaker 7: Yeah, it would, And that's what we spend all of
Speaker 7: our time. I'm not here in New York City, but
Speaker 7: around the world trying to understand where the demand trends are.
Speaker 7: I believe we're gonna sit here with cloud numbers from Microsoft, Amazon,
Speaker 7: Google that beat expectation. We actually see the opposite that's
Speaker 7: playing out, and I think that's really going to be
Speaker 7: the surprise earning season. Of course, that's the biggest fear.
Speaker 7: But at least what we see fundamentally speaking is actually
Speaker 7: the opposite playing out despite some of the macro field.
Speaker 6: And we comparing some businesses that are still delivering double
Speaker 6: digit revenue growth and one business Apple the core of it,
Speaker 6: that's not really delivering any growth at all. Two very
Speaker 6: different stories, aren't they.
Speaker 7: No doubt when you look at Cloud and what's happened
Speaker 7: in AI. But I think we sit here a year
Speaker 7: from now and that's a re accelerated growth story, not
Speaker 7: just on iPhone but also services that's going toward double
Speaker 7: digital growth. And I think Apple's one where the bears
Speaker 7: for years have gotten it wrong, saying the best days
Speaker 7: in the rearview mirror. They continue to underestimate the golden
Speaker 7: story of Cooking Crest.
Speaker 6: To be unfair down because they've been right because it
Speaker 6: was a flat lined that isn't the company gone ex
Speaker 6: growth when it comes to the iPhone.
Speaker 7: Yeah, but I'd say they've been maybe right conceptually, but
Speaker 7: wrong in the stock and I think wrong in the
Speaker 7: valuation because I just view it right now. This is
Speaker 7: just a pause from a growth perspective in what has
Speaker 7: really been a multi year upgrade cycle that's gone on
Speaker 7: an iPhone, and I think it's just I don't.
Speaker 2: Mean to interrupt. It's just been a failure of stock.
Speaker 2: Ten year annualized return twenty nine percent.
Speaker 6: Yeah, Tom, it was backed up by tons of growth.
Speaker 6: The point isn't the thing the question is, and it's
Speaker 6: a valid one, is that growth isn't there anymore. They're
Speaker 6: operating and I'm not here to make a judgment about
Speaker 6: the future.
Speaker 1: That's they're operating leverage.
Speaker 6: To make an observation about the last twelve.
Speaker 2: They're operating leverage down the income statement from single digit
Speaker 2: revenue growth is historic. It's like back the Graham, Dot
Speaker 2: and Coddle.
Speaker 1: We've never seen it.
Speaker 7: And it's just the Apple silicon chip story. Now they're
Speaker 7: being intel their own game. They control the ecosystem.
Speaker 2: Oh way, is the nanotechnology, the three millimeters nano technology?
Speaker 1: Is that the cause of them being hot?
Speaker 7: I believe that it's really more titanium in terms of
Speaker 7: I'm serious, in terms of than it's just.
Speaker 1: Busted your do you have the new iPhone? That's all
Speaker 1: we want.
Speaker 7: It's coming this week. It's coming delight, But it's on
Speaker 7: delay because it's on delay because of demand, because Pharaoh
Speaker 7: king and everyone's ordering it.
Speaker 6: Then I was a kidding me. Then I was a
Speaker 6: white fish. It's got to say it as a white.
Speaker 1: Right now, without question.
Speaker 2: For Global Wall Street our interview of the Day on bonds,
Speaker 2: notes and bills, Alanonim has parchments in the usual accounting
Speaker 2: economics from Villanova Macro Credit research at Blackrock with a
Speaker 2: tour duty of gold and sacks and other places along
Speaker 2: the winding at road. She joins us, what's the level
Speaker 2: of sweat at black Rock? I mean, like, you know,
Speaker 2: are you all the windows locked and you know you're
Speaker 2: you're policing costs and the rest of them to be
Speaker 2: sure they're okay.
Speaker 8: No, I think we're all chat. We're navigating and good
Speaker 8: morning and thank you for having me. I think we're
Speaker 8: all navigating what is a very dynamic market that is
Speaker 8: keeping us on our toes for sure. I think for
Speaker 8: corporate credit investors, what we've really been focused on is
Speaker 8: this higher cost of capital environment and we're seeing it
Speaker 8: day by day kind of flow through the corporate credit market.
Speaker 8: And really for corporate credit fixed rate investors, the headwood
Speaker 8: has been on the risk free rate. We haven't seen
Speaker 8: much repricing in credit spreads, and I think that's been
Speaker 8: a really notable feature of the third quarter, and that's
Speaker 8: probably something that will continue into the fourth quarter.
Speaker 6: It's still happening just a little bit, just incrementally, we
Speaker 6: get in that spread widening when you look within high
Speaker 6: yield at the moment, where do you see the greater
Speaker 6: pain being inflicted.
Speaker 8: So we're seeing a really surprising dynamic actually where high
Speaker 8: quality is lagging and the lower quality really parts of
Speaker 8: the market are leading. And so if you just take
Speaker 8: the three broad buckets of leverage loans, high yield bonds,
Speaker 8: and investment grade bonds, arguably leverage loans are in the
Speaker 8: weakest vulnerable fundamental position because they've been contending with this
Speaker 8: higher borrowing costs for the past several quarters, really since
Speaker 8: early twenty twenty two. But they've had the best performance
Speaker 8: year to date. We don't think that that is sustainable
Speaker 8: over the long term. As you know, we don't view
Speaker 8: fixed rate corporate credit as immune from these headwinds either.
Speaker 8: So I do think that there will be some words differentiation,
Speaker 8: but I think going forward, what we've characterized it in
Speaker 8: our fourth quarter outlook is it's going to be about
Speaker 8: dispersion as opposed to widespread market disruption, and so when
Speaker 8: we're dealing with potential headwinds to margins, wages, commodity costs,
Speaker 8: potentially slowing economic growth, higher borrowing costs, we think that
Speaker 8: that will really result in differentiation across the spectrum as
Speaker 8: opposed to kind of this rising tide lifts all boats macro.
Speaker 4: I want to go to the question that John asked
Speaker 4: Ian Shepherdson, at what point will we feel the rates
Speaker 4: that the FED has inflicted on the market and that
Speaker 4: we're seeing priced into the risk free rate. When do
Speaker 4: we see that wave of refinancing where companies actually starting
Speaker 4: nine percent rates as opposed to the three percent rates
Speaker 4: they locked in a couple of years ago.
Speaker 8: So we're seeing it in the leverage loan market already.
Speaker 8: For the fixed rate borrowers, we're starting to see that
Speaker 8: come through. But frankly, I've been pleasantly surprised about the
Speaker 8: high old market's ability to absorb the wave of September
Speaker 8: issuance that we've had come through the high old market already.
Speaker 8: So we do think that that will continue. That maturity
Speaker 8: wall twenty twenty five through twenty twenty nine will need
Speaker 8: to be addressed but we think that that will continue.
Speaker 4: Just I really I'm curious though about where this money
Speaker 4: is coming from, right, is this coming from another pool
Speaker 4: like treasuries or is this coming from stalk investors.
Speaker 8: Yeah, So we've done some surveys as a firm across
Speaker 8: institutional investors, and there is a growing interest to deploy
Speaker 8: capital into fixed income, largely due to the repricing and
Speaker 8: all in yields that we've seen over the past few quarters.
Speaker 8: I would say we're also seeing increased interest in areas
Speaker 8: like private credit as well. So I do think there
Speaker 8: was a decent amount of cash on the sidelines for
Speaker 8: investors to kind of play in the new issue market.
Speaker 8: In many instances, these are credits that these investors know well,
Speaker 8: and so if they're seeing them come through the primary
Speaker 8: market at a discounter on sale, that can be an
Speaker 8: attractive opportunity to deploy capital. If it's a credit that
Speaker 8: you know well, you're comfortable with the risk, and more importantly,
Speaker 8: I think you're comfortable with the forward and that company's
Speaker 8: ability to navigate through this higher cost of capital environment.
Speaker 8: But as we've discussed previously, there will be winners and
Speaker 8: losers in this, and we're already seeing that. In terms
Speaker 8: of defaults, I think the issue is if you have
Speaker 8: a capital structure that is over leveraged and perhaps formed
Speaker 8: in a low rate environment of twenty twenty one even
Speaker 8: early twenty twenty two, those need to be right sized
Speaker 8: and so there will be some real differentiation there.
Speaker 2: I think your note is dead on about cost to
Speaker 2: capital and my monitor that is the ten year real yield.
Speaker 2: There can be forty seven other tea leaves to look
Speaker 2: at as well. So if I look at an elevated
Speaker 2: shocking real rate where we are, I intuitively understand tangible
Speaker 2: assets like real estate are affected immediately. How does this
Speaker 2: new sustain real rate affect fungible assets like bonds, notes,
Speaker 2: and bills.
Speaker 8: I think one of the key takeaways that we're expecting
Speaker 8: is that the bar for transactions is probably going to
Speaker 8: be higher. So if you're a corporate and you are
Speaker 8: thinking of doing an M and a transaction, the higher
Speaker 8: real weight may make you say this is not as
Speaker 8: an attractive opportunity given when my financing was much cheaper
Speaker 8: going forward for real estate and even I think for
Speaker 8: private equity and sponsor related transactions, we need increased clarity
Speaker 8: on the macro, we don't necessarily need a good macro,
Speaker 8: and so for corporates that are thinking of transacting, I
Speaker 8: think if we can get comfortable that we're at the
Speaker 8: end of the policy cycle, that will give them some
Speaker 8: clarity to move forward. To your point, though, Tom, the
Speaker 8: higher cost of capital in general will probably skew those
Speaker 8: transactions towards the acquirers that don't need to rely on
Speaker 8: the aggressive funding to get them done. These are cash
Speaker 8: rich pharma, cash rich tech, highly rated investment grade companies
Speaker 8: with strong financing. I think you are going to see
Speaker 8: a mix shift in terms of the of the skewing
Speaker 8: of the financing activity that we see going forward.
Speaker 6: If we can get comfortable, I feel and comfortable.
Speaker 8: I mean, I do think we were bracing for a
Speaker 8: higher for longer environment with a higher cost of capital,
Speaker 8: but the repricing that we've seen has been so swift
Speaker 8: that it's hard to really feel comfortable that we're at
Speaker 8: the end of it. And so it's a really challenging
Speaker 8: dynamic backdrop to navigate.
Speaker 2: For sure.
Speaker 6: Amounta every time I wrap up a conversation with you,
Speaker 6: it's a clinic, A clinic with a mandolina, a black
Speaker 6: Rock commanda thank you as a wife, Thank you very much.
Speaker 2: Brian Steals in the uh well the right the lower
Speaker 2: right corner of Wisconsin to bring it out. He is
Speaker 2: the Republican from Wisconsin and we joined us today. Brian,
Speaker 2: we're talking here about civics one oh one. How do
Speaker 2: you respond, as a grizzled pro oh to a debate
Speaker 2: like that, a debate that just seems so juvenile.
Speaker 9: I think we have to ask ourselves the question at
Speaker 9: the end of the day, did viewers walk away informed
Speaker 9: about the most important policy issues of the day. I
Speaker 9: don't know that that format's leading to that. We have
Speaker 9: so many serious challenges from the fiscal standpoint to foreign policy,
Speaker 9: and this seems to be a conversation that's built for
Speaker 9: Twitter clicks.
Speaker 2: We've had a president and a former president enjoy the
Speaker 2: climbs of Detroit, Wisconsin is sort of northwest Detroit or
Speaker 2: maybe Detroit southeast Wisconsin will let you decide that your
Speaker 2: thoughts on the political input of these two presidents into
Speaker 2: the UAW process.
Speaker 9: I was born and raised in James, Wisconsin, where we
Speaker 9: had an UAW General Motors plant that would ultimately leave
Speaker 9: around twenty ten, and so I understand what these workers
Speaker 9: are feeling right now who are on the picket lines. Ultimately,
Speaker 9: workers across the country are feeling that they're wages have
Speaker 9: not kept up with inflation, so they're fighting for more money. Politically,
Speaker 9: I think this is the right move to go and
Speaker 9: actually have the conversation with the men and women who
Speaker 9: are working day in in, day out, and I think
Speaker 9: at the end of the day, the bread and butter issue,
Speaker 9: the fact that wages are well below inflation. The average
Speaker 9: family is spending over seven hundred dollars a month more
Speaker 9: today than they work two and a half years ago
Speaker 9: for the same things, ultimately will punish Democrats.
Speaker 4: As we talk about wages, there's a question about whether
Speaker 4: eight hundred thousand government workers will get paid come Monday.
Speaker 4: Given the fact that there is likely to be a shutdown.
Speaker 4: Do you think it's appropriate for them to not get
Speaker 4: paid in order to have some of the political rankling
Speaker 4: worked out.
Speaker 9: There's absolutely nothing positive that comes out of a shutdown.
Speaker 9: It hurts the American people and the credibility of our government.
Speaker 9: We're working to hopefully avoid that. That's going to be
Speaker 9: a challenge, but hopefully cooler heads prevail here. By Saturday night,
Speaker 9: there is nothing right with people Americans who are working,
Speaker 9: who are not getting paid for that work.
Speaker 4: What people are saying is that it's very likely that
Speaker 4: there will be a shutdown, that there seems to be
Speaker 4: an impasse, and that Kevin McCarthy is sort of not
Speaker 4: doing his job very well as the leader of a
Speaker 4: very fractured group. Do you think do you get the
Speaker 4: sense that he is frustrated, that he regrets taking this job.
Speaker 9: I think we're all frustrated. I think he's done a
Speaker 9: pretty darn good job trying to wrangle everyone together to
Speaker 9: move us forward. The Senate also is in dire straits.
Speaker 9: They haven't moved their funding bills either. The entire system
Speaker 9: of spending in Washington is completely broken and it needs
Speaker 9: a complete rewrite. We're also here forty eight hours away.
Speaker 9: What do we do? I think we really need to
Speaker 9: come together to pass a clean stopgap measure keep funding
Speaker 9: in government moving forward while we work out the details
Speaker 9: of these important spending bills.
Speaker 4: But you know, I want to just push back a
Speaker 4: little bit because a congressman style you said that Senate
Speaker 4: has their own problems. Mitch McConnell actually is working together
Speaker 4: with the Democrats to try to come up with something.
Speaker 4: They are passing through certain measures. An just about this
Speaker 4: being both sides of the aisle? Is this a fundamentally
Speaker 4: problematic issue with the House and really has nothing to
Speaker 4: do with the Senate? It really is a House issue
Speaker 4: led by some of the factors fic the fractures in
Speaker 4: the Republican Party.
Speaker 9: I'd offer it to you that there's a few members
Speaker 9: on the Republican side in the House that probably get
Speaker 9: a lot more media attention. But I would note that
Speaker 9: as we actually look at the appropriations bills moving forward,
Speaker 9: the Senate is maybe further behind than the House. Neither
Speaker 9: are doing a good job. The underlying system here in
Speaker 9: which we're working on spending in DC completely broken.
Speaker 2: Congressman, would Ronald Reagan recognize your party? It seemed like
Speaker 2: the nation we know this well has moved conservative over
Speaker 2: the last twenty thirty dare I say forty years as well?
Speaker 2: Where would Ronald Reagan fit into your modern GOP?
Speaker 9: I think we're still a center right country, and I
Speaker 9: think Ronald Reagan would be able to lead this well.
Speaker 9: I think the big distinction is many of our most
Speaker 9: our loudest policymakers are no longer speaking in the aspirational
Speaker 9: tones that Ronald Reagan did. If we returned as conservatives
Speaker 9: and talked about how we're going to produce opportunity, addressed
Speaker 9: the big.
Speaker 2: You do it. I don't mean to interrupt, but because
Speaker 2: of time, concressmen, you nailed it, You absolutely nailed it.
Speaker 1: Why can't your.
Speaker 2: GOP leadership insist on that aspirational tone.
Speaker 9: The broader media environment, Twitter and others seem to like
Speaker 9: the confrontation. As we saw on the debate stage last night.
Speaker 9: There aren't enough programs like yours that have substantive and
Speaker 9: serious conversations about the policy issues of the day.
Speaker 1: Okay, but you.
Speaker 2: Got a guy in New York City, mister Trump, who
Speaker 2: invented a GOP of grievance. It's a grievance party, which
Speaker 2: is anathema to Jamesville, Wisconsin. How do you go from
Speaker 2: a grievance GOP, not back to but towards something new
Speaker 2: that is that aspiration of the GOP back to eighteen sixty?
Speaker 9: Well, I can tell you when I'm at home in Wisconsin,
Speaker 9: which founded the Republican Party and rippin Wisconsin, people are
Speaker 9: still optimistic, believe our best days are ahead, recognize we
Speaker 9: have serious and substantive challenges and what I think we
Speaker 9: need as a leader of the party that talks about
Speaker 9: how we are going to move forward in a difficult
Speaker 9: period of time.
Speaker 6: Congressman thank you. We got to clip some of that
Speaker 6: and put it in primose. Congressman Brian Stylebe, thank you
Speaker 6: very much, Seph for joining us on the Nightis as
Speaker 6: a clock is ticket to Wall, It's take potential Shutdown.
Speaker 2: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and
Speaker 2: anywhere else you get your podcasts. Listen live every weekday
Speaker 2: starting at seven am Eastern. I'm Bloomberg dot Com, the
Speaker 2: iHeartRadio app, tune In, and the Bloomberg Business app. You
Speaker 2: can watch us live on Bloomberg Television and always I'm
Speaker 2: the Bloomberg Terminal.
Speaker 1: Thanks for listening. I'm Tom Keen and this is Bloomberg
Speaker 4: Is the most