Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: You're listening to Bloomberg Business Week with Carol Masser and
Speaker 2: tim Stenoveek on Bloomberg Radio.
Speaker 3: Lauren Goodwin joins US now Economists and chief market strategist
Speaker 3: at New York Life Investment. She's here with us in
Speaker 3: the Interactive broker's studio. Lauren, let me just get your
Speaker 3: perspective on again, acknowledging what we don't know, and there's
Speaker 3: a lot we don't know the kind of mood that
Speaker 3: we've seen develop over the course of this week, I think,
Speaker 3: beginning with those comments from Jamie Diamond of JP Morgan
Speaker 3: suggesting there could be some problems with private credit that
Speaker 3: have gone ignored or unattended to. Now we see this
Speaker 3: kind of action in the regional banks today. Your sense
Speaker 3: of just kind of how you're watching this unfold, what
Speaker 3: you're looking for, and what it might tell us about
Speaker 3: the market.
Speaker 2: It's such an important question, and to be honest with you,
Speaker 2: as I've worked with public and private markets investors for
Speaker 2: the last fifteen years, this has been on the radar.
Speaker 2: As banks pulled back after the financial crisis, private capital
Speaker 2: has stepped in a meaningful way to fuel business activity.
Speaker 2: And one of the things that's sort of become apparent
Speaker 2: to me in this let's call it shadow bank as
Speaker 2: is commonly used, is the shadow banking system is a
Speaker 2: lot like the normal banking system. There is some really
Speaker 2: just high quality lending, very well backed, normal activity happening,
Speaker 2: and there's some more challenging fraudulent activity happening. And so
Speaker 2: in terms of what we monitor, it's all the same
Speaker 2: stuff you monitor in the public markets. The major difference
Speaker 2: is that you have to be much more careful with
Speaker 2: things like default rates or some of the more standard
Speaker 2: areas of data that are going to have different definitions
Speaker 2: depending on who your lender is. Makes it a little
Speaker 2: more difficult to parson the private markets, But it's the
Speaker 2: same idea.
Speaker 1: I mean, I feel like we still have to figure
Speaker 1: out what happened here, right, I mean, I don't know.
Speaker 1: There are regulators over zions, so you would assume that
Speaker 1: everybody was being a little bit more careful. Having said that,
Speaker 1: I mean, when you think about private that markets and
Speaker 1: Jamie Diamond what he said this week, are you getting
Speaker 1: a little bit more nervous about that there might be
Speaker 1: more problems in the financial system.
Speaker 2: I think it's incredibly.
Speaker 1: Reasonable, as you said, private markets for a while.
Speaker 2: Now, yeah, I think it's so reasonable to be more attentive.
Speaker 2: Let's say, when you have valuations and credit spreads where
Speaker 2: they are, you know, it gets more and more difficult
Speaker 2: for people to see enormous amounts of upside in economic
Speaker 2: activity and market activity as well. And when you have
Speaker 2: a lending system that is so important to the real economy.
Speaker 2: It again, it's it's it's reasonable to say, hey, what's
Speaker 2: going on in this in this enormous segment of the
Speaker 2: economy that has grown so much over the last five
Speaker 2: to seven years. And so I think this is going
Speaker 2: to be an area that's going to draw more and
Speaker 2: more importance in our investment conversations coming up when it
Speaker 2: comes to making investment decisions. Though you're seeing all in
Speaker 2: yields in these asset classes that are still attractive to investors.
Speaker 2: The transition that we're seeing then is focus on quality,
Speaker 2: on workout capabilities, on you know, if there is a
Speaker 2: problem in these asset classes, how do these teams navigate When.
Speaker 3: You're mentioning sort of the surge that we've seen of
Speaker 3: interest in private credit, it's a fice to say there's
Speaker 3: been a surge of interest in AI and artificial intelligences
Speaker 3: as well, and does strike me that over the last
Speaker 3: week or so there's been kind of a different conversation
Speaker 3: surrounding it, maybe one of outright skepticism, maybe one just
Speaker 3: sort of about needing to see more proof in the putting.
Speaker 3: And I wonder if you're seeing that as well, how
Speaker 3: you're rethinking about thinking about the kind of breakneck growth
Speaker 3: we've seen in AI and what needs to happen in
Speaker 3: the quarters ahead.
Speaker 2: I'm absolutely saying this. It's really interesting. Actually, I just
Speaker 2: got back from a three week roadshow with our clients
Speaker 2: in Europe, and I was expecting a lot of things,
Speaker 2: but I wasn't expecting all of my conversations to include
Speaker 2: a big portion just about AI and US tech and
Speaker 2: what's really going on there. And I would say that
Speaker 2: the skeptic story is increasing. I think the catalyst, in
Speaker 2: addition to valuations being high, et cetera, I think the
Speaker 2: catalyst for this was really this sort of arroy both
Speaker 2: spending announcements out of Nvidia and Open AI that I
Speaker 2: have raised questions about the sustainability of the great earnings
Speaker 2: capacity that we've seen in AI. What I'm really watching
Speaker 2: to determine whether this is reaching bubble conditions is the
Speaker 2: transition from capitalizing tech spend from cash off of these companies'
Speaker 2: balance sheets and into the debt markets. It's starting, but
Speaker 2: it's really early. I think we need to see that
Speaker 2: mature and more before I be really concerned about bubble conditions.
Speaker 1: All right, that's really interesting because I do feel like
Speaker 1: last earnings time, we looked at things like Meta and
Speaker 1: some of the big hyperscalers, and we did see them
Speaker 1: actually having an impact from all the AI spend in
Speaker 1: terms of boosting revenues. But I feel like we're gonna
Speaker 1: have to go through that once again. Having said that,
Speaker 1: you know, we've had quite a bounce back on the
Speaker 1: equity side of things, it would be normal to see
Speaker 1: maybe another correction of some sort here.
Speaker 2: I think that's right. But there's a I can make
Speaker 2: a list of five or six really credible reasons why
Speaker 2: you might see a pullback in the equity market in
Speaker 2: specifically US tech. But as we think about the next
Speaker 2: six to nine months in the equity market, the tailwinds
Speaker 2: are stronger than the headwinds. You have a FED that's
Speaker 2: cutting interest rates, you have quantitative tightening that looks like
Speaker 2: it's likely to be easing. You have tax refunds in
Speaker 2: the spring that look like they're going to be much
Speaker 2: stronger than they've been in recent years. There's really a
Speaker 2: lot of important tailwinds to this market. And so until
Speaker 2: we see the AI hyperscaler say demand is falling, until
Speaker 2: we see the headwinds with respective trade, etc. Really make
Speaker 2: their way into the data, we're likely to see a
Speaker 2: pretty constructive market backdrop over the next six to nine months.
Speaker 2: I want to ask just.
Speaker 3: For your perspective on the economists. We heard a lot
Speaker 3: from Chris Waller today. He was on our air in
Speaker 3: the morning, and then our colleague Tom Keane sat down
Speaker 3: with them at CFR. They had a longer conversation. Still,
Speaker 3: you know, in his perspective here is you know, another
Speaker 3: quarter point cut here. At the next meeting, talked a
Speaker 3: lot about labor market, inflation, your sense of where this
Speaker 3: US economy is, particularly when it comes to inflation, the
Speaker 3: stickiness thereof how are you thinking through sort of ward that's.
Speaker 2: Heat in Yeah, this is another area where we've spent
Speaker 2: a lot of time because we anticipate that the first
Speaker 2: level sort of impact of tariffs to consumer price inflation
Speaker 2: are here, but aren't really going to be felt the
Speaker 2: until the holiday season in the turn of the year,
Speaker 2: And so I anticipate that we're going to have next
Speaker 2: year a growth environment that's slower. We're looking a little
Speaker 2: below one and a half percent, so it's a little
Speaker 2: below consensus inflation that's about a little higher than consensus
Speaker 2: where sticky around three percent for core inflation. That's a
Speaker 2: stagflation light scenario. But when you again, when you when
Speaker 2: you layer on the modifier, yeah, and when you add
Speaker 2: the modifier, it's it's no, it's it's it's It's not
Speaker 2: an overly bearish view on the US economy, but it's
Speaker 2: one where the Fed and the market are grappling with
Speaker 2: these same questions. While you have the overlay of a
Speaker 2: sort of relatively bullish for the economy and for inflation
Speaker 2: meaning inflation lower story coming out of AI. There's just
Speaker 2: really when we talk about the long term implications of inflation,
Speaker 2: things like technological change and productivity and demographics are always
Speaker 2: on the list, and you put a question mark by them,
Speaker 2: and that's what we're all going to be grappling with
Speaker 2: over the next year.
Speaker 3: So funny because I'm kind of watching all these conversations
Speaker 3: happening in Washington. Yeah, talked with some of our colleagues
Speaker 3: down there, and they say the same thing, which is,
Speaker 3: there's the promise of increased productivity, but nobody really knows
Speaker 3: at this point.
Speaker 2: With that, it gives us all permission to acknowledge the
Speaker 2: lack of conviction, right. And Look, it's interesting. I think
Speaker 2: that there is a you know, a trade to place
Speaker 2: and money to be made by having a really sort
Speaker 2: of one sided perspective on this issue of inflation. In particular,
Speaker 2: what we're seeing investors do is instead lean way more
Speaker 2: into diversification. And it's funny because this diversification isn't a
Speaker 2: new investment idea. But if you look back in the
Speaker 2: last fifteen years, your ideal asset allocation wouldn't have actually
Speaker 2: been very diversified. You should have been all in on
Speaker 2: you as large cap growth equity for your ideal allocation,
Speaker 2: and so closing underweights to international equities, adding gold and
Speaker 2: other commodities.
Speaker 1: That's where I wanted to go because gold is up
Speaker 1: what sixty four percent? Yeah, if only if, But this
Speaker 1: is a long time gold did nothing, So I mean,
Speaker 1: how much did it be in your portfolio?
Speaker 2: So I am of the team here. Here's one of
Speaker 2: the areas where I do actually have a strong conviction personally.
Speaker 2: I am of the team that gold has become a
Speaker 2: new asset class and that we will continue to see
Speaker 2: the price of gold rise in the coming years. We've
Speaker 2: heard folks like Ray Dalio say that gold should be
Speaker 2: as much as fifteen percent in your portfolio. I think
Speaker 2: that's a little high for the average wealth investor, if
Speaker 2: only because it is not a yielding asset class, and
Speaker 2: so when you look at price return off of equity
Speaker 2: by comparison, it's kind of cheating you really should we
Speaker 2: get totally.
Speaker 1: What do your take on why it's going okay?
Speaker 2: Safe haven or is it there's so there's.
Speaker 1: Hedging or a pushback on the dollar, Like what is
Speaker 1: it there? So?
Speaker 2: There's structural factors related to central banks over the last
Speaker 2: really since Russia invaded Ukraine have been meaningfully trading dollars
Speaker 2: for gold. That's accelerated this year as a result of
Speaker 2: central bank and corporate hedging in response to some of
Speaker 2: the political volatility we've seen out of the US. I
Speaker 2: expect that sort of demand for gold to continue. There's
Speaker 2: also not been much development and supply. It's you know,
Speaker 2: you can't wish gold mines into being, and so it's there.
Speaker 2: There's been a little bit of a hold up from
Speaker 2: down necklaces that friend. And then I think right now
Speaker 2: we are seeing a bit of a momentum or fomo
Speaker 2: factor coming in where investors that maybe you know, set
Speaker 2: it and forget it or wouldn't have thought very much
Speaker 2: about this are saying like, did I miss the boat
Speaker 2: on this one? And piling in nuts. Yeah, well it's
Speaker 2: fun though.
Speaker 1: In your portfolio.
Speaker 3: Not enough, I'll say that quickly.
Speaker 2: Well, a gold bar costs what more like more than
Speaker 2: a million dollars now, so it's the the starting prices.
Speaker 3: Skills on a.
Speaker 1: Date just got like thirty seconds on a day when
Speaker 1: we're feeling just a little bit nervous and wondering, is
Speaker 1: this the beginning of something to come? Undoneer you're more
Speaker 1: optimistic or pessimistic about the outlook.
Speaker 2: My economist brain will always want to be pessimistic, But
Speaker 2: I am I am, I'm constructive. I think that we
Speaker 2: have some some tailwinds for the economy and markets that
Speaker 2: get us through another nine months.
Speaker 1: I didn't hear optimism?
Speaker 2: No well optimistic.
Speaker 1: No no, no too late. Thank you so much, Thank you
Speaker 1: for having me, pretty to have you back. Learn Goodwin.
Speaker 1: She's economist and Chief Market Strategies to Hats at New
Speaker 1: York Life Investments, joining us here in studio