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 Hordernt 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
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. We begin this hour
Speaker 2: with stock sliding his investors brace of FED check Kevin
Speaker 2: Walsh's speech on Friday, and wilsh the chief investment officer
Speaker 2: of Guggenheim Partner's Investment Management, writing the Jackson Hole meeting
Speaker 2: is an opportunity to clarify the strategy to address inflation.
Speaker 2: The Hawks have grown louder, but inflation progress should be
Speaker 2: enough to avoid hikes this fall. And joins us now
Speaker 2: for more and good morning, good to see.
Speaker 3: You, Good morning, glad to hear we.
Speaker 2: Get into this as you know I am. We're anticipating
Speaker 2: us getting into the issues around Mark Waltters and his
Speaker 2: affiliation to Gugenheim. More broadly, I'm going to go through
Speaker 2: the details as we understand them. As I understand them,
Speaker 2: whether these loans from insurers were directed to other parts
Speaker 2: of his empire without being properly disclosed and labeled as
Speaker 2: affiliated transaction. That seems to be the epicenter of the
Speaker 2: investigations right now. I'm sure clients are very interested in
Speaker 2: way you stand and what it means for Gugenheim Asset Management.
Speaker 2: Where does Gugenheim Masset Management sit in all of that.
Speaker 4: Well, let me see if I can create some clarity
Speaker 4: around this. In particular, what is not the focus of
Speaker 4: any inquiry is to our investment management process, our people,
Speaker 4: our performance and returns, or our trade allocations, which has
Speaker 4: historically been an area that the SEC would open an
Speaker 4: inquiry into an investment management firm. That is not the
Speaker 4: case here. We are working day in and day out
Speaker 4: for our investors with the same integrity and fiduciary responsibility
Speaker 4: that we have always engaged in at the firm and
Speaker 4: will continue to do so. In particular, at this time
Speaker 4: with markets being so uncertain, we do have an inquiry
Speaker 4: into a business accounting issue in one of our subsidiaries,
Speaker 4: and we've been very open with regulators and very cooperative
Speaker 4: in their investigation and we will continue to do.
Speaker 3: So, and that, as I said, is a business issue.
Speaker 4: We've engaged with our auditors and we feel that the
Speaker 4: accounting treatment was appropriate. With regard to TWG and its
Speaker 4: insurance entities, that is a fully separate matter. And of
Speaker 4: course they are dealing with their regulators and have also
Speaker 4: very cooperative and as I understand it, have entered into
Speaker 4: a remediation agreement or a protocol and that has been.
Speaker 3: As I said, very cooperative.
Speaker 4: At this point in time, I think investors need to
Speaker 4: be assured that we again are working very much diligently
Speaker 4: day in and day out. Again because these markets are
Speaker 4: so uncertain.
Speaker 2: How cooperacific client spent out of the past few weeks.
Speaker 4: Very supportive and once it's very clear to them exactly
Speaker 4: what is happening and.
Speaker 3: We are able to explain.
Speaker 4: Then as a result, we have been able to assure
Speaker 4: them and I think again assuage their concerns.
Speaker 5: Do you think that the climate has adjusted such You
Speaker 5: keeps saying that markets are incredibly complicated, and they are,
Speaker 5: and we're talking about for example, and Nvidia and some
Speaker 5: of the accounting mechanisms that have been going on with
Speaker 5: respect to where they book profits versus the hyper scalers
Speaker 5: as they spend. Do you think that rumors spread faster
Speaker 5: right now because people feel like there's so much money
Speaker 5: being spent. It's such a difficult, fraught time with so
Speaker 5: much money going to private sectors with less transparency.
Speaker 4: Well, look, this is the world within which we are operating.
Speaker 4: The markets are highly fragmented and stratified. So at this
Speaker 4: point in time, what we're seeing is we're seeing the
Speaker 4: intra sensitive parts of the economy are maybe a bit
Speaker 4: more wobbly. We're going to talk about rates that's obviously
Speaker 4: having an impact. We're talking about private markets have grown
Speaker 4: significantly over the last number of years, and with BDCs
Speaker 4: and some of these other transactions, particularly concerns over software,
Speaker 4: we're starting to see a lot of investor nervousness. And
Speaker 4: by the way, we're coming up into that time of
Speaker 4: the year September and October, which historically is a market
Speaker 4: volatility period of time, and as a result, investors are
Speaker 4: more nervous than probably they would otherwise be.
Speaker 5: We were just talking with Earl Davis who said he's
Speaker 5: going to the back of the theater near the exit door,
Speaker 5: talking about how he is looking for ten year treasure
Speaker 5: yells to go between five and five and a quarter
Speaker 5: percent and thirty year treasuries to go to six percent,
Speaker 5: but so wouldn't buy them.
Speaker 3: Do you see things the same way?
Speaker 4: I think that's a very provocative statement. What I would
Speaker 4: say is is that here we are in a trading
Speaker 4: range on the tenure, and at the low end we've
Speaker 4: been down into the high threes. At the high end
Speaker 4: we're four seventy four, seventy five, and at for seventy five,
Speaker 4: that's pretty much the high end of our range. If
Speaker 4: we see five percent on treasuries on the tenure, I
Speaker 4: would tell you that is a buying opportunity. I think
Speaker 4: the markets aren't able, particularly the equity markets aren't really
Speaker 4: able to function as well beyond that, and I do
Speaker 4: believe that titans financial conditions. The thirty year, however, historically
Speaker 4: has traded much more on inflation concerns. I don't see
Speaker 4: us going to six percent on the thirty year, and
Speaker 4: if it does, I would take the opposite view, and
Speaker 4: I'd back up the truck and I buy a lot
Speaker 4: of six percent thirty year treasuries.
Speaker 3: I think that at this.
Speaker 4: Point in time, what we're also seeing I said stratification earlier,
Speaker 4: we're seeing that also in the pull up. Another factor
Speaker 4: that's happening, and that is the sheer amount of debt
Speaker 4: that's being issued, not just at the treasury level from
Speaker 4: fiscal spending, but also because of data centers and AI trade.
Speaker 3: The AI trade.
Speaker 4: That's happening at this point in time, and as a result,
Speaker 4: we're seeing this very significant amount of need for capital
Speaker 4: and they want to issue in the long end, which
Speaker 4: is pulling rates up.
Speaker 5: Do you want to invest in that debt long duration,
Speaker 5: hyperscaler debt or do you see that as potentially more
Speaker 5: toxic than US government debt should things turn south.
Speaker 4: I think there are other parts of the infrastructure trade
Speaker 4: that make a lot more sense, power build out and
Speaker 4: other kinds of long term real asset investing. My concern
Speaker 4: about the data center build out and the cost of
Speaker 4: that is the obsolescence risk in.
Speaker 3: The long term.
Speaker 4: Now, I am selectively an investor in shorter duration offerings,
Speaker 4: but we have.
Speaker 3: To be thoughtful because the AI.
Speaker 4: Offerings that are coming out in the capital market are
Speaker 4: not in just one place. They are in unsecured investment
Speaker 4: grade credit, they're in structured credit, they're infrastructure, So you
Speaker 4: have to be really thoughtful to make sure that you're
Speaker 4: getting the right amount of diversification. There's trillions of dollars
Speaker 4: of capex in this space that is happening over the
Speaker 4: next several years, and as a result, there's going to
Speaker 4: be continued need for capital, and I think being thoughtful
Speaker 4: and layering in is probably a better way to be
Speaker 4: investing in this space going forward.
Speaker 2: And so much of that is investment grade right to debt.
Speaker 2: Ol Davis Abimo Lisa was talking about the six percent
Speaker 2: cod The otherness is an interesting take he had. He
Speaker 2: was de risking on the credit side, but drop in
Speaker 2: all the high yield exposure and then refilling at the
Speaker 2: front end of IG. What do you think the risk
Speaker 2: is in credit right now? Because we've had a series
Speaker 2: of conversations that have raised the question as to whether
Speaker 2: actually it might be sitting in investment grade and not
Speaker 2: in high yield. With regards to this story, well, in.
Speaker 4: The high yield market has actually shrunk over the last
Speaker 4: number of years anyway, and has actually moved up in
Speaker 4: credit quality.
Speaker 3: It is a very.
Speaker 4: Different market than it was, say, ten years ago, even
Speaker 4: with regard to the high level of capital issuance and
Speaker 4: debt issuance that's happening, particularly in the long end on
Speaker 4: investment grade to fund this AI build out. And by
Speaker 4: the way, I'm very positive on the AI technology in
Speaker 4: the long run, but I am concerned in the nearer
Speaker 4: term with regard to the risk that's happening, and simply
Speaker 4: again that stratification that's happening because there's so much issuance
Speaker 4: there that is demanding a higher level of coupon and
Speaker 4: for me to get invested, it has to be paying
Speaker 4: a lot more, and that makes sense to me as
Speaker 4: an investor.
Speaker 3: The risk is elevated and there.
Speaker 4: Is concern, and of course we've become much more aware
Speaker 4: of the fact that these issuers are three free cash
Speaker 4: flow negative at this point in time, and I think
Speaker 4: that's something to be concerned about. Whenever you see has
Speaker 4: historically a huge amount of debt issuance, whether it's whether
Speaker 4: it's the fiber optic cable build out of the late
Speaker 4: nineteen nineties or the financial crisis, you know, the lead
Speaker 4: into the financial crisis where there's so much debt came out,
Speaker 4: and any time you see that, you have to sort
Speaker 4: of say to yourself, I think we need to be
Speaker 4: thoughtful with regard to this concentration of risk and to
Speaker 4: be aware that it could have repercussions to the credit market.
Speaker 2: Did you think this s fed? These the times of
Speaker 2: financial conditions.
Speaker 4: I think the FED has done something with the beginning
Speaker 4: part of the year in that they increase their balance
Speaker 4: sheet in the ample reserves regime to by the tune
Speaker 4: of about three hundred billion dollars in the first six
Speaker 4: months of the year. Those purchases have now stopped, and
Speaker 4: I think that it's confusing.
Speaker 3: To the market.
Speaker 4: This is one of the elements that I think Chair
Speaker 4: Warsh is going to be spending time on. He's already
Speaker 4: mentioned it is the evaluation of how does the balance
Speaker 4: sheet act as a tool. And I think that's a
Speaker 4: very important initiative for the FED to take up. And
Speaker 4: I would say that by increasing the balance sheet by
Speaker 4: three hundred billion dollars, that's the equivalent of about a
Speaker 4: quarter basis point. It's going to be a quarter percent
Speaker 4: rate cut. And so they've been actually somewhat stimulative. Along
Speaker 4: with the one big beautiful build attacks benefits, fiscal spending,
Speaker 4: I mean it's and tariff refunds. This has been a
Speaker 4: very heavily stimulative first half of the year relatively speaking,
Speaker 4: that I think actually slows down and may even come
Speaker 4: to a stop here in the second half. And so
Speaker 4: I think that investors need to be aware the financial
Speaker 4: conditions are probably going to naturally tighten. And to Kevin
Speaker 4: Worrish's perspective, I think the market is going to.
Speaker 2: Do some of the Fed's job for them, unless Besson
Speaker 2: has other ideas. And I appreciate it. And wilsh your Gegenheim,
Speaker 2: thanks for dropping by, stay with us. Mult Bloomberg surveillance
Speaker 2: coming up. After this, trade talks between the US and
Speaker 2: Canada officially breaking down, Canada firing back against state fifty
Speaker 2: percent tariffs with a twenty billion dollar council Levy sources,
Speaker 2: talagates Herupelomberg, the Prime Minister. Mount County's government, sees little
Speaker 2: chance of negotiations resuming before the midterm elections. To build
Speaker 2: on this, Bran Gardner of Statehood, let's talk about why
Speaker 2: we're doing this. Why is the US going after Canada
Speaker 2: to the extent it is going after Canada.
Speaker 6: I think it goes to the fact that.
Speaker 7: In my view, the president sees economics and trade is
Speaker 7: a zero sum game. I think that's the simplest, most
Speaker 7: accurate explanation for this. So if the US, if Canada loses,
Speaker 7: the United States wins, I don't think he believes in
Speaker 7: it as much of a win win scenario. That has
Speaker 7: underpinned US trade policy, global trade policy for the last
Speaker 7: forty plus years.
Speaker 6: So I think that is the explanation.
Speaker 2: Roan, we still have USMCA. When you see numbers like
Speaker 2: fifty percent on some goods, how much have tried tod
Speaker 2: we actually talking about how much foes under the USMCI
Speaker 2: and how much foes under this spap Right now.
Speaker 7: This is a I mean, this is still a fairly
Speaker 7: low percentage of overall trade with Canada, so we can't
Speaker 7: blow it out of proportion. But the tone, the way
Speaker 7: the negotiations collapsed, the way that USMCA has been evolving,
Speaker 7: it does call into question on what changes are coming
Speaker 7: for us MCA, What is the long term implications for
Speaker 7: North America trade. I mean, it's kind of amazing that
Speaker 7: we're sitting here. You know, going into the Trump administration,
Speaker 7: you would have thought that US Canada relations would be
Speaker 7: in a better place than US Mexico relations, and they're
Speaker 7: exactly the opposite. I think we're in a better place
Speaker 7: with Mexico and more likely to get longer term agreements
Speaker 7: with Mexico than we are with Canada.
Speaker 5: It's pretty remarkable ran there was a that going into
Speaker 5: the midterm election cycle there would be some relief from tariffs,
Speaker 5: or at least the threat of them, to reduce the
Speaker 5: cost of living. Do you think that that playbook is gone?
Speaker 6: No, I mean I think they're still there, Lisa.
Speaker 7: I mean the cut in tariffs on beef imports recently.
Speaker 7: I think that that underscores the worries of the administration,
Speaker 7: their perceived vulnerability on affordability going into the midterms. Look,
Speaker 7: when when you go into any kind of negotiations like this,
Speaker 7: various parties can overplay their hand.
Speaker 6: And I'm not going to point fingers.
Speaker 7: Maybe it was the Canadians who thought, because of what
Speaker 7: you just said, Maybe they thought going into the midterms
Speaker 7: that they had a stronger hand to play and that
Speaker 7: they could get a better deal, and taking a page
Speaker 7: out of the Trump playbook.
Speaker 6: Maybe it's, you know, the art of the deal.
Speaker 7: Maybe once in a while, you just walk away from
Speaker 7: a deal from negotiations and force the other side to
Speaker 7: reconsider and.
Speaker 6: Come back with a better deal.
Speaker 7: Maybe that's maybe they're playing a longer game for this.
Speaker 7: But to your initial question, Lisa, No, I think the
Speaker 7: administration is still very concerned to on affordability and that's
Speaker 7: why they're lowering tariffs and other products.
Speaker 5: The reason why I ask is because there was this
Speaker 5: reported meeting between House Democratic Leader Hakim Jeffreys and Jared
Speaker 5: Kushner in the past couple of days talking potentially, we're
Speaker 5: not sure, but reportedly talking about how to work more
Speaker 5: closely together. If the Democrats win the House, this would
Speaker 5: be the person who would have to work most closely
Speaker 5: with the administration. Do you think that that is a
Speaker 5: significant tell that this administration is preparing for a divided
Speaker 5: House and gridlock for the second half of President Trump's
Speaker 5: second term.
Speaker 7: Yes, and I think they understand reality book that they're
Speaker 7: going to pull out all the stops to either keep
Speaker 7: the numbers low or defy history.
Speaker 6: But they know what history is, which is that the
Speaker 6: party out of power.
Speaker 7: The Democrats are likely to pick up seats in the midterms,
Speaker 7: and since they only need three the bar is pretty low,
Speaker 7: and so I think it's just facing reality as it
Speaker 7: is doing the correct outreach. Jeffries himself is going to
Speaker 7: be in a very difficult spot, so maybe there because
Speaker 7: he's going to have a fractured conference with some new
Speaker 7: DSA members, some more mainstream members who.
Speaker 6: Are opposed or in conflict with the left wing of
Speaker 6: the Democratic Party.
Speaker 7: And so I think the administration is taking the correct
Speaker 7: steps and doing some outreach. It's going to be a
Speaker 7: rocky two years, but it doesn't mean that you can't
Speaker 7: talk to the other side and see maybe are some
Speaker 7: areas of common ground, some areas where you can avoid
Speaker 7: conflict unnecessarily.
Speaker 2: Ron and Trump one, A lot of people complained about
Speaker 2: the tariffs on China then underbid, and very few, if
Speaker 2: any weccount in Trump too. A lot of people complained
Speaker 2: about the tariffs on everybody, and yet I see very
Speaker 2: few people, if any, campaign and to cut them into
Speaker 2: the mid tims, Brian, why's that no part of the conversation.
Speaker 7: Yeah, I think among the public, I don't think the
Speaker 7: terrorists are overly popular with the public, but they do
Speaker 7: resonate with key constituencies, and so there's I think politicians,
Speaker 7: members of Congress looking at this just don't see any
Speaker 7: reason to go out and advocate in Very few of
Speaker 7: them will advocate in favor of rolling them back. Maybe
Speaker 7: Ram Paul from Kentucky one of the few, but most
Speaker 7: of them. Let's go back to the beef import example,
Speaker 7: because that got a huge amount of pushback domestically from
Speaker 7: US producers.
Speaker 2: Stay with US, multiple impex. Savannah's coming up after this,
Speaker 2: Troy Kanisky future standard writing. Private markets are holding gup.
Speaker 2: AI concentration is becoming a portfolio issued. Capital is increasingly
Speaker 2: concentrated around AI across both public and private markets. Troy
Speaker 2: joined us now for more. Troy's been so long, my friend,
Speaker 2: Welcome back to the program. This is a question so
Speaker 2: many of us have asked. Are we all in the
Speaker 2: same traite?
Speaker 1: Yeah, I think the concentration has gone up substantially. I
Speaker 1: mean most of the press and most of the analysts
Speaker 1: focuses on public markets where you have more and more
Speaker 1: tech and AI concentration, which is fairly obvious. But I
Speaker 1: think what's happened this year, particularly in private markets, is
Speaker 1: more and more capital, whether it's going for go go
Speaker 1: growth or whether it's going for AI infrastructure has really
Speaker 1: increased substantially, and so when you think about the use
Speaker 1: case for alternatives, you know, one of the principal use
Speaker 1: cases for something like middle market private equity has always.
Speaker 6: Been growth at a reasonable price.
Speaker 1: But what's becoming more and more important is that diversification
Speaker 1: away from AI risk because in the event that there
Speaker 1: isn't a meaningful ar ROI C to justify the continued
Speaker 1: growth or even the sustainability of the current growth and spending,
Speaker 1: that could lead to obviously a very negative economic outcome,
Speaker 1: not to mention a tougher outcome for public and certain
Speaker 1: types of growth oriented private market exposures.
Speaker 2: Troy, what are the opportunities like elsewhere and to what
Speaker 2: extent they being crowded out by the issuance we're saying
Speaker 2: for the Treasury that we're saying from Let's just look
Speaker 2: at this morning, Self Bank planning to write six billion
Speaker 2: in Japan, about raising ten billion in Hong Kong, the
Speaker 2: AI players, the hyperscatus issuing tons and tons of debt.
Speaker 2: How much crownic gat you saying, Yeah, So.
Speaker 1: I think again, if you look at opportunities for growth
Speaker 1: away from AI, you know, we focus on in a
Speaker 1: market private equity where a lot of the exposures are
Speaker 1: what I refer to as boring is beautiful things like
Speaker 1: mobile payment applications or paving or specialty foods. You know,
Speaker 1: these are good core businesses that make up about a
Speaker 1: third of private sector GDP. However, in other areas there
Speaker 1: are other growth factors like robotic surgery or infusion care.
Speaker 1: There's a lot of growth now tied to defense. So
Speaker 1: the argument isn't that you shouldn't own AI or AI risk.
Speaker 1: It will more than likely turn out fine. However, if
Speaker 1: it doesn't turn out fine, it's good to have an
Speaker 1: exposure or portfolio that can provide you growth like returns
Speaker 1: without that singular level of concentration risk.
Speaker 5: Do you find a lot of the positions that you're
Speaker 5: looking for increasingly crowded? Because people have been talking about
Speaker 5: garb or growth at in a reasonable rate for a while,
Speaker 5: and then we say the Russell two thousand surge, I
Speaker 5: know is what you're talking about with private markets, but
Speaker 5: it is a proxy for smaller companies and the dynamism
Speaker 5: that people are foreseeing.
Speaker 3: At what point does it get too crowded?
Speaker 5: Is people just sort of chase something that can be
Speaker 5: relatively immunized from that larger potential risk.
Speaker 3: Yeah.
Speaker 1: Well, it's really interesting because to John's point, the crowding
Speaker 1: has happened more in terms of AI and a infrastructure.
Speaker 6: However, because there's.
Speaker 1: A dearth capital, the returns that you can make there
Speaker 1: are still very attractive. Now to your point question, Lisa,
Speaker 1: what's really interesting is this year we've seen, particularly in
Speaker 1: our co invest pipeline, a tremendous level of deal activity
Speaker 1: and the reason for that is pretty straightforward. You have
Speaker 1: very strong NONLAL GDP growth and many of these small
Speaker 1: and medium private enterprises need capital just to meet the
Speaker 1: demand backlog because of the demand shock we're seeing across
Speaker 1: various growth verticals including defense and again other niche areas.
Speaker 1: So that's the principal reason the pipeline is on fire,
Speaker 1: and we just haven't seen any evidence of crowding out
Speaker 1: in that niche area of the market. Now, to your
Speaker 1: point on the Russell, the Russell has been on quite
Speaker 1: a tear and as a reminder, the Russell trades more
Speaker 1: expensively on a pee basis than the NATSDAK and on
Speaker 1: an enterprise died eve Ada basis and the SMP, but
Speaker 1: typically has given you much lower revenue and earnings.
Speaker 6: Growth, So you know, rooting for the Russell.
Speaker 1: We're not saying that it's a bad place to put it,
Speaker 1: just strikes us as very expensive relative to larger indices
Speaker 1: that are out there with better growth prospects.
Speaker 5: As benchmark yields go up significantly, particularly in longer term debt,
Speaker 5: how much does that change the calculus when it comes
Speaker 5: to private debt versus private equity.
Speaker 1: Yeah, so most private debt is priced at the front
Speaker 1: end of the curve, right, So if you think of
Speaker 1: the back end of the curve, that's really an issue.
Speaker 7: More.
Speaker 1: This steepening we're seeing is more of an issue for
Speaker 1: long duration fixed income obviously for ig markets for secretary
Speaker 1: best and unfortunately in the front end is where the
Speaker 1: anchor rate is. For private debt, it's just sofur plus market.
Speaker 6: So having the FED lower.
Speaker 1: Rates by one hundred and seventy five basis points so
Speaker 1: far has reduced the interest expense for private borrowers by
Speaker 1: about fifteen percent, which is substantial. That has led to
Speaker 1: an increase in credit quality. We don't expect further pressures
Speaker 1: in the front end. We're not expecting or the FED
Speaker 1: to actually high grate, so that will keep barring pressure
Speaker 1: lower and ultimately, in the event that the FED cuts
Speaker 1: over the next several years, that will further increase futy
Speaker 1: rate borrower credit quality, which as a private lender is
Speaker 1: very very important.
Speaker 6: Troy.
Speaker 2: It's got to say thank you, sir trog Esci.
Speaker 6: There.
Speaker 2: This is the Bloomberg Surveillance podcast, bringing you the best
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