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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and a Marie hort Ern. Join us
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Speaker 2: of Vanvesco Joints surround the table here in New York. Brian,
Speaker 2: good morning to you. We're looking ahead to economics eight
Speaker 2: this morning at eight thirty Eastern Time. We're looking back
Speaker 2: at payrolls from last Friday, bloom out payrolls for important
Speaker 2: and we're attempting to look ahead to more of the same.
Speaker 2: I just wonder how messy the days is going to
Speaker 2: be after the one two punch we've seen across several
Speaker 2: states in America, Hurricane Alean onto Hurricane Milton.
Speaker 3: Yes, some of the data may be messy, but I
Speaker 3: think the law larger themes are still in place, and
Speaker 3: I know that there's a lot of focus on today's
Speaker 3: CPI report. The reality is, I continue to believe that
Speaker 3: the inflation story is largely behind us.
Speaker 4: It's passe.
Speaker 3: If you look at the Fed's preferred measure of inflation
Speaker 3: very much in the comfort zone. If you look at
Speaker 3: the inflation break evens, which give you the bond markets
Speaker 3: expectation of inflation relatively benign. I mean, the inflation story
Speaker 3: was one of large stimulus and a pandemic that caused
Speaker 3: supply challenges. I don't think it's something that is re emerging. Rather,
Speaker 3: it's a market that's responded to some good economic activity.
Speaker 2: And it's responded as follows, a two year back at
Speaker 2: four percent, a ten year back at four percent. How
Speaker 2: do you think about the influence of the bond market
Speaker 2: and the equity market alignment.
Speaker 4: I'm okay with that.
Speaker 3: I would rather see better economic data and less rate
Speaker 3: cuts than bad economic data and a lot of ray cuts.
Speaker 4: You know, the markets. The bond market's.
Speaker 3: Been moving in this three and a half to four
Speaker 3: and a half percent range, give or take this year,
Speaker 3: depending on the direction of the data. Now, if you
Speaker 3: think of four percent is a general proxy for what
Speaker 3: nominal growth will be in this country two percent real,
Speaker 3: two percent inflation, So that seems like a reasonable value.
Speaker 3: Is things deteriorate and growth you come down a little bit,
Speaker 3: So I think we're probably at the upper end of
Speaker 3: that range. Again, Yeah, we had a good payroll report,
Speaker 3: but if you look at survey data, it's somewhat mixed
Speaker 3: and doesn't seem like an economy heading into a recession,
Speaker 3: but doesn't seem like one that's reaccelerating either.
Speaker 5: Which raises a question. Did the sell off in the
Speaker 5: bond market that we've seen over the past few.
Speaker 6: Weeks actually raise the specter of.
Speaker 5: A pretty big rally if you get a downside surprise
Speaker 5: and CPI In other words, does inflation start to matter
Speaker 5: a whole lot more?
Speaker 3: Again, maybe in the short term, but I would say
Speaker 3: in the long term or in the intermediate term, it's
Speaker 3: going to be more about growth. And one of the
Speaker 3: ways to think about it is just look at the
Speaker 3: correlations between stocks and bonds, which have become negatively correlated. Again,
Speaker 3: so it's become a good news as good news bad
Speaker 3: news is bad news.
Speaker 4: Type of environment.
Speaker 3: And so I'm focused on the growth side of this story.
Speaker 3: You know, when I see a good payroll report or
Speaker 3: a CPI report, that's you know, even a little bit
Speaker 3: above of what the expectation is. To me, I'm thinking
Speaker 3: that's a good nominal growth backdrop. That's good for corporate profitability.
Speaker 3: It doesn't increase concerns to me significantly that this FED
Speaker 3: can ease or the FED may have to raise rates again,
Speaker 3: or inflation's coming back again. I think that's a twenty
Speaker 3: twenty two story.
Speaker 5: So you like treasure is here in terms of where
Speaker 5: they're at and the value that they're giving. That's what
Speaker 5: I'm getting from you. We just heard Bill Waddell talk
Speaker 5: about potential four hundred and fifty billion dollars in recovery
Speaker 5: funds needed to pay for what's going on in Florida.
Speaker 5: This isn't going to be the last. A lot of
Speaker 5: people saying these storms coming a lot more frequently, and
Speaker 5: aside from just the storms and paying for all of this,
Speaker 5: it raises a question of how much more spending needs
Speaker 5: to happen and whether that spending can really be tolerated
Speaker 5: by a treasuring market where the auctions are starting to
Speaker 5: get messier.
Speaker 4: Well, they may be.
Speaker 3: Getting a little bit messier, but we haven't seen the
Speaker 3: treasury break from nominal growth potential. I mean people view
Speaker 3: treasuries as perhaps trading like a credit They don't measury market.
Speaker 3: It largely trades on the direction of the economy and
Speaker 3: what the Federal Reserve is going to do. So I'm
Speaker 3: not concerned that additional spending will cause rates to jump
Speaker 3: because we're concerned about the credit worthiness of the US
Speaker 3: A rate that's going to continue to move in line
Speaker 3: with inflation and with growth.
Speaker 4: And you know, it's sort of like.
Speaker 3: Every time rates come down, you say to investors, well,
Speaker 3: you've been sitting in money markets.
Speaker 4: You should have locked in.
Speaker 3: This is like the third or fourth bite at the
Speaker 3: app Well they've gotten People used to beg me for
Speaker 3: four percent, right, and now this is the third or
Speaker 3: fourth time they've had the opportunity to take advantage of
Speaker 3: that beyond thirty days, maybe think about it for five
Speaker 3: years or ten years.
Speaker 4: So I think investors should take advantage of it.
Speaker 7: Hurricanes are not just going to be expensive, but the
Speaker 7: fact is they can also increase fuel costs. We are
Speaker 7: seeing this risk in the oil market, not just domestically
Speaker 7: but also internationally. What's going on in the Middle East.
Speaker 4: What kind of.
Speaker 7: Impact you see from the price of oil, not just
Speaker 7: on inflation data, potentially also its relationship with the bond.
Speaker 3: Well, we know energy prices tend to rise late cycle, right,
Speaker 3: so that's a phenomenon where you get these moves and
Speaker 3: energy prices and that's when the consumer rolls over.
Speaker 6: But let's think of the starting point.
Speaker 3: So the starting point is the US is producing or
Speaker 3: is drilling more oil right now than any country in
Speaker 3: the history of the world ever, right, some thirteen million
Speaker 3: barrels per.
Speaker 4: Day or more.
Speaker 3: And we started this environment or we've you know, the
Speaker 3: expansion of the Middle East war into Lebanon and Israel
Speaker 3: and Iran, and these hurricanes with oil in the sixties
Speaker 3: in the United States, so we've moved up into the
Speaker 3: mid seventies, but certainly not the one hundred and twenty
Speaker 3: dollars that we were looking at when ahead of the
Speaker 3: global financial crisis. I drive around my neighborhood gasolines, you know,
Speaker 3: two seventy five, you know, two eighties, So we're not
Speaker 3: at a level that's you know, prohibitive. In fact, that's
Speaker 3: part of the soft landing story. Consumer networth at an
Speaker 3: all time high gasoline beflow three. But yes, if this
Speaker 3: were to skyrocket significantly, don't think that it's an inflation story.
Speaker 3: That's a tax on the US consumer story. But US
Speaker 3: drilling hopefully prevents that.
Speaker 7: So what's your biggest risk then, to the soft landing scenario.
Speaker 3: The biggest risk would be a rollover in economic activity.
Speaker 3: I mean, we've had interest rates high for a very
Speaker 3: long period of time, and you know, usually when the
Speaker 3: yield curve inverts, you wait eighteen months for the Fed
Speaker 3: to have to normalize the yell curve and you go
Speaker 3: into a recession. And this time that has not happened.
Speaker 3: The bankers were tightening lending standards, now they're not. Corporate
Speaker 3: bond spreads are very benign, so it doesn't feel like
Speaker 3: a recession, largely because most American households have fixed rate mortgages,
Speaker 3: so the increase in rates hasn't hit. Now those are
Speaker 3: famous last words. Right anytime you're two years after tightening cycle,
Speaker 3: you're saying no overseet you know, you say, well, I
Speaker 3: guess we got through this.
Speaker 4: So that would be the risk.
Speaker 3: I'm laser focused on the growth side, not on the
Speaker 3: inflation side. But right now, the evidence suggests it's an
Speaker 3: economy that's pretty resilient.
Speaker 2: Let's finish on Nanning's Importan twenty four as Delta JP
Speaker 2: Morgan wels FONC Bank of America's Vita subramanium.
Speaker 6: The bar isn't high, do you agree?
Speaker 4: Yeah, the bar isn't high.
Speaker 3: It's you know, the expectations are fairly low. We're likely
Speaker 3: to surpass expectations on earnings as we as we tend
Speaker 3: to do. And again it's a good nominal growth back job.
Speaker 3: You know, investors sitting here looking at the equity market
Speaker 3: saying all time highs on the equity market, can I invest?
Speaker 4: You know, we've had, you know.
Speaker 3: Twelve hundred all time highs since the S and P
Speaker 3: five hundred went live.
Speaker 4: And you know people say buy low, sell high.
Speaker 3: I say, by high, sell higher, And I think we're
Speaker 3: in a I think we're in a or maybe never sell.
Speaker 3: I think we're in a bowl market. And peak inflation,
Speaker 3: peak tightening, peak rates should be good for equities.
Speaker 2: He's still but it's just pro vescot Pran is going
Speaker 2: to say, I get the thank you, say, Tom, welcome
Speaker 2: back to the program, set giant step back. Can we
Speaker 2: just spend some time from thirty five thousand feet. Can
Speaker 2: you explain to us how different this universe will lurk
Speaker 2: in ten, fifteen, twenty years time.
Speaker 1: Yeah, certainly. You know, today the auto industry is about
Speaker 1: a two point seven trillion dollar industry. It's essentially a
Speaker 1: box with wheels industry with about ten percent operating margins.
Speaker 1: The robotaxi industry will be about a one point seven
Speaker 1: trillion dollar industry, but massively more profitable. Right you and I.
Speaker 1: When we take an uber pay about a dollar to
Speaker 1: two dollars a mile, it only costs about thirty cents
Speaker 1: to operate one of these per mile, So it's it
Speaker 1: becomes a software business, a subscription based business, and the
Speaker 1: multiples that these companies will trade it will be tech multiples.
Speaker 1: So I have Tesla at something like two hundred and
Speaker 1: fifty billion out of the one point seven trillion, but
Speaker 1: you apply a tech multiple to it, and now all
Speaker 1: of a sudden, it's more than half of my entire
Speaker 1: Tesla valuation. So it dramatically increases the valuation of the
Speaker 1: mobility sector, the auto sector, because it gives all of
Speaker 1: us as consumers greater utility. We don't have to own
Speaker 1: a car, get chased by the cops, deal with parking,
Speaker 1: don't get into accidents. It's really a transformational thing for society.
Speaker 1: I'm sure we'll hear a lot about that tonight. It
Speaker 1: help solve the urban housing crisis. No more parking garages, etc.
Speaker 1: Really a breakthrough type thing for society. The real question,
Speaker 1: obviously is when is it's going to happen.
Speaker 6: Well, let's talk about that.
Speaker 2: So how quick did you think we'll see the shift
Speaker 2: from consumers just pulling away from buying a single automobile
Speaker 2: and maybe buying a subscription to one of these services.
Speaker 1: Yeah, I think this will be a very slow process.
Speaker 1: This is not years, This could even be decades.
Speaker 8: It will happen, though, you know, we had Carlos Stavars
Speaker 8: from Stilantis at our conference a couple of years ago,
Speaker 8: and he said, you'll have to re engineer cities entirely,
Speaker 8: you know, not the example of the champ Sela, say,
Speaker 8: where it's really a human decision of how to drive,
Speaker 8: and so cities left to re engineer themselves.
Speaker 1: Regulatory will be the big question mark that we'll need,
Speaker 1: and that's always a slow process. It will happen, but
Speaker 1: it will be years, maybe decades. Before we get kind
Speaker 1: of full ubiquity, but certain cities you'll see it happen
Speaker 1: quicker than others.
Speaker 5: Tim, I want to pick up on that this question
Speaker 5: of the sheer technology of it versus the regulation of
Speaker 5: it versus the oversight, especially to time, where the host
Speaker 5: of data that you're going to need to make this happen,
Speaker 5: as well as the oversight and the potential manipulation of
Speaker 5: people's driving patterns is going to become in cold relief
Speaker 5: when everything is a national security issue, how high are
Speaker 5: the hurdles. Do you have a sense of who's even
Speaker 5: working on trying to get some sort of regulatory framework
Speaker 5: and oversight into how this would operate, let alone whether
Speaker 5: it even could.
Speaker 1: Yeah, I mean I was at cs a couple of
Speaker 1: years back, and there were congressmen from you know, US
Speaker 1: states who were speaking about this topic. So there is
Speaker 1: a political movement to get this happening, even in the US.
Speaker 1: It is a state by state issue in the US.
Speaker 1: But remember we're saving thousands of lives, you know, hundreds
Speaker 1: of millions of dollars in productivity, etc. So there is
Speaker 1: a political motivation to get it done. But obviously you
Speaker 1: have questions about liability, the automaker get the liability, does
Speaker 1: the person driving get the liability? So the US it's
Speaker 1: somewhat complicated. Europe is even more difficult to get this.
Speaker 1: On the finishing line, you have the European Commission, which
Speaker 1: is a multiple countries have to all agree together. We
Speaker 1: all know how difficult that is. China, however, is I
Speaker 1: think we're ground zero where this will happen. We're already
Speaker 1: seeing it happen. It's a you know, obviously central government
Speaker 1: can actually make this happen, So we'll see it happen
Speaker 1: in China. Quicker. My numbers have China with a much
Speaker 1: bigger robotaxi number than Europe or the US. Then it'll
Speaker 1: gradually happens state by state, I think in the US,
Speaker 1: and then finally, we do think it will eventually happen
Speaker 1: in Europe.
Speaker 5: And John, the person who's leading the charge here is
Speaker 5: a politically polarizing human being, Elon Musk, and he's making
Speaker 5: himself more so. And I wonder whether that puts Tesla
Speaker 5: in a better position or a worse position when it
Speaker 5: comes to still being the leader of the whole robo
Speaker 5: taxi movement in the future.
Speaker 1: Yeah, I mean you guys probably know that I can
Speaker 1: answer that question better than I can, But what I
Speaker 1: would say is, I don't anticipate him doing something completely
Speaker 1: different than what we've seen already, at least in your
Speaker 1: term from ROBOTAXI fleets from Cruz and from Weimo. I
Speaker 1: expect them to announce tonight a fleet service similar to
Speaker 1: that with their vehicle. Those programs already have approval right
Speaker 1: in the US by those certain cities and states. I
Speaker 1: can see that being a similar path forward. But I
Speaker 1: do want to stress the technology that Tesla has with
Speaker 1: that SD is different. It is AI base. We have
Speaker 1: it on the roads in Level two plus and people's cars.
Speaker 1: It is very different and it is better, quite frankly
Speaker 1: than a lot from a lot of Level two plus
Speaker 1: on the road that we have. And there is an
Speaker 1: arms race for Nvidia chips and Tesla has quite a lot.
Speaker 1: So you know, over time, I think people will look
Speaker 1: at the kind of proof in the pudding and see
Speaker 1: obviously the data that will bear it out. We have
Speaker 1: to see the safety statistics and what happens. But you know,
Speaker 1: it's an arms racer GPUs. Tesla has a lot of them.
Speaker 1: FSC is a great product there's a lot of people
Speaker 1: working in this company, not just one individual. I think
Speaker 1: we all have friends who work there who are very
Speaker 1: interesting in dynamic people, and it's a dynamic company first
Speaker 1: and foremost.
Speaker 7: Well, no one said Elon Musk wasn't dynamic. Tom, You're
Speaker 7: very optimistic when it comes to a long term. Can
Speaker 7: we really narrow this to the short term? This event
Speaker 7: is delayed by two months? How hi is the bar
Speaker 7: for Elon Musk and Tesla this evening?
Speaker 1: Sure? You know I've said that near term. I don't
Speaker 1: actually expect this to be a big a big catalyst
Speaker 1: for the stock. It had run into the event. We
Speaker 1: had a delivery number that was in line, and the
Speaker 1: stock still kind of sold off a bit. I think
Speaker 1: there was some folks who moved into Tesla because of
Speaker 1: all the carnage happening from you know, the German OEM's
Speaker 1: profit warning never let a good crisis go to waste.
Speaker 1: I think I was the person who said that, thank you, Tom, sorry, credit,
Speaker 1: I no worries, and so a lot of that happened,
Speaker 1: and basically, you know, the stock pulled back, so it
Speaker 1: showed you that the stock ran into the event. So
Speaker 1: I don't anticipate a big up move, but I do
Speaker 1: expect that people like myself will finally get numbers on
Speaker 1: how to model robotaxis. I also think they could talk
Speaker 1: about optimist because on the invitation it said we robot
Speaker 1: So I do wonder if we could hear more about optimists.
Speaker 1: It's definitely not in people's numbers, so it could be
Speaker 1: a catalyst more longer term, as we start putting these things,
Speaker 1: these higher multiple non auto things in our models, we'll
Speaker 1: remember this day of you know, in the future and
Speaker 1: look back as opposed to tomorrow seeing the stock price,
Speaker 1: you know, demonstrably higher or lower.
Speaker 6: Tell them how strong do you think some of the
Speaker 6: hands in this stock are?
Speaker 4: Now?
Speaker 2: Given the Elon Musk himself said basically, if you don't
Speaker 2: believe in autonomous driving, don't hold this name. That was
Speaker 2: basically what he came out within the last twelve months.
Speaker 2: How strong do you think the hands are in this name?
Speaker 2: Given them riding we've seen off the Eighthril low.
Speaker 1: Yeah, but I think people are starting to believe, if
Speaker 1: not starting to believe, they have been believing in the
Speaker 1: past several months. I mean, you can't get to a
Speaker 1: market cap close to whatever eight hundred billion dollars just
Speaker 1: on a car business. It just doesn't work. The math
Speaker 1: isn't there. You have to believe it's a tech company,
Speaker 1: and autonomy is one of the only ways you can
Speaker 1: really get there. I mean, not even with energy storage,
Speaker 1: not with regulatory credits. One of me is a real
Speaker 1: software subscription based business. People clearly giving credit for it
Speaker 1: based on where the stock is right. So I actually
Speaker 1: think folks are believers in it. We just need details
Speaker 1: more than anything, and not just PowerPoint slide. So we'll
Speaker 1: see the vehicle, I think tonight we'll see what it
Speaker 1: looks like. I mean that in of itself is not
Speaker 1: going to get folks excited, but I think it'll give
Speaker 1: credibility that this is real. And then this is happening
Speaker 1: and could happen. We could have a service maybe within
Speaker 1: the next six or twelve months.
Speaker 2: We hope been promised that for a long time. Tom
Speaker 2: to run a s some thank you, sir, appreciate the
Speaker 2: up day. Dan Gun has a SOUS alternative asset management,
Speaker 2: saying the stock market still looks good to me. Broadening
Speaker 2: gains are encouraging and despite all the worries over everything
Speaker 2: market camp and equal weighted and decease reach essentially at
Speaker 2: high stand joined, nap for more dank and morning.
Speaker 4: Good morning, sir, how are you going to see?
Speaker 6: Why do you always act surprised.
Speaker 9: Because I'm not listening to start?
Speaker 2: Thanks, you're listening now now call life on sav good.
Speaker 6: It's good to see.
Speaker 4: Look.
Speaker 2: Equity spread, equities a record highs. Credit spreads are incredibly tired.
Speaker 2: I think we should start in credit. When you look
Speaker 2: at credit right now, how tight are things at the moment?
Speaker 9: Yeah, listen, they are. I think depending on your index,
Speaker 9: you're effectively at all time tights. I mean that's not
Speaker 9: exactly true. If you use the JP Morgan index, for instance,
Speaker 9: their IG indexes called ten or so basis points away
Speaker 9: from all time tights. The high Yealed indexes ninety basis
Speaker 9: points away from all time tights. Bloomberg obviously has an
Speaker 9: index that's similarly close to all time tights. But but
Speaker 9: I don't think in that sense the credit market tells
Speaker 9: you anything that the equity market is not. We're obviously,
Speaker 9: as we've discussed and you discussed with other guests, pricing
Speaker 9: in for lack of a better word, of soft landing
Speaker 9: or just a continuation of the expansion and risk assets
Speaker 9: in general or appreciating in that type of environment.
Speaker 2: Is it sufficient that they're even talking about interest right cards?
Speaker 2: Is that just good enough? The fact that we've got
Speaker 2: bank drop for growth and we've got a central bank
Speaker 2: that's even having a conversation about lower and interest right small.
Speaker 9: Well, let's just state the obvious. We're not just having
Speaker 9: a conversation about it. We've already realized a fifty basis
Speaker 9: point reduction, We're probably going to realize two more twenty
Speaker 9: five basis point reductions this year. There's obviously a debate
Speaker 9: about whether that's completely necessary or not, but from a
Speaker 9: expected value standpoint, that's probably should be your baseline. And
Speaker 9: so it's again, we're not just discussing it. It's happening.
Speaker 9: And so the more important thing for risk assets is
Speaker 9: not whether rates are going up or down. It's what's
Speaker 9: the broader economic and earnings backdrop. And in that sense, yes,
Speaker 9: rates are coming down, and that's an added benefit, certainly
Speaker 9: for companies that have to refinance and the maturity wall
Speaker 9: and the credit market, et cetera. But ultimately what matters
Speaker 9: is that cash flows still look pretty good and the
Speaker 9: economy still looks pretty good, and so from that standpoint,
Speaker 9: why shouldn't risk assets appreciate.
Speaker 5: There's a question about whether the bond market, treasury market
Speaker 5: in particular, is increasingly kind of dancing to its own music.
Speaker 5: As long as good data comes out, even if fields
Speaker 5: go higher, it doesn't really matter for risk assets. At
Speaker 5: what point is that sort of a threat that gets
Speaker 5: crossed as yields continue to grind up war it well.
Speaker 9: I think it's also important for investors to remember that
Speaker 9: the relationship between yields in the treasury market and risk
Speaker 9: assets is a moving target, and in particular in the
Speaker 9: post two thousand period, roughly higher yields, which are associated
Speaker 9: with higher growth and not necessarily higher inflation, have been
Speaker 9: a positive for risk assets. They can move in tandem,
Speaker 9: and I think you had a period of time obviously
Speaker 9: where inflation was spiking, where that relationship was inverted. People
Speaker 9: were concerned about inflation. But as we've moved now towards
Speaker 9: growth concerns. Right now, I think higher yields are not
Speaker 9: necessarily a problem for the equity market in the sense
Speaker 9: that if they are corroborating the idea that the economy
Speaker 9: is continuing to grow, maybe the FED. A lot of
Speaker 9: what's happened, obviously, is that the FED can cut as
Speaker 9: much as was originally priced in stupidly, I might add,
Speaker 9: but in that environment, why wouldn't equities appreciate even if
Speaker 9: the yield in the tenure goes from three to fifty
Speaker 9: to let's say four.
Speaker 5: So to pair that with credit is solas thinking that structurally,
Speaker 5: credit spreads are going to be tighter this time around
Speaker 5: relative to the higher benchmark yield, simply because the higher
Speaker 5: yield reflects how good the momentum in the economy is,
Speaker 5: which should all things being considered, make a lot of
Speaker 5: the companies who even are lower rated look more credit worth.
Speaker 9: You know, that's one hundred percent accurate. I would also add,
Speaker 9: and we've discussed this in the past, this is not
Speaker 9: your mother's credit market. It's more highly I don't know
Speaker 9: that my mother had a really, really impressive colid market,
Speaker 9: but I mean it is true.
Speaker 1: The market is more highly rated.
Speaker 9: You have a higher proportion of debt at the top
Speaker 9: of the high yield structure than at the bottom. Companies
Speaker 9: have higher cash and lower debt to ebitar ratios, leverage radios.
Speaker 9: So there's all sorts of reasons why the market should
Speaker 9: be in a sustainable way, tighter than what we've seen historically,
Speaker 9: and in conjunction with that, you have, to your point,
Speaker 9: the better economic backdrop, which improves the environment. The faults
Speaker 9: are relatively constrained, So all of that together makes for
Speaker 9: a more attractive credit market and should over time obviously
Speaker 9: if you have a receessioned this change, but over time
Speaker 9: should support higher valuations in the credit market as well
Speaker 9: as the equity market.
Speaker 2: Given everything we've said, what's your advice to people who
Speaker 2: have missed out on all of this?
Speaker 6: In the Satin cash? What did they do?
Speaker 4: High society?
Speaker 6: Where do they go?
Speaker 9: This is like the Sasquatch. I don't think those people exist.
Speaker 6: You don't think exists.
Speaker 1: No, I don't think they know.
Speaker 6: Some persons tell us what you meane.
Speaker 9: Well, Lisa might know one person who has sat in
Speaker 9: cash for some time.
Speaker 6: I think it's Lisa for what it's worth.
Speaker 1: But I don't think.
Speaker 9: I don't think after a bull market so to speak,
Speaker 9: in both equity and credit that has lasted this long
Speaker 9: has not sucked in most investors at this point, and
Speaker 9: I think you're at a point in the cycle now
Speaker 9: where I don't think we should be having the conversation,
Speaker 9: is it a bull market, is it about to end?
Speaker 4: Et cetera, et cetera.
Speaker 9: I think the conversation now should be considerably more nuanced
Speaker 9: than has been for some time, in the sense that, Okay,
Speaker 9: things are doing okay, risk assets continue to appreciate. Where's
Speaker 9: the outperformance going to come from? Is it still tech stocks?
Speaker 9: Should I rotate into energy? Is it defensives? What factors
Speaker 9: should I be overweighting, et cetera, et cetera. Where in
Speaker 9: the capital structure should I be positioned? Triple c's have
Speaker 9: had a very good year. Obviously that's not a market
Speaker 9: so much as a bunch of idiosyncratic names. But those
Speaker 9: are the types of discussions that asset managers have all
Speaker 9: the time. But I think for a lot of viewers
Speaker 9: out there are watching should be happening to a greater
Speaker 9: degree today.
Speaker 2: When you say that money doesn't exist, you're not saying
Speaker 2: that money is not real. You're just saying that that's
Speaker 2: not the kind of capital that's going to get deployed
Speaker 2: to risk.
Speaker 9: Which money did I say doesn't exist?
Speaker 6: Money market funds?
Speaker 1: Oh?
Speaker 9: Yes, sure, no, Well listen, that's listen. This is a
Speaker 9: favorite topic of mind that six trillion exists. But I
Speaker 9: think we people come on television and write notes and
Speaker 9: talk about it as if it's this monolithic item which
Speaker 9: is going to spur equities higher as cash goes from
Speaker 9: six trillion to t That's not how it works. First
Speaker 9: of all, a portion of that money is institutional, a
Speaker 9: portion of that money is retail, some of it's in
Speaker 9: tax advantage funds. It's not like they're all comparable to Nvidia.
Speaker 9: But the most important point I would make, and I've
Speaker 9: made repeatedly, and I will do it until I die,
Speaker 9: that's six trillion needs to be scaled for something because
Speaker 9: number up. So you can't compare today's six trillion to
Speaker 9: six trillion five years ago. What do you compare it to?
Speaker 9: My preference is the S ANDP market cap? How much
Speaker 9: is on the sidelines compared to the market cap. So
Speaker 9: let's do the math real quick. There's six trillion or
Speaker 9: so of money and market there's six trillion of cash
Speaker 9: or show in money markets. Let's treat it like it's
Speaker 9: a monolith of total equity market cap SB five hundreds
Speaker 9: called fifty trillion or so. So that's I don't know,
Speaker 9: ten twelve, something percent of the equity market cap. That's
Speaker 9: not out of step with what we've seen over the
Speaker 9: last ten or fifteen years. Yes, there's a lot of
Speaker 9: money on the sideline, but there's a share of biable
Speaker 9: assets in the s and P five hundred. If that's
Speaker 9: your argument, it's not necessarily high. That's not to say
Speaker 9: that it will not come down. It will at some
Speaker 9: point six trillion will go to five trillion, and some
Speaker 9: of that will go into the equity market. But do
Speaker 9: I think that is a reason for me to be
Speaker 9: even more bullish or bullish at all?
Speaker 1: No, I don't think I.
Speaker 2: Can tell you that was such so much better ounser
Speaker 2: than the first one exists.
Speaker 6: Well, all I can say is I love this. We
Speaker 6: should comput it.
Speaker 9: I don't. I must have had a Will Ferrell moment.
Speaker 9: I don't remember saying the sixth this morning.
Speaker 5: DA Honestly to me, that sort of we should get
Speaker 5: clips of everyone's saying money on the sidelines is a
Speaker 5: reason to buy, and then all the people saying money
Speaker 5: on the sidelines is a fiction. Stop it already next time, Okay,
Speaker 5: just I am curious. I want to get to this
Speaker 5: because Solis really specializes in distressed investing right now the
Speaker 5: world that you just pictured, no distress there.
Speaker 1: What do you guys do well?
Speaker 9: Listen, distress managers have been wrestling with this for many,
Speaker 9: many years, and I don't think SOLIS is any different
Speaker 9: in that regard. That is to say that when you
Speaker 9: the traditional distress manager in previous cycles probably doesn't exist
Speaker 9: much today. SOLAS does as much investing up the capital
Speaker 9: structure these days as we do down the capital structure.
Speaker 9: So we're capable and have owned not Visa, but like
Speaker 9: we could own Visa, and we could own dish unsecured bonds.
Speaker 9: And when you have an environment like we've had for
Speaker 9: some time where the dish unsecured bond equivalent is few
Speaker 9: and far between, has been the case these days. There's
Speaker 9: not so much workouts, there's not so many structurings. You
Speaker 9: have to find risk adjustede returns elsewhere. And we've done that,
Speaker 9: increasing in the equity market and up the capital structure,
Speaker 9: and I think that's been rewarding for us over the
Speaker 9: last few years. I think we're pretty pleased with our performance.
Speaker 9: The way that I talk about it is we're taking
Speaker 9: what the market gives us. There might have been a
Speaker 9: time where we were trying to force the issue in
Speaker 9: saying distress managers, multi billion dollar distress managers, this is
Speaker 9: the only sandbox in which we can play. We've traditionally
Speaker 9: played in that sandbox. We must stay there. I don't
Speaker 9: think we have that view and have in for a decade.
Speaker 9: We're all over the capital structure, and I would argue,
Speaker 9: justifiably so our.
Speaker 5: Distressed hedge fund's being made out of business by some
Speaker 5: of the big private capital funds that are out there
Speaker 5: doing a lot of rescue finance.
Speaker 1: That doesn't help.
Speaker 9: But I think the bigger issue for distressed investors in
Speaker 9: general is there's just not been very much distress. The
Speaker 9: maturity wall, which everyone keeps talking about, hasn't been binding.
Speaker 9: Restructurings get done, and the lack of covenance in in
Speaker 9: the loan market and elsewhere make it easier for companies
Speaker 9: to go longer before they enter court restructurings, and when
Speaker 9: they do, there's fewer assets to fight over, which gave
Speaker 9: birth elemies with this whole separate conversation. But yeah, listen again,
Speaker 9: I think we're finding stuff to do. We've talked about
Speaker 9: the energy market. Oil is twenty bucks off its Highs,
Speaker 9: but a lot of those names, or a lot of
Speaker 9: those stock names, are basically AD Highs.
Speaker 4: We continue.
Speaker 9: We talked about the consumer ad nauseam on here. There's
Speaker 9: any different number of ways you could play the consumer.
Speaker 9: We've talked about cruise lines, We've talked about in the
Speaker 9: media space where we sold this as a history. It's
Speaker 9: well known that we were a large holder of MGM Studios,
Speaker 9: so we having expertise in that area. There's stuff to
Speaker 9: do there. I don't think there's any shortage of stuff
Speaker 9: to do. Again, if you don't sit here and say
Speaker 9: that's the only sandbox in which we can.
Speaker 6: Play, Dan, this was great. It's going to see it.
Speaker 4: My pleasure is always good. It was real.
Speaker 6: It happened.
Speaker 2: Dan green House of Solis Alternative Assett.
Speaker 1: I'm gonna have to watch the tape.
Speaker 2: This is the Bloomberg Sevenance podcast, bringing you the best
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