Speaker 1: This is the Bloomberg Surveillance Podcast.
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Speaker 3: I've been looking forward to this conversation. Liz An Son
Speaker 3: is the chief Investments trying to just a chold swap
Speaker 3: joins us right now. Lizan, I've been looking forward to
Speaker 3: it because we're not going to talk about self landing,
Speaker 3: hard landing, no landing, none of that. We're going to
Speaker 3: talk about what you and a team have been focused
Speaker 3: on now for a while, and that's rolling recessions. That
Speaker 3: is a framework, Lizen. Why is that so important for you?
Speaker 3: That nuance?
Speaker 4: Well, first of all, this is a unique cycle. That's
Speaker 4: the ultimate understatement. I think taking a nuanced approach is important,
Speaker 4: and we've been using that term for quite some time.
Speaker 4: I think the only other person that I know that's
Speaker 4: been using as long as we have is Ed yard Denny,
Speaker 4: and not that we want to rehash the last three
Speaker 4: and a half years, but if you think about the
Speaker 4: stimulus fuel demand surge coming out of the worst part
Speaker 4: of the pandemic, all of that demand and money associated
Speaker 4: with it was funneled into the good side of the
Speaker 4: economy because we had no access to services. That was
Speaker 4: where the inflation problem first began on the good side
Speaker 4: of the economy, exacerbated by the supply chain disruptions. But
Speaker 4: fast forward to the more recent period, we've gone into
Speaker 4: hard landing recessions for housing, manufacturing, a lot of housing related,
Speaker 4: many of the consumer product areas that were big beneficiaries
Speaker 4: of the lockdown, and we've gone from inflation to disinflation
Speaker 4: to deflation in many of the goods categories. We've just
Speaker 4: had the later offsetting strength on the services side. Same
Speaker 4: thing as rolled through in terms of inflation. So to me,
Speaker 4: best case scenario is not really soft landing that Schuberti
Speaker 4: sailed for many important segments of the economy.
Speaker 5: It's a continued roll through where if.
Speaker 4: In when services in the labor market get hit, you
Speaker 4: have found stability and maybe even some improvement in those
Speaker 4: areas that have already taken their hit.
Speaker 1: Lezan, love your nuance. Let's build on that.
Speaker 2: Where are you seeing opportunities that might have hit bottom
Speaker 2: that you want to be investing in now, In particular
Speaker 2: sectors that you think already have rolled through, they're hard
Speaker 2: landing and are now buys.
Speaker 4: I still think that investors are better off taking a
Speaker 4: factor based approach as opposed to a monolithic sector based approach,
Speaker 4: But we have made some adjustments in terms of the
Speaker 4: foot factors that we're focused on. As you know we've
Speaker 4: talked about it on this program. We have been emphasizing
Speaker 4: stay up in quality with factors like interest coverage and
Speaker 4: strong return on equity and strong balance sheet, but also
Speaker 4: growthy factors like positive earnings, revisions and surprises. But I
Speaker 4: think you want to now add kind of evaluation kicker
Speaker 4: into the mix because this year was characterized by all
Speaker 4: multiple expansion, no earnings growth. We see in the last
Speaker 4: month that there is money itching to move out of
Speaker 4: the Magnificent seven to find opportunities down the cap spectrum.
Speaker 4: And you have seen some lower quality characteristics to of
Speaker 4: what has rallied. I think you want to fade that
Speaker 4: and continue to lean into quality. But you can find
Speaker 4: it across the spectrum of sectors and also outside that.
Speaker 5: Group of just the Magnificent seven.
Speaker 2: So you said something Lezen talking about how people are
Speaker 2: itching to take the money that they've put into the
Speaker 2: Magnificent seven and put it to work elsewhere that might
Speaker 2: be at a lower valuation. How big is that wave
Speaker 2: of people is to get out of the Magnificent seven.
Speaker 2: Is this something that could cause an underperformance or is
Speaker 2: it just simply there's just been so much money people
Speaker 2: are looking for other ideas well.
Speaker 4: So far, so good in terms of the rotational nature
Speaker 4: of this easing of some of the excesses, You've seen
Speaker 4: some pullback in the Magnificent seven. The rest of two
Speaker 4: thousand SMP equal weight is outperforming the SMP over the
Speaker 4: past month or so.
Speaker 5: It's happened in kind of a stealth way.
Speaker 4: That's obviously the best way to go through a corrective
Speaker 4: phase of excesses versus.
Speaker 5: The bottom falling out all at once.
Speaker 4: What concerns me, particularly once we get past the year
Speaker 4: end seasonality, is that there is an incredible amount of overlap,
Speaker 4: especially in the large institutional world and the hedge fund world,
Speaker 4: in terms of ownership of not just the magnificent seven
Speaker 4: but up.
Speaker 5: The cap spectrum, and that you know.
Speaker 4: If we get some sort of catalyst and it unleashes
Speaker 4: more frenzy around selling, I think maybe the hit would
Speaker 4: have to be larger, but I do think absent that
Speaker 4: we could continue to see a broadening out via rotation
Speaker 4: again as opposed to some significant crack occurring in the market.
Speaker 3: Lasan, can you help us gauge sentiment? Just sort of
Speaker 3: a bit wittold, least from myself repeatedly that the money
Speaker 3: money market funds.
Speaker 6: Is really really sticky.
Speaker 3: As you look across clients, to the people you speak
Speaker 3: to daily, have they been moving into equities over the
Speaker 3: last month?
Speaker 6: What was that move in November?
Speaker 4: So you've seen some move in equities, But it's actually,
Speaker 4: interestingly within the US equity market been toward areas like
Speaker 4: real estate utilities, and I think that is in keeping
Speaker 4: with expectations of sooner rather than later fed cuts. I'm
Speaker 4: skeptical about that, but that's where the money has gone.
Speaker 4: But sentiment is really interesting because attitudinal sentiment measures have
Speaker 4: gone off the charts of bullishness and very little bearishness.
Speaker 4: Yet even the AAII survey that we get those attitudinal
Speaker 4: bullish bearish readings, the equity exposure of that same cohort
Speaker 4: of investors has actually been coming down. On the other hand,
Speaker 4: active institutional managers have actually been significantly increasing exposure. So
Speaker 4: much like cross currents in the economy, there's even a
Speaker 4: lot of cross currents in terms of sentiment data, and
Speaker 4: it's really a mixed picture, and sentiment is hard to
Speaker 4: It's always hard to use as some market timing tool,
Speaker 4: even at extremes, but it's particularly murky in this environment
Speaker 4: right now.
Speaker 3: Lizen, just a put a bow on it. You did
Speaker 3: just mentioned that that you're skeptical about right cuts. Can
Speaker 3: you just explain that a little bit more, Well.
Speaker 4: The inflation is still above the FEDS target, the labor
Speaker 4: market is hanging in there, the economy is hanging in there.
Speaker 4: How that justifies a pivot from the most aggressive tightening
Speaker 4: cycle to easing as soon as the first quarter of
Speaker 4: next year.
Speaker 5: I don't get it.
Speaker 4: It's possible to find to be easy, but probably because
Speaker 4: there's more economic dislocation between now and then. In addition,
Speaker 4: you had the Fed and Powell specifically pointing to the
Speaker 4: bond market doing a lot of the tightening for the
Speaker 4: FED when you were in the surge and yields up
Speaker 4: to five percent. To me, what would be interesting to
Speaker 4: hear is if they start to say, well, the loosening,
Speaker 4: which is a record one month loosening in financial conditions
Speaker 4: in November, maybe that does some of the loosening for
Speaker 4: the FED. And it wouldn't surprise me if Powell has
Speaker 4: to yet again reinforce the notion that they're not at
Speaker 4: this point considering rate cuts.
Speaker 6: That's the conversation for a week today. Listen.
Speaker 3: Thank you Lizanne Sunders, a child swab one of the
Speaker 3: very best joining us at Amandelinum, head of macro credit
Speaker 3: research at Black Crock Andmanic good.
Speaker 7: Morning, good morning, Thank you both for having me.
Speaker 6: How much money is shift into private markets.
Speaker 7: So our forecast calls for that asset class to grow
Speaker 7: from one point six trillion globally to three and a
Speaker 7: half trillion by the end of twenty twenty eight. So
Speaker 7: that implies a pretty significant continued growth pattern through the
Speaker 7: next five years. There are really four drivers behind that.
Speaker 7: The increase in the addressable market is one of them,
Speaker 7: but it's really investors looking for diversification, borrowers looking for
Speaker 7: certainty of execution, structural shifts in the public markets which
Speaker 7: are now serving larger and larger borrowers, so that renders
Speaker 7: small middle market debt deals ill liquid. And then fourth
Speaker 7: is the opportunity for banks to partner with non banks.
Speaker 7: And also just given the well telegraphed contraction in bank
Speaker 7: lending and tightening of bank lending standards to really fuel
Speaker 7: that growth. And so that's our forecast.
Speaker 2: Was that a really nice way of saying D banking
Speaker 2: that basically private credit is stealing banks lunch.
Speaker 7: I watched all of your great coverage yesterday, and I
Speaker 7: did see the D Banking dialogue. I actually think I
Speaker 7: agree with the comments that banks will remain at the
Speaker 7: center of the lending universe. That said, I think the
Speaker 7: important takeaway is that as private credit has become sizeable
Speaker 7: and scalable in its own right, it can now compete
Speaker 7: against other parts of the market where it wasn't historically.
Speaker 7: And so what we've actually seen are some companies with
Speaker 7: demonstrated access to the public markets choosing to refinance in
Speaker 7: the private markets. I think there's an opportunity for banks
Speaker 7: to partner with non banks in terms of in an
Speaker 7: environment where capital and liquidity rules may change, to partner
Speaker 7: and maybe move some of that lending into other parts
Speaker 7: of the non bank system. Doesn't mean that the risk
Speaker 7: transfer is a negative. It just means that capital is
Speaker 7: being reallocated, just like it did after the financial crisis.
Speaker 2: So there is this sort of larger question when you
Speaker 2: say banks will still be the center of the lending universe,
Speaker 2: it raises this question about what that means. There'll be
Speaker 2: the center in terms of maybe organizing some of these transactions,
Speaker 2: but not necessarily the center of profits, not necessarily the
Speaker 2: center of deploying risk and then getting that outsize return
Speaker 2: for some of these private loans. Is that what we're
Speaker 2: saying that they're going to be the center of sort
Speaker 2: of some of the transactional aspects, but that private credit
Speaker 2: firms are going to really get the upside from these
Speaker 2: loans that banks used to capture.
Speaker 7: I mean, I think from the side of the banking relationship,
Speaker 7: they really have a lot of the client relationships, a
Speaker 7: lot of the underwriting expertise. But in an environment where
Speaker 7: risk weighted assets are going up, does it make sense
Speaker 7: to hold all of that capital on the bank balance
Speaker 7: sheet or is there a more capital efficient way to
Speaker 7: do it? I think that's really the shift that we're
Speaker 7: seeing now. Some of these factors have been in place
Speaker 7: for a really long time, going back to the Financial crisis.
Speaker 7: After Dodd Frank was enacted, the public syndicated leverage loan
Speaker 7: markets grew because banks didn't want to keep those loans
Speaker 7: on their balance sheet. Instead they syndicated them out to
Speaker 7: a wide range of investors. That's how the public debt
Speaker 7: markets have been growing for so long. So I think
Speaker 7: that's just it's another sort of iteration of this capital
Speaker 7: allocation that's shifting in response to the regional banking disruption
Speaker 7: in March, in response to the potential rules for Basle
Speaker 7: three endgame, and I think it's probably a longer term shift.
Speaker 7: By the way, I would say, you know, our three
Speaker 7: and a half trillion forecast, it assumes a fifteen percent
Speaker 7: compound annual growth rate. That's actually below the growth rate
Speaker 7: that we've seen over the past five years, and it's
Speaker 7: consistent with the growth rate over the past decade.
Speaker 8: So it sounds large.
Speaker 7: But it's actually a continuation of the trend that's already
Speaker 7: been in place.
Speaker 3: Let's talk about big moves out of the last month.
Speaker 3: Credit spread so much tighter on high yield. I think
Speaker 3: three sixty seven right now, I just want it from
Speaker 3: your perspective, still up in quality, and what do you
Speaker 3: make of this move?
Speaker 7: So, I mean, I think the move it's very It's
Speaker 7: consistent with this kind of year end rally that has
Speaker 7: been fueled by pretty favorable technicals. We've seen issuance pick up,
Speaker 7: but not to a significant extent that it's interfering with
Speaker 7: that tightening. From our perspective, yes, up in quality still
Speaker 7: makes a lot of sense.
Speaker 8: For this really important reason.
Speaker 7: Most of the issuance in twenty twenty three, and I'm
Speaker 7: talking about the left in market has been up in
Speaker 7: quality within that market, so double bes and high single bees.
Speaker 7: The low low end of the quality spectrum, so triple
Speaker 7: c's and low single bees, has really been untested. There's
Speaker 7: been a lot of talk about rate cuts. That's not
Speaker 7: really our base case in the first half. But even
Speaker 7: if we do get a few modest rate cuts, just
Speaker 7: to put that in perspective, the implied refinancing cost on
Speaker 7: average for triple C's is above six hundred basis points.
Speaker 7: For the distressed universe it's above fourteen hundred basis points.
Speaker 7: So this low end of the quality spectrum. Even if
Speaker 7: we get some rate relief, they're still going to be
Speaker 7: refinancing into a much higher cost of capital regime.
Speaker 1: How long can goldilocks lost goldilocks last?
Speaker 2: Then?
Speaker 7: I think it's the title of our one Q outlook
Speaker 7: was a widening divide, and I really think it speaks
Speaker 7: to the dispersion that's evident under the surface and a
Speaker 7: lot of these markets. So for goldilocks, investment grade goldilocks,
Speaker 7: you know, high quality, high yield, they're in a pretty
Speaker 7: good spot, especially if we can achieve the soft landing.
Speaker 7: If you're a triple C rated credit that has refined
Speaker 7: nancing to do and you're looking at your current coupon
Speaker 7: and then the six hundred basis points that it may
Speaker 7: cost you to refinance in today's market or more much
Speaker 7: different story. It's part of the reason why we expect
Speaker 7: defaults to continue to march higher through the first half
Speaker 7: of next year. It's not not a spike, not a
Speaker 7: significant increase. But I don't think we ask a lot
Speaker 7: have we seen the last of this transition to a
Speaker 7: higher cost of capital.
Speaker 8: I don't believe that we have.
Speaker 6: With us around the table. I'm really placed society brilliant.
Speaker 3: Libby Cantroll, the managing director and head a public policy
Speaker 3: over at PIMCO.
Speaker 6: Libby, good morning. Another big debate for Republicans.
Speaker 8: Big debate?
Speaker 6: Yes, is this the big one? The difference?
Speaker 8: This is the big one? So this may be the
Speaker 8: last one.
Speaker 9: Actually, there's not another debate schedule before Iowa, when voters,
Speaker 9: of course on the Republican side, will go to the
Speaker 9: polls on January fifteenth. Viewership has declined since the first debate.
Speaker 9: That's when we saw sort of top tick of thirteen million.
Speaker 9: The last debate was around seven million, So we'll see
Speaker 9: if people are even paying attention to this. I think
Speaker 9: the real question, though John is does can Nicky Haley
Speaker 9: have another breakout moment? Does this sort of sustain the
Speaker 9: momentum that she has both in terms of the polling
Speaker 9: but very importantly in terms of the donors, And that
Speaker 9: remains an open question. I think that the other three
Speaker 9: folks on the debate stage will be sort of attacking
Speaker 9: Nicki Haley. I think Nicki Heley will be attacking President Trump,
Speaker 9: so it should be raucous as usual. But does it
Speaker 9: actually make a difference. I think that's the open question.
Speaker 1: What's the chance that you see another Biden Trump matchup.
Speaker 9: Well, so you know, what we're guiding our clients too,
Speaker 9: is one is that Biden will be the nominee.
Speaker 8: This sort of idea that there.
Speaker 9: Is some great cabal at the convention that will unseat him.
Speaker 8: We just do not think as founded.
Speaker 9: Senator bros from Louisiana, who had served with Joe Biden
Speaker 9: in the Senate, said, as long as President Biden is breathing,
Speaker 9: he is running. And I think that is something we
Speaker 9: should just you know, take take for what it is.
Speaker 8: You know, on the Republican side, obviously, if.
Speaker 9: The primaries were held tomorrow, it looks like Trump would
Speaker 9: be the nominee. They're not going to be held tomorrow.
Speaker 9: They're held in around forty days. And what we've seen
Speaker 9: with Iowa and New Hampshire is that things can change.
Speaker 9: They haven't really changed in terms of dictating who the
Speaker 9: nominee is since two thousand and eight when Obama, who
Speaker 9: was sort of underperforming all of the polls, that really
Speaker 9: outperformed in both Iowa and New Hampshire and was able
Speaker 9: to get the momentum to the nomination. So a lot
Speaker 9: can still happen, but as of now, if you were saying,
Speaker 9: if the primaries were held tomorrow, it would be another
Speaker 9: Biden Trump rematch, and you know, ironically, I'll just say,
Speaker 9: is that seventy percent of Americans don't want that.
Speaker 2: So that's the reason why I think it got so
Speaker 2: much attention yesterday when Joe Biden said if it wasn't
Speaker 2: for Donald Trump, he wouldn't be running again.
Speaker 1: What do you make of that?
Speaker 2: Do you make that if NICKI Haley is the nominee
Speaker 2: for the Republican side, that there is a chance that
Speaker 2: Joe Biden would step down and pave the way for
Speaker 2: somebody else.
Speaker 9: So his his pressure ap really watched that back last
Speaker 9: night after those comments were made. They were made, of
Speaker 9: course in private at a fundraiser, so was maybe I
Speaker 9: think they're saying taken out of context. You know. However,
Speaker 9: you know, this is something that President Biden has been
Speaker 9: saying since he was a candidate in twenty twenty, that
Speaker 9: that's why he was running the first time, and so
Speaker 9: this is somewhat consistent with that messaging. However, if Trump
Speaker 9: does not get the nomination, I still think that President
Speaker 9: Biden is the incumbent president. He believes that he really
Speaker 9: has a record both on the economy and then foreign
Speaker 9: policy to feel confident to run on. So we are
Speaker 9: not getting sort of any indication from folks close to
Speaker 9: the Biden world that he is, that he's not running.
Speaker 8: He is running.
Speaker 6: We've been all appreciate.
Speaker 3: I think we could all benefit from a delegation oudication
Speaker 3: rules clinic from you.
Speaker 6: How have things changed for Republican primary.
Speaker 9: Especially as a non Yes, a US citizen, So I
Speaker 9: appreciate you on that question.
Speaker 8: Yeah, so this is important.
Speaker 9: It's like very wants and a lot of our client's
Speaker 9: eyes understandably glazed over.
Speaker 8: But to get the nomination, it's just a delegate game.
Speaker 9: You need to get fifty percent of the delegates at
Speaker 9: stake on the Republican side and the Democratic side. The
Speaker 9: Republican side is the real story here, though, because the
Speaker 9: Trump campaign much more organized than it was in twenty sixteen.
Speaker 9: By their own emission, they have now systematically changed the
Speaker 9: way that states allocate delegate rules to benefit him as
Speaker 9: long as it's a crowded field, meaning that he They've
Speaker 9: changed the rules to what's called winner take all, So
Speaker 9: as long as President Trump is winning a plurality of
Speaker 9: the vote in many states, he will get one hundred
Speaker 9: percent of the delegates, and the punchline for all of
Speaker 9: us is that that makes it much easier for him
Speaker 9: to get the nomination much more quickly. So I would
Speaker 9: argue that by March fifth, which is Super Tuesday, we'll
Speaker 9: have had forty five percent of the delegates at stake
Speaker 9: being voted on, we likely will have a very good
Speaker 9: idea of who's going to be the nominee or whether.
Speaker 8: It's going to be more of a competitive two person race.
Speaker 3: As you said, so we know there's four people on
Speaker 3: the stage. Later is on the calendar where that for
Speaker 3: needs to become one to change the outcome of this.
Speaker 9: Well, I think there are a lot of folks on
Speaker 9: both the Republican side and then also some of the
Speaker 9: Democratic side. As you've seen, there's some now Democratic donors
Speaker 9: who are you know, donating to Nicki Haley sort of interesting,
Speaker 9: unprecedented in many ways, who are trying to argue for
Speaker 9: a Chris Christy to say drop out of the race
Speaker 9: before Iowa. You know, John, I think what we've seen
Speaker 9: though before is that again so much can change. That
Speaker 9: much of this is unprecedented, particularly given what we might
Speaker 9: be facing, which is you know, two incumbent presidents effectively
Speaker 9: running against each other. So you know, I don't think
Speaker 9: there's a drop dead date, but I do think that
Speaker 9: it needs to become a two person race sort of
Speaker 9: by South Carolina.
Speaker 8: That's February twenty fourth. So I think the bottom.
Speaker 9: Line for kind of the markets and for investors is
Speaker 9: that the next seventy five days really matters.
Speaker 8: We will have a very good.
Speaker 9: Idea by sort of South Carolina by Super Tuesday, which
Speaker 9: is March fifth, whether this is going to be President
Speaker 9: Trump Biden or whether it's going to be more of
Speaker 9: a two person race between Nicky Haley and Trump.
Speaker 2: In those seventy five days, we're going to be dealing
Speaker 2: with a couple of deadlines for funding the government. Before
Speaker 2: I let you go, we keep talking about where is
Speaker 2: the leverage. The leverage is in the US government. I
Speaker 2: then you figure something out in order to keep operating.
Speaker 2: How are you advising people in the market to understand
Speaker 2: what's happening, what the likelihood of a shutdown is, what
Speaker 2: that means in terms of the growing risk frankly that
Speaker 2: it's been attributed to in markets.
Speaker 9: Yeah, So mean I think that two things. One is
Speaker 9: that this is not the dead ceiling, right. The debt
Speaker 9: ceiling was existential for the markets that has been fortunately
Speaker 9: addressed until January or February of twenty twenty five. This
Speaker 9: is really the most foundational function of Congress is just
Speaker 9: to keep the lights on. They keep kicking the can
Speaker 9: down the road, Lisa, does it really matter if they
Speaker 9: shut down the government? Probably not if it's not for
Speaker 9: a sustained period of time, But if it does go
Speaker 9: on for weeks, then we don't get some of the
Speaker 9: economic data, then it could actually start hurting the economy.
Speaker 9: But I think this is just sort of noise. But
Speaker 9: I think the punchline here from a fiscal perspective is
Speaker 9: this effectively funds of government at the same levels as
Speaker 9: last year, and what we're not We're not going.
Speaker 8: To see any more physical stimulus.
Speaker 9: And I think the threshold for any sort of stimulus,
Speaker 9: even if we do go into recession.
Speaker 8: I know your previous guest was pretty sang one about
Speaker 8: the economy.
Speaker 9: I think we maybe we as as bond investors, are
Speaker 9: a little less so, but the threshold for.
Speaker 8: Any sort of fiscal stimus is going to be very high.
Speaker 9: So we think the government probably will be funded probably
Speaker 9: at the last moment, but again from a market's perspective,
Speaker 9: we're not sure.
Speaker 8: We're there's more noise than really anything.
Speaker 3: It's always the way, isn't it. Equities, hopes and dreams, bonds,
Speaker 3: fares and nightmassy.
Speaker 10: Do you know?
Speaker 3: Yeah, obviously obviously, Well yeah, thank you, thanks, good to
Speaker 3: see it. Great to catch you out let me cant
Speaker 3: with their Pimcoke. I'm pleased to say that John, I
Speaker 3: guess now is Elliot Akerman, the US Marine Corps veteran
Speaker 3: and former White House fellow. Ali wonderful to hear from you, sir.
Speaker 3: Always appreciate your perspective and your deep experience. Let's start
Speaker 3: with that experience. Can you describe for our audience the
Speaker 3: type of urban combat taking place right.
Speaker 11: Now, the urban commet that we're seeing in Gaza. You know,
Speaker 11: it's that happens really at a very close quarters, you know,
Speaker 11: street by street, house by house, room to room. As
Speaker 11: I think I've said on this show, eating in an
Speaker 11: urban fight is like it's like being in a knife
Speaker 11: fight in a phone booth. So it also takes away
Speaker 11: that the advantage that high tech militaries have, and I
Speaker 11: think we're seeing that play out and also oftentimes it's
Speaker 11: very very messy. And one of the greatest casualties in
Speaker 11: an urban fight is the city that the fight is
Speaker 11: taking place.
Speaker 12: And I think we're seeing that today as you.
Speaker 11: Know, vast parts of Gaza are are being turned to
Speaker 11: rubble and.
Speaker 6: The civilians who lived there.
Speaker 3: So let's discuss that, given the type of combat that
Speaker 3: was seeing at the moment, how on earth do you
Speaker 3: prevent the tragic loss of civilian life we've seen.
Speaker 11: You know, It's extremely difficult, and that factors into the
Speaker 11: into the calculus on on both sides. A fundamental to
Speaker 11: you know, Hamas's attack on October seventh was they knew
Speaker 11: that they were going to force the Israeli's hands to
Speaker 11: fight them inside Gaza, which would lead to civilian casualties,
Speaker 11: which would lead to much more attention being placed in
Speaker 11: the Palestinian cause in the world, and also a significant
Speaker 11: international outcry to and the fighting.
Speaker 12: And so, you know, I.
Speaker 11: Think the one thing that we can see when we're
Speaker 11: looking at what is going on in Gaza is that,
Speaker 11: at least thus far, it would seem that it has
Speaker 11: preceded exactly according to Hamas's plan.
Speaker 1: Given that Elliott how much longer.
Speaker 2: Do you think that Israel has from a political perception
Speaker 2: standpoint as well as just their own aims before they're.
Speaker 1: Going to stop.
Speaker 11: You know, the aims of the Israeli government, as they've articulated,
Speaker 11: is the complete annihilation of Hamas. I think one of
Speaker 11: the things that's difficult is that's an extremely high bar
Speaker 11: to completely destroy a terrorist organization, as opposed to degrade
Speaker 11: its capabilities or make it so it's no longer a threat.
Speaker 11: So if that is their stated objective, I think they're
Speaker 11: in some ways probably setting themselves up for failure because
Speaker 11: it's difficult to see how they are going to completely
Speaker 11: destroy every single number of Hamas from the face of
Speaker 11: the earth, particularly as many of them are not in Gaza,
Speaker 11: you know. And the other issue that complicates factors that
Speaker 11: we can't forget about is there's a significant number of
Speaker 11: hostages still inside Gaza, so the Israelis can't finish this
Speaker 11: operation until those hostages have been freed. So, unfortunately, I
Speaker 11: think this is going to go on quite a bit longer,
Speaker 11: but every day that it extends, it becomes politically much
Speaker 11: more costly for the Israelis.
Speaker 2: Do you agree with Secretary of Defense to late Austin
Speaker 2: when he basically said that the fear here is that
Speaker 2: Israel setting itself up for a strategic defeat.
Speaker 12: I think that is certainly.
Speaker 11: I don't know that they are going to end up
Speaker 11: in a strategic defeat, but I think if the Israelis
Speaker 11: lose sight of the fact that war is always fought
Speaker 11: on two planes, both the tactical of the operational, what's
Speaker 11: happening on the ground, you know, how much of Gods
Speaker 11: is being taken or retaken, but also the political, how
Speaker 11: those actions are perceive and so you know, history is
Speaker 11: littered with cases of nations and armies that won the
Speaker 11: battle but lost the war. And I think the Israelis
Speaker 11: need to be very mindful that they don't place themselves
Speaker 11: in that situation.
Speaker 3: And we've been through a period of really intense diplomacy.
Speaker 3: We've seen that over the last two months, how elevated. Still,
Speaker 3: do you think the odds are they brought a conflict
Speaker 3: in the region.
Speaker 11: I think they've certainly lessened, but I think we absolutely
Speaker 11: want to keep our eye on any actions it seems
Speaker 11: that they could spread the conflict. You know, as you know,
Speaker 11: the United States, as you know, a very significant military
Speaker 11: presence there. We've surged naval assets into the Mediterranean Sea,
Speaker 11: all signaling very strongly to the Iranians not to spread
Speaker 11: this conflict or engage in those actions. But we've also
Speaker 11: seen simultaneously that the Iranians have been attacking US forces abroad,
Speaker 11: that there are many instances of provocation, and not only
Speaker 11: our leaders but also our troops on the ground had
Speaker 11: to be very very mindful that their actions could have
Speaker 11: TGIC consequences. So I don't think it does not seem
Speaker 11: as though the conflict is going to spread, but it's
Speaker 11: still on a hair trigger.
Speaker 3: This is a conversation about a direct conflict. I just wonder,
Speaker 3: from your perspective, in your opinion, Elio, whether you think
Speaker 3: we're already in a proxy war with Iran.
Speaker 12: I think we certainly are.
Speaker 11: But we've been in a proxy war with Iran for
Speaker 11: for decades now, and it is.
Speaker 12: Just waxed and waned.
Speaker 11: I mean, I mean, I'm a veteran of the wars
Speaker 11: in Iraq and Afghanistan, and both those conflicts we were
Speaker 11: fighting a proxy war with Iran, and about those conflicts,
Speaker 11: you know, so the American service member I was, you know,
Speaker 11: having to dodge IEDs built by Iran and having to
Speaker 11: deal with Coudes Force paramilitaries who are operating or Iranian
Speaker 11: in those theaters. So we've been fighting that war for
Speaker 11: a long long time. But it's very important that as
Speaker 11: you know, you know, it doesn't escalate into an all
Speaker 11: out conflagration across the Middle East, particularly as we have
Speaker 11: another war going on in Ukraine.
Speaker 12: So these are you know, these are dangerous times where they.
Speaker 2: I'm glad you brought that up as a former American
Speaker 2: service member, as someone who's actually served and seeing the threat,
Speaker 2: what is your sense of this increasing isolationism or the
Speaker 2: increasing fight over funding for some of these conflicts.
Speaker 1: Do you think that it's a valid one or.
Speaker 2: Do you think that that's really our retracement from the
Speaker 2: role that you served for.
Speaker 12: Because I think that.
Speaker 11: There should always be robust debate in this country about
Speaker 11: issues of war and peace, and I think that is
Speaker 11: very very healthy.
Speaker 12: However, I also.
Speaker 11: Think that, you know, those debates should occur in a
Speaker 11: functional as opposed to a dysfunctional way. They should occur
Speaker 11: in a way that has a very clear eyed or
Speaker 11: it takes a very clear eyed view of the world
Speaker 11: beyond our shores and isn't naive of the place of
Speaker 11: America in the world. So, you know, I don't think
Speaker 11: it's inappropriate for members of Congress to be debating how
Speaker 11: long and how much the United States is going to
Speaker 11: spend on these wars. But I also think if there's
Speaker 11: some of idea that the US can just retreat within
Speaker 11: its borders and that's going to be the best interest
Speaker 11: of this country. I mean, you know, we've seen that,
Speaker 11: we've seen that play out before, and it doesn't play
Speaker 11: out to the best interests of the United States.
Speaker 2: You're implying, Elliott that the debate right now is not healthy.
Speaker 2: What would a healthy debate look like? And why is
Speaker 2: what we're seeing right now not healthy?
Speaker 11: So I think there's a degree of brenksmanship that's going on.
Speaker 11: And I think that braksmanship of you know, buying aid
Speaker 11: packages together the much of the dysfunction that we've seen
Speaker 11: them in Congress where we no longer where Congress no
Speaker 11: longers exists with the culture, and I'm olding to remember
Speaker 11: this culture in which most people operated under a mode
Speaker 11: of that you know, America's differences ended at our shores,
Speaker 11: and we projected ourselves abroad, we projected ourselves as a
Speaker 11: unified country.
Speaker 12: I mean, now we know that our allies, you know,
Speaker 12: have different you know.
Speaker 11: They prefer republican or a democratic administration and have policies
Speaker 11: that they set for both.
Speaker 12: So I think there's the.
Speaker 11: Overall fractiousness in our country is hurting the efficacy of
Speaker 11: our foreign policy.
Speaker 3: So that's what I mean, Ellie, thank you, sir Vio Clarity,
Speaker 3: Ellie Aikman. I'm the latest on the situation in the
Speaker 3: Middle East and with Ukraine and rest as well.
Speaker 1: I'm so pleased to say.
Speaker 2: Joining me right now is David Rubinstein. I want to
Speaker 2: pick up on that point that Bill was saying, which
Speaker 2: is his activism as now not in a corporate boardroom
Speaker 2: but on college campuses.
Speaker 1: And we heard this yesterday from Mark Rowan of Apollo.
Speaker 2: How much you hearing that increasingly from some of your peers.
Speaker 10: Well, there's no doubt that Bill Ackman doesn't need to
Speaker 10: be an activist in investing anymore, because, as he said
Speaker 10: in the interview, he wasn't that well known when he
Speaker 10: was an activist, and therefore he had to get attention,
Speaker 10: and doing activist kind of things got people's attention. Now
Speaker 10: he's pretty well known, so he can avoid that part
Speaker 10: of his investing process. In terms of College and Harvard,
Speaker 10: he has been very active with his letter to Clouding
Speaker 10: Gay and Mark Rowan has been very active at Penn
Speaker 10: as well, and a number of other business people have
Speaker 10: been active. There's no doubt that there's a lot of
Speaker 10: concern in the business but other communities about what's going
Speaker 10: on in college campuses. And as we all know, it's
Speaker 10: not a pleasant situation to be Jewish student in some
Speaker 10: campuses these days, or to be a Muslim student some
Speaker 10: campus has been a problem as well. So I don't
Speaker 10: think there's a perfect answer. We're not going to solve
Speaker 10: it overnight. It's going to take some time for all
Speaker 10: these colleges to kind of figure out what the right
Speaker 10: balance is.
Speaker 2: Do you get a sense that there is something specific
Speaker 2: that people are asking for that goes beyond a statement
Speaker 2: on anti Semitism or Islamophobia and goes more to the
Speaker 2: nature of conversation at certain universities.
Speaker 10: Well, at certain universities, I would say on the left,
Speaker 10: far left are far right. There's not a lot of
Speaker 10: room for people who disagree. Some campuses are far left,
Speaker 10: some are maybe more conservative, and people who disagree with
Speaker 10: the conventional or the majority view, don't get the kind
Speaker 10: of support that they might want to receive from the
Speaker 10: college presidences or universities. In some cases, Harvard is seen
Speaker 10: by people in Congress who said yesterday in the hearing
Speaker 10: that is seen as far left. Maybe it is, maybe
Speaker 10: it isn't. I was on the board of Harvard for
Speaker 10: many years, and I think Harvard tries to do the
Speaker 10: best it can. But it's a very large campus, very diverse.
Speaker 10: The president of university has done as good a job
Speaker 10: as she can in a very short period of time
Speaker 10: dealing with these issues, but nobody is going to be
Speaker 10: able to solve this problem overnight.
Speaker 2: You're also on the University of Chicago board, and full disclosure,
Speaker 2: I attended there, so if I'm biased, I just want
Speaker 2: to be completely transparent. There is this question about whether
Speaker 2: it's appropriate for a university to take a stand at
Speaker 2: all on any social issue, or just to let the
Speaker 2: individual professors and students have their own voices rather than
Speaker 2: have some sort of collective voice that you have to
Speaker 2: stay within.
Speaker 1: Do you think that that is the way to go well?
Speaker 10: With the same issue CEO's face, Should corporations be taking
Speaker 10: positions on these kind of issues. Sometimes they do, sometimes
Speaker 10: they don't. Universities are places where young people are generally
Speaker 10: allowed to grow and experience what life is going to
Speaker 10: be about when they leave campuses, and they tend to
Speaker 10: be sometimes more shrill and certain things they might be
Speaker 10: when they become an adult. I think at the Universe Chicago,
Speaker 10: we've had a long standing one hundred year policy of
Speaker 10: basically letting people say what they want, has provided that
Speaker 10: they don't do anything that harms anybody else or incites violence.
Speaker 10: But there's been a lot of free speech at univer Chicago,
Speaker 10: and I think that's a great tradition there.
Speaker 2: Do you think that going forward there's going to be
Speaker 2: any change in response to some of the pressure, Given.
Speaker 10: The pressure that we have seen now, I suspect something
Speaker 10: will happen, but I don't know that Congress will do anything.
Speaker 10: I think the university boards are probably going to be
Speaker 10: more sensitive to these issues. There is going to be
Speaker 10: more security for certain students there, for sure, But I
Speaker 10: think there'll be more of a move towards a University
Speaker 10: of Chicago approach where more people are allowed to say
Speaker 10: what they think without feeling that if they say something
Speaker 10: that's unpopular. They'll be criticized or harmed physically.
Speaker 2: Just besides this particular issue with Bill Lackman, he's also
Speaker 2: been vocal about investing in treasures just to shift a
Speaker 2: little bit to the investment side. And I am curious
Speaker 2: if you're starting to hear this more that certain hedge
Speaker 2: funds that maybe are struggling to get an edge in
Speaker 2: public markets are just making bull trades on the path
Speaker 2: of interest rates.
Speaker 1: How much you're hearing that well.
Speaker 10: Bill Ackman said in the interview is that he doesn't
Speaker 10: generally doesn't make big macro bets. That's not what he
Speaker 10: generally does. He generally makes bets on companies. But in
Speaker 10: a couple of times in his history he has made
Speaker 10: macro bets and some have worked out extremely well. And
Speaker 10: he's made one not two year long ago, where he
Speaker 10: made a couple of billion dollar I mean, I guess
Speaker 10: it was a two billion dollar profit on a relatively
Speaker 10: modest investment in a relatively short period of time. That's
Speaker 10: hard to do. This time, he's made a bet, in effect,
Speaker 10: that the treasury rate will go down, or the interest
Speaker 10: rate will go down, the Fed will lower interest rates
Speaker 10: sooner than the conventional wisdom thinks, and I assume he's
Speaker 10: structured it so that if they do, he'll make a
Speaker 10: fair amount of money.
Speaker 2: And I'm assuming that right now he's pretty happy with
Speaker 2: what he's seeing because the market's coming along to his view.
Speaker 10: Conventional wisdom today is that the Fed is likely to
Speaker 10: cut interest rates sooner than maybe people thought a month ago.
Speaker 10: Right now, I think the Fed doesn't want to get
Speaker 10: into the election season, So if they're going to cut rates,
Speaker 10: they're probably not going to do it too close to
Speaker 10: the presidential election, so they probably would have to do
Speaker 10: it sooner.
Speaker 1: Meanwhile, just want to bring this to you.
Speaker 2: Just Breaking City Group is reporting some figures and what
Speaker 2: they expect, and they say that fourth quarter trading revenue
Speaker 2: is expected to drop fifteen to twenty percent compared to
Speaker 2: the third quarter, and you can see as the CFO
Speaker 2: does talk, you can see shares falling.
Speaker 1: This really does.
Speaker 2: Speak to this sense that there isn't going to be
Speaker 2: the same kind of opportunity to make profits for some
Speaker 2: of these firms as there has been earlier in this year.
Speaker 2: That basically this is what they're going to pitch when
Speaker 2: they CEOs go down to Washington, DC and start saying,
Speaker 2: you know, maybe we earned record profits, but we're going
Speaker 2: to lose it to people like you, David Rubens, sign
Speaker 2: at private credit and private equity.
Speaker 1: What do you make of some of these arguments.
Speaker 10: I'm not worrying too much about the large banks. They
Speaker 10: can take care of themselves. I'm sure they'll do well.
Speaker 10: Interest rates go up or down. There's no doubt when
Speaker 10: interest rates go up, they tend to make more money. Historically,
Speaker 10: if interest rates go down, they're very smart. They'll find
Speaker 10: other ways to make money. Private equity firms and private
Speaker 10: credit firms have done quite well generally over the last
Speaker 10: ten twenty years or so, and we have a lot
Speaker 10: of very smart people. We'll try to figure out how
Speaker 10: to navigate whatever interest rate environment we have.
Speaker 1: David Rubenstein, it's always a pleasure. Thank you so much
Speaker 1: for being on.
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