1 00:00:00,840 --> 00:00:04,000 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 2 00:00:04,040 --> 00:00:05,280 Speaker 1: my co host Matt Miller. 3 00:00:05,640 --> 00:00:09,600 Speaker 2: Every business day we bring you interviews from CEOs, market pros, 4 00:00:09,720 --> 00:00:13,600 Speaker 2: and Bloomberg experts, along with essential market moving news. 5 00:00:14,160 --> 00:00:17,279 Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 6 00:00:17,400 --> 00:00:20,520 Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast. 7 00:00:21,079 --> 00:00:25,159 Speaker 1: Let's pivot now to another Washington, DC centric story, that 8 00:00:25,239 --> 00:00:28,720 Speaker 1: is the dead ceiling. There's a potentially the fault and 9 00:00:28,800 --> 00:00:30,560 Speaker 1: kind of where are we in the negotiations and what 10 00:00:30,640 --> 00:00:33,480 Speaker 1: does it mean for the greenback here? So we're gonna 11 00:00:33,479 --> 00:00:36,919 Speaker 1: bring Audrey Child Friedman Freeman. She is the chief G 12 00:00:37,040 --> 00:00:40,880 Speaker 1: ten FX strategist with Bloomberg Intelligence, and Dwayne Wright senior 13 00:00:40,920 --> 00:00:45,239 Speaker 1: government analyst with Bloomberg Intelligence. So, Dwayne, you do this 14 00:00:45,360 --> 00:00:49,720 Speaker 1: policy stuff full time for Bloomberg Intelligence here. I think 15 00:00:49,760 --> 00:00:53,000 Speaker 1: the assumption for all of us up here in Wall 16 00:00:53,000 --> 00:00:55,280 Speaker 1: Street is that they'll work it out at the end. 17 00:00:55,560 --> 00:00:58,200 Speaker 1: Is that an okay assumption? Or is there a material 18 00:00:58,280 --> 00:01:00,000 Speaker 1: risk here of a bad outcome? 19 00:01:00,520 --> 00:01:04,160 Speaker 3: Well, it's above zero. I wouldn't say it's above three 20 00:01:04,280 --> 00:01:07,360 Speaker 3: or five percent, but there's always a risk. I think 21 00:01:07,480 --> 00:01:13,120 Speaker 3: the general mood right now is the meeting that Kevin McCarthy, 22 00:01:13,240 --> 00:01:16,720 Speaker 3: the President, and the Ford leaders had was a positive 23 00:01:16,760 --> 00:01:19,520 Speaker 3: first step. You can't have a second step without making 24 00:01:19,560 --> 00:01:23,880 Speaker 3: that first step. And so we've already heard discussions about 25 00:01:23,880 --> 00:01:26,880 Speaker 3: as second meeting, which is tomorrow. But in between the 26 00:01:27,160 --> 00:01:30,400 Speaker 3: last meeting and this coming meeting, we know that staff 27 00:01:30,680 --> 00:01:33,840 Speaker 3: for both sides are now beginning to have those conversations 28 00:01:34,480 --> 00:01:38,160 Speaker 3: what is the universe of policy items that we can 29 00:01:38,319 --> 00:01:40,919 Speaker 3: talk about that will move the ball forward to avoid 30 00:01:40,959 --> 00:01:44,280 Speaker 3: a default. And we kind of knew this was where 31 00:01:44,319 --> 00:01:48,000 Speaker 3: we were going, but we just had to have that 32 00:01:48,080 --> 00:01:51,800 Speaker 3: first step. And so I think we'll see a bit 33 00:01:51,840 --> 00:01:55,160 Speaker 3: more progress over the next couple of days where we'll 34 00:01:55,200 --> 00:01:58,720 Speaker 3: begin to see what the universe of policies that can 35 00:01:58,800 --> 00:02:01,240 Speaker 3: be included in a debt ceiling bill. So I think 36 00:02:01,280 --> 00:02:04,040 Speaker 3: there's still a lot more confidence that this will happen. 37 00:02:05,440 --> 00:02:08,040 Speaker 3: I just I would put aside what we see publicly 38 00:02:08,080 --> 00:02:12,239 Speaker 3: and hear publicly from the leaders and start to think 39 00:02:12,280 --> 00:02:14,800 Speaker 3: more about what's happening behind the scenes, what we're not 40 00:02:14,840 --> 00:02:17,680 Speaker 3: hearing about. And there seems to be a lot of 41 00:02:17,680 --> 00:02:18,800 Speaker 3: positive conversations. 42 00:02:18,919 --> 00:02:21,680 Speaker 1: Hey, Audrey, when we talk about this debt sealing stuff. 43 00:02:21,720 --> 00:02:25,320 Speaker 1: The budget boy, I think right about the currency market here, 44 00:02:25,360 --> 00:02:26,800 Speaker 1: what do we sing in the currency market? What do 45 00:02:26,840 --> 00:02:29,320 Speaker 1: we sing with the US dollar visa the other major 46 00:02:29,360 --> 00:02:32,480 Speaker 1: currencies as we kind of fumble along towards trying to 47 00:02:32,520 --> 00:02:33,200 Speaker 1: fund our government. 48 00:02:34,280 --> 00:02:38,720 Speaker 4: Well, surprisingly, you may think surprisingly not a lot in 49 00:02:38,760 --> 00:02:41,440 Speaker 4: a sense that there's a lot of talk about this 50 00:02:41,919 --> 00:02:46,200 Speaker 4: problem and this issue, but there's no sign of stress 51 00:02:46,240 --> 00:02:50,200 Speaker 4: in a sense that the effects volatility environment remains very low. 52 00:02:50,680 --> 00:02:54,040 Speaker 4: And the dollar happened till very recently, has been trading 53 00:02:54,160 --> 00:02:55,280 Speaker 4: very much in a range. 54 00:02:55,720 --> 00:02:57,480 Speaker 5: So no strong conviction. 55 00:02:57,560 --> 00:03:02,200 Speaker 4: And certainly no sign of stress with regard to the 56 00:03:03,040 --> 00:03:06,480 Speaker 4: that that limit situation. And I think it's just because 57 00:03:06,600 --> 00:03:09,760 Speaker 4: the view is that, uh, it will get solved in 58 00:03:09,800 --> 00:03:12,679 Speaker 4: the end and we will get some kind of a compromise. 59 00:03:12,760 --> 00:03:15,239 Speaker 4: And we've been there many times. And if you try 60 00:03:15,320 --> 00:03:17,320 Speaker 4: every time you try to trade the dollar on the 61 00:03:17,360 --> 00:03:21,360 Speaker 4: back of this topic, you kind of go around circle 62 00:03:21,480 --> 00:03:23,720 Speaker 4: and finish very very much where you started. 63 00:03:24,720 --> 00:03:27,160 Speaker 6: Audrey, to follow up on that, CRETI GROUPDA in New York, 64 00:03:27,160 --> 00:03:30,480 Speaker 6: by the way, just crashed Paulsueni's party here in the 65 00:03:30,760 --> 00:03:33,600 Speaker 6: Interact Broker studio, Audrey, I want to ask you a 66 00:03:33,639 --> 00:03:36,240 Speaker 6: follow on the dollar question, if only for a while 67 00:03:36,360 --> 00:03:40,360 Speaker 6: the dollar trade was dictated mostly by interest rate differentials 68 00:03:40,360 --> 00:03:43,480 Speaker 6: as a function of the ECB and the hawkishency you 69 00:03:43,480 --> 00:03:45,800 Speaker 6: were still seeing on in Europe. Where as the Federal 70 00:03:45,800 --> 00:03:48,560 Speaker 6: Reserve is ending their tiny cycle, or at least expected to. 71 00:03:49,480 --> 00:03:53,600 Speaker 6: Does the bawl case for the dollar change as we 72 00:03:53,720 --> 00:03:58,280 Speaker 6: get closer to a potential debt default? Do people then 73 00:03:58,600 --> 00:04:01,600 Speaker 6: buy the dollar as the only safety around? 74 00:04:02,480 --> 00:04:06,800 Speaker 4: Yeah, I think that's a very valid question because there's 75 00:04:06,840 --> 00:04:09,240 Speaker 4: an element. I mean, we all know if there was 76 00:04:09,320 --> 00:04:13,360 Speaker 4: to be any kind of default. Let's assume there was 77 00:04:13,400 --> 00:04:16,000 Speaker 4: to be a default situation, even though this is not 78 00:04:16,200 --> 00:04:19,600 Speaker 4: our working assumption, of course, but let's assume. So, I mean, 79 00:04:19,640 --> 00:04:23,000 Speaker 4: the long term consequences, it's pretty easy in a sense 80 00:04:23,080 --> 00:04:25,120 Speaker 4: that it would be negative for the dollar. It would 81 00:04:25,200 --> 00:04:30,160 Speaker 4: accelerate the de loyrialization theme that we've been talking about, 82 00:04:30,440 --> 00:04:34,640 Speaker 4: and that's pretty pretty straightforward. In the short term. The 83 00:04:34,720 --> 00:04:37,840 Speaker 4: other point that the other conclusion that straightforward is that 84 00:04:37,880 --> 00:04:41,719 Speaker 4: it would trigger a risk of market move across all 85 00:04:41,760 --> 00:04:45,960 Speaker 4: asset classes, and I think actually that would be supportive 86 00:04:46,000 --> 00:04:48,680 Speaker 4: for the dollar. If you think about what the dollar 87 00:04:48,800 --> 00:04:53,719 Speaker 4: usually do in terms of risk of market move But 88 00:04:53,920 --> 00:04:55,760 Speaker 4: there is a flip side this time around, in the 89 00:04:55,800 --> 00:04:58,839 Speaker 4: sense that you know, against currencies such as the euro, 90 00:04:59,760 --> 00:05:04,240 Speaker 4: the yen, or the Swiss frank low better currency effects currencies, 91 00:05:04,279 --> 00:05:06,960 Speaker 4: you could actually argue that the market sees this as 92 00:05:07,320 --> 00:05:09,800 Speaker 4: you know, it's very much a US specific problem, even 93 00:05:09,800 --> 00:05:14,920 Speaker 4: though the consequences are global. But it's just negative for 94 00:05:15,000 --> 00:05:20,120 Speaker 4: the dollar against those currencies, and therefore, you know, it's debatable, 95 00:05:20,320 --> 00:05:25,200 Speaker 4: there's an element of uncertainty as to what extent it's 96 00:05:25,400 --> 00:05:28,279 Speaker 4: it's negative for the dollar or positive in the very 97 00:05:28,320 --> 00:05:32,000 Speaker 4: near terms. So there's way around this, you know, in 98 00:05:32,080 --> 00:05:35,240 Speaker 4: terms of trading and in terms of use, because if 99 00:05:35,240 --> 00:05:38,680 Speaker 4: you just accept the fact that a default situation would 100 00:05:38,720 --> 00:05:42,479 Speaker 4: trigger a risk of movement, right then you just you 101 00:05:42,560 --> 00:05:47,520 Speaker 4: think about bullish low better effects and erish high better effects. 102 00:05:47,520 --> 00:05:50,120 Speaker 4: And that's that's a thing, a very valid way to 103 00:05:50,440 --> 00:05:51,159 Speaker 4: think about it. 104 00:05:51,680 --> 00:05:55,040 Speaker 6: Dwine hopp on in here in our last thirty seconds 105 00:05:55,120 --> 00:05:57,760 Speaker 6: or so and talk to us about this dollar story, 106 00:05:57,760 --> 00:06:00,520 Speaker 6: because it felt like when the dollar was just rising 107 00:06:00,560 --> 00:06:03,640 Speaker 6: and rising and strengthening and strengthening, there was a lot 108 00:06:03,680 --> 00:06:05,080 Speaker 6: of I want to say a lot, but there was 109 00:06:05,120 --> 00:06:07,640 Speaker 6: some pressure on the White House on the government to say, 110 00:06:08,160 --> 00:06:11,760 Speaker 6: is currency intervention something we need to explore in the 111 00:06:12,360 --> 00:06:15,240 Speaker 6: kind of doomsday scenario of some sort of debt default. 112 00:06:15,560 --> 00:06:19,080 Speaker 6: Is that a conversation you see perhaps returning. 113 00:06:20,520 --> 00:06:22,840 Speaker 3: That remains to be seen. I think at the end 114 00:06:22,839 --> 00:06:26,600 Speaker 3: of the day we will see a deal, and it 115 00:06:26,680 --> 00:06:30,960 Speaker 3: will likely be at the last hour, maybe the last minute. 116 00:06:31,560 --> 00:06:34,560 Speaker 3: But I think at the end of the day we'll 117 00:06:34,600 --> 00:06:38,000 Speaker 3: see some low hanging fruit, potentially in the last couple 118 00:06:38,080 --> 00:06:41,040 Speaker 3: of hours, where it's a short term spending deal or 119 00:06:41,320 --> 00:06:46,279 Speaker 3: very short term raise, and maybe some repealing or taking 120 00:06:46,320 --> 00:06:49,480 Speaker 3: back of some unspent COVID money. That kind of pushes 121 00:06:49,520 --> 00:06:53,360 Speaker 3: off the conversations of these other pieces that the White 122 00:06:53,400 --> 00:06:57,120 Speaker 3: House and some other policymakers want to discuss. But I 123 00:06:57,160 --> 00:07:00,400 Speaker 3: think that these conversations are probably likely going down happen 124 00:07:01,120 --> 00:07:03,720 Speaker 3: after June as we get to our long term deal. 125 00:07:04,040 --> 00:07:05,200 Speaker 7: All right, very good stuff. 126 00:07:05,200 --> 00:07:09,520 Speaker 1: Really appreciate that Dwayne Wright, senior government analysts with Bloomberg Intelligence, 127 00:07:09,560 --> 00:07:12,720 Speaker 1: he's down in our Washington, DC office. And Audrey Child Freeman, 128 00:07:12,800 --> 00:07:16,760 Speaker 1: chief G ten FX strategist with Bloomberg Intelligence, she is 129 00:07:17,120 --> 00:07:20,400 Speaker 1: in our London office. I appreciate getting the update from 130 00:07:20,520 --> 00:07:22,360 Speaker 1: both of them. 131 00:07:22,600 --> 00:07:26,040 Speaker 8: You're listening to the team. Can's are live program Bloomberg 132 00:07:26,080 --> 00:07:29,440 Speaker 8: Markets weekdays at ten am Eastern on Bloomberg dot Com, 133 00:07:29,520 --> 00:07:32,680 Speaker 8: the iHeartRadio app and the Bloomberg Business App, or listen 134 00:07:32,760 --> 00:07:34,840 Speaker 8: on demand wherever you get your podcasts. 135 00:07:37,160 --> 00:07:38,840 Speaker 1: Let's get the latest, you know, I just need to 136 00:07:38,880 --> 00:07:41,200 Speaker 1: get craty. We need to, I think, just to get 137 00:07:41,200 --> 00:07:43,880 Speaker 1: a little bit smarter here with just the bigger picture 138 00:07:44,200 --> 00:07:46,440 Speaker 1: what's going on with these markets, because I've seen over 139 00:07:46,480 --> 00:07:49,640 Speaker 1: the last several months not a lot of direction, maybe 140 00:07:49,720 --> 00:07:51,280 Speaker 1: not a lot of volume. I think the markets is 141 00:07:51,280 --> 00:07:53,560 Speaker 1: trying to figure this stuff out. There's a lot of 142 00:07:53,600 --> 00:07:56,360 Speaker 1: cross currents out there. So let's bring around tailor some 143 00:07:56,600 --> 00:07:59,480 Speaker 1: really smart people that we have at our. 144 00:08:00,840 --> 00:08:02,240 Speaker 7: You know, within our reach, our disposal. 145 00:08:02,280 --> 00:08:06,560 Speaker 1: Gena Martin Adams, chief equity strategists for Bloomberg Intelligence. She's 146 00:08:06,600 --> 00:08:08,880 Speaker 1: in our Bloomberg Interactor broker studio in New York. And 147 00:08:08,920 --> 00:08:12,240 Speaker 1: Cameron Christ he's Bloomberg macro strategist. He joins us on 148 00:08:12,320 --> 00:08:14,560 Speaker 1: the phone. Cameron, let's start with you. There's been if 149 00:08:14,600 --> 00:08:17,520 Speaker 1: I type an eco go and just look over the 150 00:08:17,600 --> 00:08:18,400 Speaker 1: last couple of weeks. 151 00:08:18,640 --> 00:08:21,000 Speaker 7: Man, there's been a lot of data here, and as. 152 00:08:20,880 --> 00:08:24,440 Speaker 1: You synthesize all that, what do you think the market's 153 00:08:24,480 --> 00:08:27,320 Speaker 1: discounting in terms of growth, in terms of inflation, in 154 00:08:27,400 --> 00:08:28,120 Speaker 1: terms of the FED. 155 00:08:28,360 --> 00:08:29,720 Speaker 7: What's kind of the takeaway do you think? 156 00:08:30,360 --> 00:08:34,520 Speaker 9: Well, I think the market's primary conclusion is that the 157 00:08:34,559 --> 00:08:40,320 Speaker 9: FED is done tightening interest rates, and that's generated I 158 00:08:40,320 --> 00:08:45,839 Speaker 9: guess the expected reaction in equity and six income markets. 159 00:08:46,080 --> 00:08:49,079 Speaker 9: Sixth income has been rallying. Interest rates sensitive portions of 160 00:08:49,080 --> 00:08:53,080 Speaker 9: the equity market have been rallying. If you look at 161 00:08:53,120 --> 00:08:56,520 Speaker 9: the short term registrate market, there is this ongoing concern 162 00:08:56,920 --> 00:09:01,040 Speaker 9: about the director of the economy. We are racing rate 163 00:09:01,120 --> 00:09:06,360 Speaker 9: cuts starting sometime early in the second half of the year. 164 00:09:07,120 --> 00:09:09,960 Speaker 9: And it really what it comes down to is the 165 00:09:10,280 --> 00:09:16,720 Speaker 9: soft survey based data, which ostensibly is forward looking, is 166 00:09:16,840 --> 00:09:21,120 Speaker 9: pretty bad frickly on the business side, which kind of 167 00:09:21,160 --> 00:09:24,240 Speaker 9: feeds through or is a natural consequence I think of 168 00:09:24,320 --> 00:09:28,680 Speaker 9: these concerns about a credit crunch, the so called hard data, 169 00:09:29,120 --> 00:09:33,360 Speaker 9: which is more backward looking, has been relatively better. And 170 00:09:33,440 --> 00:09:35,679 Speaker 9: so the big, the big question that everyone's trying to 171 00:09:35,679 --> 00:09:39,800 Speaker 9: figure out is which which will capitulate. Will the hard 172 00:09:39,880 --> 00:09:42,600 Speaker 9: data sort of come down to the to the the 173 00:09:42,640 --> 00:09:46,200 Speaker 9: growth concerns implied by the soft data, or will the 174 00:09:46,240 --> 00:09:49,559 Speaker 9: hard data remain resilient and eventually the soft data sentiment 175 00:09:49,600 --> 00:09:51,520 Speaker 9: type stuff will will will improve. 176 00:09:51,920 --> 00:09:54,000 Speaker 6: Well, Gina, this is where I want to bring you in. 177 00:09:54,280 --> 00:09:56,520 Speaker 6: He's talking about the soft data the hard data, this 178 00:09:56,600 --> 00:09:59,000 Speaker 6: divergence that the FED is at the end of the 179 00:09:59,080 --> 00:10:03,120 Speaker 6: day done with hiking, yet we're still looking at inflation 180 00:10:03,200 --> 00:10:06,360 Speaker 6: at four point nine percent. If the carnage of the 181 00:10:06,400 --> 00:10:09,400 Speaker 6: equity market is kind of in the rare view mirror, 182 00:10:09,640 --> 00:10:13,800 Speaker 6: what are we missing here? The fanstun tightening, earnings recession 183 00:10:13,840 --> 00:10:14,840 Speaker 6: is in the rare view mirror. 184 00:10:14,920 --> 00:10:16,560 Speaker 5: Why are we not seeing more green on the screen? 185 00:10:16,720 --> 00:10:18,640 Speaker 10: Yeah? I think that's a really good point, and I 186 00:10:18,640 --> 00:10:22,160 Speaker 10: think it really comes down to the differences between the 187 00:10:22,160 --> 00:10:26,000 Speaker 10: inflation indicators and the growth indicators. The inflation indicators are 188 00:10:26,000 --> 00:10:29,920 Speaker 10: coming off of a peak, and that's enabling some perception 189 00:10:30,000 --> 00:10:32,840 Speaker 10: of margin stability finally emerging in the index. Remember, we 190 00:10:32,880 --> 00:10:35,800 Speaker 10: got into this mess not because growth was slowing down, 191 00:10:35,800 --> 00:10:39,640 Speaker 10: but because inflation was spiking, and that created the downdraft 192 00:10:39,640 --> 00:10:42,560 Speaker 10: in earnings results over the course of the last year. 193 00:10:42,679 --> 00:10:45,480 Speaker 10: Really through the S and P five hundred anyway into 194 00:10:45,600 --> 00:10:50,200 Speaker 10: a pretty profound earnings recession because growth held up. Nobody 195 00:10:50,200 --> 00:10:52,880 Speaker 10: seemed to notice that earnings recession, but the market absolutely 196 00:10:52,920 --> 00:10:55,439 Speaker 10: noticed the earnings recession, and it was really perpetuated by 197 00:10:55,520 --> 00:10:58,839 Speaker 10: spiking inflation. Now that inflation has started to ease off, 198 00:10:58,840 --> 00:11:01,720 Speaker 10: even though it's still hot, as you correctly note, it 199 00:11:01,760 --> 00:11:04,480 Speaker 10: is still trending in the right direction. That's enabling this 200 00:11:04,600 --> 00:11:07,560 Speaker 10: sort of margin stability to emerge. PPI is rising at 201 00:11:07,559 --> 00:11:11,679 Speaker 10: a slower pace than CPI. Finally that's creating some stability. 202 00:11:11,960 --> 00:11:14,120 Speaker 10: But at the same time, the market is now saying, Okay, 203 00:11:14,679 --> 00:11:19,280 Speaker 10: the inflation monster is starting to look somewhat contained, but 204 00:11:19,360 --> 00:11:22,480 Speaker 10: what does the growth monster look like going forward? And 205 00:11:22,520 --> 00:11:25,800 Speaker 10: how much of that acceleration and growth has actually been 206 00:11:25,800 --> 00:11:27,600 Speaker 10: priced in the market. And I think that's why you 207 00:11:27,720 --> 00:11:32,080 Speaker 10: have this natural constraint on upside that has emerged. Is Yes, 208 00:11:32,160 --> 00:11:34,960 Speaker 10: inflation does appear to be somewhat more contained than we 209 00:11:34,960 --> 00:11:37,640 Speaker 10: were thinking. Yes, we do think the FED has likely 210 00:11:38,280 --> 00:11:42,160 Speaker 10: gone to a pause state. But will we actually see 211 00:11:42,200 --> 00:11:44,680 Speaker 10: gross accelerate now and what will that mean for earnings 212 00:11:44,720 --> 00:11:45,920 Speaker 10: going into twenty twenty four? 213 00:11:46,600 --> 00:11:48,959 Speaker 1: Cameron, you know, I don't know about this inflation story, 214 00:11:48,960 --> 00:11:51,160 Speaker 1: but I just paid sixty dollars for New York strip 215 00:11:51,200 --> 00:11:53,719 Speaker 1: stake in Midtown Manhattan on Tuesday night. 216 00:11:53,840 --> 00:11:56,840 Speaker 7: That's inflation to me. But be that as it may. 217 00:11:57,400 --> 00:12:00,199 Speaker 1: Are you in get camp that thinks is fed, like 218 00:12:00,240 --> 00:12:02,920 Speaker 1: it's tamed inflation or is it the point of taming 219 00:12:02,920 --> 00:12:05,400 Speaker 1: inflation and in fact can start cutting race later in 220 00:12:05,400 --> 00:12:05,720 Speaker 1: the year. 221 00:12:07,240 --> 00:12:11,920 Speaker 9: I think, I mean taming inflation is I mean maybe 222 00:12:11,960 --> 00:12:16,480 Speaker 9: a bit of a bit of a push. I think 223 00:12:17,160 --> 00:12:23,160 Speaker 9: the trend is towards less inflation looking forward than we've 224 00:12:23,200 --> 00:12:26,880 Speaker 9: had in the past. In the CPI report we had 225 00:12:26,880 --> 00:12:30,560 Speaker 9: this week, for example, the so called super core, which 226 00:12:30,600 --> 00:12:33,720 Speaker 9: is core services excluding housing, that road is only point 227 00:12:33,720 --> 00:12:38,080 Speaker 9: one percent on the month. And yeah, you can always say, well, yes, 228 00:12:38,240 --> 00:12:40,000 Speaker 9: if you strip out everything that goes up, then of 229 00:12:40,000 --> 00:12:43,280 Speaker 9: course there's no inflation, and I'm cognizant of that. But 230 00:12:43,360 --> 00:12:45,800 Speaker 9: this is still one of the lowest readings we've had 231 00:12:46,640 --> 00:12:50,320 Speaker 9: over the last eighteen months. And ultimately, what it comes 232 00:12:50,360 --> 00:12:55,120 Speaker 9: down to is if interest rates do bite, and they 233 00:12:55,160 --> 00:13:00,599 Speaker 9: tend to bite in a non linear fashion, i e. Historically, 234 00:13:00,960 --> 00:13:03,800 Speaker 9: the impact of a tightening cycle is very very gradual 235 00:13:03,880 --> 00:13:06,080 Speaker 9: until it becomes not gradual, and then it becomes very 236 00:13:06,160 --> 00:13:09,200 Speaker 9: very substantial, very very quickly, and I think what we've 237 00:13:09,200 --> 00:13:13,360 Speaker 9: seen in the banking sector certainly risks that same thing 238 00:13:13,440 --> 00:13:16,280 Speaker 9: happening again this time around, and if and as that 239 00:13:16,320 --> 00:13:20,440 Speaker 9: does materialize, and I think the arguments in favor of 240 00:13:21,080 --> 00:13:25,520 Speaker 9: interest rate cuts by the end of the year will 241 00:13:25,559 --> 00:13:28,640 Speaker 9: be reasonably persuasive. And certainly, if you look at a 242 00:13:28,679 --> 00:13:33,880 Speaker 9: panoply of economic and market indicators, they are consistent with 243 00:13:35,120 --> 00:13:37,720 Speaker 9: the FED cutting rates within the next six months. 244 00:13:38,160 --> 00:13:41,640 Speaker 6: Okay, Well, if the FED hypothetically doesn't cut rates within 245 00:13:42,040 --> 00:13:45,280 Speaker 6: the six months, which, as Cam pointed out, is something 246 00:13:45,320 --> 00:13:48,640 Speaker 6: that is still expected in the markets, GENA, I'm still 247 00:13:48,679 --> 00:13:52,400 Speaker 6: confused about where the bare case for equities really lies 248 00:13:52,440 --> 00:13:53,240 Speaker 6: at the end of the day. 249 00:13:54,559 --> 00:13:56,400 Speaker 5: To me, what I think is so striking is that. 250 00:13:56,320 --> 00:13:59,960 Speaker 6: If we're talking about a decelerating growth environment from an 251 00:14:00,000 --> 00:14:03,480 Speaker 6: economic perspective, as Cam just laid out, isn't that the 252 00:14:03,679 --> 00:14:06,160 Speaker 6: ideal time to hop into growth stocks. 253 00:14:06,240 --> 00:14:07,959 Speaker 5: Isn't that when they thrive most. 254 00:14:07,920 --> 00:14:10,440 Speaker 10: Yeah, I think you make a really very good point, 255 00:14:10,520 --> 00:14:13,440 Speaker 10: because whether or not the FED is able to reverse 256 00:14:13,800 --> 00:14:16,800 Speaker 10: is reverse rates is a very controversial topic in the 257 00:14:16,800 --> 00:14:22,000 Speaker 10: equity market right now, mostly because we have seen valuation 258 00:14:22,120 --> 00:14:25,440 Speaker 10: expansion in some of those growthy type names, or another 259 00:14:25,480 --> 00:14:27,560 Speaker 10: way to think about it as the longer duration stocks 260 00:14:27,600 --> 00:14:30,600 Speaker 10: that are most sensitive to interest rates specifically in the 261 00:14:30,720 --> 00:14:34,040 Speaker 10: US have outperformed Intriguingly. That's not been the case globally, 262 00:14:34,600 --> 00:14:36,680 Speaker 10: so this is more of a US specific risk than 263 00:14:36,680 --> 00:14:39,320 Speaker 10: it is a global risk. But nonetheless, the stocks that 264 00:14:39,360 --> 00:14:42,800 Speaker 10: are most sensitive to that reversal have led the rally 265 00:14:42,880 --> 00:14:46,600 Speaker 10: so far this year, in many cases, in particular in 266 00:14:46,640 --> 00:14:49,640 Speaker 10: tech and communication stocks, which are you know, have had 267 00:14:49,640 --> 00:14:51,840 Speaker 10: a magnificent year so far this year coming off of 268 00:14:51,840 --> 00:14:54,600 Speaker 10: a really rough year last year. I think whether or 269 00:14:54,680 --> 00:14:58,600 Speaker 10: not the FED reverses is also intermingled with how deep 270 00:14:58,640 --> 00:15:01,480 Speaker 10: the recession is or how how much the slowdown becomes, 271 00:15:02,240 --> 00:15:05,920 Speaker 10: and that is consequential for equity markets because not only 272 00:15:06,040 --> 00:15:08,240 Speaker 10: is it the FED that drives equity markets, but it's 273 00:15:08,240 --> 00:15:11,200 Speaker 10: also earnings trends. So if the FED is unable to 274 00:15:11,240 --> 00:15:15,160 Speaker 10: reverse policy simply because growth is still quite strong, that's 275 00:15:15,200 --> 00:15:18,200 Speaker 10: not necessarily a bad environment for equities. If the earning 276 00:15:18,320 --> 00:15:20,960 Speaker 10: sort of cycle is working in favor of equities later 277 00:15:21,000 --> 00:15:23,240 Speaker 10: this year and into twenty twenty four, and the FED 278 00:15:23,320 --> 00:15:27,560 Speaker 10: is keeping interest rates stable because economic growth is somewhat stable. 279 00:15:28,560 --> 00:15:31,040 Speaker 10: I don't think that's a terrible environment for stocks, but 280 00:15:31,080 --> 00:15:33,240 Speaker 10: you're right, Is it a great environment for stocks? No, 281 00:15:33,360 --> 00:15:36,520 Speaker 10: because stocks are accustomed to these big swings in the cycle, 282 00:15:37,080 --> 00:15:40,840 Speaker 10: and stocks tend to get their greatest momentum surges on 283 00:15:41,160 --> 00:15:45,400 Speaker 10: major disruptions. And so far, the only major disruption we 284 00:15:45,480 --> 00:15:48,120 Speaker 10: had was inflation. We have not had a major disruption 285 00:15:48,160 --> 00:15:53,560 Speaker 10: to growth. Will we get it still seems likely for 286 00:15:53,640 --> 00:15:56,880 Speaker 10: most investors, and that's creating a headwind in and of itself. 287 00:15:57,800 --> 00:15:59,800 Speaker 10: But if we don't get it and growth turns out 288 00:15:59,800 --> 00:16:02,320 Speaker 10: to be better than expected, then we could continue to 289 00:16:02,360 --> 00:16:05,360 Speaker 10: see these relatively modest gains in the equity market continue. 290 00:16:05,400 --> 00:16:07,320 Speaker 1: So it sounds like a little bit more kind of 291 00:16:07,320 --> 00:16:09,080 Speaker 1: more of the same maybe, So we have to see 292 00:16:09,360 --> 00:16:13,600 Speaker 1: Gina Martin Adams, a chief equity strategist with Bloomberg Intelligence 293 00:16:14,040 --> 00:16:15,160 Speaker 1: and Bloomberg Micro Strategies. 294 00:16:15,240 --> 00:16:16,960 Speaker 7: Camera Christ thanks so much for jordanus. 295 00:16:16,960 --> 00:16:19,880 Speaker 1: Appreciate getting the collective wisdom of you two as we 296 00:16:19,920 --> 00:16:22,560 Speaker 1: try to make sense of this market. 297 00:16:22,920 --> 00:16:23,160 Speaker 7: Again. 298 00:16:23,280 --> 00:16:26,000 Speaker 1: The S and P five hundred off five tenths of 299 00:16:26,080 --> 00:16:28,240 Speaker 1: one percent, the dial off a little bit more of 300 00:16:28,560 --> 00:16:31,800 Speaker 1: a solid one percent on the Dow Jones industrials. Just 301 00:16:31,840 --> 00:16:34,480 Speaker 1: looking at the yields here coming in a little bit 302 00:16:34,520 --> 00:16:37,400 Speaker 1: to ten year treasuries off six basis points three point 303 00:16:37,400 --> 00:16:39,600 Speaker 1: three seven on your ten year treasure. 304 00:16:39,640 --> 00:16:40,480 Speaker 7: I'm gonna also call out. 305 00:16:40,480 --> 00:16:42,720 Speaker 1: We've been calling out and focusing on energy for the 306 00:16:42,720 --> 00:16:43,720 Speaker 1: past couple of weeks. 307 00:16:43,880 --> 00:16:46,480 Speaker 7: Seen some big swings there. WTI crude oil. 308 00:16:46,280 --> 00:16:50,280 Speaker 1: Down two point three percent today WTI crude oil just 309 00:16:50,560 --> 00:16:53,120 Speaker 1: under seventy one dollars a hour, So we'll keep an 310 00:16:53,160 --> 00:16:53,800 Speaker 1: eye on that. 311 00:16:54,200 --> 00:16:57,320 Speaker 8: You're listening to the tape Catcher our line program, Bloomberg 312 00:16:57,360 --> 00:17:00,960 Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the 313 00:17:01,040 --> 00:17:03,000 Speaker 8: tune in app, Bloomberg dot Com, and. 314 00:17:02,960 --> 00:17:04,240 Speaker 11: The Bloomberg Business App. 315 00:17:04,280 --> 00:17:07,120 Speaker 8: You can also listen live on Amazon Alexa from our 316 00:17:07,119 --> 00:17:12,240 Speaker 8: flagship New York station, Just say Alexa play Bloomberg eleven thirty. 317 00:17:13,359 --> 00:17:15,119 Speaker 1: I want to get over to real estate because if 318 00:17:15,160 --> 00:17:17,719 Speaker 1: you walk around Midtown Manhattan, like I want to do 319 00:17:17,760 --> 00:17:20,119 Speaker 1: as I walk back to Penn Station from the East Side, 320 00:17:20,720 --> 00:17:23,640 Speaker 1: a lot of empty office buildings around Midtown. I don't 321 00:17:23,640 --> 00:17:26,280 Speaker 1: know how you fix this. They're talking about people living 322 00:17:26,280 --> 00:17:28,000 Speaker 1: in them. I don't know how it's going to work. 323 00:17:28,040 --> 00:17:30,680 Speaker 1: But Natalie Wong she's a real estate reporter of Bloomberg 324 00:17:30,680 --> 00:17:33,520 Speaker 1: New She's got a very interesting story. Some of these 325 00:17:33,560 --> 00:17:36,800 Speaker 1: empty buildings are starting to attract some buyers, but not 326 00:17:36,880 --> 00:17:40,280 Speaker 1: the institutional buyers that we're used to. Natalie, who's stepping 327 00:17:40,280 --> 00:17:42,199 Speaker 1: in and taking a look at some of this New 328 00:17:42,280 --> 00:17:44,240 Speaker 1: York City empty office space. 329 00:17:45,480 --> 00:17:46,520 Speaker 12: Hi, thanks for having me. 330 00:17:46,600 --> 00:17:50,639 Speaker 13: We're seeing big interest coming in from the smaller companies, 331 00:17:50,960 --> 00:17:55,040 Speaker 13: smaller developers, family offices even and family around firms who 332 00:17:55,080 --> 00:17:57,000 Speaker 13: are really seeing that New York City is going to 333 00:17:57,040 --> 00:17:59,399 Speaker 13: come back in the long term and have some belief 334 00:17:59,440 --> 00:18:02,200 Speaker 13: that there will be use for office space. Even though 335 00:18:02,320 --> 00:18:04,520 Speaker 13: right now, as you mentioned, but all the empty buildings 336 00:18:04,560 --> 00:18:05,719 Speaker 13: record high vacancies. 337 00:18:06,200 --> 00:18:08,400 Speaker 12: It seems like it's a risky bet to make. 338 00:18:09,200 --> 00:18:13,320 Speaker 14: Yeah, what is the evidence Natalie that they are using 339 00:18:13,480 --> 00:18:15,720 Speaker 14: to justify that bet? 340 00:18:16,840 --> 00:18:18,560 Speaker 13: You know, a lot of them are really looking at 341 00:18:18,560 --> 00:18:23,720 Speaker 13: this remote work as something that will bounce back. Companies 342 00:18:23,760 --> 00:18:25,800 Speaker 13: will need to use offices to bring people back to 343 00:18:25,840 --> 00:18:28,600 Speaker 13: the office, and so far, the offices that they're targeting 344 00:18:28,960 --> 00:18:33,320 Speaker 13: aren't necessarily the dilapidated, distressed offices. They're more the middle 345 00:18:33,320 --> 00:18:37,840 Speaker 13: class buildings that you might see well located streets. Madison 346 00:18:37,880 --> 00:18:40,119 Speaker 13: Avenue of Fifth Avenue, and for those who don't know 347 00:18:40,200 --> 00:18:42,280 Speaker 13: New York, you know, those are streets that people come 348 00:18:42,320 --> 00:18:43,040 Speaker 13: to for retail. 349 00:18:43,080 --> 00:18:43,880 Speaker 12: They're well known. 350 00:18:43,680 --> 00:18:46,480 Speaker 13: Office districts, and they just kind of want to be 351 00:18:46,520 --> 00:18:49,360 Speaker 13: able to own a slice of that market that they 352 00:18:49,800 --> 00:18:52,960 Speaker 13: might otherwise never have had the opportunity to because you know, 353 00:18:53,000 --> 00:18:56,879 Speaker 13: in previous years, during times even just two years ago, 354 00:18:57,440 --> 00:19:00,040 Speaker 13: the buyers that were bidding for those sites were the 355 00:19:00,040 --> 00:19:01,720 Speaker 13: big real estate investment trusts. 356 00:19:01,760 --> 00:19:03,960 Speaker 12: They wear the big institutions like. 357 00:19:03,960 --> 00:19:07,400 Speaker 13: The brook Fields, like PIMCO owned companies, and these guys 358 00:19:07,440 --> 00:19:09,919 Speaker 13: would have never had the opportunity to even compete. And 359 00:19:09,960 --> 00:19:13,879 Speaker 13: now you're seeing prices down twenty six percent in Manhattan 360 00:19:14,000 --> 00:19:16,719 Speaker 13: from the peak valleys of twenty seventeen, and no one 361 00:19:16,760 --> 00:19:19,440 Speaker 13: else wants these buildings right now. So you have these 362 00:19:19,440 --> 00:19:22,320 Speaker 13: individuals that are sitting on huge piles of cash that 363 00:19:22,400 --> 00:19:26,720 Speaker 13: are looking for longer term return investments and are seeing 364 00:19:26,760 --> 00:19:29,800 Speaker 13: these assets as potential properties that they could get into 365 00:19:29,800 --> 00:19:33,240 Speaker 13: the market now and figure it out as you know, 366 00:19:33,560 --> 00:19:34,399 Speaker 13: the market ships. 367 00:19:34,800 --> 00:19:37,040 Speaker 1: So, Natalie, one of the challenges I know in the 368 00:19:37,040 --> 00:19:40,400 Speaker 1: commercial real estate real estate space here in New York 369 00:19:40,440 --> 00:19:43,000 Speaker 1: City is that we don't really know what the values are. 370 00:19:43,040 --> 00:19:46,399 Speaker 1: Because we haven't had a lot of transactions. The expectations 371 00:19:46,440 --> 00:19:48,679 Speaker 1: are that the values have come down pretty substantially, but 372 00:19:48,720 --> 00:19:51,600 Speaker 1: we don't know. Are we seeing any activity from some 373 00:19:51,640 --> 00:19:54,080 Speaker 1: of these you know, new buyers. 374 00:19:55,160 --> 00:19:57,440 Speaker 12: Yes, we are. So we looked at the second half 375 00:19:57,520 --> 00:19:59,000 Speaker 12: of last year and saw. 376 00:19:58,800 --> 00:20:02,920 Speaker 13: That of the few transactions there were eleven over fifty 377 00:20:02,960 --> 00:20:08,080 Speaker 13: million dollars. Of the eleven, seven involved smaller companies, smaller developers, 378 00:20:08,119 --> 00:20:09,119 Speaker 13: family run firms. 379 00:20:09,320 --> 00:20:11,480 Speaker 12: Some were backed by institutional. 380 00:20:10,880 --> 00:20:14,400 Speaker 13: Capital, but these deals were really driven by these smaller guys, 381 00:20:14,400 --> 00:20:16,520 Speaker 13: which is a huge difference from just the first half 382 00:20:16,560 --> 00:20:19,520 Speaker 13: of last year and the past two years. Most of 383 00:20:19,560 --> 00:20:23,320 Speaker 13: those deals were dominated by the big reeds, the big institutions, 384 00:20:23,320 --> 00:20:26,800 Speaker 13: and the big New York City developers. And if we 385 00:20:26,880 --> 00:20:29,800 Speaker 13: dive deeper into those seven deals that these folks were 386 00:20:29,800 --> 00:20:32,399 Speaker 13: involved in, quite a few of them involved offices that 387 00:20:32,480 --> 00:20:35,480 Speaker 13: had pretty high vacancies and that were a big discount 388 00:20:36,200 --> 00:20:38,680 Speaker 13: from sales in previous quarters. So, for example, there was 389 00:20:38,720 --> 00:20:43,880 Speaker 13: a consortium of family run businesses that bought thirteen thirty 390 00:20:43,920 --> 00:20:47,199 Speaker 13: sixth Avenue Avenue of the America. They bought this office 391 00:20:47,200 --> 00:20:51,960 Speaker 13: building from RXR and Blackstone, and they bought it for 392 00:20:52,400 --> 00:20:56,119 Speaker 13: roughly three hundred and twenty million dollars last year, and 393 00:20:56,160 --> 00:20:59,160 Speaker 13: that's a discount from what RXR and investors paid for 394 00:20:59,440 --> 00:21:01,720 Speaker 13: more than a Day to Go in twenty ten at 395 00:21:01,720 --> 00:21:05,440 Speaker 13: four hundred million dollars. So you're seeing these icing discounts 396 00:21:05,440 --> 00:21:09,000 Speaker 13: already happen. Another example that I can point out is 397 00:21:09,280 --> 00:21:13,760 Speaker 13: this February, a consumer's products firm, an Chante Accessories, not 398 00:21:13,800 --> 00:21:17,760 Speaker 13: a big consumers products firm, bottom Madison Avenue building that 399 00:21:17,880 --> 00:21:21,639 Speaker 13: a PIMCO owned company purchased back in twenty seventeen at 400 00:21:21,680 --> 00:21:22,760 Speaker 13: the peak of the market. 401 00:21:23,160 --> 00:21:23,920 Speaker 12: They purchased it. 402 00:21:23,880 --> 00:21:28,679 Speaker 13: At an eleven eleven million dollar discount from what the 403 00:21:28,720 --> 00:21:31,920 Speaker 13: Pimco owned company had purchased it for back in twenty seventeen. 404 00:21:32,000 --> 00:21:34,680 Speaker 13: At that point, they had leased it out entirely. Do 405 00:21:34,760 --> 00:21:37,720 Speaker 13: we Work shortly after we saw what happened with we Work. 406 00:21:38,359 --> 00:21:40,840 Speaker 13: The building basically sat vacant for the past two years 407 00:21:40,920 --> 00:21:44,920 Speaker 13: during the pandemic, and this consumer products company just decided 408 00:21:44,960 --> 00:21:47,240 Speaker 13: to come in buy the entire building and they're going 409 00:21:47,320 --> 00:21:50,480 Speaker 13: to lease part of it to themselves. The rest is 410 00:21:50,560 --> 00:21:53,040 Speaker 13: yet to be seen, but you're seeing them really see 411 00:21:53,080 --> 00:21:55,600 Speaker 13: these deals, and I think the biggest question is is 412 00:21:55,640 --> 00:21:58,919 Speaker 13: that enough of a discount to really show how much 413 00:21:58,960 --> 00:22:01,760 Speaker 13: office values we are going to Some institutions think it's 414 00:22:01,800 --> 00:22:03,720 Speaker 13: going to fall a bit further, so they're on the 415 00:22:03,760 --> 00:22:06,800 Speaker 13: sidelines waiting to see when that'll happen before they come in. 416 00:22:06,800 --> 00:22:09,240 Speaker 13: But there's a lot of dry powder waiting for these 417 00:22:09,280 --> 00:22:11,400 Speaker 13: distressed deals, and you have some of these smaller guys 418 00:22:11,400 --> 00:22:13,560 Speaker 13: going like, Okay, you know what, we can make this 419 00:22:13,640 --> 00:22:14,960 Speaker 13: deal work for us right now. 420 00:22:15,080 --> 00:22:18,000 Speaker 12: We don't know when the international money and the institutional. 421 00:22:17,480 --> 00:22:20,040 Speaker 13: Capital is going to come flowing back to the market, 422 00:22:20,320 --> 00:22:22,159 Speaker 13: so we might not have to call the bottom. 423 00:22:22,240 --> 00:22:23,840 Speaker 12: We might think it's just a good idea to step 424 00:22:23,920 --> 00:22:24,840 Speaker 12: in down in. 425 00:22:24,840 --> 00:22:28,520 Speaker 14: Our final minute here, Natalie, what are you anticipating. The 426 00:22:28,520 --> 00:22:31,480 Speaker 14: potential upside is let's say that these guys are right 427 00:22:31,920 --> 00:22:35,200 Speaker 14: and they're gonna, you know when on this Can you 428 00:22:35,280 --> 00:22:38,520 Speaker 14: talk to me about what some of the potential upside 429 00:22:38,800 --> 00:22:40,680 Speaker 14: might look like in terms of dollars here? 430 00:22:41,960 --> 00:22:43,880 Speaker 13: Great, I mean, a lot of these guys really bought 431 00:22:43,920 --> 00:22:46,040 Speaker 13: the building at such a low basis that for them 432 00:22:46,119 --> 00:22:47,800 Speaker 13: they just really have to bet on the fact that 433 00:22:47,840 --> 00:22:50,359 Speaker 13: there will be some kind of tenant that will want 434 00:22:50,440 --> 00:22:53,119 Speaker 13: to come back to the office. And we're already seeing 435 00:22:53,119 --> 00:22:56,239 Speaker 13: that start to happen in certain cases, right. I mean, 436 00:22:56,280 --> 00:22:58,479 Speaker 13: in New York, most of the leases that had happened 437 00:22:58,480 --> 00:23:02,560 Speaker 13: that were widely publicized were the big skyscrapers and huts 438 00:23:02,600 --> 00:23:06,359 Speaker 13: and yards by Grand Central, the big finance and tech firms. 439 00:23:06,720 --> 00:23:10,240 Speaker 13: But you know, three years into the pandemic or post pandemic, 440 00:23:10,240 --> 00:23:14,080 Speaker 13: we're seeing that some firms do want to bring people back. 441 00:23:14,080 --> 00:23:15,520 Speaker 13: It might not be in a full time basis, but 442 00:23:15,560 --> 00:23:17,960 Speaker 13: they still need an office space. So these guys are 443 00:23:17,960 --> 00:23:20,200 Speaker 13: betting that you know, it may not be the most 444 00:23:20,200 --> 00:23:22,720 Speaker 13: expensive rents that they'll command, but they'll be able to 445 00:23:22,760 --> 00:23:25,440 Speaker 13: capture the middle market people that want to be near 446 00:23:26,280 --> 00:23:29,760 Speaker 13: transit stations, people that will still eventually want a space 447 00:23:29,840 --> 00:23:30,680 Speaker 13: for their workers. 448 00:23:31,800 --> 00:23:34,680 Speaker 1: Thirty seconds here, Natalie, where are they getting the money 449 00:23:34,680 --> 00:23:34,920 Speaker 1: from it? 450 00:23:35,160 --> 00:23:36,960 Speaker 7: Are they using any debt capital or is this all 451 00:23:37,080 --> 00:23:37,680 Speaker 7: just equity? 452 00:23:38,440 --> 00:23:41,040 Speaker 13: That's the biggest question, right, because people can't really access debt, 453 00:23:41,080 --> 00:23:43,920 Speaker 13: and banks certainly do not want to expose themselves more 454 00:23:43,960 --> 00:23:47,119 Speaker 13: to offices, let alone older offices that these people are buying. 455 00:23:47,359 --> 00:23:49,160 Speaker 12: And so a lot of these guys are really. 456 00:23:49,040 --> 00:23:52,280 Speaker 13: Getting it from big cash pills that they're getting from 457 00:23:53,000 --> 00:23:56,240 Speaker 13: generational wealth they've built up from their businesses, or they're 458 00:23:56,280 --> 00:23:58,960 Speaker 13: also getting family offices that are investing in them and 459 00:23:59,000 --> 00:24:00,639 Speaker 13: buying it. So some of these guys are able to 460 00:24:00,640 --> 00:24:04,720 Speaker 13: come in and buy all cash in certain instances because 461 00:24:04,880 --> 00:24:07,479 Speaker 13: of how big their private businesses are. They do have 462 00:24:07,520 --> 00:24:10,800 Speaker 13: those deep banking relationships with lenders who are able to 463 00:24:10,840 --> 00:24:13,639 Speaker 13: trust them as a borrower. And then in some cases 464 00:24:13,640 --> 00:24:16,000 Speaker 13: they're even exploring U seller financing. 465 00:24:16,920 --> 00:24:17,160 Speaker 11: Wow. 466 00:24:17,240 --> 00:24:20,480 Speaker 1: Interesting, really fascinating story, because again, you walk around Midtown 467 00:24:20,480 --> 00:24:23,639 Speaker 1: Manhattan and the tourists are back, You've got to ask yourself, 468 00:24:23,640 --> 00:24:26,719 Speaker 1: when are the employees coming back, if at all, and 469 00:24:26,760 --> 00:24:28,199 Speaker 1: to what degree? And what does that mean for the 470 00:24:28,200 --> 00:24:32,000 Speaker 1: real estate and all the local businesses around those office 471 00:24:32,000 --> 00:24:35,440 Speaker 1: buildings that are impacted by the lower or fewer workers 472 00:24:35,480 --> 00:24:38,560 Speaker 1: in Natalie Wong, real estate reporter for Bloomberg News, and folks, 473 00:24:38,560 --> 00:24:42,480 Speaker 1: what you just heard was some really seasoned, well researched 474 00:24:42,480 --> 00:24:44,520 Speaker 1: reporting right there. That's about as good as it gets 475 00:24:45,080 --> 00:24:46,920 Speaker 1: with all the details there. So we appreciate getting a 476 00:24:46,960 --> 00:24:50,760 Speaker 1: few minutes from Natalie talking about this real estate business 477 00:24:50,800 --> 00:24:52,480 Speaker 1: here in New York. Other parts of the country doing 478 00:24:52,480 --> 00:24:55,480 Speaker 1: a lot better, some still, some challenges here, particularly in midtown. 479 00:24:57,480 --> 00:25:01,320 Speaker 8: You're listening to the team cansher Line Pro Bloomberg Markets 480 00:25:01,359 --> 00:25:03,240 Speaker 8: weekdays at ten am Eastern. 481 00:25:03,000 --> 00:25:05,920 Speaker 11: On Bloomberg dot Com, the iHeartRadio app and the. 482 00:25:05,840 --> 00:25:08,880 Speaker 8: Bloomberg Business App, or listen on demand wherever you get 483 00:25:08,920 --> 00:25:09,720 Speaker 8: your podcasts. 484 00:25:11,760 --> 00:25:13,359 Speaker 1: You know, Madison and I were just talking about it, 485 00:25:13,440 --> 00:25:15,640 Speaker 1: like you know, during my thirty years on Wall Street, 486 00:25:15,640 --> 00:25:18,560 Speaker 1: one of the most amazing I think developments it has been 487 00:25:18,600 --> 00:25:21,800 Speaker 1: the development of the private credit business. The private debt 488 00:25:21,800 --> 00:25:24,280 Speaker 1: market has been really just fascinating. People I think have 489 00:25:24,320 --> 00:25:27,000 Speaker 1: a general understanding of private equity, but I think that's 490 00:25:27,000 --> 00:25:29,760 Speaker 1: so clear understanding of the private debt market. So let's 491 00:25:29,760 --> 00:25:31,800 Speaker 1: get an expert on here to kind of give us 492 00:25:31,840 --> 00:25:35,280 Speaker 1: the latest. Anthony Foeble. He's the CEO of Arkmont Asset Management. 493 00:25:35,280 --> 00:25:37,760 Speaker 1: He's got a lot of experience on the on the 494 00:25:37,760 --> 00:25:40,840 Speaker 1: street in the city of London working in this side 495 00:25:40,880 --> 00:25:43,800 Speaker 1: of the business. Anthony, again, it's been such a great 496 00:25:44,240 --> 00:25:47,880 Speaker 1: growth story of the development and evolution of this market. 497 00:25:48,240 --> 00:25:51,000 Speaker 1: Tell me about Arkmont Asset Manager. How do you guys 498 00:25:51,040 --> 00:25:53,000 Speaker 1: play in this space? How do you view the private 499 00:25:53,000 --> 00:25:53,600 Speaker 1: debt market? 500 00:25:55,160 --> 00:25:57,760 Speaker 15: Yeah, well, thank you for having me on and Yes, 501 00:25:57,800 --> 00:26:02,679 Speaker 15: it's been an extraordinary period of growth, particularly actually in Europe, 502 00:26:02,800 --> 00:26:06,560 Speaker 15: because although private dead existed in the US before the 503 00:26:06,560 --> 00:26:09,800 Speaker 15: Global Financial Crisis, it really only came about following the 504 00:26:09,840 --> 00:26:15,120 Speaker 15: financial crisis in Europe because for historical reasons, all lending 505 00:26:15,680 --> 00:26:18,840 Speaker 15: was done by banks, and we know all about the 506 00:26:18,880 --> 00:26:22,040 Speaker 15: problem for banks had after the GFC, and we've seen 507 00:26:22,080 --> 00:26:26,400 Speaker 15: many of those issues starting to repeat again. And essentially, 508 00:26:26,440 --> 00:26:31,200 Speaker 15: what private debt firms did is they attracted institutional capital 509 00:26:31,320 --> 00:26:35,480 Speaker 15: to step into that significant financing gap that was left 510 00:26:35,840 --> 00:26:39,800 Speaker 15: by the banks, and it's been a tremendous growth story 511 00:26:39,800 --> 00:26:43,679 Speaker 15: as banks have retreated from mid market lending in Europe. 512 00:26:43,720 --> 00:26:46,159 Speaker 15: It's something that happened many years ago in the US 513 00:26:46,560 --> 00:26:50,440 Speaker 15: but is really only a tenure phenomenon in Europe. This 514 00:26:50,520 --> 00:26:53,880 Speaker 15: created a significant void, and private debt firms have been 515 00:26:54,040 --> 00:26:58,160 Speaker 15: more than happy as of their investors to fill that void. 516 00:26:59,320 --> 00:27:02,480 Speaker 14: So does that mean, given what you just said about 517 00:27:02,520 --> 00:27:08,040 Speaker 14: the growth being better today than even following eight where 518 00:27:08,040 --> 00:27:10,280 Speaker 14: are you seeing that in Europe specifically? And why do 519 00:27:10,320 --> 00:27:12,320 Speaker 14: you think Europe is a better bet for private debt 520 00:27:12,440 --> 00:27:13,600 Speaker 14: than the US? 521 00:27:14,680 --> 00:27:18,120 Speaker 15: Yeah, so there are I have to say, it's very 522 00:27:18,119 --> 00:27:21,760 Speaker 15: positive in both the US and Europe, but the fundamental 523 00:27:21,800 --> 00:27:25,520 Speaker 15: trends are are the same, although somewhat accentuated in Europe. 524 00:27:25,680 --> 00:27:29,240 Speaker 15: The trends are sort of banks retreating from lending. But 525 00:27:29,560 --> 00:27:31,760 Speaker 15: as we've seen over the last three to four years, 526 00:27:32,040 --> 00:27:35,720 Speaker 15: particularly in Europe, there's been tremendous volatility in the liquid markets, 527 00:27:36,040 --> 00:27:39,160 Speaker 15: taking the leverage, loan and high yield markets, and it's 528 00:27:39,200 --> 00:27:41,840 Speaker 15: remarkable to think that that really the liquid markets in 529 00:27:41,840 --> 00:27:46,200 Speaker 15: Europe have effectively been shut since February twenty twenty two 530 00:27:46,320 --> 00:27:49,719 Speaker 15: for new issues. And what that's meant is leading private 531 00:27:49,720 --> 00:27:53,520 Speaker 15: equity firms with plenty of dry powder are struggling to 532 00:27:53,560 --> 00:27:56,520 Speaker 15: finance those deals in now both the bank market and 533 00:27:56,560 --> 00:28:00,439 Speaker 15: the liquid markets, and that's presented a tremendous oportuy unity, 534 00:28:00,520 --> 00:28:04,320 Speaker 15: particularly I think in Europe, for private debt firms to 535 00:28:04,400 --> 00:28:09,439 Speaker 15: step in. And as the asset class has grown, firms 536 00:28:09,440 --> 00:28:11,720 Speaker 15: such as Arkman have gotten larger and larger. We now 537 00:28:11,760 --> 00:28:15,240 Speaker 15: manage about twenty five billion dollars in assets under management, 538 00:28:15,640 --> 00:28:19,280 Speaker 15: and that's given us the firepower to do not just 539 00:28:19,359 --> 00:28:25,399 Speaker 15: the historic bank substitution deals, but now increasingly liquid market 540 00:28:25,440 --> 00:28:26,639 Speaker 15: substitution deals. 541 00:28:27,600 --> 00:28:29,720 Speaker 10: So yeah, go. 542 00:28:29,680 --> 00:28:31,280 Speaker 1: Ahead, Anthony, I was just going to ask where are 543 00:28:31,280 --> 00:28:35,240 Speaker 1: you seeing deal activity across Europe these days? Given kind 544 00:28:35,240 --> 00:28:37,040 Speaker 1: of boy are the uncertainly we see out there, and 545 00:28:37,040 --> 00:28:39,440 Speaker 1: particularly in Europe where you guys deal on a more 546 00:28:39,640 --> 00:28:42,000 Speaker 1: close basis with the uncertainty in Ukraine. 547 00:28:43,480 --> 00:28:46,440 Speaker 15: Yeah, I mean it's certainly there has been a slow 548 00:28:46,480 --> 00:28:50,040 Speaker 15: down in deal activity, particularly by private equity firms, and 549 00:28:50,120 --> 00:28:53,280 Speaker 15: it's been a global phenomenon. But may no mistake about it, 550 00:28:53,280 --> 00:28:56,400 Speaker 15: there's still tremendous deal activity taking place and the sort 551 00:28:56,440 --> 00:28:59,640 Speaker 15: of levels of M and A activity we're seeing are 552 00:28:59,680 --> 00:29:03,840 Speaker 15: really back to the twenty eighteen nineteen level, so you know, 553 00:29:03,960 --> 00:29:08,640 Speaker 15: still pretty active markets. What's been really interesting for private debt, however, 554 00:29:09,240 --> 00:29:12,040 Speaker 15: is that we are pretty much the only game in 555 00:29:12,120 --> 00:29:16,240 Speaker 15: town to be able to finance those deals. So ironically, 556 00:29:16,440 --> 00:29:21,560 Speaker 15: while you've seen overall deal volumes drop, the deal volumes 557 00:29:21,560 --> 00:29:24,640 Speaker 15: that the likes of Arkmont and other European managers have 558 00:29:24,720 --> 00:29:30,080 Speaker 15: seen has actually skyrocketed. And it really is for us, 559 00:29:30,480 --> 00:29:32,520 Speaker 15: I mean our touch on your your macro point, but 560 00:29:32,560 --> 00:29:36,200 Speaker 15: for us it has been the perfect market because we've 561 00:29:36,200 --> 00:29:39,600 Speaker 15: seen volumes up for the reasons I just said, we've 562 00:29:39,600 --> 00:29:44,880 Speaker 15: seen significant price improvements as a result of really uryball 563 00:29:44,960 --> 00:29:47,920 Speaker 15: rates going from north percent and now over four percent. 564 00:29:48,600 --> 00:29:51,840 Speaker 15: Spreads have widened as well, so we're sort of generating 565 00:29:52,080 --> 00:29:56,920 Speaker 15: twelve percent type yields on senior debt loans, which is 566 00:29:57,000 --> 00:30:01,640 Speaker 15: which is phenomenal. We've also seen lower level multiples and 567 00:30:02,480 --> 00:30:06,680 Speaker 15: because we're doing these liquid market substitution deals, much higher 568 00:30:06,760 --> 00:30:10,880 Speaker 15: quality companies, which leads me on directly to the point 569 00:30:10,920 --> 00:30:14,440 Speaker 15: you raised about the macro picture. You know, we as 570 00:30:14,440 --> 00:30:18,240 Speaker 15: an industry have tended to focus on non cyclical businesses anyway, 571 00:30:18,680 --> 00:30:22,080 Speaker 15: so typically this industry in Europe is very much skewed 572 00:30:22,080 --> 00:30:28,400 Speaker 15: towards it services, very steady, stable businesses, healthcare, education, and 573 00:30:28,440 --> 00:30:31,160 Speaker 15: steered away from some of the more cyclical sectors. And 574 00:30:31,240 --> 00:30:33,520 Speaker 15: of course those are the deals that are still being done. 575 00:30:34,240 --> 00:30:36,840 Speaker 15: And I do have to say that, you know, compared 576 00:30:36,880 --> 00:30:40,640 Speaker 15: to perhaps even four months ago, the economic picture in 577 00:30:40,640 --> 00:30:44,160 Speaker 15: Europe has improved very markedly, right, you know, the key 578 00:30:44,280 --> 00:30:49,400 Speaker 15: three issues around rising inflation, high energy costs, that energy 579 00:30:49,440 --> 00:30:51,680 Speaker 15: prices are now back to where they were before the 580 00:30:51,800 --> 00:30:54,600 Speaker 15: Ukraine crisis, and you're seeing inflation fall as you are 581 00:30:54,600 --> 00:30:59,160 Speaker 15: seeing in Europe. We're seeing supply chains ease up as 582 00:30:59,480 --> 00:31:02,120 Speaker 15: China dropped to zero curbent policy and a lot of 583 00:31:02,120 --> 00:31:04,720 Speaker 15: the type labor markets that we've experienced both in Europe 584 00:31:04,720 --> 00:31:08,000 Speaker 15: and have similarly used. So you know, whereas once people 585 00:31:08,040 --> 00:31:11,640 Speaker 15: were talking about European recessions, no one's talking about that 586 00:31:11,720 --> 00:31:17,800 Speaker 15: at the moment. It's very much European growth, not stellar growth, right, 587 00:31:17,920 --> 00:31:18,560 Speaker 15: you know that's. 588 00:31:18,400 --> 00:31:22,480 Speaker 1: Fine, So, Anthony, from the perspective of raising capital, capital 589 00:31:22,560 --> 00:31:25,520 Speaker 1: being allocated to this asset class, you know, I remember 590 00:31:25,800 --> 00:31:28,240 Speaker 1: when interest rates were so low, you guys offered a 591 00:31:28,240 --> 00:31:29,160 Speaker 1: pretty nice return. 592 00:31:29,240 --> 00:31:31,520 Speaker 7: How how is it now that rates have risen. 593 00:31:33,120 --> 00:31:35,280 Speaker 15: So it's a very good point. 594 00:31:35,360 --> 00:31:35,560 Speaker 8: You know. 595 00:31:35,960 --> 00:31:38,600 Speaker 15: The way we always positioned ourselves is offering a premium 596 00:31:38,640 --> 00:31:41,160 Speaker 15: return to the liquid markets, which, as you correctly say, 597 00:31:41,240 --> 00:31:43,840 Speaker 15: wasn't difficult when, particularly in Europe, the liquid markets were 598 00:31:43,840 --> 00:31:47,720 Speaker 15: generating practically nothing. One of the great attractions of the 599 00:31:47,760 --> 00:31:50,000 Speaker 15: asset class, though, is that all of our loans are 600 00:31:50,000 --> 00:31:54,080 Speaker 15: floating rate loans. So as we've seen interest rates go 601 00:31:54,240 --> 00:31:59,440 Speaker 15: up in response toizing inflation, that translates directly into higher 602 00:31:59,480 --> 00:32:02,480 Speaker 15: returns investors. And as I said, you know, if you 603 00:32:02,520 --> 00:32:06,320 Speaker 15: look at euro ball rates plus the margin we're generating 604 00:32:06,360 --> 00:32:10,640 Speaker 15: plus fees, you know, we're generating twelve percent yields on 605 00:32:11,000 --> 00:32:14,200 Speaker 15: very safe senior debt and that that is a pretty 606 00:32:14,320 --> 00:32:17,640 Speaker 15: unprecedented situation in my experience. 607 00:32:17,920 --> 00:32:18,400 Speaker 7: Yeah, that is. 608 00:32:18,440 --> 00:32:20,760 Speaker 1: I mean, you know that's the top percent will stick 609 00:32:20,800 --> 00:32:22,960 Speaker 1: up when you're looking at the ten year treasury at 610 00:32:23,000 --> 00:32:26,000 Speaker 1: three point three eight percent. Anthony, thank you so much 611 00:32:26,080 --> 00:32:27,600 Speaker 1: for giving us a few minutes of your time. We 612 00:32:27,640 --> 00:32:31,200 Speaker 1: know you're very busy there, Anthony Foble, he's the CEO 613 00:32:31,400 --> 00:32:35,240 Speaker 1: of Arkmont Asset Management. As he mentioned, twenty five billion 614 00:32:35,280 --> 00:32:37,680 Speaker 1: in assets under management, and that is just another example 615 00:32:38,480 --> 00:32:41,200 Speaker 1: of the growth of the private credit business, the private 616 00:32:41,280 --> 00:32:45,320 Speaker 1: debt business really since, as mister fobl said, since really 617 00:32:45,320 --> 00:32:47,240 Speaker 1: the end of the Great Financial Crisis. So glad we 618 00:32:47,280 --> 00:32:49,120 Speaker 1: could get a few minutes of Anthony's time. 619 00:32:49,440 --> 00:32:53,080 Speaker 8: You're listening to the tape can't live program Bloomberg Markets 620 00:32:53,120 --> 00:32:56,520 Speaker 8: weekdays at ten am Eastern on Bloomberg Radio, the tune 621 00:32:56,560 --> 00:32:58,320 Speaker 8: in app, Bloomberg dot Com. 622 00:32:58,080 --> 00:32:59,520 Speaker 11: And the Bloomberg Business App. 623 00:32:59,520 --> 00:33:02,880 Speaker 8: You can also live on Amazon Alexa from our flagship 624 00:33:02,960 --> 00:33:07,440 Speaker 8: New York station, just say Alexa playing Bloomberg eleven thirty. 625 00:33:09,040 --> 00:33:11,320 Speaker 1: We do want to go to Ira Jersey covers all 626 00:33:11,360 --> 00:33:15,720 Speaker 1: the interest rate stuff for Bloomberg in Intelligence so Ira again, 627 00:33:16,080 --> 00:33:19,680 Speaker 1: Eco go I type that into my Bloomberg terminal manager. 628 00:33:19,680 --> 00:33:22,680 Speaker 1: A lot of stuff out there for markets to digest. 629 00:33:23,400 --> 00:33:26,680 Speaker 1: Give me your takeaway of the PPI data that we 630 00:33:26,720 --> 00:33:29,320 Speaker 1: saw today. How important is that for you and all 631 00:33:29,360 --> 00:33:31,440 Speaker 1: your fellow kind of interest rate geeks. 632 00:33:32,000 --> 00:33:35,480 Speaker 16: Well, so, most of the data that we've seen does 633 00:33:35,520 --> 00:33:38,520 Speaker 16: suggest that the inflation continues to slow right in. This 634 00:33:38,600 --> 00:33:43,360 Speaker 16: morning's numbers certainly suggest that that's continuing to be the case. 635 00:33:43,560 --> 00:33:46,920 Speaker 16: And I think PPI being a little bit better, you know, 636 00:33:47,040 --> 00:33:50,640 Speaker 16: is certainly going to be something that you know, policymakers 637 00:33:50,680 --> 00:33:52,760 Speaker 16: are going to take into account. And when you look 638 00:33:52,800 --> 00:33:55,960 Speaker 16: at things like PPI final demand being up only two 639 00:33:55,960 --> 00:33:58,680 Speaker 16: point three percent year on year, now you know that 640 00:33:58,760 --> 00:34:02,000 Speaker 16: doesn't seem so bad. The issue is is how much 641 00:34:03,000 --> 00:34:04,760 Speaker 16: of this is going to wind up coming out of 642 00:34:04,840 --> 00:34:08,879 Speaker 16: prices that we already see in on the shelves, right so, so, 643 00:34:09,200 --> 00:34:11,920 Speaker 16: so the good thing about this PPI number is it 644 00:34:12,000 --> 00:34:16,080 Speaker 16: tends to have a pretty good relationship with UH with 645 00:34:16,080 --> 00:34:19,120 Speaker 16: with with margins, with corporate margins. So if you take 646 00:34:19,480 --> 00:34:22,080 Speaker 16: core CPI and core pp I and you map that 647 00:34:22,239 --> 00:34:25,759 Speaker 16: the margins, it means that that margins actually could not 648 00:34:25,880 --> 00:34:28,080 Speaker 16: go down as quickly as some people are thinking they might. 649 00:34:28,719 --> 00:34:32,520 Speaker 14: So markets are pricing in those rate cuts. IRA. Where 650 00:34:32,520 --> 00:34:34,879 Speaker 14: in the data this week are you seeing evidence that 651 00:34:34,920 --> 00:34:37,920 Speaker 14: the Fed may not be ready to cut rates at 652 00:34:37,960 --> 00:34:39,520 Speaker 14: least until you know, the end of this year. 653 00:34:40,239 --> 00:34:43,160 Speaker 16: Well, I think the CPI numbers yesterday were pretty clear 654 00:34:43,239 --> 00:34:46,040 Speaker 16: on that point. You know, it's funny that the market 655 00:34:46,120 --> 00:34:48,800 Speaker 16: rallied as much as it did on numbers that basically 656 00:34:48,840 --> 00:34:52,520 Speaker 16: came in as expected. I think people were just fearful 657 00:34:52,600 --> 00:34:54,520 Speaker 16: that the numbers were going to come in a little 658 00:34:54,560 --> 00:34:57,560 Speaker 16: bit better. But when you look at yesterday's CPI data, 659 00:34:57,760 --> 00:34:59,840 Speaker 16: one of you know, if you think about what is 660 00:35:00,040 --> 00:35:02,680 Speaker 16: zero point four percent month on month print, is if 661 00:35:02,719 --> 00:35:04,640 Speaker 16: we were to get that for the entire year, that 662 00:35:04,680 --> 00:35:08,400 Speaker 16: would be almost a five percent year on year CPI. 663 00:35:08,960 --> 00:35:12,040 Speaker 16: So if that's the case, and it doesn't seem like 664 00:35:12,080 --> 00:35:15,400 Speaker 16: that's necessarily going to slow down significantly because looking at 665 00:35:15,440 --> 00:35:18,399 Speaker 16: some of the details, then the Federal Reserve is not 666 00:35:18,440 --> 00:35:20,680 Speaker 16: going to be cutting interest rates later this year. And 667 00:35:20,719 --> 00:35:23,440 Speaker 16: what's interesting is, you know, when you look at WRP, 668 00:35:23,680 --> 00:35:26,200 Speaker 16: you look at Fed Fund's futures, you look at SOFA futures, 669 00:35:26,239 --> 00:35:30,200 Speaker 16: those are the new liboard based futures they're called SOFA 670 00:35:30,239 --> 00:35:34,040 Speaker 16: on the secured overnight financing rate. It's saying, yes, the 671 00:35:34,080 --> 00:35:36,640 Speaker 16: Fed's going to cut. But if you look under the 672 00:35:36,640 --> 00:35:38,719 Speaker 16: hood and you look at the options markets and what 673 00:35:38,800 --> 00:35:42,759 Speaker 16: options markets are pricing, they're actually pricing an unchanged FED 674 00:35:43,239 --> 00:35:44,640 Speaker 16: or a FED that's going to cut one hundred and 675 00:35:44,680 --> 00:35:47,160 Speaker 16: fifty basis points by the end of the year, nothing 676 00:35:47,160 --> 00:35:51,040 Speaker 16: in between. So the interesting thing about that is the 677 00:35:51,080 --> 00:35:53,920 Speaker 16: market's either saying, hey, there might be a disaster credit 678 00:35:53,960 --> 00:35:57,759 Speaker 16: crunch of full on financial crisis, or inflation is going 679 00:35:57,800 --> 00:35:59,560 Speaker 16: to remain pretty high and the Fed's not going to 680 00:35:59,560 --> 00:36:01,759 Speaker 16: do any So so we have to keep in mind 681 00:36:01,800 --> 00:36:05,920 Speaker 16: that this doesn't always happen. But right now there's what 682 00:36:06,040 --> 00:36:09,760 Speaker 16: I call bimodal distribution, where it's basically unchanged or deep cuts. 683 00:36:09,840 --> 00:36:12,399 Speaker 16: It's not really two or three cuts this year as 684 00:36:12,400 --> 00:36:13,520 Speaker 16: the market's currently pricing. 685 00:36:13,680 --> 00:36:15,719 Speaker 1: Well, I mean, I felt so proud of myself Ira 686 00:36:15,760 --> 00:36:17,960 Speaker 1: when I learned the WORP function, and I kind of 687 00:36:18,040 --> 00:36:21,359 Speaker 1: understand what it means. Now you're telling me that it's 688 00:36:21,400 --> 00:36:22,359 Speaker 1: not that representative. 689 00:36:23,160 --> 00:36:27,200 Speaker 16: Well, it's representative of the of It's basically the weighted 690 00:36:27,239 --> 00:36:30,759 Speaker 16: average of the potential outcomes. So it's not the base 691 00:36:30,840 --> 00:36:33,000 Speaker 16: case outcome that that's kind of what I'm saying is 692 00:36:33,000 --> 00:36:36,040 Speaker 16: that there's basically two base cases, and one is for 693 00:36:36,280 --> 00:36:39,920 Speaker 16: massive cuts and the other one is for unchanged. So 694 00:36:40,080 --> 00:36:42,600 Speaker 16: the WRP function is, remember, it's going to tell you 695 00:36:42,640 --> 00:36:44,719 Speaker 16: and this is what FED Fund's futures are going to do, 696 00:36:44,960 --> 00:36:46,920 Speaker 16: or a lot of the other short term instruments we 697 00:36:47,000 --> 00:36:50,640 Speaker 16: use to judge what the market's thinking for for monetary policy, 698 00:36:51,040 --> 00:36:53,520 Speaker 16: and that's that's you know, what's the average now normally 699 00:36:53,600 --> 00:36:56,960 Speaker 16: it's it's normally just usually I should say it's normally distributed. 700 00:36:57,440 --> 00:37:00,200 Speaker 16: And you know that that's what happened on the way up, 701 00:37:00,280 --> 00:37:02,719 Speaker 16: like most people thought, oh, they're going to hike you know, 702 00:37:02,840 --> 00:37:04,279 Speaker 16: to four and a half percent to five and a 703 00:37:04,320 --> 00:37:06,480 Speaker 16: half percent with the average being five percent. You know, 704 00:37:06,520 --> 00:37:09,520 Speaker 16: that was kind of where what we were pricing on. 705 00:37:09,480 --> 00:37:09,960 Speaker 11: The way up. 706 00:37:10,239 --> 00:37:14,240 Speaker 16: But now there's a lot less certainty about the path 707 00:37:14,280 --> 00:37:17,560 Speaker 16: of future monetary policy, whether it's you know, when the 708 00:37:17,560 --> 00:37:19,960 Speaker 16: Fed's going to start cutting, how deep they're going to 709 00:37:20,000 --> 00:37:22,319 Speaker 16: cut if they do cut. And I think what the 710 00:37:22,360 --> 00:37:25,080 Speaker 16: market's suggesting and using the options market, and what it's 711 00:37:25,120 --> 00:37:29,040 Speaker 16: suggesting right now is that you know, if the Fed cuts, 712 00:37:29,080 --> 00:37:32,160 Speaker 16: it's going to cut very aggressively because there's a crisis. 713 00:37:32,280 --> 00:37:35,560 Speaker 16: And that's where you know this couple of you know 714 00:37:35,680 --> 00:37:37,960 Speaker 16: they're not going to cut twenty five basis points twice, right, 715 00:37:37,960 --> 00:37:40,920 Speaker 16: They're going to cut fifty basis points several times if 716 00:37:41,000 --> 00:37:41,800 Speaker 16: they start to cut. 717 00:37:42,040 --> 00:37:44,000 Speaker 14: So, Ira, I want to get your take on that 718 00:37:44,080 --> 00:37:47,160 Speaker 14: big debt ceiling debate while we have you here. You 719 00:37:47,200 --> 00:37:49,840 Speaker 14: mentioned the instruments you use to look at FED moves. 720 00:37:50,160 --> 00:37:52,960 Speaker 14: I wonder when you look at the treasury space in particular, 721 00:37:53,600 --> 00:37:56,040 Speaker 14: is the debt ceiling messing up that instrument for you? 722 00:37:57,600 --> 00:37:59,719 Speaker 16: It is? It is a bit yeah. I mean, if 723 00:37:59,719 --> 00:38:02,920 Speaker 16: you think about where what the market's pricing right now, 724 00:38:02,920 --> 00:38:05,360 Speaker 16: and you look at short term treasury bills that mature 725 00:38:05,440 --> 00:38:09,239 Speaker 16: before June, they are one hundred basis points below the 726 00:38:09,280 --> 00:38:12,120 Speaker 16: FED funds rate, like or on now one hundred and 727 00:38:12,160 --> 00:38:14,960 Speaker 16: fifty basis points below the FED fund rate. In some cases, 728 00:38:15,000 --> 00:38:18,480 Speaker 16: that's not typical, and the reason for that is you 729 00:38:18,560 --> 00:38:20,919 Speaker 16: have money market mutual funds that need to own those 730 00:38:20,960 --> 00:38:23,799 Speaker 16: because they don't want to own junior July bills because 731 00:38:23,800 --> 00:38:26,320 Speaker 16: they're worried that junior July bills might have a delayed payment, 732 00:38:26,400 --> 00:38:30,160 Speaker 16: and for money market funds that have to ensure daily liquidity, 733 00:38:30,520 --> 00:38:33,520 Speaker 16: even a one day delay in payment is massively painful 734 00:38:33,560 --> 00:38:36,600 Speaker 16: for them. So you look at the June eighth or 735 00:38:36,640 --> 00:38:39,600 Speaker 16: the June thirteenth T bills trading at five point four 736 00:38:39,719 --> 00:38:42,320 Speaker 16: five point five percent. That's not saying that the Fed's 737 00:38:42,320 --> 00:38:44,520 Speaker 16: going to hike interest rates next week, which is what 738 00:38:44,560 --> 00:38:47,400 Speaker 16: you'd normally think. It's implying it's implying that the market 739 00:38:47,440 --> 00:38:50,080 Speaker 16: is worried that the that the government is not going 740 00:38:50,080 --> 00:38:52,040 Speaker 16: to pay its bills early in June. 741 00:38:52,800 --> 00:38:55,040 Speaker 1: So going to that point, Ira and Maddie, I'm not 742 00:38:55,040 --> 00:38:56,520 Speaker 1: sure if you're aware of this, but this is how 743 00:38:56,719 --> 00:38:59,200 Speaker 1: deep into the weeds Ira and his team are. You 744 00:38:59,200 --> 00:39:03,120 Speaker 1: guys have a mom that kind of predicts they when 745 00:39:03,120 --> 00:39:04,359 Speaker 1: the government runs out of money. 746 00:39:04,400 --> 00:39:04,640 Speaker 7: I don't. 747 00:39:04,680 --> 00:39:06,719 Speaker 1: I don't want to know how this model works. I 748 00:39:06,760 --> 00:39:08,719 Speaker 1: just want to know kind of a do you have 749 00:39:08,920 --> 00:39:10,560 Speaker 1: this model and what is it telling you? 750 00:39:11,719 --> 00:39:14,200 Speaker 16: Yeah, so it's a it's a daily model where we 751 00:39:14,400 --> 00:39:16,759 Speaker 16: estimate what government spending and revenue is going to be, 752 00:39:16,800 --> 00:39:18,279 Speaker 16: and then how much cash at the end of the 753 00:39:18,320 --> 00:39:21,520 Speaker 16: day the government has, and we show that it is 754 00:39:21,640 --> 00:39:24,759 Speaker 16: exactly the June sixth and June A t bills that 755 00:39:25,280 --> 00:39:31,200 Speaker 16: are most at risk of a government default, and the 756 00:39:31,239 --> 00:39:34,480 Speaker 16: government could squeak by, and we're you know, these sound 757 00:39:34,520 --> 00:39:36,560 Speaker 16: like big numbers when you say words like billions, but 758 00:39:36,600 --> 00:39:38,799 Speaker 16: when you have a seven trillion dollar budget, you know, 759 00:39:38,840 --> 00:39:41,960 Speaker 16: a couple of billion dollars is a rounding error. But 760 00:39:42,200 --> 00:39:44,319 Speaker 16: if we get just a couple of billion dollars two 761 00:39:44,320 --> 00:39:46,759 Speaker 16: billion dollars a week for the next three weeks on 762 00:39:47,200 --> 00:39:50,920 Speaker 16: the Friday payrolls data and taxes go up a little bit, 763 00:39:51,480 --> 00:39:54,160 Speaker 16: then suddenly we can make it the June fifteenth. And 764 00:39:54,200 --> 00:39:56,799 Speaker 16: then June fifteenth, there's a one hundred billion dollars in 765 00:39:56,800 --> 00:39:59,879 Speaker 16: corporate taxes that are going to occur, and then there's 766 00:39:59,880 --> 00:40:03,839 Speaker 16: a So there's like this rolling issue with with where 767 00:40:03,880 --> 00:40:06,360 Speaker 16: we are in the depth ceialing debate. So people who say, like, 768 00:40:06,719 --> 00:40:11,040 Speaker 16: you know, they I know Speaker McCarthy said that he 769 00:40:11,080 --> 00:40:13,440 Speaker 16: didn't believe the June sixth state. He should believe the 770 00:40:13,520 --> 00:40:16,040 Speaker 16: June sixth state because it's accurate. But if we make 771 00:40:16,040 --> 00:40:18,400 Speaker 16: it the June fifteenth, then we make it to July thirtieth. 772 00:40:18,440 --> 00:40:20,440 Speaker 16: And I think that's what some members of Congress are 773 00:40:20,440 --> 00:40:24,479 Speaker 16: hoping and that's what some people's models are saying. Yeah, 774 00:40:24,480 --> 00:40:27,160 Speaker 16: my models were pretty good, So I would suggest that 775 00:40:27,239 --> 00:40:28,920 Speaker 16: there is a risk in early June. 776 00:40:28,960 --> 00:40:31,480 Speaker 1: So I what you're telling me is my government, our 777 00:40:31,520 --> 00:40:33,400 Speaker 1: government lives paycheck to paycheck kind of. 778 00:40:34,239 --> 00:40:37,279 Speaker 16: They're living there, your paycheck to paycheck because they need 779 00:40:37,320 --> 00:40:38,879 Speaker 16: you to pay a little bit more in taxes over 780 00:40:38,880 --> 00:40:40,440 Speaker 16: the next couple of weeks in order to make it 781 00:40:40,480 --> 00:40:42,520 Speaker 16: to the June fifteenth corporate tax date. 782 00:40:42,800 --> 00:40:45,719 Speaker 1: That is truly how the sausage is made in terms 783 00:40:45,719 --> 00:40:48,879 Speaker 1: of financing this government. Right there and Iron his team, 784 00:40:48,920 --> 00:40:51,640 Speaker 1: they have a model, a financial model, like a spreadsheet 785 00:40:51,680 --> 00:40:53,040 Speaker 1: kind of thing that kind of does it for them 786 00:40:53,080 --> 00:40:54,040 Speaker 1: on a daily basis. 787 00:40:54,560 --> 00:40:56,840 Speaker 7: And that's how good their work is. Ira Jersey. 788 00:40:56,880 --> 00:40:59,560 Speaker 1: He covers all the rates and stuff and keeps an 789 00:40:59,640 --> 00:41:03,480 Speaker 1: eye on the US you know, checkbook and wallet and 790 00:41:03,480 --> 00:41:04,160 Speaker 1: stuff like that. 791 00:41:04,360 --> 00:41:07,960 Speaker 8: You're listening to the tape cancer Live program Bloomberg Markets 792 00:41:08,040 --> 00:41:11,399 Speaker 8: weekdays at ten am Eastern on Bloomberg Radio, the tune 793 00:41:11,440 --> 00:41:13,160 Speaker 8: in app, Bloomberg dot Com, and. 794 00:41:13,120 --> 00:41:14,399 Speaker 11: The Bloomberg Business App. 795 00:41:14,440 --> 00:41:17,279 Speaker 8: You can also listen live on Amazon Alexa from our 796 00:41:17,280 --> 00:41:22,400 Speaker 8: flagship New York station, Just say Alexa Play Bloomberg eleven thirty. 797 00:41:23,880 --> 00:41:26,960 Speaker 1: Lots of inflation data coming out this week, giving more 798 00:41:27,000 --> 00:41:29,880 Speaker 1: food for thought for our federal Reserve. Let's check in 799 00:41:29,920 --> 00:41:32,360 Speaker 1: with an economist who thinks about this stuff too, Lydia 800 00:41:32,440 --> 00:41:37,000 Speaker 1: bhussor senior economists e Y Parthion joins us here. So Lydia, 801 00:41:37,239 --> 00:41:42,759 Speaker 1: CPI data, PPI data, what's your inflation called? Given kind 802 00:41:42,760 --> 00:41:43,719 Speaker 1: of some of the data we got this. 803 00:41:43,680 --> 00:41:48,760 Speaker 17: Week, Hi, thanks for having me. So the inflation data 804 00:41:48,800 --> 00:41:52,160 Speaker 17: that we got this week confirmed that that the inflation 805 00:41:52,360 --> 00:41:56,839 Speaker 17: process is well underway and is continuing. And it's not 806 00:41:56,960 --> 00:41:59,920 Speaker 17: just about you know, the CPI report we saw this morning. 807 00:42:00,280 --> 00:42:04,200 Speaker 17: Producer price inflation is pointing to some of this inflation happening. 808 00:42:04,600 --> 00:42:09,480 Speaker 17: Import price inflation is also showing some outright deflation, and 809 00:42:09,600 --> 00:42:12,640 Speaker 17: so it does look like all the pieces are falling 810 00:42:12,680 --> 00:42:16,239 Speaker 17: into place for that this inflation process to accelerate in 811 00:42:16,280 --> 00:42:18,480 Speaker 17: the second half of the year. We are also seeing 812 00:42:18,840 --> 00:42:21,760 Speaker 17: a turn in house prices and some loosening in label 813 00:42:21,800 --> 00:42:26,320 Speaker 17: market conditions, with wage growth also beginning to show some moderation. 814 00:42:26,840 --> 00:42:30,920 Speaker 17: So we do expect to see this inflation accederating in 815 00:42:31,320 --> 00:42:35,560 Speaker 17: the second half. We have, you know, headline inflation falling 816 00:42:35,600 --> 00:42:38,919 Speaker 17: back towards three percent by the end of the year. 817 00:42:38,960 --> 00:42:40,680 Speaker 17: A little bit of three percent, we could see a 818 00:42:40,680 --> 00:42:43,160 Speaker 17: two percent handle by the end of the year, and 819 00:42:43,239 --> 00:42:46,000 Speaker 17: core inflation a little bit of both three percent, and 820 00:42:46,400 --> 00:42:49,040 Speaker 17: that you know, still leaves inflation above the FATS two 821 00:42:49,080 --> 00:42:53,320 Speaker 17: percent target. But that's that's likely to be a faster 822 00:42:53,440 --> 00:42:56,480 Speaker 17: this inflation that some than some are anticipating right now. 823 00:42:57,360 --> 00:43:01,720 Speaker 14: Hey, when you look at the core services shelter, health, insurance, 824 00:43:01,719 --> 00:43:04,359 Speaker 14: and airfares that you were just touching on a little bit, 825 00:43:04,960 --> 00:43:07,880 Speaker 14: that moved up a little bit, right, does that concern 826 00:43:07,960 --> 00:43:11,480 Speaker 14: you at all when it comes to the stickiness question 827 00:43:11,640 --> 00:43:12,440 Speaker 14: of this inflation. 828 00:43:14,040 --> 00:43:16,640 Speaker 17: I mean, in terms of the stickiness we are saying 829 00:43:16,640 --> 00:43:19,279 Speaker 17: on the core services side of the economy. We know 830 00:43:19,400 --> 00:43:22,960 Speaker 17: that that is you know, tied to also some of 831 00:43:23,000 --> 00:43:25,080 Speaker 17: the tightness that we are seeing in the label market. 832 00:43:25,560 --> 00:43:28,399 Speaker 17: We got the jobs report last week which showed some 833 00:43:28,719 --> 00:43:32,400 Speaker 17: renewed pressure on the weight growth front and also the 834 00:43:32,480 --> 00:43:37,200 Speaker 17: unemployment rate remaining remaining historically low. But we also know that, 835 00:43:37,719 --> 00:43:39,879 Speaker 17: as I said, you know a number of label market 836 00:43:39,960 --> 00:43:44,520 Speaker 17: indicators are pointing to loosening in label market conditions, and 837 00:43:45,560 --> 00:43:48,839 Speaker 17: you know, jobless claims have been trending higher. We saw 838 00:43:48,880 --> 00:43:51,879 Speaker 17: on a side breakout this morning, and we are also 839 00:43:51,920 --> 00:43:55,839 Speaker 17: seeing slower libor demand in the label market. We are 840 00:43:55,880 --> 00:43:59,600 Speaker 17: seeing less churn and less people quitting their jobs on 841 00:43:59,640 --> 00:44:03,319 Speaker 17: amount basis, and so that should you know, allow for 842 00:44:03,440 --> 00:44:06,560 Speaker 17: some this inflation to happen in the services sector. And 843 00:44:06,600 --> 00:44:09,640 Speaker 17: at the same time, we also know that some of 844 00:44:09,680 --> 00:44:14,400 Speaker 17: that shelter inflation will also turn in the coming months. 845 00:44:14,760 --> 00:44:18,680 Speaker 17: We've seen some moderation, will likely past peak, but for 846 00:44:18,719 --> 00:44:22,600 Speaker 17: that this inflation to fall, you know, with accelerating momentum, 847 00:44:22,680 --> 00:44:24,600 Speaker 17: we're likely to have to wait, you know, a few 848 00:44:24,640 --> 00:44:28,800 Speaker 17: more months, and that will likely be a key factory 849 00:44:28,880 --> 00:44:31,719 Speaker 17: driving services inflation down in the second half of the year. 850 00:44:32,640 --> 00:44:35,360 Speaker 1: LYDIA, once again, it appears that the US government is 851 00:44:35,400 --> 00:44:38,600 Speaker 1: having a little problem with its checkbook, paying its bills, 852 00:44:38,680 --> 00:44:41,120 Speaker 1: that's sealing all that kind of stuff. This is starting 853 00:44:41,160 --> 00:44:43,759 Speaker 1: to come to a head here. How is that factoring 854 00:44:44,000 --> 00:44:47,480 Speaker 1: how's that risk factoring into your economic forecast? 855 00:44:47,520 --> 00:44:48,000 Speaker 7: An outlook? 856 00:44:48,800 --> 00:44:51,960 Speaker 17: Yeah, I mean the stakes are really high, as you know, 857 00:44:52,960 --> 00:44:54,880 Speaker 17: given you know, the fact that we're not seeing a 858 00:44:54,880 --> 00:44:57,239 Speaker 17: lot of willingness to compromise at the moment, and that's 859 00:44:57,280 --> 00:44:59,800 Speaker 17: putting you know, a risk to the economy and financial 860 00:44:59,880 --> 00:45:03,080 Speaker 17: more market and adding a layer of complication on top 861 00:45:03,160 --> 00:45:05,480 Speaker 17: of you know, the stress we have seen in the 862 00:45:05,480 --> 00:45:08,120 Speaker 17: banking sector, and on top of the fact that we 863 00:45:08,280 --> 00:45:12,520 Speaker 17: are already in an economy that is slowing down and downshifting. 864 00:45:12,880 --> 00:45:16,000 Speaker 17: What we're likely to see in the coming weeks is 865 00:45:16,080 --> 00:45:19,880 Speaker 17: essentially the pressure you know, rising in financial markets. With 866 00:45:20,400 --> 00:45:23,719 Speaker 17: rising financial market velatility, we're likely to see a heap 867 00:45:23,760 --> 00:45:28,040 Speaker 17: to confidence as well on business and consumer confidence. Uh 868 00:45:28,080 --> 00:45:30,719 Speaker 17: and and all of that is likely to exacerbate the 869 00:45:30,760 --> 00:45:33,799 Speaker 17: slowdown that we're seeing in the economy right now. So 870 00:45:33,840 --> 00:45:37,919 Speaker 17: certainly adding some downside race to the economy, we are 871 00:45:38,000 --> 00:45:40,719 Speaker 17: expecting to see a recession unfolding by the middle of 872 00:45:40,760 --> 00:45:44,759 Speaker 17: the year. And you know this, this down shift in 873 00:45:44,920 --> 00:45:48,440 Speaker 17: economic activity that's already visible in many sectors of the 874 00:45:48,480 --> 00:45:51,880 Speaker 17: economy could be you know, deeper as a result of 875 00:45:53,080 --> 00:45:53,680 Speaker 17: this situation. 876 00:45:54,719 --> 00:45:57,280 Speaker 14: I wonder then you you talk about the death sealing issue, 877 00:45:57,400 --> 00:45:59,959 Speaker 14: and you mentioned in there the stress and the bank 878 00:46:00,080 --> 00:46:03,319 Speaker 14: game sector. What do you think the outlook in terms 879 00:46:03,320 --> 00:46:06,400 Speaker 14: of the impact is from that stress that were maybe 880 00:46:07,440 --> 00:46:10,920 Speaker 14: underestimating when we when we look at the economic picture. 881 00:46:12,480 --> 00:46:15,520 Speaker 17: I think, you know, in terms of the impact on 882 00:46:15,880 --> 00:46:18,919 Speaker 17: the banking sector. What we've learned over the past few 883 00:46:18,920 --> 00:46:22,280 Speaker 17: weeks is that this is still ongoing. We're still seeing 884 00:46:22,280 --> 00:46:26,600 Speaker 17: some stress in the banking sector, and that we don't 885 00:46:26,640 --> 00:46:29,040 Speaker 17: know for sure how much credit tightening is currently in 886 00:46:29,080 --> 00:46:31,759 Speaker 17: the pipeline, but we know that as a result of 887 00:46:32,680 --> 00:46:36,880 Speaker 17: these turbulances, banks have become a more worry of lending 888 00:46:37,000 --> 00:46:40,080 Speaker 17: and we were already seeing that tightening in credit condition 889 00:46:40,200 --> 00:46:44,320 Speaker 17: in lending standards before this, you know, banking stress emerged. 890 00:46:44,360 --> 00:46:47,880 Speaker 17: So what we're likely to see is that credit tightening 891 00:46:48,040 --> 00:46:51,520 Speaker 17: filtering into the economy in the next six months, in 892 00:46:51,560 --> 00:46:55,440 Speaker 17: the next twelve month, and that's likely to lead consumers 893 00:46:55,440 --> 00:46:59,360 Speaker 17: and businesses to be even more cautious with the with 894 00:46:59,440 --> 00:47:03,160 Speaker 17: their hiring for businesses and spending as well. So it 895 00:47:03,239 --> 00:47:06,359 Speaker 17: will weigh on the economy, and we factored that in 896 00:47:06,360 --> 00:47:09,920 Speaker 17: into our outlook, and we have you know, as I 897 00:47:09,960 --> 00:47:12,880 Speaker 17: as I mentioned, you know, a recession and folding in 898 00:47:12,920 --> 00:47:15,560 Speaker 17: the middle of the year and some of that weakness 899 00:47:15,600 --> 00:47:17,359 Speaker 17: lingering into twenty twenty four. 900 00:47:18,520 --> 00:47:21,319 Speaker 1: So one of the areas Lydia that has held up 901 00:47:21,360 --> 00:47:23,800 Speaker 1: remarkably well, at least to me, it seems like it's this. 902 00:47:23,600 --> 00:47:24,440 Speaker 7: This labor market. 903 00:47:24,480 --> 00:47:27,479 Speaker 1: You know, three point four percent unemployment, I mean the FED, 904 00:47:28,040 --> 00:47:29,920 Speaker 1: you know, I think perversely would like to see that 905 00:47:30,040 --> 00:47:33,560 Speaker 1: number higher. Where do you think unemployment goes? What's your 906 00:47:33,680 --> 00:47:36,120 Speaker 1: view of the labor market here in the United States. 907 00:47:36,800 --> 00:47:39,920 Speaker 17: Yeah, we're definitely getting mixed messages in terms of the 908 00:47:40,000 --> 00:47:43,120 Speaker 17: label market and mixed signals. I think it's very important 909 00:47:43,120 --> 00:47:45,040 Speaker 17: to take a step back and look at the broad 910 00:47:45,120 --> 00:47:48,440 Speaker 17: set of labor market indicators. We got the jobs report 911 00:47:48,520 --> 00:47:51,399 Speaker 17: last week, and if you take it at the headline level, 912 00:47:51,480 --> 00:47:55,160 Speaker 17: you saw pretty solid job creation and also the unemployment 913 00:47:55,280 --> 00:47:59,160 Speaker 17: rate very low, and that renewed pressure on wage growth, 914 00:47:59,320 --> 00:48:02,560 Speaker 17: which points to a similarly tightened and resilient label market. 915 00:48:02,920 --> 00:48:05,280 Speaker 17: But if you dig a little bit deeper in the report, 916 00:48:05,360 --> 00:48:08,840 Speaker 17: there were some signs that the label market is loosening. 917 00:48:08,880 --> 00:48:12,120 Speaker 17: If you look at the diffusion of job creation, the 918 00:48:12,120 --> 00:48:16,440 Speaker 17: breath of job creation, it has declined quite significantly, so 919 00:48:16,560 --> 00:48:20,120 Speaker 17: job growth has become less broad based. If you look 920 00:48:20,160 --> 00:48:24,719 Speaker 17: at layoffs, they've been creeping higher as well, and our 921 00:48:24,760 --> 00:48:29,000 Speaker 17: conversations with businesses as well is pointing to more strategic 922 00:48:29,360 --> 00:48:33,640 Speaker 17: hiring decisions. We're seeing strategic layoffs as well, and labor 923 00:48:33,719 --> 00:48:36,799 Speaker 17: the man has come back down significantly as well. So 924 00:48:36,960 --> 00:48:40,839 Speaker 17: the down shifting in the label market is happening, and 925 00:48:41,000 --> 00:48:44,239 Speaker 17: what we're expecting to see is essentially companies pulling back 926 00:48:44,280 --> 00:48:48,880 Speaker 17: even further on hiring in the coming months. We're expecting 927 00:48:48,960 --> 00:48:52,080 Speaker 17: to see the unemployment rate rising towards four point five 928 00:48:52,120 --> 00:48:54,279 Speaker 17: percent by the end of the year, and we are 929 00:48:54,320 --> 00:48:58,480 Speaker 17: also expecting to see some layoffs happening, likely around you know, 930 00:48:58,560 --> 00:49:02,120 Speaker 17: nine hundred thousand to a million jobs lost this year, 931 00:49:03,000 --> 00:49:05,839 Speaker 17: but it won't be the same kind of environment we 932 00:49:05,840 --> 00:49:08,520 Speaker 17: were in in two thousand and eight. We're not expecting 933 00:49:08,560 --> 00:49:11,239 Speaker 17: to see the same kind of broad based layoffs in 934 00:49:11,560 --> 00:49:13,080 Speaker 17: the label market. Up to a. 935 00:49:13,000 --> 00:49:16,560 Speaker 14: Million jobs lost feels like, I know, it's a drop 936 00:49:16,600 --> 00:49:18,440 Speaker 14: in the bucket when it comes to the population in 937 00:49:18,480 --> 00:49:21,400 Speaker 14: the US, but that feels like a mildly significant number. 938 00:49:21,640 --> 00:49:25,640 Speaker 14: Where can we look to see indications of that starting 939 00:49:25,719 --> 00:49:27,240 Speaker 14: in terms of the layoffs. 940 00:49:26,920 --> 00:49:31,920 Speaker 17: Picture, Yeah, we are already seeing some signs that layoffs 941 00:49:31,920 --> 00:49:35,319 Speaker 17: are creeping up. Jobless claims have been trending up since 942 00:49:35,360 --> 00:49:38,600 Speaker 17: the beginning of the year. We've heard, you know, if 943 00:49:38,640 --> 00:49:42,359 Speaker 17: you look at job cut mentions in earnings calls. There 944 00:49:42,440 --> 00:49:45,160 Speaker 17: was also a rise in these mentions, and if you 945 00:49:45,160 --> 00:49:48,120 Speaker 17: look at other surveys as well, they are showing that 946 00:49:48,239 --> 00:49:52,560 Speaker 17: job cuts are also increasing, So we can you know, 947 00:49:52,600 --> 00:49:55,520 Speaker 17: there are a number of indicators that are already indicating this. 948 00:49:55,920 --> 00:49:58,919 Speaker 17: These are not broad based layoffs, and that's why it's 949 00:49:58,960 --> 00:50:02,680 Speaker 17: not showing up just yet. And and they're not broad based. 950 00:50:02,719 --> 00:50:06,280 Speaker 17: We've seen pockets of weakness appearing, essentially in the labor market. 951 00:50:07,080 --> 00:50:10,239 Speaker 17: And some of these pockets of weakness have appeared in 952 00:50:10,280 --> 00:50:13,880 Speaker 17: those sectors of the economy that had been hiring quite 953 00:50:13,920 --> 00:50:18,640 Speaker 17: significantly during the pandemic. They've been, you know, facing very 954 00:50:18,680 --> 00:50:21,600 Speaker 17: strong consumer demand and they've been they really overdid it 955 00:50:22,120 --> 00:50:24,640 Speaker 17: in some in some of these sectors in terms of hiring, 956 00:50:24,680 --> 00:50:27,960 Speaker 17: and and they have now had to recalibrate their workforce 957 00:50:28,560 --> 00:50:32,400 Speaker 17: with the retail sector is one example in UH. But 958 00:50:32,640 --> 00:50:36,120 Speaker 17: you know, more generally, I think sectors in general and 959 00:50:36,520 --> 00:50:38,920 Speaker 17: businesses in general will have to adjust to the slower 960 00:50:38,960 --> 00:50:42,399 Speaker 17: demain environment and slower economic environment that we will face 961 00:50:42,440 --> 00:50:43,520 Speaker 17: in the next six months. 962 00:50:43,640 --> 00:50:45,480 Speaker 7: All right, Lydia, thank you so much for joining us. 963 00:50:45,480 --> 00:50:47,720 Speaker 7: Really appreciate getting your thoughts. Lydia Bussor. 964 00:50:47,960 --> 00:50:51,879 Speaker 1: She's a senior economist at e Y Parthyon calling for 965 00:50:52,000 --> 00:50:55,279 Speaker 1: you know, a slow downish economy recession later this year, 966 00:50:55,360 --> 00:50:58,680 Speaker 1: perhaps into next year, and that seems to be a 967 00:50:58,680 --> 00:51:00,800 Speaker 1: building consensus. I guess the question really means for a 968 00:51:00,840 --> 00:51:03,560 Speaker 1: lot of folks, is you know, how prolonged would that 969 00:51:03,600 --> 00:51:06,799 Speaker 1: recession be? How deep would that recession be? I guess 970 00:51:06,880 --> 00:51:08,600 Speaker 1: we will certainly find out going forward. 971 00:51:08,719 --> 00:51:11,800 Speaker 8: You're listening to the tape cans our live program, Bloomberg 972 00:51:11,880 --> 00:51:15,480 Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the 973 00:51:15,520 --> 00:51:18,759 Speaker 8: tune in app, Bloomberg dot Com, and the Bloomberg Business App. 974 00:51:18,800 --> 00:51:21,600 Speaker 8: You can also listen live on Amazon Alexa from our 975 00:51:21,640 --> 00:51:25,239 Speaker 8: flagship New York station, Just say Alexa Play Bloomberg. 976 00:51:25,280 --> 00:51:26,040 Speaker 11: Eleven thirty. 977 00:51:28,239 --> 00:51:30,759 Speaker 1: Todd Lockman joins us. He's a CEO and president of 978 00:51:30,920 --> 00:51:36,239 Speaker 1: Sovos brand. Sobos is a NASDAC listed stock. Soovo is 979 00:51:36,280 --> 00:51:39,880 Speaker 1: the ticker. It's hitting a fifty two week high today, 980 00:51:40,760 --> 00:51:42,600 Speaker 1: so a good time to get out and start chatting 981 00:51:42,600 --> 00:51:43,320 Speaker 1: about the story. 982 00:51:43,360 --> 00:51:43,719 Speaker 7: I guess. 983 00:51:43,719 --> 00:51:45,839 Speaker 1: The stock is up thirty four percent year to date. 984 00:51:45,880 --> 00:51:48,200 Speaker 1: It's got a market cap of just under two billion dollars. 985 00:51:48,520 --> 00:51:50,000 Speaker 1: Stock's up five percent today. 986 00:51:50,680 --> 00:51:52,200 Speaker 7: Todd, thanks so much for joining us here. I know 987 00:51:52,239 --> 00:51:52,720 Speaker 7: you guys. 988 00:51:52,920 --> 00:51:54,759 Speaker 1: Before we get to your earnings, just give us a 989 00:51:54,840 --> 00:51:57,400 Speaker 1: sense of what you guys do at Sovos brands. 990 00:51:57,640 --> 00:51:58,799 Speaker 7: What brands do you own? 991 00:52:00,120 --> 00:52:02,200 Speaker 18: Absolutely? Yeah, thanks Paul, great too great to be on 992 00:52:02,239 --> 00:52:02,600 Speaker 18: the show. 993 00:52:02,719 --> 00:52:05,920 Speaker 19: So the brands that we own are the REOs brand, 994 00:52:07,160 --> 00:52:12,760 Speaker 19: which is pasta soup, frozen entrees, dry pasta, just launching 995 00:52:12,760 --> 00:52:17,840 Speaker 19: into pizza, we can talk about that, Noosa Yogurt, absolutely delicious, thick, velvety, 996 00:52:18,800 --> 00:52:21,520 Speaker 19: one of a kind yogurt and yogurt category. And then 997 00:52:21,640 --> 00:52:26,720 Speaker 19: Michael Angelo's which is premium frozen Italian cuisine and also 998 00:52:26,840 --> 00:52:30,880 Speaker 19: just launched a mid price sauce brand under the Michael Angelo's. 999 00:52:30,920 --> 00:52:32,719 Speaker 18: But we're a high growth food. 1000 00:52:32,440 --> 00:52:36,720 Speaker 19: Company founded in twenty seventeen, really pioneering a new approach 1001 00:52:36,760 --> 00:52:39,760 Speaker 19: to packaged food that centers on premium, high quality, delicious 1002 00:52:39,760 --> 00:52:43,280 Speaker 19: products and brands with authenticity at their core and really 1003 00:52:43,719 --> 00:52:45,960 Speaker 19: try to drive As you can see that we're delivering 1004 00:52:46,640 --> 00:52:50,600 Speaker 19: growth that's really unique and disproportionate for the category. 1005 00:52:51,200 --> 00:52:54,640 Speaker 14: So, Todd, as Paul was mentioning, a pretty great year 1006 00:52:54,680 --> 00:52:58,319 Speaker 14: for you, pretty great earnings as well, what is your 1007 00:52:58,320 --> 00:53:01,040 Speaker 14: favorite data point from your all our earnings that you'd 1008 00:53:01,080 --> 00:53:02,680 Speaker 14: like to call out what are you most proud of? 1009 00:53:03,719 --> 00:53:07,080 Speaker 19: Sure, thanks Mata, saying, well, there's a few, and I'm 1010 00:53:07,120 --> 00:53:09,239 Speaker 19: not sure. I mean, we had, as you saw, we 1011 00:53:09,280 --> 00:53:11,839 Speaker 19: couldn't be more thrilled the Q one results. I mean, 1012 00:53:12,000 --> 00:53:15,840 Speaker 19: the first area that i'd highlight is volume. Volume driven 1013 00:53:15,880 --> 00:53:20,320 Speaker 19: twenty seven percent of organic growth, so sixteen percent volume, 1014 00:53:20,560 --> 00:53:21,960 Speaker 19: eleven percent price. 1015 00:53:22,400 --> 00:53:23,720 Speaker 5: How did you do that, Todd? 1016 00:53:23,800 --> 00:53:25,920 Speaker 14: I'm sorry to jump on you here, but that to me, 1017 00:53:26,080 --> 00:53:28,520 Speaker 14: that's what stuck out to me as well. And it 1018 00:53:28,560 --> 00:53:33,640 Speaker 14: seems like volume surging over price in the inflationary environment 1019 00:53:33,640 --> 00:53:37,719 Speaker 14: we're in is really a substantial metric here. What was 1020 00:53:37,800 --> 00:53:39,480 Speaker 14: your secret sauce to that? 1021 00:53:39,560 --> 00:53:40,440 Speaker 5: No pun intended? 1022 00:53:41,160 --> 00:53:43,160 Speaker 18: No, well, I think it was probably kind of intended. 1023 00:53:43,200 --> 00:53:43,640 Speaker 18: But it's good. 1024 00:53:43,640 --> 00:53:46,960 Speaker 19: I do it all the time, but not many and 1025 00:53:47,000 --> 00:53:48,920 Speaker 19: as you pointed out, not many we show we have 1026 00:53:48,960 --> 00:53:50,920 Speaker 19: a slide in an earning stick. If you look at 1027 00:53:50,920 --> 00:53:54,120 Speaker 19: our peers, they're declining in volume averagely four percent. So 1028 00:53:54,280 --> 00:53:57,040 Speaker 19: just as you said, it is very unique for the industry, 1029 00:53:57,080 --> 00:54:01,239 Speaker 19: and we're doing that really driving the Raio megabrand. We 1030 00:54:01,840 --> 00:54:05,840 Speaker 19: part of our philosophy is we acquire under penetrated brands. 1031 00:54:06,440 --> 00:54:09,480 Speaker 19: Tay Superior already in the category very unique. I apologize 1032 00:54:09,480 --> 00:54:12,920 Speaker 19: for the train here going across the tracks in Berkeley, California, 1033 00:54:13,000 --> 00:54:17,320 Speaker 19: but really, when you take these brands that are underpenetrated, 1034 00:54:17,360 --> 00:54:22,400 Speaker 19: we're driving significant distribution gain. So REOs, for particular, we 1035 00:54:22,560 --> 00:54:25,640 Speaker 19: had the largest quarterly household penetration gain that we have 1036 00:54:25,760 --> 00:54:28,319 Speaker 19: in three years on that brand. So the sauce now 1037 00:54:28,400 --> 00:54:33,839 Speaker 19: thirteen percent on the heels of twenty two percent distribution increases. 1038 00:54:33,960 --> 00:54:36,600 Speaker 19: So even though we acquired this brand in twenty seventeen, 1039 00:54:36,719 --> 00:54:40,040 Speaker 19: we're still putting distribution points on the board for the 1040 00:54:40,080 --> 00:54:46,280 Speaker 19: sauce business as well as driving significant growth in our dry, pasta, 1041 00:54:46,480 --> 00:54:50,360 Speaker 19: soup and frozen categories. Those combined businesses now are on 1042 00:54:50,360 --> 00:54:52,839 Speaker 19: one hundred and thirty million dollars. Retail sales make up 1043 00:54:52,880 --> 00:54:56,320 Speaker 19: twenty percent of the REOs franchise of forty six percent 1044 00:54:56,440 --> 00:55:00,560 Speaker 19: year on year. The REOs brand Ltm now six hundred 1045 00:55:00,600 --> 00:55:04,960 Speaker 19: and eighteen million dollars of forty percent year on year. 1046 00:55:05,080 --> 00:55:08,880 Speaker 19: So we're driving volume through distribution awareness gains on a 1047 00:55:08,920 --> 00:55:11,920 Speaker 19: franchise that you know still has lots of headroom and 1048 00:55:12,000 --> 00:55:12,560 Speaker 19: room to grow. 1049 00:55:13,120 --> 00:55:13,480 Speaker 7: That's right. 1050 00:55:13,480 --> 00:55:15,000 Speaker 1: I wanted to go here because we think about consumer 1051 00:55:15,040 --> 00:55:16,839 Speaker 1: products coming is I don't think about the growth rates 1052 00:55:16,880 --> 00:55:17,799 Speaker 1: that you guys are putting up. 1053 00:55:17,840 --> 00:55:20,600 Speaker 7: I think it's a CPI kind of growth business. 1054 00:55:20,640 --> 00:55:23,960 Speaker 1: So how much more headroom or or how much more 1055 00:55:24,440 --> 00:55:26,640 Speaker 1: room to grow do you have with your existing brands 1056 00:55:26,880 --> 00:55:30,440 Speaker 1: before you need to go out and maybe consider some acquisitions, sure, 1057 00:55:30,560 --> 00:55:30,799 Speaker 1: you know. 1058 00:55:30,800 --> 00:55:34,560 Speaker 19: Really significant. Let's just take Raos sauce, you know, for example. 1059 00:55:35,080 --> 00:55:37,160 Speaker 19: So if you take you know, the REOs brand, and 1060 00:55:37,239 --> 00:55:40,120 Speaker 19: we did achieve another statistic to some still riding on 1061 00:55:40,120 --> 00:55:44,120 Speaker 19: the heels of your first question, literally, but we achieved 1062 00:55:44,160 --> 00:55:46,520 Speaker 19: the number one share in the food channel. We're the 1063 00:55:46,600 --> 00:55:49,000 Speaker 19: number two brand overall now in sauce. When we acquired 1064 00:55:49,000 --> 00:55:51,160 Speaker 19: the brand, it was number eight and now number two, 1065 00:55:51,520 --> 00:55:55,560 Speaker 19: number one in the food channel. But Raos, although we're 1066 00:55:55,600 --> 00:55:58,799 Speaker 19: a you know, sixteen to seventeen percent dollar share, we're 1067 00:55:58,960 --> 00:56:03,120 Speaker 19: only a seven percent unit share when the market the 1068 00:56:03,160 --> 00:56:06,480 Speaker 19: other two market leaders, number one and number three, their 1069 00:56:06,600 --> 00:56:09,239 Speaker 19: unit share is sixteen and eighteen. If you look at 1070 00:56:09,280 --> 00:56:13,160 Speaker 19: our penetration of sauce, it's thirteen percent. Our peers are 1071 00:56:13,200 --> 00:56:16,200 Speaker 19: above thirty percent. The awareness of our brand is fifty 1072 00:56:16,239 --> 00:56:19,000 Speaker 19: eight percent. You have five other sauce brands that have 1073 00:56:19,040 --> 00:56:22,640 Speaker 19: awareness greater than ninety percent, and we have fourteen average 1074 00:56:22,680 --> 00:56:24,920 Speaker 19: items on shelf when you have two other players with 1075 00:56:25,040 --> 00:56:28,840 Speaker 19: over twenty. So you can just see just in sauce alone, 1076 00:56:29,000 --> 00:56:32,200 Speaker 19: there's an enormous headroom. And that's why we talk continually 1077 00:56:32,640 --> 00:56:34,600 Speaker 19: that we're going to get this six hundred million dollar 1078 00:56:34,680 --> 00:56:38,040 Speaker 19: net sales business to one billion and beyond. And that's 1079 00:56:38,120 --> 00:56:41,120 Speaker 19: just sauce. And we can go over the same statistics 1080 00:56:41,120 --> 00:56:43,240 Speaker 19: for our soup business, which is only a two share, 1081 00:56:43,480 --> 00:56:45,960 Speaker 19: our dry pasta business which is only a one to 1082 00:56:46,000 --> 00:56:49,279 Speaker 19: three share, and our frozen entre business is less than 1083 00:56:49,280 --> 00:56:53,279 Speaker 19: a one share. And again, those three businesses combined are 1084 00:56:53,360 --> 00:56:55,560 Speaker 19: growing forty six percent year on year. 1085 00:56:56,000 --> 00:56:59,040 Speaker 14: Real quick here, Todd, I know the only one we 1086 00:56:59,040 --> 00:57:02,800 Speaker 14: haven't really mentioned is Neusa the yogurt product as well. 1087 00:57:03,080 --> 00:57:06,239 Speaker 14: I wonder, and you tell me which project product do 1088 00:57:06,239 --> 00:57:09,560 Speaker 14: you have the biggest challenge with in terms of profits? 1089 00:57:09,600 --> 00:57:12,279 Speaker 14: And what is your thinking on when to kind of 1090 00:57:12,360 --> 00:57:14,640 Speaker 14: change things up on the product side given some of 1091 00:57:14,680 --> 00:57:15,440 Speaker 14: those challenges. 1092 00:57:16,360 --> 00:57:18,440 Speaker 18: Sure, you know, I'd say, honestly, we were driving really 1093 00:57:18,480 --> 00:57:19,600 Speaker 18: would you thirty percent? Eve? 1094 00:57:19,600 --> 00:57:22,960 Speaker 19: But dog growth in the quarter, you know, as our 1095 00:57:23,280 --> 00:57:26,600 Speaker 19: pricing and productivity and you know volume is more than 1096 00:57:26,640 --> 00:57:29,680 Speaker 19: offsetting the inflationary pressures that we have. I mean, we 1097 00:57:29,680 --> 00:57:32,760 Speaker 19: were public last year that a headwind notably on the 1098 00:57:32,800 --> 00:57:35,520 Speaker 19: noose of business was milk pricing and affected up affected 1099 00:57:35,560 --> 00:57:39,000 Speaker 19: the category. You know, milk prices are coming back down, 1100 00:57:39,040 --> 00:57:41,120 Speaker 19: so we're seeing a nice benefit. So, you know, I 1101 00:57:41,120 --> 00:57:43,840 Speaker 19: think the key headline last year would have been, you know, 1102 00:57:44,040 --> 00:57:47,600 Speaker 19: the yogurt businesses. We've talked about it. But right now 1103 00:57:47,640 --> 00:57:51,360 Speaker 19: there's a nice tailwind from milk and from resin, and 1104 00:57:51,400 --> 00:57:53,680 Speaker 19: there's also a tailwind and there's some there's still some 1105 00:57:54,800 --> 00:57:57,520 Speaker 19: uh and there are still some headwinds, whether it's tomatoes, 1106 00:57:57,520 --> 00:58:00,880 Speaker 19: olive oil, et cetera. But if you take proteins and 1107 00:58:00,920 --> 00:58:03,880 Speaker 19: you take milk, and you take resin, those are all 1108 00:58:04,000 --> 00:58:07,160 Speaker 19: nice commodity tail winds for us right now. 1109 00:58:07,920 --> 00:58:09,760 Speaker 7: Todd, thanks so much for joining us. Really appreciate it. 1110 00:58:09,800 --> 00:58:13,880 Speaker 1: Todd Lackman, he's the CEO and president of Sovo Sprands. Again, 1111 00:58:13,960 --> 00:58:18,520 Speaker 1: the NASDAC symbol so Ovo and A stock is hitting 1112 00:58:18,520 --> 00:58:22,240 Speaker 1: a fifty two weeks high today as we speak. Ipo'd 1113 00:58:22,280 --> 00:58:25,040 Speaker 1: a couple of years ago, and I reported some numbers 1114 00:58:25,120 --> 00:58:28,360 Speaker 1: yesterday which the street like stocks up on the news 1115 00:58:28,400 --> 00:58:30,520 Speaker 1: of the earning Zone talking about the food business. Now 1116 00:58:30,560 --> 00:58:36,360 Speaker 1: REOs it's a famous restaurant in New York City once 1117 00:58:36,680 --> 00:58:39,800 Speaker 1: and I mean it's impossible to get into, but back 1118 00:58:39,800 --> 00:58:41,919 Speaker 1: in the day, I knew a guy who knew a guy, 1119 00:58:42,120 --> 00:58:44,040 Speaker 1: so that got me in there and it was great, 1120 00:58:44,080 --> 00:58:44,840 Speaker 1: It was good, awesome. 1121 00:58:47,640 --> 00:58:50,720 Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can 1122 00:58:50,760 --> 00:58:54,560 Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever 1123 00:58:54,640 --> 00:58:56,120 Speaker 2: podcast platform you prefer. 1124 00:58:56,520 --> 00:58:57,320 Speaker 7: I'm Matt Miller. 1125 00:58:57,560 --> 00:59:00,640 Speaker 2: I'm on Twitter at Matt Miller nineteen seven twenty three. 1126 00:59:00,920 --> 00:59:03,400 Speaker 7: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney. 1127 00:59:03,440 --> 00:59:06,080 Speaker 1: Before the podcast, you can always catch us worldwide at 1128 00:59:06,120 --> 00:59:06,840 Speaker 1: Bloomberg Radio