WEBVTT - Debt Ceiling, Equities, Inflation, and Consumers (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.520 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:21.079 --> 0:00:25.159 Let's pivot now to another Washington, DC centric story, that 0:00:25.239 --> 0:00:28.720 is the dead ceiling. There's a potentially the fault and 0:00:28.800 --> 0:00:30.560 kind of where are we in the negotiations and what 0:00:30.640 --> 0:00:33.480 does it mean for the greenback here? So we're gonna 0:00:33.479 --> 0:00:36.919 bring Audrey Child Friedman Freeman. She is the chief G 0:00:37.040 --> 0:00:40.880 ten FX strategist with Bloomberg Intelligence, and Dwayne Wright senior 0:00:40.920 --> 0:00:45.239 government analyst with Bloomberg Intelligence. So, Dwayne, you do this 0:00:45.360 --> 0:00:49.720 policy stuff full time for Bloomberg Intelligence here. I think 0:00:49.760 --> 0:00:53.000 the assumption for all of us up here in Wall 0:00:53.000 --> 0:00:55.280 Street is that they'll work it out at the end. 0:00:55.560 --> 0:00:58.200 Is that an okay assumption? Or is there a material 0:00:58.280 --> 0:01:00.000 risk here of a bad outcome? 0:01:00.520 --> 0:01:04.160 Well, it's above zero. I wouldn't say it's above three 0:01:04.280 --> 0:01:07.360 or five percent, but there's always a risk. I think 0:01:07.480 --> 0:01:13.120 the general mood right now is the meeting that Kevin McCarthy, 0:01:13.240 --> 0:01:16.720 the President, and the Ford leaders had was a positive 0:01:16.760 --> 0:01:19.520 first step. You can't have a second step without making 0:01:19.560 --> 0:01:23.880 that first step. And so we've already heard discussions about 0:01:23.880 --> 0:01:26.880 as second meeting, which is tomorrow. But in between the 0:01:27.160 --> 0:01:30.400 last meeting and this coming meeting, we know that staff 0:01:30.680 --> 0:01:33.840 for both sides are now beginning to have those conversations 0:01:34.480 --> 0:01:38.160 what is the universe of policy items that we can 0:01:38.319 --> 0:01:40.919 talk about that will move the ball forward to avoid 0:01:40.959 --> 0:01:44.280 a default. And we kind of knew this was where 0:01:44.319 --> 0:01:48.000 we were going, but we just had to have that 0:01:48.080 --> 0:01:51.800 first step. And so I think we'll see a bit 0:01:51.840 --> 0:01:55.160 more progress over the next couple of days where we'll 0:01:55.200 --> 0:01:58.720 begin to see what the universe of policies that can 0:01:58.800 --> 0:02:01.240 be included in a debt ceiling bill. So I think 0:02:01.280 --> 0:02:04.040 there's still a lot more confidence that this will happen. 0:02:05.440 --> 0:02:08.040 I just I would put aside what we see publicly 0:02:08.080 --> 0:02:12.239 and hear publicly from the leaders and start to think 0:02:12.280 --> 0:02:14.800 more about what's happening behind the scenes, what we're not 0:02:14.840 --> 0:02:17.680 hearing about. And there seems to be a lot of 0:02:17.680 --> 0:02:18.800 positive conversations. 0:02:18.919 --> 0:02:21.680 Hey, Audrey, when we talk about this debt sealing stuff. 0:02:21.720 --> 0:02:25.320 The budget boy, I think right about the currency market here, 0:02:25.360 --> 0:02:26.800 what do we sing in the currency market? What do 0:02:26.840 --> 0:02:29.320 we sing with the US dollar visa the other major 0:02:29.360 --> 0:02:32.480 currencies as we kind of fumble along towards trying to 0:02:32.520 --> 0:02:33.200 fund our government. 0:02:34.280 --> 0:02:38.720 Well, surprisingly, you may think surprisingly not a lot in 0:02:38.760 --> 0:02:41.440 a sense that there's a lot of talk about this 0:02:41.919 --> 0:02:46.200 problem and this issue, but there's no sign of stress 0:02:46.240 --> 0:02:50.200 in a sense that the effects volatility environment remains very low. 0:02:50.680 --> 0:02:54.040 And the dollar happened till very recently, has been trading 0:02:54.160 --> 0:02:55.280 very much in a range. 0:02:55.720 --> 0:02:57.480 So no strong conviction. 0:02:57.560 --> 0:03:02.200 And certainly no sign of stress with regard to the 0:03:03.040 --> 0:03:06.480 that that limit situation. And I think it's just because 0:03:06.600 --> 0:03:09.760 the view is that, uh, it will get solved in 0:03:09.800 --> 0:03:12.679 the end and we will get some kind of a compromise. 0:03:12.760 --> 0:03:15.239 And we've been there many times. And if you try 0:03:15.320 --> 0:03:17.320 every time you try to trade the dollar on the 0:03:17.360 --> 0:03:21.360 back of this topic, you kind of go around circle 0:03:21.480 --> 0:03:23.720 and finish very very much where you started. 0:03:24.720 --> 0:03:27.160 Audrey, to follow up on that, CRETI GROUPDA in New York, 0:03:27.160 --> 0:03:30.480 by the way, just crashed Paulsueni's party here in the 0:03:30.760 --> 0:03:33.600 Interact Broker studio, Audrey, I want to ask you a 0:03:33.639 --> 0:03:36.240 follow on the dollar question, if only for a while 0:03:36.360 --> 0:03:40.360 the dollar trade was dictated mostly by interest rate differentials 0:03:40.360 --> 0:03:43.480 as a function of the ECB and the hawkishency you 0:03:43.480 --> 0:03:45.800 were still seeing on in Europe. Where as the Federal 0:03:45.800 --> 0:03:48.560 Reserve is ending their tiny cycle, or at least expected to. 0:03:49.480 --> 0:03:53.600 Does the bawl case for the dollar change as we 0:03:53.720 --> 0:03:58.280 get closer to a potential debt default? Do people then 0:03:58.600 --> 0:04:01.600 buy the dollar as the only safety around? 0:04:02.480 --> 0:04:06.800 Yeah, I think that's a very valid question because there's 0:04:06.840 --> 0:04:09.240 an element. I mean, we all know if there was 0:04:09.320 --> 0:04:13.360 to be any kind of default. Let's assume there was 0:04:13.400 --> 0:04:16.000 to be a default situation, even though this is not 0:04:16.200 --> 0:04:19.600 our working assumption, of course, but let's assume. So, I mean, 0:04:19.640 --> 0:04:23.000 the long term consequences, it's pretty easy in a sense 0:04:23.080 --> 0:04:25.120 that it would be negative for the dollar. It would 0:04:25.200 --> 0:04:30.160 accelerate the de loyrialization theme that we've been talking about, 0:04:30.440 --> 0:04:34.640 and that's pretty pretty straightforward. In the short term. The 0:04:34.720 --> 0:04:37.840 other point that the other conclusion that straightforward is that 0:04:37.880 --> 0:04:41.719 it would trigger a risk of market move across all 0:04:41.760 --> 0:04:45.960 asset classes, and I think actually that would be supportive 0:04:46.000 --> 0:04:48.680 for the dollar. If you think about what the dollar 0:04:48.800 --> 0:04:53.719 usually do in terms of risk of market move But 0:04:53.920 --> 0:04:55.760 there is a flip side this time around, in the 0:04:55.800 --> 0:04:58.839 sense that you know, against currencies such as the euro, 0:04:59.760 --> 0:05:04.240 the yen, or the Swiss frank low better currency effects currencies, 0:05:04.279 --> 0:05:06.960 you could actually argue that the market sees this as 0:05:07.320 --> 0:05:09.800 you know, it's very much a US specific problem, even 0:05:09.800 --> 0:05:14.920 though the consequences are global. But it's just negative for 0:05:15.000 --> 0:05:20.120 the dollar against those currencies, and therefore, you know, it's debatable, 0:05:20.320 --> 0:05:25.200 there's an element of uncertainty as to what extent it's 0:05:25.400 --> 0:05:28.279 it's negative for the dollar or positive in the very 0:05:28.320 --> 0:05:32.000 near terms. So there's way around this, you know, in 0:05:32.080 --> 0:05:35.240 terms of trading and in terms of use, because if 0:05:35.240 --> 0:05:38.680 you just accept the fact that a default situation would 0:05:38.720 --> 0:05:42.479 trigger a risk of movement, right then you just you 0:05:42.560 --> 0:05:47.520 think about bullish low better effects and erish high better effects. 0:05:47.520 --> 0:05:50.120 And that's that's a thing, a very valid way to 0:05:50.440 --> 0:05:51.159 think about it. 0:05:51.680 --> 0:05:55.040 Dwine hopp on in here in our last thirty seconds 0:05:55.120 --> 0:05:57.760 or so and talk to us about this dollar story, 0:05:57.760 --> 0:06:00.520 because it felt like when the dollar was just rising 0:06:00.560 --> 0:06:03.640 and rising and strengthening and strengthening, there was a lot 0:06:03.680 --> 0:06:05.080 of I want to say a lot, but there was 0:06:05.120 --> 0:06:07.640 some pressure on the White House on the government to say, 0:06:08.160 --> 0:06:11.760 is currency intervention something we need to explore in the 0:06:12.360 --> 0:06:15.240 kind of doomsday scenario of some sort of debt default. 0:06:15.560 --> 0:06:19.080 Is that a conversation you see perhaps returning. 0:06:20.520 --> 0:06:22.840 That remains to be seen. I think at the end 0:06:22.839 --> 0:06:26.600 of the day we will see a deal, and it 0:06:26.680 --> 0:06:30.960 will likely be at the last hour, maybe the last minute. 0:06:31.560 --> 0:06:34.560 But I think at the end of the day we'll 0:06:34.600 --> 0:06:38.000 see some low hanging fruit, potentially in the last couple 0:06:38.080 --> 0:06:41.040 of hours, where it's a short term spending deal or 0:06:41.320 --> 0:06:46.279 very short term raise, and maybe some repealing or taking 0:06:46.320 --> 0:06:49.480 back of some unspent COVID money. That kind of pushes 0:06:49.520 --> 0:06:53.360 off the conversations of these other pieces that the White 0:06:53.400 --> 0:06:57.120 House and some other policymakers want to discuss. But I 0:06:57.160 --> 0:07:00.400 think that these conversations are probably likely going down happen 0:07:01.120 --> 0:07:03.720 after June as we get to our long term deal. 0:07:04.040 --> 0:07:05.200 All right, very good stuff. 0:07:05.200 --> 0:07:09.520 Really appreciate that Dwayne Wright, senior government analysts with Bloomberg Intelligence, 0:07:09.560 --> 0:07:12.720 he's down in our Washington, DC office. And Audrey Child Freeman, 0:07:12.800 --> 0:07:16.760 chief G ten FX strategist with Bloomberg Intelligence, she is 0:07:17.120 --> 0:07:20.400 in our London office. I appreciate getting the update from 0:07:20.520 --> 0:07:22.360 both of them. 0:07:22.600 --> 0:07:26.040 You're listening to the team. Can's are live program Bloomberg 0:07:26.080 --> 0:07:29.440 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:07:29.520 --> 0:07:32.680 the iHeartRadio app and the Bloomberg Business App, or listen 0:07:32.760 --> 0:07:34.840 on demand wherever you get your podcasts. 0:07:37.160 --> 0:07:38.840 Let's get the latest, you know, I just need to 0:07:38.880 --> 0:07:41.200 get craty. We need to, I think, just to get 0:07:41.200 --> 0:07:43.880 a little bit smarter here with just the bigger picture 0:07:44.200 --> 0:07:46.440 what's going on with these markets, because I've seen over 0:07:46.480 --> 0:07:49.640 the last several months not a lot of direction, maybe 0:07:49.720 --> 0:07:51.280 not a lot of volume. I think the markets is 0:07:51.280 --> 0:07:53.560 trying to figure this stuff out. There's a lot of 0:07:53.600 --> 0:07:56.360 cross currents out there. So let's bring around tailor some 0:07:56.600 --> 0:07:59.480 really smart people that we have at our. 0:08:00.840 --> 0:08:02.240 You know, within our reach, our disposal. 0:08:02.280 --> 0:08:06.560 Gena Martin Adams, chief equity strategists for Bloomberg Intelligence. She's 0:08:06.600 --> 0:08:08.880 in our Bloomberg Interactor broker studio in New York. And 0:08:08.920 --> 0:08:12.240 Cameron Christ he's Bloomberg macro strategist. He joins us on 0:08:12.320 --> 0:08:14.560 the phone. Cameron, let's start with you. There's been if 0:08:14.600 --> 0:08:17.520 I type an eco go and just look over the 0:08:17.600 --> 0:08:18.400 last couple of weeks. 0:08:18.640 --> 0:08:21.000 Man, there's been a lot of data here, and as. 0:08:20.880 --> 0:08:24.440 You synthesize all that, what do you think the market's 0:08:24.480 --> 0:08:27.320 discounting in terms of growth, in terms of inflation, in 0:08:27.400 --> 0:08:28.120 terms of the FED. 0:08:28.360 --> 0:08:29.720 What's kind of the takeaway do you think? 0:08:30.360 --> 0:08:34.520 Well, I think the market's primary conclusion is that the 0:08:34.559 --> 0:08:40.320 FED is done tightening interest rates, and that's generated I 0:08:40.320 --> 0:08:45.839 guess the expected reaction in equity and six income markets. 0:08:46.080 --> 0:08:49.079 Sixth income has been rallying. Interest rates sensitive portions of 0:08:49.080 --> 0:08:53.080 the equity market have been rallying. If you look at 0:08:53.120 --> 0:08:56.520 the short term registrate market, there is this ongoing concern 0:08:56.920 --> 0:09:01.040 about the director of the economy. We are racing rate 0:09:01.120 --> 0:09:06.360 cuts starting sometime early in the second half of the year. 0:09:07.120 --> 0:09:09.960 And it really what it comes down to is the 0:09:10.280 --> 0:09:16.720 soft survey based data, which ostensibly is forward looking, is 0:09:16.840 --> 0:09:21.120 pretty bad frickly on the business side, which kind of 0:09:21.160 --> 0:09:24.240 feeds through or is a natural consequence I think of 0:09:24.320 --> 0:09:28.680 these concerns about a credit crunch, the so called hard data, 0:09:29.120 --> 0:09:33.360 which is more backward looking, has been relatively better. And 0:09:33.440 --> 0:09:35.679 so the big, the big question that everyone's trying to 0:09:35.679 --> 0:09:39.800 figure out is which which will capitulate. Will the hard 0:09:39.880 --> 0:09:42.600 data sort of come down to the to the the 0:09:42.640 --> 0:09:46.200 growth concerns implied by the soft data, or will the 0:09:46.240 --> 0:09:49.559 hard data remain resilient and eventually the soft data sentiment 0:09:49.600 --> 0:09:51.520 type stuff will will will improve. 0:09:51.920 --> 0:09:54.000 Well, Gina, this is where I want to bring you in. 0:09:54.280 --> 0:09:56.520 He's talking about the soft data the hard data, this 0:09:56.600 --> 0:09:59.000 divergence that the FED is at the end of the 0:09:59.080 --> 0:10:03.120 day done with hiking, yet we're still looking at inflation 0:10:03.200 --> 0:10:06.360 at four point nine percent. If the carnage of the 0:10:06.400 --> 0:10:09.400 equity market is kind of in the rare view mirror, 0:10:09.640 --> 0:10:13.800 what are we missing here? The fanstun tightening, earnings recession 0:10:13.840 --> 0:10:14.840 is in the rare view mirror. 0:10:14.920 --> 0:10:16.560 Why are we not seeing more green on the screen? 0:10:16.720 --> 0:10:18.640 Yeah? I think that's a really good point, and I 0:10:18.640 --> 0:10:22.160 think it really comes down to the differences between the 0:10:22.160 --> 0:10:26.000 inflation indicators and the growth indicators. The inflation indicators are 0:10:26.000 --> 0:10:29.920 coming off of a peak, and that's enabling some perception 0:10:30.000 --> 0:10:32.840 of margin stability finally emerging in the index. Remember, we 0:10:32.880 --> 0:10:35.800 got into this mess not because growth was slowing down, 0:10:35.800 --> 0:10:39.640 but because inflation was spiking, and that created the downdraft 0:10:39.640 --> 0:10:42.560 in earnings results over the course of the last year. 0:10:42.679 --> 0:10:45.480 Really through the S and P five hundred anyway into 0:10:45.600 --> 0:10:50.200 a pretty profound earnings recession because growth held up. Nobody 0:10:50.200 --> 0:10:52.880 seemed to notice that earnings recession, but the market absolutely 0:10:52.920 --> 0:10:55.439 noticed the earnings recession, and it was really perpetuated by 0:10:55.520 --> 0:10:58.839 spiking inflation. Now that inflation has started to ease off, 0:10:58.840 --> 0:11:01.720 even though it's still hot, as you correctly note, it 0:11:01.760 --> 0:11:04.480 is still trending in the right direction. That's enabling this 0:11:04.600 --> 0:11:07.560 sort of margin stability to emerge. PPI is rising at 0:11:07.559 --> 0:11:11.679 a slower pace than CPI. Finally that's creating some stability. 0:11:11.960 --> 0:11:14.120 But at the same time, the market is now saying, Okay, 0:11:14.679 --> 0:11:19.280 the inflation monster is starting to look somewhat contained, but 0:11:19.360 --> 0:11:22.480 what does the growth monster look like going forward? And 0:11:22.520 --> 0:11:25.800 how much of that acceleration and growth has actually been 0:11:25.800 --> 0:11:27.600 priced in the market. And I think that's why you 0:11:27.720 --> 0:11:32.080 have this natural constraint on upside that has emerged. Is Yes, 0:11:32.160 --> 0:11:34.960 inflation does appear to be somewhat more contained than we 0:11:34.960 --> 0:11:37.640 were thinking. Yes, we do think the FED has likely 0:11:38.280 --> 0:11:42.160 gone to a pause state. But will we actually see 0:11:42.200 --> 0:11:44.680 gross accelerate now and what will that mean for earnings 0:11:44.720 --> 0:11:45.920 going into twenty twenty four? 0:11:46.600 --> 0:11:48.959 Cameron, you know, I don't know about this inflation story, 0:11:48.960 --> 0:11:51.160 but I just paid sixty dollars for New York strip 0:11:51.200 --> 0:11:53.719 stake in Midtown Manhattan on Tuesday night. 0:11:53.840 --> 0:11:56.840 That's inflation to me. But be that as it may. 0:11:57.400 --> 0:12:00.199 Are you in get camp that thinks is fed, like 0:12:00.240 --> 0:12:02.920 it's tamed inflation or is it the point of taming 0:12:02.920 --> 0:12:05.400 inflation and in fact can start cutting race later in 0:12:05.400 --> 0:12:05.720 the year. 0:12:07.240 --> 0:12:11.920 I think, I mean taming inflation is I mean maybe 0:12:11.960 --> 0:12:16.480 a bit of a bit of a push. I think 0:12:17.160 --> 0:12:23.160 the trend is towards less inflation looking forward than we've 0:12:23.200 --> 0:12:26.880 had in the past. In the CPI report we had 0:12:26.880 --> 0:12:30.560 this week, for example, the so called super core, which 0:12:30.600 --> 0:12:33.720 is core services excluding housing, that road is only point 0:12:33.720 --> 0:12:38.080 one percent on the month. And yeah, you can always say, well, yes, 0:12:38.240 --> 0:12:40.000 if you strip out everything that goes up, then of 0:12:40.000 --> 0:12:43.280 course there's no inflation, and I'm cognizant of that. But 0:12:43.360 --> 0:12:45.800 this is still one of the lowest readings we've had 0:12:46.640 --> 0:12:50.320 over the last eighteen months. And ultimately, what it comes 0:12:50.360 --> 0:12:55.120 down to is if interest rates do bite, and they 0:12:55.160 --> 0:13:00.599 tend to bite in a non linear fashion, i e. Historically, 0:13:00.960 --> 0:13:03.800 the impact of a tightening cycle is very very gradual 0:13:03.880 --> 0:13:06.080 until it becomes not gradual, and then it becomes very 0:13:06.160 --> 0:13:09.200 very substantial, very very quickly, and I think what we've 0:13:09.200 --> 0:13:13.360 seen in the banking sector certainly risks that same thing 0:13:13.440 --> 0:13:16.280 happening again this time around, and if and as that 0:13:16.320 --> 0:13:20.440 does materialize, and I think the arguments in favor of 0:13:21.080 --> 0:13:25.520 interest rate cuts by the end of the year will 0:13:25.559 --> 0:13:28.640 be reasonably persuasive. And certainly, if you look at a 0:13:28.679 --> 0:13:33.880 panoply of economic and market indicators, they are consistent with 0:13:35.120 --> 0:13:37.720 the FED cutting rates within the next six months. 0:13:38.160 --> 0:13:41.640 Okay, Well, if the FED hypothetically doesn't cut rates within 0:13:42.040 --> 0:13:45.280 the six months, which, as Cam pointed out, is something 0:13:45.320 --> 0:13:48.640 that is still expected in the markets, GENA, I'm still 0:13:48.679 --> 0:13:52.400 confused about where the bare case for equities really lies 0:13:52.440 --> 0:13:53.240 at the end of the day. 0:13:54.559 --> 0:13:56.400 To me, what I think is so striking is that. 0:13:56.320 --> 0:13:59.960 If we're talking about a decelerating growth environment from an 0:14:00.000 --> 0:14:03.480 economic perspective, as Cam just laid out, isn't that the 0:14:03.679 --> 0:14:06.160 ideal time to hop into growth stocks. 0:14:06.240 --> 0:14:07.959 Isn't that when they thrive most. 0:14:07.920 --> 0:14:10.440 Yeah, I think you make a really very good point, 0:14:10.520 --> 0:14:13.440 because whether or not the FED is able to reverse 0:14:13.800 --> 0:14:16.800 is reverse rates is a very controversial topic in the 0:14:16.800 --> 0:14:22.000 equity market right now, mostly because we have seen valuation 0:14:22.120 --> 0:14:25.440 expansion in some of those growthy type names, or another 0:14:25.480 --> 0:14:27.560 way to think about it as the longer duration stocks 0:14:27.600 --> 0:14:30.600 that are most sensitive to interest rates specifically in the 0:14:30.720 --> 0:14:34.040 US have outperformed Intriguingly. That's not been the case globally, 0:14:34.600 --> 0:14:36.680 so this is more of a US specific risk than 0:14:36.680 --> 0:14:39.320 it is a global risk. But nonetheless, the stocks that 0:14:39.360 --> 0:14:42.800 are most sensitive to that reversal have led the rally 0:14:42.880 --> 0:14:46.600 so far this year, in many cases, in particular in 0:14:46.640 --> 0:14:49.640 tech and communication stocks, which are you know, have had 0:14:49.640 --> 0:14:51.840 a magnificent year so far this year coming off of 0:14:51.840 --> 0:14:54.600 a really rough year last year. I think whether or 0:14:54.680 --> 0:14:58.600 not the FED reverses is also intermingled with how deep 0:14:58.640 --> 0:15:01.480 the recession is or how how much the slowdown becomes, 0:15:02.240 --> 0:15:05.920 and that is consequential for equity markets because not only 0:15:06.040 --> 0:15:08.240 is it the FED that drives equity markets, but it's 0:15:08.240 --> 0:15:11.200 also earnings trends. So if the FED is unable to 0:15:11.240 --> 0:15:15.160 reverse policy simply because growth is still quite strong, that's 0:15:15.200 --> 0:15:18.200 not necessarily a bad environment for equities. If the earning 0:15:18.320 --> 0:15:20.960 sort of cycle is working in favor of equities later 0:15:21.000 --> 0:15:23.240 this year and into twenty twenty four, and the FED 0:15:23.320 --> 0:15:27.560 is keeping interest rates stable because economic growth is somewhat stable. 0:15:28.560 --> 0:15:31.040 I don't think that's a terrible environment for stocks, but 0:15:31.080 --> 0:15:33.240 you're right, Is it a great environment for stocks? No, 0:15:33.360 --> 0:15:36.520 because stocks are accustomed to these big swings in the cycle, 0:15:37.080 --> 0:15:40.840 and stocks tend to get their greatest momentum surges on 0:15:41.160 --> 0:15:45.400 major disruptions. And so far, the only major disruption we 0:15:45.480 --> 0:15:48.120 had was inflation. We have not had a major disruption 0:15:48.160 --> 0:15:53.560 to growth. Will we get it still seems likely for 0:15:53.640 --> 0:15:56.880 most investors, and that's creating a headwind in and of itself. 0:15:57.800 --> 0:15:59.800 But if we don't get it and growth turns out 0:15:59.800 --> 0:16:02.320 to be better than expected, then we could continue to 0:16:02.360 --> 0:16:05.360 see these relatively modest gains in the equity market continue. 0:16:05.400 --> 0:16:07.320 So it sounds like a little bit more kind of 0:16:07.320 --> 0:16:09.080 more of the same maybe, So we have to see 0:16:09.360 --> 0:16:13.600 Gina Martin Adams, a chief equity strategist with Bloomberg Intelligence 0:16:14.040 --> 0:16:15.160 and Bloomberg Micro Strategies. 0:16:15.240 --> 0:16:16.960 Camera Christ thanks so much for jordanus. 0:16:16.960 --> 0:16:19.880 Appreciate getting the collective wisdom of you two as we 0:16:19.920 --> 0:16:22.560 try to make sense of this market. 0:16:22.920 --> 0:16:23.160 Again. 0:16:23.280 --> 0:16:26.000 The S and P five hundred off five tenths of 0:16:26.080 --> 0:16:28.240 one percent, the dial off a little bit more of 0:16:28.560 --> 0:16:31.800 a solid one percent on the Dow Jones industrials. Just 0:16:31.840 --> 0:16:34.480 looking at the yields here coming in a little bit 0:16:34.520 --> 0:16:37.400 to ten year treasuries off six basis points three point 0:16:37.400 --> 0:16:39.600 three seven on your ten year treasure. 0:16:39.640 --> 0:16:40.480 I'm gonna also call out. 0:16:40.480 --> 0:16:42.720 We've been calling out and focusing on energy for the 0:16:42.720 --> 0:16:43.720 past couple of weeks. 0:16:43.880 --> 0:16:46.480 Seen some big swings there. WTI crude oil. 0:16:46.280 --> 0:16:50.280 Down two point three percent today WTI crude oil just 0:16:50.560 --> 0:16:53.120 under seventy one dollars a hour, So we'll keep an 0:16:53.160 --> 0:16:53.800 eye on that. 0:16:54.200 --> 0:16:57.320 You're listening to the tape Catcher our line program, Bloomberg 0:16:57.360 --> 0:17:00.960 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:17:01.040 --> 0:17:03.000 tune in app, Bloomberg dot Com, and. 0:17:02.960 --> 0:17:04.240 The Bloomberg Business App. 0:17:04.280 --> 0:17:07.120 You can also listen live on Amazon Alexa from our 0:17:07.119 --> 0:17:12.240 flagship New York station, Just say Alexa play Bloomberg eleven thirty. 0:17:13.359 --> 0:17:15.119 I want to get over to real estate because if 0:17:15.160 --> 0:17:17.719 you walk around Midtown Manhattan, like I want to do 0:17:17.760 --> 0:17:20.119 as I walk back to Penn Station from the East Side, 0:17:20.720 --> 0:17:23.640 a lot of empty office buildings around Midtown. I don't 0:17:23.640 --> 0:17:26.280 know how you fix this. They're talking about people living 0:17:26.280 --> 0:17:28.000 in them. I don't know how it's going to work. 0:17:28.040 --> 0:17:30.680 But Natalie Wong she's a real estate reporter of Bloomberg 0:17:30.680 --> 0:17:33.520 New She's got a very interesting story. Some of these 0:17:33.560 --> 0:17:36.800 empty buildings are starting to attract some buyers, but not 0:17:36.880 --> 0:17:40.280 the institutional buyers that we're used to. Natalie, who's stepping 0:17:40.280 --> 0:17:42.199 in and taking a look at some of this New 0:17:42.280 --> 0:17:44.240 York City empty office space. 0:17:45.480 --> 0:17:46.520 Hi, thanks for having me. 0:17:46.600 --> 0:17:50.639 We're seeing big interest coming in from the smaller companies, 0:17:50.960 --> 0:17:55.040 smaller developers, family offices even and family around firms who 0:17:55.080 --> 0:17:57.000 are really seeing that New York City is going to 0:17:57.040 --> 0:17:59.399 come back in the long term and have some belief 0:17:59.440 --> 0:18:02.200 that there will be use for office space. Even though 0:18:02.320 --> 0:18:04.520 right now, as you mentioned, but all the empty buildings 0:18:04.560 --> 0:18:05.719 record high vacancies. 0:18:06.200 --> 0:18:08.400 It seems like it's a risky bet to make. 0:18:09.200 --> 0:18:13.320 Yeah, what is the evidence Natalie that they are using 0:18:13.480 --> 0:18:15.720 to justify that bet? 0:18:16.840 --> 0:18:18.560 You know, a lot of them are really looking at 0:18:18.560 --> 0:18:23.720 this remote work as something that will bounce back. Companies 0:18:23.760 --> 0:18:25.800 will need to use offices to bring people back to 0:18:25.840 --> 0:18:28.600 the office, and so far, the offices that they're targeting 0:18:28.960 --> 0:18:33.320 aren't necessarily the dilapidated, distressed offices. They're more the middle 0:18:33.320 --> 0:18:37.840 class buildings that you might see well located streets. Madison 0:18:37.880 --> 0:18:40.119 Avenue of Fifth Avenue, and for those who don't know 0:18:40.200 --> 0:18:42.280 New York, you know, those are streets that people come 0:18:42.320 --> 0:18:43.040 to for retail. 0:18:43.080 --> 0:18:43.880 They're well known. 0:18:43.680 --> 0:18:46.480 Office districts, and they just kind of want to be 0:18:46.520 --> 0:18:49.360 able to own a slice of that market that they 0:18:49.800 --> 0:18:52.960 might otherwise never have had the opportunity to because you know, 0:18:53.000 --> 0:18:56.879 in previous years, during times even just two years ago, 0:18:57.440 --> 0:19:00.040 the buyers that were bidding for those sites were the 0:19:00.040 --> 0:19:01.720 big real estate investment trusts. 0:19:01.760 --> 0:19:03.960 They wear the big institutions like. 0:19:03.960 --> 0:19:07.400 The brook Fields, like PIMCO owned companies, and these guys 0:19:07.440 --> 0:19:09.919 would have never had the opportunity to even compete. And 0:19:09.960 --> 0:19:13.879 now you're seeing prices down twenty six percent in Manhattan 0:19:14.000 --> 0:19:16.719 from the peak valleys of twenty seventeen, and no one 0:19:16.760 --> 0:19:19.440 else wants these buildings right now. So you have these 0:19:19.440 --> 0:19:22.320 individuals that are sitting on huge piles of cash that 0:19:22.400 --> 0:19:26.720 are looking for longer term return investments and are seeing 0:19:26.760 --> 0:19:29.800 these assets as potential properties that they could get into 0:19:29.800 --> 0:19:33.240 the market now and figure it out as you know, 0:19:33.560 --> 0:19:34.399 the market ships. 0:19:34.800 --> 0:19:37.040 So, Natalie, one of the challenges I know in the 0:19:37.040 --> 0:19:40.400 commercial real estate real estate space here in New York 0:19:40.440 --> 0:19:43.000 City is that we don't really know what the values are. 0:19:43.040 --> 0:19:46.399 Because we haven't had a lot of transactions. The expectations 0:19:46.440 --> 0:19:48.679 are that the values have come down pretty substantially, but 0:19:48.720 --> 0:19:51.600 we don't know. Are we seeing any activity from some 0:19:51.640 --> 0:19:54.080 of these you know, new buyers. 0:19:55.160 --> 0:19:57.440 Yes, we are. So we looked at the second half 0:19:57.520 --> 0:19:59.000 of last year and saw. 0:19:58.800 --> 0:20:02.920 That of the few transactions there were eleven over fifty 0:20:02.960 --> 0:20:08.080 million dollars. Of the eleven, seven involved smaller companies, smaller developers, 0:20:08.119 --> 0:20:09.119 family run firms. 0:20:09.320 --> 0:20:11.480 Some were backed by institutional. 0:20:10.880 --> 0:20:14.400 Capital, but these deals were really driven by these smaller guys, 0:20:14.400 --> 0:20:16.520 which is a huge difference from just the first half 0:20:16.560 --> 0:20:19.520 of last year and the past two years. Most of 0:20:19.560 --> 0:20:23.320 those deals were dominated by the big reeds, the big institutions, 0:20:23.320 --> 0:20:26.800 and the big New York City developers. And if we 0:20:26.880 --> 0:20:29.800 dive deeper into those seven deals that these folks were 0:20:29.800 --> 0:20:32.399 involved in, quite a few of them involved offices that 0:20:32.480 --> 0:20:35.480 had pretty high vacancies and that were a big discount 0:20:36.200 --> 0:20:38.680 from sales in previous quarters. So, for example, there was 0:20:38.720 --> 0:20:43.880 a consortium of family run businesses that bought thirteen thirty 0:20:43.920 --> 0:20:47.199 sixth Avenue Avenue of the America. They bought this office 0:20:47.200 --> 0:20:51.960 building from RXR and Blackstone, and they bought it for 0:20:52.400 --> 0:20:56.119 roughly three hundred and twenty million dollars last year, and 0:20:56.160 --> 0:20:59.160 that's a discount from what RXR and investors paid for 0:20:59.440 --> 0:21:01.720 more than a Day to Go in twenty ten at 0:21:01.720 --> 0:21:05.440 four hundred million dollars. So you're seeing these icing discounts 0:21:05.440 --> 0:21:09.000 already happen. Another example that I can point out is 0:21:09.280 --> 0:21:13.760 this February, a consumer's products firm, an Chante Accessories, not 0:21:13.800 --> 0:21:17.760 a big consumers products firm, bottom Madison Avenue building that 0:21:17.880 --> 0:21:21.639 a PIMCO owned company purchased back in twenty seventeen at 0:21:21.680 --> 0:21:22.760 the peak of the market. 0:21:23.160 --> 0:21:23.920 They purchased it. 0:21:23.880 --> 0:21:28.679 At an eleven eleven million dollar discount from what the 0:21:28.720 --> 0:21:31.920 Pimco owned company had purchased it for back in twenty seventeen. 0:21:32.000 --> 0:21:34.680 At that point, they had leased it out entirely. Do 0:21:34.760 --> 0:21:37.720 we Work shortly after we saw what happened with we Work. 0:21:38.359 --> 0:21:40.840 The building basically sat vacant for the past two years 0:21:40.920 --> 0:21:44.920 during the pandemic, and this consumer products company just decided 0:21:44.960 --> 0:21:47.240 to come in buy the entire building and they're going 0:21:47.320 --> 0:21:50.480 to lease part of it to themselves. The rest is 0:21:50.560 --> 0:21:53.040 yet to be seen, but you're seeing them really see 0:21:53.080 --> 0:21:55.600 these deals, and I think the biggest question is is 0:21:55.640 --> 0:21:58.919 that enough of a discount to really show how much 0:21:58.960 --> 0:22:01.760 office values we are going to Some institutions think it's 0:22:01.800 --> 0:22:03.720 going to fall a bit further, so they're on the 0:22:03.760 --> 0:22:06.800 sidelines waiting to see when that'll happen before they come in. 0:22:06.800 --> 0:22:09.240 But there's a lot of dry powder waiting for these 0:22:09.280 --> 0:22:11.400 distressed deals, and you have some of these smaller guys 0:22:11.400 --> 0:22:13.560 going like, Okay, you know what, we can make this 0:22:13.640 --> 0:22:14.960 deal work for us right now. 0:22:15.080 --> 0:22:18.000 We don't know when the international money and the institutional. 0:22:17.480 --> 0:22:20.040 Capital is going to come flowing back to the market, 0:22:20.320 --> 0:22:22.159 so we might not have to call the bottom. 0:22:22.240 --> 0:22:23.840 We might think it's just a good idea to step 0:22:23.920 --> 0:22:24.840 in down in. 0:22:24.840 --> 0:22:28.520 Our final minute here, Natalie, what are you anticipating. The 0:22:28.520 --> 0:22:31.480 potential upside is let's say that these guys are right 0:22:31.920 --> 0:22:35.200 and they're gonna, you know when on this Can you 0:22:35.280 --> 0:22:38.520 talk to me about what some of the potential upside 0:22:38.800 --> 0:22:40.680 might look like in terms of dollars here? 0:22:41.960 --> 0:22:43.880 Great, I mean, a lot of these guys really bought 0:22:43.920 --> 0:22:46.040 the building at such a low basis that for them 0:22:46.119 --> 0:22:47.800 they just really have to bet on the fact that 0:22:47.840 --> 0:22:50.359 there will be some kind of tenant that will want 0:22:50.440 --> 0:22:53.119 to come back to the office. And we're already seeing 0:22:53.119 --> 0:22:56.239 that start to happen in certain cases, right. I mean, 0:22:56.280 --> 0:22:58.479 in New York, most of the leases that had happened 0:22:58.480 --> 0:23:02.560 that were widely publicized were the big skyscrapers and huts 0:23:02.600 --> 0:23:06.359 and yards by Grand Central, the big finance and tech firms. 0:23:06.720 --> 0:23:10.240 But you know, three years into the pandemic or post pandemic, 0:23:10.240 --> 0:23:14.080 we're seeing that some firms do want to bring people back. 0:23:14.080 --> 0:23:15.520 It might not be in a full time basis, but 0:23:15.560 --> 0:23:17.960 they still need an office space. So these guys are 0:23:17.960 --> 0:23:20.200 betting that you know, it may not be the most 0:23:20.200 --> 0:23:22.720 expensive rents that they'll command, but they'll be able to 0:23:22.760 --> 0:23:25.440 capture the middle market people that want to be near 0:23:26.280 --> 0:23:29.760 transit stations, people that will still eventually want a space 0:23:29.840 --> 0:23:30.680 for their workers. 0:23:31.800 --> 0:23:34.680 Thirty seconds here, Natalie, where are they getting the money 0:23:34.680 --> 0:23:34.920 from it? 0:23:35.160 --> 0:23:36.960 Are they using any debt capital or is this all 0:23:37.080 --> 0:23:37.680 just equity? 0:23:38.440 --> 0:23:41.040 That's the biggest question, right, because people can't really access debt, 0:23:41.080 --> 0:23:43.920 and banks certainly do not want to expose themselves more 0:23:43.960 --> 0:23:47.119 to offices, let alone older offices that these people are buying. 0:23:47.359 --> 0:23:49.160 And so a lot of these guys are really. 0:23:49.040 --> 0:23:52.280 Getting it from big cash pills that they're getting from 0:23:53.000 --> 0:23:56.240 generational wealth they've built up from their businesses, or they're 0:23:56.280 --> 0:23:58.960 also getting family offices that are investing in them and 0:23:59.000 --> 0:24:00.639 buying it. So some of these guys are able to 0:24:00.640 --> 0:24:04.720 come in and buy all cash in certain instances because 0:24:04.880 --> 0:24:07.479 of how big their private businesses are. They do have 0:24:07.520 --> 0:24:10.800 those deep banking relationships with lenders who are able to 0:24:10.840 --> 0:24:13.639 trust them as a borrower. And then in some cases 0:24:13.640 --> 0:24:16.000 they're even exploring U seller financing. 0:24:16.920 --> 0:24:17.160 Wow. 0:24:17.240 --> 0:24:20.480 Interesting, really fascinating story, because again, you walk around Midtown 0:24:20.480 --> 0:24:23.639 Manhattan and the tourists are back, You've got to ask yourself, 0:24:23.640 --> 0:24:26.719 when are the employees coming back, if at all, and 0:24:26.760 --> 0:24:28.199 to what degree? And what does that mean for the 0:24:28.200 --> 0:24:32.000 real estate and all the local businesses around those office 0:24:32.000 --> 0:24:35.440 buildings that are impacted by the lower or fewer workers 0:24:35.480 --> 0:24:38.560 in Natalie Wong, real estate reporter for Bloomberg News, and folks, 0:24:38.560 --> 0:24:42.480 what you just heard was some really seasoned, well researched 0:24:42.480 --> 0:24:44.520 reporting right there. That's about as good as it gets 0:24:45.080 --> 0:24:46.920 with all the details there. So we appreciate getting a 0:24:46.960 --> 0:24:50.760 few minutes from Natalie talking about this real estate business 0:24:50.800 --> 0:24:52.480 here in New York. Other parts of the country doing 0:24:52.480 --> 0:24:55.480 a lot better, some still, some challenges here, particularly in midtown. 0:24:57.480 --> 0:25:01.320 You're listening to the team cansher Line Pro Bloomberg Markets 0:25:01.359 --> 0:25:03.240 weekdays at ten am Eastern. 0:25:03.000 --> 0:25:05.920 On Bloomberg dot Com, the iHeartRadio app and the. 0:25:05.840 --> 0:25:08.880 Bloomberg Business App, or listen on demand wherever you get 0:25:08.920 --> 0:25:09.720 your podcasts. 0:25:11.760 --> 0:25:13.359 You know, Madison and I were just talking about it, 0:25:13.440 --> 0:25:15.640 like you know, during my thirty years on Wall Street, 0:25:15.640 --> 0:25:18.560 one of the most amazing I think developments it has been 0:25:18.600 --> 0:25:21.800 the development of the private credit business. The private debt 0:25:21.800 --> 0:25:24.280 market has been really just fascinating. People I think have 0:25:24.320 --> 0:25:27.000 a general understanding of private equity, but I think that's 0:25:27.000 --> 0:25:29.760 so clear understanding of the private debt market. So let's 0:25:29.760 --> 0:25:31.800 get an expert on here to kind of give us 0:25:31.840 --> 0:25:35.280 the latest. Anthony Foeble. He's the CEO of Arkmont Asset Management. 0:25:35.280 --> 0:25:37.760 He's got a lot of experience on the on the 0:25:37.760 --> 0:25:40.840 street in the city of London working in this side 0:25:40.880 --> 0:25:43.800 of the business. Anthony, again, it's been such a great 0:25:44.240 --> 0:25:47.880 growth story of the development and evolution of this market. 0:25:48.240 --> 0:25:51.000 Tell me about Arkmont Asset Manager. How do you guys 0:25:51.040 --> 0:25:53.000 play in this space? How do you view the private 0:25:53.000 --> 0:25:53.600 debt market? 0:25:55.160 --> 0:25:57.760 Yeah, well, thank you for having me on and Yes, 0:25:57.800 --> 0:26:02.679 it's been an extraordinary period of growth, particularly actually in Europe, 0:26:02.800 --> 0:26:06.560 because although private dead existed in the US before the 0:26:06.560 --> 0:26:09.800 Global Financial Crisis, it really only came about following the 0:26:09.840 --> 0:26:15.120 financial crisis in Europe because for historical reasons, all lending 0:26:15.680 --> 0:26:18.840 was done by banks, and we know all about the 0:26:18.880 --> 0:26:22.040 problem for banks had after the GFC, and we've seen 0:26:22.080 --> 0:26:26.400 many of those issues starting to repeat again. And essentially, 0:26:26.440 --> 0:26:31.200 what private debt firms did is they attracted institutional capital 0:26:31.320 --> 0:26:35.480 to step into that significant financing gap that was left 0:26:35.840 --> 0:26:39.800 by the banks, and it's been a tremendous growth story 0:26:39.800 --> 0:26:43.679 as banks have retreated from mid market lending in Europe. 0:26:43.720 --> 0:26:46.159 It's something that happened many years ago in the US 0:26:46.560 --> 0:26:50.440 but is really only a tenure phenomenon in Europe. This 0:26:50.520 --> 0:26:53.880 created a significant void, and private debt firms have been 0:26:54.040 --> 0:26:58.160 more than happy as of their investors to fill that void. 0:26:59.320 --> 0:27:02.480 So does that mean, given what you just said about 0:27:02.520 --> 0:27:08.040 the growth being better today than even following eight where 0:27:08.040 --> 0:27:10.280 are you seeing that in Europe specifically? And why do 0:27:10.320 --> 0:27:12.320 you think Europe is a better bet for private debt 0:27:12.440 --> 0:27:13.600 than the US? 0:27:14.680 --> 0:27:18.120 Yeah, so there are I have to say, it's very 0:27:18.119 --> 0:27:21.760 positive in both the US and Europe, but the fundamental 0:27:21.800 --> 0:27:25.520 trends are are the same, although somewhat accentuated in Europe. 0:27:25.680 --> 0:27:29.240 The trends are sort of banks retreating from lending. But 0:27:29.560 --> 0:27:31.760 as we've seen over the last three to four years, 0:27:32.040 --> 0:27:35.720 particularly in Europe, there's been tremendous volatility in the liquid markets, 0:27:36.040 --> 0:27:39.160 taking the leverage, loan and high yield markets, and it's 0:27:39.200 --> 0:27:41.840 remarkable to think that that really the liquid markets in 0:27:41.840 --> 0:27:46.200 Europe have effectively been shut since February twenty twenty two 0:27:46.320 --> 0:27:49.719 for new issues. And what that's meant is leading private 0:27:49.720 --> 0:27:53.520 equity firms with plenty of dry powder are struggling to 0:27:53.560 --> 0:27:56.520 finance those deals in now both the bank market and 0:27:56.560 --> 0:28:00.439 the liquid markets, and that's presented a tremendous oportuy unity, 0:28:00.520 --> 0:28:04.320 particularly I think in Europe, for private debt firms to 0:28:04.400 --> 0:28:09.439 step in. And as the asset class has grown, firms 0:28:09.440 --> 0:28:11.720 such as Arkman have gotten larger and larger. We now 0:28:11.760 --> 0:28:15.240 manage about twenty five billion dollars in assets under management, 0:28:15.640 --> 0:28:19.280 and that's given us the firepower to do not just 0:28:19.359 --> 0:28:25.399 the historic bank substitution deals, but now increasingly liquid market 0:28:25.440 --> 0:28:26.639 substitution deals. 0:28:27.600 --> 0:28:29.720 So yeah, go. 0:28:29.680 --> 0:28:31.280 Ahead, Anthony, I was just going to ask where are 0:28:31.280 --> 0:28:35.240 you seeing deal activity across Europe these days? Given kind 0:28:35.240 --> 0:28:37.040 of boy are the uncertainly we see out there, and 0:28:37.040 --> 0:28:39.440 particularly in Europe where you guys deal on a more 0:28:39.640 --> 0:28:42.000 close basis with the uncertainty in Ukraine. 0:28:43.480 --> 0:28:46.440 Yeah, I mean it's certainly there has been a slow 0:28:46.480 --> 0:28:50.040 down in deal activity, particularly by private equity firms, and 0:28:50.120 --> 0:28:53.280 it's been a global phenomenon. But may no mistake about it, 0:28:53.280 --> 0:28:56.400 there's still tremendous deal activity taking place and the sort 0:28:56.440 --> 0:28:59.640 of levels of M and A activity we're seeing are 0:28:59.680 --> 0:29:03.840 really back to the twenty eighteen nineteen level, so you know, 0:29:03.960 --> 0:29:08.640 still pretty active markets. What's been really interesting for private debt, however, 0:29:09.240 --> 0:29:12.040 is that we are pretty much the only game in 0:29:12.120 --> 0:29:16.240 town to be able to finance those deals. So ironically, 0:29:16.440 --> 0:29:21.560 while you've seen overall deal volumes drop, the deal volumes 0:29:21.560 --> 0:29:24.640 that the likes of Arkmont and other European managers have 0:29:24.720 --> 0:29:30.080 seen has actually skyrocketed. And it really is for us, 0:29:30.480 --> 0:29:32.520 I mean our touch on your your macro point, but 0:29:32.560 --> 0:29:36.200 for us it has been the perfect market because we've 0:29:36.200 --> 0:29:39.600 seen volumes up for the reasons I just said, we've 0:29:39.600 --> 0:29:44.880 seen significant price improvements as a result of really uryball 0:29:44.960 --> 0:29:47.920 rates going from north percent and now over four percent. 0:29:48.600 --> 0:29:51.840 Spreads have widened as well, so we're sort of generating 0:29:52.080 --> 0:29:56.920 twelve percent type yields on senior debt loans, which is 0:29:57.000 --> 0:30:01.640 which is phenomenal. We've also seen lower level multiples and 0:30:02.480 --> 0:30:06.680 because we're doing these liquid market substitution deals, much higher 0:30:06.760 --> 0:30:10.880 quality companies, which leads me on directly to the point 0:30:10.920 --> 0:30:14.440 you raised about the macro picture. You know, we as 0:30:14.440 --> 0:30:18.240 an industry have tended to focus on non cyclical businesses anyway, 0:30:18.680 --> 0:30:22.080 so typically this industry in Europe is very much skewed 0:30:22.080 --> 0:30:28.400 towards it services, very steady, stable businesses, healthcare, education, and 0:30:28.440 --> 0:30:31.160 steered away from some of the more cyclical sectors. And 0:30:31.240 --> 0:30:33.520 of course those are the deals that are still being done. 0:30:34.240 --> 0:30:36.840 And I do have to say that, you know, compared 0:30:36.880 --> 0:30:40.640 to perhaps even four months ago, the economic picture in 0:30:40.640 --> 0:30:44.160 Europe has improved very markedly, right, you know, the key 0:30:44.280 --> 0:30:49.400 three issues around rising inflation, high energy costs, that energy 0:30:49.440 --> 0:30:51.680 prices are now back to where they were before the 0:30:51.800 --> 0:30:54.600 Ukraine crisis, and you're seeing inflation fall as you are 0:30:54.600 --> 0:30:59.160 seeing in Europe. We're seeing supply chains ease up as 0:30:59.480 --> 0:31:02.120 China dropped to zero curbent policy and a lot of 0:31:02.120 --> 0:31:04.720 the type labor markets that we've experienced both in Europe 0:31:04.720 --> 0:31:08.000 and have similarly used. So you know, whereas once people 0:31:08.040 --> 0:31:11.640 were talking about European recessions, no one's talking about that 0:31:11.720 --> 0:31:17.800 at the moment. It's very much European growth, not stellar growth, right, 0:31:17.920 --> 0:31:18.560 you know that's. 0:31:18.400 --> 0:31:22.480 Fine, So, Anthony, from the perspective of raising capital, capital 0:31:22.560 --> 0:31:25.520 being allocated to this asset class, you know, I remember 0:31:25.800 --> 0:31:28.240 when interest rates were so low, you guys offered a 0:31:28.240 --> 0:31:29.160 pretty nice return. 0:31:29.240 --> 0:31:31.520 How how is it now that rates have risen. 0:31:33.120 --> 0:31:35.280 So it's a very good point. 0:31:35.360 --> 0:31:35.560 You know. 0:31:35.960 --> 0:31:38.600 The way we always positioned ourselves is offering a premium 0:31:38.640 --> 0:31:41.160 return to the liquid markets, which, as you correctly say, 0:31:41.240 --> 0:31:43.840 wasn't difficult when, particularly in Europe, the liquid markets were 0:31:43.840 --> 0:31:47.720 generating practically nothing. One of the great attractions of the 0:31:47.760 --> 0:31:50.000 asset class, though, is that all of our loans are 0:31:50.000 --> 0:31:54.080 floating rate loans. So as we've seen interest rates go 0:31:54.240 --> 0:31:59.440 up in response toizing inflation, that translates directly into higher 0:31:59.480 --> 0:32:02.480 returns investors. And as I said, you know, if you 0:32:02.520 --> 0:32:06.320 look at euro ball rates plus the margin we're generating 0:32:06.360 --> 0:32:10.640 plus fees, you know, we're generating twelve percent yields on 0:32:11.000 --> 0:32:14.200 very safe senior debt and that that is a pretty 0:32:14.320 --> 0:32:17.640 unprecedented situation in my experience. 0:32:17.920 --> 0:32:18.400 Yeah, that is. 0:32:18.440 --> 0:32:20.760 I mean, you know that's the top percent will stick 0:32:20.800 --> 0:32:22.960 up when you're looking at the ten year treasury at 0:32:23.000 --> 0:32:26.000 three point three eight percent. Anthony, thank you so much 0:32:26.080 --> 0:32:27.600 for giving us a few minutes of your time. We 0:32:27.640 --> 0:32:31.200 know you're very busy there, Anthony Foble, he's the CEO 0:32:31.400 --> 0:32:35.240 of Arkmont Asset Management. As he mentioned, twenty five billion 0:32:35.280 --> 0:32:37.680 in assets under management, and that is just another example 0:32:38.480 --> 0:32:41.200 of the growth of the private credit business, the private 0:32:41.280 --> 0:32:45.320 debt business really since, as mister fobl said, since really 0:32:45.320 --> 0:32:47.240 the end of the Great Financial Crisis. So glad we 0:32:47.280 --> 0:32:49.120 could get a few minutes of Anthony's time. 0:32:49.440 --> 0:32:53.080 You're listening to the tape can't live program Bloomberg Markets 0:32:53.120 --> 0:32:56.520 weekdays at ten am Eastern on Bloomberg Radio, the tune 0:32:56.560 --> 0:32:58.320 in app, Bloomberg dot Com. 0:32:58.080 --> 0:32:59.520 And the Bloomberg Business App. 0:32:59.520 --> 0:33:02.880 You can also live on Amazon Alexa from our flagship 0:33:02.960 --> 0:33:07.440 New York station, just say Alexa playing Bloomberg eleven thirty. 0:33:09.040 --> 0:33:11.320 We do want to go to Ira Jersey covers all 0:33:11.360 --> 0:33:15.720 the interest rate stuff for Bloomberg in Intelligence so Ira again, 0:33:16.080 --> 0:33:19.680 Eco go I type that into my Bloomberg terminal manager. 0:33:19.680 --> 0:33:22.680 A lot of stuff out there for markets to digest. 0:33:23.400 --> 0:33:26.680 Give me your takeaway of the PPI data that we 0:33:26.720 --> 0:33:29.320 saw today. How important is that for you and all 0:33:29.360 --> 0:33:31.440 your fellow kind of interest rate geeks. 0:33:32.000 --> 0:33:35.480 Well, so, most of the data that we've seen does 0:33:35.520 --> 0:33:38.520 suggest that the inflation continues to slow right in. This 0:33:38.600 --> 0:33:43.360 morning's numbers certainly suggest that that's continuing to be the case. 0:33:43.560 --> 0:33:46.920 And I think PPI being a little bit better, you know, 0:33:47.040 --> 0:33:50.640 is certainly going to be something that you know, policymakers 0:33:50.680 --> 0:33:52.760 are going to take into account. And when you look 0:33:52.800 --> 0:33:55.960 at things like PPI final demand being up only two 0:33:55.960 --> 0:33:58.680 point three percent year on year, now you know that 0:33:58.760 --> 0:34:02.000 doesn't seem so bad. The issue is is how much 0:34:03.000 --> 0:34:04.760 of this is going to wind up coming out of 0:34:04.840 --> 0:34:08.879 prices that we already see in on the shelves, right so, so, 0:34:09.200 --> 0:34:11.920 so the good thing about this PPI number is it 0:34:12.000 --> 0:34:16.080 tends to have a pretty good relationship with UH with 0:34:16.080 --> 0:34:19.120 with with margins, with corporate margins. So if you take 0:34:19.480 --> 0:34:22.080 core CPI and core pp I and you map that 0:34:22.239 --> 0:34:25.759 the margins, it means that that margins actually could not 0:34:25.880 --> 0:34:28.080 go down as quickly as some people are thinking they might. 0:34:28.719 --> 0:34:32.520 So markets are pricing in those rate cuts. IRA. Where 0:34:32.520 --> 0:34:34.879 in the data this week are you seeing evidence that 0:34:34.920 --> 0:34:37.920 the Fed may not be ready to cut rates at 0:34:37.960 --> 0:34:39.520 least until you know, the end of this year. 0:34:40.239 --> 0:34:43.160 Well, I think the CPI numbers yesterday were pretty clear 0:34:43.239 --> 0:34:46.040 on that point. You know, it's funny that the market 0:34:46.120 --> 0:34:48.800 rallied as much as it did on numbers that basically 0:34:48.840 --> 0:34:52.520 came in as expected. I think people were just fearful 0:34:52.600 --> 0:34:54.520 that the numbers were going to come in a little 0:34:54.560 --> 0:34:57.560 bit better. But when you look at yesterday's CPI data, 0:34:57.760 --> 0:34:59.840 one of you know, if you think about what is 0:35:00.040 --> 0:35:02.680 zero point four percent month on month print, is if 0:35:02.719 --> 0:35:04.640 we were to get that for the entire year, that 0:35:04.680 --> 0:35:08.400 would be almost a five percent year on year CPI. 0:35:08.960 --> 0:35:12.040 So if that's the case, and it doesn't seem like 0:35:12.080 --> 0:35:15.400 that's necessarily going to slow down significantly because looking at 0:35:15.440 --> 0:35:18.399 some of the details, then the Federal Reserve is not 0:35:18.440 --> 0:35:20.680 going to be cutting interest rates later this year. And 0:35:20.719 --> 0:35:23.440 what's interesting is, you know, when you look at WRP, 0:35:23.680 --> 0:35:26.200 you look at Fed Fund's futures, you look at SOFA futures, 0:35:26.239 --> 0:35:30.200 those are the new liboard based futures they're called SOFA 0:35:30.239 --> 0:35:34.040 on the secured overnight financing rate. It's saying, yes, the 0:35:34.080 --> 0:35:36.640 Fed's going to cut. But if you look under the 0:35:36.640 --> 0:35:38.719 hood and you look at the options markets and what 0:35:38.800 --> 0:35:42.759 options markets are pricing, they're actually pricing an unchanged FED 0:35:43.239 --> 0:35:44.640 or a FED that's going to cut one hundred and 0:35:44.680 --> 0:35:47.160 fifty basis points by the end of the year, nothing 0:35:47.160 --> 0:35:51.040 in between. So the interesting thing about that is the 0:35:51.080 --> 0:35:53.920 market's either saying, hey, there might be a disaster credit 0:35:53.960 --> 0:35:57.759 crunch of full on financial crisis, or inflation is going 0:35:57.800 --> 0:35:59.560 to remain pretty high and the Fed's not going to 0:35:59.560 --> 0:36:01.759 do any So so we have to keep in mind 0:36:01.800 --> 0:36:05.920 that this doesn't always happen. But right now there's what 0:36:06.040 --> 0:36:09.760 I call bimodal distribution, where it's basically unchanged or deep cuts. 0:36:09.840 --> 0:36:12.399 It's not really two or three cuts this year as 0:36:12.400 --> 0:36:13.520 the market's currently pricing. 0:36:13.680 --> 0:36:15.719 Well, I mean, I felt so proud of myself Ira 0:36:15.760 --> 0:36:17.960 when I learned the WORP function, and I kind of 0:36:18.040 --> 0:36:21.359 understand what it means. Now you're telling me that it's 0:36:21.400 --> 0:36:22.359 not that representative. 0:36:23.160 --> 0:36:27.200 Well, it's representative of the of It's basically the weighted 0:36:27.239 --> 0:36:30.759 average of the potential outcomes. So it's not the base 0:36:30.840 --> 0:36:33.000 case outcome that that's kind of what I'm saying is 0:36:33.000 --> 0:36:36.040 that there's basically two base cases, and one is for 0:36:36.280 --> 0:36:39.920 massive cuts and the other one is for unchanged. So 0:36:40.080 --> 0:36:42.600 the WRP function is, remember, it's going to tell you 0:36:42.640 --> 0:36:44.719 and this is what FED Fund's futures are going to do, 0:36:44.960 --> 0:36:46.920 or a lot of the other short term instruments we 0:36:47.000 --> 0:36:50.640 use to judge what the market's thinking for for monetary policy, 0:36:51.040 --> 0:36:53.520 and that's that's you know, what's the average now normally 0:36:53.600 --> 0:36:56.960 it's it's normally just usually I should say it's normally distributed. 0:36:57.440 --> 0:37:00.200 And you know that that's what happened on the way up, 0:37:00.280 --> 0:37:02.719 like most people thought, oh, they're going to hike you know, 0:37:02.840 --> 0:37:04.279 to four and a half percent to five and a 0:37:04.320 --> 0:37:06.480 half percent with the average being five percent. You know, 0:37:06.520 --> 0:37:09.520 that was kind of where what we were pricing on. 0:37:09.480 --> 0:37:09.960 The way up. 0:37:10.239 --> 0:37:14.240 But now there's a lot less certainty about the path 0:37:14.280 --> 0:37:17.560 of future monetary policy, whether it's you know, when the 0:37:17.560 --> 0:37:19.960 Fed's going to start cutting, how deep they're going to 0:37:20.000 --> 0:37:22.319 cut if they do cut. And I think what the 0:37:22.360 --> 0:37:25.080 market's suggesting and using the options market, and what it's 0:37:25.120 --> 0:37:29.040 suggesting right now is that you know, if the Fed cuts, 0:37:29.080 --> 0:37:32.160 it's going to cut very aggressively because there's a crisis. 0:37:32.280 --> 0:37:35.560 And that's where you know this couple of you know 0:37:35.680 --> 0:37:37.960 they're not going to cut twenty five basis points twice, right, 0:37:37.960 --> 0:37:40.920 They're going to cut fifty basis points several times if 0:37:41.000 --> 0:37:41.800 they start to cut. 0:37:42.040 --> 0:37:44.000 So, Ira, I want to get your take on that 0:37:44.080 --> 0:37:47.160 big debt ceiling debate while we have you here. You 0:37:47.200 --> 0:37:49.840 mentioned the instruments you use to look at FED moves. 0:37:50.160 --> 0:37:52.960 I wonder when you look at the treasury space in particular, 0:37:53.600 --> 0:37:56.040 is the debt ceiling messing up that instrument for you? 0:37:57.600 --> 0:37:59.719 It is? It is a bit yeah. I mean, if 0:37:59.719 --> 0:38:02.920 you think about where what the market's pricing right now, 0:38:02.920 --> 0:38:05.360 and you look at short term treasury bills that mature 0:38:05.440 --> 0:38:09.239 before June, they are one hundred basis points below the 0:38:09.280 --> 0:38:12.120 FED funds rate, like or on now one hundred and 0:38:12.160 --> 0:38:14.960 fifty basis points below the FED fund rate. In some cases, 0:38:15.000 --> 0:38:18.480 that's not typical, and the reason for that is you 0:38:18.560 --> 0:38:20.919 have money market mutual funds that need to own those 0:38:20.960 --> 0:38:23.799 because they don't want to own junior July bills because 0:38:23.800 --> 0:38:26.320 they're worried that junior July bills might have a delayed payment, 0:38:26.400 --> 0:38:30.160 and for money market funds that have to ensure daily liquidity, 0:38:30.520 --> 0:38:33.520 even a one day delay in payment is massively painful 0:38:33.560 --> 0:38:36.600 for them. So you look at the June eighth or 0:38:36.640 --> 0:38:39.600 the June thirteenth T bills trading at five point four 0:38:39.719 --> 0:38:42.320 five point five percent. That's not saying that the Fed's 0:38:42.320 --> 0:38:44.520 going to hike interest rates next week, which is what 0:38:44.560 --> 0:38:47.400 you'd normally think. It's implying it's implying that the market 0:38:47.440 --> 0:38:50.080 is worried that the that the government is not going 0:38:50.080 --> 0:38:52.040 to pay its bills early in June. 0:38:52.800 --> 0:38:55.040 So going to that point, Ira and Maddie, I'm not 0:38:55.040 --> 0:38:56.520 sure if you're aware of this, but this is how 0:38:56.719 --> 0:38:59.200 deep into the weeds Ira and his team are. You 0:38:59.200 --> 0:39:03.120 guys have a mom that kind of predicts they when 0:39:03.120 --> 0:39:04.359 the government runs out of money. 0:39:04.400 --> 0:39:04.640 I don't. 0:39:04.680 --> 0:39:06.719 I don't want to know how this model works. I 0:39:06.760 --> 0:39:08.719 just want to know kind of a do you have 0:39:08.920 --> 0:39:10.560 this model and what is it telling you? 0:39:11.719 --> 0:39:14.200 Yeah, so it's a it's a daily model where we 0:39:14.400 --> 0:39:16.759 estimate what government spending and revenue is going to be, 0:39:16.800 --> 0:39:18.279 and then how much cash at the end of the 0:39:18.320 --> 0:39:21.520 day the government has, and we show that it is 0:39:21.640 --> 0:39:24.759 exactly the June sixth and June A t bills that 0:39:25.280 --> 0:39:31.200 are most at risk of a government default, and the 0:39:31.239 --> 0:39:34.480 government could squeak by, and we're you know, these sound 0:39:34.520 --> 0:39:36.560 like big numbers when you say words like billions, but 0:39:36.600 --> 0:39:38.799 when you have a seven trillion dollar budget, you know, 0:39:38.840 --> 0:39:41.960 a couple of billion dollars is a rounding error. But 0:39:42.200 --> 0:39:44.319 if we get just a couple of billion dollars two 0:39:44.320 --> 0:39:46.759 billion dollars a week for the next three weeks on 0:39:47.200 --> 0:39:50.920 the Friday payrolls data and taxes go up a little bit, 0:39:51.480 --> 0:39:54.160 then suddenly we can make it the June fifteenth. And 0:39:54.200 --> 0:39:56.799 then June fifteenth, there's a one hundred billion dollars in 0:39:56.800 --> 0:39:59.879 corporate taxes that are going to occur, and then there's 0:39:59.880 --> 0:40:03.839 a So there's like this rolling issue with with where 0:40:03.880 --> 0:40:06.360 we are in the depth ceialing debate. So people who say, like, 0:40:06.719 --> 0:40:11.040 you know, they I know Speaker McCarthy said that he 0:40:11.080 --> 0:40:13.440 didn't believe the June sixth state. He should believe the 0:40:13.520 --> 0:40:16.040 June sixth state because it's accurate. But if we make 0:40:16.040 --> 0:40:18.400 it the June fifteenth, then we make it to July thirtieth. 0:40:18.440 --> 0:40:20.440 And I think that's what some members of Congress are 0:40:20.440 --> 0:40:24.479 hoping and that's what some people's models are saying. Yeah, 0:40:24.480 --> 0:40:27.160 my models were pretty good, So I would suggest that 0:40:27.239 --> 0:40:28.920 there is a risk in early June. 0:40:28.960 --> 0:40:31.480 So I what you're telling me is my government, our 0:40:31.520 --> 0:40:33.400 government lives paycheck to paycheck kind of. 0:40:34.239 --> 0:40:37.279 They're living there, your paycheck to paycheck because they need 0:40:37.320 --> 0:40:38.879 you to pay a little bit more in taxes over 0:40:38.880 --> 0:40:40.440 the next couple of weeks in order to make it 0:40:40.480 --> 0:40:42.520 to the June fifteenth corporate tax date. 0:40:42.800 --> 0:40:45.719 That is truly how the sausage is made in terms 0:40:45.719 --> 0:40:48.879 of financing this government. Right there and Iron his team, 0:40:48.920 --> 0:40:51.640 they have a model, a financial model, like a spreadsheet 0:40:51.680 --> 0:40:53.040 kind of thing that kind of does it for them 0:40:53.080 --> 0:40:54.040 on a daily basis. 0:40:54.560 --> 0:40:56.840 And that's how good their work is. Ira Jersey. 0:40:56.880 --> 0:40:59.560 He covers all the rates and stuff and keeps an 0:40:59.640 --> 0:41:03.480 eye on the US you know, checkbook and wallet and 0:41:03.480 --> 0:41:04.160 stuff like that. 0:41:04.360 --> 0:41:07.960 You're listening to the tape cancer Live program Bloomberg Markets 0:41:08.040 --> 0:41:11.399 weekdays at ten am Eastern on Bloomberg Radio, the tune 0:41:11.440 --> 0:41:13.160 in app, Bloomberg dot Com, and. 0:41:13.120 --> 0:41:14.399 The Bloomberg Business App. 0:41:14.440 --> 0:41:17.279 You can also listen live on Amazon Alexa from our 0:41:17.280 --> 0:41:22.400 flagship New York station, Just say Alexa Play Bloomberg eleven thirty. 0:41:23.880 --> 0:41:26.960 Lots of inflation data coming out this week, giving more 0:41:27.000 --> 0:41:29.880 food for thought for our federal Reserve. Let's check in 0:41:29.920 --> 0:41:32.360 with an economist who thinks about this stuff too, Lydia 0:41:32.440 --> 0:41:37.000 bhussor senior economists e Y Parthion joins us here. So Lydia, 0:41:37.239 --> 0:41:42.759 CPI data, PPI data, what's your inflation called? Given kind 0:41:42.760 --> 0:41:43.719 of some of the data we got this. 0:41:43.680 --> 0:41:48.760 Week, Hi, thanks for having me. So the inflation data 0:41:48.800 --> 0:41:52.160 that we got this week confirmed that that the inflation 0:41:52.360 --> 0:41:56.839 process is well underway and is continuing. And it's not 0:41:56.960 --> 0:41:59.920 just about you know, the CPI report we saw this morning. 0:42:00.280 --> 0:42:04.200 Producer price inflation is pointing to some of this inflation happening. 0:42:04.600 --> 0:42:09.480 Import price inflation is also showing some outright deflation, and 0:42:09.600 --> 0:42:12.640 so it does look like all the pieces are falling 0:42:12.680 --> 0:42:16.239 into place for that this inflation process to accelerate in 0:42:16.280 --> 0:42:18.480 the second half of the year. We are also seeing 0:42:18.840 --> 0:42:21.760 a turn in house prices and some loosening in label 0:42:21.800 --> 0:42:26.320 market conditions, with wage growth also beginning to show some moderation. 0:42:26.840 --> 0:42:30.920 So we do expect to see this inflation accederating in 0:42:31.320 --> 0:42:35.560 the second half. We have, you know, headline inflation falling 0:42:35.600 --> 0:42:38.919 back towards three percent by the end of the year. 0:42:38.960 --> 0:42:40.680 A little bit of three percent, we could see a 0:42:40.680 --> 0:42:43.160 two percent handle by the end of the year, and 0:42:43.239 --> 0:42:46.000 core inflation a little bit of both three percent, and 0:42:46.400 --> 0:42:49.040 that you know, still leaves inflation above the FATS two 0:42:49.080 --> 0:42:53.320 percent target. But that's that's likely to be a faster 0:42:53.440 --> 0:42:56.480 this inflation that some than some are anticipating right now. 0:42:57.360 --> 0:43:01.720 Hey, when you look at the core services shelter, health, insurance, 0:43:01.719 --> 0:43:04.359 and airfares that you were just touching on a little bit, 0:43:04.960 --> 0:43:07.880 that moved up a little bit, right, does that concern 0:43:07.960 --> 0:43:11.480 you at all when it comes to the stickiness question 0:43:11.640 --> 0:43:12.440 of this inflation. 0:43:14.040 --> 0:43:16.640 I mean, in terms of the stickiness we are saying 0:43:16.640 --> 0:43:19.279 on the core services side of the economy. We know 0:43:19.400 --> 0:43:22.960 that that is you know, tied to also some of 0:43:23.000 --> 0:43:25.080 the tightness that we are seeing in the label market. 0:43:25.560 --> 0:43:28.399 We got the jobs report last week which showed some 0:43:28.719 --> 0:43:32.400 renewed pressure on the weight growth front and also the 0:43:32.480 --> 0:43:37.200 unemployment rate remaining remaining historically low. But we also know that, 0:43:37.719 --> 0:43:39.879 as I said, you know a number of label market 0:43:39.960 --> 0:43:44.520 indicators are pointing to loosening in label market conditions, and 0:43:45.560 --> 0:43:48.839 you know, jobless claims have been trending higher. We saw 0:43:48.880 --> 0:43:51.879 on a side breakout this morning, and we are also 0:43:51.920 --> 0:43:55.839 seeing slower libor demand in the label market. We are 0:43:55.880 --> 0:43:59.600 seeing less churn and less people quitting their jobs on 0:43:59.640 --> 0:44:03.319 amount basis, and so that should you know, allow for 0:44:03.440 --> 0:44:06.560 some this inflation to happen in the services sector. And 0:44:06.600 --> 0:44:09.640 at the same time, we also know that some of 0:44:09.680 --> 0:44:14.400 that shelter inflation will also turn in the coming months. 0:44:14.760 --> 0:44:18.680 We've seen some moderation, will likely past peak, but for 0:44:18.719 --> 0:44:22.600 that this inflation to fall, you know, with accelerating momentum, 0:44:22.680 --> 0:44:24.600 we're likely to have to wait, you know, a few 0:44:24.640 --> 0:44:28.800 more months, and that will likely be a key factory 0:44:28.880 --> 0:44:31.719 driving services inflation down in the second half of the year. 0:44:32.640 --> 0:44:35.360 LYDIA, once again, it appears that the US government is 0:44:35.400 --> 0:44:38.600 having a little problem with its checkbook, paying its bills, 0:44:38.680 --> 0:44:41.120 that's sealing all that kind of stuff. This is starting 0:44:41.160 --> 0:44:43.759 to come to a head here. How is that factoring 0:44:44.000 --> 0:44:47.480 how's that risk factoring into your economic forecast? 0:44:47.520 --> 0:44:48.000 An outlook? 0:44:48.800 --> 0:44:51.960 Yeah, I mean the stakes are really high, as you know, 0:44:52.960 --> 0:44:54.880 given you know, the fact that we're not seeing a 0:44:54.880 --> 0:44:57.239 lot of willingness to compromise at the moment, and that's 0:44:57.280 --> 0:44:59.800 putting you know, a risk to the economy and financial 0:44:59.880 --> 0:45:03.080 more market and adding a layer of complication on top 0:45:03.160 --> 0:45:05.480 of you know, the stress we have seen in the 0:45:05.480 --> 0:45:08.120 banking sector, and on top of the fact that we 0:45:08.280 --> 0:45:12.520 are already in an economy that is slowing down and downshifting. 0:45:12.880 --> 0:45:16.000 What we're likely to see in the coming weeks is 0:45:16.080 --> 0:45:19.880 essentially the pressure you know, rising in financial markets. With 0:45:20.400 --> 0:45:23.719 rising financial market velatility, we're likely to see a heap 0:45:23.760 --> 0:45:28.040 to confidence as well on business and consumer confidence. Uh 0:45:28.080 --> 0:45:30.719 and and all of that is likely to exacerbate the 0:45:30.760 --> 0:45:33.799 slowdown that we're seeing in the economy right now. So 0:45:33.840 --> 0:45:37.919 certainly adding some downside race to the economy, we are 0:45:38.000 --> 0:45:40.719 expecting to see a recession unfolding by the middle of 0:45:40.760 --> 0:45:44.759 the year. And you know this, this down shift in 0:45:44.920 --> 0:45:48.440 economic activity that's already visible in many sectors of the 0:45:48.480 --> 0:45:51.880 economy could be you know, deeper as a result of 0:45:53.080 --> 0:45:53.680 this situation. 0:45:54.719 --> 0:45:57.280 I wonder then you you talk about the death sealing issue, 0:45:57.400 --> 0:45:59.959 and you mentioned in there the stress and the bank 0:46:00.080 --> 0:46:03.319 game sector. What do you think the outlook in terms 0:46:03.320 --> 0:46:06.400 of the impact is from that stress that were maybe 0:46:07.440 --> 0:46:10.920 underestimating when we when we look at the economic picture. 0:46:12.480 --> 0:46:15.520 I think, you know, in terms of the impact on 0:46:15.880 --> 0:46:18.919 the banking sector. What we've learned over the past few 0:46:18.920 --> 0:46:22.280 weeks is that this is still ongoing. We're still seeing 0:46:22.280 --> 0:46:26.600 some stress in the banking sector, and that we don't 0:46:26.640 --> 0:46:29.040 know for sure how much credit tightening is currently in 0:46:29.080 --> 0:46:31.759 the pipeline, but we know that as a result of 0:46:32.680 --> 0:46:36.880 these turbulances, banks have become a more worry of lending 0:46:37.000 --> 0:46:40.080 and we were already seeing that tightening in credit condition 0:46:40.200 --> 0:46:44.320 in lending standards before this, you know, banking stress emerged. 0:46:44.360 --> 0:46:47.880 So what we're likely to see is that credit tightening 0:46:48.040 --> 0:46:51.520 filtering into the economy in the next six months, in 0:46:51.560 --> 0:46:55.440 the next twelve month, and that's likely to lead consumers 0:46:55.440 --> 0:46:59.360 and businesses to be even more cautious with the with 0:46:59.440 --> 0:47:03.160 their hiring for businesses and spending as well. So it 0:47:03.239 --> 0:47:06.359 will weigh on the economy, and we factored that in 0:47:06.360 --> 0:47:09.920 into our outlook, and we have you know, as I 0:47:09.960 --> 0:47:12.880 as I mentioned, you know, a recession and folding in 0:47:12.920 --> 0:47:15.560 the middle of the year and some of that weakness 0:47:15.600 --> 0:47:17.359 lingering into twenty twenty four. 0:47:18.520 --> 0:47:21.319 So one of the areas Lydia that has held up 0:47:21.360 --> 0:47:23.800 remarkably well, at least to me, it seems like it's this. 0:47:23.600 --> 0:47:24.440 This labor market. 0:47:24.480 --> 0:47:27.479 You know, three point four percent unemployment, I mean the FED, 0:47:28.040 --> 0:47:29.920 you know, I think perversely would like to see that 0:47:30.040 --> 0:47:33.560 number higher. Where do you think unemployment goes? What's your 0:47:33.680 --> 0:47:36.120 view of the labor market here in the United States. 0:47:36.800 --> 0:47:39.920 Yeah, we're definitely getting mixed messages in terms of the 0:47:40.000 --> 0:47:43.120 label market and mixed signals. I think it's very important 0:47:43.120 --> 0:47:45.040 to take a step back and look at the broad 0:47:45.120 --> 0:47:48.440 set of labor market indicators. We got the jobs report 0:47:48.520 --> 0:47:51.399 last week, and if you take it at the headline level, 0:47:51.480 --> 0:47:55.160 you saw pretty solid job creation and also the unemployment 0:47:55.280 --> 0:47:59.160 rate very low, and that renewed pressure on wage growth, 0:47:59.320 --> 0:48:02.560 which points to a similarly tightened and resilient label market. 0:48:02.920 --> 0:48:05.280 But if you dig a little bit deeper in the report, 0:48:05.360 --> 0:48:08.840 there were some signs that the label market is loosening. 0:48:08.880 --> 0:48:12.120 If you look at the diffusion of job creation, the 0:48:12.120 --> 0:48:16.440 breath of job creation, it has declined quite significantly, so 0:48:16.560 --> 0:48:20.120 job growth has become less broad based. If you look 0:48:20.160 --> 0:48:24.719 at layoffs, they've been creeping higher as well, and our 0:48:24.760 --> 0:48:29.000 conversations with businesses as well is pointing to more strategic 0:48:29.360 --> 0:48:33.640 hiring decisions. We're seeing strategic layoffs as well, and labor 0:48:33.719 --> 0:48:36.799 the man has come back down significantly as well. So 0:48:36.960 --> 0:48:40.839 the down shifting in the label market is happening, and 0:48:41.000 --> 0:48:44.239 what we're expecting to see is essentially companies pulling back 0:48:44.280 --> 0:48:48.880 even further on hiring in the coming months. We're expecting 0:48:48.960 --> 0:48:52.080 to see the unemployment rate rising towards four point five 0:48:52.120 --> 0:48:54.279 percent by the end of the year, and we are 0:48:54.320 --> 0:48:58.480 also expecting to see some layoffs happening, likely around you know, 0:48:58.560 --> 0:49:02.120 nine hundred thousand to a million jobs lost this year, 0:49:03.000 --> 0:49:05.839 but it won't be the same kind of environment we 0:49:05.840 --> 0:49:08.520 were in in two thousand and eight. We're not expecting 0:49:08.560 --> 0:49:11.239 to see the same kind of broad based layoffs in 0:49:11.560 --> 0:49:13.080 the label market. Up to a. 0:49:13.000 --> 0:49:16.560 Million jobs lost feels like, I know, it's a drop 0:49:16.600 --> 0:49:18.440 in the bucket when it comes to the population in 0:49:18.480 --> 0:49:21.400 the US, but that feels like a mildly significant number. 0:49:21.640 --> 0:49:25.640 Where can we look to see indications of that starting 0:49:25.719 --> 0:49:27.240 in terms of the layoffs. 0:49:26.920 --> 0:49:31.920 Picture, Yeah, we are already seeing some signs that layoffs 0:49:31.920 --> 0:49:35.319 are creeping up. Jobless claims have been trending up since 0:49:35.360 --> 0:49:38.600 the beginning of the year. We've heard, you know, if 0:49:38.640 --> 0:49:42.359 you look at job cut mentions in earnings calls. There 0:49:42.440 --> 0:49:45.160 was also a rise in these mentions, and if you 0:49:45.160 --> 0:49:48.120 look at other surveys as well, they are showing that 0:49:48.239 --> 0:49:52.560 job cuts are also increasing, So we can you know, 0:49:52.600 --> 0:49:55.520 there are a number of indicators that are already indicating this. 0:49:55.920 --> 0:49:58.919 These are not broad based layoffs, and that's why it's 0:49:58.960 --> 0:50:02.680 not showing up just yet. And and they're not broad based. 0:50:02.719 --> 0:50:06.280 We've seen pockets of weakness appearing, essentially in the labor market. 0:50:07.080 --> 0:50:10.239 And some of these pockets of weakness have appeared in 0:50:10.280 --> 0:50:13.880 those sectors of the economy that had been hiring quite 0:50:13.920 --> 0:50:18.640 significantly during the pandemic. They've been, you know, facing very 0:50:18.680 --> 0:50:21.600 strong consumer demand and they've been they really overdid it 0:50:22.120 --> 0:50:24.640 in some in some of these sectors in terms of hiring, 0:50:24.680 --> 0:50:27.960 and and they have now had to recalibrate their workforce 0:50:28.560 --> 0:50:32.400 with the retail sector is one example in UH. But 0:50:32.640 --> 0:50:36.120 you know, more generally, I think sectors in general and 0:50:36.520 --> 0:50:38.920 businesses in general will have to adjust to the slower 0:50:38.960 --> 0:50:42.399 demain environment and slower economic environment that we will face 0:50:42.440 --> 0:50:43.520 in the next six months. 0:50:43.640 --> 0:50:45.480 All right, Lydia, thank you so much for joining us. 0:50:45.480 --> 0:50:47.720 Really appreciate getting your thoughts. Lydia Bussor. 0:50:47.960 --> 0:50:51.879 She's a senior economist at e Y Parthyon calling for 0:50:52.000 --> 0:50:55.279 you know, a slow downish economy recession later this year, 0:50:55.360 --> 0:50:58.680 perhaps into next year, and that seems to be a 0:50:58.680 --> 0:51:00.800 building consensus. I guess the question really means for a 0:51:00.840 --> 0:51:03.560 lot of folks, is you know, how prolonged would that 0:51:03.600 --> 0:51:06.799 recession be? How deep would that recession be? I guess 0:51:06.880 --> 0:51:08.600 we will certainly find out going forward. 0:51:08.719 --> 0:51:11.800 You're listening to the tape cans our live program, Bloomberg 0:51:11.880 --> 0:51:15.480 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:51:15.520 --> 0:51:18.759 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:51:18.800 --> 0:51:21.600 You can also listen live on Amazon Alexa from our 0:51:21.640 --> 0:51:25.239 flagship New York station, Just say Alexa Play Bloomberg. 0:51:25.280 --> 0:51:26.040 Eleven thirty. 0:51:28.239 --> 0:51:30.759 Todd Lockman joins us. He's a CEO and president of 0:51:30.920 --> 0:51:36.239 Sovos brand. Sobos is a NASDAC listed stock. Soovo is 0:51:36.280 --> 0:51:39.880 the ticker. It's hitting a fifty two week high today, 0:51:40.760 --> 0:51:42.600 so a good time to get out and start chatting 0:51:42.600 --> 0:51:43.320 about the story. 0:51:43.360 --> 0:51:43.719 I guess. 0:51:43.719 --> 0:51:45.839 The stock is up thirty four percent year to date. 0:51:45.880 --> 0:51:48.200 It's got a market cap of just under two billion dollars. 0:51:48.520 --> 0:51:50.000 Stock's up five percent today. 0:51:50.680 --> 0:51:52.200 Todd, thanks so much for joining us here. I know 0:51:52.239 --> 0:51:52.720 you guys. 0:51:52.920 --> 0:51:54.759 Before we get to your earnings, just give us a 0:51:54.840 --> 0:51:57.400 sense of what you guys do at Sovos brands. 0:51:57.640 --> 0:51:58.799 What brands do you own? 0:52:00.120 --> 0:52:02.200 Absolutely? Yeah, thanks Paul, great too great to be on 0:52:02.239 --> 0:52:02.600 the show. 0:52:02.719 --> 0:52:05.920 So the brands that we own are the REOs brand, 0:52:07.160 --> 0:52:12.760 which is pasta soup, frozen entrees, dry pasta, just launching 0:52:12.760 --> 0:52:17.840 into pizza, we can talk about that, Noosa Yogurt, absolutely delicious, thick, velvety, 0:52:18.800 --> 0:52:21.520 one of a kind yogurt and yogurt category. And then 0:52:21.640 --> 0:52:26.720 Michael Angelo's which is premium frozen Italian cuisine and also 0:52:26.840 --> 0:52:30.880 just launched a mid price sauce brand under the Michael Angelo's. 0:52:30.920 --> 0:52:32.719 But we're a high growth food. 0:52:32.440 --> 0:52:36.720 Company founded in twenty seventeen, really pioneering a new approach 0:52:36.760 --> 0:52:39.760 to packaged food that centers on premium, high quality, delicious 0:52:39.760 --> 0:52:43.280 products and brands with authenticity at their core and really 0:52:43.719 --> 0:52:45.960 try to drive As you can see that we're delivering 0:52:46.640 --> 0:52:50.600 growth that's really unique and disproportionate for the category. 0:52:51.200 --> 0:52:54.640 So, Todd, as Paul was mentioning, a pretty great year 0:52:54.680 --> 0:52:58.319 for you, pretty great earnings as well, what is your 0:52:58.320 --> 0:53:01.040 favorite data point from your all our earnings that you'd 0:53:01.080 --> 0:53:02.680 like to call out what are you most proud of? 0:53:03.719 --> 0:53:07.080 Sure, thanks Mata, saying, well, there's a few, and I'm 0:53:07.120 --> 0:53:09.239 not sure. I mean, we had, as you saw, we 0:53:09.280 --> 0:53:11.839 couldn't be more thrilled the Q one results. I mean, 0:53:12.000 --> 0:53:15.840 the first area that i'd highlight is volume. Volume driven 0:53:15.880 --> 0:53:20.320 twenty seven percent of organic growth, so sixteen percent volume, 0:53:20.560 --> 0:53:21.960 eleven percent price. 0:53:22.400 --> 0:53:23.720 How did you do that, Todd? 0:53:23.800 --> 0:53:25.920 I'm sorry to jump on you here, but that to me, 0:53:26.080 --> 0:53:28.520 that's what stuck out to me as well. And it 0:53:28.560 --> 0:53:33.640 seems like volume surging over price in the inflationary environment 0:53:33.640 --> 0:53:37.719 we're in is really a substantial metric here. What was 0:53:37.800 --> 0:53:39.480 your secret sauce to that? 0:53:39.560 --> 0:53:40.440 No pun intended? 0:53:41.160 --> 0:53:43.160 No, well, I think it was probably kind of intended. 0:53:43.200 --> 0:53:43.640 But it's good. 0:53:43.640 --> 0:53:46.960 I do it all the time, but not many and 0:53:47.000 --> 0:53:48.920 as you pointed out, not many we show we have 0:53:48.960 --> 0:53:50.920 a slide in an earning stick. If you look at 0:53:50.920 --> 0:53:54.120 our peers, they're declining in volume averagely four percent. So 0:53:54.280 --> 0:53:57.040 just as you said, it is very unique for the industry, 0:53:57.080 --> 0:54:01.239 and we're doing that really driving the Raio megabrand. We 0:54:01.840 --> 0:54:05.840 part of our philosophy is we acquire under penetrated brands. 0:54:06.440 --> 0:54:09.480 Tay Superior already in the category very unique. I apologize 0:54:09.480 --> 0:54:12.920 for the train here going across the tracks in Berkeley, California, 0:54:13.000 --> 0:54:17.320 but really, when you take these brands that are underpenetrated, 0:54:17.360 --> 0:54:22.400 we're driving significant distribution gain. So REOs, for particular, we 0:54:22.560 --> 0:54:25.640 had the largest quarterly household penetration gain that we have 0:54:25.760 --> 0:54:28.319 in three years on that brand. So the sauce now 0:54:28.400 --> 0:54:33.839 thirteen percent on the heels of twenty two percent distribution increases. 0:54:33.960 --> 0:54:36.600 So even though we acquired this brand in twenty seventeen, 0:54:36.719 --> 0:54:40.040 we're still putting distribution points on the board for the 0:54:40.080 --> 0:54:46.280 sauce business as well as driving significant growth in our dry, pasta, 0:54:46.480 --> 0:54:50.360 soup and frozen categories. Those combined businesses now are on 0:54:50.360 --> 0:54:52.839 one hundred and thirty million dollars. Retail sales make up 0:54:52.880 --> 0:54:56.320 twenty percent of the REOs franchise of forty six percent 0:54:56.440 --> 0:55:00.560 year on year. The REOs brand Ltm now six hundred 0:55:00.600 --> 0:55:04.960 and eighteen million dollars of forty percent year on year. 0:55:05.080 --> 0:55:08.880 So we're driving volume through distribution awareness gains on a 0:55:08.920 --> 0:55:11.920 franchise that you know still has lots of headroom and 0:55:12.000 --> 0:55:12.560 room to grow. 0:55:13.120 --> 0:55:13.480 That's right. 0:55:13.480 --> 0:55:15.000 I wanted to go here because we think about consumer 0:55:15.040 --> 0:55:16.839 products coming is I don't think about the growth rates 0:55:16.880 --> 0:55:17.799 that you guys are putting up. 0:55:17.840 --> 0:55:20.600 I think it's a CPI kind of growth business. 0:55:20.640 --> 0:55:23.960 So how much more headroom or or how much more 0:55:24.440 --> 0:55:26.640 room to grow do you have with your existing brands 0:55:26.880 --> 0:55:30.440 before you need to go out and maybe consider some acquisitions, sure, 0:55:30.560 --> 0:55:30.799 you know. 0:55:30.800 --> 0:55:34.560 Really significant. Let's just take Raos sauce, you know, for example. 0:55:35.080 --> 0:55:37.160 So if you take you know, the REOs brand, and 0:55:37.239 --> 0:55:40.120 we did achieve another statistic to some still riding on 0:55:40.120 --> 0:55:44.120 the heels of your first question, literally, but we achieved 0:55:44.160 --> 0:55:46.520 the number one share in the food channel. We're the 0:55:46.600 --> 0:55:49.000 number two brand overall now in sauce. When we acquired 0:55:49.000 --> 0:55:51.160 the brand, it was number eight and now number two, 0:55:51.520 --> 0:55:55.560 number one in the food channel. But Raos, although we're 0:55:55.600 --> 0:55:58.799 a you know, sixteen to seventeen percent dollar share, we're 0:55:58.960 --> 0:56:03.120 only a seven percent unit share when the market the 0:56:03.160 --> 0:56:06.480 other two market leaders, number one and number three, their 0:56:06.600 --> 0:56:09.239 unit share is sixteen and eighteen. If you look at 0:56:09.280 --> 0:56:13.160 our penetration of sauce, it's thirteen percent. Our peers are 0:56:13.200 --> 0:56:16.200 above thirty percent. The awareness of our brand is fifty 0:56:16.239 --> 0:56:19.000 eight percent. You have five other sauce brands that have 0:56:19.040 --> 0:56:22.640 awareness greater than ninety percent, and we have fourteen average 0:56:22.680 --> 0:56:24.920 items on shelf when you have two other players with 0:56:25.040 --> 0:56:28.840 over twenty. So you can just see just in sauce alone, 0:56:29.000 --> 0:56:32.200 there's an enormous headroom. And that's why we talk continually 0:56:32.640 --> 0:56:34.600 that we're going to get this six hundred million dollar 0:56:34.680 --> 0:56:38.040 net sales business to one billion and beyond. And that's 0:56:38.120 --> 0:56:41.120 just sauce. And we can go over the same statistics 0:56:41.120 --> 0:56:43.240 for our soup business, which is only a two share, 0:56:43.480 --> 0:56:45.960 our dry pasta business which is only a one to 0:56:46.000 --> 0:56:49.279 three share, and our frozen entre business is less than 0:56:49.280 --> 0:56:53.279 a one share. And again, those three businesses combined are 0:56:53.360 --> 0:56:55.560 growing forty six percent year on year. 0:56:56.000 --> 0:56:59.040 Real quick here, Todd, I know the only one we 0:56:59.040 --> 0:57:02.800 haven't really mentioned is Neusa the yogurt product as well. 0:57:03.080 --> 0:57:06.239 I wonder, and you tell me which project product do 0:57:06.239 --> 0:57:09.560 you have the biggest challenge with in terms of profits? 0:57:09.600 --> 0:57:12.279 And what is your thinking on when to kind of 0:57:12.360 --> 0:57:14.640 change things up on the product side given some of 0:57:14.680 --> 0:57:15.440 those challenges. 0:57:16.360 --> 0:57:18.440 Sure, you know, I'd say, honestly, we were driving really 0:57:18.480 --> 0:57:19.600 would you thirty percent? Eve? 0:57:19.600 --> 0:57:22.960 But dog growth in the quarter, you know, as our 0:57:23.280 --> 0:57:26.600 pricing and productivity and you know volume is more than 0:57:26.640 --> 0:57:29.680 offsetting the inflationary pressures that we have. I mean, we 0:57:29.680 --> 0:57:32.760 were public last year that a headwind notably on the 0:57:32.800 --> 0:57:35.520 noose of business was milk pricing and affected up affected 0:57:35.560 --> 0:57:39.000 the category. You know, milk prices are coming back down, 0:57:39.040 --> 0:57:41.120 so we're seeing a nice benefit. So, you know, I 0:57:41.120 --> 0:57:43.840 think the key headline last year would have been, you know, 0:57:44.040 --> 0:57:47.600 the yogurt businesses. We've talked about it. But right now 0:57:47.640 --> 0:57:51.360 there's a nice tailwind from milk and from resin, and 0:57:51.400 --> 0:57:53.680 there's also a tailwind and there's some there's still some 0:57:54.800 --> 0:57:57.520 uh and there are still some headwinds, whether it's tomatoes, 0:57:57.520 --> 0:58:00.880 olive oil, et cetera. But if you take proteins and 0:58:00.920 --> 0:58:03.880 you take milk, and you take resin, those are all 0:58:04.000 --> 0:58:07.160 nice commodity tail winds for us right now. 0:58:07.920 --> 0:58:09.760 Todd, thanks so much for joining us. Really appreciate it. 0:58:09.800 --> 0:58:13.880 Todd Lackman, he's the CEO and president of Sovo Sprands. Again, 0:58:13.960 --> 0:58:18.520 the NASDAC symbol so Ovo and A stock is hitting 0:58:18.520 --> 0:58:22.240 a fifty two weeks high today as we speak. Ipo'd 0:58:22.280 --> 0:58:25.040 a couple of years ago, and I reported some numbers 0:58:25.120 --> 0:58:28.360 yesterday which the street like stocks up on the news 0:58:28.400 --> 0:58:30.520 of the earning Zone talking about the food business. Now 0:58:30.560 --> 0:58:36.360 REOs it's a famous restaurant in New York City once 0:58:36.680 --> 0:58:39.800 and I mean it's impossible to get into, but back 0:58:39.800 --> 0:58:41.919 in the day, I knew a guy who knew a guy, 0:58:42.120 --> 0:58:44.040 so that got me in there and it was great, 0:58:44.080 --> 0:58:44.840 It was good, awesome. 0:58:47.640 --> 0:58:50.720 Thanks for listening to the Bloomberg Markets podcast. You can 0:58:50.760 --> 0:58:54.560 subscribe and listen to interviews at Apple Podcasts or whatever 0:58:54.640 --> 0:58:56.120 podcast platform you prefer. 0:58:56.520 --> 0:58:57.320 I'm Matt Miller. 0:58:57.560 --> 0:59:00.640 I'm on Twitter at Matt Miller nineteen seven twenty three. 0:59:00.920 --> 0:59:03.400 And I'm Paul Sweeney. I'm on Twitter at pt Sweeney. 0:59:03.440 --> 0:59:06.080 Before the podcast, you can always catch us worldwide at 0:59:06.120 --> 0:59:06.840 Bloomberg Radio