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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. Let's sit down to Washington,

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Speaker 1: d C. And let's talk policy. We've got a couple

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Speaker 1: of the midterms are over. We kind of know where

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Speaker 1: we are there. The question is what can our good

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Speaker 1: friends in Washington, d C. Get done in the next

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Speaker 1: couple of years before we have another election cycle. Upon

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Speaker 1: is Nathan Dean. He's a senior policy anals with Bloomberg Intelligence. Uh.

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Speaker 1: For better or worse. He's based in Washington, d C. Uh, Nathan,

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Speaker 1: you're down there in the pit that is Washington, d C.

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Speaker 1: What do you and your expert buddies down there think

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Speaker 1: that Washington get done in the next couple of years

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Speaker 1: of this administration, this Congress. So you know, a lot

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Speaker 1: of it's gonna come down to the horse trading in

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Speaker 1: the negotiations over these months pass pieces of legislation like

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Speaker 1: the government shut down, and this is what we're seeing

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Speaker 1: right now with the omnibus package. You know, don't think

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Speaker 1: about bills that have to be bipartisan. Think about bills

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Speaker 1: that have bipartisan warmth. And what I mean here is

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Speaker 1: is that they may not be economic, grandiose, fiscal stimulating

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Speaker 1: bill bills, but these are bills that are more in

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Speaker 1: the trenches and more in the sectors. For example, I'm

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Speaker 1: tracking a bill right now that Senator Derman has put

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Speaker 1: out there that would increase competition for Visa massacred bad

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Speaker 1: for them, good for American Express and Discover. Now, you

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Speaker 1: would normally think that this bill doesn't have a chance

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Speaker 1: of passage, but Target and Walmart like it. And if

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Speaker 1: Targeted Walmart like it, then maybe you know Walmart being

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Speaker 1: in Arkansas, the Arkansas senators would like it. And so

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Speaker 1: even though this is something that's not huge, the sector

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Speaker 1: bills that would increase costs, strive revenues down, make competition

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Speaker 1: more more important or more more competitive for example, these

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Speaker 1: are the things that actually do have a chance of passage.

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Speaker 1: You won't see him on the on the front page

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Speaker 1: of the headlines, but it's something you gotta pay attention

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Speaker 1: to Sorry, yeah, a rookie here, but you know some

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Speaker 1: emen wondering about you in this kind of second half

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Speaker 1: of the Biden and administration first term here, do you

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Speaker 1: think that certain deals might not be able to go

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Speaker 1: through here with some of the pressure here on and

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Speaker 1: to trust and concerns about consumer protections. Oh? Absolutely, I

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Speaker 1: mean there will be more failed chances that deals than

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Speaker 1: successful deals. And what I mean by that is, you know,

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Speaker 1: and we'll just take the elections for example. You know,

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Speaker 1: the Democrats have now have fifty they can tear up

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Speaker 1: the power sharing agreement and so they can move forward

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Speaker 1: much quicker in the Senate with legislation. So you're going

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Speaker 1: to see more progressive style legislation come out. You could

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Speaker 1: drive up headline risk, but again you need the House

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Speaker 1: representatives to go forward with it. So what will happen

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Speaker 1: is is that nothing will happen, and then you'll get

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Speaker 1: to this time where the government's going to shut down

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Speaker 1: or the dead selling is going to occur and so

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Speaker 1: forth like that, and then the horse trade and they

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Speaker 1: may get something done, they may not, but the failures

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Speaker 1: were outweighed the successes. Just keep in mind that even

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Speaker 1: for things like f t X in crypto right now.

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Speaker 1: The Republicans have said we want to do something. The

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Speaker 1: Democrats have said we want to do something. But there's

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Speaker 1: something differs, and in more times than not, Congress would

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Speaker 1: much more likely kick the can down the road and

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Speaker 1: say we'll figure it out now with the second term.

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Speaker 1: To your point, we have a presidential election that's already

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Speaker 1: kicked off. By the end of most of Washington will

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Speaker 1: have turned its focus away from doing deals and turned

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Speaker 1: it onto the presidential politics. And the President Biden were

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Speaker 1: to announce next year that he's not going to run again,

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Speaker 1: he becomes a lame duck. That's a lot of political

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Speaker 1: capital he loses up on Capitol Hill. And so really

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Speaker 1: the first six months, the first nine months is the

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Speaker 1: most important in our view, because that's when a lot

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Speaker 1: of the legislation could get done. Nathan, you know you

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Speaker 1: mentioned f t X as well on myself and buying

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Speaker 1: my tickets down to d C for next week to

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Speaker 1: be in those earings. Ah, And you know, I'm really

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Speaker 1: curious what you expect to get out of it, So

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Speaker 1: in know it, really the big question is is Sam

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Speaker 1: Bankman for You're going to show up or not. But

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Speaker 1: even if he doesn't show up. The question I have

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Speaker 1: from an investor point of view, or just like wondering

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Speaker 1: what the crypto industry is gonna look like going forward,

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Speaker 1: is what's the policymaker of you? What do they want

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Speaker 1: to do? Because we've seen statements from the House Financial

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Speaker 1: Services Committee that they want to move forward with a

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Speaker 1: stable coin bill. We've seen statements from Shared Brown, the

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Speaker 1: chairman of the Senate Banking Committee, that he wants to

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Speaker 1: move forward with his own legislation. Elizabeth Warren has her

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Speaker 1: own legislation. The Senate ad Committee has their own legislation.

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Speaker 1: My point here is is that none of this legislation

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Speaker 1: actually is the same, and so what I want to

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Speaker 1: see is not so much the responses from the member

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Speaker 1: of the people that are testifying. I want to see

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Speaker 1: what the policymakers are saying in terms of provisions. Do

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Speaker 1: they believe that bitcoin and ethereum should be a commodities

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Speaker 1: and not securities? Do they believe that nine of the

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Speaker 1: tokens out there should be under the Securities and Exchange Commission?

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Speaker 1: Do they believe that new custody provisions need to be

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Speaker 1: put in place? So try and find that bipartisan warmth,

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Speaker 1: like I mentioned before, are in terms of these provisions,

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Speaker 1: and then the next year potentially they could get packaged

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Speaker 1: into a bill. And Nathan, we got about thirty seconds left.

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Speaker 1: He said, the next six to nine months, you're gonna

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Speaker 1: be most support what what do you think is on

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Speaker 1: the priority list here for Congress, any administration. We're telling

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Speaker 1: you everybody, death ceiling, that feeling dead ceiling, death ceiling,

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Speaker 1: September October next year. The dead ceiling is going to

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Speaker 1: have a tremendous impact on markets. We do not think

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Speaker 1: that death ceiling is going to get resolved any time

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Speaker 1: before then. And you know, like we saw in twenty eleven,

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Speaker 1: fixed income markets were upset, equity markets were upset. It's

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Speaker 1: just going to be a really painful time. We don't

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Speaker 1: think the death ceiling we'll be reached, but we are

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Speaker 1: telling people that's the most important thing to look out

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Speaker 1: for in three Nathan, you're pretty good at this stuff.

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Speaker 1: I wonder who hired about the death ceiling too, for

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Speaker 1: like five months here and nobody believe me. I'm not

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Speaker 1: worried about it, but I'll let I'll let the people

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Speaker 1: like Nathan Dean worry about it. He's the smart guy,

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Speaker 1: Nathan Dean. He's a senior policy analyst for Bloomberg in intelligence.

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Speaker 1: He's Dona, Washington. Indeed, see he's on top of all

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Speaker 1: that policy stuff. It's green on the screen here today,

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Speaker 1: and folks will take that. It's been five days of decline,

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Speaker 1: so UH, if nothing else, maybe a little reversion here

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Speaker 1: to the mean, a little bit of buying on the

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Speaker 1: dip um. Let's see what the pros are doing here

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Speaker 1: as we wind up and get set for twenty three.

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Speaker 1: Tim Lyon, CEO of and Terrace Capital, based in Chicago,

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Speaker 1: one of my favorite towns. Yeah, awesome town. He's undergrad

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Speaker 1: from Illinois NBA from some school there and Northwestern. They

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Speaker 1: have a heck of an NBA program. Tim, thanks so

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Speaker 1: much for joining us here. I mean, I tell you

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Speaker 1: professional money managers, you had a rough two I mean,

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Speaker 1: you couldn't go to equities, you couldn't go to bonds.

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Speaker 1: I don't know where you guys went, But how are

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Speaker 1: you thinking about kind of winding up this year and

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Speaker 1: looking forward to next year? Morning Shale and Paul, thanks

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Speaker 1: so much for asking me to join. UH. This year,

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Speaker 1: when you look at our market volume overall was down,

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Speaker 1: but we expected it to be down this year. So

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Speaker 1: last year was a record year. M and A volume

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Speaker 1: in the US sponsored middle market's been down ten through

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Speaker 1: the end of Q three. It was down Q three

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Speaker 1: of this year versus last year. And really it's down

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Speaker 1: because it's challenging to finance buyouts right now. The broadly

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Speaker 1: syndicated market is it's they talked about this all the

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Speaker 1: time in the journal it UH in Bloomberg and other publications.

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Speaker 1: It's very a liquid right now, and private debt lenders

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Speaker 1: are committing less dollars per transaction, so so that means, yeah,

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Speaker 1: volumes down. But interestingly, so all of the deals that

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Speaker 1: we financed are with private equity sponsors, and what we've

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Speaker 1: seen is those private equity sponsors are still executing add

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Speaker 1: on acquisitions for their investment platforms. So of our deals

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Speaker 1: that antiris are to support existing borrowers. So while primary

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Speaker 1: M and A volumes down, our add on activity is

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Speaker 1: up almost this year versus lash sim I'm really curious

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Speaker 1: because if you look at the market, here there's a moment.

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Speaker 1: There's this moment where you have a short term here

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Speaker 1: halt and withdrawals for certain black Stone funds that had

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Speaker 1: quarterly redemptions. Here, I'm wondering, you know, is there something

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Speaker 1: broader going on in the market, not even just about

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Speaker 1: the underlying asset classes that you know, folks, private private

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Speaker 1: investors are invested in, but the strain that their investors

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Speaker 1: are under. So it is interesting. There's been quite a

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Speaker 1: bit written in the past couple of weeks about both

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Speaker 1: b kred and and black Stones Real Estate Fund um

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Speaker 1: when you look at the private debt side of their business.

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Speaker 1: So the b cred even though they had to limit

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Speaker 1: the withdrawals because they exceeded the five limit. That's the

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Speaker 1: way the fund is set up. The fund is set

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Speaker 1: up for high net worth individuals. It's it's private. They

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Speaker 1: know going in that there's a limitation quarterly withdrawals, so

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Speaker 1: they signed the documents. It is what it is. And

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Speaker 1: but importantly, if you look and Blackstone made this comment yesterday,

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Speaker 1: they're overall they had more money to come in then

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Speaker 1: go out. So if the private the private debt class

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Speaker 1: right now in this rising rate environment is actually quite

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Speaker 1: attractive because the we structure our deals on a floating

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Speaker 1: rate basis, so uh, the floating rage rates, short maturities,

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Speaker 1: credit seniority, so that actually is a pretty big positive

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Speaker 1: in kind of with this global economic uncertainty right now

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Speaker 1: and rising rates. You know, Shelly, if I was a

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Speaker 1: young banker these days, I'd be shopping on my resume

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Speaker 1: around for these private uh credit managers because it seems

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Speaker 1: to be a real growth part of financial services and

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Speaker 1: tim When I think about your business private credit, you know,

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Speaker 1: it feels like it's it's a play on private equity,

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Speaker 1: And all I know is private equity guys are raising

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Speaker 1: money left, right and center. The money has got to

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Speaker 1: get put to work. How do you kind of think

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Speaker 1: about that kind of driver of your business. Yeah, it's

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Speaker 1: it's a great question in your spot on. So private

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Speaker 1: equity has grown significantly and importantly over the next five years.

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Speaker 1: Pretty much any of the the folks that kind of

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Speaker 1: predict how the market's going to grow, private equity is

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Speaker 1: supposed to own a greater percentage of companies five years

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Speaker 1: from now, especially in middlemar keet companies, than they do today.

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Speaker 1: Private equity uses private debt to finance a lot of

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Speaker 1: their transactions. So private debt is forecasted to grow at

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Speaker 1: double digit annual rates private credit assets under management over

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Speaker 1: the next five years. So Um, that's that's pretty significant,

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Speaker 1: and it's just going to as private equity continues to

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Speaker 1: raise more and more money, private debt needs to be

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Speaker 1: how much how much do you think that you know,

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Speaker 1: the everyday American can get really exposure to this if

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Speaker 1: you think about it. This has been a secular trend

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Speaker 1: away from the banking system into the private debt markets.

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Speaker 1: I've covered it for ten years here and it's been

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Speaker 1: hard to explain and hard to cover because it's not

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Speaker 1: like you see a trading every day, So why does

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Speaker 1: it matter to people who are not large institutions. So

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Speaker 1: so a couple of just one other thing I'd add

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Speaker 1: in terms of that growth. So just to give you

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Speaker 1: a sense of how significant it was in the in

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Speaker 1: the third quarter, because the broadly syndicated loans market was

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Speaker 1: in very a liquid the banks that did on the

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Speaker 1: right deals before the market sell off had taken billions

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Speaker 1: in write downs and it's really constrained their appetite for underwriting.

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Speaker 1: So in the third quarter US sponsor of middle market

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Speaker 1: the direct lending share of that was in Q three,

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Speaker 1: So it's really significant the private the So it's been

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Speaker 1: available to high net worth investors for quite some time,

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Speaker 1: but you do have, um public they're called b dcs.

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Speaker 1: There's a number of them out there, um, and those

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Speaker 1: are available to any investor. Just uh yeah, so so

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Speaker 1: they're available. Um and I think once again reveals that

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Speaker 1: those companies are paying are quite attractive. All right, Tim,

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Speaker 1: great stuff there, Tim Lyon, he's the CEO of and

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Speaker 1: Terry's Capital Private Credit. And I want to get the

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Speaker 1: latest on kind of what's going on there with our retailers, uh,

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Speaker 1: and the holiday shopping season. Plus we want to talk

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Speaker 1: about rent the runway. Uh, we do that. Put the goil.

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Speaker 1: She's a senior annals covering all things retail Bloomberg Intelligence.

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Speaker 1: Put what's the early read or maybe the kind of

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Speaker 1: the mid cycle read on how this holiday shopping seasons

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Speaker 1: shaping up? Sure, thanks Paul. Yeah, the holiday season is

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Speaker 1: actually shaping out to be strong. So far. We had

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Speaker 1: a great November both online and in stores, and we

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Speaker 1: think retailers are using discounts to really draw sales and

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Speaker 1: clearing the exos inventory that they've built up all year.

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Speaker 1: So so far, so good. But there's still a lot

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Speaker 1: of shopping left in the coming two and a half

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Speaker 1: weeks and that will really determine if holiday did in

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Speaker 1: fact turn out to be stronger than everyone expected. But

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Speaker 1: are you like totally in trouble here if you didn't

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Speaker 1: already order your goods because I have not, No, I

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Speaker 1: don't think so. I think. I think you still have

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Speaker 1: time to get things online for sure before the holidays,

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Speaker 1: and stores too. You know they're stocked well, they have

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Speaker 1: enough inventory this year, so you don't have to be

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Speaker 1: scrambling that you may not get what you want this year. Hey,

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Speaker 1: talk to us about this Rent the Runway. It's a

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Speaker 1: pretty cool company that just came to my awareness in

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Speaker 1: the last four or five years. Stocks up today. What's

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Speaker 1: the story there? Yeah, So Runt the Runway. I think

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Speaker 1: it's all about execution, and I think what they've been

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Speaker 1: doing for the last two quarters are proving that the

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Speaker 1: execution is paying off, is really putting that pedal on

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Speaker 1: the profits. So this is the second quarter in a

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Speaker 1: row where they have delivered positive growth margins above and

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Speaker 1: Ebit justin Ebit Dallas positive. That's really been the key

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Speaker 1: focus for many of these re commerce companies that have

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Speaker 1: I p oed in the last few years, where we

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Speaker 1: know that there's plenty of opportunity for topline growth given

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Speaker 1: how um how young this sector is overall right, and

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Speaker 1: but the focus has been on can they be profitable

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Speaker 1: and rent the runway? So far as it feeded, it's

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Speaker 1: planned and last plan on how quickly they can achieve

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Speaker 1: break emanata and get to their goal ofent of just

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Speaker 1: bada marchin and free cash flow positive in the medium

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Speaker 1: turn alright, good stuff, rent the runway again. The good

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Speaker 1: news is up thirty three percent today. The bad news

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Speaker 1: is is down seventy percent year to day. So it's

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Speaker 1: got some work to do to get back trades at

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Speaker 1: one cents per share. Put him coil. She covers all

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Speaker 1: things retail for a Bloomberg. Intelligence is always good this

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Speaker 1: time of year, around the holidays. You get a sense

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Speaker 1: of how the retailers are doing during this holiday season,

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Speaker 1: which is such a big part of their business. Let's

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Speaker 1: be honest. I mean, here we are in December. It's

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Speaker 1: been a brutal year for investorge. You couldn't go in equities,

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Speaker 1: You've got slammed there even worse from a historic perspective

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Speaker 1: for fixed income. I got two of my rearview mirror Shinale.

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Speaker 1: I don't know about you, and I'm looking forward to

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Speaker 1: Robert Teater. He's head of Investment Policy and Strategy group

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Speaker 1: at Silver crests Asset Management. He joins us here in

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Speaker 1: our blue Burg Interactive Broker studio. Robert, give us your

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Speaker 1: post mortem on two. We've got a few weeks left.

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Speaker 1: But you know, if you're picking up talking to one

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Speaker 1: of your clients, how would you kind of put that

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Speaker 1: into into perspective. Sure, I'd characterized the year as being

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Speaker 1: defined by one word, which is inflation. So we had

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Speaker 1: a massive draw down in both fixed income in equities,

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Speaker 1: as you said, nowhere to hide and nowhere to hide

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Speaker 1: because of inflation. So the FED working against you, rates

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Speaker 1: heading higher, valuations heading down, the zoom out a little

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Speaker 1: bit and look back to pre pandemic through Now you've

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Speaker 1: had earnings growing about had stocks only up about twenty

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Speaker 1: and most of that has come in that compression in

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Speaker 1: multiples in the past year. So I think one word

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Speaker 1: defined the year, which is inflation, made it a really

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Speaker 1: tough year. So something I've been wondering a lot about

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Speaker 1: is a lot of investors got so burned this year

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Speaker 1: and the heat of everything. You're saying, are they too

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Speaker 1: burned to deploy significant capital next year, should the opportunity arise. Yeah,

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Speaker 1: it's a great question. I think one of the things

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Speaker 1: that's characterized this year a little bit differently from some

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Speaker 1: prior declines is that were coming on the back of

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Speaker 1: very big gains over the prior few years. So I

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Speaker 1: think that puts people in a little bit of a

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Speaker 1: better spot. If you zoom out, wealth is generally up

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Speaker 1: over the past three years, even over the last two years,

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Speaker 1: so it's really just been this year of decline. So

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Speaker 1: I do think there is some appetite for risk when

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Speaker 1: you get inflation off the table and when you get

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Speaker 1: the fed uh sort of out of fighting against you

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Speaker 1: for a bit. So what are you telling your clients

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Speaker 1: for your pen or you're are going to pen your

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Speaker 1: letter to your clients talking about next year? What are

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Speaker 1: you telling them? Sure, So we think there are two

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Speaker 1: components to this story, as there always are. On the

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Speaker 1: earning side, we see a pretty tight range of outcomes,

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Speaker 1: So we think slow economic growth probably not a big recession.

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Speaker 1: So slow numbers on the economic side, slow numbers on

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Speaker 1: the earning side, with kind of a tight range, the

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Speaker 1: sort of a back to boring environment, low economic growth,

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Speaker 1: maybe you know, minus five percent on earnings to plus

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Speaker 1: five percent, kind of in a tight range. So the

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Speaker 1: whole story will be multiples and it will be a

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Speaker 1: bit choppy, but we do think there will be some

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Speaker 1: valuation recovery, so similar to what we've seen in the

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Speaker 1: past six weeks or so, As you get inflation trending down,

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Speaker 1: you get a little bit of relief on the multiple side.

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Speaker 1: So we think next year could be an okay year

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Speaker 1: for stocks and also an okay year for bonds, both

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Speaker 1: be on the basis of inflation fading throughout the course

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Speaker 1: of the year. There seems to be no consensus here

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Speaker 1: on how bad things can get and whether or not

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Speaker 1: you think that there's a mild recession or deep procession

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Speaker 1: or things are priced in. How nervous are your clients

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Speaker 1: and how split are they and how is that impacting

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Speaker 1: what they might do next. Yeah, it's a great question.

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Speaker 1: I think one of the things that we've seen from

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Speaker 1: from both clients and professional investors and everyone has been

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Speaker 1: a tendency to take the latest news data point and

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Speaker 1: sort of extrapolated over the year. So inflations here therefore,

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Speaker 1: let's assume it's going to be here forever economic weakness

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Speaker 1: is probably coming on the basis of you know, lagged

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Speaker 1: effects of of FED ray hiked, so maybe that will

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Speaker 1: be here forever, and we're trying to step back from

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Speaker 1: that a little bit and just look through a little

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Speaker 1: bit of the noise on that front. So I do

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Speaker 1: think there's some concern There are legitimate concerns I think

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Speaker 1: around economic slowdown, around inflation maybe not cooling as quickly

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Speaker 1: as possible, But bigger picture, we think both things are

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Speaker 1: probably headed in the right direction over the course of

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Speaker 1: a full year next year. So what sectors should are

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Speaker 1: you suggesting to your clients and maybe they think about

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Speaker 1: some exposure to Is it some of the traditional growth

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Speaker 1: tech names that have worked so well for everybody since

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Speaker 1: the I don't know, the Great Financial Crisis? Or is

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Speaker 1: it more kind of reopening places, whether they're cyclicals or

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Speaker 1: you know, how are you thinking about that? Yeah, it's

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Speaker 1: a it's a great question. I think there there is

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Speaker 1: still some room to go in some of the consumer space.

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Speaker 1: So our work shows that there's been a you know,

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Speaker 1: a big over earning if you will, in the good

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Speaker 1: space of the economy. Thinking in terms of GDP, the

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Speaker 1: good sectors of over earned probably well above trend, a

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Speaker 1: little bit of paybacks still there, but on the services

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Speaker 1: side sort of under earning and underappreciated in terms of

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Speaker 1: potential future growth for consumer on the services side. The

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Speaker 1: other thing that we really like is the small cap space,

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Speaker 1: So there's there's a lot of return to focus on.

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Speaker 1: Domestic activity in the US might not be directly going

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Speaker 1: into these small cap companies, but so of the old

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Speaker 1: fashioned multiplier effect of more capex spending, more re on

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Speaker 1: shoring winds its way into earnings for small cap companies.

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Speaker 1: I'm wondering. Also, we've been talking a lot here about

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Speaker 1: not just the public markets, but ivan markets, and you

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Speaker 1: hear some of the stresses that are in the private markets,

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Speaker 1: and then you hear the CEOs talk about this great

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Speaker 1: wealth opportunity. But do the wealthy individuals want to buy

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Speaker 1: as much as they think they do. I think there's

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Speaker 1: a there's a little bit of both sides of that argument.

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Speaker 1: So one thing that we've been careful with in private

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Speaker 1: equity is emphasizing that there are great opportunities, but it's

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Speaker 1: not one size fits all. The entire opportunity set might

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Speaker 1: not be compelling, and so it's really important to recognize

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Speaker 1: that certain firms in the space are doing strong and

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Speaker 1: good work in terms of improving companies, improving earnings the

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Speaker 1: same way that you create wealth in the public markets,

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Speaker 1: which is compounding of earnings over time, growing capital um.

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Speaker 1: That's really the true story that exists in a lot

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Speaker 1: of the opportunities in the private equity space, not all

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Speaker 1: of them. I think there had been maybe perhaps a

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Speaker 1: little bit too much enthusiasm and lack of willingness to

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Speaker 1: dig through the surface. But that's starting to come to

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Speaker 1: fruition now, and so we think there's an important opportunity

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Speaker 1: in private equity, just very careful to be selective about

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Speaker 1: how you pursue it. Today, we've been talking a lot

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Speaker 1: here on Bloomberg Radio about x On Mobile. They've they're

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Speaker 1: raising their salaries for most unemployees by nine percent. That's

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Speaker 1: a good thing. We've been looking at the stock stocks

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Speaker 1: up seventies some month percent this year. That's a good thing.

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Speaker 1: They up there, buy back another fifty billion dollars as

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Speaker 1: energy kind of had its run, or you guys thinking

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Speaker 1: that maybe there's more room to go there. I mean,

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Speaker 1: I think there's probably a bit more room to go.

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Speaker 1: It's been interesting to watch the divergence of oil prices

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Speaker 1: coming down and energy stocks still continuing to perform strongly.

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Speaker 1: And I think that's on the basis of just a

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Speaker 1: recognition that we've moved energy in terms of national importance

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Speaker 1: from something lower down on the stack too much higher

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Speaker 1: up on the stack. And so I think there's a

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Speaker 1: willingness to invest in that space, invest in the areas, uh,

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Speaker 1: and really a willingness to recognize that this is going

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Speaker 1: to be a continuing, ongoing issue for some time. And

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Speaker 1: so what oil prices are down now, probably not likely

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Speaker 1: to you know, spike again very quickly, but long term,

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Speaker 1: it's a space where there will be continued activity, and

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Speaker 1: so we do think there's some opportunity there. You know.

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Speaker 1: Another thing about this is, you know, we talked so

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Speaker 1: much about public market stocks, some of these exciting sectors.

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Speaker 1: What about the things are harder to see, I mean,

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Speaker 1: real realistically the interesting trades this year we're macro commodities

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Speaker 1: and um, how has that kind of changed the calculus

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Speaker 1: here on kind of how non traditional your clients are

432
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Speaker 1: looking to invest. Yeah, that's a good question too. So

433
00:22:14,720 --> 00:22:17,080
Speaker 1: over the years, like many we've seen an increase in

434
00:22:17,080 --> 00:22:19,359
Speaker 1: interest in alternative investments, you know, sort of first and

435
00:22:19,400 --> 00:22:22,120
Speaker 1: hedge funds than into private equity. I think the real

436
00:22:22,200 --> 00:22:25,160
Speaker 1: key for this year was finding things that weren't correlated

437
00:22:25,200 --> 00:22:27,840
Speaker 1: to that one direction inflation trade and sort of pushed

438
00:22:27,840 --> 00:22:33,600
Speaker 1: down on valuation and pushed down on bonds buying the dollar. Yes,

439
00:22:34,000 --> 00:22:36,199
Speaker 1: so anything in alternatives we sort of view as a

440
00:22:36,240 --> 00:22:38,320
Speaker 1: third leg of the stool. So you have traditional equity

441
00:22:38,440 --> 00:22:41,919
Speaker 1: risk most times, but not always fixed income offsets that

442
00:22:42,160 --> 00:22:44,159
Speaker 1: this year it didn't, and so it's a great argument

443
00:22:44,200 --> 00:22:45,560
Speaker 1: for why there should be a third leg to the

444
00:22:45,560 --> 00:22:48,080
Speaker 1: stool and some alternatives in some portfolios for clients who

445
00:22:48,119 --> 00:22:50,600
Speaker 1: can handle I liquidity. All right, Robert, thank you so

446
00:22:50,680 --> 00:22:53,280
Speaker 1: much for joining us here. Robert Teeter. He's head of

447
00:22:53,280 --> 00:22:57,160
Speaker 1: investment policy and the strategy group at Silver Crest Asset Management.

448
00:22:57,160 --> 00:22:59,240
Speaker 1: He's a neighbor of ours here in Midtown than that,

449
00:22:59,320 --> 00:23:01,240
Speaker 1: and so we appreciate getting him here in our Bloomberg

450
00:23:01,720 --> 00:23:07,480
Speaker 1: Interactive Brokers studio. I want to pivot to China here

451
00:23:07,560 --> 00:23:10,600
Speaker 1: because I tell you, the Chinese governments, you know, is

452
00:23:10,760 --> 00:23:15,239
Speaker 1: really seemingly making an about face here and kind of

453
00:23:15,600 --> 00:23:18,040
Speaker 1: really kind of reopening their economy a little bit more

454
00:23:18,040 --> 00:23:20,480
Speaker 1: aggrestfully than I think most people thought, and we saw

455
00:23:20,520 --> 00:23:22,199
Speaker 1: that we said we gotta get Tom or Like on

456
00:23:22,240 --> 00:23:24,879
Speaker 1: the air. Why because Tom he's their chief economist for

457
00:23:24,880 --> 00:23:28,199
Speaker 1: Bloomberg Economics, so he's a smart person to talk to.

458
00:23:28,800 --> 00:23:30,800
Speaker 1: But he lived in Beijing for many years. He worked

459
00:23:30,840 --> 00:23:33,520
Speaker 1: in Beijing for many years. He knows what it's like,

460
00:23:34,000 --> 00:23:36,120
Speaker 1: the Chinese government is like and how it plays out

461
00:23:36,119 --> 00:23:39,679
Speaker 1: over time. So Tom loved Thanks so much for joining us. Share.

462
00:23:39,880 --> 00:23:41,639
Speaker 1: Are you at all surprised here about kind of what

463
00:23:41,680 --> 00:23:44,120
Speaker 1: we've seen from the Chinese officials over the last several

464
00:23:44,160 --> 00:23:48,240
Speaker 1: days in terms of reopening? I think it is surprising, Paul.

465
00:23:48,600 --> 00:23:51,000
Speaker 1: If you'd asked me a few weeks ago, and I

466
00:23:51,000 --> 00:23:53,879
Speaker 1: think if you'd asked most people who followed China a

467
00:23:53,880 --> 00:23:56,240
Speaker 1: few weeks ago, when is China going to make the

468
00:23:56,280 --> 00:23:59,960
Speaker 1: big tivot towards reopening, the answer would have been, well,

469
00:24:00,160 --> 00:24:04,120
Speaker 1: we don't know, but probably March three's at decent bet

470
00:24:04,680 --> 00:24:08,159
Speaker 1: get through the winter, get vaccines into people's arms, and

471
00:24:08,200 --> 00:24:11,359
Speaker 1: then reopen. So the pivot that we've seen in the

472
00:24:11,440 --> 00:24:15,320
Speaker 1: last few days has really been a surprise and substantially

473
00:24:15,359 --> 00:24:18,480
Speaker 1: earlier than I think I expected, and many in the

474
00:24:18,520 --> 00:24:23,959
Speaker 1: markets expected. I'm really curious about what this means for investors,

475
00:24:24,000 --> 00:24:26,280
Speaker 1: because obviously there's been a fair bit of pain this year.

476
00:24:26,760 --> 00:24:30,119
Speaker 1: I'm wondering about the ripple effects. From where I sit, Tom,

477
00:24:30,160 --> 00:24:32,320
Speaker 1: there was an interesting phenomenon here where you saw a

478
00:24:32,320 --> 00:24:37,520
Speaker 1: lot of Chinese investors start to sell Blackstones major real

479
00:24:37,640 --> 00:24:40,480
Speaker 1: estate fund to the point that they had to halt redemptions.

480
00:24:40,520 --> 00:24:43,679
Speaker 1: And the reason yesterday that Steve Schwartzman had given for

481
00:24:43,720 --> 00:24:47,760
Speaker 1: this was not just the fact that the index was down,

482
00:24:48,080 --> 00:24:51,639
Speaker 1: but also the fact that regional investors were so highly levered,

483
00:24:51,960 --> 00:24:54,800
Speaker 1: and that leverage issue has played out over and over

484
00:24:54,840 --> 00:24:56,600
Speaker 1: and over in so many different ways when you think

485
00:24:56,600 --> 00:25:00,240
Speaker 1: about the Chinese economy, So how do you think the

486
00:25:00,280 --> 00:25:02,440
Speaker 1: pockets of pain that might still exist when it comes

487
00:25:02,480 --> 00:25:07,320
Speaker 1: to leverage. So I think the leverage question is a

488
00:25:07,359 --> 00:25:10,879
Speaker 1: really interesting one, Shinali. And when I think about it

489
00:25:11,080 --> 00:25:15,040
Speaker 1: in the Chinese context, I think about the huge volume

490
00:25:15,080 --> 00:25:18,720
Speaker 1: of debt which China has taken on over the last

491
00:25:19,119 --> 00:25:21,800
Speaker 1: ten or fifteen years, and the way that's going to

492
00:25:21,880 --> 00:25:26,200
Speaker 1: continue playing out, especially as we see the pain continuing

493
00:25:26,240 --> 00:25:29,840
Speaker 1: in the property sector. When I think about the leverage

494
00:25:29,920 --> 00:25:34,399
Speaker 1: question globally, and how China plays into that well. Of course,

495
00:25:34,560 --> 00:25:38,760
Speaker 1: China's reopening is a significant positive for China's economy, as

496
00:25:38,800 --> 00:25:44,560
Speaker 1: significant positive for China's markets, but it adds an additional

497
00:25:44,640 --> 00:25:47,200
Speaker 1: level of risk for the rest of the world. When

498
00:25:47,280 --> 00:25:50,600
Speaker 1: China reopens, we've got one point four billion Chinese people

499
00:25:50,720 --> 00:25:54,199
Speaker 1: going from stuck at home to getting back in their cars,

500
00:25:54,240 --> 00:25:57,200
Speaker 1: getting on the train, getting on the airplane. That has

501
00:25:57,240 --> 00:26:01,360
Speaker 1: to be a driver of global energy prices. Is potentially

502
00:26:01,640 --> 00:26:05,280
Speaker 1: that adds an additional leg to global inflation in the

503
00:26:05,359 --> 00:26:08,600
Speaker 1: year ahead, forces the FED and other central banks to

504
00:26:08,640 --> 00:26:11,960
Speaker 1: do more to get inflation under control, and of course

505
00:26:12,040 --> 00:26:15,479
Speaker 1: adds to the pain for investors who have taken on

506
00:26:15,520 --> 00:26:19,919
Speaker 1: a lot of death Tom, I wonder just how this

507
00:26:20,080 --> 00:26:24,600
Speaker 1: reopening is going to occur. Do we know what percentage

508
00:26:24,600 --> 00:26:27,760
Speaker 1: of their population is vaxed, Do we know if it's

509
00:26:27,760 --> 00:26:31,600
Speaker 1: an effective vaccination? Is this country setting itself up for

510
00:26:32,600 --> 00:26:36,560
Speaker 1: a surge in cases and and you know other bed news.

511
00:26:38,000 --> 00:26:41,320
Speaker 1: I think that's absolutely the right question to be asking, Paul.

512
00:26:41,880 --> 00:26:45,800
Speaker 1: China does not have the leading edge mr NA vaccines,

513
00:26:45,880 --> 00:26:48,760
Speaker 1: which have played such an important role in protecting public

514
00:26:48,800 --> 00:26:52,399
Speaker 1: health in the US and in Europe. Neither have they

515
00:26:52,480 --> 00:26:58,080
Speaker 1: been particularly successful at getting the less effective Chinese vaccines

516
00:26:58,520 --> 00:27:02,840
Speaker 1: into people's arms. And what that means is that as

517
00:27:02,920 --> 00:27:08,520
Speaker 1: reopening happens, as cases inevitably rise, then the next step,

518
00:27:08,720 --> 00:27:12,760
Speaker 1: sadly is going to be an increase in hospitalizations, and yes,

519
00:27:12,840 --> 00:27:18,000
Speaker 1: an increasing steps, And that raises a question, well, how

520
00:27:18,040 --> 00:27:22,800
Speaker 1: does China's government then react? Is there the potential for

521
00:27:22,840 --> 00:27:26,040
Speaker 1: a bumpy path ahead in the next six months? Could

522
00:27:26,040 --> 00:27:29,640
Speaker 1: this be a backward and forward process as China attempts

523
00:27:29,720 --> 00:27:33,919
Speaker 1: to contain what could be a public health emergency whilst

524
00:27:33,960 --> 00:27:37,840
Speaker 1: retaining the benefits of reopening. These are big important questions.

525
00:27:38,119 --> 00:27:39,680
Speaker 1: I think we're going to have to wait and see

526
00:27:39,960 --> 00:27:43,240
Speaker 1: how they play out in the weeks ahead of the

527
00:27:43,320 --> 00:27:46,440
Speaker 1: next six to twelve months. What are you most concerned

528
00:27:46,440 --> 00:27:49,520
Speaker 1: about in terms of both what can happen on the mainland,

529
00:27:50,080 --> 00:27:53,040
Speaker 1: but also what could happen in terms of any ripple

530
00:27:53,080 --> 00:27:56,800
Speaker 1: effects it might have to the countries that are trading

531
00:27:57,000 --> 00:28:00,679
Speaker 1: partners or um you know, we're all in their supply

532
00:28:00,800 --> 00:28:04,760
Speaker 1: chains and um on the emerging markets that are suffering already.

533
00:28:06,600 --> 00:28:08,760
Speaker 1: So I think if you sort of think about where

534
00:28:08,760 --> 00:28:12,639
Speaker 1: we were on China a few weeks ago, Hinale, we

535
00:28:12,760 --> 00:28:17,680
Speaker 1: had lockdown still in place, we had the property sector

536
00:28:17,760 --> 00:28:22,800
Speaker 1: in a major correction, and we had US China relations

537
00:28:23,119 --> 00:28:27,200
Speaker 1: spiraling down. And in the last few weeks we've had

538
00:28:27,640 --> 00:28:31,399
Speaker 1: a move to reopen, We've had more support for the

539
00:28:31,440 --> 00:28:34,720
Speaker 1: property sector and perhaps more on the way, and we've

540
00:28:34,760 --> 00:28:39,440
Speaker 1: had that shake hands meeting between She and Biden in Bali,

541
00:28:39,520 --> 00:28:41,920
Speaker 1: which didn't deliver a lot of substance in terms of

542
00:28:41,960 --> 00:28:45,959
Speaker 1: improving the relationship, but at least sort of hedged against

543
00:28:46,040 --> 00:28:49,880
Speaker 1: the risk of a downward spiral. So on all of

544
00:28:49,880 --> 00:28:54,680
Speaker 1: those big issues, on COVID, on property, on relations with

545
00:28:54,720 --> 00:28:58,000
Speaker 1: the United States, the signs from China in the last

546
00:28:58,000 --> 00:29:00,160
Speaker 1: few weeks have all been in the right direction. They've

547
00:29:00,160 --> 00:29:03,600
Speaker 1: all been what the market wanted to hear. So the

548
00:29:03,640 --> 00:29:05,840
Speaker 1: base case for China in the year ahead is that,

549
00:29:05,840 --> 00:29:08,120
Speaker 1: how a little bit more positive than it was. We're

550
00:29:08,160 --> 00:29:13,280
Speaker 1: penciling in five point one GDP growth for China, good

551
00:29:13,280 --> 00:29:16,400
Speaker 1: news for the Chinese people, good news for investors in China,

552
00:29:16,600 --> 00:29:20,760
Speaker 1: as we discussed, potentially not great news for the rest

553
00:29:20,760 --> 00:29:23,960
Speaker 1: of the world as they grapple with inflation, and now

554
00:29:24,040 --> 00:29:28,440
Speaker 1: that potential inflationary impulse that comes as China reopens and

555
00:29:28,480 --> 00:29:31,560
Speaker 1: amps up its demand for commodity. Hey, Tom, I'd love

556
00:29:31,600 --> 00:29:34,360
Speaker 1: to get your opinion on Hong Kong. It's it's long

557
00:29:34,440 --> 00:29:36,959
Speaker 1: been one of my favorite places in the world. I mean,

558
00:29:37,000 --> 00:29:40,040
Speaker 1: it's just a global was a global financial hub, you know,

559
00:29:40,200 --> 00:29:43,280
Speaker 1: along the lines of New York and London. What do

560
00:29:43,320 --> 00:29:47,400
Speaker 1: you think the future of Hong Kong is? So, I

561
00:29:47,400 --> 00:29:51,000
Speaker 1: think it's really interesting, Paul um And I think it's

562
00:29:51,000 --> 00:29:54,080
Speaker 1: really interesting because you've had these two kind of big

563
00:29:54,160 --> 00:29:58,960
Speaker 1: forces interacting at the same time. Right. One force has

564
00:29:59,000 --> 00:30:04,160
Speaker 1: been the kind of the National Security law um and

565
00:30:04,200 --> 00:30:07,600
Speaker 1: all that has men for the sort of one country,

566
00:30:07,680 --> 00:30:11,720
Speaker 1: two systems approach and the fear that that's going to

567
00:30:11,840 --> 00:30:15,640
Speaker 1: bring Hong Kong much closer to the mainland in terms

568
00:30:15,640 --> 00:30:18,200
Speaker 1: of the way it's government, it's legal system, and it's

569
00:30:18,320 --> 00:30:22,040
Speaker 1: media operating. At the same time, you've had the COVID

570
00:30:22,080 --> 00:30:25,680
Speaker 1: pandemic and all that has meant in terms of lockdowns

571
00:30:25,920 --> 00:30:30,360
Speaker 1: and quarantines and difficulty getting in and out of the

572
00:30:31,200 --> 00:30:34,080
Speaker 1: of the place. Um. So, both of those things have

573
00:30:34,160 --> 00:30:36,320
Speaker 1: been happening at the same time, and they've both been

574
00:30:36,360 --> 00:30:41,160
Speaker 1: negatives for Hong Kong's standing as as a global financial center. Well,

575
00:30:41,600 --> 00:30:44,640
Speaker 1: in the months ahead, we're going to see the COVID

576
00:30:44,760 --> 00:30:50,480
Speaker 1: drag disappearing, but the National security law drag staying in place. Yeah,

577
00:30:50,480 --> 00:30:52,240
Speaker 1: that's going to be. That's going to mean it's going

578
00:30:52,320 --> 00:30:55,240
Speaker 1: to be able to sort of disentangled those two effects

579
00:30:55,520 --> 00:30:57,920
Speaker 1: and see if Hong Kong's standing as a global financial

580
00:30:58,000 --> 00:31:00,880
Speaker 1: center is still there or not. Tom great Stuff has

581
00:31:00,880 --> 00:31:03,280
Speaker 1: always loved getting your perspective, Tom or like chief economists

582
00:31:03,280 --> 00:31:07,360
Speaker 1: for Bloomberg Economics, getting the update on China. It appears

583
00:31:08,000 --> 00:31:13,800
Speaker 1: that China is reopening. Thanks for listening to the Bloomberg

584
00:31:13,840 --> 00:31:17,240
Speaker 1: Markets podcast. You can subscribe and listen to interviews with

585
00:31:17,280 --> 00:31:22,080
Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.

586
00:31:22,360 --> 00:31:26,800
Speaker 1: I'm on Twitter at Matt Miller. On Ball Sweeney I'm

587
00:31:26,800 --> 00:31:29,440
Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can

588
00:31:29,480 --> 00:31:31,680
Speaker 1: always catch us worldwide at Bloomberg Radio