1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:21,439 Speaker 1: at Bloomberg dot com slash podcast. Let's go over to 7 00:00:21,680 --> 00:00:25,920 Speaker 1: Michael Weiss. He is the founder and president of Yield Street. Michael, 8 00:00:25,920 --> 00:00:28,120 Speaker 1: thanks so much for joining us here. It's it's FED day. 9 00:00:28,480 --> 00:00:31,080 Speaker 1: You know, here Bloomberg we make a big big deal 10 00:00:31,080 --> 00:00:34,120 Speaker 1: about it because the markets really care. What are you 11 00:00:34,200 --> 00:00:36,040 Speaker 1: thinking about? What do you expect to hear from this Fed? 12 00:00:36,280 --> 00:00:38,720 Speaker 1: It's good to be back in good morning. I expect 13 00:00:38,760 --> 00:00:40,920 Speaker 1: to see a little bit of the same when it 14 00:00:40,960 --> 00:00:43,960 Speaker 1: comes to the FED. I think the market continues to 15 00:00:44,000 --> 00:00:45,600 Speaker 1: think that we have it all figured out, and the 16 00:00:45,640 --> 00:00:48,720 Speaker 1: FED enjoys showing us that we don't. I expect us 17 00:00:48,760 --> 00:00:51,279 Speaker 1: to see another raid hike. I think the markets are 18 00:00:51,280 --> 00:00:53,080 Speaker 1: going to see a choppy day today. I think we're 19 00:00:53,080 --> 00:00:55,480 Speaker 1: going to see some more volatility. I don't think the 20 00:00:55,480 --> 00:00:58,200 Speaker 1: FED is done yet. I think they have resilience that 21 00:00:58,320 --> 00:01:02,120 Speaker 1: we have yet to experience. Well, they share better not 22 00:01:02,160 --> 00:01:04,360 Speaker 1: be done because they have five and a quarter percent 23 00:01:04,440 --> 00:01:06,039 Speaker 1: as the terminal rate on the dot plot. So if 24 00:01:06,080 --> 00:01:09,920 Speaker 1: they finish at four, that's a big miss. I could 25 00:01:09,920 --> 00:01:12,360 Speaker 1: imagine though, that they don't go much higher than five, 26 00:01:12,480 --> 00:01:14,760 Speaker 1: because I think they're a little more hawkish on the 27 00:01:14,800 --> 00:01:17,759 Speaker 1: dot plot than they expect to be in real life. Plus, 28 00:01:17,880 --> 00:01:20,959 Speaker 1: to be fair, a lot has changed, right Michael. I mean, 29 00:01:21,000 --> 00:01:25,280 Speaker 1: we've seen inflation come down pretty substantially. We are seeing 30 00:01:25,319 --> 00:01:29,760 Speaker 1: inflation come down. We are seeing the American consumers pocket dinner. 31 00:01:30,319 --> 00:01:34,440 Speaker 1: We're seeing people pulling out of we we saw Vanguard 32 00:01:34,920 --> 00:01:38,600 Speaker 1: published a report that the people are having hardship withdrawals 33 00:01:38,640 --> 00:01:40,800 Speaker 1: out of their personal retirement accounts at a level that 34 00:01:40,840 --> 00:01:45,120 Speaker 1: we haven't seen before. And so the consumer is different. 35 00:01:45,200 --> 00:01:49,840 Speaker 1: Their ability to spend has dramatically decreased, and they don't 36 00:01:49,880 --> 00:01:52,520 Speaker 1: have the same deposits they used to the way how 37 00:01:52,520 --> 00:01:55,320 Speaker 1: does that affect How does that affect your investments at 38 00:01:55,360 --> 00:01:58,800 Speaker 1: Yield Street, because you have I think a very unique 39 00:01:58,840 --> 00:02:03,559 Speaker 1: situation in that UM, if I understand it correctly, you're 40 00:02:03,600 --> 00:02:08,040 Speaker 1: you allow UM kind of retail investors to get in 41 00:02:08,160 --> 00:02:13,400 Speaker 1: on something that until now had been really the revere 42 00:02:13,680 --> 00:02:17,600 Speaker 1: of institutional clients or the ultra wealthy. Right you you 43 00:02:17,760 --> 00:02:21,440 Speaker 1: let people into private credit. Correct, the old Street has 44 00:02:21,480 --> 00:02:27,200 Speaker 1: been making access to alternative investments available for retail investors 45 00:02:27,200 --> 00:02:29,959 Speaker 1: and credit investors. And what we have been a big 46 00:02:30,000 --> 00:02:33,799 Speaker 1: proponent of is helping people build a better and more 47 00:02:33,840 --> 00:02:38,799 Speaker 1: modern portfolio that includes private assets, so private credit, private equity, 48 00:02:39,040 --> 00:02:42,160 Speaker 1: real estate, and a host of other investments that were 49 00:02:42,240 --> 00:02:45,920 Speaker 1: usually and historically reserved for the ultra wealthy and the 50 00:02:45,919 --> 00:02:50,280 Speaker 1: institutional investor and had been incredibly popular. I mean, everybody 51 00:02:50,360 --> 00:02:52,919 Speaker 1: Paul and I talked to in two was like, Man, 52 00:02:53,680 --> 00:02:58,160 Speaker 1: these markets are are too crazy. We're going to run 53 00:02:58,160 --> 00:03:00,560 Speaker 1: for the hills. The only thing we like is either credit. 54 00:03:01,880 --> 00:03:04,119 Speaker 1: So how's that turning out? How does that look this year? 55 00:03:05,600 --> 00:03:08,320 Speaker 1: It still continues to look really great. I'll talk to 56 00:03:08,360 --> 00:03:10,200 Speaker 1: you a little bit about some of the challenges you 57 00:03:10,200 --> 00:03:13,200 Speaker 1: could expect in private markets. But for the most part, 58 00:03:13,400 --> 00:03:16,639 Speaker 1: the private markets are holding their own and people continue 59 00:03:16,680 --> 00:03:19,280 Speaker 1: to invest in and continue to see net inflows month 60 00:03:19,320 --> 00:03:22,680 Speaker 1: over month. People want more stability, They want to get 61 00:03:22,680 --> 00:03:25,920 Speaker 1: away from the volatility in the public markets. They trust 62 00:03:25,919 --> 00:03:27,760 Speaker 1: the public markets for life, and it has to deliver 63 00:03:27,880 --> 00:03:30,640 Speaker 1: the returns for them that they want it or the stability, 64 00:03:30,680 --> 00:03:33,600 Speaker 1: whereas in the private market, for example, in private credit 65 00:03:33,680 --> 00:03:37,720 Speaker 1: or in real estate debt, you are often able to 66 00:03:37,760 --> 00:03:40,840 Speaker 1: invest in a sofa based or in a floater I 67 00:03:40,880 --> 00:03:43,680 Speaker 1: know that's a trigger word for you your last time, 68 00:03:43,720 --> 00:03:47,560 Speaker 1: I think you pulled the Caddy shock reference. But um, 69 00:03:47,640 --> 00:03:51,400 Speaker 1: if if you're invested in a floating rate product, then 70 00:03:51,400 --> 00:03:54,800 Speaker 1: you're going to continue to earn more as the ft 71 00:03:54,920 --> 00:03:58,520 Speaker 1: increases the rate. And so for the most part, the 72 00:03:58,640 --> 00:04:02,080 Speaker 1: alternative investment lands it has held its own and people 73 00:04:02,120 --> 00:04:06,400 Speaker 1: continue to invest more nuanced. Where you're seeing a shift 74 00:04:07,040 --> 00:04:11,640 Speaker 1: over the last twelve months is historically people were really 75 00:04:11,680 --> 00:04:14,720 Speaker 1: excited over the last number of years about private equity, 76 00:04:14,760 --> 00:04:18,000 Speaker 1: about venture about being growth opportunities, so I think of 77 00:04:18,120 --> 00:04:21,120 Speaker 1: longer duration and limited cash flow but a bigger return 78 00:04:21,200 --> 00:04:25,200 Speaker 1: in the future. Over the last number of months, investors 79 00:04:25,200 --> 00:04:29,680 Speaker 1: have shifted that appetite into shorter duration, cash flowing assets, 80 00:04:29,720 --> 00:04:32,880 Speaker 1: more credit based, less long term equity, and they were 81 00:04:32,920 --> 00:04:38,120 Speaker 1: able to distill access those investments through our platform. And 82 00:04:38,160 --> 00:04:41,160 Speaker 1: so we've shifted some of the demand as to where 83 00:04:41,160 --> 00:04:45,599 Speaker 1: we're investing more heavily to cater to what people really want. Hey, Matt, 84 00:04:45,720 --> 00:04:49,400 Speaker 1: you know, to the extent we do get a recession 85 00:04:49,720 --> 00:04:54,720 Speaker 1: in how concerning you about the private credit business as 86 00:04:54,760 --> 00:04:57,520 Speaker 1: you think about credit quality, how does that change maybe 87 00:04:57,520 --> 00:05:01,159 Speaker 1: how you think about that business. I'm very bullish on 88 00:05:01,160 --> 00:05:04,600 Speaker 1: the private credit business as it relates to credit quality. Obviously, 89 00:05:04,640 --> 00:05:08,520 Speaker 1: that's much more specific to the strategy. Within private credit. 90 00:05:08,960 --> 00:05:11,880 Speaker 1: We've mostly been focused on teen year secured or on 91 00:05:12,000 --> 00:05:15,560 Speaker 1: bridge lending UM that's imagining, but on a lower loan 92 00:05:15,600 --> 00:05:18,000 Speaker 1: to value basis. So when you look at our portfolio 93 00:05:18,120 --> 00:05:20,279 Speaker 1: or when you look at the partners that we do 94 00:05:20,360 --> 00:05:22,520 Speaker 1: business with, we feel really good about it. I think 95 00:05:22,560 --> 00:05:26,640 Speaker 1: where the recession starts to hit UM in a more 96 00:05:26,640 --> 00:05:30,440 Speaker 1: impactful way. Some of the private investments, for example, take 97 00:05:30,480 --> 00:05:33,600 Speaker 1: of real estate equity. So a lot of the investments 98 00:05:33,839 --> 00:05:37,479 Speaker 1: they have senior debt that could be on a floating rate. 99 00:05:37,560 --> 00:05:41,360 Speaker 1: And so for folks that don't have recaps, that becomes 100 00:05:41,360 --> 00:05:44,800 Speaker 1: a real issue because their cost of debt just skyrocketed. 101 00:05:45,279 --> 00:05:48,880 Speaker 1: Our portfolio has recaps, but they're gonna roll in twenty four, 102 00:05:49,560 --> 00:05:52,680 Speaker 1: l twenty three or early twenty four. And so if 103 00:05:52,680 --> 00:05:55,440 Speaker 1: you look at the forward curve today, you feel comfortable 104 00:05:55,480 --> 00:05:57,040 Speaker 1: saying Hey, by that time, you're going to be in 105 00:05:57,040 --> 00:05:59,560 Speaker 1: a better place and you'll be fine. People who are 106 00:05:59,600 --> 00:06:02,960 Speaker 1: dealing with expiring recaps now are going to have a 107 00:06:02,960 --> 00:06:05,640 Speaker 1: lot of trouble because the cost of that dead is 108 00:06:05,640 --> 00:06:08,359 Speaker 1: going to be way too expensive. All right, Michael, great stuff. 109 00:06:08,360 --> 00:06:11,520 Speaker 1: Always appreciate checking in with you. Michael Weiss's founder and 110 00:06:11,640 --> 00:06:17,320 Speaker 1: president of Yield Street talking about the credit markets. Lots 111 00:06:17,360 --> 00:06:21,400 Speaker 1: of eco data, lots of earnings, but also geopolitical issues 112 00:06:21,440 --> 00:06:23,840 Speaker 1: out there for the markets to take into accouncil. Let's 113 00:06:23,839 --> 00:06:26,440 Speaker 1: bring on Angela Stent, she's a senior fellow at the 114 00:06:26,480 --> 00:06:29,120 Speaker 1: Brookings Institute in Angela. Before we get to kind of 115 00:06:29,200 --> 00:06:33,480 Speaker 1: Russia Ukraine and what that means for just geopolitical tensions, 116 00:06:34,160 --> 00:06:35,560 Speaker 1: you know. The kind of the story that's just kind 117 00:06:35,560 --> 00:06:38,480 Speaker 1: of hitting the tape right now is the Justice Department 118 00:06:38,560 --> 00:06:41,840 Speaker 1: at President Biden's home in Rohoboth Beach, Delaware looking for 119 00:06:41,960 --> 00:06:45,560 Speaker 1: more documents. What's going on with these documents for a 120 00:06:45,600 --> 00:06:49,000 Speaker 1: lot of these senior level folks, Well, I think it 121 00:06:49,080 --> 00:06:52,040 Speaker 1: shows that we need a better system. When people leave 122 00:06:52,120 --> 00:06:55,400 Speaker 1: office and I guess it's the last days and everyone's 123 00:06:55,440 --> 00:06:59,000 Speaker 1: hwying around and packing things up, that clearly mistakes were 124 00:06:59,040 --> 00:07:01,719 Speaker 1: made us. So I think as a result of all 125 00:07:01,720 --> 00:07:04,359 Speaker 1: of this, and I guess, uh, they've now asked the 126 00:07:04,440 --> 00:07:06,919 Speaker 1: Justice Department has asked the you know, all of the 127 00:07:07,000 --> 00:07:10,160 Speaker 1: former presidents and vice presidents to make sure that they 128 00:07:10,160 --> 00:07:12,840 Speaker 1: don't have classified documents, that they'll have to have a 129 00:07:12,840 --> 00:07:15,960 Speaker 1: better way of dealing with it, because clearly the system 130 00:07:16,000 --> 00:07:20,120 Speaker 1: hasn't worked. How is the system working now? I mean, 131 00:07:20,640 --> 00:07:24,040 Speaker 1: the first documents were found November two, just before an election. 132 00:07:24,160 --> 00:07:27,800 Speaker 1: Fortunately for the Democrats, they didn't tell anybody until after 133 00:07:27,840 --> 00:07:31,080 Speaker 1: the mid terms. But it's been quite a while. They're 134 00:07:31,200 --> 00:07:35,480 Speaker 1: just searching his beach house now. Why, well, I guess 135 00:07:35,800 --> 00:07:38,320 Speaker 1: you know, it takes time for them, you know, their 136 00:07:38,360 --> 00:07:42,400 Speaker 1: procedures to uh, you know, to to get to all 137 00:07:42,440 --> 00:07:48,680 Speaker 1: the different places you know, where the presidents life is happening. Yeah, 138 00:07:49,040 --> 00:07:52,720 Speaker 1: they were scheduled. Yeah, I mean, everything's you know, it 139 00:07:53,280 --> 00:07:56,160 Speaker 1: takes time. But clearly, as I said, the system isn't 140 00:07:56,160 --> 00:07:58,480 Speaker 1: working properly and we need a better system. It's been 141 00:07:58,560 --> 00:08:01,160 Speaker 1: three months, by the way, three months. It's I think, 142 00:08:01,280 --> 00:08:02,520 Speaker 1: I don't know what's going on there. I guess the 143 00:08:02,520 --> 00:08:05,280 Speaker 1: government is busy, busy, busy, And let's switch gears and 144 00:08:05,280 --> 00:08:07,880 Speaker 1: get to the big issue that we want to discuss 145 00:08:07,920 --> 00:08:10,400 Speaker 1: with you, that's just kind of Ukraine and Russia. Can 146 00:08:10,440 --> 00:08:12,600 Speaker 1: you give us your thoughts. I mean, we're a year 147 00:08:13,040 --> 00:08:16,760 Speaker 1: into this, so much suffering by the folks of Ukraine. 148 00:08:16,800 --> 00:08:18,320 Speaker 1: Can you tell us kind of where we are and 149 00:08:18,640 --> 00:08:22,560 Speaker 1: how this might play out? So we're really, i would say, 150 00:08:22,600 --> 00:08:25,920 Speaker 1: at the moment, in a stalemate. The Ukrainians had made 151 00:08:26,040 --> 00:08:29,800 Speaker 1: some games in September and October, the Russians have pushedback. 152 00:08:29,880 --> 00:08:33,040 Speaker 1: There's fierce fighting going on still in the town called 153 00:08:33,040 --> 00:08:34,920 Speaker 1: bah Mood. If you look at pictures of it, it's 154 00:08:35,160 --> 00:08:39,840 Speaker 1: completely destroyed Um and we expect a new Russian offensive 155 00:08:40,120 --> 00:08:42,160 Speaker 1: sometime in the spring. We don't know when it's going 156 00:08:42,200 --> 00:08:44,960 Speaker 1: to be um And therefore, you know, the Ukrainians have 157 00:08:45,080 --> 00:08:48,840 Speaker 1: really been asking for more military assistance from the West. 158 00:08:49,120 --> 00:08:51,600 Speaker 1: So now you have the Germans, after a long debate, 159 00:08:52,160 --> 00:08:54,880 Speaker 1: saying that they will supply them with Leopard tanks, and 160 00:08:54,920 --> 00:08:58,680 Speaker 1: other European countries that have these German tanks, which top 161 00:08:58,720 --> 00:09:01,840 Speaker 1: of the line, will also supply by Ukraine. The Biden 162 00:09:01,880 --> 00:09:05,680 Speaker 1: and Registration has said we will send Abram's thanks to Ukraine, 163 00:09:05,720 --> 00:09:07,880 Speaker 1: but they may not get there. Till at least the 164 00:09:08,000 --> 00:09:10,720 Speaker 1: end of this year, um so. And now, of course 165 00:09:10,720 --> 00:09:14,240 Speaker 1: the Ukrainians are asking for more fighter jets, so there's 166 00:09:14,280 --> 00:09:18,160 Speaker 1: a big debate going on. So I think at this 167 00:09:18,240 --> 00:09:22,080 Speaker 1: point the Ukrainians need all the military assistance they can 168 00:09:22,200 --> 00:09:25,880 Speaker 1: get to push back against this new Russian offenses coming 169 00:09:25,880 --> 00:09:29,240 Speaker 1: along sometime in the next few months. But this could 170 00:09:29,240 --> 00:09:31,760 Speaker 1: go on, you know, for a very long time. There 171 00:09:31,880 --> 00:09:35,200 Speaker 1: is no uh sign at the moment that either side 172 00:09:35,679 --> 00:09:39,319 Speaker 1: is ready to sit down and talk about a peace negotiation. 173 00:09:39,640 --> 00:09:41,600 Speaker 1: I mean it could be if you look at what's 174 00:09:41,600 --> 00:09:45,200 Speaker 1: happened in Afghanistan and Vietnam, this could be something they're 175 00:09:45,200 --> 00:09:50,120 Speaker 1: engaged in for years, if not decades. Um is it 176 00:09:50,240 --> 00:09:53,040 Speaker 1: risky with a leader like Putin? I mean, he seems 177 00:09:53,080 --> 00:09:55,880 Speaker 1: like he has nothing to lose, either wins or he dies. 178 00:09:58,040 --> 00:10:00,960 Speaker 1: So this what's the concern about esca lation. And of 179 00:10:01,000 --> 00:10:03,440 Speaker 1: course the minute that the announcement was made about the 180 00:10:03,480 --> 00:10:06,959 Speaker 1: tanks for Russians threatened counter moves. On the other hand, 181 00:10:07,000 --> 00:10:10,000 Speaker 1: what they're trying to do is just intimidate everybody, the 182 00:10:10,120 --> 00:10:13,640 Speaker 1: Ukrainians and on all of their supporters to doing nothing 183 00:10:14,200 --> 00:10:17,600 Speaker 1: so that Russia can continue this war and essentially change 184 00:10:17,640 --> 00:10:19,600 Speaker 1: the government in Key of which they still want to 185 00:10:19,600 --> 00:10:22,640 Speaker 1: do and take over Ukraine. So I think we shouldn't 186 00:10:22,640 --> 00:10:25,840 Speaker 1: allow ourselves to be too intimidated by Putin, but I 187 00:10:25,880 --> 00:10:28,800 Speaker 1: think we have to recognize our risks there um, and 188 00:10:28,880 --> 00:10:31,440 Speaker 1: we have to warn the Russians as we're doing, of 189 00:10:31,480 --> 00:10:36,560 Speaker 1: the consequences of escalating this any further. Angela, do you 190 00:10:36,600 --> 00:10:39,520 Speaker 1: have a sense of the level of support that Mr. 191 00:10:39,559 --> 00:10:46,120 Speaker 1: Putin has within Russia itself of the people for this war. Sure? So. 192 00:10:46,240 --> 00:10:48,640 Speaker 1: The public opinion data that we have from the only 193 00:10:48,720 --> 00:10:55,120 Speaker 1: independent polling place is that about seventy of the people 194 00:10:55,160 --> 00:10:58,680 Speaker 1: who are in Russia support this war. Let's keep decent 195 00:10:58,760 --> 00:11:03,080 Speaker 1: of them, uh, support it more enthusiastically, the other maybe 196 00:11:03,160 --> 00:11:06,800 Speaker 1: less so. So the supporter is still there. As many 197 00:11:06,840 --> 00:11:10,600 Speaker 1: as a million Russians have left Russia, including a couple 198 00:11:10,600 --> 00:11:12,559 Speaker 1: of hundred thousands of young men who didn't want to 199 00:11:12,600 --> 00:11:15,280 Speaker 1: be mobilized. So those people don't support the war, but 200 00:11:15,320 --> 00:11:19,080 Speaker 1: they're ones who remained they do, or they're indifferent to it. 201 00:11:19,320 --> 00:11:22,559 Speaker 1: On the other hand, of the Russians also say that 202 00:11:22,600 --> 00:11:26,880 Speaker 1: there should be negotiations, but Putin has managed to persuade people, 203 00:11:26,920 --> 00:11:29,920 Speaker 1: particularly those people who only have access to state run 204 00:11:30,000 --> 00:11:32,800 Speaker 1: media that this is you know, the United States is 205 00:11:32,880 --> 00:11:35,800 Speaker 1: threatening Russia. This is a Russia a war of Russia 206 00:11:35,840 --> 00:11:39,280 Speaker 1: against the West, and Russia is going to defeat them. Angela. 207 00:11:39,840 --> 00:11:45,000 Speaker 1: You know, we see stories of Putin letting inmates out 208 00:11:45,000 --> 00:11:48,079 Speaker 1: of prison and putting them on the front lines. I mean, 209 00:11:48,960 --> 00:11:52,480 Speaker 1: it looks like they're just they have nothing left. How 210 00:11:52,480 --> 00:11:55,719 Speaker 1: long can they continue to go here? Well, I mean 211 00:11:55,720 --> 00:11:59,199 Speaker 1: the Russians can still continue to go on for some time. 212 00:11:59,559 --> 00:12:03,079 Speaker 1: So the the Mercenary Group Wagner, which isn't the regular 213 00:12:03,120 --> 00:12:07,720 Speaker 1: Ministry of Defense troops, they've been recruiting prisoners, murderers, rapists, etcetera, 214 00:12:07,960 --> 00:12:10,040 Speaker 1: and sending them to the front and many of those 215 00:12:10,040 --> 00:12:13,080 Speaker 1: people are getting killed, but they are you know, they 216 00:12:13,160 --> 00:12:16,800 Speaker 1: still have quite a lot of people that they can mobilize. Um, 217 00:12:17,040 --> 00:12:21,079 Speaker 1: they do have ammunition. They're getting stuff from the North Koreans, 218 00:12:21,120 --> 00:12:24,319 Speaker 1: They're getting drones from the Iranians. So the Russians can 219 00:12:24,360 --> 00:12:29,080 Speaker 1: continue going. They have a history of enduring uh these things. 220 00:12:29,200 --> 00:12:32,600 Speaker 1: And I think Putent's calculation is that in the end 221 00:12:33,000 --> 00:12:35,600 Speaker 1: the West will cave, that we will we won't have 222 00:12:35,679 --> 00:12:39,240 Speaker 1: the enthusiasm anymore for supporting Ukraine and that Russia will 223 00:12:39,240 --> 00:12:42,160 Speaker 1: be able to prevail Angela. I mean, I mean we're 224 00:12:42,160 --> 00:12:44,559 Speaker 1: speaking with Angela's a Stent, a senior fellow at the 225 00:12:44,559 --> 00:12:47,240 Speaker 1: Brooklyn Institute. Andrew you literally wrote the book on Mr. 226 00:12:47,280 --> 00:12:51,240 Speaker 1: Putin entitled Putin's World, Russia against the West and with 227 00:12:51,600 --> 00:12:54,080 Speaker 1: the Rest, and that want to Fletcher School of Law 228 00:12:54,120 --> 00:12:57,679 Speaker 1: and Diplomacy Prize for the best book on US Russian relations. 229 00:12:57,720 --> 00:13:01,320 Speaker 1: So how you know Mr Putin's well as anyone? How 230 00:13:01,360 --> 00:13:06,880 Speaker 1: did he miscalculate so badly? So? I think he was 231 00:13:06,960 --> 00:13:11,120 Speaker 1: only being given information that his intelligence services knew he 232 00:13:11,160 --> 00:13:14,320 Speaker 1: wanted to hear. So he was misinformed about the situation 233 00:13:14,360 --> 00:13:17,600 Speaker 1: in Ukraine. He thought the Ukrainians wouldn't fight back. He 234 00:13:17,720 --> 00:13:21,920 Speaker 1: was misinformed about the state of the Russian armed forces, 235 00:13:21,960 --> 00:13:24,439 Speaker 1: which of course have performed much worse than he thought 236 00:13:24,440 --> 00:13:27,920 Speaker 1: they would. And he was misinformed about the West. He 237 00:13:28,040 --> 00:13:30,840 Speaker 1: thought that the US wouldn't react. He looked at what 238 00:13:30,920 --> 00:13:34,319 Speaker 1: happened at the withdrawal from Afghanistan um and I think 239 00:13:34,720 --> 00:13:38,959 Speaker 1: he had two years of COVID isolation where he really 240 00:13:39,040 --> 00:13:41,840 Speaker 1: didn't meet any foreign leaders. And you know, he just 241 00:13:41,880 --> 00:13:44,720 Speaker 1: talked to a small group of people who reinforced all 242 00:13:44,720 --> 00:13:48,720 Speaker 1: of his ideas, all of his beliefs in paranoia. So 243 00:13:48,840 --> 00:13:52,360 Speaker 1: it's been a huge miscalculation. Um, and I think it's 244 00:13:52,400 --> 00:13:55,720 Speaker 1: just that he really wasn't given the information that he needed. 245 00:13:55,920 --> 00:13:59,640 Speaker 1: I mean, you're also a national intelligence officer for Russia 246 00:13:59,640 --> 00:14:02,480 Speaker 1: and your Asia at the National Intelligence Council. You were 247 00:14:03,280 --> 00:14:06,760 Speaker 1: a member of the senior advisory panel for James Traviti's 248 00:14:06,760 --> 00:14:12,080 Speaker 1: Admiral Astrivities, the Supreme Allied Commander in Europe UM, as 249 00:14:12,160 --> 00:14:16,040 Speaker 1: well as others. What's your take on the relationship between 250 00:14:16,120 --> 00:14:19,680 Speaker 1: Russia and especially Germany. You know, I lived in Berlin 251 00:14:19,760 --> 00:14:22,080 Speaker 1: for the last five years. You've written a book about 252 00:14:22,080 --> 00:14:24,600 Speaker 1: the West German relationship with Russia with the Soviet Union 253 00:14:24,720 --> 00:14:29,720 Speaker 1: before the fall um angela miracle, and the Germans decided 254 00:14:29,800 --> 00:14:33,200 Speaker 1: to put all their eggs in Vladimir Putin's basket, even 255 00:14:33,240 --> 00:14:37,240 Speaker 1: though the US administration asked them time and time again 256 00:14:37,280 --> 00:14:40,480 Speaker 1: to reconsider their reliance on that natural guess why do 257 00:14:40,520 --> 00:14:45,080 Speaker 1: you think they did that? And? Um, you know, what's 258 00:14:45,160 --> 00:14:48,400 Speaker 1: what's the relationship going to look like now? So they 259 00:14:48,440 --> 00:14:51,680 Speaker 1: had a strong belief for about fifty years that you know, 260 00:14:51,760 --> 00:14:55,440 Speaker 1: if you traded, if you had better economic relations with 261 00:14:55,720 --> 00:14:58,440 Speaker 1: first of all the Soviet Union and then post Soviet Russia. 262 00:14:58,720 --> 00:15:03,160 Speaker 1: If you imported that gass, that would somehow translate into 263 00:15:03,240 --> 00:15:07,200 Speaker 1: better political relationships too. And in fact, you know, fifty 264 00:15:07,280 --> 00:15:11,280 Speaker 1: years ago the Germans used this kind of economic relationship 265 00:15:11,360 --> 00:15:14,920 Speaker 1: incentives with the Soviet Union because you know, to try 266 00:15:14,960 --> 00:15:17,720 Speaker 1: and improve the situation with the East Germans. So that 267 00:15:17,800 --> 00:15:20,720 Speaker 1: was their belief. And then there's all of this historical 268 00:15:20,760 --> 00:15:24,720 Speaker 1: baggage that comes with it, the feelings of responsibility and 269 00:15:24,720 --> 00:15:27,440 Speaker 1: guilt for what happened in World War Two. Twenty seven 270 00:15:27,440 --> 00:15:31,160 Speaker 1: million Soviet citizens died, but of course those are Ukrainians 271 00:15:31,200 --> 00:15:34,120 Speaker 1: as well as Russians. Um. And there was a lot 272 00:15:34,120 --> 00:15:37,920 Speaker 1: of pressure from the business community on Angela Merkel for instance, 273 00:15:38,000 --> 00:15:42,120 Speaker 1: to continue these natural gas deals. Um. And they have 274 00:15:42,240 --> 00:15:45,880 Speaker 1: finally woke up on every four last year and realized 275 00:15:46,240 --> 00:15:49,520 Speaker 1: that all of these assumptions were wrong. And that's why 276 00:15:49,560 --> 00:15:52,440 Speaker 1: you had the speech from Chancellor Soaultz just a couple 277 00:15:52,480 --> 00:15:56,280 Speaker 1: of days after the invasion. UM. And I think German 278 00:15:56,280 --> 00:15:59,600 Speaker 1: policy has changed, you can see that of the provision 279 00:15:59,640 --> 00:16:02,440 Speaker 1: of the but there's still a lot of debate in 280 00:16:02,520 --> 00:16:05,240 Speaker 1: Germany about this. There's still a lot of Germans, all 281 00:16:05,280 --> 00:16:09,120 Speaker 1: the Germans who still think that Germany has this responsible 282 00:16:09,320 --> 00:16:12,000 Speaker 1: ability towards Russia. All right, Angela, great stuff. We wish 283 00:16:12,000 --> 00:16:13,360 Speaker 1: we had more time with you, but will certainly have 284 00:16:13,400 --> 00:16:16,400 Speaker 1: you back as the news warrants. Angela Stent, senior Fellow 285 00:16:16,440 --> 00:16:22,560 Speaker 1: of the Brookings Institute, giving us the latest on geopolitical issues. Matt, 286 00:16:22,560 --> 00:16:24,320 Speaker 1: we're talking about the FED. It's FED Day. But you 287 00:16:24,320 --> 00:16:26,760 Speaker 1: know what, you and I we don't know anything. So 288 00:16:26,800 --> 00:16:29,320 Speaker 1: sometimes we try to talk to smart people like Vince 289 00:16:29,360 --> 00:16:31,840 Speaker 1: Signarella because he talks to traders and things like that, 290 00:16:32,160 --> 00:16:34,720 Speaker 1: and that is very, very helpful. Well, let's just go 291 00:16:34,840 --> 00:16:36,640 Speaker 1: right to the Vince talk to traders about what they 292 00:16:36,680 --> 00:16:39,240 Speaker 1: want the FED to do. Yes, a lot, but let's 293 00:16:39,240 --> 00:16:40,760 Speaker 1: talk maybe more than what they think the FED is 294 00:16:40,760 --> 00:16:42,920 Speaker 1: actually going to do. But let's talk to somebody who 295 00:16:42,920 --> 00:16:46,800 Speaker 1: actually does it. Who actually is in the market. Georgia 296 00:16:47,040 --> 00:16:50,680 Speaker 1: joining us here in Bloomberg Interactive Broker Studios. Kat Trombone Trombone, 297 00:16:51,480 --> 00:16:54,200 Speaker 1: ka Bone, ketrim Bone. He's a CEO and head of 298 00:16:54,200 --> 00:16:57,680 Speaker 1: America's Trading at DWS Group. So George, you're in the market, 299 00:16:57,760 --> 00:17:00,200 Speaker 1: You're in the front lines. What do you here? What 300 00:17:00,240 --> 00:17:02,200 Speaker 1: are your traders telling you. What are your clients telling 301 00:17:02,240 --> 00:17:04,919 Speaker 1: you about what this FEDER reserve is going to do? Well? 302 00:17:04,960 --> 00:17:07,359 Speaker 1: I think they need to speak hawkish today. Quite frankly, 303 00:17:07,440 --> 00:17:08,920 Speaker 1: it needs to be some sort of a power of 304 00:17:09,000 --> 00:17:12,720 Speaker 1: pushback because the broader market is not believing what the 305 00:17:12,760 --> 00:17:15,600 Speaker 1: Fed is saying. Nuts, right, I mean, look at financial 306 00:17:15,600 --> 00:17:19,000 Speaker 1: conditions easing, your own financial conditions index and there's a 307 00:17:19,040 --> 00:17:24,679 Speaker 1: plug yourself, go on. The Bloomberg terminal is actually showing easing. 308 00:17:24,720 --> 00:17:28,080 Speaker 1: I mean, look at dollar weakness, look at multiples extending 309 00:17:28,320 --> 00:17:31,960 Speaker 1: towards eighteen and beyond, so that those easy conditions POW 310 00:17:32,119 --> 00:17:33,800 Speaker 1: is going to need to push back against. I can't 311 00:17:33,840 --> 00:17:36,240 Speaker 1: believe that the market is actually talking about our pricing 312 00:17:36,280 --> 00:17:38,720 Speaker 1: and two rate cuts this year, and I think that 313 00:17:38,720 --> 00:17:40,960 Speaker 1: that's that has to be a concern. He told you 314 00:17:41,240 --> 00:17:43,520 Speaker 1: are the market. I mean, I look at you, and 315 00:17:44,000 --> 00:17:46,040 Speaker 1: you are the market. You're out there, you're buying and 316 00:17:46,040 --> 00:17:48,720 Speaker 1: selling all day on behalf of your your clients. What 317 00:17:48,760 --> 00:17:51,120 Speaker 1: do you think that a trillion dollars and assets under 318 00:17:51,119 --> 00:17:53,680 Speaker 1: management that ws that's a lot of that's a lot 319 00:17:53,680 --> 00:17:55,360 Speaker 1: of money. That's a lot of money that that's more 320 00:17:55,359 --> 00:17:57,399 Speaker 1: than like the lotto. That's a lot of money. What 321 00:17:57,440 --> 00:17:59,280 Speaker 1: do you do? Like, so, what do you think the FED? 322 00:17:59,600 --> 00:18:02,119 Speaker 1: What's disconnect between the Fed we're gonna be hawkish and 323 00:18:02,320 --> 00:18:04,200 Speaker 1: the market that you trade in every day. That's saying 324 00:18:04,560 --> 00:18:07,320 Speaker 1: maybe some rate cuts momentum is hard to fight, is 325 00:18:07,359 --> 00:18:10,200 Speaker 1: what it tells you. And it's also painful, uh, staying 326 00:18:10,240 --> 00:18:13,760 Speaker 1: in cash and watching the market begrudgingly participate. I mean, 327 00:18:13,800 --> 00:18:15,960 Speaker 1: I think the early part of this year, especially in 328 00:18:15,960 --> 00:18:18,200 Speaker 1: fixed income, there's not been the amount of new issuance 329 00:18:18,200 --> 00:18:21,240 Speaker 1: that you've seen before. That's keeping or forcing spreads to 330 00:18:21,280 --> 00:18:24,120 Speaker 1: sort of stay in there and get reinvested again. And 331 00:18:24,160 --> 00:18:26,639 Speaker 1: I think that's gonna be a difficult balancing act for 332 00:18:26,680 --> 00:18:28,439 Speaker 1: the for the FED and for PAL. This is not 333 00:18:28,600 --> 00:18:31,120 Speaker 1: the time, you know, to support easy. You talk about 334 00:18:31,119 --> 00:18:33,880 Speaker 1: this at Jackson Hole especially, and this is the moment 335 00:18:33,960 --> 00:18:35,560 Speaker 1: he's going to have to building it in and have 336 00:18:35,640 --> 00:18:38,159 Speaker 1: a backbone. You know, we haven't talked about for a 337 00:18:38,200 --> 00:18:40,840 Speaker 1: while now. We're so focused on the terminal rate because 338 00:18:41,119 --> 00:18:44,240 Speaker 1: the market is pricing less, far less than the feds 339 00:18:44,760 --> 00:18:48,159 Speaker 1: um dot plot shows, and like you said, the markets 340 00:18:48,160 --> 00:18:51,240 Speaker 1: pricing and cuts in three. We haven't talked about QT 341 00:18:51,440 --> 00:18:53,639 Speaker 1: for a long time, and it feels like there's already 342 00:18:53,640 --> 00:18:57,719 Speaker 1: a liquidity issue out there. Is QT working. I mean, 343 00:18:57,760 --> 00:19:01,640 Speaker 1: we do see inflation coming down. It's working, but at 344 00:19:01,680 --> 00:19:04,240 Speaker 1: a at a I think where you're coming from, what 345 00:19:04,400 --> 00:19:07,640 Speaker 1: eight or nine trillions on the balance sheet itself, So 346 00:19:07,960 --> 00:19:10,120 Speaker 1: it's working, it's working at a lag. They're not actively 347 00:19:10,160 --> 00:19:13,320 Speaker 1: selling either, They're letting the balance sheet roll off. So 348 00:19:13,440 --> 00:19:17,040 Speaker 1: until I see mortgages actually being sold, I think it 349 00:19:17,200 --> 00:19:20,320 Speaker 1: continues to exist in the background, and maybe as financial 350 00:19:20,359 --> 00:19:23,040 Speaker 1: conditions do get tighter, or at least we hope or 351 00:19:23,080 --> 00:19:25,320 Speaker 1: this Powell hopes from here, how could they possibly get 352 00:19:25,359 --> 00:19:28,600 Speaker 1: tighter there one year? I guess high is the right 353 00:19:28,640 --> 00:19:30,760 Speaker 1: word to put it. You know, they haven't been this 354 00:19:30,840 --> 00:19:33,000 Speaker 1: loose and over twelve months. Correct, They're gonna need to 355 00:19:33,000 --> 00:19:35,439 Speaker 1: get higher otherwise we're going to have a problem. And 356 00:19:35,480 --> 00:19:37,560 Speaker 1: I'm not sure that the market is actually ready for 357 00:19:37,960 --> 00:19:40,920 Speaker 1: that CPI to either plateau and or creep up a 358 00:19:40,960 --> 00:19:42,840 Speaker 1: little bit. And I think that's when you start to 359 00:19:42,840 --> 00:19:44,920 Speaker 1: get back to the narrative a few months ago about 360 00:19:44,960 --> 00:19:47,920 Speaker 1: a terminal rate existing you know, well into five, call 361 00:19:47,960 --> 00:19:50,080 Speaker 1: it five and a half, or some economists even calling 362 00:19:50,119 --> 00:19:52,240 Speaker 1: for six. And I think that that will be something 363 00:19:52,240 --> 00:19:55,160 Speaker 1: to watch. By the way, we've already called out basically 364 00:19:55,200 --> 00:19:59,320 Speaker 1: three Bloomberg functions, right worp w I, r P go 365 00:20:00,040 --> 00:20:03,199 Speaker 1: and then fed space ball go, which shows you the 366 00:20:03,200 --> 00:20:06,159 Speaker 1: balance sheet. It's really cool. What do you screen for? 367 00:20:06,320 --> 00:20:07,919 Speaker 1: What do you look when you get to work in 368 00:20:07,920 --> 00:20:10,080 Speaker 1: the morning at DWS and you log in your name, 369 00:20:10,119 --> 00:20:14,240 Speaker 1: absolutely what you have to what do you what do 370 00:20:14,280 --> 00:20:17,679 Speaker 1: you look at? What's your dashboard look like? Well, I 371 00:20:17,720 --> 00:20:19,800 Speaker 1: can export my jump pad to you, I think my 372 00:20:19,920 --> 00:20:21,719 Speaker 1: launch pad and you're welcome to take a look at it. 373 00:20:21,760 --> 00:20:23,639 Speaker 1: But yeah, I mean it's those and it's it's a 374 00:20:23,680 --> 00:20:25,960 Speaker 1: bunch of other functions around currency. I mean the dollar 375 00:20:26,040 --> 00:20:28,879 Speaker 1: weakness that you've seen recently is meaningful and also adding 376 00:20:28,920 --> 00:20:31,680 Speaker 1: to that, we need some financial conditions, and obviously we're 377 00:20:31,680 --> 00:20:34,960 Speaker 1: a global asset manager, so certainly where European markets are, 378 00:20:35,160 --> 00:20:37,720 Speaker 1: it's crazy to see the foot see not one not 379 00:20:37,800 --> 00:20:39,879 Speaker 1: too far off of all time highs when you think 380 00:20:39,920 --> 00:20:42,879 Speaker 1: about where we were just six months ago and potentially 381 00:20:42,880 --> 00:20:45,320 Speaker 1: a cold winter and shortages and things alike, and that 382 00:20:45,400 --> 00:20:49,040 Speaker 1: to see those equity markets off is surprising. So it's 383 00:20:49,040 --> 00:20:51,520 Speaker 1: try to call them outperforming. I mean the CAC and 384 00:20:51,560 --> 00:20:55,320 Speaker 1: the decks, are up nine percent, the IBEX in Madrid 385 00:20:55,440 --> 00:20:57,800 Speaker 1: is up ten and a half percent. Those are NASDAC 386 00:20:57,880 --> 00:21:01,560 Speaker 1: numbers correct, and one wonders if there's that much more 387 00:21:01,640 --> 00:21:04,720 Speaker 1: room to go there, um from here, But you know, 388 00:21:04,760 --> 00:21:07,399 Speaker 1: it's a long year, and I would definitely exercise patient. 389 00:21:07,480 --> 00:21:09,760 Speaker 1: It does seem like everything that everyone forecast to happen 390 00:21:09,760 --> 00:21:12,520 Speaker 1: in three has already happened. By FED first, I think 391 00:21:12,560 --> 00:21:14,880 Speaker 1: we're already at your retargets. So what do you think 392 00:21:14,880 --> 00:21:16,800 Speaker 1: I mean these this first month of the year. Is 393 00:21:16,840 --> 00:21:19,399 Speaker 1: that a is this a technical snap back in some 394 00:21:19,480 --> 00:21:21,800 Speaker 1: of these asset classes, or is this the beginning of 395 00:21:21,800 --> 00:21:24,760 Speaker 1: a turnaround. I've been wondering the same thing about equities 396 00:21:24,800 --> 00:21:30,280 Speaker 1: because we've seen um, you know tech, we've seen consumer discretionary, 397 00:21:30,320 --> 00:21:34,520 Speaker 1: we've seen telecoms. They've been the best performers. Meanwhile, the 398 00:21:34,600 --> 00:21:40,520 Speaker 1: defensive UH industries, utilities and real estate, UM, they've been 399 00:21:40,960 --> 00:21:44,800 Speaker 1: the worst performers. So either this market has some real 400 00:21:45,560 --> 00:21:49,760 Speaker 1: UH bullish conviction or there's a lot of short covering 401 00:21:49,800 --> 00:21:52,200 Speaker 1: going on from all the tax haven selling that happened 402 00:21:52,200 --> 00:21:53,639 Speaker 1: at the end of last year. And you know a 403 00:21:53,640 --> 00:21:55,879 Speaker 1: lot about that, right um, And then get back in 404 00:21:56,000 --> 00:21:59,600 Speaker 1: this year, UM, I think it's a combination of, like 405 00:21:59,640 --> 00:22:02,080 Speaker 1: you said, tax law selling, r S I s being 406 00:22:02,080 --> 00:22:05,639 Speaker 1: incredibly stretched and technical levels being oversold. You look at 407 00:22:05,640 --> 00:22:08,480 Speaker 1: any indicator, bull bear indices, you could look lame half 408 00:22:08,480 --> 00:22:12,240 Speaker 1: a dozen. Everything was just incredibly barish and negative. And 409 00:22:12,359 --> 00:22:14,720 Speaker 1: you know, coming in this this year to start, um, 410 00:22:14,840 --> 00:22:17,600 Speaker 1: you know you're seeing systematic ct A demand. For sure, 411 00:22:17,640 --> 00:22:21,159 Speaker 1: you're seeing short covering, a declining VIX, lower than expecting 412 00:22:21,200 --> 00:22:24,440 Speaker 1: new issue activity and credit and all, and and quite frankly, 413 00:22:24,600 --> 00:22:27,160 Speaker 1: the move index or the rates index, there's another Bloomberg 414 00:22:27,359 --> 00:22:30,680 Speaker 1: function for you, um, you know, easing quite a bit 415 00:22:31,119 --> 00:22:33,200 Speaker 1: and also not helpful to the FED by the way. 416 00:22:33,280 --> 00:22:36,520 Speaker 1: And you know within that that narrative, it is creating 417 00:22:36,720 --> 00:22:38,879 Speaker 1: a good updraft here. And I believe very much on 418 00:22:38,920 --> 00:22:40,840 Speaker 1: a technical basis, as you start where you're going to 419 00:22:40,880 --> 00:22:43,919 Speaker 1: condext in equities eighteen x nineteen x. And this is 420 00:22:43,920 --> 00:22:46,680 Speaker 1: in a year where you know, earning his estimates earning 421 00:22:46,680 --> 00:22:49,280 Speaker 1: his growth are flat, quite frankly, from from here out, 422 00:22:49,320 --> 00:22:51,200 Speaker 1: and that's not even you know, that's including energy take 423 00:22:51,280 --> 00:22:53,200 Speaker 1: energy out. The picture gets much more oblique. So you're 424 00:22:53,200 --> 00:22:54,920 Speaker 1: really paying a premium right now. So we have three 425 00:22:54,920 --> 00:22:59,639 Speaker 1: more hours right until the Fed. Um, let's wrap it up. 426 00:22:59,680 --> 00:23:03,879 Speaker 1: What are expect from Jerome Powell today? To walk a 427 00:23:03,920 --> 00:23:07,200 Speaker 1: tight rope but still after lean hawkish? If you're the Fed, 428 00:23:07,280 --> 00:23:09,080 Speaker 1: this is not what you want to see right now, 429 00:23:09,520 --> 00:23:12,960 Speaker 1: um at all? And easing of financial conditions with more 430 00:23:12,960 --> 00:23:16,520 Speaker 1: more room to go as far as disinflation, so they 431 00:23:16,520 --> 00:23:19,720 Speaker 1: have more work to do. They cannot afford to give 432 00:23:19,800 --> 00:23:22,920 Speaker 1: show any weakness right now. So what are your traders 433 00:23:22,960 --> 00:23:25,639 Speaker 1: on your desk at DWS. You're down at fifty second Street, 434 00:23:25,680 --> 00:23:28,359 Speaker 1: third Avenue. Come visit us? Yeah? Absolutely, well you can 435 00:23:28,359 --> 00:23:29,879 Speaker 1: come visit us because you're so close. What do they 436 00:23:29,880 --> 00:23:31,200 Speaker 1: do on a day like today? They? What did they 437 00:23:31,240 --> 00:23:35,040 Speaker 1: just calm down until two o'clock? The positioning is light 438 00:23:35,119 --> 00:23:36,960 Speaker 1: going into this, yeah, right, So you don't want to 439 00:23:37,040 --> 00:23:40,640 Speaker 1: front run this too much because of expected surprises or 440 00:23:40,720 --> 00:23:42,320 Speaker 1: or something that can come out of left fields. Get 441 00:23:42,359 --> 00:23:44,600 Speaker 1: some more coffee, throwing a fat lip, and just chill 442 00:23:44,800 --> 00:23:47,000 Speaker 1: until two. It's almost as if you have cameras on 443 00:23:47,040 --> 00:23:50,800 Speaker 1: our desk. That's exactly. Hey, you guys are our global firm, 444 00:23:50,840 --> 00:23:53,560 Speaker 1: as you mentioned thirty seconds, what do you mean what 445 00:23:53,880 --> 00:23:55,480 Speaker 1: do you take away from China reopening? How does that 446 00:23:55,520 --> 00:23:57,560 Speaker 1: play into what what you guys are looking at. Sure 447 00:23:58,760 --> 00:24:01,600 Speaker 1: it's gonna be net positive to both em and global growth, 448 00:24:01,680 --> 00:24:04,280 Speaker 1: and i'd expect pent up demand at least initially to 449 00:24:04,320 --> 00:24:06,879 Speaker 1: really come to the four. So it is an opportunity. 450 00:24:06,920 --> 00:24:09,000 Speaker 1: I think everyone's underweight this country. If you look back 451 00:24:09,040 --> 00:24:12,120 Speaker 1: six months ago to what we're discussing earlier, everyone said 452 00:24:12,119 --> 00:24:14,200 Speaker 1: get out right now you're seeing a kind of rush 453 00:24:14,280 --> 00:24:17,520 Speaker 1: back in, and I would just sort of be careful. 454 00:24:17,560 --> 00:24:19,880 Speaker 1: The property sector is still an issue there as well, 455 00:24:19,920 --> 00:24:22,120 Speaker 1: so you you want to you want to certainly consider it, 456 00:24:22,200 --> 00:24:25,200 Speaker 1: but not push all in. Yep, alright, good stuff. George 457 00:24:25,320 --> 00:24:28,800 Speaker 1: countrom Bone, catrom Bone CEO. That did pretty well. Then 458 00:24:28,920 --> 00:24:32,480 Speaker 1: catrom Bone, you just say it like it's spelled bone 459 00:24:33,680 --> 00:24:36,480 Speaker 1: CEO and head of America's trading at DWS, which stands 460 00:24:36,480 --> 00:24:40,840 Speaker 1: for Deutsche Very Papiers Bettylisten, all right, it's the asset 461 00:24:40,880 --> 00:24:43,639 Speaker 1: management business of Deutsche Bank. They got like almost a 462 00:24:43,680 --> 00:24:46,399 Speaker 1: trillion dollars assets under management. Georgia's it's a few blocks 463 00:24:46,400 --> 00:24:50,359 Speaker 1: away from us here on Third Avenue in midtown Manhattan. 464 00:24:52,760 --> 00:24:56,359 Speaker 1: Here's a really really interesting conversation. It's something it's a 465 00:24:56,400 --> 00:24:58,679 Speaker 1: topic I think about a lot which is water. You 466 00:24:58,760 --> 00:25:00,919 Speaker 1: think there's a lot of it around, but there really 467 00:25:01,000 --> 00:25:03,399 Speaker 1: isn't and so I love thinking about it, talking about 468 00:25:03,440 --> 00:25:06,919 Speaker 1: the the concept of water, the as an asset or 469 00:25:06,920 --> 00:25:11,000 Speaker 1: resource and as a business opportunity. Alexander Leukopolis he has 470 00:25:11,040 --> 00:25:14,159 Speaker 1: a partner a Science Water and Science Capital Management. He 471 00:25:14,240 --> 00:25:17,520 Speaker 1: joins us here in a Bloomberg Interactive Brooker Studio. Alexander 472 00:25:17,560 --> 00:25:20,400 Speaker 1: talked to us about water. How do you guys look 473 00:25:20,480 --> 00:25:23,359 Speaker 1: at water? What is it? What? What are you? What 474 00:25:23,400 --> 00:25:25,040 Speaker 1: are you doing? Sir, well, thank you for having me 475 00:25:25,040 --> 00:25:26,919 Speaker 1: in a great question And I get asked that all 476 00:25:26,920 --> 00:25:29,840 Speaker 1: the time because water, in my view is literally everywhere 477 00:25:29,880 --> 00:25:33,360 Speaker 1: but nowhere. Right. You can talk about water from the drought, 478 00:25:33,560 --> 00:25:36,520 Speaker 1: from too much water to little water, to blue water 479 00:25:36,640 --> 00:25:40,840 Speaker 1: to greenwater to yellow water. So it's literally very confusing 480 00:25:40,840 --> 00:25:43,119 Speaker 1: to make sense of it. Um. And on top of that, 481 00:25:43,240 --> 00:25:46,159 Speaker 1: water fits into everything that we do, from the clothes 482 00:25:46,200 --> 00:25:47,840 Speaker 1: we wear, to what we eat, to what we drink, 483 00:25:47,880 --> 00:25:50,760 Speaker 1: to the fact that we're s water, we're surrounded by it. 484 00:25:50,880 --> 00:25:54,320 Speaker 1: So um, the way we view water is uh to 485 00:25:54,440 --> 00:25:56,639 Speaker 1: be focused on it and to frankly be focused on 486 00:25:56,680 --> 00:25:58,520 Speaker 1: it and try to actually solve some of the problems 487 00:25:58,560 --> 00:26:01,240 Speaker 1: because when something seen is to be so confusing, it's 488 00:26:01,280 --> 00:26:04,000 Speaker 1: oftentimes very hard to actually solve it. And we currently 489 00:26:04,000 --> 00:26:05,920 Speaker 1: no water is a big problem. Certainly no water is 490 00:26:05,960 --> 00:26:08,159 Speaker 1: a big problem in the US. So the way we 491 00:26:08,280 --> 00:26:10,399 Speaker 1: view it is, let's focus on trying to solve some 492 00:26:10,440 --> 00:26:13,600 Speaker 1: of the big water issues in the US today, starting 493 00:26:13,600 --> 00:26:16,960 Speaker 1: with the infrastructure. How can you do that as a 494 00:26:17,680 --> 00:26:19,360 Speaker 1: you want to make money at the same time, Right, 495 00:26:19,400 --> 00:26:24,040 Speaker 1: you're not a charity or an NGO uh in in 496 00:26:24,040 --> 00:26:26,280 Speaker 1: the sense that you don't want to profit. How do 497 00:26:26,320 --> 00:26:29,720 Speaker 1: you invest in a way that I mean, you want 498 00:26:29,720 --> 00:26:32,720 Speaker 1: to do good for the world, but you want to 499 00:26:32,720 --> 00:26:35,280 Speaker 1: make money for your clients absolutely, And I think that's 500 00:26:35,320 --> 00:26:37,360 Speaker 1: what's interesting about what we do is that we are 501 00:26:37,880 --> 00:26:40,600 Speaker 1: a private sector needs to play a more important role 502 00:26:40,600 --> 00:26:43,000 Speaker 1: in infrastructure, needs to play a more important role in 503 00:26:43,000 --> 00:26:46,400 Speaker 1: industries like water that are very confusing for UH most 504 00:26:46,520 --> 00:26:48,439 Speaker 1: for many shareholders to solve on their own, And I 505 00:26:48,480 --> 00:26:51,280 Speaker 1: think private equity in particularly what we do actually brings 506 00:26:51,280 --> 00:26:52,879 Speaker 1: a lot of that together, a lot of those different 507 00:26:52,920 --> 00:26:56,120 Speaker 1: constituents and actually is a very big problem solver. So 508 00:26:56,400 --> 00:26:59,840 Speaker 1: we're able to make UH strong returns for our investors 509 00:26:59,880 --> 00:27:02,359 Speaker 1: and at the same time have impact in a sector 510 00:27:02,440 --> 00:27:04,919 Speaker 1: that is so desperately needed for that to happen. What 511 00:27:04,960 --> 00:27:06,640 Speaker 1: are the big businesses in that sector? Are we talking 512 00:27:06,640 --> 00:27:10,520 Speaker 1: about waste management? Um? Are we talking about sewage? Are 513 00:27:10,520 --> 00:27:15,040 Speaker 1: we talking about purification? What's so in our case, we're 514 00:27:15,119 --> 00:27:17,520 Speaker 1: talking a few of those. Number one is utilities. In 515 00:27:17,560 --> 00:27:20,800 Speaker 1: the US, we have eighty five thousand plus utilities. Many 516 00:27:20,840 --> 00:27:23,080 Speaker 1: of them are actually private and small, which many people 517 00:27:23,119 --> 00:27:25,760 Speaker 1: don't understand, and it's a staggering statistics. In the UK, 518 00:27:25,840 --> 00:27:27,840 Speaker 1: as an example, you have close to thirty and most 519 00:27:27,840 --> 00:27:30,439 Speaker 1: of European countries, you have less than a hundred in 520 00:27:30,480 --> 00:27:32,320 Speaker 1: each of those countries. In the US and I repeat, 521 00:27:32,320 --> 00:27:35,040 Speaker 1: more than eighty five thousand, most of which are private. 522 00:27:35,119 --> 00:27:38,720 Speaker 1: So one of our strategies is rolling up small consolidated 523 00:27:38,720 --> 00:27:42,880 Speaker 1: water systems and giving these individuals better, cleaner water at 524 00:27:42,880 --> 00:27:45,760 Speaker 1: the right price, um. And that is both profitable and 525 00:27:45,800 --> 00:27:48,480 Speaker 1: impactful at the same time. So you're using scale to 526 00:27:48,600 --> 00:27:52,480 Speaker 1: improve the businesses of this incredibly fragmented industry. Right. So, 527 00:27:52,800 --> 00:27:57,159 Speaker 1: fragmentation and scale and operationally excellence across the board and 528 00:27:57,240 --> 00:27:59,879 Speaker 1: impact alright. So as a so that's kind of like 529 00:27:59,920 --> 00:28:04,119 Speaker 1: a business ownership framework. Market structure issue. Are there more fundamental? 530 00:28:04,160 --> 00:28:06,480 Speaker 1: What what is kind of the fundamental water problem in 531 00:28:06,520 --> 00:28:08,639 Speaker 1: the US? Don't have enough of it, don't have it 532 00:28:08,680 --> 00:28:11,200 Speaker 1: in the right places? Great question, and that's not one 533 00:28:11,240 --> 00:28:13,040 Speaker 1: you can answer because water is a very local issue. 534 00:28:13,119 --> 00:28:14,800 Speaker 1: Right We we sit here in New York City. We 535 00:28:14,840 --> 00:28:17,480 Speaker 1: have one of the oldest water treatment plants. It's municipally run, 536 00:28:17,600 --> 00:28:20,000 Speaker 1: it's probably got one of the largest tax spaces in 537 00:28:20,320 --> 00:28:22,480 Speaker 1: the world for a water system, and people in New 538 00:28:22,560 --> 00:28:24,200 Speaker 1: York get could clean water. The problem in New York, 539 00:28:24,280 --> 00:28:28,439 Speaker 1: as an example, is the is delicious. Is the aging infrastructure? Right? 540 00:28:28,520 --> 00:28:30,320 Speaker 1: The pipes. There's a pipe that how many pipes have 541 00:28:30,440 --> 00:28:33,680 Speaker 1: broken on les and fifty nine Street in the last year? Right? 542 00:28:33,720 --> 00:28:36,920 Speaker 1: That causes destruction. The piping infrastructure is old and degraded. 543 00:28:37,119 --> 00:28:38,920 Speaker 1: When you go and talk to our friends in l A, 544 00:28:39,080 --> 00:28:40,840 Speaker 1: they have a very different issue. They don't have enough 545 00:28:40,840 --> 00:28:42,880 Speaker 1: water because the water is not coming from like meat, 546 00:28:43,120 --> 00:28:46,200 Speaker 1: and it's dropping every day. So the issues with water 547 00:28:46,280 --> 00:28:48,760 Speaker 1: are very much local and made up of different markets, 548 00:28:48,760 --> 00:28:51,720 Speaker 1: so is oftentimes very hard to generalize, which again leads 549 00:28:51,720 --> 00:28:53,640 Speaker 1: me to the thing, which is it's very hard to 550 00:28:53,680 --> 00:28:56,040 Speaker 1: actually focus on problem. All right. Let me ask a, really, 551 00:28:56,280 --> 00:28:58,880 Speaker 1: as I've owned real estate in California for a long time, 552 00:28:58,960 --> 00:29:01,560 Speaker 1: and you sit there and talk about the drought every day. 553 00:29:01,680 --> 00:29:03,560 Speaker 1: In my twenty some odd years, there's only been a 554 00:29:03,600 --> 00:29:06,520 Speaker 1: couple of years when it hasn't been an official drought. UM. 555 00:29:06,560 --> 00:29:08,800 Speaker 1: And you stand there and I look out at the ocean, 556 00:29:08,880 --> 00:29:11,440 Speaker 1: I'm like, can't we isn't there a solution there somewhere? 557 00:29:11,520 --> 00:29:15,720 Speaker 1: Desalination is too hard and costly. Well, desalination in the US, 558 00:29:15,760 --> 00:29:18,600 Speaker 1: and it's specifically in California, is very costly. People have 559 00:29:18,640 --> 00:29:21,040 Speaker 1: done it, they've tried to do it, but it's not desalination. 560 00:29:21,040 --> 00:29:23,880 Speaker 1: I mean the reality is recycled water. UM. In the 561 00:29:23,960 --> 00:29:27,000 Speaker 1: US we recycle close to ten percent of our water UM. 562 00:29:27,040 --> 00:29:30,240 Speaker 1: Many many parts that need it desperately. Singapore, as an example, 563 00:29:30,680 --> 00:29:34,760 Speaker 1: is toilet to tap recycled water. They recycle Israel close 564 00:29:34,800 --> 00:29:38,280 Speaker 1: to ninety plus horc. That is, that is an expression 565 00:29:38,320 --> 00:29:42,120 Speaker 1: that in Singapore is sort of utilized. So recycling your 566 00:29:42,160 --> 00:29:45,600 Speaker 1: water UM, maybe not for consumption sort of drinking, but 567 00:29:45,680 --> 00:29:49,240 Speaker 1: for irrigation, for otherwise not I mean it sounds bad, 568 00:29:49,400 --> 00:29:51,320 Speaker 1: but at the end of the day, you just need 569 00:29:51,520 --> 00:29:53,600 Speaker 1: H two oh right, so you can pull that out 570 00:29:53,640 --> 00:29:55,600 Speaker 1: of whatever you have and you clean it and you 571 00:29:55,640 --> 00:29:57,800 Speaker 1: clean it better. And now with new technologies have been 572 00:29:57,920 --> 00:29:59,800 Speaker 1: around for a while. This isn't a technology game. We 573 00:29:59,840 --> 00:30:02,080 Speaker 1: don't need somebody to you know, it's not like sending 574 00:30:02,080 --> 00:30:05,240 Speaker 1: somebody to Mars here. These are solutions that have existed technologically. 575 00:30:05,560 --> 00:30:08,200 Speaker 1: It's really putting the puzzle together. Um. And this is 576 00:30:08,200 --> 00:30:10,680 Speaker 1: a great example in California. Yes, you can look at 577 00:30:10,680 --> 00:30:13,800 Speaker 1: the desalination didn't work. Too expensive. You know, you need 578 00:30:13,880 --> 00:30:18,120 Speaker 1: something that's more uh meaningful. Recycled reuse is another one 579 00:30:18,120 --> 00:30:20,400 Speaker 1: of those, which is why one of other platforms is 580 00:30:20,440 --> 00:30:23,520 Speaker 1: focusing on recycled reuse, mostly on the West Coast, where 581 00:30:23,560 --> 00:30:27,240 Speaker 1: the issue is the degrading infrastructure. It's the lack of water. 582 00:30:27,360 --> 00:30:30,360 Speaker 1: But recycled reuse helped solve that. When when when you 583 00:30:30,400 --> 00:30:32,920 Speaker 1: look at a city like I don't know, Phoenix for example, 584 00:30:33,080 --> 00:30:37,680 Speaker 1: Vegas in the middle of a desert, does that frustrate 585 00:30:37,680 --> 00:30:41,080 Speaker 1: you to see so much building infrastructure going into places 586 00:30:41,120 --> 00:30:43,640 Speaker 1: where there is no water and it just makes the 587 00:30:43,920 --> 00:30:48,440 Speaker 1: maybe the situation worse in general for the country. Frustrate you. 588 00:30:48,480 --> 00:30:52,160 Speaker 1: That's an opportunity for you money. Maybe at this point 589 00:30:52,160 --> 00:30:54,520 Speaker 1: everything excites me in water because there's so many there's 590 00:30:54,520 --> 00:30:56,959 Speaker 1: so many pockets of inefficiency. You mentioned another one. So 591 00:30:57,160 --> 00:30:59,080 Speaker 1: when you look at something like Phoenix, that's why you 592 00:30:59,120 --> 00:31:02,000 Speaker 1: need to up great systems. You need more infrastructure, you 593 00:31:02,040 --> 00:31:05,080 Speaker 1: need better infrastructure, you need more digital infrastructure, you need 594 00:31:05,120 --> 00:31:09,640 Speaker 1: more recycled reuse infrastructure. So I think um situations like 595 00:31:09,680 --> 00:31:12,760 Speaker 1: that present opportunities, and they present opportunities for people they 596 00:31:12,800 --> 00:31:15,600 Speaker 1: can put the puzzle pieces together. And again, starting with 597 00:31:15,640 --> 00:31:18,120 Speaker 1: your first conversation, why are we as a private capital 598 00:31:18,160 --> 00:31:20,760 Speaker 1: firm investing this is because we see our value add 599 00:31:20,840 --> 00:31:22,920 Speaker 1: in being able to pull that all together. It's not 600 00:31:22,960 --> 00:31:25,520 Speaker 1: going to be one technology that solves all the water issues. 601 00:31:25,720 --> 00:31:27,800 Speaker 1: It's not going to be one politician that waves a 602 00:31:27,800 --> 00:31:30,200 Speaker 1: trillion dollars into it, which they don't have, nor would 603 00:31:30,240 --> 00:31:32,160 Speaker 1: that even begin to solve it. Nor is it an 604 00:31:32,200 --> 00:31:34,840 Speaker 1: academic engineer. It's going to be a combination of all 605 00:31:34,880 --> 00:31:38,400 Speaker 1: of the above. And as a private participant, what's exciting 606 00:31:38,440 --> 00:31:40,000 Speaker 1: is to be able to bring all that together, but 607 00:31:40,120 --> 00:31:42,640 Speaker 1: do it actionably at a local level. So in the 608 00:31:42,760 --> 00:31:44,680 Speaker 1: U S, So, how has your performance been. I mean 609 00:31:44,760 --> 00:31:48,200 Speaker 1: you went to George and went to M I. T. H. 610 00:31:48,360 --> 00:31:51,320 Speaker 1: Then took that to JP Morgan where you learned M 611 00:31:51,360 --> 00:31:53,640 Speaker 1: and A the M and A business. Now you're putting 612 00:31:53,640 --> 00:31:56,360 Speaker 1: it to use to make money. How have you done so? Yeah, 613 00:31:56,400 --> 00:31:59,479 Speaker 1: it wasn't certainly not a straight line. UM. Put it's 614 00:31:59,480 --> 00:32:01,600 Speaker 1: a good use. Because we started at Science Capital, we've 615 00:32:01,640 --> 00:32:04,080 Speaker 1: been doing mid market investing for a long time UM, 616 00:32:04,360 --> 00:32:06,480 Speaker 1: so we learned sort of how to work with middle 617 00:32:06,520 --> 00:32:08,719 Speaker 1: market companies, which in the water space, as we know, 618 00:32:09,000 --> 00:32:12,600 Speaker 1: it's mostly middle market companies UM, including the recent merger 619 00:32:12,640 --> 00:32:15,040 Speaker 1: of the two of the largest players UM just last week. 620 00:32:15,040 --> 00:32:17,520 Speaker 1: But it's made up of middle market players. So utilize 621 00:32:17,560 --> 00:32:20,920 Speaker 1: that skill set plus the skill set of real asset investing, 622 00:32:20,960 --> 00:32:24,880 Speaker 1: where we invest sort of in between infrastructure and private equity, utilities, 623 00:32:25,160 --> 00:32:28,520 Speaker 1: recycled reuse plants. So utilize that framework to then apply 624 00:32:28,560 --> 00:32:31,200 Speaker 1: it to one singular sector, which was water. And the 625 00:32:31,280 --> 00:32:33,960 Speaker 1: interesting thing about water was it took us many years 626 00:32:33,960 --> 00:32:37,000 Speaker 1: of research to begin to make actionable investments. And I 627 00:32:37,000 --> 00:32:39,560 Speaker 1: think once you have a combination of all that UM, 628 00:32:39,600 --> 00:32:41,680 Speaker 1: I think the opportunity set and the returns are there. 629 00:32:41,680 --> 00:32:44,680 Speaker 1: Because the market is so inefficient and fragmented, and our 630 00:32:44,760 --> 00:32:47,880 Speaker 1: value add becomes your local you're just a couple bucks away. 631 00:32:47,920 --> 00:32:49,280 Speaker 1: That means we're getting this guy back, because I got 632 00:32:49,320 --> 00:32:52,520 Speaker 1: him a million more questions here, both on just kind 633 00:32:52,520 --> 00:32:54,719 Speaker 1: of the water issue, how to make money, who are 634 00:32:54,800 --> 00:32:57,640 Speaker 1: investors are? All that kind of good stuff. Alexander Locopolis, 635 00:32:57,640 --> 00:33:01,680 Speaker 1: he's a partner at Science Water and Science its capital management. Uh, 636 00:33:01,720 --> 00:33:03,760 Speaker 1: talking about a topic that you know, we don't talk 637 00:33:03,760 --> 00:33:06,280 Speaker 1: about a lot, but water issues in this country and 638 00:33:06,440 --> 00:33:10,000 Speaker 1: in a global basis really really big issues going forward. 639 00:33:10,440 --> 00:33:13,560 Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can 640 00:33:13,560 --> 00:33:17,360 Speaker 1: subscribe and listen to interviews of Apple Podcasts or whatever 641 00:33:17,440 --> 00:33:21,080 Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter 642 00:33:21,360 --> 00:33:25,200 Speaker 1: at Matt Miller three. On Fall Sweeney, I'm on Twitter 643 00:33:25,240 --> 00:33:28,040 Speaker 1: at pt Sweeney. Before the podcast. You can always catch 644 00:33:28,160 --> 00:33:29,960 Speaker 1: us worldwide at Bloomberg Radio