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Speaker 2: She's more important than the Secretary of Treasury. Constance Hunter
Speaker 2: joins now from EIU Concerts, you take your inflation guestimate
Speaker 2: to two decimal points? Can you do that? Can we
Speaker 2: actually guess to two decimal points on a change in inflation?
Speaker 3: Well, you bring up a really great point, Tom, And
Speaker 3: especially with regards to goods, what we've discovered is that
Speaker 3: we really don't know the price elasticity of demand of
Speaker 3: a number of these goods that are going to be impacted.
Speaker 3: So we're triangulating all sorts of different data sources and
Speaker 3: really kind of trying to get under the hood. But
Speaker 3: your point is well taken, right, What is even the
Speaker 3: point of going out to two decimal points if you, uh,
Speaker 3: if you have this level of uncertainty. Nevertheless, we try
Speaker 3: to be as precise as possible so we can learn
Speaker 3: from action.
Speaker 2: Do you see substitution of products going on because of tariffs.
Speaker 3: Oh absolutely, I mean, and I think what will be
Speaker 3: interesting to see is is again how price sensitive are
Speaker 3: consumers once these price increases really start to feed through.
Speaker 3: Let's remember we had an extraordinary amount of front loading
Speaker 3: in the in the beginning of the year and really
Speaker 3: at the end of the fourth quarter last year, where
Speaker 3: consumers pre bought and suppliers pre bought ahead of these tears, right,
Speaker 3: and so we're still waiting for that pig in the
Speaker 3: python to move its way through Constince.
Speaker 4: What do you think we'll see that? Is that something
Speaker 4: that we're going to see maybe today or we're not
Speaker 4: going to see any inflation impact if there is any,
Speaker 4: and a lot of folks say that there may not.
Speaker 4: Is that something that we may have to wait to
Speaker 4: the fall to see maybe in the data.
Speaker 2: You know.
Speaker 3: I think you're right, Paul. I think it's I think
Speaker 3: it's taking a lot longer. And what we see from
Speaker 3: some alternative sources like Cavallo for example, which really it
Speaker 3: does work on real time prices and they gather information
Speaker 3: from four different retailers. We can guess who some of
Speaker 3: those retailers are Amazon, Walmart. And when you think about
Speaker 3: Amazon and the tros of PhD economists they have working
Speaker 3: on how to price goods, right, they probably have better
Speaker 3: information about the price elasticitute than anybody else right now
Speaker 3: in the US economy. And what they show is actually
Speaker 3: that domestic prices, while they increase in the beginning, have
Speaker 3: really leveled off. So domestic suppliers are aware of that
Speaker 3: price sensitivity, I think, and are keeping their prices competitive
Speaker 3: so that they can gain market share.
Speaker 2: Cons it's just to get narrow here. Forty five seconds.
Speaker 2: Auto insurance is three percent of our inflation picture. Is
Speaker 2: there anybody listening who's paying less and auto insurance? I
Speaker 2: don't think so.
Speaker 3: Constance, No, And you talked earlier about all the flash
Speaker 3: floods and rain that you know, the New York area
Speaker 3: experienced over the last twenty four hours, and that destroys automobiles.
Speaker 3: If you get stuck in a flash flood, your car
Speaker 3: is totaled, right, And so we look at the incidents
Speaker 3: of perils and they're increasing, and then what happens is
Speaker 3: that that gets transferred to the entire auto market. Right,
Speaker 3: everybody auto insures price so that they make up losses
Speaker 3: in areas where they're experiencing higher catastrophes.
Speaker 2: We're trying to give constance thirty two seconds here to
Speaker 2: look at.
Speaker 5: The Yeah, plenty of.
Speaker 2: You in the ninety second glance. You've had Constance. What
Speaker 2: do you see.
Speaker 3: Well, it's not showing up in goods, right if you
Speaker 3: go to the commodities less food and energy. You're not
Speaker 3: seeing it in apparel, which was down month over month.
Speaker 3: You're not seeing it in new vehicles, which you know
Speaker 3: it was also down. Used cars and trucks have a
Speaker 3: little more complicated pricing in them. Medical care commodities were
Speaker 3: up zero point six month over month, but you're.
Speaker 2: Really not seeing it.
Speaker 3: Tobacco and smoking products are up zero point eight, but
Speaker 3: I don't know if that constitutes a trend. And I
Speaker 3: you know, I don't know how much we import of.
Speaker 2: The dancer is before we let you go, I don't
Speaker 2: mean to interrupt, but this is too important. After hearing
Speaker 2: from bestent than Hunter, the President's going to come out
Speaker 2: and say, show me the inflation in tariffs.
Speaker 3: Right, of course he is, Yes, that's that is the issue,
Speaker 3: and the reality is it is not in the current data.
Speaker 3: We do know, of course, that inflation is somewhat of
Speaker 3: a lagging indicator.
Speaker 4: Right.
Speaker 3: If you're a firm, You're going to wait as long
Speaker 3: as you can to raise prices because you don't want
Speaker 3: to lose market share. So we just need to keep
Speaker 3: in mind this is a lagging indicator.
Speaker 4: Is there a scenario where the companies actually buy and
Speaker 4: large do ticket in the margin and we don't see
Speaker 4: it necessarily at the consumer level. Is that a scenario.
Speaker 4: I know a lot of folks are suggesting that might
Speaker 4: be the case.
Speaker 3: Well, there was an interesting article I think it was
Speaker 3: in the Wall Street Journal from my morning scan of
Speaker 3: the news how Levi's is reducing the number of skews
Speaker 3: in order to manage their costs so that they don't
Speaker 3: have to pass on the price increases, right, So they're
Speaker 3: reducing the variety of things that they're producing. And so
Speaker 3: I think firms are really you know, when you think
Speaker 3: about the data and analytics that's been deployed over the
Speaker 3: last six years in companies have a lot more capacity
Speaker 3: to control their supply chain and to control their product mix.
Speaker 3: And we're seeing some of that protivity game from that
Speaker 3: those data enhancements coming to bear as firms try to
Speaker 3: manage through this keas.
Speaker 2: So thank you so much, just wonderful to have you
Speaker 2: here at eight thirty for the National inflation for a
Speaker 2: constance hunter with Ei.
Speaker 1: You you're listening to the Bloomberg Surveillance podcast. Catch us
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Speaker 2: We turned to banks. It's been a helter skelter today
Speaker 2: with the Treasury Secretary. This is a more important conversation
Speaker 2: for Global Wall Street. Allison Williams joins us with Bloomberg Intelligence. Allison,
Speaker 2: the way I read it as a complete hack is
Speaker 2: we go there's four big banks. No, there's JP Morgan
Speaker 2: and there's these three other banks. Am I off the mark?
Speaker 6: Well, there's JP Morgan. I always say covering JP Morgan
Speaker 6: is like covering you know, four big companies, right, or
Speaker 6: you know, depending on how they they've done their division.
Speaker 6: I guess it's three big companies now, so you know,
Speaker 6: really the net interest income guidance very strong, about six
Speaker 6: hundred million upside to the course shy sick.
Speaker 2: I went back and forth with Valerie Titell London. They
Speaker 2: did a tangible equity of twenty percent plus. Am I right?
Speaker 2: City Groups half that.
Speaker 6: Uh, you are right, I mean if you look at
Speaker 6: you know, so if you look at City Group, it's
Speaker 6: a very different story. Right. So City Group is still
Speaker 6: in a story of transition. We've been talking about that transition,
Speaker 6: as we say, ever since Sandy built the house. It's
Speaker 6: been being taken apart. And I think Jane Fraser is
Speaker 6: making a lot of tough decisions there and really solid
Speaker 6: quarter out of City Group as well. You know, they're
Speaker 6: upping their net interesting income guidance. They're fixed income trading
Speaker 6: up twenty percent, so that's a that you know, JP
Speaker 6: Morgan and Wells were up thirteen to fourteen percent. You know,
Speaker 6: City Group has an amazing rates and currencies trading business,
Speaker 6: as you know, Paul, and that is really where the
Speaker 6: strength is this quarter. That's where the volatility is and
Speaker 6: they are really executing in that business. Again, Corn at
Speaker 6: interest income going up for both of those banks. Wells
Speaker 6: Fargo a little softer, but Wells Fargo is looking at
Speaker 6: the overall number. Keep in mind that there is corenet
Speaker 6: interest income and then there's a number that includes trading.
Speaker 6: And so the trading that interest income tends to be
Speaker 6: off set in fees. I think, but from a headline perspective,
Speaker 6: people are sort of going to be less positive on
Speaker 6: those Wells Fargo results. Wells Fargo also not getting this
Speaker 6: huge benefit. So as I said, they saw some growth
Speaker 6: and fixed income trading, but well, you know JP Morgan
Speaker 6: and City much stronger in those businesses. JP Morgan delivering
Speaker 6: a billion dollars of upside in their trading and fee
Speaker 6: you I haven't done the calculation yet for our City group,
Speaker 6: but the trends also better for City are.
Speaker 4: What are the banks saying about loan origination? Are they
Speaker 4: writing loans? We're just talking to christ Van seen us
Speaker 4: at all relinement about private credit, and I just think
Speaker 4: back to my Chase Manhattan days.
Speaker 2: We were killing it.
Speaker 4: They're on the leverage loan business, making money upfront, making
Speaker 4: money on the spread, syndicating by risk out to every
Speaker 4: other bank around the country. What are they making loans
Speaker 4: these days?
Speaker 6: So they are making loans, I mean you know that
Speaker 6: that the card business, which is probably not your concern
Speaker 6: back then or now, but the card business is very
Speaker 6: profitable for these banks and that's where the loan growth
Speaker 6: has been. And again that's benefiting City and JP Morgan.
Speaker 6: We have seen a little bit of pickup in the
Speaker 6: commercial numbers in uh, you know, in the FED data.
Speaker 6: We're going to hear what Bank America says tomorrow on that.
Speaker 6: I think with regard to privates, you know, it is
Speaker 6: a change. But I think if you look at, for example,
Speaker 6: Goldman's business, So Paul, you know Goldman, you know their
Speaker 6: merchant banking business. You know that they, you know, back
Speaker 6: in the day, made a lot of money from making
Speaker 6: these proprietary investments. Vulgar rule came along and said, please
Speaker 6: don't do that on your balance sheet. By the way,
Speaker 6: investors don't like the balance sheet, right because when you
Speaker 6: make those kind of investments and you're recording gains, people
Speaker 6: don't really give you a lot of credit because they
Speaker 6: view them as violatil et cetera. But you have someone
Speaker 6: like Goldman who's now said I'm going to be an
Speaker 6: alternative asset manager, and now instead of putting my balance
Speaker 6: sheet we're at risk, I'm gonna take the client's money
Speaker 6: so and I'm going to earn fees. And investors like that.
Speaker 6: They like asset management. It's a high multiple business and
Speaker 6: so it's a higher return on equity business. And that's
Speaker 6: been a long term story at Goldman. So I think
Speaker 6: the banks are fine, and so that's a Goldman specific
Speaker 6: but I think all the banks are doing that.
Speaker 2: Okay, I want to go to the gossip of the moment.
Speaker 2: Folks on the Hampton's over a beverage for choice. Allison
Speaker 2: Williams is getting hammered by fancy people over the reorg
Speaker 2: under Mary Erdos at JP Morgan. First of all, I'm
Speaker 2: going to say they're the most successful bank asset manager,
Speaker 2: the only one really competing with black Rock and the others.
Speaker 2: So Mary's built a franchise and now they're saying geography
Speaker 2: doesn't matter anymore. The Wall Street Journal had this great
Speaker 2: summary of it. Explain to us how JP Morgan and
Speaker 2: Mary Erdos is blowing up asset management private wealth.
Speaker 6: Well, I think that you know, Mary Aerdos is first
Speaker 6: and foremost thoughtful about the talent across her business, and
Speaker 6: you know, is consistently talking about the strength they have
Speaker 6: as an active manager. But one of the more interesting
Speaker 6: things that Eric Belchunis is, as you know, who's the
Speaker 6: expert on eats, has been talking about, is that they
Speaker 6: are really gaining share in the active etf business and
Speaker 6: so so that's not your that's not your question, but
Speaker 6: that is something that I want to highlight that I
Speaker 6: think is something happening.
Speaker 2: We're in a bull market, they're minting more money than God,
Speaker 2: and JP Morgan is saying, we got a problem. We
Speaker 2: got to blow up private Wealth Management. Why are they
Speaker 2: blowing it up and what's the goal?
Speaker 6: Well, again, I don't know. I think that Mary Erdos
Speaker 6: is a very thoughtful leader, and I think that again,
Speaker 6: it's it's sort of like as we're as we're going
Speaker 6: through the future. We've been through a long period of
Speaker 6: what we call us exceptionalism. But I think that JP
Speaker 6: Morgan has always focused on the world at large, focused
Speaker 6: on emerging markets, focused on these different growth opportunities, and
Speaker 6: I think it's just a way and by the way,
Speaker 6: JP Morgan, I think is always as I alluded to earlier,
Speaker 6: you know, looking at things differently. When you're a global organization,
Speaker 6: you have products and you have regions. I think sometimes
Speaker 6: you have to find a way to focus on both.
Speaker 6: And again I just I go back to the fact
Speaker 6: that they're very focused on talent, and I think that
Speaker 6: you know, they're thoughtful about the way they run their business.
Speaker 4: We're seeing so many good results coming out of these
Speaker 4: US global banks. It just makes me think next week
Speaker 4: we're going to hear from the European banks and they're
Speaker 4: just nowhere, nowhere relative to where the US banks are.
Speaker 4: When will Europe say we need to allow consolidation here?
Speaker 4: I mean, they fall so far behind every single year,
Speaker 4: it seems is it.
Speaker 2: Not an issue for them?
Speaker 5: They do?
Speaker 6: And I think that. I mean, I think the biggest
Speaker 6: change Paul over the last you know, let's let's call
Speaker 6: it a decade or a couple of decades, right time flies,
Speaker 6: is that you know, first of all, the US has
Speaker 6: benefited from a virtuous cycle of having sort of a
Speaker 6: better economy for a long period of time. But really,
Speaker 6: you know, they've they've been from the virtuous cycle of investment.
Speaker 6: They had the money to invest, they invested the money,
Speaker 6: so that's led to better revenue, better market share, et cetera.
Speaker 6: Whereas I think for the Europeans, you know, they try
Speaker 6: to sort of cut their way to profitability and that
Speaker 6: ended up you know, as you know, investment, banking and
Speaker 6: trading these are not businesses where you should go bargain shopping, right,
Speaker 6: and so I think that they didn't invest that hurt them.
Speaker 6: They've had to exit businesses, et cetera. But it's difficult
Speaker 6: because each of the everyone agrees we really should consolidate,
Speaker 6: merge some of the best ones together. But no one
Speaker 6: wants to be the seller. Everyone wants to be the buyer.
Speaker 6: Everybody wants the champion in their home market. That's that's
Speaker 6: the difficulty.
Speaker 2: Are we at the point where the shock of that
Speaker 2: later this year quickly here Allison, as we get one
Speaker 2: big industry roll up because they find price, and as
Speaker 2: the sellers say enough, let's go.
Speaker 6: I mean, you know, we could have had this conversation
Speaker 6: fourteen a million.
Speaker 5: You know, I just.
Speaker 6: Think that those political sensitivities, it's it's very difficult and
Speaker 6: it's hard to say whatever would would change their mind
Speaker 6: makes that makes sense on paper, you know, politics get
Speaker 6: in the way.
Speaker 2: Ten seconds tomorrow, Golden Sacks, Morgan Stanley, they do better than.
Speaker 6: Good I you know, based on the training and feed
Speaker 6: members we saw today, based on all the trends we
Speaker 6: saw in the quarner, we think that it's going to
Speaker 6: be a solid quarter for trading. We're going to want
Speaker 6: to hear what their what their CEO clients are saying
Speaker 6: in regard to the thank you.
Speaker 2: So much for this brief, particularly on you know where
Speaker 2: we are on the reorg of JP Morgan in private management,
Speaker 2: and of course over to the other banks, particular City Bank.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: The private credit here with Hu von Steinas. Paul's going
Speaker 2: to bring that in, but I got to first do
Speaker 2: an audible here, folks, it's a surveillance audible in a
Speaker 2: two hour conversation with Hugh von Steinas. You go, Okay,
Speaker 2: where did this guy come from? And it's not Oliver
Speaker 2: Wyman or it's worked with the Bank of England with
Speaker 2: at the time Governor Karney Or he did this as
Speaker 2: ubs No Da da da da years ago. I think
Speaker 2: Queen Anne Hugh von Steinas was at Morgan Stanley and
Speaker 2: he was absolutely definitive on EU finance joining us now
Speaker 2: with Oliver Wyman, Hu von steinas audible, I saw the
Speaker 2: French Trustsaur, not the Oat, Hugh, the Trustsaur roll over
Speaker 2: yesterday with acceleration. How fragile is French debt given mister
Speaker 2: Trump Shenanigans.
Speaker 7: Oh, Tom, thanks for having me on again. Look, I
Speaker 7: think there's a lot of pressure from invests for on
Speaker 7: the on the French situation. A lot of fixed income
Speaker 7: investors are struggling with the lack of debt consolidation. And look,
Speaker 7: you know, let's play the history here, Tom. You know,
Speaker 7: I think the French shrout the last thirty years have
Speaker 7: somewhat struggled with reigning and public debt. In fact, if
Speaker 7: you go back to nineteen eighty one eighty three, you know,
Speaker 7: actually Meterol had to do a huge pivot because he
Speaker 7: just wasn't controlling the public debts back there. And so
Speaker 7: I think there's there's real pressure here. And look, the
Speaker 7: fact that Spread's already trading outside Portugal and Spain and
Speaker 7: there's a lot of debate about whether they trade outside
Speaker 7: lately in Greece tells you how stress and unnervous folks are.
Speaker 2: The Jurgon he's our jargon. I mean, he was a
Speaker 2: state dinner and he brought the conversation or Holt with
Speaker 2: his jargon. What he's saying there is French credits, trading
Speaker 2: worser Folks and Portugal, Greece and all here. One final
Speaker 2: question on this and beginning to see real yields inflation
Speaker 2: adjusting yields in Europe come up as well, can President Trump,
Speaker 2: with his tariff debate pull up e who really yields
Speaker 2: to bring Europe to a standstill?
Speaker 7: It's a great question. It's certainly possible. I think, look,
Speaker 7: isn't the issue with taris at the moment that the
Speaker 7: short term pain is not there, and it's a question
Speaker 7: more about how it impacts investments and the longer term business.
Speaker 7: And just like you've seen the resilience in the States,
Speaker 7: you're seeing real resilience in the European earnings and particularly
Speaker 7: the opening of the fiscal that so I'm not sure
Speaker 7: that it would necessarily drag it up immediately, but I
Speaker 7: think that tension over a one to three year period,
Speaker 7: that's where you're going to start seeing, is they're going
Speaker 7: to be more friction in the system from lack of competitiveness,
Speaker 7: and let's hope certainly by then we're going to see
Speaker 7: a deal. So I'm not as convinced on that, but
Speaker 7: you know, anything's possible.
Speaker 4: You were starting to hear from the big banks today
Speaker 4: in one of the areas of questioning for the banks
Speaker 4: will be kind of how they view private credit visa v.
Speaker 4: Their core lending business. How do you guys view what
Speaker 4: has been just a phenomenal growth story and global wallstree,
Speaker 4: which is private credit.
Speaker 7: Look, so, I think the private credit train continues, and
Speaker 7: as we've discussed many times, you know that sector is
Speaker 7: growing twenty to twenty five percent compound because it's not
Speaker 7: just about leverage lending and mid market lending. It's also
Speaker 7: now about replacing investment grade, either through asset back lending,
Speaker 7: so you know, so like private securitizations, or it's going
Speaker 7: for these jumbo deals, you know, these really large complex deals,
Speaker 7: and under current bank regulations, if it's risky, if it's
Speaker 7: very large or very complex, it goes to the private
Speaker 7: markets rather than the public. So I think there's two
Speaker 7: games here. I think the first is the banks are
Speaker 7: clearly fighting back, and you saw the news from one
Speaker 7: of the big banks yesterday which you ran showing a
Speaker 7: new group to try and come up with solutions for
Speaker 7: more complex deals. Maybe the bank takes part. Maybe it's
Speaker 7: sliced up and gives part to private credit, but the
Speaker 7: banks are very much back. But I think the other story,
Speaker 7: and I think you'll see it through this earning season,
Speaker 7: is banks love steep yield curves, and so the interest
Speaker 7: income for the banks I think will continue to beat
Speaker 7: and beat and beat because these steep curves will transferrate
Speaker 7: through to higher earnings. And therefore, even though they're seeding
Speaker 7: ground to private credit, the core engines are still doing
Speaker 7: really well.
Speaker 4: So for the private credit business, are there opportunities for
Speaker 4: retail investors to get exposure to this asset class?
Speaker 7: Yeah, this is a great question. So we've been digging
Speaker 7: into this. So there's been a two and a half
Speaker 7: fold increase in the investments by wealthy in private credit
Speaker 7: in the last three years. That's four times faster than
Speaker 7: from traditional institutional investors. We think something like three hundred
Speaker 7: and fifty billion dollars, or about twelve percent of private
Speaker 7: credit assets now come from the wealthy. Now the wealthy,
Speaker 7: though it's still it's the ultra wealthy. And one of
Speaker 7: the biggest areas of innovation in partnerships and new products
Speaker 7: is trying to think about expanding this to a much
Speaker 7: broader range of clients through Evergreen Funds, and you know,
Speaker 7: just once at Evergreen Funds are probably the single fastest
Speaker 7: growing part of the investment universe at the moment, interval
Speaker 7: grums are growing seventy percent from a low base. So
Speaker 7: I think this is a narrow where there's there's quite
Speaker 7: a lot of room to run from here with.
Speaker 2: Us, Hugh van Stinas, with Oliver Wyman, he's too madest.
Speaker 2: Let me put it to you. It's a it's a
Speaker 2: really I hate him. There's a twenty one page document
Speaker 2: Oliver Wyman. Private credit is reshaping wealth portfolios. Get it
Speaker 2: through Oliver Wyman. We do protect the copyright of all
Speaker 2: of our guests, Hu von Steinas, Ben Phillips, Laura Watkin
Speaker 2: and parth Aggerwall as well. What's the risk factor here?
Speaker 2: A wise one? Is it too much money chasing too
Speaker 2: few private credit opportunities? Is that the quiet quality is
Speaker 2: going to go down? Is the ir ar GONFC? I
Speaker 2: did that. It's impressive, so I'll get out here. What's
Speaker 2: the major risk factor here?
Speaker 7: Look, it's great, well, I'd say so. In the net
Speaker 7: so neartum. The biggest threat is just too much money chasing,
Speaker 7: and credit spreads continue to depress and compress. And look,
Speaker 7: we've already gone from you know, if you were trying
Speaker 7: to buy a single a private credit bond two years ago,
Speaker 7: you might be getting two percent more than a public
Speaker 7: single A last year, it's probably one hundred and fifty
Speaker 7: one hundred and seventy five bases over basis points. Over
Speaker 7: today it's probably only a point. So it's probably the
Speaker 7: excess spread is probably halved in less than twenty four months,
Speaker 7: and so there might be if there's a lot of
Speaker 7: money coming through. So therefore the constraint is really about
Speaker 7: originating more assets, and so you're seeing more deals with
Speaker 7: private credit team up with banks for partnerships, but also
Speaker 7: looking to generate their own assets. And I think that's
Speaker 7: the gate for me. If they don't originate enough assets,
Speaker 7: then the spreads will compress. I think longer term, clearly
Speaker 7: there's always going to be a credit cycle and so
Speaker 7: that you know, and there'll be some good decisions and
Speaker 7: bad decisions. But I think at the moment it's the
Speaker 7: weight of money Q.
Speaker 4: I mean, the dollars are getting just really substantial there.
Speaker 4: Over the last decade or so, we're starting to get
Speaker 4: more and more retail exposure there, so there need to
Speaker 4: be some type of regulation on the private credit business, do.
Speaker 1: You think.
Speaker 2: So?
Speaker 7: I think it depends what kind of regulation. So I
Speaker 7: don't see the sector as systemic. I mean, let's remember
Speaker 7: banks get regulated partly because they hold everyone's deposits, but
Speaker 7: also they're very leveraged. And so when credit leaves a bank,
Speaker 7: which it may be is ten times levered, maybe going
Speaker 7: to an institutional account, which may be zero to one
Speaker 7: times levered, less leverage means it's less risky when you
Speaker 7: hit a speedbump. So I don't see a systemic But
Speaker 7: the more you put private credit into retail portfolios, the
Speaker 7: more that then, you know, the sec and regulators looking
Speaker 7: at the products and protecting investors will need to think
Speaker 7: about is this the right product? Have we got regular marks?
Speaker 2: You know?
Speaker 7: And I think we discussed this last time I was
Speaker 7: in New York, the pricing conventions, So the way you
Speaker 7: think about pricing private credit, you can't just do it
Speaker 7: once a quarter every month, and if not more frequently.
Speaker 7: So there's a lot of regulatory stuff which we need
Speaker 7: to play.
Speaker 2: I promise Dan Tannebaum, I'd read your private credit report here,
Speaker 2: I'll get a PIMS in my hand and read that
Speaker 2: this weekend, huvon Stein is definitive on private credit with
Speaker 2: Oliver Wyman.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also watch
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Speaker 1: Bloomberg terminal.
Speaker 2: If we're not going to turn this into a history lesson,
Speaker 2: but the bottom line is at LC in the fifties,
Speaker 2: Carl Popper sat with a young student named George Soros
Speaker 2: and said, the way we think about history, the way
Speaker 2: we digest past tense data, is maybe not as productive
Speaker 2: as it could be with something called reflexivity, which is
Speaker 2: a different approach. If AI is about a large language
Speaker 2: model data dump, how are we going to move artificial
Speaker 2: intelli eins onto what Soorrols and Popper we're talking about.
Speaker 5: That's a great question. First of all, thank you for
Speaker 5: having me on the show. I think as what we're
Speaker 5: seeing currently, what is really exciting about the technology that
Speaker 5: we're witnessing right in front of us is that it
Speaker 5: has this capability to digest huge amounts of data and
Speaker 5: start to make sense of it, help us make sense
Speaker 5: of it. And I think that we have always looked
Speaker 5: to the past to try to understand the future because
Speaker 5: that's the only data that we had right And what
Speaker 5: is different this time versus before is that we seem
Speaker 5: to have been accumulating more and more data but didn't
Speaker 5: have increased bandwidth to process it. In my mind, AI
Speaker 5: is going to resolve this.
Speaker 2: Okay, it's going to resolve it, but it's just nothing
Speaker 2: more than a richer, deeper back test. Everybody did beck
Speaker 2: to us on a difference equation. We went back to
Speaker 2: T minus one or T minus twenty. Whatever is AI
Speaker 2: going to change? How Global Wall Street, the pros listening
Speaker 2: to the show.
Speaker 5: How they back test it is going to change it?
Speaker 5: Because actually, I'll let you know that the experience that
Speaker 5: we have had so Reflexity platform is used by a
Speaker 5: number of top head truants and what we have found
Speaker 5: as they start to incorporate this into their workflow is
Speaker 5: that they are amazed by the speed with which the
Speaker 5: system is able to answer their questions by going straight
Speaker 5: to the data. In fact, often they run out of
Speaker 5: questions because you were not used to being able to
Speaker 5: tap into the data so powerfully and so quickly, and
Speaker 5: so we seem to now be limited only by our imagination.
Speaker 5: So the way I think about AI helping investors on
Speaker 5: Wall Street is giving them this superpower where they can
Speaker 5: keep thinking about scenarios that can unfold and have the
Speaker 5: AI back that.
Speaker 2: Up or dispute it through the data.
Speaker 5: It's a very objective arbiter.
Speaker 4: Can you give us, and this is so new to
Speaker 4: so many of us, our listeners, our viewers, what is
Speaker 4: a typical query that you would get from an investor
Speaker 4: client that maybe AI could be helpful with.
Speaker 5: Well, it started with things that were extremely basic in nature.
Speaker 5: Somebody might just say like, oh, you know, I'd like
Speaker 5: to really understand when somebody talks about the inverted yield curve,
Speaker 5: how accurate has that actually been in predicting recessions. It
Speaker 5: then became a lot more complex when you might say,
Speaker 5: look at all of financials for a specific company, be
Speaker 5: a Tesla, Microsoft, jpm organ, whatever, tell me what is
Speaker 5: the market not appreciating? And suddenly it's pulling together things.
Speaker 5: It's able to glean from endless reports, news outlets and
Speaker 5: financials and say, well, actually here are some parts of
Speaker 5: the business that are growing extremely fast but get no
Speaker 5: mention from the analysts, and so you could have a
Speaker 5: rebrating the dream here is that And this is what
Speaker 5: Reflexivity reports to do. Is if you were the first
Speaker 5: to know that AWS was going to be a big
Speaker 5: deal for Amazon, you would have made a lot of money.
Speaker 2: Wow.
Speaker 4: So this is such an amazing part of the investment process.
Speaker 4: How are your clients using it today? I mean, how
Speaker 4: is that evolving? Because I'm assuming this is an education
Speaker 4: process for some pretty smart investors, some savvy investors, but
Speaker 4: maybe they don't understand the logic behind artificial intelligence. How
Speaker 4: are they using it today? And how do you want
Speaker 4: them to use it?
Speaker 5: Honestly, our first advice to the pioneering clients have come
Speaker 5: to us and start using it, and there have been
Speaker 5: an increasing number in the past few weeks, is just
Speaker 5: dip their toes into a try it. I think trial
Speaker 5: and error is very important because I think working with
Speaker 5: AI is unlike any other software that you would have
Speaker 5: used before. Right, where does it get data, how does
Speaker 5: it calculate, how does it reason?
Speaker 2: And so on?
Speaker 5: Once you get the hang of it, however, it becomes
Speaker 5: extremely exciting, and you can see people just get engaged
Speaker 5: with it.
Speaker 2: Okay, you grew up in a milieu of Harvard, MIT
Speaker 2: and all the fancy people up in Boston. Black Shoals
Speaker 2: came out, and I never met Fisher Black, to my
Speaker 2: great regret, he died tragically early. But what a joy
Speaker 2: I've had in discussing myrone Shoals and picking up the
Speaker 2: pieces of nineteen ninety eight. How does a modeling that's new,
Speaker 2: wrapped around reflexivity, How does this tested model work given
Speaker 2: substantial leverage shocks the discontinuities that are brought out by leverage,
Speaker 2: as a pro would.
Speaker 5: Use So again, I think here the calculations that the
Speaker 5: system will do do fall back on the traditional statistical methods.
Speaker 5: It's not reinventing the way you're calculating things or the
Speaker 5: way you're calculating correlations. What it's able to do, however,
Speaker 5: is understand the analysis that you're trying to achieve and
Speaker 5: then potentially do that analysis in three or four different ways.
Speaker 2: Which side of the log normal curves aside. I can
Speaker 2: see you with slide fern Rogoff in some PhD belllet
Speaker 2: going Gaussi into lognormal toplasson distribution on a vanilla log
Speaker 2: normal distribution, Kyl, and I'm doing this for you. It's jargon.
Speaker 2: On a log normal distribution, the short side's more difficult
Speaker 2: to manage alongside. Do you get better alpha pickup short
Speaker 2: in the market versus a long market?
Speaker 5: Actually, I think it's quite symmetric. It's true that generally
Speaker 5: when you look at how investors perform in buying versus
Speaker 5: getting out of positions, they're generally worse at getting out
Speaker 5: of positions. They're quite good at picking them, but not
Speaker 5: so good at getting rid of them. They typically do
Speaker 5: it when they have to. So here the AI can
Speaker 5: be helpful because it's able to actively This is what
Speaker 5: reflexivity does spot something in the market. Let's say that
Speaker 5: interest rates are starting to move much faster than they
Speaker 5: have been, and you'll point to your banking stocks and
Speaker 5: say you should pay attention to this because it could
Speaker 5: be that there is a lot more downside races than
Speaker 5: you realize.
Speaker 2: This is great, thank you, So please don't be a stranger.
Speaker 2: Yan Silagi with us with reflexivity. This is a tool
Speaker 2: that's being used for a lot of sophisticated investors to
Speaker 2: get out front of mind create an edge. His work
Speaker 2: in academics with Ken Roe Gough Harvard is loaded.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen each weekday starting
Speaker 1: at seven am Eastern on Apple Corplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station. Just
Speaker 1: say Alexa Play Bloomberg eleven thirty at the newspapers.
Speaker 2: It's a truncated version day. She came in a little parched.
Speaker 2: I think you out, I mean what I should say? Yeah,
Speaker 2: after the floods yesterday, Lisa Matero Trooper made it into
Speaker 2: work today. If you serious floods in New Jersey? What
Speaker 2: do you got?
Speaker 8: Okay, Paul, you have to still had that big European
Speaker 8: trip coming up, right, Okay, Okay, So this one's for you.
Speaker 8: I saw this on the Wall Street Journal. It stood
Speaker 8: out American travelers have less buying power this summer because
Speaker 8: of the weekening dollar. So the Wall Street Journal said
Speaker 8: the dollar week in thirteen percent against a euro this
Speaker 8: year six percent against the Japanese yen. But the thing is,
Speaker 8: it's not stopping travelers from booking trips, as you know. Okay,
Speaker 8: people say they just might buy less while they're there. Probably,
Speaker 8: I don't know if you plan to buy less while
Speaker 8: you're there.
Speaker 4: I may go down a little bit lower on the
Speaker 4: wine list. Maybe when I'm in Italy, I might not
Speaker 4: go for the highest end. But we'll be fine, We'll
Speaker 4: be fine.
Speaker 8: Yeah, And then they to also point out to you
Speaker 8: on the bright side, it's made kind of exports cheaper,
Speaker 8: open up opportunities for Americans to invest in those foreign
Speaker 8: stocks as well. But an interesting take on the weekends.
Speaker 4: And I'm hearing, you know, hear from the airlines. I
Speaker 4: mean that, you know, the airlines took up their guidance
Speaker 4: and reintroduced their guidance, saying that the air travels strong,
Speaker 4: including us to Europe. So you know, if you talk
Speaker 4: to our friends in London or Paris, they're like, they're
Speaker 4: Americans everywhere. I'm not sure they're happy about it.
Speaker 2: I mean, I looked at the Bulgary menu with lots
Speaker 2: hurras of the deck. They're overlooking the famous new monuments.
Speaker 2: They just reopened the Carpaccio di Spignola on Alio Lemon.
Speaker 2: I can't read the rest. Twenty two euros. I mean, well,
Speaker 2: that's that's what you expected the bulgari that's going to
Speaker 2: cost you a couple dollars more.
Speaker 1: I know it is.
Speaker 2: We'll be there, We'll be there.
Speaker 8: Do you cut back on the Sylvan years? Maybe you
Speaker 8: don't get presents for everyone?
Speaker 1: Right?
Speaker 2: Exactly, there's a you come down to Spanish steps and
Speaker 2: there's a a souvenir stores called like Gucciz. It's a
Speaker 2: that's a you're looking at next.
Speaker 8: Okay, Starbucks corporate managers who are working remotely currently, they're
Speaker 8: gonna have to pack their bags relocate. They have one
Speaker 8: year to do it. They have to go to Seattle
Speaker 8: or Toronto within twelve months. So they put out this
Speaker 8: back to Starbucks plan. Corporate employees are now having to
Speaker 8: come back four days in the office a week, up
Speaker 8: from three days starting September twenty ninth.
Speaker 4: But what's iron days they were still on?
Speaker 1: I know they were still on.
Speaker 8: The three days.
Speaker 2: Yeah.
Speaker 8: Actually, But the thing that was ironic to me too
Speaker 8: was that Starbucks CEO Brian Nicol like he wasn't required
Speaker 8: to really when he first started, but the company says
Speaker 8: he does have a residence and an office in Seattle now,
Speaker 8: so so yeah, so he has come back.
Speaker 2: Are they are we still doing Are they doing well?
Speaker 4: I mean no, they're not.
Speaker 8: The thing is like sa else they posted five consecutive
Speaker 8: quarters of safe store sales.
Speaker 2: Line stock has going nowhere during the pandemic.
Speaker 8: Essentially, he's trying like they're trying to overhaul the cafes,
Speaker 8: make them more welcoming, trying different things.
Speaker 4: But I mean I have seen a change. I mean
Speaker 4: they're actually writing on the cups again. Yes, yes, that's
Speaker 4: a big I have a sophisticated analysis there, so you
Speaker 4: know it's not just but people are just the drive
Speaker 4: through line is out the and there's nobody in the store.
Speaker 2: I could tell you they do Costa's ben wall. They're
Speaker 2: not right, exactly where do you go the next one?
Speaker 8: Okay, you're gonna have to help me with this.
Speaker 3: Okay.
Speaker 8: So the NC double A right, they want to expand
Speaker 8: March Madness, but the tournament might not be enough to
Speaker 8: pull in more money by growing it. So they have
Speaker 8: another option on the table, and that is going to booze.
Speaker 8: We're talking beer, wine, alcohol. These are things that the
Speaker 8: NC DOUBLEA has kind of steered away from. But here's
Speaker 8: where it gets a little confusing for me too. But
Speaker 8: the NC double A can't sell those sponsorships themselves, so
Speaker 8: they have to persuade the broadcasters CBS and Turner to
Speaker 8: do it and then increase their own annual payment to
Speaker 8: the NC double A. So it's this weird position that
Speaker 8: they're in.
Speaker 2: So we're going to have I mean, Paul Dricks Budweiser folks. Yeah,
Speaker 2: the seventeen year old new superstar do cass. They have
Speaker 2: a Budweiser and a magic patch.
Speaker 4: So I guess CBS will you know, start taking ads
Speaker 4: for booze and stuff like that they're on.
Speaker 8: It's weird because they're tied to this contract through twenty
Speaker 8: thirty two, you know, fixed payments.
Speaker 4: So but I think they're going to expand the NC DOUBLEA.
Speaker 4: The march men is to like more teams and everything.
Speaker 2: So they're going to go to be on sixty four teams.
Speaker 8: They want to go to seventy six was what they're
Speaker 8: saying from this article.
Speaker 2: But does it, Paul help me here? That doesn't sound
Speaker 2: like a dumb idea. I mean, well it's not. I
Speaker 2: don't know what the right numbers like the NHL or MLB,
Speaker 2: but yeah, just more teams. I mean, I guess, I guess.
Speaker 8: Any more exciting. I don't. I think it kind of
Speaker 8: waters it. I don't know.
Speaker 2: Yeah, I like it at the beginning, am I right? Well,
Speaker 2: I like it at the beginning of the tournament because
Speaker 2: I haven't been thrown out. Right. I never watched a
Speaker 2: final four because I don't know there's nothing in it.
Speaker 4: But that first weekend is what it's all about. You know,
Speaker 4: all the team's playing, and that's what makes March Madness great.
Speaker 2: Lisa, you can be able to get home. We get
Speaker 2: rain tomorrow, rain Thursday.
Speaker 8: I just got to keep checking myself. Pumped.
Speaker 2: I go to the basement and is it still working?
Speaker 8: Kick that thing, make sure it's still going.
Speaker 2: The newspapers thank you so much this morning.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
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