WEBVTT - Market Resiliency and the June CPI 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.680 us live on YouTube. 0:00:30.000 --> 0:00:33.280 She's more important than the Secretary of Treasury. Constance Hunter 0:00:33.400 --> 0:00:38.160 joins now from EIU Concerts, you take your inflation guestimate 0:00:38.640 --> 0:00:42.400 to two decimal points? Can you do that? Can we 0:00:42.520 --> 0:00:46.680 actually guess to two decimal points on a change in inflation? 0:00:47.920 --> 0:00:50.080 Well, you bring up a really great point, Tom, And 0:00:50.200 --> 0:00:54.600 especially with regards to goods, what we've discovered is that 0:00:55.080 --> 0:00:58.600 we really don't know the price elasticity of demand of 0:00:58.680 --> 0:01:01.760 a number of these goods that are going to be impacted. 0:01:02.280 --> 0:01:08.319 So we're triangulating all sorts of different data sources and 0:01:08.560 --> 0:01:10.720 really kind of trying to get under the hood. But 0:01:11.360 --> 0:01:13.760 your point is well taken, right, What is even the 0:01:13.800 --> 0:01:17.440 point of going out to two decimal points if you, uh, 0:01:17.640 --> 0:01:21.480 if you have this level of uncertainty. Nevertheless, we try 0:01:21.520 --> 0:01:24.080 to be as precise as possible so we can learn 0:01:24.640 --> 0:01:26.240 from action. 0:01:26.520 --> 0:01:32.360 Do you see substitution of products going on because of tariffs. 0:01:33.360 --> 0:01:36.399 Oh absolutely, I mean, and I think what will be 0:01:36.520 --> 0:01:39.720 interesting to see is is again how price sensitive are 0:01:39.920 --> 0:01:43.440 consumers once these price increases really start to feed through. 0:01:43.800 --> 0:01:47.760 Let's remember we had an extraordinary amount of front loading 0:01:49.040 --> 0:01:51.840 in the in the beginning of the year and really 0:01:51.840 --> 0:01:54.280 at the end of the fourth quarter last year, where 0:01:54.840 --> 0:02:01.000 consumers pre bought and suppliers pre bought ahead of these tears, right, 0:02:01.080 --> 0:02:04.000 and so we're still waiting for that pig in the 0:02:04.040 --> 0:02:07.440 python to move its way through Constince. 0:02:07.480 --> 0:02:08.919 What do you think we'll see that? Is that something 0:02:09.080 --> 0:02:11.800 that we're going to see maybe today or we're not 0:02:11.840 --> 0:02:14.160 going to see any inflation impact if there is any, 0:02:14.400 --> 0:02:15.800 and a lot of folks say that there may not. 0:02:16.400 --> 0:02:17.760 Is that something that we may have to wait to 0:02:17.800 --> 0:02:19.359 the fall to see maybe in the data. 0:02:20.080 --> 0:02:20.280 You know. 0:02:20.480 --> 0:02:22.320 I think you're right, Paul. I think it's I think 0:02:22.360 --> 0:02:24.799 it's taking a lot longer. And what we see from 0:02:24.840 --> 0:02:29.280 some alternative sources like Cavallo for example, which really it 0:02:29.320 --> 0:02:34.160 does work on real time prices and they gather information 0:02:34.320 --> 0:02:36.359 from four different retailers. We can guess who some of 0:02:36.440 --> 0:02:41.240 those retailers are Amazon, Walmart. And when you think about 0:02:41.280 --> 0:02:45.440 Amazon and the tros of PhD economists they have working 0:02:45.520 --> 0:02:49.400 on how to price goods, right, they probably have better 0:02:49.440 --> 0:02:52.520 information about the price elasticitute than anybody else right now 0:02:52.560 --> 0:02:56.560 in the US economy. And what they show is actually 0:02:56.639 --> 0:02:59.560 that domestic prices, while they increase in the beginning, have 0:02:59.680 --> 0:03:03.760 really leveled off. So domestic suppliers are aware of that 0:03:03.840 --> 0:03:07.440 price sensitivity, I think, and are keeping their prices competitive 0:03:07.880 --> 0:03:09.320 so that they can gain market share. 0:03:09.600 --> 0:03:12.440 Cons it's just to get narrow here. Forty five seconds. 0:03:12.720 --> 0:03:16.680 Auto insurance is three percent of our inflation picture. Is 0:03:16.720 --> 0:03:21.000 there anybody listening who's paying less and auto insurance? I 0:03:21.040 --> 0:03:21.560 don't think so. 0:03:21.760 --> 0:03:26.200 Constance, No, And you talked earlier about all the flash 0:03:26.240 --> 0:03:29.400 floods and rain that you know, the New York area 0:03:29.520 --> 0:03:34.559 experienced over the last twenty four hours, and that destroys automobiles. 0:03:34.600 --> 0:03:36.680 If you get stuck in a flash flood, your car 0:03:36.920 --> 0:03:41.160 is totaled, right, And so we look at the incidents 0:03:41.160 --> 0:03:45.000 of perils and they're increasing, and then what happens is 0:03:45.040 --> 0:03:49.760 that that gets transferred to the entire auto market. Right, 0:03:49.840 --> 0:03:54.520 everybody auto insures price so that they make up losses 0:03:54.640 --> 0:03:58.520 in areas where they're experiencing higher catastrophes. 0:03:58.640 --> 0:04:01.160 We're trying to give constance thirty two seconds here to 0:04:01.200 --> 0:04:01.640 look at. 0:04:01.520 --> 0:04:03.040 The Yeah, plenty of. 0:04:04.640 --> 0:04:08.040 You in the ninety second glance. You've had Constance. What 0:04:08.040 --> 0:04:08.640 do you see. 0:04:09.560 --> 0:04:12.400 Well, it's not showing up in goods, right if you 0:04:12.440 --> 0:04:15.360 go to the commodities less food and energy. You're not 0:04:15.440 --> 0:04:18.320 seeing it in apparel, which was down month over month. 0:04:18.360 --> 0:04:21.840 You're not seeing it in new vehicles, which you know 0:04:22.320 --> 0:04:24.920 it was also down. Used cars and trucks have a 0:04:24.960 --> 0:04:29.840 little more complicated pricing in them. Medical care commodities were 0:04:29.880 --> 0:04:32.640 up zero point six month over month, but you're. 0:04:32.480 --> 0:04:33.480 Really not seeing it. 0:04:33.640 --> 0:04:36.919 Tobacco and smoking products are up zero point eight, but 0:04:37.800 --> 0:04:40.640 I don't know if that constitutes a trend. And I 0:04:41.520 --> 0:04:43.440 you know, I don't know how much we import of. 0:04:43.480 --> 0:04:46.080 The dancer is before we let you go, I don't 0:04:46.120 --> 0:04:48.920 mean to interrupt, but this is too important. After hearing 0:04:49.000 --> 0:04:52.840 from bestent than Hunter, the President's going to come out 0:04:52.880 --> 0:04:55.640 and say, show me the inflation in tariffs. 0:04:55.760 --> 0:04:59.760 Right, of course he is, Yes, that's that is the issue, 0:05:00.040 --> 0:05:03.039 and the reality is it is not in the current data. 0:05:03.440 --> 0:05:05.719 We do know, of course, that inflation is somewhat of 0:05:05.720 --> 0:05:06.719 a lagging indicator. 0:05:06.800 --> 0:05:06.920 Right. 0:05:06.960 --> 0:05:09.719 If you're a firm, You're going to wait as long 0:05:09.760 --> 0:05:12.840 as you can to raise prices because you don't want 0:05:12.880 --> 0:05:14.920 to lose market share. So we just need to keep 0:05:14.960 --> 0:05:17.320 in mind this is a lagging indicator. 0:05:18.600 --> 0:05:22.159 Is there a scenario where the companies actually buy and 0:05:22.240 --> 0:05:24.680 large do ticket in the margin and we don't see 0:05:24.680 --> 0:05:27.320 it necessarily at the consumer level. Is that a scenario. 0:05:27.400 --> 0:05:29.480 I know a lot of folks are suggesting that might 0:05:29.520 --> 0:05:30.000 be the case. 0:05:30.680 --> 0:05:32.720 Well, there was an interesting article I think it was 0:05:32.760 --> 0:05:35.040 in the Wall Street Journal from my morning scan of 0:05:35.080 --> 0:05:38.800 the news how Levi's is reducing the number of skews 0:05:39.120 --> 0:05:42.000 in order to manage their costs so that they don't 0:05:42.040 --> 0:05:46.400 have to pass on the price increases, right, So they're 0:05:46.440 --> 0:05:50.280 reducing the variety of things that they're producing. And so 0:05:50.480 --> 0:05:52.760 I think firms are really you know, when you think 0:05:52.760 --> 0:05:56.279 about the data and analytics that's been deployed over the 0:05:56.360 --> 0:06:01.440 last six years in companies have a lot more capacity 0:06:01.480 --> 0:06:05.440 to control their supply chain and to control their product mix. 0:06:05.880 --> 0:06:09.599 And we're seeing some of that protivity game from that 0:06:09.839 --> 0:06:12.880 those data enhancements coming to bear as firms try to 0:06:12.960 --> 0:06:14.160 manage through this keas. 0:06:14.279 --> 0:06:16.240 So thank you so much, just wonderful to have you 0:06:16.320 --> 0:06:19.400 here at eight thirty for the National inflation for a 0:06:19.520 --> 0:06:21.120 constance hunter with Ei. 0:06:21.720 --> 0:06:30.920 You you're listening to the Bloomberg Surveillance podcast. Catch us 0:06:30.960 --> 0:06:34.279 Live weekday afternoons from seven to ten am Eastern. Listen 0:06:34.360 --> 0:06:37.919 on Applecarplay and Android Auto with the Bloomberg Business app, 0:06:38.080 --> 0:06:39.840 or watch US live on YouTube. 0:06:40.040 --> 0:06:42.080 We turned to banks. It's been a helter skelter today 0:06:42.120 --> 0:06:45.240 with the Treasury Secretary. This is a more important conversation 0:06:45.560 --> 0:06:50.000 for Global Wall Street. Allison Williams joins us with Bloomberg Intelligence. Allison, 0:06:50.560 --> 0:06:53.080 the way I read it as a complete hack is 0:06:53.160 --> 0:06:57.000 we go there's four big banks. No, there's JP Morgan 0:06:57.480 --> 0:06:59.960 and there's these three other banks. Am I off the mark? 0:07:01.000 --> 0:07:04.279 Well, there's JP Morgan. I always say covering JP Morgan 0:07:04.360 --> 0:07:07.279 is like covering you know, four big companies, right, or 0:07:07.920 --> 0:07:10.040 you know, depending on how they they've done their division. 0:07:10.080 --> 0:07:13.840 I guess it's three big companies now, so you know, 0:07:14.000 --> 0:07:18.720 really the net interest income guidance very strong, about six 0:07:18.760 --> 0:07:21.560 hundred million upside to the course shy sick. 0:07:21.600 --> 0:07:24.600 I went back and forth with Valerie Titell London. They 0:07:24.640 --> 0:07:28.120 did a tangible equity of twenty percent plus. Am I right? 0:07:28.240 --> 0:07:29.320 City Groups half that. 0:07:30.840 --> 0:07:33.760 Uh, you are right, I mean if you look at 0:07:33.960 --> 0:07:35.640 you know, so if you look at City Group, it's 0:07:35.640 --> 0:07:38.360 a very different story. Right. So City Group is still 0:07:38.360 --> 0:07:42.760 in a story of transition. We've been talking about that transition, 0:07:43.080 --> 0:07:46.200 as we say, ever since Sandy built the house. It's 0:07:46.200 --> 0:07:49.360 been being taken apart. And I think Jane Fraser is 0:07:49.400 --> 0:07:52.360 making a lot of tough decisions there and really solid 0:07:52.600 --> 0:07:55.640 quarter out of City Group as well. You know, they're 0:07:55.720 --> 0:07:58.480 upping their net interesting income guidance. They're fixed income trading 0:07:58.560 --> 0:08:01.239 up twenty percent, so that's a that you know, JP 0:08:01.320 --> 0:08:04.320 Morgan and Wells were up thirteen to fourteen percent. You know, 0:08:04.680 --> 0:08:08.880 City Group has an amazing rates and currencies trading business, 0:08:08.920 --> 0:08:12.080 as you know, Paul, and that is really where the 0:08:12.080 --> 0:08:15.040 strength is this quarter. That's where the volatility is and 0:08:15.080 --> 0:08:20.880 they are really executing in that business. Again, Corn at 0:08:20.960 --> 0:08:23.400 interest income going up for both of those banks. Wells 0:08:23.400 --> 0:08:25.840 Fargo a little softer, but Wells Fargo is looking at 0:08:25.880 --> 0:08:29.240 the overall number. Keep in mind that there is corenet 0:08:29.320 --> 0:08:32.560 interest income and then there's a number that includes trading. 0:08:32.679 --> 0:08:34.760 And so the trading that interest income tends to be 0:08:34.800 --> 0:08:38.559 off set in fees. I think, but from a headline perspective, 0:08:38.679 --> 0:08:41.080 people are sort of going to be less positive on 0:08:41.120 --> 0:08:45.040 those Wells Fargo results. Wells Fargo also not getting this 0:08:45.160 --> 0:08:47.360 huge benefit. So as I said, they saw some growth 0:08:47.360 --> 0:08:51.840 and fixed income trading, but well, you know JP Morgan 0:08:51.840 --> 0:08:56.960 and City much stronger in those businesses. JP Morgan delivering 0:08:56.960 --> 0:09:00.600 a billion dollars of upside in their trading and fee 0:09:00.600 --> 0:09:03.080 you I haven't done the calculation yet for our City group, 0:09:03.120 --> 0:09:06.200 but the trends also better for City are. 0:09:06.200 --> 0:09:08.840 What are the banks saying about loan origination? Are they 0:09:08.880 --> 0:09:11.560 writing loans? We're just talking to christ Van seen us 0:09:11.600 --> 0:09:15.160 at all relinement about private credit, and I just think 0:09:15.200 --> 0:09:16.600 back to my Chase Manhattan days. 0:09:16.600 --> 0:09:17.599 We were killing it. 0:09:17.920 --> 0:09:21.319 They're on the leverage loan business, making money upfront, making 0:09:21.360 --> 0:09:24.440 money on the spread, syndicating by risk out to every 0:09:24.440 --> 0:09:27.720 other bank around the country. What are they making loans 0:09:27.720 --> 0:09:28.160 these days? 0:09:28.200 --> 0:09:30.680 So they are making loans, I mean you know that 0:09:30.679 --> 0:09:33.240 that the card business, which is probably not your concern 0:09:33.360 --> 0:09:37.120 back then or now, but the card business is very 0:09:37.120 --> 0:09:39.400 profitable for these banks and that's where the loan growth 0:09:39.400 --> 0:09:43.200 has been. And again that's benefiting City and JP Morgan. 0:09:43.280 --> 0:09:45.440 We have seen a little bit of pickup in the 0:09:45.520 --> 0:09:48.720 commercial numbers in uh, you know, in the FED data. 0:09:48.720 --> 0:09:51.920 We're going to hear what Bank America says tomorrow on that. 0:09:52.640 --> 0:09:56.920 I think with regard to privates, you know, it is 0:09:57.120 --> 0:10:00.760 a change. But I think if you look at, for example, 0:10:00.800 --> 0:10:03.720 Goldman's business, So Paul, you know Goldman, you know their 0:10:03.840 --> 0:10:06.920 merchant banking business. You know that they, you know, back 0:10:06.960 --> 0:10:10.199 in the day, made a lot of money from making 0:10:10.240 --> 0:10:15.480 these proprietary investments. Vulgar rule came along and said, please 0:10:15.480 --> 0:10:17.560 don't do that on your balance sheet. By the way, 0:10:17.600 --> 0:10:20.960 investors don't like the balance sheet, right because when you 0:10:21.040 --> 0:10:24.600 make those kind of investments and you're recording gains, people 0:10:24.600 --> 0:10:26.760 don't really give you a lot of credit because they 0:10:26.840 --> 0:10:30.120 view them as violatil et cetera. But you have someone 0:10:30.160 --> 0:10:32.320 like Goldman who's now said I'm going to be an 0:10:32.320 --> 0:10:35.240 alternative asset manager, and now instead of putting my balance 0:10:35.240 --> 0:10:39.160 sheet we're at risk, I'm gonna take the client's money 0:10:39.679 --> 0:10:42.600 so and I'm going to earn fees. And investors like that. 0:10:42.640 --> 0:10:45.720 They like asset management. It's a high multiple business and 0:10:45.800 --> 0:10:48.400 so it's a higher return on equity business. And that's 0:10:48.440 --> 0:10:51.400 been a long term story at Goldman. So I think 0:10:51.440 --> 0:10:54.079 the banks are fine, and so that's a Goldman specific 0:10:54.160 --> 0:10:55.760 but I think all the banks are doing that. 0:10:56.200 --> 0:10:58.120 Okay, I want to go to the gossip of the moment. 0:10:58.120 --> 0:11:01.000 Folks on the Hampton's over a beverage for choice. Allison 0:11:01.040 --> 0:11:05.319 Williams is getting hammered by fancy people over the reorg 0:11:05.559 --> 0:11:09.600 under Mary Erdos at JP Morgan. First of all, I'm 0:11:09.600 --> 0:11:13.000 going to say they're the most successful bank asset manager, 0:11:13.240 --> 0:11:16.480 the only one really competing with black Rock and the others. 0:11:17.000 --> 0:11:21.040 So Mary's built a franchise and now they're saying geography 0:11:21.160 --> 0:11:24.240 doesn't matter anymore. The Wall Street Journal had this great 0:11:24.280 --> 0:11:27.720 summary of it. Explain to us how JP Morgan and 0:11:27.760 --> 0:11:31.920 Mary Erdos is blowing up asset management private wealth. 0:11:32.240 --> 0:11:35.600 Well, I think that you know, Mary Aerdos is first 0:11:35.640 --> 0:11:39.199 and foremost thoughtful about the talent across her business, and 0:11:39.720 --> 0:11:44.120 you know, is consistently talking about the strength they have 0:11:44.320 --> 0:11:48.480 as an active manager. But one of the more interesting 0:11:49.080 --> 0:11:51.560 things that Eric Belchunis is, as you know, who's the 0:11:51.600 --> 0:11:56.520 expert on eats, has been talking about, is that they 0:11:56.600 --> 0:12:00.439 are really gaining share in the active etf business and 0:12:00.520 --> 0:12:03.120 so so that's not your that's not your question, but 0:12:03.160 --> 0:12:05.240 that is something that I want to highlight that I 0:12:05.240 --> 0:12:06.320 think is something happening. 0:12:07.000 --> 0:12:10.040 We're in a bull market, they're minting more money than God, 0:12:10.320 --> 0:12:12.920 and JP Morgan is saying, we got a problem. We 0:12:13.040 --> 0:12:16.360 got to blow up private Wealth Management. Why are they 0:12:16.360 --> 0:12:18.000 blowing it up and what's the goal? 0:12:18.559 --> 0:12:23.079 Well, again, I don't know. I think that Mary Erdos 0:12:23.200 --> 0:12:27.280 is a very thoughtful leader, and I think that again, 0:12:27.520 --> 0:12:30.160 it's it's sort of like as we're as we're going 0:12:30.280 --> 0:12:33.040 through the future. We've been through a long period of 0:12:33.040 --> 0:12:38.360 what we call us exceptionalism. But I think that JP 0:12:38.480 --> 0:12:42.480 Morgan has always focused on the world at large, focused 0:12:42.520 --> 0:12:47.000 on emerging markets, focused on these different growth opportunities, and 0:12:47.040 --> 0:12:49.160 I think it's just a way and by the way, 0:12:49.280 --> 0:12:52.199 JP Morgan, I think is always as I alluded to earlier, 0:12:52.800 --> 0:12:56.160 you know, looking at things differently. When you're a global organization, 0:12:56.360 --> 0:12:59.600 you have products and you have regions. I think sometimes 0:13:00.080 --> 0:13:02.840 you have to find a way to focus on both. 0:13:03.440 --> 0:13:06.160 And again I just I go back to the fact 0:13:06.160 --> 0:13:10.480 that they're very focused on talent, and I think that 0:13:11.080 --> 0:13:13.720 you know, they're thoughtful about the way they run their business. 0:13:13.840 --> 0:13:16.320 We're seeing so many good results coming out of these 0:13:16.800 --> 0:13:20.600 US global banks. It just makes me think next week 0:13:20.640 --> 0:13:23.439 we're going to hear from the European banks and they're 0:13:23.480 --> 0:13:27.520 just nowhere, nowhere relative to where the US banks are. 0:13:28.440 --> 0:13:32.120 When will Europe say we need to allow consolidation here? 0:13:32.559 --> 0:13:36.880 I mean, they fall so far behind every single year, 0:13:36.920 --> 0:13:38.960 it seems is it. 0:13:38.880 --> 0:13:39.600 Not an issue for them? 0:13:39.640 --> 0:13:39.920 They do? 0:13:40.000 --> 0:13:42.920 And I think that. I mean, I think the biggest 0:13:43.360 --> 0:13:45.560 change Paul over the last you know, let's let's call 0:13:45.640 --> 0:13:48.760 it a decade or a couple of decades, right time flies, 0:13:49.360 --> 0:13:51.280 is that you know, first of all, the US has 0:13:51.480 --> 0:13:54.560 benefited from a virtuous cycle of having sort of a 0:13:54.559 --> 0:13:57.400 better economy for a long period of time. But really, 0:13:57.920 --> 0:14:01.640 you know, they've they've been from the virtuous cycle of investment. 0:14:01.640 --> 0:14:04.080 They had the money to invest, they invested the money, 0:14:04.120 --> 0:14:07.480 so that's led to better revenue, better market share, et cetera. 0:14:07.559 --> 0:14:10.440 Whereas I think for the Europeans, you know, they try 0:14:10.480 --> 0:14:13.240 to sort of cut their way to profitability and that 0:14:13.440 --> 0:14:17.120 ended up you know, as you know, investment, banking and 0:14:17.160 --> 0:14:20.440 trading these are not businesses where you should go bargain shopping, right, 0:14:20.560 --> 0:14:25.360 and so I think that they didn't invest that hurt them. 0:14:25.800 --> 0:14:29.200 They've had to exit businesses, et cetera. But it's difficult 0:14:29.320 --> 0:14:35.360 because each of the everyone agrees we really should consolidate, 0:14:35.560 --> 0:14:37.960 merge some of the best ones together. But no one 0:14:38.000 --> 0:14:40.400 wants to be the seller. Everyone wants to be the buyer. 0:14:40.560 --> 0:14:45.360 Everybody wants the champion in their home market. That's that's 0:14:45.400 --> 0:14:46.160 the difficulty. 0:14:46.960 --> 0:14:49.000 Are we at the point where the shock of that 0:14:49.120 --> 0:14:51.880 later this year quickly here Allison, as we get one 0:14:51.880 --> 0:14:55.000 big industry roll up because they find price, and as 0:14:55.040 --> 0:14:56.440 the sellers say enough, let's go. 0:14:57.320 --> 0:14:59.840 I mean, you know, we could have had this conversation 0:15:00.240 --> 0:15:01.560 fourteen a million. 0:15:01.680 --> 0:15:02.520 You know, I just. 0:15:02.640 --> 0:15:09.480 Think that those political sensitivities, it's it's very difficult and 0:15:09.520 --> 0:15:14.280 it's hard to say whatever would would change their mind 0:15:15.600 --> 0:15:18.720 makes that makes sense on paper, you know, politics get 0:15:18.760 --> 0:15:19.120 in the way. 0:15:19.240 --> 0:15:22.400 Ten seconds tomorrow, Golden Sacks, Morgan Stanley, they do better than. 0:15:22.240 --> 0:15:25.240 Good I you know, based on the training and feed 0:15:25.280 --> 0:15:27.600 members we saw today, based on all the trends we 0:15:27.640 --> 0:15:29.720 saw in the quarner, we think that it's going to 0:15:29.800 --> 0:15:32.960 be a solid quarter for trading. We're going to want 0:15:33.000 --> 0:15:35.680 to hear what their what their CEO clients are saying 0:15:35.880 --> 0:15:38.000 in regard to the thank you. 0:15:37.960 --> 0:15:40.600 So much for this brief, particularly on you know where 0:15:40.600 --> 0:15:45.840 we are on the reorg of JP Morgan in private management, 0:15:45.880 --> 0:15:48.360 and of course over to the other banks, particular City Bank. 0:15:49.560 --> 0:15:53.480 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:15:53.520 --> 0:15:56.520 starting at seven am Eastern on Apple Corplay and Android 0:15:56.560 --> 0:15:59.560 Auto with the Bloomberg Business app. You can also listen 0:15:59.640 --> 0:16:02.920 live on Amazon Alexa from our flagship New York station, 0:16:03.480 --> 0:16:07.040 Just say Alexa play Bloomberg eleven thirty where you get. 0:16:06.920 --> 0:16:09.200 The private credit here with Hu von Steinas. Paul's going 0:16:09.240 --> 0:16:10.960 to bring that in, but I got to first do 0:16:11.040 --> 0:16:13.960 an audible here, folks, it's a surveillance audible in a 0:16:14.000 --> 0:16:17.960 two hour conversation with Hugh von Steinas. You go, Okay, 0:16:18.000 --> 0:16:20.640 where did this guy come from? And it's not Oliver 0:16:20.760 --> 0:16:22.880 Wyman or it's worked with the Bank of England with 0:16:23.200 --> 0:16:25.920 at the time Governor Karney Or he did this as 0:16:26.160 --> 0:16:30.200 ubs No Da da da da years ago. I think 0:16:30.320 --> 0:16:33.680 Queen Anne Hugh von Steinas was at Morgan Stanley and 0:16:33.760 --> 0:16:39.080 he was absolutely definitive on EU finance joining us now 0:16:39.280 --> 0:16:43.080 with Oliver Wyman, Hu von steinas audible, I saw the 0:16:43.200 --> 0:16:47.800 French Trustsaur, not the Oat, Hugh, the Trustsaur roll over 0:16:47.960 --> 0:16:53.360 yesterday with acceleration. How fragile is French debt given mister 0:16:53.440 --> 0:16:55.440 Trump Shenanigans. 0:16:56.040 --> 0:16:58.480 Oh, Tom, thanks for having me on again. Look, I 0:16:58.520 --> 0:17:01.240 think there's a lot of pressure from invests for on 0:17:01.080 --> 0:17:04.000 the on the French situation. A lot of fixed income 0:17:04.040 --> 0:17:08.160 investors are struggling with the lack of debt consolidation. And look, 0:17:08.200 --> 0:17:10.159 you know, let's play the history here, Tom. You know, 0:17:10.240 --> 0:17:12.840 I think the French shrout the last thirty years have 0:17:12.920 --> 0:17:15.679 somewhat struggled with reigning and public debt. In fact, if 0:17:15.680 --> 0:17:18.000 you go back to nineteen eighty one eighty three, you know, 0:17:18.040 --> 0:17:21.080 actually Meterol had to do a huge pivot because he 0:17:21.200 --> 0:17:23.679 just wasn't controlling the public debts back there. And so 0:17:23.680 --> 0:17:25.800 I think there's there's real pressure here. And look, the 0:17:25.840 --> 0:17:28.840 fact that Spread's already trading outside Portugal and Spain and 0:17:28.840 --> 0:17:30.679 there's a lot of debate about whether they trade outside 0:17:30.760 --> 0:17:35.360 lately in Greece tells you how stress and unnervous folks are. 0:17:35.520 --> 0:17:38.880 The Jurgon he's our jargon. I mean, he was a 0:17:38.920 --> 0:17:42.639 state dinner and he brought the conversation or Holt with 0:17:42.720 --> 0:17:45.800 his jargon. What he's saying there is French credits, trading 0:17:45.880 --> 0:17:49.439 worser Folks and Portugal, Greece and all here. One final 0:17:49.560 --> 0:17:53.000 question on this and beginning to see real yields inflation 0:17:53.080 --> 0:17:57.399 adjusting yields in Europe come up as well, can President Trump, 0:17:57.440 --> 0:18:01.320 with his tariff debate pull up e who really yields 0:18:01.359 --> 0:18:03.200 to bring Europe to a standstill? 0:18:05.320 --> 0:18:08.359 It's a great question. It's certainly possible. I think, look, 0:18:08.480 --> 0:18:10.800 isn't the issue with taris at the moment that the 0:18:10.840 --> 0:18:13.160 short term pain is not there, and it's a question 0:18:13.240 --> 0:18:16.600 more about how it impacts investments and the longer term business. 0:18:16.640 --> 0:18:18.520 And just like you've seen the resilience in the States, 0:18:18.760 --> 0:18:21.840 you're seeing real resilience in the European earnings and particularly 0:18:21.880 --> 0:18:24.440 the opening of the fiscal that so I'm not sure 0:18:24.480 --> 0:18:27.720 that it would necessarily drag it up immediately, but I 0:18:27.720 --> 0:18:30.679 think that tension over a one to three year period, 0:18:31.119 --> 0:18:33.040 that's where you're going to start seeing, is they're going 0:18:33.119 --> 0:18:36.119 to be more friction in the system from lack of competitiveness, 0:18:36.280 --> 0:18:38.320 and let's hope certainly by then we're going to see 0:18:38.320 --> 0:18:40.840 a deal. So I'm not as convinced on that, but 0:18:40.880 --> 0:18:41.960 you know, anything's possible. 0:18:42.560 --> 0:18:45.440 You were starting to hear from the big banks today 0:18:45.480 --> 0:18:48.359 in one of the areas of questioning for the banks 0:18:48.359 --> 0:18:52.000 will be kind of how they view private credit visa v. 0:18:52.119 --> 0:18:55.800 Their core lending business. How do you guys view what 0:18:55.880 --> 0:18:58.640 has been just a phenomenal growth story and global wallstree, 0:18:58.680 --> 0:19:00.160 which is private credit. 0:19:01.920 --> 0:19:05.399 Look, so, I think the private credit train continues, and 0:19:05.480 --> 0:19:08.600 as we've discussed many times, you know that sector is 0:19:08.600 --> 0:19:12.080 growing twenty to twenty five percent compound because it's not 0:19:12.240 --> 0:19:15.680 just about leverage lending and mid market lending. It's also 0:19:15.800 --> 0:19:20.080 now about replacing investment grade, either through asset back lending, 0:19:20.160 --> 0:19:22.960 so you know, so like private securitizations, or it's going 0:19:22.960 --> 0:19:26.159 for these jumbo deals, you know, these really large complex deals, 0:19:26.320 --> 0:19:30.280 and under current bank regulations, if it's risky, if it's 0:19:30.640 --> 0:19:33.640 very large or very complex, it goes to the private 0:19:33.680 --> 0:19:36.600 markets rather than the public. So I think there's two 0:19:36.640 --> 0:19:38.920 games here. I think the first is the banks are 0:19:39.000 --> 0:19:41.639 clearly fighting back, and you saw the news from one 0:19:41.640 --> 0:19:43.919 of the big banks yesterday which you ran showing a 0:19:43.960 --> 0:19:46.480 new group to try and come up with solutions for 0:19:46.600 --> 0:19:49.880 more complex deals. Maybe the bank takes part. Maybe it's 0:19:49.880 --> 0:19:52.080 sliced up and gives part to private credit, but the 0:19:52.119 --> 0:19:54.600 banks are very much back. But I think the other story, 0:19:54.600 --> 0:19:56.200 and I think you'll see it through this earning season, 0:19:56.280 --> 0:20:00.479 is banks love steep yield curves, and so the interest 0:20:00.520 --> 0:20:02.840 income for the banks I think will continue to beat 0:20:02.920 --> 0:20:06.200 and beat and beat because these steep curves will transferrate 0:20:06.359 --> 0:20:09.480 through to higher earnings. And therefore, even though they're seeding 0:20:09.520 --> 0:20:12.680 ground to private credit, the core engines are still doing 0:20:12.720 --> 0:20:13.200 really well. 0:20:13.840 --> 0:20:17.479 So for the private credit business, are there opportunities for 0:20:18.240 --> 0:20:20.919 retail investors to get exposure to this asset class? 0:20:23.240 --> 0:20:25.280 Yeah, this is a great question. So we've been digging 0:20:25.280 --> 0:20:27.520 into this. So there's been a two and a half 0:20:27.560 --> 0:20:31.199 fold increase in the investments by wealthy in private credit 0:20:31.240 --> 0:20:34.880 in the last three years. That's four times faster than 0:20:34.880 --> 0:20:39.200 from traditional institutional investors. We think something like three hundred 0:20:39.240 --> 0:20:42.639 and fifty billion dollars, or about twelve percent of private 0:20:42.640 --> 0:20:45.840 credit assets now come from the wealthy. Now the wealthy, 0:20:45.880 --> 0:20:49.119 though it's still it's the ultra wealthy. And one of 0:20:49.119 --> 0:20:52.880 the biggest areas of innovation in partnerships and new products 0:20:53.200 --> 0:20:55.560 is trying to think about expanding this to a much 0:20:55.600 --> 0:20:59.479 broader range of clients through Evergreen Funds, and you know, 0:20:59.560 --> 0:21:03.960 just once at Evergreen Funds are probably the single fastest 0:21:03.960 --> 0:21:07.399 growing part of the investment universe at the moment, interval 0:21:07.440 --> 0:21:09.919 grums are growing seventy percent from a low base. So 0:21:09.960 --> 0:21:12.040 I think this is a narrow where there's there's quite 0:21:12.080 --> 0:21:15.040 a lot of room to run from here with. 0:21:15.200 --> 0:21:17.640 Us, Hugh van Stinas, with Oliver Wyman, he's too madest. 0:21:17.680 --> 0:21:19.480 Let me put it to you. It's a it's a 0:21:19.600 --> 0:21:22.320 really I hate him. There's a twenty one page document 0:21:22.440 --> 0:21:27.200 Oliver Wyman. Private credit is reshaping wealth portfolios. Get it 0:21:27.280 --> 0:21:31.000 through Oliver Wyman. We do protect the copyright of all 0:21:31.040 --> 0:21:34.000 of our guests, Hu von Steinas, Ben Phillips, Laura Watkin 0:21:34.080 --> 0:21:37.960 and parth Aggerwall as well. What's the risk factor here? 0:21:38.040 --> 0:21:40.920 A wise one? Is it too much money chasing too 0:21:41.000 --> 0:21:44.800 few private credit opportunities? Is that the quiet quality is 0:21:44.840 --> 0:21:48.080