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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along

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Speaker 2: with Paul Sweeney. Join us each day for insight from

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Speaker 2: the best in economics, finance, investment, and international relations. You

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Speaker 2: can also watch the show live on YouTube. Visit the

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Speaker 2: Bloomberg Podcast channel on YouTube to see the show weekday

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Speaker 2: mornings from seven to ten am Eastern from our global

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Speaker 2: headquarters in New York City. Subscribe to the podcast on Apple, Spotify,

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Speaker 2: or anywhere else you listen, and always I'm Bloomberg Radio,

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Speaker 2: the Bloomberg Terminal, and the Bloomberg Business app. If you

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Speaker 2: are a certain persuasion, you remember where you were when

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Speaker 2: you close the book on the Winds of War by

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Speaker 2: Herman wilt Bout, and you said, when's he gonna write

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Speaker 2: the next one war?

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Speaker 3: And remember and you waited two years.

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Speaker 2: Young James Stravita's had this feeling as I did, like

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Speaker 2: you waited. Except admiralstra Vetus, of course, lived the American military,

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Speaker 2: the United States Navy of Pug Henry as well. The

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Speaker 2: book is The Restless Wave. It is a novel, a

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Speaker 2: novel idea, a novel from.

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Speaker 4: Jem four Desk and I'm ready to go to chapter five, and.

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Speaker 2: It's just wonderful about a young lad before nineteen forty one,

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Speaker 2: across the arc of World War Two. What's the why, Admiralstravitas,

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Speaker 2: Why did you need to write The Restless Wave?

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Speaker 5: Tom? I'll give you three reasons, I'll do them fast.

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Speaker 6: One is Winston Churchill said, the further you want to

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Speaker 6: look into the future, the more you have to look

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Speaker 6: into the past, meaning the lessons of World War Two

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Speaker 6: are still with us, great power of war in the Pacific,

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Speaker 6: the rise of technologies. And then third and five, and

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Speaker 6: most importantly you mentioned it, Tom, character we think of

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Speaker 6: Captain pug Henry from the Winds of War. Here we

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Speaker 6: have a young naval officer. He's flawed, he makes mistakes,

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Speaker 6: he's in a love triangle, there's betrayal, the early days

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Speaker 6: of the Greatest Generation. So any reasons write a sweeping

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Speaker 6: novel about the Second World War.

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Speaker 2: I'm going to give this away Pulse four chapters into

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Speaker 2: the book. Page three ten, the exo took a breath.

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Speaker 2: Admiral Wright failed us, Sir. He was slow and hesitant.

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Speaker 2: He doesn't understand the new technology. His battle plan looked

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Speaker 2: like Dewey at Manila in the Spanish American War, admiralstavinus,

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Speaker 2: are we living that today with new drone technology and

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Speaker 2: all is A navy have to adapt and adjust.

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Speaker 5: One hundred percent.

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Speaker 6: Tom, And look at Ukraine where the Russian Black Sea

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Speaker 6: Fleet has been sunk by the Ukrainians.

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Speaker 5: Except the Ukrainians don't even have a navy.

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Speaker 6: They're using drones, cruise missiles, exquisite intelligence, surface forces operating

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Speaker 6: using artificial intelligence. Our navy better learn those lessons and

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Speaker 6: get ready. And that's something that we experienced at the

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Speaker 6: start of World War two as well.

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Speaker 4: Admiral Tom and I have a million questions on many

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Speaker 4: different hotspots around the world. Let's start with the Middle

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Speaker 4: East here. Can you give us your latest thinking on

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Speaker 4: how things are developing there and how you kind of

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Speaker 4: foresee I guess the next several weeks and months.

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Speaker 6: Clearly the next big muscle movement is going to be

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Speaker 6: an attack bite Israel in retaliation appropriately for two hundred

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Speaker 6: ballistic missiles that came raining down on Israel five six

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Speaker 6: days ago. So what will that attack look like? I

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Speaker 6: think that's the key question for investors. I think it's

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Speaker 6: going to be big, but not shock and awe level

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Speaker 6: kind of strikes. I'll probably go against the military industrial

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Speaker 6: complex in Iran, probably not against the nuclear power complex,

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Speaker 6: and probably not against energy. So that should be something

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Speaker 6: that investors and tolerate as we look at rising risk

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Speaker 6: in the region. Bottom line, I think there's about a

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Speaker 6: one in four chance of a broader war in the

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Speaker 6: Middle East that drags the US in. That's uncomfortably high,

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Speaker 6: But I've still bet against a big, sweeping war in

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Speaker 6: the Middle East.

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Speaker 5: Let's hope not admiral to.

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Speaker 4: What extent is the US policy being represented by the

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Speaker 4: Israelis here? It seems like the relationship between Biden and

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Speaker 4: Netanya who is not maybe as strong as we would

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Speaker 4: have hoped here. And we have US assets, men and

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Speaker 4: women in the region there So where are we in

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Speaker 4: terms of dealing with the Israelis?

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Speaker 6: You are correct, we have fifty thousand troops in and

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Speaker 6: around the Middle East, many of them at sea on

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Speaker 6: navy worships, by the way, but many asure as well.

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Speaker 6: So it's critical that we maintain the strongest relationship with Israel,

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Speaker 6: which is our best partner in the region. Unfortunately, at

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Speaker 6: a personal level, it's pretty clear that Prime Minister net

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Speaker 6: Yahoo and President Biden have not good relations.

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Speaker 5: And here's our hope.

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Speaker 6: The next tier down, that's General Lloyd Austin working with

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Speaker 6: his counterpart Israeli Minister of Defense Yuav Gallant. That's a

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Speaker 6: pretty good relationship. But a storm cloud to watch, no

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Speaker 6: pun intended, terrible hurricane coming, But a storm cloud to

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Speaker 6: watch is that Yuav Gallant, Minister of Defense, just canceled

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Speaker 6: the meeting in the Pentagon.

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Speaker 5: So relations are not good at the moment.

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Speaker 3: Is James Tvetus late in your book?

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Speaker 2: Arley Burke shows up, No, folks, it's not the name

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Speaker 2: of a boat, it's an actual person. And Arley Burke

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Speaker 2: shows up to drive the story forward. And he says

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Speaker 2: at one point, with some heat in his voice, the

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Speaker 2: difference in an officer good or bad is about ten seconds.

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Speaker 2: There's an officer from the streets of Boston named John Kelly,

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Speaker 2: who is the longest chief of staff the Marines served

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Speaker 2: Donald Trump. And he's come out. He's made real clear

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Speaker 2: he's not a fan of the operations of the former president.

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Speaker 2: If we have elected President Trump, I mean in twenty sixteen,

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Speaker 2: this was all new, will he be able as commander

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Speaker 2: in chief to form a military apparatus after what we

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Speaker 2: hear from the likes of John Kelly.

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Speaker 6: First of all, John Kelly is one of my closest friends,

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Speaker 6: and I encourage everybody to listen, to read, to follow

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Speaker 6: what John Kelly has said about attempting to take President

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Speaker 6: Trump to a cemetery in the north of France, and

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Speaker 6: according to John Kelly, President Trump described those buried there

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Speaker 6: as suckers and losers. I think that is a disqualification

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Speaker 6: to be a commander in chief in terms of can

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Speaker 6: he put together coherent national security for the nation. It

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Speaker 6: depends on who he selects to bring in office alongside him.

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Speaker 6: The quality people. General Jim Mattis, General John Kelly, General

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Speaker 6: h R. McMaster. They're not coming back. You don't have

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Speaker 6: to get kicked by a mule a second time to

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Speaker 6: understand whether that's a good thing to do or not.

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Speaker 6: So if there is a second Trump presidency, we'll have

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Speaker 6: to see who's willing to come in and who does

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Speaker 6: come in.

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Speaker 2: Paul and I went to the Lawrenceville in Fairport War

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Speaker 2: College where we figured out that Germans had two fronts,

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Speaker 2: the Eastern Front and the Western Front. Israel has two

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Speaker 2: three four fronts. Right now extending over to the persia

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Speaker 2: of your book. The leader's bookshelf isntnaho extended or because

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Speaker 2: of his small geography, can he handle those many fronts?

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Speaker 6: I think Israel is over extended. I'd say five fronts.

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Speaker 6: It's Hamas in the south, has Beala on the north. Obviously,

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Speaker 6: it is the Hoo theis to the far South. It's

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Speaker 6: also the militias in Syria. And it's Iran itself. I

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Speaker 6: can count that on the five fingers of my hand.

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Speaker 6: That's too many. Israel is only a nation of ten million,

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Speaker 6: seven million Jews. That's too few to ultimately fight wars

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Speaker 6: with countries like Iran newsflash, which has a population of

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Speaker 6: ninety million. That's Iran alone. So Israel needs friends. And

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Speaker 6: let's go back to paragraph one. How important that relationship

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Speaker 6: is for Israel, end for the United States, between the

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Speaker 6: US and Israel, DROI.

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Speaker 4: I don't want to lose a sight of Ukraine. Can

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Speaker 4: you give us your latest thinking on what's happening in

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Speaker 4: Ukraine and how it might play out?

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Speaker 6: I can, and thank you for raising it, because they

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Speaker 6: are losing oxygen to all that is happening in the

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Speaker 6: Middle East. The situation there remains relatively static. The battle

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Speaker 6: lines are in place. Russians are moving forward very slowly

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Speaker 6: in the east. The Ukrainians have carved a small chunk

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Speaker 6: out of Russia in the north. Ultimately, I think after

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Speaker 6: the election we are probably headed for a negotiation because

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Speaker 6: the burn rate, think private equity, the burn rate on

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Speaker 6: both sides of that battle line is terrible. Pressure will

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Speaker 6: be for a negotiation regardless of who is elected in Washington.

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Speaker 3: One final question.

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Speaker 2: In your book The Restless Wave, Kai is trouble? Did

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Speaker 2: you know what Kai in Hawaii? Admiral asking for a

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Speaker 2: few Kai is nothing but trouble In your book, Admiral, did.

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Speaker 3: You know someone like Kai.

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Speaker 6: KaiA is a beautiful Hawaiian woman who ends up in

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Speaker 6: a love triangle? Thomas correct, between between a Navy officer

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Speaker 6: and a Marine Corps officer. So in The Restless Wave, yes,

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Speaker 6: Kai is trouble, and yes I have met a few

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Speaker 6: beautiful women in Hawaii over the years.

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Speaker 2: Bottle that James Tavinis, thank you so much, greatly appreciate it.

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Speaker 2: The Restless Wave, folks, I can't It's not going to

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Speaker 2: be my book of the year because Kai's in it.

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Speaker 3: I can't help Kai and my book of.

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Speaker 2: The year Admiral James Travine is The Wrestless Wave. If

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Speaker 2: you love the winds of war, find it. It's hugely

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Speaker 2: free book. Joining us now in for Global Wall Street,

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Speaker 2: It's time to lean forward. He's with pine Bridge Investments,

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Speaker 2: which is, you know, managing money and that huge heritage

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Speaker 2: with aig. Stephen O joins this globalhead of fixed income

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Speaker 2: except he writes, like PhD cell Side, his notes are

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Speaker 2: absolutely exquisite And the key thing Stephen Oh in your

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Speaker 2: note is it's not time to be defensive?

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Speaker 3: How do you be offensive in fixed income?

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Speaker 1: Well by writing that it was really looking forward to

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Speaker 1: the fact that despite the type valuations, the economic environment

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Speaker 1: as well as defed as a global central bank easing cycle,

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Speaker 1: will be continued to be supportive of risk assets. So

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Speaker 1: what does that imply for not being defensive? It means

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Speaker 1: that the natural bias in that environment would be defensive.

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Speaker 1: But at a minimum, you take your exposure up to

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Speaker 1: a beta type risk exposure and take potshots at targeted opportunities.

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Speaker 1: What you don't want to do is go hyper defensive

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Speaker 1: in this type of environment where yield is likely to

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Speaker 1: care today.

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Speaker 2: So is that simply Paul Sweny buys a thirty year

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Speaker 2: New Jersey hospital bond.

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Speaker 3: Is that what it demolves down to?

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Speaker 1: Well, I guess it depends on That's a lot of

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Speaker 1: security selection risk there, so I can't opine on that.

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Speaker 1: But I think broadly speaking terms of where is the

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Speaker 1: risk component fixed income, right, it's going to be in

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Speaker 1: the credit segments, and that's where you don't want to

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Speaker 1: be hyper defensive.

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Speaker 4: Something we don't talk about, but I think it kind

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Speaker 4: of goes to where you're going, which is talk just

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Speaker 4: about the leverage loan market. What is that and how

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Speaker 4: do investors get exposure to that?

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Speaker 1: Well, leverage loan in its simplest form is corporate debt

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Speaker 1: that's syndicated and secured by assets of the business. In

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Speaker 1: the simplest history, it was really loans that were issued

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Speaker 1: by banks. But of course banks are not really in

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Speaker 1: the origination of debt anymore. They're in the intermediary business,

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Speaker 1: and the loans that they used to originate, which primarily

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Speaker 1: back leverage buyouts, have now moved to an institutional market

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Speaker 1: where trays very freely. Of course, whur it's the adjacent

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Speaker 1: market that's talked about ad nauseum for the last you know,

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Speaker 1: five six years is the private credit market as well.

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Speaker 4: And are there opportunities there? Do you see? I mean,

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Speaker 4: is that something that if you want to take up

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Speaker 4: maybe even a little more risk than above and beyond

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Speaker 4: high yield, that's the market you look at.

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Speaker 1: Well, well, first, I wouldn't say that it's higher risk

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Speaker 1: than high yield. It's really adjacency risk because those are

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Speaker 1: both blow investment. Great corporate credit. But what you are

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Speaker 1: getting right now is the credit spread over base rates

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Speaker 1: is elevated and it's one of the few places where

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Speaker 1: you are getting excess yield long spreads right now. For

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Speaker 1: the index is over four hundred basis points, which is,

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Speaker 1: you know, over one hundred basis points over the high

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Speaker 1: yield index. But you do have to adjust that for

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Speaker 1: a like for like risk, because the way to look

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Speaker 1: at it is oftentimes there's a tendency to look at

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Speaker 1: acid class to asset class, and you have to look

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Speaker 1: at ratings to ratings or like risk to like risk,

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Speaker 1: and you're still getting a premium for that component.

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Speaker 2: Talk to somebody not as sophisticated. They're in a money

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Speaker 2: market fund. Go on, this is good to be true.

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Speaker 3: Our money market fund yields now too good to be true.

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Speaker 1: Well, money markets funds by nature are very short term,

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Speaker 1: and it's been a great place to be, although one

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Speaker 1: could make the case of perhaps there was opportunity cost

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Speaker 1: of not being in equities where you look at the

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Speaker 1: yield today and given the shape of the curve at

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Speaker 1: the short end where FED funds and so far is,

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Speaker 1: money market optically provides you a very high yield, but

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Speaker 1: you have to look forward that yield is going to

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Speaker 1: come down. And so I think it's just a matter

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Speaker 1: of do you utilize money market as primarily a return

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Speaker 1: seeking area or do you use it as a liquidity

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Speaker 1: while you hide out in what is acceptable returns at

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Speaker 1: this point in time?

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Speaker 3: Could you use it as a liquidity? All right?

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Speaker 4: Steven John Tucker and I we've been trying to get

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Speaker 4: Tom out of his triple leverage all cash fun I've

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Speaker 4: got the FED that's cutting rates and I'm not in

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Speaker 4: a recession.

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Speaker 5: Shouldn't Tom be taking.

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Speaker 4: Some risk here?

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Speaker 3: Well?

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Speaker 1: I think anybody's risk appetite is a function of where

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Speaker 1: there are. You know, for all I know, Tom may

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Speaker 1: be so wealthy that he should be taking a lot

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Speaker 1: more risks.

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Speaker 2: You want to chime in, Oh yeah, what's that tuition bill?

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Speaker 7: Now?

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Speaker 3: Thank you exactly continue mister oh uh.

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Speaker 1: And in terms of where do you want to be

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Speaker 1: in terms of risk right now, I think a balanced

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Speaker 1: approach is the best approach because in certain market environments,

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Speaker 1: the time you want to take risk, and I think

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Speaker 1: you know Warren Buffett said at best is when there's

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Speaker 1: a lot of trauma out there, when there's fear in

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Speaker 1: the marketplace. There is not much fear in the marketplace

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Speaker 1: out there right now, so I don't think this is

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Speaker 1: an environment where you want to start adding more risk

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Speaker 1: to your portfolio. Is simply a type of market environment

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Speaker 1: where you want to be balanced in your approach because

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Speaker 1: nothing looks particularly cheap, but it's hard to see anything

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Speaker 1: that's going to cause a meaningful sell off in the

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Speaker 1: near term.

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Speaker 4: September was I think a record month for investment grade issuance.

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Speaker 4: So when Morgan, Stanley, Goldman, Sachs, all those folks were calling,

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Speaker 4: bringing you guys, will you picking up the buying this

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Speaker 4: new stuff?

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Speaker 1: Well, we constantly look at not only what is the

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Speaker 1: value coming to the marketplace, but what is the value

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Speaker 1: in relation to what's trading in the secondary markets. Overall,

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Speaker 1: and typically there are some new issue concessions, although at

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Speaker 1: times that has been very anemic, and so we have

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Speaker 1: been targeted in our approach to buying some of those

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Speaker 1: new issues. There have been some.

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Speaker 4: You don't buy everything that comes across the transom.

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Speaker 1: We're not a ten trillion dollar asset manager that has

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Speaker 1: to be beta. We pick and choose, and we manage

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Speaker 1: a very targeted alpha approach portfolio.

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Speaker 2: Steve Think Stephen O with Pinebridge brilliant. Note again we

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Speaker 2: protect the copyright of all of our guests. Look to

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Speaker 2: pine Bridge Investments for Steven Oh's brilliant professors showing now

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Speaker 2: from Brown University doing so much for the Taalban Center

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Speaker 2: for their international relations. I guess it's a close selection, Wendy,

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Speaker 2: and I guess there's a lot of tension. And I

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Speaker 2: remember sitting there in shock after Bush Gore going.

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Speaker 3: How close is close?

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Speaker 2: Almost like I think it was Kennedy Humphrey in nineteen

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Speaker 2: sixty I really can't remember.

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Speaker 3: With Mayor Daily Clyde Haberman the New.

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Speaker 2: York Times twenty four years ago, on this day, high

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Speaker 2: falutin but hardly proud of it. He was talking about

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Speaker 2: fancy Yale people that went to Brown or Yale or

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Speaker 2: whatever fancy ivy league people dominant down to get elected.

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Speaker 2: Is that what we're seeing right now is everybody going basic,

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Speaker 2: you know, for a couple four weeks here because they

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Speaker 2: have to.

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Speaker 7: Well, I'm Tom I first I want to address this

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Speaker 7: is exactly what I've been talking about Bush Gore, Bush Gore.

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Speaker 8: You know, statistical polling within the margin of era.

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Speaker 7: As you remember, they were absolutely statistically tied going into

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Speaker 7: that election. You know, one day one be forty eight,

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Speaker 7: Yether'll be forty five. So exactly what you're pointing out

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Speaker 7: is that, oh, this is historic. We've never seen anything

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Speaker 7: like it. Yes we have, if you're old enough. We

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Speaker 7: saw it in two thousand and that aftermath of that

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Speaker 7: election was a bit messy, we can say.

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Speaker 8: So I think we have to brace ourselves for that.

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Speaker 8: So I think I don't actually think that they're dumbing down.

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Speaker 7: I think that the Trump campaign, I mean he can

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Speaker 7: go off the ranch sometimes, has been disciplined in its

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Speaker 7: messaging on border security and inflation. That's I mean basically

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Speaker 7: pocketbook issues and security issues.

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Speaker 8: And Kamala Harris tried to.

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Speaker 7: Raise the conversation about her economic plan. It didn't take,

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Speaker 7: so now she's simplifying it. I'm simply gonna make your

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Speaker 7: life economically better. That's what she's doing and leaving off

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Speaker 7: some of that.

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Speaker 3: Okay, Paul wants to jump in here.

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Speaker 2: Is that policy professor Schielder to say, I want you

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Speaker 2: to feel good or whatever, whichever candidate you know. I

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Speaker 2: don't want to pick sides, but is that what our

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Speaker 2: policies devolved down to? His feel good statements?

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Speaker 7: Well, I mean, the problem is, as we've discussed before,

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Speaker 7: is that the federal government is so large now, and

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Speaker 7: it is so enmeshed in every American's life, multiple dimensions

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Speaker 7: that most people don't even grasp how involved it is.

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Speaker 7: So discussing a simple policy change is not simple because

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Speaker 7: any policy change will whipple through a total a set

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Speaker 7: of federal programs and affect.

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Speaker 8: Lots of different people in different ways. So it's not as.

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Speaker 7: Easy as it used to be to say I'm going

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Speaker 7: to do a and you're going to feel it in

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Speaker 7: six months.

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Speaker 8: It just doesn't happen in America anymore.

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Speaker 4: Hey, Wendy, let's fast forward to maybe the evening of

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Speaker 4: November fifth, maybe the early morning hours November six, maybe

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Speaker 4: bleeding into the day of November six, Are we going

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Speaker 4: to know anything? How is this going to plag out?

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Speaker 4: Do you think?

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Speaker 7: I think we face the situation in twenty twenty as well.

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Speaker 7: I think there are going to be some states you

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Speaker 7: can expect Georgia, you can expect Arizona in particular those states,

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Speaker 7: and Pennsylvania, by the way, doesn't, to my knowledge, does

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Speaker 7: not open mail in ballots till after they count the

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Speaker 7: in person ballots.

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Speaker 8: And if there are legal challenges for hand counting, not

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Speaker 8: just in Georgia and Arizona, but other places, it will

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Speaker 8: slow down considerably.

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Speaker 7: Wisconsin also, So unless which we don't expect one candidate

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Speaker 7: is just going to run the table, We're probably not

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Speaker 7: going to know very much until the weekend, you know,

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Speaker 7: at the soonest, and it will be up to Secretaries

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Speaker 7: of state, attorney generals, governors to certify election results and

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Speaker 7: make sure that county level election officials certify those results

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Speaker 7: in a timely fashion.

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Speaker 8: That's going to get messy pretty quickly.

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Speaker 4: Turnout. What do we expect for turnout, Wendy? Do we

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Speaker 4: expect this to be a high turnout election a low

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Speaker 4: turnout election? And does it favor one or the other?

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Speaker 6: Well?

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Speaker 7: I'm going to crip for one of my colleagues here

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Speaker 7: at Brown who said that she expects that it will

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Speaker 7: be lower than even twenty twenty because of mail and

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Speaker 7: valliding being so predominant in twenty twenty, but that the

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Speaker 7: general level of enthusiasm is still.

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Speaker 8: High on Trump core, and you know, is pretty high.

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Speaker 7: Among Democrats, if you can call it enthusiasm or fear

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Speaker 7: one or the other. But it's not quite the same

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Speaker 7: as it was in twenty eighteen twenty twenty when we

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Speaker 7: saw historic mid two and presidential election turnouts. There's still

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Speaker 7: a little bit of ambivalents and voters don't like to

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Speaker 7: regret their choice.

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Speaker 8: They don't want to regret their vote.

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Speaker 7: So if they're still on certain election day, they made

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Speaker 7: our role to stay home.

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Speaker 3: I want to show.

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Speaker 2: I mean, I know, with the electoral quality of Rhode Island,

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Speaker 2: the Vice President Harris should have been sipping in there

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Speaker 2: against Lager Beer the other night, but instead she went

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Speaker 2: with the champagne of Wisconsin Beer's Miller High Life.

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Speaker 3: Okay, what is the symbolism of sipping a beer on TV?

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Speaker 3: What does that get you politically?

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Speaker 7: Well, Bill Clinton, Win's McDonald's you know, Barack Obama had

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Speaker 7: to find some food that was bad for him. They

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Speaker 7: was willing to eat on camera because we knew he

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Speaker 7: didn't do it otherwise. You know, this is part of

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Speaker 7: I can identify with you.

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Speaker 8: I'll drink a beer too. I think it's a stretch.

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Speaker 7: I don't think that's the image necessarily that's going to

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Speaker 7: be a Kamala Harris elected. But I think each candidate

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Speaker 7: and each campaign right now is really like, what do

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Speaker 7: we do to get this momentum?

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Speaker 2: Okay, addressing your advice in the time we've got left,

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Speaker 2: you get thirty seconds. Trump, what's the Shiller to do

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Speaker 2: for Trump? What's the Shiller to do for Harris?

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Speaker 8: Trump? I'll make the United States safer. I'll make you safer.

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Speaker 8: I'll make the world safer.

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Speaker 7: Calmin Harris, I'm gonna make your economic life better and

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Speaker 7: to protect your working rights, your minimum wage, your health care,

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Speaker 7: the fundamental things you need to live a good life.

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Speaker 7: The Democrats always protect, the Republicans always try to destroy.

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Speaker 2: Can you imagine in her class, I'm pulling a C

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Speaker 2: minus and she's looking at me with eight in her eyes.

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Speaker 3: Professor Schiller thinking so much from Brown University. There that's

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Speaker 3: what I love. Just short speaking, it is a pedigree

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Speaker 3: of extinction.

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Speaker 2: He was at Oxford and Nuncia, and I did some

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Speaker 2: amazing work at Morgan Stanley. I'll get to in a

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Speaker 2: moment readable essays on the chaos of continental banking, and

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Speaker 2: then went on to work with the British government and

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Speaker 2: of course service to the Bank of England as well

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Speaker 2: with Oliver Wyman in her studios. This morning, their vice

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Speaker 2: chair Hugh von Steinis joins us. Hugh Paul's going to

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Speaker 2: get to the private credit essay.

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Speaker 3: Where we are.

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Speaker 2: We had Jim Zelter in from a Polo Global Management

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Speaker 2: to other day. I got to go back to your

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Speaker 2: wheelhouse where it was like we'd read these fifteen page

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Speaker 2: reports and god damn, I got to read this whole thing.

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Speaker 2: Is it finally with Unit Credit in her Maadi and

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Speaker 2: Commerce Bank that were finally well you were writing about

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Speaker 2: twenty years ago.

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Speaker 9: Well thanks for having me on. Look my goodness. I

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Speaker 9: wish Andrea the best of luck on this because I

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Speaker 9: think it. I think we need cris culture.

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Speaker 3: Still, but culture still matters.

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Speaker 9: Culture still matters. But let's be clear. Luftians took over

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Speaker 9: the Italian Airline, Why can't it happen in reverse. And

441
00:23:44,880 --> 00:23:48,080
Speaker 9: also UniCredit owns a German bank already, so actually it's

442
00:23:48,240 --> 00:23:51,000
Speaker 9: it really is an in market German deal. There's two

443
00:23:51,040 --> 00:23:53,960
Speaker 9: German banks going to merge, we potentially merged with each other,

444
00:23:54,440 --> 00:23:57,960
Speaker 9: so I think it. Look I was an investor conference

445
00:23:58,000 --> 00:24:00,320
Speaker 9: two weeks ago. I'd say my read is the the

446
00:24:00,359 --> 00:24:02,640
Speaker 9: market thinks there's like a seventy to ninety percent chance

447
00:24:02,680 --> 00:24:05,080
Speaker 9: it will happen, but they might need to get one

448
00:24:05,160 --> 00:24:05,400
Speaker 9: or two.

449
00:24:06,520 --> 00:24:07,880
Speaker 3: What's the government thing?

450
00:24:08,080 --> 00:24:12,560
Speaker 2: David Harrow of Chicago went down in flames, and this

451
00:24:12,920 --> 00:24:15,080
Speaker 2: finally they're going to get their act together and the

452
00:24:15,119 --> 00:24:17,840
Speaker 2: continental Europe is going to act more like American and

453
00:24:17,880 --> 00:24:19,000
Speaker 2: Anglo Saxon.

454
00:24:18,680 --> 00:24:21,240
Speaker 3: Banking and Bologne. Do you see a change in the

455
00:24:21,280 --> 00:24:23,600
Speaker 3: German government or in the Italian government?

456
00:24:24,600 --> 00:24:27,199
Speaker 9: It's it's slow. Look so look we are seeing so actually,

457
00:24:27,240 --> 00:24:29,640
Speaker 9: but below the radar, we are actually seeing some bank

458
00:24:29,720 --> 00:24:31,800
Speaker 9: m and a. There's actually three live bank deals in

459
00:24:31,840 --> 00:24:34,200
Speaker 9: the UK at the moment, so you know they're small,

460
00:24:34,400 --> 00:24:36,960
Speaker 9: but they're happening. Spain's got one on the boil to

461
00:24:37,119 --> 00:24:39,760
Speaker 9: as well, so there's bits and pieces happening. But let's

462
00:24:39,760 --> 00:24:42,840
Speaker 9: be honest, it's not us style, and we haven't like

463
00:24:43,080 --> 00:24:45,240
Speaker 9: as Jim's Elton would say, we don't have the capital

464
00:24:45,320 --> 00:24:47,720
Speaker 9: markets either with the breadth and depth that we need.

465
00:24:48,040 --> 00:24:50,920
Speaker 4: But you certainly, but you certainly can have that. I mean,

466
00:24:51,119 --> 00:24:53,600
Speaker 4: I mean right before the Great Financial Crisis time, the

467
00:24:53,720 --> 00:24:56,439
Speaker 4: argument was is London more important than New York? And

468
00:24:56,480 --> 00:24:58,719
Speaker 4: that was a valid argument to behave totally, and then

469
00:24:58,720 --> 00:24:59,359
Speaker 4: Bruxit happen.

470
00:24:59,400 --> 00:25:03,159
Speaker 3: You get strewed. But is the horse.

471
00:25:02,880 --> 00:25:05,000
Speaker 4: Out of the barn for European banking. They will never

472
00:25:05,119 --> 00:25:07,280
Speaker 4: catch up the Bank of America at the JP Morgan.

473
00:25:07,400 --> 00:25:09,040
Speaker 9: So it's interesting at the moment if you look at

474
00:25:09,040 --> 00:25:11,280
Speaker 9: the top twenty market caps of banks globally, there's only

475
00:25:11,280 --> 00:25:15,800
Speaker 9: two Europeans. Yeah, on HSBC, HSBC which is effectively Asian,

476
00:25:15,840 --> 00:25:17,800
Speaker 9: so it's not even European. So it's only one and

477
00:25:17,840 --> 00:25:22,040
Speaker 9: that's UBS and that's number twenty and so absolutely, and

478
00:25:22,080 --> 00:25:24,280
Speaker 9: so I think UBS, I think, with my old boss

479
00:25:24,320 --> 00:25:26,639
Speaker 9: column and Sergio, actually do have a chance to be

480
00:25:26,680 --> 00:25:28,879
Speaker 9: in the Global super League. Everyone else is in a

481
00:25:28,960 --> 00:25:31,240
Speaker 9: kind of a European League or even a division below.

482
00:25:31,480 --> 00:25:32,480
Speaker 9: And I think that's the challenge.

483
00:25:32,480 --> 00:25:35,080
Speaker 4: And I think the European Union and the UK, don't

484
00:25:35,080 --> 00:25:39,040
Speaker 4: they recognize that as a structural flaw that's going to

485
00:25:39,240 --> 00:25:41,880
Speaker 4: hinder that part of the world for generations.

486
00:25:42,000 --> 00:25:44,440
Speaker 9: Well, absolutely so. You know someone you know, well, Mario

487
00:25:44,520 --> 00:25:46,440
Speaker 9: Dragy just put out a report. Now it was probably

488
00:25:46,480 --> 00:25:48,200
Speaker 9: a little bit to more than fifteen pages, Tom, I

489
00:25:48,200 --> 00:25:49,760
Speaker 9: mean he had one hundred and fifty rex. I mean

490
00:25:50,080 --> 00:25:52,879
Speaker 9: even one too, but you rolled it for no, no, no,

491
00:25:52,720 --> 00:25:55,960
Speaker 9: not this time. But actually his finance piece rade a

492
00:25:55,960 --> 00:25:58,480
Speaker 9: lot of sense, which is, we need securitization markets to open,

493
00:25:58,520 --> 00:26:01,119
Speaker 9: we need deeper capital markets, and we need some of

494
00:26:01,119 --> 00:26:04,199
Speaker 9: the larger banks to merge because scale matters in banking.

495
00:26:04,359 --> 00:26:06,879
Speaker 9: You see that here you're talking about JP Morgan on

496
00:26:06,920 --> 00:26:10,600
Speaker 9: Friday with Jeremy's earnings. You know, scale really matters, and

497
00:26:10,640 --> 00:26:12,960
Speaker 9: we have too few banks with that scale.

498
00:26:13,320 --> 00:26:16,240
Speaker 4: All right, Your latest work is a topic that Tom

499
00:26:16,280 --> 00:26:18,199
Speaker 4: and I talk about a lot, is we're fascinated by

500
00:26:18,200 --> 00:26:20,480
Speaker 4: the growth of this private credit. Early in my career

501
00:26:20,520 --> 00:26:22,639
Speaker 4: I was the Chasement Hannen Bank. We were making leverage

502
00:26:22,680 --> 00:26:25,600
Speaker 4: loans like crazy, making money hand over fist. I would

503
00:26:25,600 --> 00:26:28,000
Speaker 4: never give up that business to private credit. But that's

504
00:26:28,040 --> 00:26:28,960
Speaker 4: what happened, hasn't it.

505
00:26:29,080 --> 00:26:32,920
Speaker 9: No, Look, it's really fascinating how much banking has changed,

506
00:26:32,960 --> 00:26:36,320
Speaker 9: and I think it's because you know, the rules, whether

507
00:26:36,320 --> 00:26:39,720
Speaker 9: they're federals or basil rules are encouraging banks to limit

508
00:26:39,760 --> 00:26:42,399
Speaker 9: the amount of risky loans they can take. Either they're

509
00:26:42,680 --> 00:26:44,720
Speaker 9: hard capped or soft capped, or it's just the amount

510
00:26:44,720 --> 00:26:46,840
Speaker 9: of capital. So the way I think we talked about

511
00:26:46,840 --> 00:26:48,199
Speaker 9: this last time, the way I think about it is

512
00:26:48,200 --> 00:26:51,160
Speaker 9: that banking is being retranched. The riskiest pieces are being

513
00:26:51,240 --> 00:26:54,080
Speaker 9: laid off to private credit or to others, and the

514
00:26:54,119 --> 00:26:56,840
Speaker 9: banks are left with slightly the lower risk pieces. Now,

515
00:26:57,160 --> 00:26:58,920
Speaker 9: from point of view of banking stability, that's not the

516
00:26:59,000 --> 00:27:01,920
Speaker 9: end of the world. It means they're less profitable. They

517
00:27:01,920 --> 00:27:04,560
Speaker 9: need more scale. And actually, one interesting thing which I

518
00:27:04,560 --> 00:27:06,359
Speaker 9: don't think has come out clear is you know there

519
00:27:06,359 --> 00:27:07,760
Speaker 9: are banks who play to win and the banks who

520
00:27:07,760 --> 00:27:11,000
Speaker 9: play not to lose. The largest five or six banks say, actually,

521
00:27:11,000 --> 00:27:13,560
Speaker 9: if I've got private credit, I can write even more

522
00:27:13,600 --> 00:27:16,560
Speaker 9: loans and lay more off. But that's not how most

523
00:27:16,600 --> 00:27:17,080
Speaker 9: people think.

524
00:27:17,359 --> 00:27:21,879
Speaker 4: So we are seeing deals with banks and private credit

525
00:27:21,960 --> 00:27:24,360
Speaker 4: top what is going on there.

526
00:27:24,240 --> 00:27:27,160
Speaker 9: Explain that how those yes look Just to let's be clear,

527
00:27:27,280 --> 00:27:28,800
Speaker 9: this is a real thing, and we see the City

528
00:27:28,800 --> 00:27:31,560
Speaker 9: Group was the most of the biggest city. But we've

529
00:27:31,600 --> 00:27:34,720
Speaker 9: seen fourteen tie ups in the last twelve months versus

530
00:27:34,720 --> 00:27:36,760
Speaker 9: only two in the year before, so it is a

531
00:27:36,760 --> 00:27:40,680
Speaker 9: real thing. Barclays a Blackstone is another big one. Now

532
00:27:40,800 --> 00:27:44,639
Speaker 9: what's happening is, you know, the big private credit firms

533
00:27:44,760 --> 00:27:47,919
Speaker 9: need to originate assets because they know what They're hungry

534
00:27:47,920 --> 00:27:50,640
Speaker 9: for more assets and they can't originate them all themselves,

535
00:27:50,640 --> 00:27:55,880
Speaker 9: so they're working with the banks any more deals. There's

536
00:27:56,040 --> 00:27:58,080
Speaker 9: there's plenty more in the book in the works.

537
00:27:57,880 --> 00:28:00,960
Speaker 2: Okay, but the simplistic thing from me mortals listening and

538
00:28:01,240 --> 00:28:04,520
Speaker 2: good morning worldwide, particularly in you'ven't seen as United Kingdom.

539
00:28:05,160 --> 00:28:09,640
Speaker 2: The heart of the matter is good people like Jim Zeltner,

540
00:28:09,720 --> 00:28:13,200
Speaker 2: Mark Rowan and others are trotting out this is painless

541
00:28:13,480 --> 00:28:15,119
Speaker 2: even though we have ill liquidity.

542
00:28:15,200 --> 00:28:17,159
Speaker 3: There's no big deal. You know the drill.

543
00:28:17,600 --> 00:28:20,480
Speaker 2: Do you buy it or do you have a skepticism

544
00:28:20,560 --> 00:28:22,199
Speaker 2: that we see out there from others.

545
00:28:23,520 --> 00:28:26,679
Speaker 9: So look, I know, I think for the leading firms

546
00:28:26,720 --> 00:28:29,639
Speaker 9: who so let's be clearing credit and Paul knows not this.

547
00:28:29,840 --> 00:28:31,240
Speaker 9: You can make a good deal or a bad deal, and

548
00:28:31,240 --> 00:28:33,440
Speaker 9: you can lose all your money or take a big

549
00:28:33,480 --> 00:28:36,040
Speaker 9: haircut so you need to be very thoughtful when you're

550
00:28:36,119 --> 00:28:38,920
Speaker 9: letting out your sheet. There are smart people and Tom,

551
00:28:38,960 --> 00:28:40,840
Speaker 9: as we both know, there's some less smart people. So

552
00:28:40,960 --> 00:28:42,840
Speaker 9: within the private credit, of course there'll be some deals

553
00:28:42,840 --> 00:28:46,280
Speaker 9: which go bad. But in this kind of thing, insurance companies,

554
00:28:46,320 --> 00:28:50,680
Speaker 9: which are about half the assets funding private credit, need yield.

555
00:28:50,880 --> 00:28:53,280
Speaker 9: And so I think the really interesting sub theme here

556
00:28:53,680 --> 00:28:57,480
Speaker 9: is that as private credit gets more insurance assets, they

557
00:28:57,560 --> 00:29:00,400
Speaker 9: lower their cost of capital and they become more relevant

558
00:29:00,400 --> 00:29:03,560
Speaker 9: for investment grade assets in the in the marketplace. And

559
00:29:03,640 --> 00:29:06,080
Speaker 9: I think that's the trend, which you know Paulo does brilliantly.

560
00:29:06,080 --> 00:29:08,600
Speaker 9: Blackstone's doing very well, and I think that is a thing.

561
00:29:09,040 --> 00:29:11,520
Speaker 9: And obviously if it's an investment grade, well that is

562
00:29:11,800 --> 00:29:14,120
Speaker 9: less risky, isn't it, Tom. So you know, don't get

563
00:29:14,160 --> 00:29:16,000
Speaker 9: me wrong, I'm sure there'll be there'll be a fringe

564
00:29:16,000 --> 00:29:18,640
Speaker 9: of bad practices, but I think on the whole, actually

565
00:29:18,640 --> 00:29:20,160
Speaker 9: this is more investment grade than not.

566
00:29:20,640 --> 00:29:22,920
Speaker 2: Have you ever worked with pure pot Later and into

567
00:29:22,960 --> 00:29:24,240
Speaker 2: the TV show industry, I.

568
00:29:24,120 --> 00:29:27,000
Speaker 3: Mean here sounds right out of industry. Now are you

569
00:29:27,080 --> 00:29:28,800
Speaker 3: watching industry? How real is it?

570
00:29:28,920 --> 00:29:33,440
Speaker 9: I'm not I should I'm a failure on that. I haven't.

571
00:29:33,560 --> 00:29:35,720
Speaker 9: You're not watching billions I love, but I haven't watch

572
00:29:35,720 --> 00:29:37,000
Speaker 9: the industry.

573
00:29:37,400 --> 00:29:39,840
Speaker 2: The industry is like I'm looking at it with missus Kin, going,

574
00:29:39,920 --> 00:29:45,000
Speaker 2: my god, that guy talks just like you. Actually pretty good,

575
00:29:45,560 --> 00:29:46,400
Speaker 2: Thank you so much.

576
00:29:46,480 --> 00:29:47,479
Speaker 3: Too rare to see him.

577
00:29:47,480 --> 00:29:50,280
Speaker 2: He's in studio today, of course, from the United Kingdom,

578
00:29:50,400 --> 00:29:54,560
Speaker 2: working with Dantean Obamad Oliver Wyman. His own important comments there,

579
00:29:54,880 --> 00:29:56,760
Speaker 2: I'm private credible.

580
00:29:57,120 --> 00:29:57,520
Speaker 3: This is a.

581
00:29:57,520 --> 00:30:02,520
Speaker 2: Bloomberg Surveillance podcast, bringing you the the best in economics, finance, investment,

582
00:30:02,680 --> 00:30:06,320
Speaker 2: and international relations. You can also watch the show live

583
00:30:06,560 --> 00:30:07,280
Speaker 2: on YouTube.

584
00:30:07,600 --> 00:30:09,120
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585
00:30:08,680 --> 00:30:13,200
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586
00:30:13,200 --> 00:30:16,600
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587
00:30:16,600 --> 00:30:20,480
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588
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589
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