Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferroll and Lisa A. Brawmowitz Jailey. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg
Speaker 1: dot Com, and of course on the Bloomberg terminal. Do
Speaker 1: you want to get stand places? Sagi Natsia is the
Speaker 1: chief economist and head of Global Economics and Markets Research
Speaker 1: at Comments Sexy And coming off the back of a
Speaker 1: weekend where you actually cut the outlook for us crow,
Speaker 1: so let's start there with y. We cut the outlook
Speaker 1: because there was there's been a very material tightening in
Speaker 1: financial conditions over the last couple of months. All Financial
Speaker 1: Conditions Index is up by more than two hundred basis
Speaker 1: points from the end of two thousand and twenty twenty one,
Speaker 1: and we think that that's going to keep growth below
Speaker 1: trend over the next several quarters. Over the next year
Speaker 1: or so, so we're now looking for only one and
Speaker 1: a quarter percent growth this year on a fourth quarter
Speaker 1: to the fourth quarter basis and then one and a
Speaker 1: half percent next year. And I think that's needed to
Speaker 1: create a little bit more capacity in the labor market,
Speaker 1: in particular alongside an improvement in labor force participation, because
Speaker 1: we have this huge gap between labor demand and labor supply.
Speaker 1: We've got eleven and a half million open possessions and
Speaker 1: six million unemployed workers, and that gap needs to shrink.
Speaker 1: As share Powell has said, yeah, I want to talk.
Speaker 1: There's any ways to go here, but I do want
Speaker 1: to talk about sub two percent g d P. And
Speaker 1: one of the partitions here is domestic final sales, a
Speaker 1: review of the American economy versus export import dynamics on
Speaker 1: the other side, and your call exact Pandel then can
Speaker 1: throw in dollar dynamics as well. Is your call a
Speaker 1: foreign call or is it a domestical It's really a
Speaker 1: domestic call. Mostly that's the main driver here. I mean
Speaker 1: first quarter, I had a lot of noise in the
Speaker 1: in the trade statistics. I think some of that is
Speaker 1: going to unravel, but I think it's really about higher
Speaker 1: interest rates, lower stock prices, somewhat wider credit spreads, and
Speaker 1: to some degree the appreciation of the dollar. But all
Speaker 1: of those different drivers which are primarily going to impinge
Speaker 1: on domestic demand, slowing growth to a much lower pace.
Speaker 1: Do you see any indications at this time at the
Speaker 1: labor economy is easy? Is it in the micro data
Speaker 1: that you look at every week? Not yet in the data, No.
Speaker 1: I think there are some signs in the more anecdotal reports,
Speaker 1: company by company reports some of the tech firms scaling
Speaker 1: back hiring, lowering open positions. In the hard data that
Speaker 1: get published by the Labor Department not yet. Yeah, And
Speaker 1: how high does unemployment have to get to reach that
Speaker 1: sort of spare capacity they're looking for the labor market?
Speaker 1: I actually don't think that the unemployment rate has to
Speaker 1: rise a lot. What needs to happen, I think is
Speaker 1: that companies bring down open positions. So the path that
Speaker 1: the FEDS tight targeting is to slow growth to a
Speaker 1: pace that is slow enough too for companies to shelve
Speaker 1: some of their expansion plans and bring down some of
Speaker 1: the open positions, but not so slow that you start
Speaker 1: getting large numbers of layoffs. So we're expecting a little
Speaker 1: bit of an increase in the unemployment rate from the
Speaker 1: you know, three and a half percent range to the
Speaker 1: three and three quarter percent range, but not a large increase.
Speaker 1: Do you think that basically Michelle Meyer was correct when
Speaker 1: she was talking about the ability for consumers to lever
Speaker 1: up even if their incomes aren't keeping pace with the
Speaker 1: with the inflation rate right now, and that basically the
Speaker 1: FED has to go a lot faster even still, then
Speaker 1: if then people seem to think in order to slow that,
Speaker 1: otherwise we're going to get even more overheating. Well, I think,
Speaker 1: you know, borrowing is going to be a short term
Speaker 1: uh driver of spending, and I think has been to
Speaker 1: some degree. If you look at the consumer credit numbers
Speaker 1: over the last couple of months, there clearly has been
Speaker 1: some you know, re leveraging to some degree. But I
Speaker 1: don't think that that's going to be a lasting kind
Speaker 1: of uh, you know, support for for spending. So I
Speaker 1: think the sumer spending is going to be relatively slow.
Speaker 1: Income is going to be quite weak in two thousand
Speaker 1: and twenty two. We're looking for only zero point five
Speaker 1: percent real income growth on the fourth quarter to fourth
Speaker 1: quarter basis on an annual average basis actually significantly weaker
Speaker 1: than that. But even on a Q four, the Q
Speaker 1: four basis only zero point five and I think that's
Speaker 1: going to keep spending pretty soft. Long on fair away
Speaker 1: there was Dudley and mclvy and this young whipper snapper
Speaker 1: from Germany. What was his name? I think it was
Speaker 1: heart serious is what it was. You codified emmy W
Speaker 1: mortgage would you withdraw? Let me cut to the chase yourn.
Speaker 1: When does the housing market break? Well, emmy W is
Speaker 1: actually a very important issue. Again, not as important, I
Speaker 1: think as going into the oh eight crisis, but there
Speaker 1: has been a pick up in mortgagee would you withdrawal
Speaker 1: over the last year, and you've got had this increase
Speaker 1: in consumer credit as well. You know, similar kind of dynamic.
Speaker 1: This supports spending in the in the short term, but
Speaker 1: ultimately is not going to be a sustainable source of
Speaker 1: big increases in spending. So builds in a slowdown sort
Speaker 1: of down the road. And I think you know when
Speaker 1: the housing market slows, of course, is going to determine
Speaker 1: the timing of that. We haven't really seen significant slowing
Speaker 1: in the in the part data yet. I do expect
Speaker 1: that mortgage rates up even more than ten. Treasure Pharaoh
Speaker 1: wants to know should he buy in June or July.
Speaker 1: I'm not going to give advice on that that I
Speaker 1: think is probably not not don't worried that's too long
Speaker 1: term for you and it's finished here just quickly. What's
Speaker 1: the biggest risk right now to your view? Well, I
Speaker 1: think the the FED is still trying to bring down
Speaker 1: you know, slow slow the economy, slow employment, and bring
Speaker 1: down open positions because they're still worried about inflation being
Speaker 1: too high and it will be well above target for
Speaker 1: the foreseeable future. I do think it's going to come down,
Speaker 1: but if it doesn't come down quickly enough, we can see,
Speaker 1: you know, still significantly higher rates. Our call at the
Speaker 1: moment is three to three in a quarter percent for
Speaker 1: the funds rate. We've stuck with that and it's you know,
Speaker 1: fairly close to market pricing. But I think the risk
Speaker 1: cases that you know, they have to do more, and
Speaker 1: that then also raises the risk of a hard landing.
Speaker 1: Not our baseline, but that would be the rest of
Speaker 1: the upside. Wrist the rights clear in present. Yeah, thank you,
Speaker 1: as always, Saxon. We're thrilled to bring you now someone
Speaker 1: hardwired to the retail of America and particularly the aspiration
Speaker 1: that all of us are guilty of. Dana Telsey, his
Speaker 1: chief executive officer chief research officer at Telsey advisory group
Speaker 1: and lives in New York retail truly like no one
Speaker 1: I know. Dana. I was absolutely crushed at the price
Speaker 1: rise on the Selena hoodie sweatshirt the men's it's got
Speaker 1: the Selene thing on it. I thought it should be
Speaker 1: in my closet. I mean there was. It was eight
Speaker 1: hundred bucks and all of a sudden, it's nine dollars.
Speaker 1: Everything's going up in price, right it has. We're seeing
Speaker 1: price increases and Tom, thank you for having me. Price
Speaker 1: increases across the board on many different categories, especially on
Speaker 1: luxury goods. The consumer is buying, and we're seeing a
Speaker 1: wide range of rumors buying in terms of demographics and
Speaker 1: age group. The brand matters and they find ways to
Speaker 1: pay for it. But what is so important here from
Speaker 1: the days of you, I I bear Stearns, where you're doing,
Speaker 1: you know, channel shops and going through Abercromie and Fitch,
Speaker 1: is the way we buy this stuff is fundamentally changed.
Speaker 1: How important for you and Joe Feldman is a firm
Speaker 1: is PayPal credit? Is the access of get that Selene
Speaker 1: sweatshirt now and pay for it later. That sea change,
Speaker 1: It is a sea change. It's very important and frankly
Speaker 1: it lifts the sales and also the companies are learning
Speaker 1: what to produce because of the options that they have,
Speaker 1: both buying in store and buying online. The world today
Speaker 1: is more integrated than it ever has and we're watching
Speaker 1: sell through, watching influences, We're watching Instagram in order to
Speaker 1: pick up what are the trends that are going to
Speaker 1: mean something on main street? So what are you expecting
Speaker 1: right now in about ten minutes time? And these retail
Speaker 1: sales numbers, I mean I think April hopefully should be
Speaker 1: a little bit better. We saw gas prices come in
Speaker 1: a little bit. We still have an environment, like was
Speaker 1: mentioned earlier, a shift to services from goods. We're expecting
Speaker 1: a big summer season and vacation. The other thing is
Speaker 1: you have two point six million weddings occurring this year.
Speaker 1: On average, people spend around four hundred thirty dollars every
Speaker 1: time they go to a wedding, so you'll still have
Speaker 1: some of that good spending. April should have been a
Speaker 1: little bit better. But inflation is a headwind and that
Speaker 1: is in every aspect that companies are dealing with. Its
Speaker 1: people change the way they pay for luxury goods. Do
Speaker 1: we have to change the way we think about who's
Speaker 1: shopping there. Typically we think of the high income earner
Speaker 1: and the luxury goods, and those two are so closely tether.
Speaker 1: I just wanted to Donna if that's changed now over
Speaker 1: the last couple of years. I think it has. I
Speaker 1: think you've gotten the millennials and the gen z s,
Speaker 1: and I think the brand awareness the collaborations that have
Speaker 1: been done is bring making these luxury brands younger and
Speaker 1: younger while still keeping the ethos and the interests of
Speaker 1: the higher income down graphics. As interest rates go up,
Speaker 1: can they maintain the buying? I see the lines outside
Speaker 1: of the luxury stores in Soho, we all do. We
Speaker 1: could spot the average age in that line as well.
Speaker 1: What's gonna happen here does not look good as you
Speaker 1: look further forward. I mean, we need the Chinese to
Speaker 1: come back and spend Right now, you're seeing some tourism
Speaker 1: happen with Europeans coming to the US. Will need that
Speaker 1: Asian traveler. But the product innovation is key. We've seen
Speaker 1: what demand can be when newness is out there. You've
Speaker 1: seen it from LVMH with their brands. You look at
Speaker 1: what's happening with Tiffany's you've seen what it's what's happening
Speaker 1: with bolln Siaga. There there are luxury brands that matter
Speaker 1: to these consumers. There's a bigger issue underpitting John's question.
Speaker 1: It's an important one, which is at what point will
Speaker 1: higher borrowing costs really matter, especially as more consumers do
Speaker 1: start to level up in order to keep their purchasing
Speaker 1: at the same levels as before inflation took off to
Speaker 1: the way that it is now. I think overall, the
Speaker 1: lower income consumer at the lower end, obviously they're struggling.
Speaker 1: The middle income can summer continues to get some higher wages,
Speaker 1: and those wages are allocated. It may not be allocated
Speaker 1: to goods, but allocated to services above that mid tiers.
Speaker 1: The question mark if there's a pullback given what debt
Speaker 1: levels could look like. Dana, your thoughts, thoughts and Joe
Speaker 1: Filman's work on Amazon has been great, but I'm gonna
Speaker 1: editorialize and say Amazon has been a train wreck your
Speaker 1: thoughts and now they turn it around. I mean, there's
Speaker 1: work to be done there and Amazon. The narrative that
Speaker 1: was two and three years ago that Amazon is going
Speaker 1: to take over a retail and the consumer spend isn't there.
Speaker 1: It definitely cost more to be able to shift than
Speaker 1: ever before. Everyone basically expected what was happening online sales
Speaker 1: to continue the growth, and we're seeing that shift now.
Speaker 1: We're seeing the shift of a return to stores from
Speaker 1: digital sales. That's helping the physical store retailer. And frankly,
Speaker 1: digital sales are moderating, and that Sianca is a brand.
Speaker 1: I just don't get t k. What is a Cianca about?
Speaker 1: You know, to be honest, I just but you know,
Speaker 1: on data will be dazzled by this. I actually watched
Speaker 1: a little short video on the Guide Balanceaga that he went.
Speaker 1: He went bankrupt like three times, and every time he
Speaker 1: came out he revolutionized what he did out of Spain
Speaker 1: and it was with always with drama, John and I
Speaker 1: guess that's what it is. I don't get it, Dana.
Speaker 1: I'm convinced that in a few years time they come
Speaker 1: out of the head office and say, got you. This
Speaker 1: was all a joke, but you bought it anyway. I
Speaker 1: just don't get it. I think one of the things
Speaker 1: they do, you can go buy their windows like I
Speaker 1: did last night. They're putting things in their windows that
Speaker 1: whether it's big inflated balloons in the in the look
Speaker 1: of a person, they're basically creating that something you need
Speaker 1: to see. And frankly, there's a difference between heritage and
Speaker 1: authentic luxury, like what you have with the quality of
Speaker 1: the goods at our mez, and there's a difference with
Speaker 1: what's happening now that is in demand because of limited supply.
Speaker 1: That's what some of the brands. Dana, what does your
Speaker 1: universe do when we come off China lockdown? Uh, the
Speaker 1: luxury goods universe will do very well. But also don't
Speaker 1: forget what China supplies. Every manufacturer is looking to diversify
Speaker 1: their supply and being able to get the goods is key, brilliant,
Speaker 1: thank you, awesome advantag Do you know that the sweatshirts
Speaker 1: I thought, if you bought a luxury sweatshirt that didn't
Speaker 1: shrink in the wash, I guess you got to watch
Speaker 1: out for tom as if the other half takes set
Speaker 1: sweatshirt and shrinks it deliberately so that they can wear it.
Speaker 1: To bet the idea that women spend so much more
Speaker 1: than men, I mean, that's typically the stereotype. It's going
Speaker 1: to paint out that's exactly right. I just want to
Speaker 1: make that very clear now joining us, and this is
Speaker 1: a really important conversation for you on radio and television
Speaker 1: because Sky Clemens, with thirty plus years of Brown Brothers
Speaker 1: hareman synthesizes in all the eco babble into the market
Speaker 1: strategy and your foundation, Scott Clemens, is everybody calm down
Speaker 1: about inflation? If you're brief and Chairman Powell today in
Speaker 1: the forty seven other FED speakers, how do you tell
Speaker 1: them to calm down about inflation? Um, I think it
Speaker 1: pays to be a simple minded economist given all of
Speaker 1: the moving parts that you've laid out here. At the
Speaker 1: top of the hour, I would remind the FED. Far
Speaker 1: be it for me to lecture the FED, but I
Speaker 1: would remind the FED that the price of everything, in
Speaker 1: the price of anything, is simply the interaction of supply
Speaker 1: and demand, and that the FED has an ability to
Speaker 1: influence demand through monetary policy, but the FED does not
Speaker 1: have the ability to influence supply. So to the degree
Speaker 1: that lingering inflation is a result of lingering supply chain disruptions,
Speaker 1: the FED should not get over eager and raise interest
Speaker 1: rates too much. Much to try to choke off inflation
Speaker 1: that ends up not being demand driven to begin with.
Speaker 1: I think that's the story for inflation and the FED
Speaker 1: for the balance of this year. Let's talk about the
Speaker 1: story for this market. MARKA. Kolanovich of JP Mulgan and
Speaker 1: the investment banks saying we're pricing in too much recession
Speaker 1: risk just two pound question one to agree and to
Speaker 1: how do you measure that? I think that's right. I
Speaker 1: think the market is too pessimistic about the risk of
Speaker 1: inflation in an environment where we're adding jobs and roughly
Speaker 1: let's call it half a million jobs a month, net
Speaker 1: wages arising. Combined those things together, keeping in mind of
Speaker 1: personal consumption is sixty percent of GDP going to twenty
Speaker 1: three twenty four. Yeah, there's a recession out there somewhere,
Speaker 1: but I don't see that in the near term. The
Speaker 1: background was just too strong. Where I think the confusion
Speaker 1: or the anxiety arises is we're still in the midst
Speaker 1: of this transition of economic leadership away from the policy
Speaker 1: support of easy monetary policy and a lot of fiscal
Speaker 1: spending twelve eighteen, twenty four months ago, back to a
Speaker 1: more normal driver of economic active that's naturally anxiety inducing.
Speaker 1: I get it, but I think people are looking at
Speaker 1: the glasses being half empty. There are a lot of
Speaker 1: half full notions out there as well. Well. Are have
Speaker 1: full notion something that would encourage the Fed to hike
Speaker 1: further leading to half empty? And I know this sounds
Speaker 1: like a paradise, a parody of what it is to
Speaker 1: be gloomy, but honestly, this is what a lot of
Speaker 1: people are thinking. That the momentum that we're seeing in
Speaker 1: a lot of the economic data is a bad thing
Speaker 1: because it means the FED has to do more. What
Speaker 1: do you say to counter that? Well, at least I
Speaker 1: think the answer to that is what's really important. And
Speaker 1: this is a subtle nuance, but I think this is
Speaker 1: the source of a lot of the volatility and financial markets.
Speaker 1: The important thing is not that the Fed is raising
Speaker 1: interest rates, but why they're raising interest rates. And admittedly
Speaker 1: that's very subjective, but if the Fed, on one hand,
Speaker 1: is raising interest rates out of growing confidence that this
Speaker 1: transition and leadership is taking place, that's a pretty benign
Speaker 1: and even supportive outcome. If, on the other hand, the
Speaker 1: market concludes that inflation is running away and the FED
Speaker 1: is playing catch up. That's a very just up to outcome,
Speaker 1: and I think the push and pull between those two
Speaker 1: notions is what drives market volatility, not just day to day,
Speaker 1: but sometimes even hour to hour. We've we've all seen
Speaker 1: these days in which the market opens strongly and closes
Speaker 1: in the red or vice versa. Hopefully today's opening polls,
Speaker 1: but I think that's likely to continue for some time
Speaker 1: to come. We're telling our clients to get used to
Speaker 1: the kind of intra day volatility that has characterized the
Speaker 1: beginning of this year. It's not gonna go away anytime soon.
Speaker 1: So given that, where's your highest conviction right now, Scott Well,
Speaker 1: With the rise in interest rates, we've begun allocating capital
Speaker 1: into traditional fixed income for the first time close to
Speaker 1: a decade. For our clients at Brown withs Harim and
Speaker 1: taxable clients, remmisciple bonds are are offering a better trade
Speaker 1: off of risk and return than we've seen in quite
Speaker 1: some time. Beyond that, the carnage in equity markets has
Speaker 1: left a lot to find. I take a very simple
Speaker 1: measure and look at the percentage of stocks in an
Speaker 1: index trading below their fifty day moving average as of
Speaker 1: last night's close. Seventy eight percent of the SMP was
Speaker 1: below it's fifty day moving average. Of the Russell two
Speaker 1: thousand and nine point nine five percent of the NASTAC
Speaker 1: is trading below it's fifty day moving average. That doesn't
Speaker 1: mean that everything is cheap, but it certainly means that
Speaker 1: among that carnage there are plenty of good trade offs
Speaker 1: of risk and return. Scott, let's think positive. Let's say
Speaker 1: you go down in flames with your inflation call. Instead
Speaker 1: of getting two to three percent inflation, you fail, you're wrong,
Speaker 1: and we get four point two percent inflation by the
Speaker 1: end of the year. That is a c change from
Speaker 1: where we are right now. What does the stock market
Speaker 1: do if Clemens is wrong? That's probably more disruptive for
Speaker 1: the stock market if Clemens turns out to be wrong.
Speaker 1: I think, though, at the same time, the trajectory of
Speaker 1: inflation is important. If at the end of this year
Speaker 1: the inflation number still starts with the four but we're
Speaker 1: headed in the right direction, that's different. In that environment,
Speaker 1: I would want to own companies that have pricing power,
Speaker 1: companies that passed through those higher input costs to their
Speaker 1: end customers. That that tends to be associated with brand, loyalty,
Speaker 1: essential products and services, repeat customers, all the kinds of
Speaker 1: quality markers of a company. Not that they're immune from
Speaker 1: an inflationary environment like that, but there are a lot
Speaker 1: more resistant to it. Right to catch up, scill as
Speaker 1: always a different perspective of things at the moment, skilled
Speaker 1: climates at Brand brother Sentiment. Right now, we are all
Speaker 1: aware it is yield up and price down. That is
Speaker 1: the mix, the toxic mix for something rare in the
Speaker 1: last decades, a bond bear market. When you Seesar's living,
Speaker 1: this is global head of strategy at Credit Sites and
Speaker 1: she knows, well, you can talk about spreads and you
Speaker 1: can analyze loans in different categories and the answer is
Speaker 1: prices down. And she joins us this morning, I want
Speaker 1: to look at the Bloomberg Total Aggregate Index, Total Return Aggregate,
Speaker 1: Full Faith and Credit Index, and the answer is we're
Speaker 1: down twelve ice seven percent. Analyze. Can you state it's
Speaker 1: a bond bear market? It feels like we're in a
Speaker 1: bond bear market. And from talking to the credit investors
Speaker 1: that I speak to on a regular basis, they are
Speaker 1: certainly seeing a lot of signs of kind of continuing negativity.
Speaker 1: Don't fight the FED is definitely the mantra in the
Speaker 1: bond market, and the FED seems to be on a
Speaker 1: very hawkish course to continue to high rates. That being said,
Speaker 1: there are some signs of kind of constructive positivity on
Speaker 1: on the credit market side of things. Well, no, but
Speaker 1: in the equity market, I clawback on growth, I called
Speaker 1: clawback on use of cash. How do you claw back
Speaker 1: from a twelve percent loss? Frankly, and I g it
Speaker 1: could be an eight percent loss? What's the strategy to
Speaker 1: clawback in fixed income? So in fixed income, we've had
Speaker 1: two phases of the sell off. First, it was all duration.
Speaker 1: We saw higher rated, longer duration assets sell off as
Speaker 1: we saw that big sensitivity to the moving yields. Now
Speaker 1: with everybody very concerned about growth or moving into the
Speaker 1: credit risk phase of the sell off, and this means
Speaker 1: you have to be very selective in terms of where
Speaker 1: you are positioning your risk, and that is actually a
Speaker 1: very good sign for these dedicated credit investors who have
Speaker 1: longer term views and longer term mandates rather than kind
Speaker 1: of a three to six month time horizon like we
Speaker 1: usually see in the equity market, when you with about
Speaker 1: an hour ago before we get retail sales. When you
Speaker 1: take a look at the corporate fundamentals, which sectors are
Speaker 1: starting to feel the biggest hit from some of the
Speaker 1: weakness that at least we saw in Walmart, if not beyond.
Speaker 1: So we're definitely seeing a shift away from some of
Speaker 1: the COVID pandemic darlings, some of the consumer staples and
Speaker 1: retails side of things. But we are also seeing a
Speaker 1: continued improvement in energy fundamentals. While we might not hold
Speaker 1: energy prices where they currently are, the levels are still
Speaker 1: going to be quite strong for cash flow and credit investors.
Speaker 1: And we're also seeing some idiosyncredit risk in some sectors,
Speaker 1: things like high yield healthcare and how yield telecom. We're
Speaker 1: seeing some single name stories that are really driving outside
Speaker 1: spread widening in those specific sectors. They're sort of an
Speaker 1: existential question facing credit right now. Yes, borrowing costs are
Speaker 1: a lot higher, but companies don't really have to borrow.
Speaker 1: And if they don't have to borrow, does it matter, right,
Speaker 1: I mean, does it actually affect their bottom line? When
Speaker 1: do companies have to start borrowing again and actually locking
Speaker 1: in these yields that are incredibly high relative to where
Speaker 1: they were a year ago. That's a great point, Lisa,
Speaker 1: and I would also say the yields are high relative
Speaker 1: to one year ago, but let's not forget that one
Speaker 1: year ago was the absolute rock bottom for borrowing costs,
Speaker 1: a level that we're probably not going to see again,
Speaker 1: at least for a long period of time. And so
Speaker 1: even if borrowing costs have moved up by call it
Speaker 1: a hundred a hundred and fifty basis points in investment
Speaker 1: grade from a long term perspective, that is still a
Speaker 1: very low level of borrowing costs. And in fact, the
Speaker 1: amount of no issue that we've seen this year has
Speaker 1: been quite robust because a lot of companies are looking
Speaker 1: at those current borrowing costs and saying, well, you know,
Speaker 1: the is actually still not a terrible time to be
Speaker 1: um continuing to add to the balance sheet, continuing to
Speaker 1: refinance transactions. And then in the high yield market, that's
Speaker 1: where we've seen the most liability management, really giving a
Speaker 1: lot of these issuers a reprieve from having to go
Speaker 1: to the capital markets. And we probably have another twelve
Speaker 1: to twenty four months before there's really a lot of urgency,
Speaker 1: especially for the higher rated parts of the high yield market.
Speaker 1: The double b issuers when this presents a real issue
Speaker 1: for the FED. And we were talking about this on
Speaker 1: the consumer side with with Michelle Meyer of master Card.
Speaker 1: But if a lot of these companies are immune to
Speaker 1: more substantial FED rate hikes at least at a financing level,
Speaker 1: how high can the FED raise rates before presents a
Speaker 1: credit issue. So I think that the way the FED
Speaker 1: looks at the credit markets is functioning of capital markets.
Speaker 1: Are deals pricing is their investor demand, And for the
Speaker 1: investment grade market in particular, deals are still pricing, albeit
Speaker 1: at pretty steep new issue concensions relative to last year,
Speaker 1: and order books have been relatively solid. So I think
Speaker 1: the FED is looking at the investment grade market and saying,
Speaker 1: there are clearly some technical challenges going on in this market,
Speaker 1: but from a borrowing perspective and pure liquidity flowing, we
Speaker 1: can continue to hike rates. Now we're in kind of
Speaker 1: the approach to the danger zone a hundred and fifty
Speaker 1: basis points of spread. You usually don't hold that for
Speaker 1: very long in the i G market. Either you break
Speaker 1: one way or the other. And if you break to
Speaker 1: two hundred, that's when the FED has to take a
Speaker 1: little bit of a pause. And say our capital markets
Speaker 1: still functioning when he want when he says to that
Speaker 1: of credits sis. This is the Bloomberg Surveillance Podcast. Thanks
Speaker 1: for listening. Join us live weekdays from seven to ten
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Speaker 1: and of course on the terminal. I'm Tom keene In.
Speaker 1: This is Bloomer