1 00:00:02,520 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 2 00:00:13,840 --> 00:00:17,920 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:21,240 Speaker 1: on Apple car Play or Android Auto with the Bloomberg 4 00:00:21,320 --> 00:00:24,880 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:25,280 --> 00:00:27,160 Speaker 1: or watch us live on YouTube. 6 00:00:27,640 --> 00:00:30,280 Speaker 2: Wonderful surprise for you this morning. All things to talk 7 00:00:30,320 --> 00:00:33,600 Speaker 2: about with Robert Kaplan of Colvin Sax, former president of 8 00:00:33,600 --> 00:00:36,680 Speaker 2: de Dells Fed. We could talk for three hours with him, 9 00:00:36,720 --> 00:00:39,600 Speaker 2: but we're gonna do a massive audible here. And the 10 00:00:39,720 --> 00:00:42,800 Speaker 2: kid from you grew up in Brooklyn. 11 00:00:42,960 --> 00:00:44,879 Speaker 3: That my parents did, and I grew up in Kansas. 12 00:00:44,960 --> 00:00:46,560 Speaker 2: They grew up in Prairie Village. 13 00:00:46,600 --> 00:00:46,800 Speaker 3: Yeah. 14 00:00:47,479 --> 00:00:51,159 Speaker 2: And with John Sherman, you enjoyed partial ownership of the 15 00:00:51,200 --> 00:00:51,880 Speaker 2: Bobby Wits. 16 00:00:52,159 --> 00:00:53,720 Speaker 3: That's right of the Bobby Witch. 17 00:00:53,720 --> 00:00:56,600 Speaker 2: I watched him with the Giants in Phoenix here recently. 18 00:00:56,640 --> 00:00:58,760 Speaker 2: He's an electric player. I mean, he's a great player. 19 00:00:58,920 --> 00:01:02,240 Speaker 2: How will the Kansas Royals your team you're part owner 20 00:01:02,280 --> 00:01:05,679 Speaker 2: with John Sherman, how will they compete? Where the payrolls? 21 00:01:05,760 --> 00:01:08,160 Speaker 2: About the size of Aaron Judges payroll I got one 22 00:01:08,200 --> 00:01:11,600 Speaker 2: hundred and eighty two million is a working statistic. This 23 00:01:11,640 --> 00:01:12,360 Speaker 2: is unfair. 24 00:01:12,480 --> 00:01:16,400 Speaker 3: Right, yeah, and that's why in the is a sensitive topic. 25 00:01:16,440 --> 00:01:19,479 Speaker 3: But in the labor negotiations over the next year or two, 26 00:01:19,800 --> 00:01:21,920 Speaker 3: there's going to have to be a discussion about some 27 00:01:22,160 --> 00:01:27,319 Speaker 3: type of balancing salary cap that the sport really really 28 00:01:27,400 --> 00:01:30,920 Speaker 3: needs to create more competitiveness. Having said that, Royals are 29 00:01:30,920 --> 00:01:32,920 Speaker 3: going to I say that some a little bias. Royls 30 00:01:32,959 --> 00:01:33,880 Speaker 3: are gonna be good this year. 31 00:01:35,440 --> 00:01:37,920 Speaker 4: I mean there's I mean the word is in sports radio. 32 00:01:38,000 --> 00:01:39,880 Speaker 4: There's going to be a work stoppage next year. 33 00:01:40,000 --> 00:01:41,360 Speaker 5: They do not need. 34 00:01:41,280 --> 00:01:43,959 Speaker 2: Within the delicacy's Robert kaplan. Of where you sit with 35 00:01:44,000 --> 00:01:47,080 Speaker 2: the Kansas City Royals, are you optimistic there can be 36 00:01:47,120 --> 00:01:48,960 Speaker 2: a constructive agreement. 37 00:01:49,280 --> 00:01:54,320 Speaker 3: I'm optimistic that it's clear the sport needs to deal 38 00:01:54,400 --> 00:02:00,480 Speaker 3: with the disparity like other sports were to get from 39 00:02:00,520 --> 00:02:02,280 Speaker 3: here to there. I don't know, but it's clear it 40 00:02:02,320 --> 00:02:04,400 Speaker 3: would benefit everyone involved in the sport. 41 00:02:04,480 --> 00:02:07,880 Speaker 2: One Kansas final Kansas City question before serious issues. Am 42 00:02:07,880 --> 00:02:12,280 Speaker 2: I right? Kansas City is booming. That's what I notice 43 00:02:12,760 --> 00:02:16,480 Speaker 2: the radar from here. It's booming. The new airport at all. 44 00:02:16,680 --> 00:02:20,720 Speaker 3: Of course, yes, listen, I'm Kansasity's a fabulous place to live. 45 00:02:20,760 --> 00:02:24,679 Speaker 3: I love it. I go back there regularly, and it's 46 00:02:25,080 --> 00:02:28,079 Speaker 3: it doesn't have a lot of Like forty three other 47 00:02:28,160 --> 00:02:30,600 Speaker 3: states in the United States, the state of Kansas and 48 00:02:30,639 --> 00:02:34,359 Speaker 3: Missouri are not growing substantially in terms of population, but 49 00:02:34,400 --> 00:02:35,520 Speaker 3: it's a fabulous place. 50 00:02:35,680 --> 00:02:37,480 Speaker 2: Yeah, it's good. Should we start the show. 51 00:02:37,680 --> 00:02:38,000 Speaker 6: Let's go. 52 00:02:38,160 --> 00:02:41,000 Speaker 2: Let's start to show Paul Sweety with Robert Kaplan, the 53 00:02:41,040 --> 00:02:42,960 Speaker 2: former FED president of Dallas. 54 00:02:43,360 --> 00:02:46,520 Speaker 4: Robert, you know, the FED decision, I guess was not 55 00:02:46,560 --> 00:02:48,160 Speaker 4: surprising in March kind of. 56 00:02:48,480 --> 00:02:50,480 Speaker 7: But if I look at the WRP. 57 00:02:50,080 --> 00:02:52,200 Speaker 4: Function, look at where the market is thinking, the market's 58 00:02:52,240 --> 00:02:54,839 Speaker 4: not really pricing in any cuts or even any rate 59 00:02:54,919 --> 00:02:57,080 Speaker 4: heights for the end of the year, I guess that 60 00:02:57,160 --> 00:02:59,480 Speaker 4: makes sense because there's so much uncertainty out there. 61 00:02:59,639 --> 00:03:04,240 Speaker 3: It makes a lot of sense. If we talked literally 62 00:03:04,360 --> 00:03:07,600 Speaker 3: just a month ago, we would have said we're set 63 00:03:07,680 --> 00:03:10,280 Speaker 3: up for a strong year growth in twenty twenty six, 64 00:03:10,919 --> 00:03:14,560 Speaker 3: tax and centers, regulatory reform, AI data center power boom. 65 00:03:15,720 --> 00:03:19,040 Speaker 3: And I think the FED was hopeful in the back 66 00:03:19,080 --> 00:03:22,120 Speaker 3: half of the year that headline inflation would tail off 67 00:03:22,160 --> 00:03:23,800 Speaker 3: a bit, so they might be able to cut rates 68 00:03:23,800 --> 00:03:27,000 Speaker 3: once or twice. Obviously, because of what's going on in 69 00:03:27,040 --> 00:03:31,480 Speaker 3: the Middle East, I think they're going to need to 70 00:03:31,480 --> 00:03:33,560 Speaker 3: step back, that's the right thing to do and let 71 00:03:33,560 --> 00:03:35,800 Speaker 3: this unfold. Then the market is sort of backed off 72 00:03:35,800 --> 00:03:39,680 Speaker 3: also and is pricing in basically no cuts this year. 73 00:03:40,360 --> 00:03:42,880 Speaker 4: What do you think if I'm at the board level, 74 00:03:42,920 --> 00:03:45,960 Speaker 4: if I'm at the c suite level, I've navigated tariffs. 75 00:03:46,600 --> 00:03:50,000 Speaker 4: Now we have to navigate what may be, you know, 76 00:03:50,040 --> 00:03:55,640 Speaker 4: an inflationary slowing economy due to higher energy prices. What 77 00:03:55,760 --> 00:03:57,120 Speaker 4: is the c suite? What is the board to do 78 00:03:57,120 --> 00:03:58,840 Speaker 4: these days? Are they going to sit on their hands 79 00:03:58,840 --> 00:03:59,120 Speaker 4: as well? 80 00:03:59,160 --> 00:03:59,560 Speaker 2: A little bit? 81 00:03:59,600 --> 00:04:02,000 Speaker 3: Do you think they're what we're seeing? They're not sitting 82 00:04:02,080 --> 00:04:05,200 Speaker 3: on their hands because we are in the middle of 83 00:04:06,720 --> 00:04:10,320 Speaker 3: not only an AI data center power cap x boom, 84 00:04:10,400 --> 00:04:14,640 Speaker 3: but now we're in the early stages of the adoption boom, 85 00:04:14,800 --> 00:04:17,880 Speaker 3: which is going to improve productivity growth in every business 86 00:04:17,880 --> 00:04:20,800 Speaker 3: we talk to has got to be trying use cases 87 00:04:21,120 --> 00:04:22,760 Speaker 3: and trying to figure out how that's going to work. 88 00:04:22,800 --> 00:04:26,880 Speaker 3: And many are concluding that in this new era they're 89 00:04:26,920 --> 00:04:31,120 Speaker 3: better off getting more size and scale and merging, so 90 00:04:31,240 --> 00:04:34,520 Speaker 3: that's not slowing down at all. Having said that, if 91 00:04:34,560 --> 00:04:37,360 Speaker 3: you want to if your forecast for the year, this 92 00:04:37,440 --> 00:04:40,440 Speaker 3: has put a little bit of a damper for many 93 00:04:40,480 --> 00:04:42,480 Speaker 3: businesses on their growth outlook, and they're going to be 94 00:04:42,560 --> 00:04:46,760 Speaker 3: more careful and that will start with hiring and other expenditures. 95 00:04:47,080 --> 00:04:51,680 Speaker 3: But they've got to keep aggressively pursuing this AI situation, 96 00:04:51,880 --> 00:04:53,120 Speaker 3: and mergers will be part of that. 97 00:04:53,360 --> 00:04:55,480 Speaker 2: You're in the early crisciple of this, of course, at 98 00:04:55,480 --> 00:04:57,520 Speaker 2: the Dallas Fed. And we all know how the Texas 99 00:04:57,600 --> 00:05:00,800 Speaker 2: is booming. The philanthropy and Michael Dell and others. Here's 100 00:05:00,800 --> 00:05:05,160 Speaker 2: Anna Crockett from Robert Kaplan's Dallas Fed Salary not sole 101 00:05:05,279 --> 00:05:09,280 Speaker 2: concern for young adults weighing career decisions. So you bringing 102 00:05:09,400 --> 00:05:11,799 Speaker 2: over to AI in the boom, whether it's Deer Valley 103 00:05:11,839 --> 00:05:15,240 Speaker 2: out into Phoenix or everything going on in Texas, what's 104 00:05:15,240 --> 00:05:18,960 Speaker 2: going to be the incentive here to drive employment and 105 00:05:19,320 --> 00:05:21,080 Speaker 2: happy employment forward? 106 00:05:21,720 --> 00:05:24,440 Speaker 3: So what we see and I saw this when I 107 00:05:24,480 --> 00:05:26,240 Speaker 3: was at the Dallas FED, and I see it more now. 108 00:05:27,080 --> 00:05:29,440 Speaker 3: All we've got a lot of what I call mismatches. 109 00:05:29,920 --> 00:05:32,840 Speaker 3: So the FED worries about are we sickly growing? Are 110 00:05:32,880 --> 00:05:35,719 Speaker 3: we weakening? We got difference, We've got a structural problem. 111 00:05:35,880 --> 00:05:39,320 Speaker 3: We've got college graduates, programmers, others can't find jobs. But 112 00:05:39,400 --> 00:05:44,400 Speaker 3: I've never seen more open jobs. Window installers, technicians, plumbers, 113 00:05:44,839 --> 00:05:48,039 Speaker 3: people to work on the Ford Motor Company assembly line 114 00:05:48,040 --> 00:05:49,960 Speaker 3: to make one hundred and thirty five grand here can't 115 00:05:50,000 --> 00:05:54,600 Speaker 3: find them, and so these mismatches have to be worked through. 116 00:05:54,640 --> 00:05:56,760 Speaker 3: And we're kind of struggling with that right now. 117 00:05:56,760 --> 00:05:57,599 Speaker 7: Okay, this is set of the. 118 00:05:57,600 --> 00:06:01,120 Speaker 2: Grassley welders in Iowa a million years ago. What's the 119 00:06:01,160 --> 00:06:03,960 Speaker 2: simple issue, more pay for those working class people. 120 00:06:04,360 --> 00:06:07,560 Speaker 3: Some of it is aspirational. If I go to college, 121 00:06:07,960 --> 00:06:09,719 Speaker 3: I think, did I go to college to be a 122 00:06:09,760 --> 00:06:12,880 Speaker 3: plumber or electrician? Turns out those jobs make a lot 123 00:06:12,960 --> 00:06:16,880 Speaker 3: of money, and so I think you may see you're 124 00:06:16,880 --> 00:06:19,160 Speaker 3: going to need to see more changes in our educational 125 00:06:19,200 --> 00:06:22,040 Speaker 3: system where it wouldn't shock me if fifteen years from 126 00:06:22,080 --> 00:06:26,920 Speaker 3: now a state college offers a skill training option, they'll 127 00:06:27,000 --> 00:06:27,640 Speaker 3: do that. Now. 128 00:06:27,960 --> 00:06:32,200 Speaker 2: This would be Paul an Agricultural and Mechanical school, like 129 00:06:32,240 --> 00:06:33,760 Speaker 2: at College Point Texas. 130 00:06:33,960 --> 00:06:34,359 Speaker 7: Exactly. 131 00:06:34,440 --> 00:06:35,520 Speaker 3: That's right, College station. 132 00:06:35,720 --> 00:06:39,960 Speaker 4: Yeah, comes to stations exactly, Robert. I mean, talk to 133 00:06:40,040 --> 00:06:41,800 Speaker 4: us about the m and A environment. We came into 134 00:06:41,839 --> 00:06:45,640 Speaker 4: the second term of President Trump. The expectation was that 135 00:06:45,680 --> 00:06:47,200 Speaker 4: this was going to be an administration that was going 136 00:06:47,240 --> 00:06:48,640 Speaker 4: to be very supportive of. 137 00:06:48,800 --> 00:06:49,960 Speaker 3: M and a consolidation. 138 00:06:50,760 --> 00:06:51,880 Speaker 7: Have we in fact seen that. 139 00:06:52,960 --> 00:06:57,360 Speaker 3: I think the I'll talk generally, the attitude in boards 140 00:06:57,480 --> 00:07:02,080 Speaker 3: is there is a window here where I think companies 141 00:07:02,120 --> 00:07:03,919 Speaker 3: are more confident that if they want to do a 142 00:07:03,960 --> 00:07:06,599 Speaker 3: merger that they'll be able to get it done, and 143 00:07:06,640 --> 00:07:08,440 Speaker 3: they want to take advantage of that window. 144 00:07:09,360 --> 00:07:10,000 Speaker 6: Private credit. 145 00:07:10,040 --> 00:07:11,560 Speaker 4: If it weren't for the Warner around, Tom and I 146 00:07:11,640 --> 00:07:13,480 Speaker 4: keep saying to each other, Boy, if it weren't for 147 00:07:13,480 --> 00:07:15,240 Speaker 4: the Warner around, this private. 148 00:07:14,880 --> 00:07:16,480 Speaker 6: Credit issue would be maybe a. 149 00:07:16,400 --> 00:07:20,960 Speaker 4: Bigger issue for global Wall Street and concerns about is 150 00:07:21,000 --> 00:07:23,640 Speaker 4: there a systemic risk in the private credit world which 151 00:07:23,640 --> 00:07:25,680 Speaker 4: has seems such a tremendous amount of growth since a 152 00:07:25,680 --> 00:07:27,520 Speaker 4: great financial crisis. How do you guys think about that? 153 00:07:27,840 --> 00:07:31,480 Speaker 3: Yeah, so if you actually look under the hood in 154 00:07:31,520 --> 00:07:35,760 Speaker 3: the portfolios, obviously you want to check what their industry 155 00:07:35,760 --> 00:07:39,640 Speaker 3: exposures are, how much software exposure. It's, by the way, 156 00:07:39,720 --> 00:07:42,520 Speaker 3: there's nothing wrong with software companies. It just you may 157 00:07:42,560 --> 00:07:44,560 Speaker 3: not want them to be leveraged five times even d 158 00:07:45,520 --> 00:07:49,880 Speaker 3: But there's the portfolio issue, which I would argue, if 159 00:07:49,920 --> 00:07:52,560 Speaker 3: growth is solid this year, we're unlikely to have a 160 00:07:52,600 --> 00:07:55,120 Speaker 3: credit cycle in twenty six. So what's going on. There's 161 00:07:55,160 --> 00:07:59,120 Speaker 3: that liquidity mismatch that's big problem, and I think they're 162 00:07:59,160 --> 00:08:03,680 Speaker 3: being confused, meaning there are certain BDC's that you have 163 00:08:03,760 --> 00:08:08,680 Speaker 3: to offer quarterly liquidity. And when investors rush for the 164 00:08:08,720 --> 00:08:12,040 Speaker 3: exits and they think others are, then they're going to rush. 165 00:08:12,160 --> 00:08:15,640 Speaker 3: And I think in portfolios that have good matching of 166 00:08:15,760 --> 00:08:19,560 Speaker 3: assets and liabilities liquidity, they may be fine. Having said 167 00:08:19,560 --> 00:08:23,120 Speaker 3: that this is the crisis before the crisis, to quote 168 00:08:23,160 --> 00:08:26,360 Speaker 3: someone else, if we have a credit cycle in next 169 00:08:26,400 --> 00:08:28,600 Speaker 3: two or three years, I actually think this concern now 170 00:08:28,720 --> 00:08:31,560 Speaker 3: is going to be healthy, because if we have a 171 00:08:31,600 --> 00:08:34,040 Speaker 3: credit cycle, then you're going to see more issues in 172 00:08:34,080 --> 00:08:34,720 Speaker 3: private credit. 173 00:08:34,960 --> 00:08:39,000 Speaker 2: If you're listening across America, good morning to you, Paul Suenian, 174 00:08:39,640 --> 00:08:43,960 Speaker 2: Tom Keane, Bloomberg Surveillance on YouTube, Subscribe to Bloomberg Podcast. 175 00:08:44,000 --> 00:08:48,000 Speaker 2: It's our digital distribution, humbled by that success, and of 176 00:08:48,000 --> 00:08:51,000 Speaker 2: course all of you on traditional audio as well with us. 177 00:08:51,080 --> 00:08:54,360 Speaker 2: Robert Caplan of the Dallas Fed now holding court again 178 00:08:54,400 --> 00:08:57,640 Speaker 2: at Golden Sachs as vice chairman. I would say, like 179 00:08:57,720 --> 00:09:01,560 Speaker 2: Mark Kimmitt and the military SPAN's finance Robert Champlin, you 180 00:09:01,640 --> 00:09:06,280 Speaker 2: spend academics over to finance over to your service at 181 00:09:06,280 --> 00:09:10,400 Speaker 2: the Dallas FED like no one else in America. Once again, 182 00:09:10,559 --> 00:09:15,640 Speaker 2: we're studying within private credit the efficacy of hedging. In 183 00:09:15,720 --> 00:09:18,600 Speaker 2: every single class ever been taught, there's a point where 184 00:09:18,600 --> 00:09:21,559 Speaker 2: a hedge catches up with you. How close are we 185 00:09:21,600 --> 00:09:25,760 Speaker 2: within rehedging? Where the game, the shell game we're playing 186 00:09:26,120 --> 00:09:28,840 Speaker 2: where we get to a shock a tip point that 187 00:09:29,000 --> 00:09:30,199 Speaker 2: upsets the apple. 188 00:09:29,920 --> 00:09:30,760 Speaker 7: Cart so. 189 00:09:32,320 --> 00:09:36,040 Speaker 3: Well, obviously the yield curve is drifted up because oil 190 00:09:36,080 --> 00:09:38,400 Speaker 3: prices have drifted up, the real yields come up, and 191 00:09:38,520 --> 00:09:41,240 Speaker 3: people are concerned that central banks just aren't going to 192 00:09:41,280 --> 00:09:43,960 Speaker 3: cut in the way that we may have thought literally 193 00:09:44,000 --> 00:09:47,240 Speaker 3: a month ago. Having said that, I think that the 194 00:09:47,280 --> 00:09:50,280 Speaker 3: private credit issue, maybe not this year, but over the horizon, 195 00:09:50,400 --> 00:09:54,640 Speaker 3: is about operational risk matching financial risk. And we were 196 00:09:54,640 --> 00:09:58,040 Speaker 3: taught way back when if operational risk is high, be 197 00:09:58,160 --> 00:10:03,120 Speaker 3: careful about the financial risk. And AI and disruption is 198 00:10:03,160 --> 00:10:07,160 Speaker 3: going to increase operational risk. Businesses will figure it out, 199 00:10:07,480 --> 00:10:09,880 Speaker 3: but you don't want to be as highly leveraged, and 200 00:10:09,960 --> 00:10:11,880 Speaker 3: so that's something I think people are going to have 201 00:10:11,920 --> 00:10:12,680 Speaker 3: to go back and screwtin. 202 00:10:12,679 --> 00:10:14,800 Speaker 2: Now this is a private credit people, Paul will say, well, 203 00:10:14,800 --> 00:10:19,520 Speaker 2: we're not leveraged. We're here, I'm listening to Robert Kaplan. 204 00:10:19,520 --> 00:10:23,200 Speaker 3: Well, the companies listen. We would have said in the 205 00:10:23,240 --> 00:10:27,200 Speaker 3: past four or five times, ebit deep, that's not over leveraged. 206 00:10:27,240 --> 00:10:29,559 Speaker 3: Well it is. If there's a risk that your ebit 207 00:10:29,600 --> 00:10:32,600 Speaker 3: D might drop thirty percent because of a new innovation, 208 00:10:32,760 --> 00:10:33,960 Speaker 3: that's the issue. 209 00:10:34,520 --> 00:10:36,599 Speaker 4: What's the message to your bankers these days when you 210 00:10:36,600 --> 00:10:38,680 Speaker 4: sit down with your senior bankers or coverage bankers, and 211 00:10:38,880 --> 00:10:39,280 Speaker 4: all right. 212 00:10:39,240 --> 00:10:40,800 Speaker 7: For the next few weeks, let's go out. 213 00:10:40,800 --> 00:10:43,559 Speaker 4: We want to get this message out to our clients. 214 00:10:43,160 --> 00:10:47,959 Speaker 3: Let's stay close to clients, Let's understand their needs, Let's 215 00:10:48,000 --> 00:10:50,880 Speaker 3: be shared bringing. Let's bring the whole firm to bear, 216 00:10:51,040 --> 00:10:54,760 Speaker 3: including our thought leadership, to help them figure out what's 217 00:10:54,800 --> 00:11:01,040 Speaker 3: going on. Corporate clients are very active. Investment clients across 218 00:11:01,080 --> 00:11:05,839 Speaker 3: all our sectors are trying to figure out and handicap 219 00:11:05,920 --> 00:11:09,640 Speaker 3: what's going on, and our job is to understand them, 220 00:11:09,679 --> 00:11:14,040 Speaker 3: build our relationships, and serve them by bringing the whole 221 00:11:14,040 --> 00:11:14,640 Speaker 3: firm to bear. 222 00:11:15,240 --> 00:11:19,160 Speaker 4: Are you sensing that this I mean the AI revolution, 223 00:11:19,240 --> 00:11:21,280 Speaker 4: I guess we'll call it, or just I'm not sure 224 00:11:21,280 --> 00:11:22,760 Speaker 4: what it is. We used to call big data back 225 00:11:22,800 --> 00:11:25,120 Speaker 4: in the day. But some people are telling me this 226 00:11:25,240 --> 00:11:27,320 Speaker 4: is more important than the Internet, and it might just 227 00:11:27,360 --> 00:11:31,199 Speaker 4: be a cut below electricity in terms of the importance 228 00:11:31,320 --> 00:11:35,200 Speaker 4: of society. I've had somebody expressed to me that way. Boy, 229 00:11:35,240 --> 00:11:37,560 Speaker 4: if I'm a corporate border COEO, I feel like I 230 00:11:37,600 --> 00:11:40,640 Speaker 4: got to get super smart, super quick because it's either 231 00:11:41,520 --> 00:11:43,319 Speaker 4: a friend or an enemy to my business. 232 00:11:43,559 --> 00:11:44,320 Speaker 7: I'm not sure which. 233 00:11:44,440 --> 00:11:46,800 Speaker 3: Yeah, And so here businesses are handling it in the 234 00:11:46,840 --> 00:11:50,800 Speaker 3: following way. A typical business has ten or fifteen use cases. 235 00:11:51,360 --> 00:11:55,360 Speaker 3: You know, how can we change our controllers department, our 236 00:11:55,400 --> 00:11:59,480 Speaker 3: marketing department, all the different things that they do. They're 237 00:11:59,520 --> 00:12:03,040 Speaker 3: in the with partners outside partners of going through those 238 00:12:03,160 --> 00:12:06,240 Speaker 3: use cases. And I'd say we're in the early innings 239 00:12:06,320 --> 00:12:07,880 Speaker 3: and two years now they're going to be a whole 240 00:12:07,960 --> 00:12:10,960 Speaker 3: lot smarter. Two years can be an eternity, yes, but 241 00:12:11,080 --> 00:12:13,440 Speaker 3: businesses will be a whole lot smarter. Some of them 242 00:12:13,480 --> 00:12:16,040 Speaker 3: are saying, I want to do more strategic merger activity 243 00:12:16,360 --> 00:12:19,480 Speaker 3: to help mitigate some of the risk here. But we're 244 00:12:19,520 --> 00:12:22,640 Speaker 3: in we're learning right now. So anybody tells you I 245 00:12:22,679 --> 00:12:24,200 Speaker 3: know exactly how this is going to they don't know. 246 00:12:24,640 --> 00:12:26,800 Speaker 3: The smartest people I know are in the middle of it, 247 00:12:26,840 --> 00:12:29,400 Speaker 3: and they're open to learning and are not prejudging it. 248 00:12:30,000 --> 00:12:33,080 Speaker 2: On AI, what is your observation on a roll up 249 00:12:33,240 --> 00:12:36,360 Speaker 2: of all the competitors now? Are there too many? Just 250 00:12:36,440 --> 00:12:39,640 Speaker 2: on a unit basis, are there too many players? 251 00:12:39,880 --> 00:12:43,640 Speaker 3: Well, so, a lot of our attention, because we can't 252 00:12:43,679 --> 00:12:48,960 Speaker 3: avoid it, is all the CAPEX and the compute infrastructure part. Okay, 253 00:12:49,080 --> 00:12:53,679 Speaker 3: then there's the adoption companies, which are extremely highly valued. 254 00:12:55,040 --> 00:12:58,920 Speaker 3: And the truth is, I have no doubt we need 255 00:12:58,960 --> 00:13:02,640 Speaker 3: to create more compute. How the adoption companies are going 256 00:13:02,720 --> 00:13:04,240 Speaker 3: to shake out? I think that's where more of the 257 00:13:04,320 --> 00:13:08,000 Speaker 3: uncertainty is, and that's where the software situation. The first 258 00:13:08,040 --> 00:13:11,480 Speaker 3: reaction is it's gonna be disruptive. I think the second 259 00:13:11,480 --> 00:13:14,199 Speaker 3: reaction after people calm down, but clients are going to 260 00:13:14,280 --> 00:13:17,200 Speaker 3: need advice to help with the installation of the software. 261 00:13:17,360 --> 00:13:21,360 Speaker 3: Companies are critical of that. So I think we're literally 262 00:13:21,400 --> 00:13:22,560 Speaker 3: wrestling our way through this. 263 00:13:23,040 --> 00:13:25,880 Speaker 2: Thank you for the comments on Kansas City. There was 264 00:13:25,960 --> 00:13:29,000 Speaker 2: I mean, was George Brutt's bat tard. 265 00:13:29,240 --> 00:13:30,079 Speaker 7: I think it was. 266 00:13:31,600 --> 00:13:34,600 Speaker 2: Robert Kavin, Thank you, Thank you awer of the Kansas 267 00:13:34,640 --> 00:13:37,280 Speaker 2: City Royals with the modest interest in gold and sacks, 268 00:13:37,720 --> 00:13:40,280 Speaker 2: and of course it's a public service at the Feederizer 269 00:13:40,400 --> 00:13:45,600 Speaker 2: Bank of Dallas for stay with us. More from Bloomberg 270 00:13:45,760 --> 00:13:47,800 Speaker 2: Surveillance coming up after this. 271 00:13:55,040 --> 00:13:58,600 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 272 00:13:58,679 --> 00:14:01,840 Speaker 1: weekday afternoons from into ten am e's durn Listen on 273 00:14:01,920 --> 00:14:05,600 Speaker 1: Applecarplay and Android Otto with the Bloomberg Business up, or 274 00:14:05,760 --> 00:14:07,240 Speaker 1: watch us live on YouTube. 275 00:14:07,679 --> 00:14:11,040 Speaker 2: The way that you find young economists, folks, is their 276 00:14:11,040 --> 00:14:13,120 Speaker 2: research comes in. In the old days, it was printed 277 00:14:13,120 --> 00:14:15,360 Speaker 2: in paper and you actually held it in your hands 278 00:14:15,360 --> 00:14:19,160 Speaker 2: and said, oh, now it comes across in this whole 279 00:14:19,160 --> 00:14:21,840 Speaker 2: digital thing and email and all that, and you open 280 00:14:21,880 --> 00:14:25,040 Speaker 2: the PDF file and go, oh yeah, that's what we 281 00:14:25,080 --> 00:14:28,120 Speaker 2: did with Michelle Myers years ago at Bank of America said, 282 00:14:28,240 --> 00:14:30,640 Speaker 2: oh she follows the consumer. 283 00:14:30,200 --> 00:14:31,240 Speaker 7: Like no one. 284 00:14:31,360 --> 00:14:33,480 Speaker 2: I want to go to K shaped and I want 285 00:14:33,520 --> 00:14:37,440 Speaker 2: you to do a classic Michelle Meyer decyle or quintile 286 00:14:37,520 --> 00:14:41,400 Speaker 2: breakdown of the population count of the United States of America. 287 00:14:42,080 --> 00:14:45,680 Speaker 2: We obviously perceive it as the center, tendency and equal 288 00:14:45,960 --> 00:14:49,800 Speaker 2: arms of the K shape. Belooney, define the real K 289 00:14:50,040 --> 00:14:51,240 Speaker 2: shape that's out there. 290 00:14:52,040 --> 00:14:55,160 Speaker 8: So I think it's extremely important always to look below 291 00:14:55,240 --> 00:14:58,080 Speaker 8: the headlines. You have the aggregate numbers, and then you 292 00:14:58,120 --> 00:15:00,560 Speaker 8: have a lot of stories that happen when you did deeper. 293 00:15:00,600 --> 00:15:03,840 Speaker 8: And always in every cycle, the economy is not felt 294 00:15:03,920 --> 00:15:07,200 Speaker 8: evenly across different types of populations, whether you're looking at 295 00:15:07,240 --> 00:15:09,960 Speaker 8: an income level, whether you're looking at across different regions 296 00:15:09,960 --> 00:15:13,120 Speaker 8: of the US, different types of jobs, it's going to 297 00:15:13,160 --> 00:15:15,440 Speaker 8: feel different. And I think we're there now, we've been 298 00:15:15,480 --> 00:15:18,080 Speaker 8: there this entire cycle. Part of that is because this 299 00:15:18,120 --> 00:15:20,600 Speaker 8: has been a cycle of a lot of asset price inflation. 300 00:15:21,080 --> 00:15:25,320 Speaker 8: We have seen markets behave very well, obviously very volatile times, 301 00:15:25,320 --> 00:15:25,880 Speaker 8: but very well. 302 00:15:26,240 --> 00:15:29,000 Speaker 2: She moves a master card and won't answer my question. 303 00:15:29,680 --> 00:15:31,240 Speaker 2: The K shaped on the. 304 00:15:31,480 --> 00:15:35,440 Speaker 7: Shape I'm going to get there. I'm getting there. 305 00:15:36,560 --> 00:15:40,240 Speaker 8: Yeah. So the story is that, yes, you certainly have 306 00:15:40,360 --> 00:15:42,880 Speaker 8: this differentiation. Part of it has to do with household 307 00:15:42,920 --> 00:15:45,880 Speaker 8: balance sheets, which reflects the fact that we've seen a 308 00:15:45,920 --> 00:15:50,120 Speaker 8: lot of asset price inflation, a lot of appreciation, and 309 00:15:50,160 --> 00:15:53,360 Speaker 8: that is clearly supported that top part of the K, 310 00:15:53,920 --> 00:15:57,040 Speaker 8: where the purchasing power has increased because of that phenomenon. 311 00:15:57,720 --> 00:16:00,560 Speaker 4: So in John Tucker's Business flashyalking about a lot of 312 00:16:00,640 --> 00:16:04,720 Speaker 4: financial markets reflecting some angst about inflation maybe creeping back 313 00:16:04,720 --> 00:16:07,680 Speaker 4: into this economy, maybe even more pronounced than we're used to. 314 00:16:07,920 --> 00:16:10,680 Speaker 4: What is your view on inflation given what's going on 315 00:16:10,800 --> 00:16:12,520 Speaker 4: in the geopolitical world these days? 316 00:16:12,680 --> 00:16:15,080 Speaker 8: Of course, so inflation has been a hot topic for 317 00:16:15,080 --> 00:16:17,920 Speaker 8: a while, right you think about tariffs, all the forecasts 318 00:16:17,960 --> 00:16:21,200 Speaker 8: about how it can really boost inflation in a problematic way. 319 00:16:21,240 --> 00:16:23,760 Speaker 8: It ended up being a lot more modest in terms 320 00:16:23,760 --> 00:16:25,880 Speaker 8: of the pass through. But we're now at that point 321 00:16:25,880 --> 00:16:28,480 Speaker 8: again when we're talking about the potential for higher inflation, 322 00:16:28,560 --> 00:16:30,720 Speaker 8: and here it's a little bit more meaningful because you 323 00:16:30,760 --> 00:16:34,280 Speaker 8: have the direct hit to headline inflation from energy prices, 324 00:16:34,560 --> 00:16:37,080 Speaker 8: potentially from food prices as well, depending on what happens 325 00:16:37,120 --> 00:16:39,720 Speaker 8: with fertilizer prices and how that gets passed on to food. 326 00:16:40,200 --> 00:16:42,160 Speaker 8: When you look at the core, you take out food 327 00:16:42,200 --> 00:16:44,920 Speaker 8: and energy there, I think there's very fairly a bigger 328 00:16:44,960 --> 00:16:47,400 Speaker 8: debate as to whether or not some of these higher 329 00:16:47,440 --> 00:16:51,040 Speaker 8: costs of production get passed on to consumer core prices 330 00:16:51,040 --> 00:16:53,680 Speaker 8: when you think about durables, when you think about some 331 00:16:53,760 --> 00:16:56,240 Speaker 8: of the bigger ticket items that tend to have more 332 00:16:56,320 --> 00:16:59,400 Speaker 8: sensitivity to high transport costs, and that will be a 333 00:16:59,440 --> 00:17:01,880 Speaker 8: function of the duration of this shock. We know oil 334 00:17:01,920 --> 00:17:04,159 Speaker 8: prices are high right now, and we know there's a 335 00:17:04,200 --> 00:17:06,840 Speaker 8: lot of uncertainty about where they go, but how long 336 00:17:06,920 --> 00:17:09,560 Speaker 8: they stay high will determine whether or not it passes 337 00:17:09,600 --> 00:17:11,719 Speaker 8: on to the core. And I don't think we're there yet. 338 00:17:11,920 --> 00:17:13,679 Speaker 4: It seems like, you know, one of the concerns is 339 00:17:14,600 --> 00:17:17,239 Speaker 4: we've seen this before, We've seen shocks before. Consumers are 340 00:17:17,240 --> 00:17:19,359 Speaker 4: pretty savvy they kind of maybe you can look through it, 341 00:17:19,400 --> 00:17:23,600 Speaker 4: but sometimes you might see a shift away from the 342 00:17:23,640 --> 00:17:25,680 Speaker 4: stuff I'd like to have, like a new car, yeah, 343 00:17:25,800 --> 00:17:28,119 Speaker 4: versus stuff I have to have now, which is I 344 00:17:28,160 --> 00:17:29,800 Speaker 4: have to put guess what I've already got or something 345 00:17:29,840 --> 00:17:31,680 Speaker 4: like that. So I mean that's I guess that goes 346 00:17:31,680 --> 00:17:34,400 Speaker 4: to your argument. Boy, if this persists, then maybe we've 347 00:17:34,400 --> 00:17:35,879 Speaker 4: got a different discussion. 348 00:17:35,480 --> 00:17:38,640 Speaker 8: And that is critical. It's a reallocation of purchasing power 349 00:17:38,720 --> 00:17:41,439 Speaker 8: and a lot of that is not my choice, and 350 00:17:41,480 --> 00:17:43,600 Speaker 8: it's important to keep that in mind, especially when it 351 00:17:43,640 --> 00:17:47,440 Speaker 8: goes back to Tom's initial point around the key shaped narrative. 352 00:17:47,760 --> 00:17:49,520 Speaker 8: There's a lot of folks out there, a lot of 353 00:17:49,520 --> 00:17:52,640 Speaker 8: households that don't necessarily have as much flexibility, and if 354 00:17:52,680 --> 00:17:55,320 Speaker 8: gas prices arising, they have to spend more of the 355 00:17:55,359 --> 00:17:58,040 Speaker 8: purchasing power at the pump or drive less if they 356 00:17:58,080 --> 00:18:01,280 Speaker 8: can not, everybody can just what they can spend on it. 357 00:18:01,440 --> 00:18:05,320 Speaker 2: Mastercurred, you have a font of information no one else has. 358 00:18:05,640 --> 00:18:10,120 Speaker 2: What is the greatest misconception we have about our use 359 00:18:10,240 --> 00:18:14,400 Speaker 2: of credit cards? What forty two percent annual interest rate? 360 00:18:14,480 --> 00:18:18,520 Speaker 2: I'm kidding, folks, But when you look at charge cards, 361 00:18:18,000 --> 00:18:20,920 Speaker 2: what's what's the myth out there that upsets you? Right now? 362 00:18:22,560 --> 00:18:24,280 Speaker 8: I don't know that there is a myth that up 363 00:18:24,320 --> 00:18:27,120 Speaker 8: sets me as an economist when I'm thinking about the 364 00:18:27,160 --> 00:18:30,960 Speaker 8: overall economic environment. I think it's generally when you look 365 00:18:30,960 --> 00:18:33,760 Speaker 8: at spending trends and you think about the different ways 366 00:18:33,760 --> 00:18:38,919 Speaker 8: that consumer spend. Obviously, using credit is a path and 367 00:18:38,960 --> 00:18:42,040 Speaker 8: it's one that allows for a lot more stability in spending. 368 00:18:42,119 --> 00:18:44,600 Speaker 8: Right when you think about the fact that why we 369 00:18:44,640 --> 00:18:47,920 Speaker 8: have credit cards, why we have other forces forces sources 370 00:18:47,920 --> 00:18:49,800 Speaker 8: of payments, is that it allows you to kind of 371 00:18:49,840 --> 00:18:53,160 Speaker 8: smooth your spending a lot more because you could adjust 372 00:18:53,200 --> 00:18:55,119 Speaker 8: based off of where you are in the labor market, 373 00:18:55,200 --> 00:18:57,240 Speaker 8: what you're seeing in terms of your balance sheet, et cetera. 374 00:18:57,480 --> 00:19:01,120 Speaker 2: Linked in the savings, right, I mean, are we spending spending, 375 00:19:01,200 --> 00:19:02,800 Speaker 2: spending or we actually. 376 00:19:02,840 --> 00:19:05,600 Speaker 8: The savings rate has been pretty stable. So you had 377 00:19:05,640 --> 00:19:09,240 Speaker 8: an unintentionally high savings rate after the pandemic. We all 378 00:19:09,280 --> 00:19:10,880 Speaker 8: know that that a lot of that was drawn down 379 00:19:10,920 --> 00:19:13,920 Speaker 8: pretty quickly, frankly, and in the last several years it's 380 00:19:13,960 --> 00:19:16,920 Speaker 8: been remarkably steady and pretty close to what would be 381 00:19:17,000 --> 00:19:17,640 Speaker 8: considered normal. 382 00:19:18,040 --> 00:19:21,040 Speaker 2: Mister Meyer emails and he says, enough Kansas City royals talk. 383 00:19:21,480 --> 00:19:23,760 Speaker 2: Those phillies look awfully good this year, don't they. 384 00:19:23,880 --> 00:19:26,360 Speaker 8: That would be my husband who is emailing, and probably 385 00:19:26,600 --> 00:19:27,280 Speaker 8: not my father. 386 00:19:29,320 --> 00:19:32,520 Speaker 2: Okay, but yeah, Michelle, thank you so much, honey. Mischel 387 00:19:32,560 --> 00:19:36,240 Speaker 2: Meyern she forgot a master card Economics Institute. Just can't 388 00:19:36,240 --> 00:19:39,480 Speaker 2: say enough about their research on consumer all the great 389 00:19:39,480 --> 00:19:44,600 Speaker 2: work she's done over the years. Stay with us. More 390 00:19:44,720 --> 00:19:47,600 Speaker 2: from Bloomberg Surveillance coming up after this. 391 00:19:54,880 --> 00:19:58,480 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 392 00:19:58,520 --> 00:20:01,560 Speaker 1: weekday afternoons from seven to ten am. He's durn Listen 393 00:20:01,600 --> 00:20:05,160 Speaker 1: on Apple Karplay and Android Otto with the Bloomberg Business app, 394 00:20:05,359 --> 00:20:07,080 Speaker 1: or watch us live on YouTube. 395 00:20:08,000 --> 00:20:12,000 Speaker 2: Coming up, without question, our Global Wall Street Conversation of 396 00:20:12,080 --> 00:20:14,879 Speaker 2: the Day. Paul and we agree, if there wasn't a ward, 397 00:20:14,920 --> 00:20:17,439 Speaker 2: there would be no other topic private credit. 398 00:20:17,480 --> 00:20:18,800 Speaker 4: I think you're right. I think you're right. People are 399 00:20:18,840 --> 00:20:21,160 Speaker 4: just trying to get a handle on is this something 400 00:20:21,200 --> 00:20:22,960 Speaker 4: systemic to we need to worry about this? It could 401 00:20:23,000 --> 00:20:24,520 Speaker 4: have broadened out, you know, I don't know. 402 00:20:24,880 --> 00:20:25,840 Speaker 7: We'll figure out our next guest. 403 00:20:25,840 --> 00:20:26,320 Speaker 9: I'll have to see. 404 00:20:26,520 --> 00:20:27,159 Speaker 7: Well, I was gonna have it. 405 00:20:27,280 --> 00:20:29,040 Speaker 2: I want you to bring in Randy because you and 406 00:20:29,080 --> 00:20:31,400 Speaker 2: I go back and forth in this and frankly Sweeney 407 00:20:31,480 --> 00:20:35,320 Speaker 2: was way out front of this versus me. But basically, Paul, 408 00:20:35,600 --> 00:20:38,000 Speaker 2: please help me. Have we seen this before. 409 00:20:38,560 --> 00:20:41,159 Speaker 4: I've seen a lot of stuff over my career, especially 410 00:20:41,240 --> 00:20:41,880 Speaker 4: on the credit side. 411 00:20:41,960 --> 00:20:43,520 Speaker 6: Randy Schimmer, he's seen it all as well. 412 00:20:43,680 --> 00:20:46,280 Speaker 4: He's a vice chair and chief investment strategist at Churchill 413 00:20:46,680 --> 00:20:49,119 Speaker 4: Asset Management. Most of what we know about the private 414 00:20:49,160 --> 00:20:51,920 Speaker 4: equity and private credit business we've learned from Randy. Randy, 415 00:20:52,040 --> 00:20:54,800 Speaker 4: talk to us about the conversations you're having today, because 416 00:20:54,800 --> 00:20:56,760 Speaker 4: I know you're getting three, four, or five ten phone 417 00:20:56,760 --> 00:20:58,920 Speaker 4: calls before we even get into the office. Yeah, about 418 00:20:59,280 --> 00:21:01,520 Speaker 4: private credit. Do we have a risk in that market? 419 00:21:01,520 --> 00:21:03,840 Speaker 4: Explain that what the responses you're getting here? 420 00:21:03,880 --> 00:21:06,320 Speaker 5: So the timing is great, always being here at the 421 00:21:06,359 --> 00:21:09,679 Speaker 5: center of excellence for private credit. A Bloomberg surveillance with 422 00:21:09,720 --> 00:21:13,880 Speaker 5: you too. So here's what we're We're seeing two things. One, 423 00:21:14,280 --> 00:21:16,119 Speaker 5: it's the Gift of the Month club in terms of 424 00:21:16,160 --> 00:21:20,080 Speaker 5: headline risk. Okay, Iran is the new you know Ukraine, 425 00:21:20,800 --> 00:21:23,679 Speaker 5: AI is the new tariffs government shutdown is the new 426 00:21:23,720 --> 00:21:28,199 Speaker 5: government shutdown. So everything is creating uncertainty and it changes 427 00:21:28,240 --> 00:21:28,680 Speaker 5: every day. 428 00:21:28,800 --> 00:21:29,679 Speaker 6: Is Iran? Are we in? 429 00:21:29,760 --> 00:21:30,240 Speaker 3: Are we out? 430 00:21:30,240 --> 00:21:32,719 Speaker 5: What's going on? Are oil prices at risk? Are they 431 00:21:32,760 --> 00:21:36,800 Speaker 5: not a risk? So investors are obviously focused on this uncertainty. 432 00:21:37,040 --> 00:21:39,680 Speaker 5: Number two, and look at the BDC market is a 433 00:21:39,720 --> 00:21:44,879 Speaker 5: good example of this. The traded BDC's right are looking 434 00:21:44,920 --> 00:21:48,359 Speaker 5: at these risks and they're concerned, so they trade down. 435 00:21:48,640 --> 00:21:52,239 Speaker 5: The non traded BDCs are saying, hmmm, is this a 436 00:21:52,240 --> 00:21:55,240 Speaker 5: liquid asset class that I'm currently in. At the large 437 00:21:55,320 --> 00:21:58,080 Speaker 5: end of the market, they're being told that liquidity in 438 00:21:58,400 --> 00:22:02,639 Speaker 5: private credit is very similar. It's converging with liquidity in 439 00:22:02,720 --> 00:22:06,000 Speaker 5: public credit. The problem is, we Churchill and you know 440 00:22:06,080 --> 00:22:10,160 Speaker 5: this are at the core middle market, which is very illiquid. 441 00:22:11,040 --> 00:22:13,760 Speaker 5: The good news about being very liquid is that it 442 00:22:13,840 --> 00:22:17,320 Speaker 5: is an efficient alternative to the liquid market that is 443 00:22:17,400 --> 00:22:21,120 Speaker 5: trading up and down. If you try to impose liquidity 444 00:22:21,160 --> 00:22:25,320 Speaker 5: on I liquid asset clash, you're going to create expectations 445 00:22:25,359 --> 00:22:28,399 Speaker 5: that are being dashed, and so retail investors are confused. 446 00:22:28,440 --> 00:22:30,959 Speaker 5: They think, Oh, we can get out, No we can't. 447 00:22:31,680 --> 00:22:32,480 Speaker 5: That's confusing. 448 00:22:32,600 --> 00:22:35,199 Speaker 2: I'm confused too, because I went through eighty seven. I 449 00:22:35,240 --> 00:22:38,080 Speaker 2: didn't see it coming. August of ninety eight. I didn't 450 00:22:38,119 --> 00:22:40,760 Speaker 2: see it coming. You see there's a trend here. Yeah, 451 00:22:41,000 --> 00:22:43,840 Speaker 2: Thursday in August oh seven, I didn't see it coming. 452 00:22:44,200 --> 00:22:47,080 Speaker 2: We've got enough experience, Randy Schummberg where we could see 453 00:22:47,119 --> 00:22:47,600 Speaker 2: it coming. 454 00:22:47,720 --> 00:22:48,040 Speaker 7: Yeah. 455 00:22:48,080 --> 00:22:49,600 Speaker 6: Do you need the. 456 00:22:49,640 --> 00:22:54,080 Speaker 2: Institutions like the SEC to come to the rescue in 457 00:22:54,240 --> 00:22:58,639 Speaker 2: d retail private credit so you can get back to 458 00:22:58,800 --> 00:23:03,879 Speaker 2: a normal match of your illiquidity and your institutional clients. 459 00:23:03,960 --> 00:23:04,120 Speaker 3: Yeah. 460 00:23:04,160 --> 00:23:06,840 Speaker 5: So let's look at what you're saying. Is the next 461 00:23:06,880 --> 00:23:09,440 Speaker 5: thing that is coming and one of the biggest concerns, 462 00:23:09,440 --> 00:23:12,480 Speaker 5: and you were talking about it on your news broadcast, 463 00:23:12,600 --> 00:23:16,080 Speaker 5: is that AI could be one of those events, right. 464 00:23:16,080 --> 00:23:18,119 Speaker 5: It could be an eighty seven, it could be an 465 00:23:18,359 --> 00:23:21,160 Speaker 5: seven and eight. The challenge is there's so much that's 466 00:23:21,200 --> 00:23:25,080 Speaker 5: theoretical right now, and the things that's concerning the private 467 00:23:25,080 --> 00:23:28,520 Speaker 5: credit markets is that at the upper end it's mimicking 468 00:23:28,560 --> 00:23:31,240 Speaker 5: the hyperscalers in the public equities market because there's the 469 00:23:31,359 --> 00:23:33,800 Speaker 5: larger you go in terms of deal size, the more 470 00:23:33,840 --> 00:23:36,520 Speaker 5: concentration risk. So at the large end of the private 471 00:23:36,520 --> 00:23:40,439 Speaker 5: credit market there's sixty percent overlap of deals, which what 472 00:23:40,480 --> 00:23:43,280 Speaker 5: does that sound like? That sounds like the public equities 473 00:23:43,280 --> 00:23:45,560 Speaker 5: market where there's like fifty percent of the whole market 474 00:23:45,680 --> 00:23:48,560 Speaker 5: is in these seven stocks. So if there's concentration risk 475 00:23:48,640 --> 00:23:53,040 Speaker 5: and you don't know what that ultimate endgame is, that 476 00:23:53,240 --> 00:23:56,400 Speaker 5: is what's booking investors now in the core middal market, 477 00:23:56,920 --> 00:23:59,240 Speaker 5: you know, and I always bring a story to you, 478 00:23:59,560 --> 00:24:02,840 Speaker 5: so you know it was landscaping companies. One month we 479 00:24:02,880 --> 00:24:06,840 Speaker 5: did accounting firms. What about power backup system? So we're 480 00:24:06,840 --> 00:24:09,680 Speaker 5: looking at a deal right now that is not at 481 00:24:09,760 --> 00:24:13,399 Speaker 5: risk with AI but could actually benefit from the power, 482 00:24:13,440 --> 00:24:16,320 Speaker 5: the incredible power that's required by these AI companies. So 483 00:24:16,359 --> 00:24:20,040 Speaker 5: this company supplies power backup for a lot of businesses, 484 00:24:20,119 --> 00:24:25,240 Speaker 5: not startups for AI, but the existing AI infrastructure, and 485 00:24:25,720 --> 00:24:27,720 Speaker 5: there's so much power that's required for these businesses. So 486 00:24:27,800 --> 00:24:30,480 Speaker 5: if you're lending to a company that is going to 487 00:24:30,560 --> 00:24:33,760 Speaker 5: benefit from that as a tailwind, that's a very different risk, 488 00:24:33,880 --> 00:24:36,320 Speaker 5: and all of our businesses in the coriminal market are 489 00:24:36,359 --> 00:24:40,520 Speaker 5: these very plain, vanilla service businesses that are sheltered from 490 00:24:40,520 --> 00:24:42,399 Speaker 5: a lot of the stuff that's going on. So one 491 00:24:42,440 --> 00:24:44,520 Speaker 5: of the things I think is going to happen Paul 492 00:24:45,000 --> 00:24:48,760 Speaker 5: and Tom to your question is that as this uncertainty 493 00:24:48,840 --> 00:24:53,119 Speaker 5: begins to clarify into more of a coriminal market versus 494 00:24:53,200 --> 00:24:57,240 Speaker 5: a large capminal market, the media and investors will not 495 00:24:57,320 --> 00:24:59,840 Speaker 5: paint all of private credit with one brush. 496 00:25:00,080 --> 00:25:02,320 Speaker 6: What are you seeing in your portfolio today? 497 00:25:02,840 --> 00:25:05,159 Speaker 5: So instead of red signals, we're seeing a lot of 498 00:25:05,200 --> 00:25:08,399 Speaker 5: green signals. So we're not seeing anything like the kinds 499 00:25:08,800 --> 00:25:12,080 Speaker 5: of you know, non accruals. For example, I don't think 500 00:25:12,080 --> 00:25:14,679 Speaker 5: we have any or maybe one out of three hundred deals. 501 00:25:15,400 --> 00:25:17,480 Speaker 5: Our default rates are very low. We're not seeing the 502 00:25:17,560 --> 00:25:21,240 Speaker 5: kind of redemptions in our funds that that is being 503 00:25:21,280 --> 00:25:22,520 Speaker 5: seen in the large cap market. 504 00:25:22,640 --> 00:25:22,880 Speaker 6: Now. 505 00:25:23,000 --> 00:25:26,640 Speaker 5: Granted, ninety five percent of our capitalist institutional we're trying 506 00:25:26,640 --> 00:25:28,600 Speaker 5: to grow our wealth space, but a lot of this 507 00:25:28,720 --> 00:25:31,760 Speaker 5: is education. So when we say we show them, we 508 00:25:31,800 --> 00:25:33,800 Speaker 5: look at our portfolio. When you say, look what's going on, 509 00:25:33,920 --> 00:25:38,000 Speaker 5: the existing investors are actually looking to increase their exposure 510 00:25:38,080 --> 00:25:40,399 Speaker 5: with us. Anybody who's looking to move money out of 511 00:25:40,400 --> 00:25:43,159 Speaker 5: our fund, like a fund right now in our business, 512 00:25:43,280 --> 00:25:45,400 Speaker 5: is looking to move it into another Churchill fund because 513 00:25:45,400 --> 00:25:48,760 Speaker 5: they see relative value. They're comfortable with the manager, they're 514 00:25:48,800 --> 00:25:51,320 Speaker 5: comfortable with the core middle market asset class. They're just 515 00:25:51,400 --> 00:25:52,560 Speaker 5: uncomfortable at the large end. 516 00:25:52,720 --> 00:25:54,800 Speaker 2: Randy Strummer with us here in private credit, folks, We're 517 00:25:54,800 --> 00:25:56,399 Speaker 2: going to go downtown here in a bit here with 518 00:25:56,480 --> 00:26:00,919 Speaker 2: Christina Raffini. But to continue on private credit, am I 519 00:26:00,960 --> 00:26:04,879 Speaker 2: able to buy Churchill's abilities within an IRA or a 520 00:26:04,960 --> 00:26:05,760 Speaker 2: four to oh one K? 521 00:26:06,600 --> 00:26:10,360 Speaker 5: So yeah, they're The issue for that is regulation, right, 522 00:26:10,400 --> 00:26:12,640 Speaker 5: So it's out there. The government is saying four one 523 00:26:12,680 --> 00:26:14,440 Speaker 5: K four one K. 524 00:26:14,520 --> 00:26:16,520 Speaker 2: I can get a piece of Shrimmer Incorporated. 525 00:26:17,560 --> 00:26:18,160 Speaker 7: Not right now. 526 00:26:18,200 --> 00:26:21,160 Speaker 5: You need to go through the regular public channels for that. 527 00:26:21,240 --> 00:26:21,560 Speaker 7: You can't. 528 00:26:21,600 --> 00:26:23,159 Speaker 5: I don't think you can do it through your forum. 529 00:26:22,960 --> 00:26:27,040 Speaker 2: And that causes messy. Gary was in the other day 530 00:26:27,560 --> 00:26:31,320 Speaker 2: and then Gary Goessler, well I quised him. I said, look, 531 00:26:31,359 --> 00:26:35,120 Speaker 2: did this start with this retaalization of Randy Schrimmer's world? 532 00:26:35,119 --> 00:26:36,080 Speaker 7: I blamed it on you. 533 00:26:36,400 --> 00:26:39,240 Speaker 2: But the answer is, what if we de retail, does 534 00:26:39,280 --> 00:26:40,120 Speaker 2: the problem go away. 535 00:26:40,160 --> 00:26:42,640 Speaker 5: Yeah, so here's the problem. The problem is education, right. 536 00:26:42,960 --> 00:26:46,040 Speaker 5: So the beauty of this center talking about eighteen years 537 00:26:46,240 --> 00:26:49,399 Speaker 5: the center of private Credit Excellence here at Bloomberg Surveillance 538 00:26:49,560 --> 00:26:52,080 Speaker 5: and folks like kith Well Kate, the Case Wealth Group 539 00:26:52,119 --> 00:26:53,919 Speaker 5: where I was out there in Kable Island yesterday and 540 00:26:53,920 --> 00:26:56,520 Speaker 5: they were saying, Randy de mystify private credit for us, 541 00:26:56,600 --> 00:26:58,680 Speaker 5: and I was saying, look, here's what's going on. If 542 00:26:58,720 --> 00:27:01,480 Speaker 5: you understand the this is an ill liquid asset class. 543 00:27:01,480 --> 00:27:04,640 Speaker 5: If the retail investors Tom and Paul know that, you're 544 00:27:04,680 --> 00:27:06,800 Speaker 5: not supposed to be able to get out. For example, 545 00:27:07,160 --> 00:27:10,760 Speaker 5: your home is not liquid. If if if Zillo says, 546 00:27:10,880 --> 00:27:13,080 Speaker 5: guess what we're going to give you daily nav on 547 00:27:13,119 --> 00:27:15,200 Speaker 5: your home value? Is that going to make you more 548 00:27:15,200 --> 00:27:17,560 Speaker 5: comfortable with your your home value? No, you know what 549 00:27:17,640 --> 00:27:19,399 Speaker 5: your home is worth, whether it's a daily nov or 550 00:27:19,400 --> 00:27:21,800 Speaker 5: monthly or every year. You don't care. The same with 551 00:27:21,880 --> 00:27:24,720 Speaker 5: private credit. You should feel comfortable with the right manager 552 00:27:24,880 --> 00:27:28,439 Speaker 5: that the assets are good. Don't confuse liquidity in a 553 00:27:28,520 --> 00:27:30,360 Speaker 5: fund with liquidity in the assets. 554 00:27:30,720 --> 00:27:32,480 Speaker 6: I've seen a bunch of I'm sure we all have 555 00:27:32,480 --> 00:27:33,200 Speaker 6: it in the press. 556 00:27:33,240 --> 00:27:37,000 Speaker 4: I mean actual offering documents for these funds and right 557 00:27:37,080 --> 00:27:39,720 Speaker 4: up front, this is ill liquid, yet you don't get five. 558 00:27:39,600 --> 00:27:41,680 Speaker 6: Percent out, but you know, blah blah blah. 559 00:27:41,680 --> 00:27:44,280 Speaker 4: I mean, so it's all there, but somewhere between there 560 00:27:44,359 --> 00:27:46,120 Speaker 4: and the registered investment advisor. 561 00:27:45,760 --> 00:27:48,120 Speaker 3: And the phone call something breaking down. 562 00:27:48,240 --> 00:27:48,640 Speaker 7: Correct. 563 00:27:48,720 --> 00:27:51,359 Speaker 5: So, and we're here to correct that. And again you 564 00:27:51,520 --> 00:27:57,119 Speaker 5: need illiquid investments as a diversifier for the public. 565 00:27:57,359 --> 00:27:59,800 Speaker 2: We're not going to educate people on this. It's not 566 00:27:59,840 --> 00:28:04,280 Speaker 2: a classroom, Randy. We got to solve this thing fast. 567 00:28:04,359 --> 00:28:08,359 Speaker 2: What is the shrimmer a path for the big boys, 568 00:28:08,680 --> 00:28:12,080 Speaker 2: private equity, private credit to avoid this train record? Is 569 00:28:12,080 --> 00:28:13,040 Speaker 2: it the d retail? 570 00:28:13,160 --> 00:28:16,480 Speaker 5: Here's the Here's the answer is the core middle market 571 00:28:16,880 --> 00:28:20,280 Speaker 5: is the answer to this problem because in the core 572 00:28:20,320 --> 00:28:23,720 Speaker 5: midtal market you are avoiding all of the issues which 573 00:28:23,760 --> 00:28:26,359 Speaker 5: is roiling the large cat market right now, which is 574 00:28:26,400 --> 00:28:28,919 Speaker 5: exposed to a lot of these the gifts of the 575 00:28:28,920 --> 00:28:32,320 Speaker 5: month that I'm talking about with oil prices and AI and. 576 00:28:32,400 --> 00:28:34,480 Speaker 2: Uncertainty regime is riven as well. 577 00:28:34,560 --> 00:28:37,280 Speaker 5: Yeah, because if you're if you're trying to pretend that 578 00:28:37,280 --> 00:28:39,880 Speaker 5: that large end of the market is liquid, well you 579 00:28:39,960 --> 00:28:41,440 Speaker 5: might as well be in public credit. 580 00:28:41,720 --> 00:28:43,680 Speaker 7: Okay, one morning, could. 581 00:28:43,480 --> 00:28:45,520 Speaker 4: I raise a private credit fund today. 582 00:28:47,520 --> 00:28:50,600 Speaker 5: Absolutely, we are raising funds. So let me give you a 583 00:28:50,600 --> 00:28:55,240 Speaker 5: little stat We are forty percent. Our deal closings is 584 00:28:55,480 --> 00:28:57,600 Speaker 5: forty percent ahead of last year. In the middle of 585 00:28:57,640 --> 00:29:01,360 Speaker 5: all this stuff. Okay, so our fundraising, you raised like 586 00:29:01,400 --> 00:29:05,480 Speaker 5: sixteen billion dollars last year. I'm out talking to wealth 587 00:29:05,520 --> 00:29:08,560 Speaker 5: investors all the time. And the cool thing now is 588 00:29:08,600 --> 00:29:11,120 Speaker 5: and this is a prediction that even though the noise 589 00:29:11,160 --> 00:29:14,000 Speaker 5: will continue, what's going to happen is the and it's 590 00:29:14,040 --> 00:29:17,320 Speaker 5: not just education. The actual performance of the folks like 591 00:29:17,440 --> 00:29:19,560 Speaker 5: Churchill who know what they're doing, is going to become 592 00:29:19,600 --> 00:29:22,760 Speaker 5: a parent. So it won't be where everybody's painted the 593 00:29:22,760 --> 00:29:24,440 Speaker 5: same brush. You're going to start to see the core 594 00:29:24,520 --> 00:29:26,440 Speaker 5: midal market out performing. 595 00:29:26,920 --> 00:29:29,000 Speaker 2: This has been wonderful. Randy Wan to brief, Thank you 596 00:29:29,080 --> 00:29:32,240 Speaker 2: so much, Randy Strummember with this folks vice chair, Chief 597 00:29:32,280 --> 00:29:37,760 Speaker 2: investment Strategy. It's a trucial asset management. Stay with us. 598 00:29:38,040 --> 00:29:41,280 Speaker 2: More from Bloomberg Surveillance coming up after this. 599 00:29:48,520 --> 00:29:52,120 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 600 00:29:52,160 --> 00:29:55,320 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 601 00:29:55,400 --> 00:29:59,080 Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app or 602 00:29:59,240 --> 00:30:00,920 Speaker 1: watch us live on YouTube. 603 00:30:01,320 --> 00:30:03,440 Speaker 2: It is good to speak as we try to with 604 00:30:03,560 --> 00:30:07,360 Speaker 2: people with experience. Wayne Sanders has deep experience with the 605 00:30:07,440 --> 00:30:11,360 Speaker 2: United States Army, including instruction at West Point, senior defense 606 00:30:11,400 --> 00:30:16,160 Speaker 2: analysts for Bloomberg Intelligence. So Wayne and my silliness, I 607 00:30:16,280 --> 00:30:21,080 Speaker 2: go to AI and I go. The island is essentially a. 608 00:30:21,080 --> 00:30:23,000 Speaker 7: Quote coral outcrop or. 609 00:30:22,960 --> 00:30:26,160 Speaker 2: A massive slab of rock pushed up from the Persian 610 00:30:26,160 --> 00:30:30,560 Speaker 2: Gulf seafloor. Its topography is quite distinct from the low 611 00:30:30,640 --> 00:30:34,719 Speaker 2: lying sandy islands common in other parts of Persian Golf. 612 00:30:35,360 --> 00:30:36,960 Speaker 7: What would Colin Powell? 613 00:30:37,000 --> 00:30:41,120 Speaker 2: What would General Powell say about sending a small group 614 00:30:41,160 --> 00:30:44,480 Speaker 2: of the eighty second Airborne over to Carg Island. 615 00:30:46,680 --> 00:30:47,520 Speaker 6: Thanks for having me on. 616 00:30:47,720 --> 00:30:50,080 Speaker 9: I pretty much think that Colin Powell would say, you 617 00:30:50,120 --> 00:30:52,200 Speaker 9: need a larger force, and you need to look at 618 00:30:52,200 --> 00:30:54,080 Speaker 9: what some of the second and third and fourth order 619 00:30:54,080 --> 00:30:57,440 Speaker 9: effects are. Yeah, for when you actually land, you look 620 00:30:57,440 --> 00:31:00,000 Speaker 9: at the risks that are associated with landing and Carg Island, 621 00:31:00,080 --> 00:31:03,760 Speaker 9: and you are not only creating a geopolitical concern that 622 00:31:03,920 --> 00:31:06,240 Speaker 9: has to be addressed with putting boots on the ground, 623 00:31:06,520 --> 00:31:08,120 Speaker 9: you have to then be able to defend that for 624 00:31:08,240 --> 00:31:10,560 Speaker 9: us when you're there, which means you're using additional air 625 00:31:10,600 --> 00:31:14,600 Speaker 9: defense capabilities and naval air defense power which right now 626 00:31:14,800 --> 00:31:17,880 Speaker 9: from interceptors that we have, you know, are a concern 627 00:31:17,960 --> 00:31:20,080 Speaker 9: to make sure that we always have enough in a 628 00:31:20,160 --> 00:31:23,000 Speaker 9: China contingency in twenty twenty seven. So he's going to say, 629 00:31:23,600 --> 00:31:25,680 Speaker 9: is the is the juice worth the squeeze when you're 630 00:31:25,680 --> 00:31:26,960 Speaker 9: trying to put all these pieces. 631 00:31:26,640 --> 00:31:29,120 Speaker 7: Together, Herbie talk, is the juice worth squeeze? 632 00:31:29,160 --> 00:31:29,560 Speaker 6: Exactly? 633 00:31:29,640 --> 00:31:32,640 Speaker 7: Paul, with the juice with the squeeze? 634 00:31:32,680 --> 00:31:35,719 Speaker 4: Hey, Wayne, we all, I think all of our audience 635 00:31:35,760 --> 00:31:37,440 Speaker 4: has been trying to get a little bit smarter about 636 00:31:37,440 --> 00:31:43,040 Speaker 4: what it means to security provide security for the straight 637 00:31:43,080 --> 00:31:45,800 Speaker 4: of horn Horn moves. It seems like a very difficult 638 00:31:46,440 --> 00:31:48,200 Speaker 4: operation here from your perspective. 639 00:31:48,800 --> 00:31:50,240 Speaker 7: Is it possible and what would it take? 640 00:31:51,840 --> 00:31:53,400 Speaker 6: Yeah, it's absolutely possible. 641 00:31:53,400 --> 00:31:55,800 Speaker 9: The problem is it's about capacity and how much we 642 00:31:55,880 --> 00:31:58,720 Speaker 9: want to actually put you know, the US naval forces 643 00:31:59,040 --> 00:32:01,840 Speaker 9: in that position as well, not only the operating costs 644 00:32:01,840 --> 00:32:03,200 Speaker 9: and all that I can get into if you want 645 00:32:03,240 --> 00:32:06,080 Speaker 9: me to, but just from the strategic positioning of that 646 00:32:06,600 --> 00:32:09,520 Speaker 9: is putting US naval vessels into the Strait itself to 647 00:32:09,560 --> 00:32:12,800 Speaker 9: provide some level of escort, some level of security to 648 00:32:12,800 --> 00:32:14,920 Speaker 9: be able to provide that always is going to put 649 00:32:14,920 --> 00:32:18,680 Speaker 9: those vessels at risk. And as you've seen, even plumes 650 00:32:18,720 --> 00:32:21,640 Speaker 9: of smoke from something that was damaged but not destroyed 651 00:32:21,720 --> 00:32:25,920 Speaker 9: on civilian infrastructure makes international global news. And so I 652 00:32:26,040 --> 00:32:29,400 Speaker 9: RAN wins a lot of points if they're able to 653 00:32:29,440 --> 00:32:32,120 Speaker 9: do something like that against a US vessel of any 654 00:32:32,160 --> 00:32:34,400 Speaker 9: type that is trying to do that inside the Straits. 655 00:32:34,760 --> 00:32:38,120 Speaker 9: Same thing with US forces landing on card it ends 656 00:32:38,200 --> 00:32:41,480 Speaker 9: up being a much larger piece because the asymmetric warfare 657 00:32:41,520 --> 00:32:43,960 Speaker 9: angle of this, It only takes somebody who's got a 658 00:32:43,960 --> 00:32:47,160 Speaker 9: shoulder fired missile who can come out from the shore. 659 00:32:47,280 --> 00:32:50,640 Speaker 9: Even with our overwatch capability doesn't make it impossible for 660 00:32:50,680 --> 00:32:53,080 Speaker 9: somebody to sneak through with something that's that small. 661 00:32:53,120 --> 00:32:55,000 Speaker 6: It's a suitcase. It's a little bit bigger than that. 662 00:32:55,280 --> 00:32:57,720 Speaker 9: You don't always have to look for this big armed 663 00:32:59,200 --> 00:33:03,000 Speaker 9: drone launcher or missile launcher truck bed in order to 664 00:33:03,040 --> 00:33:06,800 Speaker 9: destroy it. These are more insurgent type capabilities. 665 00:33:07,480 --> 00:33:07,800 Speaker 7: Wayne. 666 00:33:07,800 --> 00:33:11,280 Speaker 2: This is right up your alley here at West Point. 667 00:33:11,400 --> 00:33:17,960 Speaker 2: There's the Robotics Research Center in our young cadets are 668 00:33:18,000 --> 00:33:21,720 Speaker 2: at the drone building Paul cadets often start by building 669 00:33:22,160 --> 00:33:27,840 Speaker 2: first person view drones from scratchy, Wayne Sanders, are we 670 00:33:28,040 --> 00:33:29,600 Speaker 2: drone ready? 671 00:33:30,600 --> 00:33:31,960 Speaker 6: We are not quite drone ready. 672 00:33:32,000 --> 00:33:35,280 Speaker 9: If you look at Secretary of Hexsat's drone dominance program right, 673 00:33:35,320 --> 00:33:37,440 Speaker 9: he wants to have three hundred and forty thousand drones 674 00:33:38,080 --> 00:33:41,400 Speaker 9: within within two years, and you've seen about thirty thousand 675 00:33:41,400 --> 00:33:43,080 Speaker 9: of them start being delivered. 676 00:33:43,320 --> 00:33:45,760 Speaker 6: So you see scalability for drone companies. 677 00:33:46,240 --> 00:33:48,320 Speaker 9: You know, er environment does very well with one way 678 00:33:48,360 --> 00:33:52,920 Speaker 9: attack drones, redcat in teal drones or some of the 679 00:33:52,960 --> 00:33:55,800 Speaker 9: other ones from company standpoint that are building this, But 680 00:33:55,880 --> 00:33:57,960 Speaker 9: the army's taking a different approach as well, as you're 681 00:33:57,960 --> 00:33:59,960 Speaker 9: talking about with West Point, and they are looking at 682 00:34:00,080 --> 00:34:04,000 Speaker 9: ways to pretty much build and create it with additive manufacturing, 683 00:34:04,160 --> 00:34:07,160 Speaker 9: thank three D printing for a lot of that same capability. 684 00:34:07,160 --> 00:34:09,080 Speaker 9: And they're starting all the way back at west Point, 685 00:34:09,080 --> 00:34:10,080 Speaker 9: at these centers of excellence. 686 00:34:10,080 --> 00:34:11,919 Speaker 7: Paul wantshould jump in here. One more question. 687 00:34:12,040 --> 00:34:15,960 Speaker 2: R Jabos claims, O folks still fully employed America, Wayne Sanders, 688 00:34:16,000 --> 00:34:19,160 Speaker 2: As simple as I can, how far ahead is mister 689 00:34:19,239 --> 00:34:22,759 Speaker 2: Putin of Secretary Hexith in the drone war? 690 00:34:25,280 --> 00:34:28,840 Speaker 9: Well from a manufacturing production perspective, they do quite well. 691 00:34:28,880 --> 00:34:30,920 Speaker 9: And really it comes down to if you're talking about 692 00:34:30,960 --> 00:34:35,040 Speaker 9: small drones, small drone production that Russia has as well 693 00:34:35,080 --> 00:34:37,520 Speaker 9: as Ukraine, they've had to over the last three or 694 00:34:37,520 --> 00:34:39,799 Speaker 9: four years. They've actually put it together quite a bit 695 00:34:39,840 --> 00:34:42,640 Speaker 9: of an infrastructure so that they can build these at 696 00:34:42,680 --> 00:34:45,719 Speaker 9: scale based on how fast they're actually going through them 697 00:34:45,880 --> 00:34:49,080 Speaker 9: and obviously getting destroyed, right, so they have the production 698 00:34:49,200 --> 00:34:51,560 Speaker 9: rate and it's one of the reasons why Secretary Hegseth 699 00:34:51,800 --> 00:34:54,279 Speaker 9: is looking at trying with the Replicator one point zero 700 00:34:54,280 --> 00:34:56,960 Speaker 9: and Replicator two point zero programs. The Pentagon is to 701 00:34:57,080 --> 00:35:00,600 Speaker 9: build out that capacity for the small drone market. But 702 00:35:00,640 --> 00:35:04,160 Speaker 9: the US is still the world leader by far in 703 00:35:04,239 --> 00:35:06,600 Speaker 9: terms of what they call Group three, Group four, in 704 00:35:06,680 --> 00:35:11,160 Speaker 9: Group five, uas think your big global hawks, your reaper drones, 705 00:35:12,080 --> 00:35:14,799 Speaker 9: you know, very very sophisticated ISR platforms. 706 00:35:14,840 --> 00:35:16,200 Speaker 6: You're talking about thirty million dollars. 707 00:35:16,239 --> 00:35:19,520 Speaker 9: You're not talking about a you know, ten thousand dollars 708 00:35:20,000 --> 00:35:22,719 Speaker 9: drone that somebody's making with these three D printing assets. 709 00:35:23,120 --> 00:35:26,920 Speaker 4: Wayne Secretary Hexeth has been very emphatic that the US 710 00:35:27,040 --> 00:35:30,799 Speaker 4: Air Forces and Israeli Air Forces have hit thousands of 711 00:35:31,320 --> 00:35:34,720 Speaker 4: targets here are we running out of high value targets 712 00:35:34,760 --> 00:35:35,000 Speaker 4: to hit? 713 00:35:36,840 --> 00:35:40,719 Speaker 9: So that was my original assessment when we were we 714 00:35:40,800 --> 00:35:42,960 Speaker 9: talked about, you know, how long did I think this 715 00:35:43,120 --> 00:35:45,520 Speaker 9: war was going to protract? It really comes down to 716 00:35:45,640 --> 00:35:47,879 Speaker 9: how far down that target list you want to go. 717 00:35:48,520 --> 00:35:51,319 Speaker 9: There's obviously those strategic level targets that were taken out 718 00:35:51,400 --> 00:35:53,480 Speaker 9: right up front, and then you move down into some 719 00:35:53,520 --> 00:35:56,439 Speaker 9: of the hardened military targets. So if you think, even 720 00:35:56,480 --> 00:35:59,120 Speaker 9: like in the US, right you have centers of gravity 721 00:35:59,160 --> 00:36:01,359 Speaker 9: that you would want to hit first, and then it's like, oh, okay, wait, 722 00:36:01,400 --> 00:36:04,600 Speaker 9: we have other valid military targets. Same thing in Iran 723 00:36:04,760 --> 00:36:06,279 Speaker 9: is we've hit all the ones that we thought were 724 00:36:06,320 --> 00:36:08,680 Speaker 9: going to fire back at US first. Now comes the 725 00:36:08,760 --> 00:36:11,360 Speaker 9: question as to how much of this the industry, the 726 00:36:11,400 --> 00:36:14,440 Speaker 9: military industrial complex, do we want to actually continue to 727 00:36:14,520 --> 00:36:17,000 Speaker 9: take out so that even if the regime were to 728 00:36:17,040 --> 00:36:20,600 Speaker 9: stay in place, it would still take them fifteen twenty 729 00:36:20,680 --> 00:36:24,160 Speaker 9: years to rebuild any type of capacity for a conventional 730 00:36:24,480 --> 00:36:27,080 Speaker 9: military force. They're still obviously going to still have their 731 00:36:27,080 --> 00:36:31,040 Speaker 9: asymmetric capabilities because those we can't. All we can do 732 00:36:31,160 --> 00:36:33,200 Speaker 9: is it's almost like playing wacka mole. I hate that term, 733 00:36:33,280 --> 00:36:36,239 Speaker 9: but in terms of that. You've seen that with has Below, 734 00:36:36,239 --> 00:36:38,799 Speaker 9: You've seen that with the Huthis and Hamas. It's one 735 00:36:38,840 --> 00:36:41,319 Speaker 9: of the things that they continue to play against as 736 00:36:41,360 --> 00:36:42,840 Speaker 9: part of what Trump's looking at getting rid of. 737 00:36:43,000 --> 00:36:45,320 Speaker 2: Wayne, don't be a stranger, Paul and I have twelve 738 00:36:45,320 --> 00:36:48,360 Speaker 2: more questions for you. Wayne Sanders's public service to the 739 00:36:48,440 --> 00:36:51,600 Speaker 2: nation in the United States Army and teaching at West 740 00:36:51,600 --> 00:36:52,400 Speaker 2: Point Academy. 741 00:36:52,600 --> 00:36:57,360 Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify, 742 00:36:57,520 --> 00:37:01,800 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 743 00:37:01,920 --> 00:37:05,360 Speaker 1: seven to ten am Eastern on Bloomberg dot Com, the 744 00:37:05,440 --> 00:37:09,480 Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You 745 00:37:09,520 --> 00:37:12,880 Speaker 1: can also watch us live every weekday on YouTube and 746 00:37:13,080 --> 00:37:14,800 Speaker 1: always on the Bloomberg terminal.