Speaker 1: Bloomberg Audio Studios, podcasts, radio news, Bruce, good to see it.
Speaker 1: What do you make of this well good CPI numbers today?
Speaker 2: Why?
Speaker 1: For two reasons. Number one, the market came in short
Speaker 1: and so technically they were short, and so anything that
Speaker 1: came in on expectations, the market was going to rally.
Speaker 1: You saw it in treasures and we saw the inequities
Speaker 1: and see big rally. The second reason is CPI. You know,
Speaker 1: when you look at fundamentally the numbers, the numbers were
Speaker 1: pretty good at three point four percent on expectations, but
Speaker 1: when you look at the trailing three months at four
Speaker 1: point one percent, which is the last three months on average,
Speaker 1: that number still too high for the FED. So it
Speaker 1: means higher for longer, without a doubt. And you see
Speaker 1: goods inflation. You saw that with retail sales been good.
Speaker 1: Inflation a little soft, but the services and oeer which
Speaker 1: is a a equivalent rent, you know, up around six percent,
Speaker 1: still too high, too firm. So I think it was
Speaker 1: perfect because for US bond guys and credit investors, it's goldilocks.
Speaker 1: It's higher for longer, and we're making a lot of
Speaker 1: money off these higher rates. And for that after equity folks.
Speaker 1: You know, the technicals are driving it, and you know
Speaker 1: the animal sparatreele. So okay, you've been saying this for
Speaker 1: a while. The Golden Age for credit.
Speaker 2: You like lots of different things. You have a.
Speaker 1: Favorite area of credit?
Speaker 2: Do you have an area that you don't like in credit?
Speaker 1: Well, it's kind of like and that's why I call
Speaker 1: it goldilocks because you look at the you know, liquid
Speaker 1: credit markets, which is everything from high old loans. You know,
Speaker 1: they're ripping, like you know, nearly half of the high
Speaker 1: old bond index is trading inside of two hundred sixty
Speaker 1: two percent of the leverage loan index is trading above par.
Speaker 1: So that's doing really, really well. Structure credit is crushing it, ABS,
Speaker 1: R and b S, CNBS and colos. Yes, even CMBs
Speaker 1: is having a good run here despite what's happening in
Speaker 1: commercial real estate and then emerging market debt doing well.
Speaker 1: So in the liquid credit markets, which is like a
Speaker 1: total of twelve trillion, it's all doing really well. And
Speaker 1: do I have a favorite, Well, we are very selective
Speaker 1: and I'll brought them up in terms of what we
Speaker 1: invest in. And there's a lot of value right now,
Speaker 1: particularly in the structure credit sector compared to these other sectors.
Speaker 1: In private credit, it's you know, middle market lending, direct lending,
Speaker 1: it's asset based lending, which is huge and going to
Speaker 1: get much much bigger, And there's a lot of opportunities
Speaker 1: in capital solutions. So it's kind of goldie lots for
Speaker 1: all credit generally speaking. But there's a small cohort that
Speaker 1: is the tell of two cities. The other part that's
Speaker 1: struggling under these higher, higher rates.
Speaker 2: Is there any sort of correlation with those pockets and
Speaker 2: the areas you're talking about.
Speaker 1: Well, there's correlation among commercial real estate of course ruin
Speaker 1: and so you know, the banks are going to be
Speaker 1: very very constrained because these new CRR you know, capital
Speaker 1: requirements unto Basle three endgame comes in and it means
Speaker 1: you really have to lower down your LTV to make
Speaker 1: that same loan or you're gonna have a big capital charge.
Speaker 1: And so that's when private credit is going to lean
Speaker 1: forward and make loans. We've been very active there. Banks
Speaker 1: pull back from extending commercial real estate loans. And the
Speaker 1: second part are you know, companies that are just a
Speaker 1: little bit too levered that need capital solutions. And then
Speaker 1: again we're leaning in. And look talking about leaning in,
Speaker 1: what's the big lean in? You know, you gotta look
Speaker 1: at Keith Gill and you gotta look at the roaring
Speaker 1: kitty and just see that, see that lean in. But
Speaker 1: the real roaring kitty Jay Powell. And why I say
Speaker 1: that is because as of last October, with his words,
Speaker 1: he's been leaning in, and the equity market since last
Speaker 1: in October up ten trillion. What Keith bring to the table,
Speaker 1: he brought you know, gamestock amc like ten billion of
Speaker 1: value is defect chairman and his liter by the way,
Speaker 1: his liters, all the congressman, all the who put trillions
Speaker 1: dollars of stimulus and as enabled like the comomedy to
Speaker 1: be as you know, strong as it is. And so
Speaker 1: that's the real roaring kitty. It's yes, it's Keith, but
Speaker 1: j Pal is the big guy.
Speaker 2: Is there? Do you worried all though? I mean, it's
Speaker 2: one thing to have a Goldilock scenario where things are
Speaker 2: kind of stable, But when you start talking about kind
Speaker 2: of what we saw based on that ruin kitty tweeting
Speaker 2: all the animal spirits come back in here, does that
Speaker 2: not worry you that if we get to the stage
Speaker 2: of that euphoria again. Then maybe that means J. Powell
Speaker 2: then leans back in his chair and says, I first
Speaker 2: settle down.
Speaker 1: I think we're a little way away from that. I mean,
Speaker 1: you know, we've been leaning in to say AMC. So
Speaker 1: we're long AMCA for like a year, two years, three years.
Speaker 1: And when you know you lean in, an AMC goes
Speaker 1: running up. There's a lot of equity that the company
Speaker 1: can now raise, and that goes right into our pocket
Speaker 1: because we're earnning fifteen percent seeing your secured leaned up
Speaker 1: against all their assets, and we're debt with debt protection
Speaker 1: and we're earning fifteen percent thanks to you know, Roren
Speaker 1: Kitty and all the meme fan club that's buying up aMCI.
Speaker 2: So the debtish ones that we had announced yesterday by AMC,
Speaker 2: you think we're going to see more of that from
Speaker 2: some of.
Speaker 1: These Absolutely, when you raise equity, you raise that and
Speaker 1: you it's a combo platter trade. And we're long, you know,
Speaker 1: kind of the senior secured stuff that we bought in
Speaker 1: the sixties that went to seventies and eighties, they're now
Speaker 1: in the nineties, but we love them still in the
Speaker 1: nineties because we're earning fifteen percent yield on that add
Speaker 1: a discount with all that equity cap that backs it
Speaker 1: now and in a senior security position.
Speaker 2: I love that for you.
Speaker 1: I love it for us. Yeah.
Speaker 2: Maybe what else do you like right now? What else
Speaker 2: is speaking to you?
Speaker 1: Well, what's not speaking to me is treasures. I think
Speaker 1: treasuries are kind of in this range. It's four to
Speaker 1: four and three quarters I think is the inside range.
Speaker 1: Three and three quarters to five is the outside range.
Speaker 1: I think that our star is going to be high
Speaker 1: enough and all the massive treasury issues, so I'd be
Speaker 1: fading treasuries when it gets to not today, but when
Speaker 1: it gets to like inside of four, and I'd be
Speaker 1: a buyer kind of like in the four and three
Speaker 1: quarter neighborhood or infome wider than that.
Speaker 2: Do you think we would break out of that range.
Speaker 1: I think we're gonna be in that range for a
Speaker 1: really long time. And I think you've fade either side
Speaker 1: of that. And in credit, buy it and you buy
Speaker 1: it in liquid credit with multi asset credit strategies, and
Speaker 1: you buy it private credit with both middle market lending,
Speaker 1: asset based lending, and some of these opportunistic strategies. Credit
Speaker 1: is the place to be. So private equity right done
Speaker 1: very well for very long period of time. Private credit,
Speaker 1: which has a fraction of the risk of the leverage
Speaker 1: private equity fraction of that risk because we're senior to it, right,
Speaker 1: and we have our fixed coupon that you know, we're
Speaker 1: in floating right, coupons that that underrate that cash flow. Right.
Speaker 1: We outperformed that index of private equity last year and
Speaker 1: the same thing will happen again this year. So I
Speaker 1: think allocations to equity has always been the rage balance
Speaker 1: with like maybe some hedge and treasuries, But now you
Speaker 1: can really balance a portfolio with credit because it yields
Speaker 1: so much and you don't have to take the equity
Speaker 1: like risk. So I like equities. It's broad based now,
Speaker 1: right s and p is up eleven.
Speaker 2: Up eleven credit. Does that replace what you would maybe
Speaker 2: have in say in government bonds or is that complement that.
Speaker 1: I think it can come from different pockets, and I
Speaker 1: think every plan manager, every allocation model can think about
Speaker 1: it differently. They can think about it on the alt
Speaker 1: side for private credit versus their other alts, Like why
Speaker 1: should I have alts in real estate? Equity where they
Speaker 1: can have real estate credit that yields a lot more.
Speaker 1: That's sucking out all the cash flow from the properties,
Speaker 1: not allowing the equity owners to participate the same thing
Speaker 1: happening in private equity. You can start to balance DA
Speaker 1: out a little bit, or you can take from your
Speaker 1: high grade portfolio, whether it's government's work, investment grade corporates,
Speaker 1: and go down in credit because the commedy is doing well,
Speaker 1: and you know, and companies capital structures are so well
Speaker 1: established at this point in terms of being able to
Speaker 1: service the debt.
Speaker 2: You sound so bullish. Everything is green, everything is positive,
Speaker 2: treasures are ranged bound. That's making me nervous. Well, why
Speaker 2: shouldn't I be nervous?
Speaker 1: I think the being nervous about it is the US government.
Speaker 1: So am I issuing so much debt and running such
Speaker 1: massive deficits. And some point you know there's going to
Speaker 1: be the crowding out there, But right now, you take
Speaker 1: You don't fight the Fed. You take what they have
Speaker 1: at you. And in a strong economy, when corporate earnings
Speaker 1: are doing well and so it's really good for credit,
Speaker 1: and in a high rate environment, you don't want to
Speaker 1: be leaning out right now. You want to be not
Speaker 1: that ruing credit kitty, and you want to buy value,
Speaker 1: and you want to have it well structured. You want
Speaker 1: to have all your protection in place. You want to
Speaker 1: know you're going to get paid your par plus you're accrued.
Speaker 1: But you do all this fundamental work, and you put
Speaker 1: that money in the ground and just let it work
Speaker 1: for you.