WEBVTT - Bruce Richards Talks Inflation Data, Credit 0:00:02.400 --> 0:00:08.159 Bloomberg Audio Studios, podcasts, radio news, Bruce, good to see it. 0:00:08.760 --> 0:00:11.799 What do you make of this well good CPI numbers today? 0:00:11.920 --> 0:00:12.240 Why? 0:00:12.720 --> 0:00:14.960 For two reasons. Number one, the market came in short 0:00:15.000 --> 0:00:17.840 and so technically they were short, and so anything that 0:00:17.880 --> 0:00:20.360 came in on expectations, the market was going to rally. 0:00:20.400 --> 0:00:22.680 You saw it in treasures and we saw the inequities 0:00:22.760 --> 0:00:27.040 and see big rally. The second reason is CPI. You know, 0:00:27.040 --> 0:00:30.200 when you look at fundamentally the numbers, the numbers were 0:00:30.200 --> 0:00:33.479 pretty good at three point four percent on expectations, but 0:00:33.600 --> 0:00:35.520 when you look at the trailing three months at four 0:00:35.520 --> 0:00:38.240 point one percent, which is the last three months on average, 0:00:38.680 --> 0:00:41.159 that number still too high for the FED. So it 0:00:41.280 --> 0:00:44.920 means higher for longer, without a doubt. And you see 0:00:45.000 --> 0:00:47.239 goods inflation. You saw that with retail sales been good. 0:00:47.280 --> 0:00:51.360 Inflation a little soft, but the services and oeer which 0:00:51.360 --> 0:00:53.600 is a a equivalent rent, you know, up around six percent, 0:00:53.880 --> 0:00:56.480 still too high, too firm. So I think it was 0:00:56.560 --> 0:01:01.360 perfect because for US bond guys and credit investors, it's goldilocks. 0:01:01.400 --> 0:01:03.800 It's higher for longer, and we're making a lot of 0:01:03.840 --> 0:01:06.919 money off these higher rates. And for that after equity folks. 0:01:07.000 --> 0:01:09.480 You know, the technicals are driving it, and you know 0:01:09.560 --> 0:01:12.720 the animal sparatreele. So okay, you've been saying this for 0:01:12.720 --> 0:01:14.800 a while. The Golden Age for credit. 0:01:14.920 --> 0:01:17.280 You like lots of different things. You have a. 0:01:17.240 --> 0:01:18.760 Favorite area of credit? 0:01:18.800 --> 0:01:20.560 Do you have an area that you don't like in credit? 0:01:20.600 --> 0:01:22.320 Well, it's kind of like and that's why I call 0:01:22.360 --> 0:01:24.959 it goldilocks because you look at the you know, liquid 0:01:25.000 --> 0:01:27.840 credit markets, which is everything from high old loans. You know, 0:01:28.040 --> 0:01:30.520 they're ripping, like you know, nearly half of the high 0:01:30.560 --> 0:01:33.040 old bond index is trading inside of two hundred sixty 0:01:33.040 --> 0:01:36.080 two percent of the leverage loan index is trading above par. 0:01:36.319 --> 0:01:39.960 So that's doing really, really well. Structure credit is crushing it, ABS, 0:01:40.120 --> 0:01:43.400 R and b S, CNBS and colos. Yes, even CMBs 0:01:43.680 --> 0:01:46.400 is having a good run here despite what's happening in 0:01:46.600 --> 0:01:49.120 commercial real estate and then emerging market debt doing well. 0:01:49.160 --> 0:01:51.240 So in the liquid credit markets, which is like a 0:01:51.240 --> 0:01:54.640 total of twelve trillion, it's all doing really well. And 0:01:54.680 --> 0:01:57.680 do I have a favorite, Well, we are very selective 0:01:57.720 --> 0:01:59.320 and I'll brought them up in terms of what we 0:01:59.440 --> 0:02:02.720 invest in. And there's a lot of value right now, 0:02:02.920 --> 0:02:06.440 particularly in the structure credit sector compared to these other sectors. 0:02:06.520 --> 0:02:10.560 In private credit, it's you know, middle market lending, direct lending, 0:02:10.720 --> 0:02:12.840 it's asset based lending, which is huge and going to 0:02:12.880 --> 0:02:15.680 get much much bigger, And there's a lot of opportunities 0:02:16.000 --> 0:02:19.640 in capital solutions. So it's kind of goldie lots for 0:02:19.760 --> 0:02:23.720 all credit generally speaking. But there's a small cohort that 0:02:24.080 --> 0:02:26.480 is the tell of two cities. The other part that's 0:02:26.480 --> 0:02:29.280 struggling under these higher, higher rates. 0:02:29.480 --> 0:02:31.639 Is there any sort of correlation with those pockets and 0:02:32.120 --> 0:02:33.639 the areas you're talking about. 0:02:33.480 --> 0:02:36.760 Well, there's correlation among commercial real estate of course ruin 0:02:37.160 --> 0:02:40.920 and so you know, the banks are going to be 0:02:41.120 --> 0:02:45.760 very very constrained because these new CRR you know, capital 0:02:46.040 --> 0:02:49.280 requirements unto Basle three endgame comes in and it means 0:02:49.639 --> 0:02:52.840 you really have to lower down your LTV to make 0:02:52.880 --> 0:02:55.400 that same loan or you're gonna have a big capital charge. 0:02:55.560 --> 0:02:57.440 And so that's when private credit is going to lean 0:02:57.480 --> 0:03:00.600 forward and make loans. We've been very active there. Banks 0:03:00.880 --> 0:03:03.720 pull back from extending commercial real estate loans. And the 0:03:03.760 --> 0:03:06.480 second part are you know, companies that are just a 0:03:06.520 --> 0:03:09.960 little bit too levered that need capital solutions. And then 0:03:10.000 --> 0:03:12.840 again we're leaning in. And look talking about leaning in, 0:03:13.240 --> 0:03:15.639 what's the big lean in? You know, you gotta look 0:03:15.639 --> 0:03:17.320 at Keith Gill and you gotta look at the roaring 0:03:17.400 --> 0:03:20.560 kitty and just see that, see that lean in. But 0:03:20.680 --> 0:03:26.160 the real roaring kitty Jay Powell. And why I say 0:03:26.200 --> 0:03:29.560 that is because as of last October, with his words, 0:03:29.560 --> 0:03:31.919 he's been leaning in, and the equity market since last 0:03:32.000 --> 0:03:34.640 in October up ten trillion. What Keith bring to the table, 0:03:34.880 --> 0:03:37.840 he brought you know, gamestock amc like ten billion of 0:03:37.920 --> 0:03:41.720 value is defect chairman and his liter by the way, 0:03:41.760 --> 0:03:47.800 his liters, all the congressman, all the who put trillions 0:03:47.840 --> 0:03:51.400 dollars of stimulus and as enabled like the comomedy to 0:03:51.440 --> 0:03:53.520 be as you know, strong as it is. And so 0:03:54.120 --> 0:03:57.720 that's the real roaring kitty. It's yes, it's Keith, but 0:03:57.960 --> 0:03:59.080 j Pal is the big guy. 0:03:59.480 --> 0:04:01.400 Is there? Do you worried all though? I mean, it's 0:04:01.440 --> 0:04:03.360 one thing to have a Goldilock scenario where things are 0:04:03.440 --> 0:04:05.760 kind of stable, But when you start talking about kind 0:04:05.800 --> 0:04:07.840 of what we saw based on that ruin kitty tweeting 0:04:07.840 --> 0:04:10.000 all the animal spirits come back in here, does that 0:04:10.080 --> 0:04:11.680 not worry you that if we get to the stage 0:04:11.680 --> 0:04:14.840 of that euphoria again. Then maybe that means J. Powell 0:04:14.880 --> 0:04:16.960 then leans back in his chair and says, I first 0:04:17.040 --> 0:04:17.600 settle down. 0:04:17.760 --> 0:04:20.200 I think we're a little way away from that. I mean, 0:04:20.279 --> 0:04:22.600 you know, we've been leaning in to say AMC. So 0:04:22.760 --> 0:04:25.400 we're long AMCA for like a year, two years, three years. 0:04:25.440 --> 0:04:27.599 And when you know you lean in, an AMC goes 0:04:27.640 --> 0:04:30.200 running up. There's a lot of equity that the company 0:04:30.200 --> 0:04:32.400 can now raise, and that goes right into our pocket 0:04:32.400 --> 0:04:35.560 because we're earnning fifteen percent seeing your secured leaned up 0:04:35.600 --> 0:04:39.520 against all their assets, and we're debt with debt protection 0:04:39.880 --> 0:04:43.280 and we're earning fifteen percent thanks to you know, Roren 0:04:43.360 --> 0:04:47.000 Kitty and all the meme fan club that's buying up aMCI. 0:04:47.120 --> 0:04:49.520 So the debtish ones that we had announced yesterday by AMC, 0:04:49.640 --> 0:04:50.760 you think we're going to see more of that from 0:04:50.760 --> 0:04:50.919 some of. 0:04:50.920 --> 0:04:53.279 These Absolutely, when you raise equity, you raise that and 0:04:53.279 --> 0:04:56.440 you it's a combo platter trade. And we're long, you know, 0:04:56.560 --> 0:04:59.039 kind of the senior secured stuff that we bought in 0:04:59.040 --> 0:05:01.280 the sixties that went to seventies and eighties, they're now 0:05:01.279 --> 0:05:03.200 in the nineties, but we love them still in the 0:05:03.279 --> 0:05:07.080 nineties because we're earning fifteen percent yield on that add 0:05:07.080 --> 0:05:10.120 a discount with all that equity cap that backs it 0:05:10.160 --> 0:05:12.200 now and in a senior security position. 0:05:12.320 --> 0:05:13.160 I love that for you. 0:05:14.080 --> 0:05:14.920 I love it for us. Yeah. 0:05:15.000 --> 0:05:17.800 Maybe what else do you like right now? What else 0:05:17.839 --> 0:05:18.520 is speaking to you? 0:05:18.600 --> 0:05:21.000 Well, what's not speaking to me is treasures. I think 0:05:21.000 --> 0:05:23.599 treasuries are kind of in this range. It's four to 0:05:23.680 --> 0:05:26.440 four and three quarters I think is the inside range. 0:05:26.440 --> 0:05:28.520 Three and three quarters to five is the outside range. 0:05:28.640 --> 0:05:31.599 I think that our star is going to be high 0:05:31.720 --> 0:05:35.880 enough and all the massive treasury issues, so I'd be 0:05:36.040 --> 0:05:39.040 fading treasuries when it gets to not today, but when 0:05:39.040 --> 0:05:41.080 it gets to like inside of four, and I'd be 0:05:41.160 --> 0:05:43.040 a buyer kind of like in the four and three 0:05:43.080 --> 0:05:45.080 quarter neighborhood or infome wider than that. 0:05:45.279 --> 0:05:47.160 Do you think we would break out of that range. 0:05:47.320 --> 0:05:48.599 I think we're gonna be in that range for a 0:05:48.640 --> 0:05:51.800 really long time. And I think you've fade either side 0:05:51.800 --> 0:05:55.800 of that. And in credit, buy it and you buy 0:05:55.839 --> 0:05:59.440 it in liquid credit with multi asset credit strategies, and 0:05:59.480 --> 0:06:03.040 you buy it private credit with both middle market lending, 0:06:03.279 --> 0:06:06.559 asset based lending, and some of these opportunistic strategies. Credit 0:06:06.600 --> 0:06:09.840 is the place to be. So private equity right done 0:06:09.920 --> 0:06:12.640 very well for very long period of time. Private credit, 0:06:12.640 --> 0:06:14.839 which has a fraction of the risk of the leverage 0:06:14.880 --> 0:06:18.839 private equity fraction of that risk because we're senior to it, right, 0:06:18.920 --> 0:06:20.839 and we have our fixed coupon that you know, we're 0:06:20.839 --> 0:06:25.080 in floating right, coupons that that underrate that cash flow. Right. 0:06:25.200 --> 0:06:28.080 We outperformed that index of private equity last year and 0:06:28.080 --> 0:06:30.120 the same thing will happen again this year. So I 0:06:30.160 --> 0:06:35.560 think allocations to equity has always been the rage balance 0:06:35.640 --> 0:06:38.359 with like maybe some hedge and treasuries, But now you 0:06:38.400 --> 0:06:42.159 can really balance a portfolio with credit because it yields 0:06:42.200 --> 0:06:44.600 so much and you don't have to take the equity 0:06:44.640 --> 0:06:47.360 like risk. So I like equities. It's broad based now, 0:06:47.560 --> 0:06:49.240 right s and p is up eleven. 0:06:49.880 --> 0:06:52.159 Up eleven credit. Does that replace what you would maybe 0:06:52.160 --> 0:06:55.560 have in say in government bonds or is that complement that. 0:06:56.120 --> 0:06:58.279 I think it can come from different pockets, and I 0:06:58.279 --> 0:07:02.640 think every plan manager, every allocation model can think about 0:07:02.680 --> 0:07:05.240 it differently. They can think about it on the alt 0:07:05.279 --> 0:07:08.159 side for private credit versus their other alts, Like why 0:07:08.160 --> 0:07:10.440 should I have alts in real estate? Equity where they 0:07:10.480 --> 0:07:13.280 can have real estate credit that yields a lot more. 0:07:13.280 --> 0:07:15.480 That's sucking out all the cash flow from the properties, 0:07:15.520 --> 0:07:19.040 not allowing the equity owners to participate the same thing 0:07:19.080 --> 0:07:21.880 happening in private equity. You can start to balance DA 0:07:21.960 --> 0:07:23.920 out a little bit, or you can take from your 0:07:24.400 --> 0:07:27.920 high grade portfolio, whether it's government's work, investment grade corporates, 0:07:28.160 --> 0:07:30.960 and go down in credit because the commedy is doing well, 0:07:31.360 --> 0:07:36.040 and you know, and companies capital structures are so well 0:07:37.120 --> 0:07:39.960 established at this point in terms of being able to 0:07:40.000 --> 0:07:40.680 service the debt. 0:07:41.000 --> 0:07:44.400 You sound so bullish. Everything is green, everything is positive, 0:07:44.440 --> 0:07:47.360 treasures are ranged bound. That's making me nervous. Well, why 0:07:47.400 --> 0:07:48.320 shouldn't I be nervous? 0:07:48.440 --> 0:07:50.920 I think the being nervous about it is the US government. 0:07:53.760 --> 0:07:56.640 So am I issuing so much debt and running such 0:07:56.720 --> 0:07:59.800 massive deficits. And some point you know there's going to 0:07:59.840 --> 0:08:04.040 be the crowding out there, But right now, you take 0:08:04.120 --> 0:08:06.320 You don't fight the Fed. You take what they have 0:08:07.120 --> 0:08:10.200 at you. And in a strong economy, when corporate earnings 0:08:10.200 --> 0:08:12.840 are doing well and so it's really good for credit, 0:08:13.800 --> 0:08:16.680 and in a high rate environment, you don't want to 0:08:16.720 --> 0:08:19.040 be leaning out right now. You want to be not 0:08:19.080 --> 0:08:21.560 that ruing credit kitty, and you want to buy value, 0:08:21.600 --> 0:08:23.720 and you want to have it well structured. You want 0:08:23.720 --> 0:08:25.640 to have all your protection in place. You want to 0:08:25.640 --> 0:08:28.960 know you're going to get paid your par plus you're accrued. 0:08:29.320 --> 0:08:32.440 But you do all this fundamental work, and you put 0:08:32.440 --> 0:08:34.800 that money in the ground and just let it work 0:08:34.880 --> 0:08:35.520 for you.