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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Wonderful surprise for you

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Speaker 1: this morning. All things to talk about with Robert Kaplan

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Speaker 1: of Golden Sax, former president of the Dellas Fed. We

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Speaker 1: could talk for three hours with them, but we're going

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Speaker 1: to do a massive audible here. And the kid from

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Speaker 1: you were you grew up in.

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Speaker 2: Brooklyn, though my parents did, and I grew up in Kansas.

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Speaker 1: They grew up in Prairie Village. Yeah. And with John Sherman,

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Speaker 1: you enjoy partial ownership of the Bobby Wits.

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Speaker 2: That's right of the Bobby Witts.

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Speaker 1: I watched him with the Giants in Phoenix here recently.

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Speaker 1: He's an electric player. I mean, how will the Kansas

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Speaker 1: City Royals, your team you're part owner with John Sherman,

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Speaker 1: how will they compete? Where the payrolls? About the size

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Speaker 1: of Aaron Judges payroll, I got one hundred and eighty

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Speaker 1: two million as a working statistic.

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Speaker 2: This is unfair, right, Yeah, And that's why in the

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Speaker 2: in the is a sensitive topic. But in the labor

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Speaker 2: negotiations over the next year or two, there's gonna have

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Speaker 2: to be a discussion about some type of balancing salary

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Speaker 2: cap that the sport really really needs to create more competitiveness.

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Speaker 2: Having said that, Royals are going to I say this

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Speaker 2: in a little biased Royls are gonna be good this year.

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Speaker 3: I mean there's I mean the word is in sports radio.

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Speaker 3: There's gonna be a work stoppage next year. They do

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Speaker 3: not need within.

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Speaker 1: The delicacies Robert kaplan. Of where you sit with the

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Speaker 1: Kansas City Royals, are you optimistic there can be a

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Speaker 1: constructive agreement.

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Speaker 2: I'm optimistic that it's clear the sport needs to deal

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Speaker 2: with the disparity like other sports. How we're going to

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Speaker 2: get from here to there, I don't know, but it's

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Speaker 2: clear it would benefit everyone involved in the sport.

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Speaker 1: One Kansas final Kansas City question before serious issues? Am

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Speaker 1: I right? Kansas City is booming. That's what I noticed

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Speaker 1: the radar from here. It's booming. The new airport at all.

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Speaker 2: Of course, yes, listen, I'm Kansasity is fast, fabulous place

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Speaker 2: to live. I love it. I go back there regularly,

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Speaker 2: and it's it doesn't have a lot of Like forty

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Speaker 2: three other states in the United States, the state of

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Speaker 2: Kansas and Missouri are not growing substantially in terms of population,

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Speaker 2: but it's a fabulous place.

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Speaker 1: Yeah, it's good. Should we start the show.

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Speaker 3: Let's go.

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Speaker 1: Let's start to show. Paul Sweetey with Robert Kaplan, the

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Speaker 1: former FED president of Dallas.

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Speaker 3: Robert, you know, the FED decision, I guess was not

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Speaker 3: surprising in March kind of. But if I look at

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Speaker 3: the warp function, look where the market is thinking. The

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Speaker 3: market's not really pressing in any cuts or even any

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Speaker 3: rate heights for the end of the year. I guess

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Speaker 3: that makes sense because there's so much uncertainty out there.

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Speaker 2: It makes a lot of sense. If we talked literally

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Speaker 2: just a month ago, we would have said we're set

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Speaker 2: up for a strong year growth in twenty twenty six,

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Speaker 2: tax and centers, regulatory reform, AI data center power boom.

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Speaker 2: And I think the Fed was hopeful in the back

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Speaker 2: half of the year that headline inflation would tail off

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Speaker 2: of it, so they might be able to cut rates

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Speaker 2: once or twice. Obviously, because of what's going on in

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Speaker 2: the Middle East, I think they're going to need to

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Speaker 2: step back, that's the right thing to do, and let

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Speaker 2: this unfold. Then the market is sort of backed off

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Speaker 2: also and is pricing in basically no cuts this year.

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Speaker 3: What do you think if I'm at the board level.

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Speaker 3: If I'm at the c suite level, I've navigated tariffs.

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Speaker 3: Now we have to navigate what may be, you know,

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Speaker 3: an inflationary slowing economy due to higher energy prices. What

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Speaker 3: is the c suite? What is the board to do?

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Speaker 3: These days? Are they going to sit on their hands

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Speaker 3: as well?

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Speaker 1: A little bit?

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Speaker 2: Do you think they're what we're seeing? They're not sitting

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Speaker 2: on their hands because we are in the middle of

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Speaker 2: not only an AI data center power cap x boom,

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Speaker 2: but now we're in the early stages of the adoption boom,

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Speaker 2: which is going to improve productivity growth, and every business

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Speaker 2: we talk to has got to be trying use cases

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Speaker 2: and trying to figure out how that's going to work.

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Speaker 2: And many are concluding that in this new era, they're

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Speaker 2: better off getting more size and scale and merging. So

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Speaker 2: that's not slowing down at all. Having said that, if

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Speaker 2: you want to if your forecast for the year, this

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Speaker 2: has put a little bit of a damper on for

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Speaker 2: many businesses on their growth outlook, and they're going to

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Speaker 2: be more careful and that will start with hiring and

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Speaker 2: other expenditures. But they've got to keep aggressively pursuing this

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Speaker 2: AI situation, and mergers will be part of that.

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Speaker 1: You're in the early criciple of this, of course, at

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Speaker 1: the Dallas FED. And we all know how the Texas

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Speaker 1: is booming, the philanthropy and Michael Dell and others. Here's

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Speaker 1: Anna Crockett from Robert Kaplan's Dallas Fed Salary not sole

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Speaker 1: concern for young adults weighing career decisions. So you're bringing

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Speaker 1: over to AI in the boom, whether it's Dear Valley

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Speaker 1: out into Phoenix or everything going on in Texas. What's

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Speaker 1: going to be the incentive here to drive employment and

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Speaker 1: happy employment forward?

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Speaker 2: So what we see and I saw this when I

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Speaker 2: was at the Dallas FED, and I see it more

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Speaker 2: now we've got all we've got a lot of what

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Speaker 2: I call mismatches. So the FED worries about are we

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Speaker 2: sickly growing? Are we weakening? We got difference, We got

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Speaker 2: structural problem. We've got college graduates, programmers, others can't find jobs.

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Speaker 2: But I've never seen more open jobs. Win too, Installers, technicians, plumbers,

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Speaker 2: people to work on the Ford Motor Company assembly line

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Speaker 2: to make one hundred and thirty five grand here can't

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Speaker 2: find them. And so these mismatches have to be worked through,

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Speaker 2: and we're kind of struggling with that right now.

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Speaker 1: Okay, this is stator grassing welders in Iowa a million

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Speaker 1: years ago. What's the simple issue? More pay for those

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Speaker 1: working class people.

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Speaker 2: Some of it is aspirational if I go to college,

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Speaker 2: did I go to college to be a plumber or electrician?

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Speaker 2: Turns out those jobs make a lot of money, and

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Speaker 2: so I think you may see you're gonna need to

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Speaker 2: see more changes in our educational system. It wouldn't shock

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Speaker 2: me if fifteen years from now a state college offers

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Speaker 2: a skill training option. They don't do that now.

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Speaker 1: This would be paul an Agricultural and Mechanical school, like

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Speaker 1: at College Point Texas exactly.

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Speaker 2: That's right, college station, Yeah, stations exactly, Robert.

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Speaker 3: I mean, talk to us about the M and A environment.

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Speaker 3: When we came into the second term of President Trump,

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Speaker 3: the expectation was that this was going to be an

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Speaker 3: administration that was going to be very supportive of M

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Speaker 3: and A consolidation. Have we in fact seen that?

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Speaker 2: I think I'll talk generally, the attitude in boards is

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Speaker 2: there is a window here where I think companies are

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Speaker 2: more confident that if they want to do a merger

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Speaker 2: that they'll be able to get it done, and they

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Speaker 2: want to take advantage of that window private credit.

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Speaker 3: If it weren't for the Warner around, Tom and I

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Speaker 3: keep saying to each other, Boy, if it weren't for

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Speaker 3: the Warner around, this private credit issue would be maybe

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Speaker 3: a bigger issue for Global Wall Street and concerns about

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Speaker 3: is there a systemic risk in the private credit world

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Speaker 3: which has seen such a tremendous amount of growth since

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Speaker 3: a great financial crisis. How do you guys think about that?

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Speaker 2: Yeah, so if you actually look under the hood in

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Speaker 2: the portfolios, obviously you want to check what their industry

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Speaker 2: exposures are, how much software exposure. It's by the way,

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Speaker 2: there's nothing wrong with software companies. It just you may

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Speaker 2: not want them to be leveraged five times even d

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Speaker 2: But there's the portfolio issue, which I would argue, if

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Speaker 2: growth is solid this year, we're unlikely to have a

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Speaker 2: credit cycle in twenty six. So what's going on. There's

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Speaker 2: that liquidity mismatch that's big problem, and I think they're

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Speaker 2: being confused, meaning there are certain BDC's that you have

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Speaker 2: to offer quarterly liquidity, and when investors rush for the

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Speaker 2: exits and they think others are, then they're going to rush.

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Speaker 2: And I think in portfolios that have good matching of

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Speaker 2: assets and liabilities liquidity, they may be fine. Having said

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Speaker 2: that this is the crisis before the crisis, to quote

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Speaker 2: someone else, if we have a credit cycle in next

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Speaker 2: two or three years, I actually think this concern now

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Speaker 2: is going to be healthy, because if we have a

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Speaker 2: credit cycle, then you're going to see more issues in

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Speaker 2: private credit.

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Speaker 1: If you're listening across America, good morning to you, Paul Suenian,

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Speaker 1: Tom Keane of Bloomberg Surveillance on YouTube, subscribe to Bloomberg Podcast.

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Speaker 1: It's our digital distribution humbled by that success, and of

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Speaker 1: course all of you on traditional audio as well. Where

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Speaker 1: there's Robert Kaplan of the Dallas Fed now holding court

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Speaker 1: again at Golden Sachs as vice chairman, I would say,

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Speaker 1: like Mark KIMMITTT and the military spans finance, Robert Champlin,

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Speaker 1: you span academics over to finance, over to your service

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Speaker 1: at the Dallas Fed like no one else in America.

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Speaker 1: Once again, we're studying within private credit the efficacy of hedging.

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Speaker 1: In every single class ever been taught, there's a point

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Speaker 1: where a hedge catches up with you. How close are

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Speaker 1: we within rehedging where the game the shell game we're playing,

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Speaker 1: or we get to a shock, a tip point that

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Speaker 1: upsets the apple cart.

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Speaker 2: So well, obviously the yield curve is drifted up because

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Speaker 2: oil prices have drifted up, the real yields come up,

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Speaker 2: and people are concerned that central banks just aren't going

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Speaker 2: to cut in the way that we may have thought

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Speaker 2: literally a month ago. Having said that, I think that

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Speaker 2: the private credit issue, maybe not this year, but over

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Speaker 2: the horizon, is about operational risk matching financial risk. And

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Speaker 2: we were taught way back when if operational risk is high,

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Speaker 2: be careful about the financial risk. And AI and disruption

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Speaker 2: is going to increase operational risk. Businesses will figure it out,

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Speaker 2: but you don't want to be as highly leveraged. And

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Speaker 2: so that's something I think people are going to have

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Speaker 2: to go back and screut Now.

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Speaker 1: Is a private credit people Paul will say, well, we're

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Speaker 1: not leveraged. We're here, I'm listening to Robert Kaplan.

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Speaker 2: The companies listen. We would have said in the past

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Speaker 2: four or five times ebit D that's not over leveraged.

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Speaker 2: Well it is. If there's a risk that your ebit

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Speaker 2: D might drop thirty percent because of a new innovation.

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Speaker 2: That's the issue.

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Speaker 3: What's the message to your bankers these days when you

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Speaker 3: sit down with your senior bankers or coverage bankers, and

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Speaker 3: all right, for the next few weeks, let's go out.

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Speaker 3: We want to get this message out to our clients.

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Speaker 2: Let's stay close to clients, Let's understand their needs, Let's

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Speaker 2: be shared bringing. Let's bring the whole firm to bear,

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Speaker 2: including our thought leadership, to help them figure out what's

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Speaker 2: going on. Corporate clients are very active investing clients across

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Speaker 2: all our sectors are trying to figure out and handicap

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Speaker 2: what's going on, and our job is to understand them,

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Speaker 2: build our relationships, and serve them by bringing the whole

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Speaker 2: firm to bear.

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Speaker 3: Are you sensing that this I mean the AI revolution?

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Speaker 3: I guess we'll just I'm not sure what it is.

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Speaker 3: We used to call big data back in the day,

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Speaker 3: but some people are telling me this is more important

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Speaker 3: than the Internet, and it might just be a cut

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Speaker 3: below electricity in terms of the importance of society. I've

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Speaker 3: had somebody to express to me that way. Boy, if

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Speaker 3: I'm a corporate border CEO. I feel like I got

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Speaker 3: to get super smart, super quick because it's either a

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Speaker 3: friend or an enemy to my business. I'm not sure which.

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Speaker 2: Yeah, And so here businesses are handling it in the

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Speaker 2: following way. A typical business has ten or fifteen use cases.

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Speaker 2: You know, how can we change our controllers department, our

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Speaker 2: marketing department, all the different things that they do. They're

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Speaker 2: in the middle with partners outside partners of going through

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Speaker 2: those use cases. And I'd say we're in the early

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Speaker 2: innings and two years from now they're going to be

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Speaker 2: a whole lot smarter. Two years will be an eternity, yes,

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Speaker 2: but businesses will be a whole lot smarter. Some ofm

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Speaker 2: are saying, I want to do more strategic merger activity

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Speaker 2: to help mitigate some of the risk here. But we're

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Speaker 2: in we're learning right now. So anybody tells you I

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Speaker 2: know exactly how this is going to they don't know.

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Speaker 2: The smartest people I know are in the middle of it,

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Speaker 2: and they're open to learning and are not prejudging it.

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Speaker 1: On AI, what is your observation on a roll up

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Speaker 1: of all the competitors now? Are there too many? Just

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Speaker 1: on a unit basis, are there too many players.

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Speaker 2: Well, so a lot of our attention, because we can't

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Speaker 2: avoid it, is all the CAPEX and the compute infrastructure part. Okay,

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Speaker 2: then there's the adoption companies, which are extremely highly valued.

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Speaker 2: And the truth is, I have no doubt we need

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Speaker 2: to create more compute. How the adoption companies are going

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Speaker 2: to shake out? I think that's where more of the

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Speaker 2: uncertainty is, and that's where the software situation. The first

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Speaker 2: reaction is it's going to be disruptive. I think the

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Speaker 2: second reaction after people calm down, but clients are going

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Speaker 2: to need advice to help with the installation, and the

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Speaker 2: software companies are critical that. So I think we're literally

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Speaker 2: wrestling our way through this.

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Speaker 1: Thank you for the comments. In Kansas City, there was

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Speaker 1: I mean, was George Brett's bad tard. I think it

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Speaker 1: was Robert Kevin. Thank you, Thank you awer of the

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Speaker 1: Kansas City Royals with the modest interest in golden sacks.

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Speaker 1: And of course it's a public service at the Federal

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Speaker 1: Reserve Bank of Dallas