1 00:00:00,280 --> 00:00:02,599 Speaker 1: This is Bloomberg Wall Street Week. 2 00:00:02,680 --> 00:00:07,040 Speaker 2: The global push into infrastructure, breaking the IPO logjam in text. 3 00:00:07,160 --> 00:00:10,640 Speaker 2: The financial stories that shape are work cutting inflation without 4 00:00:10,640 --> 00:00:13,240 Speaker 2: losing jobs. Do we need rate cuts? And if so, 5 00:00:13,400 --> 00:00:16,120 Speaker 2: how many? Investing in a time of geopolitical turmoil. 6 00:00:16,200 --> 00:00:18,560 Speaker 3: Through the eyes of the most influential voices. 7 00:00:18,720 --> 00:00:22,480 Speaker 2: Ten Rogueff economists of Harvard, former FDIC had Shila Bert 8 00:00:22,680 --> 00:00:27,360 Speaker 2: ge CEO, Larry Kulp, San Francisco FED President Mary Daily, Bloomberg. 9 00:00:26,840 --> 00:00:30,480 Speaker 3: Wall Street Week with David Weston from Bloomberg Radio. 10 00:00:30,280 --> 00:00:33,800 Speaker 2: Shuttle diplomacy in the Middle East, protests on college campuses, 11 00:00:34,000 --> 00:00:36,720 Speaker 2: and the FED pretty much stays the course for now. 12 00:00:37,360 --> 00:00:40,800 Speaker 2: This is Bloomberg Wall Street Week. I'm David Weston. This 13 00:00:40,880 --> 00:00:43,760 Speaker 2: week Josh Easterly of Sixth Street on private credit and 14 00:00:43,840 --> 00:00:46,240 Speaker 2: investing in professional sports. 15 00:00:45,600 --> 00:00:46,680 Speaker 1: The fundamentals of sports. 16 00:00:46,880 --> 00:00:49,320 Speaker 2: It's great And if sny beche loss of Rock Creek 17 00:00:49,479 --> 00:00:53,040 Speaker 2: on what US dominance means for emerging market investments. 18 00:00:53,479 --> 00:00:56,360 Speaker 4: Maybe we shouldn't even be using the term emerging Marcus 19 00:00:56,400 --> 00:00:58,520 Speaker 4: because they've diverged from each other so much. 20 00:01:11,440 --> 00:01:14,280 Speaker 2: But we start with all those important data coming out 21 00:01:14,319 --> 00:01:16,680 Speaker 2: this week, and we turn to our very special contribute 22 00:01:16,720 --> 00:01:18,840 Speaker 2: here on Waltreet Week. He is Larry Summers of Harvard, 23 00:01:19,000 --> 00:01:22,600 Speaker 2: So Larry, welcome back. It's been a very consequential week. 24 00:01:23,120 --> 00:01:25,399 Speaker 2: We of course had the FED chair giving a news 25 00:01:25,400 --> 00:01:28,039 Speaker 2: conference with the decision, We had ECI data, and then 26 00:01:28,040 --> 00:01:29,800 Speaker 2: we have the jobs numbers at the end. What do 27 00:01:29,840 --> 00:01:30,399 Speaker 2: you make of it all? 28 00:01:30,959 --> 00:01:34,000 Speaker 5: Look, there's been a lot of movement, but I don't 29 00:01:34,040 --> 00:01:37,600 Speaker 5: know that we're in a fundamentally different place than we 30 00:01:37,600 --> 00:01:42,040 Speaker 5: were at the beginning of the week. We have been 31 00:01:42,120 --> 00:01:47,600 Speaker 5: realizing now for several months that disinflation is not on 32 00:01:47,640 --> 00:01:51,000 Speaker 5: the secure path that the Fed had hoped it would 33 00:01:51,000 --> 00:01:55,840 Speaker 5: be a few months ago. That's why the market has 34 00:01:56,000 --> 00:02:00,640 Speaker 5: moved to go from six cuts this year to about 35 00:02:00,680 --> 00:02:04,600 Speaker 5: one cut this year. And that has been a broadly 36 00:02:04,640 --> 00:02:08,480 Speaker 5: appropriate move on the part of the market. And it 37 00:02:08,520 --> 00:02:11,880 Speaker 5: was a blunder, frankly, of the Fed to be as 38 00:02:11,960 --> 00:02:18,200 Speaker 5: confident as it was about the prospect of disinflation. If 39 00:02:18,240 --> 00:02:21,040 Speaker 5: you add up this week's numbers, what did you get? 40 00:02:21,160 --> 00:02:26,560 Speaker 5: You got an ECI that was disturbing on the high side, 41 00:02:27,080 --> 00:02:31,720 Speaker 5: suggesting that wage inflation wasn't coming down, that service sector 42 00:02:31,760 --> 00:02:35,040 Speaker 5: inflation wasn't likely to be coming down, and the way 43 00:02:35,120 --> 00:02:40,320 Speaker 5: people hoped. You got a housing number suggesting more housing 44 00:02:40,360 --> 00:02:44,079 Speaker 5: inflation than many people had been expecting in the presence 45 00:02:44,120 --> 00:02:50,160 Speaker 5: of seven percent mortgages, and then you got a relatively 46 00:02:50,440 --> 00:02:58,760 Speaker 5: soft number this morning and some corroborative ism evidence for 47 00:02:58,880 --> 00:03:02,520 Speaker 5: that that reminds everybody that the economy may well not 48 00:03:02,600 --> 00:03:07,160 Speaker 5: be on fire, that inflation may not accelerate. So I 49 00:03:07,200 --> 00:03:09,680 Speaker 5: think you're at the end of it all about where 50 00:03:09,720 --> 00:03:15,080 Speaker 5: you were at the beginning of the week, with a 51 00:03:15,320 --> 00:03:20,680 Speaker 5: sense that the most likely thing is no cut or 52 00:03:20,760 --> 00:03:24,680 Speaker 5: a little bit of cutting this year. That there's some 53 00:03:25,000 --> 00:03:31,680 Speaker 5: risk that, as sometimes happens, the economy will slide off suddenly, 54 00:03:32,200 --> 00:03:36,600 Speaker 5: But probably greater than that risk is the no landing 55 00:03:36,760 --> 00:03:44,200 Speaker 5: kind of scenario where inflation remains robust. So I think 56 00:03:44,240 --> 00:03:47,800 Speaker 5: everybody's going to have to be watching all this data 57 00:03:49,080 --> 00:03:54,280 Speaker 5: very closely and ironically, the more we learn, it's not 58 00:03:54,320 --> 00:03:58,080 Speaker 5: really true that the more we know in terms of 59 00:03:58,160 --> 00:04:00,240 Speaker 5: the uncertainties. 60 00:04:00,280 --> 00:04:02,960 Speaker 6: About the economy at this point. 61 00:04:03,480 --> 00:04:05,960 Speaker 2: So I suspect the share power would agree with you, 62 00:04:06,000 --> 00:04:08,640 Speaker 2: we need more data. He likes to wait for data, 63 00:04:08,680 --> 00:04:10,120 Speaker 2: and he's the data dependent. 64 00:04:09,760 --> 00:04:10,360 Speaker 1: As they say. 65 00:04:10,480 --> 00:04:12,160 Speaker 2: At the same time, what I took away at least 66 00:04:12,160 --> 00:04:14,520 Speaker 2: from his news conference this week was a little bit 67 00:04:14,520 --> 00:04:16,800 Speaker 2: different from the no landing possibility. It was sort of 68 00:04:16,800 --> 00:04:18,520 Speaker 2: we're on the right course, it's just going to take 69 00:04:18,560 --> 00:04:20,800 Speaker 2: us longer to get there. We are restrictive in what 70 00:04:20,839 --> 00:04:23,000 Speaker 2: we're doing, and we will get there and we don't 71 00:04:23,040 --> 00:04:25,839 Speaker 2: need to consider hikes. Is that a fair interpretation what 72 00:04:25,920 --> 00:04:28,960 Speaker 2: he said? And if so, is that where he should be. 73 00:04:29,640 --> 00:04:34,160 Speaker 5: He's much more confident the policy is restrictive than is 74 00:04:34,240 --> 00:04:38,680 Speaker 5: warranted in light of the various factors we've talked about 75 00:04:38,720 --> 00:04:42,040 Speaker 5: pushing up the neutral interest rate, in light of good 76 00:04:42,080 --> 00:04:47,240 Speaker 5: reasons to think that spending may be less intrasensitive than 77 00:04:47,360 --> 00:04:53,440 Speaker 5: had previously been supposed, because, for example, higher interest rates 78 00:04:53,480 --> 00:04:56,839 Speaker 5: with all the government's short term debt mean more income 79 00:04:57,800 --> 00:05:01,080 Speaker 5: for people. I think that the Chair is making a 80 00:05:01,160 --> 00:05:07,520 Speaker 5: mistake if he is confident that policy is meaningfully restrictive. 81 00:05:08,320 --> 00:05:10,240 Speaker 6: Right now. 82 00:05:10,720 --> 00:05:14,320 Speaker 5: So yeah, I have never said that I expect the 83 00:05:14,400 --> 00:05:17,720 Speaker 5: next move to be a hike. I just think there's 84 00:05:17,839 --> 00:05:22,000 Speaker 5: more of a possibility that that's going to be necessary 85 00:05:22,600 --> 00:05:25,960 Speaker 5: than I think. He has been the view at the FED, 86 00:05:26,080 --> 00:05:34,880 Speaker 5: and to some extent has been the view in the markets. 87 00:05:34,760 --> 00:05:37,279 Speaker 2: A HILARI. Besides the data, the wealth of data that 88 00:05:37,320 --> 00:05:40,000 Speaker 2: came in. A big topic in the news this week 89 00:05:40,240 --> 00:05:42,920 Speaker 2: was the Japanese yen and what's going on exactly the yen, 90 00:05:43,040 --> 00:05:45,919 Speaker 2: whether the government there is intervening or not intervening to 91 00:05:45,960 --> 00:05:47,919 Speaker 2: sort of support the end when it went up to 92 00:05:47,960 --> 00:05:51,159 Speaker 2: one to sixty. Actually, you have some experience with intervention 93 00:05:51,440 --> 00:05:53,919 Speaker 2: and currencies. Give us where you think we are right now. 94 00:05:53,960 --> 00:05:55,599 Speaker 2: And of course this is related to the FED, because 95 00:05:55,600 --> 00:05:58,080 Speaker 2: part of the issue is if the FED stays higher 96 00:05:58,080 --> 00:06:00,159 Speaker 2: for longer, it supports the strength of the US. 97 00:06:00,080 --> 00:06:05,280 Speaker 5: Dollar given the massive size of the capital Marcus, I 98 00:06:05,320 --> 00:06:11,200 Speaker 5: think the evidence is reasonably clear that intervention doesn't work, 99 00:06:11,800 --> 00:06:14,560 Speaker 5: even in the scales that the Japanese engaged in. 100 00:06:15,200 --> 00:06:18,920 Speaker 6: It's just overwhelmed by the broad. 101 00:06:18,720 --> 00:06:25,679 Speaker 5: Magnitude of private sector capital flows. That said, nations tend 102 00:06:25,680 --> 00:06:31,680 Speaker 5: to intervene when currencies have gotten very far from normal levels, 103 00:06:31,720 --> 00:06:34,800 Speaker 5: and when they've gotten very far from normal levels, they 104 00:06:34,920 --> 00:06:40,000 Speaker 5: sometimes bounce back. So I wouldn't want to confidently presume 105 00:06:40,560 --> 00:06:44,680 Speaker 5: that the end will devalue further from here. 106 00:06:45,080 --> 00:06:46,440 Speaker 6: It could go either way. 107 00:06:46,839 --> 00:06:50,080 Speaker 5: But even if the end does appreciate, I'm going to 108 00:06:50,360 --> 00:06:54,120 Speaker 5: attribute that much more to snapback. Then I'm going to 109 00:06:54,120 --> 00:06:58,680 Speaker 5: attribute it to the efficacy of intervention. But I think 110 00:06:58,720 --> 00:07:03,320 Speaker 5: this points up in important issue, which is that the 111 00:07:03,440 --> 00:07:08,320 Speaker 5: dollar is extremely strong right now. That's been a factor 112 00:07:08,400 --> 00:07:13,800 Speaker 5: that's contributed to our relatively favorable inflation performance. 113 00:07:14,960 --> 00:07:18,640 Speaker 2: I'm sad to say the disputes on college campuses growing 114 00:07:18,680 --> 00:07:21,640 Speaker 2: out of the Israeli Gods' situation have continued some ways 115 00:07:21,680 --> 00:07:24,240 Speaker 2: have gotten worse. Actually this week we saw police going 116 00:07:24,240 --> 00:07:26,480 Speaker 2: in various places here in New York at Columbia, but 117 00:07:26,520 --> 00:07:29,360 Speaker 2: across the country. You've been outspoken in the past on 118 00:07:29,400 --> 00:07:32,040 Speaker 2: this issue as a former college president, yourself at Harvard 119 00:07:32,320 --> 00:07:35,400 Speaker 2: and is now a scholar at Harvard. What do you 120 00:07:35,440 --> 00:07:37,880 Speaker 2: think is going on? And more important, perhaps what should 121 00:07:37,960 --> 00:07:40,680 Speaker 2: the colleges be doing? What should the leadership be doing? 122 00:07:40,800 --> 00:07:41,280 Speaker 1: Right now? 123 00:07:41,600 --> 00:07:45,920 Speaker 5: This is very depressing and worrisome to me. As I've 124 00:07:45,960 --> 00:07:49,160 Speaker 5: said on your show before, David, I think the United 125 00:07:49,240 --> 00:07:53,600 Speaker 5: States is in the most dangerous geopolitical moment we've been 126 00:07:54,320 --> 00:07:59,960 Speaker 5: in probably two generations, given what's happening in China, Russia, 127 00:08:00,240 --> 00:08:04,120 Speaker 5: rod North Korea, and so forth. And it seems to 128 00:08:04,160 --> 00:08:07,800 Speaker 5: me that anybody sitting in one of those countries has 129 00:08:07,880 --> 00:08:13,920 Speaker 5: to be taking great encouragement from the spectacle that is 130 00:08:13,960 --> 00:08:19,240 Speaker 5: being made by our young future elits on so many 131 00:08:19,320 --> 00:08:24,720 Speaker 5: of our leading college campuses, and even more by the 132 00:08:24,880 --> 00:08:31,800 Speaker 5: craven responses that are typifying university leaderships. 133 00:08:32,559 --> 00:08:34,320 Speaker 2: Larry, thank you so very much for being with us, 134 00:08:34,320 --> 00:08:36,679 Speaker 2: says Larry Summer is our special contributor here on at 135 00:08:36,679 --> 00:08:39,920 Speaker 2: Wall Street Week. The equity markets dipped in the middle 136 00:08:39,920 --> 00:08:41,920 Speaker 2: of the league, but came back on Friday, as the 137 00:08:41,920 --> 00:08:44,160 Speaker 2: S and P five hundred added just over half a 138 00:08:44,160 --> 00:08:46,400 Speaker 2: percent for the week to end at fifty one to 139 00:08:46,400 --> 00:08:49,400 Speaker 2: twenty eight. That is just under the Bloomberg Elves consensus 140 00:08:49,559 --> 00:08:52,400 Speaker 2: year end number of fifty one to seventy. The NAZAC 141 00:08:52,440 --> 00:08:54,800 Speaker 2: had a particularly good week, adding one point four to 142 00:08:54,800 --> 00:08:57,400 Speaker 2: three percent, while the yield on the tenure was down 143 00:08:57,520 --> 00:09:01,040 Speaker 2: almost sixteen basis points, closing the way at four point 144 00:09:01,120 --> 00:09:03,320 Speaker 2: five to one percent. Here to take us through it 145 00:09:03,360 --> 00:09:07,440 Speaker 2: all is David Bianco, DWS Equities CIO for Americas. There's David. 146 00:09:07,480 --> 00:09:09,240 Speaker 2: Welcome back. Always great to have you, Thanks for having me. 147 00:09:09,360 --> 00:09:11,000 Speaker 2: Let's start with the jobs. There's a lot of data 148 00:09:11,040 --> 00:09:12,920 Speaker 2: this week. Let's start with the jobs numbers. What did 149 00:09:13,000 --> 00:09:14,800 Speaker 2: they tell you? What did they tell us about where 150 00:09:14,840 --> 00:09:15,680 Speaker 2: we are in the economy. 151 00:09:15,720 --> 00:09:18,600 Speaker 7: It was a really big week and that was a 152 00:09:18,640 --> 00:09:21,920 Speaker 7: very powerful segment from Larry Summers and difficult to follow. 153 00:09:22,520 --> 00:09:26,120 Speaker 7: The Job's report was one of the indicators that we 154 00:09:26,160 --> 00:09:29,080 Speaker 7: got during the week that the economy is slowing, but 155 00:09:29,120 --> 00:09:32,120 Speaker 7: it's still a healthy economy. Employment is still strong, and 156 00:09:32,160 --> 00:09:36,120 Speaker 7: the employment market is still tight. But the FED should 157 00:09:36,120 --> 00:09:38,680 Speaker 7: get a little bit of help from a slowing economy. 158 00:09:39,000 --> 00:09:40,960 Speaker 7: That said, I very much agree with what Larry said 159 00:09:41,040 --> 00:09:43,480 Speaker 7: regarding the Fed and many other things that the Fed 160 00:09:43,480 --> 00:09:46,280 Speaker 7: shouldn't take this slowing for granted. Has mean that inflation 161 00:09:46,360 --> 00:09:48,200 Speaker 7: is going to keep working its way down. They need 162 00:09:48,280 --> 00:09:50,240 Speaker 7: to keep an eye on this risk because the risk 163 00:09:50,280 --> 00:09:52,840 Speaker 7: of inflation staying above their two percent target is still 164 00:09:52,920 --> 00:09:55,480 Speaker 7: very much with us. But the good news this week 165 00:09:55,800 --> 00:09:58,840 Speaker 7: was relief in the bond market. We saw yields across 166 00:09:58,880 --> 00:10:02,280 Speaker 7: the curve come down, especially toward the end of the week, 167 00:10:02,760 --> 00:10:06,720 Speaker 7: and that rally and fixed income rally in equity markets 168 00:10:06,800 --> 00:10:09,360 Speaker 7: upon that lower yield environment. 169 00:10:09,559 --> 00:10:11,360 Speaker 1: What we saw is that May. 170 00:10:11,960 --> 00:10:16,800 Speaker 7: Followed a tough April April showers brought in some mayflowers early. 171 00:10:16,920 --> 00:10:20,000 Speaker 2: Months early in the month. A month so I talked 172 00:10:20,000 --> 00:10:23,040 Speaker 2: about about growth, you said, it's a slowing economy. We 173 00:10:23,240 --> 00:10:26,360 Speaker 2: heard share J. Powell this week say he doesn't see stagflation, 174 00:10:26,440 --> 00:10:28,920 Speaker 2: doesn't need the stag, he doesn't see the flation. Are 175 00:10:29,000 --> 00:10:31,640 Speaker 2: you all concerned about really slowing growth to such a 176 00:10:31,640 --> 00:10:33,280 Speaker 2: degree they should be worried about the economy. 177 00:10:34,040 --> 00:10:35,600 Speaker 1: I'm not worried about the economy yet. 178 00:10:36,360 --> 00:10:39,800 Speaker 7: I would have to really see the job's growth number 179 00:10:39,800 --> 00:10:41,920 Speaker 7: fall below one hundred thousand before I really started getting 180 00:10:41,920 --> 00:10:45,000 Speaker 7: worried about jobs. And the economy is very resilient because 181 00:10:45,040 --> 00:10:47,839 Speaker 7: it's a service oriented economy, and we already went through 182 00:10:47,840 --> 00:10:51,360 Speaker 7: a good amount of inventory liquidation and correction already, and 183 00:10:51,360 --> 00:10:53,800 Speaker 7: that often is a cause of at least small. 184 00:10:53,520 --> 00:10:55,160 Speaker 1: Recession, so a lot of risks. 185 00:10:55,320 --> 00:10:58,160 Speaker 7: There are always tail risks, but this economy I think 186 00:10:58,200 --> 00:11:01,599 Speaker 7: has a real safe distance away from a recession. And 187 00:11:02,160 --> 00:11:04,120 Speaker 7: because of that, I think the fitches stay focus on 188 00:11:04,200 --> 00:11:08,160 Speaker 7: making sure inflation keeps on working its way down to target. 189 00:11:08,559 --> 00:11:11,880 Speaker 7: But things have slowed down. I would say US GDP 190 00:11:12,000 --> 00:11:13,720 Speaker 7: growth is still in a two probably a little bit 191 00:11:13,720 --> 00:11:17,600 Speaker 7: above of two percent trend, and that's healthy, but inflation 192 00:11:18,000 --> 00:11:21,040 Speaker 7: relative to that growth rate is still too high. 193 00:11:21,720 --> 00:11:23,040 Speaker 6: Earnings this season. 194 00:11:24,360 --> 00:11:27,800 Speaker 7: We're another encouraging part of the week, really good news 195 00:11:27,800 --> 00:11:30,560 Speaker 7: out of most tech companies, not bad news, but not 196 00:11:30,760 --> 00:11:32,480 Speaker 7: as good as hoped out of the non tech company. 197 00:11:32,520 --> 00:11:34,640 Speaker 2: We'll talk about that specifically. We've had such a fibrication 198 00:11:34,800 --> 00:11:37,440 Speaker 2: in the SPP five hundred and the stock market generally 199 00:11:37,480 --> 00:11:40,080 Speaker 2: on that. What about earnings for the top guys, the 200 00:11:40,080 --> 00:11:41,840 Speaker 2: big tech asppose of the rest? How do they com 201 00:11:41,840 --> 00:11:42,319 Speaker 2: bear well? 202 00:11:42,600 --> 00:11:44,760 Speaker 7: The biggest or what I call the Grade eight, which 203 00:11:44,760 --> 00:11:49,080 Speaker 7: would cut across big cap tech and communication stocks and 204 00:11:49,120 --> 00:11:53,520 Speaker 7: a couple of consumer discretionary companies. These great eight companies 205 00:11:53,640 --> 00:11:56,080 Speaker 7: continue to lead the market upward, and their earnings growth 206 00:11:56,120 --> 00:11:59,360 Speaker 7: will be over fifty percent on a year on year basis, 207 00:11:59,360 --> 00:12:01,920 Speaker 7: whereas the other four hundred and ninety two companies of 208 00:12:01,960 --> 00:12:05,160 Speaker 7: the s and P only about two percent Ernie's growth 209 00:12:05,240 --> 00:12:09,240 Speaker 7: year on year. So it's a bifurcated market. We're here 210 00:12:09,280 --> 00:12:13,600 Speaker 7: in a bunch of consumer oriented companies, staples, retailers, fast 211 00:12:13,600 --> 00:12:17,160 Speaker 7: food companies saying they're seeing a slowdown, nothing falling off 212 00:12:17,160 --> 00:12:20,480 Speaker 7: a cliff, but slow down and their customers more price conscious. 213 00:12:20,600 --> 00:12:22,240 Speaker 2: David, it's always great to have you here. Thank you 214 00:12:22,240 --> 00:12:25,320 Speaker 2: so much for being here. That's David Bianco of DWS 215 00:12:26,960 --> 00:12:30,400 Speaker 2: coming up, investing in professional sports as an asset class. 216 00:12:30,640 --> 00:12:33,000 Speaker 2: We talk with Josh Easterly of Sixth Street. 217 00:12:33,760 --> 00:12:36,840 Speaker 1: It's recession proof, content, super valuable. 218 00:12:38,360 --> 00:12:40,720 Speaker 2: That's next on Wall Street Week on Bloomberg. 219 00:12:44,520 --> 00:12:48,760 Speaker 3: This is Bloomberg Wall Street Week with David Weston from 220 00:12:48,880 --> 00:12:49,800 Speaker 3: Bloomberg Radio. 221 00:12:56,400 --> 00:12:59,520 Speaker 2: This is Wall Street Week. I'm David Weston. Professional sports 222 00:12:59,559 --> 00:13:02,360 Speaker 2: has wrapped gone from something the very wealthy do for 223 00:13:02,520 --> 00:13:05,559 Speaker 2: fun and prestige to a serious asset class in its 224 00:13:05,600 --> 00:13:07,800 Speaker 2: own right. One of those at the front of the 225 00:13:07,880 --> 00:13:10,520 Speaker 2: sports as an investment movement is Sixth Street and we 226 00:13:10,600 --> 00:13:13,800 Speaker 2: welcome now it's co founding partner, co president and co CIO. 227 00:13:13,920 --> 00:13:16,160 Speaker 2: He is Josh Easterly. Josh, welcome, It's great to have 228 00:13:16,200 --> 00:13:16,800 Speaker 2: you on Wall Street. 229 00:13:16,760 --> 00:13:18,400 Speaker 1: Well, David, thanks for having me here. 230 00:13:18,480 --> 00:13:20,600 Speaker 2: So let's talk about this investing in sports. As I say, 231 00:13:20,600 --> 00:13:23,520 Speaker 2: it's become a real asset class for investment. How is 232 00:13:23,559 --> 00:13:25,960 Speaker 2: that developed? It seems to have happened fairly quickly. 233 00:13:26,679 --> 00:13:29,680 Speaker 1: I don't know if it's fairly quickly or or or 234 00:13:30,160 --> 00:13:33,079 Speaker 1: a long over a long time. The fundamentals are sports 235 00:13:33,400 --> 00:13:38,880 Speaker 1: is great. It's recession proof, content super valuable in a 236 00:13:38,960 --> 00:13:44,560 Speaker 1: day and age where you're doing where there's streaming and 237 00:13:44,600 --> 00:13:47,560 Speaker 1: so life content is super valuable. And what Sixth Street 238 00:13:47,559 --> 00:13:51,120 Speaker 1: we alway does is we finance the ecosystem. So like 239 00:13:51,240 --> 00:13:53,280 Speaker 1: all the things we do at Sixth Street, we pick 240 00:13:53,360 --> 00:13:56,640 Speaker 1: the best risk reward and some of those we buy assets, 241 00:13:56,720 --> 00:13:58,599 Speaker 1: some of them we finance assets. And I'm happy to 242 00:13:58,600 --> 00:13:59,120 Speaker 1: talk about that. 243 00:13:59,240 --> 00:14:03,079 Speaker 2: Well, I'm curious about that that very question, debt versus equity, 244 00:14:03,240 --> 00:14:04,240 Speaker 2: because you've done both. 245 00:14:04,320 --> 00:14:04,920 Speaker 1: We've done both. 246 00:14:04,960 --> 00:14:07,160 Speaker 2: You have equity in some teams, you also have taken 247 00:14:07,200 --> 00:14:08,920 Speaker 2: debt positions. How do you make that decision? 248 00:14:09,440 --> 00:14:11,640 Speaker 1: I think that what offers the best fisk reward. So 249 00:14:12,200 --> 00:14:14,839 Speaker 1: for example, where the owner of the franchise the Bay 250 00:14:14,840 --> 00:14:18,960 Speaker 1: Area Football Club in San Francisco on the Women's Soccer League, 251 00:14:19,200 --> 00:14:22,960 Speaker 1: that was a new franchise, so we stood up that franchise. 252 00:14:23,880 --> 00:14:28,040 Speaker 1: And then on Real Madrid, for example, we financed the stadium. 253 00:14:28,200 --> 00:14:31,320 Speaker 1: Bernabo was redoing that stadium and we provided financing. And 254 00:14:32,160 --> 00:14:36,000 Speaker 1: FC Barcelona we bought Metea rites and then the Santas 255 00:14:36,000 --> 00:14:39,200 Speaker 1: Spurs were a minority equity owner and partners with the 256 00:14:39,280 --> 00:14:41,000 Speaker 1: owners there. So we've done it all. 257 00:14:41,600 --> 00:14:43,680 Speaker 2: You refer to something that it strikes me certain the 258 00:14:43,760 --> 00:14:46,720 Speaker 2: United States and Also in Europe, we've seen the ancillary 259 00:14:46,760 --> 00:14:49,360 Speaker 2: businesses around the sports teams. It's not just the sports 260 00:14:49,400 --> 00:14:51,920 Speaker 2: team anymore then, even with the sports meetings, winning or not, 261 00:14:52,080 --> 00:14:54,680 Speaker 2: but they're also an ancillary business, often around the stadium 262 00:14:54,680 --> 00:14:57,920 Speaker 2: as you have in Madrid. So how do you decide 263 00:14:58,280 --> 00:15:01,800 Speaker 2: how valuable the an businesses around the team? 264 00:15:02,320 --> 00:15:05,320 Speaker 1: So they're super valuable, there's revenue streams in those businesses. 265 00:15:05,400 --> 00:15:07,480 Speaker 1: We own a business with the Cowboys and the Yankees 266 00:15:07,600 --> 00:15:14,000 Speaker 1: called Legends, which provides services to that ecosystem. And that 267 00:15:14,120 --> 00:15:19,600 Speaker 1: ecosystem is growing because their sports owners are trying to 268 00:15:19,600 --> 00:15:23,840 Speaker 1: find different ways to monetize the asset they own sports 269 00:15:23,840 --> 00:15:26,560 Speaker 1: team owners and that could be through concessions, that could 270 00:15:26,560 --> 00:15:29,920 Speaker 1: be through merchandise, and so Legends is our platform that 271 00:15:29,960 --> 00:15:32,560 Speaker 1: we get to participated in that trend. 272 00:15:33,320 --> 00:15:35,560 Speaker 2: Is there a continuing demand for more capital on the 273 00:15:35,560 --> 00:15:37,560 Speaker 2: part of team owners, that is to say, we need 274 00:15:37,600 --> 00:15:39,400 Speaker 2: to raise more capital so we can invest it back 275 00:15:39,400 --> 00:15:41,240 Speaker 2: into some of those ancillary businesses. 276 00:15:41,520 --> 00:15:44,960 Speaker 1: Yeah, so capital. Think about COVID. Take a step back 277 00:15:44,960 --> 00:15:48,760 Speaker 1: and think about COVID for a second. The government supported 278 00:15:48,760 --> 00:15:51,360 Speaker 1: a whole bunch of small businesses. The one sector they 279 00:15:51,360 --> 00:15:56,120 Speaker 1: did not sport, was live sports and so in that 280 00:15:56,160 --> 00:15:58,320 Speaker 1: moment in time, there was a need for capital, and 281 00:15:58,360 --> 00:16:01,400 Speaker 1: that capital still exists. I think sports owners want to 282 00:16:01,440 --> 00:16:06,560 Speaker 1: make the product better for the fans, and so Legends 283 00:16:06,560 --> 00:16:08,240 Speaker 1: is a part of that. Sixth Streets a part of that, 284 00:16:08,400 --> 00:16:10,400 Speaker 1: and it's been a good theme for us. 285 00:16:10,600 --> 00:16:14,480 Speaker 2: What's next? How big can this grow sports investment? 286 00:16:15,200 --> 00:16:18,240 Speaker 1: I think that ecosystem can continually. There's more opportunity in 287 00:16:18,240 --> 00:16:21,920 Speaker 1: that ecosystem, for sure, so I think, and it's going 288 00:16:21,960 --> 00:16:27,160 Speaker 1: to need more capital. And that ecosystem historically hasn't had 289 00:16:27,200 --> 00:16:31,680 Speaker 1: institutional money and now is opening up to institutional money. 290 00:16:31,840 --> 00:16:33,400 Speaker 1: So I think it will continue to grow. 291 00:16:33,240 --> 00:16:35,520 Speaker 2: In any market, I think some things are fully priced 292 00:16:35,520 --> 00:16:37,480 Speaker 2: and some things aren't. And you look for things that 293 00:16:37,520 --> 00:16:40,280 Speaker 2: are not yet fully priced. Where do you see opportunities 294 00:16:40,280 --> 00:16:42,920 Speaker 2: that maybe are not fully priced in the sports area, Well, I. 295 00:16:42,920 --> 00:16:44,960 Speaker 1: Think that's so. I think that's for us. That's a 296 00:16:45,000 --> 00:16:47,640 Speaker 1: really unique thinking about Sixth Street is, as you point out, 297 00:16:48,400 --> 00:16:51,800 Speaker 1: if capitalism is working, things get fully priced and it 298 00:16:51,800 --> 00:16:54,680 Speaker 1: goes through cycles and then they feel cheap and being 299 00:16:54,720 --> 00:16:58,080 Speaker 1: able to have flexible capital across the capital structure, from 300 00:16:58,120 --> 00:17:02,400 Speaker 1: buying assets to buying revenues, streams the financiing stadiums to 301 00:17:02,520 --> 00:17:07,280 Speaker 1: buying teams to do a minority and majority control investments. 302 00:17:07,440 --> 00:17:09,760 Speaker 1: I think that's the power of the platform is we 303 00:17:09,800 --> 00:17:12,879 Speaker 1: can actually, you know, when things become fully priced, we 304 00:17:12,920 --> 00:17:15,600 Speaker 1: can move on. Who do you compete with all different 305 00:17:15,640 --> 00:17:18,720 Speaker 1: types of people? That being said, there isn't that much 306 00:17:18,760 --> 00:17:23,240 Speaker 1: institutional capital in this space right now, and or general 307 00:17:23,280 --> 00:17:26,440 Speaker 1: partners are gps that have built brands. I think there's 308 00:17:26,480 --> 00:17:29,840 Speaker 1: only a handful, including Six Street, has really built brands 309 00:17:29,880 --> 00:17:31,040 Speaker 1: in this fource ecosystem. 310 00:17:31,400 --> 00:17:34,600 Speaker 2: How related is the success of the team to the 311 00:17:34,680 --> 00:17:37,080 Speaker 2: value asset I mean, I'll pick on one that you mentioned. Actually, 312 00:17:37,160 --> 00:17:40,760 Speaker 2: Dallas Cowboys very very valuable as a business. I understand 313 00:17:40,800 --> 00:17:42,440 Speaker 2: it maybe one of the most valuable that there is. 314 00:17:42,800 --> 00:17:44,439 Speaker 2: They won a Super Bowl in a long time, so 315 00:17:44,480 --> 00:17:46,560 Speaker 2: maybe it's not so essentially a win a super Bowl 316 00:17:46,840 --> 00:17:48,840 Speaker 2: to really deliver asset value. 317 00:17:48,920 --> 00:17:52,000 Speaker 1: Well, I think our experience the Cowboys are a partner 318 00:17:52,800 --> 00:17:55,600 Speaker 1: and Legends, and our experience with the Cowboys is they 319 00:17:55,640 --> 00:18:01,040 Speaker 1: have an excellent management team Jerry Jones and Steven and 320 00:18:01,160 --> 00:18:04,119 Speaker 1: Jared Junior as an excellent management team. My guess is 321 00:18:04,160 --> 00:18:06,600 Speaker 1: a Super Bowl is going to come their way. But 322 00:18:07,359 --> 00:18:10,359 Speaker 1: it's an excellent group of folks and we're happy to 323 00:18:10,400 --> 00:18:11,200 Speaker 1: be partners with them. 324 00:18:11,280 --> 00:18:13,760 Speaker 2: So, Josh, let's talk more broadly about private credit. There's 325 00:18:13,760 --> 00:18:15,520 Speaker 2: an awful lot of talk about it right now. It's 326 00:18:15,560 --> 00:18:18,520 Speaker 2: grown really fast. At the same time, as you look 327 00:18:18,560 --> 00:18:21,120 Speaker 2: at the overall size of it, it's still relatively modest 328 00:18:21,119 --> 00:18:22,960 Speaker 2: compared to a lot of data out there. 329 00:18:23,160 --> 00:18:24,800 Speaker 1: Yeah, I mean, I think when you think when we 330 00:18:24,840 --> 00:18:26,520 Speaker 1: think about private credit, I think there's a lot of 331 00:18:26,520 --> 00:18:30,000 Speaker 1: growth areas. And it really started in the lower middle market, 332 00:18:30,320 --> 00:18:32,960 Speaker 1: non investment grade market. Now is expanded into the upper 333 00:18:32,960 --> 00:18:35,440 Speaker 1: middle market and at some point it's going and we're 334 00:18:35,440 --> 00:18:39,080 Speaker 1: at the beginning to continue on the sports talk when 335 00:18:39,119 --> 00:18:43,040 Speaker 1: the first and second ending on the non corporate lane. 336 00:18:43,440 --> 00:18:47,520 Speaker 1: So think about asset backfinance or asset based finance for 337 00:18:47,640 --> 00:18:48,240 Speaker 1: non corporate. 338 00:18:48,320 --> 00:18:50,960 Speaker 2: So let's talk about that. It started the middle market 339 00:18:50,960 --> 00:18:54,920 Speaker 2: and some risk of your lending, it's grown beyond that. 340 00:18:55,000 --> 00:18:57,000 Speaker 2: Why is that, I mean, why is it that you 341 00:18:57,040 --> 00:18:59,399 Speaker 2: can take that away from banks or from syndicated loans. 342 00:18:59,520 --> 00:18:59,680 Speaker 6: Yeah. 343 00:18:59,840 --> 00:19:03,800 Speaker 1: I'll argue with the premises risk here, I don't think 344 00:19:03,840 --> 00:19:06,080 Speaker 1: it's actually riskier when you look at the loss rates. 345 00:19:06,119 --> 00:19:08,560 Speaker 1: The loss rates are on par with the leverage low 346 00:19:08,640 --> 00:19:14,320 Speaker 1: market historically, and this actually has better loss rates than 347 00:19:14,320 --> 00:19:18,560 Speaker 1: the high old market, about fifty basis points less on 348 00:19:18,560 --> 00:19:22,080 Speaker 1: the high old market, and it offers better spread. 349 00:19:22,320 --> 00:19:24,199 Speaker 2: Are you seeing the sorts of rates of growth that 350 00:19:24,240 --> 00:19:26,560 Speaker 2: we're seeing overall? I've heard it said that it's going 351 00:19:26,560 --> 00:19:28,240 Speaker 2: to grow like fifteen percent a year for the next 352 00:19:28,240 --> 00:19:28,720 Speaker 2: few years. 353 00:19:29,240 --> 00:19:32,280 Speaker 1: Yeah, Look, I think so. I think private credit somewhere 354 00:19:32,280 --> 00:19:36,520 Speaker 1: on the non investment grade corporate size between one point 355 00:19:36,520 --> 00:19:39,879 Speaker 1: five and two joint dollars. But there's all these growth 356 00:19:39,920 --> 00:19:43,160 Speaker 1: aspects of private credit outside of non investment grade corporate, 357 00:19:43,520 --> 00:19:48,080 Speaker 1: including investment grade non corporate. So think of it as 358 00:19:48,320 --> 00:19:54,399 Speaker 1: consumer receivables, figure it as credit cards, mortgages, and then 359 00:19:54,480 --> 00:19:59,040 Speaker 1: the non investment grade tranches. So those growth rates seem 360 00:19:59,119 --> 00:20:03,720 Speaker 1: right to me. But there's there's large areas that private 361 00:20:03,720 --> 00:20:05,399 Speaker 1: credit continue to expand in. 362 00:20:05,800 --> 00:20:07,800 Speaker 2: So so what about the risk factor you were saying, 363 00:20:07,840 --> 00:20:10,040 Speaker 2: it's a mistake to say that this is risky than others. 364 00:20:10,320 --> 00:20:12,919 Speaker 1: So look, I think this has been a little bit 365 00:20:12,960 --> 00:20:16,760 Speaker 1: of the narrative from from banks who are trying to 366 00:20:16,800 --> 00:20:21,440 Speaker 1: protect their their syndicated business. But I think when you 367 00:20:21,480 --> 00:20:24,840 Speaker 1: look at private credit, private credit is unique compared to 368 00:20:24,960 --> 00:20:27,960 Speaker 1: where banks banks have a business we're studying where actually 369 00:20:28,000 --> 00:20:31,199 Speaker 1: we study business models is a living and private credit 370 00:20:31,640 --> 00:20:35,840 Speaker 1: unlike banks, have match funding, and so banks quite frankly, 371 00:20:36,400 --> 00:20:40,879 Speaker 1: they lived long. They fund short with deposits and moments 372 00:20:40,920 --> 00:20:45,200 Speaker 1: of crisis, deposits come out of system. Private credits match funded. 373 00:20:45,280 --> 00:20:50,720 Speaker 1: So the asset class itself is more durable than those 374 00:20:50,880 --> 00:20:53,240 Speaker 1: same loans sitting in the banks, mostly because of the 375 00:20:53,240 --> 00:20:53,800 Speaker 1: funding model. 376 00:20:53,920 --> 00:20:55,560 Speaker 2: They can't be a run on your bank, so to speak, 377 00:20:55,760 --> 00:20:58,159 Speaker 2: can't be a run on our bank. Depositors can't come 378 00:20:58,200 --> 00:20:59,560 Speaker 2: and say I want one buy back now because it's 379 00:20:59,560 --> 00:21:00,960 Speaker 2: locked up for brit Look. 380 00:21:00,920 --> 00:21:03,359 Speaker 1: Look what happened in Silicon Valley Bank. Not to name names, 381 00:21:03,359 --> 00:21:06,800 Speaker 1: but that was a lot of their assets for high 382 00:21:06,880 --> 00:21:10,280 Speaker 1: quality assets. A lot of them were actually government guaranteed mortgages. 383 00:21:11,400 --> 00:21:13,439 Speaker 1: We could all agree those didn't have risk on the 384 00:21:13,440 --> 00:21:16,120 Speaker 1: assets side, but they had a business model issue which 385 00:21:16,160 --> 00:21:19,280 Speaker 1: is a really funding issue, which was their funding ran 386 00:21:19,400 --> 00:21:20,960 Speaker 1: from private credits. 387 00:21:20,960 --> 00:21:23,240 Speaker 2: Is not a secret anymore. I mean you read the Bloomberg. 388 00:21:23,280 --> 00:21:25,000 Speaker 2: Any given day there's an expansion of For I have 389 00:21:25,040 --> 00:21:28,400 Speaker 2: a credit, that must mean there's more competition in your sphere. 390 00:21:28,840 --> 00:21:32,200 Speaker 2: Does that actually push you to take bigger risks because 391 00:21:32,400 --> 00:21:34,639 Speaker 2: other people are willing to do things maybe you otherwise 392 00:21:34,680 --> 00:21:35,760 Speaker 2: wouldn't be well. 393 00:21:36,000 --> 00:21:39,040 Speaker 1: Sixth Street were investors first, So when I think about 394 00:21:39,080 --> 00:21:41,520 Speaker 1: our business, so when we think about our business, we 395 00:21:42,400 --> 00:21:45,560 Speaker 1: have a way of thinking about credit visk reward. We're 396 00:21:45,560 --> 00:21:49,359 Speaker 1: going to continue to be investors first. That's how markets work. 397 00:21:49,760 --> 00:21:52,320 Speaker 1: And so what I would say is on the competition side, 398 00:21:52,440 --> 00:21:57,440 Speaker 1: there's been more competition that total addressable market has grown significantly, 399 00:21:58,640 --> 00:22:02,159 Speaker 1: where so at the same time it's more capital the 400 00:22:02,240 --> 00:22:06,080 Speaker 1: addressable market has grown too, and so that fills I 401 00:22:06,119 --> 00:22:09,119 Speaker 1: don't know if the competition issues, it feels as cute 402 00:22:09,119 --> 00:22:09,600 Speaker 1: as one one. 403 00:22:09,760 --> 00:22:13,360 Speaker 2: I think, as you say, there's some criticism. We're questioning 404 00:22:13,359 --> 00:22:15,080 Speaker 2: from some of the big banks, are you taking market 405 00:22:15,119 --> 00:22:17,880 Speaker 2: share for them? We've heard Calm color or Ubs raised 406 00:22:17,920 --> 00:22:20,000 Speaker 2: questions about it. We've heard Jane Fraser Rais of questions 407 00:22:20,040 --> 00:22:21,720 Speaker 2: when it comes to the insurance part of it, at least, 408 00:22:22,720 --> 00:22:25,480 Speaker 2: are you taking market share every day from banks? And 409 00:22:25,760 --> 00:22:27,520 Speaker 2: is that what actually the regulators do you think want? 410 00:22:28,359 --> 00:22:28,560 Speaker 6: Yeah? 411 00:22:28,600 --> 00:22:29,919 Speaker 1: So I think that again, I think this was the 412 00:22:29,960 --> 00:22:36,359 Speaker 1: intended consequence for the regulation, which was to diffuse the 413 00:22:36,480 --> 00:22:40,720 Speaker 1: risk where taxpayers had written put people I think can 414 00:22:40,760 --> 00:22:46,200 Speaker 1: remember can remember the seven hundred billion dollars and TARP 415 00:22:46,440 --> 00:22:51,399 Speaker 1: that had to recapital those banks. So is there What 416 00:22:51,400 --> 00:22:53,800 Speaker 1: I would say is I think there is a little 417 00:22:53,800 --> 00:22:56,520 Speaker 1: bit of protectionism as it relates to the bank model 418 00:22:56,920 --> 00:23:00,840 Speaker 1: again where students of business models and in the non 419 00:23:00,880 --> 00:23:03,359 Speaker 1: investment grade corporate side, banks are in the moving business, 420 00:23:03,440 --> 00:23:06,280 Speaker 1: not the storage business, and so they have a lot 421 00:23:06,320 --> 00:23:11,080 Speaker 1: of fees in that business, and users of capital rather 422 00:23:11,160 --> 00:23:13,760 Speaker 1: go to the end user and provider of capital than 423 00:23:13,840 --> 00:23:16,439 Speaker 1: have to go through an intermediary, which has been the 424 00:23:16,520 --> 00:23:17,879 Speaker 1: historical leverage loan model. 425 00:23:18,640 --> 00:23:21,160 Speaker 2: There is, I think you'll correct me if I'm wrong, 426 00:23:21,280 --> 00:23:23,719 Speaker 2: a certain lack of transparency. We saw the IMF come 427 00:23:23,760 --> 00:23:26,120 Speaker 2: out just recently and say there's some risks there because 428 00:23:26,119 --> 00:23:28,359 Speaker 2: we don't necessarily know the values of some of the loans. 429 00:23:28,400 --> 00:23:30,880 Speaker 2: They don't get marked to marketers often, and the market 430 00:23:30,920 --> 00:23:32,919 Speaker 2: to market may not be what you would have in 431 00:23:33,000 --> 00:23:35,760 Speaker 2: an open public market. Is there risk? There is an 432 00:23:35,760 --> 00:23:37,800 Speaker 2: IMF right that there's a problem. 433 00:23:38,520 --> 00:23:40,080 Speaker 1: First of all, I think again I would argue with 434 00:23:40,119 --> 00:23:43,280 Speaker 1: the premise investment accounting, has you marked the market air 435 00:23:43,320 --> 00:23:48,040 Speaker 1: loans that bank accounting on the other hand, no offense 436 00:23:48,080 --> 00:23:50,399 Speaker 1: to banks out there use held a maturity county and 437 00:23:50,400 --> 00:23:53,000 Speaker 1: don't mark their loans, and they have a less storable 438 00:23:53,040 --> 00:23:55,520 Speaker 1: funding model. And so I don't think you can look 439 00:23:55,560 --> 00:23:58,960 Speaker 1: at the assets side without looking at the liability side. 440 00:23:59,200 --> 00:24:02,280 Speaker 1: And private credit has a much superior business model given 441 00:24:02,320 --> 00:24:06,879 Speaker 1: the durability of funding. So again I don't see it. 442 00:24:06,920 --> 00:24:08,399 Speaker 1: I'm a little bit we're talking in our book a 443 00:24:08,440 --> 00:24:11,920 Speaker 1: little bit, but when you look at the overall business model, 444 00:24:12,119 --> 00:24:15,919 Speaker 1: a much more durable and safe business model for investors. 445 00:24:15,920 --> 00:24:18,479 Speaker 2: How much do you partner with banks and so what 446 00:24:18,560 --> 00:24:21,159 Speaker 2: you do, because that's actually something that people have been 447 00:24:21,160 --> 00:24:24,080 Speaker 2: concerned about. IMF mentioned actually the exposure of some of 448 00:24:24,119 --> 00:24:26,560 Speaker 2: the regular banks perhaps to private credit. 449 00:24:26,840 --> 00:24:31,000 Speaker 1: Yeah, so we partner with banks. Banks are a big 450 00:24:31,080 --> 00:24:33,920 Speaker 1: lender to the space. That is what regulators wanted. They 451 00:24:33,960 --> 00:24:38,600 Speaker 1: get better risk weighted assets treatment, but they're only lending 452 00:24:39,200 --> 00:24:44,480 Speaker 1: forty to fifty percent LTV on the underlying loan we're making. 453 00:24:45,080 --> 00:24:48,080 Speaker 1: So there's a whole bunch of capital that sits behind 454 00:24:48,119 --> 00:24:51,639 Speaker 1: them and subordination. And so you could think about a 455 00:24:51,680 --> 00:24:55,920 Speaker 1: world where if every loan that the industry underwrote defaulted, 456 00:24:55,960 --> 00:24:58,720 Speaker 1: but there was a fifty percent of recovery banks wouldn't 457 00:24:58,760 --> 00:25:01,399 Speaker 1: be harmed again. I think what banks are doing is 458 00:25:01,520 --> 00:25:04,480 Speaker 1: really smart and really prune in and what regulators wanted 459 00:25:04,600 --> 00:25:04,800 Speaker 1: to do. 460 00:25:05,280 --> 00:25:07,120 Speaker 2: Okay, Josh, is really great to have you here. Thank 461 00:25:07,200 --> 00:25:10,520 Speaker 2: you so much. David. That is Josh Easterly of Sixth Street. 462 00:25:12,320 --> 00:25:15,000 Speaker 2: Coming up on the eve of the Milken Institute Conference 463 00:25:15,040 --> 00:25:17,520 Speaker 2: in Los Angeles, we talk with Offsni Bechelists of Rock 464 00:25:17,560 --> 00:25:20,200 Speaker 2: Creek about what the focus on investing in the United 465 00:25:20,200 --> 00:25:22,560 Speaker 2: States means for emerging markets. 466 00:25:23,320 --> 00:25:26,680 Speaker 4: I think when you put emerging market as one term 467 00:25:27,119 --> 00:25:32,000 Speaker 4: and generalize, it hides the goods, the ugly, and the 468 00:25:32,080 --> 00:25:32,680 Speaker 4: in between. 469 00:25:34,240 --> 00:25:36,480 Speaker 2: That's next on Wall Street Week on Bloomberg. 470 00:25:37,880 --> 00:25:42,119 Speaker 3: This is Bloomberg Wall Street Week with David Weston from 471 00:25:42,200 --> 00:25:44,919 Speaker 3: Bloomberg Radio. 472 00:25:49,960 --> 00:25:52,840 Speaker 2: This is Wall Street Week. I'm David Weston. Economic challenges 473 00:25:52,880 --> 00:25:56,000 Speaker 2: in China and geopolitical uncertainties have made the United States 474 00:25:56,040 --> 00:25:58,760 Speaker 2: the place to go for investors. But what does this 475 00:25:58,960 --> 00:26:02,359 Speaker 2: US dominant world mean for those investing in emerging markets. 476 00:26:02,520 --> 00:26:05,000 Speaker 2: To explore the world of em investing, we welcome back 477 00:26:05,000 --> 00:26:07,880 Speaker 2: now of Sonny Bachelists singing on and founder of Rock Creek. 478 00:26:07,920 --> 00:26:09,800 Speaker 2: So something always a delight to have you with us. 479 00:26:10,000 --> 00:26:13,119 Speaker 2: You know emerging market investing better than most. Give us 480 00:26:13,119 --> 00:26:14,520 Speaker 2: your sense of where that is right now, because all 481 00:26:14,560 --> 00:26:16,560 Speaker 2: we hear about is it's all about the United States 482 00:26:16,640 --> 00:26:18,600 Speaker 2: investing United States, the strengths in the US dollar. 483 00:26:20,160 --> 00:26:22,720 Speaker 4: Great to be with you, David, And of course, as 484 00:26:22,760 --> 00:26:28,560 Speaker 4: our letter said recently, that US exceptionalism or US dynamic 485 00:26:29,400 --> 00:26:35,920 Speaker 4: investment theme is still going very, very strong, and that's 486 00:26:36,160 --> 00:26:39,240 Speaker 4: really for no reason except we have great innovation in 487 00:26:39,240 --> 00:26:42,040 Speaker 4: the US, we have great technology AI and then of 488 00:26:42,040 --> 00:26:44,560 Speaker 4: course rule of law. When it comes to financial markets, 489 00:26:45,040 --> 00:26:48,920 Speaker 4: emerging markets where I have been investing for a long time, 490 00:26:49,000 --> 00:26:51,760 Speaker 4: but I have worked in also during my days at 491 00:26:51,800 --> 00:26:54,440 Speaker 4: the World Bank, I think are going through a phase 492 00:26:54,840 --> 00:26:57,600 Speaker 4: where maybe we shouldn't even be using the term emerging 493 00:26:57,640 --> 00:27:01,080 Speaker 4: markets because they've diverged from each other so much. Obviously, 494 00:27:01,080 --> 00:27:03,399 Speaker 4: the big elephant in the room is always China, and 495 00:27:03,480 --> 00:27:08,200 Speaker 4: that used to account for forty percent of the equity indices. 496 00:27:08,560 --> 00:27:12,199 Speaker 4: Today it is accounting for only twenty five percent. But 497 00:27:12,400 --> 00:27:17,520 Speaker 4: what you're seeing through the same themes of American growth 498 00:27:18,000 --> 00:27:21,479 Speaker 4: in our economy and growth in our equity markets, and 499 00:27:21,560 --> 00:27:24,200 Speaker 4: this sort of term exceptionalism, if you want to call 500 00:27:24,240 --> 00:27:28,080 Speaker 4: it that is also impactful in emerging markets. If you 501 00:27:28,160 --> 00:27:31,000 Speaker 4: go to Korea and Taiwan, which now account for thirty 502 00:27:31,040 --> 00:27:34,399 Speaker 4: percent of emerging markets, they have done very well. If 503 00:27:34,440 --> 00:27:37,040 Speaker 4: you look at Taiwan, whether you look at one year, 504 00:27:37,160 --> 00:27:40,800 Speaker 4: three year, five years, ten years, twenty years, it's always 505 00:27:40,880 --> 00:27:44,479 Speaker 4: been very competitive with the US. But why because the 506 00:27:44,520 --> 00:27:49,440 Speaker 4: goods that Taiwan has been producing, mainly microchips, have been 507 00:27:49,480 --> 00:27:52,080 Speaker 4: something that has been very much part of this theme 508 00:27:52,200 --> 00:27:56,480 Speaker 4: of innovation. If you go to India in the last 509 00:27:56,520 --> 00:28:01,720 Speaker 4: five years, ten years, similarly, the economy done relatively well. 510 00:28:01,800 --> 00:28:07,560 Speaker 4: Obviously we had elections there recently, but the markets continue 511 00:28:07,600 --> 00:28:10,520 Speaker 4: to do very very well and sort of run between 512 00:28:10,600 --> 00:28:13,879 Speaker 4: nine to eleven percent, depending on which periods you are 513 00:28:14,119 --> 00:28:17,639 Speaker 4: thinking about. And now with French shoring which is definitely 514 00:28:17,680 --> 00:28:22,960 Speaker 4: impacting India positively and other countries like Mexico positively, where 515 00:28:22,960 --> 00:28:26,680 Speaker 4: are terms of trade with Mexico have changed, and Mexico 516 00:28:26,720 --> 00:28:31,200 Speaker 4: of course is also benefiting from FDI for this French 517 00:28:31,240 --> 00:28:37,640 Speaker 4: shoring as well as remistances from abroad, you see very 518 00:28:37,680 --> 00:28:40,640 Speaker 4: different kinds of markets in the last few years in Mexico. 519 00:28:41,080 --> 00:28:44,200 Speaker 4: So I think when you put emerging markets as one 520 00:28:44,360 --> 00:28:49,920 Speaker 4: term and generalize. It hides the goods, the ugly, and 521 00:28:50,000 --> 00:28:54,160 Speaker 4: the in between. And I think where things have not 522 00:28:54,320 --> 00:28:57,800 Speaker 4: gone so well in emerging markets is where, for example, 523 00:28:57,840 --> 00:29:01,600 Speaker 4: the continent of Africa where we opened for much bigger growth, 524 00:29:01,680 --> 00:29:05,760 Speaker 4: parts of Latin America that are not necessarily commodity rich 525 00:29:06,320 --> 00:29:09,320 Speaker 4: or very close to the US in terms of French 526 00:29:09,320 --> 00:29:13,800 Speaker 4: shoring that have not benefited from these from these kinds 527 00:29:13,800 --> 00:29:19,080 Speaker 4: of themes, and those countries have been left behind, especially 528 00:29:19,120 --> 00:29:22,640 Speaker 4: since COVID and dragged down the markets together with China 529 00:29:23,120 --> 00:29:26,440 Speaker 4: and drag down, drag down growth in these countries and 530 00:29:27,720 --> 00:29:29,400 Speaker 4: the potential for their populations. 531 00:29:29,600 --> 00:29:32,240 Speaker 2: So that was a terrific laying out of the alternative. So, 532 00:29:32,240 --> 00:29:34,400 Speaker 2: if I can sort of simplify it a little bit, if 533 00:29:34,400 --> 00:29:36,720 Speaker 2: this or a horse race, We've got some steady ones 534 00:29:36,760 --> 00:29:39,480 Speaker 2: that have been investments destinations for some times, such as 535 00:29:39,920 --> 00:29:42,560 Speaker 2: South Korea, such as Japan, such as i Wan. You 536 00:29:42,600 --> 00:29:44,880 Speaker 2: have India, which it sounds like it's sort of an 537 00:29:44,960 --> 00:29:47,920 Speaker 2: up and comer as it were, and perhaps Mexico as well. 538 00:29:48,120 --> 00:29:49,480 Speaker 2: Where would you rate this in the horse race in 539 00:29:49,600 --> 00:29:52,600 Speaker 2: terms of the change in position, Which ones are coming 540 00:29:52,640 --> 00:29:53,320 Speaker 2: up the fastest? 541 00:29:54,640 --> 00:29:58,840 Speaker 4: Well, I think I think Definitely, India is coming up 542 00:29:58,880 --> 00:30:02,120 Speaker 4: the fastest, but also let's not forget if you looked 543 00:30:02,160 --> 00:30:05,360 Speaker 4: at India the last ten years, the returns were really 544 00:30:05,360 --> 00:30:08,560 Speaker 4: really strong as well. Taiwan is the big question mark 545 00:30:08,680 --> 00:30:14,280 Speaker 4: given the geopolitics and it's very very rough location in 546 00:30:14,320 --> 00:30:16,840 Speaker 4: the world, being right next to China and if and 547 00:30:16,880 --> 00:30:20,320 Speaker 4: when there could be a military threat there and what 548 00:30:20,440 --> 00:30:23,960 Speaker 4: is going on despite that is the fact that their 549 00:30:24,000 --> 00:30:29,160 Speaker 4: companies are doing well by producing in Taiwan but also 550 00:30:29,240 --> 00:30:32,320 Speaker 4: now investing in the US and other locations to produce 551 00:30:32,680 --> 00:30:35,920 Speaker 4: micro chips. Obviously, they have not been as fast and 552 00:30:36,000 --> 00:30:40,040 Speaker 4: as as efficient as they would have liked outside of Taiwan, 553 00:30:40,320 --> 00:30:42,320 Speaker 4: but I think that's a trend where we might see 554 00:30:42,320 --> 00:30:45,880 Speaker 4: these Taiwanese companies continue to do well, but maybe not 555 00:30:46,120 --> 00:30:46,760 Speaker 4: in Taiwan. 556 00:30:47,840 --> 00:30:50,320 Speaker 2: So I talk about the role of currency in all 557 00:30:50,360 --> 00:30:53,000 Speaker 2: of this, because obviously those are investments in different currencies. 558 00:30:53,680 --> 00:30:55,479 Speaker 2: As I understand it, right now, the FED has been 559 00:30:55,480 --> 00:30:58,640 Speaker 2: pretty dominant in terms of their setting rate policy, and 560 00:30:58,640 --> 00:31:01,520 Speaker 2: that sort of determines the through the dollar. But when 561 00:31:01,520 --> 00:31:03,240 Speaker 2: you talk about other currencies, when you invest in a 562 00:31:03,240 --> 00:31:06,440 Speaker 2: place like India, for example, or in Mexico, how do 563 00:31:06,480 --> 00:31:09,040 Speaker 2: you account for currency volatilely do you hedge against that? 564 00:31:09,120 --> 00:31:10,239 Speaker 2: And how expensive is that? 565 00:31:11,720 --> 00:31:16,520 Speaker 4: So two or three things. Obviously, with the really strong 566 00:31:16,600 --> 00:31:21,240 Speaker 4: policies that Chairman Power has had in the US, our 567 00:31:21,320 --> 00:31:23,720 Speaker 4: economy has done well, but also our currency has stayed 568 00:31:23,840 --> 00:31:27,200 Speaker 4: very strong. The interesting things you said is our currency 569 00:31:27,240 --> 00:31:30,719 Speaker 4: has stayed quite strong relative to other DM currencies. We 570 00:31:30,760 --> 00:31:36,000 Speaker 4: saw with the evaluation of yen, and what the interventions 571 00:31:36,600 --> 00:31:41,520 Speaker 4: in the recent weeks in Japan, still dealing with weaker 572 00:31:41,600 --> 00:31:45,760 Speaker 4: yen than the Japanese government would like. Europe obviously is 573 00:31:47,320 --> 00:31:51,280 Speaker 4: also going through its own relatively rough patches because growth 574 00:31:51,360 --> 00:31:53,520 Speaker 4: has not taken up, has not gone up as much 575 00:31:53,560 --> 00:31:56,320 Speaker 4: as they would have liked to. The emerging markets have 576 00:31:56,360 --> 00:31:58,640 Speaker 4: been a really interesting spot. I think one thing that 577 00:31:58,680 --> 00:32:01,880 Speaker 4: has happened in the last few years is that the 578 00:32:02,000 --> 00:32:05,880 Speaker 4: quality of your central bankers has increased, has improved a 579 00:32:05,880 --> 00:32:08,360 Speaker 4: lot in emerging markets, so you do have really good 580 00:32:08,400 --> 00:32:11,840 Speaker 4: people running them. And you may remember before you know, 581 00:32:11,880 --> 00:32:15,200 Speaker 4: in the beginning of the rate increases, they were maybe 582 00:32:15,360 --> 00:32:18,720 Speaker 4: earlier than us in the US to increase rates when 583 00:32:18,840 --> 00:32:21,920 Speaker 4: they're more used to having these terrible inflationary periods. So 584 00:32:21,960 --> 00:32:26,600 Speaker 4: when they saw inflation come they increased rates earlier, and 585 00:32:26,880 --> 00:32:30,160 Speaker 4: so when we look at their currencies, it is also 586 00:32:30,280 --> 00:32:32,960 Speaker 4: a tale of two cities where you see, for example, 587 00:32:33,080 --> 00:32:36,960 Speaker 4: relatively relatively i should say, stronger currencies again in places 588 00:32:37,040 --> 00:32:40,760 Speaker 4: like India, places like Mexico, places like even China has 589 00:32:40,800 --> 00:32:45,080 Speaker 4: had you know, again depending on which side of the 590 00:32:45,640 --> 00:32:48,840 Speaker 4: of the ocean you're looking at. But then you have 591 00:32:48,960 --> 00:32:52,680 Speaker 4: other countries that have not benefited, except for maybe some 592 00:32:52,680 --> 00:32:58,440 Speaker 4: commodity rich countries around emerging markets. Despite the emergen Now 593 00:32:58,440 --> 00:33:02,600 Speaker 4: two things about the currency factor. The currencies are stronger. 594 00:33:02,680 --> 00:33:05,000 Speaker 4: That impacts more of the bond markets. So you have 595 00:33:05,080 --> 00:33:08,440 Speaker 4: seen bond markets in emerging markets over the last ten years. 596 00:33:08,440 --> 00:33:13,680 Speaker 4: The size has increased hugely, both local bond markets where 597 00:33:13,720 --> 00:33:18,640 Speaker 4: local people invest, as well as foreign markets. The emerging 598 00:33:18,760 --> 00:33:24,360 Speaker 4: markets industries are close to natree trillion or thereabouts, So 599 00:33:24,960 --> 00:33:27,440 Speaker 4: the size of these markets have increased, and people do 600 00:33:27,520 --> 00:33:29,720 Speaker 4: look at currency very much. When they look at them, 601 00:33:29,960 --> 00:33:34,000 Speaker 4: you look at them the bond markets. On the equity markets, 602 00:33:34,120 --> 00:33:37,400 Speaker 4: currency has not necessarily moved the needle too much, except 603 00:33:37,440 --> 00:33:41,560 Speaker 4: you could argue with outflows for emerging markets sometimes when 604 00:33:41,640 --> 00:33:44,200 Speaker 4: their own currency is stronger relative to the dollars, you 605 00:33:44,240 --> 00:33:46,960 Speaker 4: see more of an outflow. And last point I want 606 00:33:47,000 --> 00:33:49,480 Speaker 4: to make on that is in China where there has 607 00:33:49,520 --> 00:33:53,000 Speaker 4: been very big outflows and people have maxed outs to 608 00:33:53,120 --> 00:33:57,240 Speaker 4: the amount they could to bring savings outside of China. 609 00:33:57,320 --> 00:33:59,480 Speaker 2: So do you spend the money to hedge when you 610 00:33:59,480 --> 00:34:00,920 Speaker 2: invest in e merging markets? Oh? 611 00:34:00,920 --> 00:34:04,200 Speaker 4: Sorry, I did not answer the hedging. Hedging is extremely 612 00:34:04,280 --> 00:34:08,840 Speaker 4: expensive in emerging markets, yes, except for the much larger, 613 00:34:09,600 --> 00:34:15,320 Speaker 4: much larger countries. Even there, the relative cost of hedging 614 00:34:15,560 --> 00:34:21,960 Speaker 4: generally means that you don't hedge too much. So the cost, yes, 615 00:34:22,080 --> 00:34:25,839 Speaker 4: generally makes it prohibitive to go into these currencies. And 616 00:34:25,960 --> 00:34:29,040 Speaker 4: if the market returns had been so much higher than 617 00:34:29,120 --> 00:34:33,640 Speaker 4: what has actually transpired, maybe you would have you would 618 00:34:33,680 --> 00:34:37,000 Speaker 4: have been okay with the cost of hedging. But given 619 00:34:37,080 --> 00:34:39,719 Speaker 4: that their markets in general have been if you look 620 00:34:39,719 --> 00:34:42,520 Speaker 4: at emerging markets as a totality and you look at 621 00:34:42,520 --> 00:34:47,239 Speaker 4: the returns let's say over the last ten years, and 622 00:34:47,280 --> 00:34:50,040 Speaker 4: you are just up a few percent, that definitely does 623 00:34:50,080 --> 00:34:51,959 Speaker 4: not cover costs of currency edging. 624 00:34:52,480 --> 00:34:55,000 Speaker 2: Sign has been terribly helpful as always, Thank you so much. 625 00:34:55,239 --> 00:34:58,600 Speaker 2: That is a Sonny Besch Loss of Rock Creek, fal 626 00:34:58,680 --> 00:35:01,759 Speaker 2: Staff and Shakespeare's Henry the Fourth taught us that the 627 00:35:01,760 --> 00:35:05,360 Speaker 2: better part of valor is discretion, which I take to 628 00:35:05,400 --> 00:35:08,640 Speaker 2: mean that sometimes it's best, perhaps even bravest, to give 629 00:35:08,719 --> 00:35:11,560 Speaker 2: up the fight rather than continue to lose. We saw 630 00:35:11,560 --> 00:35:13,719 Speaker 2: that this week when a police officer in upstate New 631 00:35:13,800 --> 00:35:16,480 Speaker 2: York tried to pull over the district attorney from Monroe 632 00:35:16,520 --> 00:35:20,279 Speaker 2: County and met resistance from a less than contrite prosecutor, 633 00:35:20,480 --> 00:35:23,440 Speaker 2: only to have her realize that backing down was her 634 00:35:23,480 --> 00:35:24,160 Speaker 2: better course. 635 00:35:24,680 --> 00:35:25,560 Speaker 6: I am so sorry. 636 00:35:26,040 --> 00:35:27,040 Speaker 1: What I did was wrong. 637 00:35:27,120 --> 00:35:27,880 Speaker 3: No excuse is. 638 00:35:28,040 --> 00:35:30,240 Speaker 6: I take full responsibility for my actions. 639 00:35:31,080 --> 00:35:33,120 Speaker 2: I fell short of the values I've held for my 640 00:35:33,280 --> 00:35:35,880 Speaker 2: entire thirty three year career. We've also seen it in 641 00:35:35,920 --> 00:35:40,040 Speaker 2: the drama that is Paramount International. Cherry Ridstone fought hard 642 00:35:40,080 --> 00:35:43,160 Speaker 2: for control of the company her father had founded, stuck 643 00:35:43,200 --> 00:35:46,080 Speaker 2: with it even as its market value fell, and now 644 00:35:46,160 --> 00:35:48,840 Speaker 2: has concluded that the better part of valor for her 645 00:35:49,239 --> 00:35:51,359 Speaker 2: is to sell it, and this week moved out the 646 00:35:51,400 --> 00:35:54,719 Speaker 2: CEO just before the earning skull to facilitate the deal. 647 00:35:55,239 --> 00:35:58,399 Speaker 8: Cherry Redstone here is desperately trying to get a deal 648 00:35:58,520 --> 00:36:01,479 Speaker 8: done with sky Dance, which is actually had to get 649 00:36:01,560 --> 00:36:05,440 Speaker 8: rid of Bob Bakish, who was opposing the deal pretty 650 00:36:05,520 --> 00:36:06,879 Speaker 8: vocally from the get goal. 651 00:36:07,080 --> 00:36:10,360 Speaker 2: Fencher J. Powell showed both valor and discretion this week, 652 00:36:10,680 --> 00:36:13,880 Speaker 2: valor in sticking to the Fed's course, but discretion in 653 00:36:13,960 --> 00:36:16,799 Speaker 2: admitting that it was taking longer than they'd thought to 654 00:36:16,840 --> 00:36:17,920 Speaker 2: get to their destination. 655 00:36:18,280 --> 00:36:21,960 Speaker 9: I do think it's clear that policy is restrictive, and 656 00:36:22,000 --> 00:36:24,719 Speaker 9: we believe over time it will be sufficiently restrictive. That 657 00:36:24,760 --> 00:36:27,120 Speaker 9: will be a question that the data will have to answer. 658 00:36:27,360 --> 00:36:31,279 Speaker 9: I think it's unlikely that the next policy rate move 659 00:36:31,280 --> 00:36:31,879 Speaker 9: will be a hike. 660 00:36:32,200 --> 00:36:35,600 Speaker 2: We definitely saw a discretion triumphing over valor in Major 661 00:36:35,680 --> 00:36:38,680 Speaker 2: League Baseball's decision this week to dump all together those 662 00:36:38,760 --> 00:36:41,840 Speaker 2: new uniforms they'd worked so hard on with Nike, the 663 00:36:41,960 --> 00:36:44,520 Speaker 2: uniforms that showed us just a little too much of 664 00:36:44,560 --> 00:36:48,200 Speaker 2: our favorite baseball players. It's painful to admit our mistakes, 665 00:36:48,360 --> 00:36:51,080 Speaker 2: even if doing so will put them behind us. I 666 00:36:51,200 --> 00:36:53,280 Speaker 2: learned this the hard way when I ran ABC News 667 00:36:53,320 --> 00:36:55,920 Speaker 2: and we enlisted Leonardo DiCaprio to help us with an 668 00:36:55,920 --> 00:36:58,520 Speaker 2: Earth Day special. This was back in the days of yore, 669 00:36:58,719 --> 00:37:01,839 Speaker 2: when journalists were trying to make a line between themselves 670 00:37:01,920 --> 00:37:04,520 Speaker 2: and entertainment celebrities, and we took it a bit too 671 00:37:04,600 --> 00:37:07,960 Speaker 2: far by arranging for mister DiCaprio, fresh off his performance 672 00:37:07,960 --> 00:37:10,200 Speaker 2: in The Titanic, to go to the White House to 673 00:37:10,239 --> 00:37:13,880 Speaker 2: interview President Clinton. It caused an uproar, but I resisted 674 00:37:13,920 --> 00:37:15,919 Speaker 2: calls for me to back down and admitted it all 675 00:37:16,000 --> 00:37:18,839 Speaker 2: bit a mistake, insisting that we had been trying to 676 00:37:18,880 --> 00:37:21,760 Speaker 2: get an audience for a serious news program about climate 677 00:37:22,280 --> 00:37:25,360 Speaker 2: and for my troubles was rewarded by sitting down front 678 00:37:25,560 --> 00:37:28,040 Speaker 2: at a black tie dinner as the President of the 679 00:37:28,120 --> 00:37:31,360 Speaker 2: United States. Got some laughs, very much at my expense. 680 00:37:31,840 --> 00:37:34,120 Speaker 2: I just want to say this to David Weston. You know. 681 00:37:35,680 --> 00:37:37,200 Speaker 6: I've been in a lot of tough spots. 682 00:37:37,280 --> 00:37:38,479 Speaker 1: Don't let this get you down. 683 00:37:40,160 --> 00:37:45,319 Speaker 5: You may not be America's newsleader, but you're king of 684 00:37:45,400 --> 00:37:46,040 Speaker 5: the world. 685 00:37:48,239 --> 00:37:50,080 Speaker 2: It sure didn't feel like I was the king of 686 00:37:50,239 --> 00:37:53,200 Speaker 2: anything that night. That does it For this episode of 687 00:37:53,239 --> 00:37:54,840 Speaker 2: Wall Street Week, I'm David Weston. 688 00:37:54,920 --> 00:37:55,800 Speaker 6: This is Bloomberg. 689 00:37:56,040 --> 00:38:04,560 Speaker 2: See you next week.