May 7, 2025 • 29 mins
The 28th annual Milken Institute Global Conference will, in the organization’s own words, “unite our catalytic community to tackle challenges and seize the opportunity to collectively shape our shared future.” The conference aims to tackle our world’s most pressing issues from climate change to geopolitical hotspots to AI complexities, examining impact on markets and workers globally.
On this special edition of the Bloomberg Businessweek Daily podcast, hear some of the top conversations from our second day at Milken, with hosts Carol Massar and Romaine Bostick live from the conference.
On this episode, we hear from:
- BlackRock head of Macro Credit Research Amanda Lynam
- Carlyle Global head of research Jason Thomas
- Guggenheim Partners Co-president Dina Dilorenzo
- PIMCO Mng Dir/President/Global Head of credit research Christian Stracke
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business
Weekdaily reporting from the magazine that helps global leaders stay
ahead with insight on the people, companies, and trends shaping
today's complex economy. Plus global business finance and tech news
(00:23):
as it happens. The Bloomberg Business Week Daily Podcast with
Carol Masser and Tim Stenebeck on Bloomberg Radio.
Speaker 2 (00:33):
Jason Thomas he links it all together as head of
Global research and investment Strategy at Carlisle. And it's interesting
because he actually made a very precient call back in
January stating the run up in big US tech socks
had actually gone too far and that was actually boosting
the appeal a believer European equities. Well, since he made
that call, European socks have outperformed the S and P
by nine percentage points, and it's outpaced the mag seven
(00:55):
by twenty. Please say that Jason joins us right now.
Great to see you, Jason, Thanks for having me, great call. Well,
thank you for reminding everyone. I appreciate that it was
a great call. And I think it's interesting too because
it was a call that was made before we really
had a clearer picture of what the tariff rolled out,
We're going to look like we kind of knew tariffs
are coming because Trump promised them on the campaign trail.
(01:15):
But now that you have the visibility from Liberation Day
and everything that's transpired in between, does that change your
call at all?
Speaker 3 (01:22):
Well, I don't know how much visibility we have. I
think that that is.
Speaker 4 (01:26):
The big challenge today.
Speaker 3 (01:27):
What's remarkable about what we saw on the April data
was how many management teams decided to really not be hasty,
not overreact. We don't know where the tariff rates are
going to end up, so as a result, you know,
it's very interesting. For the last month, we've had twenty
five percent tariffs on auto importance.
Speaker 4 (01:46):
Just this last week we.
Speaker 3 (01:47):
Now have twenty five percent tariffs on auto parts. Of course,
there are very complex carveouts and things like that, but
if you go to a dealer lot today, you don't
really see any price in price. If you go to
assembly factories in the United States, you don't really see
any change in production schedules. And this is I think
what we see in the economy. More broadly, it's management
teams again not wanting to overreact, not wanting to have
(02:10):
those really tough conversations with their suppliers where they're demanding
a discount, not wanting to have those tough conversations with
their customers trying to push on price because that can
burn bridges. And you find out a month's time policy
changes and you've you've made all these changes for no reason.
And so I think that we're in this this interesting
period where because of the inventory accumulation in Q one,
(02:33):
you have a lot of companies that have months to
sort of wait and see how things play out.
Speaker 2 (02:38):
So you don't think that would have in the interim
any material and any negative impact on the economy. Does
things are just going to humble lot?
Speaker 3 (02:47):
No, I think that it's setting up for a cliff
effect in some sentens because eventually those inventories run out.
Speaker 4 (02:53):
So so that's my concern forward.
Speaker 5 (02:55):
Oh, you're numbers really.
Speaker 3 (02:57):
I mean, starting in December, it's intermediate goods, components, parts,
raw materials, enormous increases in inventories, and of course intermediate
goods don't count towards GDP, so that's why you had
the contraction. You had a big increase in inventories on
the retail side finished products, but even larger increase in
intermediate goods, and so that's what I think is going on.
(03:18):
They're drawing down those inventories of components and parts to
keep production running normally, hoping that there's some change in
policy ahead, but that may not be forthcoming. I mean
to say there are a lot of loose ends here
would be an understatement, of course.
Speaker 5 (03:32):
Yeah, it's kind of fascinating.
Speaker 6 (03:34):
I just you know, we're just at this moment of like, yeah,
fork in the road, right, which way do we ultimately go?
So what do you do in terms of you know, investors,
how should they approach this? I mean, I understand this
long term investing strategy and hurt it our whole lives,
and yet we could be setting up for some really
strong fundamental changes.
Speaker 3 (03:52):
I think that these fundamental changes are something that we
have to appreciate. This is five year, ten year process,
and really those fundamentals are an economy. For the last
twenty to thirty years, manufacturers in the United States have
focused more and more product development, product design, and of
course branding, leaving most of the manufacturing to the rest
(04:14):
of the world. So one of the really interesting aspects
of this is that to reduce the trade deficit.
Speaker 4 (04:20):
In the short.
Speaker 3 (04:21):
Term, US consumers have to spend less on US branded goods.
I mean, think about this way. It's we've run in
about one hundred billion dollar trade deficit in apparel and
in a sneakers athleticware with China and Vietnam. They're not
sending US Chinese or Vietnamese branded sneakers. They're not sending
(04:43):
US Chinese or Vitamese branded apparel. So you know, it's
just these aspects the same thing they've deficited semiconductors almost
entirely explained by US design sem econductors. So these are
the kind of production networks and decisions that I think
are going to change over time.
Speaker 6 (04:57):
I want to ask you, Jason, because we've got armholdings
just crossing the URG terminal and there I'm going to
get right to the outlook, which is something we care
so much. You know, players certainly in the in the
semiconductor space sees first quote a revenue one billion to
one point one billion. The estimate was one point one billion,
so maybe raining it in a little bit, Yeah, how
much importance are you right now in this moment of
(05:17):
time putting on earnings?
Speaker 3 (05:19):
Well, I think that the earnings expectations are extremely optimistic,
not just for this year but for twenty twenty sixtimistic.
I think that they're going to be revised down, and
I think we should be expecting that right now. People
are expecting sort of a bump in the road in
Q two, but it could be more meaningful than that.
So right now, I think again it's both management teams
and investors really focused on the optimistic outcome. Now we
(05:42):
end we find some landing space for tariffs that's really,
you know, not so dramatic.
Speaker 7 (05:47):
Again.
Speaker 3 (05:47):
You know, a ten percentage point increase in the effective
tariff rate. You know, you have some discount and import prices,
you have some increase, and in the consumer price, you
have some decline in volumes, but it's all in this
manageable state space. It's really those twenty five percent tariffs
or of course the effective and argo on goods from China.
That's where you have the really significant potential economic damage.
(06:10):
And those are the questions. When does that get resolved?
Does it get resolved?
Speaker 8 (06:14):
Right?
Speaker 2 (06:14):
But this is a big issue for investors right now
because even if you are a long term investor, even
a short term tactical I mean, how are you modeling
now what is effectively completely unknown to a certain extent. Yeah,
And I do wonder, particularly in your world as you're
talking to partners and clients, is there a sense here
of a retrenchment in the investing side of this equation.
Speaker 8 (06:34):
Not yet.
Speaker 3 (06:34):
And I think that what people have learned over time
is that when you sit out vintage years, or you
decide that now is a bad time, that you get burned,
it's almost impossible to time the markets. I think again,
we have to appreciate that this is a more or
less fundamental change.
Speaker 2 (06:49):
Yeah, this is a lot different than just a cycle.
Speaker 3 (06:51):
H That's right, And we're talking about for forty years,
you've had to decline very steadily in the price of
durable goods, you know, consumer electronics, appliances, autos.
Speaker 5 (07:04):
Right to expect that.
Speaker 3 (07:05):
Sort of price declines going forward is unrealistic. Production networks
are going to change, There's gonna be more price pressures
ahead of us.
Speaker 2 (07:12):
This may be a dumb question, but the speed of
which the Trump administration has come out or at least
trying to articulate these policies, if this had been more elongated,
if it had been a more formal process using you know,
real policy papers, the federal register, and just giving people
a chance to digest things and of course lobby either
for or against them. Do you think the market the
(07:33):
negative market reaction might not have been as negative.
Speaker 3 (07:37):
Certainly, but it's also been interesting the way the market
has bounced back from this. And I think what we
saw in April was that there was a sense that
if the market doesn't like it, or if the treasury
market starts sending some really negative signals, that policy will
be we'll recalibrate. And I do think that that's what
investors are banking on today, that that, you know, once
(07:57):
we get some bad data or from from the real
econom once the markets start to sell off aggressively, once
treasuries fields start to move up, or just a sense
of a more of the sell America trade, that policy
will recalibrate once again. So I think that that is
what's interesting right now. When you have an economy with
a real data look fine, right when markets have rebounded,
(08:18):
perhaps that strengthens the administrations resolve to push forward on
some of these more aggressive terror freights, and you end
up in ironically a somewhat worse place.
Speaker 6 (08:27):
But the big risk is if we read the Trump
administration wrong in terms of backing off to an easier place,
and that's a massive risk.
Speaker 3 (08:35):
And again, with the markets rebounding, with economy looking good,
what incentive do they have, what message are they receiving
that would suggest that they need to back off. I
think that's the paradox right now.
Speaker 6 (08:45):
All right, great step Jason, thank you so much, so
appreciate it. Yeah, be well, Jason Thomas. He's had global
research and investment strategy over at Carlisle joining us.
Speaker 8 (08:53):
You are listening to the Bloomberg Business Week Daily podcast.
Catch us live weekday afternoons from two to five pm Eastern.
Listen on Apple CarPlay and the Android Auto with the
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Speaker 2 (09:09):
I ask the dust settles from, well, don't forget we
had a FED meeting in Washington. I know you had
all the bankers here at Milkin. They're finally starting to
head home in a.
Speaker 5 (09:17):
Few minutes thanks from the administration.
Speaker 2 (09:18):
Absolutely, a lot of folks in the administration, and one
person who is at the center of that. She's here
right now to give us the big picture of the environment.
And more importantly, some of the products that her investors
are actually looking for right now at a time of tumult.
If you will, Dina Deligoranzo is the president of Google,
and I'm investments two hundred billion dollars in total assets
across fixed income, equity and old strategy. It's great to
(09:40):
see you, Dina.
Speaker 5 (09:41):
Hey, Rumy, how are you.
Speaker 2 (09:42):
I'm doing well. I mean, the question is how are you?
I mean, I assume your phone's been ringing off the
hook the last few weeks.
Speaker 4 (09:47):
I'm great, but I need to correct you on one thing.
Speaker 9 (09:50):
I have to take credit for the fact that we're
not two hundred billion in AUF worth three hundred and fifty.
Speaker 2 (09:57):
Oh my gosh, your supers, my soul, my weepic ecology.
I made a mistakes and and Carol loves this because
she loves to correct me on air. So thank you,
all right, three hundred plus billion dollars.
Speaker 4 (10:12):
We want to take full credit for that.
Speaker 2 (10:13):
How do you protect that three hundred billion went up
just overnight?
Speaker 5 (10:17):
You had it right, it just like first it up. Well, one,
thank you for having me here.
Speaker 9 (10:21):
I get to have the Wednesday right after the conference,
like Flassy of the conference.
Speaker 5 (10:25):
We're all little rasp me and Win did.
Speaker 9 (10:28):
So I apologize if I refer to my notes today
because it's been like nooting, which is fantastic because you know,
every year you come to milk it and you want
to like meet with clients, prospects, colleagues, friends.
Speaker 5 (10:39):
The press.
Speaker 9 (10:40):
And this has been an extraordinary year, especially given the
extent of the uncertainty, and people are just looking for clarity,
conviction and calmness from those who you know, provide those
services to them. So the secret is keep doing what
we always do, remain discipline to our investment process, and
continue to educate the clients with through our thought leadership
(11:04):
and you know, our commitment to them to help them
work through their objectives and if need be, refocus them
into areas within their portfolio that give them that flexibility
and while they balance their needs in the uncertain.
Speaker 2 (11:19):
Times, do you not really get in a sense that
people are pulling back. It's more just maybe just looking
for maybe a little bit more caution, a little bit
more selectivity.
Speaker 9 (11:26):
And I think the durations have been extended, right, so
we're we're relatively up for the year and flows we
you know, when we when January started, we really anticipated
that when I was here at Milcote, i'd be telling
you that I was net positive significantly in flows. But
the good news is that we're not negative. Right, So
(11:47):
we are net positive, just not as much as we
thought we'd be. But we do anticipate that by the
end of the year we're going to see some real
increase to the action that clients are taking to put their.
Speaker 5 (11:59):
Money to work.
Speaker 9 (12:00):
Right now, they're not pulling back, they're just being cautious,
but they're being cautiously optimistic, which I think is really good.
Speaker 8 (12:07):
Yeah.
Speaker 6 (12:07):
I feel like it's a term that we've heard a
lot here at Milcote, the cautious optimismal Dana. When it
comes to private credit, right we could to see that
market growth, We continue to see the number of.
Speaker 5 (12:15):
Participants in it grow. How do you guys differentiate yourself?
Speaker 9 (12:19):
Okay, so the private credit word is, I mean, a
private credit is saying it's really interesting.
Speaker 5 (12:24):
We've been doing it for over two decades.
Speaker 9 (12:27):
We believe, like we believe our edge is that we
are research driven, due diligence driven quality over quantity. And
one of the things that really genuinely concerns me about
how there's been a huge growth in this space is
for the new players that are entering it, I'm not
sure they really understand the operational demands and the risk
(12:48):
oversight that you need when you're actually providing those types
of funds and those types of investments to clients. And
I do think that it's like one thing that Gugenheim
Can differentiates itself, and that is is that we do
offer a deep bench, not just from the research and
the investment side of it, but also on the administration, valuation,
(13:09):
liquidity profile.
Speaker 5 (13:10):
Right, reporting and true and the education right.
Speaker 9 (13:13):
So our thought leadership is ward winning and one of
the things we truly focus on is really educating.
Speaker 5 (13:19):
The advisors that we service when they.
Speaker 9 (13:22):
Are contemplating investing in interval funds b.
Speaker 5 (13:25):
Dcs and really understanding the differences.
Speaker 9 (13:27):
Between them and what that really will mean to their
clients and goals.
Speaker 6 (13:30):
Well, when it comes to private credit, in terms of
making that differentiation you mentioned like making sure that you
have you know the risks that are involved. What do
you think, because I feel like everybody has been all
in on private credit for many years now as the
industry has grown, what are the biggest risks that you
kind of remind your team, like this is what we've
got to watch.
Speaker 9 (13:47):
Out for issuer credit quality, right, do they have their
ability to meet their debt requirements and their covenants? You know,
especially in these uncertain times, I think it's really important
to focus on the credit quality, you know, any like
right now, clients really want higher yield, but they also
want stability and flexibility. So I think it's tremendously important
(14:08):
to make sure the credit quality is there and understanding
their liquidity needs right and when they need that liquidity.
And I think that that will really help you maintain
and maintain and retain your client relationships if you're being
very transparent about exactly what they're buying and when they're
going to be able to take money off the table.
Speaker 2 (14:30):
There's been a lot of talk at this conference too
about sort of the democratization of access to private assets,
alternative assets, if you will, a lot of partnership between
some of the big institutional players as well as some
of the alternative asset managers as well, in an effort
to sort of, I guess, go a little bit further
down the income spectrum in terms of attracting new clients.
(14:52):
Is that going to sustain itself?
Speaker 5 (14:53):
I think so?
Speaker 9 (14:54):
I think that the mass affluent is educating themselves, especially
with the location of AI now, which we're really proud
of how we're using AI in our working environment. I
think that people have a tremendous opportunity now to get
access to some really important information that allows them to
invest their money more wisely, not just for their current situation,
(15:16):
but for their generational planning and estate planning as well.
Speaker 5 (15:21):
And these are types of investments that do have long
duration with high yield and.
Speaker 9 (15:25):
Income benefits if you're investing and allocating in.
Speaker 4 (15:28):
The right way, you know, and diversified.
Speaker 9 (15:30):
And when I say diversified, it's not just diversifying with
the types of issuers but also the types of products
right because they all have different liquidity requirements.
Speaker 6 (15:41):
Are going to leave it there, listen. Thank you so
much always spending time for us. O.
Speaker 5 (15:44):
God, I want to spend more.
Speaker 2 (15:46):
She didn't even need her notes.
Speaker 5 (15:48):
Why did you bring? Because she does just make me
feel so comfortable.
Speaker 9 (15:50):
It's great, so good to see you, and I hope
to see you against you.
Speaker 2 (15:55):
Thank you always. I always love talking to somebody who
manages more than three hundred billion dollars overseas. Overseas a team. Yes, yeah,
I'm gonna spoke again.
Speaker 9 (16:06):
I want me just shut up now, all right, enjoy
the rest of your week, Sonny in La So.
Speaker 6 (16:12):
Finally, Lorenzo, President of Gergenhaim Investment.
Speaker 1 (16:17):
This is the Bloomberg Business Week Daily Podcast. Listen live
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Speaker 2 (16:36):
PIMCO has a major focus on asset based finance right
now taking advantage of that opportunity, and it's global head
of credit research, Christian Straka, joins us right now here
on the milk and stage. Great to see you, Christian.
Thank you talk a little bit about the expansion of
asset based finance, because when I hear about it, I
can't help. But thing didn't that already exist? Is this
an evolution? Is this something new?
Speaker 7 (16:57):
Explain it to me, Well, it is an evolution, I
mean it has, but mostly it existed where banks would
make loans and then securitize them into acid backed securities.
So yes, that has existed for forty years. What we're
seeing more and more. But in that old version, banks
would retain real skin in the game and they would
(17:18):
retain a lot of loss exposure when they would retain
that part of the securitization. Now though, banks are going
to a model where it's much different, where they're actually
selling loans to asset managers like PIMCO and others outright,
so they're not securitizing, they're selling the loans outright. There's
still some alignment with the asset manager, and that's really
(17:39):
the new thing that has happened. That's in the last
couple of years. Ever since the failures of the regional banks,
the Silicon Valley Bank, First Republic Bank, and also Credit
Suisse in Europe, you're seeing more and more banks moving
to this model of what they're calling velocity of the
balance sheet, of turning over the balance sheets, still keeping
the customer, still keeping the borrower and making the loan,
(18:04):
but then selling it to an asset manager. Then asset
managers take those loans and then we Pimco, we securitize them,
and so that way all of the risk is moved
into a much better way of holding the risk, which
is not and the problem with the banks was bank
liability deposits.
Speaker 2 (18:20):
But I am curious, how do you evaluate that risk
in the here and now when there's still just so
much uncertainty, if you will, around economic conditions and whether
those assets will be able to weather those conditions.
Speaker 5 (18:31):
Exactly.
Speaker 7 (18:32):
You have to have pretty deep infrastructure for analyzing the
risk that you're taking because not every loan is made
the same, and you have to do stress tests on
these loans. And right now we are stress testing for
a recession. It is not Pimco's call that there will
be a recession, but we're not going to buy loans
that aren't going to be able to survive through a recession.
(18:52):
So that would be residential mortgages, or it's a pool
of residential mortgage is going to continue to perform if
there's a recession. Consumer loans, equipment loans, aviation finance, things
like that. We are stressing for a recession. Not our call,
but we need to be resilient in the assets that
we're buying.
Speaker 6 (19:10):
So super picky it sounds like, so if there's a
bundling of them, I mean everything's on the same grade.
In other words, right we're not getting a mixture in
terms of risk valuations.
Speaker 7 (19:18):
Well, there are mixes, but Pinko is really avoiding subprime,
and you know, there's a business to be done in subprime,
but it's been our style to be more up in quality,
and there's more and more supply of those more higher
quality loans coming out of banks, and for us, it's
a better risk adjustment return over the longer term because
(19:41):
you don't have those drawdowns and those losses when recessions come.
Speaker 6 (19:45):
How quickly are banks moving them off their balance sheets.
I'm just curious, like what you are in that process.
Speaker 7 (19:50):
Well, if you look at in the years prior to
the failure of Silicon Value and in twenty twenty three,
bank loan growth was high single digit every year. In
twenty twenty three it was two or three percent. In
twenty twenty four it was two or three percent. This
year it's year today it is about three percent. So
the loan growth has dropped considerably and that's because banks
(20:13):
are they're still making them, but they are selling them
off to asset managers. So this is very significant.
Speaker 5 (20:20):
It is.
Speaker 7 (20:20):
It's in the hundreds of billions now, it's not in
the trillions yet, but it will get there. And it's spreading.
That's the other thing. We're seeing more and more of
it in the UK. Now we're starting to see it
on the continent as well, because what European banks are
realizing is that US bank equity multiples are doing better.
As they're doing this velocity of the balance sheet. It's
good for the bank itself, and so Europeans are seeing
(20:43):
that and are taking that opportunity as well.
Speaker 2 (20:46):
Now, Christian, I do have to get your thoughts about
the FED meeting today. Obviously, rates stayed the same as
was expected, but there is a lot of questions right
now about where rates might go later this year, and
I wonder do you have any visibility into that. I mean,
I know that ultimately becomes an economic call as well. Yeah,
but as you're sort of modeling things out, are you
modeling for higher interest rates or maybe just where they.
Speaker 7 (21:08):
We are we are modeling for higher interestrates than we
would have expected six months ago. We are not modeling
for We're not using as a base case higher interest
rates that the FED would would would hike interest rates.
That is a tail scenario that we do include in
our stress scenarios. So we do model that, but it's
not our the base case, whereas the recession is as
(21:30):
I say, it's not a base case, but you have
to be able to survive to that. Now the visibility
is really and Rich Claire at are our colleagues has
spoken a lot about this, is that you know, the
base case should be that the tariffs should be a
one off impact on price level, and as long as
monetary policy and fiscal policy don't accommodate that, then inflation
(21:52):
should get under control over the course of the next year.
But we do expect that the FED will be more
or less in a wait and see mode and they
need to to see how this goes and whether that
will be the case.
Speaker 6 (22:03):
Christian though, in terms of tyrffs, I understand the concept
of the one off, but if that one off is
pretty onerous in terms of what the deal is, that
kind of changes the picture.
Speaker 7 (22:13):
There's no question that it will have secondary effects. There
will be second round effects. The question is will there
be third and fourth round effects? And there it would
be how does the FED respond to that? And the
reality is the FED will keep rates higher than they
would otherwise given a softer economy.
Speaker 5 (22:29):
All right, we got to leave it there.
Speaker 6 (22:31):
Never enough time thank you, Thank you very much, so
appreciate it. Christiness Rockey's pimco's present Global Ahead of Credit Research.
Speaker 8 (22:37):
You're listening to the Bloomberg Business Weekdaily podcast. Catch US
Live weekday afternoons from two to five pm Eastern. Listen
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Speaker 6 (22:53):
A lot going on here, I gotta say, Black Rocks
Chief executive Officer, Larry thank We want to point out
among those members of the US financial and technic this
community that will visit Saudi Arabia.
Speaker 5 (23:02):
Along with President Trump next week.
Speaker 6 (23:03):
It's a big trip. The President is keen for the
oil and gas ridge goal states to ramp up investments
in the US and really buying more of its goods.
Now developments out of that could certainly shape the global
investment landscape.
Speaker 5 (23:14):
Our next guest leads the team that.
Speaker 6 (23:16):
Generates investment strategy research across many markets, including global fixed income, liquid,
corporate credit, alt asset markets such as private credit and
real estate. A great overview, so let's bring in Amanda Line.
Speaker 5 (23:27):
Is Blackrock, head of macro credit research.
Speaker 6 (23:29):
Black Rock, of course, the world's largest asset management firm.
Eleven voice six trillion in assets under management. Got to
get it out because Man, there are firms and then
there are firms like Blackrock that just see a lot
in terms of investor sentment and whereflows are going. What
are you guys seeing that maybe we aren't capturing in
the narrative.
Speaker 4 (23:48):
Well, thank you so much for having me.
Speaker 5 (23:49):
Good afternoon.
Speaker 10 (23:50):
I've been struck by the optimism of this conference. I
think one of the things that's really stood out to
me is a proactive, almost offensive approach to take making
advantage of market dislocations and volatility. I think there was
widespread acknowledgement that there's a lot of uncertainty that we
need to navigate. We probably haven't seen the last of it.
It's very dynamic, as you've been saying. But I was
(24:12):
really impressed upon kind of let's make let's take advantage
of this to find opportunities for investors outside of the US,
as you mentioned, was one of the things as well.
Private credit was an idea.
Speaker 5 (24:23):
You're impressed. Do you buy it?
Speaker 10 (24:25):
I do, and I think it makes sense because I think,
really what I took away from a lot of the
conversations over the past two days was kind of a
back to basics approach to real credit work. Credit is
my is my universe, and I think there's an acknowledgement
there are things we can control, there are things we can.
Speaker 4 (24:42):
Analyze, there are things we cannot.
Speaker 10 (24:44):
Let's make sure that we have diversified portfolios that we
can navigate this. But I'm not sensing a risk off posture.
I'm not sensing a retreat. What I'm sensing is Okay,
there are opportunities that will come out of.
Speaker 5 (24:55):
This, and how can we make the most of it.
Speaker 10 (24:57):
I was really pleasantly surprised to see so much a
business on Europe as an opportunity set.
Speaker 4 (25:02):
I think on private credit.
Speaker 10 (25:04):
Actually, the convergence of public and private credit markets was
something that came up a lot in the discussions across
the variety of different conversations. The next generation of financing
kind of acknowledging some of the long term needs for capital.
Speaker 4 (25:16):
These are all structural ships that we've been talking.
Speaker 10 (25:18):
About for a while, actually, including bank partnerships with private
reunit but it was good to hear them kind of
formalized and almost mentioned proactively.
Speaker 2 (25:25):
Are they being accelerated because of current conditions?
Speaker 10 (25:28):
I think there's a delicate balance remain of there's a
bit of an option value to waiting and seeing. We
heard it from share Pal, we're hearing it from corporates.
So time is of the essence here. We want clarity,
we want it soon. I think that will be best for.
Speaker 4 (25:41):
The business community.
Speaker 10 (25:42):
But I do think actually what there is is what
I heard yesterday was dispersion is inevitable, and I think
you see that in assea classes, you see that in conversations.
So I do think there's a recognition that we need
to be a bit footed.
Speaker 2 (25:54):
Well talk about some of the lower rated companies and
the world of credit, because I know, look, if you're
a relatively healthy company would cash flow and maybe profitability,
you're not probably not too worried. But if you're a
company that's already been struggling, and particularly if you maybe
have to face refinancing sometime soon, what should we expect
out of those? Is that an investable space right now?
Speaker 4 (26:14):
It's a great question.
Speaker 10 (26:15):
I would say we are comfortable moving selectively down in quality.
Sometimes the automatic reflex in a period like this is
to move up in quality in a generic sense. We're
pushing against that a little bit, and going back to
the back to basics.
Speaker 5 (26:27):
Credit work.
Speaker 4 (26:28):
The one area we are watching very closely.
Speaker 10 (26:31):
Pockets of the credit market, just like pockets of equities,
have already been under pressure before the hard data has deteriorated.
I would say the very low end of the high
yield spectrum, triple cs, parts of the leverage loan market
that are levered over seven times.
Speaker 4 (26:46):
Right, you have pockets of.
Speaker 10 (26:47):
These markets that the left tail was already under stressed.
Speaker 4 (26:51):
That's where we're watching. So you can't be reaching too
far down in credits.
Speaker 2 (26:55):
But I'm curious with regards to the pricing in that
part of the market as well as the potential yield
that you're going to get. That's enough to entice people back?
And it's so, is that just relative to the fact
that that other areas of financial markets like public equities
are down.
Speaker 10 (27:09):
Within reason, it's enough parts of high yielk have actually
outperformed investment grade. You're debate on a total return basis.
Part of it is basic credit just attire in the
capital structure. We don't talk about it enough. Part of
it is you are picking up an additional spread premium
with the volatility and the treasury market that incremental credit
spread is meaningful, But I think where we would draw
a line is reaching too far down the quality spectrum,
(27:32):
given the uncertainty into companies that just aren't viable.
Speaker 4 (27:35):
That's that's really the distinction.
Speaker 6 (27:36):
I want to go there because I can't tell you
how many times I think we've had a conversation since
we've been at Milkin about people saying, you know, you're
going to have to be very selective in private credit.
Know your manager, make sure that they so. I'm just
curious about all those other companies that maybe aren't making
the grade. Does that mean you anticipate we will see
some fall out, especially when it comes to those firms.
I just can't find either a way of you know, yeah, yeah,
(27:59):
the dicisition they need.
Speaker 5 (28:00):
Absolutely.
Speaker 10 (28:00):
The dispersion that we expect in liquid credit also applies
to private credit.
Speaker 4 (28:04):
One of the striking stats that we.
Speaker 10 (28:06):
Track actually private credit fundraising. Since the FED started hiking
in twenty twenty two, the line's share of it has
gone to managers with four more vintages. Why. It's because
allocators are valuing the structuring expertise, workout experience.
Speaker 4 (28:19):
The actual ability to navigate a cycle like this. There
will be winners and losers.
Speaker 10 (28:23):
Absolutely, for sure, we see dispersion amongst certain sectors, companies
with certain size profiles.
Speaker 4 (28:29):
But I would say in average, actually, just.
Speaker 10 (28:31):
Like in liquid credit, that aggregate fundamentals are still pretty attractive.
Speaker 4 (28:35):
The technicals are.
Speaker 10 (28:36):
Supportive, and I think what I'm sensing from this conference
there's an opportunity cost to being so too defensive. They
came up yesterday, someone was basically making the point, I'm
hesitant to be too short if there's a really positive
potential outcome that's on the verizon, So I need to
make sure to kind of navigate that. So I think,
going back to your question, remain, there's this delicate balance up.
(28:56):
What is the optimal tradeoff between selectively taking where maintaining
a diversified portfolio and not being too defensive Because actually
the lesson from twenty twenty four, right, there was an
opportunity customing to it's.
Speaker 6 (29:08):
A full plate.
Speaker 4 (29:09):
Yeah, that's a full plate.
Speaker 2 (29:10):
That's a great plane, and that's a great place. Dan Amanda,
really thank you, really great to catch up with you.
Amanda line On. She's the head of macro credit research
over at black Rock.
Speaker 8 (29:18):
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(29:38):
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ahead with insight on the people, companies, and trends shaping
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(00:23):
as it happens. The Bloomberg Business Week Daily Podcast with
Carol Masser and Tim Stenebeck on Bloomberg Radio.
Speaker 2 (00:33):
Jason Thomas he links it all together as head of
Global research and investment Strategy at Carlisle. And it's interesting
because he actually made a very precient call back in
January stating the run up in big US tech socks
had actually gone too far and that was actually boosting
the appeal a believer European equities. Well, since he made
that call, European socks have outperformed the S and P
by nine percentage points, and it's outpaced the mag seven
(00:55):
by twenty. Please say that Jason joins us right now.
Great to see you, Jason, Thanks for having me, great call. Well,
thank you for reminding everyone. I appreciate that it was
a great call. And I think it's interesting too because
it was a call that was made before we really
had a clearer picture of what the tariff rolled out,
We're going to look like we kind of knew tariffs
are coming because Trump promised them on the campaign trail.
(01:15):
But now that you have the visibility from Liberation Day
and everything that's transpired in between, does that change your
call at all?
Speaker 3 (01:22):
Well, I don't know how much visibility we have. I
think that that is.
Speaker 4 (01:26):
The big challenge today.
Speaker 3 (01:27):
What's remarkable about what we saw on the April data
was how many management teams decided to really not be hasty,
not overreact. We don't know where the tariff rates are
going to end up, so as a result, you know,
it's very interesting. For the last month, we've had twenty
five percent tariffs on auto importance.
Speaker 4 (01:46):
Just this last week we.
Speaker 3 (01:47):
Now have twenty five percent tariffs on auto parts. Of course,
there are very complex carveouts and things like that, but
if you go to a dealer lot today, you don't
really see any price in price. If you go to
assembly factories in the United States, you don't really see
any change in production schedules. And this is I think
what we see in the economy. More broadly, it's management
teams again not wanting to overreact, not wanting to have
(02:10):
those really tough conversations with their suppliers where they're demanding
a discount, not wanting to have those tough conversations with
their customers trying to push on price because that can
burn bridges. And you find out a month's time policy
changes and you've you've made all these changes for no reason.
And so I think that we're in this this interesting
period where because of the inventory accumulation in Q one,
(02:33):
you have a lot of companies that have months to
sort of wait and see how things play out.
Speaker 2 (02:38):
So you don't think that would have in the interim
any material and any negative impact on the economy. Does
things are just going to humble lot?
Speaker 3 (02:47):
No, I think that it's setting up for a cliff
effect in some sentens because eventually those inventories run out.
Speaker 4 (02:53):
So so that's my concern forward.
Speaker 5 (02:55):
Oh, you're numbers really.
Speaker 3 (02:57):
I mean, starting in December, it's intermediate goods, components, parts,
raw materials, enormous increases in inventories, and of course intermediate
goods don't count towards GDP, so that's why you had
the contraction. You had a big increase in inventories on
the retail side finished products, but even larger increase in
intermediate goods, and so that's what I think is going on.
(03:18):
They're drawing down those inventories of components and parts to
keep production running normally, hoping that there's some change in
policy ahead, but that may not be forthcoming. I mean
to say there are a lot of loose ends here
would be an understatement, of course.
Speaker 5 (03:32):
Yeah, it's kind of fascinating.
Speaker 6 (03:34):
I just you know, we're just at this moment of like, yeah,
fork in the road, right, which way do we ultimately go?
So what do you do in terms of you know, investors,
how should they approach this? I mean, I understand this
long term investing strategy and hurt it our whole lives,
and yet we could be setting up for some really
strong fundamental changes.
Speaker 3 (03:52):
I think that these fundamental changes are something that we
have to appreciate. This is five year, ten year process,
and really those fundamentals are an economy. For the last
twenty to thirty years, manufacturers in the United States have
focused more and more product development, product design, and of
course branding, leaving most of the manufacturing to the rest
(04:14):
of the world. So one of the really interesting aspects
of this is that to reduce the trade deficit.
Speaker 4 (04:20):
In the short.
Speaker 3 (04:21):
Term, US consumers have to spend less on US branded goods.
I mean, think about this way. It's we've run in
about one hundred billion dollar trade deficit in apparel and
in a sneakers athleticware with China and Vietnam. They're not
sending US Chinese or Vietnamese branded sneakers. They're not sending
(04:43):
US Chinese or Vitamese branded apparel. So you know, it's
just these aspects the same thing they've deficited semiconductors almost
entirely explained by US design sem econductors. So these are
the kind of production networks and decisions that I think
are going to change over time.
Speaker 6 (04:57):
I want to ask you, Jason, because we've got armholdings
just crossing the URG terminal and there I'm going to
get right to the outlook, which is something we care
so much. You know, players certainly in the in the
semiconductor space sees first quote a revenue one billion to
one point one billion. The estimate was one point one billion,
so maybe raining it in a little bit, Yeah, how
much importance are you right now in this moment of
(05:17):
time putting on earnings?
Speaker 3 (05:19):
Well, I think that the earnings expectations are extremely optimistic,
not just for this year but for twenty twenty sixtimistic.
I think that they're going to be revised down, and
I think we should be expecting that right now. People
are expecting sort of a bump in the road in
Q two, but it could be more meaningful than that.
So right now, I think again it's both management teams
and investors really focused on the optimistic outcome. Now we
(05:42):
end we find some landing space for tariffs that's really,
you know, not so dramatic.
Speaker 7 (05:47):
Again.
Speaker 3 (05:47):
You know, a ten percentage point increase in the effective
tariff rate. You know, you have some discount and import prices,
you have some increase, and in the consumer price, you
have some decline in volumes, but it's all in this
manageable state space. It's really those twenty five percent tariffs
or of course the effective and argo on goods from China.
That's where you have the really significant potential economic damage.
(06:10):
And those are the questions. When does that get resolved?
Does it get resolved?
Speaker 8 (06:14):
Right?
Speaker 2 (06:14):
But this is a big issue for investors right now
because even if you are a long term investor, even
a short term tactical I mean, how are you modeling
now what is effectively completely unknown to a certain extent. Yeah,
And I do wonder, particularly in your world as you're
talking to partners and clients, is there a sense here
of a retrenchment in the investing side of this equation.
Speaker 8 (06:34):
Not yet.
Speaker 3 (06:34):
And I think that what people have learned over time
is that when you sit out vintage years, or you
decide that now is a bad time, that you get burned,
it's almost impossible to time the markets. I think again,
we have to appreciate that this is a more or
less fundamental change.
Speaker 2 (06:49):
Yeah, this is a lot different than just a cycle.
Speaker 3 (06:51):
H That's right, And we're talking about for forty years,
you've had to decline very steadily in the price of
durable goods, you know, consumer electronics, appliances, autos.
Speaker 5 (07:04):
Right to expect that.
Speaker 3 (07:05):
Sort of price declines going forward is unrealistic. Production networks
are going to change, There's gonna be more price pressures
ahead of us.
Speaker 2 (07:12):
This may be a dumb question, but the speed of
which the Trump administration has come out or at least
trying to articulate these policies, if this had been more elongated,
if it had been a more formal process using you know,
real policy papers, the federal register, and just giving people
a chance to digest things and of course lobby either
for or against them. Do you think the market the
(07:33):
negative market reaction might not have been as negative.
Speaker 3 (07:37):
Certainly, but it's also been interesting the way the market
has bounced back from this. And I think what we
saw in April was that there was a sense that
if the market doesn't like it, or if the treasury
market starts sending some really negative signals, that policy will
be we'll recalibrate. And I do think that that's what
investors are banking on today, that that, you know, once
(07:57):
we get some bad data or from from the real
econom once the markets start to sell off aggressively, once
treasuries fields start to move up, or just a sense
of a more of the sell America trade, that policy
will recalibrate once again. So I think that that is
what's interesting right now. When you have an economy with
a real data look fine, right when markets have rebounded,
(08:18):
perhaps that strengthens the administrations resolve to push forward on
some of these more aggressive terror freights, and you end
up in ironically a somewhat worse place.
Speaker 6 (08:27):
But the big risk is if we read the Trump
administration wrong in terms of backing off to an easier place,
and that's a massive risk.
Speaker 3 (08:35):
And again, with the markets rebounding, with economy looking good,
what incentive do they have, what message are they receiving
that would suggest that they need to back off. I
think that's the paradox right now.
Speaker 6 (08:45):
All right, great step Jason, thank you so much, so
appreciate it. Yeah, be well, Jason Thomas. He's had global
research and investment strategy over at Carlisle joining us.
Speaker 8 (08:53):
You are listening to the Bloomberg Business Week Daily podcast.
Catch us live weekday afternoons from two to five pm Eastern.
Listen on Apple CarPlay and the Android Auto with the
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Speaker 2 (09:09):
I ask the dust settles from, well, don't forget we
had a FED meeting in Washington. I know you had
all the bankers here at Milkin. They're finally starting to
head home in a.
Speaker 5 (09:17):
Few minutes thanks from the administration.
Speaker 2 (09:18):
Absolutely, a lot of folks in the administration, and one
person who is at the center of that. She's here
right now to give us the big picture of the environment.
And more importantly, some of the products that her investors
are actually looking for right now at a time of tumult.
If you will, Dina Deligoranzo is the president of Google,
and I'm investments two hundred billion dollars in total assets
across fixed income, equity and old strategy. It's great to
(09:40):
see you, Dina.
Speaker 5 (09:41):
Hey, Rumy, how are you.
Speaker 2 (09:42):
I'm doing well. I mean, the question is how are you?
I mean, I assume your phone's been ringing off the
hook the last few weeks.
Speaker 4 (09:47):
I'm great, but I need to correct you on one thing.
Speaker 9 (09:50):
I have to take credit for the fact that we're
not two hundred billion in AUF worth three hundred and fifty.
Speaker 2 (09:57):
Oh my gosh, your supers, my soul, my weepic ecology.
I made a mistakes and and Carol loves this because
she loves to correct me on air. So thank you,
all right, three hundred plus billion dollars.
Speaker 4 (10:12):
We want to take full credit for that.
Speaker 2 (10:13):
How do you protect that three hundred billion went up
just overnight?
Speaker 5 (10:17):
You had it right, it just like first it up. Well, one,
thank you for having me here.
Speaker 9 (10:21):
I get to have the Wednesday right after the conference,
like Flassy of the conference.
Speaker 5 (10:25):
We're all little rasp me and Win did.
Speaker 9 (10:28):
So I apologize if I refer to my notes today
because it's been like nooting, which is fantastic because you know,
every year you come to milk it and you want
to like meet with clients, prospects, colleagues, friends.
Speaker 5 (10:39):
The press.
Speaker 9 (10:40):
And this has been an extraordinary year, especially given the
extent of the uncertainty, and people are just looking for clarity,
conviction and calmness from those who you know, provide those
services to them. So the secret is keep doing what
we always do, remain discipline to our investment process, and
continue to educate the clients with through our thought leadership
(11:04):
and you know, our commitment to them to help them
work through their objectives and if need be, refocus them
into areas within their portfolio that give them that flexibility
and while they balance their needs in the uncertain.
Speaker 2 (11:19):
Times, do you not really get in a sense that
people are pulling back. It's more just maybe just looking
for maybe a little bit more caution, a little bit
more selectivity.
Speaker 9 (11:26):
And I think the durations have been extended, right, so
we're we're relatively up for the year and flows we
you know, when we when January started, we really anticipated
that when I was here at Milcote, i'd be telling
you that I was net positive significantly in flows. But
the good news is that we're not negative. Right, So
(11:47):
we are net positive, just not as much as we
thought we'd be. But we do anticipate that by the
end of the year we're going to see some real
increase to the action that clients are taking to put their.
Speaker 5 (11:59):
Money to work.
Speaker 9 (12:00):
Right now, they're not pulling back, they're just being cautious,
but they're being cautiously optimistic, which I think is really good.
Speaker 8 (12:07):
Yeah.
Speaker 6 (12:07):
I feel like it's a term that we've heard a
lot here at Milcote, the cautious optimismal Dana. When it
comes to private credit, right we could to see that
market growth, We continue to see the number of.
Speaker 5 (12:15):
Participants in it grow. How do you guys differentiate yourself?
Speaker 9 (12:19):
Okay, so the private credit word is, I mean, a
private credit is saying it's really interesting.
Speaker 5 (12:24):
We've been doing it for over two decades.
Speaker 9 (12:27):
We believe, like we believe our edge is that we
are research driven, due diligence driven quality over quantity. And
one of the things that really genuinely concerns me about
how there's been a huge growth in this space is
for the new players that are entering it, I'm not
sure they really understand the operational demands and the risk
(12:48):
oversight that you need when you're actually providing those types
of funds and those types of investments to clients. And
I do think that it's like one thing that Gugenheim
Can differentiates itself, and that is is that we do
offer a deep bench, not just from the research and
the investment side of it, but also on the administration, valuation,
(13:09):
liquidity profile.
Speaker 5 (13:10):
Right, reporting and true and the education right.
Speaker 9 (13:13):
So our thought leadership is ward winning and one of
the things we truly focus on is really educating.
Speaker 5 (13:19):
The advisors that we service when they.
Speaker 9 (13:22):
Are contemplating investing in interval funds b.
Speaker 5 (13:25):
Dcs and really understanding the differences.
Speaker 9 (13:27):
Between them and what that really will mean to their
clients and goals.
Speaker 6 (13:30):
Well, when it comes to private credit, in terms of
making that differentiation you mentioned like making sure that you
have you know the risks that are involved. What do
you think, because I feel like everybody has been all
in on private credit for many years now as the
industry has grown, what are the biggest risks that you
kind of remind your team, like this is what we've
got to watch.
Speaker 9 (13:47):
Out for issuer credit quality, right, do they have their
ability to meet their debt requirements and their covenants? You know,
especially in these uncertain times, I think it's really important
to focus on the credit quality, you know, any like
right now, clients really want higher yield, but they also
want stability and flexibility. So I think it's tremendously important
(14:08):
to make sure the credit quality is there and understanding
their liquidity needs right and when they need that liquidity.
And I think that that will really help you maintain
and maintain and retain your client relationships if you're being
very transparent about exactly what they're buying and when they're
going to be able to take money off the table.
Speaker 2 (14:30):
There's been a lot of talk at this conference too
about sort of the democratization of access to private assets,
alternative assets, if you will, a lot of partnership between
some of the big institutional players as well as some
of the alternative asset managers as well, in an effort
to sort of, I guess, go a little bit further
down the income spectrum in terms of attracting new clients.
(14:52):
Is that going to sustain itself?
Speaker 5 (14:53):
I think so?
Speaker 9 (14:54):
I think that the mass affluent is educating themselves, especially
with the location of AI now, which we're really proud
of how we're using AI in our working environment. I
think that people have a tremendous opportunity now to get
access to some really important information that allows them to
invest their money more wisely, not just for their current situation,
(15:16):
but for their generational planning and estate planning as well.
Speaker 5 (15:21):
And these are types of investments that do have long
duration with high yield and.
Speaker 9 (15:25):
Income benefits if you're investing and allocating in.
Speaker 4 (15:28):
The right way, you know, and diversified.
Speaker 9 (15:30):
And when I say diversified, it's not just diversifying with
the types of issuers but also the types of products
right because they all have different liquidity requirements.
Speaker 6 (15:41):
Are going to leave it there, listen. Thank you so
much always spending time for us. O.
Speaker 5 (15:44):
God, I want to spend more.
Speaker 2 (15:46):
She didn't even need her notes.
Speaker 5 (15:48):
Why did you bring? Because she does just make me
feel so comfortable.
Speaker 9 (15:50):
It's great, so good to see you, and I hope
to see you against you.
Speaker 2 (15:55):
Thank you always. I always love talking to somebody who
manages more than three hundred billion dollars overseas. Overseas a team. Yes, yeah,
I'm gonna spoke again.
Speaker 9 (16:06):
I want me just shut up now, all right, enjoy
the rest of your week, Sonny in La So.
Speaker 6 (16:12):
Finally, Lorenzo, President of Gergenhaim Investment.
Speaker 1 (16:17):
This is the Bloomberg Business Week Daily Podcast. Listen live
each weekday starting at two pm Eastern on Applecarplay and
Android Auto with the Bloomberg Business App. You can also
listen live on Amazon Alexa from our flagship New York station,
Just say Alexa Play Bloomberg eleven thirty.
Speaker 2 (16:36):
PIMCO has a major focus on asset based finance right
now taking advantage of that opportunity, and it's global head
of credit research, Christian Straka, joins us right now here
on the milk and stage. Great to see you, Christian.
Thank you talk a little bit about the expansion of
asset based finance, because when I hear about it, I
can't help. But thing didn't that already exist? Is this
an evolution? Is this something new?
Speaker 7 (16:57):
Explain it to me, Well, it is an evolution, I
mean it has, but mostly it existed where banks would
make loans and then securitize them into acid backed securities.
So yes, that has existed for forty years. What we're
seeing more and more. But in that old version, banks
would retain real skin in the game and they would
(17:18):
retain a lot of loss exposure when they would retain
that part of the securitization. Now though, banks are going
to a model where it's much different, where they're actually
selling loans to asset managers like PIMCO and others outright,
so they're not securitizing, they're selling the loans outright. There's
still some alignment with the asset manager, and that's really
(17:39):
the new thing that has happened. That's in the last
couple of years. Ever since the failures of the regional banks,
the Silicon Valley Bank, First Republic Bank, and also Credit
Suisse in Europe, you're seeing more and more banks moving
to this model of what they're calling velocity of the
balance sheet, of turning over the balance sheets, still keeping
the customer, still keeping the borrower and making the loan,
(18:04):
but then selling it to an asset manager. Then asset
managers take those loans and then we Pimco, we securitize them,
and so that way all of the risk is moved
into a much better way of holding the risk, which
is not and the problem with the banks was bank
liability deposits.
Speaker 2 (18:20):
But I am curious, how do you evaluate that risk
in the here and now when there's still just so
much uncertainty, if you will, around economic conditions and whether
those assets will be able to weather those conditions.
Speaker 5 (18:31):
Exactly.
Speaker 7 (18:32):
You have to have pretty deep infrastructure for analyzing the
risk that you're taking because not every loan is made
the same, and you have to do stress tests on
these loans. And right now we are stress testing for
a recession. It is not Pimco's call that there will
be a recession, but we're not going to buy loans
that aren't going to be able to survive through a recession.
(18:52):
So that would be residential mortgages, or it's a pool
of residential mortgage is going to continue to perform if
there's a recession. Consumer loans, equipment loans, aviation finance, things
like that. We are stressing for a recession. Not our call,
but we need to be resilient in the assets that
we're buying.
Speaker 6 (19:10):
So super picky it sounds like, so if there's a
bundling of them, I mean everything's on the same grade.
In other words, right we're not getting a mixture in
terms of risk valuations.
Speaker 7 (19:18):
Well, there are mixes, but Pinko is really avoiding subprime,
and you know, there's a business to be done in subprime,
but it's been our style to be more up in quality,
and there's more and more supply of those more higher
quality loans coming out of banks, and for us, it's
a better risk adjustment return over the longer term because
(19:41):
you don't have those drawdowns and those losses when recessions come.
Speaker 6 (19:45):
How quickly are banks moving them off their balance sheets.
I'm just curious, like what you are in that process.
Speaker 7 (19:50):
Well, if you look at in the years prior to
the failure of Silicon Value and in twenty twenty three,
bank loan growth was high single digit every year. In
twenty twenty three it was two or three percent. In
twenty twenty four it was two or three percent. This
year it's year today it is about three percent. So
the loan growth has dropped considerably and that's because banks
(20:13):
are they're still making them, but they are selling them
off to asset managers. So this is very significant.
Speaker 5 (20:20):
It is.
Speaker 7 (20:20):
It's in the hundreds of billions now, it's not in
the trillions yet, but it will get there. And it's spreading.
That's the other thing. We're seeing more and more of
it in the UK. Now we're starting to see it
on the continent as well, because what European banks are
realizing is that US bank equity multiples are doing better.
As they're doing this velocity of the balance sheet. It's
good for the bank itself, and so Europeans are seeing
(20:43):
that and are taking that opportunity as well.
Speaker 2 (20:46):
Now, Christian, I do have to get your thoughts about
the FED meeting today. Obviously, rates stayed the same as
was expected, but there is a lot of questions right
now about where rates might go later this year, and
I wonder do you have any visibility into that. I mean,
I know that ultimately becomes an economic call as well. Yeah,
but as you're sort of modeling things out, are you
modeling for higher interest rates or maybe just where they.
Speaker 7 (21:08):
We are we are modeling for higher interestrates than we
would have expected six months ago. We are not modeling
for We're not using as a base case higher interest
rates that the FED would would would hike interest rates.
That is a tail scenario that we do include in
our stress scenarios. So we do model that, but it's
not our the base case, whereas the recession is as
(21:30):
I say, it's not a base case, but you have
to be able to survive to that. Now the visibility
is really and Rich Claire at are our colleagues has
spoken a lot about this, is that you know, the
base case should be that the tariffs should be a
one off impact on price level, and as long as
monetary policy and fiscal policy don't accommodate that, then inflation
(21:52):
should get under control over the course of the next year.
But we do expect that the FED will be more
or less in a wait and see mode and they
need to to see how this goes and whether that
will be the case.
Speaker 6 (22:03):
Christian though, in terms of tyrffs, I understand the concept
of the one off, but if that one off is
pretty onerous in terms of what the deal is, that
kind of changes the picture.
Speaker 7 (22:13):
There's no question that it will have secondary effects. There
will be second round effects. The question is will there
be third and fourth round effects? And there it would
be how does the FED respond to that? And the
reality is the FED will keep rates higher than they
would otherwise given a softer economy.
Speaker 5 (22:29):
All right, we got to leave it there.
Speaker 6 (22:31):
Never enough time thank you, Thank you very much, so
appreciate it. Christiness Rockey's pimco's present Global Ahead of Credit Research.
Speaker 8 (22:37):
You're listening to the Bloomberg Business Weekdaily podcast. Catch US
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Speaker 6 (22:53):
A lot going on here, I gotta say, Black Rocks
Chief executive Officer, Larry thank We want to point out
among those members of the US financial and technic this
community that will visit Saudi Arabia.
Speaker 5 (23:02):
Along with President Trump next week.
Speaker 6 (23:03):
It's a big trip. The President is keen for the
oil and gas ridge goal states to ramp up investments
in the US and really buying more of its goods.
Now developments out of that could certainly shape the global
investment landscape.
Speaker 5 (23:14):
Our next guest leads the team that.
Speaker 6 (23:16):
Generates investment strategy research across many markets, including global fixed income, liquid,
corporate credit, alt asset markets such as private credit and
real estate. A great overview, so let's bring in Amanda Line.
Speaker 5 (23:27):
Is Blackrock, head of macro credit research.
Speaker 6 (23:29):
Black Rock, of course, the world's largest asset management firm.
Eleven voice six trillion in assets under management. Got to
get it out because Man, there are firms and then
there are firms like Blackrock that just see a lot
in terms of investor sentment and whereflows are going. What
are you guys seeing that maybe we aren't capturing in
the narrative.
Speaker 4 (23:48):
Well, thank you so much for having me.
Speaker 5 (23:49):
Good afternoon.
Speaker 10 (23:50):
I've been struck by the optimism of this conference. I
think one of the things that's really stood out to
me is a proactive, almost offensive approach to take making
advantage of market dislocations and volatility. I think there was
widespread acknowledgement that there's a lot of uncertainty that we
need to navigate. We probably haven't seen the last of it.
It's very dynamic, as you've been saying. But I was
(24:12):
really impressed upon kind of let's make let's take advantage
of this to find opportunities for investors outside of the US,
as you mentioned, was one of the things as well.
Private credit was an idea.
Speaker 5 (24:23):
You're impressed. Do you buy it?
Speaker 10 (24:25):
I do, and I think it makes sense because I think,
really what I took away from a lot of the
conversations over the past two days was kind of a
back to basics approach to real credit work. Credit is
my is my universe, and I think there's an acknowledgement
there are things we can control, there are things we can.
Speaker 4 (24:42):
Analyze, there are things we cannot.
Speaker 10 (24:44):
Let's make sure that we have diversified portfolios that we
can navigate this. But I'm not sensing a risk off posture.
I'm not sensing a retreat. What I'm sensing is Okay,
there are opportunities that will come out of.
Speaker 5 (24:55):
This, and how can we make the most of it.
Speaker 10 (24:57):
I was really pleasantly surprised to see so much a
business on Europe as an opportunity set.
Speaker 4 (25:02):
I think on private credit.
Speaker 10 (25:04):
Actually, the convergence of public and private credit markets was
something that came up a lot in the discussions across
the variety of different conversations. The next generation of financing
kind of acknowledging some of the long term needs for capital.
Speaker 4 (25:16):
These are all structural ships that we've been talking.
Speaker 10 (25:18):
About for a while, actually, including bank partnerships with private
reunit but it was good to hear them kind of
formalized and almost mentioned proactively.
Speaker 2 (25:25):
Are they being accelerated because of current conditions?
Speaker 10 (25:28):
I think there's a delicate balance remain of there's a
bit of an option value to waiting and seeing. We
heard it from share Pal, we're hearing it from corporates.
So time is of the essence here. We want clarity,
we want it soon. I think that will be best for.
Speaker 4 (25:41):
The business community.
Speaker 10 (25:42):
But I do think actually what there is is what
I heard yesterday was dispersion is inevitable, and I think
you see that in assea classes, you see that in conversations.
So I do think there's a recognition that we need
to be a bit footed.
Speaker 2 (25:54):
Well talk about some of the lower rated companies and
the world of credit, because I know, look, if you're
a relatively healthy company would cash flow and maybe profitability,
you're not probably not too worried. But if you're a
company that's already been struggling, and particularly if you maybe
have to face refinancing sometime soon, what should we expect
out of those? Is that an investable space right now?
Speaker 4 (26:14):
It's a great question.
Speaker 10 (26:15):
I would say we are comfortable moving selectively down in quality.
Sometimes the automatic reflex in a period like this is
to move up in quality in a generic sense. We're
pushing against that a little bit, and going back to
the back to basics.
Speaker 5 (26:27):
Credit work.
Speaker 4 (26:28):
The one area we are watching very closely.
Speaker 10 (26:31):
Pockets of the credit market, just like pockets of equities,
have already been under pressure before the hard data has deteriorated.
I would say the very low end of the high
yield spectrum, triple cs, parts of the leverage loan market
that are levered over seven times.
Speaker 4 (26:46):
Right, you have pockets of.
Speaker 10 (26:47):
These markets that the left tail was already under stressed.
Speaker 4 (26:51):
That's where we're watching. So you can't be reaching too
far down in credits.
Speaker 2 (26:55):
But I'm curious with regards to the pricing in that
part of the market as well as the potential yield
that you're going to get. That's enough to entice people back?
And it's so, is that just relative to the fact
that that other areas of financial markets like public equities
are down.
Speaker 10 (27:09):
Within reason, it's enough parts of high yielk have actually
outperformed investment grade. You're debate on a total return basis.
Part of it is basic credit just attire in the
capital structure. We don't talk about it enough. Part of
it is you are picking up an additional spread premium
with the volatility and the treasury market that incremental credit
spread is meaningful, But I think where we would draw
a line is reaching too far down the quality spectrum,
(27:32):
given the uncertainty into companies that just aren't viable.
Speaker 4 (27:35):
That's that's really the distinction.
Speaker 6 (27:36):
I want to go there because I can't tell you
how many times I think we've had a conversation since
we've been at Milkin about people saying, you know, you're
going to have to be very selective in private credit.
Know your manager, make sure that they so. I'm just
curious about all those other companies that maybe aren't making
the grade. Does that mean you anticipate we will see
some fall out, especially when it comes to those firms.
I just can't find either a way of you know, yeah, yeah,
(27:59):
the dicisition they need.
Speaker 5 (28:00):
Absolutely.
Speaker 10 (28:00):
The dispersion that we expect in liquid credit also applies
to private credit.
Speaker 4 (28:04):
One of the striking stats that we.
Speaker 10 (28:06):
Track actually private credit fundraising. Since the FED started hiking
in twenty twenty two, the line's share of it has
gone to managers with four more vintages. Why. It's because
allocators are valuing the structuring expertise, workout experience.
Speaker 4 (28:19):
The actual ability to navigate a cycle like this. There
will be winners and losers.
Speaker 10 (28:23):
Absolutely, for sure, we see dispersion amongst certain sectors, companies
with certain size profiles.
Speaker 4 (28:29):
But I would say in average, actually, just.
Speaker 10 (28:31):
Like in liquid credit, that aggregate fundamentals are still pretty attractive.
Speaker 4 (28:35):
The technicals are.
Speaker 10 (28:36):
Supportive, and I think what I'm sensing from this conference
there's an opportunity cost to being so too defensive. They
came up yesterday, someone was basically making the point, I'm
hesitant to be too short if there's a really positive
potential outcome that's on the verizon, So I need to
make sure to kind of navigate that. So I think,
going back to your question, remain, there's this delicate balance up.
(28:56):
What is the optimal tradeoff between selectively taking where maintaining
a diversified portfolio and not being too defensive Because actually
the lesson from twenty twenty four, right, there was an
opportunity customing to it's.
Speaker 6 (29:08):
A full plate.
Speaker 4 (29:09):
Yeah, that's a full plate.
Speaker 2 (29:10):
That's a great plane, and that's a great place. Dan Amanda,
really thank you, really great to catch up with you.
Amanda line On. She's the head of macro credit research
over at black Rock.
Speaker 8 (29:18):
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