Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business Week Daily 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 as it happens.
The Bloomberg Business Week Daily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
As we mentioned, we are bringing you the latest on everything when it comes to the tragedy of this seven eighty seven Dreamliner operated by Air India that crashed, helping turn twenty twenty five into one of the deadliest years in the past decade for civil aviation. Right now, Sean Duffy, the Transportation Secretary, is giving a press conference. Much of the press conference not focused on this crash, but a
couple headlines emerging. The Transportation Secretary is saying that they're deploying the FA and n TSB teams on Air India crash, though India will lead the investigation and the US will assist.
All right, so let's get more on all of this joining us right now from excuse me, I'm a little confused.
London are going to go to London.
Let's go to London and go to George Ferguson. He's senior aerospace and defense and airlines analysts for Bloomberg Intelligence. He joins us from London. George, I want to get you know you've been flying actually today when we spoke, when we heard from you earlier on Bloomberg, I heard that you were in was it Oslo earlier in the day. This is all setting up, yeah, all setting up for you to, I think, and do some European work in
the coming weeks. Sean, excuse me and George, we're hearing from Sean Duffy that India will lead this investigation, the US will assist. Is this typically how it works when it comes to how the FAA investigates, I.
Think it is pretty standard.
I think the fa obviously gets involved because it's a US built aircraft, but typically I think they let the nation, you know, that's the airline operates and lead the investigation.
Okay, so let's talk a little bit about what we've been able to glean just in a few hours since this tragedy. I want to talk about just the process of determining what happens here. And I think when you hear boeing and you hear a plane crash. Unfortunately, a lot of people, a lot of people's minds turned to what happened with the seven thirty seven Max and the disasters that were truly a result of I guess we could call it a manufacturing defect, a software defect that
led to a longtime grounding of these airplanes. Given the history of the seven eighty seven, what's the right way to think about this tragedy.
Yeah, I think that we don't have and we don't know for sure, right, but I think most of the science point to the fact that we don't have that kind of problem here, a systemic manufacturing problem. I mean, one of the things I look at is this airplane was in fleets for eleven years.
That's a pretty long time to be lying. Uh, it's it's gone.
Through some level of maintenance at Air India at this point. And you know the way the airplane crashed, you know it was it was in somewhat controlled flight, but looked like it couldn't get altitude. Typically on a takeoff, when an aircraft can't get altitude, there's some sort of problem with the engines. Those are ge engines on Air India's fleet. Again, eleven year old engine would have been maintained since it left Gees factories.
So I'm wondering if it's.
Either some level of maintenance or conditions there in the in the area today, George.
Because of that, you know, both Tim and I were, you know, listening to you earlier. I believe it was on Bloomberg Surveillance and really kind of breaking it down and just saying that, you know, you look at the video and it seemed like everything was okay until it wasn't. And so you bring up the maintenance issue. How quickly do they figure something like that out?
So you know, I would imagine that it's not going to be hard to find the recorders in this jet, and so that I would give him some sign as to where different throttle positions were and how much thrust the engine was producing. So I'd imagine, you know, in fairly short order they could probably get at least a sense for that, which I think is going to start to point them the right direction in the investigation. I guess as you're talking a couple of weeks, you know, not extended periods of time.
We did speak with Julie Johnson.
A little earlier, and she reminded us that there is this sort of checkered past when it comes to this plane, which includes some manufacturing issues just a few years ago, but before that the battery issues, and before that with the earliest planes there was the sort of retrofitting that she talked about.
To you, George, is it too it's Does.
It make sense to be talking about that in this context or has the track record of the seven eighty seven essentially proven that it's not something that has to do with the defect of the plane.
Yeah.
To me, again, the track record does indicate I think that the airplanes had been performing fine for sure. I mean, some of the latest challenges we had in the airplane was joining of the fuselage pieces together. But again, what we saw was in an airplane that was very much intact,
it just looked like it couldn't develop enough lift. And so I'm just thinking it isn't you know, some of those defects that we're thinking there was no fire that the battery box issue would suggest if you're having that would be going on. So it just seems like, again it was just too stable. It was just too stable, and really again looked like an airplane, it couldn't develop
enoughful lift. And so to me, the first place I'd be looking, I imagine investigators will too, will be to see how the engines were performing at that moment.
Well, you mentioned engines, right, I'm looking at shares a ge George. They were down about two and a quarter percent today. Boeing was down about four point eight percent today. It's just one day trade, and obviously it's not surprising to see that kind of reaction.
I just before we go back to ge I want to ask.
You about Boeing as we get ready for the air show, the Powers Air Show, and I just wonder, you know, is it just Bowie's just had such a tough time and it felt like they were just kind of getting back on track. Tim and I were in a seven thirty seven Max and it's a really nice plane.
And everything seemed brand new.
Everything.
It was just hard not to be impressed with it. Is this a problem for Boeing or it's not just you know, especially if it turns out to be something like a maintenance issue, because it just seems like everybody's like, you know, another thing in the air, another thing with Boeing.
I do get the sense, like you said, that there's a lot of concern Boeing has had quality issues.
You know, the questions are is this a.
Manifestation of another quality issue or something we don't know at Boeing. Again, I from everything I've seen so far, I would tend to think I think it isn't.
A Boeing quality issues.
We never like to see airplane crashes, and for sure Boeing set its challenges, but Airbus does get them from time to time.
But everything I'm.
Seeing don't lead me to believe that it's a Boeing quality issue. And I wouldn't even think potentially a GE issue. I think it was in the field so long, it's probably not a GE issue.
Will it bother either of them at the air show? I mean often we get right orders out of these shows. Do you think any of this is going to color any of that or change any of that?
I think unless we would hear very shortly that again it was a problem with that some of their manufacturing.
Yeah, No.
Seven eighty seven is one of the airplanes. I think that you'll see a lot of competition around seven eight seven and eight three point fifty. Both of the manufacturers those are two competing products that they would like to increase production rates for. I suspect supply chains could probably boost a higher build rates in the near future on it. So we're kind of watching that competition at Paris there show. I think that could be some of the source of
orders for both Airbus and Boeing. The A three fifty and seventy seven.
Georgian the story the Bloomberg News story about this tragedy. It includes information about who was commanding the aircraft and who the first officer was. The commander of the aircraft eighty two hundred flying hours and then eleven hundred flying hours for the first officer.
Eighty two hundred flying hours.
That is a long career when it comes to any type of aviation. Yeah, yeah, I mean it doesn't seem like that serious experience.
Yeah yeah, it.
Wasn't an experience. I mean it seemed like the captain at a bunch of times. So yeah, I sometimes you know, things say I'm a databad, I'm not doing a great job of pronouncing that. I'm sure from what I understand is a hot and high city. And to remember, the airplanes also perform have to work harder, engines have to work harder to to get airplanes out of those kind
of cities. So I'm you know, I'm wondering that if that is probably part of the problem here, where the engines are just worked really really hard, and maybe something something wet wrong in the engine that just couldn't wouldn't allowed to produce full lift and get out of there.
Do we know is this kind of a newer route?
I thought I thought I had seen Air India had recently opened this up, but I may have read that incorrectly. But is this a route that's been taken often?
Yeah, not sure about that for sure.
I've you know, I've heard flights in and out of the city, and you know, some cities you just have to sort of manage around, yeah, temperatures and how much you fill the airplane. You know, how much fuel you put on, how many passengers, how much cargo.
But I'm not sure if it's new round.
Hey, listen, because you are over there in London, I'm assuming I don't know, are you headed to the Paris or so I am tell us what's kind of We're you know, we always love checking in with you, And obvi, this is a difficult story, a tragic story and a story of human lives that are lost. But in our last minute, curious about kind of what's top of mind is that that show gets underway.
Yeah, and so we're going to put a report out tomorrow on the Bloomberg terminal. But I think, you know, we don't see a lot of orders coming out of the show this year. I think tariffs are probably going to be the dampening factor. I think everyone wants to figure out what the effects tariff have on their aircraft deliveries.
We're watching deliveries, seeing recent deliveries. Last month's deliveries for Airbus and Boeing. Airbus had a few into the US, but less than usual. Boeing had really none into Europe, where I think they're both experiencing tariffs. So I think that kind.
Of well, it's a great sky over lovely Paris.
Just in the last thirty seconds that we have with you, it seems like Boeing has is starting to be used as a bargaining chip to its advantage when it comes to the way that the President is negotiating these things.
What's your view on that.
Yeah, expecting more of that, and I think that's one of the reasons Boeing probably has the best potential for more orders.
Orders have been light in the last couple of years.
I think is Boeing's customers watch build rates and look for confidence that Boeing is getting that production act together.
Boeing is starting to show that.
So we think this year could probably be pretty good and we think the President's going to probably try to use it to balance trade with partners that might be in his words, off sides on trade. So it could be a good year for sales for Boeing. I'm not sure it's going to come through at the show, but we're looking for a pretty good year for su.
Yeah, and you could see investor sentiment has certainly been much more optimistic on Boeing. That stocks up about fifteen percent year to date, and that's even with the more than four percent four point eight percent drop in today's session. George, Thanks, We know it's later over by you, and we're glad we could touch base with you.
Busy day and I know you've got a busy week ahead.
George Ferguson, senior Aerospace, Defense and Airlines analyst, our go to on all things when it comes to airlines and aerospace. Of course, here at our Bloomberg Intelligence joining us from London.
You're listening to the Bloomberg Business Week Daily podcast. Catch us live weekday afternoons from two to five eastering. Listen on Apple Karplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Do you want to point out the US dollar did fall to its lowest in three years. I'm at PPI data well, at the same time, President Trump's terror threats revived concerns over US economic outlook. So together the jobless claims jumping to the highest since the end of twenty twenty one. Although Mike just gave us some great perspective on that the data push traders to add tibets that the Fed.
Might be a little bit more aggressive this year.
Yeah, with a look at how FX and pressure on the US dollar. We've got a jat Bardwash joining us, Director in FX and EM Strategy at TD Securities, joined us here in the Bloomberg Business Week Studio. JT welcome, Good to have you. I want to start with the week dollar. As Carol mentioned, I mean, we're seeing weakness that we haven't seen in years here in the US
big picture. What is the signal that that sends about the faith of the US economy and the way that investors both here in the US and internationally are thinking about the US right now.
Thank you so much for having me. I think definitely the move in effects has been very interesting because we've seen yields go back up higher, you know, even equities have tried to go back higher to pre Trump levels, but the dollar has just been collapsing. Nothing gets the dollar to rally. Strong US data, hawkish fed tariff threads, you know, geopolitical uncertainty rising, Nothing is you know, fueling any strength in the dollar. I think what this is
indicating is probably a shift in global investor preferences. For the last five years, people have been long US assets, and interestingly, they have been long US assets unheedged because you could also, you know, always rely on a very strong dollar return to get a nice boost to your portfolio. But that's not happening anymore. And from the data we have, we do see that investors are finally starting to change
their hedging practices. They are now waking up to the fact that they cannot no longer rely on the dollar just coming back to its strong, raging days, and they actually need to hedge that exposure. In order to do that, you need to be sending dollars in forward markets, which is likely what's structurally keeping the dollars so weak right now.
So that's the difference the hedging that we're seeing that we haven't seen for a long time, where the US was kind of Tina right, the only like it just seemed like all investors wanted to be a dollar based US, dollar based investments. So what we're seeing now is hedging and that's making an impact. Yes, does it make does is it assigned to I mean, do you go as far jt that it's the idea that the US is uninvestable? Tim and I like to ask this question because yeah,
it's a great headline, but it's more important. It would be a very different mind frame, investing mind frame.
I think that's that's the one question that you know, we've been trying to answer.
You know, the gap. The Treasury auction just went well, like, so investors saw that instable. Yeah, exactly.
So I would say the gap between the US and the rest of the world has been extremely wide for the last five years. I wouldn't say it has been completely bridged to zero. But the gap is definitely meaningfully shrinking enough from both sides, the US thanks to its own policies. But the one silver lining from all of this is that it's actually forcing other countries to introspect. They're now looking at more fiscal spending domestically. They're actually
also looking at cutting intra regional trade trade barriers. They're also talking amongst each other to you know, have stronger intraregional trading relationships, so that all is actually making the rest of the world more investible. I wouldn't say that the US has completely you know, given up its crown position, but I would definitely say that there are a lot more investable places are now coming up to the surface where they had been very underground for the last five years.
So is it, forgive me, what is it about them being underground and becoming above ground in recent years or is it about risks that investors see to the US in your view, great question.
I think it's.
Both coming together at the same time. And you could say the sources is the same, right, because the US tanks for its own policies, is actually not forcing the rest of the world to step up. The European Union is taking a much more proactive approach to talks with Russia Ukraine. Something they've not done right. The world realizes they can no longer just you know, solely rely on the US for everything, and they are being forced to step up and actually do a lot more of themselves.
Well, just to push even further.
I mean, and Tim knows, I've asked this a lot coming off of Milkin, which was back in May last month. But the whole idea, and what we kept hearing from a lot of folks was that it's not the case of the US being uninvestable. It's just that investors became overbalanced in their portfolio overexposed, i should say, to US dollar based investments, and so now they're you know, reallocating and rebalancing.
But almost felt like, wait a minute, is that just an excuse.
To kind of cover the idea that people are turning away from the US and not so comfortable with the US and risk And that's why so tie that in also, if you would.
So for the last five years, the US has been relying on the kindness of strangers because all the global portfolio managers and the savers of the world in Europe, in Asia, they all had been piling money into the US. You had the chase for carry, you had the commodity shock where the US was energy independent, and you had an exceptionally strong and growing US. So all the three factors which were driving investment in global markets resided in the US with the US, so everything was a US investment.
US equity investment has ballooned. In fact, foreigner investment holding of US equities as a share of market cap has also been going higher. That also actually led to a very strong and overvalued dollar. So the overvalued dollar vent hand in hand with very strong portfolio investment into the US, and that's why both of them are being questioned at the same time. The dollar as a diversifier, as a safe haven, we see those correlations are breaking down. The dollar,
actually it's on some days. I actually think it is trading a lot more like an emerging market than it is like a say and unfortunately.
So wait a minute, so, net net, is this better for the global investment environment the long term? Is this not so great for the US investment market? Is it also all the result of President Trump?
I think net net, it's a healthy recalibration of markets, you know, like the last five years, we've all come to two points where we're like, is the US markets? Are they overvalued? Are they bubbled up? Is our evaluations expensive? I think this was a very healthy recalibration that was needed. For the last many years, every most markets have been a pure dollar bat What are US rates doing? What are US secretaries doing? What is the US dollar doing?
But I think this levels the playing field a little bit now. Which is which is healthy?
I think is it the result of President Trump and his policies?
Just I think it is definite it is.
The one source is the policies of the current administration and just the volatility associated with it. The one interesting thing in all of this is that while the US is trying to negotiate with ninety countries in ninety days, those other countries have only one country to negotiate with. So that is also one factor which is equating the US for the rest of the world.
At this point, just about forty five seconds left. I know, emerging markets and FX is what you focus on. Is Bitcoin on your radar at all?
In that context, we prefer not to comment on bitcoin. That's not under a purview of coverage. But I would say that when people are talking about the safety of US assets, you know, things like gold, you know, cryptocurrencies, they do come up a lot more than they usually have. My answer is that why like not comment on cryptocurrency. I can say that you can potentially look for other alternative safe havens in FX that is euro euros clearly
shining out as one of those, the Japanese yen. We do see scope for them to see more upside this year. In fact, one currency, you know, or one sector of currencies where we can see you can see a good upside is Asia and Aussie which is something which isn't talked about it a lot. But I just wanting to leave it at that, like that's something which could see big games at the end of the year.
J T. Bard Watch, thank you so much, really appreciate it. Over at ted Securities.
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.
Mcle how about you let me drive?
Oh no, no, no, no, this is not a toy.
Please, honey, please, how do the gravel listen?
I want to drive.
It's a good question.
God, this is the drive to the clothes Punks music well.
On Bloomberg Radio.
All right, TikTok everybody, just about ten minutes to go until we wrap up.
The trading alor starty, Carol Messer.
I didn't really we had a shot. I had a big shot.
I had no bachelor party. Really yeah no, no, it was a busy time, not even.
A bunch of you do like taking a biking ride.
I wanted to do that, but it didn't. It didn't. I want to do with my brothers.
And my brother had just had a kid, like a brand new kid, so I was like, we can't really make.
A brand new kid versus an old Yeah kid, I just had a nineteen year old.
Well, like he couldn't really leave until again anyway.
Yeah, I know, okay, topic.
I know.
Wow, it's just that kind of a thing.
Let's talk about the markets, because there's a lot coming at us.
Let's get to it.
Eric Wiener, special guest for US senior editor Equit America's at Bloomberg News. Love having him at this time. He's right here in our Bloomberg Interactive Brokers studio.
There's a you know, markets.
Aren't I mean, they're up, Eric, but it's not like massive gains, and yet there's so much going on behind us.
Yesterday was the big shock. I mean, after the CPI came in so nicely, we assumed that, you know, we'd get to the record on the S and P five hundred, and instead we ended up down. Today, producer prices came in also looking good, and we're up a little bit. Yeah, it's it's basically like the most unloved rally we've seen in a while.
Okay, there's I think that I think it's telling that.
Mister context guy.
I think there's something telling here. No, you know what, I'm not gonna I'm not gonna do it. I'm not gonna do it. What I'm gonna do is I'm going to say we've spent the last one hour and forty three minutes not talking about a US China trade deal or anything that happened in the last two days. And I think that's because a framework for a trade deal
is not a trade deal. Oh, that's absolutely And I think that that's what happened yesterday to the markets, they said, wait a second, we're not actually seeing anything of substance here emerge.
Well, so you're getting at the what we're hearing from traders, which is that they're not expecting anything to emerge for a while. They also can see that China is slow walking this. They also know that China knows that this could all be canceled by the courts. So moving like as you say, moving forward really requires an agreement with the US and China, and we probably aren't going to
see that for a long time. And that creates this situation where if you look at the way that the market has moved over well, so over the last four weeks we're up about one point four percent. In the prior four weeks before that we were up twelve and a half percent, So we basically have gotten as far as we can go. And now the question becomes do we take it over? Do we step in as an incident social investor? Do you step in and buy this? What do you do when you know that really there
isn't anything that is there. There isn't anything to stop gains, but there also isn't anything to galvanize a change in the market tone.
Okay, I can tell you what will change maybe market tone in just about a month.
Guess what we get JP Morgan earning. Well, no, I'm didn't.
We just get in video earnings.
We kind of just did.
But I'm thinking that's going to be the next kind of gut check on things.
I think people are kind of concerned about earnings going forward. So to JP Morgan's earnings, yet there was some news. Wasn't ansterday, It was two days ago. The city said that they are adding capital to the reserves for bad loans.
So right, So this is where you start getting concerned about what consumers are buying what consumers And really it's about going to be about the outlooks because it's the second and half of the year, like this will be the second quarter, and so they'll be saying, okay, for
the rest of the year, we're expecting whatever. And if more companies pull their out looks, if more companies say there's all this uncertainty, we don't know and the numbers don't come in beautifully, we could see a drop from records.
Before we get Jamie Diamond commentary, we get Jay Powell commentary next Wednesday, we hear from the FED chair two hundred basis points cut.
That actually made me laugh.
When it hit the terminal. You're not the only one. I was with three colleagues.
I was with three colleagues, all of whom our audience would know, and I will not blow up their spot, but they are all on the on the TV side, and we got this headline and I said, guess what the president is calling for? And I said two percent. And then somebody said two basis points and I said, no, two hundred basis points.
So the problem with that is that would actually call a panic in the market because right exactly, it means like the world is ending and we need to save everybody, get into the lifeboats all that. The thing, though, is, if you look at the numbers that have come in, you would think it's kind of we're ready for him to say something dubvish, something where you know, I'm ready to think we're ready to think about cutting and everything like that.
But if you heard Janet.
Yellen talking today, she's saying she expects the FED to go slow and she expects inflation to rise to three percent. And that's headline on.
The CPI, which was two point four.
She expects the inflation to go to three such by the end of the year. What's or tariffs mainly, Yeah, and so if you're expecting you know, Dubvish, you know, smooth jazz Jay to come on in and you know, make everything really cool. I don't necessarily know that that's
the case, but yes, like that actually could. So if he came out and said, hey, listen, you know, we're actually in a place where we're thinking that, you know, we're ready to start moving and whatever he would say, that would sort of set up and then then you'd have the fed uh speakers coming through setting up this, you know, move lower. That would actually goose the market. But I don't know that we're going to hear that.
It's smooth jazz jay or it's like weamo j right, Like you get into a WEIMO, you like obsessed.
You know, I'm obsessed. I know it's like you get into weimo and it's like I'm in a spot.
I take full credit for this other way, No.
I totally give you full credit because you were all in after your ride and then I'm.
Like I got to do this, I got to check it out.
You're like, if you're like turning into a Californian and they're like you did in Arizona though you didn't. California did an Arizona did everywhere everywhere you go, you get in Amo.
You know, I want to be Tim when I grow up. That's what I want to be.
We all do any signs I know totally forty five fifty seconds signs that investors, any signs that they're they're moving into cash or cash like investments. Like it's making me wonder was it a conversation.
We had with you?
There is about like, Okay, we bounced back, maybe it's time to like, I'm out.
Well, the returns on treasuries are nice, you know, so it's not like it's a bad deal there. There is some hiding out going on. What we haven't seen is there was a big pile of money that was ready for shorts that that got moved in and sold.
So what we're not.
Seeing is like just a ton of positioning against the market. What we're seeing is just sort of a wait and see mode. And then you have retail mind.
Good stuff.
What was it?
Slows smooth jazz.
Smooth jazz, that's what we call the will.
He either does smooth jazz or punk rock.
I thought is a grateful dead guy.
Eric, Thank you so much. Eric Ween our senior editor Equities America at Bloomberg News.
Joining us here, you're listening to the Bloomberg Business Week Daily podcast. Catch us live weekday afternoons from two to five Easter and listen on Apple Karplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
We're getting shares of URH almost called it restoration hardware.
That's what it was known for.
Law.
Yeah, it's not called RAH right, No, it's RH here. Yeah, of twelve percent.
In the after hours, the company out with some headlines, out with some news. As Romain mentioned, the way we get these numbers is really difficult because of the way that OURH publishes the numbers. So we're just now getting them in. Twenty one percent or fifty two percent rather of upholstered furniture will be produced in the US, twenty one percent will be produced in Italy by the end
of fiscal twenty twenty five. The company also reporting first quarter ad just at EPs came in at thirteen cents. The estimates were for a loss of four point six cents. The company also seeing first saying first quarter revenue coming in just below estimates at eight hundred and fourteen million dollars. Estimates are for eight hundred and twenty million dollars.
Yeah, And I think what's interesting is we mentioned kind of earlier is that the stock has taken quite a beating this year. It's down about fifty five percent year to date. And ASA also mentioned that almost twenty one percent of the float is shorted, so any signs of outperformance, and we certainly saw that with the first adjusted first quarter ADJ justed EPs number, that was a big beat that we could see some short covering, and that is why you might see the stock bumping up in the after hours.
The company also.
Delaying the launch to spring of twenty twenty six, delaying launch to spring of twenty twenty six due to tariffs, delaying launch of a new concept planned for the second half of twenty twenty five. They're now shifting that into the spring of twenty twenty six. So quick check on this stock in the aftermarket. It is up tim about fourteen percent, So again that second it looks like that out per formance certainly maybe is why we're seeing investors move into that stock.
Yeah, o urhc's tariff disruption hitting revenue by about six points in the second quarter. We're going to bring you more updates as we do get them from our age and other companies that are continuing to report. In the meantime, I want to talk a little bit about private credit and private markets. The influx of wealthy individual investors is set to reshape private markets, bringing new risks around liquidity, transparency, and evaluations to this still largely opaque industry. This according
to report published on Tuesday by Moody's Ratings. We've got with us Christina Paget, Associate Managing Director, head of Leveraged Finance at Research Analytics at Moody's Ratings. She joins us once again from New York. Christina, good to have you back with us. We've spoken to you quite a bit over the last couple of years about private credit, specifically
leveraged finance. I'm wondering about the research that you and the team have done over at Moody's and what you found in terms of new risks as this market has grown.
I don't know if we've seen a dramatic change in terms of the kinds of risks that we've identified.
Maybe they're just getting more dramatic.
You know, we get closer to a size in which there are systemic implications, and so that becomes part of the challenge. There are some changes though that I would want to highlight. Some of the relationships between the direct lenders and LBOs when they were exclusively bilateral. There were some strengths to that relationship, the tightness of the documentation for those transactions.
Some of that is loosening further.
As demand increases for assets themselves, So there's the risk on that side.
And then, as we highlighted.
In the report, the presence of a retail investor does change some of the dynamics. Again, it probably exacerbates a liquidity issue that we thought was balanced by long term.
Cap Christina, anytime there's like all of a sudden, everyone wants to run into an asse A class, it always makes me a little nervous, and I just feel like in the last year or two, the momentum behind private credit has just the velocity and the run towards it just seems to have grown exponentially, and so it makes me nervous that money then maybe isn't as particular in terms of where it goes.
Because you're going to have a lot of money.
Chasing similar assets, it drives up values, but it also then maybe puts pressure on money to go into places that aren't as beneficial, safe, secure, transparent, pick your word. So is that kind of what you guys are thinking.
Well, some of what you've just described is what we highlighted in the report, and I guess the thing I would add is that sometimes also it allows for more leverage in the system, which is obviously something as a credit analyst we are concerned with. The side of that is that with the expansion of private credit, we saw more liquidity enter this space broadly, And if they're really taking the risk off the bank's balance sheet and putting it in the hands of a different set of investors,
that doesn't have to be an increase in risk. And if the life insurance, you know, long term investing is finding that there's attractive assets within private credit, that may be a safer place for those assets to be than on banks balance sheets. Again, so some of this migration could be beneficial to the overall system. But you sort of take the words out of my mouth right when you say if there's too much, too many investors in
too short of a time pursuing these assets. We might see sort of too much asset appreciation and some poor decisions being made. I think the other thing that we tend to highlight is the concentration among you know, not that many large asset managers. And so those are some of the things that we highlight as concerns.
Why why is that a concern?
Because you know, you have the folks at the traditional banks that we talk about all the time. I've heard some of them say, you know, express not not to stain but criticize private credit in the sense of, well, they don't have to deal with the same regulatory environment that we do as big banks. Is that a concern to you?
Sure?
And I don't think we're shocked that, you know, one set of competitors is criticizing a different exactly. But we are fans of a certain kind of regulation, the kind of regulation that brings transparency to an asset class. So the banks are obliged to submit to much greater regulation, but also provide much more data, you know, to the federal agencies. That's very instructive. And there is a limit on that same kind of transparency on the private side, and that does give us pause.
So hm, you know, we think of the ratings agencies to kind of, you know, hopefully be on top of all of this. But is it hard to be on top of everything that's going on in the private credit world because those investments. I don't know, Like how much information can you really gather on various private credit investments. I mean, obviously, like if folks that are creating the funds, if they're not doing well, investors aren't going to put
money continue to put money into them. So in some ways there's a checks and balance system, but I do wonder about other ways to have checks and balances on these types of investments.
How do you guys do it.
Well?
Some assets are much more visible than others. So for example, you know, the largest share of private credits today are the business development corps in the US. They have to value their levels every quarter, they have to provide other kind of credit metrics. Many of them.
Most of them.
Are publicly traded, so there is some information there, and we rate probably the majority of them, so that has some value. But it's also up to us to take that information and put it into our own systems. And make sure that, for example, everybody is valuing that loan the same way. There are other parts of private credit that we have we do have less insight into. You know, it is depending on how you measure it is. You know, how big the market itself is hard to say. There is that aspect as well.
But Christina, we're going to do rate the insurance right for.
They give us access, so.
We're gonna have to leave it there.
Christina Paget, Associate Managing Director, Head of Leverage, Finance, Research and Analytics at Moody's Ratings.
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal