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Let's get to Peter Cheer. He's head of macro strategy at Academy Securities. He's back with us in our Bloomberg Interactive Brokers studio. It is kind of wild, Peter, considering how this year has started and the actions in Venezuela and then kind of markets to look past it. I'm just curious your view on this, and I'm curious what kind of calls you were getting from either clients at your firm.
So we certainly had a lot of questions about Venezuela over the weekend and into this week. It's at Academy. We work with thirty retired generals and admirals, so we've been doing it a lot.
On yesterday.
Yeah, that's right. Yeah, Master Robinson, he's great. So yeah, I think I think the market who's actually do make sense?
Though?
I think this is the start of the year stuff. You know, you got cs going on, So there's a lot of you know, headlines coming out of Vegas that people seem to be like. So I'm not surprised that we're kind of rallying away from that. I think on Venezuela it was a very impressive military operation, whatever else you want to think about it, it was very successful, incredibly you know fast, you know this very precision. Now, I think we're not going to see a lot on oil energy prices.
I think it's there's a lot of building out and what I think this is going to really this is a quick fix. None of this is a quick fix. And I think what this is really going to boil down to is this is our first real confrontation with China away from either kind of sphere of influence.
Right.
If you think about all the trade negotiation was mainland China versus US. You know, there were some tariffs, but all of a sudden, we're going and saying we're going to take stuff. China's invested a lot of money there. China has a lot of loans to companies. How is that friction going to play out. China's going to use
their lawyers to try and stop things. I think this is really important too for China because if they kind of get pushed out of Venezuela very easily and they lose money, the rest of the world where they put out their belt and roade initiative starts looking at that and it could be a big role on effect. So I think we're going to see friction. I honestly think we're going to see China first attack with lawyers, and they won't attack anything until they start seeing what we're
actually doing. So far has just spent a lot of talk and noise.
Venezuela was the story yesterday and it certainly is today, But in the last few minutes, Greenland has become more of a story. President Trump and his team are discussing a range of options for acquiring Greenland. A Reuter's reporter says in a post on exciting a White House statement, where does that strategy fit in?
That one's a hard one for us. I think when we look at the world, when we kind of view Iran, we could see maybe doing something the IRGC. I don't think we would do anything with the religious side of Iran and any way shape or.
For what When you say do something, what do you mean maybe with.
Support, you know, to attack some of the irg's facilities or something. If the IRGC gets very aggressive against the protesters. I could see something around there. Cuba seems a little bit more easier to deal with we already had have. The uss Ford is in the Caribbean Sea. It's actually not a very efficient place for it to be. It's too small of an area for an aircraft carrier group, and it's due for some refitting and remodeling. So I think we will try and use it as much as possible.
So that's why we weren't surprised about action in Venezuela. I think we could see activity in around Panama Canal where we try and either buy it or invest in it.
Is that for a China proxy, I.
Think for a China proxy, And again I think we really want to control shipping through central South America and the Panama Canal is a big part of that. And don't forget Marco Ruby is the first place he went on Greenland. I think we all struggle with why this term annex or take keeps coming up. I think that's a struggle.
So to recap Panama, Venezuela, Cuba, Iran makes sense, Greenland not so much.
I find it very difficult to like play why we would just wrap NATO, And again, I think we've been less thoughtful on NATO and where it's important is but this kind of puts a lot of friction, And even from a business standpoint, I think I can believe that in Venezuela there there's a lot of raarers and critical minerals that have been underinvested in. I find it hard to believe someone hasn't been checking out Greenland and saying
this is just economically unviable. I do know, and I think this is interesting because one of our generals is actually now the Undersecretary of War, and before he became Undersecretary of earlier still working with us, he did talk about and point out that China has more ice breakers than we do, and so China views themselves as an arctic nation. Russia clearly views themselves as an arctic nation.
So maybe this has coming something to do with as the polar ice caps are melting that it creates different routes, so we want some more protection there. So maybe some of that makes sense, but again that all feels like it could be done within the confines of existing rules and regulations rather than having kind of this annex or take concept.
Yeah, I mean, I don't know, how are you thinking about this year when it comes to the Trump White House, and especially with midterms looming. I've heard some folks say that, Listen, there's a lot of pressure on the administration to get things done early in the year because as midterms loom, there are expectations that there might be pushback against the GOP and the Trump administration. But I'm just curious what you're telling your clients.
So what we've really liked is what we've been calling prosec or production for security, and it's kind of along the lines of resilience, and that includes anything from chips, electricity, so Intel, for example. I think there's gonna be huge pressure on companies to use US chip manufacturers, right, we have to break away from Taiwan. I think there's realization we're not producing electricity. We will deregulate, we'll get electricity
in all forms running. I do think President Trump will give up on his kind of hatred of solar and adapt solar, but you're gonna see solar nuclear I do.
I think it's just Wind is a step too far.
I think Win's a step too far. They really does not like he really does not lie. I think there's a visceral hatred to it. Partly, I think it does destroy views. I think there's questions about his efficiencies, and it does kill birds and stuff, and that seems to really bother them. So I'm not going to fight the wind. I do think on.
Solar housecats kill a lot of birds too, truly.
That is probably true. We had one that was very good at that, yeah, true, Yeah. So I think those are all the things that we can invest. And we just saw yesterday two point seven billion going into your ranium companies. So I think you can move away from the AI story and into anything that's going to be part of this building out of infrastructure. You know, you've got Cat, You've got Deer, Navistar, all the heavy equipment makers.
I think we're going to see real efforts to become slightly more independent.
Are all nations doing that?
So how I see this starting as the US really jumpstart of this, right, the US has been all over this. I think what we're starting to see now is capital is going to follow next, So investors are starting to follow this. We talk to private equity companies who are starting to scour the universe for Hey, who's got mining rights that have been unused, who's got some interesting patents?
And around these rarest and critical minerals, I think you're going to see again these huge buildouts, potentially in electricity production. So it's capital vitalization dead well. I think other countries are going to figure this out eventually, that they have to do it. I think at some point Europe's going to release like Shell and BP to actually do what they're phenomenally good at. And so far there's still constraints,
but I think everyone's adopting this. I think you have to look much closer when you're thinking about supply.
Chains, domestic political risk of this new world order. That's something I've been thinking a lot about, especially in an election year, because we thought that the Make America Great Again movement was really about keeping within the US's borders, not getting involved in foreign wars. The President has talked about leaving countries outside of the US alone, and that's not really what we've gotten in the last few months.
No, though I will say, I think if prior to you know, Liberation Day and stuff, I think there was a lot of hope that we'd work very closely with Canada because Canada has a lot of things that we need that would be a big part of this. We work closer with Mexico, and we kind of got away from that, So I think this starts. Maybe it's just trying to reshape how these relationships work. Ultimately, I think we're going to need things like podasts, We're going to
need to work with Canada. But I do think you know, they laid it out of the National Security Strategy and it's only thirty nine pages of double space. It's even I could read it, So I would recommend reading it because I think it does form this way. Yeah, we've been telling corporations for years now, and I think now
we're getting a lot of incoming calls. Like we've been saying, if you are manufacturing in Thailand and Vietnam, you're not really disversified because you're going through the same shipping lane. So I think you've got to be very careful about shipping. If you're looking at building a new plant this year, I think you want to build it in North South America or Central America or the US precisely because that's where we have a lot more control. So I think
that's where corporations follow into this. And I don't want to say it's going to be us by ourselves. What I've been trying to say is I think for every single commodity or product, every country is going to have an X amount that they want to do themselves so they can be sufficient. Why you can do with your close neighbors, and then Z or Z you just do on the open market. And I think that's going to vary by country to country what they can do. But I think Europe's behind on this.
I think the.
Sad thing is if I look at what we need to do in the US, you have a pretty good road wrap. Just look at China's done for the last ten years, right, They've basically done prosec on steroids, and we're just starting to do it. But it's exciting and I think some of it will last past an election cycle because Biden did do the chipsack, right, So why doom was not immune to like understanding we.
Did a lot of President Trump in his first term is China strategy, right?
So I think this is now truly going to replace ESG as a major policy tool, as a major way corporations think and how investors think. Right, if everything was ESG, I think where we were really is if you think about Masso's hierarchy of needs one probably you know psych one on one it proves I took it. But we were kind of at this kind of high self actualization period, like what would we like sustainability look like. But it was all based on the premise that we had the
basics covered. Well, we really have the basics covered if we're dependent on China for those basics. So I think this is a pullback to say, to be truly sustainable and independent and resilient, you need to do some core level of this self yourself. And that's where I think we are. It's that evolution.
What are the implications of that in terms of cost to society? In terms of does it make things more expensive if we're doing more manufacturing in the United States, Well, labor isn't cheap here, so I'm just curious what are the implications What does it mean for economic growth maybe in the United States.
So I think it's going to be potentially a little bit higher on some prices. So it's very good that oil and some of these energy costs are coming down. That will help on this. At the flip side of that, though, is if people can go back to working for you know, I hate to say the word about say it like national champions right where you feel that your industry, your job is important to the country, you probably go home feeling slightly safe about your job. I think there's a
lot of benefits from this we've been talking about. The Spider Marks is great. He kind of coined the phrase for us by the rough spider Marx General Spider Marks. He's quite awesome. But he coined the phrase. We're in a pre war environment, and we've always been in a post war environment until recently. And I think pre war sounds a little bit scary, but it's just like deterrens. If you understand that you're in a pre war and
you do the preparation properly, you deter the enemy. And I think the things that to me are really crucial about a pre war is it creates a sense of urgency which we're seeing and self sacrifice.
We're speaking with Peter Cheer, head of Macro Strategy, at Academy Security. So he joins us here in the Bloomberg Interactive Broker's studio. Peter, you mentioned a few We went through a little bit around the globe and we talked about Iran, We talked about Venezuela, We talked about Greenland, Cuba, Panama. What about Mexico and what about Colombia. Have they been put on notice?
I think Colombia has been put on notice. I've been much more focused on Mexico. So one of the things that we believe to some degree is we been changing the rules of engagement with Venezuela. Right, if you go back four months ago, who would have thought we would shoot a drug boat we're now doing that. I think the world would have gone ballistic if we did that in the Gulf of Mexico or Golf of America now though it's now standard operating procedure. Right, we've attacked some
of the drug facilities. I suspect that somewhere in Q one, Q two Lake Qan early Q two we approach Mexico very serious and tells jion Bo, I'm like, we can work with you to get rid of your cartels, or we can get rid of the your cartels without you, and to me, the one thing we haven't talked to I know we've been talking about so much oil. If we can solve Venezuela's drug problem and cartel problem and Mexico, it makes both of those countries safer, more viable countries,
Fewer people need to migrate all those countries. So I think it fits perfectly.
But then in terms of drugs, maybe I'm crazy here and I know we've only got about forty seconds left here. What about China and fentanyl? Like have we covered that? If we're talking about narco terrorists. I think some might say, wait a minute.
I'm looking at this more from the ability to kind of make those countries safer where you have some ability to influence it so that people don't want to leave. A lot of people who you talk to, people coming from Mexico, their choice is letter sob Yeah, you either fight the cartel and die or you join.
The Cartnezuela eight million people or something.
So I think if you can do that, and on top of that, if you cut the head off the snake, maybe the drug cartels and their activities in the US do slow down.
So are you're positive about the year. Are you upbeat?
I am, Actually I'm very positive. I think again, this buildout's going to be very interesting. The biggest risk to me is China threatening and doing something about rarest and critical minerals because we're not there yet where we need to be.
Ten seconds, if President Trump wasn't in the White House again for a second term, will we be having this conversation.
No. I think he actually really kind of planned ahead of this though some of it. I think we would have finally seen because we've been talking about rarest crtical minerals for years and years. We're finally realizing the Chips Act realize some of this. This is what progression. How we're doing it is just stronger and more aggressive.
Such a great conversation. Peter Cheer over at Macro Strategy and Academy Securities.
Stay with us more from Bloomberg Business Week Daily coming up after this.
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Bloomberg spoke with economists, US politicians, and heads of trading firms and hedge funds to understand really what's at stake in the prediction markets. Boom Tanisa Sikova and Lydia Bayoud are part of the team behind the story. Danitza is Bloomberg News cross Asset reporter. Lydia is Bloomberg News Financial Regulations reporter Denisa Here in our Bloomberg Interactive Broker studio,
Lydia joins us from Bloomberg's Washington, DC bureau. Lydia, I want to start with you in Washington because you cover financial regulations prediction markets. Is it fair to call it gambling?
I think these days people increasingly are seeing a blurredline there. To your point about marketing speak, the companies are very keen to describe themselves one way, but certainly within Washington, I don't think a lot of people are seeing much of a difference. And for sure in the sports gaming world, they see them as direct competitors.
Yeah, it's interesting gaming gambling. What exactly is this underneath the common in for those who maybe have been living under a rock, which is kind of fine. I like to kind of hibernate every once in a while. Remind us what these prediction markets are all about who are the big players.
Yeah, twenty twenty five was a year of prediction markets. We had two big firms kind of dominate the space of cos Kaushi and Poet Market. Their valuation went through the roof. They started from like one to two billions and both end of the year in the double digits off billions, so really really rapid growth. And we're seeing not only those tech city convolling names, We're seeing a
lot of traditional finance names. We're seeing Ceme, We're seeing a lot of those traditional finance players getting.
Involved in the space.
So clearly this is interest more beyond city convul.
The volumes are crazy. So but tell us how it works, can Tim or I? Can we go out and place the bet? Like how who determines who can do what on the platform?
Super simple, super easy. So obviously sports betting you have to be twenty one for this.
Eighteen is enough.
It's very accessible. You go the bet is like as cheap as like a few cents or a door and you just go and create it. Other thing just very shrimple.
You can create the bet.
No, you cannot create the bet.
You can place that. You can ask it.
Oh, yeah, there is a way to claim a market, but of course it's up to the platform to create. But as we have seen in recent months, there is a lot of variety of bets on things that you know, anywhere else you cannot bet from the bet on Nicolas Maduro being outed to any type of pop culture thing and any top.
Artists on Spotify this year is on.
Yeah, of course that's very popular.
Any type of mentioned market.
People are watching like politicians stole on TV and betting on every word they say, every twist, like people are even making front of this. We famously had the coin based CEO knowing that people are watching what he says on the learning cloth, so he was he was crashing the market.
So that's where I want to bring in Lydia, because when you're in a world Lydia Bayud where there is one person in control, like a CEO of a company like Elon Musk, if the number of tweets that he sends between a certain period of time, that's a bet on poly market right now, or prediction on poly market that one can make. What is the slippery slope that opens when one person is in control of the outcome.
Here, So that's something that I think regulators and policymakers are really grappling with. Particularly, I think the Majuro example that we highlight on the story has really made that so salient for everyone right now. Generally, federal rules prohibit federal employees from trading on non public information for their
own financial game. I think Representative Richie Torres is planning to introduce legislation if he hasn't already this week, that would like very clearly prohibit that type of trading on prediction markets. But really we're kind of facing like a different regime compared to how I think a lot of people think about insider trading that is regulated in equities markets or markets overseen by the securities in exchange competition.
Because you know, if you're in the derivative space and you are an energy producer, an agriculture producer, you're expected to trade on knowing you know, my crop's really great this year, or we're pumping so much oil and gas out of out of the ground. You know, I'm able to hedge my position and sort of let my knowledge that I have inform both me and then the market.
You know, there's kind of a market utility argument that is made in those traditional markets, and we're seeing that again sort of these blurred lines shift into prediction markets and people sort of grappling like okay, well, what's okay insider information like what benefits everyone to have insiders trading and kind of you know, as they like to say, drawing on the wisdom of the crowd and doing price improvement, but so not.
Exactly you know machines.
Right, Well, that is the big debate about how are you going to draw that line about you know, if you are Elon Musk in your there are mention markets and what you might say to your you know, not to pick on Elon anyone, any executive, right and you're gonna you know, there are mention markets, and what you might say in your quarterly call? Do you swing a market just for funzies? Do you swing it knowing that you know your buddies, buddies, buddy might have some money
writing on the line. And then how does anyone catch that should they be catching it? There's so many open policy questions that are being asked, I think around Washington right now because of these markets.
Yeah, there's an interesting you know, I'm just going through call. She you could spend. I know not both of you did this, Like you get some hours going through this, but like, does it really serve the market? Aniza to ask if will Taylor Swift and Travis Kelcey be married before January?
First?
That's important stuff.
It is important stuff. We had a lot of Bloomberg headlines on this as well, but we did, we do, but it is important. So what a lot of those prediction micro believers says, We're going to bring a lot of people through sports. So for example, kou Shei has ninety percent of their volumes very often coming from sports. So it's pretty hard to make the argument that this
is a truth machine at the moment. But what some people hope and believe is that eventually some of those casino elements and of those betting elements will bring people who want to bet on things like economic data, things like maybe people want to hedge, Like the hedging scenario is something that has come up a lot talking to people. It seems like it's not coming anytime soon, but people are saying, oh, maybe I want to.
Hedge the weather in Florida.
Maybe I have a house and I can't buy insurance.
Well, I don't understand that I keep going on topic and I'm trying to take them off topic. Like here's another one. For example, what will Rachel Maddow say during Jimmy Kimmel Live.
Right, Okay, that's a classic mentioned.
Mark Epstein, corrupt slash corruption, Ice, Russia, Ukraine, affordable affordability healthcare?
All right, but there's serious stuff like the FED decision in January.
I say, help for what we do, and we talked about this.
Doing elections in different things.
For sure, elections have proven to be one pretty good time.
Help me understand though, and well, you know, Lydia come on back in here. One of the things I'm curious about is like who is checking who is making these trades? Is calshi or is polymarket? Are they actually checking, especially when it could be potentially insider trading? Do they know exactly who's making these trades? Are they doing due diligence?
So these exchanges are structured as self regulatory organizations, so they're supposed to kind of self monitor, monitor trades and root out any potential for market manipulation. Again, the sort of where you draw the line between what's okay and what's not okay on insider trading, that's a judgment call, I think, except in all but the most clear cut instances. But you know, exchanges can self report information to the CFTC.
The CFTC can look into it. Again, it operates differently than the Securities Exchange Commission.
But what's the bandwidth for regulators to want to take this on.
The CFTC is chronically underfunded. They have I think roughly five hundred staff. The SEC has four or five times maybe ten times that number are not quite but they are understaffed for the task at hand, and there are more applicants. I think we mentioned in the story that there are there's a lot of interest driven heavily by sports trading, but also in the economics, also in other spaces, and so they are kind of underwater in terms of all that there is to do for market demand for
this space. So I think a lot of people are wondering what the CFTC will do. But if we look at the new chairman, Michael Sellig, when he was an attorney in private practice, he wrote a comment letter that was pushing back during the Biden administration on any effort to reign in sports prediction markets for example, or really most prediction markets, So I think you've got someone who's very you know, he said he's going to defer to the courts on how the courts might eventually rule on
this topic. But at least when he was an attorney representing clients, he was very much in favor of them.
Before we let you guys go Tanizza. If we think about the universe of prediction markets, Robin Hood's getting into it, Calsh and Polymarket are the big ones, and they count I think a Trump as advisors to both of those. Are these all regulated the same way or is one regulated differently than the others.
So also obviously they have the Trump as advisor, and Trump Media is looking into launching a prediction American and a lot of the sports betting companies are looking to also getting into prediction market the way so Kaushi so far is obviously under the CFTC. Pully Market is just entering the US. They have this beta test so they're only onboarding some users. So currently most of the bets on Polly Market are actually in this weird regulatory space where a lot of them are coming from a world
and isn't necessarily regulated under the CFTC. We've seen very different decisions. For example, there was a market connected with the United Care CEO killing and CFTC asked how she to remove that market, But polling market who is not under that jurisdiction, actually kept the market. So you can see there are very different outcomes depending on the regulation.
Well, a human land on Mars before California starts a high speed rail nineteen percent chance costs twenty cents for yes, eighty five cents for no.
Well, what counts as the high speed rail?
Is it?
Like I'm just reading?
Okay, stay with us more from Bloomberg Business Week Daily coming up after this.
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Vid Royal as chief financial and investment Officer over at Thrive and the firm has close to two hundred billion dollars in AUM, probably more as of now. That's a number from a little over a year ago. David, what did you what did you think of what we heard from Mike McLoone just now, I mean, this is this what happens in a late stage bull market.
Yeah, I think so, and I was amused absolutely. You know, I've never gotten more questions about gold and silver from clients, and I regularly meet with clients and our and our advisors. I think it's fears of currency debasement. So the retail clients are really interested in metals right now. And the question I always ask in response when I get a question about gold, is what problem you're trying.
To solve gold or silver?
If you're worried about currency debasement, you could have a diversified portfolio of commodity stocks. There are probably better ways to deal with inflation or currency risk than just owning gold or silver. But you know, silver is behaving like high bit of gold right now. I mean, and it's us feel very technical.
That currency debasement the dollar mostly or current.
Bold I mean dollar weakness early in the year that'll strengthen later in the year. I think it's it's general concerns about the deficit and and the federal budget.
That's so interesting. I mean, I go back to this idea of you hearing from clients more about metals than ever before. Is that indicative of something within the markets right now. I mean you set you mentioned the currency debasement is a concern of theirs, but is there something else happening to you? You think like this is sort of a yolo by everything rally or beyond.
The beyond the concerns about the data deficit.
I think it's less yolo and more. You know, it's a very uh, you know, bifurcated economy.
Uh.
You know, a lot of concerns, a political turmoil. People are just very concerned right now. Consumer confidence is very weak despite the economy being and yet.
You know, I've got to tell you how many people have come around this table and said, well, wait a minute. You know, the stock markets hitting records, the wealthier consumer, which is so important in terms of consumer spending doing just fine. I agree with you that lower rung of the case shape. I'm concerned Tim's concern. You sound concerned, and we also be concerned, right because that's a big
part of certainly America. So I just do wonder, and I wonder when when people care more broadly and when it does really matter in terms of the overall economic health of this country.
Yeah, you know, I certainly get a lot more questions about metals than you know, than crypto these days, and I would say it was the reverse maybe twelve months ago. There's a lot less interest in crypto, probably because bitcoin's been weaker recently and it seems to have shifted. But I think there's just sort of a general generalized concern. And that's again why I say, what problem are you
trying to solve? I mean, metals and even crypto have probably a place in a diversified portfolio, but again, you know, what role does that have in your overall portfolio?
Talk about the interests or lack there that you're seeing in crypto right now. I mean, do you actually that thrive in Is it a part of a recommendation that you have for clients portfolio?
We don't broadly. I mean, they have access to it through brokerage. Clients could buy cryptot it and I'm sure some do. It's not part part of our centrally managed portfolios that I oversee.
What more so is like more traditional more traditional? If somebody wants alternative exposure, what are the alternatives that you recommend?
So we you know, would would you know look at you know, potentially metals rates and things like that within our mixed asset products, our asset allocation funds. We actually have an allocation of private equity within our daily liquidity mutual funds. It's a small allocation, but we actually do give retail clients fifty dollars a month. You can get access to private equity at thrive. That's a pretty cool thing.
What do Yeah, where are flows going at this point? Where are investors either asking you to commit or where are you guys recommending? Where's money going into? Money coming out?
You know, we're seeing strong flows into our managed accounts. There's still a lot of interest in equities overall across the industry. You're seeing strong fixed income flows as we have.
In recent years.
Continuing to see that, continuing to see that, yeah.
Right, because it was it was an interesting year and where you saw both stocks and bonds do well, right, which is not typical. It always makes me a little nervous and cautious.
You know.
One other observation on flows is, you know, across the industry, money market assets have you know, roughly doubled from four trillion four years ago to eight trillion. Our own money market fund is quadrupled over the last three years.
But rates are coming down.
The rates are coming down, So I keep telling clients, you've got to be extending duration right now, lock in these attractive years.
Okay, So where's the right place for a client to put money that's been in a money market. They want access to it, but they also want yield that's higher than four percent. Where can they go?
You know what I've been recommending lately in taxable accounts as munis. You're going to of course through me that No. I love munis. Right now, they're not quite as attractively the.
Right way for an investor, like a retail investor to buy munions, especially if they live in a high tax state.
I buy an actively managed municipal bond fund, and because you know you do need I think active management in that space. You know, we offer two We have a core unity bond fund and we have a high yield unity fund. So I often recommend clients split their assets between a regular union.
A high How high yield are we talking about?
You can get about four and a half, which on a taxi billot bases in tax free in about four at a little less than four that's that's very attractive because you know, if you look at corporate bonds. You know, you're going to get about five ish percent of a half and you're paying taxes on that, so you know, to get a similar tax equivalent yield of you know, seven seven and a half, you be you'd be well into the high yield space.
This is what happens, Caroly in a rate environment where rates are coming down.
Yeah, exactly. We'll see whether it continues. I mean, what are your expectations in terms of rates and how that impacts kind of the investment environment.
So I think I think it's going to be interesting this year. You know that we're pricing in, you know, I think last I looked, of course on my Bloomberg terminal, about a sixteen percent chance of a January rate cut. Market's not expecting that, but we are seeing some pretty significant employment weakness, and January is probably off the table. But I wouldn't be surprised if we see a couple
of cuts in the first half of the year. Of course, we're going to have a new FED share announce fairly soon, so that May meeting is starting to look like we'll get a cut. But I think, you know, the average rolling three month jobs added was twenty thousand and even If you back out the one hundred thousand or so government jobs that were lost, it's only fifty thousand and
three months over the last three months. Polelan twenty twenty four at Jackson Hole said any further weakening in the labor market would be unwelcome, and they were averaging one hundred and twenty thousand a month back then and actually one hundred and seventy before revisions based on the information.
Yet, But do we have to look at that comment in the context of a lower no illegal immigration world like, do we have to completely reset what a healthy number looks like in an environment to use?
The reason I think we're seeing some increased weakness is really other indicators. So over the last three months, we've had nine hundred thousand people moved to part time employment for economic reasons they would like a full time job. That's gone from about four and a half million to almost five and a half million the last three months. That's the sign of a weakening labor market. And wage growth last month was almost zero.
So what does that look like for thou that group of individuals you talked about, does that people who want a full time job and maybe they're doing gig work instead. Yeah, this is what Daniel de Martino Booth talks to us about. Yeah, she's concerned about the weakness. She's talked about this over the summer.
I'm not listening because I've been thinking about this stock.
Sea.
No, I'm really sorry.
I'm so sorry. Didn't you, Carol? Were you thinking about Well?
I was looking at the notes and David like, at the stocks that you like, Shark Ninja, build a Bear. I mean, these are not names we talk about.
Carl talks a lot about build a Bear.
So I'll give you a boot Bards in there too, and we love boot barn. I loo if that was on my list. So I'll give you the theme that we like within concerned folks, a lot on the consumers.
I do listen to most things you guys said they're.
But anyway, Yeah, so the theme is, well, you know, we talked a little bit about the K shaped economy. The upper and consumer is doing better than the lower and consumers, and and but the upper and consumer is still looking for value. So you know, you get a trade down like Shark Ninja, compete with other firms like
a Dyson, but at a little lower price point. The other thing we want is companies with product niches or innovation that can drive sales and that aren't relying on macro tail ones because, as I said, we're seeing some economic weakness. So you want companies that drive growth through product innovation and not just relying on the macro environment.
You prefer small cap mid cap space.
You know, I like small cap I mean small caps are relatively inexpensive now. They're also behaving differently over the past year. So on days when we've had some economic weakness where small caps normally you expect small caps are rally, I think second quarter of twenty twenty one, you're coming out of a bottom and rip roaring economy. That's when you expect small caps to outperform. They've been doing well
on days of economic weakness where rates come down. I think small caps are behaving much more rate sensitive than they used to. So I think with the FED cutting and I think we're going to get a couple of cuts this year, I think that could really benefit small caps. They're more levers in large caps and they tend to borrow short.
David Royle, great to see you.
Great to see you.
Thanks for stopping us, for having me Chief Financial and investment officer over at Thrive In Stay with us. More from Bloomberg Business Week Daily coming up after this.
You're listening to the Bloomberg Business Week Daily podcast, which is live weekday afternoons from two to five these during this listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
And it's our weekly Women, Money and Power segment. We speak with some of the most influential women from across the business world. We welcome back Christina Lee, Managing director and co portfolio manager for US private debt Strategy at oak Tree Capital Management. She joins us here in the studio. Happy new year, How are you?
Thank you well, thank you so much for having me back on. I think twenty twenty six is a new year, and I think, as you can tell from the public markets, there's enthusiasm. I think from the private side there's enthusiasm as well.
What's the enthusiasm that you're seeing.
I think it's about M and A demand, you know, twenty twenty four. So when we were sitting back and twenty twenty four, think about twenty twenty five, everyone said, with the new administration coming in, M and A is going to have a boom year in twenty twenty five. That didn't really happen right the first nine months Emina stalled predominantly because there was so much uncertainty, for example,
around tariffs, et cetera. But now I think where we're seeing that enthusiasm, as especially on private equity side, is private equity is held on to their investments for too long. Now they need exits. They need to provide distributions back to the limited partners. So we're seeing a backlog of deals to hit for twenty twenty six, which should help.
They are they good deals if the backlog is that they need to return money to clients, they need to exit, like having to force sales is never a good thing.
I think from a credit perspective, they're good deals. And why I say that is I think there has been a bit of a mismatch between buyers and sellers in terms of price. What we've seen is those that will
sell for twelve times, fifteen times, eighteen times sell. Doesn't necessarily mean a business that's going to sell for ten to eleven times is a bad business from a credit perspective, And that's why I think for private credit, seeing that increased demand should be a benefit to the industry because in Q four what we saw was heightened competition because there was a supply demand imbalance, a lot more private
debt dry powder versus M and A deals. Even if you look at pop markets in twenty twenty five, the majority of the volume was actually reprising some refinancings. There's very little new issues last year, So this is our year.
So of new issues exactly, big deal. So how much dry powder though is out there? Like how much needs to be worked off?
Still?
Yeah, if you look at dry powder and private credit versus private equity, everyone's like, Wow, there's so much dry powder and private credit. There's still a lot in private equity too, there's multiples, and so that's why we think one, not only is there dry powder for private equity, a lot of that dry powder is aging. They need to
deploy it. These are closed end fens. They have a certain set investment period, right, so they're going to be also looking to more deploy as well, and there's going to be more companies out there for them to buy.
Is there a specific type of company that you're seeing that's going to be doing this out there?
Yeah?
I think what we've seen so far is thematically those that can only get very high purchase price multiples. And what do I mean by that?
For so, it's not necessarily a certain industry, it's not.
A certain industry. I think certain industries have benefited, for example, from very high public valuations. For example, everyone talks about AI, everyone talks about data center. We saw a good number of deals come out in the market for M and A last year around data centers, around AI. Because they were going for such expansive multiples, we saw less what I call it kind of notlts and bolts industrial businesses. They're not bad businesses, They're just not going to go
for fifteen to eighteen tumes. So I think people reserved and helped onto their deals, maybe to do some add ons, build some growth in to then sell it for this year.
So how much of the activity that you think will go on is the result of just pent up, couldn't do anything for so long, versus Wait, it's a good environment, it's indicative of a good business environment, deal environment, economic environment.
I think it's a combination. It's probably fifty to fifty. And the reason I say that is, if you think about it, have we had a normal year in terms of M and A what is normal normally year?
It wasn't twenty twenty five.
It wasn't twenty twenty five. Really wasn't twenty four normal year? I mean, like a steady pace where expectations were met. Really hasn't in a couple of years we had supplay chain issues.
All right, we're just I think we're just done with normal, right, yes, yeah, yeah, normal is done in general, right, you know, so we haven't had quote unquote that normal M and A year, And so if you think about the pent up demand, it just wasn't twenty twenty five.
It's been since twenty twenty really twenty twenty two when there was a break in the public markets. Remember first half of twenty and twenty two you saw the public markets break even the private markets started to break. Right, So it's been multiple years, and I think that's grow, having this pent up demand grow. And then second we have a falling rain environment. It's better to get debt capital, right,
that's beneficial for these companies and the economy. Granted there's cracks in it, but it's still holding up.
So what if that doesn't continue? Though, I think that's one of the big questions. I mean, we're seeing investors a little bit enthusiastic as we wait a bunch of economic data this week and hopefully for some more clues about what the Fed's going to do this year. But I feel like people keep pulling back their expectations about Fed easings because there are inflationary concerns if we don't get a lot more in the way of rate cuts. I mean, what do we need to do to kind
of keep the market as you describe it now? Yeah, I think or the level of activity. Yeah, I think.
The economy has to hold up. I think one of the things that will spook investors and I think we'll spook the m and A market is any type of downturn. We haven't had a real downturn since two thousand and nine.
It's kind of amazing, right, COVID was too short.
There's just massive bound to black.
Guy, there was a lot of people got scared then, Yeah, a lot of people in the markets got scared, a lot of people sold, But that didn't count in your view.
I don't think that counted because I think what was happening in twenty twenty was COVID was quote unquote short lived.
I think you.
Saw kind of March through September really m and A dry up. But then as things started to normalize and there was so much dry powder again to support that M and A market, twenty twenty one was like a banner year. Back half of twenty twenty. Twenty twenty one's banner year for M and A credit.
What's the relationship between your world and equity market performance?
Yeah, I think part of it is on evaluation side, right, and spurring M and A the better the equity markets, So doing that supports higher purchase price multiples for the private markets as well, which spurs therefore M and A deal flow, which helps us because that's a big driver of demand when there's not enough deals in the market. What happens with private credit is you have a lot more competition. What does that mean, Decrease spreads, increase leverage.
Yeah, you need to see like it all kind of flow through here. Your new fund that you guys launched in October, the oak Tree Direct Lending Evergreen Fund institutional clients completed your first Clothes at about two point thirty five billion in committed capital. How much of that has been lent out? Deployed at this point.
Yeah, I think just thinking about that product in general, when you think about an Evergreen fund, it's kind of a newer product and direct lending and you're raising money every quarter.
It's open end.
Fund, and so from a deployment stand point, right, you're always going to be looking to deploy.
And one of.
The things that we found is a growth factor in private credit. Are these newer types of vehicles. If you think about for direct lending, it has been always kind of closed end funds. Yeah, I think LPs are asking for evergreen funds. They want someplace to get income, to be diversified and a safe pair of hands and consistently deployed. And that's what Evergreen and frankly Oaktrey provides.
Well.
Good stuff like we were so looking forward to catching up with you. Happy New Year, Good to see you.
Again, Happy New Year as well. Thanks for having me.
We'll see you soon. Christina Lee, Managing director, co portfolio manager for US Private debt.
Over at Oaktree Capital.
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