Stock Rally Takes a Break as Crypto World Gets Hit

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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 Stenebek on Bloomberg Radio Field.

Kind of mellow this Monday after Thanksgiving, and it's not like there's a good meeting in a week and a half too.

Is everyone just they're bringing turkey for lunch for leftovers. Yeah, and they're falling asleep at their desk because of the ingredient in turkey that makes you fall asleep, supposedly, I don't know if that's true.

It could be.

I don't know.

I don't know.

Maybe maybe watch any football.

We didn't really watch football.

I was in Ohio, so we had to watch the Ohio State Michigan game.

For your wife for.

A while, for every family, for anybody you walked into, anybody you've ran into in the entire state, if you were walking down the street. That's how it works there.

It's a big ye fall state.

Go you go Ohio State, is what I have to say.

Well, yeah, it was a lot of football this past weekend.

Let's let's go talk a little bit about the markets, because we've been bouncing around here and it does look like we're counting down in next week's SPED meeting.

With US right now is Doug Sioca.

He's chief executive officer partner at Kavar Capital Partners. The firm has about one point six billion in assets under management. He joins US from Leewood, Kansas. Doug, there is so much going on, so many important things. You've got that next FED meeting, next FED share, the spend on AI, the crypto fallout, so many important things. But we've got to start Tim with what's really the most important thing,

You know, it's tough.

It's more painful to hear Tim ruding for the Ohio.

State book guy, Come on, Isabelle, but we do.

He's still a lot of counts in our Chiefs. It's it's funny and maybe an a lot of markets. There's mean reversion that tends to take place. And the Chiefs have lost six games, all within one score, and really the last seven or eight years they've seen win all those one score games. So they may have used up some of this year's luck and prior seasons, but we're still a long way to go. If I think that if they can win ten eleven games, they have a decent chance to get into the playoffs.

So we're still hopeful.

Wow, what's easier the market? The equity market continuing to move to the upside, or the Chiefs actually getting a chance at another Super Bowl?

Hey? You know, I mean this look the stock market, and we wrote a piece a couple of months ago. It just talked about these all time highs, and certainly there's an obsession about where we go and you get to those inflection points, which is defensible, right, but you know, it's how could we not be at all time highs and we have earnings growing as fast as they have, We have a fed that's in a very accomodative posture.

So okay, so let's broaden this out a little bit and think about the people who are in control of interest rates, and that would be, of course, the Federal Reserve. We spoke with Christina Lee a little earlier, and it seems like Carol people are pretty set on the fact that it could be Kevin Hasset, the president of City's made a decision. Yeah, we just don't know who that is. Now Kevin Hassett as FED chair. Does it change your view? What do you? What do you make of it?

You know, we knew whoever President Trump was going to pick was going to be very dubbish, and Kevin certainly came to the top of almost all lists over the course the last couple months.

I didn't think anyone.

Ever thought Miron was going to get the nod as the Cherokee likely would never get confirmed. Kevin Walsh seen to fall off the table. Going back to the fighting Irish. I had a saft spot for Chris Waller since he used to teach economics at the university, but I think Kevin Hass.

Would be a very good choice.

And I do think.

Look, I mean the FED wants to cut rates, Carol mentioned on the lead in We've got a FED meeting the next week and a half. I think that the Fed we've got this theory that they're in this sort of.

This triangulation of FED tension.

Right. As I mentioned, we have a really strong economy, but it's very uneven in its benefit distribution. We have a fear of excellss liquidity if we see a lowering of interest rates. But it's also a time where it's a very very significant cohort of the consumer that is dying for a little reprieve with lower rates because they have of floating rate depth, because they have jobs, and it'll keep up with the cost of living in the increasing price of things because they don't have money in

But it's exacerbating unemployment.

Right, So the Fed really is at a consternation point. I think they do want to cut rates. They've talked about doing it as an insurance cut. We think of it more like a cohort cut to a certain very important part of the underlying consumer.

Well, what does the path look like beyond December?

Then, yeah, that's a great that's a really good question, Tim, you know, I think again, maybe that comes back to Hassett where you know, interestingly, President Trump had said for a while in some of his his detigradation of Chair Powell that shoot, we need to be closer to where Japan is in Europe is, and we need to cut

Hey, I want to go back to though I don't disagree, I think a lot of people don't disagree that when you look at the K shaped economy, that there are many folks that are struggling in this economic environment.

And you're right, Doug, they're not in the equity markets.

We now are talking about the three A pillars, whether it's you know, acid prices going up because of the spend on AI and that is making the rich people even richer affluent, and so you know, they have a lot of money to spend, and we know the wealthier consumer is really important to the overall consumer spend. Having said that, society wise, socially, it's important right to take care of all citizens because there's a lot of Americans

Maybe none, but I just wonder.

I love it's crisis, like Carol.

But I do think again, this goes back to this tension that the FED is really.

Walking a tightrope because to your.

Point, I do think widespread prosperity is one of the things that makes our.

Country so special.

With that expectation that is it is creating to reach for full participation. I think the issue becomes like if things used to become on affordable that you're helping this important color with one hand and you're knocking them back with the other.

So that's the part.

Where they unfortunately have a pretty blunt instrument. Yeah, there might be other ways, right, whether that is just balance sheet management of things along those lines, whether that becomes some of the entore that takes place with fiscal policy incentives to increase employment because it is a really challenging time, without question, No.

And listen. Totally agree.

It's got of the wealth has to spread out to a lot more folks across the country. Doug Cioka always appreciate it, ca our capital partners.

Stay with us. More from Bloomberg Business Week Daily coming up after this.

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Let's get now to developments in AI big tech. As the king of AI bel whether as we're talking about, Nvidia invested two billion dollars in chip design software maker Synopsis as part of a broader engineering and designed tie up aiming tim to infuse its AI computing technology into more industries.

With the Tech Roundup, we had to the Bloomberg News studio and bureau in San Francisco, where we find the co host of Bloomberg Tech, Ed Ludlow, ed, why is Nvidia doing this? Why?

Now, Yeah, I guess there's a question of why is Nvidia doing this? And then what does Synopsis get out of it? You know, so, like Synopsis makes the software by which chips are designed but also validated. So before you send a chip through the fab to be manufactured, you want to know that that design works. And that's a big part of what Synopsis does with all kinds

So circular finance, I mean, come on, like Carols, did it?

Is it just getting crazy or so?

I don't know the parties on this specific deal in video and Synopsis would say this is not circular financing. In the same way that the graphic you're showing to our video audience illustrates, there is no requirement that Synopsis purchases.

From Nvidia in videos GPUs.

Additionally, and this is all according to Nvidia CEO Jensen Wong who was speaking this morning. Additionally, as I said, Synopsis does business with all kinds of chip makers, and Nvidia also does business with other makers of chip design in software Semens is one, for example, And none of that's going to change. Everyone is free to carry on as they want. And it goes back to the why

Is how in video would put it?

Well?

Why, I mean Synopsis wants to have Envidea as a customer, right, so why did they need it? Like what does that two billion dollar investment doo?

So now this is like highly analogous with the Intel situation, and it's highly analogous with the Nokia situation. And so this year I've had two specific opportunities to ask Jensen Wang, what's the rationale taking a steak, like why do you need to own between two and three percent of these companies? And his answer is always I thought it would be a great investment and that in the future that investment

The stock's now higher than that. I can't see it on the screen, four hundred and forty dollars a piece.

But I remember back in October when we're in DC, I asked the same question of Jensen, why did you

Okay, Ed, we only have three minutes left, but there's two more stories we want to hear with you. One is deep Seek because China's deep Seek unveiled two new versions of an experimental AI model that it released weeks ago. It adds fresh capabilities a startup set would help with combining reasoning and executing certain actions autonomously. I'm old enough to remember earlier this year when a deep Sea update comes out and tank shares of Nvidia. We don't see that,

Okay, so deep Seek the three point two has been out for a number of weeks now in the form of deep sec v three point two exp Experimental. They just dropped the exp bit and it's an open source model that against benchmarking, performs very well against GBT five Open AI islaers model. Where they've made a difference in this open source world is that, like open AI, deep Seak wants to make the tool more useful, so they

That, does the world need to be worried?

Those are our guests, like, how does this fit in? How competitive?

Is it?

Real?

Quickly, it's competitive.

Models at this scale have tens of billions of parameters or more. And what Deepseek did is called mixture of experts or MOZ designs, where if you have one hundred billion parameter model, when you run the inference, you actually run it, you don't need to access all one hundred billion parameters. They found a way of just accessing say ten billion parameters or sixty billion parameters, which makes the cost of running it in the compute much more efficient.

I do feel like everything's now about efficiency in terms of power use, in just getting things done. Hey, what do we need to know about Nasiyoshi's son, the soft Bank founder who said he wouldn't have sold off in video shares of his company had unlimited money to bankroll its next investments in artificial intelligence? Is there something important here that we should acknowledge?

All you need to know is that he wishes he hadn't sold it, but he didn't have enough money. He needed more money, so he sold the thing that could get him money and video shares, and then he used it to invest in the thing he thinks will make him more money in the future.

Open AI. And it's as simple as that.

All Right, I love it.

Even he needs more money? What does that say?

How about buy now?

That's just society. This is the world we live in.

Everybody needs more money, all right, Gonna leave it there.

Ed always glad we can go around the world of technology with you. Ed Lolove.

Of course, he is co host of Bloomberg Tech at Bloomberg Television. Catch Ed and Caroline Hyde eleven am Wall Street Time every Monday through Friday on Bloomberg TV.

This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at two pm Eastern up on Apple car Play 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 played Bloomberg eleven thirty Well.

Bloomberg opinion piece grabbed our attention today, Paul J. Davies He's based in London. He writes that quote, the lack of transparency in private credit is one and that investors and journalists could be more fearful than is warranted by historical performance. But there's illustrating data too, illuminating data rather from analysts and ratings companies that show the outlook for repayment problems and bankruptcies isn't great. In fact, it's getting worse.

That Again from his column, Davis goes on to write that he's quote talking about junk rated loans made by private credit funds, mostly mid sized companies, often used to fund private equity buyouts, and similar to the leverage loans at banks underwrite and sell to investors. To be fair, there's a lot of questions that have emerged in recent weeks about private credit, and we have yet to see kind of a systemic issue or problem, at least that's what we hear from a lot of the voices we talked to.

Let's bring in Christina Lee. She's managing director and co portfolio manager for US private debt strategy over at oak Tree Capital Management affirm that's gotten more than two hundred billion dollars in assets under management. Welcome, it's good to have you.

Well, thank you so much for having me here.

You must have been watching the events over the last few weeks. With great interest, And I'm wondering just your view on the chatter around greater concerns when it comes to private credit. And again I'm using the term like, you know, a monolith, but not all private credit is the same.

Yeah.

I think it's been called the Great cocker Chores, you name it. I think one of the issues that I think people are having is there's been some high profile bankruptcies that I've had recently, and people are saying, is this systemic? Is this a pattern of what's next? I think sometimes you do have to take a step back and remember we're doing some investment grade credit. You are taking risk. There will be defaults, there will be restructurings.

Okay, So having said that, when you guys, especially you know, in terms of private credit, I think what really tripped a lot of investors or investments up in the private world, private credit, private equity for that matter, is.

That there weren't the exits that were normally there.

Right, we've seen them pushed off and I think it's starting to come back. But then you had renegotiated you just like all these things started to happen, and you just wonder whether it gets a little bit fuzzier and that there is more opportunities or more touch points for things to come undone roll that in and how we should be thinking about that part of it.

I think defaults have been very very low in private credit, and if you were to look at various managers their loss ratios, et cetera, default rates would probably all be relatively similar. And that's because private credit hasn't really been through a downturn yet, right the advent of the class when it really started booming was maybe ten years ago.

I think COVID was too short.

I think what you're seeing right now also is defaults will likely rise because a lot of these bars put in capital structures when it was a zero interest rate environment, which is you know, now it's higher for longer, and I think that's why you're seeing defaults and some cracks emerge.

Does it get worse though, because you're right, an investment in a zero rate where money costs nothing is very different from where.

We are today, right, It's just the business.

Dynamics and the financial dynamics of a deal looks very different. So do we see more cracks going forward, is Jamie diamond Wright that there's never just one cockroach.

I think you likely will see some cracks, but what will be dependent is the cracks have been massed, the cracks have been around for a year or two. Is there's a lot of liquidity in private credit and even in private equity. They weren't necessarily deploying in new investments, but they were helping the resisting investments.

Forgive me for when does too much liquidity, though, become a problem where you're chasing after there's so much more folks involved in the private market world, private credit, private equity, and when there's a lot of money around, it's like people are chasing deals and maybe more likely to take on even more risks.

So when does it get messy or does it not?

In this world? Maybe it's something different.

I think right now what you're seeing is there's still a supply demand and balance. As you had mentioned, there's less exits, there's less M and A and so private credit dry powder has increased. But if we were to look at kind of the exit piece that private equity needs to do, M and A should increase starting in twenty twenty six, and that supply demand imbalance should lessen. But right now, what you're seeing is there's really an imbalance right now, and so you are seeing that competitive

Howard Marx, the co chairman, principal, co founder of oak Tree Capital Management, out just last month, it was in the beginning of November, with a traditionally long memo about private credit, but in bold on the second page he writes, So, no, I don't think this is necessarily the beginning of a trend. And by the way, it's called cockroaches in the coal mine. It's not an indictment of the whole sub investment grade

Exactly if you don't take on risk, that usually means that you're yielding something lower. Right, it goes hand in hand, And I think because we've been in such a benign market where that you haven't seen a lot of defaults, et cetera. That's why people, I think are surprised.

So then what's the what's the what are the products or what are what's the credit that investors should avoid right now?

Like?

How do you separate because of another? A criticism I guess you could say is that there's not a lot of transparency necessarily with this type of investment. So then how do investors know what they should invest in and what they should stay away from?

Yeah, I think one of the things to look out for is one of the questions. I think that we all talk about our valuation works. Right, is there transparency? Is there not transparency?

I always as.

Tell people to ask them what is your valuation methodology? How often are you looking at your valuation? Because in the end, we are in a private eliquis market, there's no mark to market, there is no market, and so there is a subjectiveness and a judgment on the manager. And I think a lot of it is do they mark their investments aggressively or are they conservative?

Right?

How do you know?

I think you have to ask your questions of how what methodology does to you? Do you discounted cash flow? How much does current field matter? What is your recovery rates?

So this is what wrote about last week.

Well, yeah, yes, but this is where, like I think about Christina, that a firm, whether it's oak Tree or somebody else, Right, if you're you're playing games in terms of valuations or not being so transparent or whatever for your investors, the deals aren't going to pay off, right, and investors are not going to give you any more money. So is that kind of a checks and balance in some way in terms of ensuring you guys are doing

Exactly, because if you are way too aggressive and all your marks are inflated, you'll have a really hard time with your investors, right, right. That is reputation risk. And also just inherently as a creditor, you are always worried about kind of what's next, what's the next risk, because your upside is getting what's contractually due to you, right, So a lot of just inherently as a credit investor, you tend to be conservative.

Because that's why it's you know, and some of the conversations we've had in trying to figure out, like there are there more cockroaches out there that maybe some of what some have said is smaller players that maybe maybe don't do as much homework or something that that's where we might see some problems. Talk to us about the market overall, where you guys are finding opportunities right now

I would say right now, it is, there's a supply demand, a balance, So what does that mean. It's very competitive. If you think about the first nine months of the year with the tariffs, right with all of the uncertainty, M and A went to a screeching halt for the most part. Now M and A has kind of come back after Labor Day, and so now you're seeing what I call a little bit of fomo where you're seeing

Do you think this type of asset class will end up in the four oh one k's of many Americans?

I think that is I call it the next frontier. I think from a technology standpoint, if you think about private credit, it's a relative. I'm talking about more sponsor direct lending. It's a pretty mature asset class at this point, right, right, And I think where you're going to see innovation was what I call technologies on reaching new investors or fund construction. And so I do think four oh one case will

Yes, rightly?

Right?

Whether whether people want it or not in their four o one case, I know, well it.

Does though it creates another demand right for what's going on there?

Just get about a minute left?

Can you can you share with us?

I don't know an interesting deal that you recently did. I don't know how specific you can get, but just give us an idea in terms of maybe the type of deal, terms or whatever you can share.

Can't just not about a specific deal, but just what we're seeing in the market right now is it's kindter intuitive, but as the interest rates go lower, you're seeing leverage creep up because bars can actually make their interest charges now. And so before when interest rates were say four percent on sofa, you didn't really see deals go over six times because otherwise a barrow couldn't pay their interest. Now it's actually going the other way, where you're getting lower yields,

So does this assume too, that you think the Fed will continue to rate to cut rates even into twenty twenty six.

I think it all depends on who gets appointed, you really, So.

Yeah, do you think is it is it a done thing that if it's Kevin Hassett that you can assume that there'll be lower rates just cut about thirty seconds.

I'm not going to make an assumption around it, but we all have an understanding of where the administration wants this lower rates right, interesting time, and we'll see where the underlying economy also says well. Hopefully we'll also dictate wor the race of neflee.

Land right that the Fed sticks to the band aate and what needs to be done.

Thank you so much, really appreciate it.

Christina Lee, Managing director and co portfolio manager for US Private Debt Strategy over at oak Tree Capital Management.

Joining us right here in our Bloomberg Interactive Broker Studio.

Stay with us. More from Bloomberg Business Week Daily coming up after that.

You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from two to five these during this listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.

So our Bloomberg Intelligence team writing earlier today that holiday retail sales appear to be off to a good start despite mixeddore traffic.

There's a bunch of metrics coming at us.

Your retail next coming out, saying visits to malls were soft down three point six percent. MasterCard saying Black Friday's online and instore sales res four point one percent. Salesforce says global online spending will increase eight percent to reach fifty three point seven billion, while US spending will rise.

By four percent to thirteen point four billion. And then there's Adobe Analytics team.

They noted a sharp nine point one percent acceleration in digital sales as consumers lean into the ease and convenience of buying online. Well, someone who knows how to read through all of these numbers does her own in depth research too. She understands the retail industry. Dana Telsey is back with us, founder, CEO and chief Research officer of Telsea Advisory Group. She's been joining us here Atloomberg quite a bit. Carol, going back to Black.

Friday is her Wednesday.

She's your Wednesday day here, he's here inside of the Monday. She joins us here in the studio today.

Thank you for having me. There's a lot of time. I think you have a desk with your name on it. It's easy, thank you and convenient on my office.

We Love, we Love?

Is there there are so many different metrics that come at us. Is there a metric that catches your attention more than most Or is it that you rely.

Just on kind of the work you guys do.

I rely on what we do, but I also look at all the metrics to tell a story, and frankly, what you're seeing the metrics tell the story of Essentially, it was solidly optimistic for this upcoming holiday season. They're good metrics. A lot of the metrics surpassed their expectations. The other thing, when you look at online versus in store, in store is always going to be lower than online because online is a smaller part of the business. But one of the differences this year is online sales the

What do you mean by that? Like this is like the same people who watch Friends ironically because they you know, didn't watch it the first time around, are now going to the mall.

Like the teens are going on.

Yeah, that's what I mean.

Everyone wants the experience. I think what everyone missed from COVID talking to each other saying this looks nice on you, or look at this deal.

That communication matters.

So what's old is new again, Carol. They're going back to the mall just like we did when we were kids.

Well, I know who doesn't love them all?

I don't love them all anymore.

Having said that, though, Dana, like my daughter twenty two, there were some that she was going to buy online, but we went to Bloomingdale's to try it on and she ended up like, Okay, this doesn't work and not buying it. So it's like interesting kind of this mix of how we're figuring it, how to shop.

And it's always the surprise because when you buy something you've had before, maybe you do get the same size or you know what it is when you're buying something new. And one of the things this year is there's newness to wardrobing. You're looking at shoes where people are going back to whether it's black brown suede boots like Steve Madden is selling, whether it's wide legged denim jeans, it's not just the same old, same old, and partially because events are taking place.

So we look at retail sales as this monolist, but we know that's not the way that they're actually sliced. What would you say characterizes the companies that are doing a good job and actually bringing consumers through the door versus the ones that are not newness?

I think the newness and product innovation really matter, something that they don't have in their closets. You think about the newness even in consumer electronics, whether it's Nintendo, whether it's or Rings, there's new things out there, same old, same old. You're going to watch for the deals and

What about promotions, because I have to say, leading up to it, I saw some big promotions fifty to sixty and they built through that through kind of the weekend.

So we do a tracker eighty five retailers that we track every holiday. We've been doing it for over ten years. We did see promotions build, particularly in some of the specialty apparel retailers, but not everyone. We saw some promotional increases, whether it's the bathroom body Works, we saw it in and you've seen a wider range of promotions instead of maybe last year forty to fifty, maybe it's forty to

So what's the picture that all of this paints of the consumer.

I think it paints a consumer who's a bifurcated consumer, higher income continuing to spend lower income, basically being very discerning and what they're spending on their particularly on essentials. But it's also showing consumers want to celebrate the holiday season and they'll think about January and January and they'll spend for holiday.

How much though I think about this a lot, I mean, how are they buying? We saw some information about the buy now, Pay Later continuing to be an important payment option for consumers. Adobe forecasting twenty point two billion will be spent through the payment method this holiday, eleven percent growth over twenty twenty four.

I think on the buy now, pay later, look who it's going after. It's going after those consumers who have more limited spending power, and it's picking up interest. You are seeing companies who have had buy now, pay later for a long time.

It's still important everywhere.

Now it is everywhere, so it's not as differentiated as it had been in the past.

It's not a sign of anything in your view.

No, I'm watching credit card delinquencies a lot. We're looking to see what that looks like. We're watching, certainly what consumer spending looks like. And if anything, you're still seeing some pretty solid results. Take a look at the retailer's earnings the past few weeks, Well, they've been mixed. Some of the outliers, I mean, who would have thought Coals basically showed some improvement and we've seen some good results.

So that's definitely there is this. Does it feel like a season where folks were like, holidays are important, and so I'm budgeting so that I can spend here.

And maybe I won't do something else.

I think there's some of that, but I think they're also spending saying I'll pay it back later. I think they want to celebrate given it's been a tough year with a lot going at consumers all at the same time.

So you said that Nintendo has done a good job this year bringing consumers through the door, companies including Steve Madden, Levi's Ralph Lauren Rough. Lauren, what are the hot products?

Says we look to have to say, la boo boo, Oh, la boo boo is the hot product?

Yeah, okay, it is.

I don't even know what a lot boo boo. It's like a little bit.

It's a collectible thing, a collectible yep. It could be on handbags, backpacks. Guys and girls wear La Boo boo or have La boo boos.

And it is the hospital.

No, I don't no, I.

Don't know, but it's just kind of well, now I know what I'm getting each of you.

For the holidays.

Thank you.

Is there like an it thing? Is that that is the it thing?

The little Boo boo is the it thing? I mean, there's other things out there that are certainly trending. Legos are always trending and are very popular. So who can't take that away? When it's gotten colder out, so you're definitely seeing sweaters and outerwear takes center stage.

I love it.

In a Telsea founder, CEO and Chief Research Officer of Telsea Advisory Group.

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