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Wonderful surprise for you this morning. All things to talk about with Robert Kaplan of Colvin Sax, former president of de Dells Fed. We could talk for three hours with him, but we're gonna do a massive audible here. And the kid from you grew up in Brooklyn.
That my parents did, and I grew up in Kansas.
They grew up in Prairie Village.
Yeah.
And with John Sherman, you enjoyed partial ownership of the Bobby Wits.
That's right of the Bobby Witch.
I watched him with the Giants in Phoenix here recently. He's an electric player. I mean, he's a great player. How will the Kansas Royals your team you're part owner with John Sherman, how will they compete? Where the payrolls? About the size of Aaron Judges payroll I got one hundred and eighty two million is a working statistic. This is unfair.
Right, yeah, and that's why in the is a sensitive topic. But in the labor negotiations over the next year or two, there's going to have to be a discussion about some type of balancing salary cap that the sport really really needs to create more competitiveness. Having said that, Royals are going to I say that some a little bias. Royls are gonna be good this year.
I mean there's I mean the word is in sports radio. There's going to be a work stoppage next year.
They do not need.
Within the delicacy's Robert kaplan. Of where you sit with the Kansas City Royals, are you optimistic there can be a constructive agreement.
I'm optimistic that it's clear the sport needs to deal with the disparity like other sports were to get from here to there. I don't know, but it's clear it would benefit everyone involved in the sport.
One Kansas final Kansas City question before serious issues. Am I right? Kansas City is booming. That's what I notice the radar from here. It's booming. The new airport at all.
Of course, yes, listen, I'm Kansasity's a fabulous place to live. I love it. I go back there regularly, and it's it doesn't have a lot of Like forty three other states in the United States, the state of Kansas and Missouri are not growing substantially in terms of population, but it's a fabulous place.
Yeah, it's good. Should we start the show.
Let's go.
Let's start to show Paul Sweety with Robert Kaplan, the former FED president of Dallas.
Robert, you know, the FED decision, I guess was not surprising in March kind of.
But if I look at the WRP.
Function, look at where the market is thinking, the market's not really pricing in any cuts or even any rate heights for the end of the year, I guess that makes sense because there's so much uncertainty out there.
It makes a lot of sense. If we talked literally just a month ago, we would have said we're set up for a strong year growth in twenty twenty six, tax and centers, regulatory reform, AI data center power boom. And I think the FED was hopeful in the back half of the year that headline inflation would tail off a bit, so they might be able to cut rates
once or twice. Obviously, because of what's going on in the Middle East, I think they're going to need to step back, that's the right thing to do and let this unfold. Then the market is sort of backed off also and is pricing in basically no cuts this year.
What do you think if I'm at the board level, if I'm at the c suite level, I've navigated tariffs. Now we have to navigate what may be, you know, an inflationary slowing economy due to higher energy prices. What is the c suite? What is the board to do these days? Are they going to sit on their hands as well?
A little bit?
Do you think they're what we're seeing? They're not sitting on their hands because we are in the middle of not only an AI data center power cap x boom, but now we're in the early stages of the adoption boom, which is going to improve productivity growth in every business we talk to has got to be trying use cases and trying to figure out how that's going to work. And many are concluding that in this new era they're better off getting more size and scale and merging, so
that's not slowing down at all. Having said that, if you want to if your forecast for the year, this has put a little bit of a damper for many businesses on their growth outlook, and they're going to be more careful and that will start with hiring and other expenditures. But they've got to keep aggressively pursuing this AI situation, and mergers will be part of that.
You're in the early crisciple of this, of course, at the Dallas Fed. And we all know how the Texas is booming. The philanthropy and Michael Dell and others. Here's Anna Crockett from Robert Kaplan's Dallas Fed Salary not sole concern for young adults weighing career decisions. So you bringing over to AI in the boom, whether it's Deer Valley out into Phoenix or everything going on in Texas, what's going to be the incentive here to drive employment and happy employment forward?
So what we see and I saw this when I was at the Dallas FED, and I see it more now. All we've got a lot of what I call mismatches. So the FED worries about are we sickly growing? Are we weakening? We got difference, We've got a structural problem. We've got college graduates, programmers, others can't find jobs. But
I've never seen more open jobs. Window installers, technicians, plumbers, people to work on the Ford Motor Company assembly line to make one hundred and thirty five grand here can't find them, and so these mismatches have to be worked through. And we're kind of struggling with that right now.
Okay, this is set of the.
Grassley welders in Iowa a million years ago. What's the simple issue, more pay for those working class people.
Some of it is aspirational. If I go to college, I think, did I go to college to be a plumber or electrician? Turns out those jobs make a lot of money, and so I think you may see you're going to need to see more changes in our educational system where it wouldn't shock me if fifteen years from now a state college offers a skill training option, they'll do that. Now.
This would be Paul an Agricultural and Mechanical school, like at College Point Texas.
Exactly.
That's right, College station.
Yeah, comes to stations exactly, Robert. I mean, talk to us about the m and A environment. We came into the second term of President Trump. The expectation was that this was going to be an administration that was going to be very supportive of.
M and a consolidation.
Have we in fact seen that.
I think the I'll talk generally, the attitude in boards is there is a window here where I think companies are more confident that if they want to do a merger that they'll be able to get it done, and they want to take advantage of that window.
Private credit.
If it weren't for the Warner around, Tom and I keep saying to each other, Boy, if it weren't for the Warner around, this private.
Credit issue would be maybe a.
Bigger issue for global Wall Street and concerns about is there a systemic risk in the private credit world which has seems such a tremendous amount of growth since a great financial crisis. How do you guys think about that?
Yeah, so if you actually look under the hood in the portfolios, obviously you want to check what their industry exposures are, how much software exposure. It's, by the way, there's nothing wrong with software companies. It just you may not want them to be leveraged five times even d But there's the portfolio issue, which I would argue, if growth is solid this year, we're unlikely to have a
credit cycle in twenty six. So what's going on. There's that liquidity mismatch that's big problem, and I think they're being confused, meaning there are certain BDC's that you have to offer quarterly liquidity. And when investors rush for the exits and they think others are, then they're going to rush. And I think in portfolios that have good matching of
assets and liabilities liquidity, they may be fine. Having said that this is the crisis before the crisis, to quote someone else, if we have a credit cycle in next two or three years, I actually think this concern now is going to be healthy, because if we have a credit cycle, then you're going to see more issues in private credit.
If you're listening across America, good morning to you, Paul Suenian, Tom Keane, Bloomberg Surveillance on YouTube, Subscribe to Bloomberg Podcast. It's our digital distribution, humbled by that success, and of course all of you on traditional audio as well with us. Robert Caplan of the Dallas Fed now holding court again at Golden Sachs as vice chairman. I would say, like Mark Kimmitt and the military SPAN's finance Robert Champlin, you spend academics over to finance over to your service at
the Dallas FED like no one else in America. Once again, we're studying within private credit the efficacy of hedging. In every single class ever been taught, there's a point where a hedge catches up with you. How close are we within rehedging? Where the game, the shell game we're playing where we get to a shock a tip point that upsets the apple.
Cart so.
Well, obviously the yield curve is drifted up because oil prices have drifted up, the real yields come up, and people are concerned that central banks just aren't going to cut in the way that we may have thought literally a month ago. Having said that, I think that the private credit issue, maybe not this year, but over the horizon, is about operational risk matching financial risk. And we were taught way back when if operational risk is high, be
careful about the financial risk. And AI and disruption is going to increase operational risk. Businesses will figure it out, but you don't want to be as highly leveraged, and so that's something I think people are going to have to go back and screwtin.
Now this is a private credit people, Paul will say, well, we're not leveraged. We're here, I'm listening to Robert Kaplan.
Well, the companies listen. We would have said in the past four or five times, ebit deep, that's not over leveraged. Well it is. If there's a risk that your ebit D might drop thirty percent because of a new innovation, that's the issue.
What's the message to your bankers these days when you sit down with your senior bankers or coverage bankers, and all right.
For the next few weeks, let's go out.
We want to get this message out to our clients.
Let's stay close to clients, Let's understand their needs, Let's be shared bringing. Let's bring the whole firm to bear, including our thought leadership, to help them figure out what's going on. Corporate clients are very active. Investment clients across all our sectors are trying to figure out and handicap what's going on, and our job is to understand them, build our relationships, and serve them by bringing the whole firm to bear.
Are you sensing that this I mean the AI revolution, I guess we'll call it, or just I'm not sure what it is. We used to call big data back in the day. But some people are telling me this is more important than the Internet, and it might just be a cut below electricity in terms of the importance of society. I've had somebody expressed to me that way. Boy, if I'm a corporate border COEO, I feel like I got to get super smart, super quick because it's either a friend or an enemy to my business.
I'm not sure which.
Yeah, And so here businesses are handling it in the following way. A typical business has ten or fifteen use cases. You know, how can we change our controllers department, our marketing department, all the different things that they do. They're in the with partners outside partners of going through those use cases. And I'd say we're in the early innings and two years now they're going to be a whole lot smarter. Two years can be an eternity, yes, but
businesses will be a whole lot smarter. Some of them are saying, I want to do more strategic merger activity to help mitigate some of the risk here. But we're in we're learning right now. So anybody tells you I know exactly how this is going to they don't know. The smartest people I know are in the middle of it, and they're open to learning and are not prejudging it.
On AI, what is your observation on a roll up of all the competitors now? Are there too many? Just on a unit basis, are there too many players?
Well, so, a lot of our attention, because we can't avoid it, is all the CAPEX and the compute infrastructure part. Okay, then there's the adoption companies, which are extremely highly valued. And the truth is, I have no doubt we need to create more compute. How the adoption companies are going to shake out? I think that's where more of the uncertainty is, and that's where the software situation. The first
reaction is it's gonna be disruptive. I think the second reaction after people calm down, but clients are going to need advice to help with the installation of the software. Companies are critical of that. So I think we're literally wrestling our way through this.
Thank you for the comments on Kansas City. There was I mean, was George Brutt's bat tard.
I think it was.
Robert Kavin, Thank you, Thank you awer of the Kansas City Royals with the modest interest in gold and sacks, and of course it's a public service at the Feederizer Bank of Dallas for stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from into ten am e's durn Listen on Applecarplay and Android Otto with the Bloomberg Business up, or watch us live on YouTube.
The way that you find young economists, folks, is their research comes in. In the old days, it was printed in paper and you actually held it in your hands and said, oh, now it comes across in this whole digital thing and email and all that, and you open the PDF file and go, oh yeah, that's what we did with Michelle Myers years ago at Bank of America said, oh she follows the consumer.
Like no one.
I want to go to K shaped and I want you to do a classic Michelle Meyer decyle or quintile breakdown of the population count of the United States of America. We obviously perceive it as the center, tendency and equal arms of the K shape. Belooney, define the real K shape that's out there.
So I think it's extremely important always to look below the headlines. You have the aggregate numbers, and then you have a lot of stories that happen when you did deeper. And always in every cycle, the economy is not felt evenly across different types of populations, whether you're looking at an income level, whether you're looking at across different regions of the US, different types of jobs, it's going to feel different. And I think we're there now, we've been
there this entire cycle. Part of that is because this has been a cycle of a lot of asset price inflation. We have seen markets behave very well, obviously very volatile times, but very well.
She moves a master card and won't answer my question. The K shaped on the.
Shape I'm going to get there. I'm getting there.
Yeah. So the story is that, yes, you certainly have this differentiation. Part of it has to do with household balance sheets, which reflects the fact that we've seen a lot of asset price inflation, a lot of appreciation, and that is clearly supported that top part of the K, where the purchasing power has increased because of that phenomenon.
So in John Tucker's Business flashyalking about a lot of financial markets reflecting some angst about inflation maybe creeping back into this economy, maybe even more pronounced than we're used to. What is your view on inflation given what's going on in the geopolitical world these days?
Of course, so inflation has been a hot topic for a while, right you think about tariffs, all the forecasts about how it can really boost inflation in a problematic way. It ended up being a lot more modest in terms
of the pass through. But we're now at that point again when we're talking about the potential for higher inflation, and here it's a little bit more meaningful because you have the direct hit to headline inflation from energy prices, potentially from food prices as well, depending on what happens with fertilizer prices and how that gets passed on to food.
When you look at the core, you take out food and energy there, I think there's very fairly a bigger debate as to whether or not some of these higher costs of production get passed on to consumer core prices when you think about durables, when you think about some of the bigger ticket items that tend to have more sensitivity to high transport costs, and that will be a
function of the duration of this shock. We know oil prices are high right now, and we know there's a lot of uncertainty about where they go, but how long they stay high will determine whether or not it passes on to the core. And I don't think we're there yet.
It seems like, you know, one of the concerns is we've seen this before, We've seen shocks before. Consumers are pretty savvy they kind of maybe you can look through it, but sometimes you might see a shift away from the stuff I'd like to have, like a new car, yeah, versus stuff I have to have now, which is I have to put guess what I've already got or something like that. So I mean that's I guess that goes to your argument. Boy, if this persists, then maybe we've got a different discussion.
And that is critical. It's a reallocation of purchasing power and a lot of that is not my choice, and it's important to keep that in mind, especially when it goes back to Tom's initial point around the key shaped narrative. There's a lot of folks out there, a lot of households that don't necessarily have as much flexibility, and if gas prices arising, they have to spend more of the purchasing power at the pump or drive less if they can not, everybody can just what they can spend on it.
Mastercurred, you have a font of information no one else has. What is the greatest misconception we have about our use of credit cards? What forty two percent annual interest rate? I'm kidding, folks, But when you look at charge cards, what's what's the myth out there that upsets you? Right now?
I don't know that there is a myth that up sets me as an economist when I'm thinking about the overall economic environment. I think it's generally when you look at spending trends and you think about the different ways that consumer spend. Obviously, using credit is a path and it's one that allows for a lot more stability in spending.
Right when you think about the fact that why we have credit cards, why we have other forces forces sources of payments, is that it allows you to kind of smooth your spending a lot more because you could adjust based off of where you are in the labor market, what you're seeing in terms of your balance sheet, et cetera.
Linked in the savings, right, I mean, are we spending spending, spending or we actually.
The savings rate has been pretty stable. So you had an unintentionally high savings rate after the pandemic. We all know that that a lot of that was drawn down pretty quickly, frankly, and in the last several years it's been remarkably steady and pretty close to what would be considered normal.
Mister Meyer emails and he says, enough Kansas City royals talk. Those phillies look awfully good this year, don't they.
That would be my husband who is emailing, and probably not my father.
Okay, but yeah, Michelle, thank you so much, honey. Mischel Meyern she forgot a master card Economics Institute. Just can't say enough about their research on consumer all the great work she's done over the years. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am. He's durn Listen on Apple Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
Coming up, without question, our Global Wall Street Conversation of the Day. Paul and we agree, if there wasn't a ward, there would be no other topic private credit.
I think you're right. I think you're right. People are just trying to get a handle on is this something systemic to we need to worry about this? It could have broadened out, you know, I don't know.
We'll figure out our next guest.
I'll have to see.
Well, I was gonna have it.
I want you to bring in Randy because you and I go back and forth in this and frankly Sweeney was way out front of this versus me. But basically, Paul, please help me. Have we seen this before.
I've seen a lot of stuff over my career, especially on the credit side.
Randy Schimmer, he's seen it all as well.
He's a vice chair and chief investment strategist at Churchill Asset Management. Most of what we know about the private equity and private credit business we've learned from Randy. Randy, talk to us about the conversations you're having today, because I know you're getting three, four, or five ten phone calls before we even get into the office. Yeah, about private credit. Do we have a risk in that market? Explain that what the responses you're getting here?
So the timing is great, always being here at the center of excellence for private credit. A Bloomberg surveillance with you too. So here's what we're We're seeing two things. One, it's the Gift of the Month club in terms of headline risk. Okay, Iran is the new you know Ukraine, AI is the new tariffs government shutdown is the new government shutdown. So everything is creating uncertainty and it changes every day.
Is Iran? Are we in?
Are we out?
What's going on? Are oil prices at risk? Are they not a risk? So investors are obviously focused on this uncertainty. Number two, and look at the BDC market is a good example of this. The traded BDC's right are looking at these risks and they're concerned, so they trade down. The non traded BDCs are saying, hmmm, is this a liquid asset class that I'm currently in. At the large end of the market, they're being told that liquidity in
private credit is very similar. It's converging with liquidity in public credit. The problem is, we Churchill and you know this are at the core middle market, which is very illiquid. The good news about being very liquid is that it is an efficient alternative to the liquid market that is trading up and down. If you try to impose liquidity on I liquid asset clash, you're going to create expectations that are being dashed, and so retail investors are confused.
They think, Oh, we can get out, No we can't. That's confusing.
I'm confused too, because I went through eighty seven. I didn't see it coming. August of ninety eight. I didn't see it coming. You see there's a trend here. Yeah, Thursday in August oh seven, I didn't see it coming. We've got enough experience, Randy Schummberg where we could see it coming.
Yeah.
Do you need the.
Institutions like the SEC to come to the rescue in d retail private credit so you can get back to a normal match of your illiquidity and your institutional clients.
Yeah.
So let's look at what you're saying. Is the next thing that is coming and one of the biggest concerns, and you were talking about it on your news broadcast, is that AI could be one of those events, right. It could be an eighty seven, it could be an
seven and eight. The challenge is there's so much that's theoretical right now, and the things that's concerning the private credit markets is that at the upper end it's mimicking the hyperscalers in the public equities market because there's the larger you go in terms of deal size, the more concentration risk. So at the large end of the private credit market there's sixty percent overlap of deals, which what
does that sound like? That sounds like the public equities market where there's like fifty percent of the whole market is in these seven stocks. So if there's concentration risk and you don't know what that ultimate endgame is, that is what's booking investors now in the core middal market, you know, and I always bring a story to you, so you know it was landscaping companies. One month we
did accounting firms. What about power backup system? So we're looking at a deal right now that is not at risk with AI but could actually benefit from the power, the incredible power that's required by these AI companies. So this company supplies power backup for a lot of businesses, not startups for AI, but the existing AI infrastructure, and
there's so much power that's required for these businesses. So if you're lending to a company that is going to benefit from that as a tailwind, that's a very different risk, and all of our businesses in the coriminal market are these very plain, vanilla service businesses that are sheltered from
a lot of the stuff that's going on. So one of the things I think is going to happen Paul and Tom to your question is that as this uncertainty begins to clarify into more of a coriminal market versus a large capminal market, the media and investors will not paint all of private credit with one brush.
What are you seeing in your portfolio today?
So instead of red signals, we're seeing a lot of green signals. So we're not seeing anything like the kinds of you know, non accruals. For example, I don't think we have any or maybe one out of three hundred deals. Our default rates are very low. We're not seeing the kind of redemptions in our funds that that is being seen in the large cap market.
Now.
Granted, ninety five percent of our capitalist institutional we're trying to grow our wealth space, but a lot of this is education. So when we say we show them, we look at our portfolio. When you say, look what's going on, the existing investors are actually looking to increase their exposure with us. Anybody who's looking to move money out of our fund, like a fund right now in our business, is looking to move it into another Churchill fund because
they see relative value. They're comfortable with the manager, they're comfortable with the core middle market asset class. They're just uncomfortable at the large end.
Randy Strummer with us here in private credit, folks, We're going to go downtown here in a bit here with Christina Raffini. But to continue on private credit, am I able to buy Churchill's abilities within an IRA or a four to oh one K?
So yeah, they're The issue for that is regulation, right, So it's out there. The government is saying four one K four one K.
I can get a piece of Shrimmer Incorporated.
Not right now.
You need to go through the regular public channels for that.
You can't.
I don't think you can do it through your forum.
And that causes messy. Gary was in the other day and then Gary Goessler, well I quised him. I said, look, did this start with this retaalization of Randy Schrimmer's world?
I blamed it on you.
But the answer is, what if we de retail, does the problem go away.
Yeah, so here's the problem. The problem is education, right. So the beauty of this center talking about eighteen years the center of private Credit Excellence here at Bloomberg Surveillance and folks like kith Well Kate, the Case Wealth Group where I was out there in Kable Island yesterday and they were saying, Randy de mystify private credit for us, and I was saying, look, here's what's going on. If you understand the this is an ill liquid asset class.
If the retail investors Tom and Paul know that, you're not supposed to be able to get out. For example, your home is not liquid. If if if Zillo says, guess what we're going to give you daily nav on your home value? Is that going to make you more comfortable with your your home value? No, you know what your home is worth, whether it's a daily nov or monthly or every year. You don't care. The same with private credit. You should feel comfortable with the right manager
that the assets are good. Don't confuse liquidity in a fund with liquidity in the assets.
I've seen a bunch of I'm sure we all have it in the press.
I mean actual offering documents for these funds and right up front, this is ill liquid, yet you don't get five.
Percent out, but you know, blah blah blah.
I mean, so it's all there, but somewhere between there and the registered investment advisor.
And the phone call something breaking down.
Correct.
So, and we're here to correct that. And again you need illiquid investments as a diversifier for the public.
We're not going to educate people on this. It's not a classroom, Randy. We got to solve this thing fast. What is the shrimmer a path for the big boys, private equity, private credit to avoid this train record? Is it the d retail?
Here's the Here's the answer is the core middle market is the answer to this problem because in the core midtal market you are avoiding all of the issues which is roiling the large cat market right now, which is exposed to a lot of these the gifts of the month that I'm talking about with oil prices and AI and.
Uncertainty regime is riven as well.
Yeah, because if you're if you're trying to pretend that that large end of the market is liquid, well you might as well be in public credit.
Okay, one morning, could.
I raise a private credit fund today.
Absolutely, we are raising funds. So let me give you a little stat We are forty percent. Our deal closings is forty percent ahead of last year. In the middle of all this stuff. Okay, so our fundraising, you raised like sixteen billion dollars last year. I'm out talking to wealth investors all the time. And the cool thing now is and this is a prediction that even though the noise will continue, what's going to happen is the and it's
not just education. The actual performance of the folks like Churchill who know what they're doing, is going to become a parent. So it won't be where everybody's painted the same brush. You're going to start to see the core midal market out performing.
This has been wonderful. Randy Wan to brief, Thank you so much, Randy Strummember with this folks vice chair, Chief investment Strategy. It's a trucial asset management. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
It is good to speak as we try to with people with experience. Wayne Sanders has deep experience with the United States Army, including instruction at West Point, senior defense analysts for Bloomberg Intelligence. So Wayne and my silliness, I go to AI and I go. The island is essentially a.
Quote coral outcrop or.
A massive slab of rock pushed up from the Persian Gulf seafloor. Its topography is quite distinct from the low lying sandy islands common in other parts of Persian Golf.
What would Colin Powell?
What would General Powell say about sending a small group of the eighty second Airborne over to Carg Island.
Thanks for having me on.
I pretty much think that Colin Powell would say, you need a larger force, and you need to look at what some of the second and third and fourth order
effects are. Yeah, for when you actually land, you look at the risks that are associated with landing and Carg Island, and you are not only creating a geopolitical concern that has to be addressed with putting boots on the ground, you have to then be able to defend that for us when you're there, which means you're using additional air defense capabilities and naval air defense power which right now from interceptors that we have, you know, are a concern
to make sure that we always have enough in a China contingency in twenty twenty seven. So he's going to say, is the is the juice worth the squeeze when you're trying to put all these pieces.
Together, Herbie talk, is the juice worth squeeze?
Exactly?
Paul, with the juice with the squeeze?
Hey, Wayne, we all, I think all of our audience has been trying to get a little bit smarter about what it means to security provide security for the straight of horn Horn moves. It seems like a very difficult operation here from your perspective.
Is it possible and what would it take?
Yeah, it's absolutely possible.
The problem is it's about capacity and how much we want to actually put you know, the US naval forces in that position as well, not only the operating costs and all that I can get into if you want me to, but just from the strategic positioning of that is putting US naval vessels into the Strait itself to provide some level of escort, some level of security to be able to provide that always is going to put
those vessels at risk. And as you've seen, even plumes of smoke from something that was damaged but not destroyed on civilian infrastructure makes international global news. And so I RAN wins a lot of points if they're able to do something like that against a US vessel of any type that is trying to do that inside the Straits.
Same thing with US forces landing on card it ends up being a much larger piece because the asymmetric warfare angle of this, It only takes somebody who's got a shoulder fired missile who can come out from the shore. Even with our overwatch capability doesn't make it impossible for somebody to sneak through with something that's that small.
It's a suitcase. It's a little bit bigger than that.
You don't always have to look for this big armed drone launcher or missile launcher truck bed in order to destroy it. These are more insurgent type capabilities.
Wayne.
This is right up your alley here at West Point. There's the Robotics Research Center in our young cadets are at the drone building Paul cadets often start by building first person view drones from scratchy, Wayne Sanders, are we drone ready?
We are not quite drone ready.
If you look at Secretary of Hexsat's drone dominance program right, he wants to have three hundred and forty thousand drones within within two years, and you've seen about thirty thousand of them start being delivered.
So you see scalability for drone companies.
You know, er environment does very well with one way attack drones, redcat in teal drones or some of the other ones from company standpoint that are building this, But the army's taking a different approach as well, as you're talking about with West Point, and they are looking at ways to pretty much build and create it with additive manufacturing, thank three D printing for a lot of that same capability. And they're starting all the way back at west Point, at these centers of excellence.
Paul wantshould jump in here. One more question.
R Jabos claims, O folks still fully employed America, Wayne Sanders, As simple as I can, how far ahead is mister Putin of Secretary Hexith in the drone war?
Well from a manufacturing production perspective, they do quite well. And really it comes down to if you're talking about small drones, small drone production that Russia has as well as Ukraine, they've had to over the last three or
four years. They've actually put it together quite a bit of an infrastructure so that they can build these at scale based on how fast they're actually going through them and obviously getting destroyed, right, so they have the production rate and it's one of the reasons why Secretary Hegseth is looking at trying with the Replicator one point zero and Replicator two point zero programs. The Pentagon is to
build out that capacity for the small drone market. But the US is still the world leader by far in terms of what they call Group three, Group four, in Group five, uas think your big global hawks, your reaper drones, you know, very very sophisticated ISR platforms.
You're talking about thirty million dollars.
You're not talking about a you know, ten thousand dollars drone that somebody's making with these three D printing assets.
Wayne Secretary Hexeth has been very emphatic that the US Air Forces and Israeli Air Forces have hit thousands of targets here are we running out of high value targets to hit?
So that was my original assessment when we were we talked about, you know, how long did I think this war was going to protract? It really comes down to how far down that target list you want to go. There's obviously those strategic level targets that were taken out right up front, and then you move down into some of the hardened military targets. So if you think, even like in the US, right you have centers of gravity that you would want to hit first, and then it's like, oh, okay, wait,
we have other valid military targets. Same thing in Iran is we've hit all the ones that we thought were going to fire back at US first. Now comes the question as to how much of this the industry, the military industrial complex, do we want to actually continue to take out so that even if the regime were to stay in place, it would still take them fifteen twenty years to rebuild any type of capacity for a conventional military force. They're still obviously going to still have their
asymmetric capabilities because those we can't. All we can do is it's almost like playing wacka mole. I hate that term, but in terms of that. You've seen that with has Below, You've seen that with the Huthis and Hamas. It's one of the things that they continue to play against as part of what Trump's looking at getting rid of.
Wayne, don't be a stranger, Paul and I have twelve more questions for you. Wayne Sanders's public service to the nation in the United States Army and teaching at West Point Academy.
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