This is the Bloomberg Surveillance Podcast. I'm Lisa Abramoids along with Tom Keane and Jonathan Farrow. Join us each day for insight from the best in economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com,
the Bloomberg Terminal, and the Bloomberg Business App. Let's bring in Seth Carpenter, who has been quoted so frequently this morning on the show, chief global economist at Morgan Stanley is Seth, what's your initial reaction to these numbers?
Yeah, the tick up I think is there that there is a bit of softening. We've been saying for a long time. I think everybody's been looking for some softening in the economy as this year progresses, and I think that's what we're getting.
The level is important.
It's still quite low, so it's not as though we've fallen off a cliff or anything like it. I think the market reaction that you cited is also important. You know, we have one more rate hike as our baseline forecast at the main meeting, and then none after that, and I think the market is going to have to sort out. You know, when is the Fed going to say the softening is there, it's enough softening without it being too much softening, And you know, these data go go in that direction.
So we get these data points, and then we also got earlier this morning, and we'll get throughout the day the regional banking results, which have also pointed to potentially some withdrawal of credit. How do you factor that into employment? How do you factor that into the Fed's decision?
The banking situation is clearly important. It tightens financial conditions, it tightens access to credit. But we have to keep in mind the tightening access to credit and tightening financial conditions is exactly what the FED has been trying to do since they started raising interest rates. The hard part is, you know how much is this? Chair Powell at the last meeting, at the March meeting said maybe it's about
one or two rate hikes worth of tightening. Sure, we've got much data since then that says that he's wrong about that. It clearly matters. It clearly has increased cost of funding for banks, but we haven't seen again, we haven't seen. It looked like things are going off of a cliff, and so it's marginally more tightening, which again for us is the reason why one more heighten makes sense. But we don't need to go back to the place where the markets are pricing at six percent peak rates.
For the FED, there's this tension right now when you talk about the lag effects that will take place as some of the credit tightening continues at a time when you're already seeing deterioration in the labor market. Do we have a sense of how controlled this increase in unemployment could be. Are we just going to go to four and a half percent, as a FED is predicting, and stay there or is there a risk that it will accelerate on itself which is traditional in downturns.
Risk absolutely, and the amount of control that you the way you phrase it control, that's what the FED is hoping for, but it is it is impossible to believe that they have a huge amount of precision over these sorts of things. They're going to be feeling their way. I think what might be instructive for this cycle is to go back to the nineteen nineties. That hiking cycle was pretty fast like this one. At change pace. They stopped hiking at one point, and then they actually cut
a little bit. They did a mid cycle correction, if you will, cut a little bit, and then held rates high for several years after that. I think that kind of recalibration is entirely possible, precisely because there's not going to be a lot of precision over the real economy.
You know, as we talk about the destination, that was one of the big comments people at the IMF had that, whether they were on the side of the IMF or not, that we're going back to where we were pre pandemic. Based on some of these additional views with respect to credit tightening, with respective potentially overshooting, with the pace of unemployment creeping higher, do you think that that is the highest likelihood that we are going back to a low inflation, low right situation.
I'm not convinced that's the single most likely outcome, at least not for the next few years. Is there a possibility of a recession, Absolutely, the risks are clearly higher than they were before. However, I'm enough to remember when we've had recessions in this country without the funds rate going back to zero, and I suspect even in that version. It's not our baseline that we have a recession. But even if we did have a mild recession, I don't think they're going to cut all the way to zero.
How does the geopolitical overhang factor into this? And I say this as Treasure Secretary Jenne Yellen is said to speak in less than two hours and talk about how they're going to put national security before economic influence. How much does that factor the fragmentation and the higher inflationary regime going forward.
Oh, it just adds another layer of complexity and difficulty in forecasting when it comes to the inflationary side of things. If we disrupt global supply chains, it does mean that any urgent demand won't be met with as much supply or as quickly with the supply, and so it could lead to more bouts of inflation. I don't know that it necessarily means we shift into a permanently higher inflationary
regime there. That's going to depend on whether or not the FED can control the economy rein in aggregate demand to keep inflation from staying high. But ultimately it will make things more volatile. You'll see more macroeconomic volatility.
We've been talking about all the FED speak that we're going to be getting today, jamming it in ahead of the quiet period. What do you hope to learn from FED speakers?
I know, as always it's a question of what is it that they're looking at. I have consistently had the view that they are trying to slow the economy but not kill the economy, And so the real question is is the softening that we're seeing in the labor market, just like we were talking about before with the initial claims data, is that softening enough for them to say, we'll stay roughly where we are. Like I said, our
base case is one more hike. Are we seeing enough downward momentum for them to feel comfortable that the economy is lowing enough for inflation to continue its downward trend and for over the next couple of years to get back to target.
Seth Carpenter of Morgan Stanley, thank you so much for being with.
Us to ignore this the feed speak.
Well, I really wanted you to do that again because I really enjoy it when.
You do it.
Come on, go ahead, you want me to go again, Waller Mester, it's really good anyway, all of them, they're going to be sting many of us alongside.
It's just shaking his head. All of this joined us from avicor Jenny. What do you make of that just before the quiet period that many Feed speakers.
What I make of it is that your ability to do tongue twisters is absolutely phenomenal.
An you know, DJ back in the day, of course, was absolutely so.
All I can say is is when looking at this morning and the setup, given the earnings volatility we've seen so far today, is cautious at the outset. Let us recall the last time Secretary Yellen spoke alongside the Fed,
which was Jay Powell. We had an enormous amount of volatility and the fact that we're in all likelihood going to get two conflicting messages, a bunch of Fed speak coming out, probably hinting towards one and done, which is our view as opposed to okay, well the economy is now taking a second spot to political relations coming from the Treasury secretary. There's a lot of confusion.
One and done, then pause. Some people see that pause as bullish, others don't. I might include you in that. Over the weekend, I was reading your research to start a new week. This quote jumped out to me, twenty three's pause is likely to see a further sell off, recession volatility spike before the inevitable new ballmarket gain. Can you put some numbers on that? How are you thinking about that situation?
Sure?
So, if you look at it, the history of pauses tends to be on a twelve month basis quite positive. We expect that. But the problem here is you've still got to get through the recession. And yes, we've all been waiting for the recession for a year now. Remember there were two back to back negative GDP quarters to start twenty twenty two, So the watch is on. But ultimately part of this calculus is that we've had so much more tightening since that time. It doesn't take away
the concept of recession. The watchpot is going to boil. And so for us, when we look at the last month, what's clear is that the reason the market traded positively into the trough of the banking turmoil back in March is because it began discounting the pause prematurely. It's in the price now, so it isn't necessarily a bullish outcome. And look, it's been our expectation, as you know, and This is a frustrating market for both bulls and bears.
But it's been our expectation for six months now that at some point, given a recession ahead of US one or more than May, your indsease is going to test those October lows.
So if you were John Williams, you'd probably be glued to Eternal this morning looking at these small bank earnings and parsing through their balance sheets to understand the state of credit creation in the United States. It seems like what they're doing right now, what would your conclusion be in terms of is this just an idiosyncratic issue that leaves us in the same place, or was this clearly something more.
Well, you know, the whole concept of idiosyncratic across every company that's reporting is a little bit of a misnomer. In general. This is a process. Part of the fact that we created so much liquidity through fiscal and monetary expansion over a couple of years to fight the pandemic means that the other side of this unwind is a
process as opposed to a shock. This is all part of the process, and frankly, when you look at the longer term, it's better that it's going to take a while than you know, more sort of near death experiences like last month, But doesn't mean that the stress is going to go away. It's just going to roll out over a longer period.
What does this process mean? Does that mean that regional banks are uninvestable for you? Or does this mean that you're going to just sort of see a roll up in a survival of the fittest.
So the question here is where are the next dominos likely to fall? And I don't know that we know any more about that now than we did two or three weeks ago, or even two or three hours ago before these reports came out, So I think we'll just have to look. And part of the issue that we have is that you had such a sell off over
that month in the regional banks. And look, the fact of the matter is is when you sort of anticipate the news and I don't think anyone's surprised by the earnings reports we've seen this morning, but the shares don't respond even after this massive sell off. That's not a great message.
Is Tesla idiosyncratic?
No?
Why not?
Because basically what you're seeing, and this is the dichotomy and why the market's actually been trading sideways look ed. Heiman has been extremely optimistic about the trajectory of inflation over this year and internets we're going to get a two handle on inflation. Is that and all clear? Well, it's probably not, because the way that you get to the two handle is through an economic downturn, and that's what that earnings report is happening.
When do we get that two handled this year, next year, at the end of this year we think so, you think at the end of this year we do handle on CPI?
We do?
Is that headline?
Core?
What is that?
So again you can Parson, you can Parson, We'll go with Core. We'll go with Core PC just to make the fad happy, Okay.
Can I just ask you, given the fact that we really haven't gotten great earnings, there have been plenty of disappointments, why has the market not come around to your view and the parish views of the likes of Mike Wilson.
Well, because again, part if you look at the last year, we were so so obsessed with inflation that the fact that it's coming down in an environment where yes, we've done a huge amount of tightening, but the liquidity provision over those first couple of years to fight. The pandemic is so extreme. If you look at M two, M two is contracting right now, but the growth trend line regression line is still well below where we are. So there's residual liquidity in the system and positioning has been
bearished for the most part. So we're at this stalemate.
It just to be clear. Hey, you're still at forty one fifty year end on the S and P.
Five hundred year right now.
We're at forty one to fifty right now. You just see a lot of volatility story now and then.
Right if anyone thinks about convexity in their portfolio, it is time to load up on convexity. Whether you're bullish or bearish. The vix at seventeen is way too low and.
The year right now, Bromo, you're ready to go?
Yeah, absolutely, let's.
Go where we go it, let's go we go on vacation. Are where am I going?
You're gonna go to a Dacy Morn game?
I'd love to.
I know that's where you want to go.
I'm trying to secure tickets, something to talk to management to get the time off. Get the tickets first, obviously, then have the debate internally in the newsroom. Can I cover it? Can we take a camera? Can you pay for the flights?
Something like that, Giny and thank you appreciate it, buddy.
Let's talk about the banks and we can do that with Christopher Maronak, the director of research at Jenny Montgomery Scott, Christopher. Wonderful to catch up with you, sir. Thanks for taking some time because I know how busy you've been this morning just going through Bancuff, the Bancuff, the bank. Chris, what jumps out for you this morning from the names you've looked at?
So the banks are profitable and you see thamsbile book value and tangibile capital growing, so we're happy about that. I think deposits have been mixed. Some company deposits are off slightly. Really, deposit outflows were a lot less problematic than I think feared in March, so the real numbers suggest that deposits are coming down, but really coming down
at a measured pace. I think liquidity is still really high, and I think banks are now putting out a bunch of information about the uninsured deposits, about office real estate, about deposit granularity. So I think that really starts to
build confidence. We have credit quality generally very good for the quarter, no major change, maybe small uptics and charge offs, but overall, the banks are preparing for the recession if and when it comes, and I think capital generally is moving in the right direction.
Christopher, if this is all positive, then why are the shares negative even after all of the losses that we've seen so far this year.
So I think the banks still climb the wall to worry about the recession, and many investors remember how bad it was in two thousand and eight, nine and ten, So we have to get through this period no different than the uncertainty that existed back in COVID and twenty twenty. It took the bank six months to finally recover and go back to better valuation that I'm afraid that might be the case again this year.
We're hoping it's more like three or four months and not six.
But the reality is banks still have a lot of unrealized security losses and held the maturity and available for sale.
We haven't worked through all those yet.
We still have a lot of investors kind of haircutting capital for those losses, and I think at some point we have to get through that and see better securities values in the quarters ahead.
But in the meantime credit is stable.
We think over all the banks will stay profitable, and the fears about big deposit outflows and deposit runs really have not proven.
To be true.
Although we are seeing net interest margins come in below estimates pretty much across the board. I mean even Cinavius, which just reported, and they came out with better than expected deposits, better than expected loan growth, love fewer than expected provisions for credit losses. And yet here we are once again net interest margin coming in lower than expected, three point four to three percent versus three point five
to one percent. Is it takeaway just that the profitability case for these banks has been severely challenged and will continue to be going forward.
I would say it's it's not severely challenged.
I think it's modestly challenged, and some of that is really just to catch up on the cost of funds. Most banks deposits are way behind the FED funds rate. It's about three hundred basis points wide. It's as wide as I've ever seen it in thirty years covering banks. So I think that's going to narrow in the next few quarters, so that catch up has definitely hurt margins, but I think the repricing ability of new loans is
still very good for the banks. A lot of new loans are coming on in the high six is low sevens, and that's going to actually help margins stabilize.
So margin declines are real at the moment.
I think there's more of them in the second quarter, But I think the downside risk is not as bad as investors fear.
But again, we have to prove this to investors.
A lot of folks are from Missouri that want to be shown that this is really true.
It's about upside potential as well, not just downside risk. As you know, Chris, and you alluded to some of this just briefly, the threat of regulation from here. Do you think that threat of regulation is going to keep people away from these banks despite whatever happens with the fundamentals in the months to come.
Sure, And the reality is that I think we still do not know what's going to happen with FDIC deposit premiums, that the Fed and FDSC are very slow to approve bank deals.
That's grinding, and we have a possible change in the.
White House, which really impacts regulation here in the several quarters from now, so that is a very good reason not to own banks. But I also think there are a fair amount of investors who have to own some position. They can't be at zero. They may be underweight, but they can't be at zero. So I think you're going to see some nibbling on the stocks as time passes, But there are a lot of folks on the sidelines.
I think your point's very accurate.
There's a lot of economists who are looking for this data that comes out in early May, the Senior Loan Officer Opinion Survey. Christopher and I wonder if we can sort of front run then a little bit based on what we've heard from the banks so far. There are people who sit around this table with U Chris every single day that talk about the beginning of a process that leads to time of financial conditions and lending standards.
Are you hearing that from executives from these banks they've reported so far this week?
Absolutely.
I think we heard it in January before all this started to happen, So it's very much a reality.
It will continue to get tighter.
But the good news is there are companies who have to borrow and banks who want to lend to them, they're just going to be tougher on the standards. I think that actually bodes well for credit quality through the cycle. Loan to values are going to be lower than folks realize. I think the rates that people will accept from banks will be higher.
That's ultimately good for business.
But there's no doubt it's a tighter credit market out there, and what happened in the past six weeks has certainly put an exclamation point on that tightening.
Have you got in a sense based on what we've gotten from earnings of how significant the roll up will be, of how much there will be mergers and acquisitions and a consolidation to become a larger regional bank rather than just a smaller one.
So I think there's always winners and losers in the bank space, and I think consolidation will continue to happen. Even if the regulators take their slow time to approve deals, We'll still see consolidation over time. So what I'm looking for is the strongest companies will start to raise capital to prove they can that will differentiate them, that will help their stock prices recover sooner, and that ultimately will
lead to consolidation. There definitely will be a difference between buyers and sellers on valuations, even though it may not seem it today. I think that differentiated will start to happen in the next six to eight weeks.
Chris, as I say, I know you're super busy this morning, so thanks again for confinats some time for us as you pull through these bank earnings. Christopher Maronak, the of Jenny Montgomery Scott Lebby Cantrell joins US now had a public policy over at PIMCO Libya. I've been looking forward to this conversation. Thanks for being with us this morning. Can we start there. I think it's a really really
important topic for US today and maybe over the next decade. Lebby, what kind of actions are you expecting from this administration off the back of comments like these?
Yeah, well, John, your earlier comments I think are spot on. The rhetoric of the previous administration was quite strong. We saw that somewhat followed up by policy. But this administration actually the rhetoric has been maybe a little bit softer. They've really emphasized strate hegic competition, but also cooperation, cooperation
follows sort of closely after that emphasis on competition. But I would argue that the policies have actually been more substantive from the Biden administration and more putative in many ways as it relates to China. So, as Lisa mentioned, we saw those export controls on semiconductors. We think that's
the beginning of a broader process around export controls. But importantly, John, and this should be forthcoming in the next few weeks, months, but definitely by come midsummer, is this executive order on capital outflows that would require at least disclosure, if not prohibition of some capital outflows from the United States to China and specific sectors for sure, But it could have spillover effects to the public markets as sort of this chill in general goes on in terms of investment from
the US to China.
Libby, how many of the investors you speak with fully appreciate what the implications of this are from a pricing perspective, from a demand perspective, just in general, from reshaping the way that markets really really trade.
I think a lot of our clients realize that the political risk of investing in China has increased, and maybe the economic benefit of investing in China is also not as much of a sort of as clear cut as
it was at least several years ago. So we are sort of seeing a reticence, especially in our US clients, more of a kind of a tilt toward to home bias, you know, Still an appreciation for diversification, still understanding that China is going to be a source of global growth over the secular and super secular timeframe, but also just sort of realizing that some of these investments may be fraught and again maybe tied up in both the political
rhetoric but also some of these policies coming out of Washington.
It's one thing to avoid buying Chinese bonds or stocks. It's another thing to question the valuations of say an Apple or some of the other technology giants at a time when so much of their businesses really rely on not just them, frankly, auto manufacturers, fast food companies. There's so many basic corporate America so standbys that are tied to China growth. How much is that appreciated?
Yeah, again, I mean I think that it's not to say that the domestic market in China is not going to continue to grow, and I think some of those companies are aimed more at that domestic that domestic market, but just in general being a US investor, and of course that's who we're talking to in terms of our US based clients, and they do sort of see that this is more fraught in terms of actually investing US
dollars into China Chinese companies. It's not to say that this is not going to you know, this is going to stop altogether, but I think this administration is any a pretty clear signal that they are going to at least require some disclosure and some oversight into how kind of US dollars are being allocated in China and importantly, are they going to sectors that could increase sort of the military and competitive of China.
Libby, this is the United States looking out to the rest of the world. Let's talk about the rest of the world looking into the United States. A big, big topic of conversation. As you know, later this summer is going to be the debt ceiling. We've had tax Day. I think a lot of people are trying to use that to try and understand where that X date might fall. Libby, have you got a deeper understanding, a better understanding of where that date might be.
Well, I think we're we're beholden to the data just as anybody else's. I mean, there was some promising data that came out yesterday just in terms of, you know, potentially getting past this June fifteenth tax filing date. I
think that's been the open question. Can we is there sort of enough capacity for the Treasury to get to this, to beyond this June fifteenth date, meaning that then they have more extraordinary measures to deploy, and then likely the X date will fall sort of mid July, end of July, maybe even August or even early September. I think there was some question around that and some concern that actually
they may not get past that June fifteenth date. I think yesterday John, what we saw in terms of the data and the receipts is that we may actually be able to get past at June fifteenth date, meaning the X date is pushed it more to later in the summer. And I think actually there's some folks in Congress though that wouldn't mind the X date being more being closer right more right around the quarters, because then that sort of forces folks to actually come to the table and to seek a resolution.
Speaker McCarthy says, he's got a plan. Do you think there's a plan out there at the moment that you see as realistic.
Well, he does have a plan, and he's you know, he's now now there's a bill actually, So it was a plan on Monday when he was up here in New York. Now that it's actually in legislative text, I think, John, the real open question is can he get two hundred and eighteen members. Of course, Republicans are like two hundred and twenty two in the House of Representatives. That means he can only lose four in order to actually get
this through the House. Now, you know, investors in the market should realize that whatever is passed, if this ultimately this bill gets passed, it will not be signed into laws. This is of course dead on arrival in the Senate. But it's important from a Speaker McCarthy perspective because it would increase his leverage with the White House. Right now, all he does is has legislative text, and he doesn't necessarily have a bill that's been able to pass the
past the House. I think that's the open question John, if he is able to pass this again this will not get signed into LOB but then at least it sort of starts formally these negotiations and certainly increases his sort of his positioning and negotiating power with the president.
Libby, you're one of the very best. We're lucky to catch out with you again. Let me cancel there, Pim car Let's do this again soon on this topic.
Shanelli Bosik is joining us now ahead of an interview with somebody on the other side potentially of this, John Gray, who is president and CEO of Blackstone.
Yeah.
Absolutely, John, thank you for joining us so much because you have such a large place in this story when we're looking at lending contracting across the country and so anyways, but let's start with your results here, John, because when you look at the numbers, you've beat on earnings per share, but assets under management. We've been waiting quarter after quarter here, you're so close dating that one trillion dollar mark. You've said things are kind of slowing out there in the environment.
At what point do things start to turn around here to kind of help push black zone a little bit further in this environment.
Chanale, it's great to be with you. I would just say We're incredibly proud of the quarter. We protected investor capital and that performance is ultimately what's going to propel us forward to raise more capital. We did see forty billion dollars of inflows more than two hundred billion over the last year, and for our shareholders, we delivered nearly a dollar in distributable earnings despite limited performance fees. And
we really think we have the right model. We've got staying power where we can hold assets in a difficult period in firepower nearly two hundred billion dollars to deploy, so our views, we just keep executing for our investors and the assets will take care of themselves over time.
Now we want to look a little bit broader across the universe here because Blackstone, of course is one of the biggest private landlords in the country, everything from warehouses to single family homes. I'm wondering, if you take out your crystal ball, John and kind of look across the economy, what are people not seeing about the real estate market. What's the next shoot drop?
Well, I think on real estate, the issue is people are looking through a very narrow lens and they're thinking about real estate all is one thing and the reality is where you invest matters. So if you look at office buildings, traditional office buildings in the US, which fortunately for US are less than two percent of our portfolio, there we're seeing really unprecedented weakness. Vacan see rates are twenty percent, rents are under pressure, and valuations are under
significant pressure. But if you look across to logistics Global Logistics, which is forty percent of what we own, their things look very different, almost unprecedented strength. You've got vacancy rates less than three percent. You've got rents growing double digit, mark to market lease rates of forty fifty percent between where the market rents are and what's in place, and so I think it's a pretty vast world out there.
In real estate, hotels continue to exhibit strength, data centers, student housing, but yes, commercial real estate in the office sector's challenge, and we expect that'll continue for some time.
Has that unprecedented weakness john been fully priced in when it comes to the office space.
Well, I think you see it in the stocks of the public rates. They've traded off very dramatically. Some of the big public office companies are off fifty seventy five percent. You've seen in the price market, valuations in the limited trades that are happening are down significantly. I think some folks in terms of funds, private funds may not have marked fully to what's been happening. I think you'll see more of that. We tend to be ahead of the
curve on those things. But I think the good news is, because I know there's a lot of focus on the banking sector, is that leverage levels around commercial real estate going into this, we're pretty low. So I think banks probably lent against office buildings at about sixty percent of value, so they should have a pretty good cushion, and office buildings as a percentage of their balance sheets is pretty small. So it's an area where there will be real headwinds.
Equity owners will take some real hits, but the broader real estate market looks a lot healthier.
How concerned are you, John, even in the broader real estate space about some of the issues that we've seen in the small banks, given that they own a significant portion of the lending books to commercial real estate across the industry.
Well, there's no question that credit will be tighter to commercial real estate. Some of the good news is the agencies, the government agencies Fanny and Freddie lead the way in multifamily lending and apartment lending, there is strength in other areas. Real estate lending is broader than just banks because insurance companies, commercial mortgage backed securities exist, mortgage reates are out there, so there are multiple sources of capital. But I do
think credit will be tighter in commercial real estate. The one benefit to existing owners is construction lending is going to get a lot tighter, and so you'll see less new supply long term that's a positive. But yes, I think we will see less capital available. It will dampen things a bit, but ultimately fundamentals around supply and demand or what drives value, and that's why if confidence going forward in most of the sectors, certainly away from office buildings.
John, I'm really curious about an update here on b Rate, the real estate fund that has faced on withdrawals over the last couple of months. Performance has been pretty stellar over three years, more than seventeen percent, but it has turned negative this year so far. I'm wondering what the pitch is to invest this year when performance is starting to be more muted.
Well, the performance this year, interestingly, Shanali has been hurt mostly by the interest rate hedges we put in place to protect the fund, which really helped us last year. The historic decline in March and rates impacted, but if you looked at the performance pre those hedges, you would have had positive performance in the quarter. I think rates have now moved down a fair amount, so that headwind should be away from us. The other thing I'd point
to is the cash flow growth. In the first quarter, estimated cash flow growth for b rate was nine percent, led by hotels, student housing logistics, which we talked about, So the underlying cash flow growth is good. It looks like inflations getting under control. The ten years has moved down, which long term is a positive for this portfolio, so we feel really good. It's a portfolio of rental housing
logistics in the sun belt of the United States. It's exactly what you want to own, and we think once you get through this more volatile markets period, people will focus again on fundamentals and that'll be quite helpful for the flows in be reach.
You know, we started to talk about the banking market as it pertains to commercial real estate, but you know, I want to cite some of Bloomberg's own reporting here. Black Zone had been in talks with Valley to buy some assets from Silicon Valley Bank. I'm really curious what this says about your ambition in this banking kind of
tumult period. Do you think you could do more by means of working with regional banks providing more credit where credit is tightening up, especially given some of your private credit books are up more than nine percent so far.
I think that's a great question, Chanale. Interestingly, of the forty billion we raised in the quarter, sixty percent of it came in our credit insurance and real estate credit areas. Investors are allocating more capital. We have in total in those areas three hundred and fifty billion dollars, and so I think there's a real opportunity. We're actually in discussions today with a number of regional banks to partner with them. They have very valuable relationships with borrowers out there across
the country. We have long term capital, and so in consumer financing and small and medium business financing, particularly in the asset backed area, we think there's a real opportunity to deploy more capital. And I think it's one of
the real strengths of the alternatives business. As you know, this used to just be about private equity, real estate, private equity, but what we do today is much broader, and I think the private credit area is really at a golden moment because we do see tightening out there, and yet we have this large pool of capital to deploy, and so I think you'll see us become much more active.
John, do you think that private credit will come into its golden era at a time where private equity is fading, where the valuations make less sense, at a time when rates are so high and offset some of the potential equity valuation.
You know, I think we see cycles, and so if you look at private equity, it's had enduring performance premiums. That's certainly been the case for us. Our group has done a terrific job deploying capital. What you're seeing now is a cyclical slowdown in transaction activity. That's what happens at moments when people are cautious. But ultimately this recovers, and so our ability to find great businesses, to intervene with those companies, to partner with management teams create value
that still exists. We announced a sizeable public to private of a company called Seavent in the online event management space for a north of four billion dollars this quarter. I think you'll see us find more opportunities over time. I think it just says right now things are a little bit slower, but they'll come back, and I think that business is going to do quite well.
He John, I'm really curious about your thoughts here on rates and inflation. You've heard a number of your banking rivals and peers say already that maybe the market is not really prepared for the eventuality of higher rates, and you've said also that maybe cuts this year are also not on the horizon. So what is the thing that the market is not seeing here about the direction of travel.
Well, I would say on the inflation front, I'll give you a little bit of optimism. We see inflation moving into the rare view mirror. And I say that because across our portfolio the statistics are really encouraging. Our procurement managers at portfolio companies are saying inflation in terms of input costs was only up two percent in the quarter. Shipping costs have come back almost back to twenty nineteen levels.
Even wages, which we're up as high as seven percent in our portfolio six months ago, are now at five point six percent, and the availability of workers has gotten a lot better for our portfolio companies. And if you looked at the CPI number last month, it was five percent, but if you exclude shelter, which is a lagging indicator, it was up just three point four percent. So that
is the good news. I think the more challenging news to your question on rates is the FED is going to want to make sure this inflation really gets down. So I think the idea that they're going to pivot is a mistake. I think they're much more likely to pause hold rates and an elevated level and continue to see the economy decelerate. And now when you add in what we've been talking about with regional banks, that's going to create further tightening, and so credit is becoming less available,
more expensive. It's really you know, sort of the blood flow through the circulatory engine of the economy, and that is slowing, and I think that will lead to a sequential slowdown in the economy, so that will stay tight. But the good news for investors for consumers is inflation's coming down, and we think that's really positive.
John twenty seconds, how long is it going to take for deal making to come back.
You know, I think it's going to take some stability in markets, certainly getting past this inflation, people having more confidence. Hopefully it happens in the back half of the year. I think it's the latest sometime in the early part of next year.
John Gray of Blackstone and Bloomberg Shanolipassic, thank you both so much for being here. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern, on Bloomberg dot Com, the iHeartRadio app tune In, and the Bloomberg Business app. You can watch us live on Bloomberg Television and always on the Bloomberg Terminal. Thanks for listening. I'm Lisa Abramowitz, and this is Bloomberg.