This is Bloomberg Wall Street Week.
And we may not have an overall recession, we're having a rolling recession. Econm of roll looks pretty strongly. It is when it comes to jobs.
The financial stories that shape our world.
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Through the eyes of the most influential voices.
Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, Debro Lair of the Paulson Institute, well then Hubbard of the Columbia Business School.
Bloomberg Wall Street Week with David Weston from Bloomberg Radio Momentum.
Donald Trump has it, Netflix has it, US economy has it, and China is trying to get it back. This is Bloomberg Wall Street Week. I'm David Weston. This week former Treasury Secretary Bob Rubin on the need to get the US fiscal house in order.
Once you get to legislating, there isn't the will. There's a lot of talk, but the talk is always divided politically.
We're him a POORI of HPS Investment Partners on private credit trees growing to the sky, and Charmine most of our rock money investing into a rising market. Golal Wall Street saw some impressive performances this week, as former President Trump continued his march to the Republican presidential nomination with a big win in New Hampshire, even as his remaining rival, former UN investor Nikki Haley, said, not so fast.
This race is far from over.
There are dozens of states.
Left to go.
Netflix showed that not all streaming businesses are troubled as it posted big fourth quarter wins on subscribers and on revenue.
We're really thrilled with our engagement trends domestically, Anglibly, our engagement is a bit impacted by our paid sharing. Think about it, like fewer households using the same account. So as those folks spin off and get their own accounts and we win them over with our programming, that will normalize and continue to grow.
Even as the streaming giant moved into the world of live entertainment with a big deal with the WWE.
We're pleased with the deal and we love the fact that Netflix was willing to take a bet on us for us with raw it was yet another test of someone new in the space.
Obviously an established.
Streaming entity, the streaming entity, if you will. It was a good bet by us, and we think a good bet by them.
China recognized that it needed to get some momentum back by cutting its bank reserve requirement ratio in a bid to boost its economy.
There is still a sufficient room for China's monetary policy in the next stage, and we will.
Continue to strike a balance between short term and long term, between stable growth and risk prevention.
But the US economy continued to show its strong momentum with surprisingly robust GDP growth numbers for the fourth quarter.
Well, we got to look at GDP first, because that's what everybody has been watching, up by three point three percent, a significantly.
Higher number than anticipated.
Equity markets spent most of the week marching higher, with just a little bit of a sell off on Friday. For the week, the S and P five hundred was up just over one percent, ending up at forty eight ninety, which is only sixty points away from the median consensus estimate of the Bloomberg else for the end of the year, the NASAC roads just under one percent, and the yield on the tenure rose just two basis points, tanned up at four point one four. Welcome back now, Sarah Malik,
CIO of neuven to help us sort all this out. So, Sarah, thanks so much for being back with us. I guess my question is when it comes to equities, what is causing all this momentum? It just keeps coming.
Good to see you, David Well.
The January effect is in full force CISPA, and it's been driven by the Bellweather technology sector.
There's been three reasons for the rally.
First, inflation is moderating, Second, the economy remains surprisingly strong, and third, expectation for rate cuts.
Now, we got two out of points this week that support that narrative.
PCEE, which is the Fed's preferred barometer of inflation, came as in naziks expected and GDP blue Pass expectations coming in at three point three percent. So where do we go from here?
But we have an FMC meeting next week. I think the Fed continues to watch and wake.
There's no reason for them to start talking about rate cuts at this point with the economy so strong and also with inflation while it's moderating, I'd like I think they'd like to see more of a consistent trend. So while when we're going past earning season, with forty percent of marketcap reporting next week, I think it's going to be tough to find a catalyst after that. S and P evaluations that are about a twenty percent premium to average.
I think that's going to be your headwind going forward, and that'll cause the rally to peter out eventually.
So, Sarah, before we get to what comes after, let's talk about next week and tech. You mentioned technology being a big driver. We've got some big tech names out next week. What are you expecting?
But it's a high bar for earning season in general, where consensus.
Expects earnings to grow by about five percent, And what we're seeing is the haves and the have not. So the halves are the companies beating sales and earnings, those socks are going up two percent. When that happens to have nots companies missing on sales and earnings, they're dropping by about five percent. So next week, all the megacap companies, Amazon, Apple, Alphabet report, I think they are going to be the leaders for Ernie's growth.
But we prefer.
Amazon and Alphabet over Apple Apple I think still has headwinds while Wee coming back into the market could cause them to lose market share, and importantly iPhone it fifty percent of their profitability has been normalizing to flat unit growth hosts the COVID bump. Also, we're worried about their app store and the profitability there given regulations. Now Alphabet and Amazon, they're benefiting from a cyclical upturn and advertising.
Also Amazon finally bearing the fruits of their investments in their retail business.
All of that I think positive for Alphabet and Amazon.
So what about some of the risks, the downside risks for equities and particularly are those expectations about raid cuts. I mean, there's been a back and forth between the Fed and the markets here about what's coming up. What is the risk here that, in fact the markets may be disappointed.
I think that's a good risk that is definitely out there. Came in twenty twenty four with the market expecting six to seven rate cuts this year starting in March. As of today, the March rate cut is now a fifty to fifty chance, So we're already starting to push those out. I don't think we're going to get six rate cuts with the economy functioning so strongly.
Second risk for the market is valuations.
We came into this year with SMP valuations at about twenty percent above average.
That's going to be a headwin for the markets. And also let's take a look at yields.
The ten year yield now backing up to about four point two percent.
That's a headwind for equities too.
So that's why I said host earnings a catalyst for the next leg up for.
Equities to cross five thousand on the SMP is hard to find.
Sarah's always such a treat to have you with us on Wall Street Week. Thank you for being here at Sarah Mallick of neuvene US Equity has had a pretty good run in twenty twenty three, which has led some people to think about taking some money off the table at those high valuations. For a different view, We welcome back now Charmin most of aur Rokwani. She's chief investment officer of Goldman Sachs Wealth Manager. Great to have you back with the Charmine. So let's look at your out
your outlook, America powers out. We're going to put the image up for those who can see it on the screen nineteen fifty nine Cadillac one of my favorite cars of all time. So give us your sense about why you think, boy, it's time to stay with US equities.
First and foremost. Our view of US pre eminence is intact, and that's why we chose that car. It is such an American looking car. It's so clear it can't be confused with cars from any other place. It also shows that America's been pre eminent for quite some time. We have a great quote from Bruce Springinstein's song Pink Cadillac there where people are saying, oh, after the global financial crisis, this was the end of the American century and if
the century belonged to China. And our view is actually no, US pre eminence is going to continue for the long run, and that's driven by a number of factoris. But that results in great earnings per share growth, very consistent, persistent, reliable growth, and that's why one should stay invested.
So if you look backwards, which you do in your outlook, actually you have remarkable numbers. If you take one hundred million dollars you correct me if I'm wrong here, back in two thousand and nine, it would be worth just under a billion dollars today invested in US docs as opposed to if you took a developed markets equities non US, it would be four hundred million, I believe, and if you did it in developing markets it'd be three hundred and eighteen. China two hundred and twenty nine million as
opposed to just under a billion dollars. That's a pretty extraordinary performance.
When we show these numbers to our clients, they are so surprised because, as you say, one hundred million would be just under a billion dollars just in US equities and not even a quarter of that in China. And for everybody who thinks of China's growth rate, it goes to show that economic growth alone doesn't drive equity markets
or earnings per share growth. And so that's why when we tell clients stay overweight US equities from a strategic long term perspective, they look at that data and it's easier to persuade them to do that.
Such an important thing. You said, stay in they could. One of the questions is is it time to take the money off the table. Because we always hear that disclaimer about past performance in future, Why isn't this the time to say, oh, you know what I did pretty well in equities, I should put the money someplace else.
So there'd be three places people could put their money. One would be you could put your money in non US equities. And that is a function of whether you think earnings per earnings per share growth will be faster. Do you think economic growth is going to be more sustainable. Does one think that evaluations are more attractive. Another place
would be bonds, and another would be cash. And we actually make the case that even though the returns for US equities relative to all these other assets has been outsized since the global financial crisis, we still recommend stay with US equities. And the argument there is that, first of all, when you're looking at cash and bonds, you're going to have substantially lower returns over the long growth. Second one is you look at other parts of the world.
Even though valueations look expensive, you need to adjust for sector weights, meaning US SMP five hundred benchmarks have a lot more earnings from technology stocks, so you have faster growing companies, faster growing earnings for share relative to for example, the UK equity market. It's really remarkable s and P five hundred when you look at the earnings about thirty percent comes from technology. In the UK equity market only
one percent. So when you're looking at benchmarks, you need to adjust for sector weights and then the US is expensive, but not that expensive relative to other market.
That was one of the things I got from your report. I had that, folks, because I hear it's expensive. It's expensive. It is fully valued. If you look at price earnings ratios and things. It's pretty historically it's up there, right, it's going to worry bit historically, but you're saying, if you really look at the right way, it's not as expensive as you think it is.
Yes, it is correct that it's expensive. So if we look at its own history, it's what we call in the tenth decign meaning equities have been cheaper ninety percent of the time. But when you look at it relative to other markets, you can't just look at the price to forward earnings. For example, you need to say, well, if index has a lot more technology versus another index that has a lot more energy and financials, the one with a lot of energy and financials will look cheaper,
but that's only because it has slower earnings growth. Once you make that adjustment, these other markets don't appear as cheap. Of course China is the exception, but we actually don't recommend client clients invest in trying to no matter how cheap.
It looks, it's not too good. So there are some risks in your outlook, and it struck me in looking at them, it looks like they're pretty much all either geopolitical or straight up political.
That is correct. We start with the all the things going on in the Middle East, so we start with the Israel Hamas, or we look at Iran. We're saying, what is the risk there? What about Iran Russia relationships? What does that mean? So everything related to the Middle East is on that list, and fears of escalation. It's not as if there's zer or probability of even further
escalation beyond what we've seen. Obviously, with what's going on in the region, risk of terrorism goes up, and then domestically in the US we have it as our lowest risk, even though people are very concerned about it. We don't think this kind of pessimism is warranted. They'll be volatility around the elections, but at the end of the day, the system of checks and balances in the US and the strength of the institutions is what makes the country
pre eminent. So we think clients need to look past that and past that volatility.
Thank you so much, Sherman. Really great to have you back with us as charmian. Most of our ROCKMANI of Goldman Sachs coming up. They say US deficits are unsustainable. We talk with the man who helped design the last serious attempt to deal with the debt and deficits, former Treasury Secretary Bob Rubin. That's next on Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Thirty four trillion dollars. That's what the US government owes its creditors, foreign and domestic, and it's only getting worse.
The problem is that's led us to years and years of borrowing too much.
We now have a debt that's about to be at record levels, interestatements that are the fastest growing part of the budget, about to be larger than defense.
Some say that the problem is that we're spending too much.
Do you have to start cutting what you spend? Why is it everybody in this room balances a budget. I balanced a budget as governor of South Carolina. Why is Congress the only group that refuses to balance a budget?
Others point to the Trump tax cuts.
There are a lot of people who basically on Wall Street, who you and I would know, who voted for Trump once or even twice, and basically, look, I don't like the guy, but I like the policies, and they got what they wanted, the tax of the TCGA the Tax Cutting Jobs Act being the most prominent.
And the answer likely is both, which was why President Clinton both raised taxes and cut spending in his nineteen ninety three omnimous Budget Reconciliation Act, the last time that the federal government really got serious about addressing the debt.
I think he laid out the case. He brought people together. He was willing to do things that were painful for the people who were his friends. He was able to explain the case to the American people.
And to explain to us where we are in the debt and deficit and where we were back in nineteen ninety three. We welcome now one of the architects of that plan that President Clinton pursued. He is Bob Ruin, former Treasury Secretary. So, Bob, thank you, so much for being on Wall Street week.
David, happy to be with you.
So at the time, you actually were Director of National Economic Council and you helped put together a plan with Lloyd Benson the Treasury, but President Clinton really pushed it through. Give us a cent of how bad the problems were you were facing. Then what caused you to do what you did in ninety three Act.
David, We met with the president elect Governor of Arkansas in Little Rock after the election the economic theme the Income Economic Team, and we talked to him about what kind of an strategy he should have, and he said, listening to all this, our deficit is a threshold issue and we want everything else. We've got to do that because we have to get our fiscal house in order, and that was really our focus. Now we did it in the same time we did public investment. But the pressures,
I think were very substantial. There was a lot of concern in the business community, there was a lot of concern in the markets, and there was a real public political environment which unfortunately we don't have today to address these. He not only had the substance of it, which is President Clinton, the few that this was the rest of issue at threshold issue. We also have a political environment in.
Which it was doable if we can try to tease those two things out. How much of it was the market reaction what you were seeing. Basically, we have the incidents supposedly where Jim Carvell said, I want to come back as the bond market.
Well that was James said that he wanted to come well, because what happened there was we were having a debate within the administration should we focus on fiscal matters or should we focus on public investment. We end up doing both, but with a program, the ninety three Deaths Production program
that was very heavily focused on death reduction. And that's when James said he want Because we argued, and I think rightly argued, and it turned out to be correct that markets would react very favorably if we were serious, and also the better reserve would react very favorably. So James and responses all that said he would like to come back into the next life is the bond market.
So that is a somewhat market oriented approach. I mean, you'd come out of Goldman Sachs, you knew the market's terribly well, you took that sort of approach the whole question. How much of that drove what it was? Was it really just almost dollars and cents in what was going on in the markets.
Well, it was more than it was more than just the markets, And I think this is something unfortunately it hasn't been focused on, but it was the market's David, and when we got serious about Death's reduction, it was very favorable for the markets. And also Green's been reacted very well in terms of maintaining a relatively livable would a practical speaking a rate, a FED Fund rate that was consistent with growth, but it went way beyond that.
We wanted to have the resilience after if you're going to have, if you have an economic or anir security emergency of some sort, you want to be able to
deal with it without creating fiscal havoc. And another thing, when I was at Goldman Sachs and Steve Freeman and I were the co CEOs of Coleman Sacks in ninety one and in ninety two, one thing that I had the impression was that business was very concerned about our fiscal position, not only because the fiscal position per se, but also because it gave them the feeling government wasn't. It was incapable of dealing with our problems. So business
confidence I think was a very important factor. And once we acted, I think it had a really positive effect on business confidence.
Well, giving me a sense of what that means as a practimatory, is that does that translate into investment or lack of investment?
Yeah, that's exactly what it. Well, investment plan in terms of expansion and generally just John Maynor Kaines famously referred to animal spirits in his letter, his famous letter to President Roosevelt, and animal spirits make a new confidence makes a very big difference. And yeah, it does in terms of hiring plans, expansion plans, investment, And that absolutely is what happened.
Give me a sense of what was going on politically in the country that obviously President Clinton was reflecting to some extent what he thought that people felt.
Yeah, I think there was the people. I think there was a feeling there was a broad public concern about our fiscal position. And then Songus ran, Paul Songus ran for president on a fiscal unfortunately died as you know in that process, but on a fiscal discipline plank, if you want to call it. That our programs say, and that attracted a lot of favorable attention. Then ross Borough came along and he ran also on a fiscal discipline theory, and he got about nineteen percent of the vote, if
I remember correctly. President Clinton believed it to begin with. But then you had the politics I guess you'd call converge around this point of view as you saw songis and then as I said, Perro and President Clinton made that central to his economic problem.
Now let's bring it forward to today, because there's a lot of talk about the debt and deficit, which is frankly a lot larger both in nominal dollars and in comparative dollars than it was back then. Let's talk about what you learned in ninety three, what you did in ninety three that could considably be applied to twenty twenty four.
It's also a lot bigger, David, And this is the really important thing as a percentage of GDP and the pen of our economy, and that I think is the critical point. I think that the risks that we identified then, the multiple risks, that the same as they are today. I think that the risks are even greater today because our debt GDP Radio Simbio estimates at about one hundred percent right now. It's the highest in the history of the country except for nineteen forty six and forty seven we
were coming back out of World War Two. I think the risks are enormous, and some of them are materializing already, like higher interest rates and effect on inflation in part not full. Others haven't materialized yet, but I think they're out there and sooner related will materialize if we don't correct our our physical trajectory.
You talked about some of the market indicators and even forces that you saw in ninety three that sort of pointed you in a direction quite at President Clinton, in the direction of really making the death set of special issue. Are we seeing those indicators of the forces today in the markets.
I think that we are seeing the effects, but it's unfortunately from a political point of view, David, I don't think they're getting connected in a meaningful way with deficit reduction. The tenure was about I think one and a half percent, say, two years ago, and now it's about four and a half percent.
Now.
That's a lot of factors that go into that, but I think part of it is our fiscal situation and the effect that's had on inflation. I think it's been an aggravator over if you will, an effect on inflation. And I think there's a general concern about the imbalance between supplying demand for savings and the excess demand that's
created by our deficits. Unfortunately, from political point of view, I don't think the dots are being connected the way they were back in ninety two to three when we acted. Ninety three we acted, but ninety two when Predident Clinton was putting his plans together.
There's a lot of talk these days when we talk about the FED about the neutral rate and debate about whether it is the neutroid higher. And I guess my question is does the deficit and the debt normally, all the things being equal, drive the neutroid higher?
I think over time, But I think you can also have a long period of time, and we had a long period of time, David. We had actually a long, long period of time during which all of this was having little effect, and then all of a sudden, the ten ure went, as I said, a moment ago, from roughly one and a half to roughly four and a half. And there's certainly our periods when you can have a long time what's happening is out of sync with reality, but that doesn't go on forever, and when it corrects,
it can correct savagely. A good example was the Eurozone, the sovereign Eurostone crisis. For years, a Greek bondstrated roughly speaking parody with ghiblier take with German buns, and then all of a sudden it exploded. And I think it's a good example of how what isn't sensible ultimately doesn't continue.
There's the politics of it, which I want to talk about. Before that, Let's talk about the approach taken to it. Let's talk about, for example, the Biden administration. We can talk about the Trump ininstration. If you walk with the bidminstration. When you were there back in the nineties, you came from Golden Sachs, you had other people there who knew the markets pretty well. There was a healthy dose of how are the markets reacting this? What does that do for us? Do we still have that or is it
more ideologically driven? Because some people think we've sort of shifted the orientation, particularly the Democratic Party, more toward protectionism, more toward populism.
Well, you've asked multiple questions. I'll give you I'll give you my view. I've given a lot of thought to this, and I know the people there pretty well. If you look at the proposals, the major policy proposals that President Biden made, they were all paid for in the proposals. Now, ultimately they had to go through Congress, and when they went through Congress, they came out, some of them paid forwards and some of them not. I think he's actually
pretty good on this. I think there are other issues were I might have a different view than he does, but I think on fiscal stuff, actually he's got a pretty good sense of it. I think on the proposals that they had three major bills, IRA, Chips and infrastructure, and in the original propos and then of course for that build back better. The proposals were fully paid for dad to go through Congress, and in Congress they in some cases they lost the pay for us. You know
you mentioned populism or progressive Yeah, populism. If you look at what is referred to as industrial policy, and they referred to as industrial policy, it's their label, but it's not picking winners and losers. Now, it may be in the minds of some of those people. But if you look at those proposals, and I've talked to their people about this a lot, I think they actually make a
lot of sense on a purely economic basis. Their externalities they basically dealt with shortfall with insecurities in our system, in our excuse me, in our economic system with respect to our economic security or economic functioning, are geopolitical or national security functioning that markets were not going to meet and had to be met by government. So that I think is not industrial policy in the traditional sense, and
let's pick winners and losers. It was let's fill holes that the private sector simply isn't filling, and those are holds of economic and incial security.
So from your perspective, the overall approach, you don't take much issue with. No, really, do we end up with where we are, where we have increasing deficits in increasing debts?
Oh weud a minute. What I talked about was the proposals. No, I think we're in a terrible place because, unfortunately, once you get to legislating, there's a lot of talk, but the talk is always divided politically between the Republicans who refuse to raise taxes, and the Democrats who won't deal with titlements. Now, I think there was a reality to this. About sixty percent or something of the increase in the debt from thousand to twenty twenty two was because of
the tax cuts. So if it hadn't been for that, the debt, instead of being one hundred percent CDP would about sixty percent. Another way to look at it is exactly what I just said, which is what one percentage of what percent would the debt be of GDP. We had those two tax cuts, and you come out to this about the same number, around sixty three percent or
something like that. So I think in very large measure, what happened is we had two very big tax cuts, neither what we paid for, so we decided not to pay for what we were spending, and that's how we got where we are. But looking forward, we're gonna have to deal with both spending and taxes. So I think for the reasons I just said, when you get realistic about it, I think you're going to have to be largely on the tax side.
Bob, it's really been great having on wallstret Grieg. Thank you so much. That's Bob Ruben. He's the former Treasury Secretary. Coming up, Private credit continues. It's March to the Sky and we talk about how far you can go with Pornaba Pori out of Liquid Credit and HPS Investment Partners. That's next on Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
This is Wall Street Week. I'm David Weston. Credit drives the US and global economies, and we've gone for a world where somewhere there was too much credit, and now some people are questioning whether there's enough to help us understand the issues. We welcome back port of a Portie. She's HPS Investments head of Liquid Credit. So great to have you back on Wall Street Week. I never thought I'd be talking about this because we thought we don't
too much money. Now people are saying there's not enough supply. People are looking for it. Where are we in the supply demand for credit?
Yeah, so there was no supply last year, or very little supply anemic as they like to say. I think what happened is that you saw big bond mackert rally. Obviously sort of in the fourth quarter of last year. We came into this year and the capital markets opened up for business again, people feeling a lot better about the world. People felt like the FED had sort of landed this soft landing, I guess, and you can see
it in the markets. Price priced quite nicely for lots of cuts, and so you've seen a lot of supply. You've seen most of that supply in the high old loan markets and really high quality assures. You've seen a lot of investment grade supply, and you've seen a lot of treasury supply. And I think that there's a couple of reasons. I think one is that most folks are worried about the economy slowing towards the middle of the year.
So the Q two bottom is sort of the what the narrative looks like now, So getting in front of that is number one. I think Number two is there is a lot of demand for credit right now because absolute yields are are relatively high, and so the market's
open back up. And three, people are worried about the election cycles you sort of move forward in the course of the year and whether that's going to create a lot of volatility which will impact the ability to bring high yod asurres and loans to market.
So as a practical matter, if you have more demand for the credit, that drives the price up of the credit and it drives the yield down. It gets cheaper, as it were, are you getting paid these days for the risk you're taking credit?
So spreads and credit, But if you sort of go up and down the stack, you know, investment grade are sort of one hundred over and high yield is three fifty three sixty over. Loans are low five hundreds over. Spreads are pretty tight, and investment grade and in high yield I think, actually I think I saw a statistic today that high yield spreads were as tight as they have ever been post the GFC. Wow, So they're tight. Loans
are not. Loans are sort of in the middle, you know, non recessionary average loan spreads are in the low five hundreds. That's where it sits today. I think the difference, and this is kind of the the problem is that yields are yields are high, and spreads are tight, and so when yields are that high, you have a little bit of cushion if you're a little bit wrong on spreads and spreads back up a little bit and go up by fifty basis points or one hundred basis points over
a couple of years. So you're not making you know, eight to nine percent in highield bonds, you're making seven and a half to eight and a half percent in HIGHO bonds. So I think I think that in the in the context of what what are the options in the market today, credits far more compelling than equities for
a variety of reasons. Yields are pretty high, and rates, despite the short end coming in, are likely to stay somewhat elevated on the back end, So that spread plus the base rate gets you to a yield that kind of makes sense for people.
There's been something of a conversation going on between the markets and the FED about exactly what they're going to do in terms of cutting, how much they cut, how fast they cut, what is the market pricing in right now on that, and what happens if they're disappointed.
Yeah, we have two different conversations. So the FED dot flat is, you know, three twenty five basis point cuts. The market is pricing in five or six cuts this year, and that's a lot.
You know.
Our view is that the market is kind of priced for perfection. So you know, if the FED were to deliver six cuts, the question is why, And if it's a recession, that's not great. If the FED doesn't deliver it, the market's expecting it and expecting it in the context of a soft landing. So there's not a little there's not a lot of room error.
What about that possibility of a troubled economy that would require that many cuts. I mean, we spent a lot of last year with econdents of people saying we're gonna have a recesion, We're going to recession. Didn't happen. Now it seems like we're saying, no, not going to have a recession. Where is the credit market right now and pricing in the possibility of a recession, not just a slowdown of a recession.
The credit market is not pricing in a recession. Spreads are as tight as they've been and in fact, you know, I was looking at some numbers. It's just an interesting notable that if you look back to the beginning of last year, spreads were close to five hundred over on the high yod market. I want to say, versus kind of we said three sixty ish. Today, treasures are exactly the same place.
When people are financing these days, are they moving over to credit away from equity.
It seems like there's a decent amount of demand for credit right now for sure, across the board. I mean, ranging from treasuries to investment grade because that's another way to play that rate trade, to high yield, to loans, to private credit. There's a lot of demand.
I don't know if it's a conversation where there's more of a tug of war between private credit and liquid credits, syndicated things like that, with reports that the banks are trying to get back into that business take some business back away from private credit, are you seeing that?
Yeah?
I mean, look the markets. The supply in the markets has been there's been a lot of supply across loans and HYO bonds and investment grade. In January, that supply has come through the banks. That's come through the banks because there are buyers that are back that are buying
liquid credit. So you're definitely definitely seeing that today and if that trend continues, some of those big, big, mega I mean there are mega deals that were done in the private credit space, you know that were three billion, five billion dollars in size last year that were really really megacap deals. I suspect that if this trend continues, you won't see as many of those mega trend deal
megacap deals. The rub is if it doesn't and if there is volatility, and if the FED doesn't deliver six cuts and they deliver three cuts, and if their slower growth, this is going to go back the other way. Because there's one one variable, which is that there's a lot of companies in twenty five that need to refinance their debt. And what that means is that they oftentimes come to market a year in advance of twenty twenty five. So you're going to see a lot of paper that actually
needs to start to get refinanced in the marketplace. And so this question of whether whether the markets are going to sort of stay open, if you will, to allow for that to happen in the syndicated space is really the question that will happen. And that's the relevant question for whether this private credit trend will continue.
How much market share can private take away from the banks?
Well, I mean, the estimates are that private credit is going to grow by fifteen plus percent a year.
So but it's still a relatively small portion. If you look at total amount of loans, right.
It's five percent of all back now exactly totally.
So even if it's growing fifteen percent, it takes a long time.
It takes a long time. But remember, private credit is not I mean, there's been this narrative about it. It's not sort of credit out of thin air. I mean, as you said, it's credit that was underwritten by banks, So that's one place. It's credit that was underwritten by
syndicated investors. That's another home that it's coming from. And there's even and we're seeing in some of the insurance companies, you know, private investment, right, I mean, there's a lot of flow that's going to the land of private credit. I don't see what's going to make that stop.
What's miss price right now?
Quickly?
I think treasuries are going to stay. We're anchored in a sort of tenure or four four and a half percent, which means that I think credit generally is a pretty good place to be. I would say probably loans are more interesting just because we don't believe that that's going to cut that much. So that's probably an interesting place.
It was great to have you on Walter Rereeve, Thank you so much. That's part of a PORTI of HPS investment. Finally, one more thought. A goal without a plan is just a wish, so wrote and Twant Descent Exuberrie in The Prince eighty years ago. There's no shortages of wishes these days, from wishing to become president again to wishing to win a Super Bowl, some maybe for the first time. But the question is whether we can come up with a plan to make our wishes come true. Benchair J. Powell
certainly had a wish to bring inflation down. That's after his wish that it not be there in the first place didn't come true.
I think we're experiencing a big uptick in inflation, bigger than many expected, bigger than certainly than I expected.
But he promised that if it did come the FED had the tools it needed to handle it.
We will do what it takes to get inflation down, and in principle that could mean that if finisher conditions get looser, we have.
To do more. And as of right now, it looks like his plan is working.
You see that people are not writing down rate hikes. That's us thinking that we have done enough, but not feeling that really strongly confidently and not wanting to take the possibility of a rate hike off the table.
Florida Governor Ron DeSantis had a big wish to be the next president. I'm Rondie Santis, and I'm running for president to lead our great American comeback. But it looks like he didn't have enough of a plan to get there, so he dropped out of the race last Sunday. I am today suspending my campaign. I'm proud to have delivered on one hundred percent of my promises, and I will
not stop now. Bob Iger had a plan, as well as a wish, to make the Walt Disney Company the biggest, most successful entertainment company in the world.
Disney has a unique ability to grow strong brands and expand fantastic creative content, as we've proven with our successful acquisitions of both Pixar and Marvel, and.
For years, his plan worked better than just about anyone could have expected.
They are the number one company today as an entertainment media company without peer.
But the plan to move into streaming proved more difficult than people thought, leaving Bob. Like other entertainment CEOs, searching for a new plan for a new age.
Originally, when all these services launched, it was the library that brought people there, and the originals kept them.
It's now flipped the other way.
Even as Netflix moved into the live entertainment or sports arena with its deal this week with the WWE. On the other hand, I'm not sure how many people had a plan for Generative AI to transform the world. Chipmaker and Vidia's plans started out to make the gaming industry come alive, but it turned out to be just what the doctor ordered for AI, and right now Nvidia's wishes as well as its shareholders, are coming true, which of course brings us to Detroit Lions, the team I grew
up rooting for back in Flint, Michigan. No matter how bad it got, and believe me, it got bad, we Lions fans clung to our wish, never mind that they posted the worst eight year run in NFL history from two thousand and one to tho eight, and never mind that they accumulated more losses cumulative than any other team apart from the Arizona Cardinals. But that was then, and this is now. Is the Lions place for a slot
in the super Bowl this coming Sunday. Sure they have a franchise quarterback in Jared Goff.
Yeah.
I think the quarterback is often a.
Product of what's around them. And you know, obviously I've got a lot of confidence in myself, but I got a lot of great players around me who have helped me out this year and made things easier.
Sure they have a one of a kind coach in Dan Campbell.
This is where we wanted to get it right, This is where we wanted to go. This is you know, for for all the lines fans, this was the whole idea, right And I know it's you know, everybody been dying for it for so long that this is the point.
But it all started with a wish to win and a plan to get there. And that wish and that plan came from Sheila Ford Hamp, a scion of the Ford family who took over as principal owner when her mother passed away. By all accounts, Ms ford Hamp brought to the owner suite something that had been sorely lacking, a single minded, passionate quest to win whatever it took, and surrounding herself with the team she needed to get us there. Maybe the motor City truly is on its way back.
You see, it's the hottest fires that make the hardest steel.
Add hard work and conviction and then know how that runs generations deep in every last one of us.
That's we are, that's our story that does it. For this episode of Wall Street Week, I'm David Weston. This is Bloomberg. See you next week.