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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Business Weekdaily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy, plus global business finance and tech news as it happens. The Bloomberg Business Week Daily Podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio.
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Speaker 2: Our Bloomberg Markets Live team, writing that the latest reason to worry about the stock market is quite the douzy. The earnings growth has actually been too strong. We've got with us Michael Ball, Bloomberg News macro strategist. He's got a great background. He was at the New York FED during the crisis. That was two thousand and six to twenty thirteen is when he was there, So I think it's fair to say he's seen some stuff. He was a consultant, he was a macro analyst advising institutional clients, he was doing some trading, and now we get him here at Bloomberg. Welcome, good to have you, Thanks for having you guys get to be on the show. So I want to start with this idea that earnings growth has actually been too good. Like, why is that at that time?
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Speaker 3: Yeah, again, it's what is the next catalyst for the lake higher? Right, we've been pinned at the SPX. We've seen a healthy rotation within that as July really saw a lot of the prior AI winners come off, and then the earnings picture just improved throughout July broadened, and now we have that twenty to thirty percent change in how much we're seeing forward EPs and growth. Now we can't get too much more given the macro backdrop, meaning like where are we going to lean again on for leadership? Is it going to go back to AI or is it going to be continuing breath of earnings improving? And the actual economic growth story, although very strong, given the uncertainty we're constantly dealing with with tariffs, with the war, with the general state of the consumer, there's not too much more we can kind of squeeze out. And I go through all the earnings calls, it's really this margin expansion story because they've been able to hold pricing power and now you're asking yourself, like what's the next driver for things? So it's not like a bad thing. I'm not trying to say you should be getting out of stocks. But if we want to get to the next leg higher, let's say eight thousand on the SPX, it's like, how do we get that extra you know, five ten percent now in earnings growth into the year end.
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Speaker 2: And that's the question. Well, GM JP Morgan come out this week and say that's what we're going to see. Yeah, I mean, this is it.
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Speaker 3: This is the argument the consumer has to basically now it can't just be AI capex now, it has to be a broad The earning story did show the consumers there. The data was better for Q two. We saw that in the GDP. We're going to get retail sales tomorrow that's expected to be a little weaker, but overall the consumer is not as bad. Now you've got Boa saying it's a C economy not a K economy anymore, because they've seen strength in both the.
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Speaker 2: Bottom and top. So this is this real? Is this tangible? Is it going to equate to the armscott Essen says that too. He doesn't like the idea.
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Speaker 4: Of the KEG right, you know, like pick your letter here. But Rebecca Humkins talked about it, and she's said kind of the case still intact, but the lower rung is actually maybe outspending or doing more spending than the upper rung, but it's still there. Maybe the gap isn't as big as it used to be. Having said that earnings are important in terms of economic growth though, right if we think about so, what does it mean a normal correction? Perhaps like where are people here?
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Speaker 2: We could tread water. I get your point.
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Speaker 3: I think what I'm a little worried about, and just put this into the grander context. Post July FMC, we had kind of a grab for upside. Basically, we also had that shakeout of what was going on in a lot of the AI laggards as we saw Citadel come in stabilize the momentum trade basically put a bottom in on the AI winners those guys have Obviously.
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Speaker 4: Wait, was that thing was a situational Where was that considered as a stabilizer to the overall A I.
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Speaker 3: Mean, if you look at momentum, which is basically the Socks index or the AI laggards in July, they all sort of bottomed around the same day. Now, obviously we also had the July FMC, which was more dubbish give sort of a boost to sort of financial conditions rates sort of stabilized oils being stable, everything basically flatlined and equities of rallied. But we were up ten percent on the Nasdaq since then, call spreads, call skew. Everything you see for grab for upside is all kind of at very high percentiles now, which means that people now are basically bowled up again. So again to go higher, now we need a new catalyst.
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Speaker 2: What is it? I don't know. H we're speaking of Michael Ball, macro strategist for Bloomberg News. He joins us here in the Bloomberg Interactive Brokers studio. So what does all this mean ahead of in Vidia earnings at the end of the month, Because if you think about the catalyst that I think about it in August, it's like, okay, yeah, we're getting a little bit economic data ahead of a September FED meeting, But really it's Jackson Hole is the next big event where we're going to hear the FED chair Kevin Wosh communicate with us. The other big event is in video And I think we're getting better.
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Speaker 3: At predicting in Vidia because at this point we basically have all their customers telling them what they've done. We have TSMC who they're a customer of I mean ASML all the kind of top top guys telling us what they've already done. So there's better clarity as we've come to understand sort of the beast that is in Vidia. Now Interestingly enough, you know, it historically does quite well into its earnings, and it has done quite well. We're back at two twenty on the stock price. That's sort of where the high is. Two twenty five I think was the high prior of the July pullback, So you know, I'm not actually expecting too much disruption. I don't know what the exact imploy ball for the earning release is, but let's assume it's probably come off a little. But to your point, the Jackson Hole stuff is probably the bigger picture because we need stabilization in the rates market. We saw the long end kind of come unhinged as Warsh gave his FMC pressor in the July and everyone got worried because he wasn't really committing to any actions and it wasn't really even speaking words that made sense.
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Speaker 2: Like I said, you were at the New York FED from two thousand and six to twenty thirteen, so you understand the FED, and you spent a lot of time observing FED communicators after that. I assume do you think he learned lessons in communicating from that press conference?
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Speaker 3: I think he kept me around a long time, he would have learned that already. I think he's got a game plan that maybe the markets aren't really hiped to yet.
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Speaker 4: And this is like a strategy.
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Speaker 3: Yeah, I think it's coordinated with Vested in some ways, and it certainly has a deeper feeling where he does want to adhere some control back to the market, reduce the footprint of the FED, which is admirable in a lot of ways because financial repression is a real problem and that's how bubbles are creating. We had the boom bus cycles that we've had in the past. But like he's yet to clarify that these task force are part of that. But like we're talking about a nine month to one year sort of clarity. In the meantime, he's basically saying, I'm going to let markets do the work for me and titan financial conditions if they think that's appropriate. The long end just said okay, we'll pick up We'll pick up your job right now. And that's why we had the tantrum sort of right after that FMC presser in July.
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Speaker 4: Interesting. You know we're going to have Dan ives on in the four o'clock hour hour and talk about what he's up to. But I thought it was interesting this end videos story where they are signing up six financial powerhouses and an attempt to bring more outside capital into the space and reassure investors. I don't know my read that, Like, how am I supposed to read that? How are market watchers reading that? Because to me, it says we're trying to be like, calm down, calm down, look at all these people who are willing to play with us financially.
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Speaker 2: Yeah.
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Speaker 3: I mean again, I've been speaking to this all day. Obviously, it's been twenty four hours since I came out. It's an interesting concept because we are well aware of the physical restraints, whether it's electricity, whether it's even labor atricians, whether it's the GPUs. Now we have this financial constraint where you're trying to push a lot of capital through a tiny straw that needs to be a giant pipeline.
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Speaker 2: Because the cap X story every quarter.
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Speaker 3: Gets bigger and bigger, and the momentum is growing and we have no end in sight for capacity demand, so this is part of that, Like, we want to grow the pie responsibly, and it can't all just be cashual recycled back to a few people like in Nvidia, who are really at the top of the food chain there they need to figure out how to get the capital back in without looking too circular. So again, the devil's be in the detail. I'm still not really sure either. So I heard your hesitation.
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Speaker 2: I'm with you.
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Speaker 3: There, but I think overall, you know this is going to be something where you'll see a better financing option. And then when we got like we looked at core weave today, we had next to this, we had the neo clouds. Today they were saying, the backlogs are looking good. They can kind of collateralize that into securities and get a better sense and a lower cost. One of the best thing out of core wee today was that their actual debt like financing costs were coming down notably, and obviously their backlogs are growing, so that alleviates some of this debt problem because that was obviously the big thing with Oracle and core Weave going in to sort of the sell offs, we see not only in July, but prior to that as well.
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Speaker 4: All I would say is backlogs great, but what if people cancele orders?
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Speaker 5: Right right?
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Speaker 6: Like?
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Speaker 4: There is always that, and people are starting to talk about power and data centers and multiple contracts.
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Speaker 3: There's and there's also reluctance to lock in longer term contracts because the prices.
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Speaker 2: Keep going up. Okay, so you don't want to.
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Speaker 3: You can actually hurt your future earnings growth because we don't know exactly where the demand goes.
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Speaker 2: It's so inelastic right now.
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Speaker 4: All right, we got to run. Michael Ball of Bloomberg News macro Strategist joining us right here in studios.
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Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming up after this.
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Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from two to five eastering. Listen on Applecarplay and Android autto with the Bloomberg Business app, or watch.
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Speaker 4: Us live on YouTube. Well today and really just moments ago, Bob Diamond's Atlas Merchant Capital announcing I'm a minority equity investment in Edge Focus. It's a firm that delivers technology capital and access to consumer credit. So we wanted to get the details right from the sources, the main sources. Bob Diamond is founding partner and CEO of Atlas Merchant Capital, global private equity and all to asset management firm focused on the financial services sector. He's also chairman of hyper Liquid Strategies. Welcome, Welcome.
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Speaker 2: I know a thing or two about running a big bang too, Yes.
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Speaker 4: I bet he who has some stories also with us, Elliott Lorenz He is co founder and CEO of Edge Focus. They, as the company reminds US, delivers technology, capital and access to consumer credit. Welcome, Welcome to both of you. Thank you for bringing this to us. I want to first get to the investment. And Elliott, let's talk about this investment. What does this equity investment specifically do for you? It has to do with like operations, doesn't it It does.
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Speaker 7: The important thing for us is being able to go into more asset classes and really invest in alongside of our partners. What we do, as you mentioned, Carol, is provide capital as well as access, as well as several different things to the consumer lending market.
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Speaker 8: We're ultimately looking to do is STI.
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Speaker 4: Connect a massive market by the language market.
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Speaker 7: Two hundred million dollars in unsecure consumer last year. We're trying to connect at the end of the day, big investment firms like a fortress with really large consumer lending firms like a SOFI.
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Speaker 2: Yeah, Bob, come on in on this investment. There's a lot of noise around credit markets, around private credit right now. In particular, it's you have a very diverse portfolio at Atlas Merchant Capital. Why make this investment right now?
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Speaker 5: You know, we have seen a real unbelievable development in the credit market since two thousand and eight, the Great Financial Crisis, and I think.
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Speaker 2: So much of.
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Speaker 5: Credit ended up on bank balance sheets prior to two thousand and eight, particularly outside the US, you know, the big banks in France, the big banks in the UK. All the credit was on the bank balance sheets. And we have seen a real development. Some call it private credit. You know, it's edge focus, it's fortress. There is so much diversification, and I think that's why we have had such a long period without a real blip in credit. It's it's become you know, it's a real credit to the US capital markets. I think in terms of consumer credit. And I saw this, you know, through the lens of Barclays. I saw it very much through Barclaycard, which dominated the credit card and consumer credit market in the UK. Is again it's much more diverse. It can be spread all out and I think we have originators of consumer credit like Sofar in Edge Focus. We have capital that likes to invest in consumer credit like Fortress, and I think one of the things that we can do together is we can find more originators, we can find more investors. And you know, when we look for an investment, you know, you want to have someone that has a unique position in their market.
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Speaker 8: That's Edge Focus.
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Speaker 5: You want to find someone that has strong leadership, that's Elliott and the team. You want to find a business that's profitable, but most importantly for us, you want to find a business that has both a willingness and ability to grow. And this can be a significant increase over the next three four five years with access to capital to grow this business. So it's unusual in financial services to look at investments where they can be multiples of where they are today, but what Elliott and the team have built can be multiples of this. It's a big market.
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Speaker 4: You mentioned unique focus that Elliott has and his team. What is that unique focus, Elliot, Because the consumer credit market a lot of players, a lot of folks in there. What is it that you guys are doing differently? And I'm curious than what you think they're doing differently. That's appealing.
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Speaker 8: We do three things really well.
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Speaker 7: We have access to a ton of data, are modeling approach, and then access to various other consumer lenders. From a data standpoint, hundreds of billions of data points in the US consumer across lots of platforms. We know really well at all times the consumers data coming from two main sources, from platforms themselves who issue loans, as well as the credit bureaus, lots of all the alternative data sources as well. From modeling standpoint, we have PhD researchers where all they do every day is research how to model the consumer, see who the latest trends are, and then finally access. None of this matters unless you have really good access across lots of different platforms.
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Speaker 8: Bobby, they have one more.
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Speaker 9: They have incredible.
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Speaker 4: Someone who did I S the due diligence, a lot of work on this.
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Speaker 5: There's incredible discipline and both the originators and the providers of capital love what they see here because of the discipline with their own capital, but also with their advice and council. So it's in underwriting but also in advising.
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Speaker 4: Does that mean only certain types of consumer credit that you're going to like certain categories, certain types of like tell us, is it top tier? Like what are you going for?
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Speaker 8: We look across the board.
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Speaker 7: Generally speaking, we can provide the most value in near prime and subprime credit.
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Speaker 4: Near prime and supprima.
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Speaker 2: So on that, Elliott, So fine, happy money our two you know existing deals that our Bloomberg News team has reported on. Would you would you think about expanding to I don't know, the other places like buy out pay later firms for example.
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Speaker 7: Absolutely. I think it's part of the reason for the investment. We want to grow beyond unsecured, which we're really big in right now. We're getting much bigger in auto. We want to be in point of sale, medical, we want to be in home improvement. There's a ton of areas for us to grow into.
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Speaker 2: What are some are you Are you talking right now to any specific buind out pay leader firms or any of those firms in the spaces that you just mentioned right now?
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Speaker 8: Many of them absolutely, so we should expect deals.
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Speaker 2: We should expect deals.
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Speaker 8: To be and our LP's are asking for it as well. It's got a really neat characters.
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Speaker 2: Do you think that Do you.
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Speaker 5: Think we're going to have a pretty big announcement in about two weeks?
00:14:43
Speaker 2: So I love this, So we parke date.
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Speaker 4: But that's appealing to you that part of the market.
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Speaker 5: You know, Carol, as I said, it's about a unique position which they have. It's about strong leadership, it's about profitability. But most importantly what we love is we're not just great investors, we're great operators.
00:15:03
Speaker 2: We love to roll.
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Speaker 5: Up our sleeves, go out and visit clients, help them think about expansion. And when you look at a business that is this disciplined and this profitable and this focus with the market out there and consumer credit and beyond consumer credit, it's just this is exactly the kind of investment that gets us up in the morning.
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Speaker 2: Well, so then what are you going to do, Bob for Elliott and his team? You know, you say to you guys, like to roll up your sleeves. You're making this injection of capital. You're now a minority owner in the firm. That's just the beginning right, do.
00:15:33
Speaker 5: You have an and foremost, when Carol and Tim call I come here to.
00:15:37
Speaker 2: Room, I like that. Maybe. I mean there is down Denver, so maybe you could go do some skiing this winter's in the ether.
00:15:44
Speaker 4: So but yeah, how involved it tells a good old fashioned.
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Speaker 8: Fortress is a great partner.
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Speaker 5: Yeah, there are other institutions that David Seamus and I and Brian Saunders have been very close to over the years, and other investments are in our career and you know, David was with JC Flowers in my time at Barclays. We know a lot of people that would be interested in being capital providers, but until now they have not heard about Edge Focus, and they have not heard about the business model.
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Speaker 4: Who are the investors already involved with you? What other investors might be coming? And you talk about the capital providers, like, who are we talking about.
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Speaker 7: All the really large private credit firms You've probably heard of? Like I said, we've talked about Fortress Publish quite a bit, several others as well.
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Speaker 4: Okay, so more, yes, more.
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Speaker 2: You know, I noticed in the press release that this is focused on hiring efforts. Part of this injection of capital partly focused on hiring efforts. To build out a big part of your team. I'm curious about talent that your firm is targeting in a market that's really, really competitive.
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Speaker 7: Incredibly competitive market. The biggest thing for us is hiring researchers, especially in the age of AI, making sure that we can invent folks who really understand the data, can use our tools effectively efficiently. It's one of the most important things for us too. There's our firm is technology based.
00:17:02
Speaker 4: What goes further? You're already very technology focused, AI focused. I'm curious, like, what's the next step?
00:17:09
Speaker 8: Where do you go with all of this new asset classes.
00:17:11
Speaker 7: We've done a lot of considering secured, we have a long way to go in subprime, ATTO, we have a really long way to go in point of sale, and there's several other asset classes for us to get into.
00:17:20
Speaker 2: Bob provide some context here, given your history in banking, and you know how what Elliott Elliot's firm is doing, in your view is different from the way that a big bank can profile a consumer.
00:17:34
Speaker 5: I think it's a number of things, but I think first and foremost, you know, the traditional banks prior to two thousand and eight just a very very different approach to managing what was in their portfolio.
00:17:47
Speaker 2: You'd see the quarterly.
00:17:48
Speaker 5: Yearning and you'd see a little bit of provision here and provision there, but it was not really asset or loan specific. Even in Barclaycard, which was really consumer credit and secured consumer credit, it didn't have the depth of this. So it's the incredible discipline and the incredible technology that they've brought to understanding credits so that the separation from kind of near prime to prime and subprime and things like that, that the number of gradations on that continuum are incredible, and that's what they've done. So they're much much better at managing access to credit and the return that comes from credit. And I think we've seen it broadly in the market. Since two thousand and eight. We haven't had a blip in credit. We've never had a cycle quite like this, and I don't think it's about to stop because there are so many more participants, so much more technology artificial intelligence that's being applied to analyzing the risks associated with every single.
00:18:49
Speaker 2: Ways of credit. Are you saying this time is different?
00:18:52
Speaker 5: I am saying the cycle is cycle is different because of technology, because of AI because of firms like edge Focus. Yeah, okay, meaning that, but by the way, it doesn't mean they won't be mistakes, right people that don't use that technology. For people that don't use edge Focus, you know, there will still be mistakes, but I don't think they'll be systemic. They're not going to be across the piece. They're not going to be a crisis for the industry. They may be a crisis for an individual fund.
00:19:20
Speaker 4: So in other words, not just that the risk is spread, but if somebody who doesn't have the great oversight or.
00:19:26
Speaker 5: That's still be mistakes made. Carol, Yes, absolutely, And I think what will separate edge Focus is more and more people are going to want to have access to people like Elliott and his team so they can move into that echelon without trying to build it themselves.
00:19:42
Speaker 4: So let me ask you, there are always cycles, and I'm just curious how exposed edge focuses specifically to consumer credit, and how will you guys be protected if ultimately we see financial conditions tighten. We are things go through cycles and then we start to see end user delinquencies increase significantly. I mean these things happen.
00:20:02
Speaker 7: Absolutely, We're very long consumer credit there's no question about it.
00:20:05
Speaker 8: At the end of the day, we need to.
00:20:06
Speaker 4: Do what do you do to mitigate risk?
00:20:07
Speaker 7: Like it's all about having that loan level selection where we can use all the data we have at the individual bire level to ultimately buy better portfolios of assets for investors.
00:20:18
Speaker 4: So you're just you're saying the data, the algorithms that like it's and we.
00:20:21
Speaker 8: Also have to monitor really well too.
00:20:23
Speaker 7: We've built out tons of proprietary internal platforms where we can watch this stuff in a real time basis and understand exactly how the consumer's evolving and so far in.
00:20:30
Speaker 4: Terms of issues that have gotten you into trouble, like what percentage?
00:20:36
Speaker 7: I mean, Look, there's no investments ever perfect, right, there's I mean you about twenty twenty two, twenty three, for example, inflation was really challenging on the consumer, There's no doubt. But you learn a lot from that, you add into your algorithms, into your models, and ultimately create a much more sustainable, defensible platform.
00:20:51
Speaker 2: Well, Carol brings up a good point, and you know what I heard from you just now speaks to what it sounds like. You have this what you think is a very solid real time view of how consumers are doing. We try to figure that out each and every day on this program by looking at data that we get from the FED, data that we get from different bureaus, alternative data as well. How is the consumer doing?
00:21:13
Speaker 7: Yeah, we have a lot of really cool insight into how the consumer is doing. What I can tell you is that applications continue to increase across all the platforms we have. Applications are up year overy year on the Is that a good present? You know, we're actually seeing delinquencies stay very very consistent.
00:21:26
Speaker 2: But consumers need more credit.
00:21:28
Speaker 7: They are and we're actually seeing an increase overall in debt to income ratios across consumers. So although the consumer looks to be needing some more credit and that's being shown in the applications, delinquencies are being pretty constant right now.
00:21:40
Speaker 4: Why is that public? What do you when you look at that cycle or those data points, which part of it where you said that debt to income right is rising and yet delinquencies are low. How do we explain that?
00:21:54
Speaker 5: You know, I think it's more discipline in the system and yeah, more providers capital. So I think the same thing I talked about since two thousand and eight on the investor side or the bank side in terms of their portfolios. I think consumers are much more mature, much more sophisticated, So it's not surprising that you would see less of an increase in delinquencies than you would in the amount of outstanding credit. That would be unsurprising.
00:22:23
Speaker 2: So, Bob, this is a minority investment in Edge Focus right now.
00:22:27
Speaker 4: Are you going to ask when it's going to be a majority?
00:22:28
Speaker 2: Yeah, That's exactly what I was going to ask. Is this the beginning of something? Perfection is never Is this the beginning of something?
00:22:35
Speaker 5: Or is this the beginning?
00:22:37
Speaker 2: Is there going to be more money coming from you? Or do you think this is enough for them to go out do their thing and then there's an exit at the end.
00:22:43
Speaker 5: I think the beauty of being Atlas Merchant Capital is a couple of things. One is our investors are very very patient if we go to them in three or four or five years and say this isn't going to be a normal cycle. We want to stay in this longer. We have a number of large sovereigns. The biggest issue they face every day is reinvestment, not exits. So we have that option in terms of the relationship we have with our investors. But I think most importantly, if there was need for more capital because the business is growing and valuations are going up, that's a good presentation for us. It doesn't mean we would go to majority. That would be unusual, and that might be in a distress situation, which you know, would be the farthest furthest thing from our mind in this situation. But if we have opportunities down the line to add additional investment at higher valuations because the business is growing, both in terms of products and in terms of customers and clients, that's fantastic.
00:23:43
Speaker 4: So we'd be remiss. You've only got about a minute or so left here, Bob. You have seen, you know, iconic for anybody who's watched Wall Street and financial markets, you've seen a lot of different cycles, good, bad, different. What do you make of this market cycle, which is there's angst and yet hit records and it makes sense.
00:24:02
Speaker 5: Well, I think two things, Carol, and I think on one side, and I see this. I've been very, very fortunate to be the chair of the Advisory board for the US Export Import Bank with John Jovanovic and the team, and they for the first time in decades are profitable. They are really driving performance with middle market companies across the US, and what shocks me is how profitable they are. What shocks me is how excited they are at the tailwinds coming from this administration in terms of less regulation, more pro business, and so the CEOs of middle market companies across the States are pretty excited.
00:24:44
Speaker 2: I think.
00:24:45
Speaker 5: I think in terms of the cycle with AI that people are talking about, and I suspect that's the other piece that we're asked it is. I think they'll be a correction.
00:24:53
Speaker 2: They'll always be a correction.
00:24:55
Speaker 5: Every technical innovation we've had, from railroads, from a le tricity, from the Internet will have a massive correction at some point. It doesn't feel like it's going to be tomorrow, but you know what, with any technical revolution like this, there's going to be corrections. It's not going to be one. Doesn't feel like it's around the corner. But I can assure you there'll be a correction. I just can't assure you when it's going to be.
00:25:19
Speaker 4: I don't know. Everybody keeps talking about it's good till twenty thirty, and then it's.
00:25:22
Speaker 5: Like, I feel like that's just what the hope's not a strategy.
00:25:27
Speaker 4: That is so true. Gentlemen, when you have more news, please come back. We really enjoy this and thank you for giving us this opportunity.
00:25:34
Speaker 8: Thanks for having us.
00:25:35
Speaker 2: Bob Diamond, founding partner and CEO of Atlas Merchant Capital. Also he's chairman of hyper Liquid Strategies, among many other things. Also here Elliott Lorenz, the co founder and CEO of Edge Focus. Guys, thanks a lot.
00:25:47
Speaker 4: Thank you, thank you.
00:25:48
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming up after this.
00:25:56
Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from two to five eas during listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
00:26:10
Speaker 2: So we're wrapping up our editorial call this morning. We planned the call, we planned the entire show. We planned the entire show. Okay, and then we're like, and then what happens? A headline crosses the Bloomberg Josh Kushner and Bob I are going to buy the La Lakers to twelve and a half billion dollars. Immediately, let's get randall. We got to get Randall on the show, and here he is. He was stuck at home because everybody was bothering him.
00:26:34
Speaker 9: Well, it was originally going to be a work from home day and then I was trying to inch my way into the office and it was like email, email, email, So I got here about three.
00:26:41
Speaker 4: Everybody see his shirt.
00:26:42
Speaker 9: It's a late Lakers. I'm not a Lakers fan for the record, I'm a Kobe fan, but obviously I think Lakers fans feeling different about today.
00:26:49
Speaker 2: Okay, well, this is huge for a couple of reasons. One I think is because the Lakers just traded hands not so long ago. Two, the valuation twelve and a half billion dollars. Where do we even.
00:27:00
Speaker 9: Well, I think you started the valuation and the fact that this franchise sold for ten billion dollars last summer, for it to add two and a half billion dollars in value is ridiculous. And so what that means across sports is there's no one who's going to want to pay for anything more than the Lakers. And we sort of saw that with the Seahawks. The Seahawks sold for nine points six billion dollars, and I think it was probably clear from an investor standpoint that some people were like, we're not going to buy the Seattle Seahawks for more than what the Lakers sold for. Now the Lakers are sold for twelve point five billion dollars. It is a huge number.
00:27:30
Speaker 4: That's the appreciation. I mean, does it make sense? I mean, it's the Lakers. I mean when you think about a franchises, I guess, so there's.
00:27:37
Speaker 8: Only one exactly exactly.
00:27:39
Speaker 9: And I think that what is more telling is like why it was sold, which is you know, Mark Walter, who was of course under investigation by the Department of Justice for alleged loan fraud. And so with that in mind, I wonder from Joshua Krishner and Bob Iger who they were in Vegas trying to buy an expansion team there. Bob Biger told me earlier today that they little Birdie told him, hey, you should look into whether Mark Walter would be willing to sell the Lakers, And of course they had a private conversation and this deal came together within the last three or four days.
00:28:09
Speaker 4: Unbelievable. Too quickly.
00:28:11
Speaker 2: Was the Bus family involved at all in this this? Dear? Did they completely sell to so there is some.
00:28:18
Speaker 9: Remaining shares around, but they're no longer the majority owner of the Lakers, so Jenie Bus is the controlling governor. She's still running the day to day operations. No decision has been made on whether Igara Kushner will replace her, and Iger told me that they're not ready to have any conversations about.
00:28:33
Speaker 2: That just yet. I mean, these two guys, Josh Kushner and Bob Biger, they have a lot of money, but twelve and a half billion dollars is a lot of money.
00:28:42
Speaker 4: Get done?
00:28:42
Speaker 2: Yeah, Like, where's the money coming from? Right now? How do they own? How much are they putting up? Do we know this stuff here?
00:28:47
Speaker 8: We don't, We don't.
00:28:48
Speaker 9: I mean, Forbes has Bob Iger's estimated network between six hundred to seven hundred million dollars.
00:28:53
Speaker 2: Now he's not on the Bloomberg Billionaires Index, right.
00:28:55
Speaker 9: But who knows how much money Bob Iger actually has? And the same can be said for Joshua And of course there's also a Thrive Eternal that is his private equity firm or his venture firm, a venture fund. There's a lot of money in sports, and there's a lot of very rich people that we just can't track them all so if it closed, that means the money is there.
00:29:15
Speaker 2: Now how it got there?
00:29:16
Speaker 4: We don't know it happened so quickly. Do we know anything about whether or not it was being shopped at all? Like, we don't know, not at all.
00:29:23
Speaker 9: I mean, I think whoever gave Bob Biger and Joshua Kushner the tip that they should look into the Lakers probably deserve some sort of vacation somewhere because if this hit the market, that is the main thing. If Mark Walter had put this on the market, you have to wonder, I sport Coat valued the Cowboys I believe fifteen billion dollars today. Imagine what the Lakers would sell for and the type of people who would raise their hands.
00:29:45
Speaker 2: To buy that. Well, then why wouldn't you put it on the market if you are interested in selling.
00:29:48
Speaker 4: Let's say someone comes to you.
00:29:51
Speaker 9: We should ask Mark Walter that question, which is you know who? I wonder from Mark Walter's standpoint, did he think that this was the smartest thing to do, the easiest way for him to get cash a two point five billion dollars estimated to you know, go directly into his podcasts. I could therefore pay some of these loans off. Don't know, it's a lot of money.
00:30:12
Speaker 4: Well, you know, like if you're selling a houser, sometimes you just want the deal done quickly, you need the money whatever.
00:30:17
Speaker 2: But you know, I'm trying. I'm trying to put myself and.
00:30:20
Speaker 9: Alabaya was floating today on the call.
00:30:22
Speaker 4: I tell me about that, this seems like such a great fit.
00:30:25
Speaker 2: He said, he.
00:30:26
Speaker 9: Loves surprises, and he compared it to when the Pixar and the Marvel and some of those deals completed. And then of course he said that Joshua Kushner said that this was like buying the Mona Lisa, and this is that a beachfront property, and this is all of those things. It's equivalent to one of them. You put the Lakers on Mount Rushmore. In terms of sports properties that are out there.
00:30:47
Speaker 2: There are still even though these aren't public trade entities, there are still regulatory issues that have to be solved here. There were reports that this duo or parts of this duo were looking at teams in other parts of the country owning have ownership and other parts and other teams in the league. How does that work?
00:31:05
Speaker 9: So Joshua Kushner owns a piece of the Miami Heat. He previously owned a piece of the Memphis Grizzlies. In order to buy the Miami a piece of the Miami Heat, he sold his piece of the Memphis Grizzlies, and now a similar thing will happen, so he'll sell that piece of the Miami Heat. He's They basically admitted to abandoning interest in Las Vegas. And this is if this deal gets approved by the NBA Board of Governors, and I think that they could very well be the controlling and you know, I think Bob Iko would probably be the alternate governor probably by the end.
00:31:34
Speaker 2: Of the year.
00:31:35
Speaker 4: I know, if you've got a franchise, you don't want to sell it. Is there anything though that this deal would make some owners say, well, maybe I need to think about, you know.
00:31:43
Speaker 2: No selling.
00:31:45
Speaker 9: I think owners have their reasons for selling. And you have to wonder with the NBA's new media deal seventy six billion dollar media deal over eleven years, is now the right time to sell? And I would tell you I think the answer right now is no. Strictly because of the fact that NBA expansion teams are coming. Those expansion fees are split amongst the owners, so you have the opportunity to get a three hundred or four hundred million dollar check, why wouldn't you? And now you have three hundred million dollars, Now you can sell and get another three billion, four billion, five billion or money.
00:32:15
Speaker 4: In sports, It's like unbelievable and it just continues to grow.
00:32:18
Speaker 2: So Bob Iger known as being the man who turned around Disney and was at the helm of Disney for so long. Josh Kushner private equity has been in real estate, comes from a bigger realestate family. He's also Oh, I was going to say, his brother is Jared too, the president's son in law Mary Tweetfvanka Trump. Is that relevant here?
00:32:34
Speaker 9: We'll see, We'll see. I think that it remains to be seen. But I don't know his direct involvement in the Trump administration. Josh Josh Kushner has not said a lot now. He's been very quiet, and so what I anticipate what happened is that they will do a press conference and it'll be telling to see if it's Bob Biger and Joshua Kushner or just Bob Biger speaking about this transaction.
00:32:55
Speaker 4: Is Bob going to buy any more sports teams?
00:32:57
Speaker 8: Do you say any think he did not.
00:32:59
Speaker 9: He said thrive, his interested in more, but he did not say that he was going to be raising his.
00:33:04
Speaker 4: Answer, it's a stay tuned, stay tune. Thank you so much. I know it's been a busy day.
00:33:07
Speaker 8: Love the Lakers and my Kobe doesn't love.
00:33:11
Speaker 2: It's like great, Rinda, thank you for having me.
00:33:14
Speaker 4: Thank you, Thank you always, Bloomberg News senior reporter the co host of the Bloomberg Business of Sports podcast. Fund it wherever you get your podcasts. Also find it on the Bloomberg.
00:33:24
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming up after this.
00:33:32
Speaker 1: You're listening to the Bloomberg Business Week Daily podcast. Catch us live weekday afternoons from two to five. Yes during listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
00:33:46
Speaker 4: All right, everybody, TikTok. We've got about twenty I can't do math twenty seven minutes until we wrap up the trade on this less than that, eighteen minutes to go. You take a long weekend and basic math.
00:34:00
Speaker 2: I love this. It was good.
00:34:02
Speaker 4: It was kind of what I needed. All right, S and P five hundred just up about twenty points, you heard, Charlie, So call it little change up about two hundred and eight points on the Nasdaq one hundred up seven tens of a percent. We're seeing a little bit of selling as we get closer to the end of trading. Today. We have a CPI print. We just want to get to our guest. Let's go there.
00:34:20
Speaker 2: Constant Shiner is here. She's chief economist and head of research at the Economist Intelligence Unit. She does macroeconomic and she had political forecast, among many other things, also Economist Enterprise. Now, so they're keeping you busy over there.
00:34:34
Speaker 4: Keeping me busy.
00:34:35
Speaker 2: We are happy to have you.
00:34:36
Speaker 4: We have a lot of stuff going on.
00:34:37
Speaker 2: We do and and you have a lot of stuff to keep track of. We're going to start with like the big picture stuff. And you know, we got the CPI report today. And what was the term you used earlier today? Lamor tam Yeah, blamer tam. I love that.
00:34:52
Speaker 4: What did you think, lambor tame?
00:34:53
Speaker 9: Oh?
00:34:54
Speaker 4: The print? I thought it was tame.
00:34:56
Speaker 6: And I think it's because it solidifies what we saw in June.
00:35:00
Speaker 3: Right.
00:35:02
Speaker 6: On the other hand, I can see why certain Fed presidents like Beth Hammock. She goes out to our district. She speaks to people and they all say, yeah, but prices aren't coming down. And as economists, of course, what we look at is, well, what is this current data say about where inflation is going to be three six months from now, and that all the indicators show that it's moderating. It's still sticky, but it's less sticky, and it's softening where it needs to soften.
00:35:27
Speaker 4: So the Fed doesn't need to cut rates or raise rates or give me a raise rates.
00:35:31
Speaker 6: So I know they can leave rates on holds and that's still a prudent policy.
00:35:38
Speaker 4: And I think what today's print.
00:35:41
Speaker 6: Provided, of course, that the August data continues along this trend, I think you're going to see Neil Kashkari move off being a dissenter, and I think you could even see Lori Logan move off being a dissenter because she's pointed to this combination of a strong economy and strong labor market, which of course we saw soften a little bit.
00:36:00
Speaker 4: But is it a strong labor market in terms of people who've left the workforce, Like, is it a.
00:36:05
Speaker 6: Strong It is a very funky labor market because we've had an aging population leave the workforce.
00:36:10
Speaker 4: We've had people leave.
00:36:11
Speaker 6: The country right right then, and then we've had people who are here get their temporary status revoked so they can't work. So the Haitians and Syrians had their temporary status revoked, So that'll show up in the August report. So we have a smaller labor supply.
00:36:27
Speaker 4: It feels like buybacks, you know, with a stock you know when a company does buybacks and they reduce the number of shares out there, and all of a sudden, earnings per share looks better. It does feel really funky in terms of the labor market.
00:36:38
Speaker 6: Yes, and that's why the fall and the unemployment rate can't be read as a signal is great, we have this really strong economy. On the other hand, if you're looking at a lower labor supply with the same level of demand, right you could say, well, could that be inflationary?
00:36:53
Speaker 4: So I think it is. It is a very.
00:36:56
Speaker 6: Unusual time, and there are so many rolling one off hits to be accounted for, whether we're talking about the government shutdown and how it's impacting the collection of rent prices and housing prices, whether we're talking about the supply checks from the war, which of course wasn't in the July report, and we'll probably show up in the August report because we've had a resumption of tensions.
00:37:19
Speaker 2: Maybe this is my own problem, just because it sort of reveals my own anxieties about the future. But we're talking about a lot of demographic shifts in a very short period of time that are caused us to do a reset. And we talked about this last week a little bit with the jobs report. But if we have a smaller or shrinking labor force, what does that mean for when we all get older and we need a labor force to support us with Social Security? Like there are some real fundamental questions about what this smaller labor force means in an environment where immigration was making up for the fact that none of us are having kids anymore.
00:37:57
Speaker 6: So in a pago system like the one we have, that is a problem, right And in a pago system, by the way, that only invests in US treasuries. So we if we cast ourselves back to when George W. Bush was president and he wanted to change Social Security and have it begin to look a little bit like Australia's Super Annuation Fund in terms of the way it invests, there was a huge amount of pushback, Oh, you're going to be giving money to Wall Street to do these investments, and so it was never enacted. But had we changed our asset allocation right along with increasing the retirement age, we wouldn't be facing the solvency problems that I think you're alluding to with your question.
00:38:39
Speaker 4: At that math and like where what it would mean?
00:38:43
Speaker 2: Spend some more time with me, Carol. I'll make you anxious. I know you.
00:38:48
Speaker 4: The thing is, you know, Constance, are there not smart economists in the government that know when you do things like limit immigration? I mean, you need a healthy immigration system right in terms of growth. I understand about you know, illegal versus legal immigration, and most people would say, we've got to have a system in place so that it happens well. But I do wonder if it's getting worse than that where people don't even want to come to the country, and then what that means for growth going forward.
00:39:19
Speaker 6: I mean, I certainly think if you look around the world, our image is not what it was now and people are scared to come because they hear these horror stories. And what I find interesting is when I travel for my job and I go to places and people say, oh, I went to the US and it wasn't as bad as it shows up in the news, because you know, if it bleeds, it leads. Right With that said, I think there's there is a populist undercurrent globally, so not just in the US.
00:39:47
Speaker 4: Right, this is not just the US where this is issue.
00:39:50
Speaker 6: And I think, look, if we look at social media, if we look at deregulation of media, we have a lot of misinformation out there.
00:39:58
Speaker 4: We have a you know what drives and hits is.
00:40:01
Speaker 6: Not Oh, this fabulous immigrant family came to the United States and look they put like their kids through.
00:40:07
Speaker 4: College now and the business they own is doing well.
00:40:09
Speaker 6: I mean that hits the news in a different way than sensationalist reports that drive eyeballs. And and you people, yeah, I think we're driving populism.
00:40:19
Speaker 4: Okay, so you think, so it's I agree with you.
00:40:22
Speaker 6: But that becomes more than just a rational cell, right, you have to people's were Our humans are hardwired to look for danger, to look for difficulty. And so when you have a storyline that says, well, here's the here's the danger, here's the difficulty, you can sell what looks like a quick fix that.
00:40:40
Speaker 4: May have longer term negative implications as your anxiety.
00:40:44
Speaker 2: Now, I'm sorry, I'm sorry, we're out of time.
00:40:51
Speaker 6: But all of us are communicators, right, this is we're professional communicators.
00:40:54
Speaker 9: We use that.
00:40:55
Speaker 4: Information to communicate.
00:40:57
Speaker 6: And the trick is to for all of us that are in this realm, is to communicate facts in a compelling way so it lands with a broader audience.
00:41:07
Speaker 4: Well, thank you as you communicate really really well, we really appreciate it. Constant Hunter is Sheief Economists, head of research at the Economist Intelligence Unit, joining us right here in studio.
00:41:18
Speaker 1: This is the Bloomberg Business Weekdaily podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Business Weekdaily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy, plus global business finance and tech news as it happens. The Bloomberg Business Week Daily Podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio.
00:00:32
Speaker 2: Our Bloomberg Markets Live team, writing that the latest reason to worry about the stock market is quite the douzy. The earnings growth has actually been too strong. We've got with us Michael Ball, Bloomberg News macro strategist. He's got a great background. He was at the New York FED during the crisis. That was two thousand and six to twenty thirteen is when he was there, So I think it's fair to say he's seen some stuff. He was a consultant, he was a macro analyst advising institutional clients, he was doing some trading, and now we get him here at Bloomberg. Welcome, good to have you, Thanks for having you guys get to be on the show. So I want to start with this idea that earnings growth has actually been too good. Like, why is that at that time?
00:01:07
Speaker 3: Yeah, again, it's what is the next catalyst for the lake higher? Right, we've been pinned at the SPX. We've seen a healthy rotation within that as July really saw a lot of the prior AI winners come off, and then the earnings picture just improved throughout July broadened, and now we have that twenty to thirty percent change in how much we're seeing forward EPs and growth. Now we can't get too much more given the macro backdrop, meaning like where are we going to lean again on for leadership? Is it going to go back to AI or is it going to be continuing breath of earnings improving? And the actual economic growth story, although very strong, given the uncertainty we're constantly dealing with with tariffs, with the war, with the general state of the consumer, there's not too much more we can kind of squeeze out. And I go through all the earnings calls, it's really this margin expansion story because they've been able to hold pricing power and now you're asking yourself, like what's the next driver for things? So it's not like a bad thing. I'm not trying to say you should be getting out of stocks. But if we want to get to the next leg higher, let's say eight thousand on the SPX, it's like, how do we get that extra you know, five ten percent now in earnings growth into the year end.
00:02:05
Speaker 2: And that's the question. Well, GM JP Morgan come out this week and say that's what we're going to see. Yeah, I mean, this is it.
00:02:10
Speaker 3: This is the argument the consumer has to basically now it can't just be AI capex now, it has to be a broad The earning story did show the consumers there. The data was better for Q two. We saw that in the GDP. We're going to get retail sales tomorrow that's expected to be a little weaker, but overall the consumer is not as bad. Now you've got Boa saying it's a C economy not a K economy anymore, because they've seen strength in both the.
00:02:30
Speaker 2: Bottom and top. So this is this real? Is this tangible? Is it going to equate to the armscott Essen says that too. He doesn't like the idea.
00:02:37
Speaker 4: Of the KEG right, you know, like pick your letter here. But Rebecca Humkins talked about it, and she's said kind of the case still intact, but the lower rung is actually maybe outspending or doing more spending than the upper rung, but it's still there. Maybe the gap isn't as big as it used to be. Having said that earnings are important in terms of economic growth though, right if we think about so, what does it mean a normal correction? Perhaps like where are people here?
00:03:04
Speaker 2: We could tread water. I get your point.
00:03:05
Speaker 3: I think what I'm a little worried about, and just put this into the grander context. Post July FMC, we had kind of a grab for upside. Basically, we also had that shakeout of what was going on in a lot of the AI laggards as we saw Citadel come in stabilize the momentum trade basically put a bottom in on the AI winners those guys have Obviously.
00:03:23
Speaker 4: Wait, was that thing was a situational Where was that considered as a stabilizer to the overall A I.
00:03:29
Speaker 3: Mean, if you look at momentum, which is basically the Socks index or the AI laggards in July, they all sort of bottomed around the same day. Now, obviously we also had the July FMC, which was more dubbish give sort of a boost to sort of financial conditions rates sort of stabilized oils being stable, everything basically flatlined and equities of rallied. But we were up ten percent on the Nasdaq since then, call spreads, call skew. Everything you see for grab for upside is all kind of at very high percentiles now, which means that people now are basically bowled up again. So again to go higher, now we need a new catalyst.
00:04:00
Speaker 2: What is it? I don't know. H we're speaking of Michael Ball, macro strategist for Bloomberg News. He joins us here in the Bloomberg Interactive Brokers studio. So what does all this mean ahead of in Vidia earnings at the end of the month, Because if you think about the catalyst that I think about it in August, it's like, okay, yeah, we're getting a little bit economic data ahead of a September FED meeting, But really it's Jackson Hole is the next big event where we're going to hear the FED chair Kevin Wosh communicate with us. The other big event is in video And I think we're getting better.
00:04:29
Speaker 3: At predicting in Vidia because at this point we basically have all their customers telling them what they've done. We have TSMC who they're a customer of I mean ASML all the kind of top top guys telling us what they've already done. So there's better clarity as we've come to understand sort of the beast that is in Vidia. Now Interestingly enough, you know, it historically does quite well into its earnings, and it has done quite well. We're back at two twenty on the stock price. That's sort of where the high is. Two twenty five I think was the high prior of the July pullback, So you know, I'm not actually expecting too much disruption. I don't know what the exact imploy ball for the earning release is, but let's assume it's probably come off a little. But to your point, the Jackson Hole stuff is probably the bigger picture because we need stabilization in the rates market. We saw the long end kind of come unhinged as Warsh gave his FMC pressor in the July and everyone got worried because he wasn't really committing to any actions and it wasn't really even speaking words that made sense.
00:05:18
Speaker 2: Like I said, you were at the New York FED from two thousand and six to twenty thirteen, so you understand the FED, and you spent a lot of time observing FED communicators after that. I assume do you think he learned lessons in communicating from that press conference?
00:05:30
Speaker 3: I think he kept me around a long time, he would have learned that already. I think he's got a game plan that maybe the markets aren't really hiped to yet.
00:05:36
Speaker 4: And this is like a strategy.
00:05:38
Speaker 3: Yeah, I think it's coordinated with Vested in some ways, and it certainly has a deeper feeling where he does want to adhere some control back to the market, reduce the footprint of the FED, which is admirable in a lot of ways because financial repression is a real problem and that's how bubbles are creating. We had the boom bus cycles that we've had in the past. But like he's yet to clarify that these task force are part of that. But like we're talking about a nine month to one year sort of clarity. In the meantime, he's basically saying, I'm going to let markets do the work for me and titan financial conditions if they think that's appropriate. The long end just said okay, we'll pick up We'll pick up your job right now. And that's why we had the tantrum sort of right after that FMC presser in July.
00:06:17
Speaker 4: Interesting. You know we're going to have Dan ives on in the four o'clock hour hour and talk about what he's up to. But I thought it was interesting this end videos story where they are signing up six financial powerhouses and an attempt to bring more outside capital into the space and reassure investors. I don't know my read that, Like, how am I supposed to read that? How are market watchers reading that? Because to me, it says we're trying to be like, calm down, calm down, look at all these people who are willing to play with us financially.
00:06:48
Speaker 2: Yeah.
00:06:49
Speaker 3: I mean again, I've been speaking to this all day. Obviously, it's been twenty four hours since I came out. It's an interesting concept because we are well aware of the physical restraints, whether it's electricity, whether it's even labor atricians, whether it's the GPUs. Now we have this financial constraint where you're trying to push a lot of capital through a tiny straw that needs to be a giant pipeline.
00:07:07
Speaker 2: Because the cap X story every quarter.
00:07:09
Speaker 3: Gets bigger and bigger, and the momentum is growing and we have no end in sight for capacity demand, so this is part of that, Like, we want to grow the pie responsibly, and it can't all just be cashual recycled back to a few people like in Nvidia, who are really at the top of the food chain there they need to figure out how to get the capital back in without looking too circular. So again, the devil's be in the detail. I'm still not really sure either. So I heard your hesitation.
00:07:30
Speaker 2: I'm with you.
00:07:30
Speaker 3: There, but I think overall, you know this is going to be something where you'll see a better financing option. And then when we got like we looked at core weave today, we had next to this, we had the neo clouds. Today they were saying, the backlogs are looking good. They can kind of collateralize that into securities and get a better sense and a lower cost. One of the best thing out of core wee today was that their actual debt like financing costs were coming down notably, and obviously their backlogs are growing, so that alleviates some of this debt problem because that was obviously the big thing with Oracle and core Weave going in to sort of the sell offs, we see not only in July, but prior to that as well.
00:08:02
Speaker 4: All I would say is backlogs great, but what if people cancele orders?
00:08:07
Speaker 5: Right right?
00:08:08
Speaker 6: Like?
00:08:09
Speaker 4: There is always that, and people are starting to talk about power and data centers and multiple contracts.
00:08:14
Speaker 3: There's and there's also reluctance to lock in longer term contracts because the prices.
00:08:18
Speaker 2: Keep going up. Okay, so you don't want to.
00:08:20
Speaker 3: You can actually hurt your future earnings growth because we don't know exactly where the demand goes.
00:08:25
Speaker 2: It's so inelastic right now.
00:08:26
Speaker 4: All right, we got to run. Michael Ball of Bloomberg News macro Strategist joining us right here in studios.
00:08:33
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming up after this.
00:08:41
Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from two to five eastering. Listen on Applecarplay and Android autto with the Bloomberg Business app, or watch.
00:08:52
Speaker 4: Us live on YouTube. Well today and really just moments ago, Bob Diamond's Atlas Merchant Capital announcing I'm a minority equity investment in Edge Focus. It's a firm that delivers technology capital and access to consumer credit. So we wanted to get the details right from the sources, the main sources. Bob Diamond is founding partner and CEO of Atlas Merchant Capital, global private equity and all to asset management firm focused on the financial services sector. He's also chairman of hyper Liquid Strategies. Welcome, Welcome.
00:09:20
Speaker 2: I know a thing or two about running a big bang too, Yes.
00:09:22
Speaker 4: I bet he who has some stories also with us, Elliott Lorenz He is co founder and CEO of Edge Focus. They, as the company reminds US, delivers technology, capital and access to consumer credit. Welcome, Welcome to both of you. Thank you for bringing this to us. I want to first get to the investment. And Elliott, let's talk about this investment. What does this equity investment specifically do for you? It has to do with like operations, doesn't it It does.
00:09:45
Speaker 7: The important thing for us is being able to go into more asset classes and really invest in alongside of our partners. What we do, as you mentioned, Carol, is provide capital as well as access, as well as several different things to the consumer lending market.
00:10:00
Speaker 8: We're ultimately looking to do is STI.
00:10:02
Speaker 4: Connect a massive market by the language market.
00:10:03
Speaker 7: Two hundred million dollars in unsecure consumer last year. We're trying to connect at the end of the day, big investment firms like a fortress with really large consumer lending firms like a SOFI.
00:10:15
Speaker 2: Yeah, Bob, come on in on this investment. There's a lot of noise around credit markets, around private credit right now. In particular, it's you have a very diverse portfolio at Atlas Merchant Capital. Why make this investment right now?
00:10:27
Speaker 5: You know, we have seen a real unbelievable development in the credit market since two thousand and eight, the Great Financial Crisis, and I think.
00:10:38
Speaker 2: So much of.
00:10:39
Speaker 5: Credit ended up on bank balance sheets prior to two thousand and eight, particularly outside the US, you know, the big banks in France, the big banks in the UK. All the credit was on the bank balance sheets. And we have seen a real development. Some call it private credit. You know, it's edge focus, it's fortress. There is so much diversification, and I think that's why we have had such a long period without a real blip in credit. It's it's become you know, it's a real credit to the US capital markets. I think in terms of consumer credit. And I saw this, you know, through the lens of Barclays. I saw it very much through Barclaycard, which dominated the credit card and consumer credit market in the UK. Is again it's much more diverse. It can be spread all out and I think we have originators of consumer credit like Sofar in Edge Focus. We have capital that likes to invest in consumer credit like Fortress, and I think one of the things that we can do together is we can find more originators, we can find more investors. And you know, when we look for an investment, you know, you want to have someone that has a unique position in their market.
00:11:56
Speaker 8: That's Edge Focus.
00:11:57
Speaker 5: You want to find someone that has strong leadership, that's Elliott and the team. You want to find a business that's profitable, but most importantly for us, you want to find a business that has both a willingness and ability to grow. And this can be a significant increase over the next three four five years with access to capital to grow this business. So it's unusual in financial services to look at investments where they can be multiples of where they are today, but what Elliott and the team have built can be multiples of this. It's a big market.
00:12:31
Speaker 4: You mentioned unique focus that Elliott has and his team. What is that unique focus, Elliot, Because the consumer credit market a lot of players, a lot of folks in there. What is it that you guys are doing differently? And I'm curious than what you think they're doing differently. That's appealing.
00:12:45
Speaker 8: We do three things really well.
00:12:47
Speaker 7: We have access to a ton of data, are modeling approach, and then access to various other consumer lenders. From a data standpoint, hundreds of billions of data points in the US consumer across lots of platforms. We know really well at all times the consumers data coming from two main sources, from platforms themselves who issue loans, as well as the credit bureaus, lots of all the alternative data sources as well. From modeling standpoint, we have PhD researchers where all they do every day is research how to model the consumer, see who the latest trends are, and then finally access. None of this matters unless you have really good access across lots of different platforms.
00:13:22
Speaker 8: Bobby, they have one more.
00:13:23
Speaker 9: They have incredible.
00:13:26
Speaker 4: Someone who did I S the due diligence, a lot of work on this.
00:13:29
Speaker 5: There's incredible discipline and both the originators and the providers of capital love what they see here because of the discipline with their own capital, but also with their advice and council. So it's in underwriting but also in advising.
00:13:43
Speaker 4: Does that mean only certain types of consumer credit that you're going to like certain categories, certain types of like tell us, is it top tier? Like what are you going for?
00:13:51
Speaker 8: We look across the board.
00:13:53
Speaker 7: Generally speaking, we can provide the most value in near prime and subprime credit.
00:13:56
Speaker 4: Near prime and supprima.
00:13:58
Speaker 2: So on that, Elliott, So fine, happy money our two you know existing deals that our Bloomberg News team has reported on. Would you would you think about expanding to I don't know, the other places like buy out pay later firms for example.
00:14:14
Speaker 7: Absolutely. I think it's part of the reason for the investment. We want to grow beyond unsecured, which we're really big in right now. We're getting much bigger in auto. We want to be in point of sale, medical, we want to be in home improvement. There's a ton of areas for us to grow into.
00:14:27
Speaker 2: What are some are you Are you talking right now to any specific buind out pay leader firms or any of those firms in the spaces that you just mentioned right now?
00:14:33
Speaker 8: Many of them absolutely, so we should expect deals.
00:14:36
Speaker 2: We should expect deals.
00:14:36
Speaker 8: To be and our LP's are asking for it as well. It's got a really neat characters.
00:14:40
Speaker 2: Do you think that Do you.
00:14:41
Speaker 5: Think we're going to have a pretty big announcement in about two weeks?
00:14:43
Speaker 2: So I love this, So we parke date.
00:14:48
Speaker 4: But that's appealing to you that part of the market.
00:14:50
Speaker 5: You know, Carol, as I said, it's about a unique position which they have. It's about strong leadership, it's about profitability. But most importantly what we love is we're not just great investors, we're great operators.
00:15:03
Speaker 2: We love to roll.
00:15:04
Speaker 5: Up our sleeves, go out and visit clients, help them think about expansion. And when you look at a business that is this disciplined and this profitable and this focus with the market out there and consumer credit and beyond consumer credit, it's just this is exactly the kind of investment that gets us up in the morning.
00:15:23
Speaker 2: Well, so then what are you going to do, Bob for Elliott and his team? You know, you say to you guys, like to roll up your sleeves. You're making this injection of capital. You're now a minority owner in the firm. That's just the beginning right, do.
00:15:33
Speaker 5: You have an and foremost, when Carol and Tim call I come here to.
00:15:37
Speaker 2: Room, I like that. Maybe. I mean there is down Denver, so maybe you could go do some skiing this winter's in the ether.
00:15:44
Speaker 4: So but yeah, how involved it tells a good old fashioned.
00:15:48
Speaker 8: Fortress is a great partner.
00:15:49
Speaker 5: Yeah, there are other institutions that David Seamus and I and Brian Saunders have been very close to over the years, and other investments are in our career and you know, David was with JC Flowers in my time at Barclays. We know a lot of people that would be interested in being capital providers, but until now they have not heard about Edge Focus, and they have not heard about the business model.
00:16:13
Speaker 4: Who are the investors already involved with you? What other investors might be coming? And you talk about the capital providers, like, who are we talking about.
00:16:21
Speaker 7: All the really large private credit firms You've probably heard of? Like I said, we've talked about Fortress Publish quite a bit, several others as well.
00:16:28
Speaker 4: Okay, so more, yes, more.
00:16:30
Speaker 2: You know, I noticed in the press release that this is focused on hiring efforts. Part of this injection of capital partly focused on hiring efforts. To build out a big part of your team. I'm curious about talent that your firm is targeting in a market that's really, really competitive.
00:16:46
Speaker 7: Incredibly competitive market. The biggest thing for us is hiring researchers, especially in the age of AI, making sure that we can invent folks who really understand the data, can use our tools effectively efficiently. It's one of the most important things for us too. There's our firm is technology based.
00:17:02
Speaker 4: What goes further? You're already very technology focused, AI focused. I'm curious, like, what's the next step?
00:17:09
Speaker 8: Where do you go with all of this new asset classes.
00:17:11
Speaker 7: We've done a lot of considering secured, we have a long way to go in subprime, ATTO, we have a really long way to go in point of sale, and there's several other asset classes for us to get into.
00:17:20
Speaker 2: Bob provide some context here, given your history in banking, and you know how what Elliott Elliot's firm is doing, in your view is different from the way that a big bank can profile a consumer.
00:17:34
Speaker 5: I think it's a number of things, but I think first and foremost, you know, the traditional banks prior to two thousand and eight just a very very different approach to managing what was in their portfolio.
00:17:47
Speaker 2: You'd see the quarterly.
00:17:48
Speaker 5: Yearning and you'd see a little bit of provision here and provision there, but it was not really asset or loan specific. Even in Barclaycard, which was really consumer credit and secured consumer credit, it didn't have the depth of this. So it's the incredible discipline and the incredible technology that they've brought to understanding credits so that the separation from kind of near prime to prime and subprime and things like that, that the number of gradations on that continuum are incredible, and that's what they've done. So they're much much better at managing access to credit and the return that comes from credit. And I think we've seen it broadly in the market. Since two thousand and eight. We haven't had a blip in credit. We've never had a cycle quite like this, and I don't think it's about to stop because there are so many more participants, so much more technology artificial intelligence that's being applied to analyzing the risks associated with every single.
00:18:49
Speaker 2: Ways of credit. Are you saying this time is different?
00:18:52
Speaker 5: I am saying the cycle is cycle is different because of technology, because of AI because of firms like edge Focus. Yeah, okay, meaning that, but by the way, it doesn't mean they won't be mistakes, right people that don't use that technology. For people that don't use edge Focus, you know, there will still be mistakes, but I don't think they'll be systemic. They're not going to be across the piece. They're not going to be a crisis for the industry. They may be a crisis for an individual fund.
00:19:20
Speaker 4: So in other words, not just that the risk is spread, but if somebody who doesn't have the great oversight or.
00:19:26
Speaker 5: That's still be mistakes made. Carol, Yes, absolutely, And I think what will separate edge Focus is more and more people are going to want to have access to people like Elliott and his team so they can move into that echelon without trying to build it themselves.
00:19:42
Speaker 4: So let me ask you, there are always cycles, and I'm just curious how exposed edge focuses specifically to consumer credit, and how will you guys be protected if ultimately we see financial conditions tighten. We are things go through cycles and then we start to see end user delinquencies increase significantly. I mean these things happen.
00:20:02
Speaker 7: Absolutely, We're very long consumer credit there's no question about it.
00:20:05
Speaker 8: At the end of the day, we need to.
00:20:06
Speaker 4: Do what do you do to mitigate risk?
00:20:07
Speaker 7: Like it's all about having that loan level selection where we can use all the data we have at the individual bire level to ultimately buy better portfolios of assets for investors.
00:20:18
Speaker 4: So you're just you're saying the data, the algorithms that like it's and we.
00:20:21
Speaker 8: Also have to monitor really well too.
00:20:23
Speaker 7: We've built out tons of proprietary internal platforms where we can watch this stuff in a real time basis and understand exactly how the consumer's evolving and so far in.
00:20:30
Speaker 4: Terms of issues that have gotten you into trouble, like what percentage?
00:20:36
Speaker 7: I mean, Look, there's no investments ever perfect, right, there's I mean you about twenty twenty two, twenty three, for example, inflation was really challenging on the consumer, There's no doubt. But you learn a lot from that, you add into your algorithms, into your models, and ultimately create a much more sustainable, defensible platform.
00:20:51
Speaker 2: Well, Carol brings up a good point, and you know what I heard from you just now speaks to what it sounds like. You have this what you think is a very solid real time view of how consumers are doing. We try to figure that out each and every day on this program by looking at data that we get from the FED, data that we get from different bureaus, alternative data as well. How is the consumer doing?
00:21:13
Speaker 7: Yeah, we have a lot of really cool insight into how the consumer is doing. What I can tell you is that applications continue to increase across all the platforms we have. Applications are up year overy year on the Is that a good present? You know, we're actually seeing delinquencies stay very very consistent.
00:21:26
Speaker 2: But consumers need more credit.
00:21:28
Speaker 7: They are and we're actually seeing an increase overall in debt to income ratios across consumers. So although the consumer looks to be needing some more credit and that's being shown in the applications, delinquencies are being pretty constant right now.
00:21:40
Speaker 4: Why is that public? What do you when you look at that cycle or those data points, which part of it where you said that debt to income right is rising and yet delinquencies are low. How do we explain that?
00:21:54
Speaker 5: You know, I think it's more discipline in the system and yeah, more providers capital. So I think the same thing I talked about since two thousand and eight on the investor side or the bank side in terms of their portfolios. I think consumers are much more mature, much more sophisticated, So it's not surprising that you would see less of an increase in delinquencies than you would in the amount of outstanding credit. That would be unsurprising.
00:22:23
Speaker 2: So, Bob, this is a minority investment in Edge Focus right now.
00:22:27
Speaker 4: Are you going to ask when it's going to be a majority?
00:22:28
Speaker 2: Yeah, That's exactly what I was going to ask. Is this the beginning of something? Perfection is never Is this the beginning of something?
00:22:35
Speaker 5: Or is this the beginning?
00:22:37
Speaker 2: Is there going to be more money coming from you? Or do you think this is enough for them to go out do their thing and then there's an exit at the end.
00:22:43
Speaker 5: I think the beauty of being Atlas Merchant Capital is a couple of things. One is our investors are very very patient if we go to them in three or four or five years and say this isn't going to be a normal cycle. We want to stay in this longer. We have a number of large sovereigns. The biggest issue they face every day is reinvestment, not exits. So we have that option in terms of the relationship we have with our investors. But I think most importantly, if there was need for more capital because the business is growing and valuations are going up, that's a good presentation for us. It doesn't mean we would go to majority. That would be unusual, and that might be in a distress situation, which you know, would be the farthest furthest thing from our mind in this situation. But if we have opportunities down the line to add additional investment at higher valuations because the business is growing, both in terms of products and in terms of customers and clients, that's fantastic.
00:23:43
Speaker 4: So we'd be remiss. You've only got about a minute or so left here, Bob. You have seen, you know, iconic for anybody who's watched Wall Street and financial markets, you've seen a lot of different cycles, good, bad, different. What do you make of this market cycle, which is there's angst and yet hit records and it makes sense.
00:24:02
Speaker 5: Well, I think two things, Carol, and I think on one side, and I see this. I've been very, very fortunate to be the chair of the Advisory board for the US Export Import Bank with John Jovanovic and the team, and they for the first time in decades are profitable. They are really driving performance with middle market companies across the US, and what shocks me is how profitable they are. What shocks me is how excited they are at the tailwinds coming from this administration in terms of less regulation, more pro business, and so the CEOs of middle market companies across the States are pretty excited.
00:24:44
Speaker 2: I think.
00:24:45
Speaker 5: I think in terms of the cycle with AI that people are talking about, and I suspect that's the other piece that we're asked it is. I think they'll be a correction.
00:24:53
Speaker 2: They'll always be a correction.
00:24:55
Speaker 5: Every technical innovation we've had, from railroads, from a le tricity, from the Internet will have a massive correction at some point. It doesn't feel like it's going to be tomorrow, but you know what, with any technical revolution like this, there's going to be corrections. It's not going to be one. Doesn't feel like it's around the corner. But I can assure you there'll be a correction. I just can't assure you when it's going to be.
00:25:19
Speaker 4: I don't know. Everybody keeps talking about it's good till twenty thirty, and then it's.
00:25:22
Speaker 5: Like, I feel like that's just what the hope's not a strategy.
00:25:27
Speaker 4: That is so true. Gentlemen, when you have more news, please come back. We really enjoy this and thank you for giving us this opportunity.
00:25:34
Speaker 8: Thanks for having us.
00:25:35
Speaker 2: Bob Diamond, founding partner and CEO of Atlas Merchant Capital. Also he's chairman of hyper Liquid Strategies, among many other things. Also here Elliott Lorenz, the co founder and CEO of Edge Focus. Guys, thanks a lot.
00:25:47
Speaker 4: Thank you, thank you.
00:25:48
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming up after this.
00:25:56
Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from two to five eas during listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
00:26:10
Speaker 2: So we're wrapping up our editorial call this morning. We planned the call, we planned the entire show. We planned the entire show. Okay, and then we're like, and then what happens? A headline crosses the Bloomberg Josh Kushner and Bob I are going to buy the La Lakers to twelve and a half billion dollars. Immediately, let's get randall. We got to get Randall on the show, and here he is. He was stuck at home because everybody was bothering him.
00:26:34
Speaker 9: Well, it was originally going to be a work from home day and then I was trying to inch my way into the office and it was like email, email, email, So I got here about three.
00:26:41
Speaker 4: Everybody see his shirt.
00:26:42
Speaker 9: It's a late Lakers. I'm not a Lakers fan for the record, I'm a Kobe fan, but obviously I think Lakers fans feeling different about today.
00:26:49
Speaker 2: Okay, well, this is huge for a couple of reasons. One I think is because the Lakers just traded hands not so long ago. Two, the valuation twelve and a half billion dollars. Where do we even.
00:27:00
Speaker 9: Well, I think you started the valuation and the fact that this franchise sold for ten billion dollars last summer, for it to add two and a half billion dollars in value is ridiculous. And so what that means across sports is there's no one who's going to want to pay for anything more than the Lakers. And we sort of saw that with the Seahawks. The Seahawks sold for nine points six billion dollars, and I think it was probably clear from an investor standpoint that some people were like, we're not going to buy the Seattle Seahawks for more than what the Lakers sold for. Now the Lakers are sold for twelve point five billion dollars. It is a huge number.
00:27:30
Speaker 4: That's the appreciation. I mean, does it make sense? I mean, it's the Lakers. I mean when you think about a franchises, I guess, so there's.
00:27:37
Speaker 8: Only one exactly exactly.
00:27:39
Speaker 9: And I think that what is more telling is like why it was sold, which is you know, Mark Walter, who was of course under investigation by the Department of Justice for alleged loan fraud. And so with that in mind, I wonder from Joshua Krishner and Bob Iger who they were in Vegas trying to buy an expansion team there. Bob Biger told me earlier today that they little Birdie told him, hey, you should look into whether Mark Walter would be willing to sell the Lakers, And of course they had a private conversation and this deal came together within the last three or four days.
00:28:09
Speaker 4: Unbelievable. Too quickly.
00:28:11
Speaker 2: Was the Bus family involved at all in this this? Dear? Did they completely sell to so there is some.
00:28:18
Speaker 9: Remaining shares around, but they're no longer the majority owner of the Lakers, so Jenie Bus is the controlling governor. She's still running the day to day operations. No decision has been made on whether Igara Kushner will replace her, and Iger told me that they're not ready to have any conversations about.
00:28:33
Speaker 2: That just yet. I mean, these two guys, Josh Kushner and Bob Biger, they have a lot of money, but twelve and a half billion dollars is a lot of money.
00:28:42
Speaker 4: Get done?
00:28:42
Speaker 2: Yeah, Like, where's the money coming from? Right now? How do they own? How much are they putting up? Do we know this stuff here?
00:28:47
Speaker 8: We don't, We don't.
00:28:48
Speaker 9: I mean, Forbes has Bob Iger's estimated network between six hundred to seven hundred million dollars.
00:28:53
Speaker 2: Now he's not on the Bloomberg Billionaires Index, right.
00:28:55
Speaker 9: But who knows how much money Bob Iger actually has? And the same can be said for Joshua And of course there's also a Thrive Eternal that is his private equity firm or his venture firm, a venture fund. There's a lot of money in sports, and there's a lot of very rich people that we just can't track them all so if it closed, that means the money is there.
00:29:15
Speaker 2: Now how it got there?
00:29:16
Speaker 4: We don't know it happened so quickly. Do we know anything about whether or not it was being shopped at all? Like, we don't know, not at all.
00:29:23
Speaker 9: I mean, I think whoever gave Bob Biger and Joshua Kushner the tip that they should look into the Lakers probably deserve some sort of vacation somewhere because if this hit the market, that is the main thing. If Mark Walter had put this on the market, you have to wonder, I sport Coat valued the Cowboys I believe fifteen billion dollars today. Imagine what the Lakers would sell for and the type of people who would raise their hands.
00:29:45
Speaker 2: To buy that. Well, then why wouldn't you put it on the market if you are interested in selling.
00:29:48
Speaker 4: Let's say someone comes to you.
00:29:51
Speaker 9: We should ask Mark Walter that question, which is you know who? I wonder from Mark Walter's standpoint, did he think that this was the smartest thing to do, the easiest way for him to get cash a two point five billion dollars estimated to you know, go directly into his podcasts. I could therefore pay some of these loans off. Don't know, it's a lot of money.
00:30:12
Speaker 4: Well, you know, like if you're selling a houser, sometimes you just want the deal done quickly, you need the money whatever.
00:30:17
Speaker 2: But you know, I'm trying. I'm trying to put myself and.
00:30:20
Speaker 9: Alabaya was floating today on the call.
00:30:22
Speaker 4: I tell me about that, this seems like such a great fit.
00:30:25
Speaker 2: He said, he.
00:30:26
Speaker 9: Loves surprises, and he compared it to when the Pixar and the Marvel and some of those deals completed. And then of course he said that Joshua Kushner said that this was like buying the Mona Lisa, and this is that a beachfront property, and this is all of those things. It's equivalent to one of them. You put the Lakers on Mount Rushmore. In terms of sports properties that are out there.
00:30:47
Speaker 2: There are still even though these aren't public trade entities, there are still regulatory issues that have to be solved here. There were reports that this duo or parts of this duo were looking at teams in other parts of the country owning have ownership and other parts and other teams in the league. How does that work?
00:31:05
Speaker 9: So Joshua Kushner owns a piece of the Miami Heat. He previously owned a piece of the Memphis Grizzlies. In order to buy the Miami a piece of the Miami Heat, he sold his piece of the Memphis Grizzlies, and now a similar thing will happen, so he'll sell that piece of the Miami Heat. He's They basically admitted to abandoning interest in Las Vegas. And this is if this deal gets approved by the NBA Board of Governors, and I think that they could very well be the controlling and you know, I think Bob Iko would probably be the alternate governor probably by the end.
00:31:34
Speaker 2: Of the year.
00:31:35
Speaker 4: I know, if you've got a franchise, you don't want to sell it. Is there anything though that this deal would make some owners say, well, maybe I need to think about, you know.
00:31:43
Speaker 2: No selling.
00:31:45
Speaker 9: I think owners have their reasons for selling. And you have to wonder with the NBA's new media deal seventy six billion dollar media deal over eleven years, is now the right time to sell? And I would tell you I think the answer right now is no. Strictly because of the fact that NBA expansion teams are coming. Those expansion fees are split amongst the owners, so you have the opportunity to get a three hundred or four hundred million dollar check, why wouldn't you? And now you have three hundred million dollars, Now you can sell and get another three billion, four billion, five billion or money.
00:32:15
Speaker 4: In sports, It's like unbelievable and it just continues to grow.
00:32:18
Speaker 2: So Bob Iger known as being the man who turned around Disney and was at the helm of Disney for so long. Josh Kushner private equity has been in real estate, comes from a bigger realestate family. He's also Oh, I was going to say, his brother is Jared too, the president's son in law Mary Tweetfvanka Trump. Is that relevant here?
00:32:34
Speaker 9: We'll see, We'll see. I think that it remains to be seen. But I don't know his direct involvement in the Trump administration. Josh Josh Kushner has not said a lot now. He's been very quiet, and so what I anticipate what happened is that they will do a press conference and it'll be telling to see if it's Bob Biger and Joshua Kushner or just Bob Biger speaking about this transaction.
00:32:55
Speaker 4: Is Bob going to buy any more sports teams?
00:32:57
Speaker 8: Do you say any think he did not.
00:32:59
Speaker 9: He said thrive, his interested in more, but he did not say that he was going to be raising his.
00:33:04
Speaker 4: Answer, it's a stay tuned, stay tune. Thank you so much. I know it's been a busy day.
00:33:07
Speaker 8: Love the Lakers and my Kobe doesn't love.
00:33:11
Speaker 2: It's like great, Rinda, thank you for having me.
00:33:14
Speaker 4: Thank you, Thank you always, Bloomberg News senior reporter the co host of the Bloomberg Business of Sports podcast. Fund it wherever you get your podcasts. Also find it on the Bloomberg.
00:33:24
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming up after this.
00:33:32
Speaker 1: You're listening to the Bloomberg Business Week Daily podcast. Catch us live weekday afternoons from two to five. Yes during listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
00:33:46
Speaker 4: All right, everybody, TikTok. We've got about twenty I can't do math twenty seven minutes until we wrap up the trade on this less than that, eighteen minutes to go. You take a long weekend and basic math.
00:34:00
Speaker 2: I love this. It was good.
00:34:02
Speaker 4: It was kind of what I needed. All right, S and P five hundred just up about twenty points, you heard, Charlie, So call it little change up about two hundred and eight points on the Nasdaq one hundred up seven tens of a percent. We're seeing a little bit of selling as we get closer to the end of trading. Today. We have a CPI print. We just want to get to our guest. Let's go there.
00:34:20
Speaker 2: Constant Shiner is here. She's chief economist and head of research at the Economist Intelligence Unit. She does macroeconomic and she had political forecast, among many other things, also Economist Enterprise. Now, so they're keeping you busy over there.
00:34:34
Speaker 4: Keeping me busy.
00:34:35
Speaker 2: We are happy to have you.
00:34:36
Speaker 4: We have a lot of stuff going on.
00:34:37
Speaker 2: We do and and you have a lot of stuff to keep track of. We're going to start with like the big picture stuff. And you know, we got the CPI report today. And what was the term you used earlier today? Lamor tam Yeah, blamer tam. I love that.
00:34:52
Speaker 4: What did you think, lambor tame?
00:34:53
Speaker 9: Oh?
00:34:54
Speaker 4: The print? I thought it was tame.
00:34:56
Speaker 6: And I think it's because it solidifies what we saw in June.
00:35:00
Speaker 3: Right.
00:35:02
Speaker 6: On the other hand, I can see why certain Fed presidents like Beth Hammock. She goes out to our district. She speaks to people and they all say, yeah, but prices aren't coming down. And as economists, of course, what we look at is, well, what is this current data say about where inflation is going to be three six months from now, and that all the indicators show that it's moderating. It's still sticky, but it's less sticky, and it's softening where it needs to soften.
00:35:27
Speaker 4: So the Fed doesn't need to cut rates or raise rates or give me a raise rates.
00:35:31
Speaker 6: So I know they can leave rates on holds and that's still a prudent policy.
00:35:38
Speaker 4: And I think what today's print.
00:35:41
Speaker 6: Provided, of course, that the August data continues along this trend, I think you're going to see Neil Kashkari move off being a dissenter, and I think you could even see Lori Logan move off being a dissenter because she's pointed to this combination of a strong economy and strong labor market, which of course we saw soften a little bit.
00:36:00
Speaker 4: But is it a strong labor market in terms of people who've left the workforce, Like, is it a.
00:36:05
Speaker 6: Strong It is a very funky labor market because we've had an aging population leave the workforce.
00:36:10
Speaker 4: We've had people leave.
00:36:11
Speaker 6: The country right right then, and then we've had people who are here get their temporary status revoked so they can't work. So the Haitians and Syrians had their temporary status revoked, So that'll show up in the August report. So we have a smaller labor supply.
00:36:27
Speaker 4: It feels like buybacks, you know, with a stock you know when a company does buybacks and they reduce the number of shares out there, and all of a sudden, earnings per share looks better. It does feel really funky in terms of the labor market.
00:36:38
Speaker 6: Yes, and that's why the fall and the unemployment rate can't be read as a signal is great, we have this really strong economy. On the other hand, if you're looking at a lower labor supply with the same level of demand, right you could say, well, could that be inflationary?
00:36:53
Speaker 4: So I think it is. It is a very.
00:36:56
Speaker 6: Unusual time, and there are so many rolling one off hits to be accounted for, whether we're talking about the government shutdown and how it's impacting the collection of rent prices and housing prices, whether we're talking about the supply checks from the war, which of course wasn't in the July report, and we'll probably show up in the August report because we've had a resumption of tensions.
00:37:19
Speaker 2: Maybe this is my own problem, just because it sort of reveals my own anxieties about the future. But we're talking about a lot of demographic shifts in a very short period of time that are caused us to do a reset. And we talked about this last week a little bit with the jobs report. But if we have a smaller or shrinking labor force, what does that mean for when we all get older and we need a labor force to support us with Social Security? Like there are some real fundamental questions about what this smaller labor force means in an environment where immigration was making up for the fact that none of us are having kids anymore.
00:37:57
Speaker 6: So in a pago system like the one we have, that is a problem, right And in a pago system, by the way, that only invests in US treasuries. So we if we cast ourselves back to when George W. Bush was president and he wanted to change Social Security and have it begin to look a little bit like Australia's Super Annuation Fund in terms of the way it invests, there was a huge amount of pushback, Oh, you're going to be giving money to Wall Street to do these investments, and so it was never enacted. But had we changed our asset allocation right along with increasing the retirement age, we wouldn't be facing the solvency problems that I think you're alluding to with your question.
00:38:39
Speaker 4: At that math and like where what it would mean?
00:38:43
Speaker 2: Spend some more time with me, Carol. I'll make you anxious. I know you.
00:38:48
Speaker 4: The thing is, you know, Constance, are there not smart economists in the government that know when you do things like limit immigration? I mean, you need a healthy immigration system right in terms of growth. I understand about you know, illegal versus legal immigration, and most people would say, we've got to have a system in place so that it happens well. But I do wonder if it's getting worse than that where people don't even want to come to the country, and then what that means for growth going forward.
00:39:19
Speaker 6: I mean, I certainly think if you look around the world, our image is not what it was now and people are scared to come because they hear these horror stories. And what I find interesting is when I travel for my job and I go to places and people say, oh, I went to the US and it wasn't as bad as it shows up in the news, because you know, if it bleeds, it leads. Right With that said, I think there's there is a populist undercurrent globally, so not just in the US.
00:39:47
Speaker 4: Right, this is not just the US where this is issue.
00:39:50
Speaker 6: And I think, look, if we look at social media, if we look at deregulation of media, we have a lot of misinformation out there.
00:39:58
Speaker 4: We have a you know what drives and hits is.
00:40:01
Speaker 6: Not Oh, this fabulous immigrant family came to the United States and look they put like their kids through.
00:40:07
Speaker 4: College now and the business they own is doing well.
00:40:09
Speaker 6: I mean that hits the news in a different way than sensationalist reports that drive eyeballs. And and you people, yeah, I think we're driving populism.
00:40:19
Speaker 4: Okay, so you think, so it's I agree with you.
00:40:22
Speaker 6: But that becomes more than just a rational cell, right, you have to people's were Our humans are hardwired to look for danger, to look for difficulty. And so when you have a storyline that says, well, here's the here's the danger, here's the difficulty, you can sell what looks like a quick fix that.
00:40:40
Speaker 4: May have longer term negative implications as your anxiety.
00:40:44
Speaker 2: Now, I'm sorry, I'm sorry, we're out of time.
00:40:51
Speaker 6: But all of us are communicators, right, this is we're professional communicators.
00:40:54
Speaker 9: We use that.
00:40:55
Speaker 4: Information to communicate.
00:40:57
Speaker 6: And the trick is to for all of us that are in this realm, is to communicate facts in a compelling way so it lands with a broader audience.
00:41:07
Speaker 4: Well, thank you as you communicate really really well, we really appreciate it. Constant Hunter is Sheief Economists, head of research at the Economist Intelligence Unit, joining us right here in studio.
00:41:18
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