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19:40Tim Stenovec:You understand how inextricably bound it is to Aramco and the oil industry. As the price of oil goes up, that's a good thing for the kingdom of Saudi Arabia. So there is this, you know, it's an awkward question to ask, but there are these sort of competing tensions here when it comes to Saudi Arabia and its role in ending this conflict.

20:03Carol Massar:well let's remember it's only a good thing for for aramco if they can actually sell oil uh you know if if they can't actually sell any oil at you know 91 a barrel it's just sitting there and it's at risk yeah now aramco is actually in a very unique situation and and they have the ability to um send oil out to their port in yanbu which is on the red sea and they can send about seven million barrels a day that way. And so they have that ability. They're using that ability. They also have oil stored all over the place and that they can utilize at least to avert, you know, energy shortages or they can fulfill their customer orders from that for a period of time.

20:47Carol Massar:Then they'll obviously have to refill their storage. You know, they could make a lot more money if they could sell more than seven million barrels a day. But they can't get it out of the Persian Gulf. So it's kind of interesting. I do think that the real winners here are Russia and the U.S. oil industry. If the U.S. oil industry or at least some parts of the U.S. oil industry could put more rigs into production and produce more oil and sell more oil, they could certainly make money off of this. And Russia is, of course, making a lot of money as well. Well, do we see U.S. producers kind of kick into high gear over this or not so fast?

21:24Carol Massar:So this is this is the interesting question, because initially I think they're very wary of, you know, of putting in more capital of doing this because they've been burned before. And so I think that, you know, if they were receiving some kind of guidance from the Trump administration, some kind of thoughts on on what would be helpful, they might be likely to, you know, to put more investment into to produce more if they had a sense that, OK, yes, you know, this is going to be valuable over the next several months as opposed to, well, you know, the conflict could be over in five days and then, you know, we've just wasted our time and money.

22:02Carol Massar:Hey, one thing I wanted to ask you, because for some reason, because I have my dumb moments, is China and China and energy. I know that they are reliant so much on the global energy markets, but I had no idea all the refining that goes on there, because I know that they specifically, the Chinese government, I think this was earlier this week, has told the country's top oil refiners to suspend exports of diesel and gasoline. I didn't know that they were the third largest supplier of oil products into the region. So I do think about where the pressure comes maybe from the U.S. to kind of put an end to this, because how much does China get hurt in all of this?

22:41Carol Massar:Well, exactly. I mean, China gets huge amounts of oil and products from the Middle East. They're also, by the way, invested in refineries and in petrochemical facilities in Saudi Arabia. So they may be losing money in that there also. But yeah, China is saying, hey, we need to conserve this for domestic use because we can't necessarily depend on these imports that we may have been getting from the Middle East. So we're not going to be selling to the region. And now they're leaving other Asian customers there high and dry. And they're saying, well, we used to get this diesel from these refiners in China.

23:19Carol Massar:Now where are we going to get it? We can't get it from the Middle East. and and i think there's there's a whole lot of dislocation that's happening now and i do believe the market will sort it out people will have to pay higher prices but there's also this element of we're missing a huge amount of supply right now hey ellen we only have 20 seconds left we

23:38Tim Stenovec:started the conversation now you said if things don't get cleared up by the end of next week then we'll face a full-blown blown crisis what does that mean for oil prices just 20 seconds

23:47Carol Massar:triple digits triple digits like how far do we go back up to 140 um i definitely think 120 is possible i mean we're already at 90 92 so if nothing nothing moves then we could definitely see 100 i would say by early next week uh all right ellen thank you so much uh good to have you back here dr ellen wald president of transversal consulting senior fellow at the Atlantic Council, author of Saudi Inc.

24:15Tim Stenovec:This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130.

24:33Carol Massar:The U.S. war in Iran was the top concern, I think it's safe to say, in the trade this week. Although the markets seem to kind of take a lot of it in stride. There has also been continued concerns when it comes to private credit. A few stories we just want to point out today, including how some 146 companies in Europe have ceded control to direct lending funds after they could no longer afford to pay their debts. That's according to Goldman Sachs.

24:56Tim Stenovec:And I'm looking at shares at BlackRock down 6.5%. The world's largest asset manager. That company, Curbing, withdrawals from its$26 billion private credit fund.

25:05Carol Massar:And then we've got Blue Owl, of course, the U.S. private credit firm. That firm has a$48 million exposure to Century Capital Partners. That's that London-based property lender that filed for administration last month. We've been following that one as well.

25:18Tim Stenovec:Yeah, Blue All Shares down just a little over 3 % as we speak. The private credit hits keep on coming today. Today, yeah, today. Just look at the longer term chart for a fuller picture. With an update, back with us is Bloomberg News Senior Editor for Credit, James Crombie, joins us here in the studio. James is also the host of the Credit Edge podcast by Bloomberg Intelligence. And so it's not clear sort of where to begin. We actually had to erase some of the stories that we were going to mention because it would have just taken too much time to update everybody on everything happening just in the last 24 hours with concerns around private credit.

25:49Tim Stenovec:What's the main concern to you? Well, private credit is experiencing its roach motel moment in terms of retail getting spooked. Retail is really worried. Retail is trying to take out more money than you're allowed to take out. But I would say also look at the prospectus, you know, the BlackRock prospectus for the fund that is being redeemed right now. It says on page one, 5%, and it's up to them whether they even do that. So you should read the paperwork. The problem with credit and a lot of markets over the last, you know, five years or so of easy money is people just haven't been doing that work.

26:22Tim Stenovec:Do people ever do that work? It's on page one.

26:25Carol Massar:Yeah, but shame on you. I mean, this is one of the things that we always talk about when we talk about private credit. And I've had terminal users like, do people understand what private credit, how this market works? That's an understanding. It's not liquid, right?

26:38Tim Stenovec:It's not liquid. These are long-term investments in direct loans, which, you know, you sign a contract, you agree to lend the company money for, let's say, five years, and you get it back after five years, plus a premium. Plus, I'll tell you, you know, investment-grade bonds right now, 5%. I'm going to offer you something else for three times that. Right. What do you have to do for me to get that extra return? Read page one of the prospectus. You're going to have to lock your money up and there will be a penalty and you probably won't be able to get your money back when you want it.

27:08Carol Massar:James, there's locking your money up and then there's problems. So how do you distinguish between what we are seeing is this, that it's just not the right market environment yet for private credit. And so it's going to maybe take longer for either the exits, for the returns. And so investors, you got to understand that. Or is there problems somewhere within the lending and the whole process? Like, how do we, and that maybe, you know, people are investing, these firms are actually investing in things that aren't so great, and that transparency isn't truly there for investors.

27:40Tim Stenovec:There are certainly problems on the tech, the software side, which we're now starting to see. A lot of these loans were made five years ago when rates were zero and the money was flowing and people weren't asking too many questions and leverage was going on pretty high. Now those things are coming up for refinancing. Those companies are in a much more difficult situation. Some of them may be completely replaced by AI. So you're not going to get your money back. We did see BlackRock write off a loan,$25 million in a kind of Amazon adjacent space. You know, that's$25 million for a very large fund.

28:13Tim Stenovec:The point we made yesterday, not a lot of money for a company like BlackRock, but for, you know, it sounds still$25 million,$25 million. But it's BlackRock. And it's going to zero.

28:22Carol Massar:the world's largest asset manager like there's you know to be fair you put firms in a certain category and we do that rightfully so and so you're like well if they missed it or does every great investor warren buffett would probably say i've missed some things right like how do you how

28:38Tim Stenovec:do you assess that i mean there's a lot of pick your manager get the right manager don't be a tourist you know all these things use someone specialized but you're right when it's black rock losing money then you start to be concerned but you know again i'd point to the returns the returns expectations were very high. You know, sometimes as high as 20%. So, you know, you've got to assume a bit of a loss there along the way, you're going to take some risk. So I think, you know, the whole outcome, the upshot for me would be, you know, on the one hand, curb your enthusiasm about private credit returns, they're not going to be 20%.

29:09Tim Stenovec:They may be closer to, you know, less than 10. On the other hand, curb your enthusiasm about the growth of this market, because it all relies on retail money piling in and getting you to 40 trillion from 2 trillion currently. I just don't think that's going to happen. Well, to that point, shares of Blue Owl are down more than 60 % from the highs just about a year ago on January 24th, 2025. James, I think the question that people have, and this is literally the$2 trillion question, is about contagion and about to what extent, you know, since you and I, we last spoke to you two weeks ago. Since you were last on our program, have fears about contagion, this spreading to other asset classes, this spreading to big banks.

29:47Tim Stenovec:Has that shifted? We're seeing more, definitely, shorts on the BDCs. We're seeing shorts on the credit market as a whole in terms of the CDX, which is the CDS index, which is a liquid way to take a position if you wanted to. We're seeing outflows from some of the ETFs that are related. So there is a fear that that starts to feed on itself, that when you start getting big redemptions, then you have to sell not necessarily the bad stuff, but the good stuff to get liquidity. And that, you know, results in just a bit of a downward spiral.

30:18Carol Massar:You know, I just want to go to BDCs. It's certainly something we've talked about a lot here at Bloomberg for years. The business development companies, where are they when it comes to the private credit market? Like how much of private credit are BDCs?

30:32Tim Stenovec:Well, it's a big proportion of it, but, you know, they are the only visible side of it. You know, that's why we look at them because they actually, there is a bit of transparency there. And it's a growing part of the market. Maybe that growth starts to slow because of what we're seeing right now. But it is a big, you know, if you wanted to get into private credit, that is a decent channel to do it.

30:53Carol Massar:How do you suss out if whether or not this is going to be, I mean, a lot of financial crisis are credit based. So this is why it's got everybody, you know, their hairs on their neck kind of standing up. So how do you guys suss it out? Or like, What are you watching as it feels like every day there are several stories?

31:08Tim Stenovec:I mean, to me, it's an orderly sell-off. It's a repricing of a market that got very, very expensive. Credit has been overpriced for a long time. And now it's slightly cheaper. But every time it gets cheaper, people buy into it. People buy that dip. They get very well rewarded for doing that. So there is a lot of cash on the sidelines that wants 7 % yield in a junk bond because that's a good coupon to get, especially if rates continue to go down. We just don't know that at this point.

31:35Carol Massar:Right.

31:36Tim Stenovec:But, you know.

31:37Carol Massar:If rates go up, will there be more pressure points, more stress?

31:40Tim Stenovec:It will certainly stress out the weak borrowers with a lot of debt coming due because they can't cover those bills. On the other side, it may make private credit even more attractive because that is a floating rate asset. So there's going to be a push to floating. You know, so there are lots of, I think, ramifications, lots of we don't know yet.

31:58Carol Massar:Yeah.

31:59Tim Stenovec:Well, sorry, we just have 20 seconds left, but I wonder at the end of the day, when this passes, if it passes, if sort of a stronger product emerges on the other side. That would be the hope that it grows up and people actually read page one of the prospectus. You've said that so many times. But it's something to think about, right, as we look to expand the market, right? Read the small print. Know what you're doing and why you're getting paid more to do it.

32:21Carol Massar:Right. Risk-reward, folks. That's how it works. Bloomberg News Senior Editor of Credit, James Crombie.

32:27Tim Stenovec:Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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34:33Tim Stenovec:Hello, hello. I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna, and I asked him, how can companies use AI to its fullest potential to create smarter business?

34:49Carol Massar:My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side.

34:56Tim Stenovec:For example?

34:57Carol Massar:If anybody has more than 10 % of what they had for customer service 10 years ago,

35:07Tim Stenovec:they're already five years behind. If anybody is not using AI to make their developers who write software 30 % more productive today, with the goal of being 70 % more productive.

35:20Carol Massar:Yeah. Wow. So we are not asking our clients to be the first experiment on it. We say, you can leverage what we did. We are happy to bring out all our learnings, including what needs to change in the process. Because the biggest change is not technology. It's getting people to accept that there's a different way to do things.

35:39Tim Stenovec:To listen to the full conversation, visit ibm.com slash smarttalks.

35:50Tim Stenovec:you're listening to the bloomberg business week daily podcast catch us live weekday afternoons from 2 to 5 p.m eastern listen on apple carplay and android auto with the bloomberg business app or watch us live on youtube quite a week it's been so much coming at investors there's one

36:08Carol Massar:thing i noted credit investors are unwinding long positions worth tens of billions of dollars and jumping into hedging trades. So we've seen bullish bets and high-grade credit default swap indexes plunging by about a fifth in recent winks. That's based on data by Bloomberg. And then some separate indicators by BNP Paribas also track metrics like the amount of cash investors hold or the volatility of their portfolio show that investors are now short risk. Surprise!

36:34Tim Stenovec:I want to bring in Silvestri Balifaz, founder and CEO of Goldvest Advisories. They've got advisory about$720 million in assets under management. She's back here in the Bloomberg Interactive Brokers Studio. A lot has happened since we last spoke in November. But I want to start with the macro environment and the war because we spent a lot of time at Bloomberg Invest earlier this week. The message that we got, and that was Tuesday, so a lot has happened since Tuesday, and oil prices have shot up a lot since then. The message that we got was there's really nothing to change with an investment philosophy right now.

37:08Tim Stenovec:Was that something you subscribed to at the beginning of the week? And if yes, is it still the same story? On a broad basis, yes. I mean, if we've set up ourselves in the right way from the beginning of the year, which I believe we have, and a lot of investors have had diversified portfolios. And we can't forget about what has happened over the last few years where large cap tech had been up, S &P has been up, those double digit numbers. So at the beginning of the year, we had shifted, added a little bit more towards dividend stocks, for example, private markets. So having that diversified portfolio.

37:43Tim Stenovec:So right now with what's happening, yes, we're certainly looking at potential dislocations, although I think it's still early to tell. We do need more information, which we don't have. Where do oil prices go? How long will this conflict last? We don't know. So looking at potential opportunities, but not rushing into anything. Certainly having that cash aside. I heard you mention cash earlier. Certainly having that cash aside, having more conversations with people, but not making dramatic changes right now. We've built a solid portfolio.

38:13Carol Massar:Sylvester, you said that coming into this, you felt like you've positioned everybody really well, and you talk about diversification. What has diversification meant in this environment at the start of the year? Because we've talked about a lot of people exposing themselves more to the overseas markets, but I'm just curious what diversification means right now for you guys.

38:31Tim Stenovec:So for us, yes, a little bit in international, although that's not the biggest part of our component of our portfolio. But dividend stocks, for example, defense stocks, for example. But going back to the dividend stocks, our dividend strategy is up for the year, close to double-digit numbers where S &P overall is down and large-cap tech is down.

38:55Carol Massar:So for us, a big part of it has been those dividend stocks. Why did you do that at the beginning of the year? Was it just being kind of over? So adding a little bit more. We've had dividend stocks in our portfolio, to be honest, adding a little bit.

39:07Tim Stenovec:But I think also the rotation that has happened, just going back into that commentary of we've seen great returns over the last decade and especially the last few years. And in the large cap or core part of our portfolio, it's time to add a little bit more on the dividend side. That's a big part of it. What about the technology side and the so-called SaaS apocalypse or SaaS-pocalypse? It's gotten a little less attention over the last week as the war is what we've been covering. But there still is that concern that every time Anthropic comes out with some sort of clawed plug-in that, you know, does wealth management or does legal research or, you know, does you name it.

39:47Tim Stenovec:HR work, we see a decline in stocks that are related to those software as a service firms. Well, that, some of those announcements from OpenAI or Anthropic, but also, you know, right after that, Citrini report was published last week, I guess it was. You also see companies like Jack Dorsey's company that laid off 40 % of the workforce or Morgan, the block exactly. So, or Morgan Stanley the other day, announcing some layoffs. Just 3 % of Morgan Stanley. Which is a big number in terms of total. But yes, 3%. It's true. And we might hear more of that. But I think in regards to the software sales, it's going to be dependent on each company.

40:27Tim Stenovec:But if you look at the software... So you're not ready to say stay away from software stocks? No, not as a whole. Absolutely not. And if you see the ETF, the software stock ETF, it's actually come up off of its lows a fair amount. You had a good week. It had a good week. I think it was that narrative of sell now, ask questions later. We certainly saw that. But there's some good companies in there. So as more is revealed and as more companies start laying off or pausing, and we saw some of that in the jobs report today, but as companies are pausing on the hiring, I think maybe it goes back to more of an impact on some of those software stocks.

41:05Tim Stenovec:But it's going to be case-by-case dependent.

41:07Carol Massar:How does a stronger dollar, you talk about international exposure and that's certainly in the emerging market world. But how does that kind of change maybe how you are thinking about the investment landscape right now?

41:18Tim Stenovec:You know, international markets were very strong last year and exceeded what the U.S. markets did. So in the beginning of the year this year, you saw that trend continue. Now with the safe haven of the U.S. dollar, you know, maybe there isn't as much of a case to be made on the international side because of that currency exposure. But in terms of fundamentals and that mean reversion that I do think continues once we get through this conflict, I still think there is a case to be made for international. You mentioned defense companies, so I want to bring up something that the president just put on Truth Social right now.

41:57Tim Stenovec:He said, we just concluded a very good meeting with the largest U.S. defense manufacturing companies where we discussed production and production schedules. They've agreed to quadruple production of the, quote, exquisite class weaponry in that we want to reach as rapidly as possible the highest levels of quality. He goes on to say the companies represented were the CEOs of BAE Systems, Boeing, Honeywell Aerospace, L3 Harris Missile Solutions, Lockheed Martin, Northrop Grumman, and Raytheon. We're seeing shares higher.

42:25Carol Massar:Well, I mean, Boeing's up, but they are it looks like working towards a deal with China. Yeah, that was a big story earlier. So that's what you say, RTX?

42:33Tim Stenovec:Yeah, RTX and L3 Harris, too.

42:36Carol Massar:RTX right now, I'm just taking a look at that trade. And we are looking at a stock that's up about almost 3 % here. So we definitely have seen some movement. Is defense a play? And just got about 25 seconds.

42:46Tim Stenovec:Yes, that is something that we're tilting towards because I do think we're in a super cycle. All of this ammunition has been used up. We need to stockpile again. So I think this is here for the long term.

42:56Carol Massar:And it's not only a U.S. thing, but a global thing, right, that we continue to see. Sylvester, thanks so much. Big, long week. We're all ready for the weekend. So Festi Balafost, she's founder and CEO at Goldvest Advisory, joining us here in studio.

43:08Tim Stenovec:This is the Bloomberg Business Week Daily Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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