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17:59Tim Stenovec:That's the line. I think that's exactly right. But I also think you're right to note that she has been a loyal lieutenant and she hasn't been freelancing in that sense. I mean, she was absolutely representing the policies that President Trump espouses in her hardline views about immigrants, her hardline views on the border echoed the message from the top. And that was the message from her boss, President Trump. I also think it's pretty important to note that this is the first major cabinet firing of President Trump's presidency, Right. Yeah. And that's a big deal. Number one, because it's a cabinet firing.

18:33Tim Stenovec:But number two, because that hasn't been his M.O. in term 2.0.

18:37Carol Massar:What does it. Jeff, what does that say about that? That's, I think, a really important point, because we were talking about that in the newsroom for him to do this. What does that kind of say?

18:45Tim Stenovec:There was a reassignment for Michael Waltz from national security. Right. Yes. But this is right to mention that one. And technically, was he in the cabinet? I'm not sure if that counts as being in the cabinet when you're the National Security Advisor, but certainly that was a big move as well. But he landed in a much more high-profile position at the U.N., and Secretary Noem does not seem like the landing for her is going to be as soft. Either way, it's the first cabinet secretary who's been fired, and that was a more frequent occurrence during his first term, which I covered as well. It has not been a hallmark of his second term.

19:29Tim Stenovec:And that is largely, I would say, because he has surrounded himself with loyalists. He has surrounded himself with people who don't challenge him, who represent exactly what his inner desires are, whether it is with regard to domestic policy or foreign policy. And Secretary Noem fits that mold. She really was a lieutenant, as you said, and a spokesperson for him and for them, them being the rest of the administration on immigration until now.

19:59Carol Massar:All right. Well, another busy day, certainly in the nation's capital. Jeff Mason, thank you so much. Jeff, of course, is Bloomberg News Washington and White House correspondent.

20:07Tim 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. Well, with more on where we are when it comes to private credit, and someone who was at Bloomberg Invest this past week, Davide Chaliuszio joins us. He's Bloomberg News' chief correspondent for Private Capital. He joins us here in the studio. I want to start with BlackRock slashing the value of the private loan to zero just three months after assessing it at 100 cents on the dollar.

20:47Tim Stenovec:it's it's not a big loan absolutely yeah but i mean 25 million dollars there's a lot of money in the scope of the money that blackrock manages it's it's not a big deal but but what does it

20:58Carol Massar:signal to you and to us it's blackrock look it's it's blackrock it's one of the most uh sophisticated professional managers out there you know when i was a cub reporter covering credit i learned one thing like in in credit you have a good day if you're making your coupon and you're not losing any money. So for a loan to go from 100 to zero, something really dramatic has had to happen to the company or something really wrong was with the original underwriting. So that's why the situation, it's the second one that BlackRock has had in this private credit fund, kind of matter, even though they're small.

21:31Carol Massar:How do you kind of cross? Because things that we heard at Invest, things that we are hearing in general when it comes to private credit, and I'm always a little skeptical for people who are, you know, maybe talking their book, you know, that they're going to be careful. But I also know they also have fiduciary responsibilities too, right? To their investors too. But I don't know, what was your takeaway, especially after Bloomberg Invest, you talked several panels and talking to people in the midst of this. Yeah, I think the message is pretty consistent. You just had David Solomon. He summed it up pretty well.

22:03Carol Massar:Like the portfolios overall and the returns of the funds are actually performing well. There have been situations, idiosyncratic, where we've seen losses, and those matter, and we should pay attention to them. I think what they bring to the fore, though, is a broader kind of underlying concern about the quality of the valuations and the marks, particularly in private credit. That's a concern that people have had for a very long time. And now they're getting spooked when they see loans drop so fast and so dramatically, they kind of worry about what else is out there that we're

22:35Tim Stenovec:not seeing yet. Well, why are the loans dropping in value so quickly? Is it because people are having trouble paying them back? It's a combination of issue.

22:43Carol Massar:I would say that this one we wrote about recently was in a space, Amazon aggregators, that had a tremendous amount of disruption. So this is not something that's happened yesterday. It's a sector that's received a lot of capital back in 21, 22, and since then has performed really poorly across the board. And BlackRock had flagged this in their filings that there was going to be a big write down. They wrote down the value of the entire fund by 19%. So when you look at the individual loans, that's not a big deal, but 19 % of the entire fund starts becoming like a bigger issue. So it's a combination of like companies that weren't performing well, and maybe managers were slow to recognize problems.

23:24Carol Massar:and just the reflection of the underwriting environment that we were in back in 2021. Well, that's what I want to go. How much of it is that? How much of this was the underwriting happened when money costs nothing? And so a deal that looks good when rates are at nothing look great, but not where they are today. Is it how much of it is that? How much of the loans were written back then? And that's what we're dealing with. Yeah. I mean, I think we've heard Lloyd Blankfein talk about that point, too. Like the kind of behavior that sets in towards the end of the credit cycle when money is easy. And you're kind of under pressure to make more loans because you have capital to deploy.

24:03Carol Massar:And so we have seen a lot of situations in 21, 22 that turned out to be very bad deals. And that cuts both ways. It's not just the private markets. It's also the public markets.

24:13Tim Stenovec:And you've seen banks suffer from that as well. So Davide, at what point are you going to be sitting here writing that the contagion has spread?

24:21Carol Massar:Into the wee hours over the weekend.

24:23Tim Stenovec:And not a prediction for when that happens, but the signal that will tell you that, okay, this is something bigger.

24:27Carol Massar:I think what everyone is focused on right now is liquidity, especially in the private credit portfolios, right? You've seen investors try to redeem their shares. The other piece of it is all of these funds have leverage. So there are bank lines. At some point, if a lot of the money from the retail investors, that's the equity, comes out, you need to see a readjustment in the amount of leverage and borrowing that those funds can support. I think we're far from that. But bank earnings are always opportunities to see, right? Because of their exposure. I think it'll be interesting to watch the language from bank executives around that space, for sure.

25:04Carol Massar:Davide, thank you so much. Really appreciate it. You've had a busy week. Pleasure is ours, too. Davide Shaliotso, he is Bloomberg News Chief Correspondent for Private Capital.

25:14Tim Stenovec:Stay with us. More from Bloomberg Business This week daily coming up after this.

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25:38Carol Massar:My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side.

25:44Tim Stenovec:For example?

25:46Carol Massar:If anybody has more than 10 % of what they had for customer service 10 years ago, 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. 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.

26:28Tim Stenovec:To listen to the full conversation, visit ibm.com slash smarttalks.

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28:50Tim 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. I want to bring in David Bush, the co-chief investment officer of Trajan Wealth. The firm has about$2.4 billion in assets under management. He joins us from Scottsdale, Arizona. David, good to have you on the program. We spent a lot of time talking about the macro environment. You've got some great views on individual companies, individual stocks, and what those can tell us about the macro.

29:25Tim Stenovec:I want to start with just Costco aftermarket today. We're expecting to hear from the company and its latest results, another check on the consumer. How does Costco look to you? Yeah, well, first of all, thank you so much for having me. So when we look at the two retail announcements, the earnings announcements, we had Burlington this morning, which they beat. Now we have Costco after the close. And what's interesting is for the Burlington stores, is there's a trade-down effect going on with retailers and shoppers and treasure hunters. With Costco being more of a big box hypermarket, if you will, there is some opportunities there, especially what I'm watching for is digital growth.

30:07Tim Stenovec:So this is growth in digital sales for shipping and also for in-store pickup. And I think that Costco is going to help us get another view of how the consumer is faring in this inflationary environment.

30:19Carol Massar:Why are those, though, such important metrics to Costco's bottom line?

30:26Tim Stenovec:Yeah, a lot of it has to do with the way that they operate. Because, you know, with Costco, it's a massive retailer. But if they start to compete with clicking and shipping, if you will, like with the Amazons of the world, that's going to open up a whole new revenue chain or add to their bottom line. And so I think that that's really one place to look is those digital sales growth.

30:51Carol Massar:What would disappoint you in the company? Because what's interesting is, you know, David, as you know, we've increasingly talked about, you know, Costco's consumer. It certainly seems to be a wealthier consumer at this point. I mean, what does it tell us about, in general, a consumer that we think has actually been doing certainly better than customers who are at the lower income spectrum, if you will? So I'm just curious, like, what might it tell us about the health of the consumer and what it tells us about the U.S. economy?

31:24Tim Stenovec:Yeah, so with Burlington, that's more of a lower middle income earner, whereas Costco, to your point, is more of a middle to high middle income earner that's going to go to those stores. So what we're going to see is our customers switching from higher end retailers to lower end. But with Costco specifically, they have so many, they're so competitive on pricing and there's so much availability. And I know that they do a good job in terms of trying to stock their stores and negotiate prices. But it will show us, like, is the health of the consumer still as strong as we expect it to be in the future?

32:02Tim Stenovec:Because right now, to your point, inflation is a tax on the poor, and it's starting to work its way up into higher income, higher middle income earners.

32:13Carol Massar:You know, I'm just looking at the stock. It's up just about 14 % year to date ahead of earnings later on today after the close. Forward PE of 48. Is it pricey, the valuation?

32:26Tim Stenovec:Well, the price, the PE multiple is kind of a double-edged sword. So it either indicates that, one, investors expect earnings growth to continue, which I would expect some earnings growth, especially in 2026 and into 2027. But given that high P.E. ratio, there could be some price correction. But we will have to wait and see what they announce at their earnings call. OK, well, we'll wait to hear that. Let's talk a little natural resources and oil. If we look at just prices right now, I've been going through this all day. GLCO on the Bloomberg Terminal, we're off of highs when it comes to oil, but still over$80 a barrel on WTI.

33:08Tim Stenovec:Brent is up to$84 a barrel. Both of those about 39 % higher on the year. On energy, on oil, your picks. You're interested in Canadian natural resources, petrobras, and integrated oil and gas. What are you looking at? Yeah, so right now with higher oil prices and actually higher gas prices, it's going to be a tailwind for oil producers and natural gas producers. And this is true in my mind, you know, across the globe. What's interesting is, you know, right now we have the Strait of Hormuz that is closed, or at least there's some concern that we're not going to be able to ship oil through that straight, which represents roughly 20 % of the global traffic.

33:56Tim Stenovec:So that means that more production is going to be focused either in the United States or in Canada, which is which is kind of interesting. So so in Canada, they we we do buy some of their oil from from these producers. And so it should actually benefit North American producers and even Central and South American producers. the venezuela question here which is something that we you know maybe it's too early to to to be talking about this but the president certainly you know before iran talked a lot about how the u.s will get venezuelan oil is there is there an update on that and and an idea for how that you think that will affect global oil prices yeah venezuela is interesting because they sit on the largest proven reserves of oil.

34:50Tim Stenovec:And it is a heavier crude, so it has to be refined. And so when that oil production comes back online, it should be hugely beneficial for consumers because oil prices should come down. But it also should be beneficial to refiners, particularly in the Gulf states. Because when you think about production in Venezuela and where it has to be shipped to be refined, those refineries should be a beneficiary. But once that comes fully online, if and when it comes fully online, it should really add some supply to the global oil production and ultimately drive oil prices down.

35:30Carol Massar:So one other company that you're watching, it's a real micro cap, and that's Full House Resort. Sticker is FLL. It's about an$82 million market cap. It does report after the close today, stock is down about 13 % year to date. Why is this something that you look at? It's a pretty small player. Yeah. And just quickly, just got about 30 seconds. Yeah.

35:50Tim Stenovec:It's interesting because it's in the leisure space, right? So they own regional casinos. And so one, we'll see consumer foot traffic, but two, they're also leveraged. And so this is one of those companies that in that small to mid or small micro cap space that are leveraged. And so higher rates, and it all comes together. We have higher oil, which leads to higher inflation, higher inflation leads to higher rates. And so we're going to see how they put it together, what the impact is. Yeah.

36:25Carol Massar:Got to leave it there. David Bush, thank you so much. Really appreciate it.

36:28Tim 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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