Trump Ousts Bondi After Chaotic Tenure at Justice Department

24:52You know, there's very little appetite out there for recessions. Is there going to be subsidization coming from the government in order to offset some of the costs there? But I think that, you know, the U.S. is, for better or worse, in some respects, more secure in terms of resources, in terms of geography. We will have more defense spending. Who knows? maybe we'll have some fiscal stimulus before we get to the elections. And so I think we're seeing some firmness in the dollar. You definitely sound much more optimistic. Like, I'm curious, Ira, because you are a little bit more pessimistic. Do you have a question for Robert?

25:31Like, as you listen? Well, not really. I mean, the one question I would say is, how do you invest some of this in the global fixed income market, right? Because like Carol said, it's possible that the ECB is going to be increasing interest rates, whereas the Fed's probably on hold. Is there a curve trade or something to do between the U.S. and Europe, say? Right. Well, I think that when I look at the markets more broadly, look at cash, look at equities, look at bonds, and what investors have been doing. Investors, without changing their asset allocations, have ended up with a tremendous amount of equities.

26:05So they have a lot of exposure to downside risk in the economy. Equity valuations are fairly full. and i think that's a tougher call do you stay with that an above average allocation to equities when you look at cash what we've seen is money fund balances in the united states have continued to go up cash balances for investors for return seeking institutions and individuals appear to be kind of high bond allocations are low so i think people are under allocated to fixed income and i That's why we're seeing resilience in terms of long-term yields. Why do you think we see all that cash on the sidelines?

26:44Because cash has been a great performer. So if you think about it, since late 2022, the 10-year gets to 4.25. We're still at 4.25. You've been all over the map in the price of a 10-year. You could have ridden cash all the way up to 5.30, down through 4.30. Now you're at 3.60. So you're a little bit thinking about should you go out on the curb and so on. But the risk adjust returns of cash have been phenomenal. I was sorry. I was under the impression that cash is trash, Ira. Well, the Sharpe ratio of cash has been quite good, right? I think that's Robert's point. And the other thing that I would note with all of the cash, you know, I talked to some of my colleagues in equities and they say, oh, look, there's all this cash on the sideline that needs to be deployed.

27:25In this case, I do agree with Robert that the people are underinvested to fixed income, right, to buy bonds in general. and but it's cash on the sidelines that's in all these money funds and the like they're not going into equities right this is instead of holding bank deposits that yield zero that's so interesting because i would imagine that some of it is people who are saying well to your point that equities seem fully valued so we'll have money in a money market fund or in some sort of bond fund and then when we see an opportunity in equities we'll go there but that's not the pattern what we're seeing is money is going into bond funds a lot of money is going to bond funds money is going into stock funds.

28:02But the amount of money going into money markets is almost equal to the sum total of those two. So apparently there's a lot of investable assets. It's piling up in those forms. It continues to pile up. I feel like the last couple of years, we keep saying, when is this going to come in, but it just continues to grow. So for the most risk averse investors, the cash has been very competitive with treasury returns. But for more adventurous investors in fixed income, your high yield, your emerging market, hard currency debt, and even your corporate bonds over the last few years have done very well.

28:32So I think that's why, you know, there is overall support for the market, despite the tremendous short-term uncertainty. Robert, when it comes to global bonds, though, where is the money going? And I'm curious, it's been interesting when you watch the dollar, which we saw it under pressure, then we saw it move up. Certainly, you know, as of late, I think about the impact on the emerging market world. So where have you guys been specifically in global bond funds, seeing money going in or out? In terms of the flows, it looks to me like there's two offsetting kinds of flows that we have seen since the election in November.

29:04There's a big drop in the dollar, but the money is coming here. So what's going on? We're seeing flyers buy U.S. debt securities, buy U.S. securities, but the amount of money that's coming in is small relative to the total stock of U.S. dollar assets held. So apparently people have been hedging the currency exposure of their U.S. investments, but net-net, where are they putting their money? It's still coming here. And I think here's a reason for that, right? When you look at where the flows are coming from, from foreigners into the U.S. in terms of treasury bonds, corporates, equities, and the like, foreign institutions have been selling treasury securities or at least running off their portfolios, but private institutions continue to pile in, right?

29:49And those are the economic-sensitive investors and the price-sensitive investors. So those are Those are the ones who are more likely to hedge their currency exposure. Central banks don't because that's not really their mandate. And also, private investors, they buy 10-year treasuries, 30-year treasuries. Central banks don't do that. Central banks buy T-bills two years, three years. They don't buy the long end. So they don't own a lot of market risk. All right. So let's push this forward a few months and talk a little bit about Kevin Warsh and the economy that he inherits if he becomes Fed chair.

30:18Which is kind of interesting. I don't know. Is it a when or is it an if, Robert? I think it's a when. When is it? And I don't have a great call on that. You know, let's say this year, you know. But I think the more interesting part will be what does he do? And I think what I'm supposed to say, what I'm supposed to think, is he's going to come in, he's going to get the Vulcan mind meld on the committee, and they're going to cut rates regardless of what's going on. But, you know, we've seen this in the past and we've read of in the history books. Is inflation ticking higher? That central bankers come in and they do the right thing.

30:56When you're in the seat. Yeah. And honestly, if the dollar is going up and that's getting inflation down and long rates kind of stay where they are because the inflation outlook is solid, maybe that's an acceptable opportunity for everybody, especially if you're putting your signature on the dollar bill. What if it's after midterms and they go to the Democrats? Would it still? Does that change? It just got about like 15 seconds. You know, I'm optimistic on the markets long term, but in terms of the picture for human beings and politics, it could just be increasingly chaotic. All right. I told you.

31:29Live long and prosper. There's the bold in mind about it. Lock the doors. They're not going. Ira, Jersey, Bloomberg Intelligence, Chief U.S. Interest Rate Strategist. Robert Tipp, thank you. PGM Fixed Income Managing Director, Chief Investment Strategist, Head of Global Bonds. 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. Shares of top asset managers sliding today.

32:05This after Blue Owl Capital said it will limit redemptions from two of its private credit funds after facing a surge in withdrawal requests. Just ahead of that Blue Owl news, though, Apollo Global Management President Jim Zelter launched a full-throated defense of private credit downplaying investor concerns and describing recent developments in the asset class as, quote, mere growing pains. He was on Bloomberg Surveillance. We've really lost the plot on credit. We're talking the headlines and the conversations are about this little narrow area of direct lending,$200 billion of the non-traded BDCs.

32:38And why are we here in the first place? The reality is the last 15 years, credit has compounded great returns for investors around the globe. And they've done it in a manner which out beats their beats, the high yield and loan indexes dramatically. And so we're talking about a little bit of skirmish on the sidelines here. That was Apollo Global Management President Jim Zelter earlier on Bloomberg. Blue All shares, by the way, fell at one point today to their lows going back to 2022. They're now down around 66 % from highs last January. For more, we're joined by Olivia Fishlow, Bloomberg News Leverage Finance Reporter, and James Crombie, Bloomberg News Senior Editor for Credit.

33:16They both join us here in the Bloomberg Interactive Brokers Studio. Olivia, we're going to get to the Blue Owl story in a second. You've been so great in your reporting around that company. But I want to start big picture, James, and just get your comments on what we heard from Jim Zelter. He said, we're talking about a little bit of a skirmish on the sidelines here. Is that correct in your view? Is that accurate? I mean, if you're one of the biggest participants in the market, that's what you have to say as Apollo. Obviously, he's going to support it. But I think it's more than just a skirmish.

33:43We're seeing big outflows, redemptions from a lot of BDCs. We're now seeing outflows from funds that look at high yield bonds and high grade bonds as well. So, you know, follow the money. Money's flowing out of credit. Liquidity is coming out. There's also a ton of supply that's going in. So I think this is more than just a skirmish on the sidelines. I think it's a big repricing going on. Wait, so Jim Seltzer attributing the reason private credit is in the headlines due to the hefty returns the asset class has generated for institutional investors. Is he right? Is he potentially from his perspective, James, right?

34:21Maybe their book is good and he's talking their book? Or is he? Because I think about the responsibility to investors in terms of what he says. At some point, if he's not being totally transparent, that's a problem down the road. I think he was talking historical. So, returns were good in historical terms. I don't think they're going to be good. There are going to be more defaults, more losses, more markdowns. There's going to be severe impairment in some of those portfolios. So, the returns just aren't going to be there. All right. So, Olivia, come on in on Blue Owl and the latest on that. Because what investors were clamoring for, that was a lot.

34:59Definitely. And I think to the point of returns, that's sort of what started the fears around BDCs, was we started to see returns come down as rates came down. And Blue Owl was sort of at the forefront of that, in part because they've tapped the retail market so heavily, and in part because they were one of the last firms to close their tender offer window. So the market was sort of waiting to see what would happen around this really BDC-focused firm. And as you saw, the results were pretty staggering. Yeah, so take us to today, imposing the caps after facing 41 % and 22 % requests to exit. Bring us up to speed on today's news.

35:33Definitely. So what Blue All decided to do was impose a 5 % cap on the funds, on both funds, which one had around 40 % of investors try to get out. And I would say at this point - So almost half the fund were like, I'm out. I want to be out. Right. And so now what happens is every quarter, they have the option to decide to try to get their shares out again. So they have to resubmit. And so I think we expect to see kind of a continued period of we don't really know how long where investors are trying to get out. This is where James comes in and says this is all in the prospectus on the first page, right?

36:04And Jim did mention that page one. Yeah. So 5 % cap. People shouldn't be surprised here. What? They weren't paying attention. They weren't reading the small print. Nor was nor a lot of investors during the good times of credit when they were just buying whatever. And now that's backfiring on them. But James, is there a secret sauce to Blue Owl in that, as you said, opening it up pretty aggressively to retail investors, so a different investment pool that maybe doesn't always read the, you know, I'm not taking their side, I'm just saying. But that also, in terms of closing their fund, kind of at the tail end of making the investment, so maybe the investments weren't the best in terms of choices.

36:40Are they kind of, should they be put in a separate class because of their, where they are in this? I mean, I think Olivia has written a lot about their tech focus, which is problematic. But I think all of the other BDCs are suffering. And we saw one downgraded to junk last week. So, you know, that wasn't a good sign either. So what changed for Blue Owl, Olivia? Because this was a company that was so loved, not only by markets, but also by investors who wanted to invest in credit through Blue Owl. What was the tipping point here that really made it get to the headlines in a way that it wouldn't want to be?

37:17It's a good question. I think there were a few things that sort of happened at the same time, which were really tough for the manager. The first being lowering returns in private credit, sort of a conversation around retail accessing the asset class. But then, of course, AI, I think, was like a huge turning point because Blue All sort of made software their thing. And, you know, they said they were really great at it and really focused on it. And then no one really expected the impact or perceived impact of AI. And then finally, when they first tried to merge one of their funds and give some liquidity, I think they obviously had to pull that merger, had a lot of issues there.

37:51So it was like they couldn't really stay out of the news, it felt like. So, you know, doesn't this go back to risk reward? Like, that's investing. And some things are more of a sure thing and some of them aren't. So again, I go back to what you said, James, of like, you have to read the prospectus. I can never say that word. But I mean, understand what you're investing in and understanding how liquid or not liquid it is. And so I'm just wondering, like, how are we thinking about, because it feels like every day there's a drop of stories. So how are we starting to think about private credit? Is it just a case folks understand your rewards can be grand, but so can your risks, especially when it's focused on something like one particular sector, whether it's software or something else.

38:36And to be fair, I think there is something to be said about this particular structure, the semi-liquid fund. It's sort of a test of that moment. And I think we're still waiting to see of like private credit writ large, but I still think it's an important area to focus on. Because you talk to private credit folks, and I think about all the times we've been at Milken, it's like, listen, we're lending to a part of the market that can't access funds. So James, is it good? Is it bad? Is it just, I don't know. Well, it's pretty boring, actually. I mean, in terms of middle market lending. Sorry, I forgot about that choice.

39:08And, you know, it's in the spotlight now. But the impact I think the BDC blow up is having, and Jim Seltz described it as a sort of sideshow, is$200 billion. It's relatively small. But I think it's creating caution across the board amongst direct lenders who, you know, are a much bigger part of private credit. They are going to be tightening up. They are going to be asking for different pricing, different structure, more problems. Are you doing like big banks and things or what? We're talking about, yeah, the big shops that have hundreds of billions of dollars of exposure to direct loans to middle market companies.

39:39And, you know, by the way, there are 200 ,000 middle market companies that employ 50 million Americans and they produce more than 10 trillion dollars of GDP. So, you know, it's quite a big impact on the actual economy when we're talking about suddenly liquidity draining from that system. All right. Every time we talk about private credit, I want that quote. I want that quote. OK. Well, you'll have to come back. Yeah, both of you. You guys, like every time your stories, the whole sector, we're just kind of blown away. Olivia Fishlow, Bloomberg News Leverage Finance reporter. James Crumbie, Bloomberg News Senior Editor.

40:09Credit. This is Bloomberg Businessweek Daily. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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41:33We often talk about the intersection of the business world, market world, money, with so many different sectors of our world. And we often talk about how increasingly it has to do with health in particular. And I was just thinking about earlier, we're talking about equities and what has been kind of where you see job growth. You often see equity outperformance. A lot of it has to do with health. With us, Jessica Rosenworcel, executive director of the MIT Media Lab, also former chair of the FCC, the Federal Communications Commission, the first woman to lead the FCC as permanent chair by President Biden.

42:07Previously, she served as commissioner. That was back in 2012 after being nominated to two separate terms by President Obama and President Trump. She joins us from Boston. We're going to talk about health and we're going to talk about everything you've been working on recently. But I'm really curious and we're both really curious about the shift of going from the FCC to the Media Lab and the new perspectives that you've gained by being there, given the experience that you had working in the government. Well, thank you for having me. I like the intersection of technology and policy. And it was a treat when I was in Washington to try to come up with new ways to use technology to close the digital divide.

42:44And now it's been really just awesome being here at the MIT Media Lab, which is a place that's been around for more than four decades and is really committed to thinking about what our digital future looks like and how to make sure that there's a role for humanity when we develop it. So let's talk about this in the context of health care, because when you were at the FCC, you were known for working to preserve net neutrality. You were very interested, if I recall, in making sure that everybody had access to broadband throughout the country. This idea of the homework gap as well. Do you see the technological gap and the challenges that many Americans face?

43:22Do you see that similar when it comes to health care or is it even more stark when it comes to access to health care? Well, I think there's a lot about technology now that leaves people wary. They can feel like they lose their agency and that big systems are making decisions and they don't have a voice. But at the same time, I look at a lot of those new technologies that are being developed, like wireless sensors and AI diagnostics, and I see lots of opportunity for us to improve health care. And there's a lot of work we can do to improve health care. So I think we've got to seize it. Jessica, let's go deeper into specifically for women.

43:58This is what we call our Business Week Women's Health segment. And we talk about often the gaps when it comes to men versus women in either diagnosis and treatment and R &D dollars. It's slowly getting better, but there are still gaps. So I'm just curious, this intersection of technology, how that might help reduce that gap and really expand access to care for women specifically and women's issues. Yeah, you're so right. I mean, there's longstanding gaps when it comes to women's health care. For so many years, they weren't included in critical studies. And then we've had just a fraction of the research dollars go towards women's health care issues compared to men's health care issues in this country.

44:41And it's made a real difference. We are not diagnosing women's health care problems the same way that we are for men. And if we close that gap, we're going to do some good work, not just for women's healthcare, but for our global economy. In fact, there are studies that show that as much as$1 trillion could be seen in economic growth globally by 2040, if we close the kinds of gaps you are talking about. And there are so many ways that we are starting to see possibility, and they all involve technology. I think in particular, we're going to see so much more use of wireless sensors, because Because when we use wireless sensors with healthcare, we get so much more information, good quality data, continuous data, continuous monitoring that can be used to improve diagnosis and healthcare.

45:29And that is one of those areas that I think is just poised to grow tremendously in the future. I'm glad you brought that up because I think a lot of people who work in that space, who are trying to create these devices and work in medical devices, they have thoughts Thoughts about the regulatory process, that it takes too long to get FDA clearance or FDA approval, whatever they're going for. You operate in this unique position because you were one of those folks who was considered a regulator at one point in your career. Is there room in the regulatory process there to make this easier so more people do ultimately get access to this technology?

46:06Yeah. I mean, I had a different kind of regulatory role in that I oversaw communications networks. But I used to say that it was a three-legged stool. We had to make sure that we got the regulations right to get wireless airwaves available to those who could use them for these kind of technologies and broadband, again, for these kind of technologies. We also had to make sure that practitioners knew how to use them. And then the third leg would be making sure that insurance was set to reimburse these kind of technologies, because that's what also makes it really practical. So we've got to have all three things, regulation, familiarity among our practitioners, and insurance reimbursement working together.

46:45And if we do that, I think we can solve some of the health care gaps we know that we have today. And I think these things are possible. We've just got to work at them. Yeah, we also have money flowing into it, right? Investors. I hate to be so basic. That old thing, Carol? Easy. Here at Bloomberg, we kid, we laugh. But follow the money with anything, right? That just tells the story. So what kind of money and interest do you see among investors? You guys are in this great place where there's this great intersection of all of it. No, you're absolutely right. That's part of the equation. We were doing some work at the Media Lab.

47:20We have all of these different efforts underway. We've got folks working on ultrasound technology that would go in a bra to make it possible for early cancer warning without having to go to the doctor's office and get a mammography. that could be tremendous at scale. We've got work going on with affected computing and physiological signals, then trying to understand how that enforces our healthcare and things like sleep. We've also got work going on with bionic prosthetics that connect to our nervous systems. Now, the neat thing about the Media Lab is we are pre-commercial. So we're not yet thinking about how you monetize all these things.

47:57What happens is the work we develop gets taken up by healthcare practitioners and research doctors who then put them into clinical trials. So we're the early stage for ideas here, but I think that's what makes me so optimistic and excited about what I get to see here every day. We just actually did. I was just looking at, was it Bloomer technology? Was it Bloomer Tech that we had? Bloomer. Yeah. Alicia Chong Rodriguez, the founder and CEO of Bloomer Tech. Yeah. It was a smart bra basically for heart health and for women. And it was really kind of fascinating. They were in the testing phase. Yeah.

48:29There's so much that is going on right now with technology and healthcare. I just think there's so many more opportunities for customization. When you think about the data that we get from wireless technologies, there's also opportunities for customization that come from AI-based diagnostics. And down the road, I think we're going to be doing more work with digital twins, where we might develop models of unique organs and test them before we have real-world intervention. All of these things are becoming possible. We're going to have to work to get them out into the real world with more clinical trials.

49:01And like you say, it will also take some money and funding. So I just want to ask about the timeline for this stuff, because when we talk about this stuff, I think a lot of people think it's pie in the sky ideas. But I mean, do you think we'll see this stuff in the next five years? Absolutely. You know, it was like 10 years ago, I was visiting villages in rural Alaska, and they were demonstrating to me how they were using these refurbished echocardiogram machines to try to send images of heart disease off to doctors in specialty hospitals in Anchorage and Seattle because they didn't have those kind of practitioners in their backyard in a small village near the Arctic Circle.

49:40And what I was seeing in a rural location was something that has now moved into mainstream medicine, which is this idea that we can connect and get expertise no matter where we are and take measurement of where we are with our health in places that we've never been able to do that before. So I think we are moving from having technology be at the margins to being part of mainstream medicine. And I think what I saw years ago in that little village in Alaska sort of set off a light bulb for me, which said that we can do this here. We can do this everywhere. Listen, Jessica, you know, I'm listening to you.

50:13I think both Tim and I are, and we think about, you know, we live in with a company where we can go everywhere and talk to all different kinds of voices and really respect the importance of content and media as a medium. And I am just curious whether it's dealing with health care issues and understanding what you're talking about. It's so important that correct content gets out there, but that there's freedom in content. Right. And I just wonder your view as former chair of the FCC. I've got to ask you, I'd be an idiot not to. Yes, no, I think I saw this coming. Your view on the use of the agencies, the current agency's powers to influence the content, whether it's late night TV or news coverage in general.

50:58For me, who's been doing this for 30 years, it makes me a little uncomfortable, a lot uncomfortable to be fair. Yeah, that's fair. It makes me uncomfortable too. During my last few weeks as chair of the Federal Communications Commission, I took a look at what was on deck and I found some petitions that involved content and coverage and behavior at ABC, NBC, CBS, and Fox. And what I noticed is they came from the left, they came from the right, but every one of them wanted the government to step in and use its power to prevent free speech. And so on one of my last actions before I left the agency was I dismissed them all.

51:37And I did that because I don't think that the FCC should be the president's speech police. And I don't think that the FCC should be journalism censor in chief. What do you think about. Brendan Carr, your former colleague, just very briefly about his approval of the Nextar Tegna merger without a full commission vote. Well, I think there are some challenges associated with that and the underlying law, which limits the number of television households any one company can reach in this country to 39%. And I know that there are ongoing court cases involving that decision. So I think we'll have to stay tuned.

52:18And we're going to stay tuned to the work you're doing. Please, please come back. We would love to continue this conversation. We've talked with a lot of folks over there, and it's just great to hear what you guys are doing. Jessica, thank you so much. Jessica Rosenworcel. She is executive director of the MIT Media Lab, former chair of the FCC, as we stated. If you missed any of that conversation, be sure to check out our podcast feed. 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.

52:52Eastern 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.

53:10I'm Francine Lacroix, an award-winning journalist, and I've got a new podcast, Leaders with Francine Lacroix from Bloomberg Podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment, but I've always been curious, who are these people as leaders? I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow Leaders with Francine Lacroix wherever you get your podcasts.