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- [00:00]
Host 1
They told us to expect change. They warned us about the transition.
- [00:05]
Dr. Ellen Wald
But honestly, they forgot the best part. This is the chapter where we finally focus on us. LifeMD delivers expert menopause and midlife care right from your home. From hormone health to holistic wellness, LifeMD
- [00:20]
Host 1
helps you feel your best for the best years of your life.
- [00:23]
Dr. Ellen Wald
LifeMD it's just getting good. Visit lifemd.com/goodlife so there's a lot of
- [00:31]
Ed Ludlow
noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business IBM, Adobe, Acrobat
- [01:01]
Host 1
Studio, your team's home base.
- [01:03]
Ed Ludlow
Collaborate within a shared PDF space.
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Host 2
You've got your docs, your plans, your specs, and then invite the crew to build what's next. They talk up the teamwork. They think that this design could be a contender. When somebody wonders what's the next steps, AI helps you finish the rest. Bolts are tight now. Your plan's refined.
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Ed Ludlow
Run a smoother business when you're on the line.
- [01:26]
Host 1
Do that with Acrobat.
- [01:28]
Host 2
Learn more@adobe.com Dothatwith Acrobat.
- [01:33]
Host 1
Bloomberg Audio Studios Podcasts Radio News this
- [01:39]
Host 2
is Bloomberg businessweek Daily, 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 Massar and Tim Stennebec on Bloomberg Radio.
- [02:02]
Host 1
Bloomberg reporting that or Oracle and OpenAI have scrapped plans to expand a flagship artificial intelligence data center in Texas after negotiations dragged over the financing and OpenAI's changing needs. As we said, the stock has been bouncing around. We've seen AMD also impacted under some pressure as a result. Let's get more on what you need to know, what it says about really the spend, and also perhaps more importantly, what it says about Oracle specifically. With us is Bloomberg Tech co host Ed Ludlow. He's out there in our San Francisco bureau. So Ed, great reporting. You guys blow us away again and again again, you and the team there. Is this an AI spend story? Is this an Oracle story or a little bit of both?
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Ed Ludlow
I think it's a little bit of both. And data centers are Difficult to build. You know what we're saying is very specific. The Abilene, Texas site is kind of the flagship data center as part of Project Stargate. Right. Which we've talked endlessly about the wider initiative to get compute for open AI. The situation is that it's a 1000 acre site where some of the data center is up and running, some is still being built built. And Oracle had an agreement with Crusoe, the developer and with OpenAI to go from 1.2 gigawatts of capacity to 2 gigawatts, but they've decided not to take on that additional capacity. And so what has happened, we understand from sources is that in Video has kind of acted like a bit of a broker in the situation to make sure that the planned expansion has a tenant and they have introduced Matter into the mix. And so there are early talks happening between Matter and Crusoe, who's the developer, the builder of the datacenter site, to take on that additional bit. So the existing stuff is still there, Oracle still using it. But clearly, you know, the way that markets reacted. There is going to be a deeper look at the specifics here and at
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Host 2
Nvidia taking on that role of finding a tenant because it's in Nvidia's best interest to have this data center up and running within Video products inside.
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Ed Ludlow
So our understanding from Sources is that what happened is in Video paid Crusoe about $150 million. It was basically a deposit to ensure that whatever happens with the expansion to go from 1.2 gigawatts to 2 gigawatts, whoever ends up being the tenant or leasing that capacity. It's in video GPUs that are in it and not AMD's. And so I guess a part of the market reaction where actually Nvidia fell after the report, so did amd. You know, it's kind of blocking AMD to having its tech in that site. Remember that Matter has agreements with both AMD and Nvidia long term for compute. But that's kind of the mechanics more so of what's happened in this circumstance.
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Host 2
Core we've shares also took a leg lower on this report and they were higher today and then now they're down by 3.3%. Those, those Neo clouds companies. What, what could this. Well, could your. Your story along with some colleagues. What, what could this tell about those NEO clouds?
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Ed Ludlow
Yeah, so I'm not going to to be careful not to give a definitive causal link. Right. But remember that a part of Core weave story was to take on some of the capacity and some of the compute demand that the hyperscalers couldn't perform themselves. Oracle also saw some of that benefit. But basically, you know, core Weave is, is running compute and demand for its offering is running beyond that. So generally this seems to be a reaction where if you see a story about a high profile data center site that is kind of going off track and maybe we can get into some more of the specifics of why we think it's going off track in aggregate, the market is looking at going, you know, maybe this, this build out doesn't have the momentum that we thought it did. Or as we said at the top of the conversation. Right. Building these data centers is very difficult, let alone capital intensive.
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Host 1
But is Oracle in trouble?
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Ed Ludlow
So we, we think that part of what the reason for not moving forward with the expansion, and again, it's an expansion, right. It was to go from 1.2 gigawatts to 2 gigawatts, from 1.2 to 2 gigawatts is that Oracle has a lot of other projects. There is still a commitment for Oracle and OpenAI to do 4.5 gigawatts across multiple sites. And our understanding is like that bigger picture initiative carries forward. There are other sites outside of Texas that many of the names that we're talking about see as more viable. Maybe they're easier to build, you can build them more quickly, the conditions are better, the labor availability is all a factor. What we do know is that on that Abilene site in the existing data center that's already online, there was some downtime in January where the conditions, the weather conditions literally were impacting and causing outages on that site. And so we believe that actually there was some tension in the relationship between Oracle and Crusoe. Now, I need to say both companies issued statements and responses to our reporting, both Oracle and Crusoe and both said that they're proud of the relationship, the relationship continues to move forward and they're working together, you know, on a number of different projects. But you know, Oracle is also a focus for investors because of its credit profile and the leverage that it's taken on to do this.
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Host 2
Yeah, we've talked a lot about that in recent months. Ed, I don't want to put you on the spot to make any predictions here, but. But sure. This is obviously a single event that's getting a lot of attention, that's moving many stocks. Could this happen in another instance? These data centers are attempting to be built all over the country.
- [08:01]
Ed Ludlow
Yeah, I mean, we talk about this a lot in the context of forecasting energy demand. Right. You know, go I go back to it time and time again. But PJM and its revised forecasts because a lot of what's out there is on PA paper. They are announced projects. They aren't actually drawing power from the grid. There is no concrete in the ground. But again, you know, a Oracle has a much broader agreement to service open air with compute 4.5 gigawatts of it. Our understanding is a lot of that project continues Matter who again to recap for your, for your audience that's just tuning in, we're saying that Matter is coming in to take on the excess capacity or the additional capacity that Oracle now no longer wants. They too have got projects all over the country with different developers and their own teams building them. And so, you know, things move at different pace.
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Host 1
Yeah, interesting. Right? Just but one of the other big themes and narratives that we are talking about so much this year, Ed. So an interesting development. Great reporting. You guys just rock. Unbelievable story.
- [09:07]
Host 2
Stay with us. More from Bloomberg businessweek Daily coming up after this.
- [09:15]
Host 1
They told us to expect change. They warned us about the transition, but
- [09:20]
Dr. Ellen Wald
honestly, they forgot the best part. This is the chapter where we finally focus on us. LifeMD delivers expert menopause and midlife care right from your home. From hormone health to holistic wellness, LifeMD
- [09:35]
Host 1
helps you feel your best for the best years of your life.
- [09:38]
Dr. Ellen Wald
LifeMD it's just getting good. Visit LifeMD.com GoodLife so there's a lot
- [09:46]
Ed Ludlow
of noise about AI. But time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smarter business.
- [10:14]
Host 2
IBM, Adobe, Acrobat Studio, your new foundation. Use PDF spaces to generate a presentation. Grab your docs, your permits, your moves, AI levels up, your pitch gets it in a groove. Choose a template with your timeless cool.
- [10:29]
Ed Ludlow
Come on now let's flex those tools.
- [10:32]
Host 2
Draft, design, deliver, make it sound, sing.
- [10:34]
Ed Ludlow
AI builds the deck so you can build that thing.
- [10:38]
Host 2
Do that, do that, do that with Acrobat. Learn more@adobe.com do that with Acrobat. You're listening to the Bloomberg Business Week Daily podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg business app or watch us live on YouTube.
- [10:59]
Host 1
Of course, that widening conflict in the Middle east east is stoking fears over a global energy crunch. You've got exporters scrambling for routes out of the region while a swath of refineries are reducing output. This is certainly some of the big stories that are going on here.
- [11:12]
Host 2
The near halt of traffic through the Strait of Hormuz is causing storage tanks across the region to top out. Drone and missile attacks have targeted refineries in Saudi Arabia, Kuwait and Bahrain. The escalating war has choked off oil and gas supplies to key customers in Asia and Europe and sent energy prices soaring.
- [11:28]
Host 1
Charlie mentioned it. We've got WTI almost up 40% so far this week, 60% year to date. You've been talking about Brent crude, same story. We are just seeing the global energy picture in terms of prices move up. So we've got a great voice joining us once again. Dr. Ellen Wald is president of Transversal Consulting and senior fellow at the Atlantic Council. She's also author of Saudi Inc. Understands the region so much. She joins us once again from Boca Raton, Florida. Ellen, big picture first. A lot coming at us we're trying to figure out, and I think a lot of it has to do with how long this war goes on. But short term, long term, how are you thinking about the global energy markets?
- [12:08]
Dr. Ellen Wald
I would say both short term and I think short term, we are right on the precipice of what could be a global energy crisis if we don't get traffic moving through the Strait of Hormuz soon and even at a reduced rate would be fine. But we've got to get some sort of movement going. If we don't see that by the end of next week, I would say that we're looking at shortages across Asia and all sorts of other dislocations locations that are going to happen simply because you've got tons of tankers just sitting there. Okay. You've got storage facilities filling up to the point where producers in the Middle east are already having to cut production. And yet that oil is desperately needed everywhere else, particularly in Asia and then Europe. We've already got a crisis in natural gas prices in Europe simply because Qatar has shut down natural gas production. And that's not something that can be turned on immediately. That's going to take a while to restart, even if hostilities ended tomorrow. And I think that the world is really waiting to hear from the Trump administration. What are their plans to alleviate this crisis, because it doesn't have to get as bad as it could get. There are steps and things that we can do right now to start alleviating this crisis.
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Host 2
Ellen. Like what, for example, does it mean reinsurance for ships that, that are in the region to provide at least confidence to the folks who are at the shipping companies that, okay, your investments will be protected? What, what could the Trump administration do?
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Dr. Ellen Wald
I mean, that's, that's, I would say that's like the tip of the iceberg.
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Host 2
Okay.
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Dr. Ellen Wald
We need some concerted military effort to protect ships. Now, I understand that's very difficult when the, you know, the primary issue here are drones that are flying. And it's really hard to protect against that. But there's gotta be some kind of military presence protecting tankers. There are other things that can be done. They can reroute ships out of the current traffic scheme that takes them right through Iranian waters to a shipping route that's farther south that used to be used in, you know, before 1979. That might take them somewhat away from the Iranian shoreline. They can make efforts to. And I said this recently in a piece for Atlantic Council to remove the Iranian military presence from certain islands in the Strait of Hormuz that ships have to pass by in order to get out. If they can, you know, remove our military, can remove Iranian troops from those islands, then there's a much better chance in ships having actual safe passage. And then there's just this issue of these drones flying everywhere that are now starting to hit oil production, oil facilities, oil infrastructure across the Middle East. There was an oil field in Iraq that was hit recently. You've got refineries that are being hit. These are the kinds of things that can't necessarily be repaired quickly and that are also jacking up oil prices in addition to this tanker crisis.
- [15:15]
Host 1
Well, let's, you know, it's interesting. We've been thinking about history as a guide or not as a guide, Ellen. And we were talking with a guest about the energy crisis during the 70s. Right. When there were lines in the United States and odd and even license plates. We saw that.
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Host 2
Yeah, we brought that up with Steve Moore.
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Host 1
Exactly. And we've talked about, you know, early 90s, right. The Persian Gulf War. And what we saw in terms of, you've got, it's fair to say, you know, you now have the US that's kind of energy, has energy independence. You've got alternative energy at play. So what's, what's similar? What can we lean on in terms of history? What can we not so.
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Dr. Ellen Wald
I think that the U.S. i wouldn't say we're energy independent, but I would say that we are particularly isolated from some of these issues that other countries are going to face much sooner than us. I mean, some countries have ample storage. China's got a lot of oil in storage, but other countries don't. And so they're going to start to feel the effects first. It's interesting. These are the two historical examples that were pulled. I would actually look a little bit farther back to the Suez crisis in the 1950s and actually before Britain and France went and invaded the Suez Canal to try to take it back from Nasser, they and the United States, all three of them, coordinated plans for what to do in the event that there was an energy crisis involving the Suez Canal. And there were actually all sorts of plans put in place for which ships would go where and how Europe would be supplied with oil in the event that they couldn't get it through the Suez Canal. And the fact that we didn't put these plans in place, we didn't even reach out to communicate to the people who might be most affected by this, I think was a serious problem. And we should be correcting that. We should be looking at this example, establishing coordinating committees, talking to these Asian countries and seeing what can we. What can be arranged so that we can make these oil shortages, that they might suffer less, particularly if this military confrontation is going to last for six months now. I mean, just earlier we're hearing four weeks and now we're hearing six months. So, you know, there, there are things that we can do to help, and I think that we are not necessarily doing them.
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Host 2
We're speaking with Dr. Ellen Wald. She's president of Transversal Consulting. She's senior fellow at the Atlantic Council. She's the author of Saudi Inc. About Aramco and the country of Saudi Arabia. I bring that up right now because a story just crossing our Bloomberg terminal is a Bloomberg exclusive about how Saudi Arabia has stepped up direct engagement with Iran to try and contain a war in the Middle east that's wreaking havoc and stressing global markets. This is according to several European officials. Bloomberg News is the first to report on these Saudi efforts. You know, the country of Saudi Arabia very well. 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.
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Dr. Ellen Wald
Well, let's remember, it's only a good thing for. For Aramco if they can actually sell oil. You know, if they can't actually sell any oil at, you know, $91 a
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Host 2
barrel, it's just sitting there and it's at risk. Yeah.
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Dr. Ellen Wald
Now, Ramco is actually in a very unique situation, and they have the ability to send oil out to their port in Yanbu, which is on the Red Sea, and they can send about 7 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 energy shortages, or they can fulfill their customer orders from that for a period of time. Then they'll obviously have to refill their storage. You know, they could make a lot more money if they could sell more than 7 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 US Oil industry. If the US Oil industry, or at least some parts of the US 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.
- [19:37]
Host 1
Well, do we see US Producers kind of kick into high gear over this or. Not so fast.
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Host 2
So this is.
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Dr. Ellen Wald
This is the interesting question, because initially, I think they're very wary of, you know, of. 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 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, okay, 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.
- [20:19]
Host 1
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 US to kind of put an end to this, because how much does, does China get hurt in all of this?
- [20:58]
Dr. Ellen Wald
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, you know, 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, you know, so they're leaving other Asian customers there high and dry. And they're saying, well, we used to get this diesel from these refineries in China. Now where are we going to get it? We can't get it from the Middle East. And I think 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.
- [21:53]
Host 2
Hey, Ellen, we only have 20 seconds left. We 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.
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Dr. Ellen Wald
Triple digits.
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Host 2
Triple digits.
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Host 1
Like how far do we go back up to 140?
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Dr. Ellen Wald
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.
- [22:22]
Host 1
All right, Ellen, thank you so much. Good to have you back here. Dr. Ellen Wald, President of Transversal Consulting, senior fellow at the Atlantic Council, author of Saudi Inc.
- [22:32]
Host 2
This is the Bloomberg Businessweek Daily Podcast. Listen live each weekday starting at 2pm 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 11:30.
- [22:50]
Host 1
The US war in Iran was the top concern, I think it's safe to say in the trade this week of 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. 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 debt. That's according to Goldman Sachs.
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Host 2
And I'm looking at shares of BlackRock, down 6 and a half percent, the world's largest asset manager. That company curbing withdrawals from its $26 billion private credit fund.
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Host 1
Then we've got Blue Owl, of course, the US 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.
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Host 2
Yeah, Blue Al shares down just a little over 3% as we speak. The private credit keep on coming today. Today. Yeah, today just look at the longer term 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. So it's not clear sort of where to begin. We actually had to erase some of the stories that you're 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, what's the main concern to you?
- [24:08]
James Crombie
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.
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Host 2
So do people ever do that work?
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James Crombie
Well, on page one.
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Host 1
But 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 there's 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?
- [24:55]
James Crombie
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, what do you, 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, you know, won't be able to get your money back when you want it.
- [25:25]
Host 1
James. There's locking your money up and then there's problems. So how do you distinguish between. I mean, 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.
- [25:57]
James Crombie
Investors, 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 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.
- [26:30]
Host 2
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.
- [26:39]
Host 1
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 miss. Missed it or does every great investor, Warren Buffett would probably say, I've missed some things, right? Like how do you, how do you assess that?
- [26:55]
James Crombie
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 BlackRock 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, some 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%. 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.
- [27:36]
Host 2
Well, to that point, shares of Blue Owl are down more than 60% from the highs just about a year ago on January 24, 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, you, 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. Has that shifted?
- [28:05]
James Crombie
We're seeing more definitely shorts on the, 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 results in just a bit of a downward spiral.
- [28:35]
Host 1
You know, I just want to go to BDC is. It's certainly something we've talked about 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?
- [28:49]
James Crombie
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 transparency. 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.
- [29:10]
Host 1
How do you suss out if, whether or not this is going to be, I mean a lot of financial crisis are credit. 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, what are you watching? As it feels like every day there are Several stories.
- [29:25]
James Crombie
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.
- [29:51]
Host 1
Right.
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James Crombie
But if rates go up, will there
- [29:55]
Host 1
be more, more pressure points, more stress?
- [29:57]
James Crombie
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.
- [30:14]
Host 2
Yeah, well, sorry, we just have 20 seconds left. But I wonder at the end of the day if, when this, when this passes, if it passes, if, if sort of a stronger product emerges on the other side, that would be the hope
- [30:24]
James Crombie
that it grows up and people actually
- [30:26]
Host 2
read is a maturing moment.
- [30:27]
James Crombie
People actually read page one of the prospectus.
- [30:29]
Host 2
You said that so many times.
- [30:30]
Host 1
But it's something we got to read, right? As we to expand the market. Right.
- [30:33]
James Crombie
Read the, read the small print, know what you're doing and why you're getting paid more to do it.
- [30:38]
Host 1
Right. Risk reward, folks. That's how it works. Bloomberg News senior editor of Credit, James Crombie.
- [30:44]
Host 2
Stay with us. More from Bloomberg businessweek Daily coming up after this.
- [30:52]
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- [32:36]
Host 1
Quite a week. It's been so much coming out investors. There's one 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 in high grade credit default swap indexes plunging by about a fifth in recent weeks. 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.
- [33:06]
Host 2
I want to bring in Sevesti Balafaz, founder and CEO of Gold Vest 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 and yeah, 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. Was that something you subscribed to at the beginning of the week and if yes, is it still the same story
- [33:44]
Sevesti Balafaz
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 and we can't forget about what has happened over the last few years where large cap tech had been up S and 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. 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 in 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, you know, cash earlier. Certainly having that cash aside, having more conversations with people, but not making dramatic changes right now. We've, we've built a solid portfolio.
- [34:44]
Host 1
Sylvester, you said like coming into this you felt like you've positioned everybody really well and you talk about diversity diversification. What, 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.
- [35:02]
Sevesti Balafaz
So for us, yes, a little bit in international though, that's not the biggest part of our component of our portfolio. But dividend stocks, for example, defense. Defense stocks, for example. But going back to the dividend stocks, our dividend sleeves or our dividend strategy is up for the year. Close to double digit numbers where, you know, S and P overall is down and large cap tech is down. So for us a big part of it has been those dividend stocks.
- [35:29]
Host 1
Why did you do that at the beginning of the year? Was it just being kind of over?
- [35:33]
Sevesti Balafaz
So adding a little bit more. We've had dividend stocks in our portfolio, to be honest, adding a little bit. But I think also the rotation that has happened just going back and forth 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.
- [35:56]
Host 2
What about the technology side and the so called SaaS apocalypse or SaaS apocalypse? It's gotten a little less attention over the last week as this, 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 Claude plugin that, you know, does wealth management or does legal research or you know, does, you name it, HR work, we see a decline in stocks that are related to those software as a service firms.
- [36:24]
Sevesti Balafaz
Well, that some of Those announcements from OpenAI are 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 work. Or Morgan the block. Exactly so. Or Morgan Stanley the other day laying, announcing some layoffs.
- [36:45]
Host 2
Just 3% of Morgan Stanley, which is
- [36:48]
Sevesti Balafaz
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. But if you look at.
- [36:59]
Host 2
So you're not ready to say stay away from software. Software sucks.
- [37:01]
Sevesti Balafaz
No, not as a. 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.
- [37:10]
Host 2
You had a good week.
- [37:11]
Sevesti Balafaz
It had a good week. I think it was, you know, 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 saw some of that in the job report today, but as companies are pausing on the, on the hiring, I think maybe it goes back to more of an impact on some of those software stocks. But it's going to be case by case dependent.
- [37:39]
Host 1
How does a stronger dollar. You talk about, you know, international exposure and that certainly in the emerging market world, but how does that kind of change? Maybe how you are thinking about the investment landscape right now.
- [37:49]
Sevesti Balafaz
You know, international markets were very strong over. Were very strong last year and exceeded what the US Markets did. So in the beginning of the year. This year you saw that trend continue now with the safe haven of the US 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.
- [38:22]
Host 2
Okay, you mentioned defense companies. So I want to bring up something that the President just put on Truth Social right now. 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 see shares higher terms.
- [38:57]
Host 1
I mean, Boeing's up, but they are it looks like working towards a deal with China.
- [39:01]
Host 2
Yeah, that was the story earlier.
- [39:03]
Host 1
So that's. Would you say rtx?
- [39:04]
Host 2
Yeah, RTX and Harris too.
- [39:07]
Host 1
Rtx. Right now I'm just taking a look at that trade and 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.
- [39:17]
Sevesti Balafaz
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
- [39:27]
Host 1
the long term and it's not only a us thing, but a global thing. Right. That we continue to see. Sebastian, thanks so much. Big long week. We're all ready for the weekend. So first of Belfast, she's founder and and CEO at goldvast Advisory, joining us here in studio.
- [39:40]
Host 2
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 5pm 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 Term Terminal.
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