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- [00:00]
Michelle Jam Rzeslo
They told us to expect change. They warned us about the transition, 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 helps you feel your best for the
- [00:21]
Carol Massar
best years of your life.
- [00:23]
Michelle Jam Rzeslo
LifeMD it's just getting good. Visit LifeMD.com/good life the thing about AI for business?
- [00:32]
IBM Representative
It may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across hr, IT and procurement processes, we've reduced cost by millions, slashed repetitive tasks, and freed thousands of hours for strategic work. Now we're helping 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 Being a
- [01:01]
Carol Massar
small business owner isn't just a career, it's a calling. Chase for Business knows how much heart and effort go into building something of your own. Manage all your business finances, from banking to payments to credit cards, all in one place with Chase's digital tools. Plus access online resources designed to help your business thrive. Learn more@chase.com business chase for business make more of what's yours the Chase Mobile app is available for select mobile devices. Message and data rates may apply JP Morgan Chase Bank NA Member FDIC Copyright 2026 JPMorgan Chase Co. Bloomberg Audio Studios
- [01:40]
Amy Rubenstein
Podcasts Radio News this is Bloomberg Business
- [01:46]
Tim Stannweck
Week Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex. Plus global business, finance and tech news as it happens. The Bloomberg businessweek Daily podcast with Carol Massar and Tim Stanweck on Bloomberg Radio
- [02:08]
Carol Massar
so President Donald Trump threatening Iran with intensified military action and said he's unsure whether a diplomatic agreement can be reached with the two sides at loggerheads on how to end the near month long war.
- [02:20]
Tim Stannweck
Yeah, Iran has rejected a US Cease fire proposal. It's waiting for a response to its rejection of a US 15 point plan to end the war with its own conditions for a ceasefire. Back with us for more. For our daily update on the US War in Iran, Bloomberg News White House and National Security Editor Michelle Jam Risko from the Bloomberg Bureau in Washington D.C. 24 hours ago we were talking to you about what seemed like there could be some sort of off ramp for the President here or at least de escalation after that Cabinet meeting and the comments that we heard from the President today, that looks increasingly unlikely. What do the next 48 hours look like your perch from Washington.
- [02:53]
Michelle Jam Rzeslo
Yeah. Round and round we go. Tim, it seems like we're having the same conversation about the back and forth. I think one thing that was interesting this morning is that Iran, through its Tasnim news agency did acknowledge that they had received the 15 point plan from the US so that was a new piece is that they openly acknowledge that Trump later kind of joked that that was obviously a tell that they were lying about the status of negotiations. So again, we have the job voting from either side. It's hard to trust 100% what either side is saying about any of the status of the talks. But we did have kind of more of the same from, from Trump in that almost two hour cabinet meeting where he did express both optimism at times and then, you know, uncertainty, more prevailing tone on when, when they would reach a deal, when Iran would kind of meet the demands that the US has put forth while also not really acknowledging what, what Iran has in turn put forward as its own conditions for a ceasefire.
- [03:55]
Carol Massar
Well, you know, it really is hard. You know, you've got to just go on the headlines, right, that we get from both sides, Michelle, at this point. I mean that's the reality of the world we live in. Yet you do wonder what's going on really behind closed doors and behind the scenes. Having said that, investors definitely have, you know, their say and they have pushed stocks pretty much near their lows of the session. We see WTI crude and we see Brent crude also higher in today's session. So investors don't necessarily see any and near. So at this point, I guess one of the things I'm just curious about is what are you guys hearing kind of internal intel of how much pressure the President is maybe feeling from his administration about we've got to kind of wrap this up. I mean, everything looked pretty chummy and relaxed at that cabinet meeting this morning.
- [04:44]
Michelle Jam Rzeslo
Well, I think that's a very good question, Carol. And I think, you know, one person that we've been watching and that we were watching during the cabinet meeting was Treasury Secretary Scott Bessant, who has been sort of that calming voice for markets at times. He perhaps played a role after Sunday night's market turmoil in convincing the President that something had to be done to kind of cool people down and to project some sense of confidence that things would get back on track, especially with the Strait of Hormuz. And we've seen throughout this war, this almost four week war, that, you know, the moments that the markets have calmed are usually when the US has put forth some either confidence and that talks were ongoing or were generating some sort of momentum or, or some sort of energy proposal. And they've had a few of those to try to kind of curb the energy prices that keep surging around the world and especially domestically here at home. So I think that's a pressure point that we continue to watch. But also heading into the weekend, there are rumors of Vice President JD Vance heading to Pakistan, who has served as a mediator in these talks and who confirmed that they passed through or the US at least confirmed that the Pakistanis passed the 15 point proposal to the Iranians. So they're serving as a conduit for further negotiations that could happen. We may see something out of that or we may not. I mean, as, as Trump hedged his bets, he, he said he wasn't sure if Iran was serious about negotiating. And of course, publicly what the two sides have put forward as conditions for a cease fire are very far apart.
- [06:13]
Tim Stannweck
Yeah, Michelle, before we let you go, the, you know, that's one part of sort of potentially the, and or a de escalation of the conflict. The other side of this is what happens with US Troops that have been sort of sent to the region. And an update, can you give us one on an expeditionary force, a Marine expeditionary force and any signs that we're getting from Washington, any signals we're getting from Washington about potential escalation?
- [06:41]
Michelle Jam Rzeslo
Well, on the first piece of that, Tim, we do know, of course there's two Marine Expeditionary Units that are headed to the region, one from Japan, one from San Diego and they're totaling somewhere around 5,000, probably more troops than that. But you know, in gaming out, you know, what it would take to do some sort of ground operation, whether on Carg island, which has been in the news quite a bit about with speculation, or elsewhere around, in, in Iran or around Iran, there's a lot of military analysis, smart military analysis over my head that is kind of trying to game out how many troops that would take and what that sort of operation would look like. A great piece on the Bloomberg terminal about this out last night. So we don't, we do know the resources that are headed to the region, at least some of them. But at the same time, Trump has definitely obfuscated when asked about what the next steps are. He obviously doesn't want to tip his hand and he's ridiculed those who have asked about any, you know, takeover of Carg island or other operations that have been rumored to be a possible next step for the Pentagon hey, one thing
- [07:45]
Carol Massar
I do think about too, Michelle, is just, you know, we're the Middle east, other nations or, you know, entities in the region, how they are feeling. And they have, you know, felt the attacks directly. At one point we were hearing maybe the possibility of them, you know, backing and joining the US Forces. Is there any update on that that we know of?
- [08:03]
Michelle Jam Rzeslo
Yeah, there's a lot of mixed feelings, Carol, throughout the region. A number of Gulf allies, as you mentioned, including Saudi Arabia, including United Arab Emirates, have, have showed some support for assisting in what could be a potential escalation of the war. You know, there's there's been this line from the Saudis, you know, that they are eager to kind of end the war but to do it in a fashion that ensures Iran's defeat. So that's kind of, you know, that in some ways matches what Israel has said all along, which is, you know, Iran must be defeated and they're not willing to cease operations until they know that that will be the case. So they want to remove the nuclear threat. So, you know, there's a lot of that talk, of course, some uneasiness from allies within the region and around the world about how you do that, how you ensure that the Iranians don't have further nuclear ambitions, are not further threatening. And at this point, you know, some allies see that we're in too deep to kind of question the process right now, but they're not willing to get further involved. So you have, you know, on the other end of the spectrum, folks like UK Starmer who have been pushing back for some time and, you know, prompting Trump, Trump to be very upset about and disappointed in both Naito and allies like the U.K. all right, going to
- [09:26]
Carol Massar
leave it there, Michelle, as you so well point out, always so many moving points and parts and entities that need to be thought about, about kind of how we wrap this up or where we go from here. Michelle, thank you. Michelle Jam Risk, White House and national security editor at Bloomberg News, joining us from the nation's capital.
- [09:44]
Tim Stannweck
Stay with us. More from Bloomberg businessweek Daily. Coming up after this,
- [09:51]
Michelle Jam Rzeslo
they told us to expect change. They warned us about the transition, 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 helps you feel your best for the
- [10:12]
Carol Massar
best years of your life.
- [10:14]
Michelle Jam Rzeslo
LifeMD it's just getting good. Visit LifeMD.com GoodLife support for the show comes from public.
- [10:23]
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- [11:34]
IBM Representative
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- [12:04]
Tim Stannweck
You're listening to the Bloomberg BusinessWeek 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. Last week, President Trump unveiled a blueprint for regulating AI. It lays out the groundwork for Congress to create federal standards that include online safeguards for children unless stringent permanent permitting for data centers.
- [12:29]
Carol Massar
Yeah, it's they're trying to figure their way forward. Hey, speaking of safeguards, it's something that some investors in private credit seem to be looking for, or maybe not totally understanding the investment that they were in. This is happening as a wave of redemptions requests has left more than 4.6 billion of investor capital trapped behind withdrawal limits in the private credit industry. We've done some great reporting on this. Want to get to our next guest? He's a private Credit investor here in studio with us is Len Tannenbaum. He is founder of the Alt Asset Manager based in West Palm Beach. It is Tannenbaum Capital Group. They've got roughly 2 billion in assets under management. He also founded 5th Street Asset Management. It was a 5 billion doll. Credit manager sold to Oaktree back in 2017. Teen a while ago. It's been a while. Welcome back.
- [13:14]
Len Tannenbaum
It's been a while since I've sold and good to see you again, Carol. Good to see you, Tim.
- [13:18]
Amy Rubenstein
It's good.
- [13:19]
Carol Massar
I love people who've been in the industry for a while, seen some different things. The private credit industry, it seems like nonstop that we've been talking about for. For several years right now. It's grown, it's massive. I'm just curious how it. In terms of the evolution from when it first started, when you were first involved, is this for better or for worse?
- [13:38]
Len Tannenbaum
My God, it's changed so much. We took the company public at Fifth street in 2008. Since then, everything's changed. Back then we're 0.7 times levered. Today, you're 1.2 times levered. Back then. Almost double. Yeah, a lot more leverage. Ebitda. Everybody says they're at ebitda. Five times leverage. Today, it's really, I think seven. And you saw that in the S and P report that basically said, look, you have a lot of add backs. So, so many things. I mean, we can't do it all today, but so many things have changed to add leverage, to maybe change the quality of the assets. And then it became very frothy. We all know it was a bubble. Lots of assets came in, interval funds opened a new client base and now the bubble is bursting, which is kind of normal for the industry.
- [14:23]
Carol Massar
Well, that's a big statement because I think people would say we see cracks. What do you mean? It's bursting? Because it's like, are you saying that there's lot more to come or in terms of redemptions or. Tell me, tell me. Go, go deeper, go deeper into it. Yeah.
- [14:38]
Len Tannenbaum
Well, you know, it's. It's always happens. The industry cycles. Back then when we started a company called American Capital, Allied Capital and GE Capital were the three leaders. Today none of them exist. Right. Ten years later, they don't exist. Right.
- [14:53]
Carol Massar
So that GE Capital was lauded.
- [14:56]
Len Tannenbaum
Amazing. That's right.
- [14:57]
Carol Massar
Big way.
- [14:57]
Len Tannenbaum
Exactly. And so that bubble, that created a bubble and that bubble burst. And that bubble burst because liquidity came out of the system in 2008, which gave birth to my little company that we Started, we got to come in at that vintage. So today it's a similar thing happening. The industry will be here. Look, it's a good industry, it's an institutional industry. So I'm not saying the industry goes away. It's just it has a good purpose. It's just it's not going to be quite this big.
- [15:24]
Tim Stannweck
What's the cause of the bubble bursting this time?
- [15:26]
Len Tannenbaum
Well, it's usually liquidity draining from a system. So that's what you're seeing here in the redemptions. You're seeing liquidity drain. Sometimes you see a recession, sometimes you see, you know, investors wanting their capital or hoarding capital. Sometimes in 2008 you see 2020, right?
- [15:40]
Tim Stannweck
You see, just look the investor appetite for capital. What's prompting that right now is it concerns about AI and software, for example, and a lot of the software exposure that these funds have. Like what is it that's prompting investors to say, actually we want, we want our money back.
- [15:55]
Len Tannenbaum
So I think a smart person on Bloomberg, maybe blank, fine. I was watching, watching the clip, and he goes, you know, what happens in history doesn't repeat itself, but it rhymes, right? It's rhyming, right? So you never know what bursts a bubble, but it usually is liquidity drain. It can be the AI causing more dislocation and could be the pick securities. I mean, I think the people became very complacent. You have things called pick toggles. I know that's difficult. Or think payment in kind. So in other words, they really don't collect cash, they collect more debt. And so all of these different tools, lack of covenants. People say they have a covenant. Covenant is like think about a brakes on a car. So you're running a car at 65 miles an hour. And lately they've been doing with no brakes. So that's kind of scary. And so all of these different changes in the market since you and I spoke last, maybe eight, 10 years ago,
- [16:46]
Carol Massar
a long time ago. I know, yeah. It's made a difference. Well, you know, I think it's a conversation we've had a lot, Tim and I have certainly around this table. And that just this idea that the industry grew so much, there were assets chasing deals to be made. There was just the hope of, you know, the returns of the past that would continue. And when you have so much money chasing maybe a certain amount of deals, you're going to tend to put that money into deals that maybe aren't so wonderful. And that deal that might look great in a zero interest rate environment are really low. Okay. But doesn't look the same way today. And that's what we're starting to see.
- [17:23]
Len Tannenbaum
And will interest rates bail them out like I saw you?
- [17:26]
Carol Massar
Probably not now.
- [17:28]
Len Tannenbaum
We think probably not right now. It's forecasted to even go the other way. So they were hoping. People were hoping. Stay alive till 25.
- [17:35]
Carol Massar
And I want to throw something on. And this is from one of our producers, Talia, who shared this story with me and we wanted to bring it up with you. Sure. Goldman Sachs and JP Morgan are offering hedge fund clients ways to bet against the private credit market. They've assembled baskets of listed companies with exposure to this space, including European financial institutions and alternatives managers or alternative managers. Private credit market, of course, facing pressure. We've heard that story before, right? Betting against something. Sure. Do you think that's a telling sign or just. Or not necessarily.
- [18:08]
Len Tannenbaum
I think taking a blanket approach is not the right approach. I hate painting the same brush with everybody. There are good performers in private credit. When the fire burns, the forest burns, the new trees can grow. Hopefully we get to invest now in the new lower middle markets. Empty. So we get to invest in a very exciting part where they haven't had good returns for last seven years.
- [18:29]
Carol Massar
So you pick up things at a really low price, is that what you're saying?
- [18:31]
Len Tannenbaum
Or we're coming into deals and getting another 400 basis points which pays for that risk adjusted return, which wasn't there a year ago.
- [18:39]
Carol Massar
Right.
- [18:40]
Len Tannenbaum
So now is a good time to invest. So there will be winners. But I think that that same fire. Right. Will burn some trees and there will be some trees that, that remain, and there's some really good players in the market.
- [18:51]
Tim Stannweck
So what about your portfolio and your private credit portfolio right now? What are you seeing in there?
- [18:57]
Len Tannenbaum
Well, the good news is I'm just building it in the last four months.
- [19:00]
Tim Stannweck
So it's a good time.
- [19:02]
Carol Massar
Your private credit exposure, you're just building
- [19:04]
Len Tannenbaum
the last few months. I. I sold our Fifth street to Oaktree in 2017. I personally owned about $100 million of Oak Tree stock. I've sold all that a couple of years ago. That did very well. Actually. A couple of years ago that stock has gone down a lot. And today I haven't. I haven't invested at all in private credit. I just started again. And we always invest our money at TCG alongside our investors. I'm the largest investor in every fund. I own 25 to 30% of the fund. So we put our money where our mouth is. And now I think it's a really exciting time to invest in the lower
- [19:34]
Tim Stannweck
middle market where specifically, I mean, you
- [19:36]
Len Tannenbaum
can invest across assets. You can do asset backed stuff. You can even do some technology. One of the companies we invested in goes into a company that uses Walmart and Target and trades with them. They're one of the suppliers and they always mix mismatch invoices. They go and they say I'll save you 25%. If they do, they get 25 or 30% of the money, they save them. That's a great business model. I think A.I. going back to your other conversation about A.I. you know, is helping them because the smaller companies, a lower middle market can often be helped by AI to compete with even bare ones.
- [20:10]
Carol Massar
Len, real quickly just got about 40 seconds in the software space that's been beaten up. Is that not something you want to touch? Is it just not in that lower middle market area? Like, I'm just curious.
- [20:19]
Len Tannenbaum
I'm not a software expert. 30% of our stuff was technology. So I believe even though I'm not a software Expert, that about 50% have trouble and 50% may do very well. I'm just not smart enough to be in the right 50%. So we're not going to play.
- [20:32]
Carol Massar
You want to know what you're investing in? Trying to understand it. Yeah.
- [20:35]
Len Tannenbaum
You have to be an expert to invest in software here.
- [20:37]
Carol Massar
All right, good stuff. Great to check in. Let's try and not wait 10 years or something. A lot happens in 10 years. Len Tannenbaum, good to have you back. Founder of Tenenbaum Capital Group.
- [20:49]
Tim Stannweck
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 in live on Amazon Alexa from our flagship New York station. Just say Alexa. Play Bloomberg 11:30. US mortgage rates jumping for a fourth straight week, reaching the highest point in six months and dampening prospects for the crucial spring season as the Iran war royals markets. Back with us in the studio, Amy Rubenstein. She's CEO of the Chicago based Clear Investment Group. It targets real estate investments in the distressed midsize multifamily sector and predominantly secondary and tertiary markets nationwide. She joins us here in the Bloomberg Interactive Brokers studio. Good to see you. How are you?
- [21:33]
Amy Rubenstein
I'm great. Nice to be back. Thank you.
- [21:35]
Carol Massar
Nice to have you here.
- [21:36]
Tim Stannweck
You know, we last spoke to you earlier early last month and it was a really different macroeconomic environment.
- [21:42]
Michelle Jam Rzeslo
Sure.
- [21:43]
Tim Stannweck
The inflation outlook was different. There was no war in Iran going on. Oil prices were around $60 a barrel. How has all of that affected your world?
- [21:51]
Amy Rubenstein
Yeah, well, look, I think we're in a transition market right now where fundamentals aren't really changing as far as the fundamentals of hous, but we are seeing transaction volume increase. So I think this is because we are finally seeing some stability in interest rates, even though they didn't go exactly where everybody thought they would go or where everyone wanted them to go. What happened is now people know what to underwrite to as far as buyers and sellers aren't sitting there waiting for these massive rate cuts and waiting for cap rates to drop. And so we're getting a little bit more alignment on price increasing.
- [22:28]
Carol Massar
So like people aren't just waiting around, well, maybe it could get better. We kind of have, we have an understanding of, kind of where we're going to be.
- [22:33]
Amy Rubenstein
Exactly like this is what you get right now. And sure, we're getting a little bit of volatility right now with, with the war and on rates. But generally speaking, Fed's not cutting rates right now, nobody's expecting them to. And so now we also have at the same time a slowing down of construction starts, which is going to create future supply constraints. And so that sets us up for a very solid investment period for particularly what we do, workforce housing, where you still have those fundamentals that are strong, people still need a place to live and now we provide that without having this extra supply coming in and so it creates that extra value.
- [23:18]
Carol Massar
What do you think about on the demand side though, in terms of people who need this housing? Like, you know, this is a, one of the things we talk about in terms of AI and work and if the economy starts to have some issues, you know, people, maybe they think differently about their living situations. How does that stuff impact you as well?
- [23:34]
Amy Rubenstein
Yeah, well, or could we do always have a demand now that doesn't mean that, that there's, there's always going to be demand for affordable housing because these are renters by necessity, not lifestyle renters who are choosing where they're going to live. Right. That being said, that doesn't mean that the bottom sector doesn't get hurt by, by macroeconomics. And so then we have to deal with that. And of course we've got rising labor costs and material costs. And when you get inflation, it's going to, it's going to hurt your tenants at the same time. On the, on the flip side, real estate is a hedge against inflation. So for investors, this is, this is where they want to be.
- [24:11]
Tim Stannweck
Does it make, does it, does it dwindle supply for you because. And I know you're very picky about what markets you're in, and you decided not to work in some markets that you used to be in, and you've decided to exit or enter different markets based on timing. But if this is an asset class that is attractive right now in an environment such as this, then does that make it more difficult for you to acquire new targets?
- [24:32]
Amy Rubenstein
So for us, it's all about acquiring at the right basis. And so right now it's about being a very discerning investor.
- [24:39]
Tim Stannweck
It's a very efficient market because there are a lot of people who are looking at this stuff.
- [24:43]
Amy Rubenstein
Sure. So we in particular are buying highly distressed deals. They have a lot of managerial distress, high vacancies and high delinquencies. And then we're catering to a need that is not that we're not competing with new building against. So we are catering to tenants who have an AMI or area median income between 30 and 80%. You can't build new construction without government subsidies and compete against that. And so for us, that means there is great value there. Right. But what we have to do is we find things at auction or we're finding things that, that are negative cash flowing, and that's where we are basically taking existing supply that is not functional and unlocking it and bringing it back on the market.
- [25:26]
Carol Massar
So one of the things we were thinking about, Amy, before when we were on our planning call this morning is that what we love talking about you is, you know, in an environment where, you know, we don't know when this war is going to end, and, and that opens up so many different questions about the outlook. Right. And so we're just dealing with lots of questions. But are you talking to someone like you, like, are you seeing more distressed opportunities to buy as an indicator that things are getting tougher out there, or. No. Does that pool kind of stay constant?
- [25:54]
Amy Rubenstein
So for us, it does. The level of distress that we're buying is not macro distress. I think that you do. It's not based off of macroeconomic distress.
- [26:02]
Carol Massar
Okay.
- [26:03]
Amy Rubenstein
I think you do see, you know, as when you look at properties that are a little bit less distressed, you're seeing more trading right now because as maturities are coming up on loans and it's harder to refinance into new things, and you see sellers kind of lowering, lowering their expectations. Right. But for us, it always is going to exist. It's just about finding those deals that are really, that are really hurting and not because of interest rates. But something bigger than that, when, when
- [26:27]
Tim Stannweck
you find a deal that might be negative cash flow or there are managerial issues, what are the reasons why it's not working for that particular management company?
- [26:36]
Amy Rubenstein
So the properties that we buy need a serious infusion of capital. And so if an owner does not have that capital to put back into that property, now why did it get to that place? Is it could be a combination of many different things. So it could be that the operator didn't quite know how to operate this kind of asset, this sort of workforce, housing asset. Often the buyers that the sellers that we are buying from are not traditional real estate operators. Maybe they have a different career path and then they got it over their heads. Yes.
- [27:08]
Tim Stannweck
Okay. So if you're in a situation such as that, and like I know every situation is different, every, every building or every asset is different. How, what, what percentage of the, of the renters typically stick around during this, during this overhaul, can you keep them in their home? Sure.
- [27:23]
Amy Rubenstein
We try to keep everybody. We want to keep our tenants. We do not want to dispense, displace them. That being said is sometimes we do lose tenants if there is, you know, if we're trying to clean up crime in a property or if someone flat out refuses to pay rent and cannot find any sort of financial help, which we are pretty good at pairing people up with, with some sort of financial help. But there are cases where, where people do have to vacate.
- [27:49]
Carol Massar
It sounds like a lot of the macro doesn't necessarily impact you guys directly in what you're doing. Is that fair to say?
- [27:55]
Amy Rubenstein
I would say we're fairly hedged from macro. It doesn't mean we don't get headwinds or tailwinds, but we're fairly hedged in our, in our asset class.
- [28:02]
Carol Massar
So what is the biggest thing then, then in terms of risks that you think about most often? And we just got about 40 seconds left.
- [28:08]
Amy Rubenstein
Sure. I mean, are the risks we see is, is the pace of lease up or the amount of delinquencies that we see and the pacing of that. Our returns are a bit outsized, so we do have cushion to absorb some of that as they have to be when you're, when you're investing into distressed real estate.
- [28:24]
Carol Massar
Interesting stuff, right? We're just kind of, just trying to kind of piece together the environment and one that we thought we knew on January 1st, and then it's changed dramatically. Never boring, but interviews like you kind of help us figure, you know, remind us of different parts of the market where things kind of continue. Amy Rubenstein. She is CEO of Clear Investment Group, joining us right here in studio.
- [28:45]
Tim Stannweck
Stay with us. More from Bloomberg businessweek Daily coming up after this.
- [28:53]
Public/Wise Ad Narrator
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- [31:12]
Carol Massar
So we have to talk about. There's something we kind of want to
- [31:15]
Tim Stannweck
see if we got to talk about gold.
- [31:17]
Carol Massar
Yes, we do.
- [31:18]
Tim Stannweck
Down around 20% from its January highs of over 50 $300, announced Tatiana Darre on our Markets Live blog today, writing earlier that gold's positive correlation with risk assets looks unusually sticky in this latest period of risk aversion. She notes that in previous equity drawdowns of at least 5%, like we're seeing right now, the positive link between gold and risk assets faded as bullion acted as a risk buffer. This time, though, it's an exception. For more we bring in Axel Merck, president and Chief Investment Officer at Merck Investments. The Firm has around $4.4 billion in assets under management. Axels here in our Bloomberg Interactive Brokers studio. Welcome, welcome.
- [31:56]
Axel Merck
Great to be in person here with you.
- [31:58]
Tim Stannweck
Do you agree with that relationship in the way that as Tatya noted, gold's relationship with stocks has been consistently positive. But there's evidence now that precious metals at the mercy of risk assets and speculation that those returns could have altered that role of it being a risk asset.
- [32:15]
Axel Merck
So in the long run, gold has a zero correlation to equities since the 1970s, but it's not stable. It morphs in and out just about to cause maximum frustration on investors. And the reason why gold has had some headwinds just like equities is because in the current environment, yields and bonds have been rising higher but inflation expectations have not budged, which means real yields have been moving higher. And ultimately this brick, this barbaric relic is competing with cash. If you get compensated for in cash, well then why hold gold? And the question is really what's going to persist? One of the unique things about a supply shock is that the economically sound reaction is usually political suicide. And politicians do the opposite of what's the sound thing. Think price controls in the 70s or help to the consumer during the pandemic. So let this go on long enough and the government, I'm not trying to be critical of this administration. It happens throughout the world. The Italians just cut the fuel taxes. So the, the, the government reaction, that's what gold then reacts to. Or let next week's non farm payroll report come down and the folks at the Fed say oh, we got to cut rates. Don't worry about this inflation we rounded. The Fed says oh, we only worry about it if they are second round effect. So it's that that second round that tends to be unsupportive of price of gold.
- [33:34]
Carol Massar
I get that. But how much is also axle? I mean gold was up what 56% last year quite A run go back the year before it was up 23%. I mean, so how much is is also though, it just had such a strong, strong run and some of that had to be undone.
- [33:52]
Axel Merck
Well, the one thing, there's a whole bunch of different investors in gold. One of the groups that was absent for several years, retail, no, speculators, they were busy with meme stocks, all the wonderful sparks and crypto. And then a year ago they decided hey, gold isn't such a bad place. And so what they do is they mostly increase volatility. And so that's obviously a component that contributes to it. But retail has not had a frenzy. If you look at the total ounces held by the physical gold ETFs, they are not back to the 2022 highs. Of course, normally we reach new highs, but we haven't had a panic into gold. It's not the typical speculative bubble, so to speak. But what is unique about gold compared to other asset classes, it's a much smaller asset class. And so one of the investors is the quote unquote gold bug that's worried about fiscal sustainability. While that fringe view is moving a little bit closer to the mainstream and it doesn't need many of those investors to reallocate to gold for it to have a dramatic run. Now, as we at these levels, volatility is of course very high as well.
- [34:54]
Tim Stannweck
So then are you saying there is an opportunity for retail to drive it higher?
- [34:58]
Axel Merck
Well, of course the question is the timing, right? I mean I tell people I'll sell my gold when fiscal sanity comes back to Congress. On which I get a chuckle and says never, right? And so but what gold is going to do tomorrow, I don't know. But over the next several years, neither the left nor the right has any intention of doing proper entitlement reform. And neither is there a drive to properly drive revenue. And so we are living in eternal deficits.
- [35:25]
Tim Stannweck
So you're saying either cut spending or raise taxes. And neither party wants to do that.
- [35:30]
Axel Merck
That's right.
- [35:30]
Tim Stannweck
Or neither party will.
- [35:31]
Axel Merck
Milton Friedman says the only thing you can do is cut spending because the moment you actually raise revenue, government will find a new way to have yet more spending. And historically he's right in that. And so going back here to the Iran war, the market is pricing this in as a short term shock, some differentiation in Europe and here. But even a bad case scenario, let's say the Iranians can, can charge a gazillion for every ship that goes through. That would mean oil will flow again and will Live happily ever after. The world is a more expensive place to do business in and that's historically good for gold.
- [36:06]
Carol Massar
Go there, go there. Because I think one of the things that we keep trying to get to is what is the longer term impact of this war, this environment where it feels like, you know, you talk about spending, I think about defense spending. We're going to talk about that a lot in our 4 o' clock hour. I mean we're talking about a trillion dollar, you know, budget spending that we're looking for in the United States, I, other countries, European. Everybody seems to be focusing on things like defense and spending. And I just think then the fiscal houses of governments get even worse. What are the implications of that longer?
- [36:38]
Axel Merck
Well, we live in a different era, the peaceful era since World War II is over. We saw that Ukraine, Gaza, those were symptoms of a new time. Iran is a symptom of this time. Governments are more nationalist. We have protected industries. All of that makes an economy less efficient. There might be the right political reasons to do these things, which means will you spending more. You didn't mention climate change. Right. All that is making it expensive. Population is aging well. We live in democracies. How do you solve these things? You solve them with debt, printing money. And right now the Fed is quite disciplined, but the interests of government and those of savers are not aligned. And the gold investors is, is investing based on that.
- [37:19]
Tim Stannweck
There are some out there who could be watching right now and, and say, you know, the, and the administration would probably say this, but the military action that the US has participated in this year, they would say would make the world a safer place. The President has said that many times. And we actually had Wilbur Ross, the former Commerce Secretary on earlier this week and he made the argument that essentially the rest of the world has been put on notice that President Trump will use the, use the American military to go after you. Does that make the world more stable?
- [37:50]
Axel Merck
I'm not doubting that that is the right thing to do. Indeed, the Europeans need to get their act together and do substantially more. All I'm saying is less efficient. Right? The same with trade. Having free trade makes a more efficient world. It might not be in a national security interest. Right. And that's why we put certain blocks in place. And talking about tariffs, it doesn't just impede the flow of goods, it impedes the flow of currency, increasing borrowing costs. So these are things that are happening. I'm not judging, I'm describing the gold investor is saying, well, this is a good thing for gold. Now that doesn't mean gold can't get overheated in the short term or it can't have a very strong correction. But that is one of the reasons why people are investing in gold and continue to invest in gold.
- [38:30]
Carol Massar
So we're 4412, $4412 an ounce. Do you have a number that you think about how far?
- [38:37]
Axel Merck
No. You guys always want a number. The reason, one of the reasons, one of the reasons I don't give a number.
- [38:42]
Carol Massar
Have you met the Bloomberg?
- [38:43]
Axel Merck
Yes. So one of the reasons I don't give a number is because the market is fairly small. You can get through this number in no time. Right. And so some people have put out a number of 10,000 says I'm comfortable with that. Right. But I'm not going to put a price target out there because I don't know the horizon like give the rise long enough then, then, then, sure. But it's a, it's one of those things that you've got to look at the dynamics of the underlying dynamics and currently obviously there's a headwind to the price.
- [39:08]
Carol Massar
Well, we just talked about some of the underlying dynamics that we think is going to be, you know, it's a different world order going forward. Is it fair to say that that certainly is supportive of maybe we're at a floor or. And that it is supportive for gold to definitely move higher and consistently higher.
- [39:26]
Axel Merck
We have a new world order every day with a new tweet coming out with a new statement coming out. What we do know is that the, the market is pricing this in as a shock and not as something structural. So you can agree or disagree with that but that's what a little different, it's a little more long term implication in Europe than here based on WTI and Brent. If you look at those sort of things, there will be a way to muddle through. If this lasts long enough, there will be substitutions, fracking will increase. It will. We're not going to substitute oil if, if this thing lasts only a few weeks. But if the market believes it's going to last longer, we will rewire the economy and deal with it in one way or the other.
- [40:02]
Carol Massar
So shock, we move on.
- [40:04]
Axel Merck
That's the oversimplified way of looking at it. But that shock can be very painful. Of course.
- [40:08]
Carol Massar
Yeah.
- [40:09]
Tim Stannweck
So I'm curious about your view on gold in a portfolio. And everybody's portfolio is different obviously, but there are those people are outspoken. Jared Dillon, for example, he says 20% of your portfolio should be in Gold and you should adjust it each year accordingly. There are others who say, okay, throw maybe 5% in your portfolio. Again, different for everybody. But what's your general rule?
- [40:29]
Axel Merck
Well, you can look at my public disclosures and I have substantially more in gold mining. In particular, I have substantial gold holdings, but I'm not recommending everybody else does that. It's investing is about the risk you can afford to take. I happen to think I understand gold. I understand gold miners. Most people don't understand gold. So if you don't understand it, don't pile into it too much. The, the thing about the gold is it has a volatility about that of the S and P. But that can spike. Now you've got to be aware of those spikes. Now anybody who has looked in recent weeks is aware of that. But there are these extended periods where it doesn't. And if you're not aware of those spikes, then you can be caught off guard. And so I encourage anybody to study these things. What is a bad case scenario? Because bad things do happen if you're a longer term investor. And you've got to be comfortable with that. So if you're comfortable with that, I happen to think yes, a substantial gold is an important diversifier in a world where bonds might not serve that purpose as much anymore. Obviously gold is not a direct substitute, but you have the S and P very tech heavy. If, if there's a pullback, where do you hide? And gold is but one of the answers to that.
- [41:36]
Carol Massar
Well, it's an interesting environment where we've spent so many years just talking about, you know, the Max seven, the big tech names, AI and so on and so forth. We still talk about it, but it is interesting to see that in terms of investment space, it feels like, you know, commodities, basic materials are something that we've moved into. You are obviously in the precious metals space when it comes to things like miners. How, what's your advice to investors in terms of how they look at them and just got about a minute or so.
- [42:01]
Axel Merck
Let me expand on your question. In 2011, Mac Andreessen said software is eating the world. Now software is suffering from AI. Back in 2011, software was low barriers to entry, high margins. AI is high barriers to entry. Who knows what the margins are? If you look at commodities mining in particular, well, there are high barriers to entry. It's expensive, but the margins are amazing. Even, even with the pullback we've had, the miners are pricing in that the price of gold would be about 35% lower. And so suddenly we have a somewhat playing level playing field between tech and mining and that's one of the reasons why I think more investors will pay attention to it.
- [42:38]
Carol Massar
Yeah, which kind of gets to that whole idea of like things we just didn't seem so basic. Same old economy, if you will. But it's interesting. Thank you so much. A joy to have you here in studio. Axel Mark, President, Chief Investment Officer at Merck Investments as we mentioned, the firm has about 4.4 billion in assets under management.
- [42:56]
Tim Stannweck
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. YouTube and always on the Bloomberg terminal. We buy insurance for peace of mind, but every year millions of claims are denied. Not because people did anything wrong, but because their policies quietly excluded what happened. Insurers know every detail. Policyholders rarely do. That's why my policy advocate exists. For just 27 cents a day, their platform reads your policies and explains where you are vulnerable. They don't sell insurance, they deliver transparency. Before you trust your policy to protect you, let my policy advocate tell you what it really says. Go to mypolicyadvocate.com these days it seems like AI agents are just about everywhere you turn every field and every function. But without identity, you can't trust they'll serve your business instead of jeopardizing it. Fortunately, Okta helps you get identity right by securing your AI agents identities, giving you a single layer of control, a single standard of trust. So whether an AI agent supports a single user or your entire enterprise, with Okta you'll turn risk into opportunity. Secure every agent. Secure any agent. Okta secures AI this podcast is brought
- [44:30]
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