Scott Wapner (2:29)

I think the challenge is Scott, is the financial have performing so well over the past couple of months, particularly the banks and anticipation of yet another strong earnings season. If you look at JP Morgan for instance, you know, in terms of their guide typically conservative and so maybe there were some questions coming into the earnings report. Would this be as good as perhaps people were anticipating. However, what's most important is that we're starting earnings season that's a huge catalyst for this market. We've been listening a bit over the last couple of days particularly as China concerns have have amp simplified once again. And so we're at the precipice. You spoke to it a couple of early early industrials financials where even before tech comes to the fore we're likely to see companies vesting those expectations because we've come in with very low consensus expectations for this earnings season. And so wouldn't be surprised to necessarily see these beats and see these turnarounds kind of post earnings calls for many of these companies.

Moderator/Host (possibly Scott Wapner or another CNBC host) (3:24)

Yeah Joe, if you look at the we can show you again the intraday moves of the S and P and even the Dow for that matter pretty much track the comeback that we've seen in some of these financials. You own JPM and Goldman and as I said, though still down, not nearly as bad as they looked early on. And obviously Scott, the events of the last several days raise that you need to focus on what your leverage, what positions do you hold that could be a source of liquidity. So coming into financial earnings I was very concerned with the significant overweight exposure for Jyoti. We heard from Goldman Sachs, we heard from JP Morgan. We're talking about historic trading revenue numbers, fantastic quarters. Everything looked great but as Shannon mentioned, very high expectations. You did hear some commentary from David Solomon and Jamie Dimon that could be interpreted as being somewhat troubling. But I think overall you look at the financial sector itself, you look at our overweight exposure and maybe today it's not about JP Morgan and Goldman Sachs. Maybe today it's about others like Fifth Bird, like Capital One, like Synchrony, like American Express. It's one of the reasons why I am not troubled or taking action at any of the financial positions we have because I still think the momentum is there and the fundamentals support it as well. Stephanie Link today is that is like that's why Wells is my largest position in the market because I know that she was expecting good things and she certainly got that stocks up almost 7% is wells. So it's worth noting. Josh, you obviously are in JP Morgan. What do you think about what you heard as again, that stock looks different now than it did just a couple hours ago? Yeah, the business is absolutely rock solid. And I think the guidance for next year net interest income, the consensus was at 100 billion and they sort of said we would tell you that 100 billion might be a little bit low. That's music to my ears as a, as a long term shareholder. I thought the other interesting thing that came up on the call, there were a couple of different analysts who asked questions in different ways about NBFIs or non bank financial institutions. And maybe that's very relevant to the room that you're sitting in, Judge, but there is increasing concern from the sell side about whether or not there will be an impact at the banks for this boom that we've seen in private credit, direct lending, etc. Etc. This was the first time on the conference call that Jamie barged in and wanted to say something which I thought was interesting. And what he said was I probably quote, I probably shouldn't be saying this, but there's never just one cockroach, end quote. So that is an interesting thing. As a JP Morgan shareholder, I don't worry as much about that as I might if I were directly invested into one of the private credit companies, for example, that, you know, that's, that's public on the market. But I do think that that'll be like the big risk in the fourth quarter is if people get nervous about the first brand situation. Are there others, Are the banks adequately reserved, etcetera, etcetera. That's pretty much the only risk I can really come up with at this point. So outside of that, if capital markets hold up, I think this sector remains bid companies like JP Morgan that are considered to be the safest houses, I think will hold up the best. And I want you, I want you guys to put up a quick chart of BlackRock, because this is a name that we talked about. It's on the best stocks in the market list. It's on the verge of a big breakout. Not intraday guys. Give me like a year, please. All right, take a look at this stock. It's about to take out the historic highs from a few weeks ago. When I listened to that call this morning, there was nothing that told me that this is a business that is seeing deceleration anywhere. They're doing revenue in crypto, in cash management and fixed income in obviously equities globally. It's 13 and a half trillion dollars in a around the world. And I feel like if the markets stay as healthy as they have been, this is a very obvious way to capitalize on it. Look, this is going to be what you were referencing with credit, a hot topic at this case conference today. I'm certainly going to be talking with Jenny Johnson in a little bit about it, Glenn August, obviously about it from Oak Hill Advisors to see what they think and what the overall tone and tenor is in the rooms here at this event about what's transpired in the credit market and the private loan market to date and whether there is legitimate reason to be concerned about that. It's worth noting too that some of the alts managers which have been really under the microscope as the market has been concerned are rebounding quite nicely today almost across the board. Apollo and Ares and KKR Blue Owl for example, 2, 3, 4% gains. So we'll get into more of the alts story in just a little bit. I want to continue to focus on the market though because you know, you had the, the presidential social media post on Friday which really upset everything and then a bit of damage control, if you will, over the weekend. And you know, here we are still asking our, our ourselves the question of whether there's a bubble in this market around AI and elsewhere. What's interesting to note today, bank of America's latest fund manager survey sentiment is the most bullish that it's been since February. Investors are overweight stocks the most since that time as well, while at the same time 54% think AI stocks are in a bubble. Josh was mentioning some of the commentary that you got from Jamie Dimon. Well, he and David Solomon of Goldman Sachs were both talking about the idea of a bubble, whether they believe there is one or not. For Jamie's part, he said, quote, we have a lot of assets out there which look like they're entering bubble territory. That doesn't mean they don't have 20% to go. It's just one more cause of concern. It feels a little bit of PTJ ish, right? Paul Tudor Jones last week, yeah, things look similar to what they did, you know, years ago, but that doesn't mean that we're not going substantially higher from here. David Solomon, for his part said, quote, there's no question that there's a fair amount of investor exuberance at the moment. But as students of history, we know that following periods of broad based excitement around new technologies, there will ultimately be a Divergence where some ventures thrive and others falter. So it's a topic, it's going to be one here today too. We'll ask our special guests throughout the day what they think about that. But Stan, what do you think?

Scott Wapner (10:09)

Well, I think the questions are they bear worth asking and they probably bear worth answering, but they probably can't be answered today. I think our challenge right now is that there has been a significant amount of money that's been poured into AI at the front end of this and enablement. And you think about the potential for CapEx to continue into 2026. That's fundamental to our thesis that economic growth will continue. But Scott, those have and have nots that has to start to expand beyond the tech sector.

Jenny Johnson (10:35)

We have to be able to see.

Scott Wapner (10:36)

See companies outside of technology implementing these types of innovations in order to create greater productivity and enhance margin. That is going to be well beyond what we've done with chatbots so far. And so I think the real question is do we get that reinvestment, that investment in innovation outside of these tech companies, do we get that in time where we potentially lap that sort of decline or deterioration in capex at the hyperscalers? They're not going to be able to continue to spend the way that they've been spending over the last couple of years forever. And so what you need to see.

Jenny Johnson (11:07)

Is you need to see that baton.

Scott Wapner (11:08)

Being being moved to these other companies. And so I think that's where the question is, is like are we going to see companies get confident enough in 2026 with lower rates, with deregulation, with some of these tailwinds to start to put out, put forth that capex in order to sop up what we believe is important to continue this economic growth.

Moderator/Host (possibly Scott Wapner or another CNBC host) (11:28)

Joe, maybe you're just going to be in a more volatile environment around the mega caps. And until you hear from them during earnings season, which is not going to come for a couple of weeks, you're just going to have to wait to hear from a lot of these names which have certainly been more volatile of late. Obviously the NASDAQ got blown out on Friday. It had a nice rebound yesterday. Look, Alphabet's positive now some of the chip names like AMD are in the green, but Nvidia is down three and a quarter percent or so. You're just going to have to be patient. I think. Well, I think first of all what Friday was was a very stark reminder to all of us to look at what you hold in your positions and say to yourself what's Your leverage on your positions and can your positions be used as a source of liquidity? It's interesting because all year people come on the network and they talk about owning quality. Well, guess what? This hasn't been a quality rally in 2025. This has been a momentum rally. This has been a crypto rally. This has been an AI adjacent rally. And in some areas of the market, it's a junk rally. And yesterday was kind of evidence to that. Today we're making a little bit of a turn. So what do you do with all of that? I think you say to yourself, look at the positions that I have. And maybe as it relates to AI, we know that open AI is touching all areas of technology and the semiconductors and various parts of the economy. Maybe I'm not throwing any more money at that. Maybe this is the right moment to step back and say, oh, okay, I'm long, everyone else is long. Let's sit tight on that. Maybe it's an opportunity to look at some other areas of the market where you could rotate capital accordingly, like some areas of health care, like some areas of the financials, like some areas of the market that have been unappealing so far, 2025. And I think in doing so, you're kind of reshaping your risk. Yeah, well, speaking of alts, which is the topic obviously here in Beverly Hills, they're booming. You know, that case is a platform, by the way, that connects some of the world's largest alternative asset managers with investment advisors, and there are many here. Robert Frank joining us now to go inside this investing phenomenon. Robert Scott. Great to see you. And as you say, alts are booming. They're also one of the most misunderstood, confusing, and complicated segments of investing right now. Now, the term alternatives refers to basically anything that that's not a publicly traded stock or bond. So that's private equity, it's private credit, it's hedge funds, it's venture capital, it's real estate, it's gold, it's crypto, it's art, all the other collectibles. Now, if you look at where this has been popular, the wealthy have been adding to their exposure to alts for decades. So like I said, typical US Family office has about half of their investments right now in alternatives, about 25% in private equity, 20% in real estate, all the rest in those other asset classes. Now, the theory is that alts generate higher returns and lower volatility in exchange for lower liquidity by many measures. The median returns for private equity, for instance, have lagged public Markets in both the short and the long term. Now family offices have actually been adding to their public stocks recently due mainly to AI. And since they can't get money out of private equity, they're putting less money into private equity. But but now that IPOs and exits are coming back, those returns for PE may improve. The amount of capital going into private equity has increased by tenfold since the financial crisis. And the total investments right now in all alts expected to hit $29 trillion, Scott, in just five years. That would be double what it was in 2022. Wow. It speaks to it. It's really great set up there for us, Robert. It speaks to why we now have an inside ALTS newsletter with Robert Frank. I urge everybody to check that out. Some of the world's largest asset managers are here at the CASE conference. They want to make their products more accessible to you to retail to investors like all of you. Leslie Picker joining us now with more on that side of the story. Following the Money as always, Leslie.

Scott Wapner (15:27)

Hey Scott. Yeah, Call it the retail revolution or the democratization of alt. It's one of the biggest untapped markets for asset managers right now. You just heard Robert Frank give those statistics about how fast the industry is growing. While retail investors allocations to private capital are projected to grow from $80 billion today to about 2.4 trillion in the United States by 2030. That's according to Deloitte which defines retail here as those deemed non accredited by financial regulators. That includes individuals with net worth under a million dollars excluding their primary residence. There are several different types of vehicles that give retail investors more liquidity than a traditional alternative asset fund. However, usually these come with extra layers of fees relative to institutional funds. And Moody's recently warned that these funds designed for retail while growing in popularity, could create broader risks for the US economy due to some of the illiquidity concerns there. Full coverage from myself and Robert Frank, of course can be found in that monthly newsletter that you mentioned. You can subscribe using the QR code on your screen to the right there. Scott.

Moderator/Host (possibly Scott Wapner or another CNBC host) (16:38)

Yes, it's a dynamic duo, you and Robert and Inside Alts. And I urge everybody to check that out. Really, if you want the inside scoop. Leslie, thank you so much. The bottom line is that the 60:40 portfolio has changed so dramatically. It says everything to me that your firm, NB Private wealth that you guys are here, you want a piece of this action?

Scott Wapner (16:59)

Yeah, I mean I think at Neuberger what we think about Scott and actually what we've done for clients for many years is think about this as a continuum. Private equity and private credit are just part of your equity and fixed income allocations. And increasingly they're a big part of that universe. If you think about the decline in public companies that are listed, if you think about the increase in those private credit, I mean we've seen loan growth decline significantly since 2010 for traditional financial institutions. And so in order to create a larger investable universe and really captured the full universe of equity and credit, you, you need to have allocations within private markets. And so I think it's a little bit less about thinking about this as an alternative and more about thinking about on that continuum. If you are, especially with a longer term time horizon, you can put some of these assets into these aspirational categories that can grow over time.

Moderator/Host (possibly Scott Wapner or another CNBC host) (17:46)

Okay. And we have some big interviews coming up, as we said, to give you a little more information about the whole alternatives landscape. We're just getting started here at the Case Summit. Coming up next, Franklin Templeton's the CEO Jenny Johnson. She'll join me live. We'll get her take on the alts boom and so much more in these markets. And coming up later, as I said, Oak Hill advisors Glenn August. He'll give us a pulse on the credit market, which is, as you know, a hot topic everywhere. We're back in two. So you've got your streaming subscription sorted, but every now and then live TV FOMO hits hard. Good news with passes by Sling. Get instant access to live TV when you want it. Big football game tonight. Grab a day pass baseball series. Try a week pass show or movie marathon. You guessed it weekend pass. Introducing passes. Get the live TV you love for the day, week or weekend starting at $4.99. Sling lets you do that offer applies to Orange Day. Pass restrictions apply.

Steve Liesman (18:45)

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Moderator/Host (possibly Scott Wapner or another CNBC host) (19:18)

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Steve Liesman (19:19)

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Moderator/Host (possibly Scott Wapner or another CNBC host) (19:23)

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Steve Liesman (19:24)

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Steve Liesman (19:33)

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Moderator/Host (possibly Scott Wapner or another CNBC host) (19:40)

Learn more@att.com 5G Network welcome back. We do have some breaking news from the Fed Chair. Powell is speaking right now in Philadelphia. Steve Liesman, our senior economics reporter, has the headlines for us. Steve?

Steve Liesman (19:56)

Thank you, SCOTT Yeah. Fed Chair Jay Powell, addressing the NAB annual conference, says the outlook for employment and inflation has not changed much since September and the Fed is indeed looking at a wide range of private and public sector data. With the government shutdown shutdown and the absence of that government data, the downside risk to employment, he says, as before.

Moderator/Host (possibly Scott Wapner or another CNBC host) (20:18)

Has has risen.

Steve Liesman (20:20)

Downside risk has risen and the data prior to shutdown show the economy was on a firmer path. We may approach approach a point, he says, in the coming months where the Fed stops reducing its balance sheet. There are some signs, he says, of liquidity conditions tightening. The Fed portfolio, he says, is overweight long assets, underweight short term assets. So maybe some change coming in the way the Fed does it that's going to review the composition of the balance sheet. Fed will lose control over the rates if it could not pay interest on reserves. And he said we could have and perhaps should have stopped asset purchases sooner. SCOTT.

Moderator/Host (possibly Scott Wapner or another CNBC host) (20:56)

Steve, I'm interested especially in what you just said about what the Fed chair is saying, that the some signs of liquidity conditions tightening, and I'm wondering if you can expand on what you think he's referring to and whether in any way that's some of the issues that were all watching in the credit markets are certainly getting the attention of central bankers like Chair Powell.

Steve Liesman (21:22)

I don't think it's these immediate issues. I think he's referring to an event we had. I think it was about a month ago or several weeks ago, Scott, where there was a surge in repo rates and some other signs of tightening in the credit markets. I believe it happened around the quarter end. So that would have been the end of September. So yeah, just a few weeks ago. And there was some signs there. And the Fed has been monitoring other things that have suggested that they're getting close to this place where they want to have ample reserves out there, not too much and not too little. And so what they're talking about now is perhaps ending the balance sheet runoff and then obviously having a discussion about what's in the balance sheet which may involve reducing the mortgage backed securities that it holds and also changing the duration they have said in their long duration.

Moderator/Host (possibly Scott Wapner or another CNBC host) (22:08)

And their short short term notes.

Steve Liesman (22:11)

And just one other thing, Scott, about his outlook on rates.

Moderator/Host (possibly Scott Wapner or another CNBC host) (22:13)

He doesn't say which way he thinks.

Steve Liesman (22:15)

Rates ought to go, but to the extent that he hearkens back to the time in September when they talked about the shifting balance of risks, that downside of risks have increased, it does kind of suggest that the Fed remains on a path of cutting rates here. Looking at the probabilities earlier today, Scott.

Moderator/Host (possibly Scott Wapner or another CNBC host) (22:32)

We were priced in fully for September rate cut, I'm sorry, an October rate.

Steve Liesman (22:35)

Cut and one in December as well.

Moderator/Host (possibly Scott Wapner or another CNBC host) (22:38)

Okay, good stuff, Steve. Thanks for the clarity on that. You'll let us know what else the chair says that Steve Liesman, as we said watching Chair Powell in Philadelphia, we're going to start with the Fed, the reaction to it. Franklin Templeton CEO Jenny Johnson is with us live here at Case. It's nice to see you. Welcome back.

Scott Wapner (22:54)

Great to be here.

Moderator/Host (possibly Scott Wapner or another CNBC host) (22:55)

The market seemed to move up a little bit. You think that was on the notion of ending the runoff on the, on the balance sheet. What did you make of the brief at least headlines that Steve was able to give us here?

Scott Wapner (23:06)

You know, actually let me step back for a second and say, all right, so we all know the Fed has two mandates, employment and inflation. So let's just look at those. The Dallas Fed last week came out with a really interesting study that I don't think has gotten enough coverage yet where they basically said hey look, pre Covid, the monthly equilibrium of jobs that had to be created was about 100,000 jobs, right? Covid, it went to 250,000 jobs. They actually said we think that number is closer to 30,000 jobs a month to have equilibrium and unemployment. So everybody is seeing the lower jobs numbers are going, oh my gosh, this is a problem. They said look, labor participation rate is down, demographics are changing, immigration has reduced. You had 3 million people immigrating. Now that's down to below a million people just two years ago. So one is there's less people that need a job to be at equilibrium. Well, how is it that that's okay for companies? Productivity has gone up 1% for a decade it was 1 1/2 percent. Now it's 2 1/2 percent. There are 156 million workers in the US that's like 1.5 million less people needed to retain the same productivity. It actually feels like the labor market is okay Right. And you talk to restaurants and say are you having an abundance of, of applications of, you know, for people, for jobs? No. And then the other thing that I think is lost a little bit on the inflation side. Look, tariffs are inflationary. February next year there's going to be $150 billion that are going to be hand to consumers in tax refunds because of the salt, you know, as part of the big beautiful bill. Think about how that stimulates the economy. So I look at it and I think we think that the market is a little too bullish on their thoughts of 100, 225 basis point cuts, you know, and say the next, next year.

Moderator/Host (possibly Scott Wapner or another CNBC host) (24:50)

Nonetheless though, it sounds to me like you think because of both financial and monetary, fiscal and monetary policy that you're, you're pretty bullish.

Scott Wapner (25:02)

It's pretty bullish. I'm pretty bullish, yeah.

Moderator/Host (possibly Scott Wapner or another CNBC host) (25:05)

And you think there's an AI bubble. Like how are you thinking about that question? Because that seems to be hanging over this market.

Scott Wapner (25:11)

Look, bull markets are never linear, right. It's, it's, you know, two steps forward, one step back, five steps forward, two steps back. Right. Like so we're in some of a little bit of a correction. But I look at, look, I mean I think the S and p is up 12 and a half percent year to date and the NASDAQ was up like 17%. It's been a great year. It's not surprising that you get times look at, we're having the discussions on tariffs with China, right. I mean this is, this is all noise. It's going to affect you in the short run. On the other hand, I believe we are in early innings on what is doing for many the picks and shovels maybe that's somewhat more expensive. Right. And the chips and the investments there you still haven't even begun the investments that are going to need to happen in power the grid, let alone how companies are actually getting advantages from AI. Honestly most companies are just right now trying to figure out how to use it and they're so slightly improving things. They already do. You're not getting it. It takes time for that to actually work through and actually impact companies margins.

Moderator/Host (possibly Scott Wapner or another CNBC host) (26:12)

Is there a message in the run in gold? I mean what's your view on that? Because it's been so astonishing. Straight up and to the right. We'll, we'll show the chart as you answer that question. But what do you make of that?

Scott Wapner (26:25)

Well, you know, first of all we haven't really talked about, but if you, if you talk about the kind of the bear case here, it's US deficits which are really a concern. You have to have a strong economy to grow to actually deal with some of these deficits. And I think that people worry a bit about inflation and gold has always been sort of viewed as a hedge to inflation. So I think that, that actually I think supports kind of the case that we still have a pretty robust economy here.

Moderator/Host (possibly Scott Wapner or another CNBC host) (26:49)

So we're visiting with you because you have made a larger play into the alts universe and that's what this conference is all about. We're trying to educate our investing viewers on how they should be thinking about what the portfolio of the future looks like incorporating alternatives. I mean how much do you think and how much are you advising clients that they should have allocated to alts?

Scott Wapner (27:12)

Yeah, so. So we have about 260 billion of our 1.6 trillion in alternatives. And you know, our view is institutions obviously have been leveraging alternatives for a long time. They are illiquid. That is the message. Like these are illiquid.

Moderator/Host (possibly Scott Wapner or another CNBC host) (27:28)

Yelled from the mountaintop.

Scott Wapner (27:29)

Exactly. So, so, but you get a premium for that illiquidity which is significant in a person's retirement plans. Right. And their savings. So look, I think some individuals will get their alternatives exposure simply in an allocation, say in a mutual fund. Franklin's Equity Group is doing late stage venture for over a decade because the old IPO kickers that we used to get have not happened in the same way. And so we started to do late stage venture. So some of them will get that, some will move into really these perpetual funds which are interval funds which allow 5% liquidity quarter and some that have more wealth will go into the drawdown type of category. So I think the good news is there's a lot of innovation happening that is going to allow the average person to be able to access alternatives. And, and honestly I always say it's like akin to when my grandfather got into the mutual fund business business. The average investor couldn't participate in the equity markets. Right now the average investor can't participate in the private markets. And with the way that companies are waiting so long to go public and banks aren't lending in the same way you need to be able to access. It's a massive opportunity that I saw.

Moderator/Host (possibly Scott Wapner or another CNBC host) (28:32)

A pretty incredible stat. Only 3% of average, on average of advisor clients are allocated to alts.

Scott Wapner (28:40)

That's right.

Moderator/Host (possibly Scott Wapner or another CNBC host) (28:40)

That shows how big what is all already a mushrooming area of the investing universe can grow.

Scott Wapner (28:47)

So I think that most folks would say, you know, say in the next five years, that number could move up to 10 to 15%. And I think that's right. And I think a lot of that requires the innovation around the vehicles to ensure that deliver that it's delivered appropriately so that it's suitable for each client. And that's what we're big believers in, the financial advisor. And as case, as you know, it's built up pipeline to make it much easier for advisors to allocate to their clients. And so the financial advisor really knows what those clients needs are to make sure that the vehicle is appropriate for each individual client.

Moderator/Host (possibly Scott Wapner or another CNBC host) (29:18)

I appreciate you spending time with us. We had some nice breaking news for you to react to as well. Jenny Johnson of Franklin Templeton. Coming up, Oak Hill advisors Glenn August. He'll join us live here in Beverly Hills. We'll get his forecast for the credit market. We'll talk about the Fed as well. Speaking speaking of Chair Powell about to take questions in Philly. We'll take you there live when he begins. We're back in LA after this.

Steve Liesman (29:43)

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Moderator/Host (possibly Scott Wapner or another CNBC host) (29:46)

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Steve Liesman (29:47)

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Moderator/Host (possibly Scott Wapner or another CNBC host) (29:50)

You've got AT and T5G so you're.

Steve Liesman (29:52)

Fully confident, but the vendor isn't responding and International Sleep Day is tomorrow. Luckily, AT&T 5G lets you deal with.

Moderator/Host (possibly Scott Wapner or another CNBC host) (29:59)

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Steve Liesman (30:01)

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Moderator/Host (possibly Scott Wapner or another CNBC host) (30:08)

Learn more@att.com 5G Network.

Jenny Johnson (30:13)

What made you.

Scott Wapner (30:14)

Confident that you could do something that hadn't been done before? I have no fear of failure.

Jenny Johnson (30:19)

Trailblazing women, changing the game. One of my favorite pieces of advice, think about what your boss's boss needs. Leadership can look in many, many different forms. It really has does come down to just trusting yourself.

Scott Wapner (30:32)

Life is short and you just got.

Moderator/Host (possibly Scott Wapner or another CNBC host) (30:33)

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Scott Wapner (30:36)

Julia Boorstin hosts CNBC Changemakers and Power Players. New episodes every Tuesday. Wherever you get your podcasts.

Moderator/Host (possibly Scott Wapner or another CNBC host) (30:45)

Welcome back. We are live today in Beverly Hills from the CASE Alternative Summit. The bankruptcies of two companies in the auto sector have heightened concerns around certain parts of the credit market market. Glenn August is founder and CEO of Oakville Advisors and joins us now here at case. It's good to see you.

Glenn August (31:02)

Good to see you.

Moderator/Host (possibly Scott Wapner or another CNBC host) (31:03)

So you, you do business in many parts of credit, right? Private credit, leverage, loans. Last year at this conference I sat here asking people if there was a bubble in private credit, I think it's relevant now to ask you whether we're starting to see the first cracks in, in that whole story.

Glenn August (31:19)

I do not see a bubble in private credit. The companies, yes, there's isolated instances. You refer to a couple of bankruptcies. There's always idiosyncratic credit risk. But if you look at where the economy is, if you look at where the equity markets are today, if you look at the balance of where we are from inflation, growth, etc. I'd say the backdrop is still reasonably solid. But that's not to say there's not risks in the market. I love Jamie Dimon's comment today that there's one cockroaches.

Moderator/Host (possibly Scott Wapner or another CNBC host) (31:47)

Probably I was more. I was literally going to ask you about that. Okay, because you said idiosyncratic.

Glenn August (31:51)

He suggests maybe idiosyncratic question of how many cockroaches are there? So if we look at the market today, in the leveraged loan market, in the high yield market, there's less than 5% of credit trading below 80, generally less than 10% trading below 90. There's really idiosyncratic risk. How is that? Where is that coming from? There's issues with some companies that are impacted by 10 tariffs. If you're importing tools from China, guess what, you have higher costs today there's impacts of AI. Some companies are challenged on their premise. Will I make them less relevant? Some companies can use AI and so, and then interest rates have been higher, so costs have been higher. The subprime consumer has been challenged. So there's credit risk.

Moderator/Host (possibly Scott Wapner or another CNBC host) (32:34)

But you know what I like, what.

Glenn August (32:35)

I think about is that the credit market is not the equity market. In the equity market, the max 7 is 35, 40%. In the credit market, there's hundreds and hundreds of companies, much each one of them has their own story. And so for people like us who pick credit, have been picking credit for decades, we still see good opportunity. And I don't see a private credit bubble. I don't see a bubble in our markets. That's not to say there can't be a few extra cockroaches around. They'll be allegedly fraud from time to time. There'll be cyclical challenges, but by and large there's still good opportunity in this.

Moderator/Host (possibly Scott Wapner or another CNBC host) (33:11)

So a few other cockroaches around is is different than this being a canary in the coal mine.

Glenn August (33:17)

That's what I think. And again, as I've been doing this for almost 40 years, you need to really have distress. You need A recession and you need forced sellers. And today I don't see a recession recession anytime soon. And the markets have evolved such that the credit markets there's not for sellers there's not that much mark to market leverage in the system. The bank loan market is close. The high yield market is over 50% double B. The private credit market is all bilateral negotiations. So I think there's good opportunity as private equity starts to deploy more capital. There's really good opportunity opportunity to deploy capital. There's good opportunity for the wealth channel. I saw your previous interview and again it does not make sense for individual investors not to have the exposure at all.

Moderator/Host (possibly Scott Wapner or another CNBC host) (34:07)

What do you make of this today from bank of America's Fund Manager survey. 57% of respondents said private equity. Private credit is the most likely source of a systemic credit event. The highest conviction on the source of such a disruption since 2020.

Glenn August (34:24)

I have looked at that survey for years and normally take the other side of the survey. In my view what I would say on private equity is that I think returns will be lower, it is more competitive, interest costs are higher and I don't think private equity will deliver their terms which is why so many of our investors are allocating capital from private equity to private credit. I don't see it.

Moderator/Host (possibly Scott Wapner or another CNBC host) (34:48)

So let's take it from the angle of you obviously aren't too concerned by what you can see. The whole nature of the shadow banking system is what you can't see because it's so opaque. So how do we truly know what is hidden in various places out there that we won't know about until it starts to get really there's so much.

Glenn August (35:11)

Talking about the shadow banking system. But let's put in perspective when we do senior direct lending and get paid 8 or 9% unlevered, we occasionally for some of our accounts and funds will lever that one to one or one and a half to one. That's not 10 to one in the banking system. The companies that we're lending to are more than 50% equity cushion. And so again I think this whole fear is overblown is held by long term capital. We have eight of the top 10 sovereign wealth funds to 15 of the top 20 largest US pension plans. They are long term investors and they can take that illiquidity premium. And so again I don't want to say that there's not risk. There is credit risk always. That's why you get paid 8, 9, 10% or in special sits 10, 11, 12 or higher. You're taking credit risk. You're taking liquidity risk, but that doesn't mean there's a canary in the coal mine we're heading towards.

Moderator/Host (possibly Scott Wapner or another CNBC host) (36:07)

Lastly, has this forced you though, to look in your own book and then just go over it once, twice and 10 times?

Glenn August (36:13)

We look at our own book every day. Nothing has forced us. We've been looking at our own book every day for 38 years. So the answer is you always have to be on top of what you own every single day.

Moderator/Host (possibly Scott Wapner or another CNBC host) (36:23)

Glenn, it's great to see you. Thanks for being here with us. It's Glenn August of Oak Hill Chair. Powell is taking questions now at the annual NAVE meeting. We'll go to that live.

Steve Liesman (36:33)

States of affairs for our two variables or two goal variables call for different monetary policy responses. So as they come more into balance, I think the idea has been that policy should move from being tight to some degree to being more neutral as those two things balance out. But it is clear though that if we move too quickly, then we may leave the inflation job unfinished and have to come back later and finish it. If we move too slowly, there may be unnecessary losses, painful losses in the employment market. So we're in the difficult situation of balancing those two things. I think for, for the last few months we've been able to maintain a restrictive stance because the labor market was still pretty, pretty solid. I think that the data we got right after the July meeting showed that which, which adjusted back all the way through May showed that the labor market has actually softened pretty considerably and puts us in a situation where the two risks are closer to being in balance.

Jenny Johnson (37:31)

Let's move to the other risk then and talk about employment a little bit. We had Anna Paulson here yesterday and she spoke about the break even on employment break even employment growth rate. And that's a question from the, from the audience as well. So I believe she said that it's certainly lower than it was and the standard error around those estimates probably includes some numbers that might even be negative. Where do you see the monthly break even employment growth rate at this point?

Steve Liesman (38:01)

I'm not going to try to give you a pinpoint number, but as you pointed out, the standard error around these things is, you know, 50,000 plus or minus, something like that. And you know, that would certainly, I think the range of plausible numbers for the break even rate is probably, probably does go below zero. Accounting for those standard errors, it's clearly come down a great deal. And that's what, what's so challenging about this is that both supply and demand in the labor market have come down so sharply so quickly. And the fact that they're, that the unemployment rate has barely moved is kind of remarkable in and of itself and suggests that they're moving at roughly the same path pace. Although of course the unemployment rate has ticked up, which suggests that demand is moving a little faster than supply. I wouldn't want to point to a, you know, a specific number other than to say that it's come way down. And there are many, many estimates out there, by the way. There are many ways to calculate it. So you're going to get different estimates.

Jenny Johnson (39:03)

Certainly in a, in a volatile and changing environment. So one question I have is whether you see any changes in the transmission mechanism of monetary policy actions. So when we speak of long and variable lags as we do, are those changing? And in particular, do you think there might be any difference in the impacts of policy on inflation versus employment? There's one changing more than the other.

Steve Liesman (39:29)

That's like two or three questions, so I might have to come back to you so on, on transmission, you know, they're in theory, at least there I see two things. One is, you know, what we say and the actions that we take on monetary policy and how quickly that gets into financial markets. So if you go back to when I was in college, that part, that part would have taken, you know, weeks, months probably. Now that part happens essentially instantaneously. But the rest of it, you know, once it's in the financial markets, how quickly does it affect economic activity, unemployment, employment, inflation, etc. You know, I think that's more dependent on, on the conditions in the economy. For example, if you take the, you know, the group, the group of people who had extremely low rate mortgages, right. And even so, if you can cut rates, but they're a long way down and they're sort of in, in a place where it's going to be expensive to take out a, to move and to take out a much higher rate mortgage, even, even assuming significant numbers of cuts. So that has probably blunted the, you know, the, the transmission of lower rates into, into that part of the economy. But overall, I think it's, I mean, I think it still works the way we think it works, which is, you know, long and variable lags means a lot of uncertainty about how it's being affected. I think the lore, the last part of your question, the lore has been that inflation and employment come later. You know, the first decisions are purchasing decisions, hiring decisions and things. Well, purchasing decisions, you know, can be affected probably more quickly, but then, then those would eventually affect Employment and inflation. So longer legs are when the research generally shows longer and longer legs for, for employment and inflation.

Jenny Johnson (41:21)

And I guess the variable part of that comment does give us a bit of, a bit of COVID a lot of uncertainty. So you spoke about the adjustments or the challenges that you're facing with some government data not currently being published. Beyond the headline unemployment rate which we're not going to see right away. What other labor market indicators are you monitoring most closely to gauge that side of the mandate?

Steve Liesman (41:50)

You know, so we're, I think everyone's looking at the same non government data. So there's, there's a set of got non government data around or non federal government data around labor markets, for example, state level unemployment, you know, claim reports, you can total, you can add those up and get a pretty decent estimate. And that's a, that's, that's a really good one. There's also ADP has as, as its data and employment. So in the employment space there's, there's some plausible data. I will say generally the, the private data, the alternative data that we look at is better used as a supplement for the underlying governmental data which is the gold standard. And it's not as, it won't be as effective as the main course as it would have been as a supplement. So we don't expect that we'd be able to replace the data we're not getting. So I think in, in job, you know, in employment space there's some pretty good substitutes, less so in inflation space and, and in economic activity space. And also they're just, you know, they're different private data providers use different universes and, and different levels of rigor in their, in their data analysis. So you know we're, we're looking at lots of things and you know, we, you know, we'll, we're going to make our decisions according to the FOMC schedule. But I think it will be a lot better once we start getting for example the, you know, the September employment report is going to be a very important report and we, we're not on track to have that. We would still be time for us to get that. We will get of course the September inflation, the CPI and PPI reports. So that's a, that's a positive. But you know we're, we don't comment on fiscal matters but from our standpoint we'll start to miss that data and particularly the October data. If this goes on for a while, they won't be collecting it and it could become more challenging.

Jenny Johnson (43:47)

You use the term gold standard and you didn't mean it in this context. But I'm going to pivot here because there's a question from the, from the audience that's getting a lot of upvotes. So one of your predecessors, Alan Greenspan, used to view the price of gold as an indicator of inflation risk. So in that context, how do you view the rally that we've seen in gold? And if you want to throw in Bitcoin, you can comment on that too.

Steve Liesman (44:12)

You know, I'm not going to comment on any particular asset price, including that one. And I think we, we think of, of inflation as driven by, you know, fundamental supply and demand factors. And it's not something we look at, you know, actively here.

Jenny Johnson (44:34)

The September projections, we saw revised GDP growth projections revised upward for both 2025 and 2026. Now sometimes it's just an issue to issue thing, but how do you reconcile that projection of stronger growth with what we're seeing in terms of a likely weakening labor market?

Steve Liesman (44:55)

So even, even subsequent to the September sep, we've seen economic activity data which are, which are surprising to the upside. And I mentioned, as I mentioned in my remarks, so you do have a bit of a tension there between, you know, the labor market data that we see very low levels of job creation and yet people are spending. So economic activity is strong and it's, you know, we're going to have to see how that plays out. Right now, of course we're not getting any, any new, new government data on that, any new federal government data on that. But it does create, you know, of course, if the economy, if economic activity were stronger, then that would tend to support labor market in hiring. And so we'll have to see how that works out.

Moderator/Host (possibly Scott Wapner or another CNBC host) (45:42)

Great.

Jenny Johnson (45:43)

Another topic that has permeated the conference over the last two days has been AI. So as the Federal Reserve, like all of us, grapple with the implications of generative AI, what plans are in place to assess its long term impact on productivity, implications for labor markets and overall economic stability, and does that present any new risks to monetary policy or financial stability?

Steve Liesman (46:08)

So you're right, we're doing what other people are doing, which is, you know, reading all the things that, I mean, so many researchers are working on AI now. It's just amazing. And so we follow all of that. We also have people at the Fed who are doing lots and lots of research on AI. And you know, in terms of, it's just such early days to be looking for the kind of things that will happen. So you know, question of Productivity, you know, it was it Robert Solow who said that technology showing up everywhere but in the productivity data. So this could be the same kind of thing where we, where we, where it's there, but it takes a long time kind of to show itself because you, you would think of another big technological advances potentially raising productivity. But I think it's early to say that we're seeing it also. You're seeing, I think some, some researchers have found effects on hiring from AI for entry level people and, and for coders and things like that. So there's probably some of that out there, but it's just so early to say what it will be. We also monitor very carefully what public companies are saying. Increasingly bold statements from, you know, from big, from large, mainly large private companies on things that they think they can do across their whole business area with AI and either, you know, sort of freeze hiring where it is or reduce hiring. And you know, I think we're pretty aware of what the potential outcomes are. But the range of potential outcomes is, is very broad. I will say in terms of what the Fed can do, you know, we're a, we deal with supply and demand. You know, we have interest rate and we also do regulation, that kind of thing. But if what's needed is greater education and skills, I mean I've always liked the model that, you know, technology can work for everybody as long as everybody's getting the skills and aptitudes they need to use that technology. This is golden and cats, you know, their work which they actually spoke about at Jackson Hole this year. But it's a, you know, it's a 20 year old book that they wrote. So we can't do that. That's not something the Fed can do. We also can't, we can't address the potential societal disruptions that could happen, you know, potentially, you know, if there's really significant job loss. So there are a lot of, I mean we're the least of it. There are potentially really significant implications for people in the labor force and I think we were all speculating about what those might be. But it's only the beginning of this story.

Jenny Johnson (48:46)

Yeah. Looking at some of the other questions that are getting upvoted and you can get as far into the weeds as you want, but you know, this is where people want to go. So let me, let me try this one. As you think of the appropriate level of reserves in the system, what indicators are most important, is it the price of money, so repo levels or the volume of borrowings from the Fed, like the discount window and so on.

Steve Liesman (49:12)

So we have a, we have a nice spider chart and a five main indicators, one of which is sort of repo repro levels. And I think overall what they're showing is that we're still at ample reserves. Sorry, abundant reserves. We're still at abundant reserves, meaning above our goal of, of ample reserves. A little bit above ample reserves. So, but we're beginning to see, you're starting to see a little bit of tightening in money market conditions, particularly repo rates have moved up and those are the things we're going to be watching. So we think we're still in abundant and we're, you know, the pace of runoff is now very, very slow. So we're going to be watching all those factors very carefully. And we're not, we're not so far away now, but there's a ways to go.

Jenny Johnson (50:04)

I think we're not going to get away without addressing this one. So I'll try to again, group some of these together first. There's definitely appreciation from the audience, your ability to try to remain above the political fray. And I think also, as in your remarks, you said gradually and predictably, and that sounds really nice right about now. But with those, that ongoing scrutiny of the policy decisions of the Fed, what measures is the Federal Reserve taking and are you taking to ensure and demonstrate the continued independence in setting monetary policy?

Steve Liesman (50:43)

So the main thing we can continue to do is to do our work the way we've always done it, which is, you know, think really carefully about evolving economic conditions and the evolving outlook and the balance of risks and try to make good decisions to, to best serve, you know, the American public and, and then explain those decisions and talk about them in a way that, that makes sense and is grounded in the data and, and, and our overall approach. I think we're going to keep doing that. And as long as we're doing that, people will be able to tell if we start doing something else, I think people will be able to tell that too. But that's, that's just not something we're ever going to do. We're always going to keep doing our work. We don't engage in back and forth with, with people. It's just not that that is, that gets to be political sort of right away. So we just do our work and do it as best we can. I mean, overall, I would say the Fed comes through the last, if you think about it, go back to the beginning of the global financial crisis. We've had two world historical crises back to back Essentially, and the US Economy has been quite a ride for the US Economy and for American citizens, but we've come through it as well or better than any other country in the world. And we had to innovate and did innovate. There was really no choice. We can look back now and as I did today, and second guess ourselves, which is only appropriate that we, we've been doing it for 10 years, since I got to the Fed 12 years ago, we were already doing a lot of that. So that's an ongoing process. But I, I think if you take a step back, the Fed is, isn't a government agency that does a good job for the public that it serves. And, and that is our, that is our only goal. And I think we do it pretty well. Don't look for perfection. You know, these are, these are close calls that have to be made in real time, but I guess that's what I would say.

Jenny Johnson (52:41)

Fantastic. And in that context, then, internally to the fomc, how important is it that you have consensus on it? I mean, we're economists, we understand the value of spirited debate. But is that important in terms of communicating the results and the decisions of the committee?

Steve Liesman (52:58)

I mean, consensus is great, but I mean the most important thing of all is to get it right. And you come to places, not, not very commonly, but sometimes you come to places where people are going to be, have different views and this is one of them. You have, you have a situation here where literally inflation's above target and gently rising. The labor market is subject to pretty, pretty clear downside risks. What do you do? How do you think about that? That's not a problem that we've, that you face very often in central banking or in the economy. And people are going to have different weights and different risk aversion and different risk appetites on those things. It would be kind of surprising if, if you had no, no debate over those things. So we have a healthy debate going. I think it's very healthy. I think these, the meetings that we've been having are as good as any we've had. You know, in terms of people sincerely, you know, giving their absolute best argument for their positions. But they're different positions. That's, I mean, when I, when I was an investor, I always felt like the most dangerous thing is if everybody agreed on something because you need someone to come in and try to explain is a terrible idea, hopefully somebody really smart and then, and that would give you the ability to really test your thinking. So I think that's, that's A healthy discussion that we're, we're having right now. And I'm not at all surprised that we have people across the board. I do think we also, as an institution do try to come together around, around, you know, a central answer. And that's of course, part of what I try to do is, is, is, is, you know, find an answer that will attract as much support as possible.

Jenny Johnson (54:38)

Absolutely. I know you probably won't want to comment in great detail on global conditions, but there are a few questions around that and what that implies for US Monetary policy. And also just looking at the interest rate differentials between the US and other advanced economies and how long that could persist and is there a risk there? Sorry, the interest rate differentials between the US and other advanced economies.

Steve Liesman (55:08)

Yeah, I mean, you know, we set interest rates according to, you know, the, the place where our economy is domestically, you know, taking into account the, the international aspects of our economy. So again, it's not surprising. I mean, you could name many, many factors. But you know, for example, tariffs are clearly more disinflationary for countries that are subjected to them. And they're more, I won't say heavily inflationary, but there, there's some inflationary pass through to consumers from countries that are putting tariffs on. So there's a very different monetary policy response potentially just in that. So, you know, I think we need to set, as every other central bank does, they're, they're setting rates in their, whatever their, you know, remit is geographically, and they're going to be different answers. It's not unusual.

Jenny Johnson (56:04)

So we have a large number of young economists in the audience today. Could you talk a little bit about as we look back and you know, it's a momentous award, it's a nice time to reflect. If you looked back on your early career and your early goals, how do you think that young Jerome Powell would, would view where Jerome Powell is sitting today as chair of the Federal Reserve?

Steve Liesman (56:30)

Surprised? No. I would say so. What I would tell young economists is you've chosen a great profession, a tremendous profession. You know, you're basically, you're getting the tools to analyze public policy and what works and what doesn't work and what should be expected to work and wouldn't and why, and also what's the state of the economy? And guess what? It's not just hard, it's basically impossible. But it's a very, very difficult thing. But it yields itself up over time. And it's just an incredibly important subject that carries the capability to do really good things for the general public who may not feel great gratitude toward economists, but sometimes. But no, it's really important. You've made a great choice and I would say wish you the best of luck.

Moderator/Host (possibly Scott Wapner or another CNBC host) (57:26)

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