Transcripts For CNBC The 20240703

And gives us his two cents on the dollar. The latest move on the greenback. We are also talking rates and macro. We begin with todays market. We will run through the numbers. A better look than lately, dom. A better look. Solidly higher and tilting towards the highs of the session right now, but the caveat is that we havent gotten back what we lost just in yesterdays trade. To that point, kelly, the are up about one quarter of 1 . 60 points the upside. 63,000 zero 72. The s p 500 still above the 42 mark. 40 to 50 with the last trade there of 21 points half of 1 at the highs of the session we were up 28 points on the s p. We are down nine points at below. Again, tilting toward the higher end of things. And the nasdaq composite doubling up the advance of the s p 500. 1 , 130 points, with a composite index of 13,189 the last trade there. Of course, rates still a huge focus of the market. At one point today earlier this morning, we did touch a news cycle high going all the way back now to august of 2007. So this ten year to year spread, you can still see continuous continues too steep in on this side here. Theres a little bit less pressure, upside on prices on the shorter end of thing, but theres still buying pressure there. We will see what happens with the spread. Its still continuing towards the upside. The tenure no deal again hit that cycle high going all the way back to 2007. That is the right side of things. There are reverberations despite some of those rates, and the levels they continue to sit. We did see a bit of a pullback. It is helping at least incrementally. Part of a Bigger Picture on why that tech trade is a bit more to the upside today. Apple shares about up up about one third of 1 . A rare downgrade from Key Bank Capital markets. They still think the iphone upgrade cycle might be losing a bit of momentum this time around. The valuations are also near alltime highs. Microsoft up 1. 5 . Amazon 1. 5 game. Nvidia 1 gain. A bigger cell of the estrada. Fifth of a bounce back today. We will see [inaudible] i will send things back to you. Thank you very much, don chu. For the growing concerns about the u. S. Economy now, especially after the weaker than expected ap report this morning. It came in below forecast, only adding 89,000 jobs in the private sector, the fewest since january 21. It might be a for the fed to stop raising rates, theres also a concern that a recession is looming. But a soft landing is still possible due in part to the feds massive sheet. David zervos, chief Market Strategist at jeffries. And is here with us as well. Full house. We appreciate everyone being here. Tom, let me start with you. Why do you think soft landing hopes are still alive . I think there are a couple of factors that drive the point home. First, you remember the revisions from last week. Miraculously now theres 400 billion dollars extra in excess statements. The trend is still definitively down, but thats a very deep pool for the consumer to kind of dip into. Wage pressures, yes they are slowing, but again you can make the case [inaudible] so the consumer still has this pool. The pool is being more restricted, or constricting i should say, but for now i think its easy to make the case that the consumers hang in there. It would hinge on the labor market continuing do hang in there. Right . That is why the adp number, you know, its [inaudible] it is. To be totally honest, im not a big fan of the adp report. As a great example, Large Companies shed 32,000 jobs. This month, but theyve shedding jobs straight through. When they shed jobs two months ago, you had a 480,000 adp. So theres a lot going on underneath the surface there. Look, joe burrow threw slowing down. That is not a guess. I dont know if i would lean on 80 feet and isolation. You just look at the payroll report. Every single month for the last year, its done nothing but slow down. Right. Health care work which i think is really important. So we are getting there. And the risk for us, the risk for the soft landing ideas exactly what you highlight. If you consider the idea that right now compensation is running at a faster pace than revenue, that is not a fashionable setup for corporations. What it could amount to is a sort of margin compression story. If that materializes, i think you can make a case that the companies will basically go after labor. That would be a classic approach. Its interesting when you look at the stock of savings, because david focused on the [inaudible] which you think is the reason why the economy hasnt done as poorly as people thought it would buy not with all of these heights. Yeah, kelly. We have chatted about this a lot over the course of the year. I think throughout this entire financial crisis period back in 2000 and 2008, he tried to wrap our head around what does. What i think weve all come to grips with, at least i have, that its a much more powerful tool than maybe many had originally thought. When we take it away its powerful. Its powerful when we add it in. The reality is we still have a lot of q eaten our system. Why does it matter . A lot of people would say all that matters is the flow. We are not buying bonds, we are selling them, and thats the biggest reason why rates are spiking. But you think the story is more complex. Remember, the fed Balance Sheet on the asset side as the bonds, but on the liabilities it is liquidity. It is high powered money. It is reserves. It is cash. Its the lifeblood of liquidity for the economy. We have a trillion dollars of that in our system. If we were to take that back to preach if sea levels and say the Balance Sheet was the same size as the economy in 2007, it would only be 1. 3 trillion. We have a lot of liquidity in the system. That sticks with us. The level matters. But more importantly, and what we pushed with quite this year, is that the fed ownership of those bonds, of those eight trillion dollars, 30 year mortgages and 30 year treasuries, some that are trading at 40 cents on the dollar. It insulated the market from a lot of losses. Those losses were not distributed into the system. There were gains. People locked in low rates. People benefited. I think we did not have that offset we usually do when rates go up. We had a lot of winners that were held on the fed Balance Sheet, insulated from the losses. So the question is going back and forth from, hes the economy about to weaken, or where are all the blowups . A bit like 1994, which one will be the Orange County . It was mortgages and that case i think. [inaudible] you are so familiar with this stuff. Kelly, just so you know, theres two kinds of economists other. Theres stop and flow. Right. It is the flow into kyiv and those who say, no, its the amount the fed is taking off. Guys in the back, heres a test for you live on national television. The chart you put up of the fed to really show davids point, please take it back to before 2020. Okay . Because you show it going down, but that is not davids point. Davids point is even after taking trillions off of it, it remains massive. So i dont know if they can get it done. I should divine what [inaudible] its very important, but heres the thing. Theres three things animating deals right now. I think in the last couple of days weve gotten a good example of how the growth story is yields. We have the jolt number creating a jolt in yields upward. And the adp number, there we go, now we are talking. Four trillion to still just under eight trillion. [inaudible] so there is growth. There is also a shoe winds. We had a chat in the background. I think there was surprises [inaudible] and you combine that with the fed not being a better buyer. I think theres a bigger story, a longer term story, which is the increase in the neutral rate. We talked about this. The idea that the steady state rate of the economy, one that doesnt increase inflation or increase unemployment, is a higher rate than it was. It came down over a threeyear period. Now we are trying to figure out, its a bit like saying, okay, it used to be ten yards for a first down . It might be 12 now or 14 . We dont really know anymore what the role of the game is anymore. More and more there is talk, because of this rise in yield having been one, that did not come along with an increase in inflation it is a real yield rise. Therefore, people are saying that maybe that mutual rate, which falls it is possible is higher, is higher now than it was before. Let me ask you if i can about the deficit. Obviously, right now there are major questions. It does seem as though people are waking up going, okay, wow, the fiscal picture is a lot worse this year than we had expected. And we do not have those structural buyers of treasuries anymore. Foreign ownership has gone down from 50 to 35 i think. Stock of treasuries has gone from five trillion on the market to 25 trillion. The fed is not buying. The Banking System isnt really buying. So there is a massive imbalance driving yields higher do you think . I want to come back because you made important points that i really like, but i think you are right to focus on the fiscal. And then turned to me to try to deep and get. Im going to do that. The rise in yields from the lowes has been about 435 or 425 basis points since the covid blows. In germany, the yields are up about 385 or 390 basis points. In the uk, they are up more than the u. S. So yields have risen in a pretty similar fashion in germany and the uk to u. S. Yields. Are we talking about german fiscal policy going wild, or uk fiscal policy going wild . Im not exactly sure why we are so focused on this ten year yield news being driven by fiscal, when it is a global phenomenon. Yields are higher in most markets. Even australia and other countries. Again, i dont want to get caught up in fiscal. I think this cool is not the story. There are some issues probably relating to japanese yield curve control that played a factor probably in our long and a bit. But the big story, the really big story, and steve was in the room for it two with j. When j started to talk about the difference between the rate and the neutral rate, something they really never brought to the discussion. Im not sure jay understood where exactly he was going. He was sort of throwing it out at us. [laughter] the point is the neutral rate might be higher the next two or three years because the Balance Sheet is so large. When you talk about a neutral Interest Rate, you cant talk about it without a neutral Balance Sheet. They are both policy tools. In unison, to talk about whether policies accommodate. The Balance Sheet is massively accommodated. That means to be neutral overall, the neutral rate will have to be higher than what you would normally be without a [inaudible] [inaudible] mortgage right now. Yeah. I think david made some really great points. I would add to that, just think about, like, if you had a Federal Reserve but you have some short rates. What would the short rate gravitate to . It would almost trend gravitate toward what the trending growth is. There has been a massive divergence between trend growth and long run neutral rate. I think what will happen now is the long run neutral rate will trend back toward closer to trend growth. For me its a foregone conclusion that its going to rise. I want to make one point to answer a question kelly made earlier. Which is, yeah, i am beginning to worry about the financial system. This is a big move. I think those on the fed who think the lags are in the price, i think they are wrong about that. I believe it was, it might have been yesterday who said theres a lot of corporate debt. That is a drag on the economy. That is going to in part to more its important to remember that on the show yesterday, 24 hours ago, bostick became the first fed official to use the term sufficiently restrictive. That is the ding button. Thats the stuff that turns off the spigot for more rates. However, he paired that with the notion of i think the next fed move he said is one cut at the end of next year. So that is the higher for longer that the market has to digest. I just think we are going to be in a process here up and down, in and out, that we are going to adjust all asset prices at least for a while, of higher for longer. And i will make a really quick point. Again, a great point, steve. Look at forget about the numbers, instead look at the responding comments. Within the responding comments, for the first time that i can remember recently, you actually have one segment basically saying credit is now actually becoming much more of a problem. We are starting to see [inaudible] and making the comment about bankruptcy. I had not heard that before. Not recently. And by the way, sorry david, when you think about even if its everywhere, if its littered through the [inaudible] services, then its already too late. So this is the first time ive seen it. Just to be clear what steve is saying is the most [inaudible] guy on the committee basically [inaudible] right. [laughter] think of where we started this year. Yeah. The market was priced in a recession. Professional forecasters had a recession. A majority of forecasters had recession. When you are sitting at the beginning the year you said, what do we do . Do we take a lot of credit risk or equity risk . Everybodys saying theres going to be rate cuts and a recession. Do you think people took a lot of credit risk and equity risk . They didnt. They took duration risk. Because that is where they thought they would make money and the fixed income guys have been buying to ration from 332 350 to 370 because that was the trade, if you believed we were going to slow down and now the rate has blown up. And they have gotten killed. Exactly. The market was miss for the growth that there was. So put a pin in it for investors then. On the one hand we have people saying we are going to have a rip roaring rally into year and. On the other side, people are saying the 60 40 portfolio is dead. What would you [inaudible] i think we are in a much more sensibly priced structure then we were even two or three months ago when were pricing at 125 basis points with rate cuts next year with december of this year at december of next year. If the market is in a better place, the rate structure is in a better place. A lot of people have lost a lot of money. I dont how much more there is to go on the fixed income repricing. Maybe the bad positions need to get flushed and you go to five or five and a quarter. The fed wants to slow it down. They want people to pull back on projects and they want people, it sounds bad, but they want people to get fired. They want the Unemployment Rate at a more comfortable race. So all of that is going in the right direction for the fed. I will say, steve, that the Bigger Picture story of how this market goes into the end of the year is if we are at a higher wheel rate, or higher neutral real rate structure, for the next couple of years, that hurdle for Capital Gains and equity is so much higher. Yeah. So its a trade. I tell all our investors collect carry. Go to quitted, stay out of duration. We have been leveraged loans, cielos isnt that even starting to turn . Absolutely. Look, the [inaudible] market has been wonderful because [inaudible] they are doing great. That is the place i am telling people high yield is generally some five year. Its not long duration. You look at the [inaudible] earned total for the year versus [inaudible] and [inaudible] is performing significantly and rightly so. They are trying to get into the idea that there may be some default risk in there. Tom is 100 right. There are more risks on the horizon now one point point though. I am as tall or taller than tom, but because of the shot that tom appears to have paid extra for, he appears taller. [laughter] i want that clear. [inaudible] thank you very much. We appreciate it today. Tom , david, and our own steve [inaudible] lets get the latest from the drama in d. C. At the Kevin Mccarthy yesterday became the first ever House Speaker to be voted out of that position. Lawmakers are now treading water weeks ahead of another potential shutdown. Here to discuss that impact from washington to wall street is jerry cite, former executive washington editor at the wall street general, and Financial Services and policy analyst at the decal in Washington Research group. Welcome to both of you. Journey, i feel like we asked if you could come out of retirement for this because its just extraordinary the past 24 hours. What are your thoughts . Well look, it doesnt feel like i can better retirement because the story hasnt changed. There are three things to keep in mind here. One is that we are in totally Uncharted Waters here. No ones ever done this before. So i dont know what happens next, but the second point is that this is just a continuation of a decade plus long fight with the Republican Party between more traditional conservatives and more populist republicans. You know, john boehner got worn out by that at one away. Paul ryan got worn out and went away. Got kicked out and now Kevin Mccarthy. This is a struggle that has not resolved. It is underway and continuing, and it will continue, which will produce continued uncertainty. I think that leads to the third point here, which is nothing has been resolved. We have no answer to any questions about whos going to be the leader that emerges from all of this much less much less how the house is going to resolve any issues about spending and immigration and ukraine. That threatened to shut the government a week ago, and that will threaten to shut the government again. Jerry, you are sort of pointing out that we are in uncharted territory, especially when it comes to handling the spending bill. Right. Exactly. I think the big challenge here is that we have an acting speaker. Weve never had this before. No one really knows what powers he has. In fact, you might be much more powerful than everyone realizes. If nobody objects . He might be the one who has to take the arrow for the rest of the republican conference, cut a deal, and then you can have the leadership election for speaker, because otherwise, you know, as we were just discussing, i dont know how they get to a deal on the budget. The very detail that caused kevin mark are the to lose his job, that is the same deal that the new republican leader its not like theres going to be radical change. Jerry, what would you say to investors here. . Im not sure which investors and even talking about. Right . If theres treasury of esters who are worried about the deficits. Theres investors and all sorts of policy areas that could to potentially be affected by this. What jumps to the forefront of your mind . [inaudible] any other legislation done until the lame duck. If theres a bill you are worrying about, that work can be a lot less. The possible exception is flood insurance. There has to be a deal on flood experience. I cant believe we are really going to shut down 9000 mortgage closing the week after november 17th. But beyond a couple of few things, i would essentially view this congress as closed until after the election. What further implications do you see from that . I think, first of all theres one big one that does not affect the markets directly but that i think is very important, which is aid to ukraine. It will be hard in this environment. That is an important priority. It saying out there is a big question mark. The idea you are going to have some kind of a coming together now, as you have it had in the past decades, having a sensible package that addresses the deficit with that creating shockwaves. That has been done in washington periodic over the last two decades. I just dont see how it happens in this environment. If anyone is looking for sensible fiscal policies to come out of this scenario, in this picture that we are talking about, will be sorely disappointed. That is the thing that would worry me. How do you resolve very important issues in a time when that does matter to the markets . I dont see it happening. Fair enough. Jared, last word. Go ahead. I was just going to say if i could ask [inaudible] dont forget whats looming on the horizon. All of the trump tax cuts, all of the key ones for business, as soon as those start expiring in 2025, so someone will have to get the money to fund that, and we will need both sides of the aisle to come together on that. If we cant even fund the government, i do think the risk of what is going to have been to all those tax cuts is much higher than the market is taking. Guys, thank you both. We appreciate your thoughts today and a hectic 24 hours in washington. Its not over yet. Jared seabrook and jerry sides. Appreciate very much. Coming up, the ten year yield on the back of all of this. 16 year highs this morning. Which companies are most at risk of soaring borrowing costs . Thats coming up next with our trader warning of new payments on the way. Plus, comes after a decade long boot in credit, but are those companies similarly at risk of higher than expected default . We will speak with the head of Morgan Stanleys private credit business about the sectors and criteria their landing two in tight environments. As we head to break, use [inaudible] as the games are evaporating. Up seven points, but the s p has a bit more margin much bigger margin for the nasdaq. The [inaudible] lower than three points at the ten year yields have pulled back to [inaudible] the exchanges back after this. In the u. S. We see millions of Cyber Threats each year. That rate is increasing as more and more businesses move to the cloud. So, the question is. Cyber attack as cyber criminals expand their toolkit, we must expand as well. We need to rethink. Next level moments, need the next level network. [speaker continues in the background] the network with 24 7 builtin security. Chip . 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What names should you stay away from and where are the best opportunities . Joining me now is gene at sanchez, the Market Strategist and this is three bails and a buy, because with rising rates they are vicious. Welcome. Lets start with the this isnt really a stop, what an important want to highlight because some people have been bottom fishing right out. 16 since july. I heard its lost half its value from the highs, but you would still not be a buyer of this long treasury bond would . You know we wouldnt. We are looking, you know, the yield curve has been inverted for so long. Predicting a recession that just wont come. Even though we will probably get a bit of a slowdown, at the end of the day the short and is not coming down. That means in order to get a normal yield curve, has to come up and it hasnt done so yet. It still has to continue to [inaudible] price in at least some semblance of growth, and probably slightly higher permanent inflation than we are used to. Other factors that will keep inflation a little higher than we have gotten used to. That long and has a lot more pain to go. Thats kind of the perfect back drop to segue into some of your stocks, which could be under pressure as a result, namely ford. A lot of people talking about this because of the union strikes. Down more than 20 since the summer. They also have a high debt load. The problem with ford is theyve taken quite a bit of debt during the pandemic. A third of that death is coming due in the next 12 months. That is a big chunk of debt to have to refinance at significantly different rates. So profitability is already under pressure. They are having a lot of issues with getting their ev game on. The strikes do not help. Theres a lot of issues pushing the business. On top of that, higher yields for a third of its debt load. That is a big challenge. I think its a good example of Companies Whose debts are about to come do . Be careful with those. But that has been plaguing the company for a very long time, and its like the worst possible time for it to be coming to a head. Speaking of that is your next stop. Also getting a lot of attention. Down nearly 60 over the past three months because of this pressure, and it hit alltime lows yesterday. So its under a four dollar stock at this point. The problem with pepco is that they have a problem with floating rate debt. Its not like a bunch of fixed rate debt that you can [inaudible] and profitability is under pressure. We are seeing them drive down on profitability. I think they will remain under pressure regardless of how resilient you think the Cat Food Market is. This company will have continuing troubles for buying profitability, and in a higher Interest Rate environment you dont get great multiples. So you have to perform. You have to be profitable. This is going to be a challenge. Yeah. This feels like a market [inaudible] doesnt matter if you are in the pet food market, its just the Balance Sheets [inaudible] so the one you would be buying is costco. 24 this year. We know its a stalwart business, but you would think especially in this tough rate environment. Yeah. This is a company that has a whistle clean Balance Sheet. This is a company that probably has more cash than that right now. That is huge. Cash is king when Interest Rates are going up. On top of that, this is also a company that is very defensive. Its the kind of company you want to own in a slowdown, when people are feeling tight. If you look just today, or yesterday, we saw a [inaudible] stat that came out of the fed showing the sort of lowest socioeconomic sectors of the economy are more or less out of savings. That is to say that they are going to have a hard time paying basic costs. Costco is where you go when you are trying to save money. P e nearly 37. Incredible, but again they are being rewarded for having the kind of right choices. Gina, thank you so much for your time today. We appreciate it. Thank you, kelly. Three balls and a buy. Jean sanchez. Coming up, a Welcome Break for consumers with oil falling more than 3 today. Now down 8 from last week, 95 dollar recent big. We will look at what is driving prices lower at what opec is signaling after wrapping up its Virtual Meeting today. For investors, a drop in crude is dragging the Energy Sector lower. It is the worst performer in the s p followed by utilities, which are now at the lowest level since summer of 2020. The exchange is back after this. This. Down the citi custom cash® card automatically adjusts to earn you more cash hi. You dont have to keep tabs on rotating categories. This is the only rotating i care about. Or activate anything to earn. Your cash back automatically adjusts for you. Can i get a cucumber water . Earn 5 cash back that automatically adjusts to your top eligible spend category, up to 500 spent each billing cycle with the citi custom cash® card. I love it. This is american infrastructure, a prime target for cyberattacks. But the same aipowered security that protects all of google also defends these services for everyone who lives here. Somebody would ask her something and she would just walk right past them. She didnt know they were talking to her. I just could not hear. I was hesitant to get the hearing aids because of my short hair. But nobody even sees them. Our nearly invisible hearing aids are just one reason weve been the brand leader for over 75 years. When i finally could hear for the first time, i could hear everything. Try miracleear hearing aids with no commitment during our limited time sounds of autumn event. Call 1800miracle now. Welcome back to the exchange. Crude oil is back below 85 a barrel almost, as the selloff deepens today. Its down almost 5 . Biggest one day drop since june. Gasoline futures also under pressure, down more than 6 . In fact, at their lowest level of the year right as opec has wrapped up its Virtual Meeting today. Brian sullivan is here with the latest. Those opec have something to do with it . These are pretty big declines. Isnt it amazing . At least on paper, there are 3. 3 Million Barrels a day of cuts. 2 million from opec. We know its not the actual number because some countries dont meet their quota. 1 million extra from saudi arabia and 300 extra as a cherry on top from russia. Still, weve got these extended cuts throughout the end of the year, and maybe longer, and the price of oil is down today, but lets also not lose sight of the fact that oil is 40 higher than it was 40 years or four years ago. So we knew that opec had been keeping barrels of the market, the saudis in particular have been keeping the price high, but i guess they had two options. They could either increase the cuts because they think that oil is going down, and just help me out, brian. Its like the new math when you have kids and they change division. What happened to the remainder . I dont know. So opec is worried about a recession. Okay . They will say they dont target prices. We can disagree on that, whatever. They are worried about recession, about china. You look at chinese demand, its not really recovered. Gasoline demand in america, by the way . The data that came out about an hour ago . It shows i think some of the lowest of the year. Really . You wonder if that signals something. That aside, oil is still high. Gasoline in california on average according to aaas 5. 97. Wow. Opec is setting the stage, this was a Virtual Meeting, for the inperson meeting on november 26th. The sunday after thanksgiving. Thank you, opec because we are going to be there, i think. We will see if we can get out of the family obligations. So they are setting the table. Theres a lot of geopolitical stuff going on with the normalization between saudi arabia and israel. That is massive. How does iran react to that if and when it happens . According to u. S. Data, kelly, we are 12. 9 billion barrels a day. The record high was 13, although traders i talked to say they dont really trust the numbers because they think theres other liquids thrown into the pure oil. It would be nice if we had seen the highs for the year for consumers. Granted, i dont mean this for Energy Investors obviously, but they can do well with oil roughly in this range. What you dont want to see is the price spikes. We are a ways from it, but heading in that neighborhood. Prices go up. People are going to drive less. Especially out west. Seattle . San francisco . Los angeles . The prices there are easily over 6. You dont buy gas right off the interstate, that is where its most expensive. Opec will say they are trying to manage and balance out the market for what they see. You can dislike it but i will tell you what, opec in some ways has been right. Everybody thought china was going to come blasting out of covid and they were just going to start driving everywhere and flying everywhere. They are not. David zervos would probably be perfect for this. David, come back why isnt the China Economy recovering the weight many thought it would . Thats a big question. Lets throw up the graph again. Utilities by the way, [inaudible] not exxon, excellent, which is an excellent on. They are a huge utility in the midwest. Mark fischer, big oil guy, last call seven pm. We have so much more to talk. Thats why you have the whole show. Thank you so much. [inaudible] lets get to Tyler Matheson for cnbc news update. Tyler . Uruguay, paraguay and argentina will each post an opening match to celebrate the 100 years since the first world cup. Spain, portugal and morocco will then cohost the tournament. The first game of the tournament is in uruguay. It will be hosted in the stadium that held the tournament of the first ever final back in 1930. Uber is now offering to return your packages for you. Both hubert and uber eats will provide a return package feature that will allow customers to send up to five packages back to a u. P. S. , fedex, or usps location. The Service Costs a flat fee of 5, and 3 for uber one members. Its available in dozens of major metro areas across the country. And just in time for halloween, a steep rise and the price of cocoa and sugar are set to hit lovers of candy. Sugar prices hit their highest level in 12 years recently. Cocoa reaching a four decade high. The increase is being driven by supply figures, extreme weather conditions in asia and west africa, threatening production, kelly. Then i am handing out candy corn. Tyler, thank you. Tyler matheson. Coming up, i share what you had Corporate Bond etfs summing up and hovering near its lowest level of the year, as yields surge among concerns about rising defaults. Does that put the private credit industry at risk as well . We will ask Morgan Stanleys head of private lending about that next. Together, we built something truly beautiful. It takes years of dedication to get to this milestone. The New York Stock Exchange is a symbol of what america is all about, the potential of an american dream. It is day one. A lot of work has happened to lead to this historic moment. The only way you can move a Society Forward is a true expression of freedom. You got this. Lets go. Gobble gobble. Ive seen bigger legs on a turkey rude. Who are you . Im an investor in a fund that helps advance innovative sports tech like this Smart Fitness mirror. Im also mr. Leg day. 1989 anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq100 innovations. I go through a lot of pants. Before investing carefully read and consider Fund Investment objectives, risks, charges, expenses and more in prospectus at invesco. Com. Dad, we got this. We got this. We got this. We got this. Life is for living. We got this. Lets partner for all of it. Edward jones welcome back to the exchange. The private credit industry exploded during the era of ultra low Interest Rates. According to data from the Global Private credit mark has tripled just since 2015, and is expected to grow to 2. 3 trillion dollars in the next four years. It has also become an important source of capital and private equity and not recognized as an alternate investment, gaining popularity in investor portfolios. But could the industry face steeper than expected losses amid soaring Interest Rates . My next guest says no. Hes coed a private credit at Morgan Stanley investment. Welcome to you. Good to be with you. Private credit for a lot of people sounds complex and complicated. What are we talking about exactly . At its core its really the lending function broken down into a direct relationship between the lender slash investor, and the borrower. You have a bilateral negotiated deal that each party agrees to it gets [inaudible] the reason why we think it makes a lot of sense is you have the time to do your underwriting and put in place loan agreements with times your constable with. What proportion of the debt is floating . Most of it. I would wager a yes, close to 90 if not more. That would be great for the investors if floating rates were going from six to 8 or something. Now i wonder, this week especially, if rates are getting so high that we are starting to see investors flip and worry about defaults. We used petticoat as one example. [inaudible] how much of a default problem could the industry be facing it yields stay where they are for a lot of these companies . Thats a great question. If this one we are focused on. Ultimately, it will depend upon where the economy goes. If you think about it, most of the private credit lending is at the top of the bounce sheet. The most secure part in the [inaudible] most often you have other Institutional Investors alongside you, equity, subordinated debt, et cetera. You tend to be in a spot where incentives are aligned, and Everyone Wants to work toward an outcome. That being said, the closest proxy to a default cycle is tracking middle market loan data going back 15 years. What we have observed is, when you look at the data, its actually tended to perform better than indicators and public credit. Thats a function for a few factors, but that is what the data suggests. Very few people in the Public Market or broadly speaking have been through a [inaudible] in their careers. Now the entire industry is about to be tested by an expense its never been through before. [inaudible] not in the form that it is today. It was a sort of niche industry. It has scaled. Its got an investor appetite and allocation. That is generally a good thing because you want more sources of capital at the table. Lending occurred of course, always in private markets, but not at the scale we are seeing today. So what do you think the next six or 12 months look like . As you said, so much depends on the economy. If Companies Start to run into trouble [inaudible] i guess at some point they could come to the bank and try to work it out. What happens in this case . How does that adjustment work if one needs to be made . I think you will find that 99 of the time that people tend to be rational about what needs to get done. Theres a few options you can build down. Usually, proactive management is the way you do it by raising incremental capital. It equity, structured equity, some kind of structured solution. Theres a large and growing market for that as well. Asset sales, cost of litigation, we are focused on the front foot investing into the environment, but we have portfolios to manage and that is topic number one for all portfolio companies. Where do you feel most comfortable still extending credit . In the most sectors. Height Free Cash Flow generation, typically asset light industries, because they dont [inaudible] so we have a tremendous amount of operating earnings to cash flow conversion, and that will remain the case because it gives you a buffer when things go sideways. That is what we always underwrite also. Does that mean Technology Asset light . Or is technology a big part of this . Yes. Software. Long predictable contracts. A lot of Free Cash Flow. Business services. Insurance brokerages. Typically assets and companies where there has been a good amount of private Credit Capital formation. That would lead you to believe that the default outcomes would also be reasonably robust. Absolutely. We really appreciate you coming in to talk to us about it today. An interesting juncture i would say for this whole industry. We appreciate your time. Thank you. Still ahead, the dow negative by eight points again. Now on track for a four day losing streak, but the nasdaq clocking the biggest gain. We were just talking about software. Its about up about three quarters 1 . Tesla is one of the best performers on the nasdaq 100 today as well. Morgan stanleys adam jonas reiterating [inaudible] but warning Sales Numbers to show teslas ev market share is falling and now sits at less than 50 . We wl t ilgea check on that and other big movers next. Ah, these bills are crazy. She has no idea shes sitting on a goldmine. Well she doesnt know that if she owns a Life Insurance policy of 100,000 or more she can sell all or part of it to coventry for cash. Even a term policy. Even a term policy . Even a term policy find out if youre sitting on a goldmine. Call Coventry Direct today at the number on your screen, or visit coventrydirect. Com. Welcome back to the exchange. Dow is negative just by six points. High, 130 positive, low 130 negative. S p up 12 points. Nasdaq driving the gains. Tesla is helping with that. Still ahead, crude oil lower today and down 9 . Carter werth warned that drop was coming saying he wasnt buying the street hype that the dollar yields and oil could keep moving higher. Moving higher. Crude is the fstir to drop, ar when the day that lies ahead of me seems impossible to face yields next . Hell tell us after the break. a lovely day lovely day lovely day lovely day a bank that knows your business grows your business. Bmo. A bank that knows your business grows your business. Every day, businesses everywhere are asking is it possible . With comcast business. It is. Is it possible to help keep our Online Platform safe from cyberthreats . Absolutely. Can we provide health care virtually anywhere . We can help with that. Is it possible to use predictive monitoring to address operations issues . We can help with that, too. With the advanced connectivity and intelligence of global secure networking from comcast business. Its not just possible. Its happening. When you think of investment risk, do you consider climate risk . Changing weather patterns are impacting the way we live and the value of businesses large and small. This can mean disruption to supply chains, changing demand for products and shifting regulation. What does this mean for your business, your clients, and your investments . Ice offers data and markets that can provide critical insight. Manage your climate risk with ice. Welcome back to the exchange. Yields testing new 2007 highs today while the dollar sits at year highs but my next guest isnt buying the hype on either, saying both are due for a pull back. Carter, great to see you again. Welcome. I was going to say but maybe you were going to say it for me. Which one do you have the most conviction about right now . Well, i think in tandem rates surging, oil surging, dollar surging. Its about sequencing. T when something is overdone. Usually its right to be on trend, to respect trend, but we have a circumstance and youre seeing it now in oil market. First where everyones on one side all the of a sudden, we 10 nowhere. Its the same set up in may, june. Oil was at 65 a barrel. It was consensus. Were going a lot lower. Recession, hard landing, then were going to 100. Oils got much more to go. So i think when you get so much crowding and sequence calls for a countertrend try to play for it. So that brings up yields and the dollar. Its the same thing. Think in may, june, right in there, the dollar was basely at 52week lows. Rates were at 3. 5. Hard landing. Whether its to the downside or upside, one should try and my judgment is timing here is to be buying bonds and to be fading the dollar. So this all to you is related. Meaning a lot of fundamental people would say the same thing. You see yields falling, dollar falling, oil falling. What else, how does that fit in with, i know all year, weve talked about the stock market and this kind of strange liftoff we saw in the first half and youd probably also say its decline fits with this pattern as well. The real question, this happens all the time with clients, if youre thinking the dollar rules here, youve got to be in the stock market. The thing about relationship, theres inverse relationships and there are direct relationships and theyre not always quite as sort of perfect as one would think. Lets take this. For instance, if theres a perfect inverse relationship between crude and the dollar, the dollars surging over the last five month, crude should be down. Yet crude was rallying. These things are good until theyre not. Even here on the chart on the dollar thats on the screen, thats a steep and uncorrected intermediate move and countertrend moves, whether going up or down, are part of charts and investing. Quickly, because i cant resist sneaking this in in the last five seconds we have. Are you in the kind of year end stock market rally camp . No, i think you can get which is the real issue, you can have lower rates. Ah, you were building up to that and i didnt even let you. Carter, at least we got it in. Thank you so much for your time today. Carter worth of worth charting. Something to ponder. Weve been following this story all week in the largest Healthcare Strike in history. 7,000 Kaiser Permanente workers are on strike as negotiations are ongoing. This is a live picket line in san diego. The strike is expected to last just three days. In its latest release, the coalition of unions says in recent days, executives maintaining aggressive threats of outsourcing became a Sticking Point in negotiations. Especially at a time when the company is failing to retain key employees. In a year of many historic first, heres another one of them. That does it for the exchange, everybody. Stick around for more analysis on the markets and economy. You can sign up for my newsletter. And next on power lunch, an apple downgrade at key bank. Weve got the analyst behind the call with the nasdaq outperforming today, actually. Tile tylers getting ready. Ill join him on the other side of the break. Welcome to power lunch, everybody. Literally alongside kelly evans for a change. Coming up, theres one main market issue right now and that is the sudden rise in bond yields and the impact it is having on the markets. We will look at all the angles of how this move impacts your money and your investments. And lets take a look at stocks right now because the dow has given up its gains. Were down