Bloomberg Audio Studios, Podcasts, radio News.

Bloomberg Audio Studios, Podcasts, radio News.

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. We begin with our top story, hot US data pushing out rate cuts the Fed's preferred inflation gauge due on Friday, Michael O'Rourke of Jones Trading saying this, financial markets are at an inflection point. The Fed's overestimation and overconfidence as to how restrictive policy is has fueled easy financial conditions and excessive risk taking while fostering easing expectations. Michael joins us now for more So Michael bears FETA site by still on that.

This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. We begin with our top story, hot US data pushing out rate cuts the Fed's preferred inflation gauge due on Friday, Michael O'Rourke of Jones Trading saying this, financial markets are at an inflection point. The Fed's overestimation and overconfidence as to how restrictive policy is has fueled easy financial conditions and excessive risk taking while fostering easing expectations. Michael joins us now for more So Michael bears FETA site by still on that.

Yes, yes, definitely fair to say. I mean I think you've touched it, even when you talk about that ten year yield potentially going to five percent right now, For the past three weeks, the ten year yield has been higher than the S and P five hundred earning yield, even though the S and P five hundred is corrected six percent over that time, that relationship has stayed the same because yields have continued to rise. And that just shows you have a risk free instrument offering you a very attractive return versus risky instruments and equities that are pretty expensive.

Yes, yes, definitely fair to say. I mean I think you've touched it, even when you talk about that ten year yield potentially going to five percent right now, For the past three weeks, the ten year yield has been higher than the S and P five hundred earning yield, even though the S and P five hundred is corrected six percent over that time, that relationship has stayed the same because yields have continued to rise. And that just shows you have a risk free instrument offering you a very attractive return versus risky instruments and equities that are pretty expensive.

JRO downside five five percent from the old time heighst of match. How much down sound are you to can fall?

JRO downside five five percent from the old time heighst of match. How much down sound are you to can fall?

I think there's a lot of potential. I'm not gonna sit there and say, you know, I can't put a number on it because a lot of it's driven by financial conditions. Right, We've had this easy financial condition environment that has basically fostered equity prices fawted ascer prices across the board. Even the FEDS Financial Stability Report released on Friday talked about how equity valuations are high, historically high, how credit spreads are tight. But if that relationship between treasury yields and earnings yields, it's traditionally the equity you know, the SP five hundred earns yield over the seven years prior to the pandemic was about average three hundred and forty basis points over treasury yields. Even to just get a third of that back, the S and P five hundred would drop twenty percent. And that's the type of risk we're talking about here that I'm not saying we're going right back to that relationship. It just gives you an idea of how expensive stocks are relative to bonds.

I think there's a lot of potential. I'm not gonna sit there and say, you know, I can't put a number on it because a lot of it's driven by financial conditions. Right, We've had this easy financial condition environment that has basically fostered equity prices fawted ascer prices across the board. Even the FEDS Financial Stability Report released on Friday talked about how equity valuations are high, historically high, how credit spreads are tight. But if that relationship between treasury yields and earnings yields, it's traditionally the equity you know, the SP five hundred earns yield over the seven years prior to the pandemic was about average three hundred and forty basis points over treasury yields. Even to just get a third of that back, the S and P five hundred would drop twenty percent. And that's the type of risk we're talking about here that I'm not saying we're going right back to that relationship. It just gives you an idea of how expensive stocks are relative to bonds.

I love this.

I love this.

Everyone who comes on the show today seems to think we're at an inflection point. Bob Michael also seeing a potential inflection point, but in the opposite direction, a potential opportunity to buy.

Everyone who comes on the show today seems to think we're at an inflection point. Bob Michael also seeing a potential inflection point, but in the opposite direction, a potential opportunity to buy.

Why is this.

Why is this.

Inflection point in your view, going to inflect more negatively?

Inflection point in your view, going to inflect more negatively?

Well, because, okay, you look at the earning situation we have earning season TOMP. We're talking about all the big earnings this week, right, Earnings this quarter is supposed to be basically sequentially flat versus Q four almost flat year of year. The big bump in earnings is supposed to come in Q two, three and four, where aggregate earnings are supposed to rise sixteen percent. Now we're analyst forecasting sixteen percent earnings jump for those three quarters in a five point three seventy five percent fed funds environment. You know, we're not getting the rate cuts we expected. We're not getting what the catalyst that should drive things. And you know, going forward in the economy, we've had an incredibly strong economy and a lot of that is fiscal monetary stimulus from the pandemic playing out of the past couple of years. So again, to expect that type of jump in earnings, it's pretty aggressive. And if you don't get that, then you realize how expensive this tape is.

Well, because, okay, you look at the earning situation we have earning season TOMP. We're talking about all the big earnings this week, right, Earnings this quarter is supposed to be basically sequentially flat versus Q four almost flat year of year. The big bump in earnings is supposed to come in Q two, three and four, where aggregate earnings are supposed to rise sixteen percent. Now we're analyst forecasting sixteen percent earnings jump for those three quarters in a five point three seventy five percent fed funds environment. You know, we're not getting the rate cuts we expected. We're not getting what the catalyst that should drive things. And you know, going forward in the economy, we've had an incredibly strong economy and a lot of that is fiscal monetary stimulus from the pandemic playing out of the past couple of years. So again, to expect that type of jump in earnings, it's pretty aggressive. And if you don't get that, then you realize how expensive this tape is.

And do you see this idea of a sell off in stocks that comes along with an ongoing sell off in bonds sort of something that continues the divergence that you were talking about with a ten year treasure yield being above the S and P five hundred earning shield.

And do you see this idea of a sell off in stocks that comes along with an ongoing sell off in bonds sort of something that continues the divergence that you were talking about with a ten year treasure yield being above the S and P five hundred earning shield.

Yeah, well, if you go back, you go back to the nineties and and you know, probably the earlier two thousands, the old saying was, you know, stocks follow bonds, right, If treasure yields were coming down on that big bond bow market, stock's rallied, right because they're competing with each other for assets for investment assets. So now we're seeing treasure yields rise and basically, which is mean bonds are going down and stocks should be following bonds lower here from a price perspective to keep that earning deal for the S and P five hundred somewhat competitive with with the risk free instrument and treasuries, and we just haven't really seen that yet except in the last three weeks. We've seen this dip, but they've moved together.

Yeah, well, if you go back, you go back to the nineties and and you know, probably the earlier two thousands, the old saying was, you know, stocks follow bonds, right, If treasure yields were coming down on that big bond bow market, stock's rallied, right because they're competing with each other for assets for investment assets. So now we're seeing treasure yields rise and basically, which is mean bonds are going down and stocks should be following bonds lower here from a price perspective to keep that earning deal for the S and P five hundred somewhat competitive with with the risk free instrument and treasuries, and we just haven't really seen that yet except in the last three weeks. We've seen this dip, but they've moved together.

Do any of these relationships still stand or have we broken all of these?

Do any of these relationships still stand or have we broken all of these?

No?

No?

Well, so that's that's interesting.

Well, so that's that's interesting.

If you go back to late nineties, the treasure you know, the treasure yield was the earning five hundred, earning deal was consistently lower than the treasure yield, but that was a that was you know, during the Great Moderation, as as inflation was you know, coming down you know, for basically decades at that point, and bonds were just you know, cautious and investments were late to follow. This is the inverse situation where we're seeing inflation is more sticky. We're seeing a structurally different economy than we've from two thousand to twenty twenty.

If you go back to late nineties, the treasure you know, the treasure yield was the earning five hundred, earning deal was consistently lower than the treasure yield, but that was a that was you know, during the Great Moderation, as as inflation was you know, coming down you know, for basically decades at that point, and bonds were just you know, cautious and investments were late to follow. This is the inverse situation where we're seeing inflation is more sticky. We're seeing a structurally different economy than we've from two thousand to twenty twenty.

You say that the Fed policy does not need to change this point, but communication does. What are they getting wrong when they're speaking to the market.

You say that the Fed policy does not need to change this point, but communication does. What are they getting wrong when they're speaking to the market.

Well, I think they're just taking what they're seeing in front of them, and they're they're being overconfident in what they're seeing. So in twenty twenty one, the story was it's transitory, and we heard that for a year. When the Fed finally raised interest rates, core PC had actually peaked in February of twenty twenty two. You know, the Fed raised rates in March, and they finally ended QE in March. They were late and they were too confident too long. So for since last summer, we've heard policies restrictive. Policy is restrictive, but it hasn't been. In Q three, we put up a five percent GDP print. At that point, the Fed has to go back to themselves and say we're missing something in this economy. And they instead of doing that, they continue to say policy is restrictive, and they keep this estimate of the long term you know, long term FED funds rate down at two and a half percent, which is only a fifty basis point, you know, real neutral rate. Whereas even the New York Fed's dsg MO has it at two percent. So they're basically going off of a you know, a forecast that interest rates are going back to lower levels, or the markets taking their forecus they don't actually even believe it anymore, and saying, oh, this is where going in the future, so we can keep equity evaluations inflated a little bit higher.

Well, I think they're just taking what they're seeing in front of them, and they're they're being overconfident in what they're seeing. So in twenty twenty one, the story was it's transitory, and we heard that for a year. When the Fed finally raised interest rates, core PC had actually peaked in February of twenty twenty two. You know, the Fed raised rates in March, and they finally ended QE in March. They were late and they were too confident too long. So for since last summer, we've heard policies restrictive. Policy is restrictive, but it hasn't been. In Q three, we put up a five percent GDP print. At that point, the Fed has to go back to themselves and say we're missing something in this economy. And they instead of doing that, they continue to say policy is restrictive, and they keep this estimate of the long term you know, long term FED funds rate down at two and a half percent, which is only a fifty basis point, you know, real neutral rate. Whereas even the New York Fed's dsg MO has it at two percent. So they're basically going off of a you know, a forecast that interest rates are going back to lower levels, or the markets taking their forecus they don't actually even believe it anymore, and saying, oh, this is where going in the future, so we can keep equity evaluations inflated a little bit higher.

We start hearing some FED officials talk about whether or not they are actually restrictive though, and Michelle Bowman last week said we're restrictive, but we might not be sufficiently restrictive.

We start hearing some FED officials talk about whether or not they are actually restrictive though, and Michelle Bowman last week said we're restrictive, but we might not be sufficiently restrictive.

What's the difference, Oh, it's massive, because if you're underestimating or if you're overestimating how restrictive you are, then you're making a policy mistake because policy is far looser than you believe it to be. So that is why, you know, for the past three quarters, if you include what this Q one is going to look like, we've put up, I think we've averaged GDP about three point six percent, which is double the fed's long term forecast of US potential GDP. It's funny Chairman Powell talks about their risks being balanced. Now if you go back to pre pandemic, when we had one hundred. You know, one point eight percent core PCE. The FED was willing to do anything to push inflation up to two percent, and micro manager there here we're at two point eight percent PCE. We're talking about things being balanced. Meanwhile, the unemployment rates three point eight percent, which is thirty basis points lower than the Fed's long term target're at a four point one percent, So we're still in an inflationary environment per the guidance they give, per their models, per their forecast. But they don't talk about like that. All they've talked about for the past six months is cutting rates until the past couple of weeks.

What's the difference, Oh, it's massive, because if you're underestimating or if you're overestimating how restrictive you are, then you're making a policy mistake because policy is far looser than you believe it to be. So that is why, you know, for the past three quarters, if you include what this Q one is going to look like, we've put up, I think we've averaged GDP about three point six percent, which is double the fed's long term forecast of US potential GDP. It's funny Chairman Powell talks about their risks being balanced. Now if you go back to pre pandemic, when we had one hundred. You know, one point eight percent core PCE. The FED was willing to do anything to push inflation up to two percent, and micro manager there here we're at two point eight percent PCE. We're talking about things being balanced. Meanwhile, the unemployment rates three point eight percent, which is thirty basis points lower than the Fed's long term target're at a four point one percent, So we're still in an inflationary environment per the guidance they give, per their models, per their forecast. But they don't talk about like that. All they've talked about for the past six months is cutting rates until the past couple of weeks.

So why should I just buy stocks? There's nice sign of them hiking anytime soon. Growth is good, inflation sticky top li like grud it's going to be settled off the back of that. Why wouldn't I be a bye head? Well, it's funny.

So why should I just buy stocks? There's nice sign of them hiking anytime soon. Growth is good, inflation sticky top li like grud it's going to be settled off the back of that. Why wouldn't I be a bye head? Well, it's funny.

I know when you guys had Torston slocking and Tom King talks about he talks about it's a GDPGE driven event, and he is he is right about that, and that is that is something I agree with. I think the risk here is we've had so many people chasing these rate cuts chasing these these higher valuations that I think we're due for that correction at this point as long as these treasuryelds continue toize. If Treasury you'll stabilize, you will start to reevaluate. But once that risk free instrument starts to become more attractive, I think you do for an equity correction.

I know when you guys had Torston slocking and Tom King talks about he talks about it's a GDPGE driven event, and he is he is right about that, and that is that is something I agree with. I think the risk here is we've had so many people chasing these rate cuts chasing these these higher valuations that I think we're due for that correction at this point as long as these treasuryelds continue toize. If Treasury you'll stabilize, you will start to reevaluate. But once that risk free instrument starts to become more attractive, I think you do for an equity correction.

Very close to five percent this morning on a two year four ninety eight sixty four, Michael enjoyed. It's good to see it. Thank you too long. It's like years in person since we've done this. Michael Rock there, Thank you, sir, Tasnim gil wadwella following the impact of those and more as City Commercial Bank Cantantinim, I please to say join us now for more Tasdin waterfol to catch up with you. I can just say a little bit about our travels. We've just got back to New York from Washington, d C. We spent a week. We thought we were going to spend a week at least talking about the economy, and what we met was a load of economists who were national security experts now Tans and I just wonder from your perspective whether you can speak to some of the trends that you've seen evolve that might speak to that worries over what's happening between China and the US, the US and maybe other countries too.

Very close to five percent this morning on a two year four ninety eight sixty four, Michael enjoyed. It's good to see it. Thank you too long. It's like years in person since we've done this. Michael Rock there, Thank you, sir, Tasnim gil wadwella following the impact of those and more as City Commercial Bank Cantantinim, I please to say join us now for more Tasdin waterfol to catch up with you. I can just say a little bit about our travels. We've just got back to New York from Washington, d C. We spent a week. We thought we were going to spend a week at least talking about the economy, and what we met was a load of economists who were national security experts now Tans and I just wonder from your perspective whether you can speak to some of the trends that you've seen evolve that might speak to that worries over what's happening between China and the US, the US and maybe other countries too.

Yes, of course, thank you, Fusley, thank you very much for having me. It's a real pleasure to be here. So, I mean, definitely, we are seeing a lot of activity with our clients as they try to navigate the environment, which just seems to be getting more and more intense on the macros, around inflation, around interest rates which are proving to be definitely higher for longer, and clients eagerly awaiting when the cuts are finally going to come. But you know, as you just mentioned, on the political side as well, lots of things for our clients to navigate.

Yes, of course, thank you, Fusley, thank you very much for having me. It's a real pleasure to be here. So, I mean, definitely, we are seeing a lot of activity with our clients as they try to navigate the environment, which just seems to be getting more and more intense on the macros, around inflation, around interest rates which are proving to be definitely higher for longer, and clients eagerly awaiting when the cuts are finally going to come. But you know, as you just mentioned, on the political side as well, lots of things for our clients to navigate.

Desnim how much has this actually altered the view for mergers and acquisitions who are speaking with Bank from America's CEO Brian moynihan, and he said, it's very difficult for companies to get any conviction to buy another company or merge at a time or a lot of things are being rejected the name of national security concerns, the name of antitrust, the name of whatever. You can't predict it Are you seeing the same thing among your clients.

Desnim how much has this actually altered the view for mergers and acquisitions who are speaking with Bank from America's CEO Brian moynihan, and he said, it's very difficult for companies to get any conviction to buy another company or merge at a time or a lot of things are being rejected the name of national security concerns, the name of antitrust, the name of whatever. You can't predict it Are you seeing the same thing among your clients.

Yeah, it's it is a very very difficult time on the deal deal front for companies to you know, go about and although we are seeing some deals closed, you know, we've had some cell side opportunities at City and some of our clients you know, have have been able to go through the cycle, but you know, lots of things in the way exactly as you mentioned, and also with the high interest rates, you know, capital to fund the acquisitions. Also, you know, another factor that is proving to be a sticking point for our clients that you know, it's not cheap anymore to buy another company. You've got to, you know, make sure that it's really worth it, that the valuation you're not going to overpay, and the valuations are going to be there to see you through kind of the medium in the long.

Yeah, it's it is a very very difficult time on the deal deal front for companies to you know, go about and although we are seeing some deals closed, you know, we've had some cell side opportunities at City and some of our clients you know, have have been able to go through the cycle, but you know, lots of things in the way exactly as you mentioned, and also with the high interest rates, you know, capital to fund the acquisitions. Also, you know, another factor that is proving to be a sticking point for our clients that you know, it's not cheap anymore to buy another company. You've got to, you know, make sure that it's really worth it, that the valuation you're not going to overpay, and the valuations are going to be there to see you through kind of the medium in the long.

Term, a lot of people are talking about this week is a pivot point. We're going to get the earnings of one hundred and seventy eight of the S and P five hundred companies.

Term, a lot of people are talking about this week is a pivot point. We're going to get the earnings of one hundred and seventy eight of the S and P five hundred companies.

You focus on our whole host.

You focus on our whole host.

Of smaller banks and smaller excuse me, smaller companies that have individual challenges and might have an even better view in terms of the direction of travel of both economic strength and inflation. Are the signs that you're seeing consistent with this general feeling that we're going to get a no landing with inflation that's going to run hot for the foreseeable future.

Of smaller banks and smaller excuse me, smaller companies that have individual challenges and might have an even better view in terms of the direction of travel of both economic strength and inflation. Are the signs that you're seeing consistent with this general feeling that we're going to get a no landing with inflation that's going to run hot for the foreseeable future.

So, I mean, I think one of the things that I think is interesting that we're seeing with our clients is that their ballot shoots are actually really, really quite strong. For the vast majority of our clients, we've been supporting them as they think about diversifying. You know, although the environment is very tough, I think it's also posing quite a lot of opportunities for clients as well. You know, they're really thinking very very strongly about their supply chains and how they make them more resilient, how they secure, you know, make them very very secure as well. And I think, you know, things like near shoring, things like diversifying the funding environment for our supply chain. I think these are the opportunities that our clients are kind of playing into. So I think it's not all doom and gloom. Quite frankly, where our clients are concerned.

So, I mean, I think one of the things that I think is interesting that we're seeing with our clients is that their ballot shoots are actually really, really quite strong. For the vast majority of our clients, we've been supporting them as they think about diversifying. You know, although the environment is very tough, I think it's also posing quite a lot of opportunities for clients as well. You know, they're really thinking very very strongly about their supply chains and how they make them more resilient, how they secure, you know, make them very very secure as well. And I think, you know, things like near shoring, things like diversifying the funding environment for our supply chain. I think these are the opportunities that our clients are kind of playing into. So I think it's not all doom and gloom. Quite frankly, where our clients are concerned.

Is that near shoring due to the market or because of policies and you know, this urge by certain governments.

Is that near shoring due to the market or because of policies and you know, this urge by certain governments.

I think it's a bit of both. I think, you know, on the supply chain side, I think clients are trying to address things like logistic costs, like ensuring that you know, their goods actually get there there's no delays, and manage it from a kind of a cost and to get a security right. And then of course there's the incentives as well. You know, last week I was in Mexico where I actually saw this, the whole phenomena of near shoring, like with my own eyes. It was quite amazing. How you know, when large companies, the big MNC's, announce either a new investment or an expansion of a factory like in Mexico, the entire supply chain kind of follows them there and the whole kind of ecosystem gets built out around those large supplies, like you know, Kia announcing the big expansion of its plant in Mexico for ev cars. There's a whole kind of tier one, tier two, tier three impacts around the supply chain.

I think it's a bit of both. I think, you know, on the supply chain side, I think clients are trying to address things like logistic costs, like ensuring that you know, their goods actually get there there's no delays, and manage it from a kind of a cost and to get a security right. And then of course there's the incentives as well. You know, last week I was in Mexico where I actually saw this, the whole phenomena of near shoring, like with my own eyes. It was quite amazing. How you know, when large companies, the big MNC's, announce either a new investment or an expansion of a factory like in Mexico, the entire supply chain kind of follows them there and the whole kind of ecosystem gets built out around those large supplies, like you know, Kia announcing the big expansion of its plant in Mexico for ev cars. There's a whole kind of tier one, tier two, tier three impacts around the supply chain.

With that.

With that.

Do you see Chinese firms moving into Mexico, Because that's been a big concern with lawmakers and officials in the United states.

Do you see Chinese firms moving into Mexico, Because that's been a big concern with lawmakers and officials in the United states.

That there are a couple of Chinese firms, but I think it's wider than that. You know, we've seen Korean firms as well. We've seen other other Asian companies moving there as well, So I think it's it's more mixed. I think there's you know, what we're noticing and with these these kind of corridors is there's a big North Asia to Latin corridor that is very very vile, and it's not only into Mexico as well, it's also into Brazil and other lat Ham countries as well.

That there are a couple of Chinese firms, but I think it's wider than that. You know, we've seen Korean firms as well. We've seen other other Asian companies moving there as well, So I think it's it's more mixed. I think there's you know, what we're noticing and with these these kind of corridors is there's a big North Asia to Latin corridor that is very very vile, and it's not only into Mexico as well, it's also into Brazil and other lat Ham countries as well.

Tas'tan. What it sounds like is for multinationals, it's becoming increasingly complex, and it might lead you to believe that perhaps they just stay local and avoid expanding beyond their own borders. You're not saying that, are you. That's not what I.

Tas'tan. What it sounds like is for multinationals, it's becoming increasingly complex, and it might lead you to believe that perhaps they just stay local and avoid expanding beyond their own borders. You're not saying that, are you. That's not what I.

Hear, Absolutely not. Of course, you know, companies want to make sure that they're strong, you know, in their domestic and markets, and they're operating very well. But I think, you know, the vast majority of our clients and the reason they come to city is because they have global ambitions, and so you know, as they think about how they're going to grow themselves and how they're going to succeed in the market. That more and more our clients are looking at cross border opportunities as the way in which they are going to grow and access new markets, and that's where you know, bank like House can really help them.

Hear, Absolutely not. Of course, you know, companies want to make sure that they're strong, you know, in their domestic and markets, and they're operating very well. But I think, you know, the vast majority of our clients and the reason they come to city is because they have global ambitions, and so you know, as they think about how they're going to grow themselves and how they're going to succeed in the market. That more and more our clients are looking at cross border opportunities as the way in which they are going to grow and access new markets, and that's where you know, bank like House can really help them.

Can we just talk about just finally how that growth is being funded with interest rates near multi decade highs in some res agents, including here in the United States, and the sources of funding shifting tasknum, Have you noticed that?

Can we just talk about just finally how that growth is being funded with interest rates near multi decade highs in some res agents, including here in the United States, and the sources of funding shifting tasknum, Have you noticed that?

Definitely?

Definitely?

So.

So.

I think one of the first things I'm going to say with the with with such high interest rates for quite some time now is that clients are are really getting absolutely focused on their own liquidity and looking at any kind of trap cash that they may have looking at very sophisticated even mid market clients that you know probably didn't pay that much attention as closely to their liquidity as say some of the very large clients would would would would traditionally be doing. They're they're paying a lot of attention to ensuring that they're they're efficiently using all the sources of capital, that payments are like swift there, their collections are really quick as well, and that the whole cash converstion cycle is is as tight and as efficient as possible, and and of course you know, we've got lots of solutions that can help with that. But but I think you know, there's there's other pools of capital. Of course, as you know, bank funding, and then we're also seeing the rise of private credit as well as coming up as being a kind of complementary to bank funding for these clients. So lots and lots of kind of innovation happening on the financing side.

I think one of the first things I'm going to say with the with with such high interest rates for quite some time now is that clients are are really getting absolutely focused on their own liquidity and looking at any kind of trap cash that they may have looking at very sophisticated even mid market clients that you know probably didn't pay that much attention as closely to their liquidity as say some of the very large clients would would would would traditionally be doing. They're they're paying a lot of attention to ensuring that they're they're efficiently using all the sources of capital, that payments are like swift there, their collections are really quick as well, and that the whole cash converstion cycle is is as tight and as efficient as possible, and and of course you know, we've got lots of solutions that can help with that. But but I think you know, there's there's other pools of capital. Of course, as you know, bank funding, and then we're also seeing the rise of private credit as well as coming up as being a kind of complementary to bank funding for these clients. So lots and lots of kind of innovation happening on the financing side.

Has that innovation led to basically an environment or where higher rates have not crimped the expansion plans of a lot of these companies, even though it might be more challenging you have to be innovative, it's just as available in terms of credit creation to go out and to expand.

Has that innovation led to basically an environment or where higher rates have not crimped the expansion plans of a lot of these companies, even though it might be more challenging you have to be innovative, it's just as available in terms of credit creation to go out and to expand.

Yeah, I think so, Liza, I mean, I think you know, what we're seeing is that with companies that are strong, they are just getting stronger, and high rates and even you know, just general geopolitics don't tend to kind of take the wind out the sales of these types of companies, and they do use almost kind of volatile environments to get even stronger and look for opportunities to expand you know, pick up sort of do small. We're seeing a lot of mid market companies like doing not like big transformative kind of deals, but small bolt on em and a like you know, picking up a kind of a ten million dollar company, twenty million dollar company, you know, adding a particular expertise. You know, those are some of the things that we're hearing a lot from our clients.

Yeah, I think so, Liza, I mean, I think you know, what we're seeing is that with companies that are strong, they are just getting stronger, and high rates and even you know, just general geopolitics don't tend to kind of take the wind out the sales of these types of companies, and they do use almost kind of volatile environments to get even stronger and look for opportunities to expand you know, pick up sort of do small. We're seeing a lot of mid market companies like doing not like big transformative kind of deals, but small bolt on em and a like you know, picking up a kind of a ten million dollar company, twenty million dollar company, you know, adding a particular expertise. You know, those are some of the things that we're hearing a lot from our clients.

Interesting, Tassanium, Let's do this again next time you're in New York City. We'd love to have you with us around the table tasnim gil wand whilea there of city. European Investment Bank President Nadia Calvino is here in New York, but it's for more President Calvino, good to see you, very good to see it's greater cash up once again. You're back from Washington, d C. We are as well, so maybe we can compare notes. We've talked a long time about a lack of cooperation maybe worldwide, a breakdown between the United States and what the Europeans need and what Ukraine ultimately wance. Did you sense the same thing at all in Washington and were coming together or moving apart?

Interesting, Tassanium, Let's do this again next time you're in New York City. We'd love to have you with us around the table tasnim gil wand whilea there of city. European Investment Bank President Nadia Calvino is here in New York, but it's for more President Calvino, good to see you, very good to see it's greater cash up once again. You're back from Washington, d C. We are as well, so maybe we can compare notes. We've talked a long time about a lack of cooperation maybe worldwide, a breakdown between the United States and what the Europeans need and what Ukraine ultimately wance. Did you sense the same thing at all in Washington and were coming together or moving apart?

Well, we're definitely coming to Indeed, I think it was a very productive Spring Meetings week. We had many exchanges and I really see a momentum in coming together and supporting Ukraine very strongly, but also deepening our cooperation within the Multilateral Development Bank family to contribute to climate change, financing, peaceful and more. How would I say, sustainable world going forward.

Well, we're definitely coming to Indeed, I think it was a very productive Spring Meetings week. We had many exchanges and I really see a momentum in coming together and supporting Ukraine very strongly, but also deepening our cooperation within the Multilateral Development Bank family to contribute to climate change, financing, peaceful and more. How would I say, sustainable world going forward.

We'll get some more details on your lending plans in just a moment. There has been a sense of fatigue in Congress around what is happening with Ukraine in its war against Russia. There are some people asking whether there is a different way, whether there should be something we continue with, stick with, continue funding what looks like maybe another runding war. What would your view on that argument be.

We'll get some more details on your lending plans in just a moment. There has been a sense of fatigue in Congress around what is happening with Ukraine in its war against Russia. There are some people asking whether there is a different way, whether there should be something we continue with, stick with, continue funding what looks like maybe another runding war. What would your view on that argument be.

Well, absolutely, we need to support Ukraine. It is a very serious situation that we're living. It's a threat to democracy at the end of the day, and the way we see things, I think in the US and Europe too, and so from the European point of view, there's no doubt our support to Ukraine is I think the decision that has been taken by the US to provide support for more than sixty billion dollars is very valuable and these joints. Also the previous decision of the European institutions to provide fifty billion euros in the Ukraine facility, which we will manage at the European Investment Bank, and I think it will provide much, much valuable support for the reconstruction as well as the military effort.

Well, absolutely, we need to support Ukraine. It is a very serious situation that we're living. It's a threat to democracy at the end of the day, and the way we see things, I think in the US and Europe too, and so from the European point of view, there's no doubt our support to Ukraine is I think the decision that has been taken by the US to provide support for more than sixty billion dollars is very valuable and these joints. Also the previous decision of the European institutions to provide fifty billion euros in the Ukraine facility, which we will manage at the European Investment Bank, and I think it will provide much, much valuable support for the reconstruction as well as the military effort.

Of course, But President, did you see the vote counts on as AID bills, So when you look at something like the Indo Pacific, it was three eighty five to thirty four in the House. When it comes to Israel, it was three eleven to one twelve. It barely got through and it came sorry, excuse me, to Ukraine. How concerned are you about how deeply divided US politicians are about AID in Ukraine oversay other issues like Israel and Taiwan.

Of course, But President, did you see the vote counts on as AID bills, So when you look at something like the Indo Pacific, it was three eighty five to thirty four in the House. When it comes to Israel, it was three eleven to one twelve. It barely got through and it came sorry, excuse me, to Ukraine. How concerned are you about how deeply divided US politicians are about AID in Ukraine oversay other issues like Israel and Taiwan.

I really think that we should continue to support Ukraine, as President Zelenski was just saying on the screen, they have a chance if we continue to support them from the European point of view. You know, Ukraine is our neighbor, It is a prospective member of the family, if I can say this way, and thus we need to ensure that we keep a secure environment in the region. The other conflicts are just as important. I mean, the Middle East situation is very warring. It's a source of concern for all of us, and we should try to stop that war and that conflict, you know, as soon as possible. But Ukraine should not be forgotten.

I really think that we should continue to support Ukraine, as President Zelenski was just saying on the screen, they have a chance if we continue to support them from the European point of view. You know, Ukraine is our neighbor, It is a prospective member of the family, if I can say this way, and thus we need to ensure that we keep a secure environment in the region. The other conflicts are just as important. I mean, the Middle East situation is very warring. It's a source of concern for all of us, and we should try to stop that war and that conflict, you know, as soon as possible. But Ukraine should not be forgotten.

But in the numbers, it shows that Ukraine was the hardest one for lawmakers to get through. What does this mean potentially if you were, say to deal with a different administration, a Trump administration.

But in the numbers, it shows that Ukraine was the hardest one for lawmakers to get through. What does this mean potentially if you were, say to deal with a different administration, a Trump administration.

Well, I wouldn't like to speculate on US politics and I wouldn't dare to comment on the internal wheelings and dealings. But I think the most important news we have today is this got through more than sixty billion euros dollars support and these will provide a very valuable support to Ukraine at a crucial point in the conflict in the war.

Well, I wouldn't like to speculate on US politics and I wouldn't dare to comment on the internal wheelings and dealings. But I think the most important news we have today is this got through more than sixty billion euros dollars support and these will provide a very valuable support to Ukraine at a crucial point in the conflict in the war.

President, you know, how much is this actually the uncertainty helping you to raise money for military efforts within Europe to bolster military spending within the continent.

President, you know, how much is this actually the uncertainty helping you to raise money for military efforts within Europe to bolster military spending within the continent.

But it's obvious that you know, some people woke up to the fact that we were more fragile, and maybe we thought because of the war in Ukraine and the unwarranted aggression by Russia, many members states the frontline members stays. I think we're already wide awake and very aware of the challenge of having this kind of neighbor. But you know, it is absolutely clear we need to step up and support Europe's security and defense industry, and the European Investment Bank can play a role in that.

But it's obvious that you know, some people woke up to the fact that we were more fragile, and maybe we thought because of the war in Ukraine and the unwarranted aggression by Russia, many members states the frontline members stays. I think we're already wide awake and very aware of the challenge of having this kind of neighbor. But you know, it is absolutely clear we need to step up and support Europe's security and defense industry, and the European Investment Bank can play a role in that.

When you talk about financing it, how much are you on board with the idea of monetizing Russian assets that are harbord in Europe, maybe in tandem with the United States in terms of coming up with some sort of plan.

When you talk about financing it, how much are you on board with the idea of monetizing Russian assets that are harbord in Europe, maybe in tandem with the United States in terms of coming up with some sort of plan.

It's very important. I think that we act united and so the G seven discussions are extremely valuable so that we move ahead as one. Of course, the situation is not comparable between the US and Europe in terms of the volume of assets we are discussing, and on the European side we are making progress. The European Commission has put forward a step by step plan and so you know, we're making some progress in making sure that these assets are put to good use in supporting Ukraine.

It's very important. I think that we act united and so the G seven discussions are extremely valuable so that we move ahead as one. Of course, the situation is not comparable between the US and Europe in terms of the volume of assets we are discussing, and on the European side we are making progress. The European Commission has put forward a step by step plan and so you know, we're making some progress in making sure that these assets are put to good use in supporting Ukraine.

In supporting Ukraine, is that also include in investing in some of the military development in Europe.

In supporting Ukraine, is that also include in investing in some of the military development in Europe.

I think this is a bit you know too soon to say how is the best use of these assets. Just see that we are really unwavering in our support to the country, and we're making progress in mobilizing all sources of financing to provide that important support.

I think this is a bit you know too soon to say how is the best use of these assets. Just see that we are really unwavering in our support to the country, and we're making progress in mobilizing all sources of financing to provide that important support.

When it comes to the Russian assets, particularly the ones in Europe, there's lots of different things being thrown around on how to actually monetize it. Do you expect a decision when the leaders meet in June in Pulia.

When it comes to the Russian assets, particularly the ones in Europe, there's lots of different things being thrown around on how to actually monetize it. Do you expect a decision when the leaders meet in June in Pulia.

I certainly think this is going to be on the table and there it is a different issue to talk about the assets than talking about the proceeds coming from those assets. I think there is more unanimity on the second than the former. Many considerations are on the table, and we need to calibrate well our decisions so as to make sure that there are no unwarranted side effects.

I certainly think this is going to be on the table and there it is a different issue to talk about the assets than talking about the proceeds coming from those assets. I think there is more unanimity on the second than the former. Many considerations are on the table, and we need to calibrate well our decisions so as to make sure that there are no unwarranted side effects.

I just wanted to wrap things up, President Calvina, with the changes you've proposed to the EIB, which is a plan to ultimately make it easier to fund defense projects, could you talk to us a little bit about that. What can we expect at these changes going to go through?

I just wanted to wrap things up, President Calvina, with the changes you've proposed to the EIB, which is a plan to ultimately make it easier to fund defense projects, could you talk to us a little bit about that. What can we expect at these changes going to go through?

I certainly think so.

I certainly think so.

Yes.

Yes.

For the past eight years, we've been already financing europe security and defense industry. What we're doing now is adapting our lending policy whilst preserving a very strong financing capability capacity. I mean, THEVIB has a triple A plus consideration in the market. We are a very strong player in financial market. Last week we had an auction. I was following your program this morning and it is impressive because last week we did a five year bond of five billion issuance which was heavily oversubscribed on twenty one billion euros in demand, and we closed with an interest rate that was just ten basis points over the US Treasury. That shows the important financing capacity of the bank and this is what allows us to be very competitive in financing our clients, public and private clients and contributing to growth and prosperity in Europe and beyond. So we really need to calibrate our respons as well. So far, the market is responding as we had anticipated, and I think we certainly will step up our support to europe security and defense.

For the past eight years, we've been already financing europe security and defense industry. What we're doing now is adapting our lending policy whilst preserving a very strong financing capability capacity. I mean, THEVIB has a triple A plus consideration in the market. We are a very strong player in financial market. Last week we had an auction. I was following your program this morning and it is impressive because last week we did a five year bond of five billion issuance which was heavily oversubscribed on twenty one billion euros in demand, and we closed with an interest rate that was just ten basis points over the US Treasury. That shows the important financing capacity of the bank and this is what allows us to be very competitive in financing our clients, public and private clients and contributing to growth and prosperity in Europe and beyond. So we really need to calibrate our respons as well. So far, the market is responding as we had anticipated, and I think we certainly will step up our support to europe security and defense.

Just the final comment if we can. You, of course, were part of the Spanish government for a little while. I'm used to calling you minister. I want to get your thoughts on whether the defense spending will overwhelm the capital that could be used for developing the European economy more broadly, you concerned about that in any way, shape or form.

Just the final comment if we can. You, of course, were part of the Spanish government for a little while. I'm used to calling you minister. I want to get your thoughts on whether the defense spending will overwhelm the capital that could be used for developing the European economy more broadly, you concerned about that in any way, shape or form.

Certainly, That's why I said a moment ago, we need to mobilize all our funding sources so as to make sure that funding our security and defense effort contributing to peace at the end of the day, is not weakening our support to social infrastructures, innovation, the digitalization, and of course climate action, which is a top priority and the key challenge of our time.

Certainly, That's why I said a moment ago, we need to mobilize all our funding sources so as to make sure that funding our security and defense effort contributing to peace at the end of the day, is not weakening our support to social infrastructures, innovation, the digitalization, and of course climate action, which is a top priority and the key challenge of our time.

Nadia, was good to see you, thanks for dropping by, very good. Thank you very much in Joy, New York. Nadia Calvin of the European Investment Bank. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business out

Nadia, was good to see you, thanks for dropping by, very good. Thank you very much in Joy, New York. Nadia Calvin of the European Investment Bank. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business out