00:00Another energy shock. You lived the one in the 70s down in Washington, D.C. What's your assessment of this
00:07one?
00:08Well, it's still a little early to say exactly what the long term impact is going to be.
00:12The CPI numbers that came out today were comforting, but they don't really take into account what the likely impact
00:19is going to be over the next couple of weeks on inflation because of the energy price increases we're now
00:24seeing or likely to see.
00:26But I think the market is probably going to be pleased with the numbers from the CPI, but it won't
00:32really affect the Fed all that much because I think the Fed is probably going to say that we have
00:37to look at what the energy prices are doing over the next couple of days before it makes a decision
00:41on March the 18th when the FOMC meets again.
00:44My guess is that probably you won't see any any rate cuts.
00:48I think the markets are suggesting there will be no rate cuts this time, and I think that's likely to
00:53be the case because, again, energy prices are probably going up a little bit more than the CPI numbers suggest
00:58today.
00:59So, David, the administration is doing its best to put a lid and cap energy prices.
01:04We've seen the PR campaign over the past few days.
01:07Clearly, though, this is a real energy shock that we're all grappling with.
01:10I wonder how you're framing the difference at the moment between how equity markets and equity investors perceive this moment
01:18and the way that these strategists on the ground and the facts are playing gout.
01:23How stark is the contrast between the two?
01:26Well, obviously, any administration wants to keep energy prices low.
01:30And when I worked in government, we wanted to keep energy prices low.
01:33But if there's any part of the world's economy that is not subject completely to what the U.S. wants,
01:38it's energy prices, because energy prices are determined as much by things outside the United States as by in the
01:44United States.
01:45And today we still import a fair amount of oil.
01:47Even though we produce a lot of oil and we export oil, we still import oil.
01:51And most of the developed world still imports oil or natural gas.
01:56And so I think the impact is likely to be not positive for the markets, because I think people are
02:02going to be nervous that unless the war has ended relatively soon and the energy prices stabilize, there will be
02:08some impact.
02:09We just don't know how long the war will go on.
02:11And no one really can say for sure how long that will go on or how long the Russia-Ukraine
02:15war will go on.
02:16But clearly, market leaders are nervous about a war that's going to go on too long.
02:22You worked in the White House under the Carter administration.
02:24What do you expect this Donald Trump administration to do to mediate consumers' concerns, especially in a midterm election year?
02:32Well, that was a long time ago, and the world's changed a fair bit.
02:36But I would say that generally trying to jawbone down energy prices doesn't often work.
02:41Telling people they should not worry about it doesn't often work.
02:44I think really the test is whether the war is going to be ended in the relatively near future, because
02:49that's going to have the biggest impact.
02:50If the Straits of Hormuz are blocked for some time, that's going to have a big impact.
02:55So I would recommend that anybody in government, they should recognize that you can't just jawbone down energy prices.
03:03It's going to take some time.
03:04Obviously, we all are supportive of the effort to get the war over with as soon as possible.
03:10Everybody wants that.
03:11The administration wants that as well.
03:12But it takes some time, and it takes at least two parties to come to an agreement.
03:16And right now, I'm not sure there's any negotiations going on.
03:19Hopefully, something will resolve itself relatively soon, though.
03:23David, if we weren't talking about oil prices, we'd be talking about J.P.
03:27Morgan marking down some private loans tied to software companies and this question of cockroaches and other questions that have
03:33emerged from private credit.
03:35I just wonder if you do get a Fed on hold and you do get more funding stress, how much
03:41that accelerates a story that has been evolving in the private credit sphere of stress, particularly tied to software.
03:49Well, private credit is in relatively good shape.
03:52Remember, there are enormous amounts of loans in private credit, and a relatively small percentage of them have had any
03:57default issues.
03:58Only a few of them have had issues.
04:00And as a result, they've gotten a lot of attention.
04:02But generally, from the portfolios that I've seen in our firm and other places, I don't really think there's a
04:07big problem right now in private credit default ratios or things like that.
04:11So I'm not that worried about it.
04:13Clearly, though, if the economy slows down and you go into a recession, I'm not saying we would.
04:18But whenever you have a recession, all aspects of an economy are not going to be pretty.
04:23So our private credit would be affected by that.
04:25But at the moment, where we're not predicting, and I'm not predicting a recession, I think private credit has probably
04:31had a little bit more attention than it probably deserves.
04:33I don't think the private credit portfolios of most of the firms are really in trouble.
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