alix: more than halfway through the trading day, this is open -- "bloomberg markets." let's take a quick check here on the markets. remember, europe is close, distorting some of the price action. the s is up. better than expected manufacturing data with lumpiness in there that we will get to injustice moment. on the upside you have the semi-report that said's are

actually holding up seasonally ok but that there are worries about memory chips with a nice beat on earnings. on the downside we have things like rubbermaid, down by 8%. seeing signs on the consumer having some problems. incremental pricing is going to be tough and it may each into the final demand of what people can pay for their stuff. different than what we saw from kimberly-clark and proctor and gamble. then you had a rise in the bond market with overall selling across the curve picking up steam on the downside. once we got the ism. -- data. awaiting the fed and the ecb, ism manufacturing data was the first real signal that we got this week, contracting for a sixth straight month. earlier i spoke with the man behind the numbers about what the numbers signal about the economy.

>> it almost looks like stagflation but then again we have only seen the four point drop in the last seven months. as i've said for several months we are usually highly cyclical and we are not. it's a range of 47 to 51 and that is pretty tight six or seven months. right now i would say that we are pretty stable. alix: joining us for more on the economy, joe davis, head of investment strategy group. could almost look like stagflation. you agree, is that the environment we are looking at? joe: i don't think we are looking at stagflation but today's data is a microcosm of what's going on in the u.s. economy. on the one hand you have areas sensitive to his -- interest rates, global economy. manufacturing is clearly softer. at the same time you have construction outside residential remaining fairly robust, getting to the heart of the federal

reserve. how high do they have to go, are they going to cut it all? this shows the tension currently at play. alix: and it feels like you can choose your own adventure. bullish on housing? it's recovering. pessimistic on the consumer? you can take a look at that as well. at the fed what are you expecting on wednesday? a hike or a pause? joe: certainly expecting a hike. our analysis has shown that over the course of the year the federal reserve, having tightened, they are not as tight as many expect. the room for a cutting of rates this year is increasingly unlikely. we have a softer economy. that was necessary to get out of inflation but inflation will be stickier and we will continue to see that theme this year. alix: if that is the case, how do they hike but signal? what's that tight rope going to look like for the fed on wednesday?

joe: again, it always comes back to the press conference. words matter as well as action. it's open to the recent events where they been aggressive. though i don't think they are as tight as something. they moved rapidly. some of the weakness we may continue to see in the data, the banking sector and other parts of the broader economy. i think they will be open. however i don't think we will see anything in the narrative in the sense of anticipating cuts. alix: do they need to wring out the cuts? wirp is still looking at 55 basis points through the end of the year. how did they get out of that? joe: again, that is where the data will tell. the forecast will evolve as well. our baseline doesn't have them evolving anytime soon. there's an imbalance in the labor market that is not as bad but it is still tight end unless

the material conditions change, inflation will come down and stickier. i don't think that is an environment with the fed cuts rates. if they do they have greater deterioration in the economy. alix: with a handful of people saying they are going to cut, higher for longer, the market is not pricing that right now. where's the biggest missed price in the market for the scenario that you just laid out? joe: that's the $1 million, euro, dollar question. history shows the bond market is right but not infallible. like a lot of things in life it's a matter of timing. the federal reserve will clearly hold out for some time. but if you are in the camp that we will not see a recession into 2024 if it all, they won't be cutting anytime soon. we are not seeing it in the data points that we saw today.

alix: things are relatively stable. what should the curve look like after wednesday, then? joe: it would have to be one of inversion, but flatter, cohort for it having to rise. again, from a market strategy perspective, i would be somewhat surprised, this replay of two years ago, the flight into the growth parts of the equity market. in to submitting rate cuts. the market seems to voraciously want it. ultimately it will be disappointed if the diagnosis of the economic fundamentals is correct. alix: will the job picture show resilience? even the employment picture is still holding up. joe: no one knows the full supplier demand. it is coming down but there is

still great pent-up demand. i mentioned construction. you have spoken to many builders. they are still significant in the pipeline. like anything, tighter interest rate costs will ultimately play towards the end of the year and early next year right at the time we have some of this excessive demand coming off the books. which is why i think a recession is certainly more likely than not. but between now in the summer it's going to be hard to see convincing evidence that we are to do an environment where we cut interest rates before the end of the year. alix: joe, really appreciate it, vanguard chief economist of the head investment strategy group. thank you. and we also talked about whether there's credit tightening in those manufacturers and he said not yet, they haven't been tightened yet. leading us to the regional banking crisis. we know it will happen, the russian is when. mohamed el-erian writes that the deal will haunt to u.s. banks,

saying that what we have our u.s. government institutions caught up in the policy implications of the sap -- second-best world. a repeated inability to come up with an optimal solution. what has emerged will come with collateral damage and unintended consequences. joining us now is sally bakewell , who leads the finance team in the americas. what are the unintended consequences going to be? sally: while we had jp morgan this morning saying it was a sign that getting to the end of the crisis, that the american banking system is extraordinarily sound, many experts are reluctant to make the call that it is over yet. this resolution was reached despite efforts to get another kind of deal that didn't involve government assistance, so there are concerns that the underlying issues, masking piles of debt

securities whose value plummeted amid aggressive interest rate hikes, they may still face that same sort of issue if depositors start pulling their money again. so while there is something of a sense that we have come out of the crisis and the first republic situation has closed its door to an extent, there are fears and concerns that there are looming problems ahead. alix: citizens financial, pnc, some of the worst performing, i could make the argument that that is because they were in the running to purchase first republic. which banks will be in trouble next? sally: smaller regional banks were more affected by the situation and the regional banking landscape. earnings last week from the regional banks were not terrible . there were no hidden bonds that we learned of. deposits generally held steady. they did tend to lower their

guidance for net interest income , assigned that they don't expect lending activity to perhaps pso high or perhaps too slow, speaking to some comments from the city chief executive. banks are bracing for a bit of a slowdown in lending. probably hitting regional banks harder. alix: sally, thanks a lot for joining us there. you may wonder if we are getting larger banks becoming larger. never did you have jp morgan going to purchase first republic, regulators didn't allow it, but now they do. very interesting there. the health of the global anchoring system is one of the key topics of the milk and global conference underway in beverly hills. sonali bassett is there along with the ceo of citigroup. over to you. sonali: welcome to the bluebird television and radio audiences. you had set me up here, i'm with

jane fraser on this his though -- historic day in global banking. i'm curious for you to take us behind the scenes. thinking about the first rescue made by a lot of large banks weeks ago, why was there not an inclination to step up and save first republic a second time? it's always a -- jane: it's always a sad day when you see a bank fail but it we are pleased to see the major uncertainty addressed and that's a good thing. on to mentally the u.s. financial system is sound. this is the case of a small handful of banks that were fully managed in getting this address, which is very important. when we stood up it was a statement that the major banks, the 11 major banks of the country in 30 hours put $30 billion to work. to buy the time to get the right

solution in place. that was our intention. not to provide the answer, it was to give the time to get confidence restored and for our regulators to do their job, which they did. sonali: first republic is out of the way now, that was the whale in the room but what do you expect next in terms of future bank failures or hiccups down the road? jane: i'm extremely optimistic about it. large banks are in an enviable position. large banks and regional banks, community banks have taken their structure to it. everyone plays a different role with different scales and different customer bases. it's a strong system. i'm into subpoenaing more consolidation. we do have 4.5 thousand banks. it's likely that the minimum

efficient scale will rise. i don't think that brings into question a system that is the envy of the world. that is to say a strong and highly desirable financial system. sonali: the big just got bigger today. does that create more competition for the smaller banks, given that the big are getting so big in this country? jane: there's room for everyone to play their roles. our strategy has been to be the preeminent partner. it's a different role from the rolet community bank plays, which is also very important in the context of a local economy. it's about different banks playing different roles. and let's make sure that we have a strong and successful system that works. sonali: there is a lot of worry about the credit contractions

seen in the united states among that sector. small, medium-sized banks and businesses. do you expect a significant contraction? how do you handicap the ripple effects to the economy? jane: certainly risks are more to the downside then at the beginning of the year and no one anticipated the turmoil we had seen so far this year at the beginning, certainly making the second half not as strong economically or in terms of investment banking the likes of which we had hoped. that said, as you say one of the big questions will be to what extent does credit get tighter. and if that is material, that will have a drag on the economy. we are anticipating a recession at the back end of the year. but the amount of pent-up demand, the amount of the strength of the corporate's, the

strengths of the consumer coming into it, the usual amplifiers are not in place. i think we will see the u.s. economy unlike others pull out of whatever the recession environment could be pretty quickly. sonali: when the recession comes near, what does it look like, who is impacted? jane: as one always does i think you will see the pain being felt by the consumers at the lower end of the fica. it's been terrific for the health of the consumer. that has remained. the corporate sector is particularly strong and that is why so many of us talk about this being a more manageable or moderate recession. if one does indeed come about. one in which the economy should be able to pull out pretty strongly. sonali: to the extent that you

are preparing for recession, citigroup has written off quite amount the first sector. jane: we are a long way from being in a situation where credit levels are normalized to pre-covid. we are only 70% of the way to the pre-covid levels of normal credit losses. there is still quite a bit of room still to go with citi being biased towards prime. so we don't tend to see the pico as much with stress there. everyone needs to be keeping that. sonali: you have a front row seat to the ripple effects that are being felt in washington around the debt limit.

what does it look like from your view? jane: we have seen more than we have in recent that ceiling concerns, the impact on the treasury market with pricing for june september coming down. the cbs market is seeing an unprecedented widening. there is a concern and i would say it's in the last week or so when we saw three times the volume and it's still early but there is a concern around it. i'm not going to comment on what the politicians should do. that's not my place. i will comment on the consequences. it could be quite dire for consumers and the markets if it goes down to the wire or worse. sonali: you also have a very international view as the most global of the u.s. banks. how does the rest of the world

look at this dispute? jane: the last thing that the world needs right now, particularly in the market. we want to see strength in the u.s. capital markets, confidence in what's going. you know, the banking sector, very well positioned. strong, as we see. we are in position as we did during the turmoil of pandemic to be there to support markets, to support our customer basis. consumers, corporate's. from that perspective we are in a good position. it is the last thing the world and america needs, to have a debt ceiling crisis. sonali: what about looking at the federal reserve here? it's across current, these higher interest rates. where do you think the direction of travel is headed given the inflation experienced today? jane: as you say, services

inflation is persistent. goods inflation is coming down, supply chains are in better shape than they were. it's really about the tightness of the labor market. chairman powell has been, and we need him to stay, resolute. this is not good to have a long-term inflation in the u.s. economy. some is fine but the resoluteness is something i think weaken on. so we are anticipating higher than the market would like for higher -- longer than the market would like. there is so much pent-up demand at the moment, it keeps wanting to get ahead of this but that's just not where the economy is. sonali: do you think the market is discounting the potential for higher rates for longer? jane: i think many of us here do believe that there is that. that the market is too enthusiastic here. partly because the economy is so

resilient. this is a strong, resilient bus economy and that's a part of the challenge so we anticipate a tough end of the year. from the market perspective it tends to anticipate these things . towards the end of the year the market should anticipate recovery and to in a stronger position, just a bit later than we would like it to be. sonali: i'm here with jane frazier, ceo of citigroup. citi and your business plan, you had mentioned softness was expected through the edge of the year. how do you expect that to weigh on investment banking and productivity for jobs? jane: should they be keeping cash as a cushion or being doing dividends and buybacks? paying down debt because the debt they anticipate being more

expensive for a while longer? investing in transformation? our pipeline in investment banking is bigger than it was pre-covid and given transactions there's a lot of pent-up demand. we are seeing more ipo activity with more interest in leveraged finance. pent-up demand is building and building. i just don't think it's going to get released as early as he would like it to. it feels much more like the backend of 23 than the inverse. sonali: what does that mean for the jobs story? anchors on board until you come back? jane: like every institution you make adjustments around the capacity but we are playing a long game in banking and i'm delighted to say we have a lot of talent that wants to come and

join us and we have been bringing in terrific talent into the health care and technology sectors. yup, we are playing the long game here. that's important. sonali: another part of the business worth talking about is your treasury trade services. you have moved $4 trillion in money for clients around the world. how do you get the market to value that? jane: the business is a thing of beauty. 5000 multinationals. $4 trillion every single day in payroll, cash management, procurement and supply chain. it's also very, very sticky. which is of note at the moment. with the services attached to it there is data embedded into these kinds of businesses and technology systems. it helps make them more efficient, manage risks.

it's a highly desirable very sticky deposit asis. i think that the market is beginning to realize that this is a thing of beauty because it has absolutely been firing on all cylinders as we have been in testing behind it in the last few years. it's unique. sonali: is this a race you are going to win? the beginning of your tenure was marked by exiting certain businesses, so what's the story to hold onto? jane: we have never been clearer about our strategy and vision of our firm. a preeminent banking partner for clients with focused connections for strong synergies and better quality business mixes for diversifying its resilience with a very good balance sheet. this is 90% of our credit, investment grade, internationally. 85% of the credit is investment grade. it's a strong balance sheet on

the back of a business model that is resilient and will be there to meet our medium-term targets. we are on a clear path. we have been getting a mood on -- a move on getting it done. sonali: what's taking so long? the ipo, which is more likely? jane: we are following a dual path in mexico for the consumer business. our corporate business is thriving in mexico and that remains with us. it's a complicated separation, as you can imagine, of the two banks and we are going about that in a disciplined manner, making sure that we do this responsibly. either way we will be exiting the business with a clear path

and we have a dual track at the moment. sonali: looking at the presentation from the last quarter, a few slides and you had a footnote about the 8000 people you hired for technology. clearly, citigroup is going through transformation. but future technology, how are you thinking about the renewed interest in ai? jane: this is a game changer and in a way when we look at blockchain and the other technologies that have come in the last decade, they have been a part of the toolkit now we are all beginning to realize the transformative nature that generative ai can be. it's early days, we have to understand what it means in terms of jobs, what it means in terms of business models. but this is certainly the one that all of us, the leaders in the industry, are looking at and recognizing that there is incredible potential here. sonali: what are the areas of

finance it has the biggest potential to disrupt? jane: it could impact middle offices. it is and will be impacting trading businesses. it is and will be impacting nearly every dimension of finance as it can do almost every client industry. but as we have seen with crypto and in other areas, you need to have a good system of guardrails , you need to understand ramifications and make sure that this realizes potential in a responsible manner rather than in one that could cause unnecessary disruption. sonali: now when it comes to trading, there has been a long push, are there meaningful ways it could change that business? jane: we have seen fixed income transform over the decades and it is dynamic and vibrant.

it will yet again transform itself. our own business is heavily corporate based. we tend to see this in terms of the potential we can do for our corporate clients in foreign exchange, risk management, and hedging. rather than being a franchise that is just pure trading. we are much more client driven. it's really about the potential value added we can give to our investor and corporate clients. sonali: before i let you go, i want to weed out some of the talk here at milken. the whole thing underpinning, 12 years of easy money. we've seen many hiccups in the markets. do you think we have seen the brunt of the pain? jane: we think we probably have, though there will be a few more to come as rates continue rising. those that haven't gone -- done a good job on asset liability

will become evident. we saw that in the banking sector. we saw that with the issues of ldi last year. we saw it in the exchanges. you do tend to see where people have had weaknesses around asset liability management coming to the fore. those who have done this responsibly, prudently. sonali: among those issues, what keeps you up at night? jane: cybersecurity. sonali: why is that? jane: the level of sophistication, some of the geopolitical tensions around the world, they mean that there is a lot of sophistication behind that. it could be very disruptive in the system and that is why you could see leading banks and leading institutions putting a lot of resources and capabilities into making sure that we keep up with this to make sure that america and the financial system is safe. sonali: to the geopolitics of

the cybersecurity issues in the risk you have drawn out, is there anything that can change your view of this mild recession? jane: if something happens on a geopolitical front. something no one anticipated. the war in ukraine had major impact. impact on energy security, food security, the other pieces. we have all learned never to say never anymore and that nothing will surprise us. so yeah if something happens on that front, it could be challenging. let's hope that same minds prevail -- sane minds prevail. sonali: jane, think you for your time. new york, back to you. alix: great work. sonali we'll be back with us in a few minutes. one headline stand out, the u.s. financial system is extremely strong but there will be more consolidation in the banking

sector. jon erlichman is coming in as my cohost for the rest of the hour. consolidation was interesting. how do we get there? it's not something that regulators have loved, but now the bank is feeling it's ok to take it over and i'm wondering how we get to this point. jon erlichman: that was one of the narratives in jp morgan getting this done with first republic in the first place. obviously the fact that jane fraser is bringing this up in her conversation with sonali, we are still talking about a u.s. landscape with more than 4000 institutions. does consolidation make sense? in her earlier comments she talked about the idea that we would see a view in the eyes of some that some of the turmoil is addre today. so is there an opportunity for regulators to also get some help through acquisition? the other thing that she has talked about for some time that

she mentioned again today, technology and ai. the fact that with the push of a button we can see deposits these days on your phone moving around so quickly. regionals, are they well-equipped to handle that? are the bigger players ready for it? there are obviously naysayers and those concerned about consolidation. we saw comments from senator warren about that. it will be a contentious discussion. it's clearly a discussion we will be having. alix: does it get the green light in certain circumstances? to other banks need to be allowed to compete? it's really interesting. also talking about the economy, u.s. recession, being manageable with a macro backdrop that doesn't look great. i feel like all the data is saying the same thing at this point. jon: speaking to that

resiliency, let's keep the conversation going and bring in hermann chan, who has been covering every detail of the jp morgan announcement today with our bloomberg intelligence team, covering the regional banks so effectively for bloomberg. this idea on consolidation and the inevitability of it, it sounded like, based on the comments from jane fraser, would you find yourself aligned with that? hermann: i do. over the past couple of years the bike did administration in the fed have been less open to consolidation on the regional bank front. you have seen a couple of deals take a lot more time to close than anticipated. for example, the td deal with first horizon in tennessee is still in limbo and is still waiting for approval by regulators. if the regulators want stronger, larger regional banks to withstand some of those market

pressures we are seeing today, they need to give the signal. the signal would be to improve the deals still in process today. alix: hermann, what other banks could be in trouble the could be ripe for picking up m&a? herman: it's a good question. in the first quarter earnings report for regionals, they showed really resilient balance and only really saw deposits down 2% to 3% on average for the group. that is in stark contrast to what we saw at first republic being 40%. the others that saw a bit more deposit it attrition were pac west and western alliance offering a really strong and incredible path forward in terms of increasing capital, reducing assets, and increasing deposits across deposit insurance in their deposit base, mentioning the improvement through april.

it does seem like the rest of the region has stabilized a bit. jon: herman, we should reiterate for the global audience as well that obviously there were several banks having conversations and were interested in being in the mix. going back to the consolidation theme, at the end of the day the size and scale of jp morgan, which gets bigger with the deal, ended up being one of the considerations, their appetite for doing a full deal with. public -- with first republic getting to the finish line. herman: that's right. the regional banks don't have the balance sheet capacity to absorb a whole bank like first republic and in my mind they were probably cherry picking potentially more attractive assets in the deal structure, whereas jp morgan was able to

acquire the entirety of the assets, loans insecurities. the fbi see is saying they want to contract with a systemic bank like jp morgan to reduce potential losses to the deposit insurance fund. so that makes us think that maybe the regional, like a pnc, would have less chance of doing these failed bank transactions in the future. if that's what the fbi see is signaling. alix: herman, great stuff, you really want to read his work on bloomberg intelligence. taking you back now to the milken global conference, sonali basak is now with the ceo of tcw. alix: thank you so much freight -- sonali: thank you so much for your time. katie koch is with us, she's been there for 10 weeks running tcw on the heels of a banking

crisis. i've been able to talk to a lot of your investors here. what are they telling you and what are you telling them about the way the managing tcw? katie: not everybody may be familiar but tcw manages 200 $50 million in assets, a rich investment heritage focused on credit, public and private. we run another very liquid fixed income business. we run the team total return bond fund. equities, lenses through which to view the current crisis. the question is whether or not we will have this on the mind of everyone and how we plan to navigate that and we are in the camp of having a medium to hard landing here. alix: already diverging from the views that we have been hearing all day about medium landings and soft landings.

why is your view so different? katie: as a new ceo i really want to wrap myself in the warm blanket of a soft landing. reminds me of our old friend, inflation is transitory. but i don't think that's the set up here. the first reason is in my experience, the longer the recovery, the more in a small blip we have for the system. that is why we saw money supply trend last week into its guest new direction since the great depression. and small businesses rely on small banks and that's a big problem. capital americans are employed by small businesses contributing to half the gdp and if you look at companies with 100 employees or less, 70% of the commercial industrial financing is dependent on banks with less than $250 billion in deposits.

30% dependent on banks with 10 million in deposits. we will have a credit crunch that will put downward pressure on jobs. third, with capital overpricing aggressively, something is going to break and we have seen a few things break already with the banks that we just mentioned but more things will break along the way. that's the bad news. the good news is that tcw is a value-oriented manager. for our clients this should be a rich and firemen -- rich environment. sonali: such a historic deal here with the failure of first republic. it's one less major bank in america. what does it mean for credit contraction on the heels of credit already contracting? katie: we are going to have a recession, we know that. the world lose in cycles.

credit, contracting. we are in the midst of that and we expected to get worse but we have to consider where the dislocation is going to come from there are two areas we are focused on. one, commercial real estate. the second, broader credit markets. we are underweight across all tcw. uncomfortable with residential. we think it can perform with correction. we have excess savings from consumers with most loans being fixed rate, people are highly incentivized to stay in their homes. these are all reasons residential looks ok. but commercial is very challenged. the headline i would give you there is that $3 trillion of commercial loans will come up for negotiation in the next 24 months at a rate level that is 24 months higher. a lot of pain in that part of the market. if you look at commercial

mortgage-backed securities, they will not be priced until there is deterrence in the key so there will be a long tail of opportunity there that we believe we can take advantage of for our clients in the securitized space and through direct lending. sonali: interesting because that means at some point you will be taking real risk in stressed markets. katie: it's true in dry powder best -- powder his key. investors need to think about that and it's something we are focused on a tcw. we are poised to work with clients. alix: you had 1 -- sonali: you had one big hiccup with credit suisse.

>> to take a step back, it's a great illustration of how tcw is a value-oriented manager that needs into these dislocations. we have a phenomenal credit team. in 2022 when the rest of the market was running through it, we went into switzerland and spent time there and determined that they had this valuable asset in the wealth manager. they did all the forensic analysis to determine the conclusion that a lot of institutions, including ubs, would be willing to step into this asset if things went sideways and determined to hold the bonds of credit suisse. senior enough in the capital structure for asset coverage, they leaned into that position on behalf of our clients. i give the team a lot of credit. in the week leading up to the merger they put five hundred million dollars of client capital in that position and it has obviously worked out very well and is a great illustration

of how we lean into dislocation. alix: talk to me about dislocation -- relocation, that's a nimble and risky move. you think about credit, the safety of credit relative to equities, this is not for the faint of heart. how are you leaning into potentially risky entities now? katie: the answer to how you manage the risk is a very deep experienced team that can do the due diligence and the work, but the work in to get to the right answer on those positions. the other area we are focused on is the private credit space and people need to be prepared for accidents and private credit. i want to be clear that it can also maybe be one of the greatest investment opportunities of the next decade if you approach it in the right way, but we will see some major accidents in our view. the main reason for that is 96% of private credit firms were

started post global financial credit crisis in an environment of low rates to zero rates and that's an easy backdrop to operate against. at the outset of the interview, having only been here 10 weeks, and actual warm blanket i'm wrapping myself in is that our print -- credit team led by rick miller has been at this since the early to thousands and is one of the few managers who has been through three recessions in the private credit everyone watching it, what you want to ask your managers is are you in a covenant heavy portfolio because when things go sideways they give you the ability to be at the table. very important. has there been a lot of diligence on the asset? we had five years where diligent light became a term. third observation i want to give you that i don't think a lot of people are focused on, you and i remember that last year where people were surprised that credit and equity went down

together. we haven't yet experienced that in the private markets and i want to suggest to people that we might see correlation between private equity and private credit because so much of the market has been taking credit from big scale private equity sponsors and there will be correlation of assets. he want to make sure that your manager is good at origination and not just dependent on large private equity sponsors. sonali: how much pressure is there from a public credit manager to push into the private markets given the scale of fund rising right now? katie: we don't feel pressure from clients, there's always demand for liquid credit. the reality is 30% are now in the private space. looking at it big picture, what are investors trying to do broadly? they are trying to own global gdp across the asset structure in this country in particular is heading more and

more towards private market so if you want to make a portfolio reflective of rate opportunities , you need to invest from the public across the private divide and we are certainly going to be doing more of that at tcw. sonali: i'm really going to ask you to double down on that. to the extent you see >>, when do they start to show up? sonali: in our view in the next -- katie: in our view in the next 12 to 18 months as we go through the investment around private equity becoming more realized. there could be >>. i want to be clear, this is asset class work. perhaps manager selection hasn't mattered a lot in the last 15 years. i'm just making the point that us and other managers out there that have been very conservative

, they really do care about the covenant and are doing a lot of diligence in their own origination, they will have the opportunity to differentiate themselves as this credit market deteriorates. sonali: there is still a massive rush to money market funds. because why take on credit risk? katie: there is still a need to. in a money market space the real return is very small. investors need to come down to something much higher on the real return basis, so i believe they will continue to come to the credit markets for public and private and after things recover, equity will always get back. sonali: on the credit side, something that is safe one day, we saw the speed downgrade quickly. do you worry about that given your hard landing?

katie: we are secure across tcw in the more progressive sectors in the globally systemic invested for the reasons that we already discussed. the regional banks are in area that we are concerned about because of deposit flight and they have the highest exposure to partial real estate. which we have already explained is an area we are concerned about and that is reflected in the positioning. sonali: so are there things like regional bank bonds that he wouldn't be willing to touch? katie: we are underweight on regional banks and that is true in the equity portfolio and there will be a lot of -- areas of the market that will not perform in recession and will be underweight and when we can we will short them.

sonali: 10 weeks on the job, what can people expect from you? katie: one of the most exciting things is the caliber. we are having fun working together and i want to do the following thing. this is the advice i got from the ceo leading this incredible la-based institution, bob iger, we respect and that is what you will see from tcw, respect for our credible heritage years, evolving for the future, doing things like internationalizing the business, getting more investors around the world. risktakers, internationalizing the client base. using technology and quantitative tools in the managing and delivery of portfolios to clients. the third thing that we have talked about is pushing into alternative asset classes and

extending leadership positions. sonali: you left the door wide open for chat gpt and ai. [laughter] katie: we have really opened the door on that, it's going to require a large investment but the team is really committed to doing that. sonali: thank you so much. katie: so great to be here. sonali: that is katie koch, ceo of tcw. back to you. alix: so great to see katie on tv again. meda is setting a size for a dollar pound offering at $8.5 billion. this is the first mega tapped company to tap the market amid the turmoil of the financial sector after earnings last week that the stock -- news last week that the stock was up 1%. this is bloomberg. ♪

jon: this is "bloomberg markets ," i'm jon erlichman with alix steel. american in the islets union seems to be close to potentially reaching an agreement on a new contract after weeks of focused negotiations. the two sides could have a tentative agreement by the end of this month. but obviously for the pilots who have been watching the big revenues for the carriers, it has been a point of tension. for the carriers themselves, we have multiple carriers and talks right now. the pilots are one of their key costs and we have seen quite a bit of back-and-forth and are continuing to track it all.

jon: let's get more on that -- alix: let's get more on that with mary sling and stein. mary, what do you think is going to happen? mary: they approved a vote today but all it does is signal to management that they are unhappy with the pace of things and they want an agreement sooner. we have a source that told us they expect the two sides to reach a tentative agreement by the end of this month and if that's true there certainly won't be an opportunity to strike by the american pilots. there is a fairly lengthy legal process unions have to go through before they are allowed to strike an american is not really close to that at this point time. i mentioned the fact that there have been notable revenue increases for the carriers. i would imagine the for the pilots it's been hard to ignore.

right and the other issue is that they started contract negotiations before the pandemic. american started in early 2019. so they have bedding death -- they have been getting back to negotiating for quite a while now. ready to reach agreements, but they are seeking to really recoup money over the entire pandemic and we are still seeing pretty high raises of pilots that have reached agreement. what does it -- alix: what does it mean for margins? mary: right now the airlines are raking in high revenue. travel demand has not lessened. international demand is supposed to be off the charts this summer. airlines believe that if the

point in time they can pass the costs on to the consumers in the form of higher ticket prices. jon: beyond american, southwest, united, you have obviously got multiple contract negotiations taking place at multiple airlines right now. how closely aligned are the issues when it comes to labor talks right now? mary: they are very aligned. pilots have pattern bargaining. they reached an agreement and every other airline, the union seeks to better the agreement. the delta pilots reached an agreement first. their agreement is worth 7.2 billion dollars in incremental costs over the term of the agreement. american has come out already to say the offer we have on the table is $8 billion in increased value over the term of your contract. so if they get an agreement

approved, united book come next and try to better american. southwest will then try to better united. that's just how this bargaining has evolved to work overtime. alix: mary, thinks a lot. really appreciate that great reporting on this. it's interesting, as long as the demand holds up, right, margins will be ok. but take a look -- take a look at norwegian cruise, they maintained full-year guidance, meaning they didn't increase it, meaning there is week is in the back half with uncertainty, putting all the travel guys under pressure. jon: yeah you've got to figure out the top line but that on the bottom line, and you made a reference to this when we talked with mary, the costs of the reality for the airlines, fuel is one of them, but obviously the labor story and how you navigate through all of that. alix: and how do you get people in the door.

great to be with you today, jon. all the action is in the bond market, moving by 12 basis points with a better than expected ism. it's a very calm day this monday. this is bloomberg. ♪

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>> here is the first word. russia targeted ukrainian cities with missiles earlier today. ukraine's military says 15 out of 18 of them were shot down. president zelenskyy spoke with france's president. they discussed europeans coronation to respond to ukraine's needs. business groups putting pressure on biden to negotiate with mccarthy on the debt limit. the chamber of commerce and the business roundtable took mccarthy side of the the house -- house paste -- house