diamondbacks as an 11% free cash flow yield. -- five months out, you get 5% income, 15% or returns if it gets caught away. >> good stuff. good having you back at the desk as well. thank you very much. oil is selling sharply. all right, i will see you in closing thoughts. jason now. ♪ ♪ ♪ >> thank, you scott. hello, everybody. i'm kelly evans. here is what is ahead this hour. labor is cooling. yields are stabilizing, but the drama in washington is heating up. so is america's labor movement. one -- happens to pull off a soft landing, could also end up backfiring. happy wednesday, everyone. we will explain all of that ahead. plus, if you are a company that has a big chunk of that coming to, this time he could not be worse. that is exactly why gina sanchez is bailing on this name. she has two more and one that she likes, a special rising rates addition of three buys and a bail coming your way.

and -- gives us his two cents on the dollar. the latest move on the greenback. we are also talking rates and macro. we begin with today's market. we will run through the numbers. a better look than lately, dom. >> a better look. solidly higher and tilting towards the highs of the session right now, but the caveat is that we haven't gotten back what we lost just in yesterday's trade. to that point, kelly, the -- are up about one quarter of 1%. 60 points the upside. 63,000 zero 72. the s&p 500 still above the 42 mark. 40 to 50 with the last trade there of 21 points half of 1% at the highs of the session we were up 28 points on the s&p. we are down nine points at below. again, tilting toward the higher end of things. and the nasdaq composite doubling up the advance of the s&p 500. 1%, 130 points, with a composite index of 13,189 the last trade there. of course, rates still a huge focus of the market. at one point today earlier this morning, we did touch a news

cycle high going all the way back now to august of 2007. so this ten year to year spread, you can still see continuous -- continues too steep in on this side here. there's a little bit less pressure, upside on prices on the shorter end of thing, but there's still buying pressure there. we will see what happens with the spread. it's still continuing towards the upside. the tenure no deal again hit that cycle high going all the way back to 2007. that is the right side of things. there are reverberations despite some of those rates, and the levels they continue to sit. we did see a bit of a pullback. it is helping at least incrementally. part of a bigger picture on why that tech trade is a bit more to the upside today. apple shares about up -- up about one third of 1%. a rare downgrade from -- key bank capital markets. they still think the iphone upgrade cycle might be losing a bit of momentum this time around. the valuations are also near all-time highs. microsoft up 1.5%.

amazon 1.5% game. nvidia 1% gain. a bigger cell of the estrada. fifth of a bounce back today. we will see [inaudible] i will send things back to you. >> thank you very much, don chu. for the growing concerns about the u.s. economy now, especially after the weaker than expected ap report this morning. it came in below forecast, only adding 89,000 jobs in the private sector, the fewest since january 21. it might be a -- for the fed to stop raising rates, there's also a concern that a recession is looming. but a soft landing is still possible due in part to the feds massive -- sheet. david zervos, chief market strategist at jeffries. and -- is here with us as well. full house. we appreciate everyone being here. tom, let me start with you. why do you think soft landing hopes are still alive? >> i think there are a couple of factors that drive the point home. first, you remember the revisions from last week. miraculously now there's 400

billion dollars extra in excess statements. the trend is still definitively down, but that's a very deep pool for the consumer to kind of dip into. wage pressures, yes they are slowing, but again you can make the case [inaudible] so the consumer still has this pool. the pool is being more restricted, or constricting i should say, but for now i think it's easy to make the case that the consumers -- hang in there. >> it would hinge on the labor market continuing do hang in there. right? that is why the adp number, you know, it's [inaudible] >> it is. to be totally honest, i'm not a big fan of the adp report. as a great example, large companies shed 32,000 jobs. this month, but they've shedding jobs straight through. when they shed jobs two months ago, you had a 480,000 -- adp. so there's a lot going on underneath the surface there. look, joe burrow threw slowing

down. that is not a guess. i don't know if i would lean on 80 feet and isolation. you just look at the payroll report. every single month for the last year, it's done nothing but slow down. >> right. >> health care work which i think is really important. so we are getting there. and the risk for us, the risk for the soft landing ideas exactly what you highlight. if you consider the idea that right now compensation is running at a faster pace than revenue, that is not a fashionable setup for corporations. what it could amount to is a sort of margin compression story. if that materializes, i think you can make a case that the companies will basically go after labor. that would be a classic approach. >> it's interesting when you look at the stock of savings, because david focused on the [inaudible] which you think is the reason why the economy hasn't done as poorly as people thought it would buy not with all of these heights. >> yeah, kelly. we have chatted about this a lot over the course of the year. i think throughout this entire

financial crisis period back in 2000 and 2008, he tried to wrap our head around what -- does. what i think we've all come to grips with, at least i have, that it's a much more powerful tool than maybe many had originally thought. when we take it away it's powerful. it's powerful when we add it in. the reality is we still have a lot of q eaten our system. >> why does it matter? a lot of people would say all that matters is the flow. we are not buying bonds, we are selling them, and that's the biggest reason why rates are spiking. but you think the story is more complex. >> remember, the fed balance sheet on the asset side as the bonds, but on the liabilities it is liquidity. it is high powered money. it is reserves. it is cash. it's the lifeblood of liquidity for the economy. we have a trillion dollars of that in our system. if we were to take that back to preach if sea levels and say the balance sheet was the same size as the economy in 2007, it

would only be 1.3 trillion. we have a lot of liquidity in the system. that sticks with us. the level matters. but more importantly, and what we pushed with quite this year, is that the fed ownership of those bonds, of those eight trillion dollars, 30 year mortgages and 30 year treasuries, some that are trading at 40 cents on the dollar. it insulated the market from a lot of losses. those losses were not distributed into the system. there were gains. people locked in low rates. people benefited. i think we did not have that offset we usually do when rates go up. we had a lot of winners that were held on the fed balance sheet, insulated from the losses. >> so the question is going back and forth from, he's the economy about to weaken, or where are all the blowups? a bit like 1994, which one will be the orange county? it was mortgages and that case i think. [inaudible]

>> you are so familiar with this stuff. kelly, just so you know, there's two kinds of economists other. there's stop and flow. >> right. >> it is the flow into kyiv and those who say, no, it's the amount the fed is taking off. guys in the back, here's a test for you live on national television. the chart you put up of the fed to really show david's point, please take it back to before 2020. okay? because you show it going down, but that is not david's point. david's point is even after taking trillions off of it, it remains massive. so i don't know if they can get it done. i should divine what [inaudible] it's very important, but here's the thing. there's three things animating deals right now. i think in the last couple of days we've gotten a good example of how the growth story is -- yields. we have the jolt number creating a jolt in yields upward. and the adp number, there we go, now we are talking.

four trillion to still just under eight trillion. [inaudible] so there is growth. there is also a shoe winds. we had a chat in the background. i think there was surprises [inaudible] and you combine that with the fed not being a better buyer. i think there's a bigger story, a longer term story, which is the increase in the neutral rate. we talked about this. the idea that the steady state rate of the economy, one that doesn't increase inflation or increase unemployment, is a higher rate than it was. it came down over a three-year period. now we are trying to figure out, it's a bit like saying, okay, it used to be ten yards for a first down? it might be 12 now or 14? we don't really know anymore what the role of the game is anymore. more and more there is talk, because of this rise in yield having been one, that did not

come along with an increase in inflation -- it is a real yield rise. therefore, people are saying that maybe that mutual rate, which falls it is possible is higher, is higher now than it was before. >> let me ask you if i can about the deficit. obviously, right now there are major questions. it does seem as though people are waking up going, okay, wow, the fiscal picture is a lot worse this year than we had expected. and we do not have those structural buyers of treasuries anymore. foreign ownership has gone down from 50% to 35 i think. stock of treasuries has gone from five trillion on the market to 25 trillion. the fed is not buying. the banking system isn't really buying. so there is a massive imbalance driving yields higher do you think? >> i want to come back -- because you made important points that i really like, but i think you are right to focus on the fiscal. and then turned to me to try to deep and get. i'm going to do that. the rise in yields from the lowe's has been about 435 or

425 basis points since the covid blows. in germany, the yields are up about 385 or 390 basis points. in the uk, they are up more than the u.s.. so yields have risen in a pretty similar fashion in germany and the uk to u.s. yields. are we talking about german fiscal policy going wild, or uk fiscal policy going wild? i'm not exactly sure why we are so focused on this ten year yield news being driven by fiscal, when it is a global phenomenon. yields are higher in most markets. even australia and other countries. again, i don't want to get caught up in fiscal. i think this cool is not the story. there are some issues probably relating to japanese yield curve control that played a factor probably in our long and a bit. but the big story, the really big story, and steve was in the room for it two with j. when j started to talk about the difference between the -- rate and the neutral rate,

something they really never brought to the discussion. i'm not sure jay understood where exactly he was going. he was sort of throwing it out at us. >> [laughter] -- >> the point is the neutral rate might be higher the next two or three years because the balance sheet is so large. when you talk about a neutral interest rate, you can't talk about it without a neutral balance sheet. they are both policy tools. in unison, to talk about whether policies accommodate. the balance sheet is massively accommodated. that means to be neutral overall, the neutral rate will have to be higher than what you would normally be without a [inaudible] >> [inaudible] mortgage right now. >> yeah. >> i think david made some really great points. i would add to that, just think about, like, if you had a federal reserve but you have some short rates. what would the short rate gravitate to? it would almost trend -- gravitate toward what the trending growth is. there has been a massive divergence between trend growth

and long run neutral rate. i think what will happen now is the long run neutral rate will trend back toward closer to trend growth. for me it's a foregone conclusion that it's going to rise. >> i want to make one point to answer a question kelly made earlier. which is, yeah, i am beginning to worry about the financial system. this is a big move. i think those on the fed who think the lags are in the price, i think they are wrong about that. i believe it was, it might have been -- yesterday who said there's a lot of corporate debt. that is a drag on the economy. that is going to in part to more -- it's important to remember that on the show yesterday, 24 hours ago, bostick became the first fed official to use the term sufficiently restrictive. that is the ding button. that's the stuff that turns off the spigot for more rates. however, he paired that with the notion of i think the next

fed move he said is one cut at the end of next year. so that is the higher for longer -- that the market has to digest. i just think we are going to be in a process here up and down, in and out, that we are going to adjust all asset prices -- at least for a while, of higher for longer. >> and i will make a really quick point. again, a great point, steve. look at -- forget about the numbers, instead look at the responding comments. within the responding comments, for the first time that i can remember recently, you actually have one segment basically saying credit is now actually becoming much more of a problem. we are starting to see [inaudible] and making the comment about bankruptcy. i had not heard that before. not recently. and by the way, sorry david, when you think about even if it's everywhere, if it's

littered through the [inaudible] services, then it's already too late. so this is the first time i've seen it. just to be clear -- >> what steve is saying is the most [inaudible] guy on the committee basically [inaudible] >> right. >> [laughter] >> think of where we started this year. >> yeah. >> the market was priced in a recession. professional forecasters had a recession. a majority of forecasters had recession. when you are sitting at the beginning the year you said, what do we do? do we take a lot of credit risk or equity risk? everybody's saying there's going to be rate cuts and a recession. do you think people took a lot of credit risk and equity risk? they didn't. they took duration risk. because that is where they thought they would make money and the fixed income guys have been buying to ration from 332 350 to 370 because that was the trade, if you believed we were going to slow down --

>> and now the rate has blown up. >> and they have gotten killed. >> exactly. >> the market was miss -- for the growth that there was. >> so put a pin in it for investors then. on the one hand we have people saying we are going to have a rip roaring rally into year and. on the other side, people are saying the 60 40 portfolio is dead. what would you [inaudible] >> i think we are in a much more sensibly priced structure then we were even two or three months ago when we're pricing at 125 basis points with rate cuts next year with december of this year at december of next year. if the market is in a better place, the rate structure is in a better place. a lot of people have lost a lot of money. i don't how much more there is to go on the fixed income re-pricing. maybe the bad positions need to get flushed and you go to five or five and a quarter. the fed wants to slow it down. they want people to pull back on projects and they want people, it sounds bad, but they

want people to get fired. they want the unemployment rate at a more comfortable race. so all of that is going in the right direction for the fed. i will say, steve, that the bigger picture story of how this market goes into the end of the year is if we are at a higher wheel rate, or higher neutral real rate structure, for the next couple of years, that hurdle for capital gains and equity is so much higher. >> yeah. >> so it's a trade. i tell all our investors collect carry. go to quitted, stay out of duration. we have been leveraged loans, cielo's -- >> isn't that even starting to turn? >> absolutely. look, the [inaudible] market has been wonderful because [inaudible] they are doing great. that is the place i am telling people -- high yield is generally some five year. it's not long duration. you look at the [inaudible] earned total for the year versus [inaudible]

and [inaudible] is performing significantly and rightly so. >> they are trying to get into the idea that there may be some default risk in there. tom is 100% right. there are more risks on the horizon now >> one point point though. i am as tall or taller than tom, but because of the shot that tom appears to have paid extra for, he appears taller. >> [laughter] >> i want that clear. >> [inaudible] >> thank you very much. we appreciate it today. tom -- , david, and our own steve [inaudible] let's get the latest from the drama in d.c. at the kevin mccarthy yesterday became the first ever house speaker to be voted out of that position. lawmakers are now treading water weeks ahead of another potential shutdown. here to discuss that impact from washington to wall street

is jerry cite, former executive washington editor at the wall street general, and -- financial services and policy analyst at the decal in washington research group. welcome to both of you. journey, i feel like we asked if you could come out of retirement for this because it's just extraordinary the past 24 hours. what are your thoughts? >> well look, it doesn't feel like i can better retirement because the story hasn't changed. there are three things to keep in mind here. one is that we are in totally uncharted waters here. no one's ever done this before. so i don't know what happens next, but the second point is that this is just a continuation of a decade plus long fight with the republican party between more traditional conservatives and more populist republicans. you know, john boehner got worn out by that at one away. paul ryan got worn out and went away. -- got kicked out and now kevin mccarthy. this is a struggle that has not resolved. it is underway and continuing, and it will continue, which will produce continued

uncertainty. i think that leads to the third point here, which is nothing has been resolved. we have no answer to any questions about who's going to be the leader that emerges from all of this much less -- much less how the house is going to resolve any issues about spending and immigration and ukraine. that threatened to shut the government a week ago, and that will threaten to shut the government again. >> jerry, you are sort of pointing out that we are in uncharted territory, especially when it comes to handling the spending bill. >> right. exactly. i think the big challenge here is that we have an acting speaker. we've never had this before. no one really knows what powers he has. in fact, you might be much more powerful than everyone realizes. if nobody objects? he might be the one who has to take the arrow for the rest of the republican conference, cut a deal, and then you can have the leadership election for speaker, because otherwise, you

know, as we were just discussing, i don't know how they get to a deal on the budget. the very detail that caused kevin mark are the to lose his job, that is the same deal that the new republican leader -- it's not like there's going to be radical change. >> jerry, what would you say to investors here. ? i'm not sure which investors and even talking about. right? if there's treasury of esters who are worried about the deficits. there's investors and all sorts of policy areas that could to -- potentially be affected by this. what jumps to the forefront of your mind? >> [inaudible] any other legislation done until the lame duck. if there's a bill you are worrying about, that work can be a lot less. the possible exception is flood insurance. there has to be a deal on flood experience. i can't believe we are really

going to shut down 9000 mortgage closing the week after november 17th. but beyond a couple of few things, i would essentially view this congress as closed until after the election. >> what further implications do you see from that? >> i think, first of all there's one big one that does not affect the markets directly but that i think is very important, which is aid to ukraine. it will be hard in this environment. that is an important priority. it saying out there is a big question mark. the idea you are going to have some kind of a coming together now, as you have it had in the past decades, having a sensible package that addresses the deficit with that creating shockwaves. that has been done in washington periodic over the last two decades. i just don't see how it happens in this environment. if anyone is looking for sensible fiscal policies to come out of this scenario, in this picture that we are

talking about, will be sorely disappointed. that is the thing that would worry me. how do you resolve very important issues in a time when that does matter to the markets? i don't see it happening. >> fair enough. jared, last word. go ahead. >> i was just going to say if i could ask [inaudible] don't forget what's looming on the horizon. all of the trump tax cuts, all of the key ones for business, as soon as those start expiring in 2025, so someone will have to get the money to fund that, and we will need both sides of the aisle to come together on that. if we can't even fund the government, i do think the risk of what is going to have been to all those tax cuts is much higher than the market is taking. >> guys, thank you both. we appreciate your thoughts today and a hectic 24 hours in washington. it's not over yet. jared seabrook and jerry sides. appreciate very much.

coming up, the ten year yield on the back of all of this. 16 year highs this morning. which companies are most at risk of soaring borrowing costs? that's coming up next with our trader warning of new payments on the way. plus, -- comes after a decade long boot in credit, but are those companies similarly at risk of higher than expected default? we will speak with the head of morgan stanley's private credit business about the sectors and criteria their landing two in tight environments. as we head to break, use [inaudible] as the games are evaporating. up seven points, but the s&p has a bit more margin -- much bigger margin for the nasdaq. the [inaudible] lower than three points at the ten year yields have pulled back to [inaudible] the exchanges back after this. in the u.s. we see millions of cyber threats each year. that rate is increasing as more and more businesses

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yields are pulling back today, but still near 16 year highs. my next guest says there's more pain to come, but that will bring us back to [inaudible] fundamentals. what names should you stay away from and where are the best opportunities? joining me now is gene at sanchez, the market strategist -- and this is three bails and a buy, because with rising rates they are vicious. welcome. let's start with the this isn't really a stop, what an important want to highlight because some people have been bottom fishing right out. 16% since july. i heard it's lost half its value from the highs, but you would still not be a buyer of this long treasury bond would? you >> know we wouldn't. we are looking, you know, the yield curve has been inverted for so long. predicting a recession that just won't come. even though we will probably get a bit of a slowdown, at the end of the day the short and is not coming down. that means in order to get a

normal yield curve, -- has to come up and it hasn't done so yet. it still has to continue to [inaudible] price in at least some semblance of growth, and probably slightly higher permanent inflation than we are used to. other factors that will keep inflation a little higher than we have gotten used to. that long and has a lot more pain to go. >> that's kind of the perfect back drop to segue into some of your stocks, which could be under pressure as a result, namely ford. a lot of people talking about this because of the union strikes. down more than 20% since the summer. they also have a high debt load. >> the problem with ford is they've taken quite a bit of debt during the pandemic. a third of that death is coming due in the next 12 months. that is a big chunk of debt to have to refinance at significantly different rates. so profitability is already under pressure. they are having a lot of issues

with getting their ev game on. the strikes do not help. there's a lot of issues pushing the business. on top of that, higher yields for a third of its debt load. that is a big challenge. i think it's a good example of companies whose debts are about to come do? be careful with those. >> but that has been plaguing the company for a very long time, and it's like the worst possible time for it to be coming to a head. speaking of -- that is your next stop. also getting a lot of attention. down nearly 60% over the past three months because of this pressure, and it hit all-time lows yesterday. so it's under a four dollar stock at this point. >> the problem with pepco is that they have a problem with floating rate debt. it's not like a bunch of fixed rate debt that you can -- [inaudible] and profitability is under pressure. we are seeing them drive down on profitability. i think they will remain under pressure regardless of how

resilient you think the cat food market is. this company will have continuing troubles for buying profitability, and in a higher interest rate environment you don't get great multiples. so you have to perform. you have to be profitable. this is going to be a challenge. >> yeah. this feels like a market [inaudible] doesn't matter if you are in the pet food market, it's just the balance sheets [inaudible] so the one you would be buying is costco. 24% this year. we know it's a stalwart business, but you would think especially in this tough rate environment. >> yeah. this is a company that has a whistle clean balance sheet. this is a company that probably has more cash than that right now. that is huge. cash is king when interest rates are going up. on top of that, this is also a company that is very defensive. it's the kind of company you want to own in a slowdown, when people are feeling tight. if you look just today, or yesterday, we saw a [inaudible] stat that came out of the fed showing the sort of lowest

socioeconomic sectors of the economy are more or less out of savings. that is to say that they are going to have a hard time paying basic costs. costco is where you go when you are trying to save money. >> p e nearly 37. incredible, but again they are being rewarded for having the kind of right choices. gina, thank you so much for your time today. we appreciate it. >> thank you, kelly. >> three balls and a buy. jean sanchez. coming up, a welcome break for consumers with oil falling more than 3% today. now down 8% from last week, 95 dollar recent big. we will look at what is driving prices lower at what opec is signaling after wrapping up its virtual meeting today. for investors, a drop in crude is dragging the energy sector lower. it is the worst performer in the s&p followed by utilities, which are now at the lowest level since summer of 2020. the exchange is back after this. this. down

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exchange. crude oil is back below $85 a barrel almost, as the sell-off deepens today. it's down almost 5%. biggest one day drop since june. gasoline futures also under pressure, down more than 6%. in fact, at their lowest level of the year right as opec has wrapped up its virtual meeting today. brian sullivan is here with the latest. those opec have something to do with it? these are pretty big declines. >> isn't it amazing? at least on paper, there are 3.3 million barrels a day of cuts. 2 million from opec. we know it's not the actual number because some countries don't meet their quota. 1 million extra from saudi arabia and 300 extra as a cherry on top from russia. still, we've got these extended cuts throughout the end of the year, and maybe longer, and the price of oil is down today, but

let's also not lose sight of the fact that oil is 40% higher than it was 40 years or -- four years ago. >> so we knew that opec had been keeping barrels of the market, the saudis in particular have been keeping the price high, but i guess they had two options. they could either increase the cuts because they think that oil is going down, and just help me out, brian. >> it's like the new math when you have kids and they change division. what happened to the remainder? i don't know. so opec is worried about a recession. okay? they will say they don't target prices. we can disagree on that, whatever. they are worried about recession, about china. you look at chinese demand, it's not really recovered. gasoline demand in america, by the way? the data that came out about an hour ago? it shows i think some of the lowest of the year. >> really? >> you wonder if that signals something. that aside, oil is still high. gasoline in california on average according to aaa's $5.97. >> wow.

>> opec is setting the stage, this was a virtual meeting, for the in-person meeting on november 26th. the sunday after thanksgiving. thank you, opec! because we are going to be there, i think. we will see if we can get out of the family obligations. so they are setting the table. there's a lot of geopolitical stuff going on with the normalization between saudi arabia and israel. that is massive. how does iran react to that if and when it happens? according to u.s. data, kelly, we are 12.9 billion barrels a day. the record high was 13, although traders i talked to say they don't really trust the -- numbers because they think there's other liquids thrown into the pure oil. >> it would be nice if we had seen the highs for the year for consumers. granted, i don't mean this for energy investors obviously, but they can do well with oil roughly in this range. what you don't want to see is the price spikes. we are a ways from it, but heading in that neighborhood. >> prices go up. people are going to drive less. especially out west.

seattle? san francisco? los angeles? the prices there are easily over $6. you don't buy gas right off the interstate, that is where it's most expensive. opec will say they are trying to manage and balance out the market for what they see. you can dislike it but i will tell you what, opec in some ways has been right. everybody thought china was going to come blasting out of covid and they were just going to start driving everywhere and flying everywhere. they are not. david zervos would probably be perfect for this. david, come back! why isn't the china economy recovering the weight many thought it would? that's a big question. let's throw up the graph again. utilities by the way, [inaudible] not exxon, excellent, which is an excellent on. they are a huge utility in the midwest. mark fischer, big oil guy, last call seven pm. >> we have so much more to talk. that's why you have the whole show. thank you so much. >> [inaudible]

>> let's get to tyler matheson for cnbc news update. tyler? >> uruguay, paraguay and argentina will each post an opening match to celebrate the 100 years since the first world cup. spain, portugal and morocco will then co-host the tournament. the first game of the tournament is in uruguay. it will be hosted in the stadium that held the tournament of the first ever final back in 1930. uber is now offering to return your packages for you. both hubert and uber eats will provide a return package feature that will allow customers to send up to five packages back to a u.p.s., fedex, or usps location. the service costs a flat fee of $5, and $3 for uber one members. it's available in dozens of major metro areas across the country. and just in time for halloween, a steep rise and the price of cocoa and sugar are set to hit lovers of candy. sugar prices hit their highest level in 12 years recently. cocoa reaching a four decade

high. the increase is being driven by supply figures, extreme weather conditions in asia and west africa, threatening production, kelly. >> then i am handing out candy corn. tyler, thank you. tyler matheson. coming up, i share what you had corporate bond etfs summing up and hovering near its lowest level of the year, as yields surge among concerns about rising defaults. does that put the private credit industry at risk as well? we will ask morgan stanley's head of private lending about that next. together, we built something truly beautiful. it takes years of dedication to get to this milestone. the new york stock exchange is a symbol of what america is all about, the potential of an american dream. it is day one.

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exchange. the private credit industry exploded during the era of ultra low interest rates. according to data from -- the global private credit mark has tripled just since 2015, and is expected to grow to 2.3 trillion dollars in the next four years. it has also become an important source of capital and private equity -- and not recognized as an alternate investment, gaining popularity in investor portfolios. but could the industry face steeper than expected losses amid soaring interest rates? my next guest says no. he's coed a private credit at morgan stanley investment. welcome to you. >> good to be with you. >> private credit for a lot of people sounds complex and complicated. what are we talking about exactly? >> at its core it's really the lending function broken down into a direct relationship between the lender slash

investor, and the borrower. you have a bilateral negotiated deal that each party agrees to it gets [inaudible] the reason why we think it makes a lot of sense is you have the time to do your underwriting and put in place loan agreements with times your constable with. >> what proportion of the debt is floating? >> most of it. i would wager a yes, close to 90% if not more. >> that would be great for the investors if floating rates were going from six to 8% or something. now i wonder, this week especially, if rates are getting so high that we are starting to see investors flip and worry about defaults. we used petticoat as one example. [inaudible] how much of a default problem could the industry be facing it yields stay where they are for a lot of these companies? >> that's a great question. if this one we are focused on. ultimately, it will depend upon where the economy goes. if you think about it, most of the private credit lending is

at the top of the bounce sheet. the most secure part in the [inaudible] most often you have other institutional investors alongside you, equity, subordinated debt, et cetera. you tend to be in a spot where incentives are aligned, and everyone wants to work toward an outcome. that being said, the closest proxy to a default cycle is tracking middle market loan data going back 15 years. what we have observed is, when you look at the data, it's actually tended to perform better than -- indicators and public credit. that's a function for a few factors, but that is what the data suggests. >> very few people in the public market or broadly speaking have been through a [inaudible] in their careers. now the entire industry is about to be tested by an expense it's never been through before. [inaudible] >> not in the form that it is today. it was a sort of niche

industry. it has scaled. it's got an investor appetite and allocation. that is generally a good thing because you want more sources of capital at the table. lending occurred of course, always in private markets, but not at the scale we are seeing today. >> so what do you think the next six or 12 months look like? as you said, so much depends on the economy. if companies start to run into trouble [inaudible] i guess at some point they could come to the bank and try to work it out. what happens in this case? how does that adjustment work if one needs to be made? >> i think you will find that 99% of the time that people tend to be rational about what needs to get done. there's a few options you can build down. usually, proactive management is the way you do it by raising incremental capital. it equity, structured equity, some kind of structured solution. there's a large and growing market for that as well. asset sales, cost of litigation, we are focused on the front

foot investing into the environment, but we have portfolios to manage and that is topic number one for all portfolio companies. >> where do you feel most comfortable still extending credit? >> in the most -- sectors. height free cash flow generation, typically asset light industries, because they don't [inaudible] so we have a tremendous amount of operating earnings to cash flow conversion, and that will remain the case because it gives you a buffer when things go sideways. that is what we always underwrite also. >> does that mean technology asset light? or is technology a big part of this? >> yes. software. long predictable contracts. a lot of free cash flow. business services. insurance brokerages. typically assets and companies where there has been a good amount of private credit capital formation. that would lead you to believe that the default outcomes would also be reasonably robust. >> absolutely. we really appreciate you coming in to talk to us about it today. an interesting juncture i would say for this whole industry. we appreciate your time.

thank you. still ahead, the dow negative by eight points again. now on track for a four day losing streak, but the nasdaq clocking the biggest gain. we were just talking about software. it's about -- up about three quarters 1%. tesla is one of the best performers on the nasdaq 100 today as well. morgan stanley's adam jonas reiterating [inaudible] but warning sales numbers to show teslas ev market share is falling and now sits at less than 50%. we wl t ilgea check on that and other big movers next.

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welcome back to the exchange. dow is negative just by six points. high, 130 positive, low 130 negative. s&p up 12 points. nasdaq driving the gains. tesla is helping with that. still ahead, crude oil lower today and down 9%. carter werth warned that drop was coming saying he wasn't

buying the street hype that the dollar yields and oil could keep moving higher. moving higher. crude is the fstir to drop, ar ♪ (when the day that) ♪ ♪ (lies ahead of me) ♪ ♪ ( seems impossible to face) ♪ yields next? he'll tell us after the break. ♪ (a lovely day) ♪ ♪ (lovely day) ♪ ♪ (lovely day) ♪ ♪ (lovely day) ♪ a bank that knows your business grows your business. bmo. ♪ ♪ a bank that knows your business grows your business. every day, businesses everywhere are asking: is it possible? with comcast business... it is. is it possible to help keep our online platform safe from cyberthreats? absolutely. can we provide health care virtually anywhere? we can help with that. is it possible to use predictive monitoring to address operations issues? we can help with that, too.

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welcome back to the exchange. yields testing new 2007 highs today while the dollar sits at year highs but my next guest isn't buying the hype on either, saying both are due for a pull back. carter, great to see you again. welcome. i was going to say but maybe you were going to say it for me. which one do you have the most conviction about right now? >> well, i think in tandem rates surging, oil surging, dollar surging. it's about sequencing. t when something is overdone. usually it's right to be on trend, to respect trend, but we have a circumstance and you're seeing it now in oil market. first where everyone's on one side all the of a sudden, we 10

nowhere. it's the same set up in may, june. oil was at $65 a barrel. it was consensus. we're going a lot lower. recession, hard landing, then we're going to 100. oil's got much more to go. so i think when you get so much crowding and sequence calls for a countertrend try to play for it. so that brings up yields and the dollar. it's the same thing. think in may, june, right in there, the dollar was basely at 52-week lows. rates were at 3.5. hard landing. whether it's to the downside or upside, one should try and my judgment is timing here is to be buying bonds and to be fading the dollar. >> so this all to you is related. meaning a lot of fundamental people would say the same thing. you see yields falling, dollar falling, oil falling. what else, how does that fit in

with, i know all year, we've talked about the stock market and this kind of strange liftoff we saw in the first half and you'd probably also say it's decline fits with this pattern as well. >> the real question, this happens all the time with clients, if you're thinking the dollar rules here, you've got to be in the stock market. the thing about relationship, there's inverse relationships and there are direct relationships and they're not always quite as sort of perfect as one would think. let's take this. for instance, if there's a perfect inverse relationship between crude and the dollar, the dollar's surging over the last five month, crude should be down. yet crude was rallying. these things are good until they're not. even here on the chart on the dollar that's on the screen, that's a steep and uncorrected intermediate move and countertrend moves, whether going up or down, are part of charts and investing. >> quickly, because i can't

resist sneaking this in in the last five seconds we have. are you in the kind of year end stock market rally camp? >> no, i think you can get which is the real issue, you can have lower rates. >> ah, you were building up to that and i didn't even let you. carter, at least we got it in. thank you so much for your time today. carter worth of worth charting. something to ponder. we've been following this story all week in the largest healthcare strike in history. 7,000 kaiser permanente workers are on strike as negotiations are ongoing. this is a live picket line in san diego. the strike is expected to last just three days. in its latest release, the coalition of unions says in recent days, executives maintaining aggressive threats of outsourcing became a sticking point in negotiations. especially at a time when the company is failing to retain key employees. in a year of many historic

first, here's another one of them. that does it for the exchange, everybody. stick around for more analysis on the markets and economy. you can sign up for my newsletter. and next on "power lunch," an apple downgrade at key bank. we've got the analyst behind the call with the nasdaq outperforming today, actually. tile tyler's getting ready. i'll join him on the other side of the break.

welcome to "power lunch", everybody. literally alongside kelly evans for a change. coming up, there's one main market issue right now and that is the sudden rise in bond yields and the impact it is having on the markets. we will look at all the angles of how this move impacts your money and your investments. >> and let's take a look at stocks right now because the dow has given up its gains. we're down